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 (AMENDMENT NO. )
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))
SCHERING-PLOUGH CORPORATION
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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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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] 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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(4) Date Filed:
[SCHERING-PLOUGH LOGO]
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
APRIL 23, 2002
------------------
The Annual Meeting of Shareholders of Schering-Plough Corporation (the
"Corporation") will be held at the Sheraton at Woodbridge Place, 515 Route One
South, Iselin, New Jersey, on Tuesday, April 23, 2002, at 2:00 p.m. to:
(1) Elect four directors for terms of three years;
(2) Act upon the ratification of the designation of Deloitte & Touche
LLP to audit the books and accounts of the Corporation for 2002;
(3) Act upon a proposal to approve the adoption of the 2002 Stock
Incentive Plan;
(4) Act upon a shareholder proposal concerning pharmaceutical pricing;
and
(5) Transact such other business as may properly come before the
meeting.
Only holders of record of Common Shares at the close of business on March
1, 2002 will be entitled to vote at the meeting or any adjournments or
postponements thereof.
If you are a shareholder of record and plan to attend the meeting, please
detach and retain the admission ticket which is attached to your proxy card. If
you are a shareholder whose shares are not registered in your own name and you
plan to attend, you may obtain an admission ticket in advance by sending a
written request, with evidence of stock ownership, to the Office of the
Secretary, Schering-Plough Corporation, 2000 Galloping Hill Road, Kenilworth,
New Jersey 07033. Evidence of your stock ownership can be obtained from your
bank, broker, etc. Admission to the meeting will be on a first-come,
first-served basis. For your convenience, driving directions to the Sheraton at
Woodbridge Place are printed on the back cover of the proxy statement.
JOSEPH J. LAROSA
Secretary
Kenilworth, New Jersey
March 11, 2002
Schering-Plough Corporation
2000 Galloping Hill Road
Kenilworth, New Jersey 07033
March 11, 2002
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PROXY STATEMENT
------------------
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Schering-Plough Corporation (the
"Corporation") to be voted at its Annual Meeting of Shareholders on April 23,
2002 and any adjournments or postponements thereof. The Annual Report of the
Corporation for 2001, including financial statements for the year ended December
31, 2001, and this Proxy Statement and the accompanying form of proxy are being
mailed commencing on or about March 11, 2002 to all shareholders of record as of
the close of business on March 1, 2002.
ABOUT THE MEETING
WHAT AM I VOTING ON?
- Election of four directors (Hans W. Becherer, Regina E. Herzlinger,
Kathryn C. Turner and Robert F. W. van Oordt) for terms of three years;
- Ratification of the designation of Deloitte & Touche LLP to audit the
books and accounts of the Corporation for 2002;
- Approval of the 2002 Stock Incentive Plan; and
- Shareholder proposal concerning pharmaceutical pricing.
WHO IS ENTITLED TO VOTE?
Only shareholders of record at the close of business on the record date,
March 1, 2002, are entitled to vote shares held on that date at the Annual
Meeting. Each outstanding share entitles its holder to cast one vote.
HOW DO I VOTE?
Vote By Mail: Sign and date each proxy card you receive and return it in
the prepaid envelope. If you return your signed proxy but do not indicate your
voting preferences, your shares will be voted on your behalf FOR the election of
the four nominated directors, FOR the ratification of the designation of
Deloitte & Touche LLP to audit the books and accounts of the Corporation for
2002, FOR approval of the 2002 Stock Incentive Plan and AGAINST the shareholder
proposal concerning pharmaceutical pricing.
Vote By Telephone or Via Internet: If you are a shareholder of record
(that is, if you hold your stock in your own name), you may vote by telephone or
via the Internet by following the instructions on your proxy card. The telephone
number is toll-free, so voting by telephone is at no cost to you.
If your shares are held in the name of a bank, broker or other holder of
record (i.e., in "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 will be offered to shareholders owning
shares through most banks and brokers.
If you vote by telephone or via the Internet you do not need to return your
proxy card.
CAN I ACCESS THE PROXY MATERIALS AND ANNUAL REPORT ELECTRONICALLY?
This Proxy Statement and the 2001 Annual Report are available on the
Corporation's Internet site at www.schering-plough.com.
CAN I CHANGE MY VOTE?
Yes. You may change your vote at any time before the proxy is exercised.
If you voted by mail, you must (a) file with the Secretary of the Corporation a
written notice of revocation or (b) timely deliver a valid, later-dated proxy.
If you voted by telephone or via the Internet, you may change your vote with a
later telephone or Internet vote, as the case may be. Attendance at the Annual
Meeting will not have the effect of revoking a proxy unless you give written
notice of revocation to the Secretary before the proxy is exercised or you vote
by written ballot at the Annual Meeting.
WHAT CONSTITUTES A QUORUM?
The presence at the Annual Meeting, in person or by proxy, of the holders
of a majority of the common shares outstanding on the record date will
constitute a quorum. As of January 31, 2002, the Corporation had outstanding and
entitled to vote at the Annual Meeting 1,465,570,447 Common Shares, par value
$.50 per share ("Common Shares").
Abstentions and broker non-votes are counted only for purposes of
determining whether a quorum is present at the meeting.
WHAT VOTE IS REQUIRED TO APPROVE EACH ITEM?
The affirmative vote of a plurality of the votes cast at the meeting by
shareholders entitled to vote thereon is required for the election of directors.
For the ratification of the designation of Deloitte & Touche LLP, approval of
the 2002 Stock Incentive Plan and for approval of the shareholder proposal
concerning pharmaceutical pricing, the affirmative vote of a majority of the
votes cast on the item by shareholders entitled to vote thereon will be
required.
Abstentions and broker non-votes will not be included in determining the
number of votes cast concerning any matter. Under the rules of the New York
Stock Exchange, absent instructions from the beneficial owners, brokers who hold
shares in street name for beneficial owners have the authority to vote on the
election of directors and the designation of auditors and the 2002 Stock
Incentive Plan, but not the shareholder proposal.
WHAT ARE THE BOARD'S RECOMMENDATIONS?
Unless you give other instructions when you vote, the persons named as
proxy holders will vote:
- FOR election of the four nominated directors;
- FOR ratification of the designation of Deloitte & Touche LLP to audit the
books and accounts of the Corporation for 2002;
- FOR approval of the 2002 Stock Incentive Plan; and
- AGAINST the shareholder proposal concerning pharmaceutical pricing.
With respect to any other matter that properly comes before the Annual
Meeting, the proxy holders will vote as recommended by the Board of Directors
or, if no recommendation is given, in their own discretion.
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ELECTION OF DIRECTORS
Pursuant to the Corporation's Certificate of Incorporation, the Board of
Directors is divided into three classes, the terms of which expire successively
over a three-year period. Four directors are to be elected at this Annual
Meeting to hold office for a term of three years expiring at the 2005 Annual
Meeting and until successors shall have been elected and qualified. In the event
one or more of the named nominees is unable to serve, the persons designated as
proxies may cast votes for other persons as substitute nominees. The Board of
Directors has no reason to believe that any of the nominees named below will be
unavailable, or, if elected, will decline to serve.
Biographical information is given below for each nominee for director, and
for each director whose term of office will continue after the Annual Meeting.
All of the nominees are presently directors and were previously elected by the
shareholders, except Kathryn C. Turner, who was elected by the Board effective
June 1, 2001. Mr. H. Barclay Morley and Mr. James Wood will retire from the
Board as of the Annual Meeting date.
NOMINEES FOR DIRECTOR
TERM TO EXPIRE 2005
NOMINEE AND YEAR
FIRST ELECTED PRINCIPAL OCCUPATION
A DIRECTOR AND OTHER INFORMATION
---------------- ---------------------
[Hans W. Becherer Retired chairman, chief executive officer and chief
PHOTO] operating officer of Deere & Company (manufacturer of
mobile power machinery and supplier of financial and
HANS W. BECHERER health care services). Mr. Becherer, 66, was associated
1989 with Deere & Company from 1962 until his retirement in
2000. He was elected president and chief operating officer
of Deere & Company in 1987, president and chief executive
officer in 1989, and chairman and chief executive officer
in May 1990, and assumed the duties of chief operating
officer in 1996. Mr. Becherer is a member of the board of
directors of Honeywell Inc. and J.P. Morgan Chase & Co. He
is also a member of the Business Council.
Regina E. Herzlinger Nancy R. McPherson Professor of Business Administration,
Photo Harvard Business School since 1971. Professor Herzlinger,
58, is a director of C.R. Bard Inc., Nanogen, Inc., Noven
REGINA E. HERZLINGER Pharmaceuticals, Inc. and Zimmer Holdings, Inc.
1992
Kathryn C. Turner Chairperson, chief executive officer and president of
Photo Standard Technology, Inc. (management and technology
solutions firm) since 1985. Ms. Turner, 54, serves on the
KATHRYN C. TURNER board of directors of Phillips Petroleum Company and
2001 Carpenter Technology Corporation. Ms. Turner also serves
on the boards of the National Capital Area Council of the
Boy Scouts of America and Children's Hospice
International.
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NOMINEE AND YEAR
FIRST ELECTED PRINCIPAL OCCUPATION
A DIRECTOR AND OTHER INFORMATION
---------------- ---------------------
[Robert F.W. van Chairman of the Supervisory Board of Rodamco Europe N.V.
Oordt PHOTO] ("RE"), one of the largest real estate investment
companies in Europe. Mr. van Oordt, 65, has served as
ROBERT F.W. VAN chief executive officer of RE from March 2000 to June
OORDT 2001. Mr. van Oordt served as chairman of the executive
1992 board of NV Koninklijke KNP BT (producer of paper, board
and packaging products; and distributor of graphic paper,
graphic and information systems and office products) from
March 1993, following the merger of three leading
Dutch-based industrial corporations, including
Buhrmann-Tetterode N.V. ("BT"), until his retirement in
April 1996. From 1990 until March 1993, Mr. van Oordt
served as chairman and chief executive officer of BT. Mr.
van Oordt is a member of the Supervisory Boards of Nokia
Corporation, Fortis Bank N.V., n.v. Umicore s.a. and Draka
Holding N.V. He is also Chairman of the Advisory Council
of PricewaterhouseCoopers N.V. and is a member of the
International Advisory Board of Nijenrode University. He
serves as Chairman of the Foundation for Business in the
Arts in the Netherlands and is a senior member of the
Conference Board.
DIRECTORS CONTINUING IN OFFICE
TERM TO EXPIRE 2003
DIRECTOR AND YEAR
FIRST ELECTED PRINCIPAL OCCUPATION
A DIRECTOR AND OTHER INFORMATION
----------------- ---------------------
[Carl E. Mundy, Jr. Retired general, former commandant of the Marine Corps.
PHOTO] General Mundy, 66, entered the Marine Corps in 1953. He
held senior positions of operational command and top-level
CARL E. MUNDY, JR. management prior to appointment as commandant and Joint
1995 Chiefs of Staff member in 1991. He led the Marine Corps
and served as military adviser to the President and
Secretary of Defense from 1991 to 1995. He is past
president of worldwide operations of the United Services
Organization. General Mundy is a director of General
Dynamics Corporation and NationsFunds. He also serves as
chairman of the Marine Corps University Foundation, is a
member of the boards of advisors to the Comptroller
General of the United States and to the Navy League of the
United States, and is a member of the Council on Foreign
Relations.
[Patricia F. Russo President and chief executive officer of Lucent Technologies
PHOTO] Inc. (communications) since January 2002. Ms. Russo, 49,
was president and chief operating officer of Eastman Kodak
PATRICIA F. RUSSO Company from April 2001 and director from July 2001, and
1995 non-executive Chairman of Avaya, Inc. since December 2000,
until she assumed her current position with Lucent. Prior
to that, Ms. Russo was executive vice president and chief
executive officer of the Service Provider Networks
business of Lucent from November 1999 to August 2000,
having served as executive vice president of strategy,
business development and corporate operations from January
1997 to October 1999, and from 1992 to 1996 as president
of Lucent's Business Communications Systems unit (formerly
a unit of AT&T Corp., now Avaya Inc.). She joined AT&T in
1981, and held various management and executive positions
at AT&T. She is a member of the board of Georgetown
University.
4
DIRECTOR AND YEAR
FIRST ELECTED PRINCIPAL OCCUPATION
A DIRECTOR AND OTHER INFORMATION
----------------- ---------------------
[Arthur F. Weinbach Chairman and chief executive officer of Automatic Data
PHOTO] Processing, Inc. (independent computing services). Mr.
Weinbach, 58, has been associated with ADP since 1980,
ARTHUR F. WEINBACH assuming his current position in April 1998, having served
1999 as president and chief executive officer since 1996 and
president and chief operating officer since 1994. Mr.
Weinbach serves on the boards of directors of First Data
Corp., Boys Hope and United Way of Tri-State. He is on the
boards of trustees of New Jersey Seeds and New Jersey
Institute of Technology.
DIRECTORS CONTINUING IN OFFICE
TERM TO EXPIRE 2004
DIRECTOR AND YEAR
FIRST ELECTED PRINCIPAL OCCUPATION
A DIRECTOR AND OTHER INFORMATION
----------------- ---------------------
[Richard Jay Kogan Chairman, chief executive officer and president of the
PHOTO] Corporation. Mr. Kogan, 60, joined the Corporation as
executive vice president (pharmaceutical operations) in
RICHARD JAY KOGAN April 1982, was president and chief operating officer from
1982 January 1986 to December 1995, and president and chief
executive officer from January 1996 to November 1998 when
he became chairman and chief executive officer. Mr. Kogan
assumed the additional position of president in December
2001. Mr. Kogan is a director of Colgate-Palmolive Company
and The Bank of New York Company, Inc., and a director and
past chairman of Pharmaceutical Research and Manufacturers
of America. He also serves on the boards of St. Barnabas
Corporation and Medical Center and on the Board of
Trustees of New York University and is a member of the
Business Roundtable and the Council on Foreign Relations.
[David H. Komansky Chairman and chief executive officer of Merrill Lynch & Co.,
PHOTO] Inc. (securities and investment banking). Mr. Komansky,
62, has held a variety of management positions in Merrill
DAVID H. KOMANSKY Lynch's major business areas since joining Merrill Lynch
2000 in 1968. Prior to assuming his current positions of
chairman of the board of Merrill Lynch in April 1997 and
chief executive officer in December 1996, Mr. Komansky
served as president and chief operating officer from
January 1995. Among many professional and civic
affiliations, Mr. Komansky is vice chairman of the board
of the New York Stock Exchange and a trustee of the
American Museum of Natural History. During 2001, Merrill
Lynch, through certain of its subsidiaries, provided to
the Corporation in the ordinary course of business,
investment banking, financial advisory and other services.
The Corporation expects to continue engaging Merrill Lynch
to provide similar services in 2002.
5
DIRECTOR AND YEAR
FIRST ELECTED PRINCIPAL OCCUPATION
A DIRECTOR AND OTHER INFORMATION
----------------- ---------------------
[Eugene R. McGrath Chairman, president and chief executive officer of
PHOTO] Consolidated Edison, Inc. (energy company). Mr. McGrath,
60, has been associated with Con Edison since 1963. He
EUGENE R. MCGRATH assumed his current position in October 1997, and has
2000 served as chairman and chief executive officer of Con
Edison's subsidiary, Consolidated Edison Company of New
York, Inc., since September 1990. He also serves as a
director or trustee of Atlantic Mutual Insurance Company
and the Edison Electric Institute. Mr. McGrath is a member
of the executive committee of the Energy Association of
New York State. He is also chairman of the 14th
Street-Union Square Local Development Corporation, and a
director or trustee of the American Museum of Natural
History, the Committee for Economic Development, Barnard
College, Manhattan College and the Wildlife Conservation
Society.
[Donald L. Miller Retired chief executive officer and publisher of Our World
PHOTO] News (newspapers). Mr. Miller, 70, founded Our World News
in 1995 and had served as chief executive officer and
DONALD L. MILLER publisher since its inception. He served as vice president
1997 of employee relations of Dow Jones & Company from 1986 to
1995. Mr. Miller is a director of The Bank of New York
Company, Inc. He is chairman emeritus of Associated Black
Charities of New York. Mr. Miller served as a Deputy
Assistant Secretary of Defense from 1971 to 1973.
[Richard de J. Retired chairman and chief executive officer of ASARCO
Osborne PHOTO] Incorporated (non-ferrous metals producer). Mr. Osborne,
67, was chairman and chief executive officer of ASARCO
RICHARD DE J. from 1985 to 1999. Mr. Osborne is the non-executive
OSBORNE Chairman and a director of Datawatch Corporation, and a
1988 director of The Goodrich Corporation, Birmingham Steel
Corporation, NACCO Industries, Inc. and The Tinker
Foundation. He is former chairman and director of the
International Copper Association, the Copper Development
Association, the Silver Institute and the National Mining
Association. He is also a director and treasurer of the
Americas Society and the Council of the Americas. Mr.
Osborne is a member of the Council on Foreign Relations
and the Economic Club of New York.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Corporation has a standing Finance,
Compliance and Audit Review Committee, Executive Compensation and Organization
Committee, Pension Committee and Nominating and Corporate Governance Committee,
each consisting exclusively of non-employee directors.
FINANCE, COMPLIANCE AND AUDIT REVIEW COMMITTEE
MEMBERS: Mr. Osborne (Chair), Mr. Becherer, Professor Herzlinger, Mr.
Morley, Mr. van Oordt, and Mr. Weinbach
NUMBER OF MEETINGS IN 2001: Five
FUNCTIONS:
- Reviews and recommends to the Board dividend policies and actions
- Oversight of corporate borrowing and investment activities
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- Oversight of internal audit activities
- Recommends to the Board the engagement of independent auditors
- Reviews the professional services to be rendered by the independent
auditors, the scope of their audit, their fees, the independence of the
independent auditors, and the results of their engagement and meets
regularly and privately with the independent auditors and the internal
auditors
- Oversight of litigation, insurance and risk management activities
- Oversight of compliance with business conduct policy
The independent auditors have unrestricted access to the Committee
EXECUTIVE COMPENSATION AND ORGANIZATION COMMITTEE
MEMBERS: Mr. Wood (Chair), Mr. Becherer, Mr. Miller, Mr. Morley, Mr.
Osborne, and Ms. Russo
NUMBER OF MEETINGS IN 2001: Four
FUNCTIONS:
- Responsible for approving or recommending to the Board compensation,
incentive awards, stock options, and benefit programs for officers and
senior executives of the Corporation
- Makes recommendations to the Board concerning executive organizational
matters
PENSION COMMITTEE
MEMBERS: Professor Herzlinger (Chair), Mr. Komansky, Mr. McGrath, Mr.
Miller, General Mundy, Ms. Turner (effective October 23, 2001),
and Mr. Wood
NUMBER OF MEETINGS IN 2001: Three
FUNCTIONS:
- Responsible for general oversight of the investment of funds under
employee benefit plans
- Establishes investment policies for funds under employee benefit plans
- Reviews the performance of managers and trustees of employee benefit
plans
NOMINATING AND CORPORATE GOVERNANCE COMMITTEE
MEMBERS: Mr. Morley (Chair), Mr. Becherer, General Mundy, Mr. Osborne, Ms.
Russo, Ms. Turner (effective October 23, 2001), and Mr. van Oordt
NUMBER OF MEETINGS IN 2001: Two
FUNCTIONS:
- Reviews and makes recommendations to the Board with respect to the
composition of the Board and the election and re-election of directors
- Assesses periodically the functioning of the Board
- Reviews and makes recommendations to the Board concerning director
compensation
The Committee will consider shareholder recommendations for directors.
Shareholder recommendations should be forwarded by the shareholder to the
Secretary of the Corporation with biographical data about the recommended
individual. The By-laws of the Corporation provide the formal procedure for
nominations by shareholders of director candidates. A shareholder intending to
make such a nomination is required to deliver to the Secretary of the
Corporation, not less than 30 days prior to a meeting called to elect directors,
a notice with the name, age, business and residence addresses and principal
occupation or employment of, and number
7
of shares of stock of the Corporation beneficially owned by, such nominee, such
other information regarding the nominee as would be required in a proxy
statement prepared in accordance with the proxy rules of the Securities and
Exchange Commission ("SEC"), and a consent to serve, if elected, of the nominee.
A nomination not made in accordance with this procedure would be void.
BOARD MEETINGS AND ATTENDANCE OF DIRECTORS
The Board of Directors held ten meetings in 2001. All directors attended
more than 75% of the aggregate of (i) the total number of meetings of the Board
held while they were members, and (ii) the total number of meetings held by all
Committees of the Board on which they served as members.
DIRECTORS' COMPENSATION
Employee directors receive no fees for services rendered in their capacity
as directors. Non-employee directors receive an annual retainer of $39,000, a
fee of $1,000 per meeting for each Board meeting and for each Committee meeting
attended, and a $1,000 per diem fee, plus expenses, for special assignments. The
chairperson of each Committee receives an additional fee of $1,000 for each
meeting. Directors may elect to defer until termination of service as a director
all or a portion of such fees under a Directors' Deferred Compensation Plan.
Amounts deferred are, at the director's election, valued as if invested in the
Corporation's Common Shares or in a simple interest fund and are payable in cash
in installments or in a lump sum.
Under the Directors' Deferred Stock Equivalency Program, each non-employee
director is also credited annually with a $25,000 deferred payment in a
Corporation stock equivalency account, which is valued as if invested in the
Corporation's Common Shares. Upon termination of service as a director, the
value of a director's deferred account is payable in cash in installments or in
a lump sum, as elected by the director.
Non-employee directors also receive an annual award of 2,500 Common Shares
under the Directors' Stock Award Plan.
LEGAL PROCEEDINGS
In 2001, four purported shareholder derivative actions were filed (two in
the United States District Court for the District of New Jersey and two in New
Jersey state court) against the Corporation, as a nominal defendant, and certain
officers, directors and former directors seeking damages on behalf of the
Corporation including disgorgement of trading profits made by defendants
allegedly obtained on the basis of material non-public information. The
complaints in each of the lawsuits relate to the reports issued by the Federal
Food and Drug Administration citing deficiencies in the Corporation's New Jersey
and Puerto Rico manufacturing facilities relating to compliance with current
Good Manufacturing Practices, primarily relating to production processes,
controls and procedures, and allege a failure to disclose material information
and a breach of fiduciary duty by the directors. One of the federal court
lawsuits also includes allegations related to the investigations by U.S.
Attorney's Offices for the Eastern District of Pennsylvania and the District of
Massachusetts, the administrative proceeding by the Federal Trade Commission
against the Corporation, and the lawsuit by the state of Texas against the
Corporation's subsidiary, Warrick Pharmaceuticals, all of which have been
described in reports the Corporation has filed with the SEC. Each of these
lawsuits is a shareholder derivative action that purports to assert claims on
behalf of the Corporation, but as to which no demand was made on the Board of
Directors and no decision has been made on whether the Corporation can or should
pursue such claims. In August 2001, the plaintiffs in each of the New Jersey
state court shareholder derivative actions moved to dismiss voluntarily the
complaints in those actions, which motions were granted. The two shareholder
derivative actions pending in the United States District Court for the District
of New Jersey have been consolidated into one action, which is in its very early
stages.
On January 2, 2002, the Corporation received a demand letter dated December
26, 2001, from a law firm not involved in the derivative actions described
above, on behalf of a shareholder who also is not involved in the derivative
actions, demanding that the Board of Directors bring claims on behalf of the
Corporation based on allegations substantially similar to those alleged in the
derivative actions. On January 22, 2002, the Board of Directors adopted a board
resolution establishing an Evaluation Committee, consisting of Mr. McGrath,
8
Mr. Miller and Ms. Turner, to investigate, review, and analyze the facts and
circumstances surrounding the allegations made in the demand letter and the
consolidated amended derivative action complaint described above, but reserving
to the full Board authority and discretion to exercise its business judgement in
respect of the proper disposition of the demand. The Committee has engaged
independent outside counsel to advise it.
SECURITY OWNERSHIP OF DIRECTORS AND OFFICERS
Set forth below is information with respect to beneficial ownership of the
Common Shares of the Corporation as of February 14, 2002 by each director,
certain executive officers and by all directors and executive officers of the
Corporation as a group:
NUMBER OF
NAME SHARES(A)
---- ---------
Hans W. Becherer............................................ 17,400
Joseph C. Connors........................................... 779,134(b)(c)
Roch F. Doliveux............................................ 207,463(b)
Regina E. Herzlinger........................................ 20,544
Richard Jay Kogan........................................... 1,570,964(b)
David H. Komansky........................................... 3,750
Eugene R. McGrath........................................... 6,063
Donald L. Miller............................................ 12,350
H. Barclay Morley........................................... 50,776
Carl E. Mundy, Jr........................................... 13,366
Richard de J. Osborne....................................... 64,335
Patricia F. Russo........................................... 14,800
Kathryn C. Turner........................................... 2,311
Robert F. W. van Oordt...................................... 10,428
Arthur F. Weinbach.......................................... 6,250
James Wood.................................................. 98,000
Jack L. Wyszomierski........................................ 488,256(b)
Richard W. Zahn............................................. 371,121(b)
All directors and executive officers as a group including
those above (26).......................................... 4,801,618(b)(c)
---------------
(a) The total for each individual is less than 0.2%, and for the group of all
directors and executive officers (26 persons) is less than 0.4%, of the
outstanding Common Shares of the Corporation (including shares which could
be acquired within 60 days of February 14, 2002 through the exercise of
outstanding options or the distribution of shares under the Corporation's
Stock Incentive Plans). The information shown is based upon information
furnished by the respective directors and executive officers.
(b) Includes shares which could be acquired within 60 days of February 14, 2002
through the exercise of employee stock options or the distribution of shares
under the Corporation's Stock Incentive Plans as follows: Mr. Connors
(652,848); Mr. Doliveux (201,524); Mr. Kogan (1,198,381); Mr. Wyszomierski
(407,868); Mr. Zahn (353,524); all directors and executive officers as a
group (3,684,765).
(c) Does not include shares owned by family members and as to which beneficial
ownership is disclaimed as follows: Mr. Connors, 11,437 shares; one other
executive officer, 4,451 shares.
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COMMON SHARE EQUIVALENTS
The following table sets forth the number of Common Share equivalents
credited as of February 14, 2002 to the accounts of the Corporation's
participating non-employee directors under the Directors' Deferred Compensation
Plan and under the Directors' Deferred Stock Equivalency Program, including
dividends credited, rounded to the nearest whole number. Under both, payments
are made in cash following termination of service as a director based on the
market value of the Common Shares of the Corporation at that time. For
additional information, see "Directors' Compensation" above.
TOTAL
-------
Hans W. Becherer............................................ 17,427
Regina E. Herzlinger........................................ 34,992
David H. Komansky........................................... 2,783
Eugene R. McGrath........................................... 4,378
Donald L. Miller............................................ 3,620
H. Barclay Morley........................................... 14,412
Carl E. Mundy, Jr........................................... 5,615
Richard de J. Osborne....................................... 9,786
Patricia F. Russo........................................... 17,671
Kathryn C. Turner........................................... 1,043
Robert F. W. van Oordt...................................... 46,216
Arthur F. Weinbach.......................................... 4,871
James Wood.................................................. 122,963
-------
Total....................................................... 285,777
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Set forth below is certain information with respect to those persons who
are known to the Corporation to own beneficially more than five percent of the
Corporation's outstanding Common Shares, as of February 14, 2002.
COMMON SHARES
NAME AND ADDRESS BENEFICIALLY PERCENT
OF BENEFICIAL OWNER OWNED OF CLASS
------------------- ------------- --------
FMR Corp............................................. 73,306,416(a) 5.01%
82 Devonshire Street
Boston, MA 02109
---------------
(a) As reported on Amendment No. 4 to Schedule 13G filed with the Securities and
Exchange Commission on February 14, 2002. This number includes 69,937,581
shares beneficially owned by Fidelity Management & Research Company, a
wholly-owned subsidiary of FMR Corp. ("FMR Corp."), as a result of its
acting as investment advisor to various investment companies; 2,787,927
shares beneficially owned by Fidelity Management Trust Company, a
wholly-owned subsidiary of FMR Corp., as a result of its serving as
investment manager of certain institutional accounts; 62,168 Common Shares
beneficially owned by Strategic Advisers, Inc., a wholly-owned subsidiary of
FMR Corp.; 18,100 Common Shares beneficially owned by Geode Capital
Management, LLC, which is wholly-owned by Fidelity Investors III Limited
Partnership, the general partner and limited partners of which are certain
shareholders and employees of FMR Corp., and which general partner is an
investment manager; and 498,240 shares beneficially owned by Fidelity
International Limited as a result of its providing investment advisory and
management services to various non-U.S. investment companies and certain
institutional investors. Edward C. Johnson 3d, Chairman of FMR Corp., is
also listed on the Schedule 13G as beneficially owning the 72,805,776 Common
Shares of the Corporation, because he exercises dispositive power over the
shares.
10
SUMMARY COMPENSATION TABLE
The following table sets forth compensation of the five most highly
compensated executive officers of the Corporation, including the Chief Executive
Officer, for the fiscal year ended December 31, 2001 ("Fiscal 2001"), as well as
the compensation of the former President and Chief Operating Officer of the
Corporation.
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
-------------------------------
ANNUAL COMPENSATION AWARDS
--------------------------------------------- -------------------------------
OTHER RESTRICTED SECURITIES
NAME AND PRINCIPAL ANNUAL STOCK UNDERLYING ALL OTHER
POSITION IN 2001 YEAR SALARY BONUS(a) COMPENSATION AWARDS(b) OPTIONS COMPENSATION(c)
------------------ ---- -------------- ----------- --------------- --------------- --------------- ---------------
Richard Jay Kogan........ 2001 $ 1,430,000 $ -0- -- $ 4,081,295 368,000 $ 348,140
Chairman of the Board, 2000 1,338,000 1,872,000 -- 6,304,250 547,000 377,785
Chief Executive Officer 1999 1,200,000 2,074,000 -- 8,861,438 287,000 369,574
and President
Joseph C. Connors........ 2001 $ 542,000 $ -0- -- $ 934,767 138,000 $ 132,772
Executive Vice President 2000 502,000 289,000 -- 1,668,550 327,200 123,082
and General Counsel 1999 467,000 286,000 -- 2,345,363 67,200 118,373
Jack L. Wyszomierski..... 2001 $ 515,000 $ -0- -- $ 934,767 138,000 $ 118,203
Executive Vice President 2000 475,000 273,500 -- 1,668,550 327,200 103,037
and Chief Financial 1999 440,000 269,500 -- 2,345,363 67,200 96,995
Officer
Richard W. Zahn.......... 2001 $ 462,000 $ -0- -- $ 465,381 90,000 $ 98,774
Vice President and 2000 442,000 226,000 -- 830,500 297,800 100,220
President, Schering 1999 422,000 230,000 -- 1,517,588 43,400 95,781
Laboratories
Roch F. Doliveux......... 2001 $ 420,000 $ -0- -- $ 465,381 90,000 $ 93,092
Vice President and 2000 400,000 204,500 -- 513,400 282,600 90,982
President, Schering- 1999 291,000 113,500 -- 721,650 22,600 58,604
Plough International
Raul E. Cesan............ 2001 $ 528,125 $ --(e) -- $ -0- -0-(f) $10,780,284(e)
Former President and
Chief 2000 918,000 -0- -- 3,020,000 398,000 264,785
Operating Officer(d) 1999 850,000 1,157,000 -- 4,245,000 138,000 270,410
---------------
(a) For 2001, the Corporation did not meet fully all of the performance goals
set forth in a pre-established formula which was necessary for Messrs.
Kogan, Connors, Wyszomierski, Zahn and Doliveux to receive their target cash
bonuses. In light of the effect on operations of the regulatory and
compliance difficulties experienced by the Corporation in 2001, the
Executive Compensation and Organization Committee eliminated the cash
bonuses for 2001 for the named executive officers, notwithstanding the fact
that the named executive officers would have been entitled to 56.7% of their
target awards had the pre-established formula been applied. See "Executive
Compensation and Organization Committee Report -- Annual Incentive Bonus" on
page 19.
(b) In February 2001, restricted stock awards were granted to Mr. Kogan for
193,000 shares, to Mr. Connors for 44,200 shares, to Mr. Wyszomierski for
44,200 shares, to Mr. Zahn for 22,000 shares, and to Mr. Doliveux for 22,000
shares. The full vesting of the awards to Messrs. Kogan, Connors,
Wyszomierski, Zahn and Doliveux was subject to the attainment of a
performance goal, which was satisfied. Nevertheless, in light of the effect
on operations of the regulatory and compliance difficulties experienced by
the Corporation in 2001, the Executive Compensation and Organization
Committee, and with the prior consent of the named executive officers,
reduced the restricted stock awards for each of the named executive officers
to 52.8% of their original award levels. See "Executive Compensation and
Organization Committee Report -- Stock-Based Compensation -- Restricted
Stock Awards" on page 20. Accordingly, the table shows the dollar value as
of the grant date of the actual number of restricted stock award shares that
vested for 2001 for those executive officers as follows (rounded for
distribution purposes): Mr. Kogan (101,905 shares); Mr. Connors (23,340
shares); Mr. Wyszomierski (23,340 shares); Mr. Zahn (11,620 shares); and Mr.
Doliveux (11,620 shares). At December 31, 2001, the total number and value
of undistributed shares, for which performance goals have been met, for the
named executive
11
officers were: Mr. Kogan 360,000 shares ($12,891,600); Mr. Connors 88,400
shares ($3,165,604); Mr. Wyszomierski 88,400 shares ($3,165,604); Mr. Zahn
46,640 shares ($1,670,178); and Mr. Doliveux 35,600 shares ($1,274,836).
Cash equivalent to the amount of all dividends paid on the Common Shares is
paid on all undistributed shares. Shares awarded are distributable in five
equal annual installments. Upon his resignation from the Corporation
effective July 15, 2001, Mr. Cesan forfeited the 87,600 restricted stock
awards granted to him in February 2001 and 217,520 undistributed shares.
(c) Consists of, respectively, contributions under the profit-sharing plans of
the Corporation, and the cost of executive life and medical insurance: for
2001, Mr. Kogan ($214,500 and $133,640); Mr. Connors ($81,300 and $51,472);
Mr. Wyszomierski ($77,250 and $40,953); Mr. Zahn ($69,300 and $29,474); Mr.
Doliveux ($63,000 and $30,092); and Mr. Cesan ($-0- and $126,731); for 2000,
Mr. Kogan ($200,700 and $177,085); Mr. Connors ($75,300 and $47,782); Mr.
Wyszomierski ($71,250 and $31,787); Mr. Zahn ($66,300 and $33,920); Mr.
Doliveux ($60,000 and $30,982); and Mr. Cesan ($137,700 and $127,085); for
1999, Mr. Kogan ($180,000 and $189,574); Mr. Connors ($70,050 and $48,323);
Mr. Wyszomierski ($66,000 and $30,995); Mr. Zahn ($63,300 and $32,481); Mr.
Doliveux ($43,650 and $14,954); and Mr. Cesan ($127,500 and $142,910).
(d) Mr. Cesan resigned as president and chief operating officer of the
Corporation effective July 15, 2001.
(e) The amount in the "All Other Compensation" column for Mr. Cesan for 2001
includes a lump sum payment made during 2001 to Mr. Cesan upon his
resignation from the Corporation. The amount in that column includes a pro
rata bonus payment for 2001 of $621,293 and the cost of executive life and
medical insurance for 2001 of $126,731.
(f) The 167,000 options that were granted to Mr. Cesan in February 2001 were
forfeited upon his resignation from the Corporation.
EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENTS
Mr. Kogan has an agreement which provides for his employment as Chairman of
the Board and Chief Executive Officer through December 31, 2002 at an annual
base salary of not less than $1,430,000. Mr. Kogan's agreement provides that his
employment is automatically extended for an additional two-year period
thereafter, and then through June 30, 2006, unless either he or the Corporation
gives notice to terminate the agreement at least six months before its scheduled
expiration date. If for any reason other than for cause the Corporation elects
to terminate the employment of Mr. Kogan, on any scheduled expiration date of
his agreement (other than the last such date), his employment will be deemed to
have been terminated by the Corporation without cause for purposes of the
severance and retirement benefits described below.
Under Mr. Kogan's agreement, if his employment is terminated (i) by reason
of death or disability, (ii) by the Corporation without cause, or (iii) by him
for good reason or within a 30-day period following the first anniversary of a
Change of Control (as defined below), he is generally entitled to (a) receive a
lump sum equal to two times (I) his annual base salary and (II) the highest of
his annual bonus and profit-sharing awards for the three preceding years, and
(b) continue in the Corporation's welfare benefit plans for three years and
receive in a lump sum a supplemental pension amount based on three years of
deemed employment after termination or to age of 65, if sooner. If Mr. Kogan
remains employed through the first anniversary of a Change of Control, he is
entitled to a special bonus equal to (i) his annual base salary plus (ii) the
highest of his annual bonus and profit-sharing awards for the three preceding
years. If his employment terminates for any of the reasons enumerated above and
the special bonus has not been paid, then his severance payment is increased by
an amount equal to the special bonus. If Mr. Kogan's employment is terminated by
reason of death or disability, the lump sum payment will equal the present value
of the death or disability benefits payable under the Corporation's benefit
plans and programs, if greater than the total severance payment otherwise
payable under the employment agreement. A "Change of Control" is generally
defined for purposes of Mr. Kogan's agreement as (i) the acquisition of 20% or
more of the Common Shares, (ii) a change in a majority of the Board of
Directors, unless approved by the incumbent directors (other than as a result of
a contested election), and (iii) certain reorganizations, mergers,
consolidations, liquidations or dissolutions. If any payment or distribution by
the Corporation to Mr. Kogan is determined to be subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code, he is entitled to receive
from the Corporation a payment on an after-tax basis equal to the excise tax
imposed. Additionally, his agreement provides for
12
retirement benefits as described in the Pension Plan Table on page 15. After
retirement, Mr. Kogan is entitled to an office and certain executive level
support services, including transportation and security services. Prior to his
resignation from the Corporation, Mr. Cesan had an agreement which provided for
his employment as President and Chief Operating Officer through October 31, 2003
at an annual base salary of not less than $975,000. Mr. Cesan's agreement
included termination and severance provisions similar to those in Mr. Kogan's
agreement.
Messrs. Connors, Wyszomierski, Zahn and Doliveux each have an agreement
that will trigger a period of employment of three years or to age 65, if sooner,
upon a Change of Control or upon a termination of employment by the Corporation
in anticipation of a Change of Control. During the employment period, the
executive is entitled to receive an annual base salary at his highest rate
during the twelve months prior to the Change of Control and an annual bonus
equal to his highest bonus for the three years prior to the Change of Control.
If his employment is terminated during the employment period (i) by the
Corporation other than for cause or disability or (ii) by the executive for good
reason or during a 30-day period following the first anniversary of the Change
of Control, he is entitled to receive a lump sum equal to three times (a) his
annual base salary plus (b) the highest of his annual bonuses during the
preceding year and the three years prior to the Change of Control plus (c) his
highest profit-sharing award during the three years prior to termination.
However, if the executive will attain age 65 less than three years from his date
of termination, he will receive a proportionately reduced amount. In the event
of such a termination of employment, each executive is also entitled to (i)
receive in a lump sum a supplemental pension amount based on three years of
deemed employment after termination or to age 65, if sooner, (ii) continue in
the Corporation's welfare benefit plans for three years or to age 65, if sooner,
(iii) retiree medical coverage if termination is at or after attainment of age
45, and (iv) supplemental pension payments without reduction for early
retirement if termination is at or after age 50. If any payment or distribution
by the Corporation to the executive is determined to be subject to the excise
tax imposed by Section 4999 of the Internal Revenue Code, the Corporation will
hold him harmless from the excise tax imposed. Each of Messrs. Connors,
Wyszomierski and Zahn has a supplement to the agreement which has a term of
January 1, 2002 through December 31, 2005 or until the change of control
provisions of the agreement become applicable if sooner than December 31, 2005.
In each supplement, the executive agrees that he may not engage in any activity
competitive with the Corporation during his employment and for a period of two
(2) years after such executive leaves the Corporation, if he leaves during the
term of the supplement because of a termination by the Corporation for cause or
a termination by him without good reason. The supplement also provides that if
at any time during the term of the supplement the executive is terminated
without cause or terminates his own employment for good reason, he will be
generally entitled to receive (a) a lump sum equal to three times (I) his annual
base salary and (II) the highest of his annual bonus and profit-sharing awards
for the three preceding years, and (b) supplemental pension payments without
reduction for early retirement.
Under the Corporation's Stock Incentive Plans, stock awards and stock
options granted to the named executive officers may vest and be cashed out upon
a Change of Control.
13
OPTION TABLES
The following tables provide information with respect to stock options
granted to or exercised by the named executive officers during Fiscal 2001 and
the fiscal year-end value of options held by such officers.
OPTION GRANTS IN LAST FISCAL YEAR
GRANT DATE
INDIVIDUAL GRANTS VALUE
---------------------------------------------------- ----------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS GRANTED
OPTIONS TO EMPLOYEES IN EXERCISE EXPIRATION GRANT DATE
NAME GRANTED(A) FISCAL YEAR PRICE DATE PRESENT VALUE(B)
---- ---------- --------------- -------- ---------- ----------------
Richard Jay Kogan..................... 368,000 5.07% $40.05 2/25/11 $7,239,772
Joseph C. Connors..................... 138,000 1.90 40.05 2/25/11 2,714,915
Jack L. Wyszomierski.................. 138,000 1.90 40.05 2/25/11 2,714,915
Richard W. Zahn....................... 90,000 1.24 40.05 2/25/11 1,770,596
Roch F. Doliveux...................... 90,000 1.24 40.05 2/25/11 1,770,596
Raul E. Cesan......................... 167,000(c) 2.30 40.05 -- --
---------------
(a) Options are for a term of 10 years. The options expiring on February 25,
2011 became exercisable after one year on February 27, 2002, except that
transferable options which were transferred became exercisable immediately
upon transfer. The exercise price of the options is the market value of the
Common Shares on the date of grant. After the occurrence of a Change of
Control, options become exercisable and may be cashed out for a period of 60
days. The options expiring on February 25, 2011 granted to Messrs. Kogan and
Connors are transferable in accordance with the terms of the plan.
(b) The valuation calculations are solely for purposes of compliance with the
rules and regulations promulgated under the Securities Exchange Act of 1934,
as amended, and are not intended to forecast possible future appreciation,
if any, of the Corporation's stock price. The grant date present value for
the options expiring on February 25, 2011 is derived by using the
Black-Scholes option pricing model with the following assumptions: the
average dividend yield for the three years ended January 31, 2001 (1.14%);
volatility of the Common Shares based on monthly total returns for the three
years ended January 31, 2001 (36.62%); an annualized risk-free interest rate
of 5.31%; and an option term of 10 years. If the named executive officers
should realize the grant date values shown in the table for the options
expiring on February 25, 2011, the equivalent value of the appreciation of
all Common Shares of the Corporation outstanding on the grant date of those
options would be approximately $29 billion, of which the value of the named
officers' options would be 0.06%. This valuation model was not adjusted for
risk of forfeiture or the vesting restrictions of the options for the
options expiring on February 25, 2011 which became exercisable after one
year. This valuation model does not necessarily represent the fair market
value of individual options. At the expiration date, the options will have
no actual value unless, and only to the extent that, the price of the Common
Shares appreciates from the grant date to the exercise date.
(c) The 167,000 options that were granted to Mr. Cesan in February 2001 were
forfeited upon his resignation from the Corporation effective July 15, 2001.
14
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT FY-END(A) OPTIONS AT FY-END(A)(C)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(B) REALIZED(B) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
Richard Jay Kogan............... -0- $-0- 810,000 628,000 $3,775,410 $ -0-
Joseph C. Connors............... -0- -0- 510,180 578,000 6,627,034 3,779,550
Jack L. Wyszomierski............ -0- -0- 265,200 578,000 1,259,850 3,779,550
Richard W. Zahn................. -0- -0- 213,200 638,000 1,758,798 6,302,275
Roch F. Doliveux................ -0- -0- 109,200 574,000 1,334,838 4,886,435
Raul E. Cesan(d)................ -0- -0- -0- -0- -0- -0-
---------------
(a) Table includes stock options which were transferred in accordance with the
terms of the Corporation's stock incentive plan. After transfer, certain of
these stock options were no longer beneficially owned (Mr. Kogan 347,000;
Mr. Connors 48,200).
(b) None of the named executive officers employed by the Corporation as of
December 31, 2001 exercised any stock options during the last fiscal year.
Mr. Cesan did not exercise any stock options during the last fiscal year
through July 15, 2001, the date of his resignation from the Corporation.
(c) Based on the difference between the closing price of Common Shares on the
New York Stock Exchange on December 31, 2001 of $35.81 and the exercise
price of the option.
(d) In October 2001 Mr. Cesan exercised stock options for 391,560 Common Shares
at an exercise price of $36.27 per share.
PENSION PLAN TABLE
The approximate total annual benefits payable upon retirement at age 65 in
specified compensation and years of service classifications are shown in the
following table.
HIGHEST AVERAGE ANNUAL APPROXIMATE ANNUAL BENEFIT
COMPENSATION FOR ANY PERIOD --------------------------------------------------------------
OF 60 CONSECUTIVE MONTHS DURING 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
LAST 120 MONTHS OF EMPLOYMENT OF SERVICE OF SERVICE OF SERVICE OF SERVICE OF SERVICE
--------------------------------- ---------- ---------- ---------- ---------- ----------
$ 800,000........................ $ 280,000 $ 320,000 $ 360,000 $ 400,000 $ 440,000
1,000,000....................... 350,000 400,000 450,000 500,000 550,000
1,200,000....................... 420,000 480,000 540,000 600,000 660,000
1,600,000....................... 560,000 640,000 720,000 800,000 880,000
2,000,000....................... 700,000 800,000 900,000 1,000,000 1,100,000
2,200,000....................... 770,000 880,000 990,000 1,100,000 1,210,000
2,400,000....................... 840,000 960,000 1,080,000 1,200,000 1,320,000
2,600,000....................... 910,000 1,040,000 1,170,000 1,300,000 1,430,000
2,800,000....................... 980,000 1,120,000 1,260,000 1,400,000 1,540,000
3,000,000....................... 1,050,000 1,200,000 1,350,000 1,500,000 1,650,000
3,200,000....................... 1,120,000 1,280,000 1,440,000 1,600,000 1,760,000
3,400,000....................... 1,190,000 1,360,000 1,530,000 1,700,000 1,870,000
3,600,000....................... 1,260,000 1,440,000 1,620,000 1,800,000 1,980,000
The table above reflects benefits on a life annuity basis and amounts
payable are not subject to Social Security or other offset. Retirement benefits
under the Corporation's nonqualified plans are payable on an annuity basis or on
a present value lump sum basis at the election of the executive. Covered
compensation consists of salary and bonus which, for the named executive
officers, is shown in the Summary Compensation Table on page 11. The credited
years of service as of December 31, 2001 are: Mr. Connors (24 years); Mr.
Doliveux (11 years); Mr. Kogan (19 years); Mr. Wyszomierski (18 years); and Mr.
Zahn (9 years).
Under his employment agreement referred to on page 12, Mr. Kogan is
entitled to receive a minimum annual benefit of 55% of final average annual
compensation upon retirement at or after age 62, and his wife is
15
entitled to a minimum annual survivor's benefit of 45% of such final average
annual compensation after his death. If Mr. Kogan's employment is terminated at
any time (a) by the Corporation without cause or for disability, or (b) by him
for good reason or within the 30-day period following the first anniversary of a
Change of Control, he would be entitled to the same minimum percentage annual
pension and his wife would be entitled to the same minimum percentage annual
survivor's benefit as though he had retired at or after age 62. In any case the
components of his final average annual compensation are set forth in his
employment agreement. In the event of the death of Mr. Kogan during the term of
his employment agreement, his surviving spouse will be entitled to receive a
minimum annual survivor's benefit of 45% of his final average annual
compensation. Retirement benefits provided to Mr. Kogan under his employment
agreement is payable on an annuity basis or on a present value lump sum basis at
the election of the executive. The Corporation has treated Mr. Cesan as a
retiree for the purposes of his pension benefits. He is receiving an annual
benefit equal to 55% of his final average annual compensation, and his surviving
spouse is entitled to receive an annual survivor's benefit of 45% of such final
average annual compensation after his death.
16
PERFORMANCE GRAPH
COMPARISON OF CUMULATIVE TOTAL RETURN
FOR THE FIVE YEARS ENDED DECEMBER 31, 2001
[PERFORMANCE GRAPH]
-----------------------------------------------------------------------------------------------------------
1996 1997 1998 1999 2000 2001
-----------------------------------------------------------------------------------------------------------
Schering-Plough Corp. 100 195 350 271 368 236
Composite Peer Group 100 155 224 197 273 247
S&P 500 Index 100 133 171 208 189 171
The graph above assumes a $100 investment on December 31, 1996, and
reinvestment of all dividends, in each of the Corporation's Common Shares, the
S&P 500 Index, and a composite peer group of the following drug and health care
companies: Abbott Laboratories, American Home Products Corporation,
Bristol-Myers Squibb Company, Johnson & Johnson, Eli Lilly and Company, Merck &
Co., Inc., Pfizer Inc. and Pharmacia Corporation.
17
EXECUTIVE COMPENSATION AND ORGANIZATION COMMITTEE REPORT
PRINCIPLES AND PROGRAM
The Corporation's executive compensation program is designed to serve the
Corporation's broader strategic goals of profitable growth and the creation of
long-term shareholder value. The program is fundamentally a pay for performance
program designed to:
- ensure the Corporation's ability to attract and retain superior
executives;
- strongly align the interests of the Corporation's executives with those
of its shareholders; and
- provide a compensation package that balances individual contributions and
overall business results.
The Executive Compensation and Organization Committee is responsible for
setting the Corporation's executive compensation policy. The Committee consists
of six directors who are not employees of the Corporation and are not eligible
to participate in the Corporation's executive compensation programs.
In determining executive compensation, the Committee evaluates both the
total compensation package and its individual elements. As part of its review,
the Committee considers compensation data for companies which represent direct
competitors for executive talent. The data, which is developed by established,
independent compensation consultants, includes information on those drug and
health care companies within the peer index used in the performance graph in the
proxy statement (the "Peer Group") and other pharmaceutical and consumer
products companies, including some for which public information is not
available. The selection of the Corporation's principal compensation consultant
is ratified annually by the Committee.
TOTAL COMPENSATION
An executive's total compensation consists of three elements: base salary,
an annual incentive bonus, and long-term stock-based compensation (stock options
and restricted stock awards).
BASE SALARY
The Committee assesses a number of factors in fixing the salary of the
executive officers (including those executive officers named in the proxy
statement). Those factors typically include: the responsibility of the
individual's position, the individual's performance, the Corporation's overall
financial performance, certain non-financial indicators of corporate
performance, and the business and inflationary climate. In the case of executive
officers with responsibility for a particular business unit, the Committee also
considers that unit's financial results. Non-financial indicators may include,
among other things, strategic developments for which an executive officer has
responsibility (such as acquisitions or product approvals or development),
managerial performance (such as succession planning, resource allocation and
social responsibility) and compliance with the Corporation's policies and
procedures. The evaluation of an executive's non-financial indicators is
reflected in the executive's performance rating.
Each year, the Committee reviews with the Chief Executive Officer his
performance ratings of the other executive officers and evaluates compensation
levels against levels at the competitor companies. Established, independent
compensation consultants are used to confirm that salary levels are within the
range of those offered by the competitor companies. To ensure that compensation
policy for executive officers is consistent with overall Corporation results and
executive compensation strategies, the Committee reviews the compensation
awarded to approximately 90 of the Corporation's most highly compensated
executives.
The Committee targets salaries of the Corporation's executive officers to
fall within a range above the median but below the high end of the salary levels
at the competitor companies, except that the salaries of Messrs. Kogan and Cesan
for 2001 were set at the median of the range. In fixing the salaries of the
executive officers for 2001, the Committee considered the Corporation's overall
financial performance in 2000 and the non-financial indicators reflected in
individual performance ratings also in 2000, although no particular weighting
was assigned to any specific aspect of corporate performance.
18
ANNUAL INCENTIVE BONUS
The Executive Incentive Plan, the Corporation's bonus plan, allows the
Committee to interpret and administer the Plan, and make annual cash awards to
the executive officers, based on certain financial and non-financial indicators
of corporate performance.
In 1999, the shareholders approved the executive incentive bonus program,
including performance goals, for certain senior executive officers, including
the Chairman and Chief Executive Officer and the other executive officers named
in the proxy statement. Under this program, the amount of cash incentive bonus
that the Committee may award under the Executive Incentive Plan to these
executive officers for any year is determined by a formula established by the
Committee which may incorporate any one or more of the following performance
goals: pre-tax earnings, earnings per share or return on equity. The Committee
may, in its discretion, reduce the amount of the incentive bonus award
determined under the program formula. However, the Committee may not increase
the amount of any incentive bonus award determined under the program formula. In
no event may an incentive bonus award for any year to any covered executive
officer exceed the maximum award specified in the program.
For 2001, the Committee fixed specified percentages of base salary as
target incentive bonus awards for the covered executive officers, and each of
the three performance goals was assigned a one-third weighting toward the
attainment of the target award. The performance goal for pre-tax earnings for
2001 was the Corporation's income before income taxes in the Corporation's 2001
operating plan as approved by the Committee. The performance goal for earnings
per share for 2001 was the average of the First Call Corporation consensus
projected earnings per share growth of the Peer Group for the corresponding
fiscal year. The performance goal for return on equity for 2001 was the average
return on equity of the Peer Group for the five consecutive years ending with
the second year prior to the commencement of 2001. Actual earnings per share,
return on equity and pre-tax earnings were based upon amounts reported in the
Corporation's financial statements in its Annual Report to shareholders, as
adjusted for accounting changes and other special items identified by the
Committee and certified by the Corporation's independent auditors.
In 2001, the Corporation did not fully meet all of the performance goals
set forth in the pre-established formula set by the Committee for Messrs. Kogan,
Connors, Wyszomierski, Zahn and Doliveux to receive their target incentive bonus
awards, primarily due to the effect on operations of the regulatory and
compliance difficulties experienced by the Corporation that year. The Committee
has certified that the return on equity performance goal was met, that the
pre-tax earnings and earnings per share targets were not fully met and that the
other material terms of the executive incentive bonus program were satisfied for
2001. Notwithstanding that the named executive officers would have been entitled
to 56.7% of their target bonuses based on the pre-established formula, in light
of the effect on operations of the regulatory and compliance difficulties
experienced by the Corporation in 2001, the Committee eliminated the cash
bonuses for 2001 for the named executive officers. The Committee believes that
this result is appropriate and consistent with the purpose of the executive
incentive bonus program, which is to provide financial rewards to those senior
executive officers only as warranted by the Corporation's business performance,
as determined by a pre-established formula. The lack of bonuses in 2001 for
those senior executive officers reflects the Committee's goal of aligning the
interests of the Corporation's executives with those of its shareholders.
The amount of cash awards to the corporate executive officers who are not
covered by the executive incentive bonus program also bears a significant
relationship to corporate performance. The Committee awards bonuses to these
officers based principally on the same performance goals used in the executive
incentive bonus program, with the pre-tax earnings goal assigned a weighting of
35%, and the earnings per share and return on equity goals each assigned a 20%
weighting, except for one officer whose goals include his business unit's
performance. In awarding a bonus to these executive officers, the Committee also
considers the non-financial factors reflected in an individual's performance
rating. However, those non-financial factors cannot constitute the basis for
more than 25% of the target bonus award. For 2001, these executives were awarded
bonuses in accordance with the Executive Incentive Plan formula.
19
STOCK-BASED COMPENSATION
Under the 1997 Stock Incentive Plan, which was approved by shareholders,
the Committee may grant stock options and restricted stock awards to the
executive officers and other key employees. The Committee believes that the
Corporation's long-term stock-based compensation aligns the interest of
executive officers with that of the shareholders, as any appreciation in the
price of the stock will benefit all shareholders commensurately. This is
particularly true in the case of the restricted stock awards, because they are
distributed over a five-year period. Also, the five-year distribution period for
the restricted stock awards and the minimum three-year vesting period for
retention stock options granted to certain executive officers and key employees
in 2000 serve as an inducement for the officers and key employees to remain with
the Corporation.
The Committee sets fixed guidelines for the size of regular annual stock
option grants and restricted stock awards for each executive grade level within
the Corporation, other than the grade level of the Chairman and Chief Executive
Officer, based on the stock-based compensation levels at the competitor
companies. Under the guidelines, the Committee grants stock options and
restricted stock awards to each executive officer in specified amounts based on
the officer's executive grade level and individual performance rating. In
determining regular annual awards of stock-based compensation the Committee
focuses on multi-year trend data and targets such awards to fall within a range
above the median but below the high end of the stock-based compensation levels
at the competitor companies. However, for 2001, the stock-based compensation
levels for Mr. Kogan were set by the Committee in its discretion taking into
consideration the factors described below under "Compensation of the Chairman
and Chief Executive Officer for 2001" and the long-term nature of stock-based
compensation. Average awards of regular annual stock-based compensation to the
executive officers subject to fixed share guidelines fell within the target
range in 1999 and 2000 and fell below the target range in 2001.
STOCK OPTIONS -- The Committee relies on a valuation of stock options
provided by independent compensation consultants using the Black-Scholes
methodology as a basis for valuation. Stock options are awarded with an exercise
price equal to the market price at the time of grant. Regular annual options are
generally first exercisable after one year and generally are exercisable for a
term of ten years. Retention options generally become exercisable in three equal
annual installments beginning on the third anniversary of the grant date and
generally are exercisable for a term of ten years. The actual value of any
options granted will depend entirely on the extent to which the Corporation's
Common Shares have appreciated in value at the time the options are exercised.
RESTRICTED STOCK AWARDS -- Under the 1997 Stock Incentive Plan,
shareholders approved performance goals for restricted stock awards for certain
senior executive officers, including the Chairman and Chief Executive Officer
and the other executive officers named in the proxy statement. The full vesting
of the restricted stock award to a covered executive officer is subject to the
attainment of the performance goal for earnings per share or return on equity or
pre-tax earnings described above under "Annual Incentive Bonus." If none of the
performance goals are fully met then the vesting of the restricted stock award
to a covered executive is based on an average of the degree to which the three
performance goals are achieved. The awards are assigned a dollar value based on
the share price at the time the award is made. Vested award shares are
distributable ratably over five years. The Committee has certified that the
return on equity performance goal was satisfied for 2001. Notwithstanding the
fact that the named executive officers would have been entitled to receive their
full stock awards had the pre-established formula been applied, the Committee,
with the prior consent of the named executive officers, reduced the restricted
stock awards for each of those named executive officers to 52.8% of their
original award levels. The Committee believes that this significant reduction in
the restricted stock awards which vested for those senior executive officers is
appropriate in light of the Corporation's results in 2001, and reflects the
Committee's goal of aligning the interests of the Corporation's executives with
those of its shareholders.
The vesting of restricted stock awards for the Corporation's executive
officers who are not covered by the restricted stock award program is not
subject to a performance condition. The awards are assigned a dollar value based
on the share price at the time the award is made and are distributable ratably
over five years.
20
COMPENSATION OF THE CHAIRMAN AND CHIEF EXECUTIVE OFFICER FOR 2001
In setting Mr. Kogan's base salary, the Committee evaluates the same
factors which it considers in establishing the salary levels of the executive
officers generally, as well as the limitations of Section 162(m) of the Internal
Revenue Code relating to deductibility of certain executive compensation. In
addition, the Committee considers the status of Mr. Kogan as the Corporation's
most senior officer and the important role he has in achieving overall corporate
goals. In granting stock options and restricted stock awards to Mr. Kogan, the
Committee sets no fixed guideline, but takes into consideration his total
compensation package and competitive compensation data, the long-term nature of
stock options and restricted stock awards, overall corporate financial
performance, his role in attaining those results, and the number of options and
stock awards previously granted, although no particular weighting is assigned to
any factor.
Mr. Kogan was awarded a base salary of $1,430,000 for 2001. The base salary
awarded to Mr. Kogan was set at the median of comparable positions at the
competitor companies, while establishing an overall compensation structure tied
to corporate performance.
Mr. Kogan is subject to a long-term employment contract. The Committee
believes that given Mr. Kogan's record, his status in the industry, and his
experience and leadership, his contract significantly benefits the Corporation
and the shareholders by securing Mr. Kogan's services as Chairman of the Board
and Chief Executive Officer for the future and by encouraging him to focus on
the long-term strategic interests of the Corporation.
As described above under "Annual Incentive Bonus," Mr. Kogan did not
receive a bonus for 2001. In 2001, the Committee granted Mr. Kogan 368,000 stock
options and a restricted stock award for 193,000 shares. As described above
under "Stock-Based Compensation -- Restricted Stock Awards," the number of
restricted stock award shares which vested for Mr. Kogan for 2001 was reduced by
the Committee to 101,905 shares.
INTERNAL REVENUE CODE SECTION 162(m)
Section 162(m) of the Internal Revenue Code generally disallows a tax
deduction to public companies for compensation over $1,000,000 paid to the
Chairman and Chief Executive Officer and the four other most highly compensated
executive officers. Qualifying performance-based compensation is not subject to
the deduction limit if certain requirements are met. The Committee has
structured the annual incentive bonus, deferred compensation and long-term
equity-based compensation programs for its most senior executives so that such
bonuses and restricted stock awards should constitute qualifying
performance-based compensation under Section 162(m). The Committee also
recognizes that unanticipated future events, such as a Change of Control of the
Corporation or a change in executive personnel, could result in a disallowance
of compensation deductions under Section 162(m). Moreover, the Committee may
from time to time award compensation that is non-deductible under Section 162(m)
when, in the exercise of the Committee's business judgment, such award would be
in the best interests of the Corporation.
EXECUTIVE COMPENSATION AND
ORGANIZATION COMMITTEE
James Wood, Chairman
Hans W. Becherer
Donald L. Miller
H. Barclay Morley
Richard de J. Osborne
Patricia F. Russo
21
FINANCE, COMPLIANCE AND AUDIT REVIEW COMMITTEE REPORT
The Finance, Compliance and Audit Review Committee of the Corporation's
Board of Directors is comprised of six independent directors and operates under
a written charter adopted by the Board. The Committee is appointed by the Board
to assist the Board in its oversight function by monitoring, among other things,
the Corporation's financial reporting process and the independence and
performance of the Corporation's independent auditors and internal auditing
department. It is the responsibility of executive management of the Corporation
to prepare financial statements in accordance with generally accepted accounting
principles and of the Corporation's independent auditors to audit those
financial statements.
In this context, the Committee has met and held discussions with management
and the independent auditors. Management represented to the Committee that the
Corporation'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 discussed with the independent auditors
matters required to be discussed by Statement on Auditing Standards No. 61
(Communication With Audit Committees), as amended.
In addition, the Committee has discussed with the independent auditors, the
auditor's independence from the Corporation and its management, including the
matters in the written disclosures and the letter required by the Independence
Standards Board Standard No. 1 (Independence Discussions With Audit Committees).
Further, the Committee has considered whether providing financial information
systems design and implementation services and other non-audit services by the
independent auditors is compatible with maintaining the auditor's independence.
Further, the Committee meets with the independent auditors, with and
without management present, to discuss the results of their examinations, the
evaluations of the Corporation's internal controls, and the overall quality of
the Corporation's financial reporting. During the past year, the Committee met
privately with the independent auditors four times and the head of the
Corporation's internal auditing department one time.
Based on the reviews and discussions referred to above, and subject to the
limitations on the role and responsibilities of the Committee referred to above
and set forth in the charter, the Committee recommended to the Board that the
audited financial statements be included in the Company's Annual Report on Form
10-K for the year ended December 31, 2001, for filing with the Securities and
Exchange Commission.
Each of the members of the Finance, Compliance and Audit Review Committee
is independent as defined under the listing standards of the New York Stock
Exchange.
FINANCE, COMPLIANCE AND
AUDIT REVIEW COMMITTEE
Richard de J. Osborne, Chairman
Hans W. Becherer
Regina E. Herzlinger
H. Barclay Morley
Robert F. W. van Oordt
Arthur F. Weinbach
22
DESIGNATION OF AUDITORS
Upon the recommendation of the Finance, Compliance and Audit Review
Committee, the Board of Directors has designated Deloitte & Touche LLP to audit
the books and accounts of the Corporation for the year ending December 31, 2002,
and will offer a resolution at the meeting to ratify the designation. Deloitte &
Touche LLP has been the principal auditor of the Corporation since the
Corporation was formed in 1970. Representatives of Deloitte & Touche LLP will be
present at the meeting to respond to appropriate questions, and they will have
an opportunity, if they desire, to make a statement.
Aggregate fees billed to the Corporation for the year ended December 31,
2001 by Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu, and
their respective affiliates (collectively "Deloitte & Touche") which includes
Deloitte Consulting, are as follows:
Audit Fees......................... $3,058,000
==========
Financial Information Systems
Design and Implementation
Fees(a).......................... $1,807,900
==========
Accounting, Audit and Tax-Related
Fees(b)....................... $1,906,400
Other Consulting Fees............ $ 144,700
----------
Total All Other Fees............... $2,051,100
==========
The Corporation will not engage Deloitte & Touche LLP or any of its
affiliates to perform consulting or financial information systems design and
implementation services for it or to assist it with the internal audit function
in 2002.
---------------
(a) Includes fees to Deloitte Consulting. Deloitte & Touche has recently
announced its intent to separate Deloitte Consulting from the firm.
(b) Includes fees for tax return preparation, audits of employee benefit plans,
due diligence and related services on acquisitions, accounting consultation
and assistance provided to the Corporation's internal audit function.
APPROVAL OF 2002 STOCK INCENTIVE PLAN
The use of stock incentives to secure and retain employees of outstanding
ability, to further align the interests of employees with the interests of the
shareholders, to encourage greater stock ownership by, and to provide added
incentive to, those employees who carry a significant part of the responsibility
for the success of the business has been and remains important in American
industry.
The 1997 Stock Incentive Plan approved by the shareholders, under which
options and awards are currently being granted, provides that no more options or
awards may be granted under that Plan after December 31, 2002. Therefore, the
Board of Directors has adopted the 2002 Stock Incentive Plan (the "2002 Plan"),
subject to the approval thereof by the affirmative vote of a majority of the
votes cast at the Annual Meeting by shareholders entitled to vote on the 2002
Plan. If the 2002 Plan is approved, the Corporation will not issue any of the
approximately 13.4 million Common Shares which remain available for issuance as
options or awards under the 1997 Stock Incentive Plan following the Annual
Meeting. A copy of the 2002 Plan is attached hereto as Exhibit A, and the
statements made in this Proxy Statement with respect to the 2002 Plan are
qualified and subject to the more complete information set forth therein.
Subject to adjustment as provided in the 2002 Plan, the 2002 Plan
authorizes the granting of up to 72 million Common Shares of the Corporation
through (i) incentive stock options and nonqualified stock options and (ii)
awards of Common Shares in the form of Deferred Stock Units (the "Units"), to
such officers and other employees of the Corporation and its subsidiaries and
affiliates as may be designated by the
23
Executive Compensation and Organization Committee (the "Committee") of the
Board; provided that the maximum number of such shares which may be awarded in
the form of Units is 30 million. All employees are eligible to receive options
and awards under the 2002 Plan. Directors who are not employees of the
Corporation or its subsidiaries and affiliates are not eligible to participate.
No participant in the 2002 Plan may be granted awards or options covering in
excess of 3,000,000 Common Shares in any fiscal year, subject to adjustment as
provided in the 2002 Plan.
The Committee will administer the 2002 Plan, approve the eligible
participants who will receive options and awards, and determine the form and
terms of the options and awards. Subject to certain limitations, the Committee
may from time to time delegate some or all of its authority under the 2002 Plan
as it deems appropriate.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), provides that public companies may not deduct compensation paid to the
chief executive officer or any of the four most highly compensated officers
("Covered Employees") to the extent it exceeds $1,000,000 in any one tax year,
unless, among other reasons, the payments are made based upon the attainment of
objective performance goals that are approved by shareholders. The 2002 Plan is
designed so that all awards of Common Shares designated as "Performance Awards"
(as described below) that are made to Covered Employees will be considered
performance-based and hence fully deductible, so long as the 2002 Plan is
approved by a majority of the votes cast by the shareholders of the Corporation.
However, the Committee will have the discretion to grant awards to Covered
Employees that will not qualify for the exemption from Section 162(m). Moreover,
in certain cases such as death, disability or Change of Control (as described
below), Performance Awards will become payable even though the performance goals
are not met, in which event the Performance Awards will not be exempt from
Section 162(m) and the Corporation (or a successor thereto) might lose part or
all of its tax deduction.
Under the terms of the 2002 Plan, the Committee may from time to time grant
options to purchase Common Shares of the Corporation at a price (payable in cash
and/or Common Shares) which may not be less than the fair market value of the
Common Shares, as determined by the closing price on the New York Stock
Exchange, Inc. on the day the option is granted. Generally, options may not be
exercised later than ten years after the day of grant.
No option may be exercised until the employee has remained in the
continuous employ of the Corporation and/or its subsidiaries and affiliates for
one year (or if the Committee so determines, such shorter period) after the
option is granted, except in the case of termination of employment because of
death or permanent disability or a Change of Control (as defined in the 2002
Plan). Except as set forth below, an option may only be exercised during
employment or during the three months following termination of employment for
any reason (including sale, divestiture or spin-off of any subsidiary or
affiliate for which the employee works) other than death, permanent disability
or retirement. Upon termination of employment for cause, an option (whether
vested or unvested) may no longer be exercised. After termination of an
optionee's employment with the Corporation or any of its subsidiaries or
affiliates on account of death or permanent disability, stock options generally
may be exercised at any time during the stated option period, regardless of
whether they were exercisable at the time of termination. After an optionee
retires from the Corporation or any of its subsidiaries or affiliates, the
optionee's stock options generally may thereafter be exercised to the extent to
which they were exercisable at the time of the optionee's retirement (unless the
Committee, in its discretion, determines otherwise), and may be exercised at any
time during the stated option period. In the event of death prior to the
expiration of the option period following termination of employment for
permanent disability or retirement, options generally may be exercised during
the stated option period. An option may not be exercised after the expiration of
the stated period of the option, except that if the optionee dies within one
year prior to the expiration date, any non-qualified option may be exercised for
a minimum of one year from the date of death.
The 2002 Plan provides that the Committee may establish option exercise
procedures for purposes of permitting an optionee to defer compensation.
24
The Federal income tax treatment of options under the 2002 Plan will be
generally as follows:
(a) no income is realized by the recipient of an option at the time of
grant;
(b) upon exercise of a nonqualified option, ordinary income is
realized by the optionee in an amount equal to the excess of the fair
market value of the shares on the date of exercise over the option price,
and subject to the limitations described below, the Corporation receives a
tax deduction for the same amount; upon disposition of the shares,
appreciation or depreciation after the exercise date is treated as either
short-term or long-term capital gain or loss; certain additional rules
apply if the option price for an option is paid in shares previously owned
by the optionee; and
(c) upon exercise of an incentive stock option, no income is realized
by the optionee and the Corporation receives no tax deduction provided the
optionee holds the shares for at least one year from the date of exercise
and two years from the date of grant; if the shares are held for such
periods, appreciation or depreciation from the option price is treated as
long-term capital gain or loss by the optionee upon disposition; however,
the excess of the fair market value of the shares as of the date of
exercise over the option price will constitute an adjustment to taxable
income for purposes of the alternative minimum tax; if the shares are not
held for such periods, the excess of the fair market value of the shares on
the date of exercise or, if less, the fair market value on the date of
disposition, over the option price will be taxable as ordinary income to
the optionee at the time of disposition, and subject to the limitations
described below, a corresponding deduction by the Corporation will be
allowable; certain additional rules apply if the option price for an option
is paid in shares previously owned by the optionee.
The Corporation's deductions described above might not be available if
options vest as a result of a Change of Control (as described below).
The foregoing discussion is for general information only, and is not
intended as tax advice to any individual. It does not address the state, local
or foreign tax treatment of options under the 2002 Plan.
Under the 2002 Plan, the Committee may make awards of Units, which are
payable in Common Shares of the Corporation, commencing not earlier than six
months following the date of the award (unless accelerated by the Committee), in
a single installment or in up to five equal or unequal annual installments. Each
Unit is equivalent to one Common Share of the Corporation. Upon termination of
employment for any reason other than retirement, disability or death, any award
of Units not distributable as of the date of such termination of employment
shall be forfeited with respect to such undistributed amount. In the event of
termination of employment because of retirement within one year after an award
is made, such award will also be forfeited, unless the Committee, in its sole
discretion, waives such forfeiture. If an employee or former employee dies or
becomes permanently disabled, the employee, former employee or his or her
designated beneficiaries will generally receive an immediate distribution of the
number of Units then credited to such employee or former employee's account, as
described in the 2002 Plan. Dividend equivalents will be paid on undistributed
Units when dividends are payable on the outstanding Common Shares of the
Corporation.
The Committee may designate an award of Units as a "Performance Award" and
condition the vesting of such Units upon the attainment of specified levels of
one or more of the following performance goals: earnings per share, return on
equity, profit before taxes, operating profit or cash flow. Shareholder approval
of the 2002 Plan shall constitute approval of these performance goals for
purposes of qualifying Performance Awards for the exception from the deductions
limitations of Section 162(m) of the Code described above.
The 2002 Plan provides that the Committee may establish procedures for the
distribution of shares distributable pursuant to Units for purposes of
permitting an awardee to defer compensation.
The 2002 Plan provides that in the event of a Change of Control (as defined
in the 2002 Plan): (i) each outstanding stock option will immediately become
exercisable in full; (ii) all Performance Awards will be considered to be earned
and payable in full and any Units (whether or not Performance Awards) credited
to a participant's account but not yet distributed will be paid out in cash at a
dollar value per Unit equal to, in general, the higher of (x) the highest
reported sales price of the Common Shares in the 60-day period ending on the
date of the Change of Control and (y) if the Change of Control is the result of
a tender or exchange
25
offer or a Business Combination (as defined in the 2002 Plan), the highest price
paid for the Common Shares in such tender or exchange offer or Business
Combination (the "Change of Control Price"); and (iii) during the 60-day period
following the Change of Control, a participant holding a stock option will have
the right to surrender all or part of his or her option or right to the
Corporation (or its successor, if applicable) and receive a cash payment equal
to the difference between the option price and the Change of Control Price (or
the fair market value of the Common Shares on the date of exercise, in the case
of incentive stock options).
The 2002 Plan provides for the use of authorized but unissued shares, or
treasury shares. Subject to the approval of the 2002 Plan by the shareholders,
and to the extent that treasury shares are not used, authorized but unissued
Common Shares of the Corporation have been reserved for issuance upon exercise
of options or distribution of awards granted under the 2002 Plan.
In the event of a change in the capital of the Corporation or other change
or exchange involving the outstanding Common Shares due to a stock dividend,
stock split, combination of shares, spin-off, recapitalization, merger,
consolidation or other corporate reorganization, or other similar corporate
event, the number and kind of shares subject to the 2002 Plan and/or the number
of Units or option values or prices will be appropriately and equitably adjusted
to maintain the value and/or option prices thereof.
No options or awards may be granted under the 2002 Plan after December 31,
2007, but options or awards theretofore granted may extend beyond that date. The
2002 Plan may be discontinued by the Board of Directors at any time, but no
termination may impair the rights of any holders of options or awards granted
prior thereto.
The Board of Directors of the Corporation may alter or amend the 2002 Plan
at any time. No such amendment, however, may, without shareholder approval, (i)
increase the total number of shares reserved for purposes of the 2002 Plan,
except to reflect changes in the capitalization of the Corporation as provided
in the 2002 Plan, (ii) permit grants of options with an option price less than
the fair market value at the time the option was granted, except to reflect
changes in the capitalization of the Corporation as provided in the 2002 Plan,
or (iii) extend the duration of the 2002 Plan. Subject to certain limitations,
the Committee may amend the terms of any award or option retroactively or
prospectively, but the 2002 Plan does not permit the Committee to reduce the
option price to an amount less than the fair market value at the time the option
was granted, except to reflect changes in capitalization as provided under the
2002 Plan or in connection with cashless exercises, or take any action which
would cause a Performance Award to fail to be exempt from Section 162(m) of the
Code. The Committee has the power to interpret the 2002 Plan and to make all
other determinations necessary or advisable for its administration.
Benefits under the 2002 Plan to the Chairman and Chief Executive Officer
and the other executive officers named in the Summary Compensation Table on page
11, to the current executive officers of the Corporation, and to the other
employees of the Corporation are not currently determinable because the 2002
Plan is discretionary. Information with respect to grants to the Chairman and
Chief Executive Officer and the other executive officers named in the Summary
Compensation Table under the 1997 Stock Incentive Plan in 2001 is disclosed in
the Summary Compensation Table on Page 11.
The closing market price on February 28, 2002 of one Common Share of the
Corporation on the New York Stock Exchange, Inc. was $34.49 per share.
SHAREHOLDER PROPOSAL
The Society of the Holy Child Jesus Generalate, a shareholder, has informed
the Corporation of its intention to present the proposal set forth below for
consideration at the Annual Meeting. The proposal is also being co-sponsored by
15 other shareholders. The names, addresses and stock ownership of each of these
shareholders will be furnished by the Secretary of the Corporation to any
shareholder promptly upon receipt of an oral or written request therefor.
26
WHEREAS:
We believe that access to needed health care services and products is
essential to human development;
Pharmaceutical products play a significant role in restoring, maintaining
and enhancing human health;
Millions of Americans lack access to prescription medicines or pay dearly
for them because they are uninsured or under-insured;
Because the industry prices pharmaceuticals very differently for retail and
for group purchasers, people buying at local retail pharmacies pay the
highest out-of-pocket prices for the medicines they need;
A Report prepared for the President by the Department of Health and Human
Services (Prescription Drug Coverage, Spending, Utilization, and Prices,
April 2000) found that:
- For the most commonly prescribed drugs, the price difference between cash
customers and those with third-party coverage grew substantially larger
between 1996 and 1999.
- In 1999, for a quarter of the most common drugs, the price difference
between cash and third parties (group purchasers) was over 20%.
- Neither the wholesalers nor the retailers are creating the high prices.
The wholesale markup, after purchase from the manufacturer, is "generally
small, perhaps 2% - 4%." (ch.3, p.101). The Report also suggested that
local pharmacy profit margins have been falling in recent years; (p.103).
May 2001 report by the National Institute for Health Care Management
Foundation found that while doctors are writing more prescriptions for
higher-cost drugs, price increases accounted for 22% of the increase in
retail spending on prescription drugs in the year 2000; (NY Times, May 11,
2001).
RESOLVED:
Shareholders request the Board of Directors to report to shareholders by
September 2002 on the creation and implementation of a policy of price
restraint on prescription drugs, utilizing a combination of approaches to
keep drug prices at reasonable levels (withholding any competitive
information, and at reasonable cost).
SUPPORTING STATEMENT: We suggest that the policy include a restraint on each
individual drug and that it not be based on averages which can mask tremendous
disparities: a low price increase for one compound and a high price increase for
another; one price for a "favored customer" (usually low) and another for the
retail customer (usually high).
We appreciate the need for research and the role that our company has
played in the development of new medicines. We are also aware that the cost
of research is only one determinant for the final price of a drug.
Advertising is another significant company expenditure, and now includes
"direct to consumer" campaigns. Schering-Plough spent $3.48 billion on
Marketing/Advertising/Administration in the year 2000. Thus, we believe
that price restraint can be achieved without sacrificing necessary research
efforts.
We urge a vote FOR this resolution.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE AGAINST THIS
PROPOSAL.
The Corporation is committed to responsible drug pricing and finding
mechanisms to ensure access to necessary medicines for uninsured and
underinsured patients. The Corporation has and continues to restrain price
increases to various government purchasers such as the Veterans Administration
and the Public Health Service, and it voluntarily participates in numerous
state-run programs benefiting needy senior citizens. The Corporation also
strongly supports modernizing the Medicare program so that seniors and the
disabled will have access to an outpatient drug benefit administered through the
private sector. In addition, the Corporation has a long-standing policy of
providing prescription drugs free of charge to financially needy patients as
well as working with patients and physicians to assist in determining patient
eligibility for other forms of public and private financial assistance.
27
Your Board of Directors believes that it would be inappropriate and
contrary to the best interests of the Corporation and its shareholders to create
the specific policy required by this proposal. By adopting such a policy, the
Board would dispense with prudent business practices that the Corporation
employs in reaching decisions on prescription drug prices, including
consultation with clinical and marketing professionals and consideration of such
issues as cost of research and development, patient affordability and potential
avoidability of hospitalization and other costs, potential competition,
discounts, rebates and price reductions available to governmental and private
purchasers, added value a product brings to quality of life, cost of goods, and
ensuring a fair return to shareholders.
Furthermore, your Board of Directors believes that the Corporation's
pricing practices are reasonable and that this shareholder proposal raises
potential competitive problems. Publication of the requested report on policies
and pricing procedures could put the Corporation at a disadvantage in the highly
competitive markets in which it operates -- the very markets that foster
innovation and price competition.
New pharmaceuticals not only can save more lives and improve patients'
well-being, they can be the most cost-effective component of a health care
system. The costs and risks of developing pharmaceuticals are so high -- the
Corporation invested $1.312 billion in research and development in 2001
alone -- that the artificial pricing mechanism suggested by this shareholder
proposal could diminish available investment funds and act as a disincentive to
the Corporation to continue investing in breakthrough-medicine research. Your
Board of Directors recommends a vote against this proposal.
OTHER BUSINESS
The By-laws of the Corporation provide a formal procedure for bringing
business before the Annual Meeting. A shareholder proposing to present a matter
before the Annual Meeting is required to deliver to the Secretary of the
Corporation, not less than 90 days nor more than 120 days prior to the first
anniversary of the preceding year's Annual Meeting (or in the event that the
date of the Annual Meeting is more than 30 days before or more than 60 days
after such anniversary date, not earlier than the 120th day prior to the Annual
Meeting and not later than the later of the 90th day prior to the Annual Meeting
or the 10th day following the day on which public announcement of the date of
such meeting is first made by the Corporation), a notice with a brief
description of the business desired to be brought, the reasons for conducting
such business, the name and address of the shareholder and the number of shares
of the Corporation's stock the shareholder beneficially owns, and any material
interest of the shareholder in such business. If these procedures are not
complied with, the proposed business will not be transacted at the Annual
Meeting. Such By-law provisions are not intended to affect any rights of
shareholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
Pursuant to Rule 14a-4 under the Exchange Act, if a shareholder notifies
the Corporation after January 25, 2003 of an intent to present a proposal at the
Corporation's 2003 Annual Meeting (and for any reason the proposal is voted upon
at that Annual Meeting), the Corporation's proxy holders will have the right to
exercise discretionary voting authority with respect to the proposal, if
presented at the meeting, without including information regarding the proposal
in its proxy materials.
The Board of Directors knows of no other business which will be presented
at the meeting. If, however, other matters are properly presented, the persons
named in the enclosed proxy will vote the shares represented thereby in
accordance with their best judgment.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Joseph C. Connors, an officer, reported one transfer of 1,300 Common Shares
to his wife in 1995 and one transfer of 1,839 Common Shares from his wife to him
in 1996. Due to subsequent stock splits, Mr. Connors' holdings increased, as
reported in 2002, by 2,156 Common Shares. These transfers did not alter the
total number of Common Shares held directly and indirectly by Mr. Connors.
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SOLICITATION OF PROXIES
The Corporation has retained Morrow & Co. to solicit proxies for a fee of
$17,500, plus reasonable out-of-pocket expenses. Solicitation of proxies will be
undertaken through the mail, in person and by telecommunications and may include
solicitation by officers and employees of the Corporation. Costs of solicitation
will be borne by the Corporation.
2003 ANNUAL MEETING OF SHAREHOLDERS
If any shareholder intends to present a proposal for consideration at the
2003 Annual Meeting of Shareholders, such proposal must be received by the
Corporation not later than November 11, 2002 for inclusion, pursuant to Rule
14a-8 under the Exchange Act, in the Corporation's proxy statement for such
meeting. Such proposals also will need to comply with SEC regulations regarding
the inclusion of shareholder proposals in Corporation-sponsored proxy materials.
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Exhibit A
2002 STOCK INCENTIVE PLAN
1. PURPOSE OF PLAN
The purpose of the Schering-Plough Corporation 2002 Stock Incentive Plan
(hereinafter called the "Plan") is to aid Schering-Plough Corporation
(hereinafter called the "Company") and its subsidiaries and affiliates (whether
incorporated or unincorporated) in securing and retaining employees of
outstanding ability and to provide additional motivation to such employees to
exert their best efforts on behalf of the Company and its subsidiaries and
affiliates. The Company expects that it will benefit from the added interest
which such employees will have in the welfare of the Company as a result of
their ownership or increased ownership of the Company's Common Shares ("Common
Stock").
2. STOCK SUBJECT TO THE PLAN
Subject to adjustment as provided in Paragraph 11, the total number of
shares of Common Stock of the Company that may be awarded or optioned under the
Plan is 72,000,000; provided that the maximum number of such shares which may be
awarded in the form of Deferred Stock Units (hereinafter sometimes called
"Units") is 30,000,000. The shares may consist, in whole or in part, of unissued
shares or treasury shares. Any shares subject to an award hereunder that shall
not be issued because of the forfeiture of such award and any shares optioned
hereunder that shall cease to be subject to the option may again be awarded or
optioned under the Plan. In addition to the foregoing limitations, no
participant may be granted awards or options covering in excess of 3,000,000
shares of Common Stock in any fiscal year, subject to changes in capital as
described in Paragraph 11.
3. ADMINISTRATION
The Executive Compensation and Organization Committee of the Board of
Directors (hereinafter called the "Committee") consisting of two or more members
of the Board of Directors, shall administer the Plan. Each member of the
Committee shall be a "non-employee director" within the meaning of Rule
16b-3(b)(3) under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or any successor definition adopted by the Securities and Exchange
Commission, and an "outside director" for purposes of Section 162(m)(4) of the
Internal Revenue Code of 1986, as amended (the "Code"). The Committee shall have
the authority, consistent with the Plan, to determine the provisions and timing
of the awards or options to be granted, to interpret the Plan and the awards and
options granted under the Plan, to adopt, amend and rescind rules and
regulations for the administration of the Plan and the awards and options,
including rules with respect to limitations on the utilization of shares of
Common Stock of the Company in full or part payment of the option price under
Paragraph 6(d) of the Plan, and generally to conduct and administer the Plan and
to make all determinations in connection therewith which may be necessary or
advisable. Committee decisions and selections shall be made by a majority of its
members present at a meeting at which a quorum is present, and shall be final,
conclusive and binding with respect to the interpretation and administration of
the Plan and any grant made under it. Any decision or selection reduced to
writing and signed by all of the members of the Committee shall be as fully
effective as if it had been made at a meeting duly held. The Committee may
delegate some or all of its authority under the Plan as the Committee deems
appropriate; provided, however, that no such delegation may be made that would
(i) cause options or awards under the Plan to cease to be exempt from Section
16(b) of the Exchange Act or (ii) cause a Performance Award (as defined in
Paragraph 8) to cease to qualify for exemption from the deduction limitations
under Section 162(m) of the Code.
4. ELIGIBILITY
Employees, including officers and employees of the Company and of its
subsidiaries and affiliates, who are from time to time responsible for the
performance, growth and protection of the business of the Company
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or its subsidiaries and affiliates are eligible to be granted awards and options
under the Plan. The employees who shall receive awards or options under the Plan
shall be selected from time to time by the Committee, in its sole discretion,
from among those eligible, and the Committee shall determine, in its sole
discretion, the number of shares to be covered by the award or awards and by the
option or options granted to each such employee selected.
For purposes of the Plan, the term "subsidiary" shall mean any corporation,
partnership, joint venture or other entity during any period in which at least a
50% voting or profits interest is owned, directly or indirectly, by the Company
or any successor to the Company, and the term "affiliate" shall mean a
corporation or other entity controlled by, controlling or under common control
with the Company.
5. LIMITATIONS
No award or option may be granted under the Plan after December 31, 2007,
but awards or options theretofore granted may extend beyond that date.
6. TERMS AND CONDITIONS OF STOCK OPTIONS
All options granted under this Plan shall be subject to all the applicable
provisions of the Plan, including the following terms and conditions, and to
such other terms and conditions not inconsistent therewith as the Committee
shall determine. The Committee may grant either incentive stock options or
non-qualified stock options under this Plan.
(a) Option Price. The option price per share shall be determined by the
Committee but shall not be less than 100% of the fair market value at the time
the option is granted. The fair market value shall be the closing price at which
shares of the Common Stock are traded on the New York Stock Exchange on the day
on which the option is granted. If there is no sale of the shares of Common
Stock on such Exchange on the date the option is granted, the mean between the
bid and asked prices on such Exchange at the close of the market on such date
shall be deemed to be the fair market value of the shares of Common Stock. In
the event that the method for determining the fair market value of the shares
provided for in this Paragraph 6(a) shall not be practicable, then the fair
market value per share of Common Stock shall be determined by such other
reasonable method as the Committee shall, in its discretion, select and apply at
the time of grant of the option concerned.
(b) Option Term. Except as otherwise provided in Paragraphs 6(f)(i),
6(f)(ii), and 6(f)(iii), each option shall be exercisable during and over such
period ending not later than ten years from the date it was granted, as may be
determined by the Committee and stated in the option.
(c) Exercisability. Except as provided in Paragraphs 6(f)(i), 6(f)(ii),
and 6(f)(iii), and 12, no option shall be exercisable during the year ending on
the first anniversary date of the granting of the option or, if the Committee so
determines at the time of grant or subsequent thereto: (i) during such lesser
period as determined by the Committee or (ii) in the case of a Transferable
Option (as defined in Section 6(h) below) such option may become exercisable
immediately upon transfer.
(d) Method of Exercise. Each option may be exercised by giving written
notice to the Company specifying the number of shares to be purchased, which
shall be accompanied by payment in full including applicable taxes, if any.
Payment for taxes shall be in cash, in shares of Common Stock or in shares of
Common Stock withheld by the Company from shares issuable upon exercise of the
option, or such other consideration as shall be approved by the Committee.
Payment of the option price shall be in cash, or in shares of Common Stock of
the Company already owned by the optionee for at least six months before the
date of payment, or by a combination of cash and shares of Common Stock of the
Company already owned by the optionee for at least six months before the date of
payment. (When payment of taxes or the option price is made in Common Stock, the
Common Stock shall be valued at the closing price at which the shares are traded
on the New York Stock Exchange on the last business day before the day on which
the option is exercised.) No option shall be exercised for less than the lesser
of 100 shares or the full number of shares for which the option is then
exercisable. No optionee shall have any rights to dividends or other rights of a
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shareholder with respect to shares subject to his option until he has given
written notice of exercise of his option, paid in full for such shares
(including taxes) and, if requested, given the representation described in
Paragraph 9.
(e) Cashless Exercise. Notwithstanding the foregoing Paragraph 6(d), each
option granted hereunder may, at the time of grant or subsequent thereto,
provide the right either (i) to exercise such option in whole or in part without
any payment of the option price, or (ii) to request the Committee to permit, in
its sole discretion, such exercise without any payment of the option price. If
an option is exercised without a payment of the option price, the optionee shall
be entitled to receive that number of whole shares as is determined by dividing
(a) an amount equal to the fair market value per share on the date of exercise
into (b) an amount equal to the excess of the total fair market value of the
shares on such date with respect to which the option is being exercised over the
total cash purchase price of such shares as set forth in the option. Fractional
shares will be rounded to the next lowest whole number. At the sole discretion
of the Committee, or as specified in the option, the settlement of all or part
of an optionee's rights under this Paragraph 6(e) may be made in cash in an
amount equal to the fair market value of the shares otherwise payable hereunder.
The number of shares with respect to which any option is exercised under this
Paragraph 6(e) shall reduce the number of shares thereafter available for
exercise under the option, and such shares thereafter may not again be optioned
under the Plan. In no event may an option be exercised under this Paragraph 6(e)
at a time when the option price per share of Common Stock of the Company equals
or exceeds the fair market value per share of such Common Stock.
(f) Termination of Employment. For purposes of this Plan, "Termination of
Employment" shall mean the termination of the participant's employment with the
Company and any of its subsidiaries or affiliates. A participant employed by a
subsidiary or an affiliate shall also be deemed to incur a Termination of
Employment if, due to a sale, divestiture, spin-off or Change of Control (as
defined in Section 12(c) below), the subsidiary or affiliate ceases to be such a
subsidiary or affiliate, as the case may be, and the participant does not
immediately thereafter become an employee of the Company or another subsidiary
or affiliate.
(i) Termination by Reason of Retirement. If an optionee incurs a
Termination of Employment by reason of retirement, any option held by such
optionee may thereafter be exercised to the extent to which it was
exercisable at the time of retirement (unless the Committee, in its
discretion, determines otherwise), and may be exercised at any time during
the stated period of the option. If the optionee dies prior to such
expiration of the option, any unexercised option, to the extent to which it
was exercisable at the time of death, may thereafter be exercised by the
optionee's designated beneficiary or, if none by the legal representative
of the estate or by the legatee of the option under the optionee's last
will for the stated period of the option, except that in no event shall
such period expire less than one year from the date of death in the case of
a non-qualified option.
(ii) Termination by Reason of Disability. If an optionee incurs a
Termination of Employment by reason of permanent disability, any option
held by such optionee may thereafter be exercised in full, and may be
exercised at any time during the stated period of the option. If the
optionee dies prior to such expiration of the option, any unexercised
option may thereafter be exercised by the optionee's designated beneficiary
or, if none, by the legal representative of the estate or by the legatee of
the option under the optionee's last will for the stated period of the
option, except that in no event shall such period expire less than one year
from the date of death in the case of a non-qualified option.
(iii) Termination by Reason of Death. If an optionee incurs a
Termination of Employment by reason of death, any option held by such
optionee may thereafter be immediately exercised in full by the optionee's
designated beneficiary or, if none, by the legal representative of the
estate or by the legatee of the option under the optionee's last will, and
for the stated period of the option, except that in no event shall such
period expire less than one year from the date of death in the case of a
non-qualified option.
(iv) Other Termination. Except as set forth in Paragraph 15(f), if an
optionee incurs a Termination of Employment for any reason other than
death, retirement, or permanent disability, the option shall be
exercisable, to the extent that it was exercisable at the time of
termination, for three months after such Termination of Employment, or if
earlier, upon the expiration of the stated period of the option.
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(g) Nontransferability of Options. Except as permitted under Paragraph
6(h), no option granted pursuant to this Plan may be sold, assigned,
transferred, pledged, hypothecated or otherwise disposed of, except by will or
the laws of descent and distribution and, during the lifetime of the optionee,
may be exercised only by such optionee. The optionee may designate in writing a
beneficiary of the option in the event of his death.
(h) Transferable Options. The Committee may grant options that are
transferable, or amend outstanding options to make them transferable, by the
optionee (any such option so granted or amended a "Transferable Option") to one
or more members of the optionee's immediate family, to a partnership of which
the only partners are members of the optionee's immediate family, or to a trust
established by the optionee for the benefit of one or more members of the
optionee's immediate family and the Committee may in its discretion permit
transfers to other persons or entities. For this purpose the term "immediate
family" means the optionee's spouse, children and grandchildren. Consideration
may not be paid for the transfer of a Transferable Option. A transferee
described in this Paragraph 6(h) shall be subject to all terms and conditions
applicable to the Transferable Option prior to its transfer. The stock option
agreement with respect to a Transferable Option shall set forth its transfer
restrictions, and only options granted pursuant to a stock option agreement
expressly permitting transfer pursuant to this Paragraph 6(h) shall be so
transferable.
(i) Type of Option. Notwithstanding any intent to grant incentive stock
options, an option will not be considered an incentive stock option to the
extent that it together with any earlier incentive stock options granted to any
optionee permits the exercise for the first time by such optionee in any
calendar year of more than $100,000 in value of stock of the Company (determined
at the time of grant).
(j) Deferral of Option Shares. The Committee may from time to time
establish option exercise procedures for purposes of permitting an optionee to
elect to defer, until a time or times later than the exercise of an option,
receipt of all or a portion of the shares of Common Stock subject to such option
and/or to receive cash at such later time or times in lieu of such deferred
shares in the event of a cashless exercise. Such procedures may permit an
optionee to elect to have all or a portion of the shares issuable by the Company
on exercise of an option transferred to a trust established by the Company.
Notwithstanding Paragraph 6(d) above, an optionee who elects to follow any such
procedures shall not have any rights as a shareholder with respect to shares
issued on exercise of options under such procedures unless and until shares are
actually delivered to the optionee with respect thereto.
7. TERMS AND CONDITIONS OF DEFERRED STOCK UNIT AWARDS
All awards of Units under the Plan shall be subject to all the applicable
provisions thereof, including the following terms and conditions, and to such
other terms and conditions not inconsistent therewith, as the Committee shall
determine.
(a) Grant of Awards. Awards of Units may be in addition to or in lieu of
option grants.
(b) Memorandum Account. The number of Units allotted to an employee shall
be credited to a memorandum account maintained by the Company for the employee.
No employee shall be a shareholder with respect to any Units credited to his
account, nor shall he (or any beneficiary) have any right to or interest in any
specific asset of the Company or its subsidiaries or affiliates, including any
shares of Common Stock which may be purchased or held by the Company or its
subsidiaries or affiliates to provide the benefits payable under the Plan, until
such shares are actually distributed under the Plan.
(c) Dividends. When dividends other than stock dividends are paid from
time to time by the Company with respect to its Common Stock, the Company shall
calculate the amount which would have been payable in cash or other property on
the total undistributed Units in each employee's memorandum account on each
dividend record date as if each such Unit represented one share of issued and
outstanding Common Stock of the Company held by the employee. An amount
equivalent to each such dividend shall thereupon be paid to the employee on the
dividend payment date in cash or other property, as the case may be, as
additional compensation to the employee.
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(d) Distribution. With respect to each award of Units to an employee, and
except as provided in Paragraphs 7(e), 8, and 12 of the Plan, shares of Common
Stock of the Company equal in number to the number of Units so awarded to the
employee shall be distributed to such employee in a single lump sum on the
second, third, fourth or fifth anniversary of the date on which such award of
Units was made or in two, three, four or five equal or unequal annual
installments commencing on a date not earlier than six months after such award
date and on each anniversary thereafter for the duration of the installment
period, all as specified in the award of such Units; provided, however, that the
Committee may, in its sole discretion, accelerate the payment of any lump sum or
installment in the event of the retirement or permanent disability of an
employee or for any other reason decided by the Committee.
(e) Termination. If an employee incurs a Termination of Employment by
reason of retirement within one year from the date on which an award of Units
shall have been made to such employee, the number of Units credited to his
memorandum account as a result of such award, other than Units paid or
accelerated pursuant to Paragraph 7(d), shall be forfeited as of the date of his
retirement (unless the Committee, in its sole discretion, waives such
forfeiture) and the number of Units remaining in his memorandum account shall be
distributed pursuant to Paragraph 7(d). Notwithstanding the foregoing, an award
of Units may specify that such Units shall be forfeited if the employee retires
prior to the payment date or dates specified in the award. In such case, the
Units shall be forfeited in accordance with the terms of the award, unless the
Committee, in its sole discretion, waives such forfeiture.
If an employee or former employee dies, such number of shares of Common
Stock of the Company as is equal to the total number of Units credited to his
memorandum account as of the date of his death shall be distributed to his
designated beneficiaries as soon thereafter as practicable.
If an employee incurs a Termination of Employment by reason of permanent
disability, such number of shares of Common Stock of the Company as is equal to
the total number of Units credited to his memorandum account as of the date of
his termination shall be distributed as provided in Paragraph 7(d).
If an employee incurs a Termination of Employment for any reason other than
retirement, permanent disability, or death, the total number of Units credited
to his memorandum account shall be forfeited as of the date of such Termination
of Employment. If the employee incurs a Termination of Employment for cause, as
defined in Paragraph 15(f), the provisions of Paragraph 15(f) shall also apply.
(f) Beneficiaries. Designations of beneficiaries shall be made in writing
filed with the Company in such form and in such manner as the Committee may from
time to time prescribe. Beneficiaries may be changed in the same manner at any
time prior to the death of an employee. If an employee dies without having
designated any surviving beneficiaries, his interest in Units under the Plan
shall be distributed to the legal representative of his estate.
(g) Payment of Taxes. No later than the date as of which an amount first
becomes includible in the gross income of the participant for federal income tax
purposes with respect to any award under the Plan, the participant shall pay to
the Company, or make arrangements satisfactory to the Company regarding the
payment of, any federal, state, local or foreign taxes of any kind required by
law to be withheld with respect to such amount. Withholding obligations may be
settled with cash or with shares of Common Stock (including shares of Common
Stock that is part of the award that gives rise to the withholding requirement),
or with such other consideration as shall be approved by the Committee. Such
Common Stock shall be valued at the closing price at which the shares are traded
on the New York Stock Exchange on the last business day before the day on which
the distribution is made. The obligations of the Company under the Plan shall be
conditional on such payment or arrangements, and the Company and its affiliates
shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment otherwise due to the participant. The Committee may establish
such procedures as it deems appropriate, including making irrevocable elections,
for the settlement of withholding obligations with Common Stock.
(h) Deferral of Awards. The Committee may from time to time establish
procedures for the distribution of shares distributable pursuant to Units for
purposes of permitting an awardee to elect to defer, until a time or times later
than the dates of distribution under the Plan, receipt of all or a portion of
the shares
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distributable pursuant to Units. Such procedures may permit an awardee to elect
to have all or a portion of the shares distributable pursuant to Units
transferred to a trust established by the Company. An awardee who elects to
follow any such procedures shall not have any rights as a shareholder with
respect to shares distributed under such procedures unless and until shares are
actually delivered to the awardee with respect thereto.
8. PERFORMANCE AWARDS
The Committee may, prior to or at the time of grant, designate an award of
Units as a performance award (hereinafter called a "Performance Award") in which
event it shall condition the grant or vesting, as applicable, of such Units upon
the attainment of Performance Goals (as defined in Paragraph 8(b) below) and the
provisions of Paragraph 8 shall control with respect to such Performance Awards
to the extent inconsistent with Paragraph 7.
(a) Administration. All Performance Awards shall be designated as such by
the Committee prior to or at the time of grant, based upon a determination that
(i) the recipient is or may be a "covered employee" within the meaning of
Section 162(m)(3) of the Code (sometimes referred to herein as a "Covered
Employee") in the fiscal year in which the Company would expect to be able to
claim a tax deduction with respect to such Performance Awards and (ii) the
Committee wishes such Performance Awards to qualify for the exemption from the
limitation on deductibility imposed by Section 162(m) of the Code that is set
forth in Section 162(m)(4)(c) of the Code.
(b) Terms and Conditions. "Performance Goals" means the performance goals
established by the Committee in connection with the grant of Performance Awards.
(i) Such Performance Goals (A) shall be based on the attainment by the
Company of specified levels of one or more of the following measures:
earnings per share, return on equity, profit before taxes, operating profit
or cash flow, and (B) shall be set by the Committee within the time period
prescribed by Section 162(m) of the Code and related regulations.
(ii) Following the completion of each fiscal year, the Committee shall
certify in writing whether the applicable Performance Goals have been
achieved for such year and the extent to which Performance Awards have been
earned by each Covered Employee for such fiscal year.
(iii) Notwithstanding Paragraph 7 of the Plan, no Performance Award
shall vest or be paid out except (A) upon achievement of the applicable
Performance Goals, (B) upon the death or permanent disability of the
employee, or (C) upon a Change of Control pursuant to Paragraph 12.
9. INVESTMENT REPRESENTATION
Upon any distribution of shares of Common Stock of the Company pursuant to
any provision of the Plan, the distributee may be required to represent in
writing that he is acquiring such shares for his own account for investment and
not with a view to, or for sale in connection with, the distribution of any part
thereof. The certificates for such shares may include any legend which the
Committee deems appropriate to reflect any restrictions on transfers.
10. TRANSFER, LEAVE OF ABSENCE, ETC.
For the purpose of the Plan: (a) a transfer of an employee between and
among the Company, a subsidiary, or an affiliate, and (b) a leave of absence,
duly authorized in writing by the Company, shall not be deemed a Termination of
Employment.
11. CHANGES IN CAPITAL
If the outstanding Common Stock of the Company subject to the Plan shall at
any time be changed or exchanged by declaration of a stock dividend, stock
split, combination of shares, spin-off, recapitalization, merger, consolidation
or other corporate reorganization in which the Company is the surviving
corporation, or
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if the Company shall pay an extraordinary dividend on its Common Stock, or in
the event of a similar corporate event, the number and kind of shares subject to
the Plan and/or the number of Units or option values or prices shall be
appropriately and equitably adjusted so as to maintain the value and/or option
price thereof, as the case may be.
12. CHANGE IN CONTROL PROVISIONS
(a) Impact on Options. Notwithstanding any other provision of the Plan, in
the event of a Change of Control, any stock option or related right outstanding
as of the date such Change in Control is determined to have occurred, and which
is not then exercisable and vested, shall become fully exercisable and vested to
the full extent of the original grant. In addition, notwithstanding any other
provision of the Plan, during the 60-day period from and after a Change of
Control (the "Exercise Period"), an optionee shall have the right, whether or
not the option is fully exercisable and in lieu of the payment of the exercise
price for the shares of Common Stock being purchased under the option and by
giving notice to the Company (or its successor, if applicable), to elect (within
the Exercise Period) to surrender all or part of the option to the Company and
to receive cash, within 30 days of such notice, in an amount equal to the amount
by which the Change of Control Price per share of Common Stock on the date of
such election shall exceed the exercise price per share of Common Stock under
the option multiplied by the number of shares of Common Stock granted under the
option as to which the right granted under this Paragraph 12(a) shall have been
exercised.
(b) Impact on Awards. Notwithstanding any other provision of the Plan, in
the event of a Change of Control, the Units (including Performance Awards)
credited to the participant's memorandum account but not yet distributed
pursuant to Paragraph 7(d) as of the date of the Change of Control shall be paid
out as soon thereafter as practicable (but in no event more than 30 days after
the Change of Control) at a dollar value per Unit equal to the Change of Control
Price.
(c) Definition of Change of Control. For purposes of the Plan, a "Change
of Control" shall be deemed to have taken place upon the occurrence of any of
the following events:
(1) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person")
of beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of securities of the Company where such acquisition
causes such Person to own 20% or more of either (i) the then outstanding
shares of Common Stock of the Company (the "Outstanding Company Common
Stock") or (ii) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however,
that for purposes of this subsection (1) the following acquisitions shall
not constitute a Change of Control: (i) any acquisition directly from the
Company, (ii) any acquisition by the Company, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company or (iv) any
acquisition by any corporation pursuant to a transaction which complies
with clauses (i), (ii) and (iii) of subsection (3) below; and provided,
further, that if any Person's beneficial ownership of the Outstanding
Company Voting Securities reaches or exceeds 20% as a result of a
transaction described in clause (i) or (ii) above, and such Person
subsequently acquires beneficial ownership of additional voting securities
of the Company, such subsequent acquisition shall be treated as an
acquisition that causes such Person to own 20% or more of the Outstanding
Company Voting Securities; or
(2) individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by
the Company's shareholders, was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with respect
to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than
the Board; or
A-7
(3) consummation of a reorganization, merger, statutory share exchange
or consolidation or similar corporate transaction involving the Company or
any of its subsidiaries, or a sale or other disposition of all or
substantially all of the assets of the Company or the acquisition of assets
or stock of another entity by the Company or any of its subsidiaries (each,
a "Business Combination"), in each case, unless, following such Business
Combination, (i) all or substantially all of the individuals and entities
who were the beneficial owners, respectively, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities immediately prior to
such Business Combination beneficially own, directly or indirectly, more
than 50% of, respectively, the then outstanding shares of common stock and
the combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case may
be, of the corporation resulting from such Business Combination (including,
without limitation, a corporation which as a result of such transaction
owns the Company or all or substantially all of the Company's assets either
directly or through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such Business
Combination of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (ii) no Person (excluding any
corporation resulting from such Business Combination or any employee
benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding shares of
common stock of the corporation resulting from such Business Combination or
the combined voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to the
Business Combination and (iii) at least a majority of the members of the
board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(4) approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
(d) Definition of Change of Control Price. For purposes of the Plan,
"Change of Control Price" means the higher of (i) the highest reported sales
price, regular way, of a share of Common Stock in any transaction reported on
the New York Stock Exchange Composite Tape or other national exchange on which
such shares may then be listed during the 60-day period prior to and including
the date of a Change of Control or (ii) if the Change of Control is the result
of a tender or exchange offer or a Business Combination, the highest price per
share of Common Stock paid in such tender or exchange offer or Business
Combination; provided, however, that in the case of incentive stock options, the
Change of Control Price shall be in all cases the fair market value of the
Common Stock on the date such incentive stock option is exercised. To the extent
that the consideration paid in any such transaction described above consists all
or in part of securities or other noncash consideration, the value of such
securities or other noncash consideration shall be determined in the sole
discretion of the Committee.
13. USE OF PROCEEDS
Proceeds from the sale of shares pursuant to options granted under this
Plan shall constitute general funds of the Company.
14. AMENDMENTS
The Board of Directors may amend, alter or discontinue the Plan, including
without limitation any amendment considered to be advisable by reason of changes
to the Code, but, no amendment, alteration or discontinuation shall be made (i)
which would impair the rights of any holder of an award or option theretofore
granted, without his consent, (ii) which would cause a Performance Award to
cease to qualify for exemption under Section 162(m) of the Code, or (iii) which,
without the approval of the shareholders, would:
(a) Except as is provided in Paragraph 11, increase the total number
of shares reserved for the purpose of the Plan.
A-8
(b) Except as is provided in Paragraphs 6(e) and 11, decrease the
option price of an option to less than 100% of the fair market value on the
date of the granting of the option.
(c) Extend the duration of the Plan.
Notwithstanding the foregoing, the Board of Directors may amend the Plan
and the Committee may amend any option or award, either retroactively or
prospectively and without the consent of any optionee or award holder, so as to
preserve or come within any exemptions from liability under Section 16(b) of the
Exchange Act pursuant to rules and releases promulgated by the Securities and
Exchange Commission.
15. GENERAL PROVISIONS
(a) Notwithstanding any other provision of the Plan or agreements made
pursuant thereto, the Company shall not be required to issue or deliver any
certificate or certificates for shares of Common Stock under the Plan prior to
fulfillment of all of the following conditions:
(1) Listing or approval for listing upon notice of issuance, of such
shares on the New York Stock Exchange, Inc., or such other securities
exchange as may at the time be the principal market for the Common Stock;
(2) Any registration or other qualification of such shares of Common
Stock under any state or federal law or regulation, or the maintaining in
effect of any such registration or other qualification which the Committee
shall, in its absolute discretion upon the advice of counsel, deem
necessary or advisable; and
(3) Obtaining any other consent, approval, or permit from any state or
federal governmental agency which the Committee shall, in its absolute
discretion upon the advice of counsel, determine to be necessary or
advisable.
(b) Nothing contained in the Plan shall prevent the Company or any
subsidiary or affiliate from adopting other or additional compensation
arrangements for its employees.
(c) The Plan shall not constitute a contract of employment, and adoption of
the Plan shall not confer upon any employee any right to continued employment,
nor shall it interfere in any way with the right of the Company or any
subsidiary or affiliate to terminate the employment of any employee at any time.
(d) No person shall have any rights or claims under the Plan except in
accordance with the provisions of the Plan.
(e) Except as specifically provided in the Plan, no person shall have the
right to assign, transfer, alienate, pledge, encumber or subject to lien the
benefits to which he is entitled thereunder, and benefits under the Plan shall
not be subject to adverse legal process of any kind. No prohibited assignment,
transfer, alienation, pledge or encumbrance of benefits or subjection of
benefits to lien or adverse legal process of any kind will be recognized by the
Committee and in such case the Committee may terminate the right of such person
to such benefits and direct that they be held or applied for the benefit of such
person, his spouse, children or other dependents in such manner in such
proportion as the Committee deems advisable. If a person to whom benefits shall
be due under the Plan shall be or become incompetent, either physically or
mentally, in the judgment of the Committee, the Committee shall have the right
to determine to whom such benefits shall be paid for the benefit of such person.
(f) Notwithstanding any provision in the Plan to the contrary, if an
employee incurs a Termination of Employment by reason of termination for cause,
all options and Units (including Performance Awards) held by him or for his
account under the Plan shall be immediately forfeited and the employee shall be
liable to the Company for all profit realized by him from options exercised or
shares of Common Stock distributed to him during the three months immediately
preceding such termination. For purposes of this Plan, cause shall mean
termination initiated by the Company or by the employee incident to or connected
with a finding that the employee has engaged in misappropriation, theft,
embezzlement, kick-backs, bribery or similar deliberate,
A-9
gross or willful misconduct or dishonest acts or omissions. Termination for
cause shall also include such other events as shall be reasonably determined by
the Committee.
(g) The Plan and all awards made and actions taken thereunder shall be
governed by and construed in accordance with the laws of the State of New
Jersey, without reference to principles of conflict of laws.
(h) In the event an award is granted to an individual who is employed or
providing services outside the United States and who is not compensated from a
payroll maintained in the United States, the Committee may, in its sole
discretion, modify the provisions of the Plan as they pertain to such individual
to comply with applicable foreign law.
16. EFFECTIVE DATE OF PLAN
The Plan shall be effective as of the date it is adopted by the Board
subject to the approval of the Plan by the affirmative vote of a majority of the
votes cast at the 2002 Annual Meeting of Shareholders of the Company by
shareholders entitled to vote on the Plan.
A-10
DIRECTIONS
Sheraton at Woodbridge Place
515 Route One South
Iselin, New Jersey 08830
Tel: (732) 634-3600
FROM THE NEW JERSEY TURNPIKE
Exit 11 and follow signs to Garden State Parkway North to Exit 131A. This
puts you on Wood Ave. South. At the 3rd traffic light make a right turn
onto Middlesex-Essex Turnpike. At the 3rd traffic light take another right
turn. This puts you on Gill Lane for approximately 2 miles to the Sheraton,
which is on the right side of Gill Lane, just before you reach the
intersection of Route 1.
FROM THE GARDEN STATE PARKWAY
TRAVELING SOUTH: Take Exit 130 to Route 1 North. Continue until you see the
Sheraton on the left. Go straight through the traffic light and take the
Gill Lane jughandle in the right lane. Take a left at the intersection of
Gill Lane and Route 1 and turn right into the Sheraton's entrance.
TRAVELING NORTH: Take Exit 131A. This puts you on Wood Ave. South. At the
3rd traffic light make a right turn onto Middlesex-Essex Turnpike. At the
3rd traffic light take another right turn. This puts you on Gill Lane for
approximately 2 miles to the Sheraton, which is on the right side of Gill
Lane, just before you reach the intersection of Route 1.
FROM ROUTE 287 NORTH OR SOUTH:
Take the exit for Route 1 North. Continue until you see the Sheraton on the
left. Go straight through the traffic light and take the Gill Lane
jughandle in the right lane. Take a left at the intersection of Gill Lane
and Route 1 and turn right into the Sheraton's main entrance.
FROM NEWARK INTERNATIONAL AIRPORT:
Take Route 1 and 9 South towards Woodbridge. Follow Route 1 South to
Sheraton on the right hand side - approximately 12 miles.
FROM NEW YORK CITY:
Take either the Holland or Lincoln Tunnel to the New Jersey Turnpike South,
to Exit 11. Take the Garden State Parkway North, to Exit 131A. This puts
you on Wood Ave. South. At the 3rd traffic light make a right turn onto
Middlesex-Essex Turnpike. At the 3rd traffic light take another right turn.
This puts you on Gill Lane for approximately 2 miles to the Sheraton, which
is on the right side of Gill Lane, just before you reach the intersection
of Route 1.
FROM STATEN ISLAND:
Take the Outer Bridge Crossing to Route 440. This will eventually turn into
Route 287, which you will take going north. Take Exit for Route 1 North.
Continue until you see the Sheraton on the left. Go straight through the
traffic light and take the Gill Lane jughandle in the right lane. Take a
left at the intersection of Gill Lane and Route 1 and turn right into the
Sheraton's main entrance.
[SCHERING-PLOUGH LOGO]
SCHERING-PLOUGH CORPORATION
2000 Galloping Hill Road
Kenilworth, New Jersey 07033
RE: PROXY VOTING INSTRUCTIONS TO
VANGUARD FIDUCIARY TRUST COMPANY
Dear Plan Participant:
The Annual Meeting of Shareholders of Schering-Plough Corporation will be
held at the Sheraton at Woodbridge Place, 515 Route One South, Iselin, New
Jersey, on Tuesday, April 23, 2002 at 2:00 p.m.
To be sure that the shares credited to your Company Stock Account(s) are
voted in accordance with your wishes, we urge you to complete and sign the
voting instruction card below, detach it from this letter, and return it in the
prepaid envelope enclosed in this package. Alternatively, you can vote by
telephone or Internet following the instructions on the opposite side of this
proxy card.
Joseph J. LaRosa
Secretary
March 11, 2002
DETACH PROXY CARD HERE
--------------------------------------------------------------------------------
SCHERING-PLOUGH EMPLOYEES' SAVINGS PLAN
SCHERING-PLOUGH EMPLOYEES' PROFIT-SHARING INCENTIVE PLAN
VOTING INSTRUCTIONS
Under the Schering-Plough Employees' Savings Plan and the Schering-Plough
Employees' Profit-Sharing Incentive Plan (the "Plans"), you may direct the
voting of the shares credited to your Company Stock Accounts under the Plans at
the Corporation's Annual Meeting of Shareholders on April 23, 2002. The number
of shares shown on the reverse side represents the total share holdings you have
in the Plans in which you participate.
Enclosed is a copy of the Notice of Annual Meeting and Proxy Statement
describing the items to be presented at the meeting. If no direction is given,
shares will be voted FOR items 1, 2 and 3, and AGAINST item 4.
To: Vanguard Fiduciary Trust Company as Trustee.
In accordance with the provisions of the Plans, I hereby direct that, at
the Annual Meeting of Shareholders of Schering-Plough Corporation on April 23,
2002, and at all adjournments or postponements thereof, the number of Common
Shares of Schering-Plough Corporation credited to my accounts under the Plans
and entitled to vote at said meeting shall be voted or caused to be voted as
specified.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
SCHERING-PLOUGH CORPORATION
P.O. BOX 11300
NEW YORK, N.Y. 10203-0300
[SCHERING PLOUGH LOGO]
YOUR VOTE IS IMPORTANT
VOTE BY INTERNET / TELEPHONE
24 HOURS A DAY, 7 DAYS A WEEK
INTERNET TELEPHONE MAIL
https://www.proxyvotenow.com/sgp 1-888-216-1328
- Go to the website address listed - Use any touch-tone telephone. - Mark, sign and date your
above. proxy card.
- Have your proxy card ready.
- Have your proxy card ready. OR OR - Detach your proxy card.
- Enter your Control Number
located in the box below.
- Enter your Control Number located - Return your proxy card in the
in the box below. prepaid envelope provided.
- Follow the simple recorded
- Follow the simple instructions that instructions.
appear on your computer screen.
Your Internet or telephone vote authorizes
the named proxies to vote your shares in the
same manner as if you marked, signed and
returned your proxy card, and there is no
need for you to mail back your proxy.
1-888-216-1328
CALL TOLL-FREE TO VOTE
CONTROL NUMBER FOR
TELEPHONE OR INTERNET VOTING
THE INTERNET AND TELEPHONE VOTING FACILITIES WILL CLOSE AT 5:00 P.M. E.S.T. ON
APRIL 22, 2002.
PLEASE DETACH PROXY CARD HERE
--------------------------------------------------------------------------------
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
VOTES MUST BE INDICATED (X) IN BLACK OR BLUE INK. [X]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS 1, 2 AND 3
1. Election of Directors: Nominees for 3-year terms: 1 - Hans W. Becherer;
2 - Regina E. Herzlinger; 3 - Kathryn C. Turner;
4 - Robert F.W. van Oordt.
FOR WITHHOLD
ALL [X] FOR ALL [ ] EXCEPTIONS [ ]
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK THE
"EXCEPTIONS" BOX AND WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.)
*Exceptions
---------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Ratification of Designation of Independent Auditors [ ] [ ] [ ]
3. Approval of 2002 Stock Incentive Plan [ ] [ ] [ ]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST" ITEM 4
FOR AGAINST ABSTAIN
4. Shareholder Proposal Concerning Pharmaceutical Pricing [ ] [ ] [ ]
THIS PROXY WILL BE VOTED FOR ITEMS 1, 2 AND 3, AND AGAINST ITEM 4, UNLESS
INSTRUCTIONS TO THE CONTRARY ARE INDICATED.
To change your address, please mark this box. [ ]
SCAN LINE
(Please sign exactly as name or names appear hereon. Full title of one signing
in representative capacity should be clearly designated after signature. Names
of all joint holders should be written even if signed by only one.)
--------------------------- ---------------------------------- -----------------------------
Date Share Owner sign here Co-owner sign here
[SCHERING-PLOUGH LOGO]
SCHERING-PLOUGH CORPORATION
2000 Galloping Hill Road
Kenilworth, New Jersey 07033
ADMISSION TICKET
2002 ANNUAL MEETING OF SHAREHOLDERS
Dear Shareholder:
The Annual Meeting of Shareholders of Schering-Plough Corporation will
be held at the Sheraton at Woodbridge Place, 515 Route One South, Iselin, New
Jersey, on Tuesday, April 23, 2002 at 2:00 p.m.
To be sure that your vote is counted, we urge you to complete and sign
the proxy card below, detach it from this letter, and return it in the prepaid
envelope enclosed in this package. Alternatively, you can vote by Internet or
telephone by following the instructions on the opposite side of this proxy card.
The giving of such proxy does not affect your right to vote in person if you
attend the meeting. Your prompt reply will aid the Corporation in reducing the
expense of additional proxy solicitation.
Admission to the meeting will be by ticket only. If you are a
stockholder of record and plan to attend, please detach and bring this letter to
the meeting as an admission ticket. Admission will be on a first come, first
served basis.
Joseph J. LaRosa
Secretary
March 11, 2002
DETACH PROXY CARD HERE IF YOU ARE NOT
VOTING BY INTERNET OR TELEPHONE
--------------------------------------------------------------------------------
SCHERING-PLOUGH CORPORATION -- PROXY
SOLICITED BY BOARD OF DIRECTORS
FOR
ANNUAL MEETING OF SHAREHOLDERS--APRIL 23, 2002
The undersigned appoints Joseph C. Connors, Richard Jay Kogan and Jack
L. Wyszomierski, or any one or more of them, attorneys and proxies with power of
substitution to vote all of the Common Shares of SCHERING-PLOUGH CORPORATION
standing in the name of the undersigned at the Annual Meeting of Shareholders on
April 23, 2002, and at all adjournments or postponements thereof, upon the
matters set forth in the Notice and Proxy Statement of said meeting, receipt of
which is acknowledged.
The shares represented by this proxy will be voted as directed by the
Shareholder. IF YOU WISH TO VOTE IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE
BOARD OF DIRECTORS, YOU MAY SIGN ON THE REVERSE SIDE AND MAIL IN THE ENCLOSED
ENVELOPE. If no direction is given, shares will be voted FOR items 1, 2 and 3,
and AGAINST item 4. Specific choices may be made on the reverse side.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
SCHERING-PLOUGH CORPORATION
P.O. BOX 11371
NEW YORK, N.Y. 10203-0371
[SCHERING-PLOUGH LOGO]
YOUR VOTE IS IMPORTANT
VOTE BY INTERNET / TELEPHONE
24 HOURS A DAY, 7 DAYS A WEEK
INTERNET TELEPHONE MAIL
https://www.proxyvotenow.com/sgp 1-888-216-1328
- Go to the website address listed - Use any touch-tone telephone. - Mark, sign and date your
above. proxy card.
- Have your proxy card ready.
- Have your proxy card ready. OR OR - Detach your proxy card.
- Enter your Control Number
located in the box below.
- Enter your Control Number located - Return your proxy card in the
in the box below. prepaid envelope provided.
- Follow the simple recorded
- Follow the simple instructions that instructions.
appear on your computer screen.
Your Internet or telephone vote authorizes
the named proxies to vote your shares in the
same manner as if you marked, signed and
returned your proxy card, and there is no
need for you to mail back your proxy.
1-888-216-1328
CALL TOLL-FREE TO VOTE
CONTROL NUMBER FOR
TELEPHONE OR INTERNET VOTING
THE INTERNET AND TELEPHONE VOTING FACILITIES WILL CLOSE AT 5:00 P.M. E.S.T. ON
APRIL 22, 2002.
PLEASE DETACH PROXY CARD HERE
--------------------------------------------------------------------------------
[ ] PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
VOTES MUST BE INDICATED (X) IN BLACK OR BLUE INK. [X]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS 1, 2 AND 3
1. Election of Directors: Nominees for 3-year terms: 1 - Hans W. Becherer;
2 - Regina E. Herzlinger; 3 - Kathryn C. Turner;
4 - Robert F.W. van Oordt.
FOR WITHHOLD
ALL [ ] FOR ALL [ ] EXCEPTIONS [ ]
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK THE
"EXCEPTIONS" BOX AND WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.)
*Exceptions
---------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Ratification of Designation of Independent Auditors [ ] [ ] [ ]
3. Approval of 2002 Stock Incentive Plan [ ] [ ] [ ]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST" ITEM 4
FOR AGAINST ABSTAIN
4. Shareholder Proposal Concerning Pharmaceutical Pricing [ ] [ ] [ ]
THIS PROXY WILL BE VOTED FOR ITEMS 1, 2 AND 3, AND AGAINST ITEM 4, UNLESS
INSTRUCTIONS TO THE CONTRARY ARE INDICATED.
To change your address, please mark this box. [ ]
SCAN LINE
(Please sign exactly as name or names appear hereon. Full title of one signing
in representative capacity should be clearly designated after signature. Names
of all joint holders should be written even if signed by only one.)
--------------------------- ---------------------------------- -----------------------------
Date Share Owner sign here Co-owner sign here