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. )
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14a-6(e)(2))
SCHERING-PLOUGH CORPORATION
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[SCHERING-PLOUGH LOGO]
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A MESSAGE FROM THE NEW CEO
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Dear Fellow Shareholder,
As we approach this year's Annual Meeting, I wanted to update you on the
progress of our five-stage Action Agenda to transform our company into a
long-term, high-performance organization.
I am pleased to report that we continue on track with the Stabilization and
Repair phases of the Action Agenda. We are building the foundation for future
growth and looking forward to a Turnaround.
Although the situation we confronted when I joined Schering-Plough less
than one year ago has been the most challenging of my career, we are making the
fundamental changes in nearly every area of the business that are needed to
achieve our goals and to earn your trust.
Among the many actions that are already having positive impact are the
re-engineering of our commercial prescription business in the United States,
globalization and integration of operations worldwide, building our customer
relationships and implementation of significant cost-cutting measures to reduce
our infrastructure and reallocate investment to growth-driving actions. We are
also embedding a culture focused on shared accountability, transparency and
business integrity that will drive every dimension of our business.
We have many challenges ahead of us. I have confidence however, that with
the strength and commitment of our 30,500 people worldwide, we will be able to
deliver on our Action Agenda.
You can learn more about what we are doing to build the New Schering-Plough
in the Proxy Statement and Annual Report for 2003 that are enclosed. I believe
you will see evidence in both documents of our commitment to improved
transparency.
Thank you for your continued commitment to Schering-Plough. We are working
hard to build a company that will reward that commitment and make you proud to
be one of our owners.
Sincerely,
/s/
Fred
Hassan
Kenilworth, New Jersey
March 15, 2004
[SCHERING-PLOUGH LOGO]
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
APRIL 27, 2004
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The Annual Meeting of Shareholders of Schering-Plough Corporation will be
held at The Sheraton Crossroads Hotel, 1 International Boulevard, Mahwah, New
Jersey, on Tuesday, April 27, 2004, at 2:00 p.m. to:
(1) Elect four Directors for terms of three years;
(2) Ratify the designation of Deloitte & Touche LLP to audit
Schering-Plough's books and accounts for 2004;
(3) Approve the Operations Management Team Incentive Plan, a cash
performance-based incentive plan; and
(4) 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
5, 2004 will be entitled to vote at the meeting or any adjournments or
postponements thereof.
While we welcome shareholder participation, we have changed our admission
process for the 2004 Annual Meeting in order to assure tighter security.
Shareholders must write to our transfer agent, The Bank of New York, to obtain
an admission ticket at the address described in the proxy statement on page 2.
TO BE ADMITTED THE SHAREHOLDER MUST PRESENT BOTH THE ADMISSION TICKET AND A
PHOTO IDENTIFICATION.
Your vote is important. Whether or not you plan to attend the meeting, you
can vote in advance by proxy in whichever way is most convenient - in writing,
by telephone or by the Internet.
JOSEPH J. LAROSA
Secretary
Kenilworth, New Jersey
March 15, 2004
TABLE OF CONTENTS
Questions and Answers About Voting.......................... 1
Proposal One: Election of Directors......................... 3
Nominees for Director..................................... 3
Directors Continuing in Office............................ 5
Committees of the Board of Directors...................... 7
Board Meetings and Attendance of Directors................ 8
Directors Attendance at Annual Meeting of Shareholders.... 8
Directors' Compensation................................... 9
Certain Transactions...................................... 9
Certain Legal Proceedings and Indemnification of Current
and Former Directors and Officers...................... 9
Corporate Governance........................................ 11
About the Nominating and Corporate Governance Committee... 11
Director Independence..................................... 12
Executive Sessions of the Board of Directors.............. 12
Communications with Directors............................. 13
Corporate Governance Guidelines........................... 13
Stock Ownership............................................. 16
Stock Ownership of Directors and Officers................. 16
Stock Equivalents Ownership of Directors.................. 16
Stock Ownership of Certain Beneficial Owners.............. 17
Section 16(a) Beneficial Ownership Reporting Compliance... 17
Executive Compensation...................................... 18
Summary Compensation Table................................ 18
Our Security Policies and How We Value The Use of
Corporate Aircraft..................................... 20
Employment and Change of Control Arrangements............. 21
Matters Regarding Certain Former Officers................. 25
Stock Option Information.................................. 26
Pension Plan Information.................................. 28
Compensation Committee Report............................. 29
Performance Graph........................................... 35
Proposal Two: Ratification of Designation of Independent
Auditors.................................................. 36
Information About Fees Billed by Deloitte................. 36
Audit Committee Report.................................... 37
Proposal Three: Approval of Operations Management Team
Incentive Plan............................................ 39
Shareholder Proposals for Inclusion in 2005 Proxy
Statement................................................. 43
Other Shareholder Proposals for Presentation at 2005 Annual
Meeting................................................... 43
Director Nomination Procedures.............................. 43
Other Business.............................................. 44
Solicitation of Proxies..................................... 44
Exhibits
Exhibit A -- Charter of Audit Committee.................. A-1
Exhibit B -- Charter of Nominating and Corporate
Governance Committee................................... B-1
Exhibit C -- Charter of Compensation Committee........... C-1
Exhibit D -- Charter of Business Practices Oversight
Committee.............................................. D-1
Exhibit E -- Charter of Finance Committee................ E-1
Exhibit F -- Charter of Executive Committee.............. F-1
Directions to Meeting....................................... Back cover
Schering-Plough Corporation
2000 Galloping Hill Road
Kenilworth, New Jersey 07033
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PROXY STATEMENT
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This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Schering-Plough Corporation to be voted at
its Annual Meeting of Shareholders on April 27, 2004 and any adjournments or
postponements thereof. The Annual Report for 2003, including financial
statements for the year ended December 31, 2003, and this proxy statement and
the accompanying form of proxy are being mailed beginning on or about March 15,
2004 to all shareholders of record as of the close of business on March 5, 2004.
QUESTIONS AND ANSWERS ABOUT VOTING
WHAT AM I VOTING ON?
- Election of four Directors (Fred Hassan, Philip Leder, M.D., Eugene R.
McGrath and Richard
de J. Osborne) for terms of three years;
- Ratification of the designation of Deloitte & Touche LLP to audit
Schering-Plough's books and accounts for 2004; and
- Approval of the Operations Management Team Incentive Plan (the "OMT
Incentive Plan"), which is a cash performance-based incentive plan.
WHO IS ENTITLED TO VOTE?
Only shareholders of record at the close of business on the record date,
March 5, 2004, 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 and FOR the ratification of the designation of
Deloitte & Touche LLP to audit Schering-Plough's books and accounts for 2004 and
FOR approval of the OMT Incentive Plan.
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 2003 Annual Report are available on
Schering-Plough's Internet site at www.schering-plough.com.
CAN I CHANGE MY VOTE OR REVOKE MY PROXY?
Yes. You may change your vote or revoke your proxy at any time before the
proxy is exercised. If you submitted your proxy by mail, you must (a) file with
the Secretary of Schering-Plough a written notice of revocation or (b) timely
deliver a valid, later-dated proxy. If you submitted your proxy by telephone or
via the Internet, you may change your vote or revoke your proxy with a later
telephone or Internet proxy, 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.
HOW DO I GET AN ADMISSION TICKET TO ATTEND THE MEETING?
You must write to our transfer agent, The Bank of New York, using one of
the following methods:
Email at: shareowners@bankofny.com
Mail at: The Bank of New York, c/o Investor Services Correspondence, P.O. Box
11598, New York, N.Y. 10277-2075
If you are a record owner (so your shares are held in your name), you must
list your name exactly as it appears on your stock ownership records at The Bank
of New York. If you hold through a bank or broker or trustee, you must also
include a copy of your latest bank or broker statement showing your ownership.
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. On March 5, 2004, the record date, Schering-Plough had
outstanding and entitled to vote at the Annual Meeting 1,471,636,742 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 and for
approval of the OMT Incentive Plan, the affirmative vote of a majority of the
votes cast on each 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.
2
WHAT ARE THE BOARD'S RECOMMENDATIONS?
Unless you give other instructions when you vote, the persons named as
proxy holders will vote:
- FOR the election of the four nominated Directors;
- FOR ratification of the designation of Deloitte & Touche LLP to audit
Schering-Plough's books and accounts for 2004; and
- FOR approval of the OMT Incentive Plan.
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.
PROPOSAL ONE: ELECTION OF DIRECTORS
Pursuant to Schering-Plough'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 2007 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.
Donald L. Miller will retire as a Director at the Annual Meeting in keeping
with the policy that Directors retire at age 72. Schering-Plough appreciates his
seven years of service as a Director.
David H. Komansky retired from his position as Chairman of the Board and
Chief Executive Officer of Merrill Lynch during his current three-year term as a
Director, which ends at the 2004 Annual Meeting. Mr. Komansky has decided not to
stand for re-election. We appreciate Mr. Komansky's four years of service as a
Director.
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 Fred Hassan and Philip Leder, M.D., who were elected to the
Board effective April 22, 2003, and November 1, 2003, respectively.
NOMINEES FOR DIRECTOR
TERM TO EXPIRE 2007
NOMINEE AND YEAR
FIRST ELECTED PRINCIPAL OCCUPATION
A DIRECTOR AND OTHER INFORMATION
---------------- ---------------------
[Fred Hassan PHOTO] Chairman of the Board, Chief Executive Officer and President
since April 2003. Mr. Hassan, 58, was Chairman of the
FRED HASSAN Board and Chief Executive Officer of Pharmacia Corporation
2003 from February 2001 until April 2003, President and Chief
Executive Officer of Pharmacia from March 2000 to February
2001, and President and Chief Executive Officer of
Pharmacia & Upjohn, Inc. from May 1997 until March 2000.
Mr. Hassan was Executive Vice President and a member of
the Board of Directors of Wyeth (formerly American Home
Products Corporation), from 1995 to 1997. Mr. Hassan is a
Director of Avon Products, Inc.
3
NOMINEE AND YEAR
FIRST ELECTED PRINCIPAL OCCUPATION
A DIRECTOR AND OTHER INFORMATION
---------------- ---------------------
[Philip Leder PHOTO] Chairman, Department of Genetics, Harvard Medical School.
Dr. Leder, 69, has been Chairman, Department of Genetics,
PHILIP LEDER, M.D. Harvard Medical School, since 1980; John Emory Andrus
2003 Professor of Genetics since 1980; and Senior Investigator
at Howard Hughes Medical Institute since 1986. He is an
honorary Trustee of the Massachusetts General Hospital,
and a Trustee and Chairman of the Board of the Charles A.
Revson Foundation and a Trustee of the Foundation for
Advanced Education in the Sciences, and the Hadassah
Medical Organization.
[Eugene R. McGrath Chairman, President and Chief Executive Officer of
PHOTO] Consolidated Edison, Inc. (energy company). Mr. McGrath,
62, 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. Mr. McGrath also serves
as Chairman of the executive committee of the Energy
Association of New York State and the Union Square
Partnership. He is a Director or Trustee of AEGIS,
Atlantic Mutual, Barnard College, the Edison Electric
Institute, Manhattan College and the Wildlife Conservation
Society.
[Richard de J. Retired Chairman and Chief Executive Officer of ASARCO
Osborne PHOTO] Incorporated (non-ferrous metals producer) from 1985 to
1999. Mr. Osborne, 69, also served as Chairman of the
RICHARD DE J. Board of Schering-Plough from November 2002 to April 2003.
OSBORNE Mr. Osborne is the non-executive Chairman and a Director
1988 of Datawatch Corporation, and a Director of Goodrich
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. Mr. Osborne is a member of the Council
on Foreign Relations and the Economic Club of New York.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE FOUR NOMINATED
DIRECTORS.
4
DIRECTORS CONTINUING IN OFFICE
TERM TO EXPIRE 2005
DIRECTOR 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, 68, 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 International Inc. and J.P. Morgan
Chase & Co. He is also a member of the Business Council.
[Kathryn C. Turner Chairperson, Chief Executive Officer and President of
PHOTO] Standard Technology, Inc. (management and technology
solutions firm) since 1985. Ms. Turner, 56, serves on the
KATHRYN C. TURNER Board of Directors of ConocoPhillips Company, Carpenter
2001 Technology Corporation and Tribune Company. Ms. Turner
also serves on the boards of the National Capital Area
Council of the Boy Scouts of America and Children's
Hospice International.
[Robert F.W. van Chairman of the Supervisory Board of Rodamco Europe N.V.
Oordt PHOTO] ("RE"), the largest retail real estate investment company
in Europe. Mr. van Oordt, 67, served RE as Chief Executive
ROBERT F.W. VAN Officer from March 2000 to June 2001. Prior to this
OORDT assignment, Mr. van Oordt served as Chairman of the
1992 Executive 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 Board of Directors of Nokia
Corporation, Fortis Bank N.V. and n.v. Umicore s.a. and of
the Supervisory Board of Draka Holding N.V. He is a member
of the International Advisory Board of Nijenrode
University and a senior member of the Conference Board. He
also serves as Chairman of the Foundation for Arts and
Business in the Netherlands.
5
DIRECTORS CONTINUING IN OFFICE
TERM TO EXPIRE 2006
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, 68, 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 Chairman and Chief Executive Officer of Lucent Technologies
PHOTO] Inc. (communications). Ms. Russo, 51, assumed the position
of Chairman in February 2003 and the positions of Chief
PATRICIA F. RUSSO Executive Officer and President in January 2002, serving
1995 as President until she assumed the additional office of
Chairman. Ms. Russo was President and Chief Operating
Officer of Eastman Kodak Company from April 2001 and
Director from July 2001, and non-executive Chairman of
Avaya Inc. since December 2000, until she rejoined 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 Trustees of
Georgetown University.
[Arthur F. Weinbach Chairman and Chief Executive Officer of Automatic Data
PHOTO] Processing, Inc. (independent computing services). Mr.
Weinbach, 60, 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. and United Way of Tri-State. He is on the Boards of
Trustees of New Jersey Seeds and New Jersey Institute of
Technology.
6
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has a standing Audit Committee, Nominating and
Corporate Governance Committee and Compensation Committee, each consisting
exclusively of independent Directors, as independence is defined in the New York
Stock Exchange listing standards and the more restrictive Schering-Plough Board
Independence Standard specified in the Corporate Governance Guidelines. Members
of the Audit Committee also all meet the independence requirements set forth in
Rule 10A-3(b)(1) under the Securities Exchange Act of 1934. The Board of
Directors also has a standing Business Practices Oversight Committee and Finance
Committee, as well as an Executive Committee which meets as needed. The Charters
of the Committees, which have been adopted by the Board, are attached as
exhibits to this proxy statement and are also available on Schering-Plough's Web
site at www.schering-plough.com. In 2003 there was a standing Pension Committee,
and it was disbanded in early 2004.
AUDIT COMMITTEE
MEMBERS: Mr. Weinbach (Chair), Mr. Becherer, Mr. McGrath and Mr. van Oordt
The Board of Directors has determined that Mr. Weinbach meets the
SEC requirements for, and has designated him as, the Audit
Committee Financial Expert.
NUMBER OF MEETINGS IN 2003: 12
FUNCTIONS:
- Selects the independent auditors, subject to shareholder ratification,
and provides oversight of their independence, qualifications and
performance
- Assists the Board in its oversight function by monitoring:
-- the integrity of Schering-Plough's financial statements
-- the performance of the corporate audit function
-- compliance by Schering-Plough with legal and regulatory requirements
NOMINATING AND CORPORATE GOVERNANCE COMMITTEE
MEMBERS: Ms. Russo (Chair), Mr. Becherer, General Mundy, Mr. Osborne, Ms.
Turner and Mr. van Oordt
NUMBER OF MEETINGS IN 2003: 3
FUNCTIONS:
- Assists the Board with Board and Committee structure, function and
composition, including identifying nominees (and considers shareholder
nominees in accordance with provisions of the By-laws described on page
43)
- Develops and recommends the Schering-Plough Board Independence Standard
and Corporate Governance Guidelines (found on page 13 of this proxy
statement) to the Board for approval
- Recommends Director compensation and the annual performance review
process for the Board and for each Committee
7
COMPENSATION COMMITTEE
MEMBERS: Mr. Miller (Chair), Mr. Becherer, Mr. Osborne, Ms. Russo and Mr.
Weinbach
NUMBER OF MEETINGS IN 2003: 11
FUNCTIONS:
- Discharges the Board's responsibilities relating to the compensation of
Officers
- Responsible for the approval, evaluation and administration of executive
compensation plans, policies and programs
- Assists the Board regarding equity compensation and incentive plans
BUSINESS PRACTICES OVERSIGHT COMMITTEE
MEMBERS: Mr. van Oordt (Chair), Dr. Leder, Mr. McGrath, General Mundy and
Ms. Turner
NUMBER OF MEETINGS IN 2003: 10
FUNCTIONS:
- Assists the Board with oversight of non-financial compliance systems and
practices and related management activities, including Good Manufacturing
Practices
- Assists the Board with oversight of systems for compliance with
Schering-Plough's Business Conduct Policy
- Assists the Board with oversight of regulatory and government affairs and
developments regarding material litigation and investigations
FINANCE COMMITTEE
MEMBERS: Mr. Becherer (Chair), Mr. Komansky, General Mundy, Mr. Osborne and
Ms. Turner
NUMBER OF MEETINGS IN 2003: none (this Committee was formed on January 27,
2004)
FUNCTIONS:
- Assists the Board with oversight of strategic financial matters
- Assists the Board with oversight of capital structure
- Recommends dividend policy to the Board
Also, the Pension Committee, which was disbanded in early 2004, met 3 times in
2003. During 2003 the members were: Mr. Komansky, Mr. McGrath, Mr. Miller,
General Mundy and Ms. Turner.
BOARD MEETINGS AND ATTENDANCE OF DIRECTORS
The Board of Directors held 21 meetings in 2003, including a two-day
strategic planning meeting. All Directors attended more than 75% of the
aggregate of (i) the total number of meetings of the Board, and (ii) the total
number of meetings held by all Committees of the Board on which they served.
DIRECTORS ATTENDANCE AT ANNUAL MEETING OF SHAREHOLDERS
Directors are expected to attend the Annual Meeting of Shareholders unless
an emergency makes such attendance imprudent. Since 1990 only one Director has
missed one Annual Meeting of Shareholders (due to illness), and all other
Directors have attended all Annual Meetings of Shareholders, including the 2003
Annual Meeting at which all ten Directors were present.
8
DIRECTORS' COMPENSATION
The Board has not increased Directors' compensation since 1999 in light of
Schering-Plough's business and financial challenges.
Employee Directors receive no compensation 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 Chair 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 Schering-Plough 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 stock
equivalency account, which is valued as if invested in Schering-Plough 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. This plan was amended effective February
25, 2003 to permit Directors to elect to defer the award, in which case Stock
Units are awarded and valued as if invested in Schering-Plough Common Shares.
The Stock Units are then paid in Common Shares when the deferral period ends.
In November 2002 Mr. Osborne was elected Chairman of the Board upon R.
Kogan's resignation from that position. In light of that assignment, effective
November 1, 2002, Mr. Osborne began receiving special compensation of $100,000
per month, plus expenses, and stopped receiving other Directors' compensation.
This special compensation ceased and Mr. Osborne's compensation reverted to
standard Directors' compensation when he ceased serving as Chairman of the Board
upon Mr. Hassan's election as Chairman of the Board on April 22, 2003.
CERTAIN TRANSACTIONS
Dr. Leder's son, Ethan Leder, is chief executive officer and the owner of
approximately 13% of the equity of United Biosource LLP. In January 2004, United
Biosource acquired MedTap International Inc., a provider of pharmacoeconomic
analysis and information. Schering-Plough in the past has retained MedTap to
provide services in connection with specific pharmacoeconomic projects and may
do so in the future. In 2003, Schering-Plough paid MedTap $153,308 for
pharmacoeconomic services.
Under the New York Stock Exchange Listing Standards and the more
restrictive Schering-Plough Board Independence Standard this matter does not
impair Dr. Leder's independence. The Nominating and Corporate Governance
Committee and the Board of Directors, after reviewing this matter, have
determined that Dr. Leder is independent.
CERTAIN LEGAL PROCEEDINGS AND INDEMNIFICATION OF CURRENT AND FORMER DIRECTORS
AND OFFICERS
Several lawsuits are pending that, among other matters, relate to
Schering-Plough's disclosures about the actions of the U.S. Food and Drug
Administration (FDA) regarding Schering-Plough's compliance with Good
Manufacturing Practices, primarily relating to production processes, controls
and procedures as well as the related Consent Decree negotiated with the FDA
effective May 17, 2002. These lawsuits include:
- Lawsuits alleging violations of Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), and Rule
10b-5. On July 2, 2001, these lawsuits were consolidated into one action
in the U.S. District Court for the District of New Jersey and a lead
plaintiff, the Florida State Board of Administration, was appointed by
the Court. The Court has certified this as a class action consisting of
shareholders who purchased shares of Schering-Plough stock between
9
dates as early as May 9, 2000, and dates relevant to disclosures about
the FDA issues. Schering-Plough, certain Officers and certain former
Directors and Officers are named as defendants in this matter. The
plaintiffs seek damages for the class for having purchased
Schering-Plough stock at allegedly inflated prices.
- Two lawsuits that were consolidated into one action on August 20, 2001 in
the U.S. District Court for the District of New Jersey allege a failure
to disclose material information and breach of fiduciary duty by the
Directors in relation to the above matters and certain other legal
matters as described in the legal proceedings item of Schering-Plough's
2003 10-K. The plaintiffs are seeking damages on behalf of
Schering-Plough, including disgorgement of trading profits made by
certain Directors and a former Officer/Director allegedly obtained on the
basis of material non-public information.
- On January 2, 2002, Schering-Plough 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 Schering-Plough 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 three independent Directors (Messrs.
McGrath and Miller and Ms. Turner), to investigate, review and analyze
the facts and circumstances surrounding the allegations made in the
demand letter and the complaint described in the immediately preceding
paragraph but reserving to the full Board authority and discretion to
exercise its business judgment in respect of the proper disposition of
the demand. The Committee engaged independent outside counsel to advise
it and met eleven times in 2002 and once in 2003. The Committee issued a
report on the findings of its investigation to the independent Directors
of the Board in late October 2002. That report determined that the
shareholder demand should be refused, and found no liability on the part
of any Officers or Directors. In November 2002, the full Board adopted
the recommendation of the Evaluation Committee. The plaintiffs seek a
recovery on behalf of Schering-Plough and monetary damages.
- In September 2003, the Securities and Exchange Commission and
Schering-Plough announced the settlement of the Commission's enforcement
proceeding against Schering-Plough and Mr. Kogan regarding meetings with
investors the week of September 30, 2002 and other communications. In
connection with that settlement, Schering-Plough and Mr. Kogan agreed not
to commit future violations of Regulation FD and related securities laws
and paid a civil penalty of $1 million. Mr. Kogan paid a civil penalty of
$50,000.
- Private plaintiffs have filed several federal putative class action
securities litigations relating to Schering-Plough's meetings with
investors and other communications which were consolidated on January 10,
2003 in the U.S. District Court for the District of New Jersey against
Schering-Plough and Mr. Kogan alleging violations of Sections 10(b) and
20(a) of the Exchange Act, relating to the alleged disclosures made
during meetings with investors. The plaintiffs seek recovery for the
alleged class of money damages for having purchased Schering-Plough stock
at allegedly inflated prices.
- Another putative class action lawsuit against the Schering-Plough Board
of Directors was filed on September 25, 2003 in New Jersey State Court
alleging breach of fiduciary duty, negligent misrepresentation and fraud
relating to the same meetings described above. The plaintiffs seek
monetary damages for the alleged class members.
- A lawsuit alleging breach of fiduciary duty was filed on June 3, 2003 in
New Jersey State Court against the Board of Directors relating to the
announcement that Schering-Plough had received a Target Letter from the
U.S. Attorney's office in Boston. The complaint seeks recovery of
monetary damages on behalf of Schering-Plough.
10
- A Consolidated Amended Complaint was filed on October 6, 2003 in U.S.
District Court in New Jersey against Schering-Plough, former members of
the Board of Directors' Pension Committee, and several current and former
Officers and employees, alleging breaches of fiduciary duty under ERISA
relating to the decline in Schering-Plough stock in Schering-Plough's
401(k) plan. The action is styled as a putative class action consisting
of former employees who owned Schering-Plough stock in their 401(k) plan
from as early as January 1, 1998. The plaintiff seeks monetary damages
and equitable remedies for the class.
Additional details about these matters are disclosed in Schering-Plough's
10-Ks and 10-Qs and certain 8-Ks filed under the Exchange Act.
All of the named defendants who are current or former Directors or Officers
are entitled to indemnification under Schering-Plough's Certificate of
Incorporation and By-Laws and New Jersey Corporation Law. In connection with
such indemnification they may receive advance payment of counsel fees, subject
to an obligation to reimburse Schering-Plough should the outcome of the legal
matter be such that indemnification would not be permitted. Mr. Kogan also
received payment of legal fees for his counsel in connection with his Retirement
Agreement and Employment Agreements, which was required by the terms of those
Agreements. In connection with the above legal matters, Schering-Plough paid
counsel fees for Mr. Kogan of $177,194 in 2003 (other fees relating to his
Retirement Agreement are considered perquisites and included in Column D to the
"Summary Compensation Table"). In connection with legal matters relating
primarily to the indemnification provisions included in the Sixth Amendment to
his Employment Agreement, Schering-Plough paid counsel fees for Mr. Kogan of
$82,714.25 in 2002 and $25,021.25 in 2001. In accordance with his agreement,
Schering-Plough also paid Mr. Wyszomierski's legal expenses incurred in 2003
relating to claims under his agreement in the amount of $16,888.86. See the
description of Mr. Wyszomierski's Agreement under the heading "Matters Regarding
Certain Former Officers" on page 25. In connection with investigations by the
U.S. Attorney for Massachusetts (disclosed in Schering-Plough's 10-K and 10-Q
filings), Mr. Zahn has separate counsel for which Schering-Plough paid
$366,432.25 in 2003. Schering-Plough also paid Mr. Zahn's legal expenses
incurred in connection with his employment arrangement in the amount of
$12,637.95.
In the legal actions described above, all covered individual defendants
except Mr. Kogan are represented by outside counsel for Schering-Plough. This
arrangement does result in some benefit, however, it is difficult to quantify
and Schering-Plough believes that, given the current litigation postures of
these lawsuits, it has not incurred any additional expenses as a result of these
representations of individuals.
CORPORATE GOVERNANCE
At Schering-Plough, we believe that good corporate governance practices
create a solid foundation for achieving our business goals and keeping the
interests of our shareholders and other stakeholders in perspective.
Under the leadership of our new Chairman of the Board and CEO, Fred Hassan,
Schering-Plough has adopted a new mission -- to earn trust, EVERY day -- and new
leader behaviors: shared accountability and transparency, cross-functional
teamwork and collaboration, listening and learning, benchmark and continuously
improve, coaching and developing others and business integrity.
As a result, we have recently enhanced our governance practices, as
reflected in our Corporate Governance Guidelines set forth on page 13 and the
Charters of our Board Committees that are attached as exhibits to this proxy
statement.
ABOUT THE NOMINATING AND CORPORATE GOVERNANCE COMMITTEE
The Nominating and Corporate Governance Committee is comprised of six
independent Directors, as independence is defined in the New York Stock Exchange
listing standards and the more restrictive
11
Schering-Plough Board Independence Standard. The Committee operates under a
written Charter adopted by the Board, and a copy of the Charter is attached to
this proxy statement as Exhibit B.
One of the Nominating and Corporate Governance Committee's most important
functions is identification of Director nominees. The Committee considers
nominees from all sources, including shareholders, nominees submitted by other
outside parties, and candidates known to current Directors. The Committee also
has from time-to-time retained an expert search firm (that is paid a fee) to
help identify candidates possessing the minimum criteria and other
qualifications identified by the Committee as being desired in connection with a
vacancy on the Board. All candidates must meet the minimum criteria for
Directors established by the Committee. These criteria are listed in our
Corporate Governance Guidelines on page 13 of this proxy statement.
Candidates are evaluated in the same manner no matter who first suggests
they be nominated. The candidate's credentials are provided to the Committee by
the Corporate Secretary with the advance materials for the next Committee
meeting. If any member of the Committee believes the candidate may be qualified
to be nominated, the Committee discusses the matter at the meeting. For each
candidate who is discussed at a meeting, the Committee decides whether to
further evaluate the candidate. Evaluation includes a thorough background check,
interaction and interviews with the Committee members and other Directors and
discussion about the candidate's availability and commitment. When there is a
vacancy on the Board, the best candidate from all evaluated is recommended by
the Committee to the full Board to consider for nomination.
Dr. Leder is nominated by the Board for election by the shareholders for
the first time this year. Dr. Leder meets the criteria for Director and his many
accomplishments as a leader in the medical and scientific community also
satisfied the Board's wish to increase the scientific and medical expertise
represented on the Board. The Committee identified Dr. Leder based upon the
recommendation of Mr. Hassan, Chairman of the Board and CEO, as Dr. Leder and
Mr. Hassan served together on the Board of Pharmacia Corporation. Mr. Hassan did
not participate in the deliberations of the Board concerning the decision to
nominate Dr. Leder.
DIRECTOR INDEPENDENCE
Each independent Director has no material relationship with
Schering-Plough.
The Nominating and Corporate Governance Committee and the Board have
determined that Mr. Becherer, Dr. Leder, Mr. McGrath, General Mundy, Mr.
Osborne, Ms. Russo, Ms. Turner and Messrs. van Oordt and Weinbach are
independent under both the New York Stock Exchange listing standards and the
more restrictive Schering-Plough Board Independence Standard.
The Nominating and Corporate Governance Committee and the Board have
determined that Mr. Hassan is not independent because as Chairman of the Board
and Chief Executive Officer of Schering-Plough, he is an Officer and employee of
Schering-Plough.
The Nominating and Corporate Governance Committee and the Board have
determined that all members of the Audit Committee -- Messrs. Weinbach,
Becherer, McGrath and van Oordt -- also are independent pursuant to the
requirements of Rule 10A-3(b)(1) under the Securities Exchange Act of 1934.
EXECUTIVE SESSIONS OF THE BOARD OF DIRECTORS
As required in the Corporate Governance Guidelines, the Board periodically
meets in executive session without any Director present who is also a member of
management. During 2003, the Board held eight such sessions.
Executive sessions are always chaired by a non-management Director. The
non-management Directors have determined to rotate this responsibility every six
months among the non-management Directors who
12
Chair Committees of the Board. Currently, Mr. van Oordt, a non-management
Director who chairs the Business Practices Oversight Committee, is chairing the
executive sessions.
COMMUNICATIONS WITH DIRECTORS
The Board of Directors has adopted a process for shareholders and others to
send communications to the Board, the non-management Directors as a group, the
current Chair of the Board's executive sessions or other specified individual
Directors. All communications are to be sent by mail or by fax care of the
Corporate Secretary at Schering-Plough headquarters, addressed as follows:
[Board or Name of Individual Director(s)]
c/o Corporate Secretary
Schering-Plough Corporation
2000 Galloping Hill Road
Kenilworth, New Jersey 07033
Fax (908) 298-7303
The non-management Directors have directed the Corporate Secretary to
screen the communications. First, communications sent by mail are subject to the
same security measures as other mail coming to Schering-Plough, which may
include x-ray, scanning, etc. Next, the Board has directed the Corporate
Secretary and his staff to read all communications and to discard communications
having nothing to do with Schering-Plough or the Board. All other communications
are to be promptly passed along to the addressee(s). Further, the Corporate
Secretary's staff is to retain a copy in the corporate files and to provide a
copy to other Directors, members of management and third parties as appropriate.
For example, if a communication were about auditing or accounting matters, the
policy established by the Audit Committee provides that Audit Committee members
also would receive a copy, as would the head of Corporate Audits, and in certain
cases, the independent auditors.
Anyone who wishes to contact the Audit Committee to report complaints or
concerns about accounting, internal accounting controls or auditing matters, may
do so anonymously by using the above procedure.
CORPORATE GOVERNANCE GUIDELINES
(Approved by the Board of Directors on February 24, 2004)
Schering-Plough Corporation is committed to the patients who use our
products -- through the innovative discovery, development and marketing of new
therapies and treatment programs that can improve their health and extend their
lives -- while providing solid long-term performance to shareholders.
Schering-Plough has long recognized good corporate governance as one key to
achieving its commitment, first adopting its Statement of Corporate Director
Policies in 1971, which among other things required that a majority of the Board
be independent.
Schering-Plough's mission is "TO EARN TRUST EVERY DAY." These Corporate
Governance Guidelines are fundamental to achieving our mission.
BOARD COMPOSITION AND DIRECTOR QUALIFICATIONS. Directors are recommended
for nomination by the Nominating and Corporate Governance Committee and are
nominated by the full Board. The Nominating and Corporate Governance Committee
annually assesses the needs of the Board and recommends the criteria for
selecting new Directors. All nominees must meet the following minimum criteria
for Directors:
1. Nominees have the highest ethical character and share the values of
Schering-Plough as reflected in the leader behaviors: shared accountability
and transparency, cross-functional teamwork and collaboration, listening
and learning, benchmark and continuously improve, coaching and developing
others and business integrity.
2. Nominees are highly accomplished in their respective field, with
superior credentials and recognition.
13
3. The majority of Directors on the Board are required to be
independent as required by the New York Stock Exchange listing standards
and the more restrictive Schering-Plough Board Independence Standard set
forth below.
4. Nominees are selected so that the Board of Directors represents a
diversity of expertise in areas needed to foster Schering-Plough's business
success, including science, medicine, finance, manufacturing, technology,
commercial activities, international affairs and public service. Nominees
are also selected so that the Board of Directors represents a diversity of
personal characteristics, including gender, race, ethnic origin and
national background.
5. Nominees must indicate they have the time and commitment to provide
energetic and diligent service to Schering-Plough. New Directors should be
willing and able to serve at least one three-year term prior to the
mandatory retirement age of 72.
The Nominating and Corporate Governance Committee considers shareholder
nominees for Director and bona fide candidates for nomination that are submitted
by other third parties. Directors offer to resign, and are re-evaluated, when
they have changes in employment or Board memberships at other companies.
Directors notify the Chair of the Nominating and Corporate Governance Committee
in advance of a change in their Committee assignments at other companies.
SCHERING-PLOUGH BOARD INDEPENDENCE STANDARD. If a Director is to be
classified as independent, he or she must meet the independence requirements in
the New York Stock Exchange corporate governance listing standards and the
following, more restrictive categorical standard, called the "Schering-Plough
Board Independence Standard":
1. A Director who is an executive officer or an employee, or whose
immediate family member is an executive officer, of a company that makes
payments to, or receives payments from, Schering-Plough for property which,
in any single fiscal year, exceeds the greater of $500,000 or 2% of such
other company's consolidated gross revenues, is not "independent" until
three years after falling below such threshold.
2. Directors are independent of any particular constituency and are
able to represent all shareholders of Schering-Plough.
3. In the event that a Director is an executive officer or an
employee, or his/her immediate family member is an executive officer, of a
charitable organization that receives payments from Schering-Plough which,
in any single fiscal year, exceed the greater of $500,000 or 2% of the
charitable organization's gross revenues, such payments will be disclosed
in the proxy statement.
4. A Director who was, or whose immediate family member was:
a. an Executive Officer of Schering-Plough, or
b. affiliated with or employed by the independent auditor, or
c. an executive officer of another company where any of
Schering-Plough's current executives serve on that company's compensation
committee will not be independent until four years after the end of such
relationship.
In this Standard, "immediate family" shall have the meaning provided in the
New York Stock Exchange corporate governance listing standards (general
commentary to Section 303A.02(b)).
All Audit Committee members must meet the above Standard plus the
additional independence requirements in Rule 10A-3(b)(1) under the Securities
Exchange Act of 1934.
BOARD FUNCTION AND DIRECTOR RESPONSIBILITIES. The Chairman sets the agenda
for Board meetings, in consultation with Committee chairs and other Directors as
appropriate. The frequency and length of meetings is determined based upon the
business to be conducted, but the Board will meet at least six times per year.
The non-management Directors hold regularly scheduled executive sessions and
additional unscheduled executive sessions as desired. A non-management Director
chairs the executive sessions.
Advance materials are provided before meetings.
14
The Board takes an active role with senior management regarding strategic
planning and business development. All members of senior management participate
in portions of meetings of the Board and Committees. Upon request, Directors
have access to any employee of Schering-Plough and any of Schering-Plough's
information.
There is an orientation program for new Directors. Ongoing Director
education about issues facing Schering-Plough and the industry is provided as
needed.
The Board retains outside advisors as it deems appropriate.
COMMITTEE COMPOSITION AND FUNCTION. The Nominating and Corporate
Governance Committee recommends to the Board the optimal structure and functions
of the standing Committees of the Board, as well as individual Committee
assignments. The following standing Committees are comprised solely of
independent Directors:
- Audit Committee,
- Compensation Committee, and
- Nominating and Corporate Governance Committee.
The Board has three other standing Committees: the Business Practices
Oversight Committee, the Finance Committee and the Executive Committee.
Each Committee has a charter. The Chair of each Committee sets the agenda
and determines the frequency and length of meetings. Each Committee holds
executive sessions as required and more frequently as the Committee determines.
Each Committee retains outside advisors as it deems appropriate.
BOARD COMPENSATION. All Directors own shares of Schering-Plough common
stock. The Nominating and Corporate Governance Committee annually reviews
Director compensation and makes recommendations to the full Board as to the
amount of compensation and the form of compensation which may include cash,
stock and/or equity-based awards.
BOARD AND COMMITTEE PERFORMANCE EVALUATIONS. The Board and the standing
Committees each perform an annual self-evaluation. The Nominating and Corporate
Governance Committee provides oversight to ensure that the process is completed
each year. That Committee also periodically re-examines these Corporate
Governance Guidelines and recommends changes to the Board.
MANAGEMENT SUCCESSION. One of the Board's most important functions is
ensuring sound management of Schering-Plough. The Compensation Committee assists
the Board with succession planning and human resource development, with special
focus on Chief Executive Officer succession.
COMPLIANCE AND ETHICS. The composition and functions of the Board and each
Committee meet all requirements of the New York Stock Exchange and other
applicable laws and regulations.
The Board and its Committees are responsible for oversight of the processes
designed by senior management regarding compliance, including with
Schering-Plough's Business Conduct Policy for all employees, the Schering-Plough
Board of Directors Code of Business Conduct and Ethics and the Code of Ethics
for Senior Financial Executives for the Chief Executive Officer, the Chief
Financial Officer and the Controller. These Codes articulate Schering-Plough's
commitment to ethical standards and to compliance with all applicable laws and
regulations. Each of these Codes is available on the Schering-Plough Web site.
The Board has established the Business Practices Oversight Committee, which has
the sole purpose of oversight of non-financial compliance matters.
Schering-Plough's reputation is a valuable asset and compliance programs
also stress preservation of reputation and good corporate citizenship, through
consideration of the concerns of the patients who use our products, our
shareholders, our employees and the communities where our operations are
located.
NO REPRICING WITHOUT SHAREHOLDER APPROVAL. Schering-Plough will not
directly or indirectly reprice any stock option unless prior shareholder
approval is obtained.
15
STOCK OWNERSHIP
STOCK OWNERSHIP OF DIRECTORS AND OFFICERS
Set forth below is information with respect to beneficial ownership of
Schering-Plough Common Shares as of March 5, 2004 by each Director, certain
Executive Officers and by all Schering-Plough Directors and Executive Officers
as a group:
NUMBER OF
COMMON
NAME SHARES(A)
---- ---------
Hans W. Becherer.......... 19,900
Fred Hassan............... 1,103,500(b)
David H. Komansky......... 8,750
Philip Leder, M.D. ....... 1,250
Eugene R. McGrath......... 11,662
Donald L. Miller.......... 15,301
Carl E. Mundy, Jr. ....... 15,866
Richard de J. Osborne..... 69,335
Patricia F. Russo......... 19,800
Kathryn C. Turner......... 5,108
Robert F. W. van Oordt.... 13,500
Arthur F. Weinbach........ 8,750
Joseph C. Connors......... 1,350,637(b)(c)
Carrie S. Cox............. 100,000
Raul E. Kohan............. 448,466(b)
Cecil B. Pickett.......... 708,730(b)
Richard W. Zahn........... 786,972(b)
Jack L. Wyszomierski...... 1,114,048(b)(d)
Richard Jay Kogan......... 2,007,695(b)(d)
All Directors and
Executive Officers as a
group including those
above(23)............... 8,070,490(b)(c)
STOCK EQUIVALENTS OWNERSHIP OF DIRECTORS
The following table sets forth the number of Common Share equivalents
credited as of March 5, 2004 to the accounts of Schering-Plough'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
Schering-Plough Common Shares at that time. For additional information, see
"Directors' Compensation" on page 9.
Hans W. Becherer................... 30,399
David H. Komansky.................. 12,073
Philip Leder, M.D. ................ 1,717
Eugene R. McGrath.................. 15,355
Donald L. Miller................... 5,498
Carl E. Mundy, Jr. ................ 8,582
Richard de J. Osborne.............. 12,823
Patricia F. Russo.................. 24,020
Kathryn C. Turner.................. 3,718
Robert F. W. van Oordt............. 61,315
Arthur F. Weinbach................. 17,280
-------
Total.............................. 192,780
---------------
(a) The total for each individual, and for the group of all Directors and
Executive Officers (23 persons), is less than one percent of the outstanding
Common Shares (including shares which could be acquired within 60 days of
March 5, 2004 through the exercise of outstanding options or the
distribution of shares under the 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 March 5, 2004
through the exercise of employee stock options as follows: Mr. Hassan
(600,000); Mr. Connors (1,185,227); Mr. Kohan (430,914); Dr. Pickett
(640,201); Mr. Zahn (786,967); Mr. Wyszomierski (993,967); Mr. Kogan
(1,546,000); all Directors and Executive Officers as a group (6,409,710).
16
(c) Does not include 29,187 shares owned by family members and as to which
beneficial ownership is disclaimed by Mr. Connors.
(d) No longer Executive Officers. Direct stock ownership verified as of the date
they were no longer subject to Section 16 filing requirements; Mr.
Wyszomierski (12/3/03) and Mr. Kogan (4/21/03).
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Set forth below is certain information with respect to those persons who
are known to Schering-Plough to own beneficially more than five percent of the
outstanding Schering-Plough Common Shares, as of March 5, 2004.
COMMON SHARES
NAME AND ADDRESS BENEFICIALLY PERCENT
OF BENEFICIAL OWNER OWNED OF CLASS
------------------- ------------- --------
Wellington Management Company, LLP(a)................ 94,028,996 6.4%
75 State Street
Boston, MA 02109
Dodge & Cox(b)....................................... 79,706,603 5.4%
One Sansome Street
35th Floor
San Francisco, CA 94104
---------------
(a) As reported on Schedule 13G filed with the Securities and Exchange
Commission on February 12, 2004, Wellington Management Company, LLP, through
one of its subsidiaries, has (i) sole voting power as to none of the shares
and shared voting power as to 39,742,350 of the shares and (ii) sole
dispositive power as to none of the shares and shared dispositive power as
to all 94,028,996 of the shares.
(b) As reported on Schedule 13G filed with the Securities and Exchange
Commission on February 17, 2004, Dodge & Cox has (i) sole voting power as to
74,926,467 of the shares and shared voting power as to 772,100 of the shares
and (ii) sole dispositive power as to 79,706,603 of the shares and shared
dispositive power as to none of the shares.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Directors, Officers and beneficial owners of more than 10% of our Common
Shares are required by Section 16(a) of the Exchange Act and related regulations
to file ownership reports on Forms 3, 4 and 5 with the Securities and Exchange
Commission and the New York Stock Exchange and to furnish us with copies of the
reports.
Schering-Plough believes that all required Section 16(a) reports were
timely filed in 2003, except that Messrs. Gingerella, Kelly, Lemma, Moore,
Nichols, Wyszomierski and Zahn and Ms. Foster each had one Form 4 reporting one
transaction that was filed one day late due to computer difficulties at
Schering-Plough. Schering-Plough's belief is based solely upon a review of:
- Forms 3 and 4 filed during 2003, Forms 5 relating to 2003, and amendments
to those Forms, and
- representation letters from those who did not file a Form 5 stating that
no Form 5 was due.
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EXECUTIVE COMPENSATION
The following table sets forth compensation of the five most highly
compensated Executive Officers of Schering-Plough, including the Chief Executive
Officer, for the fiscal year ended December 31, 2003 ("Fiscal 2003"), as well as
the compensation of the former Chief Executive Officer and President of
Schering-Plough and two other former Executive Officers.
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
-----------------------
AWARDS
ANNUAL COMPENSATION -----------------------
---------------------------------------- RESTRICTED SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL STOCK UNDERLYING ALL OTHER
POSITION IN 2003* YEAR SALARY BONUS(C) COMPENSATION(D) AWARDS(E) OPTIONS COMPENSATION(F)
------------------ ---- ---------- -------- --------------- ---------- ---------- ---------------
Fred Hassan.................. 2003 $1,046,154(b) $ -0- $ 349,156 $3,486,000 900,000 $ 14,926
Chairman of the Board, 2002 -- -- -- -- -- --
Chief Executive Officer 2001 -- -- -- -- -- --
and President(a)
Joseph C. Connors............ 2003 $ 647,000 -0- -- $ 190,281 246,100 $ 8,982
Executive Vice President 2002 582,000 $ 38,000 -- 827,812 138,000 127,596
and General Counsel 2001 542,000 -0- -- 934,767 138,000 132,772
Carrie S. Cox................ 2003 $ 565,962 $452,770 -- $1,850,000 450,000 $ 14,926
Executive Vice President 2002 -- -- -- -- -- --
and President, Global 2001 -- -- -- -- -- --
Pharmaceuticals(g)
Raul E. Kohan................ 2003 $ 386,000 -0- -- $ 242,760 59,100 $ 38,851
President, Animal Health and 2002 -- -- -- -- -- --
Group Head, Global
Specialty 2001 -- -- -- -- -- --
Operations(h)
Cecil B. Pickett, Ph.D ...... 2003 $ 699,500 -0- -- $ 297,024 253,000 $ 8,982
Vice President and President, 2002 626,500 $ 55,000 -- 651,984 47,000 133,986
Schering-Plough Research 2001 428,375 150,500 -- 752,940 47,000 113,133
Institute
Richard W. Zahn.............. 2003 $ 500,000 -0- -- $ 75,773 144,300 $ 14,926
Former President, 2002 485,000 $ 26,500 -- 411,998 90,000 121,559
Schering Labs(i) 2001 462,000 -0- -- 465,381 90,000 98,774
Jack L. Wyszomierski......... 2003 $ 647,000 -0- -- $ 190,281 246,100 $ 3,699,676(j)
Former Executive Vice
President 2002 555,000 $ 36,500 -- 827,812 138,000 136,699
and Chief Financial Officer 2001 515,000 -0- -- 934,767 138,000 118,203
Richard Jay Kogan............ 2003 $ 433,583 $ -0- $ 380,159 $ -- -- $ 789,745(l)
Former Chief Executive
Officer 2002 1,430,000 -0- 92,573 3,614,350 368,000 13,261,491
and President(k) 2001 1,430,000 -0- 87,460 4,081,295 368,000 348,140
---------------
* Robert Bertolini joined Schering-Plough as Executive Vice President and
Chief Financial Officer on November 17, 2003 and is one of Schering-Plough's
most senior executives. Although he is not included in the Summary
Compensation Table because he had only 1 1/2 months of pay in 2003,
information about his employment agreement is included under "Employment and
Change of Control Agreements."
(a) Mr. Hassan was named Chief Executive Officer and President on April 20,
2003, and was elected Chairman of the Board on April 22, 2003.
(b) Includes a portion of salary deferred at the election of Mr. Hassan.
(c) Although Mr. Hassan satisfied the personal performance goals set by the
Board necessary to receive a bonus for 2003, in light of the serious
situation facing Schering-Plough, Mr. Hassan waived his
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incentive bonus for 2003. Since Schering-Plough did not meet the performance
goals set forth in a pre-established formula for 2003, no incentive bonuses
were paid to Messrs. Connors and Kohan, Dr. Pickett or Messrs. Zahn and
Wyszomierski. The amount shown was paid to Ms. Cox in lieu of a
performance-based bonus for 2003 as required by her employment agreement.
Mr. Kogan was not eligible for a 2003 bonus. See "Annual Incentive Bonus" on
page 31.
(d) Includes perquisites, except where the total for a named executive is less
than the threshold requiring disclosure. Perquisites provided to some or all
of the named executives are as follows: financial planning, tax preparation,
personal use of company-owned aircraft, installation and operation of home
security systems, personal security services and payment of legal fees for
negotiation of terms of employment and retirement agreements (excludes legal
fees relating to indemnification which are disclosed under "Certain Legal
Proceedings and Indemnification of Current and Former Directors and
Officers" on page 9).
For information about our security policies and our executive use of
company owned aircraft, as well as a newly developed methodology we use to
calculate the incremental cost of the personal use of company-owned
aircraft, see "Our Security Policies and How We Value The Use of Corporate
Aircraft" on page 20.
For Mr. Hassan, the amount shown includes $90,000 for legal fees,
$104,240.57 for his home security system and $116,275 for personal security
services.
For Mr. Kogan for 2003, perquisites also include the renovation and
furnishing of an office away from Schering-Plough property ($97,879),
provision of secretarial support at that office ($105,256) and other items,
all as required by his Retirement Agreement. The table also includes Mr.
Kogan's personal use of company-owned aircraft for 2002 ($61,707) and for
2001 ($77,518), as recalculated under the newly developed methodology.
Does not include the personal use of company-owned cars driven by company
personnel. The company makes one car and driver available to Mr. Hassan.
The other named executives use cars and drivers from a pool. The executives
use the cars primarily for business purposes, and the cars are also used by
other company personnel for business purposes. The total annual cost to
Schering-Plough of one car and driver is estimated to be $155,000.
(e) Under the terms of his employment agreement, Mr. Hassan received 200,000
restricted stock awards in 2003, which grant was not subject to the
attainment of performance goals and is included in the table at fair market
value on the date of grant. The value of those shares as of December 31,
2003 was $3,478,000. Under the terms of her employment agreement, Ms. Cox
received 100,000 restricted shares, which grant was not subject to the
attainment of performance goals and is included in the table at fair market
value on the date of the grant. The value of these shares as of December 31,
2003 was $1,739,000.
For 2003, Mr. Connors, Dr. Pickett and Messrs. Zahn and Wyszomierski each
received performance stock awards which were granted as phantom stock
units. These units vest and become distributable to the executive only
upon, and to the extent of, the achievement of applicable corporate
performance goals. Because the corporate performance goals were not fully
satisfied, only approximately 24.1% of the 2003 performance stock award
grant to such executives vested as follows: Dr. Pickett, 16,640 shares out
of a total of 69,000 shares; Mr. Connors, 10,660 shares, out of a total of
44,200 shares and Mr. Zahn, 4,245 out of a total of 17,600 shares. The
amounts shown in the table for these executives represents the
approximately 24.1% of the award that vested, valued at the share price on
the award grant date. The remainder of these awards did not vest and were
forfeited. The vested portion of the awards are generally distributed in
five equal annual installments. Upon the termination of his employment
effective December 31, 2003, Mr. Wyszomierski forfeited all 44,200 shares
of restricted stock related to 2003 performance goals as well as 23,658
shares relating to other undistributed restricted stock awards.
In 2003, Mr. Kohan was granted a deferred stock unit award before he became
an Executive Officer which was not subject to attainment of performance
goals and is distributable over a 5-year period. This award is shown in the
table valued at the share price on the award grant date.
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At December 31, 2003, the total number and value of vested but
undistributable shares was 67,858 shares ($1,180,051) for Mr. Connors,
27,200 shares ($473,008) for Mr. Kohan, 87,800 shares ($1,526,842) for Dr.
Pickett, and 29,376 shares ($510,849) for Mr. Zahn.
Cash equivalent to the amount of all dividends paid on the Common Shares is
paid on all shares of restricted stock and all phantom stock units before
they are distributed or forfeited.
(f) For each of the named executives other than Messrs. Kohan, Wyszomierski and
Kogan, the amount shown for 2003 represents the cost of medical and dental
insurance. For Mr. Kohan, the amount represents $14,926 for medical and
dental insurance and $23,925 for life insurance paid by Schering-Plough on
his behalf before Mr. Kohan became an Executive Officer. See notes (j) and
(l) regarding the amounts shown for Messrs. Wyszomierski and Kogan.
(g) Ms. Cox assumed her present position on May 15, 2003.
(h) Mr. Kohan did not serve as an Executive Officer of Schering-Plough prior to
2003, therefore his pre-2003 compensation from Schering-Plough is not
included in the Summary Compensation Table.
(i) Mr. Zahn's employment with Schering-Plough has continued although his
position was eliminated in 2003. Mr. Zahn ceased serving as an Executive
Officer on December 4, 2003.
(j) Mr. Wyszomierski's employment terminated effective December 31, 2003. The
amount shown for him consists of $14,926 for the cost of medical and dental
insurance, $3,284,750 paid as severance pay upon his termination of
employment pursuant to the supplement to his employment agreement with
Schering-Plough dated as of January 1, 2002 and $400,000 to be paid in
resolution of certain claims under his agreement.
(k) Mr. Kogan retired from the positions of Chief Executive Officer and
President on April 20, 2003. He had previously resigned the position of
Chairman of the Board on November 13, 2002.
(l) For Mr. Kogan, the amount shown consists of $8,982 for the cost of medical
and dental insurance, $670,813 paid for unused vacation, $97,887.50 for
executive life insurance for the period during 2003 following his
retirement, and $12,062 representing the difference between the amount
actually paid to Mr. Kogan as the pro-rata bonus portion of the severance
payment to which he was entitled pursuant to his Retirement Agreement and
the amount estimated and reported in the 2003 proxy statement in respect of
such pro-rata bonus (which amount is shown on the 2002 line of this column).
See the description of Mr. Kogan's Retirement Agreement and these payments
under the heading "Matters Regarding Certain Former Officers" on page 25.
Also, does not include certain payments to Mr. Kogan under Schering-Plough's
retirement plans which payments are disclosed under "Pension Plan
Information" on page 28 as well as "Matters Regarding Certain Former
Officers" on page 25.
OUR SECURITY POLICIES AND HOW WE VALUE THE USE OF CORPORATE AIRCRAFT
During 2003, Schering-Plough owned and operated two aircraft and a
helicopter (together, company-owned aircraft). Schering-Plough owns the
company-owned aircraft for the purpose of facilitating business travel of senior
executives in as safe conditions as possible and with the best use of their
time.
Generally, pilots who are salaried employees of Schering-Plough fly the
company-owned aircraft, although on occasion temporary pilots are also used. Our
CEO has been directed by the Board to use the company-owned aircraft for all
travel. We believe this provides several business benefits to Schering-Plough.
First, the policy is intended to ensure the personal safety of Mr. Hassan, who
maintains a significant public role as the leader of Schering-Plough. Second,
the policy is intended to ensure his availability and to maximize the time
available for Schering-Plough business. Certain of the other named executives
(and other key executives) use the company-owned aircraft for business travel,
and on occasion for personal travel.
In past proxy statements, Schering-Plough calculated the cost of the
personal use of company-owned aircraft using the Standard Industrial Fare Level
(SIFL) tables found in the tax regulations. Earlier this year, Schering-Plough
engaged a third party consultant to study the cost of travel by company-owned
20
aircraft as part of its cost savings initiative. Schering-Plough reviewed the
methodology developed by the consultant with another independent party, which
advised Schering-Plough that the methodology is a reasonable method of
calculating the incremental cost to Schering-Plough of the personal use of
company-owned aircraft. The methodology calculates the incremental cost based on
the average weighted cost of fuel, crew hotels and meals, on-board catering,
trip-related maintenance, landing fees, trip-related hangar/parking costs and
smaller variable costs. Since the company-owned aircraft are used primarily for
business travel, the methodology excludes the fixed costs which do not change
based on usage, such as pilots' salaries, the purchase costs of the
company-owned aircraft and the cost of maintenance not related to trips.
Schering-Plough used this newly developed methodology to calculate the
incremental cost of personal use of the company-owned aircraft for 2003 and
determined that it produces higher amounts than use of the SIFL calculation
method. As a result, in the Summary Compensation Table, Schering-Plough also
used this newly developed methodology to calculate the incremental cost of
personal use of company-owned aircraft in 2002 and 2001. Schering-Plough
included such disclosures in the "Other Annual Compensation" column in the
Summary Compensation Table for 2002 and 2001 whenever use of the new methodology
produced a total perquisite amount in excess of the disclosure threshold.
Schering-Plough retained the third party to apply the methodology to calculate
the personal use of company-owned aircraft for each named executive for 2003,
2002, and 2001.
EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENTS
Mr. Hassan's Agreement. In April 2003, Schering-Plough entered into an
employment agreement with Mr. Hassan. His agreement provides for his employment
as Chief Executive Officer of Schering-Plough through December 31, 2005. The
terms of his employment automatically extend for additional successive one-year
periods until December 31, 2010 unless Mr. Hassan or Schering-Plough elects to
terminate the agreement at least 90 days prior to the end of any of his
employment periods. Mr. Hassan's agreement also provides for a three year
extension of his employment period in the event of a change of control. Under
his agreement, Mr. Hassan will receive an annual base salary of at least
$1,500,000. He will be eligible to receive annual cash incentive awards in
accordance with Schering-Plough's cash bonus plans, as well as Schering-Plough's
other executive benefit and incentive plans. Upon joining Schering-Plough, Mr.
Hassan received 200,000 shares of restricted stock that vest on the third
anniversary of his employment and an option to purchase 900,000 shares of Common
Stock that vests as to 600,000 shares on the first anniversary of his employment
and 150,000 shares on each of the second and third anniversaries of his
employment. He may also receive future grants under Schering-Plough's stock
incentive program consistent with other senior executives and competitive pay
practices generally. His employment agreement also provides for his
participation in all employee compensation plans and welfare benefit plans
generally available to Schering-Plough's other senior executives. Mr. Hassan
also will receive reimbursement of all reasonable business expenses, fringe
benefits (including security services and the use of Schering-Plough's private
transportation services), office and support staff and vacation benefits in
accordance with Schering-Plough's plans, policies, and practices and in a manner
comparable to other senior executives.
Mr. Hassan's employment agreement also provides that if his employment is
terminated by reason of his death or disability, he or his estate or his
beneficiary will be entitled to receive a payment equal to (1) his base salary
through the date of termination of his employment to the extent not paid; (2)
any compensation previously deferred and due upon his termination of employment;
(3) any accrued vacation pay; and (4) any unreimbursed expenses. In addition,
the option and restricted stock awards granted to Mr. Hassan upon his
commencement of employment will fully vest upon his termination of employment
due to death or disability. Upon termination of employment due to disability,
Mr. Hassan and his family shall also continue to receive welfare benefits for
three years after termination. Under his agreement, if Schering-Plough
terminates Mr. Hassan's employment without cause, if he terminates employment
for good reason, or if he resigns during the one-month "window" period one year
after a change of control of Schering-Plough, Mr. Hassan will be entitled to
receive (1) a cash payment equal to his base salary through the date of
termination of employment to the extent not paid, any compensation previously
21
deferred and due upon his termination of employment, any accrued vacation pay,
and any unreimbursed expenses; (2) a pro-rata bonus payment based upon the
greater of the highest annual bonus paid in the three most recent fiscal years
or the target annual bonus then in effect; (3) a severance payment equal to
three times the sum of (a) his annual base salary, (b) his highest annual bonus
paid in the three most recent fiscal years, and (c) the amount of the
contribution by Schering-Plough on his behalf under Schering-Plough's qualified
and nonqualified profit-sharing plans; (4) continued welfare benefits for at
least three years following termination; (5) full vesting of the option and
restricted stock awards granted to him at the time of his employment; and (6) a
minimum benefit under Schering-Plough's supplemental executive retirement plan
equal to 32% of Mr. Hassan's average final earnings calculated as if his
employment continued through December 31, 2010 and without reduction for early
payment. Mr. Hassan's agreement gives him the right to terminate for good reason
and receive the benefits described in the immediately preceding sentence if
Schering-Plough gives him notice of its election to terminate or otherwise not
extend his employment at any time before December 31, 2010. The amount of Mr.
Hassan's severance payment under his employment agreement will be either reduced
by the amount due Mr. Hassan under any other severance program of
Schering-Plough or paid in full in lieu of any such other severance payment. Mr.
Hassan will also receive a gross-up payment to the extent any payment would
constitute an excess parachute payment under the Internal Revenue Code.
Mr. Bertolini's Agreement. In November 2003, Schering-Plough entered into
an employment agreement with Mr. Bertolini that provides for his employment as
Executive Vice President and Chief Financial Officer of Schering-Plough. Under
his agreement, Mr. Bertolini will receive an annual base salary of at least
$775,000. Mr. Bertolini's annual incentive opportunity is targeted at 70% of his
base salary, and he is entitled to receive a bonus guaranteed at target for 2004
unless his performance for 2004 is substantially inadequate. He will be eligible
to receive annual cash incentive awards in accordance with Schering-Plough's
cash bonus plans, as well as Schering-Plough's other executive benefit and
incentive plans. Upon joining Schering-Plough, Mr. Bertolini received 65,000
shares of restricted stock that vest on the third anniversary of the grant date
and an option to purchase 350,000 shares of Common Stock that vests in three
equal annual installments beginning one year from the date of grant. He may also
receive future grants under Schering-Plough's stock incentive program consistent
with other senior executives and competitive pay practices generally. Mr.
Bertolini also received a $100,000 commencement bonus and a payment of $266,521
representing certain tax liabilities that Mr. Bertolini incurred as a result of
his leaving his prior employer to join Schering-Plough. His employment agreement
also provides for his participation in all employee compensation plans and
welfare benefit plans generally available to Schering-Plough's other senior
executives. Mr. Bertolini will also receive reimbursement of all reasonable
business expenses, fringe benefits (including security services and the use of
Schering-Plough's private transportation services), office and support staff and
vacation benefits in accordance with Schering-Plough's plans, policies, and
practices and in a manner comparable to other senior executives.
Upon commencing employment with Schering-Plough, Mr. Bertolini became a
participant in Schering-Plough's Supplemental Executive Retirement Plan (SERP).
His agreement provides that he will receive an additional 20 years of benefit
service under the SERP that will vest upon his fifth anniversary of employment
with Schering-Plough. Mr. Bertolini's SERP benefit will be offset by his
retirement benefits from the qualified and non-qualified defined benefit
retirement plans of Schering-Plough and of any and all of his former employers.
In the event that Mr. Bertolini voluntarily terminates his employment after
attaining age 50, Schering-Plough will provide him with a special retirement
benefit equal to the difference between the estimated annual retirement benefit
that he would have received at such age from his former employer reduced by his
benefits under Schering-Plough's qualified and non-qualified defined benefit
retirement plans, including his SERP benefit.
If Schering-Plough terminates Mr. Bertolini's employment without cause or
if he terminates employment for good reason, he will be entitled to receive a
lump sum payment equal to three times his base salary and annual bonus
calculated at target. The amount of his severance payment will be offset by the
amount due Mr. Bertolini under any other severance program of Schering-Plough.
In addition, his outstanding stock options and restricted stock awards will
fully vest. Schering-Plough will also provide him
22
with a fully vested unreduced SERP benefit (calculated including the 20 years of
additional credited benefit service described in the preceding paragraph)
payable at age 55 without reduction for early retirement (or, at Mr. Bertolini's
election, payable earlier than age 55 with the application of actuarial
assumptions). This fully vested unreduced SERP benefit is also provided upon his
termination due to death or disability.
If, following a change in control, Schering-Plough terminates Mr.
Bertolini's employment without cause, or if he terminates employment for good
reason, or if he resigns during the one month "window" period one year after a
change in control of Schering-Plough, he will be entitled to receive (1) a cash
payment equal to his base salary through the date of termination of employment
to the extent not paid, any compensation previously deferred and due upon his
termination of employment, any accrued vacation pay, and any unreimbursed
expenses; (2) a pro-rata bonus payment based upon the greater of the highest
annual bonus paid in the three most recent fiscal years or the target annual
bonus then in effect; (3) a severance payment equal to three times the sum of
(a) his annual base salary, (b) his highest annual bonus paid in the three most
recent fiscal years, and (c) the amount of the highest contribution by
Schering-Plough on his behalf under Schering-Plough's qualified and nonqualified
profit-sharing plans made in the three years preceding his termination date; (4)
a lump sum supplemental pension amount based on three years of deemed employment
or to age 65, if sooner; (5) continued welfare benefits following termination
for a period of at least three years; (6) full vesting of the option and
restricted stock awards; (7) his SERP benefit calculated without application of
any reduction factors if he is at least age 50 or, if his termination occurs
prior to his reaching age 50, Mr. Bertolini will be entitled to a SERP benefit
reduced for each year prior to this 50th birthday by the same annual reduction
factors as are applicable under the SERP's pre-age 62 early retirement reduction
schedule; and (8) if he is at least age 45 as of his termination date, he will
be entitled to retiree medical coverage following the end of his other welfare
benefit coverage provided by Schering-Plough. Mr. Bertolini will also receive a
gross-up payment to the extent that any payment would constitute an excess
parachute payment under the Internal Revenue Code.
Ms. Cox's Agreement. In May 2003, Schering-Plough entered into an
employment agreement with Ms. Cox. Her agreement provides for her employment as
Executive Vice President and President, Global Pharmaceuticals, through May 31,
2008. The terms of her employment automatically extend for additional successive
one-year periods until October 1, 2022, unless either party to her agreement
elects to terminate the agreement at least 90 days prior to the end of any of
her employment periods. Ms. Cox's agreement also provides for a three-year
extension of her employment period in the event of a change of control. Under
her agreement, Ms. Cox will receive an annual base salary of at least $900,000.
She will be eligible to receive annual cash incentive awards in accordance with
Schering-Plough's cash bonus plans, as well as Schering-Plough's other executive
benefit and incentive plans. Ms. Cox's agreement also provided her with a
guaranteed minimum 2003 bonus equal to 80% of the base salary she received in
2003. Upon joining Schering-Plough, Ms. Cox received 100,000 shares of
restricted stock that vests on the third anniversary of her employment
agreement, and an option to purchase 450,000 shares of Common Stock with a grant
date of May 14, 2003, that vest as to 150,000 shares on each of the first,
second and third anniversaries of the grant date. She may also receive future
grants under Schering-Plough's stock incentive program consistent with other
senior executives and competitive pay practices generally. Her employment
agreement also provides for her participation in all employee compensation plans
and welfare benefit plans generally available to Schering-Plough's other senior
executives. Ms. Cox will also receive reimbursement of all reasonable business
expenses, fringe benefits (including security services and the use of
Schering-Plough's private transportation services), office and support staff and
vacation benefits in accordance with Schering-Plough's plans, policies, and
practices and in a manner comparable to other senior executives.
Ms. Cox's employment agreement also provides that if her employment is
terminated by reason of her death or disability, she or her estate or her
beneficiary will be entitled to receive a payment equal to (1) her base salary
through the date of termination of her employment to the extent not paid; (2)
any compensation previously deferred and due upon her termination of employment;
(3) any accrued vacation
23
pay; and (4) any unreimbursed expenses. In addition, the option and restricted
stock awards granted to Ms. Cox upon her commencement of employment will fully
vest upon her termination of employment due to death or disability. Upon
termination of employment due to disability, Ms. Cox and her family shall also
continue to receive welfare benefits for two years after termination. Under the
agreement, if Schering-Plough terminates Ms. Cox's employment without cause, if
she terminates employment for good reason, or if she resigns during the
one-month "window" period one year after a change of control of Schering-Plough,
Ms. Cox will be entitled to receive (1) a cash payment equal to her base salary
through the date of termination of employment to the extent not paid, any
compensation previously deferred and due upon her termination of employment, any
accrued vacation pay, and any unreimbursed expenses; (2) a pro-rata bonus
payment based upon the greater of the highest annual bonus paid in the three
most recent fiscal years or the target annual bonus then in effect; (3) a
severance payment equal to two times the sum of (a) her annual base salary, (b)
her highest annual bonus paid in the three most recent fiscal years, and (c) the
amount of the contribution by Schering-Plough on her behalf under
Schering-Plough's qualified and nonqualified profit-sharing plans; (4) continued
welfare benefits for at least two years following her termination; (5) full
vesting of the option and restricted stock awards granted to Ms. Cox at the time
of her employment; and (6) a minimum benefit under Schering-Plough's
supplemental executive retirement plan equal to 26% of Ms. Cox's average final
earnings calculated using average final earnings as defined in the supplemental
executive retirement plan and modified by her employment agreement. Ms. Cox's
agreement gives her the right to terminate for good reason and receive the
benefits described in the immediately preceding sentence if Schering-Plough
gives her notice of its election to terminate or otherwise not extend her
employment at any time before October 1, 2022. Ms. Cox will also receive a
gross-up payment to the extent that any payment would constitute an excess
parachute payment under the Internal Revenue Code.
Dr. Pickett and Messrs. Connors, Kohan and Zahn Agreements. Dr. Pickett
and Messrs. Connors, Kohan and Zahn each are party to an agreement with
Schering-Plough that triggers an employment period of three years or to age 65,
if sooner, upon a Change of Control or upon a termination of employment by
Schering-Plough in anticipation of a Change of Control (Mr. Wyszomierski had a
similar agreement in place prior to the termination of his employment effective
December 31, 2003). During the employment period, the agreement provides that
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
Schering-Plough 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 or (iii) by Schering-Plough without cause in anticipation of a
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) a
pro-rata bonus for the year of termination, (ii) a lump sum supplemental pension
amount based on three years of deemed employment after termination or to age 65,
if sooner, (iii) continued coverage under Schering-Plough's welfare benefit
plans for three years or to age 65, if sooner, (iv) retiree medical coverage if
termination is at or after attainment of age 45, and (v) supplemental pension
payments without reduction for early retirement if termination is at or after
age 50. If any payment or distribution by Schering-Plough to the executive is
determined to be subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code, Schering-Plough will hold him harmless from the excise
tax imposed.
Schering-Plough entered into a supplement to the agreement with each of
Messrs. Connors, Kohan, Zahn and Wyszomierski that 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 Schering-Plough during his employment and for a period of two
(2) years after such executive leaves
24
Schering-Plough, if he leaves during the term of the supplement because of a
termination by Schering-Plough for cause or a termination by him without good
reason. Under the supplements, if either Mr. Kohan or Mr. Zahn is terminated
during the term of the supplement by Schering-Plough without cause or by him for
good reason, he will be generally entitled to receive (a) any accrued but unpaid
compensation, any deferred compensation and a pro-rated annual bonus payment,
(b) a lump sum equal to three times (I) his annual base salary and (II) the
highest of both his annual bonus and profit-sharing awards for the three
preceding years, and (c) a supplemental pension payment without reduction for
early retirement. Mr. Connors' supplement was amended as of December 16, 2003
and provides that if at any time during the term of the supplement he is
terminated without cause or terminates his own employment for good reason, he
will be generally entitled to receive (a) any accrued but unpaid compensation,
any deferred compensation and a pro-rated annual bonus payment, (b) a lump sum
equal to three times (I) his annual base salary, (II) the higher of (x) his
highest annual bonus for the three preceding years and (y) his annual bonus for
the year 2000, and (III) his highest profit-sharing award for the three
preceding years, and (c) a supplemental pension payment without reduction for
early retirement.
On March 4, 2004 Mr. Connors and Schering-Plough announced that he has
chosen to leave Schering-Plough upon the appointment of his successor. Mr.
Connors will retain his position until then and will assist Schering-Plough
during the transition. Under his agreement, as supplemented and amended, upon
his departure Mr. Connors will receive the benefits described above.
Schering-Plough entered into a letter agreement with Mr. Zahn in July of
2003 pursuant to which it was determined that Mr. Zahn would no longer serve as
President of Schering Labs. In accordance with the letter agreement, Mr. Zahn
was placed on a paid leave of absence for up to a 12-month period at his then
current base rate of pay during which period he would remain available to work
on projects and assignments assigned to him by Schering-Plough. Notwithstanding
this agreement, Mr. Zahn remains eligible for the severance benefits described
above in the event he experiences a qualifying termination. Schering-Plough paid
Mr. Zahn's legal expenses incurred in connection with his employment agreement
in the amount of $12,637.95.
Under Schering-Plough's Stock Incentive Plans, stock awards and stock
options granted to the named Executive Officers (and other participants in the
Plans) may vest and be cashed out upon a Change of Control.
MATTERS REGARDING CERTAIN FORMER OFFICERS
Mr. Wyszomierski's Agreement. Mr. Wyszomierski received the cash severance
benefits to which he was entitled under the supplement to his agreement
consisting of a lump sum equal to three times (I) his annual base salary and
(II) the highest of both his annual bonus and profit-sharing awards for the
three preceding years. His agreement also provides for his supplemental pension
payment without reduction for early retirement. In 2004, Schering-Plough will
pay Mr. Wyszomierski $5,119,373 representing that supplemental pension
obligation. In resolution of claims relating to his agreement, Schering-Plough
will pay Mr. Wyszomierski a lump sum of $400,000 and will provide him with
continued coverage under Schering-Plough's welfare benefit plans for a period of
two years following his termination. In accordance with his agreement,
Schering-Plough also paid Mr. Wyszomierski's legal expenses incurred in 2003
relating to claims under his agreement in the amount of $16,888.86.
Mr. Kogan's Agreement. Pursuant to the Retirement Agreement entered into
with Schering-Plough on November 13, 2002, Mr. Kogan agreed to retire from his
employment with Schering-Plough and his position as a member of the Board at the
2003 Annual Meeting or, if sooner, upon the appointment of his successor. On
April 20, 2003, Schering-Plough announced Mr. Kogan's retirement from his
position as Chief Executive Officer and President of Schering-Plough. Mr. Kogan
previously resigned from his position as the Chairman of the Board of Directors
on November 13, 2002. Mr. Kogan's Retirement Agreement was based on the
provisions of an employment agreement first entered into in 1989 and amended six
times. Under the Retirement Agreement, Mr. Kogan received his base salary at the
annual rate of $1,430,000 (the prorated amount, $433,583 is included in the
Summary Compensation Table in the
25
Salary Column) and the other compensation and benefits provided for in the
employment agreement through his actual retirement, except that he did not
receive any further bonuses, stock option grants or other incentive
compensation.
Pursuant to the Retirement Agreement, Mr. Kogan received the severance and
retirement benefits to which he was entitled under his then current employment
agreement with Schering-Plough. The severance benefits consist of: (1) a payment
based upon his highest annual bonus for 1999, 2000 and 2001, pro-rated through
November 13, 2002; (2) a lump sum equal to three times (a) his annual base
salary and (b) the highest of his annual bonuses and profit-sharing awards for
1999, 2000 and 2001; (3) three years' continued coverage under Schering-Plough's
welfare benefit plans; and (4) a lump sum supplemental pension amount based on
three additional years of deemed employment. The amounts paid in connection with
the items described in clauses (1), (2) and (3) of the prior sentence are
included in the "All Other Compensation" column. Certain amounts that were known
to be accrued or payable under the Retirement Agreement at the date of the proxy
statement for the 2003 annual meeting of shareholders were disclosed in that
proxy statement in the "All Other Compensation" column for 2002. Such amounts
are again disclosed in the "All Other Compensation" column for 2002 in this
proxy statement. Amounts paid in 2003 for those items are disclosed in the "All
Other Compensation" column for 2003 in this proxy statement but are offset by
amounts included for 2002 because they were accrued or known to be payable. The
supplemental pension amount described in clause (4) above is disclosed under
"Pension Plan Information" on page 28. The retirement benefits consist of: (i)
cash retirement benefits having a total value on an actuarial basis equal to 55%
of his final average annual compensation per year, with a survivor benefit to
his wife equal to 45% of his final average annual compensation per year; (ii)
vesting of his unvested stock options; and (iii) an office and certain
executive-level support services, including secretarial, transportation and
security services.
In exchange for the benefits under the Retirement Agreement, Mr. Kogan
agreed to cooperate in any pending or future governmental or regulatory
investigation or proceeding, and to provide consulting services to
Schering-Plough after his retirement, and give Schering-Plough a general
release.
STOCK OPTION INFORMATION
The following tables provide information with respect to stock options
granted to or exercised by the named Executive Officers during Fiscal 2003 and
the fiscal year-end value of options held by such officers.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
----------------------------------------------------
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)
---- ---------- --------------- -------- ---------- ----------------
Fred Hassan....................... 900,000 3.84% $17.43 4/19/13 $5,996,250
Joseph C. Connors................. 246,100 1.05 17.85 2/23/13 1,679,165
Carrie S. Cox..................... 450,000 1.92 18.50 5/13/13 3,182,175
Raul E. Kohan..................... 59,100 .25 17.85 2/23/13 403,245
Cecil B. Pickett.................. 253,000 1.08 17.85 2/23/13 1,726,244
Richard W. Zahn................... 144,300 .62 17.85 2/23/13 984,573
Jack L. Wyszomierski.............. 246,100 1.05 17.85 3/31/04 1,679,165
Richard Jay Kogan................. 0 0 -- -- --
---------------
(a) Under the terms of Mr. Hassan's employment agreement, the option granted to
him during 2003 vests as to 600,000 shares on the first anniversary of the
grant date (the grant date was April 20, 2003) and 150,000 shares on each
of the second and third anniversaries of such date. Option grants for the
other named Executive Officers who received grants in 2003 are either
exercisable in full one year after the
26
date of grant on February 24, 2004, or in installments of 33 1/3% per year
on each of the first through third anniversaries of the grant date, except
that transferable options which were transferred became exercisable
immediately upon transfer. The exercise price of the options is the fair
market value of the Common Shares on the date of grant. Options have a term
of 10 years, and after the occurrence of a Change of Control, they become
exercisable and may be cashed out for a period of 60 days. If an optionee's
employment is involuntarily terminated after a change of control, any
then-outstanding options that he or she held at the time of the change of
control will remain exercisable for their full remaining term,
notwithstanding the termination. The options granted during 2003 to Messrs.
Hassan, Connors and Wyszomierski are transferable in accordance with the
terms of the plan. Messrs. Connors and Wyszomierski transferred their
options granted in 2003 during 2003.
(b) The valuation calculations are solely for purposes of compliance with the
rules and regulations promulgated under the Exchange Act, and are not
intended to forecast possible future appreciation, if any, of
Schering-Plough's stock price. The grant date present value for the options
expiring on February 24, 2013 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, 2002 (2.01%); volatility of the
Common Shares based on monthly total returns for the three years ended
January 31, 2002 (33.64%); an annualized risk-free interest rate of 4.13%;
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 24, 2013, the equivalent value of the appreciation of all
Common Shares of Schering-Plough outstanding on the grant date of those
options would be approximately $10 billion, of which the value of the named
Executive Officers' options would be 0.15%. This valuation model was not
adjusted for risk of forfeiture or the vesting restrictions of the options.
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. Upon his
termination of employment on December 31, 2003, Mr. Wyszomierski's
transferred 2003 options can be exercised through March 31, 2004, in
accordance with the 2002 Stock Incentive Plan. The valuation calculation,
however, assumes full-term value, which cannot actually occur in Mr.
Wyszomierski's case.
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)(B)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
Fred Hassan............. -0- $ -0- -0- 900,000 $ -0- $ -0-
Joseph C. Connors....... 26,440 227,299 1,185,227 233,333 933,718 154,650
Carrie S. Cox........... -0- -0- -0- 450,000 -0- -0-
Raul E. Kohan........... -0- -0- 388,214 275,766 859,795 179,348
Cecil B. Pickett........ 110,000 856,141 413,734 439,666 46,800 31,200
Richard W. Zahn......... -0- -0- 639,867 445,633 855,595 426,918
Jack L. Wyszomierski.... -0- -0- 993,967 -0- 463,950 -0-
Richard Jay Kogan....... -0- -0- 1,546,000 -0- -0- -0-
---------------
(a) Table includes stock options which were transferred in accordance with the
terms of Schering-Plough's Stock Incentive Plans. After transfer, certain
of these stock options were no longer beneficially owned (Mr. Kogan
347,000; Mr. Connors 246,100; Mr. Wyszomierski 246,100).
(b) Based on the difference between the closing price of Common Shares on the
New York Stock Exchange on December 31, 2003 of $17.39 and the exercise
price of the option.
27
PENSION PLAN INFORMATION
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.
YEARS OF SERVICE
--------------------------------------------------------------
REMUNERATION 15 20 25 30 35
------------ ---------- ---------- ---------- ---------- ----------
$ 200,000........................ $ 70,000 $ 80,000 $ 90,000 $ 100,000 $ 110,000
400,000....................... 140,000 160,000 180,000 200,000 220,000
600,000....................... 210,000 240,000 270,000 300,000 330,000
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
1,400,000....................... 490,000 560,000 630,000 700,000 770,000
1,600,000....................... 560,000 640,000 720,000 800,000 880,000
1,800,000....................... 630,000 720,000 810,000 900,000 990,000
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 Schering-Plough'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 18. Benefits are
calculated with reference to the highest average annual compensation (salary and
bonus) for any period of 60 consecutive months during the last 120 months prior
to retirement. The credited years of service (Executives who joined
Schering-Plough in 2003 have been rounded up to 1 year of service) as of
December 31, 2003 are: Mr. Hassan (1 year), Mr. Bertolini (1 year), Mr. Connors
(26 years), Ms. Cox (1 year), Mr. Kohan (18 years), Dr. Pickett (10 years), Mr.
Zahn (11 years), Mr. Wyszomierski (20 years), and Mr. Kogan (21 years).
As described in detail on page 22, Mr. Bertolini is entitled to an
additional 20 years of benefit service under Schering-Plough's supplemental
executive retirement plan that will vest upon his fifth anniversary of
employment with Schering-Plough. Mr. Bertolini's supplemental pension benefit
will be offset by his retirement benefits from the qualified and non-qualified
defined benefit pension plans of Schering-Plough and of any and all of his
former employers. Employment terms that may impact Mr. Bertolini's pension
benefits are described in detail on page 22 under "Mr. Bertolini's Agreement."
As noted under "Matters Regarding Certain Former Officers" on page 25, Mr.
Kogan's Retirement Agreement provided that at the time of his retirement, he
would receive cash retirement benefits having a total value on an actuarial
basis equal to a life annuity of 55% of his final average annual compensation
per year, with a survivor benefit to his wife equal to 45% of his final average
annual compensation per year. During 2003, Mr. Kogan was paid $27,256,617
representing the portion of this benefit payable under Schering-Plough's
nonqualified arrangements. In addition to the lump sum amount, the amount of
monthly benefit that Mr. Kogan is receiving from the qualified pension plan is
$3,856.43.
28
Please see "Matters Regarding Certain Former Officers" on page 25 regarding
the supplemental pension amount payable to Mr. Wyszomierski following his
employment termination.
Descriptions of how employment terms may impact the named Executive
Officers' pension benefits are provided on page 21 under "Employment and Change
of Control Arrangements."
COMPENSATION COMMITTEE REPORT
Within two days of his election as Chief Executive Officer, Mr. Hassan
spoke at Schering-Plough's 2003 Annual Meeting of Shareholders and introduced an
Action Agenda to create a foundation on which to build growth. He completed a
100 day, 360 degree review of the Company requested by the Board of Directors in
August 2003 and recommended that in view of the serious situation facing
Schering-Plough, all 2003 bonuses should be waived and routine merit increases
should be frozen through 2004. The Committee and the Board accepted Mr. Hassan's
recommendation and this was announced in August 2003.
2004 Total Compensation Philosophy
As part of his 100-day review, Mr. Hassan also proposed that
Schering-Plough implement a "fix and build" initiative to inculcate a
performance-driven culture throughout the Company. During the months leading up
to the date of this Committee report, Mr. Hassan has made a number of important
management and strategic changes, with oversight and approval of the Board.
Among the changes approved by this Committee with the advice of the full Board
was the creation of a total compensation program for the Chief Executive Officer
and other key executives that will drive business performance and
transformational change at Schering-Plough. The program is designed to foster
productive behaviors aligned with Schering-Plough's Action Agenda, consistent
with the Company's commitment to business integrity.
Effective in 2004, Schering-Plough has implemented a new total compensation
philosophy. This new philosophy is based on guiding principles against which
Schering-Plough's compensation and benefits programs will be measured. The
objectives are to (1) maximize shareholder value over time, (2) reward above
average execution by providing opportunities for above average rewards, (3)
reward efforts that create shareholder value, and (4) encourage excellence by
building an ownership mentality throughout Schering-Plough.
For 2004, the changes include a restructured short and long-term pay
philosophy and pay mix for members of Schering-Plough's Operations Management
Team, which is made up of the top 35 or so key executives responsible for
driving Schering-Plough's business and other key executives. In addition,
Schering-Plough has adopted a new annual cash bonus plan, the Operations
Management Team Incentive Plan, applicable to members of the Operations
Management Team. This new bonus program is designed to reward key executives
upon the achievement of sales growth and earnings per share targets as well as
exceptional individual performance. New cash-based and performance share-based
long-term incentive plans have also been implemented for 2004 to motivate
Schering-Plough's key leaders. These plans will have three-year or five-year
performance periods, followed by two-year retention periods for full vesting.
The objectives of the plans are shareholder wealth creation, long-term
operational excellence, growth in earnings per share and retention of
high-performing employees. The long-term nature of these incentives is intended
to directly align senior managers with the interests of investors in
Schering-Plough.
Under Schering-Plough's new pay philosophy, base salaries, annual
incentives, long-term incentives, benefits and total compensation for Executive
Officers and other key employees will be targeted at the median of the peer
group, but for high-potential, high-performing individuals with critical skills
and abilities, long-term incentives and total compensation targets may be set at
or above the 75th percentile of the market. Also for 2004, Schering-Plough
eliminated future contributions to Schering-Plough's Profit Sharing Plan while
implementing a 401(k) match program. No contributions were made to the Profit
Sharing Plan for 2003 because Schering-Plough did not achieve the minimum level
of profit necessary for any payout.
29
Another important change is the Committee's adoption of share ownership
guidelines applicable to the Chief Executive Officer, Executive Officers and
other key employees at Schering-Plough. Under the new share ownership
guidelines, executives and other key employees are encouraged to acquire and
maintain share holdings in Schering-Plough's stock in amounts expressed as a
multiple of base salary. The guidelines provide for a five-year window period
within which the share ownership is to be achieved and subjects the Chief
Executive Officer, Executive Officers and other key employees to future
reductions in stock option grants following the five-year window for periods
within which the share ownership is not achieved. These guidelines establish a
clear link between executive ownership, long-term strategic thinking and
compensation programs that are tied to corporate performance and the interests
of the shareholders.
2003 Principles and Program
Schering-Plough's executive compensation program for 2003 was designed to
serve the Company's broader strategic goals of profitable growth and the
creation of long-term shareholder value. The program was fundamentally a
pay-for-performance program designed to:
- ensure Schering-Plough's ability to attract and retain superior
executives;
- strongly align the interests of Schering-Plough's executives with those
of its shareholders; and
- provide a compensation package that balances individual contributions and
overall business results.
The Compensation Committee, which changed its name from the Executive
Compensation and Organization Committee in 2003, is responsible for setting
Schering-Plough's executive compensation policy. The Committee consists of five
Directors who are not employees of Schering-Plough and are not eligible to
participate in Schering-Plough's executive compensation programs.
The Committee selects and when it deems appropriate is advised by an
independent executive compensation consultant. The Committee also annually
ratifies Schering-Plough's selection of an independent compensation consultant,
which works with Schering-Plough's Global Human Resources professionals and also
provides information to the Committee.
In determining executive compensation for 2003, the Committee evaluated
both the total compensation package and its individual elements. As part of its
review, the Committee considered compensation data for companies that represent
direct competitors for executive talent. The data includes information on those
drug and health care companies within the peer index used in the performance
graph (page 35) in the proxy statement (the "Peer Group") and other
pharmaceutical and consumer products companies, including some for which public
information is not available. The Committee did not implement a revision to the
comparator group for 2003. Instead, as in 2002, the competitive compensation
analysis considered data of similar global companies with headquarters in the
United States.
Total Compensation
For 2003, an executive's total compensation consisted of four elements:
base salary, an annual incentive bonus opportunity, long-term stock-based
compensation (stock options and restricted stock awards) and employee benefits.
Base Salary
The Committee assessed a number of factors in fixing the salary of the
Executive Officers (including those Executive Officers named in the proxy
statement). Those factors typically included: the responsibility of the
individual's position, the individual's performance, Schering-Plough's overall
financial performance, certain non-financial indicators of corporate
performance, and the business climate. In the case of Executive Officers with
responsibility for a particular business unit, the Committee also considered
that unit's financial results. For particular executives, non-financial
indicators may have included, 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
30
allocation and social responsibility) and compliance with Schering-Plough'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. The Committee's independent
compensation consultant confirms that salary levels are within the range of
those offered by the competitor companies. To ensure that the compensation
policy for Executive Officers is consistent with overall Schering-Plough results
and executive compensation strategies, in 2003 the Committee reviewed the
compensation awarded to approximately 90 of Schering-Plough's most highly
compensated executives.
Through 2003, the Committee targeted salaries of Schering-Plough's
Executive Officers to the median of the salary levels at the competitor
companies. In fixing the salaries of the Executive Officers for 2003, the
Committee considered Schering-Plough's overall financial performance in 2002 and
the non-financial indicators reflected in individual performance ratings also in
2002, although no particular weighting was assigned to any specific aspect of
corporate performance.
Annual Incentive Bonus
The Executive Incentive Plan, Schering-Plough's bonus plan in effect for
2003, 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 Chief Executive Officer and the other Executive Officers named in the proxy
statement. Under this program, the amount of cash incentive bonuses 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 above the amount 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 2003, the Committee fixed specified percentages of base salary as
target incentive bonus awards for the covered Executive Officers. The Committee
removed return on equity as a performance goal component for 2003, and assigned
pre-tax earnings an 80% weighting and earnings per share a 20% weighting. The
performance goal for pre-tax earnings for 2003 was Schering-Plough's income
before income taxes in Schering-Plough's 2003 operating plan as approved by the
Committee. The performance goal for earnings per share for 2003 was the average
of the First Call Corporation consensus projected earnings per share growth of
the Peer Group for the corresponding fiscal year. Actual earnings per share and
pre-tax earnings were based upon amounts reported in Schering-Plough's financial
statements in its Annual Report to Shareholders, as adjusted for special items
identified by the Committee and certified by Schering-Plough's independent
auditors.
In 2003, Schering-Plough did not fully meet the performance goals set forth
in the pre-established formula set by the Committee for Mr. Connors, Mr. Kohan,
Dr. Pickett, Mr. Zahn and Mr. Wyszomierski to receive incentive bonus awards.
Accordingly, those Executive Officers were not paid incentive bonuses in respect
of 2003. The lack of bonuses for 2003 for those executives reflects the
Committee's goal of aligning the interests of Schering-Plough's executives with
those of its shareholders. In addition, in light of the serious situation facing
Schering-Plough, Mr. Hassan waived his bonus for 2003, which was targeted at
between 125% and 200% of his base salary, even though he satisfied the personal
performance goals set by the Board for receiving the bonus. Ms. Cox will receive
a lump sum payout in 2004 in lieu of a performance-based bonus for 2003 in
accordance with her employment agreement. Mr. Kogan did not receive a bonus.
31
The amount of cash awards to other 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 2003 pre-tax earnings goal assigned a
weighting of 80%, and the earnings per share goal assigned a 20% weighting, but
with 25% of the award based on personal performance. These executives, like the
named Executive Officers, did not receive any portion of their incentive bonus
awards since Schering-Plough did not meet the pre-established performance goals
under the incentive bonus program, and the Committee exercised negative
discretion in reducing to zero any payout based solely on individual
performance. Again, this was done to align the interests of Schering-Plough's
executives with those of its shareholders.
Stock-Based Compensation
Under the 2002 Stock Incentive Plan which has been approved by
shareholders, the Committee may grant stock options and restricted stock awards
to Executive Officers and other key employees. The Committee believes that
Schering-Plough'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 period before vesting
begins 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 Schering-Plough.
For 2003, the Committee set fixed guidelines for the size of regular annual
stock option grants and restricted stock awards for each executive grade level
within Schering-Plough, other than the grade level of the 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, in 2003 the
Committee focused on competitive trend data and targeted such awards to fall at
the median levels at the competitor companies. Schering-Plough will follow a
similar program for 2004. Average awards of regular annual stock-based
compensation to the Executive Officers subject to fixed share guidelines fell
below the target range in 2001, 2002, and 2003.
Based on Schering-Plough's new Total Compensation Philosophy for 2004,
stock options and stock awards will generally be granted based on the value
necessary to bring total compensation to the market median. However, total
compensation for high performing, high potential Executive Officers may be
targeted above the market median.
STOCK OPTIONS -- The Committee relies on a valuation of stock options
provided by Schering-Plough's compensation consultant using the Black-Scholes
methodology as the basis for valuation. Stock options are awarded with an
exercise price equal to the market price at the time of grant. For 2003, the
Committee granted all annual options subject in part to a three-year vesting
schedule with the remainder scheduled to vest in full after one year. These
options generally have 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 have a term of ten years. The actual
value of any options granted will depend entirely on the extent to which
Schering-Plough's Common Shares have appreciated in value at the time the
options are exercised. Schering-Plough has not repriced outstanding stock
options in the past, and the Committee included a prohibition against repricing
outstanding stock options without shareholder approval in the 2002 Stock
Incentive Plan. In addition, Schering-Plough has adopted a formal policy against
option repricing without shareholder approval within its Corporate Governance
Guidelines that were approved by the Board of Directors earlier this year.
32
Commitment for 2005 Regarding Indexed Options -- Schering-Plough believes
traditional stock options are an important component of a competitive pay
package necessary to attract and retain top executive talent.
The Committee believes that traditional stock options have a performance
component, since the options have no value unless the stock price rises. We note
that pursuant to the terms of our plans, all stock options have an exercise
price equal to the fair market value at the grant date. However, we also
understand that certain of our institutional investors favor stock options with
special performance provisions.
As a result, we have committed that starting in 2005, twenty percent of the
stock options granted to senior executives will be subject to a
performance-based vesting index (Indexed Options). Once the Indexed Options are
added in 2005, without regard to traditional options, the average percent of
total compensation that is specifically performance-based for senior executives
increases to 64%. The Committee particularly appreciates dialogue and
information provided to Donald L. Miller, Chairman of the Committee, in personal
meetings with Amalgamated Bank LongView Collective Investment Fund regarding
performance-based options and CalPERS regarding executive compensation metrics,
and has committed to continued dialogue.
RESTRICTED STOCK AWARDS -- Under the 2002 Stock Incentive Plan, the
Committee may establish performance goals based on one or more of the following:
earnings per share, return on equity, pre-tax earnings, operating profit and
cash flow. Under the current restricted stock award program, the Committee
designates performance goals for senior Executive Officers. If none of the
performance goals is fully met, then the vesting of a covered executive's
restricted stock award is based on the average of the degree to which the
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, or, if sooner, upon retirement. Cash
equivalent to the amount of all dividends paid on the Common Shares is paid on
all shares of restricted stock before they are distributed or forfeited.
The Committee has certified that neither of the two performance goals
(based on pre-tax earnings and earnings per share) established for 2003 was
fully satisfied for 2003. As a result, the following number of shares,
representing only approximately 24.1% of the restricted stock awards with a 2003
performance period that had been granted to the following executives, vested:
Dr. Pickett, 16,640 shares out of a total of 69,000 shares; Mr. Connors, 10,660
shares out of a total of 44,200 shares; and Mr. Zahn, 4,245 out of a total of
17,600 shares. Upon the termination of his employment effective December 31,
2003, Mr. Wyszomierski forfeited the 10,660 shares of restricted stock that
would have become distributable to him. The shares included in the initial grant
which did not vest were forfeited. The Committee believes that this significant
reduction in the restricted stock awards for the named Executive Officers in
accordance with the performance goals was appropriate in light of
Schering-Plough's results in 2003, and reflects the Committee's goal of aligning
the interests of Schering-Plough's executives with those of its shareholders.
Neither Mr. Hassan nor Ms. Cox, both of whom began employment with
Schering-Plough in 2003, had any restricted shares subject to vesting in 2003.
Mr. Kogan was not granted any cash or equity-based incentive compensation in
2003.
The vesting of restricted stock awards for Schering-Plough's executives who
are not covered by the restricted stock award program is not subject to a
performance condition. The restricted shares granted to Mr. Kohan during 2003
were not subject to performance criteria since he was not yet an Executive
Officer when they were granted. 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, or, if sooner, upon retirement at the Committee's discretion.
EMPLOYEE BENEFITS -- Employee benefits offered to key executives are
designed to be competitive and to provide a "safety-net" of protection against
the financial catastrophes that can result from illness, disability or death,
and to provide a reasonable level of retirement income based on years of service
with Schering-Plough.
33
Compensation of the Chief Executive Officer for 2003
In setting Mr. Hassan's base salary for 2003, the Committee evaluated 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 considered the status of Mr. Hassan as
Schering-Plough's most senior Officer, a review of the compensation for chief
executive officers of comparator groups, and the important role he has in
achieving overall corporate goals. Mr. Hassan did not receive separate
compensation for serving as Chairman of the Board.
The Committee set Mr. Hassan's base salary of $1,500,000 for 2003. He also
had the opportunity to earn a bonus for 2003 targeted at 125% of his base salary
with an opportunity of up to 200% of his base salary. Although he satisfied the
personal performance goals set by the Board necessary to receive a bonus for
2003, in light of the serious situation facing Schering-Plough, he waived that
bonus. In 2003, the Committee granted Mr. Hassan a stock option to purchase
900,000 shares and a restricted stock award for 200,000 shares. Under Mr.
Hassan's Employment Agreement, the restricted stock award will vest in full on
the third anniversary of the grant date, and the stock option will vest as
follows: 600,000 shares on the first anniversary of the grant date, and an
additional 150,000 shares on each of the second and third anniversaries of the
grant date.
In granting stock options and restricted stock awards to Mr. Hassan, the
Committee did not set a fixed guideline, but took into consideration his total
compensation package, competitive compensation data, the long-term nature of
stock options and restricted stock awards, overall corporate financial outlook,
and his role in attaining those results. No particular weighting was assigned to
any factor.
The Board will evaluate the performance of Schering-Plough's Chief
Executive Officer at least annually based upon both Schering-Plough's financial
performance and the extent to which the strategic and business goals established
for Schering-Plough are met.
For 2003, the Committee determined that no compensation would be payable to
Mr. Kogan other than as required by his Retirement Agreement, as described on
page 25 under "Matters Regarding Certain Former Officers".
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 Chief
Executive Officer or any of 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 Schering-Plough 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 Schering-Plough.
COMPENSATION COMMITTEE
Donald L. Miller, Chairman
Hans W. Becherer
Richard de J. Osborne
Patricia F. Russo
Arthur F. Weinbach
34
PERFORMANCE GRAPH
COMPARISON OF CUMULATIVE TOTAL RETURN
FOR THE FIVE YEARS ENDED DECEMBER 31, 2003
[GRAPH]
--------------------------------------------------------------------------------
Schering-Plough
Corporation 100 77 105 67 43 35
Composite Peer
Group 100 89 126 110 88 95
S&P 500 Index 100 121 110 97 76 97
The graph above assumes a $100 investment on December 31, 1998, and reinvestment
of all dividends, in each of Schering-Plough's Common Shares, the S&P 500 Index,
and a composite peer group of the following drug and health care companies:
Abbott Laboratories, Bristol-Myers Squibb Company, Johnson & Johnson, Eli Lilly
and Company, Merck & Co., Inc., Pfizer Inc. and Wyeth. The composite peer group
also includes Warner Lambert Company up to the time of its merger with Pfizer in
2000 and Pharmacia Corporation up to the time of its acquisition by Pfizer in
2003.
35
PROPOSAL TWO: RATIFICATION OF DESIGNATION OF INDEPENDENT AUDITORS
The Audit Committee selected Deloitte & Touche LLP (Deloitte) to audit
Schering-Plough's books and accounts for the year ending December 31, 2004, and
will offer a resolution at the meeting for shareholders to ratify the
designation. Deloitte has been the principal auditor of Schering-Plough since
Schering-Plough was formed in 1970.
Representatives of Deloitte will be present at the meeting to respond to
appropriate questions. They will have an opportunity, if they desire, to make a
statement at the meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE DESIGNATION
OF DELOITTE.
INFORMATION ABOUT FEES BILLED BY DELOITTE
Aggregate fees billed to Schering-Plough for 2003 and 2002 by Deloitte and
its affiliates are as follows:
2003 2002
---------- ----------
Audit Fees(1)............... $4,743,000 $3,722,000
Audit-Related Fees(2)....... $ 457,500 $ 610,000
Tax Fees(3)................. $ 751,000 $ 803,000
All Other Fees.............. $ -0- $ -0-
---------------
(1) Includes fees for professional services rendered for the audit of
Schering-Plough's annual financial statements, review of financial
statements included in Schering-Plough's 10-Qs and services that are
normally provided by the independent accountant in connection with statutory
and regulatory filings and engagements.
(2) Includes assurance and related services that are reasonably related to the
performance of the audit of the annual financial statements and the review
of the financial statements in the 10-Qs such as audits of employee benefits
plans, consultation on accounting and compliance matters, audits under
commercial contracts and requested audits of subsidiaries.
(3) Tax compliance services (preparation of returns for income tax, sales tax,
VAT tax and other similar taxes; employment and payroll-related tax returns;
routine tax advice related to such tax returns and tax audits related to
such matters) for non-U.S. subsidiaries. In situations where the tax return
in question has not yet been completed because it is not yet due, the work
relates to the 2003 tax year and the related fees have been pre-approved but
will not be billed until the tax return is completed.
During 2003 and to date in 2004, the Audit Committee pre-approved all
services provided by Deloitte or its affiliates and the related fees. The
pre-approval process will continue to be followed in the future and includes the
following steps:
- For each pre-approval, the independent auditors, Schering-Plough
management and Schering-Plough counsel all confirm that the proposed
services are not prohibited services.
- In pre-approving services and related fees, the Committee determines that
neither the nature of the services nor the related fees would impair the
independence of Deloitte.
- The Committee receives written reports at least quarterly listing (1) the
services, broken down by project and classified into categories of audit,
audit-related, tax and other non-audit, and (2) the related fees provided
by Deloitte in the current year through the end of the most recently
completed month, and the type services and related fees previously
pre-approved but not yet completed.
- The Committee has determined it will not consider for pre-approval any
fees for general tax planning or tax strategy services.
36
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors is comprised of four
independent Directors, as independence is defined in the New York Stock Exchange
listing standards, the more restrictive Schering-Plough Board Independence
Standard and Rule 10A-3(b)(1) under the Exchange Act. The Audit Committee
operates under a written Charter adopted by the Board, which is attached to this
proxy statement as Exhibit A. The Board has determined that the Committee
Chairman, Arthur F. Weinbach, meets the SEC requirements for, and has designated
him as, the Audit Committee Financial Expert.
The Committee's name was changed from "Finance and Audit Review Committee"
to "Audit Committee." A portion of its prior duties were transferred to the
Finance Committee, which was formed in January 2004 to assist the Board with
oversight of strategic financial matters. The decision by the Board to form the
Finance Committee allows (1) the Audit Committee to focus on the additional
financial reporting and disclosure regulations issued during late 2002 and 2003,
and (2) the Finance Committee to focus solely on strategic financial issues,
which are of critical importance to Schering-Plough's Action Agenda to turn
around the business.
The Audit Committee is appointed by the Board to assist the Board in its
oversight function by monitoring, among other things, the integrity of
Schering-Plough's financial statements, the financial reporting process, the
independence and performance of the independent auditors, and the performance of
the corporate auditors. It is the responsibility of Schering-Plough executive
management to prepare financial statements in accordance with generally accepted
accounting principles and of the independent auditors to audit those financial
statements. The Audit Committee has the sole authority and responsibility to
select, appoint, evaluate and, where appropriate, replace the independent
auditors.
In this context, the Audit Committee has met and held discussions with
management, the independent auditors, and the corporate auditors. Management
represented to the Audit Committee that Schering-Plough's consolidated financial
statements were prepared in accordance with generally accepted accounting
principles, and the Audit Committee has reviewed and discussed the audited
consolidated financial statements with management, the independent auditors and
the corporate auditors. The Audit 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 Audit Committee has received the written disclosures and
the letter required by the Independence Standards Board Standard No. 1
(Independence Discussions With Audit Committees), as amended, from the
independent auditors and has discussed with the independent auditors the
independent auditor's independence from Schering-Plough and its management.
Further, the Audit Committee has considered whether the non-audit services
provided by the independent auditors are compatible with maintaining the
auditor's independence.
Further, the Audit Committee periodically meets with both the corporate
auditors and the independent auditors, with and without management present, to
discuss the results of their examinations, the evaluations of Schering-Plough's
internal controls, and the overall quality of Schering-Plough's financial
reporting.
During 2003, the Audit Committee met privately with the independent
auditors five times and the corporate auditors five times.
Mr. McGrath joined the Audit Committee on January 27, 2004.
37
Based on the reviews and discussions referred to above, and subject to the
limitations on the role and responsibilities of the Audit Committee referred to
above and set forth in the Charter, the Audit Committee recommended to the Board
that the audited financial statements be included in Schering-Plough's 2003 10-K
for filing with the Securities and Exchange Commission.
AUDIT COMMITTEE
Arthur F. Weinbach, Chairman
Hans W. Becherer
Eugene R. McGrath
Robert F. W. van Oordt
38
PROPOSAL THREE: APPROVAL OF OPERATIONS MANAGEMENT TEAM INCENTIVE PLAN
GENERAL
The Schering-Plough Corporation Operations Management Team Incentive Plan
(referred to as the "OMT Incentive Plan") will provide cash awards to selected
management employees of Schering-Plough and its subsidiaries, if pre-established
performance goals are met. The OMT Incentive Plan is intended to encourage
results-oriented actions on the part of management and to align closely
financial rewards with the achievement of specific performance objectives. The
Compensation Committee and the Board of Directors has approved the OMT Incentive
Plan and the Board is submitting the OMT Incentive Plan for shareholder
approval. Shareholder approval is being sought so that the awards under the OMT
Incentive Plan to executives of Schering-Plough who are subject to the reporting
requirements of Section 16 of the Securities Exchange Act of 1934 (referred to
as "Section 16 executives") may qualify as "qualified performance-based
compensation" for purposes of Section 162(m) of the Code (as described in "Tax
Deductibility under Section 162(m)" below).
The following is a summary of the material terms of the OMT Incentive Plan.
DESCRIPTION OF THE OMT INCENTIVE PLAN
Administration: The OMT Incentive Plan will be administered by the
Compensation Committee of the Board of Directors (referred to as the
"Committee") with respect to Section 16 executives; and the OMT Incentive Plan
will be administered by the Chief Executive Officer with respect to all other
employees. The Chief Executive Officer may delegate his authority to administer
the OMT Incentive Plan to an individual or other committee. For purposes of the
remainder of this description, the term "administrator" means the Committee, as
applied to Section 16 executives, and the Chief Executive Officer or an
individual or committee to which authority has been delegated, as applied to all
other employees. The administrator will have authority to establish the rules
and regulations relating to the OMT Incentive Plan, to interpret the OMT
Incentive Plan and those rules and regulations, to select participants for the
OMT Incentive Plan, to determine each participant's target award, performance
goals and final award, and to make all other determinations in connection with
the administration of the OMT Incentive Plan. Only the Committee will take the
foregoing actions with respect to Section 16 executives.
Eligibility: All management employees of Schering-Plough and its
subsidiaries who are members of the Operations Management Team are eligible to
participate in the OMT Incentive Plan. The administrator may also select other
management employees who will participate in the OMT Incentive Plan. As of March
5, 2004, approximately 35 employees are eligible to participate in the OMT
Incentive Plan.
Target Awards: At the beginning of each year, the administrator will
establish a target incentive award for each participant, which will be expressed
as a dollar amount, a percentage of salary or otherwise. The target award will
be based on a number of factors, including: (i) market competitiveness of the
position, (ii) job level, (iii) base salary level, (iv) past individual
performance, and (v) expected contribution to future Schering-Plough performance
and business impact.
For each Section 16 executive, the administrator must establish the target
awards and performance goals no later than the earlier of ninety days after the
beginning of the year, the date on which 25% of the year has been completed, or
such other date as may be permitted under Section 162(m) of the Code. The
administrator will establish for each Executive Officer a maximum award that may
be paid for the year, which will remain fixed for the entire year. The maximum
award that any participant may receive for a plan year is $9,000,000.
Performance Goals: At the beginning of each year, the administrator will
establish for each participant performance goals that must be met in order for
an award to be payable for the year. The administrator will establish in writing
(i) the performance goals that must be met, (ii) the threshold, target and
maximum amounts that may be paid if the performance goals are met, and (iii) any
other
39
conditions that the administrator deems appropriate and consistent with the OMT
Incentive Plan and, in the case of Section 16 executives, Section 162(m) of the
Code.
The administrator will establish objective performance goals for each
participant related to the participant's business unit or the performance of
Schering-Plough and its subsidiaries and affiliates as a whole, or any
combination of the foregoing. The administrator may also establish subjective
performance goals for participants; provided that, for Section 16 executives,
the subjective performance goals may only be used to reduce, and not increase,
the award otherwise payable under the OMT Incentive Plan. The objectively
determinable performance goals will be based on one or more of the following
criteria: stock price, earnings per share, net earnings, operating or other
earnings, profits, revenues, net cash flow, financial return ratios, return on
assets, shareholder return, return on equity, growth in assets, unit volume,
sales, market share, drug discovery or other scientific goals, preclinical or
clinical goals, regulatory approvals, or strategic business criteria consisting
of one or more objectives based on meeting specified revenue goals, market
penetration goals, geographic business expansion goals, cost targets, goals
relating to acquisitions or divestitures, or strategic partnerships.
Determination of Award: Each participant will earn an award for a plan
year based on the achievement of the performance goals established by the
administrator. The administrator may adjust, upward or downward, the award for
each participant who is not a Section 16 executive based on the participant's
achievement of personal and other performance goals established by the
administrator and other factors as determined by the administrator. The
administrator may reduce, but not increase, the amount of any award of a Section
16 executive.
Payment of Awards: Schering-Plough will pay awards earned for a year in a
single lump sum cash payment within 120 days after the close of the year.
Participants must be employed on the last day of the year to be eligible for an
award from the OMT Incentive Plan, except as the administrator may otherwise
determine. Unless the administrator determines otherwise, participants who
terminate employment prior to the last day of the year as a result of death,
retirement, disability or otherwise under a Schering-Plough-approved program
will be eligible for a prorated award based on the achievement of the
performance goals for the plan year (and any adjustments as described above
under "Determination of Award").
Changes to Performance Goals and Target Awards: At any time prior to the
final determination of the awards, the administrator may adjust the performance
goals and target awards for participants who are not Section 16 executives to
reflect changes in corporate capitalization, changes in corporate transactions,
the occurrence of any extraordinary event, any change in accounting rules or
principles, any change in Schering-Plough's method of accounting, any change in
applicable law, or any other change of similar nature. With respect to Section
16 executives, such adjustments may be made to the extent the administrator
deems appropriate considering the requirements of Section 162(m) of the Code.
Amendment and Termination: Schering-Plough may from time to time amend or
terminate the OMT Incentive Plan by action of the Committee, provided that no
amendment that requires shareholder approval in order to comply with Section
162(m) of the Code will be effective unless the amendment is approved by
Schering-Plough's shareholders.
Assignment: A participant's right and interest under the OMT Incentive
Plan may not be assigned or transferred, except as permitted upon death.
Tax Deductibility under Section 162(m): Section 162(m) of the Code
generally disallows a federal income tax deduction for compensation paid in
excess of $1 million in any taxable year to the Chief Executive Officer or any
of the four other most highly compensated Executive Officers who are employed by
Schering-Plough on the last day of the taxable year. The Code has an exception
to the deduction limit for "qualified performance-based compensation," if, among
other requirements, the material terms of the plan are disclosed to and approved
by the shareholders. The OMT Incentive Plan is intended to enable awards to
qualify as "qualified performance-based compensation." If approval of the OMT
Incentive Plan by Schering-Plough's shareholders is not obtained, the Committee
will re-evaluate the design and use of the plan for providing incentive
compensation to Section 16 executives.
40
Benefits under the OMT Incentive Plan: The information contained in the
following table represents the benefits that management employees would have
received in 2003 under the OMT Incentive Plan (but no such awards were actually
granted in 2003) based on the current year's target awards and performance
goals.
OMT INCENTIVE PLAN BENEFITS
NAME AND POSITION DOLLAR VALUE($)
----------------- ---------------
F. Hassan, Chairman, Chief Executive Officer and
President................................................. [0]
J. Connors, EVP and General Counsel......................... [0]
C. Cox, EVP and President, Global Pharmaceuticals........... [0]
R. Kohan, President, Animal Health and Group Head of GSO.... [0]
C. Pickett, VP and President, Schering-Plough Research
Institute................................................. [0]
R. Zahn, Former President Schering Labs..................... [0]
J. Wyszomierski, Former EVP and Chief Financial Officer..... [0]
R. Kogan, Former CEO and President.......................... *
Executive Group............................................. [0]
Non-Executive Director Group................................ [0]
Non-Executive Officer Employee Group........................
---------------
* Under the Retirement Agreement, Mr. Kogan would not have been eligible to
participate in the OMT Incentive Plan had it been in place in 2003.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE OMT
INCENTIVE PLAN.
41
EQUITY COMPENSATION PLAN INFORMATION
The following information relates to plans under which equity securities of
Schering-Plough may be issued to employees or Directors. Schering-Plough has no
plans under which equity securities may be issued to non-employees (except that
under the 2002 Stock Incentive Plan and predecessor plans, certain stock options
may be transferable to family members of the employee-optionee or related
trusts).
COLUMN C
COLUMN A NUMBER OF SECURITIES
NUMBER OF SECURITIES COLUMN B REMAINING AVAILABLE FOR FUTURE
TO BE ISSUED UPON WEIGHTED-AVERAGE ISSUANCE UNDER EQUITY
EXERCISE OF EXERCISE PRICE OF COMPENSATION PLANS
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, (EXCLUDING SECURITIES
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS REFLECTED IN COLUMN A)
------------- --------------------- -------------------- ------------------------------
EQUITY COMPENSATION PLANS APPROVED BY
SECURITY HOLDERS
2002 Stock Incentive Plan and
Predecessor Plans..................... 71,000,000 $30.15 45,000,000
EQUITY COMPENSATION PLANS NOT APPROVED
BY SECURITY HOLDERS
Directors Stock Award Plan*........... N/A N/A 562,008
Schering-Plough (Ireland) Share
Purchase Scheme**..................... N/A N/A **
Non-plan inducement awards not
approved by security holders.......... 300,000 N/A -0-
restricted shares***
Total................................... 45,562,008
---------------
* The Plan provides an annual grant of 2,500 shares of common stock to each
non-employee Director. Directors may defer awards into stock units that pay
out in shares of common stock when the deferred period ends.
** The Plan permits employees who reside in Ireland to enjoy tax advantages by
having some or all of their Christmas bonus and between 1% and 5% of their
pay passed to a trustee. The trustee purchases shares of common stock in the
open market and allocates the shares to the employees' accounts. No more
than 10,000 Irish pounds by an employee may be deferred in a year. Employees
may not sell or withdraw shares allocated to their accounts for two or three
years.
*** Represents restricted shares awarded pursuant to Restricted Shares
Agreements outside of any equity compensation plan adopted by
Schering-Plough. Mr. Hassan was awarded 200,000 restricted shares upon the
commencement of his employment in April 2003. Ms. Cox was awarded 100,000
restricted shares upon the commencement of her employment in May 2003. Both
awards of restricted shares vest upon the third anniversary of the award
date. Such non-plan awards were authorized by the Compensation Committee of
the Board but have not been approved by the shareholders of Schering-Plough.
42
SHAREHOLDER PROPOSALS FOR INCLUSION IN 2005 PROXY STATEMENT
We encourage shareholders to contact the Office of our Corporate Secretary
prior to submitting a shareholder proposal or any time they have concerns about
Schering-Plough. At the direction of the Board and the Chairman and Chief
Executive Officer, that office acts as the corporate governance liaison to
shareholders.
If any shareholder intends to present a proposal for consideration at the
2005 Annual Meeting of Shareholders, such proposal must be received by
Schering-Plough not later than November 15, 2004 for inclusion, pursuant to Rule
14a-8 under the Exchange Act, in Schering-Plough's proxy statement for such
meeting. Such proposal also will need to comply with Securities and Exchange
Commission regulations regarding the inclusion of shareholder proposals in
Schering-Plough-sponsored proxy materials.
OTHER SHAREHOLDER PROPOSALS FOR PRESENTATION AT 2005 ANNUAL MEETING
The By-laws of Schering-Plough 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 a written notice to the
Secretary of Schering-Plough, no earlier than December 28, 2004 and no later
than January 27, 2005. In the event that the date of the Annual Meeting is more
than 30 days before or more than 60 days after the anniversary date of the
preceding year's Annual Meeting, the notice must be delivered to the Secretary
of Schering-Plough, 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 Schering-Plough. The notice must contain 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 Schering-Plough'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 Schering-Plough's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
Pursuant to Rule 14a-4 under the Exchange Act, if a shareholder notifies
Schering-Plough after January 30, 2005 of an intent to present a proposal at
Schering-Plough's 2005 Annual Meeting (and for any reason the proposal is voted
upon at that Annual Meeting), Schering-Plough'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.
DIRECTOR NOMINATION PROCEDURES
The Nominating and Corporate Governance Committee will consider shareholder
recommendations for Directors. Shareholder recommendations must be forwarded by
the shareholder to the Secretary of Schering-Plough with biographical data about
the recommended individual.
The By-Laws of Schering-Plough 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 Schering-Plough, 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 of shares of stock of Schering-Plough 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, and a consent to serve, if elected, of the
nominee. A nomination not made in accordance with this procedure would be void.
43
OTHER BUSINESS
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 pursuant to the authority granted in the
proxy.
SOLICITATION OF PROXIES
Schering-Plough 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 Schering-Plough. Costs of solicitation
will be borne by Schering-Plough.
44
EXHIBIT A
SCHERING-PLOUGH CORPORATION
AUDIT COMMITTEE
------------------
CHARTER
(APPROVED BY THE BOARD OF DIRECTORS ON FEBRUARY 24, 2004)
PURPOSE
The Committee is appointed by the Board of Directors to assist the Board in
its oversight function by monitoring the following:
1. integrity of the Company's financial statements,
2. independent auditors' qualifications and independence,
3. performance of the Company's corporate audit function and
independent auditors, and
4. compliance by the Company with legal and regulatory requirements.
It is the responsibility of executive management of the Company to prepare
financial statements in accordance with generally accepted accounting principles
and of the independent auditors to audit those financial statements. It is not
the responsibility of the Committee to plan or conduct audits or to determine
that the Company's financial statements are complete and accurate or are in
compliance with generally accepted accounting principles.
The Audit Committee and the other Committees of the Board will coordinate
their compliance and risk oversight efforts to the extent necessary or
appropriate to ensure the complete and proper exchange of information.
MEMBERSHIP
The Committee shall be comprised of at least three Directors. Members shall
be appointed, and may be removed by the Board upon the recommendation of the
Nominating and Corporate Governance Committee.
The Committee shall meet the independence, financial literacy and expertise
requirements of the New York Stock Exchange, the requirements of Section
10A(m)(3) of the Securities Exchange Act of 1934 and the rules and regulations
of the Securities and Exchange Commission ("SEC").
Committee members shall not simultaneously serve on the audit committees of
more than two other public companies.
MEETINGS AND OPERATION
The Committee shall meet at least quarterly, and more frequently as it may
determine advisable in light of its responsibilities as set forth in this
Charter. The Committee Chair sets the agenda for each meeting and determines the
length and frequency of meetings.
The Committee shall meet periodically, and at a minimum four times per
year, in separate executive sessions with management, the internal auditors and
the independent auditor. The Committee may request any officer or employee of
the Company, outside counsel or the independent auditors to attend a meeting of
the Committee or to meet with any members of, or consultants to, the Committee.
The Committee shall determine how to best operate, including whether to
delegate any responsibilities to subcommittees.
The Committee shall operate in full compliance with the New York Stock
Exchange requirements for audit committees and other applicable laws and
regulations.
INDEPENDENT AUDITOR
The independent auditor shall report directly to the Committee. The
Committee has the sole authority and responsibility to select, appoint, evaluate
and, where appropriate, replace the independent auditor. The Committee shall be
directly responsible for the compensation and oversight of the work of the
independent auditor (including resolution of disagreements between management
and the independent auditor regarding financial reporting) for the purpose of
preparing or issuing an audit report or related work.
RESPONSIBILITIES
In carrying out its purposes, the Committee's policies and procedures
should remain flexible, so that it may be in a position to best react or respond
to changing circumstances or conditions. While there is no "blueprint" to be
followed by the Committee in carrying out its purposes, the following should be
considered within the responsibilities and authority of the Committee:
1. Select Independent Auditors. Select the independent auditors
annually.
2. Matters Concerning the Independence of Independent
Auditors. Review and discuss with the independent auditors the written
disclosures required by Independence Standards Board Standard No. 1
regarding their independence and, where appropriate, recommend that the
Board take appropriate action in response to the disclosures to satisfy
itself of the independence of the independent auditors.
Ensure the rotation of the lead (or coordinating) audit partner having
primary responsibility for the audit and the audit partner responsible for
reviewing the audit as required by law.
Set policies for the Company's hiring of employees or former employees
of the independent auditor.
Preapprove all auditing services and permitted non-audit services
(including the fees and terms thereof) to be performed for the Company by
its independent auditor. The Committee may form and delegate authority to
subcommittees consisting of one or more members when appropriate, including
the authority to grant preapprovals of audit and permitted non-audit
services, provided that decisions of such subcommittee to grant
preapprovals shall be presented to the full Committee at its next scheduled
meeting.
3. Review Quality Control Process of Independent Auditor. Obtain and
review a report from the independent auditor at least annually regarding
(a) the independent auditors' internal quality-control procedures, (b) any
material issues raised by the most recent internal quality-control review,
or peer review, of the firm, or by any inquiry or investigation by
governmental or professional authorities within the preceding five years
respecting one or more independent audits carried out by the firm, (c) any
steps taken to deal with any such issues, and (d) all relationships between
the independent auditor and the Company. Present the conclusions of its
review with respect to the independent auditors to the Board.
4. Review Audit Plan. Review with the independent auditors their
plans for, and the scope of, their annual audit.
5. Conduct of Audit. Discuss with the independent auditors the
matters required to be discussed by Statement on Auditing Standards Nos.
61, 89 and 90 relating to the conduct of the audit, including any
difficulties encountered in the course of the audit work and management's
response, any restrictions on the scope of activities or access to
requested information, and any significant disagreements with management.
A-2
6. Review Audit Results. Review with the independent auditors the
report of their annual audit, or proposed report of their annual audit, the
accompanying management letter, if any, and the reports of their reviews of
the Company's interim financial statements conducted in accordance with
Statement on Auditing Standards No. 100.
7. Review Annual Financial Statements. Review and discuss with
management and the independent auditors the audited financial statements
and the disclosures to be made in management's discussion and analysis.
Recommend to the Board whether the audited financial statements should be
included in the 10-K.
8. Review Quarterly Financial Results. Review and discuss with
management the Company's earnings press releases, including the use of "pro
forma" or "adjusted" non-GAAP information. Review with management generally
the types of financial information and presentation to be provided to
analysts and rating agencies, including whether earnings guidance will be
provided.
9. Review Quarterly Financial Statements. Review and discuss with
management and the independent auditor the quarterly financial statements
and the disclosures to be made in the MD&A prior to filing the 10-Q.
Discuss with the independent auditors their review of the quarterly
financial statements.
10. Financial Reporting Issues and Judgments; Related
Matters. Discuss with management and the independent auditor significant
financial reporting issues and judgments made in connection with the
preparation of the Company's financial statements, including any
significant changes in the Company's selection or application of accounting
principles, any major issues as to the adequacy of the Company's internal
controls and any special steps adopted in light of material control
deficiencies.
Review and discuss quarterly reports from the independent auditors on:
(a) All critical accounting policies and practices to be used.
(b) All alternative treatments of financial information within
generally accepted accounting principles that have been discussed with
management, ramifications of the use of such alternative disclosures and
treatments, and the treatment preferred by the independent auditor.
(c) Other material written communications between the independent
auditor and management, such as any management letter or schedule of
unadjusted differences.
(d) Reports and disclosures of any insider or affiliated party
transactions.
Discuss with management and the independent auditor the effect of
regulatory and accounting initiatives as well as off-balance sheet
structures on the Company's financial statements.
Discuss with management and the independent auditor any correspondence
or published report which raises material issues regarding the Company's
financial statements or accounting policies that is issued by the U.S.
Securities and Exchange Commission or the New York Stock Exchange or other
governmental agencies.
11. Review Corporate Audit Program. Review annually with the senior
corporate auditing executive the budget, staffing and proposed scope of the
corporate auditing department activities. Review annually the results of
the corporate audit activities.
Review the appointment and replacement of the senior corporate
auditing executive.
Approve a matrix for the timing and scope of reporting by Corporate
Audit to the Committee and the Business Practices Oversight Committee (in
consultation with the Chair of that Committee); receive and review reports
to the Committee pursuant to such matrix from the senior corporate auditing
executive.
12. Complaints regarding Accounting and Auditing Matters. Establish
procedures for the receipt, retention and treatment of complaints received
by the Company regarding accounting, internal
A-3
accounting controls or auditing matters, and the confidential, anonymous
submission by employees of concerns regarding questionable accounting or
auditing matters.
13. Review Systems of Internal Accounting Controls. Review with
management, the senior corporate auditing executive and the independent
auditors the adequacy of the Company's internal accounting controls that
could significantly affect the Company's financial statements.
Review disclosures made to the Committee by the Company's CEO and CFO
during their certification process for the Form 10-K and Form 10-Q about
any significant deficiencies in the design or operation of internal
controls or material weaknesses therein and any fraud involving management
or other employees who have a significant role in the Company's internal
controls.
14. Securities Exchange Act of 1934. Obtain assurance from the
independent auditor that Section 10A(b) of the Securities Exchange Act of
1934 has not been implicated.
15. Legal, Compliance and Risk Management Matters.
- At least annually, the Committee or its Chair will meet with the
Business Practices Oversight Committee or its Chair to review
compliance and risk matters, including material reports or inquiries
received from governmental agencies and material litigation. When
such meetings are held by the Committee Chair, he or she will report
on such meetings to the full Committee.
- Review with the Company's General Counsel legal matters that may
have a material impact on the financial statements and legal and
compliance matters that involve financial reporting or SEC
compliance.
- Discuss with management the Company's major financial risk exposures
and the steps management has taken to monitor and control such
exposures, including the Company's risk assessment and risk
management policies.
16. Prepare Proxy Statement Report. Prepare the report of the
Committee required by the rules of the SEC to be included in the Company's
annual proxy statement.
17. Review Other Matters. Review such other matters in relation to
the accounting, auditing, financial reporting and related compliance
practices and procedures of the Company as the Committee may, in its own
discretion, deem desirable in connection with the review functions
described above.
18. Board Reports. Regularly report its activities to the Board in
such manner and at such times as it deems appropriate. The Committee shall
review with the Board any issues that arise with respect to the quality or
integrity of Schering-Plough's financial statements, compliance with legal
or regulatory requirements, the performance and independence of the
independent auditors or the performance of the corporate auditors.
19. Review Committee Performance. Annually review its own
performance.
20. Review Charter. Review and reassess the adequacy of this Charter
annually and submit it to the Nominating and Corporate Governance Committee
and the Board for approval.
ADVISORS
The Committee shall have the authority, to the extent it deems necessary or
appropriate, to retain independent legal, accounting or other advisors.
FUNDING FOR INDEPENDENT AUDITORS AND ADVISORS
The Company shall provide for appropriate funding, as determined by the
Committee, for payment of:
- compensation to the independent auditor for the purpose of rendering or
issuing an audit report and for any other services approved by the
Committee,
A-4
- compensation for any other advisors retained by the Committee, and
- ordinary administrative expenses that are necessary or appropriate in
carrying out the Committee's duties.
AUDIT COMMITTEE CHARTER REFERENCE SHEET:
1. INDEPENDENCE STANDARDS BOARD STANDARD NO. 1
Under ISB Standard No. 1, at least annually, an auditor must (1) disclose
to the audit committee, in writing, all relationships between the auditor and
its related entities that in the auditors' professional judgment may reasonably
be thought to bear on independence, (2) confirm in the letter that, in its
professional judgment, it is independent of the company, and (3) discuss the
auditors' independence with the audit committee.
2. STATEMENT ON ACCOUNTING STANDARDS NOS. 61, 89 AND 90
SAS Nos. 61, 89 and 90 requires an independent auditor to communicate to
the audit committee matters related to the conduct of the audit such as the
selection of and changes in significant accounting policies, the methods used to
account for significant unusual transactions, the effect of significant
accounting policies in controversial or emerging areas, the process used by
management in formulating particularly sensitive accounting estimates and the
basis for the auditors' conclusions regarding the reasonableness of those
estimates, significant adjustments arising from the audit, and disagreements
with management over the application of accounting principles, the basis for
management's accounting estimates and the disclosures in the financial
statements.
3. STATEMENT ON ACCOUNTING STANDARDS NO. 100
SAS No. 100 requires an independent auditor to be satisfied that any
significant matters identified as a result of interim review procedures have
been brought to the attention of the audit committee, either by management or
the auditor. If it is not possible for the auditor to make such communications
prior to the filing, they should be made as soon as practicable thereafter.
4. SECTION 10A(B) OF SECURITIES EXCHANGE ACT OF 1934
Section 10A(b) of the Securities Exchange Act of 1934, which is part of the
Private Securities Litigation Reform Act of 1995, requires an independent
auditor to inform management of, and assure that the audit committee is
adequately informed with respect to, illegal acts that have come to the
attention of the auditors in the course of their audits.
A-5
EXHIBIT B
SCHERING-PLOUGH CORPORATION
NOMINATING AND CORPORATE GOVERNANCE COMMITTEE
------------------
CHARTER
(APPROVED BY THE BOARD OF DIRECTORS ON FEBRUARY 24, 2004)
PURPOSE
The Committee is appointed by the Board to:
1. Assist with Board structure, function and composition including:
a. identifying individuals qualified to become Board members, and
b. recommending to the Board Director nominees for the next annual
meeting of shareholders
2. Assist with Committee structure, function and composition
including:
a. recommending Committee assignments for Directors, and
b. recommending Committee Charters to each Committee and to the
Board for approval.
3. Develop and recommend the Company's Corporate Governance
Guidelines to the Board for approval.
4. Recommend Director Compensation.
COMMITTEE MEMBERSHIP
The Committee shall be comprised of at least three Directors. Members shall
be appointed, and may be removed, by the Board.
Each member of the Committee shall be independent in accordance with the
requirements of the New York Stock Exchange.
MEETINGS AND OPERATION
The Committee shall meet at least three times a year, or more frequently as
may determine advisable in light of its responsibilities as set forth in this
Charter. The Committee Chair sets the agenda for each meeting and determines the
length and frequency of meetings.
The Committee may request any officer or employee of the Company, outside
counsel or consultant to attend a meeting of the Committee or to meet with any
members of, or consultants to, the Committee.
The Committee shall determine how to best operate, including whether to
delegate any responsibilities to subcommittees.
The Committee shall operate in full compliance with the New York Stock
Exchange requirements for nominating and governance committees and any other
applicable laws and regulations.
COMMITTEE RESPONSIBILITIES
In carrying out its purpose, the Committee's policies and procedures should
remain flexible, so that it may be in a position to best react or respond to
changing circumstances or conditions. While there is no
"blueprint" to be followed by the Committee in carrying out its purpose, the
following should be considered within the responsibilities and authority of the
Committee:
1. Director Recruitment. Seek individuals qualified to become
Directors for recommendation to the Board.
2. Criteria for Selecting Directors. Recommend the Board's criteria
for selecting Directors and recommend that the criteria be reflected in the
Corporate Governance Guidelines.
3. Nominees. Recommend to the Board nominees for Director to be
elected at the annual meeting. Consider nominees suggested by shareholders
in accordance with the Company's By-Laws.
4. Committee Assignments. Recommend Committee assignments, within
the following guidelines:
a. The independence requirements of New York Stock Exchange and
the Company's Corporate Governance Guidelines.
b. Other legal and regulatory considerations, including Rule 16b-3
and Section 162(m).
c. Expertise and diversity characteristics appropriate for each
Committee.
d. Size and composition lending itself to efficient operation of
each Committee.
Develop and follow a process for reconsideration of Committee assignments.
5. Independence Assessments and Director Conflicts of
Interest. Recommend an independence standard to the Board. Assist the
Board with independence assessments of individual Directors. Recommend
policies regarding the conduct of business between the Company and any
Director, his/her affiliates and other Director conflict of interest
matters.
6. Director Compensation. Conduct an annual assessment of
non-management Director compensation and benefits.
7. Corporate Governance Guidelines. Review and reassess the adequacy
of the Corporate Governance Guidelines of the Company and recommend any
proposed changes to the Board for approval.
8. Board Performance Process. Recommend the scope of the annual
Board performance assessment, including whether the performance of
individual Directors will be assessed in addition to the assessment of the
performance of the Board as a group. Receive comments from all Directors
and report annually to the Board with an assessment of the Board's
performance, to be discussed with the full Board following the end of each
fiscal year.
Assess actions to be taken with respect to a Director, if any, when he
or she is unable to perform the duties required of Directors and make
appropriate recommendations to the Board.
9. Reports to the Board. Regularly report its activities to the
Board in such manner and at such times as it deems appropriate.
10. Review Committee Performance. Annually review its own
performance.
11. Review Charter. Review and reassess the adequacy of this Charter
annually and recommend any proposed changes to the Board for approval.
ADVISORS
1. Director Search Consultants. The Committee shall have sole
authority to retain and terminate any search firm to be used to identify
Director candidates, including sole authority to approve such search firm's
fees and other retention terms.
B-2
2. Director Compensation Consultants. The Committee shall have the
sole authority to retain and terminate any compensation consultant to be
used to assist in the evaluation of Director compensation and shall have
the authority to approve the consultant's fees and other retention terms.
3. Legal, Accounting and Other Consultants. The Committee shall have
authority to obtain advice and assistance from in-house or outside legal,
accounting and other advisors.
4. Funding. The Company shall provide for appropriate funding, as
determined by the Committee, for payment of compensation to the consultants
and advisors retained by the Committee.
B-3
EXHIBIT C
SCHERING-PLOUGH CORPORATION
COMPENSATION COMMITTEE
------------------
CHARTER
(APPROVED BY THE BOARD OF DIRECTORS ON FEBRUARY 24, 2004)
PURPOSE
The Committee is appointed by the Board of Directors to discharge the
Board's responsibilities relating to compensation of the Company's officers and
to assist the Board with the approval of equity compensation plans. The
Committee has overall responsibility for approving and evaluating the officer
compensation plans, policies and programs for the Company. The Committee also
assures that the Company has established an appropriate governance structure for
the Company's employee benefit plans.
MEMBERSHIP REQUIREMENTS
The Committee shall be comprised of at least three Directors. Members shall
be appointed and may be removed by the Board upon the recommendation of the
Nominating and Corporate Governance Committee.
Each member of the Committee shall be independent in accordance with the
requirements of the New York Stock Exchange.
MEETINGS AND OPERATION
The Committee shall meet at least three times a year, or more frequently as
it may determine advisable in light of its responsibilities as set forth in this
Charter. The Committee Chair sets the agenda for each meeting and determines the
length and frequency of meetings.
The Committee may request any officer or employee of the Company, outside
counsel or consultants to attend a meeting of the Committee or to meet with any
members of, or consultants to, the Committee.
The Committee shall determine how to best operate, including whether to
delegate any responsibilities to subcommittees.
The Committee shall operate in full compliance with the New York Stock
Exchange requirements for compensation committees and any other applicable laws
and regulations.
COMMITTEE RESPONSIBILITIES
In carrying out its purpose, the Committee's policies and procedures should
remain flexible, so that it may be in a position to best react or respond to
changing circumstances or conditions. While there is no "blueprint" to be
followed by the Committee in carrying out its purpose, the following should be
considered within the responsibility and authority of the Committee:
1. Executive Compensation.
a. The Committee shall review and make recommendations to the
Board with respect to incentive compensation plans and equity-based
plans.
b. As part of the determination of the CEO's compensation, the
Committee shall, after receiving input from the full Board, annually
review the CEO's performance in light of corporate goals and objectives
and set the CEO's compensation levels based on this evaluation.
c. The Committee shall, after receiving input from the full Board,
annually review and approve, for the CEO and the senior executives of
the Company:
- corporate goals and objectives relevant to compensation,
- compensation levels and the mix of compensation instruments,
including short-term and long-term incentive awards (and in
making this determination, the Committee shall consider the
Company's performance and relative shareholder return, the value
of similar compensation instruments at comparable companies and
the value of awards to such executive in past years),
- the annual base salary level,
- the annual incentive opportunity level,
- the long-term incentive opportunity level,
- employment agreements, severance arrangements, and change in
control agreements/provisions, in each case as, when and if
appropriate, and
- any special or supplemental benefits.
2. Report for Proxy Statement. Produce the annual report on
executive compensation as required to be included in the Company's proxy
statement in accordance with Securities and Exchange Commission
regulations.
3. Plans. Review and make recommendations to the Board and the
shareholders regarding equity-based and incentive plans. Administer or
approve administration of equity-based and incentive plans. Determine the
Company's policy regarding deductibility of compensation under Section 162m
of the Internal Revenue Code. Determine that the Company has established an
appropriate governance structure for the employee benefit plans of the
Company and its affiliates.
4. Management Performance Process. Oversee the annual management
performance assessment.
5. Reports to the Board. Regularly reports its activities to the
Board in such manner and at such times as it deems appropriate.
6. Review Committee Performance. Review annually its own
performance.
7. Review Charter. Review and reassess the adequacy of this Charter
annually and recommend any proposed changes to the Nominating and Corporate
Governance Committee and the Board.
ADVISORS
1. Executive Compensation Consultants. The Committee shall have the sole
authority to retain and terminate any compensation consultant to be used to
assist in the evaluation of CEO or senior executive compensation and shall have
sole authority to approve the consultant's fees and other retention terms.
2. Legal Accounting and Other Advisors. The Committee shall have
authority to obtain advice and assistance from in-house or outside legal,
accounting and other advisors.
3. Funding. The Company shall provide for appropriate funding, as
determined by the Committee, for payment of compensation to the consultants and
advisors retained by the Committee.
C-2
EXHIBIT D
SCHERING-PLOUGH CORPORATION
BUSINESS PRACTICES OVERSIGHT COMMITTEE
------------------
CHARTER
(APPROVED BY THE BOARD OF DIRECTORS ON FEBRUARY 24, 2004)
PURPOSE
The Committee will assist the Board in the oversight of:
- The Company's non-financial compliance systems and practices and related
management activities, including Good Manufacturing Practices.
- Systems for compliance with the Company's Business Conduct Policy.
- Regulatory and government affairs and developments regarding material
litigation and investigations involving compliance with laws and
regulations.
The Business Practices Oversight Committee and the other Committees of the
Board will coordinate their compliance and risk oversight efforts to the extent
necessary or appropriate to ensure the proper exchange of information.
MEMBERSHIP REQUIREMENTS
The Committee shall consist of no fewer than three members. Members shall
be appointed and may be removed by the Board upon the recommendation of the
Nominating and Corporate Governance Committee.
MEETINGS AND OPERATION
The Committee shall meet at least three times a year, or more frequently as
it may determine advisable in light of its responsibilities as set forth in this
Charter. The Committee Chair sets the agenda for each meeting and determines the
length and frequency of meetings.
The Committee may request any officer or employee of the Company, outside
counsel or the non-financial auditors or consultants to attend a meeting of the
Committee or to meet with any members of, or consultants to, the Committee.
The Committee shall determine how to best operate, including whether to
delegate any responsibilities to subcommittees.
The Committee shall operate in full compliance with applicable laws and
regulations.
COMMITTEE RESPONSIBILITIES
In carrying out its purpose, the Committee's policies and procedures should
remain flexible, so that it may be in a position to best react or respond to
changing circumstances or conditions. While there is no "blueprint" to be
followed by the Committee in carrying out its purpose, the following should be
considered within the responsibilities and authority of the Committee:
1. Review of Policies and Systems regarding Compliance with Laws,
Regulations and Business Conduct Policy. Review and assess the adequacy of
the Company's policies and systems designed to obtain compliance with laws
and regulations and the Company's Business Conduct Policy; receive reports
relating to all significant compliance areas; and meet periodically with
the Company's
management, compliance officers, General Counsel, Corporate Audits, and
outside advisors, as appropriate, to review:
(a) the components of the Company's compliance programs and how
those programs are communicated to employees,
(b) the results of any audits of those compliance programs,
(c) any compliance issues, problems or trends identified by those
compliance programs or audits,
(d) the steps taken to address any significant violations of those
compliance programs,
(e) the resources allocated to those compliance programs, and
(f) significant reports or inquiries received from governmental
agencies, and any material litigation or investigations involving the
Company's compliance with any law or regulation.
2. Good Manufacturing Practices. Review periodic reports on Good
Manufacturing Practices and the Company's compliance with the Consent
Decree with the Food and Drug Administration entered May 17, 2002.
3. Non-Financial Risk Management Matters. Discuss with management
the Company's major non-financial risk exposures and the steps management
has taken to monitor and control such risk exposures, including the
Company's risk assessment and risk management policies.
4. Reports. Regularly report its activities to the Board at such
times and in such manner as it deems appropriate. At least annually, the
Committee or its Chair will meet with the Audit Committee or its Chair to
review compliance and risk matters, including material reports or inquiries
received from governmental agencies and material litigation.
5. Review Committee Performance. Annually review its own
performance.
6. Review Charter. Review and reassess the adequacy of this Charter
annually and recommend any proposed changes to the Nominating and Corporate
Governance Committee and the Board.
ADVISORS
The Committee shall have authority to obtain advice and assistance from
in-house or outside legal, accounting and other advisors. The Company shall
provide for appropriate funding, as determined by the Committee, for payment of
compensation to the advisors.
COMMITTEE ROLE
The Committee has the responsibilities set forth in this Charter, but its
role is one of oversight. While the Committee shall attempt in good faith to
assure the integrity and adequacy of the Company's non-financial compliance
systems and practices, it is not the responsibility of the Committee to assure
compliance with laws or the Company's Business Conduct Policy. That is the
responsibility of management.
D-2
EXHIBIT E
SCHERING-PLOUGH CORPORATION
FINANCE COMMITTEE
------------------
CHARTER
(APPROVED BY THE BOARD OF DIRECTORS ON FEBRUARY 24, 2004)
PURPOSE
The Committee shall assist the Board of Directors in the general oversight
for the Corporations' strategic plans for capital structure, financial and
treasury matters.
MEMBERSHIP
The Committee shall be comprised of at least three Directors. Members shall
be appointed, and may be removed, by the Board upon the recommendation of the
Nominating and Corporate Governance Committee.
MEETINGS AND OPERATION
The Committee shall meet at least twice a year, and more frequently as it
may determine advisable in light of its responsibilities as set forth in this
Charter. The Committee Chair sets the agenda for each meeting and determines the
length and frequency of meetings.
The Committee may request any officer or employee of the Company, outside
counsel or consultants to attend a meeting of the Committee or to meet with any
members of, or consultants to, the Committee.
The Committee shall determine how to best operate, including whether to
delegate any responsibilities to subcommittees.
ACTIVITIES
In carrying out its function, the Committee may undertake such activities
as it deems necessary or useful, which may include:
1. Capital Structure. Receiving reports from management about the
current capital structure and proposed changes to the capital structure.
2. Dividend Policy. Reviewing analyses from management about the
dividend policy of the Company and making recommendations to the Board of
Directors.
3. Financing Activities. Reviewing analyses from management about
proposed financing strategies and report to the Board of Directors.
4. Capital Expenditures. At the request of the Board, review
specific projects proposed by management.
5. Benefit Plan Funding Matters. Reviewing reports from management
concerning the funding requirements for the Company's employee benefit
plans.
6. Insurance. Reviewing the Company's insurance coverage and the
related costs.
7. Board Reports. Regularly report its activities to the Board in
such manner and at such times as it deems appropriate.
8. Review Committee Performance. Review annually its own
performance.
9. Review Charter. Review and reassess the adequacy of this Charter
periodically and recommend any proposed changes to the Nominating and
Corporate Governance Committee and the Board.
ADVISORS
The Committee shall have authority to obtain advice and assistance from
in-house or outside legal, accounting and other advisors. The Company shall
provide for appropriate funding, as determined by the Committee, for payment of
compensation to the advisors.
COMMITTEE ROLE
While the Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Committee to manage or execute the Company's
capital structure, financial or treasury operations, which is the responsibility
of management.
E-2
EXHIBIT F
SCHERING-PLOUGH CORPORATION
EXECUTIVE COMMITTEE
------------------
CHARTER
(APPROVED BY THE BOARD OF DIRECTORS ON JANUARY 28, 2003)
PURPOSE
The Committee shall assist in the oversight of specified matters as
delegated by the Board and to the extent permitted by law and the Company's
By-Laws in the intervals between Board meetings.
MEMBERSHIP
The Committee shall be comprised of at least three Directors. Members shall
be appointed, and may be removed, by the Board upon the recommendation of the
Nominating and Corporate Governance Committee. The Chief Executive Officer shall
be a member of the Executive Committee ex officio.
MEETINGS AND OPERATION
The Committee shall meet as necessary. The Committee shall determine how to
best operate. The Committee Chair sets the agenda for each meeting and
determines the length and frequency of meetings.
The Committee may request any officer, employee of the Company, outside
counsel or consultants to attend a meeting of the Committee or to meet with any
members of, or consultants to, the Committee.
COMMITTEE AUTHORITY AND RESPONSIBILITIES
Board Reports. Report its activities at any meeting to the Board at the
next Board meeting and at such other times and in such manner as it deems
appropriate.
Review Committee Performance. Review periodically its own performance.
Review Charter. Review and reassess the adequacy of this Charter
periodically and recommend any proposed changes to the Nominating and Corporate
Governance Committee and the Board.
ADVISORS
The Committee shall have authority to obtain advice and assistance from
in-house or outside legal, accounting and other advisors. The Company shall
provide for appropriate funding, as determined by the Committee, for payment of
compensation to the consultants.
F-1
DIRECTIONS
Sheraton Crossroads Hotel
1 International Boulevard
Route 17 North
Crossroads Corporate Center
Mahwah, New Jersey 07495
FROM THE NEWARK LIBERTY AIRPORT
Follow the signs out of the airport for the New Jersey Turnpike/I-95. Take
the turnpike to Exit 16W. Take Route 3 West to Route 17 North and continue for
approximately 18 miles. Exit at Mountainside Avenue/Crossroads Boulevard.
FROM MORRISTOWN
Take 287 North to Exit 66 (Route 17 South/Mahwah). Take first exit on
right. Follow signs to hotel.
FROM NORTH
Take New York State Thruway (I-87) South to Rt. 17 South (exit 15). Follow
for one mile and take the exit for Mountainside Avenue Crossroads Boulevard.
Follow signs to hotel.
FROM SOUTH
Garden State Parkway North to exit 163 or take I-80 to Route 17 North.
Follow Route 17 North approximately 14 miles. Exit at Mountainside
Avenue/Crossroads Blvd.
FROM WEST
Take I-80 East to Route 17 North and follow Route 17 North for
approximately 14 miles. Exit at Mountainside Avenue/Crossroads Boulevard. Or
take Route 202 North to Route 17 North to Mountainside Avenue/Crossroads
Boulevard.
FROM NORTHEAST
Take the New York State Thruway (Route 87 North/Route 287 West) to Exit 15
(Route 287 South) to Exit 66 (Route 17 South/Mahwah). Once on Route 17 South,
take the exit on the right at Mountainside Avenue/Crossroads Boulevard.
This document is filed as an appendix to the proxy statement, pursuant to
Instruction 3 to Item 10 of Schedule 14A under the Securities Exchange Act of
1934.
SCHERING-PLOUGH CORPORATION OPERATIONS MANAGEMENT TEAM INCENTIVE PLAN
---------------------------------------------------------------------
1. PLAN OBJECTIVE
The Schering-Plough Corporation Operations Management Team Incentive Plan
(alternatively referred to as the "OMTIP" or the "Plan") is designed to
encourage results-oriented actions on the part of members of the Operations
Management Team ("OMT") of Schering-Plough Corporation (the "Company"). The
Plan is intended to align closely financial rewards with the achievement of
specific performance objectives.
2. ELIGIBILITY
All management employees of the Company and its subsidiaries who are members of
the OMT are eligible to participate in the Plan. The Administrator (as defined
in Section 3 below) may select any other management employees who shall
participate in the Plan (the "Participants").
3. ADMINISTRATION
(A) The Plan shall be administered by the Compensation Committee of the
Board of Directors (the "Committee") with respect to employees who are
executives of the Company who are subject to the reporting requirements of
Section 16 of the Securities Exchange Act of 1934 ("Section 16 Executives"),
and the Plan shall be administered by the Chief Executive Officer of the
Company ("CEO") with respect to all other employees. The CEO may delegate his
authority to administer the Plan to an individual or other committee. The term
"Administrator" shall mean the Committee, as applied to Section 16 Executives,
and the CEO or an individual or committee to which authority has been
delegated, as applied to all other employees.
(B) The Administrator shall have full power and authority to establish the
rules and regulations relating to the Plan, to interpret the Plan and those
rules and regulations, to select Participants for the Plan, to determine each
Participant's target award, performance goals and final award, to make all
factual and other determinations in connection with the Plan, and to take all
other actions necessary or appropriate for the proper administration of the
Plan, including the delegation of such authority or power, where appropriate.
Only the Committee shall take the foregoing actions with respect to Section 16
Executives.
(C) All powers of the Administrator shall be executed in its sole
discretion, in the best interest of the Company, not as a fiduciary, and in
keeping with the objectives of the Plan and need not be uniform as to similarly
situated individuals. The Administrator's administration of the Plan, including
all such rules and
1
regulations, interpretations, selections, determinations, approvals, decisions,
delegations, amendments, terminations and other actions, shall be final and
binding on the Company and all employees of the Company, including the
Participants and their respective beneficiaries.
4. TARGET AWARDS AND PERFORMANCE GOALS
(A) At the beginning of each plan year designated by the Administrator (a
"Plan Year"), the Administrator shall establish for each Participant a target
incentive award, which shall be expressed as a dollar amount, a percentage of
salary or otherwise. The Administrator shall establish for each Section 16
Executive a maximum award that may be paid for the Plan Year. The maximum
award amount for Section 16 Executives will remain fixed for the entire Plan
Year and may not be increased based on an increase in salary during the Plan
Year or otherwise. The target awards will be based on a number of factors,
including but not limited to:
- Market competitiveness of the position
- Job level
- Base salary level
- Past individual performance
- Expected contribution to future Company performance and business impact
(B) At the beginning of each Plan Year, the Administrator shall establish
for each Participant performance goals that must be met in order for an award
to be payable for the Plan Year. The Administrator shall establish in writing
(i) the performance goals that must be met, (ii) the threshold, target and
maximum amounts that may be paid if the performance goals are met, and (iii)
any other conditions that the Administrator deems appropriate and consistent
with the Plan and, in the case of Section 16 Executives, the exception for
"qualified performance-based compensation" (the "Section 162(m) Exception")
under Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"). The Administrator shall establish objective performance goals for
each Participant related to the Participant's business unit or the performance
of the Company and its parents, subsidiaries and affiliates as a whole, or any
combination of the foregoing. The Administrator may also establish subjective
performance goals for Participants; provided that, for Section 16 Executives,
the subjective performance goals may only be used to reduce, and not increase,
the award otherwise payable under the Plan. The Company shall notify each
Participant of his or her target award and the performance goals for the Plan
Year.
(C) The objectively determinable performance goals shall be based on one or
more of the following criteria related to the Participant's business unit or
the performance of the Company and its parents, subsidiaries and affiliates as
a whole, or any combination of the foregoing: stock price, earnings per share,
net earnings, operating or other earnings, profits, revenues, net cash flow,
financial return ratios, return on assets, stockholder return, return on
equity, growth in assets, unit volume, sales, market share, drug discovery or
other scientific goals, pre-clinical or clinical goals, regulatory approvals,
or strategic business criteria consisting of one or more objectives based on
meeting specified revenue goals, market penetration goals, geographic business
expansion goals, cost targets, goals relating to acquisitions or divestitures,
or strategic partnerships.
(D) For Section 16 Executives, the Administrator must establish the target
awards and performance goals no later than the earlier of (i) 90 days after the
beginning of the Plan Year or (ii) the date on which 25% of the Plan Year has
been completed, or such other date as may be required or permitted under
applicable regulations under section 162(m) of the Code. The performance goals
for each Section 16 Executive for each Plan Year are intended to satisfy the
requirements for the Section 162(m) Exception, including the requirement that
the achievement of the performance goals be substantially uncertain at the time
they are established and that the performance goals be established in such a
way that a third party with
2
knowledge of the relevant facts could determine whether and to what extent the
performance goals have been met.
(E) Each Participant will earn an award for a Plan Year based on the
achievement of the performance goals established by the Administrator. The
Administrator may adjust, upward or downward, the award for each Participant
who is not a Section 16 Executive, based on the Administrator's determination
of the Participant's achievement of personal and other performance goals
established by the Administrator and other factors as the Administrator
determines. The Administrator may reduce (but not increase) the award for each
Section 16 Executive based on the Administrator's determination of the
Participant's achievement of personal and other performance goals established
by the Administrator and other factors as the Administrator determines. The
Administrator shall not be authorized to increase the amount of any award of a
Section 16 Executive that would otherwise be payable pursuant to the terms of
the Plan.
(F) The maximum award that a Participant may receive for any Plan Year is
$9,000,000.
5. PAYMENT OF INCENTIVE AWARDS
(A) The Administrator shall certify and announce to the Participants the
awards that will be paid by the Company as soon as practicable following the
final determination of the Company's financial results for the Plan Year.
Payment of the awards certified by the Administrator shall be made in a single
lump sum cash payment as soon as practicable following the close of the Plan
Year, but in any event within 120 days after the close of the Plan Year.
(B) Participants must be employed on the last day of the Plan Year to be
eligible for an award from the Plan, except as described in subsections (c) and
(d) below. Notwithstanding any other provision of this Plan, in no event may
the Administrator waive the achievement of performance goals for any Section 16
Executive except in the event of such Section 16 Executive's death or
disability.
(C) Participants who terminate employment prior to the last day of the Plan
Year will not be eligible for any award payment for that Plan Year, except as
the Administrator may otherwise determine. Unless the Administrator determines
otherwise:
(i) Participants who die or who retire under a Company-sponsored
retirement program during the Plan Year will be eligible for a prorated award
based on the achievement of the performance goals for the Plan Year and
appropriate adjustment as described in Section 4. The prorated award will be
calculated from the date when they became eligible for the Plan to the date of
death or retirement rounded to the nearest whole month. Payment will be made
in a single payment at the same time as all other incentive awards for the Plan
Year are distributed. In the case of the death of a Participant, any award
payable to the Participant shall be paid to his or her beneficiary. For this
purpose, the Company will use the beneficiary named under the Company-sponsored
life insurance plan. If no life insurance beneficiary is designated, the
beneficiary will be the decedent's estate.
(ii) Participants who leave the Company under a Company-sponsored
disability program, separation program (other than in the case of termination
for cause) or other program approved by the Management Committee will be
eligible for a prorated award based on achievement of the performance goals for
the year and appropriate adjustment as described in Section 4. The awards will
be calculated from the date when they became eligible for the Plan to the
effective date of separation rounded to the nearest whole month. Payment will
be made in a single payment at the same time as all other incentive awards for
the Plan Year are distributed.
3
(D) The Administrator may establish appropriate terms and conditions to
accommodate newly hired and transferred employees, consistent, in the case of
Section 16 Executives, with the requirements of the Section 162(m) Exception.
6. CHANGES TO PERFORMANCE GOALS AND TARGET AWARDS
At any time prior to the final determination of awards, for Participants other
than Section 16 Executives, the Administrator may adjust the performance goals
and target awards to reflect a change in corporate capitalization (such as a
stock split or stock dividend), or a corporate transaction (such as a merger,
consolidation, separation, reorganization or partial or complete liquidation),
or to reflect equitably the occurrence of any extraordinary event, any change
in applicable accounting rules or principles, any change in the Company's
method of accounting, any change in applicable law, any change due to any
merger, consolidation, acquisition, reorganization, stock split, stock
dividend, combination of shares or other changes in the Company's corporate
structure or shares, or any other change of a similar nature. The
Administrator may make the foregoing adjustments with respect to Section 16
Executives' awards to the extent the Administrator deems appropriate, but only
to the extent consistent with the requirements of the Section 162(m) Exception.
7. AMENDMENTS AND TERMINATION
(A) The Company may at any time amend or terminate the Plan by action of
the Committee; provided, however, that the Committee shall not amend the Plan
without stockholder approval if such approval is required in order for awards
under the Plan to qualify for the Section 162(m) Exception. Without limiting
the foregoing, the Company, by action of the Administrator, shall have the
right to modify the terms of the Plan as may be necessary or desirable to
comply with the laws or local customs of countries in which the Company
operates or has employees.
(B) The Plan must be reapproved by the stockholders no later than the first
stockholders meeting that occurs in the fifth year following the year in which
the stockholders previously approved the Plan, if required in order for awards
under the Plan to qualify for the Section 162(m) Exception under the Code or
the regulations thereunder.
8. MISCELLANEOUS PROVISIONS
(A) This Plan is not a contract between the Company and the Participants.
Neither the establishment of this Plan, nor any action taken hereunder, shall
be construed as giving any Participant any right to be retained in the employ
of the Company or any of its subsidiaries. Nothing in the Plan, and no action
taken pursuant to the Plan, shall affect the right of the Company to terminate
a Participant's employment at any time and for any or no reason. The Company
is under no obligation to continue the Plan.
(B) A Participant's right and interest under the Plan may not be assigned
or transferred, except as provided in Section 5(c) of the Plan upon death, and
any attempted assignment or transfer shall be null and void and shall
extinguish, in the Company's sole discretion, the Company's obligation under
the Plan to pay awards with respect to the Participant. The Company's
obligations under the Plan may be assigned to any corporation which acquires
all or substantially all of the Company's assets or any corporation into which
the Company may be merged or consolidated.
(C) The Plan shall be unfunded. The Company shall not be required to
establish any special or separate fund, or to make any other segregation of
assets, to assure payment of awards. The Company's
4
obligations hereunder shall constitute a general, unsecured obligation, awards
shall be paid solely out of the Company's general assets, and no Participant
shall have any right to any specific assets of the Company.
(D) The Company shall have the right to deduct from awards any and all
federal, state and local taxes or other amounts required by law to be withheld.
(E) It is the intent of the Company that the Plan and awards under the Plan
for Section 16 Executives comply with the requirements for the Section 162(m)
Exception. To the extent that any requirement of the Section 162(m) Exception
as set forth in the Plan ceases to be required under Section 162(m) of the
Code, that Plan provision shall cease to apply.
(F) The Company's obligation to pay compensation as herein provided is
subject to any applicable orders, rules or regulations of any government agency
or office having authority to regulate the payment of wages, salaries, and
other forms of compensation.
(G) The validity, construction, interpretation and effect of the Plan shall
exclusively be governed by and determined in accordance with the laws of the
State of New Jersey.
5
[SCHERING-PLOUGH LOGO] SCHERING-PLOUGH
YOUR VOTE IS IMPORTANT
VOTE BY INTERNET / TELEPHONE
24 HOURS A DAY, 7 DAYS A WEEK
INTERNET OR TELEPHONE OR MAIL
-------- --------- ----
https://www.proxyvotenow.com/sgp 1-888-216-1328
o Go to the website o Use any touch-tone o Mark, sign and date
address listed telephone. your proxy card.
above. o Have your proxy card o Detach your proxy
o Have your proxy card ready. card.
ready. o Follow the simple o Return your proxy
o Follow the simple recorded card in the
instructions that instructions. postage-paid
appear on your envelope provided.
computer screen. Date Share Owner
sign here Co-Owner
sign here
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
======================
| |
| |
| |
======================
The Internet and telephone voting facilities will close at 5:00 p.m. E.S.T.
on April 26, 2004.
PLEASE DETACH PROXY CARD HERE
--------------------------------------------------------------------------------
THE BOARD OF DIRECTORS
RECOMMENDS A VOTE "FOR" The Board
ITEMS 1, 2 AND 3 Recommends
================================================================================
1. The election to the Board FOR all nominees WITHHOLD authority
of the 4 nominees named listed (except as to vote for all
below for a term of indicated to vote nominees listed
3-years: 1 - Fred Hassan; for all to the
2 - Philip Leder, M.D.; 3 contrary below)
Eugene R. McGrath; 4 -
Richard de J. Osborne. |_| |_|
To change your address,
please mark this box. |_|
Instructions: To withhold authority
to vote for one or more individual
nominees, write the name(s) of such
person(s) here:
------------------------------------
FOR AGAINST ABSTAIN
2. Ratification of
Designation of
Independent Auditors |_| |_| |_|
3. Approval of the
Operations Management
Team Incentive Plan |_| |_| |_|
Please vote, sign, date and return
this card promptly using the
enclosed envelope. Sign exactly as
your name appears above. Each joint
tenant should sign. When signing as
attorney, trustee, etc., give full
title.
[SCHERING-PLOUGH LOGO] SCHERING-PLOUGH
SCHERING-PLOUGH CORPORATION
2000 Galloping Hill Road
Kenilworth, New Jersey 07033
2004 ANNUAL MEETING OF SHAREHOLDERS
Dear Shareholder:
The Annual Meeting of Shareholders of Schering-Plough Corporation will be
held at the Sheraton Crossroads Hotel, 1 International Boulevard, Mahwah, New
Jersey, on Tuesday, April 27, 2004 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 shareholder
of record and plan to attend, please write to The Bank of New York at the
address found in your proxy statement and an admission ticket will be sent to
you. To be admitted you must present both the admission ticket and a photo
identification.
Joseph J. LaRosa
Secretary
March 15, 2004
Detach Proxy Card Here
--------------------------------------------------------------------------------
SCHERING-PLOUGH CORPORATION - PROXY
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Annual Meeting of Shareholders-April 27, 2004
I appoint Fred Hassan, Robert Bertolini and Joseph J. LaRosa individually
as proxies to vote all of my Schering-Plough Corporation Common Shares at the
Annual Meeting of Shareholders to be held on April 27, 2004, or at any
adjournment or postponement of that meeting, as directed on the other side of
this card and, in their discretion upon other matters that arise at the meeting.
I also give each of them the ability to substitute someone else as proxy. I
revoke any proxy previously given for the same shares.
The shares represented by this proxy will be voted in accordance with
instructions given on the other side of this card. If this proxy is signed and
returned without specific instructions as to any item or all items, it will be
voted for the election of 4 directors as named herein and for proposals (2) and
(3).
(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] SCHERING-PLOUGH
YOUR VOTE IS IMPORTANT
VOTE BY INTERNET / TELEPHONE
24 HOURS A DAY, 7 DAYS A WEEK
INTERNET OR TELEPHONE OR MAIL
-------- --------- ----
https://www.proxyvotenow.com/sgp 1-888-216-1328
o Go to the website o Use any touch-tone o Mark, sign and date
address listed telephone. your proxy card.
above. o Have your proxy card o Detach your proxy
o Have your proxy card ready. card.
ready. o Follow the simple o Return your proxy
o Follow the simple recorded card in the
instructions that instructions. postage-paid
appear on your envelope provided.
computer screen. Date Share Owner
sign here Co-Owner
sign here
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
======================
| |
| |
| |
======================
The Internet and telephone voting facilities will close at 5:00 p.m. E.S.T.
on April 26, 2004.
PLEASE DETACH PROXY CARD HERE
--------------------------------------------------------------------------------
THE BOARD OF DIRECTORS
RECOMMENDS A VOTE "FOR" The Board
ITEMS 1, 2 AND 3 Recommends
================================================================================
1. The election to the Board FOR all nominees WITHHOLD authority
of the 4 nominees named listed (except as to vote for all
below for a term of indicated to vote nominees listed
3-years: 1 - Fred Hassan; for all to the
2 - Philip Leder, M.D.; 3 contrary below)
Eugene R. McGrath; 4 -
Richard de J. Osborne. |_| |_|
To change your address,
please mark this box. |_|
Instructions: To withhold authority
to vote for one or more individual
nominees, write the name(s) of such
person(s) here:
------------------------------------
FOR AGAINST ABSTAIN
2. Ratification of
Designation of
Independent Auditors |_| |_| |_|
3. Approval of the
Operations Management
Team Incentive Plan |_| |_| |_|
Please vote, sign, date and return
this card promptly using the
enclosed envelope. Sign exactly as
your name appears above. Each joint
tenant should sign. When signing as
attorney, trustee, etc., give full
title.
[SCHERING-PLOUGH LOGO] SCHERING-PLOUGH
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 Crossroads Hotel, 1 International Boulevard, Mahwah, New
Jersey, on Tuesday, April 27, 2004 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
card.
Joseph J. LaRosa
Secretary
March 15, 2004
Detach Proxy Card Here
--------------------------------------------------------------------------------
SCHERING-PLOUGH EMPLOYEES' SAVINGS PLAN
SCHERING-PLOUGH EMPLOYEES' PROFIT SHARING INCENTIVE PLAN
VOTING INSTRUCTIONS - SOLICITED BY THE BOARD OF DIRECTORS
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 27, 2004. 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 the election of 4 directors as named herein and for
proposals (2) and (3).1
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 27,
2004, 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.
SCHERING-PLOUGH CORPORATION
P.O. BOX 11300
NEW YORK, N.Y. 10203-0300
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)