SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for the Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
SCHERING-PLOUGH CORPORATION
--------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
[SCHERING-PLOUGH LOGO]
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
APRIL 22, 2003
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The Annual Meeting of Shareholders of Schering-Plough Corporation (the
"Corporation") will be held at the Sheraton at Woodbridge Place, 515 Route One
South, Iselin, New Jersey, on Tuesday, April 22, 2003, at 2:00 p.m. to:
(1) Elect three directors for terms of three years;
(2) Ratify the designation of Deloitte & Touche LLP to audit the books
and accounts of the Corporation for 2003; and
(3) 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
3, 2003 will be entitled to vote at the meeting or any adjournments or
postponements thereof.
If you are a shareholder of record and plan to attend the meeting, please
detach and retain the admission ticket which is attached to your proxy card. If
you are a shareholder whose shares are not registered in your own name and you
plan to attend, you may obtain an admission ticket in advance by sending a
written request, with evidence of stock ownership, to the Office of the
Secretary, Schering-Plough Corporation, 2000 Galloping Hill Road, Kenilworth,
New Jersey 07033. Evidence of your stock ownership can be obtained from your
bank, broker, etc. Admission to the meeting will be on a first-come,
first-served basis. For your convenience, driving directions to the Sheraton at
Woodbridge Place are printed on the back cover of the proxy statement.
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 13, 2003
TABLE OF CONTENTS
Questions and Answers About Voting.......................... 1
Proposal One: Election of Directors......................... 3
Nominees for Director..................................... 3
Directors Continuing in Office............................ 4
Committees of the Board of Directors...................... 6
Board Meetings and Attendance of Directors................ 8
Directors' Compensation................................... 8
Certain Legal Proceedings................................. 8
Certain Transactions...................................... 9
Corporate Governance........................................ 10
Stock Ownership............................................. 12
Stock Ownership of Directors and Officers................. 12
Stock Equivalents Ownership of Directors.................. 12
Stock Ownership of Certain Beneficial Owners.............. 13
Section 16(a) Beneficial Ownership Reporting Compliance... 13
Executive Compensation...................................... 14
Summary Compensation Table................................ 14
Employment and Change of Control Arrangements............. 15
Stock Option Information.................................. 16
Pension Plan Information.................................. 18
Executive Compensation and Organization Committee
Report................................................. 19
Performance Graph........................................... 24
Proposal Two: Ratification of Designation of Independent
Auditors.................................................. 25
Information About Fees Paid to Deloitte & Touche.......... 25
Finance and Audit Review Committee Report................. 25
Shareholder Proposals for Inclusion in 2004 Proxy
Statement................................................. 27
Other Shareholder Proposals for Presentation at 2004 Annual
Meeting................................................... 27
Director Nomination Procedures.............................. 27
Other Business.............................................. 27
Solicitation of Proxies..................................... 27
Exhibits
Exhibit A -- Charter of Finance and Audit Review
Committee.............................................. A-1
Exhibit B -- Charter of Nominating and Corporate
Governance Committee................................... B-1
Exhibit C -- Charter of Executive Compensation and
Organization Committee................................. C-1
Exhibit D -- Charter of Business Practices Oversight
Committee.............................................. D-1
Exhibit E -- Charter of Pension 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
March 13, 2003
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PROXY STATEMENT
------------------
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Schering-Plough Corporation (the
"Corporation") to be voted at its Annual Meeting of Shareholders on April 22,
2003 and any adjournments or postponements thereof. The Annual Report of the
Corporation for 2002, including financial statements for the year ended December
31, 2002, and this Proxy Statement and the accompanying form of proxy are being
mailed commencing on or about March 13, 2003 to all shareholders of record as of
the close of business on March 3, 2003.
QUESTIONS AND ANSWERS ABOUT VOTING
WHAT AM I VOTING ON?
- Election of three directors (Carl E. Mundy, Jr., Patricia F. Russo and
Arthur F. Weinbach) for terms of three years; and
- Ratification of the designation of Deloitte & Touche LLP to audit the
books and accounts of the Corporation for 2003.
WHO IS ENTITLED TO VOTE?
Only shareholders of record at the close of business on the record date,
March 3, 2003, 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 three nominated directors and FOR the ratification of the designation of
Deloitte & Touche LLP to audit the books and accounts of the Corporation for
2003.
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 2002 Annual Report are available on the
Corporation'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 the Corporation 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.
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 3, 2003, the record date, the Corporation had
outstanding and entitled to vote at the Annual Meeting 1,468,540,583 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 the affirmative
vote of a majority of the votes cast on the item by shareholders entitled to
vote thereon will be required.
Abstentions and broker non-votes will not be included in determining the
number of votes cast concerning any matter. Under the rules of the New York
Stock Exchange, absent instructions from the beneficial owners, brokers who hold
shares in street name for beneficial owners have the authority to vote on the
election of directors and the designation of auditors.
WHAT ARE THE BOARD'S RECOMMENDATIONS?
Unless you give other instructions when you vote, the persons named as
proxy holders will vote:
- FOR election of the three nominated directors; and
- FOR ratification of the designation of Deloitte & Touche LLP to audit the
books and accounts of the Corporation for 2003.
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.
2
PROPOSAL ONE: ELECTION OF DIRECTORS
Pursuant to the Corporation's Certificate of Incorporation, the Board of
Directors is divided into three classes, the terms of which expire successively
over a three-year period. Three directors are to be elected at this Annual
Meeting to hold office for a term of three years expiring at the 2006 Annual
Meeting and until successors shall have been elected and qualified. In the event
one or more of the named nominees is unable to serve, the persons designated as
proxies may cast votes for other persons as substitute nominees. The Board of
Directors has no reason to believe that any of the nominees named below will be
unavailable, or, if elected, will decline to serve.
Biographical information is given below for each nominee for director, and
for each director whose term of office will continue after the Annual Meeting.
All of the nominees are presently directors and were previously elected by the
shareholders. Mr. Richard Jay Kogan will retire from the Board and all other
positions with the Corporation not later than the Annual Meeting.
NOMINEES FOR DIRECTOR
TERM TO EXPIRE 2006
NOMINEE 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, 67, 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 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, 50, 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.
3
NOMINEE AND YEAR
FIRST ELECTED PRINCIPAL OCCUPATION
A DIRECTOR AND OTHER INFORMATION
---------------- ---------------------
[Arthur F. Weinbach Chairman and chief executive officer of Automatic Data
PHOTO] Processing, Inc. (independent computing services). Mr.
Weinbach, 59, has been associated with ADP since 1980,
ARTHUR F. WEINBACH assuming his current position in April 1998, having served
1999 as president and chief executive officer since 1996 and
president and chief operating officer since 1994. Mr.
Weinbach serves on the boards of directors of First Data
Corp., Boys Hope and United Way of Tri-State. He is on the
boards of trustees of New Jersey Seeds and New Jersey
Institute of Technology.
DIRECTORS CONTINUING IN OFFICE
TERM TO EXPIRE 2004
DIRECTOR AND YEAR
FIRST ELECTED PRINCIPAL OCCUPATION
A DIRECTOR AND OTHER INFORMATION
----------------- ---------------------
[David H. Komansky Chairman of Merrill Lynch & Co., Inc. (securities and
PHOTO] investment banking). Mr. Komansky, 63, has held a variety
of management positions in Merrill Lynch's major business
DAVID H. KOMANSKY areas since joining Merrill Lynch in 1968. Mr. Komansky
2000 assumed the position of chairman of the board of Merrill
Lynch in April 1997 and will serve in this capacity until
his retirement following the Merrill Lynch & Co., Inc.
2003 Annual Meeting of Stockholders. He served as chief
executive officer from December 1996 until December 2002.
Mr. Komansky also served as president and chief operating
officer from January 1995 until December 1996. Among many
professional and civic affiliations, Mr. Komansky is vice
chairman of the board of the New York Stock Exchange, a
non-executive director of WPP Group PLC and a trustee of
the American Museum of Natural History and New York
Presbyterian Hospital. During 2002, Merrill Lynch, through
certain of its subsidiaries, provided to the Corporation
in the ordinary course of business, investment banking,
financial advisory and other services. The Corporation
expects to continue engaging Merrill Lynch to provide
similar services in 2003.
[Eugene R. McGrath Chairman, president and chief executive officer of
PHOTO] Consolidated Edison, Inc. (energy company). Mr. McGrath,
61, has been associated with Con Edison since 1963. He
EUGENE R. MCGRATH assumed his current position in October 1997, and has
2000 served as chairman and chief executive officer of Con
Edison's subsidiary, Consolidated Edison Company of New
York, Inc., since September 1990. He also serves as a
director or trustee of Atlantic Mutual Insurance Company
and the Edison Electric Institute. Mr. McGrath is a member
of the executive committee of the Energy Association of
New York State. He is also chairman of the 14th
Street-Union Square Local Development Corporation, and a
director of the Committee for Economic Development,
Barnard College, Manhattan College and the Wildlife
Conservation Society.
4
DIRECTOR AND YEAR
FIRST ELECTED PRINCIPAL OCCUPATION
A DIRECTOR AND OTHER INFORMATION
----------------- ---------------------
[Donald L. Miller Retired chief executive officer and publisher of Our World
PHOTO] News (newspapers). Mr. Miller, 71, founded Our World News
in 1995 and had served as chief executive officer and
DONALD L. MILLER publisher since its inception. He served as vice president
1997 of employee relations of Dow Jones & Company from 1986 to
1995. Mr. Miller is a retired director of The Bank of New
York Company, Inc. He is chairman emeritus of Associated
Black Charities of New York. Mr. Miller served as a Deputy
Assistant Secretary of Defense from 1971 to 1973.
[Richard de J. Chairman of the Board of the Corporation. Mr. Osborne, 68,
Osborne PHOTO] was appointed to his current position in November 2002. He
previously served as chairman and chief executive officer
RICHARD DE J. of ASARCO Incorporated (non-ferrous metals producer) from
OSBORNE 1985 to 1999. Mr. Osborne is the non-executive chairman
1988 and a director 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 and the Council of the
Americas. Mr. Osborne is a member of the Council on
Foreign Relations and the Economic Club of New York.
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, 67, 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.
5
DIRECTOR AND YEAR
FIRST ELECTED PRINCIPAL OCCUPATION
A DIRECTOR AND OTHER INFORMATION
----------------- ---------------------
[Kathryn C. Turner Chairperson, chief executive officer and president of
PHOTO] Standard Technology, Inc. (management and technology
solutions firm) since 1985. Ms. Turner, 55, serves on the
KATHRYN C. TURNER board of directors of ConocoPhillips Company, Carpenter
2001 Technology Corporation and Tribune Company. Ms. Turner
serves as chief executive officer and president of
ElderPort. 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, 66, served RE as chief executive
ROBERT F.W. VAN officer from March 2000 to June 2001. Mr. van Oordt served
OORDT as chairman of the executive board of NV Koninklijke KNP
1992 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
Business in the Arts in the Netherlands.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has a standing Finance and Audit Review Committee,
Nominating and Corporate Governance Committee and Executive Compensation and
Organization Committee, each consisting exclusively of independent Directors.
The Board of Directors also has a standing Business Practices Oversight
Committee and Pension Committee, as well as an Executive Committee which meets
as needed. The Charters of the Committees are attached as exhibits to this proxy
statement and are also available on the Corporation's Web site.
FINANCE AND AUDIT REVIEW COMMITTEE
MEMBERS: Mr. Weinbach (Chair), Mr. Becherer and Mr. van Oordt
NUMBER OF MEETINGS IN 2002: 9
FUNCTIONS:
- Selects the independent auditors, subject to shareholder
ratification, and provides oversight of their independence,
qualifications and performance
6
- Assists the Board in its oversight function by monitoring:
-- the integrity of the Corporation's financial statements
-- the performance of the corporate audit function
-- compliance by the Corporation with legal and regulatory requirements
- Reviews and recommends to the Board dividend policies and actions
- Oversees the Corporation's borrowing and investment activities
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 2002: 2
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
27) and recommending the annual performance review process for the Board
and for each Committee
- Develops and recommends the Corporation's Corporate Governance Guidelines
(found on pages 10-11 of this proxy statement) to the Board for approval
- Recommends director compensation
EXECUTIVE COMPENSATION AND ORGANIZATION COMMITTEE
MEMBERS: Mr. Miller (Chair), Mr. Becherer, Mr. Osborne, Ms. Russo and Mr.
Weinbach
NUMBER OF MEETINGS IN 2002: 9
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 plans
BUSINESS PRACTICES OVERSIGHT COMMITTEE
MEMBERS: Mr. van Oordt (Chair), Mr. McGrath, General Mundy and Ms. Turner
NUMBER OF MEETINGS IN 2002: 3
FUNCTIONS:
- Assists 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 the
Corporation's Business Conduct Policy
- Assists the Board with oversight of regulatory and government affairs and
developments regarding material litigation and investigations
7
PENSION COMMITTEE
MEMBERS: Mr. Komansky (Acting Chair), Mr. McGrath, Mr. Miller, General
Mundy and Ms. Turner
NUMBER OF MEETINGS IN 2002: 3
FUNCTIONS:
- Responsible for general oversight of the investment of funds under
employee benefit plans of the Corporation and its subsidiaries
BOARD MEETINGS AND ATTENDANCE OF DIRECTORS
The Board of Directors held 13 meetings in 2002 and 2 succession planning
sessions. All directors attended more than 75% of the aggregate of (i) the total
number of meetings of the Board held while they were members, and (ii) the total
number of meetings held by all Committees of the Board on which they served as
members.
DIRECTORS' COMPENSATION
Employee directors receive no 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 the Corporation's Common Shares or in a simple interest fund and
are payable in cash in installments or in a lump sum.
Under the Directors' Deferred Stock Equivalency Program, each non-employee
director is also credited annually with a $25,000 deferred payment in a
Corporation stock equivalency account, which is valued as if invested in the
Corporation's Common Shares. Upon termination of service as a director, the
value of a director's deferred account is payable in cash in installments or in
a lump sum, as elected by the director.
Non-employee directors also receive an annual award of 2,500 Common Shares
under the Directors Stock Award Plan. 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 the Corporation's 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 Richard
Jay Kogan's resignation from that position. Effective November 1, 2002, Mr.
Osborne began receiving special compensation of $100,000 per month, plus
expenses. This compensation arrangement will cease and Mr. Osborne's
compensation will revert to standard directors' compensation at such time as he
no longer serves as Chairman of the Board.
CERTAIN LEGAL PROCEEDINGS
Several lawsuits are pending that, among other matters, relate to the
Corporation's disclosures about the actions of the U.S. Food and Drug
Administration (FDA) regarding the Corporation'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
8
Florida State Board of Administration, was appointed by the Court. The
plaintiffs in the suits purport to represent classes of shareholders who
purchased shares of the Corporation's stock between dates as early as
March 2, 2000, and dates relevant to disclosures about the FDA issues.
The Corporation's directors, certain officers and certain former
directors and officers are named as defendants in this matter.
- 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 the Corporation's
2002 10-K. The plaintiffs are seeking damages on behalf of the
Corporation, 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, the Corporation received a demand letter dated
December 26, 2001, from a law firm not involved in the derivative actions
described above, on behalf of a shareholder who also is not involved in
the derivative actions, demanding that the Board of Directors bring
claims on behalf of the Corporation based on allegations substantially
similar to those alleged in the derivative actions. On January 22, 2002,
the Board of Directors adopted a board resolution establishing an
Evaluation Committee, consisting of 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 to date 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 finding no liability on the
part of any officers or directors. In November 2002, the full Board
adopted the recommendation of the Evaluation Committee.
The Corporation is providing information to the Securities and Exchange
Commission in connection with the Commission's inquiry relating to the
Corporation's meetings with investors and other communications. Private
plaintiffs have filed several federal putative class action securities
litigations which were consolidated on January 10, 2003 in the United States
District Court for the District of New Jersey against the Corporation and Mr.
Kogan alleging violations of Sections 10(b) and 20(a) of the Exchange Act, as
well as Regulation FD relating to the alleged disclosures made during meetings
with investors.
Additional details about these matters are disclosed in the Corporation's
10-Ks and 10-Qs and certain 8-Ks filed under the Exchange Act.
CERTAIN TRANSACTIONS
The Corporation entered into a contract, which was terminated in December
2002, with a company controlled by Mr. Weinbach's adult son for certain human
resource communications services. Mr. Weinbach owns 12.5% of that company. The
services were satisfactorily performed at prices that the Corporation believes
were reasonable and customary. The total payments made by the Corporation under
the contract were $153,150. The Nominating and Corporate Governance Committee
and the Board determined that this transaction did not impair Mr. Weinbach's
independence.
9
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. We have
recently formalized and enhanced our governance practices, as reflected in our
Corporate Governance Guidelines set forth below and the charters of our Board
Committees that are attached as exhibits to this proxy statement.
CORPORATE GOVERNANCE GUIDELINES
(adopted January 28, 2003)
Schering-Plough Corporation is committed to discovering, developing and
marketing new therapies and treatment programs that can improve people's health
and extend 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.
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. They consider shareholder nominees for Director. They
are guided by the following objectives in recommending selection criteria and
evaluating candidates:
- a majority of Directors are independent in accordance with the
requirements of the New York Stock Exchange, and in determining
independence, business and personal interactions with Directors
(including their family members, business affiliations, and
charitable/civic affiliations) are evaluated,
- the Board represents a diversity of expertise in areas needed to foster
Schering-Plough's business success including science, finance, marketing,
manufacturing, technology, international affairs and public service,
- the Board represents a diversity of personal characteristics, including
gender and race,
- the size and composition of the Board lends itself to efficient
operation,
- outside Directors retire on the date of the annual meeting of
shareholders when they are age 72, and
- outside Directors offer to resign, and are re-evaluated, when they have
changes in employment or Board memberships at other companies and they
notify the Chair of the Nominating and Corporate Governance Committee in
advance of a change in their committee assignments at other companies.
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 Board holds executive sessions at each meeting, both with the Chief
Executive Officer present and without the Chief Executive Officer present. At
times when the Chairman is also the Chief Executive Officer, a non-management
Director will chair the executive sessions.
Advance materials are provided before meetings.
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. Directors have free access
to any employee of Schering-Plough and any of Schering-Plough's information upon
request.
There is an orientation program for new Directors. Ongoing Director
education about issues facing the company and the industry is provided as
needed.
10
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:
- Executive Compensation and Organization Committee,
- Finance and Audit Review Committee, and
- Nominating and Corporate Governance Committee.
The Board has three other standing Committees: the Business Practices
Oversight Committee, the Executive Committee and the Pension 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 of these Committees 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 performs 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 Executive Compensation and
Organization 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 function of the Board and each
Committee meet current requirements of the New York Stock Exchange and other
applicable laws and regulations and are designed to meet the requirements of the
proposed New York Stock Exchange Corporate Governance Rules. 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, which articulates Schering-Plough's commitment to ethical
standards and to compliance with all applicable laws and regulations. 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 its shareholders, customers and others who use
its products, employees and the communities where its operations are located.
11
STOCK OWNERSHIP
STOCK OWNERSHIP OF DIRECTORS AND OFFICERS
Set forth below is information with respect to beneficial ownership of the
Common Shares of the Corporation as of February 14, 2003 by each director,
certain executive officers and by all directors and executive officers of the
Corporation as a group:
NUMBER OF
NAME SHARES(A)
---- ---------
Hans W. Becherer............ 19,900
David H. Komansky........... 6,250
Eugene R. McGrath........... 8,775
Donald L. Miller............ 15,219
Carl E. Mundy, Jr........... 15,866
Richard de J. Osborne....... 66,835
Patricia F. Russo........... 17,300
Kathryn C. Turner........... 4,926
Robert F. W. van Oordt...... 13,157
Arthur F. Weinbach.......... 8,750
Joseph C. Connors........... 962,137(b)(c)
Richard Jay Kogan........... 2,016,845(b)
Cecil B. Pickett............ 451,428(b)
Jack L. Wyszomierski........ 707,285(b)
Richard W. Zahn............. 552,365(b)
All directors and executive
officers as a group
including those above
(23)...................... 6,103,142(b)(c)
STOCK EQUIVALENTS OWNERSHIP OF DIRECTORS
The following table sets forth the number of Common Share equivalents
credited as of February 14, 2003 to the accounts of the Corporation's
participating non-employee directors under the Directors' Deferred Compensation
Plan and under the Directors' Deferred Stock Equivalency Program, including
dividends credited, rounded to the nearest whole number. Under both, payments
are made in cash following termination of service as a director based on the
market value of the Common Shares of the Corporation at that time. For
additional information, see "Directors' Compensation" on page 8.
Hans W. Becherer................... 22,447
David H. Komansky.................. 6,719
Eugene R. McGrath.................. 9,154
Donald L. Miller................... 4,841
Carl E. Mundy, Jr.................. 6,889
Richard de J. Osborne.............. 10,042
Patricia F. Russo.................. 21,820
Kathryn C. Turner.................. 2,196
Robert F. W. van Oordt............. 52,197
Arthur F. Weinbach................. 9,483
-------
Total.............................. 145,788
---------------
(a) The total for each individual is less than 0.2%, and for the group of all
directors and executive officers (23 persons) is less than 0.4%, of the
outstanding Common Shares of the Corporation (including shares which could
be acquired within 60 days of February 14, 2003 through the exercise of
outstanding options or the distribution of shares under the Corporation's
Stock Incentive Plans). The information shown is based upon information
furnished by the respective directors and executive officers.
(b) Includes shares which could be acquired within 60 days of February 14, 2003
through the exercise of employee stock options or the distribution of shares
under the Corporation's Stock Incentive Plans as follows: Mr. Connors
(824,107); Mr. Kogan (1,568,736); Dr. Pickett (430,400); Mr. Wyszomierski
(606,407); Mr. Zahn (523,792); all directors and executive officers as a
group (4,964,962).
(c) Does not include shares owned by family members and as to which beneficial
ownership is disclaimed as follows: Mr. Connors, 29,187 shares; one other
executive officer, 4,527 shares.
12
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Set forth below is certain information with respect to those persons who
are known to the Corporation to own beneficially more than five percent of the
Corporation's outstanding Common Shares, as of March 3, 2003.
COMMON SHARES
NAME AND ADDRESS BENEFICIALLY PERCENT
OF BENEFICIAL OWNER OWNED OF CLASS
------------------- ------------- --------
Wellington Management Company, LLP................... 140,257,597(a) 9.6%
75 State Street
Boston, MA 02109
FMR Corp............................................. 92,520,492(b) 6.3%
82 Devonshire Street
Boston, MA 02109
---------------
(a) As reported on Schedule 13G filed with the Securities and Exchange
Commission on February 12, 2003, 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 71,359,411 of the shares and (ii) sole
dispositive power as to none of the shares and shared dispositive power as
to all 140,257,597 of the shares.
(b) As reported on Amendment No. 5 to Schedule 13G filed with the Securities and
Exchange Commission on February 14, 2003, FMR Corp., through several of its
subsidiaries and affiliates, has (i) sole voting power as to 6,011,787 of
the shares and shared voting power as to none of the shares and (ii) sole
dispositive power as to 92,520,492 of the shares and shared dispositive
power as to none of the shares. Such Amendment No. 5 to Schedule 13G also
indicates that members of the Edward C. Johnson 3d family may be deemed to
form a controlling group with respect to FMR Corp.
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.
The Corporation believes that all required Section 16(a) reports were
timely filed in 2002, based solely upon a review of:
- a review of Forms 3 and 4 filed during 2002, Forms 5 relating to 2002,
and amendments to those Forms, and
- representation letters from those who did not file a Form 5 stating that
no Form 5 was due.
13
EXECUTIVE COMPENSATION
The following table sets forth compensation of the five most highly
compensated executive officers of the Corporation, including the Chief Executive
Officer, for the fiscal year ended December 31, 2002 ("Fiscal 2002").
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
------------------------
AWARDS
ANNUAL COMPENSATION ------------------------
---------------------------------------- RESTRICTED SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL STOCK UNDERLYING ALL OTHER
POSITION IN 2002 YEAR SALARY BONUS(B) COMPENSATION AWARDS(C) OPTIONS COMPENSATION(D)
------------------ ---- ----------- ----------- ------------ ----------- ---------- ---------------
Richard Jay Kogan........ 2002 $1,430,000 $ -0- -- $3,614,350 368,000 $13,261,491(e)
Chairman of the Board, 2001 1,430,000 -0- -- 4,081,295 368,000 348,140
Chief Executive Officer 2000 1,338,000 1,872,000 -- 6,304,250 547,000 377,785
and President(a)
Cecil B. Pickett,
Ph.D. ................. 2002 $ 626,500 $ 55,000 -- $ 651,984 47,000 $133,986
Vice President and
President 2001 428,375 150,500 -- 752,940 47,000 113,133
Schering-Plough
Research 2000 400,875 180,500 -- 709,700 190,800 108,834
Institute
Joseph C. Connors........ 2002 $ 582,000 $ 38,000 -- $ 827,812 138,000 $127,596
Executive Vice President 2001 542,000 -0- -- 934,767 138,000 132,772
and General Counsel 2000 502,000 289,000 -- 1,668,550 327,200 123,082
Jack L. Wyszomierski..... 2002 $ 555,000 $ 36,500 -- $ 827,812 138,000 $136,699
Executive Vice President 2001 515,000 -0- -- 934,767 138,000 118,203
and Chief Financial 2000 475,000 273,500 -- 1,668,550 327,200 103,037
Officer
Richard W. Zahn.......... 2002 $ 485,000 $ 26,500 -- $ 411,998 90,000 $121,559
Vice President and 2001 462,000 -0- -- 465,381 90,000 98,774
President, Schering 2000 442,000 226,000 -- 830,500 297,800 100,220
Laboratories
---------------
(a) Mr. Kogan resigned the position of Chairman of the Board on November 13,
2002.
(b) For 2002, the Corporation did not fully meet all of the performance goals
set forth in a pre-established formula necessary for the named executive
officers to receive their target cash bonuses. See "Annual Incentive Bonus"
on page 20.
(c) In accordance with the initial grant provisions, because the applicable
corporate performance goals were not fully satisfied, only 54% of the
restricted stock awards with a 2002 performance period that had been granted
to the following executives vested: Mr. Kogan, 104,220 shares out of a total
of 193,000 shares; Messrs. Connors and Wyszomierski, 23,870 shares, in each
case out of a total of 44,200 shares each; and Mr. Zahn, 11,880 shares, out
of a total of 22,000 shares. The remainder of these awards were forfeited.
The table includes the value of those shares that vested. In accordance with
the terms of the initial grant of Dr. Pickett's restricted stock award,
which were not subject to the attainment of a performance goal (made before
his promotion to his current position), his award of 18,800 shares vested at
100% of grant and the value of those shares is included in the table. See
"Restricted Stock Awards" on page 22. Vested restricted stock awards are
generally distributed in five equal annual installments. 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. At December
31, 2002, the total number and value of vested but undistributed shares for
the named executive officers were: Mr. Kogan 320,943 shares ($8,023,575);
Dr. Pickett 37,600 shares
14
($940,000); Mr. Connors 75,884 shares ($1,897,100); Mr. Wyszomierski 75,884
shares ($1,897,100); and Mr. Zahn 37,772 shares ($944,300).
(d) Consists of, respectively, contributions under the profit-sharing plans of
the Corporation, and the cost of executive life and medical insurance: for
2002, Mr. Kogan ($214,500 and $102,491), also see note (e) for Mr. Kogan's
2002 amount; Dr. Pickett ($91,312 and $42,674); Mr. Connors ($87,300 and
$40,296); Mr. Wyszomierski ($83,250 and $53,449); and Mr. Zahn ($72,750 and
$48,809); for 2001, Mr. Kogan ($214,500 and $133,640); Dr. Pickett ($64,256
and $48,877); Mr. Connors ($81,300 and $51,472); Mr. Wyszomierski ($77,250
and $40,953); and Mr. Zahn ($69,300 and $29,474); for 2000, Mr. Kogan
($200,700 and $177,085); Dr. Pickett ($60,131 and $48,703); Mr. Connors
($75,300 and $47,782); Mr. Wyszomierski ($71,250 and $31,787); and Mr. Zahn
($66,300 and $33,920).
(e) Includes amounts accrued pursuant to the Retirement Agreement between Mr.
Kogan and the Corporation dated November 13, 2002, the date Mr. Kogan
resigned as Chairman of the Board, which provides that Mr. Kogan will
receive a severance payment of $12,944,500. See the description of Mr.
Kogan's Retirement Agreement and these payments under the heading
"Employment and Change of Control Arrangements" on page 15. Does not include
accruals relating to the pension component to be paid pursuant to Mr.
Kogan's Retirement Agreement. That pension component is described under
"Pension Plan Information" on page 18. Does not include accruals of
$8,818,128 relating to the accelerated distribution of restricted stock, the
value of which is included in the Restricted Stock Awards column of the
Summary Compensation Table.
EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENTS
On November 13, 2002, the Corporation entered into a Retirement Agreement
with Mr. Kogan, which was based on the provisions of an employment agreement
first entered into in 1989 and amended six times. Under this Retirement
Agreement Mr. Kogan resigned from his position as the Chairman of the Board of
Directors on November 13, 2002. The Retirement Agreement provides that he will
retire from his employment and his position as a member of the Board at the
Corporation's 2003 annual meeting or, if sooner, when his successor is
appointed. Until his retirement, he will continue to receive his base salary at
the annual rate of $1,430,000 and the other compensation and benefits provided
for in the employment agreement, except that he will not receive any further
bonuses, stock option grants or other incentive compensation.
The Retirement Agreement provides that at the time of Mr. Kogan's
retirement, he will receive the severance and retirement benefits to which he is
entitled under his current employment agreement with the Corporation. The
severance benefits will 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 the Corporation's welfare benefit plans; and (4)
a lump sum supplemental pension amount based on three additional years of deemed
employment. The retirement benefits will consist of: (1) 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; (2) vesting of his
unvested stock options; and (3) an office and certain executive-level support
services, including secretarial, transportation and security services.
In exchange for these benefits, under the Retirement Agreement Mr. Kogan
agrees to cooperate in any pending or future governmental or regulatory
investigation or proceeding, and to provide consulting services to the
Corporation after his retirement, and gives the Corporation a general release.
Dr. Pickett and Messrs. Connors, Wyszomierski and Zahn each have an
agreement that will trigger an employment period of three years or to age 65, if
sooner, upon a Change of Control or upon a termination of employment by the
Corporation in anticipation of a Change of Control. During the employment
period, the executive is entitled to receive an annual base salary at his
highest rate during the twelve months prior to the Change of Control and an
annual bonus equal to his highest bonus for the
15
three years prior to the Change of Control. If his employment is terminated
during the employment period (i) by the Corporation other than for cause or
disability or (ii) by the executive for good reason or during a 30-day period
following the first anniversary of the Change of Control or if his employment is
terminated by the Corporation 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 the Corporation'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 the Corporation to the executive is
determined to be subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code, the Corporation will hold him harmless from the excise
tax imposed. Each of Messrs. Connors, Wyszomierski and Zahn has a supplement to
the agreement which has a term of January 1, 2002 through December 31, 2005 or
until the change of control provisions of the agreement become applicable if
sooner than December 31, 2005. In each supplement, the executive agrees that he
may not engage in any activity competitive with the Corporation during his
employment and for a period of two (2) years after such executive leaves the
Corporation, if he leaves during the term of the supplement because of a
termination by the Corporation for cause or a termination by him without good
reason. The supplement also provides that if at any time during the term of the
supplement the executive is terminated without cause or terminates his own
employment for good reason, he will be generally entitled to receive (a) a lump
sum equal to three times (I) his annual base salary and (II) the highest of his
annual bonus and profit-sharing awards for the three preceding years, and (b)
supplemental pension payments without reduction for early retirement.
Under the Corporation's Stock Incentive Plans, stock awards and stock
options granted to the named executive officers may vest and be cashed out upon
a Change of Control.
STOCK OPTION INFORMATION
The following tables provide information with respect to stock options
granted to or exercised by the named executive officers during Fiscal 2002 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)
---- ---------- --------------- -------- ---------- ----------------
Richard Jay Kogan..................... 368,000 4.50% $34.68 2/24/12 $6,139,914
Cecil B. Pickett...................... 47,000 0.57 34.68 2/24/12 784,174
Joseph C. Connors..................... 138,000 1.69 34.68 2/24/12 2,302,468
Jack L. Wyszomierski.................. 138,000 1.69 34.68 2/24/12 2,302,468
Richard W. Zahn....................... 90,000 1.10 34.68 2/24/12 1,501,609
---------------
(a) Options are for a term of 10 years. The options expiring on February 24,
2012 became exercisable one year after the date of grant on February 26,
2003, except that transferable options which were transferred became
exercisable immediately upon transfer. The exercise price of the options is
the market value of the Common Shares on the date of grant. After the
occurrence of a Change of
16
Control, options 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 expiring on February 24, 2012
granted to Messrs. Kogan and Zahn are transferable in accordance with the
terms of the plan.
(b) The valuation calculations are solely for purposes of compliance with the
rules and regulations promulgated under the Exchange Act, and are not
intended to forecast possible future appreciation, if any, of the
Corporation's stock price. The grant date present value for the options
expiring on February 24, 2012 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 (1.38%); volatility of the Common
Shares based on monthly total returns for the three years ended January 31,
2002 (37.99%); an annualized risk-free interest rate of 5.18%; 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,
2012, the equivalent value of the appreciation of all Common Shares of the
Corporation outstanding on the grant date of those options would be
approximately $24 billion, of which the value of the named officers' options
would be 0.06%. This valuation model was not adjusted for risk of forfeiture
or the vesting restrictions of the options for the options expiring on
February 24, 2012 which became exercisable after one year. This valuation
model does not necessarily represent the fair market value of individual
options. At the expiration date, the options will have no actual value
unless, and only to the extent that, the price of the Common Shares
appreciates from the grant date to the exercise date.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT FY-END(A) OPTIONS AT FY-END(A)(C)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(B) REALIZED(B) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
Richard Jay Kogan............... -0- $ -0- 1,178,000 628,000(d) $ -0- $ -0-
Cecil B. Pickett................ -0- -0- 383,400 327,000 2,046,571 624,000
Joseph C. Connors............... 49,040 952,101 680,900 518,000 2,494,621 886,500
Jack L. Wyszomierski............ -0- -0- 463,200 518,000 886,500 886,500
Richard W. Zahn................. -0- -0- 383,200 558,000 1,339,997 1,712,597
---------------
(a) Table includes stock options which were transferred in accordance with the
terms of the Corporation's Stock Incentive Plans. After transfer, certain of
these stock options were no longer beneficially owned (Mr. Kogan 547,000;
Mr. Connors 48,200).
(b) In February 2002 Mr. Connors exercised stock options that were expiring that
month, and in December 2002 he exercised stock options that were expiring in
February 2003. He retained the Common Shares received net of taxes and
increased his overall holdings.
(c) Based on the difference between the closing price of Common Shares on the
New York Stock Exchange on December 31, 2002 of $22.20 and the exercise
price of the option.
(d) Mr. Kogan's stock options will vest upon his retirement. See the description
of Mr. Kogan's Retirement Agreement and this vesting under the heading
"Employment and Change of Control Arrangements" on page 15.
17
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
------------ ---------- ---------- ---------- ---------- ----------
$ 800,000........................ $ 280,000 $ 320,000 $ 360,000 $ 400,000 $ 440,000
1,000,000....................... 350,000 400,000 450,000 500,000 550,000
1,200,000....................... 420,000 480,000 540,000 600,000 660,000
1,600,000....................... 560,000 640,000 720,000 800,000 880,000
2,000,000....................... 700,000 800,000 900,000 1,000,000 1,100,000
2,200,000....................... 770,000 880,000 990,000 1,100,000 1,210,000
2,400,000....................... 840,000 960,000 1,080,000 1,200,000 1,320,000
2,600,000....................... 910,000 1,040,000 1,170,000 1,300,000 1,430,000
2,800,000....................... 980,000 1,120,000 1,260,000 1,400,000 1,540,000
3,000,000....................... 1,050,000 1,200,000 1,350,000 1,500,000 1,650,000
3,200,000....................... 1,120,000 1,280,000 1,440,000 1,600,000 1,760,000
3,400,000....................... 1,190,000 1,360,000 1,530,000 1,700,000 1,870,000
3,600,000....................... 1,260,000 1,440,000 1,620,000 1,800,000 1,980,000
The table above reflects benefits on a life annuity basis and amounts
payable are not subject to Social Security or other offset. Retirement benefits
under the Corporation's nonqualified plans are payable on an annuity basis or on
a present value lump sum basis at the election of the executive. Covered
compensation consists of salary and bonus which, for the named executive
officers, is shown in the Summary Compensation Table on page 14. 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 as of December 31, 2002 are: Mr.
Kogan (20 years), Dr. Pickett (9 years), Mr. Connors (25 years), Mr.
Wyszomierski (19 years) and Mr. Zahn (10 years).
As noted under "Employment and Change of Control Arrangements" on page 15,
Mr. Kogan's Retirement Agreement provides that at the time of his retirement, he
will 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. Mr. Kogan had previously elected to receive a
lump-sum settlement of the portion of this benefit payable under nonqualified
arrangements, which will be paid upon his retirement. The lump sum amount will
be approximately $26,402,693. In addition to the lump sum amount, Mr. Kogan will
also receive an annual annuity from the qualified pension plan, which cannot be
paid out in a lump sum. The lump-sum present value of that annuity is
approximately $498,209. Further, the Corporation accrued an additional
$3,200,000 regarding settlement of pension plan losses in accordance with the
accounting rules. Mr. Kogan will not receive additional payment in connection
with that accounting accrual.
18
EXECUTIVE COMPENSATION AND ORGANIZATION COMMITTEE REPORT
PRINCIPLES AND PROGRAM
The Corporation's executive compensation program is designed to serve the
Corporation's broader strategic goals of profitable growth and the creation of
long-term shareholder value. The program is fundamentally a pay-for-performance
program designed to:
- ensure the Corporation's ability to attract and retain superior
executives;
- strongly align the interests of the Corporation's executives with those
of its shareholders; and
- provide a compensation package that balances individual contributions and
overall business results.
The Executive Compensation and Organization Committee is responsible for
setting the Corporation's executive compensation policy. The Committee consists
of five directors who are not employees of the Corporation and are not eligible
to participate in the Corporation's executive compensation programs.
The Committee selects and is advised by an independent executive
compensation consultant. The Committee also annually ratifies the Corporation's
selection of an independent compensation consultant who works with the
Corporation's Human Resource professionals and also provides information to the
Committee.
In determining executive compensation, the Committee evaluates both the
total compensation package and its individual elements. As part of its review,
the Committee considers compensation data for companies which represent direct
competitors for executive talent. The data includes information on those drug
and health care companies within the peer index used in the performance graph
(page 24) in the proxy statement (the "Peer Group") and other pharmaceutical and
consumer products companies, including some for which public information is not
available.
CHANGES TO THE PRINCIPLES AND PROGRAM FOR 2003
During 2002, the Committee performed a comprehensive analysis of the
structure of the Corporation's executive compensation program. As a result of
that analysis and in light of the challenges facing the Corporation and the
industry, the Committee made significant changes to the architecture of the
Corporation's executive compensation program for 2003. One change for 2003 is
expansion of the Peer Group for competitive compensation analysis to include
GlaxoSmithKline and AstraZeneca. Other changes to each component of executive
compensation for 2003 are highlighted in the discussion of those components
below.
TOTAL COMPENSATION
An executive's total compensation consists of three elements: base salary,
an annual incentive bonus, and long-term stock-based compensation (stock options
and restricted stock awards).
BASE SALARY
The Committee assesses a number of factors in fixing the salary of the
executive officers (including those executive officers named in the proxy
statement). Those factors typically include: the responsibility of the
individual's position, the individual's performance, the Corporation's overall
financial performance, certain non-financial indicators of corporate
performance, and the business climate. In the case of executive officers with
responsibility for a particular business unit, the Committee also considers that
unit's financial results. Non-financial indicators may include, among other
things, strategic developments for which an executive officer has responsibility
(such as acquisitions or product approvals or development), managerial
performance (such as succession planning, resource allocation and social
responsibility) and compliance with the Corporation's policies and procedures.
The evaluation of an executive's non-financial indicators is reflected in the
executive's performance rating.
19
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 compensation policy
for executive officers is consistent with overall Corporation results and
executive compensation strategies, the Committee reviews the compensation
awarded to approximately 90 of the Corporation's most highly compensated
executives.
Through 2002, the Committee targeted salaries of the Corporation's
executive officers to fall within a range above the median but below the high
end of the salary levels at the competitor companies, except that Mr. Kogan's
salary for 2002 was the same as his salary in 2001, which was set at the median
of the range. In fixing the salaries of the executive officers for 2002, the
Committee considered the Corporation'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.
CHANGES TO BASE SALARY TARGETS FOR 2003
For 2003, the Committee intends to target salaries for all executive
officers to the median (from above the median in 2002) of the expanded Peer
Group.
ANNUAL INCENTIVE BONUS
The Executive Incentive Plan, the Corporation's bonus plan, allows the
Committee to interpret and administer the Plan, and make annual cash awards to
the executive officers, based on certain financial and non-financial indicators
of corporate performance.
In 1999, the shareholders approved the executive incentive bonus program,
including performance goals, for certain senior executive officers, including
the 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 2002, the Committee fixed specified percentages of base salary as
target incentive bonus awards for the covered executive officers, and each of
the three performance goals was assigned a one-third weighting toward the
attainment of the target award. The performance goal for pre-tax earnings for
2002 was the Corporation's income before income taxes in the Corporation's 2002
operating plan as approved by the Committee. The performance goal for earnings
per share for 2002 was the average of the First Call Corporation consensus
projected earnings per share growth of the Peer Group for the corresponding
fiscal year. The performance goal for return on equity for 2002 was the average
return on equity of the Peer Group for the five consecutive years ending with
the second year prior to the commencement of 2002. Actual earnings per share,
return on equity and pre-tax earnings were based upon amounts reported in the
Corporation's financial statements in its Annual Report to shareholders, as
adjusted for special items identified by the Committee and certified by the
Corporation's independent auditors.
In 2002, the Corporation did not fully meet any of the performance goals
set forth in the pre-established formula set by the Committee for the named
executive officers to receive their target incentive bonus awards. Accordingly,
the bonuses for the named executive officers, with the exception of Mr. Kogan
and Dr. Pickett, were 10.8% of their target amounts. The reduction of bonuses in
2002 from the award opportunity for those senior executive officers, reflects
the Committee's goal of aligning the interests of the Corporation's executives
with those of its shareholders. Mr. Kogan did not receive a bonus for 2002;
20
however, one component of the payments under his Retirement Agreement, discussed
in detail under the heading "Employment and Change of Control Arrangements" on
page 15, includes a payment of $1,801,255, calculated by reference to the bonus
formula in Mr. Kogan's agreement, pro-rated to November 13, 2002, the date of
the Retirement Agreement. The bonus for Dr. Pickett is 15.3% of his target
amount, based on the timing of his appointment as President of Schering-Plough
Research Institute on March 1, 2002.
The amount of cash awards to the corporate executive officers who are not
covered by the executive incentive bonus program also bears a significant
relationship to corporate performance. The Committee awards bonuses to these
officers based principally on the same performance goals used in the executive
incentive bonus program, with the 2002 pre-tax earnings goal assigned a
weighting of 35%, and the earnings per share and return on equity goals each
assigned a 20% weighting. In awarding a bonus to these executive officers, the
Committee also considers the non-financial factors reflected in an individual's
performance rating. However, those non-financial factors cannot constitute the
basis for more than 25% of the target bonus award. For 2002, these executives
were awarded bonuses in accordance with the Executive Incentive Plan formula.
CHANGES TO ANNUAL INCENTIVE BONUS CRITERIA FOR 2003
In establishing criteria upon which the annual incentive bonus for 2003
will be determined for all corporate executive officers, the Committee
eliminated the performance goal of return on equity and re-weighted the two
remaining performance goals, pre-tax earnings versus the 2003 operating plan and
earnings per share growth versus the Peer Group, to 80% and 20%, respectively.
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 the
Corporation's long-term stock-based compensation aligns the interest of
executive officers with that of the shareholders, as any appreciation in the
price of the stock will benefit all shareholders commensurately. This is
particularly true in the case of the restricted stock awards, because they are
distributed over a five-year period. Also, the five-year distribution period for
the restricted stock awards and the minimum three-year 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 the Corporation.
The Committee sets fixed guidelines for the size of regular annual stock
option grants and restricted stock awards for each executive grade level within
the Corporation, other than the grade level of the Chief Executive Officer,
based on the stock-based compensation levels at the competitor companies. Under
the guidelines, the Committee grants stock options and restricted stock awards
to each executive officer in specified amounts based on the officer's executive
grade level and individual performance rating. In determining regular annual
awards of stock-based compensation the Committee focuses on multi-year trend
data and targets such awards to fall within a range above the median but below
the high end of the stock-based compensation levels at the competitor companies.
However, for 2002, the stock-based compensation levels for Mr. Kogan were set by
the Committee in its discretion taking into consideration the factors described
under the heading "Compensation of the Chief Executive Officer for 2002" on page
22 and the long-term nature of stock-based compensation. Average awards of
regular annual stock-based compensation to the executive officers subject to
fixed share guidelines fell within the target range in 2000 and fell below the
target range in 2001 and 2002.
STOCK OPTIONS -- The Committee relies on a valuation of stock options
provided by the Corporation'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. Regular annual
options are generally first exercisable after one year and 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
21
and generally have a term of ten years. The actual value of any options granted
will depend entirely on the extent to which the Corporation's Common Shares have
appreciated in value at the time the options are exercised. The Corporation 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.
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 three
performance goals are achieved. The awards are assigned a dollar value based on
the share price at the time the award is made. Vested award shares are
distributable ratably over five years, 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 none of the performance goals was fully
satisfied for 2002. As a result, the following number of shares, representing
only 54% of the restricted stock awards with a 2002 performance period that had
been granted to the following executives, vested: Mr. Kogan, 104,220 shares, out
of a total of 193,000 shares; Messrs. Connors and Wyszomierski, 23,870 shares,
in each case out of a total of 44,200 shares each; and Mr. Zahn, 11,880 shares,
out of a total of 22,000 shares. The shares included in the initial grant which
did not vest were forfeited. Dr. Pickett's 2002 stock award of 18,800 shares
vested at 100% of grant, as his grant was not subject to the attainment of a
performance goal based on his grade level at the date of grant. The Committee
believes that this significant reduction in the restricted stock awards for
Messrs. Kogan, Connors, Wyszomierski and Zahn in accordance with the performance
goals was appropriate in light of the Corporation's results in 2002, and
reflects the Committee's goal of aligning the interests of the Corporation's
executives with those of its shareholders.
The vesting of restricted stock awards for the Corporation's executive
officers who are not covered by the restricted stock award program is not
subject to a performance condition. The awards are assigned a dollar value based
on the share price at the time the award is made and are distributable ratably
over five years, or, if sooner, upon retirement.
CHANGES TO STOCK-BASED COMPENSATION FOR 2003
For 2003, the Committee approved the performance goals of pre-tax earnings
and earnings per share, as described above under "Changes to Annual Incentive
Bonus Criteria for 2003." The full vesting of the 2003 stock awards will be
conditioned upon achievement of one of the two performance goals. If full
vesting is not achieved, the 2003 stock awards will vest on a prorated basis,
using an 80% weighting for pre-tax earnings and a 20% weighting for earnings per
share. For 2003, a portion of the stock options granted have a three-year
vesting period, rather than a one-year vesting period which generally applied to
past awards.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER FOR 2002
In setting Mr. Kogan's base salary for 2002, 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. Kogan as
the Corporation's most senior officer and the important role he has in achieving
overall corporate goals. In granting stock options and restricted stock awards
to Mr. Kogan, the Committee did not set a fixed guideline, but took into
consideration his total compensation package and competitive compensation data,
the long-term nature of stock options and restricted stock awards, overall
corporate financial performance, his role in attaining those results, and the
number of options and stock awards previously granted, although no particular
weighting is assigned to any factor.
22
The Committee set Mr. Kogan's base salary of $1,430,000 for 2002, the same
as 2001. The Committee did not raise his base salary, in keeping with the
principle of tying the overall compensation structure to corporate performance.
In 2002, the Committee granted Mr. Kogan 368,000 stock options and a
restricted stock award for 193,000 shares. As described above under "Stock-Based
Compensation -- Restricted Stock Awards," Mr. Kogan's 2002 restricted stock
vested at 54% of the initial grant (from 193,000 to 104,220 shares) because none
of the applicable performance goals was fully satisfied. All of Mr. Kogan's
vested restricted stock awards that have not yet been distributed will be
distributed upon his retirement. Under Mr. Kogan's Retirement Agreement, the
2002 stock options will vest regardless of the date of his retirement. Upon his
retirement, he will forfeit 260,000 stock options granted in 2000 that had a
three year vesting schedule commencing in September 2003. The terms of Mr.
Kogan's Retirement Agreement, including the cash payments and benefits that he
will receive under the Agreement, are described in footnote (e) to the Summary
Compensation Table on pages 14 and 15 and under "Employment and Change of
Control Arrangements" on page 15. The pension component of Mr. Kogan's
Retirement Agreement is described under "Pension Plan Information" on page 18.
The Committee and the Board were advised by the Committee's independent
compensation consultant and outside counsel in negotiating the terms of the
Retirement Agreement.
Because of his retirement, Mr. Kogan will not receive any new cash or
equity-based incentive compensation opportunities for 2003.
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 the Corporation or a
change in executive personnel, could result in a disallowance of compensation
deductions under Section 162(m). Moreover, the Committee may from time to time
award compensation that is non-deductible under Section 162(m) when, in the
exercise of the Committee's business judgment, such award would be in the best
interests of the Corporation.
EXECUTIVE COMPENSATION AND
ORGANIZATION COMMITTEE
Donald L. Miller, Chairman
Hans W. Becherer
Richard de J. Osborne
Patricia F. Russo
Arthur F. Weinbach
23
PERFORMANCE GRAPH
COMPARISON OF CUMULATIVE TOTAL RETURN
FOR THE FIVE YEARS ENDED DECEMBER 31, 2002
[GRAPH]
--------------------------------------------------------------------------------
Schering-Plough
Corp. 100 180 139 189 121 77
Composite Peer
Group 100 144 127 176 159 133
S&P 500 Index 100 129 156 141 128 100
The graph above assumes a $100 investment on December 31, 1997, and reinvestment
of all dividends, in each of the Corporation's Common Shares, the S&P 500 Index,
and a composite peer group of the following drug and health care companies:
Abbott Laboratories, Bristol-Myers Squibb Company, Johnson & Johnson, Eli Lilly
and Company, Merck & Co., Inc., Pfizer Inc., Pharmacia Corporation and Wyeth.
24
PROPOSAL TWO: RATIFICATION OF DESIGNATION OF INDEPENDENT AUDITORS
The Finance and Audit Review Committee selected Deloitte & Touche LLP to
audit the books and accounts of the Corporation for the year ending December 31,
2003, and will offer a resolution at the meeting for shareholders to ratify the
designation. Deloitte & Touche LLP has been the principal auditor of the
Corporation since the Corporation was formed in 1970.
Representatives of Deloitte & Touche LLP will be present at the meeting to
respond to appropriate questions. They will have an opportunity, if they desire,
to make a statement at the meeting.
INFORMATION ABOUT FEES PAID TO DELOITTE & TOUCHE
Aggregate fees billed to the Corporation for 2002 and 2001 by Deloitte &
Touche LLP and its affiliates are as follows:
2002 2001
---------- ----------
Audit Fees.................. $3,722,000 $3,058,000
Audit-Related Fees(1)....... $ 610,000 $ 738,500
Tax Fees(2)................. $ 803,000 $1,167,900
All Other Fees(3)........... $ -0- $1,952,600
---------------
(1) Includes audits of employee benefits plans, consultation on accounting and
compliance matters, audits under commercial contracts and requested audits
of subsidiaries.
(2) Tax compliance services for foreign subsidiaries.
(3) In 2001, includes consulting services related to financial information
systems design ($1,807,900) and consulting services for statistical analysis
($144,700).
The Finance and Audit Review Committee pre-approves the types of services
and the related fees provided by Deloitte & Touche or its affiliates. During
2002, the pre-approval process was formalized to include the following steps:
- For each pre-approval, the independent auditors and the Corporation's
counsel confirm that the proposed services are not prohibited services.
- In pre-approving services, the Committee determines that neither the
nature of the services nor the related fees would impair the independence
of Deloitte & Touche.
- The Committee receives quarterly written reports listing the non-audit
services and related fees provided by Deloitte & Touche in the current
year through the end of the most recently completed quarter, and the type
services and related fees previously pre-approved but not yet completed.
FINANCE AND AUDIT REVIEW COMMITTEE REPORT
The Finance and Audit Review Committee of the Corporation's Board of
Directors is comprised of three independent directors and operates under a
written Charter adopted by the Board. The Charter was revised by the Board on
January 28, 2003 to reflect additional and enhanced practices adopted by the
Finance and Audit Review Committee in light of the proposed New York Stock
Exchange Corporate Governance Rules and the Sarbanes-Oxley Act of 2002. The
revised Charter is attached to this proxy statement as Exhibit A.
During the year, the Committee's name was changed from "Finance, Compliance
and Audit Review Committee" to "Finance and Audit Review Committee." This change
was made to reflect formation of the Business Practices Oversight Committee,
which assists the Board with oversight of non-financial compliance and
regulatory matters. The Finance and Audit Review Committee retains direct
oversight of all compliance matters having to do with financial matters,
Securities and Exchange Commission reporting
25
and auditing. The decision by the Board to form the Business Practices Oversight
Committee allows (1) the Finance and Audit Review Committee to focus on the
additional financial reporting and disclosure regulations issued during 2002, in
addition to its other responsibilities, and (2) the Business Practices Oversight
Committee to focus solely on non-financial compliance issues including
compliance with Good Manufacturing Practices, a critical task in the
highly-regulated pharmaceutical industry. Mr. Osborne resigned as Chair and
member of the Finance and Audit Review Committee upon his appointment as
Chairman of the Board on November 13, 2002.
The Finance and Audit Review Committee is appointed by the Board to assist
the Board in its oversight function by monitoring, among other things, the
integrity of the Corporation's financial statements, the Corporation's financial
reporting process and the independence and performance of the independent
auditors, and the performance of the corporate auditors. It is the
responsibility of executive management of the Corporation to prepare financial
statements in accordance with generally accepted accounting principles and of
the Corporation's independent auditors to audit those financial statements. The
Finance and Audit Review Committee has the sole authority and responsibility to
select, appoint, evaluate and, where appropriate, replace the independent
auditors.
In this context, the Finance and Audit Review Committee has met and held
discussions with management, the independent auditors, and the corporate
auditors. Management represented to the Finance and Audit Review Committee that
the Corporation's consolidated financial statements were prepared in accordance
with generally accepted accounting principles, and the Finance and Audit Review
Committee has reviewed and discussed the audited consolidated financial
statements with management, the independent auditors and the corporate auditors.
The Finance and Audit Review 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 Finance and Audit Review 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 the Corporation and its management.
Further, the Finance and Audit Review Committee has considered whether the
non-audit services provided by the independent auditors are compatible with
maintaining the auditor's independence.
Further, the Finance and Audit Review 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 the Corporation's internal controls, and the overall quality of
the Corporation's financial reporting.
During the past year, the Finance and Audit Review Committee met privately
with the independent auditors four times and the corporate auditors three times.
Based on the reviews and discussions referred to above, and subject to the
limitations on the role and responsibilities of the Finance and Audit Review
Committee referred to above and set forth in the Charter, the Finance and Audit
Review Committee recommended to the Board that the audited financial statements
be included in the Corporation's 2002 10-K for filing with the Securities and
Exchange Commission.
Each of the members of the Finance and Audit Review Committee is
independent as defined under the listing standards of the New York Stock
Exchange.
FINANCE AND AUDIT
REVIEW COMMITTEE
Arthur F. Weinbach, Chairman
Hans W. Becherer
Robert F. W. van Oordt
26
SHAREHOLDER PROPOSALS FOR INCLUSION IN 2004 PROXY STATEMENT
If any shareholder intends to present a proposal for consideration at the
2004 Annual Meeting of Shareholders, such proposal must be received by the
Corporation not later than November 14, 2003 for inclusion, pursuant to Rule
14a-8 under the Exchange Act, in the Corporation'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
Corporation-sponsored proxy materials.
OTHER SHAREHOLDER PROPOSALS FOR PRESENTATION AT 2004 ANNUAL MEETING
The By-laws of the Corporation provide a formal procedure for bringing
business before the Annual Meeting. A shareholder proposing to present a matter
before the Annual Meeting is required to deliver a written notice to the
Secretary of the Corporation, no earlier than December 24, 2003 and no later
than January 23, 2004. 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 the Corporation, not earlier than the 120th day prior to the Annual Meeting
and not later than the later of the 90th day prior to the Annual Meeting or the
10th day following the day on which public announcement of the date of such
meeting is first made by the Corporation. 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 the Corporation's stock the shareholder beneficially owns, and any material
interest of the shareholder in such business. If these procedures are not
complied with, the proposed business will not be transacted at the Annual
Meeting. Such By-law provisions are not intended to affect any rights of
shareholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
Pursuant to Rule 14a-4 under the Exchange Act, if a shareholder notifies
the Corporation after January 23, 2004 of an intent to present a proposal at the
Corporation's 2004 Annual Meeting (and for any reason the proposal is voted upon
at that Annual Meeting), the Corporation's proxy holders will have the right to
exercise discretionary voting authority with respect to the proposal, if
presented at the meeting, without including information regarding the proposal
in its proxy materials.
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 the Corporation with biographical data about
the recommended individual. The By-laws of the Corporation provide the formal
procedure for nominations by shareholders of director candidates. A shareholder
intending to make such a nomination is required to deliver to the Secretary of
the Corporation, not less than 30 days prior to a meeting called to elect
directors, a notice with the name, age, business and residence addresses and
principal occupation or employment of, and number of shares of stock of the
Corporation beneficially owned by, such nominee, such other information
regarding the nominee as would be required in a proxy statement prepared in
accordance with the proxy rules of the Securities and Exchange Commission, and a
consent to serve, if elected, of the nominee. A nomination not made in
accordance with this procedure would be void.
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
The Corporation has retained Morrow & Co. to solicit proxies for a fee of
$17,500, plus reasonable out-of-pocket expenses. Solicitation of proxies will be
undertaken through the mail, in person and by telecommunications and may include
solicitation by officers and employees of the Corporation. Costs of solicitation
will be borne by the Corporation.
27
EXHIBIT A
SCHERING-PLOUGH CORPORATION
FINANCE AND AUDIT REVIEW COMMITTEE
------------------
CHARTER
(approved by Board of Directors on January 28, 2003)
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 Finance and Audit Review 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.
A-1
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.
Recommend to the Board policies for the Company's hiring of employees
or former employees of the independent auditor who participated in any
capacity in the audit of the Company.
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 No. 61
relating to the conduct of the audit, including any difficulties
encountered in the course of the audit work, any restrictions on the scope
of activities or access to requested information, and any significant
disagreements with management.
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. 71.
A-2
7. Review Annual Financial Statements. Review 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. 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 with management and
the independent auditor the quarterly financial statements 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 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.
A-3
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. Report its activities to the Board in such manner
and at such times as it deems appropriate.
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, and
- compensation for any other advisors retained by the Committee.
Finance and Audit Review 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
A-4
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 No. 61
SAS No. 61 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. 71
SAS No. 71 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 Board of Directors on January 28, 2003)
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
B-1
"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, within the following guidelines:
a. A majority of Directors are independent, as required by the New
York Stock Exchange and the Company's Corporate Governance Guidelines.
b. The Board represents a diversity of expertise in areas needed
to foster Schering-Plough's business success including science, finance,
marketing, international affairs and public service.
c. The Board represents a diversity of personal characteristics,
including gender and race.
d. The size and composition of the Board lends itself to efficient
operation.
e. Outside Directors retire on the date of the annual meeting of
shareholders when they are age 72.
f. Outside directors offer to resign, and are re-evaluated, when
they have changes in employment or board memberships and committee
assignments at other companies.
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 Directors, if any, when are
unable to perform the duties required of Directors and making appropriate
recommendations to the Board.
B-2
9. Reports to the Board. 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.
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.
B-3
EXHIBIT C
SCHERING-PLOUGH CORPORATION
EXECUTIVE COMPENSATION AND ORGANIZATION COMMITTEE
------------------
CHARTER
(approved by the Board of Directors January 28, 2003)
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.
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,
C-1
- 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 the approval of equity-based 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.
4. Reports to the Board. Reports its activities to the Board in such
manner and at such times as it deems appropriate.
5. Review Committee Performance. Review annually 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
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.
C-2
EXHIBIT D
SCHERING-PLOUGH CORPORATION
BUSINESS PRACTICES OVERSIGHT COMMITTEE
------------------
CHARTER
(approved by the Board of Directors January 28, 2003)
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
D-1
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. 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 Finance and Audit Review 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
PENSION COMMITTEE
------------------
CHARTER
(approved by the Board of Directors January 28, 2003)
PURPOSE
The Committee shall provide general oversight for the investment of funds
under the employee benefit plans of the Company and its subsidiaries.
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.
COMMITTEE AUTHORITY AND RESPONSIBILITIES
Employee Benefit Plans. Regarding the employee benefit plans of the
Company and its subsidiaries, the Committee shall:
- review the investment policies for the plans,
- review periodic reports from the Investment Committee or the investment
managers and trustees under the plans regarding the investment
performance of the funds, and
- receive periodic briefings regarding compliance with funding and other
regulatory requirements, including ERISA provisions.
Board Reports. Report its activities to the Board in such manner and at
such times as it deems appropriate.
Review Committee Performance. Review annually 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.
E-1
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.
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 the Company's employee
benefit plans or to direct the investment of assets under any such plan. These
are the responsibility of management and the named fiduciaries of the plans. The
Committee is not a fiduciary under ERISA or otherwise with respect to any
benefit plan or asset.
E-2
EXHIBIT F
SCHERING-PLOUGH CORPORATION
EXECUTIVE COMMITTEE
------------------
CHARTER
(approved by the Board of Directors 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 at Woodbridge Place
515 Route One South
Iselin, New Jersey 08830
Tel: (732) 634-3600
FROM THE NEW JERSEY TURNPIKE
Exit 11 and follow signs to Garden State Parkway North to Exit 131A. This
puts you on Wood Ave. South. At the 3rd traffic light make a right turn onto
Middlesex-Essex Turnpike. At the 3rd traffic light take another right turn. This
puts you on Gill Lane for approximately 2 miles to the Sheraton, which is on the
right side of Gill Lane, just before you reach the intersection of Route 1.
FROM THE GARDEN STATE PARKWAY
TRAVELING SOUTH: Take Exit 130 to Route 1 North. Continue until you see the
Sheraton on the left. Go straight through the traffic light and take the Gill
Lane jughandle in the right lane. Take a left at the intersection of Gill Lane
and Route 1 and turn right into the Sheraton's entrance.
TRAVELING NORTH: Take Exit 131A. This puts you on Wood Ave. South. At the
3rd traffic light make a right turn onto Middlesex-Essex Turnpike. At the 3rd
traffic light take another right turn. This puts you on Gill Lane for
approximately 2 miles to the Sheraton, which is on the right side of Gill Lane,
just before you reach the intersection of Route 1.
FROM ROUTE 287 NORTH OR SOUTH:
Take the exit for Route 1 North. Continue until you see the Sheraton on the
left. Go straight through the traffic light and take the Gill Lane jughandle in
the right lane. Take a left at the intersection of Gill Lane and Route 1 and
turn right into the Sheraton's main entrance.
FROM NEWARK INTERNATIONAL AIRPORT:
Take Route 1 and 9 South towards Woodbridge. Follow Route 1 South to
Sheraton on the right hand side -- approximately 12 miles.
FROM NEW YORK CITY:
Take either the Holland or Lincoln Tunnel to the New Jersey Turnpike South,
to Exit 11. Take the Garden State Parkway North, to Exit 131A. This puts you on
Wood Ave. South. At the 3rd traffic light make a right turn onto Middlesex-Essex
Turnpike. At the 3rd traffic light take another right turn. This puts you on
Gill Lane for approximately 2 miles to the Sheraton, which is on the right side
of Gill Lane, just before you reach the intersection of Route 1.
FROM STATEN ISLAND:
Take the Outer Bridge Crossing to Route 440. This will eventually turn into
Route 287, which you will take going north. Take Exit for Route 1 North.
Continue until you see the Sheraton on the left. Go straight through the traffic
light and take the Gill Lane jughandle in the right lane. Take a left at the
intersection of Gill Lane and Route 1 and turn right into the Sheraton's main
entrance.
[SCHERING-PLOUGH LOGO]
SCHERING-PLOUGH CORPORATION
2000 Galloping Hill Road
Kenilworth, New Jersey 07033
ADMISSION TICKET
2003 ANNUAL MEETING OF SHAREHOLDERS
Dear Shareholder:
The Annual Meeting of Shareholders of Schering-Plough Corporation will be
held at the Sheraton at Woodbridge Place, 515 Route One South, Iselin, New
Jersey, on Tuesday, April 22, 2003 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 detach and bring this letter to the meeting
as an admission ticket. Admission will be on a first come, first served basis.
Joseph J. LaRosa
Secretary
March 13, 2003
DETACH PROXY CARD HERE
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SCHERING-PLOUGH CORPORATION -- PROXY
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING OF SHAREHOLDERS -- APRIL 22, 2003
I appoint Joseph C. Connors, Joseph J. LaRosa and Jack L. Wyszomierski
individually as proxies to vote all of my Schering Plough Corporation Common
Shares at the Annual Meeting of Shareholders to be held on April 22, 2003, 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 3 directors as named herein and for proposal (2).
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
SCHERING-PLOUGH CORPORATION
P.O. BOX 11371
NEW YORK, N.Y. 10203-0371
[SCHERING-PLOUGH LOGO]
YOUR VOTE IS IMPORTANT
VOTE BY INTERNET / TELEPHONE
24 HOURS A DAY, 7 DAYS A WEEK
INTERNET TELEPHONE MAIL
HTTPS://WWW.PROXYVOTENOW.COM/SGP 1-888-216-1328
- Go to the website address listed - Use any touch-tone telephone. - Mark, sign and date your
above. - Have your proxy card ready. proxy card.
- Have your proxy card ready. - Enter your Control Number - Detach your proxy card.
- Enter your Control Number located located in the box below.
in the box below. OR - Follow the simple recorded OR - Return your proxy card in the
- Follow the simple instructions that instructions. prepaid envelope provided.
appear on your computer screen.
Your Internet or telephone vote authorizes
the named proxies to vote your shares in the
same manner as if you marked, signed and
returned your proxy card, and there is no
need for you to mail back your proxy.
1-888-216-1328
CALL TOLL-FREE TO VOTE
CONTROL NUMBER FOR
TELEPHONE OR INTERNET VOTING
THE INTERNET AND TELEPHONE VOTING FACILITIES WILL CLOSE AT 5:00 P.M. E.S.T.
ON APRIL 21, 2003.
PLEASE DETACH PROXY CARD HERE
PLEASE SIGN, DATE AND
[ ] RETURN THE PROXY CARD [X]
PROMPTLY USING THE VOTES MUST BE INDICATED
ENCLOSED ENVELOPE. (X) IN BLACK OR BLUE INK.
THE BOARD OF DIRECTORS RECOMMENDS THE BOARD
A VOTE "FOR" ITEMS 1 AND 2 RECOMMENDS
1. The election to the Board of FOR all nominees WITHHOLD authority
the 3 nominees named below listed (except as to vote for all
for a term of 3-years: indicated to the nominees listed
1-Carl E. Mundy, Jr.; contrary below)
2-Patricia F. Russo; 3- Arthur
F. Weinbach. [ ] [ ]
INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ONE OR MORE INDIVIDUAL NOMINEES,
WRITE THE NAME(S) OF SUCH PERSON(S) HERE:
To change your
address, please mark
this box. [ ]
FOR AGAINST ABSTAIN
2. Ratification of Designation
of Independent Auditors [ ] [ ] [ ]
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SCAN LINE
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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.
Date Shareholder sign here Co-Owner sign here
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[SCHERING-PLOUGH LOGO]
SCHERING-PLOUGH CORPORATION
2000 Galloping Hill Road
Kenilworth, New Jersey 07033
RE: PROXY VOTING INSTRUCTIONS TO
VANGUARD FIDUCIARY TRUST COMPANY
Dear Plan Participant:
The Annual Meeting of Shareholders of Schering-Plough Corporation will be
held at the Sheraton at Woodbridge Place, 515 Route One South, Iselin, New
Jersey, on Tuesday, April 22, 2003 at 2:00 p.m.
To be sure that the shares credited to your Company Stock Account(s) are
voted in accordance with your wishes, we urge you to complete and sign the
voting instruction card below, detach it from this letter, and return it in the
prepaid envelope enclosed in this package. Alternatively, you can vote by
telephone or Internet following the instructions on the opposite side of this
proxy card.
Joseph J. LaRosa
Secretary
March 13, 2003
DETACH PROXY CARD HERE
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SCHERING-PLOUGH EMPLOYEES' SAVINGS PLAN
SCHERING-PLOUGH EMPLOYEES' PROFIT-SHARING INCENTIVE PLAN
VOTING INSTRUCTIONS
Under the Schering-Plough Employees' Savings Plan and the Schering-Plough
Employees' Profit-Sharing Incentive Plan (the "Plans"), you may direct the
voting of the shares credited to your Company Stock Accounts under the Plans at
the Corporation's Annual Meeting of Shareholders on April 22, 2003. The number
of shares shown on the reverse side represents the total share holdings you have
in the Plans in which you participate.
Enclosed is a copy of the Notice of Annual Meeting and Proxy Statement
describing the items to be presented at the meeting. If no direction is given,
shares will be voted FOR items 1 and 2.
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 22,
2003, and at all adjournments or postponements thereof, the number of Common
Shares of Schering-Plough Corporation credited to my accounts under the Plans
and entitled to vote at said meeting shall be voted or caused to be voted as
specified.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
SCHERING-PLOUGH CORPORATION
P.O. BOX 11300
NEW YORK, N.Y. 10203-0300
[SCHERING-PLOUGH LOGO] YOUR VOTE IS IMPORTANT
VOTE BY INTERNET/TELEPHONE
24 HOURS A DAY, 7 DAYS A WEEK
INTERNET TELEPHONE MAIL
HTTPS://WWW.PROXYVOTENOW.COM/SGP 1-888-216-1328
- Go to the website address listed - Use any touch-tone telephone. - Mark, sign and date your proxy card.
above. - Have your proxy card ready. - Detach your proxy card.
- Have your proxy card ready. - Enter your Control Number - Return your proxy card in the
- Enter your Control Number located located in the box below. prepaid envelope provided.
in the box below. OR - Follow the simple recorded OR
- Follow the simple instructions that instructions.
appear on your computer screen.
Your Internet or telephone vote
authorizes named proxies to vote your
shares in the same manner as if you
marked, signed and returned your proxy
card, and there is no need for you to
mail back your proxy.
1-888-216-1328
CALL TOLL-FREE TO VOTE
CONTROL NUMBER FOR
TELEPHONE OR INTERNET VOTING
THE INTERNET AND TELEPHONE VOTING FACILITIES WILL CLOSE AT 5:00 P.M. E.S.T.
ON APRIL 21, 2003.
PLEASE DETACH PROXY CARD HERE
PLEASE SIGN, DATE AND
[ ] RETURN THE PROXY CARD [X]
PROMPTLY USING THE VOTES MUST BE INDICATED
ENCLOSED ENVELOPE. (X) IN BLACK OR BLUE INK.
THE BOARD OF DIRECTORS RECOMMENDS THE BOARD
A VOTE "FOR" ITEMS 1 AND 2 RECOMMENDS
1. The election to the Board of FOR all nominees WITHHOLD authority
the 3 nominees named below for a term listed (except as to vote for all
of 3-years: 1-Carl E. Mundy, Jr.; indicated to the nominees listed
2-Patricia F. Russo; 3-Arthur F. contrary below)
Weinbach. [ ] [ ]
INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ONE OR MORE INDIVIDUAL NOMINEES,
WRITE THE NAME(S) OF SUCH PERSON(S) HERE:
To change your address, please mark this
box. [ ]
FOR AGAINST ABSTAIN
2. Ratification of Designation
of Independent Auditors [ ] [ ] [ ]
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SCAN LINE
-----------------------------
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.
Date Shareholder sign here Co-Owner sign here
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