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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:
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[SCHERING-PLOUGH LOGO]
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
APRIL 24, 2001
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The Annual Meeting of Shareholders of Schering-Plough Corporation (the
"Corporation") will be held at the offices of the Corporation, Galloping Hill
Road, Kenilworth, New Jersey, on Tuesday, April 24, 2001, at 2:00 p.m. to:
(1) Elect five directors for terms of three years;
(2) Act upon the ratification of the designation of Deloitte & Touche
LLP to audit the books and accounts of the Corporation for 2001;
(3) Act upon a shareholder proposal concerning pharmaceutical pricing;
and
(4) Transact such other business as may properly come before the
meeting.
Only holders of record of Common Shares at the close of business on March
2, 2001 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.
JOSEPH J. LAROSA
Secretary
Kenilworth, New Jersey
March 12, 2001
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Schering-Plough Corporation
2000 Galloping Hill Road
Kenilworth, New Jersey 07033
March 12, 2001
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PROXY STATEMENT
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This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Schering-Plough Corporation (the
"Corporation") to be voted at its Annual Meeting of Shareholders on April 24,
2001 and any adjournments or postponements thereof. The Annual Report of the
Corporation for 2000, including financial statements for the year ended December
31, 2000, and this Proxy Statement and the accompanying form of proxy are being
mailed commencing on or about March 12, 2001 to all shareholders of record as of
the close of business on March 2, 2001.
ABOUT THE MEETING
WHAT AM I VOTING ON?
- Election of five directors (Richard Jay Kogan, David H. Komansky, Eugene
R. McGrath, Donald L. Miller, Richard de J. Osborne) for terms of three
years;
- Ratification of the designation of Deloitte & Touche LLP to audit the
books and accounts of the Corporation for 2001; and
- Shareholder proposal concerning pharmaceutical pricing.
WHO IS ENTITLED TO VOTE?
Only shareholders of record at the close of business on the record date,
March 2, 2001, 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 five nominated directors, FOR the ratification of the designation of
Deloitte & Touche LLP to audit the books and accounts of the Corporation for
2001 and AGAINST the shareholder proposal concerning pharmaceutical pricing.
Vote By Telephone or Via Internet: If you are a shareholder of record
(that is, if you hold your stock in your own name), you may vote by telephone or
via the Internet by following the instructions on your proxy card. The telephone
number is toll-free, so voting by telephone is at no cost to you.
If your shares are held in the name of a bank, broker or other holder of
record (i.e., in "street name"), you will receive instructions from the holder
of record that you must follow in order for your shares to be voted. Telephone
and Internet voting will be offered to shareholders owning shares through most
banks and brokers.
If you vote by telephone or via the Internet you do not need to return your
proxy card.
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CAN I ACCESS THE PROXY MATERIALS AND ANNUAL REPORT ELECTRONICALLY?
This Proxy Statement and the 2000 Annual Report are available on the
Corporation's Internet site at www.schering-plough.com/shareholder.
CAN I CHANGE MY VOTE?
Yes. You may change your vote at any time before the proxy is exercised.
If you voted by mail, you must (a) file with the Secretary of the Corporation a
written notice of revocation or (b) timely deliver a valid, later-dated proxy.
If you voted by telephone or via the Internet, you may change your vote with a
later telephone or Internet vote, as the case may be. Attendance at the Annual
Meeting will not have the effect of revoking a proxy unless you give written
notice of revocation to the Secretary before the proxy is exercised or you vote
by written ballot at the Annual Meeting.
WHAT CONSTITUTES A QUORUM?
The presence at the Annual Meeting, in person or by proxy, of the holders
of a majority of the common shares outstanding on the record date will
constitute a quorum. As of January 31, 2001, the Corporation had outstanding and
entitled to vote at the Annual Meeting 1,462,308,811 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 is
required for the election of directors. For the ratification of the designation
of Deloitte & Touche LLP and for approval of the shareholder proposal concerning
pharmaceutical pricing, the affirmative vote of a majority of the votes cast on
the item 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, but not the shareholder
proposal.
WHAT ARE THE BOARD'S RECOMMENDATIONS?
Unless you give other instructions when you vote, the persons named as
proxy holders will vote:
- FOR election of the five nominated directors;
- FOR ratification of the designation of Deloitte & Touche LLP to audit the
books and accounts of the Corporation for 2001; and
- AGAINST the shareholder proposal concerning pharmaceutical pricing.
With respect to any other matter that properly comes before the Annual
Meeting, the proxy holders will vote as recommended by the Board of Directors
or, if no recommendation is given, in their own discretion.
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ELECTION OF DIRECTORS
Pursuant to the Corporation's Certificate of Incorporation, the Board of
Directors is divided into three classes, the terms of which expire successively
over a three-year period. Five directors are to be elected at this Annual
Meeting to hold office for a term of three years expiring at the 2004 Annual
Meeting and until successors shall have been elected and qualified. In the event
one or more of the named nominees is unable to serve, the persons designated as
proxies may cast votes for other persons as substitute nominees. The Board of
Directors has no reason to believe that any of the nominees named below will be
unavailable, or, if elected, will decline to serve.
Biographical information is given below for each nominee for director, and
for each director whose term of office will continue after the Annual Meeting.
All of the nominees are presently directors and were previously elected by the
shareholders, except David H. Komansky, who was elected by the Board effective
November 1, 2000.
NOMINEES FOR DIRECTOR
TERM TO EXPIRE 2004
NOMINEE AND YEAR
FIRST ELECTED PRINCIPAL OCCUPATION
A DIRECTOR AND OTHER INFORMATION
---------------- ---------------------
[Richard Jay Kogan Chairman and chief executive officer of the Corporation. Mr.
PHOTO] Kogan, 59, joined the Corporation as executive vice
president (pharmaceutical operations) in April 1982, was
RICHARD JAY KOGAN president and chief operating officer from January 1986 to
1982 December 1995, and president and chief executive officer
from January 1996 to November 1998 when he assumed his
present position. Mr. Kogan is a director of
Colgate-Palmolive Company and The Bank of New York
Company, Inc., and a director and former chairman of
Pharmaceutical Research and Manufacturers of America. He
also serves on the boards of St. Barnabas Corporation and
Medical Center and on the Board of Trustees of New York
University and is a member of the Business Roundtable and
the Council on Foreign Relations.
[David H. Komansky Chairman and chief executive officer of Merrill Lynch & Co.,
PHOTO] Inc. (securities and investment banking). Mr. Komansky,
61, has held a variety of management positions in Merrill
DAVID H. KOMANSKY Lynch's major business areas since joining Merrill Lynch
2000 in 1968. Prior to assuming his current positions of
chairman of the board of Merrill Lynch in April 1997 and
chief executive in December 1996, Mr. Komansky served as
president and chief operating officer from January 1995.
Among many professional and civic affiliations, Mr.
Komansky is vice chairman of the board of the New York
Stock Exchange and a trustee of the American Museum of
Natural History. During 2000, 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 2001.
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NOMINEE AND YEAR
FIRST ELECTED PRINCIPAL OCCUPATION
A DIRECTOR AND OTHER INFORMATION
---------------- ---------------------
[Eugene R. McGrath Chairman, president and chief executive officer of
PHOTO] Consolidated Edison, Inc. (energy company). Mr. McGrath,
59, 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,
the Institute of Nuclear Power Operations and the Edison
Electric Institute. Mr. McGrath is a member of the
executive committee of the Energy Association of New York
State. He is also chairman of the 14th Street-Union Square
Local Development Corporation, and a director or trustee
of the American Museum of Natural History, the Committee
for Economic Development, Barnard College, Manhattan
College, the Wildlife Conservation Society and the
National Action Council for Minorities in Engineering,
Inc.
[Donald L. Miller Retired chief executive officer and publisher of Our World
PHOTO] News (newspapers). Mr. Miller, 69, 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. He is a director of The Bank of New York Company,
Inc. He also served on the boards of trustees of Pace
University and the Meadowlands Hospital, and is chairman
emeritus of Associated Black Charities of New York. Mr.
Miller served as a Deputy Assistant Secretary of Defense
from 1971 to 1973.
[Richard de J. Retired chairman and chief executive officer of ASARCO
Osborne PHOTO] Incorporated (non-ferrous metals producer). Mr. Osborne,
66, was chairman and chief executive officer of ASARCO
RICHARD DE J. from 1985 to 1999. Mr. Osborne is the non-executive
OSBORNE Chairman and a director of Datawatch Corporation, a
1988 director of The BFGoodrich Company, Birmingham Steel
Corporation, NACCO Industries, Inc. and The Tinker
Foundation. He is former chairman and director of the
International Copper Association, the Copper Development
Association, the Silver Institute and the National Mining
Association. He is also a director and treasurer of the
Americas Society and the Council of the Americas. Mr.
Osborne is a member of the Council on Foreign Relations
and the Economic Club of New York.
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DIRECTORS CONTINUING IN OFFICE
TERM TO EXPIRE 2002
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, 65, was associated
1989 with Deere & Company from 1962 until his retirement in
2000. He was elected president and chief operating officer
of Deere & Company in 1987, president and chief executive
officer in 1989, and chairman and chief executive officer
in May 1990, and assumed the duties of chief operating
officer in 1996. Mr. Becherer is a member of the board of
directors of Honeywell Inc. and J.P. Morgan Chase & Co. He
serves on the board of trustees of the Committee for
Economic Development, and is a member of the Business
Council and the Council on Foreign Relations.
[Raul E. Cesan President and chief operating officer of the Corporation.
PHOTO] Mr. Cesan, 53, joined the Corporation in 1977. He was
president of Schering-Plough International from September
RAUL E. CESAN 1988 to December 1991, became president of Schering Labs
1998 in January 1992 and then Executive Vice
President-Pharmaceuticals in September 1994. He assumed
his present position in November 1998. He is a director of
The New York Times Corporation, and a member of the
Healthcare Leadership Council and the Healthcare Institute
of New Jersey. He also serves on the board of trustees of
the Children's Specialized Hospital, the Foundation of the
University of Medicine and Dentistry of New Jersey, and
the U.S. Council for International Business.
Regina E. Herzlinger Nancy R. McPherson Professor of Business Administration,
Photo Harvard Business School since 1971. Professor Herzlinger,
57, is a director of Cardinal Health, Inc., C.R. Bard,
REGINA E. HERZLINGER Inc., Deere & Company and Nanogen, Inc., and also serves
1992 on the board of privately held companies and non-profit
organizations, including the Belmont Hill School of
Belmont, Massachusetts.
[Robert F.W. van Chairman and chief executive officer of Rodamco Continental
Oordt PHOTO] Europe N.V. ("RCE"), one of the largest real estate
investment companies in Europe. Mr. van Oordt, 64, has
ROBERT F.W. VAN served as chief executive officer of RCE since March 2000.
OORDT Mr. van Oordt served as chairman of the executive board of
1992 NV Koninklijke KNP BT (producer of paper, board and
packaging products; and distributor of graphic paper,
graphic and information systems and office products) from
March 1993, following the merger of three leading
Dutch-based industrial corporations, including
Buhrmann-Tetterode N.V. ("BT"), until his retirement in
April 1996. From 1990 until March 1993, Mr. van Oordt
served as president and chief executive officer of BT. Mr.
van Oordt is a member of the Supervisory Boards of Nokia
Corporation, n.v. Union Miniere s.a., and Draka Holding
N.V. He is also Chairman of the Advisory Council of
PricewaterhouseCoopers N.V. and is a member of the
International Advisory Board of Nijenrode University. He
serves as Chairman of the Foundation for Business in the
Arts in the Netherlands and is a senior member of the
Conference Board.
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DIRECTOR AND YEAR
FIRST ELECTED PRINCIPAL OCCUPATION
A DIRECTOR AND OTHER INFORMATION
----------------- ---------------------
[James Wood PHOTO] Chairman of the board of The Great Atlantic & Pacific Tea
Company, Inc. ("A&P") (supermarkets). Mr. Wood, 71, held
JAMES WOOD the office of chairman and chief executive officer of A&P
1987 from 1980 to 1998, and he continues as chairman of the
board. Mr. Wood is also a director of Datawatch
Corporation.
DIRECTORS CONTINUING IN OFFICE
TERM TO EXPIRE 2003
DIRECTOR AND YEAR
FIRST ELECTED PRINCIPAL OCCUPATION
A DIRECTOR AND OTHER INFORMATION
----------------- ---------------------
[Robert P. Luciano Chairman Emeritus of the Corporation. Mr. Luciano, 67, was
PHOTO] chairman and chief executive officer of the Corporation
from January 1986 to December 1995 and served as chairman
ROBERT P. LUCIANO from January 1996 until his retirement in November 1998.
1978 He is a director of Honeywell Inc., C. R. Bard, Inc., and
Merrill Lynch & Co., Inc.
[H. Barclay Morley Former chairman and chief executive officer of Stauffer
PHOTO] Chemical Company (producer of chemicals). Mr. Morley, 71,
was chief executive officer of Stauffer Chemical from 1974
H. BARCLAY MORLEY to 1985. He was elected a director of the Corporation in
1979 January 1979, resigned in February 1985, and then rejoined
the Board in February 1987.
[Carl E. Mundy, Jr. Retired general, former commandant of the Marine Corps.
PHOTO] General Mundy, 65, 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 and a director of General Dynamics
Corporation and NationsFunds. He also serves as chairman
of the Marine Corps University Foundation, a member of the
boards of advisors to the Comptroller General of the
United States, to the Navy League and to The Citadel, and
is a member of the Council on Foreign Relations.
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DIRECTOR AND YEAR
FIRST ELECTED PRINCIPAL OCCUPATION
A DIRECTOR AND OTHER INFORMATION
----------------- ---------------------
[Patricia F. Russo Chairman of Avaya Inc. (communications systems and services
PHOTO] to businesses worldwide) since December 2000. Ms. Russo,
48, was executive vice president and chief executive
PATRICIA F. RUSSO officer of the Service Provider Networks business of
1995 Lucent Technologies Inc. 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 director of Xerox
Corporation, New Jersey Manufacturers Insurance Company
and Georgetown University.
[Arthur F. Weinbach Chairman and chief executive officer of Automatic Data
PHOTO] Processing, Inc. (independent computing services). Mr.
Weinbach, 57, 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., Health Plan Services, 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.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Corporation has a standing Finance,
Compliance and Audit Review Committee, Executive Compensation and Organization
Committee, Pension Committee and Nominating and Corporate Governance Committee,
each consisting exclusively of non-employee directors.
FINANCE, COMPLIANCE AND AUDIT REVIEW COMMITTEE
MEMBERS: Mr. Osborne (Chair), Mr. Becherer, Professor Herzlinger, Mr.
Morley, Mr. van Oordt, and Mr. Weinbach
NUMBER OF MEETINGS IN 2000: Five
FUNCTIONS:
- The Finance, Compliance and Audit Review Committee functions are set
forth in its charter which is attached hereto as Exhibit A.
EXECUTIVE COMPENSATION AND ORGANIZATION COMMITTEE
MEMBERS: Mr. Wood (Chair), Mr. Becherer, Mr. Miller, Mr. Morley, Mr.
Osborne, and Ms. Russo
NUMBER OF MEETINGS IN 2000: Four
FUNCTIONS:
- Responsible for approving or recommending to the Board compensation,
incentive awards, stock options, and benefit programs for officers and
senior executives of the Corporation
- Makes recommendations to the Board concerning executive organizational
matters
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PENSION COMMITTEE
MEMBERS: Professor Herzlinger (Chair), Mr. Komansky, Mr. McGrath, Mr.
Miller, General Mundy, and Mr. Wood
NUMBER OF MEETINGS IN 2000: Three
FUNCTIONS:
- Responsible for general oversight of the investment of funds under
employee benefit plans
- Establishes investment policies for funds under employee benefit plans
- Reviews the performance of managers and trustees of employee benefit
plans
NOMINATING AND CORPORATE GOVERNANCE COMMITTEE
MEMBERS: Mr. Morley (Chair), Mr. Becherer, General Mundy, Mr. Osborne, Ms.
Russo, and Mr. van Oordt
NUMBER OF MEETINGS IN 2000: One
FUNCTIONS:
- Reviews and makes recommendations to the Board with respect to the
composition of the Board and the election and re-election of directors
- Assesses periodically the functioning of the Board
- Reviews and makes recommendations to the Board concerning director
compensation
The Committee will consider shareholder recommendations for directors.
Shareholder recommendations should be forwarded by the shareholder to the
Secretary of the Corporation with biographical data about the recommended
individual. The By-laws of the Corporation provide the formal procedure for
nominations by shareholders of director candidates. A shareholder intending to
make such a nomination is required to deliver to the Secretary of the
Corporation, not less than 30 days prior to a meeting called to elect directors,
a notice with the name, age, business and residence addresses and principal
occupation or employment of, and number 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 SEC, and a consent to serve, if elected, of the nominee.
A nomination not made in accordance with this procedure would be void.
BOARD MEETINGS AND ATTENDANCE OF DIRECTORS
The Board of Directors held nine meetings in 2000. All directors attended
more than 75% of the aggregate of (i) the total number of meetings of the Board
held while they were members, and (ii) the total number of meetings held by all
Committees of the Board on which they served as members.
DIRECTORS' COMPENSATION
Employee directors receive no fees for services rendered in their capacity
as directors. Non-employee directors receive an annual retainer of $39,000, a
fee of $1,000 per meeting for each Board meeting and for each Committee meeting
attended, and a $1,000 per diem fee, plus expenses, for special assignments. The
chairperson of each Committee receives an additional fee of $1,000 for each
meeting. Directors may elect to defer until termination of service as a director
all or a portion of such fees under a Directors' Deferred Compensation Plan.
Amounts deferred are, at the director's election, valued as if invested in the
Corporation's Common Shares or in a simple interest fund and are payable in cash
in installments or in a lump sum.
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Under the Directors' Deferred Stock Equivalency Program, each non-employee
director (other than Mr. Luciano) 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 2500 Common Shares
under the Directors' Stock Award Plan.
SECURITY OWNERSHIP OF DIRECTORS AND OFFICERS
Set forth below is information with respect to beneficial ownership of the
Common Shares of the Corporation as of January 31, 2001 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............................................ 14,900
Raul E. Cesan............................................... 946,945(b)
Joseph C. Connors........................................... 578,617(b)(c)
Hugh A. D'Andrade........................................... 325,090(b)(d)
Regina E. Herzlinger........................................ 18,029
Richard Jay Kogan........................................... 941,429(b)
David H. Komansky........................................... 1,250
Robert P. Luciano........................................... 53,704
Eugene R. McGrath........................................... 3,480
Donald L. Miller............................................ 9,674
H. Barclay Morley........................................... 47,501
Carl E. Mundy, Jr........................................... 10,866
Richard de J. Osborne....................................... 61,835
Patricia F. Russo........................................... 12,300
Robert F. W. van Oordt...................................... 7,822
Arthur F. Weinbach.......................................... 3,750
James Wood.................................................. 95,500
Jack L. Wyszomierski........................................ 269,905(b)
All directors and executive officers as a group including
those above (27).......................................... 4,355,223(b)(c)(d)
- ---------------
(a) The total for each individual is less than 0.2%, and for the group is less
than 0.3%, of the outstanding Common Shares of the Corporation (including
shares which could be acquired within 60 days of January 31, 2001 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 January 31, 2001
through the exercise of employee stock options or the distribution of shares
under the Corporation's Stock Incentive Plans as follows: Mr. Cesan
(768,760); Mr. Connors (480,780); Mr. D'Andrade (235,720); Mr. Kogan
(669,900); Mr. Wyszomierski (214,040); all directors and executive officers
as a group (3,032,414).
(c) Does not include shares owned by family members and as to which beneficial
ownership is disclaimed as follows: Mr. Connors, 13,593 shares; one other
executive officer, 4,386 shares.
(d) Mr. D'Andrade retired from the Corporation effective December 31, 2000. The
table above reflects Mr. D'Andrade's beneficial ownership of Common Shares
as of December 31, 2000.
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COMMON SHARE EQUIVALENTS
The following table sets forth the number of Common Share equivalents
credited as of January 31, 2001 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. Under both, payments are made in cash following termination
of service as a director based on the market value of the Common Shares of the
Corporation at that time. For additional information, see "Directors'
Compensation" above.
TOTAL
-------
Hans W. Becherer............................................ 14,833
Regina E. Herzlinger........................................ 32,221
David H. Komansky........................................... 788
Eugene R. McGrath........................................... 2,251
Donald L. Miller............................................ 2,876
H. Barclay Morley........................................... 13,960
Carl E. Mundy, Jr........................................... 4,841
Richard de J. Osborne....................................... 8,947
Patricia F. Russo........................................... 15,294
Robert F. W. van Oordt...................................... 43,386
Arthur F. Weinbach.......................................... 2,682
James Wood.................................................. 119,444
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Total....................................................... 261,523
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Set forth below is certain information with respect to those persons who
are known to the Corporation to own beneficially more than five percent of the
Corporation's outstanding Common Shares, as of February 14, 2001.
COMMON SHARES
NAME AND ADDRESS BENEFICIALLY PERCENT
OF BENEFICIAL OWNER OWNED OF CLASS
- ------------------- --------------- --------
FMR Corp.......................................... 121,022,157(a) 8.3%
82 Devonshire Street
Boston, MA 02109
Mutuelles AXA..................................... 76,672,155(b) 5.2%
25, avenue Matignon
75008 Paris, France
- ---------------
(a) As reported on Amendment No. 3 to Schedule 13G filed with the Securities and
Exchange Commission on February 14, 2001. This number includes 114,424,543
shares beneficially owned by Fidelity Management & Research Company, a
wholly-owned subsidiary of FMR Corp., as a result of its acting as
investment advisor to various investment companies; 5,259,145 shares
beneficially owned by Fidelity Management Trust Company, a wholly-owned
subsidiary of FMR Corp., as a result of its serving as investment manager of
certain institutional accounts; and 1,336,069 shares beneficially owned by
Fidelity International Limited as a result of its providing investment
advisory and management services to various non-U.S. investment companies
and certain institutional investors. Edward C. Johnson 3d, Chairman of FMR
Corp., is also listed on the Schedule 13G as beneficially owning the
119,683,688 Common Shares of the Corporation, because he exercises
dispositive power over the shares.
(b) As reported on Amendment No. 1 to Schedule 13G filed with the Securities and
Exchange Commission on February 12, 2001. The Mutuelles AXA, as a group,
includes 73,875,246 shares beneficially owned by Alliance Capital Management
L.P.
10
13
SUMMARY COMPENSATION TABLE
The following table sets forth compensation of the five most highly
compensated executive officers of the Corporation, including the Chief Executive
Officer, for the fiscal year ended December 31, 2000 ("Fiscal 2000").
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
--------------------
ANNUAL COMPENSATION AWARDS
------------------------------------------------------------------ --------------------
OTHER RESTRICTED
NAME AND PRINCIPAL ANNUAL STOCK
POSITION IN 2000 YEAR SALARY BONUS COMPENSATION AWARDS(a)
------------------ ---- -------------------- -------------------- -------------------- --------------------
Richard Jay Kogan.......... 2000 $ 1,338,000 $ 1,872,000(c) -- $ 6,304,250
Chairman of the Board 1999 1,200,000 2,074,000 -- 8,861,438
and Chief Executive 1998 1,100,000 1,648,000 -- 7,930,000
Officer
Raul E. Cesan.............. 2000 $ 918,000 -- $ 3,020,000
$ -----(c)
President and Chief 1999 850,000 1,157,000 -- 4,245,000
Operating Officer 1998 691,667 583,500 -- 1,708,000
Hugh A. D'Andrade.......... 2000 $ 726,250 $ 464,500 -- $ 2,604,750
Vice Chairman and 1999 681,250 464,000 -- 3,661,313
Chief Administrative 1998 640,000 448,000 -- 1,708,000
Officer
Joseph C. Connors.......... 2000 $ 502,000 $ 289,000 -- $ 1,668,550
Executive Vice President 1999 467,000 286,000 -- 2,345,363
and General Counsel 1998 437,000 275,500 -- 1,433,500
Jack L. Wyszomierski....... 2000 $ 475,000 $ 273,500 -- $ 1,668,550
Executive Vice President 1999 440,000 269,500 -- 2,345,363
and Chief Financial
Officer................ 1998 405,000 255,500 -- 1,433,500
LONG-TERM
COMPENSATION
---------------
AWARDS
---------------
SECURITIES
NAME AND PRINCIPAL UNDERLYING ALL OTHER
POSITION IN 2000 OPTIONS COMPENSATION(b)
------------------ --------------- -----------------
Richard Jay Kogan.......... 547,000 $ 377,785
Chairman of the Board 287,000 369,574
and Chief Executive 352,000 287,741
Officer
Raul E. Cesan.............. 398,000 $ 264,785
President and Chief 138,000 270,410
Operating Officer 85,200 140,262
Hugh A. D'Andrade.......... 104,800 $ 185,695
Vice Chairman and 104,800 188,213
Chief Administrative 85,200 157,936
Officer
Joseph C. Connors.......... 327,200 $ 123,082
Executive Vice President 67,200 118,373
and General Counsel 70,800 99,656
Jack L. Wyszomierski....... 327,200 $ 103,037
Executive Vice President 67,200 96,995
and Chief Financial
Officer................ 70,800 82,341
- ---------------
(a) In February 2000, restricted stock awards were granted to Mr. Kogan for
167,000 shares, to Mr. Cesan for 80,000 shares, to Mr. D'Andrade for 69,000
shares, to Mr. Connors for 44,200 shares, and to Mr. Wyszomierski for 44,200
shares. The vesting of such awards was subject to the attainment of a
performance goal, which has been satisfied. See "Compensation Committee
Report -- Stock-Based Compensation -- Restricted Stock Awards" on page 19.
At December 31, 2000, the total number and value of undistributed shares,
for which performance goals have been met, for the named executive officers
were: Mr. Kogan 350,400 shares ($19,885,200); Mr. Cesan 145,920 shares
($8,280,960); Mr. D'Andrade 128,320 shares ($7,282,160); Mr. Connors 85,760
shares ($4,866,880); and Mr. Wyszomierski 85,760 shares ($4,866,880). Shares
awarded are distributable in five equal annual installments. Cash equivalent
to the amount of all dividends on the Corporation's Common Shares is paid on
all undistributed shares.
(b) Consists of, respectively, contributions under the profit-sharing plans of
the Corporation, and the cost of executive life and medical insurance: for
2000, Mr. Kogan ($200,700 and $177,085); Mr. Cesan ($137,700 and $127,085);
Mr. D'Andrade ($108,938 and $76,757); Mr. Connors ($75,300 and $47,782); Mr.
Wyszomierski ($71,250 and $31,787); for 1999, Mr. Kogan ($180,000 and
$189,574); Mr. Cesan ($127,500 and $142,910); Mr. D'Andrade ($102,187 and
$86,026); Mr. Connors ($70,050 and $48,323); and Mr. Wyszomierski ($66,000
and $30,995); for 1998, Mr. Kogan ($165,000 and $122,741); Mr. Cesan
($103,750 and $36,512); Mr. D'Andrade ($96,000 and $61,936); Mr. Connors
($65,550 and $34,106); and Mr. Wyszomierski ($60,750 and $21,591).
(c) In light of the impact on the Corporation of the manufacturing deficiencies
found as a result of the U.S. Food and Drug Administration's inspection of
the Corporation's manufacturing facilities in New Jersey and Puerto Rico,
which the Corporation announced in February 2001, the Executive Compensation
and Organization Committee, acting upon the recommendation of management of
the Corporation and notwithstanding the strong financial performance of the
Corporation in 2000, eliminated Mr. Cesan's 2000 cash award and reduced Mr.
Kogan's 2000 cash award by $300,000.
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14
EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENTS
Mr. Kogan has an agreement which provides for his employment as Chairman of
the Board and Chief Executive Officer through December 31, 2002 at an annual
base salary of not less than $1,338,000. Mr. Kogan's agreement provides that his
employment is automatically extended for an additional two-year period
thereafter, and then through June 30, 2006, unless either he or the Corporation
gives notice to terminate the agreement at least six months before its scheduled
expiration date. Mr. Cesan has an agreement which provides for his employment as
President and Chief Operating Officer through October 31, 2003 at an annual base
salary of not less than $918,000. Mr. Cesan's agreement provides that his
employment is automatically extended on a yearly basis, but not beyond October
30, 2012, unless either he or the Corporation gives notice to terminate the
agreement at least six months before its scheduled expiration date. If for any
reason other than for cause the Corporation elects to terminate the employment
of Mr. Kogan or Mr. Cesan on any scheduled expiration date of his agreement
(other than the last such date), his employment will be deemed to have been
terminated by the Corporation without cause for purposes of the severance and
retirement benefits described below.
Under each agreement described above, if the executive's employment is
terminated (i) by reason of death or disability, (ii) by the Corporation without
cause, or (iii) by the executive for good reason or within a 30-day period
following the first anniversary of a Change of Control (as defined below), he is
generally entitled to (a) receive a lump sum equal to two times (I) his annual
base salary and (II) the highest of his annual bonus and profit-sharing awards
for the three preceding years, and (b) continue in the Corporation's welfare
benefit plans for three years. If the executive remains employed through the
first anniversary of a Change of Control, the executive is entitled to a special
bonus equal to (i) his annual base salary plus (ii) the highest of his annual
bonus and profit-sharing awards for the three preceding years. If his employment
terminates for any of the reasons enumerated above and the special bonus has not
been paid, then his severance payment is increased by an amount equal to the
special bonus. If his employment is terminated by reason of death or disability,
the lump sum payment will equal the present value of the death or disability
benefits payable under the Corporation's benefit plans and programs, if greater
than the total severance payment otherwise payable under the employment
agreement. A "Change of Control" is generally defined for purposes of these
agreements as (i) the acquisition of 20% or more of the Common Shares, (ii) a
change in a majority of the Board of Directors, unless approved by the incumbent
directors (other than as a result of a contested election), and (iii) certain
reorganizations, mergers, consolidations, liquidations or dissolutions. If any
payment or distribution by the Corporation to the executive is determined to be
subject to the excise tax imposed by Section 4999 of the Internal Revenue Code,
he is entitled to receive from the Corporation a payment on an after-tax basis
equal to the excise tax imposed. Additionally, each agreement provides for
retirement benefits as described in the Pension Plan Table on page 15. After
retirement, Mr. Kogan is entitled to an office and certain executive level
services, including transportation and security services.
Messrs. Connors and Wyszomierski each have an agreement that will trigger a
period of employment of three years or to age 65, if sooner, upon a Change of
Control or upon a termination of employment by the Corporation in anticipation
of a Change of Control. During the employment period, the executive is entitled
to receive an annual base salary at his highest rate during the twelve months
prior to the Change of Control and an annual bonus equal to his highest bonus
for the three years prior to the Change of Control. If his employment is
terminated during the employment period (i) by the Corporation other than for
cause or disability or (ii) by the executive for good reason or during a 30-day
period following the first anniversary of the Change of Control, he is entitled
to receive a lump sum equal to three times (a) his annual base salary plus (b)
his highest annual bonus during the preceding year and the three years prior to
the Change of Control plus (c) his highest profit-sharing award during the three
years prior to termination. However, if the executive will attain age 65 less
than three years from his date of termination, he will receive a proportionately
reduced amount. In the event of such a termination of employment, each executive
is also entitled to (i) receive in a lump sum a supplemental pension amount
based on three years of deemed employment after termination or to age 65, if
sooner, (ii) continue in the Corporation's welfare benefit plans for three years
or to age 65, if sooner, (iii) retiree medical coverage if termination is at or
after attainment of age 45, and (iv) supplemental pension payments without
reduction for early retirement if termination is at or after age 50. If any
payment or
12
15
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, he is
entitled to receive from the Corporation a payment on an after-tax basis equal
to the excise tax imposed.
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.
OPTION TABLES
The following tables provide information with respect to stock options
granted to or exercised by the named executive officers during Fiscal 2000 and
the fiscal year-end value of options held by such officers.
OPTION GRANTS IN LAST FISCAL YEAR
GRANT DATE
INDIVIDUAL GRANTS VALUE
---------------------------------------------------- ----------------
% OF TOTAL
NUMBER OPTIONS
OF GRANTED
SECURITIES TO
UNDERLYING EMPLOYEES GRANT DATE
OPTIONS IN EXERCISE EXPIRATION PRESENT
NAME GRANTED(a) FISCAL YEAR PRICE DATE VALUE(b)
- ---- ---------- --------------- -------- ---------- ----------------
Richard Jay Kogan..................... 287,000 2.0% $37.75 2/21/10 $5,283,108
260,000 1.8 45.04 9/24/10 5,262,400
Raul E. Cesan......................... 138,000 1.0 37.75 2/21/10 2,540,310
260,000 1.8 45.04 9/24/10 5,262,400
Hugh A. D'Andrade..................... 104,800 0.7 37.75 2/21/10 1,929,163
Joseph C. Connors..................... 67,200 0.5 37.75 2/21/10 1,237,020
260,000 1.8 45.04 9/24/10 5,262,400
Jack L. Wyszomierski.................. 67,200 0.5 37.75 2/21/10 1,237,020
260,000 1.8 45.04 9/24/10 5,262,400
- ---------------
(a) Options are for a term of 10 years. The options expiring on February 21,
2010 became exercisable after one year on February 23, 2001, except that
transferable options which were transferred became exercisable immediately
upon transfer. The options expiring on September 24, 2010 become exercisable
in three equal annual installments commencing on September 26, 2003. The
exercise price of the options is the market value of the Common Shares on
the date of grant. After the occurrence of a Change of Control, options
become exercisable and may be cashed out for a period of 60 days. Although
permitted under the Corporation's stock incentive plan, no standard stock
appreciation rights were granted in tandem with the options. The options
expiring on February 21, 2010 granted to Messrs. Kogan, Cesan, D'Andrade and
Connors are transferable in accordance with the terms of the plan.
(b) The valuation calculations are solely for purposes of compliance with the
rules and regulations promulgated under the Securities Exchange Act of 1934,
as amended, and are not intended to forecast possible future appreciation,
if any, of the Corporation's stock price. The grant date present value for
the options expiring on February 21, 2010 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, 2000 (1.21%);
volatility of the Common Shares based on monthly total returns for the three
years ended January 31, 2000 (32.67%); an annualized risk-free interest rate
of 6.55%; and an option term of 10 years. The grant date present value for
the options expiring on September 24, 2010 is derived by using the
Black-Scholes option pricing model with the following assumptions: the
average dividend yield for the three years ended August 31, 2000 (1.08%);
volatility of the Common Shares based on monthly total returns for the three
years ended August 31, 2000 (36.17%); an annualized risk-free interest rate
of 6.10%; 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 21, 2010, the equivalent value of the appreciation of
all Common Shares of the Corporation outstanding on the grant date of those
options would be approximately $27 billion, of
13
16
which the value of the named officers' options would be 0.05%. If the named
executive officers should realize the grant date values shown in the table
for the options expiring on September 24, 2010, the equivalent value of the
appreciation of all Common Shares of the Corporation outstanding on the
grant date of those options would be approximately $29 billion, of which the
named officers' options would be 0.07%. This valuation model was not
adjusted for risk of forfeiture or the vesting restrictions of the options
for the options expiring on February 21, 2010 which became exercisable after
one year, but was so adjusted for the options expiring on September 24, 2010
which become exercisable in three equal annual installments commencing on
the third anniversary of the grant date. This valuation model does not
necessarily represent the fair market value of individual options. 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
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT FY- OPTIONS AT FY-
END(a) END(a)(b)
SHARES --------------------------- ---------------------------
ACQUIRED
ON VALUE
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- ----------- -------------
Richard Jay Kogan.............. 304,000 $11,551,985 666,500 403,500 $12,502,062 $ 5,771,100
Raul E. Cesan.................. 36,280 1,689,944 714,760 746,000 20,971,836 22,554,600
Hugh A. D'Andrade.............. 235,600 8,035,815 252,200 0 3,171,075 0
Joseph C. Connors.............. 115,800 4,875,933 425,740 546,200 13,537,255 13,987,400
Jack L. Wyszomierski........... 193,200 6,884,571 138,000 567,200 1,566,450 14,386,400
- ---------------
(a) Table includes stock options which were transferred in accordance with the
terms of the Corporation's stock incentive plan. After transfer, certain of
these stock options were no longer beneficially owned (Mr. Kogan 173,500;
Mr. D'Andrade 144,800).
(b) Based on the closing price of Common Shares on the New York Stock Exchange
on December 31, 2000 of $56.75.
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17
PENSION PLAN TABLE
The approximate total annual benefits payable upon retirement at age 65 in
specified compensation and years of service classifications are shown in the
following table.
HIGHEST AVERAGE ANNUAL APPROXIMATE ANNUAL BENEFIT
COMPENSATION FOR ANY PERIOD --------------------------------------------------------------
OF 60 CONSECUTIVE MONTHS DURING 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
LAST 120 MONTHS OF EMPLOYMENT OF SERVICE OF SERVICE OF SERVICE OF SERVICE OF SERVICE
- ------------------------------------- ---------- ---------- ---------- ---------- ----------
$ 800,000............................ $ 280,000 $ 320,000 $ 360,000 $ 400,000 $ 440,000
1,000,000........................... 350,000 400,000 450,000 500,000 550,000
1,200,000........................... 420,000 480,000 540,000 600,000 660,000
1,600,000........................... 560,000 640,000 720,000 800,000 880,000
2,000,000........................... 700,000 800,000 900,000 1,000,000 1,100,000
2,200,000........................... 770,000 880,000 990,000 1,100,000 1,210,000
2,400,000........................... 840,000 960,000 1,080,000 1,200,000 1,320,000
2,600,000........................... 910,000 1,040,000 1,170,000 1,300,000 1,430,000
2,800,000........................... 980,000 1,120,000 1,260,000 1,400,000 1,540,000
3,000,000........................... 1,050,000 1,200,000 1,350,000 1,500,000 1,650,000
3,200,000........................... 1,120,000 1,280,000 1,440,000 1,600,000 1,760,000
3,400,000........................... 1,190,000 1,360,000 1,530,000 1,700,000 1,870,000
3,600,000........................... 1,260,000 1,440,000 1,620,000 1,800,000 1,980,000
The table above reflects benefits on a life annuity basis and amounts
payable are not subject to Social Security or other offset. Retirement benefits
under the Corporation's nonqualified plans are payable on an annuity basis or on
a present value lump sum basis at the election of the executive. Covered
compensation consists of salary and bonus which, for the named executive
officers, is shown in the Summary Compensation Table on page 11. The credited
years of service as of December 31, 2000 are: Mr. Cesan (23 years); Mr. Connors
(23 years); Mr. D'Andrade (19 years); Mr. Kogan (18 years); Mr. Wyszomierski (17
years).
Under their employment agreements referred to on page 12, each of Messrs.
Kogan and Cesan is entitled to receive a minimum annual benefit of 55% of final
average annual compensation upon retirement at or after age 62, and his wife is
entitled to a minimum annual survivor's benefit of 45% of such final average
annual compensation after his death. If either Mr. Kogan's or Mr. Cesan's
employment is terminated at any time (a) by the Corporation without cause or for
disability, or (b) by him for good reason or within the 30-day period following
the first anniversary of a Change of Control, he would be entitled to the same
minimum annual pension and his wife would be entitled to the same minimum annual
survivor's benefit as though he had retired at or after age 62. In the event of
the death of Mr. Kogan or Mr. Cesan during the term of his employment agreement,
his surviving spouse will be entitled to receive a minimum annual survivor's
benefit of 45% of his final average annual compensation. Retirement benefits
provided to Messrs. Kogan and Cesan under their employment agreements are
payable on an annuity basis or on a present value lump sum basis at the election
of the executive. Mr. D'Andrade retired, effective December 31, 2000. Pursuant
to a similar employment agreement, Mr. D'Andrade elected to receive his
retirement benefits under the nonqualified plans and his employment agreement on
a present value lump sum basis.
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18
PERFORMANCE GRAPH
COMPARISON OF CUMULATIVE TOTAL RETURN
FOR THE FIVE YEARS ENDED DECEMBER 31, 2000
[GRAPH TO COME]
SCHERING-PLOUGH CORP. COMPOSITE PEER GROUP S&P 500 INDEX
--------------------- -------------------- -------------
1995 100 100 100
1996 121 128 122
1997 235 196 163
1998 423 284 209
1999 327 246 253
2000 444 334 230
The graph above assumes a $100 investment on December 31, 1995, and
reinvestment of all dividends, in each of the Corporation's Common Shares, the
S&P 500 Index, and a composite peer group of the following drug and health care
companies: Abbott Laboratories, American Home Products Corporation,
Bristol-Myers Squibb Company, Johnson & Johnson, Eli Lilly and Company, Merck &
Co., Inc., Pfizer Inc. and Pharmacia Corporation. Pharmacia Corporation was
created by the merger of Pharmacia & Upjohn, Inc. and Monsanto Company in March
2000. Warner-Lambert Company, which was included in the peer group in prior
years, merged with Pfizer Inc. in June 2000.
16
19
EXECUTIVE COMPENSATION AND ORGANIZATION COMMITTEE REPORT
PRINCIPLES AND PROGRAM
The Corporation's executive compensation program is designed to serve the
Corporation's broader strategic goals of profitable growth and the creation of
long-term shareholder value. The program is fundamentally a pay for performance
program designed to:
- ensure the Corporation's ability to attract and retain superior
executives;
- strongly align the interests of the Corporation's executives with those
of its shareholders; and
- provide a compensation package that balances individual contributions and
overall business results.
The Executive Compensation and Organization Committee is responsible for
setting the Corporation's executive compensation policy. The Committee consists
of six directors who are not employees of the Corporation and are not eligible
to participate in the Corporation's executive compensation programs.
In determining executive compensation, the Committee evaluates both the
total compensation package and its individual elements. As part of its review,
the Committee considers compensation data for companies which represent direct
competitors for executive talent. The data, which is developed by established,
independent compensation consultants, includes information on those drug and
health care companies within the peer index used in the performance graph in the
proxy statement (the "Peer Group") and other pharmaceutical and consumer
products companies, including some for which public information is not
available. The selection of the Corporation's principal compensation consultant
is ratified annually by the Committee.
TOTAL COMPENSATION
An executive's total compensation consists of three elements: base salary,
an annual incentive bonus, and long-term stock-based compensation (stock options
and restricted stock awards).
BASE SALARY
The Committee assesses a number of factors in fixing the salary of the
executive officers (including those executive officers named in the proxy
statement). Those factors typically include: the responsibility of the
individual's position, the individual's performance, the Corporation's overall
financial performance, certain non-financial indicators of corporate
performance, and the business and inflationary climate. In the case of executive
officers with responsibility for a particular business unit, the Committee also
considers the 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 and development) or
managerial performance (such as succession planning, resource allocation and
social responsibility). The evaluation of an executive's non-financial
indicators is reflected in his performance rating.
Each year, the Committee reviews with the Chief Executive Officer his
performance ratings of the other executive officers and evaluates compensation
levels against levels at the competitor companies. Established, independent
compensation consultants are used to confirm that salary levels are within the
range of those offered by the competitor companies. To ensure that compensation
policy for executive officers is consistent with overall Corporation results and
executive compensation strategies, the Committee reviews the compensation
awarded to the approximately 90 most highly compensated executives.
The Committee targets salaries of the Corporation's executive officers to
fall within a range above the median but below the high end of the salary levels
at the competitor companies, except that the salaries of Messrs. Kogan and Cesan
for 2000 were set at the median of the range. In fixing the salaries of the
executive officers for 2000, the Committee considered the Corporation's overall
financial performance and the non-financial indicators reflected in individual
performance ratings, although no particular weighting was assigned to any
specific aspect of corporate performance.
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20
ANNUAL INCENTIVE BONUS
The Executive Incentive Plan, the Corporation's bonus plan, allows the
Committee to 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 bonus that the
Committee may award under the Executive Incentive Plan to these executive
officers for any year is determined by a formula established by the Committee
which may incorporate any one or more of the following performance goals:
pre-tax earnings, earnings per share growth, or return on equity. The Committee
may, in its discretion, reduce the amount of the incentive bonus award
determined under the program formula. However, the Committee may not increase
the amount of any incentive bonus award determined under the program formula. In
no event may an incentive bonus award for any year to any covered executive
officer exceed the maximum award specified in the program.
For 2000, 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
2000 was the Corporation's income before income taxes in the Corporation's 2000
operating plan as approved by the Committee. The performance goal for earnings
per share growth for 2000 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 2000
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 2000. Actual
earnings per share, return on equity and pre-tax earnings were based upon
amounts reported in the Corporation's financial statements in its Annual Report
to shareholders, as adjusted for accounting changes and other special items
identified by the Committee and certified by the Corporation's independent
auditors.
In 2000, the Corporation met or exceeded each of the pre-tax earnings,
earnings per share growth, and return on equity goals. Pre-tax earnings from
continuing operations increased by 14%, diluted earnings per share from
continuing operations grew by 15%, and return on equity equaled 43%. The
Committee has certified that the performance goals and the other material terms
of the executive incentive bonus program were satisfied for 2000. In accordance
with the program formula the cash awards of all of the covered executive
officers (other than for Messrs. Kogan and Cesan, which are described in
footnote (c) to the Summary Compensation Table on page 11) were greater than
their target awards, because all of the performance goals were met or exceeded.
The amount of cash awards to the executive officers who are not covered by
the executive incentive bonus program also bears a significant relationship to
corporate performance. The Committee awards bonuses to these officers based
principally on the same performance goals used in the executive incentive bonus
program, with the pre-tax earnings goal assigned a weighting of 35%, and the
earnings per share growth and return on equity goals each assigned a 20%
weighting, except for one officer whose goals include his business unit's
performance. In awarding a bonus to these executive officers, the Committee also
considers the non-financial factors reflected in an individual's performance
rating. However, those non-financial factors cannot constitute the basis for
more than 25% of the target bonus award.
STOCK-BASED COMPENSATION
Under the 1997 Stock Incentive Plan, which was approved by shareholders,
the Committee may grant stock options and restricted stock awards to the
executive officers and other key employees. The Committee believes that the
Corporation's long-term stock-based compensation aligns the interest of
executive officers with that of the shareholders, as any appreciation in the
price of the stock will benefit all shareholders commensurately. This is
particularly true in the case of the restricted stock awards, because they are
distributed over a five-year period. Also, the five-year distribution period for
the restricted stock awards and the minimum three-year vesting period for
certain stock options serve as an inducement for the officers to remain with the
Corporation.
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21
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 that of Messrs. Kogan and Cesan, 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 2000, the stock-based compensation levels of Messrs. Kogan and
Cesan were set by the Committee in its discretion taking into consideration the
factors described below under "Compensation of the Chairman and Chief Executive
Officer for 2000" 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 during the three years ended December 31, 2000
fell within the target range.
In addition to regular annual stock option grants in 2000, the Committee
granted retention stock options to certain executive officers to enhance the
Corporation's ability to retain critical talent and to provide a competitive
advantage in the marketplace.
STOCK OPTIONS -- The Committee relies on a valuation of stock options
provided by independent compensation consultants using the Black-Scholes
methodology as a basis for valuation. Stock options are awarded with an exercise
price equal to the market price at the time of grant. Regular annual options are
generally first exercisable after one year and generally are exercisable for a
term of ten years. Retention options generally become exercisable in three equal
annual installments beginning on the third anniversary of the grant date and
generally are exercisable for a term of ten years. The actual value of any
options granted will depend entirely on the extent to which the Corporation's
Common Shares have appreciated in value at the time the options are exercised.
RESTRICTED STOCK AWARDS -- Under the 1997 Stock Incentive Plan,
shareholders approved performance goals for restricted stock awards for certain
senior executive officers, including the Chief Executive Officer and the other
executive officers named in the proxy statement. The vesting of the restricted
stock award to a covered executive officer is subject to the attainment of the
performance goal for earnings per share growth or return on equity or pre-tax
earnings described above under "Annual Incentive Bonus." If none of the
performance goals are met then the vesting of the restricted stock award to a
covered executive is based on an average of the degree to which the three
performance goals are achieved. The awards are assigned a dollar value based on
the share price at the time the award is made. Vested award shares are
distributable ratably over five years. The Committee has certified that all of
the performance goals were satisfied for 2000.
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.
COMPENSATION OF THE CHAIRMAN AND CHIEF EXECUTIVE OFFICER FOR 2000
In setting Mr. Kogan's base salary, the Committee evaluates the same
factors which it considers in establishing the salary levels of the executive
officers generally, as well as the limitations of Section 162(m) of the Internal
Revenue Code relating to deductibility of certain executive compensation. In
addition, the Committee considers the status of Mr. Kogan as the Corporation's
most senior officer and the important role he has in achieving overall corporate
goals. In granting stock options and restricted stock awards to Mr. Kogan, the
Committee sets no fixed guideline, but takes into consideration his total
compensation package and competitive compensation data, the long-term nature of
stock options and restricted stock awards, overall corporate financial
performance, his role in attaining those results, and the number of options and
stock awards previously granted, although no particular weighting is assigned to
any factor.
Mr. Kogan was awarded a base salary of $1,338,000 for 2000. The base salary
awarded to Mr. Kogan was set at the median of comparable positions at the
competitor companies, while establishing an overall compensation structure tied
to corporate performance.
19
22
Mr. Kogan is subject to a long-term employment contract. The Committee
believes that given Mr. Kogan's record, his status in the industry, and his
experience and leadership, his contract significantly benefits the Corporation
and the shareholders by securing Mr. Kogan's services as Chairman of the Board
and Chief Executive Officer for the future and by encouraging him to focus on
the long-term strategic interests of the Corporation.
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 and the four other most highly compensated executive officers.
Qualifying performance-based compensation is not subject to the deduction limit
if certain requirements are met. The Committee has structured the annual
incentive bonus, deferred compensation and long-term equity-based compensation
programs for its most senior executives so that such bonuses and restricted
stock awards should constitute qualifying performance-based compensation under
Section 162(m). The Committee also recognizes that unanticipated future events,
such as a Change of Control of the Corporation or a change in executive
personnel, could result in a disallowance of compensation deductions under
Section 162(m). Moreover, the Committee may from time to time award compensation
that is non-deductible under Section 162(m) when, in the exercise of the
Committee's business judgment, such award would be in the best interests of the
Corporation.
EXECUTIVE COMPENSATION AND
ORGANIZATION COMMITTEE
James Wood, Chairman
Hans W. Becherer
Donald L. Miller
H. Barclay Morley
Richard de J. Osborne
Patricia F. Russo
20
23
FINANCE, COMPLIANCE AND AUDIT REVIEW COMMITTEE REPORT
The Finance, Compliance and Audit Review Committee of the Corporation's
Board of Directors is comprised of six independent directors and operates under
a written charter adopted by the Board and attached hereto as Exhibit A. The
Committee is appointed by the Board to assist the Board in its oversight
function by monitoring, among other things, the Corporation's financial
reporting process and the independence and performance of the Corporation's
independent auditors and internal auditing department. It is the responsibility
of executive management of the Corporation to prepare financial statements in
accordance with generally accepted accounting principles and of the
Corporation's independent auditors to audit those financial statements.
In this context, the Committee has met and held discussions with management
and the independent auditors. Management represented to the Committee that the
Corporation's consolidated financial statements were prepared in accordance with
generally accepted accounting principles, and the Committee has reviewed and
discussed the consolidated financial statements with management and the
independent auditors. The Committee discussed with the independent auditors
matters required to be discussed by Statement on Auditing Standards No. 61
(Communication With Audit Committees).
In addition, the Committee has discussed with the independent auditors, the
auditor's independence from the Corporation and its management, including the
matters in the written disclosures required by the Independence Standards Board
Standard No. 1 (Independence Discussions With Audit Committees). Further, the
Committee has considered whether the provision of non-audit services by the
independent auditors is compatible with maintaining the auditor's independence.
Further, the Committee meets with the independent auditors, with and
without management present, to discuss the results of their examinations, the
evaluations of the Corporation's internal controls, and the overall quality of
the Corporation's financial reporting.
Based on the reviews and discussions referred to above, the Committee
recommended to the Board that the audited financial statements be included in
the Company's Annual Report on Form 10-K for the year ended December 31, 2000,
for filing with the Securities and Exchange Commission.
Each of the members of the Finance, Compliance and Audit Review Committee
is independent as defined under the listing standards of the New York Stock
Exchange.
FINANCE, COMPLIANCE AND
AUDIT REVIEW COMMITTEE
Richard de J. Osborne, Chairman
Hans W. Becherer
Regina E. Herzlinger
H. Barclay Morley
Robert F. W. van Oordt
Arthur F. Weinbach
21
24
DESIGNATION OF AUDITORS
Upon the recommendation of the Finance, Compliance and Audit Review
Committee, the Board of Directors has designated Deloitte & Touche LLP to audit
the books and accounts of the Corporation for the year ending December 31, 2001,
and will offer a resolution at the meeting to ratify the designation. Deloitte &
Touche LLP has been the principal auditor of the Corporation since the
Corporation was formed in 1970. Representatives of Deloitte & Touche LLP will be
present at the meeting to respond to appropriate questions, and they will have
an opportunity, if they desire, to make a statement.
Aggregate fees billed to the Corporation for the year ended December 31,
2000 by Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu, and
their respective affiliates, are as follows:
Audit Fees......................... $2,780,300
----------
Financial Information Systems
Design and Implementation Fees... $1,351,400
----------
All Other Fees..................... $1,635,200(a)
----------
- ---------------
(a) Includes fees for tax consulting, tax return preparation and other non-audit
services.
SHAREHOLDER PROPOSAL CONCERNING PHARMACEUTICAL PRICING
The Society of the Holy Child Jesus, 460 Shadeland Avenue, Drexel Hill,
Pennsylvania 19026, has informed the Corporation of its intention to present the
following proposal at the Annual Meeting. The proposal is also being
co-sponsored by nine other shareholders: The Sisters of St. Joseph of Peace,
3043 Fourth Street, N.E., Washington, D.C. 20017; The Sisters of Charity New
York, Mount St. Vincent-on-Hudson, 6301 Riverdale Avenue, Bronx, New York
10471-1093; Adrian Dominican Sisters, 1257 East Siena Heights Drive, Adrian,
Michigan 49221-1793; The Missionary Oblates of Mary Immaculate, 391 Michigan
Avenue, NE, Washington, DC 20017; The Holy Cross, Southern Province, 2111
Brackenridge Street, Austin, Texas 78704-4322; Mercy Consolidated Asset
Management Program, 20 Washington Square North, New York, New York 10011;
Catholic Healthcare West, 1700 Montgomery Street, Suite 300, San Francisco,
California 94111-1024; The Sisters of St. Francis of Philadelphia, 609 South
Convent Road, Aston, Pennsylvania 19014-1207; and The Sisters of Notre Dame de
Namur, 14800 Bohlman Road, Saratoga, CA 95070-6399. Each of the proponents is
the beneficial owner of at least $2,000 of Common Shares.
WHEREAS:
Important as prescription drugs are, not everyone has access to them.
Millions of Americans have inadequate or no insurance coverage for drugs;
Most people without drug coverage purchase their needed drugs at a retail
pharmacy;
A Report prepared for the President by the Department of Health and Human
Services (Prescription Drug Coverage, Spending, Utilization, and Prices,
April 2000) found that:
- Individuals without drug coverage pay a higher price at the retail
pharmacy than the total price paid on behalf of those with drug coverage.
- In 1999, excluding the effects of rebates, the typical cash customer paid
nearly 15% more than the customer with third-party coverage. For a
quarter of the most common drugs, the price difference between cash and
third parties was even higher -- over 20%.
- For the most commonly prescribed drugs, the price difference between cash
customers and those with third-party coverage grew substantially larger
between 1996 and 1999.
This same Report found that the markup added by the wholesaler, after
purchase from the manufacturer, is "generally small, perhaps 2% - 4%."
(ch.3, p.101);
22
25
The literature cited in the Report suggests that pharmacy margins have been
falling in recent years (p.103);
Pharmaceutical manufacturers spent $1.9 billion on advertising in
1999 -- double the amount spent in 1997 (Business Week, May 22, 2000);
RESOLVED: Shareholders request the Board of Directors to:
1. Create and implement a policy of price restraint on prescription drugs,
utilizing a combination of approaches to keep drug prices at reasonable
levels.
2. Report to shareholders by September, 2001 on changes in policies and
pricing procedures for prescription drugs (withholding any competitive
information, and at a reasonable cost).
SUPPORTING STATEMENT: We suggest that the policy include a restraint on each
individual drug and that it not be based on averages which can mask tremendous
disparities: a low price increase for one compound and a high price increase for
another; one price for a "favored customer" (usually low) and another for the
retail customer (usually high).
We understand the need for ongoing research and appreciate the role that
our company has played in the development of new medicines. We are also
aware that the cost of research is only one determinant for the final price
of a drug. Advertising is another significant company expenditure. Thus, we
believe that price restraint can be achieved without sacrificing necessary
research efforts.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE AGAINST THIS
PROPOSAL.
The Corporation is committed to responsible drug pricing and finding
mechanisms to ensure access to necessary medicines for uninsured and
underinsured patients. The Corporation also strongly supports modernizing the
Medicare program so that seniors and the disabled will have access to an
outpatient drug benefit administered through the private sector. The Corporation
has and continues to restrain price increases to various government purchasers
such as the Veterans Administration and the Public Health Service. The
Corporation voluntarily participates in numerous state-run programs benefitting
needy senior citizens. The Corporation also has a long-standing policy of
providing life-saving prescription drugs free of charge to financially needy
patients as well as working with patients and physicians to assist in
determining patient eligibility for other forms of public and private financial
assistance. In addition, for each of the past three years, the Corporation has
held its average U.S. net prescription drug price increases below the increase
in the inflation rate.
Your Board of Directors believes that the Corporation's pricing practices
are reasonable and that this shareholder proposal raises potential competitive
problems. Publication of the requested report on policies and pricing procedures
could put the Corporation at a disadvantage in the highly competitive markets in
which it operates.
Furthermore, your Board of Directors believes that it would be
inappropriate and contrary to the best interests of the Corporation and its
shareholders to create the specific policy required by this proposal. By
adopting such a policy, the Board would dispense with prudent business practices
that the Corporation employs in reaching decisions on prescription drug prices,
including consultation with clinical and marketing professionals and
consideration of such issues as cost of research and development, patient
affordability and potential avoidability of hospitalization and other costs,
potential competition, discounts, rebates and price reductions available to
governmental and private purchasers, added value a product brings to quality of
life, cost of goods, and ensuring a fair return to shareholders.
New pharmaceuticals not only can save more lives and improve patients'
well-being, they can be the most cost-effective component of a health care
system. The costs and risks of developing pharmaceuticals are so high -- the
Corporation invested $1.333 billion in research and development in 2000
alone -- that the artificial pricing mechanism suggested by this shareholder
proposal could diminish available investment funds and act as a disincentive to
the Corporation to invest in breakthrough-medicine research.
23
26
OTHER BUSINESS
The By-laws of the Corporation provide a formal procedure for bringing
business before the Annual Meeting. A shareholder proposing to present a matter
before the Annual Meeting is required to deliver to the Secretary of the
Corporation, not less than 90 days nor more than 120 days prior to the first
anniversary of the preceding year's Annual Meeting (or in the event that the
date of the Annual Meeting is more than 30 days before or more than 60 days
after such anniversary date, not earlier than the 120th day prior to the Annual
Meeting and not later than the later of the 90th day prior to the Annual Meeting
or the 10th day following the day on which public announcement of the date of
such meeting is first made by the Corporation), a notice with a brief
description of the business desired to be brought, the reasons for conducting
such business, the name and address of the shareholder and the number of shares
of the Corporation's stock the shareholder beneficially owns, and any material
interest of the shareholder in such business. If these procedures are not
complied with, the proposed business will not be transacted at the Annual
Meeting. Such By-law provisions are not intended to affect any rights of
shareholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
Pursuant to Rule 14a-4 under the Exchange Act, if a shareholder notifies
the Corporation after January 24, 2002 of an intent to present a proposal at the
Corporation's 2002 Annual Meeting (and for any reason the proposal is voted upon
at that Annual Meeting), the Corporation's proxy holders will have the right to
exercise discretionary voting authority with respect to the proposal, if
presented at the meeting, without including information regarding the proposal
in its proxy materials.
The Board of Directors knows of no other business which will be presented
at the meeting. If, however, other matters are properly presented, the persons
named in the enclosed proxy will vote the shares represented thereby in
accordance with their best judgment.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Richard de J. Osborne, a director, reported a purchase of one Common Share
on March 1, 1991, that was previously unreported. Due to subsequent stock
splits, the total unreported holdings, disclosed in 2000, was eight Common
Shares.
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.
2002 ANNUAL MEETING OF SHAREHOLDERS
If any shareholder intends to present a proposal for consideration at the
2002 Annual Meeting of Shareholders, such proposal must be received by the
Corporation not later than November 12, 2001 for inclusion, pursuant to Rule
14a-8 under the Exchange Act, in the Corporation's proxy statement for such
meeting. Such proposals also will need to comply with Securities and Exchange
Commission regulations regarding the inclusion of shareholder proposals in
Corporation-sponsored proxy materials.
24
27
EXHIBIT A
FINANCE, COMPLIANCE AND AUDIT REVIEW COMMITTEE CHARTER
PURPOSE
The Committee is appointed by the Board of Directors to assist the Board in
its oversight function by monitoring:
- The Company's financial reporting process.
- The independence and performance of the Company's independent auditors
and internal auditing department.
- The 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 Company's 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. Likewise, while
the Committee shall attempt in good faith to assure adequate compliance systems
exist, it is not the responsibility of the Committee to assure compliance with
laws or the Company's Business Conduct Policy.
MEMBERSHIP REQUIREMENTS
The Committee shall be comprised of five or more directors as determined
from time to time by the Board, and the Committee's composition shall meet the
independence and experience requirements of the New York Stock Exchange.
MEETINGS
The Committee shall meet at least four times annually, or more frequently
as it or the Chair may determine necessary, to comply with its responsibilities
as set forth in this Charter. The Committee may meet with management, the
outside auditors and others in separate private sessions to discuss any matter
that the Committee, management, the outside auditors or such other persons
believe should be discussed privately.
OUTSIDE AUDITOR
The outside auditor for the Company is ultimately accountable to the Board
and Committee. The Committee and the Board have the ultimate authority and
responsibility to select, evaluate and, where appropriate, replace the outside
auditor.
RESPONSIBILITIES
In carrying out its duties and responsibilities, 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 duties and
responsibilities, the following should be considered within the authority of the
Committee:
- Recommend Outside Auditors: Propose to the Board annually the appointment
of the Company's outside auditors.
- Review Independence of Outside Auditors: Review and discuss with the
outside 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 Company's
outside auditors.
A-1
28
- Review Audit Plan: Review with the outside auditors their plans for, and
the scope of, their annual audit.
- Conduct of Audit: Discuss with the outside auditors the matters required
to be discussed by Statement on Auditing Standards No. 61 relating to the
conduct of the audit.
- Review Audit Results: Review with the outside 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.
- Review Annual Financial Statements: Review with management and the
outside auditors the annual financial statements of the Company to be
included in the Annual Report on Form 10-K prior to filing.
- Confirm Interim Financial Statements Review: Confirm that the interim
financial statements of the Company included in the Quarterly Reports on
Form 10-Q have been reviewed by the outside auditors.
- Review Internal Audit Program: Review with the senior internal auditing
executive the plans for and the scope of the internal auditing department
activities and review annually the results of the audit activities.
- Review Systems of Internal Accounting Controls: Review with management
and the outside auditors the adequacy of the Company's internal
accounting controls that could significantly affect the Company's
financial statements.
- Securities Exchange Act: Obtain assurance from the outside auditor that
Section 10A of the Securities Exchange Act has not been implicated.
- Review Litigation Activities: Review with the Company's General Counsel
legal matters that may have a material impact on the financial statements
and any material reports or inquiries received from governmental
agencies.
- Review Compliance Activities: Review the Corporation's program to monitor
compliance with the Corporation's Business Conduct Policy, laws and
regulations, and meet periodically with the Corporation's management and
General Counsel to discuss compliance.
- Review Charter: Review and reassess the adequacy of this Charter annually
and submit it to the Board for approval.
- Prepare Proxy Statement Report: Prepare the report required by the rules
of the Securities and Exchange Commission to be included in the Company's
annual proxy statement.
- Review Other Matters: Review such other matters in relation to the
accounting, auditing, financial reporting and 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.
- Board Reports: Report its activities to the Board in such manner and at
such times as it deems appropriate.
A-2
29
[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 offices of the Corporation, Galloping Hill Road, Kenilworth, New
Jersey, on Tuesday, April 24, 2001 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 12, 2001
DETACH PROXY CARD HERE
[DOWN ARROW] [DOWN ARROW]
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 24, 2001. 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, and AGAINST item 3.
------------------------------------------
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 24,
2001, 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. 10203-3000
30
[SCHERING-PLOUGH LOGO] YOUR VOTE IS IMPORTANT
VOTE BY INTERNET/TELEPHONE
24 HOURS A DAY, 7 DAYS A WEEK
INTERNET TELEPHONE MAIL
-------- --------- ----
http://proxy.shareholder.com/sgp 800-650-0563
- - Go to the website address listed - Use any touch-tone telephone. - Mark, sign and date your proxy
above. - Have your proxy card ready. card.
- - Have your proxy card ready. OR - Enter your Control Number OR - Detach your proxy card.
- - Enter your Control Number located located in the box below. - Return your proxy card in the
in the box below. - Follow the simple recorded prepaid envelope provided.
- - Follow the simple instructions that instructions.
appear on your computer screen.
Your Internet or telephone vote authorizes the named proxies to vote your shares
in the same manner as if you marked, signed and returned your proxy card, and
there is no need for you to mail back your proxy.
CALL TOLL-FREE TO VOTE
1-800-650-0563
- -------------------------
CONTROL NUMBER FOR
INTERNET/TELEPHONE VOTING
- -------------------------
THE INTERNET AND TELEPHONE VOTING FACILITIES WILL CLOSE
AT 5:00 P.M. E.S.T. ON APRIL 23, 2001.
[DOWN ARROW] PLEASE DETACH PROXY CARD HERE [DOWN ARROW]
- --------------------------------------------------------------------------------
[ ]
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS 1 AND 2
- --------------------------------------------------------------------------------
1. Election of Directors: Nominees for 3-year terms: 1 - Richard Jay Kogan;
2 - David H. Komansky; 3 - Eugene R. McGrath; 4 - Donald L. Miller;
5 - Richard de J. Osborne.
FOR all WITHHOLD AUTHORITY EXCEPTIONS
nominees [ ] to vote for all nominees [ ] [ ]
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK
THE "EXCEPTIONS" BOX AND WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED
BELOW.)
*Exceptions
------------------------------------------------------------------
2. Ratification of Designation of Independent Auditors
FOR [ ] AGAINST [ ] ABSTAIN [ ]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST" ITEM 3
- --------------------------------------------------------------------------------
3. Shareholder Proposal Concerning Pharmaceutical Pricing.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
- --------------------------------------------------------------------------------
Mark if you: [ ] Have an address change and/or comments
THIS PROXY WILL BE VOTED FOR ITEMS 1 AND 2 AND AGAINST 3, UNLESS INSTRUCTIONS
TO THE CONTRARY ARE INDICATED.
(Please sign exactly as name or names appear hereon. Full title of one signing
in representative capacity should be clearly designated after signature. Names
of all joint holders should be written even if signed by only one.)
Dated: , 2001
---------------------------------------------------------------------
- --------------------------------------------------------------------------------
Signature
- --------------------------------------------------------------------------------
Signature
VOTES MUST BE INDICATED
(X) IN BLACK OR BLUE INK. X
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
PLEASE DETACH HERE
YOU MUST DETACH THIS PORTION OF THE PROXY CARD
[DOWN ARROW] BEFORE RETURNING IT IN THE ENCLOSED ENVELOPE [DOWN ARROW]
- --------------------------------------------------------------------------------
31
[SCHERING-PLOUGH LOGO]
SCHERING-PLOUGH CORPORATION
2000 Galloping Hill Road
Kenilworth, New Jersey 07033
ADMISSION TICKET
2001 ANNUAL MEETING OF SHAREHOLDERS
Dear Shareholder:
The Annual Meeting of Shareholders of Schering-Plough Corporation will be
held at the offices of the Corporation, Galloping Hill Road, Kenilworth, New
Jersey, on Tuesday, April 24, 2001 at 2:00 p.m.
To be sure that your vote is counted, we urge you to complete and sign the
proxy card below, detach it from this letter, and return it in the prepaid
envelope enclosed in this package. Alternatively, you can vote by Internet or
telephone by following the instructions on the opposite side of this proxy
card. The giving of such proxy does not affect your right to vote in person if
you attend the meeting. Your prompt reply will aid the Corporation in reducing
the expense of additional proxy solicitation.
Admission to the meeting will be by ticket only. If you are a stockholder
of record and plan to attend, please detach and bring this letter to the
meeting as an admission ticket. Admission will be on a first come, first served
basis.
Joseph J. LaRosa
Secretary
March 12, 2001
DETACH PROXY CARD HERE IF YOU ARE NOT
VOTING BY INTERNET OR TELEPHONE
SCHERING-PLOUGH CORPORATION--PROXY
SOLICITED BY BOARD OF DIRECTORS
FOR
ANNUAL MEETING OF SHAREHOLDERS--APRIL 24, 2001
The undersigned appoints Raul E. Cesan, Joseph C. Connors and Richard Jay
Kogan, or any one or more of them, attorneys and proxies with power of
substitution to vote all of the Common Shares of SCHERING-PLOUGH CORPORATION
standing in the name of the undersigned at the Annual Meeting of Shareholders
on April 24, 2001, and at all adjournments or postponements thereof, upon the
matters set forth in the Notice and Proxy Statement of said meeting, receipt of
which is acknowledged.
The shares represented by this proxy will be voted as directed by the
Shareholder. IF YOU WISH TO VOTE IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE
BOARD OF DIRECTORS, YOU MAY SIGN ON THE REVERSE SIDE AND MAIL IN THE ENCLOSED
ENVELOPE. If no direction is given, shares will be voted FOR items 1 and 2, and
AGAINST item 3. Specific choices may be made on the reverse side.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
SCHERING-PLOUGH CORPORATION
P.O. BOX 11371
NEW YORK, N.Y. 10203-0371
32
[SCHERING-PLOUGH LOGO] YOUR VOTE IS IMPORTANT
VOTE BY INTERNET/TELEPHONE
24 HOURS A DAY, 7 DAYS A WEEK
INTERNET TELEPHONE MAIL
-------- --------- ----
http://proxy.shareholder.com/sgp 800-650-0563
- - Go to the website address listed - Use any touch-tone telephone. - Mark, sign and date your proxy
above. - Have your proxy card ready. card.
- - Have your proxy card ready. OR - Enter your Control Number OR - Detach your proxy card.
- - Enter your Control Number located located in the box below. - Return your proxy card in the
in the box below. - Follow the simple recorded prepaid envelope provided.
- - Follow the simple instructions that instructions.
appear on your computer screen.
Your Internet or telephone vote authorizes the named proxies to vote your shares
in the same manner as if you marked, signed and returned your proxy card, and
there is no need for you to mail back your proxy.
CALL TOLL-FREE TO VOTE
1-800-650-0563
- -------------------------
CONTROL NUMBER FOR
INTERNET/TELEPHONE VOTING
- -------------------------
THE INTERNET AND TELEPHONE VOTING FACILITIES WILL CLOSE
AT 5:00 P.M. E.S.T. ON APRIL 23, 2001.
[DOWN ARROW] PLEASE DETACH PROXY CARD HERE. [DOWN ARROW]
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[ ]
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS 1 AND 2
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1. Election of Directors: Nominees for 3-year terms: 1 - Richard Jay Kogan;
2 - David H. Komansky; 3 - Eugene R. McGrath; 4 - Donald L. Miller;
5 - Richard de J. Osborne.
FOR all WITHHOLD AUTHORITY EXCEPTIONS
nominees [ ] to vote for all nominees [ ] [ ]
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK
THE "EXCEPTIONS" BOX AND WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED
BELOW.)
*Exceptions
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2. Ratification of Designation of Independent Auditors
FOR [ ] AGAINST [ ] ABSTAIN [ ]
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST" ITEM 3
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3. Shareholder Proposal Concerning Pharmaceutical Pricing.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
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Mark if you: [ ] Have an address change and/or comments
THIS PROXY WILL BE VOTED FOR ITEMS 1 AND 2 AND AGAINST 3, UNLESS INSTRUCTIONS
TO THE CONTRARY ARE INDICATED.
(Please sign exactly as name or names appear hereon. Full title of one signing
in representative capacity should be clearly designated after signature. Names
of all joint holders should be written even if signed by only one.)
Dated: , 2001
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Signature
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Signature
VOTES MUST BE INDICATED
(X) IN BLACK OR BLUE INK. X
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
PLEASE DETACH HERE
YOU MUST DETACH THIS PORTION OF THE PROXY CARD
[DOWN ARROW] BEFORE RETURNING IT IN THE ENCLOSED ENVELOPE [DOWN ARROW]
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