SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for the Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
SCHERING-PLOUGH CORPORATION
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(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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(NAME OF PERSON(S) FILING PROXY STATEMENT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how
it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
Check box if any part of the fee is offset as provided by
[ ] Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or Schedule
and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[SCHERING-PLOUGH LOGO]
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A MESSAGE FROM THE CEO
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Dear Fellow Shareholder,
As I write to you, we are moving through the Stabilize and Repair phases of
our Action Agenda -- the Action Agenda to transform Schering-Plough into a new
kind of health care company. And we anticipate entering the Turnaround phase of
that Agenda later this year.
We have come a very long way since we began this change process in April of
2003. We have set a clear strategy for building a company that will deliver
long-term high performance, to all of our stakeholders. Through the strength of
our people, under the leadership of a strong new management team, and with a lot
of hard work, we are well down the road of transformational change that we
charted some two years ago. Moreover, we are making this progress in the face of
the most challenging competitive and societal environment in the history of our
industry.
In this new environment, we at Schering-Plough are striving each day to
earn the trust of all of our stakeholders -- beginning with the patients and
health care providers whom we serve. We are placing quality, compliance and
business integrity at the center of our work. We seek to listen and to learn
from others -- and constantly to improve. We know we do special work, and we
have a special duty. We believe that by seeking to do what is right for the
patient, we will also deliver long-term high performance to you, our owners.
As we continue to build Schering-Plough into a leading global health care
company, I want to take this opportunity to thank you for your continuing
commitment. You can be assured that the people of the New Schering-Plough have a
passion for our work and a determination to execute with excellence. We are
doing our best to reward your faith.
Sincerely,
/s/ Fred Hassan
Kenilworth, New Jersey
March 14, 2005
[SCHERING-PLOUGH LOGO]
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
APRIL 26, 2005
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The Annual Meeting of Shareholders of Schering-Plough Corporation
("Schering-Plough" or the "Company") will be held at The Crowne Plaza Cabana
Palo Alto, 4290 El Camino Real, Palo Alto, California, on Tuesday, April 26,
2005, at 10:00 a.m. The purposes of the meeting will include voting on the
following proposals and transacting such other business as may properly come
before the meeting:
Proposal One: Elect three Directors for terms of three
years. The Board recommends a vote FOR this
proposal.
Proposal Two: Ratify the designation of Deloitte & Touche
LLP to audit Schering-Plough's books and
accounts for 2005. The Board recommends a
vote FOR this proposal.
Proposals Three and Four: Consider shareholder proposals if each is
brought before the meeting. The Board
recommends a vote AGAINST proposals three and
four.
Only holders of record of common shares at the close of business on March
4, 2005, will be entitled to vote at the meeting or any adjournments or
postponements thereof.
Your vote is important. Whether or not you plan to attend the meeting,
please vote in advance by proxy in whichever way is most convenient -- in
writing, by telephone or by the Internet.
As announced at the 2004 Annual Meeting of Shareholders, the 2005 Annual
Meeting of Shareholders will be the first annual meeting of shareholders to be
held in California. The Board considered a number of factors in selecting the
location, including the location of the Company's operations and where
shareholders are located. Palo Alto, California, is the site of
Schering-Plough's DNAX biotechnology research facility. Many Schering-Plough
shareholders live or are headquartered in California and this change of location
provides them with a chance to attend an annual meeting with less cost and
travel.
To be admitted to the Annual Meeting of Shareholders, a shareholder must
present both an admission ticket and a photo identification. The process for
shareholders to obtain an admission ticket from Schering-Plough's transfer
agent, The Bank of New York, is described in the proxy statement on page 3.
SUSAN ELLEN WOLF
Corporate
Secretary
Kenilworth, New Jersey
March 14, 2005
TABLE OF CONTENTS
General Information About Voting and Annual Meeting......... 2
Proposal One: Election of Directors......................... 3
Nominees for Director..................................... 4
Directors Continuing in Office............................ 5
Committees of the Board of Directors...................... 7
Committee Functions....................................... 8
Board Meetings and Attendance of Directors................ 8
Director Education........................................ 8
Directors Attendance at Annual Meeting of Shareholders.... 8
Director Compensation..................................... 9
Director Stock Ownership Requirements..................... 9
Certain Transactions...................................... 9
Corporate Governance........................................ 10
Corporate Governance Guidelines........................... 10
About the Nominating and Corporate Governance Committee... 10
Director Independence..................................... 11
Executive Sessions of the Board of Directors.............. 11
Communications with Directors............................. 11
Stock Ownership............................................. 12
Common Share and Common Share Equivalents Ownership of 12
Directors and Officers.................................
Stock Ownership of Certain Beneficial Owners.............. 13
Section 16(a) Beneficial Ownership Reporting Compliance... 14
Executive Compensation...................................... 15
Summary Compensation Table................................ 16
Employment and Change of Control Arrangements............. 18
Stock Option Information.................................. 22
Option Grants in Last Fiscal Year......................... 22
Aggregated Option Exercises in Last Fiscal Year and Fiscal 23
Year-End Option Values.................................
Long Term Incentive Plan Information...................... 24
Pension Plan Information.................................. 26
Compensation Committee Report............................. 27
Performance Graph........................................... 33
Proposal Two: Ratification of Designation of Independent 34
Registered Public Accounting Firm.........................
Audit Committee Report.................................... 35
Proposal Three: Shareholder proposal........................ 37
Proposal Four: Shareholder proposal......................... 39
Contacts for Shareholders................................... 41
Shareholder Proposals for Inclusion in 2006 Proxy 41
Statement.................................................
Other Shareholder Proposals for Presentation at 2006 Annual 42
Meeting...................................................
Director Nomination Procedures.............................. 42
Other Business.............................................. 42
Compliance with Corporate Governance Listing Standards...... 43
Solicitation of Proxies..................................... 43
Exhibits
Exhibit A -- Charter of Audit Committee.................. A-1
Exhibit B -- Charter of Nominating and Corporate B-1
Governance Committee...................................
Exhibit C -- Charter of Compensation Committee........... C-1
Exhibit D -- Charter of Business Practices Oversight D-1
Committee..............................................
Exhibit E -- Charter of Finance Committee................ E-1
Exhibit F -- Charter of Executive Committee.............. F-1
Exhibit G -- Corporate Governance Guidelines.............. G-1
Directions to Meeting..................................Back cover
[SCHERING-PLOUGH LOGO]
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PROXY STATEMENT
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This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Schering-Plough Corporation to be voted at
its Annual Meeting of Shareholders on April 26, 2005, and any adjournments or
postponements of the meeting. At the 2005 Annual Meeting, holders of common
shares will vote on the following matters:
Proposal One: Election of three Directors (Hans W. Becherer, Kathryn C. Turner and Robert
F.W. van Oordt) for terms of three years.
The Board recommends a vote FOR proposal one.
Proposal Two: Ratification of the designation of Deloitte & Touche LLP to audit
Schering-Plough's books and accounts for 2005.
The Board recommends a vote FOR proposal two.
Proposals Three and Shareholder proposals, if brought before the meeting.
Four: The Board recommends a vote AGAINST proposals three and four.
The Board of Directors has designated Fred Hassan, Robert Bertolini and
Susan Ellen Wolf as proxies in connection with the 2005 Annual Meeting of
Shareholders. With respect to any other matter that properly comes before the
Annual Meeting, these proxies will vote as recommended by the Board of Directors
or, if no recommendation is given, in their own discretion.
This year the information typically included in the Annual Report to
Shareholders is being provided in two documents. One document, called the
Company Overview, includes information about Schering-Plough's business and
products. The second document, called the 2004 Annual Report to Shareholders,
includes the letter from the Chairman of the Board and Chief Executive Officer,
Management's Discussion and Analysis of Financial Condition and Results of
Operations, the audited consolidated financial statements for the year ended
December 31, 2004, the notes to the financial statements and related
disclosures.
This proxy statement and the accompanying form of proxy, together with the
Company Overview and the 2004 Annual Report to Shareholders, are being mailed
beginning on or about March 14, 2005, to all holders of record of common shares
as of the close of business on March 4, 2005. There were 1,545,152,782 common
shares outstanding on March 4, 2005.
The address of Schering-Plough's principal executive offices is 2000
Galloping Hill Road, Kenilworth, New Jersey 07033 and its website is
www.schering-plough.com.
GENERAL INFORMATION ABOUT VOTING AND ANNUAL MEETING
SHAREOWNERS ENTITLED TO VOTE
Only holders of record of common shares at the close of business on the
record date, March 4, 2005, are entitled to vote shares held on that date at the
Annual Meeting. Each outstanding common share entitles its holder to cast one
vote.
VOTING BY PROXY
You may vote in person at the meeting. Even if you plan to attend the
meeting, the Company recommends that you vote in advance of the meeting. You may
vote in advance of the meeting by any of the following methods:
VOTE BY MAIL. Sign and date each proxy card or voting instruction card you
receive and return it in the prepaid envelope. If you return your signed proxy
card or voting instruction card but do not indicate your voting preferences,
your shares will be voted on your behalf FOR the election of the three nominated
Directors, FOR the ratification of the designation of Deloitte & Touche LLP to
audit Schering-Plough's books and accounts for 2005 and AGAINST the shareholder
proposals.
VOTE BY TELEPHONE OR VIA INTERNET. If you are a shareholder of record
(that is, if you hold your shares in your own name), you may vote by telephone
(toll free) or via the Internet by following the instructions on your proxy card
or voting instruction card. If your shares are held in the name of a bank,
broker or other holder of record (i.e., in "street name"), and if such bank or
broker offers telephone and internet voting, you will receive instructions from
them that you must follow in order for your shares to be voted. If you vote by
telephone or via the Internet you do not need to return your proxy card or
voting instruction card.
VOTING UNDER THE SCHERING-PLOUGH EMPLOYEE SAVINGS PLANS
If you are a current or former Schering-Plough employee with shares
credited to an account under the Schering-Plough Employees' Savings Plan or the
Schering-Plough Puerto Rico Employees' Retirement Savings Plan, then you will
receive a voting instruction card.
If you do not give voting instructions to the plan trustee by mailing your
voting instruction card or voting through the Internet or by telephone, the
trustee will vote shares you hold under the Employees' Savings Plan in the same
proportion as shares held under that plan for which voting instructions were
timely received. If the trustee does not receive voting instructions for shares
held under the Puerto Rico Employees' Retirement Savings Plan, it will not vote
those shares.
To allow sufficient time for the trustee to vote your shares under either
Plan, your voting instructions must be received by 5:00 p.m. E.S.T. on April 21,
2005.
EFFECT OF VOTES, BROKER NON-VOTES & ABSTENTIONS
Only votes "For" or "Against" a proposal count. Abstentions and broker
non-votes will not be included in determining the number of votes cast
concerning any matter.
BROKER DISCRETIONARY VOTING AND BROKER NON-VOTES
Under the rules of the New York Stock Exchange (NYSE), 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 the independent registered accounting firm. Under the NYSE
rules, brokers do not have discretionary voting power on the shareholder
proposals.
A broker non-vote occurs when a broker holding shares for a beneficial
owner does not vote on a particular proposal because the broker does not have
discretionary voting power with respect to that item and has not received voting
instructions from the beneficial owner.
2
ELECTRONIC ACCESS TO PROXY MATERIALS AND ANNUAL REPORT
This proxy statement, the 2004 Annual Report to Shareholders and the
Company Overview are available on Schering-Plough's Internet site at
www.schering-plough.com.
REVOKING A PROXY
You may change your vote or revoke your corporate proxy at any time before
the proxy is voted at the meeting. If you submitted your proxy by mail, you must
(a) file with the Corporate Secretary of Schering-Plough a written notice of
revocation or (b) timely deliver a valid, later-dated proxy. If you submitted
your proxy by telephone or via the Internet, you may change your vote or revoke
your proxy with a later telephone or Internet proxy, as the case may be.
Attendance at the Annual Meeting will not have the effect of revoking a proxy
unless you give written notice of revocation to the Corporate Secretary before
the proxy is voted at the meeting or you vote by written ballot at the Annual
Meeting.
ATTENDING THE MEETING
You need an admission ticket and a photo identification to attend the
meeting. To get an admission ticket you must write to Schering-Plough's transfer
agent, The Bank of New York, using one of the following addresses:
Email at: bmincey@bankofny.com
U.S. Mail at: The Bank of New York
c/o Investor Services Correspondence,
P.O. Box 11598
New York, N.Y. 10277-2075
Attn: Barbara Mincey
If you are a record owner (so your shares are held in your name), you must
list your name exactly as it appears on your stock ownership records at The Bank
of New York. If you hold through a bank or broker or trustee, you must also
include a copy of your latest bank or broker statement showing your ownership.
QUORUM
The presence at the Annual Meeting, in person or by proxy, of the holders
of a majority of the common shares outstanding on the record date will
constitute a quorum. On March 4, 2005, the record date, Schering-Plough had
outstanding and entitled to vote at the Annual Meeting 1,545,152,782 common
shares, par value $.50 per share.
Abstentions and broker non-votes are counted for determining whether a
quorum is present at the meeting.
PROPOSAL ONE: ELECTION OF DIRECTORS
Pursuant to Schering-Plough's Certificate of Incorporation, the Board of
Directors is divided into three classes, the terms of which expire successively
over a three-year period. Three Directors are to be elected at this Annual
Meeting to hold office for a term of three years expiring at the 2008 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.
3
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.
VOTE REQUIRED. A plurality of the votes cast is required for the election
of Directors.
THE BOARD RECOMMENDS A VOTE FOR EACH OF THE NOMINEES IN PROPOSAL ONE.
NOMINEES FOR DIRECTOR WITH
TERM TO EXPIRE 2008
[Hans W. Becker Hans W. Becherer Age
PHOTO] 69 Director since 1989
Retired Chairman, Chief Executive Officer and Chief
Operating Officer of Deere & Company (manufacturer of mobile
power machinery and supplier of financial and health care
services).
PRIOR HISTORY: Mr. Becherer was associated 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.
OTHER DIRECTORSHIPS: Honeywell International Inc. and J.P.
Morgan Chase & Co.
OTHER: Member of the Business Council and Council on
Foreign Relations.
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[Kathryn C. Turner Kathryn C. Turner Age
PHOTO] 57 Director since 2001
Chairperson, Chief Executive Officer and President of
Standard Technology, Inc. (management and technology
solutions firm).
Ms. Turner has served in her present position since 1985.
OTHER DIRECTORSHIPS: ConocoPhillips Company, Carpenter
Technology Corporation and Tribune Company.
OTHER: Board member of National Capital Area Council of the
Boy Scouts of America and Children's Hospice International.
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[Robert F.W. van Robert F.W. van Oordt Age
Oordt PHOTO] 68 Director since 1992
Chairman of the Supervisory Board of Rodamco Europe N.V.
(largest retail real estate investment company in Europe).
PRIOR HISTORY: Mr. van Oordt served Rodamco as Chief
Executive Officer from March 2000 to June 2001. Prior to
this assignment, Mr. van Oordt served as Chairman of the
Executive Board of NV Koninklijke KNP BT (producer of paper
and distributor of graphic and office products) from March
1993, following the merger of three Dutch-based industrial
corporations, including Buhrmann-Tetterode N.V. ("BT"),
until his retirement in April 1996. Former Director of Nokia
Corporation.
OTHER DIRECTORSHIPS: Fortis Bank N.V. and n.v. Umicore s.a.
and Supervisory Board of Draka Holding N.V.
OTHER: Member of the International Advisory Board of
Nijenrode University, senior member of the Conference Board,
and Chairman of the Foundation for Arts and Business in the
Netherlands.
4
DIRECTORS CONTINUING IN OFFICE
TERM TO EXPIRE 2006
[Carl E. Mundy, Jr. Carl E. Mundy, Jr. Age
PHOTO] 69 Director since 1995
Retired General, Former Commandant of the Marine Corps.
PRIOR HISTORY: General Mundy entered the Marine Corps in
1953. He held senior positions of operational command and
top-level management prior to appointment as Commandant and
Joint 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.
OTHER DIRECTORSHIPS: General Dynamics Corporation
OTHER: Chairman of the Marine Corps University Foundation,
member of the boards of advisors to the Comptroller General
of the United States and the Navy League of the United
States, and member of the Council on Foreign Relations. Past
president of worldwide operations of the United Services
Organization.
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[Patricia F. Russo Patricia F. Russo Age
PHOTO] 52 Director since 1995
Chairman and Chief Executive Officer of Lucent Technologies
Inc. (communications).
Ms. Russo assumed the position of Chairman in 2003 and the
positions of Chief Executive Officer and President in
January 2002.
PRIOR HISTORY: Ms. Russo was President and Chief Operating
Officer of Eastman Kodak Company from April 2001 and
Director from July 2001, and Chairman of Avaya Inc. since
December 2000, until she rejoined Lucent. Ms. Russo was
Executive Vice President and Chief Executive Officer of the
Service Provider Networks business of Lucent from November
1999 to August 2000 and served as Executive Vice President
from 1996 to 1999. Prior to that she held various executive
positions with Lucent and AT&T.
OTHER: Trustee of Georgetown University.
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[Arthur F. Weinbach Arthur F. Weinbach Age
PHOTO] 61 Director since 1999
Chairman and Chief Executive Officer of Automatic Data
Processing, Inc. (independent computing services).
Mr. Weinbach has been associated with ADP since 1980,
assuming his current position in April 1998.
OTHER DIRECTORSHIPS: First Data Corp.
OTHER: Trustee of New Jersey Seeds and New Jersey Institute
of Technology.
5
DIRECTORS CONTINUING IN OFFICE
TERM TO EXPIRE 2007
[Fred Hassan PHOTO] Fred Hassan Age
59 Director since 2003
Chairman of the Board, Chief Executive Officer and President
since April 2003.
PRIOR HISTORY: Mr. Hassan was Chairman of the Board and
Chief Executive Officer of Pharmacia Corporation from
February 2001 until April 2003, President and Chief
Executive Officer of Pharmacia from March 2000 to February
2001, and President and Chief Executive Officer of Pharmacia
& Upjohn, Inc. from May 1997 until March 2000. Mr. Hassan
was Executive Vice President and a member of the Board of
Directors of Wyeth, Inc. (formerly American Home Products
Corporation), from 1995 to 1997.
OTHER DIRECTORSHIPS: Avon Products, Inc.
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[Philip Leder, M.D. Philip Leder, M.D. Age
PHOTO] 70 Director since 2003
Chairman, Department of Genetics, Harvard Medical School.
Dr. Leder has been Chairman, Department of Genetics, Harvard
Medical School, since 1980; John Emory Andrus Professor of
Genetics since 1980.
OTHER: Honorary Trustee of the Massachusetts General
Hospital, Trustee and Chairman of the Board of the Charles
A. Revson Foundation and Trustee of the Hadassah Medical
Organization.
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[Eugene R. McGrath Eugene R. McGrath Age
PHOTO] 63 Director since 2000
Chairman, President and Chief Executive Officer of
Consolidated Edison, Inc. (energy company).
PRIOR HISTORY: Mr. McGrath has been associated with Con
Edison since 1963. He assumed his current position in
October 1997, and has served as Chairman and Chief Executive
Officer of Con Edison's subsidiary, Consolidated Edison
Company of New York, Inc., since September 1990.
OTHER: Chairman of the Union Square Partnership. Director
or Trustee of AEGIS, Atlantic Mutual, Barnard College, the
Edison Electric Institute, Manhattan College and the
Wildlife Conservation Society. Member of the executive
committee of the Energy Association of New York State.
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[Richard de J. Richard de J. Osborne Age
Osborne PHOTO] 70 Director since 1988
Retired Chairman and Chief Executive Officer of ASARCO
Incorporated (non-ferrous metals producer).
PRIOR HISTORY: Mr. Osborne served as Chairman and Chief
Executive Officer of ASARCO from 1985 to 1999. He also
served as Chairman of the Board of Schering-Plough from
November 2002 to April 2003. Former Director of Goodrich
Corporation.
OTHER DIRECTORSHIPS: NACCO Industries, Inc. and
non-executive Chairman and Director of Datawatch
Corporation.
OTHER: Director of The Tinker Foundation, former Chairman
and Director of the International Copper Association, the
Copper Development Association, the Silver Institute and the
National Mining Association, Director and Treasurer of the
Americas Society. Mr. Osborne is a member of the Council on
Foreign Relations and the Economic Club of New York.
6
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has a standing Audit Committee, Nominating and
Corporate Governance Committee and Compensation Committee, each consisting
exclusively of independent Directors, as independence is defined in the New York
Stock Exchange listing standards and the more restrictive Schering-Plough Board
Independence Standard specified in the Corporate Governance Guidelines (attached
as Exhibit G). Members of the Audit Committee also all meet the independence
requirements set forth in Rule 10A-3(b)(1) under the Securities Exchange Act of
1934. The Board of Directors also has a standing Business Practices Oversight
Committee and Finance Committee, as well as an Executive Committee which meets
as needed.
The Charters of the Committees, which have been adopted by the Board, are
attached as exhibits to this proxy statement and are also available on
Schering-Plough's website at www.schering-plough.com.
COMMITTEE MEMBERSHIP AND MEETINGS
BUSINESS NOMINATING &
PRACTICES CORPORATE
AUDIT OVERSIGHT COMPENSATION FINANCE GOVERNANCE EXECUTIVE
-- -- -- -- -- --
Mr. Becherer M M C M M
Mr. Hassan C
Dr. Leder M
Mr. McGrath M M
General Mundy M M M
Mr. Osborne C M M M
Ms. Russo M C M
Ms. Turner M M M
Mr. van Oordt M C M M
Mr. Weinbach C M M
Total meetings in fiscal year
2004 14 7 5 5 5 0
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M Committee Member
C Committee Chairperson
7
COMMITTEE FUNCTIONS
Audit Committee functions include selecting of the independent registered
public accounting firm, subject to shareholder ratification, and providing
oversight of their independence, qualifications and performance; and assisting
the Board in its oversight function by monitoring the integrity of Schering-
Plough's financial statements, the performance of the corporate audit function,
and compliance by Schering-Plough with legal and regulatory requirements.
Business Practices Oversight Committee functions include assisting the
Board with oversight of non-financial compliance systems and practices and
related management activities, including Good Manufacturing Practices; and
assisting the Board with oversight of systems for compliance with
Schering-Plough's Standards of Global Business Practices.
Compensation Committee functions include discharging the Board's
responsibilities relating to the compensation of Officers; responsibility for
the approval, evaluation and administration of executive compensation plans,
policies and programs; and making recommendations to the Board regarding equity
compensation and incentive plans.
Finance Committee functions include assisting the Board with oversight of
strategic financial matters and the capital structure; and recommending the
dividend policy to the Board.
Nominating and Corporate Governance Committee functions include assisting
the Board with Board and Committee structure, function and composition,
including identifying nominees (and considering shareholder nominees in
accordance with provisions of the By-laws described on page 42); developing and
recommending the Schering-Plough Board Independence Standard and Corporate
Governance Guidelines (attached as Exhibit G to this proxy statement) to the
Board for approval; recommending Director compensation; and recommending and
providing oversight of the annual performance review process for the Board and
for each Committee.
The Executive Committee may act in the intervals between Board meetings.
BOARD MEETINGS AND ATTENDANCE OF DIRECTORS
The Board of Directors held 9 meetings in 2004, including a two-day
strategic planning meeting. All Directors attended more than 75% of the
aggregate of (i) the total number of meetings of the Board, and (ii) the total
number of meetings held by all Committees of the Board on which they served.
DIRECTORS EDUCATION
All Directors attended a 2 hour customized Director education session on
intellectual property law and the Company's intellectual property rights, led by
an outside expert and the Company's Vice President, Patents. Further additional
education is provided throughout the year as needed on matters pertinent to
Committee work or Board deliberations. Subjects covered during such sessions in
2004 included product pricing in the pharmaceutical industry and capital
structures and liquidity in the pharmaceutical industry. Each Director earned at
least 7 additional education credit hours by participating in such activities.
Several Directors also attended general Director education programs offered by
third parties during 2004.
DIRECTORS ATTENDANCE AT ANNUAL MEETING OF SHAREHOLDERS
Directors are expected to attend the Annual Meeting of Shareholders unless
an emergency makes such attendance imprudent. Since 1990 only one Director has
missed one Annual Meeting of Shareholders (due to illness), and all other
Directors have attended all Annual Meetings of Shareholders, including the 2004
Annual Meeting at which all ten Directors were present.
8
DIRECTOR COMPENSATION
Fred Hassan receives no compensation for services rendered in his capacity
as a Director. Other Directors receive compensation pursuant to the Directors
compensation program. These other Directors receive no compensation, directly or
indirectly, from Schering-Plough other than pursuant to the Directors
compensation program.
The Directors compensation program includes stock, stock equivalent and
cash components described below. Certain components were increased on April 27,
2004 by the Board upon recommendation of the Nominating and Corporate Governance
Committee and other revisions were also made at that time. This was the first
increase in any component of Director compensation since 1999 and brought total
Directors compensation into the middle range of the total compensation paid by
other U.S. pharmaceutical companies in the Peer Group. Components of the
Directors compensation program are as follows.
Stock and Stock Equivalents:
- Directors Stock Award Plan under which Directors receive 3,000 common
shares annually, increased from 2,500 shares. Directors have the option
to defer the award into Deferred Stock Units, which grow/diminish in
values as if invested in Schering-Plough common shares (with dividends
reinvested) and are paid out in common shares at the end of a specified
deferral period.
- Directors Stock Equivalency Program under which Directors receive an
annual award of phantom stock equivalent units valued at $25,000 (no
increase from prior years), which grow/diminish in value as if invested
in Schering-Plough common shares (with dividends reinvested) until
termination of service as a Director, at which time they are paid out in
cash.
Cash:
- Board Retainer increased from $39,000 to $50,000.
- Committee Retainer, a new retainer of $15,000 for the Audit Committee and
$10,000 for each of the other Board Committees (there is no retainer for
the Executive Committee).
- Committee Chair Retainer, a new retainer of $5,000 paid to the Chair of
each Committee except the Executive Committee.
- Meeting Fees, eliminated (prior to April 27, 2004, fees of $1,000 per
meeting were paid).
- Special Assignment Fee, $1,500 raised from $1,000 per assignment, such as
meetings with investors or the government regarding Schering-Plough
business.
- Deferral option under the Directors Deferred Compensation Plan, which
permits Directors to defer any cash compensation. They may elect whether
deferred cash compensation grows/diminishes in value as if invested in
Schering-Plough common shares (with dividends reinvested) or earns
interest at a market rate. Deferred amounts are paid in cash at the end
of a specified deferral period.
DIRECTOR STOCK OWNERSHIP REQUIREMENTS
In 2005, the Board established stock ownership requirements for all
Directors and included the requirements in the Corporate Governance Guidelines.
Each Director is required to own 5,000 shares within three years of joining the
Board.
CERTAIN TRANSACTIONS
Dr. Leder's son, Ethan Leder, is chief executive officer and the owner of
approximately 13% of the equity of United Biosource LLP. In January 2004, United
Biosource acquired MedTap International Inc., a provider of pharmacoeconomic
analysis and information. Schering-Plough in the past has retained MedTap to
provide services in connection with specific pharmacoeconomic projects and may
do so in the future. In 2004, Schering-Plough paid MedTap $44,928 for
pharmacoeconomic services.
9
Under the New York Stock Exchange Listing Standards and the more
restrictive Schering-Plough Board Independence Standard this matter does not
impair Dr. Leder's independence. The Nominating and Corporate Governance
Committee and the Board of Directors, after reviewing this matter, have
determined that Dr. Leder is independent. However, in respect of many of the
Company's institutional investors, which have varying definitions of
independence, Dr. Leder has not been assigned to any Committee whose members are
required to be independent.
CORPORATE GOVERNANCE
Schering-Plough believes that good corporate governance practices create a
solid foundation for achieving its business goals and keeping the interests of
its shareholders and other stakeholders in perspective. Under the leadership of
Chairman of the Board and CEO, Fred Hassan, in 2003 Schering-Plough adopted a
new Vision -- to earn trust, EVERY day -- and new Leader Behaviors: shared
accountability and transparency, cross-functional teamwork and collaboration,
listening and learning, benchmark and continuously improve, coaching and
developing others and business integrity.
CORPORATE GOVERNANCE GUIDELINES
Schering-Plough has long recognized good corporate governance, first
adopting its Statement of Corporate Director Policies in 1971, which among other
things required that a majority of the Board be independent. In 2004, the Board
adopted Corporate Governance Guidelines, which are attached as Exhibit G, and
which are available on Schering-Plough's website.
Consistent with the Vision and Leader Behaviors, the Board, with oversight
by the Nominating and Corporate Governance Committee, reviews and enhances the
governance practices, including the Corporate Governance Guidelines and the
Charters of the Board Committees, on a regular basis.
ABOUT THE NOMINATING AND CORPORATE GOVERNANCE COMMITTEE
The Nominating and Corporate Governance Committee is comprised of six
independent Directors, as independence is defined in the New York Stock Exchange
listing standards and the more restrictive Schering-Plough Board Independence
Standard. The Committee operates under a written Charter adopted by the Board,
and a copy of the Charter is attached to this proxy statement as Exhibit B.
One of the Nominating and Corporate Governance Committee's most important
functions is the identification of Director nominees. The Committee considers
nominees from all sources, including shareholders, nominees submitted by other
outside parties, and candidates known to current Directors. The Committee also
has from time-to-time retained an expert search firm (that is paid a fee) to
help identify candidates possessing the minimum criteria and other
qualifications identified by the Committee as being desired in connection with a
vacancy on the Board. All candidates must meet the minimum criteria for
Directors established by the Committee. These criteria are listed in
Schering-Plough's Corporate Governance Guidelines.
Candidates are evaluated in the same manner no matter who first suggests
they be nominated. The candidate's credentials are provided to the Committee by
the Corporate Secretary with the advance materials for the next Committee
meeting. If any member of the Committee believes the candidate may be qualified
to be nominated, the Committee discusses the matter at the meeting. For each
candidate who is discussed at a meeting, the Committee decides whether to
further evaluate the candidate. Evaluation includes a thorough background check,
interaction and interviews with the Committee members and other Directors and
discussion about the candidate's availability and commitment. When there is a
vacancy on the Board, the best candidate from all evaluated is recommended by
the Committee to the full Board to consider for nomination.
10
DIRECTOR INDEPENDENCE
Schering-Plough is subject to the New York Stock Exchange independence
requirements for Directors and has adopted the more restrictive Schering-Plough
Board Independence Standard which is included in the Corporate Governance
Guidelines. The Nominating and Corporate Governance Committee assists the Board
with the assessment of Director independence.
The Nominating and Corporate Governance Committee and the Board have
determined that (1) Mr. Hassan is not independent because as Chairman of the
Board and Chief Executive Officer of Schering-Plough, he is an Officer and
employee of Schering-Plough; (2) all other Directors are independent under both
the New York Stock Exchange listing standards and the more restrictive
Schering-Plough Board Independence Standard; and (3) each independent Director
has no material relationship with Schering-Plough.
The Nominating and Corporate Governance Committee and the Board have
determined that all members of the Audit Committee -- Directors Becherer,
McGrath, van Oordt and Weinbach -- also are independent pursuant to the
requirements of Rule 10A-3(b)(1) under the Securities Exchange Act of 1934.
EXECUTIVE SESSIONS OF THE BOARD OF DIRECTORS
As required in the Corporate Governance Guidelines, the Board periodically
meets in executive session without any Director present who is also a member of
management. During 2004, the Board held 6 such sessions.
Executive sessions are always chaired by an independent Director. The
independent Directors have determined to rotate this responsibility every six
months among the independent Directors who Chair Committees of the Board.
Currently, Patricia F. Russo, an independent Director who chairs the Nominating
and Corporate Governance Committee, is chairing the executive sessions.
COMMUNICATIONS WITH DIRECTORS
The Board of Directors has adopted a process for shareholders and others to
send communications to the Board or any Director. This includes communications
to a Committee, the independent Directors as a group, the current Chair of the
Board's executive sessions or other specified individual Director(s). All
communications are to be sent by mail or by fax care of the Corporate Secretary
at Schering-Plough headquarters, addressed as follows:
[Board or Name of Individual Director(s)]
c/o Corporate Secretary
Schering-Plough Corporation
2000 Galloping Hill Road
Mailstop K-1-4-4525
Kenilworth, New Jersey 07033
Fax (908) 298-7303
The independent Directors have directed the Corporate Secretary to screen
the communications. First, communications sent by mail are subject to the same
security measures as other mail coming to Schering-Plough, which may include
x-ray, scanning, etc. Next, the Board has directed the Corporate Secretary and
her staff to read all communications and to discard communications having
nothing to do with Schering-Plough or the Board. All other communications are to
be promptly passed along to the addressee(s). Further, the Corporate Secretary's
staff is to retain a copy in the corporate files and to provide a copy to other
Directors, members of management and third parties as appropriate. For example,
if a communication were about auditing or accounting matters, the policy
established by the Audit Committee provides that Audit Committee members also
would receive a copy, as would the senior Corporate Audits executive, and in
certain cases, the independent auditors.
Anyone who wishes to contact the Audit Committee to report complaints or
concerns about accounting, internal accounting controls or auditing matters, may
do so anonymously by using the above procedure.
11
STOCK OWNERSHIP
COMMON SHARE AND COMMON SHARE EQUIVALENTS OWNERSHIP OF DIRECTORS AND OFFICERS
Set forth below in the column titled "Number of Common Shares" is
information with respect to beneficial ownership of Schering-Plough common
shares as of March 4, 2005, by each Director, the Executive Officers named in
the Summary Compensation Table and by all Schering-Plough Directors and
Executive Officers as a group. Set forth below in the column titled "Number of
Common Share Equivalents" is the number of common share equivalents (which
grow/diminish like common shares) credited as of March 4, 2005, to the accounts
of Schering-Plough's non-employee Directors.
NUMBER OF
NUMBER OF COMMON
COMMON SHARE
NAME SHARES(A) EQUIVALENTS(D)
---- --------- ---------------
Hans W. Becherer 19,900 43,022
Fred Hassan 1,620,167(b)
Philip Leder, M.D. 4,250 2,938
Eugene R. McGrath 11,804 23,878
Carl E. Mundy, Jr. 15,866 15,524
Richard de J. Osborne 72,335 14,181
Patricia F. Russo 22,800 26,395
Kathryn C. Turner 5,170 10,601
Robert F. W. van Oordt 13,619 72,570
Arthur F. Weinbach 8,750 28,785
Robert J. Bertolini 200,001(b)
Carrie S. Cox 400,000(b)
Cecil B. Pickett 895,927(b)
Thomas J. Sabatino, Jr. 83,334(b)
All Directors and Executive Officers
as a group including those above(18
persons) 4,267,704(b)(c) 237,894
(a) The total for each individual, and for the group of all Directors and
Executive Officers (18 persons), is less than one percent of the outstanding
common shares (including shares which could be acquired within 60 days of
March 4, 2005 through the exercise of outstanding options or the
distribution of shares under the Stock Incentive Plans). The information
shown is based upon information furnished by the respective Directors and
Executive Officers.
(b) Includes shares which could be acquired within 60 days of March 4, 2005
through the exercise of employee stock options as follows: Mr. Bertolini
(83,334); Ms. Cox (150,000); Mr. Hassan (516,667); Dr. Pickett (88,266) Mr.
Sabatino (83,334); all Directors and Executive Officers as a group
(1,055,103).
(c) Includes 1,927 shares beneficially owned as of March 4, 2005 by an executive
officer in a qualified 401(k) plan, over which he has voting and investment
power.
12
(d) Includes common share equivalents credited to non-employee Directors under
the Directors Deferred Compensation Plan and to participating non-employee
Directors under the Directors Deferred Stock Equivalency Program, plus
dividends credited, rounded to the nearest whole number. The equivalents are
paid in cash following termination of service as a Director based on the
market value of Schering-Plough common shares at that time. Of the totals
shown, these include 37,385 for Mr. Becherer; 2,938 for Dr. Leder; 20,841
for Mr. McGrath; 9,888 for General Mundy; 14,181 for Mr. Osborne; 26,395 for
Ms. Russo; 4,964 for Ms. Turner; 66,933 for Mr. van Oordt; and 23,149 for
Mr. Weinbach.
Also includes common share equivalents credited to participating
non-employee Directors under a deferral feature of the Directors Stock
Award Plan. The equivalents are paid in stock at the end of the deferral
period. Of the totals shown, these include 5,637 each for Directors
Becherer, Mundy, Turner, van Oordt and Weinbach; and 3,037 for McGrath.
For additional information, see "Director Compensation" on page 9.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Set forth below is certain information with respect to those persons who
are known to Schering-Plough to own beneficially more than five percent of the
outstanding Schering-Plough common shares, as of March 4, 2005.
COMMON SHARES
BENEFICIALLY PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED OF CLASS
------------------------------------ ------------- --------
Wellington Management Company, LLP(a) 125,973,185 8.2%
75 State Street
Boston, MA 02109
FMR Corp., Edward C. Johnson 3rd and Abigail P. Johnson(b) 91,081,120 5.9%
82 Devonshire Street
Boston, MA 02109
Dodge & Cox(c) 81,621,729 5.2%
One Sansome Street
35th Floor
San Francisco, CA 94104
---------------
(a) As reported on Schedule 13G filed with the Securities and Exchange
Commission on February 14, 2005, Wellington Management Company, LLP,
through one of its subsidiaries, has (i) shared power to vote or direct the
vote of 61,848,996 common shares and (ii) shared dispositive power as to
125,973,185 common shares.
(b) As reported on Schedule 13G filed with the Securities and Exchange
Commission on February 14, 2005, FRM Corp. has sole power to vote or direct
the vote of 4,939,802 common shares and sole power to direct the
disposition of 91,081,120 common shares; and Edward C. Johnson 3rd and
Abigail P. Johnson and other family members own certain shares of FMR Corp.
as specified in the Schedule 13G.
(c) As reported on Amendment No. 1 to Schedule 13G filed with the Securities
and Exchange Commission on February 10, 2005, Dodge & Cox has (i) sole
voting power as to 76,290,891 common shares and shared voting power as to
1,194,700 common shares and (ii) sole dispositive power as to 81,621,729
common shares.
13
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Directors, Officers and beneficial owners of more than 10% of
Schering-Plough's outstanding common shares are required by Section 16(a) of the
Exchange Act and related regulations to file ownership reports on Forms 3, 4 and
5 with the Securities and Exchange Commission and the New York Stock Exchange
and to furnish us with copies of the reports.
Schering-Plough believes that all required Section 16(a) reports were
timely filed in 2004, except one report showing a stock award distribution and
the related tax withholding for Cecil B. Pickett, due solely to the Company's
administrative error. Schering-Plough's belief is based solely upon a review of:
- Forms 3 and 4 filed during 2004, and amendments to those Forms; and
- representation letters from those who did not file a Form 5 stating that
no Form 5 was due.
14
EXECUTIVE COMPENSATION
Following the arrival of Fred Hassan as the Chief Executive Officer in
April of 2003, he introduced, with full support of the Board of Directors, a six
to eight year Action Agenda, a plan with goals of stabilizing, repairing, and
then turning around Schering-Plough and creating a foundation on which to build
growth. Mr. Hassan implemented many strategic changes with the oversight, advice
and approval of the Board, and replaced many members of the senior management
team. Among the changes approved by the Compensation Committee was the creation
of a total compensation program for the Chief Executive Officer and other key
employees. Plans that differentiate more specifically by performance replaced
certain legacy plans, such as profit sharing. The new program (described in
detail in the Compensation Committee's report on page 27) is designed to foster
a high performance culture and behaviors that are aligned with the Action
Agenda, and with the long-term interests of Schering-Plough's shareholders.
Under the new program, base salary continues to be provided to executives
at a level based on market competitiveness, the scope of the position,
individual performance and exhibition of Leader Behaviors. Employee benefits
offered to key executives are designed to be competitive.
One key feature of the new total compensation program is a revised
incentive pay mix for members of Schering-Plough's Operations Management Team,
which is comprised of the top 35 or so key executives responsible for driving
Schering-Plough's business. By implementing the new incentive pay mix, the
Company is able to focus more closely on driving Schering-Plough short and
long-term performance with incentives that motivate by providing variable
compensation based on Company performance, and that differentiate for individual
performance. All stock components of this program come from plans approved by
shareholders.
Following is brief overview of Schering-Plough's incentive plans which are
described in the Compensation Committee's report on page 27 and throughout this
Executive Compensation section:
- OPERATIONS MANAGEMENT TEAM INCENTIVE PLAN (OMTIP) -- Based
on Annual Results -- an annual incentive pay plan approved
by shareholders in 2004 that provides an opportunity for
annual cash awards based upon Schering-Plough's
achievement of specific business objectives and the
individual's demonstration of Schering-Plough's Leader
Behaviors and achievement of personal objectives.
- 2002 STOCK INCENTIVE PLAN -- To Facilitate Employee
Retention -- a long-term incentive plan approved by
shareholders pursuant to which stock options and
restricted stock awards/units are granted to key
employees.
- CASH LONG-TERM INCENTIVE PLAN -- Based on Earnings Per
Share Growth -- a long-term incentive plan focused on
long-term operational excellence by providing an
opportunity to earn a cash incentive award at the end of a
three-year performance period. The amount earned will be
COMPENSATION CHART based upon Schering-Plough's 3-year compounded earnings
per share growth, and 3-year compounded earnings per share
growth relative to the Peer Group over that period. This
plan has an additional two-year retention period following
the end of the performance period that must be satisfied
for payout of 100% of the earned award.
- LONG-TERM PERFORMANCE SHARE UNIT INCENTIVE PLAN -- Based
on Total Shareholder Return -- also a long-term incentive
plan focused on Schering-Plough's long-term performance by
providing an opportunity to earn performance stock units
payable in cash at the end of a three-year performance
period. The amount earned will be based upon
Schering-Plough's achievement of targeted 3-year
compounded total shareholder return, and 3-year total
shareholder return ranking relative to the Peer Group over
that period. This plan has an additional two-year
retention period following the end of the performance
period that must be satisfied for payout of 100% of the
earned award.
15
In addition to the plans described above, for the 8 most senior management
leaders (including each of the named executives), the Compensation Committee
approved the Transformational Performance Contingent Shares Grant, a special
non-recurring grant designed to provide a reward opportunity that is
commensurate with their crucial role in turning around and transforming
Schering-Plough. Cash awards under this special one-time grant will be earned at
the end of a five-year performance period based on Schering-Plough's achievement
of specific business objectives over that extended time period. If Schering-
Plough's performance over the 5-year performance period is not in the top half
of the peer group, no payment will be earned under the grant. Earned awards will
be credited to the named executive's account under Schering-Plough's
non-qualified saving plan. Under that plan, the reward will grow/diminish in
value as if invested in Schering-Plough common shares (with dividends
reinvested) and generally is not distributable until the year following
termination of employment.
SUMMARY COMPENSATION TABLE
The following table sets forth compensation of the five most highly
compensated Executive Officers of Schering-Plough, including the Chief Executive
Officer, for 2004.
LONG-TERM
COMPENSATION
-----------------------
AWARDS
ANNUAL COMPENSATION -----------------------
------------------------------------------- RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION IN 2004 YEAR SALARY BONUS COMPENSATION(B) AWARDS(C) OPTIONS COMPENSATION(D)
----------------------------------- ---- ---------- ---------- --------------- ---------- ---------- ---------------
Fred Hassan................ 2004 $1,500,000(a) $1,556,300 $398,939 $3,640,000 1,100,000 $185,416
Chairman of the Board, Chief 2003 $1,046,154(a) $ --(f) $349,156 $3,486,000 900,000 $ 14,926
Executive Officer & President 2002 -- -- -- -- -- --
Robert J. Bertolini........ 2004 $ 775,000 $ 542,500 $ 19,457 $ 819,000 250,000 $ 66,655
Executive Vice President & 2003 $ 96,875 $ 100,000(g) -- $1,031,000 350,000 --
Chief Financial Officer 2002 -- -- -- -- -- --
Carrie S. Cox.............. 2004 $ 900,000 $ 622,300 $ 38,393 $1,274,000 450,000 $104,213
Executive Vice President & 2003 $ 565,962 $ 452,770(g) -- $1,850,000 450,000 $ 14,926
President, Global Pharmaceuticals 2002 -- -- -- -- -- --
Cecil B. Pickett, Ph.D. ... 2004 $ 712,000 $ 408,500 19,829 $ 728,000 225,000 $155,414
Senior Vice President & 2003 699,500 -- -- $ 297,024 253,000 $ 8,982
President, Schering-Plough 2002 626,500 $ 55,000 -- 651,984 47,000 133,986
Research Institute
Thomas J. Sabatino, Jr. ... 2004 $ 462,917 $ 455,000(g) 18,419 $1,215,900 250,000 $177,437
Executive Vice President & 2003 -- -- -- -- -- --
General Counsel(e) 2002 -- -- -- $ -- -- --
---------------
(a) Includes a portion of salary deferred at the election of Mr. Hassan.
(b) Personal benefits provided to the named executives include financial
planning, tax preparation, installation and operation of home security
systems, personal security services, payment of legal fees for negotiation
of terms of employment agreements, personal use of corporate-owned aircraft
and use of a car and driver. These benefits are valued at the incremental
cost to Schering-Plough of providing the benefit to the executive.
In accordance with Securities and Exchange Commission rules, any personal
benefit exceeding 25% of the total personal benefits is identified by type
in this paragraph. The 2005 benefits amount shown includes $143,556 for
home security systems and $155,382 for personal security services for Mr.
Hassan; $10,870 for home security systems and $8,000 for tax and financial
planning services for Mr. Bertolini; $37,489 for personal use of
corporate-owned aircraft for Ms. Cox; $10,711 for personal use of
corporate-owned aircraft and $7,500 for tax and financial planning services
for Dr. Pickett; and $14,297 for home security systems for Mr. Sabatino.
The Chairman of the Board and CEO has been directed by the Board to use the
corporate-owned aircraft for all travel. This provides several business
benefits to Schering-Plough. First, the policy is intended to ensure the
personal safety of Mr. Hassan, who maintains a significant public role as
the leader of Schering-Plough. Second, the policy is intended to ensure his
availability and to maximize
16
the time available for Schering-Plough business. Certain of the other named
executives (and other key executives) use the corporate-owned aircraft for
business travel, and on occasion for personal travel.
Schering-Plough calculates the incremental cost of the personal use of
corporate-owned aircraft based on a methodology developed in 2004 by an
independent consultant in connection with its cost savings initiatives. The
methodology includes the average weighted cost of fuel, crew hotels and
meals, on-board catering, trip-related maintenance, landing fees,
trip-related hangar/parking costs and smaller variable costs. Since the
corporate-owned aircraft are used primarily for business travel, the
methodology excludes the fixed costs which do not change based on usage,
such as pilots' salaries, the purchase costs of the corporate-owned
aircraft and the cost of maintenance not related to personal travel.
The Company makes one car and driver available to Mr. Hassan. This provides
several business benefits to Schering-Plough. First, the policy is intended
to ensure the personal safety of Mr. Hassan, who maintains a significant
public role as the leader of Schering-Plough. Second, the policy is
intended to ensure his availability and to maximize the time available for
Schering-Plough business. The other named executives occasionally use cars
and drivers from a pool. All executives use the cars primarily for business
purposes, and the cars are also used by other Company personnel for
business purposes. Schering-Plough calculates the incremental cost of
executives personal use of corporate-owned cars driven by Company personnel
based on a methodology developed in 2005 which includes driver overtime,
meals and travel pay; fuel costs; and certain vehicle-maintenance and
repair costs. Since the cars are used primarily for business travel, the
methodology excludes the fixed costs which do not change based on usage,
such as drivers' salaries and the purchase costs of the cars.
(c) For 2004, Messrs. Hassan and Bertolini, Ms. Cox and Dr. Pickett each
received performance stock awards which were granted as phantom stock
units. These units are earned and become distributable to the executive
only upon, and to the extent of, the achievement of applicable corporate
performance goals. Because the corporate performance goals were satisfied,
100% of the 2004 performance stock awards granted to such executives were
earned as follows: Mr. Hassan, 200,000 shares; Mr. Bertolini, 45,000
shares; Ms. Cox, 70,000 shares; and Dr. Pickett, 40,000 shares. The amounts
shown in the table for these executives represents the award that were
earned, valued at the share price on the award grant date. The earned
portion of the awards are generally distributed in full on the third
anniversary of the grant date.
At December 31, 2004, the total number and value of earned but
undistributed performance shares was 200,000 shares ($4,176,000) for Mr.
Hassan, 110,000 shares ($2,296,800) for Mr. Bertolini, 70,000 shares
($1,461,600) for Ms. Cox, and 61,264 shares ($1,279,192) for Dr. Pickett.
Under the terms of his employment agreement, Mr. Hassan received 200,000
restricted stock awards in 2003 which are included in the table at fair
market value on the date of grant. The value of those shares as of December
31, 2004 was $4,176,000. Under the terms of her employment agreement, Ms.
Cox received 100,000 restricted stock awards in 2003 which are included in
the table at fair market value on the date of grant. The value of those
shares as of December 31, 2004 was $2,088,000. Under the terms of his
employment agreement, Mr. Sabatino received a grant of 70,000 phantom stock
units in 2004 which grant was not subject to the attainment of performance
goals and is included in the table at fair market value on the date of
grant. The value of those units as of December 31, 2004 for Mr. Sabatino
was $1,461,600.
Cash equivalent to the amount of all dividends paid on the common shares is
paid on all shares of restricted stock and all phantom stock units before
they are distributed or forfeited.
(d) For each of the named executives, the amount shown for 2004 includes:
contributions to savings plans for Mr. Hassan, $75,000; Mr. Bertolini,
$38,750; Ms. Cox, $63,111; Dr. Pickett, $35,600; and Mr. Sabatino, $19,046;
and executive life insurance for Mr. Hassan, $81,570; Mr. Bertolini,
$27,905; Ms. Cox, $41,102; Dr. Pickett, $92,429; and Mr. Sabatino, $36,429.
17
The amount shown also includes payout of unused vacation for Mr. Hassan,
$28,846, and Dr. Pickett, $27,385. For Mr. Sabatino, the amount shown also
includes $86,662 for relocation allowance and $35,300 for home sale
allowance in connection with his relocation to New Jersey.
(e) Mr. Sabatino joined Schering-Plough on April 15, 2004.
(f) Five months after his arrival in April 2003, Mr. Hassan announced major
action to protect the Company's financial position. These include a freeze
on salary increases and no profit sharing payments for 2003 and no regular
bonuses for 2003. Even though he achieved his objectives for 2003, he
voluntarily gave up the opportunity to earn an incentive as high as $2
million in light of the Company's financial position.
(g) These payment amounts were required under each executive's employment
agreement.
EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENTS
Mr. Hassan's Agreement. In April 2003, Schering-Plough entered into an
employment agreement with Mr. Hassan. His agreement provides for his employment
as Chief Executive Officer of Schering-Plough through December 31, 2005. The
terms of his employment automatically extend for additional successive one-year
periods until December 31, 2010 unless Mr. Hassan or Schering-Plough elects to
terminate the agreement at least 90 days prior to the end of any of his
employment periods. Mr. Hassan's agreement also provides for a three-year
extension of his employment period in the event of a change of control. Under
his agreement, Mr. Hassan will receive an annual base salary of at least
$1,500,000. He will be eligible to receive annual cash incentive awards in
accordance with Schering-Plough's cash bonus plans, as well as Schering-Plough's
other executive benefit and incentive plans. Upon joining Schering-Plough, Mr.
Hassan received 200,000 shares of restricted stock that vest on the third
anniversary of his employment and an option to purchase 900,000 common shares
that vest as to 600,000 shares on the first anniversary of his employment and
150,000 shares on each of the second and third anniversaries of his employment.
He may also receive future grants under Schering-Plough's stock incentive
program consistent with other senior executives and competitive pay practices
generally. His employment agreement also provides for his participation in all
employee compensation plans and welfare benefit plans generally available to
Schering-Plough's other senior executives. Mr. Hassan also will receive
reimbursement of all reasonable business expenses, fringe benefits (including
security services and the use of Schering-Plough's private transportation
services), office and support staff and vacation benefits in accordance with
Schering-Plough's plans, policies, and practices and in a manner comparable to
other senior executives.
Mr. Hassan's employment agreement also provides that if his employment is
terminated by reason of his death or disability, he or his estate or his
beneficiary will be entitled to receive a payment equal to (1) his base salary
through the date of termination of his employment to the extent not paid; (2)
any compensation previously deferred and due upon his termination of employment;
(3) any accrued vacation pay; and (4) any unreimbursed expenses. In addition,
the option and restricted stock awards granted to Mr. Hassan upon his
commencement of employment will fully vest upon his termination of employment
due to death or disability. Upon termination of employment due to disability,
Mr. Hassan and his family shall also continue to receive welfare benefits for
three years after termination. Under his agreement, if Schering-Plough
terminates Mr. Hassan's employment without cause, if he terminates employment
for good reason, or if he resigns during the one-month "window" period one year
after a change of control of Schering-Plough, Mr. Hassan will be entitled to
receive (1) a cash payment equal to his base salary through the date of
termination of employment to the extent not paid, any compensation previously
deferred and due upon his termination of employment, any accrued vacation pay,
and any unreimbursed expenses; (2) a pro-rata bonus payment based upon the
greater of the highest annual bonus paid in the three most recent fiscal years
or the target annual bonus then in effect; (3) a severance payment equal to
three times the sum of (a) his annual base salary, (b) the greater of his
highest annual bonus paid in the three most recent fiscal years or his target
annual bonus then in effect, and (c) the amount of the contribution by
Schering-Plough on his behalf under Schering-Plough's qualified and nonqualified
profit-sharing plans; (4) continued welfare benefits for at least three years
following termination; (5) full vesting of the option and restricted stock
awards granted to him at the time of his employment; and (6) a
18
minimum benefit under Schering-Plough's supplemental executive retirement plan
equal to 32% of Mr. Hassan's average final earnings calculated as if his
employment continued through December 31, 2010 and without reduction for early
payment. Mr. Hassan's agreement gives him the right to terminate for good reason
and receive the benefits described in the immediately preceding sentence if
Schering-Plough gives him notice of its election to terminate or otherwise not
extend his employment at any time before December 31, 2010. The amount of Mr.
Hassan's severance payment under his employment agreement will be either reduced
by the amount due Mr. Hassan under any other severance program of Schering-
Plough or paid in full in lieu of any such other severance payment. Mr. Hassan
will also receive a gross-up payment to the extent any payment would constitute
an excess parachute payment under the Internal Revenue Code.
Mr. Bertolini's Agreement. In November 2003, Schering-Plough entered into
an employment agreement with Mr. Bertolini that provides for his employment as
Executive Vice President and Chief Financial Officer of Schering-Plough. Under
his agreement, Mr. Bertolini will receive an annual base salary of at least
$775,000. Mr. Bertolini's annual incentive opportunity is targeted at 70% of his
base salary, and he is entitled to receive a bonus guaranteed at target for 2004
unless his performance for 2004 is substantially inadequate. He will be eligible
to receive annual cash incentive awards in accordance with Schering-Plough's
cash bonus plans, as well as Schering-Plough's other executive benefit and
incentive plans. Upon joining Schering-Plough, Mr. Bertolini received 65,000
shares of restricted stock that vest on the third anniversary of the grant date
and an option to purchase 350,000 common shares that vest in three equal annual
installments beginning one year from the date of grant. He may also receive
future grants under Schering-Plough's stock incentive program consistent with
other senior executives and competitive pay practices generally. Mr. Bertolini
also received a $100,000 commencement bonus and a payment of $266,521
representing certain tax liabilities that Mr. Bertolini incurred as a result of
his leaving his prior employer to join Schering-Plough. His employment agreement
also provides for his participation in all employee compensation plans and
welfare benefit plans generally available to Schering-Plough's other senior
executives. Mr. Bertolini will also receive reimbursement of all reasonable
business expenses, fringe benefits (including security services and the use of
Schering-Plough's private transportation services), office and support staff and
vacation benefits in accordance with Schering-Plough's plans, policies, and
practices and in a manner comparable to other senior executives.
Upon commencing employment with Schering-Plough, Mr. Bertolini became a
participant in Schering-Plough's Supplemental Executive Retirement Plan (SERP).
His agreement provides that he will receive an additional 20 years of benefit
service under the SERP that will vest upon his fifth anniversary of employment
with Schering-Plough. Mr. Bertolini's SERP benefit will be offset by his
retirement benefits from the qualified and non-qualified defined benefit
retirement plans of Schering-Plough and of any and all of his former employers.
In the event that Mr. Bertolini voluntarily terminates his employment after
attaining age 50, Schering-Plough will provide him with a special retirement
benefit equal to the difference between the estimated annual retirement benefit
that he would have received at such age from his former employer reduced by his
benefits under Schering-Plough's qualified and non-qualified defined benefit
retirement plans, including his SERP benefit.
If Schering-Plough terminates Mr. Bertolini's employment without cause or
if he terminates employment for good reason, he will be entitled to receive a
lump sum payment equal to three times his base salary and annual bonus
calculated at target. The amount of his severance payment will be offset by the
amount due Mr. Bertolini under any other severance program of Schering-Plough.
In addition, his outstanding stock options and restricted stock awards will
fully vest. Schering-Plough will also provide him with a fully vested unreduced
SERP benefit (calculated including the 20 years of additional credited benefit
service described in the preceding paragraph) payable at age 55 without
reduction for early retirement (or, at Mr. Bertolini's election, payable earlier
than age 55 with the application of actuarial assumptions). This fully vested
unreduced SERP benefit is also provided upon his termination due to death or
disability.
Mr. Bertolini also has an agreement with Schering-Plough that triggers an
employment period of three years or to age 65, if sooner, upon a change of
control or upon a termination of employment by
19
Schering-Plough in anticipation of a change of control. If, following a change
in control, Schering-Plough terminates Mr. Bertolini's employment other than for
cause or disability, or if he terminates employment for good reason, or if he
resigns during the one month "window" period one year after a change in control
of Schering-Plough, he will be entitled to receive (1) a cash payment equal to
his base salary through the date of termination of employment to the extent not
paid, any compensation previously deferred and due upon his termination of
employment, any accrued vacation pay, and any unreimbursed expenses; (2) a
pro-rata bonus payment based upon the greater of the highest annual bonus paid
in the three most recent fiscal years or the target annual bonus then in effect;
(3) a severance payment equal to three times the sum of (a) his annual base
salary, (b) his highest annual bonus paid in the three most recent fiscal years,
and (c) the amount of the highest contribution by Schering-Plough on his behalf
under Schering-Plough's qualified and nonqualified profit-sharing plans made in
the three years preceding his termination date; (4) a lump sum supplemental
pension amount based on three years of deemed employment or to age 65, if
sooner; (5) continued welfare benefits following termination for a period of
three years or to age 65, if sooner; (6) full vesting of the option and
restricted stock awards; (7) supplemental pension payments calculated without
application of any early retirement reduction factors if termination is at or
after age 50, provided that if his termination occurs prior to his reaching age
50, Mr. Bertolini will be entitled to a SERP benefit reduced for each year prior
to this 50th birthday by the same annual reduction factors as are applicable
under the SERP's pre-age 62 early retirement reduction schedule; and (8) if he
is at least age 45 as of his termination date, he will be entitled to retiree
medical coverage following the end of his other welfare benefit coverage
provided by Schering-Plough. Mr. Bertolini will also receive a gross-up payment
to the extent that any payment would constitute an excess parachute payment
under the Internal Revenue Code.
Ms. Cox's Agreement. In May 2003, Schering-Plough entered into an
employment agreement with Ms. Cox. Her agreement provides for her employment as
Executive Vice President and President, Global Pharmaceuticals, through May 31,
2008. The terms of her employment automatically extend for additional successive
one-year periods until October 1, 2022, unless either party to her agreement
elects to terminate the agreement at least 90 days prior to the end of any of
her employment periods. Ms. Cox's agreement also provides for a three-year
extension of her employment period in the event of a change of control. Under
her agreement, Ms. Cox will receive an annual base salary of at least $900,000.
She will be eligible to receive annual cash incentive awards in accordance with
Schering-Plough's cash bonus plans, as well as Schering-Plough's other executive
benefit and incentive plans. Ms. Cox's agreement also provided her with a
guaranteed minimum 2003 bonus equal to 80% of the base salary she received in
2003. Upon joining Schering-Plough, Ms. Cox received 100,000 shares of
restricted stock that vest on the third anniversary of her employment agreement,
and an option to purchase 450,000 common shares with a grant date of May 14,
2003, that vest as to 150,000 shares on each of the first, second and third
anniversaries of the grant date. She may also receive future grants under
Schering-Plough's stock incentive program consistent with other senior
executives and competitive pay practices generally. Her employment agreement
also provides for her participation in all employee compensation plans and
welfare benefit plans generally available to Schering-Plough's other senior
executives. Ms. Cox will also receive reimbursement of all reasonable business
expenses, fringe benefits (including security services and the use of
Schering-Plough's private transportation services), office and support staff and
vacation benefits in accordance with Schering-Plough's plans, policies, and
practices and in a manner comparable to other senior executives.
Ms. Cox's employment agreement also provides that if her employment is
terminated by reason of her death or disability, she or her estate or her
beneficiary will be entitled to receive a payment equal to (1) her base salary
through the date of termination of her employment to the extent not paid; (2)
any compensation previously deferred and due upon her termination of employment;
(3) any accrued vacation pay; and (4) any unreimbursed expenses. In addition,
the option and restricted stock awards granted to Ms. Cox upon her commencement
of employment will fully vest upon her termination of employment due to death or
disability. Upon termination of employment due to disability, Ms. Cox and her
family shall also continue to receive welfare benefits for two years after
termination. Under the agreement, if Schering-Plough terminates Ms. Cox's
employment without cause, if she terminates employment for good reason, or if
she resigns during the one-month "window" period one year after a change of
control of Schering-
20
Plough, Ms. Cox will be entitled to receive (1) a cash payment equal to her base
salary through the date of termination of employment to the extent not paid, any
compensation previously deferred and due upon her termination of employment, any
accrued vacation pay, and any unreimbursed expenses; (2) a pro-rata bonus
payment based upon the greater of the highest annual bonus paid in the three
most recent fiscal years or the target annual bonus then in effect; (3) a
severance payment equal to two times (or three times, if the qualifying
termination occurs within three years following a change of control) the sum of
(a) her annual base salary, (b) the greater of her highest annual bonus paid in
the three most recent fiscal years or her target annual bonus then in effect,
and (c) the amount of the contribution by Schering-Plough on her behalf under
Schering-Plough's qualified and nonqualified profit-sharing plans; (4) continued
welfare benefits for at least two years following her termination; (5) full
vesting of the option and restricted stock awards granted to Ms. Cox at the time
of her employment; and (6) a minimum benefit under Schering-Plough's
supplemental executive retirement plan equal to 26% of Ms. Cox's average final
earnings calculated using average final earnings as defined in the supplemental
executive retirement plan and modified by her employment agreement. Ms. Cox's
agreement gives her the right to terminate for good reason and receive the
benefits described in the immediately preceding sentence if Schering-Plough
gives her notice of its election to terminate or otherwise not extend her
employment at any time before October 1, 2022. Ms. Cox will also receive a
gross-up payment to the extent that any payment would constitute an excess
parachute payment under the Internal Revenue Code.
Dr. Pickett's Agreements. Dr. Pickett has an agreement with
Schering-Plough that triggers an employment period of three years or to age 65,
if sooner, upon a change of control or upon a termination of employment by
Schering-Plough in anticipation of a change of control. If, following a change
in control, Schering-Plough terminates Dr. Pickett's employment other than for
cause or disability, or if he terminates employment for good reason, or if he
resigns during the one month "window" period one year after a change in control
of Schering-Plough, he will be entitled to (1) a cash payment equal to his base
salary through the date of termination of employment to the extent not paid, any
compensation previously deferred and due upon his termination of employment, any
accrued vacation pay, and any unreimbursed expenses; (2) a pro-rata bonus
payment based upon the greater of the highest annual bonus paid in the three
most recent fiscal years or the target annual bonus then in effect; (3) a
severance payment equal to three times the sum of (a) his annual base salary,
(b) his highest annual bonus paid in the three most recent fiscal years, and (c)
the amount of the highest contribution by Schering-Plough on his behalf under
Schering-Plough's qualified and nonqualified profit-sharing plans made in the
three years preceding his termination date; (4) a lump sum supplemental pension
amount based on three years of deemed employment or to age 65, if sooner; (5)
continued welfare benefits following termination for a period of three years or
to age 65, if sooner; (6) supplemental pension payments calculated without
application of any early retirement reduction factors if termination is at or
after age 50; and (7) if he is at least age 45 as of his termination date, Dr.
Pickett will be entitled to retiree medical coverage following the end of his
other welfare benefit coverage provided by Schering-Plough. Dr. Pickett will
also receive a gross-up payment to the extent that any payment would constitute
an excess parachute payment under the Internal Revenue Code.
Mr. Sabatino's Agreement. In March 2004, Schering-Plough entered into an
employment agreement with Mr. Sabatino that provides for his employment as
Executive Vice President and General Counsel of Schering-Plough. Under his
agreement, Mr. Sabatino will receive an annual base salary of at least $650,000.
Mr. Sabatino's annual incentive opportunity is targeted at 70% of his base
salary, and he is entitled to receive a bonus guaranteed at target for 2004
unless his performance for 2004 is substantially inadequate. He will be eligible
to receive annual cash incentive awards in accordance with Schering-Plough's
cash bonus plans, as well as Schering-Plough's other executive benefit and
incentive plans. Upon joining Schering-Plough, Mr. Sabatino received 70,000
shares of restricted stock that vest on the third anniversary of the grant date
and an option to purchase 250,000 common shares that vests in three equal annual
installments beginning one year from the date of grant. He may also receive
future grants under Schering-Plough's stock incentive program consistent with
other senior executives and competitive pay practices generally. His employment
agreement also provides for his participation in all employee compensation plans
and welfare benefit plans generally available to Schering-Plough's other senior
21
executives. Mr. Sabatino will also receive reimbursement of all reasonable
business expenses, fringe benefits (including security services and the use of
Schering-Plough's private transportation services), office and support staff and
vacation benefits in accordance with Schering-Plough's plans, policies, and
practices and in a manner comparable to other senior executives.
If Schering-Plough terminates Mr. Sabatino's employment without cause, he
will be entitled to receive a lump sum payment equal to three times his base
salary and annual bonus calculated at target. The amount of his severance
payment will be offset by the amount due Mr. Sabatino under any other severance
program of Schering-Plough.
If, following a change in control, Schering-Plough terminates Mr.
Sabatino's employment other than for cause or disability, or if he terminates
employment for good reason, or if he resigns during the one month "window"
period one year after a change in control of Schering-Plough, he will be
entitled to receive (1) a cash payment equal to his base salary through the date
of termination of employment to the extent not paid, any compensation previously
deferred and due upon his termination of employment, any accrued vacation pay,
and any unreimbursed expenses; (2) a pro-rata bonus payment based upon the
greater of the highest annual bonus paid in the three most recent fiscal years
or the target annual bonus then in effect; (3) a severance payment equal to
three times the sum of (a) his annual base salary, (b) his highest annual bonus
paid in the three most recent fiscal years, and (c) the amount of the highest
contribution by Schering-Plough on his behalf under Schering-Plough's qualified
and nonqualified profit-sharing plans made in the three years preceding his
termination date; (4) a lump sum supplemental pension amount based on three
years of deemed employment or to age 65, if sooner; (5) continued welfare
benefits following termination for a period of three years or to age 65, if
sooner; (6) supplemental pension payments calculated without application of any
early retirement reduction factors if termination is at or after age 50; and (7)
if he is at least age 45 as of his termination date, Mr. Sabatino will be
entitled to retiree medical coverage following the end of his other welfare
benefit coverage provided by Schering-Plough. Mr. Sabatino will also receive a
gross-up payment to the extent that any payment would constitute an excess
parachute payment under the Internal Revenue Code.
Under Schering-Plough's Stock Incentive Plans, stock awards and stock
options granted to the named Executive Officers (and other participants in the
Plans) may vest and be cashed out upon a Change of Control.
STOCK OPTION INFORMATION
The following tables provide information with respect to stock options
granted to or exercised by the named Executive Officers during 2004 and the
year-end value of options held by such officers.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
----------------------------------------------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS GRANTED
OPTIONS TO EMPLOYEES IN EXERCISE EXPIRATION GRANT DATE
NAME GRANTED(A) FISCAL YEAR PRICE DATE PRESENT VALUE(B)
---- ---------- --------------- -------- ---------- ----------------
Fred Hassan...................... 1,100,000 5.63% $18.20 2/22/14 $7,711,000
Robert J. Bertolini.............. 250,000 1.28 18.20 2/22/14 1,752,500
Carrie S. Cox.................... 450,000 2.30 18.20 2/22/14 3,154,500
Cecil B. Pickett................. 225,000 1.15 18.20 2/22/14 1,577,250
Thomas J. Sabatino, Jr. ......... 250,000 1.28 17.37 4/14/14 1,632,500
(a) Option grants for the named Executive Officers who received grants in 2004
are exercisable in installments of 33 1/3% per year on each of the first
through third anniversaries of the grant date, except that transferable
options which are transferred become exercisable immediately upon transfer.
The exercise price of the options is the fair market value of the common
shares on the date of grant.
22
Options have a term of 10 years, and after the occurrence of a change of
control, they become exercisable and may be cashed out for a period of 60
days. If an optionee's employment is involuntarily terminated after a change
of control, any then-outstanding options that he or she held at the time of
the change of control will remain exercisable for their full remaining term,
notwithstanding the termination. The options granted during 2004 to Mr.
Hassan, Mr. Bertolini, and Ms. Cox are transferable in accordance with the
terms of the plan.
(b) The valuation calculations are solely for purposes of compliance with the
rules and regulations promulgated under the Exchange Act, and are not
intended to forecast possible future appreciation, if any, of
Schering-Plough's stock price. The grant date present value for the options
expiring on February 22, 2014 is derived by using the Black-Scholes option
pricing model with the following assumptions: the annualized dividend yield
at the time of grant (1.21%); volatility of the common shares based on
monthly total returns for the three years ended January 31, 2003 (26.77%);
an annualized risk-free interest rate of 4.38%; and an option term of 10
years. The grant date present value for the options expiring on April 14,
2014 is derived by using the Black-Scholes option pricing model with the
following assumptions: the annualized dividend yield at the time of grant
(1.27%); volatility of the common shares based on monthly total returns for
the three years ended March 31, 2004 (24.59%); an annualized risk-free
interest rate of 4.78%; 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 listed, the equivalent value of the appreciation of all
common shares of Schering-Plough outstanding on the grant date of those
options would be approximately $10 billion, of which the value of the named
Executive Officers' options would be 0.17%. This valuation model was not
adjusted for risk of forfeiture or the vesting restrictions of the options.
This valuation model does not necessarily represent the fair market value
of individual options. At the expiration date, the options will have no
actual value unless, and only to the extent that, the price of the common
shares appreciates from the grant date to the exercise date.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT FY-END(A) OPTIONS AT FY-END(A)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
Fred Hassan.............. -0- $-0- 600,000 1,400,000 $2,070,000 $3,983,000
Robert J. Bertolini...... -0- -0- 116,667 483,333 584,502 1,838,998
Carrie S. Cox............ -0- -0- 150,000 750,000 357,000 1,920,000
Cecil B. Pickett......... -0- -0- 733,534 344,866 1,352,257 838,595
Thomas J. Sabatino,
Jr. ................... -0- -0- -0- 250,000 0 877,500
(a) Based on the difference between the closing price of common shares on the
New York Stock Exchange on December 31, 2004 of $20.88 and the exercise
price of the option.
23
LONG TERM INCENTIVE PLAN INFORMATION -- AWARDS IN LAST FISCAL YEAR
The following tables show awards made in 2004 to the named executives under
Schering-Plough's long-term incentive plans and a special one-time program.
There is no assurance the named executives will receive any payout from these
awards since actual payouts will be based on Schering-Plough's performance over
three and five year performance periods.
Long Term Performance Share Unit Incentive Plan -- Based on Total Shareholder
Return
The awards granted under Long Term Performance Share Unit Incentive Plan
provide the named executive with the right to earn units denominated in common
shares based on Schering-Plough's achievement of its targeted 3-year compounded
total shareholder return, and 3-year total shareholder return ranking relative
to the Peer Group.
ESTIMATED FUTURE PAYOUTS UNDER
NONSTOCK PRICE-BASED PLANS
--------------------------------
NUMBER OF PERFORMANCE OR OTHER PERIOD THRESHOLD TARGET MAXIMUM
NAME UNITS(A) UNTIL MATURATION OR PAYOUT (UNITS) (UNITS) (UNITS)
---- --------- --------------------------- ---------- -------- --------
Fred Hassan................... 317,797 1/1/04 - 12/31/06 63,559 317,797 635,594
Robert J. Bertolini........... 91,949 1/1/04 - 12/31/06 18,390 91,949 183,898
Carrie S. Cox................. 122,034 1/1/04 - 12/31/06 24,407 122,034 244,068
Cecil B. Pickett.............. 90,508 1/1/04 - 12/31/06 18,102 90,508 181,016
Thomas J. Sabatino, Jr. ...... 72,035 1/1/04 - 12/31/06 14,407 72,035 144,070
(a) If Schering-Plough's performance does not meet the threshold level of
performance under the plan, no payment will be earned. To the extent
Schering-Plough's performance exceeds the threshold performance level under
the given plan, a varying level of award up to the maximum will be earned.
Once earned, the award is credited to the named executive's account under
Schering-Plough's non-qualified savings plan and vests as follows: 25% as of
12/31/06, 50% as of 12/31/07, and 25% as of 12/31/08. If the named executive
does not remain employed with Schering-Plough on each vesting date, the
related portion of the award will not vest and will be forfeited; in the
case of retirement, death, or disability occurring during the performance
period, the named executive (or his/her heirs) will receive a pro-rated
award; and if such event occurs after the performance period but before a
vesting date, the named executive (or his/her heirs) will receive the full
award. If a change of control occurs during the performance period, the
named executive will be credited with a pro-rated award based on the greater
of his or her target award or an award based on period-to-date performance.
If the named executive remains employed for a period of two years following
the change of control, or is involuntarily terminated other than for cause
or terminates for good reason within two years following the change of
control, he or she will be credited with an additional amount equal to 200%
of target less the pro-rated award described in the preceding sentence.
Dividends are accrued on target shares and reinvested on behalf of the named
executive as additional stock units.
24
Cash Long-Term Incentive Plan -- Based on Earnings Per Share Growth
The awards granted under the Cash Long-Term Incentive Plan provide the
named executive with the right to earn a cash payment based on Schering-Plough's
3-year compounded earnings per share growth, and 3-year compounded earnings per
share growth relative to the Peer Group.
ESTIMATED FUTURE PAYOUTS UNDER
NONSTOCK PRICE-BASED PLANS(B)
PERFORMANCE OR ------------------------------------
NUMBER OF OTHER PERIOD UNTIL THRESHOLD TARGET MAXIMUM
NAME DOLLARS(A) MATURATION OR PAYOUT (DOLLARS) (DOLLARS) (DOLLARS)
---- ---------- -------------------- --------- ---------- -----------
Fred Hassan................... $5,906,250 1/1/04 - 12/31/06 $590,625 $5,906,250 $11,812,500
Robert J. Bertolini........... $1,700,790 1/1/04 - 12/31/06 $170,079 $1,700,790 $ 3,401,580
Carrie S. Cox................. $2,280,000 1/1/04 - 12/31/06 $228,000 $2,280,000 $ 4,560,000
Cecil B. Pickett.............. $1,666,125 1/1/04 - 12/31/06 $166,613 $1,666,125 $ 3,332,250
Thomas J. Sabatino, Jr. ...... $1,277,733 1/1/04 - 12/31/06 $127,733 $1,277,733 $ 2,555,467
(a) If Schering-Plough's performance does not meet the threshold level of
performance under the plan, no payment will be earned. To the extent
Schering-Plough's performance exceeds the threshold performance level under
the given plan, a varying level of award up to the maximum will be earned.
Once earned, the award is credited to the named executive's account under
Schering-Plough's non-qualified savings plan and vests as follows: 25% as of
12/31/06, 50% as of 12/31/07, and 25% as of 12/31/08. If the named executive
does not remain employed with Schering-Plough on each vesting date, the
related portion of the award will not vest and will be forfeited; in the
case of retirement, death, or disability occurring during the performance
period,the named executive (or his/her heirs) will receive a pro-rated
award; and if such event occurs after the performance period but before a
vesting date, the named executive (or his/her heirs) will receive the full
award. If a change of control occurs during the performance period, the
named executive will be credited with a pro-rated award based on the greater
of his or her target award or an award based on period-to-date performance.
If the named executive remains employed for a period of two years following
the change of control, or is involuntarily terminated other than for cause
or terminates for good reason within two years following the change of
control, he or she will be credited with an additional amount equal to 200%
of target less the pro-rated award described in the preceding sentence.
(b) The target level of payment is based on the named executive's highest
annual bonus target during the performance period. Amounts shown are based
on the named executive's 2004 annual bonus target. Actual amounts may
differ depending upon the amount of the named executive's highest annual
bonus target during the 3-year performance period.
One-Time Transformational Performance Contingent Shares Grant
The following table shows a one-time grant of Transformational Performance
Contingent Shares. This special non-recurring grant was designed to provide a
reward opportunity for the senior leadership team commensurate with the team's
crucial role in stabilizing, repairing, turning around and transforming
Schering-Plough. There is no assurance the named executives will receive any
payout from these one-time awards since actual payouts will be based on
Schering-Plough's performance over a 5-year period measured by Schering-Plough's
achievement of its targeted 5-year compounded total shareholder return, and
5-year compounded total shareholder return relative to the Peer Group. If
Schering-Plough's
25
performance over the 5-year performance period is not in the top half of the
peer group, no payment will be earned under the grant.
ESTIMATED FUTURE PAYOUTS UNDER
NONSTOCK PRICE-BASED PLANS
PERFORMANCE OR --------------------------------
NUMBER OF OTHER PERIOD UNTIL THRESHOLD TARGET MAXIMUM
NAME UNITS(A) MATURATION OR PAYOUT (UNITS) (UNITS) (UNITS)
---- --------- -------------------- ---------- -------- --------
Fred Hassan.......................... 750,000 1/1/04 - 12/31/08 187,500 750,000 937,500
Robert J. Bertolini.................. 250,000 1/1/04 - 12/31/08 62,500 250,000 312,500
Carrie S. Cox........................ 250,000 1/1/04 - 12/31/08 62,500 250,000 312,500
Cecil B. Pickett..................... 250,000 1/1/04 - 12/31/08 62,500 250,000 312,500
Thomas J. Sabatino, Jr. ............. 237,500 1/1/04 - 12/31/08 59,375 237,500 296,875
(a) To the extent Schering-Plough's performance exceeds the threshold
performance level under the grant, a varying number of units of common
shares up to the maximum will be earned. If the named executive remains
actively employed with Schering-Plough on 12/31/08, the earned award will be
credited to the named executive's account under Schering-Plough's
non-qualified savings plan. Under that grant, the award will grow/diminish
in value as if invested in Schering-Plough common shares (with dividends
reinvested) and generally is not distributable until the year following
termination of employment. In the case of death or disability during the
performance period, the named executive will receive a pro-rated award. If a
change of control occurs during the performance period, the named executive
will be credited with a pro-rated award based on period-to-date performance.
Dividends are accrued on target shares and reinvested on behalf of the named
executive as additional stock units.
PENSION PLAN INFORMATION
PENSION PLAN TABLE
The approximate total annual benefits payable upon retirement at age 65 in
specified compensation and years of service classifications are shown in the
following table.
YEARS OF SERVICE
--------------------------------------------------------------
REMUNERATION 15 20 25 30 35
------------ ---------- ---------- ---------- ---------- ----------
$ 200,000........................ $ 70,000 $ 80,000 $ 90,000 $ 100,000 $ 110,000
400,000....................... 140,000 160,000 180,000 200,000 220,000
600,000....................... 210,000 240,000 270,000 300,000 330,000
800,000....................... 280,000 320,000 360,000 400,000 440,000
1,000,000....................... 350,000 400,000 450,000 500,000 550,000
1,200,000....................... 420,000 480,000 540,000 600,000 660,000
1,400,000....................... 490,000 560,000 630,000 700,000 770,000
1,600,000....................... 560,000 640,000 720,000 800,000 880,000
1,800,000....................... 630,000 720,000 810,000 900,000 990,000
2,000,000....................... 700,000 800,000 900,000 1,000,000 1,100,000
2,200,000....................... 770,000 880,000 990,000 1,100,000 1,210,000
2,400,000....................... 840,000 960,000 1,080,000 1,200,000 1,320,000
2,600,000....................... 910,000 1,040,000 1,170,000 1,300,000 1,430,000
2,800,000....................... 980,000 1,120,000 1,260,000 1,400,000 1,540,000
3,000,000....................... 1,050,000 1,200,000 1,350,000 1,500,000 1,650,000
3,200,000....................... 1,120,000 1,280,000 1,440,000 1,600,000 1,760,000
3,400,000....................... 1,190,000 1,360,000 1,530,000 1,700,000 1,870,000
3,600,000....................... 1,260,000 1,440,000 1,620,000 1,800,000 1,980,000
26
The table above reflects benefits on a life annuity basis and amounts
payable are not subject to Social Security or other offset. Retirement benefits
under Schering-Plough's nonqualified plans are payable on an annuity basis or on
a present value lump sum basis at the election of the executive. Covered
compensation consists of salary and bonus which, for the named Executive
Officers, is shown in the Summary Compensation Table on page 16. Benefits are
calculated with reference to the highest average annual compensation (salary and
bonus) for any period of 60 consecutive months during the last 120 months prior
to retirement. The actual credited years of service as of March 4, 2005 are: Mr.
Hassan (1 year), Mr. Bertolini (1 year), Ms. Cox (1 year), Dr. Pickett (11
years), and Mr. Sabatino (0 years).
As described in detail on page 19, Mr. Bertolini is entitled to an
additional 20 years of benefit service under Schering-Plough's supplemental
executive retirement plan that will vest upon his fifth anniversary of
employment with Schering-Plough. Mr. Bertolini's supplemental pension benefit
will be offset by his retirement benefits from the qualified and non-qualified
defined benefit pension plans of Schering-Plough and of any and all of his
former employers. Employment terms that may impact Mr. Bertolini's pension
benefits are described in detail on page 19 under "Mr. Bertolini's Agreement."
Descriptions of how employment terms may impact the named Executive
Officers' pension benefits are provided on page 18 under "Employment and Change
of Control Arrangements."
COMPENSATION COMMITTEE REPORT
The Compensation Committee is responsible for setting Schering-Plough's
executive compensation policy. The four Directors who serve on the Committee are
not employees of Schering-Plough and are not eligible to participate in
Schering-Plough's executive compensation programs. All Committee members are
independent under the New York Stock Exchange requirements and the more
restrictive Schering-Plough Board Independence Standard.
TOTAL COMPENSATION PHILOSOPHY
The Compensation Committee's overarching goal is to develop a total
compensation program for the Chief Executive Officer and other key executives
that will drive business performance and transformational change at
Schering-Plough. The program is designed to foster productive behaviors aligned
with Schering-Plough's long-term Action Agenda, consistent with the Company's
commitment to business integrity and other Leader Behaviors.
Effective in 2004, Schering-Plough implemented a new total compensation
philosophy. This new philosophy is based on guiding principles against which
Schering-Plough's compensation and benefits programs will be measured. The
objectives are to (1) maximize shareholder value over time, (2) reward above
average execution by providing opportunities for above average rewards, (3)
reward efforts that create long-term shareholder value, and (4) encourage
excellence by building an ownership mentality throughout Schering-Plough.
Under Schering-Plough's new total compensation philosophy, base salaries,
annual incentives, long-term incentives, benefits and total compensation for
Executive Officers and other key employees are targeted at the median of the
Peer Group (as defined below), but for certain high-potential, high-performing
individuals with critical skills and abilities, long-term incentives and total
compensation targets may be set at or above the 75th percentile of the market.
An important element of Schering-Plough's new total compensation philosophy
is share ownership guidelines that are applicable to the Chief Executive
Officer, Executive Officers and other key employees at Schering-Plough. Under
the new share ownership guidelines, executives and other key employees are
encouraged to acquire and maintain share holdings in Schering-Plough's stock in
amounts expressed as a multiple of base salary. The guidelines provide for a
five-year window period within which the share ownership is to be achieved and
subjects the Chief Executive Officer, Executive Officers and other key employees
to future reductions in stock option grants following the five-year window if
the share ownership is not achieved. These guidelines establish a clear link
between executive ownership, long-term strategic
27
thinking and compensation programs that are tied to Company performance and the
interests of the shareholders.
TOTAL COMPENSATION PROGRAM
Schering-Plough's executive compensation program is designed to serve the
Company'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 Schering-Plough's ability to attract and retain superior
executives;
- strongly align the interests of Schering-Plough's executives with those
of its shareholders; and
- provide a compensation package that balances individual contributions and
overall business results.
From time to time, the Committee selects, and when it deems appropriate is
advised by, an independent executive compensation consultant to assist in
evaluating the components of the executive compensation program. The Committee
also annually ratifies Schering-Plough's selection of a compensation consultant,
which works with Schering-Plough's Global Human Resources professionals and also
provides information to the Committee.
In determining executive compensation for 2004, the Committee evaluated
both the total compensation package and its individual elements. As part of its
review, the Committee considered compensation data for companies that represent
direct competitors for executive talent. The data includes information on those
global research-based drug and health care companies within the peer index used
in the performance graph (page 33) in the proxy statement (the "Peer Group"). In
addition, in order to ensure that the Company's total compensation is
appropriate for positions that are common in industries other than drug and
health care, the Committee considered, without particular weighting, other
general industry companies that the Committee believes are relevant to assure
competitiveness of the overall compensation package.
For 2004, an executive's total compensation consisted of four elements:
base salary, an annual incentive bonus opportunity, long-term incentives and
employee benefits. Due to the financial condition of the Company, and based on
the recommendation from the New Chief Executive Officer, the Committee decided
that no salary increases in 2004 would be awarded to the Executives named in the
Summary Compensation Table. There will be no base salary catch-up action in 2005
to replace this lost compensation.
BASE SALARY
The Committee assessed a number of factors in fixing the salary of the
Executive Officers (including those Executive Officers named in the proxy
statement). Those factors include:
- Competitive labor market position determined from market surveys
- Level of job responsibility
- Individual and team performance
- Demonstration of the Company's Leader Behaviors
The Committee also considered Schering-Plough's overall financial
performance, and in the case of Executive Officers with responsibility for a
particular business unit, that unit's financial results. These factors are not
weighted, and the Compensation Committee bases salary increases on an assessment
of the above factors.
Each year, the Committee reviews with the Chief Executive Officer his
performance ratings of the other Executive Officers and evaluates compensation
levels against levels at the competitor companies. The Committee targets
salaries of Schering-Plough's Executive Officers at or near the median of the
salary levels at the competitor companies. However, base salaries above the
median are necessary, in some cases,
28
to attract and retain key talent. Officer performance and base salaries are also
reviewed by the Committee annually.
ANNUAL INCENTIVE BONUS
In 2004, the shareholders approved the Schering-Plough Corporation
Operations Management Team Incentive Plan. Under the terms of the plan, target
annual cash incentives and specific performance criteria are established each
year for Executive Officers with the actual payout based on the extent to which
the performance criteria are met. Annual incentives are targeted at the median
of the peer group, with above-average and superior performance resulting in
actual payments above the median. Below a threshold level of performance, no
awards may be granted under the plan.
The Committee fixed specified percentages of base salary as target
incentive bonus awards for the Executive Officers. The actual amount of cash
incentive bonuses that the Committee may award under the Operations Management
Team Incentive Plan to Executive Officers for any year is determined by a
formula established by the Committee, which is based on business drivers from
Schering-Plough's annual operating plan. The Committee may, in its discretion,
reduce the amount of the incentive bonus award determined under the program
formula. However, the Committee may not increase the amount of any incentive
bonus award above the amount determined under the program formula. In no event
may an incentive bonus award for any year to any covered Executive Officer
exceed the maximum award specified in the incentive plan.
For 2004, awards were based on revenue, earnings per share and individual
performance. Actual earnings per share and revenue were based upon amounts
reported in Schering-Plough's financial statements in its Annual Report to
Shareholders, as adjusted for special unanticipated items identified by the
Committee.
In 2004, Schering-Plough did not fully meet the annual targets set forth in
the pre-established formula. Accordingly, the incentive funding for the
management team will be below target. Messrs. Bertolini and Sabatino will
receive their target bonus in lieu of a performance-based bonus for 2004 in
accordance with their employment agreements.
LONG-TERM INCENTIVES
The Committee believes that Schering-Plough's long-term incentives, which
are primarily stock-based compensation, align the interest of Executive Officers
with that of the shareholders, as any appreciation in the price of the stock
will benefit all shareholders commensurately. As a result, the compensation
program is designed such that at risk long-term incentive compensation, in the
form of stock options, restricted stock awards, performance stock units and cash
long-term incentives comprises the largest portion of total compensation package
for Executive Officers.
Stock Options -- Stock options provide executives with the opportunity to
purchase common shares of the Company, increase their equity in the Company and
share in the appreciation in the value of the stock. Under the 2002 Stock
Incentive Plan which has been approved by shareholders, the Committee may grant
stock options to Executive Officers and other key employees. Stock options are
awarded with an exercise price equal to the market price at the time of grant.
In determining the number of stock options to grant, the Committee relies on a
valuation of stock options provided by Schering-Plough's compensation consultant
using the Black-Scholes methodology as the basis for valuation.
For 2004, the Committee granted all annual options subject to a three-year
ratable vesting schedule. These options generally have a term of ten years. The
actual value of any options granted will depend entirely on the extent to which
Schering-Plough's common shares have appreciated in value at the time the
options are exercised. This provides an incentive for executives to create
wealth for the shareholders and provides rewards in proportion to the gain
received by other shareholders. Schering-Plough has not repriced outstanding
stock options in the past, and the Committee included a prohibition against
repricing outstanding stock options without shareholder approval in the 2002
Stock Incentive Plan. In addition,
29
Schering-Plough has adopted a formal policy against option repricing without
shareholder approval within its Corporate Governance Guidelines.
Commitment for 2005 Regarding Indexed Options -- Schering-Plough believes
traditional stock options are an important component of a competitive pay
package necessary to attract and retain top executive talent.
The Committee believes that traditional stock options have a performance
component, since the options have no value unless the stock price rises.
Pursuant to the terms of Schering-Plough's plans, all stock options have an
exercise price equal to the fair market value at the grant date. However,
Schering-Plough also understands that certain of its institutional investors
favor stock options with special performance-based vesting provisions.
As a result, the Company has committed that, starting in 2005, twenty
percent of the stock options granted to senior executives will be subject to a
performance-based vesting index (Indexed Options). The Committee appreciates the
dialogue and information from investors.
RESTRICTED STOCK AWARDS -- To Facilitate Employee Retention -- The
Committee may also grant restricted stock awards to Executive Officers and other
key employees under the 2002 Stock Incentive Plan. Under the Plan, the Committee
may establish performance goals based on one or more of the following: earnings
per share, return on equity, pre-tax earnings, operating profit and cash flow.
Under the current restricted stock award program, the Committee designates
performance goals for senior Executive Officers. If the performance goals are
not fully met, then the vesting of a covered executive's restricted stock award
is based on the degree to which the performance goals are achieved. The awards
are assigned a dollar value based on the share price at the time the award is
made. Vested award shares are distributable on the third anniversary of the date
of grant, or, if sooner, upon retirement. Cash payments equivalent to the amount
of dividends paid on common shares are paid on all shares of restricted stock
before they are distributed or forfeited.
PERFORMANCE STOCK UNITS -- Based on Total Shareholder Return -- Performance
stock units are used to focus executives on specific long-term goals that
directly impact the long-term performance of the Company. Performance stock
units generally are earned at the end of a three to five year performance period
based on the Company's total shareholder return and total shareholder return
relative to the Peer Group over that period. The units may include an additional
service requirement beyond the performance period in order to fully vest.
CASH LONG-TERM INCENTIVES -- Based on Earnings Per Share Growth -- Cash
long-term incentives are used to focus executives on specific long-term
operational excellence that directly impact the long-term performance of the
Company. Cash long-term incentives are earned at the end of a three year
performance period based on the Company's three-year earnings per share
performance and three-year earnings per share growth relative to the Peer Group
over that period. The incentives also include an additional service requirement
beyond the performance period in order to fully vest.
EMPLOYEE BENEFITS
Employee benefits offered to key executives are designed to be competitive
and to provide a "safety-net" of protection against the financial catastrophes
that can result from illness, disability or death, and to provide a reasonable
level of retirement income based on years of service with Schering-Plough. In
addition, senior executives are provided with other benefits mentioned in Note
(b) on page 16.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER FOR 2004
In setting Mr. Hassan's base salary for 2004, the Committee evaluated the
same factors which it considers in establishing the salary levels of the
Executive Officers generally, as well as the limitations of Section 162(m) of
the Internal Revenue Code relating to deductibility of certain executive
compensation. In addition, the Committee considered the status of Mr. Hassan as
Schering-Plough's most senior Officer, a review of the compensation for chief
executive officers of peer groups, the important role he played in
30
developing and leading the execution of the long-term Action Agenda and in
representing the Company and industry to external audiences. Mr. Hassan did not
receive separate compensation for serving as Chairman of the Board.
The Committee set Mr. Hassan's base salary of $1,500,000 for 2004, which
was unchanged from 2003. He also had the opportunity to earn a bonus for 2004
targeted at 125% of his base salary with an opportunity of up to 200% of his
base salary. Based on the Company's financial results in 2004 and Mr. Hassan's
substantial progress in stabilizing and repairing the Company, the Committee
approved an incentive payout of $1,556,300 for 2004.
In granting stock options and restricted stock awards to Mr. Hassan, the
Committee took into consideration his total compensation package, competitive
compensation data, the long-term nature of stock options and restricted stock
awards, overall corporate financial challenges, and his role both in attaining
2004 financial and operating results and building groundwork for future
performance including recruiting and integrating the senior leadership team. No
particular weighting was assigned to any factor.
In 2004, the Committee granted Mr. Hassan a stock option to purchase
1,100,000 shares and a performance restricted stock award for 200,000 shares.
The Committee has certified that the performance goal (based on earnings per
share) established for 2004 was satisfied. As a result, the 200,000 restricted
shares will vest in full on the third anniversary of the grant date.
The Committee awarded Mr. Hassan a one-time target grant of 750,000
performance share units under the Transformational Performance Contingent Shares
Program eligible to be earned, in the range of 0% to 125% of target, on December
31, 2008 based on the Company's five-year total shareholder return and the
Company's five-year total shareholder return as it relates to the peer group, or
a pro-rata payment upon a change-in-control of the Company, with the same terms
provided to other executive officers. The Committee also awarded Mr. Hassan a
target grant of 317,797 performance share units under the Long-Term Performance
Share Unit Incentive Plan eligible to be earned, in the range of 0% to 200% of
target, on December 31, 2006 based on the Company's three-year total shareholder
return and the Company's three-year total shareholder return as it relates to
the peer group, or upon a change-in-control of the Company, with the same terms
provided to other executive officers. One-quarter of the award earned would vest
on December 31, 2006, one-half would vest on December 31, 2007 and the remaining
one-quarter would vest on December 31, 2008.
The Committee awarded Mr. Hassan a cash long-term incentive award with a
target value of three (3) times his annual bonus target eligible to be earned,
in the range of 0% to 200% of target, on December 31, 2006 based on the
Company's three-year growth in earnings per share and the Company's three-year
growth in earnings per share as it relates to the peer group, or upon a
change-in-control of the Company, with the same terms provided to other
executive officers. One-quarter of the award earned would vest on December 31,
2006, one-half would vest on December 31, 2007 and the remaining one-quarter
would vest on December 31, 2008.
The Board evaluates the performance of Schering-Plough's Chief Executive
Officer at least annually based upon both Schering-Plough's financial
performance and the satisfaction of established strategic and business goals.
INTERNAL REVENUE CODE SECTION 162(M)
Section 162(m) of the Internal Revenue Code generally places a limit of
$1,000,000 on the amount of compensation that the Company may deduct in one year
with respect to each of its five most highly paid executive officers. Certain
qualifying performance-based compensation is not subject to the Section 162(m)
limit. The Committee has structured the annual incentive bonus, deferred
compensation and long-term equity-based compensation programs for its senior
executives so that such bonuses and restricted stock awards should constitute
qualifying performance-based compensation under Section 162(m). The Committee
also recognizes that unanticipated future events, such as a change of control of
Schering-Plough or a change in executive personnel, could result in a
disallowance of compensation
31
deductions under Section 162(m). Moreover, the Committee may from time to time
award compensation that is non-deductible under Section 162(m) when, in the
exercise of the Committee's business judgment, such award would be in the best
interests of Schering-Plough and its shareholders.
COMPENSATION COMMITTEE
Richard de J. Osborne, Chairman
Hans W. Becherer
Patricia F. Russo
Arthur F. Weinbach
32
PERFORMANCE GRAPH
COMPARISON OF CUMULATIVE TOTAL RETURN
FOR THE FIVE YEARS ENDED DECEMBER 31, 2004
(PERFORMANCE CHART)
The graph above assumes a $100 investment on December 31, 1999, and reinvestment
of all dividends, in each of the Company's Common Shares, the S&P 500 Index, and
a composite peer group of the major U.S.-based pharmaceutical companies, which
are: Abbott Laboratories, Bristol-Myers Squibb Company, Johnson & Johnson, Eli
Lilly and Company, Merck & Co., Inc., Pfizer Inc. and Wyeth. (Warner Lambert
Company and Pharmacia Corporation, which are no longer publicly traded after
being acquired by Pfizer, Inc., are no longer included in the peer index.)
33
PROPOSAL TWO: RATIFICATION OF DESIGNATION OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee selected Deloitte & Touche LLP (Deloitte) to audit
Schering-Plough's books and accounts for the year ending December 31, 2005, and
will offer a resolution at the meeting for shareholders to ratify the
designation. Deloitte has been the principal auditor of Schering-Plough since
Schering-Plough was formed in 1970.
Representatives of Deloitte will be present at the meeting to respond to
appropriate questions. They will have an opportunity, if they desire, to make a
statement at the meeting.
VOTE REQUIRED. The affirmative vote of a majority of the votes cast is
needed to ratify the designation of Deloitte & Touche LLP.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL TWO.
INFORMATION ABOUT FEES BILLED BY DELOITTE
Aggregate fees billed to Schering-Plough for 2004 and 2003 by Deloitte and
its affiliates are as follows:
TYPE SERVICES PROVIDED 2004 FEES 2003 FEES
---------------------- ---------- ----------
Audit Fees(1)
Audit Services for Financial Statements................... $5,397,500 $4,743,000
Audit Services for Sarbanes Oxley Section 404
Attestation............................................ $2,200,000 N/A
---------- ----------
Total..................................................... $7,597,500 $4,743,000
Audit-Related Fees(2)....................................... $ 902,500 $ 457,500
Tax Fees(3)................................................. $ 825,000 $ 751,000
All Other Fees.............................................. 0 0
---------------
(1) Fees for audit services for financial statements are for professional
services rendered for the audit of Schering-Plough's annual financial
statements, review of financial statements included in Schering-Plough's
10-Qs and services that are normally provided by the independent accountant
in connection with statutory and regulatory filings and engagements.
Fees for audit services for Sarbanes-Oxley Section 404 attestation are for
services required in order for the independent auditor to provide the
required report regarding the design and testing of internal controls over
financial reporting, as required by the Section 404 of the Sarbanes-Oxley
Act of 2002 and rules implementing such Section promulgated by the Public
Company Accounting Oversight Board.
(2) Audit-related fees are for assurance and related services that are
reasonably related to the performance of the audit of the annual financial
statements and the review of the financial statements in the 10-Qs such as
audits of employee benefits plans, consultation on accounting and auditing
matters, audits under commercial contracts and requested audits or agreed
upon procedures regarding corporate matters or subsidiaries.
(3) Tax fees are for preparation of international tax returns and other services
directly related to such returns. (In situations where the tax return in
question has not yet been completed because it is not yet due, the work
relates to the 2004 tax year and the related fees have been pre-approved but
will not be billed until the tax return is completed.)
34
PRE-APPROVAL PROCESS FOR WORK PERFORMED BY DELOITTE AND RELATED FEES
The Audit Committee pre-approves all services provided by Deloitte or its
affiliates and the related fees. They did so for all 2003 and 2004 services and
will continue the pre-approval process in the future. The pre-approval process
includes the following steps:
- The independent auditors, Schering-Plough management and Schering-Plough
counsel all confirm that the proposed services are not prohibited
services by regulations of the SEC or the Public Company Accounting
Oversight Board.
- The Committee determines that neither the nature of the services provided
nor the related fees would impair the independence of Deloitte.
- Deloitte provides a written report to the Committee at least quarterly
listing the services that have been pre-approved and the related fees,
broken down by project and classified into categories of audit,
audit-related, tax and other non-audit.
- The Committee has specified that it will not consider for pre-approval
any fees for general tax planning or tax strategy services.
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors has four members. Each member
is an independent Director, as independence is defined in the New York Stock
Exchange listing standards, the more restrictive Schering-Plough Board
Independence Standard and Rule 10A-3(b)(1) under the Exchange Act.
The Audit Committee operates under a written Charter adopted by the Board.
The Charter is attached to this proxy statement as Exhibit A and also is
available on Schering-Plough's website. The Board has determined that the
Committee Chairman, Arthur F. Weinbach, meets the SEC requirements for, and has
designated him as, the Audit Committee Financial Expert.
The Audit Committee is appointed by the Board to assist the Board in its
oversight function by monitoring, among other things, the integrity of
Schering-Plough's consolidated financial statements, the financial reporting
process, the independence and performance of the independent auditors, and the
performance of the corporate auditors. It is the responsibility of
Schering-Plough executive management to prepare financial statements in
accordance with generally accepted accounting principles and of the independent
auditors to audit those financial statements. The Audit Committee has the sole
authority and responsibility to select, appoint, evaluate and, where
appropriate, replace the independent auditors.
In this context, the Audit Committee has met and held discussions with
management, the independent auditors, and the corporate auditors. Management
represented to the Audit Committee that Schering-Plough's consolidated financial
statements were prepared in accordance with generally accepted accounting
principles, and the Audit Committee has reviewed and discussed the audited
consolidated financial statements with management, the independent auditors and
the corporate auditors. The Audit Committee discussed with the independent
auditors matters required to be discussed by Statement on Auditing Standards No.
61 (Communication with Audit Committees), as amended.
In addition, the Audit Committee has received the written disclosures and
the letter required by the Independence Standards Board Standard No. 1
(Independence Discussions With Audit Committees) from the independent auditors
and has discussed with the independent auditors the independent auditor's
independence from Schering-Plough and its management. Further, the Audit
Committee has considered whether the non-audit services provided by the
independent auditors are compatible with maintaining the auditor's independence.
Further, the Audit Committee periodically meets with both the corporate
auditors and the independent auditors, with and without management present, to
discuss the results of their examinations,
35
the evaluations of Schering-Plough's internal controls, and the overall quality
of Schering-Plough's financial reporting.
During 2004, the Audit Committee met privately with the independent
auditors four times and the corporate auditors four times.
Based on the reviews and discussions referred to above, and subject to the
limitations on the role and responsibilities of the Audit Committee referred to
above and set forth in the Charter, the Audit Committee recommended to the Board
that the audited consolidated financial statements be included in
Schering-Plough's 2004 10-K for filing with the Securities and Exchange
Commission.
AUDIT COMMITTEE
Arthur F. Weinbach, Chairman
Hans W. Becherer
Eugene R. McGrath
Robert F. W. van Oordt
36
PROPOSALS THREE AND FOUR: SHAREHOLDER PROPOSALS
Proposals three and four are shareholder proposals. If the shareholder
proponents, or representatives who are qualified under state law, are present
and submit these proposals for a vote, then the proposals will be voted upon at
the Annual Meeting. To make sure readers can easily distinguish between material
provided by the proponents and material provided by the Company, there is a box
around the material provided by the proponents.
VOTE REQUIRED. The affirmative vote of a majority of the votes cast is
required to approve the shareholder proposals.
PROPOSAL THREE
You can obtain the name and address of the proponent by request to the
Office of the Corporate Secretary. The Board's recommendation about Proposal
Three is on the next page.
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SHAREHOLDER PROPOSAL
3 -- Elect Each Director Annually
RESOLVED: Shareholders request that our Directors take the necessary steps, in
the most expeditious manner possible, to adopt and implement a bylaw requiring
each director to be elected annually.
I hope that this proposal can be implemented promptly with each director
elected to a one-year term starting in 2006. This would be similar to the
Safeway Inc. 2004 definitive proxy example.
Strong Investor Concern
Thirty-five (35) shareholder proposals on this topic achieved an impressive
70% average supporting vote in 2004. The Council of Institutional Investors
www.cii.org, whose members have $2 trillion invested, recommends adoption of
this proposal topic.
Annual election of each director would also enable shareholders to vote
annually on each member of our key Audit Committee. This is particularly
important because poor auditing had a key role in the $200 billion-plus combined
market-value loss at Enron, Tyco, WorldCom, Qwest and Global Crossing.
Progress Begins with a First Step
I believe that the need to take the above RESOLVED step is reinforced by
viewing our overall corporate governance fitness which is not impeccable. For
instance in 2004 it was reported:
- Our board was protected by an active poison pill -- accountability
concern.
- An awesome 80% shareholder vote was required to make certain key
changes -- entrenchment concern.
- We had no Lead Director or Independent Chairman.
- 2003 CEO pay was reported as $10 million including stock option grants.
Source: Executive PayWatch Database,
http://www.aflcio.org/corporateamerica/paywatch/ceou/database.cfm
- The record 2002 FDA fine of $500 million levied against our company still
remains as a serious red flag against our board -- particularly the
directors with longer tenure.
Shareholder proposal text to address some of these topics can be found on
the internet and similar text can be used to submit a ballot proposal to our
company for the next annual meeting.
Best for the Investor
Arthur Levitt, Chairman of the Securities and Exchange Commission, 1993-2001
said: In my view it's best for the investor if the entire board is elected once
a year. Without annual election of each director shareholders have far less
control over who represents them.
"Take on the Street" by Arthur Levitt
Elect Each Director Annually
Yes on 3
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37
BOARD OF DIRECTORS STATEMENT IN OPPOSITION TO PROPOSAL THREE
Directors are elected for three year terms on a staggered basis under the
present system rather than for one-year terms as suggested by the proposal. The
present system has been in place since 1985. The Board considers this and other
governance structures from time to time in light of the Company's particular
circumstances. As part of its analysis the Board receives advice from outside
experts who are knowledgeable about these circumstances.
As shareholders know, the new management team is working on the Action
Agenda with the goal of stabilizing and then turning around Schering-Plough. The
Board believes that, in light of these challenges, the present system offers
significant advantages to Schering-Plough and its shareholders as explained
below.
The Board believes a classified board structure enhances the Board's
ability to negotiate the best results for the shareholders in a takeover
situation. Potential acquirors would be encouraged to negotiate with the Board
since it could take more than one annual meeting to effect a change in control
of the Board. Therefore, this structure can provide the Board additional time to
evaluate the adequacy and fairness of any takeover proposal and to consider
alternative methods of maximizing shareholder value, as well as leverage in
negotiating a transaction that is optimal for Schering-Plough shareholders. This
advantage is particularly important at this critical time in the Action Agenda.
The Board believes another advantage provided by the classified board
structure is that at all times a majority of Directors will have specific
knowledge of Schering-Plough's business. This fosters an in-depth focus on
long-term strategy and other areas of oversight, as well collaborative
deliberations. These advantages are also critical as the Board provides
oversight of management's work on the Action Agenda.
FOR THESE REASONS, THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE AGAINST PROPOSAL
THREE.
38
PROPOSAL FOUR
The Board's recommendation about Proposal Four is on the next page.
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SHAREHOLDER PROPOSAL
This Proposal is submitted by concerned shareholders.(1)
WHEREAS:
We as shareholders wish to minimize animal testing:
statistics show that a majority of painful and distressing animal
experiments are conducted to satisfy outdated, government-mandated testing
requirements(2) and that such testing is on the rise;(3)
the majority of animals used in regulatory testing experience pain without
any pain relief;(4)
non-animal test methods are generally cheaper, faster and more humane, than
animal-based tests;
unlike animal tests, non-animal methods have been scientifically validated
and/or accepted as total replacements for the following five toxicity
endpoints: skin corrosion (irreversible tissue damage), skin irritation
(milder and reversible damage), skin absorption (the rate of chemical
penetration), phototoxicity (an inflammatory reaction caused by the
interaction of a chemical with sunlight), and pyrogencity (a fever-like
reaction that can occur when certain intravenous drugs interact with the
immune system);
RESOLVED, that the shareholders request that the Board:
1. Commit specifically to using only non-animal methods for assessing
skin corrosion, irritation, absorption, phototoxicity and
pyrogenicity.
2. Confirm that it is in the Company's best interest to commit to
replacing animal-based tests with non-animal methods.
3. Petition the relevant regulatory agencies requiring safety testing
for the Company's products to accept as total replacements for
animal-based methods, those approved non-animal methods described
above, along with any others currently used and accepted by the
Organization for Economic Cooperation and Development (OECD) and
other developed countries.
Supporting Statement: This Resolution is designed to harmonize the
interests of sound science with the elimination of animal-based test methods
where non-animal methodologies exist. It seeks to encourage the relevant
regulatory agencies to join their peers in accepting validated in vitro and
other non-animal test methods. It will not compromise consumer safety or violate
applicable statutes and regulations.
Further, this Resolution commits the Company to end animal testing for five
specific endpoints in favor of valid non-animal methods. These include the 3T3
Neutral Red Uptake Phototoxicity Test, human skin equivalent tests for
corrosivity, and a human blood-based test for pyrogenicity, all of which have
been successfully validated through the European Centre for the Validation of
Alternative Methods.(5) Several non-animal methods have also been adopted as
Test Guidelines by the OECD(6) (an alliance of 30 member countries including the
US, EU, Japan, Canada and Australia). Regulatory agencies in OECD member
countries are not at liberty to reject data from non-animal tests for skin
corrosion, skin absorption and phototoxicity where such data have been generated
in accordance with an OECD Test Guideline.
We urge shareholders to support this Resolution.
---------------
(1) The proponents are: Chicago Exhibitors Corporation, Stablecott Properties
Ltd; Claude Brunet Associes Inc., Michele Lacroix Associes, Benjamin Stein,
and Joan Trombetta.
(2) CCAC Animal Use Survey -- 2001:
http://www.ccac.ca/english/FACTS/Facframeaus2001.htm.
(3) Statistics of Scientific Procedures on Living Animals -- Great
Britain -- 2002.
http://www.official-documents.co.uk/document/cm58/5886/5886.htm
(4) CCAC Animal Use Survey 2001.
(5) ECVAM website: http://ecvam.jrc.jt
(6) OECD test
guidelines:
http://www.oecd.org/document/22/0_2340.en_2649_34377_1916054_1_1_1_1.00.html
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39
BOARD OF DIRECTORS STATEMENT IN OPPOSITION TO PROPOSAL FOUR
Schering-Plough is a global science-based health care company with leading
prescription, consumer and animal health products. Through internal research and
collaborations with partners, Schering-Plough discovers, develops, manufactures
and markets advanced drug therapies to meet important medical needs.
Schering-Plough has long followed an Animal Research Care and Use Policy
that includes a commitment to identifying, developing and using alternatives to
laboratory animal testing whenever possible. Further, the Policy provides that
when animal testing is needed, Schering-Plough is committed to standards of
humane and responsible animal care set forth by both government and private
agencies.
Schering-Plough believes implementation of the proposal would be
inconsistent with our commitment to doing all we can do to save the lives and
improve the health of the patients -- both people and animals -- who use our
products.
THE BOARD RECOMMENDS A VOTE AGAINST PROPOSAL FOUR.
40
CONTACTS FOR SHAREHOLDERS
Schering-Plough is interested in shareholders' questions and comments.
Corporate officers serve as liaisons to learn from shareholders and to share
that information with senior management and the Board. Shareholders are asked to
use the contacts noted below to ensure that the information is conveyed to
senior management and the Board.
Issues regarding the Schering-Plough's business, financial matters or stock
performance should be directed to the Investor Relations Department as follows:
Investor Relations Department
Schering-Plough Corporation
2000 Galloping Hill Road
Mail Stop: K-1-4 4275
Phone: 908-298-7436
Fax: 908-298-7082
Issues regarding Schering-Plough's corporate governance or social issues
that impact Schering-Plough should be directed to the Office of the Corporate
Secretary, as follows:
Office of the Corporate Secretary
Schering-Plough Corporation
2000 Galloping Hill Road
Mail Stop:K-1-4 4525
Phone: 908-298-3636
Fax: 908-298-7303
One example of Schering-Plough's interaction with shareholders about
corporate governance matters during 2004 is transparency about political
contributions. During 2004, certain of Schering-Plough's religious investors,
including the Adrian Dominican Sisters, communicated that they would find
information valuable about how Schering-Plough determines to make political
contributions, what contributions it has made and to confirm the Board's
oversight of these matters. After consideration, Schering-Plough determined that
it will post information on the Corporate Responsibility section of its website
at www.schering-plough.com, in a new section titled "Participation in the
Political Process" and also held a meeting in 2005 with the religious investors
on this and other topics of interest.
Another example is dialogue and information provided in 2003 to Donald L.
Miller, who was Chairman of the Compensation Committee at the time, and
Schering-Plough executives in meetings with CalPERS regarding executive
compensation metrics and to executives meeting with Amalgamated Bank LongView
Collective Investment Fund regarding performance-based stock options. These
interactions were helpful in the compensation plan design, including the indexed
stock options described in the Compensation Committee Report.
SHAREHOLDER PROPOSALS FOR INCLUSION IN 2006 PROXY STATEMENT
Schering-Plough encourages shareholders to contact the Office of the
Corporate Secretary prior to submitting a shareholder proposal or any time they
have concerns about Schering-Plough. At the direction of the Board and the
Chairman and Chief Executive Officer, that Office acts as the corporate
governance liaison to shareholders.
If any shareholder intends to present a proposal for consideration at the
2006 Annual Meeting of Shareholders, such proposal must be received by
Schering-Plough not later than November 14, 2005 for inclusion, pursuant to Rule
14a-8 under the Exchange Act, in Schering-Plough's proxy statement for such
meeting. Such proposal also will need to comply with Securities and Exchange
Commission regulations regarding the inclusion of shareholder proposals in
Schering-Plough-sponsored proxy materials. Shareholder proposals are required to
be submitted to the Office of the Corporate Secretary at the above address in
41
order to allow the Company to identify the proposal as being subject to Rule
14a-8 and to respond in a timely manner.
OTHER SHAREHOLDER PROPOSALS FOR PRESENTATION AT 2006 ANNUAL MEETING
The By-laws of Schering-Plough provide a formal procedure for bringing
business before the Annual Meeting. A shareholder proposing to present a matter
before the 2006 Annual Meeting is required to deliver a written notice to the
Secretary of Schering-Plough, no earlier than December 27, 2005 and no later
than January 26, 2006. In the event that the date of the Annual Meeting is more
than 30 days before or more than 60 days after the anniversary date of the
preceding year's Annual Meeting, the notice must be delivered to the Secretary
of Schering-Plough, not earlier than the 120th day prior to the Annual Meeting
and not later than the later of the 90th day prior to the Annual Meeting or the
10th day following the day on which public announcement of the date of such
meeting is first made by Schering-Plough. The notice must contain a brief
description of the business desired to be brought, the reasons for conducting
such business, the name and address of the shareholder and the number of shares
of Schering-Plough's stock the shareholder beneficially owns, and any material
interest of the shareholder in such business. If these procedures are not
complied with, the proposed business will not be transacted at the Annual
Meeting. Such By-law provisions are not intended to affect any rights of
shareholders to request inclusion of proposals in Schering-Plough's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
Pursuant to Rule 14a-4 under the Exchange Act, if a shareholder notifies
Schering-Plough after January 27, 2006 of an intent to present a proposal at
Schering-Plough's 2006 Annual Meeting of Shareholders (and for any reason the
proposal is voted upon at that Annual Meeting), Schering-Plough's proxy holders
will have the right to exercise discretionary voting authority with respect to
the proposal, if presented at the meeting, without including information
regarding the proposal in its proxy materials.
DIRECTOR NOMINATION PROCEDURES
The Nominating and Corporate Governance Committee will consider shareholder
recommendations for Directors. Shareholder recommendations must be forwarded by
the shareholder to the Secretary of Schering-Plough with biographical data about
the recommended individual.
The By-Laws of Schering-Plough provide the formal procedure for nominations
by shareholders of Director candidates. A shareholder intending to make such a
nomination is required to deliver to the Secretary of Schering-Plough, not less
than 30 days prior to a meeting called to elect Directors, a notice with the
name, age, business and residence addresses and principal occupation or
employment of, and number of shares of stock of Schering-Plough beneficially
owned by, such nominee, such other information regarding the nominee as would be
required in a proxy statement prepared in accordance with the proxy rules of the
Securities and Exchange Commission, and a consent to serve, if elected, of the
nominee. A nomination not made in accordance with this procedure would be void.
OTHER BUSINESS
The Board of Directors knows of no other business which will be presented
at the meeting. If, however, other matters are properly presented, the persons
named in the enclosed proxy will vote the shares represented thereby in
accordance with the recommendation of the Board of Directors as to such matters,
or if no recommendation is made by the Board, then in accordance with their best
judgment pursuant to the authority granted in the proxy.
42
COMPLIANCE WITH CORPORATE GOVERNANCE LISTING STANDARDS
The Company submitted an unqualified certification to the NYSE in 2004
regarding the Company's compliance with the NYSE corporate governance listing
standards.
SOLICITATION OF PROXIES
Schering-Plough has retained Georgeson Shareholder Communications, Inc. to
solicit proxies for a fee of $15,000, plus reasonable out-of-pocket expenses.
Solicitation of proxies will be undertaken through the mail, in person and by
internet and may include solicitation by officers and employees of
Schering-Plough. Costs of solicitation will be borne by Schering-Plough.
By Order of the Board of Directors
Susan Ellen Wolf
Corporate Secretary
43
EXHIBIT A
SCHERING-PLOUGH CORPORATION
AUDIT COMMITTEE
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CHARTER
PURPOSE
The Committee is appointed by the Board of Directors to assist the Board in
its oversight function by monitoring the following:
1. integrity of the Company's financial statements,
2. independent auditors' qualifications and independence,
3. performance of the Company's corporate audit function and
independent auditors, and
4. compliance by the Company with legal and regulatory requirements.
It is the responsibility of executive management of the Company to prepare
financial statements in accordance with generally accepted accounting principles
and of the independent auditors to audit those financial statements. It is not
the responsibility of the Committee to plan or conduct audits or to determine
that the Company's financial statements are complete and accurate or are in
compliance with generally accepted accounting principles.
The Audit Committee and the other Committees of the Board will coordinate
their compliance and risk oversight efforts to the extent necessary or
appropriate to ensure the complete and proper exchange of information.
MEMBERSHIP
The Committee shall be comprised of at least three Directors. Members shall
be appointed, and may be removed by the Board upon the recommendation of the
Nominating and Corporate Governance Committee.
The Committee shall meet the independence, financial literacy and expertise
requirements of the New York Stock Exchange, the requirements of Section
10A(m)(3) of the Securities Exchange Act of 1934 and the rules and regulations
of the Securities and Exchange Commission ("SEC").
Committee members shall not simultaneously serve on the audit committees of
more than two other public companies.
MEETINGS AND OPERATION
The Committee shall meet at least quarterly, and more frequently as it may
determine advisable in light of its responsibilities as set forth in this
Charter. The Committee Chair sets the agenda for each meeting and determines the
length and frequency of meetings.
The Committee shall meet periodically, and at a minimum four times per
year, in separate executive sessions with management, the internal auditors and
the independent auditor. The Committee may request any officer or employee of
the Company, outside counsel or the independent auditors to attend a meeting of
the Committee or to meet with any members of, or consultants to, the Committee.
The Committee shall determine how to best operate, including whether to
delegate any responsibilities to subcommittees.
The Committee shall operate in full compliance with the New York Stock
Exchange requirements for audit committees and other applicable laws and
regulations.
INDEPENDENT AUDITOR
The independent auditor shall report directly to the Committee. The
Committee has the sole authority and responsibility to select, appoint, evaluate
and, where appropriate, replace the independent auditor. The Committee shall be
directly responsible for the compensation and oversight of the work of the
independent auditor (including resolution of disagreements between management
and the independent auditor regarding financial reporting) for the purpose of
preparing or issuing an audit report or related work.
RESPONSIBILITIES
In carrying out its purposes, the Committee's policies and procedures
should remain flexible, so that it may be in a position to best react or respond
to changing circumstances or conditions. While there is no "blueprint" to be
followed by the Committee in carrying out its purposes, the following should be
considered within the responsibilities and authority of the Committee:
1. Select Independent Auditors. Select the independent auditors
annually.
2. Matters Concerning the Independence of Independent
Auditors. Review and discuss with the independent auditors the written
disclosures required by Independence Standards Board Standard No. 1
regarding their independence and, where appropriate, recommend that the
Board take appropriate action in response to the disclosures to satisfy
itself of the independence of the independent auditors.
Ensure the rotation of the lead (or coordinating) audit partner having
primary responsibility for the audit and the audit partner responsible for
reviewing the audit as required by law.
Set policies for the Company's hiring of employees or former employees
of the independent auditor.
Preapprove all auditing services and permitted non-audit services
(including the fees and terms thereof) to be performed for the Company by
its independent auditor. The Committee may form and delegate authority to
subcommittees consisting of one or more members when appropriate, including
the authority to grant preapprovals of audit and permitted non-audit
services, provided that decisions of such subcommittee to grant
preapprovals shall be presented to the full Committee at its next scheduled
meeting.
3. Review Quality Control Process of Independent Auditor. Obtain and
review a report from the independent auditor at least annually regarding
(a) the independent auditors' internal quality-control procedures, (b) any
material issues raised by the most recent internal quality-control review,
or peer review, of the firm, or by any inquiry or investigation by
governmental or professional authorities within the preceding five years
respecting one or more independent audits carried out by the firm, (c) any
steps taken to deal with any such issues, and (d) all relationships between
the independent auditor and the Company. Present the conclusions of its
review with respect to the independent auditors to the Board.
4. Review Audit Plan. Review with the independent auditors their
plans for, and the scope of, their annual audit.
5. Conduct of Audit. Discuss with the independent auditors the
matters required to be discussed by Statement on Auditing Standards Nos.
61, 89 and 90 relating to the conduct of the audit, including any
difficulties encountered in the course of the audit work and management's
response, any restrictions on the scope of activities or access to
requested information, and any significant disagreements with management.
6. Review Audit Results. Review with the independent auditors the
report of their annual audit, or proposed report of their annual audit, the
accompanying management letter, if any, and the reports
A-2
of their reviews of the Company's interim financial statements conducted in
accordance with Statement on Auditing Standards No. 100.
7. Review Annual Financial Statements. Review and discuss with
management and the independent auditors the audited financial statements
and the disclosures to be made in management's discussion and analysis.
Recommend to the Board whether the audited financial statements should be
included in the 10-K.
8. Review Quarterly Financial Results. Review and discuss with
management the Company's earnings press releases, including the use of "pro
forma" or "adjusted" non-GAAP information. Review with management generally
the types of financial information and presentation to be provided to
analysts and rating agencies, including whether earnings guidance will be
provided.
9. Review Quarterly Financial Statements. Review and discuss with
management and the independent auditor the quarterly financial statements
and the disclosures to be made in the MD&A prior to filing the 10-Q.
Discuss with the independent auditors their review of the quarterly
financial statements.
10. Financial Reporting Issues and Judgments; Related
Matters. Discuss with management and the independent auditor significant
financial reporting issues and judgments made in connection with the
preparation of the Company's financial statements, including any
significant changes in the Company's selection or application of accounting
principles, any major issues as to the adequacy of the Company's internal
controls and any special steps adopted in light of material control
deficiencies.
Review and discuss quarterly reports from the independent auditors on:
(a) All critical accounting policies and practices to be used.
(b) All alternative treatments of financial information within
generally accepted accounting principles that have been discussed with
management, ramifications of the use of such alternative disclosures and
treatments, and the treatment preferred by the independent auditor.
(c) Other material written communications between the independent
auditor and management, such as any management letter or schedule of
unadjusted differences.
(d) Reports and disclosures of any insider or affiliated party
transactions.
Discuss with management and the independent auditor the effect of
regulatory and accounting initiatives as well as off-balance sheet
structures on the Company's financial statements.
Discuss with management and the independent auditor any correspondence
or published report which raises material issues regarding the Company's
financial statements or accounting policies that is issued by the U.S.
Securities and Exchange Commission or the New York Stock Exchange or other
governmental agencies.
11. Review Corporate Audit Program. Review annually with the senior
corporate auditing executive the budget, staffing and proposed scope of the
corporate auditing department activities. Review annually the results of
the corporate audit activities.
Review the appointment and replacement of the senior corporate
auditing executive.
Approve a matrix for the timing and scope of reporting by Corporate
Audit to the Committee and the Business Practices Oversight Committee (in
consultation with the Chair of that Committee); receive and review reports
to the Committee pursuant to such matrix from the senior corporate auditing
executive.
12. Complaints regarding Accounting and Auditing Matters. Establish
procedures for the receipt, retention and treatment of complaints received
by the Company regarding accounting, internal accounting controls or
auditing matters, and the confidential, anonymous submission by employees
of concerns regarding questionable accounting or auditing matters.
A-3
13. Review Systems of Internal Controls Over Financial
Reporting. Review with management, the senior corporate auditing executive
and the independent auditors the adequacy of the Company's internal
controls over financial reporting that could significantly affect the
Company's financial statements.
Review disclosures made to the Committee by the Company's CEO and CFO
during their certification process for the Form 10-K and Form 10-Q about
any significant deficiencies in the design or operation of internal
controls over financial reporting or material weaknesses therein and any
fraud involving management or other employees who have a significant role
in the Company's internal controls over financial reporting. Review and
discuss with the Chief Financial Officer, the senior Corporate Audits
executive and the independent accountants the Company's report on internal
controls over financial reporting and the auditors attestation relating
thereto, prior to such documents being included in the 10-K.
14. Securities Exchange Act of 1934. Obtain assurance from the
independent auditor that Section 10A(b) of the Securities Exchange Act of
1934 has not been implicated.
15. Legal, Compliance and Risk Management Matters.
- At least annually, the Committee or its Chair will meet with the
Business Practices Oversight Committee or its Chair to review
compliance and risk matters, including material reports or inquiries
received from governmental agencies and material litigation. When such
meetings are held by the Committee Chair, he or she will report on
such meetings to the full Committee.
- Review with the Company's General Counsel legal matters that may have
a material impact on the financial statements and legal and compliance
matters that involve financial reporting or SEC compliance.
- Discuss with management the Company's major financial risk exposures
and the steps management has taken to monitor and control such
exposures, including the Company's risk assessment and risk management
policies.
16. Prepare Proxy Statement Report. Prepare the report of the
Committee required by the rules of the SEC to be included in the Company's
annual proxy statement.
17. Review Other Matters. Review such other matters in relation to
the accounting, auditing, financial reporting and related compliance
practices and procedures of the Company as the Committee may, in its own
discretion, deem desirable in connection with the review functions
described above.
18. Board Reports. Regularly report its activities to the Board in
such manner and at such times as it deems appropriate. The Committee shall
review with the Board any issues that arise with respect to the quality or
integrity of Schering-Plough's financial statements, compliance with legal
or regulatory requirements, the performance and independence of the
independent auditors or the performance of the corporate auditors.
19. Review Committee Performance. Annually review its own
performance.
20. Review Charter. Review and reassess the adequacy of this Charter
annually and submit it to the Nominating and Corporate Governance Committee
and the Board for approval.
ADVISORS
The Committee shall have the authority, to the extent it deems necessary or
appropriate, to retain independent legal, accounting or other advisors.
A-4
FUNDING FOR INDEPENDENT AUDITORS AND ADVISORS
The Company shall provide for appropriate funding, as determined by the
Committee, for payment of:
- compensation to the independent auditor for the purpose of rendering or
issuing an audit report and for any other services approved by the
Committee,
- compensation for any other advisors retained by the Committee, and
- ordinary administrative expenses that are necessary or appropriate in
carrying out the Committee's duties.
AUDIT COMMITTEE CHARTER REFERENCE SHEET:
1. INDEPENDENCE STANDARDS BOARD STANDARD NO. 1
Under ISB Standard No. 1, at least annually, an auditor must (1) disclose
to the audit committee, in writing, all relationships between the auditor and
its related entities that in the auditors' professional judgment may reasonably
be thought to bear on independence, (2) confirm in the letter that, in its
professional judgment, it is independent of the company, and (3) discuss the
auditors' independence with the audit committee.
2. STATEMENT ON ACCOUNTING STANDARDS NOS. 61, 89 AND 90
SAS Nos. 61, 89 and 90 requires an independent auditor to communicate to
the audit committee matters related to the conduct of the audit such as the
selection of and changes in significant accounting policies, the methods used to
account for significant unusual transactions, the effect of significant
accounting policies in controversial or emerging areas, the process used by
management in formulating particularly sensitive accounting estimates and the
basis for the auditors' conclusions regarding the reasonableness of those
estimates, significant adjustments arising from the audit, and disagreements
with management over the application of accounting principles, the basis for
management's accounting estimates and the disclosures in the financial
statements.
3. STATEMENT ON ACCOUNTING STANDARDS NO. 100
SAS No. 100 requires an independent auditor to be satisfied that any
significant matters identified as a result of interim review procedures have
been brought to the attention of the audit committee, either by management or
the auditor. If it is not possible for the auditor to make such communications
prior to the filing, they should be made as soon as practicable thereafter.
4. SECTION 10A(B) OF SECURITIES EXCHANGE ACT OF 1934
Section 10A(b) of the Securities Exchange Act of 1934, which is part of the
Private Securities Litigation Reform Act of 1995, requires an independent
auditor to inform management of, and assure that the audit committee is
adequately informed with respect to, illegal acts that have come to the
attention of the auditors in the course of their audits.
A-5
EXHIBIT B
SCHERING-PLOUGH CORPORATION
NOMINATING AND CORPORATE GOVERNANCE COMMITTEE
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CHARTER
PURPOSE
The Committee is appointed by the Board to:
1. Assist with Board structure, function and composition including:
a. identifying individuals qualified to become Board members, and
b. recommending to the Board Director nominees for the next annual
meeting of shareholders
2. Assist with Committee structure, function and composition
including:
a. recommending Committee assignments for Directors, and
b. recommending Committee Charters to each Committee and to the
Board for approval.
3. Develop and recommend the Company's Corporate Governance Guidelines
to the Board for approval.
4. Recommend Director compensation.
COMMITTEE MEMBERSHIP
The Committee shall be comprised of at least three Directors. Members shall
be appointed, and may be removed, by the Board.
Each member of the Committee shall be independent in accordance with the
requirements of the New York Stock Exchange.
MEETINGS AND OPERATION
The Committee shall meet at least three times a year, or more frequently as
may determine advisable in light of its responsibilities as set forth in this
Charter. The Committee Chair sets the agenda for each meeting and determines the
length and frequency of meetings.
The Committee may request any officer or employee of the Company, outside
counsel or consultant to attend a meeting of the Committee or to meet with any
members of, or consultants to, the Committee.
The Committee shall determine how to best operate, including whether to
delegate any responsibilities to subcommittees.
The Committee shall operate in full compliance with the New York Stock
Exchange requirements for nominating and governance committees and any other
applicable laws and regulations.
COMMITTEE RESPONSIBILITIES
In carrying out its purpose, the Committee's policies and procedures should
remain flexible, so that it may be in a position to best react or respond to
changing circumstances or conditions. While there is no
"blueprint" to be followed by the Committee in carrying out its purpose, the
following should be considered within the responsibilities and authority of the
Committee:
1. Director Recruitment. Seek individuals qualified to become
Directors for recommendation to the Board.
2. Criteria for Selecting Directors. Recommend the Board's criteria
for selecting Directors and recommend that the criteria be reflected in the
Corporate Governance Guidelines.
a. A majority of Directors are independent, as required by the New
York Stock Exchange and the Company's Corporate Governance Guidelines.
b. The Board represents a diversity of expertise in areas needed to
foster Schering-Plough's business success including science, finance,
marketing, international affairs and public service.
c. The Board represents a diversity of personal characteristics,
including gender and race.
d. The size and composition of the Board lends itself to efficient
operation.
e. Outside Directors retire on the date of the annual meeting of
shareholders when they are age 72.
f. Outside directors offer to resign, and are re-evaluated, when
they have changes in employment or board memberships and committee
assignments at other companies.
3. Nominees. Recommend to the Board nominees for Director to be
elected at the annual meeting. Consider nominees suggested by shareholders
in accordance with the Company's By-Laws.
4. Committee Assignments. Recommend Committee assignments, within the
following guidelines:
a. The independence requirements of New York Stock Exchange and the
Company's Corporate Governance Guidelines.
b. Other legal and regulatory considerations, including Rule 16b-3
and Section 162(m).
c. Expertise and diversity characteristics appropriate for each
Committee.
d. Size and composition lending itself to efficient operation of
each Committee.
Develop and follow a process for reconsideration of Committee assignments.
5. Independence Assessments and Director Conflicts of
Interest. Recommend an independence standard to the Board. Assist the
Board with independence assessments of individual Directors. Recommend
policies regarding the conduct of business between the Company and any
Director, his/her affiliates and other Director conflict of interest
matters.
6. Director Compensation. Conduct an annual assessment of
non-management Director compensation and benefits.
7. Corporate Governance Guidelines. Review and reassess the adequacy
of the Corporate Governance Guidelines of the Company and recommend any
proposed changes to the Board for approval.
8. Board Performance Process. Recommend the scope of the annual Board
performance assessment, including whether the performance of individual
Directors will be assessed in addition to the assessment of the performance
of the Board as a group. Receive comments from all Directors and report
annually to the Board with an assessment of the Board's performance, to be
discussed with the full Board following the end of each fiscal year.
Assess actions to be taken with respect to a Director, if any, when he
or she is unable to perform the duties required of Directors and make
appropriate recommendations to the Board.
B-2
9. Reports to the Board. Regularly report its activities to the Board
in such manner and at such times as it deems appropriate.
10. Review Committee Performance. Annually review its own
performance.
11. Review Charter. Review and reassess the adequacy of this Charter
annually and recommend any proposed changes to the Board for approval.
ADVISORS
1. Director Search Consultants. The Committee shall have sole
authority to retain and terminate any search firm to be used to identify
Director candidates, including sole authority to approve such search firm's
fees and other retention terms.
2. Director Compensation Consultants. The Committee shall have the
sole authority to retain and terminate any compensation consultant to be
used to assist in the evaluation of Director compensation and shall have
the authority to approve the consultant's fees and other retention terms.
3. Legal, Accounting and Other Consultants. The Committee shall have
authority to obtain advice and assistance from in-house or outside legal,
accounting and other advisors.
4. Funding. The Company shall provide for appropriate funding, as
determined by the Committee, for payment of compensation to the consultants
and advisors retained by the Committee.
B-3
EXHIBIT C
SCHERING-PLOUGH CORPORATION
COMPENSATION COMMITTEE
------------------
CHARTER
PURPOSE
The Committee is appointed by the Board of Directors to discharge the
Board's responsibilities relating to compensation of the Company's officers and
to assist the Board with the approval of equity compensation plans. The
Committee has overall responsibility for approving and evaluating the officer
compensation plans, policies and programs for the Company. The Committee also
assures that the Company has established an appropriate governance structure for
the Company's employee benefit plans.
MEMBERSHIP REQUIREMENTS
The Committee shall be comprised of at least three Directors. Members shall
be appointed and may be removed by the Board upon the recommendation of the
Nominating and Corporate Governance Committee.
Each member of the Committee shall be independent in accordance with the
requirements of the New York Stock Exchange.
MEETINGS AND OPERATION
The Committee shall meet at least three times a year, or more frequently as
it may determine advisable in light of its responsibilities as set forth in this
Charter. The Committee Chair sets the agenda for each meeting and determines the
length and frequency of meetings.
The Committee may request any officer or employee of the Company, outside
counsel or consultants to attend a meeting of the Committee or to meet with any
members of, or consultants to, the Committee.
The Committee shall determine how to best operate, including whether to
delegate any responsibilities to subcommittees.
The Committee shall operate in full compliance with the New York Stock
Exchange requirements for compensation committees and any other applicable laws
and regulations.
COMMITTEE RESPONSIBILITIES
In carrying out its purpose, the Committee's policies and procedures should
remain flexible, so that it may be in a position to best react or respond to
changing circumstances or conditions. While there is no "blueprint" to be
followed by the Committee in carrying out its purpose, the following should be
considered within the responsibility and authority of the Committee:
1. Executive Compensation.
a. The Committee shall review and make recommendations to the Board
with respect to incentive compensation plans and equity-based plans.
b. As part of the determination of the CEO's compensation, the
Committee shall, after receiving input from the full Board, annually
review the CEO's performance in light of corporate goals and objectives
and set the CEO's compensation levels based on this evaluation.
c. The Committee shall, after receiving input from the full Board,
annually review and approve, for the CEO and the senior executives of
the Company:
- corporate goals and objectives relevant to compensation,
- compensation levels and the mix of compensation instruments, including
short-term and long-term incentive awards (and in making this
determination, the Committee shall consider the Company's performance
and relative shareholder return, the value of similar compensation
instruments at comparable companies and the value of awards to such
executive in past years),
- the annual base salary level,
- the annual incentive opportunity level,
- the long-term incentive opportunity level,
- employment agreements, severance arrangements, and change in control
agreements/provisions, in each case as, when and if appropriate, and
- any special or supplemental benefits.
2. Report for Proxy Statement. Produce the annual report on executive
compensation as required to be included in the Company's proxy statement in
accordance with Securities and Exchange Commission regulations.
3. Plans. Review and make recommendations to the Board and the
shareholders regarding equity-based and incentive plans. Administer or
approve administration of equity-based and incentive plans. Determine the
Company's policy regarding deductibility of compensation under Section 162m
of the Internal Revenue Code. Determine that the Company has established an
appropriate governance structure for the employee benefit plans of the
Company and its affiliates.
4. Management Performance Process. Oversee the annual management
performance assessment.
5. Reports to the Board. Regularly reports its activities to the
Board in such manner and at such times as it deems appropriate.
6. Review Committee Performance. Review annually its own performance.
7. Review Charter. Review and reassess the adequacy of this Charter
annually and recommend any proposed changes to the Nominating and Corporate
Governance Committee and the Board.
ADVISORS
1. Executive Compensation Consultants. The Committee shall have the
sole authority to retain and terminate any compensation consultant to be
used to assist in the evaluation of CEO or senior executive compensation
and shall have sole authority to approve the consultant's fees and other
retention terms.
2. Legal Accounting and Other Advisors. The Committee shall have
authority to obtain advice and assistance from in-house or outside legal,
accounting and other advisors.
3. Funding. The Company shall provide for appropriate funding, as
determined by the Committee, for payment of compensation to the consultants
and advisors retained by the Committee.
C-2
EXHIBIT D
SCHERING-PLOUGH CORPORATION
BUSINESS PRACTICES OVERSIGHT COMMITTEE
------------------
CHARTER
PURPOSE
The Committee will assist the Board in the oversight of:
- The Company's non-financial compliance systems and practices and related
management activities, including Good Manufacturing Practices.
- Systems for compliance with the Company's Standards of Global Business
Practices.
- Regulatory and government affairs and developments regarding material
litigation and investigations involving compliance with laws and
regulations.
The Business Practices Oversight Committee and the other Committees of the
Board will coordinate their compliance and risk oversight efforts to the extent
necessary or appropriate to ensure the proper exchange of information.
MEMBERSHIP REQUIREMENTS
The Committee shall consist of no fewer than three members. Members shall
be appointed and may be removed by the Board upon the recommendation of the
Nominating and Corporate Governance Committee.
MEETINGS AND OPERATION
The Committee shall meet at least three times a year, or more frequently as
it may determine advisable in light of its responsibilities as set forth in this
Charter. The Committee Chair sets the agenda for each meeting and determines the
length and frequency of meetings.
The Committee may request any officer or employee of the Company, outside
counsel or the non-financial auditors or consultants to attend a meeting of the
Committee or to meet with any members of, or consultants to, the Committee.
The Committee shall determine how to best operate, including whether to
delegate any responsibilities to subcommittees.
The Committee shall operate in full compliance with applicable laws and
regulations.
COMMITTEE RESPONSIBILITIES
In carrying out its purpose, the Committee's policies and procedures should
remain flexible, so that it may be in a position to best react or respond to
changing circumstances or conditions. While there is no "blueprint" to be
followed by the Committee in carrying out its purpose, the following should be
considered within the responsibilities and authority of the Committee:
1. Review of Policies and Systems regarding Compliance with Laws,
Regulations and Standards of Global Business Practices. Review and assess
the adequacy of the Company's policies and systems designed to obtain
compliance with laws and regulations and the Company's Standards of Global
Business Practices; receive reports relating to all significant compliance
areas; and meet periodically
with the Company's management, compliance officers, General Counsel,
Corporate Audits, and outside advisors, as appropriate, to review:
(a) the components of the Company's compliance programs and how
those programs are communicated to employees,
(b) the results of any audits of those compliance programs,
(c) any compliance issues, problems or trends identified by those
compliance programs or audits,
(d) the steps taken to address any significant violations of those
compliance programs,
(e) the resources allocated to those compliance programs, and
(f) significant reports or inquiries received from governmental
agencies, and any material litigation or investigations involving the
Company's compliance with any law or regulation.
2. Good Manufacturing Practices. Review periodic reports on Good
Manufacturing Practices and the Company's compliance with the Consent
Decree with the Food and Drug Administration entered May 17, 2002.
3. Non-Financial Risk Management Matters. Discuss with management the
Company's major non-financial risk exposures and the steps management has
taken to monitor and control such risk exposures, including the Company's
risk assessment and risk management policies.
4. Reports. Regularly report its activities to the Board at such
times and in such manner as it deems appropriate. At least annually, the
Committee or its Chair will meet with the Audit Committee or its Chair to
review compliance and risk matters, including material reports or inquiries
received from governmental agencies and material litigation.
5. Review Committee Performance. Annually review its own performance.
6. Review Charter. Review and reassess the adequacy of this Charter
annually and recommend any proposed changes to the Nominating and Corporate
Governance Committee and the Board.
ADVISORS
The Committee shall have authority to obtain advice and assistance from
in-house or outside legal, accounting and other advisors. The Company shall
provide for appropriate funding, as determined by the Committee, for payment of
compensation to the advisors.
COMMITTEE ROLE
The Committee has the responsibilities set forth in this Charter, but its
role is one of oversight. While the Committee shall attempt in good faith to
assure the integrity and adequacy of the Company's non-financial compliance
systems and practices, it is not the responsibility of the Committee to assure
compliance with laws or the Company's Standards of Global Business Practices.
That is the responsibility of management.
D-2
EXHIBIT E
SCHERING-PLOUGH CORPORATION
FINANCE COMMITTEE
------------------
CHARTER
PURPOSE
The Committee shall assist the Board of Directors in the general oversight
for the Company's strategic plans for capital structure, financial and treasury
matters.
MEMBERSHIP
The Committee shall be comprised of at least three Directors. Members shall
be appointed, and may be removed, by the Board upon the recommendation of the
Nominating and Corporate Governance Committee.
MEETINGS AND OPERATION
The Committee shall meet at least twice a year, and more frequently as it
may determine advisable in light of its responsibilities as set forth in this
Charter. The Committee Chair sets the agenda for each meeting and determines the
length and frequency of meetings.
The Committee may request any officer or employee of the Company, outside
counsel or consultants to attend a meeting of the Committee or to meet with any
members of, or consultants to, the Committee.
The Committee shall determine how to best operate, including whether to
delegate any responsibilities to subcommittees.
ACTIVITIES
In carrying out its function, the Committee may undertake such activities
as it deems necessary or useful, which may include:
1. Capital Structure. Receiving reports from management about the
current capital structure and proposed changes to the capital structure.
2. Dividend Policy. Reviewing analyses from management about the
dividend policy of the Company and making recommendations to the Board of
Directors.
3. Financing Activities. Reviewing analyses from management about
proposed financing strategies and report to the Board of Directors.
4. Capital Expenditures. At the request of the Board, review specific
projects proposed by management.
5. Benefit Plan Funding Matters. Reviewing reports from management
concerning the funding requirements for the Company's employee benefit
plans.
6. Insurance. Reviewing the Company's insurance coverage and the
related costs.
7. Board Reports. Regularly report its activities to the Board in
such manner and at such times as it deems appropriate.
8. Review Committee Performance. Review annually its own performance.
9. Review Charter. Review and reassess the adequacy of this Charter
periodically and recommend any proposed changes to the Nominating and
Corporate Governance Committee and the Board.
ADVISORS
The Committee shall have authority to obtain advice and assistance from
in-house or outside legal, accounting and other advisors. The Company shall
provide for appropriate funding, as determined by the Committee, for payment of
compensation to the advisors.
COMMITTEE ROLE
While the Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Committee to manage or execute the Company's
capital structure, financial or treasury operations, which is the responsibility
of management.
E-2
EXHIBIT F
SCHERING-PLOUGH CORPORATION
EXECUTIVE COMMITTEE
------------------
CHARTER
PURPOSE
The Committee shall assist in the oversight of specified matters as
delegated by the Board and to the extent permitted by law and the Company's
By-Laws in the intervals between Board meetings.
MEMBERSHIP
The Committee shall be comprised of at least three Directors. Members shall
be appointed, and may be removed, by the Board upon the recommendation of the
Nominating and Corporate Governance Committee. The Chief Executive Officer shall
be a member of the Executive Committee ex officio.
MEETINGS AND OPERATION
The Committee shall meet as necessary. The Committee shall determine how to
best operate. The Committee Chair sets the agenda for each meeting and
determines the length and frequency of meetings.
The Committee may request any officer, employee of the Company, outside
counsel or consultants to attend a meeting of the Committee or to meet with any
members of, or consultants to, the Committee.
COMMITTEE AUTHORITY AND RESPONSIBILITIES
Board Reports. Report its activities at any meeting to the Board at the
next Board meeting and at such other times and in such manner as it deems
appropriate.
Review Committee Performance. Review periodically its own performance.
Review Charter. Review and reassess the adequacy of this Charter
periodically and recommend any proposed changes to the Nominating and Corporate
Governance Committee and the Board.
ADVISORS
The Committee shall have authority to obtain advice and assistance from
in-house or outside legal, accounting and other advisors. The Company shall
provide for appropriate funding, as determined by the Committee, for payment of
compensation to the consultants.
EXHIBIT G
SCHERING-PLOUGH CORPORATION
CORPORATE GOVERNANCE
GUIDELINES
------------------
Schering-Plough Corporation is committed to the patients who use our
products -- through the innovative discovery, development and marketing of new
therapies and treatment programs that can improve their health and extend their
lives -- while providing solid long-term performance to shareholders.
Schering-Plough has long recognized good corporate governance as one key to
achieving its commitment, first adopting its Statement of Corporate Director
Policies in 1971, which among other things required that a majority of the Board
be independent.
Schering-Plough's Vision is "TO EARN TRUST EVERY DAY." These Corporate
Governance Guidelines are fundamental to achieving our mission.
BOARD COMPOSITION AND DIRECTOR QUALIFICATIONS.
Directors are recommended for nomination by the Nominating and Corporate
Governance Committee and are nominated by the full Board. The Nominating and
Corporate Governance Committee annually assesses the needs of the Board and
recommends the criteria for selecting new Directors. All nominees must meet the
following minimum criteria for Directors:
1. Nominees have the highest ethical character and share the values of
Schering-Plough as reflected in the Leader Behaviors: shared accountability
and transparency, cross-functional teamwork and collaboration, listening
and learning, benchmark and continuously improve, coaching and developing
others and business integrity.
2. Nominees are highly accomplished in their respective field, with
superior credentials and recognition.
3. The majority of Directors on the Board are required to be
independent as required by the New York Stock Exchange listing standards
and the more restrictive Schering-Plough Board Independence Standard set
forth below.
4. Nominees are selected so that the Board of Directors represents a
diversity of expertise in areas needed to foster Schering-Plough's business
success, including science, medicine, finance, manufacturing, technology,
commercial activities, international affairs and public service. Nominees
are also selected so that the Board of Directors represents a diversity of
personal characteristics, including gender, race, ethnic origin and
national background.
5. Nominees must indicate they have the time and commitment to provide
energetic and diligent service to Schering-Plough. New Directors should be
willing and able to serve at least one three-year term prior to the
mandatory retirement age of 72.
The Nominating and Corporate Governance Committee considers shareholder
nominees for Director and bona fide candidates for nomination that are submitted
by other third parties. Directors offer to resign, and are re-evaluated, when
they have changes in employment or Board memberships at other companies.
Directors notify the Chair of the Nominating and Corporate Governance Committee
in advance of a change in their Committee assignments at other companies.
SCHERING-PLOUGH BOARD INDEPENDENCE STANDARD.
If a Director is to be classified as independent, he or she must meet the
independence requirements in the New York Stock Exchange corporate governance
listing standards and the following, more restrictive categorical standard,
called the "Schering-Plough Board Independence Standard":
1. A Director who is an executive officer or an employee, or whose
immediate family member is an executive officer, of a company that makes
payments to, or receives payments from, Schering-Plough for property which,
in any single fiscal year, exceeds the greater of $500,000 or 2% of such
other company's consolidated gross revenues, is not "independent" until
three years after falling below such threshold.
2. Directors are independent of any particular constituency and are
able to represent all shareholders of Schering-Plough.
3. In the event that a Director is an executive officer or an
employee, or his/her immediate family member is an executive officer, of a
charitable organization that receives payments from Schering-Plough which,
in any single fiscal year, exceed the greater of $500,000 or 2% of the
charitable organization's gross revenues, such payments will be disclosed
in the proxy statement.
4. A Director who was, or whose immediate family member was:
a. an executive officer of Schering-Plough, or
b. affiliated with or employed by the independent auditor, or
c. an executive officer of another company where any of
Schering-Plough's current executives serve on that company's
compensation committee will not be independent until four years after
the end of such relationship.
In this Standard, "immediate family" shall have the meaning provided in the
New York Stock Exchange corporate governance listing standards (general
commentary to Section 303A.02(b)).
All Audit Committee members must meet the above Standard plus the
additional independence requirements in Rule 10A-3(b)(1) under the Securities
Exchange Act of 1934.
Board Function and Director Responsibilities. The Chairman sets the agenda
for Board meetings, in consultation with Committee chairs and other Directors as
appropriate. The frequency and length of meetings is determined based upon the
business to be conducted. The non-management Directors hold regularly scheduled
executive sessions and additional unscheduled executive sessions as desired. A
non-management Director chairs the executive sessions.
Advance materials are provided before meetings.
The Board takes an active role with senior management regarding strategic
planning and business development. All members of senior management participate
in portions of meetings of the Board and Committees. Upon request, Directors
have access to any employee of Schering-Plough and any of Schering-Plough's
information.
There is an orientation program for new Directors. Ongoing Director
education about issues facing Schering-Plough and the industry is provided as
needed.
The Board retains outside advisors as it deems appropriate.
Committee Composition and Function. The Nominating and Corporate
Governance Committee recommends to the Board the optimal structure and functions
of the standing Committees of the Board, as
G-2
well as individual Committee assignments. The following standing Committees are
comprised solely of independent Directors:
- Audit Committee,
- Compensation Committee, and
- Nominating and Corporate Governance Committee.
The Board has three other standing Committees: the Business Practices
Oversight Committee, the Finance Committee and the Executive Committee.
Each Committee has a charter. The Chair of each Committee sets the agenda
and determines the frequency and length of meetings. Each Committee holds
executive sessions as required and more frequently as the Committee determines.
Each Committee retains outside advisors as it deems appropriate.
Board Compensation. Each Director is required to own a minimum of 5,000
shares of Schering-Plough common stock (provided that new Directors shall have
three years from the date they are elected to the Board to reach the required
minimum). The Nominating and Corporate Governance Committee annually reviews
Director compensation and makes recommendations to the full Board as to the
amount of compensation and the mix of compensation, which may include stock,
equity-based awards and/or cash.
Board and Committee Performance Evaluations. The Board and the standing
Committees each perform an annual self-evaluation. The Nominating and Corporate
Governance Committee provides oversight to ensure that the process is completed
each year. That Committee also periodically re-examines these Corporate
Governance Guidelines and recommends changes to the Board.
Management Succession. One of the Board's most important functions is
ensuring sound management of Schering-Plough. The Compensation Committee assists
the Board with succession planning, with special focus on Chief Executive
Officer succession.
Compliance and Ethics. The composition and functions of the Board and each
Committee meet all requirements of the New York Stock Exchange and other
applicable laws and regulations.
The Board has adopted the Schering-Plough Board of Directors Code of
Business Conduct and Ethics, which is available on the Schering-Plough website.
The Board and its Committees are responsible for oversight of the processes
designed by senior management regarding compliance by all employees, including
Officers, with applicable law and the Schering-Plough Global Standards of
Business Practices . These Standards articulate Schering-Plough's commitment to
ethical standards and to compliance with all applicable laws and regulations.
The Standards are available on the Schering-Plough website.
The Board has established the Business Practices Oversight Committee, which
has the sole purpose of oversight of non-financial compliance matters.
Schering-Plough's reputation is a valuable asset and compliance programs
also stress preservation of reputation and good corporate citizenship, through
consideration of the concerns of the patients who use our products, our
shareholders, our employees and the communities where our operations are
located.
Stock Ownership Requirements for Management. The Compensation Committee of
the Board shall establish stock ownership requirements applicable to Executive
Officers.
No Repricing without Shareholder Approval. Schering-Plough will not
directly or indirectly reprice any stock option unless prior shareholder
approval is obtained.
G-3
DIRECTIONS
(MAP)
[SCHERING-PLOUGH LOGO] YOUR VOTE IS IMPORTANT
VOTE BY INTERNET / TELEPHONE
24 HOURS A DAY, 7 DAYS A WEEK
INTERNET TELEPHONE MAIL
HTTPS://WWW.PROXYVOTENOW.COM/SGP 1-888-216-1328
o Go to the website address o Use any touch-tone o Mark, sign and date your proxy card.
listed above. telephone. o Detach your proxy card.
o Have your proxy card ready. OR o Have your proxy card ready. OR o Return your proxy card in the
o Follow the simple instructions o Follow the simple recorded postage-paid envelope provided.
that appear on your computer instructions.
screen.
Your Internet or telephone vote authorizes
the named proxies to vote your shares in the
same manner as if you marked, signed and
returned your proxy card, and there is no
need for you to mail back your proxy.
1-888-216-1328
CALL TOLL-FREE TO VOTE
[ ] THE INTERNET AND TELEPHONE VOTING FACILITIES WILL CLOSE
AT 5:00 P.M. E.S.T. ON APRIL 25, 2005.
PLEASE DETACH PROXY CARD HERE
--------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
PROPOSALS ONE AND TWO AND AGAINST PROPOSALS
THREE AND FOUR
THE BOARD THE BOARD
RECOMMENDS RECOMMENDS
| |
1. The election to the Board of FOR all nominees WITHHOLD FOR AGAINST ABSTAIN
Directors of the 3 nominees named (except as indicated authority to vote
below for a term of 3 years: to the contrary below) for all nominees
1 - Hans W. Becherer; 3. Shareholder Proposal [ ] [ ] [ ]
2 - Kathryn C. Turner; on Annual Election
3 - Robert F.W. van Oordt [ ] [ ] of Directors
THE BOARD
RECOMMENDS
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY
INDIVIDUAL NOMINEE STRIKE A LINE THROUGH FOR AGAINST ABSTAIN
THE NOMINEE'S NAME. |
4. Shareholder Proposal [ ] [ ] [ ]
on Animal Testing
THE BOARD
RECOMMENDS
|
FOR AGAINST ABSTAIN
2. Ratification of Designation of [ ] [ ] [ ] To change your address, please mark this box. [ ]
Independent Registered Public
Accounting Firm
S C A N L I N E
Please vote, sign, date and return this card promptly
using the enclosed envelope. Sign exactly as your
name appears on this card. Each joint tenant should
sign. When signing as attorney, trustee, etc., give
full title.
The shares represented by this proxy will be
voted in accordance with instructions given
above. IF THIS PROXY IS SIGNED AND RETURNED
WITHOUT SPECIFIC INSTRUCTIONS AS TO ANY ITEM
OR ALL ITEMS, IT WILL BE VOTED FOR THE
ELECTION OF 3 DIRECTORS AS NAMED HEREIN, FOR
PROPOSAL (2) AND AGAINST PROPOSALS (3) AND ---------------------------- ----------------------
(4). Date Shareholder sign here Co-Owner sign here
[SCHERING-PLOUGH LOGO]
SCHERING-PLOUGH CORPORATION
2000 Galloping Hill Road
Kenilworth, New Jersey 07033
2005 ANNUAL MEETING OF SHAREHOLDERS
Dear Shareholder:
The Annual Meeting of Shareholders of Schering-Plough Corporation will be
held at The Crowne Plaza Cabana Palo Alto, 4290 El Camino Real, Palo Alto,
California, on Tuesday, April 26, 2005 at 10:00 a.m.
To be sure that your vote is counted, we urge you to complete and sign the
proxy card below, detach it from this letter, and return it in the prepaid
envelope enclosed in this package. Alternatively, you can vote by Internet or
telephone by following the instructions on the opposite side of this proxy card.
The giving of such proxy does not affect your right to vote in person if you
attend the meeting. Your prompt reply will aid the Corporation in reducing the
expense of additional proxy solicitation.
Admission to the meeting will be by ticket only. If you are a shareholder
of record and plan to attend, please write to The Bank of New York at the
address found in your proxy statement and an admission ticket will be sent to
you. To be admitted you must present both the admission ticket and a photo
identification.
Susan Ellen Wolf
Corporate Secretary
March 14, 2005
DETACH PROXY CARD HERE
--------------------------------------------------------------------------------
SCHERING-PLOUGH CORPORATION -- PROXY
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING OF SHAREHOLDERS -- APRIL 26, 2005
I appoint Fred Hassan, Robert Bertolini and Susan Ellen Wolf individually
as proxies to vote all of my Schering-Plough Corporation Common Shares at the
Annual Meeting of Shareholders to be held on April 26, 2005, or at any
adjournment or postponement of that meeting, as directed on the other side of
this card and, in their discretion upon other matters that arise at the meeting.
I also give each of them the ability to substitute someone else as proxy. I
revoke any proxy previously given for the same shares.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
SCHERING-PLOUGH CORPORATION
P.O. BOX 11371
NEW YORK, N.Y. 10203-0371
[SCHERING-PLOUGH LOGO] YOUR VOTE IS IMPORTANT
VOTE BY INTERNET / TELEPHONE
24 HOURS A DAY, 7 DAYS A WEEK
INTERNET TELEPHONE MAIL
HTTPS://WWW.PROXYVOTENOW.COM/SGP 1-888-216-1328
o Go to the website address listed o Use any touch-tone telephone. o Mark, sign and date your voting
above. o HAVE YOUR VOTING INSTRUCTION instruction card.
O HAVE YOUR VOTING INSTRUCTION CARD OR CARD READY. OR o Detach your voting instruction card.
READY. o Follow the simple recorded o Return your voting instruction card in
o Follow the simple instructions that instructions. the postage-paid envelope provided.
appear on your computer screen.
Your Internet or telephone vote
authorizes the trustee to vote your
shares in the same manner as if you
marked, signed and returned your voting
instruction card, and there is no need
for you to mail back your card.
1-888-216-1328
CALL TOLL-FREE TO VOTE
-----------------------------------------
[ ] TO ALLOW SUFFICIENT TIME FOR VOTING BY THE TRUSTEE, YOUR VOTING INSTRUCTIONS
MUST BE RECEIVED BY APRIL 21, 2005.
- PLEASE DETACH CARD HERE -
--------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR PROPOSALS ONE AND TWO AND AGAINST
PROPOSALS THREE AND FOUR
THE BOARD
RECOMMENDS
|
V
1. The election to the Board of FOR all nominees WITHHOLD
Directors of the 3 nominees named (except as indicated authority to vote
below for a term of 3 years: to the contrary below) for all nominees
1 - Hans W. Becherer;
2 - Kathryn C. Turner;
3 - Robert F.W. van Oordt [ ] [ ]
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE STRIKE A
LINE THROUGH THE NOMINEE'S NAME.
THE BOARD
RECOMMENDS
|
V
FOR AGAINST ABSTAIN
2. Ratification of Designation of Independent [ ] [ ] [ ]
Registered Public Accounting Firm
THE BOARD
RECOMMENDS
|
V
FOR AGAINST ABSTAIN
3. Shareholder Proposal on Annual Election [ ] [ ] [ ]
of Directors
THE BOARD
RECOMMENDS
|
V
FOR AGAINST ABSTAIN
4. Shareholder Proposal on Animal Testing [ ] [ ] [ ]
To change your address, please mark this box. [ ]
S C A N L I N E
Please vote, sign, date and return this
card promptly using the enclosed
envelope. Sign exactly as your name
appears on this card. Each joint tenant
should sign. When signing as attorney,
trustee, etc., give full title.
----------------------------------- -----------------------------------------
Date Shareholder sign here Co-Owner sign here
[SCHERING-PLOUGH LOGO]
SCHERING-PLOUGH CORPORATION
2000 Galloping Hill Road
Kenilworth, New Jersey 07033
RE: PROXY VOTING INSTRUCTIONS
Dear Plan Participant:
The Annual Meeting of Shareholders of Schering-Plough Corporation will be
held at The Crowne Plaza Cabana Palo Alto, 4290 El Camino Real, Palo Alto,
California, on Tuesday, April 26, 2005 at 10:00 a.m.
To be sure that the shares credited to your Company Stock Account(s) are
voted in accordance with your wishes, we urge you to complete and sign the
voting instruction card below, detach it from this letter, and return it in the
prepaid envelope enclosed in this package. Alternatively, you can vote by
telephone or Internet following the instructions on the opposite side of this
card.
If the trustee does not receive voting instructions for shares credited to
Company Stock Account(s) under the Schering-Plough Employees' Savings Plan, it
will vote those shares in the same proportion as shares held under that plan for
which voting instructions were timely received. If the trustee does not receive
voting instructions for shares held under the Schering-Plough Puerto Rico
Employees' Retirement Savings Plan, it will not vote those shares.
Susan Ellen Wolf
Corporate Secretary
March 14, 2005
DETACH VOTING INSTRUCTION CARD HERE
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SCHERING-PLOUGH EMPLOYEES' SAVINGS PLAN
SCHERING-PLOUGH PUERTO RICO EMPLOYEES' RETIREMENT SAVINGS PLAN
VOTING INSTRUCTIONS - SOLICITED BY THE BOARD OF DIRECTORS
Under the Schering-Plough Employees' Savings Plan and the Schering-Plough
Puerto Rico Employees' Retirement Savings 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 26, 2005.
Enclosed is a copy of the Notice of Annual Meeting and Proxy Statement
describing the items to be presented at the meeting. IF THIS CARD IS SIGNED AND
RETURNED WITHOUT SPECIFIC DIRECTION AS TO ANY ITEM OR ALL ITEMS, YOUR SHARES
WILL BE VOTED FOR THE ELECTION OF 3 DIRECTORS AS NAMED HEREIN, FOR PROPOSAL (2),
AND AGAINST PROPOSALS (3) AND (4).
To: 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 26,
2005, and at all adjournments or postponements thereof, the number of Common
Shares of Schering-Plough Corporation credited to my account(s) under the Plans
and entitled to vote at said meeting shall be voted or caused to be voted as
specified.
SCHERING-PLOUGH CORPORATION
P.O. BOX 11300
NEW YORK, N.Y. 10203-0300
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)