UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
Commission file number 1-6571
SCHERING-PLOUGH CORPORATION
Incorporated in New Jersey 22-1918501
One Giralda Farms (I.R.S. Employer Identification No.)
Madison, N.J. 07940-1000 (201) 822-7000
(telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months, and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
Common Shares Outstanding as of March 31, 1997: 365,852,143
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(UNAUDITED)
(Dollars in millions, except per share figures)
<CAPTION>
Three Months
Ended
March 31
1997 1996
<S> <C> <C>
Sales . . . . . . . . . . . . . $1,568.1 $1,382.7
Costs and expenses:
Cost of sales. . . . . . . . . 289.3 262.7
Selling, general
and administrative. . . . . . 593.5 503.3
Research and development . . . 179.2 162.9
Other, net . . . . . . . . . . 9.0 21.2
1,071.0 950.1
Income before income taxes. . . 497.1 432.6
Income taxes. . . . . . . . . . 121.8 106.0
Net Income. . . . . . . . . . . 375.3 326.6
Earnings per common share . . . $ 1.03 $ .89
Dividends per common share. . . $ .33 $ .29
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Dollars in millions, except per share figures)
<CAPTION>
March 31, December 31,
1997 1996
<S> <C> <C>
Assets
Cash and cash equivalents . . . . . . . . $ 757.1 $ 535.1
Accounts receivable, net. . . . . . . . . 755.7 542.0
Inventories . . . . . . . . . . . . . . . 575.9 594.1
Prepaid expenses, deferred income
taxes and other current assets . . . . . 723.4 693.4
Total current assets. . . . . . . . . 2,812.1 2,364.6
Property, plant and equipment . . . . . . 3,374.8 3,362.5
Less accumulated depreciation . . . . . . 1,125.6 1,116.2
Property, net . . . . . . . . . . . . 2,249.2 2,246.3
Other assets. . . . . . . . . . . . . . . 795.0 787.2
$ 5,856.3 $ 5,398.1
Liabilities and Shareholders' Equity
Accounts payable. . . . . . . . . . . . . $ 548.7 $ 560.6
Short-term borrowings and current
portion of long-term debt. . . . . . . . 1,035.5 855.1
Other accrued liabilities . . . . . . . . 1,215.2 1,183.4
Total current liabilities . . . . . . 2,799.4 2,599.1
Long-term debt. . . . . . . . . . . . . . 46.0 46.4
Other long-term liabilities . . . . . . . 714.4 692.7
Shareholders' Equity:
Preferred shares - $1 par value
each; issued - none. . . . . . . . . . . - -
Common shares - $1 par value each; shares
issued: 1997 - 507,376,729
1996 - 507,368,360 . . . . . . . . . . . 507.4 507.4
Paid-in capital . . . . . . . . . . . . . 192.7 172.3
Retained earnings . . . . . . . . . . . . 5,335.4 5,080.6
Foreign currency translation
adjustment and other . . . . . . . . . . (177.7) (140.6)
Total . . . . . . . . . . . . . . . . 5,857.8 5,619.7
Less treasury shares, at cost -
1997, 141,524,586 shares;
1996, 142,001,799 shares . . . . . . . . 3,561.3 3,559.8
Total shareholders' equity. . . . . . 2,296.5 2,059.9
$ 5,856.3 $ 5,398.1
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31
(UNAUDITED)
(Dollars in millions)
<CAPTION>
1997 1996
<S> <C> <C>
Operating Activities:
Net Income. . . . . . . . . . . . . . . . $ 375.3 $ 326.6
Depreciation and amortization . . . . . . 46.6 42.3
Accounts receivable . . . . . . . . . . . (238.4) (149.9)
Inventories . . . . . . . . . . . . . . . (4.8) (27.9)
Prepaid expenses and other assets . . . . (63.7) (54.2)
Accounts payable and other liabilities . 74.0 146.0
Net cash provided by operating activities 189.0 282.9
Investing Activities:
Capital expenditures. . . . . . . . . . . (60.1) (48.9)
Proceeds from sales of investments. . . . 28.5 .4
Purchases of investments. . . . . . . . . (31.3) (7.4)
Other, net. . . . . . . . . . . . . . . . (3.0) 2.4
Net cash used for investing
activities . . . . . . . . . . . . . . . (65.9) (53.5)
Financing Activities:
Short-term borrowings, net. . . . . . . . 205.8 (106.5)
Common shares repurchased . . . . . . . . (2.7) -
Dividends paid to common shareholders . . (120.5) (105.9)
Other equity transactions, net. . . . . . 17.7 18.5
Net cash provided by (used for) financing
activities . . . . . . . . . . . . . . . 100.3 (193.9)
Effect of exchange rates on cash and
cash equivalents. . . . . . . . . . . . . (1.4) (.1)
Net increase in cash and cash equivalents . 222.0 35.4
Cash and cash equivalents, beginning
of period . . . . . . . . . . . . . . . . 535.1 321.4
Cash and cash equivalents, end of period . $ 757.1 $ 356.8
<FN>
See notes to consolidated financial statements.
</TABLE>
SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in millions, except per share figures)
Basis of Presentation
The unaudited financial statements included herein have been
prepared pursuant to the rules and regulations of the Securities
and Exchange Commission for reporting on Form 10-Q. Certain
information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. The statements should be
read in conjunction with the accounting policies and notes to
consolidated financial statements included in the Company's 1996
Annual Report on Form 10-K.
In the opinion of management, the financial statements reflect
all adjustments necessary for a fair statement of the operations
for the interim periods presented.
Earnings Per Common Share
Earnings per common share is computed by dividing net income by
the weighted-average number of common shares outstanding. Shares
issuable through the exercise of stock options and warrants and
under deferred delivery agreements are not considered in the
calculation, as they do not have a material effect on the
determination of earnings per common share. The weighted-average
number of shares used in the computation of earnings per common
share for the three months ended March 31, 1997 and 1996 were
365,644,316 and 365,708,883, respectively.
On April 22, 1997, the Board of Directors of the Company
authorized a 2-for-1 stock split, and voted to increase the
number of authorized common shares from 600 million to 1.2
billion. Distribution of the split shares will be made on June
3, 1997, to shareholders of record at the close of business on
May 2, 1997. The number of shares and the per share amounts
included in these consolidated financial statements are presented
before giving effect to the stock split. Proforma earnings per
common share on a post-split basis for the three months ended
March 31, 1997 and 1996 would be $.51 and $.45, respectively.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings per Share". The new standard revises certain
methodology and disclosure requirements for reporting earnings
per common share. The new standard will require the reporting of
two earnings per share figures on the face of income statements:
basic earnings per share and diluted earnings per share. SFAS
No. 128 must be adopted in the fourth quarter of 1997 with
earlier adoption prohibited. Basic earnings per share, for the
Company, is expected to be the same as reported earnings per
share. Diluted earnings per share is expected to be
substantially the same as fully diluted earnings per share
reported in an Exhibit to the Company's quarterly Form 10-Q's and
annual Form 10-K.
Inventories
Inventories consisted of: March 31, December 31,
1997 1996
Finished products . . . . . . . $ 249.1 $ 296.7
Goods in process. . . . . . . . 193.5 173.0
Raw materials and supplies. . . 133.3 124.4
Total inventories . . . . . . $ 575.9 $ 594.1
Sales
Segment sales for the three months ended March 31, 1997 and 1996
were as follows:
1997 1996
Pharmaceutical products . . . . $1,371.3 $1,197.9
Health care products. . . . . . 196.8 184.8
Consolidated sales. . . . . . $1,568.1 $1,382.7
Legal and Environmental Matters
The Company is involved in various claims and legal proceedings
of a nature considered normal to its business, including
environmental matters and product liability cases. The recorded
liabilities for these matters at March 31, 1997 were not
material. Management believes that, except for the matters
discussed in the following paragraph, it is remote that any
material liability in excess of the amounts accrued will be
incurred.
The Company is a defendant in more than 160 antitrust actions
commenced in state and federal courts by independent retail
pharmacies, chain retail pharmacies and consumers. The
plaintiffs allege price discrimination and/or conspiracy between
the Company and other defendants to restrain trade by jointly
refusing to sell prescription drugs at discounted prices to the
plaintiffs. One of the federal cases is a class action on behalf
of approximately two-thirds of all retail pharmacies in the
United States alleging a price-fixing conspiracy. The Company
has agreed to settle the federal class action for a total of
$22.1 payable over three years. The settlement provides, among
other things, that the Company shall not refuse to grant
discounts on brand-name prescription drugs to a retailer based
solely on its status as a retailer and that, to the extent a
retailer can demonstrate its ability to affect market share of a
Company brand name prescription drug in the same manner as a
managed care organization with which the retailer competes, it
will be entitled to negotiate similar incentives subject to the
rights, obligations, exemptions and defenses of the Robinson-
Patman Act and other laws and regulations. The District Court
approved the settlement of the federal class action on June 21,
1996. In early July, the Seventh Circuit Court of Appeals agreed
to review before trial the District Court's denial of defendants'
summary judgment motion seeking dismissal of all claims by
indirect purchasers of pharmaceutical products in all remaining
cases before the District Court. In addition, the Seventh Circuit
Court of Appeals will hear an appeal by the plaintiffs from the
grant of summary judgment to the wholesaler defendants and an
appeal by certain plaintiffs from the approval of the settlement
by the District Court. In April 1997, certain of the plaintiffs
in the federal class action commenced another purported class
action in Federal District Court in Illinois against the Company
and the other defendants who settled the previous federal class
action. The complaint alleges that the defendants conspired not
to implement the settlement commitments following the settlement
discussed above. The complaint seeks solely injunctive relief
and the plaintiffs have moved to have the District Court set a
date for a hearing on a request for a preliminary injunction.
Four of the state antitrust cases have been certified as class
actions. Two are class actions on behalf of certain retail
pharmacies in California and Wisconsin, and the other two are
class actions in California and the District of Columbia, on
behalf of certain consumers of prescription medicine. Plaintiffs
seek treble damages in an unspecified amount and an injunction
against the allegedly unlawful conduct. The Company believes that
all the antitrust actions are without merit and is defending
itself vigorously against all such claims.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations - three months ended March 31, 1997
compared with the corresponding period in 1996.
Sales
Consolidated sales for the first quarter increased $185.4 million
or 13 percent compared with the same period in 1996. Excluding
the effect of foreign currency exchange rate fluctuations,
consolidated sales grew 16 percent. This performance reflects
worldwide CLARITIN brand sales of $353 million in the first
quarter, compared with $237 million in 1996.
Domestic prescription pharmaceutical sales advanced 21 percent
for the first three months of 1997. Sales of allergy/respiratory
products increased 24 percent, due to continued strong growth of
the CLARITIN brand of nonsedating antihistamines and increases
for VANCENASE allergy products.
The domestic allergy/respiratory sales gain reflects a 44 percent
decline in sales of the PROVENTIL (albuterol) line of asthma
products, due to increased generic competition. Sales of the
PROVENTIL line totaled $65 million for the quarter, with metered-
dose inhalers contributing over 50 percent. The PROVENTIL line
has been subject to generic competition, and in December 1995
generic metered-dose inhalers entered the market. In response,
the Company's generic pharmaceutical marketing subsidiary,
Warrick Pharmaceuticals, launched its generic inhaler in December
1995. In December 1996, the Company further enhanced its
position in the albuterol asthma market by launching PROVENTIL
HFA, a new metered-dose inhaler that uses an advanced delivery
system and a propellant free of ozone-damaging
chlorofluorocarbons. Competition from generic metered-dose
inhalers will, however, continue to negatively affect future
sales and profitability of the PROVENTIL (albuterol) line of
asthma products.
U.S. sales of cardiovascular products grew 16 percent for the
quarter, reflecting market share gains for IMDUR, a once-daily
oral nitrate for angina.
Domestic sales of anti-infective and anticancer products declined
2 percent compared with 1996, primarily due to lower sales of
EULEXIN, a prostate cancer therapy, reflecting branded
competition. This decline in anti-infective and anticancer
products was moderated by increased utilization of INTRON A, the
Company's alpha interferon anticancer and antiviral agent, for
hepatitis and malignant melanoma. Sales of dermatological
products declined 1 percent for the quarter.
International ethical pharmaceutical product sales increased 6
percent for the first three months of 1997. Excluding the impact
of foreign currency exchange rate fluctuations, sales would have
risen 12 percent. Sales of allergy/respiratory products advanced
23 percent for the quarter, led by CLARITIN in most world markets
and other allergy products in Japan.
International anti-infective and anticancer product sales gained
11 percent in the quarter, primarily due to gains for INTRON A.
Sales of dermatological products grew 4 percent, benefiting from
higher sales of ELOCON, a mid-potency topical corticosteriod.
Cardiovascular product sales grew 3 percent.
Worldwide sales of animal health products rose 33 percent in the
first quarter, excluding foreign exchange rate fluctuations. The
sales increase was primarily in the U.S. where NUFLOR, a broad-
spectrum, multi-species antibiotic, was recently launched.
Sales of health care products increased 6 percent in the first
quarter. Footcare product sales rose 20 percent, primarily due
to the recent introductions of DYNA STEP and gel insoles, while
Suncare product sales increased 7 percent. Over-the-counter
product sales declined 8 percent due to the sales decline of the
CORRECTOL line of laxatives.
Income before income taxes increased 15 percent for the quarter
as compared with 1996, and represented 31.7 percent of sales
versus 31.3 percent last year.
Cost of sales as a percentage of sales declined to 18.4 percent
from 19.0 in 1996, principally the result of a favorable sales
mix of higher margin pharmaceutical products.
Selling, general and administrative expenses represented 37.8
percent of sales in the first quarter compared with 36.4 percent
last year. The increase in ratio was the result of increased
selling and promotional related spending, primarily for the
CLARITIN brand.
Research and development spending rose 10 percent in the quarter,
representing 11.4 percent of sales compared with 11.8 percent a
year ago. The higher spending reflects the Company's funding of
both internal research efforts and research collaborations with
various partners to develop a steady flow of innovative products
and line extensions.
The effective tax rate was 24.5 percent in the first three months
of both 1997 and 1996.
Earnings per common share advanced 16 percent in the first
quarter to $1.03 from $.89 in 1996. Excluding the impact of
fluctuations in foreign currency exchange rates, earnings per
common share would have risen approximately 18 percent in the
quarter. In February 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards (SFAS)
No. 128, "Earnings Per Share". For additional information, see
"Earnings Per Common Share" in the Notes to Consolidated
Financial Statements.
Additional Factors Influencing Operations
In the United States, many of the Company's pharmaceutical
products are subject to increasingly competitive pricing as
managed care groups, institutions, government agencies and other
buying groups seek price discounts. In most international
markets, the Company operates in an environment of government-
mandated cost containment programs. Several governments have
placed restrictions on physician prescription levels and patient
reimbursements, emphasized greater use of generic drugs and
enacted across-the-board price cuts as methods of cost control.
Since the Company is unable to predict the final form and timing
of any future domestic and international governmental or other
health care initiatives, their effect on operations and cash
flows cannot be reasonably estimated.
The market for pharmaceutical products is competitive. The
Company's operations may be affected by technological advances of
competitors, patents granted to competitors, new products of
competitors, and generic competition as the Company's products
mature. In addition, patent positions can be highly uncertain
and an adverse result in a patent dispute can preclude
commercialization of products or negatively affect sales of
existing products. The effect on operations of competitive
factors and patent disputes cannot be predicted.
Uncertainties inherent in government regulatory approval
processes, including among other things delays in approval of new
products, may also affect the Company's operations. The effect
on operations of regulatory approval processes cannot be
predicted.
Liquidity and financial resources - three months ended March 31,
1997
Cash generated from operations continues to be the Company's
major source of funds to finance working capital, additions to
property, shareholder dividends and common share repurchases.
Cash and cash equivalents increased by $222.0 million in the
first three months of 1997, primarily due to cash provided by
operating activities of $189.0 million and the net increase in
short-term borrowings of $205.8 million which exceeded the
funding required for shareholder dividends of $120.5 million and
for capital expenditures of $60.1 million.
In September 1996, the Board of Directors authorized the
repurchase of $500 million of common shares. As of March 31,
1997 this program was approximately 74 percent complete.
In April 1997, the Board of Directors increased the quarterly
dividend 15 percent to $.38 per share from $.33, and authorized a
2-for-1 stock split of the Company's common shares. The
distribution of the split shares will be made on June 3, 1997, to
the shareholders of record at the close of business on May 2,
1997.
The Company's liquidity and financial resources continue to be
sufficient to meet its operating needs.
Cautionary Statements for Forward Looking Information
Management's discussion and analysis set forth above contains
certain forward looking statements, including statements
regarding the Company's financial position and results of
operations. These forward looking statements are based on
current expectations. Certain factors have been identified by
the Company in Exhibit 99.1 of the Company's December 31, 1996,
Form 10-K filed with the Securities and Exchange Commission,
which could cause the Company's actual results to differ
materially from expected and historical results. Exhibit 99.1
from the Form 10-K is incorporated by reference herein.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
The fourth paragraph of Item 3, Legal Proceedings, of Part I of
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, relating to certain antitrust actions,
is incorporated herein by reference. In April 1997, certain of
the plaintiffs in the federal class action commenced another
purported class action in Federal District Court in Illinois
against the Company and the other defendants who settled the
previous federal class action. The complaint alleges that the
defendants conspired not to implement the settlement commitments
following the settlement discussed in the fourth paragraph of
Item 3. The complaint seeks solely injunctive relief and the
plaintiffs have moved to have the District Court set a date for a
hearing on a request for a preliminary injunction. The Company
believes the action is without merit and is defending itself
vigorously.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders was held on April 22,
1997.
(b) Not applicable.
(c) The designation by the Board of Directors of Deloitte &
Touche LLP to audit the books and accounts of the
Corporation for the year ended December 31, 1997 was
ratified by a vote of shares as follows:
FOR AGAINST ABSTAIN
324,682,098 527,777 736,936
All of the nominees for director were elected for a three year
term by a vote of shares, as follows:
FOR WITHHELD
David C. Garfield 322,376,044 3,570,767
Robert P. Luciano 322,494,229 3,452,582
H. Barclay Morley 322,412,009 3,534,802
Carl E. Mundy, Jr. 321,457,359 4,489,452
Patricia F. Russo 321,677,997 4,268,814
The 1997 Stock Incentive Plan, adopted by the Board of Directors
of the Corporation and as presented to the Shareholders on April
22, 1997, was adopted by a vote of shares as follows:
FOR AGAINST ABSTAIN
306,065,396 16,774,132 3,107,283
(d) None
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits - The following Exhibits are filed with this
document:
Exhibit
Number Description
10(a) - Amended and Restated SERP Rabbi Trust
10(b) - Amendment to the Executive Incentive
Plan Trust Agreement
11 - Computation of Earnings Per Common Share
27 - Financial Data Schedule
b) Reports on Form 8-K:
No report has been filed during the three months ended
March 31, 1997.
SIGNATURE(S)
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Schering-Plough Corporation
(Registrant)
Date May 2, 1997 /s/Thomas H. Kelly
Thomas H. Kelly
Vice President and Controller
Exhibit 10(a)
AMENDED AND RESTATED SERP RABBI TRUST
THIS AGREEMENT, made as of the 22nd day of January,
1997 (the "Trust Agreement"), among SCHERING-PLOUGH CORPORATION,
a corporation organized and existing under the laws of New Jersey
(the "Company"), THE NORTHERN TRUST COMPANY, having its principal
offices in Chicago, Illinois (the "Trustee") and BUCK
CONSULTANTS, INC. having its principal offices in New York, New
York (the "Trustee's Agent").
W I T N E S S E T H
WHEREAS, the Trust Agreement was originally entered
into as of March 31, 1987 by and among the Company, The Chase
Manhattan Bank (National Association) as trustee, and The Wyatt
Company as trustee's agent (the "Original Trust Agreement");
WHEREAS, the Original Trust Agreement was amended and
restated through October 1, 1993 and further amended as of
October 1, 1995;
WHEREAS, the Company wishes to amend and restate the
Original Trust Agreement, as so amended and restated, to create
an additional fund to satisfy the Company's deferred compensation
liability under its Directors Deferred Stock Equivalency Program;
WHEREAS, the Company has incurred and expects to
continue to incur certain unfunded retirement income and deferred
compensation liability to or with respect to certain key
management employees and directors pursuant to the terms of the
following plans and employment agreements of the Company: (i)
the Supplemental Executive Retirement Plan; (ii) the Retirement
Benefits Equalization Plan; (iii) the Pension Plan for Directors;
(iv) the Employment Agreement with Hugh A. D'Andrade dated as of
June 28, 1994, as amended by the First Amendment thereto dated as
of March 1, 1995, the Second Amendment dated as of December 11,
1995, and as subsequently amended from time to time; (v) the
Employment Agreement with Richard J. Kogan dated as of September
26, 1989, as amended by the First Amendment thereto dated as of
June 28, 1994, the Second Amendment thereto dated as of March 1,
1995, and the Third Amendment thereto dated as of October 24,
1995, and as subsequently amended from time to time; (vi) the
Employment Agreement with Robert P. Luciano dated as of September
26, 1989, as amended by the First Amendment thereto dated as of
June 28, 1994, the Second Amendment thereto dated as of March 1,
1995, and as subsequently amended from time to time; (vii) the
Deferred Compensation Plan (the plans and employment agreements
listed in clauses (i) through (vii) being hereinafter called the
"A Plans"); (viii) the Directors Deferred Stock Equivalency
Program (the plan listed in clause (viii) being hereinafter
sometimes referred to as the "S Plan"); and (ix) such other plans
and employment agreements for the Corporation as the Executive
Compensation and Organization Committee may designate from time
to time as A Plans or S Plans (all such plans and employment
agreements being hereinafter individually called a "Plan" or
collectively the "Plans");
WHEREAS, the Company desires to provide additional
assurance to some or all such key management employees and
directors (the "Participants") and their surviving spouses,
beneficiaries or estates under the Plans (collectively, the
"Beneficiaries") that their unfunded retirement benefit and
deferred compensation rights under the Plans will in the future
be met or substantially met by application of the procedures set
forth herein;
WHEREAS, the Company wishes to establish separate
accounts (hereinafter the "Accounts") with respect to some or all
of the Participants in the Plans in order to provide a source of
payments as such are required under the terms of such Plans;
WHEREAS, amounts transferred to each separate Account,
as determined by the Company from time to time in its sole
discretion, and the earnings thereon shall be used by the Trustee
to satisfy the liabilities of the Company under the Plan or Plans
with respect to the Participant for whom such separate Account
has been established and such utilization shall be in accordance
with the procedures set forth herein;
WHEREAS, upon satisfaction of all liabilities of the
Company under the Plan or Plans with respect to a Participant and
Beneficiary in respect of whom a separate Account has been
established, the balance, if any, remaining in such Account shall
be allocated to the Accounts of other Participants and
Beneficiaries for whom such Accounts have been established in
accordance with the procedures set forth herein; and
WHEREAS, upon satisfaction of all liabilities of the
Company under the Plans with respect to all Participants in
respect of whom separate Accounts have been established, the
balance, if any, remaining in such Accounts shall revert to the
Company, except that all amounts in all such Accounts shall at
all times be subject under this Agreement to the claims of the
Company's creditors as hereinafter provided;
NOW, THEREFORE, in consideration of the premises and
mutual and independent promises herein, the parties hereto
covenant and agree as follows:
ARTICLE I
1.1 The Company hereby establishes with the Trustee a
Trust consisting of such sums of money and such property
acceptable to the Trustee as shall from time to time be paid or
delivered to the Trustee and the earnings and profits thereon.
All such money and property, all investments made therewith and
proceeds thereof, less the payments or other distributions which,
at the time of reference, shall have been made by the Trustee, as
authorized herein, are referred to herein as the "Trust Property"
and shall be held by the Trustee collectively in two separate
funds (the "SERP A Fund" and "SERP S Fund"; each
individually a "Fund" and collectively, the "Funds"), IN TRUST,
in accordance with the provisions of this Agreement. The Trust
Property relating to each Fund shall be held by the Trustee
without distinction or separation by virtue of Plan Participants'
interests in their Accounts maintained by the Trustee's Agent as
hereinafter provided. The SERP A Fund shall be utilized to fund
the retirement income and deferred compensation liability to or
with respect to certain key management employees and directors
pursuant to the terms of the A Plans. The SERP S Fund shall be
utilized to fund the deferred compensation liability to directors
pursuant to the terms of the S Plan and any other deferred
compensation liability pursuant to the terms of any other S
Plans.
1.2 The Trustee shall hold, manage, invest and
otherwise administer each Fund pursuant to the terms of this
Agreement. The Trustee shall be responsible only for con
tributions actually received by it hereunder. The amount of each
contribution by the Company to each Fund shall be determined in
the sole discretion of the Company and the Trustee shall have no
duty or responsibility with respect thereto.
1.3 The Trustee's Agent shall maintain in an equitable
manner a separate Account record for each Participant under each
Plan in which it shall keep a separate record of the share of
such Participant under such Plan in the appropriate Fund. The
Company shall certify to the Trustee's Agent at the time of each
contribution to a Fund the amount of such contribution being made
in respect of each Participant under each Plan and each such
contribution shall be credited to the Participant's Account as of
the last business day of the calendar quarter in which such
contribution is made. Each Fund shall be revalued by the Trustee
as of the last business day of each calendar quarter ("Valuation
Date") at current market values, as determined by the Trustee,
and the Trustee shall certify the value thereof to the Trustee's
Agent. The Trustee's Agent shall apportion each Fund as revalued
as of such Valuation Date less any contributions made by the
Company during the preceding quarter among the Accounts of
Participants in proportion to their respective interests in each
Fund on the immediately preceding Valuation Date, except that for
purposes of such apportionment the Accounts of Participants as of
the Valuation Date shall not include any contributions or
forfeitures credited to their Accounts as of such Valuation Date
and any payments to the Participants made after the immediately
preceding Valuation Date shall be charged to their Accounts as of
the immediately preceding Valuation Date. Where a Participant's
Account within a Fund may be applied to provide benefits to or in
respect of such Participant under more than one Plan, the
separate Account record for such Participant under each such Plan
shall be maintained by the Trustee's Agent in such manner as the
Trustee's Agent, in its sole discretion, considers to be
appropriate.
ARTICLE II
2.1 Notwithstanding any provision in this Agreement to
the contrary, if at any time while the Trust is still in
existence the Company becomes insolvent (as defined herein), the
Trustee shall upon written notice thereof suspend the payment of
all benefits from each Fund and shall thereafter hold each Fund
in suspense for the benefit of the Company's creditors until it
receives a court order directing the disposition of each Fund;
provided, however, the Trustee may deduct or continue to deduct
its fees and expenses and other expenses of the Trust, including
taxes, pending the receipt of such court order. The Company
shall be considered to be insolvent if (a) it is unable to pay
its debts as they fall due or (b) bankruptcy or insolvency
proceedings are initiated by its creditors or the Company or any
third party under the Bankruptcy Act of the United States or the
bankruptcy laws of any State alleging that the Company is
insolvent or bankrupt. By its approval and execution of this
Agreement, the Company represents and agrees that its Board of
Directors and Chief Executive Officer, as from time to time
acting, shall have the fiduciary duty and responsibility on
behalf of the Company's creditors to give to the Trustee prompt
written notice of any event of the Company's insolvency and the
Trustee shall be entitled to rely thereon to the exclusion of all
directions or claims to pay benefits thereafter made. If the
Trust Department of the Trustee receives written allegations of
an event of insolvency from a third party, the Trustee shall
request that the Company's independent auditors determine whether
the Company is insolvent; the Trustee may conclusively rely on
written certification of solvency or insolvency received from
such auditors. If, after an event of insolvency, the Company
later becomes solvent without the entry of a court order
concerning the disposition of the Trust Property or any
bankruptcy or insolvency proceedings referred to in (b) above are
dismissed, the Company shall by written notice so inform the
Trustee and the Trustee shall thereupon resume all its duties and
responsibilities under this Agreement without regard for this
Section 2.1 until and unless the Company again becomes insolvent
as such term is defined herein.
2.2 The Company represents and agrees that the Trust
established under this Agreement does not fund and is not
intended to fund the Plans or any other employee benefit plan or
program of the Company. Such Trust is and is intended to be a
depository arrangement with the Trustee for the setting aside of
cash and other assets of the Company as and when it so determines
in its sole discretion for the meeting of part or all of its
future retirement obligations and deferred compensation liability
to or with respect to some or all of the Participants and their
Beneficiaries under the Plans. Contributions by the Company to
the Trust shall be in amounts determined solely by the Company
and shall be in respect of only those Plan Participants selected
by the Company from time to time as it determines. The purpose
of this Trust is to provide funds from which retirement benefits
and deferred compensation may be payable under the Plans and as
to which Plan Participants with Accounts hereunder and their
Beneficiaries may, by exercising the procedures set forth herein,
have access to some or all of their benefits as such become due
without having the payment of such benefits subject to the
administrative control of the Company unless the Company is
adjudicated to be bankrupt or insolvent. The Company further
represents that each of the Supplemental Executive Retirement
Plan and the Deferred Compensation Plan is a deferred
compensation plan for a select group of management and highly
compensated employees and as such is exempt from the application
of the Employee Retirement Income Security Act of 1974 ("ERISA")
except for the disclosure requirements applicable to such Plan
for which the Company bears full responsibility as to compliance;
that the Retirement Benefits Equalization Plan is an excess
benefit plan and as such is exempt from all ERISA provisions; and
that each of the Directors Pension Plan, Directors Deferred Stock
Equivalency Program and the employment agreements with each of
Messrs. D'Andrade, Kogan and Luciano is not an employee benefit
plan and is not subject to ERISA. The Company further represents
that the Plans are not qualified under Section 401 of the United
States Internal Revenue Code and therefore are not subject to any
of the Code requirements applicable to tax-qualified plans.
ARTICLE III
3.1 By their acceptance of this Trust the Trustee
hereby agrees to the designation by the Company of Buck
Consultants, Inc. as the Trustee's Agent and Buck Consultants,
Inc. agrees to act as such Trustee's Agent under this Trust
Agreement. It is herein recognized that said Trustee's Agent is
also acting as the independent consulting actuary of the Company
with respect to the Plans and that the Trustee shall have no
responsibility hereunder for the continued retention of such
Trustee's Agent and/or any responsibility assigned to said Agent
or its performance thereof. In the event the Company replaces or
no longer uses said firm as its independent consulting actuary,
the Trustee in its sole discretion may, but need not, designate a
new Trustee's Agent or may continue to use the same Trustee's
Agent. Buck Consultants, Inc. and any successor Trustee's Agent
appointed hereunder may resign at any time by delivering sixty
(60) days advance written notice to the Company and to the
Trustee, in which event the Trustee shall designate a new
Trustee's Agent; provided, however, any Trustee's Agent appointed
by the Trustee shall be independent of the Company. The Company
shall pay or reimburse the Trustee for all fees and expenses of
the Trustee's Agent and shall indemnify and hold the Trustee
harmless for any liability, loss, suit or expense (including
attorneys' fees) in connection with or arising out of actions or
omissions of said Trustee's Agent (including any direction to or
failure to direct the Trustee) and shall indemnify and hold the
Trustee's Agent harmless for any actions or omissions of the
Trustee.
3.2 Except for the records dealing solely with the
Funds and their respective investments, which shall be maintained
by the Trustee, the Trustee's Agent shall maintain all the Plan
Participant records contemplated by this Agreement, including the
maintenance of the separate Accounts of each Participant under
this Agreement and the maintenance of the data necessary to
determine, from time to time, the benefits of Participants under
the Plans. The Trustee's Agent shall also prepare and distribute
Participants' statements when requested by the Company or a
Participant and shall be responsible for information with respect
to payments to Participants and their Beneficiaries and shall
perform such other duties and responsibilities as the Trustee
determines is necessary or advisable to achieve the objectives of
this Agreement and the Trustee shall have no responsibility
therefor and shall be entitled to rely fully upon the information
provided by the Trustee's Agent.
3.3 Upon the establishment of this Trust or as soon
thereafter as practicable, the Company shall furnish to the
Trustee's Agent all the information necessary to determine the
benefits payable to or with respect to each Participant in the
Plans, including any benefits payable after the Participant's
death and the recipient of same. The Company shall regularly, at
least annually, furnish revised up-dated information to the
Trustee's Agent. Based on the foregoing information the
Trustee's Agent shall prepare an annual benefits statement in
respect of each Participant and shall furnish a copy of same to
the Participant or his Beneficiary and to the Company. In the
event the Company refuses or neglects to provide up-dated
Participant information, as contemplated herein, the Trustee's
Agent shall be entitled to rely upon the most recent information
furnished to it by the Company.
3.4 Upon the direction of the Company or upon the
proper application of a Participant or Beneficiary of a deceased
Participant, the Trustee's Agent shall determine a Participant's
or Beneficiary's eligibility for benefits and the amount thereof
and, if benefits are payable, shall prepare a certification of
same to the Trustee. Such certification shall include the amount
of such benefits, the manner of payment and the name, address and
social security number of the recipient and shall be updated
annually and upon receipt by the Trustee's Agent of a notice of a
benefit change under the Plan from the Company. Upon the receipt
of such certified statement and appropriate federal, state and
local tax withholding information, the Trustee shall commence
cash distributions from the relevant Fund or Funds in accordance
therewith to the person or persons so indicated and to the
Company with respect to taxes required to be withheld and the
Trustee's Agent shall charge the Participant's Account or
Accounts established hereunder. The Trustee's Agent shall also
furnish a copy of such certification to the Participant or to the
Beneficiary of a deceased Participant. The Trustee's Agent shall
also give written notice to the Trustee that a Participant's
Account balance has been reduced to a certain minimum agreed to
by the Trustee and the Trustee's Agent under procedures which
will enable the Trustee to cease payment when such Account
balance has been reduced to zero. The Company shall have full
responsibility for the payment of all withholding taxes to the
appropriate taxing authority and shall furnish each Participant
or Beneficiary with the appropriate tax information form
evidencing such payment and the amount thereof.
3.5 All benefits payable from either Fund to a
Participant or his Beneficiary under a Plan or Plans shall be
charged solely against the relevant Account of such Participant.
When the Trustee's Agent determines that all Company liabilities
under all Plans to a Participant and Beneficiary have been
satisfied, the Trustee's Agent shall prepare a certification to
the Trustee and to the Company showing the balance, if any,
remaining in such Participant's Account or Accounts (the
"Balance"). In making such determination the Trustee's Agent may
rely upon written certification from the Company that the
Participant or his Beneficiary has died or that such Company
liabilities have been satisfied by cash payments made by the
Company or otherwise; provided, however, the Trustee's Agent may
require additional documentation of any such Company confirmation
if the Trustee's Agent considers such to be appropriate under the
circumstances. Any Balance remaining in such Participant's
Account or Accounts shall be reallocated by the Trustee's Agent
to the Accounts of the other Participants and Beneficiaries in
the manner set forth below; provided, however, in no event shall
any Balance be allocated to the Account of any Participant or
Beneficiary established after the Company delivers a written
notice to the Trustee and the Trustee's Agent that Accounts
established after the date of such notice shall not be entitled
to share in any reallocations under this Section 3.5. Any such
notice shall be irrevocable by the Company notwithstanding any
amendments to this Trust Agreement made thereafter and any
attempt to revoke such notice shall be disregarded by the Trustee
and the Trustee's Agent.
Each Balance determined in accordance with the
preceding paragraph shall be maintained as a separate
Participant's Account subject to quarterly revaluation pursuant
to Section 1.3 until the following or coinciding December 31st,
as of which date the Trustee's Agent shall aggregate and revalue
all such Balances and reallocate such amount ("Total Balances")
to the eligible Accounts of the remaining Participants and
Beneficiaries in both Funds, including Accounts which may have
previously been reduced to a zero balance. Such reallocation
shall be made:
a) by determining the amount by which the value of each
Participant's and Beneficiary's accrued benefits under the Plan
or Plans exceed the value of his Account or Accounts as of such
December 31st;
b) by adding all the amounts determined under (a); and
c) by allocating to each Participant's and Beneficiary's
Account or Accounts the amount of the Total Balances (not in
excess of the amount computed under (b)) in the ratio of the
amount computed for each Account under (a) to the total amount
computed under (b).
If the amount of the Total Balances exceeds the amount computed
under (b), the excess shall be maintained as a separate Account
until the following December 31st or until any earlier
termination of the Trust, at which date the value of such Account
shall be treated as an additional Balance for purposes of this
Section 3.5. For defined benefit type plans, the value of each
Participant's and Beneficiary's accrued benefits under the Plan
or Plans shall be calculated using the procedures and actuarial
assumptions used in terminating a single employer plan under 29
CFR Part 4044, Subpart B of the Pension Benefit Guaranty
Corporation regulations. For defined contribution type plans,
the value of each Participant's and Beneficiary's accrued
benefits shall be determined in accordance with the relevant Plan
or Plans.
Upon the satisfaction of all liabilities of the Company
under the Plans to Participants and Beneficiaries for whom
Accounts have been established hereunder, the Trustee's Agent
shall prepare a certification to the Trustee and to the Company
and the Trustee shall thereupon hold or distribute the Trust
Property in accordance with the written instructions of the
Company. At no time except to the extent used to satisfy claims
of the Company's creditors in the event of the Company's
insolvency, as defined in Section 2.1, or the satisfaction of all
liabilities of the Company under the Plans in respect of
Participants and Beneficiaries having Accounts hereunder shall
any part of the Trust Property revert to the Company. The
Trustee and the Trustee's Agent shall have no responsibility for
determining whether any Participant or Beneficiary has died and
shall be entitled to rely upon information furnished by the
Company.
3.6 Nothing provided in this Agreement shall relieve
the Company of its liabilities to pay the retirement benefits and
deferred compensation liabilities provided under the Plans except
to the extent such liabilities are met by application of Fund
assets. It is the intent of the Company to have each Account
established hereunder treated as a separate trust designed to
satisfy in whole or in part the Company's legal liability under
the Plans in respect of the Participant for whom such Account has
been established and to have the balance of each Fund revert to
the Company only after its legal liability under the relevant
Plan or Plans has been met. The Company, therefore, agrees that
all income, deductions and credits of each such Account belong to
it as owner for income tax purposes and will be included on the
Company's income tax returns.
ARTICLE IV
4.1 The Company shall provide the Trustee's Agent with
a certified copy of the Plans and all amendments thereto and of
the resolutions of the Board of Directors of the Company or the
relevant subsidiary approving the Plans and all amendments
thereto, promptly upon their adoption. Any action by the Company
pursuant to the terms of this Trust Agreement shall, except as
otherwise provided herein, be by written instrument signed by an
officer of the Company authorized to act hereunder or any delegee
authorized to act for the Company. After the execution of this
Agreement, the Company shall promptly file with the Trustee and
the Trustee's Agent a certified list of the names and specimen
signatures of the officers of the Company and any delegee
authorized to act for it. The Company shall promptly notify the
Trustee and the Trustee's Agent of the addition or deletion of
any person's name to or from such list, respectively. Until
receipt by the Trustee and/or the Trustee's Agent of notice that
any person is no longer authorized so to act, the Trustee or the
Trustee's Agent may continue to rely on the authority of the
person. All certifications, notices and directions by any such
person or persons to the Trustee or the Trustee's Agent shall be
in writing signed by such person or persons. The Trustee and the
Trustee's Agent may rely on any such certification, notice or
direction purporting to have been signed by or on behalf of such
person or persons that the Trustee or the Trustee's Agent
believes to have been signed thereby. The Trustee and the
Trustee's Agent may rely on any certification, notice or
direction of the Company that the Trustee or the Trustee's Agent
believes to have been signed by a duly authorized officer or
agent of the Company. The Trustee and the Trustee's Agent shall
have no responsibility for acting or not acting in reliance upon
any notification believed by the Trustee or the Trustee's Agent
to have been so signed by a duly authorized officer or agent of
the Company. The Company shall be responsible for keeping
accurate books and records with respect to the employees and
Directors of the Company, their compensation and their rights and
interests in the Funds under the Plans.
4.2 The Company shall make its contributions to the
Trust in accordance with appropriate corporate action and the
Trustee shall have no responsibility with respect thereto, except
to add such contributions to the appropriate Fund or Funds.
4.3 The Company shall indemnify and hold harmless the
Trustee for any liability or expenses, including without
limitation reasonable attorneys' fees, incurred by the Trustee
with respect to holding, managing, investing or otherwise
administering the Funds or carrying out its duties hereunder,
except to the extent that such liabilities or expenses arise from
actions constituting gross negligence or willful misconduct by
the Trustee under this Agreement.
4.4 The Company shall indemnify and hold harmless the
Trustee's Agent for any liability or expenses, including without
limitation reasonable attorneys' fees, incurred by the Trustee's
Agent with respect to keeping the records for Participants'
Accounts, reporting thereon to Participants, certifying benefit
information to the Trustee, determining the status of Accounts
and benefits hereunder and otherwise carrying out its obligations
under this Agreement, except to the extent that such liabilities
or expenses arise from actions constituting negligence or willful
misconduct by the Trustee's Agent.
ARTICLE V
5.1 The Trustee shall not be liable in discharging its
duties hereunder, including without limitation its duty to invest
and reinvest the Trust Property relating to each Fund, if it acts
in good faith and in accordance with the terms of this Agreement
with respect to the Trustee's responsibilities under this
Agreement.
5.2 Subject to investment guidelines agreed to in
writing from time to time by the Company and the Trustee, the
Trustee shall have the power in investing and reinvesting the
Trust Property with respect to each Fund, in its sole discretion:
(a) To invest and reinvest in any property, real,
personal or mixed, wherever situated and whether or not
productive of income or consisting of wasting assets,
including without limitation, common and preferred stocks,
bonds, notes, debentures (including convertible stocks and
securities but not including any stock or security of the
Trustee, the Company or any affiliate thereof), futures,
option and forward contracts, leaseholds, mortgages,
certificates of deposit or demand or time deposits
(including any such deposits with the Trustee), shares of
investment companies and mutual funds, interests in
partnerships and trusts, insurance policies and annuity
contracts, and oil, mineral or gas properties, royalties,
interests or rights, without being limited to the classes of
property in which trustees are authorized to invest by any
law or any rule of court of any state and without regard to
the proportion any such property may bear to the entire
amount of each Fund; provided, however, the Trustee is
authorized to receive and hold any stock or security of the
Company which is contributed by the Company to either Fund
and the Trustee shall not sell any such stock or security of
the Company until the Company so directs;
(b) To invest and reinvest all or any portion of the
Trust Property held in the Funds collectively through the
medium of any common, collective or commingled trust fund
that may be established and maintained by the Trustee,
subject to the instrument or instruments establishing such
trust fund or funds and with the terms of such instrument or
instruments, as from time to time amended, being incor
porated into this Agreement to the extent of the equitable
share of the Funds in any such common collective or
commingled trust fund;
(c) To retain any property at any time received by the
Trustee;
(d) Subject to subsection (a) above, to sell or
exchange any property held by it at public or private sale,
for cash or on credit, to grant and exercise options for the
purchase or exchange thereof, to exercise all conversion or
subscription rights pertaining to any such property and to
enter into any covenant or agreement to purchase any
property in the future;
(e) To participate in any plan of reorganization,
consolidation, merger, combination, liquidation or other
similar plan relating to property held by it and to consent
to or oppose any such plan or any action thereunder or any
contract, lease, mortgage, purchase, sale or other action by
any person;
(f) To deposit any property held by it with any
protective, reorganization or similar committee, to delegate
discretionary power thereto, and to pay part of the expenses
and compensation thereof and any assessments levied with
respect to any such property so deposited;
(g) To extend the time of payment of any obligation
held by it;
(h) To hold uninvested any moneys received by it,
without liability for interest thereon, until such moneys
shall be invested, reinvested or disbursed;
(i) To exercise all voting or other rights with
respect to any property held by it and to grant proxies,
discretionary or otherwise;
(j) For the purposes of the Trust, to borrow money
from others, to issue its promissory note or notes therefor,
and to secure the repayment thereof by pledging any property
held by it;
(k) To manage, administer, operate, insure, repair,
improve, develop, preserve, mortgage, lease or otherwise
deal with, for any period, any real property or any oil,
mineral or gas properties, royalties, interests or rights
held by it directly or through any corporation, either alone
or by joining with others, using other Trust assets for any
such purposes, to modify, extend, renew, waive or otherwise
adjust any provision of any such mortgage or lease and to
make provision for amortization of the investment in or de
preciation of the value of such property;
(l) To employ suitable agents and counsel, who may be
counsel to the Company or the Trustee and to pay their
reasonable expenses and compensation from the relevant Fund
to the extent not paid by the Company;
(m) To cause any property held by it to be registered
and held in the name of one or more nominees, with or
without the addition of words indicating that such
securities are held in a fiduciary capacity, and to hold
securities in bearer form;
(n) To settle, compromise or submit to arbitration any
claims, debts or damages due or owing to or from the Trust,
respectively, to commence or defend suits or legal
proceedings to protect any interest of the Trust, and to
represent the Trust in all suits or legal proceedings in any
court or before any other body or tribunal; provided,
however, that the Trustee shall not be required to take any
such action unless it shall have been indemnified by the
Company to its reasonable satisfaction against liability or
expenses it might incur therefrom;
(o) To organize under the laws of any state a
corporation or trust for the purpose of acquiring and
holding title to any property which it is authorized to
acquire hereunder and to exercise with respect thereto any
or all of the powers set forth herein; and
(p) Generally, to do all acts, whether or not ex
pressly authorized, that the Trustee may deem necessary or
desirable for the protection of the Trust Property.
Notwithstanding the foregoing, the Trustee shall upon the written
direction of the Company invest all or part of the amount to the
credit of any Participant's Account in a commercial annuity or
insurance contract selected by the Company and the Trustee shall
have no responsibility for any such investment other than as
owner and custodian thereof.
5.3 The Company may at any time direct the Trustee to
segregate all or a portion of each Fund in a separate investment
account or accounts and may appoint one or more investment
managers to direct the investment and reinvestment of each such
investment account or accounts. In such event, the Company shall
notify the Trustee of the appointment of each such investment
manager. Thereafter, the Trustee shall make every sale or
investment with respect to such investment account as directed in
writing by the investment manager. It shall be the duty of the
Trustee to act strictly in accordance with each direction. The
Trustee shall be under no duty to question any such direction of
the investment manager, to review any securities or other prop
erty held in any such investment account or accounts acquired by
it pursuant to such directions or to make any recommendations to
the investment managers with respect to such securities or other
property. Notwithstanding the foregoing, the Trustee, without
obtaining prior approval or direction from an investment manager,
shall invest cash balances held by it from time to time in short
term cash equivalents including, but not limited to, through the
medium of any short term common, collective or commingled trust
fund established and maintained by the Trustee subject to the
instrument establishing such trust fund, U.S. Treasury Bills,
commercial paper (including such forms of commercial paper as may
be available through the Trustee's Trust Department),
certificates of deposit, and similar type securities, with a
maturity not to exceed fifteen months; and, furthermore, sell
such short term investments as may be necessary to carry out the
instructions of an investment manager regarding more permanent
type investment and directed distributions. The Trustee shall
not be liable or responsible for any loss resulting to either
Fund by reason of any sale or purchase of an investment directed
by an investment manager nor by reason of the failure to take any
action with respect to any investment which was acquired pursuant
to any such direction in the absence of further directions of
such investment manager, or solely as a result of the performance
by the Trustee or its officers, employees or agents, of any
custodial, reporting, recording or bookkeeping functions with
respect to any such investment account, except to the extent that
such performance constituted gross negligence or willful
misconduct on the part of the Trustee. Notwithstanding anything
in this Agreement to the contrary, the Trustee shall be
indemnified and saved harmless by the Company from and against
any and all personal liability to which the Trustee may be
subjected by carrying out any directions of an investment manager
issued pursuant hereto or for failure to act in the absence of
directions of the investment manager including all expenses
reasonably incurred in its defense in the event the Company fails
to provide such defense; provided, however, the Trustee shall not
be so indemnified if it participates knowingly in, or knowingly
undertakes to conceal, an act or omission of an investment
manager, having actual knowledge that such act or omission is a
breach of a fiduciary duty; provided further, however, that the
Trustee shall not be deemed to have knowingly participated in or
knowingly undertaken to conceal an act or omission of an
investment manager with knowledge that such act or omission was a
breach of fiduciary duty by merely complying with directions of
an investment manager or for failure to act in the absence of
directions of an investment manager. The Trustee may rely upon
any order, certificate, notice, direction or other documentary
confirmation purporting to have been issued by the investment
manager which the Trustee believes to be genuine and to have been
issued by the investment manager. The Trustee shall not be
charged with knowledge of the termination of the appointment of
any investment manager until it receives written notice thereof
from the Company.
5.4 No person dealing with the Trustee shall be under
any obligation to see to the proper application of any money paid
or property delivered to the Trustee or to inquire into the
Trustee's authority as to any transaction. The Trustee's Agent's
obligations are limited solely to those explicitly set forth
herein and the Trustee's Agent shall have no responsibility,
authority or control, direct or indirect, over the maintenance or
investment of the Trust Property and shall have no obligation in
respect of the Trustee or the Trustee's compliance with the
Trustee's Agent's certifications to the Trustee.
5.5 The Trustee shall distribute cash or property from
the Funds in accordance with Article III hereof. The Trustee may
make any distribution required hereunder by mailing its check for
the specified amount, or delivering the specified property, to
the person to whom such distribution or payment is to be made, at
such address as may have been last furnished to the Trustee, or
if no such address shall have been so furnished, to such person
in care of the Company, or (if so directed by the Company) by
crediting the Account of such person or by transferring funds to
such person's Account by bank or wire transfer.
5.6 If at any time there is no person authorized to
act under this Agreement in behalf of the Company, the Board of
Directors of the Company shall have the authority to act
hereunder.
ARTICLE VI
6.1 The Company shall pay any Federal, state or local
taxes on the Trust Property, or any part thereof, and on the
income therefrom.
6.2 The Company shall pay to the Trustee its
reasonable expenses for the management and administration of the
Funds, including without limitation reasonable expenses of
counsel and other agents employed by the Trustee, and reasonable
compensation for its services as Trustee hereunder in accordance
with its Published Schedule of Compensation in effect from time
to time. The Company shall also pay to the Trustee for
transmission to the Trustee's Agent the fees and expenses of the
Trustee's Agent, unless the Company pays such directly to the
Trustee's Agent. Such expenses, fees and compensation shall be a
charge on the Funds and shall constitute a lien in favor of the
Trustee and Trustee's Agent until paid by the Company.
ARTICLE VII
7.1 The Trustee shall maintain records with respect to
each Fund that show all its receipts and disbursements hereunder.
The records of the Trustee with respect to the Funds shall be
open to inspection by the Company, or its representatives, at all
reasonable times during normal business hours of the Trustee and
may be audited not more frequently than once each fiscal year by
an independent certified public accountant engaged by the
Company; provided, however, the Trustee shall be entitled to
additional compensation from the Company in respect of audits or
auditors' requests which the Trustee determines to exceed the
ordinary course of the usual scope of such examinations of its
records.
7.2 Within a reasonable time after the close of each
fiscal year of the Company (or as agreed to by the Company and
Trustee), or upon termination of the duties of the Trustee
hereunder, the Trustee shall prepare and deliver to the Company a
statement of transactions reflecting its acts and transactions as
Trustee during such fiscal year, portion thereof or during such
period from the close of the last fiscal year or last statement
period to the termination of the Trustee's duties, respectively,
including a statement of the then current value of each Fund.
The Trustee's Agent shall also prepare and furnish to the Company
a statement of the then current value of each Account. Any such
statement shall be deemed an Account stated and accepted and
approved by the Company, and the Trustee shall be relieved and
discharged, as if such Account had been settled and allowed by a
judgment or decree of a court of competent jurisdiction, unless
protested by written notice to the Trustee within sixty (60) days
of receipt thereof by the Company.
The Trustee shall have the right to apply at any time to a
court of competent jurisdiction for judicial settlement of any
Account of the Trustee not previously settled as herein provided
or for the determination of any question of construction or for
instructions. In any such action or proceeding it shall be
necessary to join as parties only the Trustee and the Company
(although the Trustee may also join such other parties as it may
deem appropriate), and any judgment or decree entered therein
shall be conclusive.
ARTICLE VIII
8.1 The Trustee may resign at any time by delivering
written notice thereof to the Company; provided, however, that no
such resignation shall take effect until the earlier of (i) sixty
(60) days from the date of delivery of such notice to the Company
or (ii) the appointment of a successor trustee.
8.2 The Trustee may be removed at any time by the
Company, pursuant to a resolution of the Board of Directors of
the Company, upon delivery to the Trustee of a certified copy of
such resolution and sixty (60) days' written notice, unless such
notice period is waived in whole or in part by the Trustee, of
(i) such removal and (ii) the appointment of a successor trustee.
8.3 Upon the resignation or removal of the Trustee, a
successor trustee shall be appointed by the Company. Such
successor trustee shall be a bank or trust company which is
established under the laws of the United States or a State within
the United States and which is not related, directly or
indirectly, to the Company. Such appointment shall take effect
upon the delivery to the Trustee of (a) a written appointment of
such successor trustee, duly executed by the Company, and (b) a
written acceptance by such successor trustee, duly executed
thereby. Any successor trustee shall have all the rights, powers
and duties granted the Trustee hereunder.
8.4 If, within sixty (60) days of the delivery of the
Trustee's written notice of resignation, a successor trustee
shall not have been appointed, the Trustee may apply to any court
of competent jurisdiction for the appointment of a successor
trustee.
8.5 Upon the resignation or removal of the Trustee and
the appointment of a successor trustee, and after the acceptance
and approval of the Trustee's accounting of the Trust Property,
the Trustee shall transfer and deliver the Trust Property to such
successor. Under no circumstances shall the Trustee transfer or
deliver the Trust Property to any successor which is not a bank
or trust company as hereinabove defined.
ARTICLE IX
9.1 The Trust established pursuant to this Agreement
may not be terminated by the Company prior to the satisfaction of
all liabilities with respect to all Participants in the Plans and
their Beneficiaries. Upon receipt of a written certification
from the Trustee's Agent that all liabilities have been satisfied
with respect to all Participants in the Plans and their
Beneficiaries, the Company pursuant to a resolution of its Board
of Directors may terminate the Trust upon delivery to the Trustee
of (a) a certified copy of such resolution, (b) an original
certification of the Trustee's Agent that all such liabilities
have been satisfied and (c) a written instrument of termination
duly executed and acknowledged in the same form as this
Agreement.
9.2 Upon the termination of the Trust in accordance
with Section 9.1, the Trustee shall, after the acceptance and
approval of its account, distribute the Trust Property to the
Company. Upon completing such distribution, the Trustee shall be
relieved and discharged. The powers of the Trustee shall
continue as long as any part of either Fund remains in its
possession.
9.3 The Company may at any time liquidate the Account
of any Participant under this Agreement in the event the amount
to the credit of such Account falls below $3,000. In such event,
the Trustee, upon receipt of written instructions from the
Company, shall distribute in cash the amount to the credit of any
such terminated Account, as determined by the Trustee's Agent, to
the Participant in respect of whom such Account was established
or, if such Participant is dead or incompetent, to his
Beneficiary.
ARTICLE X
10.1 This Agreement may be amended, in whole or in
part, at any time and from time to time, by the Company, pursuant
to a resolution of the Board of Directors thereof by delivery to
the Trustee and the Trustee's Agent of a certified copy of such
resolution and a written instrument duly executed and
acknowledged in the same form as this Agreement, except that the
duties and responsibilities of the Trustee and the Trustee's
Agent shall not be increased without the Trustee's or the
Trustee's Agent's written consent; provided, however, any such
amendment affecting any Account, the procedures for distribution
thereof or the reallocation of Balances under Section 3.5 shall
not become effective until sixty (60) days after a copy of such
amendment has been delivered by registered mail by the Company or
the Trustee's Agent to each Participant or his Beneficiary. In
the event the Company, Trustee or Trustee's Agent receives
written objections to such amendment from such person within such
sixty (60) day period, the party receiving such objections shall
provide a copy of same to the other parties and such amendment
shall be ineffective and void in respect of the Participant or
Beneficiary so objecting to the amendment.
ARTICLE XI
11.1 This Agreement shall be construed and interpreted
under, and the Trust hereby created shall be governed by, the
laws of the State of Illinois insofar as such laws do not
contravene any applicable Federal laws, rules or regulations.
11.2 Neither the gender nor the number (singular or
plural) of any word shall be construed to exclude another gender
or number when a different gender or number would be appropriate.
11.3 No right or interest of any Participant under a
Plan in either Fund shall be transferable or assignable or shall
be subject to alienation, anticipation or encumbrance, and no
right or interest of any Participant or Beneficiary in any Plan
or in either Fund shall be subject to any garnishment, attachment
or execution. Notwithstanding the foregoing, the Trust Property
shall at all times remain subject to claims of creditors of the
Company in the event the Company is adjudicated to be bankrupt or
insolvent as provided herein and Participants and Beneficiaries
shall have no claims to either Fund superior to that of any other
unsecured creditors in such event.
11.4 The Company agrees that by the establishment of
this Trust it hereby forgoes any judicial review of
certifications by the Trustee's Agent as to the benefit payable
to any persons hereunder. If a dispute arises as to the amounts
or timing of any such benefits or the persons entitled thereto
under a Plan or this Agreement, the Company agrees that such
dispute shall be resolved by binding arbitration proceedings
initiated in accordance with the rules of the American
Arbitration Association and that the results of such proceedings
shall be conclusive and shall not be subject to judicial review.
It is expressly understood that pending the resolution of any
such dispute, payment of benefits shall be made and continued
(except in the event of the Company's insolvency) by the Trustee
in accordance with the certification of the Trustee's Agent and
that the Trustee and the Trustee's Agent shall have no liability
with respect to such payments. The Company also agrees to pay
the entire cost of any arbitration or legal proceeding including
the legal fees of the Trustee, the Trustee's Agent and the Plan
Participant or the Beneficiary of any deceased Plan Participant
regardless of the outcome of any such proceeding and until so
paid the expenses thereof shall be a charge on and lien against
the Funds.
11.5 This Agreement shall be binding upon and inure to
the benefit of any successor to the Company or its business as
the result of merger, consolidation, reorganization, transfer of
assets or otherwise and any subsequent successor thereto. In the
event of any such merger, consolidation, reorganization, transfer
of assets or other similar transaction, the successor to the
Company or its business or any subsequent successor thereto shall
promptly notify the Trustee and Trustee's Agent in writing of its
successorship and furnish the Trustee and the Trustee's Agent
with the information specified in Section 4.1 of this Agreement.
In no event shall any such transaction described herein suspend
or delay the rights of Plan Participants or the Beneficiaries of
deceased Participants to receive benefits hereunder.
11.6 This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original,
but all of which shall together constitute only one Agreement.
11.7 Communications to the Trustee shall be sent to
The Northern Trust Company, 50 South LaSalle Street, Chicago,
Illinois 60675 or to such other address as the Trustee may
specify in writing. Communications to the Trustee's Agent shall
be sent to Buck Consultants, Inc., Two Pennsylvania Plaza, New
York, New York 10121-0047 or to such other address as the
Trustee's Agent may specify in writing. No communication shall
be binding upon the Trustee or Trustee's Agent until it is
received by the Trustee or Trustee's Agent. Communications to
the Company shall be sent to the Company's principal offices or
to such other address as the Company may specify in writing.
11.8 In the event any Participant or his Beneficiary
is determined to be subject to Federal income tax on any amount
to the credit of his Account under this Agreement prior to the
time of payment hereunder, the entire amount so taxable shall be
distributed by the Trustee as of the next Valuation Date to such
Participant or Beneficiary. Such distribution shall be at the
direction of the Company or the Trustee's Agent upon receipt of
documentation from the Company or the Trustee's Agent indicating
that an amount to the credit of a Participant's account is
subject to Federal income tax. An amount to the credit of a
Participant's Account shall be determined to be subject to
Federal income tax upon the earliest of: (a) a final
determination by the United States Internal Revenue Service
addressed to the Participant or his Beneficiary which is not
appealed to the courts; (b) a final determination by the United
States Tax Court or any other Federal Court affirming any such
determination by the Internal Revenue Service; or (c) an opinion
by counsel, satisfactory to the Company, addressed to the
Company, the Trustee and the Trustee's Agent, that, by reason of
Treasury Regulations, amendments to the Internal Revenue Code,
published Internal Revenue Service rulings, court decisions or
other substantial precedent, amounts to the credit of
Participants' Accounts hereunder are subject to Federal income
tax prior to payment. The Company shall undertake at its sole
expense to defend any tax claims described herein which are
asserted by the Internal Revenue Service against any Participant
or Beneficiary, including attorney fees and costs of appeal, and
shall have the sole authority to determine whether or not to
appeal any determination made by the Service or by a lower court.
The Company also agrees to reimburse any Participant or Benefi
ciary for any interest or penalties in respect of tax claims
hereunder upon receipt of documentation of same. Any dis
tributions from either Fund to a Participant or Beneficiary under
this Section 11.8 shall be applied in accordance with the
provisions of the relevant Plan or Plans to reduce Company
liabilities to such Participant and/or Beneficiary under such
Plan or Plans; provided, however, that in no event shall any
Participant, Beneficiary or estate of any Participant or Benefi
ciary have any obligation to return all or any part of such
distribution to the Company if such distribution exceeds benefits
payable under the relevant Plan or Plans.
IN WITNESS WHEREOF, the parties hereto have caused this
Trust Agreement to be duly executed and their respective
corporate seals to be hereto affixed this 22nd day of January,
1997.
Attest: THE NORTHERN TRUST COMPANY
By /s/Christopher J. Grimm
Its Vice President
Attest: SCHERING-PLOUGH CORPORATION
By /s/E. Kevin Moore
Its Vice President
Attest: BUCK CONSULTANTS, INC.
By /s/Gregory J. Weiber
Its Group Executive and Principal
STATE OF NEW JERSEY )
: ss.:
COUNTY OF MORRIS
Personally appeared E. Kevin Moore, Vice President and
Treasurer of SCHERING-PLOUGH CORPORATION, signer and sealer of
the foregoing instrument, and acknowledged the same to be his
free act and deed as such Vice President and Treasurer and the
free act and deed of said Company, before me.
Notary Public
STATE OF )
: ss.:
COUNTY OF )
Personally appeared , Vice
President of THE NORTHERN TRUST COMPANY, signer and sealer of the
foregoing instrument, and acknowledged the same to be his free
act and deed as such Vice President and the free act and deed of
said Corporation, before me.
Notary Public
STATE OF )
: ss.:
COUNTY OF )
Personally appeared ,
of BUCK CONSULTANTS, INC. signer and sealer of the foregoing
instrument, and acknowledged the same to be his free act and deed
as such and the free act and deed of said
Corporation, before me.
Notary Public
Exhibit 10(b)
AMENDMENT TO TRUST AGREEMENT
Schering-Plough Corporation, a corporation organized and
existing under the laws of New Jersey ("Company"), pursuant to a
resolution of its Board of Directors, hereby amends the trust
agreement entered into on January 1, 1989 between it and The
First National Bank of Chicago, as trustee ("Trust"), and under
which The Northern Trust Company has been appointed as successor
trustee, as follows:
1. By adding the following sentence to the beginning of
Section 1.4: "The Company shall be responsible for maintaining
records for individual Participant Accounts within the Trust.
The Company may appoint a third-party recordkeeper (the Company,
in such capacity, or such third-party being hereinafter referred
to as the "Recordkeeper") to carry out various recordkeeping
responsibilities as indicated in this Agreement."
2. By substituting "Recordkeeper" for "Trustee" wherever
such word appears in Section 1.4, with the exception of line 19
and the first reference to "Trustee" in line 21, of such section.
3. By adding "("Insolvency Notice")" after the words
"prompt written notice of any event of the Company's insolvency"
in the third sentence of Section 2.1.
4. By substituting the following for the fourth sentence
of Section 2.1: "If the Trust Department of the Trustee receives
written allegations of an event of insolvency from a third party
considered by the Trustee to be reliable and responsible, the
Trustee shall promptly forward a copy of such allegations to the
Company. If the Trustee does not receive an Insolvency Notice
from the Company within fifteen days following receipt by the
Company of such allegations, then the Trustee shall request that
the Company's independent auditors determine whether the Company
is insolvent. The Trustee may conclusively rely on written
certification of solvency or insolvency received from such
auditors."
5. By substituting the following for the first sentence of
Section 3.1: "Except for the records dealing solely with the
aggregate Trust Fund and the aggregate Investment Funds
hereunder, which shall be maintained by the Trustee, the
Recordkeeper shall maintain all Plan Participant records
contemplated by this Agreement, including the Participants'
Accounts and the maintenance of Participants' Plan interests."
6. By modifying Section 3.2 to read as follows: "Upon the
establishment of this Trust or as soon thereafter as practicable,
the Company shall furnish to the Recordkeeper, with a copy to the
Trustee, all the information necessary for the Recordkeeper to
determine the benefits payable to with respect to each
Participant in the Plans, including any benefits payable after
the Participant's death and the recipient of same. The Company
shall regularly, at least annually, furnish revised updated
information to the Recordkeeper, with a copy to the Trustee. In
addition, the Company shall prepare an annual benefits statement
in respect of each Participant and shall furnish a copy of same
to the Participant or his beneficiary, the Recordkeeper and the
Trustee. In the event the Company refuses or neglects to provide
updated Participant information, as contemplated herein, the
Recordkeeper shall be entitled to rely upon the most recent
information furnished to it by the Company in making its
determinations of benefits payable."
7. By substituting "Recordkeeper" for "Trustee" in
Sections 3.3 and 3.4, provided that: (a) line 17 of Section 3.3
shall be amended to read as follows: "mation, the Recordkeeper
shall direct the Trustee to commence cash distributions from",
and that (b) line 4 of the last paragraph of Section 3.4 shall be
amended to read as follows: "established hereunder, the
recordkeeper shall direct the Trustee to hold or distribute."
8. By substituting "Trustee" for "Company" in the last
sentence of Section 3.3.
9. By adding to Section 4.1: "The Trustee shall be fully
protected in acting in accordance with directions of the
Recordkeeper."
10. By modifying Section 4.3 to read as follows: "The
Company shall indemnify and hold harmless the Trustee for any
liability or expense, including without limitation reasonable
attorneys' fees, incurred by the Trustee with respect to holding,
managing, investing or otherwise administering the Fund or
carrying out its duties hereunder, except to the extent that such
liabilities or expenses arise from actions constituting
negligence or willful misconduct by the Trustee under this
Agreement."
11. By inserting the following between "year;" and "and" in
line 28 of Section 5.3: "in addition, the Trustee may for such
short term purposes invest in money market portfolios of mutual
funds, including those for which the Trustee serves as advisor;".
12. By adding the following language to the end of the
seventh sentence of Section 5.3: "or solely as a result of the
performance of the Trustee or its officers, employees or agents,
of any custodial, reporting, recording or bookkeeping functions
with respect to any such investment account, except to the extent
that such performance constituted negligence or willful
misconduct on the part of the Trustee."
13. By substituting "Recordkeeper" for "Trustee" in lines 3
and 14 in Section 11.4.
14. By adding the following sentence after the second
sentence of Section 11.8:
"The Trustee shall act in accordance with the Company or
Recordkeeper's instructions in making any such distribution
hereunder."
The Company executes this amendment to the Trust effective
this 31st day of January, 1997.
SCHERING-PLOUGH CORPORATION
By: /s/Wayne L. Miller
Acknowledged: Its: Staff V.P. - Assistant Treasurer
THE NORTHERN TRUST COMPANY,
as Trustee
By: /s/Christopher J. Grimm
Its: Vice President
Exhibit 11
<TABLE>
SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(Amounts in millions, except per share figures)
<CAPTION>
Three Months Ended
March 31,
1997 1996
<S> <C> <C>
Earnings per Common Share, As Reported:
Net income applicable to common shares. $ 375.3 $ 326.6
Average Number of Common Shares
Outstanding . . . . . . . . . . . . . . 365.6 365.7
Earnings per Common Share . . . . . . . $ 1.03 $ .89
Earnings per Common Share, Assuming
Full Dilution: (a)
Average Number of Common Shares
Outstanding . . . . . . . . . . . . . . 365.6 365.7
Shares Contingently Issuable for
Stock Incentive Plans and Warrant
Agreements. . . . . . . . . . . . . . . 3.5 4.1
Average Number of Common Shares and
Common Share Equivalents Outstanding. . 369.1 369.8
Earnings per Common Share, Assuming
Full Dilution . . . . . . . . . . . . $ 1.02 $ .88
(a) This calculation is submitted in accordance with the
regulations of the Securities and Exchange Commission although
not required by APB Opinion No. 15 because it results in dilution
of less than 3%.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Schering-Plough Corporation and subsidiaries consolidated Financial Statements,
and related Exhibits for the three months ended March 31, 1997 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 757100
<SECURITIES> 0
<RECEIVABLES> 755700
<ALLOWANCES> 0
<INVENTORY> 575900
<CURRENT-ASSETS> 2812100
<PP&E> 3374800
<DEPRECIATION> 1125600
<TOTAL-ASSETS> 5856300
<CURRENT-LIABILITIES> 2799400
<BONDS> 46000
0
0
<COMMON> 507400
<OTHER-SE> 1789100
<TOTAL-LIABILITY-AND-EQUITY> 5856300
<SALES> 1568100
<TOTAL-REVENUES> 1568100
<CGS> 289300
<TOTAL-COSTS> 289300
<OTHER-EXPENSES> 179200
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 497100
<INCOME-TAX> 121800
<INCOME-CONTINUING> 375300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 375300
<EPS-PRIMARY> 1.03
<EPS-DILUTED> 1.02
</TABLE>
