<PAGE> 1
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:
<TABLE>
<S> <C>
[ ] 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))
</TABLE>
SCHERING-PLOUGH CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(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):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] 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:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
<PAGE> 2
Schering Logo
------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
APRIL 28, 1998
------------------
The Annual Meeting of Shareholders of Schering-Plough Corporation (the
"Corporation") will be held at the offices of the Corporation, Galloping Hill
Road, Kenilworth, New Jersey, on Tuesday, April 28, 1998, at 2:00 p.m. to:
(1) Elect five directors for terms of three years;
(2) Act upon the ratification of the designation of Deloitte & Touche
LLP to audit the books and accounts of the Corporation for 1998; and
(3) Transact such other business as may properly come before the
meeting.
Only holders of record of Common Shares at the close of business on March
6, 1998 will be entitled to vote at the meeting, or any adjournments or
postponements thereof.
If you are a shareholder of record and plan to attend the meeting, please
detach and retain the admission ticket which is attached to your proxy card and
return the proxy card with the "Annual Meeting" box marked. If you are a
shareholder whose shares are not registered in your own name and you plan to
attend, you may obtain an admission ticket in advance by sending a written
request, with evidence of stock ownership, to the Office of the Secretary,
Schering-Plough Corporation, One Giralda Farms, Madison, New Jersey 07940.
Evidence of your stock ownership can be obtained from your bank, broker, etc.
Admission to the meeting will be on a first-come, first-served basis.
Shareholders who do not present admission tickets at the meeting will be
admitted upon verification of ownership at the door.
WILLIAM J. SILBEY
Secretary
Madison, New Jersey
March 27, 1998
IMPORTANT
IF YOU DO NOT EXPECT TO ATTEND THE MEETING IN PERSON, PLEASE COMPLETE,
DATE, AND SIGN THE ENCLOSED PROXY AND RETURN IT WITHOUT DELAY IN THE ENCLOSED
ENVELOPE, WHICH REQUIRES NO ADDITIONAL POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE> 3
Schering-Plough Corporation
One Giralda Farms
Madison, New Jersey 07940-1000
March 27, 1998
------------------
PROXY STATEMENT
------------------
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Schering-Plough Corporation (the
"Corporation") for use at its Annual Meeting of Shareholders on April 28, 1998
and any adjournments or postponements thereof. Shares represented at the meeting
by the enclosed proxy will be voted in accordance with any directions noted
thereon. A shareholder giving a proxy may revoke it before it is voted by giving
written notice of such revocation to the Secretary of the Corporation.
Submission of a later dated proxy will revoke any earlier dated proxy.
Attendance at the Annual Meeting by a shareholder who has given a proxy will not
have the effect of revoking it unless the shareholder gives written notice of
revocation to the Secretary before the proxy is voted or votes the shares
subject to the proxy by written ballot. Abstentions and broker non-votes will
not be included in determining the number of votes cast concerning any matter.
Under the rules of the New York Stock Exchange, brokers who hold shares in
street name for beneficial owners have the authority to vote on the election of
directors and the designation of auditors.
As of January 31, 1998, the Corporation had outstanding and entitled to
vote at the Annual Meeting 732,902,378 Common Shares, par value $1 per share
("Common Shares"). Each such share is entitled to one vote, and only holders of
record of Common Shares as of the close of business on March 6, 1998 will be
entitled to vote at the Annual Meeting.
The Annual Report of the Corporation for 1997, including financial
statements for the year ended December 31, 1997, was mailed commencing on or
about March 6, 1998 to all shareholders of record as of the close of business on
March 6, 1998. This Proxy Statement and the accompanying form of proxy are being
mailed to shareholders commencing on or about March 27, 1998.
<PAGE> 4
ELECTION OF DIRECTORS
PROXIES IN THE ACCOMPANYING FORM WILL BE VOTED AT THE MEETING, UNLESS
AUTHORITY TO DO SO IS WITHHELD, IN FAVOR OF THE ELECTION AS DIRECTORS OF THE
NOMINEES NAMED BELOW.
Pursuant to the Corporation's Certificate of Incorporation, the Board of
Directors is divided into three classes, the terms of which expire successively
over a three-year period. At each Annual Meeting, successors to directors whose
terms expire at that meeting shall be elected for three-year terms. Five
directors are to be elected at this Annual Meeting, to hold office for a term of
three years expiring at the 2001 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. Directors will be elected by a plurality of the votes cast at
the Annual Meeting.
Certain information is given below for each nominee for director, and for
each director whose term of office will continue after the Annual Meeting. All
of the nominees are presently directors and were previously elected by the
shareholders, except Donald L. Miller, who was elected by the Board effective
July 1, 1997.
NOMINEES FOR DIRECTOR
TERM TO EXPIRE 2001
<TABLE>
<CAPTION>
NOMINEE AND YEAR
FIRST ELECTED PRINCIPAL OCCUPATION
A DIRECTOR AND OTHER INFORMATION
---------------- ---------------------
<C> <S>
Vice chairman and chief administrative officer of the
Corporation. Mr. D'Andrade, 59, joined the Corporation as
senior vice president (administration) in February 1981,
was executive vice president (administration) from January
1984 to December 1995, and assumed his present position in
January 1996. Mr. D'Andrade is a director of AutoImmune
Hugh A. D'Andrade Inc. and the Biotechnology Industry Organization. He also
serves as a trustee of Drew University and as a member of
HUGH A. D'ANDRADE the Board of Visitors of Columbia University School of
1984 Law.
President and chief executive officer of the Corporation.
Mr. Kogan, 56, joined the Corporation as executive vice
president (pharmaceutical operations) in April 1982, and
was president and chief operating officer from January
1986 to December 1995, assuming his present position in
January 1996. Mr. Kogan is a director of Colgate-
Palmolive Company and The Bank of New York Company, Inc.,
and a director and former chairman of Pharmaceutical
Research and Manufacturers of America. He also serves on
Richard Jay Kogan the boards of St. Barnabas Corporation and Medical Center
and on the Board of Overseers of the Stern School of
RICHARD JAY KOGAN Business at New York University and is a member of the
1982 Council on Foreign Relations.
</TABLE>
2
<PAGE> 5
<TABLE>
<CAPTION>
NOMINEE AND YEAR
FIRST ELECTED PRINCIPAL OCCUPATION
A DIRECTOR AND OTHER INFORMATION
---------------- ---------------------
<C> <S>
Donald L. Miller Chief executive officer and publisher of Our World News
(newspapers). Mr. Miller, 66, founded Our World News in
DONALD L. MILLER 1995 and has served as chief executive officer and
1997 publisher since its inception. He served as vice president
of employee relations of Dow Jones & Company from 1986 to
1995. He is a director of The Bank of New York Company,
Inc. and the Jackie Robinson Foundation. He also serves on
the boards of trustees of Pace University and the
Meadowlands Hospital, and is chairman emeritus of
Associated Black Charities of New York. Mr. Miller served
as a Deputy Assistant Secretary of Defense from 1971 to
1973.
Richard de J. Chairman and chief executive officer of ASARCO Incorporated
Osborne (non-ferrous metals producer). Mr. Osborne, 63, has served
ASARCO in various executive capacities since 1975. He was
RICHARD DE J. elected president of ASARCO in 1982, and assumed the
OSBORNE additional position of chairman and chief executive
1988 officer in 1985. Mr. Osborne is non-executive chairman of
the board and a director of Southern Peru Copper
Corporation, and a director of The BFGoodrich Company and
The Tinker Foundation. He is a former chairman and a
director of the Copper Development Association, the
International Copper Association, and the National Mining
Association. He is a director of the Americas Society, the
Council of the Americas, and the American Australian
Association. Mr. Osborne is a member of the Council on
Foreign Relations and The Economic Club of New York.
William A. Schreyer Chairman emeritus of Merrill Lynch & Co., Inc. (securities
and investment banking). Mr. Schreyer, 70, served as
WILLIAM A. SCHREYER chairman of the board of Merrill Lynch from April 1985
1986 through June 1993 and chief executive officer from July
1984 through April 1992. Mr. Schreyer is currently a
director of Callaway Golf Company, Deere & Company, and
Iridium World Communications Ltd. His other professional,
civic and international affiliations include the Center
for Strategic and International Studies, the George Bush
Presidential Library Foundation, and the Pennsylvania
State University board of trustees.
</TABLE>
3
<PAGE> 6
DIRECTORS CONTINUING IN OFFICE
TERM TO EXPIRE 1999
<TABLE>
<CAPTION>
DIRECTOR AND YEAR
FIRST ELECTED PRINCIPAL OCCUPATION
A DIRECTOR AND OTHER INFORMATION
----------------- ---------------------
<C> <S>
Hans W. Becherer Chairman, chief executive officer and chief operating
officer of Deere & Company (manufacturer of mobile power
HANS W. BECHERER machinery and supplier of financial and health care
1989 services). Mr. Becherer, 62, has been associated with
Deere & Company since 1962. He was elected president and
chief operating officer of Deere & Company in 1987,
president and chief executive officer in 1989, and
chairman and chief executive officer in May 1990, and
assumed the duties of chief operating officer in 1996. Mr.
Becherer is a member of the board of directors of
AlliedSignal Inc., and a member of the Chase Manhattan
Bank International Advisory Committee. He serves on the
board of trustees of the Committee for Economic
Development, and is a member of the Business Council, the
Business Roundtable, the Conference Board, and the Council
on Foreign Relations.
Regina E. Herzlinger Nancy R. McPherson Professor of Business Administration,
Harvard Business School since 1971. Professor Herzlinger,
REGINA E. HERZLINGER 54, is a director of Cardinal Health, Inc., C.R. Bard,
1992 Inc., Deere & Company, Manor Care Inc., and Total Renal
Care, Inc., and also serves on the board of privately held
companies and non-profit organizations, including the
Audit Committee of the town of Belmont, Massachusetts.
Robert F.W. van Former chairman of the executive board of NV Koninklijke KNP
Oordt BT ("KNP BT") (producer of paper, board and packaging
products; and distributor of graphic paper, graphic and
ROBERT F.W. VAN information systems and office products). Mr. van Oordt,
OORDT 61, joined Buhrmann-Tetterode N.V. ("BT") in May 1989 as a
1992 member of the board of managing directors and was
appointed president and chief executive officer in January
1990. Mr. van Oordt served as chairman of KNP BT's
executive board from March 1993, following the merger of
KNP, BT and VRG, three leading Dutch-based industrial
corporations, until his retirement in April 1996. Mr. van
Oordt serves as the chairman of the Supervisory Board of
NKF Holding N.V. and is a member of the Supervisory Boards
of KNP BT, Greenfield Capital Partners and Rodamco NV. He
is a member of the Board of Directors of N.V. Union
Miniere S.A. and the Advisory Council of Coopers and
Lybrand N.V. He is also a member of the Board of Trustees
of the International Bureau of Fiscal Documentation and
the international advisory Board of Nijenrode University.
He serves as Chairman of the Foundation for Business in
the Arts in the Netherlands and is a member of the
Conference Board.
</TABLE>
4
<PAGE> 7
<TABLE>
<CAPTION>
DIRECTOR AND YEAR
FIRST ELECTED PRINCIPAL OCCUPATION
A DIRECTOR AND OTHER INFORMATION
----------------- ---------------------
<C> <S>
James Wood Chairman and co-chief executive officer of The Great
Atlantic & Pacific Tea Company, Inc. ("A&P")
JAMES WOOD (supermarkets). Mr. Wood, 68, held the office of chairman
1987 and chief executive officer from 1980 to 1997, when he
became chairman and co-chief executive officer. From 1988
to 1993 and at other times since 1980, he also served as
president of A&P. He is a member of the board of directors
of ASARCO Incorporated and the Food Marketing Institute,
and a member of the board of governors of World USO.
</TABLE>
DIRECTORS CONTINUING IN OFFICE
TERM TO EXPIRE 2000
<TABLE>
<C> <S>
David C. Garfield Former president and director of Ingersoll-Rand Company
(machinery and equipment manufacturer). Mr. Garfield, 70,
DAVID C. GARFIELD served as vice chairman of Ingersoll-Rand from 1974 to
1975 1980 and as president from January 1981 until his
retirement in June 1986. He is a director of ASARCO
Incorporated, an Overseer of the Foundation at New Jersey
Institute of Technology, and a governor of the Iowa State
University Foundation.
Robert P. Luciano Chairman of the Board of the Corporation. Mr. Luciano, 64,
joined the Corporation as senior vice president
ROBERT P. LUCIANO (administration) in July 1978, was executive vice
1978 president (pharmaceutical operations) from July 1979 to
September 1980, president and chief operating officer to
January 1982, and president and chief executive officer
until January 1984 when he assumed the additional office
of chairman of the board. He was chief executive officer
and chairman from January 1986 to December 1995 and he
continues as chairman. He is a director of AlliedSignal
Inc., C. R. Bard, Inc., and Merrill Lynch & Co., Inc.
</TABLE>
5
<PAGE> 8
<TABLE>
<C> <S>
H. Barclay Morley Former chairman and chief executive officer of Stauffer
Chemical Company (producer of chemicals and fertilizers).
H. BARCLAY MORLEY Mr. Morley was chief executive officer of Stauffer
1979 Chemical from 1974 to 1985. He was elected a director of
the Corporation in January 1979, resigned in February
1985, and then rejoined the Board in February 1987. Mr.
Morley, 68, is a director of The Bank of New York Company,
Inc.
Carl E. Mundy, Jr. Retired general, former commandant of the Marine Corps.
General Mundy, 62, entered the Marine Corps in 1953.
CARL E. MUNDY, JR. Appointed general officer in 1982, he held senior
1995 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. He was elected president and
chief executive officer of the worldwide United Services
Organization in 1996. He is a director of NationsFunds,
chairman of the Marine Corps University Foundation, a
member of the boards of advisors to the Navy League and to
The Citadel, and a member of the Council on Foreign
Relations.
Patricia F. Russo Executive vice president, corporate staff operations of
Lucent Technologies Inc. (communications). Ms. Russo, 45
PATRICIA F. RUSSO assumed her current position in January 1997, having
1995 served from 1992 to 1996 as president of Lucent's Business
Communications Systems unit (formerly a unit of AT&T
Corp.). She joined AT&T in 1981, and held various
management and executive positions at AT&T. She is a
director of Xerox Corporation and New Jersey Manufacturers
Insurance Company and a member of The Committee of 200.
</TABLE>
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Corporation has a standing Finance,
Compliance and Audit Committee, Executive Compensation and Organization
Committee, Nominating and Corporate Governance Committee, and Pension Committee,
each consisting exclusively of non-employee directors.
The members of the Finance, Compliance and Audit Committee are Hans W.
Becherer, David C. Garfield, H. Barclay Morley, Richard de J. Osborne, William
A. Schreyer, and Robert F. W. van Oordt. This Committee, which held five
meetings in 1997, reviews and recommends to the Board dividend policies and
actions; reviews corporate borrowing and investment activities; reviews internal
audit activities; recommends to the Board the engagement of independent
auditors; reviews the professional services to be rendered by the independent
auditors, the scope of their audit, their fees, and the results of their
engagement; reviews litigation, insurance and risk management activities; and
oversees compliance with the Corporation's business conduct policy. The
independent auditors meet regularly with the Committee and have unrestricted
access to the Committee.
6
<PAGE> 9
The members of the Executive Compensation and Organization Committee are
Hans W. Becherer, H. Barclay Morley, Richard de J. Osborne, William A. Schreyer,
and James Wood. This Committee, responsible for approving or recommending to the
Board compensation, incentive awards, stock options, and benefit programs for
officers and senior executives of the Corporation, held four meetings during
1997.
The members of the Nominating and Corporate Governance Committee are Hans
W. Becherer, H. Barclay Morley, William A. Schreyer, and Robert F. W. van Oordt.
This Committee held three meetings in 1997. This Committee is responsible for
reviewing and making recommendations to the Board with respect to the
composition of the Board and the election and re-election of directors. This
Committee also assesses periodically the functioning of the Board, and reviews
and makes recommendations to the Board concerning director compensation. The
Committee will consider shareholder recommendations for directors. Shareholder
recommendations should be forwarded by the shareholder to the Secretary of the
Corporation with biographical data about the recommended individual. The By-laws
of the Corporation provide a formal procedure for nominations by shareholders of
director candidates. A shareholder intending to make such a nomination is
required to deliver to the Secretary of the Corporation, not less than 30 days
prior to a meeting called to elect directors, a notice with the name, age,
business and residence addresses and principal employment of, and number of
shares of stock of the Corporation 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.
The members of the Pension Committee are Regina E. Herzlinger, Donald L.
Miller, Carl E. Mundy, Jr., Patricia F. Russo, and James Wood. This Committee,
which held three meetings in 1997, has general oversight responsibility for the
investment of funds under the employee benefit plans of the Corporation,
including establishing investment policies and reviewing the performance of
managers and trustees for the plans.
BOARD MEETINGS AND ATTENDANCE OF DIRECTORS
The Board of Directors held nine meetings in 1997. All directors attended
more than 75% of the aggregate of (i) the total number of meetings of the Board
held while they were members, and (ii) the total number of meetings held by all
Committees of the Board on which they served as members.
DIRECTORS' COMPENSATION
Employee directors receive no fees for services rendered in their capacity
as directors. Non-employee directors receive an annual retainer of $39,000, a
fee of $1,000 per meeting for each Board meeting and for each Committee meeting
attended, and a $1,000 per diem fee for special assignments. The chairperson of
each Committee receives an additional fee of $1,000 for each meeting. Directors
may elect to defer until termination of service as a director all or a portion
of such fees under a Directors' Deferred Compensation Plan. Amounts deferred
are, at the director's election, valued as if invested in the Corporation's
Common Shares or in a simple interest fund and are payable in cash in
installments or in a lump sum.
Under the Directors' Deferred Stock Equivalency Program, each non-employee
director is also credited annually with a $25,000 deferred payment in a
Corporation stock equivalency account, which is valued as if invested in the
Corporation's Common Shares. Upon termination of service as a director, the
value of a director's deferred account is payable in cash, at the director's
election, in installments or in a lump sum.
Non-employee directors also receive an annual award of 1100 Common Shares
under the Directors' Stock Award Plan.
7
<PAGE> 10
LEGAL PROCEEDINGS
In June 1994 a group of nine chain food stores that operate pharmacies
commenced an action against three mail order pharmacies and 16 drug
manufacturers in the United States District Court for the Northern District of
Illinois. The complaint alleges price discrimination and a conspiracy to
restrain trade by jointly refusing to sell prescription drugs at discounted
prices to the plaintiffs, who seek treble damages in an unspecified amount and
an injunction against the allegedly unlawful conduct. The Corporation is one of
the defendants in this action, and A&P is one of the plaintiffs. Mr. Wood, a
director, is chairman and co-chief executive officer of A&P. Mr. Wood does not
participate in any review or deliberation by the Board of Directors relating to
this action.
SECURITY OWNERSHIP OF DIRECTORS AND OFFICERS
Set forth below is information with respect to beneficial ownership of the
Common Shares of the Corporation as of January 31, 1998 by each director,
certain executive officers and by all directors and executive officers of the
Corporation as a group:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES(A)
---- ---------
<S> <C>
Hans W. Becherer............................................ 12,600
Rodolfo C. Bryce............................................ 97,408(b)
Raul E. Cesan............................................... 427,307(b)
Hugh A. D'Andrade........................................... 477,320(b)
David C. Garfield........................................... 52,065(c)
Regina E. Herzlinger........................................ 6,650
Richard Jay Kogan........................................... 728,011(b)
Robert P. Luciano........................................... 1,074,882(b)
Donald L. Miller............................................ 1,100
H. Barclay Morley........................................... 21,789
Carl E. Mundy, Jr. ......................................... 4,900
Richard de J. Osborne....................................... 27,194
Patricia F. Russo........................................... 4,900
William A. Schreyer......................................... 13,100
Robert F. W. van Oordt...................................... 3,000
James Wood.................................................. 45,400
All directors and executive officers as a group including
those above (26).......................................... 4,023,921(b)(c)
</TABLE>
- ---------------
(a) The total for each individual is less than 0.2%, and for the group is less
than 0.7%, of the outstanding Common Shares of the Corporation (including
shares which could be acquired within 60 days of January 31, 1998 through
the exercise of outstanding options or the distribution of shares under the
Corporation's Stock Incentive Plans). The information shown is based upon
information furnished by the respective directors and executive officers.
(b) Includes shares which could be acquired within 60 days of January 31, 1998
through the exercise of employee stock options or the distribution of shares
under the Corporation's Stock Incentive Plans as follows: Mr. Bryce
(74,560); Mr. Cesan (327,460); Mr. D'Andrade (383,440); Mr. Kogan (588,800);
Mr. Luciano (900,800); all directors and executive officers as a group
(3,065,200). Also includes certain options transferred by executive officers
in accordance with the terms of the Corporation's Stock Incentive Plans.
(c) Does not include shares owned by family members and as to which beneficial
ownership is disclaimed as follows: Mr. Garfield, 8,000 shares; two other
executive officers, 7,008 shares.
8
<PAGE> 11
COMMON SHARE EQUIVALENTS
The following table sets forth the number of Common Share equivalents
credited as of January 31, 1998 to the accounts of the Corporation's
non-employee directors under the Corporation's Directors' Deferred Compensation
Plan and under its Directors' Deferred Stock Equivalency Program, including
dividends credited. Under both, payments are made in cash following termination
of service as a director depending on the market value of the Common Shares of
the Corporation at that time. For additional information, see "Directors'
Compensation" above.
<TABLE>
<CAPTION>
TOTAL
-------
<S> <C>
Hans W. Becherer............................................ 4,560
David C. Garfield........................................... 10,712
Regina E. Herzlinger........................................ 13,119
Donald L. Miller............................................ 666
H. Barclay Morley........................................... 6,035
Carl E. Mundy, Jr. ......................................... 1,618
Richard de J. Osborne....................................... 3,607
Patricia F. Russo........................................... 5,047
William A. Schreyer......................................... 60,581
Robert F. W. van Oordt...................................... 18,559
James Wood.................................................. 55,416
-------
Total....................................................... 179,920
</TABLE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Set forth below is certain information with respect to those persons who
are known to the Corporation to own beneficially more than five percent of the
Corporation's outstanding Common Shares, as of February 12, 1998.
<TABLE>
<CAPTION>
COMMON SHARES
NAME AND ADDRESS BENEFICIALLY PERCENT
OF BENEFICIAL OWNER OWNED OF CLASS
- ------------------- ------------- --------
<S> <C> <C>
FMR Corp. ................................... 55,246,122(a) 7.55%
82 Devonshire Street
Boston, MA 02109
</TABLE>
- ---------------
(a) As reported on Schedule 13G filed with the Securities and Exchange
Commission on February 12, 1998. This number includes 49,754,395 shares
beneficially owned by Fidelity Management & Research Company, a wholly-owned
subsidiary of FMR Corp., as a result of acting as investment advisor to
various investment companies; 4,952,027 shares beneficially owned by
Fidelity Management Trust Company, a wholly-owned subsidiary of FMR Corp.,
as a result of its serving as investment manager of certain institutional
accounts; and 531,100 shares beneficially owned by Fidelity International
Limited as a result of its providing investment advisory and management
services to various non-U.S. investment companies and certain institutional
investors. Edward C. Johnson 3d, Chairman of FMR Corp., and Abigail P.
Johnson, a Director of FMR Corp., also are listed on the Schedule 13G as
beneficially owning the 55,246,122 Common Shares of the Corporation, because
they exercise dispositive power over the shares.
9
<PAGE> 12
SUMMARY COMPENSATION TABLE
The following table sets forth compensation of the five most highly
compensated executive officers of the Corporation, including the Chief Executive
Officer, for the fiscal year ended December 31, 1997 ("Fiscal 1997").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------
AWARDS
ANNUAL COMPENSATION -----------------------------
--------------------------------------- SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL RESTRICTED STOCK UNDERLYING ALL OTHER
POSITION IN 1997 YEAR SALARY BONUS COMPENSATION(A) AWARDS(B) OPTIONS COMPENSATION(C)
------------------ ---- ---------- ---------- --------------- ---------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert P. Luciano...... 1997 $1,211,400 $1,266,000 $60,005 $4,121,000 176,000 $317,628
Chairman of the Board 1996 1,178,400 1,178,500 69,946 2,905,500 176,000 286,018
1995 1,140,700 1,227,500 72,455 3,125,000 176,000 289,072
Richard Jay Kogan...... 1997 $ 900,000 $1,342,000 -- $4,121,000 176,000 $229,910
President and Chief 1996 900,000 1,080,000 -- 2,905,500 152,000 204,445
Executive Officer 1995 802,500 691,000 -- 1,250,000 120,000 195,192
Hugh A. D'Andrade...... 1997 $ 601,500 $ 419,500 -- $ 887,600 42,600 $142,992
Vice Chairman and 1996 563,125 376,000 -- 894,000 32,000 126,769
Chief Administrative 1995 537,750 386,500 -- 625,000 43,200 127,086
Officer
Raul E. Cesan.......... 1997 $ 537,500 $ 375,000 -- $ 887,600 42,600 $112,069
Executive Vice 1996 475,000 317,000 -- 894,000 24,400 97,048
President 1995 431,250 310,000 -- 625,000 315,200(d) 91,954
Pharmaceuticals
Rodolfo C. Bryce....... 1997 $ 418,750 $ 263,000 -- $ 744,950 35,400 $ 99,437
Executive Vice 1996 387,500 227,000 -- 536,400 11,400 99,527
President 1995 346,250 199,000 -- 375,000 16,520 77,171
HealthCare Products
</TABLE>
- ---------------
(a) Includes non-cash compensation in the amount of $52,505 in 1997, $63,946 in
1996, and $66,455 in 1995 for transportation provided by the Corporation.
(b) In February 1997 restricted stock awards were granted to Mr. Luciano for
104,000 shares, to Mr. Kogan for 104,000 shares, to Mr. D'Andrade for 22,400
shares, to Mr. Cesan for 22,400 shares, and to Mr. Bryce for 18,800 shares.
The vesting of such awards was subject to the attainment of a performance
goal, which has been satisfied. See "Compensation Committee
Report -- Equity-Based Compensation -- Restricted Stock Awards" on page 17.
At December 31, 1997, the total number and value of undistributed shares,
all of which are vested, for the named executive officers were: Mr. Luciano
230,400 shares ($14,313,600); Mr. Kogan 192,000 shares ($11,928,000); Mr.
D'Andrade 54,400 shares ($3,379,600); Mr. Cesan 54,400 shares ($3,379,600);
and Mr. Bryce 118,000 shares ($7,330,750). Shares awarded are distributable
in five equal annual installments, except for a special grant to Mr. Bryce
in September 1994 of 80,000 shares which will vest and become distributable
in September 1999. Cash equivalent to the amount of all dividends on the
Corporation's Common Shares is paid on all undistributed shares.
(c) Consists of, respectively, contributions under the profit-sharing plans of
the Corporation, and the cost of executive life and medical insurance: for
1997, Mr. Luciano ($181,700 and $135,918); Mr. Kogan ($135,000 and $94,910);
Mr. D'Andrade ($90,225 and $52,767); Mr. Cesan ($80,625 and $31,444); and
Mr. Bryce ($62,813 and $36,624); for 1996, Mr. Luciano ($176,760 and
$109,258); Mr. Kogan ($135,000 and $69,445); Mr. D'Andrade ($84,469 and
$42,300); Mr. Cesan ($71,250 and $25,798); and Mr. Bryce ($58,125 and
$41,402); and for 1995, Mr. Luciano ($171,105 and $117,967); Mr. Kogan
($120,375 and $74,817); Mr. D'Andrade ($80,663 and $46,423); Mr. Cesan
($64,688 and $27,266); and Mr. Bryce ($51,938 and $25,233).
(d) Includes a special grant in December 1995 of 280,000 options which become
exercisable in five equal annual installments beginning in December 2000.
10
<PAGE> 13
EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENTS
Mr. Kogan has an agreement which provides for his employment as President
and Chief Executive Officer through December 31, 2000 at an annual base salary
of not less than $900,000. Mr. Kogan's agreement provides that his employment is
automatically extended for successive two-year periods thereafter, but not
beyond June 30, 2006, unless either he or the Corporation gives notice to
terminate the agreement at least six months before its scheduled expiration
date. Mr. Luciano has an agreement which provides for his employment until
November 1, 1998 as Chairman of the Board and Chairman of the Executive
Committee at an annual base salary and annual bonus of not less than his average
annual base salary and average annual bonus for the three years ended December
31, 1995. Mr. D'Andrade has an agreement which provides for his employment as
Vice Chairman of the Board and Chief Administrative Officer through December 31,
2000 at an annual base salary of not less than $553,500. Mr. D'Andrade's
agreement provides that his employment is automatically extended on a yearly
basis, but not beyond November 30, 2003, unless either he or the Corporation
gives notice to terminate the agreement at least thirty days before its
scheduled expiration date. If for any reason other than cause the Corporation
elects to terminate the employment of Mr. Kogan or Mr. D'Andrade on any
scheduled expiration date of his agreement (other than the last such date), his
employment will be deemed to have been terminated by the Corporation without
cause for purposes of the severance and retirement benefits described below.
Under each agreement described above, if the executive's employment is
terminated (i) by reason of death or disability, (ii) by the Corporation without
cause, or (iii) by the executive for good reason or within a 30-day period
following the first anniversary of a Change of Control (as defined below), he is
generally entitled to (a) receive a lump sum equal to two times (I) his annual
base salary and (II) the higher of his most recent incentive compensation and
profit-sharing awards or the average of such awards for the three preceding
years, and (b) continue in the Corporation's welfare benefit plans for three
years. If the executive remains employed through the first anniversary of a
Change of Control, the executive is entitled to a special bonus equal to (i) his
annual base salary and (ii) the higher of his most recent incentive compensation
and profit-sharing awards or the average of such awards for the three preceding
years. If his employment terminates for any of the reasons enumerated above and
the special bonus has not been paid, then his severance payment is increased by
an amount equal to the special bonus. If his employment is terminated by reason
of death or disability, the lump sum payment will equal the present value of the
death or disability benefits payable under the Corporation's benefit plans and
programs, if greater than the total severance payment otherwise payable under
the employment agreement. A "Change of Control" is generally defined for
purposes of these agreements as (i) the acquisition of 20% or more of the Common
Shares, (ii) a change in a majority of the Board of Directors, unless approved
by the incumbent directors (other than as a result of a contested election), and
(iii) certain reorganizations, mergers, consolidations, liquidations or
dissolutions. If any payment or distribution by the Corporation to the executive
is determined to be subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code, he is entitled to receive from the Corporation a payment
on an after-tax basis equal to the excise tax imposed. Additionally, each
agreement provides for retirement benefits as described in the Pension Plan
Table on page 13. After retirement, Mr. Kogan and Mr. Luciano will be entitled
to an office and certain executive level services, including transportation and
security services in Mr. Luciano's case.
Messrs. Cesan and Bryce have agreements that will trigger a period of
employment of three years or to age 65, if sooner, upon a Change of Control or
upon a termination of employment by the Corporation in anticipation of a Change
of Control. During the employment period the executive is entitled to receive an
annual base salary at his highest rate during the twelve months prior to the
Change of Control and an annual bonus equal to his highest bonus for the three
years prior to the Change of Control. If the executive's employment is
terminated during the employment period (i) by the Corporation other than for
cause or disability or (ii) by the executive for good reason or during a 30-day
period following the first anniversary of the Change of Control, he is entitled
to receive a lump sum equal to three times (a) his annual base salary plus (b)
his highest annual bonus during the preceding year and the three years prior to
the Change of Control plus (c) his highest profit-sharing award during the three
years prior to termination. However, if the executive will attain age 65 less
than three years from his date of termination, he will receive a proportionately
reduced
11
<PAGE> 14
amount. In the event of such a termination of employment, the executive is also
entitled to (i) receive in a lump sum a supplemental pension amount based on
three years of deemed employment after termination or to age 65, if sooner, and
(ii) continue in the Corporation's welfare benefit plans for three years or to
age 65, if sooner. If any payment or distribution by the Corporation to the
executive is determined to be subject to the excise tax imposed by Section 4999
of the Internal Revenue Code, he is entitled to receive from the Corporation a
payment on an after-tax basis equal to the excise tax imposed.
OPTION TABLES
The following tables provide information with respect to stock options
granted to or exercised by the named executive officers during Fiscal 1997 and
the fiscal year-end value of options held by such officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
GRANT DATE
INDIVIDUAL GRANTS VALUE
---------------------------------------------------- ----------------
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)
- ---- ---------- --------------- -------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Robert P. Luciano.................... 176,000 3.9% $39.625 2/23/07 $2,180,640
Richard Jay Kogan.................... 176,000 3.9 39.625 2/23/07 2,180,640
Hugh A. D'Andrade.................... 42,600 0.9 39.625 2/23/07 527,814
Raul E. Cesan........................ 42,600 0.9 39.625 2/23/07 527,814
Rodolfo C. Bryce..................... 35,400 0.8 39.625 2/23/07 438,606
</TABLE>
- ---------------
(a) Options are for a term of 10 years (or three years following retirement, if
shorter) and became exercisable after one year on February 25, 1998. The
exercise price of the option is the market value of the Common Shares on the
date of grant. Limited stock appreciation rights accompany the options and
only become exercisable for a period of 30 days after the occurrence of a
Change of Control. Although permitted under the plan, no standard stock
appreciation rights were granted in tandem with the options. Options granted
to Messrs. Luciano, Kogan, D'Andrade and Cesan are transferable in
accordance with the terms of the Corporation's Stock Incentive Plans.
(b) The valuation calculations are solely for purposes of compliance with the
rules and regulations promulgated under the Securities Exchange Act of 1934,
as amended, and are not intended to forecast possible future appreciation,
if any, of the Corporation's stock price. The grant date present value is
derived by using the Black-Scholes option pricing model with the following
assumptions: the average dividend yield for the three years ended February
28, 1997 (2.52%); volatility of the Common Shares based on monthly total
returns for the three years ended February 28, 1997 (0.21); an annualized
risk-free interest rate of 6.25%; and an option term of 10 years. If the
named officers should realize the grant date values shown in the table, the
equivalent value of the appreciation of all Common Shares of the Corporation
outstanding on the grant date would be approximately $9.0 billion, of which
the value of the named officers' options would be 0.06%. This valuation
model was not adjusted for risk of forfeiture or the vesting restrictions of
the options, and does not necessarily represent the fair market value of
individual options. Options will have no actual value unless, and only to
the extent that, the price of the Common Shares appreciates from the grant
date to the exercise date.
12
<PAGE> 15
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED UNEXERCISED IN-THE-
SHARES OPTIONS AT FY-END MONEY OPTIONS AT FY-END(A)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert P. Luciano........ 80,000 $4,342,496 880,000 256,000(b) $38,769,474 $ 8,197,496
Richard Jay Kogan........ 200,000 7,676,246 512,000 256,000(b) 21,838,988 8,197,496
Hugh A. D'Andrade........ 106,000 3,958,431 336,360 122,600 15,944,863 5,195,996
Raul E. Cesan............ 0 0 280,380 346,600 13,710,485 11,329,749
Rodolfo C. Bryce......... 40,520 900,466 35,400 267,400 1,652,737 11,487,499
</TABLE>
- ---------------
(a) Based on the closing price of Common Shares on the New York Stock Exchange
on December 31, 1997 of $62.125.
(b) Includes 176,000 unexercisable options transferred in accordance with the
terms of the Corporation's Stock Incentive Plans.
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.
<TABLE>
<CAPTION>
HIGHEST AVERAGE ANNUAL APPROXIMATE ANNUAL BENEFIT
COMPENSATION FOR ANY PERIOD --------------------------------------------------------------
OF 60 CONSECUTIVE MONTHS DURING 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
LAST 120 MONTHS OF EMPLOYMENT OF SERVICE OF SERVICE OF SERVICE OF SERVICE OF SERVICE
- ------------------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$ 800,000.................. $ 280,000 $ 320,000 $ 360,000 $ 400,000 $ 440,000
1,000,000................. 350,000 400,000 450,000 500,000 550,000
1,200,000................. 420,000 480,000 540,000 600,000 660,000
1,600,000................. 560,000 640,000 720,000 800,000 880,000
2,000,000................. 700,000 800,000 900,000 1,000,000 1,100,000
2,200,000................. 770,000 880,000 990,000 1,100,000 1,210,000
2,400,000................. 840,000 960,000 1,080,000 1,200,000 1,320,000
2,600,000................. 910,000 1,040,000 1,170,000 1,300,000 1,430,000
2,800,000................. 980,000 1,120,000 1,260,000 1,400,000 1,540,000
3,000,000................. 1,050,000 1,200,000 1,350,000 1,500,000 1,650,000
</TABLE>
The table above reflects benefits on a life annuity basis and amounts
payable are not subject to Social Security or other offset. Retirement benefits
under the Corporation's nonqualified plans are payable on an annuity basis or on
a present value lump sum basis at the election of the executive. Covered
compensation consists of salary and bonus which, for the named executive
officers, is shown in the Summary Compensation Table on page 10. The credited
years of service as of December 31, 1997 for such named individuals are: Mr.
Bryce (17 years); Mr. Cesan (20 years); Mr. D'Andrade (16 years); Mr. Kogan (15
years); and Mr. Luciano (19 years).
Under their employment agreements referred to on page 11, each of Messrs.
Kogan and D'Andrade is entitled to receive a minimum annual benefit of 55% of
final average annual compensation upon retirement at or after age 62, and his
wife is entitled to a minimum annual survivor's benefit of 45% of such final
average annual compensation after his death. If either Mr. Kogan's or Mr.
D'Andrade's employment is terminated at any time (a) by the Corporation without
cause or for disability, or (b) by him for good reason or within the 30-day
period following the first anniversary of a Change of Control, he would be
entitled to the same minimum annual pension and his wife would be entitled to
the same minimum annual survivor's benefit as though he had retired at or after
age 62. In the event of the death of Mr. Kogan or Mr. D'Andrade during the term
of his employment agreement, his surviving spouse will be entitled to receive a
minimum annual survivor's benefit of 45% of his final average annual
compensation. Under his employment agreement referred to on page 11 Mr. Luciano
is entitled to receive a minimum annual benefit of 55% of final average annual
compensation upon retirement, and his wife is entitled to a minimum annual
survivor's benefit of 45% of such
13
<PAGE> 16
final average annual compensation after his death. If his employment is
terminated at any time (a) by the Corporation without cause or for disability,
or (b) by him for good reason or within the 30-day period following the first
anniversary of a Change of Control, he would be entitled to receive a
supplemental pension benefit determined as though he had continued in employment
for three years following the date of termination. In the event of Mr. Luciano's
death during the term of his employment agreement, his surviving spouse will be
entitled to receive a supplemental pension benefit determined as though he had
continued in employment for three years following the date of his death.
Retirement benefits provided to Messrs. D'Andrade, Kogan and Luciano under their
employment agreements are payable on an annuity basis or on a present value lump
sum basis at the election of the executive.
PERFORMANCE GRAPH
COMPARISON OF CUMULATIVE TOTAL RETURN
FOR THE FIVE YEARS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
MEASUREMENT PERIOD SCHERING-PLOUGH COMPOSITE PEER
(FISCAL YEAR COVERED) CORP. GROUP S&P 500 INDEX
<S> <C> <C> <C>
1992 100 100 100
1993 111 92 110
1994 123 105 112
1995 187 166 153
1996 226 214 187
1997 440 318 250
</TABLE>
The graph above assumes a $100 investment on December 31, 1992, and
reinvestment of all dividends, in the Corporation's Common Shares, the S&P 500
Index, and a composite peer group of the following drug and health care
companies: Abbott Laboratories, American Home Products Corporation,
Bristol-Myers Squibb Company, Johnson & Johnson, Eli Lilly and Company, Merck &
Co., Inc., Pfizer Inc., Pharmacia & Upjohn, Inc., and Warner-Lambert Company.
Pharmacia & Upjohn, Inc. was created by the merger of Pharmacia and The Upjohn
Company in November 1995. The graph above assumes that the initial investment in
The Upjohn Company common stock was subsequently converted into Pharmacia &
Upjohn, Inc. common stock in the merger.
14
<PAGE> 17
COMPENSATION COMMITTEE REPORT
PRINCIPLES AND PROGRAM
The Corporation's executive compensation program is designed to serve the
Corporation's broader strategic goals of profitable growth and the creation of
long-term shareholder value. The program is fundamentally a pay for performance
program designed to:
- ensure the Corporation's ability to attract and retain superior
executives
- strongly align the interests of the Corporation's executives with those
of its shareholders
- provide a compensation package that balances individual contributions and
overall business results
The Executive Compensation and Organization Committee (the "Committee") is
responsible for setting the Corporation's executive compensation policy. The
Committee consists of five directors who are not employees of the Corporation
and are not eligible to participate in the Corporation's executive compensation
programs.
In determining executive compensation, the Committee evaluates both the
total compensation package and its individual elements. As part of its review,
the Committee considers compensation data for companies which represent direct
competitors for executive talent. The data, which is developed by established,
independent compensation consultants, includes information on those drug and
health care companies within the peer index used in the performance graph in the
proxy statement (the "Peer Group") and other pharmaceutical and consumer
products companies, including some for which public information is not
available. The selection of the Corporation's principal compensation consultant
is ratified annually by the Committee.
TOTAL COMPENSATION
An executive's total compensation consists of three elements: base salary,
an annual incentive bonus, and long-term equity-based compensation (stock
options and restricted stock awards).
BASE SALARY
The Committee assesses a number of factors in fixing the salary of the
executive officers (including the five most highly compensated). Those factors
typically include: the responsibility of the individual's position, the
individual's performance, the Corporation's overall financial performance,
certain non-financial indicators of corporate performance, and the business and
inflationary climate. In the case of executive officers with responsibility for
a particular business unit, the Committee also considers the unit's financial
results. Non-financial indicators may include, among other things, strategic
developments for which an executive officer has responsibility (such as
acquisitions or product approvals and development) or managerial performance
(such as succession planning, resource allocation and social responsibility).
The evaluation of an executive's non-financial indicators is reflected in his
performance rating.
Each year, the Committee reviews with the Chief Executive Officer his
performance ratings of the other executive officers (with the exception of the
Chairman), and evaluates compensation levels against levels at the competitor
companies. Established and independent compensation consultants are used to
confirm that salary levels are within the range of the competitor companies. To
ensure that compensation policy for executives officers is consistent with
overall Corporation results and executive compensation strategies, the Committee
reviews the compensation awarded to the approximately 90 most highly compensated
executives.
The Committee targets salaries of the Corporation's executive officers to
fall within a range above the median but below the high end of the salary levels
at the competitor companies. In fixing the salaries of the executive officers
for 1997, the Committee considered the Corporation's overall financial
performance and the non-financial indicators reflected in individual performance
ratings, although no particular weighting was assigned to any specific aspect of
corporate performance.
15
<PAGE> 18
ANNUAL INCENTIVE BONUS
The Executive Incentive Plan, the Corporation's bonus plan, allows the
Committee to make annual cash awards to the executive officers, based on certain
financial and non-financial indicators of corporate performance.
In 1994 the shareholders approved the executive incentive bonus program,
including performance goals, for certain senior executive officers, including
the Chief Executive Officer and the other executive officers named in the proxy
statement. This program provides that the amount of cash incentive bonus that
the Committee may award under the Executive Incentive Plan to these executive
officers for any year is determined by a formula that measures the Corporation's
pre-tax earnings, earnings per share growth, and return on equity for the year
against corresponding performance goals established by the Committee. The
performance goal for pre-tax earnings for any year is the Corporation's income
before income taxes for such year as approved by the Committee. The performance
goal for earnings per share growth for any year is the average of the First Call
Corporation consensus projected earnings per share growth of the Peer Group for
their corresponding fiscal year. The performance goal for return on equity for
any year is the average return on equity of the Peer Group for the five
consecutive years ending with the second year prior to the commencement of such
year.
The Committee has fixed specified percentages of base salary as target
incentive bonus awards for the covered executive officers, and each performance
goal has been assigned a one-third weighting toward the attainment of the target
award. To the extent that earnings per share growth, return on equity and
pre-tax earnings are equal to, greater than or less than, the corresponding
performance goal, the actual cash incentive bonus award of a covered executive
officer may be equal to, greater than or less than, his or her target award.
Earnings per share, return on equity and pre-tax earnings are based upon amounts
reported in the Corporation's financial statements in its Annual Report to
shareholders, as adjusted for accounting changes and other special items set
forth in the executive incentive bonus program and certified by the
Corporation's independent auditors. The Committee may, in its discretion, reduce
the amount of the incentive bonus award determined under the program formula.
However, the Committee may not increase the amount of any incentive bonus award
determined under the program formula. In no event may an incentive bonus award
for any year to any covered executive officer exceed the maximum award specified
in the program.
In 1997 the Corporation met or exceeded each of the pre-tax earnings, basic
earnings per share growth, and return on equity goals. Pre-tax earnings from
continuing operations increased by 19%, basic earnings per share from continuing
operations grew by 19%, and return on equity equaled 59%. The Committee has
certified that the performance goals and the other material terms of the
executive incentive bonus program were satisfied for 1997. In accordance with
the program formula the cash awards of all of the executive officers were
greater than their target awards.
The amount of cash awards to the executive officers who are not covered by
the executive incentive bonus program also bears a significant relationship to
corporate performance. The Committee awards bonuses to these officers based
principally on the same performance goals used in the executive incentive bonus
program, with the pre-tax earnings goal assigned a weighting of 35%, and the
earnings per share growth and return on equity goals each assigned a 20%
weighting, except for one officer whose goals include his business unit's
performance. In awarding a bonus to these executive officers, the Committee also
considers the non-financial factors reflected in an individual's performance
rating. However, those non-financial factors cannot constitute the basis for
more than 25% of the target bonus award.
EQUITY-BASED COMPENSATION
Under the 1992 Stock Incentive Plan, which was approved by shareholders,
the Committee may grant stock options and restricted stock awards to the
executive officers and other key employees. The Committee believes that the
Corporation's long-term equity based compensation aligns the interest of
executive officers with that of the shareholders, as any appreciation in the
price of the stock will benefit all shareholders commensurately. This is
particularly true in the case of the restricted stock awards, because they are
16
<PAGE> 19
distributed over a five-year period. Also, the five-year distribution period for
the restricted stock awards serves as an inducement for the officers to remain
with the Corporation.
The Committee sets fixed guidelines for the size of stock option grants and
restricted stock awards for each executive grade level within the Corporation,
other than those of Messrs. Kogan and Luciano, based on the competitive
compensation data used to determine salary. Under the guidelines, the Committee
grants stock options and restricted stock awards to each executive officer,
except Messrs. Kogan and Luciano, in specified amounts based on the officer's
executive grade level and individual performance rating. In determining awards
of equity-based compensation the Committee focuses on multi-year trend data and
targets such awards to fall within a range above the median but below the high
end of the equity-based compensation levels at the competitor companies. Average
awards to the executive officers during the three years ended December 31, 1997
fell near the high end of the range, principally owing to appreciation in the
market price of the Common Shares.
STOCK OPTIONS -- The Committee relies on a valuation of stock options
provided by independent compensation consultants using as a basis for valuation
the Black-Scholes methodology. Stock options are awarded with an exercise price
equal to the market price at the time of grant, are generally first exercisable
after one year and generally are exercisable for a term of ten years. However,
the actual value of any options granted will depend entirely on the extent to
which the Corporation's Common Shares have appreciated in value at the time the
options are exercised.
RESTRICTED STOCK AWARDS -- In 1993 the Committee adopted the restricted
stock award program, including performance goals, for certain senior executive
officers, including the Chief Executive Officer and the other executive officers
named in the proxy statement. This program requires that the vesting of any
restricted stock award to a covered executive officer be made subject to the
attainment of the performance goal for earnings per share growth or return on
equity described above under "Annual Incentive Bonus" for the year in which the
award is made. The awards are assigned a dollar value based on the share price
at the time the award is made. If the Corporation meets either one of the
performance goals, the stock award vests and the shares are distributable
ratably over five years. The Committee has certified that both of the
performance goals were satisfied for 1997.
The vesting of restricted stock awards for the Corporation's executive
officers who are not covered by the restricted stock award program is not
subject to a performance condition. The awards are assigned a dollar value based
on the share price at the time the award is made and are distributable ratably
over five years.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER AND THE CHAIRMAN FOR 1997
In setting the base salaries of Messrs. Kogan and Luciano, the Committee
evaluates the same factors which it considers in establishing the salary levels
of the executive officers generally, as well as the limitations of Section
162(m) of the Internal Revenue Code relating to deductibility of certain
executive compensation. In addition, the Committee considers the status of
Messrs. Kogan and Luciano as the Corporation's most senior officers and the
important role they have in achieving overall corporate goals. In granting stock
options and restricted stock awards to Messrs. Kogan and Luciano, the Committee
sets no fixed guideline, but takes into consideration their total compensation
package and competitive compensation data, overall corporate financial
performance, their role in attaining those results, and the number of options
and stock awards previously granted, although no particular weighting is
assigned to any factor.
Mr. Kogan was awarded a base salary of $900,000 for 1997, which is the same
as 1996. The base salary awarded to Mr. Kogan was set at competitive levels,
while maximizing tax deductibility of his compensation to the Corporation and
establishing an overall compensation structure tied to corporate performance.
Mr. Kogan is subject to a long-term employment contract. The Committee
believes that given Mr. Kogan's record, his status in the industry, and his
experience and leadership, his contract significantly benefits the Corporation
and the shareholders by securing Mr. Kogan's services for the future and by
encouraging him to focus on the long-term strategic interests of the
Corporation.
17
<PAGE> 20
In accordance with the executive incentive bonus program formula, Mr. Kogan
received a bonus of $1,342,000 for 1997, which was greater than his target
award. In 1997, the Committee granted Mr. Kogan 176,000 stock options and a
restricted stock award for 104,000 shares, compared with 152,000 options and a
restricted stock award for 104,000 shares in 1996 and, when he served as Chief
Operating Officer in 1995, 120,000 options and a restricted stock award for
64,000 shares.
INTERNAL REVENUE CODE SECTION 162(M)
Section 162(m) of the Internal Revenue Code generally disallows a tax
deduction to public companies for compensation over $1,000,000 paid to the Chief
Executive Officer and the four other most highly compensated executive officers.
Qualifying performance-based compensation is not subject to the deduction limit
if certain requirements are met. The Committee has structured the annual
incentive bonus and long-term equity-based compensation programs for its most
senior executives so that such bonuses and restricted stock awards should
constitute qualifying performance-based compensation under Section 162(m). The
Committee also recognizes that unanticipated future events, such as a Change of
Control of the Corporation or a change in executive personnel, could result in a
disallowance of compensation deductions under Section 162(m). Moreover, the
Committee may from time to time award compensation that is non-deductible under
Section 162(m) when, in the exercise of the Committee's business judgment, such
award would be in the best interests of the Corporation.
EXECUTIVE COMPENSATION AND
ORGANIZATION COMMITTEE
James Wood, Chairman
Hans W. Becherer
H. Barclay Morley
Richard de J. Osborne
William A. Schreyer
18
<PAGE> 21
DESIGNATION OF AUDITORS
Upon the recommendation of the Finance, Compliance and Audit Committee, the
Board of Directors has designated Deloitte & Touche LLP to audit the books and
accounts of the Corporation for the year ending December 31, 1998, and will
offer a resolution at the meeting to ratify the designation. Deloitte & Touche
LLP has been the principal auditor of the Corporation since the Corporation was
formed in 1970. Representatives of Deloitte & Touche LLP will be present at the
meeting to respond to appropriate questions, and they will have an opportunity,
if they desire, to make a statement.
OTHER BUSINESS
The By-laws of the Corporation provide a formal procedure for bringing
business before the Annual Meeting. A shareholder proposing to present a matter
before the Annual Meeting is required to deliver to the Secretary of the
Corporation, not less than 30 nor more than 60 days prior to the Annual Meeting
(or in the event that less than 40 days' notice or prior public disclosure of
the date of the Annual Meeting is given or made, not later than the close of
business on the 10th day following such notice or disclosure), a notice with a
brief description of the business desired to be brought, the name and address of
the shareholder and the number of shares of the Corporation's stock the
shareholder beneficially owns, and any material interest of the shareholder in
such business. If such procedures are not complied with, the proposed business
shall not be transacted at the Annual Meeting. Such By-law provisions are not
intended to affect any rights of shareholders to request inclusion of proposals
in the Corporation's proxy statement pursuant to Rule 14a-8 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
The Board of Directors knows of no other business which will be presented
at the meeting. If, however, other matters are properly presented, the persons
named in the enclosed proxy will vote the shares represented thereby in
accordance with their best judgment.
SOLICITATION OF PROXIES
The Corporation has retained Kissel-Blake, Inc. to solicit proxies for a
fee of $14,500, plus reasonable out-of-pocket expenses. Solicitation of proxies
will be undertaken through the mail, in person and by telecommunications and may
include solicitation by officers and employees of the Corporation. Costs of
solicitation will be borne by the Corporation.
1999 ANNUAL MEETING OF SHAREHOLDERS
If any shareholder intends to present a proposal for consideration at the
1999 Annual Meeting of Shareholders, such proposal must be received by the
Corporation not later than November 27, 1998 for inclusion, pursuant to Rule
14a-8 under the Exchange Act, in the Corporation's proxy statement for such
meeting.
19
<PAGE> 22
[SCHERING-PLOUGH LOGO]
SCHERING-PLOUGH CORPORATION
One Giralda Farm
Madison, NJ 07940
NOTICE OF ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD APRIL 28, 1998
Dear Shareholder:
The Annual Meeting of Shareholders of Schering-Plough Corporation (the
"Corporation") will be held at the offices of the Corporation, Galloping Hill
Road, Kenilworth, New Jersey, on Tuesday, April 28, 1998, at 2:00 p.m. to:
1. Elect five directors for terms of three years;
2. Act upon the ratification of the designation of Deloitte & Touche LLP
to audit the books and accounts of the Corporation for 1998; and
3. Transact such other business as may properly come before the meeting.
Only holders of record of Common Shares at the close of business on March
6, 1998 will be entitled to vote at the meeting, or any adjournment or
postponement thereof.
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 postage paid
envelope enclosed in this package. The giving of such proxy does not affect
your right to vote in person if you attend the meeting. The prompt return of
your signed proxy will aid the Corporation in reducing the expense of
additional proxy solicitation.
Admission to the meeting will be by ticket only. If you are a stockholder
of record and plan to attend, please detach and bring this letter to the
meeting as an admission ticket and return the proxy card with the "Annual
Meeting" box marked. Admission will be on a first-come, first-served basis.
William J. Silbey
Secretary
March 27, 1998
DETACH PROXY CARD HERE
- -
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS 1 AND 2.
1. Election of Directors
FOR all nominees
listed below /x/
WITHHOLD AUTHORITY to vote
for all nominees listed below. /x/
*EXCEPTIONS /x/
Nominees for 3-year terms: Hugh A. D'Andrade, Richard Jay Kogan, Donald L.
Miller, Richard de J. Osborne, William A. Schreyer.
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
MARK THE "EXCEPTIONS" BOX AND WRITE THAT NOMINEE'S NAME IN THE SPACE
PROVIDED BELOW.)
*Exceptions
---------------------------------------------------------------
2. Ratification of Designation of Independent Auditors
FOR /x/ AGAINST /x/ ABSTAIN /x/
THIS PROXY WILL BE VOTED FOR ITEMS 1 AND 2, UNLESS INSTRUCTIONS TO THE
CONTRARY ARE INDICATED.
Will attend the Annual Meeting. /x/
Address change and/or comments /x/
please mark here.
(Please sign exactly as name or names appear hereon. Full title of one signing
in representative capacity should be clearly designated after signature. Names
of all joint holders should be written even if signed by only one.)
Dated: , 1998
---------------------------
- ----------------------------------------
SIGNATURE
- ----------------------------------------
SIGNATURE
VOTES MUST BE INDICATED (x) IN BLACK OR BLUE INK. /x/
Please sign, date and return the proxy card promptly using the enclosed
envelope.
<PAGE> 23
ADMISSION TICKET
SCHERING-PLOUGH CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
APRIL 28, 1998 AT 2:00 P.M.
GALLOPING HILL ROAD
KENILWORTH, NEW JERSEY
- -------------------------------------------------------------------------------
SCHERING-PLOUGH CORPORATION -- PROXY
SOLICITED BY BOARD OF DIRECTORS
FOR
ANNUAL MEETING OF SHAREHOLDERS--APRIL 28, 1998
The undersigned appoints HUGH A. D'ANDRADE, RICHARD JAY KOGAN, AND ROBERT
P. LUCIANO, or any one or more of them, attorneys and proxies with power of
substitution to vote all of the Common Shares of SCHERING-PLOUGH CORPORATION
standing in the name of the undersigned at the Annual Meeting of Shareholders
on April 28, 1998, and at all adjournments or postponements thereof, upon the
matters set forth in the Notice and Proxy Statement of said meeting, receipt of
which is acknowledged.
The shares represented by this proxy will be voted as directed by the
Shareholder. IF YOU WISH TO VOTE IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE
BOARD OF DIRECTORS, YOU MAY SIGN ON THE REVERSE SIDE AND MAIL IN THE ENVELOPE
PROVIDED. If no direction is given, shares will be voted FOR items 1 and 2.
Specific choices may be made on the reverse side.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
SCHERING-PLOUGH CORPORATION
P.O. BOX 11371
NEW YORK, N.Y. 10203-0371
