Filed Pursuant to Rule 424(b)(5)
Registration No. 333-113222
Prospectus Supplement to Prospectus dated May 11, 2004.
25,000,000 Shares
(SCHERING-PLOUGH LOGO)
SCHERING-PLOUGH CORPORATION
6.00% Mandatory Convertible Preferred Stock
---------------------
We are offering 25,000,000 shares of our 6.00% mandatory convertible
preferred stock by this prospectus supplement and the accompanying prospectus.
We will pay annual dividends on each share of our mandatory convertible
preferred stock in the amount of $3.00. Dividends will be accrued and cumulated
from the date of issuance and, to the extent that we are legally permitted to
pay dividends and our board of directors, or an authorized committee of our
board of directors, declares a dividend payable, we will pay dividends in cash
on March 15, June 15, September 15 and December 15 of each year prior to
September 14, 2007, or the following business day if the 15th is not a business
day, and on September 14, 2007. The first dividend payment will be made on
December 15, 2004 in the amount of $1.0417 per share of our mandatory
convertible preferred stock, which reflects the time period from the date of
issuance to December 14, 2004.
Each share of our mandatory convertible preferred stock has a liquidation
preference of $50.00, plus accrued, cumulated and unpaid dividends. Each share
of our mandatory convertible preferred stock will automatically convert on
September 14, 2007, into between 2.2451 and 2.7840 common shares, subject to
anti-dilution adjustments, depending on the average closing price per share of
our common shares over the 20 trading day period ending on the third trading day
prior to such date. At any time prior to September 14, 2007, holders may elect
to convert each share of our mandatory convertible preferred stock into 2.2451
common shares, subject to anti-dilution adjustments. If the closing price per
share of our common shares exceeds $33.41 for at least 20 trading days within a
period of 30 consecutive trading days, we may elect, subject to certain
limitations, to cause the conversion of all, but not less than all, of the
shares of mandatory convertible preferred stock then outstanding at the
conversion rate of 2.2451 common shares per share of our mandatory convertible
preferred stock, provided that at the time of such conversion we are then
legally permitted to and do pay an amount equal to any accrued, cumulated and
unpaid dividends (other than dividends payable to previous record holders) plus
the present value of all remaining future dividend payments at that time.
Prior to this offering, there has been no public market for our mandatory
convertible preferred stock. Our mandatory convertible preferred stock has been
approved for listing, subject to official notice of issuance, on the New York
Stock Exchange under the symbol "SGP PrM". Our common shares are listed on the
New York Stock Exchange under the symbol "SGP". The last reported sale price of
our common shares on August 4, 2004 was $17.96 per share.
See "Risk Factors," on page S-11 of this prospectus supplement and on page
5 of the accompanying prospectus to read about factors you should consider
before buying shares of our mandatory convertible preferred stock.
---------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY
OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
Per Share Total
--------- -----
Initial price to the public................................. $50.00 $1,250,000,000
Underwriting discount....................................... $ 1.50 $ 37,500,000
Proceeds, before expenses, to Schering-Plough............... $48.50 $1,212,500,000
To the extent the underwriters sell more than 25,000,000 shares of our
mandatory convertible preferred stock, the underwriters have the option to
purchase up to 3,750,000 additional shares of our mandatory convertible
preferred stock from us at the initial price to the public less the underwriting
discount.
---------------------
The underwriters expect to deliver our mandatory convertible preferred
stock as set forth in "Underwriting" against payment in New York, New York on or
about August 10, 2004.
Joint Book-Running Managers
GOLDMAN, SACHS & CO. BANC OF AMERICA SECURITIES LLC CITIGROUP
---------------------
Joint Lead Managers
CREDIT SUISSE FIRST BOSTON MORGAN STANLEY
---------------------
Co-Managers
BNP PARIBAS
BNY CAPITAL MARKETS, INC.
ING FINANCIAL MARKETS
MELLON FINANCIAL MARKETS, LLC
THE WILLIAMS CAPITAL GROUP, L.P.
---------------------
Prospectus Supplement dated August 4, 2004.
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No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus supplement
or the accompanying prospectus. You must not rely on any unauthorized
information or representations. This prospectus supplement is an offer to sell
only the shares offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information contained in this
prospectus supplement and the accompanying prospectus is current only as of its
date.
----------------------
TABLE OF CONTENTS
Prospectus Supplement
PAGE
----
About This Prospectus Supplement............................ S-i
Forward-Looking Statements.................................. S-i
Summary..................................................... S-1
Ratio of Earnings to Fixed Charges.......................... S-10
Risk Factors................................................ S-11
Use of Proceeds............................................. S-21
Capitalization.............................................. S-22
Price Range of Common Shares and Dividends Declared......... S-23
Description of Mandatory Convertible Preferred Stock........ S-24
Certain United States Federal Income Tax Consequences....... S-40
Underwriting................................................ S-45
Legal Matters............................................... S-49
Experts..................................................... S-49
Where You Can Find More Information......................... S-50
Prospectus
About This Prospectus....................................... 2
Where You Can Find More Information......................... 4
Forward-Looking Statements.................................. 5
Risk Factors................................................ 5
The Company................................................. 6
Ratio of Earnings to Fixed Charges.......................... 7
Use of Proceeds............................................. 7
Description of Debt Securities.............................. 7
Description of Capital Stock................................ 15
Description of Depositary Shares............................ 22
Description of Warrants..................................... 25
Description of Stock Purchase Contracts and Stock Purchase
Units..................................................... 26
Plan of Distribution........................................ 27
Validity of Securities...................................... 29
Experts..................................................... 29
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ABOUT THIS PROSPECTUS SUPPLEMENT
This document is in two parts. The first part is this prospectus
supplement, which describes the terms of this offering and also adds to and
updates information contained in the accompanying prospectus and the documents
incorporated by reference in this prospectus supplement. The second part, the
accompanying prospectus, provides more general information, some of which may
not apply to this offering. You should read both this prospectus supplement and
the accompanying prospectus, together with additional information described
below under the heading "Where You Can Find More Information."
If the information contained in this prospectus supplement varies from that
contained in the accompanying prospectus, you should rely on the information in
this prospectus supplement.
You should rely only on the information provided in or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We have
not authorized anyone else to provide you with different information. We are not
making an offer of these securities in any jurisdiction where the offer is not
permitted. You should not assume that the information in this prospectus
supplement and the accompanying prospectus is accurate as of any date other than
the date on the front covers of those documents.
---------------------
Unless we have indicated otherwise, or the context otherwise requires,
references in this prospectus supplement and the accompanying prospectus to
"Schering-Plough Corporation," "Schering-Plough," "the company," "we," "us," and
"our" or similar terms are to Schering-Plough Corporation and its consolidated
subsidiaries (including, where applicable, its predecessors), unless, in each
case, the context clearly indicates otherwise.
FORWARD-LOOKING STATEMENTS
This prospectus supplement, the accompanying prospectus, the documents
incorporated by reference in this prospectus supplement and the accompanying
prospectus and other written reports and oral statements we make from time to
time may contain "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements relate to
expectations or forecasts of future events. They use words such as "anticipate,"
"believe," "could," "estimate," "expect," "forecast," "project," "intend,"
"plan," "potential," "will," and other words and terms of similar meaning in
connection with a discussion of potential future events, circumstances or future
operating or financial performance. You can also identify forward-looking
statements by the fact that they do not relate strictly to historical or current
facts.
In particular, forward-looking statements include statements relating to
future actions, ability to access the capital markets, prospective products, the
status of product approvals, future performance or results of current and
anticipated products, sales efforts, development programs, expenses and programs
to reduce expenses, the cost of and savings from reductions in work force, the
outcome of contingencies such as litigation and investigations, growth strategy
and financial results.
Any or all of our forward-looking statements here or in other publications
may turn out to be wrong. Our actual results may vary materially from those
anticipated in such forward-looking statements as a result of several factors,
some of which are more fully described in the "Risk Factors" section beginning
on page S-11 of this prospectus supplement, page 5 of the accompanying
prospectus and in our reports to the Securities and Exchange Commission
incorporated by reference into this prospectus supplement and the accompanying
prospectus, and there are no guarantees about our financial and operational
performance or the performance of our capital stock. We do not assume the
obligation to update any forward-looking statement for any reason.
S-i
SUMMARY
This summary highlights information contained elsewhere or incorporated by
reference in this prospectus supplement and the accompanying prospectus. This
summary does not contain all of the information that you should consider before
buying shares of our mandatory convertible preferred stock. You should read the
entire prospectus supplement and the accompanying prospectus carefully,
including the sections titled "Risk Factors" beginning on page S-11 of this
prospectus supplement, and on page 5 of the accompanying prospectus and the
documents incorporated by reference in this prospectus supplement and the
accompanying prospectus, before making an investment decision.
SCHERING-PLOUGH CORPORATION
OVERVIEW
We are a worldwide, research-based pharmaceutical company committed to
discovering, developing, manufacturing and marketing new therapies and
treatments to enhance human health.
We market products in three reportable segments, Prescription
Pharmaceuticals, Consumer Health Care and Animal Health, but we operate
primarily in the prescription pharmaceutical marketplace. The Prescription
Pharmaceuticals segment discovers, develops, manufactures and markets human
ethical pharmaceutical products, while the Consumer Health Care segment
develops, manufactures and markets over-the-counter (OTC), foot care and sun
care products primarily in the United States and the Animal Health segment
discovers, develops, manufactures and markets animal health products.
Our research activities are primarily aimed at discovering and developing
new and enhanced prescription products of medical and commercial significance.
Our research activities are concentrated in the therapeutic areas of allergic
and inflammatory disorders, infectious diseases, oncology, cardiovascular
diseases, and central nervous system disorders. We also have substantial efforts
directed toward biotechnology, gene therapy and immunology. Research activities
include both internal research efforts and research collaborations with various
partners.
We have subsidiaries in more than 40 countries outside the United States.
Sales outside the United States comprised 57%, 43% and 39% of consolidated net
sales in 2003, 2002 and 2001, respectively representing $4,775 million, $4,419
million and $3,789 million of consolidated net sales. No single foreign country,
except for France, Japan and Italy, accounted for 5% or more of consolidated net
sales during the past three years. France accounted for 8%, 6% and 5% of
consolidated net sales in 2003, 2002 and 2001, respectively representing $691
million, $613 million and $459 million of consolidated net sales. Japan
accounted for 5%, 5% and 3% of consolidated net sales in 2003, 2002 and 2001,
respectively representing $414 million, $524 million and $320 million of
consolidated net sales. Italy accounted for 5%, 3% and 3% of consolidated net
sales in 2003, 2002 and 2001, respectively representing $436 million, $339
million and $266 million of consolidated net sales.
Our prescription drugs are introduced and made known to physicians,
pharmacists, hospitals, managed care organizations and buying groups by trained
professional sales representatives, and are sold to hospitals, certain managed
care organizations, wholesale distributors and retail pharmacists. Prescription
products are also introduced and made known through journal advertising, direct
mail advertising, by distributing samples to physicians and through television,
radio, internet, print and other advertising media. Our animal health products
are generally promoted to veterinarians, distributors and animal producers. In
addition, our OTC, foot care, and sun care products are sold through wholesale
and retail drug, food chain and mass merchandiser outlets, and are promoted
directly to the consumer through television, radio, internet, print and other
advertising media.
S-1
Our principal executive offices are located at 2000 Galloping Hill Road,
Kenilworth, NJ 07033, and our telephone number is (908) 298-4000. We were
incorporated in New Jersey in 1970.
KEY PRODUCTS
We currently market four products that comprised 10% or more of United
States or international sales in 2003:
SALES
($ IN MILLIONS)
--------------------
PRODUCT INDICATION U.S. INTERNATIONAL
------- ---------- ---- -------------
PEG-Intron.......................... Hepatitis C $434 $368
Clarinex............................ Allergic rhinitis 498 196
OTC Claritin........................ Allergy 415 --
Remicade............................ Rheumatoid arthritis/Crohn's
disease/Ankylosing spondylitis -- 540
We also market other major prescription pharmaceuticals in several major
therapeutic areas:
THERAPEUTIC AREA PRODUCT
---------------- -------
Allergy/respiratory.......................... Asmanex, Celestamine, Foradil, Nasonex,
Polaramine and Proventil
Anti-infectives and anticancer............... Caelyx, Cedax, Ethyol, Eulexin, Garamycin
Temodar, Intron A and Rebetol
Dermatologicals.............................. Diprolene, Diprosone, Elocon, Lotrisone,
Quadriderm and Valisone
Cardiovasculars.............................. Integrilin, K-Dur and Nitro-Dur
Other pharmaceuticals........................ Celestone, Diprospan, Subutex and Temgesic
In addition to these prescription pharmaceutical products, we and Merck &
Co., Inc. (Merck) have agreements to jointly develop and market ZETIA
(ezetimibe) as a once-daily monotherapy, and as a co-administration of ZETIA
with statins. In addition, we and Merck have agreements to jointly develop and
market VYTORIN, which is ezetimibe as a once-daily fixed-combination tablet with
simvastatin (ZOCOR), Merck's cholesterol-modifying medicine.
We also market OTC and animal health products. OTC products include: Clear
Away (wart remover); Dr. Scholl's (foot care products); Lotrimin and Tinactin
(antifungals); A & D (ointment); Afrin (nasal decongestant); Chlor-trimeton
(antihistamine); Coricidin and Drixoral (cold and decongestant products);
Correctol (Laxative) and Bain de Soleil, Coppertone and Solarcaine (sun care
products). Animal health products include: Cepravin and Nuflr (antimicrobials);
Banamine and Zubrin (non-steroidal anti-inflammatories); Ralgro (growth
promotant implant) and Otomax (otic product).
OUR BUSINESS STRATEGY
During the past three years, we experienced a confluence of negative events
that have strained and continue to strain our financial resources. These
negative events have converged almost simultaneously and in large part caused a
rapid, sharp and material decline in sales, a material increase in costs and
material amounts of actual and potential payments for fines, settlements and
penalties. These events have had a severe, negative impact on us. If this
situation were to continue unmitigated, it may impair our ability to invest in
research at historical levels.
Throughout this period of time, we have held to our core strategy and
continued to invest in scientific research at historical levels. However, this
level of investment is not sustainable without a dramatic change in the current
financial situation. If cash flow from operations does not increase
S-2
materially, we would likely consider changing our current business model.
Unfortunately, increased sales of existing products and cost reductions alone
cannot be expected to increase cash flow from operations sufficiently to offset
the negative events. In order to maintain our current business model, we must
introduce new products in the near term.
There are two sources of new products: products acquired through
acquisition and licensing arrangements, and products in our late-stage research
pipeline. With respect to acquisitions and licensing, there are limited
opportunities for critical late-stage products, and these limited opportunities
typically require substantial amounts of funding. We compete for these products
against companies often with far greater financial resources than us. Due to the
present financial situation, it will be challenging for us to acquire or license
critical late-stage products.
With respect to products in our late-stage research pipeline, there is only
one product that was recently approved by the Food and Drug Administration
(FDA), which could materially increase cash flow from operations. That product
is VYTORIN, the combination of ZETIA, our cholesterol absorption inhibitor, and
ZOCOR, Merck's statin medication. The U.S. approval of VYTORIN enables us to
expand our position in the approximately $25 billion cholesterol-reduction
market, the single largest pharmaceutical market in the world. However, VYTORIN
competes against other, well-established cholesterol-management products
marketed by companies with financial resources much greater than ours. The
financial commitment to compete in this marketplace is shared with Merck;
however, profits from VYTORIN are also shared with Merck.
Due to the need to reinvest, as described in our quarterly report on Form
10-Q for the quarter ended June 30, 2004, our overall cost structure has not
declined. Despite the additional investment, the market shares of our existing
products have not yet responded in a meaningful way due to the need to realign
the sales force to prepare for the launch of VYTORIN. In the first quarter of
2004, we incurred a net loss of $73 million, which included pre-tax special
charges of $70 million. In the second quarter of 2004, we incurred a net loss of
$65 million, which included a pre-tax research and development charge of $80
million for a product licensing fee as well as pre-tax special charges of $42
million. Second quarter operations were benefited by the seasonal nature of our
allergy products. Subsequent quarters in 2004 will not include this benefit. Our
ability to generate profits is dependent upon growing sales of existing
products, successfully launching VYTORIN and controlling expenses. We cannot
give assurance that operations will generate profits in the near term,
especially if VYTORIN is not a commercial success.
Further, if VYTORIN does not provide a material amount of cash flow from
operations, we would likely evaluate the need to examine strategic alternatives.
With regard to an examination of strategic alternatives, the contracts with
Merck for ZETIA and VYTORIN and the contract with Centocor, Inc. for REMICADE
(exhibits 10(r) and 10(u), respectively, to our annual report on Form 10-K for
the year ended December 31, 2003, as amended by Form 10-K/A) contain provisions
dealing with a change of control, as defined in those contracts. These
provisions could result in the aforementioned products being acquired by Merck
or reverting back to Centocor, Inc., as the case may be.
RECENT DEVELOPMENTS
Pennsylvania Investigation. On July 30, 2004, we, the U.S. Department of
Justice and the U.S. Attorney's Office for the Eastern District of Pennsylvania
announced the settlement of the previously disclosed investigation by that
Office.
Under the settlement, Schering Sales Corporation, an indirect wholly owned
subsidiary of us, will plead guilty to a single federal criminal charge
concerning a payment to a managed care customer. As a result, Schering Sales
Corporation will be excluded from participating in federal healthcare programs.
The settlement will not affect our ability to participate in those programs.
S-3
The aggregate settlement amount is $345.5 million in fines and damages,
comprised of a $52.5 million fine to be paid by Schering Sales Corporation, and
$293 million in civil damages to paid by us. We will be credited with $53.6
million that was previously paid in additional Medicaid rebates against the
civil damages amount, leaving a net settlement amount of $291.9 million. Of that
amount, $177.5 million of the total settlement will be paid in 2004, and the
remaining portion will be paid by March 4, 2005. Interest will accrue on the
unpaid balance at the rate of 4 percent.
The payments will be funded by cash from operations, borrowings and/or
proceeds from this offering. There will be no impact on 2004 full year results
related to the Pennsylvania settlement.
Under the settlement, we also entered into a five year corporate integrity
agreement with the Office of the Inspector General of the Department of Health
and Human Services, under which we agreed to implement specific measures to
promote compliance with regulations on issues such as marketing. Failure to
comply can result in financial penalties.
We cannot predict the impact of this settlement, if any, on other
outstanding investigations.
Details of the initiation and progress of the investigation can be found in
our prior 10-K and 10-Q reports beginning with the 10-K for 1999.
Ratings Downgrade. On July 14, 2004, Moody's lowered our senior unsecured
credit rating from "A3" to "Baa1", lowered our senior unsecured shelf
registration rating from "(P)A3" to "(P)Baa1", lowered our subordinated shelf
registration rating from "(P)Baa1" to "(P)Baa2", lowered our cumulative and
non-cumulative preferred stock shelf registration rating from "(P)Baa2" to
"(P)Baa3", confirmed our "P-2" commercial paper rating and removed us from the
Watchlist. Moody's rating outlook for us is negative. As a result of Moody's
lowering of its rating on our senior unsecured notes to "Baa1", the interest
payable on each of our long-term senior unsecured notes will increase 25 basis
points, respectively, effective December 1, 2004. Therefore, on December 1,
2004, the interest rate payable on our long-term notes due 2013 will increase
from 5.3% to 5.55%, and the interest rate payable on our long-term notes due
2033 will increase from 6.5% to 6.75%. This adjustment to the interest rate
payable on our long-term senior unsecured notes will increase our interest
expense by $6 million annually.
Our credit ratings could decline further. The impact of such decline could
be reduced availability of commercial paper borrowing and would further increase
the interest rates on our long-term debt. If this were to occur, we may have to
seek short-term financing from other sources at higher interest rates than that
of commercial paper, or to repatriate additional funds currently held by foreign
affiliates that would incur additional U.S. income tax.
VYTORIN Approval. On July 23, 2004, the FDA approved VYTORIN, a
cholesterol-management product jointly developed by us and Merck, which combines
ZETIA, our cholesterol absorption inhibitor, and ZOCOR, Merck's statin
mediation. VYTORIN is the first and only product approved to treat the two
sources of cholesterol by inhibiting the production of cholesterol in the liver
and blocking the absorption of cholesterol in the intestine, including
cholesterol from food. The U.S. approval of VYTORIN enables us to expand our
position in the approximately $25 billion cholesterol-reduction market, the
single largest pharmaceutical market in the world.
S-4
THE OFFERING
Issuer:....................... Schering-Plough Corporation
Securities Offered:........... 25,000,000 shares of 6.00% mandatory
convertible preferred stock, which we refer to
in this prospectus supplement as the "mandatory
convertible preferred stock."
Initial Offering Price:....... $50.00 for each share of mandatory convertible
preferred stock.
Option to Purchase Additional
Shares of Mandatory
Convertible Preferred
Stock:........................ To the extent the underwriters sell more than
25,000,000 shares of our mandatory convertible
preferred stock, the underwriters have the
option to purchase up to 3,750,000 additional
shares of our mandatory convertible preferred
stock from us at the initial offering price,
less underwriting discounts and commissions,
within 30 days from the date of this prospectus
supplement. If the underwriters exercise their
option to purchase additional shares of our
mandatory convertible preferred stock in full,
we will have 28,750,000 shares of our mandatory
convertible preferred stock outstanding.
Dividends:.................... $3.00 for each share of our mandatory
convertible preferred stock per year. Dividends
will be accrued and cumulated from the date of
issuance and, to the extent that we are legally
permitted to pay dividends and our board of
directors, or an authorized committee of our
board of directors, declares a dividend
payable, we will pay dividends in cash on each
dividend payment date. The dividend payable on
the first dividend payment date is $1.0417 per
share and on each subsequent dividend payment
date will be $0.7500 per share. See "Risk
Factors -- Risks Related to the Offering -- New
Jersey law may restrict us from paying cash
dividends on our mandatory convertible
preferred stock."
Dividend Payment Dates:....... March 15, June 15, September 15 and December 15
of each year (or the following business day if
the 15th is not a business day) prior to the
mandatory conversion date (as defined below),
and on the mandatory conversion date,
commencing on December 15, 2004.
Redemption:................... Our mandatory convertible preferred stock is
not redeemable.
Mandatory Conversion Date:.... September 14, 2007, which we call the
"mandatory conversion date."
Mandatory Conversion:......... On the mandatory conversion date, each share of
our mandatory convertible preferred stock will
automatically convert into common shares, based
on the conversion rate as described below.
Holders of our mandatory convertible preferred
stock on the mandatory conversion date will
have the right to receive the cash dividend due
on such date (including any accrued,
S-5
cumulated and unpaid dividends on our mandatory
convertible preferred stock as of the mandatory
conversion date), whether or not declared
(other than previously declared dividends on
our mandatory convertible preferred stock
payable to holders of record as of a prior
date), to the extent we are legally permitted
to pay such dividends at such time.
Conversion Rate:.............. The conversion rate for each share of our
mandatory convertible preferred stock will be
not more than 2.7840 common shares and not less
than 2.2451 common shares, depending on the
applicable market value of our common shares,
as described below.
The "applicable market value" of our common
shares is the average of the closing prices per
common share on each of the 20 consecutive
trading days ending on the third trading day
immediately preceding the mandatory conversion
date. It will be calculated as described under
"Description of Mandatory Convertible Preferred
Stock -- Mandatory Conversion."
The conversion rate is subject to certain
adjustments, as described under "Description of
Mandatory Convertible Preferred Stock --
Anti-dilution Adjustments."
The following table illustrates the conversion
rate per share of our mandatory convertible
preferred stock subject to certain
anti-dilution adjustments described under
"Description of Mandatory Convertible Preferred
Stock -- Anti-dilution Adjustments."
APPLICABLE MARKET VALUE
ON CONVERSION DATE CONVERSION RATE
----------------------- ---------------
less than or equal to $17.96 2.7840
between $17.96 and $22.27 2.7840 to 2.2451
equal to or greater than $22.27 2.2451
Optional Conversion:.......... At any time prior to September 14, 2007, you
may elect to convert each of your shares of our
mandatory convertible preferred stock at the
minimum conversion rate of 2.2451 common shares
for each share of mandatory convertible
preferred stock. This conversion rate is
subject to certain adjustments as described
under "Description of Mandatory Convertible
Preferred Stock -- Anti-dilution Adjustments."
Provisional Conversion
at Our Option:................ If, at any time prior to September 14, 2007,
the closing price per common share exceeds
$33.41 (150% of the threshold appreciation
price of $22.27), subject to anti-dilution
adjustments, for at least 20 trading days
within a period of 30 consecutive trading days,
we may elect to cause the conversion of all,
but not less than all, of our mandatory
convertible preferred stock then outstanding at
the minimum conversion rate of 2.2451 common
shares for each share of mandatory convertible
preferred stock, subject to certain
S-6
adjustments as described under "Description of
Mandatory Convertible Preferred
Stock -- Anti-dilution Adjustments," only if,
in addition to issuing you such common shares,
at the time of such conversion we are then
legally permitted to and do pay you in cash (i)
the present value of all the remaining future
dividend payments through and including
September 14, 2007, on our mandatory
convertible preferred stock, computed using a
discount rate equal to the treasury yield, plus
(ii) an amount equal to any accrued, cumulated
and unpaid dividend payments on our mandatory
convertible preferred stock, whether or not
declared (other than previously declared
dividends on our mandatory convertible
preferred stock payable to holders of record as
of a prior date). See "Description of Mandatory
Convertible Preferred Stock -- Provisional
Conversion at Our Option."
Early Conversion upon Cash
Merger:....................... Prior to the mandatory conversion date, if we
are involved in a merger in which at least 30%
of the consideration for our common shares
consists of cash or cash equivalents, which we
refer to as a "cash merger," then on the date
specified in our notice to you, each holder of
our mandatory convertible preferred stock will
have the right to convert their shares of our
mandatory convertible preferred stock at the
conversion rate, determined in accordance with
"Conversion Rate" above, in effect on the
trading day immediately prior to the cash
merger. See "Description of Mandatory
Convertible Preferred Stock -- Early Conversion
upon Cash Merger."
Anti-dilution Adjustments:.... The formula for determining the conversion rate
and the number of common shares to be delivered
upon conversion may be adjusted in the event
of, among other things, stock dividends or
distributions in common shares or subdivisions,
splits and combinations of our common shares.
See "Description of Mandatory Convertible
Preferred Stock -- Anti-dilution Adjustments."
Liquidation Preference:....... $50.00 per share of mandatory convertible
preferred stock, plus an amount equal to the
sum of all accrued, cumulated and unpaid
dividends.
Voting Rights:................ Holders of our mandatory convertible preferred
stock will not be entitled to any voting
rights, except as required by New Jersey law
and as described under "Description of
Mandatory Convertible Preferred Stock -- Voting
Rights."
Ranking:...................... Our mandatory convertible preferred stock will
rank as to payment of dividends and
distributions of assets upon our dissolution,
liquidation or winding up:
- junior to all our existing and future debt
obligations;
- junior to any class or series of our capital
stock the terms of which provide that such
class or series will rank senior to our
mandatory convertible preferred stock;
- senior to our common shares, the Series A
Junior Participating Preferred Stock and any
other class or series
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of our capital stock the terms of which
provide that such class or series will rank
junior to our mandatory convertible preferred
stock; and
- on a parity with any other class or series of
our capital stock;
in each case, whether now outstanding or to be
issued in the future.
We will not be entitled to issue any class or
series of our capital stock the terms of which
provide that such class or series will rank
senior to our mandatory convertible preferred
stock as to payment of dividends or
distribution of assets upon our dissolution,
liquidation or winding up without the approval
of the holders of at least two-thirds of the
shares of our mandatory convertible preferred
stock and any other preferred shares ranking on
a parity with our mandatory convertible
preferred stock then outstanding, voting
together as a single class.
There are currently no preferred shares
outstanding.
Listing:...................... The mandatory convertible preferred stock has
been approved for listing, subject to official
notice of issuance, on the New York Stock
Exchange under the symbol "SGP PrM".
Use of Proceeds:.............. We intend to use the net proceeds from this
offering of mandatory convertible preferred
stock for general corporate purposes, which may
include, among other things, refinancing of
commercial paper, the funding of operating
expenses, capital expenditures, taxes, business
development activities, licensing fees and
milestone payments and the payment of
settlement amounts, fines, penalties and other
investigatory and litigation costs and expenses
(including with respect to the recently
announced settlement of the Pennsylvania
investigation). See "Use of Proceeds."
Unless otherwise stated, all information contained in this prospectus
supplement assumes that the underwriters do not exercise their option to
purchase additional shares of our mandatory convertible preferred stock.
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SUMMARY FINANCIAL DATA
The following summary financial data have been derived from our
consolidated financial statements and should be read in conjunction with our
Annual Report on Form 10-K for the fiscal year ended December 31, 2003, as
amended by Form 10-K/A, and our Quarterly Reports on Form 10-Q for the periods
ended March 31, 2004 and June 30, 2004. The unaudited financial information
presented below for the six-month periods ended June 30, 2004 and 2003 reflects
all normal and recurring adjustments that, in the opinion of management, are
necessary for a fair presentation of our results of operations and financial
position.
UNAUDITED
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
------------------ ---------------------------
2004 2003 2003 2002 2001
-------- ------- ------- ------- -------
(IN MILLIONS, EXCEPT PER SHARE DATA)
OPERATING RESULTS
Net sales.............................. $ 4,110 $ 4,389 $ 8,334 $10,180 $ 9,762
(Loss)/income before income taxes(1)... (173) 444 (46) 2,563 2,523
Net (loss)/income(1)................... (138) 355 (92) 1,974 1,943
Diluted (loss)/earnings per common
share............................... (0.09) 0.24 (0.06) 1.34 1.32
Basic (loss)/earnings per common
share............................... (0.09) 0.24 (0.06) 1.35 1.33
INVESTMENTS
Research and development............... $ 824 $ 691 $ 1,469 $ 1,425 $ 1,312
Capital expenditures................... 227 282 701 770 759
FINANCIAL CONDITION
Property, net.......................... $ 4,489 $ 4,352 $ 4,527 $ 4,236 $ 3,814
Total assets........................... 14,890 14,123 15,102 14,136 12,174
Long-term debt......................... 2,410 21 2,410 21 112
Shareholders' equity................... 6,994 8,127 7,337 8,142 7,125
Net book value per common share........ 4.75 5.53 4.99 5.55 4.86
FINANCIAL STATISTICS
Net (loss)/income as a percent of
sales............................... (3.4)% 8.1% (1.1)% 19.4% 19.9%
Return on average shareholders'
equity.............................. (7.7)% 13.7% (1.2)% 25.9% 29.3%
Effective tax rate..................... 20.0% 20.0% (2) 23.0% 23.0%
OTHER DATA
Cash dividends per common share........ $ 0.110 $ 0.340 $ 0.565 $ 0.670 $ 0.620
Cash dividends on common shares........ 162 500 830 983 911
Depreciation and amortization.......... 217 193 417 372 320
Average shares outstanding for diluted
earnings per common share........... 1,471 1,471 1,469 1,470 1,470
Average shares outstanding for basic
earnings per common share........... 1,471 1,469 1,469 1,466 1,463
Common shares outstanding at
period-end.......................... 1,472 1,469 1,471 1,468 1,465
---------------
(1) The first six months of 2004 and 2003 include Special Charges of $112 and
$20, respectively. The full years of 2003, 2002 and 2001 include Special
Charges of $599, $150 and $500, respectively. See "Special Charges" footnote
under Item 8, Financial Statements and Supplementary Data, in our Annual
Report on Form 10-K, as amended by Form 10-K/A, incorporated by reference in
this prospectus supplement and in the accompanying prospectus for additional
information.
(2) For the fiscal year ended 2003, the effective tax rate is 15.0%, excluding
the $350 non-tax deductible provision to increase litigation reserves.
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RATIO OF EARNINGS TO FIXED CHARGES
Our consolidated ratio of earnings to fixed charges and earnings to
combined fixed charges and preference dividends, in each case, for the six
months ended June 30, 2004 and for each of the fiscal years ended December 31,
2003 through 1999 is set forth below. For the purpose of computing these ratios,
"earnings" consist of income (loss) before income taxes and equity income from
our cholesterol joint venture with Merck & Co., Inc., plus fixed charges (other
than capitalized interest), amortization of capitalized interest and distributed
income from the joint venture. "Fixed charges" consist of interest expense,
capitalized interest and one-third of rentals which we believe to be a
reasonable estimate of the interest component within leases. "Fixed charges and
preference dividends" consist of fixed charges and our preferred share dividend
requirements. The ratios were calculated by dividing the sum of the fixed
charges or the fixed charges and preference dividends, as the case may be, into
the sum of the earnings before taxes and fixed charges or fixed charges and
preference dividends, as the case may be. For the six months ended June 30,
2004, the pro forma computation reflects the repayment of a monthly average of
approximately $786 million of commercial paper. For the year ended December 31,
2003, the pro forma computation reflects the repayment of a monthly average of
approximately $1.21 billion of commercial paper. These amounts may not be
indicative of actual commercial paper outstanding after application of the net
proceeds of the offering to repay a portion of the commercial paper. See "Use of
Proceeds."
(UNAUDITED)
--------------------------------------
PRO FORMA
SIX MONTHS SIX MONTHS PRO FORMA
ENDED ENDED YEAR ENDED YEAR ENDED DECEMBER 31,
JUNE 30, JUNE 30, DECEMBER 31, ----------------------------------------
2004 2004 2003 2003 2002 2001 2000 1999
---------- ---------- ------------ -------- ----- ----- ----- -----
Ratio of earnings to fixed
charges..................... (1.3)x* (1.3)x** 0.5x*** 0.4x**** 33.2x 29.1x 37.1x 45.3x
Ratio of earnings to combined
fixed charges and preference
dividends................... (0.9)x+ (1.3)x++ 0.3x+++ 0.4x++++ 33.2x 29.1x 37.1x 45.3x
---------------
* For the six months ended June 30, 2004, pro forma earnings were
insufficient to cover fixed charges by $261 million.
** For the six months ended June 30, 2004, actual earnings were insufficient
to cover fixed charges by $266 million.
*** For the year ended December 31, 2003, pro forma earnings were insufficient
to cover fixed charges by $55 million.
**** For the year ended December 31, 2003, actual earnings were insufficient to
cover fixed charges by $70 million.
+ For the six months ended June 30, 2004, pro forma earnings were
insufficient to cover fixed charges and preference dividends by $308
million.
++ For the six months ended June 30, 2004, actual earnings were insufficient
to cover fixed charges and preference dividends by $266 million.
+++ For the year ended December 31, 2003, pro forma earnings were insufficient
to cover fixed charges and preference dividends by $144 million.
++++ For the year ended December 31, 2003, actual earnings were insufficient to
cover fixed charges and preference dividends by $70 million.
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RISK FACTORS
Our business faces significant risks. Before you invest in any of our
securities, you should carefully consider all of the information included or
incorporated by reference in this prospectus supplement and in the accompanying
prospectus. In addition, you should carefully consider the following risks in
addition to the risks and uncertainties described on page 5 in the accompanying
prospectus and in our reports to the SEC incorporated by reference into this
prospectus supplement and the accompanying prospectus as the same may be updated
from time to time, including the risks and uncertainties identified under the
"Legal, Environmental and Regulatory Matters" footnote included in the financial
statements, and under the captions "Executive Summary," "Additional Factors
Influencing Operations," "Qualitative and Quantitative Disclosures about Market
Risk," and "Disclosure Notice" in the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section, in each case, in our
quarterly report on Form 10-Q for the quarter ended June 30, 2004 and under the
caption "Item 1. Business," in our annual report on Form 10-K for the year ended
December 31, 2003, as amended by Form 10-K/A. These risks may not be the only
risks we face. Additional risks that we do not yet know of or that we currently
believe are immaterial or are based on assumptions that are later determined to
be inaccurate also may impair our business. If any of the risks described in
this prospectus supplement, the accompanying prospectus or our reports to the
SEC actually occur, our business and operating results could be materially
harmed. This could cause the value of the mandatory convertible preferred stock
to decline, and you may lose all or part of your investment.
RISKS RELATED TO OUR BUSINESS
OUR LATE-STAGE PIPELINE HAS ONLY ONE PRODUCT, VYTORIN THAT WAS RECENTLY APPROVED
BY THE FOOD AND DRUG ADMINISTRATION, WHICH HAS THE POTENTIAL TO MATERIALLY
INCREASE CASH FLOW FROM OPERATIONS IN THE NEAR TERM.
We have two sources of new products: products acquired through acquisition
and licensing arrangements, and products in our late-stage research pipeline. As
discussed above, due to our present financial situation, it will be challenging
for us to acquire or license critical late-stage products. With respect to
products in our late-stage research pipeline, there is only one product that was
recently approved by the FDA, which could materially increase cash flow from
operations. That product is VYTORIN, the combination of ZETIA, our cholesterol
absorption inhibitor, and ZOCOR, Merck's statin medication. VYTORIN, however,
competes against other well-established cholesterol-management products marketed
by companies with financial resources much greater than ours. The financial
commitment to compete in this marketplace is shared with Merck; however, profits
from VYTORIN are also shared with Merck.
If VYTORIN does not provide a material amount of cash flow from operations,
we would likely evaluate the need to examine strategic alternatives. With regard
to an examination of strategic alternatives, the contracts with Merck for ZETIA
and VYTORIN and the contract with Centocor, Inc. for REMICADE contain provisions
dealing with a change of control, as defined in those contracts. These
provisions could result in the aforementioned products being acquired by Merck
or reverting back to Centocor, Inc., as the case may be. Further, the launch of
VYTORIN may negatively impact sales of ZETIA.
A MATERIAL PORTION OF OUR 2003 REVENUES WERE DERIVED FROM THE SALE OF OUR MAJOR
PRODUCTS. IF ONE OR MORE OF OUR MAJOR PRODUCTS, IMPORTANT NEW PRODUCTS OR
IMPORTANT PRODUCTS IN OUR PIPELINE WERE TO ENCOUNTER REGULATORY, COMPETITIVE,
EFFICACY OR OTHER ISSUES, THE IMPACT ON REVENUES COULD BE SIGNIFICANT.
Major products such as CLARITIN, CLARINEX, INTRON A, PEG-INTRON, REBETOL
Capsules, REMICADE and NASONEX accounted for a material portion of our 2003
revenues. If any major product were to encounter a problem such as loss of
patent protection, OTC availability of our product or a
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competitive product (as has been disclosed for CLARITIN and its current and
potential OTC competition), previously unknown side effects; if a new, more
effective treatment should be introduced; generic availability of competitive
products; or if the product is discontinued for any reason, the impact on
revenues could be significant. Also, such information about important new
products, such as ZETIA and VYTORIN or important products in our pipeline may
impact future revenues. The launch of VYTORIN may negatively impact sales of
ZETIA.
UNFAVORABLE OUTCOMES OF GOVERNMENT INVESTIGATIONS, LITIGATIONS AND PROCEEDINGS
AND OTHER LITIGATIONS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Unfavorable outcomes of government (local and federal, domestic and
international) investigations, litigation about product pricing, product
liability claims, other litigation and environmental matters could preclude
commercialization of products, negatively affect the profitability of existing
products, could involve substantial settlement amounts, fines and penalties that
could materially and adversely impact our financial condition and results of
operations, or contain conditions that impact business operations, such as
exclusion from government reimbursement programs. We recently settled the
investigation by the U.S. Department of Justice and the U.S. Attorney's Office
for the Eastern District of Pennsylvania for an aggregate amount of $345.5
million in fines and damages.
OUR INVESTMENTS IN RESEARCH AND DEVELOPMENT INVOLVE LONG INVESTMENT CYCLES,
WHICH INVOLVES SUBSTANTIAL UNCERTAINTIES.
As a research-based pharmaceutical company, we invest substantial amounts
of funds in scientific research with the goal of creating important medical and
commercial value. There is a high rate of failure inherent in scientific
research and, as a result, there is a high risk that the funds invested will not
generate financial returns. Further compounding this risk profile is the fact
that research has a long investment cycle. To bring a pharmaceutical compound
from discovery phase to commercial phase may take a decade or more. Because of
the high risk nature of research investments, financial resources typically must
come from internal sources (operations and cash reserves) or from equity-type
capital.
A DECLINE IN OUR CREDIT RATINGS COULD ADVERSELY AFFECT OUR FINANCIAL POSITION
AND OUR RESULTS OF OPERATIONS.
On February 18, 2004, S&P downgraded our senior unsecured debt ratings to
"A-" from "A." At the same time, S&P also lowered our short-term corporate
credit and commercial paper rating to "A-2" from "A-1." Our S&P rating outlook
remains negative.
On March 3, 2004, S&P assigned the shelf registration, which was declared
effective on May 11, 2004, a preliminary rating of "A-" for senior unsecured
debt and a preliminary subordinated debt rating of "BBB+".
On April 29, 2004, Moody's placed our senior unsecured credit rating of
"A3" on its Watchlist for possible downgrade based upon concerns related to
market share declines, litigation risks and a high degree of reliance on the
success of VYTORIN. On July 14, 2004, Moody's lowered our senior unsecured
credit rating from "A3" to "Baa1," lowered our senior unsecured shelf
registration rating from "(P)A3" to "(P)Baa1," lowered our subordinated shelf
registration rating from "(P)Baa1" to "(P)Baa2," lowered our cumulative and
non-cumulative preferred stock shelf registration rating from "(P)Baa2" to
"(P)Baa3," confirmed our "P-2" commercial paper rating and removed us from the
Watchlist. Moody's rating outlook for us is negative.
On November 20, 2003, Fitch downgraded our senior unsecured and bank loan
ratings to "A-" from "A+," and our commercial paper rating to "F2" from "F1."
Our rating outlook remained negative. In announcing the downgrade, Fitch noted
that the sales decline in our leading product franchise, the
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INTRON franchise, was greater than anticipated, and that it was concerned that
our total growth is reliant on the performance of two key growth drivers, ZETIA
and REMICADE, in the near term.
The impact of a further decline in our credit ratings could be reduced
availability of commercial paper borrowing and would increase the interest rate
on our long-term debt. If our access to the commercial paper markets were to be
restricted, we may be forced to seek short-term financing from other sources at
higher interest rates than that of commercial paper, or to repatriate additional
funds currently held by foreign affiliates. Repatriating funds could have U.S.
income tax consequences depending primarily on profitability of the U.S.
operations. Any such tax would be accrued against future earnings, and may
result in our reporting a higher effective tax rate. Currently, the U.S.
operations are generating tax losses. However, future tax losses may be
insufficient to absorb any or all of the potential tax should we repatriate some
or all of the funds received by the foreign-based subsidiary.
WE DEPEND ON RELATIONSHIPS WITH MAJOR PRODUCTS DISTRIBUTORS AND RETAIL CHAINS
FOR A SIGNIFICANT PORTION OF OUR NET SALES.
A significant portion of our net sales are made to major pharmaceutical and
health care products distributors and major retail chains in the United States.
Consequently, net sales and quarterly growth comparisons may be affected by
fluctuations in the buying patterns of major distributors, retail chains and
other trade buyers. These fluctuations may result from seasonality, pricing,
wholesaler buying decisions or other factors.
WE OPERATE IN A COMPETITIVE INDUSTRY.
The market for pharmaceutical products is competitive. Competitive factors
include technological advances attained by competitors, patents granted to
competitors, new products of competitors coming to the market, new indications
for competitive products, and generic, prescription and/or OTC products that
compete with our products or the products of our joint venture with Merck (such
as competition from OTC statins, like the one approved for use in the U.K. for
which impact in the cholesterol reduction market is not yet known).
One of our leading franchises is the combination of pegylated interferon
(PEG-INTRON) and ribavirin (REBETOL) to treat hepatitis C. In late 2002, a
competitor entered the hepatitis C marketplace with its own versions of
pegylated interferon and ribavirin, and pursued aggressive pricing and marketing
practices. Prior to the introduction of these competing products, we held a
leading position in the hepatitis C market. With the introduction of this
competitor in a market that has been contracting, our market shares and sales
levels have fallen significantly. In addition, generic forms of ribavirin have
entered the important U.S. market in April 2004. As a result of the introduction
of a competitor for pegylated interferon and the introduction of generic
ribavirin, the value of our second most important product franchise has been and
will continue to be severely diminished, and earnings and cash flow have been
and will continue to be materially and negatively impacted.
HEALTH CARE INITIATIVES AND OTHER COST-CONTAINMENT PRESSURES BOTH IN THE UNITED
STATES AND ABROAD COULD ADVERSELY AFFECT OUR OPERATIONS AND CASH FLOWS.
In the United States, many of our pharmaceutical products are subject to
increasingly competitive pricing as managed care groups, institutions,
government agencies and other groups seek price discounts. In most international
markets, we operate in an environment of government-mandated cost-containment
programs. In addition, in the United States market, we and other pharmaceutical
manufacturers are required to provide statutorily defined rebates to various
government agencies in order to participate in Medicaid, the veterans health
care program and other government-funded programs. Several governments have also
placed restrictions on physician prescription levels and patient reimbursements,
emphasized greater use of generic drugs and
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enacted across-the-board price cuts as methods to control costs. Since we are
unable to predict the final form and timing of any future domestic or
international governmental or other health care initiatives, including the
passage of laws permitting the importation of pharmaceuticals into the United
States, their effect on operations and cash flows cannot be reasonably
estimated. In the United States, among other developments, consolidation among
customers may increase pricing pressures and may result in various customers
having greater influence over prescription decisions through formulary decisions
and other policies.
Our business could also be adversely affected by the potential impact of
the Medicare Prescription Drug, Improvement and Modernization Act of 2003; other
possible United States legislation or regulatory action affecting, among other
things, involuntary approval of prescription medicines for over-the-counter use
and other health care reform initiatives and drug importation legislation.
Legislation or regulations in markets outside the United States affecting
product pricing, reimbursement or access, may also adversely affect our
business. In addition, our business could be adversely affected by laws and
regulations relating to trade, antitrust, monetary and fiscal policies, taxes,
price controls and possible nationalization.
We sell numerous upper respiratory products which contain pseudoephedrine
(PSE), an FDA approved ingredient for the relief of nasal congestion. Our annual
sales of upper respiratory products which contain PSE totaled approximately $160
million in 2003 and approximately $95 million through June 2004. These products
include all CLARITIN D products as well as some DRIXORAL, CORICIDIN and
CHLOR-TRIMETON products. We understand that PSE has been used in the illicit
manufacture of methamphetamine, a dangerous and addictive drug. To date, we
believe that nine states and Canada have enacted regulations concerning the sale
of PSE, including limiting the amount of these products that can be purchased at
one time, or requiring that these products be located behind the counter, with
the stated goal of deterring the illicit/illegal manufacture of methamphetamine.
To date, the regulations have had no material impact on our operations or
financial results. Were such regulations to be adopted throughout the United
States and in other countries that are key markets for the products, the impact
of such regulations on our sales of these specific products cannot be predicted.
PROTECTING OUR PATENT POSITIONS IS DIFFICULT AND OUR INABILITY TO DO SO MAY
ADVERSELY IMPACT OUR OPERATIONS.
Our subsidiaries own (or have licensed rights under) a number of patents
and patent applications, both in the United States and abroad. Patents and
patent applications relating to our significant products, including, without
limitation, CLARINEX, the CLARITIN family of products, INTRON A, PEG-INTRON,
REBETOL, NASONEX and ZETIA, are of material importance to us.
Patent positions can be highly uncertain and patent disputes are not
unusual. An adverse result in a patent dispute can preclude commercialization of
products or negatively impact sales of existing products or result in injunctive
relief and payment of financial remedies.
THE UNCERTAINTIES INHERENT IN THE GOVERNMENTAL REGULATORY APPROVAL PROCESS CAN
ADVERSELY AFFECT OUR OPERATIONS.
Our operations may be adversely affected by the uncertainties of the FDA
approval process and the regulatory approval and review processes in other
countries, including without limitation, delays in approval of new products.
A FAILURE TO COMPLY WITH GOVERNMENT REGULATIONS COULD HAVE A MATERIAL ADVERSE
EFFECT ON OUR FINANCIAL POSITION AND OUR RESULTS OF OPERATIONS.
We are subject to extensive regulation by a number of national, state and
local regulatory agencies. Of particular importance is the FDA in the United
States. It has jurisdiction over all of our businesses and administers
requirements covering the testing, safety, effectiveness, approval,
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manufacturing, labeling and marketing of our products. In addition, our
activities outside the United States are also subject to regulatory requirements
governing the testing, safety, effectiveness, approval, manufacturing, labeling
and marketing of our products. These regulatory requirements vary from country
to country. From time to time, agencies, including the FDA, may require us to
address various manufacturing, advertising, labeling or other regulatory issues,
such as those noted in the information incorporated by reference relating to our
resolution of manufacturing issues with the FDA. Failure to comply with
governmental regulations can result in delays in the approval of products,
release of products, seizure or recall of products, suspension or revocation of
the authority necessary for the production and sale of products, discontinuance
of products, fines and other civil or criminal sanctions. Any such result could
have a material adverse effect on our financial position and our results of
operations.
WE OPERATE UNDER A CONSENT DECREE COVERING FOUR IMPORTANT FACILITIES, WHICH HAS
RESULTED IN SUBSTANTIAL FINES AND INCREASED OPERATING EXPENSES.
On May 17, 2002, we announced that we had reached an agreement with the FDA
for a consent decree to resolve issues involving our compliance with current
Good Manufacturing Practices (cGMP) at certain manufacturing facilities in New
Jersey and Puerto Rico. Under the terms of the consent decree, we agreed to pay
a total of $500 million to the U.S. government.
The consent decree requires us to complete a number of actions. In the
event certain actions agreed upon in the consent decree are not satisfactorily
completed on time, the FDA may assess payments for each deadline missed. The
consent decree required us to develop and submit for FDA's concurrence
comprehensive cGMP Work Plans for the our manufacturing facilities in New Jersey
and Puerto Rico that are covered by the decree. The cGMP Work Plans contain a
number of significant steps whose timely and satisfactory completion are subject
to payments of $15 thousand per business day for each deadline missed. These
payments may not exceed $25 million for 2002, and $50 million for each of the
years 2003, 2004 and 2005. These payments are subject to an overall cap of $175
million. The FDA agreed to extend by six months the time period during which we
may incur payments as described above with respect to the significant steps
whose due dates are December 31, 2005. Such agreement does not increase the
yearly or overall caps on payments described above.
In addition, the decree requires us to complete programs of revalidation of
the finished drug products and bulk active pharmaceutical ingredients
manufactured at the covered manufacturing facilities. We are required under the
consent decree to complete our revalidation programs for bulk active
pharmaceutical ingredients by September 30, 2005, and for finished drugs by
December 31, 2005. In general, the timely and satisfactory completion of the
revalidations are subject to payments of $15 thousand per business day for each
deadline missed, subject to the caps described above. However, if a product
scheduled for revalidation has not been certified as having been validated by
the last date on the validation schedule, the FDA may assess a payment of 24.6%
of the net domestic sales of the uncertified product until the validation is
certified. Any such payment would not be subject to the caps described above.
Further, in general, if a product scheduled for revalidation under the consent
decree is not certified within six months of its scheduled date, we must cease
production of that product until certification is obtained. The completion of
the significant steps in the Work Plans and the completion of the revalidation
programs are subject to third-party expert certification, which must be accepted
by the FDA.
The consent decree provides that if we believe that we may not be able to
meet a deadline, we have the right, upon the showing of good cause, to request
extensions of deadlines in connection with the cGMP Work Plans and revalidation
programs. However, there is no guarantee that FDA will grant any such requests.
Although we believe we have made significant progress in meeting our
obligations under the consent decree, it is possible that (1) we may fail to
complete a significant step or a revalidation by
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the prescribed deadline; (2) the third-party expert may not certify the
completion of the significant step or revalidation; or (3) the FDA may disagree
with an expert's certification of a significant step or revalidation. In such a
case, it is possible that the FDA may assess payments as described above.
OUR SUCCESS IS DEPENDENT ON THE DEVELOPMENT AND MARKETING OF NEW PRODUCTS.
Pharmaceutical product development is highly uncertain. Products that
appear promising in development may fail to reach market for numerous reasons.
They may be found to be ineffective or to have harmful side effects in clinical
or pre-clinical testing, they may fail to receive the necessary regulatory
approvals, they may turn out not to be economically feasible because of
manufacturing costs or other factors or they may be precluded from
commercialization by the proprietary rights of others.
THE OCCURRENCE OF EFFICACY OR SAFETY CONCERNS WITH RESPECT TO OUR MARKETED
PRODUCTS, WHETHER OR NOT SCIENTIFICALLY JUSTIFIED, COULD ADVERSELY AFFECT OUR
FINANCIAL POSITION AND OUR RESULTS OF OPERATIONS.
The occurrence of efficacy or safety concerns with respect to our marketed
products, whether or not scientifically justified, could lead to recalls,
withdrawals or declining sales.
WE ARE SUBJECT TO RISKS ASSOCIATED WITH DOING BUSINESS INTERNATIONALLY.
Our foreign operations are subject to risks which are inherent in
conducting business overseas. These risks include possible nationalization,
expropriation, importation limitations, pricing restrictions, and other
restrictive governmental actions or economic destabilization, instability,
disruption or destruction in a significant geographic region -- due to the
location of manufacturing facilities, distribution facilities or
customers -- regardless of cause, including war, terrorism, riot, civil
insurrection or social unrest; and natural or man-made disasters, including
famine, flood, fire, earthquake, storm or disease. Also, fluctuations in foreign
currency exchange rates can impact our consolidated financial results.
RISKS RELATED TO THE OFFERING
THE MARKET PRICE OF OUR MANDATORY CONVERTIBLE PREFERRED STOCK WILL BE DIRECTLY
AFFECTED BY THE MARKET PRICE OF OUR COMMON SHARES, WHICH MAY BE VOLATILE, AND
OTHER FACTORS.
To the extent there is a secondary market for our mandatory convertible
preferred stock, we believe that the market price of our mandatory convertible
preferred stock will be significantly affected by the market price of our common
shares. We cannot predict how our common shares will trade. This may result in
greater volatility in the market price of the mandatory convertible preferred
stock than would be expected for nonconvertible preferred stock. From the
beginning of 2002 to August 4, 2004, the reported high and low sales prices for
our common shares ranged from a low of $14.16 per share to a high of $36.25 per
share. The market price of our common shares will likely continue to fluctuate
in response to a number of factors including the following, some of which are
beyond our control:
- quarterly fluctuations in our operating and financial results;
- developments related to investigations, proceedings or litigations that
involve us;
- changes in financial estimates and recommendations by financial analysts;
- dispositions, acquisitions and financings;
- changes in the ratings of our other securities;
- fluctuations in the stock price and operating results of our competitors;
- regulatory developments; and
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- the pharmaceutical industry.
In addition, the stock markets in general, including the New York Stock
Exchange, experience price and trading fluctuations. These fluctuations may
result in volatility in the market prices of securities that could be unrelated
or disproportionate to changes in operating performance. These broad market
fluctuations may adversely affect the market prices of our mandatory convertible
preferred stock and our common shares.
PURCHASERS OF MANDATORY CONVERTIBLE PREFERRED STOCK WHO CONVERT THEIR SHARES
INTO COMMON SHARES WILL INCUR IMMEDIATE NET TANGIBLE BOOK VALUE DILUTION.
Persons purchasing our mandatory convertible preferred stock who convert
their shares into our common shares will incur immediate net tangible book value
dilution.
In addition, the terms of our mandatory convertible preferred stock do not
restrict our ability to offer a new series of preferred stock that is on parity
with the mandatory convertible preferred stock in the future or to engage in
other transactions that could dilute our mandatory convertible preferred stock.
A HOLDER OF OUR MANDATORY CONVERTIBLE PREFERRED STOCK MAY REALIZE SOME OR ALL OF
A DECLINE IN THE MARKET VALUE OF OUR COMMON SHARES.
The market value of our common shares on September 14, 2007 may be less
than $17.96 per share, which we call the initial price. If that market value is
less than the initial price, then holders of our mandatory convertible preferred
stock will receive our common shares on September 14, 2007 with a market value
per share that is less than the initial price. Accordingly, a holder of
mandatory convertible preferred stock assumes the entire risk that the market
value of our common shares may decline. Any decline in the market value of our
common shares may be substantial.
COMMON SHARES ELIGIBLE FOR FUTURE ISSUANCE OR SALE MAY CAUSE OUR COMMON SHARE
PRICE TO DECLINE, WHICH MAY NEGATIVELY IMPACT YOUR INVESTMENT.
Issuances or sales of substantial numbers of additional common shares,
including in connection with future acquisitions, if any, or the perception that
such issuances or sales could occur, may cause prevailing market prices for our
common shares to decline and may adversely affect our ability to raise
additional capital in the financial markets at a time and price favorable to us.
As of the date of this prospectus supplement, our certificate of incorporation,
as amended, provides that we have authority to issue up to 2,400,000,000 common
shares. As of June 30, 2004, 1,472,377,983 common shares were issued and
outstanding and 557,308,394 common shares were issued and held in treasury. Also
as of such date, there were 90,029,074 common shares reserved for issuance under
stock incentive plans or pursuant to individual option grants or stock awards,
and 27,859,654 common shares authorized and available for issue under stock
incentive plans. Subject to any anti-dilution adjustments, an additional
56,127,500 to 69,600,000 common shares will be issuable upon conversion of the
shares of mandatory convertible preferred stock (and an additional 8,419,125 to
10,440,000 common shares if the underwriters exercise their option to purchase
additional shares of mandatory convertible preferred stock in full). We will
reserve for issuance the maximum number of common shares issuable upon
conversion of the mandatory convertible preferred stock. See "Description of
Mandatory Convertible Preferred Stock."
OUR ISSUANCE OF ADDITIONAL SERIES OF PREFERRED SHARES COULD ADVERSELY AFFECT
HOLDERS OF OUR COMMON SHARES.
After giving effect to this offering, our board of directors is authorized
to issue additional classes or series of preferred shares without any action on
the part of our shareholders. Our board of directors also has the power, without
shareholder approval, to set the terms of any such classes
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or series of preferred shares that may be issued, including voting rights,
dividend rights, preferences over our common shares with respect to dividends or
if we liquidate, dissolve or wind up our business and other terms. If we issue
preferred shares in the future that have preference over our common shares with
respect to the payment of dividends or upon our liquidation, dissolution or
winding up, or if we issue preferred shares with voting rights that dilute the
voting power of our common shares, the rights of holders of our common shares or
the market price of our common shares could be adversely affected.
THE OPPORTUNITY FOR EQUITY APPRECIATION PROVIDED BY AN INVESTMENT IN THE SHARES
OF OUR MANDATORY CONVERTIBLE PREFERRED STOCK IS LESS THAN THAT PROVIDED BY A
DIRECT INVESTMENT IN OUR COMMON SHARES.
The number of common shares that are issuable upon mandatory conversion on
the conversion date of our mandatory convertible preferred stock will decrease
if the applicable market value increases to $22.27. Therefore, the opportunity
for equity appreciation provided by an investment in our mandatory convertible
preferred stock is less than that provided by a direct investment in our common
shares. Assuming the initial price accurately reflects fair market value, the
market value of our common shares on September 14, 2007 must exceed the
threshold appreciation price of $22.27 before a holder of our mandatory
convertible preferred stock will realize any equity appreciation.
HOLDERS OF OUR MANDATORY CONVERTIBLE PREFERRED STOCK WILL HAVE NO RIGHTS AS
HOLDERS OF COMMON SHARES UNTIL THEY ACQUIRE OUR COMMON SHARES.
Until you acquire common shares upon conversion, you will have no rights
with respect to our common shares, including voting rights (except as described
under "Description of Mandatory Convertible Preferred Stock -- Voting Rights"
and as required by applicable state law), rights to respond to tender offers and
rights to receive any dividends or other distributions on our common shares.
Upon conversion, you will be entitled to exercise the rights of a holder of
common shares only as to matters for which the record date occurs on or after
the conversion date.
OUR MANDATORY CONVERTIBLE PREFERRED STOCK HAS NEVER BEEN PUBLICLY TRADED AND MAY
NEVER BE PUBLICLY TRADED.
Prior to this offering, there has been no public market for our mandatory
convertible preferred stock. Our mandatory convertible preferred stock has been
approved for listing on the New York Stock Exchange, subject to official notice
of issuance, under the symbol "SGP PrM". There can be no assurance, however,
that an active trading market will develop, or if developed, that an active
trading market will be maintained. Also, the underwriters have advised us that
they intend to facilitate secondary market trading by making a market in our
mandatory convertible preferred stock. However, the underwriters are not
obligated to make a market in our mandatory convertible preferred stock and may
discontinue market making activities at any time.
NEW JERSEY LAW MAY RESTRICT US FROM PAYING CASH DIVIDENDS ON OUR MANDATORY
CONVERTIBLE PREFERRED STOCK.
New Jersey law provides that we may pay dividends on the mandatory
convertible preferred stock only to the extent by which our total assets exceed
our total liabilities and so long as we are able to pay our debts as they become
due in the usual course of our business.
OUR MANDATORY CONVERTIBLE PREFERRED STOCK WILL RANK JUNIOR TO ALL OF OUR AND OUR
SUBSIDIARIES' LIABILITIES IN THE EVENT OF A BANKRUPTCY, LIQUIDATION OR WINDING
UP OF OUR ASSETS.
In the event of bankruptcy, liquidation or winding up, our assets will be
available to pay obligations on our mandatory convertible preferred stock only
after all of our liabilities have been
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paid. In addition, our mandatory convertible preferred stock will effectively
rank junior to all existing and future liabilities of our subsidiaries and the
capital stock (other than common shares, with regard to which our claims will be
pari passu with claims of third-party holders of such common shares) of our
subsidiaries held by third parties. The rights of holders of our mandatory
convertible preferred stock to participate in the assets of our subsidiaries
upon any liquidation or reorganization of any subsidiary will rank junior to the
prior claims of that subsidiary's creditors and equity holders. As of June 30,
2004, we had total consolidated liabilities of $7.9 billion. In the event of
bankruptcy, liquidation or winding up, there may not be sufficient assets
remaining, after paying our and our subsidiaries' liabilities, to pay amounts
due on any or all of our mandatory convertible preferred stock then outstanding.
THE MANDATORY CONVERTIBLE PREFERRED STOCK PROVIDES LIMITED SETTLEMENT RATE
ADJUSTMENTS.
The number of common shares that you are entitled to receive on the
mandatory conversion date, or as a result of early conversion of a share of
mandatory convertible preferred stock, is subject to adjustment for certain
events arising from stock splits and combinations, stock dividends, certain cash
dividends and certain other actions by us or a third party that modify our
capital structure. See "Description of Mandatory Convertible Preferred
Stock -- Anti-Dilution Adjustments." We will not adjust the conversion rate for
other events, including offerings of common shares for cash by us or in
connection with acquisitions. There can be no assurance that an event that
adversely affects the value of the mandatory convertible preferred stock, but
does not result in an adjustment to the conversion rate, will not occur.
Further, we are not restricted from issuing additional common shares during the
term of the mandatory convertible preferred stock and have no obligation to
consider your interests for any reason. If we issue additional common shares, it
may materially and adversely affect the price of our common shares and, because
of the relationship of the number of shares to be received on the mandatory
conversion date to the price of the common shares, such other events may
adversely affect the trading price of the mandatory convertible preferred stock.
WE MAY NOT PAY CASH DIVIDENDS ON OUR COMMON SHARES IN THE FUTURE.
In response to the decline in sales and earnings in 2003 as well as the
likelihood of further declines in 2004, we announced on August 21, 2003, a
reduction in our quarterly dividend from 17 cents to 5.5 cents per common share.
Our future dividend policy depends on earnings, financial condition, liquidity,
capital requirements and other factors. There is no guarantee that we will
continue to pay dividends on our common shares at the current levels or at all.
YOU MAY HAVE TO PAY TAXES WITH RESPECT TO DISTRIBUTIONS ON OUR COMMON SHARES
THAT YOU DO NOT RECEIVE.
The number of common shares that you are entitled to receive on the
mandatory conversion date, or as a result of early conversion of the mandatory
convertible preferred stock, is subject to adjustment for certain events arising
from stock splits and combinations, stock dividends, certain cash dividends and
certain other actions by us or a third party that modify our capital structure.
See "Description of Mandatory Convertible Preferred Stock -- Anti-dilution
Adjustments." If the conversion rate is adjusted as a result of a distribution
that is taxable to our common share holders, such as cash dividends for a fiscal
year in the aggregate in excess of $0.22 per share, you generally would be
required to include an amount in income for federal income tax purposes,
notwithstanding the fact that you do not actually receive such distribution. The
amount that you will generally have to include in income would be the fair
market value of the additional common shares to which you would be entitled by
reason of the increase in your proportionate equity interest in us to the extent
of our current and accumulated earnings and profits. In addition, non-U.S.
holders of the mandatory convertible preferred stock may, in certain
circumstances, be deemed to have received a distribution subject to U.S. federal
withholding tax requirements.
S-19
PROVISIONS IN OUR CHARTER DOCUMENTS, OUR SHAREHOLDERS RIGHTS PLAN AND NEW JERSEY
LAW COULD MAKE IT MORE DIFFICULT TO ACQUIRE US.
Our certificate of incorporation, as amended, and bylaws, as amended,
contain provisions that may discourage, delay or prevent a third party from
acquiring us. Our bylaws, as amended, limit who may call special meetings of
shareholders to the chairman of the board of directors, our president or the
board of directors and establish advance notice requirements for proposing
matters that can be acted upon by shareholders at shareholder meetings. Our
certificate of incorporation, as amended, and bylaws, as amended, provide that
the bylaws may be amended or repealed by the board of directors.
Pursuant to our certificate of incorporation, the board of directors may by
resolution establish one or more series of preferred stock, and may determine
the number of shares, voting powers, designations, preferences, rights,
qualifications, limitations and restrictions of such series without any further
shareholder approval. Such voting powers, designations, preferences, rights,
qualifications, limitations and restrictions as may be established could have
the effect of impeding or discouraging the acquisition of control of us.
In addition, Section 14A:10A of the New Jersey Business Corporation Act and
Article Eleventh of our certificate of incorporation may discourage, delay or
prevent a change in control by, among other things, prohibiting us from engaging
in a business combination with an interested shareholder (generally, a 10% or
greater shareholder) for a period of five years after the person becomes an
interested shareholder, unless generally such business combination is approved
by our board of directors prior to the stock acquisition or the affirmative vote
of at least 80% of the voting power of all of our then outstanding shares of
capital stock entitled to vote in the election of directors voting together as a
single class in certain circumstances, in each case as more fully described
under the heading "Description of Capital Stock -- Antitakeover Protections"
beginning on page 17 of the accompanying prospectus.
Our Rights Agreement (the "Rights Agreement"), dated as of June 24, 1997,
between us and The Bank of New York, as Rights Agent (as described in more
detail under the heading "Description of Capital Stock -- Antitakeover
Protections -- Rights Plan" beginning on page 20 of the accompanying prospectus)
also has certain anti-takeover effects. The rights will cause substantial
dilution to a person or group that attempts to acquire us on terms not approved
by our board of directors, except pursuant to an offer conditioned on a
substantial number of rights being acquired. The rights should not interfere
with any merger or other business combination approved by our board of directors
since the rights may be redeemed by us at the redemption price prior to the time
that a person or group has acquired beneficial ownership of 20% or more of the
common shares.
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USE OF PROCEEDS
We estimate that the net proceeds from the sale of the shares of mandatory
convertible preferred stock in this offering will be approximately $1.21
billion, after deducting the underwriting discounts and commissions and
estimated offering expenses payable by us. We intend to use the net proceeds
from the sale of the shares of mandatory convertible preferred stock for general
corporate purposes, which may include, among other things, refinancing of
commercial paper, the funding of operating expenses, capital expenditures,
taxes, business development activities, licensing fees and milestone payments
and the payment of settlement amounts, fines, penalties and other investigatory
and litigation costs and expenses (including with respect to the recently
announced settlement of the Pennsylvania investigation). The commercial paper
indebtedness which may be repaid is of varying maturities of less than one year.
As of June 30, 2004, we had approximately $1.23 billion of commercial paper
outstanding with a weighted average interest rate of 1.36%. We may temporarily
invest funds that are not immediately needed for these general corporate
purposes.
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CAPITALIZATION
The following table presents our consolidated capitalization and cash
position as of June 30, 2004 and as adjusted to give effect to the issuance of
the mandatory convertible preferred stock (assuming no exercise of the
underwriters' option) and the application of the net proceeds from the offering
offered. See "Use of Proceeds."
(UNAUDITED)
---------------------
AT JUNE 30, 2004
---------------------
ACTUAL AS ADJUSTED
------- -----------
(AMOUNTS IN MILLIONS,
EXCEPT FOR SHARES)
Cash and cash equivalents and short-term investments........ $ 4,987 $ 4,987
------- -------
Total debt.................................................. $ 3,715 $ 2,505
------- -------
Shareholders' equity:
Preferred Stock, par value $1.00 per share
Authorized -- 50,000,000 shares...................... -- --
Series A Junior Participating Preferred Stock
Authorized -- 12,000,000 shares
Issued -- None....................................... -- --
6.00% mandatory convertible preferred stock
Authorized -- 28,750,000 shares
Issued -- 25,000,000 shares ($1,250 liquidation
preference)......................................... -- $ 1,250
Common shares, par value $.50 per share
Authorized -- 2,400,000,000 shares
Issued -- 2,029,686,377 shares at June 30, 2004(1)... $ 1,015 1,015
Paid in capital........................................... 1,288 1,248
Retained earnings......................................... 10,618 10,618
Accumulated other comprehensive income.................... (488) (488)
------- -------
12,433 13,643
Less treasury shares -- 557,308,394 shares................ 5,439 5,439
------- -------
Total shareholders equity............................ $ 6,994 $ 8,204
------- -------
Total capitalization................................. $10,709 $10,709
------- -------
---------------
(1) Does not reflect 90,029,074 shares reserved for issuance under stock
incentive plans or pursuant to individual option grants or stock awards. As
adjusted does not reflect 69,600,000 shares that will be reserved for
issuance upon conversion of the mandatory convertible preferred stock.
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PRICE RANGE OF COMMON SHARES AND DIVIDENDS DECLARED
Our common shares, $0.50 par value, are traded on the New York Stock
Exchange under the trading symbol "SGP". The high and low closing sales prices
per share for the periods indicated were as follows, together with the dividends
declared per share for such periods:
DIVIDENDS PER
HIGH LOW COMMON SHARE
------ ------ ---------------
Year Ended December 31, 2001:
First Quarter......................................... $54.25 $34.20 $0.14
Second Quarter........................................ 43.76 35.10 0.16
Third Quarter......................................... 39.85 32.65 0.16
Fourth Quarter........................................ 39.12 34.00 0.16
Year Ended December 31, 2002:
First Quarter......................................... $36.00 $30.94 $0.16
Second Quarter........................................ 30.77 23.30 0.17
Third Quarter......................................... 25.50 20.75 0.17
Fourth Quarter........................................ 23.25 17.30 0.17
Year Ended December 31, 2003:
First Quarter......................................... $23.68 $15.45 $0.17
Second Quarter........................................ 20.47 16.82 0.17
Third Quarter......................................... 19.35 14.95 0.17
Fourth Quarter........................................ 17.39 14.52 0.055
Year Ended December 31, 2004:
First Quarter......................................... $18.97 $15.96 $0.055
Second Quarter........................................ 18.70 16.10 $0.055
Third Quarter (through August 4, 2004)................ 19.98 17.55 $0.055
On August 4, 2004, the closing sale price of our common shares on the New
York Stock Exchange was $17.96 per share. At the close of business on July 30,
2004, there were 42,301 holders of record of our common shares.
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DESCRIPTION OF MANDATORY CONVERTIBLE PREFERRED STOCK
The description in this prospectus supplement of the terms of our mandatory
convertible preferred stock is only a summary. The terms of our mandatory
convertible preferred stock are contained in a certificate of amendment of our
certificate of incorporation, as amended. We have previously filed with the SEC
copies of our certificate of incorporation, as amended. See "Where You Can Find
More Information." The certificate of amendment will be filed as an exhibit to a
Current Report on Form 8-K after the date of this prospectus supplement.
GENERAL
Our certificate of incorporation, as amended, authorizes the issuance of
50,000,000 preferred shares, par value $1.00 per share. As of August 3, 2004,
12,000,000 shares of our Series A Junior Participating Preferred Stock have been
authorized. As of August 3, 2004, no preferred shares were issued and
outstanding. When issued, our mandatory convertible preferred stock will
constitute a new series of our preferred shares. See "Description of Capital
Stock -- Common Shares" and "Description of Capital Stock -- Preferred Shares"
in the accompanying prospectus for a description of our other classes of capital
stock.
Our mandatory convertible preferred stock will constitute a single series
of our preferred shares, consisting of 25,000,000 shares (or 28,750,000 shares
if the underwriters exercise their option to purchase additional shares in full
in accordance with the procedures set forth in "Underwriting"). The holders of
our mandatory convertible preferred stock will have no preemptive rights. All of
the shares of our mandatory convertible preferred stock, when issued and paid
for, will be fully paid and non-assessable.
Our mandatory convertible preferred stock will rank as to payment of
dividends and distributions of assets upon our dissolution, liquidation or
winding up:
- junior to all our existing and future debt obligations;
- junior to any class or series of our capital stock the terms of which
provide that such class or series will rank senior to our mandatory
convertible preferred stock (herein referred to as the "Senior
Securities");
- senior to our common shares, the Series A Junior Participating Preferred
Stock and any other class or series of our capital stock the terms of
which provide that such class or series will rank junior to our mandatory
convertible preferred stock (herein collectively referred to as the
"Junior Securities"); and
- on a parity with any other class or series of our capital stock (herein
referred to as the "Parity Securities");
in each case, whether now outstanding or to be issued in the future.
We will not be entitled to issue any class or series of our capital stock
the terms of which provide that such class or series will rank senior to our
mandatory convertible preferred stock as to payment of dividends or distribution
of assets upon our dissolution, liquidation or winding up without the approval
of the holders of at least two-thirds of the shares of our mandatory convertible
preferred stock then outstanding and any class or series of Parity Securities
then outstanding, voting together as a single class, with each series or class
having a number of votes proportionate to the aggregate liquidation preference
of its outstanding shares. See "-- Voting Rights."
As of the date of this prospectus supplement, we are authorized to issue up
to 2,400,000,000 common shares, $0.50 par value per share. As of June 30, 2004,
1,472,377,983 common shares were issued and outstanding. In addition, as of such
date, 557,308,394 common shares were issued and held in treasury, and 90,029,074
common shares were reserved for issuance under stock incentive plans or pursuant
to individual option grants or stock awards.
S-24
Under New Jersey law, we may declare or pay dividends on our mandatory
convertible preferred stock only to the extent by which our total assets exceed
our total liabilities and so long as we are able to pay our debts as they become
due in the usual course of our business. When the need to make these
determinations arises, our board of directors will determine the amount of our
total assets and total liabilities and our ability to pay our debts in
accordance with New Jersey law.
DIVIDENDS
GENERAL
Dividends on our mandatory convertible preferred stock will be payable
quarterly in cash, when and if declared, on the March 15, June 15, September 15
and December 15 of each year prior to the mandatory conversion date (or the
following business day if such day is not a business day), and on the mandatory
conversion date (each, a "Dividend Payment Date") at the annual rate of $3.00
per share, subject to adjustment for stock splits, combinations,
reclassifications or other similar events involving our mandatory convertible
preferred stock. The initial dividend on our mandatory convertible preferred
stock, for the first dividend period, assuming the issue date is August 10,
2004, will be $1.0417 per share, and will be payable, when and if declared, on
December 15, 2004. Each subsequent quarterly dividend on our mandatory
convertible preferred stock, when and if declared, will be $0.7500 per share,
subject to adjustment for stock splits, combinations, reclassifications or other
similar events involving our mandatory convertible preferred stock.
The amount of dividends payable on each share of our mandatory convertible
preferred stock for each full quarterly period will be computed by dividing the
annual dividend rate by four. The amount of dividends payable for any other
period that is shorter or longer than a full quarterly dividend period will be
computed on the basis of a 360-day year consisting of twelve 30-day months.
A dividend period is the period ending on the day before a Dividend Payment
Date and beginning on the preceding Dividend Payment Date or, if none, the first
date of issuance of shares of our mandatory convertible preferred stock. Except
as provided under "-- Liquidation Rights" below, dividends payable, when and if
declared, on a Dividend Payment Date will be payable to holders as they appear
on our stock register on the later of (i) the close of business on the first
calendar day (or the following business day if such first calendar day is not a
business day) of the calendar month in which the applicable Dividend Payment
Date falls and (ii) the close of business on the day on which our board of
directors, or an authorized committee of our board of directors, declares the
dividend payable. We are only obligated to pay a dividend on our mandatory
convertible preferred stock if our board of directors, or an authorized
committee thereof, declares the dividend payable and we are then legally
permitted to pay the dividend.
Dividends on our mandatory convertible preferred stock shall accrue and
cumulate if we fail to declare one or more dividends on our mandatory
convertible preferred stock in any amount, whether or not we are then legally
permitted to pay such dividends.
We are not obligated to and we will not pay holders of our mandatory
convertible preferred stock any interest or sum of money in lieu of interest on
any dividend not paid on a Dividend Payment Date or any other late payment. We
are also not obligated to and we will not pay holders of our mandatory
convertible preferred stock any dividend in excess of the full dividends on our
mandatory convertible preferred stock that are payable as described above.
If our board of directors, or an authorized committee thereof, does not
declare or pay a dividend in respect of any Dividend Payment Date, our board of
directors or an authorized committee thereof may declare and pay the dividend on
any other date, whether or not a Dividend Payment Date. The persons entitled to
receive the dividend will be holders of our mandatory convertible preferred
stock as they appear on our stock register on a record date selected by the
board of directors or an authorized committee thereof. That date must (i) not
precede the date our board of directors or an authorized committee of our board
of directors declares the dividend payable and (ii) not be more than 60 days
prior to the date the dividend is paid.
S-25
PAYMENT RESTRICTIONS
Unless all accrued, cumulated and unpaid dividends on our mandatory
convertible preferred stock for all past quarterly dividend periods shall have
been paid in full, we will not:
- declare or pay any dividend or make any distribution of assets on any
Junior Securities, other than dividends or distributions in the form of
Junior Securities and cash solely in lieu of fractional shares in
connection with any such dividend or distribution;
- redeem, purchase or otherwise acquire any Junior Securities or pay or
make any monies available for a sinking fund for such Junior Securities,
other than (A) upon conversion or exchange for other Junior Securities,
(B) redemptions or purchases of any Series A Junior Participating
Preferred Stock purchase rights or (C) the purchase of fractional
interests in shares of any Junior Securities pursuant to the conversion
or exchange provisions of such Junior Securities; or
- redeem, purchase or otherwise acquire any Parity Securities, except upon
conversion into or exchange for other Parity Securities or Junior
Securities and cash solely in lieu of fractional shares in connection
with any such conversion or exchange, provided, however, that in the case
of a redemption, purchase or other acquisition of Parity Securities upon
conversion into or exchange for other Parity Securities (A) the aggregate
amount of the liquidation preference of such other Parity Securities does
not exceed the aggregate amount of the liquidation preference, plus
accrued, cumulated and unpaid dividends, of the Parity Securities that
are converted into or exchanged for such other Parity Securities, (B) the
aggregate number of common shares issuable upon conversion, redemption or
exchange of such other Parity Securities does not exceed the aggregate
number of common shares issuable upon conversion, redemption or exchange
of the Parity Securities that are converted into or exchanged for such
other Parity Securities and (C) such other Parity Securities contain
terms and conditions (including, without limitation, with respect to the
payment of dividends, dividend rates, liquidation preferences, voting and
representation rights, payment restrictions, anti-dilution rights, change
of control rights, covenants, remedies and conversion and redemption
rights) that are not materially less favorable, taken as a whole, to us
or the holders of our mandatory convertible preferred stock than those
contained in the Parity Securities that are converted or exchanged for
such other Parity Securities.
REDEMPTION
Our mandatory convertible preferred stock will not be redeemable.
MANDATORY CONVERSION
Each share of our mandatory convertible preferred stock, unless previously
converted, will automatically convert on September 14, 2007, which we call the
mandatory conversion date, into a number of common shares equal to the
conversion rate described below. In addition to the number of common shares
issuable upon conversion of each share of our mandatory convertible preferred
stock on the mandatory conversion date, holders will have the right to receive
an amount in cash equal to all accrued, cumulated and unpaid dividends on our
mandatory convertible preferred stock, whether or not declared prior to that
date, for the then-current dividend period until the mandatory conversion date
and all prior dividend periods (other than previously declared dividends on our
mandatory convertible preferred stock payable to holders of record as of a prior
date), provided that we are legally permitted to pay such dividends at such
time.
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The conversion rate, which is the number of common shares issuable upon
conversion of each share of our mandatory convertible preferred stock on the
applicable conversion date, will, subject to adjustment as described under
"-- Anti-Dilution Adjustments" below, be as follows:
- if the applicable market value (as defined below) of our common shares is
equal to or greater than $22.27, which we call the "threshold
appreciation price," then the conversion rate will be 2.2451 common
shares per share of our mandatory convertible preferred stock (the
"minimum conversion rate"), which is equal to $50.00 divided by $22.27
(the threshold appreciation price);
- if the applicable market value of our common shares is less than $22.27
(the threshold appreciation price) but greater than $17.96, which we call
the "initial price," then the conversion rate will be equal to $50.00
divided by the applicable market value of our common shares; or
- if the applicable market value of our common shares is less than or equal
to $17.96 (the initial price), then the conversion rate will be 2.7840
common shares per share of our mandatory convertible preferred stock (the
"maximum conversion rate"), which is equal to $50.00 divided by $17.96
(the initial price).
We refer to the minimum conversion rate and the maximum conversion rate
collectively as the "fixed conversion rates."
Accordingly, assuming that the market price of our common shares on the
mandatory conversion date is the same as the applicable market value, the
aggregate market value of the shares you receive upon conversion will be:
- greater than the liquidation preference of our mandatory convertible
preferred stock if the applicable market value is greater than the
threshold appreciation price,
- equal to the liquidation preference if the applicable market value is
less than or equal to the threshold appreciation price and greater than
or equal to the initial price, and
- less than the liquidation preference if the applicable market value is
less than the initial price.
"Applicable market value" means the average of the closing prices per share
of our common shares on each of the 20 consecutive trading days ending on the
third trading day immediately preceding the mandatory conversion date. The
"initial price" is the closing price of our common shares on the New York Stock
Exchange on August 4, 2004. The threshold appreciation price represents an
approximately 24% appreciation over the initial price.
The "closing price" of our common shares or any securities distributed in a
spin-off, as the case may be, on any date of determination means the closing
sale price or, if no closing sale price is reported, the last reported sale
price of our common shares or any such securities distributed in a spin-off, as
the case may be, on the New York Stock Exchange on that date. If our common
shares or any such securities distributed in a spin-off, as the case may be, are
not traded on the New York Stock Exchange on any date of determination, the
closing price of our common shares or such securities on any date of
determination means the closing sale price as reported in the composite
transactions for the principal U.S. national or regional securities exchange on
which our common shares or such securities are so listed or quoted, or if our
common shares or such securities are not so listed or quoted on a U.S. national
or regional securities exchange, as reported by the Nasdaq stock market, or, if
no closing price for our common shares or such securities is so reported, the
last quoted bid price for our common shares or such securities in the
over-the-counter market as reported by the National Quotation Bureau or similar
organization, or, if that bid price is not available, the market price of our
common shares or such securities on that date as determined by a nationally
recognized independent investment banking firm retained by us for this purpose.
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A "trading day" is a day on which our common shares:
- are not suspended from trading on any national or regional securities
exchange or association or over-the-counter market at the close of
business; and
- has traded at least once on the national or regional securities exchange
or association or over-the-counter market that is the primary market for
the trading of our common shares.
For purposes of the prospectus supplement, all references herein to the
closing price of our common shares on the New York Stock Exchange shall be such
closing price as reflected on the website of the New York Stock Exchange
(www.nyse.com) and as reported by Bloomberg Professional Service; provided that
in the event that there is a discrepancy between the closing sale price as
reflected on the website of the New York Stock Exchange and as reported by
Bloomberg Professional Service, the closing sale price on the website of the New
York Stock Exchange shall govern.
CONVERSION
Conversion into common shares will occur on the mandatory conversion date,
unless:
- we have caused the conversion of our mandatory convertible preferred
stock prior to the mandatory conversion date in the manner described in
"-- Provisional Conversion at Our Option";
- you have converted your shares of our mandatory convertible preferred
stock prior to the mandatory conversion date, in the manner described in
"-- Conversion at the Option of the Holder"; or
- we are involved in a merger or consolidation prior to the earlier of the
mandatory conversion date and the provisional conversion notice date in
which at least 30% of the consideration for our common shares consists of
cash or cash equivalents, and you have converted your shares of our
mandatory convertible preferred stock through an exercise of the merger
early conversion right in the manner described in "-- Early Conversion
upon Cash Merger."
On the mandatory conversion date certificates representing our common
shares will be issued and delivered to you or your designee upon presentation
and surrender of the certificate evidencing our mandatory convertible preferred
stock, if shares of our mandatory convertible preferred stock are held in
certificated form, and compliance with some additional procedures.
The person or persons entitled to receive the common shares issuable upon
conversion of the mandatory convertible preferred stock will be treated as the
record holder(s) of such shares as of the close of business on the applicable
conversion date. Prior to the close of business on the applicable conversion
date, the common shares issuable upon conversion of our mandatory convertible
preferred stock will not be deemed to be outstanding for any purpose and you
will have no rights with respect to the common shares, including voting rights,
rights to respond to tender offers and rights to receive any dividends or other
distributions on the common shares, by virtue of holding our mandatory
convertible preferred stock.
PROVISIONAL CONVERSION AT OUR OPTION
Prior to the mandatory conversion date, if the closing price per share of
our common shares has exceeded 150% of the threshold appreciation price,
initially $33.41, subject to anti-dilution adjustments, for at least 20 trading
days within a period of 30 consecutive trading days ending on the trading day
prior to the date that we notify you of the optional conversion, we may, at our
option, cause the conversion of all, but not less than all, of the shares of our
mandatory convertible preferred stock then outstanding into our common shares.
Such conversion shall be made at the minimum conversion rate of 2.2451 common
shares for each share of our mandatory convertible preferred stock, subject to
adjustment as described under "-- Anti-Dilution Adjustments" below. We
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will provide a notice of such conversion to each holder of our mandatory
convertible preferred stock by mail and issue a press release and publish such
information on our website on the World Wide Web; provided that the failure to
issue such press release or publish such information on our website will not act
to prevent or delay such conversion. The date specified in such notice for the
optional conversion shall be at least 30 days but no more than 60 days from the
date of such notice. We will be able to cause this conversion only if, in
addition to issuing you the common shares as described above, we are then
legally permitted to, and do, pay you in cash (i) an amount equal to any
accrued, cumulated and unpaid dividends on your shares of our mandatory
convertible preferred stock then outstanding, whether or not declared (other
than previously declared dividends on your shares of our mandatory convertible
preferred stock payable to holders of record as of a prior date), plus (ii) the
present value of all remaining future dividend payments on your shares of our
mandatory convertible preferred stock through and including September 14, 2007.
The present value of the remaining future dividend payments will be computed
using a discount rate equal to the Treasury Yield. "Treasury Yield" means the
yield to maturity at the time of computation of U.S. Treasury securities with a
constant maturity (as compiled and published in the most recent Federal Reserve
Statistical Release H.15 (519) that has become publicly available at least two
business days prior to the date fixed for conversion (or, if such Statistical
Release is no longer published, any publicly available source for similar market
data)) most nearly equal to the then remaining term to September 14, 2007,
provided, however, that if the then remaining term to September 14, 2007 is not
equal to the constant maturity of a U.S. Treasury security for which a weekly
average yield is given, the Treasury Yield shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the weekly
average yields of U.S. Treasury securities for which such yields are given,
except that if the then remaining term to September 14, 2007 is less than one
year, the weekly average yield on actually traded U.S. Treasury securities
adjusted to a constant maturity of one year shall be used.
CONVERSION AT THE OPTION OF THE HOLDER
Holders of our mandatory convertible preferred stock have the right to
convert the mandatory convertible preferred stock, in whole or in part, at any
time prior to the mandatory conversion date, into our common shares at the
minimum conversion rate of 2.2451 common shares per share of our mandatory
convertible preferred stock, subject to adjustment as described under
"-- Anti-Dilution Adjustments" below.
In addition to the number of common shares issuable upon conversion of each
share of our mandatory convertible preferred stock at the option of the holder
on the effective date of any early conversion (herein referred to as the early
conversion date), each converting holder will have the right to receive an
amount in cash equal to all accrued, cumulated and unpaid dividends on such
converted share(s) of mandatory convertible preferred stock, whether or not
declared prior to that date, for the portion of the then-current dividend period
until the early conversion date and all prior dividend periods (other than
previously declared dividends on our mandatory convertible preferred stock
payable to holders of record as of a prior date), provided that we are then
legally permitted to pay such dividends. Except as described above, upon any
optional conversion of our mandatory convertible preferred stock, we will make
no payment or allowance for unpaid dividends on our mandatory convertible
preferred stock.
EARLY CONVERSION UPON CASH MERGER
Prior to the earlier of the mandatory conversion date and the date on which
we provide you with notice of a provisional conversion at our option (so long as
the provisional conversion occurs within the time period described above in
"-- Provisional Conversion at Our Option"), if we are involved in a merger or
consolidation (other than a merger or consolidation in which we are the
continuing corporation and in which our common shares outstanding immediately
prior to the merger or consolidation are not exchanged for cash, securities or
other property) in which at least 30% of the consideration for our common shares
consists of cash or cash equivalents, which we refer to as
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a "cash merger," then on or after the date of the cash merger until the date on
which the merger early conversion right (as defined below) must be exercised,
each holder of our mandatory convertible preferred stock will have the right to
convert our mandatory convertible preferred stock at the conversion rate
determined as set forth under "-- Mandatory Conversion" assuming that the
trading day immediately before the cash merger is the mandatory conversion date.
We refer to this right as the "merger early conversion right." We or the
surviving corporation in the merger or consolidation will provide each holder
with a notice of the completion of a cash merger within five business days
thereof. The notice will specify the conversion date, which shall be not less
than 20 nor more than 35 days after the date of the notice, on which the merger
early conversion will occur and the date by which each holder's merger early
conversion right must be exercised. The notice will set forth, among other
things, the applicable conversion rate and the amount of the cash, securities
and other consideration receivable by the holder upon conversion. To exercise
the merger early conversion right, a holder must deliver to the transfer agent,
on or before the close of business on the date specified in the notice, the
certificate evidencing such holder's shares of our mandatory convertible
preferred stock, if our mandatory convertible preferred stock are held in
certificated form. If a holder exercises the merger early conversion right, we
or the surviving corporation will deliver or cause to be delivered to such
holder on the merger early conversion date the net cash, securities and other
property that such holder would have been entitled to receive if it had
converted its shares of our mandatory convertible preferred stock immediately
before the cash merger at the conversion rate (determined as set forth under
"-- Mandatory Conversion") in effect at such time as described above and that
such holder was not the counterparty to the cash merger or an affiliate of such
other party and did not exercise any rights of election with respect to the kind
or amount of consideration to be received. If a holder does not elect to
exercise the merger early conversion right, such holder's shares of our
mandatory convertible preferred stock will remain outstanding and subject to
conversion on the mandatory conversion date or any applicable optional
conversion date or provisional conversion date.
In addition to the number of common shares issuable upon conversion of each
share of our mandatory convertible preferred stock at the option of the holder
on the effective date of any merger early conversion (herein referred to as the
merger early conversion date), each converting holder will have the right to
receive an amount in cash equal to all accrued, cumulated and unpaid dividends
on such converted share(s) of mandatory convertible preferred stock, whether or
not declared prior to that date, for the portion of the then-current dividend
period until the merger early conversion date and all prior dividend periods
(other than previously declared dividends on our mandatory convertible preferred
stock payable to holders of record as of a prior date), provided that we are
then legally permitted to pay such dividends.
ANTI-DILUTION ADJUSTMENTS
Each fixed conversion rate and the number of common shares to be delivered
upon conversion will be adjusted if:
(1) We pay dividends (and other distributions) on our common shares in
common shares.
(2) We issue to all holders of our common shares rights or warrants
(other than rights or warrants issued pursuant to a dividend reinvestment
plan or share purchase plan or other similar plans) entitling them, for a
period of up to 45 days from the date of issuance of such rights or
warrants, to subscribe for or purchase our common shares at less than the
"current market price," as defined below, of our common shares on the date
fixed for the determination of shareholders entitled to receive such rights
or warrants.
(3) We subdivide, split or combine our common shares.
(4) We distribute to all holders of our common shares evidences of our
indebtedness, shares of capital stock, securities, cash or other assets
(excluding any dividend or distribution
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covered by clauses (1) or (3) above, any rights or warrants referred to in
(2) above, any dividend or distribution paid exclusively in cash, any
consideration payable in connection with a tender or exchange offer made by
us or any of our subsidiaries, and any dividend of shares of capital stock
of any class or series, or similar equity interests, of or relating to a
subsidiary or other business unit in the case of certain spin-off
transactions as described below), in which event each fixed conversion rate
in effect immediately prior to the close of business on the date fixed for
the determination of shareholders entitled to receive such distribution
will be multiplied by a fraction,
- the numerator of which is the current market price per share of our
common shares on the date fixed for determination, and
- the denominator of which is the current market price per share of our
common shares minus the fair market value, as determined by our board of
directors, except as described in the following paragraph, of the portion
of the evidences of indebtedness, shares, securities, cash or other
assets so distributed applicable to one common share.
In the event that we make a distribution to all holders of our common
shares consisting of capital stock of, or similar equity interests in, or
relating to a subsidiary or other business unit of ours (herein referred to
as a "spin-off"), each fixed conversion rate will be adjusted by
multiplying such conversion rate in effect immediately prior to the close
of business on the date fixed for the determination of shareholders
entitled to receive such distribution by a fraction, the numerator of which
is the current market price per share of our common shares as of the
fifteenth trading day after the "ex-date" for such distribution, plus the
fair market value of the portion of those shares of capital stock or
similar equity interests so distributed applicable to one common share as
of the fifteenth trading day after the "ex-date" for such distribution, and
the denominator of which is the current market price per share of our
common shares, in each case as of the fifteenth trading day after the
"ex-date" for such distribution.
(5) We make a distribution consisting exclusively of cash to all
holders of our common shares, excluding (a) any cash dividend on our common
shares to the extent that the aggregate cash dividend per share of our
common shares does not exceed (i) $0.055 in any fiscal quarter in the case
of a quarterly dividend or (ii) $0.22 in the prior twelve months in the
case of an annual dividend (each such number, the "dividend threshold
amount"), (b) any cash that is distributed in a reorganization event (as
described below) or as part of a distribution referred to in clause (4)
above, (c) any dividend or distribution in connection with our liquidation,
dissolution or winding up, and (d) any consideration payable in connection
with a tender or exchange offer made by us or any of our subsidiaries, in
which event, each fixed conversion rate in effect immediately prior to the
close of business on the date fixed for determination of the holders of our
common shares entitled to receive such distribution will be multiplied by a
fraction,
- the numerator of which will be the current market price of our common
shares on the date fixed for such determination; and
- the denominator of which will be the current market price of our common
shares on the date fixed for such determination less the amount per share
of such dividend or distribution.
If an adjustment is required to be made as set forth in this clause as a
result of a distribution (1) that is a quarterly or annual dividend, such
adjustment would be based on the amount by which such dividend exceeds the
applicable dividend threshold amount or (2) that is not a quarterly or
annual dividend, such adjustment would be based on the full amount of such
distribution.
The dividend threshold amount is subject to adjustment on an inversely
proportional basis whenever fixed conversion rates are adjusted, provided
that no adjustment will be made to the dividend threshold amount for any
adjustment made to the fixed conversion rates pursuant to this clause (5)
or clauses (2), (4), (6), (7) or (8).
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(6) We or any of our subsidiaries successfully complete a tender or
exchange offer for our common shares to the extent that the cash and the
value of any other consideration included in the payment per share of our
common shares exceeds the current market price per share of our common
shares on the seventh trading day next succeeding the last date on which
tenders or exchanges may be made pursuant to such tender or exchange offer,
in which event each fixed conversion rate in effect immediately prior to
the opening of business on the eighth trading day after the date of
expiration of the tender or exchange offer will be divided by a fraction:
- the numerator of which shall be equal to (A) the product of (I) the
current market price per share of our common shares on the seventh
trading day after the date of expiration of the tender or exchange offer
multiplied by (II) the number of common shares outstanding (including any
shares validly tendered and not withdrawn) at such time less (B) the
amount of cash plus the fair market value, as determined by our board of
directors, of the aggregate consideration payable for all the common
shares purchased in such tender or exchange offer, and
- the denominator of which will be the product of the number of common
shares outstanding (including any shares validly tendered and not
withdrawn) less the number of all shares validly tendered and not
withdrawn as of the expiration time and the current market price per
common share on the seventh trading day next succeeding the expiration of
the tender or exchange offer.
(7) Someone other than us or one of our subsidiaries makes a payment
in respect of a tender offer or exchange offer in which, as of the
expiration time of the offer, our board of directors is not recommending
rejection of the offer, in which event each fixed conversion rate in effect
immediately prior to the close of business on the date of the expiration
time of the offer will be multiplied by a fraction:
- the numerator of which will be the sum of (x) the fair market value, as
determined by our board of directors, of the aggregate consideration
payable to all holders of our common shares based on the acceptance (up
to any maximum specified in the terms of the tender or exchange offer) of
all shares validly tendered or exchanged and not withdrawn as of the
expiration of the offer and (y) the product of (A) the number of common
shares outstanding less any such purchased shares and (B) the current
market price per common share on the seventh trading day next succeeding
the expiration of the tender or exchange offer, and
- the denominator of which will be the product of the number of common
shares outstanding, including any such purchased shares, and the current
market price per common share on the seventh trading day next succeeding
the expiration of the tender or exchange offer.
The adjustment referred to in this clause (7) will only be made if:
- the tender offer or exchange offer is for an amount that increases the
offeror's ownership of common shares to more than 30% of the total common
shares outstanding; and
- the cash and fair market value of any other consideration included in the
payment per common share exceeds the current market price per common
share on the seventh trading day next succeeding the last date on which
tenders or exchanges may be made pursuant to the tender or exchange
offer.
However, the adjustment referred to in this clause will generally not be
made if, as of the closing of the offer, the offering documents disclose a
plan or an intention to cause us to engage in a consolidation or merger or
a sale of all or substantially all of our assets.
(8) To the extent that we have a rights plan in effect with respect to
our common shares on any conversion date, upon conversion of any shares of
our mandatory convertible preferred stock, you will receive, in addition to
our common shares, the rights under the rights plan,
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unless, prior to such conversion date, the rights have separated from our
common shares, in which case each fixed conversion rate will be adjusted at
the time of separation as if we made a distribution to all holders of our
common shares as described in clause (4) above, subject to readjustment in
the event of the expiration, termination or redemption of such rights.
The "current market price" is the average of the daily closing price per
share of our common shares on each of the five consecutive trading days
preceding the earlier of the day preceding the date in question and the day
before the "ex date" with respect to the issuance or distribution requiring such
computation. For purposes of this paragraph, the term "ex date," when used with
respect to any such issuance or distribution, means the first date on which our
common shares trade without the right to receive such issuance or distribution.
For the purposes of determining the adjustment to the fixed conversion rate for
the purposes of clause (4) in the event of a spin-off, the "current market
price" per share of our common shares means the average of the closing prices
over the first ten trading days commencing on and including the fifth trading
day following the "ex-date" for such distribution.
In the event of (a) any consolidation or merger of us with or into another
person (other than a merger or consolidation in which we are the continuing
corporation and in which the common shares outstanding immediately prior to the
merger or consolidation are not exchanged for cash, securities or other property
of us or another person), (b) any sale, transfer, lease or conveyance to another
person of all or substantially all of our property and assets, (c) any
reclassification of our common shares into securities including securities other
than our common shares, or (d) any statutory exchange of our securities with
another person (other than in connection with a merger or acquisition) (herein
referred to as "reorganization events"), each share of our mandatory convertible
preferred stock outstanding immediately prior to such reorganization event
would, without the consent of the holders of our mandatory convertible preferred
stock, become convertible into the kind of securities, cash and other property
receivable in such reorganization event by a holder of our common shares that
was not the counterparty to the reorganization event or an affiliate of such
other party and did not exercise any rights of election with respect to the kind
or amount of consideration to be received upon such reorganization event on the
mandatory conversion date or upon any subsequent conversion by us or at the
option of the holders (other than a merger early conversion). In such event, on
the applicable conversion date, the applicable conversion rate then in effect
will be applied to determine the amount and value of securities, cash or
property a holder of one common share would have received in such transaction
(without interest thereon and without any right to dividends or distributions
thereon which have a record date prior to the date such shares of our mandatory
convertible preferred stock are actually converted). The applicable conversion
rate shall be (a) the minimum conversion rate, in the case of an early
conversion date or a provisional conversion date, and (b) determined based upon
the definition of the conversion rate in the case of the mandatory conversion
date, in each case, determined using the applicable market value of the
exchanged property. Holders have the right to convert their shares of our
mandatory convertible preferred stock early in the event of certain cash mergers
as described under "-- Early Conversion upon Cash Merger."
In addition, we may make such increases in each fixed conversion rate as we
deem advisable in order to avoid or diminish any income tax to holders of our
common shares resulting from any dividend or distribution of our shares (or
issuance of rights or warrants to acquire our shares) or from any event treated
as such for income tax purposes or for any other reason. We may only make such a
discretionary adjustment if we make the same proportionate adjustment to each
fixed conversion rate.
In the event of a taxable distribution to holders of our common shares that
results in an adjustment of each fixed conversion rate or an increase in each
fixed conversion rate in our discretion, holders of our mandatory convertible
preferred stock may, in certain circumstances, be deemed to have received a
distribution subject to U.S. federal income tax as a dividend. In addition,
non-U.S. holders of our mandatory convertible preferred stock may, in certain
circumstances, be
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deemed to have received a distribution subject to U.S. federal withholding tax
requirements. See "Certain United States Federal Income Tax
Considerations -- U.S. Holders -- Adjustment of Conversion Rate" in this
prospectus supplement.
Adjustments to the conversion rate will be calculated to the nearest
1/10,000th of a share. Prior to September 14, 2007, no adjustment in the
conversion rate will be required unless the adjustment would require an increase
or decrease of at least one percent in the conversion rate. If any adjustment is
not required to be made because it would not change the conversion rate by at
least one percent, then the adjustment will be carried forward and taken into
account in any subsequent adjustment; provided that on September 14, 2007,
adjustments to the conversion rate will be made with respect to any such
adjustment carried forward and which has not been taken into account before such
date.
No adjustment to the conversion rate need be made if holders may
participate in the transaction that would otherwise give rise to an adjustment,
so long as the distributed assets or securities the holders would receive upon
conversion of the mandatory convertible preferred stock, if convertible,
exchangeable, or exercisable, are convertible, exchangeable or exercisable, as
applicable, without any loss of rights or privileges for a period of at least 45
days following conversion of the mandatory convertible preferred stock.
The applicable conversion rate will not be adjusted:
(a) upon the issuance of any common shares pursuant to any present or
future plan providing for the reinvestment of dividends or interest payable
on our securities and the investment of additional optional amounts in
common shares under any plan;
(b) upon the issuance of any common shares or rights or warrants to
purchase those shares pursuant to any present or future employee, director
or consultant benefit plan or program of or assumed by us or any of our
subsidiaries;
(c) upon the issuance of any common shares pursuant to any option,
warrant, right or exercisable, exchangeable or convertible security
outstanding as of the date the mandatory convertible preferred stock were
first issued;
(d) for a change in the par value or no par value of the common
shares; or
(e) for accrued, cumulated and unpaid dividends.
We will be required, as soon as practicable after the conversion rate is
adjusted, to provide or cause to be provided written notice of the adjustment to
the holders of shares of mandatory convertible preferred stock. We will also be
required to deliver a statement setting forth in reasonable detail the method by
which the adjustment to each fixed conversion rate was determined and setting
forth each revised fixed conversion rate.
If an adjustment is made to the fixed conversion rates, an adjustment also
will generally be made to the threshold appreciation price and the initial price
solely for the purposes of determining which clauses of the definition of the
conversion rate will apply on the conversion date.
FRACTIONAL SHARES
No fractional common shares will be issued to holders of our mandatory
convertible preferred stock upon conversion. In lieu of any fractional common
share otherwise issuable in respect of the aggregate number of shares of our
mandatory convertible preferred stock of any holder that are converted, that
holder will be entitled to receive an amount in cash (computed to the nearest
cent) equal to the same fraction of:
- in the case of mandatory conversion, an early conversion at our option or
a merger early conversion, the average of the daily closing price per
common share for each of the five
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consecutive trading days preceding the trading day immediately preceding
the date of conversion; or
- in the case of each early conversion at the option of a holder, the
closing price per common share determined as of the second trading day
immediately preceding the effective date of conversion.
If more than one share of our convertible preferred stock is surrendered
for conversion at one time by or for the same holder, the number of full common
shares issuable upon conversion thereof shall be computed on the basis of the
aggregate number of shares of our mandatory convertible preferred stock so
surrendered.
COMMON SHARE RIGHTS
Reference is made to the "Description of Capital Stock -- Common Shares" in
the accompanying prospectus for a description of the rights of holders of common
shares to be delivered upon conversion of our mandatory convertible preferred
stock.
LIQUIDATION RIGHTS
In the event of our liquidation, dissolution or winding up, subject to the
rights of holders of any shares of our capital stock then outstanding ranking
senior to or pari passu with our mandatory convertible preferred stock in
respect of distributions upon our liquidation, dissolution or winding up, the
holders of our mandatory convertible preferred stock then outstanding will be
entitled to receive, out of our net assets legally available for distribution to
shareholders, before any distribution or payment is made on any shares of our
capital stock ranking junior as to the distribution of assets upon our voluntary
or involuntary liquidation, dissolution or the winding up of our affairs, a
liquidating distribution in the amount of $50.00 per share, subject to
adjustment for stock splits, combinations, reclassifications or other similar
events involving our mandatory convertible preferred stock, plus an amount equal
to the sum of all accrued, cumulated and unpaid dividends, whether or not
declared, for the portion of the then-current dividend period until the payment
date and all prior dividend periods and such holders shall be deemed to be the
holders of record for such dividend periods or portions thereof.
For the purpose of the immediately preceding paragraph, none of the
following will constitute or be deemed to constitute a voluntary or involuntary
liquidation, dissolution or winding up of our affairs:
- the sale, transfer, lease or conveyance of all or substantially all of
our property or business;
- the consolidation or merger of Schering-Plough Corporation with or into
any other person; or
- the consolidation or merger of any other person with or into
Schering-Plough Corporation.
In the event our assets available for distribution to the holders of our
preferred shares, including our mandatory convertible preferred stock, upon any
liquidation, dissolution or winding up, whether voluntary or involuntary, are
insufficient to pay in full all amounts to which such holders are entitled, the
holders of our mandatory convertible preferred stock and the holders of our
securities ranking pari passu with our mandatory convertible preferred stock as
to distribution of assets upon such liquidation, dissolution or winding up,
shall share ratably in any distribution of assets based upon the proportion of
the full respective liquidation preference of such series to the aggregate
liquidation preference for all outstanding shares for each series.
After the payment to the holders of our mandatory convertible preferred
stock of the full preferential amounts provided for above, the holders of our
mandatory convertible preferred stock will have no right or claim to any of our
remaining assets.
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VOTING RIGHTS
The holders of our mandatory convertible preferred stock are not entitled
to any voting rights, except as required by applicable state law, our
certificate of incorporation, as amended, and as described below.
Unless the approval of a greater number of shares of our mandatory
convertible preferred stock is required by law, we will not, without the
approval of the holders of at least two-thirds of the shares of our mandatory
convertible preferred stock then outstanding voting separately as a single
class, amend, alter or repeal any provisions of our certificate of
incorporation, as amended, by way of merger, consolidation, combination,
reclassification or otherwise, so as to affect adversely any right, preference
or voting power of the holders of our mandatory convertible preferred stock,
provided that any amendment of the provisions of the certificate of
incorporation so as to issue, authorize or increase the authorized amount of, or
issue or authorize any obligation or security convertible into or evidencing a
right to purchase, any Parity Securities or Junior Securities shall be deemed
not to affect adversely the right, preference or voting power of the holders of
our mandatory convertible preferred stock. Notwithstanding anything in the
foregoing to the contrary, any amendment, alteration or repeal of any of the
provisions of our certificate of incorporation occurring in connection with any
merger or consolidation of us of the type described in clause (a) of the
definition of reorganization event (as defined above) or any statutory exchange
of our securities with another person (other than in connection with a merger or
acquisition) of the type described in clause (d) of the definition of
reorganization event shall be deemed not to adversely affect the rights,
preferences or voting power of the holders of our mandatory convertible
preferred stock, provided that, subject to a holder's merger early conversion
right, in the event that we do not survive the transaction, the shares of our
mandatory convertible preferred stock will become shares of the successor
person, having in respect of such successor person the same rights, preferences
or voting powers of the holders of our mandatory convertible preferred stock
immediately prior to the consummation of such merger, consolidation, or
statutory exchange and shall be convertible into the kind and amount of net
cash, securities and other property as determined in accordance with the
provisions governing reorganization events as described above, provided further
that following any such merger consolidation or statutory exchange, such
successor person shall succeed to and be substituted for us with respect to, and
may exercise all of our rights and powers under, the mandatory convertible
preferred stock.
In addition, we will not, without the approval of the holders of at least
two-thirds of the shares of our mandatory convertible preferred stock and any
class or series of Parity Securities then outstanding, voting together as a
single class:
- reclassify any of our authorized shares into any shares of any class, or
any obligation or security convertible into or evidencing a right to
purchase such shares, ranking senior to our mandatory convertible
preferred stock as to payment of dividends or distribution of assets upon
our dissolution, liquidation or winding up; or
- issue, authorize or increase the authorized amount of, or issue or
authorize any obligation or security convertible into or evidencing a
right to purchase any stock of any class or series ranking senior to our
mandatory convertible preferred stock as to payment of dividends or
distribution of assets upon our dissolution, liquidation or winding up;
provided that we may issue, authorize or increase the authorized amount
of, or issue or authorize any obligation or security convertible into or
evidencing a right to purchase, any shares of capital stock ranking on a
parity with or junior to our mandatory convertible preferred stock as to
payment of dividends or distribution of assets upon our dissolution,
liquidation or winding up without the vote of the holders of our
mandatory convertible preferred stock.
If and whenever an amount equal to six full quarterly dividends, whether or
not consecutive, payable on any class or series of our preferred shares,
including our mandatory convertible preferred stock, are not paid or otherwise
declared and set aside for payment, the holders of our preferred
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shares, including our mandatory convertible preferred stock, voting separately
as a single class shall be entitled to increase the authorized number of
directors on our board of directors by two and elect such two additional
directors to our board of directors at the next annual meeting or special
meeting of our shareholders. Not later than 40 days after the entitlement arises
our board of directors shall convene a special meeting of the holders of our
preferred shares for the purpose of electing the additional two directors. If
our board of directors fails to convene such meeting within such 40-day period,
then holders of 10% of our outstanding preferred shares, including our mandatory
convertible preferred stock, taken as a single class, may call the meeting. If
all accrued, cumulated and unpaid dividends in default on our preferred shares,
including our mandatory convertible preferred stock, have been paid in full or
declared and set apart for payment, the holders of our mandatory convertible
preferred stock and our other preferred shares will no longer have the right to
vote on directors and the term of office of each director so elected will
terminate at the next annual meeting of shareholders and the authorized number
of our directors will, without further action, be reduced accordingly.
In any case where the holders of our mandatory convertible preferred stock
are entitled to vote as a class, each holder of our mandatory convertible
preferred stock will be entitled to one vote for each share of our mandatory
convertible preferred stock. In any case where the holders of our mandatory
convertible preferred stock are entitled to vote as a class with holders of
Parity Securities or other classes or series of preferred shares, each class or
series shall have a number of votes proportionate to the aggregate liquidation
preference of its outstanding shares.
In addition to the requirements set forth above, under New Jersey law,
holders of our mandatory convertible preferred stock generally have the right to
vote as a class upon any proposed amendment to our certificate of incorporation
that would adversely affect or subordinate their rights or preferences as
holders of the mandatory convertible preferred stock. Such an amendment
generally would require the affirmative vote of a majority of the votes cast by
the holders of the shares of capital stock entitled to vote thereon, and, if any
class or series of capital stock is entitled to vote thereon as a class, the
affirmative vote of a majority of the votes cast in each class vote.
MISCELLANEOUS
We will at all times reserve and keep available out of our authorized and
unissued common shares or shares held in the treasury by us, solely for issuance
upon the conversion of our mandatory convertible preferred stock, that number of
common shares as shall from time to time be issuable upon the conversion of all
our mandatory convertible preferred stock then outstanding. Any shares of our
mandatory convertible preferred stock converted into our common shares or
otherwise reacquired by us shall resume the status of authorized and unissued
preferred shares, undesignated as to series, and shall be available for
subsequent issuance.
TRANSFER AGENT, REGISTRAR AND PAYING AGENT
The Bank of New York will act as transfer agent, registrar, and paying
agent for the payment of dividends for our mandatory convertible preferred
stock.
TITLE
We, the transfer agent, registrar and paying agent may treat the registered
holder of our mandatory convertible preferred stock as the absolute owner of our
mandatory convertible preferred stock for the purpose of making payment and
settling the related conversions and for all other purposes.
BOOK-ENTRY, DELIVERY AND FORM
The Depository Trust Company, or DTC, will act as securities depositary for
our mandatory convertible preferred stock. Our mandatory convertible preferred
stock will be issued only as fully
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registered securities registered in the name of Cede & Co., the depositary's
nominee. One or more fully registered global security certificates, representing
the total aggregate number of shares of our mandatory convertible preferred
stock, will be issued and deposited with or on behalf of the depositary and will
bear a legend regarding the restrictions on exchanges and registration of
transfer referred to below.
The laws of some jurisdictions require that some purchasers of securities
take physical delivery of securities in definitive form. Those laws may impair
the ability to transfer beneficial interests in our mandatory convertible
preferred stock so long as our mandatory convertible preferred stock is
represented by global security certificates.
The depositary is a limited-purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934.
The depositary holds securities that its participants deposit with the
depositary. The depositary also facilitates the settlement among participants of
securities transactions, including transfers and pledges, in deposited
securities through electronic computerized book-entry changes in participants'
accounts, thus eliminating the need for physical movement of securities
certificates. Direct participants include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations. The
depositary is owned by a number of its direct participants and by the New York
Stock Exchange, the American Stock Exchange, Inc. and the National Association
of Securities Dealers, Inc., collectively referred to as participants. Access to
the depositary system is also available to others, including securities brokers
and dealers, bank and trust companies that clear transactions through or
maintain a direct or indirect custodial relationship with a direct participant,
collectively referred to as indirect participants. The rules applicable to the
depositary and its participants are on file with the SEC.
Except as otherwise required by applicable law, no shares of our mandatory
convertible preferred stock represented by global security certificates may be
exchanged in whole or in part for our mandatory convertible preferred stock
registered, and no transfer of global security certificates will be made in
whole or in part for our mandatory convertible preferred stock registered, and
no transfer of global security certificates in whole or in part may be
registered, in the name of any person other than the depositary or any nominee
of the depositary, unless (i) the depositary has notified us that it is
unwilling or unable to continue as depositary for the global security
certificates and we do not appoint a qualified replacement within 90 days, (ii)
the depositary has ceased to be qualified to act as such and we do not appoint a
qualified replacement within 90 days, or (iii) we decide to discontinue the use
of book-entry transfer through the depositary (or any successor depositary). All
of our mandatory convertible preferred stock represented by one or more global
security certificates or any portion of them will be registered in those names
as the depositary may direct.
As long as the depositary or its nominee is the registered owner of the
global security certificates, the depositary or that nominee will be considered
the sole owner and holder of the global security certificates and all of our
mandatory convertible preferred stock represented by those certificates for all
purposes under our mandatory convertible preferred stock. Notwithstanding the
foregoing, nothing herein shall prevent us, the registrar or any agent of ours
or the registrar from giving effect to any written certification, proxy or other
authorization furnished by the depositary or impair, as between the depositary
and its members or participants, the operation of customary practices of the
depositary governing the exercise of the rights of a holder of a beneficial
interest in any global security certificates. The depositary or any nominee of
the depositary may grant proxies or otherwise authorize any person to take any
action that the depositary or such nominee is entitled to take pursuant to our
mandatory convertible preferred stock, the certificate of amendment of our
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certificate of incorporation, which contains the terms of our mandatory
convertible preferred stock, or our certificate of incorporation, as amended.
Except in the limited circumstances referred to above or as otherwise
required by applicable law, owners of beneficial interests in global security
certificates will not be entitled to have the global security certificates or
our mandatory convertible preferred stock represented by those certificates
registered in their names, will not receive or be entitled to receive physical
delivery of our mandatory convertible preferred stock certificates in exchange
and will not be considered to be owners or holders of the global security
certificates or any of our mandatory convertible preferred stock represented by
those certificates for any purpose under our mandatory convertible preferred
stock. All payments on our mandatory convertible preferred stock represented by
the global security certificates and all related transfers and deliveries of
common shares will be made to the depositary or its nominee as their holder.
Ownership of beneficial interests in the global security certificates will
be limited to participants or persons that may hold beneficial interests through
institutions that have accounts with the depositary or its nominee. Ownership of
beneficial interests in global security certificates will be shown only on, and
the transfer of those ownership interests will be effected only through, records
maintained by the depositary or its nominee with respect to participants'
interests or by the participant with respect to interests of persons held by the
participants on their behalf.
Procedures for conversion on the conversion date or upon early conversion
will be governed by arrangements among the depositary, participants and persons
that may hold beneficial interests through participants designed to permit the
settlement without the physical movement of certificates. Payments, transfers,
deliveries, exchanges and other matters relating to beneficial interests in
global security certificates may be subject to various policies and procedures
adopted by the depositary from time to time.
Neither we nor any of our agents will have any responsibility or liability
for any aspect of the depositary's or any participant's records relating to, or
for payments made on account of, beneficial interests in global security
certificates, or for maintaining, supervising or reviewing any of the
depositary's records or any participant's records relating to those beneficial
ownership interests.
The information in this section concerning the depositary and its
book-entry system has been obtained from sources that we believe to be reliable,
but we do not take responsibility for its accuracy.
REPLACEMENT OF MANDATORY CONVERTIBLE PREFERRED STOCK CERTIFICATES
If physical certificates are issued, we will replace any mutilated
certificate at your expense upon surrender of that certificate to the transfer
agent. We will replace certificates that become destroyed, stolen or lost at
your expense upon delivery to us and the transfer agent of satisfactory evidence
that the certificate has been destroyed, stolen or lost, together with any
indemnity that may be required by the transfer agent and us.
However, we are not required to issue any certificates representing our
mandatory convertible preferred stock on or after the applicable conversion
date. In place of the delivery of a replacement certificate following the
applicable conversion date, the transfer agent, upon delivery of the evidence
and indemnity described above, will deliver the common shares pursuant to the
terms of our mandatory convertible preferred stock formerly evidenced by the
certificate.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain U.S. federal income tax consequences
relevant to the purchase, ownership, and disposition of our mandatory
convertible preferred stock and common shares received in respect thereof. The
following summary is based upon current provisions of the Internal Revenue Code
of 1986, as amended (the "Code"), Treasury Regulations and judicial and
administrative authority, all of which are subject to change, possibly with
retroactive effect. State, local and foreign tax consequences are not
summarized, nor are tax consequences to special classes of investors including,
but not limited to, tax-exempt organizations, insurance companies, banks or
other financial institutions, partnerships or other entities classified as
partnerships for U.S. federal income tax purposes, dealers in securities,
persons liable for the alternative minimum tax, traders in securities that elect
to use a mark-to-market method of accounting for their securities holdings, and
persons that will hold our mandatory convertible preferred stock or common
shares as a position in a hedging transaction, "straddle," "conversion
transaction" or other risk reduction transaction. Tax consequences may vary
depending upon the particular status of an investor. The summary is limited to
taxpayers who will hold our mandatory convertible preferred stock and our common
shares received in respect thereof as "capital assets" (generally, held for
investment) and who purchase the mandatory convertible preferred stock in the
initial offering at the initial offering price. Each potential investor should
consult with its own tax adviser as to the federal, state, local, foreign and
any other tax consequences of the purchase, ownership, conversion, and
disposition of our mandatory convertible preferred stock and common shares.
U.S. HOLDERS
The discussion in this section is addressed to a holder of our mandatory
convertible preferred stock and common shares received in respect thereof that
is a U.S. holder for federal income tax purposes. You are a U.S. holder for
United States federal income tax purposes if you are (i) a citizen or resident
of the United States, (ii) a corporation created or organized in the United
States or under the laws of the United States or of any State (including the
District of Columbia), (iii) an estate whose income is subject to United States
federal income tax regardless of its source or (iv) a trust if (x) a United
States court can exercise primary supervision over the trust's administration
and one or more United States persons are authorized to control all substantial
decisions of the trust or (y) the trust has validly elected to be treated as a
U.S. domestic trust.
DIVIDENDS
Distributions with respect to our mandatory convertible preferred stock and
our common shares (other than certain stock distributions) will be taxable as
dividend income when paid to the extent of our current and accumulated earnings
and profits as determined for U.S. federal income tax purposes. To the extent
that the amount of a distribution with respect to our mandatory convertible
preferred stock or common shares exceeds our current and accumulated earnings
and profits, such distribution will be treated first as a tax-free return of
capital to the extent of the U.S. holder's adjusted tax basis in such mandatory
convertible preferred stock or common shares, as the case may be, and thereafter
as capital gain (and such distribution will not be eligible for the dividends
received deduction).
Investors should be aware that although we believe that the mandatory
convertible preferred stock should not constitute "disqualified preferred stock"
within the meaning of Section 1059(f) of the Code, the matter is not free from
doubt. If the mandatory convertible preferred stock were to be characterized as
"disqualified preferred stock," then dividends paid in respect of the stock
would constitute "extraordinary dividends" with the result that: (i) U.S.
holders that are corporations would be required to (x) reduce their stock basis
in our mandatory convertible preferred stock (but not below zero) by the portion
of any dividends received by them in respect of our mandatory convertible
preferred stock that are not taxed because of the dividends received deduction
and (y) treat the non-taxed portion of such dividends as gain from the sale or
exchange of our mandatory convertible
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preferred stock for the taxable year in which such dividend is received (to the
extent that the non-taxed portion of such dividend exceeds such U.S. holder's
basis), and (ii) U.S. holders that are individuals would be required to treat
any losses on the sale of mandatory convertible preferred stock as long-term
capital losses to the extent of dividends received by them in respect of our
mandatory convertible preferred stock that qualify for the reduced 15% tax rate
(see below). Similarly, if a dividend were to be paid in respect of our
mandatory convertible preferred stock that is in excess of 5% of a U.S. holder's
adjusted tax basis in the mandatory convertible preferred stock (as could occur
if accumulated and unpaid dividends were allowed to accumulate to a sufficiently
large amount), such a dividend would also constitute an "extraordinary dividend"
with the results described in clauses (i) and (ii) above.
Subject to certain exceptions for short-term and hedged positions,
distributions constituting dividend income received by an individual in respect
of our mandatory convertible preferred stock and common shares before January 1,
2009 are subject to taxation at a maximum rate of 15%. Similarly, subject to
similar exceptions for short-term and hedged positions, distributions on our
mandatory convertible preferred stock and common shares constituting dividend
income paid to holders that are U.S. corporations will qualify for the dividends
received deduction. A U.S. holder should consult its own tax advisers regarding
the availability of the reduced dividend tax rate and the dividends received
deduction in the light of its particular circumstances.
DISPOSITIONS
A U.S. holder will generally recognize capital gain or loss on a sale or
exchange of our mandatory convertible preferred stock or our common shares equal
to the difference between the amount realized upon the sale or exchange and the
holder's adjusted tax basis in the shares sold or exchanged. Such capital gain
or loss will be long-term capital gain or loss if the holder's holding period
for the shares sold or exchanged is more than one year. Long-term capital gains
of noncorporate taxpayers are generally taxed at a lower maximum marginal tax
rate than the maximum marginal tax rate applicable to ordinary income. The
deductibility of net capital losses by individuals and corporations is subject
to limitations.
CONVERSION INTO COMMON SHARES
As a general rule, a U.S. holder will not recognize any gain or loss in
respect of the receipt of common shares upon the conversion of our mandatory
convertible preferred stock. The adjusted tax basis of common shares received on
conversion will equal the adjusted tax basis of the mandatory convertible
preferred stock converted (reduced by the portion of adjusted tax basis
allocated to any fractional common shares exchanged for cash and subject to
downward adjustment, if any, described below), and the holding period of such
common shares received on conversion will generally include the period during
which the converted mandatory convertible preferred stock was held prior to
conversion.
Cash received in lieu of a fractional common share will generally be
treated as a payment in a taxable exchange for such fractional common share, and
gain or loss will be recognized on the receipt of cash in an amount equal to the
difference between the amount of cash received and the amount of adjusted tax
basis allocable to the fractional common share.
In the event we exercise our option to cause an early conversion of the
mandatory convertible preferred stock, and, in respect of such conversion, pay a
U.S. holder cash in an amount equal to the net present value of future dividends
(see "Description of Mandatory Convertible Preferred Stock -- Provisional
Conversion at Our Option"), such cash should be taxable (to the extent of gain
realized by the U.S. holder) either as a dividend, in the event we have
sufficient accumulated earnings and profits at the time of such conversion, or
otherwise as capital gain. For this purpose, a U.S. holder realizes gain on the
conversion equal to the excess, if any, of the sum of the fair market value of
our common shares and the cash received upon early conversion over the U.S.
holder's
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adjusted tax basis in our mandatory convertible preferred stock immediately
prior to conversion. To the extent the amount of cash that the U.S. holder
receives exceeds the gain realized, the excess amount will not be taxable to
such U.S. holder but will reduce its adjusted tax basis in our common shares. A
U.S. holder will not be permitted to recognize any loss realized by it upon
conversion of mandatory convertible preferred stock into common shares.
U.S. holders should be aware that the tax treatment described above in
respect of the payments made in respect of future dividends is not entirely
certain and may be challenged by the Internal Revenue Service (IRS) on grounds
that the cash received attributable to future dividends represents a taxable
dividend to the extent we have earnings and profits at the time of conversion
because there has not been a meaningful reduction in the U.S. holder's equity
interest in us. Under this characterization, the U.S. holder would be taxable on
cash received on account of future dividends even if it realized a loss on its
early conversion of our mandatory convertible preferred stock into our common
shares.
ADJUSTMENT OF CONVERSION RATE
The conversion rate of the mandatory convertible preferred stock is subject
to adjustment under certain circumstances. Treasury Regulations promulgated
under Section 305 of the Code would treat a U.S. holder of our mandatory
convertible preferred stock as having received a constructive distribution
includable in such U.S. holder's income in the manner described under
"Dividends," above, if and to the extent that certain adjustments in the
conversion rate increase the proportionate interest of a U.S. holder in our
earnings and profits. For example, an increase in the conversion ratio to
reflect a taxable dividend to holders of common shares will generally give rise
to a deemed taxable dividend to the holders of mandatory convertible preferred
stock to the extent of our current and accumulated earnings and profits, which
may constitute (and cause other dividends to constitute) "extraordinary
dividends" as described above. Thus, under certain circumstances, U.S. holders
may recognize income in the event of a constructive distribution even though
they may not receive any cash or property. Adjustments to the conversion rate
made pursuant to a bona fide reasonable adjustment formula which has the effect
of preventing dilution in the interest of the U.S. holders of the mandatory
convertible preferred stock, however, will generally not be considered to result
in a constructive dividend distribution.
INFORMATION REPORTING AND BACKUP WITHHOLDING ON U.S. HOLDERS
Certain U.S. holders may be subject to backup withholding with respect to
the payment of dividends on our mandatory convertible preferred stock or common
shares and to certain payments of proceeds on the sale or redemption of our
mandatory convertible preferred stock unless such U.S. holders provide proof of
an applicable exemption or a correct taxpayer identification number, and
otherwise comply with applicable requirements of the backup withholding rules.
Any amount withheld under the backup withholding rules from a payment to a
holder is allowable as a credit against such holder's U.S. federal income tax,
which may entitle the holder to a refund, provided that the holder provides the
required information to the IRS. Moreover, certain penalties may be imposed by
the IRS on a holder who is required to furnish information but does not do so in
the proper manner. Holders are urged to consult their own tax advisors regarding
the application of backup withholding in their particular circumstances and the
availability of and procedure for obtaining an exemption from backup withholding
under current Treasury Regulations.
NON-U.S. HOLDERS
The discussion in this section is addressed to holders of our mandatory
convertible preferred stock and common shares received in respect thereof that
are non-U.S. holders. You are a non-U.S. holder if you are not a U.S. holder.
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DIVIDENDS
Generally, dividends (including any constructive distributions taxable as
dividends and any cash paid upon an early conversion that is treated as a
dividend) paid to a non-U.S. holder with respect to our mandatory convertible
preferred stock or our common shares will be subject to a 30% U.S. withholding
tax, or such lower rate as may be specified by an applicable tax treaty, unless
the dividends are (i) effectively connected with a trade or business carried on
by the non-U.S. holder within the United States (and the non-U.S. holder
provides the payor with a Form W-8ECI) and (ii) if a tax treaty applies,
attributable to a U.S. permanent establishment or, in the case of an individual,
a fixed base maintained by the non-U.S. holder. Dividends effectively connected
with such trade or business, and, if a treaty applies, attributable to such
permanent establishment, will generally be subject to U.S. federal income tax on
a net basis at applicable individual or corporate rates. A non-U.S. holder that
is a corporation may be subject to a "branch profits tax" at a 30% rate (or such
lower rate as may be specified by an applicable income tax treaty) on the deemed
repatriation from the United States of its "effectively connected earnings and
profits," subject to certain adjustments. Under applicable Treasury Regulations,
a non-U.S. holder (including, in certain cases of non-U.S. holders that are
entities, the owner or owners of such entities) will be required to satisfy
certain certification requirements in order to claim a reduced rate of
withholding pursuant to an applicable income tax treaty.
DISPOSITIONS
A non-U.S. holder generally will not be subject to U.S. federal income or
withholding tax on gain realized on the sale, exchange or redemption of our
mandatory convertible preferred stock or our common shares (including the deemed
exchange that gives rise to a payment of cash in lieu of a fractional common
share) so long as:
- the gain is not effectively connected with a U.S. trade or business of
the holder (and, if a tax treaty applies, the gain is not attributable to
a U.S. permanent establishment or, in the case of an individual, a fixed
base maintained by such non-U.S. holder); and
- in the case of a nonresident alien individual, such holder is not present
in the United States for 183 or more days in the taxable year of the sale
or disposition and certain other conditions are met.
CONVERSION INTO COMMON SHARES
As a general rule, a non-U.S. holder will not recognize any gain or loss in
respect of the receipt of common shares upon the conversion of our mandatory
convertible preferred stock.
INFORMATION REPORTING AND BACKUP WITHHOLDING ON NON-U.S. HOLDERS
Payment of dividends (including constructive dividends), and the tax
withheld with respect thereto, is subject to information reporting requirements.
These information reporting requirements apply regardless of whether withholding
was reduced or eliminated by an applicable income tax treaty or withholding was
not required because the dividends were effectively connected with a trade or
business in the United States conducted by the non-U.S. holder. Copies of the
information returns reporting such dividends and withholding may also be made
available under the provisions of an applicable income tax treaty or agreement
to the tax authorities in the country in which the non-U.S. holder resides. U.S.
backup withholding will generally apply on payment of dividends to non-U.S.
holders unless such non-U.S. holders furnish to the payor a Form W-8BEN (or
other applicable form), or otherwise establish an exemption.
Payment by a U.S. office of a broker of the proceeds of a sale of our
mandatory convertible preferred stock or common shares is subject to both backup
withholding and information reporting unless the non-U.S. holder, or beneficial
owner thereof, as applicable, certifies that it is a non-
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U.S. holder on Form W-8BEN, or otherwise establishes an exemption. Subject to
exceptions, backup withholding and information reporting generally will not
apply to a payment of proceeds from the sale of our mandatory convertible
preferred stock or common shares if such sale is effected through a foreign
office of a broker.
Any amount withheld under the backup withholding rules from a payment to a
holder is allowable as a credit against such holder's U.S. federal income tax,
which may entitle the holder to a refund, provided that the holder provides the
required information to the IRS. Moreover, certain penalties may be imposed by
the IRS on a holder who is required to furnish information but does not do so in
the proper manner. Holders are urged to consult their own tax advisors regarding
the application of backup withholding in their particular circumstances and the
availability of and procedure for obtaining an exemption from backup withholding
under current Treasury Regulations.
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UNDERWRITING
We and Goldman, Sachs & Co., Banc of America Securities LLC and Citigroup
Global Markets Inc., as representatives of the underwriters for the offering
named below, have entered into an underwriting agreement with respect to the
mandatory convertible preferred stock being offered. Subject to certain
conditions, each underwriter has severally agreed to purchase the number of
shares of mandatory convertible preferred stock indicated in the following
table.
Underwriters Number of Shares
------------ ----------------
Goldman, Sachs & Co. ....................................... 6,000,000
Banc of America Securities LLC.............................. 6,000,000
Citigroup Global Markets Inc. .............................. 6,000,000
Credit Suisse First Boston LLC.............................. 3,000,000
Morgan Stanley & Co. Incorporated........................... 3,000,000
BNP Paribas Securities Corp. ............................... 267,500
BNY Capital Markets, Inc. .................................. 200,000
ING Financial Markets LLC................................... 200,000
Mellon Financial Markets, LLC............................... 200,000
The Williams Capital Group, L.P. ........................... 132,500
----------
Total....................................................... 25,000,000
==========
The underwriters are committed to take and pay for all of the shares being
offered, if any are taken, other than the shares covered by the option described
below unless and until this option is exercised.
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional
3,750,000 shares of mandatory convertible preferred stock from us to cover such
sales. They may exercise that option for 30 days. If any shares are purchased
pursuant to this option, the underwriters will severally purchase shares in
approximately the same proportion as set forth in the table above.
The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters by us. Such amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase 3,750,000 additional shares.
Paid by the Company
No Exercise Full Exercise
----------- -------------
Per Share................................................... $ 1.50 $ 1.50
Total....................................................... $37,500,000 $43,125,000
Shares sold by the underwriters to the public will initially be offered at
the initial price to public set forth on the cover of this prospectus
supplement. Any shares sold by the underwriters to securities dealers may be
sold at a discount of up to $0.90 per share from the initial price to public. If
all the shares are not sold at the initial price to public, the representatives
may change the offering price and the other selling terms.
Subject to some exceptions, including with respect to issuances or sales in
connection with employee or director stock incentive or option plans, we have
agreed with the underwriters, for a period of 90 days from the date of this
prospectus supplement, not to offer, sell, contract to sell, pledge, grant any
option to purchase, make any short sale or otherwise dispose of, any of our
common shares, or any options or warrants to purchase any of our common shares,
or any of our securities that are substantially similar to our common shares,
including, but not limited to, any securities that are convertible into or
exchangeable for, or that represent the right to receive, our
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common shares or any substantially similar securities, without the prior written
consent of Goldman, Sachs & Co., Banc of America Securities LLC and Citigroup
Global Markets Inc.
In addition, subject to some exceptions, certain of our executive officers
and directors have agreed with the underwriters, for a period of 90 days from
the date of this prospectus supplement, not to (i) offer, sell, contract to
sell, pledge, grant any option to purchase, make any short sale or otherwise
dispose of any of our common shares, or any options or warrants to purchase any
common shares, or any securities convertible into, exchangeable for or that
represent the right to receive common shares, in each case, whether now
beneficially owned or hereinafter acquired by the executive officer or director
or (ii) enter into any hedging or other transaction which is designed to or
which reasonably could be expected to lead to or result in a sale or disposition
of the shares of mandatory convertible preferred stock even if such shares would
be disposed of by someone other than the executive officer or director, in each
case, without the prior written consent of Goldman, Sachs & Co., Banc of America
Securities LLC and Citigroup Global Markets Inc.
In connection with the offering, the underwriters may purchase and sell
shares in the open market. These transactions may include short sales,
stabilizing transactions and purchases to cover positions created by short
sales. Short sales involve the sale by the underwriters of a greater number of
shares than they are required to purchase in the offering. "Covered" short sales
are sales made in an amount not greater than the underwriters' option to
purchase additional shares in the offering. The underwriters may close out any
covered short position by either exercising their option to purchase additional
shares or purchasing shares in the open market. In determining the source of
mandatory convertible preferred stock to close out the covered short position,
the underwriters will consider, among other things, the price of shares
available for purchase in the open market as compared to the price at which they
may purchase shares through the option to purchase additional shares of
mandatory convertible preferred stock. "Naked" short sales are any sales in
excess of such option. The underwriters must close out any naked short position
by purchasing mandatory convertible preferred stock in the open market. A naked
short position is more likely to be created if the underwriters are concerned
that there may be downward pressure on the price of the shares in the open
market after pricing that could adversely affect investors who purchase in the
offering. Stabilizing transactions consist of various bids for or purchases of
mandatory convertible preferred stock made by the underwriters in the open
market prior to the completion of the offering.
The underwriters may also impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such underwriter in stabilizing or short covering
transactions.
Purchases to cover a short position and stabilizing transactions may have
the effect of preventing or retarding a decline in the market price of mandatory
convertible preferred stock, and together with the imposition of the penalty
bid, may stabilize, maintain or otherwise affect the market price of the
mandatory convertible preferred stock. As a result, the price of the mandatory
convertible preferred stock may be higher than the price that otherwise might
exist in the open market. If these activities are commenced, they may be
discontinued at any time. These transactions may be effected on the New York
Stock Exchange, in the over-the-counter market or otherwise.
Each underwriter has represented, warranted and agreed that: (i) it has not
offered or sold and, prior to the expiry of a period of six months from the
closing date, will not offer or sell any shares to persons in the United Kingdom
except to persons whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments (as principal or agent) for the purposes of
their businesses or otherwise in circumstances which have not resulted and will
not result in an offer to the public in the United Kingdom within the meaning of
the Public Offers of Securities Regulations 1995; (ii) it has only communicated
or caused to be communicated and will only communicate or cause to be
communicated any invitation or inducement to engage in investment activity
(within the meaning of section 21 of the Financial Services and Markets Act 2000
("FSMA"))
S-46
received by it in connection with the issue or sale of any shares in
circumstances in which section 21(1) of the FSMA does not apply to the company;
and (iii) it has complied and will comply with all applicable provisions of the
FSMA will respect to anything done by it in relation to the shares in, from or
otherwise involving the United Kingdom.
The shares may not be offered or sold, transferred or delivered, as part of
their initial distribution or at any time thereafter, directly or indirectly, to
any individual or legal entity in the Netherlands other than to individuals or
legal entities who or which trade or invest in securities in the conduct of
their profession or trade, which includes banks, securities intermediaries,
insurance companies, pension funds, other institutional investors and commercial
enterprises which, as an ancillary activity, regularly trade or invest in
securities.
The shares may not be offered or sold by means of any document other than
to persons whose ordinary business it is to buy or sell shares or debentures,
whether as principal or agent, or under circumstances which do not constitute an
offer to the public within the meaning of the Companies Ordinance (Cap. 32) of
Hong Kong, and no advertisement, invitation or document relating to the shares
may be issued, whether in Hong Kong or elsewhere, which is directed at, or the
contents of which are likely to be accessed or read by, the public in Hong Kong
(except if permitted to do so under the securities laws of Hong Kong) other than
with respect to shares which are or are intended to be disposed of only to
persons outside Hong Kong or only to "professional investors" within the meaning
of the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules
made thereunder.
This prospectus supplement and the accompanying prospectus have not been
registered as prospectuses with the Monetary Authority of Singapore.
Accordingly, this prospectus supplement, the accompanying prospectus and any
other document or material in connection with the offer or sale, or invitation
or subscription or purchase, of the shares may not be circulated or distributed,
nor may the shares be offered or sold, or be made the subject of an invitation
for subscription or purchase, whether directly or indirectly, to persons in
Singapore other than under circumstances in which such offer, sale or invitation
does not constitute an offer or sale, or invitation for subscription or
purchase, of the shares to the public in Singapore.
Each underwriter has acknowledged and agreed that the shares have not been
registered under the Securities and Exchange Law of Japan and are not being
offered or sold and may not be offered or sold, directly or indirectly, in Japan
or to or for the account of any resident of Japan, except (i) pursuant to an
exemption from the registration requirements of the Securities and Exchange Law
of Japan and (ii) in compliance with any other applicable requirements of
Japanese law.
This prospectus supplement and the accompanying prospectus in electronic
format may be made available on a website maintained by one or more of the
representatives of the underwriters and may also be made available on a website
maintained by the other underwriters. The underwriters may agree to allocate a
number of shares to underwriters for sale to their online brokerage account
holders. Internet distributions will be allocated by the representatives of the
underwriters to underwriters that may make Internet distributions on the same
basis as other allocations.
We estimate that our share of the total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately $2,000,000.
We have agreed to indemnify the several underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
Goldman, Sachs & Co. and Morgan Stanley & Co. Incorporated are currently
acting as our financial advisors, for which they are paid usual and customary
fees. Goldman, Sachs & Co., Banc of America Securities LLC, Citigroup Global
Markets Inc., Credit Suisse First Boston LLC, Morgan Stanley & Co. Incorporated,
BNP Paribas Securities Corp., BNY Capital Markets, Inc., ING Financial
S-47
Markets LLC, Mellon Financial Markets, LLC and certain of their affiliates are
lenders under, and receive customary fees and expenses in connection with,
certain of our credit facilities, including the $1,250,000,000 credit agreement
we entered into on May 19, 2004.
In addition, the underwriters and their affiliates have, from time to time,
performed, and may in the future perform, various financial advisory, commercial
banking or investment banking services for us, our subsidiaries or our
affiliates for which they received or will receive customary fees and expenses.
S-48
LEGAL MATTERS
Lowenstein Sandler PC, Roseland, New Jersey, and Joseph J. LaRosa, Esq.,
our Vice President, Legal Affairs, are passing upon the validity of the issuance
of the mandatory convertible preferred stock in this offering. As of August 3,
2004, Mr. LaRosa owned, directly and indirectly, 15,209 common shares and
options to purchase 160,780 additional common shares, 16,480 deferred stock
units which will vest over time, and 16,716.75 units under our Long-Term
Performance Plan which will vest over time and are performance based. Lowenstein
Sandler PC has from time to time provided legal services to us. Shearman &
Sterling LLP, New York, New York, is passing upon various legal matters limited
to matters related to New York law for the underwriters.
EXPERTS
The consolidated financial statements and the related financial statement
schedule incorporated in this prospectus supplement and the accompanying
prospectus by reference from the Company's Annual Report on Form 10-K, as
amended by Form 10-K/A, for the year ended December 31, 2003 have been audited
by Deloitte & Touche LLP, an independent registered public accounting firm, as
stated in their report, which is incorporated herein by reference, and have been
so incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
With respect to the unaudited interim financial information for the periods
ended March 31, 2004 and 2003 and June 30, 2004 and 2003 which is incorporated
in this prospectus supplement and the accompanying prospectus by reference,
Deloitte & Touche LLP, an independent registered public accounting firm, have
applied limited procedures in accordance with standards of the Public Company
Accounting Oversight Board (United States) for a review of such information.
However, as stated in their reports included in the Company's Quarterly Report
on Form 10-Q for the quarters ended March 31, 2004 and June 30, 2004 and
incorporated by reference herein, they did not audit and they do not express an
opinion on that interim financial information. Accordingly, the degree of
reliance on their reports on such information should be restricted in light of
the limited nature of the review procedures applied. Deloitte & Touche LLP are
not subject to the liability provisions of Section 11 of the Securities Act of
1933 for their reports on the unaudited interim financial information because
those reports are not "reports" or a "part" of the registration statement
prepared or certified by an accountant within the meaning of Sections 7 and 11
of the Act.
S-49
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. Our SEC filings are available to the public over the
Internet at the SEC's website at http://www.sec.gov. You may also read and copy
any document we file at the SEC's public reference room at 450 Fifth Street,
N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference room. Such information may also be inspected
at The New York Stock Exchange, 20 Broad Street, New York, New York 10005. You
can also find information about us by visiting our website at
www.schering-plough.com. Information on our website does not form part of this
prospectus supplement.
The SEC allows us to incorporate by reference the information we file with
it into this prospectus supplement, which means that we can disclose important
information to you by referring you to those documents. The information
incorporated by reference is considered to be part of this prospectus
supplement, and information that we file later with the SEC will automatically
update and supersede the previously filed information. In addition to the
information incorporated by reference as described under the heading "Where You
Can Find More Information" in the accompanying prospectus, we incorporate by
reference the documents listed below and any future filings made with the SEC
under Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of
1934, as amended, until we complete our offering of the mandatory convertible
preferred stock:
- our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2004
and June 30, 2004;
- our Current Reports on Form 8-K filed May 26, 2004, July 14, 2004, July
21, 2004, July 23, 2004, July 26, 2004 and July 30 2004.
You may request a copy of these filings at no cost, by writing or
telephoning us at the following address:
Investor Relations
Schering-Plough Corporation
2000 Galloping Hill Road
Kenilworth, NJ 07033
Telephone: (908) 298-4000
S-50
PROSPECTUS
SCHERING-PLOUGH CORPORATION
$2,000,000,000
COMMON SHARES
PREFERRED SHARES
DEPOSITARY SHARES
SENIOR DEBT SECURITIES
SUBORDINATED DEBT SECURITIES
WARRANTS
STOCK PURCHASE CONTRACTS
STOCK PURCHASE UNITS
----------------------
The securities covered by this prospectus may be sold from time to time by
SCHERING-PLOUGH CORPORATION. We may offer the securities independently or
together in any combination, called "units," for sale directly to purchasers or
through underwriters, dealers or agents to be designated at a future date.
We will provide the specific terms and prices of these securities in
supplements to this prospectus. The prospectus supplements may also add to,
update or change information contained in this prospectus. You should read this
prospectus and the applicable prospectus supplement carefully before you invest.
IN PARTICULAR YOU SHOULD READ THE RISK FACTORS ON PAGE 5.
THIS PROSPECTUS MAY NOT BE USED TO OFFER OR SELL ANY SECURITIES UNLESS
ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
Our common shares are traded on the New York Stock Exchange under the
symbol "SGP." On May 10, 2004 the last reported sale price of our common shares
as reported on the New York Stock Exchange was $16.18 per share.
As used in this prospectus, the terms "Schering-Plough Corporation,"
"Schering-Plough," "we," "us," "our" and "the company" refer to Schering-Plough
Corporation, unless the context clearly indicates otherwise.
----------------------
We may sell securities to or through underwriters, dealers or agents. For
additional information on the method of sale, you should refer to the section
entitled "Plan of Distribution." The names of any underwriters, dealers or
agents involved in the sale of any securities and the specific manner in which
they may be offered will be set forth in the prospectus supplement covering the
sale of those securities.
----------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------------------
THE DATE OF THIS PROSPECTUS IS MAY 11, 2004
TABLE OF CONTENTS
PAGE
----
About This Prospectus....................................... 2
Where You Can Find More Information......................... 4
Forward-Looking Statements.................................. 5
Risk Factors................................................ 5
The Company................................................. 6
Ratio of Earnings to Fixed Charges.......................... 7
Use of Proceeds............................................. 7
Description of Debt Securities.............................. 7
Description of Capital Stock................................ 15
Description of Depositary Shares............................ 22
Description of Warrants..................................... 25
Description of Stock Purchase Contracts and Stock Purchase
Units..................................................... 26
Plan of Distribution........................................ 27
Validity of Securities...................................... 29
Experts..................................................... 29
ABOUT THIS PROSPECTUS
The information contained in this prospectus is not complete and may be
changed. You should rely only on the information provided in or incorporated by
reference in this prospectus or any prospectus supplement. We have not
authorized anyone else to provide you with different information. We are not
making an offer of any securities in any state where the offer is not permitted.
You should not assume that the information in this prospectus or any prospectus
supplement is accurate as of any date other than the date on the front cover of
those documents and that any information we have incorporated by reference is
accurate as of any date other than the date of the document incorporated by
reference or such other date referred to in such document, regardless of the
time of delivery of this prospectus or any sale or issuance of a security.
This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission (SEC) using a "shelf" registration process.
Under this shelf registration process, we may sell or issue, in one or more
offerings up to a total amount of $2,000,000,000, our:
- common shares;
- preferred shares;
- depositary shares;
- debt securities, in one or more series, which may be senior debt
securities or subordinated debt securities;
- warrants;
- stock purchase contracts;
- stock purchase units; and
- units consisting of any combination of these securities.
This prospectus provides you with a general description of the securities
we may offer. Each time we sell or issue securities, we will provide a
prospectus supplement that will contain specific
2
information about the terms of that specific offering of securities and the
specific manner in which they may be offered. The prospectus supplement may also
add to, update or change any of the information contained in this prospectus.
The prospectus supplement may also contain information about any material
federal income tax considerations relating to the securities described in the
prospectus supplement. You should read both this prospectus and the applicable
prospectus supplement together with the additional information described under
"Where You Can Find More Information." THIS PROSPECTUS MAY NOT BE USED TO
CONSUMMATE A SALE OF SECURITIES UNLESS IT IS ACCOMPANIED BY A PROSPECTUS
SUPPLEMENT.
This prospectus contains summaries of certain provisions contained in some
of the documents described herein, but reference is made to the actual documents
for complete information. All of the summaries are qualified in their entirety
by the actual documents. Copies of some of the documents referred to herein have
been filed, will be filed or incorporated by reference as exhibits to the
registration statement of which this prospectus is a part, and you may obtain
copies of those documents as described below under "Where You Can Find More
Information."
The registration statement that contains this prospectus (including the
exhibits to the registration statement) contains additional information about us
and the securities offered under this prospectus. That registration statement
can be read at the SEC website (www.sec.gov) or at the SEC offices mentioned
under the heading "Where You Can Find More Information."
3
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. Our SEC filings are available to the public over the
Internet at the SEC's website at http://www.sec.gov. You may also read and copy
any document we file at the SEC's public reference room at 450 Fifth Street,
N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference room. Such information may also be inspected
at The New York Stock Exchange, 20 Broad Street, New York, New York 10005. You
can also find information about us by visiting our website at
www.schering-plough.com. Information on our website does not form part of this
prospectus.
The SEC allows us to incorporate by reference the information we file with
it into this prospectus, which means that we can disclose important information
to you by referring you to those documents. The information incorporated by
reference is considered to be part of this prospectus, and information that we
file later with the SEC will automatically update and supersede the previously
filed information. We incorporate by reference the documents listed below and
any future filings made with the SEC under Sections 13(a), 13(c), 14, or 15(d)
of the Securities Exchange Act of 1934, as amended, until we complete our
offerings of the securities:
- our Annual Report on Form 10-K, as amended by our Form 10-K/A, for the
year ended December 31, 2003;
- our Quarterly Report on Form 10-Q for the quarter ended March 31, 2004;
- our Current Report on Form 8-K dated January 26, 2004, February 19, 2004,
March 15, 2004, April 22, 2004, and May 6, 2004;
- the information provided under the headings: "Proposal One: Election of
Directors -- Nominees for Director," "-- Directors Continuing in Office,"
"-- Directors' Compensation," "-- Certain Transactions," "Stock
Ownership" and "Executive Compensation," as set forth in our definitive
Proxy Statement on Schedule 14A on March 15, 2004;
- the description of our common shares contained in Form 8-A filed on March
16, 1979, and any amendment or report filed for the purpose of updating
such description; and
- our description of the preferred stock purchase rights associated with
our common shares, as set forth on Form 8-A filed on June 30, 1997 and
Form 8-A/A filed on October 1, 1998.
You may request a copy of these filings at no cost, by writing or
telephoning us at the following address:
Investor Relations
Schering-Plough Corporation
2000 Galloping Hill Road
Kenilworth, NJ 07033
Telephone: (908) 298-4000
4
FORWARD-LOOKING STATEMENTS
This prospectus, the prospectus supplement, the documents incorporated by
reference in this prospectus and other written reports and oral statements made
from time to time by the company may contain "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements relate to expectations or forecasts of future events.
They use words such as "anticipate," "believe," "could," "estimate," "expect,"
"forecast," "project," "intend," "plan," "potential," "will," and other words
and terms of similar meaning in connection with a discussion of potential future
events, circumstances or future operating or financial performance. You can also
identify forward-looking statements by the fact that they do not relate strictly
to historical or current facts.
In particular, forward-looking statements include statements relating to
future actions, ability to access the capital markets, prospective products, the
status of product approvals, future performance or results of current and
anticipated products, sales efforts, development programs, expenses and programs
to reduce expenses, the cost of and savings from reductions in work force, the
outcome of contingencies such as litigation and investigations, growth strategy
and financial results.
Any or all of our forward-looking statements here or in other publications
may turn out to be wrong. Our actual results may vary materially from those
anticipated in such forward-looking statements as a result of several factors,
some of which are more fully described in the following "Risk Factor" section
and in the accompanying prospectus supplement and our reports to the SEC
incorporated by reference into this prospectus, and there are no guarantees
about the performance of the company. The company does not assume the obligation
to update any forward-looking statement for any reason.
RISK FACTORS
Our business faces significant risks. Before you invest in any of our
securities, in addition to the other information in this prospectus and in the
accompanying prospectus supplement, you should carefully consider the risks and
uncertainties described in the accompanying prospectus supplement and our
reports to the SEC incorporated by reference into this prospectus and the
accompanying prospectus supplement, including the risks and uncertainties
identified under the "Legal, Environmental and Regulatory Matters" footnote
included in the financial statements, and under the captions "Executive
Summary," "Additional Factors Influencing Operations," "Market Risk
Disclosures," and "Cautionary Factors that May Affect Future Results" in the
"Management's Discussion and Analysis of Financial Condition and Results of
Operation" section, in each case, in our quarterly report on Form 10-Q for the
quarter ended March 31, 2004 and in our subsequent reports to the SEC
incorporated by reference into this prospectus and the accompanying prospectus
supplement, as the same may be updated from time to time, and under the caption
"Item 1. Business," in our annual report on Form 10-K for the year ended
December 31, 2003 and in our subsequent reports to the SEC incorporated by
reference into this prospectus and the accompanying prospectus supplement, as
the same may be updated from time to time. These risks may not be the only risks
we face. Additional risks that we do not yet know of or that we currently
believe are immaterial or are based on assumptions that are later determined to
be inaccurate also may impair our business. If any of the risks described in the
accompanying prospectus supplement or our reports to the SEC actually occur, our
business and operating results could be materially harmed. This could cause the
value of the purchased securities to decline, and you may lose all or part of
your investment.
5
THE COMPANY
As a worldwide, research-based pharmaceutical company, we and our
subsidiaries are engaged in the discovery, development, manufacturing and
marketing of new therapies and treatment programs that can improve people's
health and extend their lives.
Our and our subsidiaries' primary business involves prescription products
in core product categories, including:
- Allergy and respiratory;
- Anti-infective and anticancer;
- Cardiovasculars;
- Dermatologicals; and
- Central nervous system and other disorders.
We, through various subsidiaries, also have a global animal health business
and leading consumer brands of foot care, over-the-counter and sun care
products.
All references to "Schering-Plough Corporation," "Schering-Plough," "we,"
"us," "our" and "the company" in this prospectus refer to Schering-Plough
Corporation, unless the context clearly indicates otherwise.
Our principal executive offices are located at 2000 Galloping Hill Road,
Kenilworth, NJ 07033, and our telephone number is (908) 298-4000. We were
incorporated in New Jersey in 1970.
6
RATIO OF EARNINGS TO FIXED CHARGES
Our consolidated ratio of earnings to fixed charges for the three months
ended March 31, 2004 and for each of the fiscal years ended December 31, 1999
through 2003 is set forth below. For the purpose of computing these ratios,
"earnings" consist of income (loss) before income taxes and equity income from
our cholesterol joint venture with Merck & Co., Inc., plus fixed charges (other
than capitalized interest) and distributed income from the joint venture. "Fixed
charges" consist of interest expense, capitalized interest and one-third of
rentals which we believe to be a reasonable estimate of the interest component
within leases. The ratio was calculated by dividing the sum of the fixed charges
into the sum of the earnings before taxes and fixed charges.
(UNAUDITED)
THREE MONTHS
ENDED YEAR ENDED DECEMBER 31,
MARCH 31, --------------------------------------
2004 2003 2002 2001 2000 1999
------------ ------ ----- ----- ----- -----
Ratio of earnings to fixed charges... (1.3)x* 0.4x** 33.2x 29.1x 37.1x 45.3x
---------------
* For the quarter ended March 31, 2004, earnings were insufficient to cover
fixed charges by $140 million.
** For the year ended December 31, 2003, earnings were insufficient to cover
fixed charges by $70 million.
USE OF PROCEEDS
Unless the applicable prospectus supplement indicates otherwise, we
currently intend to use the net proceeds from any sale of the offered securities
for general corporate purposes, which may include, among other things,
refinancing of short-term debt or commercial paper, the funding of operating
expenses, capital expenditures, licensing fees and milestone payments and the
payment of settlement amounts, fines, penalties and other investigatory and
litigation costs and expenses. We may temporarily invest funds that are not
immediately needed for these general corporate purposes. If we intend to use the
proceeds to repay outstanding debt, we will provide details about the debt that
is being repaid in the applicable prospectus supplement.
DESCRIPTION OF DEBT SECURITIES
This section contains a description of the general terms and provisions of
the debt securities that may be offered by this prospectus. We may issue senior
debt securities and subordinated debt securities. The debt securities will be
issued in one or more series under an indenture to be entered into between us
and The Bank of New York, as trustee. The indenture may be supplemented from
time to time.
This prospectus briefly outlines some of the indenture provisions. The
following summary of the material provisions of the indenture is qualified in
its entirety by the provisions of the indenture, including definitions of
certain terms used in the indenture. Wherever we refer to particular sections or
defined terms of the indenture, those sections or defined terms are incorporated
by reference in this prospectus or prospectus supplement. You should review the
indenture that is filed as an exhibit to the registration statement for
additional information.
In addition, the material specific financial, legal and other terms as well
as federal income tax consequences particular to securities of each series will
be described in the prospectus supplement relating to the securities of that
series. The prospectus supplement may or may not modify the general terms found
in this prospectus and will be filed with the SEC. For a complete description of
7
the terms of a particular series of debt securities, you should read both this
prospectus and the prospectus supplement relating to that particular series.
GENERAL
The indenture does not limit the amount of debt that we may issue under the
indenture or otherwise. Under the indenture, we may issue the securities in one
or more series with the same or various maturities, at par or a premium, or with
original issue discount. We may also reopen a previous issue of securities and
issue additional securities of the series.
The debt securities covered by this prospectus will be our direct unsecured
obligations. Senior debt securities will rank equally with our other unsecured
and unsubordinated indebtedness. Subordinated debt securities will be unsecured
and subordinated in right of payment to the prior payment in full of all of our
unsecured and senior indebtedness. See "-- Subordination" below. Any of our
secured indebtedness will rank ahead of the debt securities to the extent of the
assets securing such indebtedness. Also, we conduct operations primarily through
our subsidiaries and substantially all of our consolidated assets are held by
our subsidiaries. Accordingly, our cash flow and our ability to meet our
obligations under the debt securities will be largely dependent on the earnings
of our subsidiaries and the distribution or other payment of these earnings to
us in the form of dividends or loans or advances and repayment of loans and
advances from us. Our subsidiaries are separate and distinct legal entities and
have no obligation to pay the amounts which will be due on our debt securities
or to make any funds available for payment of amounts which will be due on our
debt securities. Because we are a holding company, our obligations under our
debt securities will be effectively subordinated to all existing and future
liabilities of our subsidiaries, including, for example, the interest rate swap
contracts described in the discussion of cash management strategies in the
"Liquidity and Financial Resources" section of the Annual Report on Form 10-K
for the year ended December 31, 2003. Therefore, our rights, and the rights of
our creditors, including the rights of the holders of the debt securities to
participate in any distribution of assets of any of our subsidiaries, if such
subsidiary were to be liquidated or reorganized, is subject to the prior claims
of the subsidiary's creditors. To the extent that we may be a creditor with
recognized claims against our subsidiaries, our claims will still be effectively
subordinated to any security interest in, or mortgages or other liens on, the
assets of the subsidiary that are senior to us.
The prospectus supplement relating to any series of debt securities being
offered will include specific terms relating to the offering. These terms will
include, among other terms, some or all of the following, as applicable:
- the title and type of the series of debt securities;
- the total principal amount of the series of debt securities;
- the percentage of the principal amount at which the series of debt
securities will be issued and any payments due if the maturity of the
debt securities is accelerated;
- the date or dates on which the principal of the debt securities will be
payable;
- the interest rate or rates, if any, and/or the method of determining such
interest rate or rates, if any, which the series of debt securities will
bear;
- the date or dates from which any interest will accrue, or the method of
determining such date or dates, the interest payment date or dates for
the series of debt securities and the regular record date for any
interest payable on any interest payment date;
- any optional or mandatory redemption periods;
- any sinking fund or other provisions that would obligate us to repurchase
or otherwise redeem the series of debt securities;
8
- whether the series of debt securities will be denominated in, and whether
the principal of and any premium and any interest on the series of debt
securities will be payable in, U.S. dollars or any foreign currency,
currency unit or composite currency;
- any index or other special method we will use to determine the amount of
principal or any premium or interest we will pay on the debt securities
of the series;
- whether the series of debt securities are to be issued in individual
certificates to each holder or in the form of global securities held by a
depositary on behalf of holders;
- any addition to, or modification or deletion of, any event of default or
any covenant specified in the indenture;
- any special tax implications of the series of debt securities, including
provisions for original issue discount securities, if offered;
- any provisions for convertibility or exchangeability of the debt
securities into or for any other securities;
- whether the debt securities are subject to subordination and the terms of
such subordination; and
- any other specific terms of the series of debt securities.
The prospectus supplement relating to a series of debt securities being
offered pursuant to this prospectus will be attached to the front of this
prospectus.
We may in the future issue debt securities other than the debt securities
described in this prospectus. There is no requirement that any other debt
securities that we issue be issued under the indenture. Thus, any other debt
securities that we may issue may be issued under other indentures or
documentation containing provisions different from those included in the
indenture or applicable to one or more issues of the debt securities described
in this prospectus.
CONSOLIDATION, MERGER OR SALE
Under the indenture, we have agreed not to consolidate with or merge into
any other corporation or convey or transfer or lease substantially all of our
properties and assets to any person, unless:
- the person is a corporation or limited liability company organized and
validly existing under the laws of the United States or any state thereof
or the District of Columbia;
- the successor corporation expressly assumes by a supplemental indenture
the due and punctual payment of the principal of and any premium or any
interest on all the debt securities and the performance of every covenant
in the indenture that we would otherwise have to perform as if it were an
original party to the indenture;
- immediately after giving effect to the consolidation, merger, conveyance,
transfer or lease, no default or event of default shall have occurred and
be continuing; and
- we deliver to the trustee an officers' certificate and an opinion of
counsel, each stating that the consolidation, merger, conveyance,
transfer or lease and the supplemental indenture comply with these
provisions.
The successor corporation will assume all our obligations under the
indenture as if it were an original party to the indenture. After assuming the
obligations, the successor corporation will have all our rights and powers under
the indenture.
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LIMITATIONS ON LIENS
Subject to the exceptions described below and those described under the
section of this prospectus captioned "Exempted Indebtedness" below, we may not,
and may not permit any restricted subsidiary to, create any lien on any
principal property or shares of capital stock of any restricted subsidiary
without equally and ratably securing the debt securities. This restriction will
not apply to permitted liens, including:
- liens on principal property existing at the time of its acquisition or to
secure the payment of all or part of the purchase price;
- with respect to any series of debt securities, any lien existing on the
date of issuance of the debt securities;
- liens on property or shares of capital stock, or securing indebtedness,
of any corporation existing at the time the corporation becomes a
restricted subsidiary or is merged into us or into a restricted
subsidiary;
- liens which secure debt of a restricted security that is owed to us or to
another subsidiary or our debt that is owed to a restricted subsidiary;
- liens in connection with the issuance of certain tax-exempt industrial
development or pollution control bonds or other similar bonds;
- liens in favor of any customer arising in respect of payments made by or
on behalf of a customer for goods produced for, or services rendered to,
customers in the ordinary course of business not exceeding the amount of
those payments;
- any extension, renewal or replacement of any lien referred to in any of
the previous paragraphs; and
- statutory liens, liens for taxes or assessments or governmental charges
or levies not yet due or delinquent or which can be paid without penalty
or are being contested in good faith, landlord's liens on leased
property, easements and other liens of a similar nature as those
described above.
LIMITATION ON SALE AND LEASEBACK TRANSACTIONS
Subject to the exceptions described below and those described under the
section of this prospectus captioned "Exempted Indebtedness," sale and leaseback
transactions by us or any restricted subsidiary of any principal property are
prohibited under capital leases (except for leases for a term, including any
renewal thereof, of not more than three years and except for leases between us
and a subsidiary or between subsidiaries) unless:
- after giving effect to the application of proceeds from the sale and
leaseback transaction, we or the restricted subsidiary could incur a
mortgage on the property under the restrictions described above under the
section of this prospectus captioned "Limitations on Liens" in an amount
equal to the attributable debt with respect to the sale and leaseback
transaction without equally and ratably securing the debt securities; or
- we, within 120 days after the sale or transfer by us or any restricted
subsidiary, apply to the retirement of our funded debt (which is defined
as indebtedness for borrowed money having a maturity of, or by its terms
extendible or renewable for, a period of more than 12 months after the
date of determination of the amount) an amount equal to the greater of:
(1) the net proceeds of the sale of the principal domestic property sold
and leased under such arrangement; or
(2) the fair market value of the principal domestic property sold and
leased, subject to credits for certain voluntary retirements of
funded debt.
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EXEMPTED INDEBTEDNESS
We or any restricted subsidiary may create or assume liens or enter into
sale and leaseback transactions not otherwise permitted under the provisions
regarding limitations on liens and sale and leaseback transactions described
above, so long as at that time and immediately after giving effect to the lien
or sale and leaseback transaction, the sum of our and our consolidated
subsidiaries' aggregate outstanding indebtedness incurred after the date of the
indenture and secured by the liens relating to principal properties plus that
related to sale and leaseback transactions does not exceed 10% of consolidated
net tangible assets.
CERTAIN DEFINITIONS
The following are the meanings of terms that are important in understanding
the covenants previously described:
- "ATTRIBUTABLE DEBT" means the present value (discounted at a specified
rate each year to be determined by the company to be appropriate and
consistent with U.S. generally accepted accounting principles) of the
obligations for rental payments required to be paid during the remaining
term of any lease of more than 12 months.
- "CONSOLIDATED NET TANGIBLE ASSETS" means the total assets of us and our
consolidated subsidiaries as shown on or reflected in our most recent
quarterly or annual, as applicable, balance sheet, less (1) all current
liabilities, excluding current liabilities which could be classified as
long-term debt under U.S. generally accepted accounting principles and
current liabilities which are by their terms extendible or renewable at
the obligor's option to a time more than 12 months after the time as of
which the amount of current liabilities is being computed; (2) advances
to entities accounted for on the equity method of accounting; and (3)
intangible assets. In this context, "intangible assets" means the
aggregate value, net of any applicable reserves, as shown on or reflected
in our balance sheet, of (a) all trade names, trademarks, licenses,
patents, copyrights and goodwill; (b) organizational and development
costs; (c) deferred charges, other than prepaid items such as insurance,
taxes, interest, commissions, rents and similar items and tangible assets
being amortized; and (d) unamortized debt discount and expense, less
unamortized premium.
- "PRINCIPAL PROPERTY" means any manufacturing facility having a gross book
value in excess of 1% of consolidated net tangible assets that we or any
restricted subsidiary owns and located within the United States,
excluding its territories and possessions and Puerto Rico, other than any
facility or portion of a facility which our board of directors reasonably
determines is not material to the business conducted by us and our
subsidiaries as a whole.
- "RESTRICTED SUBSIDIARY" means any subsidiary (1) of which substantially
all of the property of is located, and substantially all of the business
is carried on, within the United States, excluding its territories and
possessions and Puerto Rico; and (2) which owns or operates one or more
principal properties (however, "restricted subsidiary" does not include
subsidiaries primarily engaged in the business of a finance or insurance
company and their branches).
- "SUBSIDIARY" means each corporation of which more than 50% of the
outstanding voting stock is owned, directly or indirectly, by us or one
or more of our subsidiaries.
EVENTS OF DEFAULT
When we use the term "event of default" in the indenture, here are some
examples of what we mean. An event of default occurs if:
- we fail to make the principal or any premium payment on any debt security
when due;
- we fail to pay interest on any debt security for 45 days after payment
was due;
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- we fail to make any sinking fund payment when due;
- we fail to perform any other covenant in the indenture and this failure
continues for 90 days after we receive written notice of it; or
- we or a court take certain actions relating to the bankruptcy, insolvency
or reorganization of our company.
The supplemental indenture or the form of security for a particular series
of debt securities may include additional events of default or changes to the
events of default described above. The events of default applicable to a
particular series of debt securities will be discussed in the prospectus
supplement relating to such series. A default under our other indebtedness will
not be a default under the indenture for the debt securities covered by this
prospectus, and a default under one series of debt securities will not
necessarily be a default under another series. The trustee may withhold notice
to the holders of debt securities of any default (except for defaults that
involve our failure to pay principal or interest) if it considers such
withholding of notice to be in the best interests of the holders.
If an event of default with respect to outstanding debt securities of any
series occurs and is continuing, then the trustee or the holders of at least 25%
in principal amount of outstanding debt securities of that series may declare,
in a written notice, the principal amount (or specified amount) plus accrued and
unpaid interest on all debt securities of that series to be immediately due and
payable. At any time after a declaration of acceleration with respect to debt
securities of any series has been made, the holders of a majority in principal
amount (or specified amount) of the outstanding debt securities of that series,
by written notice to us and the trustee, may rescind and annul such declaration
and its consequences if:
- we have paid or deposited with the trustee a sum sufficient to pay
overdue interest and overdue principal other than the accelerated
interest and principal; and
- we have cured or the holders have waived all events of default, other
than the non-payment of accelerated principal and interest with respect
to debt securities of that series, as provided in the indenture.
We refer you to the prospectus supplement relating to any series of debt
securities that are discount securities for the particular provisions relating
to acceleration of a portion of the principal amount of the discount securities
upon the occurrence of an event of default.
If a default in the performance or breach of the indenture shall have
occurred and be continuing, the holders of not less than a majority in principal
amount of the outstanding securities of all series, by notice to the trustee,
may waive any past event of default or its consequences under the indenture.
However, an event of default cannot be waived with respect to any series of
securities in the following two circumstances:
- a failure to pay the principal of, and premium, if any, or interest on
any security; or
- a covenant or provision that cannot be modified or amended without the
consent of each holder of outstanding securities of that series.
Other than its duties in case of a default, the trustee is not obligated to
exercise any of its rights or powers under the indenture at the request, order
or direction of any holders, unless the holders offer the trustee reasonable
indemnity. If they provide this reasonable indemnity, the holders of a majority
in principal amount outstanding of any series of debt securities may, subject to
certain limitations, direct the time, method and place of conducting any
proceeding or any remedy available to the trustee, or exercising any power
conferred upon the trustee, for any series of debt securities.
We are required to deliver to the trustee an annual statement as to our
fulfillment of all of our obligations under the indenture.
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MODIFICATION OF INDENTURE
Under the indenture, our rights and obligations and the rights of the
holders may be modified if the holders of a majority in aggregate principal
amount of the outstanding debt securities of each series affected by the
modification consent to it. However, no modification of the maturity date or
principal or interest payment terms, no modification of the currency for
payment, no impairment of the right to sue for the enforcement of payment at the
maturity of the debt security, no modification of any conversion rights and no
modification reducing the percentage required for modifications or modifying the
foregoing requirements or reducing the percentage required to waive certain
specified covenants is effective against any holder without its consent. In
addition, no supplemental indenture shall adversely affect the rights of any
holder of senior indebtedness with respect to subordination without the consent
of such holder.
SUBORDINATION
The extent to which a particular series of subordinated debt securities may
be subordinated to our unsecured and unsubordinated indebtedness will be set
forth in the prospectus supplement for any such series and the indenture may be
modified by a supplemental indenture to reflect such subordination provisions.
PAYMENT AND TRANSFER
We will pay principal, interest and any premium on fully registered
securities at the place or places designated by us for such purposes. We will
make payment to the persons in whose names the debt securities are registered on
the close of business on the day or days specified by us. Any other payments
will be made as set forth in the applicable prospectus supplement.
Holders may transfer or exchange fully registered securities at the
corporate trust office of the trustee or at any other office or agency
maintained by us for such purposes, without the payment of any service charge
except for any tax or governmental charge.
GLOBAL SECURITIES
We may issue the securities in whole or in part in the form of one or more
global securities that will be deposited with, or on behalf of, a depositary
identified in the applicable prospectus supplement. We may issue the global
securities in either registered or bearer form, in either temporary or permanent
form.
You may transfer or exchange certificated securities at any office we
maintain for this purpose in accordance with the terms of the indenture. We will
not charge a service fee for any transfer or exchange of certificated
securities, but we may require payment of a sum sufficient to cover any tax or
other governmental charge we are required to pay in connection with a transfer
or exchange.
You may effect the transfer of certificated securities and the right to
receive the principal, premium and interest on certificated securities only by
surrendering the certificate representing those certificated securities and
either reissuance by us or the trustee of the certificate to the new holder or
the issuance by us or the trustee of a new certificate to the new holder.
We are not required to:
- register, transfer or exchange securities of any series during a period
beginning at the opening of business 15 days before the day we transmit a
notice of redemption of securities of the series selected for redemption
and ending at the close of business on the day of the transmission; or
- register, transfer or exchange any security so selected for redemption in
whole or in part, except the unredeemed portion of any security being
redeemed in part.
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The applicable prospectus supplement will describe the specific terms of
the depositary arrangement with respect to the applicable securities of that
series. We anticipate that the following provisions will apply to all depositary
arrangements.
Once a global security is issued, the depositary will credit on its
book-entry system the respective principal amounts of the individual securities
represented by that global security to the accounts of institutions that have
accounts with the depositary. These institutions are known as participants. The
underwriters for the securities will designate the accounts to be credited.
However, if we have offered or sold the securities either directly or through
agents, we or the agents will designate the appropriate accounts to be credited.
Ownership of beneficial interest in a global security will be limited to
participants or persons that may hold beneficial interests through participants.
Ownership of beneficial interest in a global security will be shown on, and the
transfer of that ownership will be effected only through, records maintained by
the depositary's participants or persons that hold through participants. The
laws of some states require that certain purchasers of securities take physical
delivery of securities. Such limits and such laws may limit the market for
beneficial interests in a global security.
So long as the depositary for a global security, or its nominee, is the
registered owner of a global security, the depositary or nominee will be
considered the sole owner or holder of the securities represented by the global
security for all purposes under the indenture. Except as provided in the
applicable prospectus supplement, owners of beneficial interests in a global
security:
- will not be entitled to have securities represented by global securities
registered in their names;
- will not receive or be entitled to receive physical delivery of
securities in definitive form; and
- will not be considered owners or holders of these securities under the
indenture.
Payments of principal, any premium and interest on the individual
securities registered in the name of the depositary or its nominee will be made
to the depositary or its nominee as the holder of that global security. Neither
we nor the trustee will have any responsibility or liability for any aspect of
the records relating to or payments made on account of beneficial ownership
interests of a global security, or for maintaining, supervising or reviewing any
records relating to beneficial ownership interests and each of us and the
trustee may act or refrain from acting without liability on any information
provided by the depositary.
We expect that the depositary, after receiving any payment of principal,
any premium or interest in respect of a global security, will immediately credit
the accounts of the participants with payment in amounts proportionate to their
respective holdings in principal amount of beneficial interest in a global
security as shown on the records of the depositary. We also expect that payments
by participants to owners of beneficial interests in a global security will be
governed by standing customer instructions and customary practices, as is now
the case with securities held for the accounts of customers in bearer form or
registered in "street name," and will be the responsibility of such
participants.
Debt securities represented by a global security will be exchangeable for
debt securities in definitive form of like tenor in authorized denominations
only if the depositary notifies us that it is unwilling or unable to continue as
the depositary and a successor depositary is not appointed by us within 90 days
or we, in our discretion, determine not to require all of the debt securities of
a series to be represented by a global security and notify the trustee of our
decision.
DEFEASANCE
When we use the term "defeasance," we mean discharge from some or all of
our obligations under the indenture. If we deposit with the trustee sufficient
cash or government securities to pay the
14
principal, any premium, interest and any other sums due to the stated maturity
date or a redemption date of the securities of a particular series, then at our
option:
- we will be discharged from our obligations with respect to the securities
of such series; or
- we will no longer be under any obligation to comply with certain
restrictive covenants under the indenture, and certain events of default
will no longer apply to us.
If this happens, the holders of the securities of the affected series will
not be entitled to the benefits of the indenture except for registration of
transfer and exchange of debt securities and replacement of lost, stolen or
mutilated securities. Such holders may look only to such deposited funds or
obligations for payment.
To exercise our defeasance option, we must deliver to the trustee an
opinion of counsel to the effect that the deposit and related defeasance would
not cause the holders of the securities to recognize income, gain or loss for
federal income tax purposes. We must also deliver any ruling to such effect
received from or published by the United States Internal Revenue Service if we
are discharged from our obligations with respect to the securities.
CONCERNING THE TRUSTEE
The trustee, The Bank of New York, and certain of its affiliates have in
the past and currently do provide banking, investment and other services to us,
including acting as a lender under our revolving credit agreement, acting as
trustee under the indenture, dated as of November 26, 2003, acting as a transfer
agent for our common shares and providing cash management services, and may do
so in the future as a part of its regular business.
DESCRIPTION OF CAPITAL STOCK
This section contains a description of our capital stock and stockholder
rights plan. The following summary of the terms of our capital stock and
stockholder rights plan is not meant to be complete and is qualified by
reference to our certificate of incorporation, as amended, our by-laws, as
amended, and our stockholder rights plan, which are incorporated by reference as
exhibits into the registration statement of which this prospectus is a part.
As of March 31, 2004, our authorized capital stock consisted of: (i)
2,400,000,000 common shares, par value $0.50 per share, of which 1,471,856,132
were issued and outstanding, 557,830,245 were issued and held in treasury, and
72,000,000 were reserved for issuance under stock incentive plans; and (ii)
50,000,000 preferred shares, par value $1.00 per share, consisting of 1,500,000
shares designated as Series A Junior Participating Preferred Stock ("Series A
preferred stock") and 48,500,000 shares whose designations have not yet been
determined. As of March 31, 2004, no preferred shares were issued and
outstanding.
COMMON SHARES
Holders of our common shares, subject to any preferential rights of the
holders of any preferred shares, are entitled to participate equally and ratably
in dividends when and as declared by our board of directors. In the event of the
liquidation or dissolution of Schering-Plough, holders of our common shares are
entitled to share ratably in the remaining assets of Schering-Plough available
for distribution, subject to prior or equal distribution rights of any holders
of preferred shares. Record holders of common shares are entitled to one vote
per share for the election of directors and upon all matters on which holders of
common shares are entitled to vote. Holders of our common shares do not have
cumulative voting rights. There are no preemptive or conversion rights
applicable to our common shares. All outstanding shares of our common shares are
fully paid and non-assessable.
Each common share has attached thereto a right to purchase 1/200th of a
share of our Series A preferred stock, par value $1.00 per share, at a price of
$100 per 1/200th of a share of
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Series A preferred stock, subject to adjustment. For a description and terms of
the Rights, see "-- Antitakeover Protections -- Rights Plan."
PREFERRED SHARES
Our certificate of incorporation, as amended, provides that our board of
directors is authorized to issue preferred shares from time to time in one or
more series without stockholder approval. Subject to limitations prescribed by
law and our certificate of incorporation, our board of directors may fix for any
series of preferred shares the number of shares of such series and the voting
powers, designations, preferences, rights, qualifications, limitations and
restrictions of such series. There are currently no preferred shares
outstanding.
Our certificate of incorporation provides that whenever we are in default
as to accrued dividends on preferred shares in an amount equivalent to six
quarterly dividends, the holders of preferred shares, voting separately as a
class, will be entitled to elect two directors at the next annual or special
meeting of our shareholders. The right of holders of preferred shares to elect
two directors will continue until dividends in default on the preferred shares
have been paid in full or declared and a sum sufficient for the payment thereof
has been set aside. During any time that the holders of preferred shares, voting
as a class, are entitled to elect two directors, as described in this paragraph,
the holders of any series of preferred shares normally entitled to participate
with the holders of the common shares in the election of directors shall not be
entitled to participate with the holders of the common shares in the election of
such directors.
For any series of preferred shares that we may issue pursuant to this
registration statement, our board of directors will determine and the prospectus
supplement relating to such series will describe:
- The designation and number of shares of such series;
- The rate and time at which, and the preferences and conditions under
which, any dividends will be paid on shares of such series, as well as
whether such dividends are cumulative or non-cumulative and participating
or non-participating;
- Any provisions relating to convertibility or exchangeability of the
shares of such series;
- The rights and preferences, if any, of holders of shares of such series
upon our liquidation, dissolution or winding up of our affairs;
- The voting powers, if any, of the holders of shares of such series;
- Any provisions relating to the redemption of the shares of such series;
- Whether and upon what terms a sinking fund will be used to purchase or
redeem the shares;
- Any limitations on our ability to pay dividends or make distributions on,
or acquire or redeem, other securities while shares of such series are
outstanding;
- Any conditions or restrictions on our ability to issue additional shares
of such series or other securities;
- Any other relative power, preferences and participating, optional or
special rights of shares of such series, and the qualifications,
limitations or restrictions thereof.
When we issue preferred shares under this prospectus and any applicable
prospectus supplement, the shares will be fully paid and non-assessable and will
not have, or be subject to, any preemptive or similar rights.
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SERIES A PREFERRED STOCK
There are currently no shares of our Series A preferred stock, par value
$1.00 per share outstanding. The issuance of Series A preferred stock is
contingent on the satisfaction of certain conditions precedent as described in
"-- Antitakeover Protections -- Rights Plan," below. The description of the
Series A preferred stock reflects corresponding adjustments pursuant to the
anti-dilution provisions of the Series A preferred stock.
Holders of each share of Series A preferred stock will be entitled to a
minimum preferential quarterly dividend payment of $1.00 per share, but will be
entitled to an aggregate dividend of 200 times the dividend declared per share
of our common shares since the previous quarterly dividend payment. In the event
of liquidation, the holders of Series A preferred stock will be entitled to a
minimum preferential liquidation payment of $100 per share plus accrued and
unpaid dividends, but will be entitled to an aggregate payment of 200 times the
payment made per share of our common shares. Each share of Series A preferred
stock will have 200 votes, voting together with the common shares. Finally, in
the event of any merger, consolidation or other transaction in which our common
shares are exchanged, each share of Series A preferred stock will be entitled to
receive 200 times the amount received per share of common shares. These rights
are protected by customary antidilution provisions. Series A preferred stock
purchasable upon exercise of the Rights (as defined in "-- Antitakeover
Protections -- Rights Plan" below) will not be redeemable.
Because of the nature of the Series A preferred stock's dividend,
liquidation and voting rights, the value of the 1/200th interest in a share of
Series A preferred stock purchasable upon exercise of each Right should
approximate the value of one of our common shares.
If we are in default as to dividend payments or distributions on Series A
preferred stock, we may not declare or pay dividends or make any other
distributions on any shares of stock (i) ranking junior to the Series A
preferred stock (including common shares) or (ii) ranking on a parity with
Series A preferred stock, except for dividends paid ratably on the Series A
preferred stock and the other shares of equal rank thereto; and we may not
redeem, purchase or otherwise acquire for consideration any shares of stock (i)
ranking junior to the Series A preferred stock, except that we may at any time
redeem, purchase or otherwise acquire shares of any such junior stock in
exchange for shares of other junior stock, or (ii) on a parity with Series A
preferred stock, except in accordance with a purchase offer made to all holders
of such shares upon such terms as our board of directors shall determine in good
faith will result in fair and equitable treatment among the respective series or
classes being redeemed or repurchased.
Our certificate of incorporation may not be amended in any manner which
would materially alter or change the powers, preferences or special rights of
Series A preferred stock so as to affect them adversely without the affirmative
vote of the holders of at least 2/3rds of the outstanding Series A preferred
stock, voting together as a single class.
ANTITAKEOVER PROTECTIONS
The following discussion summarizes certain provisions of the New Jersey
Business Corporation Act, as amended (the "NJBCA") and of our certificate of
incorporation and by-laws, which may have the effect of prohibiting, raising the
costs of, or otherwise impeding, a change of control of us, whether by merger,
consolidation or sale of assets or stock (by tender offer or otherwise), or by
other methods.
Classified Board of Directors
Pursuant to our certificate of incorporation and by-laws, our board of
directors is divided into three classes, and the directors are elected by
classes to staggered three-year terms, so that one of the three classes of the
directors will be elected at each annual meeting of our shareholders.
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Our certificate of incorporation and by-laws further require that any
proposal to either remove a director during his term of office (other than
pursuant to the rights, if any, of the holders of any series of preferred shares
then outstanding) or amend our certificate of incorporation or by-laws with
respect to, among other things, the classification, number, removal, and filling
of vacancies, of directors be approved by the affirmative vote of the holders of
not less than 80% of the voting power of all of the shares entitled to vote
generally in the election of directors, voting together as a single class.
Subject to the rights of the holders of any series of outstanding preferred
shares, any vacancies in our board of directors may be filled by the remaining
directors.
The purpose of these provisions is to prevent directors from being removed
from office prior to the expiration of their respective terms, thus protecting
the safeguards inherent in the classified board structure unless dissatisfaction
with the performance of one or more directors is widely shared by holders of our
common shares. However, these provisions could also have the effect of
increasing from one year to two or three years (depending upon the number of our
common shares held) the amount of time required for an acquiror to obtain
control of us by electing a majority of our board of directors and may also make
the removal of incumbent management more difficult and discourage or render more
difficult certain mergers, tender offers, proxy contests, or other potential
takeover proposals. To the extent that these provisions have the effect of
giving management more bargaining power in negotiations with a potential
acquiror, they could result in management's using the bargaining power not only
to try to negotiate a favorable price for an acquisition, but also to negotiate
more favorable terms for management.
Limits on Shareholder Action by Written Consent; Special Meetings
Our certificate of incorporation and by-laws provide that, subject to the
rights of the holders of any series of preferred shares then outstanding, any
action required or permitted to be taken by our shareholders must be effected at
a duly called annual or special meeting of shareholders and may not be effected
by any consent in writing by such shareholders unless all of the shareholders
entitled to vote on the matter consent in writing. Our certificate of
incorporation and by-laws also provide that, the affirmative vote of the holders
of not less than 80% of the voting power of all of the shares entitled to vote
generally in the election of directors, voting together as a single class, will
be required to amend our certificate of incorporation or by-laws with respect to
shareholder action by written consent.
Except as otherwise provided by the NJBCA, under our by-laws, a special
meeting of our shareholders may only be called by the Chairman of our board of
directors, our company President or our board of directors and shall be held at
such time and such place and for such purpose(s) as stated in the notice of the
meeting. No business other than that stated in the notice of meeting may be
transacted at any special meeting.
The above provisions may have the effect of delaying consideration of a
stockholder proposal until the next annual meeting unless a special meeting is
called by the Chairman of our board of directors, our company President or our
board of directors.
Corporation's Best Interest
Under the NJBCA, the director of a New Jersey corporation may consider, in
discharging his or her duties to the corporation and in determining what he or
she reasonably believes to be in the best interest of the corporation, any of
the following (in addition to the effects of any action on shareholders): (i)
the effects of the action on the corporation's employees, suppliers, creditors
and customers, (ii) the effects of the action on the community in which the
corporation operates, and (iii) the long-term as well as the short-term interest
of the corporation and its shareholders, including the possibility that these
interests may be best served by the continued independence of the corporation.
If, on the basis of any of the foregoing factors, the board of directors
determines that any proposal or offer to acquire the corporation is not in the
best interest of the corporation, it may
18
reject such proposal or offer, in which event the board of directors will have
no duty to remove any obstacles to, or refrain from impeding, such proposal or
offer.
Required Vote for Authorization of Certain Actions; Anti-Greenmail Provisions
Under the NJBCA, the consummation of a merger or consolidation of a New
Jersey corporation organized subsequent to January 1, 1969, such as us, requires
the approval of such corporation's board of directors and the affirmative vote
of a majority of the votes cast by each of the holders of shares of the
corporation entitled to vote thereon and any class or series entitled to vote
thereon as a class, unless such corporation is the surviving corporation, and:
(i) such corporation's certificate of incorporation is not amended, (ii) the
stockholders of the surviving corporation whose shares were outstanding
immediately before the effective date of the merger will hold the same number of
shares, with identical designations, preferences, limitations, and rights,
immediately after the merger or consolidation, as the case may be, and (iii) the
number of voting shares and participating shares outstanding after the merger
will not exceed by more than 40% the total number of voting or participating
shares of the surviving corporation immediately before the merger. Similarly, in
the case of a New Jersey corporation organized subsequent to 1969, such as us, a
sale of all or substantially all of a corporation's assets other than in the
ordinary course of business, or a voluntary dissolution of a corporation,
requires the approval of such corporation's board of directors and the
affirmative vote of a majority of the votes cast by each of the holders of
shares of the corporation entitled to vote thereon and any class or series
entitled to vote thereon as a class.
Our certificate of incorporation contains an "anti-greenmail" provision
pursuant to which we or our subsidiaries may not purchase shares of voting stock
from a 5% or greater shareholder at a per share price in excess of the market
price unless (a) approved by the affirmative vote of the holders of the amount
of voting power of the voting stock equal to the sum of the voting power of such
5% or greater shareholder and a majority of the voting power of the remaining
outstanding shares of voting stock, voting together as a single class, or (b)
the purchase is made pursuant to an offer made available to all holders of the
same class of stock or an open market purchase.
Restrictions on Business Combinations with Certain Stockholders
The NJBCA provides that no corporation organized under the laws of New
Jersey with its principal executive offices or significant operations located in
New Jersey (a "resident domestic corporation") may engage in any "business
combination" (as defined in the NJBCA) with any interested stockholder
(generally, a 10% or greater stockholder) of such corporation for a period of
five years following such interested stockholder's stock acquisition, unless
such business combination is approved by the board of directors of such
corporation prior to the stock acquisition. A resident domestic corporation,
such as us, cannot opt out of the foregoing provisions of the NJBCA.
In addition, no resident domestic corporation may engage, at any time, in
any business combination with any interested stockholder of such corporation
other than: (i) a business combination approved by the board of directors of
such corporation prior to the stock acquisition, (ii) a business combination
approved by the affirmative vote of the holders of two-thirds of the voting
stock not beneficially owned by such interested stockholder at a meeting called
for such purpose, or (iii) a business combination in which the interested
stockholder pays a formula price designed to ensure that all other stockholders
receive at least the highest price per share paid by such interested
stockholder.
In connection with business combinations with any ten percent stockholder,
our certificate of incorporation contains provisions requiring the approval of
at least 80% of the voting power of all of the then outstanding shares of
capital stock of the corporation entitled to vote in the election of directors
voting together as a single class; provided, however, that such higher vote
requirements do not apply if the business combination (i) is approved by a
majority of directors in office prior to the stock acquisition and not
affiliated with the interested stockholders or by their successors
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recommended by a majority of such unaffiliated, pre-stock-acquisition date
directors, or (ii) meets certain fair price formulas set forth in our
certificate of incorporation. Any amendments or repeal of the business
combination provisions require the affirmative vote of the holders of 80% or
more of the voting power of all of the shares entitled to vote, voting together
as a single class.
Rights Plan
On June 24, 1997, our board of directors declared a dividend of one
preferred share purchase right (a "Right") for each of our common shares
outstanding at the close of business on July 10, 1997 (the "Record Date") to the
stockholders of record on that date. Each Right entitles the registered holder
to purchase from us 1/200th of a share of our Series A preferred stock, at a
price of $100 per 1/200th of a share of Series A preferred stock (the "Purchase
Price"), subject to adjustment. The description and terms of the Rights are set
forth in a Rights Agreement (the "Rights Agreement"), dated as of June 24, 1997,
between us and The Bank of New York, as Rights Agent (the "Rights Agent"). This
summary description of the Rights and the Rights Agreement does not purport to
be complete and is qualified in its entirety by reference to the Rights
Agreement, and the certificates of adjustments with respect thereto, each of
which is incorporated by reference into this prospectus.
Until the earlier to occur of: (i) 10 days following a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") have acquired beneficial ownership of 20% or more of the outstanding
common shares, or (ii) 10 business days (or such later date as may be determined
by action of our board of directors prior to such time as any person or group of
affiliated persons becomes an Acquiring Person) following the commencement of,
or announcement of an intention to make, a tender offer or exchange offer the
consummation of which would result in the beneficial ownership by a person or
group of 20% or more of the outstanding common shares (the earlier of such dates
being called the "Distribution Date"), the Rights will be evidenced, with
respect to any of our common share certificates outstanding as of the Record
Date, by such common share certificate with a copy of the summary of Rights
attached thereto.
The Rights Agreement provides that, until the Distribution Date (or earlier
redemption or expiration of the Rights), the Rights will be transferred with and
only with common shares. Until the Distribution Date (or earlier redemption or
expiration of the Rights), new common share certificates issued after the Record
Date upon transfer or new issuance of our common shares will contain a notation
incorporating the Rights Agreement by reference. Until the Distribution Date (or
earlier redemption or expiration of the Rights), the surrender for transfer of
any certificates for our common shares outstanding as of the Record Date, even
without such notation or a copy of the summary of Rights being attached thereto,
will also constitute the transfer of the Rights associated with the common
shares represented by such certificate. As soon as practicable following the
Distribution Date, separate certificates evidencing the Rights ("Right
Certificates") will be mailed to holders of record of our common shares as of
the close of business on the Distribution Date and such separate Right
Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The Rights will
expire on July 10, 2007 (the "Final Expiration Date"), unless the Final
Expiration Date is extended or unless the Rights are earlier redeemed or
exchanged by us, in each case, as described below.
The Purchase Price payable, and the number of shares of Series A preferred
stock, or other securities or property, issuable upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution: (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of,
Series A preferred stock, (ii) upon the grant to holders of Series A preferred
stock of certain rights or warrants to subscribe for or purchase Series A
preferred stock at a price, or securities convertible into Series A preferred
stock with a conversion price, less than the then-current market price of Series
A preferred stock, or (iii) upon the distribution to holders of Series A
preferred stock of evidences of indebtedness or assets (excluding regular
periodic cash dividends paid out of
20
earnings or retained earnings or dividends payable in Series A preferred stock)
or of subscription rights or warrants (other than those referred to above).
The number of outstanding Rights and the number of 1/200ths of a share of
Series A preferred stock issuable upon exercise of each Right are also subject
to adjustment in the event of a stock split of or a stock dividend on our common
shares payable in our common shares or subdivisions, consolidations or
combinations of our common shares occurring, in any such case, prior to the
Distribution Date.
In the event that we are acquired in a merger or other business combination
transaction or 50% or more of our consolidated assets or earning power are sold
after a person or group has become an Acquiring Person, proper provision will be
made so that each holder of a Right will thereafter have the right to receive,
upon the exercise thereof at the then current exercise price of the Right, that
number of shares of common stock of the acquiring company which at the time of
such transaction will have a market value of two times the exercise price of the
Right. In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, proper provision shall be made so that each holder
of a Right, other than Rights beneficially owned by the Acquiring Person (which
will thereafter be void), will thereafter have the right to receive upon
exercise that number of common shares having a market value of two times the
exercise price of the Right.
At any time after any person or group becomes an Acquiring Person and prior
to the acquisition by such person or group of 50% or more of the outstanding
common shares, our board of directors may exchange the Rights (other than Rights
owned by such person or group which will have become void), in whole or in part,
at an exchange ratio of one common share, or 1/200th of a share of Series A
preferred stock (or of a share of a class or series of our preferred shares
having equivalent rights, preferences and privileges), per Right (subject to
adjustment).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional shares of Series A preferred stock will be
issued (other than fractions which are integral multiples of 1/100th of a share
of Series A preferred stock, which may, at our election, be evidenced by
depositary receipts) and in lieu thereof, a payment in cash will be made based
on the market price of Series A preferred stock on the last trading day prior to
the date of exercise.
At any time prior to the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 20% or more of the outstanding
common shares, our board of directors may redeem the Rights in whole, but not in
part, at a price of $0.005 per Right (the "Redemption Price"). The redemption of
the Rights may be made effective at such time on such basis with such conditions
as our board of directors in its sole discretion may establish. Immediately upon
any redemption of the Rights, the right to exercise the Rights will terminate
and the only right of the holders of Rights will be to receive the Redemption
Price.
The terms of the Rights may be amended by our board of directors without
the consent of the holders of the Rights, including an amendment to lower
certain thresholds described above to not less than the greater of: (i) the sum
of .001% and the largest percentage of the outstanding common shares then known
to us to be beneficially owned by any person or group of affiliated or
associated persons, and (ii) 10%, except that from and after such time as any
person or group of affiliated or associated persons becomes an Acquiring Person
no such amendment may adversely affect the interests of the holders of the
Rights.
Until a Right is exercised, the holder thereof, as such, will have no
rights as one of our stockholders, including, without limitation, the right to
vote or to receive dividends.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire us on terms
not approved by our board of directors, except pursuant to an offer conditioned
on a substantial number of Rights being acquired. The Rights
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should not interfere with any merger or other business combination approved by
our board of directors since the Rights may be redeemed by us at the Redemption
Price prior to the time that a person or group has acquired beneficial ownership
of 20% or more of our common shares.
DESCRIPTION OF DEPOSITARY SHARES
We may elect to offer fractional shares of preferred shares rather than
full shares of preferred shares. In that event, we will issue receipts for
depositary shares, and each of these depositary shares will represent a fraction
(to be set forth in the applicable prospectus supplement) of a share of a
particular series of preferred shares.
The shares of any series of preferred shares underlying the depositary
shares will be deposited under a deposit agreement between us and a bank or
trust company selected by us. The depositary will have its principal office in
the United States and a combined capital and surplus of at least $50,000,000.
Subject to the terms of the deposit agreement, each owner of a depositary share
will be entitled, in proportion to the applicable fraction of a share of
preferred shares underlying the depositary share, to all the rights and
preferences of the preferred shares underlying that depositary share. Those
rights may include dividend, voting, redemption, conversion and liquidation
rights.
The depositary shares will be evidenced by depositary receipts issued under
a deposit agreement. Depositary receipts will be distributed to those persons
purchasing the fractional shares of preferred shares underlying the depositary
shares, in accordance with the terms of the offering. The following description
of the material terms of the deposit agreement, the depositary shares and the
depositary receipts is only a summary and you should refer to the forms of the
deposit agreement and depositary receipts that will be filed with the SEC in
connection with the offering of the specific depositary shares for more complete
information.
Pending the preparation of definitive engraved depositary receipts, the
depositary may, upon our written order, issue temporary depositary receipts
substantially identical to the definitive depositary receipts but not in
definitive form. These temporary depositary receipts entitle their holders to
all the rights of definitive depositary receipts. Temporary depositary receipts
will then be exchangeable for definitive depositary receipts at our expense.
DIVIDENDS AND OTHER DISTRIBUTIONS
The depositary will distribute all cash dividends or other cash
distributions received with respect to the underlying stock to the record
holders of depositary shares in proportion to the number of depositary shares
owned by those holders.
If there is a distribution other than in cash, the depositary will
distribute property received by it to the record holders of depositary shares
that are entitled to receive the distribution, unless the depositary determines
that it is not feasible to make the distribution. If this occurs, the depositary
may, with our approval, sell the property and distribute the net proceeds from
the sale to the applicable holders.
WITHDRAWAL OF UNDERLYING PREFERRED SHARES
Unless we say otherwise in a prospectus supplement, holders may surrender
depositary receipts at the principal office of the depositary and, upon payment
of any unpaid amount due to the depositary, be entitled to receive the number of
whole shares of underlying preferred shares and all money and other property
represented by the related depositary shares. We will not issue any partial
shares of preferred shares. If the holder delivers depositary receipts
evidencing a number of depositary shares that represent more than a whole number
of shares of preferred shares, the depositary will issue a new depositary
receipt evidencing the excess number of depositary shares to that holder.
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REDEMPTION OF DEPOSITARY SHARES
If a series of preferred shares represented by depositary shares is subject
to redemption, the depositary shares will be redeemed from the proceeds received
by the depositary resulting from the redemption, in whole or in part, of that
series of underlying stock held by the depositary. The redemption price per
depositary share will be equal to the applicable fraction of the redemption
price per share payable with respect to that series of underlying stock.
Whenever we redeem shares of underlying stock that are held by the depositary,
the depositary will redeem, as of the same redemption date, the number of
depositary shares representing the shares of underlying stock so redeemed. If
fewer than all the depositary shares are to be redeemed, the depositary shares
to be redeemed will be selected by lot or proportionately or other equitable
method, as may be determined by the depositary.
VOTING
Upon receipt of notice of any meeting at which the holders of the
underlying stock are entitled to vote, the depositary will mail the information
contained in the notice to the record holders of the depositary shares
underlying the preferred shares. Each record holder of the depositary shares on
the record date (which will be the same date as the record date for the
underlying stock) will be entitled to instruct the depositary as to the exercise
of the voting rights pertaining to the amount of the underlying stock
represented by that holder's depositary shares. The depositary will then try, as
far as practicable, to vote the number of shares of preferred shares underlying
those depositary shares in accordance with those instructions, and we will agree
to take all reasonable actions which may be deemed necessary by the depositary
to enable the depositary to do so. The depositary will not vote the underlying
shares to the extent it does not receive specific instructions with respect to
the depositary shares representing the preferred shares.
CONVERSION OR EXCHANGE OF PREFERRED SHARES
If the deposited preferred shares are convertible into or exchangeable for
other securities, the following will apply. The depositary shares, as such, will
not be convertible into or exchangeable for such other securities. Rather, any
holder of the depositary shares may surrender the related depositary receipts,
together with any amounts payable by the holder in connection with the
conversion or the exchange, to the depositary with written instructions to cause
conversion or exchange of the preferred shares represented by the depositary
shares into or for such other securities. If only some of the depositary shares
are to be converted or exchanged, a new depositary receipt or receipts will be
issued for any depositary shares not to be converted or exchanged.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The form of depositary receipt evidencing the depositary shares and any
provision of the deposit agreement may at any time be amended by agreement
between us and the depositary. However, any amendment which materially and
adversely alters the rights of the holders of depositary shares will not be
effective unless the amendment has been approved by the holders of at least a
majority of the depositary shares then outstanding. The deposit agreement may be
terminated by us upon not less than 60 days' notice whereupon the depositary
shall deliver or make available to each holder of depositary shares, upon
surrender of the depositary receipts held by such holder, the number of whole or
fractional shares of preferred shares represented by such receipts. The deposit
agreement will automatically terminate if (a) all outstanding depositary shares
have been redeemed or converted into or exchanged for any other securities into
or for which the underlying preferred shares are convertible or exchangeable or
(b) there has been a final distribution of the underlying stock in connection
with our liquidation, dissolution or winding up and the underlying stock has
been distributed to the holders of depositary receipts.
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CHARGES OF DEPOSITARY
We will pay all transfer and other taxes and governmental charges arising
solely from the existence of the depositary arrangements. We will also pay
charges of the depositary in connection with its duties in accordance with the
deposit agreement. Holders of depositary receipts will pay transfer and other
taxes and governmental and other charges, including a fee for any permitted
withdrawal of shares of underlying stock upon surrender of depositary receipts,
as are expressly provided in the deposit agreement to be for their accounts.
REPORTS
The depositary will forward to holders of depositary receipts all reports
and communications from us that we deliver to the depositary and that we are
required to furnish to the holders of the underlying stock.
LIMITATION ON LIABILITY
Neither we nor the depositary will be liable if either of us is prevented
or delayed by law or any circumstance beyond our control in performing our
respective obligations under the deposit agreement. Our obligations and those of
the depositary will be limited to performance in good faith of our respective
duties under the deposit agreement. Neither we nor the depositary will be
obligated to prosecute or defend any legal proceeding in respect of any
depositary shares or underlying stock unless satisfactory indemnity is
furnished. We and the depositary may rely upon written advice of counsel or
accountants, or upon information provided by persons presenting underlying stock
for deposit, holders of depositary receipts or other persons believed to be
competent and on documents believed to be genuine.
In the event the depositary receives conflicting claims, requests or
instructions from any holders of depositary shares, on the one hand, and us, on
the other, the depositary will act on our claims, requests or instructions.
RESIGNATION AND REMOVAL OF DEPOSITARY
The depositary may resign at any time by delivering notice to us of its
election to resign. We may remove the depositary at any time. Any resignation or
removal will take effect upon the appointment of a successor depositary and its
acceptance of the appointment. The successor depositary must be appointed within
60 days after delivery of the notice of resignation or removal and must be a
bank or trust company having its principal office in the United States and
having a combined capital and surplus of at least $50,000,000.
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DESCRIPTION OF WARRANTS
The following is a general description of the terms of the warrants we may
issue from time to time. This description is subject to the detailed provisions
of a warrant agreement to be entered into between us and a warrant agent we
select at the time of issue and the description in the prospectus supplement
relating to the applicable series of warrants.
GENERAL
We may issue warrants to purchase debt securities, preferred shares,
depositary shares, common shares or any combination thereof. Such warrants may
be issued independently or together with any such securities and may be attached
or separate from such securities. We may issue each series of warrants under a
separate warrant agreement to be entered into between a warrant agent and us.
The warrant agent will act solely as our agent and will not assume any
obligation or relationship of agency for or with holders or beneficial owners of
warrants.
A prospectus supplement will describe the particular terms of any series of
warrants we may issue, including the following:
- the title of such warrants;
- the aggregate number of such warrants;
- the price or prices at which such warrants will be issued;
- the currency or currencies, including composite currencies, in which the
price of such warrants may be payable;
- the designation and terms of the securities purchasable upon exercise of
such warrants and the number of such securities issuable upon exercise of
such warrants;
- the price at which and the currency or currencies, including composite
currencies, in which the securities purchasable upon exercise of such
warrants may be purchased;
- the date on which the right to exercise such warrants shall commence and
the date on which such right will expire;
- whether such warrants will be issued in registered form or bearer form;
- if applicable, the minimum or maximum amount of such warrants which may
be exercised at any one time;
- if applicable, the designation and terms of the securities with which
such warrants are issued and the number of such warrants issued with each
such security;
- if applicable, the date on and after which such warrants and the related
securities will be separately transferable;
- information with respect to book-entry procedures, if any;
- if applicable, a discussion of certain U.S. federal income tax
considerations; and
- any other terms of such warrants, including terms, procedures and
limitations relating to the exchange and exercise of such warrants.
AMENDMENTS AND SUPPLEMENTS TO WARRANT AGREEMENT
We and the warrant agent may amend or supplement the warrant agreement for
a series of warrants without the consent of the holders of the warrants issued
thereunder to effect changes that are not inconsistent with the provisions of
the warrants and that do not materially and adversely affect the interests of
the holders of the warrants.
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DESCRIPTION OF STOCK PURCHASE CONTRACTS
AND STOCK PURCHASE UNITS
The following is a general description of the terms of the stock purchase
contracts and stock purchase units we may issue from time to time.
The applicable prospectus supplement will describe the terms of any stock
purchase contracts or stock purchase units and, if applicable, prepaid stock
purchase contracts. The description in the prospectus supplement will be
qualified in its entirety by reference to (1) the stock purchase contracts, (2)
the collateral arrangements and depositary arrangements, if applicable, relating
to such stock purchase contracts or stock purchase units and (3) if applicable,
the prepaid stock purchase contracts and the document pursuant to which such
prepaid stock purchase contracts will be issued.
STOCK PURCHASE CONTRACTS
We may issue stock purchase contracts, including contracts obligating
holders to purchase from us, and obligating us to sell to holders, a fixed or
varying number of common shares, preferred shares or depositary shares at a
future date or dates. The consideration per share of common shares, preferred
shares or depositary shares may be fixed at the time that the stock purchase
contracts are issued or may be determined by reference to a specific formula set
forth in the stock purchase contracts. Any stock purchase contract may include
anti-dilution provisions to adjust the number of shares issuable pursuant to
such stock purchase contract upon the occurrence of certain events.
STOCK PURCHASE UNITS
The stock purchase contracts may be issued separately or as a part of units
("stock purchase units"), consisting of a stock purchase contract and debt
securities, preferred securities or debt or equity obligations of third parties,
including U.S. Treasury securities, in each case securing holders' obligations
to purchase common shares, preferred shares or depositary shares under the stock
purchase contracts. The stock purchase contracts may require us to make periodic
payments to holders of the stock purchase units, or vice versa, and such
payments may be unsecured or prefunded and may be paid on a current or on a
deferred basis. The stock purchase contracts may require holders to secure their
obligations thereunder in a specified manner and in certain circumstances we may
deliver newly issued prepaid stock purchase contracts upon release to a holder
of any collateral securing such holder's obligations under the original stock
purchase contract. Any one or more of the above securities, common shares or the
stock purchase contracts or other collateral may be pledged as security for the
holders' obligations to purchase or sell, as the case may be, the common shares,
preferred shares or depositary shares under the stock purchase contracts. The
stock purchase contracts may also allow the holders, under certain
circumstances, to obtain the release of the security for their obligations under
such contracts by depositing with the collateral agent as substitute collateral,
treasury securities with a principal amount at maturity equal to the collateral
so released or the maximum number of shares deliverable by such holders under
stock purchase contracts requiring the holders to sell common shares, preferred
shares or depositary shares to us.
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PLAN OF DISTRIBUTION
We may sell the securities covered by this prospectus in any of three ways
(or in any combination):
- through underwriters, dealers or remarketing firms;
- directly to one or more purchasers, including to a limited number of
institutional purchasers; or
- through agents.
Any such dealer or agent, in addition to any underwriter, may be deemed to
be an underwriter within the meaning of the Securities Act of 1933, as amended
(the "Securities Act"). Any discounts or commissions received by an underwriter,
dealer, remarketing firm or agent on the sale or resale of securities may be
considered by the SEC to be underwriting discounts and commissions under the
Securities Act.
In addition, we may enter into derivative transactions with third parties,
or sell securities not covered by this prospectus to third parties in privately
negotiated transactions. If the applicable prospectus supplement indicates, in
connection with such a transaction, the third parties may, pursuant to this
prospectus and the applicable prospectus supplement, sell securities covered by
this prospectus and the applicable prospectus supplement. If so, the third party
may use securities borrowed from us or others to settle such sales and may use
securities received from us to close out any related short positions. We may
also loan or pledge securities covered by this prospectus and the applicable
prospectus supplement to third parties, who may sell the loaned securities or,
in an event of default in the case of a pledge, sell the pledged securities
pursuant to this prospectus and the applicable prospectus supplement.
The terms of the offering of the securities with respect to which this
prospectus is being delivered will be set forth in the applicable prospectus
supplement and will include among other things:
- the type of and terms of the securities offered;
- the price of the securities;
- the proceeds to us from the sale of the securities;
- the names of the securities exchanges, if any, on which the securities
are listed;
- the name of any underwriters, dealers, remarketing firms or agents and
the amount of securities underwritten or purchased by each of them;
- any over-allotment options under which underwriters may purchase
additional securities from us;
- any underwriting discounts, agency fees or other compensation to
underwriters or agents; and
- any discounts or concessions which may be allowed or reallowed or paid to
dealers.
If underwriters are used in the sale of securities, such securities will be
acquired by the underwriters for their own account and may be resold from time
to time in one or more transactions, including negotiated transactions, at a
fixed public offering price or at varying prices determined at the time of sale.
The securities may be offered to the public either through underwriting
syndicates represented by managing underwriters or directly by one or more
underwriters acting alone. Unless otherwise set forth in the applicable
prospectus supplement, the obligations of the underwriters to purchase the
securities described in the applicable prospectus supplement will be subject to
certain conditions precedent, and the underwriters will be obligated to purchase
all such securities if any are
27
purchased by them. Any public offering price and any discounts or concessions
allowed or reallowed or paid to dealers may be changed from time to time.
If dealers acting as principals are used in the sale of any securities,
such securities will be acquired by the dealers, as principals, and may be
resold from time to time in one or more transactions at varying prices to be
determined by the dealer at the time of resale. The name of any dealer and the
terms of the transaction will be set forth in the prospectus supplement with
respect to the securities being offered.
Securities may also be offered and sold, if so indicated in the applicable
prospectus supplement, in connection with a remarketing upon their purchase, in
accordance with a redemption or repayment pursuant to their terms, or otherwise,
by one or more firms, which we refer to herein as the "remarketing firms,"
acting as principals for their own accounts or as our agents, as applicable. Any
remarketing firm will be identified and the terms of its agreement, if any, with
us and its compensation will be described in the applicable prospectus
supplement. Remarketing firms may be deemed to be underwriters, as that term is
defined in the Securities Act in connection with the securities remarketed
thereby.
The securities may be sold directly by us or through agents designated by
us from time to time. In the case of securities sold directly by us, no
underwriters or agents would be involved. Any agents involved in the offer or
sale of the securities in respect of which this prospectus is being delivered,
and any commissions payable by us to such agents, will be set forth in the
applicable prospectus supplement. Unless otherwise indicated in the applicable
prospectus supplement, any such agent will be acting on a best efforts basis for
the period of its appointment.
GENERAL
We may authorize agents, underwriters or dealers to solicit offers by
certain specified institutions to purchase the securities to which this
prospectus and the applicable prospectus supplement relates from us at the
public offering price set forth in the applicable prospectus supplement, plus,
if applicable, accrued interest, pursuant to delayed delivery contracts
providing for payment and delivery on a specified date in the future. Such
contracts will be subject only to those conditions set forth in the applicable
prospectus supplement, and the applicable prospectus supplement will set forth
the commission payable for solicitation of such contracts.
Agents, dealers, underwriters and remarketing firms may be entitled, under
agreements entered into with us to indemnification by us against certain civil
liabilities, including liabilities under the Securities Act, or to contribution
to payments they may be required to make in respect thereof. Agents, dealers,
underwriters and remarketing firms may be customers of, engage in transactions
with, or perform services for us or our subsidiaries in the ordinary course of
business.
Unless otherwise indicated in the applicable prospectus supplement, all
securities offered by this prospectus, other than our common shares, which are
listed on the New York Stock Exchange, will be new issues with no established
trading market. We may elect to list any series of securities on an exchange,
and in the case of our common shares, on any additional exchange, but, unless
otherwise specified in the applicable prospectus supplement, we shall not be
obligated to do so. In addition, underwriters will not be obligated to make a
market in any securities. No assurance can be given regarding the activity of
trading in, or liquidity of, any securities.
Any underwriter may engage in overallotment, stabilizing transactions,
short covering transactions and penalty bids in accordance with Regulation M
under the Exchange Act. Overallotment involves sales in excess of the offering
size, which create a short position. Stabilizing transactions permit bids to
purchase the underlying security so long as the stabilizing bids do not exceed a
specified maximum. Short covering transactions involve purchases of the
securities in the open market after the distribution is completed to cover short
positions. Penalty bids permit the underwriters to reclaim a selling concession
from a dealer when the securities originally sold by the
28
dealer are purchased in a covering transaction to cover short positions. Those
activities may cause the price of the securities to be higher than it would
otherwise be. If commenced, the underwriters may discontinue any of the
activities at any time.
VALIDITY OF SECURITIES
Unless otherwise indicated in a supplement to this prospectus, Lowenstein
Sandler PC, Roseland, New Jersey, and Joseph J. LaRosa, Esq., our Vice
President, Legal Affairs, will pass upon the validity of the securities for us.
As of May 6, 2004, Mr. LaRosa owned, directly and indirectly, 15,209 common
shares and options to purchase 160,780 additional common shares, 16,480 deferred
stock units which will vest over time, and 16,661.01 units under our Long-Term
Performance Plan which will vest over time and are performance based. Lowenstein
Sandler PC has from time to time provided legal services to us.
EXPERTS
The consolidated financial statements and the related financial statement
schedule incorporated in this prospectus by reference from the Company's Annual
Report on Form 10-K for the year ended December 31, 2003 have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report, which is
incorporated herein by reference, and have been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
With respect to the unaudited interim financial information for the periods
ended March 31, 2004 and 2003 which is incorporated herein by reference,
Deloitte & Touche LLP have applied limited procedures in accordance with
professional standards for a review of such information. However, as stated in
their report included in the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2004 and incorporated by reference herein, they did not
audit and they do not express an opinion on that interim financial information.
Accordingly, the degree of reliance on their report on such information should
be restricted in light of the limited nature of the review procedures applied.
Deloitte & Touche LLP are not subject to the liability provisions of Section 11
of the Securities Act of 1933 for their report on the unaudited interim
financial information because that report is not a "report" or a "part" of the
registration statement prepared or certified by an accountant within the meaning
of Sections 7 and 11 of the Securities Act.
29
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25,000,000 Shares
SCHERING-PLOUGH CORPORATION
6.00% Mandatory Convertible
Preferred Stock
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(SCHERING-PLOUGH LOGO)
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GOLDMAN, SACHS & CO.
BANC OF AMERICA
SECURITIES LLC
CITIGROUP
CREDIT SUISSE FIRST
BOSTON
MORGAN STANLEY
BNP PARIBAS
BNY CAPITAL MARKETS, INC.
ING FINANCIAL MARKETS
MELLON FINANCIAL
MARKETS, LLC
THE WILLIAMS CAPITAL
GROUP, L.P.
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