Schering-Plough Corporation - MRRS Decision
Headnote
MRRS - registration relief for trades by formeremployees and permitted transferees of securities acquired underemployee incentive plans - issuer bid relief for foreign issuerin connection with acquisition of shares under employee incentiveplans.
Applicable Ontario Statutory Provisions
Securities Act, R.S.O. 1990, c. S.5, as am.
Applicable Ontario Rule
OSC Rule 45-503 - Trades to Employees, Executivesand Consultants.
Applicable Instrument
Multilateral Instrument 45-102 - Resale of Securities.
IN THE MATTER OF
THE SECURITIES LEGISLATIONOF
ONTARIO AND BRITISH COLUMBIA
AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEWSYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
SCHERING-PLOUGH CORPORATION
MRRS DECISION DOCUMENT
WHEREAS the local securities regulatoryauthority or regulator (the "Decision Maker") in eachof Ontario and British Columbia (the "Jurisdictions")has received an application from Schering-Plough Corporation("Schering-Plough" or the "Company") fora decision pursuant to the securities legislation of the Jurisdictions(the "Legislation") that:
(a) the requirements contained in the Legislationto be registered to trade in a security (the "RegistrationRequirement"), will not apply to certain trades ofshares (as defined below) acquired under the Schering-PloughCorporation 1997 Stock Incentive Plan (the "1997 Plan")and the Schering-Plough Corporation 2002 Stock IncentivePlan (the "2002 Plan") (the 1997 Plan and the2002 Plan are collectively the "Plans") providedthat the conditions in subsection 2.14(1) of MultilateralInstrument 45-102 - Resale of Securities are satisfied;and
(b) the requirements contained in the Legislationrelating to the delivery of an offer and issuer bid circularand any notices of change or variation thereto, minimumdeposit periods and withdrawal rights, taking up and payingfor securities tendered to an issuer bid, disclosure, restrictionsupon purchases of securities, bid financing, identical considerationand collateral benefits together with the requirement tofile a reporting form within 10 days of an exempt issuerbid and pay a related fee (the "Issuer Bid Requirements")will not apply to certain acquisitions by the Company ofShares pursuant to the Plans in each of the Jurisdictions;
AND WHEREAS pursuant to the Mutual RelianceReview System for Exemptive Relief Applications (the "System"),the Ontario Securities Commission is the principal regulatorfor this application;
AND WHEREAS Schering-Plough has representedto the Decision Makers as follows:
1. Schering-Plough is a corporation incorporatedunder the laws of the State of New Jersey. The executive officesof Schering-Plough are located in Kenilworth, New Jersey;
2. Schering-Plough and affiliates of Schering-Plough("Schering-Plough Affiliates") (Schering-Ploughand Schering-Plough Affiliates are collectively, the "Schering-PloughCompanies") are primarily engaged in the discovery, development,manufacturing and marketing of new medical therapies and treatmentprograms;
3. Schering-Plough is registered with theSecurities Exchange Commission ("SEC") in the U.S.under the U.S. Securities Exchange Act of 1934 ("ExchangeAct") and is not exempt from the reporting requirementsof the Exchange Act pursuant to Rule 12g 3-2 made thereunder;
4. Schering-Plough is not a reporting issuerin either of the Jurisdictions and has no present intentionof becoming a reporting issuer in either of the Jurisdictions;
5. The authorized share capital of Schering-Ploughconsists of 2,400,000,000 shares of common stock ("Shares"),and 50,000,000 shares of preferred stock ("PreferredShares"). As of December 31, 2001, there were 1,465,887,953Shares and no Preferred Shares issued and outstanding;
6. The Shares are listed for trading on theNew York Stock Exchange ("NYSE");
7. Schering-Plough intends to use the servicesof one or more agents / brokers ("Agent(s)") underthe Plans. The current Agent for the Plans is Salomon SmithBarney Inc. The current Agent is not registered to conductretail trades in the Jurisdictions and, if replaced, or ifadditional Agents are appointed, such replacement Agents oradditional Agents are not expected to be so registered inthe Jurisdictions. Replacement Agents or additional Agentswill be registered under applicable U.S. securities or bankinglegislation to trade in securities, if required under suchlegislation, and will be authorized by Schering-Plough toprovide services under the Plans;
8. The Agent's role in the Plans may include:(a) assisting with the administration of the Plans, includingrecord-keeping functions; (b) facilitating the exercise ofOptions (as defined below) granted under the Plans (includingcashless and stock-swap exercises) to the extent that theyare exercisable for Shares; (c) facilitating the issuanceof Shares; (d) facilitating the cancellation and surrenderof Awards (as defined below) as permitted under the Plans;(e) holding Shares issued under the Plans on behalf of Participants,Former Participants (as defined below) and Permitted Transferees(as defined below); (f) facilitating the resale of Sharesissued in connection with the Plans; and (g) facilitatingthe mechanisms as set out in the Plans for the payment ofwithholding taxes;
9. The Plans provide for grants of optionsexercisable for Shares ("Options"), deferred stockunit awards ("Deferred Stock Unit Awards"), andperformance awards ("Performance Awards") (collectively,Shares, Options, Deferred Stock Unit Awards and PerformanceAwards, are "Awards") to the employees of Schering-Ploughand its affiliates. Employees are herein referred to as the"Participants";
10. The Shares issued under the Plans willbe previously authorized but unissued Shares or reacquiredShares, whether bought on the market or otherwise;
11. Employees who participate in the Planswill not be induced to purchase Shares by expectation of employmentor continued employment;
12. The Plans are administered by the boardof directors ("Board") of the Company and/or theExecutive Compensation and Organization Committee appointedby the Board ("Committee");
13. All necessary securities filings willbe made in the U.S. in order to offer the Plans to employeesof the Schering-Plough Companies resident in the U.S.;
14. A prospectus prepared according to U.S.securities laws describing the terms and conditions of thePlans will be delivered to each Canadian Participant who receivesan Award under the Plans. The annual reports, proxy materialsand other materials Schering-Plough is required to file withthe SEC will be provided or made available to Canadian Participantsat the same time and in the same manner as the documents areprovided or made available to U.S. Participants;
15. Following the termination of a Participant'semployment relationship with the Schering-Plough Companiesfor reasons of disability, retirement, termination (otherthan for cause), sale, divestiture, spin-off or Change ofControl (as defined in the Plans), former employees ("FormerParticipants") will continue to have rights in respectof the Options as set forth in the Plans ("Post-TerminationRights"). The Plans also set forth certain rights inthe event of a Participant's death. The Committee may grantOptions that are transferable, or amend outstanding Optionsgranted under the Plans to make them transferable by the optioneeto one or more members of the optionee's immediate family(spouse, children and grandchildren) ("Permitted Transferees"),to a partnership to which the only partners are members ofthe optionee's immediate family, or to a trust establishedby the optionee for the benefit of one or more members ofthe optionee's immediately family. The Committee may in itsdiscretion permit transfers to other persons or entities.Transferable Options shall become immediately exercisableupon transfer. Permitted Transferees will also have certainPost-Termination Rights. Post-Termination Rights may include,among other things, the right of a Former Participant or PermittedTransferee to exercise Options for a period determined inaccordance with the Plans, the right to sell Shares acquiredunder the Plans through the Agent, and the right to acquireShares in certain circumstances. Post-Termination Rights willonly be issued where the right to receive them was earnedby a Former Participant while the Former Participant had anemployment relationship with Schering-Plough. Awards are otherwisenon-transferable;
16. The sale of Shares acquired under thePlans may be made by Participants, Former Participants orPermitted Transferees through the Agent;
17. As of March 31, 2002, shareholders residentin Canada did not own, directly or indirectly, more than 10%of the issued and outstanding Shares and did not representin number more than 10% of the shareholders of the Company.If at any time during the currency of the Plans shareholdersresident in Canada hold, in aggregate, greater than 10% ofthe total number of issued and outstanding Shares or if suchshareholders constitute more than 10% of all shareholdersof the Company, the Company will apply to the relevant Jurisdictionfor an order with respect to further trades to and by Participantsin that Jurisdiction in respect of Shares acquired under thePlans;
18. The maximum number of Shares that maybe issued under the 1997 Plan is 72,000,000 and under the2002 Plan is 72,000,000. The foregoing maximum amount is subjectto adjustment as provided for in the Plans;
19. The Company may require any Participantto pay to the Company the amount of any taxes which the Schering-PloughCompanies are required to withhold in connection with theexercise of Options and/or distributions from Awards. Suchtax payments may be made to the Company in cash, in Shares,or in Shares withheld by Schering-Plough from Shares issuableupon exercise of the Option or distribution of the Awards("Share Withholding Exercises") or in such otherconsideration as shall be approved by the Committee;
20. The purposes of the Plans include aidingSchering-Plough in securing and retaining employees of outstandingability and to provide additional motivation to such employeesto exert their best efforts on behalf of the Company;
21. The Committee may, in its sole discretion,grant Options to eligible Participants. Each Option grantedunder the Plans will be evidenced by an Option Award Letter("Option Award Letter");
22. As of February 2002, there were 24 Participantsin Canada eligible to receive Options under the Plans: 6 Participantsin Ontario; 1 Participant in British Columbia; and 17 Participantsin Québec;
23. Subject to the provisions of the Plans,the Committee has the sole authority to determine the numberof Shares covered by each Option and the conditions and limitationsapplicable to the exercise of the Option. The Committee maydelegate some or all of its authority under the Plans, pursuantto its terms;
24. Subject to provisions of the Plans, Optionsshall be exercisable at such times and subject to such termsand conditions as the Committee may specify. Generally, noOption shall be exercisable after the expiration of ten yearsfrom the date of grant;
25. The Option price ("Option Price")for Options will be specified in the Option Award Letter andwill be established at the discretion of the Committee; provided,however, that the Option Price per Share for an Option shallbe not less than the Fair Market Value (as defined in thePlans) of a Share on the effective date of grant of the Option;
26. Generally, Fair Market Value for the purposesof the Plans shall equal the closing price of the Shares onthe NYSE on the day of grant of the Option;
27. The Committee shall establish proceduresgoverning the exercise of Options. Generally, in order toexercise an Option, a Participant, Former Participant or PermittedTransferee must submit to Schering-Plough or to the Agenta notice of exercise in the form and manner prescribed bythe Committee ("Notice of Exercise") identifyingthe Option and number of Shares being purchased, togetherwith full payment for the Shares, including applicable taxes,if any. No Option shall be exercised for less than the lesserof 100 Shares or the full number of Shares for which the Optionis then exercisable;
28. The Notice of Exercise shall specify whichof the following types of exercise will be used to pay theOption Price and other costs, if any including:
(a) Cash Exercise. The Option holder shalldeliver the full Option Price and applicable withholdingtaxes and transaction fees, if any (collectively, "ExerciseCosts") in cash or cash equivalents to the Agent orto Schering-Plough at the time of exercise. Following receiptof the Exercise Costs, Schering-Plough shall issue the Sharesunderlying the exercised portion of the Options to the Agentor directly to the Option holder;
(b) Cashless for Cash Exercise. If permittedby the Committee or the Option Award Letter, a Cashlessfor Cash Exercise is an Option exercise and sale of allShares being purchased through the Option exercise ("Cashlessfor Cash Exercise"). If the Option holder requestsa Cashless for Cash Exercise, the Option holder shall deliveran irrevocable direction to the Agent to sell all or partof the Shares underlying the Options being exercised. Uponreceipt of such direction, the Agent shall sell the Sharesas soon as practicable and, upon settlement of the trade,shall transfer to Schering-Plough from the proceeds of thesale an amount equal to the Exercise Price and withholdingtaxes for the Shares purchased. As soon as practicable thereafter,the proceeds from the sale of the Shares (less the ExerciseCosts) shall be delivered to the Option holder;
(c) Stock Swap Exercise. If permitted bythe Committee, an Option exercise and surrender of Sharesalready owned by an Option holder for at least six monthsbefore the date of payment having a Fair Market Value equalto the Exercise Costs ("Stock-Swap Exercise").If the Option holder requests a Stock-Swap Exercise, thatOption holder must deliver to the Agent Shares owned bythe Option holder for at least six months before the dateof payment having an aggregate Fair Market Value equal tothe Exercise Costs. As soon as practicable thereafter, theapplicable number of Shares will be delivered to the Optionholder or to the Agent on behalf of the Option holder;
(d) The Committee may from time to timeestablish Option exercise procedures for purposes of permittingan Option holder to elect to defer receipt of all or a portionof the Shares subject to such Option and/or to receive cashat such later time or times in lieu of such deferred Sharesin the event of a Cashless for Cash Exercise;
(e) in any other form of legal considerationthat may be acceptable to the Committee;
29. During the 60-day period from and aftera Change of Control (the "Exercise Period"), a Participantshall have the right to surrender all or part of the Participant'sOptions to the Company and to receive cash in exchange ("OptionSurrenders");
30. Awards of Deferred Stock Units ("Units")may be made under the Plans in addition to or in lieu of Optiongrants. The number of Units allotted to a Participant shallbe credited to a memorandum account maintained by the Companyfor the Participant. Shares equal in number to the numberof Units awarded to the Participant shall be distributed tosuch Participant in a single lump sum on the second, third,fourth or fifth anniversary of the date on which such awardof Units was made or in two, three, four or five equal orunequal annual installments commencing on a date not earlierthan six months after such award date and on each anniversarythereafter for the duration of the installment period, allas specified in the award of such Units; provided, however,that the Committee may, in its sole discretion, acceleratethe payment of any lump sum or installment in the event ofthe retirement or permanent disability of a Participant orfor any other reason decided by the Committee;
31. Where a Participant ceases to be an employeeof the Schering-Plough Companies for any reason other thanretirement, permanent disability, or death, the total numberof Units credited to the memorandum account shall be forfeitedas of the date of such termination of employment unless theCommittee, in its sole discretion waives such forfeiture ("UnitForfeiture");
32. If a Participant or Former Participantdies, such number of Shares as is equal to the total numberof Units credited to the memorandum account as of the dateof death shall be distributed to designated beneficiariesas soon thereafter as practicable;
33. The Committee may, prior to or at thetime of grant, designate an award of Units as a performanceaward ("Performance Award") in which event it shallcondition the grant or vesting, as applicable, of such Unitsupon the attainment of Performance Goals (as defined in thePlans);
34. No Performance Award shall vest or bepaid out except: (i) upon achievement of the applicable PerformanceGoals; (ii) upon the death or permanent disability of theParticipant; or (iii) upon a Change of Control;
35. Pursuant to the Plans, the acquisitionof Awards by the Company in the following circumstances mayconstitute an "issuer bid": Stock Swap Exercises,Share Withholding Exercises, Unit Forfeitures and Option Surrenders;
36. The issuer bid exemptions in the Legislationmay not be available for such acquisitions by the Companysince such acquisitions may occur at a price that is not calculatedin accordance with the "market price," as that termis defined in the Legislation and may be made from PermittedTransferees;
37. When the Agents sell Shares on behalfof Former Participants and Permitted Transferees, the Agents,Former Participants and Permitted Transferees may not be ableto rely upon the exemptions from the Registration Requirementcontained in the Legislation of the Jurisdictions;
38. There is no market for the Shares in Canadaand none is expected to develop. It is expected that the resaleby Participants, Former Participants and Permitted Transfereesof the Shares acquired under the Plans will be effected throughthe NYSE;
AND WHEREAS pursuant to the System, thisDecision Document evidences the decision of each Decision Maker(collectively, the "Decision");
AND WHEREAS each of the Decision Makersis satisfied that the test contained in the Legislation thatprovides the Decision Maker with the jurisdiction to make theDecision has been met;
THE DECISION of the Decision Makers pursuantto the Legislation is that:
(a) the Registration Requirement shall notapply to trades in Shares by Former Participants or PermittedTransferees, including trades effected through the Agent,provided that the conditions in subsection 2.14(1) of MultilateralInstrument 45-102 - Resale of Securities are satisfied;and
(b) the Issuer Bid Requirements will notapply to the acquisition by Schering-Plough of Awards orShares from Participants, Former Participants or PermittedTransferees provided such acquisitions are made in accordancewith the terms of the Plans.
October 8, 2002.
"M. T. McLeod" "R.L. Shirriff"