06-15-05 -- Bristol-Myers Squibb -- Agreement -- News Release

Bristol-Myers Squibb Charged with Conspiring to Commit Securities Fraud; Prosecution Deferred for Two Years

- Two Former Company Execs Indicted -

NEWARK - Bristol-Myers Squibb Company (BMS) has agreed to pay an additional $300 million in restitution and undertake a series of corporate reforms as part of an agreement with the government to defer prosecution on a charge of conspiring to commit securities fraud for the company's failure to disclose its "channel-stuffing" activities in 2000 and 2001, U.S. Attorney Christopher J. Christie announced.

Also today, a two-count Indictment was unsealed against Frederick S. Schiff, 57, of Manhattan, a former senior vice president and the chief financial officer at BMS, and Richard J. Lane, 54, of Doylestown, Pa., a former executive vice president at BMS and president of its Worldwide Medicines Group. The Indictment charges Schiff and Lane with conspiracy and securities fraud for allegedly planning and concealing the channel-stuffing scheme to meet aggressive internal sales and earnings targets and Wall Street consensus earnings estimates. The two are expected to make initial appearances before a U.S. Magistrate Judge on Thursday.

Separately, a criminal Complaint filed today in the District of New Jersey charges New Jersey-based BMS with conspiring to commit securities fraud. As part of the Deferred Prosecution Agreement, BMS has agreed to accept responsibility for its conduct, adopt internal compliance measures and cooperate with the ongoing criminal investigation. An independent consultant has been chosen to ensure the company's compliance with the agreement.

Deferred Prosecution Agreement

Under the Deferred Prosecution Agreement, BMS has agreed to pay an additional $300 million in restitution to victims of the fraud scheme. That brings the total to $839 million that BMS has paid to shareholders harmed by the fraudulent conduct, including an earlier consent agreement with the Securities and Exchange Commission to pay a $100 million civil penalty and an additional $50 million Shareholder Fund payment - as well as monies paid by BMS in settlement of two class action proceedings. This represents the full restitution for the losses sustained for shares traded in the four days after BMS announced their restatement in 2001.

Based on acceptance by BMS of these conditions and others, the Department of Justice has agreed to defer prosecution on the Complaint for 24 months. If at the end of that period the company has fully complied and met all its obligations under the Deferred Prosecution Agreement, the criminal Complaint will be dismissed.

"We balanced the need for punishment with an acknowledgment that this company provides great value and that its work should continue," said Christie. "At the same time, we have compensated the victimized shareholders and are prosecuting individuals responsible for the fraud at BMS. This approach meets the needs of justice, sends a deterrent message to others and does not cause undue harm to an otherwise outstanding company, its shareholders and employees."

The BMS investigation was conducted by the U.S. Attorney's Office for the District of New Jersey, the Federal Bureau of Investigation and the United States Postal Inspection Service. The investigation was conducted under the auspices of President Bush's Corporate Fraud Task Force, created in July 2002 to investigate allegations of fraud and corruption at U.S. corporations. To date, the Task Force has charged more than 900 individuals in over 400 cases. More than 500 individuals have been convicted to date.

The case is being prosecuted by Assistant U.S. Attorneys Robert M. Hanna and Joshua Drew.

Throughout 2000 and 2001 BMS concealed from the investing public its persistent use of an earnings management technique commonly known as "channel stuffing." BMS's channel stuffing consisted of enticing its wholesalers through use of financial incentives to buy and hold greater quantities of prescription drugs than was warranted by the demand for those products. By the end of 2001, BMS's channel stuffing resulted in nearly $2 billion in "excess inventory" at the wholesalers.

The two years at issue in the investigation - 2000 and 2001 - were, respectively, the last year of BMS's "Double-Double" and the first year of its "Mega-Double" campaigns, publicly announced corporate goals to double sales and earnings, first in the seven years from 1994 to 2000, and then in the five years from 2001 to 2005. BMS's channel stuffing and other improper earnings management during 2000 and 2001 were part of an effort to report financial performance consistent with its Double-Double and Mega-Double public announcements. Without the channel stuffing, BMS also likely would have missed the Wall St. consensus estimates for its sales and earnings.

BMS failed to disclose and made false and misleading statements to the investing public regarding: the use of financial incentives to the wholesalers to generate sales in excess of demand; the use of sales in excess of demand to hit budget targets; the level of excess inventory at the wholesalers; the amount that excess inventory increased each quarter in 2000 and 2001. As a result, investors were misled regarding BMS's true sales and earnings, and did not have an accurate picture of the health of the company's business operations.

In exchange for an agreement by the Department of Justice to defer prosecution, BMS is required to:

• Accept and acknowledge responsibility for its conduct, as reflected in the factual statement accompanying the agreement;

• Appoint a current member of the Board of Directors, James Robinson III, as the Non-Executive Chairman of the Board, to ensure BMS emphasizes openness, accountability and integrity in corporate governance;

• Cooperate fully with the U.S. Attorney's Office in its ongoing investigation;

• Pay $300 million in additional restitution to shareholders;

• Adopt internal controls and other remedial measures designed to prevent and deter potential violations of the federal securities laws; and

• Engage an independent monitor, former U.S. Attorney and Federal Judge Frederick B. Lacey, as agreed upon by the Department of Justice and BMS, who will monitor BMS's ongoing remediation efforts and report to the Department on a regular basis.

Other components of the Deferred Prosecution Agreement include:

• Requiring BMS to endow a chair at Seton Hall University Law School dedicated to the teaching of business ethics and corporate governance, which position shall include conducting at least one seminar on business ethics and corporate governance annually that members of BMS' executive and management staff may attend, as well as other corporate executives.

• Holding a meeting within 30 days of this agreement, for BMS senior executives and senior financial personnel and other BMS employees, to be conducted by U.S. Attorney Christie and others from his office for the purpose of communicating the goals and expected effect of the agreement.

• The appointment of an additional non-executive director acceptable to the U.S. Attorney's Office and the BMS Board of Directors within 60 days.

The Indictment

The two-count Indictment against Schiff and Lane alleges that they and other co-conspirators at BMS supervised and perpetuated the channel-stuffing scheme. The two executives and their co-conspirators allegedly instructed BMS finance and operations staff to create packages of financial incentives for drug wholesalers to buy products beyond prescription demand to artificially inflate sales and earnings; signed 10-Q and 10-K forms filed with the Securities and Exchange Commission with omissions of material fact and misleading information regarding sales and earnings performance at BMS; gave consistently misleading information about earnings and inventory in press releases and conference calls with Wall Street analysts; and employed accounting and bookkeeping gimmicks to mask the increasing rise in drug inventory levels with wholesalers.

Both executives actively participated in conference calls in which they misled analysts who raised questions about the company's wholesaler inventories, according to the Indictment. They also ignored concerns expressed by company employees about the use of financial incentives to wholesalers, at a cost of tens of millions of dollars.

In one example, in October 2001, Schiff and Lane gave written approval for a package of $47 million in sales incentives to wholesalers so BMS could hit its earnings numbers for the third quarter, according to the Indictment. A month later, Lane gave written approval for a package of $85 million in sales incentives for the fourth quarter of 2001.

Throughout the period described in the Indictment, Schiff, Lane and BMS failed to disclose to Wall Street investors how the channel stuffing was artificially inflating the company's sales and earnings numbers.

According to the Indictment, in October 2000 - when the undisclosed channel-stuffing and wholesaler incentives were well under way - an analyst questioned Lane about "wholesaler inventory actions," to which Lane responded: "I don't think there was any significant wholesaler inventory activity in the quarter."

In an April 2001 conference call, Schiff responded similarly to an analysts question about wholesaler inventory levels: "... There are no unusual items that we see at this quarter compared to year-end. Everything that we see is right on target .... So there are no unusual items that we see in the inventory levels."

Timed with those conference calls, BMS repeatedly issued misleading press releases that, like the conference calls, failed to disclose the effect that the channel stuffing had on BMS sales and earnings, according to the Indictment.

As the scheme unfolded, Schiff and Lane were adamant and demanding of finance and operations staff that they do whatever it took to reach earnings estimates.

On May 19, 2000, for example, Lane wrote an email to Worldwide Medicines personnel: "Sales continue to be concerningly weak," he said. "We need to make our May target! [W]hen will this start to happen.??"

The Indictment alleges that Schiff and Lane and their co-conspirators transferred or demoted certain employees who suggested that the company's budget targets were too aggressive or expressed doubts that they could make the numbers.

Despite indictment, the defendants are presumed innocent unless and until proven guilty beyond a reasonable doubt.

Christie credited the FBI, under the direction of Special Agent in Charge Leslie Wiser, Jr., in Newark, and the U.S. Postal Inspection Service, under the direction of Postal Inspector in Charge Thomas C. Van de Merlen. The investigation was conducted under the auspices of President Bush's Corporate Fraud Task Force, created in July 2002 to investigate allegations of fraud and corruption at U.S. corporations, and led by Deputy Attorney General James B. Comey.

-end-

Defense Counsel:

BMS: Mary Jo White, Esq. New York

Schiff: David Zarnow, Esq. New York

Lane: Richard Strassberg, Esq. New York