Filed Pursuant to Rule 424(b)(3)
Registration No. 333-145055

 

 

Subject To Completion: Dated August 2, 2007

 

Prospectus Supplement to Prospectus Dated August 2, 2007

 

10,000,000 Shares

Schering-Plough Corporation

     % Mandatory Convertible Preferred Stock

 

 

 

Schering-Plough is offering 10,000,000 shares of     % mandatory convertible preferred stock, referred to as the 2007 Preferred Stock.

 

Schering-Plough will pay dividends on each share of the 2007 Preferred Stock at a rate of     % per year on the liquidation preference of $250 per share. Dividends will accrue and cumulate from the date of issuance and, to the extent that Schering-Plough is legally permitted to pay dividends and its board of directors, or an authorized committee of its board of directors, declares a dividend payable, Schering-Plough will pay dividends in cash on February 15, May 15, August 15 and November 15 of each year prior to August 13, 2010 and on August 13, 2010. The first dividend payment will be made on November 15, 2007 in the amount of $      per share of the 2007 Preferred Stock, which reflects the time period from the date of issuance to November 14, 2007.

 

Each share of the 2007 Preferred Stock has a liquidation preference of $250, plus accrued, cumulated and unpaid dividends. Each share of the 2007 Preferred Stock will automatically convert on August 13, 2010, into between      and      common shares, subject to anti-dilution adjustments, depending on the average closing price per share of the common shares over the 20 trading day period ending on the third trading day prior to such date. At any time prior to August 13, 2010, holders may elect to convert each share of the 2007 Preferred Stock into      common shares, subject to anti-dilution adjustments. If the closing price per share of the common shares exceeds $      for at least 20 trading days within a period of 30 consecutive trading days, Schering-Plough may elect, subject to certain limitations, to cause the conversion of all, but not less than all, of the shares of 2007 Preferred Stock then outstanding at the conversion rate of      common shares per share of the 2007 Preferred Stock, provided that at the time of such conversion Schering-Plough is then legally permitted to and does 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 the 2007 Preferred Stock. The 2007 Preferred Stock is expected to be listed on the New York Stock Exchange. Schering-Plough’s common shares are listed on the New York Stock Exchange under the symbol “SGP”. The last reported price of the common shares on August 1, 2007 was $29.38 per common share.

 

Concurrently with this offering, Schering-Plough is also conducting a separate registered public offering of 50,000,000 common shares (57,500,000 common shares if the underwriters exercise their option to purchase additional common shares in full). The common shares will be offered pursuant to a separate prospectus supplement. This offering is not conditioned upon the successful completion of the offering of common shares.

 

See “Risk Factors” on page S-11 of this prospectus supplement to read about factors you should consider before buying shares of the 2007 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.

 

 

 

To the extent the underwriters sell more than 10,000,000 shares of the 2007 Preferred Stock, the underwriters have the option to purchase up to 1,500,000 additional shares of the 2007 Preferred Stock from Schering-Plough at the initial price to the public less the underwriting discount.

 

 

The underwriters expect to deliver the 2007 Preferred Stock against payment in New York, New York on or about          , 2007.

 

Goldman, Sachs & Co.

Global Coordinator

 

 

Daiwa Securities America Inc.

Santander Investment

Utendahl Capital Partners, L.P.

The Williams Capital Group, L.P.

 

 

 

 

Prospectus Supplement dated     , 2007.

 

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 or the accompanying prospectus. Schering-Plough has not authorized anyone else to provide you with different information. Schering-Plough is 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 supplement or the accompanying prospectus is accurate as of any date other than the date on the front cover of those documents and that any information Schering-Plough has 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 supplement or any sale or issuance of a security.

 

 

Unless indicated otherwise, or the context otherwise requires, references in this prospectus supplement and the accompanying prospectus to “Schering-Plough Corporation”, “Schering-Plough” and “the company” or similar terms are to Schering-Plough Corporation and its consolidated subsidiaries, unless, in each case, the context clearly indicates otherwise.

 

Unless indicated otherwise, or the context otherwise requires, references in this prospectus supplement to the “2007 Preferred Stock” mean the shares of mandatory convertible preferred stock offered by this prospectus supplement, and references to the “2004 Preferred Stock” mean the 6.00% Mandatory Convertible Preferred Stock issued by Schering-Plough on August 10, 2004, which will automatically convert into common shares on September 14, 2007, unless earlier converted, and that is listed on the New York Stock Exchange under the symbol “SGP PrM”.

 

The trademarks indicated by CAPITAL LETTERS in this prospectus supplement are the property of, licensed to, promoted or distributed by Schering-Plough Corporation, its subsidiaries or related companies. The trademarks indicated by ^® in this prospectus supplement are the property of, licensed to, promoted or distributed by Organon BioSciences N.V., its subsidiaries or related companies.

 

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 Schering-Plough makes 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. Schering-Plough uses 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 or product approvals; timing and conditions of

regulatory approvals; patent and other intellectual property protection; future performance or results of current and anticipated products; sales efforts; research and development programs and anticipated spending; estimates of rebates, discounts and returns; expenses and programs to reduce expenses; the anticipated cost of and savings from reductions in work force; the outcome of contingencies such as litigation and investigations; growth strategy; expected synergies, cost savings and acquisition costs related to the planned Organon BioSciences acquisition; financial risks with respect to funding acquisitions; and financial results.

 

By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. 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 and in the reports to the Securities and Exchange Commission incorporated by reference into this prospectus supplement and the accompanying prospectus, and there are no guarantees about the financial and operational performance or the performance of your investment. Schering-Plough does not assume the obligation to update any forward-looking statement for any reason.

 

The following table sets forth, for the periods indicated, information concerning the noon buying rate for euro, expressed in U.S. dollars per €1.00. The rates set forth below are provided solely for your convenience and were not used by us in the preparation of the Organon BioSciences combined financial statements and accompanying notes included in the accompanying prospectus or the unaudited pro forma condensed combined financial statements and accompanying notes included elsewhere in this prospectus supplement. The “noon buying rate” is the noon buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York.

 

Noon Buying Rate

 

 

 

The noon buying rate for euro on August 1, 2007 was $1.3682.

 

SUMMARY

	•	growing the business;
	•	penetrating new markets;
	•	expanding the product portfolio for Schering-Plough’s three customer markets — human pharmaceutical, consumer healthcare and animal health; and
	•	discovering and developing or acquiring new products.

Issuer		Schering-Plough Corporation.
Securities Offered		10,000,000 shares of     % mandatory convertible preferred stock.
Initial Offering Price		$      for each share of 2007 Preferred Stock.
Option to Purchase Additional Shares of 2007 Preferred Stock		To the extent the underwriters sell more than 10,000,000 shares of the 2007 Preferred Stock, the underwriters have the option to purchase up to 1,500,000 additional shares of the 2007 Preferred Stock from Schering-Plough at the initial price to the public, less the underwriting discounts, within 30 days from the date of this prospectus supplement.
Dividends		% per year for each share of the 2007 Preferred Stock on the liquidation preference of $250 per share. Dividends will accrue and cumulate from the date of issuance and, to the extent that Schering-Plough is legally permitted to pay dividends and the board of directors, or an authorized committee of the board of directors, declares a dividend payable, Schering-Plough will pay dividends in cash on each dividend payment date. The expected dividend payable on the first dividend payment date is $      per share, and on each subsequent dividend payment date the dividend is expected to be $      per share. The dividend payable on the mandatory conversion date is expected to be $     . See “Risk Factors—Risks Related to the Offering—New Jersey law may restrict Schering-Plough from paying cash dividends on the 2007 Preferred Stock” and “Description of Mandatory Convertible Preferred Stock—Dividends”.
Dividend Payment Dates		February 15, May 15, August 15 and November 15 of each year (or the following business day if such date is not a business day) prior to the mandatory conversion date (as defined below), commencing on November 15, 2007, and on the mandatory conversion date.
Redemption		The 2007 Preferred Stock is not redeemable.
Mandatory Conversion Date		August 13, 2010, referred to as the “mandatory conversion date”.
Mandatory Conversion		On the mandatory conversion date, each share of the 2007 Preferred Stock will automatically convert into common shares, based on the conversion rate as described below.
		In addition to the number of common shares issuable upon conversion of each share of the 2007 Preferred Stock on the mandatory conversion date, you will receive in cash all accrued, cumulated and unpaid dividends that have not been declared for all dividend periods up to and excluding the mandatory conversion date. You will also receive any declared unpaid dividends on the mandatory conversion date. You will

		only receive dividends if Schering-Plough is legally permitted to pay dividends.
Conversion Rate		The conversion rate for each share of the 2007 Preferred Stock will be not more than      common shares and not less than      common shares, depending on the applicable market value of the common shares, as described below.
		The “applicable market value” of the 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 the 2007 Preferred Stock on the mandatory conversion date, subject to certain anti-dilution adjustments described under “Description of Mandatory Convertible Preferred Stock—Anti-dilution Adjustments”.

Optional Conversion		At any time prior to August 13, 2010, you may elect to convert each of your shares of the 2007 Preferred Stock at the minimum conversion rate of      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”.
		In addition to the number of common shares issuable upon conversion of each share of the 2007 Preferred Stock at the option of the holder on the effective date of any early conversion, referred to as the “early conversion date”, you will receive in cash all accrued, cumulated and unpaid dividends that have not been declared for all prior dividend periods ending on or prior to the dividend payment date immediately preceding the early conversion date. If the early conversion date is prior to the record date for any declared dividend for the dividend period in which you elect to convert early, you will not receive any declared dividends for that dividend period. If the early conversion date is after the record date for any declared dividend, you will receive that dividend on the relevant dividend payment date if you were the holder of record on the record date for that dividend; however, whether or not you were the holder of record on the record date, you

		must pay to the conversion agent an amount in cash equal to the full dividend payable on the dividend payment date for the then-current dividend period on the shares being converted. You will only receive dividends if Schering-Plough is legally permitted to pay dividends.
Provisional Conversion at Schering-Plough’s Option		If, at any time prior to August 13, 2010, the closing price per common share exceeds $      (150% of the threshold appreciation price of $     ), subject to anti-dilution adjustments, for at least 20 trading days within a period of 30 consecutive trading days, Schering-Plough may elect to cause the conversion of all, but not less than all, of the 2007 Preferred Stock then outstanding at the minimum conversion rate of      common shares for each share of 2007 Preferred Stock, subject to certain 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 Schering-Plough is then legally permitted to and does pay you in cash an amount equal to the sum of:
		(i) all accrued, cumulated and unpaid dividends on your shares of 2007 Preferred Stock that have not been declared for all dividend periods to, but excluding, the conversion date, plus
		(ii) if the conversion date is prior to the record date for any declared dividend, all accrued, cumulated and unpaid dividends on your shares of 2007 Preferred Stock that have been declared for all dividend periods to, but excluding, the conversion date, plus
		(iii) the present value of all remaining future dividend payments on your shares of the 2007 Preferred Stock through and including August 13, 2010 (excluding (a) any unpaid dividends accrued during the portion of the then-current dividend period through, but excluding, the conversion date, and (b) if the conversion date is after the record date for any declared dividend, any of those dividends for the then-current dividend period), computed using a discount rate equal to the treasury yield.
		If the conversion date is after the record date for any declared dividends, you will be paid those unpaid dividends on the relevant dividend payment date, rather than the conversion date, if you were the holder of record on the record date for that dividend. See “Description of Mandatory Convertible Preferred Stock—Provisional Conversion at Schering-Plough’s Option”.
Early Conversion and Dividend Make-Whole Payment Upon Certain Acquisitions		The following provisions will apply if, prior to the earlier of August 13, 2010 and Schering-Plough providing notice of a provisional conversion at its option, Schering-Plough is the

		subject of any acquisition or a series of related transactions or events pursuant to which:
		• 90% or more of Schering-Plough’s common shares are exchanged for, converted into or constitute solely the right to receive cash, securities or other property; and
		• more than 10% of such cash, securities or other property is:
		(1) cash; or
		(2) securities or other property that is not, or upon issuance will not be, shares of common equity or American depositary receipts in respect of common equity traded on the New York Stock Exchange or quoted on the Nasdaq Global Select Market or Nasdaq Global Market.
		These transactions are referred to as “make-whole acquisitions”.
		Upon such make-whole acquisition, under certain circumstances, Schering-Plough will:
		• permit conversion of the 2007 Preferred Stock, during the period beginning on the effective date of the make-whole acquisition and ending on the date that is 15 days after the effective date, at a specified make-whole conversion rate determined by reference to the price per common share paid in the make-whole acquisition; and
		• pay you, upon conversion, in cash an amount equal to the sum of:
		(1) all accrued, cumulated and unpaid dividends on your shares of 2007 Preferred Stock that have not been declared for all dividend periods to, but excluding, the conversion date, plus
		(2) if the make-whole conversion date is prior to the record date for any declared dividend, all accrued, cumulated and unpaid dividends on your shares of 2007 Preferred Stock that have been declared for all dividend periods to, but excluding, the make-whole conversion date, plus
		(3) the present value of all remaining future dividend payments on your shares of 2007 Preferred Stock through and including August 13, 2010 (excluding (a) any unpaid dividends accrued during the portion of the then-current dividend period through, but excluding, the make-whole conversion date, and (b) if the make-whole conversion date is after the record date for any declared dividend, any of those dividends for the then-current dividend period) discounted at a rate equal to     %,
		in each case, out of legally available assets.

		If the make-whole conversion date is after the record date for any declared dividends, you will be paid those dividends on the relevant dividend payment date for such declared dividends, rather than the make-whole conversion date, if you were the holder of record on the record date for that dividend.
		See “Description of Mandatory Convertible Preferred Stock—Early Conversion and Dividend Make-Whole Payment Upon Certain Acquisitions”.
Reorganization Events (Including Mergers)		The following provisions apply in the event of certain “reorganization events”, which include, subject to certain exceptions:
		• any consolidation or merger of Schering-Plough with or into another person;
		• any sale, transfer, lease or conveyance to another person of all or substantially all of Schering-Plough’s property and assets; or
		• certain reclassifications of common shares or statutory exchanges of securities of Schering-Plough.
		Each share of the 2007 Preferred Stock outstanding immediately prior to the reorganization events will become convertible on the mandatory conversion date or upon any conversion by Schering-Plough or at the option of the holders of the 2007 Preferred Stock (other than an acquisition described above under “Early Conversion and Dividend Make-Whole Payment Upon Certain Acquisitions”) into the kind of securities, cash and other property receivable in the reorganization event by holders of the common shares. See “Description of Mandatory Convertible Preferred Stock—Reorganization Events”.
Anti-dilution Adjustments		The conversion rate and the number of common shares to be delivered upon conversion may be adjusted in the event of, among other things, increases in cash dividends, stock dividends or distributions in common shares or subdivisions, splits and combinations of the common shares. See “Description of Mandatory Convertible Preferred Stock—Anti-dilution Adjustments”.
Liquidation Preference		$250 per share of 2007 Preferred Stock, plus an amount equal to the sum of all accrued, cumulated and unpaid dividends.
Voting Rights		Holders of the 2007 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		The 2007 Preferred Stock will rank as to payment of dividends and distributions of assets upon dissolution, liquidation or winding up:
		• junior to all existing and future debt obligations of Schering-Plough and its subsidiaries;

		• junior to any class or series of the capital stock of Schering-Plough, the terms of which provide that such class or series will rank senior to the 2007 Preferred Stock;
		• senior to the common shares and any other class or series of the capital stock of Schering-Plough, the terms of which provide that such class or series will rank junior to the 2007 Preferred Stock; and
		• on a parity with any other class or series of Schering-Plough’s capital stock, including the 2004 Preferred Stock;
		in each case, whether now outstanding or to be issued in the future.
		Schering-Plough will not be entitled to issue any class or series of its capital stock, the terms of which provide that such class or series will rank senior to the 2007 Preferred Stock as to payment of dividends or distribution of assets upon Schering-Plough’s dissolution, liquidation or winding up without the approval of the holders of at least two-thirds of the 2007 Preferred Stock and any other preferred shares ranking on a parity with the 2007 Preferred Stock then outstanding, voting together as a single class.
		There are currently 28,750,000 preferred shares issued and outstanding, in the form of the 2004 Preferred Stock, which will convert automatically into common shares on September 14, 2007, unless earlier converted.
Listing		Prior to this offering, there has been no public market for the 2007 Preferred Stock. The 2007 Preferred Stock is expected to be listed on the New York Stock Exchange. Schering-Plough’s common shares are listed on the New York Stock Exchange under the symbol “SGP”.
Use of Proceeds		Schering-Plough intends to use the net proceeds from the sale of the 2007 Preferred Stock and the concurrent offering of common shares to fund a portion of the purchase price for the planned Organon BioSciences acquisition. If the Organon BioSciences acquisition is not completed, Schering-Plough will use the net proceeds from this offering for general corporate purposes, and Schering-Plough will have broad discretion in allocating the net proceeds from this offering. See “Use of Proceeds”.

		As of and for the								As of and for the
		Six Months Ended								Year Ended
		June 30,								December 31,
		2007				2006				2006				2005				2004
		(Unaudited)
		(In millions, except per share data)
Operating Results
Net sales		$	6,153			$	5,369			$	10,594			$	9,508			$	8,272
Equity (income) from cholesterol joint venture			(978	)			(666	)			(1,459	)			(873	)			(347	)
Income/(loss) before income taxes(1)			1,293				780				1,483				497				(168	)
Net income/(loss)(1)(2)			1,103				630				1,143				269				(947	)
Net income/(loss)available to common shareholders			1,060				587				1,057				183				(981	)
Diluted earnings/(loss) per common share(1)			0.70				0.40				0.71				0.12				(0.67	)
Basic earnings/(loss) per common share(1)			0.71				0.40				0.71				0.12				(0.67	)
Research and development expenses			1,403				1,020				2,188				1,865				1,607
Depreciation and amortization expenses			243				251				568				486				453
Financial Position and Cash Flows
Property, net		$	4,395			$	4,396			$	4,365			$	4,487			$	4,593
Total assets			17,061				15,367				16,071				15,469				15,911
Long-term debt			2,414				2,413				2,414				2,399				2,392
Shareholders’ equity			8,870				7,968				7,908				7,387				7,556
Capital expenditures			275				192				458				478				489
Other Data
Cash dividends per common share		$	0.12			$	0.11			$	0.22			$	0.22			$	0.22
Cash dividends paid on common shares			179				162				326				324				324
Cash dividends paid on preferred shares(3)			43				43				86				86				30
Average shares outstanding used in calculating diluted earnings/(loss) per common share(4)			1,579				1,487				1,491				1,484				1,472
Average shares outstanding used in calculating basic earnings/(loss) per common share			1,491				1,480				1,482				1,476				1,472
Common shares outstanding at period-end			1,496				1,481				1,487				1,479				1,474

(1)		Operating results for the years ended 2006, 2005 and 2004 include special charges and manufacturing streamlining costs of $248 million, $294 million and $153 million, respectively. Operating results for the six months ended June 30, 2007 and 2006 include special charges and manufacturing streamlining costs of $12 million and $138 million, respectively. See Note 2 to the Schering-Plough financial statements in the 2006 10-K incorporated by reference into this prospectus supplement for additional information on these charges that have been incurred in 2006, 2005, and 2004. See also Note 2 to the Schering-Plough financial statements in the second quarter 2007 10-Q incorporated by reference into this prospectus supplement for additional information on these charges that have been incurred in the six months ended June 30, 2007 and 2006.
(2)		In 2004, Schering-Plough recorded the tax impact of the intended repatriation of funds under the American Jobs Creation Act of 2004.
(3)		Reflects dividends paid on the 2004 Preferred Stock.
(4)		The increase in average diluted shares outstanding for the six months ended June 30, 2007 was due to the 2004 Preferred Stock being dilutive under accounting rules. The 2004 Preferred Stock was not dilutive with respect to prior periods.

		Six Months
		Ended
		June 30,				Year Ended December 31,
		2007				2006				2005				2004				2003				2002
Ratio of earnings to fixed charges and preferred stock dividends			7.4				5.1				1.6				(0.3	)*			0.4	**			33.2

*		For the year ended December 31, 2004, earnings were insufficient to cover fixed charges and preferred stock dividends by $322 million.
**		For the year ended December 31, 2003, earnings were insufficient to cover fixed charges by $70 million.

 

Schering-Plough’s business faces significant risks. Before you invest in the 2007 Preferred Stock, 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 in Schering-Plough’s 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.

 

Schering-Plough’s future operating results and cash flows may differ materially from the results described in the accompanying prospectus and the documents incorporated by reference due to risks and uncertainties related to Schering-Plough’s business, including those discussed below. In addition, these factors represent risks and uncertainties that could cause actual results to differ materially from those implied by forward-looking statements contained in this prospectus supplement and the accompanying prospectus and the documents incorporated by reference.

 

Risks Related to the Planned Organon BioSciences Acquisition

 

The acquisition of Organon BioSciences is subject to certain closing conditions, including regulatory approvals, that could delay or prevent the completion of the acquisition or change the anticipated structure of the acquisition, which could impact anticipated cost savings from synergies, projected accretion to earnings from the transaction and results of future operations.

 

The completion and structure of the Organon BioSciences acquisition is subject to certain outside factors, including

 

 

Schering-Plough expects that the outcome of these proceedings will not impact the anticipated synergies and earnings accretion that Schering-Plough currently expects to achieve upon the acquisition of Organon BioSciences, the integration of the businesses of Schering-Plough and Organon BioSciences, or its plans to complete the acquisition no later than the end of 2007. For example, one of the possible outcomes is that Schering-Plough could be required to divest certain businesses or products; however, Schering-Plough expects that all such divestitures in the aggregate will not be material. However, until all regulatory and Works Councils proceedings are concluded, there are no assurances that the outcome of these proceedings will occur in accordance with these expectations.

 

In addition, the failure to complete the acquisition as currently contemplated could negatively affect Schering-Plough’s stock price, future business and results of operations. The current market price of Schering-Plough’s common shares may reflect a market assumption that the acquisition will occur, and a failure to complete the acquisition could result in a decline in the market price of Schering-Plough’s common shares.

 

In the event that the Organon BioSciences acquisition does not close by December 30, 2007, Schering-Plough could incur material damages.

 

Schering-Plough currently anticipates that it will receive any necessary regulatory approvals and satisfy other closing conditions in sufficient time to close the acquisition of Organon BioSciences on or before December 30, 2007, as required by the binding offer from Schering-Plough to Akzo Nobel. However, were certain regulatory approvals not obtained by that date as a result of a failure by Schering-Plough to use its reasonable best efforts and Schering-Plough does not close by that date,

then Schering-Plough might be liable for damages relating to its breach of its obligations to complete the transaction by December 30, 2007, and such damages could be material.

 

Schering-Plough will face financial risks in funding the acquisition, which may have a material impact on results of operations and cash flows.

 

Schering-Plough intends to fund the acquisition purchase price with a mix of cash, proceeds from the issuance of the 2007 Preferred Stock in this offering and from the concurrent offering of the common shares, and debt (in one or more series of unsecured debt of varying maturities).

 

Schering-Plough has obtained a fully committed €11 billion bridge facility to fund any portion of the acquisition cost that has not been provided from the above sources by the acquisition closing date. The bridge facility must be repaid within a year of the acquisition closing date.

 

The ability to complete the anticipated issuances of debt and equity securities to fund the acquisition and/or repay the bridge facility, and the terms of the issuances, will depend upon market conditions, and unfavorable conditions could increase costs beyond what is anticipated. Such costs could have a material adverse impact on cash flows or the results of operations or both.

 

Further, the purchase price is significant and this use of funds will impact the availability of cash flows from operations and the capacity for future issuances of debt or equity or both, all of which could reduce Schering-Plough’s flexibility to pursue future acquisitions and other opportunities. In addition, higher debt levels may make Schering-Plough more vulnerable to general adverse economic conditions.

 

Schering-Plough’s credit ratings are currently under review due to the potential for increased debt levels relating to the acquisition, and the credit ratings could decline below their current levels. The impact of such decline could reduce the availability of commercial paper borrowing and could increase the interest rate on Schering-Plough’s short and long-term debt. Any such increase in cost would negatively impact future cash flows and results of operations.

 

The integration of the businesses of Schering-Plough and Organon BioSciences to create a combined company will be a complex process, subject to unforeseen developments, which could impact anticipated cost savings from synergies, expected accretion to earnings and results of future operations.

 

As the two companies are combined, the workforces of Schering-Plough and Organon BioSciences will face uncertainties in the interim period from the closing date until the completion of the integration phase. Although substantial efforts will be made to complete the integration phase as quickly as possible, it is difficult to predict how long the integration phase will last.

 

During the interim period from closing through completion of the integration phase, the workforces of both companies may need to learn to use new processes as work is integrated and streamlined. Further, for those employees of the new combined company who have not in the past worked for a U.S.-based global company, the applicable regulatory requirements are different in a number of respects. While substantial efforts will be made to facilitate smooth integration planning and execution — including thorough training and transparent and motivational employee communications — there may be an increased risk of slower execution of various work processes, repeated execution to achieve quality standards and reputational harm in the event of a compliance failure with new and complex regulatory requirements, even if such a failure were inadvertent. Any such events could have an adverse impact on anticipated cost savings from synergies, anticipated accretion to earnings from the transaction and the results of future operations.

 

Organon BioSciences currently is a subsidiary of Akzo Nobel, and Akzo Nobel performs certain functions for Organon BioSciences (including information technology, compensation, benefits and other human resources functions). Akzo Nobel and Organon BioSciences had made certain arrangements to separate those functions prior to the time Schering-Plough and Akzo Nobel agreed

that Schering-Plough would purchase Organon BioSciences. To date, however, the separation has not been fully completed, and some separation activities are continuing. As a result, Organon BioSciences and Schering-Plough will need to depend on certain services and cooperation from Akzo Nobel for some period after the acquisition closing date to facilitate a smooth transition and complete separation. Unforeseen delays or complications in the transition and separation process or the lack of cooperation from Akzo Nobel could increase integration costs.

 

Schering-Plough has not completed an analysis of change of control or other contractual provisions that may result from the Organon BioSciences acquisition.

 

Certain of Organon BioSciences’ licenses and collaboration, co-development, co-marketing and other agreements may have change of control provisions that may be triggered by the acquisition. Should the final negotiation of these matters result in a loss of rights under these agreements, profits may be materially and adversely affected.

 

The acquisition of Organon BioSciences would increase the concentration of Schering-Plough’s global operations, particularly in Europe, which would increase the risk that negative events in Europe could have a negative impact on future results of operations.

 

The acquisition of Organon BioSciences would further expand Schering-Plough’s global human pharmaceutical and animal health businesses, particularly in Europe. Schering-Plough operates in more than 120 countries, and the majority of Schering-Plough’s profit and cash flow is generated from its non-U.S. operations. There are inherent risks in increasing the concentration in a particular geographic area. These risks include currency exchange rate volatility; increasing regulation of research and development, product marketing, and product pricing; economic destabilization; political instability or other disruption; or war, terrorism, or a natural disaster that resulted in disruption/destruction in a geographic region where there are substantial business operations. After the acquisition of Organon BioSciences’ businesses, Schering-Plough would become more vulnerable to these adverse risks were such events to occur in Europe.

 

The acquisition of Organon BioSciences would expand Schering-Plough’s animal health business worldwide, which would increase the risk that negative events in the animal health industry could have a negative impact on future results of operations.

 

Through the acquisition of Organon BioSciences’ animal health businesses, Schering-Plough’s global animal health business will become a more significant business segment. The combined company’s future sales of key animal health products could be adversely impacted by a number of factors including interruptions in manufacturing or supply, new competitive developments to treat the same conditions, technological advances, factors affecting production or marketing costs, or pricing actions by one or more of Schering-Plough’s competitors. Further, the outbreak of disease carried by animals, such as Bovine Spongiform Encephalopathy (“BSE”) or mad cow disease, could lead to their widespread death and precautionary destruction, which could adversely impact Schering-Plough’s results of operations. As the animal health segment of Schering-Plough’s business becomes more significant, the impact of any such events on future results of operations would also become more significant.

Upon the acquisition of Organon BioSciences, Schering-Plough would increase its biologics human and animal health product offerings, including animal health vaccines. Biologics carry unique risks and uncertainties, which could have a negative impact on future results of operations.

 

The successful development, testing, manufacturing and commercialization of biologics, particularly human and animal health vaccines, is a long, expensive and uncertain process. There are unique risks and uncertainties with biologics, including:

 

 

Upon the acquisition of Organon BioSciences, Schering-Plough would acquire marketed products and pipeline projects in therapeutic areas not currently covered by Schering-Plough’s existing marketed products portfolio and pipeline projects, including women’s health and fertility, anesthesia, and neuroscience, each of which carry unique risks and uncertainties which could have a negative impact on future combined results of operations.

 

Organon BioSciences markets products in therapeutic areas that are new to Schering-Plough. Each therapeutic area presents a different risk profile, including different benefits and safety issues that must be balanced by Schering-Plough and the regulators as various R&D and marketing decisions are made; unique product liability risks; different patient and prescriber priorities; and different societal pressures. While adding new therapeutic areas may strengthen the business by increasing sales and profits; making the combined company more relevant to patients and prescribers; and diversifying enterprise risk across more areas, such positives may not outweigh the additional risk in a particular therapeutic area or could result in unanticipated costs that could be material.

If the Organon BioSciences acquisition does not close, Schering-Plough will have broad discretion to use the proceeds from this offering.

 

Because the closing of the Organon BioSciences acquisition is subject to a number of closing conditions as described above, Schering-Plough cannot assure you that the acquisition will close. If the acquisition does not close, the Board of Directors will have significant discretion to allocate the proceeds from this offering and the concurrent offering of common shares to other uses.

 

Risks Related to Schering-Plough

 

The risks and uncertainties described below related to Schering-Plough’s existing business will continue to apply to the combined company after the closing of Schering-Plough’s planned acquisition of Organon BioSciences. References to Schering-Plough in this section refer to Schering-Plough before the closing of the acquisition and the combined company from and after the closing of the acquisition.

 

Key Schering-Plough products generate a significant amount of Schering-Plough’s profits and cash flows, and any events that adversely affect the market for its leading products could have a material and negative impact on results of operations and cash flows.

 

Schering-Plough’s ability to generate profits and operating cash flow is largely dependent upon the continued profitability of Schering-Plough’s cholesterol franchise, consisting of VYTORIN and ZETIA. In addition, other key products such as REMICADE, NASONEX, PEGINTRON, TEMODAR, CLARINEX, and AVELOX account for a material portion of revenues. As a result of Schering-Plough’s dependence on key products, any events that adversely affect the markets for these products could have a significant impact on results of operations. These events include loss of patent protection, increased costs associated with manufacturing, OTC availability of Schering-Plough’s product or a competitive product, the discovery of previously unknown side effects, increased competition from the introduction of new, more effective treatments and discontinuation or removal from the market of the product for any reason.

 

For example, the profitability of Schering-Plough’s cholesterol franchise may be adversely affected by the introduction of multiple generic forms in December 2006 of two competing cholesterol products that lost patent protection earlier in 2006.

 

There is a high risk that funds invested in research will not generate financial returns because the development of novel drugs requires significant expenditures with a low probability of success.

 

There is a high rate of failure inherent in the research to develop new drugs to treat diseases. As a result, there is a high risk that funds invested in research programs will not generate financial returns. This risk profile is compounded by the fact that this research has a long investment cycle. To bring a pharmaceutical compound from the discovery phase to market may take a decade or more and failure can occur at any point in the process, including later in the process after significant funds have been invested.

 

Schering-Plough’s success is dependent on the development and marketing of new products, and uncertainties in the regulatory and approval process may result in the failure of products to reach the market.

 

Products that appear promising in development may fail to reach market for numerous reasons, including the following:

 

 

 

Intellectual property protection for innovation is an important contributor to Schering-Plough’s profitability. Generic forms of Schering-Plough’s products may be introduced to the market as a result of the expiration of patents covering Schering-Plough’s products, a successful challenge to Schering-Plough’s patents, or the at-risk launch of a generic version of a Schering-Plough product, which may have a material and negative effect on results of operations.

 

Intellectual property protection is critical to Schering-Plough’s ability to successfully commercialize its products. Upon the expiration or the successful challenge of Schering-Plough’s patents covering a product, competitors may introduce lower-priced generic versions of that product, which may include Schering-Plough’s well-established products. In recent years, some generic manufacturers have launched generic versions of products before the ultimate resolution of patent litigation (commonly known as “at-risk” product launches). Such generic competition could result in the loss of a significant portion of sales or downward pressures on the prices at which Schering-Plough offers formerly patented products, particularly in the U.S. Patents and patent applications relating to Schering-Plough’s significant products are of material importance to Schering-Plough.

 

Additionally, certain foreign governments have indicated that compulsory licenses to patents may be granted in the case of national emergencies, which could diminish or eliminate sales and profits from those regions and negatively affect Schering-Plough’s results of operations. Further, recent court decisions relating to other companies’ patents in the U.S., as well as the discussion of regulatory initiatives, may result in further erosion of intellectual property protection.

 

Patent disputes can be costly to prosecute and defend and adverse judgments could result in damage awards, increased royalties and other similar payments and decreased sales.

 

Patent positions can be highly uncertain and patent disputes in the pharmaceutical industry are not unusual. An adverse result in a patent dispute involving Schering-Plough’s patents, or the patents of its collaborators, may lead to a loss of market exclusivity and render such patents invalid. An adverse result in a patent dispute involving patents held by a third party may preclude the commercialization of Schering-Plough’s products, force Schering-Plough to obtain licenses in order to continue manufacturing or marketing the affected products, which licenses may not be available on commercially reasonable terms, negatively affect sales of existing products or result in injunctive relief and payment of financial remedies.

 

The potential for litigation regarding Schering-Plough’s intellectual property rights always exists and may be initiated by third parties attempting to abridge Schering-Plough’s rights, as well as by Schering-Plough in protecting its rights. A generic manufacturer may file an Abbreviated New Drug Application seeking approval after the expiration of the applicable data exclusivity and alleging that one or more of the patents listed in the innovator’s New Drug Application are invalid or not infringed. This allegation is commonly known as a Paragraph IV certification. The innovator then has the ability to file suit against the generic manufacturer to enforce its patents. In recent years, generic manufacturers have used Paragraph IV certifications extensively to challenge patents on a wide array of innovative pharmaceuticals, and it is anticipated that this trend will continue. Even if Schering-Plough is ultimately successful in a particular dispute, Schering-Plough may incur substantial costs in defending its patents and other intellectual property rights. See “Patent Challenges Under the Hatch-Waxman Act” in Part II, Item 1, “Legal Proceedings” in the second quarter 2007 10-Q, for a list of current Paragraph IV certifications for Schering-Plough products.

Multi-jurisdictional regulations, including those establishing Schering-Plough’s ability to price products, may negatively affect Schering-Plough’s sales and profit margins.

 

Schering-Plough faces increased pricing pressure globally from managed care organizations, institutions and government agencies and programs that could negatively affect Schering-Plough’s sales and profit margins. For example, in the U.S., the Medicare Prescription Drug Improvement and Modernization Act of 2003 contains a prescription drug benefit for individuals who are eligible for Medicare. The prescription drug benefit became effective on January 1, 2006 and is resulting in increased use of generics and increased purchasing power of those negotiating on behalf of Medicare recipients.

 

In addition to legislation concerning price controls, other trends that could affect Schering-Plough’s business include legislative or regulatory action relating to pharmaceutical pricing and reimbursement, health care reform initiatives and drug importation legislation, involuntary approval of medicines for OTC use, consolidation among customers and trends toward managed care and health care costs containment. Increasingly, market approval or reimbursement of products may be impacted by health technology assessments, which seek to condition approval or reimbursement on an assessment of the impact of health technologies on the healthcare system.

 

In the U.S., as a result of the government’s efforts to reduce Medicaid expenses, managed care organizations continue to grow in influence, and Schering-Plough faces increased pricing pressure as managed care organizations continue to seek price discounts with respect to Schering-Plough’s products.

 

In other countries, many governmental agencies strictly control, directly or indirectly, the prices at which pharmaceutical products are sold. In these markets, cost control methods including restrictions on physician prescription levels and patient reimbursements; emphasis on greater use of generic drugs; and across-the-board price cuts may decrease revenues internationally.

 

Government investigations against Schering-Plough could lead to the commencement of civil and/or criminal proceedings involving the imposition of substantial fines, penalties and injunctive or administrative remedies, including exclusion from government reimbursement programs, which could give rise to other investigations or litigation by government entities or private parties.

 

Schering-Plough cannot predict whether future or pending investigations to which it may become subject would lead to a judgment or settlement involving a significant monetary award or restrictions on its operations.

 

The pricing, sales and marketing programs and arrangements, and related business practices of Schering-Plough and other participants in the health care industry are under increasing scrutiny from federal and state regulatory, investigative, prosecutorial and administrative entities. These entities include the Department of Justice and its U.S. Attorney’s Offices, the Office of Inspector General of the Department of Health and Human Services, the FDA, the Federal Trade Commission and various state Attorneys General offices. Many of the health care laws under which certain of these governmental entities operate, including the federal and state anti-kickback statutes and statutory and common law false claims laws, have been construed broadly by the courts and permit the government entities to exercise significant discretion. In the event that any of those governmental entities believes that wrongdoing has occurred, one or more of them could institute civil or criminal proceedings which, if resolved unfavorably, could subject Schering-Plough to substantial fines, penalties and injunctive or administrative remedies, including exclusion from government reimbursement programs. In addition, an adverse outcome to a government investigation could prompt other government entities to commence investigations of Schering-Plough or cause those entities or private parties to bring civil claims against it. Schering-Plough also cannot predict whether any investigations will affect its marketing practices or sales. Any such result could have a material adverse impact on Schering-Plough’s results of operations, cash flows, financial condition, or its business.

Regardless of the merits or outcomes of any investigations, government investigations are costly, divert management’s attention from Schering-Plough’s business and may result in substantial damage to Schering-Plough’s reputation.

 

There are other legal matters in which adverse outcomes could negatively affect Schering-Plough’s business.

 

Unfavorable outcomes in other pending litigation matters, or in future litigation, including litigation concerning product pricing, securities law violations, product liability claims, ERISA matters, patent and intellectual property disputes, and antitrust matters could preclude the commercialization of products, negatively affect the profitability of existing products and could subject Schering-Plough to substantial fines, penalties and injunctive or administrative remedies, including exclusion from government reimbursement programs. Any such result could materially and adversely affect Schering-Plough’s results of operations, cash flows, financial condition, or its business.

 

Please refer to “Legal Proceedings” in Item 3 in Schering-Plough’s 2006 10-K and Part II, Item 1 in Schering-Plough’s second quarter 2007 10-Q for descriptions of significant pending litigation. For the combined company after the acquisition closing date, see also Note 27 of Organon BioSciences’ combined financial statements for the years ended December 31, 2006, 2005 and 2004 and Note 17 to Organon BioSciences’ unaudited condensed combined interim financial statements for the six months ended June 30, 2007 and 2006 included in the accompanying prospectus.

 

Schering-Plough is subject to governmental regulations, and the failure to comply with, as well as the costs of compliance of, these regulations may adversely affect Schering-Plough’s financial position and results of operations.

 

Schering-Plough’s manufacturing facilities and clinical/research practices must meet stringent regulatory standards and are subject to regular inspections. The cost of regulatory compliance, including that associated with compliance failures, can materially affect Schering-Plough’s financial position, cash flows and results of operations. Failure to comply with regulations, which include pharmacovigilance reporting requirements and standards relating to clinical, laboratory and manufacturing practices, can result in delays in the approval of drugs, seizure or recalls of drugs, suspension or revocation of the authority necessary for the production and sale of drugs, fines and other civil or criminal sanctions.

 

For example, in May 2002, Schering-Plough agreed with the FDA to the entry of a Consent Decree to resolve issues related to compliance with current Good Manufacturing Practices at certain of Schering-Plough’s facilities in New Jersey and Puerto Rico. The Consent Decree work placed significant additional controls on production and release of products from these sites, which increased costs and slowed production and led to a reduction in the number of products produced at the sites. Further, Schering-Plough’s research and development operations were negatively impacted by the Consent Decree because these operations share common facilities with the manufacturing operations.

 

Schering-Plough also is subject to other regulations, including environmental, health and safety, and labor regulations.

 

Developments following regulatory approval may decrease demand for Schering-Plough’s products.

 

Even after a product reaches market, certain developments following regulatory approval, including results in post-marketing Phase IV trials, may decrease demand for Schering-Plough’s products, including the following:

 

 

 

In the past several years, clinical trials and post-marketing surveillance of certain marketed drugs of competitors within the industry have raised safety concerns that have led to recalls, withdrawals or adverse labeling of marketed products. These situations also have raised concerns among some prescribers and patients relating to the safety and efficacy of pharmaceutical products in general, which have negatively affected the sales of such products.

 

In addition, following the wake of recent product withdrawals of other companies and other significant safety issues, health authorities such as the U.S. Food and Drug Administration, the European Medicines Agency and the Pharmaceuticals and Medicines Device Agency have increased their focus on safety when assessing the benefit/risk balance of drugs. Some health authorities appear to have become more cautious when making decisions about approvability of new products or indications and are re-reviewing select products that are already marketed, adding further to the uncertainties in the regulatory processes. There is also greater regulatory scrutiny, especially in the U.S., on advertising and promotion and in particular, direct-to-consumer advertising.

 

If previously unknown side effects are discovered or if there is an increase in the prevalence of negative publicity regarding known side effects of any of Schering-Plough’s products, it could significantly reduce demand for the product or may require Schering-Plough to remove the product from the market. Further, in the current environment in which all pharmaceutical companies operate, Schering-Plough is at risk for product liability claims for its products.

 

New products and technological advances developed by Schering-Plough’s competitors may negatively affect sales.

 

Schering-Plough operates in a highly competitive industry. Schering-Plough competes with a large number of multinational pharmaceutical companies, biotechnology companies and generic pharmaceutical companies. Many of Schering-Plough’s competitors have been conducting research and development in areas served both by Schering-Plough’s current products and by those products Schering-Plough is in the process of developing. Competitive developments that may impact Schering-Plough include technological advances by, patents granted to, and new products developed by competitors or new and existing generic, prescription and/or OTC products that compete with products of Schering-Plough or the Merck/Schering-Plough Cholesterol Partnership. In addition, it is possible that doctors, patients and providers may favor those products offered by competitors due to safety, efficacy, pricing or reimbursement characteristics, and as a result Schering-Plough will be unable to maintain its sales for such products.

 

Competition from third parties may make it difficult for Schering-Plough to acquire or license new products or product candidates (regardless of stage of development) or to enter into such transactions on terms that permit Schering-Plough to generate a positive financial impact.

 

Schering-Plough depends on acquisition and in-licensing arrangements as a source for new products. Opportunities for obtaining or licensing new products are limited, however, and securing rights to them typically requires substantial amounts of funding or substantial resource commitments. Schering-Plough competes for these opportunities against many other companies and third parties that have greater financial resources and greater ability to make other resource commitments. Schering-Plough may not be able to acquire or license new products, which could adversely impact Schering-Plough and its prospects. Schering-Plough may also have difficulty acquiring or licensing new products on acceptable terms. To secure rights to new products, Schering-Plough may have to make substantial financial or other resource commitments that could limit its ability to produce a positive financial impact from such transactions.

Schering-Plough relies on third-party relationships for its key products, and the conduct and changing circumstances of such third parties may adversely impact the business.

 

Schering-Plough has several relationships with third parties on which Schering-Plough depends for many of its key products. Very often these third parties compete with Schering-Plough or have interests that are not aligned with the interests of Schering-Plough. Notwithstanding any contracts Schering-Plough has with these third parties, Schering-Plough may not be able to control or influence the conduct of these parties, or the circumstances that affect them, either of which could adversely impact Schering-Plough.

 

Schering-Plough’s global operations expose Schering-Plough to additional risks, and any adverse event could have a material negative impact on results of operations.

 

Schering-Plough operates in more than 120 countries, and the majority of Schering-Plough’s profit and cash flow is generated from international operations. Acquisitions, such as the recently announced purchase of Organon BioSciences, would further expand the size, scale and scope of its global operations. Risks, inherent in conducting a global business include:

 

 

In addition, there may be changes to Schering-Plough’s business and political position if there is instability, disruption or destruction in a significant geographic region, 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.

 

Schering-Plough is exposed to market risk from fluctuations in currency exchange rates and interest rates.

 

Schering-Plough operates in multiple jurisdictions and as such, virtually all sales are denominated in currencies of the local jurisdiction. Additionally, Schering-Plough has entered and will enter into acquisition, licensing, borrowings or other financial transactions that may give rise to currency and interest rate exposure. Since Schering-Plough cannot, with certainty, foresee and mitigate against such adverse fluctuations, fluctuations in currency exchange rates and interest rates could negatively affect Schering-Plough’s results of operations and/or cash flows.

 

In order to mitigate against the adverse impact of these market fluctuations, Schering-Plough will from time to time enter into hedging agreements. Schering-Plough has entered into a foreign currency option to partially mitigate the currency exchange rate risk on the euro purchase price of the Organon BioSciences acquisition. In addition, Schering-Plough has entered into a series of interest rate swaps to partially mitigate interest rate risk associated with financing the purchase of Organon BioSciences. While hedging agreements, such as currency options and interest rate swaps, limit some of the exposure to exchange rate and interest rate fluctuations, such attempts to mitigate these risks are costly and not always successful.

 

Insurance coverage for product liability may be limited, cost prohibitive or unavailable.

 

Schering-Plough maintains insurance coverage with such deductibles and self-insurance to reflect market conditions (including cost and availability) existing at the time it is written, and the

relationship of insurance coverage to self-insurance varies accordingly. For certain products, third-party insurance may be cost prohibitive, available on limited terms or unavailable.

 

Schering-Plough is subject to evolving and complex tax laws, which may result in additional liabilities that may affect results of operations.

 

Schering-Plough is subject to evolving and complex tax laws in its jurisdictions. Significant judgment is required for determining Schering-Plough’s tax liabilities, and Schering-Plough’s tax returns are periodically examined by various tax authorities. Schering-Plough’s 1997–2006 tax returns remain open for examination by the Internal Revenue Service. Schering-Plough may be challenged by the IRS and other tax authorities on positions it has taken in its income tax returns. Although Schering-Plough believes that its accrual for tax contingencies is adequate for all open years, based on past experience, interpretations of tax law, and judgments about potential actions by tax authorities, due to the complexity of tax contingencies, the ultimate resolution of any tax matters may result in payments greater or less than amounts accrued.

 

In addition, Schering-Plough may be impacted by changes in tax laws including tax rate changes, changes to the laws related to the remittance of foreign earnings, new tax laws and revised tax law interpretations in domestic and foreign jurisdictions.

 

Risks Related to the Offering

 

The market price of the 2007 Preferred Stock will be directly affected by the market price of the common shares, which may be volatile.

 

To the extent there is a secondary market for the 2007 Preferred Stock, Schering-Plough believes that the market price of the 2007 Preferred Stock will be significantly affected by the market price of the common shares. Schering-Plough cannot predict how the common shares will trade. This may result in greater volatility in the market price of the 2007 Preferred Stock than would be expected for nonconvertible preferred stock. From the beginning of 2005 to June 30, 2007, the reported high and low sales prices for the common shares ranged from a low of $17.67 per share to a high of $33.81 per share. The market price of the common shares will likely continue to fluctuate in response to a number of factors including the following, most of which are beyond Schering-Plough’s control:

 

 

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 the 2007 Preferred Stock and the common shares.

Purchasers of the 2007 Preferred Stock may suffer dilution of the 2007 Preferred Stock upon the issuance of a new series of preferred stock ranking equally with the 2007 Preferred Stock.

 

The terms of the 2007 Preferred Stock do not restrict the ability of Schering-Plough to offer a new series of preferred stock that ranks equally with the 2007 Preferred Stock. Schering-Plough has no obligation to consider the interest of the holders of the 2007 Preferred Stock in engaging in any such offering or transaction.

 

A holder of 2007 Preferred Stock may realize some or all of a decline in the market value of the common shares.

 

The market value of the common shares on August 13, 2010 may be less than $      per share, referred to as the initial price. If that market value is less than the initial price, then holders of the 2007 Preferred Stock will receive common shares on August 13, 2010 with a market value per share that is less than the initial price. Accordingly, a holder of 2007 Preferred Stock assumes the entire risk that the market value of the common shares may decline. Any decline in the market value of the common shares may be substantial.

 

Common shares issued pursuant to the concurrent offering or eligible for future issuance or sale may cause the common share price to decline, which may negatively impact your investment.

 

Issuances or sales of substantial numbers of additional common shares or the perception that such issuances or sales could occur, may cause prevailing market prices for the common shares to decline and may adversely affect the ability to raise additional capital in the financial markets at a time and price favorable to Schering-Plough. An additional 50,000,000 common shares are being issued concurrently with this offering (or 57,500,000 common shares if the underwriters exercise their option to purchase additional common shares). As noted above, a decline in the market price of the common shares may negatively impact the market price for the 2007 Preferred Stock.

 

The issuance of preferred shares could adversely affect holders of common shares, which may negatively impact your investment.

 

Schering-Plough’s board of directors is authorized to issue additional classes or series of preferred shares without any action on the part of the shareholders. The board of directors also has the power, without shareholder approval, to set the terms of any such classes or series of preferred shares that may be issued, including voting rights, dividend rights and preferences over the common shares with respect to dividends or upon the liquidation, dissolution or winding up of the business and other terms. If Schering-Plough issues preferred shares in the future that have preference over the common shares with respect to the payment of dividends or upon liquidation, dissolution or winding up, or if Schering-Plough issues preferred shares with voting rights that dilute the voting power of the common shares, the rights of holders of the common shares or the market price of the common shares could be adversely affected. As noted above, a decline in the market price of the common shares may negatively impact the market price for the 2007 Preferred Stock.

 

The opportunity for equity appreciation provided by an investment in the shares of the 2007 Preferred Stock is less than that provided by a direct investment in the common shares.

 

The number of common shares that are issuable upon mandatory conversion on the conversion date of the 2007 Preferred Stock will decrease if the applicable market value increases to $     . Therefore, the opportunity for equity appreciation provided by an investment in the 2007 Preferred Stock is less than that provided by a direct investment in the common shares. Assuming the initial price accurately reflects fair market value, the market value of the common shares on August 13,

2010 must exceed the threshold appreciation price of $      before a holder of the 2007 Preferred Stock will realize any equity appreciation.

 

Holders of the 2007 Preferred Stock will have no rights as holders of common shares until they acquire the common shares.

 

Until you acquire common shares upon conversion, you will have no rights with respect to the 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 the 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.

 

The 2007 Preferred Stock has never been publicly traded and may never be publicly traded.

 

Prior to this offering, there has been no public market for the 2007 Preferred Stock. The 2007 Preferred Stock is expected to be listed on the New York Stock Exchange. There can be no assurance, however, that an active trading market will develop, or if developed, that an active trading market will be maintained. The underwriters have advised Schering-Plough that they intend to facilitate secondary market trading by making a market in the 2007 Preferred Stock. However, the underwriters are not obligated to make a market in the 2007 Preferred Stock and may discontinue market making activities at any time.

 

New Jersey law may restrict Schering-Plough from paying cash dividends on the 2007 Preferred Stock.

 

New Jersey law provides that Schering-Plough may pay dividends on the 2007 Preferred Stock only to the extent by which the total assets exceed the total liabilities and so long as Schering-Plough is able to pay its debts as they become due in the usual course of the business.

 

The 2007 Preferred Stock will rank junior to all of Schering-Plough’s and its subsidiaries’ liabilities in the event of a bankruptcy, liquidation or winding up.

 

In the event of bankruptcy, liquidation or winding up, Schering-Plough’s assets will be available to pay obligations on the 2007 Preferred Stock only after all of Schering-Plough’s liabilities have been paid. In addition, the 2007 Preferred Stock will rank in parity with the 2004 Preferred Stock and will effectively rank junior to all existing and future liabilities of Schering-Plough’s subsidiaries and the capital stock (other than common shares) of the subsidiaries held by entities or persons other than Schering-Plough or entities owned or controlled by Schering-Plough. The rights of holders of the 2007 Preferred Stock to participate in the assets of Schering-Plough’s 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, 2007, Schering-Plough had total consolidated liabilities of $8.2 billion. In addition, Schering-Plough intends to fund a portion of the planned Organon BioSciences acquisition with debt. In the event of bankruptcy, liquidation or winding up, there may not be sufficient assets remaining, after paying Schering-Plough and its subsidiaries’ liabilities, to pay amounts due on any or all of the 2007 Preferred Stock then outstanding.

 

The 2007 Preferred Stock provides limited conversion 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 2007 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 Schering-Plough or a third party that modify the capital structure. See “Description of Mandatory Convertible Preferred Stock—Anti-Dilution Adjustments”. Schering-Plough will not adjust the conversion rate for other events, including offerings of common shares for cash by

Schering-Plough or in connection with acquisitions. There can be no assurance that an event that adversely affects the value of the 2007 Preferred Stock, but does not result in an adjustment to the conversion rate, will not occur.

 

You may have to pay taxes with respect to distributions on the 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 2007 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 Schering-Plough or a third party that modify the capital structure. See “Description of Mandatory Convertible Preferred Stock—Anti-dilution Adjustments”. Under certain circumstances, you may be required to include an amount in income for U.S. federal income tax purposes, notwithstanding the fact that you do not actually receive such distribution. The amount that you would have to include in income is generally the fair market value of the additional common shares to which you would be entitled by reason of the adjustment. In addition, non-U.S. holders of the 2007 Preferred Stock may, in certain circumstances, be deemed to have received a distribution subject to U.S. federal withholding tax requirements.

 

Schering-Plough estimates that the net proceeds from the sale of the 2007 Preferred Stock will be approximately $2.435 billion (based on an assumed offering price to the public of $250 per share), or $2.801 billion if the underwriters exercise in full their option to purchase additional shares, after deducting the underwriting discounts and estimated offering expenses payable by Schering-Plough. Concurrently with this offering, Schering-Plough is also offering 50,000,000 common shares. Schering-Plough estimates that the net proceeds from the common share offering, based upon an assumed public offering price of $29.38 per common share, which was the last reported price of the common shares on the New York Stock Exchange on August 1, 2007, will be approximately $1.431 billion, or $1.646 billion if the underwriters exercise in full their option to purchase additional common shares, after deducting the underwriting discounts and estimated offering expenses payable by Schering-Plough. Neither the completion of this offering nor the completion of the common share offering is conditioned upon the other.

 

Schering-Plough intends to use the net proceeds from the sale of the 2007 Preferred Stock to fund a portion of the approximately €11 billion purchase price (or $15.1 billion based on the noon buying rate for euro on August 1, 2007) for the planned Organon BioSciences acquisition, which is expected to close by the end of 2007. Schering-Plough intends to fund the remainder of the acquisition price through a combination of the net proceeds from the concurrent offering of common shares, cash on hand and debt, which may include borrowings under a committed €11 billion bridge facility.

 

If the planned Organon BioSciences acquisition is not completed, Schering-Plough will use the net proceeds from this offering for general corporate purposes, including:

 

 

Schering-Plough will invest the net proceeds from this offering in U.S. dollar or foreign currency denominated short-term, interest-bearing, investment-grade obligations and bank deposits until they are applied as described above. If the planned Organon BioSciences acquisition is not completed, Schering-Plough will have broad discretion in allocating the net proceeds from this offering.

 

Schering-Plough’s common shares 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 common share for such periods:

 

 

On August 1, 2007, the closing sale price of the common shares on the New York Stock Exchange was $29.38 per share. At the close of business on June 30, 2007, there were 35,221 holders of record of the common shares.

 

This description of the terms of the 2007 Preferred Stock is only a summary. The terms of the 2007 Preferred Stock will be contained in a certificate of amendment to Schering-Plough’s amended and restated certificate of incorporation. Schering-Plough has previously filed with the SEC a copy of its amended and restated certificate of incorporation. See “Where You Can Find More Information”. The certificate of amendment will be filed as Exhibit 4 to an 8-K after the date of this prospectus supplement.

 

General

 

The certificate of incorporation authorizes the issuance of 50,000,000 preferred shares, par value $1.00 per share. In August 2004, Schering-Plough issued 28,750,000 preferred shares, designated as 6.00% Mandatory Convertible Preferred Stock, which will remain outstanding until their automatic conversion to common shares on September 14, 2007, unless earlier converted. See “Description of Capital Stock—Common Shares” and “Description of Capital Stock—Preferred Shares” in the accompanying prospectus for a description of the other classes of capital stock.

 

When issued, the 2007 Preferred Stock will constitute a single series of the preferred shares, consisting of 10,000,000 shares (or 11,500,000 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 the 2007 Preferred Stock will have no preemptive rights. All of the shares of the 2007 Preferred Stock, when issued and paid for, will be fully paid and non-assessable.

 

The 2007 Preferred Stock will rank as to payment of dividends and distributions of assets upon dissolution, liquidation or winding up:

 

 

in each case, whether now outstanding or to be issued in the future.

 

Schering-Plough will not be entitled to issue any class or series of its capital stock, the terms of which provide that such class or series will rank senior to the 2007 Preferred Stock as to payment of dividends or distribution of assets upon the dissolution, liquidation or winding up without the approval of the holders of at least two-thirds of the shares of Schering-Plough’s 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, Schering-Plough is authorized to issue up to 2,400,000,000 common shares, $.50 par value per share. As of June 30, 2007, 1,496,297,204 common shares were issued and outstanding. In addition, as of such date, 547,238,751 common shares were held in treasury, 80,040,000 common shares were reserved for issuance upon conversion of the 2004 Preferred Stock and 166,632,803 common shares were reserved for issuance under stock incentive plans. Concurrently with this offering, Schering-Plough expects to issue an additional 50,000,000 common shares (or 57,500,000 common shares if the underwriters exercise their option to purchase additional shares in full) in a registered public offering. See “Summary—Schering-Plough Corporation—Concurrent Public Offering of Common Shares”. Additionally, the 2004

Preferred Stock will automatically convert into between 64,546,625 and 80,040,000 common shares (subject to any anti-dilution adjustments) depending on the average closing price of the common shares over a period immediately preceding the mandatory conversion date of September 14, 2007, unless earlier converted.

 

Under New Jersey law, Schering-Plough may declare or pay dividends on the 2007 Preferred Stock only to the extent by which the total assets exceed the total liabilities and so long as Schering-Plough is able to pay its debts as they become due in the usual course of its business. When the need to make these determinations arises, the board of directors will determine the amount of the total assets and total liabilities and the ability to pay its debts in accordance with New Jersey law.

 

Dividends

 

General

 

Dividends on the 2007 Preferred Stock will be payable quarterly in cash, when and if declared, on February 15, May 15, August 15 and November 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 of which is a “dividend payment date”, at the rate of     % per year on the liquidation preference of $250 per share (equal to $         per share), subject to adjustment for stock splits, combinations, reclassifications or other similar events. The initial dividend on the 2007 Preferred Stock, for the first dividend period, assuming the issue date is        , 2007 is expected to be $      per share (based on the annual dividend rate of  % and a liquidation preference of $250 per share), and is expected to be payable, when and if declared, on November 15, 2007. Each subsequent quarterly dividend on the 2007 Preferred Stock, when and if declared, is expected to be $      per share (based on the annual dividend rate of  % and a liquidation preference of $250 per share). The dividend for the last dividend period is expected to be $      per share and is expected to be payable, when and if declared, on August 13, 2010. All dividends are subject to adjustment for stock splits, combinations, reclassifications or other similar events.

 

The amount of dividends payable for any 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 the 2007 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 the stock register on close of business on the first business day of the calendar month in which the applicable dividend payment date falls. Schering-Plough is only obligated to pay a dividend on the 2007 Preferred Stock if the board of directors, or an authorized committee thereof, declares the dividend payable and Schering-Plough is then legally permitted to pay the dividend.

 

Dividends on the 2007 Preferred Stock shall accrue and cumulate if Schering-Plough fails to declare one or more dividends on the 2007 Preferred Stock in any amount, whether or not Schering-Plough is then legally permitted under New Jersey law to pay such dividends.

 

Schering-Plough is not obligated to and will not pay holders of the 2007 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. Schering-Plough is also not obligated to and will not pay holders of the 2007 Preferred Stock any dividend in excess of the full dividends on the 2007 Preferred Stock that are payable as described above.

 

If the board of directors (or an authorized committee of the board of directors) does not declare or pay a dividend in respect of any dividend payment date, the 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 a dividend that is not payable on a dividend payment

date will be holders of the 2007 Preferred Stock as they appear on the 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 the board of directors or an authorized committee of the board of directors declares the dividend payable and (ii) not be more than 60 days prior to the date the dividend is paid.

 

There is no sinking fund with respect to dividends.

 

Payment Restrictions

 

Unless all accrued, cumulated and unpaid dividends on the 2007 Preferred Stock for all past quarterly dividend periods shall have been paid in full, Schering-Plough will not:

 

 

 

Redemption

 

The 2007 Preferred Stock will not be redeemable.

 

Mandatory Conversion

 

Each share of the 2007 Preferred Stock, unless previously converted, will automatically convert on August 13, 2010, which is called 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 the 2007 Preferred Stock on the mandatory conversion date, you will receive in cash all accrued, cumulated and unpaid dividends that have not been declared for all dividend periods up to and excluding the mandatory conversion date. You will also receive any declared unpaid dividends on the mandatory conversion date. You will only receive dividends if Schering-Plough is legally permitted to pay dividends.

The conversion rate, which is the number of common shares issuable upon conversion of each share of the 2007 Preferred Stock on the applicable conversion date, will, subject to adjustment as described under “—Anti-Dilution Adjustments” below, be as follows:

 

 

Schering-Plough refers to the minimum conversion rate and the maximum conversion rate collectively as the “fixed conversion rates”.

 

Accordingly, assuming that the market price of the 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:

 

 

“Applicable market value” means the average of the closing prices per share of the common shares on each of the 20 consecutive trading days ending on the third trading day immediately preceding the mandatory conversion date. After a reorganization event, if securities received in such reorganization event are publicly traded, the applicable market value of such securities shall be calculated in the same manner as described in the preceding sentence, and for all other property, the value on the third trading day immediately preceding the mandatory conversion date. The “initial price” is the closing price of the common shares on the New York Stock Exchange on        , 2007. The threshold appreciation price represents an approximately     % appreciation over the initial price.

 

The “closing price” of the common shares or of any securities distributed in a spin-off on any date of determination means the closing sale price or, if no closing sale price is reported, the last reported sale price of the 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 the 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 the 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 the common shares or such securities are so listed or quoted, or if the 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 Global Select Market or the Nasdaq Global Market, or, if no closing price for the common shares or such securities is so reported, the last quoted bid price for the common shares or such securities in the over-the-counter market as reported by Pink Sheets LLC or similar organization, or, if that bid price is not available, the market price of the common shares or such securities on that date as determined by a nationally recognized independent investment banking firm retained by Schering-Plough for this purpose.

A “trading day” is a day on which the common shares:

 

 

For purposes of the prospectus supplement, all references herein to the closing price of the common shares on the New York Stock Exchange shall be such closing price as reflected on the website of the New York Stock Exchange (http://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:

 

 

On the mandatory conversion date, certificates representing common shares will be issued and delivered to you or your designee upon presentation and surrender of the certificate evidencing the 2007 Preferred Stock, to the conversion agent if shares of the 2007 Preferred Stock are held in certificated form, and upon compliance with some additional procedures. If a holder’s interest is a beneficial interest in a global certificate representing 2007 Preferred Stock, a book-entry transfer through DTC will be made by the conversion agent upon compliance with the depositary’s procedures for converting a beneficial interest in a global security.

 

On the date of any conversion made pursuant to “—Conversion at the Option of the Holder” or “—Early Conversion and Dividend Make-Whole Payment Upon Certain Acquisitions”, a holder must do each of the following:

 

 

If a holder’s interest is a beneficial interest in a global certificate representing 2007 Preferred Stock, in order to convert a holder must comply with the last three requirements listed above and comply with the depositary’s procedures for converting a beneficial interest in a global security.

 

The conversion agent for the 2007 Preferred Stock is initially the transfer agent. A holder may obtain copies of the required form of the conversion notice from the conversion agent. The conversion agent will, on a holder’s behalf, convert the 2007 Preferred Stock into common shares, in accordance

with the terms of the notice delivered by Schering-Plough described below. Payments of cash for dividends, make-whole payments and in lieu of fractional shares and, if common shares are to be delivered, a stock certificate or certificates, will be delivered to the holder, or in the case of global certificates, a book-entry transfer through DTC will be made by the conversion agent.

 

The person or persons entitled to receive the common shares issuable upon conversion of the 2007 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 the 2007 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 the 2007 Preferred Stock.

 

Provisional Conversion at Schering-Plough’s Option

 

Prior to the mandatory conversion date, if the closing price per share of the common shares has exceeded 150% of the threshold appreciation price, initially $     , 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 Schering-Plough notifies you of the optional conversion, Schering-Plough may, at its option, cause the conversion of all, but not less than all, of the shares of the 2007 Preferred Stock then outstanding into the common shares. Such conversion shall be made at the minimum conversion rate of      common shares for each share of the 2007 Preferred Stock, subject to adjustment as described under “—Anti-Dilution Adjustments” below. Schering-Plough will provide a notice of such conversion to each holder of the 2007 Preferred Stock by mail and issue a press release and publish such information on the Schering-Plough website (http://www.schering-plough.com); provided that the failure to mail such notice, issue such press release or publish such information on the 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. Schering-Plough will be able to cause this conversion only if, in addition to issuing you the common shares as described above, Schering-Plough is then legally permitted to, and does, pay you in cash an amount equal to the sum of:

 

(i) all accrued, cumulated and unpaid dividends on your shares of 2007 Preferred Stock that have not been declared for all dividend periods to, but excluding, the conversion date, plus

 

(ii) if the conversion date is prior to the record date, all accrued, cumulated and unpaid dividends on your shares of 2007 Preferred Stock that have been declared for all dividend periods to, but excluding, the conversion date, plus

 

(iii) the present value of all remaining future dividend payments on your shares of the 2007 Preferred Stock through and including August 13, 2010 (excluding (a) any unpaid dividends accrued during the portion of the then-current dividend period through, but excluding, the conversion date, and (b) if the conversion date is after the record date for any declared dividend, any of those dividends for the then-current dividend period). 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 August 13, 2010, provided, however, that if the then-remaining term to August 13, 2010 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 August 13, 2010 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.

If the conversion date is after the record date for any declared dividend, you will be paid those unpaid dividends on the relevant dividend payment date, rather than the conversion date, if you were the holder of record on the record date for that dividend.

 

Conversion at the Option of the Holder

 

Holders of the 2007 Preferred Stock have the right to convert their shares of the 2007 Preferred Stock, in whole or in part, at any time prior to the mandatory conversion date, into common shares at the minimum conversion rate of      common shares per share of the 2007 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 the 2007 Preferred Stock at the option of the holder on the effective date of any early conversion, referred to as the “early conversion date”, you will receive in cash all accrued, cumulated and unpaid dividends that have not been declared for all prior dividend periods ending on or prior to the dividend payment date immediately preceding the early conversion date. If the early conversion date is prior to the record date for any declared dividend, for the dividend period in which you elect to convert early, you will not receive any declared dividends for that dividend period. If the early conversion date is after the record date for any declared dividend, you will receive that dividend on the relevant dividend payment date if you were the holder of record on the record date for that dividend; however, whether or not you were the holder of record on the record date, you must pay to the conversion agent an amount in cash equal to the full dividend payable on the dividend payment date for the then-current dividend period on the shares being converted. You will only receive dividends if Schering-Plough is legally permitted to pay dividends.

 

Early Conversion and Dividend Make-Whole Payment Upon Certain Acquisitions

 

General.  The following provisions will apply if, prior to the earlier of the mandatory conversion date and the date on which Schering-Plough provides you with notice of a provisional conversion at the option of Schering-Plough (so long as the provisional conversion occurs within the time period described above in “—Provisional Conversion at Schering-Plough’s Option”), and if, upon the consummation of any acquisition (whether by means of a liquidation, share exchange, tender offer, consolidation, recapitalization, reclassification, merger of Schering-Plough or any sale, lease or other transfer of the consolidated assets of Schering-Plough and its subsidiaries) or a series of related transactions or events pursuant to which:

 

 

(1) cash; or

 

(2) securities or other property that is not, or upon issuance will not be, shares of common equity or American depositary receipts in respect of common equity traded on the New York Stock Exchange or quoted on the Nasdaq Global Select Market or Nasdaq Global Market.

 

These transactions are referred to as “make-whole acquisitions”.

 

Upon a make-whole acquisition, Schering-Plough will provide for the conversion of shares of 2007 Preferred Stock and pay a dividend make-whole amount (as defined below) by:

 

 

Schering-Plough will notify holders, at least 20 days prior to the anticipated effective date of such make-whole acquisition, of the anticipated effective date of such transaction. The notice will specify the anticipated effective date of the make-whole acquisition and the date by which each holder’s make-whole acquisition early conversion right must be exercised. The notice will set forth, among other things, the applicable make-whole conversion rate and the amount of the cash, securities and other consideration receivable by the holder upon conversion. To exercise the make-whole acquisition early conversion right, a holder must deliver to the conversion agent, on or before the close of business on the date specified in the notice, the certificate evidencing such holder’s shares of the 2007 Preferred Stock, if the 2007 Preferred Stock are held in certificated form. If a holder’s interest is a beneficial interest in a global certificate representing 2007 Preferred Stock, in order to convert a holder must comply with the requirements listed above under “—Conversion” and comply with the depositary’s procedures for converting a beneficial interest in a global security. The date that the holder complies with these requirements is referred to as the “make-whole conversion date”. If a holder does not elect to exercise the make-whole acquisition early conversion right, such holder’s shares of the 2007 Preferred Stock will remain outstanding and subject to conversion on the mandatory conversion date or any applicable optional conversion date or provisional conversion date.

 

Make-Whole Acquisition Conversion Rate.  The following table sets forth the make-whole acquisition conversion rate per share of 2007 Preferred Stock for each hypothetical stock price and effective date set forth below:

 

 

The make-whole acquisition conversion rate will be determined by reference to the table above and is based on the effective date and the price (the “share price”) paid per Schering-Plough common share in such transaction. If the holders of Schering-Plough common shares receive only cash in the make-whole acquisition, the share price shall be the cash amount paid per share. Otherwise the share price shall be the average of the closing price per share of Schering-Plough common shares on the 10 trading days up to but not including the effective date.

 

The share prices set forth in the first row of the table (i.e., the column headers) will be adjusted as of any date on which the fixed conversion rates of the 2007 Preferred Stock are adjusted. The adjusted stock prices will equal the share prices applicable immediately prior to such adjustment multiplied by a fraction, the numerator of which is the minimum conversion rate immediately prior to the adjustment giving rise to the share price adjustment and the denominator of which is the minimum conversion rate as so adjusted. Each of the conversion rates in the table will be subject to adjustment in the same manner as each fixed conversion rate as set forth under “—Anti-dilution Adjustments”.

 

The exact share price and effective dates may not be set forth on the table, in which case:

 

 

 

Dividend Make-Whole Payment.  For any shares of the 2007 Preferred Stock that are converted during the make-whole conversion period Schering-Plough must pay you in cash, the sum of (which is referred to as the “dividend make-whole amount”):

 

 

 

 

in each case, out of legally available assets.

 

If the make-whole conversion date is after the record date for any declared dividends, you will be paid those dividends on the relevant dividend payment date, rather than the make-whole conversion date, if you were the holder of record on the record date for that dividend.

 

Schering-Plough’s obligation to deliver shares at the make-whole acquisition conversion rate and pay the acquisition dividend make-whole amount could be considered a penalty, in which case the enforceability thereof would be subject to general principles of reasonableness, as applied to such payments.

 

Conversion at Schering-Plough’s Option Upon Certain Reorganization Events.  In the event that a reorganization event (as described under “—Reorganization Events”) occurs in which (x) Schering-Plough is not the surviving entity, and (y) the shares of 2007 Preferred Stock cannot become shares of the surviving entity with, in respect of such surviving entity, the same rights, preferences and voting powers as the 2007 Preferred Stock, then immediately prior to the consummation of such reorganization event, Schering-Plough may, at its option, cause the conversion of all, but not less than all, of the shares of the 2007 Preferred Stock then outstanding into common shares (the “reorganization event conversion”); provided that Schering-Plough is legally able to pay in cash out of legally available funds the dividend make-whole amount referred to in the second succeeding sentence. The reorganization event conversion will occur immediately prior to the effective time of such reorganization event. As a result of the reorganization event conversion, each holder of 2007 Preferred Stock will receive (x) the consideration payable as if such reorganization event were a make-whole acquisition, with the “effective date” being the effective date of the reorganization event and the “share price” being the consideration payable per Schering-Plough common share in the reorganization event and (y) a dividend make-whole amount, calculated on the same basis as a dividend make-whole payment in the event of a make-whole acquisition. In order to exercise its option for a reorganization event conversion, Schering-Plough must provide written notice to the holders not later than 30 days prior to the anticipated effective date of the reorganization event and concurrently issue a press release and publish such notice on the Schering-Plough website. If Schering-Plough exercises this option for a reorganization event conversion, it will not need to comply with the procedures relating to a make-whole acquisition early conversion at the option of a holder as provided for in this “—Early Conversion and Dividend Make-Whole Payment Upon Certain Acquisitions”.

Reorganization Events

 

In the event of:

 

 

each of which is referred to as a “reorganization event”, each share of the 2007 Preferred Stock outstanding immediately prior to such reorganization event would, without the consent of the holders of the 2007 Preferred Stock, become convertible into the kind of securities, cash and other property receivable in such reorganization event by a holder of the 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. Following 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 the 2007 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, (b) determined based upon the definition of the conversion rate in the case of the mandatory conversion date, determined using the applicable market value of the exchanged property, or (c) shall be the make-whole acquisition conversion rate as set out above in the case of a make-whole acquisition. Holders have the right to convert their shares of the 2007 Preferred Stock early in the event of certain acquisitions as described under “—Early Conversion and Dividend Make-Whole Payment Upon Certain Acquisitions”. In connection with certain reorganization events, holders of the 2007 Preferred Stock may have the right to vote as a class, see “—Voting Rights”.

 

Anti-Dilution Adjustments

 

Each fixed conversion rate and the number of common shares to be delivered upon conversion will be adjusted in the following circumstances:

 

(1) Stock Dividend Distributions. If Schering-Plough pays dividends or other distributions on the common shares in common shares.

 

(2) Subdivisions, Splits and Combination of the Common Shares. If Schering-Plough subdivides, splits or combines the common shares.

 

(3) Issuance of Stock Purchase Rights. If Schering-Plough issues to all holders of the 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 the common shares at less than the “current market price”, as defined below, of the common shares on the date fixed for the determination of shareholders entitled to receive such rights or warrants.

(4) Debt or Asset Distributions. If Schering-Plough distributes to all holders of its common shares evidences of indebtedness, shares of capital stock, securities, cash or other assets (excluding any dividend or distribution covered by adjustment provisions (1) or (2) above, any rights or warrants referred to in (3) above, any dividend or distribution paid exclusively in cash, any consideration payable in connection with a tender or exchange offer made by Schering-Plough or any of its 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), then 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 the following fraction:

 

SPo

SPo − FMV

 

Where,

 

 

In a “spin-off,” where Schering-Plough makes a distribution to all holders of its common shares consisting of capital stock of, or similar equity interests in, or relating to a subsidiary or other business unit of Schering-Plough, each fixed conversion rate will be adjusted on the fifteenth trading day after the “ex-date” for the distribution by multiplying the 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 the following fraction:

 

MPo + MPs

MPo

 

Where,

 

 

(5) Cash Distributions. If Schering-Plough makes a distribution consisting exclusively of cash to all holders of the common shares, excluding (a) any cash dividend on the common shares to the extent that the aggregate cash dividend per share of the common shares does not exceed $.065 in any fiscal quarter (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 adjustment provision (4) above, (c) any dividend or distribution in connection with the liquidation, dissolution or winding up of Schering-Plough, and (d) any consideration payable in connection with a tender or exchange offer made by Schering-Plough or any of its subsidiaries, then in each event, the fixed conversion rate in effect immediately prior to the close of business on the date fixed for determination of the holders of the common shares entitled to receive such distribution will be multiplied by the following fraction:

 

SPo

SPo − DIV

Where,

 

 

If an adjustment is required to be made as set forth in this clause as a result of a distribution (1) that is a regularly scheduled quarterly dividend, such adjustment would be based on the amount by which such dividend exceeds the dividend threshold amount or (2) that is not a regularly scheduled quarterly 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 adjustment provision (5) or adjustment provisions (3), (4), (6), (7) or (8).

 

(6) Self Tender Offers and Exchange Offers. If Schering-Plough or any of its subsidiaries successfully complete a tender or exchange offer for Schering-Plough common shares where the cash and the value of any other consideration included in the payment per share of the common shares exceeds the current market price per share of the common shares on the seventh trading day after the expiration of the tender or exchange offer, immediately prior to the opening of business on the eighth trading day after the expiration date of the tender or exchange offer, then each fixed conversion rate in effect on the eighth trading day after the expiration of the tender or exchange offer will be divided by the following fraction:

 

(SPo x OSo) − AC

SPo x (OSo − TS)

 

Where,

 

 

(7) Third Party Tender Offers and Exchange Offers. If someone other than Schering-Plough or one of its subsidiaries makes a payment in respect of a tender offer or exchange offer in which, as of the expiration time of the offer, the board of directors is not recommending rejection of the offer, then 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 the following fraction:

 

FMV + (OS’ x SPo)

OSo x SPo

Where,

 

 

The adjustment referred to in this adjustment provision (7) will only be made if:

 

 

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 Schering-Plough to engage in a consolidation or merger or a sale of all or substantially all of its assets.

 

(8) Rights Plans.  To the extent that Schering-Plough has a rights plan in effect with respect to the common shares on any conversion date, upon conversion of any shares of the 2007 Preferred Stock, you will receive, in addition to the common shares, the rights under the rights plan, unless, prior to such conversion date, the rights have separated from the common shares, in which case each fixed conversion rate will be adjusted at the time of separation as if Schering-Plough made a distribution to all holders of the common shares as described in adjustment provision (4) above, subject to readjustment in the event of the expiration, termination or redemption of such rights.

 

General

 

In addition, Schering-Plough may make such increases in each fixed conversion rate as it deems advisable in order to avoid or diminish any income tax to holders of the common shares resulting from any dividend or distribution of the shares (or issuance of rights or warrants to acquire the shares) or from any event treated as such for income tax purposes or for any other reason. Schering-Plough may only make such a discretionary adjustment if it makes the same proportionate adjustment to each fixed conversion rate.

 

In the event of a taxable distribution to holders of the common shares that results in an adjustment of each fixed conversion rate or an increase in each fixed conversion rate in the discretion of Schering-Plough, holders of the 2007 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 the 2007 Preferred Stock may, in certain circumstances, be deemed to have received a distribution subject to U.S. federal withholding tax requirements. See “Certain United States Federal Income Tax Consequences—U.S. Holders—Adjustment of Conversion Rate” and “Certain United States Federal Income Tax Consequences—Non-U.S. Holders—Distributions” in this prospectus supplement.

Adjustments to the conversion rate will be calculated to the nearest 1/10,000th of a share. Prior to August 13, 2010, 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 the earlier of August 13, 2010 and the date Schering-Plough consummates an acquisition, 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 2007 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 2007 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 the 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 Schering-Plough or any of its 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 2007 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.

 

Schering-Plough 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 2007 Preferred Stock. Schering-Plough will also be required to deliver a statement setting forth in reasonable detail the method by which the adjustment to each fixed conversion rate or the acquisition conversion rate, as applicable, was determined and setting forth each revised fixed conversion rate or the acquisition conversion rate, as applicable.

 

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.

 

The “current market price” on any date is the average of the daily closing price per share of the common shares or other securities on each of the five consecutive trading days preceding the earlier of the day before the date in question and the day before the “ex-date” with respect to the issuance or distribution requiring such computation. The term “ex-date”, when used with respect to any such issuance or distribution, means the first date on which the common shares or other securities 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 adjustment provision (4) in the event of a spin-off, the “current market price” per share of the common shares or other securities 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.

 

Fractional Shares

 

No fractional common shares will be issued to holders of the 2007 Preferred Stock upon conversion. In lieu of any fractional common share otherwise issuable in respect of the aggregate

number of shares of the 2007 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:

 

 

If more than one share of the 2007 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 the 2007 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 the 2007 Preferred Stock.

 

Liquidation Rights

 

In the event of a voluntary or involuntary liquidation, dissolution or winding up, subject to the rights of holders of any shares of the capital stock then outstanding ranking senior to or pari passu with the 2007 Preferred Stock in respect of distributions upon Schering-Plough’s liquidation, dissolution or winding up, the holders of the 2007 Preferred Stock then outstanding will be entitled to receive, out of the net assets legally available for distribution to shareholders, before any distribution or payment is made on any shares of the capital stock ranking junior as to the distribution of assets upon Schering-Plough’s voluntary or involuntary liquidation, dissolution or the winding up of its affairs, a liquidating distribution in the amount of $250 per share, subject to adjustment for stock splits, combinations, reclassifications or other similar events involving the 2007 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 the affairs:

 

 

In the event the Schering-Plough assets available for distribution to the holders of the preferred shares, including the 2007 Preferred Stock, upon any Schering-Plough 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 the 2007 Preferred Stock and the holders of the securities ranking pari passu with the 2007 Preferred Stock as to distribution of Schering-Plough assets upon such liquidation, dissolution or winding up, shall share ratably in any distribution of the 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 the 2007 Preferred Stock of the full preferential amounts provided for above, the holders of the 2007 Preferred Stock will have no right or claim to any of the remaining assets.

 

Voting Rights

 

The holders of the 2007 Preferred Stock are not entitled to any voting rights, except as required by applicable New Jersey law, the certificate of incorporation and as described below.

 

Unless the approval of a greater number of shares of the 2007 Preferred Stock is required by law, Schering-Plough will not, without the approval of the holders of at least two-thirds of the shares of the 2007 Preferred Stock then outstanding voting separately as a single class, amend, alter or repeal any provisions of the certificate of incorporation by way of merger, consolidation, combination, reclassification or otherwise, so as to affect adversely any right, preference or voting power of the holders of the 2007 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 the 2007 Preferred Stock. Notwithstanding anything in the foregoing to the contrary, any amendment, alteration or repeal of any of the provisions of Schering-Plough’s certificate of incorporation occurring in connection with any merger or consolidation of Schering-Plough of the type described in clause (a) of the definition of reorganization event (as defined above) or any statutory exchange of Schering-Plough’s 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 the 2007 Preferred Stock; provided that, subject to a holder’s make-whole acquisition early conversion right, in the event that Schering-Plough does not survive the transaction, the shares of the 2007 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 the 2007 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 Schering-Plough with respect to, and may exercise all of Schering-Plough’s rights and powers under, the 2007 Preferred Stock.

 

In addition, Schering-Plough will not, without the approval of the holders of at least two-thirds of the shares of the 2007 Preferred Stock and any class or series of Parity Securities then outstanding, voting together as a single class:

 

 

If and whenever an amount equal to six full quarterly dividends, whether or not consecutive, payable on any class or series of Schering-Plough’s preferred shares, including the 2007 Preferred Stock, are not paid or otherwise declared and set aside for payment, the holders of Schering-Plough’s preferred shares, including the 2007 Preferred Stock, voting separately as a single class shall be entitled to increase the authorized number of directors on Schering-Plough’s board of directors by two

and elect such two additional directors to the board of directors at the next annual meeting or special meeting of the shareholders. Not later than 40 days after the entitlement arises the board of directors shall convene a special meeting of the holders of the preferred shares for the purpose of electing the additional two directors. If Schering-Plough’s board of directors fails to convene such meeting within such 40-day period, then holders of 10% of Schering-Plough’s outstanding preferred shares, including the 2007 Preferred Stock, taken as a single class, may call the meeting. If all accrued, cumulated and unpaid dividends in default on Schering-Plough’s preferred shares, including the 2007 Preferred Stock, have been paid in full or declared and set apart for payment, the holders of the 2007 Preferred Stock and the 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 Schering-Plough’s directors will, without further action, be reduced accordingly.

 

In any case where the holders of the 2007 Preferred Stock are entitled to vote as a class, each holder of the 2007 Preferred Stock will be entitled to one vote for each share of the 2007 Preferred Stock. In any case where the holders of the 2007 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 the 2007 Preferred Stock generally have the right to vote as a class upon any proposed amendment to Schering-Plough’s certificate of incorporation that would adversely affect or subordinate their rights or preferences as holders of the 2007 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

 

Schering-Plough will at all times reserve and keep available out of the authorized and unissued common shares or shares held in the treasury by Schering-Plough, solely for issuance upon the conversion of the 2007 Preferred Stock, that number of common shares as shall from time to time be issuable upon the conversion of all the 2007 Preferred Stock then outstanding. Any shares of the 2007 Preferred Stock converted into the common shares or otherwise reacquired by Schering-Plough shall resume the status of authorized and unissued preferred shares, undesignated as to series, and shall be available for subsequent issuance.

 

Transfer Agent, Registrar, Paying Agent and Conversion Agent

 

The Bank of New York will act as transfer agent, registrar and paying agent for the payment of dividends for the 2007 Preferred Stock and the conversion agent for the conversion of the 2007 Preferred Stock.

 

Title

 

Schering-Plough and the transfer agent, registrar, paying agent and conversion agent may treat the registered holder of the 2007 Preferred Stock as the absolute owner of the 2007 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 will act as securities depositary for the 2007 Preferred Stock. The 2007 Preferred Stock will be issued only as fully 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 the 2007 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 the 2007 Preferred Stock so long as the 2007 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 the 2007 Preferred Stock represented by global security certificates may be exchanged in whole or in part for the 2007 Preferred Stock registered, and no transfer of global security certificates will be made in whole or in part for the 2007 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 Schering-Plough that it is unwilling or unable to continue as depositary for the global security certificates and Schering-Plough does not appoint a qualified replacement within 90 days; (ii) the depositary has ceased to be qualified to act as such and Schering-Plough does not appoint a qualified replacement within 90 days; or (iii) Schering-Plough decides to discontinue the use of book-entry transfer through the depositary (or any successor depositary). All of the 2007 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 the 2007 Preferred Stock represented by those certificates for all purposes under the 2007 Preferred Stock. Notwithstanding the foregoing, nothing herein shall prevent Schering-Plough or any of its agents or the registrar or any of its agents 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 the 2007 Preferred Stock, the certificate of amendment of the certificate of incorporation, which contains the terms of the 2007 Preferred Stock, or the certificate of incorporation.

 

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 the 2007 Preferred Stock represented by those certificates registered in their

names, will not receive or be entitled to receive physical delivery of the 2007 Preferred Stock certificates in exchange and will not be considered to be owners or holders of the global security certificates or any of the 2007 Preferred Stock represented by those certificates for any purpose under the 2007 Preferred Stock. All payments on the 2007 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, including Euroclear Bank S.A./N.V., as the operator of the Euroclear System, and Clearstream Banking, société anonyme. 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 Schering-Plough nor any of the 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 Schering-Plough believes to be reliable, but Schering-Plough does not take responsibility for its accuracy.

 

Replacement of Mandatory Convertible Preferred Stock Certificates

 

If physical certificates are issued, Schering-Plough will replace any mutilated certificate at your expense upon surrender of that certificate to the transfer agent. Schering-Plough will replace certificates that become destroyed, stolen or lost at your expense upon delivery to Schering-Plough 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 Schering-Plough.

 

However, Schering-Plough is not required to issue any certificates representing the 2007 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 the 2007 Preferred Stock formerly evidenced by the certificate.

 

The following is a summary of certain U.S. federal income tax consequences relevant to the purchase, ownership, conversion and disposition of the 2007 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, referred to as 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 the 2007 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 the 2007 Preferred Stock and the common shares received in respect thereof as “capital assets” (generally, held for investment) and who purchase the 2007 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 the 2007 Preferred Stock and common shares received in respect thereof.

 

If an entity treated as a partnership for U.S. federal income tax purposes holds the 2007 Preferred Stock or common shares received in respect thereof, the U.S. federal income tax treatment of the partnership and its partners will generally depend on the status of the partners and the activities of the partnership and its partners. A partner in a partnership holding the 2007 Preferred Stock or common shares received in respect thereof should consult its own tax advisor with regard to the U.S. federal income tax treatment of an investment therein.

 

U.S. Holders

 

The discussion in this section is addressed to a holder of the 2007 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 if you are a beneficial owner of the 2007 Preferred Stock or common shares received in respect thereof that is for U.S. federal income tax purposes (i) a citizen or individual 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 (or 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.

 

Distributions

 

Distributions with respect to the 2007 Preferred Stock or the common shares (other than certain stock distributions) will be taxable as dividend income when paid to the extent of Schering-Plough’s current or 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 the 2007 Preferred Stock or common shares exceeds Schering-Plough’s 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 the 2007 Preferred Stock or common shares, as the case may be, and thereafter as capital gain.

 

Investors should be aware that although Schering-Plough believes that the 2007 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 2007 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 the 2007 Preferred Stock (but not below zero) by the portion of any dividends received by them in respect of the 2007 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 the 2007 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 2007 Preferred Stock as long-term capital losses to the extent of dividends received by them in respect of the 2007 Preferred Stock that qualify for the reduced 15% tax rate (see below). Similarly, if a dividend were to be paid in respect of the 2007 Preferred Stock that is in excess of 5% of a U.S. holder’s adjusted tax basis in the 2007 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.

 

Distributions constituting dividend income received by an individual in respect of the 2007 Preferred Stock or common shares before January 1, 2011 are generally subject to taxation at a maximum rate of 15%. Distributions on the 2007 Preferred Stock or common shares constituting dividend income paid to holders that are U.S. corporations will generally qualify for the dividends received deduction. A U.S. holder should consult its own tax advisor regarding the availability of the reduced dividend tax rate and the dividends received deduction in light of its particular circumstances.

 

Dispositions

 

A U.S. holder will generally recognize capital gain or loss on a sale or exchange of the 2007 Preferred Stock or the 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 the 2007 Preferred Stock. The adjusted tax basis of common shares received on conversion will equal the adjusted tax basis of the 2007 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 2007 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 Schering-Plough exercises the option to cause an early conversion of the 2007 Preferred Stock, and, in respect of such conversion, pays 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 Schering-Plough’s Option”), such cash should be taxable (to the extent of gain realized by the U.S. holder) either as a dividend, in the event Schering-Plough has 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 the common shares and the cash received upon early conversion over

the U.S. holder’s adjusted tax basis in the 2007 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 the common shares. A U.S. holder will not be permitted to recognize any loss realized by it upon conversion of 2007 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, or the “IRS”, on grounds that the cash received attributable to future dividends represents a taxable dividend to the extent Schering-Plough has earnings and profits at the time of conversion. Under this characterization, the U.S. holder would be subject to tax on cash received on account of future dividends even if it realized a loss on its early conversion of the 2007 Preferred Stock into the common shares.

 

In the event a U.S. holder’s 2007 Preferred Stock is converted pursuant to an election by the holder in the case of certain acquisitions, or is converted pursuant to certain other transactions including the consolidation or merger into another person, the tax treatment of such a conversion will depend upon the facts underlying the particular transaction triggering such a conversion. Each U.S. holder should consult its tax advisor to determine the specific tax treatment of a conversion under such circumstances.

 

Adjustment of Conversion Rate

 

A U.S. holder’s right to receive a greater number of the common shares upon conversion based on the conversion rate formula linked to the value of the common shares could be viewed as a constructive distribution of stock to such U.S. holder under section 305 of the Code, which, if so treated, would be subject to tax as a dividend to the extent of Schering-Plough’s current or accumulated earnings and profits. While the matter is not free from doubt due to lack of authority directly on point, Schering-Plough intends to take the position that such a right on the part of the holder of the 2007 Preferred Stock to receive a greater number of common shares, as described in this paragraph, should not result in a constructive distribution of stock.

 

Under certain circumstances, adjustments (or failure to make adjustments) to the conversion rate of the 2007 Preferred Stock may result in constructive distributions under Section 305(c) of the Code to the holders of the 2007 Preferred Stock or holders of the common shares includable in income in the manner described under “Distributions”, 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.

 

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 the 2007 Preferred Stock or common shares and to certain payments of proceeds on the sale or redemption of the 2007 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 timely 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 the 2007 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 or an entity treated as a partnership for U.S. federal income tax purposes.

 

Distributions

 

Generally, distributions treated as dividends as described above (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 the 2007 Preferred Stock or the common shares will be subject to a 30% U.S. withholding tax, or such lower rate as may be specified by an applicable income 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 (or other applicable form)) and (ii) if an income 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 an income tax 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 or exchange of the 2007 Preferred Stock or the common shares (including, in the case of conversion, the deemed exchange that gives rise to a payment of cash in lieu of a fractional common share) so long as:

 

 

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 the 2007 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 the 2007 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-U.S. holder on Form W-8BEN (or other applicable form), 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 the 2007 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 timely 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.

 

Schering-Plough and the underwriters for the offering named below have entered into an underwriting agreement with respect to the shares being offered. Subject to certain conditions, each underwriter has severally agreed to purchase the number of shares of 2007 Preferred Stock indicated in the following table. Goldman, Sachs & Co., Banc of America Securities LLC, Bear, Stearns & Co. Inc., Citigroup Global Markets Inc. and Morgan Stanley & Co. Incorporated are the representatives of the underwriters.

 

 

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 of the 2007 Preferred Stock than the total number set forth in the table above, the underwriters have an option to buy up to an additional 1,500,000 shares of the 2007 Preferred Stock from Schering-Plough. They may exercise that option for 30 days. If any shares of the 2007 Preferred Stock 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 to be paid to the underwriters by Schering-Plough. Such amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase 1,500,000 additional shares.

 

 

Shares of 2007 Preferred Stock will initially be offered at the initial price to the 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 $      per share from the initial price to the public. If all the shares are not sold at the initial price to the public, the representatives may change the offering price and the other selling terms. The offering of the shares by the underwriters is subject to receipt and acceptance and subject to the underwriters’ right to reject any order in whole or in part.

 

Subject to some exceptions, including with respect to the issuance of the 2007 Preferred Stock and the common shares to be issued and sold in the concurrent public offering, and issuances or sales in connection with employee or director stock incentive or option plans, Schering-Plough has 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 the common shares, or any options or warrants to purchase any of the common

shares, or any of the securities that are substantially similar to the common shares, including, but not limited to, any securities that are convertible into or exchangeable for, or that represent the right to receive, the common shares or any substantially similar securities, without the prior written consent of the representatives of the underwriters.

 

In addition, subject to some exceptions, certain of Schering-Plough’s executive officers, directors and significant holders have agreed with the underwriters, for a period beginning from the date of the preliminary prospectus supplement covering the 2007 Preferred Stock and the preliminary prospectus supplement covering the common shares in the concurrent offering and continuing to and including the date 90 days after the date of the final prospectus supplement covering the 2007 Preferred Stock and the final prospectus supplement covering the concurrent offering of the common shares, not to (i) offer, sell, contract to sell, pledge, grant any option to purchase, make any short sale or otherwise dispose of any of Schering-Plough’s common shares, or any options or warrants to purchase any of Schering-Plough’s 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, director or significant holder, 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 2007 Preferred Stock even if such shares would be disposed of by someone other than the executive officer, director or significant holder, in each case, without the prior written consent of the representatives of the underwriters.

 

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 2007 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 2007 Preferred Stock pursuant to the option granted to them. “Naked” short sales are any sales in excess of such option. The underwriters must close out any naked short position by purchasing 2007 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 2007 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, as well as other purchases by the underwriters for their own accounts, may have the effect of preventing or retarding a decline in the market price of 2007 Preferred Stock, and together with the imposition of the penalty bid, may stabilize, maintain or otherwise affect the market price of the 2007 Preferred Stock. As a result, the price of the 2007 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.

 

Schering-Plough estimates that its share of the total expenses of the offering, excluding underwriting discounts, will be approximately $2,500,000.

Schering-Plough has agreed to indemnify the several underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended.

 

Goldman, Sachs & Co. is currently acting as financial advisor to Schering-Plough, for which they are paid usual and customary fees. Banc of America Securities LLC is the administrative agent, and together with Citigroup Global Markets Inc. is a joint lead arranger and lender, under Schering-Plough’s $1.5 billion credit agreement entered into on May 19, 2004 and amended on December 29, 2005. Certain of the other underwriters or their affiliates are also lenders under the credit agreement. Additionally, Goldman, Sachs & Co., Banc of America Securities LLC, Bear, Stearns & Co. Inc., Citigroup Global Markets Inc., Morgan Stanley & Co. Incorporated, BNP Paribas Securities Corp. and J.P. Morgan Securities Inc., or their respective affiliates, have committed to act as lenders under Schering-Plough’s €11 billion bridge facility.

 

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 Schering-Plough, its subsidiaries or its affiliates for which they received or will receive customary fees and expenses.

 

Daiwa Securities America Inc. (“DSA”) has entered into an agreement with SMBC Securities, Inc. (“SMBCSI”) pursuant to which SMBCSI provides certain advisory and/or other services to DSA, including services with respect to this offering. In return for the provision of such services by SMBCSI to DSA, DSA will pay to SMBCSI a mutually agreed-upon fee.

 

European Economic Area

 

In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a Relevant Member State), each underwriter has represented and agreed that with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the Relevant Implementation Date) it has not made and will not make an offer of shares to the public in that Relevant Member State prior to the publication of a prospectus in relation to the shares which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive, except that it may, with effect from and including the Relevant Implementation Date, make an offer of shares to the public in that Relevant Member State at any time:

 

(a) to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities;

 

(b) to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than €43,000,000 and (3) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts;

 

(c) to fewer than 100 natural or legal persons (other than qualified investors as defined in the Prospective Directive) subject to obtaining the prior consent of the representatives for any such offer; or

 

(d) in any other circumstances which do not require the publication by the Issuer of a prospectus pursuant to Article 3 of the Prospectus Directive.

 

For the purposes of this provision, the expression an “offer of shares to the public” in relation to any shares in any Relevant Member State means the communication in any form by any means of sufficient information on the terms of the offer and the shares to be offered so as to enable an investor to decide to purchase or subscribe the shares, as the same may be varied in that Relevant Member State by any measure implementing the Prospectus Directive in that Relevant Member State

and the expression Prospectus Directive means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.

 

United Kingdom

 

Each underwriter has represented and agreed that:

 

(a) it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) received by it in connection with the issue or sale of the shares in circumstances in which Section 21(1) of the FSMA does not apply to the Issuer; and

 

(b) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the 2007 Preferred Stock in, from or otherwise involving the United Kingdom.

 

Italy

 

The offering of the 2007 Preferred Stock has not been registered with CONSOB (the Italian Securities Exchange Commission) pursuant to Italian securities legislation and, accordingly, no shares may be offered, sold or delivered, nor may copies of this document or of any other document relating to the shares be distributed in the Republic of Italy except: (i) to qualified investors (operatori qualificati), as defined in Article 31, second paragraph of CONSOB Regulation No. 11522 of 1 July 1998, as amended; and (ii) in circumstances which are exempt from public offer rules pursuant to Article 100 of Legislative Decree no. 58 of 24 February 1998, as amended (the “Financial Services Act”) and Article 33, first paragraph, of CONSOB Regulation No. 11971 of 14 May 1999, as amended.

 

Any offer, sale or delivery of the 2007 Preferred Stock or distribution of copies of this document or any other document relating to the shares in the Republic of Italy under (i) or (ii) above must be: (a) made by an investment firm, bank or financial intermediary permitted to conduct such activities in the Republic of Italy in accordance with the Financial Services Act and Legislative Decree No. 385 of 1 September 1993, as amended; and (b) in compliance with any other applicable laws and regulations.

 

France

 

This document is not being distributed in the context of a public offering in France within the meaning of Article L.411-1 of the Code monétaire et financier, and has therefore not been submitted to the Autorité des Marchés Financiers for prior approval and clearance procedure.

 

Each of the underwriters represents and agrees that it has not offered or sold and will not offer or sell, directly or indirectly, the 2007 Preferred Stock to the public in France, and has not distributed or caused to be distributed and will not distribute, or cause to be distributed to the public in France, 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, and that such offers, sales and distributions have been and will be made in France only to (a) providers of the investment service of portfolio management for the account of third parties, and/or (b) qualified investors (investisseurs qualifiés) acting for their own account (other than individuals), all as defined in, and in accordance with, Articles L. 411-1, L. 411-2 and D. 411-1 of the French Code monétaire et financier.

 

The 2007 Preferred Stock may be resold directly or indirectly only in compliance with Articles L. 411-1, L. 411-2, L. 412-1 and L. 621-8 to L. 621-8-3 of the French Code monétaire et financier.

Sweden

 

Each underwriter has represented and agreed that when an offer of shares to the public is made in Sweden, the guidelines enumerated for the European Economic Area apply, except that, with respect to paragraph (b), offers may only be made to legal entities who, for each of the last two financial years, fulfilled at least two of the following conditions: (1) an average of at least 250 employees, (2) a total balance sheet of more than €43,000,000 and (3) a net turnover of more than €50,000,000, as shown in its profit and loss account.

 

Switzerland

 

No public solicitation of investors or other offering or advertising activities in respect of the 2007 Preferred Stock can be carried out in Switzerland. The 2007 Preferred Stock may only be offered by way of private placement to banks, securities dealers or other regulated entities, to institutional investors with a professional treasury management, or to a limited number of other investors not exceeding 20.

 

Japan

 

The securities have not been and will not be registered under the Securities and Exchange Law of Japan (the Securities and Exchange Law) and each underwriter has agreed that it will not offer or sell any securities, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Securities and Exchange Law and any other applicable laws, regulations and ministerial guidelines of Japan.

 

Hong Kong

 

The 2007 Preferred Stock may not be offered or sold by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong), or (ii) to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a “prospectus” within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong), and no advertisement, invitation or document relating to the shares may be issued or may be in the possession of any person for the purpose of issue (in each case 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 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, Laws of Hong Kong) and any rules made thereunder.

 

Singapore

 

Each underwriter has acknowledged that this prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, the underwriters have represented and agreed that they have not offered or sold any 2007 Preferred Stock or caused the 2007 Preferred Stock to be made the subject of an invitation for subscription or purchase and will not offer or sell the 2007 Preferred Stock or cause the 2007 Preferred Stock to be made the subject of an invitation for subscription or purchase, and have not circulated or distributed, nor will they circulate or distribute, this prospectus or any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”), (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to

Section 275(1A), and in accordance with the conditions specified in Section 275, of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.

 

McCarter & English, LLP is passing upon the validity of the issuance of the 2007 Preferred Stock in this offering. In addition, Susan Ellen Wolf, Esq., the Corporate Secretary, is passing upon certain matters related to this offering. Ms. Wolf is an officer of Schering-Plough and beneficially owns common shares and holds options to purchase additional common shares. Ms. Wolf is eligible to participate in the Schering-Plough Corporation 2006 Stock Incentive Plan and the Schering-Plough Employees’ Saving Plan and may receive benefits under those plans. Shearman & Sterling LLP, New York, New York, is passing upon certain legal matters for the underwriters.

 

The consolidated financial statements, the related financial statement schedule, and management’s report on the effectiveness of internal control over financial reporting incorporated in this prospectus supplement and the accompanying prospectus by reference from Schering-Plough’s 2006 10-K have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their reports, which are incorporated herein by reference (which reports (1) express an unqualified opinion on the consolidated financial statements and financial statement schedule and include an explanatory paragraph regarding Schering-Plough’s adoption of Statement of Financial Accounting Standards (“SFAS”) No. 123 (Revised 2004), “Share-Based Payment”, and SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans”; (2) express an unqualified opinion on management’s assessment regarding the effectiveness of internal control over financial reporting; and (3) express an unqualified opinion on the effectiveness of internal control over financial reporting), and have been so incorporated in reliance upon the reports 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, 2007 and 2006, and June 30, 2007 and 2006, which is incorporated herein by reference, Deloitte & Touche LLP, an independent registered public accounting firm, have applied limited procedures in accordance with the standards of the Public Company Accounting Oversight Board (United States) for a review of such information. However, as stated in their reports included in Schering-Plough’s first and second quarter 2007 10-Q, 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 Securities Act.

 

Schering-Plough files reports, proxy statements and other information with the SEC. You may read and copy any document Schering-Plough files at the SEC’s public reference room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. In addition, the SEC maintains a website that contains reports, proxy statements and other information that Schering-Plough electronically files. The address of the SEC’s website is http://www.sec.gov. You may also inspect Schering-Plough’s SEC reports and other information at the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.

 

The SEC allows Schering-Plough to incorporate by reference the information it files with them, which means:

 

 

Schering-Plough incorporates by reference the documents listed below, which were filed with the SEC under the Securities Exchange Act of 1934, as amended, referred to as the Exchange Act, (excluding any portions of such documents that have been “furnished” but not “filed” for purposes of the Exchange Act):

 

 

Schering-Plough also incorporates by reference each of the following documents that Schering-Plough will file with the SEC after the date of this prospectus (excluding any portions of such documents that have been “furnished” but not “filed” for purposes of the Exchange Act) until the offering of 2007 Preferred Stock pursuant to this prospectus supplement and the accompanying prospectus is complete:

 

 

Schering-Plough does not incorporate by reference any information furnished under items 2.02 or 7.01 (or corresponding information furnished under item 9.01 or included as an exhibit) in any past or current Form 8-K filing (unless otherwise indicated).

 

You may request a copy of any filings referred to above (excluding exhibits not specifically incorporated by reference into the filing), at no cost, by contacting Schering-Plough in writing or by telephone (908-298-7436) at the following address: Investor Relations, Schering-Plough Corporation, 2000 Galloping Hill Road, Kenilworth, NJ 07033. Documents may also be available on Schering-Plough’s website at http://www.schering-plough.com. Please note that all references to “http://www.schering-plough.com” in this prospectus supplement are inactive textual references only and that the information contained on Schering-Plough’s website is not incorporated by reference into this prospectus supplement or the accompanying prospectus, or intended to be used in connection with the offering of the 2007 Preferred Stock.

 

On March 12, 2007, Schering-Plough announced that its board of directors approved the acquisition of Organon BioSciences, the human and animal health care businesses of Akzo Nobel, for approximately €11 billion in cash ($15.1 billion based on the noon buying rate for euro on August 1, 2007). Schering-Plough believes the acquisition of Organon BioSciences will be a strong fit strategically, scientifically and financially.

 

Organon BioSciences will provide Schering-Plough with a strong base of products and businesses. Organon BioSciences’ pharmaceutical business, Organon, includes leading products such as Puregon^®/Follistim^®, a follicle-stimulating hormone for infertility; Esmeron^®/Zemuron^®, a neuromuscular blocker used in surgical procedures; NuvaRing^®, Implanon^®, Marvelon/Desogen^® and Mercilon^®/Mirecette^® for contraception; Livial^® for menopause/osteoporosis; Ovestin^® for menopause-related symptoms; and Remeron^® and Tolvon^® for depression.

 

In addition to the currently marketed products, Organon currently has five compounds in Phase III development, including:

 

 

Organon BioSciences’ animal health business, Intervet, is one of the top three animal health care companies globally, based on 2006 revenues. The Intervet business has a strong science base. Intervet’s products treat a broad array of animals and disease states. Intervet’s products include Nobivac^®, a range of canine vaccines; Panacur^®, a de-wormer; Bovilis^®, a bovine biological for disease control and eradication; and Nobilis^®, a poultry vaccine to keep flocks free from infectious disease.

 

The transaction, which is expected to close by the end of 2007, is anticipated to be accretive to Schering-Plough’s earnings per share in the first full year, excluding purchase-accounting adjustments and acquisition-related costs. Schering-Plough expects to achieve annual synergies of approximately $500 million, however, it is expected that it will take three years from the closing of the acquisition to reach this level of synergies. Schering-Plough will finance the Organon BioSciences acquisition through a mix of cash, debt, and equity, including the net proceeds from this offering and the concurrent offering of common shares. Schering-Plough also has a committed €11 billion bridge facility. Any borrowings under the bridge facility may remain outstanding for up to one year following closing.

 

Schering-Plough and Organon have entered into a binding offer letter and have agreed to execute a fully negotiated share purchase agreement upon completion of customary consultation procedures involving the Works Council of Organon BioSciences in the Netherlands. The acquisition is also subject to certain closing conditions, including regulatory approvals from the United States Federal Trade Commission and the European Commission.

 

Under Dutch law, Organon BioSciences is required to seek the Works Council’s advice regarding the planned acquisition by Schering-Plough. The initial advice from the Works Council was issued on July 27, 2007 and was positive, but contained a number of conditions which are now being negotiated by the parties. In addition, Organon BioSciences intends to provide the Works Council with a written response supporting its decision not to comply with certain of the conditions set forth in the Works

Council’s initial advice. The Works Council has the right to appeal with the appropriate appeals court in Amsterdam alleging that Organon BioSciences was not reasonable in determining to move forward with the transaction. The court can reject Organon BioSciences’ decision to move forward only if the decision was “manifestly unreasonable” or if Organon BioSciences did not properly conduct the consultations with the Works Council or did not sufficiently consider the Works Council’s position, in which case, a further appeal may be taken. If the court is of the opinion that this is not the case, then it would reject the Works Council’s appeal.

 

Schering-Plough has completed customary due diligence, however, Schering-Plough’s access to some information during that process was limited because of antitrust regulations. Until Schering-Plough consummates the acquisition, Schering-Plough will not have complete access to information about Organon BioSciences. Further, because Organon BioSciences is not itself a public company, but part of the Akzo Nobel family of companies, public information about Organon BioSciences is limited. For historical financial information about Organon BioSciences, see Organon BioSciences’ combined financial statements in the accompanying prospectus.

 

SCHERING-PLOUGH CORPORATION

 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

 

The following unaudited pro forma condensed combined balance sheet and unaudited pro forma condensed statements of combined operations as of and for the six months ended June 30, 2007 and for the year ended December 31, 2006 have been prepared on a basis consistent with accounting principles generally accepted in the United States of America, referred to as U.S. GAAP, and applicable requirements of the Securities and Exchange Commission (SEC). The unaudited pro forma condensed combined financial statements are derived by applying pro forma adjustments to the combined historical financial statements of Schering-Plough and Organon BioSciences N.V., referred to as Organon BioSciences or the OBS Group, as the case may be, and which comprise the human and animal health businesses of Akzo Nobel N.V. Organon BioSciences’ historical audited combined financial statements as of December 31, 2006 and 2005 and for each of the years in the three-year period ended December 31, 2006, and the historical unaudited condensed combined interim financial statements as of and for the six month periods ended June 30, 2007 and 2006, each of which have been prepared under International Financial Reporting Standards, as adopted by the European Union, referred to as IFRS, appear on pages F-1 to F-104 in the accompanying prospectus. The unaudited pro forma condensed statements of combined operations give effect to the following transactions as if such transactions had occurred on January 1, 2006. The unaudited pro forma condensed combined balance sheet gives effect to the following transactions as if such transactions had occurred on June 30, 2007:

 

 

 

 

 

The pro forma adjustments are based upon available information, preliminary estimates and certain assumptions that Schering-Plough believes are reasonable based on information currently available, and are described in the accompanying notes to the unaudited pro forma condensed combined financial statements. The unaudited pro forma condensed statements of combined operations should not be considered indicative of actual results that would have been achieved had the Organon BioSciences acquisition been consummated on the dates indicated and does not purport to indicate results of operations as of any future date or for any future period.

 

The acquisition of Organon BioSciences is currently under regulatory review, and a share purchase agreement has not been executed between Akzo Nobel and Schering-Plough. Further, Schering-Plough has not completed an analysis of change of control or other contractual provisions that may result from the acquisition. As a result, pro forma adjustments related to the following matters have not been included in the unaudited pro forma condensed combined financial statements:

 

 

In addition, final agreements have not been reached on the transfer of Organon BioSciences’ pension and other post-employment and post-retirement assets and liabilities from Akzo-Nobel to

 

SCHERING-PLOUGH CORPORATION

 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS — (Continued)

Schering-Plough. As a result, these unaudited pro forma condensed combined financial statements reflect a reasonable allocation of such assets and liabilities and related expense amounts made by Organon BioSciences’ management as described in Note 21 to the Organon BioSciences combined financial statements for the years ended December 31, 2006, 2005 and 2004 included in the accompanying prospectus. Such allocations may not be indicative of the actual separation of the pension and other post-employment and post-retirement assets and liabilities.

 

The Organon BioSciences acquisition will be accounted for using the purchase method of accounting in conformity with Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations” as issued by the Financial Accounting Standards Board (“FASB”) in the U.S. Under this method, the purchase price and transaction related costs will be allocated to the assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. Any excess of the purchase price over the estimated fair value of the net assets acquired (including identifiable intangible assets) will be allocated to goodwill.

 

In connection with the preliminary purchase price allocation, Schering-Plough has made estimates of the fair values of assets and liabilities based upon assumptions that Schering-Plough believes are reasonable. The allocation of purchase price for acquisitions requires use of accounting estimates and judgments to allocate the purchase price to the identifiable tangible and intangible assets acquired and liabilities assumed based on their respective fair values. Schering-Plough’s process for estimating the fair values of in-process research and development, identifiable intangible assets and certain tangible assets requires significant estimates and assumptions including, but not limited to, determining the timing and estimated costs to complete the in-process projects, projecting regulatory approvals, estimating future cash flows and developing appropriate discount rates.

 

The allocation of purchase price is subject to finalization of Schering-Plough’s analysis of the fair value of the assets acquired and liabilities assumed as of the acquisition date. The final allocation of the purchase price may result in additional adjustments to the recorded amounts of assets and liabilities and may also result in adjustments to depreciation, amortization and in-process research and development. These adjustments could result in material increases or decreases to net income available to common shareholders. Further revisions to the purchase price allocation will be made as additional information becomes available.

 

Accordingly, the purchase price allocation in the unaudited pro forma condensed combined financial statements is preliminary and will be adjusted upon completion of the final valuation. Such adjustments could be material. The final valuation is expected to be completed as soon as practicable but no later than 12 months after the consummation of the Organon BioSciences acquisition.

 

The U.S. GAAP historical Organon BioSciences amounts included in the unaudited pro forma condensed combined balance sheet as of June 30, 2007 and the unaudited pro forma condensed statement of combined operations for the six months ended June 30, 2007 are derived from the Organon BioSciences’ unaudited IFRS condensed combined interim balance sheet and statement of income presented in Euro as of and for the six months ended June 30, 2007 converted to U.S. GAAP and translated to U.S. Dollars. The U.S. GAAP historical Organon BioSciences amounts included in the unaudited pro forma condensed statement of combined operations for the year ended December 31, 2006 are derived from the Organon BioSciences’ audited IFRS statement of income presented in Euro for the year ended December 31, 2006 converted to U.S. GAAP and translated to U.S. Dollars.

 

A reconciliation of Organon BioSciences’ combined net income and combined invested equity between U.S. GAAP and IFRS as of and for the year ended December 31, 2006 have been included as Note 32 to the Organon BioSciences historical audited combined financial statements included in the accompanying prospectus.

 

SCHERING-PLOUGH CORPORATION

 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS — (Continued)

A reconciliation of Organon BioSciences’ unaudited combined net income and combined invested equity between U.S. GAAP and IFRS as of and for the six months ended June 30, 2007 has been included as Note 21 to the Organon BioSciences historical unaudited condensed combined interim financial statements included in the accompanying prospectus.

 

The unaudited pro forma condensed combined financial statements are presented for informational purposes only. They do not purport to present what Schering-Plough’s results of operations or financial condition would have been had these transactions actually occurred on the dates indicated, nor do they purport to represent Schering-Plough’s results of operations for any future period or financial condition for any future date. Furthermore, no effect has been given in the unaudited pro forma condensed statements of combined operations for synergistic benefits that may be realized through the combination of Schering-Plough and Organon BioSciences or the costs that have been or may be incurred in integrating their operations.

 

The unaudited pro forma condensed combined financial statements should be read in conjunction with Schering-Plough’s historical consolidated financial statements and related notes thereto, Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Schering-Plough’s 2006 10-K and second quarter 2007 10-Q, which are incorporated by reference into this prospectus supplement, and Organon BioSciences’ historical audited combined financial statements as of December 31, 2006 and 2005 and for each of the years in the three-year period ended December 31, 2006 and historical unaudited condensed combined interim financial statements as of June 30, 2007 and for the six months ended June 30, 2007 and 2006 included in the accompanying prospectus.

SCHERING-PLOUGH CORPORATION

 

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

AS OF JUNE 30, 2007

(in millions)

 

SCHERING-PLOUGH CORPORATION

 

UNAUDITED PRO FORMA CONDENSED STATEMENT OF COMBINED OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 2007

(in millions, except per share amounts)

 

SCHERING-PLOUGH CORPORATION

 

UNAUDITED PRO FORMA CONDENSED STATEMENT OF COMBINED OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2006

(in millions, except per share amounts)