10-K

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2002 Commission File No. 1-6571

SCHERING-PLOUGH CORPORATION

(Exact name of registrant as specified in charter)

New Jersey (State of incorporation)	I.R.S. Employer Identification No. 22-1918501
2000 Galloping Hill Road
Kenilworth, N.J. 07033 (Address of principal executive offices)	(908) 298-4000 (Registrant's telephone number)

Securities registered pursuant to section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Shares, $.50 par value	New York Stock Exchange
Preferred Share Purchase Rights*	New York Stock Exchange

*At the time of filing, the Rights were not traded separately from the Common Shares.

Indicate by check mark whether the registrant has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and has been subject to such filing requirements for the past 90 days. YES X NO ___

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    X     

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES X NO ___

Aggregate market value of common shares held by non-affiliates computed by reference to the price at which the common shares were last sold as of June 28, 2002 (the last business day of the registrant's most recently completed second fiscal quarter): $36,048,130,831

Common shares outstanding as of February 28, 2003: 1,468,540,583

	Part of Form 10-K
Documents incorporated by reference	incorporated into
Schering-Plough Corporation 2002	Parts I, II and IV
Annual Report to Shareholders
Schering-Plough Corporation Proxy	Part III
Statement for the Annual Meeting of
Shareholders on April 22, 2003

Part I

Item 1.   Business

The terms "Schering-Plough" and the "Company," as used herein, refer to Schering-Plough Corporation and its subsidiaries, except as otherwise indicated by the context. Schering-Plough Corporation is a holding company which was incorporated in 1970. The trademarks indicated by CAPITAL LETTERS in this Form 10-K are the property of, licensed to, promoted or distributed by Schering-Plough Corporation, its subsidiaries or related companies.

Subsidiaries of Schering-Plough are engaged in the discovery, development, manufacturing and marketing of pharmaceutical products worldwide. Discovery and development efforts target the field of human health. Occasionally, applications in the field of animal health can result from these efforts. The Company views animal health applications as a means to maximize the return on investments in discovery and development. The Company operates primarily in the prescription pharmaceutical marketplace. However, where appropriate, the Company has sought and may in the future seek regulatory approval to switch prescription products to over-the-counter (OTC) status as a means of extending a product's life cycle. In this way, the OTC marketplace is yet another means of maximizing the return on investments in discovery and development.

Prescription product sales include the allergy products CLARITIN (loratadine), CLARITIN D and CLARITIN SYRUP. CLARITIN prescription sales in the United States, in all formulations, accounted for 14 percent of the Company's consolidated worldwide sales in 2002 and 28 percent in 2001, and a larger percentage of the Company's consolidated earnings. On March 8, 2002, the Company announced that the U.S. Food and Drug Administration (FDA) accepted the Company's application to switch all indications of CLARITIN to OTC products. On November 27, 2002, the Company announced that the FDA had approved all five formulations of CLARITIN at the original prescription strengths as OTC medicines for the treatment of allergies. The Company began shipping OTC CLARITIN in December 2002 in the United States.

The Company continues to market CLARINEX (desloratadine) 5 mg tablets for the treatment of allergic rhinitis, which combines the indication of seasonal allergic rhinitis with the indication of perennial allergic rhinitis, as well as the treatment of chronic idiopathic urticaria, or hives of unknown cause. The ability of the Company to capture and maintain market share for CLARINEX and OTC CLARITIN in the U.S. market will depend on a number of factors, including: additional entrants in the market for allergy treatments; clinical differentiation of CLARINEX from other allergy treatments and the perception of the extent of such differentiation in the marketplace; the pricing differentials among OTC CLARITIN, CLARINEX, other allergy treatments and generic OTC loratadine; the erosion rate of OTC CLARITIN and CLARINEX sales upon the entry of additional generic OTC loratadine products; and whether or not one or both of the other branded second-generation antihistamines are switched from prescription to OTC statu s.

The switch of CLARITIN to OTC status has resulted in a rapid, sharp and material decline in CLARITIN sales in the United States. U.S. sales of CLARITIN prescription products were $1.4 billion and $2.7 billion in 2002 and 2001, respectively, or 14 percent and 28 percent, respectively, of the Company's consolidated worldwide sales for those years. 2002 worldwide sales of CLARINEX, launched in the United States in January 2002, were $598 million. Sales of CLARINEX in the United States and abroad could also be materially adversely affected by the presence of generic OTC loratadine or OTC CLARITIN in the market given the anticipated contraction of the prescription antihistamine market. In light of the factors described above, management believes that the Company's December 2002 introduction of OTC CLARITIN, as well as the introduction of a competing OTC loratadine product in December 2002 and additional entrants of generic OTC loratadine products in the market, will likely have a rapid, sharp and material adv erse effect on the Company's results of operations for an indeterminate period of time.

In May 2000, the Company and Merck & Co., Inc. (Merck) entered into agreements to jointly develop and market in the United States new prescription medicines in the cholesterol-management and respiratory therapeutic areas. The agreements cover the development and marketing of:

• Co-administration of ZETIA (ezetimibe), the Company's novel cholesterol absorption inhibitor, with statins;

• ZETIA as a once-daily monotherapy;

• Ezetimibe, as a once-daily fixed-combination tablet with simvastatin (Zocor), Merck's cholesterol-modifying medicine; and

• A once-daily, fixed-combination tablet containing CLARITIN and Singulair for the treatment of allergic rhinitis and asthma. Singulair is Merck's once-daily leukotriene receptor antagonist for the treatment of asthma.

In December 2001, the cholesterol-management agreements were expanded to include all countries of the world except Japan.

In January 2002, Schering-Plough/Merck Pharmaceuticals reported on results of Phase III clinical trials of a fixed-combination tablet containing CLARITIN and Singulair, which did not demonstrate sufficient added benefits in the treatment of seasonal allergic rhinitis.

In October 2002, ezetimibe was approved for sale in Germany, where it is marketed as EZETROL. Also, in October 2002, the FDA approved ZETIA for use either by itself or together with statins in patients with high cholesterol to reduce LDL-C or "bad" cholesterol and total cholesterol.

The agreements between the companies generally provide for equal sharing of development costs and for co-promotion of approved products by each company in the United States and in most other countries of the world, except Japan. In Japan, no agreement exists. In general, co-promotion provides that each company will provide equal physician detailing efforts and bear the cost of its own sales force in marketing

the products. The companies will share certain other costs (e.g., a portion of the costs for manufacturing, promotion, administration, etc.) and also share profits. The agreements do not provide for any jointly owned facilities and, as such, products resulting from the collaboration will be manufactured in facilities owned by either Merck or the Company.

Additional prescription products sold by the Company include: CELESTAMINE, NASONEX, POLARAMINE and PROVENTIL, allergy/respiratory; CAELYX, CEDAX, EULEXIN, GARAMYCIN, INTRON A, PEG-INTRON, REBETOL (ribavirin), REMICADE and TEMODAR, anti-infective and anticancer; DIPROLENE, DIPROSONE, ELOCON, LOTRISONE, QUADRIDERM and VALISONE, dermatologicals; INTEGRILIN, K-DUR and NITRO-DUR, cardiovasculars; and CELESTONE, DIPROSPAN and SUBUTEX, other pharmaceuticals.

PEG-INTRON and REBETOL combination therapy for hepatitis C contributed substantially to sales in 2002. During the fourth quarter of 2002, a competing pegylated interferon-based combination product, including a brand of ribavirin, received regulatory approval in most major markets, including the United States. Management believes that the ability of PEG-INTRON and REBETOL combination therapy to maintain market share will be adversely affected by the introduction of a competing product.

Animal health products include: CEPRAVIN and NUFLOR, antimicrobials; BANAMINE, a non-steroidal anti-inflammatory; RALGRO, a growth promotant implant; OTOMAX, an otic product; a broad range of vaccines for many species; parasiticides, sutures, bandages and nutritional products.

Foot care, OTC and sun care products include: CLEAR AWAY wart remover; DR. SCHOLL'S foot care products; LOTRIMIN and TINACTIN antifungals; A & D ointment; AFRIN nasal decongestant; CHLOR-TRIMETON antihistamine; CLARITIN allergy; CORICIDIN and DRIXORAL cold and decongestant products; CORRECTOL laxative; BAIN DE SOLEIL, COPPERTONE and SOLARCAINE sun care products.

Net Sales by Major Product and Therapeutic Category
(Dollars in millions)

	For the years ended December 31,
	2002		2001		Percent Change
ALLERGY & RESPIRATORY	$	3,304	$	4,217	(22)%
CLARINEX*		598		*	N/M
CLARITIN Rx		1,802		3,159	(43)
NASONEX		523		524	-
PROVENTIL		128		230	(44)
OTHER ALLERGY & RESPIRATORY		253		304	(17)
ANTI-INFECTIVE & ANTICANCER	3,733		2,273		64
INTRON FRANCHISE**	2,736		1,447		89
REMICADE	337		166		N/M
TEMODAR	278		180		54
OTHER ANTI-INFECTIVE & ANTICANCER	382		480		(20)
CARDIOVASCULARS	433		623		(30)
INTEGRILIN	304		231		32
K-DUR	16		216		(92)
NITRO-DUR	85		113		(25)
OTHER CARDIOVASCULARS	28		63		(56)
DERMATOLOGICALS	511		593		(14)
OTHER PHARMACEUTICALS	764		656		16
WORLDWIDE PHARMACEUTICALS	8,745		8,362		5
ANIMAL HEALTH	677		694		(2)
FOOT CARE	290		310		(6)
OTC	275		188		46
OTC CLARITIN	105		-		N/M
OTHER OTC	170		188		(10)
SUN CARE	193		208		(7)
CONSOLIDATED NET SALES	$   10,180		$   9,762		4%

Certain sales amounts in 2001 have been reclassified from selling, general and administrative expenses to net sales to comply with EITF Issue No. 00-25, "Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendor's Products."

N/M - Not meaningful

* In 2001, sales of CLARINEX, launched in international markets only, are included in CLARITIN Rx sales.

**The INTRON franchise consists of INTRON A, PEG-INTRON and REBETOL.

The "Segment Information" as set forth on pages 38 and 39 in the Notes to Consolidated Financial Statements in the Company's 2002 Annual Report to Shareholders is incorporated herein by reference.

Prescription drugs are introduced and made known to physicians, pharmacists, hospitals, managed care organizations and buying groups by trained professional sales representatives, and are sold to hospitals, certain managed care organizations, wholesale distributors and retail pharmacists. Prescription products are also introduced and made known through journal advertising, direct mail advertising, by distributing samples to physicians and through television, radio, internet, print and other advertising media.

Animal health products are promoted to veterinarians, distributors and animal producers.

Foot care, OTC and sun care products are sold through wholesale and retail drug, food chain and mass merchandiser outlets, and are promoted directly to the consumer through television, radio, internet, print and other advertising media.

The pharmaceutical industry is highly competitive and includes other large companies with substantial resources for research, product development, advertising, promotion and field selling support. There are numerous domestic and international competitors in this industry. Some of the principal competitive techniques used by the Company for its products include research and development of new and improved products, high product quality, varied dosage forms and strengths and switching prescription products to non-prescription status. In the United States, many of the Company's products are subject to increasingly competitive pricing as managed care groups, institutions, federal and state government entities and agencies and buying groups seek price discounts and rebates. Governmental and other pressures toward the dispensing of generic products may significantly reduce the sales of certain products when they become no longer protected by patents or data exclusivity arrangements with the FDA.

The Company's subsidiaries own (or have licensed rights under) a number of patents and patent applications, both in the United States and abroad. Patents and patent applications relating to the Company's significant products, including, without limitation, CLARINEX, the CLARITIN family of products, INTRON A, PEG-INTRON, REBETOL, NASONEX and ZETIA, are of material importance to the Company. The compound patent for loratadine expired on June 19, 2002, and U.S. market exclusivity for CLARITIN expired on December 19, 2002. A patent covering the compound desloratadine, formulations thereof, and methods of treatment with desloratadine as it relates to CLARITIN is set to expire on April 21, 2004. Six months' U.S. market exclusivity would attach to the end of the desloratadine patent as it relates to CLARITIN and would expire October 21, 2004. This six-month period of exclusivity was granted because the Company conducted pediatric clinical trials at the request of the FDA. These patents are subject to litig ation as described in Item 3, Legal Proceedings, of this Form 10-K.

Worldwide, the Company's products are sold under trademarks. Trademarks are considered in the aggregate to be of material importance to the business and are protected by registration or common law in the United States and most other markets where the products are sold.

Raw materials essential to the Company are available in adequate quantities from a number of potential suppliers. Energy is expected to be available to the Company in sufficient quantities to meet operating requirements.

Seasonal patterns do not have a pronounced effect on the consolidated operations of the Company.

During 2002, 2001 and 2000, 21 percent, 16 percent and 13 percent, respectively, of consolidated net sales were made to McKesson Corporation, a major pharmaceutical and health care products distributor. Also, during 2002, 2001 and 2000, 11 percent, 12 percent and 13 percent, respectively, of consolidated net sales were made to AmerisourceBergen Corporation, a major pharmaceutical and health care products distributor. Substantially all of these sales were in the United States.

Foreign Operations

Foreign activities are carried out primarily through wholly-owned subsidiaries wherever market potential is adequate and circumstances permit. In addition, the Company is represented in some markets through licensees or other distribution arrangements. There are approximately 17,000 employees outside the United States.

Foreign operations are subject to certain risks, which are inherent in conducting business overseas. These risks include possible nationalization, expropriation, importation limitations, pricing restrictions, and other restrictive governmental actions or economic destabilization. Also, fluctuations in foreign currency exchange rates can impact the Company's consolidated financial results. For additional information on foreign operations, see "Management's Discussion and Analysis of Operations and Financial Condition" and "Segment Information" beginning on pages 13 and 38, respectively, in the Company's 2002 Annual Report to Shareholders, which are incorporated herein by reference.

Research and Development

The Company's research activities are primarily aimed at discovering and developing new and enhanced prescription products of medical and commercial significance. Company sponsored research and development expenditures were $1,425 million, $1,312 million and $1,333 million in 2002, 2001 and 2000, respectively. Research expenditures represented approximately 14 percent of consolidated net sales in 2002, approximately 13 percent of consolidated net sales in 2001 and approximately 14 percent of consolidated net sales in 2000.

The Company's research activities are concentrated in the therapeutic areas of allergic and inflammatory disorders, infectious diseases, oncology, cardiovascular diseases, and central nervous system disorders. The Company also has substantial efforts directed toward biotechnology, gene therapy and immunology. Research activities include expenditures for both internal research efforts and research collaborations with various partners.

While several pharmaceutical compounds are in varying stages of development, it cannot be predicted when or if these compounds will become available for commercial sale.

Government Regulation

Pharmaceutical companies are subject to extensive regulation by a number of national, state and local agencies. Of particular importance is the FDA. It has jurisdiction over all the Company's businesses and administers requirements covering the testing, approval, safety, effectiveness, manufacturing, labeling and marketing of the Company's products. The extent of FDA requirements and/or reviews affects the amount of resources necessary to develop new products and bring them to market in the United States.

On an ongoing basis, the FDA regulates the facilities and procedures used to manufacture pharmaceutical products in the United States or for sale in the United States. All products made in such facilities are to be manufactured in accordance with Good Manufacturing Practices (GMPs) established by the FDA. The FDA periodically inspects the Company's facilities and procedures to evaluate compliance.

In December 2001, the Company announced that it was in negotiations with the FDA to enter a consent decree to resolve issues involving the Company's compliance with current GMPs at certain manufacturing facilities in New Jersey and Puerto Rico. On May 17, 2002, the Company announced that it had reached an agreement with the FDA for a consent decree to resolve these issues. The U.S. District Court for the District of New Jersey has approved the consent decree.

Under terms of the consent decree, the Company will pay a total of $500 million to the U.S. government in two equal installments of $250 million; the first installment was paid in May 2002, and the second installment will be paid in the second quarter of 2003. As previously reported, the Company accrued a $500 million provision for this consent decree in the fourth quarter of 2001.

In the event certain actions agreed upon in the consent decree are not satisfactorily completed on time, the FDA may assess payments for each deadline missed. These payments may not exceed $25 million for 2002, and $50 million for each of the years 2003, 2004 and 2005. These payments are subject to an overall cap of $175 million through 2005. The Company is scheduled to complete its revalidation plans by December 31, 2005. In general, in addition to the payments described above, if a product scheduled for revalidation and certification under the consent decree is not certified within six months of its scheduled date, the Company must cease production of that product until certification is obtained. If a product scheduled for revalidation and certification has not been certified as having been validated by the last date on the validation schedule (currently December 31, 2005, for finished drugs and September 30, 2005, for bulk active pharmaceutical ingredients), the FDA may assess a payment of 24.6 per cent of the net domestic sales of the uncertified product until the validation is certified. The Company would expense any such payments if and when incurred.

In connection with the agreement, the Company has decided to discontinue manufacturing and marketing certain older products. The consent decree also includes a recall, initiated in early May 2002 and directed to U.S. trade accounts, of all lots of theophylline USP tablets and PROVENTIL (albuterol sulfate, USP) REPETABS. PROVENTIL inhalers are not affected by the recall. The Company had discontinued marketing its U.S. theophylline products in June 2001, and PROVENTIL REPETABS have not been available since July 2001. In total, these products represented annual sales of approximately $44 million. Further, the Company recalled certain sterile human and animal drug products manufactured at its Manati, Puerto Rico facility. The financial impact of the recalls was immaterial.

Failure to comply with governmental regulations can result in delays in the release of products, delays in the approvals of new products, seizure or recall of products, suspension or revocation of the authority necessary for the production and sale of products, fines and other civil or criminal sanctions.

The FDA also regulates the conversion of pharmaceuticals from prescription to OTC status.

The Company's activities outside the United States are also subject to regulatory requirements governing the testing, approval, safety, effectiveness, manufacturing, labeling and marketing of the Company's products. These regulatory requirements vary from country to country. Whether or not FDA approval or approval of the European Medicines Evaluation Agency has been obtained for a product, approval of the product by comparable regulatory authorities of countries outside of the United States or the European Union, as the case may be, must be obtained prior to marketing the product in those countries. The approval process may be more or less rigorous from country to country and the time required for approval may be longer or shorter than that required in the United States. Approval in one country does not assure that such product will be approved in another country.

In most international markets, the Company operates in an environment of government-mandated, cost-containment programs. Several governments have placed restrictions on physician prescription levels and patient reimbursements, emphasized greater use of generic drugs and enacted across-the-board price cuts as methods of cost control.

In recent years, various legislative proposals have been offered in Congress and in many state legislatures that would effect major changes in the affected health care systems. One such change that could be material to the Company is the possible addition of an outpatient prescription drug benefit to Medicare. Some states have passed legislation, and further federal and state legislative and administrative proposals are possible. These could include price or patient reimbursement constraints on medicines, mandated discounts, supplemental rebates, expansion of existing governmental programs for new patient populations and restrictions on access to certain products. Similar issues have also arisen in many countries outside of the United States. It is not possible to predict the outcome of such initiatives and their effect on operations and cash flows cannot be reasonably estimated.

The Company is also subject to the jurisdiction of various other federal and state regulatory and enforcement departments and agencies, such as the Federal Trade Commission (FTC), the Department of Justice and the Department of Health and Human Services in the United States. The Company is, therefore, subject to possible administrative and legal proceedings and actions by those organizations. Such actions may result in the imposition of civil and criminal sanctions, which may include fines, penalties and injunctive or administrative remedies.

Environment

To date, compliance with federal, state and local environmental protection laws has not had a materially adverse effect on the Company. The Company has made and will continue to make necessary expenditures for environmental protection. Worldwide capital expenditures during 2002 included approximately $9 million for environmental control purposes. It is anticipated that continued compliance with such environmental regulations will not significantly affect the Company's financial statements or its competitive position. For additional information on environmental matters, see "Legal, Environmental and Regulatory Matters" beginning on page 39 in the Notes to Consolidated Financial Statements in the Company's 2002 Annual Report to Shareholders, which is incorporated herein by reference.

Employees

There were approximately 30,500 people employed by the Company at December 31, 2002.

Available information

The Company makes its annual report on Form 10-K, its quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, filed with the SEC available free of charge, on its Web site, as soon as reasonably practicable after such materials are electronically filed with the SEC. The Company's address on the World Wide Web is schering-plough.com. Since the Company began this practice in the third quarter 2002, each such report has been available on the Company's Web site within 24 hours of filing.

Cautionary Factors that May Affect Future Results

(Cautionary Statements Under the Private Securities Litigation Reform Act of 1995)

This report and other written reports and oral statements made from time to time by the Company may contain so-called "forward-looking statements," all of which are subject to risks and uncertainties. One can often identify these forward-looking statements by their use of words such as "expects," "plans," "will," "estimates," "forecasts," "projects," "believes," "anticipates" and other words of similar meaning. One can also identify them by the fact that they do not relate strictly to historical or current facts. These statements are likely to address the Company's growth strategy, financial results, regulatory issues, status of product approvals, development programs, litigation and investigations. One must carefully consider any such statement and should understand that many factors could cause actual results to differ from the Company's forward-looking statements. These factors include inaccurate assumptions and a broad variety of other risks and uncertainties, including some that are known and som e that are not. No forward-looking statement can be guaranteed, and actual future results may vary materially. The Company does not assume the obligation to update any forward-looking statement. Although it is not possible to predict or identify all such factors, they may include the following:

• A significant portion of net sales are made to major pharmaceutical and health care products distributors and major retail chains in the United States. Consequently, net sales and quarterly growth comparisons may be affected by fluctuations in the buying patterns of major distributors, retail chains and other trade buyers. These fluctuations may result from seasonality, pricing, wholesaler buying decisions or other factors.

• Competitive factors, including technological advances attained by competitors, patents granted to competitors, new products of competitors coming to the market, new indications for competitive products or generic prescription or OTC competition as the Company's products mature and patents expire on products.

• Increased pricing pressure both in the United States and abroad from managed care organizations, institutions and government agencies and programs. In the United States, among other developments, consolidation among customers may increase pricing pressures and may result in various customers having greater influence over prescription decisions through formulary decisions and other policies.

• Government laws and regulations (and changes in laws and regulations) affecting domestic and international operations and the enforcement thereof including, among other laws and regulations, those resulting from healthcare reform initiatives in the United States at the state and federal level and in other countries, as well as laws and regulations relating to trade, antitrust, monetary and fiscal policies, taxes, price controls and possible nationalization.

• Patent positions can be highly uncertain and patent disputes are not unusual. An adverse result in a patent dispute can preclude commercialization of products or negatively impact sales of existing products or result in injunctive relief and payment of financial remedies.

• Uncertainties of the FDA approval process and the regulatory approval processes of non-U.S. countries, including, without limitation, delays in approval of new products.

• Failure to meet GMPs established by the FDA and other governmental authorities can result in delays in the release of products, seizure or recall of products, suspension or revocation of the authority necessary for the production and sale of products, fines and other civil or criminal sanctions. The resolution of manufacturing issues with the FDA discussed in this report are subject to substantial risks and uncertainties. These risks and uncertainties, including the timing, scope and duration of a resolution of the manufacturing issues, will depend on the ability of the Company to assure the FDA of the quality and reliability of its manufacturing systems and controls, and the extent of remedial and prospective obligations undertaken by the Company.

• Difficulties in product development. Pharmaceutical product development is highly uncertain. Products that appear promising in development may fail to reach market for numerous reasons. They may be found to be ineffective or to have harmful side effects in clinical or pre-clinical testing, they may fail to receive the necessary regulatory approvals, they may turn out not to be economically feasible because of manufacturing costs or other factors or they may be precluded from commercialization by the proprietary rights of others.

• Efficacy or safety concerns with respect to marketed products, whether or not scientifically justified, leading to recalls, withdrawals or declining sales.

• Major products such as CLARITIN, CLARINEX, INTRON A, PEG-INTRON, Rebetol Capsules and NASONEX accounted for a material portion of the Company's 2002 revenues. If any major product were to become subject to a problem such as loss of patent protection, OTC availability (as indicated above for CLARITIN and its current and potential OTC competition), previously unknown side effects, if a new, more effective treatment should be introduced; or if the product is discontinued for any reason, the impact on revenues could be significant.

• Legal factors, including product liability claims and other litigation, government investigations, patent disputes with competitors and environmental concerns, any of which could preclude commercialization of products or negatively affect the profitability of existing products.

• Economic factors over which the Company has no control, including changes in inflation, interest rates and foreign currency exchange rates.

• Changes in tax laws including changes related to taxation of foreign earnings.

• Changes in accounting standards promulgated by the American Institute of Certified Public Accountants, the Financial Accounting Standards Board or the Securities and Exchange Commission that are adverse to the Company.

Item 2.   Properties

The Company's corporate headquarters is located in Kenilworth, New Jersey. Principal manufacturing facilities are located in Kenilworth, New Jersey; Miami, Florida; Omaha, Nebraska; Cleveland, Tennessee; Puerto Rico, Argentina, Belgium, Canada, France, Germany, Ireland, Italy, Japan, Mexico, Singapore and Spain.

The Company's principal research facilities are located in Kenilworth and Union, New Jersey; Palo Alto and San Diego, California; and Elkhorn, Nebraska.

On May 17, 2002, the Company announced that it reached an agreement with the FDA to enter into a consent decree to resolve issues involving the Company's compliance with current GMPs at certain manufacturing facilities in New Jersey and Puerto Rico. Refer to the "Government Regulation" section within Item 1 of this Form 10-K for additional information regarding the consent decree.

The major portion of properties are owned by the Company. These properties are generally well maintained, adequately insured and in generally good operating condition. The Company's manufacturing facilities have capacities considered appropriate to meet the Company's needs.

Item 3.   Legal Proceedings

Background

The Company has responsibilities for environmental cleanup under various state, local and federal laws, including the Comprehensive Environmental Response, Compensation and Liability Act, commonly known as Superfund. At several Superfund sites (or equivalent sites under state law), the Company is alleged to be a potentially responsible party (PRP). The Company estimates its obligations for cleanup costs for Superfund sites based on information obtained from the federal Environmental Protection Agency, an equivalent state agency and/or studies prepared by independent engineers, and on the probable costs to be paid by other PRPs. The Company records a liability for environmental assessments and/or cleanup when it is probable a loss has been incurred and the amount can be reasonably estimated.

The Company is also involved in various other claims and legal proceedings of a nature considered normal to its business, including product liability cases. The Company adjusts its accrued liabilities to reflect the current best estimate of its probable loss exposure. Where no best estimate is determinable, the Company accrues the minimum amount within the most probable range of its liability.

The recorded liabilities for the above matters at December 31, 2002, and the related expenses incurred during the year ended December 31, 2002, were not material. Expected insurance recoveries have not been considered in determining the costs for environmental-related liabilities. Management believes that, except for the matters discussed in the remainder of this section, it is remote that any material liability in excess of the amounts accrued will be incurred. With respect to the matters discussed in the remainder of this section, except where noted, it is not practicable to estimate a range of reasonably possible loss; where it has, a reserve has been included in the financial statements. Resolution of any or all of the matters discussed in the remainder of this section, individually or in the aggregate, could have a material adverse effect on the Company's results of operations or financial condition. Management reviews the status of these matters on an ongoing basis and from time to time may sett le or otherwise resolve them on such terms and conditions as management believes are in the best interests of the Company. The Company is aware that settlements of matters of the types set forth in the remainder of this section, and in particular under "Investigations," frequently involve fines and/or penalties that are material to the financial condition and the results of operations of the entity entering into the settlement. There are no assurances that the Company will prevail in any of these matters, that settlements can be reached on acceptable terms or in amounts that do not exceed the amounts reserved, and outcomes cannot be predicted.

Environmental

Residents in the vicinity of a publicly owned waste-water treatment plant in Barceloneta, Puerto Rico, have filed two lawsuits against the plant owner and operator, and numerous companies that discharge into the plant, including a subsidiary of the Company, for damages and injunctive relief relating to odors allegedly coming from the plant and connecting sewers. One of these lawsuits is a class action claiming damages of $600 million. Discovery is ongoing in both lawsuits.

Patent Matters

In February 1998, Geneva Pharmaceuticals, Inc. (Geneva) submitted an Abbreviated New Drug Application (ANDA) to the U.S. FDA seeking to market generic CLARITIN tablets before the expiration in 2004 of the Company's desloratadine compound patent, which the Company believes protects CLARITIN. Geneva alleged that the desloratadine compound patent is invalid. This patent is material to the Company's business. In March 1998, the Company filed suit in federal court seeking a ruling that Geneva's ANDA submission constitutes infringement of the Company's desloratadine compound patent and that its challenge to this patent is without merit. In addition to Geneva, from 1998 through 2002, the following companies made similar ANDA submissions for generic CLARITIN tablets: Zenith Goldline Pharmaceuticals, Mylan Pharmaceuticals Inc., Teva Pharmaceuticals USA, Inc. (Teva), Ranbaxy Pharmaceuticals, Inc., Genpharm Incorporated, and L. Perrigo Company (Perrigo). The following companies made similar ANDA submission s for generic CLARITIN syrup: Teva, Copley Pharmaceuticals, Inc., Novex Pharma, Alpharma USPD Inc., Taro Pharmaceuticals USA, Inc., Morton Grove Pharmaceuticals, Inc., and Perrigo. Andrx Pharmaceuticals, L.L.C. (Andrx) and Impax Laboratories Inc. (Impax) made similar ANDA submissions for generic CLARITIN-D 12 Hour and CLARITIN-D 24 Hour formulations. ESI Lederle, Inc. (Lederle), a subsidiary of Wyeth, made a similar ANDA submission for a generic CLARITIN REDITAB formulation. The following companies submitted "paper" New Drug Applications ("paper" NDAs) under Section 505 (b)(2) of the Federal Food, Drug and Cosmetic Act seeking to market a generic OTC form of CLARITIN prior to the expiration of the Company's desloratadine compound patent: Whitehall-Robins Healthcare, a division of Wyeth (for an OTC REDITAB formulation), McNeil Consumer Healthcare (McNeil) (for OTC tablets), and Perrigo (for OTC tablets). In each case, the Company filed suit in federal court seeking a ruling that the applicable ANDA or " paper" NDA submission and proposed marketing of a generic prescription or OTC product constitutes infringement of the Company's desloratadine compound patent, and that the challenge to the patent is without merit. On August 8, 2002, a federal district court in New Jersey ruled on motions for summary judgment, finding that certain claims of the desloratadine compound patent were anticipated by a prior patent and, thus, were not valid. On September 18, 2002, the district court denied a request for reconsideration. The Company has appealed the rulings. The appeal is scheduled to be argued on April 8, 2003. The Company anticipates that the appeal will be decided in the second half of 2003 or early 2004. With these rulings, actions against the defendants for infringement of the desloratadine compound patent will not proceed unless the Company's appeal is successful. The Company has also asserted that Impax's and Andrx's ANDAs for their generic CLARITIN-D 24 Hour formulations infringe the Company's patent covering its CLARITIN-D 24 Hour formulation. This issue has not yet been resolved by the district court.

In August 2001, Geneva Pharmaceuticals Technology Corp. (Geneva Pharmaceuticals) and Three Rivers Pharmaceuticals, L.L.C. (Three Rivers), and in January 2002, Teva, submitted separate ANDAs with the FDA seeking to market generic forms of 200 mg REBETOL (ribavirin) Capsules in the United States before the expiration of the Company's patents covering ribavirin formulations. Geneva Pharmaceuticals, Three Rivers and Teva have asserted that they do not infringe the Company's REBETOL patents and/or the patents are invalid. The REBETOL patents are material to the Company's business. In September 2001, October 2001 and March 2002, the Company filed suits in federal court seeking rulings that the ANDA submissions by Geneva Pharmaceuticals, Three Rivers and Teva, respectively, constitute infringement of the Company's patents and that the challenges to the Company's patents are without merit. In February 2003, the Company entered into a licensing agreement with Three Rivers that will settle all patent litigation between the Company and Three Rivers. Under the terms of the agreement, the Company will grant Three Rivers a non-exclusive, non-sublicensable license to the Company's U.S. ribavirin patents. Three Rivers will pay the Company a royalty on its ribavirin sales. The agreement does not affect Three Rivers' reported patent litigation with Ribapharm, Inc. The agreement is subject to the dismissal of the relevant lawsuits in court. The patent litigation with Geneva and Teva has been temporarily stayed while the parties seek to reach a settlement.

In January 2000, a jury found that the Company's PRIME PAC PRRS (Porcine Respiratory and Reproductive Syndrome) vaccine infringed a patent owned by Boehringer Ingelheim Vetmedica, Inc. An injunction was issued in August 2000 barring further sales of the Company's vaccine. The Company's post-trial motions for either a reversal of the jury's verdict or a new trial were denied in September 2001. The Company appealed, and the verdict was affirmed by the appellate court in February 2003. Discovery in the damages phase of the case is ongoing.

Investigations

In October 1999, the Company received a subpoena from the U.S. Attorney's Office for the Eastern District of Pennsylvania, pursuant to the Health Insurance Portability and Accountability Act of 1996, concerning the Company's contracts with pharmacy benefit managers (PBMs) and managed care organizations to provide disease management services in connection with the marketing of its pharmaceutical products. It appears that the subpoena was one of a number addressed to industry participants as part of an inquiry into, among other things, pharmaceutical marketing practices. The government's inquiry has focused on, among other things, whether the Company's disease management and other marketing programs and arrangements comply with federal health care laws and whether the value of its disease management programs and other marketing programs and arrangements should have been included in the calculation of rebates to the government. The Company has been cooperating with the investigation. In March 2002, t he U.S. Attorney's Office began issuing grand jury subpoenas. The grand jury investigation appears to be focused on one or more transactions with managed care organizations where the government believes the Company offered or provided deeply discounted pharmaceutical products (known as "nominally priced" products, which are generally excluded from Medicaid rebate calculations), free or discounted disease management services, and other marketing programs and arrangements that delivered value, in order to place or retain one or more of the Company's major pharmaceutical products on the managed care organization's formulary. The grand jury appears to be investigating, among other things, (i) whether the transactions described above and conduct relating thereto violated federal anti-kickback statutes; and (ii) whether the value of the items and services described above should have been included in the Company's calculation of Medicaid rebates. The outcome of the investigations could include the comme ncement of civil and/or criminal proceedings involving substantial fines, penalties and injunctive or administrative remedies, including exclusion from government reimbursement programs, and the Company cannot predict whether the investigations will affect its marketing practices or sales. In February 2003, the Company increased its litigation reserves related to this investigation and the investigations described below by the U.S. Attorney's Office for the District of Massachusetts, by $150 million. The increased litigation reserves reflect an adjustment to the Company's estimate of its minimum liability relating to those investigations, in compliance with generally accepted accounting principles (GAAP). Under GAAP, companies are required to estimate and recognize a minimum liability when a loss is probable but no better estimate of the loss can be made. Also, under GAAP, the Company is required to recognize this liability in 2002. The Company notes that its total reserves reflect an estimate and that any final settlement or adjudication of any of these matters could possibly be less than or could materially exceed the aggregate liability accrued by the Company and could have a materially adverse effect on the operations or financial condition of the Company. This adjustment is consistent with the Company's policy of reviewing regularly the status of pending actions and investigations and making adjustments as appropriate.

The Company is responding to investigations by the Department of Health and Human Services, the Department of Justice and certain states into certain industry and Company practices regarding average wholesale price (AWP). These investigations include a Department of Justice review of the merits of a federal action filed by a private entity on behalf of the United States in the U.S. District Court for the Southern District of Florida, as well as an investigation by the U.S. Attorney's Office for the District of Massachusetts, regarding, inter alia, whether the AWP set by pharmaceutical companies for certain drugs improperly exceeds the average prices paid by dispensers and, as a consequence, results in unlawful inflation of certain government drug reimbursements that are based on AWP. In March 2001, the Company received a subpoena from the Massachusetts Attorney General's office seeking documents concerning the use of AWP and other pricing and/or marketing practices. The Company is cooperating with these investigations. The outcome of these investigations could include the imposition of substantial fines, penalties and injunctive or administrative remedies.

The U.S. Attorney's Office for the District of Massachusetts is also investigating whether the Company's sales of a product that was repackaged for sale by a managed care organization should have been included in the Company's Medicaid best price calculations. In early November 2002, the Company was served with two additional grand jury subpoenas by the U.S. Attorney for the District of Massachusetts. Among other information, the subpoenas seek a broad range of information concerning the Company's sales, marketing and clinical trial practices and programs with respect to INTRON A, REBETRON and TEMODAR; the Company's sales and marketing contacts with managed care organizations and doctors; and the Company's offering or provision of grants, honorariums or other items or services of value to managed care organizations, physician groups, doctors and educational institutions. The Company understands that this investigation is focused on whether certain sales, marketing and clinical trial practices and conduc t related thereto, which in certain instances relate to the use of one or more of the above-mentioned products for indications for which FDA approval had not been obtained - so-called "off-label" uses - were in violation of federal laws and regulations with respect to off-label promotional activities. The investigation also appears to focus on whether drug samples, clinical trial grants and other items or services of value were given to providers to incentivize them to prescribe one or more of the above-mentioned products, including for "off-label" uses, in violation of the federal health care anti-kickback laws. The Company has implemented certain changes to its sales, marketing and clinical trial practices and is continuing to review those practices to ensure compliance with relevant laws and regulations. The Company is cooperating with these investigations. Future sales of INTRON A, REBETRON and TEMODAR may be adversely affected, but the Company cannot at this time predict the ultimate impact, if any, on such sales. The outcome of these investigations could include 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. In February 2003, the Company increased its litigation reserves related to the investigations by the U.S. Attorney's Office for the District of Massachusetts described in this paragraph and the paragraph immediately preceding it and the investigation described above by the U.S. Attorney's Office for the Eastern District of Pennsylvania, by $150 million. The increased litigation reserves reflect an adjustment to the Company's estimate of its minimum liability relating to those investigations, in compliance with GAAP. Under GAAP, companies are required to estimate and recognize a minimum liability when a loss is probable but no better estimate of the loss can be made. Also, under GAAP, the Company is required to recognize this liab ility in 2002. The Company notes that its total reserves reflect an estimate and that any final settlement or adjudication of any of these matters could possibly be less than or could materially exceed the aggregate liability accrued by the Company and could have a materially adverse effect on the operations or financial condition of the Company. This adjustment is consistent with the Company's policy of reviewing regularly the status of pending actions and investigations and making adjustments as appropriate.

The U.S. Attorney's Office in New Jersey along with the FDA's Office of Criminal Investigation is conducting an investigation which may focus on one or more Company products, including ribavirin, manufactured in Puerto Rico. The Company is cooperating with the government in the investigation.

The U.S. Department of Justice, Antitrust Division is investigating whether the Company's Consumer Products Division entered into an agreement with another company to lower the commission rate of a consumer products broker. In February 2003, the Antitrust Division served a grand jury subpoena on the Company seeking documents for the first time. The Company is cooperating with the investigation.

Securities and Class Action Litigation

On February 15, 2001, the Company stated in a press release that the FDA had been conducting inspections of the Company's manufacturing facilities in New Jersey and Puerto Rico and had issued reports citing deficiencies concerning compliance with current Good Manufacturing Practices, primarily relating to production processes, controls and procedures. The next day, February 16, 2001, a lawsuit was filed in the U.S. District Court for the District of New Jersey against the Company and certain named officers alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. Additional lawsuits of the same tenor followed. The plaintiffs in the suits purport to represent classes of shareholders who purchased shares of Company stock between dates as early as March 2, 2000, and February 15, 2001, the date of the press release. In April 2001, a lawsuit was filed in the U.S. District Court for the District of New Jersey against the Company and certa in named officers alleging substantially the same violations of the Securities Exchange Act of 1934 as alleged in the putative class actions described above in this paragraph, as well as alleging violations of Section 11 of the Securities Act of 1933 and failure to disclose information which is the subject matter of the Federal Trade Commission (FTC) administrative proceeding described below and purporting to represent a class of shareholders who purchased shares of Company stock between July 25, 2000, and March 30, 2001, the last business day before the Company issued a press release relating to the FTC administrative proceeding. This complaint and all of the previously filed complaints were consolidated into one action in the U.S. District Court for the District of New Jersey, and a lead plaintiff, the Florida State Board of Administration, was appointed by the Court on July 2, 2001. On October 11, 2001, a consolidated amended complaint was filed, alleging the same violations described in the second sente nce of this paragraph (but not a Section 11 claim) and purporting to represent a class of shareholders who purchased shares of Company stock from May 9, 2000, through February 15, 2001. The Company's motion to dismiss the consolidated amended complaint was denied on May 24, 2002. Discovery is ongoing.

In addition to the lawsuits described in the immediately preceding paragraph, two lawsuits were filed in the U.S. District Court for the District of New Jersey, and two lawsuits were filed in New Jersey state court against the Company (as a nominal defendant) and certain officers, directors and a former director seeking damages on behalf of the Company, including disgorgement of trading profits made by defendants allegedly obtained on the basis of material non-public information. The complaints in each of those four lawsuits relate to the issues described in the Company's February 15, 2001, press release, and allege a failure to disclose material information and breach of fiduciary duty by the directors. One of the federal court lawsuits also includes allegations related to the investigations by the U.S. Attorney's Offices for the Eastern District of Pennsylvania and the District of Massachusetts, the FTC's administrative proceeding against the Company, and the lawsuit by the state of Texas against Warr ick Pharmaceuticals (Warrick), the Company's generics subsidiary, all of which are described herein. Each of these lawsuits is a shareholder derivative action that purports to assert claims on behalf of the Company, but as to which no demand was made on the Board of Directors and no decision has been made on whether the Company can or should pursue such claims. In August 2001, the plaintiffs in each of the New Jersey state court shareholder derivative actions moved to dismiss voluntarily the complaints in those actions, which motions were granted. The two shareholder derivative actions pending in the U.S. District Court for the District of New Jersey have been consolidated into one action, which is in its very early stages. This consolidated action is being coordinated for most pre-trial purposes with the consolidated action described in the immediately preceding paragraph. On January 2, 2002, the Company received a demand letter dated December 26, 2001, from a law firm not involved in the derivative acti ons described above, on behalf of a shareholder who also is not involved in the derivative actions, demanding that the Board of Directors bring claims on behalf of the Company based on allegations substantially similar to those alleged in the derivative actions. On January 22, 2002, the Board of Directors adopted a Board resolution establishing an Evaluation Committee, consisting of three directors, to investigate, review and analyze the facts and circumstances surrounding the allegations made in the demand letter and the consolidated amended derivative action complaint described above, but reserving to the full Board authority and discretion to exercise its business judgment in respect of the proper disposition of the demand. The Committee engaged independent outside counsel to advise it and issued a report on the findings of its investigation to the independent directors of the Board in late October 2002. That report determined that the shareholder demand should be refused, and finding no liability on t he part of any officers or directors. In November 2002, the full Board adopted the recommendation of the Evaluation Committee.

On August 9, 2001, the Prescription Access Litigation (PAL) project, a Boston-based group formed in 2001 to litigate against drug companies, issued a press release stating that PAL members filed a lawsuit in New Jersey state court against the Company. In December 2001, the Company was served with an amended complaint in the case. The suit, which PAL purports to be a class action, alleges, among other things, that the Company's direct-to-consumer advertising falsely depicts the benefits of CLARITIN in violation of the New Jersey Consumer Fraud Act. In February 2002, the Company filed a motion to dismiss this case. In May 2002, the court dismissed the complaint in its entirety for failure to state a claim. The plaintiffs have appealed.

In December 2001, PAL filed a class action suit in Federal Court in Massachusetts against the Company. In September 2002, a consolidated complaint was filed in this court as a result of the coordination by the Multi-District Litigation Panel of all federal court AWP cases from throughout the country. The consolidated complaint alleges that the Company and Warrick conspired with providers to defraud consumers by reporting fraudulently high AWPs for prescription medications reimbursed by Medicare or third-party payers. The complaint seeks a declaratory judgment and unspecified damages, including treble damages.

The Company is a defendant in a number of purported nationwide or state class action lawsuits in which plaintiffs seek a refund of the purchase price of laxatives or phenylpropanolamine-containing cough/cold remedies they purchased. Other pharmaceutical manufacturers are co-defendants in some of these lawsuits. In general, plaintiffs claim that they would not have purchased or would have paid less for these products had they known of certain defects or medical risks attendant with their use. All of these lawsuits are in the early stages of discovery; plaintiffs' theories for recovery have yet to be legally tested, and the courts have not yet agreed that these cases should go forward as class actions. A number of lawsuits involving these products, as well as recalled albuterol/VANCERIL/VANCENASE inhalers, have also been filed against the Company seeking recovery for personal injuries or death. In several of these lawsuits punitive damages are claimed. The Company settled a California state court clas s action seeking refund of the purchase price of inhalers through a program of issuing 4.5 million vouchers for free inhalers plus payment of attorneys' fees. The court gave final approval to the settlement in October 2002.

Royalties/Contract Matters

The Company was a party to arbitration proceedings by Biogen, Inc. relating to, among other things, royalty payments. These arbitrations have been settled.

In October 2001, ICN Pharmaceuticals, Inc. notified the Company of its intention to begin an alternative resolution dispute proceeding against the Company seeking the payment of royalties on REBETOL provided by the Company without charge or at a reduced charge to indigent patients participating in SCHERING'S COMMITMENT TO CARE program.

Antitrust and FTC Matters

The Company is a defendant in numerous antitrust actions commenced (starting in 1993) in state and federal courts by independent retail pharmacies, chain retail pharmacies and consumers. The plaintiffs allege price discrimination and/or conspiracy between the Company and other defendants to restrain trade by jointly refusing to sell prescription drugs at discounted prices to the plaintiffs. The Company, in February 1996, agreed to settle a federal class action on behalf of approximately two-thirds of all retail pharmacies in the United States for a total of $22 million, which has been paid in full. The U.S. District Court in Illinois approved the settlement of the federal class action in 1996. In 1997, the Seventh Circuit Court of Appeals dismissed all appeals from that settlement, and it is not subject to further review.

In April 1997, certain of the plaintiffs in the federal class action commenced another purported class action in the U.S. District Court in Illinois against the Company and the other defendants who settled the previous federal class action. The complaint alleges that the defendants conspired not to implement the settlement commitments following the settlement discussed above. The District Court has denied the plaintiffs' motion for a preliminary injunction hearing.

The Company has either settled or had dismissed on motion all the state court retailer and consumer actions. The settlement amounts were not material to the Company.

The Federal Court in Illinois remanded the conspiracy portion of the cases of those retailers that opted out of the class action back to the district courts where they were filed. The Federal Court in Illinois has jurisdiction over the Robinson-Patman portion of these cases.

Plaintiffs in these antitrust actions generally seek treble damages in an unspecified amount and an injunction against the allegedly unlawful conduct.

On April 2, 2001, the FTC started an administrative proceeding against the Company, Upsher-Smith, Inc. (Upsher-Smith) and Lederle. The complaint alleges anti-competitive effects from the settlement of patent lawsuits between the Company and Lederle, and the Company and Upsher-Smith. The lawsuits that were settled related to generic versions of K-DUR, the Company's long-acting potassium chloride product, which was the subject of ANDAs filed by Lederle and Upsher-Smith. In June 2002, the administrative law judge overseeing the case issued a decision that the patent litigation settlements complied with the law in all respects and dismissed all claims against the Company. An appeal of this decision to the full Commission filed by the FTC staff is currently pending. The outcome of the proceeding could result in the imposition of injunctive or administrative remedies.

Following the commencement of the FTC administrative proceeding, alleged class action suits were filed on behalf of direct and indirect purchasers of K-DUR against the Company, Upsher-Smith and Lederle in federal and state courts. These suits all allege essentially the same facts and claim violations of federal and state antitrust laws, as well as other state statutory and/or common law causes of action.

Pricing Matters

During the third quarter of 2000, Warrick was sued by the state of Texas. In June 2002, the Company and its subsidiary, Schering Corporation, were added as defendants. The lawsuit alleges that Warrick supplied the state with false reports of wholesale prices, which caused the state to pay Medicaid claims on prescriptions of Warrick's albuterol sulfate solution and inhaler at a higher-than-justified level. The state seeks damages of approximately $106 million against Warrick, including treble damages and penalties. The outcome of the litigation could result in the imposition of fines, penalties and injunctive remedies.

The Company and Warrick are defendants in numerous lawsuits brought in state and federal courts, which allege that the Company and Warrick reported inflated AWPs for prescription pharmaceuticals and thereby caused third-party payers to make excess reimbursements to providers. Some of these actions also allege that the Company and Warrick failed to report accurate prices under the Medicaid Rebate Program and thereby underpaid rebates to some states. These actions, which began in October 2001, have been brought by state Attorneys General, private plaintiffs, nonprofit organizations and employee benefit funds. They allege violations of federal and state law, including fraud, antitrust, Racketeer Influenced Corrupt Organizations Act (RICO) and other claims. The actions seek unspecified damages, including treble and punitive damages.

SEC Inquiry and Related Litigation

The Company is providing information to the SEC in connection with the Commission's inquiry relating to the Company's meetings with investors and other communications. The Company believes that it has complied with all applicable securities laws in this matter.

Private plaintiffs have filed several federal putative litigations against the Company and Mr. Kogan which were consolidated on January 10, 2003, alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as well as SEC Regulation Fair Disclosure (FD) relating to the alleged disclosures made during meetings with investors referred to in the preceding paragraph.

Tax Matters

In October 2001, IRS auditors have asserted, in reports, that the Company is liable for additional tax for the 1990 through 1992 tax years. The reports allege that two interest rate swaps that the Company entered into with an unrelated party should be recharacterized as loans from affiliated companies, resulting in additional tax on income. The tax sought by the IRS auditors relating to recharacterization is approximately $195 million, plus interest. The Company has not accrued the $195 million because the Company and its tax advisers do not believe it is probable that the IRS will prevail in this matter.

Item 4.   Submission of Matters to a Vote of Security Holders

Not applicable.

Executive Officers of the Registrant

The following information regarding executive officers is included herein in accordance with Part III, Item 10.

Officers are elected to serve for one year and until their successors shall have been duly elected.

Name and Current Position	Business Experience	Age
Richard Jay Kogan   Chief Executive Officer   and President (1)	Present position 2002; Chairman of the Board and Chief Executive Officer 1998-2002; President and Chief Executive Officer	61
	1996 - 1998; re-elected to office of
	President in 2001
Joseph C. Connors	Present position 1996	54
Executive Vice President
and General Counsel
Jack L. Wyszomierski	Present position 1996	47
Executive Vice President
and Chief Financial Officer
Cecil B. Pickett, Ph.D.	Present position 2002;	57
Vice President and President, Schering-  Plough Research Institute	Executive Vice President, Discovery Research, Schering-Plough Research
	Institute 1994-2002
Richard W. Zahn	Present position 2001;	51
Vice President and	President, Schering Laboratories
President, Schering Laboratories	1996 - 2001
Geraldine U. Foster	Present position 2003;	60
Senior Vice President,	Senior Vice President, Investor
Investor Relations	Relations and Corporate
	Communications 1994-2002
Daniel A. Nichols	Present position 1991	62
Senior Vice President,
Taxes
________________
(1) Mr. Kogan will retire as Chief Executive Officer and President no later than April 22, 2003.

Name and Current Position	Business Experience	Age
John P. Ryan	Present position 1998;	62
Senior Vice President,	Vice President - Human Resources
Human Resources	Schering-Plough Pharmaceuticals
	1988 -1998
Douglas J. Gingerella	Present position 1999;	44
Vice President, Corporate	Staff Vice President, Corporate
Audits	Audits 1995 -1998
Thomas H. Kelly	Present position 1991	53
Vice President and
Controller
Donald R. Lemma, Ph.D.	Present position 2002;	40
Vice President, Corporate	Vice President, Information
Information Technology and	Management, Bristol-Myers Squibb
Chief Information Officer	2001-2002; Vice President and Chief
	Information Officer, Etec Systems,
	a division of Applied Materials, Inc.,
	1998-2001; Director of Management
	Information Technologies,
	The Liposome Company 1995-1998
E. Kevin Moore	Present position 1996	50
Vice President and
Treasurer
Joseph J. LaRosa	Present position 2001;	44
Staff Vice President,	Staff Vice President, Commercial Law
Secretary and Associate	1999 - 2000; Senior Legal Director
General Counsel	1997 -1999; Legal Director 1995 - 1997

Part II

Item 5.   Market for Registrant's Common Equity and Related Stockholder Matters

The common share dividends, share price data and the approximate number of holders of record as set forth on page 48 in the Company's 2002 Annual Report to Shareholders are incorporated herein by reference.

Equity Compensation Plan Information -- The following information relates to plans under which equity securities of the Company may be issued to employees or directors. The Company has no plans under which equity securities may be issued to non-employees (except that under the 2002 Stock Incentive Plan and predecessor plans, certain stock options may be transferable to family members of the employee-optionee or related trusts).

Plan Category	Column A Number of securities to be issued upon exercise of outstanding options, warrants and rights	Column B Weighted-average exercise price of outstanding options, warrants and rights	Column C Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in Column A)
Equity compensation plans approved by security holders 2002 Stock Incentive Plan and Predecessor Plans	54,000,000	$35.40	71,600,000
Equity compensation plans not approved by security holders
Directors Deferred Compensation Plan*	-0-	N/A	573,258
Schering-Plough (Ireland) Share Purchase Scheme**	-0-	N/A	**
Total			72,173,258

___________________

*The Plan provides an annual grant of 2,500 shares of common stock to each non-employee director. Directors may defer awards into stock units that pay out in shares of common stock when the deferral period ends.

___________________

**The Plan permits employees who reside in Ireland to enjoy tax advantages by having some or all of their Christmas bonus and between 1% and 5% of their pay passed to a trustee. The trustee purchases shares of common stock in the open market and allocates the shares to the employees' accounts. No more than 10,000 Irish pounds by an employee may be deferred in a year. Employees may not sell or withdraw shares allocated to their accounts for two to three years.

Item 6.   Selected Financial Data

The Six-Year Selected Financial & Statistical Data as set forth on page 47 in the Company's 2002 Annual Report to Shareholders is incorporated herein by reference.

Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operation

Management's Discussion and Analysis of Operations and Financial Condition as set forth beginning on page 13 in the Company's 2002 Annual Report to Shareholders is incorporated herein by reference.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

The Market Risk Disclosures as set forth in Management's Discussion and Analysis of Operations and Financial Condition beginning on page 13 in the Company's 2002 Annual Report to Shareholders is incorporated herein by reference.

Item 8.  Financial Statements and Supplementary Data

The Consolidated Balance Sheets as of December 31, 2002 and 2001, and the related Statements of Consolidated Income, Consolidated Shareholders' Equity and Consolidated Cash Flows for each of the three years in the period ended December 31, 2002, Notes to Consolidated Financial Statements, the Independent Auditors' Report of Deloitte & Touche LLP dated February 25, 2003 and unaudited Quarterly Data, as set forth beginning on page 24 in the Company's 2002 Annual Report to Shareholders, are incorporated herein by reference.

Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

Part III

Item 10. Directors and Executive Officers of the Registrant

The information concerning directors and nominees for directors as set forth in the Company's Proxy Statement for the annual meeting of shareholders on April 22, 2003 is incorporated herein by reference.

Information required as to executive officers is included in Part I of this filing under the caption "Executive Officers of the Registrant."

Item 11. Executive Compensation

Executive compensation information as set forth in the Company's Proxy Statement for the annual meeting of shareholders on April 22, 2003 is incorporated herein by reference.

Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information concerning security ownership of certain beneficial owners and management as set forth in the Company's Proxy Statement for the annual meeting of shareholders on April 22, 2003 is incorporated herein by reference.

Item 13.    Certain Relationships and Related Transactions

Information concerning certain relationships and related transactions as set forth in the Company's Proxy Statement for the annual meeting of shareholders on April 22, 2003 is incorporated herein by reference.

Item 14.    Controls and Procedures

Management, including the chief executive officer and the chief financial officer, has evaluated the Company's disclosure controls and procedures within a period of 90 days prior to the filing date of this Form 10-K and have concluded that the Company's disclosure controls and procedures are effective in ensuring that material information relating to the Company and its consolidated subsidiaries is made known to them. They also concluded that there were no significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of their most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Part IV

Item 15.     Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a) 1.	Financial Statements
	The following consolidated financial statements and Independent Auditors' Report, included in the Company's 2002 Annual Report to Shareholders on pages 24 to 46, are incorporated herein by reference.
	Statements of Consolidated Income for the Years Ended
	December 31, 2002, 2001 and 2000
	Statements of Consolidated Cash Flows for the Years Ended   December 31, 2002, 2001 and 2000
	Consolidated Balance Sheets at December 31, 2002 and 2001
	Statements of Consolidated Shareholders' Equity for the Years
	Ended December 31, 2002, 2001 and 2000
	Notes to Consolidated Financial Statements
	Independent Auditors' Report

(a) 2. Financial Statement Schedules

	Page in
	Form 10-K
Independent Auditors' Report	43
Schedule II - Valuation and Qualifying Accounts	44

Schedules not included have been omitted because they are not applicable or not required or because the required information is set forth in the financial statements or the notes thereto. Columns omitted from schedules filed have been omitted because the information is not applicable.

Financial statements of fifty percent or less owned companies accounted for by the equity method have been omitted because, considered individually or in the aggregate, they do not constitute a significant subsidiary.

(a) 3.	Exhibits
Exhibit Number		Description
3 (a)		A complete copy of the Certificate of Incorporation as amended and currently in effect. Incorporated by reference to Exhibit 3(i) to the Company's Quarterly Report for the period ended June 30, 1995 on Form 10-Q; Certificate of Amendment of Certificate of Incorporation incorporated by reference to Exhibit 3 to the Company's Quarterly Report for the period ended June 30, 1997 on Form 10-Q; Certificate of Amendment of Certificate of Incorporation incorporated by reference to Exhibit 3(a) to the Company's Quarterly Report for the period ended March 31, 1999 on Form 10-Q, File No. 1-6571.
3 (b)		A complete copy of the By-Laws as amended and currently in effect. Incorporated by reference to Exhibit 4(2) to the Company's Registration Statement on Form S-3, File No. 333-853; amendment to By-Laws effective September 22, 1998 incorporated by reference to Exhibit 4 to the Company's Quarterly Report for the period ended September 30, 1998 on Form 10-Q; amendment to By-Laws effective April 24, 2001 incorporated by reference to Exhibit 4 to the Company's Quarterly Report for the period ended March 31, 2001 on Form 10-Q; amendment to By-Laws effective December 3, 2001 incorporated by reference to Exhibit 3(b) to the Company's Annual Report for 2001 on Form 10-K, File No. 1-6571.
4 (a)		Rights Agreement between the Company and the Bank of New York dated June 24, 1997. Incorporated by reference to Exhibit 1 to the Form 8-A filed by the Company on June 30, 1997, File No. 1-6571.
4 (b)(i)		Form of Indenture between the Company and The Bank of New York as Trustee (filed with this document).
4 (b)(ii)		Form of Global Note (filed with this document).
4 (c)		Form of Participation Rights Agreement between the Company and the Chase Manhattan Bank (National Association) as Trustee. Incorporated by reference to Exhibit 4.6 to the Company's Registration Statement on Form S-4, Amendment No. 1, File No. 33-65107.

Exhibit Number	Description
10 (a) (i)	The Company's Executive Incentive Plan (as amended) and Trust related thereto.* Plan incorporated by reference to Exhibit 10 to the Company's Quarterly Report for the period ended March 31, 1994 on Form 10-Q; Executive Incentive Plan as Amended and Restated to October 1, 2000 incorporated by reference to Exhibit 10(a) (i) to the Company's Annual Report for 2000 on Form 10-K, File No. 1-6571.
10 (a) (ii)	Trust Agreement* incorporated by reference to Exhibit 10(a) to the Company's Annual Report for 1988 on Form 10-K; amendment to Trust Agreement incorporated by reference to Exhibit 10(b) to the Company's Quarterly Report for the period ended March 31, 1997 on Form 10-Q; Amended and Restated Defined Contribution Trust incorporated by reference to Exhibit 10(a)(ii) to the Company's Annual Report for 2000 on Form 10-K , File No. 1-6571.
10 (b)	The Company's 1992 Stock Incentive Plan (as amended).* Incorporated by reference to Exhibit 10(d) to the Company's Annual Report for 1992 on Form 10-K, File No. 1-6571; amendment of December 11, 1995 incorporated by reference to Exhibit 10(d) to the Company's Annual Report for 1995 on Form 10-K, File No. 1-6571; amendment of February 25, 2003 (filed with this document).
10 (c)	The Company's 1997 Stock Incentive Plan (as amended).* Incorporated by reference to Exhibit 10 to the Company's Quarterly Report for the period ended September 30, 1997 on Form 10-Q; Amendment to 1997 Stock Incentive Plan incorporated by reference to Exhibit 10(a) to the Company's Quarterly Report for the period ended March 31, 1999 on Form 10-Q, File No. 1-6571; amendment of February 25, 2003 (filed with this document).
10 (d)	The Company's 2002 Stock Incentive Plan.* Incorporated by reference to the Company's Proxy Statement for the annual meeting of shareholders on April 23, 2002; amendment of February 25, 2003 (filed with this document).
10 (e)	Retirement Agreement between the Company and Richard Jay Kogan.* Incorporated by reference to Exhibit 99.2 to Form 8-K filed November 13, 2002, File No. 1-6571.

Exhibit Number	Description
10 (e) (i)	Employment agreement between the Company and Richard Jay Kogan (as amended).* Incorporated by reference to Exhibit 10(e)(ii) to the Company's Annual Report for 1989 on Form 10-K; first amendment incorporated by reference to Exhibit 10(b) to the Company's Quarterly Report for the period ended June 30, 1994 on Form 10-Q; second amendment incorporated by reference to Exhibit 10(e)(ii) to the Company's Annual Report for 1994 on Form 10-K; third amendment incorporated by reference to Exhibit 10(a) to the Company's Quarterly Report for the period ended September 30, 1995 on Form 10-Q; fourth amendment incorporated by reference to Exhibit 10(b) to the Company's Quarterly Report for the period ended March 31, 1998 on Form 10-Q; fifth amendment incorporated by reference to Exhibit 10(e)(ii) to the Company's Annual Report for 1998 on Form 10-K; sixth amendment incorporated by reference to Exhibit 10(a) to the Company's Quarterly Report for the period ended June 30, 2002 on Form 10-Q, File No. 1- 6571.
10 (e) (ii)	Form of employment agreement between the Company and its executive officers effective upon a change of control.* Incorporated by reference to Exhibit 10(e)(iv) to the Company's Annual Report for 1994 on Form 10-K; Form of amendment incorporated by reference to Exhibit 10(a) to the Company's Quarterly Report for the period ended September 30, 1999 on Form 10-Q; Forms of amendment effective January 1, 2002 incorporated by reference to Exhibits 10(e) (ii) (A) and (B) to the Company's Annual Report for 2001 on Form 10-K; Form of employment agreement between the Company and its executive officers effective upon a change of control incorporating all prior amendments through January 1, 2002 and for new agreements effective beginning January 1, 2002, incorporated by reference to Exhibit 10(e)(ii)(C) to the Company's Annual Report for 2001 on Form 10-K, File no. 1-6571.

Exhibit Number	Description
10(e)(iii)	Supplement to employment agreement effective upon a change of control (described in Exhibit 10(e)(ii) of this document index) between the Company and Joseph C. Connors, incorporated by reference to Exhibit 10(e)(vi) to the Company's Annual Report for 2001 on Form 10-K*, File No. 1-6571.
10(e)(iv)	Supplement to employment agreement effective upon a change of control (described in Exhibit 10(e)(ii) of this document index) between the Company and Jack Wyszomierski, incorporated by reference to Exhibit 10(e)(vii) to the Company's Annual Report for 2001 on Form 10-K*, File No. 1-6571.
10(e)(v)	Supplement to employment agreement effective upon a change of control (described in Exhibit 10(e)(ii) of this document index) between the Company and Richard W. Zahn, incorporated by reference to Exhibit 10(e)(viii) to the Company's Annual Report for 2001 on Form 10-K*, File No. 1-6571.
10 (f)	Amended and Restated Directors Deferred Compensation Plan and Trust related thereto.* Incorporated by reference to Exhibit 10(b) to the Company's Quarterly Report for the period ended September 30, 1999 on Form 10-Q; Trust Agreement incorporated by reference to Exhibit 10(a) to the Company's Annual Report for 1998 on Form 10-K; amendment to Trust Agreement incorporated by reference to Exhibit 10(b) to the Company's Quarterly Report for the period ended March 31, 1997 on Form 10-Q; Amended and Restated Defined Contribution Trust incorporated by reference to Exhibit 10(a)(ii) to the Company's Annual Report for 2000 on Form 10-K, File No. 1-6571.

Exhibit Number	Description
10 (g)	Supplemental Executive Retirement Plan and Trust related thereto.* Incorporated by reference to Exhibit 10(e) to the Company's Quarterly Report for the period ended March 31, 1998 on Form 10-Q; Amendment incorporated by reference to Exhibit 10(a) to the Company's Quarterly Report for the period ended September 30, 1998 on Form 10-Q, Second Amendment to Supplemental Executive Retirement Plan effective as of October 1, 2000; incorporated by reference to Exhibit 10(g) to the Company's Annual Report for 2000 on Form 10-K; Amended and Restated Trust Agreement incorporated by reference to Exhibit 10(g) to the Company's Annual Report for 1998 on Form 10-K, File No. 1-6571.
10 (h)	Amended and Restated Directors Stock Award Plan* (filed with this document).
10 (i)	Deferred Compensation Plan.* Incorporated by reference to Exhibit 10(b) to the Company's Quarterly Report for the period ended September 30, 1995 on Form 10-Q; Deferred Compensation Plan as Amended and Restated to October 1, 2000 incorporated by reference to Exhibit 10(h) to the Company's Annual Report for 2000 on Form 10-K , File No. 1-6571.
10 (j)	Amended and Restated Directors Deferred Stock Equivalency Program.* Incorporated by reference to Exhibit 10(d) to the Company's Quarterly Report for the period ended September 30, 1999 on Form 10-Q, File No. 1-6571.
10 (k)	The Company's Form of Split Dollar Agreement and related Collateral Assignment between the Company and its Executive Officers.* Incorporated by reference to Exhibit 10(l) to the Company's Annual Report for 1997 on Form 10-K; amendments incorporated by reference to Exhibit 10(g) to the Company's Quarterly Report for the period ended March 31, 1998 on Form 10-Q, File No. 1-6571.

Exhibit Number	Description
10 (l)	The Company's Retirement Benefits Equalization Plan, Second Amendment effective as of October 1, 2000 incorporated by reference to Exhibit 10(l) to the Company's Annual Report for 2000 on Form 10-K.* Incorporated by reference to Exhibit 10(f) to the Company's Quarterly Report for the period ended March 31, 1998 on Form 10-Q; amendment incorporated by reference to Exhibit 10(b) to the Company's Quarterly Report for the period ended September 30, 1998 on Form 10-Q, File No. 1-6571.
10 (m)	Cholesterol Governance Agreement, dated as of May 22, 2000, by and among the Company, Merck & Co., Inc. and the other parties signatory thereto. Incorporated by reference to Exhibit 99.2 to the Company's Current Report on Form 8-K dated October 21, 2002.**
10 (n)	First Amendment to the Cholesterol Governance Agreement, dated as of December 18, 2001, by and among the Company, Merck & Co., Inc. and the other parties signatory thereto. Incorporated by reference to Exhibit 99.3 to the Company's Current Report on Form 8-K dated October 21, 2002.**
10 (o)	Master Agreement, dated as of December 18, 2001, by and among the Company, Merck & Co., Inc. and the other parties signatory thereto. Incorporated by reference to Exhibit 99.4 to the Company's Current Report on Form 8-K dated October 21, 2002.**
10 (p)	Consent Decree of Permanent Injunction, dated May 16, 2002, by and among the Company and the other parties thereto. Incorporated by reference to Exhibit 99.1 to the Company's Current Report on Form 8-K dated May 20, 2002.
12	Computation of Ratio of Earnings to Fixed Charges (filed with this document).
13	The Financial Section of the Company's 2002 Annual Report to Shareholders. With the exception of those portions of said Annual Report which are specifically incorporated by reference in this Form 10-K (filed with this document), such report shall not be deemed filed as part of this Form 10-K.
21	Subsidiaries of the registrant (filed with this document).
23	Consents of experts and counsel (filed with this document).
24	Power of attorney (filed with this document).

*Compensatory plan, contract or arrangement.

** Note that information is omitted from Exhibits 10 (m), 10 (n) and 10 (o) pursuant to a request for confidential treatment and is filed separately with the Securities and Exchange Commission pursuant to rule 24b-2 under the Securities Exchange Act of 1934, as amended.

All other exhibits are not applicable. Copies of above exhibits will be furnished upon request.

(b) Reports on Form 8-K.

During the three-month period ended December 31, 2002, the Company furnished three current reports on Form 8-K:

1. Report filed October 21, 2002, under Item 5 - Other Events and Regulation FD      Disclosure and Item 7 - Financial Statements and Exhibits.

2. Report filed October 24, 2002, under Item 7 - Financial Statements and Exhibits and      Item 9 - Regulation FD Disclosure.

3. Report filed November 13, 2002, under Item 5 - Other Events and Regulation FD           Disclosure and Item 7 - Financial Statements and Exhibits.

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Schering-Plough Corporation
	(Registrant)
Date March 10, 2003
	By /s/ Thomas H. Kelly____
	Thomas H. Kelly
	Vice President and Controller

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.

By	/s/ Richard Jay Kogan___________	By	_____________*______________
	Richard Jay Kogan		Carl E. Mundy, Jr.
	Chief Executive Officer		Director
	and President; Director
By	/s/ Jack L. Wyszomierski ________	By	* ________
	Jack L. Wyszomierski		Richard de J. Osborne
	Executive Vice President and		Chairman of the Board and Director
	Chief Financial Officer
By	/s/ Thomas H. Kelly_____________	By	_____________*______________
	Thomas H. Kelly		Patricia F. Russo
	Vice President and Controller		Director
	and Principal Accounting Officer
By	_____________*_________ __ _	By	_____________*___________ _
	Hans W. Becherer		Kathryn C. Turner
	Director		Director
By	_____________*______________	By	_____________*___________ _
	David H. Komansky		Robert F. W. van Oordt
	Director		Director
By	_____________*______________	By	_____________*___________ _
	Eugene R. McGrath		Arthur F. Weinbach
	Director		Director
By	_____________*______________
	Donald L. Miller
	Director
*By	/s/Thomas H. Kelly___ ________		Date: _____March 10, 2003______
	Thomas H. Kelly
	Attorney-in-fact

CERTIFICATION

I, Jack L. Wyszomierski, Executive Vice President and Chief Financial Officer, certify that:

1. I have reviewed this annual report on Form 10-K of Schering-Plough Corporation (the "registrant");

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: March 10, 2003

/s/ Jack L. Wyszomierski

Jack L. Wyszomierski

   Executive Vice President and Chief Financial Officer

CERTIFICATION

I, Richard Jay Kogan, Chief Executive Officer and President, certify that:

1. I have reviewed this annual report on Form 10-K of Schering-Plough Corporation (the "registrant");

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:March 10, 2003

/s/ Richard Jay Kogan

Richard Jay Kogan

   Chief Executive Officer and President

CERTIFICATION

I, Jack L. Wyszomierski, Executive Vice President and Chief Financial Officer of Schering-Plough Corporation, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)       the Annual Report on Form 10-K for the year ended December 31, 2002 (the             "Annual Report") which this statement accompanies fully complies with the             requirements of Section 13(a) of the Securities Exchange Act of 1934             (15 U.S.C. 78m); and

(2)        information contained in the Annual Report fairly presents, in all material             respects, the financial condition and results of operations of Schering-Plough             Corporation.

This certificate is being furnished solely for purposes of Section 906 and is not being filed as part of the Annual Report.

Dated: March 10, 2003

/s/ Jack L. Wyszomierski

Jack L. Wyszomierski

Executive Vice President and

Chief Financial Officer

CERTIFICATION

I, Richard Jay Kogan, Chief Executive Officer and President of Schering-Plough Corporation, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)        the Annual Report on Form 10-K for the year ended December 31, 2002 (the              "Annual Report") which this statement accompanies fully complies with the              requirements of Section 13(a) of the Securities Exchange Act of 1934              (15 U.S.C. 78m); and

(2)        information contained in the Annual Report fairly presents, in all material              respects, the financial condition and results of operations of Schering-Plough              Corporation.

This certificate is being furnished solely for purposes of Section 906 and is not being filed as part of the Annual Report.

Dated: March 10, 2003

/s/ Richard Jay Kogan

Richard Jay Kogan

Chief Executive Officer and President                                                                                                

INDEPENDENT AUDITORS' REPORT

Schering-Plough Corporation, its Directors and Shareholders:

We have audited the consolidated financial statements of Schering-Plough Corporation and subsidiaries as of December 31, 2002 and 2001, and for each of the three years in the period ended December 31, 2002, and have issued our report thereon dated February 25, 2003; such financial statements and report are included in your 2002 Annual Report to Shareholders and are incorporated herein by reference. Our audits also included the financial statement schedule of Schering-Plough Corporation and subsidiaries, listed in Item 15. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

/s/DELOITTE & TOUCHE LLP

Parsippany, New Jersey

February 25, 2003

SCHEDULE II

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS

FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 and 2000

(Dollars in millions)

Valuation and qualifying accounts deducted from assets to which they apply:

Allowances for accounts receivable:

	RESERVE		RESERVE		RESERVE
	FOR DOUBTFUL		FOR CASH		FOR CLAIMS
	ACCOUNTS		DISCOUNTS		AND OTHER		TOTAL
2002
Balance at beginning of year		$ 68		$ 34		$ 21	$ 123
Additions:
Charged to costs and
expenses		22		168		17	207
Deductions from reserves		(22)		(164)		(12)	(198)
Effects of foreign exchange		-		1		1	2
Balance at end of year		$ 68		$ 39		$ 27	$ 134
2001
Balance at beginning of year		$ 60		$ 29		$  7	$  96
Additions:
Charged to costs and
expenses		26		161		20	207
Deductions from reserves		(16)		(156)		(6)	(178)
Effects of foreign exchange		(2)		-		-	(2)
Balance at end of year		$  68		$  34		$ 21	$ 123
2000
Balance at beginning of year		$ 59		$ 22		$ 11	$ 92
Additions:
Charged to costs and
expenses		11		164		10	185
Deductions from reserves		(9)		(156)		(13)	(178)
Effects of foreign exchange		(1)		(1)		(1)	(3)
Balance at end of year		$ 60		$ 29		$ 7	$ 96

EX-4

                                                               EXHIBIT 4(b)(i)


                           SCHERING-PLOUGH CORPORATION

                                       TO


                              THE BANK OF NEW YORK


                                     Trustee



                                   ----------


                                    INDENTURE

                          Dated as of _______ __, 2003

                                   ----------








                          SCHERING-PLOUGH CORPORATION 1

               RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT
               OF 1939 AND INDENTURE, DATED AS OF _______ , _ 2003

TRUST INDENTURE
 ACT SECTION                                                 INDENTURE SECTION
ss.310(a)(1)......................................................607(a)
     (a)(2).......................................................607(a)
     (b).............................................................608
ss.312...............................................................701
ss.314(a)............................................................703
     (a)(4).........................................................1004
     (c)(1)..........................................................102
     (c)(2)..........................................................102
     (e).............................................................102
ss.315(b)............................................................601 ss.316(a)(last
sentence).............................101 ("Outstanding")
     (a)(1)(A)..................................................502, 512
     (a)(1)(B).......................................................513
     (b).............................................................508
     (c).............................................................104
ss.317(a)(1).........................................................503
     (a)(2)..........................................................504
     (b)............................................................1003
ss.318(a)............................................................111


- ---------------------------

1     Note: This reconciliation and tie shall not, for any purpose, be deemed
      to be a part of the Indenture.





                                   TABLE OF CONTENTS 2


                                                                          PAGE
PARTIES  ...............................................................     1
RECITALS OF THE COMPANY ................................................     1
ARTICLE ONE           DEFINITIONS AND OTHER PROVISIONS OF
                      GENERAL APPLICATION ..............................     1
      SECTION 101.    Definitions ......................................     1
                     "Act" .............................................     2
                     "Additional Amounts" ..............................     2
                     "Affiliate" .......................................     2
                     "Attributable Debt" ...............................     2
                     "Authenticating Agent" ............................     3
                     "Authorized Newspaper" ............................     3
                     "Bearer Security" .................................     3
                     "Board of Directors" ..............................     3
                     "Board Resolution" ................................     3
                     "Business Day" ....................................     3
                     "Clearstream" .....................................     3
                     "Commission" ......................................     3
                     "Common Depositary" ...............................     3
                     "Company" .........................................     3
                     "Company Request" and "Company Order" .............     4
                     "Component Currency" ..............................     4
                     "Consolidated Net Tangible Assets" ................     4
                     "Conversion Date" .................................     4
                     "Conversion Event" ................................     4
                     "Corporate Trust Office" ..........................     4
                     "corporation" .....................................     4
                     "coupon" ..........................................     4
                     "Currency" ........................................     4
                     "Default" .........................................     4
                     "Defaulted Interest" ..............................     4
                     "Dollar" or "$" ...................................     4
                     "Dollar Equivalent of the Currency Unit" ..........     5
                     "Dollar Equivalent of the Foreign Currency" .......     5
                     "Election Date" ...................................     5
                     "Euroclear" .......................................     5
- ---------------------------

2     Note:  This table of contents shall not, for any purpose, be deemed to be
      a part of the Indenture.



                                       -i-




                                                                          PAGE
                     "European Communities" ............................     5
                     "Event of Default" ................................     5
                     "Exchange Date" ...................................     5
                     "Exchange Rate Agent" .............................     5
                     "Exchange Rate Officer's Certificate" .............     5
                     "Exempted Indebtedness" ...........................     5
                     "Extension Notice" ................................     5
                     "Extension Period" ................................     5
                     "Federal Bankruptcy Code" .........................     6
                     "Foreign Currency" ................................     6
                     "Funded Debt" .....................................     6
                     "Government Obligations" ..........................     6
                     "Holder" ..........................................     6
                     "Indebtedness" ....................................     6
                     "Indenture" .......................................     6
                     "Indexed Security" ................................     7
                     "interest" ........................................     7
                     "Intangible Assets" ...............................     7
                     "Interest Payment Date" ...........................     7
                     "Market Exchange Rate" ............................     7
                     "Maturity" ........................................     8
                     "Officers' Certificate" ...........................     8
                     "Opinion of Counsel" ..............................     8
                     "Optional Reset Date" .............................     8
                     "Original Issue Discount Security" ................     8
                     "Original Stated Maturity" ........................     8
                     "Outstanding" .....................................     8
                     "Paying Agent" ....................................     9
                     "Person" ..........................................     9
                     "Place of Payment" ................................     9
                     "Predecessor Security" ............................     9
                     "principal" .......................................    10
                     "principal amount" ................................    10
                     "Principal Property" ..............................    10
                     "Redemption Date" .................................    10
                     "Redemption Price" ................................    10
                     "Registered Security" .............................    10
                     "Regular Record Date" .............................    10
                     "Repayment Date" ..................................    10
                     "Repayment Price" .................................    10
                     "Responsible Officer" .............................    10
                     "Reset Notice" ....................................    11
                     "Restricted Subsidiary" ...........................    11
                     "Sale and Leaseback Transaction" ..................    11
                     "Securities" ......................................    11

                                       -ii-





                                                                          PAGE
                     "Security Register" and "Security Registrar" ......    11
                     "Special Record Date" .............................    11
                     "Specified Amount" ................................    11
                     "Stated Maturity" .................................    11
                     "Subsidiary" ......................................    11
                     "Trust Indenture Act" or "TIA" ....................    11
                     "Trustee" .........................................    11
                     "United States" ...................................    12
                     "United States person" ............................    12
                     "Valuation Date" ..................................    12
                     "Vice President" ..................................    12
                     "Voting Stock" ....................................    12
                     "Yield to Maturity" ...............................    12
      SECTION 102.    Compliance Certificates and Opinions .............    12
      SECTION 103.    Form of Documents Delivered to Trustee ...........    13
      SECTION 104.    Acts of Holders ..................................    14
      SECTION 105.    Notices, etc. to Trustee and Company .............    15
      SECTION 106.    Notice to Holders; Waiver ........................    16
      SECTION 107.    Effect of Headings and Table of Contents .........    17
      SECTION 108.    Successors and Assigns ...........................    17
      SECTION 109.    Separability Clause ..............................    17
      SECTION 110.    Benefits of Indenture ............................    17
      SECTION 111.    Governing Law ....................................    17
      SECTION 112.    Legal Holidays ...................................    17
      SECTION 113.    Conflict of Any Provision of Indenture with Trust
                        Indenture Act ..................................    18
      SECTION 114.    No Recourse Against Others .......................    18
ARTICLE TWO           SECURITY FORMS ...................................    18
      SECTION 201.    Forms Generally ..................................    18
      SECTION 202.    Form of Trustee's Certificate of Authentication ..    19
      SECTION 203.    Securities Issuable in Global Form ...............    19
      SECTION 204.    Form of Legend for Book-Entry Securities .........    20
ARTICLE THREE         THE SECURITIES ...................................    21
      SECTION 301.    Amount Unlimited; Issuable in Series .............    21
      SECTION 302.    Denominations ....................................    25
      SECTION 303.    Execution, Authentication, Delivery and Dating ...    25
      SECTION 304.    Temporary Securities .............................    27
      SECTION 305.    Registration, Registration of Transfer and
                        Exchange .......................................    29
      SECTION 306.    Mutilated, Destroyed, Lost and Stolen
                        Securities .....................................    33
      SECTION 307.    Payment of Interest; Interest Rights Preserved;
                        Optional Interest Reset ........................    34
      SECTION 308.    Optional Extension of Stated Maturity ............    37
      SECTION 309.    Persons Deemed Owners ............................    38


                                       -iii-




                                                                          PAGE
      SECTION 310.    Cancellation .....................................    38
      SECTION 311.    Computation of Interest ..........................    39
      SECTION 312.    Currency and Manner of Payments in Respect
                        of Securities ..................................    39
      SECTION 313.    Appointment and Resignation of Successor
                        Exchange Rate Agent ............................    42
      SECTION 314.    CUSIP Numbers ....................................    43
ARTICLE FOUR          SATISFACTION AND DISCHARGE .......................    43
      SECTION 401.    Satisfaction and Discharge of Indenture ..........    43
      SECTION 402.    Application of Trust Money .......................    44
ARTICLE FIVE          REMEDIES .........................................    45
      SECTION 501.    Events of Default ................................    45
      SECTION 502.    Acceleration of Maturity; Rescission and
                        Annulment ......................................    46
      SECTION 503.    Collection of Indebtedness and Suits for
                        Enforcement by Trustee .........................    47
      SECTION 504.    Trustee May File Proofs of Claim .................    48
      SECTION 505.    Trustee May Enforce Claims without Possession of
                        Securities .....................................    49
      SECTION 506.    Application of Money Collected ...................    49
      SECTION 507.    Limitation on Suits ..............................    49
      SECTION 508.    Unconditional Right of Holders to Receive
                        Principal, Premium and Interest ................    50
      SECTION 509.    Restoration of Rights and Remedies ...............    50
      SECTION 510.    Rights and Remedies Cumulative ...................    50
      SECTION 511.    Delay or Omission Not Waiver .....................    51
      SECTION 512.    Control by Holders ...............................    51
      SECTION 513.    Waiver of Past Defaults ..........................    51
      SECTION 514.    Waiver of Usury, Stay or Extension Laws ..........    52
      SECTION 515.    Undertaking for Costs ............................    52
ARTICLE SIX           THE TRUSTEE ......................................    52
      SECTION 601.    Notice of Defaults ...............................    52
      SECTION 602.    Certain Rights of Trustee ........................    52
      SECTION 603.    Trustee Not Responsible for Recitals or
                        Issuance of Securities .........................    54
      SECTION 604.    May Hold Securities ..............................    55
      SECTION 605.    Money Held in Trust ..............................    55
      SECTION 606.    Compensation and Reimbursement ...................    55
      SECTION 607.    Corporate Trustee Required; Eligibility ..........    56
      SECTION 608.    Resignation and Removal; Appointment of
                        Successor ......................................    56
      SECTION 609.    Acceptance of Appointment by Successor ...........    57
      SECTION 610.    Merger, Conversion, Consolidation or Succession
                        to Business ....................................    58

                                       -iv-




                                                                          PAGE
      SECTION 611.    Appointment of Authenticating Agent ..............    59
      SECTION 612.    Conflicting Interests ............................    60
      SECTION 613.    Appointment of Co-Trustee ........................    61
      SECTION 614.    Trustee's Application for Instructions from
                        the Company ....................................    62
ARTICLE SEVEN         HOLDERS' LISTS AND REPORTS BY TRUSTEE AND
                      COMPANY ..........................................    62
      SECTION 701.    Disclosure of Names and Addresses of Holders .....    62
      SECTION 702.    Reports by Trustee ...............................    63
      SECTION 703.    Reports by Company ...............................    63
      SECTION 704.    Calculation of Original Issue Discount ...........    64
ARTICLE EIGHT         CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER
                      OR LEASE .........................................    64
      SECTION 801.    Company May Consolidate, etc., Only on Certain
                        Terms ..........................................    64
      SECTION 802.    Successor Person Substituted .....................    65
ARTICLE NINE          SUPPLEMENTAL INDENTURES ..........................    66
      SECTION 901.    Supplemental Indentures without Consent of
                        Holders .......................................     66
      SECTION 902.    Supplemental Indentures with Consent of Holders ..    67
      SECTION 903.    Execution of Supplemental Indentures .............    69
      SECTION 904.    Effect of Supplemental Indentures ................    69
      SECTION 905.    Conformity with Trust Indenture Act ..............    69
      SECTION 906.    Reference in Securities to Supplemental
                        Indentures ....................................     69
      SECTION 907.    Notice of Supplemental Indentures ................    69
ARTICLE TEN           COVENANTS ........................................    70
      SECTION 1001.   Payment of Principal, Premium, If Any, and
                        Interest .......................................    70
      SECTION 1002.   Maintenance of Office or Agency ..................    70
      SECTION 1003.   Money for Securities Payments to Be Held
                        in Trust .......................................    71
      SECTION 1004.   Statement as to Compliance .......................    73
      SECTION 1005.   Additional Amounts ...............................    73
      SECTION 1006.   Corporate Existence ..............................    74
      SECTION 1007.   Limitation on Liens ..............................    74
      SECTION 1008.   Limitation on Sale and Leaseback Transactions ....    76
      SECTION 1009.   Waiver of Certain Covenants ......................    77
ARTICLE ELEVEN        REDEMPTION OF SECURITIES .........................    77
      SECTION 1101.   Applicability of Article .........................    77
      SECTION 1102.   Election to Redeem; Notice to Trustee ............    77
      SECTION 1103.   Selection by Trustee of Securities to Be
                        Redeemed .......................................    77
      SECTION 1104.   Notice of Redemption .............................    78
      SECTION 1105.   Deposit of Redemption Price ......................    79
      SECTION 1106.   Securities Payable on Redemption Date ............    79

                                       -v-



                                                                          PAGE
      SECTION 1107.   Securities Redeemed in Part ......................    80
ARTICLE TWELVE        SINKING FUNDS ....................................    80
      SECTION 1201.   Applicability of Article .........................    80
      SECTION 1202.   Satisfaction of Sinking Fund Payments with
                        Securities .....................................    81
      SECTION 1203.   Redemption of Securities for Sinking Fund ........    81
ARTICLE THIRTEEN      REPAYMENT AT OPTION OF HOLDERS ...................    82
      SECTION 1301.   Applicability of Article .........................    82
      SECTION 1302.   Repayment of Securities ..........................    82
      SECTION 1303.   Exercise of Option ...............................    83
      SECTION 1304.   When Securities Presented for Repayment Become
                        Due and Payable ................................    83
      SECTION 1305.   Securities Repaid in Part ........................    84
ARTICLE FOURTEEN      DEFEASANCE AND COVENANT DEFEASANCE ...............    84
      SECTION 1401.   Company's Option to Effect Defeasance or
                        Covenant Defeasance ............................    84
      SECTION 1402.   Defeasance and Discharge .........................    85
      SECTION 1403.   Covenant Defeasance ..............................    85
      SECTION 1404.   Conditions to Defeasance or Covenant Defeasance ..    86
      SECTION 1405.   Deposited Money and Government Obligations to
                        Be Held in Trust; Other Miscellaneous
                        Provisions .....................................    87
      SECTION 1406.   Reinstatement ....................................    88
ARTICLE FIFTEEN       MEETINGS OF HOLDERS OF SECURITIES ................    89
      SECTION 1501.   Purposes for Which Meetings May Be Called ........    89
      SECTION 1502.   Call, Notice and Place of Meetings ...............    89
      SECTION 1503.   Persons Entitled to Vote at Meetings .............    89
      SECTION 1504.   Quorum; Action ...................................    89
      SECTION 1505.   Determination of Voting Rights; Conduct and
                        Adjournment of Meetings ........................    90
      SECTION 1506.   Counting Votes and Recording Action of Meetings ..    91
ARTICLE SIXTEEN       IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS
                      AND DIRECTORS ....................................    92
      SECTION 1601.   Indenture and Securities Solely Corporate
                        Obligations ....................................    92
TESTIMONIUM ............................................................    93
SIGNATURES AND SEALS  ..................................................    93
FORMS OF CERTIFICATION...............................................EXHIBIT A






            INDENTURE, dated as of ______ __, 2003, between Schering-Plough Corporation a
corporation duly organized and existing under the laws of the State of New Jersey (herein called
the "Company"), having its principal office at 2000 Galloping Hill Road, Kenilworth, New Jersey
07033, facsimile - (908) 298-7303 and The Bank of New York, a New York banking corporation,
having its Corporate Trust Office at 101 Barclay Street, New York, New York 10286, facsimile -
(212) 815-5707 Trustee (herein called the "Trustee").
                                  RECITALS OF THE COMPANY

            The Company has duly authorized the execution and delivery of this Indenture to
provide for the issuance from time to time of its debt securities (herein called the
"Securities") evidencing its unsecured debentures, notes or other evidences of indebtedness, to
be issued in one or more series as in this Indenture provided.

            This Indenture is subject to the provisions of the Trust Indenture Act of 1939, as
amended, that are required to be part of this Indenture and shall, to the extent applicable, be
governed by such provisions.
            All things necessary to make this Indenture a valid agreement of the Company, in
accordance with its terms, have been done.

            NOW, THEREFORE, THIS INDENTURE WITNESSETH:

            For and in consideration of the premises and the purchase of the Securities by the
Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit
of all Holders of the Securities or of a series thereof, as follows:

                                   ARTICLE ONE

                  DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
            SECTION 101.  DEFINITIONS.

            For all purposes of this Indenture, except as otherwise expressly provided or unless
the context otherwise requires:

            (1) the terms defined in this Article have the meanings assigned to
     them in this Article and include the plural as well as the singular;
            (2) all other terms used herein which are defined in the Trust
     Indenture Act, either directly or by reference therein, have the meanings
     assigned to them therein, and the terms "cash transaction" and
     "self-liquidating paper," as used in TIA Section 311, shall have the
     meanings assigned to them in the rules of the Commission adopted under the
     Trust Indenture Act;

            (3) all accounting terms not otherwise defined herein have the
     meanings assigned to them in accordance with generally accepted accounting
     principles, and, except as otherwise herein expressly provided, the term
     "generally accepted accounting





     principles" with respect to any computation required or permitted hereunder
     shall mean such accounting principles as are generally accepted in the
     United States at the date of such computation;

            (4) the words "herein," "hereof" and "hereunder" and other words of
     similar import refer to this Indenture as a whole and not to any particular
     Article, Section or other subdivision; and

            (5) the words "without limitation" shall be deemed to follow any use
     of the word "include" or "including."

            Certain terms, used principally in Article Three, Article Five, Article Six and
Article Ten are defined in that Article.

            "Act," when used with respect to any Holder, has the meaning specified in Section
104.

            "Additional Amounts" means any additional amounts which are required by a Security
or by or pursuant to a Board Resolution, under circumstances specified therein, to be paid by
the Company in respect of certain taxes imposed on certain Holders and which are owing to such
Holders.
            "Affiliate" of any specified Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with such specified
Person. For the purposes of this definition, "control" when used with respect to any specified
Person means the power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or otherwise; and
the terms "controlling" and "controlled" have meanings correlative to the foregoing.

             "Attributable Debt" means (except as otherwise provided in this paragraph), as to
any particular lease under which any Person is at the time liable for a term of more than 12
months, at any date as of which the amount thereof is to be determined (the "determination
date"), the total net amount of rent required to be paid by such Person under such lease during
the remaining term thereof (excluding any subsequent renewal or other extension options held by
the lessee), discounted from the respective due dates thereof to the determination date at the
rate determined by the Company to be appropriate and consistent with generally accepted
accounting principles (as used in this definition, the "applicable rate"). The net amount of
rent required to be paid under any such lease for any such period shall be the aggregate amount
of the rent payable by the lessee with respect to such period after excluding amounts required
to be paid on account of maintenance and repairs, services, insurance, taxes, assessments, water
rates and similar charges and contingent rents (such as those based on sales or monetary
inflation). If any lease is terminable by the lessee upon the payment of a penalty, if under the
terms of the lease the termination right is not exercisable until after the determination date,
and if the amount of such penalty discounted to the determination date at the applicable rate is
less than the net amount of rentals payable after the time as of which such termination could
occur (the "termination time") discounted to the determination date at the applicable rate, then
such discounted penalty amount shall be used instead of such discounted amount of net rentals

                                      -2-



payable after the termination time in calculating the Attributable Debt for such lease. If any
lease is terminable by the lessee upon the payment of a penalty, if such termination right is
exercisable on the determination date, and if the amount of the net rentals payable under such
lease after the determination date discounted to the determination date at the applicable rate
is greater than the amount of such penalty, the "Attributable Debt" for such lease as of such
determination date shall be equal to the amount of such penalty.
           "Authenticating Agent" means any Person appointed by the Trustee to act on behalf of
the Trustee pursuant to Section 611 to authenticate Securities.

           "Authorized Newspaper" means a newspaper, in the English language or in an official
language of the country of publication, customarily published on each Business Day, whether or
not published on Saturdays, Sundays or holidays, and of general circulation in each place in
connection with which the term is used or in the financial community of each such place. Where
successive publications are required to be made in Authorized Newspapers, the successive
publications may be made in the same or in different newspapers in the same city meeting the
foregoing requirements and in each case on any Business Day.

           "Bearer Security" means any Security except a Registered Security.
           "Board of Directors" means either the board of directors of the Company or any duly
authorized committee of that board duly authorized to act hereunder.

            "Board Resolution" means a copy of a resolution certified by the Secretary or an
Assistant Secretary of the Company to have been duly adopted or consented to by the Board of
Directors and to be in full force and effect on the date of such certification, and delivered to
the Trustee.
            "Business Day," when used with respect to any Place of Payment or any other
particular location referred to in this Indenture or in the Securities, means, unless otherwise
specified with respect to any Securities pursuant to Section 301, each Monday, Tuesday,
Wednesday, Thursday and Friday which is not a day on which banking institutions in that Place of
Payment or other location are authorized or obligated by law or executive order to close.
             "Clearstream" means Clearstream Banking societe anonyme, or its successor.

             "Commission" means the Securities and Exchange Commission, as from time to time
constituted, created under the Securities Exchange Act of 1934, as amended, or, if at any time
after the execution of this Indenture such Commission is not existing and performing the duties
now assigned to it under the Trust Indenture Act, then the body performing such duties at such
time.
             "Common Depositary" has the meaning specified in Section 304.
             "Company" means the corporation named as the "Company" in the first paragraph of
this Indenture until a successor corporation shall have become such pursuant to the applicable
provisions of this Indenture, and thereafter "Company" shall mean such successor corporation.


                                      -3-




            "Company Request" and "Company Order" mean, respectively, a written request or order
signed in the name of the Company by its Chief Executive Officer, its President, any Vice
President, and by its Treasurer or an Assistant Treasurer, the Comptroller or an Assistant
Comptroller, the Secretary or an Assistant Secretary of the Company and delivered to the
Trustee.
            "Component Currency" has the meaning specified in Section 312(h).

            "Consolidated Net Tangible Assets" means the total assets of the Company and its
consolidated subsidiaries as shown on or reflected in its then most recent quarterly or annual,
as applicable, balance sheet less (a) all current liabilities (excluding current liabilities
which could be classified as long-term debt in conformity with generally accepted accounting
principles and current liabilities which are by their terms extendible or renewable at the
option of the obligor thereon to a time more than 12 months after the time as of which the
amount thereof is being computed), (b) advances to entities accounted for on the equity method
of accounting, and (c) Intangible Assets.
            "Conversion Date" has the meaning specified in Section 312(d).
            "Conversion Event" means the cessation of use of (i) a Foreign Currency both by the
government of the country which issued such Currency and by a central bank or other public
institutions of or within the international banking community for the settlement of
transactions, (ii) the euro for the settlement of transactions by public institutions of or
within the countries which use the euro as their national currency or (iii) any currency unit
(or composite currency) other than the euro for the purposes for which it was established.

            "Corporate Trust Office" means the principal corporate trust office of the Trustee,
at which at any particular time its corporate trust business shall be principally administered,
which office on the date of execution of this Indenture is located at 101 Barclay Street, New
York, New York 10286.

            "corporation" includes corporations, limited liability companies, partnerships,
associations, companies and business trusts.
            "coupon" means any interest coupon appertaining to a Bearer Security.

            "Currency" means any currency or currencies, composite currency or currency unit or
currency units, including the euro, issued by the government of one or more countries of by any
recognized confederation or association of such governments.

            "Default" means any event which is, or after the giving of notice or passage of time
or both would be, an Event of Default.
            "Defaulted Interest" has the meaning specified in Section 307.
            "Dollar" or "$" means a dollar or other equivalent unit in such coin or currency of
the United States of America as at the time shall be legal tender for the payment of public and
private debts.



                                      -4-



            "Dollar Equivalent of the Currency Unit" has the meaning specified in Section
312(g).

            "Dollar Equivalent of the Foreign Currency" has the meaning specified in Section
312(f).

            "Election Date" has the meaning specified in Section 312(h).
            "Euroclear" means Morgan Guaranty Trust Company of New York, Brussels Office, or its
successor as operator of the Euroclear System.
            "European Communities" means the European Economic Community, the European Coal and
Steel Community and the European Atomic Energy Community.
            "Event of Default" has the meaning specified in Section 501.
            "Exchange Date" has the meaning specified in Section 304.
            "Exchange Rate Agent" means, with respect to Securities of or within any series,
unless otherwise specified with respect to any Securities pursuant to Section 301, a New York
Clearing House bank, designated pursuant to Section 301 or Section 313.

            "Exchange Rate Officer's Certificate" means a tested telex or a certificate setting
forth (i) the applicable Market Exchange Rate and (ii) the Dollar or Foreign Currency amounts of
principal (and premium, if any) and interest, if any (on an aggregate basis and on the basis of
a Security having the lowest denomination principal amount determined in accordance with Section
302 in the relevant Currency), payable with respect to a Security of any series on the basis of
such Market Exchange Rate, sent (in the case of a telex) or signed (in the case of a
certificate) by the Treasurer, any Vice President or any Assistant Treasurer of the Company.

            "Exempted Indebtedness" means the sum of all outstanding indebtedness of the Company
and its Restricted Subsidiaries incurred after the date of this Indenture and secured by liens
proscribed in paragraph (a) of Section 1007 or proscribed by paragraph (a) of Section 1008,
provided however, that the amount of Exempted Indebtedness outstanding in respect of a Sale and
Leaseback Transaction shall be the amount of indebtedness capitalized in respect thereof on the
financial statements of the Company or Restricted Subsidiary, as applicable, after excluding
amounts required to be paid on account of maintenance and repairs, insurance, taxes,
assessments, water rates and similar charges and contingent rents such as those based on sales,
and provided further that in the case of any such lease which is terminable by the lessee upon
the payment of a penalty, such net amount shall also include the amount of such penalty, but no
rent shall be considered as required to be paid under such lease subsequent to the first date
upon which it may be so terminated.
             "Extension Notice" has the meaning specified in Section 308.
             "Extension Period" has the meaning specified in Section 308.

                                      -5-




             "Federal Bankruptcy Code" means the Bankruptcy Act of Title 11 of the United States
Code, as amended from time to time.

             "Foreign Currency" means any Currency, including the euro, issued by the government
of one or more countries other than the United States.
             "Funded Debt" means indebtedness of the Company (other than the Securities or
indebtedness subordinated to the Securities) or indebtedness of a wholly-owned Restricted
Subsidiary, for money borrowed, having a stated maturity more than 12 months from the date of
application of sale/leaseback proceeds or which is extendible at the option of the obligor
thereon to a date more than 12 months from the date of such application.

             "Government Obligations" means, unless otherwise specified with respect to any
series of Securities pursuant to Section 301, securities which are (i) direct obligations of the
government which issued the Currency in which the Securities of a particular series are payable
or (ii) obligations of a Person controlled or supervised by and acting as an agency or
instrumentality of the government which issued the Currency in which the Securities of such
series are payable, the payment of which is unconditionally guaranteed by such government,
which, in either case, are full faith and credit obligations of such government payable in such
Currency and are not callable or redeemable at the option of the issuer thereof and shall also
include a depository receipt issued by a bank or trust company as custodian with respect to any
such Government Obligation or a specific payment of interest on or principal of any such
Government Obligation held by such custodian for the account of the holder of a depository
receipt; PROVIDED that (except as required by law) such custodian is not authorized to make any
deduction from the amount payable to the holder of such depository receipt from any amount
received by the custodian in respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced by such depository receipt.
             "Holder" means, in the case of a Registered Security, the Person in whose name a
Security is registered in the Security Register and, in the case of a Bearer Security, the
bearer thereof and, when used with respect to any coupon, shall mean the bearer thereof.

             "Indebtedness" means any indebtedness, which term as used herein means obligations
of, or guaranteed or assumed by the Company for borrowed money evidenced by bonds, debentures,
notes or other instruments.
             "Indenture" means this instrument as originally executed or as it may from time to
time be supplemented or amended by one or more indentures supplemental hereto entered into
pursuant to the applicable provisions hereof, and shall include the terms of particular series
of Securities established as contemplated by Section 301; PROVIDED, HOWEVER, that, if at any
time more than one Person is acting as Trustee under this instrument, "Indenture" shall mean,
with respect to any one or more series of Securities for which such Person is Trustee, this
instrument as originally executed or as it may from time to time be supplemented or amended by
one or more indentures supplemental hereto entered into pursuant to the applicable provisions
hereof and shall include the terms of particular series of Securities for which such Person is
Trustee established as contemplated by Section 301, exclusive, however, of any provisions or
terms which relate solely to other series of Securities for which such Person is not Trustee,
regardless


                                      -6-



of when such terms or provisions were adopted, and exclusive of any provisions or terms adopted
by means of one or more indentures supplemental hereto executed and delivered after such Person
had become such Trustee but to which such Person, as such Trustee, was not a party.

           "Indexed Security" means a Security as to which all or certain interest payments
and/or the principal amount payable at Maturity are determined by reference to prices, changes
in prices, or differences between prices, of securities, Currencies, intangibles, goods,
articles or commodities or by such other objective price, economic or other measures as are
specified in Section 301 hereof.

           "interest" when used with respect to an Original Issue Discount Security which by its
terms bears interest only after Maturity, means interest payable after Maturity, and, when used
with respect to a Security which provides for the payment of Additional Amounts pursuant to
Section 1004 or otherwise, includes such Additional Amounts.

           "Intangible Assets" means the aggregate value (net of any applicable reserves), as
shown on or reflected in the Company's then most recent quarterly or annual, as applicable,
balance sheet, of: (i) all trade names, trademarks, licenses, patents, copyrights and goodwill;
(ii) organizational and development costs; (iii) deferred charges (other than prepaid items such
as insurance, taxes, interest, commissions, rents and similar items and tangible assets being
amortized); and (iv) unamortized debt discount and expense, less unamortized premium.

            "Interest Payment Date" when used with respect to any Security, means the Stated
Maturity of an installment of interest on such Security.

             "Market Exchange Rate" means, unless otherwise specified with respect to any
Securities pursuant to Section 301, (i) for any conversion involving a currency unit on the one
hand and Dollars or any Foreign Currency on the other, the exchange rate between the relevant
currency unit and Dollars or such Foreign Currency calculated by the method specified pursuant
to Section 301 for the Securities of the relevant series, (ii) for any conversion of Dollars
into any Foreign Currency, the noon (New York City time) buying rate for such Foreign Currency
for cable transfers quoted in New York City as certified for customs purposes by the Federal
Reserve Bank of New York and (iii) for any conversion of one Foreign Currency into Dollars or
another Foreign Currency, the spot rate at noon local time in the relevant market at which, in
accordance with normal banking procedures, the Dollars or Foreign Currency into which conversion
is being made could be purchased with the Foreign Currency from which conversion is being made
from major banks located in either New York City, London or any other principal market for
Dollars or such purchased Foreign Currency, in each case determined by the Exchange Rate Agent.
Unless otherwise specified with respect to any Securities pursuant to Section 301, in the event
of the unavailability of any of the exchange rates provided for in the foregoing clauses (i),
(ii) and (iii), the Exchange Rate Agent shall use, in its sole discretion and without liability
on its part, such quotation of the Federal Reserve Bank of New York as of the most recent
available date, or quotations from one or more major banks in New York City, London or another
principal market for the Currency in question, or such other quotations as the Exchange Rate
Agent shall deem appropriate. Unless otherwise specified by the Exchange Rate Agent, if there is
more than one market for dealing in any Currency by reason of foreign exchange regulations or
otherwise, the market to be used in respect of such Currency shall be


                                      -7-



that upon which a non-resident issuer of securities designated in such Currency would purchase
such Currency in order to make payments in respect of such securities.

             "Maturity" when used with respect to any Security, means the date on which the
principal of such Security or an installment of principal becomes due and payable as therein or
herein provided, whether at the Stated Maturity or by declaration of acceleration, notice of
redemption, notice of option to elect repayment or otherwise.

             "Officers' Certificate" means a certificate signed by the Chief Executive Officer,
the President or a Vice President, and by the Treasurer, an Assistant Treasurer, the Controller
or an Assistant Controller, the Secretary or an Assistant Secretary of the Company and delivered
to the Trustee.

             "Opinion of Counsel" means a written opinion of counsel, who may be counsel for the
Company, including an employee of the Company.
             "Optional Reset Date" has the meaning specified in Section 307(b).

             "Original Issue Discount Security" means any Security which provides for an amount
less than the principal amount thereof to be due and payable upon a declaration of acceleration
of the Maturity thereof pursuant to Section 502.

             "Original Stated Maturity" has the meaning specified in Section 308.

             "Outstanding" when used with respect to Securities or any series of any Securities,
means, as of the date of determination, all Securities or all securities of such series, as the
case may be, theretofore authenticated and delivered under this Indenture, EXCEPT:

               (i) Securities theretofore cancelled by the Trustee or delivered
          to the Trustee for cancellation;

              (ii) Securities, or portions thereof, for whose payment or
          redemption or repayment at the option of the Holder money in the
          necessary amount has been theretofore deposited with the Trustee or
          any Paying Agent (other than the Company) in trust or set aside and
          segregated in trust by the Company (if the Company shall act as its
          own Paying Agent) for the Holders of such Securities and any coupons
          appertaining thereto; PROVIDED that, if such Securities are to be
          redeemed, notice of such redemption has been duly given pursuant to
          this Indenture or provision therefor satisfactory to the Trustee has
          been made;

               (iii) Securities, except to the extent provided in Sections 1402
          and 1403, with respect to which the Company has effected defeasance
          and/or covenant defeasance as provided in Article Fourteen; and
               (iv) Securities which have been paid pursuant to Section 306 or
          in exchange for or in lieu of which other Securities have been
          authenticated and delivered pursuant to this Indenture, other than any
          such Securities in respect of which there shall have been

                                      -8-



          presented to the Trustee proof satisfactory to it that such Securities
          are held by a bona fide purchaser in whose hands such Securities are
          valid obligations of the Company;

PROVIDED, HOWEVER, that in determining whether the Holders of the requisite principal amount of
the Outstanding Securities have given any request, demand, authorization, direction, notice,
consent or waiver hereunder or are present at a meeting of Holders for quorum purposes, and for
the purpose of making the calculations required by TIA Section 313, (i) the principal amount of
an Original Issue Discount Security that may be counted in making such determination or
calculation and that shall be deemed to be Outstanding for such purpose shall be equal to the
amount of principal thereof that would be (or shall have been declared to be) due and payable,
at the time of such determination, upon a declaration of acceleration of the Maturity thereof
pursuant to Section 502, (ii) the principal amount of any Security denominated in a Foreign
Currency that may be counted in making such determination or calculation and that shall be
deemed Outstanding for such purpose shall be equal to the Dollar equivalent, determined as of
the date such Security is originally issued by the Company as set forth in an Exchange Rate
Officer's Certificate delivered to the Trustee, of the principal amount (or, in the case of an
Original Issue Discount Security or Indexed Security, the Dollar equivalent as of such date of
original issuance of the amount determined as provided in clause (i) above or (iii) below,
respectively) of such Security, (iii) the principal amount of any Indexed Security that may be
counted in making such determination or calculation and that shall be deemed outstanding for
such purpose shall be equal to the principal face amount of such Indexed Security at original
issuance, unless otherwise provided with respect to such Security pursuant to Section 301, and
(iv) Securities owned by the Company or any other obligor upon the Securities or any Affiliate
of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding,
except that, in determining whether the Trustee shall be protected in making such calculation or
in relying upon any such request, demand, authorization, direction, notice, consent or waiver,
only Securities which a Responsible Officer of the Trustee knows to be so owned shall be so
disregarded. Securities so owned which have been pledged in good faith may be regarded as
Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so
to act with respect to such Securities and that the pledgee is not the Company or any other
obligor upon the Securities or any Affiliate of the Company or such other obligor.
             "Paying Agent" means any Person (including the Company acting as Paying Agent)
authorized by the Company to pay the principal of (or premium, if any) or interest, if any, on
any Securities on behalf of the Company. Initially, the Paying Agent shall be The Bank of New
York.

             "Person" means any individual, corporation, partnership, limited liability company,
joint venture, association, joint-stock company, trust, estate, unincorporated organization or
government or any agency or political subdivision thereof.

             "Place of Payment" means, when used with respect to the Securities of or within any
series, the place or places where the principal of (and premium, if any) and interest, if any,
on such Securities are payable as specified is contemplated by Sections 301 and 1002.

             "Predecessor Security" of any particular Security means every previous Security
evidencing all or a portion of the same debt as that evidenced by such particular Security; and,


                                      -9-



for the purposes of this definition, any Security authenticated and delivered under Section 306
in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security or a Security to
which a mutilated, destroyed, lost or stolen coupon appertains shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security or the Security to which the
mutilated, destroyed, lost or stolen coupon appertains, as the case may be.
             "principal" of a debt security, including any Security, means the amount (including
if and to the extent applicable, any premium and, in the case of an Original Issue Discount
Security, any accrued original issue discount, but excluding interest) that is payable with
respect to such debt security as of any date and for any purpose (including in connection with
any sinking fund, if any, upon any redemption at the option of the Issuer, upon any purchase or
exchange at the option of the Issuer or the holder of such debt security and upon any
acceleration of the maturity of such debt security).
             "principal amount" of a debt security, including any Security, means the principal
amount as set forth on the face of such debt security.
             "Principal Property" means any manufacturing facility owned by the Company or any
Restricted Subsidiary and located within the United States (excluding its territories and
possessions and the Commonwealth of Puerto Rico) the gross book value of which on the date as of
which the determination is being made exceeds 1% of Consolidated Net Tangible Assets, other than
any such facility or portion thereof which the Board of Directors reasonably determines is not
material to the business conducted by the Company and its Subsidiaries taken as a whole.

             "Redemption Date" when used with respect to any Security to be redeemed, in whole
or in part, means the date fixed for such redemption by or pursuant to this Indenture.

             "Redemption Price" when used with respect to any Security to be redeemed, means the
price at which it is to be redeemed pursuant to this Indenture.

             "Registered Security" means any Security registered in the Security Register.

             "Regular Record Date" for the interest payable on any Interest Payment Date on the
Registered Securities of or within any series means the date specified for that purpose as
contemplated by Section 301, whether or not a Business Day.

             "Repayment Date" means, when used with respect to any Security to be repaid at the
option of the Holder, the date fixed for such repayment pursuant to this Indenture.

             "Repayment Price" means, when used with respect to any Security to be repaid at the
option of the Holder, the price at which it is to be repaid pursuant to this Indenture.

             "Responsible Officer" when used with respect to the Trustee, means any vice
president, the treasurer, any assistant treasurer, any trust officer or assistant trust officer,
or any other officer of the Trustee customarily performing functions similar to those performed
by any of the above-designated officers, and also means, with respect to a particular corporate
trust matter, any other officer to whom such matter is referred because of his knowledge of and


                                      -10-



familiarity with the particular subject and who shall have direct responsibility for the
administration of this Indenture.

             "Reset Notice" has the meaning specified in Section 307(b).
             "Restricted Subsidiary" means any Subsidiary (i) substantially all of the property
of which is located, and substantially all of the business of which is carried on, within the
United States (excluding its territories and possessions and the Commonwealth of Puerto Rico),
and (ii) which owns or operates one or more Principal Properties; provided, however, that
Restricted Subsidiary shall not include a Subsidiary which is primarily engaged in the business
of a finance or insurance company and branches thereof.
             "Sale and Leaseback Transaction" has the meaning specified in Section 1008(a).

             "Securities" has the meaning stated in the first recital of this Indenture and more
particularly means any Securities authenticated and delivered under this Indenture; PROVIDED,
HOWEVER, that if at any time there is more than one Person acting as Trustee under this
Indenture, "Securities" with respect to the Indenture as to which such Person is Trustee shall
have the meaning stated in the first recital of this Indenture and shall more particularly mean
Securities authenticated and delivered under this Indenture, exclusive, however, of Securities
of any series as to which such Person is not Trustee.

             "Security Register" and "Security Registrar" have the respective meanings specified
in Section 305.

             "Special Record Date" for the payment of any Defaulted Interest on the Registered
Securities of or within any series means a date fixed by the Trustee pursuant to Section 307.

             "Specified Amount" has the meaning specified in Section 312(h).

             "Stated Maturity" when used with respect to any Security or any installment of
principal thereof or interest thereon, means the date specified in such Security or a coupon
representing such installment of interest as the fixed date on which the principal of such
Security or such installment of principal or interest is due and payable, as such date may be
extended pursuant to the provisions of Section 308.

             "Subsidiary" means any corporation of which at the time of determination the
Company directly and/or indirectly through one or more Subsidiaries, owns more than 50% of the
shares of Voting Stock.
             "Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939 as in force at
the date as of which this Indenture was executed, except as provided in Section 905.

             "Trustee" means the Person named as the "Trustee" in the first paragraph of this
Indenture until a successor Trustee shall have become such pursuant to the applicable provisions
of this Indenture, and thereafter "Trustee" shall mean or include each Person who is then a
Trustee hereunder; PROVIDED, HOWEVER, that if at any time there is more than one such Person,

                                      -11-



"Trustee" as used with respect to the Securities of any series shall mean only the Trustee with
respect to Securities of that series.

             "United States" means, unless otherwise specified with respect to any Securities
pursuant to Section 301, the United States of America (including the states and the District of
Columbia), its territories, its possessions and other areas subject to its jurisdiction.

             "United States person" means, unless otherwise specified with respect to any
Securities pursuant to Section 301, an individual who is a citizen or resident of the United
States, a corporation, partnership or other entity created or organized in or under the laws of
the United States or an estate or trust the income of which is subject to United States federal
income taxation regardless of its source.

             "Valuation Date" has the meaning specified in Section 312(c).
             "Vice President" when used with respect to the Company or the Trustee, means any
vice president, whether or not designated by a number or a word or words added before or after
the title "vice president."
             "Voting Stock" means stock of the class or classes having general voting power
under ordinary circumstances to elect at least a majority of the board of directors, managers or
trustees of a corporation.
             "Yield to Maturity" means the yield to maturity, computed at the time of issuance
of a Security (or, if applicable, at the most recent redetermination of interest on such
Security) and as set forth in such Security in accordance with generally accepted United States
bond yield computation principles.

              SECTION 102.  COMPLIANCE CERTIFICATES AND OPINIONS.
              Upon any application or request by the Company to the Trustee to take any action
under any provision of this Indenture, the Company shall furnish to the Trustee an Officers'
Certificate stating that all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with and an Opinion of Counsel stating that
in the opinion of such counsel all such conditions precedent, if any, have been complied with,
except that in the case of any such application or request as to which the furnishing of such
documents is specifically required by any provision of this Indenture relating to such
particular application or request, no additional certificate or opinion need be furnished.

             Every certificate or opinion with respect to compliance with a covenant or
condition provided for in this Indenture (other than pursuant to Section 1004) shall include:

               (1) a statement that each individual signing such certificate or
          opinion has read such covenant or condition and the definitions herein
          relating thereto;

               (2) a brief statement as to the nature and scope of the
          examination or investigation upon which the statements or opinions
          contained in such certificate or opinion are based;

                                      -12-




               (3) a statement that, in the opinion of each such individual, he
          has made such examination or investigation as is necessary to enable
          him to express an informed opinion as to whether or not such covenant
          or condition has been complied with; and

               (4) a statement as to whether, in the opinion of each such
          individual, such covenant or condition has been complied with.
               SECTION 103.   FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
               In any case where several matters are required to be certified by, or covered by
an opinion of, any specified Person, it is not necessary that all such matters be certified by,
or covered by the opinion of, only one such Person, or that they be so certified or covered by
only one document, but one such Person may certify or give an opinion with respect to some
matters and one or more other such Persons as to other matters, and any such Person or Persons
may certify or give an opinion as to such matters in one or several documents.
               Any certificate or opinion of an officer of the Company may be based, insofar as
it relates to legal matters, upon a certificate or opinion of, or representations by, counsel,
unless such officer knows, or in the exercise of reasonable care should know, that the
certificate or opinion or representations with respect to the matters upon which his certificate
or opinion is based are erroneous. Any such certificate or Opinion of Counsel may be based,
insofar as it relates to factual matters, upon a certificate or opinion of, or representations
by, an officer or officers of the Company stating that the information with respect to such
factual matters is in the possession of the Company and may also rely on certificates of
governmental authorities, unless such counsel knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect to such matters are
erroneous.

                Where any Person is required to make, give or execute two or more applications,
requests, consents, certificates, statements, opinions or other instruments under this
Indenture, they may, but need not, be consolidated and form one instrument.

                Whenever, subsequent to the receipt by the Trustee of any Board Resolution,
Officers' Certificate, Opinion of Counsel or other document or instrument, a clerical,
typographical or other inadvertent or unintentional error or omission shall be discovered
therein, a new document or instrument may be substituted therefor in corrected form with the
same force and effect as if originally filed in the corrected form and, irrespective of the date
or dates of the actual execution and/or delivery thereof, such substitute document or instrument
shall be deemed to have been executed and or delivered as of the date or dates required with
respect to the document or instrument for which it is substituted. Anything in this Indenture to
the contrary notwithstanding, if any such corrective document or instrument indicates that
action has been taken by or at the request of the Company which could not have been taken had
the original document or instrument not contained such error or omission, the action so taken
shall not be invalidated or otherwise rendered ineffective but shall be and remain in full force
and effect, except to the extent that such action was a result of willful misconduct or bad
faith. Without limiting the generality of the foregoing, any Securities issued under the
authority of such defective document or instrument shall nevertheless be the valid obligations
of the Company


                                      -13-



entitled to the benefits of this Indenture equally and ratably with all other Outstanding
Securities, except as aforesaid.

          SECTION 104.   ACTS OF HOLDERS.

          (a) Any request, demand, authorization, direction, notice, consent, waiver or other
action provided by this Indenture to be given or taken by Holders of the Outstanding Securities
of all series or one or more series, as the case may be, may be embodied in and evidenced by one
or more instruments of substantially similar tenor signed by such Holders in person or by agents
duly appointed in writing. If Securities of a series are issuable as Bearer Securities, any
request, demand, authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by Holders of such series may, alternatively, be embodied in
and evidenced by the record of Holders of Securities of such series voting in favor thereof,
either in person or by proxies duly appointed in writing, at any meeting of Holders of
Securities of such series duly called and held in accordance with the provisions of Article
Fifteen, or a combination of such instruments and any such record. Except as herein otherwise
expressly provided, such action shall become effective when such instrument or instruments or
record or both are delivered to the Trustee and, where it is hereby expressly required, to the
Company. Such instrument or instruments and any such record (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such
instrument or instruments or so voting at any such meeting. Proof of execution of any such
instrument or of a writing appointing any such agent, or of the holding by any Person of a
Security, shall be sufficient for any purpose of this Indenture and conclusive in favor of the
Trustee and the Company and any agent of the Trustee or the Company, if made in the manner
provided in this Section. The record of any meeting of Holders of Securities shall be proved in
the manner provided in Section 1506.

           (b) The fact and date of the execution by any Person of any such instrument or
writing may be proved by the affidavit of a witness of such execution or by a certificate of a
notary public or other officer authorized by law to take acknowledgments of deeds, certifying
that the individual signing such instrument or writing acknowledged to him the execution
thereof. Where such execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof of authority. The
fact and date of the execution of any such instrument or writing, or the authority of the Person
executing the same, may also be proved in any other manner which the Trustee deems reasonably
sufficient.
            (c) The principal amount and serial numbers of Registered Securities held by any
Person, and the date of holding the same, shall be proved by the Security Register.

            (d) The principal amount and serial numbers of Bearer Securities held by any Person,
and the date of holding the same, may be proved by the production of such Bearer Securities or
by a certificate executed, as depositary, by any trust company, bank, banker or other
depositary, wherever situated, if such certificate shall be deemed by the Trustee to be
satisfactory, showing that at the date therein mentioned such Person had on deposit with such
depositary, or exhibited to it, the Bearer Securities therein described; or such facts may be
proved by the certificate or affidavit of the person holding such Bearer Securities, if such


                                      -14-



certificate or affidavit is deemed by the Trustee to be satisfactory. The Trustee and the
Company may assume that such ownership of any Bearer Security continues until (1) another
certificate or affidavit bearing a later date issued in respect of the same Bearer Security is
produced, or (2) such Bearer Security is produced to the Trustee by some other Person, or (3)
such Bearer Security is surrendered in exchange for a Registered Security, or (4) such Bearer
Security is no longer Outstanding. The principal amount and serial numbers of Bearer Securities
held by any Person, and the date of holding the same, may also be proved in any other manner
that the Trustee deems sufficient.
          (e) If the Company shall solicit from the Holders of Registered Securities any
request, demand, authorization, direction, notice, consent, waiver or other Act, the Company
may, at its option, by or pursuant to a Board Resolution, fix in advance a record date for the
determination of Holders entitled to give such request, demand, authorization, direction,
notice, consent, waiver or other Act, but the Company shall have no obligation to do so.
Notwithstanding TIA Section 316(c), such record date shall be the record date specified in or
pursuant to such Board Resolution, which shall be a date not earlier than the date 30 days prior
to the first solicitation of Holders generally in connection therewith and not later than the
date such solicitation is completed. If such a record date is fixed, such request, demand,
authorization, direction, notice, consent, waiver or other Act may be given before or after such
record date, but only the Holders of record at the close of business on such record date shall
be deemed to be Holders for the purposes of determining whether Holders of the requisite
proportion of Outstanding Securities have authorized or agreed or consented to such request,
demand, authorization, direction, notice, consent, waiver or other Act, and for that purpose the
Outstanding Securities shall be computed as of such record date; PROVIDED that no such
authorization, agreement or consent by the Holders on such record date shall be deemed effective
unless it shall become effective pursuant to the provisions of this Indenture not later than 180
days after the record date.

          (f) Any request, demand, authorization, direction, notice, consent, waiver or other
Act of the Holder of any Security shall bind every future Holder of the same Security and the
Holder of every Security issued upon the registration of transfer thereof or in exchange
therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the
Trustee, any Security Registrar, any Paying Agent, any Authenticating Agent, or the Company in
reliance thereon, whether or not notation of such action is made upon such Security.

          SECTION 105.   NOTICES, ETC. TO TRUSTEE AND COMPANY.
          Any request, demand, authorization, direction, notice, consent, waiver or Act of
Holders or other documents provided or permitted by this Indenture to be made upon, given or
furnished to, or filed with,
          (1) the Trustee by any Holder or by the Company shall be sufficient
     for every purpose hereunder if made, given, furnished or filed in writing
     by mail, first class postage prepaid or by guaranteed overnight courier or
     by facsimile transmission (receipt confirmed by a Responsible Officer)
     followed by overnight courier, to or with the Trustee at its Corporate
     Trust Office, Attention: Corporate Trust Administration Division, or

                                      -15-




          (2) the Company by the Trustee or by any Holder shall be sufficient
     for every purpose hereunder (unless otherwise herein expressly provided) if
     sent in writing by mail, first class postage prepaid or by guaranteed
     overnight courier or by facsimile transmission (receipt confirmed by an
     appropriate officer of the Company) followed by overnight courier, to the
     Company addressed to it at the address of its principal office specified in
     the first paragraph of this Indenture or at any other address previously
     furnished in writing to the Trustee by the Company.

           SECTION 106.   NOTICE TO HOLDERS; WAIVER.

           Where this Indenture provides for notice of any event to Holders of Registered
Securities by the Company or the Trustee, such notice shall be sufficiently given (unless
otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid or by
guaranteed overnight courier or by facsimile transmission (receipt confirmed by facsimile
transaction receipt) followed by overnight courier, to each such Holder affected by such event,
at his address as it appears in the Security Register, not later than the latest date, and not
earlier than the earliest date, prescribed for the giving of such notice. In any case where
notice to Holders of Registered Securities is given by mail or courier or facsimile, neither the
failure such notice, nor any defect in any notice so mailed or delivered by courier or
facsimile, to any particular Holder shall affect the sufficiency of such notice with respect to
other Holders of Registered Securities or the sufficiency of any notice to Holders of Bearer
Securities given as provided. Any notice mailed to a Holder or sent by courier or facsimile in
the manner herein prescribed shall be conclusively deemed to have been received by such Holder,
whether or not such Holder actually receives such notice.

           In case, by reason of the suspension of or irregularities in regular mail service or
by reason of any other cause, it shall be impracticable to mail or send by courier or facsimile
notice of any event to Holders of Registered Securities when such notice is required to be given
pursuant to any provision of this Indenture, then any manner of giving such notice as shall be
satisfactory to the Trustee shall be deemed to be sufficient giving of such notice for every
purpose hereunder.

           Except as otherwise expressly provided herein or otherwise specified with respect to
any Securities pursuant to Section 301, where this Indenture provides for notice to Holders of
Bearer Securities of any event, such notice shall be sufficiently given to Holders of Bearer
Securities if published in an Authorized Newspaper in the City of New York and in such other
city or cities as may be specified in such Securities on a Business Day at least twice, the
first such publication to be not earlier than the earliest date, and not later than the latest
date, prescribed for the giving of such notice. Any such notice shall be deemed to have been
given on the date of the first such publication.

           In case, by reason of the suspension of publication of any Authorized Newspaper or
Authorized Newspapers or by reason of any other cause, it shall be impracticable to publish any
notice to Holders of Bearer Securities as provided above, then such notification to Holders of
Bearer Securities as shall be given with the approval of the Trustee shall constitute sufficient
notice to such Holders for every purpose hereunder. Neither the failure to give notice by
publication to Holders of Bearer Securities as provided above, nor any defect in any notice so


                                      -16-



published, shall affect the sufficiency of such notice with respect to other Holders of Bearer
Securities or the sufficiency of any notice to Holders of Registered Securities given as
provided herein.

            Any request, demand, authorization, direction, notice, consent or waiver required or
permitted under this Indenture shall be in the English language, except that any published
notice may be in an official language of the country of publication.

            Where this Indenture provides for notice in any manner, such notice may be waived in
writing by the Person entitled to receive such notice, either before or after the event, and
such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed
with the Trustee, but such filing shall not be a condition precedent to the validity of any
action taken in reliance upon such waiver.

            SECTION 107.  EFFECT OF HEADINGS AND TABLE OF CONTENTS.
            The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof
            SECTION 108.  SUCCESSORS AND ASSIGNS.

            All covenants and agreements in this Indenture by the Company shall bind its
successors and assigns, whether so expressed or not.
            SECTION 109.   SEPARABILITY CLAUSE.

            In case any provision in this Indenture or in any Security or coupon shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.

            SECTION 110.   BENEFITS OF INDENTURE.

            Nothing in this Indenture or in the Securities or coupons, express or implied, shall
give to any Person, other than the parties hereto, any Authenticating Agent, any Paying Agent,
any Securities Registrar and their successors hereunder and the Holders of Securities or
coupons, any benefit or any legal or equitable right, remedy or claim under this Indenture.
            SECTION 111.   GOVERNING LAW.

            This Indenture and the Securities and coupons shall be governed by and construed in
accordance with the law of the State of New York, without regard to principles of conflicts of
laws. This Indenture is subject to the provisions of the Trust Indenture Act that are required
to be part of this Indenture and shall, to the extent applicable, be governed by such
provisions.
             SECTION 112.   LEGAL HOLIDAYS.

            In any case where any Interest Payment Date, Redemption Date, sinking fund payment
date or Stated Maturity or Maturity of any Security shall not be a Business Day at any


                                      -17-



Place of Payment, then (notwithstanding any other provision of this Indenture or of any Security
or coupon other than a provision in the Securities of any series which specifically states that
such provision shall apply in lieu of this Section), payment of principal (or premium, if any)
or interest, if any, need not be made at such Place of Payment on such date, but may be made on
the next succeeding Business Day at such Place of Payment with the same force and effect as if
made on the Interest Payment Date or Redemption Date or sinking fund payment date, or at the
Stated Maturity or Maturity; PROVIDED that no interest shall accrue for the period from and
after such Interest Payment Date, Redemption Date, sinking fund payment date, Stated Maturity or
Maturity, as the case may be.

         SECTION 113.  CONFLICT OF ANY PROVISION OF INDENTURE WITH TRUST INDENTURE ACT.

         If and to the extent that any provision of this Indenture limits, qualifies or
conflicts with the duties imposed by TIA Sections 310 to 318, inclusive, or conflicts with any
provision (an "incorporated provision") required by or deemed to be included in this Indenture
by operation of such TIA Sections or any section of the TIA, such imposed duties or incorporated
provisions shall control. If any provision of this Indenture modifies or excludes any provision
of the TIA that may be so modified or excluded, the latter provision shall be deemed to apply to
this Indenture as so modified or excluded, as the case may be.

          SECTION 114.  NO RECOURSE AGAINST OTHERS.

          A director, officer, employee or stockholder, as such, of the Company shall not have
any liability for any obligations of the Company under the Securities, if any, or this Indenture
or for any claim based on, in respect of or by reason of such obligations or their creation.
Each Holder by accepting any of the Securities waives and releases all such liability.
                                  ARTICLE TWO

                                 SECURITY FORMS

           SECTION 201.   FORMS GENERALLY.

           The Registered Securities, if any, of each series and the Bearer Securities, if any,
of each series and related coupons shall be in substantially the forms as shall be established
by or pursuant to a Board Resolution or in one or more indentures supplemental hereto, in each
case with such appropriate insertions, omissions, substitutions and other variations as are
required or permitted by this Indenture, and may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon as may be required to comply with
the rules of any securities exchange or as may, consistently herewith, be determined by the
officers executing such Securities or coupons, as evidenced by their execution of the Securities
or coupons. If the forms of Securities or coupons of any series are established by action taken
pursuant to a Board Resolution, a copy of an appropriate record of such action shall be
certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee
at or prior to the delivery of the Company Order contemplated by Section 303 for the
authentication


                                      -18-



and delivery of such Securities or coupons. Any portion of the text of any Security may be set
forth on the reverse thereof, with an appropriate reference thereto on the face of the Security.

            Unless otherwise specified is contemplated by Section 301, Securities in bearer form
shall have interest coupons attached.
            The Trustee's certificate of authentication on all Securities shall be in
substantially the form set forth in this Article.

            The definitive Securities and coupons shall be printed, lithographed or engraved on
steel-engraved borders or may be produced in any other manner, all as determined by the officers
of the Company executing such Securities, as evidenced by their execution of such Securities or
coupons.

            SECTION 202.   FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
            Subject to Section 611, the Trustee's certificate of authentication shall be in
substantially the following form:

                   TRUSTEE'S CERTIFICATE OF AUTHENTICATION

            Dated:  __________________

            This is one of the Securities of the series designated therein referred to in the
within-mentioned Indenture.

                                    The Bank of New York,
                                    as Trustee


                                    By: ____________________________
                                        Authorized Officer

            SECTION 203.   SECURITIES ISSUABLE IN GLOBAL FORM.
            If Securities of or within a series are issuable in global form, as specified as
contemplated by Section 301, then, notwithstanding clause (8) of Section 301 and the provisions
of Section 302, any such Security shall represent such of the Outstanding Securities of such
series as shall be specified therein and may provide that it shall represent the aggregate
amount of Outstanding Securities of such series from time to time endorsed thereon and that the
aggregate amount of Outstanding Securities of such series represented thereby may from time to
time be increased or decreased to reflect exchanges. Any endorsement of a Security in global
form to reflect the amount, or any increase or decrease in the amount, of Outstanding Securities
represented thereby shall be made by the Trustee in such manner and upon instructions given by
such Person or Persons as shall be specified therein or in the Company Order to be delivered to
the Trustee pursuant to Section 303 or Section 304. Subject to the provisions of Section 303
and, if applicable, Section 304, the Trustee shall deliver and redeliver any Security in
permanent global form in the manner and upon instructions given by the Person or Persons
specified therein

                                      -19-



or in the applicable Company Order. If a Company Order pursuant to Section 303 or Section 304
has been, or simultaneously is, delivered, any instructions by the Company with respect to
endorsement or delivery or redelivery of a Security in global form shall be in writing but need
not comply with Section 102 and need not be accompanied by an Opinion of Counsel.

            The provisions of the last sentence of Section 303 shall apply to any Security
represented by a Security in global form if such Security was never issued and sold by the
Company and the Company delivers to the Trustee the Security in global form together with
written instructions (which need not comply with Section 102 and need not be accompanied by an
Opinion of Counsel) with regard to the reduction in the principal amount of Securities
represented thereby, together with the written statement contemplated by the last sentence of
Section 303.

            Notwithstanding the provisions of Section 307, unless otherwise specified as
contemplated by Section 301, payment of principal of (and premium, if any) and interest, if any,
on any Security in permanent global form shall be made to the Person or Persons specified
therein.

            Notwithstanding the provisions of Section 309 and except as provided in the
preceding paragraph, the Company, the Trustee and any agent of the Company and the Trustee shall
treat as the Holder of such principal amount of Outstanding Securities represented by a
permanent global Security (i) in the case of a permanent global Security in registered form, the
Holder of such permanent global Security in registered form, or (ii) in the case of a permanent
global Security in bearer form, Euroclear or Clearstream.

           SECTION 204.   FORM OF LEGEND FOR BOOK-ENTRY SECURITIES.
            Any global Security authenticated and delivered hereunder shall bear a legend (which
would be in addition to any other legends required in the case of a restricted Security) in
substantially the following form:
            THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER
REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A NOMINEE THEREOF. THIS SECURITY
MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A SECURITY REGISTERED, AND NO TRANSFER OF THIS
SECURITY IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH
DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
            UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITARY TRUST COMPANY TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT AND SUCH CERTIFICATE ISSUED IN EXCHANGE FOR THIS CERTIFICATE IS REGISTERED IN THE NAME
OF CEDE & CO., OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY, ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS

                                      -20-



WRONGFUL, SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
                                  ARTICLE THREE

                                 THE SECURITIES

            SECTION 301.   AMOUNT UNLIMITED; ISSUABLE IN SERIES.
            The aggregate principal amount of Securities which may be authenticated and
delivered under this Indenture is unlimited.
            The Securities shall rank equally and pari passu and may be issued in one or more
series. There shall be established in one or more Board Resolutions or pursuant to authority
granted by one or more Board Resolutions and, subject to Section 303, set forth in, or
determined in the manner provided in, an Officers' Certificate, or established in one or more
indentures supplemental hereto, prior to the issuance of Securities of any series, any or all of
the following, as applicable (each of which (except for the matters set forth in clauses (1),
(2) and (18) below), if so provided, may be determined from time to time by the Company with
respect to unissued Securities of the series and set forth in such Securities of the series when
issued from time to time):

          (1) the title of the Securities of the series (which shall distinguish
     the Securities of the series from all other series of Securities);
          (2) any limit upon the aggregate principal amount of the Securities of
     the series that may be authenticated and delivered under this Indenture
     (except for Securities authenticated and delivered upon registration of
     transfer of, or in exchange for, or in lieu of, other Securities of the
     series pursuant to Section 304, 305, 306, 906, 1107 or 1305) and whether
     any series may be reopened for additional Securities of that series; in the
     event that such series of Securities may be reopened from time to time for
     issuances of additional Securities of such series, the terms thereof shall
     indicate whether any such additional Securities shall have the same terms
     as the prior Securities of such series or whether the Company may establish
     additional or different terms with respect to such additional Securities;
          (3) the date or dates, or the method by which such date or dates will
     be determined or extended, on which the principal (and premium, if any) of
     the Securities of the series is payable;

          (4) the rate or rates (which may be fixed or variable) at which the
     Securities of the series shall bear interest, if any, or the method by
     which such rate or rates shall be determined, the date or dates from which
     such interest shall accrue, or the method by which such date or dates shall
     be determined, the Interest Payment Dates on which such interest shall be
     payable and the Regular Record Date, if any, for the interest payable on
     any Registered Security on any Interest Payment Date, or the method by
     which such date


                                      -21-




     or dates shall be determined, and the basis upon which interest shall be
     calculated if other than on the basis of a 360-day year of twelve 30-day
     months;

          (5) the right, if any, to extend the interest payment periods and the
     terms of such extension or extensions;

          (6) the place or places, if any, other than or in addition to the
     Borough of Manhattan, the City of New York, where the principal of (and
     premium, if any) and interest, if any, on Securities of the series shall be
     payable, where any Registered Securities of the series may be surrendered
     for registration of transfer, where Securities of the series may be
     surrendered for exchange, and, if different than the location specified in
     Section 106, the place or places where notices or demands to or upon the
     Company in respect of the Securities of the series and this Indenture may
     be served;

          (7) the period or periods within which, or the date or dates on which,
     the price or prices at which, the Currency in which, and other terms and
     conditions upon which Securities of the series may be redeemed, in whole or
     in part, at the option of the Company, if the Company is to have that
     option, and if other than by a Board Resolution, the manner in which any
     election by the Company to redeem the Securities shall be evidenced;
          (8) the obligation, if any, of the Company to redeem, repay or
     purchase Securities of the series pursuant to any sinking fund or analogous
     provision or at the option of a Holder thereof, and the period or periods
     within which, the price or prices at which, the Currency in which, and
     other terms and conditions upon which Securities of the series shall be
     redeemed, repaid or purchased, in whole or in part, pursuant to such
     obligation;

          (9) if other than denominations of $1,000 and any integral multiple
     thereof, the denomination or denominations in which any Registered
     Securities of the series shall be issuable and, if other than denominations
     of $5,000, the denomination or denominations in which any Bearer Securities
     of the series shall be issuable;

          (10) if other than the Trustee, the identity of each Security
     Registrar and/or Paying Agent;

          (11) if other than the principal amount thereof, the portion of the
     principal amount of Securities of the series that shall be payable upon
     declaration of acceleration of the Maturity thereof pursuant to Section 502
     or the method by which such portion shall be determined;
          (12) if other than Dollars, the Currency in which payment of the
     principal of (or premium, if any) or interest, if any, on the Securities of
     the series shall be payable or in which the Securities of the series shall
     be denominated and the particular provisions applicable thereto in
     accordance with, in addition to or in lieu of any of the provisions of
     Section 312;


                                      -22-



          (13) whether the amount of payments of principal of (or premium, if
     any) or interest, if any, on the Securities of the series may be determined
     with reference to an index, formula or other method (which index, formula
     or method may be based on one or more Currencies, commodities, equity
     indices or other indices), and the manner in which such amounts shall be
     determined;

          (14) whether the principal of (or premium, if any) or interest, if
     any, on the Securities of the series are to be payable, at the election of
     the Company or a Holder thereof, in a Currency other than that in which
     such Securities are denominated or stated to be payable, the period or
     periods within which (including the Election Date), and the terms and
     conditions upon which, such election may be made, and the time and manner
     of determining the exchange rate between the Currency in which such
     Securities are denominated or stated to be payable and the Currency in
     which such Securities are to be so payable, in each case in accordance
     with, in addition to or in lieu of any of the provisions of Section 312;
          (15) the designation of the initial Exchange Rate Agent, if any;
          (16) the applicability, if any, of Sections 1402 and/or 1403 to the
     Securities of the series and any provisions in modification of, in addition
     to or in lieu of any of the provisions of Article Fourteen that shall be
     applicable to the Securities of the series;

          (17) provisions, if any, granting special rights to the Holders of
     Securities of the series upon the occurrence of such events as may be
     specified;

          (18) any deletions from, modifications of or additions to the Events
     of Default or covenants or other provisions (including any deletions from,
     modifications of or additions to Section 1011) of the Company with respect
     to Securities of the series, whether or not such Events of Default or
     covenants or other provisions are consistent with the Events of Default or
     covenants or other provisions set forth herein;

          (19) whether Securities of the series are to be issuable as Registered
     Securities, Bearer Securities (with or without coupons) or both, any
     restrictions applicable to the offer, sale or delivery of Bearer
     Securities, whether any Securities of the series are to be issuable
     initially in temporary global form and whether any Securities of the series
     are to be issuable in permanent global form with or without coupons and, if
     so, whether beneficial owners of interests in any such permanent global
     Security may exchange such interests for Securities of such series and of
     like tenor of any authorized form and denomination and the circumstances
     under which any such exchanges may occur, if other than in the manner
     provided in Section 305, whether Registered Securities of the series may be
     exchanged for Bearer Securities of the series (if permitted by applicable
     laws and regulations), whether Bearer Securities of the series may be
     exchanged for Registered Securities of such series, and the circumstances
     under which and the place or places where any such exchanges may be made
     and if Securities of the series are to be issuable in global form, the
     identity of any initial depository therefor;


                                      -23-



          (20) the date as of which any Bearer Securities of the series and any
     temporary global Security representing Outstanding Securities of the series
     shall be dated if other than the date of original issuance of the first
     Security of the series to be issued;

          (21) the Person to whom any interest on any Registered Security of the
     series shall be payable, if other than the Person in whose name that
     Security (or one or more Predecessor Securities) is registered at the close
     of business on the Regular Record Date for such interest, the manner in
     which, or the Person to whom, any interest on any Bearer Security of the
     series shall be payable, if otherwise than upon presentation and surrender
     of the coupons appertaining thereto as they severally mature, and the
     extent to which, or the manner in which, any interest payable on a
     temporary global Security on an Interest Payment Date will be paid if other
     than in the manner provided in Section 304;

          (22) if Securities of the series are to be issuable in definitive form
     (whether upon original issue or upon exchange of a temporary Security of
     such series) only upon receipt of certain certificates or other documents
     or satisfaction of other conditions, the form and/or terms of such
     certificates, documents or conditions;

          (23) whether and, if applicable, under what circumstances and the
     Currency in which the Company will pay Additional Amounts as contemplated
     by Section 1005 on the Securities of the series to any Holder who is not a
     United States person (including any modification to the definition of such
     term) in respect of any tax, assessment or governmental charge and, if so,
     whether the Company will have the option to redeem such Securities rather
     than pay such Additional Amounts (and the terms of any such option); and
          (24) any other terms, conditions, rights and preferences (or
     limitations on such rights and preferences) relating to the series (which
     terms shall not be inconsistent with the requirements of the Trust
     Indenture Act or the provisions of this Indenture).

            All Securities of any one series and the coupons appertaining to any Bearer
Securities of such series shall be substantially identical except, in the case of Registered
Securities, as to denomination and except as may otherwise be provided in or pursuant to such
Board Resolution (subject to Section 303) and set forth in such Officers' Certificate or in any
such indenture supplemental hereto. Not all Securities of any one series need be issued at the
same time, and, unless otherwise provided, a series may be reopened, without the consent of the
Holders, for issuances of additional Securities of such series or to establish additional terms
of such Securities (which additional terms shall only be applicable to unissued or additional
Securities of such series).
            If any of the terms of the series are established by action taken pursuant to one or
more Board Resolutions, such Board Resolutions shall be certified by the Secretary or an
Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of
the Officers' Certificate setting forth the terms of the series.

                                      -24-



            SECTION 302.   DENOMINATIONS.

            The Securities of each series shall be issuable in such denominations as shall be
specified as contemplated by Section 301. In the absence of any such provision with respect to
Securities of any series, the principal, premium and interest and Additional Amounts with
respect to the Securities shall be payable in Dollars. With respect to Securities of any series
denominated in Dollars, in the absence of any such provisions, the Registered Securities of such
series, other than Registered Securities issued in global form (which may be of any
denomination), shall be issuable in denominations of $1,000 and any integral multiple thereof
and the Bearer Securities of such series, other than the Bearer Securities issued in global form
(which may be of any denomination), shall be issuable in a denomination of $5,000.
            SECTION 303.   EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
            The Securities and any coupons appertaining thereto shall be executed on behalf of
the Company by its Chief Executive Officer, its President or a Vice President, under its
corporate seal reproduced thereon and attested by its Secretary or an Assistant Secretary. The
signature of any of these officers on the Securities or coupons may be the manual or facsimile
signatures of the present or any future such authorized officer and may be imprinted or
otherwise reproduced on the Securities.

            Securities or coupons bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company, notwithstanding that
such individuals or any of them have ceased to hold such offices prior to the authentication and
delivery of such Securities or did not hold such offices at the date of such Securities or
coupons.
            At any time and from time to time after the execution and delivery of this
Indenture, the Company may deliver Securities of any series together with any coupon
appertaining thereto, executed by the Company to the Trustee for authentication, together with a
Company Order for the authentication and delivery of such Securities, and the Trustee in
accordance with such Company Order shall authenticate and deliver such Securities; PROVIDED,
HOWEVER, that, in connection with its original issuance, no Bearer Security shall be mailed or
otherwise delivered to any location in the United States; and PROVIDED FURTHER that, unless
otherwise specified with respect to any series of Securities pursuant to Section 301, a Bearer
Security may be delivered in connection with its original issuance only if the Person entitled
to receive such Bearer Security shall have furnished a certificate in the form set forth in
Exhibit A-1 to this Indenture, dated no earlier than 15 days prior to the earlier of the date on
which such Bearer Security is delivered and the date on which any temporary Security first
becomes exchangeable for such Bearer Security in accordance with the terms of such temporary
Security and this Indenture. If any Security shall be represented by a permanent global Bearer
Security, then, for purposes of this Section and Section 304, the notation of a beneficial
owner's interest therein upon original issuance of such Security or upon exchange of a portion
of a temporary global Security shall be deemed to be delivery in connection with its original
issuance of such beneficial owner's interest in such permanent global Security. Except as
permitted by Section 306, the Trustee shall not authenticate and deliver any Bearer Security
unless all appurtenant coupons for interest then matured have been detached and cancelled. If
not all the Securities of

                                      -25-



any series are to be issued at one time and if the Board Resolution or supplemental indenture
establishing such series shall so permit, such Company Order may set forth procedures acceptable
to the Trustee for the issuance of such Securities and determining terms of particular
Securities of such series such as interest rate, stated maturity, date of issuance and date from
which interest shall accrue.

            In authenticating such Securities, and accepting the additional responsibilities
under this Indenture in relation to such Securities, the Trustee shall be provided with and
(subject to TIA Sections 315(a) through 315(d)) shall be fully protected in relying upon

            (A)  an Opinion of Counsel stating:

            (i)  that the form or forms of such Securities and any coupons have been established
in conformity with the provisions of this Indenture;
            (ii) that the terms of such Securities and any coupons have been established in
conformity with the provisions of this Indenture; and
            (iii) that such Securities, together with any coupons appertaining thereto, when
completed by appropriate insertions and executed and delivered by the Company to the Trustee for
authentication in accordance with this Indenture, authenticated and delivered by the Trustee in
accordance with this Indenture and issued by the Company in the manner and subject to any
conditions specified in such Opinion of Counsel, will constitute the legal, valid and binding
obligations of the Company, enforceable in accordance with their terms, subject to applicable
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and other similar laws
of general applicability relating to or affecting the enforcement of creditors' rights, to
general equitable principles and to such other qualifications as such counsel shall conclude do
not materially affect the rights of Holders of such Securities and any coupons.
            (B) an Officers' Certificate stating, to the knowledge of the signers of such
certificate, that no Event of Default with respect to any of the Securities shall have occurred
and be continuing; and

            (C) an executed supplemental indenture (if any).
            Notwithstanding the provisions of Section 301 and of this Section 303, if not all
the Securities of any series are to be issued at one time, it shall not be necessary to deliver
the Officers' Certificate otherwise required pursuant to Section 301 or the Company Order and
Opinion of Counsel otherwise required pursuant to the preceding two paragraphs prior to or at
the time of issuance of each Security, but such documents shall be delivered prior to or at the
time of issuance of the first Security of such series.

            The Trustee shall not be required to authenticate and deliver any such Securities if
the issue of such Securities pursuant to this Indenture will affect the Trustee's own rights,
duties or immunities under the Securities and this Indenture or otherwise in a manner which is
not reasonably acceptable to the Trustee.


                                      -26-



            Each Registered Security shall be dated the date of its authentication and each
Bearer Security shall be dated as of the date specified as contemplated by Section 301.

            No Security or coupon shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security a certificate of
authentication substantially in the form provided for herein duly executed by the Trustee by
manual signature of an authorized officer, and such certificate upon any Security shall be
conclusive evidence, and the only evidence, that such Security has been duly authenticated and
delivered hereunder and is entitled to the benefits of this Indenture. Notwithstanding the
foregoing, if any Security shall have been authenticated and delivered hereunder but never
issued and sold by the Company, and the Company shall deliver such Security to the Trustee for
cancellation as provided in Section 310 together with a written statement (which need not comply
with Section 102 and need not be accompanied by an Opinion of Counsel) stating that such
Security has never been issued and sold by the Company, for all purposes of this Indenture such
Security shall be deemed never to have been authenticated and delivered hereunder and shall
never be entitled to the benefits of this Indenture.

           SECTION 304.  TEMPORARY SECURITIES.

           (a) Pending the preparation of definitive Securities of any series, the Company may
execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Securities
which are printed, lithographed, typewritten or otherwise produced, in any authorized
denomination, substantially of the tenor of the definitive Securities in lieu of which they are
issued, in registered form or, if authorized, in bearer form with one or more coupons or without
coupons, and with such appropriate insertions, omissions, substitutions and other variations as
the officers executing such Securities may determine, as conclusively evidenced by their
execution of such Securities. Temporary Securities may be in global form.

            Except in the case of temporary Securities in global form (which shall be exchanged
in accordance with the provisions of the following paragraphs), if temporary Securities of any
series are issued, the Company will cause definitive Securities of that series to be prepared
without unreasonable delay. After the preparation of definitive Securities of such series, the
temporary Securities of such series shall be exchangeable for definitive Securities of such
series upon surrender of the temporary Securities of such series at the office or agency of the
Company in a Place of Payment for that series, without charge to the Holder. Upon surrender for
cancellation of any one or more temporary Securities of any series (accompanied by any unmatured
coupons appertaining thereto), the Company shall execute and the Trustee shall authenticate and
deliver in exchange therefor a like principal amount of definitive Securities of the same series
of authorized denominations; PROVIDED, HOWEVER, that no definitive Bearer Security shall be
delivered in exchange for a temporary Registered Security; and PROVIDED FURTHER that a
definitive Bearer Security shall be delivered in exchange for a temporary Bearer Security only
in compliance with the conditions set forth in Section 303. Until so exchanged, the temporary
Securities of any series shall in all respects be entitled to the same benefits under this
Indenture as definitive Securities of such series.
          (b) If temporary Securities of any series are issued in global form, any such
temporary global Security shall, unless otherwise provided therein, be delivered to the London


                                      -27-



office of a depositary or common depositary (the "Common Depositary"), for the benefit of
Euroclear and Clearstream, for credit to the respective accounts of the beneficial owners of
such Securities (or to such other accounts as they may direct).

            Without unnecessary delay but in any event not later than the date specified in, or
determined pursuant to the terms of, any such temporary global Security (the "Exchange Date"),
the Company shall deliver to the Trustee definitive Securities, in aggregate principal amount
equal to the principal amount of such temporary global Security, executed by the Company. On or
after the Exchange Date, such temporary global Security shall be surrendered by the Common
Depositary to the Trustee, as the Company's agent for such purpose, to be exchanged, in whole or
from time to time in part, for definitive Securities without charge and the Trustee shall
authenticate and deliver, in exchange for each portion of such temporary global Security, an
equal aggregate principal amount of definitive Securities of the same series of authorized
denominations and of like tenor as the portion of such temporary global Security to be
exchanged. The definitive Securities to be delivered in exchange for any such temporary global
Security shall be in bearer form, registered form, permanent global bearer form or permanent
global registered form, or any combination thereof, as specified as contemplated by Section 301,
and, if any combination thereof is so specified, as requested by the beneficial owner thereof,
PROVIDED, HOWEVER, that, unless otherwise specified in such temporary global Security, upon such
presentation by the Common Depositary, such temporary global Security is accompanied by a
certificate dated the Exchange Date or a subsequent date and signed by Euroclear as to the
portion of such temporary global Security filed for its account then to be exchanged and a
certificate dated the Exchange Date or a subsequent date and signed by Clearstream as to the
portion of such temporary global Security held for its account then to be exchanged, each in the
form set forth in Exhibit A-2 to this Indenture (or in such other form as may be established
pursuant to Section 301); and PROVIDED FURTHER that definitive Bearer Securities shall be
delivered in exchange for a portion of a temporary global Security only in compliance with the
requirements of Section 303.
            Unless otherwise specified in such temporary global Security, the interest of a
beneficial owner of Securities of a series in a temporary global Security shall be exchanged for
definitive Securities of the same series and of like tenor following the Exchange Date when the
account holder instructs Euroclear or Clearstream, as the case may be, to request such exchange
on his behalf and delivers to Euroclear or Clearstream, as the case may be, a certificate in the
form set forth in Exhibit A-1 to this Indenture (or in such other form as may be established
pursuant to Section 301), dated no earlier than 15 days prior to the Exchange Date, copies of
which certificate shall be available from the offices of Euroclear and Clearstream, the Trustee,
any Authenticating Agent appointed for such series of Securities and each Paying Agent. Unless
otherwise specified in such temporary global Security, any such exchange shall be made free of
charge to the beneficial owners of such temporary global Security, except that a Person
receiving definitive Securities must bear the cost of insurance, postage, transportation and the
like in the event that such Person does not take delivery of such definitive Securities in
person at the offices of Euroclear or Clearstream definitive Securities in bearer form to be
delivered in exchange for any portion of a temporary global Security shall be delivered only
outside the United States.

            Until exchanged in full as hereinabove provided, the temporary Securities of any
series shall in all respects be entitled to the same benefits under this Indenture as definitive


                                      -28-



Securities of the same series and of like tenor authenticated and delivered hereunder, except
that, unless otherwise specified as contemplated by Section 301, interest payable on a temporary
global Security on an Interest Payment Date for Securities of such series occurring prior to the
applicable Exchange Date shall be payable to Euroclear and Clearstream on such Interest Payment
Date upon delivery by Euroclear and Clearstream to the Trustee of a certificate or certificates
in the form set forth in Exhibit A-2 to this Indenture (or in such other form as may be
established pursuant to Section 301), for credit without further interest thereon on or after
such Interest Payment Date to the respective accounts of the Persons who are the beneficial
owners of such temporary global Security on such Interest Payment Date and who have each
delivered to Euroclear or Clearstream, as the case may be, a certificate dated no earlier than
15 days prior to the Interest Payment Date occurring prior to such Exchange Date in the form set
forth in Exhibit A-1 to this Indenture (or in such other form as may be established pursuant to
Section 301). Notwithstanding anything to the contrary herein contained, the certifications made
pursuant to this paragraph shall satisfy the certification requirements of the preceding two
paragraphs of this Section and of the third paragraph of Section 303 of this Indenture and the
interests of the Persons who are the beneficial owners of the temporary global Security with
respect to which such certification was made will be exchanged for definitive Securities of the
same series and of like tenor on the Exchange Date or the date of certification if such date
occurs after the Exchange Date, without further act or deed by such beneficial owners. Except as
otherwise provided in this paragraph, no payments of principal (or premium, if any) or interest,
if any, owing with respect to a beneficial interest in a temporary global Security will be made
unless and until such interest in such temporary global Security shall have been exchanged for
an interest in a definitive Security. Any interest so received by Euroclear and Clearstream and
not paid as herein provided shall be returned to the Trustee immediately prior to the expiration
of two years after such Interest Payment Date in order to be repaid to the Company in accordance
with Section 1003.

            With respect to Exhibits A-1 and A-2 to this Indenture, the Company may, in its
discretion and if required or desirable under applicable law or as set forth in any Board
Resolution or supplemental indenture with respect to any series of Securities, substitute one or
more other forms of such exhibits for such exhibits, eliminate the requirement that any or all
certificates be provided, or change the time that any certificate may be required, provided that
such substitute form or forms or notice of elimination or change of such certification
requirement have theretofore been delivered to the Trustee with a Company Request and such form
or forms, elimination or change is reasonably acceptable to the Trustee.

            SECTION 305.   REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE.
            The Company shall cause to be kept at the Corporate Trust Office of the Trustee a
register for each series of Securities (the registers maintained in the Corporate Trust Office
of the Trustee and in any other office or agency of the Company in a Place of Payment being
herein sometimes collectively referred to as the "Security Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the registration of
Registered Securities and of transfers of Registered Securities. The Security Register shall be
in written form or any other form capable of being converted into written form within a
reasonable time. At all reasonable times, the Security Register shall be open to inspection by
the Trustee. The Trustee is hereby initially appointed as security registrar (the "Security
Registrar") for the


                                      -29-



purpose of registering Registered Securities and transfers of Registered Securities as herein
provided.

            Upon surrender for registration of transfer of any Registered Security of any series
at the office or agency in a Place of Payment for that series, the Company shall execute, and
the Trustee shall authenticate and deliver, in the name of the designated transferee, one or
more new Registered Securities of the same series, of any authorized denominations and of a like
aggregate principal amount and tenor.

            At the option of the Holder, Registered Securities of any series may be exchanged
for other Registered Securities of the same series, of any authorized denomination and of a like
aggregate principal amount, upon surrender of the Registered Securities to be exchanged at such
office or agency. Whenever any Registered Securities are so surrendered for exchange, the
Company shall execute, and the Trustee shall authenticate and deliver, the Registered Securities
which the Holder making the exchange is entitled to receive. Unless otherwise specified with
respect to any series of Securities as contemplated by Section 301, Bearer Securities may not be
issued in exchange for Registered Securities.

            If (but only if) so expressly permitted in or pursuant to the applicable Board
Resolution and (subject to Section 303) set forth in the applicable Officers' Certificate, or in
any indenture supplemental hereto, delivered as contemplated by Section 301, at the option of
the Holder, Bearer Securities of any series may be exchanged for Registered Securities of the
same series of any authorized denomination and of a like aggregate principal amount and tenor,
upon surrender of the Bearer Securities to be exchanged at any such office or agency, with all
unmatured coupons and all matured coupons in default thereto appertaining. If the Holder of a
Bearer Security is unable to produce any such unmatured coupon or coupons or matured coupon or
coupons in default, any such permitted exchange may be effected if the Bearer Securities are
accompanied by payment in funds acceptable to the Company in an amount equal to the face amount
of such missing coupon or coupons, or the surrender of such missing coupon or coupons may be
waived by the Company and the Trustee if there is furnished to them such security or indemnity
as they may require to save each of them and any Paying Agent harmless. If thereafter the Holder
of such Security shall surrender to any Paying Agent any such missing coupon in respect of which
such a payment shall have been made, such Holder shall be entitled to receive the amount of such
payment; PROVIDED, HOWEVER, that, except as otherwise provided in Section 1002, interest
represented by coupons shall be payable only upon presentation and surrender of those coupons at
an office or agency located outside the United States. Notwithstanding the foregoing, in case a
Bearer Security of any series is surrendered at any such office or agency in a permitted
exchange for a Registered Security of the same series and like tenor after the close of business
at such office or agency on (i) any Regular Record Date and before the opening of business at
such office or agency on the relevant Interest Payment Date, or (ii) any Special Record Date and
before the opening of business at such office or agency on the related proposed date for payment
of Defaulted Interest, such Bearer Security shall be surrendered without the coupon relating to
such Interest Payment Date or proposed date for payment, as the case may be, and interest or
Defaulted Interest, as the case may be, will not be payable on such Interest Payment Date or
proposed date for payment, as the case may be, in respect of the Registered Security issued in
exchange for such Bearer Security, but will be

                                      -30-



payable only to the Holder of such coupon when due in accordance with the provisions of this
Indenture.

            Whenever any Securities are so surrendered for exchange, the Company shall execute,
and the Trustee shall authenticate and deliver, the Securities which the Holder making the
exchange is entitled to receive.
            Notwithstanding the foregoing, except as otherwise specified as contemplated by
Section 301, any permanent global Security shall be exchangeable only as provided in this
paragraph. If any beneficial owner of an interest in a permanent global Security is entitled to
exchange such interest for Securities of such series and of like tenor and principal amount of
another authorized form and denomination, as specified as contemplated by Section 301 and
provided that any applicable notice provided in the permanent global Security shall have been
given, then without unnecessary delay but in any event not later than the earliest date on which
such interest may be so exchanged, the Company shall deliver to the Trustee definitive
Securities in aggregate principal amount equal to the principal amount of such beneficial
owner's interest in such permanent global Security, executed by the Company. On or after the
earliest date on which such interests may be so exchanged, such permanent global Security shall
be surrendered by the Common Depositary or such other depositary as shall be specified in the
Company Order with respect thereto to the Trustee, as the Company's agent for such purpose, to
be exchanged, in whole or from time to time in part, for definitive Securities without charge,
and the Trustee shall authenticate and deliver, in exchange for each portion of such permanent
global Security, an equal aggregate principal amount of definitive Securities of the same series
of authorized denominations and of like tenor as the portion of such permanent global Security
to be exchanged which, unless the Securities of the series are not issuable both as Bearer
Securities and as Registered Securities, as specified as contemplated by Section 301, shall be
in the form of Bearer Securities or Registered Securities, or any combination thereof, as shall
be specified by the beneficial owner thereof; PROVIDED, HOWEVER, that no such exchanges may
occur during a period beginning at the opening of business 15 days before any selection of
Securities to be redeemed and ending on the relevant Redemption Date if the Security for which
exchange is requested may be among those selected for redemption; and PROVIDED, FURTHER, that no
Bearer Security delivered in exchange for a portion of a permanent global Security shall be
mailed or otherwise delivered to any location in the United States. If a Registered Security is
issued in exchange for any portion of a permanent global Security after the close of business at
the office or agency where such exchange occurs on (i) any Regular Record Date and before the
opening of business at such office or agency on the relevant Interest Payment Date, or (ii) any
Special Record Date and before the opening of business at such office or agency on the related
proposed date for payment of Defaulted Interest, interest or Defaulted Interest, as the case may
be, will not be payable on such Interest Payment Date or proposed date for payment, as the case
may be, in respect of such Registered Security, but will be payable on such Interest Payment
Date or proposed date for payment, as the case may be, only to the Person to whom interest in
respect of such portion of such permanent global Security is payable in accordance with the
provisions of this Indenture.

            All Securities issued upon any registration of transfer or exchange of Securities
shall be the valid obligations of the Company, evidencing the same debt, and entitled to the
same

                                      -31-



benefits under this Indenture, as the Securities surrendered upon such registration of transfer
or exchange.

            Every Registered Security presented or surrendered for registration of transfer or
for exchange shall (if so required by the Company or the Security Registrar) be duly endorsed,
or be accompanied by a written instrument of transfer, in form satisfactory to the Company and
the Security Registrar, duly executed by the Holder thereof or his attorney duly authorized in
writing.
            No service charge shall be made for any registration of transfer or exchange of
Securities, but the Company may require payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any registration of transfer or
exchange of Securities, other than exchanges pursuant to Section 304, 906, 1107 or 1305 not
involving any transfer.
            The Company shall not be required (i) to issue, register the transfer of or exchange
any Security if such Security may be among those selected for redemption during a period
beginning at the opening of business 15 days before the day of the selection for redemption of
Securities of that series under Section 1103 or 1203 and ending at the close of business on (A)
if Securities of the series are issuable only as Registered Securities, the day of the mailing
of the relevant notice of redemption and (B) if Securities of the series are issuable as Bearer
Securities, the day of the first publication of the relevant notice of redemption or, if
Securities of the series are also issuable as Registered Securities and there is no publication,
the mailing of the relevant notice of redemption, or (ii) to register the transfer of or
exchange any Registered Security so selected for redemption in whole or in part, except the
unredeemed portion of any Security being redeemed in part, or (iii) to exchange any Bearer
Security so selected for redemption except that such a Bearer Security may be exchanged for a
Registered Security of that series and like tenor; PROVIDED that such Registered Security shall
be simultaneously surrendered for redemption, or (iv) to issue, register the transfer of or
exchange any Security which has been surrendered for repayment at the option of the Holder,
except the portion, if any, of such Security not to be so repaid.
            Each Holder of a Security agrees to indemnify the Company and the Trustee against
any liability that may result from the transfer, exchange or assignment of such Holder's
Security in violation of any provision of this Indenture and/or applicable United States Federal
or state securities law.
            The Trustee shall have no obligation or duty to monitor, determine or inquire as to
compliance with any restrictions on transfer imposed under this Indenture or under applicable
law with respect to any transfer of any interest in any Security (including any transfers
between or among depository participants or beneficial owners of interests in any global
Security) other than to require delivery of such certificates and other documentation or
evidence as are expressly required by, and to do so if and when expressly required by, the terms
of this Indenture, and to examine the same to determine substantial compliance as to form with
the express requirements hereof.

                                      -32-




            SECTION 306.   MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES.
            If any mutilated Security or a Security with a mutilated coupon appertaining to it
is surrendered to the Trustee, the Company shall execute and the Trustee shall authenticate and
deliver in exchange therefor a new Security of the same series and of like tenor and principal
amount and bearing a number not contemporaneously outstanding, with coupons corresponding to the
coupons, if any, appertaining to the surrendered Security, or, in case any such mutilated
Security or coupon has become or is about to become due and payable, the Company in its
discretion may, instead of issuing a new Security, with coupons corresponding to the coupons, if
any, appertaining to the surrendered Security, pay such Security or coupon.

            If there shall be delivered to the Company and to the Trustee (i) evidence to their
satisfaction of the destruction, loss or theft of any Security or coupon and (ii) such security
or indemnity as may be required by them to save each of them and any agent of either of them
harmless, then, in the absence of notice to the Company or the Trustee that such Security or
coupon has been acquired by a bona fide purchaser, the Company shall execute and upon Company
Order the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen
Security or in exchange for the Security for which a destroyed, lost or stolen coupon appertains
(with all appurtenant coupons not destroyed, lost or stolen), a new Security of the same series
and of like tenor and principal amount and bearing a number not contemporaneously outstanding,
with coupons corresponding to the coupons, if any, appertaining to such destroyed, lost or
stolen Security or to the Security to which such destroyed, lost or stolen coupon appertains.

            Notwithstanding the provisions of the previous two paragraphs, in case any such
mutilated, destroyed, lost or stolen Security or coupon has become or is about to become due and
payable, the Company in its discretion may, instead of issuing a new Security, with coupons
corresponding to the coupons, if any, appertaining to such mutilated, destroyed, lost or stolen
Security or to the Security to which such mutilated, destroyed, lost or stolen coupon
appertains, pay such Security or coupon; PROVIDED, HOWEVER, that payment of principal of (and
premium, if any) and interest, if any, on Bearer Securities shall, except as otherwise provided
in Section 1002, be payable only at an office or agency located outside the United States and,
unless otherwise specified as contemplated by Section 301, any interest on Bearer Securities
shall be payable only upon presentation and surrender of the coupons appertaining thereto.

            Upon the issuance of any new Security under this Section, the Company may require
the payment of a sum sufficient to cover any tax or other governmental charge that may be
imposed in relation thereto and any other expenses (including the fees and expenses of the
Trustee) connected therewith.
            Every new Security of any series with its coupons, if any, issued pursuant to this
Section in lieu of any mutilated, destroyed, lost or stolen Security or in exchange for a
Security to which a mutilated, destroyed, lost or stolen coupon appertains, shall constitute an
original additional contractual obligation of the Company, whether or not the mutilated,
destroyed, lost or stolen Security and its coupons, if any, or the mutilated, destroyed, lost or
stolen coupon shall be at any time enforceable by anyone, and shall be entitled to all the
benefits of this Indenture


                                      -33-



equally and proportionately with any and all other Securities of that series and their coupons,
if any, duly issued hereunder.

            The provisions of this Section are exclusive and shall preclude (to the extent
lawful) all other rights and remedies with respect to the replacement or payment of mutilated,
destroyed, lost or stolen Securities or coupons.
            SECTION 307.   PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED; OPTIONAL INTEREST
RESET.

            (a) Unless otherwise provided as contemplated by Section 301 with respect to any
series of Securities, interest, if any, on any Registered Security that is payable, and is
punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person
in whose name such Security (or one or more Predecessor Securities) is registered at the close
of business on the Regular Record Date for such interest at the office or agency of the Company
maintained for such purpose pursuant to Section 1002; PROVIDED, HOWEVER, that each installment
of interest, if any, on any Registered Security may at the Company's option be paid by (i)
mailing a check for such interest, payable to or upon the written order of the Person entitled
thereto pursuant to Section 309, to the address of such Person as it appears on the Security
Register or (ii) transfer to an account located in the United States maintained by the payee.
            Unless otherwise provided as contemplated by Section 301 with respect to the
Securities of any series, payment of interest, if any, may be made, in the case of a Bearer
Security, by transfer to an account located outside the United States maintained by the payee.

            Unless otherwise provided as contemplated by Section 301, every permanent global
Security will provide that interest, if any, payable on any Interest Payment Date will be paid
to each of Euroclear and Clearstream, with respect to that portion of such permanent global
Security held for its account by the Common Depositary, for the purpose of permitting each of
Euroclear and Clearstream to credit the interest, if any, received by it in respect of such
permanent global Security to the accounts of the beneficial owners thereof.
            In case a Bearer Security of any series is surrendered in exchange for a Registered
Security of such series after the close of business (at an office or agency in a Place of
Payment for such series) on any Regular Record Date and before the opening of business (at such
office or agency) on the next succeeding Interest Payment Date, such Bearer Security shall be
surrendered without the coupon relating to such Interest Payment Date and interest will not be
payable on such Interest Payment Date in respect of the Registered Security issued in exchange
for such Bearer Security, but will be payable only to the Holder of such coupon when due in
accordance with the provisions of this Indenture.

            Except as otherwise specified with respect to a series of Securities in accordance
with the provisions of Section 301, any interest on any Registered Security of any series that
is payable, but is not punctually paid or duly provided for, on any Interest Payment Date shall
forthwith cease to be payable to the Holder on the relevant Regular Record Date by virtue of
having been such Holder, and such defaulted interest and, if applicable, interest on such
defaulted interest (to the extent lawful) at the rate specified in the Securities of such series
(such


                                      -34-



defaulted interest and, if applicable, interest thereon is herein collectively called "Defaulted
Interest") may be paid by the Company, at its election in each case, as provided in clause (1)
or (2) below:

          (1) The Company may elect to make payment of any Defaulted Interest to
     the Persons in whose names the Registered Securities of such series (or
     their respective Predecessor Securities) are registered at the close of
     business on a Special Record Date for the payment of such Defaulted
     Interest, which shall be fixed in the following manner. The Company shall
     notify the Trustee in writing of the amount of Defaulted Interest proposed
     to be paid on each Registered Security of such series and the date of the
     proposed payment (which shall not be less than 20 days after such notice is
     received by the Trustee), and at the same time the Company shall deposit
     with the Trustee an amount of money in the Currency in which the Securities
     of such series are payable (except as otherwise specified pursuant to
     Section 301 for the Securities of such series and except, if applicable, as
     provided in Sections 312(b), 312(d) and 312(e)) equal to the aggregate
     amount proposed to be paid in respect of such Defaulted Interest or shall
     make arrangements satisfactory to the Trustee for such deposit on or prior
     to the date of the proposed payment, such money when deposited to be held
     in trust for the benefit of the Persons entitled to such Defaulted Interest
     as in this clause provided. Thereupon the Trustee shall fix a Special
     Record Date for the payment of such Defaulted Interest which shall be not
     more than 15 days and not less than 10 days prior to the date of the
     proposed payment and not less than 10 days after the receipt by the Trustee
     of the notice of the proposed payment. The Trustee shall promptly notify
     the Company of such Special Record Date and, in the name and at the expense
     of the Company, shall cause notice of the proposed payment of such
     Defaulted Interest and the Special Record Date therefor to be given in the
     manner provided in Section 106, not less than 10 days prior to such Special
     Record Date. Notice of the proposed payment of such Defaulted Interest and
     the Special Record Date therefor having been so given, such Defaulted
     Interest shall be paid to the Persons in whose name the Registered
     Securities of such series (or their respective Predecessor Securities) are
     registered at the close of business on such Special Record Date and shall
     no longer be payable pursuant to the following clause (2). In case a Bearer
     Security of any series is surrendered at the office or agency in a Place of
     Payment for such series in exchange for a Registered Security of such
     series after the close of business at such office or agency on any Special
     Record Date and before the opening of business at such office or agency on
     the related proposed date for payment of Defaulted Interest, such Bearer
     Security shall be surrendered without the coupon relating to such proposed
     date of payment and Defaulted Interest will not be payable on such proposed
     date of payment in respect of the Registered Security issued in exchange
     for such Bearer Security, but will be payable only to the Holder of such
     coupon when due in accordance with the provisions of this Indenture.
          (2) The Company may make payment of any Defaulted Interest on the
     Registered Securities of any series in any other lawful manner not
     inconsistent with the requirements of any securities exchange on which such
     Securities may be listed, and upon such notice as may be required by such
     exchange, if, after notice given by the Company to the Trustee of the
     proposed payment pursuant to this clause, such manner of payment shall be
     deemed practicable by the Trustee.


                                      -35-




          (b) The provisions of this Section 307(b) may be made applicable to any series of
Securities pursuant to Section 301 (with such modifications, additions or substitutions as may
be specified pursuant to such Section 301). The interest rate (or the spread or spread
multiplier or other formula used to calculate such interest rate, if applicable) on any Security
of such series may be reset by the Company on the date or dates specified on the face of such
Security (each an "Optional Reset Date"). The Company may exercise such option with respect to
such Security by notifying the Trustee of such exercise at least 45 but not more than 60 days
prior to an Optional Reset Date for such Security. Not later than 40 days prior to each Optional
Reset Date, the Trustee shall transmit, in the manner provided for in Section 106, to the Holder
of any such Security a notice (the "Reset Notice") indicating whether the Company has elected to
reset the interest rate (or the spread or spread multiplier or other formula used to calculate
such interest rate, if applicable), and if so (i) such new interest rate (or such new spread or
spread multiplier or other formula, if applicable) and (ii) the provisions, if any, for
redemption during the period from such Optional Reset Date to the next Optional Reset Date or if
there is no such next Optional Reset Date, to the Stated Maturity Date of such Security (each
such period, a "Subsequent Interest Period"), including the date or dates on which or the period
or periods during which and the price or prices at which such redemption may occur during the
Subsequent Interest Period.
            Notwithstanding the foregoing, not later than 20 days prior to the Optional Reset
Date, the Company may, at its option, revoke the interest rate (or the spread or spread
multiplier or other formula used to calculate such interest rate, if applicable) provided for in
the Reset Notice and establish an interest rate (or a spread or spread multiplier or other
formula used to calculate such interest rate, if applicable) that is higher than the interest
rate (or the spread or spread multiplier or other formula, if applicable) provided for in the
Reset Notice, for the Subsequent Interest Period by causing the Trustee to transmit, in the
manner provided for in Section 106, notice of such higher interest rate (or such higher spread
or spread multiplier or other formula, if applicable) to the Holder of such Security. Such
notice shall be irrevocable. All Securities with respect to which the interest rate (or the
spread or spread multiplier or other formula used to calculate such interest rate, if
applicable) is reset on an Optional Reset Date, and with respect to which the Holders of such
Securities have not tendered such Securities for repayment (or have validly revoked any such
tender) pursuant to the next succeeding paragraph, will bear such higher interest rate (or such
higher spread or spread multiplier or other formula, if applicable).

            The Holder of any such Security may have the option to elect repayment by the
Company of the principal of such Security on each Optional Reset Date at a price equal to the
principal amount thereof plus interest accrued to such Optional Reset Date. In order to obtain
repayment on an Optional Reset Date, the Holder must follow the procedures set forth in Article
Thirteen for repayment at the option of Holders except that the period for delivery or
notification to the Trustee shall be at least 25 but not more than 35 days prior to such
Optional Reset Date and except that, if the Holder has tendered any Security for repayment
pursuant to the Reset Notice, the Holder may, by written notice to the Trustee, revoke such
tender or repayment until the close of business on the tenth day before such Optional Reset
Date.

            Subject to the foregoing provisions of this Section and Section 305, each Security
delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of
any


                                      -36-



other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were
carried by such other Security.

            SECTION 308. OPTIONAL EXTENSION OF STATED MATURITY.
            The provisions of this Section 308 may be made applicable to any series of
Securities pursuant to Section 301 (with such modifications, additions or substitutions as may
be specified pursuant to such Section 301). The Stated Maturity of any Security of such series
may be extended at the option of the Company for the period or periods specified on the face of
such Security (each an "Extension Period") up to but not beyond the date (the "Final Maturity")
set forth on the face of such Security. The Company may exercise such option with respect to any
Security by notifying the Trustee of such exercise at least 45 but not more than 90 days prior
to the Stated Maturity of such Security in effect prior to the exercise of such option (the
"Original Stated Maturity"). If the Company exercises such option, the Trustee shall transmit,
in the manner provided for in Section 106, to the Holder of such Security not later than 40 days
prior to the Original Stated Maturity a notice (the "Extension Notice") indicating (i) the
election of the Company to extend the Stated Maturity, (ii) the new Stated Maturity, (iii) the
interest rate (or spread, spread multiplier or other formula used to calculate such interest
rate, if applicable), if any, applicable to the Extension Period and (iv) the provisions, if
any, for redemption during such Extension Period. Upon the Trustee's transmittal of the
Extension Notice, the Stated Maturity of such Security shall be extended automatically and,
except as modified by the Extension Notice and as described in the next paragraph, such Security
will have the same terms as prior to the transmittal of such Extension Notice.

            Notwithstanding the foregoing, not later than 20 days before the Original Stated
Maturity of such Security, the Company may, at its option, revoke the interest rate (or spread,
spread multiplier or other formula used to calculate such interest rate, if applicable) provided
for in the Extension Notice and establish a higher interest rate (or spread, spread multiplier
or other formula used to calculate such interest rate, if applicable) for the Extension Period
by causing the Trustee to transmit, in the manner provided for in Section 106, notice of such
higher interest rate (or spread, spread multiplier or other formula used to calculate such
interest rate, if applicable) to the Holder of such Security. Such notice shall be irrevocable.
All Securities with respect to which the Stated Maturity is extended will bear such higher
interest rate.

            If the Company extends the Stated Maturity of any Security, the Holder will have the
option to elect repayment of such Security by the Company on the Original Stated Maturity at a
price equal to the principal amount thereof, plus interest accrued to such date. In order to
obtain repayment on the Original Stated Maturity once the Company has extended the Stated
Maturity thereof, the Holder must follow the procedures set forth in Article Thirteen for
repayment at the option of Holders, except that the period for delivery or notification to the
Trustee shall be at least 25 but not more than 35 days prior to the Original Stated Maturity and
except that, if the Holder has tendered any Security for repayment pursuant to an Extension
Notice, the Holder may by written notice to the Trustee revoke such tender for repayment until
the close of business on the tenth day before the Original Stated Maturity.

                                      -37-




            SECTION 309.   PERSONS DEEMED OWNERS.

            Prior to due presentment of a Registered Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose
name such Registered Security is registered as the owner of such Registered Security for the
purpose of receiving payment of principal of (and premium, if any) and (subject to Sections 305
and 307) interest, if any, on such Security and for all other purposes whatsoever, whether or
not such Security be overdue, and none of the Company, the Trustee or any agent of the Company
or the Trustee shall be affected by notice to the contrary.

            Title to any Bearer Security and any coupons appertaining thereto shall pass by
delivery. The Company, the Trustee and any agent of the Company or the Trustee may treat the
bearer of any Bearer Security and the bearer of any coupon as the absolute owner of such
Security or coupon for the purpose of receiving payment thereof or on account thereof and for
all other purposes whatsoever, whether or not such Security or coupons be overdue, and none of
the Company, the Trustee or any agent of the Company or the Trustee shall be affected by notice
to the contrary.

            All payments made to any Holder of Securities, or upon his order, shall be valid,
and, to the extent of the sum or sums paid, effectual to satisfy and discharge the liability for
moneys payable upon such Security or coupon.
            None of the Company, the Trustee, any Paying Agent or the Security Registrar will
have any responsibility or liability for any aspect of the records relating to or payments made
on account of beneficial ownership interests of a Security in global form or for maintaining,
supervising or reviewing any records relating to such beneficial ownership interests.
            Notwithstanding the foregoing, with respect to any global Security, nothing herein
shall prevent the Company, the Trustee, or any agent of the Company or the Trustee, from giving
effect to any written certification, proxy or other authorization furnished by any depositary,
as a Holder, with respect to such global Security or impair, as between such depositary and
owners of beneficial interests in such global Security, the operation of customary practices
governing the exercise of the rights of such depositary (or its nominee) as Holder of such
global Security.

            SECTION 310.   CANCELLATION.

            Unless otherwise specified pursuant to Section 301 for Securities of any series, all
Securities and coupons surrendered for payment, redemption, repayment at the option of the
Holder, registration of transfer or exchange or for credit against any current or future sinking
fund payment shall, if surrendered to any Person other than the Trustee, be delivered to the
Trustee. All Securities and coupons so delivered to the Trustee shall be promptly cancelled by
it. The Company may at any time deliver to the Trustee for cancellation any Securities
previously authenticated and delivered hereunder which the Company may have acquired in any
manner whatsoever, and may deliver to the Trustee (or to any other Person for delivery to the
Trustee) for cancellation any Securities previously authenticated hereunder which the Company
has not issued and sold, and all Securities so delivered shall be promptly cancelled by the
Trustee. If the Company shall so acquire any of the Securities, however, such acquisition shall
not operate as a


                                      -38-



redemption or satisfaction of the indebtedness represented by such Securities unless and until
the same are surrendered to the Trustee for cancellation. No Securities shall be authenticated
in lieu of or in exchange for any Securities cancelled as provided in this Section, as expressly
permitted by this Indenture. All cancelled Securities held by the Trustee shall be disposed of
by the Trustee in accordance with its customary procedures and certification of their disposal
delivered to the Company unless by Company Order the Company shall direct that cancelled
Securities be returned to it.

            SECTION 311.   COMPUTATION OF INTEREST.

            Except as otherwise specified as contemplated by Section 301 with respect to any
Securities, interest, if any, on the Securities of each series shall be computed on the basis of
a 360-day year of twelve 30-day months.
            SECTION 312.   CURRENCY AND MANNER OF PAYMENTS IN RESPECT OF SECURITIES.

            (a)  Unless otherwise specified with respect to any Securities pursuant to Section
301, with respect to Registered Securities of any series not permitting the election provided
for in paragraph (b) below or the Holders of which have not made the election provided for in
paragraph (b) below, and with respect to Bearer Securities of any series, except as provided in
paragraph (d) below, payment of the principal of (and premium, if any) and interest, if any, on
any Registered or Bearer Security of such series will be made in the Currency in which such
Registered Security or Bearer Security, as the case may be, is payable. The provisions of this
Section 312 may be modified or superseded with respect to any Securities pursuant to Section
301.

           (b)  It may be provided pursuant to Section 301 with respect to Registered Securities
of any series that Holders shall have the option, subject to paragraphs (d) and (e) below, to
receive payments of principal of (or premium, if any) or interest, if any, on such Registered
Securities in any of the Currencies which may be designated for such election by delivering to
the Trustee a written election with signature guarantees and in the applicable form established
pursuant to Section 301, not later than the close of business on the Election Date immediately
preceding the applicable payment date. If a Holder so elects to receive such payments in any
such Currency, such election will remain in effect for such Holder or any transferee of such
Holder until changed by such Holder or such transferee by written notice to the Trustee (but any
such change must be made not later than the close of business on the Election Date immediately
preceding the next payment date to be effective for the payment to be made on such payment date
and no such change of election may be made with respect to payments to be made on any Registered
Security of such series with respect to which an Event of Default has occurred or with respect
to which the Company has deposited funds pursuant to Article Four or Fourteen or with respect to
which a notice of redemption has been given by the Company or a notice of option to elect
repayment has been sent by such Holder or such transferee). Any Holder of any such Registered
Security who shall not have delivered any such election to the Trustee not later than the close
of business on the applicable Election Date will be paid the amount due on the applicable
payment date in the relevant Currency as provided in Section 312(a). The Trustee shall notify
the Exchange Rate Agent as soon as practicable after


                                      -39-



the Election Date of the aggregate principal amount of Registered Securities for which Holders
have made such written election.

         (c) Unless otherwise specified pursuant to Section 301, if the election referred to in
paragraph (b) above has been provided for pursuant to Section 301, then, unless otherwise
specified pursuant to Section 301, not later than the fourth Business Day after the Election
Date for each payment date for Registered Securities of any series, the Exchange Rate Agent will
deliver to the Company a written notice specifying, in the Currency in which Registered
Securities of such series are payable, the respective aggregate amounts of principal of (and
premium, if any) and interest, if any, on the Registered Securities to be paid on such payment
date, specifying the amounts in such Currency so payable in respect of the Registered Securities
as to which the Holders of Registered Securities of such series shall have elected to be paid in
another Currency as provided in paragraph (b) above. If the election referred to in paragraph
(b) above has been provided for pursuant to Section 301 and if at least one Holder has made such
election, then, unless otherwise specified pursuant to Section 301, on the second Business Day
preceding such payment date the Company will deliver to the Trustee for such series of
Registered Securities an Exchange Rate Officer's Certificate in respect of the Dollar or Foreign
Currency payments to be made on such payment date. Unless otherwise specified pursuant to
Section 301, the Dollar or Foreign Currency amount receivable by Holders of Registered
Securities who have elected payment in a Currency as provided in paragraph (b) above shall be
determined by the Company on the basis of the applicable Market Exchange Rate in effect on the
third Business Day (the "Valuation Date") immediately preceding each payment date, and such
determination shall be conclusive and binding for all purposes, absent manifest error.

         (d) If a Conversion Event occurs with respect to a Foreign Currency in which any of the
Securities are denominated or payable other than pursuant to an election provided for pursuant
to paragraph (b) above, then with respect to each date for the payment of principal of (and
premium, if any) and interest, if any, on the applicable Securities denominated or payable in
such Foreign Currency occurring after the last date on which such Foreign Currency was used (the
"Conversion Date"), the Dollar shall be the Currency of payment for use on each such payment
date. Unless otherwise specified pursuant to Section 301, the Dollar amount to be paid by the
Company to the Trustee and by the Trustee or any Paying Agent to the Holders of such Securities
with respect to such payment date shall be, in the case of a Foreign Currency other than a
currency unit, the Dollar Equivalent of the Foreign Currency or, in the case of a currency unit,
the Dollar Equivalent of the Currency Unit, in each case as determined by the Exchange Rate
Agent in the manner provided in paragraph (f) or (g) below.
        (e) Unless otherwise specified pursuant to Section 301, if the Holder of a Registered
Security denominated in any Currency shall have elected to be paid in another Currency as
provided in paragraph (b) above, and a Conversion Event occurs with respect to such elected
Currency, such Holder shall receive payment in the Currency in which payment would have been
made in the absence of such election; and if a Conversion Event occurs with respect to the
Currency in which payment would have been made in the absence of such election, such Holder
shall receive payment in Dollars as provided in paragraph (d) above.
        (f) The "Dollar Equivalent of the Foreign Currency" shall be determined by the Exchange
Rate Agent and shall be obtained for each subsequent payment date by converting

                                      -40-



the specified Foreign Currency into Dollars at the Market Exchange Rate on the Conversion Date.

         (g) The "Dollar Equivalent of the Currency Unit" shall be determined by the Exchange
Rate Agent and subject to the provisions of paragraph (h) below shall be the sum of each amount
obtained by converting the Specified Amount of each Component Currency into Dollars at the
Market Exchange Rate for such Component Currency on the Valuation Date with respect to each
payment.
         (h) For purposes of this Section 312, the following terms shall have the following
meanings:

            A "Component Currency" shall mean any Currency which, on the
      Conversion Date, was a component currency of the relevant currency unit,
      including, but not limited to, the euro.

            A "Specified Amount" of a Component Currency shall mean the number
      of units of such Component Currency or fractions thereof which were
      represented in the relevant currency unit, including, but not limited to,
      the euro, on the Conversion Date. If after the Conversion Date the
      official unit of any Component Currency is altered by way of combination
      or subdivision, the Specified Amount of such Component Currency shall be
      divided or multiplied in the same proportion. If after the Conversion Date
      two or more Component Currencies are consolidated into a single currency,
      the respective Specified Amounts of such Component Currencies shall be
      replaced by an amount in such single Currency equal to the sum of the
      respective Specified Amounts of such consolidated Component Currencies
      expressed in such single Currency, and such amount shall thereafter be a
      Specified Amount and such single Currency shall thereafter be a Component
      Currency. If after the Conversion Date any Component Currency shall be
      divided into two or more currencies, the Specified Amount of such
      Component Currency shall be replaced by amounts of such two or more
      currencies, having an aggregate Dollar Equivalent value at the Market
      Exchange Rate on the date of such replacement equal to the Dollar
      Equivalent value of the Specified Amount of such former Component Currency
      at the Market Exchange Rate immediately before such division and such
      amounts shall thereafter be Specified Amounts and such currencies shall
      thereafter be Component Currencies. If, after the Conversion Date of the
      relevant currency unit, including, but not limited to, the euro, a
      Conversion Event (other than any event referred to above in this
      definition of "Specified Amount") occurs with respect to any Component
      Currency of such currency unit and is continuing on the applicable
      Valuation Date, the Specified Amount of such Component Currency shall, for
      purposes of calculating the Dollar Equivalent of the Currency Unit, be
      converted into Dollars at the Market Exchange Rate in effect on the
      Conversion Date of such Component Currency.

            "Election Date" shall mean the date for any series of Registered
      Securities as specified pursuant to clause (13) of Section 301 by which
      the written election referred to in paragraph (b) above may be made.

                                      -41-




            All decisions and determinations of the Exchange Rate Agent regarding the Dollar
Equivalent of the Foreign Currency, the Dollar Equivalent of the Currency Unit, the Market
Exchange Rate and changes in the Specified Amounts as specified above shall be in its sole
discretion and shall, in the absence of manifest error, be conclusive for all purposes and
irrevocably binding upon the Company, the Trustee and all Holders of such Securities denominated
or payable in the relevant Currency. The Exchange Rate Agent shall promptly give written notice
to the Company and the Trustee of any such decision or determination.

            In the event that the Company determines in good faith that a Conversion Event has
occurred with respect to a Foreign Currency, the Company will immediately give written notice
thereof to the Trustee and to the Exchange Rate Agent (and the Trustee will promptly thereafter
give notice in the manner provided for in Section 106 to the affected Holders) specifying the
Conversion Date. In the event the Company so determines that a Conversion Event has occurred
with respect to the euro or any other currency unit in which Securities are denominated or
payable, the Company will immediately give written notice thereof to the Trustee and to the
Exchange Rate Agent (and the Trustee will promptly thereafter give notice in the manner provided
for in Section 106 to the affected Holders) specifying the Conversion Date and the Specified
Amount of each Component Currency on the Conversion Date. In the event the Company determines in
good faith that any subsequent change in any Component Currency as set forth in the definition
of Specified Amount above has occurred, the Company will similarly give written notice to the
Trustee and the Exchange Rate Agent.
            The Trustee of the appropriate series of Securities shall be fully justified and
protected in relying and acting upon information received by it from the Company and the
Exchange Rate Agent and shall not otherwise have any duty or obligation to determine the
accuracy or validity of such information independent of the Company or the Exchange Rate Agent.

            SECTION 313.  APPOINTMENT AND RESIGNATION OF SUCCESSOR EXCHANGE RATE AGENT.

           (a) Unless otherwise specified pursuant to Section 301, if and so long as the
Securities of any series (1) are denominated in a Currency other than Dollars or (ii) may be
payable in a Currency other than Dollars, or so long as it is required under any other provision
of this Indenture, then the Company will maintain with respect to each such series of
Securities, or as so required, at least one Exchange Rate Agent. The Company will cause the
Exchange Rate Agent to make the necessary foreign exchange determinations at the time and in the
manner specified pursuant to Section 301 for the purpose of determining the applicable rate of
exchange and, if applicable, for the purpose of converting the issued Currency into the
applicable payment Currency for the payment of principal (and premium, if any) and interest, if
any, pursuant to Section 312.
           (b) No resignation of the Exchange Rate Agent and no appointment of a successor
Exchange Rate Agent pursuant to this Section shall become effective until the acceptance of
appointment by the successor Exchange Rate Agent as evidenced by a written instrument delivered
to the Company and the Trustee.

                                      -42-



           (c) If the Exchange Rate Agent shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of the Exchange Rate Agent for any cause with
respect to the Securities of one or more series, the Company, by or pursuant to a Board
Resolution, shall promptly appoint a successor Exchange Rate Agent or Exchange Rate Agents with
respect to the Securities of that or those series (it being understood that any such successor
Exchange Rate Agent may be appointed with respect to the Securities of one or more or all of
such series and that, unless otherwise specified pursuant to Section 301, at any time there
shall only be one Exchange Rate Agent with respect to the Securities of any particular series
that are originally issued by the Company on the same date and that are initially denominated
and/or payable in the same Currency).

            SECTION 314.  CUSIP NUMBERS.

            The Company in issuing the Securities may use "CUSIP" numbers (if then generally in
use), and, if so, the Trustee shall indicate the CUSIP numbers of the Securities in notices of
redemption as a convenience to Holders; provided that any such notice may state that no
representation is made as to the correctness of such numbers either as printed on the Securities
or as contained in any notice of redemption that reliance may be placed only on the other
identification numbers printed on the Securities, and any such redemption shall not be affected
by any defect in or omission of such numbers. The Company will promptly notify the Trustee of
any change in the "CUSIP" numbers.
                                  ARTICLE FOUR

                           SATISFACTION AND DISCHARGE

            SECTION 401.   SATISFACTION AND DISCHARGE OF INDENTURE.
            Unless otherwise specified pursuant to Section 301, this Indenture shall upon
Company Request cease to be of further effect with respect to any series of Securities specified
in such Company Request (except as to any surviving rights of registration of transfer or
exchange of Securities of such series expressly provided for herein or pursuant hereto and any
right to receive Additional Amounts as contemplated by Section 1005) and the Trustee, at the
expense of the Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture as to such series when
            (1) either

            (A) all Securities of such series theretofore authenticated and
      delivered and all coupons, if any, appertaining thereto (other than (i)
      coupons appertaining to Bearer Securities surrendered for exchange for
      Registered Securities and maturing after such exchange, whose surrender is
      not required or has been waived as provided in Section 305, (ii)
      Securities and coupons of such series which have been destroyed, lost or
      stolen and which have been replaced or paid as provided in Section 306,
      (iii) coupons appertaining to Securities called for redemption and
      maturing after the relevant Redemption Date, whose surrender has been
      waived as provided in Section 1106, and (iv) Securities and coupons of
      such series for whose payment money has heretofore been deposited in trust

                                      -43-



      with the Trustee or any Paying Agent or segregated and held in trust by
      the Company and thereafter repaid to the Company, as provided in Section
      1003) have been delivered to the Trustee for cancellation; or
            (B) all Securities of such series and, in the case of (i) or (ii)
      below, any coupons appertaining thereto not theretofore delivered to the
      Trustee for cancellation

                  (i)   have become due and payable, or

                  (ii)  will become due and payable at their Stated Maturity
            within one year, or

                  (iii) if redeemable at the option of the Company, are to be
            called for redemption within one year under arrangements
            satisfactory to the Trustee for the giving of notice of redemption
            by the Trustee in the name, and at the expense, of the Company,
      and the Company, in the case of (i), (ii) or (iii) above, has irrevocably
      deposited or caused to be deposited with the Trustee as trust funds in
      trust for such purpose an amount in the Currency in which the Securities
      of such series are payable, sufficient to pay and discharge the entire
      indebtedness on such Securities not theretofore delivered to the Trustee
      for cancellation, for principal (and premium, if any) and interest, if
      any, to the date of such deposit (in the case of Securities which have
      become due and payable) or to the Stated Maturity or Redemption Date, as
      the case may be;

          (2) the Company has paid or caused to be paid all other sums payable
      hereunder by the Company; and

          (3) the Company has delivered to the Trustee an Officers' Certificate
      and an Opinion of Counsel, each stating that all conditions precedent
      herein provided for relating to the satisfaction and discharge of this
      Indenture as to such series have been complied with.

Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company
to the Trustee under Section 606, the obligations of the Trustee to any Authenticating Agent
under Section 611 and, if money shall have been deposited with the Trustee pursuant to subclause
(B) of clause (1) of this Section, the obligations of the Trustee under Section 402 and the last
paragraph of Section 1003 and the obligations of the Company and the Trustee with respect to
Securities of such series under Sections 305, 306, 1002 and 1005, with respect to the payment of
Additional Amounts, if any, and with respect to any rights of Holders to require the Company to
repay such Securities as contemplated by Section 1301, shall survive such satisfaction and
discharge. These obligations shall continue to be governed and construed in accordance with
Section 111.

            SECTION 402.   APPLICATION OF TRUST MONEY.

            Subject to the provisions of the last paragraph of Section 1003, all money deposited
with the Trustee pursuant to Section 401 shall be held in trust and applied by it, in

                                      -44-



accordance with the provisions of the Securities, the coupons and this Indenture, to the
payment, either directly or through any Paying Agent (including the Company acting as its own
Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal
(and premium, if any) and interest, if any, for whose payment such money has been deposited with
the Trustee; but such money need not be segregated from other funds except to the extent
required by law.

                                  ARTICLE FIVE

                                    REMEDIES

             SECTION 501.   EVENTS OF DEFAULT.

            "Event of Default," wherever used herein with respect to Securities of any series,
means any one of the following events (whatever the reason for such Event of Default and whether
it shall be voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any administrative or
governmental body) unless it is inapplicable to a particular series or is specifically deleted
or modified in the supplemental indenture under which such series of Securities is issued or has
been deleted or modified in an indenture supplement hereto:

            (1) default in the payment of any interest on any Security of that
     series, or any related coupon, when such interest or coupon becomes due and
     payable, and continuance of such default for a period of 45 days; PROVIDED,
     HOWEVER, that if the Company is permitted by the terms of the Securities of
     such series to defer the payment in question, the date on which such
     payment is due and payable shall be the date on which the Company is
     required to make payment following such deferral, if such deferral has been
     elected pursuant to the terms of the Securities; or

            (2) default in the payment of the principal of (or premium, if any,
     on) any Security of that series at its Maturity; or

            (3) default in the deposit of any sinking fund payment, when and as
     due by the terms of the Securities of that series and Article Twelve; or
            (4) default in the performance, or breach, of any covenant or
     agreement of the Company in this Indenture which affects or is applicable
     to the Securities of that series (other than a default in the performance,
     or breach of a covenant or agreement that is specifically dealt with
     elsewhere in this Section or that has expressly been included in this
     Indenture solely for the benefit of one or more series of Securities other
     than that series), and continuance of such default or breach for a period
     of 90 days after there has been given, by registered or certified mail, to
     the Company by the Trustee or to the Company and the Trustee by the Holders
     of at least 25% in principal amount of all Outstanding Securities of that
     series a written notice specifying such default or breach and requiring it
     to be remedied and stating that such notice is a "Notice of Default"
     hereunder unless the Trustee, or the Trustee and the Holders of a principal
     amount of Securities of such series not less than the principal amount of
     Securities the Holders of

                                      -45-



     which gave such notice, as the case may be, shall agree in writing to an
     extension of such period prior to its expiration; or

            (5) the entry of a decree or order by a court having jurisdiction in
     the premises adjudging the Company a bankrupt or insolvent, or approving as
     properly filed a petition seeking reorganization, arrangement, adjustment
     or composition of or in respect of the Company under the Federal Bankruptcy
     Code or any other applicable federal or state law, or appointing a
     receiver, liquidator, assignee, trustee, sequestrator (or other similar
     official) of the Company or of any substantial part of its property, or
     ordering the winding up or liquidation of its affairs, and the continuance
     of any such decree or order unstayed and in effect for a period of 90
     consecutive days; or

            (6) the institution by the Company of proceedings to be adjudicated
     a bankrupt or insolvent, or the consent by it to the institution of
     bankruptcy or insolvency proceedings against it, or the filing by it of a
     petition or answer or consent seeking reorganization or relief under the
     Federal Bankruptcy Code or any other applicable federal or state law, or
     the consent by it to the filing of any such petition or to the appointment
     of a receiver, liquidator, assignee, trustee, sequestrator (or other
     similar official) of the Company or of any substantial part of its
     property, or the making by it of an assignment for the benefit of
     creditors, or the admission by it in writing of its inability to pay its
     debts generally as they become due; or

            (7) any other Event of Default provided with respect to Securities
     of that series.

            SECTION 502.  ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.
            If an Event of Default described in clause (1), (2), (3), (4) or (7) of Section 501
with respect to Securities of any series at the time Outstanding occurs and is continuing, then
in every such case the Trustee or the Holders of not less than 25% in aggregate principal amount
of the Outstanding Securities of that series may declare the principal amount (or, if the
Securities of that series are Original Issue Discount Securities or Indexed Securities, such
portion of the principal amount as may be specified in the terms of that series) plus accrued
and unpaid interest on all of the Securities of that series to be due and payable immediately,
by a notice in writing to the Company (and to the Trustee if given by Holders), and upon any
such declaration such principal amount plus accrued and unpaid interest (or specified portion
thereof) shall become immediately due and payable. If an Event of Default specified in Section
501(5) or 501(6) occurs and is continuing, then the principal amount of all the Securities shall
IPSO FACTO become and be immediately due and payable without any declaration or other act on the
part of the Trustee or any Holder.
            At any time after a declaration of acceleration with respect to Securities of any
series (or of all series, as the case may be) has been made and before a judgment or decree for
payment of the money due has been obtained by the Trustee as hereinafter provided in this
Article, the Holders of a majority in principal amount (or specified amount) of the Outstanding
Securities of that series, by written notice to the Company and the Trustee, may rescind and
annul such declaration and its consequences if:


                                      -46-




             (1) the Company has paid or deposited with the Trustee a sum
     sufficient to pay in the Currency in which the Securities of such series
     are payable (except as otherwise specified pursuant to Section 301 for the
     Securities of such series and except, if applicable, as provided in
     Sections 312(b), 312(d) and 312(e)),

                  (A) all overdue interest, if any, on all Outstanding
            Securities of that series (or of all series, as the case may be) and
            any related coupons,

                  (B) all unpaid principal of (and premium, if any) any
            Outstanding Securities of that series (or of all series, as the case
            may be) which has become due otherwise than by such declaration of
            acceleration, and interest on such unpaid principal at the rate or
            rates prescribed therefor in such Securities,

                  (C) all sums paid or advanced by the Trustee hereunder and the
            reasonable compensation, expenses, disbursements and advances of the
            Trustee, its agents and counsel; and

             (2) all Events of Default with respect to Securities of that series
     (or of all series, as the case may be), other than the non-payment of
     amounts of principal of (or premium, if any, on) or interest on Securities
     of that series (or of all series, as the case may be) which have become due
     solely by such declaration of acceleration, have been cured or waived as
     provided in Section 513.

No such rescission shall affect any subsequent default or impair any right consequent thereon.

             SECTION 503.  COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE.

             The Company covenants that if

             (1) default is made in the payment of any installment of interest
     on any Security and any related coupon when such interest becomes due and
     payable and such default continues for a period of 60 days, or
             (2) default is made in the payment of the principal of (or premium,
     if any, on) any Security at the Maturity thereof,

then the Company will, upon demand of the Trustee, pay to the Trustee for the benefit of the
Holders of such Securities and coupons, the whole amount then due and payable on such Securities
and coupons for principal (and premium, if any) and interest, if any, and interest on any
overdue principal (and premium, if any) and, to the extent that payment of such interest shall
be legally enforceable, on any overdue installments of interest, if any, at the rate or rates
prescribed therefor in such Securities, and, in addition thereto, such further amount as shall
be sufficient to cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents and counsel.

            If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in
its own name as trustee of an express trust, may institute a judicial proceeding for the

                                      -47-



collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final
decree and may enforce the same against the Company or any other obligor upon such Securities
and collect the moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon such Securities, wherever situated.

            If an Event of Default with respect to Securities of any series (or of all series,
as the case may be) occurs and is continuing, the Trustee may in its discretion proceed to
protect and enforce its rights and the rights of the Holders of Securities of such series (or of
all series, as the case may be) by such appropriate judicial proceedings as the Trustee shall
deem most effectual to protect and enforce any such rights, whether for the specific enforcement
of any covenant or agreement in this Indenture or in aid of the exercise of any power granted
herein, or to enforce any other proper remedy.
            SECTION 504.  TRUSTEE MAY FILE PROOFS OF CLAIM.

            In case of the pendency of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other judicial proceeding relative to
the Company or any other obligor upon the Securities or the property of the Company or of such
other obligor or their creditors, the Trustee (irrespective of whether the principal of the
Securities shall then be due and payable as therein expressed or by declaration or otherwise and
irrespective of whether the Trustee shall have made any demand on the Company for the payment of
overdue principal, premium, if any, or interest) shall be entitled and empowered, by
intervention in such proceeding or otherwise,

            (i) to file and prove a claim for the whole amount of principal (and
     premium, if any), or such portion of the principal amount of any series of
     Original Issue Discount Securities or Indexed Securities as may be
     specified in the terms of such series, and interest, if any, owing and
     unpaid in respect of the Securities and to file such other papers or
     documents as may be necessary or advisable in order to have the claims of
     the Trustee (including any claim for the reasonable compensation, expenses,
     disbursements and advances of the Trustee, its agents and counsel) and of
     the Holders allowed in such judicial proceeding, and

            (ii) to collect and receive any moneys or other property payable or
     deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar
official in any such judicial proceeding is hereby authorized by each Holder to make such
payments to the Trustee and, in the event that the Trustee shall consent to the making of such
payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and
any other amounts due the Trustee under Section 606.

            Nothing herein contained shall be deemed to authorize the Trustee to authorize or
consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement,
adjustment or composition affecting the Securities or the rights of any Holder thereof or to
authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding.


                                      -48-




            SECTION 505.  TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF SECURITIES.

            All rights of action and claims under this Indenture or the Securities or coupons
may be prosecuted and enforced by the Trustee without the possession of any of the Securities or
coupons or the production thereof in any proceeding relating thereto, and any such proceeding
instituted by the Trustee shall be brought in its own name as trustee of an express trust, and
any recovery of judgment shall, after provision for the payment of the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable
benefit of the Holders of the Securities and coupons in respect of which such judgment has been
recovered.
            SECTION 506.  APPLICATION OF MONEY COLLECTED.

            Any money collected by the Trustee pursuant to this Article shall be applied in the
following order, at the date or dates fixed by the Trustee and, in case of the distribution of
such money on account of principal (or premium, if any) or interest, if any, upon presentation
of the Securities or coupons, or both, as the case may be, and the notation thereon of the
payment if only partially paid and upon surrender thereof if fully paid:

            FIRST:  To the payment of all amounts due the Trustee under
      Section 606;

            SECOND: To the payment of the amounts then due and unpaid for
      principal of (and premium, if any) and interest, if any, on the Securities
      and coupons in respect of which or for the benefit of which such money has
      been collected, ratably, without preference or priority of any kind,
      according to the amounts due and payable on such Securities and coupons
      for principal (and premium, if any) and interest, if any, respectively;
      and

            THIRD:  The balance, if any, to the Company.

            SECTION 507.  LIMITATION ON SUITS.

            No Holder of any Security of any series or any related coupons shall have any right
to institute any proceeding, judicial or otherwise, with respect to this indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless

          (1) such Holder has previously given written notice to the Trustee of
     a continuing Event of Default with respect to the Securities of that series
     as part of the majority set forth in Section 507(2) below;
          (2) the Holders of not less than 33% in principal amount of the
     Outstanding Securities of that series in the case of any Event of Default
     described in clause (1), (2), (3), (4) or (7) of Section 501 shall have
     made written request to the Trustee to institute proceedings in respect of
     such Event of Default in its own name as Trustee hereunder;
          (3) such Holder or Holders have offered to the Trustee reasonable
     indemnity satisfactory to the Trustee against the costs, expenses and
     liabilities to be incurred in compliance with such request;
                                      -49-



          (4) the Trustee for 60 days after its receipt of such notice, request
     and offer of indemnity has failed to institute any such proceeding; and
          (5) no direction inconsistent with such written request has been given
     to the Trustee during such 60-day period by the Holders of a majority or
     more in principal amount of the Outstanding Securities of that series in
     the case of any Event of Default described in clause (1), (2), (3), (4) or
     (7) of Section 501;

it being understood and intended that no one or more of such Holders shall have any right in any
manner whatever by virtue of, or by availing of, any provision of this Indenture to affect,
disturb or prejudice the rights of any other Holders of Securities of the same series, in the
case of any Event of Default described in Section 501, or to obtain or to seek to obtain
priority or preference over any other of such Holders or to enforce any right under this
Indenture, except in the manner herein provided and for the equal and ratable benefit of all
Holders of Securities of the same series, in the case of any Event of Default described in
Section 501.

          SECTION 508.  UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL, PREMIUM AND
INTEREST.

          Notwithstanding any other provision in this Indenture, the Holder of any Security
shall have the right, which is absolute and unconditional, to receive payment, as provided
herein (including, if applicable, Article Fourteen) and in such Security, of the principal of
(and premium, if any) and (subject to Section 307) interest, if any, on, such Security or
payment of such coupon on the respective Stated Maturities expressed in such Security or coupon
(or, in the case of redemption, on the Redemption Date) and to institute suit for the
enforcement of any such payment, and such rights shall not be impaired without the consent of
such Holder.

            SECTION 509.   RESTORATION OF RIGHTS AND REMEDIES.
            If the Trustee or any Holder has instituted any proceeding to enforce any right or
remedy under this Indenture and such proceeding has been discontinued or abandoned for any
reason, or has been determined adversely to the Trustee or to such Holder, then and in every
such case, subject to any determination in such proceeding, the Company, the Trustee and the
Holders of Securities and coupons shall be restored severally and respectively to their former
positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall
continue as though no such proceeding had been instituted.
             SECTION 510.  RIGHTS AND REMEDIES CUMULATIVE.

             Except as otherwise provided with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Securities or coupon in the last paragraph of Section 306,
no right or remedy herein conferred upon or reserved to the Trustee or to the Holders of
Securities or coupons is intended to be exclusive of any other right or remedy, and every right
and remedy shall, to the extent permitted by law, be cumulative and in addition to every other
right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise.
The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent
the concurrent assertion or employment of any other appropriate right or remedy.


                                      -50-



            SECTION 511.  DELAY OR OMISSION NOT WAIVER.

            No delay or omission of the Trustee or of any Holder of any Security or coupon to
exercise any right or remedy accruing upon any Event of Default shall impair any such right or
remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every
right and remedy given by this Article or by law to the Trustee or to the Holders may be
exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the
Holders, as the case may be.

            SECTION 512.  CONTROL BY HOLDERS.

            With respect to the Securities of any series, the Holders of not less than a
majority in principal amount of the Outstanding Securities of such series shall have the right
to direct the time, method and place of conducting any proceeding for any remedy available to
the Trustee, or exercising any trust or power conferred on the Trustee, relating to or arising
under Section 501, PROVIDED that in each case

            (1) such direction shall not be in conflict with any rule of law or
     with this Indenture,

            (2) the Trustee may take any other action deemed proper by the
     Trustee which is not inconsistent with such direction, and
            (3) the Trustee need not take any action which might involve it in
     personal liability or be unjustly prejudicial to the Holders of Securities
     of such series not consenting.

            SECTION 513.   WAIVER OF PAST DEFAULTS.

            Subject to Section 502, the Holders of not less than a majority in principal amount
of the Outstanding Securities of any series may on behalf of the Holders of all the Securities
of such series waive any past default described in Section 501 and its consequences, except a
default
            (1) in respect of the payment of the principal of (or premium, if
          any) or interest, if any, on any Security or any related coupon, or
            (2) in respect of a covenant or provision hereof which under
          Article Nine cannot be modified or amended without the consent of the
          Holder of each Outstanding Security of such series affected.
            Upon any such waiver, any such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose of this
Indenture; but no such waiver shall extend to any subsequent or other default or Event of
Default or impair any right consequent thereon.

                                      -51-




            SECTION 514.  WAIVER OF USURY, STAY OR EXTENSION LAWS.
            The Company covenants (to the extent that it may lawfully do so) that it will not at
any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or
advantage of, any stay or extension law or any usury or other law wherever enacted, now or at
any time hereafter in force, which may affect the covenants or the performance of this
Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives
all benefit or advantage of any such law and covenants that it will not hinder, delay or impede
the execution of any power herein granted to the Trustee, but will suffer and permit the
execution of every such power as though no such law had been enacted.

            SECTION 515.  UNDERTAKING FOR COSTS.

            All parties to this Indenture agree that in any suit for the enforcement of any
right or remedy under this Indenture or in any suit against the Trustee for any action taken or
omitted by it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the court in its
discretion may assess reasonable costs, including reasonable attorney's fees and expenses,
against any party litigant in the suit, having due regard to the merits and good faith of the
claims or defenses made by the party litigant, PROVIDED that this Section 515 shall not apply to
a suit by the Trustee, a suit by a Holder pursuant to Section 508 hereof, or a suit by Holders
of not less than 10% in principal amount of the then Outstanding Securities of such series.
                                   ARTICLE SIX

                                   THE TRUSTEE

            SECTION 601.  NOTICE OF DEFAULTS.

            Within five days after the earlier of receipt from the Company of notice of the
occurrence of a Default or Event of Default hereunder or the date such occurrence hereunder
actually becomes known to a Responsible Officer of the Trustee, the Trustee shall transmit to
all Holders of Securities of such series, in the manner and to the extent provided in TIA
Section 313(c), notice of such default hereunder known to the Trustee, unless such Default shall
have been cured or waived; PROVIDED, HOWEVER, that, except in the case of a Default in the
payment of the principal of (or premium, if any) or interest, if any, on any Security of such
series or in the payment of any sinking fund installment with respect to Securities of such
series, the Trustee shall be protected in withholding such notice if and so long as a trust
committee of directors and/or Responsible Officers of the Trustee in good faith determine that
the withholding of such notice is in the interest of the Holders of Securities of such series
and any related coupons; and PROVIDED FURTHER that in the case of any Default of the character
specified in Section 501(4) with respect to Securities of such series, no such notice to Holders
shall be given until at least 30 days after the occurrence thereof.

            SECTION 602.  CERTAIN RIGHTS OF TRUSTEE.

            Subject to the provisions of TIA Section 315(a) through 315(d):
                                      -52-



            (1) the Trustee undertakes to perform such duties and only such
     duties as are specifically set forth in this Indenture, and no implied
     covenants or obligations shall be read into this Indenture against the
     Trustee;

            (2) the Trustee may conclusively rely and shall be protected in
     acting or refraining from acting upon any resolution, certificate,
     statement, instrument, opinion, report, notice, request, direction,
     consent, order, bond, debenture, note, other evidence of indebtedness or
     other paper or document (whether in its original or facsimile form)
     believed by it to be genuine and to have been signed or presented by the
     proper party or parties;

           (3) any request or direction of the Company mentioned herein shall be
     sufficiently evidenced by a Company Request or Company Order (other than
     delivery of any Security, together with any coupons appertaining thereto,
     to the Trustee for authentication and delivery pursuant to Section 303
     which shall be sufficiently evidenced as provided therein) and any
     resolution of the Board of Directors may be sufficiently evidenced by a
     Board Resolution;

           (4) the Trustee shall not be liable for any error of judgment made in
     good faith by a Responsible Officer, unless it shall be proved that the
     Trustee was negligent in ascertaining the pertinent facts;
           (5) the Trustee shall not be liable with respect to any action taken
     or omitted to be taken by it in good faith in accordance with the direction
     of the Holders of a majority in principal amount of the Outstanding
     Securities of any series, determined as provided in Sections 101 and 104;
           (6) whenever in the administration of this Indenture the Trustee
     shall deem it desirable that a matter be proved or established prior to
     taking, suffering or omitting any action hereunder, the Trustee (unless
     other evidence be herein specifically prescribed) may, in the absence of
     bad faith on its part, rely upon an Officers' Certificate;
           (7) the Trustee may consult with counsel as to legal matters and the
     written advice of such counsel or any Opinion of Counsel shall be full and
     complete authorization and protection in respect of any action taken,
     suffered or omitted by it hereunder in good faith and in reliance thereon;
           (8) the Trustee shall be under no obligation to exercise any of the
     rights or powers vested in it by this Indenture at the request or direction
     of any of the Holders of Securities of any series or any related coupons
     pursuant to this Indenture, unless such Holders shall have offered to the
     Trustee reasonable security or indemnity satisfactory to the Trustee
     against the costs, expenses and liabilities which might be incurred by it
     in compliance with such request or direction;

           (9) the Trustee shall not be bound to make any investigation into the
     facts or matters stated in any resolution, certificate, statement,
     instrument, opinion, report, notice, request, direction, consent, order,
     bond, debenture, note, other evidence of indebtedness or other paper or
     document, but the Trustee, in its discretion, may make such further

                                      -53-



     inquiry or investigation into such facts or matters as it may see fit, and,
     if the Trustee shall determine to make such further inquiry or
     investigation, it shall be entitled, at reasonable times previously
     notified to the Company, to examine the relevant books, records and
     premises of the Company, personally or by agent or attorney at the expense
     of the Company and shall incur no liability of any kind by reason of such
     inquiry or investigation, but in the case of any certificate or opinion
     specifically required by the Indenture to be delivered to the Trustee, the
     Trustee shall have a duty to examine the same to determine whether they
     conform to the Indenture requirements;

          (10) the Trustee may execute any of the trusts or powers hereunder or
     perform any duties hereunder either directly or by or through agents or
     attorneys and the Trustee shall not be responsible for any misconduct or
     negligence on the part of any agent or attorney appointed with due care by
     it hereunder;

          (11) the Trustee shall not be liable for any action taken, suffered or
     omitted by it in good faith and believed by it to be authorized or within
     the discretion or rights or powers conferred upon it by this Indenture
     other than liabilities arising out of the negligence, bad faith or willful
     misconduct of the Trustee;

          (12) the rights, privileges, protections, immunities and benefits
     given to the Trustee, including its right to be indemnified, are extended
     to, and shall be enforceable by, the Trustee in each of its capacities
     hereunder, and to each agent, custodian and other Person employed to act
     hereunder; and

          (13) the trustee may request that the Company deliver an Officers'
     Certificate setting forth the names of individuals and/or titles of
     officers authorized at such time to take specified actions pursuant to this
     Indenture, which Officers' Certificate may be signed by any person
     authorized to sign an Officers' Certificate, including any person specified
     as so authorized in any such certificate previously delivered and not
     superseded.

            The Trustee shall not be required to expend or risk its own funds or otherwise incur
any financial liability in the performance of any of its duties hereunder, or in the exercise of
any of its rights or powers.
            SECTION 603.  TRUSTEE NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES.

            The recitals contained herein and in the Securities, except for the Trustee's
certificates of authentication, and in any coupons shall be taken as the statements of the
Company, and neither the Trustee nor any Authenticating Agent assumes any responsibility for
their correctness. The Trustee makes no representations as to the validity or sufficiency of
this Indenture or of the Securities or coupons, except that the Trustee represents that it is
duly authorized to execute and deliver this Indenture, authenticate the Securities and perform
its obligations hereunder and that the statements made by it in a Statement of Eligibility on
Form T-1 supplied to the Company are true and accurate, subject to the qualifications set forth
therein. Neither the Trustee nor any Authenticating Agent shall be accountable for the use or
application by the Company of Securities or the proceeds thereof.

                                      -54-



            SECTION 604.   MAY HOLD SECURITIES.

            The Trustee, any Authenticating Agent, any Paying Agent, any Security Registrar or
any other agent of the Company or of the Trustee, in its individual or any other capacity, may
become the owner or pledgee of Securities or coupons and, subject to TIA Sections 310(b) and
311, may otherwise deal with the Company with the same rights it would have if it were not
Trustee, Authenticating Agent, Paying Agent, Security Registrar or such other agent.
            SECTION 605.   MONEY HELD IN TRUST.

            Money held by the Trustee in trust hereunder need not be segregated from other funds
except to the extent required by law. The Trustee shall be under no liability for interest on
any money received by it hereunder except as otherwise agreed with the Company.

            SECTION 606.   COMPENSATION AND REIMBURSEMENT.

            The Company agrees:

           (1) to pay to the Trustee from time to time reasonable compensation
     for all services rendered by it hereunder as shall be agreed upon in
     writing from time to time (which compensation shall not be limited by any
     provision of law in regard to the compensation of a trustee of an express
     trust);

           (2) except as otherwise expressly provided herein, to reimburse the
     Trustee upon its request for all reasonable expenses, disbursements and
     advances incurred or made by the Trustee in accordance with any provision
     of this Indenture (including the reasonable compensation and the expenses
     and disbursements of its agents and counsel), except any such expense,
     disbursement or advance as shall be determined to have been caused by its
     own negligence, willful misconduct or bad faith; and

           (3) to indemnify the Trustee for, and to hold it harmless against,
     any loss, claim, damage, liability or expense incurred without negligence,
     willful misconduct or bad faith on its part, arising out of or in
     connection with the acceptance or administration of the trust or trusts
     hereunder, including the costs and expenses of defending itself against any
     claim or liability in connection with the exercise or performance of any of
     its powers or duties hereunder.

            As security for the performance of such obligations of the Company, the Trustee
shall have a claim prior to the Securities upon all property and funds held or collected by the
Trustee as such, except funds held in trust for the payment of principal of (or premium, if any)
or interest, if any, on particular Securities or any coupons.

            When the Trustee incurs expenses or renders services in connection with an Event of
Default specified in Section 501(5) or (6), the expenses (including reasonable charges and
expense of its counsel) of and the compensation for such services are intended to constitute
expenses of administration under the Federal Bankruptcy Code or any applicable state bankruptcy,
insolvency or other similar law.

                                      -55-



            The provisions of this Section shall survive the termination of this Indenture and
the resignation or removal of the Trustee.

            SECTION 607.   CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
            There shall be at all times a Trustee hereunder which shall be eligible to act as
Trustee under TIA Section 310(a)(1) and shall have a combined capital and surplus of at least
$50,000,000. If such corporation publishes reports of condition at least annually, pursuant to
law or to the requirements of Federal, State, territorial or District of Columbia supervising or
examining authority, then for the purposes of this Section, the combined capital and surplus of
such corporation shall be deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published. If at any time the Trustee shall cease to be eligible
in accordance with the provisions of this Section, it shall resign immediately in the manner and
with the effect hereinafter specified in this Article.

             SECTION 608.   RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
            (a) No resignation or removal of the Trustee and no appointment of a
     successor Trustee pursuant to this Article shall become effective until the
     acceptance of appointment by the successor Trustee in accordance with the
     applicable requirements of Section 609.

            (b) The Trustee may resign at any time with respect to the
     Securities of one or more series by giving written notice thereof to the
     Company. If the instrument of acceptance by a successor Trustee required by
     Section 609 shall not have been delivered to the Trustee within 30 days
     after the giving of such notice of resignation, the resigning Trustee may
     petition at the expense of the Company any court of competent jurisdiction
     for the appointment of a successor Trustee with respect to the Securities
     of such series.

            (c) The Trustee may be removed at any time with respect to the
     Securities of any series by Act of the Holders of not less than a majority
     in principal amount of the Outstanding Securities of such series, delivered
     to the Trustee and to the Company. If the instrument of acceptance by a
     successor Trustee required by Section 609 shall not have been delivered to
     the Trustee within 30 days after the giving of such notice of resignation,
     the resigning Trustee may petition at the expense of the Company any court
     of competent jurisdiction for the appointment of a successor Trustee with
     respect to the Securities of such series.

            (d) If at any time:

            (1) the Trustee shall fail to comply with the provisions of TIA
     Section 310(b) after written request therefor by the Company or by any
     Holder who has been a bona fide Holder of a Security for at least six
     months, or

            (2) the Trustee shall cease to be eligible under Section 607 and
     shall fail to resign after written request therefor by the Company or by
     any Holder who has been a bona fide Holder of a Security for at least six
     months, or

                                      -56-



          (3) the Trustee shall become incapable of acting or shall be adjudged
     a bankrupt or insolvent or a receiver of the Trustee or of its property
     shall be appointed or any public officer shall take charge or control of
     the Trustee or of its property or affairs for the purpose of
     rehabilitation, conservation or liquidation,

then, in any such case, (i) the Company, by or pursuant to a Board Resolution, may remove the
Trustee with respect to all Securities, or (ii) subject to TIA Section 315(e), any Holder who
has been a bona fide Holder of a Security for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for the removal of
the Trustee with respect to all Securities and the appointment of a successor Trustee or
Trustees.

        (e) If the Trustee shall resign, be removed or become incapable of acting, or if a
vacancy shall occur in the office of Trustee for any cause, with respect to the Securities of
one or more series, the Company, by or pursuant to a Board Resolution, shall promptly appoint a
successor Trustee or Trustees with respect to the Securities of that or those series (it being
understood that any such successor Trustee may be appointed with respect to the Securities of
one or more or all of such series and that at any time there shall be only one Trustee with
respect to the Securities of any particular series). If, within one year after such resignation,
removal or incapability, or the occurrence of such vacancy, a successor Trustee with respect to
the Securities of any series shall be appointed by Act of the Holders of a majority in principal
amount of the Outstanding Securities of such series delivered to the Company and the retiring
Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such
appointment, become the successor Trustee with respect to the Securities of such series and to
that extent supersede the successor Trustee appointed by the Company. If no successor Trustee
with respect to the Securities of any series shall have been so appointed by the Company or the
Holders and accepted appointment in the manner hereinafter provided, any Holder who has been a
bona fide Holder of a Security of such series for at least six months may, on behalf of himself
and all others similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Trustee with respect to the Securities of such series.

        (f) The Company shall give notice of each resignation and each removal of the Trustee
with respect to the Securities of any series and each appointment of a successor Trustee with
respect to the Securities of any series to the Holders of Securities of such series in the
manner provided for in Section 106. Each notice shall include the name of the successor Trustee
with respect to the Securities of such series and the address of its Corporate Trust Office.
          SECTION 609.  ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
         (a) In case of the appointment hereunder of a successor Trustee with respect to all
Securities, every such successor Trustee so appointed shall execute, acknowledge and deliver to
the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon
the resignation or removal of the retiring Trustee shall become effective and such successor
Trustee, without any further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee; but, on the request of the Company or the
successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver
an instrument transferring to such successor Trustee all the rights, powers and trusts of the

                                      -57-



retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all
property and money held by such retiring Trustee hereunder.
           (b) In case of the appointment hereunder of a successor Trustee with respect to the
Securities of one or more (but not all) series, the Company, the retiring Trustee and each
successor Trustee with respect to the Securities of one or more series shall execute and deliver
an indenture supplemental hereto wherein each successor Trustee shall accept such appointment
and which (1) shall contain such provisions as shall be necessary or desirable to transfer and
confirm to, and to vest in, each successor Trustee all the rights, powers, trusts and duties of
the retiring Trustee with respect to the Securities of that or those series to which the
appointment of such successor Trustee relates, (2) if the retiring Trustee is not retiring with
respect to all Securities, shall contain such provisions as shall be deemed necessary or
desirable to confirm that all the rights, powers, trusts and duties of the retiring Trustee with
respect to the Securities of that or those series as to which the retiring Trustee is not
retiring shall continue to be vested in the retiring Trustee, and (3) shall add to or change any
of the provisions of this Indenture as shall be necessary to provide for or facilitate the
administration of the trusts hereunder by more than one Trustee, it being understood that
nothing herein or in such supplemental indenture shall constitute such Trustees co-trustees of
the same trust and that each such Trustee shall be trustee of a trust or trusts hereunder
separate and apart from any trust or trusts hereunder administered by any other such Trustee;
and upon the execution and delivery of such supplemental indenture the resignation or removal of
the retiring Trustee shall become effective to the extent provided therein and each such
successor Trustee, without any further act, deed or conveyance, shall become vested with all the
rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that
or those series to which the appointment of such successor Trustee relates; but, on request of
the Company or any successor Trustee, such retiring Trustee shall duly assign, transfer and
deliver to such successor Trustee all property and money held by such retiring Trustee hereunder
with respect to the Securities of that or those series to which the appointment of such
successor Trustee relates. Whenever there is a successor Trustee with respect to one or more
(but less than all) series of securities issued pursuant to this Indenture, the terms
"Indenture" and "Securities" shall have the meanings specified in the provisos to the respective
definitions of those terms in Section 101 that contemplate that situation.

          (c) Upon request of any such successor Trustee, the Company shall execute any and all
instruments for more fully and certainly vesting in and confirming to such successor Trustee all
rights, powers and trusts referred to in paragraph (a) or (b) of this Section, as the case may
be.
          (d) No successor Trustee shall accept its appointment unless at the time of such
acceptance such successor Trustee shall be qualified and eligible under this Article.

           SECTION 610.  MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.

            Any corporation into which the Trustee may be merged or converted or with which it
may be consolidated, or any corporation resulting from any merger, conversion or consolidation
to which the Trustee shall be a party, or any corporation succeeding to all or substantially all
the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this Article,
                                      -58-



without the execution or filing of any paper or any further act on the part of any of the
parties hereto. As soon as practicable thereafter, the successor Trustee shall give written
notice in the manner provided in Sections 105 and 106 of its succession to the Company and to
the Holders of Securities. In case any Securities shall have been authenticated, but not
delivered, by the Trustee then in office, any successor by merger, conversion or consolidation
to such authenticating Trustee may adopt such authentication and deliver the Securities so
authenticated with the same effect as if such successor Trustee had itself authenticated such
Securities. In case any of the Securities shall not have been authenticated by such predecessor
Trustee, any successor Trustee may authenticate such Securities either in the name of any
predecessor hereunder or in the name of the successor Trustee. In all such cases such
certificates shall have the full force and effect which this Indenture provides for the
certificate of authentication of the Trustee.

            SECTION 611.  APPOINTMENT OF AUTHENTICATING AGENT.
            At any time when any of the Securities remain Outstanding, the Trustee may appoint
an Authenticating Agent or Agents with respect to one or more series of Securities which shall
be authorized to act on behalf of the Trustee to authenticate Securities of such series and the
Trustee shall give written notice of such appointment to all Holders of Securities of the series
with respect to which such Authenticating Agent will serve, in the manner provided for in
Section 106. Securities so authenticated shall be entitled to the benefits of this Indenture and
shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. Any
such appointment shall be evidenced by an instrument in writing signed by a Responsible Officer
of the Trustee, and a copy of such instrument shall be promptly furnished to the Company.
Wherever reference is made in this Indenture to the authentication and delivery of Securities by
the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to
include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a
certificate of authentication executed on behalf of the Trustee by an Authenticating Agent. Each
Authenticating Agent shall be reasonably acceptable to the Company and shall at all times be a
bank or trust company or corporation organized and doing business under the laws of the United
States of America, any state thereof or the District of Columbia, authorized under such laws to
act as Authenticating Agent, having a combined capital and surplus of not less than $50,000,000
and subject to supervision or examination by federal or state authority. If such Authenticating
Agent publishes reports of condition at least annually, pursuant to law or to the requirements
of said supervising or examining authority, then for the purposes of this Section, the combined
capital and surplus of such Authenticating Agent shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at any time an
Authenticating Agent shall cease to be eligible in accordance with the provisions of this
Section, such Authenticating Agent shall resign immediately in the manner and with the effect
specified in this Section.
            Any corporation into which an Authenticating Agent may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger, conversion or
consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding
to the corporate agency or corporate trust business of an Authenticating Agent, shall continue
to be an Authenticating Agent, provided such corporation shall be otherwise eligible under this
Section, without the execution or filing of any paper or any further act on the part of the
Trustee or the Authenticating Agent. As soon as practicable thereafter, the successor

                                      -59-



Authenticating Agent shall give written notice by mail, first class postage prepaid or by
guaranteed overnight courier or by facsimile transmission (receipt confirmed by an appropriate
officer of the Trustee or the Company, as the case may be) followed by overnight courier of its
succession to the Trustee and the Company.

            An Authenticating Agent may resign at any time by giving written notice thereof to
the Trustee and to the Company. The Trustee may at any time terminate the agency of an
Authenticating Agent by giving written notice thereof to such Authenticating Agent and to the
Company. Upon receiving such a notice of resignation or upon such a termination, or in case at
any time such Authenticating Agent shall cease to be eligible in accordance with the provisions
of this Section, the Trustee may appoint a successor Authenticating Agent which shall be
acceptable to the Company and shall give written notice of such appointment to all Holders of
Securities of the series with respect to which such Authenticating Agent will serve, in the
manner provided for in Section 106. Any successor Authenticating Agent upon acceptance of its
appointment hereunder shall become vested with all the rights, powers and duties of its
predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No
successor Authenticating Agent shall be appointed unless eligible under the provisions of this
Section.

            The Trustee agrees to pay to each Authenticating Agent from time to time reasonable
compensation for its services under this Section, and the Trustee shall be entitled to be
reimbursed for such payments, subject to the provisions of Section 606.

            If an appointment with respect to one or more series is made pursuant to this
Section, the Securities of such series may have endorsed thereon, in addition to the Trustee's
certificate of authentication, an alternate certificate of authentication in the following form:
            Dated:  _________________

            This is one of the Securities of the series designated therein referred to in the
within-mentioned Indenture.

                                    The Bank of New York,
                                    as Trustee

                                    By ______________________
                                       as Authenticating Agent
                                    By ______________________
                                       Authorized Officer

            SECTION 612.   CONFLICTING INTERESTS.


            The Trustee shall comply with the provisions of Section 310(b) of the Trust
Indenture Act.

                                      -60-




            SECTION 613.   APPOINTMENT OF CO-TRUSTEE.

            1. For the purpose of meeting any legal requirements of any jurisdiction in which
the Company may at the time be located in connection with the enforcement of any right or the
taking of any action on behalf of the Holders of any Securities issued hereunder, the Trustee
shall have the power and may execute and deliver all instruments necessary to appoint one or
more Persons to act as a co-trustee or co-trustees, or separate trustee or separate trustees,
such powers, duties, obligations, rights and trusts as the Trustee may consider necessary or
desirable. Each co-trustee or separate trustee hereunder shall be required to meet the terms of
eligibility as a trustee under Section 607. The Trustee shall promptly notify the Holders and
the Company of the appointment of a co-trustee or separate trustee under this section.

            2. Every separate trustee and co-trustee shall, to the extent permitted by law, be
appointed and act subject to the following provisions and conditions:

           (a) all rights, powers, duties and obligations conferred or imposed upon the Trustee
shall be conferred or imposed upon and exercised or performed by the Trustee and such separate
trustee or co-trustee jointly (it being understood that such separate trustee or co-trustee is
not authorized to act separately without the Trustee joining in such act), except to the extent
that under any law of any jurisdiction in which any particular act or acts are to be performed
the Trustee shall be incompetent or unqualified to perform such act or acts, in which event such
rights, powers, duties and obligations shall be exercised and performed singly by such separate
trustee or co-trustee, but solely at the direction of the Trustee;

          (b) no trustee hereunder shall be personally liable by reason of any act or omission
of any other trustee hereunder;

          (c) the Trustee may at any time accept the resignation of or remove any separate
trustee or co-trustee;

          (d) any notice, request or other writing given to the Trustee shall be deemed to have
been given to each of the then separate trustees and co-trustees, as effectively as if given to
each of them. Every instrument appointing any separate trustee or co-trustee shall refer to this
Indenture and the conditions of this Article Six. Each separate trustee and co-trustee, upon its
acceptance of the trusts conferred, shall be vested with the estates or property specified in
its instrument of appointment, either jointly with the Trustee or separately, as may be provided
therein, subject to all the provisions of this Indenture, specifically including every provision
of this Indenture relating to the conduct of, affecting the liability of, or affording
protection or rights (including the rights to compensation, reimbursement and indemnification
hereunder) to, the Trustee. Every such instrument shall be filed with the Trustee; and
         (e) any separate trustee or co-trustee may at any time constitute the Trustee its agent
or attorney-in-fact with full power and authority, to the extent not prohibited by law, to do
any lawful act under or in respect of this Indenture on its behalf and in its name for the
purposes of enforcing any rights or taking any other action on behalf of the Holders of any
Securities issued hereunder.

                                      -61-



            SECTION 614.   TRUSTEE'S APPLICATION FOR INSTRUCTIONS FROM THE COMPANY.

            Any application by the Trustee for written instructions from the Company may, at the
option of the Trustee, set forth in writing any action proposed to be taken or omitted by the
Trustee under this Indenture and the date on and/or after which such action shall be taken or
such omission shall be effective. The Trustee shall not be liable for any action taken by, or
omission of, the Trustee in accordance with a proposal included in such application on or after
the date specified in such application (which date shall not be less than five Business Days
after the date any officer of the Company actually receives such application, unless any such
officer shall have consented in writing to any earlier date) unless prior to taking any such
action (or the effective date in the case of an omission), the Trustee shall have received
written instructions in response to such application specifying the action to be taken or
omitted.
                                 ARTICLE SEVEN

              HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
            SECTION 701.  DISCLOSURE OF NAMES AND ADDRESSES OF HOLDERS.
            The Company will furnish or cause to be furnished to the Trustee:
            (i) semiannually, not later than 15 days after each Regular Record
     Date for Securities of each series at the time Outstanding, a list, in such
     form as the Trustee may reasonably require, of the names and addresses of
     the Holders of Registered Securities as of such Regular Record Date, or if
     there is no Regular Record Date for interest for such series of Securities,
     semiannually, upon such dates as are set forth in the Board Resolution,
     Officers' Certificates indenture supplemental hereto authorizing such
     series, and

            (ii) at such other times as the Trustee may reasonably request in
     writing, within 30 days after the receipt by the Company of any such
     request, a list of similar form and content as of a date not more than 15
     days prior to the time such list is furnished;

PROVIDED, HOWEVER, that so long as the Trustee is the Security Registrar, no such list shall be
required to be furnished.

            The Trustee shall preserve, in as current a form as is reasonably practicable, the
names and addresses of Holders contained in the most recent list furnished to the Trustee as
provided in Section 701 and the names and addresses of Holders received by the Trustee in its
capacity as Security Registrar. The Trustee may destroy any list furnished to it as provided in
Section 701 upon receipt of a new list so furnished.

            The rights of the Holders to communicate with other Holders with respect to their
rights under this Indenture or under the Securities, and the corresponding rights and privileges
of the Trustee, shall be as provided by the Trust Indenture Act.


                                      -62-



            Every Holder of Securities or coupons, by receiving and holding the same, agrees
with the Company and the Trustee that neither the Company nor the Trustee nor any Authenticating
Agent nor any Paying Agent nor any Security Registrar shall be held accountable by reason of the
disclosure of any information as to the names and addresses of the Holders of Securities in
accordance with TIA Section 312, regardless of the source from which such information was
derived, and that the Trustee shall not be held accountable by reason of mailing any material
pursuant to a request made under TIA Section 312(b).

            SECTION 702.   REPORTS BY TRUSTEE.

            Within 60 days after May 15 of each year commencing with the first May 15 after the
first issuance of Securities pursuant to this Indenture, the Trustee shall transmit to the
Holders of Securities, in the manner and to the extent provided in TIA Section 313(c), a brief
report dated as of such May 15 if required by TIA Section 313(a).

            A copy of each such report shall, at the time of such transmission to Holders, be
filed by the Trustee with each stock exchange, if any, upon which the Securities are listed,
with the Commission and with the Company. The Company will promptly notify the Trustee of the
listing of the Securities on any stock exchange or any delisting therefrom.

            SECTION 703.   REPORTS BY COMPANY.

            The Company shall:

            (1) file with the Trustee, within 15 days after the Company is
     required to file the same with the Commission, copies of the annual reports
     and of the information, documents and other reports (or copies of such
     portions of any of the foregoing as the Commission may from time to time by
     rules and regulations prescribe) which the Company may be required to file
     with the Commission pursuant to Section 13 or Section 15(d) of the
     Securities Exchange Act of 1934; or, if the Company is not required to file
     information, documents or reports pursuant to either of such Sections, then
     it shall file with the Trustee and the Commission, in accordance with rules
     and regulations prescribed from time to time by the Commission, such of the
     supplementary and periodic information, documents and reports which may be
     required pursuant to Section 13 of the Securities Exchange Act of 1934 in
     respect of a security listed and registered on a national securities
     exchange as may be prescribed from time to time in such rules and
     regulations;

            (2) file with the Trustee and the Commission, in accordance with
     rules and regulations prescribed from time to time by the Commission, such
     additional information, documents and reports with respect to compliance by
     the Company with the conditions and covenants of this Indenture as may be
     required from time to time by such rules and regulations; and
            (3) transmit to all Holders, in the manner and to the extent
     provided in TIA Section 313(c), within 30 days after the filing thereof
     with the Trustee, such summaries, if any, of any information, documents and
     reports required to be filed by the Company


                                      -63-



     pursuant to paragraphs (1) and (2) of this Section as may be required by
     rules and regulations prescribed from time to time by the Commission;
            (4) deliver such reports, information and documents to the Trustee
     for informational purposes only and the Trustee's receipt of such shall not
     constitute constructive notice of any information contained therein or
     determinable from information contained therein or determinable from
     information contained therein, including the Company's compliance with any
     of its covenants hereunder (as to which the Trustee is entitled to rely
     exclusively on Officers' Certificates); and

            (5) deliver to the Trustee, as soon as reasonably possible and in
     any event within five business days after the Company becomes aware of the
     occurrence of any Event of Default or an event which, with notice or the
     lapse of time or both, would constitute an Event of Default, an Officers'
     Certificate setting forth the details of such Event of Default or default
     and the action which the Company proposes to take with respect thereto.
            SECTION 704.   CALCULATION OF ORIGINAL ISSUE DISCOUNT.
            Upon request of the Trustee, the Company shall file with the Trustee promptly at the
end of each calendar year (i) a written notice specifying the amount of original issue discount
(including daily rates and accrual periods), if any, accrued on Outstanding Securities as of the
end of such year and (ii) such other specific information relating to such original issue
discount as may then be relevant under the Internal Revenue Code of 1986, as amended, from time
to time.

                                 ARTICLE EIGHT

             CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
             SECTION 801.   COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS.

            The Company shall not consolidate with or merge into any other corporation or
convey, transfer or lease its properties and assets substantially as an entirety to any Person,
unless:

            (1) such Person shall be a corporation or limited liability company
     or trust organized and validly existing under the laws of the United States
     or any state thereof or the District of Columbia;

            (2) the corporation formed by such consolidation or into which the
     Company is merged or the Person which acquires by conveyance or transfer,
     or which leases, the properties and assets of the Company substantially as
     an entirety shall expressly assume, by an indenture supplemental hereto,
     executed and delivered to the Trustee, in form satisfactory to the Trustee,
     the Company's obligation for the due and punctual payment of the principal
     of (and premium, if any) and interest, if any, on all the Securities and
     the

                                      -64-



     performance and observance of every covenant of this Indenture on the part
     of the Company to be performed or observed;

            (3) immediately after giving effect to such transaction, no Default
     or Event of Default shall have occurred and be continuing; and
            (4) the Company or such Person shall have delivered to the Trustee
     an Officers' Certificate and an Opinion of Counsel, each stating that such
     consolidation, merger, conveyance, transfer or lease and such supplemental
     indenture comply with this Article and that all conditions precedent herein
     provided for relating to such transaction have been compiled with.
            SECTION 802.   SUCCESSOR PERSON SUBSTITUTED.

            Upon any consolidation by the Company with or merger by the Company into any other
corporation or any conveyance, transfer or lease of the properties and assets of the Company
substantially as an entirety to any Person in accordance with Section 801, the successor Person
formed by such consolidation or into which the Company is merged or to which such conveyance,
transfer or lease is made shall succeed to, and be substituted for, and may exercise every right
and power of, the Company under this Indenture with the same effect as if such successor Person
had been named as the Company herein, and in the event of any such conveyance or transfer, the
Company (which term shall for this purpose mean the Person named as the "Company" in the first
paragraph of this Indenture or any successor Person which shall theretofore become such in the
manner described in Section 801), except in the case of a lease, shall be discharged of all
obligations and covenants under this Indenture and the Securities and the coupons and may be
dissolved and liquidated.
            Such successor entity thereupon may cause to be signed, and may issue either in its
own name or in the name of the Company, any or all of the Securities issuable hereunder which
theretofore shall not have been signed by the Company and delivered to the Trustee; and, upon
the order of such successor entity, instead of the Company, and subject to all the terms,
conditions and limitations prescribed in this Indenture, the Trustee shall authenticate and
shall deliver any Securities which previously shall have been signed and delivered by the
officers of the Company to the Trustee for authentication, and any Securities which such
successor entity thereafter shall cause to be signed and delivered to the Trustee for that
purpose. All the Securities of any series so issued shall in all respects have the same legal
rank and benefit under this Indenture as the Securities of such series theretofore or thereafter
issued in accordance with the terms of this Indenture as though all of such Securities had been
issued at the date of the execution hereof.

            In case of any such merger in which the Company is not the surviving corporation or
any such consolidation, sale, lease, assignment, transfer or conveyance, such changes in
phraseology and form (but not in substance) may be made in the Securities thereafter to be
issued as may be appropriate.
                                      -65-



                                  ARTICLE NINE

                             SUPPLEMENTAL INDENTURES

            SECTION 901.   SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS.
            Without the consent of any Holders, the Company, when authorized by or pursuant to a
Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more
indentures supplemental hereto, in form reasonably satisfactory to the Trustee, for any of the
following purposes:
            (1) to evidence the succession of another Person to the Company and
     the assumption by any such successor of the covenants of the Company
     contained herein and in the Securities; or

            (2) to add to the covenants of the Company for the benefit of the
     Holders of all or any series of Securities and any related coupons (and if
     such covenants are to be for the benefit of less than all series of
     Securities, stating that such covenants are being included solely for the
     benefit of such series) or to surrender any right or power herein conferred
     upon the Company; or

            (3) to add any additional Events of Default (and if such Events of
     Default are to be for the benefit of less than all series of Securities,
     stating that such Events of Default are being included solely for the
     benefit of such series); PROVIDED, HOWEVER, that in respect of any such
     additional Events of Default such supplemental indenture may provide for a
     particular period of grace after default (which period may be shorter or
     longer than that allowed in the case of other defaults) or may provide for
     an immediate enforcement upon such default or may limit the remedies
     available to the Trustee upon such default or may limit the right of the
     Holders of a majority in aggregate principal amount of that or those series
     of Securities to which such additional Events of Default apply to waive
     such default; or

            (4) to add to or change any of the provisions of this Indenture to
     provide that Bearer Securities may be registrable as to principal, to
     change or eliminate any restrictions on the payment of principal of or any
     premium or interest on Bearer Securities, to permit Bearer Securities to be
     issued in exchange for Registered Securities, to permit Bearer Securities
     to be issued in exchange for Bearer Securities of other authorized
     denominations or to permit or facilitate the issuance of Securities in
     uncertificated form; PROVIDED that any such action shall not adversely
     affect the interests of the Holders of Securities of any series or any
     related coupons in any material respect; or

            (5) to add to, change or eliminate any of the provisions of this
     Indenture; PROVIDED that any such change or elimination shall become
     effective only when there is no Security Outstanding of any series created
     prior to the execution of such supplemental indenture which is entitled to
     the benefit of such provision; or

                                      -66-



            (6) to secure the Securities pursuant to the requirements of Section
     803 or 1009 or otherwise; or

            (7) to establish the form or terms of Securities of any series as
     permitted by Sections 201 and 301; or

            (8) to evidence and provide for the acceptance of appointment
     hereunder by a successor Trustee with respect to the Securities of one or
     more series and to add to or change any of the provisions of this Indenture
     as shall be necessary to provide for or facilitate the administration of
     the trusts hereunder by more than one Trustee, pursuant to the requirements
     of Section 609(b); or

            (9) to close this Indenture with respect to the authentication and
     delivery of additional series of Securities, to cure any ambiguity, to
     correct or supplement any provision herein which may be defective or
     inconsistent with any other provision herein, or to make any other
     provisions with respect to matters or questions arising under this
     Indenture; PROVIDED such action shall not adversely affect the interests of
     the Holders of Securities of any series and any related coupons in any
     material respect; or

            (10) to supplement any of the provisions of this Indenture to such
     extent as shall be necessary to permit or facilitate the defeasance and
     discharge of any series of Securities pursuant to Sections 401, 1402 and
     1403; PROVIDED that any such action shall not adversely affect the
     interests of the Holders of Securities of such series and any related
     coupons or any other series of Securities in any material respect; or
            (11) to add a guarantor or guarantors for any series or all series
     of the Securities; or

            (12) to comply with the requirements of the Commission in order to
     effect or maintain the qualification of this Indenture under the TIA.
            SECTION 902.   SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS.
            With the consent of the Holders of not less than a majority in principal amount of
all Outstanding Securities of any series, by Act of said Holders delivered to the Company and
the Trustee, the Company, when authorized by or pursuant to a Board Resolution, and the Trustee
may enter into an indenture or indentures supplemental hereto for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of this Indenture
which affect such series of Securities or of modifying in any manner the rights of the Holders
of Securities of such series under this Indenture; PROVIDED, HOWEVER, that no such supplemental
indenture shall, without the consent of the Holder of each Outstanding Security of such series,
            (1) change the Stated Maturity of the principal of (or premium, if
     any) or any installment of interest on any Security of such series, or
     reduce the principal amount thereof (or premium, if any) or the rate of
     interest, if any, thereon, or change any obligation of the Company to pay
     Additional Amounts contemplated by Section 1005 (except as contemplated by
     Section 801(1) and permitted by Section 901(1)), or reduce the amount of
     the principal of an Original Issue Discount Security or Indexed Security of

                                      -67-



     such series that would be due and payable upon a declaration of
     acceleration of the Maturity thereof pursuant to Section 502 or the amount
     thereof provable in bankruptcy pursuant to Section 504, or adversely affect
     any right of repayment at the option of any Holder of any Security of such
     series, or change any Place of Payment where, or the Currency in which, any
     Security of such series or any premium or interest thereon is payable, or
     impair the right to institute suit for the enforcement of any such payment
     on or after the Stated Maturity thereof (or, in the case of redemption or
     repayment at the option of the Holder, on or after the Redemption Date or
     Repayment Date, as the case may be), or

            (2) reduce the percentage in principal amount of the Outstanding
     Securities of any series, the consent of whose Holders is required for any
     such supplemental indenture, for any waiver of compliance with certain
     provisions of this Indenture that affect such series or certain defaults
     applicable to such series hereunder and their consequences provided for in
     this Indenture, or reduce the requirements of Section 1504 for quorum or
     voting with respect to Securities of such series, or

            (3) modify any of the provisions of this Section, Section 513 or
     Section 1011, except to increase any such percentage or to provide that
     certain other provisions of this Indenture that affect such series cannot
     be modified or waived without the consent of the Holder of each Outstanding
     Security of such series.

            A supplemental indenture which changes or eliminates any covenant or other provision
of this Indenture which has expressly been included solely for the benefit of one or more
particular series of Securities, or which modifies the rights of the Holders of Securities of
such series with respect to such covenant or other provision, shall be deemed not to affect the
rights under this Indenture of the Holders of Securities of any other series. Any such
supplemental indenture adding any provisions to or changing in any manner or eliminating any of
the provisions of this Indenture, or modifying in any manner the rights of the Holders of
Securities of such series, shall not affect the rights under this Indenture of the Holders of
Securities of any other series.
            It shall not be necessary for any Act of Holders under this Section to approve the
particular form of any proposed supplemental indenture, but it shall be sufficient if such Act
shall approve the substance thereof.
            The Company may, but shall not be obligated to, fix a record date for the purpose of
determining the Persons entitled to consent to any indenture supplemental hereto. If a record
date is fixed, the Holders at the close of Business on such record date, or their duly
designated proxies, and only such Persons, shall be entitled to consent to such supplemental
indenture, whether or not such Holders remain Holders after such record date; PROVIDED that
unless such consent shall have become effective by virtue of the requisite percentage having
been obtained prior to the date which is 180 days after such record date, any such consent
previously given shall automatically and without further action by any Holder be cancelled and
of no further effect.

                                      -68-



            SECTION 903.   EXECUTION OF SUPPLEMENTAL INDENTURES.
            In executing, or accepting the additional trusts created by, any supplemental
indenture permitted by this Article or the modifications thereby of the trusts created by this
Indenture, the Trustee shall be provided with, and (subject to Section 601) shall be fully
protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental
indenture is authorized or permitted by this Indenture and that such supplemental indenture
constitutes the legal, valid and binding obligation of the Company, subject to customary
exceptions. The Trustee may, but shall not be obligated to, enter into any such supplemental
indenture which affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise in a material way.
            SECTION 904.   EFFECT OF SUPPLEMENTAL INDENTURES.
            Upon the execution of any supplemental indenture under this Article, this Indenture
shall be modified in accordance therewith, and such supplemental indenture shall form a part of
this Indenture for all purposes; and every Holder of Securities theretofore or thereafter
authenticated and delivered hereunder shall be bound thereby.

            SECTION 905.   CONFORMITY WITH TRUST INDENTURE ACT.
            Every supplemental indenture executed pursuant to this Article shall conform to the
requirements of the Trust Indenture Act as then in effect.
            SECTION 906.   REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES.
            Securities of any series authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear
a notation in form approved by the Trustee as to any matter provided for in such supplemental
indenture. If the Company shall so determine, new Securities of any series so modified as to
conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may
be prepared and executed by the Company and authenticated and delivered by the Trustee in
exchange for Outstanding Securities of such series.
            SECTION 907.    NOTICE OF SUPPLEMENTAL INDENTURES.
            Promptly after the execution by the Company and the Trustee of any supplemental
indenture pursuant to the provisions of Section 902, the Company shall give notice thereof to
the Holders of each Outstanding Security affected, in the manner provided for in Section 106,
setting forth in general terms the substance of such supplemental indenture.

                                      -69-



                                  ARTICLE TEN

                                   COVENANTS

            SECTION 1001.   PAYMENT OF PRINCIPAL, PREMIUM, IF ANY, AND INTEREST.
            The Company covenants and agrees for the benefit of the Holders of each series of
Securities and any related coupons that it will duly and punctually pay the principal of (and
premium, if any) and interest, if any, on the Securities of that series in accordance with the
terms of the Securities, any coupons appertaining thereto and this Indenture. Unless otherwise
specified as contemplated by Section 301 with respect to any series of Securities, any interest
installments due on Bearer Securities on or before Maturity shall be payable only upon
presentation and surrender of the several coupons for such interest installments as are
evidenced thereby as they severally mature.
            SECTION 1002.   MAINTENANCE OF OFFICE OR AGENCY.
            If the Securities of a series are issuable only as Registered Securities, the
Company will maintain in each Place of Payment for any series of Securities an office or agency
where Securities of that series may be presented or surrendered for payment, where Securities of
that series may be surrendered for registration of transfer or exchange, and where notices and
demands to or upon the Company in respect of the Securities of that series and this Indenture
may be served.

            If Securities of a series are issuable as Bearer Securities, the Company will
maintain (A) in the Borough of Manhattan, the City of New York, an office or agency where any
Registered Securities of that series may be presented or surrendered for payment, where any
Registered Securities of that series may be surrendered for registration of transfer, where
Securities of that series may be surrendered for exchange, where notices and demands to or upon
the Company in respect of the Securities of that series and this Indenture may be served and
where Bearer Securities of that series and related coupons may be presented or surrendered for
payment in the circumstances described in the following paragraph (and not otherwise), (B)
subject to any laws or regulations applicable thereto, in a Place of Payment for that series
which is located outside the United States, an office or agency where Securities of that series
and related coupons may be presented and surrendered for payment; PROVIDED, HOWEVER, that, if
the Securities of that series are listed on any stock exchange located outside the United States
and such stock exchange shall so require, the Company will maintain a Paying Agent for the
Securities of that series in any required city located outside the United States so long as the
Securities of that series are listed on such exchange, and (C) subject to any laws or
regulations applicable thereto, in a Place of Payment for that series located outside the United
States an office or agency where any Registered Securities of that series may be surrendered for
registration of transfer, where Securities of that series may be surrendered for exchange, and
where notices and demands to or upon the Company in respect of the Securities of that series and
this Indenture may be served.

            The Company will give prompt written notice to the Trustee of the location, and any
change in the location, of such office or agency. If at any time the Company shall fail to


                                      -70-



maintain any such required office or agency or shall fail to furnish the Trustee with the
address thereof, such presentations, surrenders, notices and demands may be made or served at
the Corporate Trust Office of the Trustee, except that Bearer Securities of any series and the
related coupons may be presented and surrendered for payment at the offices specified in the
Security, in London, and the Company hereby appoints the Trustee as its agent to receive such
respective presentations, surrenders, notices and demands.

            Unless otherwise specified with respect to any Securities pursuant to Section 301,
no payment of principal, premium or interest on Bearer Securities shall be made at any office or
agency of the Company in the United States or by check mailed to any address in the United
States or by transfer to an account maintained with a bank located in the United States;
PROVIDED, HOWEVER, that, if the Securities of a series are payable in Dollars, payment of
principal of (and premium, if any) and interest, if any, on any Bearer Security shall be made at
the office of the Company's Paying Agent in the Borough of Manhattan, the City of New York, if
(but only if) payment in Dollars of the full amount of such principal, premium or interest, as
the case may be, at all offices or agencies outside the United States maintained for such
purpose by the Company in accordance with this Indenture is illegal or effectively precluded by
exchange controls or other similar restrictions.

            The Company may also from time to time designate one or more other offices or
agencies where the Securities of one or more series may be presented or surrendered for any or
all such purposes and may from time to time rescind any such designation; PROVIDED, HOWEVER,
that no such designation or rescission shall in any manner relieve the Company of its obligation
to maintain an office or agency in accordance with the requirements set forth above for
Securities of any series for such purposes. The Company will give prompt written notice to the
Trustee of any such designation or rescission and of any change in the location of any such
other office or agency. Unless otherwise specified with respect to any Securities as
contemplated by Section 301 with respect to a series of Securities, the Company hereby
designates as a Place of Payment for each series of Securities the office or agency of the
Company in the Borough of Manhattan, the City of New York, and initially appoints the Trustee at
its Corporate Trust Office as Paying Agent in such city and as its agent to receive all such
presentations, surrenders, notices and demands.

            Unless otherwise specified with respect to any Securities pursuant to Section 301,
if and so long as the Securities of any series (i) are denominated in a Currency other than
Dollars or (ii) may be payable in a Currency other than Dollars, or so long as it is required
under any other provision of the Indenture, then the Company will maintain with respect to each
such series of Securities, or as so required, at least one Exchange Rate Agent.
            SECTION 1003.  MONEY FOR SECURITIES PAYMENTS TO BE HELD IN TRUST.
            If the Company or any Subsidiary or any Affiliate of any of them shall at any time
act as Paying Agent with respect to any series of Securities and any related coupons, it will,
on or before each due date of the principal of (or premium, if any) or interest, if any, on any
of the Securities of that series, segregate and hold in trust for the benefit of the Persons
entitled thereto a sum in the Currency in which the Securities of such series are payable
(except as otherwise specified pursuant to Section 301 for the Securities of such series and
except, if applicable, as


                                      -71-



provided in Sections 312(b), 312(d) and 312(e)) sufficient to pay the principal of (or premium,
if any) or interest, if any, on Securities of such series so becoming due until such sums shall
be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the
Trustee of its action or failure so to act.

            Whenever the Company shall have one or more Paying Agents for any series of
Securities and any related coupons, it will, prior to or on each due date of the principal of
(or premium, if any) or interest, if any, on any Securities of that series, deposit with a
Paying Agent a sum (in the Currency described in the preceding paragraph) sufficient to pay the
principal (or premium, if any) or interest, if any, so becoming due, such sum to be held in
trust for the benefit of the Persons entitled to such principal, premium or interest, and
(unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its
action or failure so to act.
            The Company will cause each Paying Agent (other than the Trustee) for any series of
Securities to execute and deliver to the Trustee an instrument in which such Paying Agent shall
agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will:

            (1) hold all sums held by it for the payment of the principal of
     (and premium, if any) and interest, if any, on Securities of such series in
     trust for the benefit of the Persons entitled thereto until such sums shall
     be paid to such Persons or otherwise disposed of as herein provided;
            (2) give the Trustee notice of any default by the Company (or any
     other obligor upon the Securities of such series) in the making of any
     payment of principal of (or premium, if any) or interest, if any, on the
     Securities of such series; and

            (3) at any time during the continuance of any such default, upon the
     written request of the Trustee, forthwith pay to the Trustee all sums so
     held in trust by such Paying Agent.

            The Company may at any time, for the purpose of obtaining the satisfaction and
discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying
Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such
sums to be held by the Trustee upon the same terms as those upon which sums were held by the
Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such sums.

            Except as provided in the Securities of any series, any money deposited with the
Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the
principal of (or premium, if any) or interest, if any, on any Security of any series, or any
coupon appertaining thereto, and remaining unclaimed for two years after such principal, premium
or interest has become due and payable shall be paid to the Company on Company Request, or (if
then held by the Company) shall be discharged from such trust; and the Holder of such Security
or coupon shall thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with respect to such
trust money, and all liability of the Company as trustee thereof, shall thereupon cease;
PROVIDED,
                                      -72-



HOWEVER, that the Trustee or such Paying Agent, before being required to make any such
repayment, may at the expense of the Company cause to be published once, in an Authorized
Newspaper, notice that such money remains unclaimed and that, after a date specified therein,
which shall not be less than 30 days from the date of such publication, any unclaimed balance of
such money then remaining will be repaid to the Company.

            SECTION 1004.  STATEMENT AS TO COMPLIANCE.

            The Company will deliver to the Trustee, within 120 days after the end of each
fiscal year, a brief certificate from the principal executive officer, principal financial
officer or principal accounting officer as to his or her knowledge of the Company's compliance
with all conditions and covenants under this Indenture. For purposes of this Section 1004, such
compliance shall be determined without regard to any period of grace or requirement of notice
under this Indenture.

            SECTION 1005.  ADDITIONAL AMOUNTS.

            If any Securities of a series or a Board Resolution provide for the payment of
Additional Amounts, the Company will pay to the Holder of any Security of such series or any
coupon appertaining thereto such Additional Amounts as may be specified as contemplated by
Section 301. Whenever in this Indenture there is mentioned, in any context, the payment of the
principal (or premium, if any) or interest, if any, on, or in respect of, any Security of a
series or payment of any related coupon or the net proceeds received on the sale or exchange of
any Security of a series, such mention shall be deemed to include mention of the payment of
Additional Amounts provided for by the terms of such series established pursuant to Section 301
to the extent that, in such context, Additional Amounts are, were or would be payable in respect
thereof pursuant to such terms and express mention of the payment of Additional Amounts (if
applicable) in any provisions hereof shall not be construed as excluding Additional Amounts in
those provisions hereof where such express mention is not made.

            Except as otherwise specified as contemplated by Section 301, if the Securities of a
series provide for the payment of Additional Amounts, at least 10 days prior to the first
Interest Payment Date with respect to that series of Securities (or if the Securities of that
series will not bear interest prior to Maturity, the first day on which a payment of principal
(and premium, if any) is made), and at least 10 days prior to each date of payment of principal
(or premium, if any) or interest if there has been any change with respect to the matters set
forth in the below-mentioned Officers' Certificate, the Company will furnish the Trustee and the
Company's principal Paying Agent or Paying Agents, if other than the Trustee, with an Officers'
Certificate instructing the Trustee and such Paying Agent or Paying Agents whether such payment
of principal, premium or interest on the Securities of that series shall be made to Holders of
Securities of that series or any related coupons who are not United States persons without
withholding for or on account of any tax, assessment or other governmental charge described in
the Securities of the series. If any such withholding shall be required, then such Officers'
Certificate shall specify by country the amount, if any, required to be withheld on such
payments to such Holders of Securities of that series or related coupons and the Company will
pay to the Trustee or such Paying Agent the Additional Amounts required by the terms of such
Securities. In the event that the Trustee or any Paying Agent, as the case may be, shall not so
receive the


                                      -73-



above-mentioned certificate, then the Trustee or such Paying Agent shall be entitled to (i)
assume that no such withholding or deduction is required with respect to any payment of
principal of (or premium, if any) or interest, if any, on any Securities of a series or related
coupons until it shall have received a certificate advising otherwise and (ii) to make all
payments of principal of (and premium, if any) and interest, if any, on the Securities of a
series or related coupons without withholding or deductions until otherwise advised. The Company
covenants to indemnify the Trustee and any Paying Agent for, and to hold them harmless against,
any loss, liability or expense reasonably incurred without negligence, willful misconduct or bad
faith on their part arising out of or in connection with actions taken or omitted by any of them
in reliance on any Officers' Certificate furnished pursuant to this Section.

            SECTION 1006.  CORPORATE EXISTENCE.

            Subject to Article Eight, the Company will do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate existence and the rights
(charter and statutory) and franchises of the Company; PROVIDED, HOWEVER, that the Company shall
not be required to preserve any such right or franchise if the Company shall determine that the
preservation thereof is no longer desirable in the conduct of the business of the Company and
its Subsidiaries as a whole.

             SECTION 1007.  LIMITATION ON LIENS.

            (a) So long as any of the Securities remain outstanding and unpaid, the Company will
not create, and will not permit any Restricted Subsidiary to create, any mortgage, pledge or
lien of or upon any Principal Property or shares of capital stock of any Restricted Subsidiary,
whether owned at the date of this Indenture or thereafter acquired, to secure indebtedness for
borrowed money, without making effective provision, and the Company covenants that in any such
case each will make or cause to be made effective provision, whereby the Securities then
Outstanding shall be secured by such mortgage, pledge or lien equally and ratably with any and
all other obligations and indebtedness thereby secured so long as such indebtedness is so
secured; PROVIDED that the foregoing covenant shall not apply to any mortgage, pledge or lien
(hereinafter in this Section 1007 referred to as "liens") of the following character:
            (1) liens on Principal Property existing at the time of acquisition
     of such Principal Property or to secure the payment of all or any part of
     the purchase price of such Principal Property or any addition thereto or to
     secure any indebtedness incurred at the time of, or within 120 days after,
     the acquisition of such Principal Property or any addition thereto for the
     purpose of financing all or any part of the purchase price thereof
     (provided such liens are limited to such Principal Property or additions
     thereto);

            (2) with respect to any series of Securities, any lien existing on
     the date of issuance of such Securities;

            (3) liens on property or shares of capital stock, or securing any
     indebtedness of any corporation merged into or consolidated with the
     Company and existing at the time such corporation became a Restricted
     Security or was merged into or consolidated with the Company or a
     Restricted Subsidiary;

                                      -74-



            (4) liens on property of any Restricted Subsidiary securing
     indebtedness of a Restricted Subsidiary to the Company or to any other
     Subsidiary or liens on property of the Company securing indebtedness of the
     Company to any Subsidiary;

            (5) liens of carriers, warehousemen, mechanics, repairmen, vendors,
     lessors and materialmen incurred in the ordinary course of business for
     sums not yet due or being contested in good faith;

            (6) liens arising by reason of any judgment, decree or order of any
     court, so long as any legal proceedings which may have been duly initiated
     for the review of such judgment, decree or order shall not have been
     finally terminated or so long as the period within which such proceedings
     may be initiated shall not have expired; or pledges or deposits to secure
     payment of workmen's compensation or other insurance, good faith deposits
     in connection with bids, tenders, contracts or leases, deposits to secure
     public or statutory obligations, deposits to secure or in lieu of surety or
     appeal bonds, deposits as security for the payment of taxes or, in each
     case, obligations of a similar nature;

            (7) liens in connection with the issuance of tax-exempt industrial
     development or pollution control bonds or other similar bonds to finance
     all or any part of the purchase price of or the cost of constructing,
     equipping or improving property; provided that such liens shall be limited
     to such property acquired (including personal property) or constructed or
     such improvement and to real property on which such construction or
     improvement is located; and provided, further that the Company and the
     Restricted Subsidiaries may further secure all or any part of such purchase
     price or the cost of construction of such improvements and personal
     property by an interest in additional property of the Company and
     Restricted Subsidiaries only to the extent necessary for the construction,
     maintenance and operation of, and access to, such property so acquired or
     constructed or such improvement;

            (8) liens in favor of any customer arising in respect of partial,
     progress, advance or other payments made by or on behalf of such customer
     for goods produced for or services rendered to such customer in the
     ordinary course of business not exceeding the amount of such payments;
            (9) extensions, renewals or replacements, in whole or in part, of
     any lien referred to in the foregoing clauses (1) to (8), inclusive,
     provided that the principal amount of indebtedness secured thereby shall
     not exceed the indebtedness so secured plus any related fees or other
     amounts and that such extension, renewal or replacement shall be limited to
     all or any part of the same property that secured the lien extended,
     renewed or replaced (plus improvements on such property); and
            (10) liens for taxes or assessments or governmental charges or
     levies not yet due or delinquent, or which can thereafter be paid without
     penalty, or which are being contested in good faith by appropriate
     proceedings; landlord's liens on property held under lease, and tenants'
     rights under leases; easements; and any other liens of a nature similar to
     those hereinabove described in this clause (10) which do not, in the
     opinion of

                                      -75-



     the Company materially impair the use of such property in the operation of
     the business of the Company or the value of such property for the purposes
     of such business.

       (b) Notwithstanding the provisions of paragraph (a) of this Section 1007, the Company or
any Restricted Subsidiary may create mortgages, pledges or liens securing indebtedness for
borrowed money if at the time of such creation or assumption, and immediately after giving
effect thereto and to the application of proceeds thereof, Exempted Indebtedness does not exceed
10% of Consolidated Net Tangible Assets as determined by reference to the Company's then most
recent quarterly or annual, as applicable, balance sheet.

         SECTION 1008.  LIMITATION ON SALE AND LEASEBACK TRANSACTIONS.
        (a) The Company will not and will not permit any Restricted Subsidiary to, enter into
any arrangement providing for the leasing by the Company or any Restricted Subsidiary of any
Principal Property under a lease which is, or should be, capitalized on the financial statements
of the Company or applicable Restricted Subsidiary (except for leases for a term, including any
renewal thereof, of not more than three years and except for leases between any of the Company
and a Subsidiary or between Subsidiaries), which Principal Property has been or is to be sold or
transferred by the Issuer or such Restricted Subsidiary (herein referred to as a "Sale and
Leaseback Transaction") unless either:
          (1) after giving effect to the application of proceeds thereof, the
     Company or such Restricted Subsidiary could create Indebtedness secured by
     a lien pursuant to Section 1007 on the Principal Property to be leased back
     in an amount equal to the Attributable Debt with respect to such sale and
     leaseback transaction without equally and ratably securing Outstanding
     Securities, or

          (2) the Company, within 120 days after the sale or transfer shall have
     been made by the Company or by any such Restricted Subsidiary, applies an
     amount equal to the greater of (i) the net proceeds of the sale of the
     Principal Property sold and leased back pursuant to such arrangement or
     (ii) the fair market value of the Principal Property so sold and leased
     back at the time of entering into such arrangements (as determined by the
     Board of Directors) to the retirement of Funded Debt; PROVIDED, that the
     amount to be applied to the retirement of Funded Debt shall be reduced by
     (a) the principal amount of any Securities delivered within 120 days after
     such sale to the Trustee for retirement and cancellation, and (b) the
     principal amount of such Funded Debt, other than Securities, voluntarily
     retired by the Company within 120 days after such sale. Notwithstanding the
     foregoing, no retirement referred to in this clause (2) may be effected by
     payment at maturity or pursuant to any mandatory sinking fund payment or
     any mandatory prepayment provision.

       (b) Notwithstanding the provisions of paragraph (a) of this Section 1008, the Company or
any Restricted Subsidiary may enter into Sale and Leaseback Transactions, if at the time of such
entering into, and immediately after giving effect thereto and to the application of proceeds
thereof, Exempted Indebtedness does not exceed 10% of Consolidated Net Tangible Assets as
determined by reference to the Company's then most recent quarterly or annual, as applicable,
balance sheet.


                                      -76-




            SECTION 1009.  WAIVER OF CERTAIN COVENANTS.

            The Company may, with respect to any series of Securities, omit in any particular
instance to comply with any term, provision or condition which affects such series set forth in
Section 803 or Sections 1006 to 1008, inclusive, or, as specified pursuant to Section 301(15)
for Securities of such series, in any covenants of the Company added to Article Ten pursuant to
Section 301(14) or Section 301(15) in connection with Securities of such series, if the Holders
of at least a majority in principal amount of all Outstanding Securities of any series affected
by such term, provision or condition, by Act of such Holders, waive such compliance in such
instance with such term, provision or condition, but no such waiver shall extend to or affect
such term, provision or condition except to the extent so expressly waived, and, until such
waiver shall become effective, the obligations of the Company and the duties of the Trustee to
Holders of Securities of such series in respect of any such term, provision or condition shall
remain in full force and effect.

                                 ARTICLE ELEVEN

                            REDEMPTION OF SECURITIES

           SECTION 1101.   APPLICABILITY OF ARTICLE.

            Securities of any series which are redeemable before their Stated Maturity shall be
redeemable in accordance with the terms of such Securities and (except as otherwise specified as
contemplated by Section 301 for Securities of any series) in accordance with this Article.

           SECTION 1102.   ELECTION TO REDEEM; NOTICE TO TRUSTEE.
            The election of the Company to redeem any Securities shall be evidenced by or
pursuant to a Board Resolution. In case of any redemption at the election of the Company, the
Company shall, at least 60 days prior to the Redemption Date fixed by the Company (unless a
shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date
and of the principal amount of Securities of such series to be redeemed and shall deliver to the
Trustee such documentation and records as shall enable the Trustee to select the Securities to
be redeemed pursuant to Section 1103. In the case of any redemption of Securities prior to the
expiration of any restriction on such redemption provided in the terms of such Securities or
elsewhere in this Indenture, the Company shall furnish the Trustee with an Officers' Certificate
evidencing compliance with such restriction.

            SECTION 1103.   SELECTION BY TRUSTEE OF SECURITIES TO BE REDEEMED.
            If less than all the Securities of any series are to be redeemed, the particular
Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date
by the Trustee, from the Outstanding Securities of such series not previously called for
redemption, by such method as the Trustee shall deem fair and appropriate and which may provide
for the selection for redemption of portions of the principal of Securities of such series;
PROVIDED, HOWEVER, that no such partial redemption shall reduce the portion of the principal


                                      -77-



amount of a Security not redeemed to less than the minimum authorized denomination for
Securities of such series established pursuant to Section 301.
            The Trustee shall promptly notify the Company in writing of the Securities selected
for redemption and, in the case of any Securities selected for partial redemption, the principal
amount thereof to be redeemed.
            For all purposes of this Indenture, unless the context otherwise requires, all
provisions relating to the redemption of Securities shall relate, in the case of any Security
redeemed or to be redeemed only in part, to the portion of the principal amount of such Security
which has been or is to be redeemed.

            SECTION 1104.   NOTICE OF REDEMPTION.

            Except as otherwise specified as contemplated by Section 301, notice of redemption
shall be given in the manner provided for in Section 106 not less than 30 nor more than 60 days
prior to the Redemption Date, to each Holder of Securities to be redeemed.

            All notices of redemption shall state:

            (1) the Redemption Date,

            (2) the Redemption Price and the amount of accrued interest to the
     Redemption Date payable as provided in Section 1106, if any,
            (3) if less than all the Outstanding Securities of any series are to
     be redeemed, the identification (and, in the case of partial redemption,
     the principal amounts) of the particular Securities to be redeemed,
            (4) in case any Security is to be redeemed in part only, the notice
     which relates to such Security shall state that on and after the Redemption
     Date, upon surrender of such Security, the Holder will receive, without
     charge, a new Security or Securities of authorized denominations for the
     principal amount thereof remaining unredeemed,

            (5) that on the Redemption Date, the Redemption Price and accrued
     interest, if any, to the Redemption Date payable as provided in Section
     1106 will become due and payable upon each such Security, or the portion
     thereof, to be redeemed and, if applicable, that interest thereon will
     cease to accrue on and after said date,

            (6) the Place or Places of Payment where such Securities, together
     in the case of Bearer Securities with all coupons appertaining thereto, if
     any, maturing after the Redemption Date, are to be surrendered for payment
     of the Redemption Price and accrued interest, if any,

            (7) that the redemption is for a sinking fund, if such is the case,
            (8) that, unless otherwise specified in such notice, Bearer
     Securities of any if any, surrendered for redemption must be accompanied by
     all coupons of that maturing


                                      -78-



     series, subsequent to the Redemption Date or the amount of any such missing
     coupon or coupons will be deducted from the Redemption Price unless
     security or indemnity satisfactory to the Company, the Trustee and any
     Paying Agent is furnished,

            (9) if Bearer Securities of any series are to be redeemed and any
     Registered Securities of such series are not to be redeemed, and if such
     Bearer Securities may be exchanged for Registered Securities not subject to
     redemption on such Redemption Date pursuant to Section 305 or otherwise,
     the last date, as determined by the Company, on which such exchanges may be
     made, and

           (10) the CUSIP number of such security, if any.

            Notice of redemption of Securities to be redeemed at the election of the Company
shall be given by the Company or, at the Company's request, by the Trustee in the name and at
the expense of the Company.

            SECTION 1105.  DEPOSIT OF REDEMPTION PRICE.

            Prior to any Redemption Date, the Company shall deposit with the Trustee or with a
Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust
as provided in Section 1003) an amount of money in the Currency in which the Securities of such
series are payable (except as otherwise specified pursuant to Section 301 for the Securities of
such series and except, if applicable, as provided in Sections 312(b), 312(d) and 312(e))
sufficient to pay the Redemption Price of, and accrued interest, if any, on, all the Securities
which are to be redeemed on that date.

            SECTION 1106.  SECURITIES PAYABLE ON REDEMPTION DATE.
            Notice of redemption having been given as aforesaid, the Securities so to be
redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein
specified in the Currency in which the Securities of such series are payable (except as
otherwise specified pursuant to Section 301 for the Securities of such series and except, if
applicable, as provided in Sections 312(b), 312(d) and 312(e)) (together with accrued interest,
if any, to the Redemption Date), and from and after such date (unless the Company shall default
in the payment of the Redemption Price and accrued interest, if any) such Securities shall, if
the same were interest-bearing, cease to bear interest and the coupons for such interest
appertaining to any Bearer Securities so to be redeemed, except to the extent provided below,
shall be void. Upon surrender of any such Security for redemption in accordance with said
notice, together with all coupons, if any, appertaining thereto maturing after the Redemption
Date, such Security shall be paid by the Company at the Redemption Price, together with accrued
interest, if any, to the Redemption Date; PROVIDED, HOWEVER, that installments of interest on
Bearer Securities whose Stated Maturity is on or prior to the Redemption Date shall be payable
only at an office or agency located outside the United States (except as otherwise provided in
Section 1002) and, unless otherwise specified as contemplated by Section 301, only upon
presentation and surrender of coupons for such interest; and PROVIDED FURTHER that installments
of interest on Registered Securities whose Stated Maturity is on or prior to the Redemption Date
shall be payable to the Holders of such Securities, or one or more Predecessor Securities,
registered as such at the close

                                      -79-



of business on the relevant Record Dates according to their terms and the provisions of Section
307.

            If any Bearer Security surrendered for redemption shall not be accompanied by all
appurtenant coupons maturing after the Redemption Date, such Security may be paid after
deducting from the Redemption Price an amount equal to the face amount of all such missing
coupons, or the surrender of such missing coupon or coupons may be waived by the Company and the
Trustee if there be furnished to them such security or indemnity as they may require to save
each of them and any Paying Agent harmless. If thereafter the Holder of such Security shall
surrender to the Trustee or any Paying Agent any such missing coupon in respect of which a
deduction shall have been made from the Redemption Price, such Holder shall be entitled to
receive the amount so deducted; PROVIDED, HOWEVER, that interest represented by coupons shall be
payable only at an office or agency located outside the United States (except as otherwise
provided in Section 1002) and, unless otherwise specified as contemplated by Section 301, only
upon presentation and surrender of those coupons.

            If any Security called for redemption shall not be so paid upon surrender thereof
for redemption, the principal (and premium, if any) shall, until paid, bear interest from the
Redemption Date at the rate of interest or Yield to Maturity (in the case of Original Issue
Discount Securities) set forth in such Security.

            SECTION 1107.  SECURITIES REDEEMED IN PART.

            Any Security which is to be redeemed only in part (pursuant to the provisions of
this Article or of Article Twelve) shall be surrendered at a Place of Payment therefor (with, if
the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer
in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or such
Holder's attorney duly authorized in writing), and the Company shall execute, and the Trustee
shall authenticate and deliver to the Holder of such Security without service charge, a new
Security or Securities of the same series, of any authorized denomination as requested by such
Holder, in aggregate principal amount equal to and in exchange for the unredeemed portion of the
principal of the Security so surrendered.

                                 ARTICLE TWELVE

                                 SINKING FUNDS

            SECTION 1201.  APPLICABILITY OF ARTICLE.

            Retirements of Securities of any series pursuant to any sinking fund shall be made
in accordance with the terms of such Securities and (except as otherwise specified as
contemplated by Section 301 for Securities of any series) in accordance with this Article.

            The minimum amount of any sinking fund payment provided for by the terms of
Securities of any series is herein referred to as a "mandatory sinking fund payment," and any
payment in excess of such minimum amount provided for by the terms of Securities of any series
is herein referred to as an "optional sinking fund payment." If provided for by the terms of


                                      -80-



Securities of any series, the cash amount of any sinking fund payment may be subject to
reduction as provided in Section 1202. Each sinking fund payment shall be applied to the
redemption of Securities of any series as provided for by the terms of Securities of such
series.

            SECTION 1202.  SATISFACTION OF SINKING FUND PAYMENTS WITH SECURITIES.

            Subject to Section 1203, in lieu of making all or any part of any sinking fund
payment with respect to any Securities of a series in cash, the Company may at its option (1)
deliver to the Trustee Outstanding Securities of a series (other than any previously called for
redemption) theretofore purchased or otherwise acquired by the Company together in the case of
any Bearer Securities of such series with all unmatured coupons appertaining thereto, and/or (2)
receive credit for the principal amount of Securities of such series which have been previously
delivered to the Trustee by the Company or for Securities of such series which have been
redeemed either at the election of the Company pursuant to the terms of such Securities or
through the application of permitted optional sinking fund payments pursuant to the terms of
such Securities, in each case in satisfaction of all or any part of any sinking fund payment
with respect to the Securities of the same series required to be made pursuant to the terms of
such Securities as provided for by the terms of such series; PROVIDED, HOWEVER, that such
Securities have not been previously so credited. Such Securities shall be received and credited
for such purpose by the Trustee at the Redemption Price specified in such Securities for
redemption through operation of the sinking fund and the amount of such sinking fund payment
shall be reduced accordingly.

            SECTION 1203.  REDEMPTION OF SECURITIES FOR SINKING FUND.
            Not less than 60 days prior to each sinking fund payment date for any series of
Securities, the Company will deliver to the Trustee an Officers' Certificate specifying the
amount of the next ensuing sinking fund payment for that series pursuant to the terms of that
series, the portion thereof, if any, which is to be satisfied by payment of cash in the Currency
in which the Securities of such series are payable (except as otherwise specified pursuant to
Section 301 for the Securities of such series and except, if applicable, as provided in Sections
312(b), 312(d) and 312(e)) and the portion thereof, if any, which is to be satisfied by
delivering or crediting Securities of that series pursuant to Section 1202 (which Securities
will, if not previously delivered, accompany such certificate) and whether the Company intends
to exercise its right to make a permitted optional sinking fund payment with respect to such
series. Such certificate shall be irrevocable and upon its delivery the Company shall be
obligated to make the cash payment or payments therein referred to, if any, on or before the
next succeeding sinking fund payment date. In the case of the failure of the Company to deliver
such certificate, the sinking fund payment due on the next succeeding sinking fund payment date
for that series shall be paid entirely in cash and shall be sufficient to redeem the principal
amount of such Securities subject to a mandatory sinking fund payment without the option to
deliver or credit Securities as provided in Section 1202 and without the right to make any
optional sinking fund payment, if any, with respect to such series.

            Not more than 60 days before each such sinking fund payment date, the Trustee shall
select the Securities to be redeemed upon such sinking fund payment date in the manner specified
in Section 1103 and cause notice of the redemption thereof to be given in the name of


                                      -81-



and at the expense of the Company in the manner provided in Section 1104. Such notice having
been duly given, the redemption of such Securities shall be made upon the terms and in the
manner stated in Sections 1106 and 1107.
            Prior to any sinking fund payment date, the Company shall pay to the Trustee or a
Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust
as provided in Section 1003) in cash a sum equal to any interest that will accrue to the date
fixed for redemption of Securities or portions thereof to be redeemed on such sinking fund
payment date pursuant to this Section 1203.

            Notwithstanding the foregoing, with respect to a sinking fund for any series of
Securities, if at any time the amount of cash to be paid into such sinking fund on the next
succeeding sinking fund payment date, together with any unused balance of any preceding sinking
fund payment or payments for such series, does not exceed in the aggregate $100,000, the
Trustee, unless requested by the Company, shall not give the next succeeding notice of the
redemption of Securities of such series through the operation of the sinking fund. Any such
unused balance of moneys deposited in such sinking fund shall be added to the sinking fund
payment for such series to be made in cash on the next succeeding sinking fund payment date or,
at the request of the Company, shall be applied at any time or from time to time to the purchase
of Securities of such series, by public or private purchase, in the open market or otherwise, at
a purchase price for such Securities (excluding accrued interest and brokerage commissions, for
which the Trustee or any Paying Agent will be reimbursed by the Company) not in excess of the
principal amount thereof.

                                ARTICLE THIRTEEN

                         REPAYMENT AT OPTION OF HOLDERS

            SECTION 1301.  APPLICABILITY OF ARTICLE.


            Repayment of Securities of any series before their Stated Maturity at the option of
Holders thereof shall be made in accordance with the terms of such Securities and (except as
otherwise specified as contemplated by Section 301 for Securities of any series) in accordance
with this Article.
            SECTION 1302.  REPAYMENT OF SECURITIES.

            Securities of any series subject to repayment in whole or in part at the option of
the Holders thereof will, unless otherwise provided in the terms of such Securities, be repaid
at a price equal to the principal amount thereof, together with interest, if any, thereon
accrued to the Repayment Date specified in or pursuant to the terms of such Securities. The
Company covenants that on or before the Repayment Date it will deposit with the Trustee or with
a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in
trust as provided in Section 1003) an amount of money in the Currency in which the Securities of
such series are payable (except as otherwise specified pursuant to Section 301 for the
Securities of such series and except, if applicable, as provided in Sections 312(b), 312(d) and
312(e)) sufficient to pay the principal (or, if so provided by the terms of the Securities of
any series, a


                                      -82-



percentage of the principal) of and (except if the Repayment Date shall be an Interest Payment
Date) accrued interest, if any, on, all the Securities or portions thereof, as the case may be,
to be repaid on such date.
            SECTION 1303.  EXERCISE OF OPTION.

            Securities of any series subject to repayment at the option of the Holders thereof
will contain an "Option to Elect Repayment" form on the reverse of such Securities. To be repaid
at the option of the Holder, any Security so providing for such repayment, with the "Option to
Elect Repayment" form on the reverse of such Security duly completed by the Holder (or by the
Holder's attorney duly authorized in writing), must be received by the Company at the Place of
Payment therefor specified in the terms of such Security (or at such other place or places or
which the Company shall from time to time notify the Holders of such Securities) not earlier
than 45 days nor later than 30 days prior to the Repayment Date. If less than the entire
principal amount of such Security is to be repaid in accordance with the terms of such Security,
the principal amount of such Security to be repaid, in increments of the minimum denomination
for Securities of such series, and the denomination or denominations of the Security or
Securities to be issued to the Holder for the portion of the principal amount of such Security
surrendered that is not to be repaid, must be specified. The principal amount of any Security
providing for repayment at the option of the Holder thereof may not be repaid in part if,
following such repayment, the unpaid principal amount of such Security would be less than the
minimum authorized denomination of Securities of the series of which such Security to be repaid
is a part. Except as otherwise may be provided by the terms of any Security providing for
repayment at the option of the Holder thereof, exercise of the repayment option by the Holder
shall be irrevocable unless waived by the Company.

            SECTION 1304.  WHEN SECURITIES PRESENTED FOR REPAYMENT BECOME DUE AND PAYABLE.

            If Securities of any series providing for repayment at the option of the Holders
thereof shall have been surrendered as provided in this Article and as provided by or pursuant
to the terms of such Securities, such Securities or the portions thereof, as the case may be, to
be repaid shall become due and payable and shall be paid by the Company on the Repayment Date
therein specified, and on and after such Repayment Date (unless the Company shall default in the
payment of such Securities on such Repayment Date) such Securities shall, if the same were
interest-bearing, cease to bear interest and the coupons for such interest appertaining to any
Bearer Securities so to be repaid, except to the extent provided below, shall be void. Upon
surrender of any such Security for repayment in accordance with such provisions, together with
all coupons, if any, appertaining thereto maturing after the Repayment Date, the principal
amount of such Security so to be repaid shall be paid by the Company, together with accrued
interest, if any, to the Repayment Date; PROVIDED, HOWEVER, that coupons whose Stated Maturity
is on or prior to the Repayment Date shall be payable only at an office or agency located
outside the United States (except as otherwise provided in Section 1002) and, unless otherwise
specified pursuant to Section 301, only upon presentation and surrender of such coupons; and
PROVIDED FURTHER that, in the case of Registered Securities, installments of interest, if any,
whose Stated Maturity is on or prior to the Repayment Date shall be payable to the Holders of
such Securities,

                                      -83-



or one or more Predecessor Securities, registered as such at the close of business on the
relevant Record Dates according to their terms and the provisions of Section 307.

            If any Bearer Security surrendered for repayment shall not be accompanied by all
appurtenant coupons maturing after the Repayment Date, such Security may be paid after deducting
from the amount payable therefor as provided in Section 1302 an amount equal to the face amount
of all such missing coupons, or the surrender of such missing coupon or coupons may be waived by
the Company and the Trustee if there be furnished to them such security or indemnity as they may
require to save each of them and any Paying Agent harmless. If thereafter the Holder of such
Security shall surrender to the Trustee or any Paying Agent any such missing coupon in respect
of which a deduction shall have been made as provided in the preceding sentence, such Holder
shall be entitled to receive the amount so deducted; PROVIDED, HOWEVER, that interest
represented by coupons shall be payable only at an office or agency located outside the United
States (except as otherwise provided in Section 1002) and, unless otherwise specified as
contemplated by Section 301, only upon presentation and surrender of those coupons.

            If the principal amount of any Security surrendered for repayment shall not be so
repaid after surrender thereof on the repayment date, such principal amount (together with
interest, if any, thereon accrued to such Repayment Date) shall, until paid, bear interest from
the Repayment Date at the rate of interest or Yield to Maturity (in the case of Original Issue
Discount Securities) set forth in such Security.

            SECTION 1305.  SECURITIES REPAID IN PART.

            Upon surrender of any Registered Security which is to be repaid in part only, the
Company shall execute and the Trustee shall authenticate and deliver to the Holder of such
Security, without service charge and at the expense of the Company, a new Registered Security or
Securities of the same series, of any authorized denomination specified by the Holder, in an
aggregate principal amount equal to and in exchange for the portion of the principal of such
Security so surrendered which is not to be repaid.

                                ARTICLE FOURTEEN

                       DEFEASANCE AND COVENANT DEFEASANCE

            SECTION 1401.  COMPANY'S OPTION TO EFFECT DEFEASANCE OR COVENANT DEFEASANCE.

            Except as otherwise specified as contemplated by Section 301 for Securities of any
series, the provisions of this Article Fourteen shall apply to each series of Securities, and
the Company may, at its option, effect defeasance of the Securities of or within a series under
Section 1402, or covenant defeasance of or within a series under Section 1403 in accordance with
the terms of such Securities and in accordance with this Article.

                                      -84-



            SECTION 1402.  DEFEASANCE AND DISCHARGE.

            Upon the Company's exercise of the above option applicable to this Section with
respect to any Securities of or within a series, the Company shall be deemed to have been
discharged from its obligations with respect to such Outstanding Securities and any related
coupons on the date the conditions set forth in Section 1404 are satisfied (hereinafter,
"defeasance"). For this purpose, such defeasance means that the Company shall be deemed to have
paid and discharged the entire indebtedness represented by such Outstanding Securities and any
related coupons, which shall thereafter be deemed to be "Outstanding" only for the purposes of
Section 1405 and the other Sections of this Indenture referred to in (A) and (B) below, and to
have satisfied all its other obligations under such Securities and any related coupons and this
Indenture insofar as such Securities and any related coupons are concerned (and the Trustee, at
the expense of the Company, shall execute proper instruments acknowledging the same), except for
the following which shall survive until otherwise terminated or discharged hereunder: (A) the
rights of Holders of such Outstanding Securities and any related coupons to receive, solely from
the trust fund described in Section 1404 and as more fully set forth in such Section, payments
in respect of the principal of (and premium, if any) and interest, if any, on such Securities
and any related coupons when such payments are due, (B) the Company's obligations with respect
to such Securities under Sections 304, 305, 306, 1002 and 1003 and with respect to the payment
of Additional Amounts, if any, on such Securities as contemplated by Section 1005, (C) the
rights, powers, trusts, duties and immunities of the Trustee hereunder and (D) this Article
Fourteen. Subject to compliance with this Article Fourteen, the Company may exercise its option
under this Section 1402 notwithstanding the prior exercise of its option under Section 1403 with
respect to such Securities and any related coupons.

            SECTION 1403.  COVENANT DEFEASANCE.

            Upon the Company's exercise of the above option applicable to this Section with
respect to any Securities of or within a series, the Company shall be released from its
obligations under Section 803 and Sections 1006 through 1008, and, if specified pursuant to
Section 301, its obligations under any other covenant, with respect to such Outstanding
Securities and any related coupons on and after the date the conditions set forth in Section
1404 are satisfied (hereinafter, "covenant defeasance"), and such Securities and any related
coupons shall thereafter be deemed not to be "Outstanding" for the purposes of any direction,
waiver, consent or declaration or Act of Holders (and the consequences of any thereof) in
connection with such covenants, but shall continue to be deemed "Outstanding" for all other
purposes hereunder. For this purpose, such covenant defeasance means that, with respect to such
Outstanding Securities and any related coupons, the Company may omit to comply with and shall
have no liability in respect of any term, condition or limitation set forth in any such
covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any
such covenant or by reason of reference in any such covenant to any other provision herein, in
the securities or in any other document and such omission to comply shall not constitute a
Default or an Event of Default under Section 501(4) or Section 501(7) or otherwise, as the case
may be, but, except as specified above, the remainder of this Indenture and such Securities and
any related coupons shall be unaffected thereby.

                                      -85-



            SECTION 1404.  CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE.
            The following shall be the conditions to application of either Section 1402 or
Section 1403 to any Outstanding Securities of or within a series and any related coupons:

            (1) The Company shall irrevocably have deposited or caused to be
     deposited with the Trustee (or another trustee satisfying the requirements
     of Section 607 who shall agree to comply with the provisions of this
     Article Fourteen applicable to it) as trust funds in trust for the purpose
     of making the following payments, specifically pledged as security for, and
     dedicated solely to, the benefit of the Holders of such Securities and any
     related coupons, (A) an amount (in such Currency in which such Securities
     and any related coupons are then specified as payable at Stated Maturity),
     or (B) Government Obligations applicable to such Securities (determined on
     the basis of the Currency in which such Securities are then specified as
     payable at Stated Maturity) which through the scheduled payment of
     principal and interest in respect thereof in accordance with their terms
     will provide, not later than one day before the due date of any payment of
     principal of and premium, if any, and interest, if any, under such
     Securities and any related coupons, money in an amount, or (C) a
     combination thereof, sufficient, in the opinion of a nationally recognized
     firm of independent public accountants expressed in a written certification
     thereof delivered to the Trustee (or other qualifying trustee), to pay and
     discharge, and which shall be applied by the Trustee (or other qualifying
     trustee) to pay and discharge, (i) the principal of (and premium, if any)
     and interest, if any, on such Outstanding Securities and any related
     coupons on the Stated Maturity (or Redemption Date, if applicable) of such
     principal (and premium, if any) or installment of interest, if any and (ii)
     any mandatory sinking fund payments or analogous payments applicable to
     such Outstanding Securities and any related coupons on the day on which
     such payments are due and payable in accordance with the terms of this
     Indenture and of such Securities and any related coupons; provided that the
     Trustee (or other qualifying trustee) shall have been irrevocably
     instructed to apply such money or the proceeds of such Government
     Obligations to said payments with respect to such Securities and any
     related coupons. Before such a deposit, the Company may give to the Trustee
     (or other qualifying trustee), in accordance with Section 1102 hereof, a
     notice of its election to redeem all or any portion of such Outstanding
     Securities at a future date in accordance with the terms of the Securities
     of such series and Article Eleven hereof, which notice shall be
     irrevocable. Such irrevocable redemption notice, if given, shall be given
     effect in applying the foregoing.

            (2) No Default or Event of Default with respect to such Securities
     or any related coupons shall have occurred and be continuing on the date of
     such deposit or, insofar as Section 501(5) are concerned, at any time
     during the period ending on the 91st day after the date of such deposit (it
     being understood that this condition shall not be deemed satisfied until
     the expiration of such period).

            (3) Such defeasance or covenant defeasance shall not result in a
     breach or violation of, or constitute a default under, this Indenture or
     any other material agreement or instrument to which the Company is a party
     or by which it is bound.

                                      -86-



            (4) In the case of an election under Section 1402, the Company shall
     have delivered to the Trustee an Opinion of Counsel stating that (x) the
     Company has received from, or there has been published by, the Internal
     Revenue Service a ruling, or (y) since the date of execution of this
     Indenture, there has been a change in the applicable federal income tax
     law, in either case to the effect that, and based thereon such opinion
     shall confirm that, the Holders of such Outstanding Securities and any
     related coupons will not recognize income, gain or loss for federal income
     tax purposes as a result of such defeasance and will be subject to federal
     income tax on the same amounts, in the same manner and at the same times as
     would have been the case if such defeasance had not occurred.
            (5) In the case of an election under Section 1403, the Company shall
     have delivered to the Trustee an Opinion of Counsel to the effect that the
     Holders of such Outstanding Securities and any related coupons will not
     recognize income, gain or loss for federal income tax purposes as a result
     of such covenant defeasance and will be subject to federal income tax on
     the same amounts, in the same manner and at the same times as would have
     been the case if such covenant defeasance had not occurred.
            (6) Notwithstanding any other provisions of this Section, such
     defeasance or covenant defeasance shall be effected in compliance with any
     additional or substitute terms, conditions or limitations in connection
     therewith pursuant to Section 301.

            (7) The Company shall have delivered to the Trustee an Officers'
     Certificate and an Opinion of Counsel, each stating that all conditions
     precedent provided for relating to either the defeasance under Section 1402
     or the covenant defeasance under Section 1403 (as the case may be) have
     been complied with.

            SECTION 1405. DEPOSITED MONEY AND GOVERNMENT OBLIGATIONS TO BE HELD IN TRUST; OTHER
MISCELLANEOUS PROVISIONS.

            Subject to the provisions of the last paragraph of Section 1003, all money and
Government Obligations (or other property as may be provided pursuant to Section 301) (including
the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for
purposes of this Section 1405, the "Trustee") pursuant to Section 1404 in respect of such
Outstanding Securities and any related coupons shall be held in trust and applied by the Trustee
(or other qualifying trustee), in accordance with the provisions of such Securities and any
related coupons and this Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee (or other qualifying
trustee) may determine, to the Holders of such Securities and any related coupons of all sums
due and to become due thereon in respect of principal (and if any) and interest, if any, but
such money need not be segregated from other funds premium, except to the extent required by
law.

            Unless otherwise specified with respect to any Security pursuant to Section 301, if,
after a deposit referred to in Section 1404(1) has been made, (a) the Holder of a Security in
respect of which such deposit was made is entitled to, and does, elect pursuant to Section
312(b) or the terms of such Security to receive payment in a Currency other than that in which
the

                                      -87-



deposit pursuant to Section 1404(1) has been made in respect of such Security, or (b) a
Conversion Event occurs as contemplated in Section 312(d) or 312(e) or by the terms of any
Security in respect of which the deposit pursuant to Section 1404(1) has been made, the
indebtedness represented by such Security and any related coupons shall be deemed to have been,
and will be, fully discharged and satisfied through the payment of the principal of (and
premium, if any) and interest, if any, on such Security as they become due out of the proceeds
yielded by converting (from time to time as specified below in the case of any such election)
the amount or other property deposited in respect of such Security into the Currency in which
such Security becomes payable as a result of such election or Conversion Event based on the
applicable Market Exchange Rate for such currency in effect on the third Business Day prior to
each payment date, except, with respect to a Conversion Event, for such Currency in effect (as
nearly as feasible) at the time of the Conversion Event.
            The Company shall pay and indemnify the Trustee against any tax, fee or other charge
imposed on or assessed against the Government Obligations deposited pursuant to Section 1404 or
the principal and interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of such Outstanding Securities and any
related coupons.

            Anything in this Article Fourteen to the contrary notwithstanding, the Trustee (or
other qualifying trustee) shall deliver or pay to the Company from time to time upon Company
Request any money or Government Obligations (or other property and any proceeds therefrom) held
by it as provided in Section 1404 which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof delivered to the
Trustee (or other qualifying trustee), are in excess of the amount thereof which would then be
required to be deposited to effect an equivalent defeasance or covenant defeasance, as
applicable, in accordance with this Article.
            SECTION 1406.  REINSTATEMENT.

            If the Trustee (or other qualifying trustee) or any Paying Agent is unable to apply
any money in accordance with Section 1405 by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such application, then
the Company's obligations under this Indenture and such Securities and any related coupons shall
be revived and reinstated as though no deposit had occurred pursuant to Section 1402 or 1403, as
the case may be, until such time as the Trustee (or other qualifying trustee) or Paying Agent is
permitted to apply all such money in accordance with Section 1405; PROVIDED, HOWEVER, that if
the Company makes any payment of principal of (or premium, if any) or interest, if any, on any
such Security or any related coupon following the reinstatement of its obligations, the Company
shall be subrogated to the rights of the Holders of such Securities and any related coupons to
receive such payment from the money held by the Trustee (or other qualifying trustee) or Paying
Agent.

                                      -88-



                                ARTICLE FIFTEEN

                        MEETINGS OF HOLDERS OF SECURITIES

            SECTION 1501.   PURPOSES FOR WHICH MEETINGS MAY BE CALLED.
            If Securities of a series are issuable as Bearer Securities, a meeting of Holders of
Securities of such series may be called at any time and from time to time pursuant to this
Article to make, give or take any request, demand, authorization, direction, notice, consent,
waiver or other, action provided by this Indenture to be made, given or taken by Holders of
Securities of such series.

            SECTION 1502.   CALL, NOTICE AND PLACE OF MEETINGS.
            The Trustee may at any time call a meeting of Holders of Securities of any series
for any purpose specified in Section 1501, to be held at such time and at such place in the City
of New York or in London as the Trustee shall determine. Notice of every meeting of Holders of
Securities of any series, setting forth the time and the place of such meeting and in general
terms the action proposed to be taken at such meeting, shall be given, in the manner provided
for in Section 106, not less than 21 not more than 180 days prior to the date fixed for the
meeting.

            SECTION 1503.   PERSONS ENTITLED TO VOTE AT MEETINGS.
            To be entitled to vote at any meeting of Holders of Securities of any series, a
Person shall be (1) a Holder of one or more Outstanding Securities of such series or (2) a
Person appointed by an instrument in writing as proxy for a Holder or Holders of one or more
Outstanding Securities of such series by such Holder of Holders. The only Persons who shall be
entitled to be present or to speak at any meeting of Holders of Securities of any series shall
be the Person entitled to vote at such meeting and their counsel, any representatives of the
Trustee and its counsel and any representatives of the Company and its counsel.

            SECTION 1504.   QUORUM; ACTION.

            The Persons entitled to vote a majority in principal amount of the Outstanding
Securities of a series shall constitute a quorum for a meeting of Holders of Securities of such
series; PROVIDED, HOWEVER, that, if any action is to be taken at such meeting with respect to a
consent or waiver which this Indenture expressly provides may be given by the Holders of not
less than a specified percentage in principal amount of the Outstanding Securities of a series,
the Persons entitled to vote such specified percentage in principal amount of the Outstanding
Securities of such series shall constitute a quorum. In the absence of a quorum within 30
minutes of the time appointed for any such meeting, the meeting shall, if convened at the
request of Holders of Securities of such series, be dissolved. In any other case the meeting may
be adjourned for a period of not less than 10 days as determined by the chairman of the meeting
prior to the adjournment of such meeting. In the absence of a quorum at any such adjourned
meeting, such adjourned meeting may be further adjourned for a period of not less than 10 days
as determined by the chairman of the meeting prior to the adjournment of such adjourned meeting.
Notice of the reconvening of any adjourned meeting shall be given as provided in Section 1502,
except that such notice need be given only once not less than five days prior to the
                                      -89-



date on which the meeting is scheduled to be reconvened. Notice of the reconvening of any
adjourned meeting shall state expressly the percentage, as provided above, of the principal
amount of the Outstanding Securities of such series which shall constitute a quorum.

            Subject to the foregoing, at the reconvening of any meeting adjourned for lack of a
quorum the Persons entitled to vote 25% in principal amount of the Outstanding Securities at the
time shall constitute a quorum for the taking of any action set forth in the notice of the
original meeting.
            Except as limited by the proviso to Section 902, any resolution presented to a
meeting or adjourned meeting duly reconvened at which a quorum is present as aforesaid may be
adopted by the affirmative vote of the Holders of not less than a majority in principal amount
of the Outstanding Securities of such series; PROVIDED, HOWEVER, that, except as limited by the
proviso to Section 902, any resolution with respect to any request, demand, authorization,
direction, notice, consent, waiver or other action which this Indenture expressly provides may
be made, given or taken by the Holders of a specified percentage, which is less than a majority,
in principal amount of the Outstanding Securities of a series may be adopted at a meeting or an
adjourned meeting duly reconvened and at which a quorum is present as aforesaid by the
affirmative vote of the Holders of not less than such specified percentage in principal amount
of the Outstanding Securities of such series.
            Any resolution passed or decision taken at any meeting of Holders of Securities of
any series duly held in accordance with this Section shall be binding on all the Holders of
Securities of such series and the related coupons, whether or not present or represented at the
meeting.

            Notwithstanding the foregoing provisions of this Section 1504, if any action is to
be taken at a meeting of Holders of Securities of any series with respect to any request,
demand, authorization, direction, notice, consent, waiver or other action that this Indenture
expressly provides may be made, given or taken by the Holders of a specified percentage in
principal amount of all Outstanding Securities affected thereby, or of the Holders of such
series and one or more additional series:

          (1) there shall be no minimum quorum requirement for such meeting; and
          (2) the principal amount of the Outstanding Securities of such series
     that vote in favor of such request, demand, authorization, direction,
     notice, consent, waiver or other action shall be taken into account in
     determining whether such request, demand, authorization, direction, notice,
     consent, waiver or other action has been made, given or taken under this
     Indenture.

           SECTION 1505.  DETERMINATION OF VOTING RIGHTS; CONDUCT AND ADJOURNMENT OF MEETINGS.

           (a) Notwithstanding any provisions of this Indenture, the Trustee may make such
reasonable regulations as it may deem advisable for any meeting of Holders of Securities of a
series in regard to proof of the holding of Securities of such series and of the appointment of
proxies and in regard to the appointment and duties of inspectors of votes, the submission and
                                      -90-



examination of proxies, certificates and other evidence of the right to vote, and such other
matters concerning the conduct of the meeting as its shall deem appropriate. Except as otherwise
permitted or required by any such regulations, the holding of Securities shall be proved in the
manner specified in Section 104 and the appointment of any proxy shall be proved in the manner
specified in Section 104 or by having the signature of the person executing the proxy witnessed
or guaranteed by any trust company, bank or banker authorized by Section 104 to certify to the
holding of Bearer Securities. Such regulations may provide that written instruments appointing
proxies, regular on their face, may be presumed valid and genuine without the proof specified in
Section 104 or other proof.

         (b) The Trustee shall, by an instrument in writing appoint a temporary chairman of the
meeting, unless the meeting shall have been called by the Company or by Holders of Securities as
provided in Section 1502(b), in which case the Company or the Holders of Securities of the
series calling the meeting, as the case may be, shall in like manner appoint a temporary
chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by vote
of the Persons entitled to vote a majority in principal amount of the Outstanding Securities of
such series represented at the meeting.
         (c) At any meeting each Holder of a Security of such series or proxy shall be entitled
to one vote for each $1,000 principal amount of Outstanding Securities of such series held or
represented by him (determined as specified in the definition of "Outstanding" in Section 101);
PROVIDED, HOWEVER, that no vote shall be cast or counted at any meeting in respect of any
Security challenged as not Outstanding and ruled by the chairman of the meeting to be not
Outstanding. The chairman of the meeting shall have no right to vote, except as a Holder of a
Security of such series or proxy.

         (d) Any meeting of Holders of Securities of any series duly called pursuant to Section
1502 at which a quorum is present may be adjourned from time to time by Persons entitled to vote
a majority in principal amount of the Outstanding Securities of such series represented at the
meeting; and the meeting may be held as so adjourned without further notice.

            SECTION 1506.  COUNTING VOTES AND RECORDING ACTION OF MEETINGS.
            The vote upon any resolution submitted to any meeting of Holders of Securities of
any series shall be by written ballots on which shall be subscribed the signatures of the
Holders of Securities of such series or of their representatives by proxy and the principal
amounts and serial numbers of the Outstanding Securities of such series held or represented by
them. The permanent chairman of the meeting shall appoint two inspectors of votes who shall
count all votes cast at the meeting for or against any resolution and who shall make and file
with the secretary of the meeting their verified written reports in duplicate of all votes cast
at the meeting. A record, at least in duplicate, of the proceedings of each meeting of Holders
of Securities of any series shall be prepared by the Secretary of the meeting and there shall be
attached to said record the original reports of the inspectors of votes on any vote by ballot
taken thereat and affidavits by one or more persons having knowledge of the facts setting forth
a copy of the notice of the meeting and showing that said notice was given as provided in
Section 1502 and, if applicable, Section 1504. Each copy shall be signed and verified by the
affidavits of the permanent chairman and secretary of the meeting and one such copy shall be
delivered to the Company, and

                                      -91-



another to the Trustee to be preserved by the Trustee, the latter to have attached thereto the
ballots voted at the meeting. Any record so signed and verified shall be conclusive evidence of
the matters therein stated.
                                ARTICLE SIXTEEN

       IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS
            SECTION 1601. INDENTURE AND SECURITIES SOLELY CORPORATE OBLIGATIONS.
            No recourse for the payment of the principal of or any premium or interest on any
Security, or for any claim based thereon or otherwise in respect thereof, and no recourse under
or upon any obligation, covenant or agreement of the Company in this Indenture or in any
supplemental indenture, or in any Security, or because of the creation of any indebtedness
represented thereby, shall be had against any incorporator, stockholder, officer or director, as
such, past, present or future, of the Company or any successor corporation, either directly or
through the Company or any successor corporation, whether by virtue of any constitution, statute
or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being
expressly understood that all such liability is hereby expressly waived and released as a
condition of, and as a consideration for, the execution of this Indenture and the issue of the
Securities.

            This Indenture may be executed in any number of counterparts, each of which so
executed shall be deemed to be an original, but all such counterparts shall together constitute
but one and the same Indenture.



                                      -92-






            IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly
executed all as of the day and year first above written.
                                    Schering-Plough Corporation
                                          By: _______________________
                                          Name:
                                          Title:





                                    The Bank of New York

                                          By: _______________________
                                          Name:
                                          Title:






                                      -93-




                                    EXHIBIT A

                             FORMS OF CERTIFICATION

                                   EXHIBIT A-1

                       FORM OF CERTIFICATE TO BE GIVEN BY
                  PERSON ENTITLED TO RECEIVE BEARER SECURITY
                       OR TO OBTAIN INTEREST PAYABLE PRIOR
                              TO THE EXCHANGE DATE

                                   CERTIFICATE

                   [Insert title or sufficient description
                        of Securities to be delivered]


            This is to certify that as of the date hereof, and except as set forth below, the
above-captioned Securities held by you for our account (1) are owned by person(s) that are not
residents of the United States, domestic partnerships, domestic corporations or any citizens or
estate or trust the income of which is subject to United States federal income taxation
regardless of its source ("United States persons(s)"), (ii) are owned by United States person(s)
that are (a) foreign branches of United States financial institutions (financial institutions,
as defined in United States Treasury Regulations Section 2.165-12(c)(1)(v) are herein refered to
as "financial institutions") purchasing for their own account or for resale, or (b) United
States person(s) who acquired the Securities through foreign branches of United States financial
institutions and who hold the Securities through such United States financial institutions on
the date hereof (and in either case (a) or (b), each such United States financial institution
hereby agrees, on its own behalf or through its agent, that you may advise Schering-Plough
Corporation or its agent that such financial institution will comply with the requirements of
Section 1650)(3)(A), (B) or (C) of the United States Internal Revenue Code of 1986, as amended,
and the regulations thereunder), or (iii) are owned by United States or foreign financial
institution(s) for purposes of resale during the restricted period (as defined in United States
Treasury Regulations Section 1.163-5(c)(2)(i)(D)(7)), and, in addition, if the owner is a United
States or foreign financial institution described in clause (iii) above (whether or not also
described in clause (i) or (ii)), this is to further certify that such financial institution has
not acquired the Securities for purposes of resale directly or indirectly to a United States
person or to a person within the United States or its possessions.

            As used herein, "United States" means the United States of America (including the
states and the District of Columbia); and its "possessions" include Puerto Rico, the U.S. Virgin
Islands, Guam, American Samoa, Wake Island and the Northern Mariana Islands.

            We undertake to advise you promptly by tested telex on or prior to the date on which
you intend to submit your certification relating to the above-captioned Securities held by you
for our account in accordance with your Operating Procedures if any applicable statement


                                      -94-



herein is not correct on such date, and in the absence of any such notification it may be
assumed that this certification applies as of such date.
            This certificate excepts and does not relate to [U.S.$] _____________ of such
interest in the above-captioned Securities in respect of which we are not able to certify and as
to which we understand an exchange for an interest in a permanent global Security or an exchange
for and delivery of definitive Securities (or, if relevant, collection of any interest) cannot
be made until we do so certify.

            We understand that this certificate may be required in connection with certain tax
laws and regulations in the United States. If administrative or legal proceedings are commenced
or threatened in connection with which this certificate is or would be relevant, we irrevocably
authorize you to produce this certificate or a copy thereof to any interested party in such
proceedings.
Dated:

[To be dated no earlier than the 10th day
prior to (i) the Exchange Date or (ii) the
relevant Interest Payment Date occurring
prior to the Exchange Date, as applicable]

                                    [Name of Person Making Certification]


                                    (AUTHORIZED SIGNATORY)
                                     --------------------
                                     Name:
                                     Title:



                                      -95-




                                   EXHIBIT A-2

                FORM OF CERTIFICATE, TO BE GIVEN BY EUROCLEAR
                              AND CLEARSTREAM IN
                CONNECTION WITH THE EXCHANGE OF A PORTION OF A
               TEMPORARY GLOBAL SECURITY OR TO OBTAIN INTEREST
                       PAYABLE PRIOR TO THE EXCHANGE DATE

                                   CERTIFICATE

                   [INSERT TITLE OR SUFFICIENT DESCRIPTION
                        OF SECURITIES TO BE DELIVERED]


            This is to certify that based solely on written certifications that we have received
in writing, by tested telex or by electronic transmission from each of the persons appearing in
our records as persons entitled to a portion of the principal amount set forth below (our
"Member Organizations") substantially in the form attached hereto, as of the date hereof,
[U.S.$] ______________ principal amount of the above-captioned Securities (i) is owned by
person(s) that are not citizens or residents of the United States, domestic partnerships,
domestic corporations or any estate or trust the income of which is subject to United States
Federal income taxation regardless of its source ("United States person(s)"), (ii) is owned by
United States person(s) that are (a) foreign branches of United States financial institutions
(financial institutions, as defined in U.S. Treasury Regulations Section 1.165-12(c)(1)(v) are
herein referred to as "financial institutions") purchasing for their own account or for resale,
or (b) United States person(s) who acquired the Securities through foreign branches of United
States financial institutions and who hold the Securities through such United States financial
institutions on the date hereof (and in either case (a) or (b), each such financial institution
has agreed, on its own behalf or through its agent, that we may advise Schering-Plough
Corporation or its agent that such financial institution will comply with the requirements of
Section 1650)(3)(A), (B) or (C) of the Internal Revenue Code of 1986, as amended, and the
regulations thereunder), or (iii) is owned by United States or foreign financial institutions)
for purposes of resale during the restricted period (as defined in United States Treasury
Regulations Section 1.163-5(c)(2)(1)(D)(7)) and, to the further effect, that financial
institutions described in clause (iii) above (whether or not also described in clause (i) or
(ii)) have certified that they have not acquired the Securities for purposes of resale directly
or indirectly to a United States person or to a person within the United States or its
possessions.

            As used herein, "United States" means the United States of America (including the
states and the District of Columbia); and its "possessions" include Puerto Rico, the U.S. Virgin
Islands, Guam, American Samoa, Wake Island and the Northern Mariana Islands.

            We further certify that (i) we are not making available herewith for exchange (or,
if relevant, collection of any interest) any portion of the temporary global Security
representing the above-captioned Securities excepted in the above-referenced certificates of
Member Organizations and (ii) as of the date hereof we have not received any notification from
any of our Member Organizations to the effect that the statements made by such Member
Organizations

                                      -96-



with respect to any portion of the part submitted herewith for exchange (or, if relevant,
collection of any interest) are no longer true and cannot be relied upon as of the date hereof.

            We understand that this certification is required in connection with certain tax
laws and regulations in the United States. If administrative or legal proceedings are commenced
or threatened in connection with which this certificate is or would be relevant, we irrevocably
authorize you to produce this certificate or a copy thereof to any interested party in such
proceedings.
Dated:

[To be dated no earlier than the Exchange
Date or the relevant Interest Payment Date
occurring prior to the Exchange Date, as
applicable]

                                    [MORGAN GUARANTY TRUST
                                    COMPANY OF NEW YORK, BRUSSELS
                                    OFFICE, as Operator of the Euroclear
                                    System]
                                    [Clearstream]


                                                      By_________________


                                      -97-




                                    EXHIBIT B
CUSIP NO. [         ]
            -------







No. [         ]
      -------





                           SCHERING-PLOUGH CORPORATION
                                     FORM OF
                    [       ] % GLOBAL NOTE DUE [       ]
                      ------                      ------




UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (55 WATER STREET, NEW YORK, NEW YORK) TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND SUCH CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE &
CO., OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY, ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL,
SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.



UNLESS AND UNTIL THIS CERTIFICATE IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN CERTIFICATED
FORM, THIS CERTIFICATE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TO A NOMINEE
THEREOF OR BY A NOMINEE THEREOF TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY OR BY THE
DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR OF THE DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR.




            SCHERING-PLOUGH CORPORATION, a New Jersey corporation (herein referred to as the
"Company," which term includes any successor corporation under the Indenture hereinafter
referred to), for value received, hereby promises to pay to Cede & Co., or registered assigns,
the principal sum of $[__] on [___] (the "Maturity Date") and to pay

                                      -98-



interest thereon from [____] or from the most recent Interest Payment Date to which interest has
been paid or duly provided for, semi-annually on [___] and [___] in each year (each, an
"Interest Payment Date"), commencing [___], at [___] % per annum until the principal hereof is
paid or duly provided for.
            Any payment of principal or interest required to be made on a day that is not a
Business Day need not be made on such day, but may be made on the next succeeding Business Day
with the same force and effect as if made on such day and no interest shall accrue as a result
of such delayed payment. Interest payable on each Interest Payment Date will include interest
accrued from and including [___] or from and including the most recent Interest Payment Date to
which interest has been paid or duly provided for, as the case may be, to but excluding such
Interest Payment Date.

            The interest so payable, and punctually paid or duly provided for, on any Interest
Payment Date will, as provided in the Indenture, be paid to the person (the "Holder") in whose
name this Note (or one or more Predecessor Securities) is registered at the close of business on
the __th day (whether or not a Business Day) preceding such Interest Payment Date (a "Regular
Record Date"). Any such interest not so punctually paid or duly provided for ("Defaulted
Interest") will forthwith cease to be payable to the Holder on such Regular Record Date and may
either be paid to the person in whose name this Note (or one or more Predecessor Securities) is
registered at the close of business on a special record date (the "Special Record Date") for the
payment of such Defaulted Interest to be fixed by the Trustee (referred to herein), notice
whereof shall be given to the Holder of this Note not more than 15 nor less than ten days prior
to such Special Record Date, or may be paid at any time in any other lawful manner, all as more
fully provided in the Indenture.
            For purposes of this Note, "Business Day" means any day that is not a Saturday or
Sunday and that, in The City of New York, is not a day on which banking institutions are
authorized or obligated by law or executive order to close.

            Payment of the principal of this Note on the Maturity Date will be made against
presentation of this Note at the office or agency of the Company maintained for that purpose in
the Borough of Manhattan, the City of New York, in such coin or currency of the United States of
America as at the time of payment is legal tender for the payment of public and private debts.
So long as this Note remains in book-entry form, all payments of principal and interest will be
made by the Company in immediately available funds.

            GENERAL. This Note is one of a duly authorized issue of securities (herein called
the "Securities") of the Company, issued and to be issued under an indenture, dated as of [___],
as it may be supplemented from time to time (herein called the "Indenture"), between the Company
and The Bank of New York, as Trustee (herein called the "Trustee," which term includes any
successor trustee under the Indenture with respect to a series of which this Note is a part), to
which Indenture and all indentures supplemental thereto reference is hereby made for a statement
of the respective rights, limitations of rights, duties and immunities thereunder of the
Company, the Trustee and the Holders of the Securities, and of the terms upon which the
Securities are, and are to be, authenticated and delivered. The Securities may be issued in one
or more series, which different series may be issued in various aggregate principal amounts, may

                                      -99-



mature at different times, may bear interest (if any) at different rates, may be subject to
different redemption provisions (if any), may be subject to different sinking, purchase or
analogous funds (if any), may be subject to different covenants and Events of Default and may
otherwise vary as provided or permitted in the Indenture. This Note is one of a duly authorized
series of Securities designated as "[__]% Global Notes due [__]" (collectively, the "Notes").
            The Notes are initially limited to $[ ] aggregate principal amount. The Company may,
without the consent of the Holder hereof, create and issue additional securities ranking pari
passu with the Notes in all respects and so that such additional securities shall be
consolidated and form a single series having the same terms as to status, redemption or
otherwise as the Notes initially issued. No additional Notes may be issued if an Event of
Default has occurred.

            EVENTS OF DEFAULT. If an Event of Default with respect to the Notes shall have
occurred and be continuing, the principal of the Notes may be declared due and payable in the
manner and with the effect provided in the Indenture.

            MATURITY.  The Notes may not be redeemed prior to the Maturity Date.  The Notes are
not subject to repayment at the option of the Holders or to the operation of any sinking fund.

            MODIFICATION AND WAIVERS; OBLIGATIONS OF THE COMPANY ABSOLUTE. The Indenture
permits, with certain exceptions as therein provided, the amendment thereof and the modification
of the rights and obligations of the Company and the rights of the Holders of the Securities of
each series. Such amendment may be effected under the Indenture at any time by the Company and
the Trustee with the consent of the Holders of not less than a majority in aggregate principal
amount of all Securities issued under the Indenture at the time Outstanding and affected
thereby. The Indenture also contains provisions permitting the Holders of not less than a
majority in aggregate principal amount of the Securities at the time Outstanding, on behalf of
the Holders of all Outstanding Securities, to waive compliance by the Company with certain
provisions of the Indenture. Furthermore, provisions in the Indenture permit the Holders of not
less than a majority in aggregate principal amount of the Outstanding Securities of individual
series to waive on behalf of all of the Holders of Securities of such individual series certain
past defaults under the Indenture and their consequences. Any such consent or waiver shall be
conclusive and binding upon the Holder of this Note and upon all future Holders of this Note and
of any Note issued upon the registration of transfer hereof or in exchange hereof or in lieu
hereof, whether or not notation of such consent or waiver is made upon this Note.

            No reference herein to the Indenture and no provision of this Note or of the
Indenture shall alter or impair the obligation of the Company, which is absolute and
unconditional, to pay the principal of and interest on this Note at the times, place and rate
and in the coin or currency herein prescribed.
            DEFEASANCE AND COVENANT DEFEASANCE. The Indenture contains provisions for defeasance
at any time of (a) the entire indebtedness of the Company on this Note and (b) certain
restrictive covenants and the related defaults and Events of Default, upon compliance by the
Company with certain conditions set forth therein, which provisions apply to this Note.
                                     -100-



            REGISTRATION OF TRANSFER OR EXCHANGE. As provided in the Indenture and subject to
certain limitations herein and therein set forth, the transfer of this Note is registrable in
the Security Register upon surrender of this Note for registration of transfer at the office or
agency of the Company in any place where the principal of and interest on this Note are payable,
duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the
Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly
authorized in writing, and thereupon one or more new Notes, of authorized denominations and for
the same aggregate principal amount, will be issued to the designated transferee or transferees.

            As provided in the Indenture and subject to certain limitations herein and therein
set forth, the Notes are exchangeable for a like aggregate principal amount of Notes of
different authorized denominations, as requested by the Holders surrendering the same.

            This Note is a Global Security. If the Depository is at any time unwilling, unable
or ineligible to continue as depository and a successor depository is not appointed by the
Company within 90 days or an Event of Default under the Indenture has occurred and is
continuing, the Company will issue Notes in certificated form in exchange for each Global
Security. In addition, the Company may at any time determine not to have Notes represented by a
Global Security and, in such event, will issue Notes in certificated form in exchange in whole
for the Global Security representing such Note. In any such instance, an owner of a beneficial
interest in a Global Security will be entitled to physical delivery in certificated form of
Notes equal in principal amount to such beneficial interest and to have such Notes registered in
its name. Notes so issued in certificated form will be issued in denominations of $1,000 or any
amount in excess thereof which is an integral multiple of $1,000 and will be issued in
registered form only, without coupons.

            No service charge shall be made for any such registration of transfer or exchange,
but the Company may require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith.
            Prior to due presentment of this Note for registration of transfer, the Company, the
Trustee and any agent of the Company or the Trustee may treat the Holder as the owner hereof for
all purposes, whether or not this Note be overdue, and neither the Company, the Trustee nor any
such agent shall be affected by notice to the contrary.

            DEFINED TERMS. All terms used in this Note which are defined in the Indenture and
are not otherwise defined herein shall have the meanings assigned to them in the Indenture.

            GOVERNING LAW.  This Note shall be governed by and construed in accordance with the
law of the State of New York.

            NOTICES. Notices to Holders of the Notes may be made by first class mail, postage
prepaid, to the addresses that appear on the register maintained by the Security Registrar or by
guaranteed overnight courier or by facsimile transmission (receipt confirmed by facsimile
transaction receipt) followed by overnight courier. [So long as the Notes are listed on the
Luxembourg Stock Exchange, notices will also be made by publication in an authorized
                                     -101-



newspaper in Luxembourg which is expected to be the LUXEMBURGER WORT.] Any notice will be deemed
to have been given on the date of publication or, if published more than once, on the date of
the first publication.
            Unless the certificate of authentication hereon has been executed by the Trustee by
manual signature, this Note shall not be entitled to any benefit under the Indenture or be valid
or obligatory for any purpose.
            IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under
its facsimile corporate seal.

Dated:  [         ]
          -------

TRUSTEE'S CERTIFICATE
  OF AUTHENTICATION

This is one of the Securities of the series
designated therein referred to in the
within-mentioned Indenture                      SCHERING-PLOUGH CORPORATION
[         ],
  as Trustee
                                                By:
                                                        -----------------------


By:                                             Attest:
     -------------------------------                    -----------------------
      Authorized Signatory                                 Secretary



                                     -102-

EX-4

Exhibit 4(b)(ii)

CUSIP NO. [       ]

No. [       ]

SCHERING-PLOUGH CORPORATION
FORM OF
[       ] % GLOBAL NOTE DUE [       ]

Unless this certificate is presented by an authorized representative of The Depository Trust Company (55 Water Street, New York, New York) to the issuer or its agent for registration of transfer, exchange or payment, and such certificate issued is registered in the name of CEDE & CO., or such other name as requested by an authorized representative of the Depository, ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL, since the registered owner hereof, CEDE & CO., has an interest herein.

Unless and until this certificate is exchanged in whole or in part for Notes in certificated form, this certificate may not be transferred except as a whole by the Depository to a nominee thereof or by a nominee thereof to the Depository or another nominee of the Depository or by the Depository or any such nominee to a successor of the Depository or a nominee of such successor.

SCHERING-PLOUGH CORPORATION, a New Jersey corporation (herein referred to as the "Company," which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to Cede & Co., or registered assigns, the principal sum of $[       ] on [       ] (the "Maturity Date") and to pay interest thereon from [       ] or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on [       ] and [       ] in each year (each, an "Interest Payment Date"), commencing [       ], at [       ] % per annum until the principal hereof is paid or duly provided for.

Any payment of principal or interest required to be made on a day that is not a Business Day need not be made on such day, but may be made on the next succeeding Business Day with the same force and effect as if made on such day and no interest shall accrue as a result of such delayed payment. Interest payable on each Interest Payment Date will include interest accrued from and including [       ] or from and including the most recent Interest Payment Date to which interest has been paid or duly provided for, as the case may be, to but excluding such Interest Payment Date.

The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to the person (the "Holder") in whose name this Note (or one or more Predecessor Securities) is registered at the close of business on the __^th day (whether or not a Business Day) preceding such Interest Payment Date (a "Regular Record Date"). Any such interest not so punctually paid or duly provided for ("Defaulted Interest") will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the person in whose name this Note (or one or more Predecessor Securities) is registered at the close of business on a special record date (the "Special Record Date") for the payment of such Defaulted Interest to be fixed by the Trustee (referred to herein), notice whereof shall be given to the Holder of this Note not more than 15 nor less than ten days prior to such Special Record Date, or may be paid at any time in any other lawfu l manner, all as more fully provided in the Indenture.

For purposes of this Note, "Business Day" means any day that is not a Saturday or Sunday and that, in The City of New York, is not a day on which banking institutions are authorized or obligated by law or executive order to close.

Payment of the principal of this Note on the Maturity Date will be made against presentation of this Note at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, the City of New York, in such coin or currency of the United States of America as at the time of payment is legal tender for the payment of public and private debts. So long as this Note remains in book-entry form, all payments of principal and interest will be made by the Company in immediately available funds.

General. This Note is one of a duly authorized issue of securities (herein called the "Securities") of the Company, issued and to be issued under an indenture, dated as of [       ], as it may be supplemented from time to time (herein called the "Indenture"), between the Company and The Bank of New York, as Trustee (herein called the "Trustee," which term includes any successor trustee under the Indenture with respect to a series of which this Note is a part), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities, and of the terms upon which the Securities are, and are to be, authenticated and delivered. The Securities may be issued in one or more series, which different series may be issued in various aggregate principal amounts, may mature at different times, may bear intere st (if any) at different rates, may be subject to different redemption provisions (if any), may be subject to different sinking, purchase or analogous funds (if any), may be subject to different covenants and Events of Default and may otherwise vary as provided or permitted in the Indenture. This Note is one of a duly authorized series of Securities designated as "[       ] % Global Notes due [       ]" (collectively, the "Notes").

The Notes are initially limited to $[       ] aggregate principal amount. The Company may, without the consent of the Holder hereof, create and issue additional securities ranking pari passu with the Notes in all respects and so that such additional securities shall be consolidated and form a single series having the same terms as to status, redemption or otherwise as the Notes initially issued. No additional Notes may be issued if an Event of Default has occurred.

Events of Default. If an Event of Default with respect to the Notes shall have occurred and be continuing, the principal of the Notes may be declared due and payable in the manner and with the effect provided in the Indenture.

Maturity. The Notes may not be redeemed prior to the Maturity Date. The Notes are not subject to repayment at the option of the Holders or to the operation of any sinking fund.

Modification and Waivers; Obligations of the Company Absolute. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series. Such amendment may be effected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of not less than a majority in aggregate principal amount of all Securities issued under the Indenture at the time Outstanding and affected thereby. The Indenture also contains provisions permitting the Holders of not less than a majority in aggregate principal amount of the Securities at the time Outstanding, on behalf of the Holders of all Outstanding Securities, to waive compliance by the Company with certain provisions of the Indenture. Furthermore, provisions in the Indenture permit the Holders of not less than a majority in aggregate principal amount of the Outstanding Securities of indi vidual series to waive on behalf of all of the Holders of Securities of such individual series certain past defaults under the Indenture and their consequences. Any such consent or waiver shall be conclusive and binding upon the Holder of this Note and upon all future Holders of this Note and of any Note issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof, whether or not notation of such consent or waiver is made upon this Note.

No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and interest on this Note at the times, place and rate and in the coin or currency herein prescribed.

Defeasance and Covenant Defeasance. The Indenture contains provisions for defeasance at any time of (a) the entire indebtedness of the Company on this Note and (b) certain restrictive covenants and the related defaults and Events of Default, upon compliance by the Company with certain conditions set forth therein, which provisions apply to this Note.

Registration of Transfer or Exchange. As provided in the Indenture and subject to certain limitations herein and therein set forth, the transfer of this Note is registrable in the Security Register upon surrender of this Note for registration of transfer at the office or agency of the Company in any place where the principal of and interest on this Note are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Notes, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees.

As provided in the Indenture and subject to certain limitations herein and therein set forth, the Notes are exchangeable for a like aggregate principal amount of Notes of different authorized denominations, as requested by the Holders surrendering the same.

This Note is a Global Security. If the Depository is at any time unwilling, unable or ineligible to continue as depository and a successor depository is not appointed by the Company within 90 days or an Event of Default under the Indenture has occurred and is continuing, the Company will issue Notes in certificated form in exchange for each Global Security. In addition, the Company may at any time determine not to have Notes represented by a Global Security and, in such event, will issue Notes in certificated form in exchange in whole for the Global Security representing such Note. In any such instance, an owner of a beneficial interest in a Global Security will be entitled to physical delivery in certificated form of Notes equal in principal amount to such beneficial interest and to have such Notes registered in its name. Notes so issued in certificated form will be issued in denominations of $1,000 or any amount in excess thereof which is an integral multiple of $1,000 and will be issued in register ed form only, without coupons.

No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith.

Prior to due presentment of this Note for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Holder as the owner hereof for all purposes, whether or not this Note be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary.

Defined Terms. All terms used in this Note which are defined in the Indenture and are not otherwise defined herein shall have the meanings assigned to them in the Indenture.

Governing Law. This Note shall be governed by and construed in accordance with the law of the State of New York.

Notices. Notices to Holders of the Notes may be made by first class mail, postage prepaid, to the addresses that appear on the register maintained by the Security Registrar or by guaranteed overnight courier or by facsimile transmission (receipt confirmed by facsimile transaction receipt) followed by overnight courier. [So long as the Notes are listed on the Luxembourg Stock Exchange, notices will also be made by publication in an authorized newspaper in Luxembourg which is expected to be the Luxemburger Wort.] Any notice will be deemed to have been given on the date of publication or, if published more than once, on the date of the first publication.

Unless the certificate of authentication hereon has been executed by the Trustee by manual signature, this Note shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose.

IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its facsimile corporate seal.

Dated: [       ]
TRUSTEE'S CERTIFICATE
OF AUTHENTICATION
This is one of the Securities of the series	SCHERING-PLOUGH CORPORATION
designated therein referred to in the
within-mentioned Indenture
[       ],
as Trustee	By: __________________________
By: _________________________	Attest: ________________________
Authorized Signatory	Secretary

EX-10

Exhibit 10 (b)

AMENDMENT TO
SCHERING-PLOUGH CORPORATION
1992 STOCK INCENTIVE PLAN

The Schering-Plough Corporation 1992 Stock Incentive Plan (the "Plan") is hereby amended as follows:

1. Section 12 of the Plan is amended to read in its entirety as follows:

In the event of any stock dividend, stock split, reverse stock split, share combination, recapitalization, merger, consolidation, acquisition of property or shares, separation, spinoff, reorganization, stock rights offering, liquidation, disposition by the Company of a subsidiary or affiliate, or any similar event involving the Company, the Committee shall make such adjustments (if any) under the Plan as it deems appropriate and equitable, in its discretion, to reflect such event, including without limitation adjustments to the share limits provided in Section 2, to the number of shares of Common Stock and/or the kind of shares represented by any outstanding options and Units and to the option price of any outstanding options. Such adjustments may include, without limitation, (i) the cancellation of outstanding options and/or Units, provided that the optionee receives in exchange a payment of cash, property or a combination thereof having an aggregate value equal to the value of the cancelled options or Units, or (ii) the substitution of other property (including, without limitation, other securities) of comparable value for the Stock covered by outstanding options or Units.

2. The Plan is amended by adding the following new Section 16 at the end thereof:

16. Notwithstanding any other provision of the Plan: (a) any stock option or related right outstanding as of the date on which there occurs a Change in Control, as defined in the Company's 2002 Stock Incentive Plan (the "COC Date"), that is not then exercisable and vested shall become fully exercisable and vested as of the COC Date; and (b) any stock option or related right held by an optionee immediately before the optionee experiences an Involuntary Termination, as defined in the next sentence, that is vested and exercisable as of the COC Date (including without limitation pursuant to clause (a) above) shall remain exercisable following the COC Date for its full original term, notwithstanding the termination of the optionee's employment. For purposes of this Section 16, "Involuntary Termination" means (i) in the case of an optionee who is a party to an individual agreement with the Company providing for severance benefits payable in connection with a termination of employment following or in connecti on with a change in control (as defined in such individual agreement), a termination of employment under circumstances entitling the optionee to such severance benefits, and (ii) in the case of any other optionee, an involuntary termination of the optionee's employment after the Effective Date of the Change in Control for any reason other than the optionee's (1) commission or conviction of a felony or a crime of moral turpitude, (2) dishonesty in the course of fulfilling his or her employment duties, (3) willful and deliberate failure to perform his or her employment duties in any material respect, or (4) other act or failure to act that has an adverse effect on the business or reputation of the Company or any of its subsidiaries and affiliates.

3. The foregoing amendments shall be effective as of February 25, 2003, and shall apply to all options and Units outstanding on such date as well as to options and Units that are subsequently granted.

EX-10

Exhibit 10 (c)

AMENDMENT TO
SCHERING-PLOUGH CORPORATION
1997 STOCK INCENTIVE PLAN

The Schering-Plough Corporation 1997 Stock Incentive Plan (the "Plan") is hereby amended as follows:

1. Section 12 of the Plan is amended to read in its entirety as follows:

In the event of any stock dividend, stock split, reverse stock split, share combination, recapitalization, merger, consolidation, acquisition of property or shares, separation, spinoff, reorganization, stock rights offering, liquidation, disposition by the Company of a subsidiary or affiliate, or any similar event involving the Company, the Committee shall make such adjustments (if any) under the Plan as it deems appropriate and equitable, in its discretion, to reflect such event, including without limitation adjustments to the share limits provided in Section 2, to the number of shares of Common Stock and/or the kind of shares represented by any outstanding options and Units and to the option price of any outstanding options. Such adjustments may include, without limitation, (i) the cancellation of outstanding options and/or Units, provided that the optionee receives in exchange a payment of cash, property or a combination thereof having an aggregate value equal to the value of the cancelled options or Units, or (ii) the substitution of other property of comparable value (including, without limitation, other securities) for the Stock covered by outstanding options or Units.

2. Section 13 of the Plan is amended by adding the following new subsection (e) at the end thereof:

(e) Notwithstanding any other provision of the Plan, any stock option or related right held by an optionee immediately before the optionee experiences an Involuntary Termination, as defined in the next sentence, that is vested and exercisable as of the Effective Date, as defined in the next sentence, of the Change in Control (including without limitation pursuant to Section 13(a) above) shall remain exercisable following the Change in Control for its full original term, notwithstanding the termination of the optionee's employment. For purposes of this Section 13(e): (i) "Involuntary Termination" means (A) in the case of an optionee who is a party to an individual agreement with the Company providing for severance benefits payable in connection with a termination of employment following or in connection with a change in control (as defined in such individual agreement), a termination of employment under circumstances entitling the optionee to such severance benefits, and (B) in the case of any other opt ionee, an involuntary termination of the optionee's employment after the Effective Date of the Change in Control for any reason other than the optionee's (1) commission or conviction of a felony or a crime of moral turpitude, (2) dishonesty in the course of fulfilling his or her employment duties, (3) willful and deliberate failure to perform his or her employment duties in any material respect, or (4) other act or failure to act that has an adverse effect on the business or reputation of the Company or any of its subsidiaries and affiliates. The Effective Date of a Change in Control means (A) in the case of a Change in Control described in clause (1), (2) or (4) of Section 13(c), the date on which such Change in Control occurs, and (B) in the case of a Change in Control described in clause (3) of Section 13(c), the date (if any) on which the Business Combination is consummated.

3. The foregoing amendments shall be effective as of February 25, 2003, and shall apply to all options and Units outstanding on such date as well as to options and Units that are subsequently granted.

EX-10

Exhibit 10(d)

AMENDMENT TO
SCHERING-PLOUGH CORPORATION
2002 STOCK INCENTIVE PLAN

The Schering-Plough Corporation 2002 Stock Incentive Plan (the "Plan") is hereby amended as follows:

1. Section 11 of the Plan is amended to read in its entirety as follows:

In the event of any stock dividend, stock split, reverse stock split, share combination, recapitalization, merger, consolidation, acquisition of property or shares, separation, spinoff, reorganization, stock rights offering, liquidation, disposition by the Company of a subsidiary or affiliate, or any similar event involving the Company, the Committee shall make such adjustments (if any) under the Plan as it deems appropriate and equitable, in its discretion, to reflect such event, including without limitation adjustments to the share limits provided in Section 2, to the number of shares of Common Stock and/or the kind of shares represented by any outstanding options and Units and to the option price of any outstanding options. Such adjustments may include, without limitation, (i) the cancellation of outstanding options and/or Units, provided that the optionee receives in exchange a payment of cash, property or a combination thereof having an aggregate value equal to the value of the cancelled options or Units, or (ii) the substitution of other property (including, without limitation, other securities) of comparable value for the Stock covered by outstanding options or Units.

2. Section 12(a) of the Plan is amended by adding the following at the end thereof:

Finally, any stock option or related right held by an optionee immediately before the optionee experiences an Involuntary Termination, as defined in the next sentence, that is vested and exercisable as of the date of the Change in Control (including without limitation pursuant to this Section 12(a)) shall remain exercisable following the Change in Control for its full original term, notwithstanding the termination of the optionee's employment. For purposes of this Section 12(a), "Involuntary Termination" means (i) in the case of an optionee who is a party to an individual agreement with the Company providing for severance benefits payable in connection with a termination of employment following or in connection with a change in control (as defined in such individual agreement), a termination of employment under circumstances entitling the optionee to such severance benefits, and (ii) in the case of any other optionee, an involuntary termination of the optionee's employment after the Change in Control for any reason other than the optionee's (1) commission or conviction of a felony or a crime of moral turpitude, (2) dishonesty in the course of fulfilling his or her employment duties, (3) willful and deliberate failure to perform his or her employment duties in any material respect, or (4) other act or failure to act that has an adverse effect on the business or reputation of the Company or any of its subsidiaries and affiliates.

3. The foregoing amendments shall be effective as of February 25, 2003, and shall apply to all options and Units outstanding on such date as well as to options and Units that are subsequently granted.

EX-10

Exhibit 10(h)

Schering-Plough Corporation

_____________________________

Directors Stock Award Plan

(amended by Board of Directors on February 25, 2003)

1. The purposes of the Directors Stock Award Plan (the "Plan") are:

(a) to attract and retain highly qualified individuals to serve as Directors of

Schering-Plough Corporation (the "Corporation");

(b) to relate non-employee Directors compensation more closely to the Corporation's

performance and its shareholders' interests; and

(c) to increase non-employee Directors stock ownership in the Corporation.

2. The Plan first became effective on June 28, 1988 (the "Effective Date").

3. Subject to adjustment as provided in Section 9 below, the number of shares of Common

Stock of the Corporation available for issuance under the Plan shall be Nine Hundred

Thousand (900,000), unless the shareholders of the Corporation shall approve an amendment

to increase such limit.

4. Under this Plan, each of the incumbent non-employee Directors receives a specified number

of shares of Common Stock of the Corporation each year. Upon the Effective Date, the number of shares of Common Stock of the Corporation awarded per year under the Plan was 100 shares to each non-employee Director, and such number has been amended from time to time. From and after October 26, 1999, the number of shares of Common Stock of the Corporation awarded each year under the Plan has been, and shall continue to be, 2,500 shares to each non-employee Director, subject to adjustment as provided in Section 9 below. The shares are awarded on the day following each Annual Meeting of Shareholders of the Corporation. Newly eligible non-employee Directors receive a pro rata portion of such award of shares of Common Stock for the applicable term pending the next succeeding Annual Meeting of Shareholders.

5. From and after February 25, 2003, any non-employee Director may elect to receive, in lieu of any shares of Common Stock that otherwise would be issuable to such Director under Section 4, a number of Stock Units equal to the number of shares of Common Stock otherwise issuable. A "Stock Unit" represents a right to receive shares of Common Stock of the Corporation on the Deferred Delivery Date (as defined in Section 6 below). A Director's election to receive Stock Units in lieu of Common Stock must be delivered to the Corporation, in the form and manner prescribed by the Corporation, by December 15 of the year immediately preceding the year in which the shares of Common Stock would otherwise be issuable, except that

(a) an election to defer shares of Common Stock issuable the day following the 2003

Annual Meeting must be delivered to the Corporation by March 31, 2003; and

(b) any person who first becomes a non-employee Director between December 15 and the

date of the next succeeding Annual Meeting of Shareholders and who wishes to defer

shares of Common Stock issuable the day following such Annual Meeting of

Shareholders must deliver a deferral election to the Corporation by the end of the

calendar quarter in which he or she becomes a non-employee Director.

6. The "Deferred Delivery Date" shall be the earliest to occur of:

(a) the date selected by the Director;

(b) the first anniversary of the date the Director ceases to be a Director (or as soon as

practicable thereafter); or

(c) such date as the Corporation shall determine, which determination shall not require the

consent of the Director.

Notwithstanding the foregoing, upon the death of a Director, Common Stock underlying any Stock Units credited to such Director's account shall be delivered to the Director's named beneficiary or, if no such beneficiary has been named, to the Director's estate.

7. Stock Units shall not be evidenced by any certificate or other instrument, but shall be reflected on the books and records of the Corporation as an unsecured contractual obligation of the Corporation. The number of Stock Units credited to a Director's account shall be increased on each date on which the Corporation pays a dividend on the Common Stock, by a number that assumes payment of an equivalent dividend on the Stock Units and reinvestment of the dividend at the opening sale price of the Common Stock on the dividend payment date. Stock Units credited to a Director's account pursuant to this Section shall be paid to the Director on the Deferred Delivery Date applicable to the Stock Units on which the dividend was accrued.

8. Prior to the delivery of shares of Common Stock on a Deferred Delivery Date, a Director shall not have any rights as a shareholder as to those shares. Stock Units, and a Director's right to receive shares of Common Stock on a Deferred Delivery Date, may not be transferred other than by will or pursuant to the laws of descent and distribution.

9. In the event of any stock dividend, stock split, reverse stock split, share combination,

recapitalization, merger, consolidation, acquisition of property or shares, separation, spinoff, reorganization, stock rights offering, liquidation, disposition by the Corporation of a subsidiary or affiliate, or any similar event involving the Corporation, the Board of Directors of the Corporation shall make such adjustments (if any) under the Plan as it deems appropriate and equitable, in its discretion, to reflect such event, including without limitation adjustments to the share limit provided in Section 3, to the number of shares of Common Stock to be granted pursuant to Section 4, and/or the kind of shares represented by any outstanding Stock Units. Such adjustments may include, without limitation, (i) the cancellation of outstanding Stock Units, provided that the grantee receives in exchange a payment of cash, property or a combination thereof having an aggregate value equal to the value of the cancelled Stock Units, or (ii) the substitution of other property (including, without limitation, other s ecurities) for the Common Stock represented by outstanding Stock Units.

10. All shares of Common Stock of the Corporation to be used for purposes of this Plan shall be

treasury shares.

11. Upon receiving a distribution of shares pursuant to this Plan, the Director may be required to

represent in writing that he or she is acquiring such shares for his or her account for investment and not with a view to, or for sale in connection with, the distribution of any part thereof. The certificate for such shares may include any legend that the Corporation deems appropriate to reflect any restrictions on transactions.

12. This Plan shall be construed in accordance with the laws of the State of New Jersey and may

be amended or terminated at any time by action of the Board of Directors of the Corporation, provided, however, that this Plan shall not be amended more than once every six months, other than to comport with changes in the Internal Revenue Code, the Employee Retirement Income Security Act, or the rules thereunder.

EX-12

Exhibit 12

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

(Dollars in millions)

                                                                                              Year Ended

	2002	2001	2000	1999	1998
Income Before Income Taxes	$2,563	$2,523	$3,188	$2,795	$2,326
Add Fixed Charges:
Interest Expense	28	40	44	29	19
One-third of Rental Expense	27	24	24	22	19
Capitalized Interest	24	25	20	12	9
Total Fixed Charges	79	89	88	63	47
Less: Capitalized Interest	24	25	20	12	9
Add: Amortization of
Capitalized Interest	8	7	7	7	7
Earnings Before Income Taxes and Fixed Charges (other than Capitalized Interest)	$2,626	$2,594	$3,263	$2,853	$2,371
Ratio of Earnings to Fixed Charges	33	29	37	45	50

"Earnings" consist of income before income taxes and fixed charges (other than capitalized interest). "Fixed charges" consist of interest expense, capitalized interest and one-third of rentals which Schering-Plough believes to be a reasonable estimate of an interest factor on leases.

EX-13

Exhibit 13

MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION

NET SALES

Consolidated net sales in 2002 totaled $10.2 billion, an increase of $418 million or 4 percent versus 2001, reflecting price increases of 3 percent and favorable foreign exchange of 1 percent. Sales volume was unchanged versus 2001. Net sales in the United States decreased 4 percent versus 2001 and advanced 17 percent internationally. Excluding exchange, international sales increased 15 percent.

Consolidated 2001 net sales of $9.8 billion were essentially flat versus 2000, reflecting volume declines of 2 percent and unfavorable foreign exchange of 2 percent, offset by price increases of 4 percent.

Net sales by major therapeutic category for the years ended December 31, 2002, 2001 and 2000 were as follows:

(Dollars in millions)

				% Increase (Decrease)
	2002	2001	2000	2002/2001	2001/2000
Allergy & Respiratory	$3,304	$4,217	$4,189	(22)%	1%
Anti-infective & Anticancer	3,733	2,273	2,015	64	13
Cardiovasculars	433	623	746	(30)	(17)
Dermatologicals	511	593	680	(14)	(13)
Other Pharmaceuticals	764	656	710	16	(8)
Animal Health	677	694	720	(2)	(4)
Foot Care	290	310	336	(6)	(8)
Over-the-Counter (OTC)	275	188	193	46	(2)
Sun Care	193	208	186	(7)	11
Consolidated net sales	$10,180	$9,762	$9,775	4%	-

Certain amounts in prior periods have been reclassified from selling, general and administrative expenses to net sales to comply with EITF Issue No. 00-25, "Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendor's Products."

Worldwide net sales of allergy and respiratory products decreased 22 percent in 2002 and increased 1 percent in 2001. This category of sales was negatively impacted by the switch in the United States of the CLARITIN family of nonsedating antihistamines to OTC status. On November 27, 2002, the Company announced that the U.S. Food and Drug Administration (FDA) had approved all five formulations of CLARITIN at the original prescription strengths as OTC medicines for the treatment of allergies. The Company began shipping OTC CLARITIN in December 2002. As a result of the switch to OTC status, inventories of the prescription form of CLARITIN held by U.S. wholesalers, chain and retail pharmacies (the "trade") were reduced. In addition, the Company has determined that it is not practical to accurately project with reliable certainty the extent to which product shipped to the trade will translate to prescriptions filled and, therefore, has decided to fully reserve for any U.S. prescription CLA RITIN trade inventory existing at year-end 2002. Future revenue recognition from sales of the prescription form of CLARITIN in the United States will be deferred until such time as the product is used to fill patient prescriptions. This is being done because reliable estimates of sales returns can no longer be made at the time of shipment. As a result of the switch to OTC status, as well as the conversion of CLARITIN users to CLARINEX, the Company's next-generation, nonsedating antihistamine, coupled with lower prescription demand, worldwide sales of prescription CLARITIN were $1.8 billion in 2002, compared with $3.2 billion in 2001 and $3.0 billion in 2000.

Worldwide sales of CLARINEX for the treatment of seasonal outdoor allergies and year-round indoor allergies were $598 million in 2002. CLARINEX was launched in the United States in January 2002.

Sales of NASONEX, a once-daily corticosteroid nasal spray for allergies, were $523 million, essentially flat versus 2001, due to market share declines in the United States, tempered by market share gains in international markets. Sales of NASONEX increased in 2001, due to increases in market share in the United States and in international markets, coupled with continued share conversion from VANCENASE in the United States. Sales of PROVENTIL, including generic and other albuterol products for asthma, declined $102 million or 44 percent in 2002 due to continued generic competition.

Net sales of worldwide anti-infective and anticancer products rose 64 percent compared with 2001. Worldwide sales of the INTRON franchise totaled $2.7 billion in 2002, an increase of 89 percent. The INTRON franchise consists of INTRON A, PEG-INTRON and REBETOL. The higher INTRON franchise sales were due to the October 2001 market introduction of PEG-INTRON in combination with REBETOL for hepatitis C in the United States, as well as the continued rollout of this combination therapy in European markets. Also contributing to the sales growth was the December 2001 launch of REBETOL in combination with INTRON A in Japan. Sales in the anti-infective and anticancer category also benefited from higher international sales of REMICADE, marketed for Crohn's disease and rheumatoid arthritis, and worldwide sales of TEMODAR, a chemotherapy agent for treating certain types of brain tumors. Sales of REMICADE were up $171 million to $337 million, and sales of TEMODAR rose $98 million or 54 percent to $278 million, reflecting increased market penetration. In 2001, worldwide net sales of anti-infective and anticancer products increased 13 percent, led by worldwide sales of the INTRON franchise and higher utilization of both REMICADE and TEMODAR. This increase was moderated by lower sales of EULEXIN, a prostate cancer therapy, due to generic and branded competition.

Worldwide net sales of cardiovascular products decreased 30 percent in 2002. Sales of K-DUR, a sustained-release potassium chloride supplement, decreased $200 million or 92 percent due to continued generic competition. Partially offsetting this decline were higher sales of INTEGRILIN, a platelet receptor glycoprotein IIb/IIIa inhibitor for the treatment of patients with acute coronary syndromes, which increased $73 million or 32 percent, due to increased patient utilization and increased market penetration. In 2001, worldwide net sales of cardiovascular products decreased 17 percent, led by lower sales of K-DUR and IMDUR, an oral nitrate for angina, due to generic competition, tempered by higher sales of INTEGRILIN.

Dermatological products' worldwide net sales decreased 14 percent in 2002 versus the prior year. The decrease was primarily due to manufacturing issues as described in "Additional Factors Influencing Operations" below, coupled with generic competition for LOTRISONE, a topical antifungal/anti-inflammatory. Sales in this category decreased 13 percent in 2001 versus 2000 due to lower sales of LOTRISONE, which decreased $105 million or 55 percent, primarily due to generic competition.

Worldwide sales of animal health products decreased 2 percent in 2002 due to challenging global market conditions and manufacturing issues described in "Additional Factors Influencing Operations" below. Sales of animal health products decreased 4 percent in 2001 due to manufacturing issues, coupled with the impact of bovine spongiform encephalopathy (BSE or Mad Cow disease) and foot and mouth disease (FMD) in Europe.

Foot care product sales decreased 6 percent in 2002 and 8 percent in 2001, mainly due to increasing competition, tempered by the February 2002 launch of LOTRIMIN ULTRA, a topical antifungal.

OTC product sales increased 46 percent in 2002 due to the launch and initial stock-in of OTC CLARITIN in December 2002, tempered by manufacturing issues for other OTC products. OTC CLARITIN sales totaled $105 million in 2002. OTC product sales declined 2 percent in 2001, mainly due to manufacturing issues, described in "Additional Factors Influencing Operations" below.

Sun care sales decreased 7 percent in 2002 due to lower sales of BAIN DE SOLEIL products. Sales of sun care products increased 11 percent in 2001 due to the success of sunless tanning products in the United States and higher sales in Japan.

SUMMARY OF COSTS AND EXPENSES:

(Dollars in millions)

				% Increase (Decrease)
	2002	2001	2000	2002/2001	2001/2000
Cost of sales	$2,505	$2,078	$1,902	21%	9%
% of net sales	24.6%	21.3%	19.5%
Selling, general and administrative	$3,681	$3,444	$3,445	7%	-
% of net sales	36.2%	35.3%	35.2%
Research and development	$1,425	$1,312	$1,333	9%	(2%)
% of net sales	14.0%	13.4%	13.6%
Other (income) expense, net	$6	$ 405	$ (93)	(99%)	N/M
% of net sales	0.1%	4.1%	(.9%)
N/M - Not a meaningful percentage.

Certain amounts in prior periods have been reclassified from selling, general and administrative expenses to net sales to comply with EITF Issue No. 00-25, "Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendor's Products."

Cost of sales as a percentage of net sales in 2002 increased over 2001, primarily due to a shift in sales towards products on which royalties are paid and higher costs associated with manufacturing issues, described in "Additional Factors Influencing Operations" below. Cost of sales as a percentage of net sales in 2001 increased over 2000, due to costs associated with manufacturing issues.

Selling, general and administrative expenses as a percentage of net sales in 2002 increased over 2001, primarily due to increased spending to support the continued rollout of new and recently introduced products in international markets. Also contributing to the increase were pre-marketing expenses related to the launch of ZETIA, the first in a new class of cholesterol-lowering agents that inhibits the intestinal absorption of cholesterol. Selling, general and administrative expenses in 2001 were unchanged as a percentage of net sales, as lower promotional spending was tempered by the impact of international field force expansions.

Research and development spending increased 9 percent to $1.4 billion, representing 14.0 percent of net sales in 2002. Research and development expenses decreased 2 percent to $1.3 billion and represented 13.4 percent of net sales in 2001. The changes in spending in both years reflect the timing of the Company's funding of both internal research efforts and research collaborations with various partners to discover and develop a steady flow of innovative products.

In 2002, Other (income) expense, net included a $150 million provision to increase litigation reserves. For additional information, see the "Legal, Environmental and Regulatory Matters" footnote included in the financial statements to this report. Also included in 2002 was $80 million of income related to the sale of the Company's U.S. marketing rights for SUBOXONE and SUBUTEX sublingual tablets for the treatment of opioid dependence back to Reckitt Benckiser plc. The Company will maintain exclusive international distribution rights (excluding Japan, South Korea, Australia, New Zealand and some countries in the Far East) to these products. Other (income) expense, net in 2001 included a $500 million provision for the consent decree payments related to manufacturing issues described in "Additional Factors Influencing Operations" below.

INCOME BEFORE INCOME TAXES

Income before income taxes totaled $2.6 billion, $2.5 billion and $3.2 billion in 2002, 2001 and 2000, respectively. However, 2002 included a $150 million pre-tax provision to increase litigation reserves, and 2001 included a $500 million pre-tax provision for the consent decree payments. Excluding these items, income before income taxes declined 10 percent in 2002 and 5 percent in 2001. The Company advises that the trend in earnings should be viewed with and without these provisions.

INCOME TAXES

The Company's effective tax rate was 23.0 percent for 2002 and 2001, and 24.0 percent for 2000. The effective tax rate for each period was lower than the U.S. statutory income tax rate, principally due to tax incentives in certain jurisdictions where manufacturing facilities are located. For additional information, see the "Income Taxes" footnote in the Notes to Consolidated Financial Statements.

NET INCOME

Net income totaled $2.0 billion, $1.9 billion and $2.4 billion in 2002, 2001 and 2000, respectively. Excluding the $150 million pre-tax provision in 2002 to increase litigation reserves and the $500 million pre-tax provision for the consent decree payments in 2001, net income declined 10 percent in 2002 and 4 percent in 2001. The Company advises that the trend in earnings should be viewed with and without these provisions.

EARNINGS PER COMMON SHARE

Diluted earnings per common share were $1.34, $1.32 and $1.64 in 2002, 2001 and 2000, respectively. However, 2002 earnings per common share included a $150 million pre-tax provision to increase litigation reserves. Earnings per common share in 2001 included a $500 million pre-tax provision for the consent decree payments. Excluding these provisions, diluted earnings per common share decreased 10 percent in 2002 and 4 percent in 2001. The weakening of the U.S. dollar against the euro increased growth in earnings per common share in 2002, while the strengthening of the U.S. dollar against most foreign currencies decreased growth in earnings per common share in 2001. Excluding the impact of exchange rate fluctuations and excluding the two aforementioned provisions, diluted earnings per common share decreased 11 percent in 2002 and 1 percent in 2001. The Company advises that the trend in earnings should be viewed with and without the aforementioned provisions and the impact of yea r-to-year changes in foreign exchange rates.

ENVIRONMENTAL MATTERS

The Company has responsibilities for environmental cleanup under various state, local and federal laws, including the Comprehensive Environmental Response, Compensation and Liability Act, commonly known as Superfund. Environmental expenditures have not had and, based on information currently available, are not anticipated to have a material impact on the Company. For additional information, see the "Legal, Environmental and Regulatory Matters" footnote in the Notes to Consolidated Financial Statements.

ADDITIONAL FACTORS INFLUENCING OPERATIONS

In the United States, many of the Company's pharmaceutical products are subject to increasingly competitive pricing as managed care groups, institutions, government agencies and other groups seek price discounts. In most international markets, the Company operates in an environment of government-mandated cost-containment programs. In the U.S. market, the Company and other pharmaceutical manufacturers are required to provide statutorily defined rebates to various government agencies in order to participate in Medicaid, the veterans health care program and other government-funded programs. Several governments have placed restrictions on physician prescription levels and patient reimbursements, emphasized greater use of generic drugs and enacted across-the-board price cuts as methods to control costs.

Since the Company is unable to predict the final form and timing of any future domestic or international governmental or other health care initiatives, their effect on operations and cash flows cannot be reasonably estimated. Similarly, the effect on operations and cash flows of decisions of government entities, managed care groups and other groups concerning formularies and pharmaceutical reimbursement policies cannot be reasonably estimated.

A significant portion of net sales is made to major pharmaceutical and health care products distributors and major retail chains in the United States. Consequently, net sales and quarterly growth comparisons may be affected by fluctuations in the buying patterns of major distributors, retail chains and other trade buyers. These fluctuations may result from seasonality, pricing, wholesaler buying decisions or other factors.

The market for pharmaceutical products is competitive. The Company's operations may be affected by technological advances of competitors, industry consolidation, patents granted to competitors, new products of competitors and generic competition as the Company's products mature. In addition, patent positions are increasingly being challenged by competitors, and the outcome can be highly uncertain. An adverse result in a patent dispute can preclude commercialization of products or negatively affect sales of existing products. The effect on operations of competitive factors and patent disputes cannot be predicted.

As noted in the "Legal, Environmental and Regulatory Matters" footnote included in the financial statements to this report, the Company has sued drug manufacturers that are marketing or seeking to market certain forms of generic loratadine prior to the expiration of the Company's compound patent for desloratadine. In each case, the Company has filed suit in federal court seeking a ruling that the applicable Abbreviated New Drug Application (ANDA) or "paper" New Drug Application submission and proposed marketing of a generic prescription or OTC product constitute infringement of the Company's patents and that the challenge to the patents is without merit. The compound patent for loratadine expired on June 19, 2002, and U.S. market exclusivity for CLARITIN expired on December 19, 2002. A patent covering the compound desloratadine, formulations thereof, and methods of treatment with desloratadine as it relates to CLARITIN is set to expire on April 21, 2004. Six months' U.S. market exclusi vity would attach to the end of the desloratadine patent as it relates to CLARITIN and would expire October 21, 2004. This six-month period of exclusivity was granted because the Company conducted pediatric clinical trials at the request of the FDA. On August 8, 2002, a federal district court in New Jersey ruled on motions for summary judgment, finding that certain of the desloratadine compound patent claims, which the Company believes protect CLARITIN, were anticipated by a prior patent and thus invalid. On September 18, 2002, the district court denied a request for reconsideration. The Company has appealed the rulings. The Company anticipates that the appeal will be decided in the second half of 2003 or early 2004. With these rulings, actions against the defendants for infringement of the desloratadine compound patent will not proceed unless the Company's appeal is successful. The Company has also asserted that ANDAs filed by two manufacturers for generic versions of CLARITIN-D 24 Hour infringe the C ompany's patent covering CLARITIN-D 24 Hour. This issue has not yet been resolved by the district court.

On November 27, 2002, the Company announced that all five formulations of the CLARITIN brand of non-drowsy allergy products had been approved at their original prescription strengths by the FDA as OTC medicines for the treatment of allergies. The Company also has been informed by the FDA that the New Drug Applications (NDAs) for these CLARITIN formulations, as well as for all indications (allergies and hives), will be transferred from the FDA's Pulmonary Division Office of Drug Evaluation II to the Division of Over-the-Counter Drug Products Office of Drug Evaluation V. The Company launched OTC CLARITIN in the United States in December 2002. Also in December 2002, a competing OTC loratadine product was launched in the United States.

The Company continues to market CLARINEX (desloratadine) 5 mg tablets for the treatment of allergic rhinitis, which combines the indication of seasonal allergic rhinitis with the indication of perennial allergic rhinitis, as well as the treatment of chronic idiopathic urticaria, or hives of unknown cause. The ability of the Company to capture and maintain market share for CLARINEX and OTC CLARITIN in the U.S. market will depend on a number of factors, including: additional entrants in the market for allergy treatments; clinical differentiation of CLARINEX from other allergy treatments and the perception of the extent of such differentiation in the marketplace; the pricing differentials among OTC CLARITIN, CLARINEX, other allergy treatments and generic OTC loratadine; the erosion rate of OTC CLARITIN and CLARINEX sales upon the entry of additional generic OTC loratadine products; and whether or not one or both of the other branded second-generation antihistamines are switched from prescrip tion to OTC status.

The switch of CLARITIN to OTC status has resulted in a rapid, sharp and material decline in CLARITIN sales in the United States. U.S. sales of CLARITIN products were $1.4 billion and $2.7 billion in 2002 and 2001, respectively, or 14 percent and 28 percent, respectively, of the Company's consolidated worldwide sales for those years. Sales of CLARINEX in the United States and abroad could also be materially adversely affected by the presence of generic OTC loratadine or OTC CLARITIN in the market given the anticipated contraction of the prescription antihistamine market. In light of the factors described above, management believes that the Company's December 2002 introduction of OTC CLARITIN, as well as the introduction of a competing OTC loratadine product in December 2002 and additional entrants of generic OTC loratadine products in the market, will likely have a rapid, sharp and material adverse effect on the Company's results of operations for an indeterminate period of time.

As disclosed in filings with the U.S. Securities and Exchange Commission (SEC) and as noted in the "Legal, Environmental and Regulatory Matters" footnote included in the financial statements to this report, three drug manufacturers have submitted ANDAs to the FDA seeking to market generic forms of REBETOL (ribavirin) Capsules in the United States before the expiration of the Company's patents covering ribavirin formulations. The Company has sued those manufacturers in federal court for infringement. In February 2003, the Company entered into a licensing agreement with Three Rivers Pharmaceuticals, L.L.C. (Three Rivers) that will settle all patent litigation between the Company and Three Rivers. The settlement does not affect Three Rivers' reported patent litigation with Ribapharm, Inc. relating to ribavirin patents. The agreement is subject to the dismissal of the relevant lawsuits in court. The patent litigation with the other two manufacturers has been temporarily stayed while the p arties seek to reach a settlement. Generic forms of ribavirin could enter the U.S. market in 2003, assuming FDA's approval of a generic ribavirin. The REBETOL patents are material to the Company's business. U.S. sales of REBETOL in 2002 were $865 million.

PEG-INTRON and REBETOL combination therapy for hepatitis C contributed substantially to sales in 2002. During the fourth quarter of 2002, a competing pegylated interferon-based combination product, including a brand of ribavirin, received regulatory approval in most major markets, including the United States. Management believes that the ability of PEG-INTRON and REBETOL combination therapy to maintain market share will be adversely affected by the introduction of a competing product.

In October 2002, Merck/Schering-Plough Pharmaceuticals announced that the FDA approved ZETIA (ezetimibe) 10 mg for use either by itself or together with statins for the treatment of elevated cholesterol levels. Ezetimibe also received marketing approval in October in Germany. The approval of ezetimibe in Germany represents the first step in seeking marketing approval throughout the European Union under its mutual recognition procedure. Ezetimibe is marketed as EZETROL in Germany. The Merck/Schering-Plough partnership is also pursuing the development and marketing of a once-daily tablet combining ezetimibe with simvastatin (Zocor), Merck's cholesterol-modifying medicine.

Uncertainties inherent in government regulatory approval processes, including, among other things, delays in approval of new products, formulations or indications, may also affect the Company's operations. The effect of regulatory approval processes on operations cannot be predicted.

The Company is subject to the jurisdiction of various national, state and local regulatory agencies and is therefore subject to potential administrative actions. Of particular importance is the FDA in the United States. It has jurisdiction over all the Company's businesses and administers requirements covering the testing, safety, effectiveness, approval, manufacturing, labeling and marketing of the Company's products. From time to time, agencies, including the FDA, may require the Company to address various manufacturing, advertising, labeling or other regulatory issues, such as those noted below relating to the Company's current manufacturing issues. Failure to comply with governmental regulations can result in delays in the release of products, seizure or recall of products, suspension or revocation of the authority necessary for the production and sale of products, discontinuance of products, fines and other civil or criminal sanctions. Any such result could have a material advers e effect on the Company's financial position and its results of operations. Additional information regarding government regulation and cautionary factors that may affect future results is provided in Part I, Item I, "Business," in the Company's annual report on Form 10-K for the fiscal year ended December 31, 2002, which will be filed with the SEC in March 2003.

As noted in the "Consent Decree" footnote included in the financial statements to this report, on May 17, 2002, the Company announced that it reached an agreement with the FDA for a consent decree to resolve issues involving the Company's compliance with current Good Manufacturing Practices at certain manufacturing facilities in New Jersey and Puerto Rico. The U.S. District Court for the District of New Jersey approved and entered the consent decree on May 20, 2002.

Under terms of the consent decree, the Company will pay a total of $500 million to the U.S. government in two equal installments of $250 million; the first installment was paid in May 2002 and the second installment will be paid in the second quarter of 2003. As previously reported, the Company accrued a $500 million provision for this consent decree in the fourth quarter of 2001. In the event that certain actions agreed upon in the consent decree are not satisfactorily completed on time, the FDA may assess payments of $15,000 per business day for each deadline missed. These payments may not exceed $25 million for 2002, and $50 million for each of the years 2003, 2004 and 2005. These payments are subject to an overall cap of $175 million through 2005. The Company is scheduled to complete its revalidation plans by December 31, 2005. In general, in addition to the payments described above, if a product scheduled for revalidation and certification under the consent decree is not certifie d within six months of its scheduled date, the Company must cease production of that product until certification is obtained. If a product scheduled for revalidation and certification has not been certified as having been validated by the last date on the validation schedule (currently December 31, 2005, for finished drugs and September 30, 2005, for bulk active pharmaceutical ingredients), the FDA may assess a payment of 24.6 percent of the net domestic sales of the uncertified product until the validation is certified. The Company would expense any such payments if and when incurred.

In addition, the failure to meet the terms of the consent decree could result in delays in approval of new products, seizure or recall of products, suspension or revocation of the authority necessary for the production and sale of products, fines and other civil or criminal sanctions.

Under certain circumstances, the Company may deem it advisable to initiate product recalls. In 2001 and 2002, the Company initiated voluntary recalls of batches of several human and animal health products. The cost of the recalls did not have a significant impact on the financial results of the Company.

As described more specifically in the "Legal, Environmental and Regulatory Matters" footnote included in the financial statements to this report, to which the reader of this report is directed, the pricing, marketing programs and arrangements, and related business practices of the Company 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 (FTC) 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 instituted and resolved unfavorably, could subject the Company to substantial fines, penalties and injunctive or administrative remedies, including exclusion from government reimbursement programs, and the Company cannot predict whether any investigations will affect its marketing practices or sales. Any such result could have a material adverse effect on the Company, its financial condition or its results of operations.

CRITICAL ACCOUNTING POLICIES

The following accounting policies are considered significant because changes to certain judgments and assumptions inherent in these policies could affect the Company's financial statements:

- Accrual of rebates on sales of pharmaceuticals in the United States;

• Provision for income taxes for undistributed foreign earnings;

- Impairment of intangible assets; and

- Accounting for legal and regulatory matters.

Pharmaceutical products are sold to direct purchasers (e.g., wholesalers, retailers and certain health maintenance organizations), and the Company invoices those entities when the products are shipped. In addition, the Company has commercial rebate and discount arrangements with certain indirect purchasers and other market participants (e.g., managed care organizations that indemnify beneficiaries of health plans for their pharmaceutical costs and pharmacy benefit managers) based upon the purchase or utilization of Company products. The Company also has governmental rebate obligations under certain federal and state programs. For purposes of revenue recognition, the Company at the end of each quarter estimates the applicable commercial and governmental rebates that will be paid for products sold during the quarter and nets those estimated amounts from the total direct sales. These rebates are estimated based on terms, historical experience, trend analysis and projected market conditions in the various markets served. In the case of the governmental rebate programs, the Company's payments involve interpretations of relevant statutes and regulations. These interpretations are subject to challenges and changes in interpretive guidance by governmental authorities. The result of such a challenge or change could affect whether the estimated governmental rebate amounts are ultimately sufficient to satisfy the Company's obligations. Additional information on governmental inquiries focused in part on the calculation of rebates is contained in the "Legal, Environmental and Regulatory Matters" footnote in the Notes to Consolidated Financial Statements of this report. In addition, it is possible that, as a result of governmental challenges or changes in interpretive guidance, actual rebates could materially exceed amounts accrued.

As of December 31, 2002, taxes have not been provided on approximately $9.4 billion of undistributed earnings of foreign subsidiaries. Management has determined that the assets associated with these earnings have been permanently reinvested in the Company's overseas operations. If future events require that certain assets associated with these earnings be repatriated to the United States, it is likely that additional tax provisions would be required. Any such events are unforeseen at this time. Due to complexities in tax laws and the assumptions that would have to be made, it is not practicable to estimate what such a provision would be.

Intangible assets representing the capitalized costs of purchased goodwill, patents, licenses and other forms of intellectual property totaled $661 million at December 31, 2002. The value of these assets is subject to continuing scientific, medical and marketplace uncertainty. For example, if a marketed pharmaceutical product were to be withdrawn from the market for safety reasons or if marketing of a product could only occur with pronounced warnings, amounts capitalized for such a product may need to be reduced due to impairment. Events giving rise to impairment are an inherent risk in the pharmaceutical industry and cannot be predicted. Management regularly reviews intangible assets for possible impairment.

Management judgments and estimates are also required in the accounting for legal and regulatory matters. See "Legal, Environmental and Regulatory Matters" footnote in the Notes to Consolidated Financial Statements.

LIQUIDITY AND FINANCIAL RESOURCES

A combination of cash from operations and borrowings represents the primary sources of funds to finance working capital, capital expenditures and shareholder dividends. The Company's liquidity and financial resources continued to be sufficient to meet its operating needs.

Cash provided by operating activities totaled $1,980 million in 2002, $2,512 million in 2001 and $2,511 million in 2000. The decrease in cash provided by operating activities in 2002 versus 2001 was due to the payment of the first $250 million installment under the terms of the consent decree as described in "Additional Factors Influencing Operations" above; an increase in inventories resulting from the growth of the Company's international business; and lower operating income in the United States. The Company has experienced a trend of increasing accounts receivable due to the growth of its international business, where payment terms are generally longer than in the United States. The Company does not believe that the trend in international receivables will adversely affect its results of operations or liquidity. In 2002, however, the growth in international accounts receivable was offset by a decline in U.S. receivables.

Capital expenditures amounted to $770 million in 2002, $759 million in 2001 and $763 million in 2000. It is expected that capital expenditures will exceed $775 million in 2003. Commitments for future capital expenditures totaled $177 million at December 31, 2002.

Cash flow related to financing activities included dividend payments, changes in borrowings and equity proceeds related to option exercises. In February 2000, the Board of Directors authorized the repurchase of $1.5 billion of the Company's common shares. This program was approximately 36 percent complete when the Company suspended its repurchase activity in the first quarter of 2001. Common shares repurchased in 2001 were 0.7 million shares for $34 million. In 2000, 19.8 million shares were repurchased at a cost of $855 million. Dividend payments of $983 million were made in 2002, compared with $911 million in 2001 and $802 million in 2000. Dividends per common share were $0.67 in 2002, up from $0.62 in 2001 and $0.545 in 2000.

Cash and cash equivalents totaled $3,521 million, $2,716 million and $2,397 million at December 31, 2002, 2001 and 2000, respectively. In addition, the Company had short-term investments of $481 million at December 31, 2002, representing time deposits with maturities of five months or less. Short-term borrowings and current portion of long-term debt totaled $1,423 million at year-end 2002, $565 million in 2001 and $994 million in 2000.

At December 31, 2002, cash and cash equivalents plus the short-term investments exceeded total short-term borrowings and long-term debt by $2,558 million. During 2003, management expects this excess to decline due to an expected reduction in cash flow from U.S. operations, requiring additional borrowings to fund working capital, capital expenditures and dividends. Cash flow from operations in 2003 is expected to decline primarily due to the decrease in earnings attributable to the loss of marketing exclusivity for the CLARITIN family of products in the United States. Also, the remaining $250 million installment due under the consent decree will be paid in 2003.

Approximately 90 percent of short-term borrowings is owed by wholly owned U.S.-based subsidiaries of the Company. Substantially all cash and cash equivalents and short-term investments are held by wholly owned foreign-based subsidiaries. If the funds of these foreign-based subsidiaries were to be used for U.S. cash flow needs, additional U.S. income taxes would likely be owed. Presently, management does not expect to draw upon the funds held by its foreign-based subsidiaries to fund U.S. operations. Management believes that any U.S. cash flow needs for operations can be funded by a combination of U.S. cash flow from operations and additional U.S. borrowings.

Payments due by period under long-term debt, other financing instruments and commitments at December 31, 2002, are as follows:

(Dollars In millions)

	Total	Within 1 year	Within 2 to 3 years	Within 4 to 5 years	After 5 years
Long-term debt, net of current portion	$   21	$   -	$   12	$   5	$   4
Other financing instruments	241	-	-	-	241
Consent decree payment	250	250	-	-	-
Operating lease commitments	254	64	90	64	36
Capital expenditure commitments	177	177	-	-	-
Total	$  943	$  491	$   102	$   69	$   281

In February 2003, the Company filed a shelf registration with the SEC that will enable the Company to issue up to $2 billion of long-term unsecured debt securities. This registration statement has been filed with the SEC but has not yet become effective. The Company intends to use net proceeds from the sale of the securities for general corporate purposes, including the refinancing of short-term debt.

The Company has two committed, unsecured revolving credit facilities from a syndicate of financial institutions. Under one facility, up to $500 million can be drawn down through May 2003, with repayment due by May 2004. Under a second multi-currency facility, an additional $500 million can be drawn down through the maturity date of May 2006. As of December 31, 2002, no funds were drawn down under these facilities.

On January 15, 2003, Standard & Poor's issued a statement affirming the Company's corporate credit and preliminary senior unsecured debt ratings of "AA-" as well as the short-term rating of "A-1+" while maintaining its negative outlook. On January 17, 2003, Moody's Investors Service (Moody's) downgraded the prospective rating of the Company for senior unsecured debt under its shelf registration to "A1" from "Aa2" and stated that the rating outlook is stable. At the same time, Moody's confirmed the Company's "Prime-1" short-term rating.

OFF-BALANCE-SHEET FINANCING

Following is a discussion of the cash management strategies employed by the Company:

Certain of the Company's consolidated subsidiaries manufacture pharmaceutical ingredients at facilities located in low-tax jurisdictions ("manufacturing subsidiaries"). These manufacturing subsidiaries sell the pharmaceutical ingredients to other consolidated subsidiaries for further manufacturing and final sale to customers. Intercompany sales of products among the subsidiaries are eliminated in the preparation of the consolidated financial statements.

To balance the cash requirements of all its subsidiaries, the Company employs a number of strategies, the most common of which are short- and long-term intercompany financing between consolidated subsidiaries and third-party financing directly to a subsidiary. Any such third-party financing typically is guaranteed by the Company, and this third-party financing is reported as debt in the consolidated balance sheet of the Company. The Company has not engaged in any off-balance-sheet financing involving unconsolidated entities.

In addition to the above, the Company has two separate arrangements that enable it to balance the cash flows between its U.S. subsidiaries and its foreign-based subsidiaries. The first arrangement utilizes two long-term interest rate swap contracts. One contract is between a foreign-based subsidiary and a bank, and the other contract is between a U.S. subsidiary and the same bank. The contracts have equal and offsetting terms, thus eliminating any market risk arising from changes in interest rates.

These interest rate swap contracts permit the foreign-based subsidiary to prepay a portion of its future swap obligation to the bank and for the bank to prepay an identical portion of its future swap obligation to the U.S. subsidiary. Interest is paid on the prepaid balances by both parties at market rates. These interest rates are reset annually based upon LIBOR, and the prepayments are repayable by the U.S. subsidiary and the bank over 15 years beginning in 2007. As of December 31, 2002, the foreign-based subsidiary had prepaid $1.4 billion of its future obligation to the bank and the bank had prepaid $1.4 billion of its future obligation to the U.S. subsidiary. In addition, through November 2007, the foreign-based subsidiary has the right to withdraw amounts it has prepaid to the bank. The bank, however, does not have a corresponding right of withdrawal.

These interest rate swap contracts are accounted for as derivative instruments under Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," as interpreted by Derivatives Implementation Group (DIG) Issue No. A9, "Definition of a Derivative: Prepaid Interest Rate Swaps." The prepaid amounts have been netted in the preparation of the consolidated balance sheet in accordance with Financial Accounting Standards Board (FASB) Interpretation No. 39, "Offsetting of Amounts Related to Certain Contracts." The FASB is considering amending Statement 133 to require separation of the financing portion of a derivative forward contract and to account for the financing portion as an asset or liability. If this conclusion becomes final, the Company may be precluded from reporting these contracts on a net basis. As a result, the Company could be required to report its prepayment to the bank as a long-term investment and to report the ba nk's prepayment as long-term debt.

Management does not believe that the potential change in financial reporting for prepaid swaps would have a material impact on the Company's liquidity or financial resources. The change in financial reporting would result in the addition to the balance sheet of a long-term investment and long-term debt in equal amounts.

Further, these interest rate swap contracts contain two different credit rating downgrade triggers allowing the bank to elect early termination. One trigger provides for early termination if at any time during the life of the contract the Company fails to maintain a long-term debt rating of at least "A2" by Moody's or "A" by Standard & Poor's. This trigger provides the Company with a 36-month period in which to restore its credit rating before early termination can occur. The second trigger is effective only on the 10th anniversary of the transaction (November 17, 2007). It provides for early termination if on November 17, 2007, either Moody's or Standard & Poor's has lowered its credit ratings below the levels mentioned above. Instead of providing a period of time in which to restore the credit rating, this second trigger permits the bank on November 17, 2007, to give a 12-month notice of its intent to terminate the contracts.

Early termination under either credit rating trigger requires repayment of all prepaid amounts. The repayment must occur in the original tax jurisdiction in which the prepaidamounts were made. Early termination would require the Company's U.S. subsidiary to repay $1.4 billion to the bank and the bank to repay $1.4 billion to the Company's foreign-based subsidiary.

The impact of early termination on liquidity and financial resources depends on the manner and extent to which the Company decides to finance its U.S. repayment obligation. The Company could finance its entire obligation by obtaining short- or long-term financing in the United States. If this were the case, cash and cash equivalents would increase by $1.4 billion as a result of the bank's repayment to the foreign-based subsidiary, and debt would increase by $1.4 billion as a result of the Company financing its repayment obligation in the United States. Alternatively, the Company could repatriate to the United States some or all of the funds received by the foreign-based subsidiary. Repatriating funds would most likely have U.S. income tax consequences. While it is not practical to estimate the amount of U.S. income tax arising from any future repatriation, any such amount would not exceed $375 million, assuming the entire $1.4 billion were repatriated in a taxable transaction and assumi ng current tax rates prevail in the future.

Management does not expect a credit rating downgrade to the level that would allow the bank to elect early termination. Even if this were to occur, the Company has the ability to fund its repayment obligation in the United States by external financing or by repatriating funds from its foreign operations. Any tax cost of repatriation would not impair the Company's liquidity.

The second arrangement employed by the Company to balance the cash flows between its U.S. and foreign operations involves long-term interest rate swap contracts that were entered into in 1991 and 1992. (Refer to "Market Risk Disclosures" below for a discussion regarding the market risk and the accounting for these interest rate swaps.) The terms of these contracts enable the Company to sell the right to receive payments while retaining the obligation to make payments. In 1991 and 1992, the U.S. parent company sold the rights to receive payments to a foreign-based subsidiary in return for approximately $700 million (fair value). This intercompany transaction has been eliminated in the preparation of the consolidated financial statements.

The Internal Revenue Service (IRS) has asserted that this transaction between Schering-Plough, as the U.S. parent company, and its foreign-based subsidiary was not a sale, but was a loan on which additional U.S. income taxes of $195 million are due. The Company has not accrued the $195 million because the Company and its tax advisers do not believe it is probable that the IRS will prevail in this matter.

Further, these interest rate swap contracts contain credit rating downgrade triggers that would effectively terminate the contracts if, at any time during the life of the contracts, the Company fails to maintain a long-term credit ratingof at least "A2" by Moody's or "A" by Standard & Poor's. Termination due to a credit rating downgrade would effectively negate this cash management strategy and would most likely result in the Company owing the additional U.S. income taxes. Management does not expect a credit rating downgrade to the level that would effectively terminate the contracts. Even if this were to occur, the most likely impact on liquidity and financial resources would be additional income taxes and, possibly, related interest and penalties. Any such amounts would not impair the Company's liquidity. For additional information, see the "Legal, Environmental and Regulatory Matters" footnote in the Notes to Consolidat ed Financial Statements.

MARKET RISK DISCLOSURES

The Company is exposed to market risk primarily from changes in foreign currency exchange rates and, to a lesser extent, from interest rates and equity prices. The following describes the nature of these risks.

Foreign Currency Exchange Risk

The Company has subsidiaries in more than 40 countries worldwide. In 2002, sales outside the United States accounted for approximately 43 percent of worldwide sales. Virtually all these sales were denominated in currencies of the local country. As such, the Company's reported profits and cash flows are exposed to changing exchange rates. In 2002, changes in foreign exchange rates increased sales by 1 percent and increased 2002 diluted earnings per common share by 1 percent.

To date, management has not deemed it cost effective to engage in a formula-based program of hedging the profits and cash flows of foreign operations using derivative financial instruments. Because the Company's foreign subsidiaries purchase significant quantities of inventory payable in U.S. dollars, managing the level of inventory and related payables and the rate of inventory turnover provides a level of protection against adverse changes in exchange rates. The risk of adverse exchange rate change is also mitigated by the fact that the Company's foreign operations are widespread. The widespread nature of these foreign operations is the primary reason that overall economic weakness in certain Latin American countries is not expected to significantly impact future operations of the Company.

In addition, at any point in time, the Company's foreign subsidiaries hold financial assets and liabilities that are denominated in currencies other than U.S. dollars. These financial assets and liabilities consist primarily of short-term, third-party and intercompany receivables and payables. Changes in exchange rates affect these financial assets and liabilities. For the most part, however, gains or losses arise from translation and, as such, do not significantly affect net income.

On occasion, the Company has used derivatives to hedge specific short-term risk situations involving foreign currency exposures. However, these derivative transactions have not been material.

Interest Rate and Equity Price Risk

The financial assets of the Company that are exposed to changes in interest rates and/or equity prices include debt and equity securities held in non-qualified trusts for employee benefits.

The trust investments totaled approximately $168 million at December 31, 2002. Due to the long-term nature of the liabilities that these trust assets fund, the Company's exposure to market risk is low.

The financial obligations of the Company that are exposed to changes in interest rates are generally limited to short-term borrowings and a $200 million equity-type security issued in 1999. All other borrowings are not significant. Although the borrowings are, for the most part, floating rate obligations, the interest rate risk posed by these borrowings is low because the amount of these obligations is small in relation to annual cash flow. The Company believes it has the financial flexibility to pay off these borrowings quickly if interest rates were to increase significantly.

Interest Rate Swaps

In 1991 and 1992, the Company utilized interest rate swaps as part of its international cash management strategy. For additional information, see the "Financial Instruments and Commitments" footnote in the Notes to Consolidated Financial Statements. These swaps subject the Company to a moderate degree of market risk. The Company accounts for these swaps using fair value accounting, with changes in the fair value recorded in earnings. The fair value of these swaps was a liability of $1 million at December 31, 2002, and a liability of less than $1 million at December 31, 2001. It is estimated that a 10 percent change in interest rate structure could change the fair value of the swaps by approximately $1 million.

During 1999, the Company purchased a $200 million variable rate, three-month time deposit. The Company intends to roll over this time deposit every three months until November 2003. To hedge the future variable interest receipts on this time deposit, the Company entered into an interest rate swap that matures in November 2003. Under thisswap, the Company receives a fixed rate and pays a three-month variable rate. The fair value of this swap at December 31, 2002, was an asset of $53 million. At December 31, 2001, the fair value of this swap was a $40 million asset. It is estimated that a 10 percent change in interest rate structure could change the fair value of the swap by less than $1 million.

CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS

This annual report and other written reports and oral statements made from time to time by the Company may contain so-called "forward-looking statements," all of which are subject to risks and uncertainties. One can often identify these forward-looking statements by their use of such words as "expects," "plans," "will," "estimates," "forecasts," "projects," "believes," "anticipates" and other words of similar meaning. One also can identify them by the fact that they do not relate strictly to historical or current facts. These statements are likely to address the Company's growth strategy, financial results, regulatory issues, status of product approvals, development programs, litigation and investigations. One must carefully consider any such statement and should understand that many factors could cause actual results to differ from the Company's forward-looking statements. These factors include inaccurate assumptions and a broad variety of other risks and uncertainties , including some that are known and some that are not. No forward-looking statement can be guaranteed, and actual future results may vary materially.

The Company does not assume the obligation to update any forward-looking statement. One should carefully evaluate such statements in light of factors described in the Company's filings with the SEC, especially on Forms 10-K, 10-Q and 8-K. In Item 1 of the Company's annual report on Form 10-K for the year ended December 31, 2002, which will be filed with the SEC in March 2003, the Company discusses in more detail various important factors that could cause actual results to differ from expected or historic results. Important factors include but are not limited to buying patterns of major purchasers and distributors, competitive factors, pricing pressures in the United States and abroad from commercial and governmental entities, laws and regulations affecting domestic and international operations, patent positions, uncertainties in the FDA and international drug approval processes, manufacturing and regulatory issues that may arise, difficulties in product development, possible efficacy or safety concerns with respect to marketed products, whether or not scientifically justified, the Company's reliance on major products such as PEG-INTRON, REBETOL Capsules, CLARINEX and NASONEX for a material portion of the Company's revenues, legal factors, including litigation, patent disputes and governmental investigations, and business, tax and economic factors. TheCompany notes these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. One should understand that it is not possible to predict or identify all such factors. Consequently, the reader should not consider any such list to be a complete statement of all potential risks or uncertainties. Further, the Company has issued cautionary statements in the Disclosure Notices attached to its press releases discussing matters described in this report. The Company's press releases for 2002 and 2003 to date are available on the Company's Web site on the World Wi de Web at schering-plough.com. The reader of this report is urged to read those cautionary statements, which are incorporated by reference herein.

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED INCOME

	For the Years Ended December 31,
(Amounts in millions, except per share figures)	2002	2001	2000
Net sales	$10,180	$9,762	$9,775
Costs and Expenses:
Cost of sales	2,505	2,078	1,902
Selling, general and administrative	3,681	3,444	3,445
Research and development	1,425	1,312	1,333
Other (income) expense, net	6	405	(93)
Total costs and expenses	7,617	7,239	6,587
Income before income taxes	2,563	2,523	3,188
Income taxes	589	580	765
Net income	$1,974	$1,943	$2,423
Diluted earnings per common share	$1.34	$1.32	$1.64
Basic earnings per common share	$1.35	$1.33	$1.65

See Notes to Consolidated Financial Statements.

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED CASH FLOWS

	For the Years Ended December 31,
(Amounts in millions)	2002	2001	2000
Operating Activities:
Net income	$1,974	$1,943	$2,423
Depreciation and amortization	372	320	299
Accounts receivable	7	(434)	(418)
Inventories	(248)	(69)	(17)
Prepaid expenses and other assets	(242)	(153)	(30)
Accounts payable and other liabilities	117	905	254
Net cash provided by operating activities	1,980	2,512	2,511
Investing Activities:
Capital expenditures	(770)	(759)	(763)
Purchases of investments	(482)	(162)	(104)
Reduction of investments	303	33	60
Other, net	(19)	25	(41)
Net cash used for investing activities	(968)	(863)	(848)
Financing Activities:
Cash dividends paid to common shareholders	(983)	(911)	(802)
Common shares repurchased	-	(34)	(855)
Net change in short-term borrowings	770	(419)	280
Issuance of long-term debt	-	8	106
Other, net	13	29	133
Net cash used for financing activities	(200)	(1,327)	(1,138)
Effect of exchange rates on cash and cash equivalents	(7)	(3)	(4)
Net increase in cash and cash equivalents	805	319	521
Cash and cash equivalents, beginning of year	2,716	2,397	1,876
Cash and cash equivalents, end of year	$3,521	$2,716	$2,397
See Notes to Consolidated Financial Statements.

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	At December 31,
(Amounts in millions, except per share figures)	2002	2001
ASSETS
Current Assets:
Cash and cash equivalents	$3,521	$2,716
Short-term investments	481	75
Accounts receivable, less allowances: 2002, $134; 2001, $123	1,808	1,789
Inventories	1,300	945
Deferred income taxes	625	573
Prepaid expenses and other current assets	537	421
Total current assets	8,272	6,519
Property, at cost:
Land	61	58
Buildings and improvements	2,459	2,182
Equipment	2,377	2,062
Construction in progress	1,311	1,265
Total	6,208	5,567
Less accumulated depreciation	1,972	1,753
Property, net	4,236	3,814
Goodwill	232	219
Other intangible assets, net	429	441
Other assets	967	1,181
Total assets	$14,136	$12,174

	At December 31,
	2002	2001
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable	$1,063	$1,075
Short-term borrowings and current portion of long-term debt	1,423	565
U.S., foreign and state income taxes	628	588
Accrued compensation	429	343
Other accrued liabilities	1,186	1,346
Total current liabilities	4,729	3,917
Long-term Liabilities:
Deferred income taxes	358	302
Other long-term liabilities	907	830
Total long-term liabilities	1,265	1,132
Shareholders' Equity:
Preferred shares - authorized shares: 50, $1 par value; issued: none	-	-
Common shares - authorized shares: 2,400, $.50 par value; issued: 2,030	1,015	1,015
Paid-in capital	1,203	1,112
Retained earnings	11,840	10,849
Accumulated other comprehensive income	(477)	(423)
Total	13,581	12,553
Less treasury shares: 2002, 562; 2001, 565; at cost	5,439	5,428
Total shareholders' equity	8,142	7,125
Total liabilities and shareholders' equity	$14,136	$12,174
See Notes to Consolidated Financial Statements.

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY

					Accumulated
					Other	Total
					Compre-	Share-
	Common	Paid-in	Retained	Treasury	hensive	holders'
(Amounts in millions)	Shares	Capital	Earnings	Shares	Income	Equity
Balance January 1, 2000	$1,015	$675	$8,196	$(4,488)	$(233)	$5,165
Comprehensive income:
Net income			2,423			2,423
Foreign currency translation					(75)	(75)
Unrealized gain (loss) on
Investments held available
for sale, net of tax					(10)	(10)
Total comprehensive income						2,338
Cash dividends on common shares			(802)			(802)
Stock incentive plans		299		(26)		273
Common shares repurchased				(855)		(855)
Balance December 31, 2000	1,015	974	9,817	(5,369)	(318)	6,119
Comprehensive income:
Net income			1,943			1,943
Foreign currency translation					(85)	(85)
Realized gain reclassified to income, net of tax					(23)	(23)
Unrealized gain (loss) on
investments held available
for sale, net of tax					(5)	(5)
Deferred gain (loss) on
cash flow hedges, net of tax					8	8
Total comprehensive income						1,838
Cash dividends on common shares			(911)			(911)
Stock incentive plans		138		(25)		113
Common shares repurchased				(34)		(34)
Balance December 31, 2001	1,015	1,112	10,849	(5,428)	(423)	7,125
Comprehensive income:
Net income			1,974			1,974
Foreign currency translation					5	5
Minimum pension liability, net of tax					(18)	(18)
Realized gain reclassified to income, net of tax					(28)	(28)
Unrealized gain (loss) on
investments held available
for sale, net of tax					(7)	(7)
Deferred gain (loss) on
cash flow hedges, net of tax					(6)	(6)
Total comprehensive income						1,920
Cash dividends on common shares			(983)			(983)
Stock incentive plans		91		(11)		80
Balance December 31, 2002	$1,015	$1,203	$11,840	$(5,439)	$(477)	$8,142

See Notes to Consolidated Financial Statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share figures)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include Schering-Plough Corporation and its subsidiaries (the "Company"). Intercompany balances and transactions are eliminated. Certain prior year amounts have been reclassified to conform to the current year presentation.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and use assumptions that affect certain reported amounts and disclosures. Actual amounts may differ.

Cash and Cash Equivalents

Cash and cash equivalents include operating cash and highly liquid investments, generally with original maturities of three months or less.

Inventories

Inventories are valued at the lower of cost or market. Cost is determined by using the last-in, first-out method for a substantial portion of inventories located in the United States. The cost of all other inventories is determined by the first-in, first-out method.

Depreciation

Depreciation is provided over the estimated useful lives of the properties, generally by use of the straight-line method. Average useful lives are 50 years for buildings, 25 years for building improvements and 13 years for equipment. Depreciation expense was $250, $213 and $209 in 2002, 2001 and 2000, respectively.

Foreign Currency Translation

The net assets of most of the Company's foreign subsidiaries are translated into U.S. dollars using current exchange rates. The U.S. dollar effects that arise from translating the net assets of these subsidiaries at changing rates are recorded in the foreign currency translation adjustment account, which is included in other comprehensive income. For the remaining foreign subsidiaries, non-monetary assets and liabilities are translated using historical rates, while monetary assets and liabilities are translated at current rates, with the U.S. dollar effects of rate changes included in income.

Exchange gains and losses arising from translating intercompany balances of a long-term investment nature are recorded in the foreign currency translation adjustment account. Other exchange gains and losses are included in income.

Accumulated Other Comprehensive Income

Accumulated other comprehensive income primarily consists of the accumulated foreign currency translation adjustment account, unrealized gains and losses on securities classified for Statement of Financial Accounting Standards (SFAS) No. 115 purposes as held available for sale and a minimum pension liability adjustment.

The components of accumulated other comprehensive income at December 31 were:

	2002	2001
Accumulated foreign currency translation	$(456)	$(461)
Accumulated unrealized gains (losses) on investments held available for sale, net of tax	(6)	30
Other	(15)	8
Total	$(477)	$(423)

Gross unrealized gains recorded in accumulated other comprehensive income were $27 in 2000; losses were immaterial. Gross unrealized gains and losses in 2002 and 2001 were immaterial.

Revenue Recognition

Revenues from the sale of products are recorded at the time goods are shipped to customers. However, following approval of CLARITIN as an over-the-counter (OTC) product, revenue from sales of the prescription form of CLARITIN will be recognized when the product is used to fill patient prescriptions because reliable estimates of sales returns of the prescription form of CLARITIN can no longer be made at the time of shipment. Provisions for discounts, returns, rebates and other allowances are recorded in the same period the related sales are recognized.

Revenues earned under co-promotion collaborations are also recognized when the product is shipped to the customer. The Company will report its share of profits from its collaboration with Merck & Co., Inc. (Merck) as "alliance revenue," which is included in net sales. See "Merck Collaboration" footnote for additional information.

Earnings Per Common Share

Diluted earnings per common share are computed by dividing income by the sum of the weighted-average number of common shares outstanding plus the dilutive effect of shares issuable through deferred stock units and through the exercise of stock options. Basic earnings per common share are computed by dividing income by the weighted-average number of common shares outstanding.

The shares used to calculate basic and diluted earnings per common share are reconciled as follows:

(Shares in millions)	2002	2001	2000
Average shares outstanding for basic earnings per share	1,466	1,463	1,465
Dilutive effect of options and deferred stock units	4	7	11
Average shares outstanding for diluted earnings per share	1,470	1,470	1,476

The equivalent of 47 million, 35 million and 1 million common shares issuable under the Company's stock incentive plans were excluded from the computation of diluted earnings per share as of December 31, 2002, 2001 and 2000, respectively, because their effect would have been antidilutive.

Goodwill

In 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires all business combinations initiated after June 30, 2001, to be accounted for using the purchase method of accounting, thereby eliminating the pooling-of-interests method. Effective January 1, 2002, the Company adopted SFAS No. 142. SFAS No. 142 eliminates the requirement to amortize goodwill and instead requires periodic testing of goodwill for impairment. If goodwill is impaired, it will be written down to its estimated fair value. The Company has performed the required goodwill impairment tests and has found that recorded goodwill is not impaired. Accordingly, the adoption of SFAS No. 142 did not result in an adjustment to recorded goodwill. Goodwill amortization expense was $5 and $8 for 2001 and 2000, respectively. Diluted and basic earnings per common share in 2001 would have been unchanged if goodwill amortization were excluded from net income on a pro forma basis. Diluted and basic earnings per common share in 2000 would have been $1.65 and $1.66, respectively, if goodwill amortization were excluded from net income on a pro forma basis.

Other Intangible Assets

The components of the balance sheet caption "other intangible assets, net" are as follows:

		December31, 2002				December 31, 2001
	Gross Carrying Amount		Accumulated Amortization	Net	Gross Carrying Amount		Accumulated Amortization	Net
Patents and
licenses	$658		$293	$365	$623		$248	$375
Trademarks and
other	98		34	64	94		28	66
Total other
intangible
assets	$756		$327	$429	$717		$276	$441

These intangible assets are amortized on the straight-line method over their respective useful lives. In 2002, 2001 and 2000, the Company paid $84, $121 and $84, respectively, for patent and licensing rights; these costs will be amortized over approximately nine years. The residual value of intangible assets is estimated to be zero. Amortization expense related to other intangible assets in 2002, 2001 and 2000 was $66, $65 and $50, respectively. Other intangible assets are reviewed to determine their recoverability by comparing their carrying values to their expected undiscounted future cash flows when events or circumstances warrant such a review. Full year amortization expense in each of the next five years is estimated to be approximately $55 per year based on the intangible assets recorded as of December 31, 2002.

Accounting for Stock-Based Compensation

The Company accounts for its stock compensation arrangements using the intrinsic value method. Under the intrinsic value method, the difference between the amount the employee will pay the Company for stock acquired under the Company's incentive plans and the stock's fair value on the date of grant is charged to expense. Since employees must pay the Company the grant date fair value for stock options, no expense is recorded for stock options. Alternatively, since employees do not pay for stock issued for deferred stock units granted, their grant date fair value is recorded as expense.

The following table reconciles net income and earnings per common share (EPS), as reported, to pro forma net income and EPS, as if the Company had expensed the grant date fair value of both stock options and deferred stock units as permitted by SFAS No. 123, "Accounting for Stock-Based Compensation." These pro forma amounts may not be representative of the initial impact of adopting SFAS No. 123 since, as amended, it permits alternative methods of adoption.

	2002	2001	2000
Net income, as reported	$1,974	$1,943	$2,423
Add back: Expense included in reported net income for deferred stock units, net of tax	69	56	48
Deduct: Pro forma expense as if both stock options and deferred stock units were charged against net income, net of tax	(150)	(137)	(102)
Pro forma net income using the fair value method	$1,893	$1,862	$2,369
Diluted EPS:
Diluted EPS, as reported	$ 1.34	$ 1.32	$ 1.64
Pro forma diluted EPS using the fair value method	1.29	1.27	1.60
Basic EPS:
Basic EPS, as reported	$ 1.35	$ 1.33	$ 1.65
Pro forma basic EPS using the fair value method	1.29	1.27	1.62

The weighted-average fair value of options granted in 2002, 2001 and 2000 was $11.25, $13.35 and $13.82, respectively. These fair values were estimated using the Black-Scholes option pricing model, based on the following assumptions:

	2002	2001	2000
Dividend yield	1.3%	1.5%	1.7%
Volatility	35%	35%	32%
Risk-free interest rate	4.3%	4.9%	6.3%
Expected term of options (in years)	5	5	5

Other Recently Issued Accounting Standards

In April 2001, the Emerging Issues Task Force (EITF) issued EITF No. 00-25, "Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendor's Products," which addresses the income statement classification of certain credits, allowances, adjustments and payments given to customers for the services or benefits provided. The Company adopted EITF No. 00-25 effective January 1, 2002, and, as such, has classified the cost of these sales incentives as a reduction of net sales. Net sales for 2001 and 2000 have been restated to be on a comparable basis. The effect on net sales of applying EITF No. 00-25 in 2001 and 2000 was $40 in each year; EITF No. 00-25 has no effect on net income.

In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." In the normal course of business, the Company does not issue guarantees to third parties; accordingly, this interpretation has no effect on the Company's financial statements.

In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities." The Company has no arrangements that would be subject to this interpretation.

FINANCIAL INSTRUMENTS AND COMMITMENTS

Effective January 1, 2001, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The effect of adoption was not material.

SFAS No. 133, as amended, requires all derivatives to be recorded on the balance sheet at fair value. The effective portion of qualifying cash flow hedges is recognized in income when the hedged item affects income. Changes in the fair value of derivatives that qualify as fair value hedges, along with the change in the fair value of the hedged risk, are recognized in other (income) expense, net as they occur. Changes in the fair value of derivatives that do not qualify for hedge treatment, as well as the ineffective portion of qualifying hedges, are recognized in income as they occur.

Risks, Policy and Objectives

The Company is exposed to market risk primarily from changes in foreign currency exchange rates and, to a lesser extent, from interest rate and equity price changes. From time to time, the Company will hedge selective foreign currency risks with derivatives. Generally, however, management has not deemed it cost effective to engage in a formula-based program of hedging the profits and cash flows of foreign operations using derivative financial instruments. Because the Company's foreign subsidiaries purchase significant quantities of inventory payable in U.S. dollars, managing the level of inventory and related payables and the rate of inventory turnover provides a level of protection against adverse changes in exchange rates. Furthermore, the risk of adverse exchange rate change is mitigated by the fact that the Company's foreign operations are widespread.

The Company has used derivative instruments to hedge the fair value of certain securities acquired in connection with its in-licensing research and development activities and, on a limited basis, the Company will hedge selective exposures to interest rate risks.

The Company mitigates credit risk on derivative instruments by dealing only with counterparties considered to be financially sound. Accordingly, the Company does not anticipate loss for non-performance. The Company does not enter into derivative instruments to generate trading profits.

The table below presents the carrying values and estimated fair values for the Company's financial instruments, including derivative financial instruments. Estimated fair values were determined based on market prices, where available, or dealer quotes.

	December 31, 2002		December 31, 2001
	Carrying	Estimated	Carrying	Estimated
	Value	Fair Value	Value	Fair Value
ASSETS:
Cash and cash equivalents	$3,521	$3,521	$2,716	$2,716
Short-term investments	481	481	75	75
Long-term investments	168	168	509	509
Interest rate swap contracts	52	52	40	40
LIABILITIES:
Short-term borrowings and current portion of
long-term debt	1,423	1,423	565	565
Long-term debt	21	21	112	117
Equity swap contracts	-	-	6	6
Other financing instruments	241	258	230	235

Long-term Investments and Equity Swap Contracts

Long-term investments, which are included in other non-current assets, primarily consist of debt and equity securities held in non-qualified trusts to fund employee benefit obligations and, at December 31, 2001, included a time deposit and equity securities of licensor companies.

Long-term investments are primarily classified as available for sale and are carried at fair value. To mitigate the market price risk to which equity investments are subject, the Company has in the past hedged certain of these investments with equity swaps. Such swaps were designated as fair value hedges. Realized gains from the sale of securities classified as available for sale were $43 in 2002, $35 in 2001 and $29 in 2000. Proceeds from these sales totaled $80, $51 and $43, respectively. Realized gains are recorded in other (income) expense, net. The amount of hedge ineffectiveness and the amount excluded from the assessment of effectiveness in the 12-month period ended December 31, 2002, were not material.

Interest Rate Swap Contracts

In 1991 and 1992, the Company utilized interest rate swaps as part of its international cash management strategy. The notional principal of the 1991 arrangement is $650, and the notional principal of the 1992 arrangement is $950. Both arrangements have 20-year terms. At December 31, 2002, the arrangements provide for the payment of interest based upon LIBOR and the receipt of interest based upon an annual election of various floating rates. As a result, the Company remains subject to a moderate degree of market risk through maturity of the swaps. These swaps are not designated as hedging instruments and, accordingly, the changes in fair value are recorded in earnings. Annual net cash flows for payments and receipts under these interest rate swap contracts are not material. The net asset or liability under these interest rate swaps is recorded in other current assets or other accrued liabilities, as applicable. The fair value of these swaps was a liability of $1 at December 31, 2 002.

During 1999, the Company purchased a $200 variable rate, three-month time deposit. The Company intends to roll over this time deposit every three months until November 2003. To hedge the variable rate risk, the Company has entered into an interest rate swap that matures in November 2003. Under the swap, the Company receives a fixed rate of approximately 5.6 percent and pays a three-month LIBOR rate on a notional amount of $200. This swap is designated as a cash flow hedge, with the effective portion of the swap deferred until the transaction being hedged is recorded in earnings. The fair value of this swap was an asset of $53 at December 31, 2002.The amount of hedge ineffectiveness and the impact on comprehensive income and accumulated other comprehensive income in the 12-month period ended December 31, 2002, were not material to the Company's financial statements. The amount of the gain or loss expected to be reclassi fied to earnings within the next 12 months is not material to the Company's financial statements.

Borrowings

The Company has two committed, unsecured revolving credit facilities from a syndicate of financial institutions. Under one facility, up to $500 can be drawn down through May 2003, with repayment due by May 2004. Under a second multi-currency facility, an additional $500 can be drawn down through the maturity date of May 2006. These facilities are available for general corporate purposes and are considered as support for the Company's commercial paper borrowings. These facilities do not require compensating balances; however, a nominal commitment fee is paid. As of December 31, 2002, no funds were drawn down under these facilities. In addition, the Company's foreign subsidiaries had approximately $364 available in unused lines of credit from various financial institutions at December 31, 2002.

In general, short-term borrowings consist of commercial paper issued in the United States, bank loans and notes payable. In connection with the Company's purchase of a research and office facility in 2000, the Company issued a $100 note due in full in March 2003. The imputed interest rate on the note is 6.5 percent. Commercial paper outstanding at December 31, 2002 and 2001 was $1,188 and $465, respectively. The weighted-average interest rate for short-term borrowings at December 31, 2002 and 2001 was 3.3 percent and 4.0 percent, respectively.

In February 2003, the Company filed a shelf registration with the U.S. Securities and Exchange Commission (SEC) that enables the Company to issue up to $2,000 of debt securities for general corporate purposes, including the refinancing of short-term borrowings. The terms of these securities will be determined at the time of sale. The registration statement relating to these securities has been filed with the SEC but has not yet become effective. Such securities may not be sold, nor may offers to buy be accepted prior to the time the registration statement becomes effective. In addition, the Company has a shelf registration statement on file with the SEC covering the issuance of up to $200 of debt securities that it plans to withdraw in connection with filing the 2003 shelf registration. As of December 31, 2002, no debt securities are outstanding pursuant to these registrations.

On January 15, 2003, Standard & Poor's issued a statement affirming the Company's corporate credit and preliminary senior unsecured debt ratings of "AA-" as well as the short-term rating of "A-1+" while maintaining its negative outlook. On January 17, 2003, Moody's Investors Service (Moody's) downgraded the prospective rating of the Company for senior unsecured debt under its shelf registration to "A1" from "Aa2" and stated that the rating outlook is stable. At the same time, Moody's confirmed the Company's "Prime-1" short-term rating.

Other Financing Instruments

During 1999, a subsidiary of the Company issued $200 of equity-type securities. The securities bear a LIBOR-based yield that is substantially fixed through November 28, 2003; thereafter, the Company can elect to reset the rate annually or substantially fix the rate for the next five years. At December 31, 2002 and 2001, the rate was 5.2 percent and 4.8 percent, respectively. The Company can call the securities at any time after November 30, 2004, or earlier under certain circumstances. The holders can put the securities back to the Company at any time after November 30, 2027, or earlier under certain circumstances. Because of the put and call features, this obligation is included in other long-term liabilities.

Commitments

Total rent expense amounted to $81 in 2002, $72 in 2001 and $71 in 2000. Future minimum rental commitments on non-cancelable operating leases as of December 31, 2002, range from $64 in 2003 to $31 in 2007, with aggregate minimum lease obligations of $36 due thereafter. As of December 31, 2002, the Company has commitments totaling $177 related to capital expenditures to be made in 2003.

Insurance coverage

The Company maintains insurance coverage with such deductibles and self-insurance as management believes adequate for its needs under current circumstances. Such coverage reflects market conditions (including cost and availability) existing at the time it is written, and the relationship of insurance coverage to self-insurance varies accordingly. As a result of recent external events, the availability of insurance has become more restrictive. Management considers the impact of these changes as it continually assesses the best way to provide for its insurance needs in the future. The Company now self-insures a higher proportion of risk than in the past; however, based upon the Company's claim history, management believes that any losses that may arise due to self-insurance will not have a material effect on the Company's liquidity or financial position.

Other (income) EXPENSE, net

The components of other (income) expense, net are as follows:

	2002	2001	2000
Interest cost incurred	$ 52	$ 65	$ 64
Less: amount capitalized on construction	(24)	(25)	(20)
Interest expense	28	40	44
Interest income	(75)	(121)	(159)
Foreign exchange (gains) losses	(2)	4	8
Other, net	55	482	14
Total	$ 6	$405	$(93)

Other, net in 2002 includes a $150 provision to increase litigation reserves (see "Legal, Environmental and Regulatory Matters" footnote for additional information). 2002 also includes a gain of $80 from the sale of U.S. marketing rights for SUBOXONE and SUBUTEX. Other, net in 2001 includes a provision of $500 for payments to the federal government under a consent decree (see "Consent Decree" footnote for additional information). Cash paid for interest, net of amounts capitalized, was $26, $47 and $50 in 2002, 2001 and 2000, respectively.

SHAREHOLDERS' EQUITY

A summary of treasury share transactions follows:

(Shares in millions)	2002	2001	2000
Share balance at January 1	565	567	558
Shares issued under stock incentive plans	(3)	(3)	(11)
Purchase of treasury shares	-	1	20
Share balance at December 31	562	565	567

The Company has Preferred Share Purchase Rights outstanding that are attached to, and presently only trade with, the Company's common shares and are not exercisable. The rights will become exercisable only if a person or group acquires 20 percent or more of the Company's common stock or announces a tender offer which, if completed, would result in ownership by a person or group of 20 percent or more of the Company's common stock. Should a person or group acquire 20 percent or more of the Company's outstanding common stock through a merger or other business combination transaction, each right will entitle its holder (other than such acquirer) to purchase common shares of Schering-Plough having a market value of twice the exercise price of the right. The exercise price of the rights is $100.

Following the acquisition by a person or group of beneficial ownership of 20 percent or more but less than 50 percent of the Company's common stock, the Board of Directors may call for the exchange of the rights (other than rights owned by such acquirer), in whole or in part, at an exchange ratio of one common share or one two-hundredth of a share of Series A Junior Participating Preferred Stock per right. Also, prior to the acquisition by a person or group of beneficial ownership of 20 percent or more of the Company's common stock, the rights are redeemable for $.005 per right at the option of the Board of Directors. The rights will expire on July 10, 2007, unless earlier redeemed or exchanged. The Board of Directors is also authorized to reduce the 20 percent thresholds referred to above to not less than the greater of (i) the sum of .001 percent and the largest percentage of the outstanding shares of common stock then known to the Company to be beneficially owned by any person or gro up of affiliated or associated persons and (ii) 10 percent, except that, following the acquisition by a person or group of beneficial ownership of 20 percent or more of the Company's common stock, no such reduction may adversely affect the interests of the holders of the rights.

MERCK COLLABORATION

In May 2000, the Company and Merck entered into agreements to jointly develop and market in the United States new prescription medicines in the cholesterol-management and respiratory therapeutic areas. The agreements cover the development and marketing of:

• Co-administration of ZETIA (ezetimibe), the Company's novel cholesterol absorption inhibitor, with statins;

• ZETIA as a once-daily monotherapy;

• Ezetimibe, as a once-daily fixed-combination tablet with simvastatin (Zocor), Merck's cholesterol-modifying medicine; and

• A once-daily, fixed-combination tablet containing CLARITIN and Singulair for the treatment of allergic rhinitis and asthma. Singulair is Merck's once-daily leukotriene receptor antagonist for the treatment of asthma.

In December 2001, the cholesterol-management agreements were expanded to include all countries of the world except Japan.

In January 2002, Schering-Plough/Merck Pharmaceuticals reported on results of Phase III clinical trials of a fixed-combination tablet containing CLARITIN and Singulair, which did not demonstrate sufficient added benefits in the treatment of seasonal allergic rhinitis.

In October 2002, ezetimibe was approved for sale in Germany, where it is marketed as EZETROL. Also, in October 2002, the U.S. Food and Drug Administration (FDA) approved ZETIA for use either by itself or together with statins in patients with high cholesterol to reduce LDL-C or "bad" cholesterol and total cholesterol. Sales of ezetimibe, as reported by the partnerships, were $25 in 2002.

The agreements between the companies generally provide for equal sharing of development costs and for co-promotion of approved products by each company in the United States and in most other countries of the world, except Japan. In Japan, no agreement exists. In general, co-promotion provides that each company will provide equal physician detailing efforts and bear the cost of its own sales force in marketing the products. The companies will share certain other costs (e.g., a portion of the costs for manufacturing, promotion, administration, etc.) and also share profits. The Company's share of research and development costs incurred related to the agreement were $69, $86 and $30 in 2002, 2001 and 2000, respectively. The agreements do not provide for any jointly owned facilities and, as such, products resulting from the collaboration will be manufactured in facilities owned by either Merck or the Company. In addition, under certain conditions, Merck could make milestone payments to th e Company totaling $152. The agreements do not have a specific expiration date.

The Company will report its share of profits as "alliance revenue" and will report its sales force costs as selling, general and administrative expenses. The Company's share of development expenses has been, and will continue to be, reported as research and development expenses.

STOCK INCENTIVE PLANS

Under the terms of the Company's 2002 Stock Incentive Plan, which was approved by the Company's shareholders, 72 million of the Company's common shares may be granted as stock options or awarded as deferred stock units to officers and certain employees of the Company through December 2007. As of December 31, 2002, 71.6 million options and deferred stock units remain available for future year grants under the 2002 Stock Incentive Plan. Option exercise prices equal the market price of the common shares at their grant dates. Options expire not later than 10 years after the date of grant. Standard options granted generally have a one-year vesting term. Other option grants vest over longer periods ranging from three to nine years. Deferred stock units are payable in an equivalent number of common shares; the shares are distributable in a single installment or in five equal annual installments generally commencing one year from the date of the award.

The following table summarizes stock option activity over the past three years under the current and prior plans, all of which have been approved by the Company's shareholders:

		2002		2001		2000
			Weighted-		Weighted-		Weighted-
		Number	Average	Number	Average	Number	Average
		of	Exercise	of	Exercise	of	Exercise
(Number of options in millions)		Options	Price	Options	Price	Options	Price
Outstanding at January 1		50	$35.18	46	$33.77	42	$27.34
	Granted	8	34.21	8	40.15	14	42.03
	Exercised	(1)	11.64	(2)	16.81	(9)	16.36
	Canceled or expired	(3)	40.31	(2)	38.61	(1)	40.73
Outstanding at December 31		54	$35.40	50	$35.18	46	$33.77
Exercisable at December 31		35	$34.48	30	$33.11	26	$32.10

In 2002, 2001 and 2000, the Company awarded deferred stock units totaling 2.9 million, 2.7 million and 2.5 million, respectively.

INVENTORIES

Year-end inventories consisted of the following:

	2002	2001
Finished products	$ 540	$299
Goods in process	449	346
Raw materials and supplies	311	300
Total inventories	$1,300	$945

Inventories valued on a last-in, first-out basis comprised approximately 21 percent and 23 percent of total inventories at December 31, 2002 and 2001, respectively. The estimated replacement cost of total inventories at December 31, 2002 and 2001 was $1,346 and $975, respectively.

RETIREMENT PLANS AND OTHER POST-RETIREMENT BENEFITS

The Company has defined benefit pension plans covering eligible employees in the United States and certain foreign countries, and the Company provides post-retirement health care benefits to its eligible U.S. retirees and their dependents.

Net pension expense in 2002 was $23 compared with net pension income in 2001 of $1. The change from $1 of pension income in 2001 to $23 of pension expense in 2002 is principally due to a reduction in the consolidated expected long-term rate of return on plan assets in 2002 to 8.5 percent from 9.5 percent in 2001, and a reduction in the consolidated pension discount rate from 7.1 percent at January 1, 2001, to 6.7 percent at January 1, 2002, due to the decline in market interest rates. It is estimated that a 1 percent reduction in the expected long-term rate of return on consolidated plan assets would increase pension expense by approximately $14. It is estimated that a one-half percent reduction in the discount rate would increase pension expense by approximately $7.

Also, at December 31, 2002, the Company has an unrecognized net pension loss of $499. Gains and losses arise primarily from plan assets earning more or less than the long-term expected rate of return and from changes in pension discount rates. If there were no gains in the future to offset the $499 net unrecognized loss, amortization of these losses would ultimately increase annual pension expense by approximately $25.

The components of net pension and other post-retirement benefits expense (income) were as follows:

	Retirement Plans			Post-retirement Health Care Benefits
	2002	2001	2000	2002	2001	2000
Service cost	$60	$48	$45	$7	$5	$5
Interest cost	79	73	69	15	14	12
Expected return on plan assets	(114)	(119)	(110)	(19)	(21)	(20)
Amortization, net	(2)	(3)	(6)	(1)	(2)	(2)
Net pension and other post-retirement benefits      expense (income)	$23	$(1)	$(2)	$2	$(4)	$(5)

The components of the changes in the benefit obligations were as follows:

	Retirement Plans		Post-retirement Health Care Benefits
	2002	2001	2002	2001
Benefit obligations at January 1	$1,167	$1,036	$220	$185
Service cost	60	48	7	5
Interest cost	79	73	15	14
Assumption changes	60	68	23	20
Effects of exchange rate changes	32	(5)	-	-
Benefits paid	(51)	(56)	(14)	(12)
Actuarial losses	31	8	14	8
Plan amendments	-	(5)	-	-
Benefit obligations at December 31	$1,378	$1,167	$265	$220
Benefit obligations of overfunded plans	$ 12	$ 842	$ -	$    -
Benefit obligations of underfunded plans	1,366	325	265	220

The components of the changes in plan assets were as follows:

		Retirement Plans		Post-retirement Health Care Benefits
		2002	2001	2002	2001
Fair value of plan assets, primarily stocks and bonds, at
	January 1	$1,140	$1,268	$212	$243
Actual loss on plan assets		(99)	(88)	(22)	(19)
Contributions		75	27	-	-
Effects of exchange rate changes		25	(4)	-	-
Plan amendments		-	(7)	-	-
Benefits paid		(51)	(56)	(14)	(12)
Fair value of plan assets at December 31		$1,090	$1,140	$176	$212
Plan assets of overfunded plans		$ 14	$1,005	$ -	$ -
Plan assets of underfunded plans		1,076	135	176	212

In addition to the plan assets indicated above, at December 31, 2002 and 2001, securities of $74 were held in non-qualified trusts designated to provide pension benefits for certain underfunded plans.

The following is a reconciliation of the funded status of the plans to the Company's balance sheet:

	Retirement Plans		Post-retirement Health Care Benefits
	2002	2001	2002	2001
Benefit obligations in excess of plan assets	$(288)	$ (27)	$ (89)	$(8)
Unrecognized net transition assets	(11)	(19)	-	-
Unrecognized prior service costs	15	16	(3)	(4)
Unrecognized net actuarial loss	499	199	97	20
Net assets at December 31	$ 215	$169	$ 5	$ 8

The weighted-average assumptions employed at December 31 were:

	Retirement Plans		Post-retirement Health Care Benefits
	2002	2001	2002	2001
Discount rate	6.3%	6.7%	6.7%	7.0%
Long-term expected rate of return on plan assets	8.5%	9.5%	8.0%	9.0%
Rate of increase in future compensation	3.9%	4.0%	N/A	N/A

The weighted-average assumed health care cost inflation rate used for post-retirement measurement purposes is 9 percent for 2003, trending down to 5 percent by 2007. A 1 percent increase or decrease in the assumed health care cost trend rate would increase or decrease combined post-retirement service and interest cost by $5 and the post-retirement benefit obligation by $38.

The Company has a defined contribution profit-sharing plan covering substantially all its full-time domestic employees who have completed one year of service. The annual contribution is determined by a formula based on the Company's income, shareholders' equity and participants' compensation. Profit-sharing expense totaled $98, $80 and $84 in 2002, 2001 and 2000, respectively.

INCOME TAXES

U.S. and foreign operations contributed to income before income taxes as follows:

	2002	2001	2000
United States	$1,501	$1,628	$2,365
Foreign	1,062	895	823
Total income before income taxes	$2,563	$2,523	$3,188

The components of income tax expense were as follows:

	2002	2001	2000
Current:
Federal	$273	$397	$503
Foreign	263	203	178
State	40	27	27
Total current	576	627	708
Deferred:
Federal and state	4	(47)	21
Foreign	9	-	36
Total deferred	13	(47)	57
Total income tax expense	$589	$580	$765

The difference between the U.S. statutory tax rate and the Company's effective tax rate was due to the following:

	2002	2001	2000
U.S. statutory tax rate	35.0%	35.0%	35.0%
Increase (decrease) in taxes resulting from:
Lower rates in other jurisdictions, net	(14.6)	(12.1)	(12.2)
Research tax credit	(.5)	(.5)	(.8)
All other, net	3.1	.6	2.0
Effective tax rate	23.0%	23.0%	24.0%

The lower rates in other jurisdictions, net, are primarily attributable to certain employment and capital investment actions taken by the Company. As a result, income from manufacturing activities in these jurisdictions is subject to lower tax rates through 2018.

As of December 31, 2002 and 2001, the Company had total deferred tax assets of $834 and $782, respectively, and deferred tax liabilities of $552 and $518, respectively. Valuation allowances are not significant. Significant deferred tax assets at December 31, 2002 and 2001 were for operating costs not currently deductible for tax purposes and totaled $555 and $521, respectively. Significant deferred tax liabilities at December 31, 2002 and 2001 were for depreciation differences, $286 and $241, respectively, and retirement plans, $101 and $94, respectively.

Deferred taxes are not provided on undistributed earnings of foreign subsidiaries, considered to be permanent investments, which at December 31, 2002, approximated $9,400. Determining the tax liability that would arise if these earnings were remitted is not practicable.

Total income tax payments during 2002, 2001 and 2000 were $584, $592 and $606, respectively.

As of December 31, 2002, the U.S. Internal Revenue Service (IRS) has completed its examination of the Company's tax returns for all years through 1988, and there are no unresolved issues outstanding for those years. The IRS examination of years 1989 through 1992 is expected to be completed during 2003, at which time it is anticipated the IRS will commence the examination of years 1993 through 1996.

CONSENT DECREE

In December 2001, the Company announced that it was in negotiations with the U.S. FDA to enter a consent decree to resolve issues involving the Company's compliance with current Good Manufacturing Practices (GMPs) at certain manufacturing facilities in New Jersey and Puerto Rico. On May 17, 2002, the Company announced that it had reached an agreement with the FDA for a consent decree to resolve these issues. The U.S. District Court for the District of New Jersey has approved the consent decree.

Under terms of the consent decree, the Company will pay a total of $500 to the U.S. government in two equal installments of $250; the first installment was paid in May 2002, and the second installment will be paid in the second quarter of 2003. As previously reported, the Company accrued a $500 provision for this consent decree in the fourth quarter of 2001.

In the event certain actions agreed upon in the consent decree are not satisfactorily completed on time, the FDA may assess payments for each deadline missed. These payments may not exceed $25 for 2002, and $50 for each of the years 2003, 2004 and 2005. These payments are subject to an overall cap of $175 through 2005. The Company is scheduled to complete its revalidation plans by December 31, 2005. In general, if a product scheduled for revalidation and certification under the consent decree is not certified within six months of its scheduled date, the Company must cease production of that product until certification is obtained. If a product scheduled for revalidation and certification has not been certified as having been validated by the last date on the validation schedule (currently December 31, 2005, for finished drugs and September 30, 2005, for bulk active pharmaceutical ingredients), the FDA may assess a payment of 24.6 percent of the net domestic sales of the uncertified pro duct until the validation is certified. The Company would expense any such payments if and when incurred.

In connection with the agreement, the Company has decided to discontinue manufacturing and marketing certain older products. The consent decree also includes a recall, initiated in early May 2002 and directed to U.S. trade accounts, of all lots of theophylline USP tablets and PROVENTIL (albuterol sulfate, USP) REPETABS. PROVENTIL inhalers are not affected by the recall. The Company had discontinued marketing its U.S. theophylline products in June 2001, and PROVENTIL REPETABS have not been available since July 2001. In total, these products represented annual sales of approximately $44. Further, the Company recalled certain sterile human and animal drug products manufactured at its Manati, Puerto Rico facility. The financial impact of the recalls was immaterial.

CONCENTRATIONS

CLARITIN (loratadine) prescription sales in the United States, in all formulations, accounted for 14 percent of the Company's consolidated worldwide sales in the year ended December 31, 2002, and a larger percentage of the Company's consolidated earnings. As noted in the "Legal, Environmental and Regulatory Matters" footnote, the Company has sued drug manufacturers that are marketing or seeking to market certain forms of generic loratadine prior to the expiration of the Company's compound patent for desloratadine. In each case, the Company has filed suit in federal court seeking a ruling that the applicable Abbreviated New Drug Application (ANDA) or "paper" New Drug Application submission and proposed marketing of a generic prescription or OTC product constitute infringement of the Company's patents and that the challenge to the patents is without merit. The compound patent for loratadine expired on June 19, 2002, and its market exclusivity for CLARITIN expired on December 19, 2002. A patent covering the compound desloratadine, formulations thereof, and methods of treatment with desloratadine as it relates to CLARITIN is set to expire on April 21, 2004. Six months' U.S. market exclusivity would attach to the end of the desloratadine patent as it relates to CLARITIN would expire October 21, 2004. This six month period of exclusivity was granted because the Company conducted pediatric clinical trials at the request of the FDA. On August 8, 2002, a federal district court in New Jersey ruled on motions for summary judgment, finding that certain of the desloratadine compound patent claims, which the Company believes protect CLARITIN, were anticipated by a prior patent and thus invalid. On September 18, 2002, the district court denied a request for reconsideration. The Company has appealed the rulings. The Company anticipates that the appeal will be decided in the second half of 2003 or early 2004. With these rulings, actions against the defendants for infringement of the desloratadine co mpound patent will not proceed unless the Company's appeal is successful. The Company has also asserted that ANDAs filed by two manufacturers for generic versions of CLARITIN-D 24 Hour infringe the Company's patent covering the CLARITIN-D 24 Hour compound. This issue has not yet been resolved by the district court. As with any litigation, there can be no assurances that the Company will prevail. On November 27, 2002, the FDA approved the Company's applications to switch all five formulations of CLARITIN at their original prescription strengths to OTC medicines for the treatment of allergies. The Company launched OTC CLARITIN in the United States in December 2002.

SEGMENT INFORMATION

Schering-Plough is a worldwide research-based pharmaceutical company engaged in the discovery, development, manufacturing and marketing of pharmaceutical products. Discovery and development efforts target the field of human health. Occasionally, application in the field of animal health can result from these efforts. The Company views animal health applications as a means to maximize the return on investments in discovery and development. The Company operates primarily in the prescription pharmaceutical marketplace. However, where appropriate, the Company has sought regulatory approval to switch prescription products to OTC status as a means of extending a product's life cycle. In this way, the OTC marketplace is yet another means of maximizing the return on investments in discovery and development.

Net Sales by Major Therapeutic Category

	2002	2001	2000
Allergy & Respiratory	$ 3,304	$ 4,217	$ 4,189
Anti-infective & Anticancer	3,733	2,273	2,015
Cardiovasculars	433	623	746
Dermatologicals	511	593	680
Other Pharmaceuticals	764	656	710
Animal Health	677	694	720
Foot Care	290	310	336
OTC (includes OTC CLARITIN sales in 2002 of $105)	275	188	193
Sun Care	193	208	186
Consolidated net sales	$10,180	$ 9,762	$ 9,775
Consolidated income before income taxes	$ 2,563	$ 2,523	$ 3,188

The Company has subsidiaries in more than 40 countries outside the United States. Sales outside the United States comprised 43 percent of consolidated net sales in 2002, 39 percent in 2001 and 36 percent in 2000. No single foreign country, except for France and Japan, accounted for 5 percent or more of consolidated net sales during the past three years. France accounted for 6 percent, 5 percent and 4 percent of consolidated net sales in 2002, 2001 and 2000, respectively. Japan accounted for 5 percent, 3 percent and 3 percent of consolidated net sales in 2002, 2001 and 2000, respectively.

Net Sales by Geographic Area

	2002	2001	2000
United States	$ 5,761	$ 5,973	$ 6,269
Europe and Canada	2,892	2,418	2,196
Latin America	740	782	692
Pacific Area and Asia	787	589	618
Consolidated net sales	$10,180	$ 9,762	$ 9,775

Net sales are presented in the geographic area in which the Company's customers are located. During 2002, 2001 and 2000, 21 percent ($2,092), 16 percent ($1,568) and 13 percent ($1,283), respectively, of consolidated net sales were made to McKesson Corporation, a major pharmaceutical and health care products distributor. Also, during 2002, 2001 and 2000, 11 percent ($1,101), 12 percent ($1,160) and 13 percent ($1,293), respectively, of consolidated net sales were made to AmerisourceBergen Corporation, a major pharmaceutical and health care products distributor.

Long-lived Assets by Geographic Location

	2002	2001	2000
United States	$2,477	$2,297	$2,123
Ireland	430	420	384
Singapore	668	507	323
Puerto Rico	300	258	207
Other	613	546	538
Total	$4,488	$4,028	$3,575

Long-lived assets shown by geographic location are primarily property.

LEGAL, ENVIRONMENTAL AND REGULATORY MATTERS

Background

The Company has responsibilities for environmental cleanup under various state, local and federal laws, including the Comprehensive Environmental Response, Compensation and Liability Act, commonly known as Superfund. At several Superfund sites (or equivalent sites under state law), the Company is alleged to be a potentially responsible party (PRP). The Company estimates its obligations for cleanup costs for Superfund sites based on information obtained from the federal Environmental Protection Agency, an equivalent state agency and/or studies prepared by independent engineers, and on the probable costs to be paid by other PRPs. The Company records a liability for environmental assessments and/or cleanup when it is probable a loss has been incurred and the amount can be reasonably estimated.

The Company is also involved in various other claims and legal proceedings of a nature considered normal to its business, including product liability cases. The Company adjusts its accrued liabilities to reflect the current best estimate of its probable loss exposure. Where no best estimate is determinable, the Company accrues the minimum amount within the most probable range of its liability.

The recorded liabilities for the above matters at December 31, 2002, and the related expenses incurred during the year ended December 31, 2002, were not material. Expected insurance recoveries have not been considered in determining the costs for environmental-related liabilities. Management believes that, except for the matters discussed in the remainder of this section, it is remote that any material liability in excess of the amounts accrued will be incurred. With respect to the matters discussed in the remainder of this section, except where noted, it is not practicable to estimate a range of reasonably possible loss; where it has, a reserve has been included in the financial statements. Resolution of any or all of the matters discussed in the remainder of this section, individually or in the aggregate, could have a material adverse effect on the Company's results of operations or financial condition. Management reviews the status of these matters on an ongoing basis and from time to time may settle or otherwise resolve them on such terms and conditions as management believes are in the best interests of the Company. The Company is aware that settlements of matters of the types set forth in the remainder of this section, and in particular under "Investigations," frequently involve fines and/or penalties that are material to the financial condition and the results of operations of the entity entering into the settlement. There are no assurances that the Company will prevail in any of these matters, that settlements can be reached on acceptable terms or in amounts that do not exceed the amounts reserved, and outcomes cannot be predicted.

Environmental

Residents in the vicinity of a publicly owned waste-water treatment plant in Barceloneta, Puerto Rico, have filed two lawsuits against the plant owner and operator, and numerous companies that discharge into the plant, including a subsidiary of the Company, for damages and injunctive relief relating to odors allegedly coming from the plant and connecting sewers. One of these lawsuits is a class action claiming damages of $600. Discovery is ongoing in both lawsuits.

Patent Matters

In February 1998, Geneva Pharmaceuticals, Inc. (Geneva) submitted an Abbreviated New Drug Application (ANDA) to the U.S. FDA seeking to market generic CLARITIN tablets before the expiration in 2004 of the Company's desloratadine compound patent, which the Company believes protects CLARITIN. Geneva alleged that the desloratadine compound patent is invalid. This patent is material to the Company's business. In March 1998, the Company filed suit in federal court seeking a ruling that Geneva's ANDA submission constitutes infringement of the Company's desloratadine compound patent and that its challenge to this patent is without merit. In addition to Geneva, from 1998 through 2002, the following companies made similar ANDA submissions for generic CLARITIN tablets: Zenith Goldline Pharmaceuticals, Mylan Pharmaceuticals Inc., Teva Pharmaceuticals USA, Inc. (Teva), Ranbaxy Pharmaceuticals, Inc., Genpharm Incorporated, and L. Perrigo Company (Perrigo). The following companies made similar ANDA submissions for generic CLARITIN syrup: Teva, Copley Pharmaceuticals, Inc., Novex Pharma, Alpharma USPD Inc., Taro Pharmaceuticals USA, Inc., Morton Grove Pharmaceuticals, Inc., and Perrigo. Andrx Pharmaceuticals, L.L.C. (Andrx) and Impax Laboratories Inc. (Impax) made similar ANDA submissions for generic CLARITIN-D 12 Hour and CLARITIN-D 24 Hour formulations. ESI Lederle, Inc. (Lederle), a subsidiary of Wyeth, made a similar ANDA submission for a generic CLARITIN REDITAB formulation. The following companies submitted "paper" New Drug Applications ("paper" NDAs) under Section 505 (b)(2) of the Federal Food, Drug and Cosmetic Act seeking to market a generic OTC form of CLARITIN prior to the expiration of the Company's desloratadine compound patent: Whitehall-Robins Healthcare, a division of Wyeth (for an OTC REDITAB formulation), McNeil Consumer Healthcare (McNeil) (for OTC tablets), and Perrigo (for OTC tablets). In each case, the Company filed suit in federal court seeking a ruling that the appl icable ANDA or "paper" NDA submission and proposed marketing of a generic prescription or OTC product constitutes infringement of the Company's desloratadine compound patent, and that the challenge to the patent is without merit. On August 8, 2002, a federal district court in New Jersey ruled on motions for summary judgment, finding that certain claims of the desloratadine compound patent were anticipated by a prior patent and, thus, were not valid. On September 18, 2002, the district court denied a request for reconsideration. The Company has appealed the rulings. The appeal is scheduled to be argued on April 8, 2003. The Company anticipates that the appeal will be decided in the second half of 2003 or early 2004. With these rulings, actions against the defendants for infringement of the desloratadine compound patent will not proceed unless the Company's appeal is successful. The Company has also asserted that Impax's and Andrx's ANDAs for their generic CLARITIN-D 24 Hour formulations infringe the C ompany's patent covering its CLARITIN-D 24 Hour formulation. This issue has not yet been resolved by the district court.

In August 2001, Geneva Pharmaceuticals Technology Corp. (Geneva Pharmaceuticals) and Three Rivers Pharmaceuticals, L.L.C. (Three Rivers), and in January 2002, Teva, submitted separate ANDAs with the FDA seeking to market generic forms of 200 mg REBETOL (ribavirin) Capsules in the United States before the expiration of the Company's patents covering ribavirin formulations. Geneva Pharmaceuticals, Three Rivers and Teva have asserted that they do not infringe the Company's REBETOL patents and/or the patents are invalid. The REBETOL patents are material to the Company's business. In September 2001, October 2001 and March 2002, the Company filed suits in federal court seeking rulings that the ANDA submissions by Geneva Pharmaceuticals, Three Rivers and Teva, respectively, constitute infringement of the Company's patents and that the challenges to the Company's patents are without merit. In February 2003, the Company entered into a licensing agreement with Three Rivers that will settle all pa tent litigation between the Company and Three Rivers. Under the terms of the agreement, the Company will grant Three Rivers a non-exclusive, non-sublicensable license to the Company's U.S. ribavirin patents. Three Rivers will pay the Company a royalty on its ribavirin sales. The agreement does not affect Three Rivers' reported patent litigation with Ribapharm, Inc. The agreement is subject to the dismissal of the relevant lawsuits in court. The patent litigation with Geneva and Teva has been temporarily stayed while the parties seek to reach a settlement.

In January 2000, a jury found that the Company's PRIME PAC PRRS (Porcine Respiratory and Reproductive Syndrome) vaccine infringed a patent owned by Boehringer Ingelheim Vetmedica, Inc. An injunction was issued in August 2000 barring further sales of the Company's vaccine. The Company's post-trial motions for either a reversal of the jury's verdict or a new trial were denied in September 2001. The Company appealed, and the verdict was affirmed by the appellate court in February 2003. Discovery in the damages phase of the case is ongoing.

Investigations

In October 1999, the Company received a subpoena from the U.S. Attorney's Office for the Eastern District of Pennsylvania, pursuant to the Health Insurance Portability and Accountability Act of 1996, concerning the Company's contracts with pharmacy benefit managers (PBMs) and managed care organizations to provide disease management services in connection with the marketing of its pharmaceutical products. It appears that the subpoena was one of a number addressed to industry participants as part of an inquiry into, among other things, pharmaceutical marketing practices. The government's inquiry has focused on, among other things, whether the Company's disease management and other marketing programs and arrangements comply with federal health care laws and whether the value of its disease management programs and other marketing programs and arrangements should have been included in the calculation of rebates to the government. The Company has been cooperating with the investigation. In M arch 2002, the U.S. Attorney's Office began issuing grand jury subpoenas. The grand jury investigation appears to be focused on one or more transactions with managed care organizations where the government believes the Company offered or provided deeply discounted pharmaceutical products (known as "nominally priced" products, which are generally excluded from Medicaid rebate calculations), free or discounted disease management services, and other marketing programs and arrangements that delivered value, in order to place or retain one or more of the Company's major pharmaceutical products on the managed care organization's formulary. The grand jury appears to be investigating, among other things, (i) whether the transactions described above and conduct relating thereto violated federal anti-kickback statutes; and (ii) whether the value of the items and services described above should have been included in the Company's calculation of Medicaid rebates. The outcome of the investigations could inclu de the commencement of civil and/or criminal proceedings involving substantial fines, penalties and injunctive or administrative remedies, including exclusion from government reimbursement programs, and the Company cannot predict whether the investigations will affect its marketing practices or sales. In February 2003, the Company increased its litigation reserves related to this investigation and the investigations described below by the U.S. Attorney's Office for the District of Massachusetts, by $150. The increased litigation reserves reflect an adjustment to the Company's estimate of its minimum liability relating to those investigations, in compliance with generally accepted accounting principles (GAAP). Under GAAP, companies are required to estimate and recognize a minimum liability when a loss is probable but no better estimate of the loss can be made. Also, under GAAP, the Company is required to recognize this liability in 2002. The Company notes that its total reserves reflect an estimate and that any final settlement or adjudication of any of these matters could possibly be less than or could materially exceed the aggregate liability accrued by the Company and could have a materially adverse effect on the operations or financial condition of the Company. This adjustment is consistent with the Company's policy of reviewing regularly the status of pending actions and investigations and making adjustments as appropriate.

The Company is responding to investigations by the Department of Health and Human Services, the Department of Justice and certain states into certain industry and Company practices regarding average wholesale price (AWP). These investigations include a Department of Justice review of the merits of a federal action filed by a private entity on behalf of the United States in the U.S. District Court for the Southern District of Florida, as well as an investigation by the U.S. Attorney's Office for the District of Massachusetts, regarding, inter alia, whether the AWP set by pharmaceutical companies for certain drugs improperly exceeds the average prices paid by dispensers and, as a consequence, results in unlawful inflation of certain government drug reimbursements that are based on AWP. In March 2001, the Company received a subpoena from the Massachusetts Attorney General's office seeking documents concerning the use of AWP and other pricing and/or marketing practices. The Company is coopera ting with these investigations. The outcome of these investigations could include the imposition of substantial fines, penalties and injunctive or administrative remedies.

The U.S. Attorney's Office for the District of Massachusetts is also investigating whether the Company's sales of a product that was repackaged for sale by a managed care organization should have been included in the Company's Medicaid best price calculations. In early November 2002, the Company was served with two additional grand jury subpoenas by the U.S. Attorney for the District of Massachusetts. Among other information, the subpoenas seek a broad range of information concerning the Company's sales, marketing and clinical trial practices and programs with respect to INTRON A, REBETRON and TEMODAR; the Company's sales and marketing contacts with managed care organizations and doctors; and the Company's offering or provision of grants, honorariums or other items or services of value to managed care organizations, physician groups, doctors and educational institutions. The Company understands that this investigation is focused on whether certain sales, marketing and clinical trial prac tices and conduct related thereto, which in certain instances relate to the use of one or more of the above-mentioned products for indications for which FDA approval had not been obtained - so-called "off-label" uses - were in violation of federal laws and regulations with respect to off-label promotional activities. The investigation also appears to focus on whether drug samples, clinical trial grants and other items or services of value were given to providers to incentivize them to prescribe one or more of the above-mentioned products, including for "off-label" uses, in violation of the federal health care anti-kickback laws. The Company has implemented certain changes to its sales, marketing and clinical trial practices and is continuing to review those practices to ensure compliance with relevant laws and regulations. The Company is cooperating with these investigations. Future sales of INTRON A, REBETRON and TEMODAR may be adversely affected, but the Company cannot at this time predict the ultimate impact, if any, on such sales. The outcome of these investigations could include 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. In February 2003, the Company increased its litigation reserves related to the investigations by the U.S. Attorney's Office for the District of Massachusetts described in this paragraph and the paragraph immediately preceding it and the investigation described above by the U.S. Attorney's Office for the Eastern District of Pennsylvania, by $150. The increased litigation reserves reflect an adjustment to the Company's estimate of its minimum liability relating to those investigations, in compliance with GAAP. Under GAAP, companies are required to estimate and recognize a minimum liability when a loss is probable but no better estimate of the loss can be made. Also, under GAAP, the Company is required to recognize t his liability in 2002. The Company notes that its total reserves reflect an estimate and that any final settlement or adjudication of any of these matters could possibly be less than or could materially exceed the aggregate liability accrued by the Company and could have a materially adverse effect on the operations or financial condition of the Company. This adjustment is consistent with the Company's policy of reviewing regularly the status of pending actions and investigations and making adjustments as appropriate.

The U.S. Attorney's Office in New Jersey along with the FDA's Office of Criminal Investigation is conducting an investigation which may focus on one or more Company products, including ribavirin, manufactured in Puerto Rico. The Company is cooperating with the government in the investigation.

The U.S. Department of Justice, Antitrust Division is investigating whether the Company's Consumer Products Division entered into an agreement with another company to lower the commission rate of a consumer products broker. In February 2003, the Antitrust Division served a grand jury subpoena on the Company seeking documents for the first time. The Company is cooperating with the investigation.

Securities and Class Action Litigation

On February 15, 2001, the Company stated in a press release that the FDA had been conducting inspections of the Company's manufacturing facilities in New Jersey and Puerto Rico and had issued reports citing deficiencies concerning compliance with current Good Manufacturing Practices, primarily relating to production processes, controls and procedures. The next day, February 16, 2001, a lawsuit was filed in the U.S. District Court for the District of New Jersey against the Company and certain named officers alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. Additional lawsuits of the same tenor followed. The plaintiffs in the suits purport to represent classes of shareholders who purchased shares of Company stock between dates as early as March 2, 2000, and February 15, 2001, the date of the press release. In April 2001, a lawsuit was filed in the U.S. District Court for the District of New Jersey against the C ompany and certain named officers alleging substantially the same violations of the Securities Exchange Act of 1934 as alleged in the putative class actions described above in this paragraph, as well as alleging violations of Section 11 of the Securities Act of 1933 and failure to disclose information which is the subject matter of the Federal Trade Commission (FTC) administrative proceeding described below and purporting to represent a class of shareholders who purchased shares of Company stock between July 25, 2000, and March 30, 2001, the last business day before the Company issued a press release relating to the FTC administrative proceeding. This complaint and all of the previously filed complaints were consolidated into one action in the U.S. District Court for the District of New Jersey, and a lead plaintiff, the Florida State Board of Administration, was appointed by the Court on July 2, 2001. On October 11, 2001, a consolidated amended complaint was filed, alleging the same violations described in the second sentence of this paragraph (but not a Section 11 claim) and purporting to represent a class of shareholders who purchased shares of Company stock from May 9, 2000, through February 15, 2001. The Company's motion to dismiss the consolidated amended complaint was denied on May 24, 2002. Discovery is ongoing.

In addition to the lawsuits described in the immediately preceding paragraph, two lawsuits were filed in the U.S. District Court for the District of New Jersey, and two lawsuits were filed in New Jersey state court against the Company (as a nominal defendant) and certain officers, directors and a former director seeking damages on behalf of the Company, including disgorgement of trading profits made by defendants allegedly obtained on the basis of material non-public information. The complaints in each of those four lawsuits relate to the issues described in the Company's February 15, 2001, press release, and allege a failure to disclose material information and breach of fiduciary duty by the directors. One of the federal court lawsuits also includes allegations related to the investigations by the U.S. Attorney's Offices for the Eastern District of Pennsylvania and the District of Massachusetts, the FTC's administrative proceeding against the Company, and the lawsuit by the state of Te xas against Warrick Pharmaceuticals (Warrick), the Company's generics subsidiary, all of which are described herein. Each of these lawsuits is a shareholder derivative action that purports to assert claims on behalf of the Company, but as to which no demand was made on the Board of Directors and no decision has been made on whether the Company can or should pursue such claims. In August 2001, the plaintiffs in each of the New Jersey state court shareholder derivative actions moved to dismiss voluntarily the complaints in those actions, which motions were granted. The two shareholder derivative actions pending in the U.S. District Court for the District of New Jersey have been consolidated into one action, which is in its very early stages. This consolidated action is being coordinated for most pre-trial purposes with the consolidated action described in the immediately preceding paragraph. On January 2, 2002, the Company received a demand letter dated December 26, 2001, from a law firm not involved in the derivative actions described above, on behalf of a shareholder who also is not involved in the derivative actions, demanding that the Board of Directors bring claims on behalf of the Company based on allegations substantially similar to those alleged in the derivative actions. On January 22, 2002, the Board of Directors adopted a Board resolution establishing an Evaluation Committee, consisting of three directors, to investigate, review and analyze the facts and circumstances surrounding the allegations made in the demand letter and the consolidated amended derivative action complaint described above, but reserving to the full Board authority and discretion to exercise its business judgment in respect of the proper disposition of the demand. The Committee engaged independent outside counsel to advise it and issued a report on the findings of its investigation to the independent directors of the Board in late October 2002. That report determined that the shareholder demand should be refused, and finding n o liability on the part of any officers or directors. In November 2002, the full Board adopted the recommendation of the Evaluation Committee.

On August 9, 2001, the Prescription Access Litigation (PAL) project, a Boston-based group formed in 2001 to litigate against drug companies, issued a press release stating that PAL members filed a lawsuit in New Jersey state court against the Company. In December 2001, the Company was served with an amended complaint in the case. The suit, which PAL purports to be a class action, alleges, among other things, that the Company's direct-to-consumer advertising falsely depicts the benefits of CLARITIN in violation of the New Jersey Consumer Fraud Act. In February 2002, the Company filed a motion to dismiss this case. In May 2002, the court dismissed the complaint in its entirety for failure to state a claim. The plaintiffs have appealed.

In December 2001, PAL filed a class action suit in Federal Court in Massachusetts against the Company. In September 2002, a consolidated complaint was filed in this court as a result of the coordination by the Multi-District Litigation Panel of all federal court AWP cases from throughout the country. The consolidated complaint alleges that the Company and Warrick conspired with providers to defraud consumers by reporting fraudulently high AWPs for prescription medications reimbursed by Medicare or third- party payers. The complaint seeks a declaratory judgment and unspecified damages, including treble damages.

The Company is a defendant in a number of purported nationwide or state class action lawsuits in which plaintiffs seek a refund of the purchase price of laxatives or phenylpropanolamine-containing cough/cold remedies they purchased. Other pharmaceutical manufacturers are co-defendants in some of these lawsuits. In general, plaintiffs claim that they would not have purchased or would have paid less for these products had they known of certain defects or medical risks attendant with their use. All of these lawsuits are in the early stages of discovery; plaintiffs' theories for recovery have yet to be legally tested, and the courts have not yet agreed that these cases should go forward as class actions. A number of lawsuits involving these products, as well as recalled albuterol/VANCERIL/VANCENASE inhalers, have also been filed against the Company seeking recovery for personal injuries or death. In several of these lawsuits punitive damages are claimed. The Company settled a California state court class action seeking refund of the purchase price of inhalers through a program of issuing 4.5 million vouchers for free inhalers plus payment of attorneys' fees. The court gave final approval to the settlement in October 2002.

Royalties/Contract Matters

The Company was a party to arbitration proceedings by Biogen, Inc. relating to, among other things, royalty payments. These arbitrations have been settled.

In October 2001, ICN Pharmaceuticals, Inc. notified the Company of its intention to begin an alternative resolution dispute proceeding against the Company seeking the payment of royalties on REBETOL provided by the Company without charge or at a reduced charge to indigent patients participating in SCHERING'S COMMITMENT TO CARE program.

Antitrust and FTC Matters

The Company is a defendant in numerous antitrust actions commenced (starting in 1993) in state and federal courts by independent retail pharmacies, chain retail pharmacies and consumers. The plaintiffs allege price discrimination and/or conspiracy between the Company and other defendants to restrain trade by jointly refusing to sell prescription drugs at discounted prices to the plaintiffs. The Company, in February 1996, agreed to settle a federal class action on behalf of approximately two-thirds of all retail pharmacies in the United States for a total of $22, which has been paid in full. The U.S. District Court in Illinois approved the settlement of the federal class action in 1996. In 1997, the Seventh Circuit Court of Appeals dismissed all appeals from that settlement, and it is not subject to further review.

In April 1997, certain of the plaintiffs in the federal class action commenced another purported class action in the U.S. District Court in Illinois against the Company and the other defendants who settled the previous federal class action. The complaint alleges that the defendants conspired not to implement the settlement commitments following the settlement discussed above. The District Court has denied the plaintiffs' motion for a preliminary injunction hearing.

The Company has either settled or had dismissed on motion all the state court retailer and consumer actions. The settlement amounts were not material to the Company.

The Federal Court in Illinois remanded the conspiracy portion of the cases of those retailers that opted out of the class action back to the district courts where they were filed. The Federal Court in Illinois has jurisdiction over the Robinson-Patman portion of these cases.

Plaintiffs in these antitrust actions generally seek treble damages in an unspecified amount and an injunction against the allegedly unlawful conduct.

On April 2, 2001, the FTC started an administrative proceeding against the Company, Upsher-Smith, Inc. (Upsher-Smith) and Lederle. The complaint alleges anti-competitive effects from the settlement of patent lawsuits between the Company and Lederle, and the Company and Upsher-Smith. The lawsuits that were settled related to generic versions of K-DUR, the Company's long-acting potassium chloride product, which was the subject of ANDAs filed by Lederle and Upsher-Smith. In June 2002, the administrative law judge overseeing the case issued a decision that the patent litigation settlements complied with the law in all respects and dismissed all claims against the Company. An appeal of this decision to the full Commission filed by the FTC staff is currently pending. The outcome of the proceeding could result in the imposition of injunctive or administrative remedies.

Following the commencement of the FTC administrative proceeding, alleged class action suits were filed on behalf of direct and indirect purchasers of K-DUR against the Company, Upsher-Smith and Lederle in federal and state courts. These suits all allege essentially the same facts and claim violations of federal and state antitrust laws, as well as other state statutory and/or common law causes of action.

Pricing Matters

During the third quarter of 2000, Warrick was sued by the state of Texas. In June 2002, the Company and its subsidiary, Schering Corporation, were added as defendants. The lawsuit alleges that Warrick supplied the state with false reports of wholesale prices, which caused the state to pay Medicaid claims on prescriptions of Warrick's albuterol sulfate solution and inhaler at a higher-than-justified level. The state seeks damages of approximately $106 against Warrick, including treble damages and penalties. The outcome of the litigation could result in the imposition of fines, penalties and injunctive remedies.

The Company and Warrick are defendants in numerous lawsuits brought in state and federal courts, which allege that the Company and Warrick reported inflated AWPs for prescription pharmaceuticals and thereby caused third-party payers to make excess reimbursements to providers. Some of these actions also allege that the Company and Warrick failed to report accurate prices under the Medicaid Rebate Program and thereby underpaid rebates to some states. These actions, which began in October 2001, have been brought by state Attorneys General, private plaintiffs, nonprofit organizations and employee benefit funds. They allege violations of federal and state law, including fraud, antitrust, Racketeer Influenced Corrupt Organizations Act (RICO) and other claims. The actions seek unspecified damages, including treble and punitive damages.

SEC Inquiry and Related Litigation

The Company is providing information to the SEC in connection with the Commission's inquiry relating to the Company's meetings with investors and other communications. The Company believes that it has complied with all applicable securities laws in this matter.

The Company has been served with several purported federal class action lawsuits alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as well as SEC Regulation Fair Disclosure (FD) relating to the alleged disclosures made during meetings with investors referred to in the preceding paragraph.

Tax Matters

In October 2001, IRS auditors have asserted, in reports, that the Company is liable for additional tax for the 1990 through 1992 tax years. The reports allege that two interest rate swaps that the Company entered into with an unrelated party should be recharacterized as loans from affiliated companies, resulting in additional tax on income. The tax sought by the IRS auditors relating to recharacterization is approximately $195, plus interest. The Company has not accrued the $195 because the Company and its tax advisers do not believe it is probable that the IRS will prevail in this matter.

REPORT BY MANAGEMENT

We are responsible for the preparation and the integrity of the accompanying consolidated financial statements. These statements are prepared in accordance with accounting principles generally accepted in the United States and require the use of estimates and assumptions that affect the reported amounts of assets, liabilities, net sales and expenses. In our opinion, the consolidated financial statements present fairly in all material respects the Company's results of operations, financial condition and cash flows. Based on our knowledge, this Annual Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make it not misleading. All financial information in this Annual Report is consistent with the financial statements.

We are responsible for establishing and maintaining disclosure controls and procedures for the Company. We have evaluated the Company's disclosure controls and procedures as of December 31, 2002, and found them to be effective in ensuring that material information relating to the Company and its consolidated subsidiaries is made known to us by others within the Company.

The Company maintains, and management relies on, a system of internal controls and related policies and procedures that provide reasonable assurance of the integrity and reliability of the financial statements. We believe the system provides, in a cost-effective manner and subject to the inherent limitations of internal control systems, that transactions are executed in accordance with management's authorization and are properly recorded and reported in the financial statements, and that assets are safeguarded. The Company's internal control system provides for careful selection and training of supervisory and management personnel and requires appropriate segregation of responsibilities and delegation of authority. In addition, the Company maintains a corporate code of conduct for purposes of determining possible conflicts of interest, compliance with laws and confidentiality of proprietary information.

The Company's independent auditors, Deloitte & Touche LLP, audit the annual consolidated financial statements as described in their report. They obtain an understanding of the Company's internal control system to enable them to plan their audit and determine audit procedures to be performed. In addition, the Company has an internal audit function that regularly performs audits using programs designed to test compliance with Company policies and procedures and to verify the adequacy of internal controls and other financial policies. The internal auditors' and independent auditors' recommendations concerning the Company's system of internal controls have been reviewed, and appropriate action has been taken with respect to those recommendations.

The Finance and Audit Review Committee of the Board of Directors is comprised solely of independent directors. The Committee is appointed by the Board to assist the Board in its oversight function by monitoring, among other things, the Company's financial reporting process and internal auditing department. The Committee is directly responsible for the appointment, compensation and oversight of the work of the independent public accountants. The Committee's activities include meeting periodically with management, the internal auditors and the independent auditors to discuss their independence and to review audit results, financial reporting, internal controls and other financial matters. Both the independent auditors and internal auditors have full and free access to the Committee.

/S/ Richard Jay Kogan	/S/ Jack L. Wyszomierski	/S/ Thomas H. Kelly
Richard Jay Kogan	Jack L. Wyszomierski	Thomas H. Kelly
Chief Executive Officer and	Executive Vice President and	Vice President and
President	Chief Financial Officer	Controller

INDEPENDENT AUDITORS' REPORT

Schering-Plough Corporation, its Directors and Shareholders:

We have audited the accompanying consolidated balance sheets of Schering-Plough Corporation and subsidiaries as of December 31, 2002 and 2001, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Schering-Plough Corporation and subsidiaries at December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America.

/S/DELOITTE & TOUCHE LLP

Parsippany, New Jersey

February 25, 2003

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

SIX-YEAR SELECTED FINANCIAL & STATISTICAL DATA

(Dollars in millions, except per share figures)		2002	2001	2000	1999	1998	1997
Operating Results
Net sales		$10,180	$9,762	$9,775	$9,075	$7,991	$6,714
Income before income taxes *		2,563	2,523	3,188	2,795	2,326	1,913
Net income *		1,974	1,943	2,423	2,110	1,756	1,444
Diluted earnings per common share *		1.34	1.32	1.64	1.42	1.18	.97
Basic earnings per common share *		1.35	1.33	1.65	1.44	1.20	.98
Investments
Research and development		$1,425	$1,312	$1,333	$1,191	$1,007	$847
Capital expenditures		770	759	763	543	389	405
Financial Condition
Property, net		$4,236	$3,814	$3,362	$2,939	$2,675	$2,526
Total assets		14,136	12,174	10,805	9,375	7,840	6,507
Long-term debt		21	112	109	6	4	46
Shareholders' equity		8,142	7,125	6,119	5,165	4,002	2,821
Net book value per common share		5.55	4.86	4.18	3.51	2.72	1.93
Financial Statistics
Net income as a percent of sales		19.4%	19.9%	24.8%	23.3%	22.0%	21.5%
Return on average shareholders' equity		25.9%	29.3%	42.9%	46.0%	51.5%	59.2%
Effective tax rate		23.0%	23.0%	24.0%	24.5%	24.5%	24.5%
Other Data
Cash dividends per common share		$ .67	$ .62	$ .545	$ .485	$ .425	$ .368
Cash dividends on common shares		983	911	802	716	627	542
Depreciation and amortization		372	320	299	264	238	200
Number of employees		30,500	29,800	28,100	26,500	25,100	22,700
Average shares outstanding for diluted
	earnings per common share (in millions)	1,470	1,470	1,476	1,486	1,488	1,480
Average shares outstanding for basic
	earnings per common share (in millions)	1,466	1,463	1,465	1,470	1,468	1,464
Common shares outstanding at year-end     (in millions)		1,468	1,465	1,463	1,472	1,472	1,465

Certain amounts in prior periods have been reclassified from selling, general and administrative expenses to net sales to comply with EITF No. 00-25, "Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendor's Products."

* 2002 includes a $150 pre-tax provision to increase litigation reserves. 2001 includes a pre-tax provision of $500 for payments to the federal government under a consent decree. See "Legal, Environmental and Regulatory Matters" and "Consent Decree" footnotes in the Notes to Consolidated Financial Statements for additional information.

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

QUARTERLY DATA (UNAUDITED)

Three Months Ended	March 31		June 30		September 30		December 31
(Dollars in millions, except per share figures)	2002	2001	2002	2001	2002	2001	2002	2001
Net sales	$2,556	$2,306	$2,833	$2,618	$2,421	$2,377	$2,370	$2,461
Cost of sales	579	470	675	535	644	486	607	588
Gross profit	1,977	1,836	2,158	2,083	1,777	1,891	1,763	1,873
Selling, general and
administrative	919	839	995	955	870	830	897	820
Research and development	305	289	357	334	354	310	409	378
Other (income) expense, net	(26)	(25)	(16)	(29)	(4)	(30)	52	489
Income before income taxes	779	733	822	823	557	781	405	186
Income taxes	179	169	189	189	128	180	92	43
Net income	$   600	$   564	$   633	$  634	$   429	$  601	$  313	$ 143
Diluted earnings per
common share	$   .41	$    .38	$    .43	$   .43	$ .29	$   .41	$ .21	$  .10
Basic earnings per
common share	.41	.39	.43	.43	.29	.41	.21	.10
Dividends per
common share	.16	.14	.17	.16	.17	.16	.17	.16
Common share prices:
High	36.00	54.25	30.77	43.76	25.50	39.85	23.25	39.12
Low	30.94	34.20	23.30	35.10	20.75	32.65	17.30	34.00
Average shares outstanding
for diluted EPS (in millions)	1,471	1,472	1,470	1,470	1,469	1,470	1,469	1,470
Average shares outstanding
for basic EPS (in millions)	1,466	1,463	1,466	1,463	1,466	1,464	1,467	1,464

Certain amounts in prior periods have been reclassified from selling, general and administrative expenses to net sales to comply with EITF No. 00-25, "Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendor's Products."

Cost of sales in the 2002 fourth quarter includes a favorable adjustment of $92 to reflect the settlement of arbitration relating to, among other things, royalty payments to Biogen. The full year impact is not material because the fourth quarter adjustment is partially offset by related accruals made in the previous three quarters of 2002. Other (income) expense, net in the 2002 fourth quarter includes a provision of $150 to increase litigation reserves. See "Legal, Environmental and Regulatory Matters" footnote in the Notes to Consolidated Financial Statements for additional information. The fourth quarter of 2002 also includes a gain of $80 from the sale of U.S. marketing rights for SUBOXONE and SUBUTEX. Other (income) expense, net includes a provision of $500 in the fourth quarter of 2001 for payments to the federal government under a consent decree. See "Consent Decree" footnote in the Notes to Consolidated Financial Statements for additional information.

The Company's common shares are listed and principally traded on the New York Stock Exchange. The approximate number of holders of record of common shares as of January 31, 2003, was 46,000.

EX-21

		Exhibit 21
Schering-Plough Corporation and Subsidiaries
Subsidiaries of the Registrant
As of December 31, 2002
	State or Country
	or Incorporation
Subsidiaries of Registrant	or Organization
AESCA Chemisch Pharmazeutische Fabrik GmbH		Austria
American Image Productions, Inc.		Tennessee
American Scientific Laboratories, Inc.		Delaware
Aquaculture Holdings Limited (UK)		United Kingdom
Aquaculture Vaccines (Ireland) Limited		United Kingdom
Aquaculture Vaccines Limited (UK)		United Kingdom
Ark Products Limited		United Kingdom
AVL Holdings Limited (UK)		United Kingdom
Avondale Chemical Co., Ltd.		Ireland
Bain de Soleil Company, The		Delaware
Beneficiadora e Industrializadora S.A. de C.V.		Mexico
Brazil Holdings Ltd.		Bermuda
Canji, Inc.		Delaware
Chemibiotic (Ireland) Limited		Ireland
Colombia Veterinary Holdings, Inc.		Panama
Coopers Animal Health Limited		United Kingdom
Coopers Brasil Ltda.		Brazil
Coppertone Corporation, The		Florida
Dashtag		United Kingdom
Desarrollos Farmaceuticos Y Cosmeticos S.A.		Spain
DNAX Research Institute of Molecular & Cellular Biology, Inc.		California
Douglas Industries, Inc.		Delaware
Dr. Scholl's Foot Comfort Shops, Inc.		Delaware
Essex (Taiwan) Ltd.		Taiwan
Essex Chemie A.G.		Switzerland
Essex Farmaceutica Portuguesa, Lda		Portugal
Essex Farmaceutica S.A.		Colombia
Essex Italia S.p.A.		Italy
Essex Pharma GmbH		Germany
Essex Pharmaceuticals, Inc.		Philippines
Essexfarm S.A.		Ecuador
Farmaceutica Essex, S.A.		Spain
Garden Insurance Co., Ltd.		Bermuda
Giralda Investments Ltd.		Switzerland
Global Animal Management Inc.		Delaware
Integrated Therapeutics Group, Inc.		Delaware
Key Pharma		Russia
Key Pharma S.A.		Ecuador
Key Pharma S.A.		Argentina
Key Pharma, A.G.		Switzerland
Key Pharma, S.A.		Spain

Schering-Plough Corporation and Subsidiaries
Subsidiaries of the Registrant
As of December 31, 2002
	State or Country
	or Incorporation
Subsidiaries of Registrant	or Organization
Key Pharmaceuticals Export Co., Inc.		U.S. Virgin Islands
Key Pharmaceuticals, Inc.		Florida
Kirby Medical Products Cia Ltda		Chile
Kirby-Warrick Pharmaceuticals Limited		United Kingdom
Kirby Pharmaceutical S.A.		Spain
Laboratorio Essex, C.A.		Venezuela
Laboratorio S.P. White's, C.A.		Venezuela
Laboratorios Essex S.A.		Argentina
Laboratorios Kirby S.A.		Argentina
Loftus Bryan Chemicals Limited		Ireland
Macol, S.A.		Colombia
MedAdvisor, Inc.		Delaware
Medexa, S.A. de C.V.		Mexico
Med-Nim (Proprietary) Limited		South Africa
MSP Technology LLC		Delaware
P.T. Schering-Plough Indonesia		Indonesia
Pharmaceutical Supply Corporation		Delaware
Pharmaco (Canada) Inc.		Canada
Pharmaco, Inc.		Delaware
Plough (Australia) Pty. Limited		Australia
Plough (UK) Limited		United Kingdom
Plough Benelux S.A.		Belgium
Plough Broadcasting Co., Inc.		Delaware
Plough Consumer Products (Asia) Ltd.		Hong Kong
Plough Consumer Products (Philippines) Inc.		Philippines
Plough de Venezuela, C.A.		Venezuela
Plough Export, Inc.		Tennessee
Plough Farma, Lda. (Portugal)		Portugal
Plough France S.A.		France
Plough Hellas Limited		Greece
Plough Laboratories, Inc.		Tennessee
Plough S.p.A.		Italy
PPL, Inc.		Tennessee
Pro Medica AB		Sweden
Professional Pharmaceutical Corporation		Delaware
Scheramex S.A. de C.V.		Mexico
Scherico, Ltd.		Switzerland
Schering Canada Inc.		Canada

Schering-Plough Corporation and Subsidiaries
Subsidiaries of the Registrant
As of December 31, 2002
	State or Country
	or Incorporation
Subsidiaries of Registrant	or Organization
Schering Corporation		New Jersey
Schering Institutional Sales Corporation		Delaware
Schering Laboratories Advertising Inc.		Delaware
Schering MSP Corporation		Nevada
Schering MSP Pharmaceutical LP		Nevada
Schering MyHealth Solutions, Inc.		Delaware
Schering Plough (South Korea)		South Korea
Schering Sales Corporation		Delaware
Schering Sales Management, Inc.		Nevada
Schering Transamerica Corporation		New Jersey
Schering-Plough (Proprietary) Limited		South Africa
Schering-Plough A/S		Norway
Schering-Plough A/S		Denmark
Schering-Plough AB		Sweden
Schering-Plough Animal Health Limited		Ireland
Schering-Plough Animal Health Limited		New Zealand
Schering-Plough Animal Health Limited		Australia
Schering-Plough Animal Health Limited		Thailand
Schering-Plough Animal Health Operations Sdn Bhd		Malaysia
Schering-Plough Animal Health Sdn Bhd		Malaysia
Schering-Plough Animal Health, Inc.		Philippines
Schering-Plough Animal-Health Corporation		Delaware
Schering-Plough B.V.		Netherlands
Schering-Plough C.A.		Venezuela
Schering-Plough Central East A.G.		Switzerland
Schering-Plough China, Ltd.		Bermuda
Schering-Plough Compania Limitada		Chile
Schering-Plough Coordination Center N.V./S.A.		Belgium
Schering-Plough Corp., U.S.A.		Delaware
Schering-Plough Corporation		Philippines
Schering-Plough del Caribe, Inc.		New Jersey
Schering-Plough del Ecuador, S.A.		Ecuador
Schering-Plough del Peru S.A.		Peru
Schering-Plough External Affairs, Inc.		Delaware
Schering-Plough Farma Lda.		Portugal
Schering-Plough Farmaceutica Ltda.		Brazil

Schering-Plough Corporation and Subsidiaries
Subsidiaries of the Registrant
As of December 31, 2002
	State or Country
	or Incorporation
Subsidiaries of Registrant	or Organization
Schering-Plough HealthCare Products Advertising Corp.		Tennessee
Schering-Plough HealthCare Products Sales Corporation		California
Schering-Plough HealthCare Products, Inc.		Delaware
Schering-Plough Holdings France		France
Schering-Plough Holdings Ltd.		United Kingdom
Schering-Plough II - Veterinaria, Lda.		Portugal
Schering-Plough INT Limited		United Kingdom
Schering-Plough International Employees Inc.		Delaware
Schering-Plough International, Inc.		Delaware
Schering-Plough Investment Co., Inc.		Delaware
Schering-Plough Investments Limited		Delaware
Schering-Plough Kabushiki Kaisha		Japan
Schering-Plough Labo N.V.		Belgium
Schering-Plough Legislative Resources, L.L.C.		Delaware
Schering-Plough Limited		Iran
Schering-Plough Limited		Taiwan
Schering-Plough Limited		Thailand
Schering-Plough Limited		United Kingdom
Schering-Plough Ltd.		Switzerland
Schering-Plough N.V./S.A.		Belgium
Schering-Plough Overseas Limited		Delaware
Schering-Plough OY (Finland)		Finland
Schering-Plough Pensions Ireland Limited		Ireland
Schering-Plough Pharmaceutical Industrial and Commercial S.A.		Greece
Schering-Plough Polska Spoka		Poland
Schering-Plough Products Caribe, Inc.		Puerto Rico
Schering-Plough Products LLC		Puerto Rico
Schering-Plough Products, Inc.		Delaware
Schering-Plough Pty. Limited		Australia
Schering-Plough Real Estate Company, Inc.		Delaware
Schering-Plough Research Institute		Delaware
Schering-Plough S.A.		France
Schering-Plough S.A.		Paraguay
Schering-Plough S.A.		Panama
Schering-Plough S.A.		Dominican Republic
Schering-Plough S.A.		Argentina
Schering-Plough S.A.		Colombia
Schering-Plough S.A.		Spain

Schering-Plough Corporation and Subsidiaries
Subsidiaries of the Registrant
As of December 31, 2002
	State or Country
	or Incorporation
Subsidiaries of Registrant	or Organization
Schering-Plough S.A.		Uruguay
Schering-Plough S.A. de C.V.		Mexico
Schering-Plough S.p.A.		Italy
Schering-Plough Sante Animale		France
Schering-Plough Sdn. Bhd.		Malaysia
Schering-Plough Singapore Pte. Ltd.		Singapore
Schering-Plough Singapore Research Pte. Ltd.		Singapore
Schering-Plough Tibbi Urunler Ticaret, A.S.		Turkey
Schering-Plough Veterinaire		France
Schering-Plough Veterinaria, S.A. de C.V.		Mexico
Schering-Plough Veterinary Belgium NV		Belgium
Schering-Plough Veterinary Corporation		Nevada
Schering-Plough Veterinary Ltd.		Thailand
Schering-Plough Veterinary Nederland BV		Netherlands
Schering-Plough Veternaria S.A.		Argentina
Sentipharm A.G.		Switzerland
Shanghai Schering-Plough Pharmaceutical Company, Ltd.		China
SOL Limited		Bermuda
SP Biotech, S.A.		Spain
SP Flight Operations, Inc.		Delaware
SP HealthCare Products Corp.		Delaware
SP Neurotech, S.A.		Spain
S-P RIL Limited (United Kingdom)		United Kingdom
S-P Veterinary (UK) Limited		United Kingdom
S-P Veterinary Holdings Limited		United Kingdom
S-P Veterinary Limited		United Kingdom
S-P Veterinary Pensions Limited		United Kingdom
Summit Property Company LLC, The		Delaware
Suntan Sensations, Inc.		California
Syntro Corporation		Delaware
Takeda Schering-Plough Animal Health Kabushiki Kaisha		Japan
Tasman Vaccine Laboratory (UK) Limited		United Kingdom
Technobiotic Ltd.		Australia
Trading Pharma AG		Switzerland
Undra S.A. de C.V.		Mexico
UNICET, SAS		France

Schering-Plough Corporation and Subsidiaries
Subsidiaries of the Registrant
As of December 31, 2002
	State or Country
	or Incorporation
Subsidiaries of Registrant	or Organization
Warrick Pharmaceuticals Corporation		Delaware
Warrick Pharmaceuticals Limited (United Kingdom)		United Kingdom
Werthenstein Chemie A.G.		Switzerland
White Laboratories of Canada Ltd.		Canada
White Laboratories, Inc.		New Jersey
White Pharma, S.A.		Argentina

EX-23

Exhibit 23

INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in Registration Statements No. 2-83963, No. 33-19013, No. 33-50606, No. 333-30331, No. 333-87077 and No. 333-91440 on Form S-8, Post Effective Amendment No. 1 to Registration Statement No. 2-84723 on Form S-8, Post Effective Amendment No. 1 to Registration Statement No. 2-80012 on Form S-3, Post Effective Amendment No. 1 to Registration Statement No. 2-77740 on Form S-3 and Registration Statements No. 333-12909, No. 333-853, No. 333-30355 and No. 333-102970 on Form S-3 of our reports dated February 25, 2003, appearing in and incorporated by reference in the Annual Report on Form 10-K of Schering-Plough Corporation for the year ended December 31, 2002.

/s/ DELOITTE & TOUCHE, LLP

Parsippany, New Jersey

March 10, 2003

EX-24

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers and/or directors of Schering-Plough Corporation, a New Jersey corporation (herein called the "Corporation"), does hereby constitute and appoint Joseph J. LaRosa, Thomas H. Kelly and Edward Smith, or any of them, his or her true and lawful attorney or attorneys and agent or agents, to do any and all acts and things and to execute any and all instruments which said attorney or attorneys and agent or agents may deem necessary or advisable to enable the Corporation to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations, requirements or requests of the Securities and Exchange Commission thereunder or in respect thereof in connection with the filing under said Act of the Annual Report of the Corporation on Form 10-K for the fiscal year ended December 31, 2002 (herein called the "Form 10-K"); including specifically, but without limiting the generality of the foregoing, the power and authority to sign the respective names of the undersigned officers and/or directors as indicated below to the Form 10-K and/or to any amendment of the Form 10-K and each of the undersigned does hereby ratify and confirm all that said attorney or attorneys and agent or agents, or any of them, shall do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, each of the undersigned has subscribed these presents this 25th day of February, 2003.

/s/ Richard Jay Kogan_____________	/s/ Jack L. Wyszomierski________
Richard Jay Kogan, Chief	Jack L. Wyszomierski, Executive
Executive Officer and President;	Vice President and Chief Financial
Director	Officer
/s/ Thomas H. Kelly_______________	/s/ Carl E. Mundy, Jr.__________
Thomas H. Kelly, Vice President	Carl E. Mundy, Jr.
and Controller; Principal	Director
Accounting Officer
/s/ Richard de J. Osborne_______	/s/ Patricia F. Russo _______
Richard de J. Osborne, Chairman of	Patricia F. Russo
the Board and Director	Director
/s/ Hans W. Becherer______________	/s/ Kathryn C. Turner___________
Hans W. Becherer	Kathryn C. Turner
Director	Director
/s/ David H. Komansky_____________	/s/ Robert F. W. van Oordt______
David H. Komansky	Robert F. W. van Oordt
Director	Director
/s/ Eugene R. McGrath_____________	/s/ Arthur F. Weinbach__________
Eugene R. McGrath	Arthur F. Weinbach
Director	Director
/s/ Donald L. Miller ____________
Donald L. Miller
Director