10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2006
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period from           to

Commission file number 1-6571

SCHERING-PLOUGH CORPORATION

(Exact name of registrant as specified in its charter)

New Jersey	22-1918501
State or other jurisdiction of incorporation or organization	(I.R.S. Employer identification No.)
2000 Galloping Hill Road, Kenilworth, NJ	07033 Zip Code
(Address of principal executive offices)

Registrant’s telephone number, including area code:

(908) 298-4000

Indicate by check mark whether the registrant (1) 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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer þ     Accelerated Filer o     Non-accelerated Filer o

Indicate whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o     No þ

Common Shares Outstanding as of September 30, 2006: 1,482,571,166

TABLE OF CONTENTS

EX-10.D.III: SCHERING PLOUGH CORPORATION 2006 STOCK INCENTIVE PLAN

EX-1O.E.XIII: SAVINGS ADVANTAGE PLAN

EX-10.H.III: DIRECTORS COMPENSATION PLAN

EX-10.M.II:OPERATIONS MANAGEMENT TEAM INCENTIVE PLAN

EX-12: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

EX-15: AWARENESS LETTER

EX-31.1: CERTIFICATION

EX-31.2: CERTIFICATION

EX-32.1: CERTIFICATION

EX-32.2: CERTIFICATION

PART I. FINANCIAL INFORMATION

Item 1.   Financial Statements

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

STATEMENTS OF CONDENSED CONSOLIDATED OPERATIONS
(Unaudited)
(Amounts in millions, except per share figures)

	Three Months						Nine Months
	Ended						Ended
	September 30,						September 30,
	2006			2005			2006			2005
Net sales	$	2,574		$	2,284		$	7,944		$	7,184
Cost of sales		885			775			2,782			2,531
Selling, general and administrative		1,158			1,064			3,467			3,261
Research and development		536			566			1,557			1,391
Other (income)/expense, net		(37	)		—			(89	)		9
Special charges		10			6			90			292
Equity income from cholesterol joint venture		(390	)		(215	)		(1,056	)		(605	)
Income before income taxes		412			88			1,193			305
Income tax expense		103			23			275			162
Net income before cumulative effect of a change in accounting principle		309			65			918			143
Cumulative effect of a change in accounting principle, net of tax		—			—			22			—
Net income		309			65			940			143
Preferred stock dividends		22			22			65			65
Net income available to common shareholders	$	287		$	43		$	875		$	78
Diluted earnings per common share:
Earnings available to common shareholders before cumulative effect of a change in accounting principle	$	0.19		$	0.03		$	0.57		$	0.05
Cumulative effect of a change in accounting principle, net of tax		—			—			0.02			—
Diluted earnings per common share	$	0.19		$	0.03		$	0.59		$	0.05
Basic earnings per common share:
Earnings available to common shareholders before cumulative effect of a change in accounting principle	$	0.19		$	0.03		$	0.57		$	0.05
Cumulative effect of a change in accounting principle, net of tax		—			—			0.02			—
Basic earnings per common share	$	0.19		$	0.03		$	0.59		$	0.05
Dividends per common share	$	0.055		$	0.055		$	0.165		$	0.165

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

1

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS
(Unaudited)
(Amounts in millions)

	Nine Months Ended
	September 30,
	2006			2005
Operating Activities:
Net income	$	940		$	143
Cumulative effect of a change in accounting principle, net of tax		22			—
Net income before cumulative effect of a change in accounting principle, net of tax		918			143
Adjustments to reconcile net income to net cash provided by operating activities:
Payments to U.S. taxing authorities		—			(239	)
Non-cash special charges		66			269
Depreciation and amortization		408			362
Accrued share-based compensation		120			—
Changes in assets and liabilities:
Accounts receivable		(188	)		(344	)
Inventories		(58	)		(61	)
Prepaid expenses and other assets		(101	)		233
Accounts payable and other liabilities		350			183
Net cash provided by operating activities		1,515			546
Investing Activities:
Capital expenditures		(265	)		(293	)
Dispositions of property and equipment		8			41
Purchases of short-term investments		(4,729	)		(1,795	)
Reduction of short-term investments		2,573			2,233
Other, net		(1	)		(48	)
Net cash (used for)/provided by investing activities		(2,414	)		138
Financing Activities:
Cash dividends paid to common shareholders		(243	)		(243	)
Cash dividends paid to preferred shareholders		(65	)		(65	)
Net change in short-term borrowings		(1,040	)		(1,208	)
Other, net		52			51
Net cash used for financing activities		(1,296	)		(1,465	)
Effect of exchange rates on cash and cash equivalents		2			(9	)
Net decrease in cash and cash equivalents		(2,193	)		(790	)
Cash and cash equivalents, beginning of period		4,767			4,984
Cash and cash equivalents, end of period	$	2,574		$	4,194

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

2

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in millions, except per share figures)

	September 30,			December 31,
	2006			2005
ASSETS
Current Assets:
Cash and cash equivalents	$	2,574		$	4,767
Short-term investments		2,974			818
Accounts receivable, net		1,720			1,479
Inventories		1,687			1,605
Deferred income taxes		379			294
Prepaid expenses and other current assets		888			769
Total current assets		10,222			9,732
Property, plant and equipment		7,233			7,197
Less accumulated depreciation		2,880			2,710
Property, plant and equipment, net		4,353			4,487
Goodwill		204			204
Other intangible assets, net		331			365
Other assets		577			681
Total assets	$	15,687		$	15,469
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	1,119		$	1,078
Short-term borrowings and current portion of long-term debt		235			1,278
U.S., foreign and state income tax		351			213
Accrued compensation		664			632
Other accrued liabilities		1,532			1,458
Total current liabilities		3,901			4,659
Long-term Liabilities:
Long-term debt		2,413			2,399
Deferred income tax		109			117
Other long-term liabilities		1,012			907
Total long-term liabilities		3,534			3,423
Commitments and contingent liabilities (Note 15)
Shareholders’ Equity:
Mandatory convertible preferred shares — $1 par value; issued: 29; $50 per share face value		1,438			1,438
Common shares — authorized shares: 2,400, $.50 par value; issued: 2,030		1,015			1,015
Paid-in capital		1,586			1,416
Retained earnings		10,103			9,472
Accumulated other comprehensive income		(458	)		(516	)
Total		13,684			12,825
Less treasury shares: 2006, 547; 2005, 550; at cost		5,432			5,438
Total shareholders’ equity		8,252			7,387
Total liabilities and shareholders’ equity	$	15,687		$	15,469

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

3

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.   Basis of Presentation

These unaudited condensed consolidated financial statements of Schering-Plough Corporation and subsidiaries (the Company), included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for reporting on Form 10-Q. Certain information and disclosures normally included in financial statements prepared in accordance with U.S. Generally Accepted Accounting Principles have been condensed or omitted pursuant to such SEC rules and regulations. Certain prior year amounts have been reclassified to conform to the current year presentation. These statements should be read in conjunction with the accounting policies and notes to consolidated financial statements included in the Company’s 2005 10-K.

In the opinion of the Company’s management, the financial statements reflect all adjustments necessary for a fair statement of the operations, cash flows and financial position for the interim periods presented.

Impact of Recently Issued Accounting Standards

In September 2006, the Financial Accounting Standards Board (FASB) issued Statements of Financial Accounting Standard (SFAS) No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans,” an amendment of FASB Statements No. 87, 88, 106, and 132R. SFAS No. 158 requires an employer to: (a) recognize in its statement of financial position an asset for a plan’s overfunded status and/or a liability for a plan’s underfunded status; (b) measure a plan’s assets and its obligations that determine its funded status as of the end of the employer’s fiscal year (with limited exceptions); and (c) recognize changes in the funded status of a defined benefit postretirement plan in the year in which the changes occur. In accordance with SFAS No. 158, the Company will recognize the funded status of its pension and postretirement benefit plans in its financial statements for the year ending December 31, 2006.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which is effective for calendar year companies on January 1, 2008. The Statement defines fair value, establishes a framework for measuring fair value in accordance with Generally Accepted Accounting Principles, and expands disclosures about fair value measurements. The Statement codifies the definition of fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The standard clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The Company is currently assessing the potential impacts of implementing this standard.

In September 2006, the SEC staff issued Staff Accounting Bulletin (SAB) Topic 1N (SAB 108), “Financial Statements — Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” which is effective for calendar year companies as of December 31, 2006. SAB 108 provides guidance on how prior year misstatements should be taken into consideration when quantifying misstatements in current year financial statements for purposes of determining whether the financial statements are materially misstated. Under this guidance, companies should take into account both the effect of a misstatement on the current year balance sheet as well as the impact upon the current year income statement in assessing the materiality of a current year misstatement. Once a current year misstatement has been quantified, the guidance in SAB Topic 1M, “Financial Statements — Materiality,” (SAB 99) should be applied to determine whether the misstatement is material. The implementation of SAB 108 is not expected to have a material impact on the Company’s financial statements.

In July 2006, the FASB issued FASB Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes.” FIN 48 prescribes detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in an enterprise’s financial statements in accordance with

4

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

FASB Statement No. 109, “Accounting for Income Taxes.” Tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized upon the adoption of FIN 48 and in subsequent periods. FIN 48 will be effective for fiscal years beginning after December 15, 2006 and the provisions of FIN 48 will be applied to all tax positions upon initial adoption of the Interpretation. The cumulative effect of applying the provisions of this Interpretation will be reported as an adjustment to the opening balance of retained earnings upon adoption. The Company is currently evaluating the potential impacts of FIN 48 on its financial statements.

2.   Special Charges and Manufacturing Streamlining

On June 1, 2006, the Company announced changes to its manufacturing operations in Puerto Rico and New Jersey that will streamline its global supply chain and further enhance the Company’s long-term competitiveness. The Company’s manufacturing operations in Manati, Puerto Rico, are being phased out during 2006 and additional workforce reductions in Las Piedras, Puerto Rico and New Jersey have taken place. In total, the actions taken will result in the elimination of approximately 1,100 positions. Approximately 560 positions have been eliminated as of September 30, 2006.

Special Charges

Special charges for the three and nine months ended September 30, 2006 totaled $10 million and $90 million, respectively, related to the announced changes in the Company’s manufacturing operations. These charges consisted of $10 million and $35 million of severance for the three and nine months ended September 30, 2006, respectively, and $55 million of fixed asset impairments for the nine months ended September 30, 2006.

Special charges for the three months ended September 30, 2005 totaled $6 million primarily related to the consolidation of the Company’s U.S. biotechnology organizations. Special charges for the nine months ended September 30, 2005 totaled $292 million primarily related to an increase of $250 million in litigation reserves for the Massachusetts Investigation. Additional information regarding litigation reserves and matters is also included in Note 15, “Legal, Environmental and Regulatory Matters,” in this 10-Q.

Cost of Sales

Included in cost of sales for the three months ended September 30, 2006 was $43 million consisting of $41 million of accelerated depreciation and $2 million of other charges related to the announced closure of the Company’s manufacturing facilities in Manati, Puerto Rico. For the nine months ended September 30, 2006, charges related to the Manati closure included in cost of sales totaled $101 million consisting of $45 million of inventory write-offs, $54 million of accelerated depreciation, and $2 million of other charges.

5

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

The following table summarizes the activities reflected in the Condensed Consolidated Financial Statements for special charges and manufacturing streamlining for the three months ended September 30, 2006:

	Charges
	Included in		Special		Total		Cash			Non-Cash			Accrued
	Cost of Sales		Charges		Charges		Payments			Charges			Liability
	(Dollars in millions)
Accrued liability at June 30, 2006													$	19
Severance	$	—	$	10	$	10	$	(12	)	$	—			(2	)
Asset impairments		—		—		—		—			—			—
Accelerated depreciation		41		—		41		—			(41	)		—
Inventory write-offs		—		—		—		—			—			—
Other		2		—		2		(2	)		—			—
Total	$	43	$	10	$	53	$	(14	)	$	(41	)
Accrued liability at September 30, 2006													$	17

The following table summarizes the activities reflected in the Condensed Consolidated Financial Statements for special charges and manufacturing streamlining for the nine months ended September 30, 2006:

	Charges
	Included in		Special		Total		Cash			Non-Cash			Accrued
	Cost of Sales		Charges		Charges		Payments			Charges			Liability
	(Dollars in millions)
Accrued liability at January 1, 2006													$	—
Severance	$	—	$	35	$	35	$	(18	)	$	—			17
Asset impairments		—		55		55		—			(55	)		—
Accelerated depreciation		54		—		54		—			(54	)		—
Inventory write-offs		45		—		45		—			(45	)		—
Other		2		—		2		(2	)		—			—
Total	$	101	$	90	$	191	$	(20	)	$	(154	)
Accrued liability at September 30, 2006													$	17

The Company anticipates incurring from $50 million to $60 million of additional charges related to the announced changes in the Company’s manufacturing operations. Substantially all of these additional charges will be incurred during 2006.

3.   Equity Income from Cholesterol Joint Venture

In May 2000, the Company and Merck & Co., Inc. (Merck) entered into two separate sets of agreements to jointly develop and market certain products in the U.S. including (1) two cholesterol-lowering drugs and (2) an allergy/asthma drug. In December 2001, the cholesterol agreements were expanded to include all countries of the world except Japan. In general, the companies agreed that the collaborative activities under these agreements would operate in a virtual joint venture to the maximum degree possible by relying on the respective infrastructures of the two companies. These agreements generally provide for equal sharing of development costs and for co-promotion of approved products by each company.

The cholesterol agreements provide for the Company and Merck to jointly develop ezetimibe (marketed as ZETIA in the U.S. and Asia and EZETROL in Europe):

i. as a once-daily monotherapy;

ii. in co-administration with any statin drug; and

6

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

iii. as a once-daily fixed-combination tablet of ezetimibe and simvastatin (Zocor), Merck’s cholesterol-modifying medicine. This combination medication (ezetimibe/simvastatin) is marketed as VYTORIN in the U.S. and as INEGY in many international countries.

ZETIA/EZETROL (ezetimibe) and VYTORIN/INEGY (the combination of ezetimibe/simvastatin) are approved for use in the U.S. and have been launched in many international markets.

The Company utilizes the equity method of accounting in recording its share of activity from the Merck/Schering-Plough cholesterol joint venture. As such, the Company’s net sales do not include the sales of the joint venture. The cholesterol joint venture agreements provide for the sharing of operating income generated by the joint venture based upon percentages that vary by product, sales level and country. In the U.S. market, the Company receives a greater share of profits on the first $300 million of annual ZETIA sales. Above $300 million of annual ZETIA sales, Merck and Schering-Plough (the Partners) generally share profits equally. Schering-Plough’s allocation of the joint venture income is increased by milestones recognized. Further, either Partner’s share of the joint venture’s income from operations is subject to a reduction if the Partner fails to perform a specified minimum number of physician details in a particular country. The Partners agree annually to the minimum number of physician details by country.

The Partners bear the costs of their own general sales forces and commercial overhead in marketing joint venture products around the world. In the U.S., Canada, and Puerto Rico, the cholesterol agreements provide for a reimbursement to each Partner for physician details that are set on an annual basis. This reimbursed amount is equal to each Partner’s physician details multiplied by a contractual fixed fee. Schering-Plough reports this reimbursement as part of equity income from the cholesterol joint venture. This amount does not represent a reimbursement of specific, incremental and identifiable costs for the Company’s detailing of the cholesterol products in these markets. In addition, this reimbursement amount is not reflective of the Company’s sales effort related to the joint venture as the Company’s sales force and related costs associated with the joint venture are generally estimated to be higher.

During the nine months ended September 30, 2005, the Company recognized milestones of $20 million related to certain European approvals of VYTORIN.

Under certain other conditions, as specified in the joint venture agreements with Merck, the Company could earn additional milestones totaling $105 million.

Costs of the joint venture that the Partners contractually share are a portion of manufacturing costs, specifically identified promotion costs (including direct-to-consumer advertising and direct and identifiable out-of-pocket promotion) and other agreed upon costs for specific services such as market support, market research, market expansion, a specialty sales force and physician education programs.

Certain specified research and development expenses are generally shared equally by the Partners.

The unaudited financial information below presents summarized combined financial information for the Merck/Schering-Plough Cholesterol Partnership for the three and nine months ended September 30, 2006 and 2005:

	Three Months				Nine Months
	Ended				Ended
	September 30,				September 30,
	2006		2005		2006		2005
	(Dollars in millions)
Net sales	$	1,028	$	630	$	2,795	$	1,679
Cost of sales		47		32		132		99
Income from operations		698		340		1,789		814

7

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Amounts related to physician details, among other expenses, that are invoiced by Schering-Plough and Merck in the U.S., Canada and Puerto Rico are deducted from income from operations of the Partnership.

Schering-Plough’s share of the Partnership’s income from operations for the three and nine months ended September 30, 2006 was $343 million and $920 million, respectively, and $169 million and $465 million, respectively, for the three and nine months ended September 30, 2005. In the U.S. market, Schering-Plough receives a greater share of income from operations on the first $300 million of annual ZETIA sales.

The following unaudited information provides a summary of the components of the Company’s equity income from the cholesterol joint venture for the three and nine months ended September 30, 2006 and 2005:

	Three Months					Nine Months
	Ended					Ended
	September 30,					September 30,
	2006		2005			2006		2005
	(Dollars in millions)
Schering-Plough’s share of income from operations	$	343	$	169		$	920	$	465
Contractual reimbursement to Schering-Plough for physician details		44		52			127		141
Elimination of intercompany profit and other, net		3		(6	)		9		(1	)
Total equity income from cholesterol joint venture	$	390	$	215		$	1,056	$	605

Equity income from the joint venture excludes any profit arising from transactions between the Company and the joint venture until such time as there is an underlying profit realized by the joint venture in a transaction with a party other than the Company or Merck.

Due to the virtual nature of the cholesterol joint venture, the Company incurs substantial costs, such as selling, general and administrative costs, that are not reflected in equity income and are borne by the overall cost structure of the Company. These costs are reported on their respective line items in the Statements of Condensed Consolidated Operations. The cholesterol agreements do not provide for any jointly owned facilities and, as such, products resulting from the joint venture are manufactured in facilities owned by either the Company or Merck.

The allergy/asthma agreements provide for the joint development and marketing by the Partners of a once-daily, fixed-combination tablet containing CLARITIN and Singulair. Singulair is Merck’s once-daily leukotriene receptor antagonist for the treatment of asthma and seasonal allergic rhinitis. In January 2002, the Merck/Schering-Plough respiratory joint venture reported on results of Phase III clinical trials of a fixed-combination tablet containing CLARITIN and Singulair and at that time concluded that this Phase III study did not demonstrate sufficient added benefits in the treatment of seasonal allergic rhinitis. Although the CLARITIN and Singulair combination tablet does not have approval in any country, Phase III clinical development is ongoing.

4.   Share-Based Compensation

Prior to January 1, 2006, the Company accounted for its stock compensation arrangements using the intrinsic value method, which followed the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees” and the related Interpretations. Prior to 2006, no stock-based employee compensation cost was reflected in net income, other than for the Company’s deferred stock units, as stock options granted under all other plans had an exercise price equal to the market value of the underlying common stock on the date of grant.

8

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

The Company adopted Statement of Financial Accounting Standards No. 123 (Revised 2004), “Share-Based Payment” (SFAS 123R), effective January 1, 2006. SFAS 123R requires companies to recognize compensation expense in an amount equal to the fair value of all share-based payments granted to employees. The Company elected the modified prospective transition method and therefore adjustments to prior periods were not required as a result of adopting SFAS 123R. Under this method, the provisions of SFAS 123R apply to all awards granted after the date of adoption and to any unrecognized expense of awards unvested at the date of adoption based on the grant date fair value. SFAS 123R also amends SFAS No. 95, “Statement of Cash Flows,” to require that excess tax benefits that had been reflected as operating cash flows be reflected as financing cash flows.

In the second quarter of 2006, the 2006 Stock Incentive Plan (the 2006 Plan) was approved by the Company’s shareholders. Under the terms of the 2006 Plan, 92 million of the Company’s authorized common shares may be granted as stock options or awarded as deferred stock units to officers and certain employees of the Company through December 2011. As of September 30, 2006, 76 million options and deferred stock units remain available for future year grants under the 2006 Plan.

The Company intends to utilize unissued authorized shares to satisfy stock option exercises and for the issuance of deferred stock units.

For grants issued to retirement eligible employees prior to the adoption of SFAS 123R, the Company recognized compensation costs over the stated vesting period of the stock option or deferred stock unit with acceleration of any unrecognized compensation costs upon the retirement of the employee. Upon adoption of SFAS 123R, the Company recognizes compensation costs on all share-based grants made on or after January 1, 2006 over the service period, which is the earlier of the employees retirement eligibility date or the service period of the award.

Implementation of SFAS 123R

In the first quarter of 2006, the Company recognized a benefit to income of $22 million for the cumulative effect of a change in accounting principle related to two long-term compensation plans required to be accounted for as liability plans under SFAS 123R.

Tax benefits recognized related to stock-based compensation and related cash flow impacts were not material during the three and nine months ended September 30, 2006 as the Company is in a U.S. Net Operating Loss position.

Stock Options

Stock options are granted to employees at exercise prices equal to the fair market value of the Company’s stock at the dates of grant. Stock options, under the 2006 Plan, generally vest over three years and have a term of seven years. Certain options granted under previous plans vest over longer periods ranging from three to nine years and have a term of 10 years. Compensation costs for all stock options are recognized over the requisite service period for each separately vesting portion of the stock option award. Expense is recognized, net of estimated forfeitures, over the vesting period of the options using an accelerated method. Expense recognized for the three and nine months ended September 30, 2006 was approximately $16 million and $43 million, respectively.

9

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

The weighted-average assumptions used in the Black-Scholes option-pricing model for the three and nine months ended September 30, 2006 and 2005 were as follows:

	Three Months						Nine Months
	Ended						Ended
	September 30,						September 30,
	2006			2005			2006			2005
Dividend yield		1.1	%		1.7	%		1.1	%		1.7	%
Volatility		24.0	%		31.5	%		25.7	%		32.1	%
Risk-free interest rate		5.0	%		4.1	%		5.0	%		4.1	%
Expected term of options (in years)		4.5			7.0			4.5			7.0

Dividend yields are based on historical dividend yields. Expected volatilities are based on historical volatilities of the Company’s common stock. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the options. The expected term of options represents the weighted average period of time that options granted are expected to be outstanding giving consideration to vesting schedules and the Company’s historical exercise patterns.

The amount of cash received from the exercise of stock options for the three and nine months ended September 30, 2006 was $20 million and $52 million, respectively. The amount of cash received for the three and nine months ended September 30, 2005 was $22 million and $50 million, respectively.

Stock-based compensation prior to January 1, 2006 was determined using the intrinsic value method. The following table provides supplemental information for the three and nine months ended September 30, 2005 as if stock-based compensation had been computed under SFAS 123:

	Three Months			Nine Months
	Ended			Ended
	September 30,			September 30,
	2005			2005
	(Dollars in millions except
	per share figures)
Net income available to common shareholders, as reported	$	43		$	78
Add back: Expense included in reported net income for deferred stock units		25			66
Deduct: Pro forma expense as if both stock options and deferred stock units were charged against net income available to common shareholders in accordance with SFAS 123		(55	)		(139	)
Pro forma net income available to common shareholders using the fair value method	$	13		$	5
Diluted earnings per common share:
Diluted earnings per common share, as reported	$	0.03		$	0.05
Pro forma diluted earnings per common share using the fair value method		0.01			0.00
Basic earnings per common share:
Basic earnings per common share, as reported	$	0.03		$	0.05
Pro forma basic earnings per common share using the fair value method		0.01			0.00

10

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Summarized information about stock options outstanding and exercisable at September 30, 2006 is as follows:

	Outstanding						Exercisable
			Weighted-		Weighted-				Weighted-
	Number		Average		Average		Number		Average
	of		Remaining		Exercise		of		Exercise
Exercise Price Range	Options		Term in Years		Price		Options		Price
	(In thousands)						(In thousands)
Under $20		46,647		6.6	$	18.22		28,132	$	18.03
$20 to $30		9,892		8.5		20.83		3,462		20.99
$30 to $40		15,256		3.4		36.57		15,200		36.60
Over $40		14,736		3.5		46.36		14,556		46.33
		86,531						61,350

The weighted-average fair value of stock options granted for the three and nine months ended September 30, 2006 was $5.24 and $5.22, respectively. The weighted-average fair value of stock options granted for the three and nine months ended September 30, 2005 was $6.98 and $7.04, respectively. The intrinsic value of stock options exercised was $3 million and $12 million for the three and nine months ended September 30, 2006, respectively. The intrinsic value of stock options exercised was $9 million and $21 million for the three and nine months ended September 30, 2005, respectively. The total fair value of options vested during the three and nine months ended September 30, 2006 was $2 million and $70 million, respectively. The total fair value of options vested during the three and nine-months ended September 30, 2005 was $17 million and $67 million, respectively.

As of September 30, 2006, the total remaining unrecognized compensation cost related to non-vested stock options amounted to $61 million, which will be amortized over the weighted-average remaining requisite service period of 2.1 years.

The following table summarizes stock option activities over the nine months ended September 30, 2006 under the current and prior plans:

				Weighted-
	Number			Average
	of			Exercise
	Options			Price
	(In thousands)
Outstanding at January 1, 2006		82,484		$	27.00
Granted		9,638			19.24
Exercised		(3,268	)		15.90
Canceled or expired		(2,323	)		27.24
Outstanding, ending balance		86,531			26.55
Exercisable at September 30, 2006		61,350		$	29.51

The aggregate intrinsic value of stock options outstanding at September 30, 2006 was $194 million. The aggregate intrinsic value of stock options currently exercisable at September 30, 2006 was $119 million. Intrinsic value for stock options is calculated based on the exercise price of the underlying awards and the quoted price of the Company’s common stock as of the reporting date.

11

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

The following table summarizes nonvested stock option activity over the nine months ended September 30, 2006 under the current and prior plans:

				Weighted-
	Number			Average
	of			Fair
	Options			Value
	(In thousands)
Nonvested at January 1, 2006		28,022		$	6.41
Granted		9,638			5.22
Vested		(11,150	)		6.30
Forfeited		(1,329	)		5.93
Nonvested at September 30, 2006		25,181		$	6.03

Deferred Stock Units

The fair value of deferred stock units is determined based on the number of shares granted and the quoted price of the Company’s common stock at the date of grant. Deferred stock units generally vest at the end of three years provided the employee remains in the service of the Company. Expense is recognized on a straight-line basis over the vesting period. Deferred stock units are payable in an equivalent number of common shares. Expense recognized for the three and nine months ended September 30, 2006 was $28 million and $84 million, respectively. Expense recognized for the three and nine months ended September 30, 2005 was $25 million and $66 million, respectively.

Summarized information about deferred stock units outstanding at September 30, 2006 is as follows:

	Outstanding
			Weighted-
	Number of		Average		Weighted-
	Deferred Stock		Remaining		Average
Deferred Stock Unit Price Range	Units		Term in Years		Fair Value
	(In thousands)
Under $18		1,310		1.0	$	17.32
$18 to $20		9,050		2.0		18.95
$20 to $22		6,435		1.6		20.71
Over $22		347		0.4		34.48
		17,142

The weighted-average fair value of deferred stock units granted was $20.38 and $19.24 for the three and nine months ended September 30, 2006, respectively. The weighted-average fair value of deferred stock units granted for the three and nine months ended September 30, 2005 was $20.76 and $20.67, respectively. The total fair value of deferred stock units vested during the three and nine months ended September 30, 2006 was $3 million and $4 million, respectively. The total fair value of deferred stock units vested during the three and nine months ended September 30, 2005 was $1 million and $7 million, respectively.

As of September 30, 2006, the total remaining unrecognized compensation cost related to deferred stock units amounted to $206 million, which will be amortized over the weighted-average remaining requisite service period of 2.1 years.

12

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

The following table summarizes deferred stock unit activity over the nine months ended September 30, 2006 under the current and prior plans:

	Number
	of Nonvested			Weighted-
	Deferred			Average
	Stock Units			Fair Value
	(In thousands)
Nonvested at January 1, 2006		11,416		$	20.12
Granted		6,606			19.24
Vested		(219	)		18.84
Forfeited		(661	)		20.09
Nonvested at September 30, 2006		17,142		$	19.80

Incentive Plans

The Company has two compensation plans that are classified as liability plans under SFAS 123R as the ultimate cash payout of these plans will be based on the Company’s stock performance as compared to the stock performance of a peer group. Upon adoption of SFAS 123R on January 1, 2006, the Company recognized a cumulative income effect of a change in accounting principle of $22 million in order to recognize the liability plans at fair value. Income or expense amounts related to these liability plans are based on the change in fair value at each reporting date. Fair value for the plans were estimated using a lattice valuation model using expected volatility assumptions and other assumptions appropriate for determining fair value. The amount recognized, other than the impact of the cumulative effect of a change in accounting principle, in the Statements of Condensed Consolidated Operations for the three and nine months ended September 30, 2006 related to these liability awards was not material.

As of September 30, 2006, the total remaining unrecognized compensation cost related to the incentive plans amounted to $32 million, which will be amortized over the weighted-average remaining requisite service period of 2.0 years. This amount will vary each reporting period based on changes in fair value.

5. Other (Income)/Expense, Net

The components of other (income)/expense, net are as follows:

	Three Months						Nine Months
	Ended						Ended
	September 30,						September 30,
	2006			2005			2006			2005
	(Dollars in millions)
Interest cost incurred	$	44		$	41		$	142		$	133
Less: amount capitalized on construction		4			5			11			11
Interest expense		40			36			131			122
Interest income		(77	)		(45	)		(214	)		(118	)
Foreign exchange losses		—			2			6			6
Other, net		—			7			(12	)		(1	)
Total other (income)/expense, net	$	(37	)	$	—		$	(89	)	$	9

During the third quarter of 2006, the Company participated in a healthcare refinancing program adopted by a local government fiscal authority in a major European market. As of September 30, 2006, the Company

13

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

has transferred $28 million of its trade accounts receivables owned by a foreign subsidiary to a third-party financial institution without recourse. The transfer of trade accounts receivable qualified as sales of accounts receivable under SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” For the three and nine months ended September 30, 2006, the loss on the transfer of these trade accounts receivable is immaterial and included in interest expense. Cash flows from the transaction are included in the change in accounts receivable in operating activities.

6.   Income Taxes

At December 31, 2005, the Company had approximately $1.5 billion of U.S. Net Operating Losses (U.S. NOLs) for tax purposes available to offset future U.S. taxable income through 2024. The Company generated an additional U.S. NOL during the nine months ended September 30, 2006.

The Company’s tax provisions for the three and nine months ended September 30, 2006 and 2005 primarily relate to foreign taxes and do not include any benefit related to U.S. NOLs. The Company maintains a valuation allowance on its net U.S. deferred tax assets, including the benefit of U.S. NOLs, as management cannot conclude that it is more likely than not the benefit of U.S. net deferred tax assets can be realized.

7.   Retirement Plans and Other Post-Retirement Benefits

The Company has defined benefit pension plans covering eligible employees in the U.S. and certain foreign countries. The Company also provides post-retirement health care benefits to its eligible U.S. retirees and their dependents.

The components of net pension expense were as follows:

	Three Months						Nine Months
	Ended						Ended
	September 30,						September 30,
	2006			2005			2006			2005
	(Dollars in millions)
Service cost	$	30		$	26		$	89		$	80
Interest cost		28			28			85			93
Expected return on plan assets		(28	)		(29	)		(85	)		(97	)
Amortization, net		12			8			33			29
Termination benefits		—			2			—			5
Settlement		2			—			4			—
Net pension expense	$	44		$	35		$	126		$	110

The components of other post-retirement benefits expense were as follows:

	Three Months						Nine Months
	Ended						Ended
	September 30,						September 30,
	2006			2005			2006			2005
	(Dollars in millions)
Service cost	$	5		$	4		$	13		$	11
Interest cost		7			7			20			18
Expected return on plan assets		(3	)		(4	)		(10	)		(11	)
Amortization, net		1			—			3			1
Net other post-retirement benefits expense	$	10		$	7		$	26		$	19

14

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

For the three and nine months ended September 30, 2006, the Company contributed $49 million and $89 million, respectively, to its retirement plans. The Company expects to contribute approximately $20 million to its retirement plans in the remainder of 2006.

8.   Earnings Per Common Share

The following table reconciles the components of the basic and diluted earnings per common share (EPS) computations:

	Three Months				Nine Months
	Ended				Ended
	September 30,				September 30,
	2006		2005		2006		2005
	(Dollars and shares in millions)
EPS Numerator:
Net income before cumulative effect of a change in accounting principle and preferred stock dividends	$	309	$	65	$	918	$	143
Add: Cumulative effect of a change in accounting principle, net of tax		—		—		22		—
Less: Preferred stock dividends		22		22		65		65
Net income available to common shareholders	$	287	$	43	$	875	$	78
EPS Denominator:
Weighted average shares outstanding for basic EPS		1,482		1,477		1,481		1,476
Dilutive effect of options and deferred stock units		10		10		8		7
Average shares outstanding for diluted EPS		1,492		1,487		1,489		1,483

The equivalent common shares issuable under the Company’s stock incentive plans which were excluded from the computation of diluted EPS because their effect would have been antidilutive were 51 million for the three and nine months ended September 30, 2006, and 33 million and 38 million for the three and nine months ended September 30, 2005, respectively. Also, at September 30, 2006 and 2005, 65 million and 68 million, respectively, of common shares obtainable upon conversion of the Company’s 6 percent Mandatory Convertible Preferred Stock were excluded from the computation of diluted earnings per share because their effect would have been antidilutive.

9.   Comprehensive Income

Comprehensive income is comprised of the following:

	Three Months				Nine Months
	Ended				Ended
	September 30,				September 30,
	2006		2005		2006		2005
	(Dollars in millions)
Net income	$	309	$	65	$	940	$	143
Foreign currency translation adjustment		9		1		56		(123	)
Unrealized gain on investments available for sale, net of tax		6		1		2		—
Total comprehensive income	$	324	$	67	$	998	$	20

15

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

10.   Inventories

Inventories consisted of the following:

	September 30,		December 31,
	2006		2005
	(Dollars in millions)
Finished products	$	700	$	665
Goods in process		731		614
Raw materials and supplies		256		326
Total inventories	$	1,687	$	1,605

11.   Other Intangible Assets

The components of other intangible assets, net are as follows:

	September 30, 2006						December 31, 2005
	Gross						Gross
	Carrying		Accumulated				Carrying		Accumulated
	Amount		Amortization		Net		Amount		Amortization		Net
	(Dollars in millions)
Patents and licenses	$	581	$	359	$	222	$	579	$	329	$	250
Trademarks and other		166		57		109		166		51		115
Total other intangible assets	$	747	$	416	$	331	$	745	$	380	$	365

These intangible assets are amortized on the straight-line method over their respective useful lives. The residual value of intangible assets is estimated to be zero. Amortization expenses for the three and nine months ended September 30, 2006 were $12 million and $36 million, respectively, and $12 million and $37 million for the three and nine months ended September 30, 2005, respectively. Annual amortization expenses related to these intangible assets for the years 2007 to 2012 is expected to be approximately $50 million.

12.   Short-Term Borrowings

Short-term borrowings primarily consist of bank loans and commercial paper. Short-term borrowings at September 30, 2006 and December 31, 2005 totaled $235 million and $1.3 billion, respectively.

The Company entered into a $575 million credit facility during the fourth quarter of 2005 for the purposes of funding repatriations under the American Jobs Creation Act of 2004. As of September 30, 2006, the outstanding balance under this facility was paid in full and the facility has been terminated.

13.   Segment Data

The Company has three reportable segments: Prescription Pharmaceuticals, Consumer Health Care and Animal Health. The segment sales and profit data that follow are consistent with the Company’s current management reporting structure. The Prescription Pharmaceuticals segment discovers, develops, manufactures and markets human pharmaceutical products. The Consumer Health Care segment develops, manufactures and markets over-the-counter, foot care and sun care products, primarily in the U.S. The Animal Health segment discovers, develops, manufactures and markets animal health products.

16

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Net sales by segment:

	Three Months				Nine Months
	Ended				Ended
	September 30,				September 30,
	2006		2005		2006		2005
	(Dollars in millions)
Prescription Pharmaceuticals	$	2,087	$	1,840	$	6,350	$	5,660
Consumer Health Care		259		235		918		895
Animal Health		228		209		676		629
Consolidated net sales	$	2,574	$	2,284	$	7,944	$	7,184

Profit by segment:

	Three Months						Nine Months
	Ended						Ended
	September 30,						September 30,
	2006			2005			2006			2005
	(Dollars in millions)
Prescription Pharmaceuticals	$	355		$	93		$	1,074		$	507
Consumer Health Care		74			55			237			225
Animal Health		36			33			106			89
Corporate and other, including net interest income of $37 and $83, respectively, in 2006, and net interest income/(expense) of $9 and $(4), respectively, in 2005		(53	)		(93	)		(224	)		(516	)
Income before income taxes	$	412		$	88		$	1,193		$	305

Schering-Plough’s net sales do not include sales of VYTORIN and ZETIA that are marketed in the partnership with Merck, as the Company accounts for this joint venture under the equity method of accounting (see Note 3, “Equity Income From Cholesterol Joint Venture,” for additional information). The Prescription Pharmaceuticals segment includes equity income from the cholesterol joint venture.

“Corporate and other” includes interest income and expense, foreign exchange gains and losses, headquarters expenses, special charges and other miscellaneous items. The accounting policies used for segment reporting are the same as those described in Note 1, “Summary of Significant Accounting Policies,” in the Company’s 2005 10-K.

For the three and nine months ended September 30, 2006, “Corporate and other” included special charges of $10 million and $90 million, respectively, related to the changes to the Company’s manufacturing operations in the U.S. and Puerto Rico announced in June 2006, all of which related to the Prescription Pharmaceuticals segment (see Note 2, “Special Charges and Manufacturing Streamlining,” for additional information).

For the three and nine months ended September 30, 2005, “Corporate and other” included special charges of $6 million and $292 million, respectively, primarily related to an increase in litigation reserves for the Massachusetts Investigation (see Note 15, “Legal, Environmental and Regulatory Matters,” for additional information) with the majority of the remaining amount related to charges as a result of the consolidation of the Company’s U.S. biotechnology organizations. Special charges for the nine months ended September 30, 2005 is estimated to be as follows: Prescription Pharmaceuticals — $288 million, Consumer Health Care — $1 million, Animal Health — $1 million and Corporate and other — $2 million.

17

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Sales of products comprising 10 percent or more of the Company’s U.S. or international sales for the three or nine months ended September 30, 2006, were as follows:

	Three Months				Nine Months
	Ended				Ended
	September 30, 2006				September 30, 2006
	Amount		Percentage		Amount		Percentage
	(Dollars in millions)		(%)		(Dollars in millions)		(%)
U.S.
NASONEX		153		15		441		14
OTC CLARITIN		92		9		303		10
International
REMICADE		317		21		902		19
PEG-INTRON		155		10		477		10

The Company does not disaggregate assets on a segment basis for internal management reporting and, therefore, such information is not presented.

14.   Consent Decree

In May 2002, the Company agreed with the FDA to the entry of a Consent Decree to resolve issues related to compliance with current Good Manufacturing Practices (cGMP) at certain of the Company’s facilities in New Jersey and Puerto Rico (the “Consent Decree” or the “Decree”).

In summary, the Decree required the Company to make payments totaling $500 million in two equal installments of $250 million, which were paid in 2002 and 2003. In addition, the Decree required the Company to complete revalidation programs for manufacturing processes used to produce bulk active pharmaceutical ingredients and finished drug products at the covered facilities, as well as to implement a comprehensive cGMP Work Plan for each such facility. The Decree required the foregoing to be completed in accordance with strict schedules, and provided for possible imposition of additional payments in the event the Company did not adhere to the approved schedules. Final completion of the work was made subject to certification by independent experts, whose certifications were in turn made subject to FDA acceptance.

Although the Company has reported to the FDA that it has completed both the revalidation programs and the cGMP Work Plan, third party certification of the Work Plan is still pending. It is possible that the third party expert may not certify the completion of a Work Plan Significant Step or that the FDA may disagree with the expert’s certification. In such an event, it is possible that FDA may assess additional payments as permitted under the Decree, and as described in more detail below.

In general, the cGMP Work Plan contained 212 Significant Steps whose timely and satisfactory completion are subject to payments of $15 thousand per business day for each deadline missed. These payments may not exceed $25 million for 2002, and $50 million for each of the years 2003, 2004 and 2005. These payments are subject to an overall cap of $175 million. The Company would expense any such additional payments assessed under the Decree if and when incurred.

Under the terms of the Decree, provided that the FDA has not notified the Company of a significant violation of FDA law, regulations, or the Decree in the five-year period since the Decree’s entry, May 2002 through May 2007, the Company may petition the court to have the Decree dissolved and the FDA will not oppose the Company’s petition.

18

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

15. Legal, Environmental and Regulatory Matters

Background

The Company is involved in various claims, investigations and legal proceedings.

The Company records a liability for contingencies when it is probable that a liability has been incurred and the amount can be reasonably estimated. The Company adjusts its liabilities for contingencies to reflect the current best estimate of probable loss or minimum liability as the case may be. Where no best estimate is determinable, the Company records the minimum amount within the most probable range of its liability. Expected insurance recoveries have not been considered in determining the amounts of recorded liabilities for environmental-related matters.

If the Company believes that a loss contingency is reasonably possible, rather than probable, or the amount of loss cannot be estimated, no liability is recorded. However, where a liability is reasonably possible, disclosure of the loss contingency is made.

The Company reviews the status of all claims, investigations and legal proceedings on an ongoing basis, including related insurance coverages. From time to time, the Company may settle or otherwise resolve these matters on terms and conditions management believes are in the best interests of the Company. Resolution of any or all claims, investigations and legal proceedings, individually or in the aggregate, could have a material adverse effect on the Company’s results of operations, cash flows or financial condition. In addition, resolution of matters described under Investigations could involve injunctive or administrative remedies that would adversely impact the business such as exclusion from government reimbursement programs, which in turn would have a material adverse impact on the business, future financial condition, cash flows and results of operations.

Except for the matters discussed in the remainder of this Note, the recorded liabilities for contingencies at September 30, 2006, and the related expenses incurred during the three and nine months ended September 30, 2006, were not material. In the opinion of management, based on the advice of legal counsel, the ultimate outcome of these matters, except matters discussed in the remainder of this Note, will not have a material impact on the Company’s results of operations, cash flows or financial condition.

Patent Matters

DR. SCHOLL’S FREEZE AWAY Patent.  On July 26, 2004, OraSure Technologies filed an action in the U.S. District Court for the Eastern District of Pennsylvania alleging patent infringement by Schering-Plough HealthCare Products by its sale of DR. SCHOLL’S FREEZE AWAY wart removal product. The complaint seeks a permanent injunction and unspecified damages, including treble damages.

Investigations

Massachusetts Investigation.  On August 29, 2006, the Company announced it had reached an agreement with the U.S. Attorney’s Office for the District of Massachusetts and the U.S. Department of Justice to settle the previously disclosed investigation involving the Company’s sales, marketing and clinical trial practices and programs (the “Massachusetts Investigation”) (see “Massachusetts Investigation” in Part I, Item 3, “Legal Proceedings” of the 2005 10-K).

The agreement provides for an aggregate settlement amount of $435 million and is subject to court approval. Under the agreement, Schering Sales Corporation, a subsidiary of the Company, will plead guilty to one count of conspiracy to make false statements to the government and pay a criminal fine of $180 million, and the Company will pay $255 million to resolve civil aspects of the investigation. In connection with the settlement, the Company signed an addendum to an existing corporate integrity agreement with the Office of

19

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Inspector General of the U.S. Department of Health and Human Services. The addendum will not affect the Company’s ongoing business with any customers, including the federal government.

As previously disclosed, the Company had recorded a liability of $500 million related to the Massachusetts Investigation, the investigations described below under “AWP Investigations” and the litigation by certain states described below under “AWP Litigation.” The settlement amount of $435 million relates only to the Massachusetts Investigation. The AWP investigations and litigation are ongoing.

AWP Investigations.  The Company continues to respond to existing and new investigations by the Department of Health and Human Services, the Department of Justice and several states into industry and Company practices regarding average wholesale price (AWP). These investigations relate to whether the AWP used by pharmaceutical companies for certain drugs improperly exceeds the average prices paid by providers and, as a consequence, results in unlawful inflation of certain government drug reimbursements that are based on AWP. 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.

NITRO-DUR Investigation.  In August 2003, the Company received a civil investigative subpoena issued by the Office of Inspector General of the U.S. Department of Health and Human Services, seeking documents concerning the Company’s classification of NITRO-DUR for Medicaid rebate purposes, and the Company’s use of nominal pricing and bundling of product sales. The Company is cooperating with the investigation. It appears that the subpoena is one of a number addressed to pharmaceutical companies concerning an inquiry into issues relating to the payment of government rebates.

Pricing Matters

AWP Litigation.  The Company continues to respond to existing and new litigation by certain states and private payors into industry and Company practices regarding average wholesale price (AWP). These litigations relate to whether the AWP used by pharmaceutical companies for certain drugs improperly exceeds the average prices paid by providers and, as a consequence, results in unlawful inflation of certain reimbursements for drugs by state programs and private payors that are based on AWP. The complaints allege violations of federal and state law, including fraud, Medicaid fraud and consumer protection violations, among other claims. In the majority of cases, the plaintiffs are seeking class certifications. In some cases, classes have been certified. The outcome of these litigations could include substantial damages, the imposition of substantial fines, penalties and injunctive or administrative remedies.

Securities and Class Action Litigation

Federal Securities Litigation.  Following the Company’s announcement 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, several lawsuits were filed against the Company and certain named officers. These lawsuits allege that the defendants violated the federal securities law by allegedly failing to disclose material information and making material misstatements. Specifically, they allege that the Company failed to disclose an alleged serious risk that a new drug application for CLARINEX would be delayed as a result of these manufacturing issues, and they allege that the Company failed to disclose the alleged depth and severity of its manufacturing issues. These complaints were consolidated into one action in the U.S. District Court for the District of New Jersey, and a consolidated amended complaint was filed on October 11, 2001, purporting to represent a class of shareholders who purchased shares of Company stock from May 9, 2000 through February 15, 2001. The complaint seeks compensatory damages on behalf of the class. The Court certified the shareholder class on October 10, 2003. Discovery is ongoing.

20

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Shareholder Derivative Actions.  Two lawsuits were filed in the U.S. District Court for the District of New Jersey, against the Company, 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 allege a failure to disclose material information and breach of fiduciary duty by the directors, relating to the FDA inspections and investigations into the Company’s pricing practices and sales, marketing and clinical trials practices. These lawsuits are shareholder derivative actions that purport to assert claims on behalf of the Company. The two shareholder derivative actions pending in the U.S. District Court for the District of New Jersey were consolidated into one action on August 20, 2001, which is in its very early stages.

ERISA Litigation.  On March 31, 2003, the Company was served with a putative class action complaint filed in the U.S. District Court in New Jersey alleging that the Company, retired Chairman, CEO and President Richard Jay Kogan, the Company’s Employee Savings Plan (Plan) administrator, several current and former directors, and certain corporate officers (Messrs. LaRosa and Moore) breached their fiduciary obligations to certain participants in the Plan. The complaint seeks damages in the amount of losses allegedly suffered by the Plan. The complaint was dismissed on June 29, 2004. The plaintiffs appealed. On August 19, 2005, the U.S. Court of Appeals for the Third Circuit reversed the dismissal by the District Court and the matter has been remanded back to the District Court for further proceedings.

K-DUR Antitrust Litigation.  K-DUR is Schering-Plough’s long-acting potassium chloride product supplement used by cardiac patients. Following the commencement of the FTC administrative proceeding described below, alleged class action suits were filed in federal and state courts on behalf of direct and indirect purchasers of K-DUR against Schering-Plough, Upsher-Smith, Inc. (Upsher-Smith) and ESI Lederle, Inc. (Lederle). These suits claim violations of federal and state antitrust laws, as well as other state statutory and common law causes of action. These suits seek unspecified damages. Discovery is ongoing.

Antitrust Matters

K-DUR.  Schering-Plough had settled patent litigation with Upsher-Smith and Lederle, which had related to generic versions of K-DUR for which Lederle and Upsher Smith had filed Abbreviated New Drug Applications (ANDAs). On April 2, 2001, the FTC started an administrative proceeding against Schering-Plough, Upsher-Smith and Lederle alleging anti-competitive effects from those settlements. The administrative law judge issued a decision that the patent litigation settlements complied with the law in all respects and dismissed all claims against the Company. The FTC Staff appealed that decision to the full Commission. The full Commission reversed the decision of the administrative law judge ruling that the settlements did violate the antitrust laws. The full Commission issued a cease and desist order imposing various injunctive restraints. The federal court of appeals set aside the Commission ruling and vacated the cease and desist order. On August 29, 2005, the FTC filed a petition seeking a hearing by the U.S. Supreme Court. The Supreme Court denied the petition on June 26, 2006.

Pending Administrative Obligations

In connection with the settlement of an investigation with the U.S. Department of Justice and the U.S. Attorney’s Office for the Eastern District of Pennsylvania, the Company entered into a five-year corporate integrity agreement (CIA). The Company signed an addendum to the CIA in connection with the settlement of the Massachusetts Investigation. As disclosed in Note 14, “Consent Decree,” the Company is subject to obligations under a Consent Decree with the FDA. Failure to comply with the obligations under the CIA or the Consent Decree can result in financial penalties.

21

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Other Matters

Biopharma Contract Dispute.  Biopharma S.r.l. filed a claim in the Civil Court of Rome on July 21, 2004 (docket No. 57397/2004, 9^th Chamber) against certain Schering-Plough subsidiaries. The Complaint alleges that the Company did not fulfill its duties under distribution and supply agreements between Biopharma and a Schering-Plough subsidiary for distribution by Schering-Plough of generic products manufactured by Biopharma to hospitals and to pharmacists in France. This matter was settled with no material impact on the Company’s financial statements and the claim was withdrawn on July 19, 2006.

Tax Matters

In October 2001, IRS auditors asserted 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 liability for the 1991 and 1992 tax years. In September 2004, the Company made payments to the IRS in the amount of $194 million for income tax and $279 million for interest. The Company filed refund claims for the tax and interest with the IRS in December 2004. Following the IRS’s denial of the Company’s claims for a refund, the Company filed suit in May 2005 in the U.S. District Court for the District of New Jersey for refund of the full amount of the tax and interest. This refund litigation is currently in the discovery phase. The Company’s tax reserves were adequate to cover the above mentioned payments.

Environmental

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 believes that it is remote at this time that there is any material liability in relation to such sites. The Company estimates its obligations for cleanup costs for Superfund sites based on information obtained from the federal Environmental Protection Agency (EPA), 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.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Schering-Plough Corporation:

We have reviewed the accompanying condensed consolidated balance sheet of Schering-Plough Corporation and subsidiaries (the “Corporation”) as of September 30, 2006, and the related statements of condensed consolidated operations for the three and nine-month periods ended September 30, 2006 and 2005, and the statements of condensed consolidated cash flows for the nine-month periods ended September 30, 2006 and 2005. These interim financial statements are the responsibility of the Corporation’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Schering-Plough Corporation and subsidiaries as of December 31, 2005, and the related statements of consolidated operations, stockholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated February 28, 2006, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2005 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

As discussed in Note 4 to the condensed consolidated financial statements, effective January 1, 2006, the Corporation adopted Statement of Financial Accounting Standards No. 123 (Revised 2004), “Share-Based Payment”.

/s/  Deloitte & Touche LLP

Parsippany, New Jersey

October 26, 2006

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Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

EXECUTIVE OVERVIEW

Overview of the Company

Schering-Plough (the Company) discovers, develops, manufactures and markets medical therapies and treatments to enhance human health. The Company also markets leading consumer brands in the over-the-counter (OTC), foot care and sun care markets and operates a global animal health business.

As a research-based pharmaceutical company, a core strategy of Schering-Plough is to invest substantial funds in scientific research with the goal of creating therapies and treatments with important medical and commercial value. Consistent with this core strategy, the Company has been increasing its investment in research and development, and this trend is expected to continue at historic levels or greater. Research and development activities focus on mechanisms to treat serious diseases. There is a high rate of failure inherent in such research and, as a result, there is a high risk that the funds invested in research programs will not generate financial returns. This risk profile is compounded by the fact that this research has a long investment cycle. To bring a pharmaceutical compound from the discovery phase to the commercial phase may take a decade or more.

There are two sources of new products: products acquired through acquisition and licensing arrangements, and products in the Company’s late-stage research pipeline. With respect to acquisitions and licensing, there are limited opportunities for obtaining or licensing critical late-stage products, and these limited opportunities typically require substantial amounts of funding. The Company competes for these opportunities against companies often with greater financial resources. Accordingly, it may be challenging for the Company to acquire or license critical late-stage products that will have a positive material financial impact.

The Company supports commercialized products with manufacturing, sales and marketing efforts. The Company is also moving forward with additional investments to enhance its infrastructure and business, including capital expenditures for the development process, where products are moved from the drug discovery pipeline to markets, information technology systems, and post-marketing studies and monitoring.

Earlier this decade, the Company experienced a number of business, regulatory, and legal challenges. In April 2003, the Board of Directors named Fred Hassan as the new Chairman of the Board and Chief Executive Officer of Schering-Plough Corporation. Under his leadership, a new leadership team was recruited and a six- to eight-year, five-phase Action Agenda was formulated with the goal of stabilizing, repairing and turning around the Company. A year after entering the third phase of the Action Agenda, the Turnaround phase, in October 2006, the Company announced it entered the fourth phase of the Action Agenda — Build the Base.

As discussed in more detail in Note 15, “Legal, Environmental and Regulatory Matters,” and Part II, Item 1, “Legal Proceedings,” on August 29, 2006, the Company announced it had reached an agreement with the U.S. Attorney’s Office for the District of Massachusetts and the U.S. Department of Justice to settle the previously disclosed Massachusetts Investigation (see “Massachusetts Investigation” in Part I, Item 3, “Legal Proceedings,” of the Company’s 2005 10-K for additional information). The agreement provides for an aggregate settlement of $435 million and is subject to court approval. The Company believes the settlement of the Massachusetts Investigation will not have a material adverse effect on the Company’s results of operations, financial condition or its business.

The Company’s financial situation continues to improve, as discussed below. The Company’s cholesterol franchise products, VYTORIN and ZETIA, are the primary drivers of this improvement. ZETIA is the Company’s novel cholesterol absorption inhibitor. VYTORIN is the combination of ZETIA and Zocor, Merck & Co., Inc.’s (Merck) statin medication. These two products have been launched through a joint venture between the Company and Merck. ZETIA (ezetimibe), marketed in Europe as EZETROL, is marketed for use either by itself or together with statins for the treatment of elevated cholesterol levels. VYTORIN (ezetimibe/simvastatin), marketed as INEGY internationally, has been launched in more than 35 countries and ZETIA/EZETROL in more than 80 countries.

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The Company currently expects its cholesterol franchise to continue to grow in 2007. The financial commitment to compete in the cholesterol-reduction market is shared with Merck and profits from the sales of VYTORIN and ZETIA are also shared with Merck. The operating results of the joint venture with Merck are recorded using the equity method of accounting. Outside of the joint venture with Merck, in the Japanese market, Bayer Healthcare will co-market the Company’s cholesterol-absorption inhibitor, ZETIA, upon approval. Due to a backlog of new drug applications in Japan, the Company cannot precisely predict the timing of this approval.

The cholesterol-reduction market is the single largest pharmaceutical category in the world. VYTORIN and ZETIA are competing in this market, and on a combined basis, these products have continued to grow in terms of market share during 2006. As a franchise, the two products combined have captured more than 15 percent of total prescriptions in the U.S. cholesterol management market (based on September 2006 IMS data).

During 2005 and 2006, the Company’s results of operations and cash flows have been driven significantly by the performance of VYTORIN and ZETIA. As a result, the Company’s ability to generate profits is predominantly dependent upon the performance of the VYTORIN and ZETIA cholesterol franchise, which dependence is expected to continue for some time. For the three and nine months ended September 30, 2006, equity income from the cholesterol joint venture was $390 million and $1.1 billion, respectively, and net income available to common shareholders was $287 million and $875 million, respectively. Additional information regarding the joint venture with Merck is also included in Note 3, “Equity Income from Cholesterol Joint Venture,” in this 10-Q. Although it is expected that operating cash flow and existing cash and short-term investments will fund the Company’s operations for the intermediate term, as discussed in more detail below, future cash flows are also dependent upon the performance of VYTORIN and ZETIA. The Company must generate profits and cash flows to maintain and enhance its infrastructure and business as discussed above.

Sales of VYTORIN and ZETIA may be impacted by the introduction of new innovative competing treatments and generic versions of existing products. Currently, the U.S. cholesterol lowering market is adjusting to the entry into the market of generic forms of cholesterol products. The Company cannot reasonably predict what effect the introduction of generic forms of cholesterol management products may have on VYTORIN and ZETIA, although the decisions of government entities, managed care groups and other groups concerning formularies and reimbursement policies could potentially negatively impact the dollar size and/or growth of the cholesterol management market, including VYTORIN and ZETIA. A material change in the sales or market share of VYTORIN and ZETIA would have a significant impact on the Company’s operations and cash flow.

REMICADE is prescribed for the treatment of immune-mediated inflammatory disorders such as rheumatoid arthritis, early rheumatoid arthritis, psoriatic arthritis, Crohn’s disease, ankylosing spondylitis, plaque psoriasis and ulcerative colitis. REMICADE is the Company’s second largest marketed pharmaceutical product line (after the cholesterol franchise). This product is licensed from and manufactured by Centocor, Inc., a Johnson & Johnson company. The Company has the exclusive marketing rights to this product outside of the U.S., Japan, and certain Asian markets. During 2005, the Company exercised an option under its contract with Centocor for license rights to develop and commercialize golimumab, a fully human monoclonal antibody, in the same territories as REMICADE. Golimumab is currently in Phase III trials. The Company had previously disclosed the difference of opinion between the parties as to the expiration date of Schering-Plough’s rights to golimumab and their collaboration in resolving this matter. In August 2006, the Company received clarification through arbitration that its rights to market golimumab will extend to 15 years after the first commercial sale in its territories, but Centocor has appealed the clarification.

As is typical in the pharmaceutical industry, the Company licenses manufacturing, marketing and/or distribution rights to certain products to others, and also manufactures, markets and/or distributes products owned by others pursuant to licensing and joint venture arrangements. Any time that third parties are involved, there are additional factors relating to the third party and outside the control of the Company that may create

25

positive or negative impacts on the Company. VYTORIN, ZETIA and REMICADE are subject to such arrangements and are key to the Company’s current business and financial performance.

In addition, any potential strategic alternatives may be impacted by the change of control provisions in those arrangements, which could result in VYTORIN and ZETIA being acquired by Merck or REMICADE reverting back to Centocor. The change in control provision relating to VYTORIN and ZETIA is included in the contract with Merck, filed as Exhibit 10(q) to the Company’s 10-K, and the change of control provision relating to REMICADE is contained in the contract with Centocor, filed as Exhibit 10(u) to the Company’s 10-K.

Current State of the Business

Net sales in the third quarter of 2006 were $2.6 billion or 13 percent higher than the third quarter of 2005. As discussed below, the sales increase was driven primarily by the growth of REMICADE, NASONEX, and TEMODAR.

The Company had net income available to common shareholders of $287 million and $875 million, respectively, for the three and nine months ended September 30, 2006 as compared to $43 million and $78 million for the three and nine months ended September 30, 2005, respectively. The net income available to common shareholders for the three and nine months ended September 30, 2006 included charges totaling approximately $53 million and $191 million, respectively, related to the announced actions to streamline the Company’s manufacturing operations and a favorable impact of $60 million from the reversal of previously accrued rebate amounts for a U.S. Government pharmaceutical program (the TRICARE Retail Pharmacy Program) that the U.S. Federal Court of Appeals ruled pharmaceutical manufacturers are not obligated to pay. The nine months ended September 30, 2006 included an income item of $22 million resulting from the cumulative effect of a change in accounting principle, net of tax, related to the implementation of SFAS 123R related to stock-based compensation. For the three and nine months ended September 30, 2005, net income available to common shareholders included special charges of $6 million and $292 million, respectively (see Note 2, “Special Charges and Manufacturing Streamlining,” for additional information).

Many of the Company’s manufacturing sites operate below capacity. The Company’s manufacturing sites subject to the Consent Decree remained open while the Company was performing its revalidation and cGMP Work Plan obligations under decree. However, the Consent Decree work placed significant additional controls on production and release of products from these sites, which increased costs and slowed production and led to a reduction in the product mix at the sites. Further, the Company’s research and development operations were negatively impacted by the Consent Decree because these operations share common facilities with the manufacturing operations. Although certain costs, such as those associated with third party certifications, are decreasing as the Company goes through the process of certifying the Work Plan, other financial impacts will continue, such as the costs of the new processes that will continue to be used and the reduced product mix and volumes at the sites.

Pursuant to the Company’s continuing work to enhance long-term competitiveness, on June 1, 2006, the Company announced plans to close manufacturing facilities in Manati, Puerto Rico and additional changes to its manufacturing operations in Puerto Rico and New Jersey that will streamline its global supply chain (see Note 2, “Special Charges and Manufacturing Streamlining,” and Discussion of Operating Results for additional information).

The Company continually reviews the business, including manufacturing operations, to identify actions that will enhance long-term competitiveness. However, the Company’s manufacturing cost base is relatively fixed, and actions to significantly reduce the Company’s manufacturing infrastructure involve complex issues. As a result, shifting products between manufacturing plants can take many years due to construction and regulatory requirements, including revalidation and registration requirements. The Company continues to review the carrying value of manufacturing assets for indications of impairment. Future events and decisions may lead to additional asset impairments or related costs.

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During 2005, the Company repatriated approximately $9.4 billion of previously unremitted foreign earnings at a reduced tax rate as provided by the American Jobs Creation Act of 2004 (AJCA). Repatriating funds under the AJCA benefited the Company by allowing the Company to fund U.S. cash needs while preserving U.S. NOLs.

DISCUSSION OF OPERATING RESULTS

Net Sales

A significant portion of net sales is made to major pharmaceutical and health care products distributors and major retail chains in the U.S. 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.

Consolidated net sales for the three months ended September 30, 2006 totaled $2.6 billion, an increase of $290 million or 13 percent, including a favorable impact of 2 percent from foreign exchange and a $47 million favorable impact related to the reversal of previously accrued rebate amounts for a U.S. Government pharmaceutical program (the TRICARE Retail Pharmacy Program) that the U.S. Federal Court of Appeals ruled pharmaceutical manufacturers are not obligated to pay, as compared with the same period in 2005. For the nine months ended September 30, 2006, consolidated net sales totaled $7.9 billion, an increase of $760 million or 11 percent, including an unfavorable impact of 2 percent from foreign exchange, as compared to the same period in 2005.

Net sales for the three and nine months ended September 30, 2006 and 2005 were as follows:

	Three Months Ended							Nine Months Ended
	September 30,							September 30,
					Increase							Increase
	2006		2005		(Decrease)			2006		2005		(Decrease)
	(Dollars in millions)				(%)			(Dollars in millions)				(%)
PRESCRIPTION PHARMACEUTICALS(a)	$	2,087	$	1,840		13		$	6,350	$	5,660		12
REMICADE		317		237		34			902		691		31
NASONEX		221		170		30			691		552		25
PEG-INTRON		206		185		11			629		537		17
TEMODAR		179		152		18			513		428		20
CLARINEX/AERIUS		171		157		9			557		507		10
INTEGRILIN		82		86		(5	)		244		244		—
CLARITIN Rx		74		76		(2	)		279		287		(3	)
REBETOL		72		82		(12	)		237		237		—
AVELOX		63		41		55			201		159		26
INTRON A		57		72		(21	)		180		220		(18	)
CAELYX		52		46		14			156		135		15
SUBUTEX		51		44		14			152		148		2
ELOCON		36		34		6			108		113		(4	)
CIPRO		28		41		(32	)		86		114		(24	)
Other Pharmaceutical		478		417		15			1,415		1,288		10
CONSUMER HEALTH CARE		259		235		10			918		895		3
OTC(b)		138		129		7			440		453		(3	)
Foot Care		92		85		8			270		258		5
Sun Care		29		21		38			208		184		13
ANIMAL HEALTH		228		209		9			676		629		7
CONSOLIDATED NET SALES(a)	$	2,574	$	2,284		13		$	7,944	$	7,184		11

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(a)	Included in 2006 sales is approximately $47 million resulting from the reversal of previously accrued rebate amounts for the TRICARE Retail Pharmacy Program that the U.S. Federal Court of Appeals ruled pharmaceutical manufacturers are not obligated to pay.
(b)	Includes OTC CLARITIN net sales of $95 million and $92 million in the third quarter of 2006 and 2005, respectively, and $318 million and $340 million for the nine months ended September 30, 2006 and 2005, respectively.

International net sales of REMICADE, for the treatment of immune-mediated inflammatory disorders such as rheumatoid arthritis, early rheumatoid arthritis, psoriatic arthritis, Crohn’s disease, ankylosing spondylitis, plaque psoriasis and ulcerative colitis, were up $80 million or 34 percent to $317 million in the third quarter of 2006, and $211 million or 31 percent to $902 million for the nine months ended September 30, 2006, as compared to the same periods in 2005, primarily due to expanded indications and continued market growth. In January 2006, REMICADE was approved for the additional indication of ulcerative colitis in Europe. In October 2006, REMICADE received an approval for label upgrade by the European Commission for use as a second-line therapy from a third-line therapy for patients with Crohn’s disease. During 2006, competitive products for the indications referred to above have been introduced.

Global net sales of NASONEX nasal spray, a once-daily corticosteroid nasal spray for allergies, rose 30 percent to $221 million in the third quarter and 25 percent to $691 million for the nine months ended September 30, 2006. Third quarter U.S. sales climbed 41 percent to $153 million and international sales climbed 11 percent to $68 million, as the product captured greater market share versus the 2005 periods. A generic form of Flonase (fluticasone propionate) was approved in 2006 and may unfavorably impact the corticosteroid nasal spray market.

Global net sales of PEG-INTRON Powder for Injection, a pegylated interferon product for treating hepatitis C, increased 11 percent to $206 million in the third quarter and 17 percent to $629 million in the nine months ended September 30, 2006 versus the 2005 periods, due to higher U.S. sales and a sales increase in Japan. PEG-INTRON sales in Japan are expected to decline in the fourth quarter of 2006 and in 2007 as new patient enrollment moderates.

Global net sales of TEMODAR capsules, a treatment for certain types of brain tumors, increased $27 million or 18 percent to $179 million in the third quarter and $85 million or 20 percent to $513 million in the nine months ended September 30, 2006 versus the same periods in 2005 due to increased utilization for treating newly diagnosed glioblastoma multiforme (GBM), which is the most prevalent form of brain cancer. The growth rates for TEMODAR may moderate going forward, as significant market penetration has already been achieved in the treatment of GBM, especially in the U.S. In Japan, TEMODAR has been granted approval to treat malignant glioma.

Global net sales of CLARINEX (marketed as AERIUS in many countries outside the U.S.), for the treatment of seasonal outdoor allergies and year-round indoor allergies, increased 9 percent to $171 million in the third quarter, and 10 percent to $557 million in the nine months ended September 30, 2006, as compared to the same periods in 2005. Sales outside the U.S. rose 15 percent to $73 million in the third quarter and 14 percent to $293 million in the nine months ended September 30, 2006, as compared to 2005 periods, due to increased demand.

Global net sales of INTEGRILIN injection, a glycoprotein platelet aggregation inhibitor for the treatment of patients with acute coronary syndrome, which is sold primarily in the U.S. by Schering-Plough, decreased 5 percent to $82 million in the third quarter of 2006 and were flat at $244 million for the nine months ended September 30, 2006, as compared to the same periods in 2005, due to a contracting market.

International net sales of prescription CLARITIN decreased 2 percent to $74 million in the third quarter of 2006 and 3 percent to $279 million in the nine months ended September 30, 2006, as compared to the same periods in 2005. Sales in 2005 reflected an unusually severe allergy season in Japan.

Global net sales of REBETOL capsules, for use in combination with INTRON A or PEG-INTRON for treating hepatitis C, decreased 12 percent to $72 million in the third quarter of 2006 as compared to the third

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quarter of 2005. Net sales of this product were flat at $237 million for the nine months ended September 30, 2006, as compared to the same period in 2005. The decrease in sales in the third quarter of 2006 was due to lower sales in Europe resulting from increased competition and lower sales in Japan reflecting government mandated price reductions. Sales of REBETOL in Japan are expected to decline due to the moderation of hepatitis C patient enrollments in Japan. Sales of REBETOL going forward will continue to be impacted by government mandated price reductions in Japan.

Net sales of AVELOX, a fluoroquinolone antibiotic for the treatment of certain respiratory and skin infections, sold in the U.S. by Schering-Plough as a result of the Company’s license agreement with Bayer, increased $22 million or 55 percent to $63 million in the third quarter of 2006 and $42 million or 26 percent to $201 million in the nine months ended September 30, 2006, as compared to the 2005 periods, due to market share growth and new indications.

Global net sales of INTRON A injection, for chronic hepatitis B and C and other antiviral and anticancer indications, decreased 21 percent to $57 million in the third quarter of 2006 and 18 percent to $180 million for the nine months ended September 30, 2006, as compared to the same periods in 2005, due primarily to the conversion to PEG-INTRON for treating hepatitis C in Japan and melanoma in the U.S.

International net sales of CAELYX, for the treatment of ovarian cancer, metastatic breast cancer and Kaposi’s sarcoma, increased 14 percent to $52 million in the third quarter and 15 percent to $156 million in the nine months ended September 30, 2006, as compared to the same periods in 2005, largely as a result of increased use in treating ovarian and breast cancer.

International net sales of SUBUTEX tablets, for the treatment of opiate addiction, increased 14 percent to $51 million in the third quarter of 2006 and 2 percent to $152 million in the nine months ended September 30, 2006, as compared to the same periods in 2005, due to success against generic competition.

Global net sales of ELOCON cream, a medium-potency topical steroid, increased $2 million to $36 million in the third quarter and decreased $5 million to $108 million for the nine months ended September 30, 2006, as compared to the same periods in 2005, reflecting generic competition introduced in the U.S. during the first quarter of 2005. Generic competition is expected to continue to adversely affect sales of this product.

Net sales of CIPRO, a fluoroquinolone antibiotic for the treatment of certain respiratory, skin, urinary tract and other infections, sold in the U.S. by Schering-Plough as a result of the Company’s license agreement with Bayer, decreased 32 percent to $28 million in the third quarter of 2006 and 24 percent to $86 million in the nine months ended September 30, 2006, as compared to the same periods in 2005, due to market share erosion from branded and generic competition.

Other pharmaceutical net sales include a large number of lower sales volume prescription pharmaceutical products. Several of these products are sold in limited markets outside the U.S., and many are multiple source products no longer protected by patents. These products include treatments for respiratory, cardiovascular, dermatological, infectious, oncological and other diseases.

Global net sales of Consumer Health Care products, which include OTC, foot care and sun care products, increased $24 million or 10 percent to $259 million in the third quarter and $23 million or 3 percent to $918 million for the nine months ended September 30, 2006, as compared to the same periods in 2005, primarily reflecting increased sales of COPPERTONE CONTINUOUS SPRAY sun care products and DR. SCHOLL’S and other foot care products. Sales of sun care products grew $8 million or 38 percent to $29 million in the third quarter of 2006 and $24 million or 13 percent to $208 million for the nine months ended September 30, 2006. Sales of OTC CLARITIN increased 4 percent to $95 million in the third quarter of 2006 and decreased 7 percent to $318 million in the nine months ended September 30, 2006, as compared to the same periods in 2005. OTC CLARITIN sales growth in the third quarter of 2006 reflected growth in sales of CLARITIN products that do not contain pseudoephedrine (PSE) tempered by the continued adverse impact on retail sales of CLARITIN-D due to restrictions on the retail sale of OTC products containing PSE. In addition, OTC CLARITIN continues to face competition from private label and branded loratadine.

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The Company sells numerous non-prescription upper respiratory products which contain PSE, a FDA-approved ingredient for the relief of nasal congestion. The Company’s annual North American sales of non-prescription upper respiratory products that contain PSE totaled approximately $277 million in 2005 and $51 million and $175 million for the three and nine months ended September 30, 2006, respectively, down 17 percent in the third quarter and 22 percent for the nine months ended September 30, 2006, as compared to $61 million and $224 million, respectively, for the same periods in 2005. These products include all CLARITIN-D products as well as some DRIXORAL, CORICIDIN and CHLOR-TRIMETON products. The Company understands that PSE has been used in the illicit manufacture of methamphetamine, a dangerous and addictive drug. For some time, many states, Canada and Mexico have enacted regulations concerning the non-prescription sale of products containing PSE. In March 2006, the U.S. federal government enacted the Combat Meth Epidemic Act that requires retailers to place non-prescription PSE containing products behind the counter or away from customers’ direct access and places other administrative restrictions on the purchase of these products. The Company continues to monitor developments in this area and is working to mitigate further negative impact on operations or financial results. These regulations do not relate to the sale of prescription products, such as CLARINEX-D products, that contain PSE.

Global net sales of Animal Health products increased 9 percent in the third quarter of 2006 to $228 million and 7 percent to $676 million in the nine months ended September 30, 2006, as compared to the same periods in 2005. The increased sales reflected growth of core brands across most geographic and species areas, led by higher sales of companion animal products. The sales growth included a favorable impact from foreign exchange of 2 percent in the third quarter of 2006. The sales growth for the nine months ended September 30, 2006 was tempered by an unfavorable impact from foreign exchange of 2 percent.

Costs, Expenses and Equity Income

A summary of costs, expenses and equity income for the three and nine months ended September 30, 2006 and 2005 is as follows:

	Three Months Ended									Nine Months Ended
	September 30,									September 30,
							Increase									Increase
	2006			2005			(Decrease)			2006			2005			(Decrease)
	(Dollars in millions)						(%)			(Dollars in millions)						(%)
Cost of sales	$	885		$	775			14		$	2,782		$	2,531			10
Selling, general and administrative (SG&A)		1,158			1,064			9			3,467			3,261			6
Research and development (R&D)		536			566			(5	)		1,557			1,391			12
Other (income)/expense, net		(37	)		—			N/M			(89	)		9			N/M
Special charges		10			6			66			90			292			(69	)
Equity income from cholesterol joint venture(a)		(390	)		(215	)		81			(1,056	)		(605	)		75

N/M — Not a meaningful percentage.

(a) Included in 2006 equity income from cholesterol joint venture is approximately $13 million resulting from the reversal of previously accrued rebate amounts for the TRICARE Retail Pharmacy Program.

Substantially all the sales of cholesterol products are not included in the Company’s net sales. The results of these sales are reflected in equity income from cholesterol joint venture. In addition, due to the virtual nature of the joint venture, the Company incurs substantial selling, general and administrative expenses that are not captured in equity income but are included in the Company’s Statements of Condensed Consolidated Operations. As a result, the Company’s gross margin, and ratios of SG&A expenses and R&D expenses as a percentage of net sales do not reflect the impact of the joint venture’s operating results.

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Gross Margin

Gross margin for the three months ended September 30, 2006 was 65.6 percent as compared to 66.0 percent in the third quarter of 2005, reflecting the negative impact of $43 million of costs associated with manufacturing changes included in cost of sales (see Note 2, “Special Charges and Manufacturing Streamlining,” for additional information) partially offset by the reversal of the previously accrued rebate amounts for the TRICARE Retail Pharmacy Program. Gross margin for the nine months ended September 30, 2006 was 65.0 percent as compared to 64.8 percent in the same period in 2005. This increase in gross margin was primarily due to increased sales of higher margin products and supply chain efficiency improvements including cost savings from the manufacturing streamlining. These favorable items were partially offset by the costs associated with the manufacturing changes and royalties for INTEGRILIN.

Selling, General and Administrative

Selling, general and administrative expenses (SG&A) were $1.2 billion in the third quarter of 2006 and $3.5 billion in the nine months ended September 30, 2006, an increase of 9 percent and 6 percent, respectively, as compared to the same periods in 2005. The increase reflects ongoing investments in emerging markets and field support for new launches as well as higher promotional spending.

Research and Development

Research and development (R&D) spending decreased 5 percent to $536 million in the third quarter of 2006 and increased 12 percent to $1.6 billion for the nine months ended September 30, 2006 as compared to the same periods in 2005. The decrease in R&D spending in the third quarter of 2006 was due to a $124 million charge in the third quarter of 2005 resulting from the Company’s exercise of its rights to develop and commercialize golimumab. The decrease was offset by higher costs associated with clinical trials and to support the Company’s pipeline. Generally, changes in R&D spending reflect fluctuations due to the timing of internal research efforts and research collaborations with various partners to discover and develop a steady flow of innovative products.

The Company believes it has a strong early development pipeline across a wide-range of therapeutic areas with 17 compounds now approaching or in Phase I development. As the Company continues to develop the later phase growth-drivers of the pipeline (e.g., Thrombin Receptor Antagonist, golimumab, vicriviroc and HCV protease inhibitor), the Company anticipates an approximate doubling of annual patient enrollment in clinical trials over the next 2-4 years as compared to 2005 levels.

As a result, the Company expects R&D spending to reflect the progression of the Company’s early-stage pipeline and increased clinical trial activity. To maximize the Company’s chances for the successful development of new products, the Company began a Development Excellence initiative in 2005 to build talent and critical mass, create a uniform level of excellence and deliver on high-priority programs within R&D. In 2006, the Company began a Global Clinical Harmonization Program to maximize and globalize the quality of clinical trial execution and pharmacovigilance processes.

Other (Income)/Expense, Net

The Company had other income, net, of $37 million in the third quarter of 2006 and $89 million for the nine months ended September 30, 2006, as compared to $0 and $9 million of other expense, net, for the three and nine months ended September 30, 2005, respectively, due primarily to higher interest rates earned in 2006 on larger overall balances of cash equivalents and short-term investments.

Special Charges and Manufacturing Streamlining

On June 1, 2006, the Company announced changes to its manufacturing operations in Puerto Rico and New Jersey that will streamline its global supply chain and further enhance the Company’s long-term competitiveness. The Company’s manufacturing operations in Manati, Puerto Rico, will be phased out during 2006 and additional workforce reductions in Las Piedras, Puerto Rico, and New Jersey will take place. In

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total, the actions taken will result in the elimination of approximately 1,100 positions. Approximately 560 positions have been eliminated as of September 30, 2006 with the majority of the remaining positions expected to be eliminated by year-end 2006. Total expenses associated with these actions are expected to be in the range of $240 million to $250 million. The Company expects these actions to result in annual savings of approximately $100 million in 2007 and thereafter.

Special Charges

Special charges for the three and nine months ended September 30, 2006 totaled $10 million and $90 million, respectively, related to the announced changes in the Company’s manufacturing operations. These charges consisted of $10 million and $35 million of severance for the three and nine months ended September 30, 2006 and $55 million of fixed asset impairments for the nine months ended September 30, 2006.

Special charges for the three months ended September 30, 2005 totaled $6 million primarily related to the consolidation of the Company’s U.S. biotechnology organization. Special charges for the nine months ended September 30, 2005 totaled $292 million primarily related to an increase in litigation reserves for the Massachusetts Investigation. On August 29, 2006, the Company announced it had reached an agreement with the U.S. Attorney’s Office for District of Massachusetts and the U.S. Department of Justice to settle the previously disclosed Massachusetts Investigation. The agreement is subject to court approval. Additional information regarding litigation reserves and matters is also included in Note 15, “Legal, Environmental and Regulatory Matters,” in this 10-Q.

Cost of Sales

Included in cost of sales for the third quarter of 2006 was $43 million consisting of $41 million of accelerated depreciation and $2 million of other charges related to the announced closure of the Company’s manufacturing facilities in Manati, Puerto Rico. For the nine months ended September 30, 2006, the charges included in cost of sales totaled $101 million consisting of $45 million of inventory write-offs, $54 million of accelerated depreciation and $2 million of other charges.

The following table summarizes the activities in the accounts reflected in the Condensed Consolidated Financial Statements for special charges and manufacturing streamlining for the three months ended September 30, 2006:

	Charges									Non-
	Included in		Special		Total		Cash			Cash			Accrued
	Cost of Sales		Charges		Charges		Payments			Charges			Liability
	(Dollars in millions)
Accrued liability at June 30, 2006													$	19
Severance	$	—	$	10	$	10	$	(12	)	$	—			(2	)
Asset impairments		—		—		—		—			—			—
Accelerated depreciation		41		—		41		—			(41	)		—
Inventory write-offs		—		—		—		—			—			—
Other		2		—		2		(2	)		—			—
Total	$	43	$	10	$	53	$	(14	)	$	(41	)
Accrued liability at September 30, 2006													$	17

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The following table summarizes the activities in the accounts reflected in the Condensed Consolidated Financial Statements for special charges and manufacturing streamlining for the nine months ended September 30, 2006:

	Charges									Non-
	Included in		Special		Total		Cash			Cash			Accrued
	Cost of Sales		Charges		Charges		Payments			Charges			Liability
	(Dollars in millions)
Accrued liability at January 1, 2006													$	—
Severance	$	—	$	35	$	35	$	(18	)	$	—			17
Asset impairments		—		55		55		—			(55	)		—
Accelerated depreciation		54		—		54		—			(54	)		—
Inventory write-offs		45		—		45		—			(45	)		—
Other		2		—		2		(2	)		—			—
Total	$	101	$	90	$	191	$	(20	)	$	(154	)
Accrued liability at September 30, 2006													$	17

The Company anticipates incurring from $50 million to $60 million of additional charges related to the announced changes in the Company’s manufacturing operations. Substantially all of these additional charges will be incurred during 2006. Special charges are anticipated to be in the range of $10 million to $20 million, consisting primarily of severance. Accelerated depreciation of approximately $40 million, related to the phase-out of the remaining manufacturing operations in Manati, will be charged to cost of sales.

Equity Income from Cholesterol Joint Venture

Global cholesterol franchise sales, which include sales made by the Company and the cholesterol joint venture with Merck of VYTORIN and ZETIA, totaled $1.0 billion and $2.8 billion during the three and nine months ended September 30, 2006, respectively, as compared to $622 million and $1.6 billion for the three and nine months ended September 30, 2005, respectively. As a franchise, the two products combined have captured more than 15 percent of total prescriptions in the U.S. cholesterol management market (based on September 2006 IMS data). VYTORIN has been launched in more than 35 countries, including the U.S. in August 2004. ZETIA has been launched in more than 80 countries.

The Company utilizes the equity method of accounting for the joint venture. Sharing of income from operations is based upon percentages that vary by product, sales level and country. The Company’s allocation of joint venture income is increased by milestones earned. Merck and Schering-Plough (the Partners) bear the costs of their own general sales forces and commercial overhead in marketing joint venture products around the world. In the U.S., Canada and Puerto Rico, the joint venture reimburses each Partner for a pre-defined amount of physician details that are set on an annual basis. The Company reports this reimbursement as part of equity income from the cholesterol joint venture. This reimbursement does not represent a reimbursement of specific, incremental and identifiable costs for the Company’s detailing of the cholesterol products in these markets. In addition, this reimbursement amount is not reflective of Schering-Plough’s sales effort related to the joint venture as Schering-Plough’s sales force and related costs associated with the joint venture are generally estimated to be higher.

Costs of the joint venture that the Partners contractually share are a portion of manufacturing costs, specifically identified promotion costs (including direct-to-consumer advertising and direct and identifiable out-of-pocket promotion) and other agreed upon costs for specific services such as market support, market research, market expansion, a specialty sales force and physician education programs.

Certain specified research and development expenses are generally shared equally by the Partners.

Equity income from cholesterol joint venture totaled $390 million and $1.1 billion in the third quarter and the nine months ended September 30, 2006, respectively, as compared to $215 million and $605 million, respectively, for the same periods in 2005. The increase in equity income reflected the strong sales

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performance for VYTORIN and ZETIA during the three and nine months ended September 30, 2006. Included in equity income from cholesterol joint venture is approximately $13 million resulting from the reversal of previously accrued rebate amounts for the TRICARE Retail Pharmacy Program.

During the nine months ended September 30, 2005, the Company recognized a milestone of $20 million for financial reporting purposes. This milestone related to certain European approvals of VYTORIN (ezetimibe/simvastatin) in the first quarter of 2005. This amount is included in equity income.

Under certain other conditions, as specified in the joint venture agreements with Merck, the Company could earn additional milestones totaling $105 million.

In addition to the milestone recognized in the first nine months of 2005, the Company’s equity income in the first nine months of 2006 and 2005 was favorably impacted by the proportionally greater share of income allocated from the joint venture on the first $300 million of annual ZETIA sales.

It should be noted that the Company incurs substantial selling, general and administrative and other costs, which are not reflected in equity income from the cholesterol joint venture and instead are included in the overall cost structure of the Company.

Provision for Income Taxes

Tax expense was $103 million and $275 million for the three and nine months ended September 30, 2006, respectively. Tax expense for the three and nine months ended September 30, 2005 was $23 million and $162 million, respectively. The income tax expense primarily related to foreign taxes and does not include any benefit related to U.S. Net Operating Losses (U.S. NOLs). The Company maintains a valuation allowance on its net U.S. deferred tax assets, including the benefit of U.S. NOLs, as management cannot conclude that it is more likely than not that the benefit of U.S. net deferred tax assets can be realized.

At December 31, 2005, the Company had approximately $1.5 billion of U.S. NOLs. The Company generated an additional U.S. NOL during the nine months ended September 30, 2006.

Net Income Available to Common Shareholders

Net income available to common shareholders includes the deduction of preferred stock dividends of $22 million in each three-month period of 2006 and 2005. The preferred stock dividends related to the issuance of the 6 percent Mandatory Convertible Preferred Stock in August 2004. In addition, net income available to common shareholders for the three and nine months ended September 30, 2006 included charges totaling $53 million and $191 million, respectively, related to actions to streamline the Company’s manufacturing operations and a $60 million favorable impact resulting from the reversal of previously accrued rebate amounts for the TRICARE Retail Pharmacy Program. The nine months ended September 30, 2006 included an income item of $22 million resulting from the cumulative effect of a change in accounting principle, net of tax, related to the implementation of SFAS 123R related to stock-based compensation. For the three and nine months ended September 30, 2005, net income available to common shareholders included special charges of $6 million and $292 million, respectively, (see Note 2, “Special Charges and Manufacturing Streamlining,” for additional information).

LIQUIDITY AND FINANCIAL RESOURCES

Discussion of Cash Flow

	Nine Months
	Ended
	September 30,
	2006			2005
	(Dollars in millions)
Cash flow from operating activities	$	1,515		$	546
Cash flow from investing activities		(2,414	)		138
Cash flow from financing activities		(1,296	)		(1,465	)

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Net cash provided by operating activities for the nine months ended September 30, 2006 was $1.5 billion, an increase of $969 million, as compared to the same period of 2005. The increase primarily resulted from higher net income in 2006. As disclosed in Note 15, “Legal, Environmental and Regulatory Matters,” and Part II, Item 1, “Legal Proceedings,” the Company has reached an agreement with the U.S. Attorney’s Office for the District of Massachusetts and the U.S. Department of Justice to settle the previously disclosed Massachusetts Investigation for an aggregate amount of $435 million. The agreement is subject to court approval. The Company currently expects that these settlement payments will be made over the next several quarters.

Net cash used for investing activities during the nine months ended September 30, 2006 was $2.4 billion primarily related to the net purchase of short-term investments of $2.2 billion and $265 million of capital expenditures. Net cash provided by investing activities for the nine months ended September 30, 2005 was $138 million primarily related to net reductions in short-term investments of $438 million and proceeds from sales of property and equipment of $41 million offset by $293 million of capital expenditures and the purchase of intangible assets of $48 million.

Net cash used for financing activities in the nine months ended September 30, 2006 and 2005 was $1.3 billion and $1.5 billion, respectively. Uses of cash for financing activities for the nine months ended September 30, 2006 and 2005 included the payment of dividends on common and preferred shares of $308 million in each period, and the repayment of short-term borrowings of $1.0 billion and $1.2 billion, respectively.

As the Company’s financial situation continues to improve, the Company is moving forward with additional investments to enhance its infrastructure and business. This includes expected capital expenditures of approximately $300 million over the next several years for a pharmaceutical sciences center. The center will allow the Company to streamline and integrate the Company’s drug development process, where products are moved from the drug discovery pipeline to market. There will be additional related expenditures to upgrade equipment and staffing for the center.

Total cash, cash equivalents and short-term investments less total debt was approximately $2.9 billion at September 30, 2006. Cash generated from operations and available cash and short-term investments are expected to provide the Company with the ability to fund cash needs for the intermediate term.

Borrowings and Credit Facilities

The Company has outstanding $1.25 billion aggregate principal amount of 5.3 percent senior unsecured notes due 2013 and $1.15 billion aggregate principal amount of 6.5 percent senior unsecured notes due 2033. As previously disclosed, the interest rates payable on the notes are subject to adjustment and have been adjusted as discussed below.

On July 14, 2004, Moody’s lowered its rating on the notes to Baa1. Accordingly, the interest payable on each note increased 25 basis points effective December 1, 2004. Therefore, on December 1, 2004, the interest rate payable on the notes due 2013 increased from 5.3 percent to 5.55 percent, and the interest rate payable on the notes due 2033 increased from 6.5 percent to 6.75 percent. This adjustment to the interest rate payable on the notes increased the Company’s interest expense by approximately $6 million annually. The interest rate payable on a particular series of notes will return to 5.3 percent and 6.5 percent, respectively, and the rate adjustment provisions will permanently cease to apply if, following a downgrade by either Moody’s or S&P below A3 or A−, respectively, the notes are subsequently rated above Baa1 by Moody’s and BBB+ by S&P.

The Company has a $1.5 billion credit facility with a syndicate of banks. This facility matures in May 2009 and requires the Company to maintain a total debt to total capital ratio of no more than 60 percent. This credit line is available for general corporate purposes and is considered as support to the Company’s commercial paper borrowings. Borrowings under this credit facility may be drawn by the U.S. parent company or by its wholly-owned international subsidiaries when accompanied by a parent guarantee. This facility does not require compensating balances, however, a nominal commitment fee is paid. As of September 30, 2006, no borrowings were outstanding under this facility.

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In addition to the above credit facility, the Company entered into a $575 million credit facility during the fourth quarter of 2005 for the purposes of funding repatriations under the American Jobs Creation Act of 2004. As of September 30, 2006, the outstanding balance under this facility was paid in full and the facility has been terminated.

At September 30, 2006 and December 31, 2005, short-term borrowings, including the amount borrowed under the credit facilities mentioned above, totaled $235 million and $1.3 billion, respectively, including outstanding commercial paper of $151 million and $298 million, respectively. The short-term credit ratings discussed below have not significantly affected the Company’s ability to issue or rollover its outstanding commercial paper borrowings at this time. However, the Company believes the ability of commercial paper issuers, such as the Company, with one or more short-term credit ratings of P-2 from Moody’s, A-2 from S&P and/or F2 from Fitch to issue or rollover outstanding commercial paper can, at times, be less than that of companies with higher short-term credit ratings. In addition, the total amount of commercial paper capacity available to these issuers is typically less than that of higher-rated companies. The Company’s sizable lines of credit with commercial banks as well as cash and short-term investments held by U.S. and international subsidiaries serve as alternative sources of liquidity and to support its commercial paper program.

The Company’s current unsecured senior credit ratings and outlook are as follows:

Senior Unsecured Credit Ratings	Long-term	Short-term	Outlook
Moody’s Investors Service	Baa1	P-2	Stable
Standard and Poor’s	A−	A-2	Stable
Fitch Ratings	A−	F-2	Stable

The Company’s credit ratings could decline below their current levels. The impact of such decline could reduce the availability of commercial paper borrowing and would increase the interest rate on the Company’s short and long-term debt. As discussed above, the Company believes that existing cash, short-term investments and cash generated from operations will allow the Company to fund its cash needs for the intermediate term.

  6 Percent Mandatory Convertible Preferred Stock

In August 2004, the Company issued 28,750,000 shares of 6 percent mandatory convertible preferred stock with a face value of $1.44 billion. The preferred stock will automatically convert into between 2.2451 and 2.7840 common shares of the Company depending on the average closing price of the Company’s common shares over a period immediately preceding the mandatory conversion date of September 14, 2007, as defined in the prospectus. This preferred stock is described in more detail in Note 14, “Shareholders’ Equity” under Item 8,” Financial Statements and Supplementary Data,” in the 2005 10-K.

REGULATORY AND COMPETITIVE ENVIRONMENT IN WHICH THE COMPANY OPERATES

The Company is subject to the jurisdiction of various national, state and local regulatory agencies. These regulations are described in more detail in Part I, Item I, “Business,” of the 2005 10-K.

Regulatory compliance is complex, as regulatory standards (including Good Clinical Practices, Good Laboratory Practices and Good Manufacturing Practices) vary by jurisdiction and are constantly evolving.

Regulatory compliance is costly. Regulatory compliance also impacts the timing needed to bring new drugs to market and to market drugs for new indications. Further, failure to comply with regulations can result in delays in the approval of drugs, seizure or recall of drugs, suspension or revocation of the authority necessary for the production and sale of drugs, fines and other civil or criminal sanctions.

Regulatory compliance, and the cost of compliance failures, can have a material impact on the Company’s results of operations, its cash flows or financial condition.

Since 2002, the Company has been working under a U.S. FDA Consent Decree to resolve issues involving the Company’s compliance with current Good Manufacturing Practices (cGMP) at certain of its manufacturing sites in New Jersey and Puerto Rico. See details in Note 14, “Consent Decree,” in this 10-Q.

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Under the terms of the Consent Decree, the Company made payments totaling $500 million during 2002 and 2003. As of the end of 2005, the Company has completed the revalidation programs for bulk active pharmaceutical ingredients and finished drug products, as well as all 212 Significant Steps of the cGMP Work Plan, in accordance with the schedules required by the Consent Decree. The Company’s completion of the cGMP Work Plan is currently pending certification by a third party expert, whose certification is in turn subject to acceptance by the FDA. Under the terms of the Decree, provided that the FDA has not notified the Company of a significant violation of FDA law, regulations, or the Decree in the five-year period since the Decree’s entry, May 2002 through May 2007, the Company may petition the court to have the Decree dissolved and FDA will not oppose the Company’s petition.

The Company engages in clinical trial research in many countries around the world. These clinical trial research activities must comply with stringent regulatory standards and are subject to inspection by U.S., EU, and local country regulatory authorities. Failure to comply with current Good Clinical Practices or other applicable laws or regulations can result in delays in approval of clinical trials, suspension of ongoing clinical trials, delays in approval of marketing authorizations, criminal sanctions against the Company and/or responsible individuals, and changes in the conditions of marketing authorizations for the Company’s products.

The Company is subject to pharmacovigilance reporting requirements in many countries and other jurisdictions, including the U.S., the EU and the EU member states. The requirements differ from jurisdiction to jurisdiction, but all include requirements for reporting adverse events that occur while a patient is using a particular drug, in order to alert the manufacturer of the drug and the governmental agency to potential problems.

During 2003, pharmacovigilance inspections by officials of the British and French medicines agencies conducted at the request of the European Medicines Agency (EMEA) cited serious deficiencies in reporting processes. The Company has continued to work on its long-term action plan to rectify the deficiencies and has provided regular updates to the EMEA.

During the fourth quarter of 2005, local UK and EMEA regulatory authorities conducted a follow up inspection to assess the Company’s implementation of its action plan. In the first quarter of 2006, these authorities also inspected the U.S.-based components of the Company’s pharmacovigilance system. The inspectors acknowledged that progress had been made since 2003, but also continued to note significant concerns with the quality systems supporting the Company’s pharmacovigilance processes. Similarly, in a follow up inspection of the Company’s clinical trial practices in the UK, inspectors identified issues with respect to the Company’s management of clinical trials and related pharmacovigilance practices.

The Company intends to continue upgrading skills, processes and systems in clinical practices and pharmacovigilance. The Company remains committed to accomplish this work and to invest significant resources in this area. Further, in February 2006, the Company began the Global Clinical Harmonization Program for building clinical excellence (in trial design, execution and tracking), which will strengthen the Company’s scientific and compliance rigor on a global basis.

The Company does not know what action, if any, the EMEA or national authorities will take in response to the inspections. Possible actions include further inspections, demands for improvements in reporting systems, criminal sanctions against the Company and/or responsible individuals and changes in the conditions of marketing authorizations for the Company’s products.

Recently, clinical trials and post-marketing surveillance of certain marketed drugs of competitors’ within the industry have raised safety concerns that have led to recalls, withdrawals or adverse labeling of marketed products. In addition, these situations have raised concerns among some prescribers and patients relating to the safety and efficacy of pharmaceutical products in general. Company personnel have regular, open dialogue with the FDA and other regulators and review product labels and other materials on a regular basis and as new information becomes known.

Following this wake of recent product withdrawals of other companies and other significant safety issues, health authorities such as the FDA, the EMEA and the PMDA have increased their focus on safety, when assessing the benefit/risk balance of drugs. Some health authorities appear to have become more cautious

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when making decisions about approvability of new products or indications and are re-reviewing select products which are already marketed, adding further to the uncertainties in the regulatory processes. There is also greater regulatory scrutiny, especially in the United States, on advertising and promotion and in particular direct-to-consumer advertising.

Similarly, major health authorities, including the FDA, EMEA and PMDA, have also increased collaboration amongst themselves, especially with regard to the evaluation of safety and benefit/risk information. Media attention has also increased. In the current environment, a health authority regulatory action in one market, such as a safety labeling change, may have regulatory, prescribing and marketing implications in other markets to an extent not previously seen.

Some health authorities, such as the PMDA in Japan, have publicly acknowledged a significant backlog in workload due to resource constraints within their agency. This backlog has caused long regulatory review times for new indications and products, including the initial approval of ZETIA in Japan, and has added to the uncertainty in predicting approval timelines in these markets. While the PMDA has committed to correcting the backlog, it is expected to continue for the foreseeable future.

In 2005, the FDA issued a Final Rule removing the essential use designation for albuterol CFC products. The removal of this designation requires that all CFC albuterol products, including the Company’s PROVENTIL CFC, be removed from the market no later than December 31, 2008. This will necessitate a transition in the marketplace from albuterol CFC (PROVENTIL) to albuterol HFA (PROVENTIL HFA) no later than the end of 2008. It is difficult to predict what impact this transition will have on the albuterol marketplace and the Company’s products, but the Company currently intends to transition sooner than 2008.

These and other 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 has nevertheless achieved a significant number of important regulatory approvals since 2004, including approvals for VYTORIN, CLARINEX D-24, CLARINEX REDITABS, CLARINEX D-12 and new indications for TEMODAR and NASONEX. Other significant approvals since 2004 include ASMANEX DPI (Dry Powder for Inhalation) in the U.S., NOXAFIL in the EU, Australia and the U.S., PEG-INTRON in Japan and new indications for REMICADE. The Company also has a number of significant regulatory submissions filed in major markets awaiting approval.

As described more specifically in Note 15, “Legal, Environmental and Regulatory Matters,” in this 10-Q, the pricing, sales and 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. The Company also cannot predict whether any investigations will affect its marketing practices or sales. Any such result could have a material adverse impact on the Company’s results of operations, cash flows, financial condition, or its business.

In the U.S., 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 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.

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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 to control costs. For example, Japan generally enacts biennial price reductions and this occurred again in April 2006. Pricing actions will occur in 2006 in certain major European markets.

Since the Company is unable to predict the final form and timing of any future domestic or international governmental or other health care initiatives, including the passage of laws permitting the importation of pharmaceuticals into the U.S., 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.

The Company cannot predict what net effect the Medicare prescription drug benefit will have on markets and sales. The new Medicare Drug Benefit (Medicare Part D), which took effect January 1, 2006, offers voluntary prescription drug coverage, subsidized by Medicare, to over 40 million Medicare beneficiaries through competing private prescription drug plans (PDPs) and Medicare Advantage (MA) plans. Many of the Company’s leading drugs are already covered under Medicare Part B (e.g., TEMODAR, INTEGRILIN and INTRON A). Medicare Part B provides payment for physician services which can include prescription drugs administered along with other physician services. The manner in which drugs are reimbursed under Medicare Part B may limit the Company’s ability to offer larger price concessions or make large price increases on these drugs. Other Schering-Plough drugs have a relatively small portion of their sales to the Medicare population (e.g., CLARINEX and the hepatitis C franchise). The Company could experience expanded utilization of VYTORIN and ZETIA and new drugs in the Company’s R&D pipeline.

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, competitive combination products, new products of competitors, new information from clinical trials of marketed products or post-marketing surveillance 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.

OUTLOOK

Despite changes that may occur in the cholesterol reduction market as new generic products enter the market, the Company anticipates that sales from the cholesterol joint venture will grow in 2007. The Company expects lower sales of hepatitis C franchise products in Japan in the fourth quarter and in 2007 as patient enrollments continue to moderate.

It is anticipated that the actions taken to streamline the Company’s manufacturing operations will result in annual cost savings of approximately $100 million in 2007 and thereafter.

The Company anticipates that R&D expenses will continue to increase faster than net sales in the fourth quarter of 2006, but will depend on the timing of studies and the success of trials now underway. These trials include those for the Thrombin Receptor Antagonist, golimumab, vicriviroc, the Hepatitis Protease Inhibitor and the combination treatment for asthma containing ASMANEX and FORADIL.

As the Company continues to move forward in the Action Agenda, additional investments are anticipated to enhance the infrastructure in areas such as clinical development, pharmacovigilance and information technology.

Certain factors, including those set forth in Part II, Item 1A, “Risk Factors” of the Company’s 10-Q for the second quarter of 2006, could cause actual results to differ materially from the forward-looking statements in this section.

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IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In September 2006, the Financial Accounting Standards Board (FASB) issued Statements of Financial Accounting Standard (SFAS) No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans,” an amendment of FASB Statements No. 87, 88, 106, and 132R. SFAS No. 158 requires an employer to: (a) recognize in its statement of financial position an asset for a plan’s overfunded status and/or a liability for a plan’s underfunded status; (b) measure a plan’s assets and its obligations that determine its funded status as of the end of the employer’s fiscal year (with limited exceptions); and (c) recognize changes in the funded status of a defined benefit postretirement plan in the year in which the changes occur. In accordance with SFAS No. 158, the Company will recognize the funded status of its pension and postretirement benefit plans in its financial statements for the year ending December 31, 2006.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which is effective for calendar year companies on January 1, 2008. The Statement defines fair value, establishes a framework for measuring fair value in accordance with Generally Accepted Accounting Principles, and expands disclosures about fair value measurements. The Statement codifies the definition of fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The standard clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The Company is currently assessing the potential impacts of implementing this standard.

In September 2006, the SEC staff issued Staff Accounting Bulletin (SAB) Topic 1N (SAB 108), “Financial Statements — Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” which is effective for calendar year companies as of December 31, 2006. SAB 108 provides guidance on how prior year misstatements should be taken into consideration when quantifying misstatements in current year financial statements for purposes of determining whether the financial statements are materially misstated. Under this guidance, companies should take into account both the effect of a misstatement on the current year balance sheet as well as the impact upon the current year income statement in assessing the materiality of a current year misstatement. Once a current year misstatement has been quantified, the guidance in SAB Topic 1M, “Financial Statements — Materiality,” (SAB 99) should be applied to determine whether the misstatement is material. The implementation of SAB 108 is not expected to have a material impact on the Company’s financial statements.

In July 2006, the FASB issued FASB Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes.” FIN 48 prescribes detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes.” Tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized upon the adoption of FIN 48 and in subsequent periods. FIN 48 will be effective for fiscal years beginning after December 15, 2006 and the provisions of FIN 48 will be applied to all tax positions upon initial adoption of the Interpretation. The cumulative effect of applying the provisions of this Interpretation will be reported as an adjustment to the opening balance of retained earnings upon adoption. The company is currently evaluating the potential impacts of FIN 48 on its financial statements.

CRITICAL ACCOUNTING POLICIES

Refer to “Management’s Discussion and Analysis of Operations and Financial Condition” in the Company’s 2005 10-K for disclosures regarding the Company’s critical accounting policies.

Rebates, Discounts and Returns

The Company’s rebate accruals for Federal and State governmental programs at September 30, 2006 and 2005 were $256 million and $311 million, respectively. Commercial discounts, returns and other rebate accruals at September 30, 2006 and 2005 were $292 million and $279 million, respectively. These accruals are established in the period the related revenue was recognized resulting in a reduction to sales and the

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establishment of liabilities, which are included in total current liabilities, or in the case of returns and other receivable adjustments, an allowance provided against accounts receivable.

In the case of the governmental rebate programs, the Company’s payments involve interpretation 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.

The following summarizes the activity in the accounts related to accrued rebates, sales returns and discounts for the nine months ended September 30, 2006 and 2005:

	Nine Months
	Ended
	September 30,
	2006			2005
Accrued Rebates/Returns/Discounts, Beginning of Period	$	522		$	537
Provision for Rebates, current year		363			375
Adjustments to prior-year estimates(1)		(54	)		—
Payments		(313	)		(332	)
		(4	)		43
Provision for Returns, current year		123			125
Adjustments to prior-year estimates		(8	)		—
Returns		(88	)		(133	)
		27			(8	)
Provision for Discounts, current year		426			309
Adjustments to prior-year estimates		—			—
Discounts granted		(423	)		(291	)
		3			18
Accrued Rebates/Returns/Discounts, End of Period	$	548		$	590

(1) For the nine months ended September 30, 2006, the adjustments to prior-year estimates for rebates include amounts resulting from the reversal of the accrued rebate amounts made in 2005 and 2004 for the TRICARE Retail Pharmacy Program that the U.S. Federal Court of Appeals ruled pharmaceutical manufacturers are not obligated to pay.

In formulating and recording the above accruals, management utilizes assumptions and estimates that include historical experience, wholesaler data, the projection of market conditions and forecasted product demand amounts. Based on a sensitivity analysis prepared by management, a reasonable possible change in these assumptions and estimates would not have a material impact on the Company’s results of operations.

DISCLOSURE NOTICE

Cautionary Statements Under the Private Securities Litigation Reform Act of 1995

Management’s Discussion and Analysis of Financial Condition and Results of Operations and other sections of this report and other written reports and oral statements made from time to time by the Company may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements do not relate strictly to historical or current facts and are based on current expectations or forecasts of future events. You can identify these forward-looking statements by their use of words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “project,” “intend,” “plan,” “potential,” “will,” and other similar words and terms. In particular, forward-looking statements include statements relating to future actions, ability to access the capital markets, prospective products or product

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approvals, timing and conditions of regulatory approvals, patent and other intellectual property protection, future performance or results of current and anticipated products, sales efforts, research and development programs, estimates of rebates, discounts and returns, expenses and programs to reduce expenses, the cost of and savings from reductions in work force, the outcome of contingencies such as litigation and investigations, growth strategy and financial results.

Actual results may vary materially from the Company’s forward-looking statements and there are no guarantees about the performance of Schering-Plough’s stock or business. Schering-Plough does not assume the obligation to update any forward-looking statement. A number of risks and uncertainties could cause results to differ from forward-looking statements, including market forces, economic factors, product availability, patent and other intellectual property protection, current and future branded, generic or over-the-counter competition, the regulatory process, and any developments following regulatory approval, among other uncertainties. For further details of these and other risks and uncertainties that may impact forward-looking statements, see Schering-Plough’s Securities and Exchange Commission filings, including the risks and uncertainties set forth in Part II, Item 1A, “Risk Factors,” of the Company’s 10-Q for the second quarter of 2006.

Item 3.   Quantitative and Qualitative Disclosures about Market Risk

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. Refer to “Management’s Discussion and Analysis of Operations and Financial Condition” in the Company’s 2005 10-K for additional information.

Item 4.   Controls and Procedures

Management, including the chief executive officer and the chief financial officer, has evaluated the Company’s disclosure controls and procedures as of the end of the quarterly period covered by this 10-Q and has concluded that the Company’s disclosure controls and procedures are effective. They also concluded that there were no changes in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

As part of the changing business environment in which the Company operates, the Company is replacing and upgrading a number of information systems. This process will be ongoing for several years. In connection with these changes, as part of the Company’s management of both internal control over financial reporting and disclosure controls and procedures, management has concluded that the new systems are at least as effective with respect to those controls as the prior systems.

PART II. OTHER INFORMATION

Item 1.   Legal Proceedings

Material pending legal proceedings involving the Company are described in Item 3, “Legal Proceedings,” of the 2005 10-K. The following discussion is limited to material developments to previously reported proceedings and new legal proceedings, which the Company, or any of its subsidiaries, became a party during the quarter ended September 30, 2006, or subsequent thereto, but before the filing of this report. This section should be read in conjunction with Part I, Item 3, “Legal Proceedings” of the 2005 10-K and Part II, Item 1, “Legal Proceedings” of the 10-Q for the second quarter of 2006.

Investigations

Massachusetts Investigation.  On August 29, 2006, the Company announced it had reached an agreement with the U.S. Attorney’s Office for the District of Massachusetts and the U.S. Department of Justice to settle the previously disclosed investigation involving the Company’s sales, marketing and clinical trial practices and programs (the “Massachusetts Investigation”) (see “Massachusetts Investigation” in Part I, Item 3, “Legal Proceedings” of the 2005 10-K).

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The agreement provides for an aggregate settlement amount of $435 million and is subject to court approval. Under the agreement, Schering Sales Corporation, a subsidiary of the Company, will plead guilty to one count of conspiracy to make false statements to the government and pay a criminal fine of $180 million, and the Company will pay $255 million to resolve civil aspects of the investigation. In connection with the settlement, the Company signed an addendum to an existing corporate integrity agreement with the Office of Inspector General of the U.S. Department of Health and Human Services. The addendum will not affect the Company’s ongoing business with any customers, including the federal government.

As previously disclosed, the Company had recorded a liability of $500 million related to the Massachusetts Investigation, the AWP investigations and AWP litigation by certain states (see “AWP Investigations” and the litigation by certain states described under “AWP Litigation” in Part I, Item 3, “Legal Proceedings” of the 2005 10-K). The settlement amount of $435 million relates only to the Massachusetts Investigation. The AWP investigations and litigation are ongoing.

Item 1A.   Risk Factors

There are no material changes from the risk factors set forth in Part II, Item 1A, “Risk Factors” of the Company’s 10-Q for the second quarter of 2006. Please refer to that section for disclosures regarding the risks and uncertainties related to the Company’s business.

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds

This table provides information with respect to purchases by the Company of its common shares during the third quarter of 2006.

						Total Number of		Maximum Number
						Shares Purchased as		of Shares that May
				Average		Part of Publicly		yet be Purchased
	Total Number of			Price Paid		Announced Plans or		Under the Plans or
Period	Shares Purchased			per Share		Programs		Programs
July 1, 2006 through July 31, 2006		13,838	(1)	$	19.03		N/A		N/A
August 1, 2006 through August 31, 2006		12,448	(1)	$	20.42		N/A		N/A
September 1, 2006 through September 30, 2006		39,922	(1)	$	20.99		N/A		N/A
Total July 1, 2006 through September 30, 2006		66,208	(1)	$	20.47		N/A		N/A

(1) All of the shares included in the table above were repurchased pursuant to the Company’s stock incentive program and represent shares delivered to the Company by option holders for payment of the exercise price and tax withholding obligations in connection with stock options and stock awards.

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Item 6.   Exhibits

Exhibit
Number	Description	Location
10(d)(iii)	Schering-Plough Corporation 2006 Stock Incentive Plan (as amended and restated effective May 19, 2006 with amendments through September 19, 2006).*	Attached.
10(e)(xiii)	Savings Advantage Plan (as amended and restated effective June 1, 2006).*	Attached.
10(h)(iii)	Schering-Plough Corporation Directors Compensation Plan (as amended and restated effective June 1, 2006 with amendments through September 19, 2006).*	Attached.
10(m)(ii)	Operations Management Team Incentive Plan (as amended and restated effective June 26, 2006).*	Attached.
12	Computation of Ratio of Earnings to Fixed Charges.	Attached.
15	Awareness letter.	Attached.
31.1	Sarbanes-Oxley Act of 2002, Section 302 Certification for Chairman of the Board and Chief Executive Officer.	Attached.
31.2	Sarbanes-Oxley Act of 2002, Section 302 Certification for Executive Vice President and Chief Financial Officer.	Attached.
32.1	Sarbanes-Oxley Act of 2002, Section 906 Certification for Chairman of the Board and Chief Executive Officer.	Attached.
32.2	Sarbanes-Oxley Act of 2002, Section 906 Certification for Executive Vice President and Chief Financial Officer.	Attached.

* Compensatory plan, contract or arrangement.

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SIGNATURE(S)

Pursuant to the requirements 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)

By  /s/  STEVEN H. KOEHLER
Steven H. Koehler

Vice President and Controller

(Duly Authorized Officer

and Chief Accounting Officer)

Date: October 27, 2006

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EX-10.D.III

Exhibit 10(d)(iii)

2006 STOCK INCENTIVE PLAN

(Amended and Restated as of May 19, 2006)

I. ESTABLISHMENT AND PURPOSE

1.1 Purpose. The purpose of this Schering-Plough Corporation 2006 Stock Incentive Plan (the “Plan”) is to enable Schering-Plough Corporation to achieve superior financial performance, as reflected in the performance of its Shares and other key financial or operating indicators by (i) providing incentives and rewards to certain Employees who are in a position to contribute materially to the success and long-term objectives of Schering-Plough, (ii) aiding in the recruitment and retention of Employees of outstanding ability and (iii) providing Employees an opportunity to acquire or expand equity interests in Schering-Plough, thus aligning the interests of such Employees with those of Schering-Plough’s shareholders. Schering-Plough expects that it will benefit from the added interest that such Employees will have in the welfare of Schering-Plough as a result of their ownership or increased ownership of Schering-Plough’s Shares.

1.2 Effective Date; Shareholder Approval. The Plan is effective as of May 19, 2006, subject to the approval of the Plan by the affirmative vote of the holders of a majority of the Shares present in person or by proxy and entitled to vote at the 2006 Annual Meeting of Shareholders of Schering-Plough, or any adjournment of such meeting. Any Awards granted under the Plan prior to the approval of the Plan by Schering-Plough’s shareholders, as provided herein, shall be contingent on such approval; if such approval is not obtained, the Plan shall have no effect, and any Awards granted under the Plan shall be rescinded.

II. DEFINITIONS

     Capitalized terms used in the Plan have the following meanings, unless another definition is indicated clearly by particular usage and context.

     “Acquired Company” means any business, corporation or other entity acquired by Schering-Plough or its Affiliates or Subsidiaries.

     “Acquired Grantee” means the grantee of a stock-based award of an Acquired Company.

     “Affiliate” means a corporation or other entity controlled by, controlling or under common control with Schering-Plough.

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     “Award” means any form of incentive or performance award granted under the Plan, whether singly or in combination, to a Participant by the Committee pursuant to such terms, conditions, restrictions and/or limitations (if any) as the Committee may establish and set forth in the applicable Award Certificate. Awards granted under the Plan may consist of:

          (a) “Stock Options” awarded pursuant to Section 4.4;

          (b) “Restricted Stock” awarded pursuant to Section 4.5;

          (c) “Deferred Stock Units” awarded pursuant to Section 4.6;

          (d) “Other Stock-Based Awards” awarded pursuant to Section 4.7;

          (e) “Performance Awards”, including “Qualified Performance Awards,” awarded pursuant to Section 4.8; and

          (f) “Substitute Awards” awarded pursuant to Section 4.9.

     “Award Certificate” means the document issued, either in writing or by electronic means, by Schering-Plough to a Participant evidencing the grant of an Award and setting forth the specific terms, conditions, restrictions and limitations applicable to the Award.

     “Beneficiary” means the person or persons designated by the Participant in accordance with Section 7.6 to acquire the Participant’s right in the Plan in the event of the Participant’s death.

     “Board” means the Board of Directors of Schering-Plough.

     “Change in Control” means the happening of any of the following events:

     (a) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of securities of Schering-Plough where such acquisition causes such Person to own more than 50% of either (x) the then outstanding Shares of Schering-Plough (the “Outstanding Shares”) or (y) the combined voting power of the then outstanding voting securities of Schering-Plough entitled to vote generally in the election of directors (the “Outstanding Voting Securities”); provided, however, that for purposes of this subsection (a) the following acquisitions will not constitute a Change in Control: (i) any acquisition directly from Schering-Plough, (ii) any acquisition by Schering-Plough, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by Schering-Plough or any corporation controlled by Schering-Plough or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) below; and provided, further, that if any Person’s beneficial ownership of the Outstanding Shares or

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Outstanding Voting Securities reaches or exceeds 50% as a result of a prior transaction, and such Person subsequently acquires beneficial ownership of additional Shares or additional voting securities of Schering-Plough, such subsequent acquisition will not be treated as an acquisition that causes such Person to own more than 50% of the Outstanding Shares or Outstanding Voting Securities;

     (b) during any 12-month period, individuals who, as of the first day of such period, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the beginning of such 12-month period whose election, or nomination for election by the Schering-Plough’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board will be considered as though such individual were a member of the Incumbent Board;

     (c) consummation of a reorganization, merger, statutory share exchange or consolidation or similar corporate transaction involving Schering-Plough, or the acquisition of assets or stock of another entity by Schering-Plough (each a “Business Combination”), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were beneficial owners, respectively, of the Outstanding Shares or Outstanding Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectfully, the then outstanding shares of the common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns Schering-Plough or substantially all of Schering-Plough’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Shares and Outstanding Voting Securities, as the case may be, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of Schering-Plough or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, more than 50% of, respectfully, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation, except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board on the later of (A) the time of the execution of the initial agreement, (B) the action of the Board providing for such Business Combination or (C) the beginning of the 12-month period ending on the effective date of the Business Combination;

     (d) any one Person acquires (or has acquired during any 12-month period ending on the date of the most recent acquisition by such Person) assets of Schering-Plough having a fair market value equal to or more than 40% of the total gross fair market

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value of all of the assets of Schering-Plough immediately prior to such sale, other than an acquisition by (i) a Person who was a shareholder of Schering-Plough immediately before the asset acquisition in exchange for or with respect to such Person’s Shares, (ii) an entity whose total or voting power immediately after the transfer is at least 50% owned, directly or indirectly, by Schering-Plough, (iii) a person or group that, immediately after the transfer, directly or indirectly owns at least 50% of the total value or voting power of the outstanding stock of Schering-Plough or (iv) an entity whose total value or voting power immediately after the transfer is at least 50% owned, directly or indirectly, by a person described in clause (iii) above; or

     (e) the complete liquidation of Schering-Plough.

     The definition of Change in Control for purposes of the Plan is intended to conform to the description of “Change in Control Events” in Treas. Prop. Reg. 1.409A-3(g)(5), or in subsequent IRS guidance describing what constitutes a change in control event for purposes of Code section 409A. Accordingly, no Change in Control will be deemed to occur with respect to a transaction or event described in paragraphs (a) through (e) above unless the transaction or event would constitute a “Change in Control Event” as described in Treas. Prop. Reg. 1.409A-3(g)(5), or in subsequent IRS guidance under Code section 409A.

     “Change in Control Price” means the higher of (a) the highest reported sales price of a Share in any transaction reported on the New York Stock Exchange Composite Tape or other national exchange on which Shares may then be listed during the 60-day period prior to and including the effective date of a Change in Control or (b) if the Change in Control is the result of a tender or exchange offer or a business combination, the highest price per Share paid in such tender or exchange offer or business combination; provided, however, that in the case of Stock Options, the Change in Control Price shall be in all cases the Fair Market Value of a Share on the date such Stock Option is exercised or cancelled. To the extent that the consideration paid in any transaction described in clause (b) above consists all or in part of securities or other non-cash consideration, the value of such securities or other non-cash consideration shall be determined in the sole discretion of the Committee.

     “Code” means the Internal Revenue Code of 1986, as amended.

     “Committee” means the Compensation Committee of the Board of Directors, or such other successor committee or subcommittee of the Board formed to act on performance-based compensation for Covered Employees, which is comprised solely of two or more persons who are outside directors within the meaning of Section 162(m)(4)(C)(i) of the Code and the applicable regulations and non-employee directors within the meaning of Rule 16b-3(b)(3) under the Exchange Act.

     “Controlled Group Member” means Schering-Plough and each other company that is required to be aggregated with Schering-Plough under Code Sections 414(b), (c) and (m).

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     “Corporation” means Schering-Plough Corporation.

     “Covered Employee” means an Employee who is, or who the Committee determines may be, a “covered employee” within the meaning of Section 162(m)(3) of the Code in the fiscal year in which Schering-Plough would expect to be able to claim a tax deduction with respect to a Performance Award.

     “Deferred Stock Account” means a hypothetical bookkeeping account established and maintained by Schering-Plough on behalf of a Participant pursuant to Section 4.6(a) to track Deferred Stock Units awarded to the Participant pending the distribution of Shares in settlement of such units.

     “Deferred Stock Unit” means the Award of an unfunded contractual right granted under Section 4.6 to receive one Share in the future, subject to any restrictions, as the Committee, in its discretion, may determine.

     “Disabled” or “Disability” means an inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months.

     “Dividend Equivalent” means an amount equal to the cash dividend or the Fair Market Value of the stock dividend that would be paid on each Share underlying an Award if the Share were duly issued and outstanding on the dividend record date.

     “Effective Date” means May 19, 2006.

     “Employee” means any individual who performs services as a common law employee for Schering-Plough or an Affiliate or Subsidiary.

     “Exchange Act” means the United States Securities Exchange Act of 1934, as amended.

     “Exercise Price” means the price per Share, as fixed by the Committee, at which Shares may be purchased under a Stock Option.

     “Fair Market Value” of a Share means either:

     (a) The closing sales price of a Share as reported on the New York Stock Exchange on the applicable date,

     (b) If no sales of Shares are reported for such date, the mean between the bid and asked price of a Share on such Exchange at the close of the market on such date, or

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     (c) In the event that the method for determining fair market value described in clauses (a) or (b) is not practicable, the fair market value of a Share determined in accordance with any other reasonable method approved by the Committee in its discretion.

     “GAAP” means United States generally accepted accounting principles.

     “Incentive Stock Option” means a Stock Option granted under Section 4.4 of the Plan that meets the requirements of Section 422 of the Code and any regulations or rules promulgated thereunder and is designated in the Award Certificate to be an Incentive Stock Option.

     “Involuntary Termination” means a Termination of Employment initiated by Schering-Plough or an Affiliate or Subsidiary other than a Termination for Cause or a Termination Due to Business Divestiture.

     “Nonqualified Stock Option” means any Stock Option granted under Section 4.4 of the Plan that is not an Incentive Stock Option.

     “Other Stock-Based Award” means an Award (other than a Stock Option, Restricted Stock or Deferred Stock Unit) granted under Section 4.7 of the Plan that consists of, or is denominated in, payable in, valued in whole or in part by reference to, or otherwise based on or related to, Shares.

     “Participant” means an Employee or Acquired Grantee who has been granted an Award under the Plan.

     “Performance Award” means an Award granted under Section 4.8 of the Plan that is granted, vested or paid solely on account of the attainment of a specified performance target in relation to one or more Performance Measures.

     “Performance Cycle” means a period typically measured by Schering-Plough’s fiscal year or years over which the level of attainment of one or more Performance Measures shall be assessed; provided, however, that the Committee, in its discretion, may determine to designate a Performance Cycle that is less than a full fiscal year.

     “Performance Measure” means, with respect to any Performance Award, the business criteria selected by the Committee to measure the level of performance of Schering-Plough during a Performance Cycle. The Committee may select as the Performance Measure for a Performance Cycle any one or combination of the following corporate measures, as interpreted by the Committee:

          (a) Net operating profit after taxes;

          (b) Operating profit before taxes;

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          (c) Return on equity;

          (d) Return on assets or net assets;

          (e) Total shareholder return;

          (f) Total shareholder return (as compared with a peer group of Schering-Plough);

          (g) Earnings before income taxes;

          (h) Earnings per Share;

          (i) Net income;

          (j) Free cash flow;

          (k) Free cash flow per Share;

          (l) Revenue (or any component thereof);

          (m) Revenue growth;

          (n) Share performance;

          (o) Relative Share performance;

          (p) Economic value added; and/or

          (q) Return on capital.

     “Plan” means the Schering-Plough Corporation 2006 Stock Incentive Plan, as set forth in this document and as may be amended from time to time.

     “Prior Plan” means the Schering-Plough Corporation 2002 Stock Incentive Plan.

     “Qualified Performance Award” means a Performance Award that is intended by the Committee to meet the requirements for “qualified performance-based compensation” within the meaning of Code Section 162(m) and Treasury Regulation Section 1.162-27(e).

     “Qualified Performance Award Determination Period” means the period within which Committee determinations regarding Performance Measures, targets and payout formulas in connection with a Qualified Performance Award must be made. The Qualified Performance Award Determination Period is the period beginning on the first day of a Performance Cycle and ending no later than 90 days after commencement of the Performance Cycle; provided, however, that in the case of a Performance Cycle that is

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less than 12 months in duration, the Qualified Performance Award Determination Period shall end no later than the date on which 25% of the Performance Cycle has elapsed.

     “Reporting Person” means an Employee who is subject to the reporting requirements of Section 16(a) of the Exchange Act.

     “Restricted Stock” means Shares issued pursuant to Section 4.5, which are subject to such restrictions as the Committee, in its discretion, shall impose.

     “Restriction Period” means the period of time during which the Restricted Stock Awards will remain subject to restrictions imposed by the Committee and set forth in the Award Certificate.

     “Retirement” means, for purposes of a particular Award, an Employee’s “retirement” as defined in the Committee’s grant guidelines in effect as of the date the Award is granted to the Employee or, if no such grant guidelines are in effect as of the date of grant (or if such guidelines are in effect, but do not define “retirement”), an Employee’s Termination of Employment on or after the earliest date the Employee is eligible to retire under Schering-Plough’s tax-qualified retirement plans, or in the case of a non-U.S. Employee, under the Worldwide Retirement Plan.

     “Section 409A Specified Employee” means, with respect to Terminations of Employment that occur between April 1st of a calendar year (beginning with the 2006 calendar year) and the following March 31st, any Employee who meets the requirements of paragraphs (a), (b) or (c) below at any time during the 12-month period ending on December 31st of the calendar year immediately preceding such April 1st.

     (a) An officer of Schering-Plough or any other Controlled Group Member having annual compensation greater than $135,000 in 2005 or $140,000 in 2006 (and as adjusted under Section 416(i)(1) of the Code for years after 2006). Notwithstanding the foregoing, an Employee will be treated as an officer for purposes of the Plan only if such Employee is one of the top 50 highest paid employees of Schering-Plough and all other Controlled Group Members who exceed the applicable annual compensation threshold described herein at any time during a calendar year.

     (b) A “5% owner” of Schering-Plough. A “5% owner” means any person who owns (or is considered as owning within the meaning of Code Section 318) more than 5% of the outstanding stock of Schering-Plough or stock possessing more than 5% of the total combined voting power of all stock of Schering-Plough. In determining percentage ownership hereunder, Controlled Group Members shall be treated as separate employers.

     (c) A “1% owner” of Schering-Plough having an annual compensation from Schering-Plough of more than $150,000. “1% owner” means any person who owns (or is considered as owning within the meaning of Code Section 318) more than 1% of the outstanding stock of Schering-Plough or stock possessing more than 1% of the total

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combined voting power of all stock of Schering-Plough. In determining percentage ownership, Controlled Group Members shall be treated as separate employers. However, in determining whether an individual has annual compensation of more than $150,000, compensation from each Controlled Group Member shall be taken into account.

     (d) For purposes of paragraphs (a), (b) and (c) above, “annual compensation” shall mean the Form W-2 compensation of a Participant for the applicable calendar year.

     “Shares” means shares of common stock, $.50 par value per share, of Schering-Plough.

     “Stock Option” means a right granted under Section 4.4 of the Plan to purchase from Schering-Plough a stated number of Shares at the Exercise Price. Stock Options awarded under the Plan shall be in the form of either Incentive Stock Options or Nonqualified Stock Options.

     “Subsidiary” means any corporation, partnership, joint venture or other entity during any period in which at least a 50% voting or profit interest is owned, directly or indirectly, by Schering-Plough or any successor to Schering-Plough.

     “Termination Due to Business Divestiture” means a Termination of Employment due to a transaction or series of related transactions (other than a transaction or series of transactions that are a part of a Change in Control) that result in a divestiture, sale, transfer, assignment or other disposition of any division, subsidiary, business unit, product line or group, or any other asset of Schering-Plough or any of its affiliates.

     “Termination for Cause” shall have the definition prescribed in the current employment agreement, if any, between Schering-Plough and the relevant Employee or, in the absence of such definition, shall mean a Termination of Employment initiated by Schering-Plough or an Affiliate or Subsidiary incident to or connected with a determination that the Employee has engaged in misappropriation, theft, embezzlement, kick-backs, bribery or similar deliberate, gross or willful misconduct or dishonest acts or omissions. Termination for Cause shall also include such a Termination of Employment incident to or in connection with acts or omissions of the Employee that the Committee reasonably determines to be willfully or wantonly harmful to, or detrimental to the interests of, Schering-Plough or any of its Affiliates or Subsidiaries, monetarily or otherwise.

     “Termination of Employment” means the date of cessation of an Employee’s employment relationship with Schering-Plough and any Affiliate or Subsidiary for any reason, with or without cause, as determined by Schering-Plough. A transfer of an Employee between and among Schering-Plough, an Affiliate or a Subsidiary shall not be deemed a Termination of Employment for purposes of the Plan.

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III. ADMINISTRATION

3.1 The Committee. The Plan shall be administered by the Committee.

3.2 Authority of the Committee. The Committee shall have authority, in its sole and absolute discretion and consistent with applicable law and regulation, and subject to the terms of the Plan, to:

     (a) Interpret and administer the Plan and any instrument or agreement relating to the Plan;

     (b) Prescribe the rules and regulations that it deems necessary for the proper operation and administration of the Plan, and amend or rescind any existing rules or regulations relating the Plan;

     (c) Select Employees to receive Awards under the Plan;

     (d) Determine the form of an Award, the number of Shares subject to each Award, all the terms and conditions of an Award, including, without limitation, the conditions on exercise or vesting, the designation of Stock Options as Incentive Stock Options or Nonqualified Stock Options, and the circumstances in which an Award may be settled in cash or Shares or may be cancelled, forfeited or suspended, and the terms of the Award Certificate;

     (e) Determine whether Awards will be granted singly, in combination or in tandem;

     (f) Establish and interpret Performance Measures in connection with Performance Awards, evaluate the level of performance over a Performance Cycle and, in the case of Qualified Performance Awards, certify the level of performance attained with respect to Performance Measures;

     (g) Waive or amend any terms, conditions, restrictions or limitations on an Award, except that the prohibition on the repricing of Stock Options, as described in Section 4.4(h), and the limitations on elections to defer payment of Deferred Stock Units, as described in Section 4.6(e), may not be waived;

     (h) Except to the extent that any such action would result in the imposition on a Participant of an “additional tax” under Section 409A of the Code, accelerate the vesting, exercise or lapse of restrictions on an Award when such action or actions would be in the best interest of Schering-Plough;

     (i) Make any adjustments permitted by the Plan (including but not limited to adjustment of the number of Shares available under the Plan or any Award) and any Award granted under the Plan as may be appropriate pursuant to Article V;

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     (j) Subject to the requirements of Section 409A of the Code, determine under which circumstances Awards may be deferred and the extent to which a deferral will be credited with Dividend Equivalents and interest thereon;

     (k) Determine whether a Nonqualified Stock Option or Restricted Stock Award may be transferable to family members, a family trust or a family partnership;

     (l) Establish any sub-plans and make any modifications to the Plan that the Committee may determine to be necessary to implement and administer the Plan in countries outside the United States;

     (m) Appoint such agents as it shall deem appropriate for proper administration of the Plan; and

     (n) Take any and all other actions it deems necessary or advisable for the proper operation or administration of the Plan.

3.3 Committee Determinations. All determinations of the Committee shall be made in its sole discretion, in the best interest of Schering-Plough, not as a fiduciary, and in keeping with the objectives of the Plan and need not be uniform as to similarly situated individuals. Committee determinations shall be made by a majority of its members present at a meeting at which a quorum is present and shall be final, conclusive and binding on all persons having an interest in the Plan and any Awards granted under the Plan. Any determination of the Committee that is reduced to writing and signed by all of the members of the Committee shall be as fully effective as if it had been made at a meeting duly held.

3.4 Delegation of Authority. The Committee, in its discretion and consistent with applicable law and regulations, may delegate some or all of its authority and duties under the Plan to such other individual, individuals or committee as it may deem advisable, under such conditions and subject to such limitations as the Committee may establish. Notwithstanding the foregoing, only the Committee shall have authority to grant and administer Awards to Covered Employees and other Reporting Persons, to establish and certify Performance Measures for Qualified Performance Awards and to grant Awards to any Employee who is acting as a delegate of the Committee in respect of the Plan.

3.5 Employment of Advisors. The Committee may employ attorneys, consultants, accountants and other advisors, and the Committee, Schering-Plough and the officers and directors of Schering-Plough may rely upon the advice, opinions or valuations of the advisors employed.

3.6 No Liability. No member of the Committee, nor any person acting as a delegate of the Committee in respect of the Plan, shall be liable for any losses incurred by any person resulting from any action, interpretation or construction made in good faith with respect to the Plan or any Award granted under the Plan.

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IV. AWARDS

4.1 Eligibility. All Employees shall be eligible to receive Awards under the Plan.

4.2 Participation. The Committee, at its sole discretion, shall select from time to time Participants from those persons eligible under Section 4.1 to receive Awards under the Plan.

4.3 Forms of Award. Awards shall be in the form determined by the Committee, in its discretion, and shall be evidenced by an Award Certificate. Awards may be granted singly or in combination or tandem with other Awards.

4.4 Stock Options. The Committee may grant Stock Options under the Plan to those Employees whom the Committee may from time to time select, in the amounts and pursuant to such other terms and conditions that the Committee, in its discretion, may determine and set forth in the Award Certificate, subject to the following provisions.

     (a) Form. Stock Options granted under the Plan may, at the discretion of the Committee, be in the form of Nonqualified Stock Options, Incentive Stock Options or a combination of the two, subject to the restrictions set forth in paragraph (g) below with respect to grants of Incentive Stock Options. The Committee shall designate the form of the Stock Option at the time of grant and such form shall be specified in the Award Certificate. Where both a Nonqualified Stock Option and an Incentive Stock Option are granted to an Employee at the same time, such Awards shall be deemed to have been granted in separate grants, shall be clearly identified, and in no event will the exercise of one such Award affect the right to exercise the other Award.

     (b) Amount of Shares. The Committee may grant Stock Options to an Employee in such amounts as the Committee may determine, subject to the limitations set forth in Section 5.1 of the Plan. The number of Shares subject to a Stock Option shall be set forth in the Award Certificate.

     (c) Exercise Price. The Exercise Price of Stock Options granted under the Plan shall be determined by the Committee at the time of grant and set forth in the Award Certificate. In no event shall the Exercise Price with respect to any Share subject to a Stock Option be set at a price that is less than the grant date Fair Market Value of a Share.

     (d) Option Term. Except as otherwise provided in paragraph (e)(iv) of this Section 4.4, all Stock Options granted under the Plan shall lapse no later than the tenth anniversary of the date of grant.

     (e) Timing of Exercise. Except as the Committee may otherwise determine at the time of grant, and subject to (1) the Committee’s authority under Section 3.2(g) to waive or amend any terms, conditions, limitations or restrictions of an Award, (2)

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Section 5.4 relating to Changes in Control and (3) the special forfeiture provisions of Section 7.2, each Stock Option granted under the Plan shall be exercisable in whole or in part, subject to the following conditions, limitations and restrictions.

     (i) Vesting. The Committee will determine and set forth in the Award Certificate the date on which the Stock Options subject to the Award may first be exercised. Unless the Award Certificate provides otherwise, and except as otherwise provided in this Section 4.4(e) and in Section 5.4 relating to Changes in Control, no Stock Option shall be exercisable prior to the one-year anniversary of the date of grant.

     (ii) Retirement. Upon a Participant’s Retirement,

     (A) All Stock Options granted to the Participant during the one-year period immediately preceding the Participant’s Retirement date that have not become exercisable as of the such Retirement date shall be forfeited;

     (B) All Stock Options granted to the Participant more than one year prior to the Participant’s Retirement date that have not become exercisable as of such Retirement date shall continue to become exercisable in accordance with the vesting schedule set out in the applicable Award Certificate; and

     (C) To the extent that Stock Options have become exercisable as of the Participant’s Retirement date, or become exercisable after such date in accordance with paragraph (B) above, such Stock Options must be exercised, if at all, within five years after the Participant’s Retirement date, or, if earlier, no later than the original expiration date of the Stock Option.

     (D) In the event the Participant’s death occurs after Retirement, the Participant’s Stock Options that have not become exercisable in accordance with paragraph (B) as of the date of the Participant’s death shall become immediately exercisable and all of the Participant’s Stock Options must be exercised, if at all, within the later of (x) five years from the Participant’s Retirement date or, if earlier, the original expiration date of Stock Option and (y) one year from the Participant’s date of death.

     (iii) Termination Due to Business Divestiture. Upon a Participant’s Termination Due to Business Divestiture, all Stock Options granted to the Participant that have not become exercisable as of the date of such Termination Due to Business Divestiture shall become immediately exercisable and must be exercised, if at all, within five years after such termination date, but in no event later than the original expiration date of the Stock Option.

     (iv) Disability. Upon the Disability of a Participant, all Stock Options granted to the Participant that have not become exercisable as of the date of

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Disability shall become immediately exercisable and shall remain exercisable for the full duration of the Stock Option’s original term.

     (v) Death. Upon a Participant’s Termination of Employment due to his or her death during the term of a Stock Option, all Stock Options held by the Participant at the time of his or her death that are not already exercisable shall become immediately exercisable and all Stock Options shall remain exercisable for the longer of (A) the full duration of the Stock Option’s original term and (B) one year from the Participant’s date of death. Stock Options of a deceased Participant may be exercised only by the Participant’s Beneficiary or, if none, by the legal representative of the Participant’s estate or by the person given authority to exercise such Stock Options by the Participant’s will or by operation of law. In the event a Stock Option is exercised by the executor or administrator of a deceased Participant, or by the person or persons to whom the Stock Option has been transferred under the Participant’s will or the applicable laws of descent and distribution, Schering-Plough shall be under no obligation to deliver Shares unless and until Schering-Plough is satisfied that the person or persons exercising the Stock Option is or are the duly appointed executor(s) or administrator(s) of the deceased Participant or the person to whom the Stock Option has been transferred under the Participant’s will or by the applicable laws of descent and distribution.

     (vi) Other Terminations. Upon an Employee’s Termination of Employment for any reason other than death, Disability, Retirement, Termination Due to Business Divestiture or Termination for Cause, all Stock Options that have not become exercisable as of the date of termination shall be forfeited and to the extent that Stock Options have become exercisable as of such date, such Stock Options must be exercised, if at all, within three months after such Termination of Employment (one year in the case of an Involuntary Termination), but in no event later than the original expiration date of the Stock Option.

     (f) Method of Exercise; Payment of Exercise Price. A Stock Option may be exercised by giving written notice to Schering-Plough specifying the number of Shares to be purchased, which shall be accompanied by full payment of the Exercise Price plus applicable taxes, if any. No Stock Option shall be exercised for less than the lesser of 100 Shares or the full number of Shares for which the Stock Option is then exercisable. No stock certificates shall be registered and delivered, and no Participant shall have any rights to dividends or other rights of a shareholder with respect to Shares subject to the Stock Option until the Participant has given written notice of exercise, made full payment of the Exercise Price for such Shares (including taxes) and, if requested by Schering-Plough, has given the representation described in Section 7.4. Payment of the Exercise Price may be made in cash or by certified check, bank draft, wire transfer, or postal or express money order. In addition, at the discretion of the Committee, payment of all or a portion of the Exercise Price may be made by —

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     (i) Delivering a properly executed exercise notice to Schering-Plough or its agent, together with irrevocable instructions to a broker to deliver promptly to Schering-Plough the amount of sale proceeds with respect to the portion of the Shares to be acquired having a Fair Market Value on the date of exercise equal to the sum of the applicable portion of the Exercise Price being so paid;

     (ii) Tendering (actually or by attestation) to Schering-Plough previously acquired Shares that have been held by the Participant for at least six months, subject to paragraph (iv), and that have a Fair Market Value on the day prior to the date of exercise equal to the applicable portion of the Exercise Price being so paid, provided that the Board has specifically approved the repurchase of such Shares (unless such approval is not required by the terms of the By-Laws of Schering-Plough) and the Committee has determined that, as of the date of repurchase, Schering-Plough is, and after the repurchase will continue to be, able to pay its liabilities as they become due; or

     (iii) Provided such payment method has been expressly authorized by the Board or the Committee in advance and subject to any requirements of applicable law and regulations, instructing Schering-Plough to reduce the number of Shares that would otherwise be issued by such number of Shares as have in the aggregate a Fair Market Value on the date of exercise equal to the applicable portion of the Exercise Price being so paid.

     (iv) The Committee, in consideration of applicable accounting standards, may waive any holding period on Shares required to tender pursuant to clause (ii).

     (g) Incentive Stock Options. Incentive Stock Options granted under the Plan shall be subject to the following additional conditions, limitations and restrictions:

     (i) Eligibility. Incentive Stock Options may be granted only to Employees of Schering-Plough or an Affiliate or Subsidiary that is a “subsidiary” or “parent corporation”, within the meaning of Code Section 424, of Schering-Plough. In no event may an Incentive Stock Option be granted to an Employee who owns stock possessing more than 10% of the total combined voting power of all classes of stock of Schering-Plough or such Affiliate or Subsidiary.

     (ii) Timing of Grant. No Incentive Stock Option shall be granted under the Plan after the 10-year anniversary of earlier of (A) the date the Plan is adopted by the Board and (B) the date the Plan is approved by Schering-Plough’s shareholders.

     (iii) Amount of Award. The aggregate Fair Market Value on the date of grant of the Shares with respect to which such Incentive Stock Options first become exercisable during any calendar year under the terms of the Plan for any Participant may not exceed $100,000. For purposes of this $100,000 limit, the Participant’s Incentive Stock Options under this Plan and all Plans maintained by

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Schering-Plough and its Affiliates and Subsidiaries shall be aggregated. To the extent any Incentive Stock Option first becomes exercisable in a calendar year and such limit would be exceeded, such Incentive Stock Option shall thereafter be treated as a Nonqualified Stock Option for all purposes.

     (iv) Timing of Exercise. In the event that an Incentive Stock Option is exercised by a Participant more than three months after a Participant’s Termination of Employment (or more than 12 months after the Participant is Disabled), such Incentive Stock Option shall thereafter be treated as a Nonqualified Stock Option for all purposes. For this purpose, an Employee’s employment relationship shall be treated as continuing intact while the Employee is on military leave, sick leave or other bona fide leave of absence (such as temporary employment with the Government) duly authorized in writing by Schering-Plough if the period of such leave does not exceed three months or, if longer, so long as the Employee’s right to reemployment with Schering-Plough or an Affiliate or Subsidiary is guaranteed either by statute or by contract. If the period of leave exceeds three months and the Employee’s right to reemployment is not guaranteed either by statute or by contract, the employment relationship will be deemed to terminate on the first date immediately following such three-month period.

     (v) Transfer Restrictions. In no event shall the Committee permit an Incentive Stock Option to be transferred by a Participant other than by will or the laws of descent and distribution, and any Incentive Stock Option granted hereunder shall be exercisable, during his or her lifetime, only by the Participant.

     (h) No Repricing. Except as otherwise provided in Section 5.3, in no event shall the Committee decrease the Exercise Price of a Stock Option after the date of grant or cancel outstanding Stock Options and grant replacement Stock Options with a lower Exercise Price without first obtaining the approval of the holders of a majority of the Shares present in person or by proxy at a meeting of Schering-Plough’s shareholders and entitled to vote at such meeting.

4.5 Restricted Stock. The Committee may grant Restricted Stock under the Plan to such Employees as the Committee may from time to time select, in such amounts and subject to such terms, conditions and restrictions (including, without limitation, transfer restrictions) and Restriction Periods as the Committee, in its discretion, may determine and set forth in the Award Certificate. The Committee, in its discretion, may condition an Award of Restricted Stock on the Participant giving the representation described in Section 7.4.

     (a) Payment of Restricted Stock. As soon as practicable after Restricted Stock is awarded, a certificate or certificates for all such Shares of Restricted Stock shall be registered in the name of the Participant and, at the discretion of Schering-Plough, be either (i) delivered to the Participant or (ii) held by Schering-Plough on behalf of the Participant until all restrictions have lapsed. The Participant shall

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thereupon have all the rights of a shareholder with respect to such Shares, including the right to vote and receive dividends or other distributions made or paid with respect to such Shares, except that such Shares shall be subject to the forfeiture provisions of clause (i) below. The Committee may, in its discretion, impose and set forth in the Award Certificate such other restrictions on Restricted Stock for such Restriction Period or Periods as it deems appropriate. Except as the Committee may otherwise determine, and subject to (1) the Committee’s authority under Section 3.2 to waive or amend any terms, conditions, limitations or restrictions of an Award, (2) Section 5.4 relating to Changes in Control and (3) the special forfeiture provisions of Section 7.2, such Shares shall be subject to the following provisions.

     (i) Forfeiture and Lapse of Restriction. Shares of Restricted Stock shall be forfeited by a Participant upon the Participant’s Termination of Employment during the Restriction Period for any reason other than the Participant’s death, Disability or Termination Due to Business Divestiture. Subject to clause (ii) below and Section 5.4 relating to Changes in Control, restrictions on Shares of Restricted Stock shall lapse at the end of the Restriction Period set forth in the Award Certificate.

     (ii) Accelerated Lapse. Notwithstanding the foregoing, all restrictions on Shares of Restricted Stock shall immediately lapse upon the death or Disability of the Participant. The Committee may, in its discretion, provide in the applicable Award Certificate that restrictions on Shares of Restricted Stock shall also lapse upon the Participant’s Retirement or Involuntary Termination.

     (b) Legend. In order to enforce any restrictions that the Committee may impose on Restricted Stock, the Committee shall cause a legend or legends setting forth a specific reference to such restrictions to be placed on all certificates for Shares of Restricted Stock. As restrictions are released, a new certificate, without the legend, for the number of Shares with respect to which restrictions have been released shall be issued and delivered to the Participant as soon as possible thereafter.

4.6 Deferred Stock Units. The Committee may grant Deferred Stock Units under the Plan to those Employees whom the Committee may from time to time select, in such amounts and pursuant to such other terms and conditions that the Committee, in its discretion, may determine and set forth in the Award Certificate, subject to the following provisions.

     (a) Deferred Stock Account. Deferred Stock Units awarded to a Participant shall be credited to a Deferred Stock Account established and maintained by Schering-Plough on behalf of the Participant. No Participant shall be a shareholder with respect to any Shares underlying Deferred Stock Units credited to his Deferred Stock Account, nor shall the Participant (or the Participant’s Beneficiary) have any right to or interest in any specific assets of Schering-Plough or its Affiliates or

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Subsidiaries, including any Shares reserved for issuance under the Plan, until such Shares are actually distributed to the Participant.

     (b) Dividend Equivalents. Unless the Committee determines otherwise at the time of grant and sets forth in the applicable Award Certificate, in the event of Schering-Plough’s payment of dividends on Shares, Dividend Equivalents shall be applied as follows.

     (i) Stock Dividends. Dividend Equivalents relating to stock dividends shall be credited to a Participant’s Deferred Stock Account as of the dividend payment date in the form of additional Deferred Stock Units, based on the Fair Market Value of a Share on the dividend payment date.

     (ii) Non-Stock Dividends. Dividend Equivalents relating to dividends other than stock dividends shall be distributed immediately to the Participant as additional compensation on the dividend payment date.

     (c) Payment of Shares. Subject to paragraph (d) below and Section 5.4 relating to Changes in Control, Deferred Stock Units shall be paid in Shares, at the rate of one Share per each Deferred Stock Unit, at such time or times and in such manner as the Committee shall determine at the time of grant and set forth in the applicable Award Certificate, which can be either:

     (i) Lump Sum. A single lump sum payable on a specified date not earlier than the six-month anniversary of the date the Deferred Stock Units were awarded to the Participant, or

     (ii) Installments. In a set number of equal or unequal periodic installments commencing on a specified date not earlier than the six-month anniversary of the date the Deferred Stock Units were awarded to the Participant.

The timing and form of payment of Shares in settlement of Deferred Stock Units shall be set forth in the Award Certificate at the time of grant and, to the extent such Deferred Stock Units are subject to the requirements of Section 409A of the Code, shall not be subject to modification or acceleration by the Committee, except as provided in paragraph (d) below and in Section 5.4. The Committee, in its discretion, may condition the issuance of Shares in connection with Deferred Stock Units on the Participant giving the representation described in Section 7.4.

     (d) Termination and Forfeiture. Unless the Award Certificate provides otherwise, and subject to (1) the Committee’s authority under Section 3.2 to waive or amend any terms, conditions, limitations or restrictions of an Award, (2) Section 5.4 relating to Changes in Control and (3) the special forfeiture provisions of Section 7.2, any undistributed Deferred Stock Units remaining in a Participant’s Deferred Stock Account shall be forfeited by the Participant upon the Participant’s Termination of Employment for any reason other than other than the death,

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Disability, Retirement, Termination Due to Business Divestiture or Involuntary Termination of the Participant.

     (i) Death. Upon the death of a Participant prior to full payment of the Participant’s Deferred Stock Account, the remaining balance of the Participant’s Deferred Stock Account shall be paid in Shares to the Participant’s Beneficiary or, if none, to the legal representative of the Participant’s estate or to the person to whom the Participant’s Deferred Stock Unit payment rights are transferred under Participant’s will or by operation of law, in a single lump sum payment as soon as administratively feasible after the Participant’s death. Schering-Plough shall be under no obligation to deliver Shares in satisfaction of a Deferred Stock Unit unless and until Schering-Plough is satisfied that the person or persons to whom the Shares are being transferred are the duly appointed executor(s) or administrator(s) of the deceased Participant or the person to whom the Deferred Stock Units have been transferred under the Participant’s will or by the applicable laws of descent and distribution.

     (ii) Disability. In the event a Participant becomes Disabled prior to full payment of the Participant’s Deferred Stock Account, the remaining balance of the Participant’s Deferred Stock Account shall be paid in Shares at the scheduled time and in the scheduled manner set out in the applicable Award Certificate at the time of grant; provided, however that the Committee may determine at the time of grant and set forth in an Award Certificate that if the Participant becomes Disabled prior to the scheduled payment date or dates of the Deferred Stock Units, the remaining balance the Participant’s Deferred Stock Account shall be paid to the Participant in a single lump sum distribution as soon as administratively feasible after the date the Participant becomes Disabled.

     (iii) Retirement. Upon the Retirement of a Participant prior to full payment of the Participant’s Deferred Stock Account, the Participant shall forfeit all unpaid Deferred Stock Units that were awarded to the Participant during the one-year period immediately preceding the Participant’s Retirement date and all other Deferred Stock Units remaining in the Participant’s Deferred Stock Account shall be paid at the scheduled time and in the scheduled manner set out in the applicable Award Certificate at the time of grant; provided, however that the Committee may determine at the time of grant and set forth in an Award Certificate that the entire unpaid balance of the a Participant’s Deferred Stock Account shall be forfeited upon the Participant’s Retirement. Alternatively, to the extent permitted under Section 409A of the Code, the Committee may determine at the time of grant and set forth in an Award Certificate that, in the event of the Participant’s Retirement prior to the scheduled payment date or dates of the Deferred Stock Units, the remaining balance the Participant’s Deferred Stock Account shall be paid to the Participant in a single lump sum distribution as soon as administratively feasible after the Participant’s Retirement date, but not earlier than the six-month anniversary of the Participant’s Retirement date if the Participant is a Section 409A Specified Employee.

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     (iv) Termination Due to Business Divestiture. Upon a Participant’s Termination Due to Business Divestiture prior to full payment of the Participant’s Deferred Stock Account, the remaining balance of the Participant’s Deferred Stock Account shall be paid in Shares at the scheduled time and in the scheduled manner set out in the applicable Award Certificate at the time of grant. Alternatively, to the extent permitted under Section 409A of the Code, the Committee may determine at the time of grant and set forth in an Award Certificate that, in the event of the Participant’s Termination Due to Business Divestiture prior to the scheduled payment date or dates of the Deferred Stock Units, the remaining balance the Participant’s Deferred Stock Account shall be paid to the Participant in a single lump sum distribution as soon as administratively feasible after the Participant’s termination date, but not earlier than the six-month anniversary of the Participant’s termination date if the Participant is a Section 409A Specified Employee.

     (v) Involuntary Termination. Upon the Involuntary Termination of a Participant prior to full payment of the Participant’s Deferred Stock Account, the Participant shall forfeit —

     (A) All unpaid Deferred Stock Units that were awarded to the Participant during the one-year period immediately preceding the Participant’s Involuntary Termination date; and

     (B) A prorated portion of the remaining Deferred Stock Units under each Deferred Stock Unit Award determined by subtracting from the number of unpaid Deferred Stock Units remaining under such Award the product of (I) the number of unpaid Deferred Stock Units remaining under such Award, multiplied by (II) a fraction, the numerator of which is the number of full months worked by the Participant between the date of grant and the Involuntary Termination date, and the denominator of which is the total number of full months between the date of grant and the originally scheduled payment date.

     All other Deferred Stock Units remaining in the Participant’s Deferred Stock Account shall be paid at the scheduled time and in the scheduled manner set out in the applicable Award Certificate at the time of grant.

     (e) Payment Deferrals. Subject to the requirements of Section 409A of the Code, the Committee may from time to time and on a case by case basis permit a Participant to elect to defer payment of his Deferred Stock Units, or change the form of payment of Shares issued in connection with Deferred Stock Units. Elections to defer the payment date or change the form of payment shall be subject to the following limitations, which may not be waived by the Committee:

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     (i) Such election must be made, if at all, no less than 12 months prior to the originally scheduled payment date set out in the Award Certificate for the Deferred Stock Units with respect to which the election is made;

     (ii) Such election may not take effect until at least 12 months after the date on which the election is made; and

     (iii) Except with respect to an election to receive payment upon Disability, the first scheduled payment must be deferred pursuant to the election for a period of at least five years from the original payment date set out in the Award Certificate for the Deferred Stock Units with respect to which the election is made.

For purposes of this paragraph (e), each scheduled installment payment under a Deferred Stock Unit Award shall be deemed to be a separate payment.

     (f) Committee Discretion. Notwithstanding anything in the Plan to the contrary (including anything in Section 3.2 relating to the authority of the Committee or Section 5.4 relating to Changes in Control) in no event shall the Committee have discretion under the Plan to accelerate the payment date or deferred payment date of Deferred Stock Units, except to the extent permitted under Section 409A of the Code and applicable U.S. Treasury Department or Internal Revenue Service guidance issued in connection with Section 409A of the Code.

4.7 Other Stock-Based Awards. Subject to compliance with the requirements of Section 409A of the Code, the Committee may, from time to time, grant to an Employee Other Stock-Based Awards under the Plan. These Awards may include, among other things Shares, restricted stock options, stock appreciation rights that are settled in Shares, and phantom or hypothetical Shares. The Committee shall determine, in its discretion, the terms, conditions, restrictions and limitations, if any, that shall apply to Other Stock-Based Awards granted pursuant to this Section 4.7 (including whether Dividend Equivalents shall be credited or paid with respect to any such Award), which terms, conditions, restrictions and/or limitations shall be set forth in the Award Certificate. The Committee, in its discretion, may condition the delivery of Shares in connection with an Award under this Section 4.7 on the Participant giving the representation described in Section 7.4.

4.8 Performance Awards. The Committee may grant Performance Awards under the Plan only to such Employees as the Committee may from time to time select, in such amounts and subject to such terms and conditions as the Committee, in its discretion, may determine. Performance Awards granted under the Plan shall be subject to the following provisions.

     (a) General. Performance Awards that are not Qualified Performance Awards shall be based on such Performance Cycles, Performance Measures and vesting or payout formulas (which may be the same as or different than those applicable to

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Performance Awards that are designated as Qualified Performance Awards) as the Committee, in its discretion, may establish for such purposes.

     (b) Form of Payment. Performance Awards may be paid in cash, Shares, Stock Options, Restricted Stock, Deferred Stock Units, Other Stock-Based Awards or any combination of the foregoing in such proportions as the Committee may determine, in its discretion, and set forth in the Award Certificate. To the extent that a Performance Award is paid in Shares, Stock Options, Restricted Stock, Deferred Stock Units and/or Other Stock-Based Awards, the amount of each such form of Award that is payable shall be based on the Fair Market Value of a Share on the date of grant, subject to such reasonable Restricted Stock and Deferred Stock Unit discount factors and/or Stock Option valuation methodologies as the Committee may, in its discretion, apply. Stock Options, Restricted Stock, Deferred Stock Units and Other Stock-Based Awards granted in connection with a Performance Award shall be subject to the provisions of Sections 4.4, 4.5, 4.6 and 4.7, respectively.

     (c) Qualified Performance Awards. A Performance Award granted to a Covered Employee under the Plan may, at the discretion of the Committee, be designated as a Qualified Performance Award. Qualified Performance Awards under the Plan may be granted either separately or at the same time as Awards that are not designated as Qualified Performance Awards; provided, however, that in no event may the payment of an Award that is not a Qualified Performance Award be contingent upon the failure to attain a specific level of performance on the Performance Measure(s) applicable to a Qualified Performance Award for the same Performance Cycle. In the event the Committee designates an Award as a Qualified Performance Award, any determinations of the Committee pertaining to Performance Measures and other terms and conditions of such Qualified Performance Award (other than a determination under paragraph (iii)(D) below to reduce the amount of the Award) shall be in writing and made within the Qualified Performance Award Determination Period. A Performance Award that the Committee designates as a Qualified Performance Award shall be subject to the following additional requirements.

     (i) Performance Cycles. Performance Awards that are designated as Qualified Performance Awards shall be awarded in connection with a Performance Cycle. The Committee shall determine the length of a Performance Cycle within the Qualified Performance Award Determination Period. In the event that the Committee determines that a Performance Cycle shall be a period greater than one fiscal year, a new Qualified Performance Award may be granted and a new Performance Cycle may commence prior to the completion of the Performance Cycle associated with the prior Qualified Performance Award.

     (ii) Participants. Within the Qualified Performance Award Determination Period, the Committee shall determine the Covered Employees who shall be eligible to receive a Qualified Performance Award for such Performance Cycle.

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     (iii) Performance Measures; Targets; Vesting and Payout Formulas.

     (A) Within the Qualified Performance Award Determination Period, the Committee shall fix and establish, in writing, (1) the Performance Measure(s) that shall apply to the Qualified Performance Award for the Performance Cycle; (2) the target amount of such Qualified Performance Award that shall be payable to each such Covered Employee; and (3) the vesting and/or payout formula for computing the actual amount of such Qualified Performance Award that shall become vested and/or payable with respect to each level of attained performance. Towards this end, such vesting and/or payout formula shall, based on objective criteria, set forth for the applicable Performance Measure(s) the minimum level of performance that must be attained during the Performance Cycle before any such Qualified Performance Award shall become vested and/or payable and the percentage of the target amount of such Award that shall be vested and/or payable to each Covered Employee upon attainment of various levels of performance that equal or exceed the minimum required level.

     (B) The Committee may, in its discretion, select Performance Measures that measure the performance of Schering-Plough or one or more business units, divisions, Affiliates or Subsidiaries of Schering-Plough. The Committee may select Performance Measures that are absolute or relative to the performance of one or more comparable companies or an index of comparable companies.

     (C) In applying Performance Measures, the Committee may, in its discretion, exclude unanticipated, unusual or infrequently occurring items (including any event described in Section 5.3 and the cumulative effect of changes in the law, regulations or accounting rules), and may determine within the Qualified Performance Award Determination Period to exclude other items.

     (D) Notwithstanding anything in this paragraph (c)(iii) to the contrary, the Committee may, on a case by case basis and in its sole discretion, reduce, but not increase, the amount of any Qualified Performance Award that is payable to a Covered Employee with respect to a Performance Cycle, provided, however, that no such reduction shall result in an increase in the dollar amount of any such Qualified Performance Award payable to any other Covered Employee.

     (iv) Committee Certification. No Qualified Performance Award shall vest or be paid to a Covered Employee under the Plan unless and until the Committee certifies in writing the level of attainment of the applicable Performance Measure(s) for the applicable Performance Cycle.

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     (v) Limitation on Awards. Subject to Sections 5.1 and 5.3, the dollar value of any Qualified Performance Award payable in cash to any Covered Employee shall not exceed $3 million (or, in the case of the Chief Executive Officer, $6,000,000) for any 12-month Performance Cycle; provided that for any Performance Cycle that is the same as a performance period under the Operations Management Team Incentive Plan, such amounts shall serve as combined limits under both this Plan and the Operations Management Team Incentive Plan. For any Performance Cycle greater than 12 months in duration, this maximum will be adjusted proportionately.

     (vi) Code Section 162(m). It is the intent of Schering-Plough that Qualified Performance Awards granted to Covered Employees under the Plan shall satisfy the applicable requirements of Code Section 162(m) and the regulations thereunder so that Schering-Plough’s tax deduction for Qualified Performance Awards is not disallowed in whole or in part by operation of Code Section 162(m). If any provision of this Plan pertaining to Qualified Performance Awards, or any Award to a Covered Employee under the Plan that the Committee designates as a Qualified Performance Award, would otherwise frustrate or conflict with such intent, that provision or Award shall be interpreted and deemed amended so as to avoid such conflict.

4.9 Substitute Awards. The Committee may make Awards under the Plan to Acquired Grantees through the assumption of, or in substitution for, outstanding stock-based awards previously granted to such Acquired Grantees. Such assumed or substituted Awards will be subject to the terms and conditions of the original awards made by the Acquired Company, with such adjustments therein as the Committee considers appropriate to give effect to the relevant provisions of any agreement for the acquisition of the Acquired Company. Any grant of Stock Options pursuant to this Section 4.9 will be subject to the rules set out in Section 424 of the Code and any final regulations published thereunder, regardless of whether the Stock Option is intended to be an Incentive Stock Option or a Nonqualified Stock Option.

4.10 Termination for Cause. Notwithstanding anything to the contrary herein, if a Participant incurs a Termination for Cause, then all of the Participant’s outstanding Awards under the Plan (whether or not vested or exercisable) will immediately be cancelled and forfeited and the special forfeiture provisions of Section 7.2 shall apply. The exercise of any Stock Option or the payment of any Award may be delayed, in the Committee’s discretion, in the event that a potential Termination for Cause is pending.

V. SHARES SUBJECT TO THE PLAN; ADJUSTMENTS

5.1 Shares Available. The Shares issuable under the Plan are authorized but unissued Shares or Shares held in Schering-Plough’s treasury. Subject to adjustment in accordance with Section 5.3, the total number of Shares with respect to which Awards may be issued under the Plan may not exceed 92,000,000 Shares, which includes the number of Shares that have been approved by Schering-Plough shareholders for issuance under the Prior

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Plan, but which have not been awarded under the Prior Plan as of the Effective Date and which are no longer available for issuance under Prior Plan for any reason (including without limitation, the discontinuance or termination of the Prior Plan). Subject to adjustment in accordance with Section 5.3, from such aggregate limit:

     (a) No more than an aggregate of 46,000,000 Shares may be issued under Incentive Stock Options during the term of the Plan;

     (b) No more than an aggregate of 46,000,000 Shares may be issued in the form of Restricted Stock, Deferred Stock Units or Other Stock-Based Awards payable in Shares during the term of the Plan; and

     (c) The maximum aggregate number of Shares with respect to which Stock Options may be granted to any one Participant during any fiscal year of Schering-Plough may not exceed 3,000,000 Shares.

5.2 Counting Rules.

     (a) Shares Counted. For purposes of determining the number of Shares remaining available for issuance under the Plan (including Shares originally approved under the Prior Plan, but made available for issuance under this Plan in accordance with Section 5.1), only Awards payable in Shares shall be counted. In addition, Shares that are tendered or withheld in payment of all or part of the Exercise Price of a Stock Option, or in satisfaction of the withholding obligations of an Award shall be counted against the remaining Shares and shall no longer be available for issuance under the Plan.

     (b) Shares Not Counted. The following Shares relating to Awards under this Plan (or Awards under the Prior Plan that are outstanding as of the Effective Date) are not counted as issued Shares for purposes of determining the number of Shares remaining available for issuance under the Plan, and shall remain available for issuance under the Plan.

     (i) Shares underlying awards that are settled in cash in lieu of Shares;

     (ii) Shares underlying Awards that expire, are forfeited, cancelled or terminate for any other reason without the issuance of Shares;

     (iii) Shares issued in connection with Awards that are assumed, converted or substituted as the result of Schering-Plough’s acquisition of an Acquired Company or the combination of Schering-Plough with another company; and

     (iv) Shares of Restricted Stock that are forfeited and returned to Schering-Plough upon a Participant’s Termination of Employment.

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5.3 Adjustments. If there is a change in the outstanding Shares by reason of any stock split, reverse stock split, dividend or other distribution (whether in the form of cash, Shares, other securities or other property), extraordinary cash dividend, recapitalization, split-up, spin-off, reorganization, combination, repurchase or exchange of Shares or other securities, the issuance of warrants or other rights to purchase Shares or other securities, or other similar corporate transaction or event, then in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, an adjustment in the number or kind of Shares that may be issued under the Plan, the number of Shares underlying an outstanding Award, the Exercise price of a Stock Option or the number of Deferred Stock Units credited to a Deferred Stock Account will be made by the Committee and such adjustment will be conclusive and binding for all purposes under the Plan. Notwithstanding the foregoing, no adjustments shall be made with respect to Qualified Performance Awards granted to a Covered Employee to the extent such adjustment would cause the Award to fail to qualify as performance-based compensation under Section 162(m) of the Code.

5.4 Consequences of a Change in Control. Notwithstanding any other provision of the Plan, Awards that are outstanding as of the effective date of a Change in Control shall be subject to the following provisions.

     (a) Replacement Awards. Any Award granted hereunder shall be deemed to apply to the securities, cash or other property (subject to adjustment by cash payment in lieu of fractional interests) to which a holder of the number of Shares equal to the number of Shares underlying the Participant’s Awards would have been entitled pursuant to the Change in Control, and proper provisions shall be made to ensure that this clause is a condition to any transaction that would result in a Change in Control; provided, however, that during the 60-day period beginning on the date of Change in Control, the Committee (or, if applicable, the board of directors of the entity assuming Schering-Plough’s obligations under the Plan) may, in its discretion, take any of the following actions with respect to each Award that is outstanding as of the effective date of Change in Control:

     (i) Modify or adjust the Award to reflect the Change in Control; or

     (ii) Cancel the Award and cause the acquiring or surviving corporation to replace it with an equivalent right after the Change in Control.

     (b) Stock Options. All outstanding Stock Options shall become immediately vested and exercisable as of the effective date of a Change in Control. In addition, during the 60-day period beginning on the date of Change in Control, the Committee may, in its discretion, cancel all or a portion of a Participant’s remaining Stock Options and, in consideration of such cancellation, pay the Participant with respect to each Share issuable under the cancelled Stock Option an amount in cash equal to the amount by which the Change in Control Price exceeds the Exercise Price of the cancelled Stock Option. Finally in the event an Employee

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incurs an Involuntary Termination after a Change in Control, all of the Participant’s outstanding Stock Options as of the date of such Involuntary Termination (which became exercisable as of the effective date of the Change in Control, if not already exercisable before such time), shall remain exercisable for the full duration of the Stock Option’s original term, notwithstanding the Participant’s Termination of Employment.

     (c) Deferred Stock Units. All Deferred Stock Units credited to a Participant’s Deferred Stock Account but not yet distributed as of the date of the Change in Control shall become immediately vested and non-forfeitable as of the effective date of a Change in Control and shall be distributed in a single lump sum cash payment, in lieu of Shares, as soon practicable thereafter (but in no event more than 30 days after the effective date of the Change in Control) at a dollar value per Deferred Stock Unit equal to the Change in Control Price.

     (d) Restricted Stock and Other Stock-Based Awards. All restrictions and conditions on any Shares of Restricted Stock or Other Stock-Based Awards shall immediately lapse or be deemed satisfied, as the case may be, as of the effective date of a Change in Control and all such Awards shall become vested and non-forfeitable as of such date.

     (e) Performance Awards. Each Employee who has been granted a Performance Award that is outstanding as of the effective date of a Change in Control shall be deemed to have achieved a level of performance, as of the Change in Control, that would cause all (100%) of the Participant’s target amounts to become payable and all restrictions and vesting conditions, if any, on the form of Award or Awards payable to the Employee in connection with the Performance Award shall be waived.

5.5 Fractional Shares. No fractional Shares shall be issued under the Plan. In the event that a Participant acquires the right to receive a fractional Share under the Plan, such Participant shall receive, in lieu of such fractional Share, cash equal to the Fair Market Value of the fractional Share as of the date of settlement.

VI. AMENDMENT AND TERMINATION

6.1 Amendment. The Plan may be amended at any time and from time to time by the Board without the approval of shareholders of Schering-Plough, except that no material revision to the terms of the Plan will be effective without first obtaining the approval of the amendment by the holders of a majority of the Shares present in person or by proxy at a meeting of Schering-Plough’s shareholders and entitled to vote at such meeting. A revision is “material” for this purpose if, among other changes, it (a) materially increases the number of Shares that may be issued under the Plan (other than an increase pursuant to Section 5.3 of the Plan), (b) changes the types of Awards available under the Plan, (c) expands the class of persons eligible to receive Awards under the Plan, (d) extends the term of the Plan, (e) decreases the Exercise Price at which Stock Options may be granted,

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(f) reduces the Exercise Price of outstanding Stock Options, or (g) results in the replacement of outstanding Stock Options with new Awards that have an Exercise Price that is lower than the Exercise Price of the replaced Stock Options. No amendment of the Plan made without the Participant’s written consent may adversely affect any right of a Participant with respect to an outstanding Award. Notwithstanding the foregoing, this Plan is intended to incorporate all applicable requirements of Section 409A of the Code and guidance issued thereunder by the U.S. Treasury Department and the Internal Revenue Service, and the Plan will be deemed to be amended as necessary to comply with those requirements.

6.2 Termination. The Plan shall terminate upon the earlier of the following dates or events to occur:

     (a) The adoption of a resolution of the Board terminating the Plan; or

     (b) December 31, 2011.

     No Awards shall be granted under this Plan after it has been terminated. However, the termination of the Plan shall not alter or impair any of the rights or obligations of any person, without such person’s consent, under any Award theretofore granted under the Plan. After the termination of the Plan, any previously granted Awards shall remain in effect and shall continue to be governed by the terms of the Plan and the applicable Award Certificate.

VII. GENERAL PROVISIONS

7.1 Nontransferability of Awards. No Award under the Plan shall be subject in any manner to alienation, anticipation, sale, assignment, pledge, encumbrance or transfer, and no other persons will otherwise acquire any rights therein, except as provided below.

     (a) Any Award may be transferred by will or by the laws of descent or distribution.

     (b) The Committee may provide in the Award Certificate that all or any part of the vested portion of a Nonqualified Stock Option may, subject to the prior written consent of the Committee, be transferred to one or more of the following classes of donees:

     (i) a family member;

     (ii) a trust for the benefit of a family member; or

     (iii) a limited partnership whose partners are solely family members, or any other legal entity set up for the benefit of family members.

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          For purposes of this paragraph (b), a family member means a Participant’s spouse, children, grandchildren, parents, grandparents, siblings, nieces, nephews, grandnieces and grandnephews, including adopted, in-laws and step family members.

     (c) Any transferred Award will be subject to all of the same terms and conditions as provided in the Plan and the applicable Award Certificate. The Participant or the Participant’s estate will remain liable for any withholding tax that may be imposed by any federal, state or local tax authority. The Committee may, in its discretion, disallow all or a part of any transfer of an Award pursuant to paragraph (b) above unless and until the Participant makes arrangements satisfactory to the Committee for the payment of any withholding tax. The Participant must immediately notify the Committee, in the form and manner required by the Committee, of any proposed transfer of an Award pursuant to paragraph (b). No transfer will be effective until the Committee consents to the transfer in writing.

     (d) Except as otherwise provided in the Award Certificate, any Nonqualified Stock Option transferred by a Participant pursuant to this paragraph (d) may be exercised by the transferee only to the extent that the Award would have been exercisable by the Participant had no transfer occurred. The transfer of Shares upon exercise of the Award will be conditioned on the payment of any withholding tax.

     (e) Restricted Stock may be freely transferred after the restrictions lapse or are satisfied and the Shares are delivered; provided, however, that Restricted Stock awarded to an affiliate of Schering-Plough may be transferred only pursuant to Rule 144 under the Securities Act, or pursuant to an effective registration for resale under the Securities Act. For purposes of this paragraph (e), “affiliate” will have the meaning assigned to that term under Rule 144.

     (f) In no event may a Participant transfer an Incentive Stock Option other than by will or the laws of descent and distribution.

7.2 Special Forfeiture Provision. Except as otherwise provided in the current employment agreement between Schering-Plough and the relevant Employee (which agreement shall take precedent over this Section 7.2), and if the Committee, in its discretion, provides otherwise in the applicable Award Certificate, if a Participant either —

     (a) incurs a Termination for Cause or

     (b) incurs a Termination of Employment for any reason other than other than death, Disability, Retirement, Termination Due to Business Divestiture or Involuntary Termination and, within one year after such Termination of Employment, without prior written approval of the Committee, enters into an employment or consulting arrangement (including service as an agent, partner, stockholder, consultant, officer or director) with any entity or person engaged in

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any business in which Schering-Plough or its Affiliates or Subsidiaries is engaged that, in the sole judgment of the Committee, is competitive with Schering-Plough or any Affiliate or Subsidiary, then the Participant shall forfeit and return to Schering-Plough —

     (i) the amount of any profit realized upon the exercise of any Stock Options at any time on or after the date that is ninety (90) days immediately prior to the date of the Participant’s Termination of Employment;

     (ii) all shares of Restricted Stock that are not then vested or which vested during the three-month period immediately preceding such Termination of Employment; and

     (iii) all Shares issued to the Participant in payment of the Participant’s Deferred Stock Units during the three-month period immediately preceding such Termination of Employment.

7.3 Withholding of Taxes. The Committee, in its discretion, may satisfy a Participant’s tax withholding obligations by any of the following methods or any method as it determines to be in accordance with the laws of the jurisdiction in which the Participant resides, has domicile or performs services.

     (a) Stock Options. As a condition to the delivery of Shares pursuant to the exercise of a Stock Option, the Committee may require that the Participant, at the time of exercise, pay to Schering-Plough by cash, certified check, bank draft, wire transfer or postal or express money order an amount sufficient to satisfy any applicable tax withholding obligations. The Committee may, however, in its discretion, accept payment of tax withholding obligations through any of the Exercise Price payment methods described in Section 4.4(f).

     (b) Other Awards Payable in Shares. The Participant shall satisfy the Participant’s tax withholding obligations arising in connection with the release of restrictions on Restricted Stock or the payment of Deferred Stock Units or Other Stock-Based Awards by payment to Schering-Plough by cash, certified check, bank draft, wire transfer or postal or express money order an amount sufficient to satisfy any applicable tax withholding obligations, provided that the format is approved by Schering-Plough or a designated third-party administrator. Notwithstanding the foregoing, subject to the requirements of applicable law, Schering-Plough may also satisfy the Participant’s tax withholding obligations by other methods, including selling or withholding Shares that would otherwise be available for delivery, provided that the Committee has specifically approved such payment method in advance.

     (c) Cash Awards. Schering-Plough may satisfy a Participant’s tax withholding obligations arising in connection with the payment of any Award in cash by withholding cash from such payment.

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7.4 Investment Representation. As a condition to any distribution of Shares pursuant to Awards under the Plan, Schering-Plough may require a Participant to represent in writing that such Shares are being acquired for the Participant’s own account for investment and not with a view to, or for sale in connection with, the distribution of any part thereof.

7.5 Code Section 83(b) Elections. Neither Schering-Plough, any Affiliate or Subsidiary, nor the Committee shall have any responsibility in connection with a Participant’s election, or attempt to elect, under Code Section 83(b) to include the value of a Restricted Stock Award in the Participant’s gross income for the year of payment. Any Participant who makes a Code Section 83(b) election with respect to any such Award shall promptly notify the Committee of such election and provide the Committee with a copy thereof.

7.6 Beneficiary Designations. Designations of Beneficiaries by a Participant shall be made in writing and filed with Schering-Plough in such form and in such manner as the Committee may from time to time prescribe. A Participant may change his or her Beneficiaries in the same manner at any time prior to the death of the Participant. If a Participant dies without having designated any surviving Beneficiaries, the Participant’s remaining interests in Awards under the Plan shall be distributed to the legal representative of his estate or in accordance with the Participant’s will.

7.7 No Implied Rights. The establishment and operation of the Plan, including eligibility as a Participant, shall not be construed as conferring any legal or other right upon any Employee for the continuation of his or her employment for any Performance Cycle or any other period. Schering-Plough expressly reserves the right, which may be exercised at any time and in Schering-Plough’s sole discretion, to discharge any individual and/or treat him or her without regard to the effect which such treatment might have upon him or her as a Participant in the Plan.

7.8 No Obligation to Exercise Options. The granting of a Stock Option shall impose no obligation upon the Participant to exercise such Stock Option.

7.9 No Rights as Shareholders. A Participant granted an Award under the Plan shall have no rights as a shareholder of Schering-Plough with respect to the Award unless and until such time as certificates for the Shares underlying the Award are registered in such Participant’s name. The right of any Participant to receive an Award by virtue of participation in the Plan shall be no greater than the right of any unsecured general creditor of Schering-Plough.

7.10 Indemnification of Committee. Schering-Plough shall indemnify, to the full extent permitted by law, each person made or threatened to be made a party to any civil or criminal action or proceeding by reason of the fact that he, or his testator or intestate, is or was a member of the Committee or a delegate of the Committee so acting.

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7.11 No Required Segregation of Assets. Neither Schering-Plough nor any Affiliate or Subsidiary shall be required to segregate any assets that may at any time be represented by Awards granted pursuant to the Plan. In no event shall any interest be paid or accrued on any Award, including unpaid installments of an Award.

7.12 Nature of Payments. All Awards made pursuant to the Plan are in consideration of services for Schering-Plough or its Affiliates or Subsidiaries. Any gain realized pursuant to Awards under the Plan constitutes a special incentive payment to the Participant and shall not be taken into account as compensation for purposes of any of the employee benefit plans of Schering- Plough or any Affiliate or Subsidiary except as may otherwise be specifically provided in the applicable employee benefit plan.

7.13 Compliance with Applicable Law. The obligations of Schering-Plough to issue or transfer Shares pursuant to Awards shall be subject to (a) the effectiveness of a registration statement under the Securities Act of 1933, as amended, with respect to the Shares, (b) the condition that the Shares be listed (or authorized for listing upon official notice of issuance) upon each stock exchange upon which Shares are listed and (c) compliance with all applicable laws and approvals by all governmental or regulatory agency as may be required. With respect to Reporting Persons, it is the intent of Schering-Plough that the Plan and all transactions under the Plan comply with all applicable provisions of Rule 16b-3 or its successors under the Exchange Act. If any provision or this Plan or of any grant of an Award would otherwise frustrate or conflict with such intent, that provision shall be interpreted and deemed amended so as to avoid such conflict. No Participant will be entitled to a grant, exercise, transfer or payment of any Award if the grant, exercise, transfer or payment would violate the provisions of the Sarbanes-Oxley Act of 2002 or any other applicable law. In addition, it is the intent of Schering-Plough that the Plan and applicable Awards under the Plan comply with the applicable provisions of Sections 162(m) and 422 of the Code, and to the extent an Award is subject to the requirements of Section 409A of the Code, it is the intent of Schering-Plough that the Award be administered in a manner that satisfies such requirements. To the extent that any legal requirement of Section 16 of the Exchange Act or Section 162(m), 409A or 422 of the Code as set forth in the Plan ceases to be required under such Section, that Plan provision shall cease to apply. The Committee may revoke any Award if it is contrary to law or modify a Award (to the extent permitted by applicable law) to bring it into compliance with any valid and mandatory government regulation.

7.14 Headings. Section and paragraph headings are for reference only. In the event of a conflict between the title and content of a section or paragraph, the content shall control.

7.15 Governing Law; Severability. The Plan and all determinations made and actions taken thereunder shall be governed by the internal substantive laws, and not the choice of law rules, of the State of New Jersey and construed accordingly, to the extent not superseded by applicable federal law. If any provision of the Plan shall be held unlawful or otherwise invalid or unenforceable in whole or in part, the unlawfulness, invalidity or

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unenforceability shall not affect any other provision of the Plan or part thereof, each of which shall remain in full force and effect.

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EX-10.E.XIII

Exhibit 10(e)(xiii)

SCHERING-PLOUGH CORPORATION
SAVINGS ADVANTAGE PLAN

(Amended and Restated as of January 1, 2006)

Table of Contents

		Page
ARTICLE 1	DEFINITIONS	1
ARTICLE 2	ELIGIBILITY AND PARTICIPATION	5
ARTICLE 3	DEFERRAL OF COMPENSATION	6
ARTICLE 4	BENEFIT ACCOUNTS	10
ARTICLE 5	PAYMENT OF BENEFITS	12
ARTICLE 6	BENEFICIARY DESIGNATION	15
ARTICLE 7	ADMINISTRATION	15
ARTICLE 8	AMENDMENT AND TERMINATION OF PLAN	16
ARTICLE 9	MISCELLANEOUS	16
EXHIBIT A		A-1

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PURPOSE

     The Schering-Plough Corporation Savings Advantage Plan (the “Plan”) is intended to attract and retain qualified individuals to serve as officers and managers of Schering-Plough Corporation and its affiliates by providing a select group of the Company’s management and highly compensated employees with the ability to defer the receipt of a portion of their compensation. The Plan is effective as of January 1, 2004. The Plan has been subsequently amended and restated, effective January 1, 2006.

ARTICLE 1
DEFINITIONS

     When used in this Plan and initially capitalized, the following words and phrases shall have the meanings indicated below:

     1.01 Account. “Account” means the sum of a Participant’s Employer Contribution Account, Non-Qualified Defined Benefit Plan Rollover Account, Non-Qualified Defined Contribution Plan Rollover Account, Prior Plan Stock Rollover Account, Cash LTIP Rollover Account, Performance Plan Rollover Account, and Elective Deferral Account.

     1.02 Base Compensation Elective Deferral Credit. “Base Compensation Elective Deferral Credit” means the amount of Compensation (other than Bonus) that a Participant elects to defer under the Plan pursuant to Section 3.02, and which the Employer credits to the Participant’s Elective Deferral Account.

     1.03 Base Salary. “Base Salary” means that portion of an Eligible Employee’s Compensation that represents his or her annual rate of pay (not including Bonus) prior to any reduction for amounts deferred by the Eligible Employee pursuant to the Savings Plan or Section 125 or 132(f)(4) of the Code, or pursuant to this Plan or any other non-qualified plan that permits the voluntary deferral of compensation.

     1.04 Beneficiary. “Beneficiary” means the person, persons, or entity designated by the Participant pursuant to Article VI to receive any benefits payable under the Plan after the Participant’s death.

     1.05 Board. “Board” means the Board of Directors of the Company.

     1.06 Bonus. “Bonus” means any regular, recurring bonus payable to an Eligible Employee from one of the Company’s annual incentive plans prior to any reduction for any amounts deferred by the Participant under the Savings Plan or Section 125 or 132(f)(4) of the Code, or pursuant to this Plan or any other non-qualified plan that permits the voluntary deferral of compensation. The term Bonus only applies to amounts that are deemed performance-based in accordance with Section 409A of the Code.

     1.07 Bonus Elective Deferral Credits. “Bonus Elective Deferral Credits” means the amount of Bonus that a Participant elects to defer under the Plan pursuant to Section 3.03, and which the Employer credits to the Participant’s Elective Deferral Account.

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     1.08 Bonus Eligible Employee. “Bonus Eligible Employee” means any highly compensated or management employee of an Employer who is paid on the Company’s U.S. payroll, who normally works within the U.S., and whose Base Salary from his or her Employer equals or exceeds $210,000 (or such other limit as set forth pursuant to Section 401(a)(17) of the Code) as of April 15 of the calendar year in which the Bonus is earned (or, for Bonuses payable in 2005, as of April 30, 2004 and in the case of a newly hired employee, as of his or her employment commencement date).

     1.09 Cash LTIP. “Cash LTIP” means the Company’s Cash Long-Term Incentive Plan, as amended from time to time.

     1.10 Cash LTIP Rollover Account. “Cash LTIP Rollover Account” means the account maintained for the purpose of recording Cash LTIP Rollover Credits and the amount of deemed investment earnings credited thereto pursuant to Article IV.

     1.11 Cash LTIP Rollover Credits. “Cash LTIP Rollover Credits” means the amount that becomes distributable to a Participant under the Cash LTIP that is automatically deferred under the Plan pursuant to Section 3.04(d).

     1.12 Change in Control. “Change in Control” means a Change of Control as defined in the Company’s 2006 Stock Incentive Plan or any successor to such plan.

     1.13 Code. “Code” means the Internal Revenue Code of 1986, as amended from time to time.

     1.14 Committee. “Committee” means the Global Benefits and Compensation Oversight Committee of Schering-Plough Corporation or its delegate.

     1.15 Company. “Company” means the Schering-Plough Corporation, a New Jersey corporation, and any successor thereto.

     1.16 Compensation. “Compensation” has the same meaning as set forth in the Savings Plan without regard to any limitation thereon imposed by Section 401(a)(17) of the Code and without deducting any amounts deferred under this Plan.

     1.17 Covered Employee. “Covered Employee” means with respect to a particular calendar year, a covered employee as defined in Treasury regulation Section 1.162-27(c)(2) or any replacement regulation thereof. At the time of the adoption of this Plan, this includes any individual who, as of the last day of the Company’s taxable year, is the Chief Executive Officer or one of the four highest compensated officers (other than the Chief Executive Officer) as determined under the Securities Exchange Act of 1934, as amended.

     1.18 Deferral Election. “Deferral Election” means the written election made by a Participant to defer Compensation pursuant to Article III.

     1.19 Disability. “Disability” means any condition in which the Participant is considered Disabled as defined in Section 409A of the Code.

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     1.20 Elective Deferral Account. “Elective Deferral Account” means the account maintained on the books of the Employer for the purpose of accounting for the Base Compensation Elective Deferral Credits and Bonus Elective Deferral Credits that a Participant elects to defer under the Plan, and for the amount of deemed investment return credited thereto pursuant to Article IV.

     1.21 Eligible Employee. “Eligible Employee” means any employee who is a Salary Eligible Employee, a Bonus Eligible Employee, or an Expatriate Employee.

     1.22 Employer. “Employer” means, with respect to a Participant, the Company or the Selected Affiliate that pays such Participant’s Compensation.

     1.23 Employer Contribution Account. “Employer Contribution Account” means the account maintained on the books of the Employer for the purpose of accounting for the Employer Contribution Credits that are credited to a Participant pursuant to Section 3.01 of the Plan, and for the amount of deemed investment return credited thereto pursuant to Article IV.

     1.24 Employer Contribution Credit. “Employer Contribution Credit” means the amount credited to a Participant’s Employer Contribution Account pursuant to Section 3.01.

     1.25 ERISA. “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

     1.26 Expatriated Employee. “Expatriated Employee” means an employee who receives Compensation from an Employer, but does not meet the definition of a Salary Eligible Employee or a Bonus Eligible Employee only because he or she either is not paid on the Company’s U.S. payroll or normally works outside the U.S.

     1.27 Hardship Withdrawal. “Hardship Withdrawal” has the meaning set forth in Section 5.05.

     1.28 Investment Committee. “Investment Committee” means the Investment Committee of Schering-Plough Corporation.

     1.29 Investment Return Rate. “Investment Return Rate” means:

     (a) In the case of an investment named in Exhibit A of a fixed income nature, the interest deemed to be credited as determined in accordance with the procedures applicable to the same investment option provided under the Savings Plan;

     (b) In the case of an investment named in Exhibit A of an equity investment nature, the increase or decrease in deemed value and dividends deemed to be credited as determined in accordance with the procedures applicable to the same investment option provided under the Savings Plan; or

     (c) In the case of the Common Stock Investment Option, the increase or decrease in the deemed value, and the reinvestment in the Schering-Plough Corporation Common Stock of

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any dividends deemed to be credited, as determined in accordance with the procedures established by the Investment Committee.

     1.30 Non-Qualified Defined Benefit Plan Rollover Account. “Non-Qualified Defined Benefit Plan Rollover Account” means the account maintained on the books of the Employer for the purpose of accounting for the Non-Qualified Defined Benefit Plan Rollover Credits that are credited to a Participant pursuant to Section 3.04(a) of the Plan, and for the amount of deemed investment return credited thereto pursuant to Article IV.

     1.31 Non-Qualified Defined Benefit Plan Rollover Credit. “Non-Qualified Defined Benefit Plan Rollover Credit” means the amount that becomes distributable to a Participant under the Company’s non-qualified defined benefit plan that the is automatically deferred pursuant to Section 3.04(a) of the Plan.

     1.32 Non-Qualified Defined Contribution Plan Rollover Account. “Non-Qualified Defined Contribution Plan Rollover Account” means the account maintained on the books of the Employer for the purpose of accounting for the Non-Qualified Defined Contribution Credits that are credited to a Participant pursuant to Section 3.04(b) of the Plan, and for the amount of deemed investment return credited thereto pursuant to Article IV.

     1.33 Open Enrollment Period. “Open Enrollment Period” means the period or periods established by the Company in any calendar year for making various elections described in the Plan that affect the rights of Participants and Beneficiaries with respect to subsequent periods.

     1.34 Participant. “Participant” means an Eligible Employee who elects to participate by executing and delivering any agreements required by the Committee in order to participate in the Plan.

     1.35 Performance Plan. “Performance Plan” means the Company’s Long-Term Performance Share Unit Incentive Plan, as amended from time to time.

     1.36 Performance Plan Rollover Account. “Performance Plan Rollover Account” means the account maintained for the purpose of recording Performance Plan Rollover Credits and the amount of deemed investment return credited thereto pursuant to Article IV.

     1.37 Performance Plan Rollover Credit. “Performance Plan Rollover Credit” means the amount that becomes distributable to a Participant under the Performance Plan that is automatically deferred under the Plan pursuant to Section 3.04(e).

     1.38 Plan. “Plan” means the Schering-Plough Corporation Savings Advantage Plan, as amended from time to time.

     1.39 Plan Sponsor. “Plan Sponsor” means Schering Corporation.

     1.40 Plan Year. “Plan Year” means a twelve-month period commencing January 1 and ending the following December 31.

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     1.41 Prior Plan Stock Rollover Account. “Prior Plan Stock Rollover Account” means the account maintained on the books of the Employer for the purpose of accounting for the amounts under the Company’s Transformational Program that is automatically deferred pursuant to Section 3.04(c) of the Plan, and for the amount of deemed investment return credited thereto pursuant to Article IV.

     1.42 Prior Plan Stock Rollover Credit. “Prior Plan Stock Rollover Credit” means the amount that becomes distributable to a Participant under the Company’s Transformational Program that is automatically deferred under the Plan pursuant to Section 3.04(c) of the Plan.

     1.43 Salary Eligible Employee. “Salary Eligible Employee” means any highly compensated or management employee of an Employer who is paid on the Company’s U.S. payroll, who normally works within the U.S., and whose Base Salary and target incentive bonus from his or her Employer equals or exceeds $220,000 (or such other limit as set forth pursuant to Section 401(a)(17) of the Code) as of October 15 of the prior year (or, in the case of a newly hired employee, as of his or her employment commencement date).

     1.44 Savings Plan. “Savings Plan” means the Schering-Plough Employees’ Savings Plan, as amended from time to time, or any successor thereto.

     1.45 Specified Employee. “Specified Employee” means a specified employee as defined in Section 409A of the Code and Treasury regulations thereunder and as determined in accordance with rules established and uniformly applied by the Committee in accordance with Section 409A of the Code.

     1.46 Transformational Program. “Transformational Program” means the Company’s Transformational Performance Contingent Shares Program, as amended from time to time.

     1.47 Value. “Value” means, with respect to any applicable date, the fair market value determined by the Investment Committee as of the previous Valuation Date.

     1.48 Valuation Date. “Valuation Date” means a date on which the amount of a Participant’s Account is valued as provided in Article IV. The Valuation Date shall be each trading day under the applicable market or exchange or on any date on which a net asset value is calculated by the Plan’s third party administrator with respect to the applicable investment.

ARTICLE 2
ELIGIBILITY AND PARTICIPATION

     2.01 Eligibility.

     (a) 2004 Employer Contribution Credits. Any Eligible Employee whose Compensation exceeds $205,000 during 2004 shall be eligible to receive Employer Contribution Credits to his or her Employer Contribution Account in accordance with Section 3.01 below for the 2004 Plan Year.

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     (b) 2005 and Later Employer Contribution Credits. Any person who is an Eligible Employee with respect to the 2005 Plan Year or a later Plan Year shall be eligible to receive Employer Contribution Credits to his or her Employer Contribution Account for that Plan Year in accordance with Section 3.01 below after his or her Compensation exceeds the applicable Section 401(a)(17) limit for that year.

     (c) 2005 and Later Base Compensation Deferrals. Any person who is a Salary Eligible Employee with respect to the 2005 Plan Year or a later Plan Year shall be eligible to elect to defer a portion of his or her Compensation (not including Bonus) payable in such year in accordance with Section 3.02 below. Any such election must be made during the Company’s applicable Open Enrollment Period that precedes the year in which the deferrals are to be made, provided, however that Eligible Employees hired during 2005 or a later Plan Year may make such an election at any time within 30 days after their date of hire. An election made by a Participant within the 30 days after his or her date of hire shall apply only to Compensation that has been earned after such election has been made.

     (d) 2005 Bonus Deferrals. Any person who is a Bonus Eligible Employee with respect to the 2005 Plan Year shall be eligible to elect to defer a portion of his or her Bonus that is payable in 2005 in accordance with Section 3.03 below. Any such election must be made during the period from April 23, 2004 until May 28, 2004, provided, however that Bonus Eligible Employees hired during 2004 may make such an election at any time within 30 days after their date of eligibility to participate in the Plan. An election made by a Participant within the 30 days after his or her date of hire shall apply only to a Bonus (or portion of a Bonus) that has been earned after such election has been made.

     (e) 2006 and Later Bonus Deferrals. Any person who is a Bonus Eligible Employee with respect to the 2006 Plan Year or a later Plan Year shall be eligible to elect to defer a portion of his or her Bonus that is payable in 2006 or such later Plan Year, as applicable. Any such election must be made during the applicable Open Enrollment Period to be completed not later than six months into the Plan Year in which such Bonus is earned, provided, however that Bonus Eligible Employees hired during any such Plan Year may make an election to defer their Bonus that is payable in the following year at any time within 30 days after their date of hire. An election made by a Participant within the 30 days after his or her date of hire shall apply only to a Bonus (or portion of a Bonus) that has been earned after such election has been made.

     2.02 Participation. Notwithstanding anything herein to the contrary, Participation in the Plan shall be limited to Eligible Employees who elect to participate in the Plan by executing and filing the appropriate documentation required by the Committee, if any.

ARTICLE 3
DEFERRAL OF COMPENSATION

     3.01 Employer Contribution Credits. With respect to each Plan Year, the Employer shall credit Employer Contribution Credits to the Employer Contribution Account of each Eligible Employee who satisfies the requirements of Section 2.01(a) or (b), as applicable. The amount of the Employer Contribution Credits shall be equal to five percent of such Eligible Employee’s Compensation for the Plan Year that exceeds the lower of (a) $220,000 or such other

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limit as set forth in Section 401(a)(17) of the Code for that year and (b) the Participant’s compensation applicable under the Savings Plan. Employer Contribution Credits shall be credited to the Participant’s Account on the same date on which the related employer contributions are made to the Savings Plan or such other date as the Committee shall determine.

     3.02 Base Compensation Elective Deferral Credits. With respect to each Plan Year beginning on or after January 1, 2005, an Eligible Employee who satisfies the requirements of Section 2.01(c) may elect to defer a up to 80% of his or her Compensation (excluding Bonus) in 1% increments by filing a complete and timely Deferral Election with the Committee. Any such election must be made during the Company’s Open Enrollment Period that precedes the year in which the Compensation being deferred is otherwise payable, provided, however that Eligible Employees hired during a 2005 or later Plan Year may make such an election at any time within 30 days after their date of hire. An election made by a Participant within the 30 days after his or her date of hire shall apply only to Compensation that has been earned after such election has been made. A Participant may change the percentage of his or her Compensation to be deferred by filing a new Deferral Election with the Committee during the Company’s Open Enrollment Period or at such other time as the Committee shall permit. Any such change shall be effective as of the first day of the Plan Year immediately following the Plan Year in which such Deferral Election is filed with the Committee. Base Compensation Elective Deferral Credits shall be credited to the Participant’s Account on the same date for each pay period on which elective deferrals for the same pay period are generally contributed to the Savings Plan or such other date as the Committee shall determine. Notwithstanding anything herein to the contrary, the Committee may reduce the percentage of Compensation that the Participant elects to defer if the Committee believes that the percentage elected by the Participant is likely to result in a negative balance in the Participant’s pay in any pay period after considering all applicable deductions (including garnishments).

     3.03 Bonus Elective Deferral Credits. With respect to each Plan Year beginning on or after January 1, 2005, a Bonus Eligible Employee who satisfies the requirements of Section 2.01(d) or (e), as applicable, may elect to defer up to 100% of his or her Bonus (in 1% increments) by filing a complete and timely Deferral Election with the Committee. Any such election with respect to a Bonus payable in 2005 must be made during the period from April 23, 2004 until May 28, 2004, provided, however that Bonus Eligible Employees hired during 2004 may make such an election at any time within 30 days after their date of first becoming eligible to participate in the Plan. An election made by a Participant within the 30 days after his or her date of hire shall apply only to a Bonus that has been earned after such election has been made. Any such election with respect to a Bonus payable in 2006 or any year thereafter must be made during the Open Enrollment Period to be completed not later than six months into the calendar year in which the Bonus is earned, provided, however that Bonus Eligible Employees hired during any year may make an election at any time within 30 days after their date of hire to defer the Bonus. An election made by a Participant within the 30 days after his or her date of hire shall apply only to a Bonus that has been earned after such election has been made. Unless modified in accordance with the terms of the Plan, such an election shall apply to the first regular, recurring bonus to which the employee is entitled after his or her date of hire and any subsequent bonus thereafter. Bonus Elective Deferral Credits shall be credited to the Participant’s Account as soon as administratively practicable following the date that such Bonuses are otherwise payable from the applicable incentive plan. Notwithstanding anything

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herein to the contrary, the Committee may reduce the percentage of Bonus deferrals elected by the Participant if the Committee believes that the percentage elected by the Participant is likely to result in a negative balance in the Participant’s pay in any pay period after considering all applicable deductions (including garnishments).

     3.04 Deferrals of Distributions from Non-Qualified Defined Benefit and Defined Contribution Plans. Any deferral made pursuant to this Section 3.04 must be made at least twelve months prior to the first scheduled payment under the transferor plan. In addition, no payment previously scheduled under a transferor plan may be accelerated. Also, a Participant cannot receive any payments of the transferred amounts for a period of at least five years from the date that the distribution was originally scheduled to be made under the terms of the transferor plan. Notwithstanding the preceding sentence, if a Participant has made or makes an election pursuant to this Section 3.04 prior to January 1, 2008, he or she will be permitted to make a special one-time only election regarding the form and timing of his or her Non-Qualified Defined Benefit Plan Rollover Credits. Such special one-time election shall be effective regardless of whether it complies with the five-year delay requirement. To the extent that any payroll taxes become due as a result of any election under this Section 3.04, such taxes, together with federal and state income taxes thereon, shall be paid by the Company and shall reduce the applicable Account accordingly, to the extent permissible by law without resulting in adverse current income tax consequences to the Participants.

     (a) Non-Qualified Defined Benefit Plan Rollover Credits. To the extent permitted by the Committee, Eligible Employees who participate in the Company’s Supplemental Executive Retirement Plan (the “SERP”) or the Company’s Retirement Benefits Equalization Plan (“RBEP”) may elect to defer under this Plan the actuarial single sum present value of benefits (determined in the manner established by the Committee) that become payable under the SERP or the RBEP. Notwithstanding the forgoing, any Participant who makes such an election with respect to the SERP shall automatically be deemed to make such an election with respect to any benefits to which he or she is entitled under the RBEP. Once the deferral referenced in this paragraph becomes effective, (i) any amounts deferred pursuant to this paragraph shall be deemed to be invested in this Plan in accordance with the Participant’s latest effective elections applicable to new contributions; and (ii) any such deferrals shall be subject to the terms and conditions of this Plan (including those terms governing distribution, withdrawal, and deemed investment) and shall not be subject to the terms and conditions of, or payable from, the plan pursuant to which such amounts were originally maintained.

     (b) Non-Qualified Defined Contribution Plan Rollover Credits. Eligible Employees who participate in any 162(m) Deferred Compensation plans of the Company automatically shall have any amounts deferred under such plan governed by the terms of this Plan with regard to administration, deemed investment and timing and form of benefit distributions. Once the deferral referenced in this paragraph becomes effective, (i) any amounts deferred pursuant to this paragraph shall be deemed to be invested in this Plan in accordance with the Participant’s latest effective elections applicable to new contributions; and (ii) any such deferrals shall be subject to the terms and conditions of this Plan (including those terms governing distribution, withdrawal, and deemed investment) and shall not be subject to the terms and conditions of, or payable from, the plan pursuant to which such amounts were originally maintained.

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     (c) Transformational Program Rollover Credits. With respect to any Eligible Employee who participates in the Transformational Program, on or around March 15, 2009, the Company shall credit the Fair Market Value (as defined in the Transformational Program) of each Eligible Employee’s vested Share Units (as defined in the Transformational Program) to the Participant’s stock rollover account under the Plan. Once the deferral referenced in this paragraph becomes effective, (i) each stock unit deferred pursuant to this paragraph shall be deemed to be invested in this Plan in a phantom share, which shall be the equivalent of one share of the Company’s Common Stock; and (ii) any such stock units shall be subject to the terms and conditions of this Plan (including those terms governing distribution, withdrawal, and deemed investment) and shall not be subject to the terms and conditions of, or payable from, the Transformational Program. Any dividends paid on the Company’s Common Stock shall be deemed to be reinvested in phantom shares of the Company’s Common Stock at the then fair market value of the Company’s Common Stock. A Participant’s vested Prior Plan Stock Rollover Credit shall be subject to his or her distribution election applicable to the year in which the Prior Plan Stock Rollover Credit is made to the Plan.

     (d) Cash LTIP Rollover Credits. With respect to any Eligible Employee who participates in the Cash LTIP, on or around March 15, 2007, the Company shall credit each such Participant’s incentive award under the Cash LTIP to the Participant’s Account under the Plan. Once the deferral referenced in this paragraph becomes effective, (i) any amounts deferred pursuant to this paragraph shall be deemed to be invested in this Plan in accordance with the Participant’s latest effective elections applicable to new contributions; and (ii) any such deferrals shall be subject to the terms and conditions of this Plan (including those terms governing distribution, withdrawal, and deemed investment) and shall not be subject to the terms and conditions of, or payable from, the plan pursuant to which such amounts were originally maintained. Notwithstanding the preceding sentence, a Participant’s Cash LTIP Rollover Account shall be subject to a vesting schedule as follows:

          (i) 25% of the Cash LTIP Rollover Credit shall vest immediately;

          (ii) The next 50% of the Cash LTIP Rollover Credit shall vest on December 31, 2007; and

          (iii) The remaining 25% of the Cash LTIP Rollover Credit shall vest on December 31, 2008.

          A Participant’s Cash LTIP Rollover Credit shall vest fully if the Participant retires, incurs a Disability, dies or in the event of a change of control of the Company (as defined in the Cash LTIP). If the Participant leaves the Company for any other reason, he or she shall forfeit any unvested portion of the Cash LTIP Rollover Account. Any deemed earnings on a Cash LTIP Rollover Credit shall vest in the same proportion as the rest of the Cash LTIP Rollover Credit. A Participant’s vested Cash LTIP Rollover Credit shall be subject to his or her distribution election applicable to the year in which the Cash LTIP Rollover Credit is made to the Plan.

     (e) Performance Plan Rollover Credits. With respect to any Eligible Employee who participates in the Performance Plan, on or around March 15, 2007, the Company shall credit the

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Fair Market Value (as defined in the Performance Plan) of each Eligible Employee’s vested Share Units (as defined in the Performance Plan) to the Participant’s Account under the Plan. Once the deferral referenced in this paragraph becomes effective, (i) any amounts deferred pursuant to this paragraph shall be deemed to be invested in this Plan in accordance with the Participant’s latest effective elections applicable to new contributions; and (ii) any such deferrals shall be subject to the terms and conditions of this Plan (including those terms governing distribution, withdrawal, and deemed investment) and shall not be subject to the terms and conditions of, or payable from, the plan pursuant to which such amounts were originally maintained. Notwithstanding the preceding sentence, a Participant’s Performance Plan Rollover Account shall be subject to a vesting schedule as follows:

          (i) 25% of the Performance Plan Rollover Credit shall vest immediately;

          (ii) The next 50% of the Performance Plan Rollover Credit shall vest on December 31, 2007; and

          (iii) The remaining 25% of the Performance Plan Rollover Credit shall vest on December 31, 2008.

     A Participant’s Performance Plan Rollover Account shall vest fully if the Participant retires, incurs a Disability, dies or in the event of a change of control of the Company (as defined in the Performance Plan). If the Participant leaves the Company for any other reason, he or she shall forfeit any unvested portion of the Performance Plan Rollover Account. Any deemed earnings on a Performance Plan Rollover Credit shall vest in the same proportion as the rest of the Performance Plan Rollover Credit. A Participant’s vested Performance Plan Rollover Credit shall be subject to his or her distribution election applicable to the year in which the Performance Plan Rollover Credit is made to the Plan.

     3.05 Tax Withholding. Except as otherwise provided in Section 3.04, to the extent that the Employer is required to withhold any taxes or other amounts from a Participant’s Compensation subject to a Deferral Election pursuant to any state, federal, or local law, such amounts shall be withheld only from his or her Compensation before any Elective Deferral Credits are credited to his or her Account.

ARTICLE 4
BENEFIT ACCOUNTS

     4.01 Valuation of Account. As of each Valuation Date, a Participant’s Account shall consist of the balance of the Participant’s Account as of the immediately preceding Valuation Date, plus the Participant’s Elective Deferral Credits, Bonus Elective Deferral Credits, Employer Contribution Credits, Non-Qualified Defined Benefit Plan Rollover Credits, Non-Qualified Defined Contribution Plan Rollover Credits, Prior Plan Stock Rollover Credits, Performance Plan Rollover Credits and Cash LTIP Rollover Credits that are credited pursuant to Article III since the immediately preceding Valuation Date, plus or minus deemed investment gain or loss credited as of such Valuation Date pursuant to Section 4.02, minus the aggregate amount of distributions, if any, made from such Account since the immediately preceding Valuation Date.

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     4.02 Crediting of Deemed Investment Return. As of each Valuation Date, each Participant’s Account shall be increased or decreased by the amount of deemed investment gain or loss earned since the immediately preceding Valuation Date. Deemed investment return shall be credited at the Investment Return Rate as of such Valuation Date based upon the average balance of the Participant’s Account since the immediately preceding Valuation Date, but after such Accounts have been adjusted for any contributions or distributions to be credited or deducted for such period or with such other method as the Investment Committee shall deem appropriate. Deemed investment return for the period prior to the first Valuation Date applicable to an Account shall be deemed earned ratably over such period. Until a Participant or his or her Beneficiary receives his or her entire Account, the unpaid balance thereof shall earn a deemed investment return as provided in this Section 4.02.

     4.03 Statement of Accounts. The Committee shall provide to each Participant, within 30 days after the close of each calendar quarter, a statement setting forth the balance of such Participant’s Account as of the last day of the preceding calendar quarter and showing all adjustments made thereto during such calendar quarter.

     4.04 Vesting of Amounts. Except with respect to Cash LTIP Rollover Credits and Performance Plan Rollover Credits, a Participant shall be 100 percent vested in the amounts credited to his or her Account.

     4.05 Deemed Investments.

     (a) New Money and Reallocation Elections. A Participant may direct that the amounts credited to his or her Account under Article III be deemed invested in one or more of the investment options listed in Exhibit A, in increments of whole percentages or whole dollars (a “New Money Election”). In the event that a Participant fails to designate a New Money Election, new deferrals credited to the Participant’s Account shall be deemed to be invested in the Treasury Money Market Fund or such other fund as the Committee shall designate. Unless determined otherwise by the Committee, a Participant may not make more than one New Money Election per calendar quarter. A Participant also may direct that amounts previously credited to his or her Account and deemed invested in one or more of the investment options listed in Exhibit A, be transferred, in increments of whole percentages or whole dollars between and among the then available investment options listed in Exhibit A (a “Reallocation Election”). Unless determined otherwise by the Committee, a Participant may not make more than one Reallocation Election per calendar quarter. A New Money Election or a Reallocation Election must be filed with the Committee in accordance with uniform rules established by the Committee. A Reallocation Election shall not change a Participant’s existing New Money election. The effective date of any New Money Election or Reallocation Election shall be the Valuation Date on which such election is received by the Committee in accordance with uniform rules established by the Committee.

     (b) Insider Trading Restrictions. The Company reserves the right to refuse to honor any Participant direction related to deemed investments, including deemed contributions to, distributions from, and transfers among investment options, and any other circumstances where the Committee deems it necessary or desirable to refuse to honor such a direction in order to ensure or facilitate compliance with applicable law including U.S. or other securities laws, or the

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Company’s insider trading policies and practices. The Company, however, does not assume any responsibility for compliance by officers or others with any such laws, and any failure by the Company to delay or dishonor any such direction shall not be deemed to increase the Company’s legal exposure to the Participant or third parties.

     (e) Prior Plan Stock Rollover Account. Notwithstanding the foregoing, a Participant’s Prior Plan Stock Rollover Account shall always be deemed invested in the Schering-Plough Common Stock Investment Option.

ARTICLE 5
PAYMENT OF BENEFITS

     5.01 Distributions.

     (a) Reasons other than Death, Disability, or Change in Control. At the time at which his or her initial deferral election is made, each Participant may elect to commence receiving distributions of the balance of his or her Account (i) on any April 1, provided that such day is no less than three years from the day on which the election is made; (ii) with respect to a Participant who elects a single sum payment, within 60 days following the termination of his or her employment or, with respect to distributions in any form other than a single sum, the first day of the month that is at least 60 days following the termination of his or her employment; or (iii) the earlier of (i) or (ii); subject to any delays under Section 5.03. Elections made during Open Enrollment or, in the case of a newly eligible Participant, within 30 days of such Participant’s eligibility date, shall be immediately effective. Distributions under this Section 5.01(a) may be made in any form permissible under Section 5.02. Except as otherwise provided in Sections 5.01(b) and (c), in the event that a Participant fails to elect when to commence distribution of his or her Account or such an election is not yet effective, the balance of his or her Account shall be distributed within 60 days after the Participant’s termination of employment, subject to any delays under Section 5.03.

     Notwithstanding the foregoing, effective for deferrals made in the 2006 Plan Year and thereafter, a Participant must make a distribution election (relating to the timing and form of the distribution ) during each Open Enrollment applicable to any deferrals made in such Plan Year only (a “Class Year”). In the event, a Participant does not make a distribution election during an Open Enrollment for a Class Year, the distribution election that applied to the deferrals in the prior Class Year shall apply to the deferrals in the current Class Year, to the extent permitted by law.

     With respect to Participants who participated in the Plan during the 2004 Plan Year and/or 2005 Plan Year, the distribution election that he or she elected during the applicable Open Enrollment shall apply to deferrals made during these Plan Years and shall continue to apply to future Class Years until he or she makes a new distribution election. If a Participant has not participated in the Plan previously and does not make a distribution election, he or she shall be deemed to have elected a lump sum payment within 60 days following the termination of his or her employment.

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     (b) Death. Notwithstanding Section 5.01(a), in the event of a Participant’s death before the distribution of all of his or her Class Years have commenced, his or her Beneficiary shall receive the Value of his or her entire Account balance in cash in a lump sum within 60 days following the date of the Participant’s death. Also notwithstanding Section 5.01(a), in the event of a Participant’s death after he or she has commenced receiving installment payments relating to a Class Year, the Participant’s Beneficiary shall receive a lump sum cash distribution of the remaining Value of the installment payments as soon as administratively practicable following the Participant’s death, provided, however, that if the Participant so elected prior to his or her death, the Participant’s Beneficiary shall continue to receive installment payments relating to such Class Year on the same schedule as the Participant was receiving.

     (c) Disability. Notwithstanding Section 5.01(a), in the event that a Participant incurs a Disability before the distribution of a Class Year has commenced, the Company shall commence paying benefits relating to such Class Year to the Participant as soon as administratively feasible after the Participant becomes disabled, provided, however, that if the Participant so elects at least twelve months prior to the date of his or her Disability, he or she may commence receiving his or her amounts relating to a Class Year as of the later of the first day of the month following his or her 65^th birthday or the first day of the month following the day on which his or her long-term disability payments under the Company’s long-term disability plan cease. Distributions under this Section 5.01(c) may be made in any form permissible under Section 5.02 as elected by the Participant at least twelve months prior to the date of his or her Disability or within 30 days of the Participant becoming eligible to participate in the Plan.

     (d) Change of Control. Each Participant may make a separate election regarding when the distribution of a Class Year(s) shall be paid following a Change of Control in the same manner provided under Section 5.01(a). Any such election shall supersede all other elections if a Change of Control occurs prior to the time when the Participant is in pay status under the Plan. Any such election must be made at least twelve months prior to the Change of Control to be effective (or within 30 days of the Participant becoming eligible to participate in the Plan). If a Participant makes such an election, he or she may change it only by electing a later date on which to receive a distribution. If the new date that the Participant elects turns out to be five or more years after the date on which the distribution of such Class Year(s) otherwise would have commenced as a result of the Change of Control under the Participant’s prior distribution election, the new election shall be valid and the prior election shall be disregarded. If not, the distribution of the Class Year(s) shall begin as soon as administratively feasible following the Change of Control pursuant to the Participant’s old distribution election.

     (e) Changing Distribution Timing Elections. Except as otherwise provided in Section 5.01(d), a Participant may change any of his or her distribution elections at any time; provided, however, any such change shall not become effective until twelve months after the date that such election change is made. Once a Participant selects a specific date for a distribution to begin, he or she may not change the timing of the distribution to an earlier date, and any later date that the Participant selects must be at least five years after the date on which the distribution would otherwise commence under the existing distribution election. If a Participant previously elected to commence the distribution of his or her benefits upon the termination of his or her employment or upon the earlier of his or her termination of employment or a specified date, any new distribution election shall be valid only if the new election is made at least twelve months in

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advance of the date on which the benefits would otherwise commence under the existing distribution election and the date on which benefits will commence under the new election is at least five years after the date on which the benefits would have otherwise commenced under the existing distribution election.

     5.02 Form of Payment. Except as otherwise provided in Section 5.01, the benefits payable pursuant to Section 5.01 shall be paid in cash in one of the following forms, as elected by the Participant in his or her distribution election in connection with each Class Year:

     (a) Installments. Annual payments of a fixed amount that shall amortize the amount relating to the Class Year as of the payment commencement date over a period not to exceed 20 years (together, in the case of each annual payment, with deemed earnings thereon credited after the payment commencement date pursuant to Section 5.01).

     (b) Single Sum Distribution. A single sum payment to the Participant or Beneficiary, as applicable.

     In the event a Participant has never made a distribution election, his or her entire Account balance shall be distributed in a single sum distribution.

     (c) Changing Distribution Form Elections. A Participant may change a previous distribution election from installments to a lump sum provided that the subsequent election is made at least twelve months in advance of the date that the installments would have commenced otherwise and the lump sum is payable no earlier than five years after the installments were to commence otherwise.

     5.03 Commencement of Benefits to 162(m) Covered Employees and 409A Specified Employees. The distribution of a Covered Employee’s benefit applicable to a Class Year shall be made upon the later of (a) the date elected by the Covered Employee for the distribution of his or her Class Year to commence and (b) April 1 following the Covered Employee’s termination of employment. In the event a Class Year is payable on account of the separation of service of a Specified Employee, the Committee shall delay the distribution of the lump sum payment or the commencement of installment payments, as applicable, for a period of six months following the separation from service, during which time earnings shall still accrue in accordance with the applicable deemed investments.

     5.04 Small Benefit. In the event the Committee determines that the Value of a Participant’s Account is $5,000 or less at the time of such Participant’s termination of employment, or the Value of the balance of the Participant’s Account payable to any Beneficiary is $5,000 or less at the time of the Participant’s death, the Committee shall pay the benefit in the form of a lump sum, notwithstanding any provision of the Plan or a Participant’s election to the contrary. Such lump sum payment shall be equal to the Value of the balance of the Participant’s Account or the portion thereof payable to a Beneficiary.

     5.05 Hardship Withdrawal. In the event that the Committee, upon the written request of a Participant or Beneficiary, determines, in its sole discretion, that the Participant or Beneficiary has suffered an unforeseeable financial emergency, the Employer shall pay to the Participant or Beneficiary, as soon as practicable following such determination, an amount

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necessary to meet the emergency (the “Hardship Withdrawal”), but not exceeding the aggregate balance of the Participant’s or Beneficiary’s Account as of the date of such payment. The amount of the Hardship Withdrawal shall be deducted from the earliest Class Year(s). For purposes of this Section 5.05, an “unforeseeable financial emergency” shall mean an event that the Committee determines to give rise to an unexpected need for cash arising from an illness, casualty loss, sudden financial reversal, or other such unforeseeable occurrence as prescribed by Section 409A of the Code and the regulations promulgated thereunder. The amount of a Hardship Withdrawal may not exceed the amount that the Committee reasonably determines to be necessary to meet such emergency needs (including taxes incurred by reason of a taxable distribution). The amount of the benefit otherwise payable under the Plan to such Participant or Beneficiary shall be adjusted to reflect the early payment of the Hardship Withdrawal.

ARTICLE 6
BENEFICIARY DESIGNATION

     6.01 Beneficiary Designation. Each Participant shall have the sole right, at any time, to designate any person(s) or entity as his or her Beneficiary to whom payment under the Plan shall be made in the event of the Participant’s death prior to complete distribution of his or her Account. Any Beneficiary designation shall be made in a written instrument provided by the Committee. All Beneficiary designations must be filed in the manner required by the Committee and shall be effective only when received by the Committee.

     6.02 Change of Beneficiary Designation. Any Beneficiary designation may be changed by a Participant by the filing of a new Beneficiary designation, which shall cancel all Beneficiary designations previously filed. The designation of a Beneficiary may not be made or changed at any time without the consent of the applicable Participant except as required by a court of competent jurisdiction.

     6.03 No Designation. If all designated Beneficiaries predecease the Participant or if no designated Beneficiary is on file for the Participant at the time of the Participant’s death, the Participant’s Account shall be paid to the Participant’s beneficiaries designated under the Savings Plan, or, if no such beneficiaries are alive, the Participant’s estate.

     6.04 Effect of Payment. Payment to a Participant’s Beneficiary (or, upon the death of a primary Beneficiary, to the contingent Beneficiary or, if none, to the Participant’s beneficiary under the Savings Plan or, if none, to the Participant’s estate) shall completely discharge the Employer’s obligations under the Plan.

ARTICLE 7
ADMINISTRATION

     7.01 Committee. The Plan shall be administered by the Committee. The Committee shall have (a) complete discretion to supervise the administration and operation of the Plan, (b) complete discretion to adopt rules and procedures governing the Plan from time to time, and (c) sole authority to interpret the terms of the Plan.

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     7.02 Investments. The Investment Committee shall have the sole discretion to choose the investment options available under the Plan and to change or eliminate such investment options, from time to time, as it deems appropriate.

     7.03 Binding Effect of Decisions. Any decision or action of the Committee with respect to any question arising out of or in connection with the administration, interpretation, or application of the Plan shall be final and binding upon all persons having any interest in the Plan.

     7.04 Indemnification of Committee. The Company shall indemnify and hold harmless the members of the Committee and Investment Committee and their designees against any and all claims, loss, damage, expense, or liability arising from any action or failure to act with respect to the Plan, except in the case of gross negligence or willful misconduct by any such member or designee of the Committee or Investment Committee.

ARTICLE 8
AMENDMENT AND TERMINATION OF PLAN

     8.01 Amendment. The Board of Directors of the Company or its delegate, on behalf of itself and of each Selected Affiliate may at any time amend, suspend, or reinstate any or all of the provisions of the Plan, except that no such amendment, suspension, or reinstatement may adversely affect any Participant’s Account, as it existed as of the day before the effective date of such amendment, suspension, or reinstatement, without such Participant’s prior written consent. Written notice of any amendment or other action with respect to the Plan shall be given to each Participant.

     8.02 Termination. The Board of Directors of the Company or its delegate, on behalf of itself and of each Selected Affiliate, in its sole discretion, may terminate this Plan at any time and for any reason whatsoever. On and after Plan termination, the Committee shall take those actions necessary to administer any Accounts existing prior to the effective date of such termination; provided, however, that a termination of the Plan shall not adversely affect the value of a Participant’s Account, the crediting of investment return under Section 4.02, or the timing or method of distribution of a Participant’s Account, without the Participant’s prior written consent.

ARTICLE 9
MISCELLANEOUS

     9.01 Funding. Participants, their Beneficiaries, and their heirs, successors, and assigns shall have no secured interest or claim in any property or assets of the Employer. The Employer’s obligation under the Plan shall be merely that of an unfunded and unsecured promise of the Employer to pay money in the future. Notwithstanding the foregoing, in the event of a Change in Control, the Company shall create an irrevocable trust, or before such time the Company may create an irrevocable or revocable trust, to hold funds to be used in payment of the obligations of Employers under the Plan. In the event of a Change in Control or prior thereto, the Employers shall fund such trust in an amount equal to not less than the total value of the Participants’ Accounts under the Plan as of the Valuation Date immediately preceding the Change in Control, provided that any funds contained therein shall remain available for the claims of the respective Employer’s general creditors.

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     9.02 Nonassignability. No right or interest under the Plan of a Participant or his or her Beneficiary (or any person claiming through or under any of them) shall be assignable or transferable in any manner or be subject to alienation, anticipation, sale, pledge, encumbrance, or other legal process or in any manner be liable for or subject to the debts or liabilities of any such Participant or Beneficiary. If any Participant or Beneficiary shall attempt to or shall transfer, assign, alienate, anticipate, sell, pledge, or otherwise encumber his or her benefits hereunder or any part thereof, or if by reason of his or her bankruptcy or other event happening at any time such benefits would devolve upon anyone else or would not be enjoyed by him or her, the Committee, in its discretion, may terminate his or her interest in any such benefit to the extent the Committee considers necessary or advisable to prevent or limit the effects of such occurrence. Termination shall be effected by filing a written “termination declaration” with the Company’s highest ranking human resources official and making reasonable efforts to deliver a copy to the Participant or Beneficiary whose interest is adversely affected (the “Terminated Participant”).

          As long as the Terminated Participant is alive, any benefits affected by the termination shall be retained by the Employer and, in the Committee’s sole and absolute judgment, may be paid to or expended for the benefit of the Terminated Participant, his or her spouse, his or her children, or any other person or persons in fact dependent upon him or her in such a manner as the Committee shall deem proper. Upon the death of the Terminated Participant, all benefits withheld from him or her and not paid to others in accordance with the preceding sentence shall be disposed of according to the provisions of the Plan that would apply if he or she died prior to the time that all benefits to which he or she was entitled were paid to him or her.

     9.03 Claims Procedure

     (a) Claim. A person who believes that he or she is being denied a Supplemental Benefit to which he or she is entitled under the Plan (hereinafter referred to as a “Claimant”) may file a written request for such benefit with the Committee, setting forth the claim.

     (b) Claim Decision. Upon receipt of a claim, the Committee shall advise the Claimant that a reply will be forthcoming within 90 days and shall, in fact, deliver such reply within such period. The Committee may, however, extend the reply period for an additional 90 days for reasonable cause.

     (c) Information. If the claim is denied in whole or in part, the Claimant shall be provided an opinion, drafted in a manner calculated to be understood by the Claimant, setting forth:

(i)	The specific reason or reasons for such denial;
(ii)	The specific reference to pertinent provisions of this Plan upon which such denial is based;
(iii)	A description of any additional material or information necessary for the Claimant to perfect his or her claim and an explanation why such material or such information is necessary;

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(iv)	Appropriate information as to the steps to be taken if the Claimant wishes to submit the claim for review;
(v)	The time limits for requesting a review under subsection (d) hereof; and
(vi)	A statement of the Claimant’s right to bring an action under Section 502 of ERISA upon a claim denial on review.

     (d) Request for Review. Within 60 days after the receipt by the Claimant of the opinion described above, the Claimant may request in writing that the Committee review its determination. The Claimant or his or her duly authorized representative may, but need not, review the pertinent documents and submit issues and comment in writing for consideration by the Committee. If the Claimant does not request a review of the initial determination within such 60-day period, the Claimant shall be barred and estopped from challenging the determination.

     (e) Review of Decision. Within 60 days after the Committee’s receipt of a request for review, it shall review the initial determination. After considering all materials presented by the Claimant, the Committee shall render an opinion, drafted in a manner calculated to be understood by the Claimant, setting forth the specific reasons for the decision and containing specific references to the pertinent provisions of this Plan upon which the decision is based and a statement of the Claimant’s right to bring an action under Section 502 of ERISA. If special circumstances require that the 60-day time period be extended, the Committee shall so notify the Claimant and shall render the decision as soon as possible, but no later than 120 days after receipt of the request for review.

     9.04 Governing Law. The Plan is intended to constitute an unfunded plan providing retirement or deferred compensation benefits for officers and highly compensated employees exempt from the requirements of parts 2, 3, and 4 of ERISA. Except to the extent otherwise provided in ERISA and the Code, this Plan shall be construed, regulated, and administered under the laws of the State of New Jersey.

     9.05 Successors. The provisions of the Plan shall bind and inure to the benefit of the Company, its Selected Affiliates, and their respective successors and assigns. The term successors as used herein shall include any corporate or other business entity that, whether by merger, consolidation, purchase, or otherwise, acquires all or substantially all of the business and assets of the Company or a Selected Affiliate and successors of any such Company or other business entity.

     9.06 Right to Continued Service. Nothing contained herein shall be construed to confer upon any Eligible Employee the right to continue to serve as an Eligible Employee of the Employer or in any other capacity.

     9.07 Illegal or Invalid Provision. In case any provision of the Plan shall be held illegal or invalid for any reason, such illegal or invalid provision shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced without regard to such illegal or invalid provision.

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EXHIBIT A

     The following are the investment options that are used in determining the Investment Return Rate under the Plan.

Account Name (Fund Code)

     Vanguard 500 Index Fund Investor Shares (000040)

     Vanguard Treasury Money Market Fund (000050) — Default Investment Election

     Vanguard Life Strategy Growth Fund (000122)

     Vanguard Wellington Fund Investor Shares (000021)

     Vanguard Windsor Fund Investor Shares (000022)

     Vanguard Explorer Fund Investor Shares (000024)

     Vanguard ST Investment Grade Fund Investor Shares (000039)

     Vanguard Life Strategy Income Fund (00007L)

     Vanguard Life Strategy Conservative Growth Fund (00007M)

     Vanguard Life Strategy Moderate Growth Fund (000914)

     Vanguard IT Investment Grade Fund Investor Shares (000071)

     Vanguard US Growth Fund Investor Shares (000023)

     Vanguard International Growth Fund Investor Shares (000081)

     Schering-Plough Company Stock Investment Option (000117)

A-1

EX-10.H.III

Exhibit 10(h)(iii)

DIRECTORS COMPENSATION PLAN
(Effective June 1, 2006)

I. ESTABLISHMENT AND PURPOSE

1.1 Purpose. The purposes of the Schering-Plough Corporation Directors Compensation Plan (the “Plan”) are (a) to attract, retain and fairly compensate highly qualified and talented individuals to serve as non-employee directors, whose present and future contributions to the welfare, growth and continued business success of the Schering-Plough Corporation will be of benefit to the Schering-Plough, (b) to more closely align the interests of the Schering-Plough’s non-employee directors with the interests of the Schering-Plough’s shareholders by increasing non-employee directors’ stock ownership in the Schering-Plough and (c) to consolidate prior Directors compensation plans and programs into one comprehensive and transparent compensation plan.

1.2 Effective Date. The Plan is effective on June 1, 2006 (the “Effective Date”).

II. DEFINITIONS

Capitalized terms used in the Plan have the following meanings, unless another definition is indicated clearly by particular usage and context.

“Additional Service Fee” means annual fees, in addition to the Base Director Fee, payable to an Eligible Director for services as a member of the Audit Committee or as chairman of any Board Committee, other than the Executive Committee of the Board.

“Annual Meeting” means the Annual Meeting of Shareholders of Schering-Plough, as specified in the Schering-Plough’s By-Laws.

“Base Director Fee” means the annual fee payable to an Eligible Director for services as a general member of the Board.

“Board Committee” means any of the committees of the Board in place from time to time, which, as of the Effective Date, are (a) the Audit Committee, (b) the Business Practices Oversight Committee, (c) the Compensation Committee, (d) the Executive Committee, (e) the Finance Committee, (f) the Nominating and Corporate Governance Committee and (g) the Science and Technology Committee.

“Cash Deferral” means a deferral in accordance with Section 4.3(b) of the cash portion of the Director Fees payable to an Eligible Director.

“Cash Deferral Sub-Account” means the sub-account under a Deferral Account that tracks Cash Deferrals.

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“Change in Control” means the happening of any of the following events:

(a) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of securities of Schering-Plough where such acquisition causes such Person to own more than 50% of either (x) the then outstanding Shares of Schering-Plough (the “Outstanding Shares”) or (y) the combined voting power of the then outstanding voting securities of Schering-Plough entitled to vote generally in the election of directors (the “Outstanding Voting Securities”); provided, however, that for purposes of this subsection (a) the following acquisitions will not constitute a Change of Control: (i) any acquisition directly from Schering-Plough, (ii) any acquisition by Schering-Plough, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by Schering-Plough or any corporation controlled by Schering-Plough or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) below; and provided, further, that if any Person’s beneficial ownership of the Outstanding Shares or Outstanding Voting Securities reaches or exceeds 50% as a result of a prior transaction, and such Person subsequently acquires beneficial ownership of additional Shares or additional voting securities of Schering-Plough, such subsequent acquisition will not be treated as an acquisition that causes such Person to own more than 50% of the Outstanding Shares or Outstanding Voting Securities;

(b) during any 12-month period, individuals who, as of the first day of such period, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the beginning of such 12-month period whose election, or nomination for election by Schering-Plough’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board will be considered as though such individual were a member of the Incumbent Board;

(c) consummation of a reorganization, merger, statutory share exchange or consolidation or similar corporate transaction involving Schering-Plough, or the acquisition of assets or stock of another entity by Schering-Plough (each a “Business Combination”), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were beneficial owners, respectively, of the Outstanding Shares or Outstanding Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectfully, the then outstanding shares of the common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns Schering-Plough or substantially all of Schering-Plough’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Shares and Outstanding Voting Securities, as the

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case may be, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of Schering-Plough or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, more than 50% of, respectfully, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation, except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board on the later of (A) the time of the execution of the initial agreement, (B) the action of the Board providing for such Business Combination or (C) the beginning of the 12-month period ending on the effective date of the Business Combination;

(d) any one Person acquires (or has acquired during any 12-month period ending on the date of the most recent acquisition by such Person) assets of Schering-Plough having a fair market value equal to or more than 40% of the total gross fair market value of all of the assets of Schering-Plough immediately prior to such sale, other than an acquisition by (i) a Person who was a shareholder of Schering-Plough immediately before the asset acquisition in exchange for or with respect to such Person’s Shares, (ii) an entity whose total or voting power immediately after the transfer is at least 50% owned, directly or indirectly, by Schering-Plough, (iii) a person or group that, immediately after the transfer, directly or indirectly owns at least 50% of the total value or voting power of the outstanding stock of Schering-Plough or (iv) an entity whose total value or voting power immediately after the transfer is at least 50% owned, directly or indirectly, by a person described in clause (iii) above; or

(e) the complete liquidation of Schering-Plough.

The definition of Change in Control for purposes of the Plan is intended to conform to the description of “Change in Control Events” in Treas. Prop. Reg. 1.409A-3(g)(5), or in subsequent IRS guidance describing what constitutes a change in control event for purposes of Code section 409A. Accordingly, no Change in Control will be deemed to occur with respect to a transaction or event described in paragraphs (a) through (e) above unless the transaction or event would constitute a “Change in Control Event” as described in Treas. Prop. Reg. 1.409A-3(g)(5), or in subsequent IRS guidance under Code section 409A.

“Change in Control Price” means the higher of (a) the highest reported sales price of a Share in any transaction reported on the New York Stock Exchange Composite Tape or other national exchange on which Shares may then be listed during the 60-day period prior to and including the effective date of a Change in Control or (b) if the Change in Control is the result of a tender or exchange offer or a business combination, the highest price per Share paid in such tender or exchange offer or business combination. To the extent that the consideration paid in any transaction described in clause (b) above consists all or in part of securities or other non-cash consideration, the value of such securities or other non-cash consideration will be determined in the sole discretion of the Committee.

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“Code” means the Internal Revenue Code of 1986, as amended.

“Committee” means the Nominating and Corporate Governance Committee.

“Deferral Account” means the bookkeeping account maintained by Schering-Plough to track Fee Deferrals in accordance with Section 4.4.

“Deferred Stock Unit” means an unfunded contractual right of a Participant to receive one Share or one Prior Plan Share in the future.

“Director Fees” means the Base Director Fee plus the Additional Service Fee, if any, payable to an Eligible Director.

“Disabled” means an inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months.

“DSU Fund” means the bookkeeping fund under a Share Deferral Sub-Account or Prior Plan Account in which Deferred Stock Units payable in Shares or Prior Plan Shares are allocated in accordance with Sections 4.4(b) and 5.1(c).

“Eligible Director” means any Board member who is not an employee of Schering-Plough or a subsidiary of Schering-Plough.

“Fair Market Value” means the closing sales price of a Share, as reported on the New York Stock Exchange Composite Tape or other national exchange on which Shares are listed, on the last trading day before the date the determination is being made or, if no sale of Shares is reported on that date, on the last trading day on which sales of Shares were reported.

“Fee Deferrals” means the sum of a Participant’s Cash Deferrals and Share Deferrals.

“Method of Payment” means any of the payment methods permitted under Section 4.5(c) for amounts credited to a Participant’s Deferral Account and/or Prior Plan Account.

“Participant” means an Eligible Director or a former director whose Deferral Account or Prior Plan Account has an unpaid balance.

“Payment Commencement Date” means the date payment of amounts credited to a Participant’s Deferral Account and/or Prior Plan Account are scheduled to begin under Section 4.5 or 5.3.

“Phantom Stock Unit” means an unfunded contractual right of a Participant to receive cash in the future equal to the Fair Market Value of one Share on the payment date.

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“Prior Plan Account” means the bookkeeping account maintained by Schering-Plough to track Schering-Plough’s outstanding deferred compensation obligations under the Prior Plans that were transferred to and assumed by this Plan under Section 5.1.

“Prior Plans” means the Schering-Plough Directors Stock Award Plan, the Schering-Plough Directors Deferred Stock Equivalency Program, the Schering-Plough Directors Deferred Compensation Plan, and the prior cash compensation program, each of which are hereby terminated as of the Effective Date.

“Prior Plan Shares” means Shares that have been reserved for issuance under a Prior Plan but have not been issued under the Prior Plan as of the Effective Date.

“Share Deferral” means a deferral in accordance with Section 4.3(a) of the Share portion of the Director Fees payable to an Eligible Director.

“Share Deferral Sub-Account” means the sub-account under a Deferral Account that tracks Share Deferrals.

“Shares” means shares of Common Stock, $.50 par value per share, of Schering-Plough.

“Simple Interest Fund” means the bookkeeping fund under a Cash Deferral Sub-Account or Prior Plan Account in which account balances are adjusted by reference to a pre-determined bank interest rate.

“Stock Equivalency Fund” means the fund under a Prior Plan Account in which Phantom Stock Units payable in cash are allocated in accordance with Section 5.1(b).

“Unforeseeable Emergency” means a severe financial hardship to a Participant resulting from (a) an illness or accident of the Participant, the Participant’s spouse or a dependent (as defined in Code section 152(a)) of the Participant, (b) loss of the Participant’s property due to casualty or (c) other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant, all as determined by the Committee in its sole discretion.

III. DIRECTOR FEES

The Plan is the exclusive means for the payment of Director Fees to Eligible Directors. All Director Fees payable under the Plan are in consideration of services rendered for Schering-Plough as a member of the Board and are subject to the following terms and conditions.

3.1 Amount of Director Fees; Form of Payment. The Base Director Fee will be payable one-third in Shares and two-thirds in cash. The Additional Service Fee will be payable entirely in cash. The Board, upon the recommendation of the Committee, will set from time to time the amount of annual Director Fees; provided, however, that:

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(a) the annual Base Director Fee is initially set at $200,000.00; and

(b) the annual Additional Service Fee is initially set at $15,000.00 for service on the Audit Committee or as chairman of any Board Committee; provided, however, that the chairman of any Board Committee who is also a member of the Audit Committee (including the Audit Committee Chairman) is entitled to receive only the Additional Service Fee for serving as chairman of the Board Committee, and not an Additional Service Fee for also serving as a member of the Audit Committee. No Additional Service Fee will be paid in connection with service as a member of the Executive Committee of the Board.

The amount of Director Fees and form of payment will be reviewed annually and disclosed in Schering-Plough’s annual proxy statement. The number of Shares that will be issued to an Eligible Director in payment of the Share portion of the Base Director Fee is the whole number of Shares determined by dividing the dollar amount of the Share portion of the Base Director Fee payable on a given date by the Fair Market Value of a Share on that date.

3.2 Timing of Payments. Unless an Eligible Director elects a Fee Deferral, annual Director Fees will be paid in advance to each Eligible Director in substantially equal semi-annual payments on the first day of June and December, beginning June 2006, unless such first day is not a business day, in which case it will be paid on the most recent prior business day. Notwithstanding the foregoing, (a) the first semi-annual payment of the Base Director Fee to a newly-elected Eligible Director will be paid (without proration) on the date that the Eligible Director first becomes a member of the Board and (c) the first semi-annual payment of an Additional Service Fee to a newly appointed Audit Committee member and/or Board Committee chairman will be paid (without proration) on the date the Eligible Director is first appointed in that capacity.

IV. FEE DEFERRALS

4.1 Deferral Elections. An Eligible Director may elect to defer receipt of all or a portion of the Director Fees payable under the Plan. Each deferral election by an Eligible Director is irrevocable for the year(s) covered by the election and will automatically renew and remain in full force and effect for all subsequent years unless and until the Eligible Director submits a change in deferral election, as provided in Section 4.2(b), covering such subsequent years. All elections under the Plan must be made on a form and in the manner prescribed by the Committee.

4.2 Election Due Dates

(a) Initial Deferral Elections. The deferral election of an Eligible Director who wishes to make a Fee Deferral effective for the June 2006 payment must be received by the Committee prior to the Effective Date. The deferral election of an individual who is first nominated as a director after the Effective Date and who wishes to make a Fee Deferral effective for the first semi-annual Director Fee payment to which he is

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entitled under Section 3.2 must be received by the Committee prior to the date he or she becomes an Eligible Director. Alternatively, the initial deferral election of a newly-elected Eligible Director may be received by the Committee up to thirty days after he or she first becomes an Eligible Director, but such election will apply only to Director Fee payments made after the date of the deferral election.

(b) Change in Deferral Elections. An Eligible Director who either (i) did not make an initial deferral election under paragraph (a) above or (ii) who has made a prior deferral election that is still effective, but wishes to change that election for future years, must submit a new deferral election form that is received by the Committee no later than December 31 of the calendar year prior to the year in which the deferral election takes effect.

4.3 Deferral Designations. An Eligible Director may elect to make either a Cash Deferral, a Share Deferral or both.

(a) Share Deferrals. Subject to Section 7.4, an Eligible Director may designate the amount of a Share Deferral as (i) a fixed dollar amount on each payment date, not to exceed the dollar amount of the Base Director Fee otherwise payable in Shares on that payment date, (ii) as a percentage, up to 100%, of the amount of the Base Director Fee otherwise payable in Shares or (iii) in a fixed number of Shares on each payment date, not to exceed the number of Shares otherwise payable to the Eligible Director on that payment date.

(b) Cash Deferrals. An Eligible Director may designate the amount of a Cash Deferral either as (i) a fixed dollar amount on each payment date, not to exceed the amount of Director Fees otherwise payable in cash on that payment date or (ii) a percentage, up to 100%, of the amount of the Director Fees otherwise payable in cash.

4.4 Deferral Accounts. Schering-Plough will establish and maintain a Deferral Account in the name of each Eligible Director whose payment of Director Fees has been deferred. Fee Deferrals will be credited to Deferral Accounts as of the date the Director Fees would otherwise have been paid under Section 3.2. Each Deferral Account will be comprised of two sub-accounts:

(a) Share Deferral Sub-Account. Amounts are credited to the Share Deferral Sub-Account as Deferred Stock Units. If, under Section 4.3(a), the Eligible Director designates his Share Deferral as a fixed number of Shares, the number of Deferred Stock Units credited to his or her Share Deferral Sub-Account on each date Director Fees are otherwise paid will be equal to the number of Shares designated for deferral or, if less, the number of Shares that are otherwise payable. Otherwise, the number of Deferred Stock Units credited (including fraction units) will be determined by dividing the dollar amount being deferred by the Fair Market Value of a Share on the payment date. Each Share Deferral Sub-Account is adjusted annually as of December 31, and on any date on which a distribution from the sub-account is made, to reflect dividends paid during the year on Shares, based on the

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assumption that an equivalent dividend or distribution is paid on Deferred Stock Units and such dividend is reinvested in additional Deferred Stock Units (including fractional units) at Fair Market Value on the dividend payment date.

(b) Cash Deferral Sub-Account. Each Cash Deferral Sub-Account is comprised of two funds:

(i) Simple Interest Fund. Amounts allocated to the Simple Interest Fund are credited as cash and are adjusted annually as of the December 31, and on any date on which a distribution from the sub-account is made, to reflect hypothetical interest earnings based on the interest rate offered by JPMorgan Chase Bank, New York, New York, to its preferred risk commercial borrowers, as published by said bank from time to time.

(ii) DSU Fund. Amounts allocated to the DSU Fund are credited as Deferred Stock Units in the same manner that Deferred Stock Units are credited and adjusted under the Share Deferral Sub-Account.

(iii) Allocation of Cash Deferrals Among Funds. Cash Deferrals will be allocated to the Simple Interest Fund and DSU Fund in such proportion as the Eligible Director elects when he or she makes a Fee Deferral. If no allocation election is made on the deferral election form, 100% of the Eligible Director’s Cash Deferrals will be allocated to the Simple Interest Fund. An Eligible Director may change his Cash Deferral allocations prospectively with respect to prior and/or future Cash Deferrals by submitting a new election no later than December 31 of the year prior to the year in which the change will take effect. Any such change in allocation will take effect on the next January 1 following the date the election is made.

4.5 Distribution of Fee Deferrals. When an Eligible Director makes a Fee Deferral election, he or she may elect the Payment Commencement Date and method of payment that will apply to the amounts credited to his Deferral Account.

(a) Payment Commencement Date. Payment of Fee Deferrals to an Eligible Director may commence no later than the fifth business day following any of the Payment Commencement Dates below, as elected by the Eligible Director:

(i)	upon termination of Board membership for any reason;
(ii)	on a specified anniversary of his termination of Board membership, up to the 15th anniversary;
(iii)	upon attaining a specified age;
(iv)	on any other specified date, which must be an actual date and not a date tied to a contingent event;

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(v)	upon the earlier of termination of Board membership or attainment of a specified age or date;
(vi)	upon the later of termination of Board membership or attainment of a specified age or date; or
(vii)	upon the earlier of becoming Disabled or any of the other permissible Payment Commencement Dates under the Plan.

If an Eligible Director does not timely elect a Payment Commencement Date, then, except as provided in Section 7.4(b), the Payment Commencement Date will be the date the Eligible Director terminates service with the Board for any reason.

(b) Form of Payment. Amounts credited to the Simple Interest Fund will be paid in cash only and, except as provided in Section 6.1(b) in the event of a Change in Control, amounts credited as Deferred Stock Units will be paid in whole Shares.

(c) Method of Payment. All amounts credited to the Eligible Director’s Deferral Account will be distributed to the Eligible Director in a single lump sum; except that an Eligible Director may elect when he or she makes a Fee Deferral election to receive payment of the amounts credited to his or her Deferral Account in either 5, 10 or 15 substantially equal annual installments. If an Eligible Director elects to receive his or her distribution in installments, the number of Shares issued in connection with Deferred Stock Units on each installment date will be determined by multiplying (x) the number of Deferred Stock Units remaining in the Deferral Account on the date the installment is paid by (y) a fraction, the numerator of which is one (1) and the denominator of which is the number of remaining unpaid installments, and by rounding such result to the nearest whole number of Shares. The Eligible Director’s Deferral Account will be reduced to reflect each installment payment.

(d) Changes to Distributions Elections.

(i) Future Deferrals. An Eligible Director may, with respect to future Fee Deferrals, elect to have a different Payment Commencement Date and/or Method of Payment from that in effect with respect to prior Fee Deferrals by submitting a new deferral election form no later than December 31 of the year prior to the year in which the election takes effect. Any election will apply only to amounts in the Eligible Director’s Deferral Account that are attributable to Fee Deferrals credited after the date of the new election.

(ii) Previously Deferred Amounts. An Eligible Director or former Eligible Director may elect to change his Payment Commencement Date and/or Method of Payment with respect to prior Fee Deferrals only if the following requirements are met:

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A.	The election to change the Payment Commencement Date and/or Method of Payment must be received by the Committee no later than 12 months prior to the current Payment Commencement Date;
B.	The change in election will not be effective until 12 months after the date the change in election is received by the Committee; and
C.	The new Payment Commencement Date is no earlier than the fifth anniversary after the current Payment Commencement Date.

V. PRIOR PLAN ACCOUNTS

5.1 Establishment of Prior Plan Accounts; Transfer of Balances From Prior Plans. Schering-Plough will establish and maintain a Prior Plan Account in the name of each Participant who, as of the day prior to the Effective Date, had an outstanding account balance under a Prior Plan. Each Participant’s outstanding account balances under all Prior Plans will be transferred and credited to the Participant’s Prior Plan Account as of the Effective Date and, as a result of such transfer and crediting, all of Schering-Plough’s obligations and Participant’s rights under each Prior Plan will be extinguished and become obligations and rights under this Plan. Each Prior Plan Account is comprised of three funds:

(a) Simple Interest Fund. The Simple Interest Fund of each Participant will be credited on the Effective Date with amounts transferred on his or her behalf from his or her simple interest fund under the prior Directors Deferred Compensation Plan. Amounts credited to the Simple Interest Fund are credited as cash and are adjusted annually in the same manner as the Simple Interest Fund under a Cash Deferral Sub-Account, as provided in Section 4.4(b)(i).

(b) Stock Equivalency Fund. The Stock Equivalency Fund of each Participant will be credited on the Effective Date with amounts transferred on his or her behalf from his or her deferred account under the prior Directors Deferred Stock Equivalency Program and from his or her Schering-Plough Stock Equivalency Fund under the prior Directors Deferred Compensation Plan. Amounts credited to the Stock Equivalency Fund are credited as Phantom Stock Units and are adjusted annually in the same manner as the Share Deferral Sub-Account, as provided in Section 4.4(a).

(c) DSU Fund. The DSU Fund of each Participant will be credited on the Effective Date with amounts transferred on his or her behalf from his or her stock unit account under the prior Directors Stock Award Plan. Amounts credited to the DSU Fund are credited as Deferred Stock Units that are payable in Prior Plan Shares and are adjusted annually in the same manner as the Share Deferral Sub-Account, as provided in Section 4.4(a).

(d) Reallocation of Amounts Credited to Simple Interest Fund and Stock Equivalency Fund. A Participant may elect to reallocate among his or her Simple Interest Fund

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and Stock Equivalency Fund all or a portion of amounts currently allocated to those funds, but no reallocations into or out of the Participant’s DSU Fund is permitted. Reallocation elections may be made no more than once each year and must be received by the Committee no later than December 31 of the year prior to the year in which the reallocation takes effect. Any such reallocation will take effect on the next January 1 after the election is made.

5.2 Application of Plan to Plan Prior Accounts. Notwithstanding any provision of a Prior Plan to the contrary, or any elections made by a Participant under a Prior Plan, the provisions of this Plan, including without limitation the provisions of Article VI, will govern and control the payment of all amounts credited to a Prior Plan Account, and a Participant’s rights with respect to any amounts transferred from an account under a Prior Plan to this Plan in accordance with Section 5.1 will be determined exclusively under this Plan.

5.3 Distribution of Prior Plan Accounts. Each Participant may elect the Payment Commencement Date and Method of Payment that will apply to the amounts credited to his or her Prior Plan Account under the same terms and conditions applicable to distribution elections for amounts credited to Deferral Accounts, as provided in Section 4.5. This election must be received by the Committee no later than the December 31, 2006. If a Participant does not timely submit a distribution election for amounts credited to his Prior Plan Account, then the amounts will be distributed in accordance with the Participant’s distribution elections in effect under the Prior Plans as of the Effective Date or, if no such election is in effective with respect to amounts transferred from one or more of the Prior Plans, in a single lump sum no later than the fifth business day following the date that the Participant terminates service with the Board for any reason.

VI. PERMITTED ACCELERATIONS

6.1 Accelerated Payment of Plan Accounts. Except as provided in this Article VI, in no event may the payment of amounts credited to a Participant’s Deferral Account or Prior Plan Account be made prior to the Payment Commencement Dates determined under Articles IV or V. Accelerated payment of amounts credited to a Participant’s Deferral Account or Prior Plan Account will be permitted only in the following circumstances:

(a) Death. Upon the Participant’s death, any amounts remaining in the deceased Participant’s Deferral Account and Prior Plan Account will be paid in a single lump sum to the beneficiary or beneficiaries designated by the Participant on his most current deferral election form (or, absent such designation, to the Participant’s estate) as soon as practicable after the Committee receives satisfactory verification of the Participant’s death.

(b) Change in Control. Within 30 days after a Change in Control, all amounts remaining in a Participant’s Deferral Account and Prior Plan Account as of the date of the Change of Control will be paid to the Participant in an immediate lump sum

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cash payment. For this purpose, the dollar value of Deferred Stock Units and Phantom Stock Units will be determined based on the Change in Control Price.

(c) Unforeseeable Emergencies. If a Participant experiences an Unforeseeable Emergency, the Participant may request a hardship withdrawal of all or a portion of the amounts credited to the Participant’s Deferral Account and/or Prior Plan Account. In such event, the Participant will provide the Committee with such evidence as the Committee deems necessary and appropriate to review and confirm the existence of the Unforeseeable Emergency. Upon completion of its review, the Committee will determine, in its sole discretion, whether the requested hardship withdrawal will be approved and the amount that may be distributed to the Participant in connection with the Unforeseeable Emergency. The amount distributed in connection with an Unforeseeable Emergency may not exceed the lesser of (i) the amount necessary to satisfy the Unforeseen Emergency, plus amounts necessary to pay taxes reasonably anticipated as a result of the distribution and (ii) the dollar value of amounts that remain credited to Participant’s Deferral Account and Prior Plan Account. In making its determination, the Committee will be guided by the prevailing authorities under the Code and will take into account the extent to which the Unforeseeable Emergency is or may be relieved through reimbursement or compensation by insurance or otherwise, or by liquidation of the Participant’s assets (to the extent the liquidation of such assets would not itself cause severe financial hardship). If the hardship withdrawal does not result in a complete distribution of the amounts credited to the Participant’s Deferral Account and Prior Plan Account, amounts that are payable in cash will be distributed first. Hardship withdrawals on account of an Unforeseeable Emergency will be distributed as soon as practicable after the date that the Committee, in its discretion, approves the withdrawal. An Eligible Director may not participate in any decision of the Board regarding his or her request for a hardship withdrawal under this Section 6.1(c).

VII. SHARES SUBJECT TO THE PLAN; ADJUSTMENTS

7.1 Shares Available. The Shares issuable under the Plan are authorized but unissued Shares or Shares held in Schering-Plough’s treasury. The total number of Shares that may be issued under the Plan may not exceed 1,000,000 Shares, as adjusted in accordance with Section 7.2. In addition, any Prior Plan Shares underlying Deferred Stock Units credited to the DSU Fund under a Prior Plan Account on the Effective Date and that have not been issued under a Prior Plan are available for issuance under this Plan, but such Prior Plan Shares may be issued only in connection with Deferred Stock Units credited to the DSU Fund under a Prior Plan Account.

7.2 Adjustments. If there is a change in the outstanding Shares by reason of any stock split, reverse stock split, dividend or other distribution (whether in the form of cash, Shares, other securities or other property), extraordinary cash dividend, recapitalization, split-up, spin-off, reorganization, combination, repurchase or exchange of Shares or other securities, the issuance of warrants or other rights to purchase Shares or other securities,

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or other similar corporate transaction or event, then in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, an adjustment in the number or kind of Shares that may be issued under the Plan, in the number of Deferred Stock Units credited to a Deferral Account or Prior Plan Account, in the number of Phantom Stock Units credited to a Prior Plan Account, or in the kind of Shares underlying Deferred Stock Units and Phantom Stock Units will be made by the Committee and such adjustment will be conclusive and binding for all purposes under the Plan.

7.3 Fractional Shares. No fractional Shares will be issued under the Plan. If a Participant is owed a fractional Share under the Plan, he or she will receive instead cash equal to the Fair Market Value of the fractional Share on the date of settlement.

7.4 Shareholder Approval Requirement For Shares. Notwithstanding anything in the Plan to the contrary, unless and until the Plan is approved by a vote of the holders of at least a majority of the Shares present in person or by proxy and entitled to vote at Schering-Plough’ 2006 Annual Meeting, no Shares may be issued under the Plan, except that Prior Plan Shares may be issued under Article V in payment of Deferred Stock Units credited to the DSU Fund under a Prior Plan Account.

(a) Consequences of Non-Approval. If the Plan is not approved by shareholders at the 2006 Annual Meeting, then:

(i) All Director Fees payable after the 2006 Annual Meeting will be paid exclusively in cash;

(ii) All Share Deferrals elections under the Plan shall immediately convert to Cash Deferrals elections and no Share Deferral Sub-Accounts will be opened;

(iii) The DSU Fund under the Cash Deferral Sub-Account will be replaced by a Stock Equivalency Fund that holds Phantom Stock Units; and

(iv) The DSU Fund under each Prior Plan Account will remain open and continue to hold Deferred Share Units payable in Prior Plan Shares.

VIII. AMENDMENT AND TERMINATION

8.1 Amendment. The Board may amend the Plan at any time without the approval of Schering-Plough’s shareholders, except that none of the following amendments will be effective unless and until it is approved by the holders of at least a majority of the Shares present in person or by proxy and entitled to vote at a meeting of Schering-Plough’s shareholders: (a) an increase to the aggregate number of Shares that may be issued under the Plan, (b) a material modification to the eligibility requirements for participation in the Plan, (c) a provision allowing the payment of Director Fees to be made in a form of equity other than Shares or (d) a change to the percentage of Base Director Fees that is payable in Shares. Notwithstanding the foregoing, this Plan is intended to incorporate all

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applicable restrictions of Section 409A of the Code and guidance issued by the Department of the Treasury thereunder, and this Plan will be deemed to be amended as necessary to comply with those requirements.

8.2 Termination. The Plan will terminate on May 31, 2016 or, if earlier, upon the adoption of a resolution of the Board terminating the Plan. No Director Fees will be paid and no Fee Deferrals will be credited to any Deferral Accounts under this Plan after it has been terminated. Any existing Fee Deferrals will remain in effect and will continue to be governed by the terms of the Plan after the Plan is terminated.

IX. GENERAL PROVISIONS

9.1 Nontransferability of Rights. A Participant’s, or his or her beneficiary’s, right to receive payments under the Plan may not, in any manner, be any manner alienated, anticipated, sold, assigned, pledged, encumbered or transferred, other than by will or by the laws of descent or distribution, by the Participant, and no other persons may otherwise acquire any rights to those payments; except that all or a portion of a Participant’s Director Fees, or Deferral Account and Prior Plan Account balances may be paid to the Participant’s spouse pursuant to a qualified domestic relations order, as defined in Section 414(p) of the Code.

9.2 No Implied Rights. Neither the establishment and subsequent operation of the Plan, nor the payment of Director Fees, nor the crediting of Fee Deferrals to a Deferral Account, nor any other action taken pursuant to the Plan, constitutes or is evidence of any agreement or understanding, express or implied, that an individual has a right to continue as an Eligible Director for any period of time or at any particular rate of compensation.

9.3 No Rights as Stockholders. No person has any rights as a shareholder of Schering-Plough with respect to any Shares or Prior Plan Shares payable under the Plan unless and until such time as certificates for the Shares are registered in the person’s name.

9.4 Nature of Deferral Accounts and Prior Plan Accounts. Deferral Accounts and Prior Plan Accounts (and all sub-accounts and funds under those accounts) established and maintained under the Plan, and all credits and adjustments to those accounts, sub-accounts and funds, are bookkeeping entries only and reflect a mere unfunded and unsecured promise by Schering-Plough to issue Shares or make cash payments in the future. No Shares or other assets or funds of Schering-Plough will be removed from the claims of Schering-Plough’s general or judgment creditors or otherwise be made available until Shares are actually issued or cash is actually paid to Participants or their beneficiaries as provided in the Plan. The Participants and their beneficiaries have the status of general unsecured creditors of Schering-Plough. The Corporation may, however, in its discretion and subject to the requirements of Section 409A of the Code, set aside funds in a trust or other vehicle, which funds will remain subject to the claims of its creditors, in order to assist it in meeting its obligations under the Plan, if such

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arrangement will not cause the Plan to be considered a funded deferred compensation plan under the Code.

9.5 Compliance with Applicable Law. The obligations of Schering-Plough to issue Shares and permit Fee Deferrals under the Plan are subject to (a) the effectiveness of a registration statement under the Securities Act of 1933, as amended, with respect to the Shares and Fee Deferrals, (b) the condition that the Shares be listed (or authorized for listing upon official notice of issuance) upon each stock exchange upon which Shares are listed, (c) compliance with Section 409A of the Code and (d) all other applicable laws, regulations, rules and orders then in effect. The issuance of Shares and Deferred Stock Units under the Plan is intended to satisfy the requirements of Rule 16b-3 under the Securities Exchange Act of 1934. If any provision or this Plan would otherwise frustrate or conflict with such intent, that provision will be interpreted and deemed amended so as to avoid such conflict.

9.6 Headings. Section and paragraph headings are for reference only. In the event of a conflict between the heading and content of a section or paragraph, the content will control.

9.7 Governing Law; Severability. The Plan and all determinations made and actions taken under the Plan are governed by the internal substantive laws, and not the choice of law rules, of the State of New Jersey and will be construed accordingly, to the extent not superseded by applicable federal law. If any provision of the Plan is held unlawful or otherwise invalid or unenforceable in whole or in part, the unlawfulness, invalidity or unenforceability will not affect any other provision of the Plan or part thereof, each of which will remain in full force and effect.

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EX-10.M.II

Exhibit 10(m)(ii)

SCHERING-PLOUGH CORPORATION
OPERATIONS MANAGEMENT TEAM INCENTIVE PLAN
(As Amended and Restated Effective June 26, 2006)

1. Plan Objective

The Schering-Plough Corporation Operations Management Team Incentive Plan, as amended from time to time (alternatively referred to as the “OMTIP” or the “Plan”), is designed to encourage results-oriented actions on the part of members of the Operations Management Team (“OMT”) of Schering-Plough Corporation (the “Company”). The Plan is intended to align closely financial rewards with the achievement of specific performance objectives.

2. Eligibility

All management employees of the Company and its subsidiaries who are members of the OMT are eligible to participate in the Plan. The Administrator (as defined in Section 3 below) may select any other management employees who shall participate in the Plan (the “Participants”).

3. Administration

     (a) The Plan shall be administered by the Compensation Committee of the Board of Directors (the “Committee”) with respect to employees who are executives of the Company who are subject to the reporting requirements of Section 16 of the Securities Exchange Act of 1934 (“Section 16 Executives”), and the Plan shall be administered by the Chief Executive Officer of the Company (“CEO”) with respect to all other employees. The CEO may delegate his authority to administer the Plan to an individual or other committee. The term “Administrator” shall mean the Committee, as applied to Section 16 Executives, and the CEO or an individual or committee to which authority has been delegated, as applied to all other employees.

     (b) The Administrator shall have full power and authority to establish the rules and regulations relating to the Plan, to interpret the Plan and those rules and regulations, to select Participants for the Plan, to determine each Participant’s target award, performance goals and final award, to make all factual and other determinations in connection with the Plan, and to take all other actions necessary or appropriate for the proper administration of the Plan, including the delegation of such authority or power, where appropriate. Only the Committee shall take the foregoing actions with respect to Section 16 Executives.

     (c) All powers of the Administrator shall be executed in its sole discretion, in the best interest of the Company, not as a fiduciary, and in keeping with the objectives of the Plan and need not be uniform as to similarly situated individuals. The Administrator’s administration of the Plan, including all such rules and regulations, interpretations, selections, determinations, approvals, decisions, delegations, amendments, terminations and other actions, shall be final and binding on the Company and all employees of the Company, including the Participants and their respective beneficiaries.

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4. Target Awards and Performance Goals

     (a) At the beginning of each plan year designated by the Administrator (a “Plan Year”), the Administrator shall establish for each Participant a target incentive award, which shall be expressed as a dollar amount, a percentage of salary or otherwise. The Administrator shall establish for each Section 16 Executive a maximum award that may be paid for the Plan Year. The maximum award amount for Section 16 Executives will remain fixed for the entire Plan Year and may not be increased based on an increase in salary during the Plan Year or otherwise. The target awards will be based on a number of factors, including but not limited to:

• Market competitiveness of the position

• Job level

• Base salary level

• Past individual performance

• Expected contribution to future Company performance and business impact

     (b) At the beginning of each Plan Year, the Administrator shall establish for each Participant performance goals that must be met in order for an award to be payable for the Plan Year. The Administrator shall establish in writing (i) the performance goals that must be met, (ii) the threshold, target and maximum amounts that may be paid if the performance goals are met, and (iii) any other conditions that the Administrator deems appropriate and consistent with the Plan and, in the case of Section 16 Executives, the exception for “qualified performance-based compensation” (the “Section 162(m) Exception”) under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). The Administrator shall establish objective performance goals for each Participant related to the Participant’s business unit or the performance of the Company and its parents, subsidiaries and affiliates as a whole, or any combination of the foregoing. The Administrator may also establish subjective performance goals for Participants; provided that, for Section 16 Executives, the subjective performance goals may only be used to reduce, and not increase, the award otherwise payable under the Plan. The Company shall notify each Participant of his or her target award and the performance goals for the Plan Year.

     (c) The objectively determinable performance goals shall be based on one or more of the following criteria related to the Participant’s business unit or the performance of the Company and its parents, subsidiaries and affiliates as a whole, or any combination of the foregoing: stock price, earnings per share, net earnings, operating or other earnings, profits, revenues, net cash flow, financial return ratios, return on assets, stockholder return, return on equity, growth in assets, unit volume, sales, market share, drug discovery or other scientific goals, pre-clinical or clinical goals, regulatory approvals, or strategic business criteria consisting of one or more objectives based on meeting specified revenue goals, market penetration goals, geographic business expansion goals, cost targets, goals relating to acquisitions or divestitures, or strategic partnerships.

     (d) For Section 16 Executives, the Administrator must establish the target awards and performance goals no later than the earlier of (i) 90 days after the beginning of the Plan Year or (ii) the date on which 25% of the Plan Year has been completed, or such other date as may be required or permitted under applicable regulations under section 162(m) of the Code. The performance goals for each Section 16 Executive for each Plan Year are intended to satisfy the requirements for the Section 162(m) Exception, including the requirement that the achievement of the performance goals be substantially uncertain at the time they are established and that the performance goals be established in such a way that a third party with knowledge of the relevant facts could determine whether and to what extent the performance goals have been met.

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     (e) Each Participant will earn an award for a Plan Year based on the achievement of the performance goals established by the Administrator. The Administrator may adjust, upward or downward, the award for each Participant who is not a Section 16 Executive, based on the Administrator’s determination of the Participant’s achievement of personal and other performance goals established by the Administrator and other factors as the Administrator determines. The Administrator may reduce (but not increase) the award for each Section 16 Executive based on the Administrator’s determination of the Participant’s achievement of personal and other performance goals established by the Administrator and other factors as the Administrator determines. The Administrator shall not be authorized to increase the amount of any award of a Section 16 Executive that would otherwise be payable pursuant to the terms of the Plan.

     (f) The maximum award that a Participant may receive for any Plan Year is $9,000,000.

5. Payment of Incentive Awards

     (a) The Administrator shall certify and announce to the Participants the awards that will be paid by the Company as soon as practicable following the final determination of the Company’s financial results for the Plan Year. Payment of the awards certified by the Administrator shall be made in a single lump sum cash payment by March 15^th of the year immediately following the close of the Plan Year.

     (b) Participants must be employed on the last day of the Plan Year to be eligible for an award from the Plan, except as described in subsections (c) and (d) below. Notwithstanding any other provision of this Plan, in no event may the Administrator waive the achievement of performance goals for any Section 16 Executive except in the event of such Section 16 Executive’s death or disability.

     (c) Participants who terminate employment prior to the last day of the Plan Year will not be eligible for any award payment for that Plan Year, except as the Administrator may otherwise determine. Unless the Administrator determines otherwise:

          (i) Participants who die or who retire under a Company-sponsored retirement program during the Plan Year will be eligible for a prorated award based on the achievement of the performance goals for the Plan Year and appropriate adjustment as described in Section 4. The prorated award will be calculated from the date when they became eligible for the Plan to the date of death or retirement rounded to the nearest whole month. Payment will be made in a single payment at the same time as all other incentive awards for the Plan Year are distributed. In the case of the death of a Participant, any award payable to the Participant shall be paid to his or her beneficiary. For this purpose, the Company will use the beneficiary named under the Company-sponsored life insurance plan. If no life insurance beneficiary is designated, the beneficiary will be the decedent’s estate.

          (ii) Participants who leave the Company under a Company-sponsored disability program, separation program (other than in the case of termination for cause) or other program approved by the Management Committee will be eligible for a prorated award based on achievement of the performance goals for the year and appropriate adjustment as described in Section 4. The awards will be calculated from the date when they became eligible for the Plan to the effective date of separation rounded to the nearest whole month. Payment will be made in a single payment at the same time as all other incentive awards for the Plan Year are distributed.

     (d) The Administrator may establish appropriate terms and conditions to accommodate newly hired and transferred employees, consistent, in the case of Section 16 Executives, with the requirements of the Section 162(m) Exception.

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6. Changes to Performance Goals and Target Awards

At any time prior to the final determination of awards, for Participants other than Section 16 Executives, the Administrator may adjust the performance goals and target awards to reflect a change in corporate capitalization (such as a stock split or stock dividend), or a corporate transaction (such as a merger, consolidation, separation, reorganization or partial or complete liquidation), or to reflect equitably the occurrence of any extraordinary event, any change in applicable accounting rules or principles, any change in the Company’s method of accounting, any change in applicable law, any change due to any merger, consolidation, acquisition, reorganization, stock split, stock dividend, combination of shares or other changes in the Company’s corporate structure or shares, or any other change of a similar nature. The Administrator may make the foregoing adjustments with respect to Section 16 Executives’ awards to the extent the Administrator deems appropriate, but only to the extent consistent with the requirements of the Section 162(m) Exception.

7. Amendments and Termination

     (a) The Company may at any time amend or terminate the Plan by action of the Committee; provided, however, that the Committee shall not amend the Plan without stockholder approval if such approval is required in order for awards under the Plan to qualify for the Section 162(m) Exception. Without limiting the foregoing, the Company, by action of the Administrator, shall have the right to modify the terms of the Plan as may be necessary or desirable to comply with the laws or local customs of countries in which the Company operates or has employees.

     (b) The Plan must be reapproved by the stockholders no later than the first stockholders meeting that occurs in the fifth year following the year in which the stockholders previously approved the Plan, if required in order for awards under the Plan to qualify for the Section 162(m) Exception under the Code or the regulations thereunder.

8. Miscellaneous Provisions

     (a) This Plan is not a contract between the Company and the Participants. Neither the establishment of this Plan, nor any action taken hereunder, shall be construed as giving any Participant any right to be retained in the employ of the Company or any of its subsidiaries. Nothing in the Plan, and no action taken pursuant to the Plan, shall affect the right of the Company to terminate a Participant’s employment at any time and for any or no reason. The Company is under no obligation to continue the Plan.

     (b) A Participant’s right and interest under the Plan may not be assigned or transferred, except as provided in Section 5(c) of the Plan upon death, and any attempted assignment or transfer shall be null and void and shall extinguish, in the Company’s sole discretion, the Company’s obligation under the Plan to pay awards with respect to the Participant. The Company’s obligations under the Plan may be assigned to any corporation which acquires all or substantially all of the Company’s assets or any corporation into which the Company may be merged or consolidated.

     (c) The Plan shall be unfunded. The Company shall not be required to establish any special or separate fund, or to make any other segregation of assets, to assure payment of awards. The Company’s obligations hereunder shall constitute a general, unsecured obligation, awards shall be paid solely out of the Company’s general assets, and no Participant shall have any right to any specific assets of the Company.

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     (d) The Company shall have the right to deduct from awards any and all federal, state and local taxes or other amounts required by law to be withheld.

     (e) It is the intent of the Company that the Plan and awards under the Plan for Section 16 Executives comply with the requirements for the Section 162(m) Exception. To the extent that any requirement of the Section 162(m) Exception as set forth in the Plan ceases to be required under Section 162(m) of the Code, that Plan provision shall cease to apply.

     (f) The Company’s obligation to pay compensation as herein provided is subject to any applicable orders, rules or regulations of any government agency or office having authority to regulate the payment of wages, salaries, and other forms of compensation.

     (g) The validity, construction, interpretation and effect of the Plan shall exclusively be governed by and determined in accordance with the laws of the State of New Jersey.

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EX-12

Exhibit 12

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Unaudited)
(Dollars in millions)

	Nine Months
	Ended
	September 30,		Years Ended December 31
	2006		2005			2004			2003			2002		2001
Income/(loss) before income taxes	$	1,193	$	497		$	(168	)	$	(46	)	$	2,563	$	2,523
Less: Equity income		1,056		873			347			54			—		—
Income/(loss) before income taxes and equity income		137		(376	)		(515	)		(100	)		2,563		2,523
Add: Fixed charges:
Preference dividends		65		86			34			—			—		—
Interest expense		131		163			168			81			28		40
One-third of rental expense		29		37			30			30			27		24
Capitalized interest		11		14			20			11			24		25
Total fixed charges		236		300			252			122			79		89
Less: Capitalized interest		11		14			20			11			24		25
Less: Preference dividends		65		86			34			—			—		—
Add: Amortization of capitalized interest		8		10			9			9			8		7
Add: Distributed income of equity investees		822		647			228			32			—		—
Earnings/(loss) before income taxes and fixed charges (other than capitalized interest)	$	1,127	$	481		$	(80	)	$	52		$	2,626	$	2,594
Ratio of earnings to fixed charges		4.8		1.6			(0.3)	*		0.4	**		33.2		29.1

*	For the year ended December 31, 2004, earnings were insufficient to cover fixed charges by $332 million.
**	For the year ended December 31, 2003, earnings were insufficient to cover fixed charges by $70 million.

“Earnings” consist of income/(loss) before income taxes and equity income, plus fixed charges (other than capitalized interest and preference dividends), amortization of capitalized interest and distributed income of equity investee. “Fixed charges” consist of interest expense, capitalized interest, preference dividends and one-third of rentals which Schering-Plough believes to be a reasonable estimate of an interest factor on leases.

EX-15

Exhibit 15

October 26, 2006

To the Board of Directors and Shareholders of Schering-Plough Corporation:

     We have made a review, in accordance with the standards of the Public Company Accounting Oversight Board (United States), of the unaudited interim financial information of Schering-Plough Corporation and subsidiaries for the three and nine-month periods ended September 30, 2006 and 2005, as indicated in our report dated October 26, 2006 (which report included an explanatory paragraph regarding the Company’s adoption of Statement of Financial Accounting Standards No. 123 (Revised 2004), “Share-Based Payment”); because we did not perform an audit, we expressed no opinion on that information.

     We are aware that our report referred to above, which is included in your Quarterly Report on Form 10-Q for the quarter ended September 30, 2006, is incorporated by reference in Registration Statements No. 2-83963, No. 33-50606, No. 333-30331, No. 333-87077, No. 333-91440, No. 333-104714, No. 333-105567, No. 333-105568, No. 333-112421, No. 333-121089 and No. 333-134281 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. 333-105567 on Form S-8 and Registration Statements No. 333-12909, No. 333-30355, and No. 333-113222 on Form S-3.

     We also are aware that the aforementioned report, pursuant to Rule 436(c) under the Securities Act of 1933, is not considered a part of the Registration Statements prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act.

/s/Deloitte & Touche LLP

Parsippany, New Jersey

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EX-31.1

Exhibit 31.1

CERTIFICATION

I, Fred Hassan, certify that:

     1. I have reviewed this quarterly report on Form 10-Q of Schering-Plough Corporation (the “registrant”);

     2. Based on my knowledge, this 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 report;

     3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;

     4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a - 15(f) and 15d — 15(f)) for the registrant and have:

     (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

     (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

     (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/  Fred Hassan

Fred Hassan
Chairman of the Board and Chief Executive Officer

Dated:  October 27, 2006

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Robert J. Bertolini, certify that:

     1. I have reviewed this quarterly report on Form 10-Q of Schering-Plough Corporation (the “registrant”);

     2. Based on my knowledge, this 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 report;

     3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;

     4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a - 15(f) and 15d — 15(f)) for the registrant and have:

     (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

     (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

     (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/  Robert J. Bertolini

Robert J. Bertolini
Executive Vice President and Chief Financial Officer

Dated:  October 27, 2006

EX-32.1

Exhibit 32.1

CERTIFICATION

I, Fred Hassan, Chairman of the Board and Chief Executive Officer of Schering-Plough Corporation, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

     (1) the Quarterly Report on Form 10-Q for the period ended September 30, 2006 (the “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 Report fairly presents, in all material respects, the financial condition and results of operations of Schering-Plough Corporation.

/s/  Fred Hassan

Fred Hassan
Chairman of the Board and Chief Executive Officer

Dated:  October 27, 2006

EX-32.2

Exhibit 32.2

CERTIFICATION

     I, Robert J. Bertolini, 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 Quarterly Report on Form 10-Q for the period ended September 30, 2006 (the “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 Report fairly presents, in all material respects, the financial condition and results of operations of Schering-Plough Corporation.

/s/  Robert J. Bertolini

Robert J. Bertolini
Executive Vice President and Chief Financial Officer

Dated:  October 27, 2006