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Securities Exchange Act of 1934 Rule 14d-11; Rule 14d-11(f) Rule 14d-10(a)(2) Rule 14e-1(b) - page 8 / 13





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Unaffiliated shareholder protections in connection with the Dolnination Agreement

As ina~ldate by Gerrnail law, the Donlination Agreeinent includes provisions designed to protect Scl~ering'sunaffiliated shareholders. Section 304(1) of the Stock Corporation Act requires any domination and profit and loss transfer agreclnent to provide unaffiliated shareholders of the controlled conlpany with colllpensation in the Corn1 of recurring payments (in lieu of dividends) in proportion to their share in the share capital. These payinents to uu~affiliate sl~areholders,which we refer to as "Guaranteed Dividends", nlust contillue for so long as the donlination and profit and loss transfer agreeinent remains in effect and the doininating conlpany owns less than 100% of the outstanding shares (excluding treasury shares) of the controlled company. If the Effective Date is in 2006, the first such annual Guaranteed Dividend is expected to become payable to Schering's then unaffiliated sl~areholderpursuant to the Donlinatioll Agreeinent on the first business day following the annual general meeting of Schering sl~areholderto be held in mid-2007. In addition, Scction 305(1) of the Stock Corporation Act requires any doinination and profit and loss transfer agreement to provide, upon effectiveness thereof, for an obligation of the dominating company to purchase, at any unaffiliated shareholder's request, such unaffiliated shareholder's sharcs in the controlled colnpany for "adequatc cash compensation" (angernessene Barahfindung), which we refer to hcrein as the "Put Price." Thc Put Price is payable pronlptly upon such purchase. IJnder Section 305(3) of the Stock Corporation Act, the Put Pricc provided in a donlination and profit and loss transfer agreement nus st take into consideratioil the condition of the controlled company at the time of the approval ofthc don~i~lati and profit and loss transfer agreenlent by the controlled company's sharcholder meeting. The Put Pricc is payable together wit11 an ainount of intercst, which wc refer to as Statutory Interest, accruing thercon fro111but excluding the Efrective Date to the date on which the Put Right is validly exercised, as described above. Any accrued Statutory Interest payable on the Put Pricc to any shareholder requesting the purchase of its shares by the dominating conlpany is reduced by the amount of any Guaranteed Dividend that has been paid on that sl~arel~olderS' hares on or before the date the Put Price is paid.

The parties to a donlination and profit and loss transfer agreement typically engage, on a joint basis, an independent expcrt to assist in determining the adequate amount of the Put Price and the adequate alnount of the Guaranteed Dividend to be paid. The independent expert deternlines these amounts based on a valuation of the con~pany' business and presents its findings in a report to both parties. Gerinan law provides that the management board of each party to a domination and profit and loss transfer agreenlent nlust produce a report, or the inanagenlent boards of both parties nlay producc a joint report, which sets forth detailed information on the doinination and profit and loss transfer agreement, including reasons for coricluding the agreement and legal and econonlic explanations regarding the amounts of the Put Price and Guaranteed Dividend payments. In addition, the District Court (Landgericht) (in the jurisdiction where t l ~ controlled conlpany has its registered seat), upon request by the parties to the doinination and profit and loss transfer agreemcnt, chooses and appoints by court order one or morc duly qualilied auditors (Ve~trag~sprufeto revicw the agreement. Thesc court appointed auditors are required to issue a writtcn report stating their findings. This couit-mandated audit and the rclated report are required bcfore a donlination and profit and loss transfer agreeincnt can beconlc effective.

KPMG served as the independent expert for the Offeror and Schering in connectioil wit11 the Domination Agreement. In its report dated July 27, 2006 (thc "KPMG Report"), KPMG determined that the adcquate cash conlpensation for the Put Rights would

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