FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 1995
--------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________to________________
Commission file number 1-5829
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MARION MERRELL DOW INC.
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(Exact Name of Registrant, as specified in its charter)
Delaware 44-0565557
- -------------------------------- ---------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
9300 Ward Parkway
Kansas City, Missouri 64114
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(Address of principal executive offices)
(Zip Code)
816-966-4000
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(Registrant's telephone number, including area code)
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 X No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding as of April 28, 1995
- -------------------------------------- --------------------------------
Common stock, par value $.10 per share 277,097,048 shares
This document is comprised of 34 pages.
Exhibit Index is located at Page 22.
<PAGE> 2
Part I - FINANCIAL INFORMATION
Item I - Financial Statements
- -----------------------------
MARION MERRELL DOW INC. AND SUBSIDIARIES
- ----------------------------------------
Consolidated Balance Sheets
March 31, December 31,
1995 1994
Assets --------- ------------
------ (Millions of Dollars)
Current assets:
Cash and cash equivalents $ 120 $ 95
Short-term investments 441 399
Accounts and notes receivable, less
allowances for returns and doubtful
accounts of $58 million ($54 million
at December 31, 1994) 674 626
Notes receivable from Dow 219 435
Inventories 322 323
Prepaid expenses 29 25
Income taxes receivable 45 23
Deferred income tax benefits 124 123
------ ------
Total current assets 1,974 2,049
------ ------
Property, plant and equipment, at cost 1,391 1,364
Less accumulated depreciation 651 625
------ ------
Property, plant and equipment, net 740 739
------ ------
Intangibles, net 884 813
Long-term marketable securities 234 212
Deferred income tax benefits 161 149
Other assets 112 138
------ ------
Total assets $4,105 $4,100
====== ======
See accompanying Notes to Consolidated Financial Statements.
<PAGE> 3
Consolidated Balance Sheets
March 31, December 31,
Liabilities and Stockholders' Equity 1995 1994
------------------------------------ --------- ------------
(Millions of Dollars)
Current liabilities:
Accounts and notes payable $ 262 $ 327
Accounts and notes payable to Dow 445 442
Accrued expenses 236 220
Income taxes payable 129 63
Associate compensation and incentive plans 89 128
Dividends payable 69 69
Other current liabilities 172 213
------- -------
Total current liabilities 1,402 1,462
Long-term debt 102 99
Deferred income taxes 84 84
Other liabilities 170 163
------- -------
Total liabilities 1,758 1,808
------- -------
Minority interest in subsidiary companies 171 173
------- -------
Temporary capital:
ASOP convertible preferred stock at $1
par value per share; issued 2,776,442
shares (2,794,896 at December 31, 1994) 3 3
Paid-in capital 96 97
Less guaranteed ASOP obligation (90) (90)
------- -------
Total temporary capital 9 10
------- -------
Stockholders' equity:
Preferred stock at $1 par value per share
Authorized 8,000,000 shares;
5,072,360 undesignated - -
Common stock at $.10 par value per share
Authorized 350,000,000 shares; issued
278,782,868 shares (278,781,723 at
December 31, 1994) 28 28
Paid-in capital 611 614
Cumulative translation adjustments (13) (51)
Unrealized gain (loss) on certain equity
and debt investments 7 (1)
Retained earnings 1,617 1,613
------- -------
2,250 2,203
<PAGE> 4
Less:
1,728,941 shares of common stock
in treasury, at cost (2,074,735 shares
at December 31, 1994) (39) (50)
Unearned compensation-restricted stock
awards (44) (44)
------- -------
Total stockholders' equity 2,167 2,109
------- -------
Total liabilities and stockholders' equity $4,105 $4,100
======= =======
See accompanying Notes to Consolidated Financial Statements.
<PAGE> 5
Consolidated Statements of Income
Three Months Ended March 31
1995 1994
---- ----
(Millions of Dollars, Except Per Share Data)
Net sales $ 712 $ 708
Cost of sales 233 235
------ ------
Gross profit 479 473
------ ------
Operating expenses:
Research and development 107 105
Selling, general and administrative 232 240
Acquired research 49 -
------ ------
Total operating expenses 388 345
------ ------
Operating income 91 128
Other income, net 38 (3)
Interest expense 4 4
------ ------
Income before income taxes and
minority interest 125 121
Income taxes 47 33
Minority interest 3 2
------ ------
Net income 75 86
Less preferred stock dividends 1 1
------ ------
Net income - common stockholders $ 74 $ 85
====== ======
Weighted average number of outstanding
common shares - assuming full dilution 280 275
====== ======
Earnings per common share - assuming
full dilution $ .27 $ .31
====== ======
Cash dividends per common share $ .25 $ .25
====== ======
See accompanying Notes to Consolidated Financial Statements.
<PAGE> 6
Consolidated Statements of Cash Flows Three Months Ended March 31,
1995 1994
---- ----
Cash flows from operating activities: (Millions of Dollars)
Net income $ 75 $ 86
Non-cash items included in net income:
Depreciation and amortization 35 36
Equity earnings, net of distributions 23 5
Deferred tax provision (7) (5)
Unrealized loss on trading securities - 5
Acquired research 49 -
Other 19 (5)
Changes in assets and liabilities:
Accounts and notes receivable, net (17) (28)
Accounts receivable from Dow 3 9
Accounts receivable from other related companies 2 5
Inventories 10 20
Trading investments - purchases (173) (227)
Trading investments - proceeds from sale or
maturity 81 270
Accounts and notes payable (78) (56)
Accounts payable to Dow 21 (1)
Income taxes payable 53 58
Other, net (70) (54)
------- -------
Net cash provided by operating activities 26 118
------- -------
Cash flows from investing activities:
Purchase of investments (514) (75)
Proceeds from the sale and maturity of
investments 569 118
Property, plant and equipment additions (8) (16)
Acquisition of business, net of cash and cash
equivalents acquired (58) (90)
Other, net (43) (20)
------- -------
Net cash used by investing activities (54) (83)
------- -------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 5 -
Repayment of long-term debt (6) (2)
Repayment from short-term loans to Dow 200 175
Short-term loans to Dow - (50)
Change in notes receivable from Dow 27 (54)
Change in notes payable to Dow (28) 152
Dividends paid (73) (72)
Purchase of treasury stock - (8)
Proceeds from treasury stock 7 -
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Net cash provided by financing activities 132 141
------- -------
Exchange rate effect on cash and cash equivalents (79) (32)
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Increase in cash and cash equivalents 25 144
Cash and cash equivalents, January 1 95 147
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Cash and cash equivalents, March 31 $ 120 $ 291
======= =======
<PAGE> 7
Supplemental cash flow information:
Interest paid $ 3 $ 3
======= =======
Income taxes paid $ 8 $ 8
======= =======
See accompanying Notes to Consolidated Financial Statements.
<PAGE> 8
Notes to Consolidated Financial Statements
1 These statements should be read in conjunction with the financial
statements and notes thereto included in the Company's latest
Form 10-K. In the opinion of the Company, the accompanying unaudited
financial statements include all adjustments (consisting of only
normally recurring accruals) necessary for a fair presentation of the
results for the periods covered. The results of operations for the
current period are not necessarily indicative of the results to be
expected for the full year. Certain prior period amounts have been
reclassified to conform with the current period presentation.
2 Balances with The Dow Chemical Company ("Dow") and affiliates are
included in the Consolidated Balance Sheets as follows:
March 31, December 31,
1995 1994
---- ----
(Millions of Dollars)
Accounts receivable $ 20 $ 11
Current notes receivable 219 435
Accounts payable 58 37
Current notes payable 387 405
Dividends payable 49 49
The carrying amounts of receivables and payables to Dow approximate
fair value.
On May 3, 1995, the Company, Dow and Hoechst Corporation ("Hoechst")
reached agreements whereby Hoechst will acquire all outstanding shares
of the Company at a purchase price of $25.75 per share in cash. The
purchase by Hoechst of the approximately 71 percent of the outstanding
shares held by Dow is subject to certain conditions, including the
receipt of certain regulatory approvals. The merger of the Company
with a subsidiary of Hoechst, pursuant to which the Company would
survive as a wholly owned subsidiary of Hoechst, is subject to certain
conditions, including shareholder approval and the purchase by Hoechst
of Dow's shares. Hoechst and Dow have agreed to vote in favor of the
merger. Notes receivable and payable positions with Dow are expected
to be settled prior to or shortly after the closing of the
transactions.
3 Inventories consist of the following:
March 31, December 31,
1995 1994
---- ----
(Millions of Dollars)
Raw materials $ 42 $ 48
Work in process 82 91
Finished goods 199 188
Supplies 15 12
---- ----
338 339
Less excess of FIFO cost over
LIFO cost for LIFO inventories (16) (16)
---- ----
$322 $323
==== ====
<PAGE> 9
LIFO inventories represented 26% and 28% of consolidated inventories
at March 31, 1995 and December 31, 1994, respectively.
4 The Company classifies certain investments as trading, available-for-
sale, or held-to-maturity. Trading and available-for-sale investments
are carried at fair value. Unrealized gains and losses are included
in income for trading investments and recorded in stockholders' equity
for available-for-sale investments. Held-to-maturity investments are
carried at amortized cost. At March 31, 1995, the Company's total
investments are included in the Consolidated Balance Sheet as cash
equivalents ($50 million), short-term investments ($441 million), and
long-term marketable securities ($234 million). These investments are
classified as follows:
(Millions of dollars)
March 31, 1995 Unrealized
-------------- ----------------
Cost Gains Losses Fair Value
---- ----- ------ ----------
Trading:
Debt securities $ 50 $ 50
Equity securities 102 102
Available-for-sale:
Debt securities 209 $ 1 210
Equity securities 80 12 $ 1 91
Held-to-maturity 272 1 271
--- --- --- ---
$713 $ 13 $ 2 $724
=== === === ===
December 31, 1994 Unrealized
----------------- ----------------
Cost Gains Losses Fair Value
---- ----- ------ ----------
Trading:
Debt securities $ 58 $ 58
Equity securities 10 10
Available-for-sale:
Mortgage derivatives 17 $ 2 15
Debt securities 24 1 23
Equity securities 84 $ 11 8 87
Held-to-maturity 476 2 474
--- --- --- ---
$669 $ 11 $ 13 $667
=== === === ===
Trading securities consist of investments in various near-term, liquid
investments. Available-for-sale securities consist primarily of
investments in biotechnology companies with whom the Company has
ongoing collaborative research projects ("biotechnology investments"),
and current year purchases of municipal bonds. Held-to-maturity
securities consist primarily of investments in municipal bonds. All
current year purchases of municipal bonds were classified as
available-for-sale to allow for expected liquidity needs resulting
from the possible acquisition of the Company by Hoechst.
During the first quarter of 1995 the Company's remaining investments
in mortgage derivative securities were sold at approximately book
<PAGE> 10
value. The Company sold a portion of its holdings in biotechnology
investments, receiving sales proceeds of $19 million and realizing
gains of $13 million. Impairment losses of $12 million were
recognized on biotechnology investments whose fair values had
stabilized below their cost.
In the available-for-sale category, $157 million of debt securities
mature within one year and the remaining securities mature within one
to five years. In the held-to-maturity category, $181 million in
securities mature within one year, and the remainder have maturities
ranging from one to five years.
5 Other current liabilities consist of the following:
March 31, December 31,
1995 1994
---- ----
(Millions of Dollars)
Sales rebates payable $114 $128
Special charge 44 69
Current portion of long-term debt 14 16
---- ----
$172 $213
==== ====
The special charge liability reflects the remaining obligations
related to the Company's plan, initiated in 1993, to reduce costs and
to position the Company for the future.
6 Long-term debt consists of the following:
March 31, December 31,
1995 1994
---- ----
(Millions of Dollars)
9.11% guaranteed ASOP loan; final
maturity - 2005 $ 90 $ 90
Foreign currency loans with various
banks; final maturity - 2005 26 25
---- ----
Total debt 116 115
Less payments due within one year 14 <F1> 16
---- ----
$102 <F2> $ 99
==== ====
<F1> Market value approximates cost.
<F2> Market value approximates $108 million and $102 million at March
31, 1995 and December 31, 1994, respectively.
7 The Company is party to various legal actions primarily involving
product liability claims and lawsuits arising in the normal course of
business. As of March 31, 1995, the Company is involved in litigation
including, but not limited to:
Approximately 46 lawsuits pending against the Company in various
state, federal, and foreign trial and appellate courts in which the
plaintiffs allege that Bendectin, an antinauseant formerly marketed by
a subsidiary of the Company, was the cause of birth defects. Although
the outcome of such litigation cannot be predicted with certainty,
substantially all such claims (more than 1,900) have been resolved in
<PAGE> 11
the Company's favor in the past. As of March 31, 1995, judgments for
and against the Company were pending in four and two cases,
respectively, all of which are subject to further trial or appellate
proceedings. The Company does not believe that it would have material
exposure financially if these cases were decided unfavorably.
A consolidated class action lawsuit alleging violations of federal
securities laws and common law claims as a result of alleged
materially false and misleading statements and material omissions by
the Company and its officers and directors concerning Seldane, seeking
unquantified damages.
A lawsuit alleging violations of U.S. and Puerto Rico antitrust laws
and other tortious or unlawful conduct concerning the Company's
assertion of rights related to its once-a-day sustained release
formulation of diltiazem, seeking actual damages in excess of $480
million plus trebled, punitive and exemplary damages. Hoechst and the
plaintiff in this action have agreed to a settlement subject to
Hoechst's acquisition of the Company.
A lawsuit by Ciba-Geigy Corporation claiming infringement by the
Company of Ciba-Geigy's patent relating to its nicotine transdermal
system and seeking to prohibit future sales of Nicoderm (registered
trademark) and to recover damages for the Company's Nicoderm sales, in
which an appeal is pending of a summary judgment rendered in favor of
the Company.
Class action antitrust and related lawsuits alleging that multiple
defendants (principally pharmaceutical manufacturers and wholesale
distributors), including the Company, engaged in unlawful price
discrimination practices to the detriment of certain retail
pharmacists and consumers.
Several class action lawsuits seeking injunctive and other relief in
opposition to the acquisition of the Company by Hoechst.
The Company strongly believes that the claims against the Company in
the above actions are without merit and will continue to defend such
actions vigorously.
Certain other claims, suits and complaints have been filed or are
pending against the Company, all of which, in the opinion of
management, are adequately covered by insurance or are without merit,
or are of such kind or involve such amounts as would not have a
material effect on the financial position of the Company if disposed
of unfavorably.
8 In January 1995, the Company completed the acquisition of Selectide
Corporation, a pharmaceutical research company, for a purchase price
of approximately $58 million, of which $49 million was attributed to
acquired research. As the feasibility of the acquired research has
not been established and it has no alternative use, this amount was
charged against earnings in the first quarter of 1995, amounting to
$.17 per share.
<PAGE> 12
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
- ---------------------
Results of Operations
- ---------------------
The table below presents the changes in principal line items of the
statement of income during the three-month period ended March 31, 1995 as
compared to the three-month period ended March 31, 1994. Percentage of net
sales relationships experienced during these periods are also presented.
Management's discussion of the material changes in results of operations
follows:
<TABLE>
<CAPTION>
Three Months Ended March 31
- -----------------------------------------------
(Millions of Dollars, Except for Per Share Data)
Actual Change % of Net Sales
---------------- --------------- ----------------
1995 1994 Amount % 1995 1994
------ ------ ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 712 $ 708 $ 4 1 100 100
Cost of sales 233 235 (2) (1) 33 33
Operating expenses 339 345 (6) (2) 47 49
Acquired research 49 - 49 - 7 -
Other income/(expense), net 34 (7) 41 585 (5) 1
Income taxes 47 33 14 42 7 5
Minority interest 3 2 1 50 - -
------ ------ ------ ------ ------
Net income 75 86 (11) (13) 11 12
Less preferred stock dividends 1 1 - - - -
------ ------ ------ ------ ------
Net income-common stockholders $ 74 $ 85 $ (11) (13) 11 12
====== ====== ====== ====== ======
Earnings per common share -
assuming full dilution $ .27 $ .31 $(.04) (13)
====== ====== ======
</TABLE>
<PAGE> 13
First quarter net sales were $712 million, an increase of one percent over
the first quarter of 1994 when net sales were $708 million. This increase
is primarily attributable to a favorable foreign currency impact of one
percent.
During the first quarter of 1995, the Company recorded a special charge of
$49 million, or $.17 per share, for acquired research related to the
strategic acquisition of Selectide Corporation.
Net income and earnings per share, inclusive of the special charge for the
acquired research, were $75 million and $.27, respectively, a 13 percent
decline from the first quarter of 1994 with net income of $86 million and
earnings per share of $.31. Excluding the special charge for acquired
research, first quarter net income would have been $124 million, a 44
percent increase from $86 million in 1994, while earnings per share would
have totaled $.44, up 42 percent from a year earlier. Net income and
earnings per share were positively affected, in part, by the strong sales
of Cardizem CD and the Seldane (registered trademark) family products; the
slight decrease in cost of sales; the decline in operating expenses
(exclusive of acquired research); the co-promotion arrangements with Sandoz
Pharmaceuticals Corporation on Lescol (registered trademark) and with Astra
Merck, Inc. on Prilosec (registered trademark); as well as investment
income from cash and other short-term investments. Investment income,
income from partnerships and income from co-promotions are included in
Other income, net.
Sales of the Cardizem family of cardiovascular products totaled $242
million for the quarter, a two percent increase from first quarter 1994
sales of $237 million. While sales of Cardizem tablets and Cardizem SR
continue to decline due to generic competition, brand sales were aided by
the strong sales of Cardizem CD, which recorded $200 million in the first
quarter of 1995, a ten percent increase above first quarter 1994.
First quarter 1995 sales of the Seldane (terfenadine) family of anti-
allergy products were $158 million, up eight percent over first quarter
1994 sales of $146 million. The increase in Seldane sales was primarily
due to the growth of sales in Japan. Although Seldane and Seldane D
(registered trademark)(terfenadine and pseudoephedrine HC1) have not yet
experienced generic competition in the United States, they face active
competition from other branded products.
Sales of the Carafate (registered trademark) family of antiulcer products,
declined three percent in the first quarter to $32 million from $33 million
in the first quarter of 1994. Carafate Suspension recorded $4 million in
sales, a 20 percent decline from first quarter 1994 sales of $5 million.
First quarter 1995 sales of smoking cessation products, primarily Nicoderm,
were $23 million, an increase of 35 percent over $17 million recorded sales
for the comparable period in 1994. This increase is attributable primarily
to the Company's "quit smoking" consumer assistance program and to
Nicorette sales in Japan, which did not begin until the third quarter of
1994.
Generic pharmaceutical sales by Rugby for the first quarter of 1995 were
$58 million. This is a nine percent decrease compared to the first quarter
1994 sales of $64 million. The decline in sales is primarily due to
continuing price erosion in the very competitive generic market place.
Generic sales should not be viewed as having an impact on earnings
equivalent to an equal amount of sales of the Company's non-generic products
<PAGE> 14
due to a substantially lower gross margin on generic products.
Cost of sales declined slightly in the first quarter of 1995 to $233
million in relation to the $235 million recorded the first quarter of 1994.
As a percentage of sales, cost of sales remained constant at 33 percent for
the first quarter of 1995 and 1994.
Operating expenses, including the charge for acquired research related to
the acquisition of Selectide Corporation, increased 12 percent during the
first quarter in 1995 relative to the same period in 1994. As a percent of
sales, operating expenses increased to 54 percent in 1995, compared with 49
percent for the same period in 1994. The change primarily resulted from
the special charge of $49 million for acquired research. Excluding the
acquired research, operating expenses would have decreased by two percent
and operating expenses as a percentage of sales would have been 47 percent,
a four percent decline from a year earlier. In first quarter 1995, the
Company spent less on promotion and advertising in comparison to the same
period in 1994.
Other income, net was $34 million of income compared with $7 million of
expense in the first quarter 1994. Other income, net includes revenues
from product co-promotion arrangements and gains on sales of biotechnology
stocks. In addition, in the first quarter of 1995 versus the same period
in 1994, the Company recorded greater interest income from investments in
cash and other short-term investments compared with the first quarter of
1994, when the Company recorded a loss due to a decline in the market value
of the Company's investment portfolio of mortgage derivative securities.
The Company's estimated effective tax rate was 38 percent for the first
quarter of 1995. The charge for acquired research was not deductible. If
the charge had been deductible, the Company's estimated effective tax rate
would have been 27 percent. The effective tax rate for the same period in
1994 was 27 percent.
Financial Condition
- -------------------
Net cash provided by operating activities decreased to $26 million in the
first quarter of 1995 as compared to the $118 million provided in the first
quarter of 1994. The net result of trading securities' purchases and
proceeds from sales resulted in net purchases of $92 million in the first
quarter of 1995 versus net proceeds of $43 million in the comparable period
of 1994.
Net cash used by investing activities was $54 million in the first quarter
of 1995 as compared to $83 million in the first quarter of 1994. The use
of cash in 1995 can be attributed primarily to the Company's acquisition of
Selectide Corporation and the signing of definitive agreements with Teva
Pharmaceuticals Industries Ltd. ("Teva") to collaborate in marketing
Copaxone (registered trademark) (Copolymer-1), Teva's proposed new product
for multiple sclerosis, in the United States and Canada.
Net cash provided by financing activities was $132 million in the first
quarter of 1995 versus $141 million in the first quarter of 1994. The
decline in net cash provided is primarily attributable to the net effect of
notes receivable/payable with Dow as well as the net change in short-term
loans to Dow.
<PAGE> 15
The special charge liability was reduced by total cash expenditures of $25
million during the first quarter of 1995. The majority of the reduction
was attributable to severance payments deferred until 1995 by some of the
1994 severed employees and to 1995 reductions in force in Europe and Japan.
In December 1992, the City of Kansas City, Missouri, approved the Company's
proposal to construct facilities in Kansas City with the assistance of tax
increment financing, which provides for partial reimbursement of project
costs. As revised in 1993 to reflect the Company's new global strategy,
the project will consolidate substantially all Kansas City-based functions
at a single site. Construction of the facilities began in early 1994 and
is expected to be completed in 1996-97. The Company has entered into an
arrangement providing for a third party to construct and own the
facilities, which are estimated to cost approximately $117 million, and to
lease such facilities to the Company upon completion. The Company has an
option to purchase the facilities at the end of the lease term. The
Company expects to finance the remaining cost of the project, estimated to
be not more than $40 million, with cash from operations.
The current ratio was 1.41:1 at March 31, 1995, versus 1.40:1 at December
31, 1994.
A quarterly cash dividend of $.25 per share on common stock was paid April
28, 1995, to shareholders of record on March 30, 1995.
On May 3, 1995, the Company, Dow and Hoechst Corporation ("Hoechst")
reached agreements whereby Hoechst will acquire all outstanding shares of
the Company at a purchase price of $25.75 per share in cash. The purchase
by Hoechst of the approximately 71 percent of the outstanding shares held
by Dow is subject to certain conditions, including the receipt of certain
regulatory approvals. The merger of the Company with a subsidiary of
Hoechst, pursuant to which the Company would survive as a wholly owned
subsidiary of Hoechst, is subject to certain conditions, including
shareholder approval and the purchase by Hoechst of Dow's shares. Hoechst
and Dow have agreed to vote in favor of the merger. In the merger,
minority shareholders will receive $25.75 per share in cash for their stock
plus, depending on the timing of the merger, an additional pro rata portion
of the regular quarterly dividend.
<PAGE> 16
Part II - OTHER INFORMATION
Item 1 - Legal Proceedings
- --------------------------
Following the announcement on February 28, 1995, that the Company was
engaged in discussions with The Dow Chemical Company ("Dow") and Hoechst AG
("Hoechst") concerning the possible negotiated acquisition by Hoechst of
all of the Company's outstanding Common Stock at a price of $25.75 per
share in cash and that Dow and Hoechst also were discussing Hoechst's
possible acquisition of Dow's Latin American pharmaceutical business for
$200 million, a number of lawsuits were filed, purportedly on behalf of
shareholders of the Company, in the New Castle County, Delaware, Court of
Chancery against the Company, its directors, and Dow (as the Company's
majority shareholder) alleging that the defendants breached their fiduciary
and common law duties to minority shareholders in connection with such
discussions. In general, the various complaints contend that Dow is to
receive consideration for the sale of its shares different from that to be
received by the minority shareholders and that the Company's Board of
Directors failed to auction the Company to obtain the highest price for the
Company's shares. Hoechst also is a defendant in one of these actions. The
lawsuits seek class certification status; injunctive relief; an evaluation
of alternatives to the proposed transaction; the protection of minority
shareholders against alleged conflicts of interest; the appointment of
either an independent committee to protect the interests of minority
shareholders or a shareholder committee to review offers to acquire the
Company; and unspecified damages and other relief. The Company believes
that the allegations of the various complaints are without merit and
intends to contest them vigorously.
In January 1995, the Company filed suit in Jackson County, Missouri,
Circuit Court against two former associates of the Company (whose
employment was terminated in January) seeking unspecified damages for
fraud, breach of contract, misappropriation of valuable trade secrets
related to manufacturing technology for Cardizem CD, and other serious
actions damaging to the Company. The Company intends to prosecute this
action vigorously.
In April 1995, Hoechst, Biovail Corporation International ("Biovail"), a
Canadian pharmaceutical company, and Hoechst-Roussel Pharmaceuticals Inc.
("Hoechst-Roussel"), a U.S. subsidiary of Hoechst, entered into an
agreement (the "Settlement Agreement") that would affect certain litigation
in which the Company currently is engaged, effective upon Hoechst's
acquisition of all of the Common Stock of the Company, as follows:
(i) Hoechst would cause the Company and Carderm to dismiss their
complaints in the lawsuit filed against Hoechst-Roussel in November 1993 by
the Company, Carderm, and Elan Plc ("Elan") in the U.S. District Court for
the District of New Jersey, alleging infringement of formulation patents
covering Cardizem CD capsules. In February 1995, Hoechst-Roussel had moved
for summary judgment and, in April 1995, Hoechst-Roussel terminated certain
agreements with Biovail pursuant to which Hoechst-Roussel had obtained
rights to Biovail's once-a-day diltiazem formulation (apparently rendering
the lawsuit moot).
<PAGE> 17
(ii) Biovail would dismiss a lawsuit it filed in October 1994 in U.S.
District Court for the District of Puerto Rico against the Company,
Carderm, and four senior executives of the Company alleging violations of
antitrust laws and other tortious or unlawful conduct in connection with
Cardizem CD.
(iii) In April 1995, Biovail dismissed a lawsuit it had filed in
March 1995 in the U.S. District Court for the Southern District of New York
against the Company, Carderm, Hoechst-Roussel, Hoechst Corporation, and
Hoechst seeking to enjoin Hoechst's proposed acquisition of the Company due
to the alleged anticompetitive effects it would have on the U.S. market for
diltiazem. The suit also sought a declaration that the Company's Cardizem
CD patents are invalid or unenforceable or, alternatively, that Biovail's
once-a-day diltiazem formulation does not infringe the Company's patents.
(iv) The Settlement Agreement also provides for Biovail to release and
not to sue the Company or its affiliates (including Carderm), and for
Hoechst to release and not to sue Biovail, with respect to claims relating
to Biovail's once-a-day diltiazem formulation.
In January 1995, the Company's petition filed with the FDA in April 1994,
seeking to require that all Abbreviated New Drug Application ("ANDA")
applicants seeking approval to market proposed terfenadine products must
certify noninfringement of the patent for the metabolite of terfenadine
that is believed to be primarily responsible for beneficial effects of
Seldane was denied.
In February 1995, the Company moved for summary judgment in the lawsuit
filed by the Company in August 1994 in the U.S. District Court for the
District of Columbia against the U.S. Commissioner of Food and Drugs and
the U.S. Secretary of Health and Human Services seeking a declaration that
all ANDAs pending with the FDA for terfenadine products must certify
noninfringement of the terfenadine metabolite patent, as well as an
injunction and temporary restraining order against approval by the FDA of
any ANDA for terfenadine that does not so certify. Briefing on the motion
was completed in April 1995.
In March 1995, in a lawsuit filed by the Company in June 1994 in the U.S.
District Court for the Southern District of Florida against Baker Norton
Pharmaceuticals Inc. ("Baker Norton") regarding a proposed terfenadine
product for which Baker Norton has filed an ANDA, Baker Norton's motion for
summary judgment based on alleged invalidity of the Company's terfenadine
metabolite patent was denied by a magistrate judge, subject to approval by
the District Court, which has scheduled a hearing on the motion for May 31,
1995.
In April 1995, in the Company's lawsuit against Askin Capital Management,
L.P. ("Askin"), and certain related parties seeking an unspecified amount
of damages and other relief in connection with Askin's engagement as
investment manager for a portion of the Company's investment portfolio,
Askin's motion to transfer the action to New York was denied.
In May 1994, the Company filed suit in the Circuit Court of Jackson County,
Missouri, against Smith Barney Shearson, Inc. ("Smith Barney") in
connection with the Company's investment with Askin. The suit seeks
unspecified damages for breach of contract by Smith Barney, which allegedly
failed to monitor Askin's management of the Company's investment portfolio
as required by the terms of a Services Agreement between Smith Barney and
the Company, and for Smith Barney's alleged negligence and breach of
<PAGE> 18
fiduciary duty. Also in May 1994, Smith Barney filed an action in the
Supreme Court of New York County, New York, seeking a declaratory judgment
to the effect that the Services Agreement did not apply to the Company's
Askin portfolio, that Smith Barney is not liable for damages if the
Services Agreement did apply, and that Smith Barney did not breach any duty
to the Company in connection with the investment. In April 1995, the New
York court denied Smith Barney's motion to enjoin prosecution of the
Missouri action and granted the Company's motion to dismiss the New York
action. Subsequently, Smith Barney filed an answer in the Missouri action,
which is proceeding.
In 1992, the Company and Tanabe filed suit in multiple federal district
courts against certain overseas producers of diltiazem, the active
ingredient in the Company's Cardizem family of cardiovascular medications,
and certain U.S. companies that market products in the U.S. containing
diltiazem manufactured by such overseas producers. The suits allege
infringement of Tanabe's U.S. patent rights by producing and marketing in
the U.S. diltiazem manufactured using Tanabe's patented manufacturing
process. The suits seek permanent injunctions against the defendants,
unspecified damages, and costs. In February 1995, pursuant to a settlement
agreement, actions against two of the defendants and their respective
counterclaims were dismissed with prejudice.
In February 1993, the Company and Tanabe filed a complaint with the
International Trade Commission ("ITC") seeking to halt the importation of
diltiazem manufactured overseas by those companies in violation of U.S.
trade and patent laws. In May 1994, the U.S. Patent and Trademark Office
("PTO") concluded a reexamination of Tanabe's patent and held that all
claims of Tanabe were patentable over certain newly discovered prior art.
In late 1994, trial was held before an administrative law judge of the ITC,
who ruled against the Company and Tanabe in February 1995. The Company's
petition for review of the judge's decision by the ITC was submitted in
February 1995. The ITC's decision is due by June 1, 1995. Further
proceedings thereafter are possible.
In January 1995, the Company, ALZA, and Carderm filed suit in the U.S.
District Court for the Southern District of New York against Ciba-Geigy and
Lohmann Therapy Systems Corp. alleging that the manufacture, use, and sale
of Habitrol in the U.S. infringes ALZA's U.S. patents relating to Nicoderm.
The discussion in Note 7 of the Notes to Consolidated Financial Statements
concerning litigation arising from claims regarding Bendectin is
incorporated by reference into this Item 1.
<PAGE> 19
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
Regulation
S-K Exhibit Description of
Number Document
- ----------- --------------
2 Agreement and Plan of Merger dated May 3, 1995,
by and among the Company, The Dow Chemical
Company, Hoechst Corporation, and H Pharma
Acquisition Corp.
10(a) Employment Agreement of Peter W. Ladell dated
April 3, 1995.
10(b) Continued employment letter of Edward W. Mehrer
dated April 7, 1995.
10(c) Continued employment letter of Frank L. Douglas,
Ph.D., M.D. dated April 21, 1995.
10(d) Tax Allocation Agreement, dated as of May 3, 1995,
among The Dow Chemical Company, Hoechst
Corporation and Marion Merrell Dow Inc.
10(e) Computerized Process Control Software Agreement
(Leases and Services), dated as of May 3, 1995,
between Rofan Services, Inc. and Merrell Dow
Pharmaceuticals Inc.
10(f) Computerized Process Control Software Agreement
(Leases and Services), dated as of May 3, 1995,
between Rofan Automation and Information Systems
B.V. and Gruppo Lepetit S.p.A.
10(g) Insurance Separation Agreement, dated as of May 3,
1995, among The Dow Chemical Company, Hoechst
Corporation, Marion Merrell Dow Inc., Dorinco
Insurance Company, Dorintal Reinsurance Ltd. and
Timber Insurance Ltd.
10(h) Manufacturing Agreement Amendment, dated as of
May 3, 1995, between The Dow Chemical Company and
Merrell Dow Pharmaceuticals Inc.
10(i) Second Amendment to Master Services Agreement,
dated as of May 3, 1995, between Marion Merrell
Dow Inc., The Dow Chemical Company and Merrell Dow
Pharmaceuticals Inc.
10(j) Third Amendment of Master Services Agreement,
dated as of May 3, 1995, between Marion Merrell
Dow Inc., The Dow Chemical Company and Merrell Dow
Pharmaceuticals Inc.
<PAGE> 20
10(k) Letter Agreement, dated as of May 3, 1995, between
The Dow Chemical Company and Marion Merrell Dow
Inc.
10(l) Letter Agreement, dated as of May 3, 1995, among
The Dow Chemical Company, Merrell Dow
Pharmaceuticals Inc. and Marion Merrell Dow Inc.
11 Statement Regarding Computation of Earnings Per
Common Share - Assuming Full Dilution
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter.
<PAGE> 21
SIGNATURES
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.
MARION MERRELL DOW INC.
- -----------------------
Registrant
/s/ William K. Hoskins May 15, 1995
- ----------------------------------- -----------------------------------
William K. Hoskins (Date)
Vice President, General Counsel
and Corporate Secretary
/s/ Edward W. Mehrer May 15, 1995
- ----------------------------------- -----------------------------------
Edward W. Mehrer (Date)
Executive Vice President,
Chief Financial and
Administrative Officer
<PAGE> 22
EXHIBIT INDEX
-------------
Regulation Location in
S-K Exhibit Description of Sequential
Number Document Number System
- ----------- -------------- -------------
2 Agreement and Plan of Merger dated
May 3, 1995, by and among the Company,
The Dow Chemical Company, Hoechst
Corporation, and H Pharma Acquisition
Corp. (incorporated by reference from
Exhibit 2 to the Company's Current Report
on Form 8-K dated as of May 3, 1995)
10(a) Employment Agreement of Peter W. Ladell 24
dated April 3, 1995.
10(b) Continued employment letter of Edward W. 30
Mehrer dated April 7, 1995.
10(c) Continued employment letter of Frank L. 31
Douglas, Ph.D., M.D. dated April 21, 1995.
10(d) Tax Allocation Agreement, dated as of
May 3, 1995, among The Dow Chemical
Company, Hoechst Corporation and Marion
Merrell Dow Inc. (incorporated by reference
from Exhibit (d) to Amendment No. 20 to the
Report on Schedule 13D of RH Acquisition
Corp., Dow Holdings Inc., and The Dow
Chemical Company dated as of May 3, 1995,
respecting the Company ("Amendment 20 to
the Dow 13D")).
10(e) Computerized Process Control Software
Agreement (Leases and Services), dated
as of May 3, 1995, between Rofan
Services, Inc. and Merrell Dow
Pharmaceuticals Inc. (incorporated by
reference from Exhibit (e) to Amendment 20
to the Dow 13D)
10(f) Computerized Process Control Software
Agreement (Leases and Services), dated
as of May 3, 1995, between Rofan
Automation and Information Systems B.V.
and Gruppo Lepetit S.p.A. (incorporated
by reference from Exhibit (f) to Amendment
20 to the Dow 13D)
<PAGE> 23
10(g) Insurance Separation Agreement, dated
as of May 3, 1995, among The Dow Chemical
Company, Hoechst Corporation, Marion Merrell
Dow Inc., Dorinco Insurance Company, Dorintal
Reinsurance Ltd. and Timber Insurance Ltd.
(incorporated by reference from Exhibit (h)
to Amendment 20 to the Dow 13D)
10(h) Manufacturing Agreement Amendment, dated as of
May 3, 1995, between The Dow Chemical Company
and Merrell Dow Pharmaceuticals Inc.
(incorporated by reference from Exhibit (i)
to Amendment 20 to the Dow 13D)
10(i) Second Amendment to Master Services Agreement,
dated as of May 3, 1995, between Marion Merrell
Dow Inc., The Dow Chemical Company and Merrell
Dow Pharmaceuticals Inc. (incorporated by
reference from Exhibit (j) to Amendment 20 to
the Dow 13D)
10(j) Third Amendment of Master Services Agreement,
dated as of May 3, 1995, between Marion Merrell
Dow Inc., The Dow Chemical Company and Merrell
Dow Pharmaceuticals Inc. (incorporated by
reference from Exhibit (k) to Amendment 20 to
the Dow 13D)
10(k) Letter Agreement, dated as of May 3, 1995,
between The Dow Chemical Company and Marion
Merrell Dow Inc. (incorporated by reference
from Exhibit (l) to Amendment 20 to the Dow 13D)
10(l) Letter Agreement, dated as of May 3, 1995,
among The Dow Chemical Company, Merrell Dow
Pharmaceuticals Inc. and Marion Merrell Dow Inc.
(incorporated by reference from Exhibit (n) to
Amendment 20 to the Dow 13D)
11 Statement regarding computation of Earnings 32
per Common Share - Assuming Full Dilution
27 Financial Data Schedule 34
<PAGE> 24
EXHIBIT 10(a)
March 31, 1995
CONFIDENTIAL
Peter W. Ladell
MARION MERRELL DOW INC.
9300 Ward Parkway
Kansas City, Missouri 64114-0480
Dear Peter:
The purpose of this letter is to confirm our mutual understanding of your
continued employment following the merger of Marion Merrell Dow Inc. (the
"Company") by or with HAG or one of its subsidiaries. If you accept the
terms of the following agreement, please return a signed copy of this
letter to me.
As you know, the Company has recently executed an agreement providing for
the merger of the Company with a wholly-owned subsidiary of HAG at the
conclusion of which, once the transaction has been approved by the
Company's shareholders, the Company will be the surviving corporation and
itself a wholly-owned subsidiary of HAG.
EMPLOYMENT AGREEMENT ("AGREEMENT")
1. Employment Term. The Company agrees to employ you, and you accept
such employment, for a term beginning on the Closing Date of the above-
mentioned purchase, contingent upon such closing, and ending five years
thereafter ("Initial Employment Term"), subject to earlier termination
described below. This Agreement will automatically terminate on that date
unless mutually extended. The extension of the Agreement may be discussed
during the 90 days preceding the expiration of the contract.
2. Compensation. The Company will pay you for your services an annual
salary of $400,000, payable in accordance with Company payroll practices.
The Company will fairly review your annual compensation each year and may,
in its discretion, increase your base salary.
3. Retention Award. The Company, as an incentive for you to enter into
this Agreement, will also pay you, subject to the remaining terms of this
Agreement, a cash award of 36 months' then current base salary (pretax),
provided that you are still employed by the Company or another division or
subsidiary of the Company on the third anniversary following the effective
date of this Agreement.
4. Short-Term and Long-Term Incentives. You will be eligible to
participate in the Company's short- and long-term incentive programs. Your
target bonus percentage for 1995 is 60% of base salary, which may be
adjusted to reflect your individual performance or Company performance.
5. Other Benefits. You will be eligible to participate in all employee
pension and welfare benefit plans maintained by the Company and offered to
all regular full-time employees of the Company, including medical,
disability, life insurance and vacation, to the extent permitted by the
terms of such plans and by law, subject to the Company's rights to amend or
terminate such plans.
6. Representations and Restrictive Covenants.
<PAGE> 25
(a) You agree to execute and be subject to the terms and conditions
of the Employee Confidentiality Agreement, attached as Exhibit A.
(b) Further, you agree that you will not engage in any conduct that
is in conflict with or prejudicial to the interests of the Company or HAG,
including any act of fraud, misrepresentation, embezzlement or
misappropriation of Company or HAG assets or opportunities. Such conduct
shall terminate the Company's obligations under this Agreement for payment
of accrued or unaccrued bonus or cash awards (including retention and
severance payments described under this Agreement) and long-term
incentives, and further vesting of any long-term incentives.
7. Termination. The Company or HAG may terminate this Agreement at any
time for cause, which includes, but is not limited to, any conduct that
conflicts with or is prejudicial to the interests of the Company or HAG,
including failure to perform your duties, any act of fraud,
misrepresentation, embezzlement or misappropriation of HAG or Company
assets or opportunities, or any breach of any covenant in this Agreement.
You may without cause terminate this Agreement by giving 30 days' written
notice to the Company. In such event, you will continue to render services
and be paid your regular compensation up to the date of termination.
Termination under this Section 7 terminates the Company's obligations under
this Agreement.
8. Severance. Should the Company terminate this Agreement without cause
before the end of the Initial Employment Term, you may be eligible for
severance benefits, as follows: (1) one month's base salary times the
number of years of service you attained in the year of termination, but no
more than 30 months of base salary, or two times your latest calendar
year's W-2 earnings, if less, and no less than 18 months of base salary,
payable after you sign a waiver of claims against the Company within 45
days of your termination if you do not revoke such waiver; (2) continuation
of medical and other welfare benefits in accordance with the current
Company severance plan for all associates; (3) outplacement and relocation
assistance in accordance with the current Company severance plan.
9. General Provisions. The Company, HAG and you further acknowledge
that:
(a) Any notice required under this Agreement shall be deemed given if
in writing sent by certified mail to your residence or to the Company's
principal office, as the case may be.
(b) Any amounts payable to you under this Agreement after your death
shall be paid to the person designated by you in your most recent basic
life insurance beneficiary designation on file with the Company.
(c) The Company's waiver of a breach of any provision of this
Agreement by you shall not operate as a waiver of any subsequent breach by
you. No waiver shall be valid unless in writing and signed by an
authorized officer of the Company.
(d) Your services are unique and personal. Accordingly, you may not
assign your rights or delegate your duties or obligations under this
Agreement. The Company's and HAG's rights and obligations under this
Agreement shall inure to the benefit of and shall be binding upon the
Company's and HAG's successors and assigns.
<PAGE> 26
(e) This Agreement contains the entire understanding among the
Company and you. It may not be changed orally but only by an agreement in
writing signed by the party against whom enforcement of any change or
extension is sought.
(f) The invalidity, illegality or unenforceability of any provision
hereof shall not affect, impair, invalidate or render unenforceable this
Agreement or any other provision hereof.
(g) Headings in this Agreement are for convenience only and shall not
be used to interpret or construe its provisions.
(h) This Agreement shall be interpreted and governed in accordance
with the laws of the State of Missouri.
(i) To the extent permitted by law, the Company shall pay all legal
fees, costs of litigation, prejudgment interest, and other expenses you
incur in good faith as a result of the Company's refusal to provide the
retention and/or several benefits to which you become entitled under this
Agreement, or as a result of the Company's contesting the validity,
enforceability, or interpretation of this Agreement, or as a result of any
conflict between the parties pertaining to this Agreement, if and only if
you are the prevailing party in such litigation.
(j) The Company shall have the right to deduct from all payments
under this Agreement any federal, state or local taxes required by law to
be withheld with respect to such payments.
(k) If any payouts described in this agreement trigger excess
parachute payment excise tax liability, the Company will gross-up the
payout in an amount necessary to provide you with the same net benefit you
would have received had the tax not been imposed. For purposes of the
preceding sentence the term "net" should be deemed to include the impact of
all excise and income taxes imposed on the gross-up payments.
(l) Any controversy or claim arising out of this Agreement shall be
settled by arbitration in Kansas City, Missouri in accordance with the then
governing rules of the American Arbitration Association. Judgment upon the
award rendered may be entered and enforced in any court of competent
jurisdiction.
As an acknowledgement that each party to this Agreement has received
good and valuable consideration in exchange for the mutual promises herein
contained, the parties have signed this Agreement below.
MARION MERRELL DOW INC. ACCEPTED:
By: /s/ Richard J. Markham /s/ Peter W. Ladell
---------------------------- --------------------------------
Peter W. Ladell
Date: 3 April '95
--------------------------
<PAGE> 27
EXHIBIT A
EMPLOYEE CONFIDENTIALITY AGREEMENT
THIS AGREEMENT is made this 3rd day of April, 1995, between Marion
Merrell Dow Inc. (the "Company") and the undersigned person who is now an
employee of the Company (referred to as "I" or "me" in this Agreement).
1. Why I am signing this Agreement. I understand that this
Agreement deals only with the subject of my obligations as a Company
employee to maintain the confidentiality of certain information which I may
develop or have developed or to which I may have had access in the past or
may have access in the future in connection with my employment. The
Company has requested that I sign this Agreement. I understand that the
Company may terminate my employment and will restrict my access to
"Confidential Information" (as such term is defined in this Agreement) if I
do not sign this Agreement. I recognize that access to Confidential
Information is very important for my career development at the Company, and
that without access to Confidential Information my career at the Company
will be limited.
2. Existing confidentiality agreements with the Company. Currently,
I have an obligation to preserve the confidentiality of the Company's
technologies, trade secrets, and confidential commercial or business
information because of the duty of loyalty I owe as an employee and because
I may have already signed a prior confidentiality agreement with the
Company or the Company's predecessors. I understand that this Agreement
amends the prior confidentiality agreement in its entirety and that the
terms of this Agreement control and clarify my responsibility to preserve
confidentiality during and after my employment with the Company.
3. What is Confidential Information. The term "Confidential
Information" means all information disclosed to me, or known by me, as a
result of my employment with the Company or the Company's predecessors
(including all information conceived, originated, discovered, or developed
by me alone or with the help of others, whether made during working hours
or not) about products, processes, and services, including information
relating to research, development, "Inventions" (as that term is defined in
this Agreement), manufacturing, purchasing, accounting, engineering,
marketing, merchandising, and selling, and all other information which
would be considered confidential or a trade secret under the common law or
any other laws regarding (i) the Company or its parent company, any
predecessor of the Company, or any current or future business of the
Company, or (ii) any third party with which the Company has an obligation
to maintain confidentiality.
4. What is an "Invention." The term "Invention" means all
discoveries, concepts, ideas, developments, designs, and works of
authorship, including but not limited to processes, methods, formulas, and
techniques, as well as improvements on any such items, and the know-how
related to any such items, whether patentable, copyrightable or not, made
by me (whether alone or with the help of others, and whether made during
working hours or not, and whether tested or reduced to practice or not) or
known by me, relating to (i) the Company, the Company's predecessors, or to
<PAGE> 28
any current or future business of the Company, or (ii) any third party with
whom the Company has an obligation to maintain confidentiality.
5. My agreement not to disclose Confidential Information. I will
not disclose to anyone, or use, lecture upon, write articles concerning, or
export in violation of any law or regulation, any Confidential Information,
whether during my employment with the Company or after my employment with
the Company ends, except as required by my duties as an employee of the
Company.
6. My agreements regarding Inventions.
(a) With respect to Inventions made by me alone or with others,
I agree:
(i) to inform the Company promptly and fully regarding all
such Inventions;
(ii) to maintain complete and accurate records regarding
such Inventions;
(iii) upon the Company's request, I will apply for all
United States and foreign letters patent, copyrights, trademarks regarding
such Inventions, and shall do any acts requested by the Company to extend,
maintain, cause the reissuance of, or enforce any such patents, copyrights,
or trademarks;
(iv) to assign and convey to the Company all of my rights
and interests in and to such Inventions, including inventor's rights and
utility models;
(v) to execute all documents, and to provide assistance
requested by the Company to accomplish such assignment of the Inventions,
and the obtaining of such letters patent, copyrights, and trademarks; and
(vi) to give testimony regarding such Inventions.
(b) I agree that during my employment with the Company I shall
do all of the items described in paragraph 6(a) without further payment by
the Company but at the Company's expense. After my employment with the
Company has ended, I agree to do all of the items described in paragraph
6(a) for an hourly fee equal to the annual base salary I was paid by the
Company at the time my employment ended divided by 2,080, plus reasonable
out-of-pocket expenses.
(c) I understand that after my employment has ended, the Company
may require my help in securing its rights to patents, copyrights,
trademarks and other intellectual property. If the Company requests, I
agree to keep the Company advised of my mailing address and telephone
number for five years after my employment with the Company has ended.
7. My agreement to return the Company property.
(a) I acknowledge that the following items are all the Company's
property (all of such property is referred to as "Company Property" in this
Agreement):
<PAGE> 29
(i) all originals and copies of drawings, blueprints, manuals,
reports, notebooks, notes, photographs or any other recorded, written or
printed matter (including all forms of electronically recorded data and
information, computer programs and software) relating to Confidential
Information, Inventions, research and development activities, manufacturing
operations or business of the Company made or received by me during my
employment are the property of the Company, as applicable; and
(ii) all other property belonging to the Company such as
equipment, computer software and disks, samples, models, biological
cultures, cell lines, DNA probes and the like.
(b) I agree that when my employment with the Company has ended,
I will immediately give, or leave for the Company, all of the Company
Property.
8. Other agreements I am making with the Company. I understand that
in the event the Company should waive any part of this Agreement or that
any part should be determined to be unenforceable, I am not thereby
relieved from the remaining provisions of the Agreement. My obligations
hereunder will continue in the event I am transferred to a different
subsidiary, location, or assignment by the Company and after termination of
my employment with the Company. The Company may enforce this Agreement
against my personal representative.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on the date first written above.
MARION MERRELL DOW INC.
/s/ Richard J. Markham
----------------------------------------
By:
EXECUTIVE:
/s/ Peter W. Ladell
----------------------------------------
Peter W. Ladell
<PAGE> 30
EXHIBIT 10(b)
April 7, 1995
Edward W. Mehrer
2500 W. 70th Street
Shawnee Mission, KS 66208
Dear Ed:
MMD, Dow, and Hoechst are in discussions regarding the potential merger of
MMD with the Hoechst Roussel pharmaceutical business. At this state of
discussion, the potential organization's new management structure has not
yet been defined. However, we recognize that you have critical skills and
long-term potential with the company.
With that in mind, we are asking you to remain with the company, providing
continuity and transitional leadership for a period of at least two years
following the closing date. As an incentive for you to accept this
arrangement, we will provide a "retention bonus" equivalent to twenty-four
months' salary and bonus to be paid in a lump sum following the second
anniversary of the closing date, and will be considered "pensionable
wages."
During this time we expect you to be part of a transitional team focusing
on finance and tax issues for the new company. In the event the
transitional assignments are completed prior to the two years, we will pay
the retention bonus at that time.
If you have any questions regarding this, please let me know.
Sincerely,
/s/ Fred W. Lyons, Jr.
Fred W. Lyons, Jr.
<PAGE> 31
EXHIBIT 10(c)
April 21, 1995
Frank L. Douglas, Ph.D., M.D.
Marion Merrell Dow Inc.
9300 Ward Parkway
Kansas City, MO 64114
Dear Frank:
MMD, Dow, and Hoechst are in discussions regarding the potential merger of
MMD with the Hoechst Roussel pharmaceutical business. At this state of
discussion, the potential organization's new management structure has not
yet been defined. However, we recognize that you have critical skills and
long-term potential with the company.
With that in mind, we are asking you to remain with the company, providing
continuity and transitional leadership for a period of at least one year
following the closing date. As an incentive for you to accept this
arrangement, we will provide a "retention bonus" equivalent to twelve
months' salary to be paid in a lump sum following the anniversary of the
closing date.
During this time, we expect to offer you a comparable position. (The term
"comparable position" means one that has the same base salary and bonus
potential that you currently have and in the same location.) If, however,
at the end of the transition period we have not found such a position, we
will provide, subject to terms of the Associate Separation Plan, a
severance benefit equal to one month's base pay per year of service,
including the transition time, with a minimum of eighteen months and a
maximum of thirty months. This is the same severance benefit as that
provided in 1994 during the Reduction in Force, and is in addition to the
retention bonus identified above.
If you have any questions regarding this, please let me know.
Sincerely,
/s/ Fred W. Lyons, Jr.
Fred W. Lyons, Jr.
<PAGE> 32
Exhibit 11
Computation of Earnings per Common and
Common Equivalent Share*
Periods Ended March 31
Three Months
--------------
1995 1994
---- ----
(Amounts in Millions, Except for per Share data)
PRIMARY:
Net income $ 75 $ 86
Less dividends on preferred shares,
net of income tax benefits (1) (1)
----------------
Net income on common shares $ 74 $ 85
================
Weighted average number of outstanding
common shares 277 274
Number of common shares issuable assuming
exercise of stock options 2 -
----------------
Weighted average number of outstanding
common and common equivalent shares 279 274
================
Net income on common shares $ 74 $ 85
Divided by the weighted average number of
outstanding common and common equivalent
shares 279 274
Earnings per common and common equivalent
share - primary $ .27 $ .31
================
* Unaudited data
<PAGE> 33
Computation of Earnings per Common and
Common Equivalent Share*
Periods Ended March 31
Three Months
--------------
1995 1994
---- ----
(Amounts in Millions, Except for per Share data)
FULLY DILUTED:
Net income $ 75 $ 86
Less dividends on preferred shares,
net of income tax benefits (1) (1)
As if converted common stock dividends
on preferred stock 1 1
Income tax benefits on common share
dividends - -
----------------
Net income on common shares $ 75 $ 86
================
Weighted average number of outstanding
common shares 277 274
Number of common shares issuable assuming
exercise of stock options 2 -
Number of common shares issuable assuming
conversion of preferred shares 1 1
----------------
Weighted average number of outstanding
common and common equivalent shares -
assuming full dilution 280 275
================
Net income on common shares $ 75 $ 86
Divided by the weighted average number of
outstanding common and common equivalent
shares - assuming full dilution 280 275
----------------
Earnings per common and common equivalent
share - assuming full dilution $ .27 $ .31
================
* Unaudited data
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THE REGISTRANT FOR THE 3-MONTH PERIOD ENDED MARCH
31, 1995 AS SET FORTH IN THE REGISTRANT'S QUARTERLY REPORT ON FORM 10-Q FOR
THE QUARTER ENDED MARCH 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 120
<SECURITIES> 441
<RECEIVABLES> 732
<ALLOWANCES> 58
<INVENTORY> 322
<CURRENT-ASSETS> 1,974
<PP&E> 1,391
<DEPRECIATION> 651
<TOTAL-ASSETS> 4,105
<CURRENT-LIABILITIES> 1,402
<BONDS> 102
<COMMON> 28
0<F1>
0<F1>
<OTHER-SE> 2,139
<TOTAL-LIABILITY-AND-EQUITY> 4,105
<SALES> 712
<TOTAL-REVENUES> 712
<CGS> 233
<TOTAL-COSTS> 233
<OTHER-EXPENSES> 107
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 4
<INCOME-PRETAX> 125
<INCOME-TAX> 47
<INCOME-CONTINUING> 75
<DISCONTINUED> 0<F1>
<EXTRAORDINARY> 0<F1>
<CHANGES> 0<F1>
<NET-INCOME> 75
<EPS-PRIMARY> .27
<EPS-DILUTED> .27
<FN>
<F1>
Not Applicable
</FN>
</TABLE>
