PRELIMINARY PROXY STATEMENT
SOLICITATION IN OPPOSITION TO MANAGEMENT'S NOMINEES
FOR THE BOARD OF DIRECTORS OF
MERCK & CO.
Thomas J. Kelly March 26, 1994
1301 S. Delaware Avenue
Philadelphia PA 19147
Tel. (215) 952-1999
Fax (215) 952-0250
Merck's annual shareholders meeting is on April 26, 1994 at
Raritan Valley Community College in North Branch, New Jersey.
I am running for the board of directors in opposition to
the incumbent directors, and ask that you cumulate your votes on my
behalf.
I BELIEVE EXECUTIVE COMPENSATION AT MERCK NEEDS REFORM
<PAGE>
<TABLE>
Here is a summary of Merck executive compensation
in the past three years:
<CAPTION>
Name Title Yr. Salary & Bonus LTIP Pay Stock Options
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Roy Vagelos CEO,Pres. 1993
1992 $2,525,000 680,000
1991 $2,352,083 $992,400 180,300
Edward M. Senior VP 1993
Scolnick & Pres. 1992 $1,190,000 54,000
1991 $ 997,500 $285,200 36,000
Francis H. Senior VP 1993
Spiegel, Jr. 1992 $1,190,000 54,000
1991 $1,067,500 $263,300 54,300
Jerry T. Senior VP 1993
Jackson 1992 $1,036,250 54,000
1991 $ 895,000 $186,000 54,300
John L. Senior VP 1993
Zabriskie & Pres. 1992 $1,036,250 54,000
1991 $ 895,000 54,300
Richard J. Senior VP 1993
Markham & Pres. 1992 $1,023,750 54,000
1991 $ 796,250 54,300
</TABLE>
<PAGE>
I question the grant of options for 500,000 shares to Dr.
Vagelos in 1992, since those options are not exercisable until
long after he retires from the company (he reaches the Company's
mandatory retirement age in 1994; the options are not exercisable
until July 1997). Options are usually granted to encourage an
executive to take actions while he or she is in office to push
the stock price up, thereby benefitting both shareholders at
large and the option holder. Dr. Vagelos stands to profit
enormously from the conduct of his successors: if the stock price
rises 10% per year, those options will be worth $40.8 million. On
top of that he will receive various retirement benefits.
Further information on executive compensation is provided in
Merck's 1993 and 1994 proxy statements, incorporated herein by
reference.
THE OUTCOME OF THE HEALTH CARE REFORM DEBATE FOR MERCK
Our company is laboring hard to convince Congress to block
the Administration's plan to cut and regulate drug prices.
In my view, Merck cannot be a credible player in the debate
over health care reform if its executive compensation levels
continue. I believe Merck's executive pay levels make it hard
to convince policy-makers that Merck is pursuing high profits
in order to fund research and development rather than to benefit
Merck executives. Electing me to the Board will be a statement
by Merck shareholders that they are willing to police executive
compensation on their own.
In 1993, Congress made clear its concern over high executive
compensation levels: it amended the Internal Revenue Code to make
it much harder for public companies to deduct compensation in
excess of one million dollars per year as a business expense.
With limited exceptions, companies can only get a tax deduction
for compensation in excess of $1 million per year if those
payments are based on objective performance criteria approved by
shareholders. See IRC section 162(m). I pledge to shareholders
that I will work hard to avoid their company having to pay taxes
on executive pay.
When executive compensation is challenged, the standard
answer of corporate executives and their allies is that high pay
helps the company attract and retain the best talent. However, I
believe that talented executives are willing to work for less
than Merck is now paying. The current Board justifies its pay
levels by pointing to what competitors pay, but remember that
legislators and consumers have no more sympathy for enormous
executive pay at our competitors than at Merck. Also, compare
Merck's executive pay in 1992 with some other pharmaceutical companies:
<PAGE>
Average Salary and Bonus For Top 5 Execs in 1992(a):
- ------------------------------------------------------
Company Amount
A. L. Laboratories $ 410,681.40
Abbott Laboratories 925,096.60
Allergan, Inc. 519,524.40
American Cyanamid Co. 789,034.80
Bristol-Myers Squibb Company 1,126,810.20
Eli Lilly & Co. 1,022,540.40
Genentech, Inc. 456,400.00
Johnson & Johnson 992,261.00
K V Pharmaceutical Co. 212,695.00
Marion Merrell Dow, Inc. 903,633.20
MERCK & CO., INC. *1,395,500.00
Pfizer, Inc. 847,200.00
Rhone-Poulenc Rorer, Inc. 613,368.60
Schering Plough Corp. 1,056,100.00
Upjohn Co. 740,091.00
Warner Lambert, Co. 869,716.80
[FN]
(a) This is not an exhaustive listing of all drug companies.
It is based on these companies' 1993 proxy statements, which
contain more complete information about executive compensation
at each company and which are available from the SEC and from
Disclosure, Inc. Duties of the top 5 executives obviously
vary from company to company. This survey does not include
other forms of compensation, such as stock options and
various benefit programs. More current data will become
available as each company releases its 1994 proxy statement.
<PAGE>
THE NEED FOR GREATER INDEPENDENCE ON THE BOARD
I feel interlocking directorates are questionable when it
comes to executive compensation. Merck's Compensation Committee
includes director Ruben Mettler, who is the former CEO of TRW,
Inc. and still a TRW director. TRW's Board has included Merck's
Dr. Vagelos since 1987. Both men have served together on
Merck's Board since 1984.
Since Mettler stepped down as TRW's CEO in 1988, TRW has
paid him hundreds of thousands under a series of consulting
contracts. Mettler's latest 3-year consulting contract was
approved while Vagelos was on TRW's Compensation Committee.
Mettler was on Merck's Compensation Committee when it
approved the stock option grant of 500,000 shares to Vagelos.
Vagelos was a non-voting member of that Committee until the day
before it voted for this option grant.
I certainly do not accuse Mettler and Vagelos of any
conspiracy; I simply think Merck's Compensation Committee needs
members whose relationship with management is not as close.
Mettler is up for reelection to the Merck Board at this time.
<PAGE>
WHO IS THOMAS J. KELLY?
Organizations Positions Held Dates Held
- -------------------------------------------------------------
Sheet Metal Workers President/Business
Local 19 ("SMW") Manager 1979-present
Philadelphia Zoning
Board of Adjustment Chairman 1992-present
Philadelphia Parking
Authority Board Member 1982-90
SMW Health & Welfare Fund Trustee 1979-present
SMW Pension Fund Trustee 1979-present
SMW Annuity Fund Trustee 1979-present
SMW Joint Apprenticeship Fund Trustee 1979-present
SMW Unemployment Benefit Fund Trustee 1982-present
SMW Vacation Fund Trustee 1979-present
Philadelphia AFL-CIO Vice-President 1985-present
Mechanical Trades Council
of Philadelphia Vice-President 1979-present
New Jersey Council of
Sheet Metal Workers President 1989-present
Pennsylvania Council of Sheet
Metal Workers President 1990-present
Philadelphia Building &
Construction Trades
Council Vice-President 1982-present
Stabilization Agreement
for National Sheet Metal
Industry Trustee 1986-92
SMW owns 300 shares of Merck common stock, and has owned Merck
stock for more than 3 years.
<PAGE>
WHAT I WILL DO AS DIRECTOR
I will be the shareholders' watchdog, no one else's. A
corporate director is a fiduciary, and having considerable
experience as a fiduciary, I understand a fiduciary's obligations
of loyalty. SMW does not represent or seek to represent any
Merck employees. Because Merck employs over 35,000 people,
including about 7300 who bargain collectively, I believe my
familiarity with labor relations would be useful on the Board.
If elected, I not only plan to pursue the executive
compensation issues discussed above, but also will support a
return to annual election of all directors (declassifying the
Board).
To show my commitment to annual election of directors, I
pledge to resign after only one year and run again, rather than
take advantage of a 3-year term.
The incumbent directors may attack my motives in running for
office and charge I am only out to pursue my objections to Merck
building non-union. To prove that is not so, I hereby pledge that
if I am elected director, I will not vote on the subject of Merck
building non-union, nor communicate with Merck's executive officers
about it.
THE BOARD'S NOMINEES FOR ELECTION:
Merck's proxy statement contains information on the
biographies and compensation of the incumbent directors, which I
incorporate by reference.
The Board's nominees for terms expiring in 1997 are:
1. Ruben F. Mettler (director and former CEO, TRW Inc.)
2. Lawrence A. Cassiday (CEO, Allied Signal, Inc.)
3. William N. Kelley (CEO, Univ. of Penn. Medical Center)
4. Richard S. Ross (Dean Emeritus of John Hopkins School of
Medicine)
5. Charles E. Exley, Jr. (retired CEO, NCR Corp.)
SHAREHOLDER PROPOSALS AND OTHER BUSINESS AT THE 1994 MEETING
Merck and its shareholders have made proposals for
consideration at this meeting. I refer you to the discussion of
these proposals in Merck's proxy statement (incorporated herein
by reference). Shareholders who give me their proxy can vote on
these proposals as they wish, but I recommend they vote as
follows:
_________________________________________________
I know of no other business to be presented at the meeting,
but if other matters do properly come before the meeting, the
enclosed proxy card will be voted in accordance with the best
judgment of the persons named on the enclosed card (myself and
Bruce Endy, an attorney with Spear, Wildman, Borish, Endy,
Browning & Spear, 260 Broad Street #1500, Philadelphia PA 19102,
which represents me and SMW; the firm's pension plan owns 200
shares of Merck common stock).
INFORMATION ABOUT SHAREHOLDER VOTING
1. REVOCATION RIGHTS: IF YOU HAVE ALREADY VOTED ON
MANAGEMENT'S CARD, IT IS NOT TOO LATE TO CHANGE YOUR VOTE
Any person giving a proxy has the power to revoke it simply
by signing and dating a new proxy card and submitting it prior to
votes being tallied at the annual meeting. A proxy may also be
revoked by giving written notice of revocation to the Secretary
of the Company or by voting at the meeting.
2. YOUR VOTING RIGHTS; CUMULATIVE VOTING FOR DIRECTORS
The holders of common stock are entitled to one vote per
share except that in the election of directors, each share
carries as many votes as there are vacancies on the board: in
other words, because there are 5 directors to be elected this
year, each of your shares carries 5 votes in the directors
election. You can cast all these votes for a single nominee
or spread your votes among as many of the candidates as you see
fit. A candidate can be elected by receiving the cumulated votes
of 16.67% of the shares voted plus one. If you sign the enclosed
proxy card, your votes will be cumulated for my candidacy unless
you instruct otherwise.
3. WARNING TO EMPLOYEE-SHAREHOLDERS
The attached proxy card will not serve as a voting
instruction card for the shares held for any shares you own
through the Employee Savings and Security Plan, Employee Stock
Purchase and Savings Plan or Hubbard Farms, Inc. Employee Savings
Plan. Instead, participants in these plans will receive separate
voting instruction cards covering these shares from plan
trustees. If these voting instruction cards are not returned,
these shares will not be voted. The trustees of such plans are
not allowed to disclose to the Company how you vote.
4. OTHER VOTING INFORMATION
Only stockholders of record at the close of business of
March __, 1994 (the record date and time fixed by the directors)
are entitled to vote at the meeting. If you participate in the
Automatic Dividend Reinvestment and Cash Repayment Plan, the
enclosed proxy card covers the shares in that account for that
plan, as well as shares registered in the plan participant's
name. A majority of the votes cast by holders of common stock is
required for approval of the shareholder proposals. Abstentions
and broker non-votes are not counted as votes cast on any matter
to which they relate.
ATTENDING THE SHAREHOLDERS MEETING
The meeting will be on Tuesday, April 26, 1994, at 2pm at
Raritan Valley Community College in North Branch, New Jersey.
Admission to the meeting will be by ticket only. If you are a
stockholder of record and wish to attend, please return the
ticket request card sent shareholders by the Company. If your
shares are not registered in your own name and you wish to
attend, request a ticket by writing the Company's Secretary at
Merck & Co., WS 3AB-05, P.O. Box 100, Whitehouse Station, New
Jersey 08889-0100.
SOLICITATION
I will solicit proxies personally, and be assisted solely by
SMW members and staff (who will receive no additional
compensation for this effort) and by paid consultant Mark
Atkinson. If elected, I will not seek reimbursement from the
company of expenses in running for office. The cost of the
solicitation will be borne solely by SMW and I. We expect to
spend about $20,000 on these efforts (we have spent about $2000
to date). We expect to solicit proxies through the mail,
telephone and/or personal interviews. We will also request
brokers, custodians and other nominees to forward solicitation
materials to beneficial owners of common stock, and we will
reimburse them for their reasonable out-of-pocket expenses.
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
For this information please refer to the Company's proxy
statement, incorporated herein by reference.
DEADLINE FOR STOCKHOLDER PROPOSALS FOR 1995
Stockholders who wish to have proposals included in the
company's proxy materials for a vote at the next shareholders
meeting must make sure they are received by the Company by
November __, 1994.
GETTING IN TOUCH WITH ME
Correspondence or proxy cards can be faxed to
me at (215) 952-0250. For more information, call me at (215) 952-
1999.
This proxy statement is being released to shareholders on or
about March 26, 1994. Thank you for your consideration.
Sincerely,
Thomas J. Kelly
Please sign, date, and return the enclosed proxy card today in
the envelope provided.
<PAGE>
PROXY SOLICITED IN OPPOSITION TO INCUMBENT DIRECTORS
BY THOMAS J. KELLY
* * * * * * * * * *
PROXY/VOTING INSTRUCTION CARD
Annual Meeting of Merck & Co. -- April 26, 1994
PLEASE FILL OUT BELOW, DATE, SIGN AND RETURN PROMPTLY USING
THE ENVELOPE PROVIDED
The undersigned hereby appoints Thomas J. Kelly and Bruce Endy as
proxies, each with full power of substitution, and hereby
authorizes them to vote as designated all of the undersigned's
Merck & Co. stock at the annual stockholders meeting on April 26,
1994, and at any adjournments, upon the matters below and upon
such other matters as may properly come before the meeting. This
card also provides voting instructions for shares held in the
in the dividend reinvestment plan. Any prior proxy or voting
instruction is hereby revoked. The undersigned acknowledges
receipt of Mr. Kelly's proxy statement.
1. ELECTION OF DIRECTORS:
For nominee Thomas J. Kelly [ ]
WITHHOLD AUTHORITY to vote for Thomas J. Kelly [ ]
2. PROPOSAL ______________
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Thomas J. Kelly recommends a vote FOR his election to the board
of directors and FOR/AGAINST proposals 2, etc. If you make no
specification, that is how this card will be voted.
Signature(s) _______________________________________
When signing as an attorney, executor, administrators,
trustee or guardian, give full title as such.
Dated: ______________________, 1994
