<PAGE> 1
FILED PURSUANT TO RULE 424(B)(3)
REGISTRATION NO. 33-51785
PROSPECTUS
MEDCO CONTAINMENT SERVICES, INC.
6% Convertible Subordinated Debentures due 2001
(Interest payable March 1 and September 1)
----------------
This Prospectus relates to $21,800,000 in aggregate principal
amount of 6% Convertible Subordinated Debentures due 2001 (the
"Debentures") of Medco Containment Services, Inc. (the "Company"), a wholly
owned subsidiary of Merck & Co., Inc. ("Merck"). The Debentures were
originally issued by Medco Containment Services, Inc. ("Old Medco"), a
Delaware corporation, which merged (the "Merger") with and into the Company
on November 18, 1993. As a result of the Merger, the Company changed its
name to Medco Containment Services, Inc. Pursuant to a Second Supplemental
Indenture (the "Supplemental Indenture"), dated as of November 18, 1993,
the Company assumed Old Medco's obligations with respect to the Debentures.
In addition, pursuant to the Supplemental Indenture, Merck has become
jointly and severally liable for the payment of principal, interest and
premium, if any, under the Debentures. Also pursuant to the Supplemental
Indenture, the Debentures are now convertible into a combination of cash
and shares of Common Stock, no par value (the "Merck Shares"), of Merck.
Either the Debentures or Merck Shares issued upon conversion may be offered
from time to time for the account of persons who are holders of Debentures
or such Merck Shares at the time of such offer (the "Selling
Debentureholders"). The Company will not receive any proceeds from this
offering.
Based on information available to the Company, the total principal
amount of Debentures that may be offered by the Selling Debentureholders
named herein is $13,070,000. Additional Selling Debentureholders or other
information concerning certain Selling Debentureholders may be set forth in
Prospectus Supplements from time to time. As a result of such Prospectus
Supplements, the principal amount of Debentures offered hereby may increase
or decrease. The total outstanding principal amount of Debentures is
$131,845,000.
The Debentures are convertible into a combination of Merck Shares
and cash (a "Merck Unit") on or before September 1, 2001, unless previously
redeemed, at a conversion price determined by dividing the principal amount
of Debentures being converted by $29.28. On the date hereof a Merck Unit
consisted of $15.60 in cash and .728406 Merck Shares. The number of Merck
Shares included in a Merck Unit is subject to adjustment in certain events.
On January 13, 1994, the last sale price of the Merck Shares as reported
on the New York Stock Exchange was $36.625 per Merck Share.
The Debentures are redeemable on at least 15 days' notice at the
option of the Company, in whole or in part, at any time on or after
September 1, 1994, initially at 103.429% of the principal amount thereof,
and thereafter at prices declining to 100% for redemptions on or after
September 1, 1998, together in each case with accrued interest. The
Debentures are required to be repurchased at the option of the holder at
100% of the principal amount thereof plus accrued interest if a Designated
Event (as defined herein) occurs.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESEN-
TATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
THE DATE OF THIS PROSPECTUS IS JANUARY 14, 1994.
(Cover continued on next page)
<PAGE> 2
With respect to the Company, the Debentures are unsecured and
subordinated in right of payment to all Senior Debt (as defined below).
However, the payment of the principal, interest, and premium, if any, by
Merck is unsubordinated and, therefore, the subordination of the Debentures
to Senior Debt of the Company will not affect the ability of holders of
Debentures to receive payment of all amounts due directly from Merck. See
"Description of Debentures."
The Selling Debentureholders, acting as principals for their own
account, directly, through agents designated from time to time, or to or
through dealers or underwriters also to be designated, may sell all or a
portion of the Debentures or Merck Shares offered hereby from time to time
on terms to be determined at the time of sale. The aggregate proceeds to
the Selling Debentureholders from the sale of Debentures and Merck Shares
offered by the Selling Debentureholders pursuant to this Prospectus will
be the purchase price of such Debentures or Merck Shares less any
commissions. See "Plan of Distribution" herein for indemnification
arrangements between the Company and the Selling Debentureholders.
The Selling Debentureholders and any broker-dealers, agents or
underwriters that participate with the Selling Debentureholders in the
distribution of the Debentures or Merck Shares may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, as amended
(the "Securities Act"), in which event any commissions received by such
broker-dealers, agents or underwriters and any profit on the resale of the
Debentures or Merck Shares purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act.
The Debentures were issued by Old Medco on September 12, 1991 in a
private placement.
<PAGE> 3
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND ANY
ACCOMPANYING PROSPECTUS SUPPLEMENT IN CONNECTION WITH THE OFFERING
DESCRIBED HEREIN AND THEREIN, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
MERCK OR BY ANY UNDERWRITER, DEALER OR AGENT. NEITHER THIS PROSPECTUS NOR
ANY PROSPECTUS SUPPLEMENT SHALL CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREUNDER IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION OR SALE IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT NOR ANY SALE MADE HEREUNDER IMPLIES
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF MERCK AT ANY TIME
SUBSEQUENT TO THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO ITS DATE.
AVAILABLE INFORMATION
Merck is subject to the informational requirements of the
Securities Exchance Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information
with the Commission. The reports, proxy statements and other information
filed by Merck with the Commission can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, and should be available at the
Commission's Regional Offices at 7 World Trade Center, New York, New York
10048, and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material also can be obtained at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. Merck Shares are listed on the
New York Stock Exchange (the "NYSE"), and certain of Merck's reports, proxy
materials and other information may be available for inspection at the
offices of the NYSE, 20 Broad Street, New York, New York 10005.
The Company has filed a registration statement on Form S-3
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act") with respect to the securities offered hereby. This
Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. For further information,
reference is made to the Registration Statement and the exhibits filed as a
part thereof. Statements contained herein concerning any document filed as
an exhibit are not necessarily complete and, in each instance, reference is
made to the copy of such document filed as an exhibit to the Registration
Statement. Each such statement is qualified in its entirety by such
reference.
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<PAGE> 4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by Merck (File
No. 1-3305) are incorporated by reference in this Prospectus:
1. Merck's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992;
2. Merck's Form 10-K/A filed on June 3, 1993, amending
Merck's Annual Report on Form 10-K for the fiscal year ended December 31,
1992;
3. Merck's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1993;
4. Merck's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993;
5. Merck's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1993;
6. Merck's Proxy Statement for the Annual Meeting of
Stockholders held April 27, 1993;
7. Merck's Current Reports on Form 8-K filed January 20,
1993, February 24, 1993, March 26, 1993, August 3, 1993 and December 3,
1993; and
8. The descriptions of shares of common stock of Merck set
forth in Merck's Registration Statements pursuant to Section 12 of the
Exchange Act, and any amendment or report filed for the purpose of updating
any such description.
All documents filed by Merck pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act, after the date of this Prospectus and prior
to the termination of the offering of the Debentures hereby shall be deemed
to be incorporated herein by reference.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus and the Registration Statement
of which it is a part to the extent that a statement contained herein or in
any other subsequently filed document which is also incorporated or deemed
to be incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this
Prospectus or such Registration Statement.
Merck will provide without charge to each person to whom a copy of
this Prospectus has been delivered, upon written or oral request of such
person, a copy of any or all of the documents which have been or may be
incorporated herein by reference, other than exhibits to such documents
(unless such exhibits are specifically incorporated by reference to such
documents). Requests for such copies should be directed to the Office of
the Secretary, Merck & Co., Inc., P.O. Box 100, One Merck Drive, Whitehouse
Station, New Jersey 08889-0100, telephone number (908) 423-4042.
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<PAGE> 5
SUMMARY OF TERMS OF THE DEBENTURES
The following summary is qualified in its entirety by the more
detailed description of the terms and provisions of the Debentures set
forth under "Description of Debentures."
<TABLE>
<S> <C>
Debentures Offered . . . . . . . . . Up to $21,800,000 aggregate principal
amount of 6% Convertible Subordinated
Debentures due 2001.
Maturity Date . . . . . . . . . . . September 1, 2001.
Interest Payment Dates . . . . . . . March 1 and September 1.
Conversion . . . . . . . . . . . . . Convertible into a unit of cash and
Merck Shares (a "Merck Unit") on or
before September 1, 2001, unless
previously redeemed, at a conversion
price determined by dividing the
principal amount of Debentures being
converted by $29.28 which will result in
the number of Merck Units to be
received. On the date hereof, a Merck
Unit consisted of $15.60 in cash and
.728406 Merck Shares. The number of
Merck Shares in a Merck Unit is subject
to further adjustment in certain events.
Optional Redemption . . . . . . . . Redeemable at the option of the Company,
in whole or in part, at any time on or
after September 1, 1994, initially at a
price of 103.429% of the principal
amount, and thereafter at prices
declining to 100% of the principal
amount for redemptions on or after
September 1, 1998, together in each case
with accrued interest.
Repurchase at Option of Holder
Upon Occurrence of a
Designated Event . . . . . . . . . . The Debentures are required to be
repurchased at 100% of their principal
amount, at the option of the holder, if
a Designated Event (as defined) occurs.
Subordination . . . . . . . . . . . With respect to the Company, the
Debentures are subordinated in right of
payment to all present and future Senior
Debt (as defined). However, the
</TABLE>
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<PAGE> 6
Debentures are not subordinated in right
of payment with respect to Merck's
obligation to pay all principal,
interest, and premium, if any, due
thereunder. Consequently, the
subordination of the Debentures to
Senior Debt of Medco will not affect the
ability of holders of Debentures to
recover amounts due from Merck.
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<PAGE> 7
SELLING DEBENTUREHOLDERS
The Debentures being offered hereby were issued by Old Medco in
September 1991 in a private placement pursuant to Rule 144A and Regulation
D under the Securities Act. The following table sets forth information
concerning the principal amount of Debentures which may be offered pursuant
to this Prospectus by those persons or entities identified to Merck or the
Company as beneficial owners of Debentures:
<TABLE>
<CAPTION>
Principal Amount Amount of Percent of
of Debentures Debentures Outstanding
Owned That May be Sold Debentures
---------------- ---------------- -----------
<S> <C> <C> <C>
HBK Korenvaes . . . . . . . . . . . . . . . . . . $ 3,600,000 $ 3,600,000 2.73%
General Motors Hourly-Rate
Employees Pension Trust . . . . . . . . . . . . . 650,000 650,000 *
General Motors Salaried Employees
Pension Trust . . . . . . . . . . . . . . . . . . 625,000 625,000 *
Fidelity Securities Fund: Fidelity
Growth & Income Portfolio . . . . . . . . . . . . 650,000 650,000 *
Municipal Employees Retirement
Fund for the State of Michigan . . . . . . . . . 545,000 545,000 *
California Public Employees
Retirement System - Internal
Convertible Portfolio . . . . . . . . . . . . . . 6,000,000 6,000,000 4.55
Smith Barney Shearson Inc. . . . . . . . . . . . . 1,000,000 1,000,000 *
----------- ----------- -----
TOTAL $13,070,000 $13,070,000 9.91%
=========== =========== =====
</TABLE>
------------------------------
* Less than 1%
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<PAGE> 8
The preceding table has been prepared based upon information
furnished to Merck or the Company by Depository Trust Company and by or on
behalf of the Selling Debentureholders.
Based on information available to Merck or the Company, the total
principal amount of Debentures that may be offered by the Selling
Debentureholders named herein is $13,070,000. Additional Selling
Debentureholders or other information concerning certain Selling
Debentureholders may be set forth in Prospectus Supplements from time to
time. As a result of such Prospectus Supplements, the principal amount of
Debentures offered hereby may increase or decrease. The total outstanding
principal amount of Debentures is $131,845,000.
Other than as a result of the ownership of Debentures or Merck
Shares, none of the Selling Debentureholders listed above has had any
material relationship with Merck within the past three years, except as
noted herein.
Because the Selling Debentureholders may offer all or some of the
Debentures which they hold and/or Merck Shares issued upon conversion
thereof pursuant to the offering contemplated by this Prospectus, and
because there are currently no agreements, arrangements or understandings
with respect to the sale of any of the Debentures or Merck Shares that will
be held by the Selling Debentureholders after completion of this offering,
no estimate can be given as to the principal amount of Debentures or Merck
Shares that will be held by the Selling Debentureholders after completion
of this offering. See "Plan of Distribution."
DESCRIPTION OF DEBENTURES
The Debentures were issued on September 12, 1991 pursuant to an
Indenture, as amended (the "Indenture"), between Old Medco and NationsBank
of Georgia, N.A. (formerly The Citizens and Southern National Bank), as
trustee (the "Trustee") dated as of September 12, 1991. The terms of the
Debentures include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (the "Trust
Indenture Act") as in effect on the date of the Indenture. The Debentures
are subject to all such terms, and holders of the Debentures are referred
to the Indenture and the Trust Indenture Act for a statement thereof.
Pursuant to a Second Supplemental Indenture (the "Supplemental Indenture")
among Merck, Medco Containment Services, Inc. and NationsBank of Georgia,
dated as of November 18, 1993, Merck is directly, jointly and severally,
liable for payment of principal, interest, and premium, if any, owed under
the Debentures. The following summary of the material provisions of the
Indenture and the Supplemental Indenture is qualified in its entirety by
reference to the Indenture and the Supplemental Indenture, including the
definitions therein of certain terms used below. Both the Indenture and
the Supplemental Indenture are exhibits to the Registration Statement.
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<PAGE> 9
GENERAL
The Debentures are general unsecured obligations of the Company
and Merck limited to $150,000,000 in initial aggregate principal amount.
The Debentures bear interest at 6% per annum, payable semiannually on March
1 and September 1 in each year to holders of record of Debentures at the
close of business on the February 15 or August 15 next preceding the
interest payment date. Interest initially began to accrue from September
12, 1991 and the first interest payment date was March 1, 1992. Interest
is computed on the basis of a 360-day year of twelve 30-day months. The
Debentures mature on September 1, 2001, and are issuable in denominations
of $1,000 and integral multiples thereof.
Principal and interest on the Debentures are payable at the
offices of the Company or its agent maintained for such purposes; provided
that payment of interest may, at the option of the Company, be made by
check mailed to a holder at such holder's registered address. The
Debentures will be convertible at the aforesaid offices of the Company or
its agent.
MERGER AGREEMENT
On July 27, 1993, Merck, the Company and Old Medco entered into an
Agreement and Plan of Merger (the "Merger Agreement") providing for a
merger (the "Merger") of Old Medco with and into M Acquisition Corp., a
Delaware corporation and a wholly owned subsidiary of Merck, which was the
surviving corporation in the Merger, which was consummated on November 18,
1993. Pursuant to the Merger Agreement, Merck assumed the obligation to
issue Merck Units consisting of a combination of Merck Shares and cash
based on the ratio determined under the Merger Agreement upon the
conversion of Debentures, if any.
CONVERSION OF DEBENTURES
The holder of any Debenture will be entitled at any time prior to
the close of business on September 1, 2001, subject to prior redemption, to
convert such Debenture (or portions thereof which are in denominations of
$1,000 or integral multiples thereof), at the principal amount thereof,
into Merck Units consisting of a combination of cash and Merck Shares.
The number of Merck Units issuable upon conversion of a Debenture
(including fractions of Merck Units) is determined by dividing the
principal amount of Debentures then being converted by such holder by
$29.28 (the previous conversion price per share of common stock of Old
Medco). Interest will be paid on any semiannual interest payment date with
respect to Debentures surrendered for conversion after the record date for
the payment of interest to the registered holder on such record date.
Debentures surrendered for conversion after a record date but prior to the
next succeeding interest payment date must be accompanied by payment of an
amount equal to the interest thereon which is to be paid on such interest
payment date. No payment or adjustment will be made on conversion of any
Debenture for interest accrued thereon or dividends on any Merck Shares
issued. Merck is not required to issue fractional Merck Shares upon
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<PAGE> 10
conversion of Debentures and, in lieu thereof, will pay a cash adjustment
based upon the market price of the Merck Shares on the date of conversion.
In the case of Debentures called for redemption, conversion rights will
expire at the close of business on the business day prior to the redemption
date.
The number of Merck Shares included in each Merck Unit is
initially .728406 Merck Shares. Such number of Merck Shares is subject to
adjustment as set forth in the Supplemental Indenture in certain events,
including: the issuance of stock of Merck as a dividend or distribution
on the Merck Shares; subdivisions, combinations and reclassifications of
the Merck Shares; the issuance to all holders of Merck Shares of certain
rights or warrants entitling them to subscribe for Merck Shares at less
than the current market price (as defined); the distribution to all holders
of Merck Shares of assets or debt securities of Merck or rights or warrants
(other than as referred to above) to purchase assets, debt securities or
other securities of Merck (excluding cash dividends or distributions from
current or retained earnings); the issuance, in certain circumstances, of
Merck Shares for consideration less than the then current market price and
less than $24.12 (the "Merck Adjustment Price" as the same may be adjusted
in certain events); and the issuance, in certain circumstances, of
securities convertible into or exchangeable for Merck Shares (other than
pursuant to transactions described above) for a consideration per Merck
Share deliverable on such conversion or exchange that is less than the then
current market price of the Merck Shares and the Merck Adjustment Price on
the date of issuance of such security. As used above, the "current market
price" per Merck Share is the lower of (x) the average of the last reported
sales prices of Merck Shares (as reported on the New York Stock Exchange)
for consecutive trading days commencing 25 trading days before the date
in question or (y) the last reported sales price at the most recent close
of trading prior to the time in question (except that, in the case of an
issuance of rights or warrants or a distribution of assets or securities to
holders of Merck Shares, clause (y) will not apply). No adjustment in the
Merck Adjustment Price will be required unless such adjustment would
require a change of at least 1% in the price then in effect; but any
adjustment that would otherwise be required to be made shall be carried
forward and taken into account in any subsequent adjustment.
If Merck consolidates or merges into or sells, leases, conveys or
otherwise disposes of all or substantially all of its assets to any person,
the Debentures will become convertible into the kind and amount of
securities, cash or other assets which the holders of the Debentures would
have owned immediately after the transaction if the holders had converted
the Debentures immediately before the effective date of the transaction at
the conversion price in effect immediately prior to such effective date.
If at any time Merck makes a distribution of property to its
stockholders which would be taxable to such stockholders as a dividend for
federal income tax purposes (e.g., distributions of evidences of
indebtedness or assets of Merck, but generally not stock dividends) and,
pursuant to the
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<PAGE> 11
antidilution provisions of the Indenture, the Merck Adjustment Price is
reduced, such reduction may be deemed to be the receipt of taxable income
by the holders of Debentures.
OPTIONAL REDEMPTION OF DEBENTURES
The Debentures are redeemable at the option of the Company, in
whole at any time or in part, from time to time, on or after September 1,
1994, at the redemption prices (expressed as percentages of the principal
amount) set forth below plus accrued interest to the redemption date, if
redeemed during the 12-month period beginning September 1 of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
1994 . . . . . . . . . . . . . 103.429%
1995 . . . . . . . . . . . . . 102.571%
1996 . . . . . . . . . . . . . 101.714%
1997 . . . . . . . . . . . . . 100.857%
1998 and thereafter . . . . . . 100.000%
</TABLE>
In the event of redemption of less than all of the Debentures, the
Debentures will be chosen for redemption by the Trustee as provided in the
Indenture, but generally pro rata or by lot. Notice of redemption will be
mailed at least 15 days but not more than 60 days before the redemption
date to each holder of Debentures to be redeemed at its registered address.
On and after the redemption date interest ceases to accrue on Debentures or
portions thereof called for redemption.
REPURCHASE AT OPTION OF HOLDER UPON OCCURRENCE OF A DESIGNATED EVENT
If at any time there occurs any Designated Event (as defined
below) with respect to the Company, each holder of Debentures shall have
the right, at the holder's option, to require the Company to repurchase all
of such holder's Debentures, or a portion thereof which is $1,000 or any
integral multiple thereof, on the date (the "Repurchase Date") that is 45
days after the date of the Company Notice (as defined below), at 100% of
their principal amount, together with accrued interest to the date fixed
for repurchase.
Within 30 days after the occurrence of a Designated Event, the
Company is obligated to mail to all holders of record of the Debentures a
notice (the "Company Notice") of the occurrence of such Designated Event
and of the repurchase right arising as a result thereof. The Company shall
deliver a copy of the Company Notice to the Trustee and shall cause a copy
of such notice to be published in a newspaper of general circulation in the
Borough of Manhattan, The City of New York. To exercise the repurchase
right, holders of Debentures must deliver on or before the 30th day after
the date of the Company Notice irrevocable written notice to the Company
(or an agent designated by the Company for such purpose) of the holder's
exercise of such right, together with the Debentures with respect to which
the right is being exercised, duly endorsed for transfer.
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<PAGE> 12
A Designated Event shall be deemed to have occurred upon the
consummation of a purchase, merger or acquisition constituting a "Change in
Control." As used herein, a "Change in Control" of the Company shall be
deemed to have occurred at such time as any person, together with its
affiliates or associates, first is or becomes the beneficial owner,
directly or indirectly, through a purchase, merger or other acquisition
transaction, of shares of capital stock of the Company entitling such
person to exercise 75% or more of the total voting power of all shares of
capital stock of the Company entitled to vote in elections of directors,
provided that a Change in Control shall not be deemed to have occurred if
either (i) the last sale price of the Common Stock for any five trading
days during the ten trading days immediately preceding the Change in
Control is at least equal to 105% of the conversion price in effect on such
day or (ii) at least 90% of the consideration (excluding cash payments for
fractional shares) in the transaction or transactions constituting the
Change in Control consists of shares of common stock or securities
convertible into common stock that are, or upon issuance will be, traded on
a national securities exchange or through the NASDAQ-NMS and the
consolidated net worth of the surviving entity (or the entity issuing
common stock or securities convertible into shares of common stock in such
transaction or transactions, if such entity guarantees the Company's
obligations under the Debentures) immediately after such transaction or
transactions, as measured according to generally accepted accounting
principles as in effect on the date hereof, is equal to or greater than the
consolidated net worth of the Company immediately prior to the Change in
Control. "Beneficial owner" shall be determined in accordance with Rule
13d-3, as in effect on the date of the execution of the Indenture,
promulgated by the Commission under the Exchange Act.
SUBORDINATION
With respect to the Company, the indebtedness evidenced by the
Debentures is subordinate to the prior payment when due of the principal
of, premium, if any, and interest on all Senior Debt (as defined below).
Upon maturity of any Senior Debt, payment in full must be made on such
Senior Debt before any payment of the principal of, or interest on, the
Debentures is made. During the continuance of any default in payment of
principal or premium, if any, or interest on Senior Debt, no payment of the
principal of, or interest on, the Debentures may be made by the Company
unless and until such default is cured or waived. Upon any distribution of
assets of the Company in any dissolution, winding-up, liquidation or
reorganization of the Company, payment of the principal of, and interest
on, the Debentures will be subordinated, to the extent and in the manner
set forth in the Indenture, to the prior payment in full of all Senior
Debt. Such subordination will not prevent the occurrence of any Event of
Default (as defined in the Indenture).
"Senior Debt" means (a) the principal of, premium, if any, and
interest on all Debt (other than the Debentures), whether outstanding on
the date of the Indenture as originally executed or thereafter created or
incurred, unless, in the agreement or instrument creating or evidencing the
same or pursuant to which the same is outstanding, it is provided that such
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<PAGE> 13
Debt is not superior in right of payment to the Debentures, and (b) any
amendment, modification, deferral, renewal, refunding or extension of any
such Senior Debt, or debentures, notes or other evidences of indebtedness
issued in exchange of any such Senior Debt; provided, however, that Senior
Debt shall not include the Company's guarantee of the Development Authority
of Fulton County Industrial Development Revenue Bonds (Porex Technologies
Corp. of Georgia Project) Series 1985. "Debt" means (a) all indebtedness
of the Company for borrowed money, (b) all indebtedness of the Company
which is evidenced by a note, debenture, bond or other similar instrument
(including capitalized lease and purchase money obligations) and (c) all
indebtedness of the Company (including capitalized lease obligations)
incurred, assumed or given in the acquisition (whether by way of purchase,
merger or otherwise) of any business, real property or other assets, except
assets acquired in the ordinary course of the acquiror's business; any
indebtedness of others described in the preceding clauses (a), (b) and (c)
which the Company has guaranteed or for which it is otherwise liable; and
any amendment, renewal, extension or refunding of any such indebtedness.
However, pursuant to the Supplemental Indenture, Merck is directly
liable, without subordination, for the repayment of all amounts due with
respect to the Debentures, including the principal of, premium, if any,
and all interest thereon. Therefore, the subordination of the Debentures
to Senior Debt of the Company will not affect the ability of the holders of
Debentures to receive payment of all amounts due directly from Merck.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Company may not consolidate or merge with or into, or sell,
lease, convey or otherwise dispose of all or substantially all of its
assets to, another corporation, person or entity unless (i) the Company is
the surviving person or the successor or transferee is a corporation
organized under the laws of the United States, any state thereof or the
District of Columbia, or a corporation or comparable legal entity organized
under the laws of a foreign jurisdiction and whose equity securities are
listed on a national securities exchange in the United States or authorized
for quotation on the NASDAQ-NMS (provided, however, that in the case of a
transaction where the surviving entity is organized under the laws of a
foreign jurisdiction, the Company may not consummate the transaction
without first making provision for the satisfaction of its obligations to
repurchase Debentures following a Designated Event, if any), (ii) the
successor assumes all the obligations of the Company under the Debentures
and the Indenture and (iii) after such transaction no Event of Default
exists.
COVENANTS
The Company shall not adopt any plan of liquidation (other than a
plan of liquidation incident to a permitted merger, consolidation, sale of
assets or other transaction described in the preceding paragraph) which
provides for, contemplates or the effectuation of which is preceded by (i)
the sale, lease, conveyance or other disposition of all or substantially
all of
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<PAGE> 14
the assets of the Company otherwise than substantially as an entirety and
(ii) the distribution of all the proceeds of such sale, lease, conveyance
or other disposition unless the Company makes provisions for satisfaction
of the Company's obligation to pay principal and interest on the
Debentures.
EVENTS OF DEFAULT AND REMEDIES
An Event of Default is: default for 30 days in payment of
interest on the Debentures; default in payment when due of principal and
premium, if any; failure by the Company for 30 days after notice to comply
with any of its other agreements in the Indenture or the Debentures, or in
the case of failure by the Company to comply with the restrictions on
liquidation and on consolidation, merger or transfer or lease of
substantially all of its assets or the provisions regarding the conversion
of Debentures, with such notice but without such passage of time; default
by the Company or a Significant Subsidiary (as defined below) under and
acceleration prior to maturity of, or the failure to pay at maturity,
certain other indebtedness of the Company or a Significant Subsidiary for
money borrowed aggregating in excess of $25,000,000 and continuance of such
default for 30 days after notice; failure by the Company or a Significant
Subsidiary to pay certain final judgments aggregating in excess of
$25,000,000 (excluding amounts covered by insurance as to which the insurer
has not denied liability); and certain events of bankruptcy or insolvency.
"Significant Subsidiary" means a "significant subsidiary" as defined in
Rule 1-02 of Regulation S-X under the Securities Act and the Exchange Act
(as such Regulation was in effect on September 12, 1991, the date of
issuance of the Debentures), except that any subsidiary which is not
engaged in the provision of prescription drugs through mail service, the
processing of prescription drug claims and the administration or design of
prescription drug benefit programs and the common stock of which is
publicly held (at present or at any future relevant time) (a "Public
Subsidiary"), and any subsidiary of a Public Subsidiary, shall not be
deemed to be a Significant Subsidiary.
If any Event of Default occurs and is continuing, the Trustee or
the holders of at least 25% in principal amount of the then outstanding
Debentures may declare all the Debentures to be due and payable
immediately; except that in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, all outstanding Debentures
become due and payable without any action or notice by the Trustee or any
holder. Holders of the Debentures may not enforce the Indenture or the
Debentures except as provided in the Indenture. Subject to certain
limitations, holders of a majority in principal amount of the then
outstanding Debentures may direct the Trustee in its exercise of any trust
or power. The Trustee may withhold from holders of the Debentures notice
of any continuing Default or Event of Default (except a Default or Event of
Default in payment of principal or interest) if it determines that
withholding notice is in their interest.
The holders of a majority in aggregate principal amount of the
Debentures then outstanding may on behalf of the holders of all of the
Debentures waive any past Default or Event of Default under the Indenture
and
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<PAGE> 15
its consequences except a Default in the payment of interest on, or the
principal of, the Debentures or a Default or an Event of Default arising
with respect to the conversion rights of holders.
The Company is required to deliver to the Trustee annually a
statement regarding compliance with the Indenture, and upon becoming aware
of any Default or Event of Default, a statement specifying such Default or
Event of Default.
A director, officer, employee or stockholder, as such, of the
Company shall not have any liability for any obligations of the Company
under the Debentures or the Indenture or for any claim based on, in respect
of, or by reason of, such obligations or their creation. Each holder of
the Debentures by accepting a Debenture waives and releases all such
liability. The waiver and release were part of the consideration for
issuance of the Debentures.
SATISFACTION AND DISCHARGE OF THE INDENTURE
The Company and/or Merck many terminate its obligations under the
Indenture at any time by delivering all outstanding Debentures to the
Trustee for cancellation. After all the Debentures have been called for
redemption, the Company and/or Merck may terminate all of its obligations
under the Indenture, other than its obligations to pay the principal of and
interest on the Debentures and certain other obligations, at any time, by
depositing with the Trustee money or non-callable U.S. Government
obligations sufficient to pay all remaining indebtedness on the Debentures.
REGISTRATION AND TRANSFER OF DEBENTURES
As of the date of this Prospectus, all Debentures which have not
previously been sold by the initial holder are represented by a single
global debenture (the "Global Debenture") issued to Depository Trust
Company ("DTC") and registered in the name of Cede & Co., as nominee of
DTC. NationsBank of Georgia, N.A., as custodian (the "Custodian"), acts
as custodian of the Global Debenture for DTC. Currently, ownership of
beneficial interests in the Global Debenture is limited to participants
in DTC's book-entry settlement system or persons that hold interests
through participants, and ownership of beneficial interests in the Global
Debenture is shown on records maintained by DTC (with respect to interests
of participants in DTC), or by participants in DTC or persons that may
hold interests through such participants (with respect to persons other
than participants in DTC).
Upon notification to the Trustee (on a form approved by the
Company) of any sale of any Debentures pursuant to this Prospectus, the
Company will, unless otherwise instructed, issue a Debenture in fully
registered, certificated form (a "Definitive Debenture") in exchange for
the interest in the Global Debenture representing the Debentures
transferred. In the event such an exchange is to be effected, the Trustee
will cause, in accordance with the standing instructions and procedures
existing between DTC and the Custodian, the aggregate principal amount of
the Global Debenture to be
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<PAGE> 16
reduced. Following such reduction, the Company will execute and the
Trustee will authenticate and deliver to the transferee a Definitive
Debenture, provided that the Trustee has received written or electronic
instructions to that effect from DTC or its nominee on behalf of any person
having a beneficial interest in the Debentures evidenced by the Global
Debenture and a written order of such person containing registration
instructions.
Upon surrender of any Definitive Debenture to the Trustee for
exchange or registration of transfer and upon receipt by the Trustee of a
written order of the person surrendering such Definitive Debenture
containing any necessary registration instructions, the Company will
execute and the Trustee will authenticate and deliver to the holder making
the exchange or to the transferee, as the case may be, one or more new
Definitive Debentures.
Any person having a beneficial interest in Debentures evidenced by
the Global Debenture may upon request exchange its interest in the Global
Debenture for a Definitive Debenture in the manner set forth in the
Indenture. In addition, the Company may at any time and in its sole
discretion determine not to have a Global Debenture, and, in such event,
will issue Definitive Debentures in exchange for the Debentures represented
by the Global Debenture.
A Definitive Debenture may not be exchanged for a beneficial
interest in the Global Debenture.
AMENDMENT, SUPPLEMENT AND WAIVER
Subject to certain exceptions, the Indenture or the Debentures may
be amended or supplemented with the consent of the holders of at least a
majority in principal amount of such then outstanding Debentures, and any
existing default or compliance with any provision may be waived with the
consent of the holders of a majority in principal amount of the then
outstanding Debentures. Without the consent of any holder of the
Debentures, the Company, Merck and the Trustee may amend or supplement the
Indenture or the Debentures to cure any ambiguity, defect or inconsistency,
to provide for uncertificated Debentures in addition to or in place of
certificated Debentures, to provide for the assumption of the Company's
obligations to holders of the Debentures in the case of a merger or
acquisition, or to make any change that does not materially adversely
affect the legal rights of any holder of the Debentures. Without the
consent of each holder affected, the Company may not reduce the principal
amount of Debentures the holders of which must consent to an amendment of
the Indenture; reduce the rate or change the interest payment time of any
Debenture; reduce the principal of or change the fixed maturity of any
Debenture or alter the redemption provision with respect thereto; make any
Debenture payable in money other than that stated in the Debenture; make
any change in the provisions concerning waiver of Defaults or Events of
Default by holders of the Debentures or rights of holders to receive
payment of principal or interest; make any change that adversely affects
the right to convert any Debenture; or make any change in the subordination
provisions that adversely affects the rights of any holder.
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<PAGE> 17
CONCERNING THE TRUSTEE
NationsBank of Georgia, N.A. (formerly The Citizens and Southern
National Bank) is Trustee under the Indenture. The Trustee is trustee
under an indenture in respect of industrial development bonds issued for
the benefit of a subsidiary of the Company, which bonds are guaranteed by
the Company. The Trustee is also the trustee under the indentures for
certain convertible subordinated debentures of Medical Marketing Group,
Inc., a 54.2% owned subsidiary of the Company, and certain convertible
subordinated debentures of Synetic, Inc., a 58.7% owned subsidiary of the
Company. The Trustee has certain banking relationships with the Company and
its subsidiaries and affiliates.
The Indenture contains certain limitations on the rights of the
Trustee, should it become a creditor of the Company, to obtain payment of
claims in certain cases, or to realize on certain property received in
respect of any such claim as security or otherwise. The Trustee will be
permitted to engage in other transactions; however, if it acquires any
conflicting interest (as defined), it must eliminate such conflict or
resign.
The holders of a majority in principal amount of the then
outstanding Debentures will have the right to direct the time, method and
place of conducting any proceeding for exercising any remedy available to
the Trustee. The Indenture provides that in case an Event of Default shall
occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will
be under no obligation to exercise any of its rights or powers under the
Indenture at the request of any of the holders of the Debentures, unless
they shall have offered to the Trustee security and indemnity satisfactory
to it.
REGISTRATION RIGHTS AGREEMENT
Old Medco and Kidder, Peabody & Co. Incorporated have entered into
a Registration Rights Agreement benefitting the holders of Debentures not
sold pursuant to registration thereof with the Commission. Under certain
circumstances, such agreement requires the Company to pay additional
interest to such holders. Purchasers of Debentures offered hereby will not
be entitled to the benefits of such agreement.
RATIO OF EARNINGS TO FIXED CHARGES
Merck's ratio of earnings to fixed charges for each of the five
fiscal years ended December 31, 1992 and for the nine months ended
September 30, 1993 is set forth below. For purposes of computing these
ratios, "earnings" consist of income before income taxes, one-third of
rents (deemed by Merck to be representative of the interest factor), and
interest expense, net of amounts capitalized. "Fixed charges" consist of
one-third of rents and interest expense as reported in Merck's consolidated
financial statements (includes both amounts expensed and amounts
capitalized). The ratio of earnings to fixed charges should be read in
conjunction with the financial statements and other information and data
contained in the 1992 10-K, which financial statements and other information
and data are incorporated by reference herein. See "Incorporation of
Certain Documents by Reference."
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<PAGE> 18
<TABLE>
<CAPTION>
Nine Months
Ended Years Ended December 31,
Sept. 30, ------------------------------------
1993 1992 1991 1990 1989 1988
----------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to
Fixed Charges ........ 25 34 32 29 32 20
</TABLE>
PLAN OF DISTRIBUTION
Neither Merck nor the Company will receive any of the proceeds
from this offering. The Selling Debentureholders may sell all or a portion
of the Debentures and Merck Shares offered hereby from time to time in the
over-the-counter market on terms to be determined at the times of such
sales. The Selling Debentureholders may also make private sales directly
or through a broker or brokers. Alternatively, any of the Selling
Debentureholders may from time to time offer the Debentures or Merck Shares
through underwriters, dealers or agents, who may receive compensation in
the form of underwriting discounts, commissions or concessions from the
Selling Debentureholders and/or the purchasers of the Debentures or Merck
Shares for whom they may act as agent. To the extent required, the
aggregate principal amount of Debentures and/or number of Merck Shares to
be sold, the names of the Selling Debentureholders, the purchase price, the
name of any such agent, dealer or underwriter and any applicable
commissions with respect to a particular offer will be set forth in an
accompanying Prospectus Supplement. The aggregate proceeds to the Selling
Debentureholders from the sale of the Debentures and Merck Shares offered
by the Selling Debentureholders hereby will be the purchase price of such
Debentures and Merck Shares less any broker's commissions.
There is no assurance that the Selling Debentureholders will sell
any or all of the Debentures or Merck Shares offered hereby.
In order to comply with the securities laws of certain states, if
applicable, the Debentures and Merck Shares will be sold in such
jurisdictions only through registered or licensed brokers or dealers. In
addition, in certain states the Debentures and Merck Shares may not be sold
unless they have been registered or qualified for sale in the applicable
state or an exemption from the registration or qualification requirement is
available and is complied with.
The Selling Debentureholders and any broker-dealers, agents or
underwriters that participate with the Selling Debentureholders in the
distribution of the Debentures or Merck Shares may be deemed to be
"underwriters" within the meaning of the Securities Act, in which event any
commissions received by such broker-dealers, agents or underwriters and any
profit on the resale of the Debentures or Merck Shares purchased by them
may be deemed to be underwriting commissions or discounts under the
Securities Act.
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<PAGE> 19
Under applicable rules and regulations under the Exchange Act, any
person engaged in the distribution of the Debentures or the Merck Shares
offered hereby may not simultaneously engage in market making activities
with respect to either the Debentures or the Merck Shares for a period of
nine business days (two business days in the case of Merck Shares) prior to
the commencement of such distribution. In addition, and without limiting
the foregoing, each Selling Debentureholder will be subject to applicable
provisions of the Exchange Act and the rules and regulations thereunder,
including, without limitation, Rules 10b-2, 10b-6 and 10b-7, which
provisions may limit the timing of purchases and sales of Debentures or
Merck Shares by the Selling Debentureholders.
LEGAL MATTERS
The validity of the Debentures and the Merck Shares offered hereby
has been passed upon for Merck and the Company by Bert I. Weinstein,
assistant general counsel of Merck.
EXPERTS
The audited Consolidated Financial Statements and schedules of
Merck and its subsidiaries included in Merck's Annual Report on Form 10-K
for the fiscal year ended December 31, 1992 and incorporated by reference
in this Prospectus and elsewhere in the Registration Statement have been
audited by Arthur Andersen & Co., independent public accountants, as
indicated in their report with respect thereto, and are incorporated herein
in reliance upon the authority of said firm as experts in giving said
report.
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