<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
--Enter Company Name Here--
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
MERCK & CO., INC.
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
[LOGO]MERCK
Merck & Co., Inc.
NOTICE OF ANNUAL MEETING
and
PROXY STATEMENT
Annual Meeting of Stockholders
Edward Nash Theatre at Raritan Valley Community College
Route 28 and Lamington Road
North Branch, New Jersey
April 23, 1997
<PAGE>
Merck & Co., Inc.
P.O. Box 100
Whitehouse Station, New Jersey 08889-0100
(908) 423-1000
Notice of Annual Meeting of Stockholders
April 23, 1997
----------------
To the Stockholders:
The Annual Meeting of Stockholders of Merck & Co., Inc. will be held on
Wednesday, April 23, 1997, at 2:00 p.m., at the Edward Nash Theatre at Raritan
Valley Community College, Route 28 and Lamington Road, North Branch, New
Jersey, for the following purposes:
. To elect one director for a term ending in 1999 and four directors for
terms ending in 2000;
. To consider and act upon a proposal to ratify the appointment of
independent public accountants for 1997;
. To consider and act upon a stockholder proposal concerning prior
government/political service of certain employees and directors;
. To consider and act upon a stockholder proposal concerning benefits for
management and directors;
. To consider and act upon a stockholder proposal concerning confidential
voting;
. To consider and act upon a stockholder proposal concerning providing
shareholders with reports;
. To consider and act upon a stockholder proposal concerning charitable
contributions; and
. To transact such other business as may properly come before the meeting
and all adjournments thereof.
Only stockholders of record at the close of business on March 7, 1997, the
record date and time fixed by the Board of Directors, are entitled to notice
of, and to vote at, said meeting. It is always important for you, as a
stockholder, to exercise your right to vote.
Admission to the meeting will be by ticket only. If you are a stockholder of
record and plan to attend, please check the appropriate box on the proxy card.
The ticket attached to the proxy card will admit you and one guest to the
meeting. If you are a stockholder whose shares are held through an
intermediary such as a bank or broker and you plan to attend, you may request
a ticket by writing to the Office of the Secretary, WS 3AB-05, Merck & Co.,
Inc., P.O. Box 100, Whitehouse Station, New Jersey 08889-0100. Evidence of
your ownership, which you can obtain from your bank, broker, etc., must
accompany your letter.
IN ORDER THAT YOUR STOCK MAY BE REPRESENTED AT THE MEETING IF YOU ARE NOT
PERSONALLY PRESENT, PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY/VOTING
INSTRUCTION CARD AND RETURN IT PROMPTLY IN THE ACCOMPANYING ADDRESSED
ENVELOPE.
By order of the Board of Directors,
Celia A. Colbert
Vice President, Secretary and
Assistant General Counsel
March 17, 1997
<PAGE>
Merck & Co., Inc.
P. O. Box 100
Whitehouse Station, New Jersey 08889-0100
(908) 423-1000
March 17, 1997
Proxy Statement
----------------
This proxy statement is furnished to stockholders of Merck & Co., Inc. in
connection with the solicitation by the Board of Directors of proxies to be
used at the Annual Meeting of Stockholders of the Company which will be held
at the Edward Nash Theatre at Raritan Valley Community College, Route 28 and
Lamington Road, North Branch, New Jersey, on Wednesday, April 23, 1997, and
all adjournments thereof. The Company's Annual Report for 1996, including
financial statements, and proxy statement and proxy/voting instruction card
("proxy card" or "proxy") are being mailed to stockholders beginning March 17,
1997.
If a stockholder is a participant in the Merck Stock Investment Plan, the
proxy card covers the shares in the account for that plan, as well as shares
registered in the participant's name.
HOWEVER, THE PROXY CARD WILL NOT SERVE AS A VOTING INSTRUCTION CARD FOR THE
SHARES HELD FOR PARTICIPANTS IN THE MERCK & CO., INC. EMPLOYEE SAVINGS AND
SECURITY PLAN ("ES&SP"), MERCK & CO., INC. EMPLOYEE STOCK PURCHASE AND SAVINGS
PLAN ("ESP&SP"), ASTRA MERCK, INC. EMPLOYEE SAVINGS AND SECURITY PLAN
("AMES&SP"), HUBBARD FARMS, INC. EMPLOYEE SAVINGS PLAN ("HFESP") OR MEDCO
401(K) SAVINGS PLAN ("MSP"). INSTEAD, THESE PARTICIPANTS WILL RECEIVE FROM THE
PLAN TRUSTEES SEPARATE VOTING INSTRUCTION CARDS COVERING THESE SHARES. VOTING
INSTRUCTION CARDS FOR THE ES&SP, ESP&SP, AMES&SP AND HFESP MUST BE SIGNED AND
RETURNED OR THE SHARES WILL NOT BE VOTED. IF VOTING INSTRUCTION CARDS FOR THE
MSP ARE NOT RETURNED, THE PLAN TRUSTEE WILL VOTE THOSE SHARES IN THE SAME
MANNER AS IT VOTED THE MAJORITY OF THE SHARES FOR WHICH VOTING INSTRUCTIONS
WERE RECEIVED.
Any proxy cards returned without specification will be voted as to each
proposal in accordance with the recommendations of the Board of Directors.
THE PROXY
Any person giving a proxy has the power to revoke it at any time before it
is voted, upon written notice to Celia A. Colbert, Vice President, Secretary
and Assistant General Counsel of the Company.
The Company will bear the costs of solicitation of proxies. Following the
mailing of proxy soliciting material, proxies may also be solicited by
directors, officers and regular employees of the Company in person, by
telephone or by other electronic means. The Company will also reimburse
persons holding stock for others in their names or in those of their nominees
for their reasonable expenses in sending proxy material to their principals
and obtaining their proxies. The Company will use the services of Morrow &
Co., 909 Third Avenue, New York, N.Y. 10022-4799, to aid in the solicitation
of proxies at an anticipated fee of $18,000 plus reasonable expenses.
BENEFICIAL OWNERSHIP OF SECURITIES AND VOTING RIGHTS
On December 31, 1996, no individual, corporation or other entity was known
by the Company to own beneficially more than five percent of the Company's
outstanding Common Stock.
There are outstanding and entitled to vote as of the record date, March 7,
1997, 1,210,027,985 shares of Common Stock of the Company. The holders of a
majority in interest of all the stock of the Company entitled to vote at the
meeting, present in person or by proxy, shall constitute a quorum for the
transaction of business.
<PAGE>
The holders of Common Stock are entitled to one vote per share but, in
connection with the cumulative voting feature applicable to the election of
directors, each stockholder is entitled to as many votes as shall equal the
number of shares held by such person at the close of business on the record
date, multiplied by the number of directors to be elected. A stockholder may
cast all of such votes for a single nominee or may apportion such votes among
any two or more nominees. For example, when five directors are to be elected,
a holder of 100 shares may cast 500 votes for a single nominee, apportion 250
votes to each of two nominees, or apportion 500 votes in any other manner by
so noting in the space provided on the accompanying proxy card. A stockholder
may withhold votes from any or all nominees by notation to that effect on the
proxy card. Except to the extent that a stockholder withholds votes from any
or all nominees, the persons named in the proxy card, in their sole
discretion, will vote such proxy for, and, if necessary, exercise cumulative
voting rights to secure, the election of the nominees listed below as
directors of the Company.
In the event that any of the nominees becomes unavailable, which the Company
does not expect, it is intended that, pursuant to the accompanying proxy,
votes will be cast for such substitute nominee or nominees as may be
designated by the Board of Directors, unless the Board of Directors reduces
the number of directors.
The persons named in the accompanying proxy will vote such proxy in
accordance with the specification made thereon with respect to each of the
other proposals or, if no specification is made, FOR the proposal to ratify
the appointment of independent public accountants and AGAINST the stockholder
proposals. A majority of the votes cast by holders of Common Stock is required
for approval of these proposals. Abstentions and broker non-votes are not
counted as votes cast on any matter to which they relate.
1. ELECTION OF DIRECTORS
Five directors are to be elected at the meeting. One director is to be
elected for the two remaining years of a term expiring in 1999 and four
directors are to be elected for full three-year terms expiring in 2000. The
Board's nominees are Dr. Edward M. Scolnick for a term expiring in 1999 and
Mr. Lawrence A. Bossidy, Dr. Johnnetta B. Cole, Mr. Charles E. Exley, Jr. and
Dr. William N. Kelley for terms expiring in 2000. After the election of five
directors at the meeting, the Company will have thirteen directors, including
the eight directors whose present terms currently extend beyond the meeting.
Information on the nominees and continuing directors follows.
Dr. Edward M. Scolnick was elected by the Board in January 1997, subject to
election by the stockholders at this Annual Meeting. All other candidates have
previously been elected by the stockholders.
NAME, AGE AND
YEAR FIRST BUSINESS EXPERIENCE AND OTHER DIRECTORSHIPS OR
ELECTED DIRECTOR SIGNIFICANT AFFILIATIONS
- - ---------------- ----------------------------------------------
NOMINEES
For a term expiring in 1999
[PHOTOGRAPH] Executive Vice President, Science and Technology and
President, Merck Research Laboratories ("MRL") since December
Edward M. 1993; Executive Vice President and President, MRL from January
Scolnick, 1993 to December 1993; Senior Vice President and President,
M.D. MRL from April 1991 to January 1993
Age--56
1997 Member, Institute of Medicine of the National Academy of
Sciences and National AIDS Task Force
2
<PAGE>
NAME, AGE AND
YEAR FIRST BUSINESS EXPERIENCE AND OTHER DIRECTORSHIPS OR
ELECTED DIRECTOR SIGNIFICANT AFFILIATIONS
- - ---------------- ----------------------------------------------
For terms expiring in 2000
[PHOTOGRAPH] Chairman of the Board (since January 1992) and Chief Executive
Officer (since July 1991), AlliedSignal, Inc. (aerospace,
Lawrence A. automotive products and engineered materials technology); Vice
Bossidy Chairman, General Electric Company from January 1984 to July
Age--62 1991
1992
Director, Champion International Corporation; Member, The
Business Council, The Business Roundtable and International
Council of J.P. Morgan & Co. Incorporated
[PHOTOGRAPH] President, Spelman College for more than five years
Johnnetta B.
Cole, Ph.D. Director, Coca-Cola Enterprises, The Home Depot, Inc.,
Age--60 Management and Training Corporation and NationsBank South;
1994 Trustee, Rockefeller Foundation and Wellesley College; Member,
Council on Foreign Relations and National Council of Negro
Women; Fellow, American Anthropological Association
[PHOTOGRAPH] Retired (1991); Chairman of the Board and Chief Executive
Officer, NCR Corporation (business information processing
Charles E. systems) from January 1988 to September 1991
Exley, Jr.
Age--67
1988 Director, Banc One Corporation; Trustee, The Andrew W. Mellon
Foundation; Member, The Business Council and Board of
Overseers, Columbia University Graduate School of Business
[PHOTOGRAPH] Chief Executive Officer, University of Pennsylvania Medical
Center and Health System and Executive Vice President, Dean of
William N. the School of Medicine and Robert G. Dunlop Professor of
Kelley, M.D. Medicine, Biochemistry and Biophysics, University of
Age--57 Pennsylvania, for more than five years
1992
Director, Beckman Instruments, Greater Philadelphia First and
Philadelphia Orchestra Association; Trustee, Emory University;
Master, American College of Physicians; Fellow, American
Academy of Arts & Sciences; Member, Institute of Medicine of
the National Academy of Sciences, Board of Managers of Wistar
Institute and Chairman, Board of Governors of Leonard Davis
Institute of Health Economics
3
<PAGE>
NAME, AGE AND
YEAR FIRST BUSINESS EXPERIENCE AND OTHER DIRECTORSHIPS OR
ELECTED DIRECTOR SIGNIFICANT AFFILIATIONS
- - ---------------- ----------------------------------------------
DIRECTORS WHOSE TERMS EXPIRE IN 1998
[PHOTOGRAPH] Retired (1997); Chairman of the Board, The RTZ Corporation PLC
(international mining company) for more than five years
Sir Derek
Birkin
Age--67 Director, Unilever PLC, Carlton Communications PLC, The
1992 Merchants Trust PLC, Watmouths (Holdings) PLC and The Royal
Opera House
[PHOTOGRAPH] President, The Andrew W. Mellon Foundation (philanthropic
foundation) for more than five years
William G.
Bowen, Ph.D.
Age--63 Director, American Express Company and Reader's Digest, Inc.;
1986 Member, Board of Overseers Teachers Insurance and Annuity
Association of America--College Retirement Equities Fund;
Trustee, Denison University
[PHOTOGRAPH] International Health Care Consultant for more than five years
Carolyne K.
Davis, Ph.D. Director, Beckman Instruments, Pharmaceutical Marketing
Age--65 Services, Inc., The Prudential Insurance Company of America,
1989 Inc. and Science Applications International Corp.; Trustee,
Georgetown University and University of Pennsylvania Medical
Center; Member, Institute of Medicine of the National Academy
of Sciences
[PHOTOGRAPH] Professor of Psychiatry, Meharry Medical College for more than
five years
Lloyd C.
Elam, M.D. Director, First Union Bank of Tennessee, Premark International
Age--68 Inc. and Tupperware, Inc.; Trustee, Fisk University and The
1973 Alfred P. Sloan Foundation
4
<PAGE>
NAME, AGE AND
YEAR FIRST BUSINESS EXPERIENCE AND OTHER DIRECTORSHIPS OR
ELECTED DIRECTOR SIGNIFICANT AFFILIATIONS
- - ---------------- ----------------------------------------------
DIRECTORS WHOSE TERMS EXPIRE IN 1999
[PHOTOGRAPH] Retired (1996); Chairman of the Board and Chief Executive
Officer, General Mills, Inc. (consumer foods and restaurants)
H. Brewster for more than five years
Atwater, Jr.
Age--65
1988 Director, Darden Restaurants, Inc., IDS Mutual Fund Group,
Mayo Foundation, Public Radio International and Walker Art
Center; Member, The Business Council
[PHOTOGRAPH] Chairman of the Board (since November 1994), President and
Chief Executive Officer (since June 1994) of the Company;
Raymond V. Chairman, President and Chief Executive Officer (1992 to
Gilmartin 1994), President and Chief Executive Officer (1989 to 1992),
Age--56 of Becton Dickinson and Company (medical supplies and devices
1994 and diagnostic systems)
Director, Pharmaceutical Research and Manufacturers of
America, Providian Corporation and Public Service Enterprise
Group; Member, The Business Council and The Business
Roundtable
[PHOTOGRAPH] President (since May 1994), Massachusetts General Hospital and
Chief Executive Officer (since July 1996) of Partners
Samuel O. Healthcare System, Inc.; President, Brandeis University from
Thier, M.D. October 1991 to May 1994
Age--59
1994
Director, Fleet Financial Group; Member, Association of
American Physicians, Institute of Medicine of the National
Academy of Sciences; Master, American College of Physicians;
Trustee, Brandeis University, Boston Museum of Science,
Cornell University and WGBH Public Television; Fellow,
American Academy of Arts and Sciences
[PHOTOGRAPH] Retired (1995); Chairman of the Board, J.P. Morgan & Co.
Incorporated and Morgan Guaranty Trust Company of New York
Dennis (banking and other financial services) for more than five
Weatherstone years
Age--66
1988 Director, J.P. Morgan & Co. Incorporated, Morgan Guaranty
Trust Company of New York, General Motors Corporation, L'Air
Liquide, Institute for International Economics; Independent
Member of the Board of Banking Supervision of the Bank of
England; President, Royal College of Surgeons Foundation;
Trustee, The Alfred P. Sloan Foundation; Member, The Business
Council
5
<PAGE>
BOARD COMMITTEES
There are five standing committees of the Board of Directors: the Committee
on Directors, the Finance Committee, the Executive Committee, the Audit
Committee and the Compensation and Benefits Committee. Members of the
individual committees are named below:
<TABLE>
<CAPTION>
COMMITTEE ON COMPENSATION AND
DIRECTORS FINANCE EXECUTIVE AUDIT BENEFITS
------------ ------- --------- ----- ----------------
<S> <C> <C> <C> <C>
D. Birkin H. B. Atwater, Jr. H. B. Atwater, Jr. D. Birkin H. B. Atwater, Jr.(*)
L. A. Bossidy L. A. Bossidy W. G. Bowen C. K. Davis L. A. Bossidy
W. G. Bowen(*) J. B. Cole C. K. Davis C. E. Exley, Jr.(*) W. G. Bowen
W. N. Kelley C. E. Exley, Jr. L. C. Elam W. N. Kelley J. B. Cole
D. Weatherstone D. Weatherstone(*) R. V. Gilmartin(*) S. O. Thier L. C. Elam
S. O. Thier
</TABLE>
- - --------
(*) Chairman
The Committee on Directors, consisting entirely of independent directors,
considers and makes recommendations on matters related to the practices,
policies and procedures of the Board. As part of its duties, the Committee
assesses the size, structure and composition of the Board and Board
committees, evaluates Board performance and reviews Board compensation. The
Committee also acts as a screening and nominating committee for candidates
considered for election to the Board. In this capacity it concerns itself with
the composition of the Board with respect to depth of experience, balance of
professional interests, required expertise and other factors and evaluates
prospective nominees identified by the Committee on its own initiative or
referred to it by other Board members, management, stockholders or external
sources. Names of prospective candidates may be submitted to the Secretary of
the Company for referral to the Committee. Any stockholder who wishes to make
a nomination at an annual or special meeting for the election of directors
must do so in compliance with procedures set forth in the Company's By-Laws.
The Finance Committee, consisting entirely of independent directors, was
established November 26, 1996 to consider and make recommendations on matters
relating to the financial affairs and policies of the Company, including
capital structure issues, dividend policy, treasury stock purchases, asset and
portfolio management, external financing, complex financial transactions and
investment and debt policies.
The Executive Committee acts for the Board of Directors when formal Board
action is required between meetings in connection with matters already
approved in principle by the full Board or to fulfill the formal duties of the
Board.
The Audit Committee, consisting entirely of independent directors, oversees
the Company's financial reporting process and internal controls. The Committee
consults with management, the internal auditors and the Company's independent
auditors during the year on matters related to the annual audit, internal
controls, the published financial statements, and the accounting principles
and auditing procedures being applied. It meets with the auditors after year-
end to discuss the results of their examination. The Committee reviews
management's evaluation of the auditors' independence, approves audit fees and
non-audit services to ensure no compromise of auditor independence and submits
to the Board of Directors its recommendations for the appointment of an audit
firm for the upcoming year. It reviews the insurance program of the Company
periodically and makes recommendations to the Board of Directors on insurance
policy, and is also charged with monitoring compliance with the Foreign
Corrupt Practices Act and the Company's policies on ethical business practices
and reporting on the same to the Board of Directors annually.
The Compensation and Benefits Committee, consisting entirely of independent
directors, administers the Company's Executive Incentive Plan, Deferral
Program and stock option and incentive program and also appoints and monitors
the Management Pension Investment Committee. The Committee consults generally
with management on matters concerning executive compensation and on pension,
savings and welfare benefit plans where Board or stockholder action is
contemplated with respect to the adoption of or amendments to such plans.
6
<PAGE>
It makes recommendations to the Board of Directors on organization, succession
and compensation generally, individual salary rates, supplemental compensation
and special awards, the election of officers, consultantships and similar
matters where Board approval is required.
BOARD AND BOARD COMMITTEE MEETINGS
In 1996, there were nine meetings held by the Board of Directors. Board
committees met as follows during 1996: the Committee on Directors, three
times; the Executive Committee, four times; the Audit Committee, three times;
the Compensation and Benefits Committee, four times. No meetings of the
Finance Committee were held in 1996. The total combined attendance for all
Board and Committee meetings was 93%. All directors attended at least 75% of
the meetings of the Board and of the Committees on which they served.
RELATIONSHIPS WITH OUTSIDE FIRMS
Dennis Weatherstone is a director of the Company and in 1996 was a director
of J.P. Morgan & Co. Incorporated and Morgan Guaranty Trust Company which
performed financial advisory, commercial and investment banking services for
the Company during 1996 and which are expected to perform such services for
the Company during 1997.
COMPENSATION OF DIRECTORS
Each director who is not an employee of the Company is compensated for
services as a director by an annual retainer of $38,000 and a meeting fee of
$1,200 for each Board and Committee meeting attended. In addition, Chairmen of
the Committee on Directors, the Finance Committee, the Audit Committee and the
Compensation and Benefits Committee are compensated for such services by an
annual retainer of $3,000. Those directors who are employees of the Company do
not receive any compensation for their services as directors. The Company
reimburses all directors for travel and other necessary business expenses
incurred in the performance of their services for the Company.
Under the Merck & Co., Inc. Plan for Deferred Payment of Directors'
Compensation ("Plan for Deferred Payment of Directors' Compensation"), each
director may elect to defer all or a portion of such compensation. Any amount
so deferred is, at the director's election, valued as if invested in any of 18
investment measures, including the Company's Common Stock, and is payable in
cash in installments or as a lump-sum on or after termination of services as a
director.
In 1996 the Retirement Plan for the Directors of Merck & Co., Inc. (the
"Directors' Retirement Plan") (which excludes current or former employees of
the Company) was discontinued for directors who join the Board after December
31, 1995. Participant directors who elected to remain in the Directors'
Retirement Plan and who have served on the Board for five years will receive,
upon normal retirement (generally age 70), an annual retirement benefit of 50%
of their last annual retainer. Each additional year of service up to ten years
increases the benefit by 10%, to a maximum of 100% of the retainer. The
applicable benefit is payable for the lifetime of the retired director.
Eligible directors who elected not to accrue additional retirement credits
under the Directors' Retirement Plan will receive at retirement a pension
benefit based on the amount of credits as of March 31, 1997. Such directors,
and directors who joined the Board after December 1995, will be credited with
an additional $15,000 of compensation annually to be deferred in accordance
with the terms of the Plan for Deferred Payment of Directors' Compensation.
Under the Non-Employee Directors Stock Option Plan adopted by stockholders
in 1996 (the "1996 Non-Employee Directors Stock Option Plan"), directors
(excluding those who are current or former employees of the Company) each
receive an option to purchase 1,000 shares of Common Stock every year on the
first Friday following the Company's Annual Meeting of Stockholders. The
options become exercisable five years from date of grant and expire ten years
from date of grant. The exercise price of the options is the closing price of
the Company's Common Stock on the date of grant as quoted on the composite
tape of the New York Stock Exchange. The exercise price is payable in cash at
the time the stock option is exercised.
7
<PAGE>
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
Beneficial ownership of Common Stock of the Company as of December 31, 1996
by each director of the Company, each executive officer of the Company named
in the Summary Compensation Table and by all directors and executive officers
as a group is set forth below. Unless otherwise stated, the beneficial owners
exercise sole voting and/or investment power over their shares.
<TABLE>
<CAPTION>
COMPANY COMMON STOCK
-------------------------------------------------
RIGHT TO ACQUIRE PERCENT
SHARES OWNERSHIP UNDER OPTIONS OF
NAME OF BENEFICIAL OWNER OWNED(a) EXERCISABLE WITHIN 60 DAYS CLASS
------------------------ -------- -------------------------- -------
<S> <C> <C> <C>
Raymond V. Gilmartin........ 106,468(b) -- *
H. Brewster Atwater, Jr..... 14,991(c) -- *
Derek Birkin................ 549 -- *
Lawrence A. Bossidy......... 10,000 -- *
William G. Bowen............ 10,800(b) -- *
Johnnetta B. Cole........... 1,216(c) -- *
Carolyne K. Davis........... 687(d) -- *
Lloyd C. Elam............... 21,266(c) -- *
Charles E. Exley, Jr........ 13,603(c) -- *
William N. Kelley........... 6,202(c) -- *
Edward M. Scolnick.......... 119,787(b) 54,300 *
Samuel O. Thier............. 10(e) -- *
Dennis Weatherstone......... 15,000 -- *
David W. Anstice............ 25,284(b)(c) 111,300 *
Judy C. Lewent.............. 72,926(c) 123,000 *
Per G.H. Lofberg............ 45,341 157,433 *
All Directors and Executive
Officers as a Group........ 579,995(b) 881,663 *
</TABLE>
- - --------
(a) Includes equivalent shares of Common Stock held by the Trustee of the
Merck & Co., Inc. Employee Savings and Security Plan or shares of Common
Stock held by the Trustee of the Medco 401(k) Savings Plan for the
accounts of individuals as follows: Mr. Gilmartin--1,019 shares, Dr.
Scolnick--1,644 shares, Mr. Anstice--1,593 shares, Ms. Lewent--2,353
shares, Mr. Lofberg--2,385 shares and all directors and executive officers
as a group--25,630 shares. Also includes 1,789 shares of Common Stock held
by Mr. Lofberg in the Medco Stock Purchase Plan.
(b) Excludes shares of Common Stock held by family members and in which
beneficial ownership is disclaimed by the individuals as follows: Mr.
Gilmartin--12,215 shares, Dr. Scolnick--14,000 shares, Mr. Anstice--252
shares and all directors and executive officers as a group--42,148 shares.
Also excludes 400 shares held by a trust of which Dr. Bowen is a trustee
who shares voting and dispositive power, and in which Dr. Bowen disclaims
beneficial ownership.
(c) Includes shares of phantom Common Stock held in the Plan for Deferred
Payment of Directors' Compensation or in the Merck & Co., Inc. Deferral
Program as follows: Mr. Atwater--13,491 shares, Dr. Cole--986 shares, Dr.
Elam--14,516 shares, Mr. Exley--12,103 shares, Dr. Kelley--5,102 shares,
Mr. Anstice--2,793 shares, Ms. Lewent--3,761 shares and all directors and
executive officers as a group--68,903 shares.
(d) Includes 40 shares of Common Stock held by Dr. Davis in custody for a
family member.
(e) Under the policy of Massachusetts General Hospital, the President of the
hospital may hold only a de minimis amount of stock in any vendor
corporation.
*Less than one percent of the Company's outstanding shares of Common Stock.
8
<PAGE>
COMPENSATION AND BENEFITS COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The Compensation and Benefits Committee of the Board (the "Committee")
approves compensation objectives and policy for all employees and sets
compensation for the Company's executive officers, including the individuals
named in the Summary Compensation Table.
The Committee is comprised entirely of independent outside directors.
OBJECTIVES AND POLICIES
The Committee seeks to:
. provide rewards that are closely linked to Company-wide, divisional,
area, team and individual performance;
. align the interests of the Company's employees with those of its
stockholders through potential stock ownership; and
. ensure that compensation and benefits are at levels that enable the
Company to attract and retain the high-quality employees it needs.
The Committee applies these objectives and policies to most employees
through the broad and deep availability of performance-based cash incentive
opportunities and stock option grants.
Consistent with these objectives and in keeping with the long-term focus
required for the Company's research-based pharmaceutical business, it is the
policy of the Committee to make a high proportion of executive officer
compensation and awards under stock ownership programs dependent on long-term
performance and on enhancing stockholder value.
Executive officer compensation and stock ownership programs have both short-
term and longer-term components. Short-term components include base salary and
annual bonus awards under the stockholder-approved Executive Incentive Plan
("EIP"). Longer-term components include stock option awards under the
stockholder-approved Incentive Stock Plan ("ISP"). Prior to 1995, awards of
Performance Shares were made under the Strategic Performance Feature ("SPF").
Those awards provide for a payment of stock or cash or a combination thereof
at the end of five-year periods, the last of which ends in 1998. Payments in
cash are equal to the market value on the payment date of the stock that the
cash replaces. Payments will be based on the Company's achievement of
specified performance targets.
The Company employs a formal system for developing measures of executive
officer performance and for evaluating performance.
Provided that other compensation objectives are met, it is the Committee's
intention that executive compensation be deductible for federal income tax
purposes. To comply with newly released regulations for the federal income tax
deductibility of executive compensation expense, the Committee took action in
1996 to clarify that the Chief Executive Officer could not receive more than
10% of the maximum amount available for awards in the EIP, and the remaining
participants were limited to 90% of such maximum amount.
BASE SALARY AND BONUS
Executive officer base salary and bonus awards are determined with reference
to Company-wide, divisional, area, team and individual performance for the
previous fiscal year, based on a wide range of measures which permit
comparisons with competitors' performance and internal targets set before the
start of each fiscal year and by comparison to the base salary and bonus award
levels of executive officers of other leading healthcare companies.
9
<PAGE>
Performance measures for 1996 covered operational, strategic and human
resources areas. The operational measures included earnings per share growth
compared to both leading healthcare companies (Abbott, American Home Products,
Bristol-Myers Squibb, Glaxo, Johnson & Johnson, Eli Lilly, Pfizer, Schering
Plough, SmithKline Beecham, Pharmacia & Upjohn, Roche Holdings AG) and a
benchmark standard of companies in other industries who have provided superior
shareholder returns over a period and are expected to continue to lead their
industry in earnings performance. The other operational measures were sales
growth versus prior year and the change in return on operating assets versus
prior year. The strategic measures refer to the Company's communicated goal of
remaining a top-tier growth company through maximizing revenue growth,
continuing strong commitments to research and marketing, achieving the full
potential of managed pharmaceutical care with particular reference to Medco
and preserving profitability through productivity in manufacturing, marketing,
general and administrative areas. The human resources measures refer to the
goal of fostering a culture of teamwork, flexibility and agility and were
assessed through a review of Company performance in the areas of diversity and
work/life, training and development and communications. The Company met or
exceeded all performance measure targets in 1996. In addition to Company-wide
measures of performance, the Committee considered those performance factors
particular to each executive officer--the performance of the division or area
for which such officer had management responsibility and individual managerial
accomplishments.
Base salary and bonus award comparisons are made within the healthcare
industry using the following United States owned companies as comparisons:
Abbott, American Home Products, Bristol-Myers Squibb, Johnson & Johnson, Eli
Lilly, Pfizer, Schering Plough, Pharmacia & Upjohn and Warner Lambert.
Generally, the base salary and bonus award practices of the non-United States
owned companies cannot be meaningfully compared with those of the Company
since their senior executive officers are based outside the United States and
compensation practices differ. The Committee also considers broader industry
information if it judges this to be appropriate.
The Committee relies heavily, but not exclusively, on these measures. It
exercises subjective judgment and discretion in light of these measures and in
view of the Company's compensation objectives and policies described above to
determine base salaries, overall bonus funds and individual bonus awards.
The base salary increases and bonuses awarded to the Company's executive
officers in 1996 followed the principles outlined in the preceding paragraphs.
The Committee judged that executive officer salary and bonus compensation for
1996 were consistent with the level of accomplishment and appropriately
reflected individual performance and Company results on earnings per share
growth, sales growth, return on operating assets and continuing strong
progress in research, in managed pharmaceutical care, in productivity in all
areas and in the management of human resources.
The Committee approved a Base Salary Deferral Plan effective January 1,
1997, for all executive officers subject to Section 16 of the Securities
Exchange Act of 1934, including the individuals named in the Summary
Compensation Table. The plan provides for the opportunity to defer base salary
within specified limits in a similar way to the current plan for deferral of
bonus payments under the EIP.
STOCK OPTIONS
Within the total number of shares authorized by stockholders, the Committee
aims to provide stock option awards broadly and deeply throughout the
organization.
Individual executive officer stock option awards are based on level of
position and individual contribution. The Committee expects the CEO to hold
70% and the other executive officers named in the Summary Compensation Table
to hold 60% of the shares which may be purchased from the gain on stock option
exercise after deducting option price, taxes and transaction costs. The
Committee also considers stock option grants previously made and the aggregate
of such grants. As with the determination of base salaries and bonus awards,
the Committee exercises subjective judgment and discretion in view of the
above criteria and its general policies. The Company's long-term performance
ultimately determines compensation from stock options, since gains from stock
option exercises are entirely dependent on the long-term growth of the
Company's stock price.
10
<PAGE>
STRATEGIC PERFORMANCE FEATURE
AWARDS
No awards were made in 1996 consistent with the Committee's decision to
discontinue the SPF in 1995 and to rely on stock option awards as the only
long-term incentive. Since 1989, the SPF had allowed for the award of
Performance Shares to executive officers based on the level of position.
Awards previously made under the SPF, which were for five-year periods, will
continue to their term. The last payment that may be made, dependent on
Company performance, would be in 1999 for the 1994-1998 Award Period.
PAYOUTS
In 1996, payouts were made for the 1991-1995 Award Period of the SPF.
Payouts for that period were made in cash or stock.
For the years 1991 through 1993 and 1995, the Committee considered three
measures: earnings per share growth, sales growth and return on assets as
compared to a group of leading healthcare companies selected in 1991. This
group consisted of companies in the Dow Jones Pharmaceutical Index--United
States Owned Companies ("DJPI") as of the applicable time period other than
the Company and also included Abbott Laboratories, Glaxo Holdings PLC and
SmithKline Beecham PLC. For each of the three measures, the Company placed
first, second or third. The Committee also compared return on assets
performance against eleven other companies identified as growth companies at
the beginning of the period. The Company placed first in this comparison.
For 1994 the Committee used the measures of net income growth versus a group
of leading healthcare companies (as defined in the prior paragraph), return on
assets against plan and total stockholder return versus the Standard & Poor's
500 Index. The Company placed fourth for net income growth, met its planned
return on assets and placed in the top 80-89th percentile of the Standard &
Poor's 500 companies for total stockholder return.
Overall, the result was payment of 131.3% of target out of a possible
payment range from zero to 175%. (See Summary Compensation Table.) The
Committee considered the Company's performance under the measures described
above and made individual payments using its subjective judgment and
discretion.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
BASE SALARY AND BONUS
Mr. Gilmartin's base salary and bonus award for 1996 were determined with
reference to the same measures used for all executive officers of the Company,
including the Company performance measures of earnings per share and sales
growth, return on operating assets and continuing strong progress in research,
in managed pharmaceutical care, in productivity in all areas and in the
management of human resources. The Company met or exceeded its targets on all
Company performance measures. No change was made in Mr. Gilmartin's base
salary in 1996. Mr. Gilmartin's bonus award was $1,300,000 in comparison to
$1,100,000 for 1995. The Committee exercised its subjective judgment and
discretion in determining the amounts of Mr. Gilmartin's base salary and bonus
award for 1996.
STOCK OPTIONS
The stock option grant to Mr. Gilmartin in 1996 was determined with
reference to the same criteria used for all executive officers of the Company,
as described in the "Stock Options" section above.
STRATEGIC PERFORMANCE FEATURE
Mr. Gilmartin was not eligible for any payout under the SPF.
11
<PAGE>
COMPENSATION ANALYSES AND REVIEWS
The Company periodically retains outside compensation and benefits
consultants to compare base salary and incentive compensation programs for the
Company's executive officers with those of other leading industrial and
healthcare firms (including those in the DJPI) to ensure that they are
appropriate to the Company's objectives. The Committee exercises judgment and
discretion in the information it reviews and the analyses it considers.
H. Brewster Atwater, Jr. Lawrence A. Bossidy
Chairman
Johnnetta B. Cole
William G. Bowen
Lloyd C. Elam
12
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------------- ----------------------------------------
AWARDS PAYOUTS
---------------------------- -----------
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING LTIP ALL OTHER
SALARY BONUS COMPENSATION (a) AWARD(S) OPTIONS/SARS (d) PAYOUTS (e) COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
- - --------------------------- ---- ---------- ---------- ---------------- ---------- ---------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Raymond V. Gilmartin 1996 $1,000,000 $1,300,000 $-- $ -- 150,000 -- $ 6,750(f)
Chairman of the
Board, President 1995 1,000,000 1,100,000 -- -- 180,000 -- 6,750(f)
and Chief Executive
Officer 1994 541,671 1,000,000 -- 778,125(c) 500,000 -- 1,368(g)
Edward M. Scolnick 1996 663,000 800,000 -- -- 100,000 1,006,698 3,375(f)
Executive Vice
President, 1995 643,336 660,000 -- -- 100,000 372,111 2,250(f)
Science and
Technology and
President, 1994 609,996 600,000 58,955 -- 90,000 311,829 2,250(f)
Merck Research
Laboratories
David W. Anstice 1996 412,420 480,000 -- -- 70,000 354,327 9,445(h)
President, 1995 392,668 365,000 -- -- 70,000 128,704 6,468(h)
Human Health--The
Americas 1994 356,589 325,000 -- -- 40,500 95,542 6,182(h)
Judy C. Lewent 1996 410,000 460,000 57,398 -- 70,000 419,288 6,750(f)
Senior Vice Presi-
dent and 1995 393,332 365,000 70,996 -- 70,000 148,213 4,824(f)
Chief Financial Of-
ficer 1994 354,996 330,000 55,855 -- 50,000 130,541 3,750(f)
Per G.H. Lofberg 1996 374,460 440,000 2,898(b) -- 70,000 -- 2,645(i)
President, Merck-
Medco 1995 324,040 365,000 4,519(b) -- 70,000 -- 4,135,107(i)
Managed Care,
L.L.C. 1994 300,000 300,000 3,248(b) -- 235,000 -- 4,321(i)
</TABLE>
- - ----
(a) Includes air commuting services as follows: $39,225 for Ms. Lewent in
1996; $52,436 for Ms. Lewent in 1995; $34,873 for Dr. Scolnick and $38,642
for Ms. Lewent in 1994. Also includes automobile service as follows:
$18,173 for Ms. Lewent in 1996; $24,082 for Dr. Scolnick and $17,213 for
Ms. Lewent in 1994.
(b) Represents compensation received in the form of discount for purchase
price of Merck Common Stock paid by Company which was available to Medco
salaried employees under the Medco Employee Stock Purchase Plan.
(c) Represents a Restricted Stock Award of 25,000 shares of stock granted on
June 16, 1994 and vesting on June 16, 1999, on which regular dividends are
being paid. The dollar value of the Restricted Stock Award as of December
31, 1996 was $1,990,625.
(d) No stock appreciation rights were granted to the executive officers named
in the Summary Compensation Table.
(e) Strategic Performance Feature payouts in 1996 were for services performed
during the five-year award cycle 1991-1995; Strategic Performance Feature
payouts in 1995 were for services performed during the five-year award
cycle 1990-1994; Strategic Performance Feature payouts in 1994 were for
services performed during the five-year cycle 1989-1993.
(f) Company contribution to the Merck & Co., Inc. Employee Savings and
Security Plan.
(g) Imputed income for group term life insurance.
(h) Includes Company contributions to the Merck & Co., Inc. Employee Savings
and Security Plan of $6,750, $3,750 and $3,750 for 1996, 1995 and 1994,
respectively, and imputed income for survivor income insurance of $2,695,
$2,718 and $2,432 for 1996, 1995 and 1994, respectively.
(i) Includes Company contributions to the Medco 401(k) Employee Savings Plan
of $2,123, $5,538 and $3,799 for 1996, 1995 and 1994, respectively, and
imputed income for survivor insurance of $522 for each of 1996, 1995 and
1994. Also includes $4,129,047 additional compensation paid to Mr. Lofberg
in 1995 pursuant to his employment agreement in connection with the
acquisition of Merck-Medco Managed Care, L.L.C. (formerly Medco
Containment Services, Inc.) by the Company.
13
<PAGE>
The following table sets forth stock options granted in 1996 to each of the
Company's executive officers named in the Summary Compensation Table and stock
options and stock appreciation rights granted to all employees as a group. The
table also sets forth the hypothetical gains that would exist for the options
at the end of their ten-year terms for the executive officers named in the
Summary Compensation Table and for all employees as a group (assuming their
options had ten-year terms), at assumed compound rates of stock appreciation
of 0%, 5% and 10%. The actual future value of the options will depend on the
market value of the Company's Common Stock. All option exercise prices are
based on market price on the date of grant. The Company did not issue stock
appreciation rights to the executive officers named in the Summary
Compensation Table.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------
PERCENT
OF TOTAL
NUMBER OF OPTIONS/
SECURITIES SARS POTENTIAL REALIZABLE VALUE
UNDERLYING GRANTED AT ASSUMED ANNUAL RATES
OPTIONS/ TO EXERCISE OF STOCK PRICE APPRECIATION
SARS EMPLOYEES OR BASE FOR OPTION TERM(b)
DATE OF GRANTED IN FISCAL PRICE EXPIRATION -----------------------------------
NAME GRANT (#) YEAR ($/SH) DATE 0% ($) 5% ($) 10% ($)
---- ------- ---------- --------- -------- ---------- ------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Raymond V. Gilmartin.... 2/27/96 150,000 1.15% $65.125 2/26/06 -- $ 6,143,514 $ 15,568,872
Edward M. Scolnick...... 2/27/96 100,000 0.77% 65.125 2/26/06 -- 4,095,676 10,379,248
David W. Anstice........ 2/27/96 70,000 0.54% 65.125 2/26/06 -- 2,866,973 7,265,473
Judy C. Lewent.......... 2/27/96 70,000 0.54% 65.125 2/26/06 -- 2,866,973 7,265,473
Per G.H. Lofberg........ 2/27/96 70,000 0.54% 65.125 2/26/06 -- 2,866,973 7,265,473
All employees
as a group............. (a) 13,053,632 100.00% (a) (a) -- 534,634,506(c) 1,354,868,808(c)
</TABLE>
----------------
<TABLE>
<CAPTION>
0% 5% 10%
--- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total potential stock price appreciation from
February 27, 1996 to February 26, 2006 for all
stockholders at assumed rates of stock price
appreciation(d)..................................... -- $49,418,525,882 $125,236,247,314
Potential actual realizable value of options granted
to all employees, assuming ten-year option terms, as
a percentage of total potential stock price
appreciation from February 27, 1996 to February 26,
2006 for all stockholders at assumed rates of stock
price appreciation.................................. -- 1.08% 1.08%
</TABLE>
- - --------
(a) Options were granted under the ISP throughout 1996 at prices ranging from
$60.000 to $82.250; the options expire ten years from the date of grant.
In addition, stock options were granted throughout 1996 with prices
ranging from $62.125 to $62.500 under the Medco Containment Services
("Medco") 1990 Special Non-Qualified Employee Stock Option Plan. Options
granted under the Medco 1990 Special Non-Qualified Employee Stock Option
Plan are exercisable three years from date of grant and expire five years
from date of grant. On December 3, 1996, stock appreciation rights were
granted to approximately 31 employees at a price of $81.000; these stock
appreciation rights vest five years from date of grant and expire ten
years from date of grant. Does not include options to purchase Merck stock
issued to employees of Systemed, Inc. as a result of the conversion of
certain Systemed, Inc. options to Merck options in connection with the
acquisition of Systemed, Inc. on June 10, 1996.
(b) These amounts, based on assumed appreciation rates of 0% and the 5% and
10% rates prescribed by the Securities and Exchange Commission rules, are
not intended to forecast possible future appreciation, if any, of the
Company's stock price.
(c) No gain to the optionees is possible without an increase in stock price,
which will benefit all stockholders.
(d) Based on a price of $65.125 on February 27, 1996, and a total of
1,206,602,348 shares of Common Stock outstanding.
14
<PAGE>
The following table sets forth the number of shares acquired on exercise of
stock options and the aggregate gains realized on exercise in 1996 by the
Company's executive officers named in the Summary Compensation Table. The
table also sets forth the number of shares covered by exercisable and
unexercisable options held by such executives on December 31, 1996 and the
aggregate gains that would have been realized had these options been exercised
on December 31, 1996, even though these options were not exercised, and the
unexercisable options could not have been exercised, on December 31, 1996.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS/SARS AT FY- THE-MONEY OPTIONS/SARS AT
VALUE END (#) FISCAL YEAR END(b) ($)
SHARES ACQUIRED REALIZED (a) ------------------------- -------------------------
NAME ON EXERCISE (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Raymond V. Gilmartin.... -- $ -- -- 830,000 $ -- $33,130,000
Edward M. Scolnick...... -- -- 54,300 400,300 1,511,930 13,620,388
David W. Anstice........ 26,100 934,100 111,300 210,800 4,160,926 6,614,138
Judy C. Lewent.......... -- -- 123,000 250,300 5,274,611 8,274,138
Per G.H. Lofberg........ -- -- 157,433 411,421 9,514,601 17,340,167
</TABLE>
- - --------
(a) Market value on the date of exercise of shares covered by options
exercised, less option exercise price.
(b) Market value of shares covered by in-the-money options on December 31,
1996, less option exercise price. Options are in-the-money if the market
value of the shares covered thereby is greater than the option exercise
price.
The Long-Term Incentive Plans--Awards in Last Fiscal Year table has been
eliminated since no SPF Performance Share Awards, or other Long-Term Incentive
Plan awards, were made by the Company in 1996.
ANNUAL BENEFITS PAYABLE UNDER MERCK & CO., INC. RETIREMENT PLANS
Annual benefits payable under the Retirement Plan for Salaried Employees of
Merck & Co., Inc. and the Merck & Co., Inc. Supplemental Retirement Plan are
based on a formula which multiplies the participant's final average
compensation (as defined by the plans) by a multiplier and then by the
participant's years of credited service (as defined by the plans) not to
exceed 35 years of credited service. The multiplier is 2% for years of
credited service earned prior to July 1, 1995 and 1.6% for years of credited
service earned after that date.
The following tables set forth the estimated annual benefits payable using
the 1.6% and 2% multipliers, respectively, under the Retirement Plan for
Salaried Employees and the Supplemental Retirement Plan at age 65 to persons
in specified compensation and years-of-service classifications, based on a
straight-life annuity form of retirement income. Annual benefits payable under
the plans can be estimated by adding the years of service earned prior to July
1, 1995 (Table 2) to those which could be earned after that date (Table 1).
15
<PAGE>
PENSION PLAN TABLES
TABLE 1: 1.6% FORMULA
<TABLE>
<CAPTION>
REMUNERATION
(AVERAGE PENSION COMPENSATION
DURING HIGHEST
FIVE CONSECUTIVE YEARS IN THE YEARS OF SERVICE
LAST TEN YEARS BEFORE (ESTIMATED ANNUAL RETIREMENT BENEFITS FOR YEARS
RETIREMENT) OF CREDITED SERVICE SHOWN BELOW(a))
- - ----------------------------- --------------------------------------------------
15 20 25 30 35
-------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$ 600,000.................. $144,000 $192,000 $ 240,000 $ 288,000 $ 336,000
800,000.................. 192,000 256,000 320,000 384,000 448,000
1,000,000.................. 240,000 320,000 400,000 480,000 560,000
1,200,000.................. 288,000 384,000 480,000 576,000 672,000
1,400,000.................. 336,000 448,000 560,000 672,000 784,000
1,600,000.................. 384,000 512,000 640,000 768,000 896,000
1,800,000.................. 432,000 576,000 720,000 864,000 1,008,000
2,000,000.................. 480,000 640,000 800,000 960,000 1,120,000
2,200,000.................. 528,000 704,000 880,000 1,056,000 1,232,000
2,400,000.................. 576,000 768,000 960,000 1,152,000 1,344,000
2,600,000.................. 624,000 832,000 1,040,000 1,248,000 1,456,000
2,800,000.................. 672,000 896,000 1,120,000 1,344,000 1,568,000
3,000,000.................. 720,000 960,000 1,200,000 1,440,000 1,680,000
</TABLE>
TABLE 2: 2% FORMULA(b)
<TABLE>
<CAPTION>
REMUNERATION
(AVERAGE PENSION COMPENSATION
DURING HIGHEST YEARS OF SERVICE
FIVE CONSECUTIVE YEARS IN THE (ESTIMATED ANNUAL RETIREMENT BENEFITS
LAST TEN YEARS BEFORE FOR YEARS
RETIREMENT) OF CREDITED SERVICE SHOWN BELOW(a))
- - -------------------------------------- ---------------------------------------
10 15 20 25
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
$ 600,000............................ $120,000 $180,000 $ 240,000 $ 300,000
800,000............................ 160,000 240,000 320,000 400,000
1,000,000............................ 200,000 300,000 400,000 500,000
1,200,000............................ 240,000 360,000 480,000 600,000
1,400,000............................ 280,000 420,000 560,000 700,000
1,600,000............................ 320,000 480,000 640,000 800,000
1,800,000............................ 360,000 540,000 720,000 900,000
2,000,000............................ 400,000 600,000 800,000 1,000,000
2,200,000............................ 440,000 660,000 880,000 1,100,000
2,400,000............................ 480,000 720,000 960,000 1,200,000
2,600,000............................ 520,000 780,000 1,040,000 1,300,000
2,800,000............................ 560,000 840,000 1,120,000 1,400,000
3,000,000............................ 600,000 900,000 1,200,000 1,500,000
</TABLE>
- - --------
(a) Benefits shown above are exclusive of the social security offset provided
for by the benefit formula.
(b) Credited Service is shown for the years specified to approximate the
actual years of credited service earned prior to July 1, 1995 (at the 2%
multiplier) by the executive officers named in the Summary Compensation
Table other than Mr. Gilmartin and Mr. Lofberg. Mr. Gilmartin earned 1.0
years prior to July 1, 1995. Mr. Lofberg does not participate in the
Retirement Plan for Salaried Employees but participates in the Medco
Retirement Plan described below.
As of July 1, 1995 and December 31, 1996, years of actual credited service
in the Retirement Plan for Salaried Employees and the Supplemental Retirement
Plan are, respectively: Dr. Scolnick--13 years and 14.5 years; Mr. Anstice--21
years and 22.5 years; Ms. Lewent--15 years and 16.5 years. In addition, if
these
16
<PAGE>
individuals retire from service with the Company at age 65 and with less than
35 years of actual credited service, then, pursuant to the enhanced pension
provision of the Supplemental Retirement Plan applicable to bona fide
executives described in greater detail below, they will receive an additional
month of credited service for each month of actual credited service prior to
January 1, 1995 up to an aggregate total of 35 years of credited service. As
of July 1, 1995 and December 31, 1996, Mr. Gilmartin had 1.0 and 2.5 years,
respectively, of actual credited service in the Retirement Plan for Salaried
Employees and the Supplemental Retirement Plan and was credited with 28 years
of credited service under the Supplemental Retirement Plan, as provided in and
subject to the employment agreement described below.
For purposes of the Retirement Plan for Salaried Employees and the
Supplemental Retirement Plan, pension compensation for a particular year, as
used for the calculation of retirement benefits, includes salaries and annual
EIP bonus awards received during the year. Pension compensation for 1996
differs from compensation reported in the Summary Compensation Table in that
pension compensation includes the annual EIP bonus awards received in 1996 for
services in 1995 rather than the EIP bonus awards paid in 1997 for services in
1996. Pension compensation in 1996 was $2,100,000 for Mr. Gilmartin;
$1,323,000 for Dr. Scolnick; $777,420 for Mr. Anstice and $775,000 for Ms.
Lewent.
The Supplemental Retirement Plan is an unfunded plan providing benefits to
participants in certain retirement plans (the "primary plans") maintained by
the Company and its subsidiaries as follows: (1) benefits not payable by the
primary plans because of the limitations on benefits stipulated by the
Internal Revenue Code, (2) benefits not payable by the primary plans because
of the exclusion of deferred compensation from the benefit formulas of those
plans ("supplemental benefit"), (3) a minimum annual aggregate benefit under
this Plan and the primary plans of $50,000 on a straight-life annuity basis
for the incumbents at time of actual retirement in positions designated as
bona fide executive or high policymaking under the Company's Corporate Policy
on Executive Retirement (which include all the named executive officers in the
Summary Compensation Table), reduced in the event of retirement or death prior
to normal retirement date and (4) for employees who have occupied such
executive or high policymaking positions and who do not have 35 years of
credited service, an enhanced benefit payable upon retirement at age 65
(unless consent of the Compensation and Benefits Committee of the Board is
obtained for payment upon early retirement, death or disability prior to age
65). The enhanced benefit is an amount calculated under the benefit formula in
the primary plan using one additional month of credited service for each month
of credited service accrued during, or prior to attainment of, the designated
position (up to the 35-year total) less (i) the minimum benefit, where
applicable, or the supplemental benefit, (ii) the primary plan benefit and
(iii) any retirement benefit payable from a plan not sponsored by the Company.
The Supplemental Retirement Plan was amended as of January 1, 1995 to
eliminate prospectively the enhanced benefit except for certain grandfathered
participants. In general, other terms and conditions of benefit payments are
determined by reference to the provisions of the primary plans.
ANNUAL BENEFIT PAYABLE UNDER MEDCO RETIREMENT PLAN
Mr. Lofberg participates in the Medco Retirement Plan, a defined benefit
plan. His retirement income is determined in accordance with the following
formula: For each calendar year ("Plan Year"), the accrued benefit of each
participant who completes at least 1,000 hours of service in such Plan Year is
increased by an amount equal to the sum of (i) 250/1535 of 1% of the
participant's compensation, as defined in the Medco Retirement Plan, and (ii)
the amount of credited interest calculated for such Plan Year on the basis of
the participant's accrued benefit stated as a lump sum value as of January 1
of such Plan Year. A participant vests in 20% of such participant's accrued
benefit after the completion of three years of service, with the remainder
vesting 20% upon completion of each year of service thereafter. The estimated
annual retirement income payable as a single life annuity commencing at normal
retirement age for Mr. Lofberg is $21,084.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
H. Brewster Atwater, Jr., Lawrence A. Bossidy, William G. Bowen, Johnnetta
B. Cole and Lloyd C. Elam served on the Compensation and Benefits Committee
during 1996.
There were no Compensation and Benefits Committee interlocks or insider
(employee) participation during 1996.
17
<PAGE>
EMPLOYMENT CONTRACTS AND ARRANGEMENTS
As of June 9, 1994, the Company and Mr. Gilmartin entered into an employment
agreement (the "Agreement") under which Mr. Gilmartin serves as President,
Chief Executive Officer, Director and Chairman of the Board of Directors of
the Company. The Agreement provides that Mr. Gilmartin will be paid a base
salary of $1.0 million per year, and that he will be eligible for annual bonus
awards under the Company's Executive Incentive Plan or any successor plan.
In recognition of the forfeiture by Mr. Gilmartin of common stock ownership
rights provided by his previous employer, Mr. Gilmartin was granted 25,000
shares of restricted Company Common Stock (which will remain restricted until
June 16, 1999) on June 16, 1994. In addition, Mr. Gilmartin was granted
options under the Company's ISP on 500,000 shares of the Company's Common
Stock on June 16, 1994 and on 180,000 shares on February 28, 1995. Both grants
become exercisable on the fifth anniversary of the date of grant, and expire
on the tenth anniversary of the date of grant, at the market price of the
Company's Common Stock on the date of grant as determined under the ISP.
Subsequent annual stock option grants are as determined by the Board of
Directors.
Pursuant to the Agreement, Mr. Gilmartin participates in the Retirement Plan
for Salaried Employees of Merck & Co., Inc. and the Supplemental Retirement
Plan. In determining benefits payable under such Plans, Mr. Gilmartin's
credited service will equal his credited service with the Company plus 28
years, and the percentage multiple used in the formula for benefit calculation
will be 1.6%. Benefits payable under the Company plans will be net of
retirement benefits payable by Mr. Gilmartin's previous employer.
If Mr. Gilmartin's employment is terminated by the Company without "Gross
Cause" or by Mr. Gilmartin with "Good Cause," the restricted stock and stock
options issued on June 16, 1994 will immediately become exercisable and, for a
period of two years from the date of termination, Mr. Gilmartin will be
entitled to receive his cash compensation under the Agreement, he will accrue
additional retirement benefits and his other stock options will become
exercisable on their original vesting dates. If Mr. Gilmartin's employment is
terminated by the Company for "Gross Cause" or is terminated by Mr. Gilmartin
without "Good Cause," he will forfeit any restricted stock and unvested stock
options and all cash compensation will cease.
"Gross Cause" is defined as (i) employee's conviction of a felony or (ii)
employee's willful gross neglect or willful gross misconduct in carrying out
employee's duties resulting, in either case, in material economic harm to the
Company, unless employee believed in good faith that such act or non-act was
in the best interests of the Company. "Good Cause" is defined as termination
of employee's employment at the initiative of employee within six months
following (i) any act or failure to act by the Board of Directors which would
cause employee (A) to be removed from the office of President and Chief
Executive Officer or the office of Chairman of the Board of Directors on a
date earlier than October 31, 1999, or (B) to not be nominated for election as
a director by the stockholders of the Company at any meeting of stockholders
of the Company held for that purpose on a date earlier than October 31, 1999;
(ii) any significant diminution in the powers, responsibilities and
authorities described in the Agreement without the consent of employee; (iii)
the failure of the Company to obtain in writing the assumption of its
obligation to perform the Agreement by any successor, prior to or concurrent
with a merger, consolidation, sale or similar transaction; and (iv) any
material breach of the Agreement by the Company which is unremedied after
notice by employee.
The Agreement terminates on October 31, 1999.
As of May 24, 1996, the Company and Per G. H. Lofberg entered into a letter
agreement with respect to the terms of Mr. Lofberg's employment (the "Letter
Agreement"). The Letter Agreement terminated, in most respects, Mr. Lofberg's
employment agreement dated as of April 1, 1993, as amended on July 27, 1993.
The Letter Agreement sets forth exercise periods post-termination for certain
stock options that are scheduled to vest in 1996 and 1997 in the event that
Mr. Lofberg's employment with the Company terminates after June 1, 1996. Any
stock options granted by the Company to Mr. Lofberg after November 18, 1993
shall terminate upon the termination of Mr. Lofberg's employment if such stock
options have not vested prior to the date of termination. Additionally, the
Letter Agreement provides for the immediate forfeiture of all stock options in
the event of a breach of certain covenants, including covenants addressing
proprietary information and noncompetition.
18
<PAGE>
PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return (stock
price appreciation plus reinvested dividends) on the Company's Common Stock
with the cumulative total return (including reinvested dividends) of the Dow
Jones Pharmaceutical Index--United States Owned Companies ("DJPI") and the
Standard & Poor's 500 Index ("S&P 500 Index") for the five years ending
December 31, 1996. Amounts below have been rounded to the nearest dollar or
percent.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
Merck & Co., Inc., Dow Jones Pharmaceutical Index and S&P 500 Index
<TABLE>
<CAPTION>
PERIOD 1996/1991
VALUE CAGR**
------ ---------
<S> <C> <C>
Merck.................................................... $164 10%
DJPI..................................................... 179 12
S&P 500.................................................. 203 15
</TABLE>
[CHART APPEARS HERE]
MERCK DJPI S&P 500
1991 100.00 100.00 100.00
1992 79.76 81.86 107.61
1993 65.21 75.94 118.41
1994 74.90 87.05 120.03
1995 132.10 142.51 164.79
1996 163.74 179.06 202.75
'96/'91 CAGR 10.36% 12.36% 15.18%
- - --------
* Assumes that the value of the investment in Company Common Stock and
each index was $100 on December 31, 1991 and that all dividends were
reinvested.
** Compound Annual Growth Rate.
19
<PAGE>
2. RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors, upon recommendation of its Audit Committee, composed
of independent members of the Board, has appointed Arthur Andersen LLP as
independent public accountants of the Company with respect to its operations
for the year 1997, subject to ratification by the holders of Common Stock of
the Company. In taking this action, the members of the Board and the Audit
Committee considered carefully Arthur Andersen LLP's performance for the
Company in that capacity since its original retention in 1971, its
independence with respect to the services to be performed and its general
reputation for adherence to professional auditing standards. Representatives
of the firm will be present at the Annual Meeting to make a statement if they
desire to do so and to answer appropriate questions that may be asked by
stockholders.
There will be presented at the Annual Meeting a proposal for the
ratification of this appointment, which the Board of Directors believes is
advisable and in the best interests of the stockholders. If the appointment of
Arthur Andersen LLP is not ratified, the matter of the appointment of
independent public accountants will be considered by the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
3. STOCKHOLDER PROPOSAL CONCERNING
PRIOR GOVERNMENT/POLITICAL SERVICE OF CERTAIN EMPLOYEES AND DIRECTORS
Mrs. Evelyn Y. Davis, Watergate Office Building, 2600 Virginia Avenue N.W.,
Suite 215, Washington, DC 20037, owner of 225 shares of Common Stock of the
Company, has given notice that she intends to present for action at the Annual
Meeting the following resolution:
"RESOLVED: That the stockholders of Merck assembled in Annual Meeting in
person and by proxy hereby request the Board of Directors to have the
Company furnish the stockholders each year with a list of people employed
by the Corporation with the rank of Vice President or above, or as a
consultant, or as a lobbyist, or as legal counsel or investment banker or
director, who, in the previous five years have served in any governmental
capacity, whether Federal, City or State, or as a staff member of any
CONGRESSIONAL COMMITTEE or regulatory agency, and to disclose to the
stockholders whether such person was engaged in any matter which had a
direct bearing on the business of the Corporation and/or its subsidiaries,
provided that information directly affecting the competitive position of
the Corporation may be omitted.
"REASONS: Full disclosure on these matters is essential at Merck because
of its many dealings with Federal and State agencies, and because of
pending issues forthcoming in Congress and/or State and Regulatory
Agencies.
"Last year the owners of 29,720,343 shares, representing approximately
3.83% of shares voting, voted FOR this proposal.
"If you AGREE, please mark your proxy FOR this resolution."
BOARD OF DIRECTORS' STATEMENT IN OPPOSITION TO THE RESOLUTION
This proposal was submitted by the same stockholder at the 1996 Annual
Meeting and was soundly defeated. Avoiding improper contacts by all Company
employees is an ongoing responsibility of Management and one in which the
Company invests significant efforts in order to avoid both the reality and
appearance of any impropriety. To this end, the Company annually requires
directors and key employees to complete a survey which requires disclosure of
all relationships and transactions that could present a conflict of interest.
All such disclosures are reviewed for compliance with the Company's policies.
With regard to law firms and other consultants and advisors retained by the
Company, the Company engages such entities or persons on the basis of their
professional competence and reputation and expects that they will comply with
applicable conflict of interest laws, rules of professional conduct, and the
Company's policies which apply to its relationships with them. Accordingly,
the Board believes that the compilation and distribution of the information
requested by this proposal would involve an unnecessary burden and expense and
would serve no useful purpose.
20
<PAGE>
The Board believes this proposal is not in the best interest of the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
4. STOCKHOLDER PROPOSAL CONCERNING
BENEFITS FOR MANAGEMENT AND DIRECTORS
Mr. Robert D. Morse, 212 Highland Avenue, Moorestown, NJ 08057-2717, owner
of 600 shares of Common Stock of the Company, has given notice that he intends
to present for action at the Annual Meeting the following resolution:
"RESOLVED: That the Officers and Directors consider the discontinuance of
all options, rights, SAR's, etc. after termination of any existing
programs. This does not include any programs for employees.
"REASONS: These increased benefits have failed to produce the claim that
it adds to shareholder value and retains qualified personnel, simply
because another firm can offer higher benefits. These programs reduce your
equity at every redemption, increase administration costs of record
keeping, and proxy space; as much as 29 pages were used by one company on
these programs of self-benefits. Officers and directors are compensated
enough to buy on the open market, just as you and I, if they are so
inclined. Please vote YES and vote NO on nominees until they stop this
practice. There were 43 million votes cast FOR in 1996, representing a good
many shareholders.
"If officers filled out a daily work-sheet, what would the output show?
Thank You!"
BOARD OF DIRECTORS' STATEMENT IN OPPOSITION TO THE RESOLUTION
A substantially similar proposal was submitted by the same stockholder at
the 1996 Annual Meeting and was soundly defeated. The Compensation and
Benefits Committee of the Board, which is comprised entirely of independent
directors, oversees the compensation policies of the Company. The Committee on
Directors, which also is comprised entirely of independent directors, oversees
the compensation of the Company's directors. The Committees believe that the
use of stock options and, when appropriate, other equity-based incentives
("Incentives"), benefits the Company and its stockholders by better aligning
employee and director interests with those of the Company's stockholders. The
concurrence of stockholders in the use of this form of compensation was
evidenced at the Company's 1995 and 1996 Annual Meetings where the
stockholders overwhelmingly approved, respectively, the 1996 Incentive Stock
Plan which broadened opportunities for the grant of Incentives and the 1996
Directors' Stock Option Plan.
Elimination of Incentives could adversely affect the Company's ability to
attract, retain and motivate the highly qualified employees and board members
necessary to achieve the Company's objectives. It would also remove a crucial
element of flexibility in setting compensation and would place the Company at
a competitive disadvantage.
The Board believes that this proposal is not in the best interest of the
Company or its stockholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
5. STOCKHOLDER PROPOSAL CONCERNING
CONFIDENTIAL VOTING
The Carpenters Pension and Annuity Fund, 1803 Spring Garden Street,
Philadelphia, PA 19130, owner of 3,999 shares of Common Stock of the Company,
has given notice that they intend to present for action at the Annual Meeting
the following resolution:
"BE IT RESOLVED: That the shareholders of Merck & Co., Inc. ("Company")
urge our board of directors to take the necessary steps to adopt and
implement a policy of confidential voting at all meetings of its
shareholders which includes the following provisions:
21
<PAGE>
"1. That the voting of all proxies, consents and authorizations be secret
and that no such document shall be available for examination nor
shall the vote or identity of any shareholder be disclosed except to
the extent necessary to meet the legal requirements, if any, of the
Company's state of incorporation; and
"2. That the receipt, certification and tabulation of such votes shall be
performed by independent election inspectors.
"SUPPORTING STATEMENT: It is our belief that adoption of a system of
confidential proxy voting would be in the best interests of Merck and its
shareholders. The confidential ballot is fundamental to the American
political system. The reason for this protection is to ensure that voters
are not subjected to actual or perceived coercive pressure. We believe that
it is time that this fundamental principle of the confidential ballot be
applied to public corporations.
"Over 150 major companies, such as Coca-Cola Co., Dow Chemical, Georgia-
Pacific Corp., Gillette, Kimberly Clark and Quaker Oats, have adopted
confidential voting procedures.
"In 1989, The Investor Responsibility Research Center (IRRC) surveyed 22
companies which had adopted some form of confidential voting system. The
survey examined ". . . the lessons learned by companies that designed and
implemented confidential voting systems." The results, reported in
Confidential Proxy Voting by Patrick S. McGurn (IRRC, 1989), showed that
none of the firms reported any difficulty reaching quorums, meeting super
majority vote requirements, nor found confidential voting particularly
expensive or difficult to administer.
"It is our belief that all shareholders need the protection of a
confidential ballot no less than voters in political elections. While we
make no imputation that our Company's management has acted coercively, the
existence of this possibility is sufficient to justify confidentiality.
"This resolution would permit shareholders to voluntarily disclose their
vote to management by expressly requesting such disclosure on their proxy
cards. Additionally, shareholders may disclose their vote to any other
person they choose. This resolution would merely restrict the ability of
the Company to have access to the vote of its shareholders without their
specific consent.
"Many shareholders believe confidentiality of ownership is ensured when
shares are held in street or nominee name. This is not always the case.
Management has various means of determining actual (beneficial) ownership.
For instance, proxy solicitors have elaborate databases that can match
account numbers with the identity of some owners. Moreover, why should
shareholders have to transfer their shares to nominees in an attempt to
maintain confidentiality? In our opinion, this resolution is the only way
to ensure a secret ballot for all shareholders irrespective of how they
choose to hold their shares.
"Finally, it is our belief that the enhancement of the proxy voting
process would change the system where too often shareholders vote 'with
their feet,' not with their ballots. This change would help to develop a
long-term investment perspective where corporate assets could be deployed,
and used in a more effective and efficient manner.
"For the reasons outlined above, we urge you to VOTE FOR THIS PROPOSAL."
BOARD OF DIRECTORS' STATEMENT IN OPPOSITION TO THE RESOLUTION
The Board of Directors believes that a confidential voting policy would
limit the effectiveness of the proxy solicitation process as a communication
tool for both management and stockholders without significantly adding to the
confidentiality already available to stockholders through the use of nominee
ownership.
The adoption of a confidential voting policy would have significant negative
effects:
.A confidential voting policy would greatly hinder the Company's ability
to contact stockholders during the proxy season. When an issue critical to
the success of the Company is involved, the Board may need to be informed
of stockholder decisions so that they may argue effectively for a position
that they believe is in the best interest of the Company and its
stockholders. Especially in the case of a contested election, the party
conducting the solicitation may not be acting in the best interest of all
stockholders,
22
<PAGE>
though such party would have the ability to communicate with other
stockholders with few restrictions. In addition, the Company may need to
contact stockholders who have not returned their proxies to assure a
quorum, or to contact those whose proxy cards contain errors or
deficiencies so that such stockholders may correct their proxies and cast
their votes as intended.
.A confidential voting policy would effectively eliminate a convenient,
cost-efficient method for stockholders to communicate with the Company.
Many stockholders use the proxy card with its postage-prepaid return
envelope to communicate with the Company on various matters of concern to
them, such as changes of address, missing dividend checks or lost or stolen
stock certificates, as well as matters relating to the Company's business.
These stockholders, at least, intend and expect the Company to be able to
identify them from the proxy card. The Company appreciates all
opportunities to communicate with its stockholders.
The Board believes that the Company's existing proxy solicitation system
protects the interests of both those stockholders who desire anonymity and
those who wish to be identifiable. Under the Company's existing proxy
solicitation system, stockholders who wish to keep their votes confidential
can register their shares in the name of a nominee, such as a bank,
stockbroker or other fiduciary. Since nominee holders do not disclose the
names of beneficial owners without permission, confidentiality is assured.
Thus, stockholders can choose whether their votes will be identifiable, rather
than having this decision imposed on them by a confidential voting policy.
Employees who own shares through various Company benefit plans cannot
register these shares through nominees. However, the shares held in these
plans are voted by plan trustees who may not disclose to the Company how any
benefit plan participant has voted. Employees can place non-plan shares in the
name of a nominee if they desire confidentiality as to those shares as well.
The Company has used Corporation Trust Company to tabulate votes and serve
as independent inspectors of election for annual meetings of stockholders for
a number of years. However, the Company believes that it should have the
flexibility to identify and implement "best practices" to assure the integrity
of its proxy solicitation process rather than to limit its options to the
methods recommended by the proponent.
The Board believes that this proposal is not in the best interest of the
Company or its shareholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
6. STOCKHOLDER PROPOSAL CONCERNING
PROVIDING SHAREHOLDERS WITH REPORTS
Mr. Murray Goldstein, 804 Nutswamp Road, Red Bank, NJ 07701, owner of 100
shares of Common Stock of the Company, has given notice that he intends to
present for action at the Annual Meeting the following resolution:
"RESOLVED: That Merck management provide all shareholders with regular
quarterly progress reports by mail or E-mail; these reports to include
financial results, technical developments, and other items of interest to
shareholders.
"REASONS: The value of the shareholders' investment is critically
affected by technical and financial developments within the company.
"The shareholder does not know when or whether such events are occurring,
so as to make phone inquiries of the company, nor should he be forced to
put up with the nuisance of voice mail in order to obtain the information
he needs.
"Earnings reports are frequently complicated and often include special
conditions, which are difficult to absorb and evaluate, when transmitted by
phone.
"In a company such as Merck with a Sterling growth record, the wide
dissemination of company reports' that can be examined at leisure cannot
help but add to the value of its stock."
23
<PAGE>
BOARD OF DIRECTORS' STATEMENT IN OPPOSITION TO THE RESOLUTION
The proposal requests that the Company's management provide all shareholders
with regular quarterly progress reports by mail or e-mail. These reports are
to ". . . include financial results, technical developments, and other items
of interest to shareholders." In 1995, the Company established a toll free
information number for stockholders and other investors. This service, which
is available 24 hours a day, seven days a week, provides callers with access
to a recorded summary of major news developments at the Company, including
quarterly sales and earnings releases. Stockholders may also use this service
to request copies of the Company's press releases and periodic financial and
other reports filed with the Securities and Exchange Commission. The service
is provided free of charge.
The proponent's recommendation would require the Company to provide reports
to all stockholders regardless of their desire to receive such materials. The
Company's current system allows investors to receive only the information that
they want and is more cost effective, timely and convenient than that
advocated by the proponent. Accordingly, the Company has in place appropriate
policies and follows practices that address the concerns raised by the
proposal.
The Board believes that this proposal is not in the best interest of the
Company or its stockholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
7. STOCKHOLDER PROPOSAL CONCERNING
CHARITABLE CONTRIBUTIONS
Mr. Alan M. Rice, 5 Sycamore Terrace, Springfield, NJ 07081, owner of 10,800
shares of Common Stock of the Company, and Mr. Charles Pope Day, Jr., 93
Highland Avenue, Short Hills, NJ 07078, owner of 650 shares of Common Stock of
the Company, have given notice that they intend to present for action at the
Annual Meeting the following resolution:
"RESOLVED: That the directors of Merck & Co., Inc. change Merck's policy
of charitable donations whereby the shareholders rather than the Board of
Directors would be able to choose where shareholder money is donated. This
new policy would permit each shareholder to designate the recipient charity
of a specific dollar amount per common share of stock owned. The per share
amount, but NOT the recipient charity, would be determined by the Merck
Board. The recipient charities would be limited to those which fulfill the
Internal Revenue Service requirements for non-profit organizations. The new
policy would allow each shareholder to designate a specific charity to
receive the charitable donation that is based upon that shareholder's
ownership in the company. For example, if the amount designated were $0.10
per share and a shareholder owned 1,000 shares, that shareholder would then
be entitled to have $100.00 donated to the charity of the shareholder's
choosing. The charitable funds attributable to shareholders who fail to
exercise this prerogative would be pooled together by the company for
charitable distribution at the company's discretion. This policy would
replace all previous policies of the company concerning charitable
contributions.
"SUPPORTING STATEMENT: Merck is a 'for profit' enterprise, a business.
Investors purchase Merck stock as an investment vehicle, not to participate
in a charitable giveaway. The job of the Board of Directors is to increase
the value of the shareholders' investments. If the Directors of Merck wish
to donate to charity, they should do so from their own very substantial
personal remunerations. In 1995 Merck donated, through the Merck Company
Foundation, over $121 million dollars of cash and products to various
charities. This money would better have served the interests of the
stockholders if it had been reinvested in the company or returned to the
shareholders in the form of increased dividends. Having said this, the
'good will' generated by these contributions is not lost on the proponents
of this resolution.
"Most Merck directors appear to be actively connected with one or more
charities or quasi-eleemosynary institutions subsidized at least in part by
public contributions. The proponents of this proposal
24
<PAGE>
believe that the Directors of Merck are using corporate funds at
stockholders' expense in order to win election or appointment to these
various boards and subsequently bolster their own resumes. Merck Directors
are forcibly imposing their own charitable interests upon Merck
stockholders by donating large sums of money, frequently to a single
charity, without stockholders' approval or consent.
"If our proposal is adopted, the Board of Directors would be charged with
determining the total amount that the company would donate each year. The
shareholders, the owners of the company, would individually determine which
charities would be the beneficiaries of this largess. Only in those cases
where shareholders fail to exercise this prerogative, would the company be
able to determine the recipients of charitable shares.
"The Berkshire Hathaway Corporation has used this type of donation policy
since 1981.
"Please vote FOR this proposal."
BOARD OF DIRECTORS' STATEMENT IN OPPOSITION TO THE RESOLUTION
Under the arrangement put forth by the proponents, the Company would be
responsible for administering contribution requests from each of the Company's
over 1,000,000 shareholders. This would require the Company to communicate
directly with investors who hold their shares in "street name," to confirm the
tax-exempt status of each charity designated by stockholders, and to process
individual contributions to each such charity. The proponents' recommendation
is administratively burdensome and expensive.
The Company's charitable endeavors, encompassing contributions made directly
by the Company and those made through The Merck Company Foundation, are the
product of a carefully administered program designed to ensure that the nature
and magnitude of the contributions are in the best interests of the Company
and its stockholders and that the recipients are appropriate and deserving. Of
the $121 million in 1995 contributions cited in this proposal, $100 million
were in the form of product donations such as providing medicines for disaster
relief efforts and the Company's ongoing contribution of Mectizan to treat and
eventually eradicate river blindness in Africa. Of the remaining $21 million,
two-thirds supported educational training of physicians and scientists.
Training physicians and scientists benefits society as a whole, while
enhancing and broadening the pool of scientific talent that the Company may
draw upon for its employees. The Company's charitable endeavors are consistent
with, and supportive of, the Company's long-standing commitment to health and
well-being and earn the Company substantial respect and good will from the
scientific community, local communities in the vicinity of our sites,
customers and the public at large.
A booklet summarizing the Company's contributions is available upon request.
The Board of Directors believes that the stockholder proposal would impose
an inappropriate and unwarranted restriction on the Company's charitable
activities and is not in the best interest of the Company or its stockholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership of such securities with the Securities and
Exchange Commission and the New York Stock Exchange. Officers, directors and
greater than ten-percent beneficial owners are required by applicable
regulations to furnish the Company with copies of all Section 16(a) forms they
file. The Company is not aware of any beneficial owner of more than ten
percent of its Common Stock.
Based solely upon a review of the copies of the forms furnished to the
Company, or written representations from certain reporting persons that no
Forms 5 were required, the Company believes that all filing requirements
applicable to its officers and directors were complied with during the 1996
fiscal year except for the inadvertent
25
<PAGE>
failure to report initial holdings on Form 3 in 1994 and the failure to report
an aggregate of nine purchases by Per G.H. Lofberg of Company Common Stock
pursuant to the Medco Employee Stock Purchase Plan, which purchases were
comprised of four purchases in each of 1994 and 1995 and one purchase in 1996,
which resulted in the failure to file two Forms 4 and the failure to report
such purchases and shares acquired with reinvested dividends on two Forms 5.
Such purchases and acquisitions were reported by Mr. Lofberg on Form 5 in
1997.
DEADLINE FOR STOCKHOLDER PROPOSALS FOR 1998
Stockholder proposals to be presented at the 1998 Annual Meeting must be
received by the Company on or before November 18, 1997 for inclusion in the
proxy statement and proxy card relating to that meeting.
OTHER MATTERS
The Board of Directors is not aware of any other matters to come before the
meeting. However, if any other matters properly come before the meeting, it is
the intention of the persons named in the enclosed proxy to vote said proxy in
accordance with their judgment in such matters.
Merck & Co., Inc.
March 17, 1997
26
<PAGE>
[ART]
- - --------------------------------------------------------------------------------
[LOGO]MERCK PROXY/VOTING INSTRUCTION CARD
ANNUAL MEETING OF STOCKHOLDERS--APRIL 23, 1997
The undersigned hereby appoints RAYMOND V. GILMARTIN, MARY M.
McDONALD and CELIA A. COLBERT, as Proxies, each with the power
to appoint his or her substitute, and hereby authorizes them to
represent and to vote ALL of the stock of MERCK & CO., Inc.
standing in the name of the undersigned at the ANNUAL MEETING
OF STOCKHOLDERS to be held on April 23, 1997, and at all
adjournments thereof, upon the matters set forth on the reverse
side, as designated (including the power to vote cumulatively
in the election of directors), and upon such other matters as
may properly come before the meeting. This card also provides
voting instructions for shares held for the account of the
undersigned in the Merck Stock Investment Plan, as described in
the proxy statement. Any prior proxy or voting instructions are
hereby revoked.
The shares represented by this proxy will be voted as directed
by the stockholder. If no specification is made, the shares
will be voted FOR proposals 1 and 2 and AGAINST proposals 3, 4,
5, 6 and 7.
[_] Discontinue mailing the Annual Report to this account.
[_] Will attend the Annual Meeting.
<PAGE>
[LOGO]MERCK
================================================================================
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
DIRECTORS 1. Election of Directors: Nominees are Edward M. Scolnick for a
RECOMMEND term expiring in 1999; Lawrence A. Bossidy, Johnnetta B. Cole,
A VOTE Charles E. Exley, Jr. and William N. Kelley for terms expiring
FOR in 2000. AUTHORITY TO VOTE FOR ANY NOMINEE MAY BE WITHHELD BY
ITEMS LINING THROUGH THE NOMINEE'S NAME ABOVE. To cumulate votes as
1 AND 2 to a particular nominee(s) as explained in the proxy
statement, indicate the name(s) and the number of votes to be
given to such nominee(s):
[_] FOR all nominees (except [_] WITHHOLD AUTHORITY to
as marked to the contrary vote for all nominees
above_______________________)
2. Ratification of Appointment of FOR AGAINST ABSTAIN
Independent Public Accountants ...[_] [_] [_]
- - --------------------------------------------------------------------------------
Stockholder Proposals Concerning:
DIRECTORS 3. Prior Government/Political
RECOMMEND Service of Certain Employees and
A VOTE Directors ........................[_] [_] [_]
AGAINST
ITEMS 4. Benefits for Management and
3, 4, 5, Directors ........................[_] [_] [_]
6 AND 7
5. Confidential Voting ............ [_] [_] [_]
6. Providing Shareholders with
Reports...........................[_] [_] [_]
7. Charitable Contributions ....... [_] [_] [_]
- - --------------------------------------------------------------------------------
Signature(s):
--------------------------------
--------------------------------
--------------------------------
Date: , 1997
--------------------------------
WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, GIVE
FULL TITLE AS SUCH. WHEN STOCK HAS BEEN ISSUED IN THE NAMES OF TWO OR MORE
PERSONS, ALL SHOULD SIGN UNLESS EVIDENCE OF AUTHORITY TO SIGN ON BEHALF OF
OTHERS IS ATTACHED. PLEASE COMPLETE, SIGN, DATE AND RETURN PROMPTLY USING THE
ENCLOSED ENVELOPE.
