<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 Rule 14a-11(c) or Rule 14a-12
MERCK & CO., INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(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)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(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.:
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(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 of Stockholders
April 28, 1998
----------------
To the Stockholders:
The Annual Meeting of Stockholders of Merck & Co., Inc. will be held on
Tuesday, April 28, 1998, 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 four directors for terms ending in 2001;
. To consider and act upon a proposal to ratify the appointment of
independent public accountants for 1998;
. To consider and act upon a stockholder proposal concerning annual
election of directors; 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 6, 1998, 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 19, 1998
<PAGE>
Merck & Co., Inc.
P. O. Box 100
Whitehouse Station, New Jersey 08889-0100
(908) 423-1000
March 19, 1998
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 Tuesday, April 28, 1998, and all
adjournments thereof. The Company's Annual Report for 1997, including
financial statements, and proxy statement and proxy/voting instruction card
("proxy card" or "proxy") are being mailed to stockholders beginning March 19,
1998.
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, MERCK & CO., INC. EMPLOYEE STOCK PURCHASE AND SAVINGS PLAN,
ASTRA MERCK, INC. EMPLOYEE SAVINGS AND SECURITY PLAN, HUBBARD FARMS, INC.
EMPLOYEE SAVINGS PLAN, MEDCO 401(K) SAVINGS PLAN, MERCK PUERTO RICO EMPLOYEES
SAVINGS AND SECURITY PLAN, MERCK FROSST CANADA INC. STOCK PURCHASE PLAN AND
MERIAL 401(K) SAVINGS PLAN ("MERIAL PLAN"). INSTEAD, THESE PARTICIPANTS WILL
RECEIVE FROM THE PLAN TRUSTEES SEPARATE VOTING INSTRUCTION CARDS COVERING
THESE SHARES. IF VOTING INSTRUCTION CARDS FOR THE MERIAL PLAN ARE NOT SIGNED
AND RETURNED, THE PLAN TRUSTEE WILL VOTE THE SHARES IN THE SAME PROPORTION AS
IT VOTED THE SHARES FOR WHICH VOTING INSTRUCTIONS WERE RECEIVED. VOTING
INSTRUCTION CARDS FOR ALL OTHER PLANS MUST BE SIGNED AND RETURNED OR THOSE
SHARES WILL NOT BE VOTED.
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, 1997, 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 6,
1998, 1,196,011,935 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 four directors are to be elected,
a holder of 100 shares may cast 400 votes for a single nominee, apportion 200
votes to each of two nominees, or apportion 400 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
proposal. 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
Four directors are to be elected at the meeting for full three-year terms
expiring in 2001. The Board's nominees are Sir Derek Birkin, Dr. William G.
Bowen, Dr. Carolyne K. Davis and Dr. Lloyd C. Elam, all of whom are currently
directors of the Company. After the election of four directors at the meeting,
the Company will have thirteen directors, including the nine directors whose
present terms currently extend beyond the meeting. Information on the nominees
and continuing directors follows.
NAME, AGE AND
YEAR FIRST BUSINESS EXPERIENCE AND OTHER DIRECTORSHIPS
ELECTED DIRECTOR OR SIGNIFICANT AFFILIATIONS
---------------- -------------------------------------------
NOMINEES
For terms expiring in 2001
Retired (1997); Chairman of the Board, The RTZ Corporation PLC
[PHOTO] (international mining company) for more than five years
Sir Derek
Birkin Director, Unilever PLC, Carlton Communications PLC and The
Age--68 Merchants Trust PLC; Non-executive Chairman, Watmouths
1992 (Holdings) PLC
2
<PAGE>
NAME, AGE AND
YEAR FIRST BUSINESS EXPERIENCE AND OTHER DIRECTORSHIPS
ELECTED DIRECTOR OR SIGNIFICANT AFFILIATIONS
---------------- -------------------------------------------
President, The Andrew W. Mellon Foundation (philanthropic
[PHOTO] foundation) for more than five years
William G.
Bowen, Ph.D. Director, American Express Company; Member, Board of
Age--64 Overseers, Teachers Insurance and Annuity Association of
1986 America--College Retirement Equities Fund; Trustee, Denison
University
International Health Care Consultant for more than five years
[PHOTO]
Director, Beckman Coulter, Inc., Pharmaceutical Marketing
Carolyne K. Services, Inc., The Prudential Insurance Company of America,
Davis, Ph.D. Inc., Minimed Inc. and Beverly Enterprises, Inc.; Trustee,
Age--66 Georgetown University and University of Pennsylvania Medical
1989 Center; Member, Institute of Medicine of the National Academy
of Sciences
Professor of Psychiatry, Meharry Medical College for more than
five years
[PHOTO]
Director, Premark International Inc. and Tupperware, Inc.;
Lloyd C. Trustee, Fisk University and The Alfred P. Sloan Foundation
Elam, M.D.
Age--69
1973
DIRECTORS WHOSE TERMS EXPIRE IN 1999
[PHOTO] 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--66 Director, Darden Restaurants, Inc., IDS Mutual Fund Group,
1988 Mayo Foundation, Public Radio International and Walker Art
Center; Member, The Business Council
3
<PAGE>
NAME, AGE AND
YEAR FIRST BUSINESS EXPERIENCE AND OTHER DIRECTORSHIPS
ELECTED DIRECTOR OR SIGNIFICANT AFFILIATIONS
---------------- -------------------------------------------
[PHOTO] 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--57 of Becton Dickinson and Company (medical supplies and devices
1994 and diagnostic systems)
Director, General Mills, Inc. and Public Service Enterprise
Group; Chairman-elect, Pharmaceutical Research and
Manufacturers of America; Member, The Business Council and The
Business Roundtable
[PHOTO] 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
M.D.
Age--57 Member, Institute of Medicine of the National Academy of
1997 Sciences
[PHOTO] President (since April 1997) and Chief Executive Officer
(since July 1996) of Partners HealthCare System, Inc.;
Samuel O. President, Massachusetts General Hospital from May 1994 to
Thier, M.D. April 1997; and President, Brandeis University from October
Age--60 1991 to May 1994
1994
Director, Fleet Financial Group; Master, American College of
Physicians; Fellow, American Academy of Arts and Sciences;
Trustee, Brandeis University, Boston Museum of Science,
Cornell University, The Commonwealth Fund and WGBH Public
Television
[PHOTO] 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--67
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
4
<PAGE>
NAME, AGE AND
YEAR FIRST BUSINESS EXPERIENCE AND OTHER DIRECTORSHIPS
ELECTED DIRECTOR OR SIGNIFICANT AFFILIATIONS
---------------- -------------------------------------------
DIRECTORS WHOSE TERMS EXPIRE IN 2000
[PHOTO] Chairman of the Board and Chief Executive Officer of
AlliedSignal, Inc. (aerospace, automotive products and
Lawrence A. engineered materials technology) for more than five years
Bossidy
Age--63 Director, Champion International Corporation and J.P. Morgan &
1992 Co. Incorporated; Member, The Business Council and The
Business Roundtable
President Emerita, Spelman College (1997); President, Spelman
[PHOTO] College for more than five years
Johnnetta B.
Cole, Ph.D. Director, Coca-Cola Enterprises, The Home Depot, Inc., and
Age--61 Management and Training Corporation; Trustee, Rockefeller
1994 Foundation and Wellesley College; Member, Council on Foreign
Relations and National Council of Negro Women; Fellow,
American Anthropological Association
[PHOTO] 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--68 Director, Banc One Corporation; Trustee, The Andrew W. Mellon
1988 Foundation; Member, The Business Council and Board of
Overseers, Columbia University Graduate School of Business
[PHOTO] 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--58 Pennsylvania, for more than five years
1992
Director, Beckman Coulter, Inc., 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; Chairman, Board of Governors of
Leonard Davis Institute of Health Economics
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,
considers and makes 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, Base Salary
Deferral 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
6
<PAGE>
of or amendments to such plans. 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 1997, there were nine meetings held by the Board of Directors. Board
committees met as follows during 1997: the Committee on Directors, two times;
the Finance Committee, two times; the Audit Committee, three times; the
Compensation and Benefits Committee, four times. No meetings of the Executive
Committee were held in 1997. The average combined attendance for all Board and
Committee meetings was 97%. 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 1997 was a director
of J.P. Morgan & Co. Incorporated and Morgan Guaranty Trust Company of New
York which performed financial advisory, commercial and investment banking
services for the Company during 1997 and which are expected to perform such
services for the Company during 1998.
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 join 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. In February 1998, the Board of
Directors adopted amendments to the 1996 Non-Employee Directors Stock Option
Plan and the prior Non-Employee Directors Stock Option Plan to allow directors
under certain circumstances to transfer stock options to members of their
immediate family, family partnerships and family trusts.
7
<PAGE>
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
Beneficial ownership of Common Stock of the Company as of December 31, 1997
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........ 108,263(b)(c) -- *
H. Brewster Atwater, Jr..... 16,053 3,000 *
Derek Birkin................ 557 -- *
Lawrence A. Bossidy......... 15,617 -- *
William G. Bowen............ 11,276(b) 3,000 *
Johnnetta B. Cole........... 1,801 -- *
Carolyne K. Davis........... 2,456(d) -- *
Lloyd C. Elam............... 22,100 3,000 *
Charles E. Exley, Jr. ...... 14,627 3,000 *
William N. Kelley........... 6,890 -- *
Edward M. Scolnick.......... 119,841(b) 110,300 *
Samuel O. Thier............. 10(e) -- *
Dennis Weatherstone......... 15,177 3,000 *
David W. Anstice............ 29,575(b) 131,300 *
Judy C. Lewent.............. 77,065 183,000 *
Per G.H. Lofberg............ 86,459 103,087 *
All Directors and Executive
Officers as a Group........ 647,418(b) 1,027,637 *
</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--1,372 shares, Dr.
Scolnick--1,698 shares, Mr. Anstice--1,695 shares, Ms. Lewent--2,441
shares, Mr. Lofberg--2,475 shares and all directors and executive officers
as a group--25,666 shares. Also 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. Gilmartin--12,007
shares, Mr. Atwater--14,553 shares, Mr. Bossidy--617 shares, Dr. Bowen--
476 shares, Dr. Cole--1,571 shares, Dr. Davis--455 shares, Dr. Elam--
15,350 shares, Mr. Exley--13,127 shares, Dr. Kelley--5,790 shares, Mr.
Weatherstone--177 shares, Mr. Anstice--2,844 shares, Ms. Lewent--3,831
shares, Mr. Lofberg--4,588 shares and all directors and executive officers
as a group--90,047 shares.
(b) Excludes shares of Common Stock held by family members and in which
beneficial ownership is disclaimed by the individuals as follows: Mr.
Gilmartin--11,825 shares, Dr. Scolnick--14,000 shares, Mr. Anstice--256
shares and all directors and executive officers as a group--55,314 shares.
Excludes 900 shares held by a trust of which Dr. Bowen is a trustee and in
which he disclaims beneficial ownership. Also excludes 11,562 shares
beneficially held by a family limited partnership in a trust for the
benefit of Mr. Gilmartin's family; Mr. Gilmartin disclaims beneficial
ownership in the trust of which his spouse is a trustee.
(c) Includes 65,523 shares of Common Stock held by Mr. Gilmartin in a family
limited partnership in which he shares voting and investment power.
(d) Includes 40 shares of Common Stock held by Dr. Davis in custody for a
family member.
(e) Under the policy of his employer, Dr. Thier 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 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.
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.
Performance measures for 1997 covered operational, strategic and human
resources areas. The operational measures were earnings per share growth and
sales growth compared to leading healthcare companies (Abbott Laboratories,
American Home Products, Bristol-Myers Squibb, Glaxo Wellcome, Johnson &
Johnson, Eli Lilly, Pfizer, Schering-Plough, SmithKline Beecham, Pharmacia &
Upjohn, Roche Holding) and the change in the
9
<PAGE>
Company's return on operating assets versus the 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, achieving the full potential of managed
pharmaceutical care, with particular reference to Merck-Medco, and preserving
profitability through productivity in manufacturing. The human resources
measures refer to the goal of fostering a culture of teamwork, flexibility and
agility. These measures 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
1997. 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 Laboratories, 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 1997 followed the principles outlined in the preceding paragraphs.
The Committee judged that executive officer salary and bonus compensation for
1997 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 manufacturing
productivity and in the management of human resources.
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 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.
In 1997, the Committee approved an amendment to the rules of the Incentive
Stock Plan to allow all executive officers subject to Section 16 of the
Securities Exchange Act of 1934, including the individuals named in the
Summary Compensation Table, to transfer stock options to members of their
immediate family, family partnerships and family trusts.
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.
STRATEGIC PERFORMANCE FEATURE
AWARDS
No awards were made in 1997 consistent with the Committee's decision to
discontinue the SPF in 1995
10
<PAGE>
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 1997, payouts were made for the 1992-1996 Award Period of the SPF.
Payouts for that period were made in cash or stock.
For the years 1992, 1993, 1995 and 1996, the Committee considered two
measures: earnings per share growth and return on assets as compared to a
group of leading healthcare companies selected in 1992. 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 Wellcome and SmithKline Beecham. For
each of the measures, the Company placed third and second, respectively.
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 116.3% 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 1997 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 manufacturing productivity and in
management of human resources. The Company met or exceeded its targets on all
Company performance measures. Effective January 1, 1997, Mr. Gilmartin's base
salary was increased to $1,100,004 from $1,000,000. This was the first base
salary increase that Mr. Gilmartin received since joining the Company in June
1994. Mr. Gilmartin's bonus award was $1,500,000 in comparison to $1,300,000
for 1996. The Committee exercised its subjective judgment and discretion in
determining the amounts of Mr. Gilmartin's base salary and bonus award for
1997.
STOCK OPTIONS
The stock option grant to Mr. Gilmartin in 1997 was determined with
reference to the same criteria used for all executive officers of the Company,
as described in the "Stock Options" section above.
STRATEGIC PERFORMANCE FEATURE
Mr. Gilmartin was not eligible for any payout in 1997 under the SPF since he
was not employed by the Company at the time the 1992-1996 SPF award was made.
COMPENSATION ANALYSES AND REVIEWS
The Company periodically retains outside compensation and benefits
consultants to compare base salary and incentive compensation programs for the
Company's executive officers with those of other leading industrial and
11
<PAGE>
healthcare firms (including those in the DJPI) to ensure that they are
appropriate to the Company's objectives. The Committee exercises judgment and
discretion in the information it reviews and the analyses it considers.
H. Brewster Atwater, Jr. Lawrence A. Bossidy
Chairman
Johnnetta B. Cole
William G. Bowen
Lloyd C. Elam
12
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
--------------------------------------- ---------------------------------------
AWARDS PAYOUTS
--------------------------- -----------
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING LTIP ALL OTHER
SALARY BONUS COMPENSATION AWARDS(c) OPTIONS/SARS (d) PAYOUTS (e) COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
- --------------------------- ---- ---------- ---------- ------------ ---------- ---------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Raymond V. Gilmartin 1997 $1,100,004 $1,500,000 $ -- $ -- 175,000 $ -- $ 7,200(f)
Chairman of the Board, 1996 1,000,000 1,300,000 -- -- 150,000 -- 6,750(f)
President and Chief 1995 1,000,000 1,100,000 -- -- 180,000 -- 6,750(f)
Executive Officer
Edward M. Scolnick 1997 689,004 825,000 -- -- 100,000 855,592 3,600(f)
Executive Vice 1996 663,000 800,000 -- -- 100,000 1,006,698 3,375(f)
President, Science 1995 643,336 660,000 -- -- 100,000 372,111 2,250(f)
and Technology and
President, Merck
Research Laboratories
Judy C. Lewent 1997 443,334 500,000 -- -- 70,000 366,998 7,200(f)
Senior Vice President 1996 410,000 460,000 57,398(a) -- 70,000 419,288 6,750(f)
and Chief Financial 1995 393,332 365,000 70,996(a) -- 70,000 148,213 4,824(f)
Officer
Per G.H. Lofberg 1997 412,778 500,000 -- -- 90,000 -- 5,992(g)
President, Merck- 1996 374,460 440,000 2,898(b) -- 70,000 -- 2,645(g)
Medco Managed Care, 1995 324,040 365,000 4,519(b) -- 70,000 -- 4,135,107(g)
L.L.C.
David W. Anstice 1997 456,508 450,000 -- -- 90,000 440,288 9,557(h)
President, Human 1996 412,420 480,000 -- -- 70,000 354,327 9,445(h)
Health--The Americas 1995 392,668 365,000 -- -- 70,000 128,704 6,468(h)
</TABLE>
- --------
(a) Includes air commuting services of $39,225 in 1996 and $52,436 in 1995 and
automobile service of $18,173 in 1996.
(b) Represents compensation received in the form of discount for purchase
price of Merck Common Stock paid by the Company which was available to
Merck-Medco salaried employees under the Merck-Medco Employee Stock
Purchase Plan. Effective December 29, 1996, Merck-Medco employees making
$120,000 or more are no longer eligible to participate in this plan.
(c) Aggregate restricted stock holdings as of December 31, 1997, valued at the
closing market price at year end, were 25,000 shares with a value of
$2,650,000 for Mr. Gilmartin. Regular dividends on these shares were paid
quarterly.
(d) No stock appreciation rights were granted to the executive officers named
in the Summary Compensation Table.
(e) Strategic Performance Feature payouts in 1997 were for services performed
during the five-year award cycle 1992-1996; 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.
(f) Company contribution to the Merck & Co., Inc. Employee Savings and
Security Plan.
(g) Includes Company contributions to the Medco 401(k) Employee Savings Plan
of $3,400, $2,123 and $5,538 for 1997, 1996 and 1995, respectively, and
imputed income for survivor insurance of $2,592 for 1997 and $522 for each
of 1996 and 1995. 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.
(h) Includes Company contributions to the Merck & Co., Inc. Employee Savings
and Security Plan of $7,200, $6,750 and $3,750 for 1997, 1996 and 1995,
respectively, and imputed income for survivor income insurance of $2,357,
$2,695 and $2,718 for 1997, 1996 and 1995, respectively.
13
<PAGE>
The following table sets forth stock options granted in 1997 to each of the
Company's executive officers named in the Summary Compensation Table and stock
options granted to all employees as a group. The table also sets forth the
hypothetical gains that would exist for the options at the end of their ten-
year terms for the executive officers named in the Summary Compensation Table
and for all employees as a group (assuming their options had ten-year terms),
at assumed compound rates of stock appreciation of 5% and 10%. The actual
future value of the options will depend on the market value of the Company's
Common Stock. All option exercise prices are based on market price on the date
of grant. The Company did not issue stock appreciation rights in 1997.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(b)
------------------------------------------------ ------------------------------------------
PERCENT
OF TOTAL
NUMBER OF OPTIONS/
SECURITIES SARS
UNDERLYING GRANTED
OPTIONS/ TO EXERCISE
SARS EMPLOYEES OR BASE
DATE OF GRANTED IN FISCAL PRICE EXPIRATION
NAME GRANT (#) YEAR ($/SH) DATE 0% ($) 5% ($) 10% ($)
---- ------- ---------- --------- -------- ---------- ------ --------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Raymond V. Gilmartin.... 2/25/97 175,000 1.07% $97.75 2/24/07 -- $ 10,758,029 $ 27,262,957
Edward M. Scolnick...... 2/25/97 100,000 0.61% 97.75 2/24/07 -- 6,147,445 15,578,833
Judy C. Lewent.......... 2/25/97 70,000 0.43% 97.75 2/24/07 -- 4,303,211 10,905,183
Per G.H. Lofberg........ 2/25/97 90,000 0.55% 97.75 2/24/07 -- 5,532,700 14,020,949
David W. Anstice........ 2/25/97 90,000 0.55% 97.75 2/24/07 -- 5,532,700 14,020,949
All employees as a
group.................. (a) 16,333,329 100.00% (a) (a) -- $ 1,004,082,413(c) $ 2,544,541,974(c)
----------------
<CAPTION>
0% 5% 10%
------ --------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total potential stock price appreciation from February 25, 1997 to
February 24, 2007 for all stockholders at assumed rates of stock price
appreciation(d)......................................................... -- $73,378,882,540 $185,956,495,412
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 25, 1997 to February 24, 2007 for all
stockholders at assumed rates of stock price appreciation............... -- 1.37% 1.37%
</TABLE>
- --------
(a) Options were granted under the ISP throughout 1997 at prices ranging from
$79.875 to $104.063. Most of the options are first exercisable five years
from date of grant and expire ten years from date of grant. The rules and
regulations of the ISP were amended in 1997 to include a transferable
stock option feature for all executive officers, including those named in
the Summary Compensation Table. In addition, stock options were granted in
January 1997 at a price of $86.25 under the Medco Containment Services
1990 Special Non-Qualified Employee Stock Option Plan. These options are
exercisable on a one-third basis each year, up to three years from date of
grant, and expire five years from date of grant.
(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 $97.75 on February 25, 1997, and a total of
1,193,648,464 shares of Common Stock outstanding.
14
<PAGE>
The following table sets forth the number of shares acquired on exercise of
stock options and the aggregate gains realized on exercise in 1997 by the
Company's executive officers named in the Summary Compensation Table. The
table also sets forth the number of shares covered by exercisable and
unexercisable options held by such executives on December 31, 1997 and the
aggregate gains that would have been realized had these options been exercised
on December 31, 1997, even though these options were not exercised, and the
unexercisable options could not have been exercised on December 31, 1997.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-
UNDERLYING UNEXERCISED THE-
OPTIONS/SARS AT FY- MONEY OPTIONS/SARS AT
VALUE END (#) FISCAL YEAR END(b) ($)
SHARES ACQUIRED REALIZED (a) ------------------------- -------------------------
NAME ON EXERCISE (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Raymond V. Gilmartin.... -- $ -- -- 1,005,000 $ -- $56,465,000
Edward M. Scolnick...... 54,000 2,547,018 300 500,300 19,075 25,003,300
Judy C. Lewent.......... -- -- 123,000 320,300 8,518,736 15,453,300
Per G.H. Lofberg........ 157,433 11,304,403 103,087 398,334 8,141,554 20,792,343
David W. Anstice........ 10,000 667,500 101,300 300,800 6,308,963 12,916,488
</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,
1997, 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 1997.
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> <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
FIVE CONSECUTIVE YEARS YEARS OF SERVICE
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> <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, 1997, years of actual credited service
in the Retirement Plan for Salaried Employees and the Supplemental Retirement
Plan are, respectively: Dr. Scolnick--13 years and 15.5 years; Ms. Lewent--15
years and 17.5 years; Mr. Anstice--21 years and 23.5 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, 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, 1997, Mr. Gilmartin had 1.0 and 3.5 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 1997
differs from compensation reported in the Summary Compensation Table in that
pension compensation includes the annual EIP bonus awards received in 1997 for
services in 1996 rather than the EIP bonus awards paid in 1998 for services in
1997. Pension compensation in 1997 was $2,400,004 for Mr. Gilmartin;
$1,489,004 for Dr. Scolnick; $903,334 for Ms. Lewent and $936,508 for Mr.
Anstice.
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 includes 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 $28,092.
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 1997.
There were no Compensation and Benefits Committee interlocks or insider
(employee) participation during 1997.
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 (or such higher salary as the Board may from
time-to-time determine), 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, on June 16, 1994 Mr. Gilmartin was
granted 25,000 shares of restricted Company Common Stock (which will remain
restricted until June 16, 1999). 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 vested 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, 1997. 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 1997/1992
VALUE CAGR**
------ ---------
<S> <C> <C>
Merck.................................................... $278 23%
DJPI..................................................... 340 28
S&P 500.................................................. 251 20
</TABLE>
[GRAPH]
1992 1993 1994 1995 1996 1997
MERCK 100.00 81.76 93.90 165.61 205.28 278.19
DJPI 100.00 92.84 106.33 174.09 218.73 339.80
S&P 500 100.00 110.03 111.54 153.31 188.42 251.26
- --------
*Assumes that the value of the investment in Company Common Stock and each
index was $100 on December 31, 1992 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 1998, 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 ANNUAL ELECTION OF 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 shareholders of Merck recommend that the Board of
Directors take the necessary steps to reinstate the election of directors
ANNUALLY, instead of the stagger system which was recently adopted.
"REASONS: Until recently, directors of Merck were elected annually by all
shareholders.
"The great majority of New York Stock Exchange listed corporations elect
all their directors each year.
"This insures that ALL directors will be more accountable to ALL
shareholders each year and to a certain extent prevents the self-
perpetuation of the Board.
"In 1996 a similar proposal received approximately 37.1% of shares
voting.
"If you AGREE, please mark your proxy FOR this resolution."
BOARD OF DIRECTORS' STATEMENT IN OPPOSITION TO THE RESOLUTION
Similar proposals have been submitted at ten of the last eleven Annual
Meetings of Stockholders and have been defeated on each occasion. The Board of
Directors continues to believe that this proposal is not in the best interest
of the Company or its stockholders.
The Company's current system for electing directors, with the Board divided
into three classes of directors serving staggered three-year terms, was
adopted by the Company's stockholders in 1985 by an affirmative vote of 79%.
The Board believes that the staggered system of electing directors provides
important benefits to the Company:
. The staggered system helps assure continuity and stability of the
Company's business strategies and policies. Since at least two
stockholders' meetings will be required to effect a change in control of
the Board, a majority of directors at any given time will have prior
experience as directors of the Company. This is particularly important to
a research-based organization such as the Company, where product
development often requires many years.
20
<PAGE>
. In the event of any unfriendly or unsolicited proposal to take over or
restructure the Company, the staggered system would permit the Company
time to negotiate with the sponsor, to consider alternative proposals and
to assure that stockholder value is maximized.
As part of the 1985 amendment to the Company's Restated Certificate of
Incorporation (the "Charter") to provide for the current staggered system of
electing directors, the stockholders also approved a requirement that any
change in the provisions of the amendment be approved by the holders of shares
of stock of the Company representing at least 80% of the votes entitled to be
cast generally for the election of directors. This stockholder resolution does
not propose an amendment to the Charter but, instead, seeks to have the Board
take any necessary steps to return to annual election of directors. Thus, the
proposal's approval by stockholders would not itself re-establish annual
election of directors but would require the Board to submit a Charter
amendment for action by stockholders at the 1999 Annual Meeting and an 80%
stockholder vote would be necessary for approval.
The Board believes this proposal is not in the best interest of the Company.
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 1997
fiscal year except for the inadvertent failure by Dr. William G. Bowen to
report on Form 5 in 1997 the transfer of shares by his daughter to a trust in
which Dr. Bowen shares voting power. Such transfer was reported by Dr. Bowen
on Form 5 in 1998.
DEADLINE FOR STOCKHOLDER PROPOSALS FOR 1999
Stockholder proposals to be presented at the 1999 Annual Meeting must be
received by the Company on or before November 19, 1998 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 19, 1998
21
<PAGE>
LOGO MERCK
Merck & Co. Inc.
<PAGE>
[LOGO] MERCK MERCK & CO., INC.
Annual Meeting of Stockholders
Tuesday, April 28, 1998
ADMISSION TICKET Edward Nash Theatre at
Raritan Valley Community College
Route 28 and Lamington Road
North Branch, New Jersey
The Annual Meeting of Stockholders of Merck & Co., Inc. will be held at 2:00
p.m. on April 28, 1998 in the Edward Nash Theatre at Raritan Valley Community
College in North Branch, New Jersey. If you plan to attend, please retain this
ticket and MARK THE APPROPRIATE BOX ON THE PROXY CARD. A map with directions to
the meeting site is on the reverse side of this admission ticket. This ticket
admits the stockholder(s) whose name(s) appears on it and one guest.
IF YOU ARE A REGISTERED STOCKHOLDER AND DUPLICATE COPIES OF THE COMPANY'S ANNUAL
REPORT ARE SENT TO YOUR HOUSEHOLD, YOU MAY DISCONTINUE THE MAILING OF SUCH
REPORT TO THIS ACCOUNT BY CHECKING THE APPROPRIATE BOX ON THE PROXY CARD.
THIS TICKET IS NOT TRANSFERABLE
(Detach and Return Proxy Card Below in the Enclosed Envelope)
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
1. Election of Directors: Nominees are Derek Birkin, William G.
DIRECTORS Bowen, Carolyne K. Davis and Lloyd C. Elam for terms expiring in
RECOMMEND 2001. AUTHORITY TO VOTE FOR ANY NOMINEE MAY BE WITHHELD BY LINING
A VOTE THROUGH THE NOMINEE'S NAME ABOVE. To cumulate votes as to a
FOR particular nominee(s) as explained in the proxy statement,
ITEMS indicate the name(s) and the number of votes to be given to such
1 AND 2 nominee(s):
FOR all nominees (except
as marked to the contrary WITHHOLD AUTHORITY
above) [_] to vote for all nominees [_]
2. Ratification of Appointment of Independent Public Accountants ..............
FOR AGAINST ABSTAIN
[_] [_] [_]
- --------------------------------------------------------------------------------
DIRECTORS
RECOMMEND Stockholder Proposal Concerning:
A VOTE 3. Annual Election of Directors
AGAINST
ITEM 3 [_] [_] [_]
- --------------------------------------------------------------------------------
Signature(s):
-----------------------
-----------------------
-----------------------
Date: , 1998
-----------------------
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.
<PAGE>
[MAP APPEARS HERE]
Follow Raritan Valley Community College signs at Exit 26 of Route 78 and on
Route 22 in North Branch. Enter Raritan Valley Community College at Lamington
Road entrance. Proceed to Parking Lot 5 which is reserved for Merck
stockholders. A continuous shuttle bus service from the parking lot to the
theatre will be available.
- --------------------------------------------------------------------------------
[LOGO] MERK PROXY/VOTING INSTRUCTION CARD
ANNUAL MEETING OF STOCKHOLDERS--APRIL 28, 1998
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 28, 1998, 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 proposal 3.
[_] Discontinue mailing the Annual Report to this account.
[_] Will attend the Annual Meeting.
