<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
----------- -----------
Commission File No. 1-3305
MERCK & CO., INC.
P. O. Box 100
One Merck Drive
Whitehouse Station, N.J. 08889-0100
(908) 423-1000
Incorporated in New Jersey I.R.S. Employer Identification
No. 22-1109110
The number of shares of common stock outstanding as of the close of business on
July 30, 1999:
<TABLE>
<CAPTION>
Class Number of Shares Outstanding
----- ----------------------------
<S> <C>
Common Stock 2,345,522,850
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
<PAGE> 2
Part I - Financial Information
MERCK & CO., INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENT OF INCOME
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
($ in millions except per share amounts)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
------------------------- --------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales $ 8,018.2 $ 6,470.4 $ 15,554.8 $ 12,529.2
---------- ---------- ---------- ----------
Costs, Expenses and Other
Materials and production 4,370.2 3,383.4 8,524.4 6,619.0
Marketing and administrative 1,184.4 1,058.8 2,338.6 2,054.0
Research and development 482.7 441.0 924.4 829.5
Equity income from affiliates (179.6) (271.1) (354.4) (497.1)
Other (income) expense, net (170.1) 32.2 (51.6) 62.5
---------- ---------- ---------- ----------
5,687.6 4,644.3 11,381.4 9,067.9
---------- ---------- ---------- ----------
Income Before Taxes 2,330.6 1,826.1 4,173.4 3,461.3
Taxes on Income 852.5 510.0 1,395.7 980.8
---------- ---------- ---------- ----------
Net Income $ 1,478.1 $ 1,316.1 $ 2,777.7 $ 2,480.5
========== ========== ========== ==========
Basic Earnings per Common Share $ .63 $ .55 $ 1.18 $ 1.04
Earnings per Common Share Assuming Dilution $ .61 $ .54 $ 1.15 $ 1.01
Dividends Declared per Common Share $ .27 $ .22-1/2 $ .54 $ .45
</TABLE>
The accompanying notes are an integral part of
this consolidated financial statement.
- 1 -
<PAGE> 3
MERCK & CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1999 AND DECEMBER 31, 1998
($ in millions)
<TABLE>
<CAPTION>
June 30 December 31
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 2,267.9 $ 2,606.2
Short-term investments 1,273.4 749.5
Accounts receivable 3,380.1 3,374.1
Inventories 2,566.3 2,623.9
Prepaid expenses and taxes 939.4 874.8
--------- ---------
Total current assets 10,427.1 10,228.5
--------- ---------
Investments 4,366.5 3,607.7
Property, Plant and Equipment, at cost,
net of allowance for depreciation of
$4,371.3 in 1999 and $4,042.8 in 1998 8,525.0 7,843.8
Goodwill and Other Intangibles,
net of accumulated amortization of
$1,306.9 in 1999 and $1,123.9 in 1998 7,746.9 8,287.2
Other Assets 2,144.6 1,886.2
--------- ---------
$33,210.1 $31,853.4
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 3,632.7 $ 3,682.1
Loans payable and current portion of long-term debt 612.4 624.2
Income taxes payable 1,663.4 1,125.1
Dividends payable 636.1 637.4
--------- ---------
Total current liabilities 6,544.6 6,068.8
--------- ---------
Long-Term Debt 3,212.8 3,220.8
--------- ---------
Deferred Income Taxes and Noncurrent Liabilities 6,764.6 6,057.0
--------- ---------
Minority Interests 3,713.2 3,705.0
--------- ---------
Stockholders' Equity
Common stock
Authorized - 5,400,000,000 shares
Issued - 2,967,945,540 shares-1999
- 2,967,851,980 shares-1998 29.7 29.7
Other paid-in capital 5,579.1 5,614.5
Retained earnings 21,690.3 20,186.7
Accumulated other comprehensive loss (23.6) (21.3)
--------- ---------
27,275.5 25,809.6
Less treasury stock, at cost
617,641,343 shares - 1999
607,399,428 shares - 1998 14,300.6 13,007.8
--------- ---------
Total stockholders' equity 12,974.9 12,801.8
--------- ---------
$33,210.1 $31,853.4
========= =========
</TABLE>
The accompanying notes are an integral part of
this consolidated financial statement.
- 2 -
<PAGE> 4
MERCK & CO., INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
($ in millions)
<TABLE>
<CAPTION>
Six Months
Ended June 30
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income before taxes $ 4,173.4 $ 3,461.3
Adjustments to reconcile income before taxes to cash provided from operations
before taxes:
Depreciation and amortization 577.2 472.7
Other (344.5) (286.6)
Net changes in assets and liabilities (119.4) (297.4)
----------- -----------
CASH PROVIDED BY OPERATING ACTIVITIES BEFORE TAXES 4,286.7 3,350.0
INCOME TAXES PAID (1,047.2) (772.1)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,239.5 2,577.9
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (1,089.2) (772.7)
Purchase of securities, subsidiaries and other investments (17,686.2) (10,855.5)
Proceeds from sale of securities, subsidiaries and other investments 16,333.5 10,426.6
Proceeds from relinquishment of certain AstraZeneca product rights 1,679.9 --
Other (16.7) (30.7)
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (778.7) (1,232.3)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in short-term borrowings (4.1) 218.5
Proceeds from issuance of debt 11.4 499.1
Payments on debt (15.9) (86.9)
Purchase of treasury stock (1,525.1) (773.2)
Dividends paid to stockholders (1,275.4) (1,075.8)
Other 99.6 215.6
----------- -----------
NET CASH USED BY FINANCING ACTIVITIES (2,709.5) (1,002.7)
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (89.6) (43.1)
----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (338.3) 299.8
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,606.2 1,125.1
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,267.9 $ 1,424.9
=========== ===========
</TABLE>
The accompanying notes are an integral part of
this consolidated financial statement.
Notes to Consolidated Financial Statements
1. The accompanying unaudited interim consolidated financial statements have
been prepared pursuant to the rules and regulations for reporting on Form
10-Q. Accordingly, certain information and disclosures required by
generally accepted accounting principles for complete financial statements
are not included herein. The interim statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's latest Annual Report on Form 10-K.
Interim statements are subject to possible adjustments in connection with
the annual audit of the Company's accounts for the full year 1999; in the
Company's opinion, all adjustments necessary for a fair presentation of
these interim statements have been included and are of a normal and
recurring nature.
All share and per share amounts for current and prior periods presented in
these financial statements reflect a two-for-one stock split of the
Company's common stock, effective February 1999.
Certain reclassifications have been made to prior year amounts to conform
with current year presentation.
- 3 -
<PAGE> 5
Notes to Consolidated Financial Statements (continued)
2. In April 1999, Astra AB (Astra) merged with Zeneca Group Plc (Zeneca). As a
result of this merger, Astra was required to make two one-time payments to
Merck totaling approximately $1.8 billion. In exchange for Merck's
relinquishment of option rights to future Astra products with no existing
or pending U.S. patents at the time of the merger, Astra paid $967.4
million (the Advance Payment), which is subject to a true-up calculation in
2008 that may require repayment of all or a portion of this amount. The
true up cannot reasonably be estimated because it is directly dependent on
the fair market value in 2008 of the Astra product rights retained by the
Company which extend to compounds currently in development as well as
compounds that have not as yet entered development. Accordingly, the
Company has deferred recognition of this contingent income until the
realizable amount, if any, is determinable, which is not anticipated prior
to 2008.
In connection with the Company's July 1998 acquisition of Astra's one-half
interest in Astra Merck, Inc. (renamed KBI), the Company agreed to
relinquish rights to the pharmaceutical products of any company that would
merge with or acquire Astra. These rights, which protected the value of
KBI's perpetual interest in Astra's pipeline, were relinquished in exchange
for a payment (the Lump Sum Payment) to be made in the event of the merger
or acquisition of Astra. The Company estimates that it is entitled to
receive a Lump Sum Payment of $822.0 million as the result of the merger of
Astra and Zeneca. In the second quarter of 1999, Astra paid $712.5 million
of the Lump Sum Payment and is disputing its obligation to pay the
remainder. The Company is in arbitration seeking to enforce its rights
under the agreement with respect to the disputed amount. Although the
Company retains an interest in current and future Astra products with an
existing or pending U.S. patent, this merger effectively curtailed the
Company's perpetual interest in Astra's pipeline and, thus, reduced the
going concern value acquired by the Company in July 1998. Accordingly,
one-half of the expected payment is an adjustment to the purchase price
paid by the Company for Astra's one-half interest in KBI reducing goodwill
by $411.0 million. The balance represents compensation to the Company for
the reduction of the value of its original one-half interest in KBI and was
recorded in Other (income) expense, net. Because the reduction in goodwill
is not tax-effected and the Lump Sum Payment is fully taxable, this
transaction, net of a reserve relating to disputed proceeds, yielded an
after-tax gain of $74.6 million. This gain was largely offset on an
after-tax basis by $110.0 million of pretax nonrecurring charges ($66.2
million after tax) also recorded in Other (income) expense, net. (See Note
6.)
The AstraZeneca merger also triggers a partial redemption in 2008 of
Merck's limited partnership interest in Astra Pharmaceuticals, L.P., the
U.S. limited partnership formed in July 1998 as part of the restructuring
of the Company's joint venture with Astra. Additionally, Astra's option to
buy the Company's interest in the KBI products is now only exercisable in
2010 and the Company now has the right to require Astra to purchase such
interest at fair market value in 2008. As a result of the merger, the $1.4
billion note issued to Astra in July 1998, originally due in 2038, is
payable in 2008.
3. Inventories consisted of:
<TABLE>
<CAPTION>
($ in millions)
-------------------------
June 30 December 31
1999 1998
-------- -----------
<S> <C> <C>
Finished goods $1,673.8 $1,701.2
Raw materials and work in process 819.0 851.6
Supplies 73.5 71.1
-------- --------
Total (approximates current cost) 2,566.3 2,623.9
Reduction to LIFO cost -- --
-------- --------
$2,566.3 $2,623.9
======== ========
</TABLE>
4. The Company, along with numerous other defendants, is a party in several
antitrust actions brought by retail pharmacies and consumers, alleging
conspiracies in restraint of trade and challenging pricing and/or
purchasing practices, one of which has been certified as a federal class
action and a number of which have been certified as state class actions. In
1996, the Company and several other defendants finalized an agreement to
settle the federal class action alleging conspiracy, which represents the
single largest group of retail pharmacy claims, pursuant to which the
Company paid $51.8 million. Since that time, the Company has entered into
other settlements on satisfactory terms. The Company has not engaged in any
conspiracy, and no admission of wrongdoing was made nor was included in the
final agreements. While it is not feasible to predict or determine the
final outcome of these proceedings, management does not believe that they
should result in a materially adverse effect on the Company's financial
position, results of operations or liquidity.
- 4 -
<PAGE> 6
Notes to Consolidated Financial Statements (continued)
5. Sales consisted of:
<TABLE>
<CAPTION>
($ in millions)
-----------------------------------------------------------
Three Months Six Months
Ended June 30 Ended June 30
-------------------------- ----------------------------
1999 1998 1999 1998
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Elevated cholesterol $ 1,239.9 $ 1,153.4 $ 2,410.4 $ 2,202.5
Hypertension/heart failure 1,204.3 1,141.3 2,292.2 2,141.2
Osteoporosis 243.3 165.7 474.6 347.4
Anti-ulcerants 191.9 228.7 452.1 550.0
Vaccines/biologicals 221.4 217.7 392.8 403.1
Antibiotics 187.0 169.7 376.8 371.1
Human immunodeficiency virus (HIV) 175.9 183.7 325.8 335.0
Ophthalmologicals 162.6 149.9 314.2 298.4
Other Merck products 635.3 226.7 1,182.4 391.2
Merck-Medco 3,756.6 2,833.6 7,333.5 5,489.3
---------- ----------- ----------- -----------
$ 8,018.2 $ 6,470.4 $ 15,554.8 $ 12,529.2
========== =========== =========== ===========
</TABLE>
Other Merck products include sales of other human pharmaceuticals,
continuing sales to divested businesses and pharmaceutical and animal
health supply sales to the Company's joint ventures and, as of July 1,
1998, supply sales to Astra Pharmaceuticals, L.P.
6. Other (income) expense, net, consisted of:
<TABLE>
<CAPTION>
($ in millions)
------------------------------------------------
Three Months Six Months
Ended June 30 Ended June 30
---------------------- ----------------------
1999 1998 1999 1998
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Interest income $ (89.4) $ (63.8) $(168.9) $(125.6)
Interest expense 68.9 42.6 140.3 81.8
Exchange (gains) losses (7.3) (6.7) 2.1 (12.6)
Minority interests 57.3 22.7 106.7 65.2
Amortization of goodwill and other intangibles 77.8 48.3 161.1 96.5
Other, net (277.4) (10.9) (292.9) (42.8)
-------- ------- ------- -------
$(170.1) $ 32.2 $ (51.6) $ 62.5
======== ======= ======= =======
</TABLE>
Minority interests include third parties' share of exchange gains and
losses arising from translation of the financial statements into U.S.
dollars. Increase in minority interests for the three- and six-month
periods reflects dividends paid to AstraZeneca on $2.4 billion par value
preferred stock of a subsidiary beginning in July 1998.
Other, net, for the three- and six-month periods ended June 30, 1999
includes income of $411.0 million associated with the Lump Sum Payment from
Astra, offset by a reserve relating to disputed proceeds (see Note 2) and
nonrecurring charges of $110.0 million primarily comprised of provisions
for the funding of both The Merck Company Foundation and The Merck Genome
Research Institute and provisions for the settlement of claims.
Interest paid for the six-month periods ended June 30, 1999 and 1998 was
$105.0 million and $50.3 million, respectively.
7. Income taxes paid for the six-month periods ended June 30, 1999 and 1998
were $1,047.2 million and $772.1 million, respectively.
- 5 -
<PAGE> 7
Notes to Consolidated Financial Statements (continued)
8. The net income effect of dilutive securities was not significant to the
Company's calculation of Earnings per common share assuming dilution. A
reconciliation of weighted average common shares outstanding to weighted
average common shares outstanding assuming dilution follows:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
--------------------- ---------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Average common shares outstanding 2,357.6 2,389.8 2,359.2 2,389.8
Common shares issuable(1) 56.0 61.4 59.4 62.6
------- ------- ------- -------
Average common shares outstanding assuming dilution 2,413.6 2,451.2 2,418.6 2,452.4
======= ======= ======= =======
(1) Issuable primarily under stock option plans.
</TABLE>
9. Comprehensive income for the three months ended June 30, 1999 and 1998,
representing all changes in Stockholders' equity during the period other
than changes resulting from the Company's stock, was $1,474.5 million and
$1,313.0 million, respectively. Comprehensive income for the six months
ended June 30, 1999 and 1998 was $2,775.4 and $2,479.1, respectively.
10. The Company's operations are principally managed on a products and services
basis and are comprised of two reportable segments: Merck Pharmaceutical
and Merck-Medco. Merck Pharmaceutical products consist of therapeutic
agents, sold by prescription, for the treatment of human disorders.
Merck-Medco revenues are derived from the filling and management of
prescriptions and health management programs. All Other includes
non-reportable human and animal health segments. Revenues and profits for
these segments are as follows:
<TABLE>
<CAPTION>
($ in millions)
--------------------------------------------------------
Three Months Six Months
Ended June 30 Ended June 30
------------------------ -------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Segment revenues:
Merck Pharmaceutical $ 3,606.8 $ 3,158.8 $ 6,885.7 $ 6,136.7
Merck-Medco 4,435.2 3,506.0 8,729.7 6,832.0
All Other 611.5 426.1 1,242.5 808.2
--------- --------- --------- ---------
$ 8,653.5 $ 7,090.9 $16,857.9 $13,776.9
========= ========= ========= =========
Segment profits:
Merck Pharmaceutical $ 2,200.7 1,902.5 4,195.1 $ 3,742.3
Merck-Medco 127.7 128.1 251.4 222.5
All Other 572.5 602.9 1,133.4 1,115.3
--------- --------- --------- ---------
$ 2,900.9 $ 2,633.5 $ 5,579.9 $ 5,080.1
========= ========= ========= =========
</TABLE>
Segment profits are comprised of segment revenues less certain elements of
materials and production costs and operating expenses, including components
of equity income (loss) from joint ventures and depreciation and
amortization expenses. The vast majority of indirect production costs,
research and development expenses and general and administrative expenses,
all predominantly related to the Merck Pharmaceutical business, as well as
the cost of financing these activities, are not included in the marketing
segment profits. The vast majority of goodwill and other intangibles
amortization, as well as the cost of financing capital employed, are not
included in Merck-Medco segment profits.
- 6 -
<PAGE> 8
Notes to Consolidated Financial Statements (continued)
A reconciliation of total segment profits to consolidated income before
taxes is as follows:
<TABLE>
<CAPTION>
($ in millions)
--------------------------------------------------------
Three Months Six Months
Ended June 30 Ended June 30
------------------------ ------------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Segment profits $2,900.9 $2,633.5 $5,579.9 $5,080.1
Other profits 19.8 26.1 45.4 41.4
Adjustments 49.7 40.8 88.8 76.5
Unallocated:
Interest income 89.4 63.8 168.9 125.6
Interest expense (68.9) (42.6) (140.3) (81.8)
Equity income (loss) from affiliates 59.8 (78.5) 145.5 (134.4)
Depreciation and amortization expenses (231.1) (177.0) (455.3) (355.6)
Research and development expenses (482.7) (441.0) (924.4) (829.5)
Other expenses, net (6.3) (199.0) (335.1) (461.0)
-------- -------- -------- --------
$2,330.6 $1,826.1 $4,173.4 $3,461.3
======== ======== ======== ========
</TABLE>
Other profits primarily represent operating income related to divested
products or businesses. Adjustments represent the elimination of the effect
of double counting certain items of income and expense. Equity income
(loss) from affiliates includes taxes paid at the joint venture level and a
portion of equity income that is not reported in segment profits. Other
expenses, net, include expenses from corporate and manufacturing cost
centers and other miscellaneous income (expense), net.
11. Legal proceedings to which the Company is a party are discussed in Part 1
Item 3, Legal Proceedings, in the Annual Report on Form 10-K. There were no
material developments in the six-month period ended June 30, 1999.
- 7 -
<PAGE> 9
MANAGEMENT'S ANALYSIS OF INTERIM FINANCIAL INFORMATION
Earnings per share for the second quarter of 1999 were $0.61, an increase of 13%
over the second quarter of 1998. Second quarter net income increased 12% to
$1,478.1 million. Sales for the quarter were $8.0 billion, up 24% from the same
period last year.
For the first six months, earnings per share were $1.15, an increase of 14% from
the first six months of 1998. Net income was $2,777.7 million for the first six
months of 1999, an increase of 12% from the first six months of 1998. Sales rose
24% to $15.6 billion.
Sales growth for the quarter and the first half of 1999 was led by the
established major products, the newer products, including the 1999 launch of
'Vioxx', as well as growth from the Merck-Medco Managed Care business. Solid
volume gains in both domestic and international operations as well as a three
point benefit attributable to the restructuring of Astra Merck, Inc. (AMI)
contributed to the second quarter results.
Foreign exchange reduced the second quarter sales growth by one percentage
point, but had essentially no effect on the six month performance. Excluding
exchange and including the effect of the AMI restructuring, sales of Merck human
health products increased 20% and 19% for the second quarter and six months,
respectively. Sales of Merck human health products outside the United States
accounted for 41% of Merck human health first half 1999 sales.
Income growth for the first six months was driven by solid sales volume gains as
well as the effects of ongoing productivity improvements in manufacturing and
general and administrative expenses. The savings from productivity improvements
were partially offset by increases in selling and promotion expenses to support
the recent product launches.
Results for the first six months were paced by sales volume gains of 'Zocor',
'Fosamax', 'Cozaar'*, 'Hyzaar'* and 'Prinivil'. Also contributing to the volume
growth were 'Singulair', 'Propecia', 'Cosopt', 'Maxalt' and 'Aggrastat', all
introduced in 1998, and 'Vioxx', which was launched in May 1999 in the United
States. Prescription volume growth in the Merck-Medco Managed Care business also
contributed significantly to the sales increase.
'Zocor' continues its solid volume growth and is the world's leading "statin"
medicine. Today, almost 10 million people in 117 countries are taking 'Zocor'.
Last year, the U.S. Food and Drug Administration (FDA) approved a new 80 mg
tablet, which lowers LDL ("bad") cholesterol by 47%, on average. Together,
'Zocor' and 'Mevacor', Merck's other cholesterol-lowering medicines, hold more
than a 40 percent share of the growing worldwide statin market. Even in the U.S.
market, only about one-third of eligible patients are receiving treatment.
'Fosamax', Merck's medicine to treat and prevent postmenopausal osteoporosis and
reduce the risk of fractures due to osteoporosis, continues to be the only
nonhormonal medicine proven to reduce the incidence of hip fractures, the most
serious kind of fracture.
'Fosamax' was cleared by the FDA in May for the treatment of osteoporosis in men
and women with low bone density who are taking glucocorticoids (also known as
steroids or corticosteroids) in a daily dosage equivalent to 7.5 mg or greater
of prednisone. Glucocorticoids are widely used to treat patients with chronic
inflammatory and autoimmune diseases. Glucocorticoid users can lose large
amounts of bone rapidly, leading to fractures in 30% to 50% of patients on
chronic therapy. 'Fosamax' is an important therapeutic advance for patients with
glucocorticoid-induced osteoporosis. Regulatory authorities in 14 other
countries, including Canada and Austria, have also cleared 'Fosamax' for this
use.
Merck's angiotensin II antagonist (AIIA) 'Cozaar' and its companion agent,
'Hyzaar', are among Merck's fastest-growing products. 'Cozaar' has been
introduced in 82 countries to date and 'Hyzaar' has been introduced in 67,
making these medicines together the world's most widely prescribed in the AIIA
class. Several large multi-national clinical trials are under way to investigate
'Cozaar' for additional indications, including renal protection and a reduction
in post-myocardial infarction mortality.
'Cozaar' is the only product in its class cleared for the treatment of heart
failure in any market. It has been approved for this use in 21 countries to
date, including Germany and Spain, and applications for this indication are
pending in other countries. Merck has not yet filed an application for the
treatment of heart failure in the United States.
*'Cozaar' and 'Hyzaar' are registered trademarks of E.I. du Pont de Nemours and
Company, Wilmington, DE, USA.
- 8 -
<PAGE> 10
MANAGEMENT'S ANALYSIS OF INTERIM FINANCIAL INFORMATION (continued)
'Singulair', Merck's once-a-day tablet to treat chronic asthma in adults and
children ages six and older, has become the most widely prescribed
leukotriene-antagonist in the United States. The product has been introduced in
57 other countries, including the United Kingdom, Spain, Germany and Canada. A
study published last week in the British Medical Journal showed that patients
with chronic asthma who took 'Singulair' in addition to their inhaled steroid
medicine were able to reduce their daily doses of inhaled steroids by 47% (vs.
30% on placebo) and still keep their asthma under control. In addition, 40% of
these patients were able to gradually stop taking inhaled steroids completely
(vs. 29% on placebo).
'Propecia', the first and only tablet for the treatment of male pattern hair
loss, offers men a highly effective, generally well tolerated and easy-to-use
option in managing hair loss on the vertex and anterior mid-scalp. 'Propecia'
has been introduced in 26 countries to date, including the United States,
Canada, France, Spain, Germany, Italy and Australia. Launches are pending in 13
countries. Since the product's introduction last year in the United States,
approximately 700,000 men have started treatment worldwide and that number
continues to grow.
Since its introduction last year, 'Maxalt' has become the fastest growing oral
migraine medication in the United States and has been successfully introduced in
major European markets. 'Maxalt' is the first migraine medicine available in
both conventional tablets and a tablet formulation, 'Maxalt-MLT', that
disintegrates within seconds on the tongue without liquids.
Merck's "platelet blocker," 'Aggrastat', is now available in more than 20
countries, including the United States, Switzerland, Germany and Mexico. It is
indicated to reduce the risk of early myocardial infarction (MI) in patients
with unstable angina or non-Q wave MI.
Following a six-month priority review, on May 20 the FDA cleared 'Vioxx',
Merck's once-daily COX-2 specific inhibitor, for relief of the signs and
symptoms of osteoarthritis, management of acute pain in adults, and treatment of
menstrual pain. Since then, more than 400,000 U.S. patients have taken the
product. Merck has introduced 'Vioxx' in nine other countries including the
United Kingdom, Switzerland and Mexico. The Company is conducting additional
clinical studies with 'Vioxx' to determine whether it is useful in treating
rheumatoid arthritis and in preventing and treating Alzheimer's disease. Studies
will begin later this year to ascertain whether 'Vioxx' might help prevent colon
cancer.
In April 1999, Astra AB (Astra) merged with Zeneca Group Plc. As a result of
this merger, Astra was required to make two one-time payments to Merck totaling
approximately $1.8 billion. The Company has deferred recognition of the first
payment, which approximated $967.4 million, since all or a portion of the amount
is subject to repayment in 2008. One-half of the second payment which is
estimated to be $822.0 million (the Lump Sum Payment) was an adjustment of the
purchase price of Astra's 50% interest in Astra Merck Inc., reducing goodwill by
$411.0 million. The balance was recorded in Other (income) expense, net and,
after a reserve relating to disputed proceeds, yielded an after-tax gain of
$74.6 million. (See Note 2 to the consolidated financial statements for further
information.) This gain was largely offset on an after-tax basis by $110.0
million of pretax nonrecurring charges ($66.2 million after tax) also recorded
in Other (income) expense, net, primarily comprised of provisions for the
funding of both The Merck Company Foundation and The Merck Genome Research
Institute and provisions for the settlement of claims.
The growth in pretax income for the second quarter was affected by the income
from the Lump Sum Payment net of the nonrecurring charges. However, the net
increase in pretax growth related to these nonrecurring items was substantially
offset by an increase in the Company's effective tax rate principally because
the reduction in goodwill associated with the Lump Sum Payment is not
tax-effected.
On May 25, 1999, the Board of Directors declared a quarterly dividend of 27
cents per share on the Company's common stock for the third quarter of 1999. On
July 27, 1999, the Board of Directors declared a quarterly dividend of 29 cents
per share of common stock for the fourth quarter of 1999. The Company's total
dividends paid during 1999 will be $1.10 per share, a 16% increase over the
amount paid in 1998. The amount of dividends reflects the Company's two-for-one
stock split effective February 1999.
- 9 -
<PAGE> 11
MANAGEMENT'S ANALYSIS OF INTERIM FINANCIAL INFORMATION (continued)
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities (FAS 133).
The Statement establishes accounting and reporting standards requiring that
every derivative instrument be recorded in the balance sheet as either an asset
or liability measured at fair value and that changes in fair value be recognized
currently in earnings, unless specific hedge accounting criteria are met. In
June 1999, the FASB issued Statement No. 137, Accounting for Derivative
Instruments and Hedging Activities -- Deferral of the Effective Date of FASB
Statement No. 133, which delays the required adoption of FAS 133 to fiscal 2001.
The timing of adoption of the Statement and effect of FAS 133 on the Company's
financial position or results of operations have not yet been determined.
As disclosed in our Annual Report on Form 10-K for the year ended December 31,
1998, the Company initiated a program in 1996 to assess the risks of Year 2000
noncompliance, remediate all noncompliant systems and assess the readiness of
key third parties. The risks identified by this program remain the same and the
Company's assessment and remediation plans have not changed materially in terms
of scope, timing or estimated costs to complete. The inventory and assessment
phases are complete for critical internal information technology (IT) systems
and the Company is approximately 90% complete with the remediation phase as of
June 30, 1999. The inventory and assessment phase for non-IT systems is
substantially complete and remediation is under way. Contingency plans
(including the substitution of systems, use of manual methods and other means to
prevent the failure of critical systems from having a material effect on the
Company) are being developed, particularly for high risk areas such as those
involving supplier and product management.
While some of the risks relating to third party readiness are outside of the
Company's control, the Company has instituted programs, including internal
records review and external questionnaires and supplier audits, to identify key
third parties and assess their level of Year 2000 readiness. As of June 30,
1999, key third parties have been identified and the assessment of their
readiness is being completed. Third party-based contingency plans, including
securing alternate suppliers and alternate lines of communication with customers
and suppliers, as well as advance ordering and staging of materials, are being
developed to address the risks of noncompliance. Additionally, the Company is
assessing the need to maintain increased inventory levels to satisfy potential
increased customer demand at year-end.
All critical aspects of the Company's Year 2000 compliance program are expected
to be completed by the end of the third quarter 1999. In addition, the Company
is continually evaluating and, as necessary, updating its contingency plans for
its high risk areas. Total costs to resolve the Year 2000 issue are not expected
to be material to the Company's financial position, results of operations or
cash flows.
- 10 -
<PAGE> 12
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
This report and other written reports and oral statements made from time to time
by the Company may contain so-called "forward-looking statements," all of which
are subject to risks and uncertainties. One can identify these forward-looking
statements by their use of words such as "expects," "plans," "will,"
"estimates," "forecasts," "projects" and other words of similar meaning. One can
also identify them by the fact that they do not relate strictly to historical or
current facts. These statements are likely to address the Company's growth
strategy, financial results, product approvals and development programs. One
must carefully consider any such statement and should understand that many
factors could cause actual results to differ from the Company's forward-looking
statements. These factors include inaccurate assumptions and a broad variety of
other risks and uncertainties, including some that are known and some that are
not. No forward-looking statement can be guaranteed and actual future results
may vary materially.
The Company does not assume the obligation to update any forward-looking
statement. One should carefully evaluate such statements in light of factors
described in the Company's filings with the Securities and Exchange Commission,
especially on Forms 10-K, 10-Q and 8-K (if any). In Item 1 of the Company's
Annual Report on Form 10-K for the year ended December 31, 1998, as filed on
March 24, 1999, the Company discusses in more detail various important factors
that could cause actual results to differ from expected or historic results. The
Company notes these factors for investors as permitted by the Private Securities
Litigation Reform Act of 1995. One should understand that it is not possible to
predict or identify all such factors. Consequently, the reader should not
consider any such list to be a complete statement of all potential risks or
uncertainties.
- 11 -
<PAGE> 13
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders
The following matters were voted upon at the Annual Meeting of Stockholders held
on April 27, 1999, and received the votes set forth below:
1. All of the following persons nominated were elected to serve as
directors and received the number of votes set opposite their respective
names:
<TABLE>
<CAPTION>
For Withheld
--- --------
<S> <C> <C>
Carleton S. Fiorina 1,969,855,821 14,374,854
H. Brewster Atwater, Jr. 1,970,348,378 13,882,297
Raymond V. Gilmartin 1,972,219,611 12,011,064
Edward M. Scolnick, M.D. 1,972,213,274 12,017,401
Samuel O. Thier, M.D. 1,970,765,664 13,465,011
Dennis Weatherstone 1,970,612,680 13,617,995
</TABLE>
2. A proposal to ratify the appointment of independent public accountants
received 1,973,670,530 votes FOR and 3,404,366 votes AGAINST, with
7,155,779 abstentions.
3. A stockholder proposal concerning annual election of directors received
771,798,032 votes FOR and 769,206,896 votes AGAINST, with 52,012,397
abstentions and 391,213,350 broker non-votes.
4. A stockholder proposal concerning bonuses for executive officers
received 73,776,293 votes FOR and 1,461,753,074 votes AGAINST, with
57,487,896 abstentions and 391,213,412 broker non-votes.
5. A stockholder proposal concerning nomination of a wage-roll employee to
the Board of Directors received 71,532,675 votes FOR and 1,452,705,078
votes AGAINST, with 68,779,469 abstentions and 391,213,453 broker
non-votes.
- 12 -
<PAGE> 14
Part II - Other Information (Cont'd)
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Number Description Method of Filing
------ ----------- ----------------
<S> <C> <C>
3(a) Restated Certificate of Incorporated by reference
Incorporation of Merck to Form 10-K Annual Report
& Co., Inc. (May 6, 1992) for the fiscal year ended
December 31, 1992
3(b) Certificate of Amendment to Incorporated by reference
the Certificate of to Form 10-K Annual Report
Incorporation of Merck & for the fiscal year ended
Co., Inc. (as amended December 31, 1998
January 14, 1999, effective
February 16, 1999)
3(c) By-Laws of Merck & Co., Inc. Incorporated by reference
(as amended effective to Form 10-Q Quarterly
February 25, 1997) Report for the period
ended March 31, 1997
10(a) 1996 Non-Employee Directors Filed with this document
Stock Option Plan (as amended
April 27, 1999)
10(b) Plan for Deferred Payment of Filed with this document
Directors' Compensation
(Restated as of June 1, 1999)
10(c) 1996 Incentive Stock Plan Filed with this document
(as amended November 28, 1998)
10(d) Stock Purchase Agreement Filed with this document
between Raymond V. Gilmartin
and the Company dated June 16, 1999
12 Computation of Ratios of Filed with this document
Earnings to Fixed Charges
27 Financial Data Schedule Filed with this document
</TABLE>
(b) Reports on Form 8-K
During the three-month period ending June 30, 1999, no current reports on
Form 8-K were filed.
- 13 -
<PAGE> 15
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MERCK & CO., INC.
Date: August 11, 1999 /s/ Mary McDonald
-----------------
MARY MCDONALD
Senior Vice President and General Counsel
Date: August 11, 1999 /s/ Richard C. Henriques
------------------------
RICHARD C. HENRIQUES
Vice President, Controller
- 14 -
<PAGE> 16
EXHIBIT INDEX
Exhibits
<TABLE>
<CAPTION>
Number Description
------ -----------
<S> <C>
3(a) Restated Certificate of Incorporation of Merck & Co., Inc. (May 6, 1992)
- Incorporated by reference to Form 10-K Annual Report for the fiscal year ended
December 31, 1992
3(b) Certificate of Amendment to the Certificate of Incorporation of Merck & Co., Inc.
(as amended January 14, 1999, effective February 16, 1999) - Incorporated by reference
to Form 10-K Annual Report for the fiscal year ended December 31, 1998
3(c) By-Laws of Merck & Co., Inc. (as amended effective February 25, 1997)
- Incorporated by reference to Form 10-Q Quarterly Report for the period ended
March 31, 1997
10(a) 1996 Non-Employee Directors Stock Option Plan (as amended April 27, 1999)
10(b) Plan for Deferred Payment of Directors' Compensation (Restated as of June 1, 1999)
10(c) 1996 Incentive Stock Plan (as amended November 28, 1998)
10(d) Stock Purchase Agreement between Raymond V. Gilmartin and the Company dated
June 16, 1999
12 Computation of Ratios of Earnings to Fixed Charges
27 Financial Data Schedule
</TABLE>
<PAGE> 1
================================================================================
MERCK & CO., INC.
1996 NON-EMPLOYEE DIRECTORS
STOCK OPTION PLAN
(AMENDED APRIL 27, 1999)
================================================================================
<PAGE> 2
1996 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
The 1996 Non-Employee Directors Stock Option Plan (the "Plan") is
established to attract, retain and compensate for service as members of the
Board of Directors of Merck & Co., Inc. (the "Company") highly qualified
individuals who are not current or former employees of the Company and to enable
them to increase their ownership in the Company's Common Stock. The Plan will be
beneficial to the Company and its stockholders since it will allow these
directors to have a greater personal financial stake in the Company through the
ownership of Company stock, in addition to underscoring their common interest
with stockholders in increasing the value of the Company stock longer term.
1. Eligibility
All members of the Company's Board of Directors who are not current or
former employees of the Company or any of its subsidiaries ("Non-Employee
Directors") are eligible to participate in this Plan.
2. Options
Only nonqualified stock options ("NQSOs") may be granted under this Plan.
3. Shares Available
a) Number of Shares Available: There is hereby reserved for issuance
under this Plan 450,000 shares of Merck Common Stock, par value $0.01
per share, which may be authorized but unissued shares, treasury
shares, or shares purchased on the open market.
b) Recapitalization Adjustment: In the event of a reorganization,
recapitalization, stock split, stock dividend, combination of shares,
merger, consolidation, rights offering, or any other change in the
corporate structure or shares of the Company, adjustments in the
number and kind of shares authorized by this Plan, in the number and
kind of shares covered by, and in the option price of outstanding
NQSOs under this Plan shall be made if, and in the same manner as,
such adjustments are made to NQSOs issued under the Company's then
current Incentive Stock Plan.
4. Annual Grant of Nonqualified Stock Options
Each year on the first Friday following the Company's Annual Meeting of
Stockholders, each individual elected, reelected or continuing as a
Non-Employee Director shall automatically receive NQSOs covering five
thousand (5,000) shares of Merck Common Stock. Notwithstanding the
foregoing, if, on that first Friday, the General Counsel of the Company
determines, in her/his sole discretion, that the Company is in possession
of material, undisclosed information about the Company, then the annual
grant of NQSOs to Non-Employee Directors shall be suspended until the
second day after public dissemination of such information and the price,
exercisability date and option period shall then be determined by reference
to such later date. If Merck Common Stock is not traded on the New York
Stock Exchange on any date a grant would otherwise be
1
<PAGE> 3
awarded, then the grant shall be made the next day thereafter that Merck
Common Stock is so traded.
5. Option Price
The price of the NQSO shall be the closing price on the date of the grant
of the Company's Common Stock as quoted on the composite tape of the New
York Stock Exchange.
6. Option Period
A NQSO granted under this Plan shall become exercisable five years after
date of grant and shall expire ten years after date of grant ("Option
Period").
7. Payment
The NQSO price shall be paid in cash in U.S. dollars at the time the NQSO
is exercised.
8. Cessation of Service
Upon cessation of service as a Non-Employee Director (for reasons other
than retirement or death), only those NQSOs immediately exercisable at the
date of cessation of service shall be exercisable by the grantee. Such
NQSOs must be exercised within ninety days of cessation of service (but in
no event after the expiration of the Option Period) or they shall be
forfeited.
9. Retirement
If a grantee ceases service as a Non-Employee Director and is at least age
65 with ten or more years of service or age 70 with five or more years of
service, then any of his/her outstanding NQSOs shall continue to become
exercisable. All outstanding NQSOs must be exercised by the earlier of (i)
sixty months following the date of such cessation of service or (ii) the
expiration of the Option Period, or such NQSOs shall be forfeited.
10. Death
Upon the death of a grantee, those NQSOs which had been held for at least
twelve months at date of death shall become immediately exercisable upon
death. The NQSOs which become exercisable upon the date of death and those
NQSOs which were exercisable on the date of death may be exercised by the
grantee's legal representatives or heirs by the earlier of (i) thirty-six
months from the date of death or (ii) the expiration of the Option Period;
if not exercised by the earlier of (i) or (ii), such NQSOs shall be
forfeited.
11. Administration and Amendment of the Plan
This Plan shall be administered by the Board of Directors of Merck & Co.,
Inc. This Plan may be terminated or amended by the Board of Directors as it
deems advisable. However, an amendment
2
<PAGE> 4
revising the price, date of exercisability, option period of, or amount of
shares under a NQSO shall not be made more frequently than every six months
unless necessary to comply with applicable laws or regulations. No
amendment may revoke or alter in a manner unfavorable to the grantees any
NQSOs then outstanding, nor may the Board amend this Plan without
stockholder approval where the absence of such approval would cause the
Plan to fail to comply with Rule 16b-3 under the Securities Exchange Act of
1934 (the "Act"), or any other requirement of applicable law or regulation.
A NQSO may not be granted under this Plan after December 31, 2000 but NQSOs
granted prior to that date shall continue to become exercisable and may be
exercised according to their terms.
12. Transferability
Except as set forth in this section, the NQSOs granted under this Plan
shall not be exercisable during the grantee's lifetime by anyone other than
the grantee, the grantee's legal guardian or the grantee's legal
representative, and shall not be transferable other than by will or by the
laws of descent and distribution. NQSOs granted under this Plan shall be
transferable during a grantee's lifetime only in accordance with the
following provisions:
The grantee may only transfer an NQSO while serving as a Non-Employee
Director of the Company or within one year of ceasing service as a
Non-Employee Director due to retirement as defined in Section 9.
The NQSO may be transferred only to the grantee's spouse, children
(including adopted children and stepchildren) and grandchildren
(collectively, "Family Members"), to one or more trusts for the benefit of
Family Members or, at the discretion of the Board of Directors, to one or
more partnerships where the grantee and his Family Members are the only
partners, in accordance with the rules set forth in this section. The
grantee shall not receive any payment or other consideration for such
transfer (except that if the transfer is to a partnership, the grantee
shall be permitted to receive an interest in the partnership in
consideration for the transfer).
Any NQSO transferred in accordance with this section shall continue to be
subject to the same terms and conditions in the hands of the transferee as
were applicable to such NQSO prior to the transfer, except that the
grantee's right to transfer such NQSO in accordance with this section shall
not apply to the transferee. However, if the transferee is a natural
person, upon the transferee's death, the NQSO privileges may be exercised
by the legal representatives or beneficiaries of the transferee within the
exercise periods otherwise applicable to the NQSO.
Any purported transfer of an NQSO under this section shall not be effective
unless, prior to such transfer, the grantee has (1) met the minimum stock
ownership target then in place for Directors of the Company, (2) notified
the Company of the transferee's name and address, the number of shares
under the Option to be transferred, and the grant date and exercise price
of such shares, and (3) demonstrated, if requested by the Board of
Directors, that the proposed transferee qualifies as a permitted transferee
under the rules set forth in this section. In addition, the transferee
must sign an agreement that he or she is bound by the rules and regulations
of the Plans and by the same insider trading restrictions that apply to the
grantee. No transfer shall be effective unless the Company has in effect a
registration statement filed under the Securities Act of 1933 covering the
securities to be acquired by the transferee upon exercise of the NQSO, or
the General Counsel of Merck & Co., Inc. has determined that registration
of such shares is not necessary.
3
<PAGE> 5
13. Compliance with SEC Regulations
It is the Company's intent that the Plan comply in all respects with Rule
16b-3 of the Act, and any regulations promulgated thereunder. If any
provision of this Plan is later found not to be in compliance with the
Rule, the provision shall be deemed null and void. All grants and exercises
of NQSOs under this Plan shall be executed in accordance with the
requirements of Section 16 of the Act, as amended, and any regulations
promulgated thereunder.
14. Miscellaneous
Except as provided in this Plan, no Non-Employee Director shall have any
claim or right to be granted a NQSO under this Plan. Neither the Plan nor
any action thereunder shall be construed as giving any director any right
to be retained in the service of the Company.
15. Effective Date
This Plan shall be effective April 23, 1996 or such later date as
stockholder approval is obtained.
4
<PAGE> 1
================================================================================
MERCK & CO., INC.
PLAN FOR DEFERRED PAYMENT OF
DIRECTORS' COMPENSATION
(Restated as of June 1, 1999)
================================================================================
<PAGE> 2
TABLE OF CONTENTS
Page
Article I Purpose 1
Article II Election of Deferral, Measurement Methods and
Distribution Schedule 1
Article III Valuation of Deferred Amounts 2
Article IV Redesignation Within a Deferral Account 3
Article V Redesignation of Deferred Amounts Measured by 4
Certain Measurement Methods on June 30, 1999
Article VI Payment of Deferred Amounts 4
Article VII Designation of Beneficiary 6
Article VIII Plan Amendment or Termination 6
Schedule A Measurement Methods 7
(i)
<PAGE> 3
MERCK & CO., INC.
PLAN FOR DEFERRED PAYMENT OF
DIRECTORS' COMPENSATION
I. PURPOSE
To provide an arrangement under which directors of Merck & Co., Inc.
other than current employees may (i) elect to voluntarily defer payment
of the annual retainer and meeting and committee fees until after
termination of their service as a director, and (ii) value compensation
mandatorily deferred on their behalf.
II. ELECTION OF DEFERRAL, MEASUREMENT METHODS AND DISTRIBUTION SCHEDULE
A. Election of Voluntary Deferral Amount
1. Prior to December 28 of each year, each director is entitled
to make an irrevocable election to defer until termination of
service as a director receipt of payment of (a) 50% or 100% of
the retainer for the 12 months beginning April 1 of the next
calendar year, (b) 50% or 100% of the Committee Chairperson
retainer beginning April 1 of the next calendar year, and (c)
50% or 100% of the meeting and committee fees for the 12
months beginning April 1 of the next calendar year.
2. Prior to commencement of duties as a director, a director
newly elected or appointed to the Board during a calendar year
must make the election under this paragraph for the portion of
the Voluntary Deferral Amount applicable to such director's
first year of service (or part thereof).
3. The Voluntary Deferral Amount shall be credited as follows:
(1) Meeting and committee fees that are deferred are credited
as of the day the director's services are rendered; (2) if the
Board retainer and/or Committee Chairperson retainer is
deferred, a pro-rata share of the deferred retainer is
credited on the last business day of each calendar quarter.
The dates the Voluntary Deferral Amount, or parts thereof, are
credited to the director's deferred account are hereinafter
referred to as the Voluntary Deferral Dates.
B. Mandatory Deferral Amount
1. Effective April 27, 1999, on the Friday following the
Company's Annual Meeting of Stockholders (such Friday
hereinafter referred to as the "Mandatory Deferral Date"),
each director will be credited with an amount equivalent to
one-third of the annual cash retainer for the 12 month period
beginning on the April 1 preceding the Annual Meeting (the
"Mandatory Deferral Amount"). The Mandatory Deferral Amount
will be measured by the Merck Common Stock account.
2. A director newly elected or appointed to the Board after the
Mandatory Deferral Date will be credited with a pro rata
portion of the Mandatory Deferral Amount applicable to such
director's first year of service (or part thereof). Such pro
rata portion shall be credited to the director's account on
the first day of such director's service.
1
<PAGE> 4
C. Election of Measurement Method
Each such annual election referred to in Section A shall
include an election as to the measurement method or methods by
which the value of amounts deferred will be measured in
accordance with Article III, below. The available measurement
methods are set forth on Schedule A hereto.
D. Election of Distribution Schedule
Each annual election referred to in Section A above shall also
include an election to receive payment following termination
of service as a director of all Voluntary Deferral Amounts and
Mandatory Deferral Amounts in a lump sum either immediately or
one year after such termination, or in quarterly or annual
installments over five, ten or fifteen years.
III. VALUATION OF DEFERRED AMOUNTS
A. Common Stock
1. Initial Crediting. The annual Mandatory Deferral Amount shall
be used to determine the number of full and partial shares of
Merck Common Stock which such amount would purchase at the
Composite Closing Price of the Common Stock on the Mandatory
Deferral Date.
That portion of the Voluntary Deferral Amount allocated to
Merck Common Stock shall be used to determine the number of
full and partial shares of Merck Common Stock which such
amount would purchase at the Composite Closing Price of the
Common Stock on the applicable Voluntary Deferral Date.
However, should it be determined by the Committee on Directors
of the Board of Directors that a measurement of Merck Common
Stock on any Mandatory or Voluntary Deferral Date would not
constitute fair market value, then the Committee shall decide
on which date fair market value shall be determined using the
valuation method set forth in this Article III, Section A.1.
At no time during the deferral period will any shares of Merck
Common Stock be purchased or earmarked for such deferred
amounts nor will any rights of a shareholder exist with
respect to such amounts.
2. Dividends. Each director's account will be credited with the
additional number of full and partial shares of Merck Common
Stock which would have been purchasable with the dividends on
shares previously credited to the account at the Composite
Closing Price of the Common Stock on the date each dividend
was paid.
3. Distributions. Distribution from the Merck Common Stock
account will be valued at the Composite Closing Price of Merck
Common Stock on the distribution date.
2
<PAGE> 5
B. Mutual Funds
1. Initial Crediting. The amount allocated to each Mutual Fund
shall be used to determine the full and partial Mutual Fund
shares which such amount would purchase at the closing net
asset value of the Mutual Fund shares on the Mandatory or
Voluntary Deferral Date, whichever is applicable. The
director's account will be credited with the number of full
and partial Mutual Fund shares so determined.
At no time during the deferral period will any Mutual Fund
shares be purchased or earmarked for such deferred amounts nor
will any rights of a shareholder exist with respect to such
amounts.
2. Dividends. Each director's account will be credited with the
additional number of full and partial Mutual Fund shares which
would have been purchasable, at the closing net asset value of
the Mutual Fund shares as of the date each dividend is paid on
the Mutual Fund shares, with the dividends which would have
been paid on the number of shares previously credited to such
account (including pro rata dividends on any partial shares).
3. Distributions. Mutual Fund distributions will be valued based
on the closing net asset value of the Mutual Fund shares on
the distribution date.
C. Adjustments
In the event of a reorganization, recapitalization, stock
split, stock dividend, combination of shares, merger,
consolidation, rights offering or any other change in the
corporate structure or shares of the Company or a Mutual Fund,
the number and kind of shares or units of such investment
measurement method available under this Plan and credited to
each director's account shall be adjusted accordingly.
IV. REDESIGNATION WITHIN A DEFERRAL ACCOUNT
A. General
A director may request a change in the measurement methods
used to value all or a portion of his/her account other than
Merck Common Stock. AMOUNTS DEFERRED USING THE MERCK COMMON
STOCK METHOD AND ANY EARNINGS ATTRIBUTABLE TO SUCH DEFERRALS
MAY NOT BE REDESIGNATED. The change will be effective on (i)
the day when the redesignation request is received pursuant to
administrative guidelines established by the Director,
Benefits Financing, provided the request is received prior to
the close of the New York Stock Exchange on such day or (ii)
the next following business day if the request is received
when the New York Stock Exchange is closed.
B. When Redesignation May Occur
1. During Active Service. Effective June 1, 1999, there is no
limit on the number of times a director may redesignate the
portion of his/her deferred account permitted to be
redesignated. Each such request shall be irrevocable and can
be designated in whole percentages or as a dollar amount.
3
<PAGE> 6
2. After Death. Following the death of a director, the legal
representative or beneficiary of such director may redesignate
subject to the same rules as for active directors set forth in
Article IV, Section B.1.
C. Valuation of Amounts to be Redesignated
The portion of the director's account to be redesignated will
be valued at its cash equivalent and such cash equivalent will
be converted into shares or units of the other measurement
method(s). For purposes of such redesignations, the cash
equivalent of the value of the Mutual Fund shares shall be the
closing net asset value of such Mutual Fund on (i) the day
when the redesignation request is received pursuant to
administrative guidelines established by the Director,
Benefits Financing, provided the request is received prior to
the close of the New York Stock Exchange on such day or (ii)
the next following business day if the request is received
when the New York Stock Exchange is closed.
V. REDESIGNATION OF DEFERRED AMOUNTS MEASURED BY CERTAIN MEASUREMENT
METHODS ON JUNE 30, 1999
Prior to June 30, 1999, each director who has any part of his/her
deferred account measured by the six investment funds listed in the
chart below may elect the investments by which such part of the
deferred account will be measured as of July 1, 1999.
If a director fails to make an election regarding amounts measured by
those six funds, then the amount in each such fund shall automatically
be redesignated as of July 1, 1999, to the investments specified in the
chart below as the replacement investments. The value to be
redesignated will be the closing value on June 30, 1999 as determined
in accordance with Article III.
<TABLE>
<CAPTION>
INVESTMENT FUND OPTION TO BE
REPLACED REPLACEMENT INVESTMENT FUND OPTION
---------------------------- ----------------------------------
<S> <C>
Lehman Intermediate Treasury Bond Index Fidelity Spartan Government Income
Lehman Long Term Treasury Bond Index PIMCO Long Term US Government
The Bond Fund of America A PIMCO Total Return Institutional
IDS Global Bond Fund A PIMCO Global Bond Institutional
Merrill Lynch Developing Capital Markets A Templeton Developing Markets A
Salomon 91-Day T-Bill Index Fidelity Retirement Government Money Market
</TABLE>
VI. PAYMENT OF DEFERRED AMOUNTS
A. Payment
All payments to directors of amounts deferred will be in cash
in accordance with the distribution schedule elected by the
director pursuant to Article II, Section D. Distributions
shall be pro rata by measurement method. Distributions shall
be valued on the fifteenth day of the distribution month (or,
if such day is not a business day, the next business day) and
paid as soon thereafter as possible.
4
<PAGE> 7
B. Changes to Distribution Schedule Prior to Termination
Upon the request of a director made at any time during the
calendar year immediately preceding the calendar year in which
service as a director is expected to terminate, the Committee
on Directors of the Board of Directors ("Committee on
Directors"), in its sole discretion, may authorize: (a) an
extension of a payment period beyond that originally elected
by the director not to exceed that otherwise allowable under
Article II, Section D, and/or (b) a payment frequency
different from that originally elected by the director. Such
request may not be made with regard to amounts deferred after
December 31, 1990 using the Merck Common Stock method and to
any earnings attributable to such deferrals. Deferrals into
Merck Common Stock made after December 31, 1990 and any
earnings thereon may only be distributed in accordance with
the schedule elected by the director under Article II, Section
D or determined by the Committee on Directors under Article
VII.
C. Post-Termination Changes to Distribution Schedule
Following termination of service as a director, each director
may make one request for a further extension of the period for
distribution of his/her deferred compensation. Such request
must be received by the Committee on Directors prior to the
first distribution to the participant under his/her previously
elected distribution schedule. Any revised distribution
schedule may not exceed the deferral period otherwise
allowable under Article II, Section C. This request may be
granted and a new payment schedule determined in the sole
discretion of the Committee on Directors. Such request may not
be made with regard to amounts deferred after December 31,
1990 using the Merck Common Stock Method and to any earnings
attributable to such deferrals. Any retired director who is
not subject to U.S. income tax may petition the Committee on
Directors to change payment frequency, including a lump sum
distribution, and the Committee on Directors may grant such
petition if, in its discretion, it considers there to be
reasonable justification therefor. Deferrals into Merck Common
Stock made after December 30, 1990 and any earnings thereon
may only be distributed in accordance with the schedule
elected by the director under Article II, Section D or
determined by the Committee on Directors under Article VII.
D. Forfeitures
A director's deferred amount attributable to the Mandatory
Deferral Amount and earnings thereon shall be forfeited upon
his or her removal as a director or upon a determination by
the Committee on Directors in its sole discretion, that a
director has:
(i) joined the Board of, managed, operated, participated
in a material way in, entered employment with,
performed consulting (or any other) services for, or
otherwise been connected in any material manner with
a company, corporation, enterprise, firm, limited
partnership, partnership, person, sole proprietorship
or any other business entity determined by the
Committee on Directors in its sole discretion to be
competitive with the business of the Company, its
subsidiaries or its affiliates (a "Competitor");
(ii) directly or indirectly acquired an equity interest of
five (5) percent or greater in a Competitor; or
5
<PAGE> 8
(iii) disclosed any material trade secrets or other
material confidential information, including customer
lists, relating to the Company or to the business of
the Company to others, including a Competitor.
VII. DESIGNATION OF BENEFICIARY
In the event of the death of a director, the deferred amount at the
date of death shall be paid to the last named beneficiary or
beneficiaries designated by the director, or, if no beneficiary has
been designated, to the director's legal representative, in one or more
installments as the Committee on Directors in its sole discretion may
determine.
VIII. PLAN AMENDMENT OR TERMINATION
The Committee on Directors shall have the right to amend or terminate
this Plan at any time for any reason.
6
<PAGE> 9
SCHEDULE A
MEASUREMENT METHODS
(EFFECTIVE JULY 1, 1999)
MERCK COMMON STOCK
MUTUAL FUNDS
Acorn Fund
Fidelity Destiny I
Fidelity Equity Income Fund
Fidelity Magellan Fund
Fidelity Retirement Government Money Market
Fidelity Spartan Government Income
Spartan(R) U.S. Equity Index Fund
PIMCO Long Term US Government
PIMCO Total Return Institutional
PIMCO Global Bond Institutional
Scudder Growth & Income Fund
Sequoia Fund
T. Rowe Price Small-Cap Value Fund
T. Rowe Price International Stock Fund
Templeton Developing Markets A
Templeton Growth Fund, Inc. I
Vanguard Wellington Fund
7
<PAGE> 1
================================================================================
MERCK & CO., INC.
1996 INCENTIVE STOCK PLAN
================================================================================
Amended 11/24/98
<PAGE> 2
1996 INCENTIVE STOCK PLAN
The 1996 Incentive Stock Plan ("ISP"), effective January 1, 1996, is
established to encourage employees of Merck & Co., Inc. (the "Company"), its
subsidiaries, its affiliates, its joint ventures and the Merck Institute for
Therapeutic Research to acquire Common Stock in the Company. It is believed that
the ISP will stimulate employees' efforts on the Company's behalf, will tend to
maintain and strengthen their desire to remain with the Company, will be in the
interest of the Company and its Stockholders, and will encourage such employees
to have a greater personal financial investment in the Company through ownership
of its Common Stock.
1. ADMINISTRATION
The ISP shall be administered by the Compensation and Benefits
Committee of the Board of Directors of the Company (the "Committee"). The
Committee is authorized, subject to the provisions of the ISP, to establish such
rules and regulations as it deems necessary for the proper administration of the
ISP, and to make such determinations and to take such action in connection
therewith or in relation to the ISP as it deems necessary or advisable,
consistent with the ISP. The Committee may delegate some or all of its power and
authority hereunder to the Chief Executive Officer or other senior member of
management as the Committee deems appropriate; provided, however, that the
Committee may not delegate its authority with regard to any matter or action
affecting an officer subject to Section 16 of the Securities Exchange Act of
1934.
For the purpose of this section and all subsequent sections, the ISP
shall be deemed to include this plan and any comparable sub-plans established by
subsidiaries which, in the aggregate, shall constitute one plan governed by the
terms set forth herein.
2. ELIGIBILITY
Regular full-time and part-time employees of the Company, its
subsidiaries, its affiliates, its joint ventures and the Merck Institute for
Therapeutic Research, including officers, whether or not directors of the
Company, and employees of a joint venture partner or affiliate of the Company
who provide services to the joint venture with such partner or affiliate and who
are not directors or officers of the Company for purposes of Section 16 of the
Securities Exchange Act of 1934, shall be eligible to participate in the ISP
("Eligible Employees") if designated by the Committee or its delegate. Those
directors who are not regular employees are not eligible.
3. INCENTIVES
Incentives under the ISP may be granted in any one or a combination of
(a) Incentive Stock Options (or other statutory stock option); (b) Nonqualified
Stock Options; (c) Stock Appreciation Rights; (d) Restricted Stock Grants and
(e) Performance Shares (together "Incentives"). All Incentives shall be subject
to the terms and conditions set forth herein and to such other terms and
conditions as may be established by the Committee. Determinations by the
Committee under the ISP including without limitation, determinations of the
Eligible Employees, the form, amount and timing of Incentives, the terms and
provisions of Incentives, and the agreements evidencing Incentives, need not be
uniform and may be made selectively among Eligible Employees who receive, or are
eligible to receive, Incentives hereunder, whether or not such Eligible
Employees are similarly situated.
1
<PAGE> 3
4. SHARES AVAILABLE FOR INCENTIVES
(a) SHARES SUBJECT TO ISSUANCE OR TRANSFER. Subject to adjustment as
provided in Section 4(c) hereof, there is hereby reserved for issuance under the
ISP 130 million shares of the Company's Common Stock ("Common Stock"). The
shares available for granting awards shall be increased by the number of shares
as to which options or other benefits granted under the Plan have lapsed,
expired, terminated or been canceled. In addition, any shares reserved for
issuance under the Company's 1991 Incentive Stock Plan and 1987 Incentive Stock
Plan ("Prior Plans") in excess of the number of shares as to which options or
other benefits have been awarded thereunder, plus any such shares as to which
options or other benefits granted under the Prior Plans may lapse, expire,
terminate or be canceled, shall also be reserved and available for issuance or
reissuance under the ISP. Shares under this Plan may be delivered by the Company
from its authorized but unissued shares of Common Stock or from Common Stock
held in the Treasury.
(b) LIMIT ON AN INDIVIDUAL'S INCENTIVES. In any given year, no Eligible
Employee may receive Incentives covering more than three million shares of the
Company's Common Stock (such number of shares may be adjusted in accordance with
Section 4(c)).
(c) RECAPITALIZATION ADJUSTMENT. In the event of a reorganization,
recapitalization, stock split, stock dividend, combination of shares, merger,
consolidation, rights offering, or any other change in the corporate structure
or shares of the Company, the Committee shall make such adjustment, if any, as
it may deem appropriate in the number and kind of shares authorized by the ISP,
in the number and kind of shares covered by Incentives granted, in the case of
Stock Options, in the option price, and in the case of stock appreciation
rights, in the fair market value.
5. STOCK OPTIONS
The Committee may grant options qualifying as Incentive Stock Options
under the Internal Revenue Code of 1986, as amended, or any successor code
thereto (the "Code"), other statutory options under the Code, and Nonqualified
Options (collectively "Stock Options"). Such Stock Options shall be subject to
the following terms and conditions and such other terms and conditions as the
Committee may prescribe:
(a) OPTION PRICE. The option price per share with respect to each Stock
Option shall be determined by the Committee, but shall not be less than 100% of
the fair market value of the Common Stock on the date the Stock Option is
granted, as determined by the Committee.
(b) PERIOD OF OPTION. The period of each Stock Option shall be fixed by
the Committee but shall not exceed ten (10) years.
(c) PAYMENT. The option price shall be payable in cash at the time the
Stock Option is exercised. No shares shall be issued until full payment therefor
has been made. A grantee of a Stock Option shall have none of the rights of a
stockholder until the shares are issued.
(d) EXERCISE OF OPTION. The shares covered by a Stock Option may be
purchased in such installments and on such exercise dates as the Committee or
its delegate may determine. Any shares not purchased on the applicable exercise
date may be purchased thereafter at any time prior to the final expiration of
the Stock Option. In no event (including those specified in paragraphs (e), (f)
and (g) of this section) shall any Stock Option be exercisable after its
specified expiration period.
(e) TERMINATION OF EMPLOYMENT. Upon the termination of a Stock Option
grantee's employment (for any reason other than retirement, death or termination
for deliberate, willful or gross misconduct), Stock Option privileges shall be
limited to the shares which were immediately exercisable at the date of such
termination. The Committee, however, in its discretion, may provide
2
<PAGE> 4
that any Stock Options outstanding but not yet exercisable upon the termination
of a Stock Option grantee's employment may become exercisable in accordance with
a schedule to be determined by the Committee. Such Stock Option privileges shall
expire unless exercised or surrendered under a Stock Appreciation Right within
such period of time after the date of termination of employment as may be
established by the Committee, but in no event later than the expiration date of
the Stock Option. If a Stock Option grantee's employment is terminated for
deliberate, willful or gross misconduct, as determined by the Company, all
rights under the Stock Option shall expire upon receipt of the notice of such
termination.
(f) RETIREMENT. Upon retirement of a Stock Option grantee, Stock Option
privileges shall apply to those shares immediately exercisable at the date of
retirement. The Committee, however, in its discretion, may provide that any
Stock Options outstanding but not yet exercisable upon the retirement of a Stock
Option grantee may become exercisable in accordance with a schedule to be
determined by the Committee. Stock Option privileges shall expire unless
exercised within such period of time as may be established by the Committee, but
in no event later than the expiration date of the Stock Option.
(g) DEATH. Upon the death of a Stock Option grantee, Stock Option
privileges shall apply to those shares which were immediately exercisable at the
time of death. The Committee, however, in its discretion, may provide that any
Stock Options outstanding but not yet exercisable upon the death of a Stock
Option grantee may become exercisable in accordance with a schedule to be
determined by the Committee. Such privileges shall expire unless exercised by
legal representatives within a period of time as determined by the Committee but
in no event later than the expiration date of the Stock Option.
(h) LIMITS ON INCENTIVE STOCK OPTIONS. Except as may otherwise be
permitted by the Code, the Committee shall not grant to an Eligible Employee
Incentive Stock Options, that, in the aggregate, are first exercisable during
any one calendar year to the extent that the aggregate fair market value of the
Common Stock, at the time the Incentive Stock Options are granted, exceeds
$100,000.
6. STOCK APPRECIATION RIGHTS
The Committee may, in its discretion, grant a right to receive the
appreciation in the fair market value of shares of Common Stock ("Stock
Appreciation Right") either singly or in combination with an underlying Stock
Option granted hereunder or under the Prior Plans. Such Stock Appreciation
Rights shall be subject to the following terms and conditions and such other
terms and conditions as the Committee may prescribe:
(a) TIME AND PERIOD OF GRANT. If a Stock Appreciation Right is granted
with respect to an underlying Stock Option, it may be granted at the time of the
Stock Option Grant or at any time thereafter but prior to the expiration of the
Stock Option Grant. If a Stock Appreciation Right is granted with respect to an
underlying Stock Option, at the time the Stock Appreciation Right is granted the
Committee may limit the exercise period for such Stock Appreciation Right,
before and after which period no Stock Appreciation Right shall attach to the
underlying Stock Option. In no event shall the exercise period for a Stock
Appreciation Right granted with respect to an underlying Stock Option exceed the
exercise period for such Stock Option. If a Stock Appreciation Right is granted
without an underlying Stock Option, the period for exercise of the Stock
Appreciation Right shall be set by the Committee.
(b) VALUE OF STOCK APPRECIATION RIGHT. If a Stock Appreciation Right is
granted with respect to an underlying Stock Option, the grantee will be entitled
to surrender the Stock Option which is then exercisable and receive in exchange
therefor an amount equal to the excess of the fair market value of
3
<PAGE> 5
the Common Stock on the date the election to surrender is received by the
Company over the Stock Option price multiplied by the number of shares covered
by the Stock Option which are surrendered. If a Stock Appreciation Right is
granted without an underlying Stock Option, the grantee will receive upon
exercise of the Stock Appreciation Right an amount equal to the excess of the
fair market value of the Common Stock on the date the election to surrender such
Stock Appreciation Right is received by the Company over the fair market value
of the Common Stock on the date of grant multiplied by the number of shares
covered by the grant of the Stock Appreciation Right.
(c) PAYMENT OF STOCK APPRECIATION RIGHT. Payment of a Stock
Appreciation Right shall be in the form of shares of Common Stock, cash, or any
combination of shares and cash. The form of payment upon exercise of such a
right shall be determined by the Committee either at the time of grant of the
Stock Appreciation Right or at the time of exercise of the Stock Appreciation
Right.
7. PERFORMANCE SHARE AWARDS
The Committee may grant awards under which payment may be made in
shares of Common Stock, cash or any combination of shares and cash if the
performance of the Company or any subsidiary, division or affiliate of the
Company selected by the Committee during the Award Period meets certain goals
established by the Committee ("Performance Share Awards"). Such Performance
Share Awards shall be subject to the following terms and conditions and such
other terms and conditions as the Committee may prescribe:
(a) AWARD PERIOD AND PERFORMANCE GOALS. The Committee shall determine
and include in a Performance Share Award grant the period of time for which a
Performance Share Award is made ("Award Period"). The Committee shall also
establish performance objectives ("Performance Goals") to be met by the Company,
subsidiary or division during the Award Period as a condition to payment of the
Performance Share Award. The Performance Goals may include earnings per share,
return on stockholders' equity, return on assets, net income, or any other
financial or other measurement established by the Committee. The Performance
Goals may include minimum and optimum objectives or a single set of objectives.
(b) PAYMENT OF PERFORMANCE SHARE AWARDS. The Committee shall establish
the method of calculating the amount of payment to be made under a Performance
Share Award if the Performance Goals are met, including the fixing of a maximum
payment. The Performance Share Award shall be expressed in terms of shares of
Common Stock and referred to as "Performance Shares." After the completion of an
Award Period, the performance of the Company, subsidiary or division shall be
measured against the Performance Goals, and the Committee shall determine
whether all, none or any portion of a Performance Share Award shall be paid. The
Committee, in its discretion, may elect to make payment in shares of Common
Stock, cash or a combination of shares and cash. Any cash payment shall be based
on the fair market value of Performance Shares on, or as soon as practicable
prior to, the date of payment.
(c) REVISION OF PERFORMANCE GOALS. At any time prior to the end of an
Award Period, the Committee may revise the Performance Goals and the computation
of payment if unforeseen events occur which have a substantial effect on the
performance of the Company, subsidiary or division and which in the judgment of
the Committee make the application of the Performance Goals unfair unless a
revision is made.
4
<PAGE> 6
(d) REQUIREMENT OF EMPLOYMENT. A grantee of a Performance Share Award
must remain in the employ of the Company until the completion of the Award
Period in order to be entitled to payment under the Performance Share Award;
provided that the Committee may, in its sole discretion, provide for a partial
payment where such an exception is deemed equitable.
(e) DIVIDENDS. The Committee may, in its discretion, at the time of the
granting of a Performance Share Award, provide that any dividends declared on
the Common Stock during the Award Period, and which would have been paid with
respect to Performance Shares had they been owned by a grantee, be (i) paid to
the grantee, or (ii) accumulated for the benefit of the grantee and used to
increase the number of Performance Shares of the grantee.
(f) LIMIT ON PERFORMANCE SHARE AWARDS. Incentives granted as
Performance Share Awards under this section and Restricted Stock Grants under
Section 8 shall not exceed, in the aggregate, 12 million shares of Common Stock
(such number of shares may be adjusted in accordance with Section 4(c)).
8. RESTRICTED STOCK GRANTS
The Committee may award shares of Common Stock to a grantee, which
shares shall be subject to the following terms and conditions and such other
terms and conditions as the Committee may prescribe ("Restricted Stock Grant"):
(a) REQUIREMENT OF EMPLOYMENT. A grantee of a Restricted Stock Grant
must remain in the employment of the Company during a period designated by the
Committee ("Restriction Period") in order to retain the shares under the
Restricted Stock Grant. If the grantee leaves the employment of the Company
prior to the end of the Restriction Period, the Restricted Stock Grant shall
terminate and the shares of Common Stock shall be returned immediately to the
Company; provided that the Committee may, at the time of the grant, provide for
the employment restriction to lapse with respect to a portion or portions of the
Restricted Stock Grant at different times during the Restriction Period. The
Committee may, in its discretion, also provide for such complete or partial
exceptions to the employment restriction as it deems equitable.
(b) RESTRICTIONS ON TRANSFER AND LEGEND ON STOCK CERTIFICATES. During
the Restriction Period, the grantee may not sell, assign, transfer, pledge, or
otherwise dispose of the shares of Common Stock except to a successor under
Section 10 hereof. Each certificate for shares of Common Stock issued hereunder
shall contain a legend giving appropriate notice of the restrictions in the
grant.
(c) ESCROW AGREEMENT. The Committee may require the grantee to enter
into an escrow agreement providing that the certificates representing the
Restricted Stock Grant will remain in the physical custody of an escrow holder
until all restrictions are removed or expire.
(d) LAPSE OF RESTRICTIONS. All restrictions imposed under the
Restricted Stock Grant shall lapse upon the expiration of the Restriction Period
if the conditions as to employment set forth above have been met. The grantee
shall then be entitled to have the legend removed from the certificates.
(e) DIVIDENDS. The Committee shall, in its discretion, at the time of
the Restricted Stock Grant, provide that any dividends declared on the Common
Stock during the Restriction Period shall either be (i) paid to the grantee, or
(ii) accumulated for the benefit of the grantee and paid to the grantee only
after the expiration of the Restriction Period.
5
<PAGE> 7
(f) LIMIT ON RESTRICTED STOCK GRANT. Incentives granted as Restricted
Stock Grants under this section and Performance Share Awards under Section 7
shall not exceed, in the aggregate, 12 million shares of Common Stock (such
number of shares may be adjusted in accordance with Section 4(c)).
9. DISCONTINUANCE OR AMENDMENT OF THE PLAN
The Board of Directors may discontinue the ISP at any time and may from
time to time amend or revise the terms of the ISP as permitted by applicable
statutes, except that it may not revoke or alter, in a manner unfavorable to the
grantees of any Incentives hereunder, any Incentives then outstanding, nor may
the Board amend the ISP without stockholder approval where the absence of such
approval would cause the Plan to fail to comply with Rule 16b-3 under the
Securities Exchange Act of 1934, or any other requirement of applicable law or
regulation. No Incentive shall be granted under the ISP after December 31, 2000,
but Incentives granted theretofore may extend beyond that date.
10. NONTRANSFERABILITY
Each Incentive Stock Option granted under the ISP shall not be
transferable other than by will or the laws of descent and distribution; each
other Incentive granted under the ISP may be transferable subject to the terms
and conditions as may be established by the Committee in accordance with
regulations promulgated under the Securities Exchange Act of 1934, or any other
applicable law or regulation.
11. NO RIGHT OF EMPLOYMENT
The ISP and the Incentives granted hereunder shall not confer upon any
Eligible Employee the right to continued employment with the Company, its
subsidiaries, its affiliates, its joint ventures or the Merck Institute for
Therapeutic Research or affect in any way the right of such entities to
terminate the employment of an Eligible Employee at any time and for any reason.
12. TAXES
The Company shall be entitled to withhold the amount of any tax
attributable to any option granted, any amount payable or shares deliverable
under the ISP after giving the person entitled to receive such amount or shares
notice as far in advance as practicable.
6
<PAGE> 1
STOCK PURCHASE AGREEMENT
This Agreement is made as of this 16th day of June, 1999 by and between
Mr. Raymond V. Gilmartin ("Seller") and Merck & Co., Inc., a New Jersey
corporation having its principal offices at One Merck Drive, P.O. Box 100,
Whitehouse Station, NJ 08889-0100 ("Merck").
WHEREAS, Seller and Merck entered into an Employment Agreement (the
"Employment Agreement") as of June 9, 1994, pursuant to which Seller received a
grant of 50,000 shares (as adjusted for a 2-for-1 stock split on February 16,
1999) of restricted common stock of Merck;
WHEREAS, on June 16, 1999, the grant of restricted stock under the
Employment Agreement vested and Merck has an obligation under state and federal
tax laws to withhold funds from Seller with respect to the income realized by
Seller upon the vesting of the restricted shares of common stock;
WHEREAS, Seller wishes to sell 18,225 shares of common stock of Merck
(the "Shares") and Merck desires to purchase the Shares in order to satisfy
Merck's tax withholding obligations;
NOW THEREFORE, in consideration of the mutual promises hereinafter
contained, the parties hereby agree as follows:
1. Purchase and Sale of Shares
1.1 Subject to the terms and conditions hereof, Merck hereby purchases
from Seller, and Seller hereby sells, assigns and delivers to Merck, the Shares
for a purchase price per share of $68.625, which is the Composite Closing Price
of Merck common stock on the date hereof.
1.2 Seller herewith delivers to Merck one or more certificates
representing all of the Shares, fully endorsed or with appropriate stock powers
in form sufficient for transfer of the Shares to Merck in order to effect
transfer of title to the Shares.
1.3 Merck shall retain the Shares' aggregate purchase price and use
such funds to satisfy its tax withholding obligations concerning Seller.
2. Representations and Warranties by Seller
Seller represents and warrants to Merck as follows:
(a) This Agreement is binding on and enforceable against Seller in
accordance with its terms;
(b) Seller is the sole and exclusive record and beneficial owner of all
right, title and interest in and to the Shares, free and clear security
interests, claims, encumbrances and liens (collectively, "Liens") of any nature
whatsoever; and
<PAGE> 2
2
(c) Upon the delivery of the Shares to Merck against payment as
provided for herein, good title to the Shares, free and clear of all Liens will
pass to Merck and Seller will execute and deliver to Merck such documents and
take such further action as may be reasonably requested by Merck in order to
transfer ownership of and title to all Shares to Merck.
3. Representations and Warranties by Merck
Merck represents and warrants to Seller as follows:
(a) Merck is a corporation duly incorporated, validly existing and in
good standing under the laws of the state of New Jersey, with all necessary
corporate power and authority to enter into and perform its obligations under
this Agreement;
(b) This Agreement has been duly and validly authorized, executed and
delivered by Merck and is binding on and enforceable against Merck in accordance
with its terms; and
(c) Merck is acquiring the Shares for its own account for investment
and not for or with a view to or for resale in connection with any distribution
thereof within the meaning of the Securities Act of 1933, as amended.
4. Survival of Representations
The parties hereto each agree that all representations, warranties,
covenants and agreements contained herein shall survive the execution and
delivery of the Agreement, the transfer and payment for the Shares and any
investigation or audit made by any party hereto.
5. General
This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof. It may not be altered, amended or
supplemented except by an agreement in writing signed by both parties. It shall
be governed by and construed in accordance with the laws of the state of New
Jersey. It shall be binding upon the parties and their respective successors and
assigns. This Agreement may be executed in counterparts, each of which shall be
deemed an original and both of which shall constitute one and the same
instrument.
MERCK & CO., INC.
By: /s/ MARY M. McDONALD
---------------------------------
Name: Mary M. McDonald
Title: Sr. VP and General Counsel
By: /s/ RAYMOND V. GILMARTIN
---------------------------------
Raymond V. Gilmartin
<PAGE> 1
Exhibit 12
MERCK & CO., INC. AND SUBSIDIARIES
Computation Of Ratios Of Earnings To Fixed Charges
(In millions except ratio data)
<TABLE>
<CAPTION>
Six Months
Ended Years Ended December 31
June 30 --------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Income Before Taxes $4,173.4 $8,133.1 $6,462.3 $5,540.8 $4,797.2 $4,415.2
Add:
One-third of rents 32.9 56.0 47.0 41.0 28.1 36.0
Interest expense, net 106.7 150.6 98.2 103.2 60.3 96.0
Preferred stock dividends 59.8 62.1 49.6 70.0 2.1 --
-------- -------- -------- -------- -------- --------
Earnings $4,372.8 $8,401.8 $6,657.1 $5,755.0 $4,887.7 $4,547.2
======== ======== ======== ======== ======== ========
One-third of rents $ 32.9 $ 56.0 $ 47.0 $ 41.0 $ 28.1 $ 36.0
Interest expense 140.3 205.6 129.5 138.6 98.7 124.4
Preferred stock dividends 59.8 62.1 49.6 70.0 2.1 --
-------- -------- -------- -------- -------- --------
Fixed Charges $ 233.0 $ 323.7 $ 226.1 $ 249.6 $ 128.9 $ 160.4
======== ======== ======== ======== ======== ========
Ratio of Earnings
to Fixed Charges 19 26 29 23 38 28
== == == == == ==
</TABLE>
For purposes of computing these ratios, "earnings" consist of income before
taxes, one-third of rents (deemed by the Company to be representative of the
interest factor inherent in rents), interest expense, net of amounts
capitalized, and dividends on preferred stock of subsidiary companies. "Fixed
charges" consist of one-third of rents, interest expense as reported in the
Company's consolidated financial statements and dividends on preferred stock of
subsidiary companies.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated statement of income for the six months ended June 30, 1999 and the
consolidated balance sheet as of June 30, 1999 and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 2,268
<SECURITIES> 1,273
<RECEIVABLES> 3,380
<ALLOWANCES> 0<F1>
<INVENTORY> 2,566
<CURRENT-ASSETS> 10,427
<PP&E> 12,896
<DEPRECIATION> (4,371)
<TOTAL-ASSETS> 33,210
<CURRENT-LIABILITIES> 6,545
<BONDS> 3,213
0
0
<COMMON> 30
<OTHER-SE> 12,945
<TOTAL-LIABILITY-AND-EQUITY> 33,210
<SALES> 15,555
<TOTAL-REVENUES> 15,555
<CGS> 8,524
<TOTAL-COSTS> 8,524
<OTHER-EXPENSES> 924
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 140
<INCOME-PRETAX> 4,173
<INCOME-TAX> 1,396
<INCOME-CONTINUING> 2,778
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,778
<EPS-BASIC> 1.18
<EPS-DILUTED> 1.15
<FN>
<F1>Not material to the consolidated financial statements.
</FN>
</TABLE>
