10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2008

OR

o 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.

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 June 30, 2008:

Class	Number of Shares Outstanding
Common Stock	2,142,473,991

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 þ      No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ	Accelerated filer o	Non-accelerated filer   o	Smaller reporting company o
	(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o      No þ

TABLE OF CONTENTS

Part I — Financial Information
	Item 1. Financial Statements
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 4. Controls and Procedures
PART II - Other Information
	Item 1. Legal Proceedings
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 6. Exhibits
Signatures
EXHIBIT INDEX
EX-10.1: CHOLESTEROL GOVERNANCE AGREEMENT
EX-10.2: FIRST AMENDMENT TO THE CHOLESTEROL GOVERNANCE AGREEMENT
EX-10.3: MASTER AGREEMENT
EX-10.4: MASTER MERIAL VENTURE AGREEMENT
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32.1: CERTIFICATION
EX-32.2: CERTIFICATION

Part I - Financial Information

Item 1. Financial Statements

MERCK & CO., INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENT OF INCOME
(Unaudited, $ in millions except per share amounts)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2008			2007			2008			2007
Sales	$	6,051.8		$	6,111.4		$	11,873.9		$	11,880.7
Costs, Expenses and Other
Materials and production		1,396.5			1,552.3			2,634.6			3,078.1
Marketing and administrative		1,930.2			2,083.7			3,784.7			3,885.7
Research and development		1,169.3			1,030.5			2,247.6			2,060.6
Restructuring costs		102.2			55.8			171.9			121.6
Equity income from affiliates		(523.0	)		(759.1	)		(1,175.1	)		(1,411.7	)
Other (income) expense, net		(81.9	)		(84.0	)		(2,259.2	)		(340.2	)
		3,993.3			3,879.2			5,404.5			7,394.1
Income Before Taxes		2,058.5			2,232.2			6,469.4			4,486.6
Taxes on Income		290.2			555.8			1,398.6			1,105.9
Net Income	$	1,768.3		$	1,676.4		$	5,070.8		$	3,380.7
Basic Earnings per Common Share	$	0.82		$	0.77		$	2.35		$	1.56
Earnings per Common Share Assuming Dilution	$	0.82		$	0.77		$	2.34		$	1.55
Dividends Declared per Common Share	$	0.38		$	0.38		$	0.76		$	0.76

The accompanying notes are an integral part of this consolidated financial statement.

- 2 -

MERCK & CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited, $ in millions)

	June 30,			December 31,
	2008			2007
Assets
Current Assets
Cash and cash equivalents	$	7,345.2		$	5,336.1
Short-term investments		2,642.3			2,894.7
Accounts receivable		3,647.0			3,636.2
Inventories (excludes inventories of $442.0 in 2008 and $345.2 in 2007 classified in Other assets - see Note 4)		2,190.6			1,881.0
Prepaid expenses and taxes		1,767.8			1,297.4
Total current assets		17,592.9			15,045.4
Investments		6,784.9			7,159.2
Property, Plant and Equipment, at cost, net of allowance for depreciation of $11,568.5 in 2008 and $12,457.1 in 2007		12,240.4			12,346.0
Goodwill		1,434.4			1,454.8
Other Intangibles, Net		596.2			713.2
Other Assets		8,808.7			11,632.1
	$	47,457.5		$	48,350.7
Liabilities and Stockholders’ Equity
Current Liabilities
Loans payable and current portion of long-term debt	$	1,181.3		$	1,823.6
Trade accounts payable		530.9			624.5
Accrued and other current liabilities		6,276.1			8,534.9
Income taxes payable		913.3			444.1
Dividends payable		817.0			831.1
Total current liabilities		9,718.6			12,258.2
Long-Term Debt		3,932.4			3,915.8
Deferred Income Taxes and Noncurrent Liabilities		11,140.4			11,585.3
Minority Interests		2,410.1			2,406.7
Stockholders’ Equity
Common stock, one cent par value
Authorized - 5,400,000,000 shares
Issued -       2,983,508,675 shares		29.8			29.8
Other paid-in capital		8,188.4			8,014.9
Retained earnings		42,573.2			39,140.8
Accumulated other comprehensive loss		(935.6	)		(826.1	)
		49,855.8			46,359.4
Less treasury stock, at cost
841,034,684 shares at June 30, 2008
811,005,791 shares at December 31, 2007		29,599.8			28,174.7
Total stockholders’ equity		20,256.0			18,184.7
	$	47,457.5		$	48,350.7

The accompanying notes are an integral part of this consolidated financial statement.

- 3 -

MERCK & CO., INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, $ in millions)

	Six Months Ended
	June 30,
	2008			2007
Cash Flows from Operating Activities
Net income	$	5,070.8		$	3,380.7
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on distribution from AstraZeneca LP		(2,222.7	)		-
Equity income from affiliates		(1,175.1	)		(1,411.7	)
Dividends and distributions from equity affiliates		3,103.4			882.6
Depreciation and amortization		766.0			1,000.5
Deferred income taxes		47.5			(78.0	)
Share-based compensation		198.8			178.2
Other		(37.8	)		(8.3	)
Taxes paid for Internal Revenue Service settlement		-			(2,788.1	)
Net changes in assets and liabilities		(1,842.0	)		469.6
Net Cash Provided by Operating Activities		3,908.9			1,625.5
Cash Flows from Investing Activities
Capital expenditures		(632.6	)		(473.1	)
Purchases of securities and other investments		(5,583.3	)		(5,320.9	)
Acquisitions of subsidiaries, net of cash acquired		-			(1,135.9	)
Proceeds from sales of securities and other investments		5,906.7			6,228.6
Distribution from AstraZeneca LP		1,899.3			-
Decrease (increase) in restricted assets		307.7			(1,187.7	)
Other		(4.0	)		(3.0	)
Net Cash Provided by (Used by) Investing Activities		1,893.8			(1,892.0	)
Cash Flows from Financing Activities
Net change in short-term borrowings		737.4			357.6
Payments on debt		(1,382.7	)		(856.5	)
Purchases of treasury stock		(1,551.1	)		(491.9	)
Dividends paid to stockholders		(1,652.7	)		(1,651.8	)
Proceeds from exercise of stock options		92.3			349.3
Other		(114.9	)		86.8
Net Cash Used by Financing Activities		(3,871.7	)		(2,206.5	)
Effect of Exchange Rate Changes on Cash and Cash Equivalents		78.1			27.8
Net Increase (Decrease) in Cash and Cash Equivalents		2,009.1			(2,445.2	)
Cash and Cash Equivalents at Beginning of Year		5,336.1			5,914.7
Cash and Cash Equivalents at End of Period	$	7,345.2		$	3,469.5

The accompanying notes are an integral part of this consolidated financial statement.

- 4 -

Notes to Consolidated Financial Statements (unaudited)

1.	Basis of Presentation
	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 accounting principles generally accepted in the United States for complete consolidated 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.
	The results of operations of any interim period are not necessarily indicative of the results of operations for the full year. 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.
	On January 1, 2008, the Company adopted Financial Accounting Standards Board (“FASB”) Statement No. 157, Fair Value Measurements (“FAS 157”), which clarifies the definition of fair value, establishes a framework for measuring fair value, and expands the disclosures on fair value measurements. In February 2008, the FASB issued Staff Position 157-2, Effective Date of FASB Statement No. 157 (“FSP 157-2”), that deferred the effective date of FAS 157 for one year for nonfinancial assets and liabilities recorded at fair value on a non-recurring basis. The effect of adoption of FAS 157 for financial assets and liabilities recognized at fair value on a recurring basis did not have a material impact on the Company’s financial position and results of operations (see Note 3). The Company is assessing the impact of adopting FAS 157 for nonfinancial assets and liabilities.
	On January 1, 2008, the Company adopted Emerging Issues Task Force (“EITF”) Issue No. 07-3, Accounting for Advance Payments for Goods or Services Received for Use in Future Research and Development Activities (“EITF 07-3”), which is being applied prospectively for new contracts. EITF 07-3 addresses nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities. EITF 07-3 requires these payments be deferred and capitalized and recognized as an expense as the related goods are delivered or the related services are performed. The effect of adoption of EITF 07-3 on the Company’s financial position and results of operations was not material.
	On January 1, 2008, the Company adopted FASB Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115 (“FAS 159”). FAS 159 permits companies to choose an irrevocable election to measure certain financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings at each subsequent reporting date. The Company did not elect the fair value option under FAS 159 for any of its financial assets or liabilities upon adoption.
	In December 2007, the FASB issued Statement No. 141R, Business Combinations (“FAS 141R”), and Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51 (“FAS 160”). FAS 141R expands the scope of acquisition accounting to all transactions under which control of a business is obtained. Among other things, FAS 141R requires that contingent consideration as well as contingent assets and liabilities be recorded at fair value on the acquisition date, that acquired in-process research and development be capitalized and recorded as intangible assets at the acquisition date, and also requires transaction costs and costs to restructure the acquired company be expensed. FAS 160 provides guidance for the accounting, reporting and disclosure of noncontrolling interests and requires, among other things, that noncontrolling interests be recorded as equity in the consolidated financial statements. FAS 141R and FAS 160 are both effective, on a prospective basis, January 1, 2009 with the exception of the presentation and disclosure requirements of FAS 160 which must be applied retrospectively. The Company is assessing the impacts of these standards on its financial position and results of operations.
	In December 2007, the FASB ratified the consensus reached by the EITF on Issue No. 07-1 (“EITF 07-1”), Accounting for Collaborative Arrangements. EITF 07-1 is effective for the Company beginning January 1, 2009 and will be applied retrospectively to all prior periods presented for all collaborative arrangements existing as of the effective date. EITF 07-1 defines collaborative arrangements and establishes reporting requirements for transactions between participants in a collaborative arrangement and between participants in the arrangement and third parties. The Company is assessing the impact of adoption of EITF 07-1 on its financial position and results of operations.

- 5 -

Notes to Consolidated Financial Statements (unaudited) (continued)

	In March 2008, the FASB issued Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities (“FAS 161”), which is effective January 1, 2009. FAS 161 requires enhanced disclosures about derivative instruments and hedging activities to allow for a better understanding of their effects on an entity’s financial position, financial performance, and cash flows. Among other things, FAS 161 requires disclosure of the fair values of derivative instruments and associated gains and losses in a tabular format. Since FAS 161 requires only additional disclosures about the Company’s derivatives and hedging activities, the adoption of FAS 161 will not affect the Company’s financial position or results of operations.
	In May 2008, the FASB issued Statement No. 162, The Hierarchy of Generally Accepted Accounting Principles (“FAS 162”). FAS 162 identifies the sources of accounting principles and the framework for selecting the principles used (order of authority) in the preparation of financial statements that are presented in conformity with generally accepted accounting standards in the United States. FAS 162 is effective 60 days following the Securities and Exchange Commission’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. The Company does not expect the adoption of FAS 162 to have a material impact on its financial statements.
	In June 2008, the FASB issued Staff Position EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (“FSP EITF 03-6-1”), which is effective January 1, 2009. FSP EITF 03-6-1 clarifies that share-based payment awards that entitle holders to receive nonforfeitable dividends before they vest will be considered participating securities and included in the basic earnings per share calculation. The Company is assessing the impact of adoption of FSP EITF 03-6-1 on its results of operations.
2.	Restructuring
	In November 2005, the Company announced the initial phase of its global restructuring program designed to reduce the Company’s cost structure, increase efficiency and enhance competitiveness. As part of this program, Merck has sold or closed five manufacturing sites and two preclinical sites. The Company also has, and may continue to, sell or close certain other facilities and related assets in connection with the restructuring program. As of June 30, 2008, the Company has eliminated approximately 8,700 positions company-wide and will continue to seek opportunities for further headcount reductions. The Company, however, continues to hire new employees as the business requires. Through the end of 2008, when the initial phase of the global restructuring program is expected to be substantially complete, the cumulative pretax costs of the program are expected to range from $2.3 billion to $2.4 billion. Approximately 70% of the cumulative pretax costs are non-cash, relating primarily to accelerated depreciation for facilities closed or scheduled for closure. Since the inception of the global restructuring program through June 30, 2008, the Company has recorded total pretax accumulated costs of $2.3 billion. For segment reporting purposes, restructuring charges are unallocated expenses.
	The following table summarizes the charges related to restructuring activities by type of cost:

- 6 -

Notes to Consolidated Financial Statements (unaudited) (continued)

	Three Months Ended June 30,
	2008								2007
	Separation		Accelerated						Separation		Accelerated
($ in millions)	Costs		Depreciation		Other		Total		Costs		Depreciation			Other		Total
Materials and production	$	-	$	15.8	$	0.3	$	16.1	$	-	$	118.2		$	0.5	$	118.7
Research and development		-		-		-		-		-		(2.3	)		-		(2.3	)
Restructuring costs		75.6		-		26.6		102.2		38.1		-			17.7		55.8
	$	75.6	$	15.8	$	26.9	$	118.3	$	38.1	$	115.9		$	18.2	$	172.2

	Six Months Ended June 30,
	2008									2007
	Separation		Accelerated							Separation		Accelerated
($ in millions)	Costs		Depreciation		Other			Total		Costs		Depreciation		Other			Total
Materials and production	$	-	$	31.1	$	(0.1	)	$	31.0	$	-	$	236.3	$	0.5		$	236.8
Research and development		-		-		-			-		-		-		(0.1	)		(0.1	)
Restructuring costs		177.0		-		(5.1	)		171.9		85.0		-		36.6			121.6
	$	177.0	$	31.1	$	(5.2	)	$	202.9	$	85.0	$	236.3	$	37.0		$	358.3

Separation costs are associated with actual headcount reductions, as well as those headcount reductions that were probable and could be reasonably estimated. In the second quarter of 2008, approximately 600 positions were eliminated and in the second quarter of 2007 approximately 625 positions were eliminated. In the first half of 2008, approximately 1,500 positions were eliminated compared with approximately 855 positions in the first half of 2007.

Accelerated depreciation costs primarily relate to manufacturing facilities sold or closed as part of the program.

Other activity of $26.9 million and $18.2 million for the second quarter of 2008 and 2007, respectively, and $(5.2) million and $37.0 million for the first six months of 2008 and 2007, respectively, reflects costs that include termination charges associated with the Company’s pension and other postretirement benefit plans (see Note 9), shut-down and other related costs. Other activity for the first half of 2008 also reflects pretax gains of $51.1 million resulting from 2008 sales of facilities and related assets.

The following table summarizes the charges and spending relating to restructuring activities for the six months ended June 30, 2008:

	Separation			Accelerated
($ in millions)	Costs			Depreciation			Other			Total
Restructuring reserves as of January 1, 2008	$	231.5		$	-		$	-		$	231.5
Expense		177.0			31.1			(5.2	)		202.9
(Payments) receipts, net		(172.5	)		-			16.9	(1)		(155.6	)
Non-cash activity		-			(31.1	)		(11.7	)		(42.8	)
Restructuring reserves as of June 30, 2008 (2)	$	236.0		$	-		$	-		$	236.0

(1)	Includes proceeds from the sales of facilities in connection with the global restructuring program.
(2)	The cash outlays associated with the remaining restructuring reserve are expected to be largely completed by the end of 2009.

3.

Fair Value Measurements

On January 1, 2008, the Company adopted FAS 157, which clarifies the definition of fair value, establishes a framework for measuring fair value, and expands the disclosures on fair value measurements. In February 2008, the FASB issued FSP 157-2 that deferred the effective date of FAS 157 for one year for nonfinancial assets and liabilities recorded at fair value on a non-recurring basis. FAS 157 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. FAS 157 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. FAS 157 describes three levels of inputs that may be used to measure fair value:

- 7 -  

Notes to Consolidated Financial Statements (unaudited) (continued)

Level 1 - Quoted prices in active markets for identical assets or liabilities. The Company’s Level 1 assets include short-term investments in time deposits and equity securities that are traded in an active exchange market.

Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. The Company’s Level 2 assets and liabilities primarily include debt securities with quoted prices that are traded less frequently than exchange-traded instruments, corporate notes and bonds, U.S. and foreign government and agency securities, certain mortgage-backed and asset-backed securities, municipal securities, and derivative contracts whose values are determined using pricing models with inputs that are observable in the market or can be derived principally from or corroborated by observable market data.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation. The Company’s Level 3 assets mainly include mortgage-backed and asset-backed securities, as well as certain corporate notes and bonds with limited market activity. At June 30, 2008, $179.5 million, or approximately 1.7%, of the Company’s investment securities were categorized as Level 3 fair value assets (all of which were pledged under certain collateral arrangements (see Note 11)).

If the inputs used to measure the financial assets and liabilities fall within the different levels described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

Financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2008 are summarized below:

	Fair Value Measurements Using
	Quoted Prices		Significant
	In Active		Other		Significant
	Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
($ in millions)	(Level 1)		(Level 2)		(Level 3)		Total
Assets
Investments
Corporate notes and bonds	$	-	$	5,329.0	$	-	$	5,329.0
U.S. government and agency securities		-		1,795.7		-		1,795.7
Municipal securities		-		745.1		-		745.1
Mortgage-backed securities (1)		-		718.3		-		718.3
Asset-backed securities (2)		-		357.9		-		357.9
Foreign government bonds		-		317.9		-		317.9
Equity securities		62.7		89.3		-		152.0
Other debt securities		-		11.3		-		11.3
Total investments	$	62.7	$	9,364.5	$	-	$	9,427.2
Other assets (3)	$	-	$	788.6	$	179.5	$	968.1
Derivative assets		-		239.3		-		239.3
Total Assets	$	62.7	$	10,392.4	$	179.5	$	10,634.6
Liabilities
Derivative liabilities	$	-	$	76.6	$	-	$	76.6

(1)	Represents AAA-rated mortgage-backed securities issued or unconditionally guaranteed as to payment of principal and interest by U.S. government agencies.
(2)	Substantially all of the asset-backed securities are highly-rated (Standard & Poor’s rating of AAA and Moody’s Investors Service rating of Aaa), secured primarily by credit card, auto loan, and home equity receivables, with weighted-average lives of primarily 5 years or less.
(3)	These investment securities represent a portion of the pledged collateral discussed in Note 11.

- 8 -  

Notes to Consolidated Financial Statements (unaudited) (continued)

Level 3 Valuation Techniques:
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. Level 3 financial assets also include certain investment securities for which there is limited market activity such that the determination of fair value requires significant judgment or estimation. The Company’s Level 3 investment securities at June 30, 2008, primarily include mortgage-backed and asset-backed securities, as well as certain corporate notes and bonds for which there was a decrease in the observability of market pricing for these investments. These securities were valued primarily using pricing models for which management understands the methodologies. These models incorporate transaction details such as contractual terms, maturity, timing and amount of future cash inflows, as well as assumptions about liquidity and credit valuation adjustments of marketplace participants at June 30, 2008.

The table below provides a summary of the changes in fair value, including net transfers in and/or out, of all financial assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3):

Three Months Ended June 30, 2008

Total Realized and

Losses

Unrealized Losses

Recorded in

Net

Purchases,

Included in:

Earnings for

Beginning

Transfers

Sales,

Compre-

Ending

Level 3 Assets

Balance

In to

Settlements,

hensive

Balance

Still Held at

($ in millions)

April 1

Level 3

net

Earnings (1)

Income

June 30

June 30

Other assets

$

161.2

$

40.4

$

(15.8

)

$

(6.0

)

$

(0.3

)

$

179.5

$

(6.0

)

	Six Months Ended June 30, 2008
									Total Realized and								Losses
									Unrealized Losses								Recorded in
			Net			Purchases,			Included in:								Earnings for
	Beginning		Transfers			Sales,						Compre-			Ending		Level 3 Assets
	Balance		(Out) of			Settlements,						hensive			Balance		Still Held at
($ in millions)	January 1		Level 3			net			Earnings (1)			Income			June 30		June 30
Other assets	$	958.6	$	(744.8	)	$	(24.6	)	$	(8.3	)	$	(1.4	)	$	179.5	$	(8.3	)
Other debt securities		314.5		(314.5	)		-			-			-			-		-
Total	$	1,273.1	$	(1,059.3	)	$	(24.6	)	$	(8.3	)	$	(1.4	)	$	179.5	$	(8.3	)

⁽¹⁾ Amounts are recorded in Other (income) expense, net, in the Consolidated Statement of Income.

On January 1, 2008, the Company had $1,273.1 million invested in a short-term fixed income fund (the “Fund”). Due to market liquidity conditions, cash redemptions from the Fund were restricted. As a result of this restriction on cash redemptions, the Company did not consider the Fund to be traded in an active market with observable pricing on January 1, 2008 and these amounts were categorized as Level 3. On January 7, 2008, the Company elected to be redeemed-in-kind from the Fund and received its share of the underlying securities of the Fund. As a result, $1,099.7 million of the underlying securities were transferred out of Level 3 as it was determined these securities had observable markets. On June 30, 2008, $179.5 million of the investment securities associated with the redemption-in-kind remained classified in Level 3 as the securities contained at least one significant input which was unobservable.

- 9 -

Notes to Consolidated Financial Statements (unaudited) (continued)

4.	Inventories
	Inventories consisted of:

	June 30,		December 31,
($ in millions)	2008		2007
Finished goods	$	436.3	$	382.9
Raw materials and work in process		2,073.9		1,732.2
Supplies		122.4		111.1
Total (approximates current cost)		2,632.6		2,226.2
Reduction to LIFO cost for domestic inventories		—		—
	$	2,632.6	$	2,226.2
Recognized as:
Inventories	$	2,190.6	$	1,881.0
Other assets	$	442.0	$	345.2

	Amounts recognized as Other assets are comprised entirely of raw materials and work in process inventories, representing inventories for products not expected to be sold within one year, the majority of which are vaccines.
5.	Joint Ventures and Other Equity Method Affiliates
	Equity income from affiliates reflects the performance of the Company’s joint ventures and other equity method affiliates and was comprised of the following:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
($ in millions)	2008		2007		2008		2007
Merck/Schering-Plough	$	365.2	$	465.1	$	758.0	$	812.2
AstraZeneca LP		61.4		215.1		192.5		427.1
Other (1)		96.4		78.9		224.6		172.4
	$	523.0	$	759.1	$	1,175.1	$	1,411.7

⁽¹⁾ Primarily reflects results from Merial Limited, Sanofi Pasteur MSD and Johnson & Johnson°Merck Consumer Pharmaceuticals Company.

Merck/Schering-Plough
In 2000, the Company and Schering-Plough Corporation (“Schering-Plough”) (collectively the “Partners”) entered into agreements to create separate equally-owned partnerships to develop and market in the United States new prescription medicines in the cholesterol-management and respiratory therapeutic areas. These agreements generally provide for equal sharing of development costs and for co-promotion of approved products by each company. In 2001, the cholesterol-management partnership agreements were expanded to include all the countries of the world, excluding Japan. In 2002, ezetimibe, the first in a new class of cholesterol-lowering agents, was launched in the United States as Zetia (marketed as Ezetrol outside the United States). In 2004, a combination product containing the active ingredients of both Zetia and Zocor was approved in the United States as Vytorin (marketed as Inegy outside of the United States).

The cholesterol agreements provide for the sharing of operating income generated by the Merck/Schering-Plough cholesterol partnership (the “MSP Partnership”) based upon percentages that vary by product, sales level and country. In the U.S. market, the Partners share profits on Zetia and Vytorin sales equally, with the exception of the first $300 million of annual Zetia sales on which Schering-Plough receives a greater share of profits. Operating income includes expenses that the Partners have contractually agreed to share, such as a portion of manufacturing costs, specifically identified promotion costs (including direct-to-consumer advertising and direct and identifiable out-of-pocket promotion) and other agreed upon costs for specific services such as on-going clinical research, market support, market research, market expansion, as well as a specialty sales force and physician education programs. Expenses incurred in support of the MSP Partnership but not shared between the Partners, such as marketing and administrative expenses (including certain sales force costs), as well as certain manufacturing costs, are not included in Equity income from affiliates. However, these costs are reflected in the overall results of the Company. Certain

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Notes to Consolidated Financial Statements (unaudited) (continued)

research and development expenses are generally shared equally by the Partners, after adjusting for earned milestones.

See Note 7 for information with respect to litigation involving the MSP Partnership and the Partners related to the sale and promotion of Zetia and Vytorin.

The respiratory therapeutic agreements provided for the joint development and marketing in the United States by the Partners of a once-daily, fixed-combination tablet containing the active ingredients montelukast sodium and loratadine. Montelukast sodium, a leukotriene receptor antagonist, is sold by Merck as Singulair and loratadine, an antihistamine, is sold by Schering-Plough as Claritin, both of which are indicated for the relief of symptoms of allergic rhinitis. In April 2008, the Partners announced that they had received a non-approvable letter from the U.S. Food and Drug Administration (“FDA”) for the proposed fixed combination of loratadine/montelukast. In June 2008, the Partners announced the withdrawal of the New Drug Application for the loratadine/montelukast combination tablet. The companies also terminated the respiratory joint venture. This action had no impact on the business of the cholesterol joint venture. As a result of the termination of the respiratory joint venture, the Company is obligated to Schering-Plough in the amount of $105 million as specified in the joint venture agreements. This resulted in a charge of $43 million during the second quarter of 2008, included in Equity income from affiliates. The remaining amount will be amortized over the remaining patent life of Zetia through 2016.

Summarized financial information for the MSP Partnership is as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
($ in millions)	2008		2007		2008		2007
Sales	$	1,152.5	$	1,263.9	$	2,385.4	$	2,431.7
Vytorin		592.1		686.4		1,243.3		1,310.2
Zetia		560.4		577.5		1,142.1		1,121.5
Materials and production costs		51.2		51.2		103.6		101.2
Other expense, net		319.3		323.4		646.1		646.0
Income before taxes	$	782.0	$	889.3	$	1,635.7	$	1,684.5
Merck’s share of income before taxes (1)	$	346.4	$	453.3	$	741.0	$	815.8

⁽¹⁾ Merck’s share of the MSP Partnership’s income before taxes differs from the equity income recognized from the MSP Partnership primarily due to the timing of recognition of certain transactions between the Company and the MSP Partnership, including milestone payments.

AstraZeneca LP
As previously disclosed, the 1999 AstraZeneca merger triggered a partial redemption in March 2008 of Merck’s limited partnership interest in AstraZeneca LP (“AZLP”). Upon this redemption, Merck received $4.3 billion from AZLP. This amount was based primarily on a multiple of Merck’s average annual variable returns derived from sales of the former Astra USA, Inc. products for the three years prior to the redemption (the “Limited Partner Share of Agreed Value”). Merck recorded a $1.5 billion pretax gain on the partial redemption in the first quarter of 2008.

Also, as a result of the 1999 AstraZeneca merger, in exchange for Merck’s relinquishment of 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”). The Advance Payment was deferred as it remained subject to a true-up calculation that was directly dependent on the fair market value in March 2008 of the Astra product rights retained by the Company. The calculated True-Up Amount of $243.7 million was returned to AZLP in March 2008 and Merck recognized a pretax gain of $723.7 million related to the residual Advance Payment balance.

In 1998, Astra purchased an option (the “Asset Option”) to buy Merck’s interest in the KBI products, excluding the gastrointestinal medicines Nexium and Prilosec (the “Non-PPI Products”), for a payment of $443.0 million, which was deferred. The Asset Option is exercisable in the first half of 2010 at an exercise price equal to the net present value as of March 31, 2008 of projected future pretax revenue to be received by the Company from the Non-PPI Products (the “Appraised Value”). Merck also had the right to require Astra to purchase such interest in 2008 at the Appraised Value. In February 2008, the Company advised AZLP that it would not exercise the Asset Option, thus the $443.0 million remains deferred.

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Notes to Consolidated Financial Statements (unaudited) (continued)

The sum of the Limited Partner Share of Agreed Value, the Appraised Value and the True-Up Amount was guaranteed to be a minimum of $4.7 billion. Distribution of the Limited Partner Share of Agreed Value less payment of the True-Up Amount resulted in cash receipts to Merck of $4.0 billion and an aggregate pretax gain of $2.2 billion which is included in Other (income) expense, net. AstraZeneca’s purchase of Merck’s interest in the Non-PPI Products is contingent upon the exercise of the Asset Option by AstraZeneca in 2010 and, therefore, payment of the Appraised Value may or may not occur. Also, in March 2008, the outstanding loan from Astra in the amount of $1.38 billion plus interest through the redemption date was settled. As a result of these transactions, the Company received net proceeds from AZLP of $2.6 billion in the first quarter of 2008.

Summarized financial information for AZLP is as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
($ in millions)	2008		2007		2008		2007
Sales	$	1,350.0	$	1,683.1	$	2,676.8	$	3,387.1
Materials and production costs		630.1		942.2		1,326.4		1,954.7
Other expense, net		353.0		284.4		737.7		558.1
Income before taxes	$	366.9	$	456.5	$	612.7	$	874.3

6.	Debt and Financial Instruments
	In January and February 2008, the Company terminated four interest rate swap contracts with notional amounts of $250 million each, which effectively converted its $1.0 billion, 4.75% fixed-rate notes due 2015 to variable rate debt. As a result of the swap terminations, the Company received $96.2 million in cash, excluding accrued interest which was not material. The corresponding gains related to the basis adjustment of the debt associated with the terminated swap contracts were deferred and are being amortized as a reduction of interest expense over the remaining term of the notes. The cash flows from these contracts are reported as operating activities in the Consolidated Statement of Cash Flows.
	In March 2008, the Company entered into a $4.1 billion letter of credit agreement with a financial institution, which provides that if participation conditions under the U.S. Vioxx Settlement Agreement (see Note 7) are met or waived (which the Company stated it will waive as of August 4, 2008), a letter of credit will be executed and the Company will pledge collateral to the financial institution of approximately $5.0 billion pursuant to the terms of the agreement. The letter of credit will satisfy certain conditions stipulated by the Settlement Agreement. The letter of credit amount and required collateral balances will decline as payments (after the first $750 million) under the Settlement Agreement are made.
	Also in March 2008, the Company settled the $1.38 billion Astra Note due in 2008 (see Note 5).
	In April 2008, the Company extended the maturity date of its $1.5 billion, 5-year revolving credit facility from April 2012 to April 2013. The facility provides backup liquidity for the Company’s commercial paper borrowing facility and is to be used for general corporate purposes. The Company has not drawn funding from this facility.
7.	Contingencies
	The Company is involved in various claims and legal proceedings of a nature considered normal to its business, including product liability, intellectual property, and commercial litigation, as well as additional matters such as antitrust actions.
	Vioxx Litigation Product Liability Lawsuits As previously disclosed, individual and putative class actions have been filed against the Company in state and federal courts alleging personal injury and/or economic loss with respect to the purchase or use of Vioxx. All such actions filed in federal court are coordinated in a multidistrict litigation in the U.S. District Court for the Eastern District of Louisiana (the “MDL”) before District Judge Eldon E. Fallon. A number of such actions filed in state court are

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Notes to Consolidated Financial Statements (unaudited) (continued)

coordinated in separate coordinated proceedings in state courts in New Jersey, California and Texas, and the counties of Philadelphia, Pennsylvania and Washoe and Clark Counties, Nevada. As of June 30, 2008, the Company had been served or was aware that it had been named as a defendant in approximately 13,750 lawsuits, which include approximately 31,750 plaintiff groups, alleging personal injuries resulting from the use of Vioxx, and in approximately 249 putative class actions alleging personal injuries and/or economic loss. (All of the actions discussed in this paragraph are collectively referred to as the “Vioxx Product Liability Lawsuits”.) Of these lawsuits, approximately 9,225 lawsuits representing approximately 24,000 plaintiff groups are or are slated to be in the federal MDL and approximately 2,675 lawsuits representing approximately 2,675 plaintiff groups are included in a coordinated proceeding in New Jersey Superior Court before Judge Carol E. Higbee.

In addition to the Vioxx Product Liability Lawsuits discussed above, the claims of over 22,300 plaintiffs had been dismissed as of June 30, 2008. Of these, there have been over 2,950 plaintiffs whose claims were dismissed with prejudice (i.e., they cannot be brought again) either by plaintiffs themselves or by the courts. Over 19,350 additional plaintiffs have had their claims dismissed without prejudice (i.e., subject to the applicable statute of limitations, they can be brought again). Of these, approximately 11,800 plaintiff groups represent plaintiffs who had lawsuits pending in the New Jersey Superior Court at the time of the Settlement Agreement described below and who have expressed an intent to enter the program established by the Settlement Agreement; Judge Higbee has dismissed these cases without prejudice for administrative reasons.

Merck entered into a tolling agreement (the “Tolling Agreement”) with the MDL Plaintiffs’ Steering Committee (“PSC”) that established a procedure to halt the running of the statute of limitations (tolling) as to certain categories of claims allegedly arising from the use of Vioxx by non-New Jersey citizens. The Tolling Agreement applied to individuals who have not filed lawsuits and may or may not eventually file lawsuits and only to those claimants who seek to toll claims alleging injuries resulting from a thrombotic cardiovascular event that results in a myocardial infarction (“MI”) or ischemic stroke (“IS”). The Tolling Agreement provided counsel additional time to evaluate potential claims. The Tolling Agreement required any tolled claims to be filed in federal court. As of June 30, 2008, approximately 12,750 claimants had entered into Tolling Agreements. The parties agreed that April 9, 2007 was the deadline for filing Tolling Agreements and no additional Tolling Agreements are being accepted. On April 23, 2008, the Company terminated the Tolling Agreements effective August 21, 2008 pursuant to the Tolling Agreements’ 120-day termination provision.

On November 9, 2007, Merck announced that it had entered into an agreement (the “Settlement Agreement”) with the law firms that comprise the executive committee of the PSC of the federal Vioxx MDL as well as representatives of plaintiffs’ counsel in the Texas, New Jersey and California state coordinated proceedings to resolve state and federal MI and IS claims filed as of that date in the United States. The Settlement Agreement, which also applies to tolled claims, was signed by the parties after several meetings with three of the four judges overseeing the coordination of more than 95% of the U.S. Vioxx Product Liability Lawsuits. The Settlement Agreement applies only to U.S. legal residents and those who allege that their MI or IS occurred in the United States.

Merck will pay a fixed aggregate amount of $4.85 billion into two funds ($4.0 billion for MI claims and $850 million for IS claims) for qualifying claims that enter into the resolution process (the “Settlement Program”). Individual claimants will be examined by administrators of the Settlement Program to determine qualification based on objective, documented facts provided by claimants, including records sufficient for a scientific evaluation of independent risk factors. The conditions in the Settlement Agreement require claimants to pass three gates: an injury gate requiring objective, medical proof of an MI or IS (each as defined in the Settlement Agreement), a duration gate based on documented receipt of at least 30 Vioxx pills, and a proximity gate requiring receipt of pills in sufficient number and proximity to the event to support a presumption of ingestion of Vioxx within 14 days before the claimed injury.

The Settlement Agreement provides that Merck does not admit causation or fault. The Settlement Agreement provided that Merck’s payment obligations would be triggered only if, among other conditions, (1) law firms on the federal and state PSCs and firms that have tried cases in the coordinated proceedings elect to recommend enrollment in the program to 100% of their clients who allege either MI or IS and (2) by June 30, 2008, plaintiffs enroll in the Settlement Program at least 85% of each of all currently pending and tolled (i) MI claims, (ii) IS claims, (iii) eligible MI and IS claims together which involve death, and (iv) eligible MI and IS claims together which allege more than 12 months of use. Under the terms of the Settlement Agreement, Merck could exercise a right to walk away from the Settlement Agreement if the thresholds and other requirements were not met. On July 17, 2008, the Company stated that it would be waiving that right as of August 4, 2008. The waiver of that right will trigger Merck’s obligation to pay a fixed total of $4.85 billion. Payments will be made in installments into the resolution fund, with the first payment of $500 million scheduled for August 6, 2008. Additional payments will be made on a periodic basis going forward, when and as needed to fund payments of claims and administrative expenses.

- 13 -

Notes to Consolidated Financial Statements (unaudited) (continued)

Merck’s total payment for both funds of $4.85 billion is a fixed amount to be allocated among qualifying claimants based on their individual evaluation. While at this time the exact number of claimants covered by the Settlement Agreement is unknown, the total dollar amount is fixed. The Company expects that the distribution of interim payments to qualified claimants will begin in August and will continue on a rolling basis until all claimants who qualify for an interim payment are paid. Final payments will be made after the examination of all of the eligible claims has been completed.

After the Settlement Agreement was announced on November 9, 2007, judges in the Federal MDL, California, Texas and New Jersey State Coordinated Proceedings entered a series of orders. The orders: (1) temporarily stayed their respective litigations; (2) required plaintiffs to register their claims by January 15, 2008; (3) require plaintiffs with cases pending as of November 9, 2007 to preserve and produce records and serve expert reports; and (4) require plaintiffs who file thereafter to make similar productions on an accelerated schedule. The Clark County, Nevada and Washoe County, Nevada coordinated proceedings were also generally stayed.

As of July 17, 2008, more than 48,500 of the approximately 50,000 individuals who registered eligible injuries have submitted some or all of the materials required for enrollment in the program to resolve state and federal MI and IS claims filed against the Company in the United States.  If all of these eligible submissions are completed in accordance with the Settlement Agreement, this would represent more than 97% of the eligible MI and IS claims previously registered with the program.  In addition, approximately 3,500 other claimants have also sought to enroll and their eligibility status still has yet to be determined.

Also, as of July 17, 2008 BrownGreer, the claims administrator for the Settlement Program (the “Claims Administrator”), reports that more than 30,000 eligible MI claimants have initiated enrollment and more than 18,000 eligible IS claimants have initiated enrollment. Of these, more than 6,000 eligible MI and IS claimants alleging death as an injury have initiated enrollment and more than 29,250 eligible MI and IS claimants alleging more than 12 months of use have initiated enrollment.  Each of these numbers appears to represent at least 97% of the eligible claims in each category.  These numbers do not include the additional 3,500 enrollees whose eligibility has yet to be determined.

On April 14, 2008, various private insurance companies and health plans filed suit against BrownGreer and U.S. Bancorp, escrow agent for the Settlement Program. The private insurance companies and health plans claim to have paid healthcare costs on behalf of some of the enrolling claimants and seek to enjoin the Claims Administrator from paying enrolled claimants until their claims for reimbursement from the enrolled claimants are resolved. On June 9, plaintiffs in that action filed a motion for a temporary restraining order and preliminary injunction seeking an order directing identification and disclosure of plaintiffs’ plan members who are participating in the settlement fund. On June 11, 2008, Judge Fallon denied in part the motion with respect to plaintiffs’ request for a temporary restraining order. On June 27, 2008, counsel for plaintiffs announced that they had reached an agreement under which the motion for preliminary injunction would be withdrawn without prejudice. Another private health plan filed suit against BrownGreer and others. They have moved for a preliminary injunction. The motion is pending.

The Company has previously disclosed the outcomes of several Vioxx Product Liability Lawsuits that were tried prior to January 1, 2008.

The following sets forth certain significant rulings that occurred in or after the second quarter of 2008 with respect to the Vioxx Product Liability Lawsuits.

On April 19, 2007, Judge Randy Wilson, who presides over the Texas Vioxx coordinated proceeding, dismissed the failure to warn claim of plaintiff Ruby Ledbetter, whose case was scheduled to be tried on May 14, 2007. Judge Wilson relied on a Texas statute enacted in 2003 that provides that there can be no failure to warn regarding a prescription medicine if the medicine is distributed with FDA approved labeling. There is an exception in the statute if required, material, and relevant information was withheld from the FDA that would have led to a different decision regarding the approved labeling, but Judge Wilson found that the exception is preempted by federal law unless the FDA finds that such information was withheld. Judge Wilson is currently presiding over approximately 1,000 Vioxx suits in Texas in which a principal allegation is failure to warn. Judge Wilson certified the decision for an expedited appeal to the Texas Court of Civil Appeals. Plaintiffs appealed the decision. On October 11, 2007, Merck filed a motion to abate the hearing of the appeal until after the U.S. Supreme Court’s decision in Warner Lambert v. Kent, which is to be decided in 2008. On October 25, 2007, the Texas Court of Appeals denied Merck’s motion to abate. On March 20, 2008, plaintiffs moved to dismiss their appeal, seeking instead to vacate the trial court’s decision.

- 14 -

Notes to Consolidated Financial Statements (unaudited) (continued)

Merck filed an opposition to plaintiffs’ motion. On May 15, 2008, the Court of Appeals issued an order granting plaintiffs’ motion to dismiss the appeal, but denying plaintiffs’ motion to vacate the order dismissing the claim.

In April 2006, in a trial involving two plaintiffs, Thomas Cona and John McDarby, in Superior Court of New Jersey, Law Division, Atlantic County, the jury returned a split verdict. The jury determined that Vioxx did not substantially contribute to the heart attack of Mr. Cona, but did substantially contribute to the heart attack of Mr. McDarby. The jury also concluded that, in each case, Merck violated New Jersey’s consumer fraud statute, which allows plaintiffs to receive their expenses for purchasing the drug, trebled, as well as reasonable attorneys’ fees. The jury awarded $4.5 million in compensatory damages to Mr. McDarby and his wife, who also was a plaintiff in that case, as well as punitive damages of $9 million. On June 8, 2007, Judge Higbee denied Merck’s motion for a new trial. On June 15, 2007, Judge Higbee awarded approximately $4 million in the aggregate in attorneys’ fees and costs. The Company appealed the judgments in both cases and the Appellate Division held oral argument on both cases on January 16, 2008. On May 29, 2008, the New Jersey Appellate Division vacated the consumer fraud awards in both cases on the grounds that the Product Liability Act provides the sole remedy for personal injury claims. The Appellate Division also vacated the McDarby punitive damage award on the grounds that it is preempted and vacated the attorney’s fees and costs awarded under the Consumer Fraud Act in both cases. The Court upheld the McDarby compensatory award. The Company has filed with the Supreme Court of New Jersey a petition to appeal those parts of the trial court’s rulings that the Appellate Division affirmed. Plaintiffs filed a cross-petition to appeal those parts of the trial court’s rulings that the Appellate Division reversed.

As previously reported, in September 2006, Merck filed a notice of appeal of the August 2005 jury verdict in favor of the plaintiff in the Texas state court case, Ernst v. Merck. On May 29, 2008, the Texas Court of Appeals reversed the trial court’s judgment and issued a judgment in favor of Merck. The Court of Appeals found the evidence to be legally insufficient on the issue of causation. Plaintiffs have asked the court for more time to file a motion for rehearing.

As previously reported, in April 2006, in Garza v. Merck, a jury in state court in Rio Grande City, Texas returned a verdict in favor of the family of decedent Leonel Garza. The jury awarded a total of $7 million in compensatory damages to Mr. Garza’s widow and three sons. The jury also purported to award $25 million in punitive damages even though under Texas law, in this case, potential punitive damages were capped at $750,000. On May 14, 2008, the San Antonio Court of Appeals reversed the judgment and rendered a judgment in favor of Merck. On May 29, 2008, plaintiffs filed a motion for rehearing.

Other Lawsuits
As previously disclosed, on July 29, 2005, a New Jersey state trial court certified a nationwide class of third-party payors (such as unions and health insurance plans) that paid in whole or in part for the Vioxx used by their plan members or insureds. The named plaintiff in that case sought recovery of certain Vioxx purchase costs (plus penalties) based on allegations that the purported class members paid more for Vioxx than they would have had they known of the product’s alleged risks. On March 31, 2006, the New Jersey Superior Court, Appellate Division, affirmed the class certification order. On September 6, 2007, the New Jersey Supreme Court reversed the certification of a nationwide class action of third-party payors, finding that the suit does not meet the requirements for a class action. Claims of certain individual third-party payors remain pending in the New Jersey court, and counsel representing various third-party payors have filed additional such actions. Judge Higbee lifted the stay on these cases and the parties are currently discussing discovery issues.

Judge Higbee has set a briefing schedule in Martin-Kleinman v. Merck, which is a putative consumer class action pending in New Jersey Superior Court. The schedule calls for the briefing to be completed by September 26, 2008.

There are also pending in various U.S. courts putative class actions purportedly brought on behalf of individual purchasers or users of Vioxx claiming either reimbursement of alleged economic loss or an entitlement to medical monitoring. The majority of these cases are at early procedural stages. In New Jersey, the trial court dismissed the complaint in the case of Sinclair v. Merck, a purported statewide medical monitoring class. The Appellate Division reversed the dismissal. On June 4, 2008, the New Jersey Supreme Court reversed the Appellate Division and dismissed the case on the grounds that plaintiffs had not alleged that they suffered any physical injury. In a separate action, on June 12, 2008, a Missouri state court certified a class of Missouri plaintiffs seeking reimbursement for out-of-pocket costs relating to Vioxx. The plaintiffs do not allege any personal injuries from taking Vioxx. The Company filed a petition for interlocutory review on June 23, 2008.

Plaintiffs also have filed a class action in California state court seeking class certification of California third-party payors and end-users. The parties are engaged in class certification discovery and briefing.

- 15 -

Notes to Consolidated Financial Statements (unaudited) (continued)

As previously reported, the Company has also been named as a defendant in separate lawsuits brought by the Attorneys General of seven states, and the City of New York. A Colorado taxpayer has also filed a derivative suit, on behalf of the State of Colorado, naming the Company. These actions allege that the Company misrepresented the safety of Vioxx and seek (i) recovery of the cost of Vioxx purchased or reimbursed by the state and its agencies; (ii) reimbursement of all sums paid by the state and its agencies for medical services for the treatment of persons injured by Vioxx; (iii) damages under various common law theories; and/or (iv) remedies under various state statutory theories, including state consumer fraud and/or fair business practices or Medicaid fraud statutes, including civil penalties.

In addition, the Company has been named in four other lawsuits containing similar allegations filed by (or on behalf of) governmental entities seeking the reimbursement of alleged Medicaid expenditures for Vioxx or statutory penalties tied to such expenditures. Those lawsuits are (1) a class action filed by Santa Clara County, California on behalf of all similarly situated California counties, (2) actions filed by Erie County and Chautauqua County, New York, and (3) a qui tam action brought by a resident of the District of Columbia. With the exception of a case filed by the Texas Attorney General (which remains in Texas state court and is currently scheduled for trial in September 2009) and the District of Columbia case (which has been removed to federal court and will likely be transferred to the federal MDL shortly), the rest of the actions described in this paragraph have been transferred to the federal MDL and have not experienced significant activity to date.

Shareholder Lawsuits
As previously disclosed, in addition to the Vioxx Product Liability Lawsuits, the Company and various current and former officers and directors are defendants in various putative class actions and individual lawsuits under the federal securities laws and state securities laws (the “Vioxx Securities Lawsuits”). All of the Vioxx Securities Lawsuits pending in federal court have been transferred by the Judicial Panel on Multidistrict Litigation (the “JPML”) to the United States District Court for the District of New Jersey before District Judge Stanley R. Chesler for inclusion in a nationwide MDL (the “Shareholder MDL”). Judge Chesler has consolidated the Vioxx Securities Lawsuits for all purposes. The putative class action, which requested damages on behalf of purchasers of Company stock between May 21, 1999 and October 29, 2004, alleged that the defendants made false and misleading statements regarding Vioxx in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and sought unspecified compensatory damages and the costs of suit, including attorneys’ fees. The complaint also asserted claims under Section 20A of the Securities and Exchange Act against certain defendants relating to their sales of Merck stock and under Sections 11, 12 and 15 of the Securities Act of 1933 against certain defendants based on statements in a registration statement and certain prospectuses filed in connection with the Merck Stock Investment Plan, a dividend reinvestment plan. On April 12, 2007, Judge Chesler granted defendants’ motion to dismiss the complaint with prejudice. Plaintiffs have appealed Judge Chesler’s decision to the United States Court of Appeals for the Third Circuit. Oral argument before the Court of Appeals was held on June 24, 2008.

In October 2005, a Dutch pension fund filed a complaint in the District of New Jersey alleging violations of federal securities laws as well as violations of state law against the Company and certain officers. Pursuant to the Case Management Order governing the Shareholder MDL, the case, which is based on the same allegations as the Vioxx Securities Lawsuits, was consolidated with the Vioxx Securities Lawsuits. Defendants’ motion to dismiss the pension fund’s complaint was filed on August 3, 2007. In September 2007, the Dutch pension fund filed an amended complaint rather than responding to defendants’ motion to dismiss. In addition in 2007, six new complaints were filed in the District of New Jersey on behalf of various foreign institutional investors also alleging violations of federal securities laws as well as violations of state law against the Company and certain officers. Defendants are not required to respond to these complaints until after the Third Circuit issues a decision on the securities lawsuit currently on appeal.

As previously disclosed, various shareholder derivative actions filed in federal court were transferred to the Shareholder MDL and consolidated for all purposes by Judge Chesler (the “Vioxx Derivative Lawsuits”). On May 5, 2006, Judge Chesler granted defendants’ motion to dismiss and denied plaintiffs’ request for leave to amend their complaint. Plaintiffs appealed, arguing that Judge Chesler erred in denying plaintiffs’ leave to amend their complaint with materials acquired during discovery. On July 18, 2007, the United States Court of Appeals for the Third Circuit reversed the District Court’s decision on the grounds that Judge Chesler should have allowed plaintiffs to make use of the discovery material to try to establish demand futility, and remanded the case for the District Court’s consideration of whether, even with the additional materials, plaintiffs’ request to amend their complaint would still be futile. Plaintiffs filed their brief in support of their request for leave to amend their complaint in November 2007. The Court denied the motion in June 2008 and closed the case. On July 18, Plaintiff Halpert Enterprises, Inc. filed a notice of appeal.

- 16 -

Notes to Consolidated Financial Statements (unaudited) (continued)

In addition, as previously disclosed, various putative class actions filed in federal court under the Employee Retirement Income Security Act (“ERISA”) against the Company and certain current and former officers and directors (the “Vioxx ERISA Lawsuits” and, together with the Vioxx Securities Lawsuits and the Vioxx Derivative Lawsuits, the “Vioxx Shareholder Lawsuits”) have been transferred to the Shareholder MDL and consolidated for all purposes. The consolidated complaint asserts claims on behalf of certain of the Company’s current and former employees who are participants in certain of the Company’s retirement plans for breach of fiduciary duty. The lawsuits make similar allegations to the allegations contained in the Vioxx Securities Lawsuits. On July 11, 2006, Judge Chesler granted in part and denied in part defendants’ motion to dismiss the ERISA complaint. In October 2007, plaintiffs moved for certification of a class of individuals who were participants in and beneficiaries of the Company’s retirement savings plans at any time between October 1, 1998 and September 30, 2004 and whose plan accounts included investments in the Merck Common Stock Fund and/or Merck common stock. That motion is pending. On April 16, 2008, Plaintiffs filed a Motion for Leave to Supplement the Amended Complaint to add allegations relating to Vytorin and seeking to add additional defendants, including Richard T. Clark and additional members of the Board of Directors. The Court denied the motion in May 2008.

As previously disclosed, on October 29, 2004, two individual shareholders made a demand on the Company’s Board to take legal action against Mr. Raymond Gilmartin, former Chairman, President and Chief Executive Officer and other individuals for allegedly causing damage to the Company with respect to the allegedly improper marketing of Vioxx. In December 2004, the Special Committee of the Board of Directors retained the Honorable John S. Martin, Jr. of Debevoise & Plimpton LLP to conduct an independent investigation of, among other things, the allegations set forth in the demand. Judge Martin’s report was made public in September 2006. Based on the Special Committee’s recommendation made after careful consideration of the Martin report and the impact that derivative litigation would have on the Company, the Board rejected the demand. On October 11, 2007, the shareholders filed a lawsuit in state court in Atlantic County, NJ against current and former executives and directors of the Company alleging that the Board’s rejection of their demand was unreasonable and improper, and that the defendants breached various duties to the Company in allowing Vioxx to be marketed. The current and former executive and director defendants filed motions to dismiss the complaint in June 2008. Those motions are pending.

International Lawsuits
As previously disclosed, in addition to the lawsuits discussed above, the Company has been named as a defendant in litigation relating to Vioxx in various countries (collectively, the “Vioxx Foreign Lawsuits”) in Europe, as well as Canada, Brazil, Argentina, Australia, Turkey, and Israel.

On May 30, 2008, the provincial court of Queen’s Bench in Saskatchewan, Canada entered an order certifying a class of Vioxx users in Canada, except those in Quebec. The class includes individual purchasers who allege inducement to purchase by unfair marketing practices; individuals who allege Vioxx was not of acceptable quality, defective or not fit for the purpose of managing pain associated with approved indications; or ingestors who claim Vioxx caused or exacerbated a cardiovascular or gastrointestinal condition. On June 17, 2008, the Court of Appeal for Saskatchewan granted the Company leave to appeal the certification order. On July 28, 2008, the Superior court in Ontario decided to certify a class of Vioxx users in Canada, except those in Quebec and Saskatchewan. The Company intends to seek leave to appeal that decision. Earlier, in November 2006, the Superior court in Quebec authorized the institution of a class action on behalf of all individuals who, in Québec, consumed Vioxx and suffered damages arising out of its ingestion. As of June 30, 2008, the plaintiffs have not instituted an action based upon that authorization.

Additional Lawsuits
Based on media reports and other sources, the Company anticipates that additional Vioxx Product Liability Lawsuits, Vioxx Shareholder Lawsuits and Vioxx Foreign Lawsuits (collectively, the “Vioxx Lawsuits”) will be filed against it and/or certain of its current and former officers and directors in the future.

Insurance
As previously disclosed, the Company has product liability insurance for claims brought in the Vioxx Product Liability Lawsuits with stated upper limits of approximately $630 million after deductibles and co-insurance. This insurance provides coverage for legal defense costs and potential damage amounts in connection with the Vioxx Product Liability Lawsuits. Through an arbitration proceeding and negotiated settlements, the Company received an aggregate of approximately $585 million in product liability insurance proceeds relating to the Vioxx Product Liability Lawsuits, plus approximately $45 million in fees and interest payments. The Company is still negotiating with one insurer about an immaterial amount of coverage for these lawsuits. The Company has no additional insurance for the Vioxx Product Liability Lawsuits. The Company’s insurance coverage with respect to the Vioxx Lawsuits will not be adequate to cover its defense costs and losses.

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Notes to Consolidated Financial Statements (unaudited) (continued)

The Company also has Directors and Officers insurance coverage applicable to the Vioxx Securities Lawsuits and Vioxx Derivative Lawsuits with stated upper limits of approximately $190 million. The Company has Fiduciary and other insurance for the Vioxx ERISA Lawsuits with stated upper limits of approximately $275 million. As a result of the arbitration proceeding referenced above, additional insurance coverage for these claims should also be available, if needed, under upper-level excess policies that provide coverage for a variety of risks. There are disputes with the insurers about the availability of some or all of the Company’s insurance coverage for these claims and there are likely to be additional disputes. The amounts actually recovered under the policies discussed in this paragraph may be less than the stated upper limits.

Investigations
As previously disclosed, in November 2004, the Company was advised by the staff of the SEC that it was commencing an informal inquiry concerning Vioxx. On January 28, 2005, the Company announced that it received notice that the SEC issued a formal notice of investigation. Also, the Company has received subpoenas from the U.S. Department of Justice (the “DOJ”) requesting information related to the Company’s research, marketing and selling activities with respect to Vioxx in a federal health care investigation under criminal statutes. In addition, as previously disclosed, investigations are being conducted by local authorities in certain cities in Europe in order to determine whether any criminal charges should be brought concerning Vioxx. The Company is cooperating with these governmental entities in their respective investigations (the “Vioxx Investigations”). The Company cannot predict the outcome of these inquiries; however, they could result in potential civil and/or criminal dispositions.

As previously disclosed, on May 20, 2008, the Company reached civil settlements with Attorneys General from 29 states and the District of Columbia to fully resolve previously disclosed investigations under state consumer protection laws related to past activities for Vioxx. As part of the civil resolution of these investigations, Merck paid a total of $58 million to be divided among the 29 states and the District of Columbia. In April 2008, Merck announced it had taken a pre-tax charge in the first quarter of $55 million in anticipation of this settlement. The agreement also includes compliance measures that supplement policies and procedures previously established by the Company.

In addition, the Company received a subpoena in September 2006 from the State of California Attorney General seeking documents and information related to the placement of Vioxx on California’s Medi-Cal formulary. The Company is cooperating with the Attorney General in responding to the subpoena.

Reserves
As discussed above, on November 9, 2007, Merck entered into the Settlement Agreement with the law firms that comprise the executive committee of the PSC of the federal Vioxx MDL as well as representatives of plaintiffs’ counsel in the Texas, New Jersey and California state coordinated proceedings to resolve state and federal MI and IS claims filed as of that date in the United States. The Settlement Agreement, which also applies to tolled claims, was signed by the parties after several meetings with three of the four judges overseeing the coordination of more than 95% of the U.S. Vioxx Product Liability Lawsuits. The Settlement Agreement applies only to U.S. legal residents and those who allege that their MI or IS occurred in the United States. As a result of entering into the Settlement Agreement, the Company recorded a pretax charge of $4.85 billion in 2007 which represents the fixed aggregate amount to be paid to plaintiffs qualifying for payment under the Settlement Program.

The Company currently anticipates that Vioxx Product Liability Lawsuits will be tried in the future. The Company believes that it has meritorious defenses to the Vioxx Lawsuits and will vigorously defend against them. In view of the inherent difficulty of predicting the outcome of litigation, particularly where there are many claimants and the claimants seek indeterminate damages, the Company is unable to predict the outcome of these matters, and at this time cannot reasonably estimate the possible loss or range of loss with respect to the Vioxx Lawsuits not included in the Settlement Program. The Company has not established any reserves for any potential liability relating to the Vioxx Lawsuits not included in the Settlement Program or the Vioxx Investigations (other than as set forth above), including for those cases in which verdicts or judgments have been entered against the Company, and are now in post-verdict proceedings or on appeal. In each of those cases the Company believes it has strong points to raise on appeal and therefore that unfavorable outcomes in such cases are not probable. Unfavorable outcomes in the Vioxx Litigation (as

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Notes to Consolidated Financial Statements (unaudited) (continued)

defined below) could have a material adverse effect on the Company’s financial position, liquidity and results of operations.

Legal defense costs expected to be incurred in connection with a loss contingency are accrued when probable and reasonably estimable. As of December 31, 2007, the Company had a reserve of $5.372 billion which represented the aggregate amount to be paid under the Settlement Agreement and its future legal defense costs related to (i) the Vioxx Product Liability Lawsuits, (ii) the Vioxx Shareholder Lawsuits, (iii) the Vioxx Foreign Lawsuits, and (iv) the Vioxx Investigations (collectively, the “Vioxx Litigation”). During the first quarter of 2008, the Company spent approximately $79 million in the aggregate in legal defense costs related to the Vioxx Litigation. In the second quarter of 2008, the Company spent approximately $78 million in the aggregate in legal defense costs related to the Vioxx Litigation. Thus, as of June 30, 2008, the Company had a reserve of approximately $5.215 billion related to the Vioxx Litigation.

Some of the significant factors considered in the review of the reserve were as follows: the actual costs incurred by the Company; the development of the Company’s legal defense strategy and structure in light of the scope of the Vioxx Litigation, including the Settlement Agreement and the expectation that the Settlement Agreement will be consummated, but that certain lawsuits will continue to be pending; the number of cases being brought against the Company; the costs and outcomes of completed trials and the most current information regarding anticipated timing, progression, and related costs of pre-trial activities and trials in the Vioxx Product Liability Lawsuits. Events such as scheduled trials, that are expected to occur in 2009, and the inherent inability to predict the ultimate outcomes of such trials and the disposition of Vioxx Product Liability Lawsuits not participating in or not eligible for the Settlement Program, limit the Company’s ability to reasonably estimate its legal costs beyond 2009.

The Company will continue to monitor its legal defense costs and review the adequacy of the associated reserves and may determine to increase its reserves for legal defense costs at any time in the future if, based upon the factors set forth, it believes it would be appropriate to do so.

Other Product Liability Litigation
As previously disclosed, the Company is a defendant in product liability lawsuits in the United States involving Fosamax (the “Fosamax Litigation”). As of June 30, 2008, approximately 655 cases, which include approximately 1,120 plaintiff groups had been filed and were pending against Merck in either federal or state court, including three cases which seek class action certification, as well as damages and medical monitoring. In these actions, plaintiffs allege, among other things, that they have suffered osteonecrosis of the jaw, generally subsequent to invasive dental procedures such as tooth extraction or dental implants, and/or delayed healing, in association with the use of Fosamax. On August 16, 2006, the JPML ordered that the Fosamax product liability cases pending in federal courts nationwide should be transferred and consolidated into one multidistrict litigation (the “Fosamax MDL”) for coordinated pre-trial proceedings. The Fosamax MDL has been transferred to Judge John Keenan in the United States District Court for the Southern District of New York. As a result of the JPML order, approximately 550 of the cases are before Judge Keenan. Judge Keenan has issued a Case Management Order (and various amendments thereto) setting forth a schedule governing the proceedings which focuses primarily upon resolving the class action certification motions in 2007 and completing fact discovery in an initial group of 25 cases by October 1, 2008. Briefing and argument on plaintiffs’ motions for certification of medical monitoring classes were completed in 2007 and Judge Keenan issued an order denying the motions on January 3, 2008. On January 28, 2008, Judge Keenan issued a further order dismissing with prejudice all class claims asserted in the first four class action lawsuits filed against Merck that sought personal injury damages and/or medical monitoring relief on a class wide basis. Discovery is ongoing in both the Fosamax MDL litigation as well as in various state court cases. The Company intends to defend against these lawsuits.

As of December 31, 2007, the Company had a remaining reserve of approximately $27 million solely for its future legal defense costs for the Fosamax Litigation. During the first quarter of 2008, the Company spent approximately $7 million and added $40 million to its reserve. In the second quarter, the Company spent approximately $10 million. Consequently, as of June 30, 2008, the Company had a reserve of approximately $50 million. Some of the significant factors considered in the establishment and ongoing assessment of the reserve for the Fosamax Litigation legal defense costs were as follows: the actual costs incurred by the Company thus far; the development of the Company’s legal defense strategy and structure in light of the creation of the Fosamax MDL; the number of cases being brought against the Company; and the anticipated timing, progression, and related costs of pre-trial activities in the Fosamax Litigation. The Company will continue to monitor its legal defense costs and review the adequacy of the associated reserves. Due to the uncertain nature of litigation, the Company is unable to estimate its costs beyond 2009. The Company has not established any reserves for any potential liability relating to the Fosamax Litigation. Unfavorable

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Notes to Consolidated Financial Statements (unaudited) (continued)

outcomes in the Fosamax Litigation could have a material adverse effect on the Company’s financial position, liquidity and results of operations.

Vytorin/Zetia Litigation
As previously disclosed, since December 2007, the Company and its joint-venture partner, Schering-Plough, have received several letters addressed to both companies from the House Committee on Energy and Commerce, its Subcommittee on Oversight and Investigations, and the Ranking Minority Member of the Senate Finance Committee, collectively seeking a combination of witness interviews, documents and information on a variety of issues related to the ENHANCE clinical trial, the sale and promotion of Vytorin, as well as sales of stock by corporate officers. On January 25, 2008, the companies and the MSP Partnership each received two subpoenas from the New York State Attorney General’s Office seeking similar information and documents. Merck and Schering-Plough have also each received a letter from the Office of the Connecticut Attorney General dated February 1, 2008 requesting documents related to the marketing and sale of Vytorin and Zetia and the timing of disclosures of the results of ENHANCE. Merck and Schering-Plough also received subpoenas dated April 4, 2008, from the Office of the New Jersey Attorney General seeking documents related to the ENHANCE trial and the sale and marketing of Vytorin. The Company is cooperating with these investigations and working with Schering-Plough to respond to the inquiries. In addition, since mid-January 2008, the Company has become aware of or been served with approximately 140 civil class action lawsuits alleging common law and state consumer fraud claims in connection with the MSP Partnership’s sale and promotion of Vytorin and Zetia. Certain of those lawsuits allege personal injuries and/or seek medical monitoring.

Also, as previously disclosed, on April 3, 2008, a Merck shareholder filed a putative class action lawsuit in federal court in the Eastern District of Pennsylvania alleging that Merck and its Chairman, President and Chief Executive Officer, Richard T. Clark, violated the federal securities laws.  Specifically, the complaint alleges that Merck delayed releasing unfavorable results of a clinical study regarding the efficacy of Vytorin and that Merck made false and misleading statements about expected earnings, knowing that once the results of the Vytorin study were released, sales of Vytorin would decline and Merck’s earnings would suffer. On April 22, 2008, a member of a Merck ERISA plan filed a putative class action lawsuit against the Company and certain of its officers and directors alleging they breached their fiduciary duties under ERISA.  Plaintiff alleges that the ERISA plan’s investment in Company stock was imprudent because the Company’s earnings are dependent on the commercial success of its cholesterol drug Vytorin and that defendants knew or should have known that the results of a scientific study would cause the medical community to turn to less expensive drugs for cholesterol management.  The Company intends to defend the lawsuits referred to in this section vigorously. Unfavorable outcomes resulting from the government investigations or the civil litigation could have a material adverse effect on the Company’s financial position, liquidity and results of operations.

Patent Litigation
From time to time, generic manufacturers of pharmaceutical products file Abbreviated New Drug Applications (“ANDA’s”) with the FDA seeking to market generic forms of the Company’s products prior to the expiration of relevant patents owned by the Company. Generic pharmaceutical manufacturers have submitted ANDA’s to the FDA seeking to market in the United States a generic form of Propecia, Prilosec, Nexium, Singulair, Trusopt, Cosopt and Primaxin prior to the expiration of the Company’s (and AstraZeneca’s in the case of Prilosec and Nexium) patents concerning these products. In addition, an ANDA has been submitted to the FDA seeking to market in the United States a generic form of Zetia prior to the expiration of Schering-Plough’s patent concerning that product. The generic companies’ ANDA’s generally include allegations of non-infringement, invalidity and unenforceability of the patents. Generic manufacturers have received FDA approval to market a generic form of Prilosec. The Company has filed patent infringement suits in federal court against companies filing ANDA’s for generic finasteride (Propecia), dorzolamide (Trusopt), montelukast (Singulair), dorzolamide/timolol (Cosopt), imipenem/cilastatin (Primaxin) and AstraZeneca and the Company have filed patent infringement suits in federal court against companies filing ANDA’s for generic omeprazole (Prilosec) and esomeprazole (Nexium). Also, the Company and Schering-Plough have filed a patent infringement suit in federal court against companies filing ANDA’s for generic ezetimibe (Zetia). Similar patent challenges exist in certain foreign jurisdictions. The Company intends to vigorously defend its patents, which it believes are valid, against infringement by generic companies attempting to market products prior to the expiration dates of such patents. As with any litigation, there can be no assurance of the outcomes, which, if adverse, could result in significantly shortened periods of exclusivity for these products.

The Company and AstraZeneca received notice in October 2005 that Ranbaxy Laboratories Ltd. (“Ranbaxy”) had filed an ANDA for esomeprazole. The ANDA contains Paragraph IV challenges to patents on Nexium. On November 21, 2005, the Company and AstraZeneca sued Ranbaxy in the United States District Court in New Jersey. Accordingly, FDA approval of Ranbaxy’s ANDA was stayed for 30 months until April 2008 or until an adverse court decision, if any, whichever may occur earlier. As previously disclosed, AstraZeneca, Merck and Ranbaxy have entered into a

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Notes to Consolidated Financial Statements (unaudited) (continued)

	settlement agreement which provides that Ranbaxy will not bring its generic esomeprazole product to market in the United States until May 27, 2014. The Company and AstraZeneca each received a Civil Investigative Demand (“CID”) from the United States Federal Trade Commission (the “FTC”) in July 2008 regarding the settlement agreement with Ranbaxy. The Company is cooperating with the FTC in responding to this CID.
	The Company and AstraZeneca received notice in January 2006 that IVAX Pharmaceuticals, Inc., subsequently acquired by Teva Pharmaceuticals (“Teva”), had filed an ANDA for esomeprazole. The ANDA contains Paragraph IV challenges to patents on Nexium. On March 8, 2006, the Company and AstraZeneca sued Teva in the United States District Court in New Jersey. Accordingly, FDA approval of Teva’s ANDA is stayed for 30 months until September 2008 or until an adverse court decision, if any, whichever may occur earlier. In January 2008, the Company and AstraZeneca sued Dr. Reddy’s Laboratories (“Dr. Reddy’s”) in the District Court in New Jersey based on Dr. Reddy’s filing of an ANDA for esomeprazole. Accordingly, FDA approval of Dr. Reddy’s ANDA is stayed for 30 months until July 2010 or until an adverse court decision, if any, whichever may occur earlier.
	In April 2007, Merck sued Ranbaxy regarding an ANDA Ranbaxy filed seeking approval for a generic version of Primaxin (imipenem/cilastatin). The lawsuit asserted infringement of Merck’s patent which is due to expire on September 15, 2009. In July 2008, Merck and Ranbaxy entered into an agreement pursuant to which Ranbaxy can begin to market in the United States a generic form of imipenem/cilastatin on September 1, 2009.
	Other Litigation There are various other legal proceedings, principally product liability and intellectual property suits involving the Company, which are pending. While it is not feasible to predict the outcome of such proceedings or the proceedings discussed in this Note, in the opinion of the Company, all such proceedings are either adequately covered by insurance or, if not so covered, should not ultimately result in any liability that would have a material adverse effect on the financial position, liquidity or results of operations of the Company, other than proceedings for which a separate assessment is provided in this Note.
8.	Share-Based Compensation
	The Company has share-based compensation plans under which employees, non-employee directors and employees of certain of the Company’s equity method investees may be granted options to purchase shares of Company common stock at the fair market value at the time of grant. In addition to stock options, the Company grants performance share units (“PSUs”) and restricted stock units (“RSUs”) to certain management-level employees. The Company recognizes the fair value of share-based compensation in net income on a straight-line basis over the requisite service period.
	The following table provides amounts of share-based compensation cost recorded in the Consolidated Statement of Income:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
($ in millions)	2008			2007			2008			2007
Pretax share-based compensation expense	$	107.7		$	81.2		$	198.7		$	178.2
Income tax benefits		(33.4	)		(25.9	)		(62.1	)		(56.3	)
Total share-based compensation expense, net of tax	$	74.3		$	55.3		$	136.6		$	121.9

During the first six months of 2008 and 2007, the Company granted 33.4 million options and 32.0 million options, respectively, related to its annual grant and other grants. The weighted average fair value of options granted for the first six months of 2008 and 2007 was $9.99 and $9.12 per option, respectively, and was determined using the following assumptions:

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Notes to Consolidated Financial Statements (unaudited) (continued)

	Six Months Ended
	June 30,
	2008			2007
Expected dividend yield		3.4	%		3.4	%
Risk-free interest rate		2.7	%		4.4	%
Expected volatility		30.8	%		24.4	%
Expected life (years)		6.1			5.7

	At June 30, 2008, there was $613.8 million of total pretax unrecognized compensation expense related to nonvested stock options, RSU and PSU awards which will be recognized over a weighted average period of 2.3 years. For segment reporting, share-based compensation costs are unallocated expenses.
9.	Pension and Other Postretirement Benefit Plans
	The Company has defined benefit pension plans covering eligible employees in the United States and in certain of its international subsidiaries. The net cost of such plans consisted of the following components:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
($ in millions)	2008			2007			2008			2007
Service cost	$	80.6		$	92.9		$	173.3		$	185.0
Interest cost		106.1			92.6			213.4			184.6
Expected return on plan assets		(136.9	)		(122.2	)		(284.9	)		(243.6	)
Net amortization		20.2			34.3			42.8			68.5
Termination benefits		13.0			8.9			18.5			16.0
Curtailments		3.2			-			3.2			-
	$	86.2		$	106.5		$	166.3		$	210.5

The Company provides medical, dental and life insurance benefits, principally to its eligible U.S. retirees and similar benefits to their dependents, through its other postretirement benefit plans. The net cost of such plans consisted of the following components:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
($ in millions)	2008			2007			2008			2007
Service cost	$	15.3		$	21.2		$	37.5		$	42.3
Interest cost		25.5			26.0			56.3			51.9
Expected return on plan assets		(29.9	)		(30.3	)		(64.5	)		(60.6	)
Net amortization		(7.6	)		(2.5	)		(11.4	)		(5.0	)
Termination benefits		3.0			2.6			4.2			3.5
Curtailments		-			(3.9	)		(0.6	)		(3.9	)
	$	6.3		$	13.1		$	21.5		$	28.2

In connection with restructuring actions (see Note 2), the Company recorded termination charges for the three and six months ended June 30, 2008 and 2007 on its pension and other postretirement benefit plans related to expanded eligibility for certain employees exiting the Company. Also, in connection with these restructuring actions, the Company recorded net curtailment losses on its pension plans for the three and six months ended June 30, 2008 and curtailment gains on its other postretirement benefit plans for the six months ended June 30, 2008 and the three and six months ended June 30, 2007.

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Notes to Consolidated Financial Statements (unaudited) (continued)

10.	Other (Income) Expense, Net
	Other (income) expense, net, consisted of:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
($ in millions)	2008			2007			2008			2007
Interest income	$	(143.4	)	$	(172.3	)	$	(313.0	)	$	(354.0	)
Interest expense		50.6			103.3			123.2			205.7
Exchange losses (gains)		8.7			(12.0	)		21.3			(31.6	)
Minority interests		30.9			30.8			62.8			61.4
Other, net		(28.7	)		(33.8	)		(2,153.5	)		(221.7	)
	$	(81.9	)	$	(84.0	)	$	(2,259.2	)	$	(340.2	)

	Other, net for the six months ended June 30, 2008 primarily reflects an aggregate gain from AZLP of $2.2 billion (see Note 5) and a gain of $249 million related to the sale of the Company’s remaining worldwide rights to Aggrastat, partially offset by a $300 million expense for a contribution to the Merck Company Foundation and a $58 million charge related to the resolution of an investigation into whether the Company violated consumer protection laws with respect to the sales and marketing of Vioxx (see Note 7). Other, net for the first six months of 2007 primarily reflects the favorable impact of gains on sales of assets and product divestitures. Interest paid for the six months ended June 30, 2008 and 2007 was $116.2 million and $223.6 million, respectively.
11.	Taxes on Income
	The effective tax rate of 14.1% for the second quarter of 2008 reflects a benefit of approximately 9 percentage points primarily relating to tax settlements that resulted in a reduction of the Company’s liability for unrecognized tax benefits of approximately $200 million. The effective tax rate of 21.6% for the first six months of 2008 reflects a net favorable impact of approximately 1 percentage point which includes favorable impacts relating to the second quarter tax settlements and the first quarter realization of foreign tax credits, largely offset by an unfavorable impact resulting from the AZLP gain being fully taxable in the United States at a combined federal and state tax rate of approximately 36.3%. In the first quarter of 2008, the Company decided to repatriate certain prior years’ foreign earnings which will result in a utilization of foreign tax credits. These foreign tax credits arose as a result of tax payments made outside of the United States in prior years that became realizable in the first quarter based on a change in the Company’s repatriation plans. The effective tax rates of 24.9% for the second quarter of 2007 and 24.6% for the first half of 2007 reflect the impact of costs associated with the global restructuring program.
	As previously disclosed, Merck’s Canadian tax returns for the years 1998 through 2004 are being examined by the Canada Revenue Agency (“CRA”). In October 2006, the CRA issued the Company a notice of reassessment containing adjustments related to certain intercompany pricing matters, which result in additional Canadian and provincial tax due of approximately $1.6 billion (U.S. dollars) plus interest of approximately $990 million (U.S. dollars). In addition, in July 2007, the CRA proposed additional adjustments for 1999 relating to another intercompany pricing matter. The adjustments would increase Canadian tax due by approximately $22 million (U.S. dollars) plus $22 million (U.S. dollars) of interest. It is possible that the CRA will propose similar adjustments for later years. The Company disagrees with the positions taken by the CRA and believes they are without merit. The Company intends to contest the assessments through the CRA appeals process and the courts if necessary. In connection with the appeals process, during 2007, the Company pledged collateral to two financial institutions, one of which provided a guarantee to the CRA and the other to the Quebec Ministry of Revenue representing a portion of the tax and interest assessed. The collateral is included in Other Assets in the Consolidated Balance Sheet and totaled approximately $1.3 billion at June 30, 2008. The Company has previously established reserves for these matters. While the resolution of these matters may result in liabilities higher or lower than the reserves, management believes that resolution of these matters will not have a material effect on the Company’s financial position or liquidity. However, an unfavorable resolution could have a material adverse effect on the Company’s results of operations or cash flows in the quarter in which an adjustment is recorded or tax is due.
	In July 2007, the CRA notified the Company that it is in the process of proposing a penalty of $160 million (U.S. dollars) in connection with the 2006 notice. The penalty is for failing to provide information on a timely basis. The Company vigorously disagrees with the penalty and feels it is inapplicable and that appropriate information was provided on a timely basis. The Company is pursuing all appropriate remedies to avoid having the penalty assessed

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Notes to Consolidated Financial Statements (unaudited) (continued)

	and was notified in early August 2007 that the CRA is holding the imposition of a penalty in abeyance pending a review of the Company’s submissions as to the inapplicability of a penalty.
12.	Earnings Per Share
	The weighted average common shares used in the computations of basic earnings per common share and earnings per common share assuming dilution are as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(shares in millions)	2008		2007		2008		2007
Average common shares outstanding		2,144.5		2,167.0		2,153.2		2,166.9
Common shares issuable(1)		9.8		22.2		12.6		16.5
Average common shares outstanding assuming dilution		2,154.3		2,189.2		2,165.8		2,183.4

⁽¹⁾ Issuable primarily under share-based compensation plans.

	For the three months ended June 30, 2008 and 2007, 205.5 million and 151.5 million, respectively, and for the six months ended June 30, 2008 and 2007, 205.3 million and 199.1 million, respectively, of common shares issuable under the Company’s share-based compensation plans were excluded from the computation of earnings per common share assuming dilution because the effect would have been antidilutive.
13.	Comprehensive Income
	Comprehensive income was $1,597.1 million and $1,656.4 million for the three months ended June 30, 2008 and 2007, respectively, and was $4,961.3 million and $3,432.4 million for the six months ended June 30, 2008 and 2007, respectively.
14.	Segment Reporting
	The Company’s operations are principally managed on a products basis and are comprised of two reportable segments: the Pharmaceutical segment and the Vaccines and Infectious Diseases segment. Segment composition reflects certain managerial changes that were implemented in early 2008. In addition, in the first quarter of 2008, the Company revised the calculation of segment profits to include a greater allocation of costs to the segments. Segment disclosures for 2007 have been recast on a comparable basis with 2008.
	The Pharmaceutical segment includes human health pharmaceutical products marketed either directly or through joint ventures. These products consist of therapeutic and preventive agents, sold by prescription, for the treatment of human disorders. Merck sells these human health pharmaceutical products primarily to drug wholesalers and retailers, hospitals, government agencies and managed health care providers such as health maintenance organizations, pharmacy benefit managers and other institutions. The Vaccines and Infectious Diseases segment includes human health vaccine and infectious disease products marketed either directly or through joint ventures. Vaccine products consist of preventive pediatric, adolescent and adult vaccines, primarily administered at physician offices. Merck sells these human health vaccines primarily to physicians, wholesalers, physician distributors and government entities. A large component of pediatric and adolescent vaccines is sold to the U.S. Centers for Disease Control and Prevention Vaccines for Children program, which is funded by the U.S. government. Infectious disease products consist of therapeutic agents for the treatment of infection sold primarily to drug wholesalers, retailers, hospitals and government agencies. The Vaccines and Infectious Diseases segment includes the majority of the Company’s aggregate vaccine and infectious disease product sales, but excludes sales of these products by non-U.S. subsidiaries which are included in the Pharmaceutical segment.
	Other segments include other non-reportable human and animal health segments.

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Notes to Consolidated Financial Statements (unaudited) (continued)

Revenues and profits for these segments are as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
($ in millions)	2008		2007		2008		2007
Segment revenues:
Pharmaceutical segment	$	5,006.1	$	4,999.8	$	9,817.5	$	9,773.9
Vaccines and Infectious Diseases segment		1,026.6		1,045.6		2,012.2		1,977.1
Other segment revenues		19.1		44.0		44.1		80.7
	$	6,051.8	$	6,089.4	$	11,873.8	$	11,831.7
Segment profits:(1)
Pharmaceutical segment	$	3,112.6	$	3,431.0	$	6,231.9	$	6,672.5
Vaccines and Infectious Diseases segment		645.6		614.8		1,270.2		1,125.3
Other segment profits		119.2		128.4		265.2		282.5
	$	3,877.4	$	4,174.2	$	7,767.3	$	8,080.3

⁽¹⁾ Includes the majority of Equity income from affiliates.

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Notes to Consolidated Financial Statements (unaudited) (continued)

     Sales ⁽¹⁾ of the Company’s products were as follows:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
($ in millions)	2008			2007			2008			2007
Pharmaceutical:
Singulair	$	1,081.6		$	1,091.8		$	2,185.3		$	2,093.8
Cozaar/Hyzaar		941.1			847.2			1,788.0			1,645.2
Fosamax		411.2			785.6			881.0			1,527.8
Januvia		333.8			143.6			605.9			230.7
Cosopt/Trusopt		217.4			192.0			418.8			378.1
Zocor		176.8			178.0			355.9			436.4
Maxalt		130.3			109.0			251.9			216.4
Propecia		107.6			98.3			212.6			193.6
Arcoxia		103.9			88.7			197.3			169.1
Vasotec/Vaseretic		93.7			127.5			189.4			249.1
Proscar		86.0			113.1			171.0			238.4
Janumet		72.4			24.3			130.8			24.3
Emend		65.4			47.1			125.0			94.7
Other pharmaceutical (2)		625.4			711.2			1,215.2			1,405.0
Vaccine and infectious disease product sales included in the Pharmaceutical segment (3)		559.5			442.4			1,089.4			871.3
Pharmaceutical segment revenues		5,006.1			4,999.8			9,817.5			9,773.9
Vaccines(4) and Infectious Diseases:
Gardasil		325.7			357.5			716.1			723.0
RotaTeq		177.8			119.1			367.9			204.1
Zostavax		66.1			46.8			139.6			89.5
ProQuad/M-M-R II/Varivax		317.8			343.5			543.5			589.6
Hepatitis vaccines		37.9			79.6			71.8			151.1
Other vaccines		69.5			95.9			142.1			188.0
Primaxin		201.3			185.7			404.0			382.8
Cancidas		160.7			134.0			309.5			268.0
Crixivan/Stocrin		79.0			75.3			154.3			157.6
Invanz		70.5			46.2			126.0			87.8
Isentress		77.2			4.1			123.7			6.5
Other infectious disease		2.6			0.3			3.1			0.4
Vaccine and infectious disease product sales included in the Pharmaceutical segment (3)		(559.5	)		(442.4	)		(1,089.4	)		(871.3	)
Vaccines and Infectious Diseases segment revenues		1,026.6			1,045.6			2,012.2			1,977.1
Other segment (5)		19.1			44.0			44.1			80.7
Total segment revenues		6,051.8			6,089.4			11,873.8			11,831.7
Other (6)		-			22.0			0.1			49.0
	$	6,051.8		$	6,111.4		$	11,873.9		$	11,880.7

(1)	Presented net of discounts and returns.
(2)	Other pharmaceutical primarily includes sales of other human pharmaceutical products and revenue from the Company’s relationship with AstraZeneca LP primarily relating to sales of Nexium, as well as Prilosec. Revenue from AstraZeneca LP was $455.8 million and $524.4 million for the second quarter of 2008 and 2007, respectively, and was $860.5 million and $1,021.9 million for the first six months of 2008 and 2007, respectively.
(3)	Sales of vaccine and infectious disease products by non-U.S. subsidiaries are included in the Pharmaceutical segment.
(4)	These amounts do not reflect sales of vaccines sold in most major European markets through the Company’s joint venture, Sanofi Pasteur MSD, the results of which are reflected in Equity income from affiliates. These amounts do, however, reflect supply sales to Sanofi Pasteur MSD.
(5)	Includes other non-reportable human and animal health segments.
(6)	Other revenues are primarily comprised of miscellaneous corporate revenues, sales related to divested products or businesses and other supply sales not included in segment results.

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Notes to Consolidated Financial Statements (unaudited) (continued)

     A reconciliation of segment profits to Income Before Taxes is as follows:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
($ in millions)	2008			2007			2008			2007
Segment profits	$	3,877.4		$	4,174.2		$	7,767.3		$	8,080.3
Other profits		(15.8	)		29.8			(27.9	)		30.0
Adjustments		100.9			89.3			199.7			172.2
Unallocated:
Interest income		143.4			172.3			313.0			354.0
Interest expense		(50.6	)		(103.3	)		(123.2	)		(205.7	)
Equity income from affiliates		(16.3	)		85.0			(1.2	)		132.7
Depreciation and amortization		(349.3	)		(464.1	)		(712.4	)		(930.5	)
Research and development		(1,169.3	)		(1,030.5	)		(2,247.6	)		(2,060.6	)
Gain on distribution from AstraZeneca LP		-			-			2,222.7			-
Other expenses, net		(461.9	)		(720.5	)		(921.0	)		(1,085.8	)
	$	2,058.5		$	2,232.2		$	6,469.4		$	4,486.6

Segment profits are comprised of segment revenues less certain elements of materials and production costs and operating expenses, including the majority of equity income from affiliates and components of depreciation and amortization expenses. For internal management reporting presented to the chief operating decision maker, the Company does not allocate the vast majority of research and development expenses, general and administrative expenses, depreciation related to fixed assets utilized by nonmanufacturing divisions, as well as the cost of financing these activities. Separate divisions maintain responsibility for monitoring and managing these costs and, therefore, they are not included in segment profits.

Other profits are primarily comprised of miscellaneous corporate profits as well as operating profits related to divested products or businesses and other supply sales. Adjustments represent the elimination of the effect of double counting certain items of income and expense. Equity income 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, includes expenses from corporate and manufacturing cost centers and other miscellaneous income (expense), net.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Operating Results
Sales
Worldwide sales were $6.1 billion for the second quarter of 2008, a decline of 1% compared with the second quarter of 2007, primarily attributable to a 4% unfavorable effect from volume and a 1% unfavorable effect from price changes, partially offset by a less than 5% favorable effect from foreign exchange. The revenue decline in the second quarter largely reflects lower sales of Fosamax for the treatment and prevention of osteoporosis. Fosamax and Fosamax Plus D lost market exclusivity in the United States in February 2008 and April 2008, respectively. Also contributing to the decline were lower revenues from the Company’s relationship with AstraZeneca LP (“AZLP”) and lower sales of vaccines, including hepatitis vaccines, other viral vaccines and Gardasil, a vaccine to help prevent cervical cancer, precancerous or dysplastic lesions, and genital warts caused by human papillomavirus (“HPV”) types 6, 11, 16 and 18. These declines were partially offset by higher sales of Januvia and Janumet for the treatment of type 2 diabetes, Cozaar/Hyzaar* for hypertension and/or heart failure and Isentress for the treatment of HIV infection.

Worldwide sales were $11.9 billion for the first six months of 2008, comparable with the first six months of 2007, primarily attributable to a 3% unfavorable effect from volume and a 2% unfavorable effect from price changes, offset by a 4% favorable effect from foreign exchange. Sales for the first six months of 2008 reflect lower sales of Fosamax, lower revenues from the Company’s relationship with AZLP and lower sales of Zocor, the Company’s statin for modifying cholesterol which lost U.S. market exclusivity in 2006. Partially offsetting these declines were higher sales of Januvia and Janumet, Cozaar/Hyzaar, Isentress and Singulair, a medicine indicated for the chronic treatment of asthma and the relief of symptoms of allergic rhinitis. Also favorably affecting year-to-date revenues was growth of the Company’s vaccines, including RotaTeq, a vaccine to help protect against rotavirus gastroenteritis in infants and children.

* Cozaar and Hyzaar are registered trademarks of E.I. duPont de Nemours & Company, Wilmington, Delaware.

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Sales of the Company’s products were as follows:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
($ in millions)	2008			2007			2008			2007
Pharmaceutical:
Singulair	$	1,081.6		$	1,091.8		$	2,185.3		$	2,093.8
Cozaar/Hyzaar		941.1			847.2			1,788.0			1,645.2
Fosamax		411.2			785.6			881.0			1,527.8
Januvia		333.8			143.6			605.9			230.7
Cosopt/Trusopt		217.4			192.0			418.8			378.1
Zocor		176.8			178.0			355.9			436.4
Maxalt		130.3			109.0			251.9			216.4
Propecia		107.6			98.3			212.6			193.6
Arcoxia		103.9			88.7			197.3			169.1
Vasotec/Vaseretic		93.7			127.5			189.4			249.1
Proscar		86.0			113.1			171.0			238.4
Janumet		72.4			24.3			130.8			24.3
Emend		65.4			47.1			125.0			94.7
Other pharmaceutical (1)		625.4			711.2			1,215.2			1,405.0
Vaccine and infectious disease product sales included in the Pharmaceutical segment (2)		559.5			442.4			1,089.4			871.3
Pharmaceutical segment revenues		5,006.1			4,999.8			9,817.5			9,773.9
Vaccines(3) and Infectious Diseases:
Gardasil		325.7			357.5			716.1			723.0
RotaTeq		177.8			119.1			367.9			204.1
Zostavax		66.1			46.8			139.6			89.5
ProQuad/M-M-R II/Varivax		317.8			343.5			543.5			589.6
Hepatitis vaccines		37.9			79.6			71.8			151.1
Other vaccines		69.5			95.9			142.1			188.0
Primaxin		201.3			185.7			404.0			382.8
Cancidas		160.7			134.0			309.5			268.0
Crixivan/Stocrin		79.0			75.3			154.3			157.6
Invanz		70.5			46.2			126.0			87.8
Isentress		77.2			4.1			123.7			6.5
Other infectious disease		2.6			0.3			3.1			0.4
Vaccine and infectious disease product sales included in the Pharmaceutical segment (2)		(559.5	)		(442.4	)		(1,089.4	)		(871.3	)
Vaccines and Infectious Diseases segment revenues		1,026.6			1,045.6			2,012.2			1,977.1
Other segment (4)		19.1			44.0			44.1			80.7
Total segment revenues		6,051.8			6,089.4			11,873.8			11,831.7
Other (5)		-			22.0			0.1			49.0
	$	6,051.8		$	6,111.4		$	11,873.9		$	11,880.7

(1)	Other pharmaceutical primarily includes sales of other human pharmaceutical products and revenue from the Company’s relationship with AZLP primarily relating to sales of Nexium, as well as Prilosec. Revenue from AZLP was $455.8 million and $524.4 million for the second quarter of 2008 and 2007, respectively, and was $860.5 million and $1,021.9 million for the first six months of 2008 and 2007, respectively.
(2)	Sales of vaccine and infectious disease products by non-U.S. subsidiaries are included in the Pharmaceutical segment.
(3)	These amounts do not reflect sales of vaccines sold in most major European markets through the Company’s joint venture, Sanofi Pasteur MSD, the results of which are reflected in Equity income from affiliates. These amounts do, however, reflect supply sales to Sanofi Pasteur MSD.
(4)	Includes other non-reportable human and animal health segments.
(5)	Other revenues are primarily comprised of miscellaneous corporate revenues, sales related to divested products or businesses and other supply sales not included in segment results.

Sales by product are presented net of discounts and returns. The provision for discounts includes indirect customer discounts that occur when a contracted customer purchases directly through an intermediary wholesale purchaser, known

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as chargebacks, as well as indirectly in the form of rebates owed based upon definitive contractual agreements or legal requirements with private sector and public sector (Medicaid and Medicare Part D) benefit providers, after the final dispensing of the product by a pharmacy to a benefit plan participant. These discounts, in the aggregate, reduced revenues by $533.0 million and $525.0 million for the three months ended June 30, 2008 and 2007, respectively, and by $1,052.0 million and $1,043.7 million for the six months ended June 30, 2008 and 2007, respectively. Inventory levels at key wholesalers for each of the Company’s major pharmaceutical products are generally less than one month.

Pharmaceutical Segment Revenues
Sales of the Pharmaceutical segment were $5.01 billion in the second quarter of 2008 compared with $5.0 billion for the second quarter of 2007. For the first six months of 2008, sales of the Pharmaceutical segment were $9.82 billion compared with $9.77 billion for the comparable period of 2007. These results reflect growth of Januvia, Janumet, Cozaar/Hyzaar and Isentress, offset by declines in Fosamax and Nexium supply sales and, for the year-to-date period, lower sales of Zocor.

Worldwide sales for Singulair were $1.08 billion for the second quarter of 2008, representing a decline of 1% over the second quarter of 2007. Sales performance in the second quarter reflects lower sales in the United States reflecting the switch of a competing allergic rhinitis product to over-the-counter status in early 2008, the timing and public reaction to the U.S. Food and Drug Administration (“FDA”) early communication regarding a limited number of post-marketing adverse event reports which created uncertainty in the marketplace, and a shorter and milder spring allergy season. Sales for the first six months of 2008 reached $2.19 billion, a 4% increase over the comparable prior year period. Sales growth in the first six months of 2008 reflects the continued demand for asthma and seasonal and perennial allergic rhinitis medications. Singulair continues to be the number one prescribed branded product in the U.S. respiratory market.

Global sales of Cozaar and Hyzaar were $941.1 million for the second quarter of 2008, an increase of 11% compared with the second quarter of 2007. Sales for the first six months of 2008 were $1.79 billion, an increase of 9% compared with the first six months of 2007. The increase in both periods was driven in part by the positive effect of foreign exchange. Cozaar and Hyzaar are among the leading medicines in the growing angiotensin receptor blocker class.

Global sales for Fosamax and Fosamax Plus D (marketed as Fosavance throughout the European Union (“EU”) and as Fosamac in Japan) were $411.2 million for the second quarter of 2008 and were $881.0 million for the first six months of 2008, representing declines of 48% and 42%, respectively, over the comparable prior year periods of 2007. Since most formulations of these medicines have lost U.S. marketing exclusivity, the Company is experiencing a significant decline in sales in the United States within the Fosamax franchise and the Company expects such declines to continue.

Global sales of Januvia, the first dipeptidyl peptidase-4 (“DPP-4”) inhibitor approved in the United States for use in the treatment of type 2 diabetes, were $333.8 million in the second quarter of 2008 compared with $143.6 million for the second quarter of 2007. Sales for the first six months of 2008 were $605.9 million compared with $230.7 for the first six months of 2007. Januvia was approved by the FDA in October 2006 and by the European Commission (“EC”) in March 2007. DPP-4 inhibitors represent a class of prescription medications that improve blood sugar control in patients with type 2 diabetes by enhancing a natural body system called the incretin system, which helps to regulate glucose by affecting the beta cells and alpha cells in the pancreas.

In June 2008, new data presented at the American Diabetes Association (“ADA”) 68^th Annual Scientific Sessions showed initial combination therapy with Januvia and metformin substantially improved markers of beta cell function and significantly reduced blood sugar levels as measured by A1C (a measure of a person’s average blood glucose over a two-month to three-month period) at one year and two years. Januvia and metformin act in different ways to increase blood levels of active GLP-1 (glucagon-like peptide-1), a hormone that, when blood sugar is higher than normal, enhances the production and secretion of insulin (insulin lowers blood sugar) from beta cells in the pancreas.

Also in June 2008, a new analysis presented at the ADA 68^th Annual Scientific Sessions showed treatment with Januvia was associated with a 93% lower risk of having a confirmed symptomatic hypoglycemic event on a given day compared to treatment with glipizide, a sulfonylurea. This 52-week intent to treat analysis was based on 37 events in the Januvia group and 492 events in the glipizide group. Both agents were added to ongoing metformin therapy in patients with type 2 diabetes and were associated with similar reductions in A1C. Hypoglycemia is a common side effect of some oral diabetes medications. As is typical with other anti-hyperglycemic agents used in combination with a sulfonylurea, when Januvia is used in combination with a sulfonylurea, a class of medications known to cause hypoglycemia, the incidence of hypoglycemia was increased over that of placebo. Therefore, a lower dose of sulfonylurea may be required to reduce the risk of hypoglycemia. Through DPP-4 inhibition, Januvia works only when blood sugar is elevated to address diminished insulin due to beta-cell dysfunction and uncontrolled production of glucose by the liver due to alpha-cell and beta-cell dysfunction. Glipizide is a sulfonylurea that lowers blood sugar by stimulating the pancreatic beta cells to release insulin

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regardless of glucose levels. Hypoglycemia, or low blood sugar, occurs when the level of glucose in the blood drops too low for the body’s needs. Symptoms may include shakiness, dizziness, sweating, hunger, headache, pale skin color, sudden moodiness or behavior changes, clumsy or jerky movements, seizure, confusion and unconsciousness.

Global sales of Janumet, Merck’s oral antihyperglycemic agent that combines sitagliptin (Merck’s DPP-4 inhibitor, Januvia) with metformin in a single tablet to target all three key defects of type 2 diabetes, were $72.4 million for the second quarter of 2008 compared with $24.3 million for the second quarter of 2007. Sales for the first six months of 2008 were $130.8 million. Janumet, launched in the United States in April 2007, was approved, as an adjunct to diet and exercise, to improve blood sugar control in adult patients with type 2 diabetes who are not adequately controlled on metformin or sitagliptin alone, or in patients already being treated with the combination of sitagliptin and metformin. In February 2008, Merck received FDA approval to market Janumet as an initial treatment for type 2 diabetes. In July 2008, Janumet was approved for marketing in the EU, Iceland and Norway.

Worldwide sales of Zocor, Merck’s statin for modifying cholesterol, were down 1% in the second quarter of 2008 compared with the second quarter of 2007 and declined 18% for the first six months of 2008 over the corresponding period of 2007 reflecting the continuing impact of the loss of U.S. market exclusivity in June 2006.

Other Pharmaceutical segment products experiencing growth in the second quarter and first half of 2008 compared with the same periods of 2007 include Maxalt to treat migraine pain, Cosopt to treat elevated intraocular pressure in patients with open-angle glaucoma or ocular hypertension, Emend for prevention of acute and delayed nausea and vomiting associated with moderately and highly emetogenic cancer chemotherapy, as well as for the treatment of post-operative nausea and vomiting, Arcoxia for the treatment of arthritis and pain, and Propecia for male pattern hair loss.

In June 2008, the Company announced that the Committee for Medicinal Products for Human Use (“CHMP”) of the European Medicines Agency completed the review of Arcoxia for the treatment of rheumatoid arthritis and ankylosing spondylitis and concluded that the benefits outweigh the risks for the treatment of these conditions.  The CHMP recommended extension of the indications for Arcoxia to include ankylosing spondylitis at 90mg once daily and maintaining the indication for rheumatoid arthritis at 90mg once daily.  In addition, the CHMP recommended strengthening the existing contraindication for patients with uncontrolled hypertension and the warnings regarding treatment and monitoring of patients with high blood pressure.  

During the first quarter of 2008, Merck divested its remaining ownership of Aggrastat in foreign markets to Iroko Pharmaceuticals.

Also during the first quarter of 2008, the Company and AZLP entered into an agreement with Ranbaxy Laboratories Ltd. (“Ranbaxy”) to settle patent litigation with respect to esomeprazole (Nexium) which provides that Ranbaxy will not bring its generic esomeprazole product to market in the United States until May 27, 2014.

Vaccines and Infectious Diseases Segment Revenues
Sales of the Vaccines and Infectious Diseases segment declined to $1.03 billion in the second quarter of 2008 from $1.05 billion in the second quarter of 2007 primarily due to lower sales of hepatitis vaccines, other viral vaccines, which include Varivax, M-M-R II and ProQuad, and Gardasil, substantially offset by growth in RotaTeq, and sales of Isentress. Sales for the first six months of 2008 grew to $2.01 billion from $1.98 billion for the first half of 2007 primarily due to growth in RotaTeq and sales of Isentress, partially offset by lower sales of other viral vaccines and hepatitis vaccines.

The following discussion of vaccine and infectious disease product sales includes total vaccine and infectious disease product sales, the aggregate majority of which are included in the Vaccines and Infectious Diseases segment and the remainder, representing sales of these products by non-U.S. subsidiaries, are included in the Pharmaceutical segment. These amounts do not reflect sales of vaccines sold in most major European markets through Sanofi Pasteur MSD (“SPMSD”), the Company’s joint venture with Sanofi Pasteur, the results of which are reflected in Equity income from affiliates (see “Selected Joint Venture and Affiliate Information” below). Supply sales to SPMSD are reflected in Vaccines and Infectious Diseases segment revenues.

Worldwide sales of the Company’s cervical cancer vaccine Gardasil, as recorded by Merck, were $325.7 million for the second quarter of 2008, a decline of 9% compared with the second quarter of 2007 and were $716.1 million for the first six months of 2008, a decline of 1% over the comparable period of 2007. The lower sales of Gardasil were primarily attributable to fewer vaccinations in the 13 to 18-year old cohort due to the declining number of remaining unvaccinated females, which was not offset by anticipated growth in the 19 to 26-year old cohort. In addition, during the first half of 2007, sales of Gardasil benefited from initial purchases from a number of the U.S. Centers for Disease Control and Prevention (“CDC”) Vaccines for Children (“VFC”) programs. In the first half of 2008, purchases from the VFC were lower than in the first half of 2007. Gardasil, the world’s top-selling HPV vaccine and only HPV vaccine available for use in the United States, currently is indicated for girls and women nine through 26 years of age for the prevention of cervical cancer, precancerous or dysplastic lesions, and genital warts caused by HPV types 6, 11, 16 and 18.

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In June 2008, the FDA issued a complete response letter regarding the supplemental biologics license application (“sBLA”) for the use of Gardasil in women ages 27 through 45.  The agency issued the letter to advise that it has completed its review of the submission and that there are issues that preclude approval of the supplement within the expected review timeframe.  Merck discussed with the FDA their questions related to this application and responded to the agency in July 2008.  Merck submitted the sBLA for use in this expanded population in January 2008 and in March 2008 the FDA designated the submission a priority review.  The letter does not affect current indications for Gardasil in females aged nine through 26. The FDA has also issued a complete response letter regarding the sBLA for the use of Gardasil against non-vaccine types (cross protection).  According to the FDA, the data submitted do not support extending the indication for Gardasil to include non-vaccine HPV types. Additional applications under FDA review include data on protection against vaginal and vulvar cancer caused by HPV types 16 and 18 and data on immune memory. Clinical studies to evaluate the safety and efficacy of Gardasil in males 16 to 26 years of age continue and the Company expects to submit to the FDA an indication for males nine to 26 years of age in 2008.

RotaTeq, Merck’s vaccine to help protect against rotavirus gastroenteritis in infants and children, achieved worldwide sales as recorded by Merck of $177.8 million for the second quarter of 2008 compared with $119.1 million for the second quarter of 2007 and were $367.9 million for the first half of 2008, compared with $204.1 million for the first half of 2007. The increase in both periods was driven largely by the continued uptake in the United States and successful launches around the world. In addition, sales in 2008 benefited from purchases to support the CDC stockpile.

The Company has resolved an issue related to the bulk manufacturing process for the Company’s varicella zoster virus (“VZV”)-containing vaccines. The Company has resumed manufacturing of bulk varicella and is producing doses of Varivax. The Company is awaiting additional regulatory approvals to increase its manufacturing capacity. ProQuad, the Company’s combination vaccine that protects against measles, mumps, rubella and chickenpox, one of the VZV-containing vaccines, is currently not available for ordering; however, orders have been transitioned, as appropriate, to M-M-R II and Varivax. Total sales as recorded by Merck for ProQuad were $190.9 million for the first six months of 2007.

Merck’s sales of Varivax, the Company’s vaccine for the prevention of chickenpox (varicella), were $225.3 million for the second quarter of 2008 compared with $197.1 million for the second quarter of 2007 and were $374.0 million for the first six months of 2008 compared with $300.9 million for the first six months of 2007. Varivax is currently the only vaccine available in the United States to help protect against chickenpox due to the unavailability of ProQuad. Merck’s sales of M-M-R II, a vaccine to protect against measles, mumps, and rubella, were $93.0 million for the second quarter of 2008 compared with $57.7 million for the second quarter of 2007 and were $159.8 million for the first six months of 2008 compared with $97.9 million for the first six months of 2007. Sales of Varivax and M-M-R II were affected by the unavailability of ProQuad. Combined sales of ProQuad, M-M-R II and Varivax decreased in the second quarter and first six months of 2008 compared with the corresponding periods of 2007.

In October 2007, the FDA granted Isentress accelerated approval for use in combination with other antiretroviral agents for the treatment of HIV-1 infection in treatment-experienced adult patients who have evidence of viral replication and HIV-1 strains resistant to multiple antiretroviral agents. Isentress is the first medicine to be approved in a new class of antiretroviral drugs called integrase inhibitors.  Isentress works by inhibiting the insertion of HIV DNA into human DNA by the integrase enzyme.  Inhibiting integrase from performing this essential function limits the ability of the virus to replicate and infect new cells.  Merck is also conducting Phase III clinical trials of Isentress in the treatment-naïve (previously untreated) HIV population. Sales for Isentress were $77.2 million in the second quarter of 2008 and were $123.7 million for the first six months of 2008.

In July 2008, results from two pivotal Phase III studies of treatment-experienced patients who were failing other antiretroviral therapies showed that Isentress suppressed HIV-1 viral load and increased CD4 cell counts through 48 weeks of combination therapy with other anti-HIV medicines compared to placebo in combination with other anti-HIV medicines in HIV-infected patients with triple-class resistant virus failing current therapy. These results were published in the New England Journal of Medicine.

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Other Vaccines and Infectious Diseases segment products experiencing growth in the second quarter and first half of 2008 compared with the same periods of 2007 include Zostavax, a vaccine to help prevent shingles (herpes zoster), Cancidas, an anti-fungal product, and Invanz, for the treatment of selected moderate to severe infection in adults.

In May 2008, the CDC adopted the unanimous recommendation of its Advisory Committee on Immunization Practices for the use of Zostavax for the prevention of shingles in adults aged 60 and older. Zostavax is the only vaccine to prevent shingles, a frequently painful disease marked by a blistering rash that is caused by the reactivation of the chickenpox virus. These final vaccination guidelines were published online in the CDC’s Morbidity and Mortality Weekly Report and are available to health care providers.

As mentioned above, the Company had an issue related to the bulk manufacturing process for the Company’s VZV-containing vaccines. That issue has now been resolved. The Company is increasing the production of Zostavax, and is continuing to accept orders for Zostavax, but the Company does expect that customers will experience delays for the coming months. The Company will continue to work to meet the increasing demand for Zostavax as product becomes available.

The FDA conducts regular inspections of the Company’s facilities, as they do with all pharmaceutical companies. In late 2007 and early 2008, the FDA conducted a detailed Good Manufacturing Practices (“GMP”) inspection of licensed biological vaccine products, bulk drug substances and drug components manufactured at Merck’s West Point, Pennsylvania facility. This type of inspection is conducted on a routine basis by the FDA and is designed to ensure GMP compliance of all pharmaceutical companies. After this inspection, on January 17, 2008, Merck received a copy of an inspection report known as a Form FDA 483. The report detailed 49 inspectional observations noted during the course of the 30-day inspection considered by the FDA to be deviations from GMP compliance. Merck responded to the Form FDA 483. Merck received a Warning Letter from the FDA dated as of April 28, 2008. The Warning Letter restated much of the information contained in the FDA Form 483 observations and primarily requested supplemental information and updates on Merck’s response to 12 of those observations. On July 10, 2008, Merck received a letter from the FDA closing out its recent inspection of the West Point facility. As a result, any of the Company’s filed vaccine supplements are now able to move through the agency’s normal review and approval process.

Costs, Expenses and Other
In 2005, the Company initiated a series of steps to reduce its cost structure. In November 2005, the Company announced the initial phase of its global restructuring program designed to reduce the Company’s cost structure, increase efficiency, and enhance competitiveness. As part of this program, Merck has sold or closed five manufacturing sites and two preclinical sites. The Company also has, and may continue to, sell or close certain other facilities and related assets in connection with the restructuring program. As of June 30, 2008, the Company has eliminated 8,700 positions company-wide and will continue to seek opportunities for further headcount reductions. The Company, however, continues to hire new employees as the business requires. Through the end of 2008, when the initial phase of the global restructuring program is expected to be substantially complete, the cumulative pretax costs are expected to range from $2.3 billion to $2.4 billion. Approximately 70% of the cumulative pretax costs are non-cash, relating primarily to accelerated depreciation for those facilities scheduled for closure. The Company expects to record charges of approximately $200 million to $300 million during 2008. The Company recorded pretax restructuring costs of $118.3 million ($77.4 million after-tax) and $172.2 million ($110.1 million after-tax) for the three months ended June 30, 2008 and 2007, respectively. The Company recorded pretax restructuring costs of $202.9 million ($133.3 million after-tax) and $358.3 million ($233.7 million after-tax) for the six months ended June 30, 2008 and 2007, respectively. These costs were comprised primarily of accelerated depreciation and separation costs recorded in Materials and production and Restructuring costs (see Note 2 to the consolidated financial statements). Merck continues to expect that this phase of its global restructuring program, combined with expected cost savings in marketing and administrative and research and development expenses, will yield cumulative pretax savings of $4.5 billion to $5.0 billion from 2006 through 2010.

Materials and production costs were $1.40 billion for the second quarter of 2008, a decline of 10% compared with the second quarter of 2007. Included in the second quarter of 2008 and 2007 were costs associated with restructuring activities, primarily accelerated depreciation of $16.1 million and $118.7 million, respectively. For the first six months of 2007, materials and production costs were $2.63 billion, a decline of 14% compared with the same period of last year. Included in the first six months of 2008 and 2007 were costs associated with restructuring activities of $31.0 million and $236.8 million, respectively. (See Note 2 to the consolidated financial statements).

Gross margin was 76.9% in the second quarter of 2008 compared with 74.6% in the second quarter of 2007, which reflect 0.3 and 1.9 percentage point unfavorable impacts, respectively, relating to costs associated with restructuring activities. Gross margin was 77.8% for the first six months of 2008 compared with 74.1% for the first six months of 2007, which reflect 0.3 and 2.0 percentage point unfavorable impacts, respectively, relating to costs associated with restructuring activities. Gross margins in 2008 as compared with 2007 reflect changes in product mix and manufacturing efficiencies.

Marketing and administrative expenses were $1.93 billion for the second quarter of 2008, a decline of 7% compared with the second quarter of 2007. For the first six months of 2008, marketing and administrative expenses were $3.78 billion, a decrease of 3% compared with the first six months of 2007. Expenses for the first half of 2008 include the impact of reserving an additional $40 million solely for future legal defense costs for Fosamax litigation. Expenses for the second

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quarter and first half of 2007 include $210 million of additional reserves solely for future legal defense costs for Vioxx litigation (see Note 7 to the consolidated financial statements).

Research and development expenses were $1.17 billion for the second quarter of 2008, an increase of 13% over the second quarter of 2007, and totaled $2.25 billion for the first six months of 2008, an increase of 9% over the comparable period of 2007. The increase in both periods largely reflects an increase in development spending in support of the continued advancement of the research pipeline.

In July 2008, the Company announced that Tredaptive (also known as MK-0524A) modified-release tablets, a new lipid-modifying therapy for patients with dyslipidemia and primary hypercholesterolemia, has been approved for marketing in the 27 countries of the EU, Iceland and Norway. Tredaptive combines nicotinic acid (niacin) and laropiprant, a novel flushing pathway inhibitor. In clinical studies involving more than 4,700 patients, Tredaptive reduced LDL-cholesterol (LDL-C, or “bad” cholesterol) levels, raised HDL-cholesterol (HDL-C, or “good” cholesterol) levels and decreased triglycerides (a type of fat in the blood). High LDL-C, low HDL-C and elevated triglycerides are risk factors associated with heart attacks and strokes. Tredaptive is approved for the treatment of dyslipidemia, particularly in patients with combined mixed dyslipidemia (characterized by elevated levels of LDL-C and triglycerides and low HDL-C) and in patients with primary hypercholesterolemia (heterozygous familial and non-familial). Tredaptive should be used in patients in combination with statins, when the cholesterol lowering effects of statin monotherapy is inadequate. Tredaptive can be used as monotherapy only in patients in whom statins are considered inappropriate or not tolerated.

In June 2008, Merck provided an update on the regulatory status in the United States of its investigational medicines MK-0524A (extended-release (“ER”) niacin/laropiprant) and MK-0524B (ER niacin/laropiprant/simvastatin) for the treatment of primary hypercholesterolemia or mixed dyslipidemia. Merck met with the FDA to discuss the non-approvable action letter it received on April 28, 2008 in response to its NDA for MK-0524A. At the meeting, the FDA stated that additional efficacy and safety data were required and suggested that the Company wait for the results of the HPS2-THRIVE (Treatment of HDL to Reduce the Incidence of Vascular Events) cardiovascular outcomes study, which is expected to be completed in January 2013. The Company intends to continue to discuss with the FDA whether data can be provided prior to the completion of the HPS2-THRIVE study that would address the issues raised by the agency and allow for an earlier filing. In that event, the earliest Merck would file a complete response to the FDA action letter would be 2010. In addition, Merck will not seek approval for MK-0524B in the United States until it files its complete response relating to MK-0524A. The clinical development program for MK-0524A continues, including the 20,000-patient HPS2-THRIVE study. Also, in the FDA’s April 2008 letter, the agency rejected the proposed trade name Cordaptive for MK-0524A. At the appropriate time, the Company expects to pursue the alternative trade name Tredaptive for use in the United States. In other countries around the world, Merck continues to pursue regulatory approvals for MK-0524A and MK-0524B.

In May 2008, Merck announced the discontinuation of ACHIEVE (An Assessment of Coronary Health Using an Intima-Media Thickness Endpoint for Vascular Effects), an imaging study evaluating MK-0524A in patients with Heterozygous Familial Hypercholesterolemia (“HeFH”). The study was discontinued at the recommendation of the Steering Committee based on its review and evaluation of scientific data from recent carotid intima-media thickness (“cIMT”) studies.  This decision follows the March 2008 Steering Committee recommendation to put patient enrollment on hold.  The action to discontinue the study is not related to the non-approvable FDA letter on MK-0524A, and preliminary data did not suggest any safety concerns. Merck has notified study investigators and informed regulatory agencies.  The Steering Committee will present and publish the results of their review of scientific data from several cIMT studies in HeFH patients at an appropriate scientific forum in the future.

Also in June 2008, Merck announced that, in a Phase III clinical trial, telcagepant (formerly MK-0974), its investigational oral calcitonin gene-related peptide receptor antagonist, significantly improved relief of migraine pain and migraine-associated symptoms two hours after dosing compared to placebo. In addition, the efficacy results for telcagepant 300mg were similar to the highest recommended dose of zolmitriptan, an approved migraine therapy, with a lower incidence of adverse events associated with telcagepant in this study. The new data were presented at the American Headache Society annual meeting. This trial is part of an ongoing Phase III program evaluating telcagepant. There were no reports of serious adverse events in the telcagepant or zolmitriptan treatment arms. Merck continues to anticipate filing a New Drug Application (“NDA”) for telcagepant with the FDA in 2009.

In May 2008, Merck announced results from a new Phase II study that showed oral odanacatib (MK-0822), Merck’s investigational selective cathepsin K inhibitor, reduced measures of bone turnover (breakdown and rebuilding of bone) in women with breast cancer that has spread to the bones (bone metastases).  The results were presented in June at the 2008 American Society of Clinical Oncology annual meeting.  Odanacatib is a highly selective, potent inhibitor of the cathepsin K enzyme.  Cathepsin K enzyme plays a key role in breaking down the protein in bone.  In cancer that has

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spread to the bones, tumor cells speed up the normal process of bone breakdown and formation, which in turn results in further tumor growth and bone destruction.  By inhibiting cathepsin K activity, odanacatib represents a potential novel therapeutic approach for metastatic bone disease that works differently from other commonly used medicines. In this study, the most common clinical adverse events reported included nausea, vomiting, headache and bone pain.  Two patients in the odanacatib group experienced mild skin adverse events (rash and pruritis), both of which resolved within one week without discontinuation of study medication.  Decreased lymphocyte count was the most common laboratory adverse event in both treatment groups. This is the first study to evaluate odanacatib in cancer patients. A Phase III trial evaluating odanacatib for the treatment of osteoporosis in postmenopausal women is underway. 

In April 2008 at the annual Scientific Session of the American College of Cardiology, Merck announced the results of a Phase III pilot dose-ranging study of patients hospitalized with acute heart failure syndrome and renal impairment treated with rolofylline, an investigational adenosine A₁ receptor antagonist in development by Merck. Rolofylline administered with intravenous (“IV”) loop diuretics was associated with improved dyspnea (shortness of breath) and preserved renal function compared to treatment with placebo and IV diuretics. In addition, in a post-hoc analysis, treatment with rolofylline was associated with a trend towards reduced 60-day mortality or hospital readmission for cardiovascular or renal causes. Rolofylline increases renal blood flow and urine production by blocking adenosine-mediated vasoconstriction of the afferent arterioles of the kidneys and inhibiting salt and water reabsorption by the kidney. In this small pilot study, the rates of adverse events seen across treatment groups were similar. The confirmatory Phase III studies with rolofylline 30mg are underway.

In March 2008, Merck and Dynavax Technologies Corporation (“Dynavax”) announced that the FDA had placed a clinical hold on the two Investigational New Drug (“IND”) applications for V270, an investigational hepatitis B vaccine being jointly developed for use in adults by Dynavax and Merck. A clinical hold is an order issued by the FDA to the sponsor to delay a proposed clinical trial or suspend an ongoing clinical trial. The FDA placed the clinical hold on the investigational vaccine because of a serious adverse event (“SAE”) that occurred in one subject who received V270 in a Phase III study being conducted outside the United States. The subject was preliminarily diagnosed as having Wegener’s granulomatosis, an uncommon disease in which the blood vessels are inflamed. All subjects in this Phase III study have received all doses per the study protocol and all will continue to be monitored.  No additional clinical trials with V270 will be initiated until the clinical hold has been resolved. Dynavax and Merck, along with additional collaborators, including clinical investigators and leading experts, are evaluating the medical history of the individual who experienced the SAE to understand better the timing and onset of the disease symptoms, including whether it was a pre-existing condition or was related to vaccine administration. In April 2008, Dynavax and Merck received formal written notification from the FDA detailing a request for information relating to the clinical hold on the two INDs for V270. The FDA requested a review of clinical and preclinical safety data for V270 and all available information about the single case of Wegener’s granulomatosis reported in the Phase III trial. Dynavax and Merck plan to provide a complete response to the FDA query in a timely manner. The FDA will then determine whether the data provided are satisfactory for the continuation of the clinical program.

Merck continues to remain focused on augmenting its internal efforts by capitalizing on growth opportunities ranging from targeted acquisitions to research collaborations, licensing pre-clinical and clinical compounds and technology transactions to drive both near- and long-term growth.

As previously disclosed, during 2007 the Company entered into collaborations with ARIAD Pharmaceuticals, Inc. (“ARIAD”), Dynavax and GTx, Inc. (“GTx”). These collaborations generally continue in effect until the expiration of all royalty and milestone payment obligations. These collaborations may generally be terminated in the event of insolvency or a material uncured breach by either party. Additionally, the collaborations may terminate as follows:

The collaboration agreement between Merck and ARIAD may be terminated by Merck upon the failure of MK-8669 to meet certain developmental and safety requirements or in the event Merck concludes it is not advisable to continue the development of MK-8669 for use in a cancer indication.  In addition, Merck may terminate the collaboration agreement on or after the third anniversary of the effective date by providing at least 12 months prior written notice. Upon termination of the collaboration agreement, depending upon the circumstances, the parties have varying rights and obligations with respect to the continued development and commercialization of MK-8669 and continuing royalty obligations.

The collaboration agreement between Merck and Dynavax may be terminated by Merck in its sole discretion or by Dynavax if Merck decides to permanently stop all development and commercialization activities for V270 worldwide.

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The collaboration agreement between Merck and GTx may be terminated by Merck upon ninety days notice to GTx at any time after December 18, 2009.

The chart below reflects the Company’s current research pipeline as of July 31, 2008. Candidates shown in Phase III include specific products. Candidates shown in Phase I and II include the most advanced compound with a specific mechanism in a given therapeutic area. Small molecules and biologics are given MK-number designations and vaccine candidates are given V-number designations. Back-up compounds, regardless of their phase of development, additional indications in the same therapeutic area and additional line extensions or formulations for in-line products are not shown.

Phase I

Alzheimer’s Disease

V950

Atherosclerosis

MK-1903

Cancer

MK-0752

MK-2461

MK-1775

MK-2206

MK-5108

Cardiovascular

MK-0448

Diabetes

MK-0941

MK-4074

MK-8245

Infectious Disease

MK-3281

MK-4965

MK-7009

Neurologic

MK-8998

MK-4305

Psychiatric Disease

MK-5757

Phase II

Alzheimer’s Disease

MK-0249

Atherosclerosis

MK-6213

Cancer

MK-0646

MK-0822

Cardiovascular

MK-8141

Diabetes

MK-0893

HPV

V503

Infectious Disease

V419

V710

Neurologic

MK-0249

Ophthalmic

SIRNA-027⁽¹⁾

MK-0140

Pain

MK-2295*

Psychiatric Disease

MK-0249

Respiratory Disease

MK-0633

Sarcopenia

MK-2866

Stroke

MK-0724

Phase III

Atherosclerosis

MK-0524A

(extended-release

niacin/laropiprant)

MK-0524B

(extended-release

niacin/laropiprant/

simvastatin)

MK-0859

(anacetrapib)

Cancer

MK-8669

(deforolimus;

AP23573)

Heart Failure

MK-7418

(rolofylline;

KW3902)

Hepatitis B Vaccine

V270

(on hold)

Obesity

MK-0364

(taranabant)

Osteoporosis

MK-0822

(odanacatib)

Migraine

MK-0974

(telcagepant)

2008 U.S. Approvals

CINV Emend for Injection     (MK-0517)

*	Proof-of-Concept Molecule
(1)	Clinical Program conducted by Allergan, Inc.

The Company has ongoing clinical trials with taranabant. The Company is currently in discussions with regulatory authorities about taranabant and is reviewing the filing plans for taranabant.

Restructuring costs, primarily representing separation and other related costs associated with the Company’s global restructuring program, were $102.2 million and $171.9 million for the three and six months ended June 30, 2008. Amounts for the first six months of 2008 were reduced by gains on sales of facilities and related assets of $51.1 million. (See Note 2 to the consolidated financial statements.) Amounts included in Restructuring costs for the three and six months ended June 30, 2007 were $55.8 million and $121.6 million, respectively.

Equity income from affiliates, which reflects the performance of the Company’s joint ventures and other equity method affiliates, was $523.0 million and $759.1 million for the second quarter of 2008 and 2007, respectively, and was $1.18 billion and $1.41 billion for the first six months of 2008 and 2007, respectively. These results reflect lower partnership returns from AZLP and decreased equity income from the Merck/Schering-Plough partnership, partially offset by higher equity income from SPMSD. The lower partnership returns from AZLP are primarily attributable to the first quarter 2008 partial redemption of Merck’s limited partnership interest in AZLP, which resulted in a reduction of the priority return and the variable returns which were based, in part, upon sales of certain former Astra USA, Inc. products. The decrease in equity income from the Merck/Schering-Plough joint venture is a result of lower revenues of Zetia and Vytorin related to the ENHANCE clinical trial results. In addition, as a result of the termination of the respiratory joint venture, the Company is obligated to Schering-Plough in the amount of $105 million as specified in the joint venture agreements. This resulted in a charge of $43 million during the second quarter of 2008, included in Equity income from affiliates. The remaining amount will be amoritized over the remaining patent life of Zetia through 2016. The increase in equity income from SPMSD is largely attributable to higher sales of

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Gardasil. (See Note 5 to the consolidated financial statements and “Selected Joint Venture and Affiliate Information” below.)

Other (income) expense, net in the first six months of 2008 primarily reflects an aggregate gain from AZLP of $2.2 billion (see Note 5 to the consolidated financial statements) and a gain of $249 million related to the sale of the Company’s remaining worldwide rights to Aggrastat, partially offset by a $300 million expense for a contribution to the Merck Company Foundation and a $58 million charge related to the resolution of a previously disclosed investigation into whether the Company violated state consumer protection laws with respect to the sales and marketing of Vioxx (see Note 7 to the consolidated financial statements). Other (income) expense, net in the first six months of 2007 primarily reflects the favorable impact of gains on sales of assets and product divestitures.

Segment Profits

	Three Months Ended						Six Months Ended
	June 30,						June 30,
($ in millions)	2008			2007			2008			2007
Pharmaceutical segment	$	3,112.6		$	3,431.0		$	6,231.9		$	6,672.5
Vaccines and Infectious Diseases segment		645.6			614.8			1,270.2			1,125.3
Other segment		119.2			128.4			265.2			282.5
Other		(1,818.9	)		(1,942.0	)		(1,297.9	)		(3,593.7	)
Income before income taxes	$	2,058.5		$	2,232.2		$	6,469.4		$	4,486.6

Segment profits are comprised of segment revenues less certain elements of materials and production costs and operating expenses, including the majority of equity income from affiliates and components of depreciation and amortization expenses. For internal management reporting presented to the chief operating decision maker, the Company does not allocate the vast majority of research and development expenses, general and administrative expenses, depreciation related to fixed assets utilized by nonmanufacturing divisions, as well as the cost of financing these activities. Separate divisions maintain responsibility for monitoring and managing these costs and, therefore, they are not included in segment profits. Also excluded from the determination of segment profits are taxes paid at the joint venture level and a portion of equity income. Additionally, segment profits do not reflect other expenses from corporate and manufacturing cost centers and other miscellaneous income (expense). These unallocated items are reflected in “Other” in the above table. Also included in Other are miscellaneous corporate profits, operating profits related to divested products or businesses, other supply sales and adjustments to eliminate the effect of double counting certain items of income and expense.

Pharmaceutical segment profits decreased 9% in the second quarter of 2008 and declined 7% for the first six months of 2008 compared with the corresponding periods of 2007 largely driven by lower equity income from AZLP and the Merck/Schering-Plough joint venture and a decline in Fosamax sales and Nexium supply sales.

Vaccines and Infectious Diseases segment profits increased 5% in the second quarter of 2008 and 13% in the first six months of 2008 compared with the same periods of 2007. The increase in both periods was primarily driven by the successful launch of Isentress and the strong performance of RotaTeq. Vaccines and Infectious Diseases segment profits also reflect the results from SPMSD included in Equity income from affiliates.

The effective tax rate of 14.1% for the second quarter of 2008 reflects a benefit of approximately 9 percentage points primarily relating to tax settlements that resulted in a reduction of the Company’s liability for unrecognized tax benefits of approximately $200 million. The effective tax rate of 21.6% for the first six months of 2008 reflects a net favorable impact of approximately 1 percentage point which includes favorable impacts relating to the second quarter tax settlements and the first quarter realization of foreign tax credits, largely offset by an unfavorable impact resulting from the AZLP gain being fully taxable in the United States at a combined federal and state tax rate of approximately 36.3%. In the first quarter of 2008, the Company decided to repatriate certain prior years’ foreign earnings which will result in a utilization of foreign tax credits. These foreign tax credits arose as a result of tax payments made outside of the United States in prior years that became realizable in the first quarter based on a change in the Company’s repatriation plans. The effective tax rates of 24.9% for the second quarter of 2007 and 24.6% for the first six months of 2007 reflect the impact of costs associated with the global restructuring program.

Net income was $1.77 billion for the second quarter of 2008 compared with $1.68 billion for the second quarter of 2007 and was $5.07 billion for the first six months of 2008 compared with $3.38 billion for the first six months of 2007. Earnings per common share assuming dilution (“EPS”) for the second quarter of 2008 were $0.82 compared with $0.77 in the

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second quarter of 2007 and were $2.34 for the first six months of 2008 compared with $1.55 in the first six months of 2007. The increase in net income and EPS for the second quarter of 2008 was largely attributable to the favorable impact of tax settlements, a lower reserve for legal defense reserves and lower restructuring costs, partially offset by a decline in equity income from affiliates and higher research and development expenses. For the first six months of 2008, the increase is primarily attributable to the impact of the gain on distribution from AZLP as discussed above. In addition, the increase reflects the positive impact of tax settlements and the realization of foreign tax credits, a lower reserve for legal defense costs and lower restructuring charges, partially offset by a decline in equity income from affiliates and higher research and development expenses.

Selected Joint Venture and Affiliate Information
Merck/Schering-Plough Partnership
The Merck/Schering-Plough partnership (the “MSP Partnership”) reported combined global sales of Zetia and Vytorin of $1.15 billion for the second quarter of 2008, representing a decline of 9% over the second quarter of 2007, and a sequential decline of 7% compared with the first quarter of 2008. Sales for the first six months of 2008 were $2.39 billion, a decline of 2% over the first six months of 2007. Global sales of Zetia, the cholesterol-absorption inhibitor also marketed as Ezetrol outside the United States, were $560.4 million in the second quarter of 2008, a decline of 3% compared with the second quarter of 2007, and a sequential decline of 4% compared with the first quarter of 2008. Global sales of Zetia for the first six months of 2008 were $1.14 billion, an increase of 2% compared with the same period of 2007. Global sales of Vytorin, marketed outside the United States as Inegy, were $592.1 million in the second quarter of 2008, a decline of 14% compared with the second quarter of 2007, and a sequential decline of 9% compared with the first quarter of 2008. Global sales of Vytorin for the first six months of 2008 were $1.24 billion, a decline of 5% compared with the same period of 2007.

As previously disclosed, in January 2008, the Company announced the results of ENHANCE, an imaging trial in 720 patients with heterozygous familial hypercholesterolemia, a rare genetic condition that causes very high levels of LDL “bad” cholesterol and greatly increases the risk for premature coronary artery disease. As previously reported, despite the fact that ezetimibe/simvastatin 10/80 mg (Vytorin) significantly lowered LDL “bad” cholesterol more than simvastatin 80 mg alone, there was no significant difference between treatment with ezetimibe/simvastatin and simvastatin alone on the pre-specified primary endpoint, a change in the thickness of carotid artery walls over two years as measured by ultrasound. There also were no significant differences between treatment with ezetimibe/simvastatin and simvastatin on the four pre-specified key secondary endpoints: percent of patients manifesting regression in the average carotid artery intima-media thickness (“CA IMT”); proportion of patients developing new carotid artery plaques >1.3 mm; changes in the average maximum CA IMT; and changes in the average CA IMT plus in the average common femoral artery IMT. In ENHANCE, when compared to simvastatin alone, ezetimibe/simvastatin significantly lowered LDL “bad” cholesterol, as well as triglycerides and C-reactive protein (“CRP”). Ezetimibe/simvastatin is not indicated for the reduction of CRP. In the ENHANCE study, the overall safety profile of ezetimibe/simvastatin in the study was generally consistent with the product label. The ENHANCE study was not designed nor powered to evaluate cardiovascular clinical events. IMPROVE-IT is underway and is designed to provide cardiovascular outcomes data for ezetimibe/simvastatin in patients with acute coronary syndrome. No incremental benefit of ezetimibe/simvastatin on cardiovascular morbidity and mortality over and above that demonstrated for simvastatin has been established. In March 2008, the results of ENHANCE were reported at the annual Scientific Session of the American College of Cardiology.

On July 21, 2008, efficacy and safety results from the Simvastatin and Ezetimibe in Aortic Stenosis (“SEAS”) study were announced. SEAS was designed to evaluate whether intensive lipid lowering with Vytorin (ezetimibe/simvastatin) 10/40mg would reduce the need for aortic valve replacement and the risk of cardiovascular morbidity and mortality versus placebo in patients with asymptomatic mild to moderate aortic stenosis who had no indication for statin therapy. Vytorin failed to meet its primary end point for the reduction of major cardiovascular events. There also was no significant difference in the key secondary end point of aortic valve events; however, there was a reduction in the group of patients taking Vytorin compared to placebo in the key secondary end point of ischemic cardiovascular events. Vytorin is not indicated for the treatment of aortic stenosis. Vytorin contains two active ingredients: ezetimibe and simvastatin. No incremental benefit of Vytorin on cardiovascular morbidity and mortality over and above that demonstrated for simvastatin has been established. In the study, patients in the group who took Vytorin 10/40 mg had a higher incidence of cancer than the group who took placebo. There was also a nonsignificant increase in deaths from cancer in patients in the group who took Vytorin versus those who took placebo. Cancer and cancer deaths were distributed across all major organ systems. The Company believes the cancer finding in SEAS is likely to be an anomaly that, taken in light of all the available data, does not support an association with Vytorin. The Company, through its joint venture, is committed to working with regulatory agencies to further evaluate the available data and interpretations of those data; however, the Company does not believe that changes in the clinical use of Vytorin are warranted.

In light of the announcement of the SEAS results, the Company intends to monitor sales of Vytorin and Zetia.

See Note 7 to the consolidated financial statements for information with respect to litigation involving Merck and Schering-Plough Corporation (the “Partners”) and the MSP Partnership related to the sale and promotion of Zetia and Vytorin.

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On April 25, 2008, the Partners announced that they had received a non-approvable letter from the FDA for the proposed fixed combination of loratadine/montelukast. Montelukast sodium, a leukotriene receptor antagonist, is sold by Merck as Singulair and loratadine, an antihistamine, is sold by Schering-Plough as Claritin, both of which are indicated for the relief of symptoms of allergic rhinitis. In June 2008, the Partners announced the withdrawal of the New Drug Application for the loratadine/montelukast combination tablet. The companies also terminated the respiratory joint venture. This action had no impact on the business of the cholesterol joint venture. As a result of the termination of the respiratory joint venture, the Company is obligated to Schering-Plough in the amount of $105 million as specified in the joint venture agreements. This resulted in a charge of $43 million during the second quarter of 2008, included in Equity income from affiliates. The remaining amount will be amortized over the remaining patent life of Zetia through 2016.

AstraZeneca LP
As previously disclosed, the 1999 AstraZeneca merger triggered a partial redemption in March 2008 of Merck’s limited partnership interest in AstraZeneca LP (“AZLP”). Upon this redemption, Merck received $4.3 billion from AZLP. This amount was based primarily on a multiple of Merck’s average annual variable returns derived from sales of the former Astra USA, Inc. products for the three years prior to the redemption (the “Limited Partner Share of Agreed Value”). Merck recorded a $1.5 billion pretax gain on the partial redemption in the first quarter of 2008. As a result of the partial redemption of Merck’s limited partnership interest, the Company will have lower Partnership returns (which are recorded in Equity income from affiliates) on a prospective basis resulting from a reduction of the priority return and the variable returns which were based, in part, upon sales of certain former Astra USA, Inc. products.

Also, as a result of the 1999 AstraZeneca merger, in exchange for Merck’s relinquishment of 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”). The Advance Payment was deferred as it remained subject to a true-up calculation that was directly dependent on the fair market value in March 2008 of the Astra product rights retained by the Company. The calculated True-Up Amount of $243.7 million was returned to AZLP in March 2008 and Merck recognized a pretax gain of $723.7 million related to the residual Advance Payment balance.

In 1998, Astra purchased an option (the “Asset Option”) to buy Merck’s interest in the KBI products, excluding the gastrointestinal medicines Nexium and Prilosec (the “Non-PPI Products”), for a payment of $443.0 million, which was deferred. The Asset Option is exercisable in the first half of 2010 at an exercise price equal to the net present value as of March 31, 2008 of projected future pretax revenue to be received by the Company from the Non-PPI Products (the “Appraised Value”). Merck also had the right to require Astra to purchase such interest in 2008 at the Appraised Value. In February 2008, the Company advised AZLP that it would not exercise the Asset Option, thus the $443.0 million remains deferred.

The sum of the Limited Partner Share of Agreed Value, the Appraised Value and the True-Up Amount was guaranteed to be a minimum of $4.7 billion. Distribution of the Limited Partner Share of Agreed Value less payment of the True-Up Amount resulted in cash receipts to Merck of $4.0 billion and an aggregate pretax gain of $2.2 billion which is included in Other (income) expense, net. AstraZeneca’s purchase of Merck’s interest in the Non-PPI Products is contingent upon the exercise of the Asset Option by AstraZeneca in 2010 and, therefore, payment of the Appraised Value may or may not occur. Also, in March 2008, the outstanding loan from Astra in the amount of $1.38 billion plus interest through the redemption date was settled. As a result of these transactions, the Company received net proceeds from AZLP of $2.6 billion in the first quarter of 2008.

Sanofi Pasteur MSD
Total vaccine sales reported by SPMSD were $430.0 million and $264.8 million in the second quarter of 2008 and 2007, respectively, and were $841.4 million and $459.6 million for the first six months of 2008 and 2007, respectively. The increase in both periods was driven by higher sales of Gardasil. SPMSD sales of Gardasil were $234.2 million and $77.8 million for the second quarter of 2008 and 2007, respectively, and were $474.0 million and $108.0 million for the first six months of 2008 and 2007, respectively.

The Company records the results from its interest in the Merck/Schering-Plough partnership, AZLP and SPMSD in Equity income from affiliates.

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Liquidity and Capital Resources

	June 30,			December 31,
($ in millions)	2008			2007
Cash and investments	$	16,772.4		$	15,390.0
Working capital	$	7,874.3		$	2,787.2
Total debt to total liabilities and equity		10.8	%		11.9	%

The increase in working capital was primarily attributable to net cash receipts from AZLP as discussed above in “Selected Joint Venture and Affiliate Information.”

During the first six months of 2008, cash provided by operating activities of $3.9 billion reflects $2.1 billion received in connection with a partial redemption of the Company’s partnership interest in AZLP discussed above, representing a distribution of the Company’s accumulated earnings on its investment in AZLP since inception. Cash provided by operating activities in the first six months of 2008 was also impacted by a $675 million payment made in connection with the previously disclosed resolution of investigations of civil claims by federal and state authorities relating to certain past marketing and selling activities. Cash provided by operating activities of $1.6 billion for the same period of 2007 reflects the payment made under a previously disclosed settlement with the Internal Revenue Service. On an ongoing basis, cash provided by operations will continue to be the Company’s primary source of funds to finance operating needs and capital expenditures. Cash provided by investing activities in the first six months of 2008 was $1.9 billion primarily reflecting a distribution from AZLP representing a return of the Company’s investment in AZLP. Cash used in investing activities of $1.9 billion in the first six months of 2007 reflects the $1.1 billion payment made on January 3, 2007 in connection with the December 2006 acquisition of Sirna Therapeutics, Inc. Cash used in financing activities was $3.9 billion for the first six months of 2008 compared with $2.2 billion in the first six months of 2007 reflecting the $1.4 billion repayment of debt to AZLP in 2008 and higher purchases of treasury stock.

In March 2008, the Company entered into a $4.1 billion letter of credit agreement with a financial institution, which provides that if participation conditions under the U.S. Vioxx Settlement Agreement (see Note 7 to the consolidated financial statements) are met or waived (which the Company stated it will waive as of August 4, 2008), a letter of credit will be executed and the Company will pledge collateral to the financial institution of approximately $5.0 billion pursuant to the terms of the agreement. As a result, cash and investments will decline by approximately $5.0 billion as these assets will be restricted and therefore included in Other assets. The letter of credit will satisfy certain conditions stipulated by the Settlement Agreement. The letter of credit amount and required collateral balances will decline as payments (after the first $750 million) under the Settlement Agreement are made.

During 2008, the Company anticipates that under the U.S. Vioxx Settlement Agreement it will make payments of up to approximately $1.6 billion pursuant to the Settlement Agreement.

As previously disclosed, Merck’s Canadian tax returns for the years 1998 through 2004 are being examined by the Canada Revenue Agency (“CRA”). In October 2006, the CRA issued the Company a notice of reassessment containing adjustments related to certain intercompany pricing matters, which result in additional Canadian and provincial tax due of approximately $1.6 billion (U.S. dollars) plus interest of approximately $990 million (U.S. dollars). In addition, in July 2007, the CRA proposed additional adjustments for 1999 relating to another intercompany pricing matter. The adjustments would increase Canadian tax due by approximately $22 million (U.S. dollars) plus $22 million (U.S. dollars) of interest. It is possible that the CRA will propose similar adjustments for later years. The Company disagrees with the positions taken by the CRA and believes they are without merit. The Company intends to contest the assessments through the CRA appeals process and the courts if necessary. In connection with the appeals process, during 2007, the Company pledged collateral to two financial institutions, one of which provided a guarantee to the CRA and the other to the Quebec Ministry of Revenue representing a portion of the tax and interest assessed. The collateral is included in Other Assets in the Consolidated Balance Sheet and totaled approximately $1.3 billion at June 30, 2008. The Company has previously established reserves for these matters. While the resolution of these matters may result in liabilities higher or lower than the reserves, management believes that resolution of these matters will not have a material effect on the Company’s financial position or liquidity. However, an unfavorable resolution could have a material adverse effect on the Company’s results of operations or cash flows in the quarter in which an adjustment is recorded or tax is due.

In July 2007, the CRA notified the Company that it is in the process of proposing a penalty of $160 million (U.S. dollars) in connection with the 2006 notice. The penalty is for failing to provide information on a timely basis. The Company vigorously disagrees with the penalty and feels it is inapplicable and that appropriate information was provided on a timely basis. The Company is pursuing all appropriate remedies to avoid having the penalty assessed and was notified in early

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August 2007 that the CRA is holding the imposition of a penalty in abeyance pending a review of the Company’s submissions as to the inapplicability of a penalty.

Capital expenditures totaled $632.6 million and $473.1 million for the first six months of 2008 and 2007, respectively. Capital expenditures for full year 2008 are estimated to be $1.5 billion.

Dividends paid to stockholders were $1.7 billion for the first six months of both 2008 and 2007.  In May and July 2008, the Board of Directors declared a quarterly dividend of $0.38 per share on the Company’s common stock for the third and fourth quarters of 2008.

The Company purchased $1.6 billion of its common stock (33.6 million shares) for its Treasury during the first six months of 2008. The Company has approximately $3.5 billion remaining under the July 2002 treasury stock purchase authorization.

In April 2008, the Company extended the maturity date of its $1.5 billion, 5-year revolving credit facility from April 2012 to April 2013. The facility provides backup liquidity for the Company’s commercial paper borrowing facility and is to be used for general corporate purposes. The Company has not drawn funding from this facility.

Financial Instruments and Market Risk Disclosure
To manage foreign currency risks of future cash flows derived from foreign currency denominated sales, the Company has an established revenue hedging risk management program in which the Company primarily uses purchased local currency put options to layer in hedges over time to partially hedge anticipated third-party sales. During 2008, on a limited basis, the Company also utilized collars and forward exchange contracts in its revenue hedge risk management program.

Critical Accounting Policies
The Company’s significant accounting policies, which include management’s best estimates and judgments, are included in Note 2 to the consolidated financial statements of the Annual Report on Form 10-K for the year ended December 31, 2007. Certain of these accounting policies are considered critical as disclosed in the Critical Accounting Policies and Other Matters section of Management’s Discussion and Analysis in the Company’s 2007 Annual Report on Form 10-K because of the potential for a significant impact on the financial statements due to the inherent uncertainty in such estimates. Other than the adoption of FAS 157, as discussed below (see also Note 3 to the consolidated financial statements), there have been no significant changes in the Company’s critical accounting policies since December 31, 2007.

Fair Value Measurements
On January 1, 2008, the Company adopted FAS 157, which clarifies the definition of fair value, establishes a framework for measuring fair value, and expands the disclosures on fair value measurements. FAS 157 establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. FAS 157 describes three levels of inputs that may be used to measure fair value (see Note 3 to the consolidated financial statements). The Company’s Level 3 assets primarily include mortgage-backed and asset-backed securities, as well as certain corporate notes and bonds for which there was a decrease in the observability of market pricing for these investments. On January 1, 2008, the Company had $1,273.1 million invested in a short-term fixed income fund (the “Fund”). Due to market liquidity conditions, cash redemptions from the Fund were restricted. As a result of this restriction on cash redemptions, the Company did not consider the Fund to be traded in an active market with observable pricing on January 1, 2008 and these amounts were categorized as Level 3. On January 7, 2008, the Company elected to be redeemed-in-kind from the Fund and received its share of the underlying securities of the Fund. As a result, $1,099.7 million of the underlying securities were transferred out of Level 3 as it was determined these securities had observable markets. On June 30, 2008, $179.5 million of the investment securities associated with the redemption-in-kind remained classified in Level 3 (approximately 1.7% of the Company’s investment securities) as the securities contained at least one significant input which was unobservable (all of which were pledged under certain collateral arrangements (see Note 11 to the consolidated financial statements)). These securities were valued primarily using pricing models for which management understands the methodologies. These models incorporate transaction details such as contractual terms, maturity, timing and amount of future cash inflows, as well as assumptions about liquidity and credit valuation adjustments of marketplace participants at June 30, 2008.

Recently Issued Accounting Standards
In May 2008, the FASB issued Statement No. 162, The Hierarchy of Generally Accepted Accounting Principles (“FAS 162”). FAS 162 identifies the sources of accounting principles and the framework for selecting the principles used (order of authority) in the preparation of financial statements that are presented in conformity with generally accepted accounting

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standards in the United States. FAS 162 is effective 60 days following the Securities and Exchange Commission’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. The Company does not expect the adoption of FAS 162 to have a material impact on its financial statements.

In March 2008, the FASB issued Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities (“FAS 161”), which is effective January 1, 2009. FAS 161 requires enhanced disclosures about derivative instruments and hedging activities to allow for a better understanding of their effects on an entity’s financial position, financial performance, and cash flows. Among other things, FAS 161 requires disclosure of the fair values of derivative instruments and associated gains and losses in a tabular format. Since FAS 161 requires only additional disclosures about the Company’s derivatives and hedging activities, the adoption of FAS 161 will not affect the Company’s financial position or results of operations.

In December 2007, the FASB ratified the consensus reached by the EITF on Issue No. 07-1 (“EITF 07-1”), Accounting for Collaborative Arrangements. EITF 07-1 is effective for the Company beginning January 1, 2009 and will be applied retrospectively to all prior periods presented for all collaborative arrangements existing as of the effective date. EITF 07-1 defines collaborative arrangements and establishes reporting requirements for transactions between participants in a collaborative arrangement and between participants in the arrangement and third parties. The Company is assessing the impact of adoption of EITF 07-1 on its financial position and results of operations.

In December 2007, the FASB issued Statement No. 141R, Business Combinations (“FAS 141R”), and Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51 (“FAS 160”). FAS 141R expands the scope of acquisition accounting to all transactions under which control of a business is obtained. Among other things, FAS 141R requires that contingent consideration as well as contingent assets and liabilities be recorded at fair value on the acquisition date, that acquired in-process research and development be capitalized and recorded as intangible assets at the acquisition date, and also requires transaction costs and costs to restructure the acquired company be expensed. FAS 160 provides guidance for the accounting, reporting and disclosure of noncontrolling interests and requires, among other things, that noncontrolling interests be recorded as equity in the consolidated financial statements. FAS 141R and FAS 160 are both effective January 1, 2009. The Company is assessing the impacts of these standards on its financial position and results of operations.

In June 2008, the FASB issued Staff Position EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (“FSP EITF 03-6-1”), which is effective January 1, 2009. FSP EITF 03-6-1 clarifies that share-based payment awards that entitle holders to receive nonforfeitable dividends before they vest will be considered participating securities and included in the basic earnings per share calculation. The Company is assessing the impact of adoption of FSP EITF 03-6-1 on its results of operations.

Legal Proceedings
The Company is involved in various claims and legal proceedings of a nature considered normal to its business, including product liability, intellectual property, and commercial litigation, as well as additional matters such as antitrust actions. The following discussion is limited to recent developments concerning legal proceedings and should be read in conjunction with the consolidated financial statements contained in (i) this report, (ii) the Company’s Report on Form 10-Q for the quarter ended March 31, 2008 and (iii) the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.

Vioxx Litigation
Product Liability Lawsuits
As previously disclosed, individual and putative class actions have been filed against the Company in state and federal courts alleging personal injury and/or economic loss with respect to the purchase or use of Vioxx. All such actions filed in federal court are coordinated in a multidistrict litigation in the U.S. District Court for the Eastern District of Louisiana (the “MDL”) before District Judge Eldon E. Fallon. A number of such actions filed in state court are coordinated in separate coordinated proceedings in state courts in New Jersey, California and Texas, and the counties of Philadelphia, Pennsylvania and Washoe and Clark Counties, Nevada. As of June 30, 2008, the Company had been served or was aware that it had been named as a defendant in approximately 13,750 lawsuits, which include approximately 31,750 plaintiff groups, alleging personal injuries resulting from the use of Vioxx, and in approximately 249 putative class actions alleging personal injuries and/or economic loss. (All of the actions discussed in this paragraph are collectively referred to as the “Vioxx Product Liability Lawsuits”.) Of these lawsuits, approximately 9,225 lawsuits representing approximately 24,000 plaintiff groups are or are slated to be in the federal MDL and approximately 2,675 lawsuits representing

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approximately 2,675 plaintiff groups are included in a coordinated proceeding in New Jersey Superior Court before Judge Carol E. Higbee.

In addition to the Vioxx Product Liability Lawsuits discussed above, the claims of over 22,300 plaintiffs had been dismissed as of June 30, 2008. Of these, there have been over 2,950 plaintiffs whose claims were dismissed with prejudice (i.e., they cannot be brought again) either by plaintiffs themselves or by the courts. Over 19,350 additional plaintiffs have had their claims dismissed without prejudice (i.e., subject to the applicable statute of limitations, they can be brought again). Of these, approximately 11,800 plaintiff groups represent plaintiffs who had lawsuits pending in the New Jersey Superior Court at the time of the Settlement Agreement described below and who have expressed an intent to enter the program established by the Settlement Agreement; Judge Higbee has dismissed these cases without prejudice for administrative reasons.

Merck entered into a tolling agreement (the “Tolling Agreement”) with the MDL Plaintiffs’ Steering Committee (“PSC”) that established a procedure to halt the running of the statute of limitations (tolling) as to certain categories of claims allegedly arising from the use of Vioxx by non-New Jersey citizens. The Tolling Agreement applied to individuals who have not filed lawsuits and may or may not eventually file lawsuits and only to those claimants who seek to toll claims alleging injuries resulting from a thrombotic cardiovascular event that results in a myocardial infarction (“MI”) or ischemic stroke (“IS”). The Tolling Agreement provided counsel additional time to evaluate potential claims. The Tolling Agreement required any tolled claims to be filed in federal court. As of June 30, 2008, approximately 12,750 claimants had entered into Tolling Agreements. The parties agreed that April 9, 2007 was the deadline for filing Tolling Agreements and no additional Tolling Agreements are being accepted. On April 23, 2008, the Company terminated the Tolling Agreements effective August 21, 2008 pursuant to the Tolling Agreements’ 120-day termination provision.

On November 9, 2007, Merck announced that it had entered into an agreement (the “Settlement Agreement”) with the law firms that comprise the executive committee of the PSC of the federal Vioxx MDL as well as representatives of plaintiffs’ counsel in the Texas, New Jersey and California state coordinated proceedings to resolve state and federal MI and IS claims filed as of that date in the United States. The Settlement Agreement, which also applies to tolled claims, was signed by the parties after several meetings with three of the four judges overseeing the coordination of more than 95% of the U.S. Vioxx Product Liability Lawsuits. The Settlement Agreement applies only to U.S. legal residents and those who allege that their MI or IS occurred in the United States.

The entire Settlement Agreement, including accompanying exhibits, may be found at www.merck.com. The Company has included this website address only as an inactive textual reference and does not intend it to be an active link to its website nor does it incorporate by reference the information contained therein. Merck will pay a fixed aggregate amount of $4.85 billion into two funds ($4.0 billion for MI claims and $850 million for IS claims) for qualifying claims that enter into the resolution process (the “Settlement Program”). Individual claimants will be examined by administrators of the Settlement Program to determine qualification based on objective, documented facts provided by claimants, including records sufficient for a scientific evaluation of independent risk factors. The conditions in the Settlement Agreement require claimants to pass three gates: an injury gate requiring objective, medical proof of an MI or IS (each as defined in the Settlement Agreement), a duration gate based on documented receipt of at least 30 Vioxx pills, and a proximity gate requiring receipt of pills in sufficient number and proximity to the event to support a presumption of ingestion of Vioxx within 14 days before the claimed injury.

The Settlement Agreement provides that Merck does not admit causation or fault. The Settlement Agreement provided that Merck’s payment obligations would be triggered only if, among other conditions, (1) law firms on the federal and state PSCs and firms that have tried cases in the coordinated proceedings elect to recommend enrollment in the program to 100% of their clients who allege either MI or IS and (2) by June 30, 2008, plaintiffs enroll in the Settlement Program at least 85% of each of all currently pending and tolled (i) MI claims, (ii) IS claims, (iii) eligible MI and IS claims together which involve death, and (iv) eligible MI and IS claims together which allege more than 12 months of use. Under the terms of the Settlement Agreement, Merck could exercise a right to walk away from the Settlement Agreement if the thresholds and other requirements were not met. On July 17, 2008, the Company stated that it would be waiving that right as of August 4, 2008. The waiver of that right will trigger Merck’s obligation to pay a fixed total of $4.85 billion. Payments will be made in installments into the resolution fund, with the first payment of $500 million scheduled for August 6, 2008. Additional payments will be made on a periodic basis going forward, when and as needed to fund payments of claims and administrative expenses.

Merck’s total payment for both funds of $4.85 billion is a fixed amount to be allocated among qualifying claimants based on their individual evaluation. While at this time the exact number of claimants covered by the Settlement Agreement is unknown, the total dollar amount is fixed. The Company expects that the distribution of interim payments to qualified

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claimants will begin in August and will continue on a rolling basis until all claimants who qualify for an interim payment are paid. Final payments will be made after the examination of all of the eligible claims has been completed.

After the Settlement Agreement was announced on November 9, 2007, judges in the Federal MDL, California, Texas and New Jersey State Coordinated Proceedings entered a series of orders. The orders: (1) temporarily stayed their respective litigations; (2) required plaintiffs to register their claims by January 15, 2008; (3) require plaintiffs with cases pending as of November 9, 2007 to preserve and produce records and serve expert reports; and (4) require plaintiffs who file thereafter to make similar productions on an accelerated schedule. The Clark County, Nevada and Washoe County, Nevada coordinated proceedings were also generally stayed.

As of July 17, 2008, more than 48,500 of the approximately 50,000 individuals who registered eligible injuries have submitted some or all of the materials required for enrollment in the program to resolve state and federal MI and IS claims filed against the Company in the United States.  If all of these eligible submissions are completed in accordance with the Settlement Agreement, this would represent more than 97% of the eligible MI and IS claims previously registered with the program.  In addition, approximately 3,500 other claimants have also sought to enroll and their eligibility status still has yet to be determined.

Also, as of July 17, 2008 BrownGreer, the claims administrator for the Settlement Program (the “Claims Administrator”), reports that more than 30,000 eligible MI claimants have initiated enrollment and more than 18,000 eligible IS claimants have initiated enrollment. Of these, more than 6,000 eligible MI and IS claimants alleging death as an injury have initiated enrollment and more than 29,250 eligible MI and IS claimants alleging more than 12 months of use have initiated enrollment.  Each of these numbers appears to represent at least 97% of the eligible claims in each category.  These numbers do not include the additional 3,500 enrollees whose eligibility has yet to be determined.

On April 14, 2008, various private insurance companies and health plans filed suit against BrownGreer and U.S. Bancorp, escrow agent for the Settlement Program. The private insurance companies and health plans claim to have paid healthcare costs on behalf of some of the enrolling claimants and seek to enjoin the Claims Administrator from paying enrolled claimants until their claims for reimbursement from the enrolled claimants are resolved. On June 9, plaintiffs in that action filed a motion for a temporary restraining order and preliminary injunction seeking an order directing identification and disclosure of plaintiffs’ plan members who are participating in the settlement fund. On June 11, 2008, Judge Fallon denied in part the motion with respect to plaintiffs’ request for a temporary restraining order. On June 27, 2008, counsel for plaintiffs announced that they had reached an agreement under which the motion for preliminary injunction would be withdrawn without prejudice. Another private health plan filed suit against BrownGreer and others. They have moved for a preliminary injunction. The motion is pending.

The Company maintains a list of Vioxx Product Liability Lawsuits scheduled for trial at its website at www.merck.com which it will periodically update as appropriate. The Company has included its website address only as an inactive textual reference and does not intend it to be an active link to its website nor does it incorporate by reference the information contained therein.

The Company has previously disclosed the outcomes of several Vioxx Product Liability Lawsuits that were tried prior to January 1, 2008.

The following sets forth certain significant rulings that occurred in or after the second quarter of 2008 with respect to the Vioxx Product Liability Lawsuits.

On April 19, 2007, Judge Randy Wilson, who presides over the Texas Vioxx coordinated proceeding, dismissed the failure to warn claim of plaintiff Ruby Ledbetter, whose case was scheduled to be tried on May 14, 2007. Judge Wilson relied on a Texas statute enacted in 2003 that provides that there can be no failure to warn regarding a prescription medicine if the medicine is distributed with FDA approved labeling. There is an exception in the statute if required, material, and relevant information was withheld from the FDA that would have led to a different decision regarding the approved labeling, but Judge Wilson found that the exception is preempted by federal law unless the FDA finds that such information was withheld. Judge Wilson is currently presiding over approximately 1,000 Vioxx suits in Texas in which a principal allegation is failure to warn. Judge Wilson certified the decision for an expedited appeal to the Texas Court of Civil Appeals. Plaintiffs appealed the decision. On October 11, 2007, Merck filed a motion to abate the hearing of the appeal until after the U.S. Supreme Court’s decision in Warner Lambert v. Kent, which is to be decided in 2008. On October 25, 2007, the Texas Court of Appeals denied Merck’s motion to abate. On March 20, 2008, plaintiffs moved to dismiss their appeal, seeking instead to vacate the trial court’s decision. Merck filed an opposition to plaintiffs’ motion. On May 15, 2008, the

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Court of Appeals issued an order granting plaintiffs’ motion to dismiss the appeal, but denying plaintiffs’ motion to vacate the order dismissing the claim.

In April 2006, in a trial involving two plaintiffs, Thomas Cona and John McDarby, in Superior Court of New Jersey, Law Division, Atlantic County, the jury returned a split verdict. The jury determined that Vioxx did not substantially contribute to the heart attack of Mr. Cona, but did substantially contribute to the heart attack of Mr. McDarby. The jury also concluded that, in each case, Merck violated New Jersey’s consumer fraud statute, which allows plaintiffs to receive their expenses for purchasing the drug, trebled, as well as reasonable attorneys’ fees. The jury awarded $4.5 million in compensatory damages to Mr. McDarby and his wife, who also was a plaintiff in that case, as well as punitive damages of $9 million. On June 8, 2007, Judge Higbee denied Merck’s motion for a new trial. On June 15, 2007, Judge Higbee awarded approximately $4 million in the aggregate in attorneys’ fees and costs. The Company appealed the judgments in both cases and the Appellate Division held oral argument on both cases on January 16, 2008. On May 29, 2008, the New Jersey Appellate Division vacated the consumer fraud awards in both cases on the grounds that the Product Liability Act provides the sole remedy for personal injury claims. The Appellate Division also vacated the McDarby punitive damage award on the grounds that it is preempted and vacated the attorney’s fees and costs awarded under the Consumer Fraud Act in both cases. The Court upheld the McDarby compensatory award. The Company has filed with the Supreme Court of New Jersey a petition to appeal those parts of the trial court’s rulings that the Appellate Division affirmed. Plaintiffs filed a cross-petition to appeal those parts of the trial court’s rulings that the Appellate Division reversed.

As previously reported, in September 2006, Merck filed a notice of appeal of the August 2005 jury verdict in favor of the plaintiff in the Texas state court case, Ernst v. Merck. On May 29, 2008, the Texas Court of Appeals reversed the trial court’s judgment and issued a judgment in favor of Merck. The Court of Appeals found the evidence to be legally insufficient on the issue of causation. Plaintiffs have asked the court for more time to file a motion for rehearing.

As previously reported, in April 2006, in Garza v. Merck, a jury in state court in Rio Grande City, Texas returned a verdict in favor of the family of decedent Leonel Garza. The jury awarded a total of $7 million in compensatory damages to Mr. Garza’s widow and three sons. The jury also purported to award $25 million in punitive damages even though under Texas law, in this case, potential punitive damages were capped at $750,000. On May 14, 2008, the San Antonio Court of Appeals reversed the judgment and rendered a judgment in favor of Merck. On May 29, 2008, plaintiffs filed a motion for rehearing.

Other Lawsuits
As previously disclosed, on July 29, 2005, a New Jersey state trial court certified a nationwide class of third-party payors (such as unions and health insurance plans) that paid in whole or in part for the Vioxx used by their plan members or insureds. The named plaintiff in that case sought recovery of certain Vioxx purchase costs (plus penalties) based on allegations that the purported class members paid more for Vioxx than they would have had they known of the product’s alleged risks. On March 31, 2006, the New Jersey Superior Court, Appellate Division, affirmed the class certification order. On September 6, 2007, the New Jersey Supreme Court reversed the certification of a nationwide class action of third-party payors, finding that the suit does not meet the requirements for a class action. Claims of certain individual third-party payors remain pending in the New Jersey court, and counsel representing various third-party payors have filed additional such actions. Judge Higbee lifted the stay on these cases and the parties are currently discussing discovery issues.

Judge Higbee has set a briefing schedule in Martin-Kleinman v. Merck, which is a putative consumer class action pending in New Jersey Superior Court. The schedule calls for the briefing to be completed by September 26, 2008.

There are also pending in various U.S. courts putative class actions purportedly brought on behalf of individual purchasers or users of Vioxx claiming either reimbursement of alleged economic loss or an entitlement to medical monitoring. The majority of these cases are at early procedural stages. In New Jersey, the trial court dismissed the complaint in the case of Sinclair v. Merck, a purported statewide medical monitoring class. The Appellate Division reversed the dismissal. On June 4, 2008, the New Jersey Supreme Court reversed the Appellate Division and dismissed the case on the grounds that plaintiffs had not alleged that they suffered any physical injury. In a separate action, on June 12, 2008, a Missouri state court certified a class of Missouri plaintiffs seeking reimbursement for out-of-pocket costs relating to Vioxx. The plaintiffs do not allege any personal injuries from taking Vioxx. The Company filed a petition for interlocutory review on June 23, 2008.

Plaintiffs also have filed a class action in California state court seeking class certification of California third-party payors and end-users. The parties are engaged in class certification discovery and briefing.

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As previously reported, the Company has also been named as a defendant in separate lawsuits brought by the Attorneys General of seven states, and the City of New York. A Colorado taxpayer has also filed a derivative suit, on behalf of the State of Colorado, naming the Company. These actions allege that the Company misrepresented the safety of Vioxx and seek (i) recovery of the cost of Vioxx purchased or reimbursed by the state and its agencies; (ii) reimbursement of all sums paid by the state and its agencies for medical services for the treatment of persons injured by Vioxx; (iii) damages under various common law theories; and/or (iv) remedies under various state statutory theories, including state consumer fraud and/or fair business practices or Medicaid fraud statutes, including civil penalties.

In addition, the Company has been named in four other lawsuits containing similar allegations filed by (or on behalf of) governmental entities seeking the reimbursement of alleged Medicaid expenditures for Vioxx or statutory penalties tied to such expenditures. Those lawsuits are (1) a class action filed by Santa Clara County, California on behalf of all similarly situated California counties, (2) actions filed by Erie County and Chautauqua County, New York, and (3) a qui tam action brought by a resident of the District of Columbia. With the exception of a case filed by the Texas Attorney General (which remains in Texas state court and is currently scheduled for trial in September 2009) and the District of Columbia case (which has been removed to federal court and will likely be transferred to the federal MDL shortly), the rest of the actions described in this paragraph have been transferred to the federal MDL and have not experienced significant activity to date.

Shareholder Lawsuits
As previously disclosed, in addition to the Vioxx Product Liability Lawsuits, the Company and various current and former officers and directors are defendants in various putative class actions and individual lawsuits under the federal securities laws and state securities laws (the “Vioxx Securities Lawsuits”). All of the Vioxx Securities Lawsuits pending in federal court have been transferred by the Judicial Panel on Multidistrict Litigation (the “JPML”) to the United States District Court for the District of New Jersey before District Judge Stanley R. Chesler for inclusion in a nationwide MDL (the “Shareholder MDL”). Judge Chesler has consolidated the Vioxx Securities Lawsuits for all purposes. The putative class action, which requested damages on behalf of purchasers of Company stock between May 21, 1999 and October 29, 2004, alleged that the defendants made false and misleading statements regarding Vioxx in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and sought unspecified compensatory damages and the costs of suit, including attorneys’ fees. The complaint also asserted claims under Section 20A of the Securities and Exchange Act against certain defendants relating to their sales of Merck stock and under Sections 11, 12 and 15 of the Securities Act of 1933 against certain defendants based on statements in a registration statement and certain prospectuses filed in connection with the Merck Stock Investment Plan, a dividend reinvestment plan. On April 12, 2007, Judge Chesler granted defendants’ motion to dismiss the complaint with prejudice. Plaintiffs have appealed Judge Chesler’s decision to the United States Court of Appeals for the Third Circuit. Oral argument before the Court of Appeals was held on June 24, 2008.

In October 2005, a Dutch pension fund filed a complaint in the District of New Jersey alleging violations of federal securities laws as well as violations of state law against the Company and certain officers. Pursuant to the Case Management Order governing the Shareholder MDL, the case, which is based on the same allegations as the Vioxx Securities Lawsuits, was consolidated with the Vioxx Securities Lawsuits. Defendants’ motion to dismiss the pension fund’s complaint was filed on August 3, 2007. In September 2007, the Dutch pension fund filed an amended complaint rather than responding to defendants’ motion to dismiss. In addition in 2007, six new complaints were filed in the District of New Jersey on behalf of various foreign institutional investors also alleging violations of federal securities laws as well as violations of state law against the Company and certain officers. Defendants are not required to respond to these complaints until after the Third Circuit issues a decision on the securities lawsuit currently on appeal.

As previously disclosed, various shareholder derivative actions filed in federal court were transferred to the Shareholder MDL and consolidated for all purposes by Judge Chesler (the “Vioxx Derivative Lawsuits”). On May 5, 2006, Judge Chesler granted defendants’ motion to dismiss and denied plaintiffs’ request for leave to amend their complaint. Plaintiffs appealed, arguing that Judge Chesler erred in denying plaintiffs’ leave to amend their complaint with materials acquired during discovery. On July 18, 2007, the United States Court of Appeals for the Third Circuit reversed the District Court’s decision on the grounds that Judge Chesler should have allowed plaintiffs to make use of the discovery material to try to establish demand futility, and remanded the case for the District Court’s consideration of whether, even with the additional materials, plaintiffs’ request to amend their complaint would still be futile. Plaintiffs filed their brief in support of their request for leave to amend their complaint in November 2007. The Court denied the motion in June 2008 and closed the case. On July 18, Plaintiff Halpert Enterprises, Inc. filed a notice of appeal.

In addition, as previously disclosed, various putative class actions filed in federal court under the Employee Retirement Income Security Act (“ERISA”) against the Company and certain current and former officers and directors (the “Vioxx ERISA Lawsuits” and, together with the Vioxx Securities Lawsuits and the Vioxx Derivative Lawsuits, the “Vioxx Shareholder Lawsuits”) have been transferred to the Shareholder MDL and consolidated for all purposes. The

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consolidated complaint asserts claims on behalf of certain of the Company’s current and former employees who are participants in certain of the Company’s retirement plans for breach of fiduciary duty. The lawsuits make similar allegations to the allegations contained in the Vioxx Securities Lawsuits. On July 11, 2006, Judge Chesler granted in part and denied in part defendants’ motion to dismiss the ERISA complaint. In October 2007, plaintiffs moved for certification of a class of individuals who were participants in and beneficiaries of the Company’s retirement savings plans at any time between October 1, 1998 and September 30, 2004 and whose plan accounts included investments in the Merck Common Stock Fund and/or Merck common stock. That motion is pending. On April 16, 2008, Plaintiffs filed a Motion for Leave to Supplement the Amended Complaint to add allegations relating to Vytorin and seeking to add additional defendants, including Richard T. Clark and additional members of the Board of Directors. The Court denied the motion in May 2008.

As previously disclosed, on October 29, 2004, two individual shareholders made a demand on the Company’s Board to take legal action against Mr. Raymond Gilmartin, former Chairman, President and Chief Executive Officer and other individuals for allegedly causing damage to the Company with respect to the allegedly improper marketing of Vioxx. In December 2004, the Special Committee of the Board of Directors retained the Honorable John S. Martin, Jr. of Debevoise & Plimpton LLP to conduct an independent investigation of, among other things, the allegations set forth in the demand. Judge Martin’s report was made public in September 2006. Based on the Special Committee’s recommendation made after careful consideration of the Martin report and the impact that derivative litigation would have on the Company, the Board rejected the demand. On October 11, 2007, the shareholders filed a lawsuit in state court in Atlantic County, NJ against current and former executives and directors of the Company alleging that the Board’s rejection of their demand was unreasonable and improper, and that the defendants breached various duties to the Company in allowing Vioxx to be marketed. The current and former executive and director defendants filed motions to dismiss the complaint in June 2008. Those motions are pending.

International Lawsuits
As previously disclosed, in addition to the lawsuits discussed above, the Company has been named as a defendant in litigation relating to Vioxx in various countries (collectively, the “Vioxx Foreign Lawsuits”) in Europe, as well as Canada, Brazil, Argentina, Australia, Turkey, and Israel.

On May 30, 2008, the provincial court of Queen’s Bench in Saskatchewan, Canada entered an order certifying a class of Vioxx users in Canada, except those in Quebec. The class includes individual purchasers who allege inducement to purchase by unfair marketing practices; individuals who allege Vioxx was not of acceptable quality, defective or not fit for the purpose of managing pain associated with approved indications; or ingestors who claim Vioxx caused or exacerbated a cardiovascular or gastrointestinal condition. On June 17, 2008, the Court of Appeal for Saskatchewan granted the Company leave to appeal the certification order. On July 28, 2008, the Superior court in Ontario decided to certify a class of Vioxx users in Canada, except those in Quebec and Saskatchewan. The Company intends to seek leave to appeal that decision. Earlier, in November 2006, the Superior court in Quebec authorized the institution of a class action on behalf of all individuals who, in Québec, consumed Vioxx and suffered damages arising out of its ingestion. As of June 30, 2008, the plaintiffs have not instituted an action based upon that authorization.

Additional Lawsuits
Based on media reports and other sources, the Company anticipates that additional Vioxx Product Liability Lawsuits, Vioxx Shareholder Lawsuits and Vioxx Foreign Lawsuits (collectively, the “Vioxx Lawsuits”) will be filed against it and/or certain of its current and former officers and directors in the future.

Insurance
As previously disclosed, the Company has product liability insurance for claims brought in the Vioxx Product Liability Lawsuits with stated upper limits of approximately $630 million after deductibles and co-insurance. This insurance provides coverage for legal defense costs and potential damage amounts in connection with the Vioxx Product Liability Lawsuits. Through an arbitration proceeding and negotiated settlements, the Company received an aggregate of approximately $585 million in product liability insurance proceeds relating to the Vioxx Product Liability Lawsuits, plus approximately $45 million in fees and interest payments. The Company is still negotiating with one insurer about an immaterial amount of coverage for these lawsuits. The Company has no additional insurance for the Vioxx Product Liability Lawsuits. The Company’s insurance coverage with respect to the Vioxx Lawsuits will not be adequate to cover its defense costs and losses.

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The Company also has Directors and Officers insurance coverage applicable to the Vioxx Securities Lawsuits and Vioxx Derivative Lawsuits with stated upper limits of approximately $190 million. The Company has Fiduciary and other insurance for the Vioxx ERISA Lawsuits with stated upper limits of approximately $275 million. As a result of the arbitration proceeding referenced above, additional insurance coverage for these claims should also be available, if needed, under upper-level excess policies that provide coverage for a variety of risks. There are disputes with the insurers about the availability of some or all of the Company’s insurance coverage for these claims and there are likely to be additional disputes. The amounts actually recovered under the policies discussed in this paragraph may be less than the stated upper limits.

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Investigations
As previously disclosed, in November 2004, the Company was advised by the staff of the SEC that it was commencing an informal inquiry concerning Vioxx. On January 28, 2005, the Company announced that it received notice that the SEC issued a formal notice of investigation. Also, the Company has received subpoenas from the U.S. Department of Justice (the “DOJ”) requesting information related to the Company’s research, marketing and selling activities with respect to Vioxx in a federal health care investigation under criminal statutes. In addition, as previously disclosed, investigations are being conducted by local authorities in certain cities in Europe in order to determine whether any criminal charges should be brought concerning Vioxx. The Company is cooperating with these governmental entities in their respective investigations (the “Vioxx Investigations”). The Company cannot predict the outcome of these inquiries; however, they could result in potential civil and/or criminal dispositions.

As previously disclosed, on May 20, 2008, the Company reached civil settlements with Attorneys General from 29 states and the District of Columbia to fully resolve previously disclosed investigations under state consumer protection laws related to past activities for Vioxx. As part of the civil resolution of these investigations, Merck paid a total of $58 million to be divided among the 29 states and the District of Columbia. In April 2008, Merck announced it had taken a pre-tax charge in the first quarter of $55 million in anticipation of this settlement. The agreement also includes compliance measures that supplement policies and procedures previously established by the Company.

In addition, the Company received a subpoena in September 2006 from the State of California Attorney General seeking documents and information related to the placement of Vioxx on California’s Medi-Cal formulary. The Company is cooperating with the Attorney General in responding to the subpoena.

Reserves
As discussed above, on November 9, 2007, Merck entered into the Settlement Agreement with the law firms that comprise the executive committee of the PSC of the federal Vioxx MDL as well as representatives of plaintiffs’ counsel in the Texas, New Jersey and California state coordinated proceedings to resolve state and federal MI and IS claims filed as of that date in the United States. The Settlement Agreement, which also applies to tolled claims, was signed by the parties after several meetings with three of the four judges overseeing the coordination of more than 95% of the U.S. Vioxx Product Liability Lawsuits. The Settlement Agreement applies only to U.S. legal residents and those who allege that their MI or IS occurred in the United States. As a result of entering into the Settlement Agreement, the Company recorded a pretax charge of $4.85 billion in 2007 which represents the fixed aggregate amount to be paid to plaintiffs qualifying for payment under the Settlement Program.

The Company currently anticipates that Vioxx Product Liability Lawsuits will be tried in the future. The Company believes that it has meritorious defenses to the Vioxx Lawsuits and will vigorously defend against them. In view of the inherent difficulty of predicting the outcome of litigation, particularly where there are many claimants and the claimants seek indeterminate damages, the Company is unable to predict the outcome of these matters, and at this time cannot reasonably estimate the possible loss or range of loss with respect to the Vioxx Lawsuits not included in the Settlement Program. The Company has not established any reserves for any potential liability relating to the Vioxx Lawsuits not included in the Settlement Program or the Vioxx Investigations (other than as set forth above), including for those cases in which verdicts or judgments have been entered against the Company, and are now in post-verdict proceedings or on appeal. In each of those cases the Company believes it has strong points to raise on appeal and therefore that unfavorable outcomes in such cases are not probable. Unfavorable outcomes in the Vioxx Litigation (as defined below) could have a material adverse effect on the Company’s financial position, liquidity and results of operations.

Legal defense costs expected to be incurred in connection with a loss contingency are accrued when probable and reasonably estimable. As of December 31, 2007, the Company had a reserve of $5.372 billion which represented the aggregate amount to be paid under the Settlement Agreement and its future legal defense costs related to (i) the Vioxx Product Liability Lawsuits, (ii) the Vioxx Shareholder Lawsuits, (iii) the Vioxx Foreign Lawsuits, and (iv) the Vioxx Investigations (collectively, the “Vioxx Litigation”). During the first quarter of 2008, the Company spent approximately $79 million in the aggregate in legal defense costs related to the Vioxx Litigation. In the second quarter of 2008, the Company spent approximately $78 million in the aggregate in legal defense costs related to the Vioxx Litigation. Thus, as of June 30, 2008, the Company had a reserve of approximately $5.215 billion related to the Vioxx Litigation.

Some of the significant factors considered in the review of the reserve were as follows: the actual costs incurred by the Company; the development of the Company’s legal defense strategy and structure in light of the scope of the Vioxx

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Litigation, including the Settlement Agreement and the expectation that the Settlement Agreement will be consummated, but that certain lawsuits will continue to be pending; the number of cases being brought against the Company; the costs and outcomes of completed trials and the most current information regarding anticipated timing, progression, and related costs of pre-trial activities and trials in the Vioxx Product Liability Lawsuits. Events such as scheduled trials, that are expected to occur in 2009, and the inherent inability to predict the ultimate outcomes of such trials and the disposition of Vioxx Product Liability Lawsuits not participating in or not eligible for the Settlement Program, limit the Company’s ability to reasonably estimate its legal costs beyond 2009.

The Company will continue to monitor its legal defense costs and review the adequacy of the associated reserves and may determine to increase its reserves for legal defense costs at any time in the future if, based upon the factors set forth, it believes it would be appropriate to do so.

Other Product Liability Litigation
As previously disclosed, the Company is a defendant in product liability lawsuits in the United States involving Fosamax (the “Fosamax Litigation”). As of June 30, 2008, approximately 655 cases, which include approximately 1,120 plaintiff groups had been filed and were pending against Merck in either federal or state court, including three cases which seek class action certification, as well as damages and medical monitoring. In these actions, plaintiffs allege, among other things, that they have suffered osteonecrosis of the jaw, generally subsequent to invasive dental procedures such as tooth extraction or dental implants, and/or delayed healing, in association with the use of Fosamax. On August 16, 2006, the JPML ordered that the Fosamax product liability cases pending in federal courts nationwide should be transferred and consolidated into one multidistrict litigation (the “Fosamax MDL”) for coordinated pre-trial proceedings. The Fosamax MDL has been transferred to Judge John Keenan in the United States District Court for the Southern District of New York. As a result of the JPML order, approximately 550 of the cases are before Judge Keenan. Judge Keenan has issued a Case Management Order (and various amendments thereto) setting forth a schedule governing the proceedings which focuses primarily upon resolving the class action certification motions in 2007 and completing fact discovery in an initial group of 25 cases by October 1, 2008. Briefing and argument on plaintiffs’ motions for certification of medical monitoring classes were completed in 2007 and Judge Keenan issued an order denying the motions on January 3, 2008. On January 28, 2008, Judge Keenan issued a further order dismissing with prejudice all class claims asserted in the first four class action lawsuits filed against Merck that sought personal injury damages and/or medical monitoring relief on a class wide basis. Discovery is ongoing in both the Fosamax MDL litigation as well as in various state court cases. The Company intends to defend against these lawsuits.

As of December 31, 2007, the Company had a remaining reserve of approximately $27 million solely for its future legal defense costs for the Fosamax Litigation. During the first quarter of 2008, the Company spent approximately $7 million and added $40 million to its reserve. In the second quarter, the Company spent approximately $10 million. Consequently, as of June 30, 2008, the Company had a reserve of approximately $50 million. Some of the significant factors considered in the establishment and ongoing assessment of the reserve for the Fosamax Litigation legal defense costs were as follows: the actual costs incurred by the Company thus far; the development of the Company’s legal defense strategy and structure in light of the creation of the Fosamax MDL; the number of cases being brought against the Company; and the anticipated timing, progression, and related costs of pre-trial activities in the Fosamax Litigation. The Company will continue to monitor its legal defense costs and review the adequacy of the associated reserves. Due to the uncertain nature of litigation, the Company is unable to estimate its costs beyond 2009. The Company has not established any reserves for any potential liability relating to the Fosamax Litigation. Unfavorable outcomes in the Fosamax Litigation could have a material adverse effect on the Company’s financial position, liquidity and results of operations.

Vytorin/Zetia Litigation
As previously disclosed, since December 2007, the Company and its joint-venture partner, Schering-Plough, have received several letters addressed to both companies from the House Committee on Energy and Commerce, its Subcommittee on Oversight and Investigations, and the Ranking Minority Member of the Senate Finance Committee, collectively seeking a combination of witness interviews, documents and information on a variety of issues related to the ENHANCE clinical trial, the sale and promotion of Vytorin, as well as sales of stock by corporate officers. On January 25, 2008, the companies and the MSP Partnership each received two subpoenas from the New York State Attorney General’s Office seeking similar information and documents. Merck and Schering-Plough have also each received a letter from the Office of the Connecticut Attorney General dated February 1, 2008 requesting documents related to the marketing and sale of Vytorin and Zetia and the timing of disclosures of the results of ENHANCE. Merck and Schering-Plough also received subpoenas dated April 4, 2008, from the Office of the New Jersey Attorney General seeking documents related to the ENHANCE trial and the sale and marketing of Vytorin. The Company is cooperating with these investigations and working with Schering-Plough to respond to the inquiries. In addition, since mid-January 2008, the Company has become aware of or been served with approximately 140 civil class action lawsuits alleging common law and state consumer fraud

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claims in connection with the MSP Partnership’s sale and promotion of Vytorin and Zetia. Certain of those lawsuits allege personal injuries and/or seek medical monitoring.

Also, as previously disclosed, on April 3, 2008, a Merck shareholder filed a putative class action lawsuit in federal court in the Eastern District of Pennsylvania alleging that Merck and its Chairman, President and Chief Executive Officer, Richard T. Clark, violated the federal securities laws.  Specifically, the complaint alleges that Merck delayed releasing unfavorable results of a clinical study regarding the efficacy of Vytorin and that Merck made false and misleading statements about expected earnings, knowing that once the results of the Vytorin study were released, sales of Vytorin would decline and Merck’s earnings would suffer. On April 22, 2008, a member of a Merck ERISA plan filed a putative class action lawsuit against the Company and certain of its officers and directors alleging they breached their fiduciary duties under ERISA.  Plaintiff alleges that the ERISA plan’s investment in Company stock was imprudent because the Company’s earnings are dependent on the commercial success of its cholesterol drug Vytorin and that defendants knew or should have known that the results of a scientific study would cause the medical community to turn to less expensive drugs for cholesterol management.  The Company intends to defend the lawsuits referred to in this section vigorously. Unfavorable outcomes resulting from the government investigations or the civil litigation could have a material adverse effect on the Company’s financial position, liquidity and results of operations.

Patent Litigation
From time to time, generic manufacturers of pharmaceutical products file Abbreviated New Drug Applications (“ANDA’s”) with the FDA seeking to market generic forms of the Company’s products prior to the expiration of relevant patents owned by the Company. Generic pharmaceutical manufacturers have submitted ANDA’s to the FDA seeking to market in the United States a generic form of Propecia, Prilosec, Nexium, Singulair, Trusopt, Cosopt and Primaxin prior to the expiration of the Company’s (and AstraZeneca’s in the case of Prilosec and Nexium) patents concerning these products. In addition, an ANDA has been submitted to the FDA seeking to market in the United States a generic form of Zetia prior to the expiration of Schering-Plough’s patent concerning that product. The generic companies’ ANDA’s generally include allegations of non-infringement, invalidity and unenforceability of the patents. Generic manufacturers have received FDA approval to market a generic form of Prilosec. The Company has filed patent infringement suits in federal court against companies filing ANDA’s for generic finasteride (Propecia), dorzolamide (Trusopt), montelukast (Singulair), dorzolamide/timolol (Cosopt), imipenem/cilastatin (Primaxin) and AstraZeneca and the Company have filed patent infringement suits in federal court against companies filing ANDA’s for generic omeprazole (Prilosec) and esomeprazole (Nexium). Also, the Company and Schering-Plough have filed a patent infringement suit in federal court against companies filing ANDA’s for generic ezetimibe (Zetia). Similar patent challenges exist in certain foreign jurisdictions. The Company intends to vigorously defend its patents, which it believes are valid, against infringement by generic companies attempting to market products prior to the expiration dates of such patents. As with any litigation, there can be no assurance of the outcomes, which, if adverse, could result in significantly shortened periods of exclusivity for these products.

The Company and AstraZeneca received notice in October 2005 that Ranbaxy Laboratories Ltd. (“Ranbaxy”) had filed an ANDA for esomeprazole. The ANDA contains Paragraph IV challenges to patents on Nexium. On November 21, 2005, the Company and AstraZeneca sued Ranbaxy in the United States District Court in New Jersey. Accordingly, FDA approval of Ranbaxy’s ANDA was stayed for 30 months until April 2008 or until an adverse court decision, if any, whichever may occur earlier. As previously disclosed, AstraZeneca, Merck and Ranbaxy have entered into a settlement agreement which provides that Ranbaxy will not bring its generic esomeprazole product to market in the United States until May 27, 2014. The Company and AstraZeneca each received a Civil Investigative Demand (“CID”) from the United States Federal Trade Commission (the “FTC”) in July 2008 regarding the settlement agreement with Ranbaxy. The Company is cooperating with the FTC in responding to this CID.

The Company and AstraZeneca received notice in January 2006 that IVAX Pharmaceuticals, Inc., subsequently acquired by Teva Pharmaceuticals (“Teva”), had filed an ANDA for esomeprazole. The ANDA contains Paragraph IV challenges to patents on Nexium. On March 8, 2006, the Company and AstraZeneca sued Teva in the United States District Court in New Jersey. Accordingly, FDA approval of Teva’s ANDA is stayed for 30 months until September 2008 or until an adverse court decision, if any, whichever may occur earlier. In January 2008, the Company and AstraZeneca sued Dr. Reddy’s Laboratories (“Dr. Reddy’s”) in the District Court in New Jersey based on Dr. Reddy’s filing of an ANDA for esomeprazole. Accordingly, FDA approval of Dr. Reddy’s ANDA is stayed for 30 months until July 2010 or until an adverse court decision, if any, whichever may occur earlier.

In April 2007, Merck sued Ranbaxy regarding an ANDA Ranbaxy filed seeking approval for a generic version of Primaxin (imipenem/cilastatin). The lawsuit asserted infringement of Merck’s patent which is due to expire on September 15, 2009. In July 2008, Merck and Ranbaxy entered into an agreement pursuant to which Ranbaxy can begin to market in the United States a generic form of imipenem/cilastatin on September 1, 2009.

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Other Litigation
There are various other legal proceedings, principally product liability and intellectual property suits involving the Company, which are pending. While it is not feasible to predict the outcome of such proceedings or the proceedings discussed in this Item, in the opinion of the Company, all such proceedings are either adequately covered by insurance or, if not so covered, should not ultimately result in any liability that would have a material adverse effect on the financial position, liquidity or results of operations of the Company, other than proceedings for which a separate assessment is provided in this Item.

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Item 4. Controls and Procedures

Management of the Company, with the participation of its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures. Based on their evaluation, as of the end of the period covered by this Form 10-Q, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) are effective. There have been no changes in internal control over financial reporting, for the period covered by this report, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. The Company is in the process of implementing an enterprise resource planning system, which includes transitioning certain financial functions into regionalized shared service environments, at certain of the Company’s locations over the coming quarters.

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 based on management’s current expectations and are subject to risks and uncertainties which may cause results to differ materially from those set forth in the statements. 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 development, product approvals, product potential and development programs. One must carefully consider any such statement and should understand that many factors could cause actual results to differ materially 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, including risk factors, described in the Company’s filings with the Securities and Exchange Commission, especially on Forms 10-K, 10-Q and 8-K. In Item 1A. “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2007, as filed on February 28, 2008, 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.

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PART II - Other Information

Item 1. Legal Proceedings

Information with respect to certain legal proceedings is incorporated by reference from Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Part I of this report.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer purchases of equity securities for the three months ended June 30, 2008 were as follows:

ISSUER PURCHASES OF EQUITY SECURITIES

			($ in millions)
	Total Number	Average Price	Approximate Dollar Value of Shares
	of Shares	Paid Per	That May Yet Be Purchased
Period	Purchased(1)	Share	Under the Plans or Programs(1)
April 1 - April 30, 2008	1,490,700	$39.73	$3,660.7
May 1 - May 31, 2008	1,445,600	$39.25	$3,604.0
June 1 - June 30, 2008	1,569,400	$36.54	$3,546.6
Total	4,505,700	$38.46	$3,546.6

⁽¹⁾ All shares purchased during the period were made as part of a plan announced in July 2002 to purchase $10 billion in Merck shares.

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 22, 2008, 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:

Names	For	Against	Abstained
Richard T. Clark	1,726,834,169	40,371,624	27,747,644
Johnnetta B. Cole	1,654,276,170	112,868,463	27,808,804
Thomas H. Glocer	1,723,150,026	42,192,325	29,611,086
Steven F. Goldstone	1,700,004,263	65,387,263	29,561,911
William B. Harrison, Jr.	1,733,693,248	33,220,742	28,039,447
Harry R. Jacobson	1,714,546,214	52,624,976	27,782,247
William N. Kelley	1,640,053,651	127,066,625	27,833,161
Rochelle B. Lazarus	1,659,065,633	107,964,025	27,923,779
Thomas E. Shenk	1,612,523,261	154,575,586	27,854,590
Anne M. Tatlock	1,668,399,466	98,621,822	27,932,149
Samuel O. Thier	1,657,798,852	109,379,062	27,775,523
Wendell P. Weeks	1,669,618,126	97,242,391	28,092,840
Peter C. Wendell	1,670,269,323	96,750,440	27,933,674

2. A proposal to ratify the appointment of an independent registered public accounting firm for 2008 received 1,738,682,017 votes FOR and 29,510,260 votes AGAINST, with 26,761,160 abstentions.

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3.	A stockholder proposal concerning management compensation received 59,128,671 votes FOR and 1,431,137,170 votes AGAINST, with 31,287,357 abstentions and 273,400,239 broker non-votes.
4.	A stockholder proposal concerning an advisory vote on executive compensation received 670,490,602 votes FOR and 717,160,569 votes AGAINST, with 133,902,027 abstentions and 273,400,239 broker non-votes.
5.	A stockholder proposal concerning special shareholder meetings received 856,369,728 votes FOR and 633,464,775 votes AGAINST, with 31,718,695 abstentions and 273,400,239 broker non-votes.
6.	A stockholder proposal concerning an independent lead director received 647,314,773 votes FOR and 841,198,136 votes AGAINST, with 33,040,289 abstentions and 273,400,239 broker non-votes.

Item 6. Exhibits

Number		Description
	3.1	Restated Certificate of Incorporation of Merck & Co., Inc. (May 17, 2007) – Incorporated by reference to Current Report on Form 8-K dated May 17, 2007
	3.2	By-Laws of Merck & Co., Inc. (as amended effective May 31, 2007) – Incorporated by reference to Current Report on Form 8-K dated May 31, 2007
	10.1	Cholesterol Governance Agreement, dated as of May 22, 2000, by and among MSP Distribution Services (C) LLC, MSP Marketing Services (C) LLC, MSP Technology (US) Company LLC, Merck Cardiovascular Health Company, Merck Technology (US) Company, Inc., Schering MSP Corporation, Schering Sales Management, Inc., Schering Sales Corporation, Schering MSP Pharmaceuticals L.P., MSP Cholesterol LLC, MSP Singapore Company, LLC, MSD Technology Singapore Pte. Ltd., MSD Ventures Singapore Pte. Ltd., Osammor Pte. Ltd. (to be renamed Schering-Plough (Singapore) Pte. Ltd.), Citimere Pte. Ltd. (to be renamed Schering-Plough (Singapore) Research Pte. Ltd.), Schering Corporation, Schering-Plough Corporation, and Merck & Co., Inc. (Portions of this Exhibit are subject to a request for confidential treatment filed with the Commission)
	10.2	First Amendment to the Cholesterol Governance Agreement, dated as of December 18, 2001, by and among MSP Distribution Services (C) LLC, MSP Marketing Services (C) LLC, MSP Technology (US) Company LLC, Merck Cardiovascular Health Company, Merck Technology (US) Company, Inc., Schering MSP Corporation, Schering Sales Management, Inc., Schering Sales Corporation, Schering MSP Pharmaceuticals L.P., MSP Singapore Company, LLC (the “Singapore Partnership”), MSD Technology Singapore Pte. Ltd., MSD Ventures Singapore Pte. Ltd., Schering-Plough (Singapore) Pte. Ltd., Schering-Plough (Singapore) Research Pte. Ltd., Schering Corporation, Schering-Plough Corporation, and Merck & Co., Inc. (Portions of this Exhibit are subject to a request for confidential treatment filed with the Commission)
	10.3	Master Agreement, dated as of December 18, 2001, by and among MSP Technology (U.S.) Company LLC, MSP Singapore Company, LLC, Schering Corporation, Schering-Plough Corporation, and Merck & Co., Inc. (Portions of this Exhibit are subject to a request for confidential treatment filed with the Commission)
	10.4	Master Merial Venture Agreement, dated as of May 23, 1997, by and among Rhône-Poulenc S.A., Institut Mérieux S.A., Rhône-Mérieux S.A., Merck & Co., Inc., Merck SH Inc., and Merial Limited (Portions of this Exhibit are subject to a request for confidential treatment filed with the Commission)
	31.1	Rule 13a – 14(a)/15d – 14(a) Certification of Chief Executive Officer

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31.2	Rule 13a – 14(a)/15d – 14(a) Certification of Chief Financial Officer
32.1	Section 1350 Certification of Chief Executive Officer
32.2	Section 1350 Certification of Chief Financial Officer

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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: July 31, 2008	/s/ Bruce N. Kuhlik
	BRUCE N. KUHLIK
	Executive Vice President and General Counsel
Date: July 31, 2008	/s/ John Canan
	JOHN CANAN
	Senior Vice President and Controller

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EXHIBIT INDEX

Number	Description
3.1	Restated Certificate of Incorporation of Merck & Co., Inc. (May 17, 2007) – Incorporated by reference to Current Report on Form 8-K dated May 17, 2007
3.2	By-Laws of Merck & Co., Inc. (as amended effective May 31, 2007) – Incorporated by reference to Current Report on Form 8-K dated May 31, 2007
10.1	Cholesterol Governance Agreement, dated as of May 22, 2000, by and among MSP Distribution Services (C) LLC, MSP Marketing Services (C) LLC, MSP Technology (US) Company LLC, Merck Cardiovascular Health Company, Merck Technology (US) Company, Inc., Schering MSP Corporation, Schering Sales Management, Inc., Schering Sales Corporation, Schering MSP Pharmaceuticals L.P., MSP Cholesterol LLC, MSP Singapore Company, LLC, MSD Technology Singapore Pte. Ltd., MSD Ventures Singapore Pte. Ltd., Osammor Pte. Ltd. (to be renamed Schering-Plough (Singapore) Pte. Ltd.), Citimere Pte. Ltd. (to be renamed Schering-Plough (Singapore) Research Pte. Ltd.), Schering Corporation, Schering-Plough Corporation, and Merck & Co., Inc. (Portions of this Exhibit are subject to a request for confidential treatment filed with the Commission)
10.2	First Amendment to the Cholesterol Governance Agreement, dated as of December 18, 2001, by and among MSP Distribution Services (C) LLC, MSP Marketing Services (C) LLC, MSP Technology (US) Company LLC, Merck Cardiovascular Health Company, Merck Technology (US) Company, Inc., Schering MSP Corporation, Schering Sales Management, Inc., Schering Sales Corporation, Schering MSP Pharmaceuticals L.P., MSP Singapore Company, LLC (the “Singapore Partnership”), MSD Technology Singapore Pte. Ltd., MSD Ventures Singapore Pte. Ltd., Schering-Plough (Singapore) Pte. Ltd., Schering-Plough (Singapore) Research Pte. Ltd., Schering Corporation, Schering-Plough Corporation, and Merck & Co., Inc. (Portions of this Exhibit are subject to a request for confidential treatment filed with the Commission)
10.3	Master Agreement, dated as of December 18, 2001, by and among MSP Technology (U.S.) Company LLC, MSP Singapore Company, LLC, Schering Corporation, Schering-Plough Corporation, and Merck & Co., Inc. (Portions of this Exhibit are subject to a request for confidential treatment filed with the Commission)
10.4	Master Merial Venture Agreement, dated as of May 23, 1997, by and among Rhône-Poulenc S.A., Institut Mérieux S.A., Rhône-Mérieux S.A., Merck & Co., Inc., Merck SH Inc., and Merial Limited (Portions of this Exhibit are subject to a request for confidential treatment filed with the Commission)
31.1	Rule 13a – 14(a)/15d – 14(a) Certification of Chief Executive Officer
31.2	Rule 13a – 14(a)/15d – 14(a) Certification of Chief Financial Officer
32.1	Section 1350 Certification of Chief Executive Officer
32.2	Section 1350 Certification of Chief Financial Officer

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EX-10.1

Exhibit 10.1

EXECUTION COPY

Confidential portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission with a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. The location of an omitted portion is indicated by an asterisk within brackets (“[*]”).

CHOLESTEROL GOVERNANCE AGREEMENT

BY AND AMONG

MSP DISTRIBUTION SERVICES (C) LLC,

MSP MARKETING SERVICES (C) LLC,

MSP TECHNOLOGY (US) COMPANY LLC,

MERCK CARDIOVASCULAR HEALTH COMPANY,

MERCK TECHNOLOGY (US) COMPANY, INC.,

SCHERING MSP CORPORATION,

SCHERING SALES MANAGEMENT, INC.,

SCHERING SALES CORPORATION,

SCHERING MSP PHARMACEUTICALS L.P.,

MSP CHOLESTEROL LLC,

MSP SINGAPORE COMPANY, LLC,

MSD TECHNOLOGY SINGAPORE Pte. Ltd.,

MSD VENTURES SINGAPORE Pte. Ltd.,

OSAMMOR Pte. Ltd. (to be renamed
SCHERING-PLOUGH (SINGAPORE) Pte. Ltd.),

CITIMERE Pte. Ltd. (to be renamed
SCHERING-PLOUGH (SINGAPORE) RESEARCH Pte. Ltd.),

SCHERING CORPORATION,

SCHERING-PLOUGH CORPORATION,

AND

MERCK & CO., INC.

DATED AS OF

May 22, 2000

TABLE OF CONTENTS

	Page
ARTICLE I DEFINED TERMS		1
Section 1.1. Interpretation		1
Section 1.2. Definitions		1
Section 1.3. Headings		11
Section 1.4. Intent of the Parties		11
ARTICLE II THE TRANSACTIONS		12
Section 2.1. Transactions at the Signing		12
Section 2.2. Transactions as of the Effective Date		15
ARTICLE III MANAGEMENT		16
Section 3.1. Management by the Board of Members		16
Section 3.2. General Manager		16
Section 3.3. Boards of Members		16
Section 3.4. Committees; Purposes and Principles		19
Section 3.5. Meetings of the Committees		20
Section 3.6. Committee Decision-Making and Dispute Resolution		20
Section 3.7. Required Consent		20
Section 3.8. Deficit Make-Ups		22
ARTICLE IV EFFECTIVENESS; APPROVAL; EXCLUSIVITY		22
Section 4.1. Effectiveness		22
Section 4.2. Commercially Reasonable Efforts		23
Section 4.3. Non-Compete		24
ARTICLE V DEVELOPMENT AND MARKETING		24
Section 5.1. General		24
Section 5.2. Product Recalls		24
Section 5.3. Trademarks		24
ARTICLE VI RIGHT OF FIRST OFFER		25
Section 6.1. Right of First Offer		25
ARTICLE VII DISPUTE RESOLUTION, TERMINATION, DISSOLUTION AND LIQUIDATION		26
Section 7.1. Dispute Resolution		26

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	Page
Section 7.2. Termination		27
Section 7.3. Consequences of Termination		28
ARTICLE VIII REPRESENTATIONS, WARRANTIES, COVENANTS AND INDEMNIFICATION		33
Section 8.1. Representations and Warranties of the Parties		33
Section 8.2. Certain Representations		34
Section 8.3. Certain Covenants		35
Section 8.4. Certain Obligations		35
Section 8.5. Indemnification		36
ARTICLE IX MISCELLANEOUS		37
Section 9.1. Confidentiality		37
Section 9.2. Publicity		38
Section 9.3. Further Assurances		39
Section 9.4. Notices		39
Section 9.5. Failure to Pursue Remedies		39
Section 9.6. Cumulative Remedies		39
Section 9.7. Assignment; Binding Effect		40
Section 9.8. Severability		40
Section 9.9. Standstill		40
Section 9.10. Counterparts		41
Section 9.11. Integration		41
Section 9.12. Governing Law		41
Section 9.13. Amendments		42
Section 9.14. Judicial Proceeding		42
Section 9.15. Enforcement of Certain Rights		42
Section 9.16. No Third Party Beneficiaries		43
Section 9.17. Survival		43

Schedule A	–	Existing M JVs
Schedule B	–	Existing S-P JVs
Schedule C	–	Non-Pharma Companies
Schedule 7.3	–	Illustrations of Change of Control Valuation
Schedule 9.4	–	Notice Provisions

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     This Cholesterol Governance Agreement is dated as of May 22, 2000, by and among MSP DISTRIBUTION SERVICES (C) LLC (“Distribution LLC”), MSP MARKETING SERVICES (C) LLC (“Marketing LLC”), MSP TECHNOLOGY (US) COMPANY LLC (“Technology LLC”), MERCK CARDIOVASCULAR HEALTH COMPANY (“M-Cardio Sub”), MERCK TECHNOLOGY (US) COMPANY, INC., SCHERING MSP CORPORATION (“S-MSP Corp.”), SCHERING SALES MANAGEMENT, INC. (“S-Sales Sub”), SCHERING SALES CORPORATION, SCHERING MSP PHARMACEUTICALS L.P., MSP CHOLESTEROL LLC (“Cholesterol LLC”), MSP SINGAPORE COMPANY, LLC (the “Singapore Partnership”), MSD TECHNOLOGY SINGAPORE Pte. Ltd., MSD VENTURES SINGAPORE Pte. Ltd., OSAMMOR Pte. Ltd. (to be renamed SCHERING-PLOUGH (SINGAPORE) Pte. Ltd.), CITIMERE Pte. Ltd. (to be renamed SCHERING-PLOUGH (SINGAPORE) RESEARCH Pte. Ltd.), Schering Corporation, Schering-Plough Corporation, a New Jersey corporation (“S-P”), and Merck & Co., Inc., a New Jersey corporation (“M”).

     WHEREAS, S-P and M, through their respective Affiliates, have entered into limited liability company agreements dated as of the date hereof relating to the formation of Distribution LLC, Marketing LLC, Technology LLC, Cholesterol LLC and Singapore Partnership (Distribution LLC, Marketing LLC, Technology LLC, Cholesterol LLC and Singapore Partnership being collectively referred to herein as the “Companies”, and each, individually, a “Company”).

     WHEREAS, the Companies have been formed and the Related Agreements have been entered into for the purposes of, among other things, research, development and commercialization of (1) the Z/E Combination Product, (2) the M/E Combination Product and (3) the Ezetimibe Monotherapy.

     WHEREAS, the parties hereto have agreed to set forth matters relating to the governance of the Companies and development and marketing of the Cholesterol Products.

     NOW, THEREFORE, in consideration of the agreements and obligations set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

ARTICLE I
DEFINED TERMS

     Section 1.1. Interpretation. Throughout this Agreement, nouns, pronouns and verbs shall be construed as masculine, feminine, neuter, singular or plural, whichever shall be applicable. All references herein to “Articles,” “Sections” and clauses shall refer to corresponding provisions of this Agreement, unless otherwise specified.

     Section 1.2. Definitions. The terms defined in this Article I shall, for the purposes of this Agreement, have the meanings herein specified.

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     “Affiliate” means with respect to a specified Person, any Person that directly or indirectly controls, is controlled by, or is under common control with, the specified Person; provided that (i) the Existing M JVs shall be deemed not to be Affiliates of M, so long as they continue to carry on their respective businesses as presently conducted and (ii) the Existing S-P JVs shall be deemed not to be Affiliates of S-P, so long as they continue to carry on their respective businesses as presently conducted. As used in this definition, the term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise.

     “Agreement” means this Cholesterol Governance Agreement as it may be amended from time to time.

     “Bankruptcy” means the occurrence of any of the following:

     (i) S-P or M or any of their respective Significant Subsidiaries makes a general assignment for the benefit of creditors;

     (ii) S-P or M or any of their respective Significant Subsidiaries becomes insolvent;

     (iii) S-P or M or any of their respective Significant Subsidiaries files any application or petition in any tribunal for the appointment of a trustee or receiver;

     (iv) S-P or M or any of their respective Significant Subsidiaries commences any proceeding leading towards the adjudication of S-P or M or any of their respective Significant Subsidiaries as insolvent under any bankruptcy or reorganization statute, or under any provision of the United States Bankruptcy Code, or under any insolvency law in a relevant jurisdiction, whether now or hereafter in effect; or

     (v) any petition or application of the types described in clauses (i) through (iv) above is commenced against S-P or M or any of their respective Significant Subsidiaries and is not dismissed within sixty (60) days after filing, or an order is entered appointing a trustee, receiver, or custodian for S-P or M or any of their respective Significant Subsidiaries, or an order for a relief is issued in any bankruptcy proceeding.

     “Board” has the meaning set forth in Section 3.1.

     “Board Chairperson” has the meaning set forth in Section 3.3(b).

     “CAI” and “Cholesterol Absorption Inhibitor” each mean a product whose primary clinical effect is through inhibition of the absorption of cholesterol from the diet into the plasma. [*]

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     “Call Notice” has the meaning set forth in Section 7.3(e)(ii).

     “Call Party” has the meaning set forth in Section 7.3(e).

     “Call Price” has the meaning set forth in Section 7.3(e).

     “C-O-C Notice” has the meaning set forth in Section 7.3(e).

     “C-O-C Party” has the meaning set forth in Section 7.3(e).

     “Change of Control” means, at any time on or after the date of execution of this Agreement, with respect to either M or S-P:

     (a) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Specified Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of either (i) the then outstanding shares of common stock of such company (the “Outstanding Common Stock”) or (ii) the combined voting power of the then outstanding voting securities of such company entitled to vote generally in the election of directors (the “Outstanding Voting Securities”); provided, however, that for purposes of this subsection (a), the following acquisitions of securities of such company shall not constitute a Change of Control of such company: (i) any acquisition by such company, (ii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by such company or any corporation controlled by such company or (iii) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this definition; or

     (b) individuals who, as of the date hereof, constitute the Board of Directors of such company (the “Incumbent Board”) cease for any reason to constitute at least 40% of the Board of Directors of such company; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by such company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Specified Person other than the Board of Directors of such company; or

     (c) consummation of a merger, consolidation, or other similar extraordinary transaction, or sale or other disposition of all or substantially all of the assets (a “Business Combination”) of such company, in each case, unless, following such Business Combination, (i) the individuals and entities who were the beneficial owners, respectively, of the Outstanding Common Stock and Outstanding Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 40% of, respectively, the then outstanding shares of common stock and the

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combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation or other entity resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the then outstanding securities of such company or all or substantially all of such company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Common Stock and Outstanding Voting Securities, as the case may be, (ii) no Specified Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of such company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation and (iii) at least 50% of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Directors of such company, providing for such Business Combination; or

     (d) approval by the shareholders of such company of a complete liquidation or dissolution of such company; or

     (e) a Business Combination with a company that is a Non-Pharma Company which results in (i) existing shareholders of S-P or M, as the case may be, owning less than 50% of the Outstanding Common Stock or Outstanding Voting Securities of the surviving entity or (ii) members of the Incumbent Board of S-P or M, as the case may be, constituting less than a majority of the board of the surviving entity; or

     (f) in the case of S-P (and not M), the one-year anniversary following consummation of a Business Combination with a company that manufactures, sells or markets a Significantly Competitive Cholesterol Product unless prior to such one year anniversary S-P shall have disposed of such Significantly Competitive Cholesterol Product.

     “Cholesterol Assignment Documents” means all of the agreements identified in Section 2.1(h) to Section 2.1(n), inclusive.

     “Cholesterol Business” means any or all of the Z/E Business, the M/E Business and/or the E Monotherapy Business, as appropriate.

     “Cholesterol LLC” has the meaning set forth in the Preamble hereof.

     “Cholesterol Products” means any or all of the Z/E Combination Product, the M/E Combination Product and/or the Ezetimibe Monotherapy, as appropriate.

     “Claim Notice” has the meaning set forth in Section 8.5(c).

     “Co-Chairperson” has the meaning set forth in Section 3.3(b).

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     “Combination Product” means either or both of the Z/E Combination Product and/or M/E Combination Product, as appropriate.

     “Committee” means any or all of the Development Committee, the Marketing Committee or Finance Committee, as appropriate.

     “Companies” has the meaning set forth in the Recitals hereof.

     “Company” has the meaning set forth in the Recitals hereof.

     “Company Product” means the Cholesterol Products as developed and marketed by the Companies, either individually or as a group.

     “Confidential Information” has the meaning set forth in Section 9.1(a).

     “Co-Promotion Agreement” means the Co-Promotion and Marketing Services Agreement for Cholesterol Products in the Territory, dated as of the date hereof and as may be amended from time to time, between M, Schering Sales Corporation and Marketing LLC.

     “Development Agreement” means the Development Agreement (Cholesterol Combinations), dated as of the date hereof and as may be amended from time to time, among Singapore Partnership, M and S-P.

     “Development Committee” has the meaning set forth in Section 3.4(a).

     “Disclosing Party” has the meaning set forth in Section 9.2(a).

     “Distribution LLC” has the meaning set forth in the Preamble hereof.

     “E Monotherapy Business” means the research, development, registration, manufacture and/or procurement, distribution, promotion and marketing of a pharmaceutical product which is comprised of ezetimibe as its sole active ingredient in the Field relating to the Territory, as and to the extent contemplated by this Agreement and any Related Agreements.

     “Effective Date” has the meaning set forth in Section 4.1.

     “Ethical Pharmaceutical Product” shall mean with respect to any Person any pharmaceutical product for human use which may be sold lawfully in any country of the world with a prescription of a licensed practitioner.

     “Exchange Act” means the Securities Exchange Act of 1934, as amended.

     “Executive Sponsor” has the meaning set forth in Section 3.3(f).

     “Existing M JVs” means those Persons listed on Schedule A.

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     “Existing S-P JVs” means those Persons listed on Schedule B.

     “ezetimibe” has the meaning set forth in the License Agreement.

     “Ezetimibe Monotherapy” has the meaning set forth in the S-P License Agreement.

     “FDA” means the United States Food and Drug Administration or its successor agency.

     “Field” has the meaning set forth in the License Agreement.

     “Finance Committee” has the meaning set forth in Section 3.4(a).

     “GAAP” means generally accepted accounting principles in the United States of America as in effect from time to time, applied on a consistent basis.

     “General Manager” has the meaning set forth in Section 3.2.

     “Governmental Entity” means any foreign, federal, state or local judicial, legislative, executive, administrative or regulatory body or authority or any court, arbitration board or tribunal.

     “HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

     “Indemnified Entity” has the meaning set forth in Section 8.5(a).

     “Interests” means a Member’s or the aggregate of all Members’, as applicable, rights, title and interests in any or all of the Companies.

     “Launch” means, with respect to a Cholesterol Product, the first commercial sale of such Cholesterol Product to a Third Party in the Territory.

     “Law” means any federal, state, or foreign or supranational statutes, rules, regulations, orders, decrees, administrative and judicial doctrines.

     “License Agreement” means either or both of the M License Agreement and/or the S-P License Agreement, as appropriate.

     “Licensor” has the meaning set forth in Section 9.15.

     “Losses” has the meaning set forth in Section 8.5(b).

     “M” has the meaning set forth in the Preamble hereof.

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     “M License Agreement” means the License Contribution Agreement (Cholesterol Combination/Existing IP), dated as of the date hereof and as may be amended from time to time, between MSD Technology Singapore Pte. Ltd. and Cholesterol LLC.

     “M Marks” has the meaning set forth in Section 5.3(b)(i).

     “M Members” means Affiliates of M when acting in their capacities as members or partners of any of the Companies, and/or any successors in accordance with Section 9.7.

     “Marks” means either or both the M Marks and/or the S-P Marks, as appropriate.

     “M-Cardio Sub” has the meaning set forth in the Preamble hereof.

     “M/E Business” means the research, development, registration, manufacture and/or procurement, distribution, promotion and marketing of a pharmaceutical product in the Field relating to the Territory that shall be a combination product comprising, but not limited to, [*] as and to the extent contemplated by this Agreement and any Related Agreements.

     “M/E Combination Product” shall mean a pharmaceutical product consisting of a fixed single combination of pharmacologically active ingredients comprising, but not limited to, [*].

     “[*]” has the meaning set forth in the License Agreement.

     “Marketing Committee” has the meaning set forth in Section 3.4(a).

     “Marketing LLC” has the meaning set forth in the Preamble hereof.

     “Material Breach” has the meaning set forth in Section 7.2(c).

     “Material Adverse Effect” has the meaning set forth in Section 7.2(c).

     “Member” means the S-P Members and the M Members, individually, when acting in the capacity of each as a member or partner of any of the Companies, and “Members” means S-P Members and M Members, collectively, when acting in their capacities as members or partners of any of the Companies, and/or any successors in accordance with Section 9.7.

     “New Agreements” has the meaning set forth in Section 7.3(i).

     “Non-Pharma Company” means as of the time of a Change of Control transaction, any Person that, with respect to the most recent full fiscal year ended immediately prior to the Change of Control transaction, had Pharmaceutical Sales of less than $3.25 billion (as increased annually as of January 1 of each year, commencing January 1, 2001 by the cumulative percentage growth in worldwide pharmaceutical sales over the immediately preceding year as reported by the World Review published by IMS Global Services or

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any successor publisher thereto (“Inflation Adjusted”)) unless (x) Pharmaceutical Sales represent more than 60% of sales and (y) total company sales were less than $5 billion (Inflation Adjusted); provided that the companies listed on Schedule C will be deemed not to be Non-Pharma Companies.

     “Non-Terminated Party” means, in the event of a termination of this Agreement pursuant to Section 7.2(b) [Bankruptcy], 7.2(c) [Material Breach] or 7.2(d) [Change of Control], the parties hereto and their Affiliates, other than the Terminated Party.

     “Offering Party” has the meaning set forth in Section 6.1(a)

     “Order” has the meaning set forth in Section 4.2(b).

     “Other Party” has the meaning set forth in Section 6.1(a).

     “Person” means any individual, corporation, trust, association, unincorporated association, estate, partnership, joint venture, limited liability company, governmental entity or other legal entity.

     “Pharmaceutical Sales” of a Person shall mean worldwide sales of Ethical Pharmaceutical Products (determined on a consolidated basis in accordance with GAAP).

     “Plan” means a Marketing Plan, Five Year Strategic Plan, Default Market Plan (each such plan as defined in the Co-Promotion Agreement) and Development Plan and Post-Marketing Support Plan (each such plan as defined in the Development Agreement).

     “Pre-Existing Relationship” means, with respect to M, a Pre-Existing M Relationship and, with respect to S-P, a Pre-Existing S-P Relationship.

     “Pre-Existing M Relationship” means, with respect to a proposed ROW Arrangement, any Third Party that at the time of determination is a party to a marketing agreement with the Offering Party or its Affiliates (which such agreement has been in existence for not less than three years) in the country that is the subject of the proposed ROW Arrangement involving the marketing by such Third Party of one or more of those products of the Offering Party which, during either of the two full calendar years prior to the date of determination, accounted for sales revenue which represented 40% or more of the Offering Party’s gross revenue in such country during the applicable year; provided that, with respect to Argentina, Brazil, Italy and Spain, a Pre-Existing M Relationship shall be deemed to exist with respect to any Third Party other than a Third Party that together with its Affiliates at the time of determination is either (i) one of the top ten companies in worldwide gross sales of Ethical Pharmaceutical Products or (ii) one of the top five companies in gross sales of Ethical Pharmaceutical Products in the European Union (other than any of those companies referred to in clause (i)). Notwithstanding the foregoing, Sigma Tau S.p.A. and its Affiliates shall be deemed to be a Pre-Existing M Relationship with respect to Italy and Spain.

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     “Pre-Existing S-P Relationship” means, with respect to a proposed ROW Arrangement, any Third Party that at the time of determination is a party to a marketing agreement with the Offering Party or its Affiliates (which such agreement has been in existence for not less than three years) in the country that is the subject of the proposed ROW Arrangement involving the marketing by such Third Party of one or more of those products of the Offering Party which, during either of the two full calendar years prior to the date of determination, accounted for sales revenue which represented 40% or more of the Offering Party’s gross revenue in such country during the applicable year, provided that, with respect to Italy and Spain, a Pre-Existing S-P Relationship shall be deemed to exist with respect to any Third Party other than a Third Party that together with its Affiliates at the time of determination is either (i) one of the top ten companies in worldwide gross sales of Ethical Pharmaceutical Products or (ii) one of the top five companies in gross sales of Ethical Pharmaceutical Products in the European Union (other than any of those companies referred to in clause (i)). Notwithstanding the foregoing, A. Menarini Pharmaceutical Industries Group, Ltd. and its Affiliates shall be deemed to be a Pre-Existing S-P Relationship with respect to Italy and Spain.

     “Pre-Termination Substances” means any CAI and any Statin, or any rights thereto, owned or held (by license or otherwise) by the Terminated Party or any entity that was an Affiliate of the Terminated Party prior to the date determined by clause (i) or clause (ii) hereafter, regardless of the stage of development (i.e., whether pre-clinical, clinical or in any other stage) prior to (i) the consummation of a Business Combination, in the case of termination pursuant to Section 7.2(d) as a result of a Change of Control described in paragraphs (c), (e) or (f) of the definition of Change of Control or (ii) the termination of this Agreement, in the case of termination pursuant to Section 7.2(b) [Bankruptcy], 7.2(c) [Material Breach] or 7.2(d) as a result of the acquisition of 50% of Outstanding Common Stock or Outstanding Voting Securities, change in board composition or stockholder approval described in paragraphs (a), (b) or (d) of the definition of Change of Control.

     “Rejection Date” has the meaning set forth in Section 6.1(a).

     “Related Agreements” shall mean any or all of the agreements listed in Sections 2.1 and 2.2, and all other agreements executed and delivered contemporaneously therewith, as such agreements may be amended from time to time. When the term “Related Agreements” is used in a Related Agreement, such term shall include this Agreement.

     “Respiratory Governance Agreement” means the Respiratory Governance Agreement, dated as of the date hereof and as may be amended from time to time, by and among Singapore Partnership, M, S-P and the other parties named therein.

     “ROW” means all countries of the world and their territories, excluding the Territory and Japan.

     “ROW Arrangement” has the meaning set forth in Section 6.1(a).

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     [*]

     “Significant Subsidiary” shall have the meaning as defined in Regulation S-X of the Exchange Act.

     “Significantly Competitive Cholesterol Product” means (x) any product that in either of the [*] calendar years immediately prior to determination was one of the [*] best selling products with respect to lipid management or other uses that could reasonably be associated with the lipid management effects of the Cholesterol Products, including but not limited to lipid-related vascular disease management in the U.S. (a “Lipid Management Product”), determined on the basis of gross sales, provided that if the [*] such best selling product has gross sales during each of such years that (i) represented less than [*]% of the gross sales of all Lipid Management Products and (ii) were less than [*] (adjusted annually as of January 1 of each year, commencing January 1, 2001, by any changes in the IMS category C10A with mail order, then the terms of this clause (x) shall only apply to the [*] best selling Lipid Management Products or (y) any product that (i) is entering (or is in) (or has completed) Phase III clinical trials, or (ii) is in registration in the United States, or (iii) is being manufactured and/or marketed and is within the first [*] years of the first commercial sale of the product to a Third Party in the United States, and, in the case of each of (i), (ii) and (iii), has a profile similar to or better than the profile of any of the Cholesterol Products with respect to lipid management or other uses that could reasonably be associated with the lipid management effects of the Cholesterol Products, including but not limited to, lipid related vascular disease management.

     “Simvastatin” has the meaning set forth in the License Agreement.

     “Singapore Partnership” has the meaning set forth in the Preamble hereof.

     “S-MSP Corp.” has the meaning set forth in the Preamble hereof.

     “S-P” has the meaning set forth in the Preamble hereof.

     “S-P License Agreement” means the Schering License Agreement (Existing Ezetimibe and Cholesterol Combination IP), dated as of the date hereof and as may be amended from time to time, by and between Schering Corporation and Schering Sales Management, Inc.

     “S-P Marks” has the meaning set forth in Section 5.3(b)(ii).

     “S-P Members” means Affiliates of S-P when acting in their capacities as members or partners of any of the Companies, and/or any successors in accordance with Section 9.7.

     “S-Sales Sub” has the meaning set forth in the Preamble hereof.

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     “Standstill Period” means the period beginning on the date hereof and ending upon the later to occur of (x) three years after termination of this Agreement and (y) three years after termination of the Respiratory Governance Agreement; provided that if this Agreement is terminated pursuant to Section 7.2(a) due to failure to receive regulatory approval and the Respiratory Governance Agreement is terminated pursuant to Section 7.2(a) thereof due to failure to receive regulatory approval, then such period shall be the later of (x) three years after termination of this Agreement or the Respiratory Governance Agreement (whichever is later) and (y) four years after the execution and delivery of this Agreement.

     “Statin” means a product whose primary clinical effect is through the inhibition of the human enzyme, 3-hydroxy-3-methylglutaryl Coenzyme A Reductase.

     “Terminated Party” means, in the event of a termination of this Agreement pursuant to Section 7.2(b) [Bankruptcy], 7.2(c) [Material Breach] or 7.2(d) [Change of Control], the bankrupt party, the breaching party, or the party experiencing the Change of Control, as the case may be, and its Affiliates.

     “Territory” means the United States of America, its territories and possessions (including but not limited to Puerto Rico).

     “Third Party” means a Person which is not a Member or an Affiliate of a Member.

     “Trademark” means either or both of the US Z/E Trademark, and/or the [*], as appropriate.

     [*]

     “US Z/E Trademark” has the meaning set forth in Section 5.3(a).

     “Z/E Business” means the research, development, registration, manufacture and/or procurement, distribution, promotion and marketing of a pharmaceutical product in the Field relating to the Territory that shall be a combination product comprising, but not limited to, simvastatin and ezetimibe, as and to the extent contemplated by this Agreement and any Related Agreements.

     “Z/E Combination Product” shall mean a pharmaceutical product consisting of a fixed single combination of pharmacologically active ingredients comprising, but not limited to, simvastatin and ezetimibe.

     Section 1.3. Headings. The headings and subheadings in this Agreement are included for convenience and identification only and are in no way intended to describe, interpret, define or limit the scope, extent or intent of this Agreement or any provision hereof.

     Section 1.4. Intent of the Parties. It is the intent of the parties hereto that,

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without limiting the rights of the parties hereunder, S-P and M be considered equal partners with respect to all matters relating to governance and decision-making powers and that the parties intend to manage the operations of the Cholesterol Business to maximize its commercial potential.

ARTICLE II
THE TRANSACTIONS

     Section 2.1. Transactions at the Signing. Simultaneously with the execution and delivery of this Agreement, the following documents shall be executed and delivered:

(a)	The Limited Liability Company Operating Agreement of Distribution LLC between M-Cardio Sub and S-MSP Corp.;
(b)	The Limited Liability Company Operating Agreement of Marketing LLC between M-Cardio Sub and S-Sales Sub;
(c)	The Limited Liability Company Agreement of Technology LLC between Schering MSP Pharmaceuticals L.P. and Merck Technology (US) Company, Inc.;
(d)	The Limited Liability Company Operating Agreement of Cholesterol LLC by and among MSD Technology Singapore Pte. Ltd., MSD Ventures Singapore Pte. Ltd., Osammor Pte. Ltd. (to be renamed Schering-Plough (Singapore) Pte. Ltd.) and Citimere Pte. Ltd. (to be renamed Schering-Plough (Singapore) Research Pte. Ltd.);
(e)	The Limited Liability Company Agreement of Singapore Partnership by and among MSD Technology Singapore Pte. Ltd., MSD Ventures Singapore Pte. Ltd., Osammor Pte. Ltd. (to be renamed Schering-Plough (Singapore) Pte. Ltd.) and Citimere Pte. Ltd. (to be renamed Schering-Plough (Singapore) Research Pte. Ltd.);
(f)	The License Contribution Agreement (Cholesterol Combination/Existing IP) between MSD Technology Singapore Pte. Ltd. and Cholesterol LLC;
(g)	The License Agreement (Cholesterol Combination/Formulation IP) — Merck between

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	Merck & Co., Inc. and Cholesterol LLC;
(h)	The Contribution Agreement Osammor Pte. Ltd. (to be renamed Schering-Plough (Singapore) Pte. Ltd.) (Cholesterol) between Osammor Pte. Ltd. (to be renamed Schering-Plough (Singapore) Pte. Ltd.) and Cholesterol LLC;
(i)	The Contribution Agreement Scherico Ltd. (Cholesterol) between Sherico, Ltd. and Osammor Pte. Ltd. (to be renamed Schering-Plough (Singapore) Pte. Ltd.);
(j)	The Sublicense Agreement Scherico, Ltd. (Existing Ezetimibe and Cholesterol Combination IP) between Technology LLC and Scherico Ltd.;
(k)	The License Contribution Agreement Schering MSP Pharmaceuticals Limited Partnership, (Cholesterol) between Schering MSP Pharmaceuticals L.P. and Technology LLC;
(l)	The Contribution Agreement Schering Sales Management, Inc. (Cholesterol) between Schering Sales Management, Inc. and Schering MSP Pharmaceuticals L.P.;
(m)	The Schering License Agreement (Existing Ezetimibe and Cholesterol Combination IP) between Schering Corporation and Schering Sales Management, Inc.;
(n)	The Schering Formulation IP License Agreement (Cholesterol Combination) between Schering Corporation and Cholesterol LLC;
(o)	The Development Agreement (Cholesterol Combinations) by and among Singapore Partnership, M and Schering Corporation;
(p)	The Contract Manufacturing Agreements between Singapore Partnership and each of the existing M bulk facilities listed below:
	(i) Merck & Co., Inc. [Simvastatin], and
	(ii) Merck Sharpe & Dohme (Ireland) Ltd. [*];

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(q)	The Contract Manufacturing Agreement (ezetimibe) between Singapore Partnership and Schering-Plough Ltd.;
(r)	The Toll Manufacturing Agreement (Zocor Combination) between Singapore Partnership and MSD Technology Singapore Pte. Ltd.;
(s)	The Toll Manufacturing Agreement ([*] Combination) between Singapore Partnership and MSD Technology Singapore Pte. Ltd.;
(t)	The Toll Manufacturing Agreement (Ezetimibe Monotherapy) between Singapore Partnership and Schering-Plough, Ltd.;
(u)	The Toll Packaging Agreement ([*] Combination) between Distribution LLC and M;
(v)	The Toll Packaging Agreement (Ezetemibe Monotherapy) between Distribution LLC and Schering Corporation;
(w)	The Toll Packaging Agreement (Zocor Combination) between Distribution LLC and M;
(x)	Manufacturing Capacity Agreement (Ezetimibe Active Ingredient) between MSP Singapore Company LLC and Schering-Plough Ltd.;
(y)	Manufacturing Capacity Agreement (Formulation) between MSP Singapore Company LLC and Osammor Pte. Ltd. (to be renamed Schering-Plough (Singapore) Pte. Ltd.);
(z)	Guarantee by Schering-Plough Corporation in favor of MSP Singapore LLC re: Utilization of Schering’s Manufacturing Capacity;
(aa)	Agreement between Merck & Co., Inc. and Schering-Plough Corporation re: Singapore Facility Construction Delay; and
(bb)	The Co-Promotion and Marketing Services Agreement for Cholesterol Products in the Territory by and among Marketing LLC, Schering Sales Corporation and M.

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     Section 2.2. Transactions as of the Effective Date.

     (a) On the Effective Date and simultaneously with the closing of the transactions contemplated by the documents set forth in Section 2.1, Cholesterol LLC will merge with and into Singapore Partnership, and Singapore Partnership shall be the surviving entity.

     (b) On or prior to the Effective Date, the following documents shall be executed and delivered:

(i)	The Exclusive Marketing, Distributorship and Supply Agreement between Singapore Partnership and Marketing LLC, pursuant to which (A) Marketing LLC obtains the exclusive rights to market and distribute certain Cholesterol Products in the Territory and (B) Cholesterol Products are delivered to Distribution LLC;
(ii)	The Sub-Distributorship Agreement between Marketing LLC and Distribution LLC, pursuant to which Marketing LLC employs Distribution LLC as sub-distributor and warehouser;
(iii)	The Lease Agreement between Distribution LLC and M (or any of its Affiliates), pursuant to which Distribution LLC acquires warehouse space for Cholesterol Products;
(iv)	The Administrative and Support Services Agreement between Distribution LLC and M (or one of its Affiliates), pursuant to which M will provide administrative and support services to Distribution LLC, which services may include: accounting, accounts payable/receivable, billing, collection, payroll, record-keeping, employee benefits, insurance, and other services;
(v)	The Agreement and Plan of Merger between Cholesterol LLC and Singapore Partnership;
(vi)	Trademark Licenses — S-P; and
(vii)	Trademark Licenses — M.

     (c) M and S-P agree that the aggregate annual payments for services provided pursuant to the documents described in clauses (iii) and (iv) of Section 2.2 (b) will be an amount equal to a fixed percentage of total annual sales

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of the Companies according to the following schedule: 1.0% of total annual sales up to $1.0 billion, plus 0.5% of total annual sales in excess of $1.0 billion up to $2.0 billion, plus 0.25% of total annual sales in excess of $2.0 billion up to $3.0 billion, plus 0.0% of total annual sales in excess of $3.0 billion.

ARTICLE III
MANAGEMENT

     Section 3.1. Management by the Board of Members. Except as otherwise set forth herein the business and affairs of each of the Companies shall be managed by, and all powers of the Companies shall be vested in, each of such Companies’ Board of Members (each such Board of Members being referred to as a “Board”). The applicable Board shall be responsible for determining the general policies of each Company and the scope of each Company’s activities and operations.

     Section 3.2. General Manager. M shall have the sole authority to designate one employee of M, subject to the written consent of S-P (such consent not to be unreasonably withheld) to serve as the general manager of the Cholesterol Products and the Cholesterol Business (the “General Manager”). S-P shall have the right to cause the removal of the General Manager (subject to the written consent of M, not to be unreasonably withheld), provided that such right shall be exercisable no more than once every two years. Except as otherwise provided in this Agreement and in any of the Related Agreements, the General Manager shall coordinate the day-to-day activities of the parties to this Agreement by making recommendations with respect to the operation and management of the Cholesterol Products and the Cholesterol Business and shall take such other actions as provided in the Related Agreements. The General Manager shall be fully dedicated to the Cholesterol Business and shall act in the best interests of the Cholesterol Business and shall not be involved in any activities relating to the competing products of S-P or M or any of their respective Affiliates. The General Manager shall also enter into an appropriate confidentiality agreement with the applicable Companies, the Members of such Companies and S-P or M, as the case may be. Such confidentiality agreement shall prohibit the use or disclosure of Confidential Information obtained from any of the Companies, the Members, S-P and M, and shall provide that the General Manager shall have no access to competition-related information of either S-P or M or any of their respective Affiliates. The General Manager’s compensation shall be based on the success of the Cholesterol Products which, in the period prior to Launch of the Cholesterol Products, shall be determined by the applicable Board based on the ability to meet development timelines and, in the period following Launch of the Cholesterol Products, shall be determined by the applicable Board based on meeting projected sales in the Territory as set forth in the applicable Plans.

     Section 3.3. Boards of Members.

     (a) Formation; Purposes. Within ten (10) days after the Effective Date, the relevant Members shall establish the Boards contemplated by this Agreement and the Related Agreements which shall have overall responsibility for the management of the Companies. Without limiting the generality of the

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foregoing, the responsibilities of each respective Board shall include: approval of business plans, long range plans, annual sales and profit targets, and capital forecasts for each combination. The Boards shall carry out their responsibilities as set forth in this Agreement and the Related Agreements, as applicable, and shall have the authority to approve or disapprove any recommendation of the General Manager or any Committee under this Agreement and the Related Agreements, as applicable. With respect to matters not the subject of recommendation by any Committee or the General Manager under this Agreement or the Related Agreements, as applicable, no business may be transacted on behalf of a Company without the prior written consent or written authorization of the applicable Board. Without limiting the generality of the foregoing, only the applicable Board may authorize the expenditure of funds by or on behalf of a Company (unless specifically delegated to a Committee or the General Manager or pursuant to any plan approved by the Board of such Company or as otherwise set forth in Section 3.7). The Boards shall operate independently of the Members and all lawful determinations, decisions and actions made or taken by the applicable Board shall be conclusive and absolutely binding upon the applicable Company. Prior to establishment of the Boards, the Companies will be managed by the Members.

     (b) Membership. The Boards shall be composed of an equal number of representatives appointed by the S-P Members on the one hand and the M Members on the other. Each of the Boards (other than the Board of the Singapore Partnership) shall initially be comprised of three (3) senior executives of S-P or any of its Affiliates, on the one hand, and three (3) senior executives of M or any of its Affiliates, on the other. The Board of the Singapore Partnership shall initially be comprised of five (5) senior executives of S-P or any of its Affiliates and five (5) senior executives of M or any of its Affiliates. At least three of the five members of the Board of the Singapore Partnership to be appointed by each of S-P and M, or any of their Affiliates, shall reside outside of the United States (including one of whom shall reside in Singapore), and at least one of the five such members shall have expertise in research and development matters. The applicable Members may change the size and/or composition of any of the Boards from time to time by mutual written consent of each of the S-P Members and the M Members. The members of each such Board shall not be responsible for day to day competition-related decisions of S-P or M or any of their Affiliates with respect to products competing with the Cholesterol Products. Each of the members of the Boards shall (i) enter into an appropriate confidentiality agreement with the applicable Companies, the Members and S-P or M, as the case may be, which such agreement shall prohibit the unauthorized use or disclosure of Confidential Information obtained from any of the Companies, the Members, or S-P and M, or any of their Affiliates, and appropriate restrictions shall be established to govern to the extent necessary the distribution to the members of the Board of certain materials relating to pricing, pricing strategies, marketing and/or marketing strategies for products or prospective products of either S-P or M, or any of their Affiliates. The S-P

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Members on the one hand and the M Members on the other may replace any of its Board representatives with another senior executive of S-P or any of its Affiliates, or M or any of its Affiliates, as the case may be, provided that such replacement satisfy the residency and expertise requirements, if any, of the representative being replaced, at any time upon written notice to the other party and the Company. The Board of each of Distribution LLC and Marketing LLC shall be chaired by a representative selected by the M Board Members (each, a “Board Chairperson”). The Board of the Singapore Partnership shall be chaired by two individuals, one representative selected by the S-P Members and one representative selected by the M Members (each, a “Co-Chairperson”). The applicable Board Chairperson or Co-Chairperson, in the case of the Singapore Partnership, shall have as his and/or her function as Chairperson the responsibility for calling meetings, preparing and circulating an agenda in advance of each meeting, and preparing and, subject to the prior review and approval of the Board, issuing minutes of each meeting within thirty (30) days thereafter. From time to time, the Boards may establish subcommittees or subordinate committees (which may or may not include members of the applicable Board itself) to oversee particular projects or activities, and such subcommittees or subordinate committees shall be constituted and shall operate as the applicable Board agrees.

     (c) Meetings of the Boards. The Boards shall hold regular meetings no less frequently than once every quarter, unless the Board otherwise determines. Special meetings of the Boards may be called by any Board member or as otherwise determined by the applicable Board. Meetings, in addition to quarterly meetings, shall be held timely to approve Plans submitted for Board approval in accordance with this Agreement and the Related Agreements, as applicable. Meetings of the Boards may be held by audio or video teleconference. The S-P Members on the one hand and the M Members on the other shall be responsible for all of their own expenses of having their representatives participate on a Board. All meetings of the Board of the Singapore Partnership shall be held outside the United States. All meetings of the Boards of the Companies other than the Singapore Partnership shall be held in the state of Nevada or at such other location as each such Board may determine.

     (d) Manner of Acting. Meetings of a Board shall be effective only if two representatives of the S-P Members on the one hand and two representatives of the M Members on the other are present or participating throughout. The unanimous vote of the members of a Board present or participating at any meeting of a Board shall be necessary for the passage of any resolution or act of a Board. Any action required or permitted to be taken by a Board may be taken without a meeting if each member of a Board consents thereto in writing.

     (e) Dispute Resolution. Except as set forth in Section 7.1(b) [Product Safety], the members of each Board will use reasonable efforts to resolve any dispute, claims, controversies or disagreements, including without limitation matters referred to it by a Committee under Section 3.6(b) [Committee Dispute

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Resolution]. If any matter cannot be resolved by the applicable Board within a reasonable period of time, such reasonableness to be considered in view of the urgency and importance of the matter, and in any event, within thirty (30) days after the representative(s) of the S-P Members on the one hand or the M Members on the other on the applicable Board has given written notice of such disagreement to the representative(s) of the other party, the S-P Members on the one hand and the M Members on the other shall cause to be prepared and circulated to the other party a memorandum or other form of statement setting out its position on the matter in dispute and its reasons for adopting such position. Each such memorandum or statement shall be considered by the respective Executive Sponsor of the S-P Members or the M Members. The respective Executive Sponsors of the S-P Members and the M Members shall use their respective good faith reasonable efforts to jointly recommend a resolution of such dispute to the applicable Board within thirty (30) days. Upon resolution of the matter the respective Executive Sponsors shall jointly execute a written statement setting forth the terms of such recommended resolution.

     (f) Executive Sponsors. Each of M and S-P will designate one senior executive of it or any of its Affiliates (who may also serve as a member of the Board) to serve as that party’s “Executive Sponsor” to champion interactions between the S-P Members on the one hand and the M Members on the other with respect to the Cholesterol Business.

     Section 3.4. Committees; Purposes and Principles.

     (a) General. Within ten (10) days after the Effective Date, S-P and M shall cause to be established: (a) a Development Committee (the “Development Committee”) which shall be comprised of members designated in a manner, and have the responsibilities and duties, and which shall be subject to any other provisions related to the Development Committee or any members of such Committee, as set forth in the Development Agreement; (b) a Marketing Committee (the “Marketing Committee”) which shall be comprised of members designated in a manner, and have the responsibilities and duties, and which shall be subject to any other provisions related to the Marketing Committee or any members of such Committee, as set forth in the Co-Promotion Agreement; and (c) a Finance Committee (the “Finance Committee”) which shall oversee and coordinate the financial affairs of the Companies and which shall meet at least once every six (6) months. The Committees shall operate independently of S-P, M and the Members, and in the best interests of the Companies.

     (b) Principles. Members of a Marketing Committee shall be persons at a sufficiently high level within M or S-P or their Affiliates to exercise substantive input with respect to matters presented to such Committee. Members of the Marketing Committee may have other responsibilities within M or S-P or their Affiliates including among other things, general oversight of the marketing and/or sales of products in the Field, but not primary day-to-day responsibility for

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products in the Field. Each of the members of the Committees shall enter into an appropriate confidentiality agreement with the applicable Companies, the Members, and S-P or M, as the case may be. Such confidentiality agreement shall prohibit the unauthorized use or disclosure of Confidential Information obtained from any of the Companies, the Members, S-P and M or any of their respective Affiliates. From time to time, each Committee may establish subcommittees or subordinate committees (which may or may not include members of the Committee itself) to oversee particular projects or activities, and such subcommittees or subordinate committees shall be constituted and shall operate as the Committee agrees.

     (c) Scope of Committee Authority. The activities of the committees described in Section 3.4(a) shall be limited to making recommendations to the General Manager and the Boards of the appropriate Companies. The committees shall have no express or implied authority to act on behalf of any Company or cause any Company to act, except as otherwise authorized by the Board of each such Company.

     Section 3.5. Meetings of the Committees. Each Committee shall hold meetings at such times and in such manner as set forth in the appropriate Related Agreements or as determined by the Committee.

     Section 3.6. Committee Decision Making and Dispute Resolution.

     (a) Manner of Acting. Meetings of a Committee shall be effective only if two representatives of the S-P Members on the one hand and two representatives of the M Members on the other are present or participating throughout. The unanimous vote of the members of a Committee present or participating at any meeting of a Committee shall be necessary for the passage of any resolution or act of a Committee. Subject to Section 3.5, any action required or permitted to be taken by a Committee may be taken without a meeting if each member of a Committee consents thereto in writing.

     (b) Committee Dispute Resolution. Subject to the provisions in Section 7.1(b) [Product Safety], if any matter cannot be resolved by a Committee within a reasonable period of time, such matter shall be submitted to the applicable Board for resolution as set forth in Section 3.3(e).

     Section 3.7. Required Consent. Without limiting the generality of the provisions of Section 3.1, no Company shall (nor shall any Member acting on any of the Companies’ behalf) take any of the following actions, either directly or indirectly, without receiving the prior approval of the applicable Board, unless such action is taken pursuant to any Plan approved by the Board of such Company:

     (a) employ or retain any employees;

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     (b) enter into major transactions, contracts and binding arrangements (other than the Related Agreement or as specifically contemplated hereby or thereby) for which any of the Companies has direct or indirect liability, including, without limitation, any contract, liability or commitment which is not capable of being terminated within twelve (12) months or which, together with all related arrangements, involves $1,000,000 or more (provided, however, that contracts for previously approved and budgeted research and development work, such as clinical grant agreements, are excluded from this clause);

     (c) create any indebtedness of any of the Companies or any security interest, lien, mortgage, charge or other encumbrance over any assets of any of the Companies or the giving of guarantees or indemnities by any of the Companies;

     (d) make any material change in the nature of the business of any of the Companies;

     (e) except as specifically provided in this Agreement or the Related Agreements, commence any suit or action in the name of any of the Companies, seek injunctive relief or specific performance with respect to material matters or agree to any settlement of any suit or claim involving any of the Companies, and each party shall cooperate in all respects with each other and the Company in connection with any such suit, action or claim;

     (f) distribute any cash or assets of any of the Companies to the Members or any of their respective Affiliates, other than as specifically provided for in Article VII of this Agreement or the Related Agreements;

     (g) make, execute or deliver any assignment for the benefit of creditors, or commence a voluntary case seeking liquidation, dissolution, reorganization or adjustment of debts pursuant to the provisions of any state or federal bankruptcy or insolvency act, or consent to the institution of an involuntary case with respect to the same, or ask for or consent to the appointment of a receiver, liquidator, custodian, trustee, or similar official for all or any part of any of the Companies’ property;

     (h) assign, transfer, pledge, compromise or release any claim of any of the Companies except for full payment, except as specifically provided in this Agreement;

     (i) sell, assign, transfer, lease, license, sub-license, share, exchange, grant or otherwise dispose of any assets of any of the Companies except for distributions to Members as specifically provided pursuant to the Related Agreements in accordance with the terms thereof;

     (j) engage in any transaction not in the ordinary course of the Cholesterol Business;

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     (k) except as specifically set forth in this Agreement or the Related Agreements, approve or file the annual tax returns of any of the Companies, make or change any and all elections for federal, state and local tax purposes including, without limitation, any election, if permitted by applicable law (i) to adjust the basis of any of the Companies’ properties or (ii) to extend the statute of limitations for assessment of tax deficiencies against Members or S-P and M with respect to adjustments to any of the Companies’ federal, state or local tax returns, represent any of the Companies before the taxing authorities or courts of competent jurisdiction in tax matters affecting any of the Companies and the Members in their capacity as Members, enter into a settlement agreement with respect to any issue raised in an audit of any of the Companies or execute any agreements or other documents that bind the Members with respect to such tax matters or otherwise affect the rights of any of the Companies or the Members;

     (l) change any accounting principle or practice, including the method of accounting for, and reporting of, any of the Companies’ assets (tangible or intangible), except as required by GAAP;

     (m) enter into any transactions, contracts or arrangements involving more than $100,000 with S-P or M or any Affiliate of S-P or M; or

     (n) agree or commit to agree to any of the foregoing.

     Section 3.8. Deficit Make-Ups. In the event the Singapore Partnership is “liquidated” within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g), if any Member’s Capital Account has a deficit balance (after giving effect to all contributions, distributions, allocations for all Fiscal Years, including the Fiscal Year or Fiscal Years during which such liquidation occurs, and after giving effect to Section 8.3 in the Limited Liability Company Agreement of Singapore Partnership), such Member shall contribute to the capital of the Singapore Partnership the amount necessary to restore such deficit balance to zero in compliance with Regulations Section 1.704-1(b)(2)(ii)(b)(3). Capitalized terms in this Section 3.8 shall have the meanings as defined in the Limited Liability Company Agreement of Singapore Partnership.

ARTICLE IV
EFFECTIVENESS; APPROVAL; EXCLUSIVITY

     Section 4.1. Effectiveness. Upon delivery of fully executed and duly authorized counterparts of this Agreement and each of the Related Agreements, S-P and M shall form the Companies contemplated hereby and by the Related Agreements. Notwithstanding the foregoing, the activities in the Territory will commence and transfers of assets relating to the operations in the Territory contemplated hereby and by the Related Agreements with respect to the Cholesterol Business will be consummated as promptly as practicable following the date that all applicable waiting periods under the HSR Act shall have expired or been terminated (such date the “Effective Date”).

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     Section 4.2. Commercially Reasonable Efforts.

     (a) Each of the parties hereto shall file all necessary notifications and reports under the HSR Act with respect to the transactions contemplated hereby as promptly as reasonably practicable following execution and delivery of this Agreement.

     (b) Each of S-P and M and the Members shall use commercially reasonable efforts to avoid the entry of any decree, judgment, injunction or other order, whether temporary, preliminary or permanent, under any Law, that would have the effect of prohibiting, preventing or restricting consummation of the transactions contemplated by this Agreement or any of the Related Agreements, or imposing any material limitation on the conduct of the businesses of S-P, M or any of the Companies following consummation of such transactions, or on the right of S-P or M to enjoy the full benefits of ownership pursuant to this Agreement and the Related Agreements (an “Order”).

     (c) Each of S-P and M shall, in connection with the efforts referenced in the foregoing paragraph to avoid the entry of any Order, (i) cooperate in all respects with each other in connection with any filing or submission and in connection with any investigation or other inquiry; (ii) promptly inform the other party of any communication to it from any Governmental Entity and permit the other party to review in advance any proposed communication from it to any Governmental Entity or Third Party; and (iii) not arrange for or participate in any meeting with any Governmental Entity in respect of any filings, investigation or other inquiry without consulting with each other in advance, and, to the extent permitted by such Governmental Entity, giving the other party the opportunity to attend and participate thereat. Neither S-P or M shall enter into any proposed understanding, undertaking, or agreement with any Governmental Entity in connection with the transactions contemplated by this Agreement without the prior written consent of the other party.

     (d) In connection with the foregoing, if any administrative or judicial action or proceeding is instituted (or threatened to be instituted) challenging any transaction contemplated by this Agreement as violative of any Law, each of S-P and M shall cooperate and use its respective commercially reasonable efforts to contest and resist any such action or proceeding and to have vacated, lifted, reversed or overturned any decree, judgment, injunction or other order, whether temporary, preliminary or permanent, that is in effect and that prohibits, prevents, or restricts consummation of the transactions contemplated by this Agreement or the Related Agreements or imposes any material limitation on the conduct of the businesses of either S-P or M or of any of the Companies following consummation of such transactions or on the right of S-P or M to enjoy the full benefits of ownership pursuant to this Agreement and the Related Agreements.

     (e) If any objections are asserted with respect to the transactions contemplated hereby or under any Related Agreement under any Law or if any

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suit is instituted challenging any of the transactions contemplated hereby as violative of any Law or regulation, each of S-P and M shall take commercially reasonable actions in response to any matters that may be required or proposed (i) by the applicable Governmental Entity in order to resolve any such objections as such Governmental Entity may have to such transactions under such Law, or (ii) by any domestic or foreign court or administrative agency or similar tribunal, in any suit brought by a private party or Governmental Entity challenging the transactions contemplated hereby as violative of any Law, in order to avoid the entry of, or to effect the dissolution of, any injunction, temporary restraining order or other order that has the effect of preventing the consummation of any of such transactions or would otherwise deprive either S-P or M of the material benefits of the ownership and control of its respective assets or operations after the Effective Date pursuant to this Agreement and the Related Agreements.

     (f) Notwithstanding any other provision of this Agreement, nothing in this Agreement shall require, or be construed to require, either S-P or M to proffer to, or agree to, sell, license, or hold separate and agree to sell or license, before or after the Effective Date, any assets, businesses, or interest in any assets or businesses of such party or any of its respective Affiliates (or to consent to any sale, license, or agreement to sell or license by either S-P or M or any of their Affiliates of any of its assets or businesses) or to agree to any material changes or restriction in the operations of any such assets or businesses.

     Section 4.3. Non-Compete.

     [*]

ARTICLE V
DEVELOPMENT AND MARKETING

     Section 5.1. General. The development of each Cholesterol Product shall be governed by the provisions of the Development Agreement, the License Agreement and this Agreement. The marketing of each Cholesterol Product shall be governed by the provisions of the Co-Promotion Agreement and this Agreement.

     Section 5.2. Product Recalls. Subject to Section 7.1(b), if either Executive Sponsor believes that a recall of a Cholesterol Product is necessary, such Executive Sponsor shall notify the other Executive Sponsor within forty-eight (48) hours of its determination and both S-P and M and the relevant Members shall cooperate to allow such recall to occur to the extent determined by the relevant Board (other than for safety which shall be solely governed by and resolved pursuant to Section 7.1(b)). The General Manager will be responsible for execution of such recall.

     Section 5.3. Trademarks.

     (a) The Z/E Combination Product and the M/E Combination Product shall each be marketed in the Territory under a single trademark recommended by

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the relevant Marketing Committee and approved by the Marketing LLC (respectively, the “US Z/E Trademark,” and the “[*]”). If not confusingly similar to the S-P or M trademarks, the US Z/E Trademark and the [*] will each be owned solely by Marketing LLC and filed and prosecuted by counsel selected by Marketing LLC. Notwithstanding the foregoing, M shall retain exclusive use of the ZOCOR and [*] trademarks, and S-P shall retain exclusive use of the ezetimibe trademarks. The parties, however, agree that they will seek to optimize the commercial benefits of these trademarks through the potential use of trademarks for the Companies’ Cholesterol Products.

     (b) (i) Promptly following the Effective Date, M or its Affiliates shall grant to each of the Companies a limited, royalty free, non-sublicensable right to use the M name and logo (the “M Marks”) in connection with the marketing of the Cholesterol Products. Such grant shall be made pursuant to a trademark license agreement in form and substance reasonably acceptable to M. The M Marks shall only be used as reasonably determined by the applicable Board, except as specifically provided in the Related Agreements.

          (ii) Promptly following the Effective Date, S-P or its Affiliates shall grant to each of the Companies a limited, royalty free, non-sublicensable right to use the S-P name and logo (the “S-P Marks”) in connection with the marketing of the Cholesterol Products. Such grant shall be made pursuant to a trademark license agreement in form and substance reasonably acceptable to S-P. The S-P Marks shall only be used as reasonably determined by the applicable Board, except as specifically provided in the Related Agreements.

ARTICLE VI
RIGHT OF FIRST OFFER

     Section 6.1. Right of First Offer.

     (a) Unless and until an agreement which provides for the marketing, distribution and sale of the Cholesterol Products in the ROW has been executed and delivered by M and S-P or their respective Affiliates, neither M or S-P or any of their Affiliates shall enter into discussions or negotiations with any Third Party (other than a Pre-Existing Relationship) regarding any business arrangement either with itself or any of its Affiliates for the marketing, sale, promotion or any similar commercial activities of any of the Cholesterol Products in any country in the ROW (a “ROW Arrangement”) unless the party interested in pursuing such discussions or negotiations (the “Offering Party”) first submits in writing to the other party (the “Other Party”) a good faith offer containing the terms on which it would agree to enter into a ROW Arrangement for the applicable country with the Other Party. The Other Party must accept in writing within 20 business days of the delivery of such offer in order to accept such offer. In the event that the Other Party rejects such offer in writing, or fails to accept within such period (the earlier

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of such dates, the “Rejection Date”), the Offering Party may enter into discussions with Third Parties regarding such a ROW Arrangement.

     (b) The Offering Party may, within 180 days after the Rejection Date, enter into a ROW Arrangement with the Third Party on the same financial and economic terms and, to the extent feasible, substantially the same other terms as offered to the Other Party, and which such other terms shall, in the aggregate, be no more favorable to the Third Party than those offered to the Other Party. The Offering Party will provide the Other Party with prompt written notice of the entering into of any such agreement. In the event the Offering Party desires to enter into a ROW Arrangement on financial and economic terms which are not the same, or which would not have substantially the same other terms to the extent feasible, as those previously offered, and which such other terms are, in the aggregate, more favorable to the Third Party than those offered to the Other Party, or after the expiration of such 180-day period, the provisions of this Section 6.1 shall apply again.

     (c) For purposes of clarity, the parties hereto agree and acknowledge that no license rights are implied, granted or otherwise arise pursuant to this Section 6.1

     (d) For a 90-day period following the date of execution of this Agreement, S-P and M shall negotiate exclusively concerning a business arrangement for the development, marketing, sale, promotion or any similar commercial activities of all of the Cholesterol Products in the ROW together with Japan, provided that this exclusive negotiation period shall not be construed as an obligation of the parties to enter into a final, binding agreement with respect to such markets.

ARTICLE VII
DISPUTE RESOLUTION, TERMINATION, DISSOLUTION
AND LIQUIDATION

     Section 7.1. Dispute Resolution.

     (a) General. Except as set forth in Section 7.1(b) (and without limiting any dispute resolution procedures and remedies specifically provided in any of the Related Agreements), any and all disputes, claims, controversies or disagreements with respect to this Agreement or any of the Related Agreements shall be resolved pursuant to the procedures set forth in Section 3.3(e) and Section 3.6(b), as applicable, and each of S-P, M and the Members agree that none of them shall, except as contemplated by Section 9.14 [Judicial Proceeding], resort to any means whatsoever, including litigation, arbitration, dissolution by a judicial forum or decree, or by operation of law, appointment of a trustee, receiver, custodian or similar person, or to any other form of proceeding in connection with any such dispute, claim, controversy or disagreement, including,

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without limitation, pursuant to Section 86.491 of the Nevada Limited Liability Company Act, Section 18-802 of the Delaware Limited Liability Company Act and other similar applicable laws.

     (b) Product Safety. The Development Committee will use good faith reasonable efforts to resolve disputes relating to product safety. If unsuccessful, the Board of the Singapore Partnership and then the Presidents of Research and Development for each of S-P and M will use reasonable efforts to resolve such dispute. If the Presidents of Research and Development for each of S-P and M are unable to resolve such dispute, the respective Chief Executive Officers of each of S-P and M shall use their good faith reasonable efforts to resolve such dispute. Notwithstanding the provisions of Section 5.2 or the first two sentences of this Section 7.1(b), if the Chief Executive Officers of M and S-P cannot agree within 2 days of receipt of a written request of one for the decision of the other whether to stop the development, terminate the marketing of and/or recall (other than a recall due to GMP issues or a recall resulting from labeling issues) any of the Cholesterol Products (whether in clinical studies or being marketed) due to a Significant Safety Issue, then:

[*] [Note: Approximately one and one-half pages of text are omitted. ]

     Section 7.2. Termination. This Agreement may be terminated and the provisions of Section 7.3 shall apply, as follows:

     (a) Regulatory Approval. By M or S-P, in the event that the applicable waiting periods under the HSR Act with respect to the Cholesterol Business shall not have expired or been terminated prior to the twelve month anniversary of the date hereof; or

     (b) Bankruptcy. By M, in the event of the Bankruptcy of S-P or any of its Significant Subsidiaries and, by S-P, in the event of the Bankruptcy of M or any of its Significant Subsidiaries; or

     (c) Material Breach. By M, in the event of a Material Breach (as defined below) by S-P or one of its Affiliates of its obligations under this Agreement or one or more of the Related Agreements or, by S-P, in the event of a Material Breach by M or one of its Affiliates of its obligations under this Agreement or one of the Related Agreements, which breach is not cured by the breaching party or its Affiliates within thirty (30) days, or such longer period as specifically provided pursuant to the Related Agreements, after receipt by the breaching party and its ultimate parent, M or S-P, as the case may be, of written notice of the breach requesting cure of the breach, with reasonable detail of the particulars of the alleged breach or in the event that the breach cannot be reasonably cured within such thirty (30) day period, or such longer period as specifically provided pursuant to the Related Agreements, the other party or its

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Affiliate has not initiated actions reasonably expected to cure the cited failure within thirty (30) days of receiving notice and has not in any event cured such breach within 120 days of receiving notice, or such longer period as specifically provided pursuant to the Related Agreements. For purposes of this Section 7.2(c), “Material Breach” means a breach of a material provision of this Agreement or any of the Related Agreements that (i) results in a material adverse effect on the business, operations or financial condition of the Companies taken as a whole, or the value of the Companies taken as a whole, and (ii) materially frustrates the ability of either S-P or M, as the non-breaching party, as the case may be, to realize the reasonably anticipated benefits from the Companies (“Material Adverse Effect”). A Material Breach shall also be deemed to occur upon any breach of Section 9.9 of this Agreement, provided that if an alleged breach is by a Person that has been determined to be an Affiliate of M or S-P, as the case may be, such breach will not be deemed a Material Breach if M or S-P, as the case may be, demonstrates by a preponderance of the evidence each of the following (i) that it did not cause, assist or encourage such Affiliate to take the action underlying the alleged breach, (ii) that it did not have the power to prevent such Affiliate from taking such action and (iii) that it used commercially reasonable efforts to prevent such Affiliate from taking such action. Notwithstanding the prior sentence, such breach may, however, nevertheless be determined to be a Material Breach pursuant to the provisions of the next sentence. The determination of whether a Material Breach has occurred and liability for such breaches shall be made in a judicial proceeding pursuant to Section 9.14 [Judicial Proceeding]; or

     (d) Change of Control. By S-P, in the event of a Change of Control of M, or by M, in the event of a Change of Control of S-P, as the case may be; or

[*]

     Section 7.3. Consequences of Termination.

     (a) General. With respect to any event of termination, each party shall undertake, during the pendency of the procedure to determine whether such event of termination has occurred and the implementation of the consequences of such termination, to maintain the Cholesterol Business as a going concern, so that all of the rights, title and interests in the Companies and the Cholesterol Businesses may be conveyed. The parties acknowledge that in the event of a termination of this Agreement that results in one party acquiring the Interests of another party hereto, the acquiring party may determine to continue operating the Cholesterol Business through one or more of the Companies.

     (b) Regulatory Approval. In the event of termination pursuant to Section 7.2(a), either S-P or M shall have the right, exercisable by delivery of written notice to the other, to require such reasonable actions be taken so as to put

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each of S-P and M back, to the maximum extent possible and as promptly as practicable, to the position they were in prior to their and their Affiliates’ respective contributions of the assets to the Companies. The costs and expenses of any such actions shall be borne equally by M and S-P.

     (c) Bankruptcy. In the event of termination pursuant to Section 7.2(b), the non-bankrupt party (or its designee) shall be entitled to purchase the bankrupt party’s Interests in each of the Companies. Such purchase and sale shall be consummated as soon as practicable, but in any event within 300 days of determination of a Bankruptcy of the other, and each of the parties shall execute such documents as are reasonable and necessary in connection therewith. The purchase price for any such purchase shall be an amount equal to the fair market value of the bankrupt party’s Interests determined in the manner described in Section 7.3(e)(i).

     (d) Material Breach.

     (i) In the event of termination pursuant to Section 7.2(c), the non-breaching party (or its designee) shall be entitled to purchase the breaching party’s Interests in each of the Companies. Such purchase and sale shall be consummated as soon as practicable, but in any event within 120 days of determination of a Material Breach and the related appraisal and damage proceedings, and each of the parties shall execute such documents as are reasonable and necessary in connection therewith. The purchase price for any such purchase shall be an amount equal to the fair market value of the breaching party’s Interests as determined in a judicial proceeding as set forth in Section 9.14. In determining the fair market value of the breaching party’s Interests, the court shall apply the standards applicable in an appraisal proceeding under Section 262 of the Delaware General Corporation Law as may be amended from time to time.

     (ii) Any termination of this Agreement or any of the Related Agreements pursuant to this Section 7.3(d) due to a breach of this Agreement or any of the Related Agreements shall not relieve the breaching party from liability for damages caused by its breaches (except that the breaching party shall not be liable for punitive, special, consequential, incidental, indirect or exemplary or other similar damages or lost profits) as a result of any such breach. Damages shall be determined in the judicial proceeding contemplated by this Section 7.3(d).

     (e) Change of Control. Within 45 days after the date of a Change of Control of S-P or Change of Control of M, the party which did not experience the Change of Control (the “Call Party”) may by written notice (the “C-O-C Notice”) delivered to the other party (the “C-O-C Party”) request that the fair market value of the C-O-C Party’s Interests (the “Call Price”) be determined in accordance with paragraph (i) of this Section 7.3(e).

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     (i) The Call Price shall be conclusively determined by two internationally recognized investment banking firms, one of which shall be retained and paid by the Call Party and one of which shall be retained and paid by the C-O-C Party. The Call Party and the C-O-C Party shall promptly notify each other of their respective selections. If either such party fails to deliver such notice to the other party of its selection of an investment banking firm within 30 days after delivery of a C-O-C Notice, the determination shall be rendered by the single investment banking firm so selected (whose fees, in such case, shall be borne equally by S-P and M). The investment banking firms selected in accordance with the foregoing procedure shall each determine the fair market value of the C-O-C Party’s Interest, (which value shall be an amount determined assuming that the buyer and seller are under no compulsion to buy or sell and shall be determined without regard to any minority or illiquidity discount) and submit their determinations of such value to the Call Party and the C-O-C Party within 45 days following their selection. The Call Price shall be the amount equal to the sum of such values determined by each investment banking firm divided by two, except that if there is more than a 12% difference between (x) the average of such values and (y) each of such values, the two investment banking firms shall, within 20 days after their submissions mutually select and appoint a third investment banking firm, similarly qualified, and give written notice thereof to the Call Party and the C-O-C Party. If the two investment banking firms fail to appoint a third investment banking firm within such 20-day period, the third investment banking firm shall be selected and appointed, at the request of either party, by the President of the Association of the Bar of the City of New York or by a person designated by such President. Within 30 days after the appointment of the third investment banking firm, the third investment banking firm shall promptly submit in writing to the Call Party and the C-O-C Party its determination of the fair market value. If the valuation of the third banker is not between the valuations of the first and second bankers, fair market value shall be the average of the valuations of the third banker and the next closest valuation. If the valuation of the third banker is (i) between the valuations of the first and second bankers and (ii) not more than 30% (calculated as the average of the first two valuations multiplied by 0.3) higher or lower than the valuations of each of the first and second bankers, then fair market value shall be the average of the valuations of all three bankers. If the valuation of the third banker is (x) between the valuations of the first and second bankers and (y) more than 30% (calculated as the average of the first two valuations multiplied by 0.3) higher or lower than one or both of the other two valuations, then fair market value shall be the average of the third banker’s valuation and the valuation, if any, that is not more than 30% (calculated as the average of the first two valuations multiplied by 0.3) higher or lower than the third banker’s valuation. For illustrative purposes only, Schedule 7.3 hereof sets forth examples of the method of

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determining fair market value pursuant to the provisions of this Section 7.3(e). The fair market value as determined above shall be final and binding upon the Call Party and the C-O-C Party. The cost of such third investment banking firm shall be borne one-half by the Call Party and one-half by the C-O-C Party.

     (ii) The Call Party shall have the right, exercisable by delivery of written notice to the C-O-C Party (a “Call Notice”) within 60 days after the final determination of the Call Price, to require the C-O-C Party to sell the C-O-C Party’s entire Interest to the Call Party (or its designee) at a price equal to the Call Price. Any such sale shall be made without representations or warranties of the C-O-C Party other than regarding the authorization of the sale and title to the Interest being sold. Upon and after the consummation of such sale, the C-O-C Party shall have no responsibility or liability for any liabilities or obligations of the Companies (whether contingent, absolute, realized or unrealized) that exist as of the date of such sale or that are incurred by the Companies thereafter.

     (iii) Any purchase and sale of the C-O-C Party’s Interest effected pursuant to this Section 7.3(e) shall be consummated at a closing at the offices of the Call Party on a business day within 15 days following the delivery of the Call Notice (upon at least five days’ notice by the Call Party); provided that such period shall be extended for 180 additional days, or such shorter period of time, as shall be necessary in order to obtain requisite governmental or regulatory approvals with respect to such transaction; provided, further, that such closing may be held at such other time and place as the parties to the transaction may agree. At such closing, the Call Party shall pay the C-O-C Party the Call Price by wire transfer of immediately available funds to an account specified by the C-O-C Party, and the Company and the parties to such transaction shall execute any and all documents necessary to effect the full and complete transfer of the C-O-C Party’s Interest.

     (iv) No investment banking firm selected by a party pursuant to this Section 7.3(e) shall have represented such party in a significant engagement within the 24-month period immediately prior to such selection. Any investment banking firm selected in any other manner shall not have represented either party in a significant engagement within the 24-month period immediately prior to such selection.

     (f) Survival of Certain Related Agreements. In the event of any termination of this Agreement pursuant to Sections 7.2(b) [Bankruptcy], (c) [Material Breach], or (d) [Change of Control], the Related Agreements entered into by the breaching party, the bankrupt party or the party experiencing the

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Change or Control (or its Affiliates) shall, notwithstanding anything to the contrary contained therein, remain in effect as provided therein.

     (g) Survival of Certain Provisions of this Agreement. In the event of any termination of this Agreement pursuant to Sections 7.2(b) [Bankruptcy], (c) [Material Breach] or (d) [Change of Control]:

(i)	All provisions of Section 9.1 [Confidentiality] shall survive and continue to be binding on the Terminated Party in all respects for six years following such termination.
(ii)	All provisions of Section 9.1 (other than Sections 9.1(a)(i) and (a)(iii)) shall survive and continue to be binding on the Non-Terminated Party for six years following such termination, provided that if the Terminated Party’s Interests are not acquired by the Non-Terminated Party, all provisions of Section 9.1 shall survive and continue to be binding on the Non-Terminating Party for six years following such termination.
(iii)	Section 4.3 [Non-Compete] with respect to ezetimibe (whether monotherapy, combination or retained uses) (it being understood that all CAIs other than ezetimibe are addressed in clause (iv) of this Section 7.3(g)) shall survive and continue to be binding on the Terminated Party and its Affiliates, as the case may be, until the expiration of the last to expire U.S. patents (and any marketing exclusivity period attendant thereto) owned by or licensed to any of the Companies which claim or cover (A) ezetimibe or (B) a combination of ezetimibe and a Statin.
(iv)	All other provisions of Section 4.3 shall survive and continue to be binding on the Terminated Party and its Affiliates (including any acquiring or surviving entity in the event of a Change of Control), but only with respect to Pre-Termination Substances, until the later of (A) four years following such termination or (B) four years after the Launch of a Combination Product, provided that the maximum survival period under this clause (B) shall be five years after termination of this Agreement.
(v)	All provisions of Sections 8.1, 8.2, 8.4 and 8.5 shall survive for two years following termination.

     (h) [*]

     (i) Agreement to Enter into New Agreements. In the event that (i) this Agreement is terminated pursuant to [*] and (ii) S-P resolves the issues that M believed constituted a [*], as the case may be, S-P will promptly notify M in writing of the resolution of such issues or completion of such study, as the case

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may be. Then, if M provides written notice to S-P within 20 business days of receipt of supporting information reasonably requested by M and study results, as the case may be, the parties will enter into agreements on substantially similar terms as the terms set forth in this Agreement and the Related Agreements (the “New Agreements”) within 60 days of receipt of such notice. M shall reimburse S-P on the date of execution of the New Agreements for costs incurred by S-P (net of costs reimbursed to S-P and its Affiliates by any Third Party) relating to the development and marketing of ezetimibe and the Z/E Combination Product from the date of termination of this Agreement until the execution date of the New Agreements that would otherwise have been borne by Singapore Partnership and Marketing LLC. Notwithstanding the non-compete provisions of this Agreement, the parties hereto acknowledge that from the date of termination of this Agreement pursuant to Section 7.2(e) or 7.2(f) until the execution date of the New Agreements, S-P will be free to enter into any business arrangements of any kind with respect to ezetimibe and that the New Agreements will contain such modifications to the non-compete and other provisions as are necessary to reflect any such business arrangements, as well as changes in law or corporate organization.

ARTICLE VIII
REPRESENTATIONS, WARRANTIES,
COVENANTS AND INDEMNIFICATION

     Section 8.1. Representations and Warranties of the Parties. Each of M and the M Members hereby represents and warrants to S-P and the S-P Members with respect to itself and each of S-P and the S-P Members hereby represents and warrants to M and the M Members with respect to itself as of the date hereof as follows:

     (a) Organization and Good Standing; Power and Authority; Qualifications. Such party (i) is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, (ii) has all requisite power and authority to own, lease and operate its properties and to carry on its business as presently conducted and as proposed to be conducted and (iii) has all requisite power and authority to enter into and carry out the transactions contemplated by this Agreement and the Related Agreements to which it is a party.

     (b) Authorization of this Agreement and the Related Agreements. The execution, delivery and performance of each of this Agreement and the Related Agreements has been duly authorized by all requisite action on the part of such party which is a party hereto and thereto, and each of this Agreement and the Related Agreements constitutes a legal, valid and binding obligation of such party which is a party hereto and thereto, enforceable against each such party in accordance with its terms except to the extent that enforceability may be limited by bankruptcy, insolvency or other similar laws affecting creditors’ rights generally.

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     (c) No Conflict. The execution and delivery by such party of this Agreement and the Related Agreements to which it is a party and the consummation by such party of the transactions contemplated hereby and thereby and the compliance by such party with the provisions hereof and thereof will not (i) violate any material provision of law, statute, rule or regulation, or any ruling, writ, injunction, order, judgment or decree of any court, administrative agency or other governmental body applicable to it, or any of its properties or assets, (ii) conflict with or result in any breach of any of the terms, conditions or provisions of, or constitute (with due notice or lapse of time, or both) a default under, or result in the creation of any encumbrance upon any of its properties or assets under, any contract to which it is a party or (iii) violate its certificate of incorporation or by-laws or other organizational documents, that in the case of clause (i) or (ii), would individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, or prevent the consummation of the transactions contemplated hereby. Without limiting the generality of the foregoing, S-P represents and warrants that neither it nor any of its Affiliates has any obligation to any Third Party that would require it to contribute or license to a Third Party the right to manufacture, market or distribute in the Territory (i) for the over-the-counter market, any of the Cholesterol Products or (ii) any Cholesterol Absorption Inhibitor so that such Third Party could use such Cholesterol Absorption Inhibitor alone or in combination with a Statin. Without limiting the generality of the foregoing, M represents and warrants that neither it nor any of its Affiliates has any obligation to any Third Party that would require it to contribute or license to a Third Party the right to manufacture, market or distribute in the Territory (i) for the over-the-counter market, any of the Cholesterol Products or (ii) simvastatin or [*] for combination use so that such Third Party could use simvastatin or [*] for combination use in combination with a Cholesterol Absorption Inhibitor. Notwithstanding the foregoing, M has represented to S-P that there may be restrictions on M’s rights to contribute simvastatin or [*] (i) for combination use for the over-the-counter market pursuant to a joint venture with Johnson & Johnson and (ii) for animal health uses pursuant to a joint venture with Aventis S.A.

     Section 8.2. Certain Representations.

          (a) - (d) [*]

     (e) S-P hereby represents and warrants that the Cholesterol Assignment Documents, together with this Agreement and the Related Agreements, provide to the Singapore Partnership all of the rights and obligations and all of the benefits of all of the representations, warranties, covenants and agreements provided to Schering Sales Management, Inc. pursuant to the Schering License Agreement (Existing Cholesterol Combination IP), dated as of the date hereof and as may be amended from time to time, excluding only the

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obligations under Section 7 thereof.

     Section 8.3. Certain Covenants. Each party hereto, with respect to itself, agrees that, for so long as this Agreement is in effect:

     (a) Maintenance of Corporate Existence, etc. Such party shall maintain in full force and effect its corporate existence, rights, governmental approvals, permits, and franchises and all licenses and other rights material to and necessary in the conduct of its business as currently conducted and as proposed to be conducted, except to the extent that such failure to preserve and maintain such existence and qualifications would not reasonably be expected to have a Material Adverse Effect.

     (b) Compliance with Laws. Each Company shall use reasonable efforts to comply with all applicable laws, rules regulations and orders, except for violations or failures to so comply, if any, that, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. Each M Member and each S-P Member shall comply with all applicable laws, rules, regulations and orders as it relates to such party with respect to the Cholesterol Business, except for violations or failures to so comply, if any, that, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect.

     (c) Insurance. The Companies shall maintain adequate insurance covering all aspects of the Cholesterol Businesses. Each other party shall keep its assets that are necessary to perform its obligations under this Agreement and the Related Agreements and which are of an insurable character, if any, insured in accordance with such party’s then applicable insurance program for its business.

     Section 8.4. Certain Obligations. Each of M and S-P hereby guarantees the performance by their respective Affiliates of each of such Affiliates’ obligations as members or partners of the Companies and/or as parties to the Related Agreements. Each of M and S-P agrees that the Members that are their respective Affiliates shall not engage in any business other than the ownership of the Interests and matters incidental thereto.

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Section 8.5. Indemnification. (a) General Indemnification. Each party hereto shall indemnify, defend and hold the other parties, their affiliates, their respective officers, directors, partners, members, shareholders, employees, agents, representatives, successors and assigns (each an “Indemnified Entity”) harmless from and against all Losses (as defined in Section 8.5(b)) incurred or suffered by an Indemnified Entity arising or resulting from the breach of any of the representations, warranties or covenants made by any party in Sections 8.1, 8.2, 8.3 and 8.4. Notwithstanding any provision to the contrary contained in this Agreement, none of Indemnified Entities shall make any claim against either party, as the case may be, for any breach of representation and warranty until the dollar amount of all such claims shall exceed in the aggregate the amount of $2,000,000.

     (b) Indemnification Principles. For purposes of this Section 8.5, “Losses” shall mean each and all of the following items: claims, losses (other than lost profits), liabilities, obligations, payments, damages (other than punitive, special, indirect, consequential, incidental, exemplary or other similar damages), charges, judgments, fines, penalties, amounts paid in settlement, costs and expenses (including, without limitation, interest which may be imposed in connection therewith, costs and expenses of investigation, actions, suits, proceedings, demands, assessments and reasonable fees, expenses and disbursements of counsel, consultants and other experts).

     (c) Claim Notice. A party seeking indemnification under this Section 8.5 shall, promptly upon becoming aware of the facts indicating that a claim for indemnification may be warranted, give to the party from whom indemnification is being sought a claim notice relating to such Loss (a “Claim Notice”). Each Claim Notice shall specify the nature of the claim, the applicable provisions of this Agreement under which the claim for indemnity arises, and, if possible, the amount or the estimated amount thereof. No failure or delay in giving a Claim Notice and no failure to include any specific information relating to the claim (such as the amount or estimated amount thereof) or any reference to any provision of this Agreement or other instrument under which the claim arises shall affect the obligation of the party from whom indemnity is sought except to the extent such party is materially prejudiced by such failure or delay.

     (d) Related Agreements. Notwithstanding the foregoing, to the extent there is any conflict between the indemnification provisions in this Agreement and any Related Agreement, the indemnification provisions in the Related Agreements shall control and preempt this Section 8.5, but only with respect to the applicable Related Agreement.

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ARTICLE IX
MISCELLANEOUS

     Section 9.1. Confidentiality.

     (a) Without limiting the effect of the confidentiality provisions of any of the Related Agreements, and subject to the exceptions provided in Section 9.1(b), neither S-P or M nor their respective Affiliates nor any Company shall, without the prior written consent of S-P or M, as the case may be, divulge, use or permit its, or its Affiliates’, officers, employees, agents, advisors or contractors to divulge to any Person or use (other than as provided in Section 9.1(c)):

     (i) the contents of this Agreement or any of the Related Agreements;

     (ii) any confidential or proprietary information which has been provided to it (whether before or after the date of this Agreement) by any of the other parties hereto; or

     (iii) any confidential or proprietary information relating to the Cholesterol Business other than the information covered by Section 9.1(a)(ii);

including, in each case, all financial, marketing and technical information, specifications, ideas, concepts, technology, processes, knowledge and know-how, together with all details of customers, suppliers, prices, discounts, margins, information relating to research and development, current trading performance and future business strategy (collectively, the “Confidential Information”).

     (b) The restrictions imposed by Section 9.1(a) shall not apply to the disclosure of any information which:

     (i) is or becomes generally available to the public other than as a result of any breach of the provisions of this Agreement;

     (ii) is lawfully in the possession of such other party prior to receipt from the disclosing party;

     (iii) is commonly known to Persons engaged in the pharmaceutical industry other than as a result of any breach of the provisions of this Agreement;

     (iv) is independently developed by such party without reference to the other party’s or the Companies’ Confidential Information; or

     (v) is required to be disclosed by S-P, M or any Member or any Company under any law applicable to the conduct of such party’s business or otherwise or is disclosed upon S-P, M or any Member or any Company

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becoming legally compelled to disclose, if, in any such case, S-P, M or any Member or any Company under such legal obligation or compulsion has used its best efforts to afford the other party the opportunity to obtain an appropriate protective order or other satisfactory assurance of confidential treatment for the information required to be so disclosed.

     (c) Each of S-P, M and the Members shall ensure that Confidential Information is disclosed only to those of its and its Affiliate’s officers, employees, agents, advisors and contractors who need to know it, and who are bound by written obligations of confidentiality in respect of such information or have similar duties under their professional ethics code, and each party hereto takes full responsibility for all actions of its employees and advisors and those of its Affiliates.

     (d) Each of S-P, M and the Members will return all copies of documents containing Confidential Information to the party to which such information relates upon request after termination hereof other than one copy which may be maintained solely for record keeping purposes.

     (e) Notwithstanding any other provision of this Agreement, during the six-year period following termination of this Agreement pursuant to Section 7.2(d), all Confidential Information relating to the Cholesterol Products known to, or in the possession of, the Terminated Party and entities that were Affiliates of the Terminated Party prior to the termination of this Agreement, shall not be disclosed, provided or otherwise made available, to the Person that acquired the Terminated Party or to any of such Person’s Affiliates, officers, directors, employees or agents.

     Section 9.2. Publicity. (a) Neither S-P nor any of its Affiliates on the one hand nor M or any of its Affiliates on the other hand may use the name of the other or any of the Companies in any publicity or advertising except as specifically provided in any Related Agreements, and may not issue a press release or otherwise publicize or disclose any information related to the existence of this Agreement or any of the Related Agreements or the terms or conditions hereof or thereof without the prior written consent of the other. S-P and M shall agree on the form, content and timing of the initial press release or public statement that may be used by either of S-P or M to describe this Agreement and any of the Related Agreements and any subsequent press release or subsequent public statement with respect to or relating to the transactions contemplated by this Agreement or any of the Related Agreements or any of the terms or conditions hereof or thereof. In the event that either S-P or any of its Affiliates on the one hand or M or any of its Affiliates on the other hand (the “Disclosing Party”) is requested (by oral questions, interrogatories, requests for information or documents in legal proceedings, subpoena, civil investigative demand or other similar process) or required (by applicable federal or state securities laws or any rule or regulation of any national securities exchange) to make any such disclosure, the Disclosing Party shall provide the other party (either S-P or M, as the case may be) with prompt written notice of any such request or

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requirement so that such other party may seek a protective order or other appropriate remedy and/or, if it also determines that such disclosure is required, waive compliance with the provisions of this Section 9.2. If, in the absence of a protective order or other remedy or the receipt of a waiver by such other party, the Disclosing Party is nonetheless, in the written opinion of its outside legal counsel, legally compelled to make such disclosure, the Disclosing Party may disclose only that portion which such counsel advises the Disclosing Party is legally required to be disclosed, provided that the Disclosing Party shall use its best efforts to avoid such disclosure including, without limitation, by cooperating with the other party to obtain an appropriate protective order or other reliable assurance that, to the extent available, confidential treatment will be afforded to such information included in the disclosure.

          (b) None of the Companies may use the name of either M or S-P or their respective Affiliates in any publicity, press release, or other similar public disclosure without the prior written consent of M or S-P, as the case may be.

     Section 9.3. Further Assurances. Each of S-P and the S-P Members on the one hand and M and the M Members on the other hand shall cooperate with each other and shall promptly execute, acknowledge and deliver any assurances, approvals or documents reasonably requested by the other that is necessary for the requesting party to satisfy its obligations hereunder or obtain the benefits contemplated hereby.

     Section 9.4. Notices. All consents or other notices provided for in this Agreement shall be in writing, duly signed by the party giving such notice, and shall be delivered, telecopied or mailed by registered or certified mail, as set forth on Schedule 9.4. Notices delivered to an addressee shall be deemed to have been given upon such delivery. Notices sent by telecopier shall be deemed to have been given upon confirmation by telecopy answerback (followed promptly by the mailing of the original of such notice). Notices mailed by registered or certified mail shall be deemed to have been given upon the expiration of five (5) business days after such notice has been deposited in the mail.

     Section 9.5. Failure to Pursue Remedies. The failure of any party to seek redress for violation of, or to insist upon the strict performance of, any provision of either this Agreement or any Related Agreement shall not prevent a subsequent act, which would have originally constituted a violation from having the effect of an original violation. No waiver of any breach of any of the terms of this Agreement or any of the Related Agreements shall be effective unless such waiver is in writing and signed by the party or parties against whom such waiver is claimed.

     Section 9.6. Cumulative Remedies. The rights and remedies provided by this Agreement are cumulative and the use of any one right or remedy by any party shall not preclude, constitute an election of remedies or waive its right to use any or all other remedies. Said rights and remedies are given in addition to any other rights the parties may have by law, statute, ordinance or otherwise.

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     Section 9.7. Assignment; Binding Effect. Except as specifically set forth in the Related Agreements, without the consent of all of the parties hereto, which consent may be given or withheld by each party in its sole discretion, neither this Agreement nor any Interest of a party in any of the Companies may be assigned or otherwise transferred, except (i) to wholly-owned subsidiaries of such party provided that any such subsidiary remains at all times directly or indirectly wholly-owned by M or S-P, as the case may be or (ii) pursuant to Section 7.3. Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the parties hereto and, to the extent permitted by this Agreement, their successors, legal representatives and permitted assigns.

     Section 9.8. Severability. In the event of any challenge of the validity or enforceability of any term, part or provision of this Agreement or any of the Related Agreements, until a final, unappealable decision is rendered and, pending such final, unappealable decision, such challenged term, part or provision shall remain in full force and effect. Any term, part or provision of this Agreement or any of the Related Agreements, which is determined by a court in a final, unappealable decision to be invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering in any way invalid or unenforceable the remaining terms, parts and provisions of this Agreement, or any of the Related Agreements or affecting the validity or enforceability of any of the terms, parts or provisions of this Agreement or any of the Related Agreements, in any other jurisdiction and, accordingly, all such other terms, parts and provisions shall remain in full force and effect. If any provision of this Agreement or any of the Related Agreements, is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as is enforceable.

     Section 9.9. Standstill.

     (a) Each of S-P and M agrees and acknowledges that, for the Standstill Period, it and its affiliates (as currently defined in Rule 12b-2 under the Exchange Act and as defined under current law interpreting Rule 12b-2) will not, (and neither it nor any such affiliates will assist, facilitate, provide or arrange financing to or for others or encourage others to), directly or indirectly, acting alone or in concert with others, unless specifically requested in writing in advance by the Board of Directors of the other party:

     (i) acquire or agree, offer, seek or propose to acquire (or request permission to do so), ownership (including, but not limited to, beneficial ownership as defined in Rule 13d-3 under the Exchange Act) of any of the assets or businesses of the other party or any securities issued by the other party, or any rights or options to acquire such ownership (including from a Third Party), other than de minimus acquisitions of securities which are disposed of in the public market promptly,

     (ii) seek or propose to influence or control (publicly or otherwise) the management or the policies of the other party or to obtain representation on the other party’s Board of Directors, or “solicit,” or participate in any “solicitation”

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of, any “proxies” or “consents” (as such terms are defined in Regulation 14A under the Exchange Act) with respect to any securities of the other party,

     (iii) enter into any discussions, negotiations, arrangements or understandings with any third party with respect to any of the provisions of this Section 9.9,

     (iv) seek to amend, modify or supplement this Section 9.9 or seek to have the other party or its Affiliates waive or relinquish any of the restrictions of this Section 9.9,

     (v) seek or request permission to do any of the foregoing or make or seek permission to make any public announcement with respect to any of the provisions of this Section 9.9, or

     (vi) take any action which would result in or would reasonably be expected to result in the other party making a public announcement regarding any of the provisions of this Section 9.9.

     (b) Notwithstanding the provisions of Section 9.9(a), in the event that the Board of Directors of M or S-P resolves to engage in, or engages in, a process designed for such party to solicit offers relating to transactions which, if consummated, would constitute (i) a Business Combination involving a sale of all or substantially all the Outstanding Voting Securities of M or S-P, as the case may be, for consideration consisting of at least 80% cash and/or non-voting securities, or (ii) a Business Combination that directly results in a shift of direct and indirect majority voting control from the public shareholders of M or S-P, as the case may be, to a single shareholder or “group” of shareholders (as defined in Regulation 13D), then the provisions of Section 9.9(a) shall be deemed to be waived solely to the extent necessary to permit the other party to participate in such process on terms and conditions at least as favorable to such other party as those offered to the other participants in such process until such time, if any, as the Board of Directors of M or S-P, as the case may be, terminates, rescinds or allows such process to lapse.

     Section 9.10. Counterparts. This Agreement may be executed in any number of counterparts with the same effect as if all parties hereto had signed the same document. All counterparts shall be construed together and shall constitute one instrument.

     Section 9.11. Integration. This Agreement and the Related Agreements constitute the entire agreement among the parties hereto pertaining to the subject matter hereof and thereof and supersede all prior agreements and understandings pertaining thereto. In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any of the Related Agreements, the terms and conditions of this Agreement shall prevail, except as specifically provided herein.

     Section 9.12. Governing Law. This Agreement and the rights of the parties hereunder shall be interpreted in accordance with the laws of the State of Delaware, and

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all rights and remedies shall be governed by such laws without regard to principles of conflict of laws.

     Section 9.13. Amendments. Any amendment, supplement or waiver to this Agreement shall be made in writing and shall be adopted and be effective only if signed and approved by each of the parties hereto.

     Section 9.14. Judicial Proceeding.

     (a) General. Any disputes, claims, controversies or disagreements with respect to this Agreement or any of the Related Agreements, including whether a Material Breach has occurred, that cannot be resolved pursuant to the procedures set forth in Sections 3.3(e), 3.6(b) and 7.1, such procedures to be fully complied with, as applicable, shall be finally determined in a judicial proceeding; provided that (i) no party shall seek dissolution by a judicial forum or by operation of law, appointment of a trustee, receiver, custodian or similar person, including, without limitation, pursuant to Section 86.491 of the Nevada Limited Liability Company Act and Section 18-802 of the Delaware Limited Liability Company Act and (ii) the foregoing shall not limit any remedies specifically provided in any of the Related Agreements. Notwithstanding anything to the contrary, no dispute relating solely to business decisions relating to the operation of the Cholesterol Business shall be submitted to any judicial proceeding hereunder.

     (b) Consent to Jurisdiction. Each party to this Agreement, or to any of the Related Agreements hereby, consents to the exclusive jurisdiction of the state courts of New York for the purposes of any action or proceeding arising out of or in connection with this Agreement or any of the Related Agreements pursuant to Section 9.14(a), and each of the parties hereto irrevocably agrees that all claims in respect to such action or proceeding may be heard and determined exclusively in the New York Supreme Court-Commercial Division. None of the parties to this Agreement, nor any of their subsidiaries or Affiliates, will raise any objection to proceedings in New York based on section 1312 of the New York Corporation Law or any similar statute. Each of the parties hereto agrees that a final judgment in any action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Each of the parties hereto further irrevocably consents to the service of any summons and complaint and any other process in any other action or proceeding relating to this Agreement or any of the Related Agreements, on behalf of itself or its property, by the personal delivery of copies of such process to such party. Nothing in this Section 9.14(b) shall affect the right of any party hereto to serve legal process in any other manner permitted by law.

     Section 9.15. Enforcement of Certain Rights. In the event that M or S-P believes that the other party or an Affiliate of the other party is not complying with its obligations as a whole in a material respect, under any of the Related Agreements, any dispute with respect thereto shall be referred to the applicable Board and first be subject

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to resolution pursuant to the provisions of Section 3.3(e). Notwithstanding anything contained herein, if the dispute cannot be resolved pursuant to such dispute resolution procedures, then the complaining party shall have the power and authority to enforce on behalf of the Company, or to cause the Company to enforce, the Company’s rights through a judicial remedy in accordance with the provisions of Section 9.14 [Judicial Proceedings]; provided that notwithstanding the foregoing, M shall have the right to immediately seek on behalf of any Company a judicial remedy in the event it believes that there has been or is reasonably likely to be a breach of any agreements which require the consent of M for any licensing of ezetimibe to any party, or that prohibits the licensing of ezetimibe to other parties, or that any exclusive product rights are being violated or are reasonably likely to be violated. If one Member or any of its Affiliates agrees to license to a Company manufacturing technology or know-how pursuant to the terms of a Manufacturing Agreement (the “Licensor”), then the parties hereto that are Affiliates of the Licensor shall not take any action (or omit to take any action) which could materially hinder or frustrate the ability of the Company to enforce and realize the benefits of such License.

     Section 9.16. No Third Party Beneficiaries. Except as otherwise specifically set forth in the Related Agreements, neither this Agreement nor any of the Related Agreements shall confer upon any Person, other than the parties hereto and thereto, any rights or remedies hereunder or thereunder.

     Section 9.17. Survival. Notwithstanding any other provision herein, if this Agreement is terminated for any reason, the applicable provisions of Sections 8.1, 8.2, 8.4, 8.5 and 9.14, and any applicable definitions set forth in Section 1.2, shall survive to the extent necessary to effectuate any Related Agreements that survive such termination, and Sections 7.3(f), 7.3(g), 7.3(i) and 9.9 (together with the applicable definitions set forth in Section 1.2) shall survive for the periods respectively set forth in each such section.

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     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above stated.

     [Signatures omitted]

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SCHEDULE A

Existing M JVs

[*]

A-1

SCHEDULE B

Existing S-P JVs

[*]

B-1

SCHEDULE C

Non-Pharma Companies

Abbott Laboratories

Amgen Inc.

Novo Nordisk A/S

Pharmacia Corporation

Schering AG

C-1

SCHEDULE 7.3

Illustrations of Change of Control Valuation

Example 1

Low Valuation	$	75
High Valuation	$	95
Average	$	85
+/- 12% from Average	$	74.8 « $95.2
Low and High Valuations Within 12% of Average?	Yes
Valuation equals average of Low and High valuations	$	85

Schedule 7.3
Page 2

Example 2

Low Valuation	$	60
High Valuation	$	100
Average	$	80
+/- 12% from Average	$	70.4 « $89.6
Low and High valuations within 12% of Average?	No
Third valuation required
Third valuation	$	110
Third valuation between Low and High valuations?	No
Third Valuation closer to High or Low?	High
Valuation equals average of High and Third valuations	$	105

Schedule 7.3
Page 3

Example 3

Low Valuation	$	65
High Valuation	$	100
Average	$	82.5
+/- 12% from Average	$	72.6 « $92.4
Low and High valuations within 12% of Average?	No
Third valuation required
Third valuation	$	85
Third valuation between Low and High valuations?	Yes
Low and High Average	$	82.5
Low Valuation +/- 30% of Average	$	40.25 « $89.75
High Valuation +/- 30% of Average	$	75.25 « $124.75
Third valuation within Low range?	Yes
Third valuation within High range?	Yes
Valuation equals average of Low, High and Third valuations	$	83.33

Schedule 7.3
Page 4

Example 4

Low Valuation	$	60
High Valuation	$	100
Average	$	80
+/- 12% from Average	$	70.4 « $89.6
Low and High valuations within 12% of Average?	No
Third valuation required
Third valuation	$	75
Third valuation between Low and High valuations?	Yes
Low and High Average	$	80
Low Valuation +/- 30% of Average	$	36 « $84
High Valuation +/- 30% of Average	$	76 « $124
Third valuation within Low range?	Yes
Third valuation within High range?	No
Valuation equals average of Low and Third valuations	$	67.5

Schedule 7.3
Page 5

Example 5

Low Valuation	$	50
High Valuation	$	120
Average	$	85
+/- 12% from Average	$	74.8 « $95.2
Low and High valuations within 12% of Average?	No
Third valuation required
Third valuation	$	85
Third valuation between Low and High valuations?	Yes
Low and High Average	$	85
Low Valuation +/- 30% of Average	$	24.5 « $75.5
High Valuation +/- 30% of Average	$	94.5 « $145.5
Third valuation within Low range?	No
Third valuation within High range?	No
Valuation equal to Third valuation	$	85

SCHEDULE 9.4

[*] [Note: Approximately seven pages of text are omitted]

EX-10.2

Exhibit 10.2

Execution Copy

Confidential portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission with a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. The location of an omitted portion is indicated by an asterisk within brackets (“[*]”).

     THIS FIRST AMENDMENT TO THE CHOLESTEROL GOVERNANCE AGREEMENT is made as of December 18, 2001, by and among MSP Distribution Services (C) LLC, MSP Marketing Services (C) LLC, MSP Technology (US) Company LLC, Merck Cardiovascular Health Company, Merck Technology (US) Company, Inc., Schering MSP Corporation, Schering Sales Management, Inc., Schering Sales Corporation, Schering MSP Pharmaceuticals L.P., MSP Singapore Company, LLC (the “Singapore Partnership”), MSD Technology Singapore Pte. Ltd., MSD Ventures Singapore Pte. Ltd., Schering-Plough (Singapore) Pte. Ltd., Schering-Plough (Singapore) Research Pte. Ltd., Schering Corporation, Schering-Plough Corporation, a New Jersey corporation (“S-P”), and Merck & Co., Inc., a New Jersey corporation (“M”).

     WHEREAS, the parties listed above are parties to the Cholesterol Governance Agreement, dated as of May 22, 2000, (the “Governance Agreement”), and desire to amend the Governance Agreement as provided in this First Amendment.

     NOW, THEREFORE, in consideration of the agreements and obligations set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

1. Amendments to the Governance Agreement.

1.1. Section 1.2 of the Governance Agreement is hereby amended by adding the following definitions in alphabetical order:

“Canadian General Manager” has the meaning set forth in Section 1.2 of the Master Agreement.

“ECLAFE” has the meaning set forth in Section 1.2 of the Master Agreement.

“ECLAFE Cholesterol Business” has the meaning set forth in Section 1.2 of the Master Agreement.

“EMEA General Manager” has the meaning set forth in Section 1.2 of the Master Agreement.

“Far East Co-Marketing Country” has the meaning set forth in Section 1.2 of the Master Agreement.

“Far East Operating Board” has the meaning set forth in Section 1.2 of the Master Agreement.

“Far East Co-Promotion Country” has the meaning set forth in Section 1.2 of the Master Agreement.

“Far East Single Presence Country” has the meaning set forth in Section 1.2 of the Master Agreement.

“Latin America” has the meaning set forth in Section 1.2 of the Master Agreement.

“Master Agreement” means the Master Agreement, dated as of the date hereof, by and among the Technology LLC, Singapore Partnership, M, Schering Corporation and S-P.

“M Indemnified Parties” means M, its Affiliates and each of their respective officers, directors, partners, shareholders, members, agents, representatives, successors and assigns.

“MSP Technology Agreement” means the Limited Liability Company Agreement of MSP Technology (US) Company LLC.

“S-P Indemnified Parties” means S-P, its Affiliates and each of their respective officers, directors, partners, shareholders, members, agents, representatives, successors and assigns.

“Special Damages” has the meaning set forth in Section 8.5.4 of this Agreement.

“U.S. Termination Assets” has the meaning set forth in Section 7.3(a) of this Agreement.

1.2. The definition of “Interests” in Section 1.2 is amended by including the following sentence at the end of such definition:

“For the purposes of this Agreement, “Interests” shall not include (x) the Interests (as defined in the Master Agreement) of the Terminated Party and (y) in the event the Master Agreement has been terminated prior to, and not simultaneously with, this Agreement, the ECLAFE Termination Assets, if any (as defined in the Master Agreement).”

1.3. The definition of “Standstill Period” in Section 1.2 is deleted in its entirety and replaced with the following:

“Standstill Period” means the period beginning on the date hereof and ending upon the later to occur of (x) three years after termination of this Agreement, (y) three years after termination of the Respiratory Governance Agreement, and (z) three years after termination of the Master Agreement.

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1.4.	The second sentence of Section 5.1 of the Governance Agreement is hereby amended by adding “in the Territory” after the words “The marketing of each Cholesterol Product”.
1.5.	Section 5.2 of the Governance Agreement is hereby deleted in its entirety and replaced with the following:

“Section 5.2. Product Recalls. Subject to Section 7.1(b), if an Executive Sponsor in the Territory or an Executive Sponsor in an applicable ECLAFE region believes that a recall of a Cholesterol Product is necessary in the Territory or a country in ECLAFE, such executive sponsor shall notify his or her counterpart executive sponsor, within forty-eight (48) hours of its determination. S-P, M, the relevant Members and the relevant local M and S-P subsidiaries shall cooperate to allow such recall to occur to the extent determined by the Singapore Board (other than for safety which shall be solely governed by and resolved pursuant to Section 7.1(b)). The General Manager, EMEA General Manager and the Canadian General Manager shall be responsible for the execution of such recall of the Cholesterol Products in the region in which he or she serves as the general manager. In Far East Co-Promotion Countries, the Far East Operating Board shall be responsible for the execution of such recall of the Cholesterol Products. In Latin America, Far East Co-Marketing Countries and Far East Single Presence Countries, the local M and/or S-P Affiliates, as applicable, shall be responsible for the execution of such recall of the Cholesterol Products.”

1.6. Section 7.1 of the Governance Agreement is hereby amended as follows:

1.6.1.	The fourth and fifth sentence of subparagraph (b)A(x) is deleted in its entirety and replaced with the following: [*]
1.6.2.	The third sentence of subparagraph (b)A(y) is deleted in its entirety and replaced with the following: [*]
1.6.3.	The second and third sentence of subparagraph (b)B shall be deleted in its entirety and replaced with the following: [*]

1.7.	The first sentence of Section 7.2(c) of the Governance Agreement is hereby amended by inserting “(to the extent such Related Agreement and such Material Breach directly relate to the Cholesterol Business)” after each of the first two uses of “Related Agreement” in that sentence.
1.8.	The second sentence of Section 7.2(c) of the Governance Agreement is hereby amended by inserting “(to the extent such Related Agreement and such breach directly relate to the Cholesterol Business)” after the first use of “Related Agreement” in that sentence.

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1.9. Section 7.3(a) of the Governance Agreement is hereby deleted in its entirety and replaced with the following:

“(a) General. With respect to any event of termination, each party shall undertake, during the pendency of the procedure to determine whether such event of termination has occurred and the implementation of the consequences of such termination, to maintain the Cholesterol Business in the Territory as a going concern, so that all of the rights, title and interests in the Companies (other than the Singapore Partnership and the Technology LLC, to the extent the Master Agreement is not being terminated prior to or simultaneously with this Agreement pursuant to Section 7.2(b) [Bankruptcy], 7.2(c) [Material Breach due to a breach of Section 9.9 [Standstill] of the Governance Agreement], Section 7.2(d) [Change of Control] or [*] and the Cholesterol Businesses in the Territory may be conveyed. The parties acknowledge that in the event of a termination of this Agreement that results in one party acquiring the Interests of another party hereto and the U.S. Termination Assets (as described below), if any, (i) the acquiring party may determine to continue operating the Cholesterol Business through one or more of the Companies, (ii) appropriate adjustments to the Singapore Partnership Agreement shall be made to provide (A) that profit and loss arising from the Cholesterol Business in the Territory shall be specially allocated to the Party (or its Affiliates) that acquires the Interests of the other Party and its Affiliates and (B) that, to the extent the Master Agreement has not been, or is not being, terminated simultaneously with this Agreement pursuant to Section 5.2.2 of the Master Agreement, that the assets and liabilities of the Singapore Partnership, to the extent they relate to the Cholesterol Business in the Territory (the “Singapore Termination Assets”) can be sold as set forth in the last sentence of this Section 7.3(a), or the rights thereto otherwise transferred, to the Terminating Party or its Affiliates pursuant to this Section 7.3 and (iii) appropriate adjustment to the MSP Technology Agreement will be made to provide that, to the extent the Master Agreement has not been terminated or is not being terminated simultaneously with this Agreement pursuant to Section 5.2.2 of the Master Agreement, the assets and liabilities of MSP Technology Partnership, to the extent they relate to the Cholesterol Business in the Territory (the “Technology Termination Assets,” and together with the Singapore Termination Assets, the “U.S. Termination Assets”), can be sold as set forth in the last sentence of this Section 7.3(a), or the rights thereto transferred, to the Terminating Party or its Affiliates pursuant to this Section 7.3. In the event of any such termination, the Parties will enter into such agreements as are necessary or appropriate to provide for the transfer of the U.S. Termination Assets and will endeavor in good faith to arrange for such transfer to be effected in a manner that is tax efficient, to the maximum extent reasonably practicable, to both the Terminated Party and the Terminating Party, and any other

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agreements as may be necessary or appropriate to effectuate the foregoing.”

1.10.	The first sentence of Section 7.3(d) of the Governance Agreement is hereby amended by inserting “(other than the Singapore Partnership and Technology LLC, to the extent this Agreement is not terminated prior to or simultaneously with the Master Agreement) and US Termination Assets, if any,” after “Companies,” and “of the Companies (other than the Singapore Partnership and Technology LLC, to the extent this Agreement is not terminated prior to or simultaneously with the Master Agreement) and US Termination Assets, if any,” after “Interests” in the third and fourth sentences thereof.
1.11.	Section 7.3(h) is amended by inserting the following sentence after the first sentence: [*]
1.12.	Section 8.5 of the Governance Agreement is hereby deleted in its entirety and replaced with the following:

“Section 8.5. Indemnification.

Section 8.5.1. Indemnification by the Singapore Partnership. The Singapore Partnership shall indemnify, defend and hold harmless the M Indemnified Parties and the S-P Indemnified Parties from and against all Losses incurred or suffered by any of them as a result of, arising from, or in connection with any claim, action, proceeding or investigation of any Third Party relating to:

(a) the development, testing, use, marketing, distribution, promotion, supply or sale of the Cholesterol Products in the Field in the Territory.

Notwithstanding the foregoing, no M Indemnified Party and no S-P Indemnified Party shall be entitled to any indemnification pursuant to this Section 8.5.1 to the extent the Loss for which indemnification is being sought is caused by the gross negligence or willful misconduct of the party seeking indemnification.

Section 8.5.2. Indemnification by M. M shall indemnify, defend and hold harmless the S-P Indemnified Parties and the Singapore Partnership from and against all Losses incurred or suffered by any of them as a result of, arising from, or in connection with:

(a) the breach by M of any of its representations, warranties or covenants in this Agreement, the Development Agreement, any License Agreements, or any governing document of any of the Companies, provided that no claim may be made for indemnification under this Section 8.5.2 for breaches of representations or warranties until the aggregate dollar amount of all such claims exceeds $2 million;

(b) the gross negligence or willful misconduct by M or any of its Affiliates in the performance of any of their obligations under this

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Agreement or the Related Agreements (other than manufacturing agreements or packaging agreements);

(c) the development, testing, use, marketing, distribution, promotion, supply or sale by M or its Affiliates of the Cholesterol Products outside the Field; or

(d) the development, testing, use, marketing, distribution, promotion, supply or sale by M or its Affiliates (or Banyu Pharmaceutical Company, Ltd.) of the Cholesterol Products in Japan to the extent such Cholesterol Products are developed, tested, used, marketed, distributed, promoted, supplied or sold either (i) under a Product Marketing Authorization that includes, directly or by reference, data comprising “Merck Clinical IP”, “Schering Clinical IP” or “Merck Formulation IP” (each as defined in the Development Agreement), or (ii) under a trademark, tradename or other form of brand protection owned or used by the Singapore Partnership.

Notwithstanding the foregoing, neither any S-P Indemnified Party nor the Singapore Partnership shall be entitled to any indemnification pursuant to this Section 8.5.2 to the extent the Loss for which indemnification is being sought is caused by the gross negligence, willful misconduct or willful violation of law of the party seeking indemnification.

Section 8.5.3. Indemnification by S-P. S-P shall indemnify, defend and hold harmless the M Indemnified Parties and the Singapore Partnership from and against all Losses incurred or suffered by any of them as a result of, arising from, or in connection with:

(a) the breach by S-P of any of its representations, warranties or covenants in this Agreement, the Development Agreement, any License Agreements, or any governing documents of any of the Companies, provided that no claim may be made for indemnification under this Section 8.5.3 for breaches of representations or warranties until the aggregate dollar amount of all such claims exceeds $2 million;

(b) the gross negligence or willful misconduct by S-P or any of its Affiliates in the performance of any of their obligations under this Agreement or the Related Agreements (other than manufacturing agreements or packaging agreements);

(c) the development, testing, use, marketing, distribution, promotion, supply or sale by S-P or its Affiliates of the Cholesterol Products outside the Field; or

(d) the development, testing, use, marketing, distribution, promotion, supply or sale by S-P or its Affiliates of the Cholesterol Products in Japan to the extent such Cholesterol Products are developed, tested, used, marketed, distributed, promoted, supplied or sold either (i) under a

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Product Marketing Authorization that includes, directly or by reference, data comprising “Merck Clinical IP”, “Schering Clinical IP” or “Merck Formulation IP” (each as defined in the Development Agreement), or (ii) under a trademark, tradename or other form of brand protection owned or used by the Singapore Partnership.

Notwithstanding the foregoing, neither any M Indemnified Party nor the Singapore Partnership shall be entitled to any indemnification pursuant to this Section 8.5.3 to the extent the Loss for which indemnification is being sought is caused by the gross negligence, willful misconduct or willful violation of law of the party seeking indemnification.

Section 8.5.4. Indemnification Principles. For purposes of this Section 8.5, “Losses” shall mean each and all of the following items: claims, losses, liabilities, obligations, payments, damages, charges, judgments, fines, penalties, amounts paid in settlement, costs and expenses (including, without limitation, interest which may be imposed in connection therewith, costs and expenses of investigation, actions, suits, proceedings, demands, assessments and reasonable fees, expenses and disbursements of counsel, consultants and other experts). Losses shall not include, and indemnification shall not be available under this Section 8.5 for, (i) lost profits, punitive, special, indirect, consequential, incidental, exemplary or other similar damages (collectively, “Special Damages”), other than Special Damages payable to Third Parties. Notwithstanding any provision in this Agreement or any Related Agreement, no Party hereto or thereto shall seek or be entitled to receive any Special Damages from any other Party, or its Affiliates, in connection with such Agreements.

Section 8.5.5. Claim Notice. A Party seeking indemnification under this Section 8.5 shall, promptly upon becoming aware of the facts indicating that a claim for indemnification may be warranted, give to the Party from whom indemnification is being sought a claim notice relating to such Loss (a “Claim Notice”). Each Claim Notice shall specify the nature of the claim, the applicable provisions of this Agreement under which the claim for indemnity arises, and, if possible, the amount or the estimated amount thereof. No failure or delay in giving a Claim Notice and no failure to include any specific information relating to the claim (such as the amount or estimated amount thereof) or any reference to any provision of this Agreement or other instrument under which the claim arises shall affect the obligation of the Party from whom indemnity is sought except to the extent such Party is materially prejudiced by such failure or delay.”

1.13. Section 9.17 of the Governance Agreement is hereby amended by adding the following sentence to the end thereof:

“In addition, Section 7.1(b) (and any other provisions necessary to make the provisions of Section 7.1(b) operative) shall survive any termination of this Agreement for as long as the Master Agreement remains in effect.”

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2.	Effect. The Governance Agreement shall remain unchanged and in full force and effect except as specifically amended by this First Amendment.
3.	Governing Law. This First Amendment and the rights of the Parties hereunder shall be interpreted in accordance with the laws of the State of Delaware, and all rights and remedies shall be governed by such laws without regard to principles of conflict of laws.
4.	Counterparts. This First Amendment may be executed in any number of counterparts with the same effect as if all parties hereto had signed the same document. All counterparts shall be construed together and shall constitute one instrument.
5.	Termination. Without limiting the provisions of Section 7.3(g) of the Governance Agreement, upon termination of the Governance Agreement, the provisions added, amended or modified by this First Amendment shall survive with respect to ECLAFE until termination of the Master Agreement in accordance with its terms.

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     IN WITNESS WHEREOF, the parties hereto have executed this First Amendment to the Cholesterol Governance Agreement as of the date first above stated.

     [Signatures Omitted]

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EX-10.3

Exhibit 10.3

EXECUTION COPY

Confidential portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission with a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. The location of an omitted portion is indicated by an asterisk within brackets (“[*]”).

MASTER AGREEMENT

BY AND AMONG

MSP TECHNOLOGY (U.S.) COMPANY LLC,

MSP SINGAPORE COMPANY, LLC,

SCHERING CORPORATION,

SCHERING-PLOUGH CORPORATION,

AND

MERCK & CO., INC.

DATED AS OF

DECEMBER 18, 2001

Table of Contents

	Page
ARTICLE I DEFINED TERMS		1
Section 1.1. Interpretation		1
Section 1.2. Definitions		1
Section 1.3. Headings		19
Section 1.4. Intent of the Parties		19
ARTICLE II THE ECLAFE TRANSACTIONS		19
Section 2.1. The EMEA		19
Section 2.2. Canada		27
Section 2.3. Latin America		30
Section 2.4. Far East		30
Section 2.5. Amendment of Prior Agreements and S-P ECLAFE License Agreements		34
Section 2.6. Certain Contract Manufacturing Agreements		37
Section 2.7. Toll Packaging Rights		37
ARTICLE III MANAGEMENT		39
Section 3.1. Worldwide Oversight Committee		39
Section 3.2. Management of the EMEA		40
Section 3.3. Management of Canada		47
Section 3.4. Management of Latin America		47
Section 3.5. Management of the Far East – Co-Marketing Countries		49
Section 3.6. Management of the Far East Board Countries		51
ARTICLE IV GOOD FAITH EFFORTS; OTHER MATTERS		55
Section 4.1. Commercially Reasonable Good Faith Efforts		55
Section 4.2. Certain Expenses		55
Section 4.3. Trademarks		56
Section 4.4. Non-Compete		61
Section 4.5. Unilateral Termination of Board Country Agreements		61
ARTICLE V DISPUTE RESOLUTION, TERMINATION, DISSOLUTION AND LIQUIDATION		61
Section 5.1. Dispute Resolution		61
Section 5.2. Termination		61
Section 5.3. Consequences of Termination		63
Section 5.4. Treatment of Master Agreement and Related Agreements		68
Section 5.5. Incorporation by Reference		72

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	Page
ARTICLE VI REPRESENTATIONS, WARRANTIES, COVENANTS AND INDEMNIFICATION		72
Section 6.1. Representations and Warranties of the Parties		72
Section 6.2. Certain Representations		73
Section 6.3. Certain Covenants		73
Section 6.4. Certain Obligations		74
Section 6.5. Indemnification		75
ARTICLE VII MISCELLANEOUS		77
Section 7.1. Confidentiality		77
Section 7.2. Publicity		79
Section 7.3. Further Assurances		79
Section 7.4. Notices		79
Section 7.5. Failure to Pursue Remedies		80
Section 7.6. Cumulative Remedies		80
Section 7.7. Assignment; Binding Effect		80
Section 7.8. Severability		80
Section 7.9. Counterparts		80
Section 7.10. Integration		80
Section 7.11. Governing Law		81
Section 7.12. Amendments		81
Section 7.13. Judicial Proceeding		81
Section 7.14. Enforcement of Certain Rights		82
Section 7.15. No Third Party Beneficiaries		82
Section 7.16. Survival		82
Section 7.17. Sanctioned Countries		82

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     This Master Agreement is dated as of December 18, 2001 (the “Effective Date”), by and among MSP Technology (U.S.) Company LLC (“MSP Technology”), MSP Singapore Company, LLC (the “Singapore Partnership”), Schering Corporation, Schering-Plough Corporation (“S-P”), and Merck & Co., Inc. (“M”).

RECITALS

     WHEREAS, S-P and M have entered into a Cholesterol Governance Agreement (the “Governance Agreement”), and certain related agreements, each dated as of May 22, 2000, with respect to the research, development and commercialization in the United States of the Cholesterol Products; and

     WHEREAS, S-P and M desire to expand the research, development and commercialization of the Cholesterol Products to the EMEA, Canada, Latin America and the Far East (other than Japan).

     NOW, THEREFORE, in consideration of the agreements and obligations set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

ARTICLE I
DEFINED TERMS

     Section 1.1. Interpretation. Throughout this Agreement, nouns, pronouns and verbs shall be construed as masculine, feminine, neuter, singular or plural, whichever shall be applicable. All references herein to “Articles,” “Sections” and clauses shall refer to corresponding provisions of this Agreement, unless otherwise specified.

     Section 1.2. Definitions. The terms defined for the purposes of this Agreement, have the meanings herein specified.

     “Affiliate” means, with respect to a specified Person, any Person that directly or indirectly controls, is controlled by, or is under common control with, the specified Person; provided that (i) the Existing M JVs shall be deemed not to be Affiliates of M, so long as they continue to carry on their respective businesses as presently conducted and (ii) the Existing S-P JVs shall be deemed not to be Affiliates of S-P, so long as they continue to carry on their respective businesses as presently conducted. As used in this definition, the term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise.

     “Agency” means any governmental regulatory authority in ECLAFE responsible for granting or giving approvals, pricing or reimbursement with respect to a Cholesterol Product.

     “Agreement” means this Master Agreement, as it may be amended from time to time.

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     “Amended Agreements” means those Agreements executed and delivered in connection with the Governance Agreement which have been modified and amended pursuant to Section 2.5.1 of the Agreement, and the S-P licensing Agreements relating to ECLAFE executed and delivered pursuant to section 2.5.2.

     “Board Country Agreement” means the EMEA Board Country Agreements and the Far East Board Country Agreements.

     “Board Country Supply Agreements” means those Supply and Distribution Agreements and Sub-Distribution Agreements referred to in Sections 2.1(e), and (g), 2.2(a)(3), 2.4(b)(2), (3), (4), (5) and (6) of this Agreement.

     “Board Country Subsidiary” means any subsidiary of M or S-P that is a party to (or, in the case of a single presence Affiliate of M or S-P, subject to the provisions of) an EMEA Board Country Agreement, a Far East Board Country Agreement or the Canada Co-Promotion Agreement (as referenced in Section 2.2(a)(2)).

     “Calendar Quarter” means each of following three (3) month periods: (i) the period beginning on January 1^st of a given year and ending on March 31^st of such year; (ii) the period beginning on April 1^st of a given year and ending on June 30^th of such year; (iii) the period beginning on July 1^st of a given year and ending on September 30^th of such year; and (iv) the period beginning on October 1^st of a given year and ending on December 31^st of such year.

     “Calendar Year” means each one year period beginning January 1^st of a given year and ending December 31^st of such year.

     “Call” means a face-to-face meeting in an individual or group practice setting, between a professional sales representative (including Specialty Representatives or Hospital Representatives) of M or S-P or their respective Affiliates, during which a Primary Position Detail, a Secondary Position Detail or a Tertiary Position Detail is made to a Prescriber relating to a Cholesterol Product, provided that such meeting is consistent with and in accordance with the procedures and policies customarily employed by such Party’s sales force responsible for performing such activities for the majority of its other major marketed pharmaceutical products, consistently applied.

     “Call Notice” has the meaning set forth in Section 5.3(d)(ii).

     “Call Party” has the meaning set forth in Section 5.3(d).

     “Call Price” has the meaning set forth in Section 5.3(d).

     “Canadian Agreements” means those referred to in Section 2.2(a) of the Agreement other than Section 2.2(a)(3).

     “Canadian Partnership” has the meaning set forth in Section 2.2(a)(1).

     “Canadian Board” has the meaning set forth in Section 3.3.1.

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     “Canadian General Manager” has the meaning set forth in Section 3.3.2.

     “Canadian Partnership Agreement” has the meaning set forth in Section 2.2(a)(1).

     “Central and Eastern Europe Region” means, unless otherwise determined by the EMEA Operating Board, the following countries (and any other countries that result from the division or consolidation of such countries): Austria, Poland, Czech Republic, Slovak Republic, Hungary, Turkey, Lithuania, Estonia, Latvia, Croatia, Romania, Bosnia and Herzegovina, Serbia and Montenegro, Albania, Bulgaria, Macedonia, Russia, Ukraine, Slovenia, Turkmenistan, Georgia, Azerbaijan, Armenia, Belarus, Moldova, Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan and Mongolia.

     “Change of Control” has the meaning set forth in the Governance Agreement.

     “Cholesterol Absorption Inhibitor” means a product whose primary clinical effect is through inhibition of the absorption of cholesterol from the diet into the plasma. [*]

     “Cholesterol Product” means the Z/E Combination Product, the Ezetimibe Monotherapy Product or the M/E Combination Product, as appropriate. “Cholesterol Products” means all of the foregoing.

     “Claim Notice” has the meaning set forth in Section 6.5.5.

     “C-O-C Notice” has the meaning set forth in Section 5.3(d).

     “C-O-C Party” has the meaning set forth in Section 5.3(d).

     “Co-Marketing” means, with respect to a country, the separate marketing and sale of the Cholesterol Products under separate brands by both M and S-P (or their respective professional sales representatives) in the country, including those activities normally undertaken by a pharmaceutical company’s professional sales representatives of a Cholesterol Product or similar prescription pharmaceutical product to implement marketing and educational plans and strategies aimed at encouraging the appropriate use of a prescription pharmaceutical product. When used as a verb, “Co-Market” shall mean to engage in such activities.

     “Co-Marketing Supply Agreements” means those Supply and Distribution Agreements referred to in Sections 2.3(a) and 2.4(a)(1) of this Agreement.

     “Combination Product” means either or both of the Z/E Combination Product and/or the M/E Combination Product, as appropriate.

     “Compensation Auditor” has the meaning set forth in Section 3.2.5.

     “Confidential Information” has the meaning set forth in Section 7.1(a)(1).

     “Consultant’s Report” has the meaning set forth in Section 3.2.4(b).

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     “Contract Sales Force” means one or a group of independent professional sales representatives (whether or not employed by a Third Party) and retained by M, S-P or their respective Affiliates for the purpose of detailing pharmaceutical products; provided, however, that independent professional sales representatives who are not employed by a Third Party will not be treated as a member of a Party’s Contract Sales Force, (x) in countries where M or S-P (or their Affiliates), as the case may be, generally engages independent professional sales representatives who are not employed by a Third Party, (y) with respect to individuals who have received substantially identical sales force training as provided to sales force employees of M or S-P, as the case may be, and (z) with respect to individuals who are paid comparable salaries and are eligible for comparable bonuses, in each case, as the comparable sales force employees of S-P or M, as the case may be.

     “Co-Promotion” means, with respect to a country, the marketing of the Cholesterol Products by both M and S-P, or their respective Affiliates, under the same brand, and the sale of the Cholesterol Products by only one of M or S-P, or their respective Affiliates, in the country, including those activities normally undertaken by a pharmaceutical company’s professional sales representatives of a Cholesterol Product or similar prescription pharmaceutical product to implement marketing and educational plans and strategies aimed at encouraging the appropriate use of a prescription pharmaceutical product. When used as a verb, “Co-Promote” shall mean to engage in such activities.

     “Co-Promotion Countries” means the EMEA Co-Promotion Countries and the Far East Co-Promotion Countries.

     “Core Countries” means France, the United Kingdom, Germany, Netherlands, Spain, Italy, Sweden and Norway.

     “Country Marketing Committee” means, (i) with respect to a Co-Promotion Country or EMEA Co-Branding Country, the country marketing committee created pursuant to the applicable EMEA Co-Venture Agreement, EMEA Co-Branding Agreement or Far East Co-Venture Agreement, or the equivalent Entity Agreement, which committee shall be composed of an equal number of representatives of S-P on the one hand and M on the other, and (ii) with respect to a Single Presence Country, the Person that performs the equivalent Country Marketing Committee functions under the applicable Single Presence Country Exhibit.

     “Default Marketing Plan” has the meaning set forth in Section 3.2.4(d) hereof.

     “Development Agreement” means the amended and Restated Development Agreement (Cholesterol Combination) dated as of the date hereof, by and among the Parties, as amended from time to time.

     “Disadvantaged Party” has the meaning set forth in Section 2.1(a).

     “Disclosing Party” has the meaning set forth in Section 7.2.

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     “Distribution LLC” means MSP Distribution Services (C) LLC.

     “Distribution Party” shall have the meaning set forth in Section 3.4.1.

     “E Monotherapy ECLAFE Business” means the research, development, registration, manufacture and/or procurement, distribution, promotion and marketing of a pharmaceutical product which is comprised of Ezetimibe as its sole active ingredient in the Field in ECLAFE, as and to the extent contemplated by this Agreement and any Related Agreements.

     “E Monotherapy U.S. Trademark” means the trademark used or to be used by the Parties with respect to the registration, distribution, promotion and marketing of the Ezetimibe Monotherapy Product in the United States.

     “ECLAFE” means the EMEA, Canada, Latin America and the Far East, and all other countries in the world other than Japan and the U.S. Territory.

     “ECLAFE Cholesterol Business” means the Z/E ECLAFE Business, the E Monotherapy ECLAFE Business and the M/E ECLAFE Business as conducted in or with respect to a particular territory.

     “ECLAFE Material Breach” has the meaning set forth in Section 5.2.1(a).

     “ECLAFE Termination Assets” has the meaning set forth in Section 5.3(a).

     “Effective Date” has the meaning set forth in the Recitals.

     “EMEA” means the following countries (and any other countries that result from the division or consolidation of such countries): (i) Austria, United Kingdom, France, Germany, Italy, Spain, Norway, Denmark, Finland, Sweden, Switzerland, Portugal, Andorra, Belgium, Greece, Holy See, Iceland, Ireland, Liechtenstein, Luxembourg, Monaco, Netherlands, San Marino, (ii) Turkey, Poland, Hungary, Czech Republic, Russia, Albania, Slovak Republic, Armenia, Azerbaijan, Belarus, Bosnia and Herzegovina, Bulgaria, Croatia, Estonia, Georgia, Kazakhstan, Kyrgyzstan, Latvia, Lithuania, Macedonia, Moldova, Romania, Serbia and Montenegro, Slovenia, Tajikistan, Turkmenistan, Ukraine, Uzbekistan, and (iii) Algeria, Bahrain, Cyprus, Egypt, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Saudi Arabia, Syria, Tunisia, United Arab Emirates, Yemen, Angola, Benin, Botswana, Burkina Faso, Burundi, Cameroon, Cape Verde, Central African Republic, Chad, Comoros, Congo, Cote d’Ivoire, Democratic Republic of the Congo, Djibouti, Equatorial Guinea, Eritrea, Ethiopia, Gabon, Gambia, Ghana, Guinea, Guinea-Bissau, Kenya, Lesotho, Liberia, Madagascar, Malawi, Mali, Malta, Mauritania, Mauritius, Mozambique, Namibia, Niger, Nigeria, Rwanda, Sao Tome and Principe, Senegal, Seychelles, Sierra Leone, Somalia, South Africa, Sudan, Swaziland, Tanzania, Togo, Uganda, Zambia, Zimbabwe.

     “EMEA Board Countries” means EMEA Co-Promotion Countries, EMEA Co-Branding Countries and EMEA Single Presence Countries.

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     “EMEA Board Country Agreement” means an EMEA Co-Venture Agreement, EMEA Co-Branding Agreement or the EMEA Single Presence Country Exhibit, as applicable.

     “EMEA Co-Branding Agreement” has the meaning set forth in Section 2.1(b)(1).

     “EMEA Co-Branding Countries” means Italy (including the Holy See and San Marino) and countries in the EMEA where Co-Promotion is not legally permitted or which the EMEA Operating Board designates as EMEA Co-Branding Countries, and other than EMEA Single Presence Countries and EMEA No Presence Countries. The Parties acknowledge that the EMEA Operating Board will consider whether or not Greece will become an EMEA Co-Branding Country. In the event the Parties desire to amend the list of countries comprising EMEA Co-Branding Countries, such list shall be amended upon approval of the EMEA Operating Board.

     “EMEA Co-Promotion Countries” means all countries in the EMEA, other than the EMEA Co-Branding Countries, the EMEA Single Presence Countries and the EMEA No Presence Countries.

     “EMEA Co-Venture Agreement” has the meaning set forth in Section 2.1(a)(1).

     “EMEA Executive Sponsors” means (i) a senior executive of M or any of its Affiliates (who shall also serve as a member of the EMEA Operating Board), designated by M to serve as M’s “Executive Sponsor” in the EMEA to champion interactions between the M members of the EMEA Operating Board and the S-P members of the EMEA Operating Board and (ii) a senior executive of S-P or any of its Affiliates (who shall also serve as a member of the EMEA Operating Board), designated by S-P to serve as S-P’s “Executive Sponsor” in the EMEA to champion interactions between the S-P members of the EMEA Operating Board and the M members of the EMEA Operating Board, in each case, with respect to the ECLAFE Cholesterol Business in the EMEA.

     “EMEA General Manager” has the meaning set forth in Section 3.2.2(a).

     “EMEA Marketing Committee” has the meaning set forth in Section 3.2.3(a).

     “EMEA Marketing Director” has the meaning set forth in Section 3.2.2(b).

     “EMEA No Presence Countries” means each of the following countries in the EMEA: Albania, Algeria, Angola, Benin, Bosnia and Herzegovina, Botswana, Burkina Faso, Cape Verde, Central African Republic, Chad, Comoros, Congo, Democratic Republic of the Congo, Djibouti, Equatorial Guinea, Eritrea, Gabon, Gambia, Ghana, Guinea, Guinea-Bissau, Iraq, Kyrgyzstan, Lesotho, Liberia, Libya, Macedonia, Malawi, Mali, Mauritania, Mauritius, Moldova, Namibia, Niger, Nigeria, Rwanda, Sao Tome & Principe, Seychelles, Sierra Leone, Somalia, Sudan, Swaziland, Tajikistan, Togo, Zambia and Zimbabwe.

     “EMEA Operating Board” has the meaning set forth in Section 3.2.1(a).

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     “EMEA Operating Board Chair” has the meaning set forth in Section 3.2.1(b).

     “EMEA Regional Representatives” means each of the persons designated by M with the written consent of S-P (such consent not to be unreasonably withheld) to be the regional representatives with respect to the following regions of the EMEA: Scandinavian Region, Mid-Europe Region, Central and Eastern Europe Region and Middle East Africa Region. S-P shall have the right to cause the removal of an EMEA Regional Representative (subject to the written consent of M, not to be unreasonably withheld), provided that (i) such right shall be exercisable no more than once every two years and (ii) M shall have the right to designate a replacement for any removed EMEA Regional Representative with the written consent of S-P (such consent not to be unreasonably withheld).

     “EMEA Single Presence Countries” means countries in the EMEA which the EMEA Operating Board designates as EMEA Single Presence Countries; provided, however, that (i) Burundi, Cameroon, Cote D’Ivoire (Ivory Coast), Cyprus, Iran, Madagascar, Morocco, Mozambique, Senegal, Tanzania, Tunisia and Uganda will be deemed to be EMEA Single Presence Countries in which M is the party deemed to have the single presence, and (ii) Armenia, Azerbaijan, Kazakhstan, Syria, Turkmenistan, Uzbekistan and Yemen will be deemed to be EMEA Single Presence Countries in which S-P is the Party deemed to have the single presence.

     “EMEA Single Presence Country Exhibit” has the meaning set forth in Section 2.1(c)(1).

     “Entity Agreement” has the meaning set forth in Section 2.1(a)(1).

     “EU Agency” means a marketing authorization Agency in the European Union or any member state of the European Union.

     [*]

     “European Economic Area” shall mean the following countries that comprise the European Economic Area as of the Effective Date (and any countries that result from the division or consolidation of such countries): Austria, Belgium, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Liechtenstein, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden and The United Kingdom.

     “European Union” shall mean the following countries that comprise the European Union as of the Effective Date (and any countries that result from the division or consolidation of such countries): Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden and The United Kingdom.

     “Existing M JVs” means those Persons listed on Schedule 1.2(ii).

     “Existing S-P JVs” means those Persons listed on Schedule 1.2(iii).

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     “Ezetimibe” means the chemical compound 1-(4-fluorophenyl)-3(R)-[3(S)-hydroxy-3-(4-fluorophenyl)propyl)]-4(S)-(4-hydroxyphenyl)-2-azetidinone.

     “Ezetimibe Monotherapy Product” means a pharmaceutical product consisting of Ezetimibe as the sole active ingredient.

     “Far East” means the following countries (and any other countries that result from the division or consolidation of such countries): Afghanistan, Australia, Bangladesh, Bhutan, Brunei, Burma, Cambodia, China (including Hong Kong, Special Administrative Region and Macao Special Administrative Report), Fiji, India, Indonesia, Kirbati, Laos, Malaysia, Maldives, Marshall Islands, Federated States of Micronesia, Mongolia, Nauru, Nepal, New Zealand, North Korea, Pakistan, Palau, Papua New Guinea, Philippines, Samoa, Singapore, Solomon Islands, South Korea, Sri Lanka, Taiwan, Thailand, Tonga, Tuvalu, Vanuatu and Vietnam (but not including Japan).

     “Far East Board Countries” means Far East Co-Promotion Countries and Far East Single Presence Countries.

     “Far East Board Country Agreement” means a Far East Co-Venture Agreement or a Far East Single Presence Country Exhibit, as applicable.

     “Far East Co-Marketing Countries” means all countries in the Far East, other than Far East Co-Promotion Countries and Far East Single Presence Countries.

     “Far East Co-Promotion Countries” means (i) Malaysia, Singapore, Hong Kong and Taiwan, and (ii) such countries in the Far East where the Far East Operating Board designates such countries as Far East Co-Promotion Countries.

     “Far East Co-Venture Agreement” has the meaning set forth in Section 2.4(b)(1).

     “Far East Operating Board” has the meaning set forth in Section 3.6.1(a).

     “Far East Single Presence Country” means countries in the Far East which the Far East Operating Board designates as Far East Single Presence Countries, provided, however, that (i) Korea and New Zealand will be deemed to be Far East Single Presence Countries in which M is the party deemed to have the single presence, and (ii) Thailand, Indonesia and the Philippines will be deemed to be Far East Single Presence Countries in which S-P is the Party deemed to have the single presence.

     “Far East Single Presence Country Exhibit” has the meaning set forth in Section 2.4(c)(1).

     “Field” means use as a human pharmaceutical product for lipid management and other uses that could reasonably be associated with lipid management, including, but not limited to, lipid related vascular disease management, available only by prescription from a Prescriber.

     “Five-Year Strategic Business Plan” has the meaning set forth in Section 3.2.4(a).

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     “Governance Agreement” has the meaning set forth in the Recitals.

     “Hospital Representatives” means professional sales representatives employed by M or S-P or their respective Affiliates who focus on the promotion of multiple products in hospital and other institutional settings, with key account personnel, hospital staff, fellows and residents, and specialists with institutional affiliation, and who are trained in and provide special program execution and offer promotion materials, Samples and educational programs.

     “Interests” means, with respect to a Terminated Party, (i) all of the Terminated Party’s (or its Affiliates’) rights, title and interests in any or all of the Venture Companies, as applicable, and (ii) all of the Terminated Party’s (or its Affiliates’) rights and obligations under any or all of the Venture Agreements, as applicable, and (iii) all of the goodwill associated with the Terminated Party’s Co-Marketing activities. For purposes of this Agreement, “Interests” shall not include (i) the Interests (as defined in the Governance Agreement) of the Terminated Party with respect to any or all of the U.S. Related Companies, and (ii) in the event the Governance Agreement has been terminated prior to, and not simultaneously with, this Agreement, the U.S. Termination Assets (as defined in the Governance Agreement), if any.

     “JV Entity” has the meaning set forth in Section 7.1(a).

     “LAFE” means Latin America and the Far East.

     “LAFE Co-Marketing Countries” means all countries in LAFE, other than Far East Co-Promotion Countries and Far East Single Presence Countries.

     “Latin America” means the following countries (and any other countries that result from the division or consolidation of such countries): Argentina, Mexico, Brazil, Uruguay, Paraguay, Bolivia, Chile, Columbia, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Nicaragua, Panama, Peru, Venezuela, Anguilla, Antigua & Barbuda, Aruba, Bahamas, Barbados, Belize, Bermuda, Cayman Islands, Cuba, Curacao, Dominica, Dominican Republic, French Guiana, Grenada, Guadeloupe, Guyana, Haiti, Jamaica, Martinique, Monserrat, Netherlands Antilles, St. Kitts & Nevis, St. Lucia, St. Maarten, St. Vincent and the Grenadines, Suriname, Trinidad & Tobago, Virgin Islands and British Virgin Islands.

     “Latin America Executive Sponsors” means (i) a senior executive of M or any of its Affiliates, designated by M to serve as M’s “Executive Sponsor” in Latin America to champion interactions between the M and S-P in Latin America, and (ii) a senior executive of S-P or any of its Affiliates, designated by S-P to serve as S-P’s “Executive Sponsor” in Latin America to champion interactions between S-P and M in Latin America, in each case, with respect to the ECLAFE Cholesterol Business in Latin America.

     “Launch” means, with respect to a Cholesterol Product in a country, the first commercial sale in the Field of the Cholesterol Product to a Third Party in such country after all regulatory approvals, and pricing and reimbursement within the guidelines

9

provided by the EMEA Operating Board or Far East Operating Board, as applicable, have been obtained or received from the applicable Agency with respect to the applicable Cholesterol Product in the applicable country.

     “Launch Period” means, with respect to a Cholesterol Product, the three (3) year period immediately following the Launch of such Cholesterol Product.

     “License Agreements” means the License Agreements listed in Sections 2.5.1 [(3) through (8)] and Section 2.5.2.

     “Licensor” has the meaning set forth in Section 7.14.

     “Local Affiliate” means, with respect to M or S-P in any country in ECLAFE, an Affiliate of M or S-P, as the case may be, located in the country, or if there is no local Affiliate of M or S-P, as the case may be, located in such country, the Affiliate (or Affiliates) of M or S-P which is (or are) responsible for the marketing, distribution or sale of the Cholesterol Products in the Field in such country.

     “Local Bankruptcy” means the occurrence of any of the following:

     (i) a Board Country Subsidiary in a country in ECLAFE makes a general assignment for the benefit of creditors;

     (ii) a Board Country Subsidiary in a country in ECLAFE either (i) is unable to pay its debts as and when they become due, or (ii) becomes insolvent and is unable to cure such insolvency within forty-five (45) days of becoming insolvent;

     (iii) a Board Country Subsidiary in a country in ECLAFE files any application or petition in any tribunal for the appointment of a trustee or receiver;

     (iv) a Board Country Subsidiary in a country in ECLAFE commences any proceeding leading towards the adjudication of such Board Country Subsidiary as insolvent under any bankruptcy or reorganization statute, or under any provision of the United States Bankruptcy Code, or under any insolvency law in a relevant jurisdiction, whether now or hereafter in effect; or

     (v) any petition or application of the types described in clauses (i) through (iv) above is commenced against such Board Country Subsidiary and is not dismissed within sixty (60) days after filing, or an order is entered appointing a trustee, receiver, or custodian for such Board Country Subsidiary, or an order for a relief is issued in any bankruptcy proceeding.

     “Losses” has the meaning set forth in Section 6.5.4.

     “M” has the meaning set forth in the Preamble hereof.

     “M Indemnified Parties” means M, its Affiliates and each of their respective officers, directors, partners, shareholders, members, agents, representatives, successors

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and assigns.

     “M Sales Force” means those professional sales representatives employed or retained by M, that engage in Pre-Launch Activities, Co-Promotion, Co-Marketing and/or Marketing Support Activities in support of the Cholesterol Products in an EMEA Board Country, Far East Board Country or Canada, subject to the limitation that with respect to each Cholesterol Product (i) in the case of Canada, Australia, France, the United Kingdom, Germany, Netherlands, Spain, Italy, Sweden and Norway, no more than 10% of the PDEs required of M in each such country by the Marketing and Educational Plan in any given Calendar Quarter may be delivered by a Contract Sales Force and (ii) in the case of all other such countries other than Single Presence Countries, (x) no more than 15% of the PDEs required of M in each such country by the Marketing and Educational Plan in any given Calendar Quarter may be delivered by a Contract Sales Force during the period beginning on the date on which M is first required to deliver PDEs in such country and ending on the last day of the eighth Calendar Quarter following the Calendar Quarter in which such Cholesterol Product is Launched in such country and (y) thereafter, no more than 10% of the PDEs required of M by the Marketing and Educational Plan may be delivered by a Contract Sales Force, in each case, without approval of the EMEA Operating Board or the Far East Operating Board, as applicable.

     “MAH” has the meaning set forth in Section 2.1(d)(1).

     “Marketing Presence” means, with respect to a country in the EMEA, that, as of the Effective Date, a Party or its Affiliates has full-time employees (not employed on a temporary basis) engaged in intra-country detailing, promotional and/or marketing activities. Subject to Section 3.2.7, [*] shall be deemed to provide [*] with a Marketing Presence in [*].

     “Marketing and Educational Plan” means, with respect to a Co-Promotion Country, EMEA Co-Branding Country or a Single Presence Country, the annual marketing and educational plan for the Co-Promotion Country, EMEA Co-Branding Country or a Single Presence Country, as the case may be, such Marketing and Educational Plan to include the matters referenced in Section 3.2.4, or 3.6.3, as applicable.

     “Marketing LLC” means MSP Marketing Services (C) LLC.

     “Marketing Support Activities” means those activities normally undertaken by a pharmaceutical company, other than by its professional sales representatives, in the development, implementation and monitoring of a Marketing and Educational Plan (other than Pre-Launch Activities).

     “Material Adverse Effect” has the meaning set forth in Section 5.2.1(a).

     “M/E ECLAFE Business” means the research, development, registration, manufacture and/or procurement, distribution, promotion and marketing of a pharmaceutical product in the Field in ECLAFE that shall be a combination product

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comprising, but not limited to, [*], as and to the extent contemplated by this Agreement and any Related Agreements.

     “M/E Combination Product” means a pharmaceutical product consisting of a fixed single combination of pharmacologically active ingredients comprising, but not limited to, [*].

     “M/E Combination Product U.S. Trademark” means the trademark used or to be used by the Parties with respect to the registration, distribution, promotion and marketing of the M/E Combination Product in the United States.

     “Mid-Europe Region” means, unless otherwise determined by the EMEA Operating Board, the following countries (and any other countries that result from the division or consolidation of such countries): Switzerland, the Netherlands, Belgium, Luxembourg, Portugal, Liechtenstein, Greece, Israel, South Africa, Botswana, Lesotho, Malawi, Namibia, Swaziland, Zambia and Zimbabwe.

     “Middle East Africa Region” means, unless otherwise determined by the EMEA Operating Board, the following countries (and any other countries that result from the division or consolidation of such countries): Algeria, Bahrain, Cyprus, Egypt, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Saudi Arabia, Syria, Tunisia, United Arab Emirates, Yemen, Angola, Benin, Burkina Faso, Burundi, Cameroon, Cape Verde, Central African Republic, Chad, Comoros, Congo, Cote d’Ivoire, Democratic Republic of the Congo, Djibouti, Equatorial Guinea, Eritrea, Ethiopia, Gabon, Gambia, Ghana, Guinea, Guinea-Bissau, Kenya, Liberia, Madagascar, Mali, Malta, Mauritania, Mauritius, Niger, Nigeria, Réunion Island, Rwanda, Sao Tome and Principe, Senegal, Seychelles, Sierra Leone, Somalia, Sudan, Tanzania, Togo, Uganda.

     [*]

     “MSDAPS” means Merck Sharp & Dohme Asia Pacific Services Pte. Ltd., a Singapore corporation.

     “MSDIL” means Merck Sharp & Dohme (International) Limited, a Bermuda corporation.

     “MSDIS” means Merck Sharp & Dohme International Services, B.V., a Dutch company.

     “MSP Technology” has the meaning set forth in the Preamble hereof.

     “New Agreements” has the meaning set forth in Section 5.3(f).

     “Non-Distribution Party” means, with respect to a distributor or sub-licensee appointed under Section 3.4.1 or 3.5.1 of this Agreement in a LAFE Co-Marketing Country, whichever of M or S-P is not the Distribution Party.

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     “Non-Packager” has the meaning set forth in Section 2.7.

     “Non-Representative Educational and Promotional Activities” means all measurable and reported educational and promotional activities including (where applicable), without limitation and to the extent permitted by the laws of the applicable country, activities relating to market research costs, detailing aids, third party fees relating to advertising, marketing and other promotional activities, media (and any other press materials and interactions), print, internet programs, direct-to-customer advertising, other advertising, meetings, symposia and congresses, trade programs, Launch meetings, Cholesterol Product-related special sales force incentive programs, Phase V studies, Cholesterol Product-specific programs for managed care/private health plan customers, fees paid directly to a customer for administration of a contract, uninsured losses of product, product and disease therapy area specific training materials, but not including (i) activities directly related to detailing efforts, or (ii) Phase IV studies. All such activities will comply with all applicable Agency regulations including without limitation, those with respect to advertising and promotion, legally permissible support for physicians, and all other laws and regulations.

     “Non-Representative Educational and Promotional Spending” means all measurable and reported educational and promotional expenditures including (where applicable), without limitation and to the extent permitted by the laws of the applicable country, expenditures relating to market research costs, detailing aids, third party fees relating to advertising, marketing and other promotional activities, media (and any other press materials and interactions), print, internet programs, direct-to-customer advertising, other advertising, meetings, symposia and congresses, trade programs, Launch meetings, Cholesterol Product-related special sales force incentive programs, Phase V studies, Cholesterol Product-specific programs for managed care/private health plan customers, fees paid directly to a customer for administration of a contract, uninsured losses of product, product and disease therapy area specific training materials, but not including (i) expenditures directly related to detailing efforts or (ii) Phase IV studies.

     “Obligations” has the meaning set forth in Section 2.1(a).

     “Packager” has the meaning set forth in Section 2.7(1).

     “Party” means a party to this Agreement.

     “PDE Requirements” shall have the meaning set forth in Section 3.2.4(b).

     “Person” means any individual, corporation, trust, association, unincorporated association, estate, partnership, joint venture, limited liability company, governmental entity or other legal entity.

     “Phase IV” means post-Launch studies that are intended to result in an added indication or other label change.

     “Phase V” means post-Launch studies that are not intended to result in an added indication or other label change.

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     “Pre-Launch Activities” means those activities undertaken by M or its Affiliates, or the M Sales Force, or S-P or its Affiliates, or the S-P Sales Force, as the case may be, prior to the Launch of a Cholesterol Product in a country, including, without limitation, conduct of educational seminars and programs, patient education programs, pre-approval clinical trials, market research and appropriate educational activities for targeted audiences. All such activities will comply with all applicable laws, rules and regulations of such country.

     “Prescriber” means a medical or health care professional having authority to prescribe human prescription pharmaceutical products under the laws of the jurisdiction where such medical or health care professional is practicing.

     “Pre-Termination Substances” means any Cholesterol Absorption Inhibitor and any Statin, or any rights thereto, owned or held (by license or otherwise) by the Terminated Party or any entity that was an Affiliate of the Terminated Party prior to the date determined by clause (i) or clause (ii) hereafter, regardless of the stage of development (i.e., whether pre-clinical, clinical or in any other stage) prior to (i) the consummation of a Business Combination, in the case of termination pursuant to Section 5.2.2(iii) as a result of a Change of Control described in paragraphs (c), (e) or (f) of the definition of Change of Control or (ii) the termination of this Agreement, in the case of termination pursuant to Section 5.2.1(a) [ECLAFE Material Breach], 5.2.1(c) [Bankruptcy], 5.2.2(i) [Bankruptcy], 5.2.2(ii) [Material Breach – Standstill], 5.2.1(d) [Change of Control] or 5.2.2(iii) [Change of Control] as a result of the acquisition of 50% of Outstanding Common Stock or Outstanding Voting Securities, change in board composition or stockholder approval described in paragraphs (a), (b) or (d) of the definition of Change of Control.

     “Primary Care Representatives” means a professional sales representative other than a Specialty Representative or a Hospital Representative.

     “Primary Detail Equivalents” or “PDEs” means, either: (a) [*] Primary Position Detail, (b) [*] Secondary Position Details or (c) [*] Tertiary Position Details. Notwithstanding the foregoing, during the Launch Period with respect to a Cholesterol Product, PDEs provided by each of M and S-P with respect to a Cholesterol Product in a given Calendar Year shall be composed of (x) no less than [*] Primary Position Details and (y) no more than [*] Tertiary Position Details. To the extent that a party’s (i) Tertiary Position Details comprise greater than [*] of its PDEs or (ii) Secondary Position Details and Tertiary Position Details, in the aggregate, comprise greater than [*] of its PDEs, such excess Secondary Position Details and/or Tertiary Position Details (as applicable) will not be credited towards a Party’s obligation to provide the level of PDEs provided for under Section 3.1 of the EMEA Board Country Agreements. For purposes of determining the number of PDEs delivered pursuant to Section 3.1 of the EMEA Board Country Agreements, a Primary Position Detail or a Secondary Position Detail by a Specialty Representative shall be equivalent to [*] (as the case may be) of a Primary Care Representative and a Primary Position Detail or a Secondary Position Detail by a Hospital Representative shall be equivalent to [*] (as the case may be) of a Primary Care

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Representative. The Parties shall from time to time reassess these PDE weightings in relation to a Cholesterol Product’s life cycle and the competitive marketplace.

     “Primary Position Detail” means a full product presentation during a Call by a Party’s professional sales representative in which key product messages and benefits are verbally presented in the first position and in a balanced manner, consistent with the terms of the EMEA Board Country Agreements and Far East Board Country Agreements and equivalent Entity Agreements, and approximately [*] of the total time of the Call is spent on such presentation.

     “Product Marketing Authorization” shall mean, with respect to each Cholesterol Product, simvastatin and [*] in a country in ECLAFE, as applicable, all authorizations issued by the relevant Agency in such country for the manufacturing (where necessary), marketing and sale of such Cholesterol Product in the Field in such country, and/or supplements thereto, including pricing and reimbursement approvals where applicable.

     “Regulatory Costs” means costs incurred to assure that the Cholesterol Products comply with applicable regulatory requirements during the term of this Agreement, including, without limitation, (i) amounts paid to governments or other third parties for filing and maintenance of health registrations and (ii) the direct cost of personnel responsible for regulatory matters, including, without limitation, filings, label updates, regulatory compliance, adverse experience reporting, safety update submissions and any other activities required so that the Cholesterol Products comply with applicable regulatory requirements during the term of the ECLAFE Cholesterol Business in ECLAFE. The direct cost of personnel responsible for regulatory matters will be charged based on approved budgets and agreement on an FTE (full time equivalent) basis.

     “Regulatory Expenses Cap” shall have the meaning set for in Section 4.2(b).

     “Related Agreements” means any or all of the agreements listed in Article II or subsequently entered into pursuant to the terms of Article II, and all other agreements executed and delivered contemporaneously therewith, as such agreements may be amended from time to time and to the extent such agreement is an amendment to an existing agreement, the existing agreement as amended. When the term “Related Agreements” is used in a Related Agreement, such term shall include this Agreement.

     “Sample” means a unit of a Cholesterol Product that is not intended to be sold and is intended to promote the appropriate trial and proper use of such Cholesterol Product in the Field.

     “Scandinavian Region” means, unless otherwise determined by the EMEA Operating Board, the following countries (and any other countries that result from the division or consolidation of such countries): Norway, Denmark, Iceland, Finland and Sweden.

     “Secondary Position Detail” means a product presentation during a Call by a Party’s professional sales representative in which one or more key product messages and

15

benefits are verbally presented in the second position and in a balanced manner, consistent with the terms of the EMEA Board Country Agreements and Far East Board Country Agreements and equivalent Entity Agreements, and approximately [*] of the total time of the Call is spent on such presentation.

     “Singapore Partnership” has the meaning set forth in the Preamble hereof.

     “Singapore Partnership Agreement” means the Limited Liability Company Agreement of the Singapore Partnership, dated as of May 22, 2000 and as may be amended from time to time, by and among MSD Technology Singapore Pte. Ltd., MSD Ventures Singapore Pte. Ltd., Schering-Plough (Singapore) Pte. Ltd. and Schering-Plough (Singapore) Research Pte. Ltd.

     “Single Presence Country” means the EMEA Single Presence Countries and the Far East Single Presence Countries.

     “Single Presence Country Exhibits” means the EMEA Single Presence Country Exhibit and the Far East Single Presence Country Exhibit.

     “Simvastatin” shall mean the chemical compound 6(R)-[2-(8'(S)-(2,2-dimethylbutyryloxy)-2'(S),6'(R)-dimethyl-1',2',6',7',8',8'a(R)-hexahydronaphthyl - -1'(S))ethyl]-4(R)-hydroxy-3,4,5,6-tetrahydro-2H-pyran-2-one; also known as [1S-[1a,3a,7b(2S*,4S*),8ab]]-2,2-Dimethylbutanoic acid 1,2,3,7,8,8a-hexahydro-3,7-dimethyl-8-[2-(tetrahydro-4-hydroxy-6-oxo-2H-pyran-2-yl)-ethyl]-1-naphthalenyl ester.

     “SOL” means SOL, Limited, a Bermuda corporation.

     “Special Damages” has the meaning set forth in Section 6.5.4.

     “Specialty Representatives” means professional sales representatives employed by M or S-P or their respective Affiliates who focus in each Call on no more than two product details (i.e. one Primary Position Detail and one Secondary Position Detail) with physician specialists and thought leaders. Such representatives have specialized training with depth of medical knowledge on a disease state, are capable of in depth discussion regarding diagnosis, treatment and patient management, are trained in and provide special program execution, engage in regional advocate development and offer reprints, slide kits, promotional items, Samples and, in certain circumstances, disease management tools.

     “S-P” has the meaning set forth in the Preamble hereof.

     “S-P Indemnified Parties” means S-P, its Affiliates and each of their respective officers, directors, partners, shareholders, members, agents, representatives, successors and assigns.

     “S-P Sales Force” means those professional sales representatives employed or retained by S-P, that engage in Pre-Launch Activities, Co-Promotion, Co-Marketing and/or Marketing Support Activities in support of the Cholesterol Products in an EMEA

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Board Country, Far East Board Country or Canada, subject to the limitation that with respect to each Cholesterol Product (i) in the case of Canada, Australia, France, the United Kingdom, Germany, Netherlands, Spain, Italy, Sweden and Norway, no more than 10% of the PDEs required of S-P in each such country by the Marketing and Educational Plan in any given Calendar Quarter may be delivered by a Contract Sales Force and (ii) in the case of all other such countries other than Single Presence Countries, (x) no more than 15% of the PDEs required of S-P by the Marketing and Educational Plan in any given Calendar Quarter may be delivered by a Contract Sales Force during the period beginning on the date on which S-P is first required to deliver PDEs in such country and ending on the last day of the eighth Calendar Quarter following the Calendar Quarter in which such Cholesterol Product is Launched in such country, and (y) thereafter, no more than 10% of the PDEs required of S-P in each such country by the Marketing and Educational Plan may be delivered by a Contract Sales Force, in each case, without approval of the EMEA Operating Board or the Far East Operating Board, as applicable.

     “Statin” shall mean a product whose primary clinical effect is through the inhibition of the human enzyme, 3-hydroxy-3-methylglutaryl Coenzyme A Reductase.

     “Targeted Prescribers” means Prescriber groups representing at least seventy-five percent (75%) of the market potential of such Cholesterol Products.

     “Terminated Party” means whichever of S-P or M is not the Terminating Party, and its Affiliates.

     “Terminating Party” means the Party that has the right to terminate this Agreement either pursuant to Section 5.2.1 or an arrangement in a country in ECLAFE pursuant to Section 5.2.3, or the Party that terminated the Governance Agreement for the reasons referred to in Section 5.2.2.

     “Toll Packaging Agreements” means those Toll Packaging Agreements referred to in Sections 2.1(f), 2.2(b), 2.3(b) and 2.4(d) of this Agreement.

     “Tertiary Position Detail” means a product presentation during a Call by a Party’s professional sales representative in which one or more key product messages and benefits are verbally presented in the third position and in a balanced manner, consistent with the terms of the EMEA Board Country Agreements and the Far East Board Country Agreements and equivalent Entity Agreements, and approximately [*] of the total time of the Call is spent on such presentation.

     “Third Party” means a Person which is not M, S-P, or any of their Affiliates.

     “Trademark Registrations” has the meaning set forth in Section 4.3.5(a).

     “U.S. Related Companies” means Distribution LLC and Marketing LLC, and in the event that this Agreement is terminated pursuant to Section 5.2.2 or the Governance Agreement is not terminated prior to a termination of this Agreement, the Singapore Partnership and MSP Technology.

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     “U.S. Territory” means the United States of America, its territories and possessions (including but not limited to Puerto Rico).

     “Venture Agreements” means those Related Agreements setting forth the rights and obligations of the Parties to market, distribute and sell the Cholesterol Products in the EMEA, Far East Co-Promotion Countries and Single Presence Countries, including those Agreements and other documents referred to in Sections 2.1(a), (b), (c) and (d), 2.4(b)(1), and 2.4(c)(1) of the Agreement.

     “Venture Cholesterol Product” means the Cholesterol Products as developed and marketed for sale in the Field in ECLAFE by the Parties, or their Affiliates, either individually or as a group.

     “Venture Companies” means (i) the entities established pursuant to any Entity Agreement, if any, (ii) the Canadian Partnership, (iii) MAH, in each case, and (iv) to the extent the Governance Agreement has been terminated and the Interests (as defined in the Governance Agreement), in Marketing LLC and Distribution LLC and the U.S. Termination Assets (as defined in the Governance Agreement) have been transferred to the Non-Terminated Party (as defined in the Governance Agreement), if any, the Singapore Partnership and MSP Technology.

     [*] means [*], a company organized and existing under the laws of [*] and, as of the Effective Date, having its head office at [*].

     “Worldwide Cholesterol Business” means the Z/E ECLAFE Business, the E Monotherapy ECLAFE Business, the M/E ECLAFE Business and the Cholesterol Business (as defined in the Governance Agreement) as conducted in or with respect to the entire world, excluding Japan, including, without limitation, the ECLAFE and the United States.

     “WWOC” has the meaning set forth in Section 3.1(a).

     “WWOC Chairs” has the meaning set forth in Section 3.1(b).

     “WWOC Representatives” has the meaning set forth in Section 3.1(b).

     “Z/E ECLAFE Business” means the research, development, registration, manufacture and/or procurement, distribution, promotion and marketing of a pharmaceutical product in the Field in ECLAFE that shall be a combination product comprising, but not limited to, Simvastatin and Ezetimibe, as and to the extent contemplated by this Agreement and any Related Agreements.

     “Z/E Combination Product” shall mean a pharmaceutical product consisting of a fixed single combination of pharmacologically active ingredients comprising, but not limited to, Simvastatin and Ezetimibe.

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     “Z/E Combination Product U.S. Trademark” means the trademark used or to be used by the Parties with respect to the registration, distribution, promotion and marketing of the Z/E Combination Product in the United States.

     Section 1.3. Headings. The headings and subheadings in this Agreement are included for convenience and identification only and are in no way intended to describe, interpret, define or limit the scope, extent or intent of this Agreement or any provision hereof.

     Section 1.4. Intent of the Parties. It is the intent of the parties hereto that, without limiting the rights of the parties hereunder, S-P and M be considered equal partners with respect to all matters relating to governance and decision-making powers and that the parties intend to manage the operations of the ECLAFE Cholesterol Business in ECLAFE to maximize its commercial potential. The parties acknowledge that simultaneously herewith the parties are executing and delivering an amendment to the Governance Agreement, and agree that the Governance Agreement shall remain unchanged and in full force and effect, except as expressly amended thereby.

ARTICLE II
THE ECLAFE TRANSACTIONS

     Section 2.1. The EMEA.

          (a) EMEA Co-Promotion Countries.

     (1) As soon as reasonably practicable following the execution and delivery of this Agreement and, with respect to the Core Countries that are EMEA Co-Promotion Countries, no later than ninety (90) days following the execution and delivery of this Agreement, an EMEA Co-Venture Agreement in the form attached hereto as Exhibit 1 (with such variations as may be necessary to comply with local laws and regulations) covering each of the EMEA Co-Promotion Countries shall be executed and delivered by Local Affiliates of M and S-P, except in limited instances where both Parties agree that an agreement (an “Entity Agreement”), creating a separate entity through which the activities and governance functions contemplated by the form of EMEA Co-Venture Agreement will take place, is required by local laws and regulations of a country, in which case the Parties will enter into an Entity Agreement based substantially on the EMEA Co-Venture Agreement (with such variations as may be necessary to comply with local laws and regulations) no later than ninety (90) days following the execution and delivery of this Agreement. If any taxes, duties, discounts, rebates, price reductions or other financial considerations imposed under the local laws, rules and/or regulations with respect to an EMEA country, or under an administrative, judicial or other governmental action with respect

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to an EMEA country, would materially financially disadvantage one Party and/or its Affiliates (the “Disadvantaged Party”) but not the other Party and/or its Affiliates (or would cause a material financial disadvantage to one Party and/or its Affiliates greater than that caused to the other Party and/or its Affiliates) with respect to such EMEA country, solely as a result of its entering into or performing the relevant Board Country Agreement or Entity Agreement (as applicable) (“Obligations”), and the Parties have first each, separately or together, used commercially reasonable efforts to mitigate the effect of the Obligations, then the Parties agree to work together in good faith, for a reasonable period of time, to structure the local arrangement in a manner that would result in the Obligations not being imposed in any material respect (but without altering the treatment of the applicable country as an EMEA Co-Promotion Country). If after such good faith efforts the Parties are unable to implement such a structure, then the Parties shall in good faith agree upon such variations to the applicable EMEA Co-Venture Agreement or Entity Agreement as would be necessary to put the Parties in the economic position in the applicable country that they would have been in under the applicable EMEA Co-Venture Agreement or Entity Agreement had the Obligations not been imposed. The Country Sales Amount applicable to certain EMEA Co-Promotion Countries shall be as set forth on Schedule 2.1(a). M, S-P and their respective Affiliates shall not (i) engage in any ECLAFE Cholesterol Business in the applicable country without the approval of the EMEA Operating Board, except for activities approved and conducted pursuant to the Development Agreement or required under this Agreement, or (ii) distribute or sell Cholesterol Products in an EMEA Co-Promotion Country, in each case, until an EMEA Co-Venture Agreement or Entity Agreement has been executed and delivered with respect to the EMEA Co-Promotion Country.

          (b) EMEA Co-Branding Countries.

     (1) As soon as reasonably practicable following the execution and delivery of this Agreement, and, with respect to the Core Countries that are EMEA Co-Branding Countries, no later than ninety (90) days following the execution and delivery of this Agreement, an EMEA Co-Branding Agreement in the form attached hereto as Exhibit 2 (with such variations as may be necessary to comply with local laws and regulations), covering each of the EMEA Co-Branding Countries shall be executed and delivered by Local Affiliates of M and S-P with respect to each EMEA Co-Branding Country. If any taxes, duties, discounts, rebates, price reductions or other financial considerations imposed under the local laws, rules and/or regulations with respect to an

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EMEA country, or under an administrative, judicial or other governmental action with respect to an EMEA country, would materially financially disadvantage a Disadvantaged Party but not the other Party and/or its Affiliates (or would cause a material financial disadvantage to one Party and/or its Affiliates greater than that caused to the other Party and/or its Affiliates) with respect to such EMEA country, solely as a result of its Obligations, and the Parties have first each, separately or together, used commercially reasonable efforts to mitigate the effect of the Obligations, then the Parties agree to work together in good faith, for a reasonable period of time, to structure the local arrangement in a manner that would result in the Obligations not being imposed in any material respect (but without altering the treatment of the applicable country as an EMEA Co-Branding Country). If after such good faith efforts the Parties are unable to implement such a structure, then the Parties shall in good faith agree upon such variations to the applicable EMEA Co-Branding Agreement as would be necessary to put the Parties in the economic position in the applicable country that they would have been in under the applicable EMEA Co-Branding Agreement had the Obligations not been imposed. M, S-P and their respective Affiliates shall not (i) engage in any ECLAFE Cholesterol Business in the applicable country without the approval of the EMEA Operating Board, except for activities approved and conducted pursuant to the Development Agreement or required under this Agreement, or (ii) distribute or sell Cholesterol Products in an EMEA Co-Branding Country, in each case, until a Co-Branding Agreement has been executed and delivered with respect to the EMEA Co-Branding Country.

          (c) EMEA Single Presence Countries.

     (1) Sales of Cholesterol Products in the Field in EMEA Single Presence Countries shall be governed by the provisions of Section 3.2.8 and the EMEA Single Presence Country Exhibit attached hereto as Exhibit 3.

          (d) EMEA Marketing Authorization Holder.

     (1) As soon as reasonably practicable following the execution and delivery of this Agreement and in any event within sixty (60) days of the execution and delivery of this Agreement, the Singapore Partnership will form within the European Economic Area an entity to serve as marketing authorization holder with respect to the European Economic Area (the “MAH”). The MAH’s name shall include the names of both M and S-P (or their designated Affiliates) and shall be agreed to by M and S-P. As

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soon as practicable after the execution of this Agreement, the MAH shall enter into agreements with EMEA supply, distribution and promotional entities in the European Economic Area in the form attached hereto as Exhibit 4 (with such variations as may be necessary to comply with local laws and regulations), and any other agreements that the Parties agree are required or desirable in the EMEA. Such agreements shall include one or more agreements under which an Affiliate of S-P agrees to serve as the “Qualified Person” as defined in Directives 2001/83/EC and 91/356/EEC for the Ezetimibe Monotherapy Product (the “S-P QP”). Under such agreement(s) the S-P QP shall undertake the general responsibilities of a Qualified Person for the Ezetimibe Monotherapy Product for the European Economic Area and its obligations shall include batch release and disposition decisions, import testing, stability testing and all other technical/quality investigations, for the European Economic Area as well as the EMEA. The S-P QP shall be compensated in a manner consistent with the Toll Fee calculated pursuant to the template of the Toll Packaging Agreement set forth in Exhibit 6 hereto. An Affiliate of M acting as toll packager pursuant to paragraph (f) below shall enter into one or more agreements with the Affiliate of S-P under which the M Affiliate shall furnish to the S-P QP such data and services regarding its operations as toll packager for the Ezetimibe Monotherapy Product as the S-P QP may reasonably require to discharge its responsibilities as a Qualified Person. For the avoidance of doubt, an Affiliate of M will serve as the “Qualified Person” as defined in Directives 2001/83/EC and 91/356/EEC for the Combination Products (the “M QP”). The M QP shall undertake the general responsibilities of a Qualified Person for the Combination Products for the European Economic Area and its obligations shall include batch release and disposition decisions, import testing, stability testing and all other technical/quality investigations for the European Economic Area as well as the EMEA. For the avoidance of doubt, for all regions other than EMEA, the toll packager shall be responsible for the final batch release and disposition decisions import testing (if any) stability, testing and all other technical/quality investigations. The Parties agree that neither Party, nor any director of the MAH appointed by any such Party, will take any action in any manner with respect to the MAH, other than as expressly set forth in the foregoing agreements, and that such agreements will not be interpreted in a manner inconsistent with this Agreement and/or the Related Agreements. Promptly after the Effective Date and the formation of the MAH, the Parties will cause MSD SP to apply for approval as the manufacturing authorization holder. In the event that MSD SP is unable to obtain approval as the manufacturing authorization

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holder, and it is not permissible for each of an M Affiliate and an S-P Affiliate to be a manufacturing authorization holder, then the Parties will work together in good faith to secure alternative arrangements that are mutually acceptable.

          (e) Supply and Distribution.

     (1) Simultaneously with the execution and delivery of this Agreement, MSDIS and the Singapore Partnership shall execute and deliver a Supply and Distribution Agreement in the form attached hereto as Exhibit 5, pursuant to which MSDIS will acquire finished, unpackaged Cholesterol Products for packaging and sale to customers in the EMEA.

     (2) In the event that MSDIS, or any Affiliate of MSDIS, has failed, for any reason (including without limitation an event of force majeure), to perform, in any material respect, its obligations under the Supply and Distribution Agreement entered into pursuant to this Section 2.1(e) to supply and/or distribute Cholesterol Products received from the Singapore Partnership in the EMEA, such failure to perform is not cured and performance by MSDIS, or an Affiliate of MSDIS, as applicable, is not resumed within sixty (60) days of written notice by S-P of such failure, and S-P (or its designated Affiliate) can demonstrate to the Singapore Partnership that it has the ability and the facilities and expertise to assume such obligations, then S-P (or its designated Affiliate) shall have the right to assume the rights and responsibilities of MSDIS under the Supply and Distribution Agreement for supply and distribution of Cholesterol Products in the EMEA. In such event, the Singapore Partnership, MSDIS (or its Affiliate, as applicable) and S-P (or its designated Affiliate) shall immediately amend the Supply and Distribution Agreement and/or perform such other acts as are necessary to substitute S-P (or its designated Affiliate) for MSDIS (or its Affiliate, as applicable) as a party to the Supply and Distribution Agreement and to assign and transfer to S-P (or its designated Affiliate) all of MSDIS’s (or its Affiliate’s) rights and obligations under the Supply and Distribution Agreement with respect to supply and distribution of Cholesterol Products in the EMEA, including without limitation any rights to receive payment for services performed thereunder. Nothing in Section 2.1(e) shall be construed as a waiver of any other rights or remedies available to S-P under this Agreement as a result of such failure to perform by MSDIS.

     (3) In the event that responsibility for supply and distribution of Cholesterol Products in the EMEA is transferred to S-P (or its designated Affiliate) pursuant to Section 2.1(e)(2) and

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MSDIS, or an Affiliate of MSDIS, at any time thereafter demonstrates to the Singapore Partnership that it has the ability and the facilities and expertise to resume performance of all such obligations, then the Singapore Partnership shall determine whether or not to return those responsibilities to MSDIS or its Affiliate. If responsibility for such activities is to be returned to MSDIS or its Affiliate, the Singapore Partnership, MSDIS (or its Affiliate) and S-P (or, if applicable, its designated Affiliate) shall immediately amend the Supply and Distribution Agreement and/or perform such other acts as are necessary to substitute MSDIS or its Affiliate for S-P or its Affiliate, as applicable, as a party to the Supply and Distribution Agreement and to assign and transfer to MSDIS or its Affiliate all of the rights and obligations under the Supply and Distribution Agreement with respect to supply and distribution of Cholesterol Products in the EMEA. In the event that these Sections 2.1(e)(2) and 2.1(e)(3) result in any other assignment or transfer of rights under Sections 2.1(f)(2) or 2.1(g)(6), such rights shall be returned to the relevant M Affiliate simultaneously with the assignment and transfer contemplated in this Section 2.1(e)(3). Upon the return of such rights and obligations to MSDIS pursuant to this Section 2.1(e)(3), the costs incurred by M or S-P, or their Affiliates in transferring the rights and responsibilities for supply and distribution of Cholesterol Products in the EMEA under Section 2.1(e)(2) and this Section 2.1(e)(3), and the cost of transferring such other rights under Sections 2.1(f)(2) or 2.1(g)(6), shall be borne as determined by the Singapore Partnership.

          (f) Toll Packaging.

     (1) As soon as reasonably practicable following the execution and delivery of this Agreement, an Affiliate of M and MSDIS shall enter into a Toll Packaging Agreement in the form attached hereto as Exhibit 6 (with such variations as may be necessary to comply with local laws and regulations), pursuant to which the Affiliate of M will package the finished Cholesterol Products for sale in the EMEA. The Toll Packaging Agreement will provide, among other things, that the Affiliate of M may arrange for one of its Affiliates, a Third Party or an Affiliate of S-P to toll package any or all of the Cholesterol Products on behalf of the Affiliate of M.

     (2) In the event that, and for so long as, S-P (or a S-P Affiliate) is responsible for the supply and distribution of Cholesterol Products in the EMEA pursuant to Section 2.1(e)(2), then S-P, or its designated Affiliate, shall also assume all of MSDIS’s rights and responsibilities to package Cholesterol

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Products in the EMEA as set forth in the Toll Packaging Agreements entered into pursuant to Section 2.1(f)(1). MSDIS, S-P (or its designated Affiliate) and the applicable Affiliates of M shall amend the Toll Packaging Agreements and/or perform such other acts as are necessary to substitute S-P (or its designated Affiliates) for MSDIS and the M Affiliates as parties to the Toll Packaging Agreements and to assign and transfer to S-P (or its designated Affiliate) all of MSDIS’s and the M Affiliates’ rights and obligations under the Toll Packaging Agreements with respect to Cholesterol Products in the EMEA.

          (g) Sub-Distribution Agreements.

As soon as reasonably practicable following the execution and delivery of this Agreement:

     (1) With respect to the EMEA Co-Promotion Countries, the Local Affiliates of M will enter into Sub-Distribution Agreements in the form attached hereto as Exhibit 7 (with such variations as may be necessary to comply with local laws and regulations), with MSDIS pursuant to which each M Local Affiliate will purchase finished, packaged Cholesterol Products from MSDIS for sale in the EMEA Co-Promotion Countries.

     (2) With respect to the EMEA Co-Branding Countries, Local Affiliates of each of M and S-P will enter into separate, identical (except for the name of the Local Affiliate) Sub-Distribution Agreements in the form attached hereto as Exhibit 7 (with such variations as may be necessary to comply with local laws and regulations), with MSDIS pursuant to which such M and S-P Local Affiliates will purchase finished, packaged Cholesterol Products from MSDIS for sale in the EMEA Co-Branding Countries.

     (3) With respect to each EMEA Single Presence Country, whichever of M or S-P is deemed to have the single presence in such country, will arrange for one of its Local Affiliates to enter into a Sub-Distribution Agreement in the form attached hereto as Exhibit 7 (with such variations as may be necessary to comply with local laws and regulations), with MSDIS pursuant to which such M or S-P Local Affiliate will purchase finished, packaged Cholesterol Products from MSDIS for sale in that EMEA Single Presence Country.

     (4) In the event that the M Local Affiliate that enters into the Sub-Distribution Agreement with MSDIS in an EMEA

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Co-Promotion Country pursuant to Section 2.1(g)(1), or another Local affiliate, has failed for any reason (including without limitation an event of force majeure), to perform, in any material respect, its obligations under the Sub-Distribution Agreement entered into pursuant to this Section 2.1(g)(1), such failure to perform is not cured and performance by the M Local Affiliate or any other M Local Affiliate is not resumed within sixty (60) days of written notice by S-P of such failure and S-P (or its designated Affiliate) can demonstrate to the Singapore Partnership that it has the ability and the facilities and expertise to assume the rights and responsibilities of the applicable M Local Affiliate, then S-P (or its designated Affiliate) shall have the right to assume the rights and responsibilities of the applicable M Local Affiliate under the Sub-Distribution Agreement in such EMEA Co-Promotion Country. In such event, MSDIS, the applicable M Local Affiliate and S-P (or its designated Affiliate) shall immediately amend the Sub-Distribution Agreement and/or perform such other acts as are necessary to substitute S-P (or its designated Affiliate) for the applicable M Local Affiliate as a party to the Sub-Distribution Agreement and to assign and transfer to S-P (or its designated Affiliate) all of such M Local Affiliate’s rights and obligations under the Sub-Distribution Agreement, including without limitation any rights to receive payment for services performed thereunder. Nothing in Section 2.1(g) shall be construed as a waiver of any other rights or remedies available to
S-P under this Agreement as a result of such failure to perform by such M Local Affiliate.

     (5) In the event that responsibility for distribution of Cholesterol Products in an EMEA Co-Promotion Country is transferred to S-P (or its designated Affiliate) pursuant to Section 2.1(g)(4) and an M Local Affiliate at any time thereafter demonstrates to the Singapore Partnership that it has the ability and the facilities and expertise to resume performance of all such obligations, then the Singapore Partnership shall determine whether or not to return those rights and responsibilities for such activities to such M Local Affiliate. If responsibility for such activities is to be returned to such M Local Affiliate, the Singapore Partnership, such M Local Affiliate and S-P (or, if applicable, its designated Affiliate) shall immediately amend the Sub-Distribution Agreement and/or perform such other acts as are necessary to substitute the M Local Affiliate for S-P or its Affiliate, as applicable, as a party to the Sub-Distribution Agreement and to assign and transfer to the M Local Affiliate all of the rights and obligations under the Sub-Distribution Agreement. Upon the return of such rights and obligations to the M Local Affiliate pursuant to this Section 2.1(g)(5), the costs incurred by M or S-P,

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or their Affiliates in transferring the rights and responsibilities for distribution of Cholesterol Products in the EMEA Co-Promotion Country under Section 2.1(g)(4) and this Section 2.1(g)(5), shall be borne as determined by the Singapore Partnership.

     (6) In the event that, and for so long as, S-P (or an S-P Affiliate) is responsible for the supply and distribution of Cholesterol Products in the EMEA pursuant to Section 2.1(e)(2), then S-P, or its designated Affiliate, shall also assume all of MSDIS’s rights and responsibilities under each of the Sub-Distribution Agreements entered into pursuant to this Section 2.1(g). MSDIS, S-P (or its designated Affiliate) and the applicable Affiliates of M and S-P shall amend the Sub-Distribution Agreements and/or perform such other acts as are necessary to substitute S-P (or its designated Affiliate) for MSDIS as a party to the Sub-Distribution Agreements and to assign and transfer to S-P (or its designated Affiliate) all of MSDIS’s rights and obligations under the Sub-Distribution Agreements with respect to Cholesterol Products in the EMEA.

     Section 2.2. Canada.

               (a) Simultaneously with the execution and delivery of this Agreement, the following documents shall be executed and delivered with respect to the sale of the Cholesterol Products in the Field in Canada:

     (1) Partnership Agreement of Merck Frosst Schering Pharma, GP (the “Canadian Partnership”), in the form attached hereto as Exhibit 8 (the “Canadian Partnership Agreement”), between Merck Frosst Canada Ltd. and Schering Canada, Inc. pursuant to which the Canadian Partnership is created for the purposes of the commercialization of the Cholesterol Products in the Field in Canada.

     (2) Co-Promotion Agreement in the form attached hereto as Exhibit 9, by and among the Canadian Partnership, Merck Frosst Canada Ltd. and Schering Canada, Inc., pursuant to which the parties agree to Co-Promote the Cholesterol Products in the Field in Canada.

     (3) Supply and Distribution Agreement in the form attached hereto as Exhibit 10, between the Canadian Partnership and the Singapore Partnership, pursuant to which the Canadian Partnership purchases finished, unpackaged Cholesterol Products from the Singapore Partnership for packaging and sale to customers in Canada.

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     (4) Warehousing and Support Services Agreement in the form attached hereto as Exhibit 11, between the Canadian Partnership and Merck Frosst Canada Ltd., pursuant to which Merck Frosst Canada Ltd. will provide administrative and support services to the Canadian Partnership.

     (5) In the event that Merck Frosst Canada Ltd., or any Affiliate of Merck Frosst Canada Ltd., has failed for any reason (including without limitation an event of force majeure) to perform, in any material respect, its obligations under the Warehousing and Support Services Agreement entered into pursuant to Section 2.2(a)(4), such failure to perform is not cured and performance by Merck Frosst Canada Ltd., or an Affiliate of Merck Frosst Canada Ltd., is not resumed within sixty (60) days of written notice by Schering Canada, Inc., and Schering Canada, Inc. (or its designated Affiliate) can demonstrate to the Canadian Partnership that it has the ability and the facilities and expertise to assume such obligations, then Schering Canada, Inc. (or its designated Affiliate) shall have the right to assume the rights and responsibilities of Merck Frosst Canada Ltd. (or its Affiliate, as applicable) under the Warehousing and Support Services Agreement. In such event, the Canadian Partnership, Merck Frosst Canada Ltd. (or its Affiliate, as applicable) and Schering Canada, Inc. (or its designated Affiliate) shall immediately amend the Warehousing and Support Services Agreement and/or perform such other acts as are necessary to substitute Schering Canada, Inc. (or its designated Affiliate) for Merck Frosst Canada Ltd. (or its Affiliate, as applicable) as a party to the Warehousing and Support Services Agreement and to assign and transfer to Schering Canada, Inc. (or its designated Affiliate) all of the rights and responsibilities of Merck Frosst Canada Ltd. (or its Affiliate, as applicable) under the Warehousing and Support Services Agreement, including without limitation any rights to receive payment for services performed thereunder. Nothing in Section 2.2(a)(5) shall be construed as a waiver of any other rights or remedies available to S-P under this Agreement as a result of such failure to perform by Merck Frosst Canada Ltd.

     (6) In the event that responsibilities referred to in Section 2.2(a)(4) are transferred to Schering Canada, Inc. (or its designated Affiliate) pursuant to Section 2.2(a)(5) and Merck Frosst Canada Ltd., or any Affiliate of Merck Frosst Canada Ltd., at any time thereafter demonstrates to the Canadian Partnership that it is has the ability and the facilities and expertise to resume performance of all such obligations, then the Canadian Partnership shall determine whether or not to return those responsibilities to Merck Frosst Canada Ltd or such Affiliate of Merck Frosst Canada

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Ltd. The Canadian Partnership, Merck Frosst Canada Ltd. (or, if applicable, its Affiliate) and Schering Canada, Inc. (or, if applicable, its designated Affiliate) shall immediately amend the Warehousing and Support Services Agreement and/or perform such other acts as are necessary to substitute Merck Frosst Canada Ltd. (or its Affiliate) for Schering Canada, Inc. or its Affiliate, as applicable, as a party to the Warehousing and Support Services Agreement and to assign and transfer to Merck Frosst Canada Ltd (or its Affiliate) all of the rights and obligations under the Warehousing and Support Services Agreement. Upon the return of such rights and obligations to Merck Frosst Canada Ltd. (or its Affiliate) pursuant to this Section 2.2(a)(6), the costs incurred by M or S-P, or their Affiliates in transferring such rights and responsibilities under Section 2.2(a)(5) and this Section 2.2(a)(6), shall be borne as determined by the Canadian Partnership.

               (b) As soon as reasonably practicable following the execution and delivery of this Agreement, the following documents shall be executed and delivered with respect to the sale of the Cholesterol Products in the Field in Canada:

     (1) Toll Packaging Agreement (Combination Products) in the form attached hereto as Exhibit 6 (with such variations as may be necessary to comply with local laws), between the Canadian Partnership and Merck Frosst Canada Ltd., pursuant to which the Canadian Partnership arranges for packaging of the finished Combination Products with Merck Frosst Canada Ltd. The Toll Packaging Agreement will provide, among other things, that Merck Frosst Canada Ltd., may arrange for an Affiliate, a Third Party or an Affiliate of S-P to toll package the Combination Products on behalf of Merck Frosst Canada Ltd.

     (2) Toll Packaging Agreement (Ezetimibe Monotherapy Product) in the form attached hereto as Exhibit 6 (with such variations as may be necessary to comply with local laws), between the Canadian Partnership and Schering Canada, Inc., pursuant to which the Canadian Partnership arranges for packaging of the finished Ezetimibe Monotherapy Product with Schering Canada, Inc. The Toll Packaging Agreement will provide, among other things, that the Affiliate of S-P may arrange for an Affiliate, a Third Party or an Affiliate of M to toll package the Ezetimibe Monotherapy Product on behalf of the Affiliate of S-P.

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     Section 2.3. Latin America.

               (a) Supply and Distribution.

     (1) Simultaneously with the execution and delivery of this Agreement, the Singapore Partnership shall execute and deliver separate, identical (except for the name of MSDIL and SOL) Supply and Distribution Agreements in the form attached hereto as Exhibit 12, with MSDIL and SOL pursuant to which, in each case, MSDIL and SOL, respectively, will have the right to acquire finished, unpackaged Cholesterol Products for packaging and sale to customers in Latin America. MSDIL and SOL will then separately arrange for warehousing and sale in those countries in Latin America in which M or S-P, as applicable, has determined to sell the Cholesterol Products.

               (b) Toll Packaging.

     (1) As soon as reasonably practicable following the execution and delivery of this Agreement, separate Toll Packaging Agreements in the form attached hereto as Exhibit 6 (with such variations as may be necessary to comply with local laws and regulations), relating to the packaging of Cholesterol Products for sale by M and its Affiliates in Latin America shall be entered into between MSDIL and an M Affiliate and S-P Affiliate, respectively, pursuant to which (i) the M Affiliate will package the finished Combination Products, and (ii) the S-P Affiliate will package the finished Ezetimibe Monotherapy Product, in each case, for sale by M and its Affiliates in Latin America.

     (2) As soon as reasonably practicable following the execution and delivery of this Agreement, separate Toll Packaging Agreements in the form attached hereto as Exhibit 6 (with such variations as may be necessary to comply with local laws and regulations), relating to the packaging of Cholesterol Products for sale by S-P and its Affiliates in Latin America shall be entered into between SOL and an M Affiliate and S-P Affiliate, respectively, pursuant to which (i) the M Affiliate will package the finished Combination Products, and (ii) the S-P Affiliate will package the finished Ezetimibe Monotherapy Product, in each case, for sale by S-P and its Affiliates in Latin America.

     Section 2.4. Far East.

               (a) Far East Co-Marketing Countries.

     (1) Simultaneously with the execution and delivery of this Agreement, the Singapore Partnership shall execute and

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deliver separate, identical (except for the name of MSDAPS and SOL) Supply and Distribution Agreements in the form attached hereto as Exhibit 12, with MSDAPS and SOL, pursuant to which such Affiliate will have the right to acquire finished, unpackaged Cholesterol Products for packaging and sale to customers in Far East Co-Marketing Countries. MSDAPS and SOL will then separately arrange for warehousing and sale in those Far East Co-Marketing Countries in which M or S-P, as applicable, has determined to sell the Cholesterol Products.

               (b) Far East Board Countries.

     (1) As soon as reasonably practicable following the execution and delivery of this Agreement (or if the list of Far East
Co-Promotion Countries is amended, upon the approval of such amendment by the Far East Operating Board), a Far East Co-Venture Agreement in the form attached hereto as Exhibit 13 (with such variations as may be necessary to comply with local laws and regulations), covering each of the Far East Co-Promotion Countries shall be executed and delivered by Local Affiliates of M and S-P, except in limited instances where both Parties agree that an Entity Agreement is required by local laws and regulations of a country, in which case the Parties will enter into an Entity Agreement based substantially on the Far East Co-Venture Agreement (with such variations as may be necessary to comply with local laws and regulations), no later than ninety (90) days following the execution and delivery of this Agreement. If any taxes, duties, discounts, rebates, price reductions or other financial considerations imposed under the local laws, rules and/or regulations with respect to a Far East country, or under an administrative, judicial or other governmental action with respect to a Far East country, would materially financially disadvantage a Disadvantaged Party but not the other Party and/or its Affiliates (or would cause a material financial disadvantage to one Party and/or its Affiliates greater than that caused to the other Party and/or its Affiliates) with respect to such Far East country, solely as a result of its Obligations, and the Parties have first each, separately or together, used commercially reasonable efforts to mitigate the effect of the Obligations, then the Parties agree to work together in good faith, for a reasonable period of time, to structure the local arrangement in a manner that would result in the Obligations not being imposed in any material respect (but without altering the treatment of the applicable country as an Far East
Co-Promotion Country). If after such good faith efforts the Parties are unable to implement such a structure, then the Parties shall in good faith agree upon such variations to the applicable Far East Co-Venture Agreement or Entity Agreement as would be necessary to put the

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Parties in the economic position in the applicable country that they would have been in under the applicable Far East Co-Venture Agreement or Entity Agreement had the Obligations not been imposed. M, S-P and their respective Affiliates shall not (i) engage in any ECLAFE Cholesterol Business in the applicable country without the approval of the Far East Operating Board, except for activities approved and conducted pursuant to the Development Agreement or required under this Agreement, or (ii) distribute or sell Cholesterol Products in a Far East Co-Promotion Country, in each case, until such Far East Co-Venture Agreement or Entity Agreement has been executed and delivered with respect to the Far East Co-Promotion Country.

     (2) As soon as reasonably practicable following the execution and delivery of this Agreement, MSDAPS and the Singapore Partnership shall execute and deliver a Supply and Distribution Agreement in the form attached hereto as Exhibit 5, pursuant to which MSDAPS will acquire finished, unpackaged Cholesterol Products for packaging and sale to customers in Far East Co-Promotion Countries (other than China) and Far East Single Presence Countries in which M has been deemed to have the single presence.

     (3) As soon as reasonably practicable following the execution and delivery of this Agreement, SOL and the Singapore Partnership shall execute and deliver a Supply and Distribution Agreement in the form attached hereto as Exhibit 5, pursuant to which SOL will acquire finished unpackaged Cholesterol Products for packaging and sale to customers in China (if China becomes a Far East Co-Promotion Country in accordance with Section 3.5.3 of this Agreement), and Far East Single Presence Countries in which S-P has been deemed to have the single presence.

     (4) As soon as reasonably practicable following the execution and delivery of this Agreement, with respect to Far East Co-Promotion Countries, Local Affiliates of M will enter into Sub-Distribution Agreements in the form attached hereto as Exhibit 14 (with such variations as may be necessary to comply with local laws and regulations), with MSDAPS pursuant to which each M Local Affiliate will purchase finished, packaged Cholesterol Products from MSDAPS for sale in the Far East Co-Promotion Countries (other than China).

     (5) As soon as reasonably practicable following the execution and delivery of this Agreement, with respect to Far East Single Presence Countries in which M has been deemed to have the single presence, a Local Affiliate of M will enter into Sub-

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Distribution Agreements in the form attached hereto as Exhibit 14 (with such variations as may be necessary to comply with local laws and regulations), with MSDAPS pursuant to which the M Local Affiliate will purchase finished, packaged Cholesterol Products from MSDAPS for sale in the applicable Far East Single Presence Countries.

     (6) As soon as reasonably practicable following the execution and delivery of this Agreement, with respect to Far East Single Presence Countries in which S-P has been deemed to have the single presence and China (if China becomes a Far East Co-Promotion Country in accordance with Section 3.5.3 of this Agreement), a Local Affiliate of S-P will enter into Sub-Distribution Agreements in the form attached hereto as Exhibit 14 (with such variations as may be necessary to comply with local laws and regulations), with SOL pursuant to which each S-P Local Affiliate will purchase finished, packaged Cholesterol Products from SOL for sale in the applicable Far East Single Presence Countries and China (if China becomes a Far East Co-Promotion Country in accordance with Section 3.5.3 of this Agreement).

     (7) If any party to a Supply and Distribution Agreement referenced in Sections 2.4(b)(2) or 2.4(b)(3) with respect to Far East
Co-Promotion Countries, or a Sub Distribution Agreement referenced in Sections 2.4(b)(4) with respect to Far East Co-Promotion Countries, has failed, for any reason (including without limitation an event of force majeure), to perform, in any material respect, its obligations under the Supply and Distribution Agreement or Sub Distribution Agreement, as the case may be, then the rights set forth in Sections 2.1(e)(2), (3) and (g)(6) or Sections 2.1(g)(4) and (5), as the case may be, shall apply with respect to supply and distribution in the applicable Far East Board Countries in the same manner as such rights are applicable to the EMEA. In such case, references to M and S-P shall be deemed to be references to whichever of M or S-P is, and is not, the responsible party for these Agreements, as applicable.

               (c) Far East Single Presence Countries.

     (1) Sales of Cholesterol Products in the Field in Far East Single Presence Countries shall be governed by the provisions of Section 3.6.4. and the Far East Single Presence Country Exhibit attached hereto as Exhibit 15.

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               (d) Toll Packaging.

     (1) As soon as reasonably practicable following the execution and delivery of this Agreement, separate Toll Packaging Agreements in the form attached hereto as Exhibit 6 (with such variations as may be necessary to comply with local laws and regulations), relating to the packaging of Cholesterol Products for sale by (x) M and its Affiliates in Far East Co-Marketing Countries, and (y) M and its Affiliates in Far East Single Presence Countries in which M has been deemed to have the single presence, and (z) the Parties in Far East Co-Promotion Countries (other than China), shall be entered into between MSDAPS and an M Affiliate and S Affiliate, respectively, pursuant to which (i) the M Affiliate will package the finished Combination Products and (ii) the S-P Affiliate will package the finished Ezetimibe Monotherapy Product, in each case, for sale in the Far East.

     (2) As soon as reasonably practicable following the execution and delivery of this Agreement, separate Toll Packaging Agreements in the form attached hereto as Exhibit 6 (with such variations as may be necessary to comply with local laws and regulations), relating to the packaging of Cholesterol Products for sale by (x) S-P and its Affiliates in Far East Co-Marketing Countries, (y) S-P and its Affiliates in Far East Single Presence Countries in which S-P has been deemed to have the single presence, and (z) the Parties in China (if China becomes a Far East Co-Promotion Country in accordance with Section 3.5.3 of this Agreement), shall be entered into between SOL and an M Affiliate and S Affiliate, respectively, pursuant to which (i) the M Affiliate will package the finished Combination Products and (ii) the S-P Affiliate will package the finished Ezetimibe Monotherapy Product, in each case, for sale in the Far East.

     Section 2.5. Amendment of Prior Agreements and S-P ECLAFE License Agreements.

          Section 2.5.1. Amendment of Prior Agreements. Simultaneously with the execution and delivery of this Agreement, the following agreements shall be amended and/or restated as hereinafter described:

     (1) The Singapore Partnership Agreement shall be amended and restated in the form attached hereto as Exhibit 16.

     (2) The Governance Agreement shall be amended in the form attached hereto as Exhibit 17, to, among other things, (i) expand the non-competition provisions to cover ECLAFE; (ii) expand the product recall provisions to cover ECLAFE; and (iii)

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expand certain termination rights, including without limitation, change of control termination rights, to cover ECLAFE.

     (3) M License Agreement shall be amended and restated in the form attached hereto as Exhibit 18, to, among other things, expand the definition of “Territory” to include ECLAFE with respect to the Combination Products.

     (4) M Formulation Agreement shall be amended and restated in the form attached hereto as Exhibit 19, to, among other things, expand the definition of “Territory” to include ECLAFE with respect to the Combination Products.

     (5) Amended and Restated S-P License Agreement shall be executed and delivered in the form attached hereto as Exhibit 20.

     (6) Amended and Restated Contribution Agreement Schering Sales Management, Inc. (Cholesterol), shall be executed and delivered in the form attached hereto as Exhibit 21.

     (7) Amended and Restated Contribution Agreement Schering MSP Pharmaceuticals Limited Partnership (Cholesterol) shall be executed and delivered in the form attached hereto as Exhibit 22.

     (8) Amended and Restated Contribution Agreement Scherico, Ltd. (Cholesterol), shall be executed and delivered in the form attached hereto as Exhibit 23.

     (9) Amended and Restated Contribution Agreement Schering-Plough (Singapore) Pte. Ltd. (Cholesterol), shall be executed and delivered in the form attached hereto as Exhibit 24.

     (10) Amended and Restated Sublicense Agreement (Existing Ezetimibe and Cholesterol Combination IP), shall be executed and delivered in the form attached hereto as Exhibit 25.

     (11) Amended and Restated S-P Formulation Agreement shall be executed and delivered in the form attached hereto as Exhibit 26.

     (12) Contract Manufacturing Agreement (Simvastatin) shall be amended and restated in the form attached hereto as Exhibit 27, to expand the definition of “Territory” to include ECLAFE.

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     (13) Contract Manufacturing Agreement (Ezetimibe) shall be amended and restated in the form attached hereto as Exhibit 28, to expand the definition of “Territory” to include ECLAFE.

     (14) Toll Manufacturing Agreement (Zocor Combination) shall be amended and restated in the form attached hereto as Exhibit 29, to expand the definition of “Territory” to include ECLAFE.

     (15) Toll Manufacturing Agreement (Ezetimibe Monotherapy Product) shall be amended and restated in the form attached hereto as Exhibit 30, to expand the definition of “Territory” to include ECLAFE.

     (16) Development Agreement shall be amended and restated in the form attached hereto as Exhibit 31, to (i) expand the Cholesterol Development Committee (as defined in the Development Agreement) to include representatives to address EMEA development issues related to the Cholesterol Products and to expand the Cholesterol Task Force (as defined in the Development Agreement) as needed for specific EMEA and/or LAFE activities, (ii) expand its mission to cover Canadian development issues, and (iii) expand drug experience reporting procedures to cover ECLAFE.

     (17) Limited Liability Company Agreement of MSP Technology (US) Company LLC (“MSP Technology Agreement”) shall be amended and restated in the form attached hereto as Exhibit 32.

     (18) Guarantee by Schering Corporation shall be amended in the form attached hereto as Exhibit 33.

          Section 2.5.2. S-P ECLAFE License Agreements. Simultaneously with the execution and delivery of this Agreement, the following agreements shall be executed and delivered as hereinafter described:

     (1) ECLAFE S-P License Agreement shall be executed and delivered in the form attached hereto as Exhibit 34.

     (2) ECLAFE Contribution Agreement Schering Sales Management, Inc. (Cholesterol), shall be executed and delivered in the form attached hereto as Exhibit 35.

     (3) ECLAFE Contribution Agreement Schering MSP Pharmaceuticals Limited Partnership (Cholesterol) shall be executed and delivered in the form attached hereto as Exhibit 36.

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     (4) ECLAFE Contribution Agreement Scherico, Ltd. (Cholesterol), shall be executed and delivered in the form attached hereto as Exhibit 37.

     (5) ECLAFE Contribution Agreement Schering-Plough (Singapore) Pte. Ltd. (Cholesterol), shall be executed and delivered in the form attached hereto as Exhibit 38.

     (6) ECLAFE Sublicense Agreement (Existing Ezetimibe and Cholesterol Combination IP), shall be executed and delivered in the form attached hereto as Exhibit 39.

     (7) ECLAFE S-P Formulation Agreement shall be executed and delivered in the form attached hereto as Exhibit 40.

     Section 2.6. Certain Contract Manufacturing Agreements.

     In the event that the M/E Combination Product is proposed to be developed for sale in ECLAFE, then, promptly after such determination, the Parties will execute and deliver the following amendments to the following Agreements:

     (1) Contract Manufacturing Agreement [*] shall be amended and restated to expand the definition of “Territory” to include ECLAFE in the same manner as Contract Manufacturing Agreement (Simvastatin) is being amended and restated pursuant to Section 2.5(9).

     (2) Toll Manufacturing Agreement ([*] Combination Product) shall be amended and restated to expand the definition of “Territory” to include ECLAFE in the same manner as Toll Manufacturing Agreement (Zocor Combination) is being amended and restated pursuant to Section 2.5(11).

     Section 2.7. Toll Packaging Rights.

     (1) In the event that M or S-P, or any of their Affiliates, has failed for any reason (including without limitation an event of force majeure) to perform, in any material respect, its obligations under any Toll Packaging Agreement in ECLAFE entered into pursuant to this Section 2 in which M or S-P or their respective Affiliates (such Person, the “Packager”) package any Cholesterol Products on behalf of the other Party, or any of its respective Affiliates (the “Non-Packager”), such failure to perform is not cured and performance is not resumed within sixty (60) days of written notice by the Non-Packager, and the Non-Packager (or its designated Affiliate) can demonstrate to the Singapore Partnership that it has the ability and the facilities and expertise to assume such

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obligations, then the Non-Packager (or its designated Affiliate) shall have the right to assume the rights and responsibilities of the Packager under the Toll Packaging Agreement for packaging is the applicable countries in ECLAFE. In such event, the Singapore Partnership, the Packager and the Non-Packager (or its designated Affiliate) shall immediately amend the Toll Packaging Agreement and/or perform such other acts as are necessary to substitute the Non-Packager (or its designated Affiliate) for the Packager as a party to the Toll Packaging Agreement and to assign and transfer to the Non-Packager (or its designated Affiliate) all of the Packager’s rights and obligations under the Toll Packaging Agreement with respect to packaging of Cholesterol Products in the applicable countries in ECLAFE, including without limitation any rights to receive payment for services performed thereunder. Nothing in Section 2.7 shall be construed as a waiver of any other rights or remedies available to the Non-Packager under this Agreement as a result of such failure to perform by the Packager.

     (2) In the event that responsibility for packaging of Cholesterol Products in the applicable countries in ECLAFE is transferred to the Non-Packager (or its designated Affiliate) pursuant to Section 2.7(1) and the Packager at any time thereafter demonstrates to the Singapore Partnership that it has the ability and the facilities and expertise to resume performance of all such obligations, then the Singapore Partnership shall determine whether or not to return those responsibilities to the Packager. If responsibility for such activities is to be returned to the Packager, the Singapore Partnership, the Packager and the Non-Packager (or, if applicable, its designated Affiliate) shall immediately amend the Toll Packaging Agreement and/or perform such other acts as are necessary to substitute the Packager for the Non-Packager or its Affiliate, as applicable, as a party to the Toll Packaging Agreement and to assign and transfer to the Packager all of the rights and obligations under the Toll Packaging Agreement with respect to packaging of Cholesterol Products in the applicable countries in ECLAFE. Upon the return of such rights and obligations to the Packager pursuant to this Section 2.7(2), the costs incurred by M or S-P, or their Affiliates in transferring the rights and responsibilities for packaging of Cholesterol Products in the applicable countries in ECLAFE under Section 2.7(1) and this Section 2.7(2), shall be borne as determined by the Singapore Partnership.

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ARTICLE III
MANAGEMENT

     Section 3.1. Worldwide Oversight Committee.

               (a) Formation; Purposes. Within forty-five (45) days after the Effective Date, M and S-P shall establish a worldwide oversight committee (the “WWOC”), which shall advise and provide guidance with respect to the Worldwide Cholesterol Business. The WWOC shall review and advise with respect to all worldwide strategic matters, including long range plans, long range sales and profit targets, supply shortage allocations and research matters that have an impact on the Worldwide Cholesterol Business.

               (b) Membership. The WWOC shall be composed of an equal number of representatives appointed by S-P on the one hand and M on the other. The WWOC shall initially be comprised of five (5) senior executives of S-P or any of its Affiliates, on the one hand and five (5) senior executives of M or any of its Affiliates on the other (the “WWOC Representatives”). S-P may, from time to time, replace any of its WWOC Representatives with another representative of S-P or any of its Affiliates upon written notice to M and M may, from time to time, replace any of its WWOC Representatives with another representative of M or any of its Affiliates upon written notice to S-P. One of the WWOC Representatives appointed by M and one of the members of the WWOC Representatives appointed by S-P shall be designated by M and S-P, respectively, as a chair (together, “WWOC Chairs”). The WWOC Chairs shall have responsibility for calling meetings of the WWOC, circulating agendas, allocating responsibilities for keeping minutes of the WWOC, and performing administrative tasks required to assure efficient operations of the WWOC.

               (c) Meetings of the WWOC. The WWOC shall hold regular meetings no less frequently than once every quarter, unless the WWOC otherwise determines. Special meetings of the WWOC may be called upon reasonable written notice by either WWOC Chair. Meetings, in addition to quarterly meetings, shall be held as necessary to communicate and interact with the Board of Directors of the Singapore Partnership to review and discuss whether research and development activities are being coordinated on a worldwide basis consistently with the recommendations of the WWOC. Meetings of the WWOC may be held in person, or by audio or video teleconference. S-P on the one hand and M on the other shall be responsible for all of the expenses incurred by their respective WWOC Representatives, which expenses arise out of such person’s membership in the WWOC.

               (d) Manner of Acting. The WWOC shall meet only if at least two representatives of S-P on the one hand and two representatives of M on the other are participating. The WWOC shall make recommendations regarding the Worldwide Cholesterol Business only if all the WWOC Representatives participating shall approve such recommendation.

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     Section 3.2. Management of the EMEA.

          Section 3.2.1. EMEA Operating Board.

               (a) Formation; Purposes. Within 45 days after the Effective Date, M and S-P shall establish an operating board (the “EMEA Operating Board”), which shall have overall responsibility for the management of the Cholesterol Products in the Field in the EMEA. Without limiting the generality of the foregoing, the responsibilities of the EMEA Operating Board shall be approving annual Marketing and Educational Plans and Five-Year Strategic Business Plans (each in the manner described in Section 3.2.4), capital forecasts and budgets (including costs of Phase V studies), as well as registration strategy and pricing/reimbursement strategy as proposed by the EMEA General Manager. The EMEA Operating Board shall carry out its responsibilities as set forth in this Agreement and the Related Agreements, as applicable, and shall have the authority to approve or disapprove any recommendation of the EMEA General Manager under this Agreement and the Related Agreements, as applicable. With respect to matters not the subject of recommendation by the EMEA General Manager under this Agreement or the Related Agreements, as applicable, no business may be transacted in the EMEA as contemplated by this Agreement and the Related Agreements without the prior written consent or written authorization of the EMEA Operating Board. The EMEA Operating Board shall operate with the intent of maximizing the commercialization of the Cholesterol Products in the Field in the EMEA. The Parties will seek to avoid unnecessary bureaucracy regarding the EMEA Operating Board and will seek to utilize the existing expertise within M and S-P. The EMEA Operating Board shall operate independently of M or S-P or their Affiliates and all lawful determinations, decisions and actions made or taken by the EMEA Operating Board shall be conclusive and absolutely binding with respect to the ECLAFE Cholesterol Business in the EMEA.

               (b) Membership. The EMEA Operating Board shall be composed of an equal number of representatives appointed by S-P on the one hand and M on the other. The EMEA Operating Board shall initially be comprised of three (3) senior executives of S-P or any of its Affiliates, on the one hand, and three (3) senior executives of M or any of its Affiliates, on the other. S-P and M may, upon mutual written consent, change the size and/or composition of the EMEA Operating Board from time to time. S-P may, in its sole discretion, replace any of its EMEA Operating Board representatives with another senior executive of S-P or any of its Affiliates at any time upon written notice to M, and M may, in its sole discretion, replace any of its EMEA Operating Board representatives with another senior executive of M or any of its Affiliates at any time upon written notice to S-P. One of the members of the EMEA Operating Board appointed by M shall be designated by M as the initial EMEA Operating Board Chair (the “EMEA Operating Board Chair”). The initial EMEA Operating Board Chair (or any replacement designated by M) shall serve until the end of Calendar Year 2002 and the right to designate the EMEA Operating Board Chair shall then alternate annually on a Calendar Year basis between a representative of the EMEA Operating Board designated by S-P and a representative of the EMEA Operating Board designated by M. The EMEA Operating Board Chair shall be responsible for calling meetings of the EMEA Operating Board, circulating agendas, allocating responsibilities for keeping

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minutes of the EMEA Operating Board, and performing administrative tasks required to assure efficient operations of the EMEA Operating Board. Except as expressly set forth in the prior sentence, the EMEA Operating Board Chair shall have no special rights or authority.

               (c) Meetings of the EMEA Operating Board. The EMEA Operating Board shall hold regular meetings no less frequently than once every quarter, unless the EMEA Operating Board otherwise determines. Special meetings of the EMEA Operating Board may be called by any EMEA Operating Board member, upon reasonable written notice. Meetings, in addition to quarterly meetings, shall be held timely to approve Marketing and Educational Plans submitted for EMEA Operating Board approval in accordance with this Agreement and the Related Agreements, as applicable. Meetings of the EMEA Operating Board may be held in person, or by audio or video teleconference. S-P on the one hand and M on the other shall be responsible for all of the expenses incurred by their representatives which are EMEA Operating Board members, which expenses arise out of such EMEA Operating Board member’s membership on the EMEA Operating Board.

               (d) Manner of Acting. Meetings of the EMEA Operating Board shall be effective only if at least two representatives of S-P on the one hand and at least two representatives of M on the other are present or participating throughout. The unanimous vote of the members of the EMEA Operating Board present or participating at any meeting of the EMEA Operating Board shall be necessary for the passage of any resolution or act of the EMEA Operating Board. Any action required or permitted to be taken by the EMEA Operating Board may be taken without a meeting if each member of the EMEA Operating Board consents thereto in writing.

               (e) Dispute Resolution. Except as set forth in Section 3.2.1(f) and 3.2.4(c) and (d) of this Agreement, the members of the EMEA Operating Board will use reasonable efforts to resolve any dispute, claims, controversies or disagreements relating to the ECLAFE Cholesterol Business in the EMEA. If any matter cannot be resolved by the EMEA Operating Board within a reasonable period of time, such reasonableness to be considered in view of the urgency and importance of the matter, and in any event, within thirty (30) days after the representative(s) of S-P on the one hand or M on the other on the EMEA Operating Board has given written notice of such disagreement to the representative(s) of the other Party, S-P and M each shall cause to be prepared and circulated to the other Party a memorandum or other form of statement setting out its position on the matter in dispute and its reasons for adopting such position. Each such memorandum or statement shall be considered by the respective EMEA Executive Sponsors of M or S-P, as applicable. The respective EMEA Executive Sponsors of M and S-P shall use their respective good faith reasonable efforts to jointly recommend a resolution of such dispute to the EMEA Operating Board as promptly as practicable but in any event no later than thirty (30) days after submission of such matter to such EMEA Executive Sponsors. Upon resolution of the matter, the respective EMEA Executive Sponsors shall jointly execute a written statement setting forth the terms of such recommended resolution.

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               (f) Product Launch Decisions. Cholesterol Products shall be registered, Launched and sold in the Field [*].

          Section 3.2.2. EMEA General Manager.

               (a) Designation; Purposes. M shall have the right to designate one employee of M, subject to the written consent of S-P (such consent not to be unreasonably withheld), to serve as the general manager of the Cholesterol Products and the ECLAFE Cholesterol Business in the EMEA (the “EMEA General Manager”). M may from time to time, subject to S-P’s written consent (such consent not to be unreasonably withheld), replace the EMEA General Manager with another employee of M. S-P shall have the right to cause the removal of the EMEA General Manager (subject to the written consent of M, not to be unreasonably withheld), provided that (i) such right shall be exercisable no more than once every two years and (ii) M shall have the right to designate a replacement for any removed EMEA General Manager subject to S-P’s written consent (such consent not to be unreasonably withheld). Except as otherwise provided in this Agreement and in any of the Related Agreements, the EMEA General Manager shall coordinate the activities of the ECLAFE Cholesterol Business in the EMEA by making recommendations to the EMEA Operating Board with respect to the operation and management of the Cholesterol Products and the ECLAFE Cholesterol Business in the EMEA and shall take such other actions as provided in the Related Agreements. The EMEA General Manager will coordinate EMEA development needs, develop Marketing and Educational Plans and strategic plans, oversee execution of plans and monitor performance (including receiving quarterly reports from each Country Marketing Committee in the EMEA regarding the execution of marketing, sales and promotion efforts) and otherwise be responsible for maximizing commercialization of the Cholesterol Products in the Field in the EMEA. The EMEA General Manager shall be fully dedicated to the ECLAFE Cholesterol Business in the EMEA and shall act in the best interests of the ECLAFE Cholesterol Business in the EMEA and shall not be involved in any activities relating to the competing products of S-P or M or any of their respective Affiliates (such as ZOCOR or [*]) unless the EMEA Operating Board agrees otherwise. The EMEA General Manager’s compensation shall be based on the success of the Cholesterol Products in the Field in the EMEA which, in the period prior to Launch of the Cholesterol Products in the Field in the EMEA, shall be determined by the EMEA Operating Board based on the ability to meet development timelines and, in the period following Launch of the Cholesterol Products in the Field in the EMEA, shall be determined by the EMEA Operating Board based on meeting projected sales in the EMEA as set forth in the applicable Marketing and Educational Plans. The EMEA General Manager shall also enter into an appropriate confidentiality agreement. Such confidentiality agreement shall govern the use or disclosure of Confidential Information obtained from M, S-P or any of their respective Affiliates.

               (b) Management. The EMEA General Manager will report to the EMEA Operating Board and on a day-to-day administrative basis to the M Senior Vice President, Worldwide Human Health Marketing and the EMEA General Manager shall have such duties and responsibilities as provided in this Agreement and the Related Agreements. The EMEA General Manager shall appoint the members of his or her staff

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including one S-P employee. The EMEA General Manager will appoint an M employee to serve as the EMEA marketing director (the “EMEA Marketing Director”) who will chair the EMEA Marketing Committee. The EMEA Marketing Director will report to the EMEA General Manager. The EMEA General Manager shall meet with the EMEA Marketing Committee and the EMEA Operating Board as frequently as necessary, but not less than quarterly, to review and discuss the actual results compared to the applicable Five-Year Strategic Business Plan, Marketing and Educational Plan or Default Marketing Plan (as the case may be) for each EMEA Board Country. Each Country Marketing Committee in the EMEA shall consult with the EMEA General Manager as and to the extent the Country Marketing Committee believes such consultation is necessary or appropriate or as otherwise required by this Agreement or the Related Agreements.

               (c) Country Marketing Committee Disputes. All Country Marketing Committee disputes relating to the ECLAFE Cholesterol Business in the EMEA which cannot be resolved by a Country Marketing Committee within a reasonable period of time, such reasonableness to be considered in view of the urgency and importance of the matter, and in any event, within fifteen (15) days after the representative(s) of S-P on the one hand or M on the other on the Country Marketing Committee has given written notice of such disagreement to the representative(s) of the other Party, shall be referred to the EMEA General Manager who will seek to resolve such disputes. In the event the EMEA General Manager is unable to resolve such a dispute to the satisfaction of both local M and S-P entities within thirty (30) days after the dispute has been referred to the EMEA General Manager, the dispute shall be referred to the EMEA Executive Sponsors who shall use their respective good faith efforts to jointly recommend a resolution of such dispute to the EMEA Operating Board as promptly as practicable but in no event later than ten (10) days after submission of such matter to the EMEA Executive Sponsors. Upon resolution of the matter, the respective EMEA Executive Sponsors shall jointly execute a written statement setting forth the terms of such recommended resolution. If the EMEA Executive Sponsors cannot reach resolution within such ten (10) day period, the dispute will be referred to the EMEA Operating Board for resolution pursuant to Section 3.2.1(e).

          Section 3.2.3. EMEA Marketing Committee.

               (a) Formation. Within forty-five (45) days after the Effective Date, S-P and M  shall cause to be established a marketing committee (the “EMEA Marketing Committee”). The EMEA Marketing Committee will be comprised of twenty (20) members, the chair of the EMEA Marketing Committee, S–P’s senior global marketing representative having responsibility for Cholesterol Products, as well as one representative from each of M and S-P from each of the following countries or groups of countries: (i) Germany, (ii) France, (iii) Italy, (iv) Spain, (v) the U.K., (vi) Scandinavian Region, (vii) Mid-Europe Region, (viii) Central and Eastern Europe Region and (ix) the Middle East Africa Region.

               (b) Purposes. The EMEA Marketing Committee shall advise the EMEA General Manager and be responsible for identifying and proposing to the EMEA Operating Board through the EMEA General Manager operating strategies for

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marketing aspects of the Cholesterol Products in the Field in the EMEA and coordinating pan-EMEA initiatives and sharing best practices. The EMEA Marketing Committee, through the EMEA Marketing Director, shall also be responsible for identifying and proposing the specific needs of the EMEA for the successful commercialization of the Cholesterol Products in the Field. Members of the EMEA Marketing Committee will act in the best interests of the maximum commercialization of the Cholesterol Products in the Field. The EMEA Marketing Committee shall have no express or implied authority to act on behalf of the EMEA Operating Board, EMEA General Manager, or M or S-P or any of their respective Affiliates.

          Section 3.2.4. Five-Year Plans; Approval of Annual Marketing and Educational Plans; Default Marketing Plans.

               (a) No later than May 15 of each Calendar Year, each (i) EMEA Regional Representative, after consultation and collaboration with, and the endorsement of the applicable Country Marketing Committee(s) in the EMEA, and (ii) Country Marketing Committee in the EMEA for which no EMEA Regional Representative has been appointed, will present a five-year strategic business plan (a “Five-Year Strategic Business Plan”) to the EMEA General Manager. The Five-Year Strategic Business Plan shall include a comprehensive marketing, sales, pricing, manufacturing, supply, and distribution strategy (including, without limitation, Phase V and educational activities) and related profit and loss forecasts for the Cholesterol Products in the Field in the applicable country or group of countries. The EMEA General Manager will, in consultation and collaboration with the applicable EMEA Regional Representative or Country Marketing Committee for countries in which no EMEA Regional Representative has been appointed, prepare a Five-Year Strategic Business Plan for the EMEA and submit such Five-Year Strategic Business Plan to the EMEA Operating Board for approval no later than July 31 of each Calendar Year.

               (b) If a Country Marketing Committee in an EMEA Board Country cannot agree on an estimate of (i) the optimal number of PDEs required to be delivered by each of M and S-P or their respective Affiliates to Targeted Prescribers, (ii) the positioning of such PDEs for Targeted Prescribers, and (iii) the frequency of such PDEs for Targeted Prescribers, so as to maximize the commercial potential of each Cholesterol Product, and to provide for market leadership by a Cholesterol Product in the Field (collectively, the “PDE Requirements”), in accordance with the applicable EMEA Board Country Agreement, then M and S-P will agree on a marketing consulting firm to provide a report (a “Consultant’s Report”) to the EMEA General Manager in a timely manner having regard to the requirements of Section 3.2.4(c) detailing, with respect to any such EMEA Board Country, such consulting firm’s estimate of the PDE Requirements. Notwithstanding the foregoing, no Consultant’s Report shall be sought with respect to an EMEA Board Country if the Country Marketing Committee for such EMEA Board Country determines that a Consultant’s Report would not be commercially beneficial.

               (c) No later than September 1 of each Calendar Year, each (i) EMEA Regional Representative, after consultation and collaboration with, and the

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endorsement of the applicable Country Marketing Committee(s) in the EMEA, and (ii) Country Marketing Committee in each country in the EMEA for which no EMEA Regional Representative has been appointed, will submit a preliminary Marketing and Educational Plan with respect to the Cholesterol Products in the Field in the applicable EMEA Board Country for the following Calendar Year to the EMEA General Manager for consultation and review. This preliminary Marketing and Educational Plan will (i) identify the Cholesterol Product which will receive primary emphasis, (ii) seek to maximize the commercial potential of each Cholesterol Product in the Field within the applicable country or region, and to provide for market leadership by a Cholesterol Product, (iii) be based on the Consultant’s Reports, if any, as well as match, where appropriate, the efforts of leading competitors of the ECLAFE Cholesterol Business in such EMEA Board Country, (iv) identify Targeted Prescribers, (v) identify the number of PDEs to be delivered by Specialty Representatives, Hospital Representatives and Primary Care Representatives and (vi) propose spending levels with respect to Non-Representative Educational and Promotional Activities. Following a review of such preliminary Marketing and Educational Plans, the EMEA General Manager, in consultation and collaboration with the EMEA Regional Representative or the Country Marketing Committee in countries in the EMEA for which no EMEA Regional Representative has been appointed, will submit a written report to the EMEA Operating Board describing any principle issues, if any, which could reasonably be expected to result in the implementation of a Default Marketing Plan in such EMEA Board Country. This report must be submitted to the EMEA Operating Board prior to October 1 of each Calendar Year. The EMEA General Manager, with the endorsement of the Country Marketing Committee in such EMEA Board Country, will develop a final Marketing and Educational Plan to be submitted to the EMEA Operating Board for approval no later than October 15 of each Calendar Year. In the event that such Marketing and Educational Plan is not approved by the EMEA Operating Board, the EMEA General Manager will, in close collaboration with the EMEA Regional Representatives and Country Marketing Committees for such EMEA Board Country, and with the endorsement of the County Marketing Committee for such EMEA Board Country, endeavor to reach consensus on an appropriate Marketing and Educational Plan and submit such Marketing and Educational Plan to the EMEA Operating Board, within thirty (30) days thereof.

               (d) In the event that a Marketing and Educational Plan with respect to the Cholesterol Product(s) in the Field for a Calendar Year in an EMEA Board Country (other than EMEA Single Presence Countries) is not approved by the EMEA Operating Board for any reason by the November 15th immediately prior to such Calendar Year, then a default marketing plan for the Cholesterol Product(s) in the Field in the applicable EMEA Board Country (a “Default Marketing Plan”) shall be implemented as set forth below:

     [*]  [Note: Approximately four and one-half pages of text are omitted.]

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          Section 3.2.5. Sales Force Compensation Auditor. Upon the request of either M or S-P or the EMEA General Manager, each of M and S-P shall provide, to an independent third-party auditor mutually agreed to by M and S-P (the “Compensation Auditor”), sufficient details on the target compensation, bonus structure, and benefits expected to be provided to either the M Sales Force or the S-P Sales Force in a specific EMEA Board Country on the Cholesterol Products and on other comparable priority cholesterol products promoted by such individuals, upon the Effective Date and annually thereafter (in the case of reports subsequent to the Effective Date, such reports will include the achievement rates for the prior Calendar Quarter of such compensation, bonus structure, and benefits programs), so that the Compensation Auditor may make a reasonable determination of comparability and effectiveness of the bonus incentives under the preceding sentence, which determination shall be given to the EMEA General Manager. In the event that, upon receipt of such determination from the Compensation Auditor, the EMEA General Manager is concerned that either M’s or S-P’s bonus incentive structure for the M Sales Force or the S-P Sales Force respectively in a specific EMEA Board Country is not adequate or comparable to the incentive structure of its other sales force personnel (or with respect to comparable priority cholesterol products), the EMEA General Manager will seek the assistance of the applicable Country Marketing Committee in the EMEA and the EMEA Executive Sponsors in a good faith attempt to help resolve any of the perceived inequities.

          Section 3.2.6. EMEA No Presence Countries. In relation to the EMEA No Presence Countries, the EMEA General Manager shall make a recommendation to the EMEA Operating Board as to whether the Cholesterol Products should be sold in such countries and a recommendation as to how the Cholesterol Products should be marketed in such countries. If such EMEA No Presence Country is designated by the EMEA Operating Board as an EMEA Co-Promotion Country, EMEA Co-Branding Country or EMEA Single Presence Country, it shall cease to be an EMEA No Presence Country for the purposes of this Agreement.

          Section 3.2.7. [*]

          Section 3.2.8. EMEA Single Presence Countries. The Parties acknowledge that the list of EMEA Single Presence Countries is intended to reflect those countries in which the Parties have respective Marketing Presences, but that no Party may challenge the definition of EMEA Single Presence Country after the Effective Date on the basis of such definition. If requested by a Party, however, the EMEA Operating Board will consider whether the definitions of EMEA Single Presence Countries should be modified. From the Effective Date (or, if a country in the EMEA is designated an EMEA Single Presence Country by the EMEA Operating Board after the Effective Date, from the date of such designation), the Parties agree that the provisions of this Agreement, including the provisions attached hereto as Exhibit 3, will govern the rights and obligations of the Parties in the EMEA Single Presence Countries, and whichever of S-P and M has the single presence in the EMEA Single Presence Country shall ensure that an Affiliate shall comply with the provisions of this Agreement and the provisions contained in such Exhibit 3.

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          Section 3.2.9. Access to Promotional Materials. S-P and M, and their respective Affiliates, will have full and equal access, for use in EMEA Co-Branding Countries, to the marketing and promotional materials developed by S-P and M, or their respective Affiliates, for use in the Co-Promotion Countries, Single Presence Countries, the U.S. Territory and in Canada.

     Section 3.3. Management of Canada.

          Section 3.3.1. Management by the Canadian Board of Members. The ECLAFE Cholesterol Business in Canada shall be managed by, and all powers of the Canadian Partnership shall be vested in, the Canadian Partnership’s Board of Members (the “Canadian Board”). The terms and provisions governing the Canadian Board shall be as set forth in the Canadian Partnership Agreement. The Canadian Board shall be responsible for determining the general policies of the Canadian Partnership and the scope of the Canadian Partnership’s activities and operations.

          Section 3.3.2. Canada General Manager. The Canadian Agreements will provide that (i) Merck Frosst Canada Ltd., shall have the right to designate one employee of Merck Frosst Canada Ltd., subject to the written consent of Schering Canada, Inc. (such consent not to be unreasonably withheld) to serve as the general manager of the Cholesterol Products and the ECLAFE Cholesterol Business in Canada (the “Canadian General Manager”), (ii) Schering Canada, Inc. shall have the right to cause the removal of the Canadian General Manager (subject to the written consent of Merck Frosst Canada Ltd., not to be unreasonably withheld), provided that (x) such right shall be exercisable no more than once every two years and (y) Merck Frosst Canada Ltd. shall have the right to designate a replacement for any removed Canadian General Manager subject to the written consent of Schering Canada, Inc. (such consent not to be unreasonably withheld). The terms and provisions regarding the Canadian General Manager shall be as set forth in the Canadian Partnership Agreement.

     Section 3.4. Management of Latin America.

          Section 3.4.1. Supply and Distribution. With respect to all countries in Latin America, to the extent S-P and/or M determines to sell Cholesterol Products in Latin America, the Singapore Partnership will supply an Affiliate of S-P and/or M, as the case may be, with finished, unpackaged Cholesterol Products, for sale in those countries in Latin America determined by S-P or M respectively. Sales from the Singapore Partnership to the S-P Affiliate and to the M Affiliate will be at the same price. Subject to the provisions of Sections 3.4.1 and/or 3.4.3, S-P and M will be entitled to commence marketing and selling Cholesterol Products in the Field in any country in Latin America at any time. S-P or M will market, promote and sell their Cholesterol Products independent of the other. S-P and M will have the right to introduce multiple brands of each Cholesterol Product in any country in Latin America. Each of S-P and M (each, a “Distribution Party”) may sublicense and/or sell Cholesterol Products for sale and distribution in any country in Latin America to those distributors or sub-licensees, (i) in which a Distribution Party owns, directly or indirectly, at least [*] of the outstanding equity interests in such distributor or sub-licensee as of the date in which such distributor

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or sub-licensee commences the marketing and sale of the Cholesterol Products in such country, or (ii) that the Latin America Executive Sponsors (after consulting with and receiving the advice and recommendation of the WWOC) have approved as a distributor or sub-licensee of the Distribution Party, provided, that if the Non-Distribution Party reasonably believes that the performance of such distributor or sub-licensee in the applicable country is unsatisfactory, then, the Non-Distribution Party, may request a discussion with the Latin America Executive Sponsors to consider whether such distributor’s or sub-licensee’s performance in the applicable country is unsatisfactory. If, following such discussion, the Non-Distribution Party reasonably determines that the distributor’s or sub-licensee’s performance in the applicable country is unsatisfactory, then the Non-Distribution Party shall provide the Distribution Party with written notice, setting forth in reasonable detail the basis for such determination. Thereafter, such distributor or sub-licensee shall have sixty (60) days to demonstrate to the Non-Distribution Party that it has cured such unsatisfactory performance. If, during such period, the distributor or sub-licensee fails to demonstrate to the Non-Distribution Party that it has cured such unsatisfactory performance, then such distributor or sub-licensee shall cease to be a distributor or sub-licensee of the Distribution Party for the Cholesterol Products in the Field in such country and shall thereafter cease marketing and selling the Cholesterol Products in such country.

          Section 3.4.2. Reporting Obligations. M shall ensure that each of the M Local Affiliates for Latin America shall provide the Singapore Partnership with sufficient information to calculate any special allocations required to be made pursuant to the Singapore Partnership Agreement with respect to sales by M in Latin America.

          Section 3.4.3. Registration and Launch. With respect to all countries in Latin America where S-P and M determine to sell Cholesterol Products, each of an M Local Affiliate and an S-P Local Affiliate shall undertake the Co-Marketing and sale of the Cholesterol Products in such countries under its own separate and distinct brands. With respect to each country in Latin America where: (A) the simultaneous filing of Product Marketing Authorizations and qualifications for the Cholesterol Products by one Party on behalf of itself and the other Party is permitted by local law; (B) M and S-P each have a Marketing Presence and (C) M and S-P each notify the Singapore Partnership, within thirty (30) days after the availability of the Cholesterol Product health registration packages for the applicable Product for such country, that it intends to sell such Cholesterol Product, the Latin America Executive Sponsors will authorize either an S-P Affiliate or an M Affiliate to obtain and maintain all Product Marketing Authorizations and qualifications (e.g. discounts) for each Cholesterol Product in such country as required under local laws and regulations to enable both (i) an S-P Local Affiliate to market such Cholesterol Product under one or more S-P Local Affiliate’s brands as S-P may designate and (ii) an M Local Affiliate to market such Cholesterol Product under one or more of M Local Affiliate’s brands as M may designate, in the country. In those countries in Latin America (i) where the requirements referenced in the second sentence of this Section 3.4.3 are satisfied, or (ii) where the requirements referenced in the second sentence of this Section 3.4.3 other than part (A) of such requirements are satisfied, then, to the extent permitted by law, neither M nor S-P, or their respective Affiliates, shall Launch a Cholesterol Product, or engage in any pre-selling in such country in Latin

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America until each of M and S-P has received all Product Marketing Authorizations and qualifications (e.g. discounts) required under local laws and regulations to Launch a brand of the Cholesterol Product in such country. With respect to each country in Latin America where the preceding sentence does not apply, each Party will independently seek the Product Marketing Authorization and qualification of its brand(s) of Cholesterol Products in accordance with the Development Agreement.

          Section 3.4.4. Access to Promotional Materials. S-P and M, and their respective Affiliates, will have full and equal access for use in Latin America to the marketing and promotional materials developed by S-P and M, or their respective Affiliates, for use in the Co-Promotion Countries, Single Presence Countries, the U.S. Territory and in Canada.

          Section 3.4.5. Dispute Resolution in Latin America. The Latin America Executive Sponsors will use reasonable efforts to resolve any dispute, claims, controversies or disagreements relating to the ECLAFE Cholesterol Business in Latin America. If any matter cannot be resolved by the Latin America Executive Sponsors within a reasonable period of time, such reasonableness to be considered in view of the urgency and importance of the matter, and in any event, within thirty (30) days after the representative(s) of S-P on the one hand or M on the other has given written notice of such disagreement to the representative(s) of the other Party, S-P and M each shall cause to be prepared and circulated to the other Party a memorandum or other form of statement setting out its position on the matter in dispute and its reasons for adopting such position. The respective Latin America Executive Sponsors of M and S-P shall use their respective good faith reasonable efforts to resolve such dispute as promptly as practicable but in any event no later than ten (10) days after submission of such matter to such Latin America Executive Sponsors. Upon resolution of the matter, the respective Latin America Executive Sponsors shall jointly execute a written statement setting forth the terms of such resolution.

     Section 3.5. Management of the Far East — Co-Marketing Countries.

          Section 3.5.1. Supply and Distribution. With respect to Far East Co-Marketing Countries, to the extent S-P and/or M determines to sell Cholesterol Products in the Far East, the Singapore Partnership will supply an Affiliate of S-P and/or M, as the case may be, with finished, unpackaged Cholesterol Products, for sale in those countries in the Far East determined by S-P or M respectively. Sales from the Singapore Partnership to the S-P Affiliates and the M Affiliates will be at the same price. Subject to the provisions of Sections 3.5.1 and/or 3.5.3, S-P and M will be entitled to commence marketing and selling Cholesterol Products in the Field in any Far East Co-Marketing Country at any time. S-P or M will market, promote and sell their Cholesterol Products independent of the other. S-P and M will have the right to introduce multiple brands of each Cholesterol Product in any Far East Co-Marketing Country. Each Distribution Party may sublicense and/or sell Cholesterol Products for sale and distribution in any Far East Co-Marketing Country to those distributors or sub-licensees, (i) in which a Distribution Party owns, directly or indirectly, at least [*] of the outstanding equity interests in such distributor or sub-licensee as of the date in which such distributor or sub-licensee

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commences the marketing and sale of the Cholesterol Products in such country, or (ii) that the Far East Operating Board have approved as a distributor or sub-licensee of the Distribution Party, provided, that if the Non-Distribution Party reasonably believes that the performance of such distributor or sub-licensee in the applicable country is unsatisfactory, then, the Non-Distribution Party, may request a discussion at the Far East Operating Board to consider whether such distributor’s or Sub-licensee’s performance in the applicable country is unsatisfactory. If, following such discussion, the Non-Distribution Party reasonably determines that the distributor’s or sub-licensee’s performance in the applicable country is unsatisfactory, then the Non-Distribution Party shall provide the Distribution Party with written notice, setting forth in reasonable detail the basis for such determination. Thereafter, such distributor or sub-licensee shall have sixty (60) days to demonstrate to the Non-Distribution Party that it has cured such unsatisfactory performance. If, during such period, the distributor or sub-licensee fails to demonstrate to the Non-Distribution Party that it has cured such unsatisfactory performance, then such distributor or sub-licensee shall cease to be a distributor or sub-licensee of the Distribution Party for the Cholesterol Products in the Field in such country and shall thereafter cease marketing and selling the Cholesterol Products in such country.

          Section 3.5.2. Reporting Obligations. M shall ensure that each of the M Local Affiliates for the Far East Co-Marketing Countries shall provide the Singapore Partnership with sufficient information to enable it to calculate the special allocations required to be made pursuant to the Singapore Partnership Agreement with respect to sales by M in the Far East.

          Section 3.5.3. Registration and Launch. With respect to all Far East Co-Marketing Countries where S-P and M determine to sell Cholesterol Products, [*].

          Section 3.5.4. Access to Promotional Materials. S-P and M, and their respective Affiliates, will have full and equal access, for use in Far East Co-Marketing Countries, to the marketing and promotional materials developed by S-P and M, or their respective Affiliates, for use in the Co-Promotion Countries, Single Presence Countries, the U.S. Territory and in Canada.

          Section 3.5.5. Dispute Resolution in Far East Co-Marketing Countries. The members of the Far East Operating Board will use reasonable efforts to resolve any dispute, claims, controversies or disagreements in Far East Co-Marketing Countries. If any matter cannot be resolved by the Far East Operating Board within a reasonable period of time, such reasonableness to be considered in view of the urgency and importance of the matter, and in any event, within thirty (30) days after the representative(s) of S-P on the one hand or M on the other on the Far East Operating Board has given written notice of such disagreement to the representative(s) of the other Party, S-P and M each shall cause to be prepared and circulated to the other Party a memorandum or other form of statement setting out its position on the matter in dispute and its reasons for adopting such position. Thereafter, a representative of S-P on the one hand and M on the other of the Far East Operating Board shall use their reasonable good faith efforts to resolve any such dispute as promptly as practicable but in any event no later than ten (10) days after submission of such matter to such representatives. Upon

50

resolution of the matter, such representatives of S-P and M of the Far East Operating Board shall jointly execute a written statement setting forth the terms of such resolution.

     Section 3.6. Management of the Far East Board Countries

          Section 3.6.1. Far East Board Countries.

               (a) Far East Operating Board; Purposes. Within forty-five (45) days after the Effective Date, M and S-P shall establish a board for Far East Board Countries (the “Far East Operating Board”), which shall have overall responsibility for the management of the Cholesterol Products in the Field in Far East Board Countries, and certain responsibilities regarding the Cholesterol Products in the Field in Far East Co-Marketing Countries as set forth in Section 3.5. Without limiting the generality of the foregoing, the responsibilities of the Far East Operating Board shall include approving annual Marketing and Educational Plans and Five-Year Strategic Business Plans (each in the manner described in Section 3.6.2), capital forecasts and budgets (including costs of Phase V studies), as well as registration strategy and pricing/reimbursement strategy. The Far East Operating Board shall carry out its responsibilities as set forth in this Agreement and the Related Agreements, as applicable, and shall have the authority to approve or disapprove any recommendation of a Country Marketing Committee under this Agreement and the Related Agreements, as applicable. The Far East Operating Board shall operate with the intent of maximizing the commercialization of the Cholesterol Products in the Field in the Far East. The Far East Operating Board will coordinate the Far East Board Countries development needs, develop Marketing and Educational Plans and strategic plans, oversee execution of plans and monitor performance (including receiving quarterly reports from each Country Marketing Committee in the Far East regarding the execution of marketing, sales and promotion efforts) and otherwise be responsible for maximizing commercialization of the Cholesterol Products in the Field in Far East Board Countries. The Far East Operating Board shall operate independently of M or S-P or their Affiliates and all lawful determinations, decisions and actions made or taken by the Far East Operating Board shall be conclusive and absolutely binding with respect to the ECLAFE Cholesterol Business in the Far East.

               (b) Membership. The Far East Operating Board shall be composed of four (4) representatives, two (2) appointed by S-P on the one hand, and two (2) appointed by M on the other. M and S-P shall determine the composition of the Far East Operating Board within forty-five (45) days after the Effective Date. M and S-P may, upon mutual written consent, change the size and/or composition of the Far East Operating Board from time to time. S-P may, in its sole discretion, replace any of its Far East Operating Board representatives at any time upon written notice to M, and M may, in its sole discretion, replace any of its Far East Operating Board representatives at any time upon written notice to S-P. M shall designate a board member to call meetings of the Far East Operating Board, circulate agendas, allocate responsibilities for keeping minutes of the Far East Operating Board, and perform administrative tasks required to assure efficient operations of the Far East Operating Board until the end of Calendar Year

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2002. Those responsibilities shall thereafter alternate in each subsequent Calendar Year between a board member designated by S-P and a board member designated by M.

               (c) Meetings of the Far East Operating Board. The Far East Operating Board shall hold regular meetings no less frequently than once every quarter, unless the Far East Operating Board otherwise determines. Special meetings of the Far East Operating Board may be called by any Far East Operating Board member, upon reasonable written notice. Meetings, in addition to quarterly meetings, shall be held timely to approve plans submitted for Far East Operating Board approval in accordance with this Agreement and the Related Agreements, as applicable. Meetings of the Far East Operating Board may be held in person, by audio or by video teleconference. S-P on the one hand and M on the other shall be responsible for all of the expenses incurred by their representatives which are Far East Operating Board members, which expenses arise out of such Far East Operating Board member’s membership on the Far East Operating Board.

               (d) Manner of Acting. Meetings of the Far East Operating Board shall be effective only if at least one representative of S-P on the one hand and at least one representative of M on the other are present or participating throughout. The unanimous vote of the members of the Far East Operating Board present or participating at any meeting of the Far East Operating Board shall be necessary for the passage of any resolution or act of the Far East Operating Board. Any action required or permitted to be taken by the Far East Operating Board may be taken without a meeting if each member of the Far East Operating Board consents thereto in writing.

               (e) Dispute Resolution. Except as set forth in Sections 3.6.1(f) and (g) and 3.6.3(b) and (c) of this Agreement, the members of the Far East Operating Board will use reasonable efforts to resolve any dispute, claims, controversies or disagreements relating to the ECLAFE Cholesterol Business in Far East Board Countries. If any matter cannot be resolved by the Far East Operating Board within a reasonable period of time, such reasonableness to be considered in view of the urgency and importance of the matter, and in any event, within thirty (30) days after the representative(s) of S-P on the one hand or M on the other on the Far East Operating Board has given written notice of such disagreement to the representative(s) of the other Party, S-P and M each shall cause to be prepared and circulated to the other Party a memorandum or other form of statement setting out its position on the matter in dispute and its reasons for adopting such position. Thereafter, a representative of S-P on the one hand and M on the other of the Far East Operating Board shall use their reasonable good faith efforts to jointly recommend a resolution of such dispute to the Far East Operating Board as promptly as practicable but in no event later than ten (10) days after submission of such matter to such representatives. Upon resolution of the matter, such representatives of S-P and M of the Far East Operating Board shall jointly execute a written statement setting forth the terms of such recommended resolution.

               (f) Country Marketing Committee Disputes. All Country Marketing Committee disputes relating to the ECLAFE Cholesterol Business in Far East Board Countries which cannot be resolved by the relevant Country Marketing Committee

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within a reasonable period of time, such reasonableness to be considered in view of the urgency and importance of the matter, and in any event, within thirty (30) days after the representative(s) of S-P on the one hand or M on the other on the Country Marketing Committee has given written notice of such disagreement to the representative(s) of the other Party, shall be referred to the Far East Operating Board which shall recommend a resolution of such dispute to the Country Marketing Committee as promptly as practicable but in no event later than ten (10) days after submission of such matter to the Far East Operating Board. Upon resolution of the matter, representative(s) of S-P on the one hand and M on the other of the Far East Operating Board shall jointly execute a written statement setting forth the terms of such recommended resolution. If the Far East Operating Board cannot reach resolution within such ten (10) day period, the dispute will be resolved pursuant to Section 3.6.1(e).

               (g) Product Launch Decisions. Cholesterol Products shall be registered, Launched and sold in the Field [*].

          Section 3.6.2. Appointment of a Far East General Manager. The Far East Operating Board shall discuss in good faith the need for a general manager of the Cholesterol Products and the ECLAFE Cholesterol Business in the Far East Board Countries. If the Far East Operating Board determines that there is a need for a general manager, M shall have the right to designate one employee of M, subject to the written consent of S-P (such consent not to be unreasonably withheld), to serve as such general manager. Upon such appointment, this person will perform the same role, and have the same rights and responsibilities in the Far East Board Countries as the EMEA General Manager has in the EMEA. S-P’s and M’s rights with respect to such general manager shall be the same as the rights S-P and M have with respect to the EMEA General Manager.

          Section 3.6.3. Five-Year Plans; Approval of Annual Marketing and Educational Plans; Default Marketing Plans.

               (a) No later than May 15 of each Calendar Year, each Country Marketing Committee in Far East Board Countries will present a Five-Year Strategic Business Plan to the Far East Operating Board. The Five-Year Strategic Business Plan shall include a comprehensive marketing, sales, pricing, manufacturing, supply and distribution strategy (including, without limitation, Phase V and educational activities) and related profit and loss forecasts for the Cholesterol Products in the Field in the applicable country. The Far East Operating Board will prepare and approve a Five-Year Strategic Business Plan for the Far East Board Countries no later than July 31 of each Calendar Year.

               (b) No later than September 1 of each Calendar Year, each Country Marketing Committee in the Far East will submit a preliminary Marketing and Educational Plan with respect to the Cholesterol Products in the Field in the applicable Far East Board Country for the following Calendar Year to the Far East Operating Board for consultation and review. This preliminary Marketing and Educational Plan will contain the PDE Requirements (i) identify the Cholesterol Product which will receive

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primary emphasis, (ii) seek to maximize the commercial potential of each Cholesterol Product in the Field, within the applicable country and to provide for market leadership by a Cholesterol Product, (iii) match, where appropriate, the efforts of leading competitors of the ECLAFE Cholesterol Business in such Far East Board Country, (iv) identify Targeted Prescribers, (v) identify the number of PDEs to be delivered by Specialty Representatives, Hospital Representatives and Primary Care Representatives and (vi) propose spending levels with respect to Non-Representative Educational and Promotional Activities. The Far East Operating Board and each Country Marketing Committee in such Far East Board Country will develop a final Marketing and Educational Plan to be approved by the Far East Operating Board no later than October 15 of each Calendar Year. In the event that such Marketing and Educational Plan is not approved by the Far East Operating Board, the Country Marketing Committee will seek to address the issues raised by the Far East Operating Board and submit such Marketing and Educational Plan to the Far East Operating Board for approval, within thirty (30) days thereof.

               (c) In the event that a Marketing and Educational Plan with respect to the Cholesterol Product(s) in the Field for a Calendar Year in a Far East Board Country (other than a Far East Single Presence Country) is not approved by the Far East Operating Board for any reason by the November 15th immediately prior to such Calendar Year, then a Default Marketing Plan for the Cholesterol Product(s) in the applicable country shall be implemented as set forth in Section 3.2.4(d). The provisions of Sections 3.2.4(d), (e), (f), (g), (i) and (j) shall apply to such country; provided, however, that references therein to an EMEA Board Country, the EMEA Operating Board and an EMEA Board Country Agreement shall be deemed to be references to a Far East Board Country, the Far East Operating Board and a Far East Board Country Agreement, respectively.

               (d) Subsequent to the Launch of a Combination Product in a Far East Board Country (other than a Far East Single Presence Country), no sales representative of either M or S-P, or their respective Affiliates shall be responsible for detailing both (x) a Combination Product and (y) a product of M or S-P or their respective Affiliates (as the case may be) in the Field in such Far East Board Country, unless agreed to in an approved Marketing and Educational Plan.

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          Section 3.6.4. Far East Single Presence Countries. From the Effective Date (or, if a country in the Far East is designated a Far East Single Presence Country by the Far East Operating Board after the Effective Date, from the date of such designation), the Parties agree that the provisions of this Agreement, including the provisions attached hereto as Exhibit 15, will govern the rights and obligations of the Parties in the Far East Single Presence Countries, and whoever of S-P and M has or has been deemed to have the single presence in the Far East Single Presence Country shall ensure that an Affiliate shall comply with the provisions of this Agreement and the provisions contained in such Exhibit 15.

ARTICLE IV
GOOD FAITH EFFORTS; OTHER MATTERS

     Section 4.1. Commercially Reasonable Good Faith Efforts. Each of the Parties hereto agrees to use its commercially reasonable good faith efforts to execute and deliver all of the agreements and documents referred to in Article II or otherwise contemplated by this Agreement, and make all necessary filings relating thereto, if any, as promptly as practicable.

     Section 4.2. Certain Expenses.

               (a) Expenses Outside EMEA. Marketing and Educational Expenses as described in Schedule 4.2(a) incurred by M or its Affiliates, or by S-P or its Affiliates outside the EMEA and approved by the EMEA Operating Board shall be shared equally by M and S-P; provided that such expenses incurred by M or its Affiliates will be shared equally by M and S-P up to [*] per Calendar Year; and provided, further, that promotional expenses shall be shared equally only to the extent such expenses are incurred with respect to global branding and the centralized preparation of sales materials for Launch of each Cholesterol Product in the Field in ECLAFE. To the extent that M’s Marketing and Educational Expenses (as described in Schedule 4.2(a)) exceed [*] million in any Calendar Year or that M incurs promotional expenses other than those incurred with respect to global branding and the centralized preparation of sales material for the Launch of each Cholesterol Product, M shall bear [*]% of such costs and S-P shall bear [*]% of such costs. M will invoice S-P for these costs on a quarterly basis and S-P shall pay such invoices within 30 days of receipt.

               (b) EMEA Regulatory Costs. Regulatory Costs associated with the EMEA, whether incurred within or outside the EMEA will be aggregated and will be shared equally between M and S-P; provided, however, that, notwithstanding anything set forth herein or in any of the Related Agreements including the provisions of Section 6.2(a) of the EMEA Board Country Agreements, if Regulatory Costs incurred by M Local Affiliates in the EMEA in a Calendar Year in the aggregate exceeds $[*] (the “Regulatory Expenses Cap”), then M shall bear [*]% and S-P shall bear [*]% of such excess. To the extent such proviso applies, there will be no adjustments made to the payment obligations under the EMEA Co-Venture Agreement or Related Agreements; however, an allocation pursuant to the Singapore Partnership Agreement will be made to give effect thereto. If, in a Calendar Year, Regulatory Costs incurred by M Local

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Affiliates are unusually high, the EMEA Operating Board may modify the Regulatory Expenses Cap to take into account such unusual circumstances.

               (c) Expenses Outside Canada; Expenses Outside Far East Co-Promotion Countries. Canadian related Marketing and Educational Expenses, as described in Schedule 4.2(a), incurred by M or S-P or their respective Affiliates outside Canada and approved by the Canadian Board shall be shared equally by M and S-P. Far East Co-Promotion Country Marketing and Educational Expenses, as described in Schedule 4.2(a), incurred by M or S-P or their respective Affiliates outside the Far East Co-Promotion Countries and approved by the Far East Operating Board shall be shared equally by M and S-P. Each of M and S-P will invoice the other for the costs referred to in the first sentence of Section 4.2(c) on a quarterly basis and provide the other Party with such documentation in support thereof as the other Party may reasonably request, and the other Party shall pay such invoices within thirty (30) days of receipt of such invoice and all such supporting documentation. In addition, if only one Product Marketing Authorization is required with respect to each Cholesterol Product in any Co-Marketing country in LAFE, the Regulatory Costs associated with such registration will be shared equally between M and S-P. An allocation pursuant to the Singapore Partnership Agreement will be made to give effect to such sharing of Regulatory Costs.

               (d) Phase IV Clinical Trials. The costs associated with Phase IV clinical trials shall be borne by the Singapore Partnership.

     Section 4.3. Trademarks.

               Section 4.3.1. EMEA.

               (a) General. The Parties will seek to optimize the use of the E Monotherapy U.S. Trademark, the Z/E Combination Product U.S. Trademark and the M/E Combination Product U.S. Trademark in each country in the EMEA, but only to the extent that the applicable Cholesterol Products are sold by or on behalf of S-P or M or any of their Affiliates in the Field in such country in the EMEA.

               (b) EMEA Co-Promotion Countries. With respect to EMEA Co-Promotion Countries, the Singapore Partnership will own and the Affiliates of M and S-P shall have the exclusive right to use in those countries the E Monotherapy U.S. Trademark, the Z/E Combination Product U.S. Trademark and the M/E Combination Product U.S. Trademark and any back-up trademarks related thereto.

               (c) EMEA Single Presence Countries. With respect to EMEA Single Presence Countries, the Singapore Partnership will own and an Affiliate of M or S-P which has the single presence in that EMEA Single Presence Country shall have the exclusive right to use in those countries the E Monotherapy U.S. Trademark, the Z/E Combination Product U.S. Trademark and the M/E Combination Product U.S. Trademark and any back-up trademarks related thereto.

               (d) EMEA Co-Branding Countries — S-P. With respect to the EMEA Co-Branding Countries, the Singapore Partnership will own and an S-P Local

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Affiliate will have the exclusive right to use in those countries, the E Monotherapy U.S. Trademark and, if such use would be commercially impracticable as determined by S-P in its reasonable good faith judgment or prohibited by regulatory or statutory laws, rules or regulations in an EMEA Co-Branding Country, a back-up trademark that is not confusingly similar to the E Monotherapy U.S. Trademark filed in that country; provided, however, that if S-P elects to use a back-up trademark in respect of the E Monotherapy U.S. Trademark, (i) S-P shall lose the right to use the E Monotherapy U.S. Trademark and (ii) M may elect either to have the exclusive use of the E Monotherapy U.S Trademark or the exclusive use of any one other back up trademark (that is not confusingly similar to the trademark used by S-P) filed in that country. An M Local Affiliate shall be entitled to use any back-up trademark that is not confusingly similar to the E Monotherapy U.S. Trademark filed in an EMEA Co-Branding Country, other than any back-up trademark required to be used by an S-P Local Affiliate in that country.

               (e) EMEA Co-Branding Countries — M. With respect to the EMEA Co-Branding Counties, the Singapore Partnership will own and the M Local Affiliate will have the exclusive right to use in those countries, the Z/E Combination Product U.S. Trademark and the M/E Combination Product U.S. Trademark and, if such use would be commercially impracticable as determined by M in its reasonable good faith judgment or prohibited by regulatory or statutory laws, rules or regulations in an EMEA Co-Branding Country, a back-up trademark that is not confusingly similar to the Z/E Combination Product U.S. Trademark filed in that country; provided, however, that if M elects to use a back-up trademark in respect of either the Z/E Combination Product U.S. Trademark or the M/E Combination Product U.S. Trademark, (i) M shall lose the right to use such Z/E Combination Product U.S. Trademark or M/E Combination Product U.S. Trademark and (ii) S-P may elect either to have the exclusive use of such Z/E Combination Product U.S. Trademark or M/E Combination Product U.S. Trademark or the exclusive use of any one other back up trademark (that is not confusingly similar to the trademark used by M) filed in that country. An S-P Local Affiliate shall be entitled to use any back-up trademark that is not confusingly similar to the Z/E Combination Product U.S. Trademark and the M/E Combination Product U.S. Trademark filed in an EMEA Co-Branding Country, other than any back-up trademark required to be used by an M Local Affiliate in that country.

               (f) Ownership. Except in the limited circumstances set forth in Section 4.3.5, all back-up trademarks will be owned by the Singapore Partnership.

          Section 4.3.2. Canada. The Parties will seek to optimize the use of the E Monotherapy U.S. Trademark, the Z/E Combination Product U.S. Trademark and the M/E Combination Product U.S. Trademark in Canada, but only to the extent that the applicable Cholesterol Products are sold in Canada.

          Section 4.3.3. LAFE.

               (a) General. The Parties will seek to optimize the use of the E Monotherapy U.S. Trademark, the Z/E Combination Product U.S. Trademark and the M/E Combination Product U.S. Trademark in each country in LAFE, but only to the

57

extent that the applicable Cholesterol Products are sold in the Field by or on behalf of S-P or M or any of their Affiliates in such country in LAFE.

               (b) Far East Co-Promotion Countries. With respect to Far East Co-Promotion Countries, the Singapore Partnership will own and the Affiliates of M and S-P shall have the exclusive right to use in those countries the E Monotherapy U.S. Trademark, the Z/E Combination Product U.S. Trademark and the M/E Combination Product U.S. Trademark and any back-up trademark relating thereto.

               (c) Far East Single Presence Countries. With respect to Far East Single Presence Countries, the Singapore Partnership will own and an Affiliate of M or S-P which has been deemed to have the single presence in that Far East Single Presence Country shall have the exclusive right to use in those countries the E Monotherapy U.S. Trademark, the Z/E Combination Product U.S. Trademark and the M/E Combination Product U.S. Trademark and any back-up trademark relating thereto.

               (d) LAFE Co-Marketing Countries — S-P. With respect to the LAFE Co-Marketing Countries, the Singapore Partnership will own and the S-P Local Affiliates will have the exclusive right to use in those countries, the E Monotherapy U.S. Trademark and, if such use would be commercially impracticable as determined by S-P in its reasonable good faith judgment or prohibited by regulatory or statutory laws, rules or regulations in a LAFE Co-Marketing Country, a back-up trademark that is not confusingly similar to the E Monotherapy U.S. Trademark filed in that country; provided, however, that if S-P elects to use a back-up trademark in respect of the E Monotherapy U.S. Trademark, (i) S-P shall lose the right to use the E Monotherapy U.S. Trademark and (ii) M may elect either to have the exclusive use of the E Monotherapy U.S Trademark or the exclusive use of any one other back up trademark (that is not confusingly similar to the trademark used by S-P) filed in that country. An M Local Affiliate shall be entitled to use any back-up trademark that is not confusingly similar to the E Monotherapy U.S. Trademark filed in a LAFE Co-Marketing Country, other than any back-up trademark required to be used by an S-P Local Affiliate in that country.

               (e) LAFE Co-Marketing Countries — M. With respect to the LAFE Co-Marketing Countries, the Singapore Partnership will own and the M Local Affiliates will have the exclusive right to use in those countries, the Z/E Combination Product U.S. Trademark and the M/E Combination Product U.S. Trademark and, if such use would be commercially impracticable as determined by M in its reasonable good faith judgment or prohibited by regulatory or statutory laws, rules or regulations in a LAFE Co-Marketing Country, a back-up trademark that is not confusingly similar to the Z/E Combination Product U.S. Trademark filed in that country; provided, however, that if M elects to use a back-up trademark in respect of either the Z/E Combination Product U.S. Trademark or the M/E Combination Product U.S. Trademark, (i) M shall lose the right to use such Z/E Combination Product U.S. Trademark or M/E Combination Product U.S. Trademark and any back-up trademarks and (ii) S-P may elect either to have the exclusive use of such Z/E Combination Product U.S. Trademark or M/E Combination Product U.S. Trademark or the exclusive use of any other back up trademark (that is not confusingly similar to the trademark used by M) filed in that country. An S-P Local

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Affiliate shall be entitled to use any back-up trademark that is not confusingly similar to the Z/E Combination Product U.S. Trademark and the M/E Combination Product U.S. Trademark filed in a LAFE Co-Marketing Country, other than any back-up trademark required to be used by an M Local Affiliate in that country.

               (f) Ownership. Except in the limited circumstances set forth in Section 4.3.5, all back-up trademarks will be owned by the Singapore Partnership.

          Section 4.3.4. General.

               (a) All trademarks filed for Cholesterol Products by M or S-P or any of their respective Affiliates prior to the Effective Date, will be assigned to the Singapore Partnership as promptly as practicable after the Effective Date and in any event within ninety (90) days after the Effective Date. Notwithstanding any provisions to the contrary contained in this Agreement, M shall retain the ownership and the exclusive use of the ZOCOR trademarks and marks similar thereto including, without limitation, trademarks containing the name ZOCOR, and nothing contained in this Agreement shall provide the Singapore Partnership or S-P or any of its Affiliates any rights with respect thereto.

               (b) As soon as reasonably practicable following the execution of this Agreement, M or its Affiliate and Singapore Partnership shall enter into a trademark license, in form and substance satisfactory to M, pursuant to which M shall grant to Singapore Partnership a non-exclusive, royalty free license, for use only in the marketing and/or sale of a Z/E Combination Product in the Field in ECLAFE, to the ZOCOR trademark to be used only in combination with another term and not alone.

               (c) All grants of usage by the Singapore Partnership pursuant to this Section 4.3 with respect to the E Monotherapy U.S. Trademark, the Z/E Combination Product U.S. Trademark and the M/E Combination Product U.S. Trademark, and all back-up trademarks, domain names or other appropriate forms of brand protection relating thereto, are made exclusively for the marketing and sale of the Cholesterol Products in the Field. Neither M or S-P, nor any of their respective Affiliates, shall have the right to use any such trademarks or domain name registrations or other forms of brand protection for the Cholesterol Products outside the Field, other than, in the case of S-P and its Affiliates, with respect to the E Monotherapy U.S. Trademark, and all back-up trademarks, domain names or other forms of brand protection relating thereto, in Japan.

          Section 4.3.5. Applications.

               (a) Consequences of Non-Singapore Partnership Registrations. To the extent that S-P has commenced appropriate trademark and domain name registrations and any other appropriate forms of brand protection for the Cholesterol Products (“Trademark Registrations”) in the Field in the U.S. Territory and/or ECLAFE and such registrations and forms of brand protections have not been obtained prior to the Effective Date in a particular country, then S-P shall continue the process of procuring

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such Trademark Registrations in such country on behalf of the Singapore Partnership. S-P shall not without M’s prior written consent make or approve the making of applications to register trademarks or domain names in the Field in the U.S. Territory and/or ECLAFE that consist of or include marks, signs or brands that are identical or confusingly similar to marks, signs or brands belonging to M. All Trademark Registrations with respect to the Cholesterol Products in the U.S. Territory and/or ECLAFE are to belong to, and wherever possible shall be made in, the name of the Singapore Partnership. In the event that prior to the Effective Date S-P has made, or procures the registration of, any Trademark Registration in its name with respect to the Cholesterol Products in the U.S. Territory or ECLAFE, S-P shall hold such applications or registrations in trust for and shall assign or procure the assignment of them to the Singapore Partnership as soon as possible and, in any event, within seven (7) days of the later (i) the Effective Date, and (ii) obtaining such registration or other form of brand protection. After the Effective Date, neither S-P, nor its Affiliates shall seek Trademark Registrations in the U.S. Territory or ECLAFE in its name with respect to any of the Cholesterol Products in the Field unless it had commenced the process prior to the Effective Date. This Section 4.3.5(a) does not modify, alter or grant to S-P or M any rights to any trademarks, domain names or any other types of brand protection for use in Japan. In addition to the foregoing, (i) S-P shall assign or transfer to the Singapore Partnership all Trademark Registrations for trademarks or tradenames which have previously been disclosed to the Singapore Partnership or M or its Affiliates and (ii) any Trademark Registrations outside the Field which are not assigned or transferred to the Singapore Partnership pursuant to this Section 4.3.5(a) shall not be confusingly similar to any trademarks or tradenames owned or used by Singapore Partnership for use in the Field.

               (b) Back-Up Trademarks in EMEA Co-Branding Countries and LAFE Co-Marketing Countries. Subject to Section 4.3.1 (d) and (e) or Section 4.3.3(d) and (e), as applicable, Affiliates of S-P and M in any EMEA Co-Branding Country or LAFE Co-Marketing Country shall be entitled to utilize an unlimited number of trademarks and/or domain name registrations or any other form of brand protection for the Cholesterol Products in such countries; provided, however, that the Singapore Partnership shall have the exclusive right to register and own any such trademark or domain name or other form of brand protection. Upon the written request of the Affiliate of S-P or M, the Singapore Partnership shall, with the assistance of such Affiliate of S-P or M, use its commercially reasonable efforts to register such trademark or domain name or other form of brand protection. Such Affiliate of M or S-P shall have the exclusive right to use any trademark or domain name or other form of brand protection registered pursuant to this Section 4.3.5(b).

          Section 4.3.6. Infringement. Any Local Affiliate of M or S-P in any country in ECLAFE shall promptly advise the Singapore Partnership of all cases of potential infringement of any patents, trademarks, tradenames or other forms of brand protection owned or used by the Singapore Partnership that come to such Local Affiliate’s attention, and shall render all assistance reasonably requested in connection with any action taken by the Singapore Partnership relating thereto. The control of such action, including without limitation the determination of whether to initiate action or to settle, shall be under the sole control of the Singapore Partnership. All costs and

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expenses associated with such proceedings shall be borne by the Singapore Partnership.

     Section 4.4. Non-Compete.

[*]

     Section 4.5. Unilateral Termination of Board Country Agreements. Notwithstanding any other provision of this Agreement, if M or S-P determines to terminate all of its business and operations (with respect to all products, not just the Cholesterol Products) in an EMEA Board Country or Far East Board Country (any such country, a “Terminated Country”), then the terminating Party shall have the right to unilaterally terminate (or cause its Local Affiliate to unilaterally terminate) any EMEA Board Country Agreement, Far East Board Country Agreement and/or any applicable Sub-Distribution Agreement, in effect with respect to the Terminated Country, provided that no such termination shall be effective (i) unless the terminating Party has provided the other Party with at least 90 days prior written notice of termination, (ii) until all such other business and operations have been terminated and (iii) with respect to an EMEA Co-Venture Agreement, EMEA Co-Branding Agreement or Far East Co-Venture Agreement, until the terminating Party has entered into arrangements reasonably satisfactory to the other Party which provide (x) for the allocation of profit and loss arising from subsequent Third Party sales in such Terminated Country under the Singapore Partnership Agreement, [*]% to the terminating Party and [*]% to the other Party from and after the date of termination and (y) the other Party to have all such rights as may be necessary to continue selling the Cholesterol Products in the Terminated Country. Any Terminated Country that was an EMEA Single Presence Country shall, following such termination, be treated as an EMEA No Presence Country. Any Terminated Country that was a Far East Single Presence Country shall, following such termination, be treated as a Far East Co-Marketing Country.

ARTICLE V
DISPUTE RESOLUTION, TERMINATION, DISSOLUTION AND
LIQUIDATION

     Section 5.1. Dispute Resolution. Without limiting any dispute resolution procedures and remedies specifically provided in any of the Related Agreements, any and all disputes, claims, controversies or disagreements with respect to this Agreement or any of the Related Agreements shall be resolved pursuant to the procedures set forth in Sections 3.2.1(e), 3.2.1(f), 3.2.2(c), 3.4.5, 3.5.5, 3.6.1(e), 3.6.1(f) and 3.6.1(g), as applicable, and each of S-P, M and the Singapore Partnership agree that none of them shall, except as contemplated by Section 7.13 [Judicial Proceeding], resort to any means whatsoever, including litigation, arbitration, dissolution by a judicial forum or decree, or by operation of law, appointment of a trustee, receiver, custodian or similar person, or to any other form of proceeding in connection with any such dispute, claim, controversy or disagreement, including, without limitation, pursuant to Section 18-802 of the Delaware Limited Liability Company Act and other similar applicable laws.

     Section 5.2. Termination.

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          Section 5.2.1. Right to terminate. This Agreement may be terminated and the provisions of Section 5.3 and 5.4 shall apply, as follows:

               (a) ECLAFE Material Breach. By M, in the event of an ECLAFE Material Breach (as defined below) by S-P or one of its Affiliates of its obligations under this Agreement or one or more of the Related Agreements (to the extent such Related Agreement and such ECLAFE Material Breach directly relate to the ECLAFE Cholesterol Business in ECLAFE) or, by S-P, in the event of an ECLAFE Material Breach by M or one of its Affiliates of its obligations under this Agreement or one of the Related Agreements (to the extent such Related Agreement and such ECLAFE Material Breach directly relate to the ECLAFE Cholesterol Business in ECLAFE), which breach is not cured by the breaching party or its Affiliates within thirty (30) days, or such longer period as specifically provided pursuant to the Related Agreements, after receipt by the breaching party and its ultimate parent, M or S-P, as the case may be, of written notice of the breach requesting cure of the breach, with reasonable detail of the particulars of the alleged breach or in the event that the breach cannot be reasonably cured within such thirty (30) day period, or such longer period as specifically provided pursuant to the Related Agreements, the other party or its Affiliate has not initiated actions reasonably expected to cure the cited failure within thirty (30) days of receiving notice and has not in any event cured such breach within 120 days of receiving notice, or such longer period as specifically provided pursuant to the Related Agreements. For purposes of this Section 5.2.1(a), “ECLAFE Material Breach” means a breach of a material provision of this Agreement or any of the Related Agreements (to the extent such Related Agreements and breach directly relate to the ECLAFE Cholesterol Business in ECLAFE) that (i) results in a material adverse effect on the ECLAFE Cholesterol Business in ECLAFE taken as a whole, or the operations or financial condition of the ECLAFE Cholesterol Business in ECLAFE taken as a whole, or the value of the ECLAFE Cholesterol Business in ECLAFE taken as a whole, and (ii) materially frustrates the ability of either S-P or M, as the non-breaching party, as the case may be, to realize the reasonably anticipated benefits of the ECLAFE Cholesterol Business in ECLAFE (“Material Adverse Effect”). If the Governance Agreement has been terminated but this Agreement has not been terminated in connection therewith pursuant to Section 5.2.2, an ECLAFE Material Breach shall also be deemed to occur upon any breach of Section 9.9 of the Governance Agreement, provided that if an alleged breach is by a Person that has been determined to be an Affiliate of M or S-P, as the case may be, such breach will not be deemed an ECLAFE Material Breach if M or S-P, as the case may be, demonstrates by a preponderance of the evidence each of the following (i) that it did not cause, assist or encourage such Affiliate to take the action underlying the alleged breach, (ii) that it did not have the power to prevent such Affiliate from taking such action and (iii) that it used commercially reasonable efforts to prevent such Affiliate from taking such action. Notwithstanding the prior sentence, such breach may, however, nevertheless be determined to be an ECLAFE Material Breach pursuant to the provisions of the next sentence. The determination of whether an ECLAFE Material Breach has occurred and liability for such breaches shall be made in a judicial proceeding pursuant to Section 7.13 [Judicial Proceeding]; or

               (b) [*]

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               (c) Bankruptcy. If the Governance Agreement has been terminated but this Agreement has not been terminated in connection therewith pursuant to Section 5.2.2, by M, in the event of the Bankruptcy of S-P or any of its Significant Subsidiaries (as defined in the Governance Agreement) or, by S-P, in the event of the Bankruptcy of M or any of its Significant Subsidiaries; or

               (d) Change of Control. If the Governance Agreement has been terminated but this Agreement has not been terminated in connection therewith pursuant to Section 5.2.2, by S-P, in the event of a Change of Control of M, or by M, in the event of a Change of Control of S-P, as the case may be; or

               (e) [*]

          Section 5.2.2. Automatic Termination of Master Agreement. This Agreement shall terminate automatically and the provisions of Sections 5.3 and 5.4 shall apply upon a termination of the Governance Agreement pursuant to (i) Section 7.2(b) [Bankruptcy] of the Governance Agreement, (ii) Section 7.2(c) [Material Breach] of the Governance Agreement due to a breach of Section 9.9 [Standstill] of the Governance Agreement, (iii) Section 7.2(d) [Change of Control] of the Governance Agreement, or (iv) [*].

          Section 5.2.3. Local Bankruptcy. In the event of a Local Bankruptcy of a Local Affiliate of M that is a party to a Venture Agreement (or the Canadian Agreement referred to in Section 2.2(a)(2)) in a country in ECLAFE, S-P may terminate the arrangements and agreements between the Parties that apply to such country, and in the event of a Local Bankruptcy of a Local Affiliate of S-P that is a party to a Venture Agreement (or the Canadian Agreement referred to in Section 2.2(a)(2)) in a country in ECLAFE, M may terminate the arrangements and agreements between the Parties that apply to such country and, in each case, Section 5.3(b)(ii) shall apply.

     Section 5.3. Consequences of Termination.

               (a) General. With respect to any event of termination (whether a local termination pursuant to Section 5.2.3 or termination of this Agreement), each Party shall undertake, during the pendency of the procedure to determine whether such event of termination has occurred and the implementation of the consequences of such termination, to maintain the ECLAFE Cholesterol Business in ECLAFE as a going concern, so that all of the rights, title and interests in the Venture Companies and the ECLAFE Cholesterol Business in ECLAFE may be conveyed to the extent contemplated by this Article 5. The parties acknowledge that in the event of a termination of this Agreement that results in one party acquiring the Interests of another party hereto and ECLAFE Termination Assets, if any, (i), the acquiring party may determine to continue operating the ECLAFE Cholesterol Business in ECLAFE, (ii) appropriate adjustments to the Singapore Partnership Agreement will be made to provide that (A) profit and loss arising from the ECLAFE Cholesterol Business in ECLAFE shall be specifically allocated to the Party (or its Affiliates) that acquires the Interests of the other Party and its Affiliates and (B) to the extent the Governance Agreement has not been terminated or is

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not being terminated simultaneously with this Agreement pursuant to Section 7.2(b) [Bankruptcy], Section 7.2(c) [Material Breach due to a breach of Section 9.9 [Standstill] of the Governance Agreement], Section 7.2(d) [Change of Control] or [*] of the Governance Agreement, that the assets and liabilities of the Singapore Partnership, to the extent they relate to the ECLAFE Cholesterol Business in ECLAFE (“Singapore Termination Assets”), can be sold as set forth in the last sentence of this Section 5.3(a), or the rights thereto otherwise transferred, to the Terminating Party or its Affiliates pursuant to this Section 5.3 and (iii) appropriate adjustment to the MSP Technology Agreement will be made to provide that, to the extent the Governance Agreement has not been terminated or is not being terminated simultaneously with this Agreement pursuant to Section 7.2(b) [Bankruptcy], Section 7.2(c) [Material Breach due to a breach of Section 9.9 [Standstill] of the Governance Agreement], Section 7.2(d) [Change of Control] or [*] of the Governance Agreement, the assets and liabilities of MSP Technology Partnership, to the extent they relate to the ECLAFE Cholesterol Business in ECLAFE (the “Technology Termination Assets,” and together with the Singapore Terminations Assets, the “ECLAFE Termination Assets”), can be sold as set forth in the last sentence of this Section 5.3(a), or the rights thereto transferred, to the Terminating Party or its Affiliates pursuant to this Section 5.3. In the event of any such termination, the Parties will enter into such agreements as are necessary or appropriate to provide for the transfer of the ECLAFE Termination Assets and will endeavor in good faith to arrange for such transfer to be effected in a manner that is tax efficient, to the maximum extent reasonably practicable, to both the Terminated Party and the Terminating Party, and any other agreements as may be necessary or appropriate to effectuate the foregoing.

          (b) Bankruptcy. (i) In the event of termination pursuant to Section 5.2.1(c) or 5.2.2(i), the non-bankrupt party (or its designee) shall be entitled to purchase the bankrupt party’s Interests in the ECLAFE Cholesterol Business in ECLAFE, and (ii) in the event of termination pursuant to Section 5.2.3, the non-bankrupt party (or its designee) shall be entitled to purchase the bankrupt party’s Interest with respect to the ECLAFE Cholesterol Business in the country in ECLAFE where such bankrupt party engages in the ECLAFE Cholesterol Business in ECLAFE. If local law prohibits the Parties from enforcing these provisions in a jurisdiction, the Parties will take all necessary actions to give effect to the intent of this Section 5.3(b)(ii). Any purchase and sale pursuant to clause (i) or (ii) of this Section 5.3(b) shall be consummated as soon as practicable, but in any event within 300 days of determination of a Bankruptcy or Local Bankruptcy of the other, and each of the parties shall execute such documents as are reasonable and necessary in connection therewith. The purchase price for any such purchase shall be an amount equal to the fair market value of the particular bankrupt party’s Interests being purchased or acquired and shall be determined in the manner described in Section 5.3(d)(i).

          (c) ECLAFE Material Breach.

          (i) In the event of termination pursuant to Sections 5.2.1(a), or 5.2.2(ii), the non-breaching party (or its designee) shall be entitled to purchase the breaching party’s Interests and the ECLAFE Termination Assets, if any, in the Venture Companies and the ECLAFE Cholesterol Business in ECLAFE.

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          (ii) Any purchase and sale pursuant to this Section 5.3(c) shall be consummated as soon as practicable, but in any event within 120 days of determination of an ECLAFE Material Breach and the related appraisal and damage proceedings, and each of the parties shall execute such documents as are reasonable and necessary in connection therewith. The purchase price for any such purchase shall be an amount equal to the fair market value of the breaching party’s Interests and the ECLAFE Termination Assets, if any, as determined in a judicial proceeding as set forth in Section 7.13 [Judicial Proceedings]. In determining the fair market value of the breaching party’s Interests and the ECLAFE Termination Assets, if any, the court shall apply the standards applicable in an appraisal proceeding under Section 262 of the Delaware General Corporation Law as may be amended from time to time, which value shall not include the value of any goodwill, rights and services not transferred with the Interests and the ECLAFE Termination Assets, if any (e.g. MSDIS distribution services).

          (iii) Any termination of this Agreement or any of the Related Agreements pursuant to this Section 5.3(c) due to a breach of this Agreement or any of the Related Agreements shall not relieve the breaching party from liability for damages caused by its breaches (except that the breaching party shall not be liable for punitive, special, consequential, incidental, indirect or exemplary or other similar damages or lost profits) as a result of any such breach. Damages shall be determined in the judicial proceeding contemplated by this Section 5.3(c).

          (d) Change of Control. Within 45 days after the date of a Change of Control of S-P or Change of Control of M, the party which did not experience the Change of Control (the “Call Party”) may by written notice (the “C-O-C Notice”) delivered to the other party (the “C-O-C Party”) request that the fair market value of the C-O-C Party’s Interests (the “Call Price”) be determined in accordance with paragraph (i) of this Section 5.3(d).

          (i) The Call Price shall be conclusively determined by two internationally recognized investment banking firms, one of which shall be retained and paid by the Call Party and one of which shall be retained and paid by the C-O-C Party. The Call Party and the C-O-C Party shall promptly notify each other of their respective selections. If either such party fails to deliver such notice to the other party of its selection of an investment banking firm within thirty (30) days after delivery of a C-O-C Notice, the determination shall be rendered by the single investment banking firm so selected (whose fees, in such case, shall be borne equally by S-P and M). The investment banking firms selected in accordance with the foregoing procedure shall each determine the fair market value of the C-O-C Party’s Interest, (which value shall be an amount determined assuming that the buyer and seller are under no compulsion to buy or sell and shall be determined without regard to any minority or illiquidity discount or the value of any goodwill, rights and services not transferred with the Interests, e.g. MSDIS distribution services) and submit their determinations of such value to the Call Party and the C-O-C Party within 45 days following their selection. The Call

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Price shall be the amount equal to the sum of such values determined by each investment banking firm divided by two, except that if there is more than a twelve percent (12%) difference between (x) the average of such values and (y) each of such values, the two investment banking firms shall, within twenty (20) days after their submissions mutually select and appoint a third investment banking firm, similarly qualified, and give written notice thereof to the Call Party and the C-O-C Party. If the two investment banking firms fail to appoint a third investment banking firm within such twenty-day period, the third investment banking firm shall be selected and appointed, at the request of either party, by the President of the Association of the Bar of the City of New York or by a person designated by such President. Within thirty (30) days after the appointment of the third investment banking firm, the third investment banking firm shall promptly submit in writing to the Call Party and the C-O-C Party its determination of the fair market value. If the valuation of the third banker is not between the valuations of the first and second bankers, fair market value shall be the average of the valuations of the third banker and the next closest valuation. If the valuation of the third banker is (i) between the valuations of the first and second bankers and (ii) not more than thirty percent (30%) (calculated as the average of the first two valuations multiplied by 0.3) higher or lower than the valuations of each of the first and second bankers, then fair market value shall be the average of the valuations of all three bankers. If the valuation of the third banker is (x) between the valuations of the first and second bankers and (y) more than thirty percent (30%) (calculated as the average of the first two valuations multiplied by 0.3) higher or lower than one or both of the other two valuations, then fair market value shall be the average of the third banker’s valuation and the valuation, if any, that is not more than thirty percent (30%) (calculated as the average of the first two valuations multiplied by 0.3) higher or lower than the third banker’s valuation. For illustrative purposes only, Schedule 7.3 of the Governance Agreement sets forth examples of the method of determining fair market value pursuant to the provisions of this Section 5.3(d). The fair market value as determined above shall be final and binding upon the Call Party and the C-O-C Party. The cost of such third investment banking firm shall be borne one-half by the Call Party and one-half by the C-O-C Party.

          (ii) The Call Party shall have the right, exercisable by delivery of written notice to the C-O-C Party (a “Call Notice”) within sixty (60) days after the final determination of the Call Price, to require the C-O-C Party to sell and transfer the C-O-C Party’s entire Interest to the Call Party (or its designee) at a price equal to the Call Price. Any such sale shall be made without representations or warranties of the C-O-C Party other than regarding the authorization of the sale and title to the Interest being sold. Upon and after the consummation of such sale, the C-O-C Party shall have no responsibility or liability for any liabilities or obligations arising from the Interests (whether contingent, absolute, realized or unrealized) that exist as of the date of such sale or that are incurred with respect to the Interest thereafter and shall only be obligated to continue performance under any Related Agreement in accordance with Section 5.4.

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          (iii) Any purchase and sale of the C-O-C Party’s Interest effected pursuant to this Section 5.3(d) shall be consummated at a closing at the offices of the Call Party on a business day within fifteen (15) days following the delivery of the Call Notice (upon at least five days’ notice by the Call Party); provided that such period shall be extended for 180 additional days, or such shorter period of time, as shall be necessary in order to obtain requisite governmental or regulatory approvals with respect to such transaction; provided, further, that such closing may be held at such other time and place as the parties to the transaction may agree. At such closing, the Call Party shall pay the C-O-C Party the Call Price by wire transfer of immediately available funds to an account specified by the C-O-C Party, and the parties to such transaction and the Venture Companies shall execute any and all documents necessary to effect the full and complete transfer of the C-O-C Party’s Interest.

          (iv) No investment banking firm selected by a party pursuant to this Section 5.3(d) shall have represented such party in a significant engagement within the 24-month period immediately prior to such selection. Any investment banking firm selected in any other manner shall not have represented either party in a significant engagement within the 24-month period immediately prior to such selection.

          (e) [*]. In the event this Agreement is terminated pursuant to Sections [*], this Agreement and all the Related Agreements shall immediately terminate (except, in the case of a termination pursuant to [*], for the Amended Agreements, which will be amended or terminated as required to terminate the provisions that relate to the ECLAFE Cholesterol Business in ECLAFE) and the assets and liabilities, to the extent related to the ECLAFE Cholesterol Business in ECLAFE, will be distributed as follows: (1) all of the assets contributed will solely be returned to the original party who had contributed them, so as to put the parties back, to the maximum extent possible and as promptly as practicable, to the position they were in prior to the contribution of such assets pursuant to this Agreement and the Related Agreements (to the extent such Related Agreements relate to the ECLAFE Cholesterol Business in ECLAFE), (2) with respect to the Research Results (as defined in the Development Agreement), each party will have equal ownership and access on a co-exclusive basis for use in the Field in ECLAFE (except that S-P and/or its Affiliates shall have exclusive rights to Research Results relating to R&D IP-Ezetimibe Monotherapy for use outside ECLAFE), and (3) with respect to liabilities and assets, other than those contributed by the parties and the Research Results, such liabilities and assets will be transferred in a commercially reasonable manner to S-P and/or its Affiliates and M and/or its Affiliates to the greatest extent possible on an equal basis. To the extent such assets are necessary for the continued operation of the Cholesterol Business (as defined in the Governance Agreement), such assets will not be distributed. The cost of such distribution and dissolution shall be shared equally by S-P and M. Such distribution and dissolution shall occur within ten (10) business days of the termination event or if not possible within ten (10) business days, then as soon as practicable. In the event of such termination, (i) Section 7.1(a)(1) shall survive and continue to be binding on all of the parties in all respects (and, in addition, the provisions of Section 7.1 and 7.2 shall be deemed applicable with respect to the information

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specifically relating to assets distributed to the parties in connection with such termination) for six years following such termination and (ii) Sections 6.1, 6.2, 6.4.1 and 6.5 shall survive for two years following such termination.

          (f) Agreement to Enter into New Agreements. In the event that (i) this Agreement is terminated pursuant to Sections [*] of this Agreement and (ii) S-P resolves the issues that M believed constituted [*], as the case may be, S-P will promptly notify M in writing of the resolution of such issues or completion of such study, as the case may be. Then, if M provides written notice to S-P within twenty (20) business days of receipt of supporting information reasonably requested by M and study results, as the case may be, the parties will enter into agreements on substantially similar terms as the terms set forth in this Agreement and the Related Agreements (the “New Agreements”) within sixty (60) days of receipt of such notice. M shall reimburse S-P on the date of execution of the New Agreements for costs incurred by S-P (net of costs reimbursed to S-P and its Affiliates by any Third Party) relating to the development and marketing of Ezetimibe and the Z/E Combination Product from the date of termination of this Agreement until the execution date of the New Agreements that would otherwise have been borne by Singapore Partnership. Notwithstanding the non-compete provisions of the Governance Agreement, the parties hereto acknowledge that from the date of termination of this Agreement pursuant to Sections 5.2.1(e), 5.2.2(iv) or 5.2.1(b) of this Agreement until the execution date of the New Agreements, S-P will be free to enter into any business arrangements of any kind with respect to Ezetimibe and that the New Agreements will contain such modifications to the non-compete and other provisions as are necessary to reflect any such business arrangements, as well as changes in law or corporate organization.

          (g) No Double Counting. The Parties agree that in no event shall the value of the Terminated Party’s Interests determined under this Agreement and the value of the Terminated Party’s Interests (as defined in the Governance Agreement) determined under the Governance Agreement include the valuation of the same assets so that such assets are valued twice.

     Section 5.4. Treatment of Master Agreement and Related Agreements.

          (a) General. Notwithstanding any provision to the contrary in this Agreement or any Related Agreement, (i) no Party will permit any Affiliate to terminate any Related Agreement, except as provided in the Governance Agreement or this Article 5 and Section 4.5, and (ii) each Party will cause its Affiliates to amend or terminate the Related Agreements as provided in this Article 5 and Section 4.5.

          (b) Survival of Certain Provisions of this Agreement. In the event of any termination of this Agreement pursuant to Section 5.2.1(a) [ECLAFE Material Breach], 5.2.1(c) or 5.2.2(i) [Bankruptcy], 5.2.2(ii) [Material Breach-Standstill], or 5.2.1(d) or 5.2.2(iii) [Change of Control]:

          (i) All provisions of Section 7.1 [Confidentiality] shall survive and continue to be binding on the Terminated Party in all respects for six years

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     following such termination.

          (ii) All provisions of Section 7.1 (other than Sections 7.1(a)(1) and (a)(3)) shall survive and continue to be binding on the Terminating Party for six years following such termination, provided that if the Terminated Party’s Interests and ECLAFE Termination Assets, if any, are not acquired by the Terminating Party, all provisions of Section 7.1 shall survive and continue to be binding on the Terminating Party for six years following such termination.

          (iii) [*]

          (iv) All other provisions of Section 4.4 shall survive and continue to be binding on the Terminated Party and its Affiliates (including any acquiring or surviving entity in the event of a Change of Control), but only with respect to Pre-Termination Substances, until the later of (A) four years following such termination or (B) with respect to the Core Countries, Australia and Canada, four years after the Launch of a Combination Product in such country, provided that the maximum survival period under this clause (B) shall be five years after termination of this Agreement.

          (v) All provisions of Sections 6.1, 6.2, 6.4 and 6.5 shall survive for two years following termination.

          (c) Effect of Certain Terminations. In the event of any termination of this Agreement pursuant to Section 5.2.1(a) [ECLAFE Material Breach], 5.2.1(c) or 5.2.2(i) [Bankruptcy], 5.2.2(ii) [Material Breach-Standstill], or 5.2.1(d) or 5.2.2(iii) [Change of Control]:

          (i) The Canadian Agreements and the Venture Agreements entered into by the Terminated Party or its Affiliates shall, notwithstanding anything to the contrary contained therein, remain in effect as provided therein following the termination of this Agreement and the rights and benefits of the Terminated Party or its Affiliates in the Canadian Agreements and the Venture Agreements entered into by the Terminated Party or its Affiliates shall be assigned to the Terminating Party or its designee at the closing of the acquisition by the Terminating Party of the Interests held by the Terminated Party or its Affiliates and the ECLAFE Termination Assets, if any, and thereafter the Terminated Party shall have no rights or obligations under such agreements with respect to the ECLAFE Cholesterol Business in ECLAFE.

          (ii) The Co-Marketing Supply Agreements entered into by the Terminated Party shall be terminated immediately following the termination of this Agreement;

          (iii) The Board Country Supply Agreements entered into by the Terminated Party shall remain in full force and effect for ninety (90) days following the termination of this Agreement and shall then terminate;

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          (iv) The Toll Packaging Agreements pursuant to which the Terminated Party or any of its Affiliates packages for the benefit of the Terminating Party or any of its Affiliates (or which relates to the packaging of Cholesterol Products comprising the Interests and ECLAFE Termination assets, if any, acquired under Section 5.3) shall terminate upon the termination of this Agreement; provided that, the Terminating Party shall have the option to require by written notice that the Terminated Party or its Affiliate continue to perform its obligations under such Toll Packaging Agreement for a period of up to two (2) years after the date of termination of this Agreement. Such written notice shall be provided to the Terminated Party no later than sixty (60) days prior to the purchase of Interest(s). In the event such option is exercised, the relevant Toll Packaging Agreement shall remain in full force and effect for the period of such exercise up to two (2) years and then terminate. All other Toll Packaging Agreements may be terminated at the discretion of the Terminating Party.

          (v) The Amended Agreements entered into by the Terminated Party shall, notwithstanding anything to the contrary contained therein, remain in effect as provided therein following the termination of this Agreement and shall be amended at the closing of the acquisition by the Terminating Party of the Interests held by the Terminated Party and the ECLAFE Termination Assets, if any, in accordance with this Agreement, in order to transfer to such Terminating Party any rights acquired by the Terminating Party in connection with the acquisition of the Interests in the ECLAFE Cholesterol Business in ECLAFE and the ECLAFE Termination Assets, if any, and thereafter the Terminated Party shall have no rights or obligations under such agreements with respect to the ECLAFE Cholesterol Business in ECLAFE and the ECLAFE Termination Assets, if any. Nothing in this Section 5.4(c)(v) shall affect the Terminated Party’s Interests determined under this Agreement, or the value of the Terminated Party’s “Interests” in the U.S. Related Companies and “U.S. Termination Assets”, if any, in the “Cholesterol Business” (each, as defined in the Governance Agreement) in the U.S. Territory determined under the Governance Agreement.

          (d) Effect of Termination Due to Local Bankruptcy. In the event of the exercise of the termination right pursuant to Sections 5.2.3 [Local Bankruptcy]:

          (i) The relevant Venture Agreement (or Canadian Agreement referred to in Section 2.2(a)(2), if applicable) entered into by the Terminated Party in the relevant country shall, notwithstanding anything to the contrary contained therein, remain in effect as provided therein and the rights, benefits and obligations of the Terminated Party in such Venture Agreement (or Canadian Agreement) entered into by the Terminated Party shall be assigned to the Terminating Party or its designee at the closing of the acquisition by the Terminating Party of the Interests held by the Terminated Party in such country or countries, and thereafter the Terminated Party shall have no rights or obligations under such Agreements with respect to the ECLAFE Cholesterol Business in such country or countries.

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          (ii) The relevant Co-Marketing Supply Agreement(s) entered into by the Terminated Party or its Affiliates shall be terminated or amended, as necessary immediately following the termination of this Agreement to exclude the application of such Co-Marketing Supply Agreement to that country (or countries) and the equivalent Co-Marketing Supply Agreement entered into by the Terminating Party shall be amended as necessary immediately following the termination of this Agreement to grant to such Terminating Party any additional rights required in connection with the acquisition of the Interests held by the Terminated Party in such country or countries, and thereafter the Terminated Party shall have no rights or obligations under such Agreements with respect to the ECLAFE Cholesterol Business in such country or countries.

          (iii) The Board Country Supply Agreement(s) entered into by the Terminated Party or its Affiliates shall remain in full force and effect for ninety (90) days following the termination of this Agreement and shall then be terminated or amended, as necessary, to exclude the application of such Board Country Agreement to that country (or countries), and thereafter the Terminated Party shall have no rights or obligations under such Agreements with respect to the ECLAFE Cholesterol Business in such country or countries.

          (iv) The Toll Packaging Agreement(s) pursuant to which the Terminated Party or any of its Affiliates packages Cholesterol Products for sale in the relevant country (or countries) shall terminate (or be amended to exclude the relevant country or countries from such Terminated Party’s or its Affiliates’ packaging obligations therein) upon the local termination, and thereafter the Terminated Party shall have no rights or obligations under such Agreements with respect to the ECLAFE Cholesterol Business in such country or countries; provided that, the Terminating Party shall have the option to require by written notice that Terminated Party or its Affiliate continue to perform its obligations under such Toll Packaging Agreement with respect to such country or countries for a period of up to two (2) years after the date of such local termination. Such written notice shall be provided to the Terminated Party no later than sixty (60) days prior to the purchase of Interest(s). In the event such option is exercised, the relevant Toll Packaging Agreement shall remain in full force and effect for the period of such exercise up to two (2) years and then terminate.

          (v) The Amended Agreements entered into by the Terminated Party or its Affiliates shall, notwithstanding anything to the contrary contained therein, remain in effect as provided therein following exercise of the termination right contained in Section 5.2.3, and shall be amended at the closing of the acquisition by the Terminating Party of the Interests held by the Terminated Party with respect to the country (or countries), in order to transfer to such Terminating Party any rights acquired by the Terminating Party in connection with the acquisition of the Interests in such country (or countries) and thereafter the Terminated Party shall have no rights or obligations under such Agreements with respect to the ECLAFE Cholesterol Business in such country or countries.

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     Section 5.5. Incorporation by Reference. The Termination of the Governance Agreement shall not affect the provisions of the Governance Agreement incorporated by reference and such provisions will remain in full force and effect as set forth herein until terminated pursuant to the terms of this Agreement.

ARTICLE VI
REPRESENTATIONS, WARRANTIES, COVENANTS
AND INDEMNIFICATION

     Section 6.1. Representations and Warranties of the Parties. M hereby represents and warrants to S-P with respect to itself and S-P hereby represents and warrants to M with respect to itself as of the date hereof as follows:

                    (a) Organization and Good Standing; Power and Authority; Qualifications. Such Party (i) is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, (ii) has all requisite power and authority to own, lease and operate its properties and to carry on its business as presently conducted and as proposed to be conducted and (iii) has all requisite power and authority to enter into and carry out the transactions contemplated by this Agreement and the Related Agreements to which it is a Party.

                    (b) Authorization of this Agreement and the Related Agreements. The execution, delivery and performance of each of this Agreement and the Related Agreements have been duly authorized by all requisite action on the part of such Party which is a Party hereto and thereto, and each of this Agreement and the Related Agreements constitutes a legal, valid and binding obligation of such Party which is a Party hereto and thereto, enforceable against each such Party in accordance with its terms except to the extent that enforceability may be limited by bankruptcy, insolvency or other similar laws affecting creditors’ rights generally.

                    (c) No Conflict. The execution and delivery by such Party of this Agreement and the Related Agreements to which it is a Party and the consummation by such Party of the transactions contemplated hereby and thereby and the compliance by such Party with the provisions hereof and thereof will not (i) violate any material provision of law, statute, rule or regulation, or any ruling, writ, injunction, order, judgment or decree of any court, administrative agency or other governmental body applicable to it, or any of its properties or assets, (ii) conflict with or result in any breach of any of the terms, conditions or provisions of, or constitute (with due notice or lapse of time, or both) a default under, or result in the creation of any encumbrance upon any of its properties or assets under, any contract to which it is a Party or (iii) violate its certificate of incorporation or by-laws or other organizational documents, that in the case of clause (i) or (ii), would individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, or prevent the consummation of the transactions contemplated hereby. Without limiting the generality of the foregoing, S-P represents and warrants that neither it nor any of its Affiliates has any obligation to any Third Party that would require it to contribute or license to a Third Party the right to manufacture, market or distribute in ECLAFE (i) for the over-the-counter market, any of the

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Cholesterol Products or (ii) any Cholesterol Absorption Inhibitor so that such Third Party could use such Cholesterol Absorption Inhibitor alone or in combination with a Statin. Without limiting the generality of the foregoing, M represents and warrants that neither it nor any of its Affiliates has any obligation to any Third Party that would require it to contribute or license to a Third Party the right to manufacture, market or distribute in ECLAFE (i) for the over-the-counter market, any of the Cholesterol Products or (ii) Simvastatin for combination use so that such Third Party could use Simvastatin for combination use in combination with a Cholesterol Absorption Inhibitor. Notwithstanding the foregoing, M has represented to S-P that there may be restrictions on M’s rights to contribute Simvastatin (i) for combination use for the over-the-counter market pursuant to a joint venture with Johnson & Johnson and (ii) for animal health uses pursuant to a joint venture with Aventis S.A.

     Section 6.2. Certain Representations.

               (a) - (d)[*]

               (e) S-P hereby represents and warrants that the Cholesterol Assignment Documents (as defined in the Governance Agreement), together with this Agreement and the Related Agreements, provide to the Singapore Partnership all of the rights and obligations and all of the benefits of all of the representations, warranties, covenants and agreements provided to Schering Sales Management, Inc. pursuant to the Schering License Agreement (Existing Cholesterol Combination IP), dated as of the date of the Governance Agreement and as may be amended from time to time, excluding only the obligations under Section 7 of that Schering License Agreement.

     Section 6.3. Certain Covenants. Each party hereto, with respect to itself, agrees that, for so long as this Agreement is in effect:

               (a) Maintenance of Corporate Existence, etc. Such party shall maintain in full force and effect its corporate existence, rights, governmental approvals, permits, and franchises and all licenses and other rights material to and necessary in the conduct of its business as currently conducted and as proposed to be conducted, except to the extent that such failure to preserve and maintain such existence and qualifications would not reasonably be expected to have a Material Adverse Effect.

               (b) Compliance with Laws. Each Party shall use reasonable efforts to comply with all applicable laws, rules regulations and orders, except for violations or failures to so comply, if any, that, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. Each of M and S-P shall comply with all applicable laws, rules, regulations and orders as it relates to such party with respect to the ECLAFE Cholesterol Business in ECLAFE, except for violations or failures to so comply, if any, that, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect.

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               (c) Insurance. Each Party shall maintain adequate insurance (or have adequate self insurance) covering all aspects of the ECLAFE Cholesterol Business in ECLAFE . Each party and its respective Affiliates (as applicable) shall keep its assets that are necessary to perform its obligations under this Agreement and the Related Agreements and which are of an insurable character, if any, insured in accordance with such Party’s then applicable insurance program for its business.

     Section 6.4. Certain Obligations.

          Section 6.4.1. Affiliate Obligations. Each of M and S-P hereby guarantees the performance by their respective Affiliates of each of such Affiliates’ obligations (i) under this Agreement, and (ii) as parties to the Related Agreements.

          Section 6.4.2. Amendments to Related Agreements. Any Related Agreement that is solely between Affiliates of M may not be amended or modified in any manner without the written consent of S-P. Any Related Agreement that is solely between Affiliates of S-P may not be amended or modified in any manner without the written consent of M.

          Section 6.4.3. Non-Discrimination. To the extent M or an Affiliate of M is responsible for the distribution and supply of Cholesterol Products in countries in the EMEA or LAFE (other than in LAFE Co-Marketing Countries and Far East Single Presence Countries where S-P has been deemed to have the single presence, each of M and its Affiliates will use commercially reasonable efforts to perform its obligations to distribute and supply the Cholesterol Products under the applicable Related Agreements, which efforts shall be at least equivalent to those employed by M and/or its Affiliate (as applicable) in the supply and distribution of other M products of comparable stage of development, potential, value and status. In performing such activities, M and/or its Affiliates (as applicable) shall not favor its other products of comparable stage of development, potential, value and status over the Cholesterol Products. In addition, to the extent that M or an M Affiliate is supplying Cholesterol Products to both M (or a M Affiliate) and S-P (or a S-P Affiliate) for marketing and sale in a country in the ECLAFE, M or its Affiliate (as applicable) shall not treat either party to which it is supplying Cholesterol Products in any fashion less favorable than the other party.

          Section 6.4.4. Supply Allocation. To the extent M or an Affiliate of M is responsible for the distribution and supply of Cholesterol Products in countries in the EMEA or LAFE (other than in LAFE Co-Marketing Countries, and Far East Single Presence Countries where S-P has been deemed to have the single presence), each of M and its Affiliates will use commercially reasonable efforts to ensure that the methods used to allocate the supply of Cholesterol Products are the same as the methods used to allocate the supply of other pharmaceutical products supplied by M or its Affiliates in connection with other business in the relevant territory.

          Section 6.4.5. Promotional Disputes. The Parties agree that decisions regarding any promotional disputes with Third Parties regarding the Cholesterol Products in the Field in ECLAFE shall be made jointly and that following the Effective Date they

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will work together in good faith to agree on mutually satisfactory procedures to govern the conduct of any promotional disputes with Third Parties regarding the Cholesterol Products in the Field in ECLAFE.

     Section 6.5. Indemnification.

          Section 6.5.1. Indemnification by the Singapore Partnership. The Singapore Partnership shall indemnify, defend and hold harmless the M Indemnified Parties and the S-P Indemnified Parties from and against all Losses incurred or suffered by any of them as a result of, arising from, or in connection with any claim, action, proceeding or investigation of any Third Party relating to:

               (a) the development, testing or use of any of the Cholesterol Products in the Field in ECLAFE; or

               (b) the marketing, distribution, promotion, supply or sale of the Cholesterol Products in the Field in the EMEA Board Countries, the Far East Board Countries, the EMEA No Presence Countries or Canada.

     Notwithstanding the foregoing, no M Indemnified Party and no S-P Indemnified Party shall be entitled to any indemnification pursuant to this Section 6.5.1 to the extent the Loss for which indemnification is being sought is caused by the gross negligence or willful misconduct of the party seeking indemnification.

          Section 6.5.2. Indemnification by M. M shall indemnify, defend and hold harmless the S-P Indemnified Parties and the Singapore Partnership from and against all Losses incurred or suffered by any of them as a result of, arising from, or in connection with:

               (a) the breach by M of any of its representations, warranties or covenants in this Agreement, the Development Agreement, any License Agreements or any Co-Venture Agreement or Entity Agreement, provided that no claim may be made for indemnification under this Section 6.5.2 for breaches of representations or warranties until the aggregate dollar amount of all such claims exceeds $2 million;

               (b) the gross negligence or willful misconduct by M or any of its Affiliates in the performance of any of their obligations under this Agreement or the Related Agreements (other than manufacturing or packaging agreements);

               (c) the development, testing, use, marketing, distribution, promotion, supply or sale by M or its Affiliates of the Cholesterol Products outside the Field; or

               (d) the development, testing, use, marketing, distribution, promotion, supply or sale by M or its Affiliates (or Banyu Pharmaceutical Company, Ltd) of the Cholesterol Products in Japan to the extent such Cholesterol Products are developed, tested, used, marketed, distributed, promoted, supplied or sold either (i) under a Product Marketing Authorization that includes, directly or by reference, data

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comprising “Merck Clinical IP”, “Schering Clinical IP” or “Merck Formulation IP” (each as defined in the Development Agreement), or (ii) under a trademark, tradename or other form of brand protection owned or used by the Singapore Partnership.

     Notwithstanding the foregoing, neither any S-P Indemnified Party nor the Singapore Partnership shall be entitled to any indemnification pursuant to this Section 6.5.2 to the extent the Loss for which indemnification is being sought is caused by the gross negligence, willful misconduct or willful violation of law of the party seeking indemnification.

          Section 6.5.3. Indemnification by S-P. S-P shall indemnify, defend and hold harmless the M Indemnified Parties and the Singapore Partnership from and against all Losses incurred or suffered by any of them as a result of, arising from, or in connection with:

               (a) the breach by S-P of any of its representations, warranties or covenants in this Agreement, the Development Agreement, any License Agreements or any Co-Venture Agreements or Entity Agreements, provided that no claim may be made for indemnification under this Section 6.5.3 for breaches of representations or warranties until the aggregate dollar amount of all such claims exceeds $2 million;

               (b) the gross negligence or willful misconduct by S-P or any of its Affiliates in the performance of any of their obligations under this Agreement or the Related Agreements(other than manufacturing or packaging agreements);

               (c) the development, testing, use, marketing, distribution, promotion, supply or sale by S-P or its Affiliates of the Cholesterol Products outside the Field; or

               (d) the development, testing, use, marketing, distribution, promotion, supply or sale by S-P or its Affiliates of the Cholesterol Products in Japan to the extent such Cholesterol Products are developed, tested, used, marketed, distributed, promoted, supplied or sold either (i) under a Product Marketing Authorization that includes, directly or by reference, data comprising “Merck Clinical IP”, “Schering Clinical IP” or “Merck Formulation IP” (each as defined in the Development Agreement), or (ii) under a trademark, tradename or other form of brand protection owned or used by the Singapore Partnership.

     Notwithstanding the foregoing, neither any M Indemnified Party nor the Singapore Partnership shall be entitled to any indemnification pursuant to this Section 6.5.3 to the extent the Loss for which indemnification is being sought is caused by the gross negligence, willful misconduct or willful violation of law of the party seeking indemnification.

          Section 6.5.4. Indemnification Principles. For purposes of this Section 6.5, “Losses” shall mean each and all of the following items: claims, losses, liabilities, obligations, payments, damages, charges, judgments, fines, penalties, amounts paid in settlement, costs and expenses (including, without limitation, interest which may be

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imposed in connection therewith, costs and expenses of investigation, actions, suits, proceedings, demands, assessments and reasonable fees, expenses and disbursements of counsel, consultants and other experts). Losses shall not include, and indemnification shall not be available under this Section 6.5 for, (i) lost profits, punitive, special, indirect, consequential, incidental, exemplary or other similar damages (collectively, “Special Damages”), other than Special Damages payable to Third Parties, or (ii) any Obligations which are otherwise subject to Sections 2.1(a), 2.1(b) and 2.4(b)(1). Notwithstanding any provision in this Agreement or any Related Agreement, no Party hereto or thereto shall seek or be entitled to receive any Special Damages from any other Party, or its Affiliates, in connection with such Agreements.

          Section 6.5.5. Claim Notice. A Party seeking indemnification under this Section 6.5 shall, promptly upon becoming aware of the facts indicating that a claim for indemnification may be warranted, give to the Party from whom indemnification is being sought a claim notice relating to such Loss (a “Claim Notice”). Each Claim Notice shall specify the nature of the claim, the applicable provisions of this Agreement under which the claim for indemnity arises, and, if possible, the amount or the estimated amount thereof. No failure or delay in giving a Claim Notice and no failure to include any specific information relating to the claim (such as the amount or estimated amount thereof) or any reference to any provision of this Agreement or other instrument under which the claim arises shall affect the obligation of the Party from whom indemnity is sought except to the extent such Party is materially prejudiced by such failure or delay.

ARTICLE VII
MISCELLANEOUS

     Section 7.1. Confidentiality.

               (a) Without limiting the effect of the confidentiality provisions of any of the Related Agreements, and subject to the exceptions provided in Section 7.1(b), none of S-P or M, their respective Affiliates, or the Singapore Partnership or any entity created pursuant to an Entity Agreement (a “JV Entity”) shall, without the prior written consent of S-P or M, as the case may be, divulge, use or permit its, or its Affiliates’, officers, employees, agents, advisors or contractors to divulge to any Person or use (other than as provided in Section 7.1(c)):

     (1) the contents of this Agreement or any of the Related Agreements; (2) any confidential or proprietary information which has been provided to it (whether before or after the date of this Agreement) by any of the other parties hereto; or (3) any confidential or proprietary information relating to the ECLAFE Cholesterol Business in ECLAFE other than the information covered by this Section 7.1(a)(2); including, in each case, all financial, marketing and technical information, specifications, ideas, concepts, technology, processes, knowledge and know-how, together with all details of customers, suppliers, prices, discounts, margins, information relating to research and development, current

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trading performance and future business strategy (collectively, the “Confidential Information”).

          (b) The restrictions imposed by Section 7.1(a) shall not apply to the disclosure of any information which:

     (1) is or becomes generally available to the public other than as a result of any breach of the provisions of this Agreement; (2) is lawfully in the possession of such other Party prior to receipt from the disclosing Party; (3) is commonly known to Persons engaged in the pharmaceutical industry other than as a result of any breach of the provisions of this Agreement; (4) is independently developed by such Party without reference to the other Party’s or such Party’s Affiliates’ Confidential Information; or (5) is required to be disclosed by S-P, M, the Singapore Partnership or any of their Affiliates or any JV Entity under any law applicable to the conduct of such Party’s business or otherwise or is disclosed upon S-P, M, the Singapore Partnership or any of their Affiliates or any JV Entity becoming legally compelled to disclose, if, in any such case, S-P, M, the Singapore Partnership or any of their Affiliates or any JV Entity under such legal obligation or compulsion has used its best efforts to afford the other Party the opportunity to obtain an appropriate protective order or other satisfactory assurance of confidential treatment for the information required to be so disclosed.

          (c) Each of S-P and M shall ensure that Confidential Information is disclosed only to those of its and its Affiliates’ officers, employees, agents, advisors and contractors who need to know it, and who are bound by written obligations of confidentiality in respect of such information or have similar duties under their professional ethics code, and each Party hereto takes full responsibility for all actions of its employees and advisors and those of its Affiliates.

          (d) Each of S-P and M will return all copies of documents containing Confidential Information to the Party to which such information relates upon request after termination hereof other than one copy which may be maintained solely for record keeping purposes.

          (e) Notwithstanding any other provision of this Agreement, during the six-year period following termination of this Agreement pursuant to Section 5.2.2(ii), all Confidential Information relating to the Cholesterol Products known to, or in the possession of, the Terminated Party and entities that were Affiliates of the Terminated Party prior to the termination of this Agreement, shall not be disclosed, provided or otherwise made available, to the Person that acquired the Terminated Party or to any of such Person’s Affiliates, officers, directors, employees or agents.

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     Section 7.2. Publicity. Neither S-P nor any of its Affiliates on the one hand nor M or any of its Affiliates on the other hand may use the name of the other or any of their Affiliates or the Singapore Partnership or any JV Entity in any publicity or advertising except as specifically provided in any Related Agreements, and may not issue a press release or otherwise publicize or disclose any information related to the existence or substance of this Agreement or any of the Related Agreements or the terms or conditions hereof or thereof, without the prior written consent of the other. S-P and M shall agree on the form, content and timing of the initial press release or public statement that may be used by either of S-P or M to describe this Agreement and any of the Related Agreements and any subsequent press release or subsequent public statement with respect to or relating to the transactions contemplated by this Agreement or any of the Related Agreements or any of the terms or conditions hereof or thereof. In the event that either S-P or any of its Affiliates on the one hand or M or any of its Affiliates on the other hand (the “Disclosing Party”) is requested (by oral questions, interrogatories, requests for information or documents in legal proceedings, subpoena, civil investigative demand or other similar process) or required (by applicable federal or state securities laws or any rule or regulation of any national securities exchange) to make any such disclosure, the Disclosing Party shall provide the other Party (either S-P or M, as the case may be) with prompt written notice of any such request or requirement so that such other Party may seek a protective order or other appropriate remedy and/or, if it also determines that such disclosure is required, waive compliance with the provisions of this Section 7.2. If, in the absence of a protective order or other remedy or the receipt of a waiver by such other Party, the Disclosing Party is nonetheless, in the written opinion of its outside legal counsel, legally compelled to make such disclosure, the Disclosing Party may disclose only that portion which such counsel advises the Disclosing Party is legally required to be disclosed, provided that the Disclosing Party shall use its best efforts to avoid such disclosure including, without limitation, by cooperating with the other Party to obtain an appropriate protective order or other reliable assurance that, to the extent available, confidential treatment will be afforded to such information included in the disclosure.

     Section 7.3. Further Assurances. Each of S-P on the one hand and M on the other hand shall (i) cooperate with each other, (ii) promptly execute, acknowledge and deliver any assurances, approvals or documents reasonably requested by the other that is necessary for the requesting Party to satisfy its obligations hereunder or obtain the benefits contemplated hereby and (iii) cause their respective Affiliates to perform, comply with and abide by the terms of this Agreement.

     Section 7.4. Notices. All consents or other notices provided for in this Agreement shall be in writing, duly signed by the Party giving such notice, and shall be delivered, telecopied or mailed by registered or certified mail, as set forth on Schedule 7.4. Notices delivered to an addressee shall be deemed to have been given upon such delivery. Notices sent by telecopier shall be deemed to have been given upon confirmation by telecopy answerback (followed promptly by the mailing of the original of such notice). Notices mailed by registered or certified mail shall be deemed to have been given upon the expiration of five (5) business days after such notice has been deposited in the mail.

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     Section 7.5. Failure to Pursue Remedies. The failure of any Party to seek redress for violation of, or to insist upon the strict performance of, any provision of either this Agreement or any Related Agreement shall not prevent a subsequent act, which would have originally constituted a violation, from having the effect of an original violation. No waiver of any breach of any of the terms of this Agreement or any of the Related Agreements shall be effective unless such waiver is in writing and signed by the Party or parties against whom such waiver is claimed.

     Section 7.6. Cumulative Remedies. The rights and remedies provided by this Agreement are cumulative and the use of any one right or remedy by any Party shall not preclude, constitute an election of remedies or waive its right to use any or all other remedies. Said rights and remedies are given in addition to any other rights the parties may have by law, statute, ordinance or otherwise.

     Section 7.7. Assignment; Binding Effect. Except as specifically set forth in the Related Agreements, without the consent of all of the parties hereto, which consent may be given or withheld by each Party in its sole discretion, neither this Agreement, any of the Related Agreements, nor any interest of a Party in the ECLAFE Cholesterol Business in ECLAFE may be assigned or otherwise transferred, except (i) to wholly-owned subsidiaries of such Party, provided that any such subsidiary remains at all times directly or indirectly wholly-owned by M or S-P, as the case may be, or (ii) pursuant to Section 5.3 or 5.4. Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the parties hereto and, to the extent permitted by this Agreement, their successors, legal representatives and permitted assigns.

     Section 7.8. Severability. In the event of any challenge of the validity or enforceability of any term, part or provision of this Agreement or any of the Related Agreements, until a final, unappealable decision is rendered and, pending such final, unappealable decision, such challenged term, part or provision shall remain in full force and effect. Any term, part or provision of this Agreement or any of the Related Agreements, which is determined by a court in a final, unappealable decision to be invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering in any way invalid or unenforceable the remaining terms, parts and provisions of this Agreement, or any of the Related Agreements or affecting the validity or enforceability of any of the terms, parts or provisions of this Agreement or any of the Related Agreements, in any other jurisdiction and, accordingly, all such other terms, parts and provisions shall remain in full force and effect. If any provision of this Agreement or any of the Related Agreements, is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as is enforceable.

     Section 7.9. Counterparts. This Agreement may be executed in any number of counterparts with the same effect as if all parties hereto had signed the same document. All counterparts shall be construed together and shall constitute one instrument.

     Section 7.10. Integration. This Agreement and the Related Agreements constitute the entire agreement among the parties hereto pertaining to the subject matter

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hereof and thereof and supersede all prior agreements and understandings pertaining thereto. In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any of the Related Agreements, the terms and conditions of this Agreement shall prevail, except as specifically provided herein.

     Section 7.11. Governing Law. This Agreement and the Related Agreements and the rights of the parties hereunder shall be interpreted in accordance with the laws of the State of Delaware, and all rights and remedies shall be governed by such laws without giving effect to choice of law provisions thereof; provided, that, the substantive law governing the Parties’ performance in a given country under a Related Agreement shall continue to govern performance in such country to the extent provided in such Agreements.

     Section 7.12. Amendments. Any amendment, supplement or waiver to this Agreement shall be made in writing and shall be adopted and be effective only if signed and approved by each of the parties hereto.

     Section 7.13. Judicial Proceeding.

               (a) General. Any disputes, claims, controversies or disagreements with respect to this Agreement or any of the Related Agreements, including whether an ECLAFE Material Breach has occurred, that cannot be resolved pursuant to the procedures set forth in Sections 3.2.1(e), 3.2.1(f), 3.2.2(c), 3.4.5, 3.5.5, 3.6.1(e), 3.6.1(f), 3.6.1(g) and 5.1, as applicable, such procedures to be fully complied with, as applicable, shall be finally determined in a judicial proceeding; provided that (i) no Party shall seek dissolution by a judicial forum or by operation of law, appointment of a trustee, receiver, custodian or similar person and (ii) the foregoing shall not limit any remedies specifically provided in any of the Related Agreements. Notwithstanding the foregoing, no dispute relating solely to business decisions relating to the operation of the ECLAFE Cholesterol Business in ECLAFE shall be submitted to any judicial proceeding hereunder.

               (b) Consent to Jurisdiction. Each Party to this Agreement, or to any of the Related Agreements hereby, consents to the exclusive jurisdiction of the state courts of New York for the purposes of any action or proceeding arising out of or in connection with this Agreement or any of the Related Agreements pursuant to Section 7.13(a), and each of the Parties hereto irrevocably agrees that all claims in respect to such action or proceeding may be heard and determined exclusively in the New York Supreme Court-Commercial Division. None of the parties to this Agreement, nor any of their subsidiaries or Affiliates, will raise any objection to proceedings in New York based on section 1312 of the New York Corporation Law or any similar statute. Each of the parties hereto agrees that a final judgment in any action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Each of the parties hereto further irrevocably consents to the service of any summons and complaint and any other process in any other action or proceeding relating to this Agreement or any of the Related Agreements, on behalf of itself or its property, by the personal delivery of copies of such process to such Party. Nothing in

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this Section 7.13(b) shall affect the right of any Party hereto to serve legal process in any other manner permitted by law.

     Section 7.14. Enforcement of Certain Rights. In the event that M or S-P believes that the other Party or an Affiliate of the other Party is not complying with its obligations as a whole in a material respect, under any of the Related Agreements to the extent applicable to ECLAFE, any dispute with respect thereto shall be referred to the EMEA Operating Board, EMEA General Manager, EMEA Executive Sponsors, Far East Operating Board, Far East General Manager, Latin America Executive Sponsors, the Canadian General Manager or the Chairmen of M and S-P, as the case may be, and first be subject to resolution pursuant to the procedures set forth herein, such procedures to be fully complied with, as applicable. Notwithstanding anything contained herein, if the dispute cannot be resolved pursuant to such dispute resolution procedures, then the complaining Party shall have the power and authority to enforce, on behalf of the Person, or to cause the Person to enforce, the Person’s rights through a judicial remedy in accordance with the provisions of Section 7.13; provided that notwithstanding the foregoing, M shall have the right to immediately seek on behalf of any Person a judicial remedy in the event it believes that there has been or is reasonably likely to be a breach of any agreements which require the consent of M for any licensing of Ezetimibe to any Party, or that prohibits the licensing of Ezetimibe to other parties, or that any exclusive product rights are being violated or are reasonably likely to be violated. If any of M, S-P or any of their respective Affiliates agrees to license to an Affiliate manufacturing technology or know-how pursuant to the terms of a manufacturing agreement (the “Licensor”), then the parties hereto that are Affiliates of the Licensor shall not take any action (or omit to take any action) which could materially hinder or frustrate the ability of the Person to enforce and realize the benefits of such license.

     Section 7.15. No Third Party Beneficiaries. Except as otherwise specifically set forth in the Related Agreements, neither this Agreement nor any of the Related Agreements shall confer upon any Person, other than the parties hereto and thereto, any rights or remedies hereunder or thereunder.

     Section 7.16. Survival. Notwithstanding any other provision herein, if this Agreement is terminated for any reason, the applicable provisions of Sections 5.3, 5.4, 6.1, 6.2, 6.4, 6.5 , 7.13 and this Section 7.16, and any applicable definitions set forth or incorporated in Section 1.2, shall survive to the extent necessary to effectuate any Related Agreements that survive such termination, and Sections 5.3(f) and 5.4(b), 5.4(c) and 5.4(d)(together with the applicable definitions set forth in Section 1.2) shall survive for the periods respectively set forth in each such section.

     Section 7.17. Sanctioned Countries. The Parties acknowledge that certain countries in ECLAFE are subject to sanctions by the United States Government and/or the United Nations. As of the Effective Date, the following countries are subject to sanctions:

               (a) in the EMEA – Iran, Iraq, Libya, Sudan;

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               (b) in Latin America – Cuba; and

               (c) in the Far East – Afghanistan, North Korea (only with respect to imports to the U.S.).

     The Parties shall comply with all applicable laws, rules and regulations governing commercial activities involving such countries and shall obtain any required licenses or authorizations prior to undertaking any activities related to the ECLAFE Cholesterol Business in such countries. In the event that countries are added to or deleted from the list of sanctioned countries, the provisions set forth in this Section 7.17 shall apply to such sanctioned countries.

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     IN WITNESS WHEREOF, the parties hereto have executed this Master Agreement as of the date first above stated.

     [Signatures omitted]

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Schedule 1.2(ii)

Existing M JVs

[*]

S-1

Schedule 1.2(iii)

Existing S-P JVs

[*]

S-2

Schedule 2.1(a)

Country Sales Amounts for Major Countries in EMEA
($ millions)

[*]

S-3

Schedule 4.2(a)

[*] [Note: Approximately three pages of text are omitted.]

S-4

Schedule 7.4

     [*] [Note: Approximately two pages of text are omitted.]

S-5

EX-10.4

Exhibit 10.4

EXECUTION COPY

Confidential portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission with a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. The location of an omitted portion is indicated by an asterisk within brackets (“[*]”).

MASTER MERIAL VENTURE AGREEMENT

DATED as of May 23, 1997, BY AND AMONG:

RHÔNE-POULENC S.A., a société anonyme organized under the laws of France (“Rhône-Poulenc”),

INSTITUT MÉRIEUX S.A., a société anonyme organized under the laws of France (“IM”),

RHÔNE-MÉRIEUX S.A., a société anonyme organized under the laws of France (“RM”),

MERCK & CO., INC., a corporation organized under the laws of the state of New Jersey (“Merck & Co.”),

MERCK SH INC., a corporation organized under the laws of the state of Delaware (“Merck SH”), and

MERIAL LIMITED, an English private company limited by shares (and, after the domestication contemplated by Section 1.3(a)(B), also a Delaware limited liability company) (“Merial”).

RECITALS

     WHEREAS, both the RP Group and the Merck Group are engaged, among other activities, in the research and development, manufacturing, marketing and sale of Animal Health Products and of Poultry Genetics Products throughout the world;

     WHEREAS, RP and Merck wish to combine their respective Animal Health Businesses and Poultry Genetics Businesses into a worldwide venture owned and controlled 50% by each of them and IM has created Merial as the parent company of the group of companies which will conduct these businesses;

     WHEREAS, IM will contribute the entirety of RM’s share capital to Merial on or prior to the Closing Date;

     WHEREAS, RP, Merck, and certain of their respective Subsidiaries, on the one hand, and RM or an RM Subsidiary or Merial, on the other hand, have entered into or will, prior to or concurrently with the Closing, enter into the Ancillary Agreements, including research and development, manufacturing and supply, license and various other agreements to enable the Merial Venture to conduct these combined activities;

     WHEREAS, the terms and conditions of this Agreement and the Ancillary Agreements do not limit Merial’s (and Merial has) full independence and commercial autonomy, such terms and conditions not being intended to limit Merial’s independence and commercial autonomy in marketing, selling, negotiating and determining customers and resale prices for Animal Health Products and Poultry Genetics Products.

     WHEREAS, prior to or at the Closing, pursuant to the terms of this Agreement and the applicable Ancillary Agreements, the Parties will take further steps to implement the Merial Venture, including the domestication of Merial as a limited liability company in the State of Delaware, and the transfer (by merger or otherwise) to Merial and/or its Subsidiaries of the entirety of the Merck Contributed Assets; and

2

     WHEREAS, upon completion of the Transactions at the Closing, the Merial Venture will commence the Merial Venture Business and IM and (subject to Section 5.1(a)(iii)) Merck SH will each hold a 50% ownership interest in Merial;

     NOW, THEREFORE, in consideration of the respective representations and covenants of the Parties as set forth below, the Parties agree as follows:

ARTICLE I

OBJECTIVES AND STRATEGIES, BUSINESS SCOPE
AND OVERVIEW OF TRANSACTION

SECTION 1.1. Objectives and Strategies

     The Merial Venture is being formed with the following objectives and strategies:

     (a) The principal objective of the Merial Venture is to combine, on the terms and conditions of this Agreement and the Ancillary Agreements, the complementary strengths of the RP Group and the Merck Group to create a global leader in the Animal Health Business and Poultry Genetics Business industries, committed to satisfying the needs of its customers, employees and members worldwide. Within the Merial Venture, the Animal Health Business and the Poultry Genetics Business will maintain their own identity and organization.

     (b) While maintaining close links with both Groups, the Merial Venture will function as a self-contained independent entity with a single globally responsible management and will establish its own unique identity and culture, built on the best available talents and practices.

     (c) In the Animal Health Business, the Merial Venture will, with the support of the research and development capacities of the two Groups and/or other persons party to the Ancillary Agreements (on the terms and conditions of this Agreement and the

3

Ancillary Agreements), have a unique blend of biological and pharmaceutical expertise that will enable it to respond more effectively to new threats to animal health as they arise. In cooperation with both Groups, which are expected to remain important sources of new compounds and technologies, the objective of the Merial Venture will be to discover and develop a broad range of innovative pharmaceutical and biological Animal Health Products.

     (d) The Merial Venture will offer a broad differentiated line of Animal Health Products and related services in markets around the world. It will target those markets where products for the prevention and treatment of animal diseases provide the economic opportunity to sustain innovation and yield sufficient return on investment. The Merial Venture will distribute its products in a manner which best meets the strategic needs of each market.

     (e) The Merial Venture will maintain its position as a global leader through continued investment in new markets, technologies, people and facilities with the objective, among other things, of delivering the highest quality products in the most cost efficient manner.

     (f) In the Poultry Genetics Business, the Merial Venture will be the leader in the development and production of poultry breeding stock providing full service to the chicken, turkey and egg market segments.

     (g) The rights, powers, obligations and duties of the Parties with respect to the Merial Venture are only those set forth in this Agreement (other than this Section 1.1), the Ancillary Agreements, the Association Documents and the LLC Agreement, each as amended from time to time, and any Future Agreements.

SECTION 1.2. Business Scope

     (a) The business activities to be conducted by the Merial Venture (the “Merial Venture Business”) will include:

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• the discovery and development, manufacturing, marketing and sale of Animal Health Products throughout the world (the “Animal Health Business”); and

• the discovery and development, manufacturing, marketing and sale of Poultry Genetics Products throughout the world (the “Poultry Genetics Business”).

     (b) “Animal Health Products” are defined to include all pharmaceutical, biological and medicinal, including in-feed, products intended to enhance the health or performance of any and all species of animals (including livestock and companion animals but excluding humans), but to exclude (i) any products with a different intended utility, (ii) nutritional additives, (iii) chemical intermediates, and (iv) the inhalational anaesthetics Isoflurane, Halothane, Sevoflurane and Desflurane.

     (c) “Poultry Genetics Products” are defined to include all products developed using genetic techniques (including selective breeding) to improve poultry, whether for meat production, egg production or any other purpose. Such products are commonly, but not exclusively, sold in the form of hatching eggs or day-old poultry. For the purposes of this definition, “poultry” includes chickens, turkeys, ducks, geese, guinea fowl, pheasants, partridges and quail.

     (d) Merial shall, and shall cause each Merial Venture Company, to use or sell all bulk materials or products supplied by the Merck Group or the RP Group only in the Merial Venture Business.

SECTION 1.3. Overview of Transaction

     The Parties intend to create a viable, independent entity, capable of successfully competing globally in the Merial Venture Business industries. To that end, and upon the terms and conditions set forth herein and in the Ancillary Agreements:

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      (a) Formation of Merial

     Merial has been formed as an English private company limited by shares for the purpose of conducting the Merial Venture Business. On the date hereof Merial is wholly owned by IM and Rhône-Poulenc Finance S.A., a wholly owned Subsidiary of RP (“RP Finance”), with IM owning one million shares of Merial and RP Finance holding one share of Merial as nominee for IM. Merck SH has been created as a Delaware corporation, and is wholly owned by Merck and Company Incorporated (“MACI”).

     (i) On or prior to the Closing Date, the Parties shall cause the following corporate actions to be taken:

     (A) IM shall (w) form a single member Delaware limited liability company (“IM LLC”) which satisfies the statutory requirements under French law to be a shareholder of a société par actions simplifiée (“SAS”), including the requirement that IM LLC have a share capital of at least the equivalent of FF 1,500,000; (x) sell one of IM’s shares of RM to IM LLC and contribute the remainder of IM’s shares of RM to Merial; (y) cause RM to be converted into a SAS with Merial and IM LLC as its shareholders; and (z) sell (without any net profit to IM from all of the transactions contemplated by this clause (A)) the entirety of its ownership interest in IM LLC to Merial for an amount in cash equal to the fair market value of such ownership interest (equal to the cash held by IM LLC and the cash value of one share of RM);

     (B) Merck shall (u) cause Merck SH and MACI to form a Delaware limited liability company (“Merck Transitory LLC”) owned 99% by Merck SH and 1% by MACI; (v) cause Merck Holdings, Inc. to contribute the entirety of its share capital in Hubbard Farms, Inc. to MACI; (w) cause MACI to contribute the entirety of the share capital of Hubbard Farms, Inc. to Merck SH; (x) cause Hubbard Farms, Inc. to be converted into Hubbard Farms LLC, a Delaware limited liability company;

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(y) cause Merck SH to contribute its interest in Hubbard Farms LLC to Merck Transitory LLC; and (z) cause Hubbard Farms LLC to be merged with Merck Transitory LLC, with Merck Transitory LLC being the surviving company; and

     (C) Merck shall, in accordance with Section 5.1(a)(i), transfer (or cause to be transferred) the remainder of the Merck Contributed U.S. Assets (other than the limited liability company interests in Hubbard Farms LLC) to MACI (except to the extent MACI already holds any such assets), and shall cause MACI to transfer all of the Merck Contributed U.S. Assets (other than the limited liability company interests in Hubbard Farms LLC) to Merck SH, which will in turn transfer them to Merck Transitory LLC.

     (ii) On the Closing Date, the following steps shall be taken:

     (A) Meetings of the members and directors of Merial at such time shall take place (v) to amend the memorandum of association and articles of association of Merial so as to adopt a memorandum of association and articles of association in the form (with certain provisions thereof to be completed prior to Closing as indicated therein, it being understood that to the extent there are any inconsistencies between the attached form and the provisions of this Agreement, the attached form shall be modified to be consistent herewith) provided as Exhibit I hereto (the “Memorandum of Association” and the “Articles of Association”, respectively), (w) to approve the domestication of Merial as a limited liability company in the State of Delaware, (x) to approve and execute the limited liability company agreement of Merial in the form provided as Exhibit II hereto, (y) to approve the merger of Merck Transitory LLC with and into Merial, and (z) to approve the transfer by RP Finance of its one share to IM, the increase in the authorized share capital of Merial, the redesignation of the shares owned by IM as B Ordinary Shares and the issuance of one million and one A Ordinary Shares to Merck SH in

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consideration for its agreement to transfer the Merck Contributed Assets to Merial, each such class of Merial shares to be governed by the provisions of the Association Documents, with the effect that, after all such actions are taken, each Principal shall own, directly or indirectly, exactly the same number of Ordinary Shares of Merial and have exactly the same general ownership interest in Merial except for the differences between A Ordinary Shares and B Ordinary Shares as set forth in the Association Documents;

     (B) Merial shall be domesticated as a limited liability company in the State of Delaware; and

     (C) Merck Transitory LLC shall merge with and into Merial in accordance with Delaware Law, with Merial being the survivor company (such that Merial shall own all of the assets, and be subject to all of the Liabilities, of Merck Transitory LLC, Merck Transitory LLC thereupon ceasing to exist).

(b) Ancillary Agreements

     (i) The following Ancillary Agreements are being entered into concurrently herewith, and are conditional upon, and shall come into effect as of, the Closing:

     (A) The Supply Agreement between Merck and Merial, provided as Exhibit III hereto (the “Merck Supply Agreement”).

     (B) The Research and Future Products License Agreement between Merck, Merial and RM, provided as Exhibit IV hereto (the “Merck Research Agreement”).

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     (C) The Existing Products License Agreement between Merck and Merial, provided as Exhibit V hereto (the “Merck License Agreement”).

     (D) The Supply Agreement between Merial and Rhône-Poulenc Agrochimie S.A., provided as Exhibit VI hereto (the “RP Ag Supply Agreement”).

     (E) The Research and Future Products License Agreement between Merial and Rhône-Poulenc Agrochimie S.A., provided as Exhibit VII hereto (the “RP Ag Research Agreement”).

     (F) The Fipronil and Existing Products License Agreement between Merial and Rhône-Poulenc Agrochimie S.A., provided as Exhibit VIII hereto (the “RP Ag Licence Agreement”).

     (G) The Research and License Agreement between Merial and Rhône-Poulenc Rorer Inc., provided as Exhibit IX hereto (the “RPR Research Agreement”).

     (H) The Research and License Agreement between Merial and Pasteur Mérieux Sérums et Vaccins S.A., provided as Exhibit X hereto the “PMSV Research Agreement”).

     (ii) The following Ancillary Agreements shall be negotiated and executed prior to or at the Closing:

     (A) The RP Transfer Agreement among Merial, RP and IM, to implement the transactions involving the contribution of RM and its Subsidiaries and assumption of the RM Contributed Liabilities on the terms and conditions specified in this Agreement (the “RP Transfer Agreement”).

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     (B) The Merck Transfer Agreement among Merial, Merck, MACI, Merck Transitory LLC and Merck SH, to implement the transactions involving the contribution of the Merck Contributed Assets and assumption of the Merck Contributed Liabilities on the terms and conditions specified in this Agreement (the “Merck Transfer Agreement”).

     (C) The Avermectin and Existing Products Sublicense Agreement between Merial and RM.

     (D) The Merck Trademark (Dual Use) License Agreement between Merck and Merial, a form of which is provided as Exhibit XI hereto.

     (E) The Fipronil Sublicense Agreement between Merial and RM.

     (F) The Merck Transition Services Agreement between Merck and Merial, consistent with the provisions set forth in Section 11.8(b) of this Agreement.

     (G) The RP Transition Services Agreement between RP and Merial, consistent with the provisions set forth in Section 11.8(b) of this Agreement.

     (H) The Merck Employee Leasing Agreement, substantially in the form provided as Exhibit XII hereto.

     (c) Contribution of Merck Contributed Non-U.S. Assets. Merck shall, in accordance with Sections 5.1 (a)(ii) and 5.2(a) and the Merck Transfer Agreement, contribute enough cash to Merial , and/or accept (or cause its Subsidiaries to accept) a promissory note or notes issued by Merial or that Merial Venture Company that is purchasing such assets (which promissory notes constitute part or all of the Debt that Merck is to contribute to the Merial Venture), to enable Merial or an appropriate Merial

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Subsidiary to purchase each of the Merck Contributed Non-U.S. Assets in accordance with Section 5.1(a)(ii). The Principals may also agree, based on relevant criteria including tax-efficiency, on another method to transfer certain Merck Non-U.S. Contributed Assets to the Merial Venture, which method may involve the creation of a new direct or indirect wholly-owned Subsidiary of Merial which shall purchase such assets or the transfer or merger of one or more Subsidiaries of Merck to or with Merial or one of its Subsidiaries. In the absence of such agreement in writing, but subject to Section 5.4, the foregoing provisions of this Section 1.3(c) shall apply.

     (d) Each Party’s obligation to take any of the actions contemplated by this Section 1.3 to occur on or prior to the Closing Date is conditioned upon contemporaneous completion of all such actions no later than the Closing Date.

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ARTICLE II

DEFINITIONS

     As used in this Agreement, capitalized terms have the meanings set forth below:

     “Action” means any claim, action, suit, arbitration, inquiry, proceeding or investigation by or before any Public Authority.

     “Affiliate” means, with respect to any Person, (i) a Person which is a Subsidiary of such Person, (ii) a Person of which such Person is a Subsidiary, or (iii) any other Person which is a Subsidiary of a third Person of which such Person is also a Subsidiary.

     “Ancillary Agreements” means, collectively, the agreements referred to (and as each is defined in) Section 1.3(b).

     “Animal Health Business” has the meaning set forth in Section 1.2(a).

     “Animal Health Products” has the meaning set forth in Section 1.2(b).

     “Association Documents” means, collectively, the Memorandum of Association and the Articles of Association, each as defined in Section 1.3(a)(ii)(A), as the same may be amended, modified, supplemented or restated from time to time.

     “Avermectin Products” means all those Merial Venture Products containing one of the Avermectin class of compounds, including, but not limited to, products containing abamectin, ivermectin, eprinomectin or emamectin.

     “Benefit Plan” means each plan, program, policy, payroll practice, contract, agreement or other arrangement (including plans maintained both inside and outside of the U.S. and excluding Governmental Plans) providing for compensation, severance (including termination indemnities, long service leave obligations and similar obligations), termination pay, performance awards, stock or stock-related awards, fringe benefits or

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other employee benefits of any kind, whether formal or informal, funded or unfunded, written or oral and whether or not legally binding, including, without limitation, each “employee benefit plan,” within the meaning of Section 3(3) of ERISA and each “multi-employer plan” within the meaning of Sections 3(37) or 4001(a)(3) of ERISA.

     “Biological Products” means all RM Existing or Pipeline Products (other than diagnostic products, including the products included in the Diagnostic Disposal) that are vaccines, whether preventive or therapeutic, as well as any immunological products (except the GnRH vaccine), together with electronic identification products and vaccinating equipment, including injectors and sprayers.

     “Board of Directors” has the meaning set forth in Section 4.3(a).

     “Business Day” means any day which is not a bank holiday in any of London, New York or Paris.

     “Business Plan” has the meaning set forth in Section 4.4(c).

      “Central Biologics” has the meaning set forth in Section 5.1(b)(iii).

     “CEO” has the meaning set forth in Section 4.4(e).

     “CFM Agreement” shall refer to the Consolidation Fiscale Mondiale or worldwide tax consolidation agreement, dated February 7, 1994, between RP and the French Taxing Authority, as the same may be supplemented, amended, modified or restated from time to time, or any successor agreement thereto.

     “Change of Control” means, with respect to either RP or Merck, the acquisition by any Person or Group, directly or indirectly, beneficially or of record, of shares or options or other rights to purchase shares representing in the aggregate more than fifty percent (50%) of the aggregate ordinary voting power represented by the issued and outstanding capital stock of RP or Merck, as the case may be. Notwithstanding the

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foregoing, the following transactions shall be deemed not to constitute a Change of Control: any merger or other business combination with another entity (x) solely to reincorporate RP or Merck, as the case may be, in a different form or under the laws of a different jurisdiction, (y) in connection with an internal reorganization which results in RP or Merck, as the case may be, being a direct or indirect wholly-owned Subsidiary of such entity or (z) any other transaction or series of transactions which results in RP or Merck, as the case may be, being a direct or indirect wholly-owned Subsidiary of any such entity, only if in the case of clauses (x), (y) or (z): the shareholders of RP or Merck, as applicable, immediately prior to the consummation of such transaction(s) own, in the aggregate, immediately after such transaction(s), shares representing more than fifty percent (50%) of the aggregate ordinary voting power represented by the issued and outstanding capital stock of such entity (or any parent company thereof). A “Successor Entity” means any entity which satisfies the conditions set out in any of clauses (x), (y) or (z) of the preceding sentence and which has executed a deed in the form of Exhibit XIII under which it agrees to be bound by the obligations of that party in respect of which it is a Successor Entity. Following any transaction(s) referred to in such clauses (x), (y) or (z), all references to RP or Merck shall be deemed to refer to the applicable Successor Entity, including the references in clauses (x), (y) or (z). For purposes of this definition only, “Group” means two or more Persons who agree to act together for the purpose of acquiring, holding, voting or disposing of equity securities of an issuer.

     “Closing” means the completion of the merger of Merck Transitory LLC with and into Merial.

     “Closing Date” has the meaning set forth in Section 12.3.

     “Closing Meeting” means the meetings of Merial’s members or board of directors, as appropriate, held on the Closing Date.

     “Code” means the Internal Revenue Code of 1986, as amended and any regulations promulgated or proposed thereunder.

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     “Combination” means any Animal Health Product that contains more than one active ingredient.

     “Companies Act” means the United Kingdom Companies Act of 1985.

     “Control,” whether used as a noun or verb, refers to the possession, directly or indirectly, of the power to direct, or cause the direction of, the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

     “Damages” means any liability (whether arising out of fault, strict liability or otherwise), obligation, loss, fine, damage, judgment, arbitration award, settlement amount, penalty, claim, or Environmental Liability, and all reasonable costs and expenses related thereto (including reasonable costs of investigation, fees and expenses payable to outside counsel, independent accountants and similar professional advisors or consultants, but not including any corporate allocation for management time or for the use of similar in-house services or facilities), in each case whether or not incurred in connection with a Third Party Claim.

     “Debt” has the meaning set forth in Section 5.1(c).

      “Delaware Act” means the Delaware Limited Liability Company Act, 6 Del. C. § 18-101, et seq., as amended from time to time, including, without limitation, any amendments to Section 18-109 thereof.

     “Delayed Purchase Assets” has the meaning set forth in Section 5.1(a)(ii)(A)(4).

     “Diagnostic Disposal” means the contemplated sale by RM of its diagnostic product business.

     “Director” has the meaning set forth in Section 4.3(b).

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     “Dissolution” or “Dissolve” or “Dissolved”, as applied to the Merial Venture, means either (i) the sale of the Merial Venture Interest of one Principal to the other Principal pursuant to Sections 16.3, 16.4, 16.5, 17.2(c)(ii) or otherwise or (ii) the sale of all or substantially all of the Merial Venture to a Third Party pursuant to Sections 16.3, 16.4, 17.2(c)(i) or otherwise.

     “Dissolution Date” has the meaning set forth in Section 16.6(a).

     “Distributable Profits” has the meaning set forth in Section 181 of the Companies Act.

     “Economic Effective Date” has the meaning set forth in Section 6.3(a).

     “Encumbrance” means any lien, privilege, mortgage, pledge, third-party claim or right, charge, restriction of use, defect of title, easement, security interest or encumbrance of any kind, including, without limitation, obligations resulting from any sublease, tenancy, right of occupation, easement, preemptive right or privilege in favor of any person or entity.

     “Environmental Laws” means, at any date, all provisions of law (including applicable principles of common and civil law), statutes, ordinances, rules, regulations, published standards and directives that have the force and effect of Laws, permits, licenses, judgments, writs, injunctions, decrees and orders enacted, promulgated or issued by any Public Authority, and all indemnity agreements and other contractual obligations, as in effect at such date, relating to (i) the protection of the environment, including the air, surface and subsurface soils, surface waters, groundwaters and natural resources, and (ii) occupational health and safety and exposure of persons to Hazardous Materials. Environmental Laws shall include the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. §§ 9601 et seq., and any other Laws imposing or creating liability with respect to Hazardous Materials.

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     “Environmental Liability” means any liabilities, obligations, costs, losses, payments or damages, including compensatory and punitive damages, incurred (i) to contain, remove, clean up, assess, abate or otherwise remedy any actual or alleged release or threatened release of Hazardous Materials, any actual or alleged contamination (by Hazardous Materials) of air, surface or subsurface soil, groundwater or surface water, or any personal injury or damage to natural resources or property resulting from any such release or contamination, pursuant to the requirements of any Environmental Law or in response to any claim by any Public Authority or other Third Party under any Environmental Law; (ii) to modify facilities or processes or take any other remedial action in response to any claim by any Public Authority of non-compliance with any Environmental Law; (iii) as a result of the imposition of any civil or criminal fine or penalty by any Public Authority for the violation or alleged violation of any Environmental Law; or (iv) as a result of any action, suit, proceeding or claim by any Third Party under any Environmental Law. The term “Environmental Liability” shall include: (i) reasonable fees of counsel and consultants (but not any corporate allocation for management time or for the use of similar in-house services or facilities) and (ii) the costs and expenses of any investigation undertaken to ascertain the existence or extent of any potential or actual Environmental Liability.

     “ERISA” means the Employee Retirement Income Security Act of 1974, as amended and any regulations promulgated or proposed thereunder.

     “Event of Insolvency,” with respect to any person, shall occur when either:

     (i) such person shall (A) voluntarily commence any proceeding or file any petition seeking relief under Title 11 of the United States Code, French Law No. 84-148 of March 1, 1984, French Law No. 85-98 of January 25, 1985 or any other bankruptcy, insolvency or similar law of the United States, any state thereof, or France, (B) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conciliator, administrator or similar official for it or a substantial part of its property, (C) file an answer admitting the material allegations of a petition filed against or in respect of it in any such proceeding,

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(D) make a general assignment for the benefit of creditors, (E) become unable generally, or admit in writing its inability, to pay its debts as they become due, or (F) take corporate action for the purpose of effecting any of the foregoing; or

     (ii) an involuntary proceeding shall be commenced or any involuntary petition shall be filed in a court of competent jurisdiction seeking (A) relief in respect of such person, or of a substantial part of such person’s property, under Title 11 of the United States Code, French Law No. 84-148 of March 1, 1984, French Law No. 85-98 of January 25, 1985 or any other bankruptcy, insolvency or similar law of the United States, any state thereof, or France, (B) the appointment of a receiver, trustee, custodian, sequestrator, conciliator, administrator or similar official for such person or for a substantial part of such person’s property or (C) the winding-up or liquidation of such person; and such proceeding or petition shall continue undismissed for sixty (60) days or an order or decree approving or ordering any of the foregoing shall continue unstayed and in effect for thirty (30) days;

     (iii) an order is made by a court of competent jurisdiction, or a resolution is passed, for the winding up, dissolution or administration of such person or the appointment of a liquidator, manager, receiver, administrator, trustee or other similar officer in respect of, or an encumbrancer taking possession of or selling, any substantial assets of such person, or such person makes any arrangement or composition with, or any assignment for the benefit of, its creditors, or makes an application to a court of competent jurisdiction for protection from its creditors generally, and such order, resolution, appointment, arrangement, assignment or application is not withdrawn or cancelled within sixty (60) days of its being made.

     (iv) anything analogous to any of the events specified in (i), (ii) and (iii) above occurs in respect of such person under the laws of any applicable jurisdiction.

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     “Executive Chairman” has the meaning set forth in Section 4.4(a).

     “Executive Officers” has the meaning set forth in Section 4.4(d).

     “Existing Other JVs” means (a) with respect to RP, those Persons set forth on Schedule 2-2 and (b) with respect to Merck, those Persons set forth on Schedule 2-3, in either case only so long as such Persons are Other JVs.

     “Existing Product” means each Animal Health Product or Poultry Genetics Product that is marketed in any country on the date of this Agreement, by RM or its Subsidiaries (including those set forth in Schedule 2-4) or by the Merck Group (including those set forth in Schedule 2-5).

     “Fipronil Products” means all those Merial Venture Products containing Fipronil as an active ingredient.

     “Fiscal Year” has the meaning set forth in Section 11.4.

     “Future Agreement” means any written agreement (other than an Ancillary Agreement) between any RP Company or Merck Company, on the one hand, and any one or more of the Merial Venture Companies, on the other hand, which may be entered into at any time after the Closing.

     “Future Product” means any Animal Health Product or Poultry Genetics Product, other than an Existing Product or a Pipeline Product, as to which any Merial Venture Company has or may at any time acquire (through internal research and development efforts and/or from other persons) any Product Rights, Patents or Know-How relating to the manufacture, use or sale thereof.

     “GAAP” means, with respect to any country, such country’s generally accepted accounting practices or the International Accounting Standards (“IAS”), in either case as in effect from time to time, consistently applied.

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     “Goubin Book Value” has the meaning set forth in Section 5.1(b)(i).

     “Grandfathered Merck Employees” has the meaning set forth in Section 7.1(b).

     “Governmental Order” means any order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Public Authority.

     “Governmental Plan” means any plan that is sponsored or maintained by a Public Authority to which either the RP Group or the Merck Group contributes, or is required to contribute, on behalf of any RM Employee or Merck Employee.

     “Goubin” means Compagnie Jean Goubin S.A.

     “Group” means the Merck Group or the RP Group, as appropriate.

     “Hazardous Material” means any substance regulated by any Environmental Law or which may now or in the future form the basis for any Environmental Liability.

     “Health Cost” has the meaning set forth in Section 7.1(c).

     “HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

     “ICC” means the International Chamber of Commerce.

     “ICE” means the International Centre for Expertise of the ICC.

     “IM” has the meaning set forth in the introduction to this Agreement.

     “IM LLC” has the meaning set forth in Section 1.3(a).

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     “Income Taxes” means income, corporation or franchise taxes or other Taxes measured in whole or in part by income or by reference to income, together with any interest or penalties imposed with respect thereto, levied by any Taxing Authority.

     “Indemnified Party” has the meaning set forth in Section 14.7(a).

     “Indemnifying Party” has the meaning set forth in Section 14.7(a).

     “Intellectual Property” of a Person means, collectively, the Product Rights, Patents and Know-How of such Person.

     “Interim Financing” means the revolving credit facilities provided or arranged by each of RP and Merck to Merial in accordance with Section 5.2(d).

     “Inventory” or “Inventories” of any Person means all inventory, merchandise, partially finished and finished products, and raw materials, maintained, held or stored by or for such Person and any prepaid deposits for any of the same; provided that

     “Inventories” of any of Merck or its Subsidiaries shall mean only such inventories as constitute Merck Contributed Assets.

     “Investment Bank” means a reputable international investment bank with experience appraising and selling businesses comparable to the Merial Venture.

      “IRS” means the Internal Revenue Service.

      “ISA” means Institut de Sélection Animale S.A.

     “Know-How” means, in respect of any product, all technical knowledge, ability, skill or expertise in the manufacture or commercialization of such product other than knowledge or expertise covered by a Patent.

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     “Label” means, in respect of any Merial Venture Product, the packaging, product brochure or product monograph filed with the appropriate Public Authority (or Public Authorities) having authority to approve the marketing of such Merial Venture Product and the package insert directed to veterinarians or consumers that has been approved by such Public Authority (or Public Authorities) for such Merial Venture Product, including, in each case, the indications, claims, uses and dosages appearing therein.

     “Laws” means any supranational, national, state, local or foreign statute, law, directive, ordinance, regulation, rule, code, order, requirement or rule of common law.

     “Liabilities” means any and all debts, liabilities and obligations, whether accrued or fixed, absolute or contingent, matured or unmatured or determined or determinable, including those arising under any Law (including any Environmental Law), Action or Governmental Order and those arising under any contract, agreement, arrangement, commitment or undertaking.

     “LIBOR” means, in relation to any unpaid sum, the rate per annum equal to the arithmetic mean (rounded upwards, if not already such a multiple, to the nearest whole multiple of one-thirty second of one per cent.) of the offered quotations in the so-called London Interbank loan market as displayed on Pages 3740 or 3750 (as appropriate) on the Telerate Service for the currency in which such unpaid sum is to be denominated and for the relevant specified period at or about 11:00 a.m. (London time) on the second Business Day before the beginning of such specified period.

     “LLC Agreement” means the limited liability company agreement of Merial in the form provided as Exhibit II hereto, as the same may be amended, modified, supplemented or restated from time to time.

     “MACI” has the meaning set forth in Section 1.3(a).

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     “Material Adverse Change or Effect” means, with respect to any Person, a change or effect that materially adversely affects, or (except with respect to Sections 12.6(b)(vi) or 12.6(c)(vi), as the case may be) is reasonably likely to materially adversely affect,

     (i) if such determination is to be made on or prior to the Closing, (A) in the case of an RP Company, the assets, liabilities, operations, results of operations or financial condition of RM and its Subsidiaries, taken as a whole; and (B) in the case of a Merck Company, the Merck Contributed Assets or the operations, results of operations or financial condition of the Merck Contributed Business; or

     (ii) if such determination is to be made after the Closing, (A) in the case of a Merial Venture Company, the assets, liabilities, operations, results of operations or financial condition of the Merial Venture; and (B) in the case of an RP Company or a Merck Company, the ability of such company to perform any of its material obligations under this Agreement or any Ancillary or Future Agreement if such obligations are material to the assets, liabilities, operations, results of operations or financial condition of the Merial Venture;

provided that, as used in Articles VIII, IX and X of this Agreement, the terms “Material Adverse Change”, “Material Adverse Effect”, “material” or any similar terms shall mean having an adverse impact or effect or potential adverse impact or effect on the value of RM and its Subsidiaries or the value of the Merck Contributed Assets, as the case may be, or on the aggregate net income of the Merial Venture, of at least [*].

     “Member” means a shareholder of Merial being either the RP Member or the Merck Member, which together shall be the “Members”.

     “Members’ Meeting” has the meaning set forth in Section 4.1.

     “Merck” means Merck & Co. or any Successor Entity thereto.

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     “Merck & Co.” has the meaning set forth in the introduction to this Agreement.

     “Merck Accrued Tax Liabilities” has the meaning set forth in Section 5.1(a)(ii)(B).

     “Merck Adjustment Products” has the meaning set forth in Section 6.4(c).

     “Merck Animal Health Executive” means the Merck executive with direct responsibility for Merial reporting to the Chief Executive Officer of Merck and any duly appointed successor in such role, notified in writing by Merck to RP and Merial.

     “Merck Benefit Plan” means each Benefit Plan (other than Merck Employee Agreements) which is now or previously has been sponsored, maintained, contributed to, or required to be contributed to, or with respect to which any withdrawal liability (within the meaning of Section 4201 of ERISA) has been incurred, by Merck, any of its Subsidiaries or any Merck ERISA Affiliate for the benefit of any Merck Employee, and pursuant to which Merck, any of its Subsidiaries or any Merck ERISA Affiliate has or may have any liability, contingent or otherwise.

      “Merck Breach” has the meaning set forth in Section 14.2(b).

      “Merck Company” means any of Merck or its Subsidiaries.

     “Merck Contributed Assets” has the meaning set forth in Section 10.10.

     “Merck Contributed Business” means all the Merck JV Business activities and operations immediately prior to the Closing, other than those activities or operations (i) that Merck will continue to conduct pursuant to the Ancillary Agreements to which Merck or any of its Subsidiaries is a party, (ii) conducted using the assets, properties and rights set forth in Schedule 2-7, and (iii) relating to “The Merck Veterinary Manual” and the Annual Authorizations Service Repertory License Agreement between Copyright Clearance Center, Inc. and Merck & Co. Inc. dated December 31, 1995.

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     “Merck Contributed Business Financials” has the meaning set forth in Section 10.5. The Merck Contributed Business Financials are attached as Exhibit XVI.

     “Merck Contributed Debt” has the meaning set forth in Section 5.2(a).

     “Merck Contributed Liabilities” means all of the obligations or Liabilities of Merck or any of its Subsidiaries (whether or not reflected on the Merck Contributed Business Financials or the books and records of Merck or any of its Subsidiaries) arising from, relating to, resulting from or incurred in connection with, the Merck Contributed Business or any of the Merck Contributed Assets or the ownership or operation of, or conduct of any activities on or from, any of the foregoing, including (i) under the agreements, contracts, leases, licenses and other arrangements included within the Merck Contributed Assets, (ii) accounts and other payables, (iii) Environmental Liabilities, (iv) Taxes, (v) threatened, pending or settled litigation, (vi) under Merck Benefit Plans, and (vii) all obligations or Liabilities of the types referred to in the Merck Contributed Business Financials or that are the subject of any of the representations in Article X.

     “Merck Contributed Non-U.S. Assets” means all the Merck Contributed Assets that are not Merck Contributed U.S. Assets.

     “Merck Contributed U.S. Assets” has the meaning set forth in Section 5.1(a)(i).

     “Merck Employee” means each current, former, or retired employee of a Merck Transferred Subsidiary together with those employees listed in Schedule 10.19H-2.

     “Merck Employee Agreement” means each management, employment, severance, consulting, non-compete, confidentiality, or similar agreement or contract between Merck or any of its Subsidiaries and any Merck Employee pursuant to which Merck or any of its Subsidiaries has or may have any liability, contingent or otherwise.

     “Merck ERISA Affiliate” means each business or entity which is a member of a “controlled group of corporations,” under “common control” or an “affiliated service

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group” with Merck within the meaning of Sections 414(b), (c) or (m) of the Code, or required to be aggregated with Merck under Section 414(o) of the Code, or is under “common control” with Merck, within the meaning of Section 4001(a)(14) of ERISA.

     “Merck Group” means Merck, together with all its Subsidiaries.

     “Merck JV Business” means, from time to time at any time prior to the Closing, all the Merial Venture Business activities of the Merck Group, including of the Merck Transferred Subsidiaries, throughout the world.

     “Merck Leased Employees” has the meaning set forth in Section 7.1(a).

     “Merck Manufacturing Supply Price Formula” means the Merck Manufacturing Supply Price Formula annexed as Exhibit 10 to the Merck Supply Agreement.

     “Merck Member” means the Member that is a Subsidiary of Merck which shall, as of the Closing, be Merck SH.

     “Merck Negotiated Supply Price” has the meaning set forth in Section 6.7(a).

     “Merck Pre-Closing Taxes” has the meaning set forth in Section 14.12(a).

     “Merck Product Registrations” has the meaning set forth in Section 10.13.

     “Merck Proprietary Rights” has the meaning set forth in Section 10.12(b).

     “Merck Restructuring Event” means any transaction or series of related transactions pursuant to which all or substantially all of the assets of Merck are sold or otherwise transferred to a Third Party.

     “Merck Retirement Plans” has the meaning set forth in Section 7.1(b).

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     “Merck SH” has the meaning set forth in the introduction to this Agreement.

     “Merck Stock Option Plan” has the meaning set forth in Section 7.1(d).

     “Merck Transferred Benefit Plan” means the Merck & Co., Inc. Employee Savings and Security Plan and each Merck Benefit Plan sponsored, maintained, or contributed to by a Merck Transferred Subsidiary.

     “Merck Transitory LLC” has the meaning set forth in Section 1.3(a).

     “Merck Transferred Foreign Pension Plan” means each Merck Transferred Benefit Plan that is an “employee pension benefit plan” within the meaning of Section 3(2) of ERISA but that is not subject to Title I or IV of ERISA pursuant to Sections 4(b)(4) and 4021(b)(7) of ERISA.

     “Merck Transferred Pension Plan” means each Merck Transferred Benefit Plan which is an “employee pension benefit plan” within the meaning of Section 3(2) of ERISA and is subject to Title IV of ERISA.

     “Merck Transferred Subsidiaries” means each Subsidiary of Merck listed in Schedule 2-8 hereto.

     “Merial” has the meaning set forth in the introduction to this Agreement.

     “Merial Merck Employees” has the meaning set forth in Section 7.1(a).

     “Merial Venture” means the group comprised of all the Merial Venture Companies.

     “Merial Venture Business” has the meaning set forth in Section 1.2(a).

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     “Merial Venture Companies” means collectively Merial and (following its transfer to Merial) each Transferred Subsidiary and any other Subsidiary of Merial from time to time, and “Merial Venture Company” means any one of them.

     “Merial Venture Interest” of a Principal means all direct and indirect equity and other ownership interests of such Principal and any of its Subsidiaries in the Merial Venture.

     “Merial Venture Product” means, from time to time, any one of the Existing Products or Future Products.

     “Net Reported Sales” means, in respect of any Avermectin, Fipronil or Biological Products, as the case may be, the sales amount calculated in the same manner as Net Sales, but without deducting from the gross invoice price of such products the items listed in (iv) and (v) of the definition of Net Sales and calculated for purposes of Sections 6.4 or 6.5, in the case of sales made in the currencies set forth therein, based on the exchange rates set forth in Section 6.4(e).

     “Net Sales” means the gross invoice price (which will not include any taxes) of Avermectin, Fipronil or Biological Products, as the case may be, sold by Merial, its Subsidiaries or sublicensees to the first independent third party after deducting, if not already deducted in the amount invoiced:

     (i) the normal or customary trade and/or quantity discounts, excluding cash discounts, that are actually allowed or granted;

     (ii) returns, rebates and allowances that are actually granted;

     (iii) retroactive price reductions applicable to sales of such products that are actually allowed or granted;

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     (iv) sales commissions that are actually paid to third party distributors and selling agents; and

     (v) [*] of the amount invoiced to cover cash discounts, bad debt, freight or other transportation costs, insurance charges, additional special packaging, duties, tariffs and other governmental charges.

With respect to sales of Avermectin or Fipronil Products sold in Combinations, Net Sales shall be calculated in accordance with the provisions of the definition of Net Sales set forth in Exhibit XXI [Avermectin Products Sales Adjustment] or the RP Ag Research Agreement, respectively.

     “Other JVs” means Persons that are, in substance, joint ventures in which (a) the Merck Group or the RP Group, as the case may be, owns 50% or less of both (x) the outstanding equity, and (y) the outstanding equity that has the right to elect or appoint the members of the board of directors or similar governing body of such Person (the Parties hereby conclusively deem the conditions of this clause (a) to be satisfied in respect of Banyu Pharmaceutical Co. Ltd., its Subsidiaries and its and their respective successors), and (b) the principal business of such Person is a business or businesses other than the Animal Health Business or the Poultry Genetics Business.

     “Other Taxes” means all Taxes which are not Income Taxes, including registration and stamp duties (even if related to real property); provided, however, that such term shall not include any real property taxes.

     “Parties” means all the parties to this Agreement and “Party” means any one of them.

     “Patents” means, in respect of any product, any unexpired patents or patent applications in any jurisdiction necessary to make, have made, use or sell such product.

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     “Person” or “person” means a natural person or any corporation, partnership, company, limited liability company, association, trust or other entity of any kind whatsoever.

     “Pipeline Products” means, with respect to RM and its Subsidiaries, the products listed under the caption “Pipeline” on page 1 of the RM base case attached as Exhibit XIV hereto and, with respect to the Merck Group, the products listed under the caption “Pipeline” of the Merck base case attached as Exhibit XV hereto.

     “PMSV” means Pasteur Mérieux Sérums et Vaccins S.A.

     “Poultry Genetics Business” has the meaning set forth in Section 1.2(a).

     “Poultry Genetics Products” has the meaning set forth in Section 1.2(c).

     “Pre-Closing Benefit Liabilities” means liabilities incurred, suffered or accrued as of, or otherwise arising out of events or periods occurring prior to, the Closing Date with respect to a Merck Transferred Benefit Plan or an RM Transferred Benefit Plan and calculated as follows: (i) the calculation of liabilities for “employee pension benefit plans” within the meaning of § 3(2) of ERISA and which are defined benefit plans shall be determined as of the Closing Date using the January 1, 1997 census data of each such plan (unless there have been significant demographic changes between January 1, 1997 and the Closing Date, in which case the Closing Date census data of a particular plan shall be used with respect to such plan) and shall be determined (on an accumulated benefit obligation basis) based upon actuarial assumptions used by RM (for RM Transferred Pension Plans) or Merck (for Merck Transferred Pension Plans) for purposes of determining pension expense pursuant to FAS 87 for each such plan for 1997; (ii) the calculation of liabilities for retiree medical plans shall be determined as of the Closing Date using the January 1, 1997 census data of each such plan (unless there have been significant demographic changes between January 1, 1997 and the Closing Date, in which case the Closing Date census data of a particular plan shall be used with respect to such plan) and shall be determined (on an accumulated post-retirement benefit obligation basis)

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based upon those actuarial assumptions used by RM (with respect to RM Transferred Benefit Plans which provide retiree medical benefits) or Merck (with respect to Merck Transferred Benefit Plans which provide retiree medical benefits) for calculating the expense for purposes of FAS 106 for 1997; (iii) the calculation of liabilities for RM Transferred Benefit Plans and Merck Transferred Benefit Plans providing post-employment (but pre-retirement) benefits such as salary and health care continuation, supplemental unemployment benefits, severance benefits and disability-related benefits (including workers’ compensation) shall be determined as of the Closing Date using the January 1, 1997 census data of each such plan (unless there have been significant demographic changes between January 1, 1997 and the Closing Date, in which case the Closing Date census data of a particular plan shall be used with respect to such plan) and shall be determined based upon those actuarial assumptions used by RM (with respect to RM Transferred Benefit Plans which provide such benefits) or Merck (with respect to Merck Transferred Benefit Plans which provide such benefits) for calculating the expense for purposes of FAS 112 for 1997; provided, however, that the calculation of liabilities for long-term disability plans shall include liability for any employee who has commenced or is eligible to commence benefits under a short-term disability plan maintained by his or her employer as of the Closing Date and becomes eligible to receive, after the Closing Date, benefits under a long-term disability plan of the Merial Venture as a result of such pre-Closing disability, provided that such disability is continuous in accordance with the terms of the applicable plan; (iv) the calculation of other liabilities for RM Transferred Benefit Plans and Merck Transferred Benefit Plans which are medical or dental plans shall be based on claims for treatment or services received or other expenses incurred prior to the Closing and reported prior to December 31, 1997; (v) liabilities for RM Transferred Benefit Plans and Merck Transferred Benefit Plans which are bonus plans shall be equal to a pro rata portion (based on the percentage of the bonus period up to and including the Closing Date) of the bonus that is paid with respect to the full bonus period; and (vi) the liability for any RM Transferred Benefit Plan or Merck Transferred Benefit Plan not covered by clauses (i) through (v) above including any and all such plans maintained outside of the U.S., shall be determined using generally accepted actuarial or accounting principles, and using such actuarial or other assumptions as may be necessary, and as agreed to by RP and Merck. Pre-Closing Benefit Liabilities shall be calculated by

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the plan actuary for the plan at issue (or if there is no plan actuary, by the actuary or accountant appointed by the plan sponsor); provided, however, that if Merck or RP dispute the determination of such liabilities made by such actuary (or accountant, as applicable), Merck and RP shall jointly choose an actuary or accountant, as applicable, to perform such calculation and the determination of the jointly chosen actuary or accountant, as applicable, shall be binding on RP and Merck. Pre-Closing Benefit Liabilities shall exclude RM Pre-Closing Taxes and Merck Pre-Closing Taxes.

     “Pre-Closing Tax Period” in relation to a Person means all taxable periods of that Person ending on or before the Closing Date.

     “Principal” means each of RP and Merck, which are together the “Principals.”

     “Product Liability” means any Damages that arise as a result of, or in connection with, the use by a Third Party of a Merial Venture Product.

     “Product Registration” means, with respect to a product, the product registration (final and pending) or any other authorizations of Public Authorities necessary to market such product in any country.

     “Product Rights” means, with respect to a product and its marketing, distribution and sale in a country, (i) the Product Registrations, and (ii) all product trademarks, service marks, trade dress and copyrights necessary to market, distribute and sell such product in that country.

     “Public Authority” means any supranational, national, regional, state or local government, court, tribunal, governmental agency, authority, board, bureau, instrumentality or regulatory body.

     “Qualified Future Other JVs” means Other JVs for so long as no member or representative of the Merck Group or the RP Group, as applicable, initiates or takes other affirmative action to cause such Other JV to commence an Animal Health Business or

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Poultry Genetics Business other than (a) de minimis activities that are incidental to the principal business or businesses of such Other JV or (b) which result from the exploitation of a product (including for the Animal Health or Poultry Genetics Business) invented or developed in the principal business or businesses (i.e. non Animal Health or Poultry Genetics Business) of such Other JV.

     “Receivables” of any person means any and all accounts receivable of such person and all notes and other amounts receivable by such person from third parties, including, without limitation, customers and employees, whether or not in the ordinary course of business, together with any unpaid financing charges accrued thereon; provided that “Receivables” of any of Merck or its Subsidiaries shall mean only such receivables as constitute Merck Contributed Assets.

     “Representative” of a Member has the meaning set forth in Section 4.2(d).

     “Research Agreements” means, collectively, the Merck Research Agreement, the RPR Research Agreement, the RP Ag Research Agreement and the PMSV Research Agreement.

     “Retained Inventory” shall have the meaning set forth in Section 5.1(a)(ii)(C).

     “Retained Receivables” shall have the meaning set forth in Section 5.1(a)(ii)(C).

     “Retirement Cost” shall have the meaning set forth in Section 7.1(b).

     “Retroactive Closing Mechanism” shall have the meaning set forth in Section 6.3(a).

     “Retroactive Closing Financial Statements” shall have the meaning set forth in Exhibit XIX hereto.

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     “Returns” means all returns, reports, declarations, estimates, information returns, statements and forms of any nature regarding Taxes, including remittance advice, required to be filed with any Taxing Authority.

     “Rhône-Poulenc” has the meaning set forth in the introduction to this Agreement.

     “RM” has the meaning set forth in the introduction to this Agreement.

     “RM Accrued Tax Liabilities” has the meaning set forth in Section 5.2(b).

     “RM Benefit Plan” means each Benefit Plan (other than RM Employee Agreements) which is now or previously has been sponsored, maintained, contributed to, or required to be contributed to, or with respect to which any withdrawal liability (within the meaning of Section 4201 of ERISA) has been incurred, by RP, any of its Subsidiaries or any RM ERISA Affiliate for the benefit of any RM Employee, and pursuant to which RP, any of its Subsidiaries or any RM ERISA Affiliate has or may have any liability, contingent or otherwise.

     “RM Contributed Liabilities” means all of the obligations or Liabilities of RM or any of its Subsidiaries (whether or not reflected on the RM Financials or the books and records of RM or any of its Subsidiaries).

     “RM Employee” means each current, former, or retired employee of an RM Transferred Subsidiary together with those employees listed on Schedule 8.18A-2.

     “RM Employee Agreement” means each management, employment, severance, consulting, non-compete, confidentiality, or similar agreement or contract between RP or any of its Subsidiaries and any RM Employee pursuant to which RP or any of its Subsidiaries has or may have any liability contingent or otherwise.

     “RM ERISA Affiliate” means each business or entity which is a member of a “controlled group of corporations,” under “common control” or an “affiliated service

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group” with RP within the meaning of Sections 414(b), (c) or (m) of the Code, or required to be aggregated with RP under Section 414(o) of the Code, or is under “common control” with RP, within the meaning of Section 4001(a)(14) of ERISA.

     “RM Financials” has the meaning set forth in Section 8.5. The RM Financials are attached as Exhibit XVII.

     “RM Intercompany Debt” has the meaning set forth in Section 5.2(b).

     “RM Outstanding Debt” has the meaning set forth in Section 5.2(b).

     “RM Plans” has the meaning set forth in Section 7.1(e).

     “RM Pre-Closing Taxes” has the meaning set forth in Section 14.11(a).

     “RM Proprietary Rights” has the meaning set forth in Section 8.11(b).

     “RM Transferred Benefit Plan” means each RM Benefit Plan sponsored, maintained, or contributed to by an RM Transferred Subsidiary.

     “RM Transferred Foreign Pension Plan” means each RM Transferred Benefit Plan that is an “employee pension benefit plan” within the meaning of Section 3(2) of ERISA but that is not subject to Title I or IV of ERISA pursuant to Sections 4(b)(4) and 4021(b)(7) of ERISA.

     “RM Transferred Pension Plan” means each RM Transferred Benefit Plan which is an “employee pension benefit plan” within the meaning of Section 3(2) of ERISA and is subject to Title IV of ERISA.

     “RM Transferred Subsidiaries” means, collectively, RM and each Subsidiary of RM listed in Schedule 2-11 hereto.

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     “RM U.S. Employees” has the meaning set forth in Section 7.1(e).

     “RM 401(k) Plan” has the meaning set forth in Section 7.1(e).

     “RP” means Rhône-Poulenc S.A. or any Successor Entity thereto.

     “RP Adjustment Products” has the meaning set forth in Section 6.4(b).

     “RP Ag” means Rhône-Poulenc Agrochimie S.A.

     “RP Ag Manufacturing Supply Price Formula” means the Manufacturing Supply Price Formula annexed as Exhibit 3 to the RP Ag Supply Agreement.

     “RP Animal Health Executive” means the individual named in Schedule 2-12 and any duly appointed successor to such individual, notified in writing by RP to Merck and Merial.

     “RP Breach” has the meaning set forth in Section 14.2(b).

     “RP Company” means any of RP or its Subsidiaries.

     “RP Contributed Debt” has the meaning set forth in Section 5.2(b).

     “RP Finance” has the meaning set forth in Section 1.3(a).

     “RP Group” means RP, together with all its Subsidiaries.

     “RP Member” means the Member that is a Subsidiary of RP which shall, subject to sections 17.1 and 17.2, be IM.

     “RP Restructuring Event” means any transaction or series of related transactions pursuant to which (i) any of RP Ag, PMSV or RPR ceases to be a Subsidiary of RP, or

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(ii) all or substantially all of the assets of any of RP Ag, PMSV or RPR are sold or otherwise transferred to a Third Party.

“RPR” means Rhône-Poulenc Rorer S.A.

“SAS” means société par actions simplifiée.

“Special Dividend” has the meaning set forth in Section 6.2(a).

     “Straddle Period” means, in relation to a Person, the taxable period of that Person that includes the Closing Date.

     “Subsidiary” means, with respect to any Person (herein referred to as the “parent”), any corporation, partnership, company, association, trust or other business entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or more than 50% of the general partnership or analogous interests are, at the time such determination is being made, owned, Controlled or held by the parent and/or one or more other Subsidiaries of the parent, or (b) which is, at the time such determination is made, otherwise Controlled, by the parent and/or one or more other Subsidiaries of the parent; provided that it shall be deemed that (i) as from the Closing Date, none of the Merial Venture Companies shall be a Subsidiary of either Merck or RP; and (ii) none of the Existing Other JVs or Qualified Future Other JVs shall be a Subsidiary of either Merck or RP.

     “Successor Entity” has the meaning set forth in the definition of Change of Control above.

     “Supply Agreements” means, collectively, the Merck Supply Agreement and the RP Ag Supply Agreement.

     “Tax” means any tax, including, without limitation, income (net or gross), corporations, capital gains, gross receipts, franchise, estimated, alternative, minimum,

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add-on minimum, sales, use, transfer, registration, value added, excise, natural resources, severance, stamp, occupation, premium, windfall profit, customs, duties, real property, personal property, capital stock, social security, unemployment, disability, payroll, license, employee or other withholding, or other tax, of any kind whatsoever, and including any interest, penalties or additions to tax, levied by any Taxing Authority.

     “Taxing Authority” means any governmental authority, including, but not limited to agencies of the European Union, the United States federal government, the government of the French Republic, the government of the United Kingdom, or the government of any other country, and any political subdivision of any of the foregoing, having jurisdiction over the assessment, determination, collection, or other imposition of Tax.

     “Tax Benefit” means any items of loss, deduction or credit or any other item to the extent such item decreases Taxes paid or payable including any interest and penalty with respect thereto or interest that would have been payable but for such item.

     “Tax Matter” means any Tax matter, including any audit, examination, assessment, notice of deficiency or other adjustment or proposed adjustment, or administrative or judicial proceeding, the settlement of any of the foregoing, or the filing of any amended return.

     “Third Party” means a person who or which is neither a Merial Venture Company nor a Merck Company nor an RP Company.

     “Third Party Claim” has the meaning set forth in Section 14.7(a).

     “Transactions” means, collectively, all the transactions contemplated by this Agreement and the Ancillary Agreements.

     “Transferred Subsidiaries” means, collectively, the RM Transferred Subsidiaries and the Merck Transferred Subsidiaries.

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     “U.S.” means the United States of America.

     “U.S. Animal Health Employees” has the meaning set forth in Section 7.1(f).

     “U.S. Person” means any company or other Person that is formed or domesticated under the laws of any state of the United States of America.

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ARTICLE III

MERIAL VENTURE COMPANIES

SECTION 3.1. Merial

     (a) Merial as Principal Entity. Merial shall be the parent company of the Merial Venture. Any entity created by Merial or any Merial Venture Company in any country to conduct Merial Venture Business operations shall be a Subsidiary of Merial.

     (b) Location of Offices. The principal office of Merial shall be in London, England.

SECTION 3.2. Reorganization of Subsidiaries Prior to Closing

     Prior to the Closing, the following actions shall be taken:

     (a) Merck shall cause each of the Merck Transferred Subsidiaries that is a U.S. Person to be reorganized as a limited liability company which is not classified as an association taxable as a corporation for U.S. federal income tax purposes.

     (b) RP shall cause RM to be reorganized as a SAS, which is not classified as an association taxable as a corporation for U.S. federal income tax purposes. RP shall cause such reorganized entity to be wholly owned by Merial, except for one share therein which will be owned by a newly-formed single member Delaware limited liability company which is not classified as an association taxable as a corporation for U.S. federal income tax purposes, which shall itself be wholly owned by Merial.

     (c) RP shall cause the share ownership of all the Subsidiaries of Rhone Merieux, Inc. that are not U.S. Persons to be transferred to Merial or to Subsidiaries of Merial that are not U.S. Persons, it being understood that RP shall not be required to cause any such transfer which would result in an aggregate (for all such transfers) adverse

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tax consequence for the RP Group in excess of [*].

     (d) IM shall cause Merial to elect classification as a partnership for U.S. federal income tax purposes.

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ARTICLE IV

GOVERNANCE

     Merial is, as at the date hereof, an English private company limited by shares governed by the Laws of England and Wales and shall, as of the Closing, be governed by the Association Documents. As of the Closing, Merial will, pursuant to the Delaware Act, be domesticated in Delaware as a Delaware limited liability company governed by the LLC Agreement and, to the extent applicable, Delaware Laws. To the extent that the provisions of English Laws governing Merial and the provisions of Delaware Laws governing Merial are not identical, the Directors and the Members shall take such steps as are reasonably required to ensure that Merial complies with both such Laws. Merial is, in addition, otherwise subject to the relevant provisions of this Agreement.

SECTION 4.1. Company Bodies of Merial

     The company bodies of Merial are:

• the members of Merial acting through a meeting of the Members or a unanimous written resolution (the “Members’ Meeting”),

• the Board of Directors, and

• the Executive Officers.

SECTION 4.2. Members’ Meeting

     (a) Members’ Meeting as Ultimate Authority of Merial. The Members’ Meeting shall be the ultimate authority of Merial. Certain fundamental decisions affecting Merial shall require the approval of the Members’ Meeting.

     (b) Resolutions of the Members’ Meeting. The following actions shall require a resolution of the Members’ Meeting:

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     (i) the dissolution or winding up of, or any merger, joint venture or partnership involving, or the acquisition or reorganization of, Merial;

     (ii) any arrangement for the acquisition of all or substantially all of the assets or undertakings of Merial;

     (iii) any modification of the Association Documents or the LLC Agreement, including, without limiting the generality of the foregoing, any increase or decrease of Merial’s authorized share capital or the issuance by Merial of any securities or interests, or any options, warrants or other rights to acquire such securities or interests;

     (iv) the undertaking of any significant business activities outside the scope of the Merial Venture Business;

     (v) the approval of the annual financial statements (including income and cash flow statements and balance sheet) of Merial;

     (vi) the payment or declaration of any dividend or distribution or the entering into of any transaction by reference to, or which will have the effect of reducing, Merial’s Distributable Profits, except as expressly contemplated by this Agreement, and in particular by Article VI ;

     (vii) any request for capital contributions by the Members;

     (viii) the appointment or removal of the auditor(s) of Merial;

     (ix) any matter put to the Members’ Meeting for its resolution by the Board of Directors or either of the Members; and

     (x) all other matters required by applicable Laws to be decided or approved by the Members.

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     (c) Unanimous Vote in the Members’ Meeting. Decisions of the Members’ Meeting shall require the agreement of both Members.

     (d) Selection of Representatives. Each of the Members shall designate, prior to or at the commencement of the Closing Meeting, either (A) one representative who shall be authorized to cast such Member’s vote at all meetings of the Members until another individual is designated to cast such vote or (B) several representatives, each of whom shall be authorized to cast such Member’s vote at the meetings which shall be specified in such representative’s designation, and, for each such representative, until another individual is designated to cast such vote. Each such designation may specify the terms of any substitution (as in the case of absence or otherwise). A memorandum in the form set out in the Association Documents recording such designation shall be made in writing and delivered to the other Member, and details of the relevant designation may be read into the minutes of the meeting at the commencement of the meeting and the memorandum thereafter so delivered. The vote of a Member’s designated representative or of the substitute for such representative, if applicable (such designated representative or substitute being the “Representative”), in the Members’ Meeting shall in all cases be deemed to be the decision of such Member. Any appointment by or notification of either such Representative under this Article IV shall in all cases be deemed to be the appointment by or notification of the respective Member.

     (e) Voting by the Members in the Members’ Meeting. Each of the Members shall at all times exercise or cause to be exercised all of its powers and votes as a member of Merial such that Merial shall comply with all obligations under and implement all provisions of this Agreement, the LLC Agreement and the Association Documents, as validly amended from time to time.

     (f) Members’ Meetings. Non-voting representatives of either Member may attend any Members’ Meetings in addition to the Representatives. A quorum shall exist in a Members’ Meeting if Representatives of both Members are present. Decisions may also be taken by the Members’ Meeting by unanimous written resolution of both Members.

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     (g) New Members’ Meeting in Case of Inability to reach a Decision. If, with respect to a specific matter, the Members are unable to reach a decision in the Members’ Meeting, then each Member has the right to request a new Members’ Meeting to discuss the same matter. Such new Members’ Meeting shall occur within thirty (30) days after the date of the last Members’ Meeting.

     (h) Deadlock, Conciliation. If at such second Members’ Meeting, the Members are still deadlocked with respect to said matter, within seven (7) days thereafter the matter shall be referred for resolution pursuant to the terms of Section 18.1 to the RP Animal Health Executive and the Merck Animal Health Executive.

     (i) Discussion of Agenda Prior to Members’ Meeting. At the request of either Member, the points of the agenda shall be discussed between representatives of the Members prior to any Members’ Meeting.

     (j) Calling for a Members’ Meeting. A Members’ Meeting may be called by the Board of Directors or by any Member. Members’ Meetings shall take place at the registered office of Merial unless another location is agreed upon by both Members.

     (k) Annual Members’ Meeting. Subject to the requirements of the Companies Act, the annual Members’ Meeting shall be held within six (6) months after the end of each Fiscal Year. It shall consider the approval of Merial’s annual financial statements, the allocation (in accordance with the other provisions of this Agreement) of any Distributable Profits and the appointment of Merial’s auditors, when required.

SECTION 4.3. Board of Directors

     (a) Powers of the Board of Directors. The fundamental policies and the strategy of Merial shall be determined by its board of directors (the “Board of Directors”). The Board of Directors shall have responsibility for approving the annual budget and Business Plan and shall oversee their implementation by the Executive Chairman and the other Executive Officers. Except for matters requiring the approval of

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the Members’ Meeting and subject to the Members’ Meetings’ decisions, the Board of Directors shall have the responsibility for making all significant decisions of Merial. In particular, Merial shall not do, either directly or indirectly, any of the following with respect to the Merial Venture without the prior approval of the Board of Directors:

     (i) take any action that affects the ownership or nature of the share capital of RM or the nature of the share capital of Merial, it being understood that any change in the ownership of the share capital of Merial shall be deemed for the purposes of this Section 4.3(a)(i) not to affect the ownership or nature of the share capital of RM or the nature of the share capital of Merial (the Directors appointed by the RP Member being hereby reminded by RP that they should, prior to participating in such approval or taking any other action affecting the RP Member’s ownership interest in Merial, consult with tax counsel and may wish to obtain confirmation from the French Direction Générale des Impôts of the effect of such action on the agrément fiscal described in Section 11.2(b) and any potential for substantial Taxes to be imposed on RP);

     (ii) except as previously approved in writing in the annual budget, invest in, acquire or dispose of assets or businesses in any manner, or encumber assets in any manner, or incur or assume any indebtedness, enter into long term contracts, or generally undertake any other matter of extraordinary importance or particular strategic importance, in one transaction or a series of related transactions, in each case in excess of [*];

     (iii) subject to Section 4.3(a)(1), acquire, purchase, subscribe for, dispose of or transfer any shares, debentures, partnership interest or other interests in or securities of (or any interest therein) any Person, in one transaction or a series of related transactions, in each case in excess of [*];

     (iv) approve Merial’s annual financial statements prior to their submission to the Members’ Meeting;

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     (v) form, sell, dissolve, liquidate or terminate any Merial Venture Company or take any company action in connection therewith;

     (vi) undertake or terminate any major research or development program;

     (vii) initiate or settle any significant litigation or provide any undertaking (except in the ordinary course of business) to a Public Authority;

     (viii) appoint, remove or replace any of the Executive Officers;

     (ix) enter into any agreement providing for (A) the sale or licensing out of any potentially significant Intellectual Property; or (B) the purchase or licensing in of any Intellectual Property involving the payment or potential payment of more than [*];

     (x) change any of the accounting principles or practices to be applied in the preparation of financial statements or change Merial’s accounting reference date;

     (xi) determine the remuneration and other terms and conditions of employment of any of the Executive Officers of Merial, except as applicable to employees generally;

     (xii) enter into (except for the Ancillary Agreements to be entered into as provided in this Agreement) or terminate or amend or waive any material term or condition under any contract or transaction between any Merial Venture Company, on the one hand, and either an RP Company or a Merck Company, on the other;

     (xiii) provide any loan or advance or credit (other than customary trade credit) to, or incur any guarantee, surety, indemnity, Encumbrance or other obligation in favor of, any RP Company or Merck Company;

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     (xiv) make aggregate (across all Merial Venture Companies) charitable contributions in any year in excess of [*];

     (xv) enter into, or terminate or amend or waive any material term or condition under, any employment or other contract with any Executive Officer or with any other employee of Merial whose annual emoluments are reasonably expected to exceed [*], create or adopt new employee benefit or general bonus plans or materially amend existing employee benefit or bonus plans, except as required to comply with the terms of this Agreement, or make loans or severance payments to employees except in accordance with policies previously approved by the Board of Directors or with the terms of this Agreement;

     (xvi) approve and implement, or disapprove, any corrective, preventive or remedial plan in response to an Environmental Liability at any site where the total projected costs of such plan (including all phases of such plan responding to the Environmental Liability) at such site are expected to exceed [*];

     (xvii) the issuance by any Subsidiary of Merial of any equity securities or interests, or any options, warrants or other rights to acquire such equity securities or interests; and

     (xviii) any other matter required by applicable Laws to be decided upon or approved by the Board of Directors.

     (b) Formation and Members of the Board of Directors. At the Closing, a Board of Directors shall be formed for Merial which shall consist of six (6) members. Three (3) members shall be appointed by the RP Member and three (3) members shall be appointed by the Merck Member, each for a term of office of six (6) years (each, a “Director”, and together, the “Directors”). The right of the RP Member and the Merck Member to appoint Directors shall include the right to remove and to replace Directors they have each appointed.

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     (c) Executive Officers not Directors. None of the Executive Officers shall be Directors or shall have the right to vote at any meeting of the Board of Directors.

     (d) Executive Chairman and CEO to be Observers. Unless the Board of Directors expressly decides otherwise with respect to a particular matter or meeting, the Executive Chairman and, for so long as there is one, the CEO shall be observers of the Board of Directors, with the right to be notified of, to attend and to be heard at every meeting of the Board of Directors.

     (e) Agenda for and Chairing of Meetings. The agenda for meetings of the Board of Directors shall be prepared by the secretary of Merial and shall include all matters proposed by either Member. Each meeting of the Board of Directors shall be chaired by one Director, who shall be named in the agenda for the meeting. The Closing Meeting shall be chaired by a Director nominated by IM. The following meeting of the Board of Directors shall be chaired by a Director nominated by Merck SH and, thereafter, each meeting shall alternatively be chaired by a Director appointed by the RP Member and a Director appointed by the Merck Member.

     (f) Quorum in Meetings of the Board of Directors, Unanimous Vote. A quorum shall exist in a meeting of the Board of Directors if at least four (4) Directors, two (2) nominees of the RP Member and two (2) nominees of the Merck Member, are present or represented. Resolutions of the Board of Directors shall only be valid if passed unanimously by all the Directors present at a meeting.

     (g) New Meeting in Case of Inability to Reach a Decision. If, with respect to a specific matter, the Board of Directors is unable to reach a decision in a meeting of the Board of Directors, then any Director has the right to request a new meeting to discuss the same matter. Such new meeting of the Board of Directors shall occur within thirty (30) days after the date of the last meeting.

     (h) Deadlock, Conciliation. If, at such second meeting of the Board of Directors, unanimity cannot be reached and the Board of Directors is still deadlocked,

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within seven (7) days after such meeting the matter shall be referred for resolution pursuant to the terms of Section 18.1 to the RP Animal Health Executive and the Merck Animal Health Executive.

     (i) Meetings of the Board of Directors. The Board of Directors shall meet at least three (3) times per calendar year and at such other times as may be requested by any Director. Meetings shall be in person and take place at the registered office of Merial or in any other manner by which all persons participating in the meeting may hear and speak to each other, unless all of the Directors agree otherwise. Alternatively, decisions of the Board of Directors may be taken by unanimous written resolution of all the then-incumbent Directors.

     (j) Minutes of Meetings of the Board of Directors. All meetings of the Board of Directors shall be recorded in minutes reflecting the place and date of the meeting, the participants therein, the items on the agenda, the material contents of discussions and the resolutions adopted by the Board of Directors. The minutes shall be signed by the Director chairing the meeting pursuant to Section 4.3(e) and by at least one Director nominated by the other Member, and a copy of the minutes shall be delivered to each Director, to each Member, to the Executive Chairman and, for so long as there is one, to the CEO.

     (k) Committees

     Subject to the general oversight and authority of the full Board of Directors, the following committees of the Board of Directors shall be established and maintained:

     (i) an Audit Committee, which shall consist of four persons appointed by the Board of Directors, two of whom shall be appointed by each of the Members and which shall be responsible for (aa) reviewing the accounts and accounting policies of Merial, (bb) meeting with Merial’s auditor(s) to review accounting issues, (cc) discussing potential distributions, and (dd) for presenting the yearly financial statements of Merial to the Board of Directors for its

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consideration, and shall have such powers as the Board of Directors may delegate to it from time to time;

     (ii) a Compensation Committee, which shall consist of four persons two of whom shall be appointed by each of the Members, and which shall be responsible for reviewing the executive and employee compensation policies of Merial and for proposing employee benefit plans and arrangements to the Board of Directors for its consideration, and shall have such powers as the Board of Directors may delegate to it from time to time;

     (iii) a Financing Committee, which shall consist of four persons two of whom shall be appointed by each of the Members, and which shall be responsible for reviewing the financing policies of Merial, including generally Merial’s capital and debt structure, capital expenditures and other matters of a financial and tax nature to be discussed by the Board of Directors, and for presenting resolutions relating to financing to the Board of Directors for its consideration, and shall have such powers as the Board of Directors may delegate to it from time to time; and

     (iv) an Executive Committee, of two persons, consisting of one Director appointed by each of the Members, and which shall assist the Executive Chairman, the CEO, and the Board of Directors in order to facilitate and expedite decision making by the Board of Directors, and shall have such powers as the Board of Directors may delegate to it from time to time.

     The Board of Directors may delegate any of its powers to any other committee, temporary or permanent, as it deems appropriate.

     (1) Limitations on Directors’ Duties. Merck agrees that it shall not (and shall cause its Subsidiaries not to), in relation to any Directors appointed by the RP Member, and RP agrees that it shall not (and shall cause its Subsidiaries not to), in relation to any Directors appointed by the Merck Member, take any action against such Director for negligence, default, breach of duty or breach of trust on the grounds that such negligence,

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default, breach of duty or breach of trust arose by virtue of the Director acting in accordance with the instructions of the Member appointing such Director. Merck, the Merck Member, RP and the RP Member agree that, in the event of any Director acting in accordance with the instructions, or in the interests of, the Member appointing such Director, then any resultant dispute shall be considered to be a dispute between the Parties to be resolved exclusively in accordance with the provisions of Article XVIII hereof.

SECTION 4.4. The Executive Chairman. CEO and other Executive Officers

     (a) Day-to-Day Management of the Merial Venture. Except for matters requiring the approval of the Members’ Meeting or of the Board of Directors, and subject to the decisions of the Members’ Meeting and of the Board of Directors, the Executive Chairman of Merial (the “Executive Chairman”) shall have the responsibility and authority to manage and operate the day-to-day business of Merial with the assistance of the other Executive Officers and in accordance with Merial’s current annual budget and Business Plan.

     (b) Appointment of the Executive Chairman

     (i) The Executive Chairman’s term of office shall have a duration of two years.

     (ii) The Person designated as initial Executive Chairman (the “Initial Chairman”) in Schedule 4.4 shall be nominated by the Merck Member and shall be appointed as Executive Chairman of Merial as of the Closing Date. At the expiry of his term of office, the parties intend that the Initial Chairman shall no longer be an officer or employee of the Merial Venture and at that time may return to a position within Merck. At the expiry of the Initial Chairman’s term of office, a new Executive Chairman shall be appointed by the RP Member, subject to the consent of the Merck Member (which consent shall not be unreasonably withheld). The RP Member shall communicate in writing its choice of Executive

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Chairman to the Merck Member at the latest one (1) month prior to the end of the Initial Chairman’s term of office.

     (iii) Subsequent Executive Chairmen shall be appointed by the Board of Directors, which shall also have the right to remove and replace the Executive Chairman.

     (c) Responsibilities of the Executive Chairman. The Executive Chairman shall be the head of the executive organization of the Merial Venture and (subject to Sections 4.2(b) and 4.3(a)) shall have the full authority to represent and bind Merial. The Initial Chairman appointed pursuant to the first sentence of Section 4.4(b)(ii) shall, in particular, be responsible for overseeing and managing the research and development and corporate staff functions and Poultry Genetics Business activities of the Merial Venture. The Executive Chairman shall also be responsible for strategic planning, including the preparation and presentation to the Board of Directors of Merial’s annual budget and its rolling three (3) year business plan (the “Business Plan”). The Business Plan shall set forth the goals, strategies and action plans of the Merial Venture over the current Fiscal Year and the two succeeding Fiscal Years, and shall include sub-plans for investment, research and development, manufacturing, marketing and personnel. The Members may at any time alter the duration or scope of the Business Plan. The Executive Chairman shall report to the Board of Directors.

     (d) Appointment of other Executive Officers. Merial shall have such other executive officers in addition to the Executive Chairman (together with the Executive Chairman, each an “Executive Officer” and, collectively, the “Executive Officers”) as shall be determined by the Board of Directors after receiving the recommendation of the Executive Chairman (it being understood that the Board of Directors may nominate Executive Officers other than those recommended by the Executive Chairman). The list of initial Executive Officers is set forth in Schedule 4.4. The Board of Directors shall have the power to appoint, remove and replace any of the Executive Officers.

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     (e) Appointment of the Chief Executive Officer (the “CEO”). The person designated as CEO in Schedule 4.4 shall be nominated by the RP Member and shall be appointed as CEO of Merial for a two year term of office as of the Closing Date. At the expiry of such term of office, unless the Board of Directors expressly decides otherwise, the position of CEO shall be terminated, and all the responsibilities of the CEO shall be combined with those of the Executive Chairman.

     (f) Responsibilities of the CEO. The CEO appointed pursuant to Section 4.4(e) shall be responsible for overseeing and managing the sales, marketing and manufacturing activities of the Merial Venture, and shall have other specific responsibilities and authority as delegated to him from time to time by the Executive Chairman. The CEO shall report to the Executive Chairman.

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ARTICLE V

CONTRIBUTIONS TO THE MERIAL VENTURE

CERTAIN TAX MATTERS

SECTION 5.1. Contributions of Assets and Assumption of Liabilities

     (a) Merck Contribution. On the terms and subject to the conditions of this Agreement (and subject specifically to the representations, warranties and covenants made by Merck in this Agreement) and the Merck Transfer Agreement, and subject to subsections (i), (ii) and (iii) below and to Sections 11.2(c) and 11.6, (x) Merck shall, on or prior to the Closing Date or as soon thereafter as practicable as provided in Section 5.1(a)(ii), assign, transfer, convey and deliver (by merger, sale or otherwise) to Merial or its Subsidiaries, or cause to be assigned, transferred, conveyed and delivered (by merger, sale or otherwise) to Merial or its Subsidiaries, all of the Merck Contributed Assets, and (y) Merial (or its relevant Subsidiary) shall, on the Closing Date, assume and agree to pay, perform, fulfill and discharge when due all of the Merck Contributed Liabilities.

     (i) U.S. Assets and Liabilities. Merck shall, on or prior to the Closing Date, assign, transfer, convey and deliver to Merck Transitory LLC: (A) the entirety of the assets and liabilities of Hubbard Farms, Inc., together with all of Hubbard Farms, Inc.’s direct and indirect ownership interests in each of its Subsidiaries except as indicated in Schedule 2-8 (such transaction to be effected in accordance with Section 1.3(a)(i)(B)), (B) to the extent indicated in Schedules 10.12 and 10.13, all of the Product Registrations and trademark registrations and trademark applications included in the Merck Contributed Assets that are owned by Merck or a Subsidiary of Merck that is a U.S. Person, (C) all other Merck Contributed Assets not covered by (A) and (B) above that are located in or registered in the U.S., including real estate or personal property, or that are owned by Merck or a Subsidiary of Merck that is a U.S. Person (other than the Retained Receivables and the Retained Inventory, as defined in Section 5.1(a)(ii)(C)), (D) all of the contracts included in the Merck Contributed Assets to which Merck or a Subsidiary of Merck that is a U.S. Person is a party (the assets

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listed in (A) through (D) together being the “Merck Contributed U.S. Assets”). Merck Transitory LLC shall, on or prior to the Closing Date, assume and agree to pay, perform, fulfill and discharge when due all of the Merck Contributed Liabilities reasonably attributable to the Merck Contributed U.S. Assets contributed to Merck Transitory LLC or their ownership or operation. The Parties understand that the contribution of the entirety of the assets and liabilities of Hubbard Farms, Inc. to Merck Transitory LLC will result in Merial being engaged in both the Animal Health Business and the Poultry Genetics Business. Merial shall create separate divisions within the Merial Venture for each of these businesses and shall prepare stand-alone financial statements for each division.

     (ii) Non-U.S. Assets and Liabilities.

     (A) Purchase of Assets and Assumption of Liabilities.

     (1) Valuation. Prior to the Closing, the Principals will agree on the aggregate fair market value of all the Merck Contributed Non-U.S. Assets (other than the cash and cash equivalent items included in such assets) net of the Merck Contributed Liabilities (other than the Merck Contributed Debt and the Merck Accrued Tax Liabilities (as defined in Section 5.1(a)(ii)(B)) reasonably attributable to such assets that will be purchased by Merial or any of its Subsidiaries (such value, after netting, being the “Merck Non-U.S. Net Assets Value”). For purposes of calculating the Merck Non-U.S. Net Assets Value, [*]

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[*].

     (2) Purchasing Entity. Merial or the appropriate Merial Subsidiaries agreed upon by the Principals (which generally shall be the Merial Subsidiaries located in the country in which each such asset is to be used) shall purchase each Merck Contributed Non-U.S. Asset from the Merck Subsidiary that owns such asset. Merial shall, and shall cause each of its Subsidiaries that has purchased any Merck Contributed Non-U.S. Assets to, on the Closing Date, assume and agree to pay, perform, fulfill and discharge when due all of the Merck Contributed Liabilities reasonably attributable to

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such purchased Merck Contributed Non-U.S. Assets or their ownership or operation.

     (3) Consideration for Purchase. The aggregate consideration for the Merck Non-U.S. Assets shall be cash in an amount equal to the Merck Cash Contribution Amount as defined in and contributed by Merck pursuant to Section 5.1(a)(ii)(B) and/or promissory notes issued to the selling Merck Subsidiaries, in accordance with the provisions of this Section 5.1(a)(ii)(A)(3). To the extent the actual aggregate purchase price paid for all the Merck Contributed Non-U.S. Assets pursuant to clause (1) above exceeds the Merck Cash Contribution Amount (as defined in Section 5.1(a)(ii)(B)), or to the extent the Principals otherwise agree, purchases of the Merck Contributed Non-U.S. Assets by Merial and the Merial Subsidiaries may be made with promissory notes issued to the selling Merck Subsidiaries.

     (4) Timing of Purchase. Each of the Parties shall (and shall procure that their respective Subsidiaries shall) cooperate and use commercially reasonable efforts (x) to give effect to, on the Closing Date, the purchase and sale of all the Merck Contributed Non-U.S. Assets and the assumption of the Merck Contributed Liabilities reasonably attributable thereto in accordance with this Section 5.1(a)(ii)(A), and (y) to the extent it is not possible (including by reason of not having obtained required approvals from appropriate Public Authorities and/or having completed workers’ council consultations or similar processes under applicable Laws) or reasonably practicable to purchase and sell certain Merck Contributed Non-U.S. Assets or to assume the Merck Contributed Liabilities reasonably attributable thereto effective as of the Closing Date, to give effect to the purchase and sale of each such asset and the assumption of such Liabilities (the “Delayed Purchase Assets”)

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in accordance with this Section 5.l(a)(ii)(A) as soon as reasonably practicable following the Closing.

     (5) Expenses of Purchase. Each of the purchase agreements giving effect to the purchase of Merck Contributed Non-U.S. Assets (whether concurrently with or after the Closing) shall provide that all of the costs and expenses associated with such purchase (other than the specified consideration for such purchase), including the costs and expenses of counsel and other advisors, and all registration, transfer or stamp duties and other comparable duties and Taxes, but excluding any allocation for salaries, shall be paid by the seller (Merck or a Merck Subsidiary, as the case may be), and that to the extent any of such costs or expenses has been incurred by the purchaser or any of its Affiliates (Merial or a Merial Subsidiary, as the case may be), the seller shall indemnify the payor thereof for such costs or expenses.

     (B) Merck Cash Contribution Amount. Merck shall, on or prior to the Closing Date, contribute cash to Merck Transitory LLC in an amount (the “Merck Cash Contribution Amount”) equal to the amount, if any, by which the Merck Non-U.S. Net Assets Value exceeds the “Merck Estimated Available Contributed Debt”, as defined below. The “Merck Estimated Available Contributed Debt” shall be the amount equal to [*] (the “Merck Negotiated Debt”) plus an estimate of the “Merck Closing Cash” (as defined below) less the sum of (w) an estimate of the “Merck Accrued Tax Liabilities” (as defined below), (x) an estimate of the “Merck Other Debt” (as defined below), (y) the value of the Retained Receivables (as defined in Section 5.1(a)(ii)(C)) and (z) the value of the Retained Inventory (as defined in Section 5.1(a)(ii)(C)).

     The “Merck Closing Cash” shall be equal to the cash and the fair market value of cash equivalent items that are included in the Merck

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Contributed Assets, but shall exclude the Merck Asset Sale Proceeds, as defined in Section 10.9(a).

     The “Merck Accrued Tax Liabilities” shall be the amount equal to the net (after netting the payables and the receivables) accrued Liabilities for Taxes (excluding deferred Taxes) to the extent they are Merck Contributed Liabilities at the Closing Date.

     The “Merck Other Debt” shall be the amount of Debt at the Closing assumed or otherwise payable by Merck Transitory LLC, Merial or any Merial Subsidiary (without duplication) in favor of Merck (or another Merck Company designated by Merck) or the Debt payable to a Third Party assumed from a Merck Company or owed at the Closing by any Merck Transferred Subsidiary, other than the amount of Debt consisting of the promissory notes (the “Purchase Promissory Notes”) issued by Merial or the appropriate Merial Subsidiaries to purchase Merck Contributed Non-U.S. Assets, the Retained Receivables and the Retained Inventory pursuant to Sections 5.1(a)(ii)(A)(3), 5.1(a)(ii)(C)(l) or 5.1(a)(ii)(C)(2), respectively.

     (C) Retained Receivables and Retained Inventory.

     (1) Retained Receivables. Merck may (in its sole discretion) elect to retain (i.e., not contribute as part of the Merck Contributed U.S. Assets) certain of its Receivables (the “Retained Receivables”) selected by it from among the Receivables that are part of the Merck Contributed U.S. Assets, at face value. To the extent Merck elects to retain Retained Receivables: Merck shall deliver to RP at the Closing a list of the Retained Receivables, which list shall include a description in reasonable detail including the face amount of each such Retained Receivable. Merck shall use commercially reasonable efforts to collect all Retained Receivables within ninety (90) days following the Closing Date. After such

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ninety (90) day period, Merck shall furnish to Merial a list of all Retained Receivables that remain uncollected, together with all information and supporting documentation which Merck has for each such uncollected Retained Receivable; and Merial shall within five (5) Business Days of receiving such list, information and documentation, purchase all such outstanding Retained Receivables from Merck at the face amount thereof (calculated in U.S.$ at the closing midpoint exchange rates quoted by the London edition of the Financial Times on the Closing Date). Such purchase shall be made, at Merial’s option, with cash and/or with promissory notes issued to the seller.

     (2) Retained Inventory. Merck may (in its sole discretion) elect to retain (i.e., not contribute as part of the Merck Contributed U.S. Assets) certain of its finished goods Inventory (the “Retained Inventory”) selected by it from among the finished goods Inventory of the Merck Contributed U.S. Assets. To the extent Merck elects to retain any Retained Inventory, Merck shall deliver to RP at the Closing a list of the Retained Inventory, which list shall include a description in reasonable detail including a breakdown of the value of such Retained Inventory. For purposes of calculation in this Section 5.1(a), the value attributed to the Retained Inventory shall be calculated in accordance with the Merck Manufacturing Supply Price Formula. On the Closing Date, Merial shall purchase the Retained Inventory from Merck with promissory notes at a fair market value price that to the extent possible excludes any intercompany (between Merck Companies) margin already included in the book value for such Inventories as recorded in the accounts of the selling Merck Company, except for the markup on standard cost and the adjustment provided for in the Merck Negotiated Supply Price. To the extent the Inventories cannot be purchased at a fair market value price that excludes any such margin, the Parties shall

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use commercially reasonable efforts and negotiate in good faith to find and give effect to a solution (which will not include taking actions that would reduce Merck’s net income below that which Merck would realize if such Inventories were sold at a price calculated according to the Merck Negotiated Supply Price) that will eliminate the effect of the purchase of such Retained Inventory at a price that includes such margin on the net income of RP. To the extent the price at which the Merial Venture ultimately purchases the Retained Inventory exceeds the Merck Negotiated Supply Price, such excess shall be included in the calculation of the Supply Price Adjustment Special Dividend, pursuant to Section 6.7.

     (D) Non-Contributed Subsidiaries. The Parties hereby agree that none of Merck’s interests in Johnson & Johnson MSD Consumer Pharmaceuticals (formerly Centra Healthcare (U.K.)) or Blue Jay CV (Holland) shall be contributed to the Merial Venture. Merck shall defend, indemnify and hold harmless the Merial Venture and (only to the extent RP and its Subsidiaries suffer Damages separate and distinct from Damages suffered by the Merial Venture) RP and its Subsidiaries from and against any and all Damages incurred by the Merial Venture or RP and its Subsidiaries arising out of, based upon or resulting from an action or claim brought by a Third Party to the extent arising out of, based upon or resulting from the past, present or future operations of Johnson & Johnson MSD Consumer Pharmaceuticals (formerly Centra Healthcare (U.K.)) or Blue Jay CV (Holland).

     (E) Delayed Purchase Assets. Pending the purchase and sale of a Delayed Purchase Asset and the assumption of the Merck Contributed Liabilities reasonably attributable thereto in accordance with Section 5.1(a)(ii)(A) (collectively, a “Delayed Transfer”):

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     (1) Merck shall (or shall cause the relevant Merck Subsidiary to) hold all benefits of such Delayed Purchase Assets to the extent related to the Merial Venture Business as agent for the Merial Venture and promptly pay to Merial (or a Merial Subsidiary that is the expected purchaser of such assets as designated by Merial) without any deduction, set-off or counterclaim, any and all net sums (after netting any amounts contemplated by clause (2) below to the extent not previously paid or reimbursed by the Merial Venture) received by the Merck Company on account of the operation of such Assets; and

     (2) Merial shall (or shall cause the relevant Merial Subsidiary to) (at the Merial Venture’s own cost and for its own account) pay, perform, fulfill and discharge when due all of the Liabilities, costs, expenses and obligations suffered or incurred by Merck or any of its Subsidiaries in respect of the ownership or operation of such Delayed Purchase Asset from the Closing Date until the Delayed Transfer of such Delayed Purchase Asset; provided, however, that Merck (or the relevant Merck Subsidiary) shall be responsible for any Damages payable to a Third Party to the extent such Damages result from Merck’s or any of its Subsidiaries’ negligence, recklessness or willful misconduct in the operation of such Delayed Purchase Asset, which negligence, recklessness or willful misconduct occurred prior to the Delayed Transfer of such Delayed Purchase Asset.

     No effect shall be given to clauses (i) or (ii) above if and to the extent that there is a significant risk that such arrangements would not be in material compliance with applicable Laws if effect were given thereto, in which case the principles set forth in clause (y) of Section 5.1(a)(ii)(A)(4) shall apply, and the Principals and Merial shall cooperate to seek an alternative solution designed to provide the Merial Venture with the

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     material benefits (or the substantial equivalent of the benefits of) such Assets and Liabilities.

     (iii) British United Turkeys, Ltd (“BUT”) (A) Merck shall, subject to the condition specified in (B) immediately below, assign, transfer, convey and deliver to Merck Transitory LLC the entirety of the share capital of BUT; provided, however, that (B) if, as a result of implementing the “BUT Steps”, as defined below, any Merck Company would or would be reasonably likely to recognize taxable gain in excess of [*] with respect to the BUT Steps under the terms of (aa) any amendment to Code § 355 and/or the Treasury Regulations thereunder adopted on or after the date hereof and prior to the Closing, (bb) any proposal of any such legislation or Treasury Regulations made since January 1, 1997, or (cc) any official notice or pronouncement with respect thereto made since January 1, 1997, in the case of any of (aa), (bb) and (cc), indicating that such amendment would have an effective date that would make it applicable to the BUT Steps, the Parties agree that BUT will be transferred directly to Merial by Merck Sharp & Dohme (Holdings) Limited in return for an issue of fixed-rate preference shares (the “Preference Shares”) with a face amount of [*]. The Parties acknowledge that, in either case, BUT shall not be treated as part of the Merck Contributed Non-U.S. Assets pursuant to clause (ii) above. The Parties further agree that, if Merial issues such Preference Shares to Merck Sharp & Dohme (Holdings) Limited, Merial will issue Preference Shares with a face amount of [*] to IM in consideration for IM’s contribution to Merial hereunder of shares of RM with a fair market value equal to the fair market value of the Preference Shares received. The Parties agree that, after said issue, and all other Closing Date share transactions and events, each Principal shall own, directly or indirectly, exactly the same general ownership interest and Preference Share interest in Merial.

     For purposes of this Section 5.1(a)(iii), the “BUT Steps” shall mean all or any part of the following: the distribution of the shares of BUT by its shareholder(s), followed by additional distribution to shareholders, followed by a

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contribution of the shares of BUT to Merck Transitory LLC, followed by the merger of Merck Transitory LLC with and into Merial. Whether any Merck Company would or would be reasonably likely to recognize taxable gain in excess of [*] with respect to the BUT Steps shall be determined in the good faith judgment of Merck, after having provided to RP all material and relevant information which is reasonably available to Merck.

     If Preference Shares are issued pursuant to clause 5.1(a)(iii)(B) above, the Preference Shares shall remain outstanding in perpetuity (unless and until Merial is liquidated). The Preference Shares shall be entitled to an annual dividend per share such that the aggregate outstanding Preference Shares shall be entitled to an annual dividend of: [*], which shall be paid out of Distributable Profits for each Fiscal Year remaining after payment of the Net Special Dividend, as provided in Section 6.2, and which dividend shall be cumulative (but shall be paid in any event after payment of the Net Special Dividend, as provided in Section 6.2). The Preference Shares shall have the liquidation rights specified in Section 6.11. The Preference Shares shall not be entitled to any voting rights, except any voting rights which are required under applicable Laws. The Preference Shares shall not be transferable, except in connection with a Transfer of a Member’s entire Merial Venture Interest in accordance with Article XVII hereof. The Association Documents shall be modified to the extent reasonably necessary or appropriate to implement this Section 5.1(a)(iii).

     (b) RP Contribution. On the terms and subject to the conditions of this Agreement (and subject specifically to the representations, warranties and covenants made by RP, IM and RM in this Agreement) and the RP Transfer Agreement, and subject to subsections (i), (ii) and (iii) below, IM shall, on or prior to the Closing Date, assign, transfer, convey and deliver to Merial or cause to be assigned, transferred, conveyed and delivered to Merial, the entirety of the share capital of RM, together with all of RM’s direct and indirect ownership interests in each of its Subsidiaries as set forth in Schedule 2-11 hereto. As a consequence, and without limitation, Subsidiaries of Merial

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shall thereby be obligated to pay, perform, fulfill and discharge when due all of the RM Contributed Liabilities.

     (i) Goubin. The Parties intend that Goubin shall be sold either (x) by the Merial Venture, in which case Merial shall (and shall procure that the other Merial Venture Companies shall) cooperate with RP and provide any information or assistance reasonably requested by RP to find a purchaser for Goubin, or (y) by RP, should RP exercise its call option described in (B) below.

     (A) Goubin Operations Pending Sale. RP hereby represents, as of the date hereof and as of the Closing Date, to Merck, Merck SH and Merial that, since December 31, 1996, Goubin has been operated in the ordinary course of business (including capital expenditures made in accordance with approved programs) consistent with past practice and there has not been any material change in the assets or Liabilities of Goubin (other than the payment of dividends and such approved programs of capital expenditures), including any material contribution of assets by RM or ISA of any kind to Goubin, as compared with the balance sheet of Goubin as of December 31, 1996 set forth in Schedule 5.1B-1. For purposes of this Section 5.1(b)(i), a “material” contribution of assets means a contribution of assets in excess of [*]. Merial covenants that, as of the Closing Date and until the second anniversary of the Closing Date, or the sale of Goubin if earlier, it shall not cause Goubin to take any action that is outside the ordinary course of business consistent with past practice and shall not cause Goubin to incur any additional Debt, except in the ordinary course of business, as compared with the Debt of Goubin as of the Closing Date, provided that Merial may, upon RP’s request and subject to the consent of Merck (which consent shall not be unreasonably withheld), cause an action out of the ordinary course to be taken or a material contribution of assets to be made if necessary to facilitate the sale of Goubin. RP shall indemnify the Merial Venture for any costs and expenses incurred by the Merial Venture in connection with, and shall defend,

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indemnify and hold harmless the Merial Venture for any Damages incurred by the Merial Venture as a result of, any such action and/or material contribution. RP shall also defend, indemnify and hold harmless the Merial Venture for any and all Damages (but not for any capital accounting loss recorded by the Merial Venture in selling Goubin in accordance with this Section 5.1(b)(i)) arising out of the operation or condition of Goubin before the earlier of (x) the sale of Goubin and (y) the second anniversary of the Closing Date (except for any such Damages payable to a Third Party other than the purchaser (or its Affiliates) of Goubin, to the extent resulting from the negligence, recklessness or willful misconduct of the Merial Venture, including that of the management of Goubin).

     (B) Purchaser and Timing of Goubin Sale.

     (1) At any time on or prior to the second anniversary of the Closing Date, if a firm offer to purchase Goubin is received from a Third Party (which may include the employees of Goubin) at a price that is acceptable to RP and that is greater than or equal to the Goubin Book Value at the Closing Date plus any amounts contributed by any other Merial Venture Company to Goubin pursuant to Section 5.1(b)(i) that have not been reimbursed by RP, less the sum of [*] (translated into FF at the closing midpoint exchange rate indicated in the London edition of the Financial Times on the Closing Date) and all the dividends paid by Goubin to any other Merial Venture Company between the Closing Date and the date when such offer is received, then the Merial Venture shall sell Goubin to such purchaser.

     (2) At any time on or prior to the second anniversary of the Closing Date, RP shall have the option to purchase Goubin from the Merial Venture for an amount equal to the Goubin Book Value at the Closing Date plus any amounts contributed by any other Merial Venture Company to Goubin pursuant to Section 5.1(b)(i) that have not been reimbursed by RP,

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less the sum of [*] (translated into FF at the closing midpoint exchange rate indicated in the London edition of the Financial Times on the Closing Date) and all the dividends paid by Goubin to any other Merial Venture Company between the Closing and the exercise by RP of its call option. If such purchase results in a capital loss to the Merial Venture, RP shall not sell Goubin to a Third Party at a profit (to the RP Group) for a period of six months after the exercise of such option. For the avoidance of doubt, the Parties understand that the ownership by RP and the operation of the current business of Goubin in accordance with this Section 5.1(b)(i) is not within the scope of the Animal Health Business or the Poultry Genetics Business and is therefore not subject to the non-competition provisions set forth in Article XV.

     (3) On or within two Business Days after the second anniversary of the Closing Date, if Goubin has not been sold to a Third Party or RP as provided in (1) or (2) above, then Merck will have the option, which it may exercise in its own discretion (by notice to RP and Merial sent at any time prior to the end of the second Business Day after the second anniversary of the Closing Date, which notice may be conditioned upon the transactions in (1) or (2) above occurring or not occurring) and will be binding on both Merial and RP, to require Merial (or the Merial Venture Company that owns Goubin) to sell Goubin to RP for an amount equal to the Goubin Book Value at Closing Date plus any amounts contributed by any other Merial Venture Company to Goubin pursuant to Section 5.1(b)(i) that have not been reimbursed by RP, less the sum of [*] (translated into FF at the closing midpoint exchange rate indicated in the London edition of the Financial Times on the Closing Date) and all the dividends distributed by Goubin to any other Merial Venture Company during the two year plus two Business Day period following the Closing Date. If Merck does not exercise this put option, Goubin shall continue as an integral part of the Merial Venture Business after two years and the

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indemnification obligations of RP under this Section 5.1(b)(i) in connection with the sale of Goubin shall terminate.

     (C) Goubin Sale for RP’s Account.

     (1) Special Dividend to RP. In the case of the sale of Goubin pursuant to (B) above, Merial shall credit to the RP Member in respect of the year in which the sale of Goubin occurs a Special Dividend equal to the cash (or the fair market cash equivalent of any non-cash proceeds) received by the Merial Venture (whether from a Third Party purchaser or from RP) for the sale of Goubin, less any costs, expenses or Damages (including Taxes, fees and registration fees) incurred by the Merial Venture in connection with such sale.

     (2) Purchase Agreement, etc. The sale of Goubin shall be by means of the sale of its entire capital stock, the sale of all its assets subject to all its Liabilities, or any substantially similar transaction; provided, however, that if the Principals agree to a partial sale of Goubin, they shall adjust the mechanism set forth in this Section 5.1(b)(i) as they deem appropriate. Any sale of Goubin shall be without any recourse against the Merial Venture except as to title matters and except as to any Damages payable to a Third Party other than the purchaser (or its affiliates) of Goubin to the extent resulting from the negligence, recklessness or willful misconduct of the Merial Venture, including of the management of Goubin. Subject to the following sentence, all Damages, Liabilities and contingencies associated with a sale of Goubin pursuant to this Section 5.1(b)(i) above suffered or incurred by Merck, Merial and their respective Subsidiaries shall be for the account of RP. RP shall (and no Merial Venture Company shall), in any contract for the sale of Goubin to a Third Party purchaser, undertake to indemnify the purchaser thereof for all breaches of representations, warranties or covenants in such contract related to Goubin and its sale; provided that RP shall have approved all of

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such representations, warranties and covenants prior to the contract being concluded; and further provided that Merial shall indemnify RP for any Damages owed to such Third Party purchaser of Goubin to the extent arising from Damages payable to a Third Party other than the purchaser (or its Affiliates) of Goubin to the extent resulting from the negligence, recklessness or willful misconduct of the Merial Venture, including of the management of Goubin. Except to the extent Merial has an obligation to indemnify RP pursuant to the preceding sentence, RP shall defend, indemnify and hold harmless the Merial Venture and (to the extent they suffer any Damages distinct from those suffered by the Merial Venture) Merck and its Subsidiaries for all Damages suffered or incurred by the Merial Venture or Merck and its Subsidiaries arising out of, based upon or resulting from such sale.

     The “Goubin Book Value” at any date shall equal the book value of Goubin on such date in the accounts of ISA, determined according to U.S. GAAP applied consistently with the principles used to calculate Goubin’s book value in the December 31, 1996 balance sheet of ISA. RP represents and warrants that the insurance claim made by Goubin with respect to damages in connection with a fire at a hatchway in Plougenast ([*]) was finally resolved and paid to Goubin prior to the date of this Agreement.

     (ii) Certain RM Liabilities and Receivables Excluded. Notwithstanding Sections 5.1(b) and (c), RM shall, prior to the Closing, (A) assign to RP (or another RP Company designated by RP), and RP shall assume and pay, perform and discharge when due, the payable to Sanofi of RM, which is described on Schedule 5.1B-2 (the “Sanofi Payable”), and (B) assign to RP (or another RP Company designated by RP) the related financial receivable of RM due by RM’s unconsolidated Subsidiary Rhône Mérieux Animal Health Company Ltd. (China) (“RM China”), which is described in Schedule 5.1B-2 (the “RM China Financial Receivable”). In addition, as from the Closing Date, RP (or another RP Company designated by RP) will be entitled to an amount equal to the difference between

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the Sanofi Payable and the RM China Financial Receivable as of the Closing Date ([*]), which amount will be paid by RM China to RP over time only from and to the extent of the proceeds of specific assets that are part of the current assets held by RM China as of the Closing Date (the “RP Chinese Assets”). The RP Chinese Assets shall consist of specific trade receivables, Inventories and/or other current assets each as existing on the Closing Date in the books of RM China. At the Closing, RM shall provide Merck with a list and description in reasonable detail (including book value) of the RP Chinese Assets. The aggregate book value of the RP Chinese Assets shall be equal to or less than the difference between the Sanofi Payable and the RM China Financial Receivable. The Parties acknowledge that the RP Chinese Assets are specifically allocated to the reimbursement of RP and that each time any of the RP Chinese Assets is sold for cash or collected for cash by RM China, the net proceeds of such asset will be used promptly upon their being received to reimburse RP to the extent provided in this Section 5.1(b)(ii). The Parties understand that the only obligation of RM China is to sell or collect the RP Chinese Assets in the ordinary course of business, without any extraordinary sale or litigation and without recourse to, or any other obligation of, the Merial Venture. RP represents and agrees that, as indicated in Schedule 5.1B-2, at December 31, 1996, the amount outstanding under the RM China Financial Receivable is [*]. The Parties agree that such RM China Financial Receivable is deemed to be Debt. The Parties further agree that in the event the aggregate of the values of all the RP Chinese Assets as recorded in the books of RM China on the Closing Date is less than the amount equal to the difference between (x) the Sanofi Payable and (y) the RM China Financial Receivable, the amount (the “RP Chinese Assets Value Shortfall”) by which the book value of all the RP Chinese Assets is less than such difference shall become a Debt obligation payable by RM to RP and such amount shall be deemed to be Debt. The Parties agree that the proceeds collected with respect to each RP Chinese Asset that is paid to RP pursuant to this Section 5.1(b)(ii) shall not exceed the value of each such RP Chinese Asset as recorded in the books of RM China on the Closing Date.

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     (iii) Central Biologics Inc. RM represents that (x) Select Laboratories, Inc., a Subsidiary of RM (“Select”), is currently in the process of acquiring Central Biologics Inc. (“Central Biologics”) for a purchase price of [*] (this acquisition being the “Central Biologics Acquisition”); and (y) as part of the Central Biologics Acquisition, [*]. The Parties hereby agree that both the Central Biologics Acquisition and the Central Biologics Consulting Agreement are entered into for the account of Merial. As a result, the Parties further agree that (aa) any Debt assumed by RM, Select or any other Subsidiary of RM to acquire Central Biologics, (bb) any cash or cash equivalents, if any, used by Select or any other Subsidiary of RM to acquire Central Biologics shall be added to the RM Closing Cash when determining the actual contributions of the Parties in accordance with Sections 5.3 and 6.8, (cc) any cash or cash equivalents included in Central Biologics upon completion of its acquisition by RM, Select, or any Subsidiary of RM shall be excluded from the RM Closing Cash, and (dd) any Debt included in Central Biologics upon completion of its acquisition by RM, Select or any other Subsidiary of RM, shall not be included in the RP Outstanding Debt.

     (c) Contributed Assets Free of Debt. The Merck Contributed Assets, on the one hand, and RM and its Subsidiaries, on the other hand, shall be contributed to the Merial Venture together with the assumption of or the continued obligation for the Merck Contributed Liabilities and the RM Contributed Liabilities, respectively. Except as set forth in Section 5.2 or as provided for in Article VII, however, such respective contributions shall be free of (i) any related financial indebtedness (“Debt”), including any Liability, contingent or otherwise, for borrowed money, any obligations in respect of or evidenced by bonds, debentures, notes, letters of credit or similar instruments and any obligations under finance lease obligations (as defined by U.S. GAAP).

     (d) Currency Exchange for Asset Contributions. The respective contributions of each Group to the Merial Venture shall be calculated in U.S. dollars as of the Closing

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Date. The value of any contribution not denominated in U.S. dollars shall be converted into U.S. dollars at the closing midpoint exchange rate quoted by the London edition of the Financial Times on the Closing Date, or as otherwise agreed upon. Subject to Section 5.2(c), all other necessary currency conversions in respect of the value of the respective contributions (e.g., to English pounds sterling or French francs) shall also be based on the closing mid-point exchange rates quoted by the London edition of the Financial Times on the Closing Date, or as otherwise agreed upon.

SECTION 5.2 Debt Contributions

     (a) Merck Debt Contribution. On the terms and subject to the conditions of this Agreement, Merial shall (or Merial shall, in accordance with the terms of this Agreement, cause one or more Subsidiaries of Merial to), on the Closing Date, assume on behalf of and/or in favor of Merck or a Merck Subsidiary, and shall pay, perform and discharge when due, all Liabilities related to the “Merck Contributed Debt”, as defined below. The “Merck Contributed Debt” shall consist of (and its aggregate amount shall be calculated by adding the amounts of): (i) the Purchase Promissory Notes, as defined in Section 5.1(a)(ii)(B), if any, (ii) the Merck Accrued Tax Liabilities, as defined in Section 5.1(a)(ii)(B), and (iii) the Merck Other Debt, as defined in Section 5.1(a)(ii)(B). The Purchase Promissory Notes shall be on substantially the same terms and conditions as the Merck Interim Financing described in Section 5.2(d) (except that the Purchase Promissory Notes shall not be subject to reborrowing to the extent repaid, i.e., not a revolving credit).

     (b) RP Debt Contribution. On the terms and subject to the conditions of this Agreement, RM and its Subsidiaries shall, on the Closing Date, have Liability (the “RP Contributed Debt”) (i) for Debt consisting of (and its aggregate amount shall be calculated by adding the amounts of) the “RM Intercompany Debt” (as defined below), the “RM Outstanding Debt” (as defined below), the RM China Financial Receivable and the RP Chinese Assets Value Shortfall, if any, and (ii) for the “RM Accrued Tax Liabilities” (as defined below).

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     The “RM Intercompany Debt” shall be RM’s estimate as of the Closing Date of the aggregate principal amount equal to: [*] (the “RP Negotiated Debt”) plus the estimated amount of “RM Closing Cash” (as defined below) and minus the estimated sum of (A) the “RM Outstanding Debt”, (B) the estimated net amount (after netting the payables and the receivables) equal to the accrued Liabilities for Taxes (excluding deferred Taxes) of RM and for RM Transferred Subsidiaries at the Closing Date (the “RM Accrued Tax Liabilities”), (C) the RM China Financial Receivable as described in Section 5.1(b)(ii), and (D) without duplication of (C), the RP Chinese Assets Value Shortfall (as defined in Section 5.1(b)(ii)). The RM Intercompany Debt shall not be subject to any covenants and shall be on substantially the same terms and conditions as the RP Interim Financing described in Section 5.2(d) (except that this Debt shall not be subject to reborrowing to the extent repaid, i.e., not a revolving credit).

     The “RM Outstanding Debt” shall consist of (x) the sum of the aggregate principal amount outstanding at Closing and any accrued unpaid interest or other amounts, calculated as of the Closing Date, in respect of the Debt owed by RM or its Subsidiaries to Third Parties as reflected on the December 31, 1996 balance sheet included in the RM Financials, and (y) without duplication of any Debt included in (x) above, any other Debt owed by RM or its Subsidiaries at the Closing Date less (without duplication) (aa) any Debt owed by Goubin on the Closing Date, (bb) any Debt incurred by RM, Select or any other Subsidiary of RM to pay for the Central Biologics Acquisition, and (cc) any Debt owed by Central Biologics on the Closing Date. RP shall obtain any consents or waivers required under the terms of the RM Outstanding Debt to give effect to the Transactions (so that the RM Outstanding Debt is not and does not become in default and does not give the counterparty to any of the RM Outstanding Debt any rights of termination, amendment, acceleration, suspension, revocation or cancellation) and RP shall pay any and all costs and expenses, including any increased interest expenses, penalties or charges, necessary to obtain such consents or waivers. Subject to the preceding sentence, the “RM Outstanding Debt” shall continue on its stated terms and conditions after the Closing.

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     The “RM Closing Cash” shall be equal to the cash and the fair market value of cash equivalent items contributed by RM and its Subsidiaries to the Merial Venture, but shall exclude (aa) the RM Asset Sale Proceeds, as defined in Section 8.9(a), (bb) the cash and cash equivalents items owned by Goubin on the Closing Date, (cc) any cash and cash equivalent items owned by Central Biologics upon completion of its acquisition by RM, Select or any other Subsidiary of RM, and (dd) any proceeds from the Diagnostic Disposal.

     In the event Goubin is not sold pursuant to, and within the time periods specified in, Section 5.1(b)(i) and remains part of the Merial Venture, the Parties shall at such time negotiate in good faith to find and give effect to a solution that will take account of the Debt of, and the cash and cash equivalent items that were owned by, Goubin on the Closing Date.

     (c) Currency Exchange for Contributed Debt. The currency exchange rates used to calculate the U.S. dollar value of any Merck Contributed Debt, Retained Receivables, Retained Inventory or RP Contributed Debt not denominated in U.S. dollars shall be the closing midpoint exchange rates quoted by the London edition of the Financial Times on the Closing Date, or as otherwise agreed between the Parties.

     (d) Interim Financing. Both RP and Merck shall provide, or shall arrange with outside financial institutions to provide, the Merial Venture with a revolving working capital financing facility available when needed as from the Closing Date (the “RP Interim Financing” and the “Merck Interim Financing”, respectively), with a maximum aggregate principal amount to be outstanding from time to time of [*] for each such facility. Should Merial request an increase of the maximum aggregate principal amount of the RP Interim Financing and the Merck Interim Financing, RP and Merck agree to discuss in good faith the terms and conditions of any such increase and whether any such increase will be provided. The Parties agree that the RP Interim Financing shall not be included in, and shall be in addition to, the RP Contributed Debt and the Merck Interim Financing shall not be included in, and shall be in addition to, the Merck Contributed Debt. The RP Interim Financing and the Merck Interim Financing shall have

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substantially equivalent terms and conditions, both be available through the earlier of December 15, 1997 and the date that is six (6) months after the Closing Date, at which earlier date all amounts outstanding thereunder shall be due and payable, and bear interest at the [*] in which the advances that are part of the interim financing are made [*]. Merial shall use commercially reasonable efforts to establish its own financing as soon as practicable after the Closing to be used, first, to repay the RP Contributed Debt and the Merck Contributed Debt, second, to repay the RP Interim Financing and the Merck Interim Financing, with the RP Interim Financing and the Merck Interim Financing being repaid simultaneously on the same terms and conditions and, third, for other purpose of the Merial Venture Business. The Principals shall meet before the Closing to determine further terms and conditions of the RP Interim Financing and the Merck Interim Financing.

SECTION 5.3. Preparation and Audit of Closing Balance Sheets

     (a) Preparation of Closing Balance Sheets — General. As soon as possible after the Closing Date, and in no event more than thirty (30) Days after the Closing Date, each of RM and Merck shall prepare and deliver to each other a consolidated balance sheet (the “RM Closing Balance Sheet” and the “Merck Closing Balance Sheet”, respectively, and, collectively, the “Closing Balance Sheets”) for RM and the Merck Contributed Business, respectively. These balance sheets shall include as special purpose line items (i) the RM Closing Cash and the Merck Closing Cash, (ii) the RM Intercompany Debt, the RM Outstanding Debt, the RM China Financial Receivable, the RP Chinese Assets Value Shortfall and the Merck Other Debt, and (iii) the RM Accrued Tax Liabilities and the Merck Accrued Tax Liabilities. The RM Intercompany Debt, the RM Outstanding Debt, the RM China Financial Receivable, the RP Chinese Assets Value Shortfall, the RM Accrued Tax Liabilities and the RM Closing Cash shall be used to calculate the “RM Actual Contributed Net Debt Variance” and the “Contributed Debt Adjustment Special Dividend”, both as defined in Section 6.8 below. The Merck Accrued Tax Liabilities, the Merck Other Debt and the Merck Closing Cash shall be used to calculate the “Merck Actual Contributed Net Debt Variance” and the “Contributed Debt Adjustment Special Dividend”, both as defined in Section 6.8 below. Merck shall also provide RP with a list

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of all Delayed Purchase Assets, which list shall include a description in reasonable detail of all such Delayed Purchase Assets and an estimate of the fair market value of all the Delayed Purchase Assets on an aggregate basis.

     (b) Audit of Closing Balance Sheets and Retroactive Closing Financial Statements. As soon as possible after the preparation of the Closing Balance Sheets and the Retroactive Closing Financial Statements, as defined in Section 6.3, Merck shall send the Merck Closing Balance Sheet and the Merck Retroactive Closing Financial Statements to its accounting firm and to RM, and RM shall send the RM Closing Balance Sheet and the RM Retroactive Closing Financial Statements to its accounting firm and to Merck. Each of RM’s and Merck’s accounting firms shall promptly be provided with any relevant financial data they may reasonably request. Each of RM’s and Merck’s accounting firms shall have a maximum of sixty (60) days to conduct an audit of the Closing Balance Sheets and the Retroactive Closing Financial Statements of their respective client, which audit shall include, among other things, (x) an audit of the Debt and the cash and the cash equivalent items contributed by each Party to the Merial Venture, (y) at the request and expense of RP, an analysis of whether or not all the Merck Contributed Assets are fairly reflected in all material respects in the Merck Closing Balance Sheet and, to the extent not included therein, have been specified by Merck to RP as Delayed Purchase Assets, and (z) an audit of the Retroactive Closing adjustments to ensure such adjustments have been calculated in accordance with the provisions set forth in Section 6.3 and in Exhibit XIX.

     As soon as possible, and in no event more than sixty (60) days after being sent the Closing Balance Sheets and the Retroactive Closing Financial Statements, each of RM’s and Merck’s accounting firms shall make available to the other their working papers, reports and comments on the Closing Balance Sheets and the Retroactive Closing Financial Statements. In the event there are any disagreements, the Parties will then have twenty (20) Business Days to agree on the changes to be made to the Closing Balance Sheets and/or the Retroactive Closing Financial Statements and resolve any disputes arising between them. In the event there is any unresolved dispute at the end of this twenty (20) Business Day period, the Parties will jointly submit such unresolved disputes

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to the Board of Directors. The Board of Directors shall then have ten (10) Business Days to resolve such disputes. In the event there are any unresolved disputes at the end of this further ten (10) Business Day period, the Board of Directors shall have five (5) Business Days to engage a “Big Six” accounting firm to resolve any such dispute, except that (i) if the Board of Directors cannot reach agreement on the selection of such accounting firm, then such accounting firm shall be selected and appointed by the ICE (which selection and appointment shall be final and binding on the Board of Directors and on the Principals) and (ii) the firm so selected and appointed may not be the primary accounting firm for Merck, RP, RM or Merial. Each of the Principals shall submit to the selected accounting firm their detailed calculations and such firm shall promptly be provided with any relevant financial data that it may request. The selected accounting firm shall act as expert and shall have twenty (20) Business Days to resolve all the disputes, and such resolution shall be final and binding on the Parties and the Board of Directors. The fees and reasonable expenses of the selected accounting firm shall be split equally between Merck and RP.

SECTION 5.4. Alternative Tax Structuring and Tax Planning

     (a) Changes in Law. With respect to Merial or any other Merial Venture Company, if, due to any change or proposed change in applicable Law (including, without limitation, actions of any Public Authority) after the Closing, the continuation of the structure described in Section 1.3 and Article III entails (or, in the case of a proposed change, would, if enacted, entail) materially adverse tax or other legal consequences to a Principal or its Affiliates, or a significant risk thereof, at the request of such Principal the Parties shall use commercially reasonable efforts to agree on an appropriate alternative structure that will be designed, to the extent possible, to minimize such adverse consequences to the requesting Principal and its Affiliates but have no less favorable economic, commercial and legal characteristics to the other Principal and its Affiliates as the structure described elsewhere in this Agreement and the Ancillary Agreements.

     (b) Restructurings to Minimize Taxes.

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     (i) General. Each Party shall bear the tax consequences of its transfers to the Merial Venture and (unless otherwise agreed in writing) the performance of its obligations under this Agreement and any and all Ancillary Agreements to which it is a party or by which it is bound. [*].

     (ii) Alternative Contribution of Merck Contributed Non-U.S. Assets. Without limiting the generality of Section 5.4(b)(ii) and notwithstanding the provisions of Sections 1.3(a)(i)(B), 1.3(c), and 5.1, and subject to the conditions set forth in (t), (u), (v), (w), (x), (y) and (z) below, Merck may elect to exclude from the Non-U. S. Merck Contributed Assets to be sold to the Merial Venture and/or from the Merck Contributed Liabilities reasonably attributable thereto assumed by the Merial Venture, certain of such assets and Liabilities [*], provided that (t) intangible assets included in the Merck Contributed Assets may not be so excluded, (u) Merck identifies in reasonable detail in writing to RP on or prior to the Closing Date such assets and/or liabilities; (v) an arrangement with respect to such assets and/or liabilities is entered into among the Parties or their Affiliates and/or other adjustments are made to the terms and conditions of the transactions contemplated by this

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Agreement so that they have, in the aggregate, no less favorable economic, commercial and legal characteristics to RP, the Merial Venture and their respective Affiliates as the structure described elsewhere in this Agreement; (w) RP consents in writing to this alternative prior to its implementation (which consent shall not be unreasonably withheld or unreasonably delayed if, in RP’s reasonable opinion, all the other conditions specified in this clause (ii) have been satisfied); (x) [*]; (y) Merck shall be responsible for all out-of-pocket costs and fees reasonably incurred by RP or any of its Subsidiaries in assessing the alternative structure proposed by Merck pursuant to this clause (ii); and (z) no such alternative structure shall be proposed if such alternative structure would result in such assets and/or Liabilities being transferred to the Merial Venture after December 31, 1997.

     (iii) Except as provided elsewhere in this Agreement or in the Ancillary Agreements, each Party and its Affiliates will, however, ultimately be responsible for its own Taxes.

SECTION 5.5. Certain U.S. Tax Matters

     (a) Designation of Tax Matters Partner. The Merck Member is hereby designated as the “Tax Matters Partner” under Section 6231(a)(7) of the Code to manage the administrative Tax proceedings conducted at the Merial Venture level by the IRS with respect to Merial Venture matters. The Merck Member is specifically directed and authorized to take whatever steps the Merck Member, in its sole discretion, deems necessary or desirable to assure the Merck Member’s designation as the Tax Matters Partner, including, without limitation, filing any forms or documents with the IRS and taking such other action as may from time to time be required under Treasury Regulations. Expenses of administrative proceedings relating to the determination of Merial Venture items at the Merial Venture level undertaken by the Merck Member in accordance with this Section 5.5 will be deemed to be Merial Venture expenses.

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     (b) Tax Elections. All Tax elections required or permitted to be made under the Code and any applicable U.S. federal, state or local Tax law with respect to the Merial Venture (or any of its Subsidiaries) shall be made by the Tax Matters Partner, subject to the express prior written approval of the RP Member, which approval shall not be unreasonably withheld, and any decision with respect to the treatment of Merial Venture transactions on the Merial Venture’s U.S. federal, state or local Tax Returns shall be made by the Members jointly. The RP Member hereby approves the election to classify Merial as a partnership for U.S. Tax purposes, as well as any other election to classify any other Merial Venture Company (other than BUT) which is an eligible entity as either a partnership or branch, as the case may be; provided that no such election shall result in increased Tax Liabilities or exposure for RP; and further provided that no such election shall require any restructuring of or other company action affecting any such Merial Venture Company. The RP Member also hereby approves any action the Tax Matters Partner may deem necessary in its sole discretion to give effect to any election approved pursuant to the preceding sentence. RP will (or cause its Subsidiaries to) provide to the Tax Matters Partner and sign all documents necessary to give effect to all elections to be made pursuant to this Section 5.5(b).

     (c) Allocations of Income, Gain or Loss

     (i) Net Income. For U.S. Tax purposes, net income with respect to any taxable period shall be allocated as follows:

     (A) First, to the Members in proportion to the excess, if any, of (i) the cumulative amount paid to each Member pursuant to Section 6.2 through the date the Net Special Dividend is calculated after the closing of such period in respect of such period, over (ii) the cumulative amount previously allocated to such Member in respect of such period pursuant to this paragraph (A) until such excess has been eliminated;

     (B) Second, to the holders of any Preference Shares (if issued pursuant to Section 5.1(a)(iii)), proportionately, in an amount equal to the

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amount, if any, of dividends paid thereon during such period (whether such dividends represent payment of a current or accumulated dividend thereon); and

     (C) Third, 50% to each of the Members, as set forth in Section 6.1 hereof.

     (ii) Net Loss. For Tax purposes, net loss with respect to any taxable period shall be allocated 50% to each of the Members, as set forth in Section 6.1 hereof.

     (iii) Tax Adjustments. In the event that the Merial Venture’s income, gains, losses, deductions or credits are adjusted by any Taxing Authority by reason of any transaction between one or more Members and/or the Merial Venture, including adjustments pursuant to Section 482 of the Code or similar provisions under state, local or foreign law (any such adjustment herein being referred to as a “Tax Adjustment”), the allocation of any item of gross income, gain, loss, deduction or credit resulting from such Tax Adjustment (either as the result of a primary or correlative adjustment) and the treatment of any deemed transfers of value between or among the Merial Venture and one or more Members (including deemed contributions to and deemed distributions from the Merial Venture on account of such Tax Adjustment) shall be governed by this Agreement. Allocations, including allocations of items of gross income and the treatment of deemed transfers of value between or among the Merial Venture and the Members shall be made, to the extent possible, in an appropriate manner by the Tax Matters Partner so as to avoid any Tax consequences from a Tax Adjustment to a Member who is not affected by such Tax Adjustment. In the event that any Tax Adjustment results in an increase in the Merial Venture’s gross income, such gross income shall be allocated as an item of gross income under Code Section 702(a)(7) to the Member whose income is adjusted in connection with such Tax Adjustment to the Merial Venture’s income and the Merial Venture shall be treated as making a deemed transfer of value that is treated as a distribution to such Member in the

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same amount. In the event that any Tax Adjustment results in an increase in an item of Merial Venture deduction or loss, such deduction or loss shall be allocated as an item of deduction under Code Section 702(a)(7) to the Member whose income is adjusted in connection with such Tax Adjustment to the Merial Venture’s income and such Member shall be treated as making in the same amount a deemed transfer of value that is treated as a contribution to the Merial Venture. In the case of a deemed transfer of value by the Merial Venture to a Member that is treated as a guaranteed payment as a result of a Tax Adjustment that reduces an item of the Merial Venture’s loss or deduction, the deduction attributable to such guaranteed payment shall be allocated in the same manner the item of loss or deduction reduced by the Tax Adjustment was allocated.

     (d) Capital Accounts. A separate capital account shall be established and maintained for each Member. Maintenance of capital accounts is intended for U.S. Tax reporting purposes only and has no application to any other provision of this Agreement or the interpretation thereof.

     (i) The initial balance of each capital account shall be zero.

     (ii) The capital account of each Member shall be increased by (x) any capital contribution by such Member when such capital contribution is made and (y) the net income allocated to such Member pursuant to Section 5.5(c)(i).

     (iii) The capital account of each Member shall be reduced by (x) the amount of any distribution of cash or the fair market value of any property (net of any liability secured by such property that the Member is considered to assume or take subject to under Section 752 of the Code) distributed to such Member when such distribution is made and (y) the net loss allocated to such Member pursuant to Section 5.5(c)(ii).

     (iv) The capital account of each Member shall be adjusted to reflect any adjustment to the value of the Merial Venture’s assets attributable to the

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application of Sections 732, 734 or 743 to the extent required pursuant to Treas. Reg. § 1.704-1(b)(2)(iv)(m).

     (v) Except as otherwise provided in this Agreement, whenever it is necessary to determine the capital account of any Member, the capital account of such Member shall be determined after giving effect to the allocations of net profit, net loss and other items realized prior or concurrent to such time (including, without limitation any net profits and net losses attributable to adjustments to values with respect to any concurrent distribution), and all contributions and distributions made prior or concurrent to the time as of which such determination is to be made.

     (vi) No Principal or Member shall have any obligation to Merial or any Merial Venture Company, the other Principal, the other Member or to any other Person, including, without limitation, any creditors of the Merial Venture, to restore or otherwise make good any negative balance in any Member’s capital account.

     (vii) Distributions in liquidation of the Merial Venture shall be made in accordance with capital accounts; [*].

     (e) Certain Tax Benefits. For U.S. federal Tax purposes, the Principals, the Members and Merial agree (and Merial agrees to cause the Merial Venture Companies) to treat the prices charged to the Merial Venture for products purchased under the Merck Supply Agreement and the RP Ag Supply Agreement as the Merial Venture’s “cost” therefor. In furtherance thereof, the Principals, the Members and Merial agree (and Merial agrees to cause the Merial Venture Companies to agree) that any benefits derived under Section 936 of the Code or any successor Code section thereof by Merck Member or any Affiliate of Merck Member on the manufacture of any products sold to the Merial

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Venture pursuant to the Merck Supply Agreement shall be for the benefit of Merck Member and not for the benefit of the Merial Venture, the RP Member nor any other member of the RP Group.

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ARTICLE VI

PROFIT AND LOSS ALLOCATIONS; DIVIDENDS

SECTION 6.1. General Profit and Loss Principles

     As a general principle, the Parties have agreed that the profits and losses of the Merial Venture shall be allocated to the Members in such a way that each Member will be entitled to 50.0% of the profits and losses of the Merial Venture, subject to the specific adjustments set forth in this Agreement and to such other adjustments as the Members’ Meeting may determine.

     For accounting purposes only and for no other purpose, the Members intend that, for each accounting period, each Member’s share of Merial’s net income will include fifty percent (50%) of Merial’s net income (after subtracting Net Special Dividends and dividends on Preference Shares) plus any Net Special Dividends and dividends on Preference Shares made to that Member that may be income or expense to such Member.

SECTION 6.2. Special Dividends

     (a) Special Dividends Generally. The Parties have agreed to certain financial arrangements that shall be exceptions to the general principle set forth in Section 6.1 of a 50/50 allocation of profits as between the Members. Certain of these financial arrangements (set forth in Sections 5.1(b)(i)(C)(i) [Goubin], 6.3 through 6.9, 7.1(b), (c) and (d), 7.1(f)(ii) and (vii), 7.2(c) and (e), 7.4, 7.5(a)(i), 7.5(b)(i), 7.5(c) and 14.19 [Tax Reserves Adjustment] of this Agreement and in Sections 3.5 and 4.4 of the Merck Employee Leasing Agreement shall give rise to special distributions or dividends (each, a “Special Dividend” and, together, the “Special Dividends”) which shall be calculated and credited to one or the other of the Members in accordance with the provisions of the relevant Sections. Each of the Special Dividends is creditable in respect of one or more Fiscal Years. For each Fiscal Year in respect of which one or more Special Dividends is to be credited, all the Special Dividends to be credited in respect of such year shall be

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calculated and netted together in accordance with Section 6.2(b) and the resulting “Net Special Dividend” shall be paid in accordance with Section 6.2(c). A numerical example of the Net Special Dividend is provided in Exhibit XVIII hereto.

     (b) Calculation of Net Special Dividend. Upon the earlier of (x) the approval by the Board of Directors of Merial’s consolidated financial statements for any Fiscal Year, and (y) the date that is one (1) month after the completion of the preparation of such financial statements by the management of Merial (it being understood that preparation of such financial statements shall be completed no later than the twentieth (20th) Business Day following the end of the Fiscal Year), but no later than sixty (60) days after the end of such Fiscal Year, Merial shall, and if Merial does not, each of the Principals may, promptly (based upon such financial statements and/or any other reasonably necessary or available financial information, which shall be made available to both Principals by Merial upon any request by either Principal), and in any case within twenty (20) Business Days of such earlier date, (such deadline being the “Special Dividend Calculation Date”) calculate each of the Special Dividends that is applicable in respect of such year. The “Net Special Dividend” for a particular Fiscal Year shall be the single payment payable to either the RP Member or the Merck Member that results from the netting of all such Special Dividends, which shall be calculated by taking the difference between the sum of all the Special Dividends, if any, creditable to one of the Members in respect of such year and the sum of all those, if any, creditable to the other Member in respect of such year. The Net Special Dividend shall be calculated in U.S. dollars, using, as necessary, the exchange rate of the last day of the Fiscal Year, except as otherwise provided in this Agreement. The Net Special Dividend shall be payable to the Member to which the greater dollar aggregate amount of Special Dividends in respect of such year is payable. Notwithstanding Article XVIII, any disagreements between the Principals as to the calculation of any of the Special Dividends or of the Net Special Dividend shall be resolved exclusively pursuant to Section 6.2(d), but without modifying or limiting other rights or remedies of the Parties under other provisions of this Agreement.

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     (c) Payment of the Net Special Dividend. The Net Special Dividend in respect of any Fiscal Year shall be paid by Merial out of Distributable Profits in the form of a preferential dividend. No other dividends or distributions to the Members shall be paid or declared by Merial until the entirety of any outstanding Net Special Dividend has been paid in full. If the Net Special Dividend to be paid in respect of any year is greater than the Distributable Profits available for distribution at the time dividends are to be paid in respect of such year, then the Net Special Dividend shall be paid to the appropriate Member to the extent of the available Distributable Profits (with the result that no other dividends shall be paid in respect of such year), and the unpaid balance shall be increased by an amount equal to interest calculated at a rate equal to the [*] accruing from April 15 of the year next following the year in question until such time as it is paid in full. In the event a Principal wishes to receive payment of the Net Special Dividend in a currency different from the U.S. Dollar, such Principal shall so notify Merial in writing sixty (60) days in advance of the payment date of the Net Special Dividend, and Merial shall convert the Net Special Dividend to the desired payment currency on the actual date of payment (at the then spot exchange rate). In the event of a dispute between the Principals as to the calculation of any Special Dividend or of the Net Special Dividend in respect of any year, the Principals shall follow the procedure described in 6.2(d) and, when the dispute is resolved, the Net Special Dividend will, together with the corresponding amount calculated as interest mentioned above, to the extent of available Distributable Profits, be paid through a partial Net Special Dividend payment. In the event any unpaid balance of a Net Special Dividend payable with respect to any year remains at the time the Net Special Dividend to be paid in respect of the following year is payable, such Net Special Dividend in respect of the following year shall be equal to the amount resulting from netting (or adding, as appropriate) such unpaid balance (and any accrued amount calculated as interest thereon) with the Net Special Dividend calculated for such following year in accordance with Section 6.2(b). Any undisputed amount in the calculation of the Net Special Dividend will be paid immediately, and any disputed amount shall be subject to the Special Dividend Calculation Dispute Resolution described in Section 6.2(d) below.

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     (d) Special Dividend Calculation Dispute Resolution. In the event there is any dispute between the Principals as to the calculation of any Special Dividend or of the Net Special Dividend in respect of any year, the Principals shall meet and negotiate in good faith to resolve such dispute. If the dispute has not been resolved within thirty (30) days of the Special Dividend Calculation Date, then either Principal may submit such dispute to arbitration as set forth below in this Section 6.2(d). In connection with any such dispute, a “Big Six” accounting firm acceptable to both the Principals shall be engaged to resolve the dispute, except that (i) if the Principals cannot reach agreement on the selection of such accounting firm, then such accounting firm shall be selected and appointed by the ICE (which selection and appointment shall be final and binding on the Parties), and (ii) the firm so selected and appointed may not be the primary accounting firm for Merck, Merial, RM or RP. Each of the Principals shall submit to the accounting firm selected their detailed calculations and such firm shall promptly be provided with any relevant financial data of the Merial Venture or of either of the Principals that it may request. In making its determination, the accounting firm shall refer to the methods of calculation set forth in this Article VI and to the numerical examples for calculating each of the Special Dividends and the Net Special Dividend set forth in Exhibit XVIII. The accounting firm shall be jointly requested to make its decision within thirty (30) days of having been selected. The decision of the accounting firm selected by the Principals or the ICE shall be final and binding on the Parties on any issue relating to the calculation of any Special Dividend or of the Net Special Dividend. The fees and reasonable expenses of the accounting firm shall be borne by the losing party; if the dispute is not resolved solely in favor of one party, then the parties shall share such fees and reasonable expenses equally. Pending such decision of the accounting firm, Merial, the Members and the Board of Directors shall continue to fulfill all their obligations under applicable Laws and this Agreement, including attending required meetings. In the event the Annual Member’s Meeting is held in accordance with Section 4.2(k) prior to such decision of the accounting firm, the Members’ Meeting shall only declare dividends in respect of the relevant year to the extent that the Distributable Profits remaining after the payment of such dividends would be sufficient to pay the greater of the Net Special Dividends claimed by the Principals under this Section 6.2(d), it being understood that in any such case the Net Special Dividend decided upon by the accounting firm (together with an

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amount calculated as interest thereon calculated in accordance with Section 6.2(c)) shall be declared by the first Members’ Meeting following such decision and paid as a partial Net Special Dividend.

SECTION 6.3. Retroactive Closing Mechanism

     (a) The Parties shall give effect to a closing adjustment mechanism (the “Retroactive Closing Mechanism”) pursuant to this Section 6.3 with the intention of putting the Principals, to the extent possible, in the same economic position they would have been in had the Closing occurred on the Economic Effective Date (as defined below). For the avoidance of doubt, as between the Parties, the actual commencement of the Merial Venture for accounting and Tax purposes shall be the first day following the Closing Date. The Retroactive Closing Mechanism shall not be applied if a change in Tax Laws occurring between the date hereof and the date of the Closing causes the application of the Retroactive Closing Mechanism to have an adverse Tax consequence of [*] for either Principal. “Economic Effective Date” shall be April 1, 1997. “The Retroactive Period” shall be the period between the Economic Effective Date and the Closing Date.

     (b) The Retroactive Closing Mechanism shall be implemented through a Retroactive Closing Special Dividend, which shall be calculated based on the Retroactive Closing Financial Statements, as defined in, and prepared in accordance with, the instructions set forth in Exhibit XIX. Subject to the instructions set forth in Exhibit XIX, the Retroactive Closing Special Dividend shall be credited, in calculating the Net Special Dividend in respect of Fiscal Year 1997, to the Member whose pro forma cash generated (used), as calculated in accordance with the instructions set forth in Exhibit XIX, is lower than its share in the pro forma cash generated (used) by the Merial Venture during the Retroactive Period.

     (c) Pre-Closing Preparation of Financial Statements. Each of Merck and RM hereby represents to the other as of the date hereof and as of the Closing Date that (i) each of the monthly actual and pro forma consolidated income statements and

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consolidated statements of cash flows that it has provided to the other in respect of the operations of the Merck Contributed Business and of RM and its Subsidiaries, respectively, for the first quarter of Fiscal Year 1997 and for each calendar month since and including April 1997, and (ii) each of the quarterly actual and pro forma consolidated balance sheets that it has provided to the other in respect of the Merck Contributed Business and of RM and its Subsidiaries, respectively, since and including the consolidated balance sheets as of March 31, 1997, was prepared, (x) with respect to the actual consolidated income statements and consolidated statements of cash flows referred to above, consistently with the Merck Contributed Business Financials attached as Exhibit XVI hereto in the case of Merck, and the RM Financials attached as Exhibit XVII hereto in the case of RM, and (y) with respect to the pro forma consolidated income statements and consolidated statements of cash flows referred to above, consistently with the instructions set forth in Exhibit XIX; and each of Merck and RM hereby agrees to continue to provide such statements to the other, prepared in a consistent manner, for each calendar month and as of the end of each calendar quarter, as the case may be, until the Closing.

SECTION 6.4. Early Year Adjustment

     If the actual Net Reported Sales by the Merial Venture (or by RM and Merck and their respective Subsidiaries during the Retroactive Period) of certain products specified below in any of 1997, 1998 or 1999 are less than the assumed Baseline Net Reported Sales amounts for such products set forth below, the Principals will give effect in each such year to an adjustment mechanism (the “Early Year Adjustment Mechanism”) set forth in this Section 6.4. A numerical example of the Early Year Adjustment Mechanism is provided in Exhibit XVIII hereto.

     (a) Early Year Adjustment Special Dividend. The Early Year Adjustment Mechanism Entitlements of each Principal, if any, calculated pursuant to this Section 6.4 in respect of each Fiscal Year 1997 through 1999 shall be offset against each other, with the difference between them being the “Early Year Adjustment Special Dividend” for each such Fiscal Year. In calculating the Net Special Dividend in respect of each such

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Fiscal Year, the Early Year Adjustment Special Dividend shall be credited to the Merck Member if the Merck Section 6.4 Entitlement (as defined below) is greater or to the RP Member if the RP Section 6.4 Entitlement (as defined below) is greater.

Baseline Net Reported Sales ($ millions)

	1997		1998		1999
RP Adjustment Products		[*]		[*]		[*]
Merck Adjustment Products		[*]		[*]		[*]

Gross Margin Rate (%)

	1997		1998		1999
RP Adjustment Products		[*]		[*]		[*]
Merck Adjustment Products		[*]		[*]		[*]

     (b) Merck Section 6.4 Entitlement. The amount, if any, by which (x) the sum of actual Net Reported Sales of Biological Products and Fipronil Products (together, “RP Adjustment Products”), for any of 1997, 1998 or 1999, are less than (y) the respective Baseline Net Reported Sales for RP Adjustment Products for such year, shall be the “RP Sales Shortfall Amount” for such year. Merck shall be entitled in respect of any such year to a dollar amount (the “Merck Section 6.4 Entitlement”) equal to the product of (xx) the RP Sales Shortfall Amount, (yy) the percentage equal to the Gross Margin Rate set forth above for RP Adjustment Products for such year, and (zz) [*].

     (c) RP Section 6.4 Entitlement. The amount, if any, by which (x) actual Net Reported Sales of Avermectin Products (“Merck Adjustment Products”), for any of 1997, 1998 or 1999, are less than (y) the respective Baseline Net Reported Sales for Merck Adjustment Products for such year, shall be called the “Merck Sales Shortfall Amount” for such year. RP shall be entitled in respect of any such year to a dollar amount (the “RP Section 6.4 Entitlement”) equal to the product of (xx) the Merck Sales Shortfall Amount, (yy) the percentage equal to the Gross Margin Rate set forth above for Merck

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Adjustment Products for such year, and (zz) [*].

     (d) 1997 Partial Year. In calculating the Sales Shortfall Amounts, if any, in respect of 1997, the relevant Baseline Net Reported Sales amounts for the full Fiscal Year shall be reduced proportionately (i.e., multiplied by a fraction the numerator of which is the actual Net Reported Sales amount during the period from the Economic Effective Date to the end of 1997 and the denominator of which is actual Net Reported Sales amount for the full calendar year 1997) and compared to actual Net Reported Sales during the period from the Economic Effective Date to the end of 1997.

     (e) Foreign Currency Fluctuation. In order to eliminate the effects of certain foreign currency fluctuations, the Net Reported Sales calculated with respect to all sales of RP Adjustment Products or Merck Adjustment Products denominated in any of the currencies listed hereafter shall be translated into U.S. dollars on the basis of the following exchange rates: English pound sterling .63, French franc 5.00, German deutschemark 1.43, Italian lira 1624, Spanish peseta 125, Japanese yen 93, and Australian dollar 1.35. If any of such sales of RP Adjustment Products or Merck Adjustment Products in one of such countries are denominated in ecus or euros, the Net Reported Sales in U.S. dollars with respect to such sales shall be determined by first translating the amount in ecus or euros, as the case may be, into an amount denominated in the national currency of such country (the English pound sterling, French franc, German deutschemark, Italian lira or Spanish peseta, as the case may be) at the exchange rate in effect at the date of such sale (or, if the national currency no longer exists at such time, the last such exchange rate in effect prior to the elimination of the national currency), and then translating the resulting national currency amount into U.S. dollars at the exchange rates set forth above.

     (f) Early Dissolution. The Early Year Adjustment Mechanism shall only be applied to full calendar years (and to the partial 1997 year as contemplated in Section 6.4(d)). In the event the Merial Venture is Dissolved prior to December 31, 1999, the Principals shall negotiate in good faith at such time in order to adjust the payment(s)

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made in connection with such Dissolution to account for the estimated present value of the adjustments that would have been made pursuant to the Early Year Adjustment Mechanism set forth in this Section 6.4 had such Dissolution not occurred. In the event such Dissolution occurs pursuant to the purchase by one Principal of the Merial Venture interest of the other, the adjustment shall be made to the purchase price. In the event such Dissolution occurs pursuant to the purchase by a Third Party of all or substantially all of the Merial Venture, the adjustment shall be made to the apportionment of the purchase price between the Principals (which apportionment would otherwise be 50/50, before accounting for any undistributed Special Dividends or other early Dissolution adjustments).

     (g) Change of Early Year Adjustment Mechanism Premises. If, prior to the Closing, the Principals or, after the Closing, Merial’s Board of Directors, approves a transaction or the development and marketing of a product that can be reasonably viewed as changing the premises upon which the Baseline Net Reported Sales amounts were agreed, then Merck and RP shall negotiate in good faith to determine appropriate and equitable modifications to the Baseline Net Reported Sales amounts and until both Principals agree on such modifications, the foregoing provisions of this Section 6.4 shall continue to apply.

SECTION 6.5. Band Adjustment

     If the average annual actual Net Reported Sales of RP Adjustment Products or Merck Adjustment Products by the Merial Venture during the four calendar-year period of 1998, 1999, 2000 and 2001 is more than [*] the Baseline Net Reported Sales for such products set forth in this Section 6.5, the Parties will give effect to a band adjustment mechanism (the “Band Adjustment Mechanism”) set forth in this Section 6.5. A numerical example of the Band Adjustment Mechanism is provided in Exhibit XVIII hereto.

     (a) Band Adjustment Special Dividend. The Band Adjustment Mechanism Entitlements of each Principal, if any, as calculated pursuant to this Section 6.5, shall be

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offset against each other, with the difference between them being the “Band Adjustment Special Dividend”. The Band Adjustment Special Dividend shall be credited to the RP Member if the RP Section 6.5 Entitlement, as defined below, is greater than the Merck Section 6.5 Entitlement, as defined below, or to the Merck Member if the Merck Section 6.5 Entitlement is greater than the RP Section 6.5 Entitlement, in calculating the Net Special Dividend in respect of Fiscal Year 2001.

     Baseline Net Reported Sales ($ millions)

	1998		1999		2000		2001		Average
RP Adjustment Products		[*]		[*]		[*]		[*]		[*]
Merck Adjustment Products		[*]		[*]		[*]		[*]		[*]

     (b) Merck Section 6.5 Entitlement. The amount, if any, by which (x) the average of the actual annual Net Reported Sales for RP Adjustment Products, during the period 1998-2001 inclusive, is less than (y) the average of the annual Baseline Net Reported Sales for RP Adjustment Products, during such period, shall be the “Average RP Sales Shortfall Amount”. If the Average RP Sales Shortfall Amount is greater than [*] (the “RP Threshold”), then Merck shall be entitled to an amount (the “Merck Section 6.5 Entitlement”) [*]. The RP Threshold was calculated [*].

     (c) RP Section 6.5 Entitlement. The amount, if any, by which (x) the average of the actual annual Net Reported Sales for Merck Adjustment Products, during the period 1998-2001 inclusive, is less than (y) the average of the annual Baseline Net Reported Sales for Merck Adjustment Products during such period, shall be the “Average Merck Sales Shortfall Amount”. If the Average Merck Sales Shortfall Amount is greater than [*] (the “Merck Threshold”), then RP shall be entitled to an amount (the “RP Section 6.5 Entitlement”) [*]. The Merck Threshold was calculated [*]

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[*].

     (d) Foreign Currency Fluctuation. In order to eliminate effects of certain foreign currency fluctuations, actual Net Reported Sales (with respect to sales made in certain currencies other than U.S. dollars) shall be calculated using the same agreed upon exchange rates as for the Early Year Adjustment Mechanism, as set forth in Section 6.4(e) above.

     (e) Early Dissolution. If the Merial Venture liquidates, sells or otherwise disposes of all or substantially all of its assets or is Dissolved prior to January 1, 2002, then the Band Adjustment Mechanism shall be applied as follows:

     (i) if the Dissolution Date is prior to January 1, 1999, the Band Adjustment Mechanism shall not apply;

     (ii) in the case of a Dissolution Date on or after January 1, 1999, the Band Adjustment Mechanism shall be applied as set forth in Section 6.5(a)-(d) above, except as follows:

     The Average RP Sales Shortfall Amount and the Average Merck Sales Shortfall Amount shall be calculated on an annualized basis, based on the number of full calendar quarters from January 1, 1998 through the Dissolution Date, rather than on the average of the four full calendar years of actual Net Reported Sales. The Baseline Net Reported Sales used for the quarters comprising any partial year prior to the Dissolution Date shall equal the product of the Baseline Net Reported Sales for such year and a fraction, the numerator of which is the Net Reported Sales for the relevant products shown (or implicit) in the Approved Budget (as defined below) for the full calendar quarters in such year prior to the Dissolution Date, and the denominator of which is the Net Reported Sales for such Products shown (or implicit) in the Approved Budget for the full year in which the Dissolution occurs. “Approved Budget” means the latest business plan or budget

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which covers the year in question that has been approved by Merial’s Board of Directors (or, if no such plan or budget has been so approved, then the actual Net Reported Sales for the relevant products during the corresponding periods in the preceding calendar year shall be used in place of the Net Reported Sales shown in the Approved Budget for purposes of the calculation described in the preceding sentence).

     (f) Change of Band Adjustment Mechanism Premises. If, prior to the Closing, the Principals or, after the Closing, Merial’s Board of Directors, approve a transaction or the development and marketing of a product that can be reasonably viewed as changing the premises upon which the Baseline Net Reported Sales amounts were agreed, then Merck and RP shall negotiate in good faith to determine appropriate and equitable modifications to the Baseline Net Reported Sales amounts and until both Principals agree upon such modifications, the foregoing provisions of this Section 6.5 shall continue to apply.

SECTION 6.6. Special Poultry Genetics Profit Allocation

     (a) Merial shall, in respect of each Fiscal Year from 1997 to 2001 inclusive, credit a Special Dividend (the “PG Profit Special Dividend”) to the Merck Member equal to [*] of the “Adjusted Poultry Genetics Profits” for such year. The “Adjusted Poultry Genetics Profits” for each such year shall be calculated by taking the pre-tax profits before interest expenses of the Poultry Genetics Business reflected in the stand alone pro forma financial statements referred to below in this Section 6.6(a) for the relevant Fiscal Year, [*]. The Parties acknowledge (i) that the PG Profit Special Dividend shall be calculated and credited regardless of the proportion of the Poultry Genetics Business’ profits that Merial actually receives in the form of dividends in respect of such year, and (ii) that all dividends actually received by Merial from its Poultry Genetics Business shall be allocated as between the Members as otherwise provided in this Agreement. The Parties agree that the impact of any acquisitions by Merial in the Poultry Genetics Business after

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the Closing Date, which impact shall be determined by the management of Merial at the time of such acquisitions, shall be excluded from the calculation of the PG Profit Special Dividend. In the event of a divestiture by Merial or any other Merial Venture Company of a part (but less than all or substantially all) of the Poultry Genetics Business contributed to the Merial Venture (other than Goubin) between the Economic Effective Date and December 31, 2001, the Special Poultry Genetics Profit Allocation in respect of the Fiscal Year during which such divestiture occurred shall be increased by an amount equal to [*]. Merial shall prepare stand-alone pro forma financial statements reflecting the operations of the entirety of its Poultry Genetics Business for each Fiscal Year from 1997 through 2001 inclusive, including profit and loss statements, prepared consistently with the accounting principles and practices used to prepare the Merial financial statements (but excluding any financial or interest charges actually incurred by the Poultry Genetics Business). In preparing these financial statements, any expenses for overheads or corporate services shall be allocated on a fair and equitable basis, based on the actual use of corporate resources. These financial statements for the Fiscal Year 1997 shall reflect the operations of the Poultry Genetics Business from the Closing Date to December 31, 1997. The PG Profit Special Dividend in respect of 1997 shall be based on the profits of the Poultry Genetics Business during the period from the Closing Date to December 31, 1997. A numerical example of the Poultry Genetics Special Dividend is provided in Exhibit XVIII hereto.

     (b) Deemed Interest Expense. For the purposes of calculating the Adjusted Poultry Genetics Profits, [*] of Debt shall be deemed to have been initially allocated to the Poultry Genetics Business. The “Deemed Interest Expense” for each year from 1997 through 2001 shall equal [*]

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[*]. For the calculation of the 1997 Deemed Interest Expense, [*] shall be used.

     (c) PG Profit Special Dividend. Subject to Section 6.6(d), the PG Profit Special Dividend calculated in respect of each Fiscal Year from 1997 to 2001 inclusive shall be credited to the Merck Member in calculating the Net Special Dividend pursuant to Section 6.2 in respect of such Fiscal Year.

     (d) Early Disposal or Dissolution. If the Merial Venture liquidates, sells or otherwise disposes of all or substantially all of its Poultry Genetics Business or if the Merial Venture is Dissolved prior to January 1, 2002, then the Principals shall negotiate in good faith at such time, in order to adjust the payment(s) made in connection with such disposal or Dissolution to account for the estimated present value of the remaining PG Profit Special Allocation (the “PG Profit Allocation Present Value”). In the event the Principals are not able to agree within 30 days of the closing of such disposal or Dissolution on the amount of the PG Profit Allocation Present Value, it shall be determined in accordance with the procedures set forth in Section 17.2(g)(ii). In the event of an early sale or other disposition by the Merial Venture of all or substantially all of its Poultry Genetics Business, Merial shall, pursuant to Section 6.2, credit the PG Profit Allocation Present Value to the Merck Member as a Special Dividend in respect of the calendar year during which such sale was completed. In the event of a Dissolution of the Merial Venture pursuant to the sale by one Principal of its Merial Venture Interest to the other, the purchase price shall be increased (in the case of a sale to RP) or decreased (in the case of a sale to Merck), as appropriate, by the PG Profit Allocation Present Value (on a dollar for dollar basis). In the event of a Dissolution of the Merial Venture pursuant to the sale of all or substantially all of the Merial Venture to a Third Party, the apportionment of the sales proceeds to the Merck Member (which apportionment as between the Members would otherwise be 50/50, before accounting for any undistributed Special Dividends or other adjustments provided for in this Article VI) shall be increased on a dollar for dollar basis equal to the PG Profit Allocation Present Value.

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SECTION 6.7. Supply Price Adjustments

     (a) Merck Supply Price Adjustment. In respect of each Fiscal Year, the RP Member shall have an entitlement (the “RP Section 6.7 Entitlement”) equal to the product of (i) [*], and (ii) (x) the sum of all amounts accrued by the Merial Venture to the Merck Group for such Fiscal Year for the supply of products (or bulk) pursuant to the Merck Supply Agreement, and (without duplication) of all amounts paid by Merial or its Subsidiaries during such Fiscal Year to purchase the Inventories included in the Merck Contributed Non-U.S. Assets and the Retained Inventory, if any, less (y) the sum of (AA) all amounts that would have been so accrued with respect to such Fiscal Year if calculated in accordance with the Merck Manufacturing Supply Price Formula and (BB) the Avermectin Products Sales Adjustment for such Fiscal Year calculated in accordance with Exhibit XXI [Avermectin Products Sales Adjustment], but only if the amount (the “Delta”) equal to the amount determined pursuant to clause (x) above less the amount determined pursuant to clause (y) above, is a positive amount. The sum of the amounts specified in (AA) and (BB) shall be the “Merck Negotiated Supply Price”. If the Delta is a negative number, then in respect of such Fiscal Year (whether or not the Merck Supply Agreement is then in effect), the Merck Member shall have an entitlement (the “Merck Section 6.7(a) Entitlement”) equal to the product of (i) [*], and (ii) the absolute amount of the Delta. Merck hereby represents that the formula for calculating standard direct cost in the Merck Supply Agreement is on the same basis as the formula used to calculate standard direct cost in the Merck Base Case and the multiple of standard direct cost in the Merck Base Case roughly approximates (on average over the five years following the Closing Date given the product mix included in the Merck Base Case) the multiple of standard direct cost provided for in the Merck Manufacturing Supply Price Formula.

     (b) RP Supply Price Adjustment. In respect of each Fiscal Year, the Merck Member shall have an entitlement (the “Merck Section 6.7(b) Entitlement”) equal to the product of (i) [*], and (ii) (x) the sum of all amounts accrued by the Merial Venture to the RP Group for such Fiscal Year for the

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supply of products (or bulk) pursuant to the RP Ag Supply Agreement, less (y) the sum of all amounts that would have been so accrued if calculated at Fully Allocated Cost (as defined in the RP Ag Manufacturing Supply Price Formula). RP hereby represents that the purchase price for Fipronil used in preparing the projections set forth in the RM Base Case was calculated using Fully Allocated Cost (as defined in the RP Ag Manufacturing Supply Price Formula).

     (c) Supply Price Adjustment Special Dividend. The “Supply Price Adjustment Special Dividend” shall be equal to the difference between the respective Entitlements of the Principals, if any, in respect of each relevant Fiscal Year, as calculated pursuant to Sections 6.7(a) and (b) above. The Supply Price Adjustment Special Dividend shall be credited to the RP Member if the RP Section 6.7 Entitlement is greater than the Merck Section 6.7(a) Entitlement plus the Merck Section 6.7(b) Entitlement or to the Merck Member if the Merck Section 6.7(a) Entitlement plus the Merck Section 6.7(b) Entitlement is greater than the RP Section 6.7 Entitlement, in calculating the Net Special Dividend in respect of such year pursuant to Section 6.2. A numerical example of the Supply Price Adjustment is provided in Exhibit XVIII hereto.

     (d) Alternative Upon Dissolution, Sale, Etc. In the event that, as a result of any Dissolution, any transaction contemplated by Articles XVI or XVII or otherwise, this Section 6.7 is no longer operative or no longer effectively gives effect to the economic principle that on a net basis Merck is selling and the Merial Venture is purchasing Avermectin Products at the Merck Manufacturing Supply Price Formula and Merck receives amounts calculated pursuant to the Avermectin Products Sales Adjustment Exhibit, the Parties agree that, prior to the effectiveness of any such event, alternative arrangements shall be entered into by and among the Parties and/or a purchaser in order to provide the equivalent economic benefits to the Parties of the arrangements contemplated by this Section 6.7 that, in the aggregate, have no less favorable economic, tax, commercial and legal characteristics to each of the Parties.

SECTION 6.8 Contributed Debt Adjustment Special Dividend

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     (a) From the Closing Balance Sheets, the Parties shall calculate the “RM Actual Contributed Net Debt Variance”, as defined below, and the “Merck Actual Contributed Net Debt Variance”, as defined below. The difference between the RM Actual Contributed Net Debt Variance and the Merck Actual Contributed Net Debt Variance, calculated as set forth below, shall be the “Contributed Debt Adjustment Special Dividend”. In calculating the Net Special Dividend in respect of the 1997 Fiscal Year pursuant to Section 6.2, the Contributed Debt Adjustment Special Dividend shall be credited to the RP Member if the Merck Actual Contributed Net Debt Variance is greater than the RM Actual Contributed Net Debt Variance, and to the Merck Member if the RM Actual Contributed Net Debt Variance is greater than the Merck Actual Contributed Net Debt Variance. A numerical example of the Contributed Debt Adjustment Special Dividend is provided in Exhibit XVIII hereto.

     (b) The “RM Actual Contributed Net Debt Variance” shall be equal to:

     the RM Intercompany Debt (as defined in Section 5.2(b)),

plus

     the RM Outstanding Debt (as defined in Section 5.2(b)),

plus

     the RM Accrued Tax Liabilities (as defined in Section 5.2(b)),

plus

     the RM China Financial Receivable (as defined in Section 5.1(b)(ii)),

plus

     the RP Chinese Assets Value Shortfall (as defined in Section 5.1(b)(ii)),

less

     the RM Closing Cash (as defined in Section 5.2(b)),

less

     [*]

     (c) The “Merck Actual Contributed Net Debt Variance” shall be equal to:

     the Merck Non-U.S. Net Assets Value (as defined in Section 5.1(a)(ii)(A)),

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plus

     the Retained Receivables (as defined in Section 5.1(a)(ii)(C)),

plus

     the Retained Inventories (as defined in Section 5.1(a)(ii)(C)),

plus

     the Merck Accrued Tax Liabilities (as defined in Section 5.1(a)(ii)(B)),

plus

     the Merck Other Debt (as defined in Section 5.1(a)(ii)(B)),

less

     the Merck Cash Contribution Amount (as defined in Section 5.1(a)(ii)(B)),

less

     the Merck Closing Cash (as defined in Section 5.1(a)(ii)(B)),

less

     [*].

     (d) The Contributed Debt Adjustment Special Dividend shall equal the difference between the RM Actual Contributed Net Debt Variance and the Merck Actual Contributed Net Debt Variance, which difference shall be calculated taking into account any negative amounts (for example, if one amount is -4 (negative four) and the other is 4, the difference between them shall be 8).

SECTION 6.9. Delayed Purchase Assets and Liabilities Special Dividend

     The Parties shall agree on the estimated aggregate fair market value of the Delayed Purchase Assets, such estimated value being the “Estimated Delayed Purchase Assets Value”. For purposes of this Section 6.9, the amount in U.S. dollars to be used in calculating any purchase price for Delayed Purchase Assets denominated in a currency other than U.S. dollars shall be calculated using the closing midpoint exchange rate set forth in the London edition of the Financial Times on the date the payment is made.

     (a) Purchases of Delayed Purchase Assets during the 1997 Fiscal Year. As soon as practicable after the end of the 1997 Fiscal Year, and in no event later than the

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twentieth (20th) Business Day following the end of such Fiscal Year, Merial shall (i) determine whether all the Delayed Purchase Assets have been purchased during the 1997 Fiscal Year, and (ii) calculate the difference between (x) the Estimated Delayed Purchase Assets Value and (y) the purchase price actually paid for all the Delayed Purchase Assets purchased during the 1997 Fiscal Year (the “1997 Aggregate Purchase Price”), which difference shall be the “1997 Delayed Purchase Assets Variance”.

(A) If the 1997 Aggregate Purchase Price is greater than the Estimated Delayed Purchase Assets Value, the 1997 Delayed Purchase Assets Variance shall be credited as a 1997 Delayed Purchase Assets Special Dividend to the RP Member, pursuant to Section 6.2 and in respect of the 1997 Fiscal Year.

(B) If the purchase of all Delayed Purchase Assets is completed by December 31, 1997 and the Estimated Delayed Purchase Assets Value is greater than the 1997 Aggregate Purchase Price, the 1997 Delayed Purchase Assets Variance shall be credited as a 1997 Delayed Purchase Assets Special Dividend to the Merck Member pursuant to Section 6.2 and in respect of the 1997 Fiscal Year.

(C) If the purchase of all Delayed Purchase Assets is not completed by December 31, 1997 and the 1997 Aggregate Purchase Price is lower than the Estimated Delayed Purchase Assets Value, no Delayed Purchase Assets Special Dividend shall be credited with respect to the 1997 Fiscal Year.

     (b) Purchases during 1998. As soon as practicable after the end of the 1998 Fiscal Year, and in no event later than the twentieth (20th) Business Day following the end of such Fiscal Year, Merial shall (i) determine whether all the remaining Delayed Purchase Assets have been purchased during the 1998 Fiscal Year, and (ii) calculate the difference between (x) the Estimated Delayed Purchase Assets Value and (y) the purchase price actually paid for all the Delayed Purchase Assets purchased during the 1997 and the

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1998 Fiscal Years (the “Global Purchase Price”), which difference shall be the “Global Delayed Purchase Assets Variance”.

(A) If the purchase of all Delayed Purchase Assets is completed by December 31, 1998 and the Global Purchase Price is greater than the Estimated Delayed Purchase Assets Value, a Delayed Purchase Assets Special Dividend equal to the difference between the Global Delayed Purchase Assets Variance and the 1997 Delayed Purchase Assets Special Dividend credited to the RP Member and specified in Section 6.9(a)(A) shall be credited to the RP Member, pursuant to Section 6.2 and in respect of the 1998 Fiscal Year. If the purchase of all Delayed Purchase Assets is completed by December 31, 1998 and the Global Purchase Price is lower than the Estimated Delayed Purchase Assets Value, a Delayed Purchase Assets Special Dividend equal to the difference between the Global Delayed Purchase Assets Variance and the 1997 Delayed Purchase Assets Special Dividend credited to the Merck Member and specified in Section 6.9(a)(B) shall be credited to the Merck Member, pursuant to Section 6.2 and in respect of the 1998 Fiscal Year.

(B) If the purchase of all Delayed Purchase Assets is not completed by December 31, 1998, the Parties shall meet no later then the twentieth (20th) Business Day of the 1999 Fiscal Year to determine the consequences, financial and otherwise, of such a failure, and such consequences shall be taken into account to determine the 1998 Delayed Purchase Assets Special Dividend.

SECTION 6.10. Early Dissolution and the Merck Research Payment

     No RM Funding Commitment payments (as defined in the Merck Research Agreement) shall be made by RM SAS after the Dissolution of the Merial Venture; provided, however, that if the Merial Venture is Dissolved before December 31, 2003, the payment(s) made in connection with such Dissolution to the Merck Member shall be

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increased (or to the RP Member shall be decreased) by an amount equal to the present value of future RM Funding Commitment payments (the “Research Payment Present Value”), which shall be deemed to be [*] for a Dissolution during the calendar year 1997, and [*]. In the event of a Dissolution of the Merial Venture pursuant to the sale by one Principal of its Merial Venture Interest to the other, the purchase price shall be increased or decreased, as appropriate, by the Research Payment Present Value (on a dollar for dollar basis). In the event of a Dissolution of the Merial Venture pursuant to the sale of all or substantially all of the Merial Venture to a Third Party, the apportionment of the sales proceeds to the Merck Member (which apportionment as between the Members would otherwise be 50/50, before accounting for any undistributed Special Dividends or other adjustments provided for in this Article VI) shall be increased on a dollar for dollar basis equal to the Research Payment Present Value.

SECTION 6.11. Distribution Upon Liquidation

     In any liquidation of the Merial Venture, the assets of the Merial Venture shall, subject to applicable Laws, be distributed in accordance with the following priorities:

(i) First, to the creditors of the Merial Venture (including to any RP Companies or Merck Companies to whom any Debt or accounts payable may be owed by the Merial Venture) in accordance with applicable Laws and any judgments or orders of competent Public Authorities;

(ii) second, to the extent of any assets remaining, if there is any unpaid Net Special Dividend balance outstanding in respect of any prior Fiscal Year, an amount equivalent to such balance to the Member to whom such unpaid Net Special Dividend balance is due (together with any interest accrued thereon);

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(iii) third, to the extent of any assets remaining, each of the adjustments contemplated by Section 6.4(f) [Early Year Adjustment], 6.5(e) [Band Adjustment], 6.6(d) [Poultry Genetics] and 6.10 [Research Payments] shall be added or netted, as appropriate, and the resulting net adjustment amount paid to the Member entitled thereto; and

(iv) fourth, any remaining assets shall be distributed as between the Members and/or their Affiliates that hold the Preference Shares, if any, in the following order of priority: first, to the Members in an amount equal to the amount of any Net Special Dividend that would be calculated for the Member for the Fiscal Year in which the Dissolution of Merial occurs, treating such Fiscal Year as ending on the date of such Dissolution (to the extent not duplicative of (iii) above); second, in respect of any accumulated but unpaid dividends on the Preference Shares, to the holders thereof; third, in a return to the holders of the Preference Shares of capital equal to the nominal value of such shares, to the holders thereof; and fourth, equally as between the Members in respect of their general ownership interest in Merial.

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ARTICLE VII

EMPLOYEES AND EMPLOYEE BENEFIT MATTERS

SECTION 7.1. Animal Health Division — U.S.

     (a) Leasing of Merck Employees. The Merck Group employees employed in the Animal Health Business in the U.S. as of the Closing Date listed on a schedule to be provided by Merck on the Closing Date, which list shall include not only employees then actively employed but also those then on leave of absence, short-term disability, long-term disability and workers compensation (the “Merck Leased Employees”), shall be leased to Merial, or to a Merial Venture Company designated by Merial, as of the Closing Date pursuant to the terms set forth in the Merck Employee Leasing Agreement. Each Merck Leased Employee who is employed by Merck as of December 31, 1997 including not only employees then actively employed but also those then on leave of absence, short-term disability, long-term disability and workers compensation shall be offered employment with Merial, or a Merial Venture Company designated by Merial, as of January 1, 1998 at a rate of base salary determined by Merial and shall be eligible to participate in all employee benefit plans established and/or maintained by Merial or such Merial Venture Company, as the case may be. Notwithstanding the foregoing sentence, each Merck Leased Employee who has commenced, or is eligible to commence, benefits under the Merck & Co., Inc. Long-Term Disability Plan for Non-Union Employees (the “Merck LTD Plan”) prior to January 1, 1998 (a “Merck LTD Employee”) shall continue to receive medical, dental, life insurance and long-term disability benefits under the terms and conditions of the applicable Merck benefit plans, as each may be amended from time-to-time, and such continuation of benefits shall be at Merck’s sole cost and expense; provided, however, that the costs of benefits provided to a Merck Leased Employee who returns to work during the term of the Leasing Agreement or, thereafter, returns to work with the Merial Venture, shall be borne by Merial. Merck shall reimburse Merial (or the appropriate Merial Venture Company) for the cost of providing long-term disability benefits to each Merck Leased Employee who has commenced or is eligible to commence benefits under the Merck & Co., Inc. Short-Term Disability Plan for Non-Union

108

Employees prior to the Closing Date and becomes eligible to receive, on or after January 1, 1998, benefits under the Merial long-term disability plan as a result of such pre-Closing disability, provided such disability is continuous in accordance with the terms of the Merial long-term disability plan. Those Merck Leased Employees (including the Merck LTD Employees) who accept employment with Merial, or a Merial Venture Company designated by Merial, shall be referred to as the “Merial Merck Employees.”

     (b) Grandfathered Merck Retirement Benefits. All Merial Merck Employees shall be 100% vested in the Retirement Plan for Salaried Employees of Merck & Co., Inc. (the “Qualified Plan”) and in the Merck & Co., Inc. Supplemental Retirement Plan, as each such plan may be amended from time to time, (together with the Qualified Plan, the “Merck Retirement Plans”) as of December 31, 1997. Each Merial Merck Employee, the sum of whose age plus years of credited service (within the meaning of the Qualified Plan) as of December 31, 1997 equals at least 60 (collectively, the “Grandfathered Merck Employees”) shall receive credit for his or her years of service with the Merial Venture for purposes of determining eligibility to receive a subsidized early retirement benefit with respect to his or her benefit accrued through December 31, 1997 under the Merck Retirement Plans. Unless required by law, benefits under the Merck Retirement Plans shall not commence until the Grandfathered Merck Employee terminates employment with the Merial Venture. The compensation that each Merial Merck Employee receives from the Merial Venture during the period from January 1, 1998 to December 31, 2007 will for purposes of determining his or her final average pay under the Merck Retirement Plans be treated as if it were compensation received from Merck. An accounting or actuarial firm mutually agreed upon by Merck and RP shall determine the present value of the benefits to be provided to Merial Merck Employees pursuant to this Section 7.1(b) that are in excess of the benefits they would otherwise be entitled to receive under the Merck Retirement Plans in the absence of this Section 7.1(b) (such excess amount shall be defined as the “Retirement Cost”). The Retirement Cost shall be determined as of December 31, 1997 using the December 31, 1997 demographics of Merial Merck Employees and shall be based upon the actuarial assumptions used by Merck for purposes of determining pension expense pursuant to Financial Accounting Standards (“FAS”) 87 for the Merck Retirement Plans for 1998. Merial shall credit to the Merck Member in

109

respect of the Fiscal Year in which the Retirement Cost is calculated a Special Dividend equal to the Retirement Cost (as increased by an amount calculated as interest at [*] from December 31, 1997 through the earlier of (x) the date on which the Net Special Dividend in respect of such Fiscal Year is paid in full, and (y) April 15 of the Fiscal Year immediately following the Fiscal Year in respect of which the Special Dividend is to be paid).

     (c) Grandfathered Retiree Medical and Dental Benefits. Each Grandfathered Merck Employee whose employment with the Merial Venture terminates and who, at the time of such termination, (i) is at least 55 years old with at least 10 years of credited service (as defined under the Qualified Plan and including service with the Merial Venture) or (ii) if hired by Merck prior to January 1, 1989 is at least 65 years old or meets the requirements of the foregoing clause (i), shall be eligible to receive retiree medical benefits under the terms applicable to retirees under the Merck & Co., Inc. Medical Plan for Nonunion Employees as it may be amended from time to time (the “Merck Medical Plan”) and shall be eligible to receive retiree dental benefits under the terms applicable to retirees under the Merck & Co., Inc. Dental Plan for Nonunion Employees as it may be amended from time to time (the “Merck Dental Plan”). An accounting or actuarial firm mutually agreed upon by Merck and RP shall determine the present value of the accumulated post retirement benefit obligation existing for eligible Grandfathered Merck Employees (other than those employees who, as of December 31, 1997 (i) are at least 55 years old with at least 10 years of credited service (as defined under the Qualified Plan), or (ii) if hired by Merck prior to January 1, 1989 are at least 65 years old or meet the requirements of the immediately foregoing clause (i)) pursuant to this Section 7.1(c) (the “Health Cost”). The Health Cost shall be determined as of December 31, 1997 using the December 31, 1997 demographics of eligible Grandfathered Merck Employees and shall be based upon the actuarial assumptions used by Merck for calculating the expense for the Merck Medical Plan and the Merck Dental Plan pursuant to FAS 106 for 1998. Merial shall credit to the Merck Member in respect of the Fiscal Year in which the Health Cost is calculated a Special Dividend equal to the Health Cost (as increased by an amount calculated as interest at [*] from December 31, 1997 through the earlier of (x) the date on which the Net

110

Special Dividend in respect of the 1998 Fiscal Year is paid in full, and (y) April 15 of the Fiscal Year immediately following the Fiscal Year in respect of which the Special Dividend is to be paid).

     (d) Merck Stock Options. In addition to any stock option grants made prior to the date of this Agreement under any Merck incentive stock plan (all such plans collectively, the “Merck Stock Option Plans”), Merck may make an additional grant under the current Merck Stock Option Plan to be priced as of the Closing Date to selected employees as determined by Merck who shall become Merck Leased Employees. Merck will provide the shares of Merck common stock obtained upon exercise of any stock option grants which have been made by Merck under the Merck Stock Option Plans to any Merial Merck Employee which are outstanding as of the Closing Date. Promptly after any such exercise, Merck may invoice on an employee by employee basis and, if so invoiced, Merial (or the appropriate Merial Venture Company) will pay to Merck (within fifteen (15) days after receipt of such invoice), the amount (the “Spread”) equal to the product of (A) the excess of (i) the per share market price of shares of Merck common stock purchased on the exercise of the option, over (ii) the per share exercise price of the stock option (adjusted for stock splits, stock dividends, reclassification and similar events between the date the stock option was granted and the exercise date, as considered appropriate by Merck), times (B) the number of shares issued upon such exercise. Merial shall credit to the RP Member in respect of any Fiscal Year in which it pays a Spread to Merck, a Special Dividend equal to the aggregate of (x) all Spreads paid in such Fiscal Year by Merial to Merck plus (y) any incidental costs associated with the payment of such Spreads and paid by the Merial Venture (i.e., any employer taxes paid). The Special Dividend (as described in the foregoing sentence) that may be credited to the RP Member in any particular Fiscal Year shall be increased by an amount calculated as interest at a rate equal to [*] accruing from December 31 of such Fiscal Year through the earlier of (x) the date on which the Net Special Dividend in respect of such Fiscal Year is paid in full, and (y) April 15 of the Fiscal Year immediately following the Fiscal Year in respect of which the Special Dividend is to be paid.

111

     (e) RM Plans. Following the Closing and until December 31, 1997, Merial shall, or shall cause RM or its Subsidiaries to continue to, maintain the employee benefit plans that were in effect for the employees of RM or its Subsidiaries employed in the Animal Health Business in the U.S. (“RM U.S. Employees”) immediately prior to the Closing, other than any stock option plans (the “RM Plans”). Prior to January 1, 1998, such RM Plans shall only be amended (i) as required by law, (ii) to maintain the tax qualified status of any such plan or (iii) as determined by the Board of Directors; provided, however, that the RM/Select 401 (k) Plan (the “RM 401 (k) Plan”) shall be amended as of July 1, 1997 to provide an employer matching contribution of [*] each $1.00 deferred by a participant under the plan up to [*] of compensation.

     (f) Merial Plans. Effective January 1, 1998, Merial shall, or shall cause the appropriate Merial Venture Company to, amend the RM Plans or otherwise establish such employee benefit plans in accordance with the terms set forth herein (other than a severance plan which shall be established as of the Closing Date) in which Merial Merck Employees and RM U.S. Employees (collectively the “U.S. Animal Health Employees”) shall participate as Merial shall deem appropriate subject to the terms and conditions set forth herein. It is the intention that such plans shall be initially designed so that the expected aggregate cost for the plans shall not, on an annualized basis, exceed the total combined aggregate benefit plan costs of RM and its Subsidiaries and Merck for such employees on an annualized basis prior to the Closing Date.

     (i) Cash Balance Plan. Effective as of January 1, 1998, Merial shall, or shall cause the appropriate Merial Venture Company to, establish one or more cash balance retirement plans (tax-qualified or non-tax qualified) (the “Cash Balance Plan”) in which the U.S. Animal Health Employees shall be eligible to participate upon satisfying the applicable age and service requirements established for such plan. All U.S. Animal Health Employees shall be credited for their prior service with the Merial Venture, Merck or RM (or their respective Subsidiaries) for vesting and eligibility purposes with respect to the Cash Balance Plan. The Cash Balance Plan and the Amended RM 401(k) Plan (as hereinafter defined) shall

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be initially designed to collectively provide retirement benefits at the median of the Watson Wyatt sample of 731 companies as provided to the parties by Watson Wyatt prior to the date hereof. It is the intention that the annual costs of employer contributions to such plans for 1998 shall not exceed the total combined aggregate costs for the U.S. Animal Health Employees under the RM 401 (k) Plan, Merck 401 (k) Plan and the Merck Retirement Plan on an annualized basis prior to the Closing Date.

     (ii) 401(k) Plan. The profit sharing contribution provided for under the RM 401(k) Plan for the 1997 plan year shall be made by Merial (or the appropriate Merial Venture Company) and shall not exceed [*] of the compensation of participants in the plan, which contribution amount shall be split between RP and Merial on a pro-rata basis, with RP bearing the contribution amount (pursuant to the Special Dividend described in the following sentence) for the portion of the plan year up to and including the Closing Date (the “RM Profit Sharing Cost”) and Merial the portion of the plan year after the Closing Date. Merial shall credit to the Merck Member in respect of the 1998 Fiscal Year a Special Dividend equal to the RM Profit Sharing Cost [*], as increased by an amount calculated as interest at [*] from the date on which the profit sharing contribution with respect to the 1997 plan year is made by Merial through the earlier of (x) the date on which the Net Special Dividend in respect of the 1998 Fiscal Year is paid in full, and (y) April 15, 1999. Effective January 1, 1998, the RM 401(k) Plan shall be amended to provide (A) an employer matching contribution of [*] for each $1.00 deferred by a participant under the plan up to [*] of compensation (or such other level of contribution as the Board of Directors shall decide), (B) investment options permitting participants to invest in Merck and RP stock (provided that the plan purchases such stock in open market transactions and not directly from Merck or RP), and (C) that the profit sharing portion of the plan is terminated (as so amended, the “Amended RM 401(k) Plan”). Effective January 1, 1998, all Merial Merck Employees who were participants in the Merck 401 (k) Plan shall cease to be participants in such plan

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and shall become participants in the Amended RM 401(k) Plan and the Amended RM 401(k) Plan shall credit for eligibility and vesting purposes all service by a Merial Merck Employee for which such service was recognized under the Merck 401(k) Plan prior to January 1, 1998. As soon as practicable after January 1, 1998, Merck shall cause the trustee of the Merck 401(k) Plan to transfer to the trustee of the Amended RM 401(k) Plan assets equal to the account balances as of the valuation date immediately preceding the date of transfer of the Merial Merck Employees who were participants in the Merck 401(k) Plan; provided, however, that no such transfer shall occur until Merial demonstrates to the reasonable satisfaction of Merck and Merck demonstrates to the reasonable satisfaction of Merial that, at the time of the transfer, the Amended RM 401(k) Plan and the Merck 401(k) Plan, respectively, satisfy the requirements for qualification under Section 401(a) of the Code. The transfer referred to in the preceding sentence may be made in shares of Merck stock (to the extent the transferred account balances are invested in the Merck Unitized Common Stock Fund under the Merck 401(k) Plan), promissory notes or other documents evidencing participant loans (to the extent the transferred account balances consist of participant loans) and cash. Upon the transfer of assets contemplated in this Section 7.1(f)(ii), the Merck 401(k) Plan shall be relieved of, and the Amended RM 401(k) Plan shall assume, all liability with respect to the payment of the transferred account balances.

     (iii) Medical Plan. Effective January 1, 1998, the RM Nonunion Medical Benefits Plan (“RM Medical Plan”) shall be amended (A) to the extent necessary, to provide that Merial Merck Employees are eligible to participate in the plan, (B) where feasible, to provide for managed care in locations where Merck provides managed care to its employees immediately prior to January 1, 1998, and (C) to provide that the percentage of the cost of coverage under the plan borne by each participant shall not be more than [*]. Merial shall cause the RM Medical Plan to waive any preexisting condition exclusions or restrictions to the extent necessary to provide immediate coverage under the plan for Merial Merck Employees.

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     (iv) Dental Plan. Effective January 1, 1998, the RM/Select Laboratories, Inc. Dental Plan (the “RM Dental Plan”) shall be amended to provide that (A) Merial Merck Employees are eligible to participate in the plan, and (B) to provide that the percentage of the cost of coverage under the plan borne by each participant shall not be more than [*]. Merial shall cause the RM Dental Plan to waive any preexisting condition exclusions or restrictions to the extent necessary to provide immediate coverage under the plan for Merial Merck Employees.

     (v) Other Plans. Effective as of January 1, 1998, Merial shall, or shall cause the appropriate Merial Venture Company to, establish a health care reimbursement account, dependent care reimbursement account, group life insurance, accidental death and dismemberment insurance, a Section 125 plan, and long-term and short-term disability plans that shall cover all U.S. Animal Health Employees the terms of which shall be determined by the Board of Directors, and such other plans as are determined by the Board of Directors.

     (vi) Severance Policies.

     (A) Effective as of the Closing Date, Merial shall, or shall cause the appropriate Merial Venture Company to, establish a severance policy (the “Regular Severance Policy”) covering the RM U.S. Employees (and, effective as of January 1, 1998, all of the U.S. Animal Health Employees) that provides, in exchange for an executed release, a severance benefit of [*] of salary (salary to be defined as base salary excluding overtime, premiums and other extraordinary payments) for each full year (for any partial year, prorated based on full calendar months) of service with the Merial Venture, RM and/or Merck (or their respective Subsidiaries) under circumstances and on terms and conditions as determined by the Board of Directors. For RM U.S. Employees, for the period from the Closing Date through December 31, 1997, such Regular Severance Policy shall include

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outplacement services and an additional [*] of salary for each full year of service (for any partial year, prorated based on full calendar months) plus [*] of salary in lieu of notice. Benefits payable under the Regular Severance Policy are in lieu of any other severance arrangements or benefits provided to employees by RM or its Subsidiaries or the Merial Venture.

     (B) Effective prior to the Closing Date, RM shall establish a special severance policy (the “Special Severance Policy”) covering the employees listed by RM on Schedules 7.1 F-1 and 7.1 F-2 (collectively, the “Eligible Employees”) that provides, in exchange for an executed release by the Eligible Employees and an agreement as to certain other terms and conditions, a severance benefit in the event of a termination of employment described in the following sentence of (i) for the Eligible Employees listed on Schedule 7.1 F-1, [*] of salary [*] of salary for each full year of service (partial years will not be counted) subject to a maximum of [*] of salary and for the Eligible Employees listed on Schedule 7.1 F-2, [*] of salary plus [*] of salary for each full year of service (partial years will not be counted) subject to a maximum of [*] of salary, (ii) an amount equal to the applicable premium cost to an Eligible Employee of [*] of continuation of coverage under the RM Medical Plan and the RM Dental Plan (the “Premium Payment”) plus an additional amount equal to the estimated tax liability incurred by an Eligible Employee with respect to the Premium Payment (as set forth in the letter agreement with such Eligible Employee), and (iii) outplacement services. An Eligible Employee (x) whose employment with RM or the Merial Venture is terminated prior to December 31, 1997, (1) by RM or the Merial Venture for reasons other than for misconduct or other cause, or (2) by the Eligible Employee upon reasonable written notice to RM or the Merial Venture if the position offered to the Eligible Employee by RM or the Merial Venture is not substantially comparable in base salary and job responsibilities as the

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position held by the Eligible Employee immediately prior to such offer or (y) who is notified prior to December 31, 1997 that his employment with the Merial Venture will be terminated as of a specified date occurring after December 31, 1997 and who remains employed through the specified date, in either case, shall be entitled to the severance benefits described in clauses (i) or (ii), as applicable, of the first sentence of this paragraph (B). Eligible Employees whose employment is terminated prior to December 31, 1997 for reasons other than misconduct or other cause will also be entitled to outplacement services. Benefits payable under the Special Severance Policy are in lieu of any other severance arrangements or benefits provided to employees by either RM and it Subsidiaries or the Merial Venture, including the Regular Severance Policy. An Eligible Employee who is informed prior to December 31, 1997 that his or her employment with the Merial Venture will be terminated as of a specified date occurring after December 31, 1997 who does not remain employed through such date will not be entitled to receive, and will not receive, any severance benefits under the Special Severance Policy or under any other plan, policy or program of RM and its Subsidiaries or the Merial Venture including the Regular Severance Policy. The Special Severance Policy will expire on December 31, 1997 and as of January 1, 1998 the Eligible Employees will participate in the Regular Severance Policy; except those Eligible Employees who are informed prior to December 31, 1997 that their employment with the Merial Venture will be terminated on a date after December 31, 1997, in which case, the Special Severance Policy shall continue to apply to each such Eligible Employee until such specified date. Merial shall (or shall cause the appropriate Merial Venture Company to) bear the costs of the Special Severance Policy.

     (C) From the Closing Date through December 31, 1997, Merck Leased Employees shall participate in a severance plan (the “Merck Leased Employees Severance Plan”) to be established by Merck the terms of which are described in the Merck Employee Leasing Agreement. Effective as of

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the Closing Date, Merck shall establish a special severance policy, covering those Merck Leased Employees determined by the Board of Directors on terms (including the reimbursement of Merck by Merial for payments made under such policy) described in the Merck Employee Leasing Agreement.

     (vii) Bonus Programs. Merial shall establish annual sales and annual incentive programs effective as of January 1, 1998 on terms and conditions established by the Board of Directors in which employees of the Merial Venture shall be eligible to participate. RM and Merck shall continue their respective sales and incentive plans for 1997 for the RM US Employees and the Merck Leased Employees, respectively; provided, however, that, to the extent feasible, Merial shall establish the goals for the sales plans for the RM U.S. Employees and the Merck Leased Employees for the period beginning on the Closing Date and ending on December 31, 1997. Merck shall pay bonuses under the applicable Merck sales and incentive plans to the Merck Leased Employees. Merial shall reimburse Merck for the cost of the payment of such bonuses on a pro rata basis in accordance with the terms of the Merck Employee Leasing Agreement.

     Merial shall (or shall cause the appropriate Merial Venture Company to) pay that portion of the bonuses earned by the RM U.S. Employees under the RM annual sales and incentive plan[s] with respect to the 1997 bonus period up to and including the Closing Date to the RM U.S. Employees as soon as practicable after the Closing Date. RP shall bear the obligation for the bonuses paid under the foregoing sentence pursuant to the Special Dividend described in the following sentence. Merial shall credit to the Merck Member for the 1997 Fiscal Year a Special Dividend equal to the amount of such bonuses paid by Merial under the RM annual sales and incentive plan[s] multiplied by [*], as increased by an amount calculated as interest at [*] from the Closing Date through the earlier of (x) the date on which the Net Special Dividend in respect of the 1997 Fiscal Year is paid in full, and (y) April 15, 1998. The appropriate Merial Venture Company shall

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pay that portion of the bonuses earned by the RM U.S. Employees under such annual sales and incentive plan[s] with respect to the 1997 bonus period following the Closing Date to the RM U.S. Employees in accordance with the terms and conditions of such plans and shall bear the costs of such payments.

     (viii) Service Credit. Without limiting any of the foregoing provisions of this Section 7.1, Merial shall, or shall cause the appropriate Merial Venture Company to, recognize for U.S. Animal Health Employees all service with Merck and RM and their respective affiliates and predecessors prior to such employees becoming employees of the Merial Venture for all purposes under the plans of the Merial Venture, other than pension benefit accrual, for which such service was recognized by Merck or RM or their respective Subsidiaries and Merial shall, or shall cause the appropriate Merial Venture Company, to waive for U.S. Animal Health Employees any pre-existing condition exclusions or restrictions and, for other than the Merck LTD Employees, any actively-at-work requirements imposed by any of the Merial plans.

     (ix) Change in Transfer Date. January 1, 1998 is assumed to be the date on which Merck Leased Employees shall become Merial Merck Employees. If January 1, 1998 is not the transfer date, Merck and RP shall agree on the appropriate transfer date and appropriate adjustments to be made to the terms and costs provided for in this Article VII.

     (g) Transfer of Certain Rhône Mérieux, Inc. Employees. As of the Closing Date, Rhône Mérieux, Inc. shall cause the employment of those RM U.S. Employees who are employed by Rhône Mérieux, Inc. as of such date as sales and distribution employees (the “S&D Employees”) to be transferred to Merial (or to a Merial Venture Company designated by Merial). Effective as of the Closing Date, Merial (or the appropriate Merial Venture Company) shall become a participating employer in the RM Plans in which the S&D Employees participated prior to the Closing Date and the S&D Employees shall remain participants in such plans to the extent and under the terms in which they participated in such plans prior to the Closing Date.

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SECTION 7.2. Animal Health Division — Outside U.S.

     (a) Leasing or Transfer of Merck Group Employees Outside of the U.S. Except as otherwise agreed by Merck and RM prior to the Closing, after the Closing, employees of the Merck Group employed in the Animal Health Business outside of the U.S. may be leased to Merial, or to a Merial Venture Company designated by Merial, to the extent permitted by local law and as agreed to by Merck and RM on or prior to the Closing, and transferred to Merial, or to a Merial Venture Company designated by Merial as soon as practicable after the Closing. The terms of any leasing agreement for each applicable country shall be substantially similar to the terms of the Merck Employee Leasing Agreement, with the percentage of payroll for benefits for the leased employees charged to Merial (or the appropriate Merial Venture Company) to be not less than the actual charge for benefits to the Animal Health Division of the Merck Group for such employees in effect immediately prior to the Closing Date. Where leasing is not permitted or where Merck and RM have not agreed on or prior to the Closing that leasing is appropriate, employees of the Merck Group employed in the Animal Health Business outside the U.S. shall be transferred to Merial, or to a Merial Venture Company designated by Merial, as of the Closing Date and shall participate in plans of the Merial Venture (or such other plans as Merial shall deem appropriate) as of the Closing Date.

     (b) Compensation and Benefit Plans. The compensation and benefit programs of the Merial Venture for employees of the Animal Health Business outside of the U.S. shall be reviewed on a country by country basis and such revisions, if any, as may be necessary to ensure that such programs are competitive in the applicable marketplace shall be made by Merck and RM prior to the Closing Date and by the Board of Directors after the Closing Date. Any transition arrangements, including but not limited to those regarding grandfathered pension and retiree health arrangements (and cost-sharing among the parties hereto with respect to such arrangements), credit for prior service, waiver of any pre-existing condition exclusions or restrictions, severance arrangements and cost sharing, shall be determined on a country-by-country basis by Merck and RM prior to the Closing Date and by the Board of Directors after the Closing Date.

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     (c) Costs of Transaction. Notwithstanding anything to the contrary in this Article VII, in the event that Merck or its Subsidiaries or RM or its Subsidiaries incurs liability or obligation as a result of the consummation of the transactions contemplated in this Agreement, to, or with respect to their respective employees outside of the U.S. whose employment is being transferred or assumed by the Merial Venture, Merial shall (i) credit to the Merck Member in respect of the Fiscal Year in which such liability or obligation is paid by the Merck Group, a Special Dividend equal to the cost multiplied by [*] Merck or its Subsidiaries incurs with respect to such liability or obligation (as increased by an amount calculated as interest at [*] from the date such liability or obligation is paid by the Merck Group through the earlier of (x) the date on which the Net Special Dividend in respect of such Fiscal Year is paid in full, and (y) April 15 of the calendar year immediately following the Fiscal Year in respect of which the Special Dividend is to be paid) and (ii) honor the obligation of RM or its Subsidiaries.

     (d) Assumption of Employment Contracts. Notwithstanding anything to the contrary contained in this Article VII, to the extent required by law, the appropriate Merial Venture Company will assume the existing employment contracts and obligations arising out of the employment relationship of those employees of the Merck Group employed in the Animal Health Business outside the U.S. whose employment is transferred to a Merial Venture Company in connection with the consummation of the transactions contemplated under this Agreement, unless and until otherwise negotiated by Merial with the consent of such employees.

     (e) Merck Stock Options. In addition to any stock option grants made prior to the date of this Agreement under the Merck Stock Option Plans, Merck may make an additional grant under the current Merck Stock Option Plan to be priced as of the Closing Date to selected employees of the Merck Group employed in the Animal Health Business outside of the U.S., as determined by Merck, who become employees of the Merial Venture as of the Closing Date. Merck will provide shares of Merck common stock obtained upon exercise of any stock option grants which have been made by Merck under the Merck Option Plans to any such employees which are outstanding as of the Closing

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Date. Promptly after such exercise, Merck may invoice on an employee by employee basis and, if so invoiced, Merial (or the appropriate Merial Venture Company) will pay to Merck (within fifteen (15) days after receipt of such invoice), the Spread with respect to such exercise. Merial shall credit to the RP Member in respect of any Fiscal Year in which it pays a Spread to Merck, a Special Dividend equal to the aggregate of (x) all Spreads paid in such Fiscal Year by Merial to Merck plus (y) any incidental costs associated with the payment of such Spreads and paid by the Merial Venture (i.e, any employer taxes paid). Any Special Dividend (as described in the foregoing sentence) that may be credited to the RP Member in respect of any Fiscal Year shall be increased by an amount calculated as interest at a rate equal to [*] accruing from December 31 of such Fiscal Year through the earlier of (x) the date on which the Net Special Dividend in respect of that Fiscal Year is paid in full, and (y) April 15 of the Fiscal Year immediately following the Fiscal Year in respect of which the Special Dividend is to be paid.

SECTION 7.3 Animal Health Division — Worldwide

     As of January 1, 1998, Merial shall establish a long-term incentive plan in which key management employees of the Merial Venture employed in the Animal Health Business both inside and outside of the U.S. and deemed appropriate by Merial shall participate. The plan shall be a [*].

SECTION 7.4. Poultry Genetics Division

     (a) Compensation and Benefit Plans. Following the Closing and until a date agreed upon by Merck and RM before the Closing or by the Board of Directors after the Closing (but, to the extent feasible, not less than one year following the Closing Date), Merial shall, or shall cause the Transferred Subsidiaries engaged in the Poultry Genetics Business (the “Poultry Genetics Subsidiaries”), to continue to, maintain the employee benefit plans (or substantially equivalent employee benefit plans) other than stock based plans that were in effect for the employees of the respective Poultry Genetics Subsidiaries immediately prior to the Closing. Merial (or the Poultry Genetics Subsidiary maintaining

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such plan) shall bear the costs of all such employee benefit plans other than Pre-Closing Benefit Liabilities. For individuals who are employees of the Poultry Genetics Subsidiaries immediately prior to Closing, Merial shall, or shall cause the Poultry Genetics Subsidiaries to, (i) recognize all service with Merck, RM and the Poultry Genetics Subsidiaries and their respective affiliates and predecessors for all purposes under the Merial Venture plans established after the Closing for employees of the Poultry Genetics Subsidiaries, other than pension benefit accrual, for which such service was recognized for such individuals by Merck, RM or the Poultry Genetics Subsidiaries and (ii) waive any pre-existing condition exclusions or restrictions and actively at work requirements imposed by any such Merial Venture plans.

     (b) Merck Stock Options. In addition to any stock option grants made prior to the date of this Agreement under the Merck Stock Option Plans, Merck may make an additional grant under the current Merck Stock Option Plan, to be priced as of the Closing Date, to selected employees of the Merck Transferred Subsidiaries as determined by Merck. Merck will provide the shares of Merck common stock obtained upon exercise of any stock option grants which have been made by Merck under the Merck Stock Option Plans to any employee of the Merck Transferred Subsidiaries which are outstanding as of the Closing Date. Promptly after any such exercise, Merck may invoice on an employee by employee basis and, if so invoiced, Merial will pay to Merck (within fifteen (15) days after receipt of such invoice), the Spread with respect to such exercise. Merial shall credit to the RP Member in respect of any Fiscal Year in which it pays a Spread to Merck, a Special Dividend equal to the aggregate of (x) all Spreads paid in such Fiscal Year by Merial to Merck plus (y) any incidental costs associated with the payment of such Spreads and paid by the Merial Venture (i.e., any employer taxes paid). Any Special Dividend (as described in the foregoing sentence) to be credited to the RP Member in respect of any Fiscal Year shall be increased by an amount calculated as interest at a rate equal to [*] accruing from December 31 of such Fiscal Year through the earlier of (x) the date the Net Special Dividend in respect of such year is paid in full, and (y) April 15 of the Fiscal Year immediately following the Fiscal Year in respect of which the Special Dividend is to be paid.

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SECTION 7.5. Employee and Employee Benefit Plan Related Indemnities or Special Dividends

     (a) RP Indemnities and Merck Special Dividends.

     (i) Merial shall credit to the Merck Member in respect of the Fiscal Year in which the RM Plans’ Liabilities/Assets Calculation (as defined below) is calculated, a Special Dividend equal to the amount, if any, by which the aggregate of the Pre-Closing Benefit Liabilities with respect to the RM Transferred Benefit Plans exceed the aggregate fair market value of the assets of the RM Transferred Benefit Plans as of the Closing Date which assets shall include insurance proceeds actually recovered by the Merial Venture that cover any such liabilities (the “RM Plans’ Liabilities/Assets Calculation”). Any such amount to be credited as a Special Dividend pursuant to the foregoing sentence shall be increased by an amount calculated as interest at [*] from the Closing Date through the earlier of (x) the date the Net Special Dividend in respect of such year is paid in full, and (y) April 15 of the Fiscal Year immediately following the Fiscal Year in respect of which the Special Dividend is to be paid. The calculation of liabilities for RM Transferred Benefit Plans shall not include any liability for which RP is obligated to reimburse the Merial Venture, or that is otherwise specifically retained by RP, pursuant to Section 7.1. The RM Plans’ Liabilities/Assets Calculation shall be calculated as soon as reasonably practicable after the Closing Date. Merial shall credit to the RP Member in respect of the Fiscal Year in which the RM Plans’ Liabilities/Assets Calculation is calculated, a Special Dividend equal to the amount, if any, by which the aggregate fair market value of the assets of the RM Transferred Benefit Plans as of the Closing Date exceed Pre-Closing Benefits Liabilities under the RM Plans’ Liabilities/Assets Calculation (as increased by an amount calculated as interest at [*] from the Closing Date through the earlier of (x) the date the Net Special Dividend in respect of such year is paid in full, and (y) April 15 of the Fiscal Year immediately following the Fiscal Year in respect of which the Special Dividend is to be paid).

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     (ii) RP shall indemnify the Merial Venture against, and agrees to hold it harmless from, any Damages (including lawsuits and Third Party claims, whether or not meritorious) incurred or suffered by the Merial Venture following the Closing resulting from, arising out of, or relating to any violation of law, ruling or regulation occurring or existing prior to the Closing with respect to any RM Transferred Benefit Plan; provided, however, that this indemnity shall not apply to (A) any claim for benefits under an RM Transferred Benefit Plan the liabilities for which were accounted for in the RM Plans’ Liabilities/Assets Calculation, or (B) RM Pre-Closing Taxes.

     (iii) RP shall indemnify the Merial Venture against, and agrees to hold it harmless from, Damages (including lawsuits and Third Party claims, whether or not meritorious) incurred or suffered by the Merial Venture following the Closing resulting from, arising out of, or relating to any Benefit Plan established, sponsored or maintained by RP, any of its Subsidiaries or any RP ERISA Affiliate (other than the RM Transferred Benefit Plans) whether arising out of any event or state of facts occurring or existing prior to, on, or after the Closing Date; provided, however, that this indemnity shall not apply to any RM Pre-Closing Taxes; provided, further, however, that in the event that a Merial Venture Company becomes a participating employer in an RM Benefit Plan (other than an RM Transferred Benefit Plan) this indemnity will not apply to Damages incurred or sustained by the Merial Venture Company as a result of its action or failure to act in accordance with the terms and conditions of its agreement with any member of the RP Group to be such a participating employer.

     (b) Merck Indemnities and RP Special Dividends.

     (i) Merial shall credit to the RP Member in respect of the Fiscal Year in which the Merck Plans’ Liabilities/Assets Calculation (as defined below) is calculated, a Special Dividend equal to the amount, if any, by which the aggregate of the Pre-Closing Benefit Liabilities with respect to the Merck Transferred Benefit Plans exceed the aggregate fair market value of the assets of the Merck

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Transferred Benefit Plans as of the Closing Date, which assets shall include insurance proceeds actually recovered by the Merial Venture that cover any such liabilities (the “Merck Plans’ Liabilities/Assets Calculation”). Any amount to be credited as a Special Dividend pursuant to the foregoing sentence shall be increased by an amount calculated as interest at [*] from the Closing Date through the earlier of (x) the date the Net Special Dividend in respect of such year is paid in full, and (y) April 15 of the Fiscal Year immediately following the Fiscal Year in respect of which the Special Dividend is to be paid. The calculation of liabilities for Merck Transferred Benefit Plans shall not include any liability for which Merck is obligated to reimburse the Merial Venture, or that is otherwise specifically retained by Merck, pursuant to Section 7.1. The Merck Plans’ Liabilities/Assets Calculation shall be calculated as soon as reasonably practicable after the Closing Date. Merial shall credit to the Merck Member in respect of the Fiscal Year in which the Merck Plans’ Liabilities/Assets Calculation is calculated, a Special Dividend equal to the amount, if any, by which the aggregate fair market value of the assets of the Merck Transferred Benefit Plans exceed Pre-Closing Benefits Liabilities under the Merck Plans’ Liabilities/Assets Calculation (as increased by an amount calculated as interest at [*] from the Closing Date through the earlier of (x) the date the Net Special Dividend in respect of such year is paid in full, and (y) April 15 of the Fiscal Year immediately following the Fiscal Year in respect of which the Special Dividend is to be paid).

     (ii) Merck shall indemnify the Merial Venture against, and agrees to hold it harmless from, Damages (including lawsuits and Third Party claims, whether or not meritorious) incurred or suffered by the Merial Venture following the Closing resulting from, arising out of, or relating to any violation of law, ruling or regulation occurring or existing prior to the Closing with respect to any Merck Transferred Benefit Plan; provided, however, that this indemnity shall not apply to (A) any claim for benefits under a Merck Transferred Benefit Plan the liabilities for which were accounted for in the Merck Plans’ Liabilities/Assets Calculation, or (B) Merck Pre-Closing Taxes.

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     (iii) Merck shall indemnify the Merial Venture against, and agrees to hold it harmless from, Damages (including lawsuits and Third Party claims, whether or not meritorious) incurred or suffered by the Merial Venture following the Closing resulting from, arising out of, or relating to any Benefit Plan established, sponsored or maintained by Merck, any of its Subsidiaries or any Merck ERISA Affiliate (other than the Merck Transferred Benefit Plans and the Merck Stock Option Plans) whether arising out of any event or state of facts occurring or existing prior to, on, or after the Closing Date; provided, however, that this indemnity shall not apply to any Merck Pre-Closing Taxes; provided, further, however, that in the event that a Merial Venture Company becomes a participating employer in a Merck Benefit Plan (other than a Merck Transferred Benefit Plan) this indemnity will not apply to Damages incurred or sustained by the Merial Venture Company as a result of its action or failure to act in accordance with the terms and conditions of its agreement with any member of the Merck Group to be such a participating employer.

     (c) FAS 106 Reduction Merck Special Dividend. If the FAS 106 liability on an accumulated post-retirement benefit obligation basis with respect to post retirement benefits for participants in the plans of Hubbard Farms Inc. or its successor which provide post-retirement benefits (other than pension benefits), as those plans are in effect on the Closing Date, is reduced after the Closing Date as a result of amendments made to such plans effective on or before January 1, 1999, then the Merck Member shall be credited with a special dividend (a “Reduction Special Dividend”) equal to the amount of such reduction. A Reduction Special Dividend shall be determined as of the effective date of the benefit reduction (the “Reduction Date”) using the Reduction Date demographics of eligible participants under the applicable plans and based upon the actuarial assumptions used by Merck for calculating the expense for the applicable plans pursuant to FAS 106 on an accumulated post-retirement benefit obligation basis for 1997. Merial shall credit to the Merck Member in respect of the Fiscal Year in which the Reduction Special Dividend is calculated, a Special Dividend equal to the Reduction Special Dividend (as increased by an amount calculated as interest at [*] from the Reduction Date through the earlier of (x) the date the Net Special Dividend in respect of

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such year is paid in full, and (y) April 15 of the Fiscal Year immediately following the Fiscal Year in respect of which the Special Dividend is to be paid.).

     (d) Procedures Governing Indemnities. The procedures set forth in Section 14.7 shall govern the indemnities set forth in Sections 7.5(a)(ii) and (iii) and 7.5(b)(ii) and (iii). The provisions set forth in Sections 7.5(a)(i), 7.5(b)(i) and 7.5(c) shall not be governed by the procedures set forth in Section 14.7 but according to the provisions set forth in such Sections.

     (e) Certain Indemnities Subject to Basket. The indemnities and other provisions set forth in Sections 7.5(a)(ii) and 7.5(b)(ii) shall be subject to the limitations set forth in Section 14.6. The indemnities set forth in Sections 7.5(a)(i) and (iii), 7.5(b)(i) and (iii) and 7.5(c) shall not be subject to the limitations set forth in Section 14.6.

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ARTICLE VIII

REPRESENTATIONS AND WARRANTIES OF IM AND RM

     IM and RM hereby represent and warrant, as of the date hereof and as of the Closing Date, to Merck and Merck SH and to Merial as follows:

SECTION 8.1. Organization; Powers

     IM and RM and each of RM’s Subsidiaries (a) is a corporation or company duly organized and validly existing and (to the extent applicable) in good standing under the laws of its jurisdiction of organization, (b) has all requisite corporate or similar power and authority to own or lease and operate its property and assets and to carry on its business as now conducted, (c) is qualified or licensed to do business and is in good standing in every jurisdiction where such qualification or licensing is required, except where the failure so to qualify would not result in a Material Adverse Change or Effect, and (d) has the corporate or similar power and authority to execute, deliver and to perform its obligations under (as applicable) this Agreement and any and all Ancillary Agreements to which it is a party or by which it is bound.

SECTION 8.2. Authorization; No Breach

     The execution and delivery by each of IM and RM (as applicable) of each of this Agreement and any and all Ancillary Agreements to which it is a party or by which it is bound, and the consummation of the Transactions, (a) have been duly authorized by all necessary action and do not require the consent or approval of its shareholders or partners, except such consents or approvals as have been obtained, and (b) do not (i) violate or conflict with (A) any Law or regulation applicable to it or any of its assets or properties, or (B) its statuts, or (ii) violate, conflict with, result in a breach of or constitute (alone or with notice or lapse of time or both) a default under, require any consent under, or give to any Third Party any rights of termination, amendment, acceleration, suspension, revocation or cancellation of or result in any Encumbrance on

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any of the assets of IM, RM or its Subsidiaries pursuant to, any provisions of any agreements (including any notes, contracts, leases, licenses or other instruments or arrangements) by which it or any RM Subsidiary is bound, except, in the case of this clause (ii), for such violations, conflicts, breaches, defaults, required consents, rights or Encumbrances, (x) that would not in the aggregate cause a Material Adverse Change or Effect or (y) that are listed in Schedule 8.20-2.

SECTION 8.3. Enforceability

     This Agreement has been duly executed and delivered by each of IM and RM and constitutes, and each Ancillary Agreement when executed and delivered by each of IM and/or RM (as applicable) constitutes or will constitute, its legal, valid and binding obligation, enforceable against it in accordance with its terms, subject, however, to any limitations with respect to enforcement which may be imposed in connection with (i) bankruptcy, insolvency, reorganization, moratorium or other laws affecting the enforcement of creditors’ rights generally, and (ii) general principles of equity (regardless of whether considered and applied in a proceeding at law or in equity).

SECTION 8.4. Governmental Approvals

     All permits, consents and approvals of, registrations with, notices to, and other actions by, all Public Authorities that are required by IM or RM or any RM Subsidiary in connection with the Transactions (collectively the “RM Approvals”) have been made or obtained and are in full force and effect, except that, as of the date hereof (but not as of the Closing), the following RM Approvals have not been made or obtained: (i) the approval of the merger control authorities of the European Union, (ii) the agrément fiscal described in Section 11.2(b), (iii) the required approvals of Public Authorities listed in Schedule 8.4, and (iv) such other items which the failure to obtain, individually or in the aggregate, would not have a Material Adverse Change or Effect. None of IM or RM or any RM Subsidiary has taken or omitted to take any action which permits, or after notice or lapse of time or both would permit, any modification or termination of any of the RM Approvals.

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SECTION 8.5. Historical Financial Data

     True and complete copies of RM’s audited consolidated financial statements, i.e., the balance sheet and income statement as of and for the year ended December 31, 1996 (together, the “RM Financials”) are provided as Exhibit XVII. The RM Financials were derived from the books and records of RM and its Subsidiaries, and such RM Financials were prepared in accordance with U.S. GAAP consistently applied and consistent with the accounting principles of the RP Group as described in note 1 to the Consolidated Financial Statements included in the RP 1996 Annual Report filed on Form 20-F, and present fairly RM’s and its Subsidiaries’ consolidated assets and Liabilities, income and expenses and cash flows as of the dates and for the periods indicated.

SECTION 8.6. No Undisclosed Liabilities

     (a) Liabilities at December 31, 1996. As at December 31, 1996, RM and its Subsidiaries had no Liabilities of any nature, whether accrued, contingent or otherwise (including Liabilities as guarantor or otherwise with respect to obligations of others, Liabilities for taxes due or then accrued or to become due or Liabilities that have been incurred but not yet reported), that were not adequately reflected or reserved against on the December 31, 1996 balance sheet of the RM Financials and which individually exceeded [*] or which in the aggregate exceeded [*].

     (b) RM Contributed Liabilities. Except for any such Liabilities that would not in the aggregate exceed [*], and except for the Debt incurred in connection with the Central Biologics Acquisition, all the Liabilities of RM and its Subsidiaries that are being contributed to the Merial Venture as a result of the Transactions either (i) are reflected on the December 31, 1996 balance sheet of the RM Financials, as described in Section 8.5, (ii) arose in the ordinary course of business since December 31, 1996, or (iii) are or will be disclosed in Schedule 14.2A-2 in accordance with Section 14.2(a).

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SECTION 8.7. Receivables

     Except to the extent, if any, indicated on the December 31, 1996 balance sheet of the RM Financials, all Receivables reflected thereon arose from the sale of Inventory or services in the ordinary course of business consistent with past practice and constitute only valid, undisputed claims of RM or its Subsidiaries not subject to valid claims of set-off or other defenses or counterclaims other than normal cash discounts accrued in the ordinary course of business consistent with past practice. All Receivables reflected on the December 31, 1996 balance sheet of the RM Financials or arising since the date thereof (subject to the reserves for bad debts, if any, reflected on the December 31, 1996 balance sheet of the RM Financials) are good, and have been collected or are or will be collectible, without resort to extraordinary collection activity, in the ordinary course of business and, in any case, by the later of (x) the date that is twelve (12) months from the Closing Date, or (y) if a Receivable is not by its terms due within such 12 month period, the date that is three months after its due date.

SECTION 8.8. Inventories

     Subject to amounts reserved therefor on the December 31, 1996 balance sheet of the RM Financials, the values at which all Inventories are carried on the December 31, 1996 balance sheet of the RM Financials reflect the historical inventory valuation policy of RM and its Subsidiaries of stating such Inventories at the lower of cost (determined on the first-in, first-out method) or market value. Except as set forth in Schedule 8.8-1, RM and its Subsidiaries have good and marketable title to the Inventories free and clear of all liens or other Encumbrances. Except as set forth in Schedule 8.8-2 or reserved against in the RM Financials, the Inventories do not consist of, in any material amount, items that are obsolete, damaged or slow-moving or of any items held on consignment. Neither RM nor any of its Subsidiaries is under any obligation or Liability with respect to accepting returns of items of Inventory or merchandise in the possession of its customers other than in the ordinary course of business consistent with past practice. No clearance or extraordinary sale of the Inventories has been conducted since December 31, 1996. Since December 31, 1996, neither RM nor any of its Subsidiaries has acquired or

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committed to acquire or manufacture Inventory for sale which is not of a quality and quantity usable in the ordinary course of business within a reasonable period of time and consistent with past practice, nor has RM or any of its Subsidiaries changed the price of any Inventory except for (i) reductions to reflect any reduction in the cost thereof to RM or its Subsidiaries, (ii) reductions and increases responsive to normal competitive conditions and consistent with past sales practices, or (iii) increases to reflect any increase in the cost thereof to RM or its Subsidiaries. Other than as reflected on the December 31, 1996 balance sheet of the RM Financials, the Inventories of RM and its Subsidiaries are in good and merchantable condition in all material respects, are suitable and usable for the purposes for which they are intended and are in a condition such that they can be sold in the ordinary course of business consistent with past practice.

SECTION 8.9. Absence of Certain Developments

     Except for the actions taken by IM, RM or RM’s Subsidiaries in connection with the creation of the Merial Venture as contemplated by this Agreement and the applicable Ancillary Agreements or as disclosed in Schedule 8.9, since December 31, 1996, RM and its Subsidiaries have operated in the ordinary course of business consistent with past practice, and there has not been:

     (a) any sale, assignment, transfer or other disposition to any Third Party of, or imposition of any liens or other Encumbrance on, any properties, assets, Inventories or obsolete items of RM or any of its Subsidiaries, without any and all proceeds [*] for all such sales, assignments, transfers or other dispositions (other than sales of Inventory in the ordinary course of business consistent with past practice) remaining within RM and its Subsidiaries. IM and RM covenant and agree that all such proceeds [*] (plus all the proceeds from the Diagnostic Disposal, which the Parties hereby agree is not subject to the [*] exclusion referred to above) shall through the Closing Date be segregated and held in a separate bank account owned by RM or an RM Subsidiary (these proceeds [*] being referred to as the “RM Assets Sale Proceeds”) and thereby contributed to the Merial Venture on the Closing Date;

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     (b) any damage, destruction or casualty loss to any assets or properties of RM or any of its Subsidiaries, whether or not covered by insurance, which, individually or in the aggregate, has a Material Adverse Change or Effect;

     (c) any material change in any accounting principle used by RM or any of its Subsidiaries;

     (d) other than in the ordinary course of business, any transaction, commitment or agreement entered into by RM or any of its Subsidiaries, or any relinquishment by RM or any of its Subsidiaries of any rights under any agreement or otherwise, having a value or involving aggregate payments [*];

     (e) any grant of any rights or licenses or entry into any licensing or distributorship or agency arrangements by RM or any of its Subsidiaries which, individually or in the aggregate, has a Material Adverse Change or Effect;

     (f) any loss of employees or any changes in any of RM’s or any of its Subsidiaries’ employee benefit plans (other than those required by applicable law) which, individually or in the aggregate, has a Material Adverse Change or Effect;

     (g) other than in the ordinary course of business, any disclosure of any secret or confidential Intellectual Property (except by way of issuance of a patent or pursuant to this Agreement or the Ancillary Agreements) or any lapse or abandonment of Intellectual Property (or any registration or grant thereof or any application relating thereto) to which, or under which, RM or its Subsidiaries has any right, title, interest or license;

     (h) expenditures or failure to make expenditures on capital investment projects by RM or any of its Subsidiaries that were not substantially consistent with the investment plans in existence as of December 31, 1996 relating to such projects as disclosed in writing to Merck prior to the date of this Agreement;

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     (i) any transaction, commitment or agreement entered into between RP or any of its Subsidiaries (other than RM and its Subsidiaries), on the one hand, and RM or any of its Subsidiaries, on the other hand; or

     (j) any authorization, approval, agreement or other binding commitment to do any of the foregoing.

SECTION 8.10. Title to Properties; Possession Under Leases

     (a) RM and its Subsidiaries own and have good title to all of their assets and properties reflected as owned on the December 31, 1996 balance sheet included in the RM Financials, free and clear of any material Encumbrances, except for (i) any Encumbrances specifically disclosed in the RM Financials or set forth in Schedule 8.10A, (ii) assets and properties disposed of, or subject to purchase or sales orders, in the ordinary course of business since December 31, 1996, (iii) Encumbrances securing the rights of materialmen, carriers, landlords and like persons, all of which are not yet due and payable, and (iv) liens for taxes not yet delinquent.

     (b) (i) RM and each of its Subsidiaries has complied with all its material obligations under all material leases to which it is a party as lessee of property, (ii) all such leases are in full force and effect, (iii) RM or the relevant Subsidiary enjoys peaceful and undisturbed possession under each such lease, (iv) to the knowledge of RM, the other parties to such leases have complied with all their material obligations thereunder, and (v) there are no material unresolved disputes under any of such leasehold interests.

     (c) (i) All material real property, and all material buildings, improvements and fixtures thereon have been maintained in accordance with the standard practices and procedures of RM and its Subsidiaries and are in all material respects in good condition and have no material structural defects, (ii) such material real property, buildings, improvements and fixtures and the use thereof conform in all material respects to all applicable building, zoning, land use and like requirements and all material certificates and permits for the lawful use and occupancy thereof and the machinery and equipment

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thereon have been issued, and (iii) no current use of any of such property is dependent in any material respect on a non-conforming use or permit or violates any Law, regulation or decision of any Public Authority.

     (d) Set forth in Schedule 8.10D is a true and complete list as of the date of this Agreement of all real property owned by RM or any of its Subsidiaries or in respect of which RM or any of such Subsidiaries is lessee.

          Subject only to Section 11.6(b) (and to consents that may be required under RM contributed contracts other than those required to be listed in Schedule 8.20-1), and except as set forth in Schedule 8.10C, following the consummation of the Transactions, the Merial Venture will own, with good valid and marketable title, or lease, under valid and subsisting leases, or otherwise acquire the assets of RM and its Subsidiaries, free and clear of any Encumbrances except as referred to above in clauses (i) through (iv) of Section 8.10(a), and without incurring any penalty or other adverse consequence, including without limitation, any increase in rentals, royalties, or license or other fees imposed as a result of, or arising from, the consummation of the Transactions.

SECTION 8.11. Intellectual Property

     (a) To the knowledge of RM, RM and its Subsidiaries own, or are licensed to use, or otherwise have the right to use all Patents, trademarks, service marks, trade names, logos, franchises, and copyrights, and all applications for any of the foregoing, and all technology, inventions, trade secrets, Know-How, computer software and processes used in the conduct of their respective businesses as now conducted, including for the manufacture and sale of all RM Existing Products; and none of such rights shall be adversely affected by the execution, delivery or performance of this Agreement or any Ancillary Agreement. Except as indicated in Schedule 8.11, RM is not aware of any reason that would prevent any pending applications to register material trademarks, or any pending material patent applications, from being granted.

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     (b) Set forth in Schedule 8.11 are true and complete lists of all Patents and registered trademarks and trademark applications which are owned by RM or any of its Subsidiaries or which RM or any such Subsidiaries are licensed to use or otherwise have the right to use (collectively, the “RM Proprietary Rights”). To the extent indicated in Schedule 8.11, all owned RM Proprietary Rights have been registered in, filed in or issued by the appropriate Public Authorities in each relevant jurisdiction, and in each case such proprietary rights are currently in effect and all maintenance fees and renewals thereof have been duly made with respect thereto.

     (c) Except as set forth in Schedule 8.11, RM is not aware (i) that any of its activities or those of any of its Subsidiaries as currently conducted infringe upon the proprietary rights of others, nor has RM or any of its Subsidiaries received any notice or claim from any Third Party of such infringement by RM or any of its Subsidiaries, or (ii) of any infringement by any Third Party on, or any competing claim of right to use or own any of, the RM Proprietary Rights. RM and its Subsidiaries have the right to use, free and clear of claims or rights of others, all customer lists and computer software used in the conduct of their respective businesses.

SECTION 8.12. Product Registrations

     Set forth in Schedule 8.12 are true and complete lists of the Animal Health Products and Poultry Genetics Products of RM and its Subsidiaries for which Product Registrations have been applied for, are valid and in full force and effect or are in the process of being timely renewed, indicating for each product the jurisdiction of each such Product Registration, application or renewal, and whether such application has been applied for, is valid, or is in the process of being renewed. Such product registrations permit RM to market the products covered thereby in the jurisdiction indicated thereby, and RM is aware of nothing that would interfere with RM’s right to market such products in the jurisdiction indicated. Each such Product Registration shall become the property of the Merial Venture upon (and shall not be adversely affected by) the contribution of RM and its Subsidiaries to Merial.

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SECTION 8.13. Product Warranty and Product Recalls; Labels

     (a) Other than as indicated in Schedule 8.13, since January 1, 1993, there have been no “recalls” or “seizures” or “market withdrawals” (as such terms, or words of similar import, are used in the regulations promulgated under the U.S. Food, Drug and Cosmetic Act or similar food and drug laws promulgated by any Public Authority in any other jurisdiction) with respect to any RM Existing Product. The Label of each RM Existing Product sold by RM or any of its Subsidiaries in any country accurately reflects the conditions for safe and effective use of such Existing Product in accordance with the laws and regulations of such country and each such Product is sold under an appropriate Label.

     (b) Other than as indicated in Schedule 8.13, since January 1, 1993 neither RM nor any of its Subsidiaries has received any adverse experience reports indicating any material safety or efficacy problems that would materially change the general risk/benefit assessment upon which such Existing Product is prescribed for its approved indications and no material change in any Label of any RM Existing Product has been required by any Public Authority or otherwise been implemented as a result of any such report.

SECTION 8.14. Absence of Third Party Joint Ventures

     Except as set forth in Schedule 8.14, neither RM nor any of its Subsidiaries has an ownership interest in any joint venture (whether or not organized as a legal entity) or other company or business (except RM and its Subsidiaries) which conducts Merial Venture Business activities and the ownership of or profits from which are shared with Third Parties.

SECTION 8.15. Litigation; Compliance with Laws

     (a) Except as set forth in Schedule 8.15A, and except for such actions, suits or proceedings with amounts or potential amounts individually in issue of less than $100,000, there are no actions, suits or proceedings at law or in equity or by or before

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any Public Authority pending or, to the knowledge of RM, threatened against it or any of its Subsidiaries or in respect of this Agreement or any of the Ancillary Agreements. Schedule 8.15A sets forth a complete and correct list of all such actions, suits or proceedings that are active or have been active since January 1, 1993 (or with respect to actual or potential Environmental Liabilities, January 1, 1991), and includes for completed matters a general description of the results thereof (including the amount of any monetary judgments and the principal terms of any other relief assessed in connection therewith).

     (b) Except for any non-compliance which would not, individually or in the aggregate, result in a Material Adverse Change or Effect, RM and its Subsidiaries at all times since January 1, 1993 have been and are currently in compliance with (i) all Laws, Permits, published standards that have the force and effect of Laws, and Environmental Laws, and (ii) all judgments, orders, writs, injunctions, decrees or rulings of Public Authorities applicable to them.

     (c) In each case other than such Permits the absence of which would not, individually or in the aggregate, result in a Material Adverse Change or Effect, RM and its Subsidiaries have all licenses, permits, franchises, orders or approvals of any Public Authority, including under Environmental Laws, necessary to the conduct of their respective businesses (collectively, “Permits”); such Permits are in full force and effect; and no proceeding is pending or, to the best knowledge of RM, threatened, to revoke or limit any such Permit. Schedule 8.15C identifies all Permits that are non-transferable or that will require the consent of any Public Authority in order to give effect to the Transactions.

SECTION 8.16. Tax Returns

     RM and each of its Subsidiaries have filed or caused to be filed in a timely manner all Tax Returns required to have been filed by them (or have obtained or timely applied for an extension with respect to any such filing) and have paid or caused to be paid, or made adequate provision for the payment of, all Taxes shown to be due and

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payable on such returns or on any assessments received by them, except Taxes that are being contested by them in good faith and except where the failure to file such returns or pay Taxes would not in the aggregate (i) cause a Material Adverse Change or Effect, or (ii) result in the imposition of an Encumbrance on any of their assets. Neither RM nor any of its Subsidiaries is party to or bound by (a) any agreement providing for the allocation or sharing of Taxes with any Third Party which agreement will be in effect after the Closing, or (b) any agreement (other than elections prescribed by generally applicable Tax Laws and regulations) with any Taxing Authority which may restrict the Merial Venture’s tax planning, other than the CFM Agreement.

SECTION 8.17. Environmental Matters

     Except for the matters disclosed in Schedule 8.17, neither RM nor any of its Subsidiaries has since January 1, 1991 received written notice of, or other written communication concerning, any failure to comply with any applicable Environmental Laws, or written notice or other written communication that RM or any of its Subsidiaries is or may be a potentially responsible party or otherwise liable in connection with any site allegedly containing Hazardous Materials. None of RM’s or its Subsidiaries’ facilities have in the past, or do at the present time, use, generate, treat, store, dispose of, process, handle or manage any Hazardous Materials or other materials in violation of any applicable Environmental Law, and there has been no release or migration of any Hazardous Materials at, on, under, about, within, from or onto any such properties, where such violation, release, or migration will or is reasonably likely to result, individually or in the aggregate, in a Material Adverse Change or Effect. Except as will not individually or in the aggregate result in a Material Adverse Change or Effect, there are no past or present conditions, circumstances, facts, events, practices, incidents, actions or omissions existing or occurring at any location (including any off-site location) that will or is reasonably likely to (i) cause RM or any of its Subsidiaries or, subsequent to the Closing, any Merial Venture Company in respect of RM or any of its Subsidiaries, to incur any Environmental Liability, (ii) form the basis for any claim, action, suit, proceeding, hearing, investigation or inquiry against RM or any of its Subsidiaries or, subsequent to the Closing, any Merial Venture Company in respect of RM or any of its

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Subsidiaries, under any Environmental Law, or (iii) interfere with or prevent continued compliance by RM or any of its Subsidiaries or, subsequent to the Closing, any Merial Venture Company in respect of RM or any of its Subsidiaries, with any Environmental Law.

SECTION 8.18. Labor Relations; Employees: Employee Benefit Plans

     (a) Schedule. Schedule 8.18A-1 contains a true and complete list of each material RM Benefit Plan. Within six (6) weeks after the date of this Agreement, RM will complete Schedule 8.18A-I by providing to Merck a list of all RM Employee Agreements. Except as set forth in Schedule 8.18A-2, neither RM, any of its Subsidiaries nor any RM ERISA Affiliate has any plan or commitment, whether legally binding or not, to establish any new RM Benefit Plan, to enter into any RM Employee Agreement or to materially modify or to terminate any RM Benefit Plan or RM Employee Agreement (except to the extent required by law or to conform any such RM Benefit Plan or RM Employee Agreement to the requirements of any applicable law, or as required by this Agreement), nor has any intention to do any of the foregoing been communicated to RM Employees.

     (b) Documents. RM has provided, or has caused to be provided, or will cause to be provided prior to the Closing to Merck (i) current, accurate and complete copies of all documents embodying or relating to each RM Transferred Benefit Plan and each RM Employee Agreement, including all amendments thereto, written interpretations thereof and trust or funding agreements with respect thereto; (ii) the two (2) most recent annual actuarial valuations, if any, prepared for each RM Transferred Benefit Plan; and (iii) the two (2) most recent annual reports (Series 5500 and all schedules thereto), if any, required under ERISA in connection with each RM Transferred Benefit Plan or related trust.

     (c) Multi-Employer Plans. Except with respect to employees who are not RM Employees, neither RM nor any of the RM Transferred Subsidiaries contribute to or are

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required to contribute to, or have incurred any withdrawal liability (within the meaning of Section 4201 of ERISA) to, any “multi-employer plan” within the meaning of Section 3(37) of ERISA.

     (d) No Post-Employment Obligations. Except as expressly set forth on Schedule 8.18D, neither RM, any of its Subsidiaries nor any RM ERISA Affiliate (i) maintains or contributes to any RM Transferred Benefit Plan which provides, or has any Liability to provide, life insurance, medical, severance or other employee welfare benefits to any RM Employee upon his retirement or termination of employment, except as may be required by Section 4980B of the Code; or (ii) has ever represented, promised or contracted (whether in oral or written form) to any RM Employee (either individually or to RM Employees as a group) that such RM Employee(s) would be provided with life insurance, medical, severance or other employee welfare benefits upon their retirement or termination of employment, except to the extent required by Section 4980B of the Code.

     (e) Effect of Transaction. Except as set forth on Schedule 8.18E, the execution of, and performance of the transactions contemplated in, this Agreement will not (either alone or upon the occurrence of any additional or subsequent events) (i) constitute an event under any RM Transferred Benefit Plan, RM Employee Agreement, or related trust or loan that will or may result in any payment (whether of severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits with respect to any RM Employee, or (ii) result in the triggering or imposition of any restrictions or limitations on the right of the Merial Venture Companies to amend or terminate any RM Transferred Benefit Plan. No payment or benefit which will or may be made by RM or any of its Subsidiaries with respect to the transactions contemplated herein will be characterized as an “excess parachute payment,” within the meaning of Section 280G(b)(l) of the Code.

     (f) Collective Bargaining Agreement (“CBA”). Except as set forth on Schedule 8.18F, no RM Employee is employed pursuant to a CBA or a works council agreement to which a member of the RP Group is a party that any Merial Venture Company will be bound by after the Closing or will otherwise be obligated to honor or

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assume in connection with this Agreement or the transactions contemplated by this Agreement, other than those agreements that the Merial Venture is obligated to assume under applicable law.

     (g) Pension Plan Funding. Except as set forth on Schedule 8.18G-1, the present value of all accrued benefits of each RM Transferred Pension Plan, determined on the basis of the actuarial assumptions used by the plan’s actuary for purposes of calculating minimum funding contributions for the most recently completed plan year, do not as of the date hereof and will not as of the Closing Date exceed the fair market value of the assets (which for this purpose shall not include any accrued but unpaid contributions) of such Transferred Benefit Plan. Except as set forth on Schedule 8.18G-2, the present value of all accrued benefits of each RM Transferred Foreign Pension Plan, determined using the actuarial assumptions employed by the actuary of the plan, do not as of the date hereof and will not as of the Closing Date exceed the fair market value of the assets (which for this purpose shall not include any accrued but unpaid contributions) of such RM Transferred Foreign Pension Plan or, in the case of an unfunded RM Transferred Foreign Pension Plan, the reserves provided for in the RM Financials.

     (h) Labor Relations. Except as set forth in Schedule 8.18H-1, RM and its Subsidiaries generally enjoy good employer-employee relations with the RM Employees. Approximately 4,900 full-time equivalent employees are employed by RM and the RM Transferred Subsidiaries and will be transferred to the Merial Venture together with RM and such Subsidiaries. Schedule 8.18H-2 contains the names of all current employees of the RP Group, other than RM and each RM Transferred Subsidiary, which RM expects will transfer to the Merial Venture after the Closing. Subject to their receiving compensation and benefit offers from the Merial Venture comparable to their current compensation and benefit packages, RM has no reason to believe that substantially all of the employees listed in Schedule 8.18H-2 will not accept employment offers with the Merial Venture.

     (i) Employment Matters. None of RM or any of its Subsidiaries is delinquent in payments to any of the RM Employees for any wages, salaries, commissions, bonuses

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or other direct compensation for any services performed by them to the date hereof or to the Closing Date (as applicable) or amounts required to be reimbursed to such employees. With respect to the RM Employees, each of RM and its Subsidiaries has (i) complied in all material respects with applicable laws, rules and regulations relating to the employment of the RM Employees, including those-relating to wages, hours, collective bargaining, and the payment and withholding of taxes, and (ii) withheld and paid to the appropriate Public Authority, or are holding for payment not yet due to such Public Authority, all amounts required by law, rule, regulation or agreement to be withheld from the wages or salaries of the RM Employees. Since January 1, 1993, there has been no material adverse change in the relationship of RM and its Subsidiaries with the respective RM Employees (including any threatened union organization or renegotiation of any union or other collective bargaining contract) nor any material strike or labor disturbance by such employees, and none of RM or its Subsidiaries is aware of any indication that such a change, strike or labor disturbance is likely.

SECTION 8.19. Insurance

     Schedule 8.19-1 contains a complete and accurate list of all insurance policies in force under which premiums in excess of [*] per year are payable and that provide coverage in favor of RM and its Subsidiaries, or relating to real property, whether leased or owned by RM or its Subsidiaries, specifying for each such policy the insurer, amount of coverage and type of insurance under each. Each such policy is in full force and effect and all premiums are currently paid or accruals provided for and no notice of cancellation or termination has been received with respect to any such policy. Such policies are sufficient for compliance with all requirements of Law. Schedule 8.19-2 sets forth a complete list of all claims in excess of [*] made or filed by RM or any of its Subsidiaries with their insurers since January 1, 1993 and any such claims incurred but not yet so made or filed of which RM is aware.

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SECTION 8.20. Contracts and Licenses

     Schedule 8.20-1 lists all contracts or agreements by RM or its Subsidiaries having a value or involving payments in excess of [*] per year or otherwise material to RM or its Subsidiaries. Other than as indicated in Schedule 8.20-2, none of such contracts or agreements require the consent of any Third Party to be assigned or transferred to the Merial Venture as contemplated by this Agreement or the Ancillary Agreements. Schedule 8.20-3 lists all of such agreements that may restrict in any way, such as through non-compete or exclusivity clauses, the ability of the Merial Venture to undertake Merial Venture Business activities and lists all other agreements that include such a restriction, the compliance with by the Merial Venture on or after the Closing would have a material adverse effect on the ability of the Merial Venture to combine the Contributed Merial Venture Businesses or to conduct the activities contemplated herein.

SECTION 8.21. Share Capital of RM and RM’s Subsidiaries

     Schedule 8.21 (as updated in accordance with Section 3.2 hereof, as applicable) contains a true and complete description of the authorized and outstanding capitalization (including the record owners) of RM and of each of RM’s Subsidiaries. The indicated shares of capital stock or other ownership interests of RM and of each of RM’s Subsidiaries represent all of the respective issued and outstanding shares of capital stock or other ownership interests of each such company. Except as set forth in Schedule 8.21, (a) the record and beneficial ownership of RM and each such RM Subsidiary is free and clear of any lien or other Encumbrance; (b) all of the issued and outstanding shares of capital stock or other ownership interests of RM and each of RM’s Subsidiaries have been duly authorized and validly issued and are fully paid and nonassessable; (c) none of RM, any RM Subsidiary or any direct or indirect parent company thereof is bound by, has granted, issued or made or agreed to grant, issue or make any security interests, warrants, options, subscription rights or any other commitments of any character relating to the issued or unissued shares of capital stock or other ownership interests of RM or any of RM’s Subsidiaries (other than this Agreement and the Ancillary Agreements), nor is there any agreement providing for (i) any restriction on the transfer of any of the issued

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and outstanding shares of capital stock or other ownership interests (other than with respect to directors’ qualifying and nominee shares which are as set forth in Schedule 8.21) of any of RM or any of RM’s Subsidiaries, (ii) the amendment of the charter or statuts (or comparable organizational documents) of any of RM or any of RM’s Subsidiaries so as to increase the amount of authorized capital stock or other ownership interests of such entity, or (iii) obligating any of such persons to grant, offer, or enter into any of the foregoing; (d) none of RM or any of RM’s Subsidiaries is a party to any voting trust or other agreement or understanding with respect to the voting of the capital stock or other ownership interests of RM or any of RM’s Subsidiaries; and (e) the record owner of any such shares or other ownership interests possesses good and marketable title to such shares or other ownership interests.

SECTION 8.22. Merial

     Merial has not entered into any transactions or undertaken any obligations, except for any transactions or obligations necessary to give effect to the Transactions as contemplated by this Agreement and the Ancillary Agreements.

SECTION 8.23. Survival of Representations and Warranties

     IM and RM acknowledge that their representations and warranties are an inducement to Merck and Merck SH and to Merial to enter into this Agreement and the Ancillary Agreements. The representations and warranties contained in this Article VIII shall survive (and not be affected in any respect by) any investigation by or on behalf of any Party and the Closing. Notice of any claim in respect of the representations and warranties in Section 8.1 [Organization; Powers], 8.2 [Authorization; No Breach], 8.3 [Enforceability], and 8.10(a) [Title] and 8.11(b) [Intellectual Property — existing Proprietary Rights], may be given at any time (subject to any statute of limitations under applicable law); notice of any claim in respect of the representations and warranties in Sections 8.4 [Governmental Approvals], 8.11 (a) and (c) [Intellectual Property — other], 8.12 [Product Registrations], 8.16 [Tax Returns] and 8.17 [Environmental Matters] must be given before the fifth anniversary of the Closing Date; notice of claim in respect of all

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other representations and warranties in Article VIII must be given before the second anniversary of the Closing Date; it being understood that in the event notice of any claim for indemnification under Section 14.1 shall have been given (as contemplated by Section 14.7) within the applicable survival period, the representations and warranties that are the subject of such indemnification claim shall survive until such time as such claim is finally resolved.

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ARTICLE IX

REPRESENTATIONS AND WARRANTIES OF RP

     RP hereby represents and warrants, as of the date hereof and as of the Closing Date, to Merck and Merck SH and to Merial as follows:

SECTION 9.1. Organization; Powers

     (a) RP (i) is a société anonyme duly organized and validly existing under the laws of France, and (ii) has the corporate or similar power and authority to execute, deliver and to perform its obligations under (as applicable) this Agreement and any and all Ancillary Agreements to which it is a party or by which it is bound.

SECTION 9.2. Authorization; No Breach

     The execution and delivery by RP of each of this Agreement and any and all Ancillary Agreements to which it is a party or by which it is bound, and the consummation of the Transactions, (a) have been duly authorized by all necessary corporate action and do not and will not require the consent or approval of its shareholders or partners, except such consents or approvals as have been obtained, and (b) do not (i) violate or conflict with (A) any law or regulation applicable to it or to any of the assets or properties of RM or RM’s Subsidiaries, or (B) its statuts, or (ii) violate, conflict with, result in a breach of or constitute (alone or with notice or lapse of time or both) a default under, require any consent under, or give to any Third Party any rights of termination, amendment, acceleration, suspension, revocation or cancellation of or result in any Encumbrance on any of the assets of RM or RM’s Subsidiaries pursuant to, any provisions of any agreements (including any notes, contracts, leases, licenses or other instruments or arrangements) by which it is bound, except, in the case of this clause (ii), for such violations, conflicts, breaches, defaults, required consents, rights or Encumbrances that would not in the aggregate cause a Material Adverse Change or Effect.

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SECTION 9.3. Enforceability

     This Agreement has been duly executed and delivered by RP and constitutes, and each Ancillary Agreement when executed and delivered by RP (as applicable) constitutes or will constitute, its legal, valid and binding obligation, enforceable against it in accordance with its terms, subject, however, to any limitations with respect to enforcement which may be imposed in connection with (i) bankruptcy, insolvency, reorganization, moratorium or other laws affecting the enforcement of creditors’ rights generally, and (ii) general principles of equity (regardless of whether considered and applied in a proceeding at law or in equity).

SECTION 9.4. Entirety of RP Animal Health Business Activities

     Except for the Animal Health Business activities to be conducted by certain other RP Companies pursuant to the Ancillary Agreements and except for activities of RP Companies (other than RM and its Subsidiaries) that are listed on Schedule 9.4, the entirety of the Merial Venture Business activities of the RP Group is conducted by RM and its Subsidiaries.

SECTION 9.5 Absence of Third Party Joint Ventures

     Except as set forth in Schedule 9.5, neither RP nor any of its Subsidiaries has an ownership interest in any joint venture (whether or not organized as a legal entity) or other company or business (except RP and its Subsidiaries) which conducts Merial Venture Business activities and the ownership of or profits from which are shared with Third Parties.

SECTION 9.6 Governmental Approvals

     All permits, consents and approvals of, registrations with, notices to, and other actions by, all Public Authorities that are required by RP or any RP Subsidiary in connection with the Transactions (collectively the “RP Approvals”) have been made or

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obtained and are in full force and effect, except that, as of the date hereof (but not as of the Closing), the following RP Approvals have not been made or obtained: (i) the approval of the merger control authorities of the European Union, (ii) the agrément fiscal described in Section 11.2(b), (iii) the required approvals of Public Authorities listed in Schedule 9.6, and (iv) such other items which the failure to obtain, individually or in the aggregate, would not have a Material Adverse Change or Effect. None of RP or any RP Subsidiary has taken or omitted to take any action which permits, or after notice or lapse of time or both would permit, any modification or termination of any of the RP Approvals.

SECTION 9.7. Intragroup Agreements

     Other than as listed on Schedules 9.7-1 and 9.7-2, there are no agreements between RM or any of its Subsidiaries, on the one hand, and any other RP Companies, on the other hand, that will survive the Closing. Schedule 9.7-1 lists all such written agreements (the “RP InterCo Contracts”) that will survive the Closing, and Schedule 9.7-2 lists all such existing customary arrangements (the “RP InterCo Customary Agreements”) not evidenced by a written agreement. RP and RM hereby agree that the corporate management agreements between any RP Company (other than RM and its Subsidiaries), on the one hand, and RM or its Subsidiaries, on the other hand, pursuant to which any RP Company (other than RM and its Subsidiaries) provides corporate management services to RM or its Subsidiaries in consideration for the payment of a management fee, shall terminate on or prior to the Closing Date, and the Merial Venture shall have no liability with respect thereto. Since January 1, 1995, there have not been any transactions, commitments or agreements, other than on terms and conditions that are no less favorable to RM and its Subsidiaries than those that could have been obtained by a non-Affiliate at arm’s length, entered into by or in effect between RM or any of its Subsidiaries, on the one hand, and any other RP Company (other than RM and its Subsidiaries), on the other hand.

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SECTION 9.8. Share Capital of IM and RM

     Schedule 9.8 (as updated in accordance with Section 3.2 hereof, as applicable) contains a true and complete description of the authorized and outstanding capitalization (including the record owners) of IM and RM. The indicated shares of capital stock or other ownership interests of each of IM and RM represent all of the respective issued and outstanding shares of capital stock or other ownership interests of each such company. Except as set forth in Schedule 9.8, (a) the record and beneficial ownership of each of IM and RM is free and clear of any lien or other Encumbrance; (b) all of the issued and outstanding shares of capital stock or other ownership interests of each of IM and RM have been duly authorized and validly issued and are fully paid and nonassessable; (c) none of IM, RM or any direct or indirect parent company thereof is bound by, has granted, issued or made or agreed to grant, issue or make any security interests, warrants, options, subscription rights or any other commitments of any character relating to the issued or unissued shares of capital stock or other ownership interests of IM or RM (other than this Agreement and the Ancillary Agreements), nor is there any agreement providing for (i) any restriction on the transfer of any of the issued and outstanding shares of capital stock or other ownership interests (other than with respect to directors’ qualifying and nominee shares which are as set forth in Schedule 9.8) of either of IM or RM; (ii) the amendment of the charter or statuts (or comparable organizational documents) of either of IM or RM so as to increase the amount of authorized capital stock or other ownership interests of such entity, or (iii) obligating any of such persons to grant, offer, or enter into any of the foregoing; (d) none of RP, IM or RM is a party to any voting trust or other agreement or understanding with respect to the voting of the capital stock or other ownership interests of IM or RM; and (e) the record owner of any such shares or other ownership interests possesses good and marketable title to such shares or other ownership interests.

SECTION 9.9. Other Agreements

     Except as set forth in Schedule 9.9 and except for any agreements, arrangements or commitments between RM and its Subsidiaries or between such Subsidiaries, there are

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no agreements, arrangements or commitments of any character (contingent or otherwise) relating to any Acquisition Transaction pursuant to which any person is or may be entitled to receive from RM or any of its Subsidiaries any payment based on their revenues, earnings or similar items (or any portion thereof) or on the occurrence or value of the Acquisition Transactions (or similar circumstances), or calculated in accordance therewith. For the purposes of this Section 9.9, “Acquisition Transaction” shall mean any merger, purchase of substantial assets, purchase of shares of capital stock or similar transactions involving RM or any Subsidiary.

SECTION 9.10. Labor Relations; Employees; Employee Benefit Plans

     (a) No payment or benefit which will or may be made by RP or any of its Subsidiaries to RM Employees with respect to the transactions contemplated herein will be characterized as an “excess parachute payment”, within the meaning of Section 280G(b)(l) of the Code.

     (b) The RP Group generally enjoys good employer-employee relations with the RM Employees.

     (c) No member of the RP Group is delinquent in payments to any of the RM Employees for any wages, salaries, commissions, bonuses or other direct compensation for any services performed by them to the date hereof or to the Closing Date (as applicable) or amounts required to be reimbursed to such employees. With respect to the RM Employees, each member of the RP Group has (i) complied in all material respects with applicable laws, rules and regulations relating to the employment of the RM Employees, including those relating to wages, hours, collective bargaining, and the payment and withholding of taxes, and (ii) withheld and paid to the appropriate Public Authority, or are holding for payment not yet due to such Public Authority, all amounts required by law, rule, regulation or agreement to be withheld from the wages or salaries of the RM Employees. Since January 1, 1993, there has been no material adverse change in the relationship of the RP Group with the respective RM Employees (including any threatened union organization or renegotiation of any union or other collective bargaining

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contract) nor any material strike or labor disturbance by such employees, and no member of the RP Group is aware of any indication that such a change, strike or labor disturbance is likely.

SECTION 9.11. Survival of Representations and Warranties

     RP acknowledges that its representations and warranties are an inducement to Merck and Merck SH and to Merial to enter into this Agreement and the Ancillary Agreements. The representations and warranties contained in this Article IX shall survive (and not be affected in any respect by) any investigation by or on behalf of any Party and the Closing. Notice of any claim in respect of the representations and warranties in Sections 9.1 [Organization; Powers], 9.2 [Authorization; No Breach], 9.3 [Enforceability], 9.6 [Government Approvals] and 9.8 [Share Capital] may be given at any time (subject to any statute of limitations under applicable law); notice of any claim in respect of all other representations and warranties in Article IX must be given before the second anniversary of the Closing Date; it being understood that in the event notice of any claim for indemnification under Section 14.1 shall have been given (as contemplated by Section 14.7) within the applicable survival period, the representations and warranties that are the subject of such indemnification claim shall survive until such time as such claim is finally resolved.

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ARTICLE X

REPRESENTATIONS AND WARRANTIES OF MERCK AND MERCK SH

     Merck and Merck SH hereby represent and warrant, as of the date hereof and as of the Closing Date, to RP, IM and RM and to Merial as follows:

SECTION 10.1. Organization; Powers

     Each of Merck, Merck SH, each Merck Transferred Subsidiary and each other Merck Subsidiary engaged in Merial Venture Business activities (a) is a corporation or company duly organized and validly existing and is (to the extent applicable) in good standing under the laws of its jurisdiction of organization, (b) has all requisite corporate or similar power and authority to own or lease and operate its property and assets used in the Merck JV Business and to carry on such business as now conducted, (c) is qualified or licensed to do business and in good standing in every jurisdiction where such qualification or licensing is required, except where the failure so to qualify would not result in a Material Adverse Change or Effect, and (d) has the corporate or similar power and authority to execute, deliver and to perform its obligations under (as applicable) this Agreement and any and all Ancillary Agreements to which it is a party or by which it is bound.

SECTION 10.2. Authorization; No Breach

     The execution and delivery by each of Merck and Merck SH (as applicable) of each of this Agreement and any and all Ancillary Agreements to which it is a party or by which it is bound, and the consummation of the Transactions, (a) have been duly authorized by all necessary corporate action and do not require the consent or approval of its shareholders or partners, except such consents or approvals as have been obtained, and (b) do not (i) violate or conflict with (A) any Law or regulation applicable to it or any of its assets or properties, including any of the Merck Contributed Assets, or (B) its certificate or articles of incorporation or by-laws, or (ii) violate, conflict with, result in a breach of or constitute (alone or with notice or lapse of time or both) a default under,

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require any consent under, or give to any Third Party any rights of termination, amendment, acceleration, suspension, revocation or cancellation of or result in any Encumbrance on any of the Merck Contributed Assets pursuant to, any provisions of any agreements (including any notes, contracts, leases, licenses or other instruments or arrangements) by which it or any other Merck Company is bound, except, in the case of this clause (ii), for such violations, conflicts, breaches, defaults, required consents, rights or Encumbrances (x) that would not in the aggregate cause a Material Adverse Change or Effect, or (y) that are indicated as such in Schedule 10.2.

SECTION 10.3. Enforceability

     This Agreement has been duly executed and delivered by each of Merck and Merck SH and constitutes, and each Ancillary Agreement when executed and delivered by each of Merck and/or Merck SH (as applicable) constitutes or will constitute, its legal, valid and binding obligation, enforceable against it in accordance with its terms, subject, however, to any limitations with respect to enforcement which may be imposed in connection with (i) bankruptcy, insolvency, reorganization, moratorium or other laws affecting the enforcement of creditors’ rights generally, and (ii) general principles of equity (regardless of whether considered and applied in a proceeding at law or in equity).

SECTION 10.4. Governmental Approvals

     All permits, consents and approvals of, registrations with, notices to, and other actions by, all Public Authorities that are required by Merck or Merck SH or any Merck Subsidiary in connection with the Transactions (collectively the “Merck Approvals”) have been made or obtained and are in full force and effect, except that, as of the date hereof (but not as of the Closing), the following Merck Approvals have not been made or obtained: (i) the approval of the merger control authorities of the European Union, (ii) registrations with and consents of the appropriate Public Authorities in each relevant country to transfer Product Registrations in respect of each Merck Existing Product and Pipeline Product (as applicable), (iii) the tax ruling described in Section 11.2(b), (iv) the required approvals of Public Authorities listed in Schedule 10.4, and (v) such other items

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which the failure to obtain, individually or in the aggregate, would not have a Material Adverse Change or Effect. None of Merck, Merck SH or any Merck Subsidiary has taken or omitted to take any action which permits, or after notice or lapse of time or both would permit, any modification or termination of any of the Merck Approvals.

SECTION 10.5. Historical Financial Data

     True and complete copies of the consolidated financial statements, i.e., the balance sheet and income statement, for the Merck Contributed Business as of and for the year ended December 31, 1996 (together, the “Merck Contributed Business Financials”) are provided as Exhibit XVI. Except as indicated on any such financial statements, the Merck Contributed Business Financials (i) were derived from the books and records of Merck and its Subsidiaries, (ii) were prepared in accordance with United States GAAP consistently applied, and (iii) present fairly the assets and Liabilities, income and expenses of the Merck Contributed Business, as of the dates and for the periods indicated.

SECTION 10.6. No Undisclosed Liabilities

     (a) Liabilities at December 31, 1996. As at December 31, 1996, the Merck Contributed Business had no Liabilities of any nature, whether accrued, contingent or otherwise (including, without limitation, Liabilities as guarantor or otherwise with respect to obligations of other Liabilities for taxes due or then accrued or to become due or Liabilities that have been incurred but not yet reported that would be transferred to or assumed by the Merial Venture), that were not adequately reflected or reserved against on the December 31, 1996 balance sheet of the Merck Contributed Business Financials and which [*].

     (b) Merck Contributed Liabilities. Except for any such Liabilities that would not [*], all Merck Contributed Liabilities either (i) are reflected in the Merck Contributed Business Financials, as defined in Section 10.5, (ii)

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arose in the ordinary course of business since December 31, 1996, or (iii) are or will be disclosed in Schedule 14.2A-1 in accordance with Section 14.2(a).

SECTION 10.7. Receivables

     Except to the extent, if any, indicated on the December 31, 1996 balance sheet of the Merck Contributed Business Financials, all Receivables reflected thereon, including Retained Receivables, if any, arose from the sale of Inventory or services in the ordinary course of business consistent with past practice and constitute only valid, undisputed claims of Merck or its Subsidiaries not subject to valid claims of set-off or other defenses or counterclaims other than normal cash discounts accrued in the ordinary course of business consistent with past practice. All Receivables, including Retained Receivables, if any, reflected on the December 31, 1996 balance sheet of the Merck Merial Venture Business Financials or arising since the date thereof (subject to the reserve for bad debts, if any, reflected on the December 31, 1996 balance sheet of the Merck Merial Venture Business Financials), are good and have been collected or are or will be collectible, without resort to extraordinary collection activity, in the ordinary course of business and, in any case, by the later of (x) the date that is twelve (12) months from the Closing Date, or (y) if a Receivable is not by its terms due within such 12 month period, the date that is three months after its due date.

SECTION 10.8. Inventories

     Subject to amounts reserved therefor on the December 31, 1996 balance sheet of the Merck Contributed Business Financials, the values at which all Inventories are carried on the December 31, 1996 balance sheet of the Merck Contributed Business Financials, including Retained Inventory, if any, reflect the valuation of such Inventories at the lower of cost or market value, where cost is the supply price calculated pursuant to the Merck Manufacturing Supply Price Formula. Except as set forth in Schedule 10.8-1, Merck and its Subsidiaries have good and marketable title to the Inventories, including Retained Inventory, if any, free and clear of all liens or other Encumbrances. Except as set forth in Schedule 10.8-2 or reserved against in the Merck Financials, the Inventories, including

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Retained Inventory, if any, do not consist of, in any material amount, items that are obsolete, damaged or slow-moving or of any items held on consignment. Neither Merck nor any of its Subsidiaries is under any obligation or Liability with respect to accepting returns of items of Inventory or merchandise in the possession of its customers, including Retained Inventory, if any, other than in the ordinary course of business consistent with past practice. No clearance or extraordinary sale of the Inventories has been conducted since December 31, 1996. Neither Merck nor any of its Subsidiaries has acquired or committed to acquire or manufacture Inventory, including Retained Inventory, if any, for sale by the Merck Contributed Business which is not of a quality and quantity usable in the ordinary course of business within a reasonable period of time and consistent with past practice, nor has Merck or any of its Subsidiaries changed the price of any Inventory, including Retained Inventory, if any, except for (i) reductions to reflect any reduction in the cost thereof to Merck or its Subsidiaries, (ii) reductions and increases responsive to normal competitive conditions and consistent with past sales practices, or (iii) increases to reflect any increase in the cost thereof to Merck or its Subsidiaries. Other than as reflected on the December 31, 1996 balance sheet of the Merck Contributed Business Financials, the Inventories, including Retained Inventory, if any, of Merck and its Subsidiaries are in good and merchantable condition in all material respects, are suitable and usable for the purposes for which they are intended and are in a condition such that they can be sold in the ordinary course of business consistent with past practice.

SECTION 10.9. Absence of Certain Developments

     Except for the actions taken by Merck, Merck SH or any Merck Subsidiaries pursuant to this Agreement and the applicable Ancillary Agreements or as disclosed in Schedule 10.9, since December 31, 1996, the Merck Contributed Business has been operated in the ordinary course of business consistent with past practice, and there has not been:

     (a) any sale, assignment, transfer or other disposition to any Third Party of, or imposition of any lien or other Encumbrance on, any Merck

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Contributed Assets or any of the properties, assets, Inventories or obsolete items of the Merck Transferred Subsidiaries, without any and all proceeds [*] for all such sales, assignments, transfers or other dispositions (other than sales of Inventory in the ordinary course of business consistent with past practice) being contributed to the Merial Venture. Merck covenants and agrees that all such proceeds [*] shall through the Closing Date be segregated and held in a separate bank account owned by Merck or a Merck Subsidiary (these proceeds [*] being referred to as the “Merck Assets Sale Proceeds”) and thereby contributed to the Merial Venture on the Closing Date;

     (b) any damage, destruction or casualty loss to any Merck Contributed Assets or to any of the assets or properties of the Merck Transferred Subsidiaries, whether or not covered by insurance, which, individually or in the aggregate, has a Material Adverse Change or Effect;

     (c) any material change in any accounting principle relevant to the Merck Contributed Business used by Merck or any of its Subsidiaries;

     (d) other than in the ordinary course of business, any transaction, commitment or agreement relating to the Merck JV Business entered into by Merck or any of its Subsidiaries, or any relinquishment by Merck or any of its Subsidiaries of any rights relating to the Merck JV Business under any agreement or otherwise, having a value or involving aggregate payments [*];

     (e) any grant of any rights or licenses or entry into any licensing or distributorship or agency arrangements by Merck or any of its Subsidiaries with respect to the Merck JV Business which, individually or in the aggregate, has a Material Adverse Change or Effect;

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     (f) any loss of employees or any changes in any of Merck’s or any of its Subsidiaries’ employee benefit plans (other than those required by applicable law) which, individually or in the aggregate, has a Material Adverse Change or Effect;

     (g) other than in the ordinary course of business, any disclosure of any secret or confidential Intellectual Property (except by way of issuance of a patent or pursuant to this Agreement or the Ancillary Agreements) or any lapse or abandonment of Intellectual Property (or any registration or grant thereof or any application relating thereto) related to the Merck JV Business to which, or under which, Merck or any Subsidiary has any right, title, interest or license;

     (h) expenditures or failure to make expenditures on capital investment projects by any Merck Transferred Subsidiaries or in respect of any Merck Contributed Assets that were not substantially consistent with the investment plans in existence as of December 31, 1996 relating to such projects as disclosed in writing to RP prior to the date of this Agreement;

     (i) any transaction, commitment or any agreement involving the Merck JV Business entered into between two or more Merck Companies; or

     (j) any authorization, approval, agreement or other binding commitment to do any of the foregoing.

SECTION 10.10. Merck Contributed Assets

     (a) The assets to be contributed to the Merial Venture by Merck or its Subsidiaries (the “Merck Contributed Assets”) pursuant to Section 5.1(a) and to the Merck Transfer Agreement (which include all the assets of the Merck Transferred Subsidiaries and, in accordance with Section 5.1(a), the Merck Contributed Liabilities) include all assets, properties and rights used to conduct the entirety of the Merck JV Business activities (other than those assets, properties and rights (i) that are not primarily

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used for Merial Venture Business activities, (ii) used to conduct those activities that will be conducted by certain Merck Companies pursuant to the Ancillary Agreements, (iii) used to conduct those activities conducted by certain Merck Companies that are listed on Schedule 10.10-1A, (iv) those Patents, Patent applications, registered trademarks and trademark applications that will be licensed to the Merial Venture by Merck or its Subsidiaries pursuant to the Ancillary Agreements, (v) to the extent determined by Merck in its sole discretion, cash and cash equivalents, (vi) those set forth in Schedule 2-7, and (vii) those agreements listed on Schedule 10.10-1B, which Merck hereby represents do not relate to the use of any product in the Animal Health Business or the Poultry Genetics Business), in all material respects as reflected on the December 31, 1996 balance sheet of the Merck Contributed Business Financials (subject to acquisitions, sales or other dispositions permitted pursuant to Section 12.1(a)). Within six (6) weeks of the signature of this Agreement, Merck will provide to RP and to RM as Schedule 10.10-2 a list of all fixed assets (including U.S. and non-U.S. assets) used to conduct the entirety of the Merck JV Business activities other than those excepted pursuant to clauses (i) — (vi) above.

     (b) For the avoidance of doubt, the Parties acknowledge that Merck Contributed Assets do not include the name, trademark and/or service mark “Merck”, “Merck Sharp & Dohme”, and “MSD”, or any name or mark containing such names and marks, the copyright in and to the work “The Merck Veterinary Manual”, and the Annual Authorizations Service Repertory License Agreement between Copyright Clearance Center, Inc. and Merck & Co., Inc. dated December 31, 1995.

     (c) No person has any rights to use, possess or acquire or has any Encumbrance on any Merck Contributed Assets, except for (i) the rights of the Merial Venture Companies pursuant to this Agreement and the Ancillary Agreements, (ii) any rights retained by, or licensed to, any Merck Companies in accordance with this Agreement and the Ancillary Agreements, and (iii) any prior rights granted to Third Parties set forth in Schedule 2-7. Subject only to Sections 11.2(c) and 11.6(a) (and to consents that may be required under contracts that are Merck Contributed Assets, other than those listed in Schedule 10.22B), and except for such Merck Contributed Assets that

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are set forth in Schedule 2-7, following the consummation of the Transactions and the execution of the instruments of transfer contemplated by this Agreement and the Ancillary Agreements, the Merial Venture will own, with good, valid and marketable title, or lease, under valid and subsisting leases, or otherwise acquire the interests of Merck and its Subsidiaries in the Merck Contributed Assets, free and clear of any Encumbrances except for such Encumbrances as are described in clauses (i) through (iv) of Section 10.11(a), and without incurring any penalty or other adverse consequence, including any increase in rentals, royalties, or license or other fees imposed as a result of, or arising from, the consummation of the Transactions.

SECTION 10.11. Title to Properties; Possession Under Leases

     (a) Merck and its Subsidiaries own and have good title to all of the Merck Contributed Assets and to all of the assets and properties reflected as owned by Merck Transferred Subsidiaries on the December 31, 1996 balance sheet included in the Merck Contributed Business Financials, in each case free and clear of any material lien, claim or other Encumbrance, except for (i) the liens, claims or other Encumbrances reflected in the Merck Merial Venture Business Financials, (ii) assets and properties disposed of, or subject to purchase or sales orders, in the ordinary course of business since December 31, 1996, (iii) liens or other Encumbrances securing the rights of materialmen, carriers, landlords and like persons, all of which are not yet due and payable, and (iv) liens for taxes not yet delinquent.

     (b) (i) Merck and each of its Subsidiaries has complied with all its material obligations under all material leases to which it is a party as lessee and that are part of the Merck Contributed Assets, (ii) all such leases are in full force and effect, (iii) Merck or the relevant Subsidiary enjoys peaceful and undisturbed possession under each such lease, (iv) to the knowledge of Merck, the other parties to such leases have complied with all their material obligations thereunder, and (v) there are no material unresolved disputes under any of such leasehold interests.

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     (c) (i) All material real property, and all material buildings, improvements and fixtures thereon that are part of the Merck Contributed Assets have been maintained in accordance with the standard practices and procedures of Merck and its Subsidiaries and are in all material respects in good condition and have no material structural defects, (ii) such material real property, buildings, improvements and fixtures and the use thereof conform in all material respects to all applicable building, zoning, land use and like requirements and all material certificates and permits for the lawful use and occupancy thereof and the machinery and equipment thereon have been issued, and (iii) no current use of any of such property is dependent in any material respect on a non-conforming use or permit or violates any Law, regulation or decision of any Public Authority.

     (d) Set forth in Schedule 10.11D is a true and complete list as of the date of signature of this Agreement of all real property whether owned or leased (as tenant) included in the Merck Contributed Assets.

SECTION 10.12. Intellectual Property

     (a) To the knowledge of Merck, Merck and its Subsidiaries (i) own, or are licensed to use, or otherwise have the right to use all Patents, trademarks, service marks, trade names, logos, franchises, and copyrights, and all applications for any of the foregoing, and all technology, inventions, trade secrets, Know-How, computer software and processes used in the conduct of the Merck JV Business as now conducted, including for the manufacture and sale of all Merck Existing Products, and (ii) except as set forth in Schedule 10.12, have the right to transfer or license to the Merial Venture all of such rights to be transferred or licensed thereto under this Agreement and the Ancillary Agreements; and none of such rights shall be adversely affected by the execution, delivery or performance of this Agreement or any Ancillary Agreement. Except as indicated in Schedule 10.12, Merck is not aware of any reason that would prevent any pending applications to register material trademarks, or any pending material patent applications, from being granted.

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     (b) Set forth in Schedule 10.12 are true and complete lists of all Patents and registered trademarks and trademark applications in respect of Animal Health Products or Poultry Genetics Products which are owned by Merck or any of its Subsidiaries or which Merck or any such Subsidiaries are licensed to use or otherwise have the right to use in respect of Animal Health Products or Poultry Genetics Products (other than those items referred to in Section 10.10(b) (collectively, the “Merck Proprietary Rights”). To the extent indicated in Schedule 10.12, all owned Merck Proprietary Rights have been registered in, filed in or issued by the appropriate Public Authorities in each relevant jurisdiction, and in each case such proprietary rights are currently in effect and all maintenance fees and renewals thereof have been duly made with respect thereto.

     (c) Except as set forth in Schedule 10.12, Merck is not aware (i) that any of the activities of the Merck JV Business as currently conducted infringe upon the proprietary rights of others, nor has Merck or any of its Subsidiaries received any notice or claim from any Third Party of such infringement by the activities of the Merck JV Business, or (ii) of any infringement by any Third Party on, or any competing claim of right to use or own any of, the Merck Proprietary Rights in the field of the Merial Venture Business. Merck and its Subsidiaries have the right to use, free and clear of claims or rights of others, all customer lists and computer software used in the conduct of the Merck JV Business.

SECTION 10.13. Product Registrations

     Set forth in Schedule 10.13 are true and complete lists of all Product Registrations that have been applied for, are valid and in full force and effect or are in the process of being timely renewed in respect of any Animal Health Products and Poultry Genetics Products of Merck and its Subsidiaries (collectively, the “Merck Product Registrations”), indicating for each product the jurisdiction of each such Product Registration, application or renewal, and whether such application has been applied for, is valid, or is in the process of being renewed. Such product registrations permit Merck to market the products covered thereby in the jurisdiction indicated thereby, and Merck is aware of nothing that would interfere with Merck’s right to market such products in the jurisdiction

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indicated. No such Product Registration shall be adversely affected by its contribution to the Merial Venture in accordance with the terms of this Agreement (and in particular Section 11.2(c)), the Transfer Agreement and the Ancillary Agreements.

SECTION 10.14. Product Warranty and Product Recalls: Labels

     (a) Since January 1, 1993, there have been no “recalls” or “seizures” or “market withdrawals” (as such terms, or words of similar import, are used in the regulations promulgated under the U.S. Food, Drug and Cosmetic Act or similar food and drug laws promulgated by any Public Authority in any other jurisdiction) with respect to any Merck Existing Product. The Label of each Existing Product of Merck sold by Merck or any of its Subsidiaries in any country accurately reflects the conditions for safe and effective use of such Existing Product in accordance with the laws and regulations of such country and each such Product is sold under an appropriate Label.

     (b) Other than as indicated on Schedule 10.14, since January 1, 1993, neither Merck nor any of its Subsidiaries has received any adverse experience reports indicating any material safety or efficacy problems that would materially change the general risk/benefit assessment upon which such Existing Product is prescribed for its approved indications, and no material change in any Label of any Merck Existing Product has been required by any Public Authority or otherwise been implemented as a result of any such report.

SECTION 10.15. Absence of Third Party Joint Ventures

     Except as set forth in Schedule 10.15, neither Merck nor any of its Subsidiaries has an ownership interest in any joint venture (whether or not organized as a legal entity) or other company or business (except Merck and its Subsidiaries) which conducts Merial Venture Business activities and the ownership of or profits from which are shared with Third Parties.

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SECTION 10.16. Litigation; Compliance with Laws

     (a) Except as set forth in Schedule 10.16, and except for such actions, suits or proceedings with amounts or potential amounts individually in issue of less than [*], there are no actions, suits or proceedings at law or in equity or by or before any Public Authority relating to or arising from the Merck JV Business or any properties or assets part of the Merck Contributed Assets, or in respect of this Agreement or any of the Ancillary Agreements, and which is pending or, to the knowledge of Merck, threatened against it or any of its Subsidiaries. Schedule 10.16 sets forth a complete and correct list of all such actions, suits or proceedings that are active or have been active since January 1, 1993 (or, with respect to actual or potential Environmental Liabilities, January 1, 1991), and includes for completed matters a general description of the results thereof (including the amount of any monetary judgments and the principal terms of any other relief assessed in connection therewith).

     (b) Except for any non-compliance which would not, individually or in the aggregate, result in a Material Adverse Change or Effect, Merck and its Subsidiaries at all times since January 1, 1993 have been and are currently in compliance with (i) all Laws, Permits, published standards that have the force and effect of Laws, and Environmental Laws, applicable to the Merck JV Business, and (ii) all judgments, orders, writs, injunctions, decrees or rulings of Public Authorities applicable to the Merck JV Business.

     (c) In each case other than such Permits the absence of which would not, individually or in the aggregate, result in a Material Adverse Change or Effect, Merck and its Subsidiaries have all licenses, permits, franchises, orders or approvals of any Public Authority, including under Environmental Laws, necessary to the conduct of the Merck JV Business (collectively, “Permits”); such Permits are in full force and effect; and no proceeding is pending or, to the best knowledge of Merck, threatened, to revoke or limit any such Permit. Schedule 10.16 identifies all Permits that are nontransferable or that will require the consent of any Public Authority in order to give effect to the Transactions.

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SECTION 10.17. Tax Returns

     Each of Merck SH and each Merck Transferred Subsidiary has filed or caused to be filed in a timely manner all Tax Returns required to have been filed by it (or have obtained or timely applied for an extension with respect to any such filing) and has paid or caused to be paid, or made adequate provision for the payment of, all Taxes shown to be due and payable on such returns or on any assessments received by it, except Taxes that are being contested by it in good faith and except where the failure to file such returns or pay Taxes would not in the aggregate (i) cause a Material Adverse Change or Effect, or (ii) result in the imposition of a lien on any of the Merck Contributed Assets. None of the Merck Transferred Subsidiaries is party to or bound by (a) any agreement providing for the allocation or sharing of Taxes with any Third Party which agreement will be in effect after the Closing, or (b) any agreement (other than elections prescribed by generally applicable Tax Laws or regulations) with any Taxing Authority which may restrict the Merial Venture’s tax planning.

SECTION 10.18. Environmental Matters

     With respect to the Merck JV Business, except for the matters disclosed in Schedule 10.18, neither Merck nor any of its Subsidiaries has since January 1, 1991 received written notice of, or other written communication concerning, any failure to comply with any applicable Environmental Laws, or written notice or other written communication that Merck or any of its Subsidiaries is or may be a potentially responsible party or otherwise liable in connection with any site allegedly containing Hazardous Materials. None of Merck’s or its Subsidiaries’ facilities used in the Merck JV Business have in the past, or do at the present time, use, generate, treat, store, dispose of, process, handle or manage any Hazardous Materials or other materials in violation of any applicable Environmental Law, and there has been no release or migration of any Hazardous Materials at, on, under, about, within, from or onto any such properties, where such violation, release, or migration will or is reasonably likely to result, individually or in the aggregate, in a Material Adverse Change or Effect. Except as will not result in a Material Adverse Change or Effect, there are no past or present

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conditions, circumstances, facts, events, practices, incidents, actions or omissions existing or occurring at any location (including any off-site location) that will or is reasonably likely to (i) cause Merck or any of its Subsidiaries or, subsequent to the Closing, any Merial Venture Company, to incur any Environmental Liability in respect of the Merck JV Business, (ii) form the basis for any claim, action, suit, proceeding, hearing, investigation or inquiry against Merck or any of its Subsidiaries or, subsequent to the Closing, any Merial Venture Company, under any Environmental Law in respect of the Merck JV Business, or (iii) interfere with or prevent continued compliance by Merck or any of its Subsidiaries or, subsequent to the Closing, any Merial Venture Company, with any Environmental Law in respect of the Merck JV Business.

SECTION 10.19. Labor Relations; Employees; Employee Benefit Matters

     (a) Schedule. With respect to the employees who are expected to be employed by a Merial Venture Company as of the Closing Date, Schedule 10.19A-1 contains a true and complete list of each material Merck Benefit Plan. Within six (6) weeks after the date of this Agreement, Merck will complete Schedule 10.19A-1 by providing to RM a list of all Merck Employee Agreements. Except as set forth in Schedule 10.19A-2 and with respect to the employees who are expected to be employed by a Merial Venture Company as of the Closing Date, neither Merck, any of its Subsidiaries nor any Merck ERISA Affiliate has any plan or commitment, whether legally binding or not, to establish any new Merck Benefit Plan, to enter into any Merck Employee Agreement or to materially modify or to terminate any Merck Benefit Plan or Merck Employee Agreement (except to the extent required by law or to conform any such Merck Benefit Plan or Merck Employee Agreement to the requirements of any applicable law, or as required by this Agreement), nor has any intention to do any of the foregoing been communicated to Merck Employees.

     (b) Documents. Merck has provided, or has caused to be provided, or will cause to be provided prior to the Closing to RM (i) current, accurate and complete copies of all documents embodying or relating to each Merck Transferred Benefit Plan and each

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Merck Employee Agreement, including all amendments thereto, written interpretations thereof and trust or funding agreements with respect thereto; (ii) the two (2) most recent annual actuarial valuations, if any, prepared for each Merck Transferred Benefit Plan; and (iii) the two (2) most recent annual reports (Series 5500 and all schedules thereto), if any, required under ERISA in connection with each Merck Transferred Benefit Plan or related trust.

     (c) Multi-Employer Plans. Except with respect to employees who are not Merck Employees, neither Merck nor any of the Merck Transferred Subsidiaries contribute to or are required to contribute to, or have incurred any withdrawal liability (within the meaning of Section 4201 of ERISA) to, any “multi-employer plan” within the meaning of Section 3(37) of ERISA.

     (d) No Post-Employment Obligations. Except as expressly set forth on Schedule 10.19D, neither Merck, any of its Subsidiaries nor any Merck ERISA Affiliate (i) maintains or contributes to any Merck Transferred Benefit Plan which provides, or has any Liability to provide, life insurance, medical, severance or other employee welfare benefits to any Merck Employee upon his retirement or termination of employment, except as may be required by Section 4980B of the Code; or (ii) has ever represented, promised or contracted (whether in oral or written form) to any Merck Employee (either individually or to Merck Employees as a group) that such Merck Employee(s) would be provided with life insurance, medical, severance or other employee welfare benefits upon their retirement or termination of employment, except to the extent required by Section 4980B of the Code.

     (e) Effect of Transaction. Except as set forth on Schedule 10.19E, the execution of, and performance of the transactions contemplated in, this Agreement will not (either alone or upon the occurrence of any additional or subsequent events) (i) constitute an event under any Merck Transferred Benefit Plan, Merck Employee Agreement, or related trust or loan that will or may result in any payment (whether of severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits with respect to any Merck

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Employee, or (ii) result in the triggering or imposition of any restrictions or limitations on the right of the Merial Venture Companies to amend or terminate any Merck Transferred Benefit Plan. No payment or benefit which will or may be made by Merck or any of its Subsidiaries to any Merck Employee with respect to the transactions contemplated herein will be characterized as an “excess parachute payment,” within the meaning of Section 280G(b)(l) of the Code.

     (f) Collective Bargaining Agreement (“CBA”). Except as set forth on Schedule 10.19F, no Merck Employee is employed pursuant to a CBA or a works council agreement to which a member of the Merck Group is a party that any Merial Venture Company will be bound by after the Closing or will otherwise be obligated to honor or assume in connection with this Agreement or the transactions contemplated by this Agreement, other than those agreements that the Merial Venture is obligated to assume under applicable law.

     (g) Pension Plan Funding. Except as set forth on Schedule 10.19G-1, the present value of all accrued benefits of each Merck Transferred Pension Plan, determined on the basis of the actuarial assumptions used by the plan’s actuary for purposes of calculating minimum funding contributions for the most recently completed plan year, do not as of the date hereof and will not as of the Closing Date exceed the fair market value of the assets (which for this purpose shall not include any accrued but unpaid contributions) of such Transferred Benefit Plan. Except as set forth on Schedule 10.19G-2, the present value of all accrued benefits of each Merck Transferred Foreign Pension Plan, determined using the actuarial assumptions employed by the actuary of the plan, do not as of the date hereof and will not as of the Closing Date exceed the fair market value of the assets (which for this purpose shall not include any accrued but unpaid contributions) of such Merck Transferred Foreign Pension Plan or, in the case of an unfunded Merck Transferred Foreign Pension Plan, the reserves provided for in the December 31, 1996 balance sheet of the Merck Contributed Business Financials.

     (h) Labor Relations. Except as set forth in Schedule 10.19H-1, the Merck Group generally enjoys good employer-employee relations with the Merck Employees.

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Approximately 723 full-time equivalent employees are employed by the Merck Transferred Subsidiaries and will be transferred to the Merial Venture together with such Subsidiaries. Schedule 10.19H-2 contains the names of all current employees of the Merck Group, other than the Merck Transferred Subsidiaries, which Merck expects will transfer to the Merial Venture after the Closing. Subject to their receiving compensation and benefit offers from the Merial Venture comparable to their current compensation and benefit packages, Merck has no reason to believe that substantially all of the employees listed in Schedule 10.19H-2 will not accept employment offers with the Merial Venture.

     (i) Employment Matters. No member of the Merck Group is delinquent in payments to any of the Merck Employees for any wages, salaries, commissions, bonuses or other direct compensation for any services performed by them to the date hereof or to the Closing Date (as applicable) or amounts required to be reimbursed to such employees. With respect to the Merck Employees, each member of the Merck Group has (i) complied in all material respects with applicable laws, rules and regulations relating to the employment of the Merck Employees, including those relating to wages, hours, collective bargaining, and the payment and withholding of taxes, and (ii) withheld and paid to the appropriate Public Authority, or are holding for payment not yet due to such Public Authority, all amounts required by law, rule, regulation or agreement to be withheld from the wages or salaries of the Merck Employees. Since January 1, 1993, there has been no material adverse change in the relationship of the Merck Group with the respective Merck Employees (including any threatened union organization or renegotiation of any union or other collective bargaining contract) nor any material strike or labor disturbance by such employees, and no member of the Merck Group is aware of any indication that such a change, strike or labor disturbance is likely.

SECTION 10.20. Insurance

     Merck believes it maintains adequate insurance coverage (both with respect to levels of coverage and deductibles, and including self-insurance), consistent with prudent practices, including for general and product liability and business interruption, in respect of its Merck JV Business assets and operations. Each of the policies comprising such coverage is in full force and effect and all premiums are currently paid or accruals

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provided for and no notice of cancellation or termination has been received with respect to any such policy. Such policies are sufficient for compliance with all requirements of Law. Schedule 10.20 sets forth a complete list of all claims [*] made or filed by Merck or any of its Subsidiaries with their insurers since January 1, 1993 with respect to the Merck JV Business and any such claims incurred but not yet so made or filed of which Merck is aware.

SECTION 10.21. Share Capital of Merck Transferred Subsidiaries

     Schedule 10.21 (as updated in accordance with Section 3.2 hereof, as applicable) contains a true and complete description of the authorized and outstanding capitalization (including the record owners) of each of the Merck Transferred Subsidiaries. The indicated shares of capital stock or other ownership interests of each of the Merck Transferred Subsidiaries represent all of the respective issued and outstanding shares of capital stock or other ownership interests of each such company. Except as set forth in Schedule 10.21, (a) the record and beneficial ownership of each Merck Transferred Subsidiary is free and clear of any lien or other Encumbrance; (b) all of the issued and outstanding shares of capital stock or other ownership interests of the Merck Transferred Subsidiaries have been duly authorized and validly issued and are fully paid and nonassessable; (c) none of the Merck Transferred Subsidiaries or any direct or indirect parent company thereof is bound by, has granted, issued or made or agreed to grant, issue or make any security interests, warrants, options, subscription rights or any other commitments of any character relating to the issued or unissued shares of capital stock or other ownership interests of the Merck Transferred Subsidiaries (other than this Agreement and the Ancillary Agreements), nor is there any agreement providing for (i) any restriction on the transfer of any of the issued and outstanding shares of capital stock or other ownership interests (other than with respect to directors’ qualifying and nominee shares as set forth in Schedule 10.21) of any of the Merck Transferred Subsidiaries, (ii) the amendment of the certificate or articles of incorporation or by-laws (or comparable organizational documents) of any of the Merck Transferred Subsidiaries so as to increase the amount of authorized capital stock or other ownership interests of such entity, or (iii) obligating any of such persons to grant, offer, or enter into any of the foregoing; (d) none

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of the direct or indirect parent companies of any of the Merck Transferred Subsidiaries is a party to any voting trust or other agreement or understanding with respect to the voting of the capital stock or other ownership interests of the Merck Transferred Subsidiaries; and (e) the record owner of any such shares or other ownership interests possesses good and marketable title to such shares or other ownership interests.

SECTION 10.22. Contracts and Licenses

     (a) Other than the agreements listed in Schedule 10.22A, there are no agreements between any Merck Companies other than the Merck Transferred Subsidiaries, on the one hand, and any Merck Transferred Subsidiaries, on the other hand, that will survive the Closing.

     (b) Schedule 10.22B lists all contracts or agreements having a value or involving payments [*] or otherwise material to the Merck Contributed Business between one or more Merck Companies, on the one hand, and one or more Third Parties, on the other hand, to be assigned or transferred to the Merial Venture pursuant to this Agreement or the Ancillary Agreements. Other than as indicated in Schedule 10.22B, none of such contracts or agreements require the consent of any Third Party to be assigned or transferred, as the case may be, to the Merial Venture as contemplated by this Agreement or the Ancillary Agreements.

     (c) Schedule 10.22C lists all of the agreements listed in Schedule 10.22B that may restrict in any way, such as through non-compete or exclusivity clauses, the ability of the Merial Venture to undertake Merial Venture Business activities and lists all other agreements to be assigned or transferred to the Merial Venture that include such a restriction, the compliance with by the Merial Venture on or after the Closing would have a material adverse effect on the ability of the Merial Venture to combine the Contributed Merial Venture Businesses or to conduct the activities contemplated herein.

SECTION 10.23. Other Agreements

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     Except as set forth in Schedule 10.23 and except for any agreements, arrangements or commitments between Merck and its Subsidiaries or between such Subsidiaries, there are no agreements, arrangements or commitments of any character (contingent or otherwise) relating to any Acquisition Transaction pursuant to which any person is or may be entitled to receive from the Merck Transferred Subsidiaries or any of their Subsidiaries any payment based on their revenues, earnings or similar items (or any portion thereof) or on the occurrence or value of the Acquisition Transactions (or similar circumstances), or calculated in accordance therewith. For the purposes of this Section 10.23, “Acquisition Transaction” shall mean any merger, purchase of substantial assets, purchase of shares of capital stock or similar transactions involving the Merck Transferred Subsidiaries or any Subsidiary thereof.

SECTION 10.24. Survival of Representations and Warranties

     Merck and Merck SH acknowledge that their representations and warranties are an inducement to RP, IM and RM and to Merial to enter into this Agreement and the Ancillary Agreements. The representations and warranties contained in this Article X shall survive (and not be affected in any respect by) any investigation by or on behalf of any Party and the Closing. Notice of any claim in respect of the representations and warranties in Sections 10.1 [Organization; Powers], 10.2 [Authorization; No Breach], 10.3 [Enforceability], 10.11(a) [Title], 10.12(b) [Intellectual Property — existing Proprietary Rights] and 10.21 [Share Capital] may be given at any time (subject to any statute of limitations under applicable law); the representations and warranties in Sections 10.4 [Governmental Approvals], 10.12 (a) and (c) [Intellectual Property — other], 10.13 [Product Registrations], 10.17 [Tax Returns] and 10.18 [Environmental Matters] must be given before the fifth anniversary of the Closing Date; notice of claim in respect of all other representations and warranties in Article X must be given before the second anniversary of the Closing Date; it being understood that in the event notice of any claim for indemnification under Section 14.1 hereof shall have been given (as contemplated by Section 14.7) within the applicable survival period, the representations and warranties that are the subject of such indemnification claim shall survive until such time as such claim is finally resolved.

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ARTICLE XI

COVENANTS OF THE RP GROUP AND THE MERCK GROUP

SECTION 11.1. Legal Existence

     Each of the Principals shall do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence, for so long as such Principal is a party to this Agreement or any Ancillary Agreement; provided that nothing in this Section 11.1 shall prevent either Principal from taking any action permitted by Articles XVI or XVII. .

SECTION 11.2. Public Authority Approvals

     Each of Merck and Merck SH, on the one hand, and RP, RM and IM, on the other hand, shall use commercially reasonable efforts to promptly obtain or make all permits, consents and approvals of, registrations with and notices to all Public Authorities that may be or become necessary for its execution and delivery of, and the performance of its obligations under, this Agreement and the Ancillary Agreements, and will cooperate fully with any company in the other Group in promptly seeking to obtain or make all such permits, consents, approvals, registrations and notices, including, without limitation:

     (a) Each Principal agrees to make appropriate filings pursuant to Council Regulation No. 4064/89 of the European Union with respect to the Transactions within seven (7) days of the date hereof, and to supply as promptly as practicable to the appropriate Public Authorities any additional information and documentary material that may be requested in connection with such filings or with their filings made in the United States pursuant to the HSR Act.

     (b) RP and, if necessary, its Subsidiaries, shall use commercially reasonable efforts to obtain an agrément fiscal from the French Ministère du Budget to the effect that the contribution by IM to Merial of the share capital of RM shall be treated as an apport partiel d’actif under article 210B of the Code Général des Impôts, and Merck and, if

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necessary, its Subsidiaries, shall use commercially reasonable efforts to obtain from the I.R.S. a tax ruling to the effect that Section 1491 and the Treasury Regulations thereunder do not apply to Merck or its Affiliates with respect to the transactions contemplated by this Agreement and that neither Merck nor its Affiliates will be required to recognize gain with respect to such transactions for U.S. Federal income tax purposes.

     (c) Merck shall, and shall cause each of its relevant Subsidiaries to use commercially reasonable efforts to: (i) transfer to Merck Transitory LLC prior to the Closing all the Merck Product Registrations that are part of the Merck Contributed U.S. Assets, and (ii) transfer as many as practicable of the Merck Product Registrations that are part of the Merck Contributed Non-U.S. Assets to the appropriate Merial Subsidiary in the country of each such Product Registration at the Closing. Merck shall reimburse the Merial Venture for any and all costs and expenses (excluding any allocation of salaries of employees of the Merial Venture), including all fees of regulatory counsel and registration, filing, stamp duty or other comparable duties incurred by it in effecting such transfers at the Closing. All of the Merck Product Registrations that are not transferred at the Closing shall be Delayed Purchase Assets and shall be transferred to the appropriate Merial Subsidiary in the country of each such Product Registration in accordance with Section 5.1(a)(ii). Merck hereby irrevocably authorizes Merial or the appropriate Merial Subsidiaries to sell the Merial Venture Products under Merck Product Registrations pending perfection of the transfer of Registrations or obtaining of new Registrations. In the event any Merck Product Registration cannot be transferred to the Merial Venture as set forth above or has not been so transferred before the first anniversary of the Closing Date, Merck shall, and shall cause each relevant Merck Subsidiary to, fully cooperate with the Merial Venture in obtaining a new Product Registration. Merck shall indemnify the Merial Venture Companies for all costs and expenses reasonably incurred by them (excluding any allocation of salaries of employees of the Merial Venture), including fees and expenses of counsel and registration, filing, stamp duty, transfer or other comparable duties, in obtaining such new Product Registrations.

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     (d) RTPA. Promptly after the date of this Agreement, each of RP and Merck shall confirm to the other whether it, or any of its subsidiaries who are parties to any of the Ancillary Agreements, carry on business in the United Kingdom in the production or supply of goods or the supply or services for the purposes of the Restrictive Trade Practices Act 1976 as amended (the “RTPA”) For the purposes of this clause, “subsidiaries” shall be construed in accordance with Section 736 of the Companies Act. If either RP or Merck determines that there are any provisions of this Agreement (or of an arrangement of which it forms part) by virtue of which particulars of this Agreement (or of an arrangement of which it forms part), at the date of this Agreement, are required to be furnished to the Director General of Fair Trading under the Restrictive Trade Practices Acts 1976 and 1977, RP and Merck shall ensure that those particulars and any other required information are furnished as soon as possible and in any event within the time specified by those Acts.

SECTION 11.3. No Limitation on Other Activities of Principals

     Other than as expressly provided in this Agreement or any of the Ancillary Agreements, each Principal (and its Subsidiaries) shall be free to pursue its (and such Subsidiaries’) respective businesses other than the Merial Venture Business in any manner chosen by it (and such Subsidiaries) and shall have no obligation to limit in any way its activities with respect to new products or to offer other business opportunities to the Merial Venture or to disclose any information concerning its (or such Subsidiaries’) other businesses to the other Principal (or any Subsidiary thereof). Nothing in this Section 11.3 shall be interpreted as excusing any Party from compliance with Sections 15.1 [Non-Competition], 19.3 [Confidentiality] and 19.13 [Publicity].

SECTION 11.4. Fiscal Year; Annual Audits; Selection of Auditors

     The fiscal year (the “Fiscal Year”) of Merial (and all other Merial Venture Companies, except as provided by the Board of Directors) shall begin on January 1 (or, in the case of the first Fiscal Year, the Closing Date) and end on December 31 of each calendar year. Following the close of each Fiscal Year, consolidated financial statements

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shall be prepared by Merial and audited by an independent accounting firm selected by the Members’ Meeting; provided that the consolidated financial statements for the Fiscal Years ending December 31, 1997 and 1998 shall be audited jointly by Arthur Andersen and Coopers and Lybrand.

SECTION 11.5. Books and Records of the Merial Venture

     (a) Accounts of Merial Venture. Merial shall keep full and proper ledgers and other books of account, including all books of account required by the Companies Act, and the following financial reports or information shall be provided to each Member (and, upon request, to each Principal):

     (i) within a reasonable period of time after the expiration of each quarter of Merial’s Fiscal Year as the Principals shall request, the unaudited consolidated balance sheet and the related statements of income and cash flows of Merial and its Subsidiaries, prepared in accordance with U.S. GAAP and any other accounting standards as may be required by applicable Laws, as of the end of, and for, such quarter and the Fiscal Year-to-date;

     (ii) as required by the Principals and no more than 20 days following the end of each calendar month, a monthly operating summary of the Merial Venture’s activities in a form to be agreed upon by the Principals; the Principals and the Merial Venture will each provide (to the extent reasonably available to such Person) in a timely manner all information necessary to determine the Principals’ respective entitlements associated with the Merial Venture;

     (iii) within such period of time after the end of each Fiscal Year of Merial as the Principals shall request, the audited consolidated balance sheet and the related statements of income and cash flows of Merial and its Subsidiaries, prepared in accordance with U.S. GAAP and any other GAAP as may be required by applicable Laws or reasonably required by either of the Principals, as well as all necessary tax reporting information required by each of the Members and

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Principals for preparation of their national, state and local income tax returns, including each Member’s share of income, gain, loss, deductions and credits for such Fiscal Year, including, in the case of RP, the financial information required by the CFM Agreement; and

     (iv) within a reasonable period of time, such other financial information with respect to Merial or any of its Subsidiaries as any Member or Principal shall reasonably request to permit such Member or Principal to prepare its respective financial statements.

In addition to such financial reports and information listed in clauses (i) through (iv) above, the financial statements of Merial shall be prepared in accordance with the requirements of the Companies Act and each Merial Venture Company shall prepare its financial statements in accordance with the accounting standards imposed by the Laws applicable to it.

     Merial and, as appropriate, its independent auditors, shall certify that the financial information provided in clauses (i) – (iii) above (A) has been prepared in accordance with the books of account and other financial records of the Merial Venture, (B) presents fairly the financial condition and results of operations of the Merial Venture as of the date thereof or for the periods covered thereby, (C) has been prepared in accordance with U.S. GAAP (or another GAAP, as the case may be), and (D) includes all adjustments that are necessary for a fair presentation of the financial condition of the Merial Venture as of the dates thereof or for the periods covered thereby.

     (b) Examination of Merial Venture’s Records, Facilities, etc. Subject to Section 11.5(c), Merial shall, upon reasonable notice, and shall cause each of its Subsidiaries, employees and agents to: (i) afford the officers, employees and authorized agents, certified auditors or counsel of the Principals reasonable access, during normal business hours, to the offices, properties, other facilities, books and records of the Merial Venture (which access shall include the right to conduct Phase I environmental assessments and, for a period of two years after the date of this Agreement, to the extent

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the findings of any such Phase I environmental assessments give rise to a reasonable concern (from the standpoint of a reasonably prudent business person) that contamination or other circumstances that may cause the incurrence of an Environmental Liability exist, shall also include the right of sampling and analysis of air, surface or subsurface soil, groundwater, surface water, building materials and/or wastes; provided that such sampling and analysis is conducted in a commercially reasonably manner designed to minimize interference with ongoing operations and is no more expansive than is reasonably necessary to ascertain whether Damages will be incurred) and to appropriate officers, employees, agents and counsel of the Merial Venture, and (ii) furnish to the officers, employees and authorized agents, certified auditors or counsel of the Principals such additional financial and operating data and other information regarding the operations, assets, properties and goodwill of the Merial Venture as either Principal may from time to time reasonably request. Prior to the time when a Merial Venture Business or asset to be transferred to the Merial Venture is so transferred, the Principal in control of such Merial Venture Business or asset shall provide the other Principal with the same access to and information regarding such Merial Venture Business or asset as is described in the preceding sentence. Except as provided in Article XIV, each Principal shall bear all expenses incurred by it in any such examination made by it pursuant to this Section 11.5.

     (c) Confidentiality Exception. Each Principal acknowledges the right of the other Principal and its Subsidiaries to keep confidential certain commercial, product, technical and scientific information provided by such other Principal or its Subsidiaries to the Merial Venture, including information provided pursuant to the Research Agreements or obtained pursuant to agreements with Third Parties containing confidentiality provisions. Accordingly, each Principal agrees that it shall not exercise its right of inspection with respect to, and shall direct the Directors nominated by it not to inspect, such information pursuant to this Agreement or otherwise without obtaining the prior written consent of the other Principal and, if such consent is given, it shall follow such procedures as are determined by the other Principal in its sole discretion in order to prevent the disclosure of such information (it being acknowledged that a Principal may prohibit entirely the disclosure of such information by the Merial Venture to the other

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Principal and, in such case, the Merial Venture will not disclose such information and will take all reasonable steps necessary to prevent such disclosure).

     (d) Merial Venture Records Following Dissolution. Notwithstanding anything contained in this Agreement to the contrary (except for and subject to Section 11.5(c)), in the event of the Dissolution of the Merial Venture, the accounting and product records of the Merial Venture shall be preserved and shall be made freely available to both Principals for consultation or copying until five years after such Dissolution or such earlier time as both Principals agree that such records may be destroyed or need no longer be made available.

SECTION 11.6. Obtaining Third Party Consents

     (a) Merck Agreements. Merck shall use commercially reasonable efforts to procure that, on the Closing Date or, if not practicable, as soon as possible thereafter, the benefit to the extent related to the Merial Venture Business of all agreements listed in Schedule 10.22B (the “Merck Agreements”) shall have been transferred to the Merial Venture. The following principles shall apply to each Merck Agreement in respect of which any consent, approval or waiver by any Third Party (a “Consent”) is still required to be obtained as of the Closing Date in order for Merck to fully transfer or assign such Merck Agreement to the Merial Venture:

     (i) Merck shall inform Merial and RP of that fact and shall use commercially reasonable efforts to obtain such Consent promptly;

     (ii) pending such Consent being obtained, Merck shall hold all benefits of such Merck Agreement to the extent related to the Merial Venture Business as agent for the Merial Venture and account promptly to the Merial Venture, without any deduction, set-off or counterclaim, for any and all sums received by Merck pursuant to such Merck Agreement, and shall not agree to any material variation of, or modification to, termination of, or waiver of any right under or in relation

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to such Merck Agreement without the prior consent of Merial (which shall not be unreasonably withheld or delayed);

     (iii) pending such Consent being obtained, the Merial Venture shall (at the Merial Venture’s own cost and for its own account) perform all of Merck’s obligations in respect of such Merck Agreement; and

     (iv) in the case of any such Merck Agreements relating to intellectual property rights, Merial, Merck, RP and the relevant Third Party (as appropriate) shall (where necessary) have discussions with a view to establishing by mutual agreement those Merck Agreements where a sub-license is to be granted and/or those where a separate license is to be granted to the Merial Venture and/or those which are to be novated or otherwise assigned (subject, where appropriate, to existing licenses) to the Merial Venture, and Merck shall, pending such sub-license, license, novation or other assignment, continue to the extent reasonably requested by Merial to carry on all activities for which the intellectual property rights covered by such Merck Agreement are necessary;

provided that, any Merck Agreement in respect of which a Consent is required but not obtained shall not be deemed transferred or assigned and no effect shall be given to clauses (ii) or (iii) above if there is a significant risk that the relevant Merck Agreement would be treated as repudiated by a Third Party co-contractant or that Merck would be held to be in breach of its obligations thereunder if effect were given thereto. If any necessary Consent has not been obtained on or before the first anniversary of the Closing Date, the Principals and Merial shall cooperate to seek an alternative solution designed to provide the Merial Venture with the material benefits of (or the substantial equivalent of the benefits of) such Agreement, and until such an alternative solution is agreed upon, the foregoing provisions of this Section 11.6(a) shall continue to apply.

     (b) RM Agreements. RM shall use commercially reasonable efforts to obtain, prior to the Closing, all consents, approvals or waivers necessary under any agreement to which RM or a Subsidiary thereof is a party and without which there is a significant risk

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that such agreement would be treated as repudiated by a Third Party co-contractant. In the event RM or its Subsidiaries are unable to obtain any such consent, approval or waiver prior to or concurrently with the Closing, RM shall inform Merial and Merck of that fact and the Principals and Merial shall cooperate to seek an alternative solution designed to provide the Merial Venture with the benefit thereof, and until such an alternative solution is agreed upon, the foregoing provisions of this Section 11.6(b) shall continue to apply.

     (c) Restrictive Agreements. Each Party shall use commercially reasonable efforts to procure that, on or prior to the Closing Date or, if not practicable, as soon as possible thereafter, each of the “Restrictive Agreements”, as defined below, shall be either (i) terminated, or (ii) amended so as to permit the Merial Venture to manufacture, sell or distribute all of the Merial Venture Products as contemplated by this Agreement without being in breach of any such Restrictive Agreement. The Merial Venture shall operate after the Closing on the basis that all of the Restrictive Agreements have been so terminated or modified on or prior to the Closing Date. The relevant Principal (RP for any Restrictive Agreement to which an RP Company or RM or any of its Subsidiaries is a party, and Merck for any Restrictive Agreement contributed by Merck to which a Merck Company is a party) shall bear all the costs related to or resulting from, and indemnify the Merial Venture for any and all Damages incurred or suffered by the Merial Venture in connection with the matters set forth in the two preceding sentences. For purposes of this Section 11.6(c), a “Restrictive Agreement” is any agreement to which an RP Company or a Merck Company (including those agreements to be contributed by Merck to the Merial Venture) or RM or its Subsidiaries is a party, and which contains restrictions which, if not terminated or amended, will be breached by Merial or any of its Subsidiaries in undertaking the Merial Venture Business activities contemplated to be undertaken by the Merial Venture as of the Closing pursuant to this Agreement. Notwithstanding the immediately preceding sentence, the Parties agree that the Stock Purchase Agreement among RM, ISA, Rhône Mérieux Diagnostics S.A.S. and Synbiotics Corporation which has been disclosed to Merck prior to the date hereof is not, and shall not be considered or treated as, a Restrictive Agreement.

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SECTION 11.7. Trademarks

     (a) On or before the Closing, Merck shall provide to RP and Merial a listing of the registered trademarks and trademark applications shown on Schedule 10.12 indicating which:

     (i) have uses outside of the field of the Animal Health Business or the Poultry Genetics Business (“Multiple Use Trademark”),

     (ii) will be held by Merck Transitory LLC and thereby contributed to Merial (“Merck Contributed Trademarks”), or

     (iii) will be assigned by Merck or its Subsidiaries to the Merial Venture (other than as contemplated in (ii) above) (“Merck Assigned Trademarks”).

     (b) Merck shall, in accordance with the terms and conditions of this Agreement, use commercially reasonable efforts to assign or cause to be assigned to Merial (or to a Merial Subsidiary agreed upon by the Principals) concurrently with the Closing all the Merck Assigned Trademarks. Merck shall be responsible for any and all costs and expenses (excluding any allocation of salaries of employees of the Merial Venture) related to the assignment to the Merial Venture of the Merck Assigned Trademarks, including all intellectual property counsel fees and expenses and registration, filing, stamp duty or other comparable duties, and shall indemnify the Merial Venture for any such costs and expenses incurred by it.

     (c) With respect to the Merck Assigned Trademarks, if any, that are not assigned to the Merial Venture concurrently with the Closing and to the Multiple Use Trademark, Merck shall grant or cause to be granted to the Merial Venture effective as of the Closing a royalty-free, exclusive in the field of the Animal Health Business, license to use such trademarks until they are assigned to the Merial Venture. Unless Merial, Merck and RP agree otherwise, (x) each Multiple Use Trademark shall be assigned to the Merial Venture upon (and subject to) its no longer being a Multiple Use Trademark, and (y) the

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parties shall use commercially reasonable efforts to cause to be assigned to the Merial Venture as soon as possible after the Closing all Merck Assigned Trademarks, if any, not assigned to the Merial Venture at the Closing.

     (d) Merck shall promptly inform Merial of any notification or claim it may receive in respect of the Merck Assigned Trademarks which have not yet been assigned to the Merial Venture and, upon the request and at the expense of Merial, take any and all actions reasonably necessary to renew, maintain, prosecute and defend any of such trademarks which have not yet been assigned to the Merial Venture.

SECTION 11.8. Information and Assistance of Principals Made Available

     Each Principal shall:

     (a) to the extent any such records are not transferred to the Merial Venture, preserve for a period ending on the third (3rd) anniversary of the Closing Date any and all accounting, product, marketing or legal records in respect of such Principal’s Merial Venture Business activities prior to the formation of the Merial Venture (provided that each Principal shall in all cases preserve all records not transferred to the Merial Venture to the extent required to be preserved by the Laws of all jurisdictions applicable to any asset contributed to the Merial Venture), and (subject to Section 11.5(c)) shall either provide access to such records to appropriate employees or agents of the Merial Venture or furnish the Merial Venture with any specific information from such records as may be reasonably requested by the Merial Venture and shall use its best efforts to cooperate fully with the Merial Venture in the case of any investigation or audit carried out by any Public Authority; and

     (b) until December 31, 1998, provide any services for the Merial Venture or furnish to the Merial Venture access to any infrastructure (including to computer systems and software) as may be necessary for the Merial Venture to continue to conduct the Merial Venture Business activities contributed by such

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Principal in a manner substantially consistent with such Principal’s (or its Subsidiaries’) provision of services or access to infrastructure or services prior to the establishment of the Merial Venture, in each case on terms and conditions no less favorable to the Merial Venture than those that could have been obtained by a non-Affiliate at arm’s length and subject to any significant concerns relating to confidentiality (which concerns the Merial Venture and such Principal shall cooperate in good faith to address without excluding the Merial Venture’s access to the relevant services or infrastructure). The Parties acknowledge that, with respect to RP, some of such services shall be provided pursuant to the RP Intragroup Agreements described in Section 11.12. Merial shall, and shall cause the Merial Venture Companies to, use commercially reasonable efforts to develop and put in place its own infrastructure and access to services independent from the Principals as soon as possible after the Closing.

SECTION 11.9. Compliance with Laws

     Merial shall (and shall cause the other Merial Venture Companies to) comply in all material respects with all Laws (x) applicable to the Merial Venture and its properties or activities, or (y) where the failure to so comply could result in either Principal or any of its Affiliates being liable or otherwise responsible for any non-compliance with or violation of any Laws by virtue of its Merial Venture Interest. In addition, Merial shall (and shall cause the other Merial Venture Companies to) establish policies and procedures which shall be designed to ensure that neither Principal nor any of its Affiliates would, due to any activities of the Merial Venture, become liable or otherwise responsible for any non-compliance with or any violation of Laws or directive of any Public Authority in respect of which such Party could be held liable or otherwise responsible by virtue of its Merial Venture Interest. In addition, Merial shall (and shall cause the other Merial Venture Companies to) comply fully with any such policies or procedures.

SECTION 11.10. Merial Venture Product Safety

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     The Parties acknowledge that, since each Principal is engaged in, among other things, the discovery and development, manufacturing, marketing and sale of pharmaceutical and biological products, the safety of Merial Venture Products may be an appropriate concern of either Principal. Accordingly, either Principal may, following consultation between the RP Animal Health Executive and the Merck Animal Health Executive, request Merial to cease (and to cause the other Merial Venture Companies to cease) the marketing and sale of any Merial Venture Product, the use of which the Principal in good faith believes poses a risk to human, animal or environmental safety. Upon receiving such request, Merial shall (and shall cause the other Merial Venture Companies to) promptly cease the manufacture, marketing and sale of the Merial Venture Product.

SECTION 11.11. Environmental Meetings

     The Parties intend to meet before the Closing to discuss the elements of environmental and safety process management programs to be established by the Merial Venture.

SECTION 11.12. Intragroup Agreements

     (a) General. RP and IM represent that all of the RP InterCo Contracts and RP InterCo Customary Arrangements (each as defined in Section 9.7 and together, the “RP Intragroup Agreements”) are on terms and conditions that are no less favorable to the Merial Venture than those that could have been obtained by a non-affiliate at arm’s length and that none of these are Restrictive Agreements (as defined in Section 11.6(c)). Merck represents that all of the agreements (i) listed on Schedule 10.22A that will survive the Closing, and (ii) that will be contributed to the Merial Venture and to which a Merck Company will be a party after the Closing (all such agreements described in (i) or (ii) being the “Merck Intragroup Agreements” and, together with the RP Intragroup Agreements, the “Intragroup Agreements”), are on terms and conditions that are no less favorable to the Merial Venture than those that could have been obtained by a non-affiliate at arm’s length and that none of these are Restrictive Agreements (as defined in

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Section 11.6(c)). Each of the RP Intragroup Agreements and each of the Merck Intragroup Agreements shall continue to be governed by its stated terms and conditions after the Closing except to the extent inconsistent with the terms and conditions of this Section 11.12, in which case the terms and conditions of this Section 11.12 shall control and govern. The Parties acknowledge and agree that the Ancillary Agreements (and the contracts, agreements or arrangements referred to in the PMSV Research Agreement) are not, and are not intended to be treated pursuant to this Section 11.12 as, Intragroup Agreements.

     (b) Each of RP and Merck agrees (and shall cause their respective Subsidiaries that are parties to Intragroup Agreements to agree) not to terminate the RP Intragroup Agreements and the Merck Intragroup Agreements, respectively, before December 31, 1998. With respect to each Intragroup Agreement, Merial, RP and Merck shall (and shall cause their respective Subsidiaries that are parties to Intragroup Agreements to) negotiate in good faith from the Closing Date until December 31, 1998 to either (i) renew such Intragroup Agreement under the same terms and conditions as those in effect on the Closing Date, (ii) amend the terms and conditions of such Intragroup Agreement, or (iii) terminate such Intragroup Agreement. If the parties to any Intragroup Agreement have not reached agreement by December 31, 1998, such Intragroup Agreement will terminate automatically as of such date.

     (c) Service Agreements. RP agrees that all of the RP Intragroup Agreements that are service agreements (which shall be part of the services to be provided to Merial in accordance with Section 11.8(b)) will be terminable after the Closing by Merial or the Subsidiary of Merial that is a party to any such agreement on one month’s (or such shorter period as may be provided by the terms thereof) advance notice of termination and without any cost to the Merial Venture (other than to pay for goods or services ordered thereunder prior to such termination). Merck agrees that all of the Merck Intragroup Agreements that are service agreements will be terminable after the Closing by Merial or the Subsidiary of Merial that is a party to any such agreement on one month’s (or such shorter period as may be provided by the terms thereof) advance notice of termination and

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without any cost to the Merial Venture (other than to pay for goods or services ordered thereunder prior to such termination).

     (d) Intragroup Toll Manufacturing Agreements and Distribution/Agency Agreements. RP agrees that all of the RP Intragroup Agreements that are toll manufacturing agreements or distribution or agency agreements will be terminable after the Closing by Merial or the Subsidiary of Merial that is a party to any such agreement on six months’ (or such shorter period as may be provided by the terms thereof) advance notice of termination and without any cost to the Merial Venture (other than to pay for goods or services ordered thereunder prior to such termination). Merck agrees that all of the Merck Intragroup Agreements that are toll manufacturing agreements or distribution or agency agreements will be terminable after the Closing by Merial or the Subsidiary of Merial that is a party to any such agreement on six months’ (or such shorter period as may be provided by the terms thereof) advance notice of termination and without any cost to the Merial Venture (other than to pay for goods or services ordered thereunder prior to such termination).

SECTION 11.13. EPA Fipronil Risk Assessment

     Until the Closing Date or the date such document is issued, RP shall (or shall cause the relevant RP Company to) diligently seek and monitor the issuance or reissuance by the U.S. Environmental Protection Agency (the “EPA”) of a document assessing the risk of the use of Fipronil in the Animal Health Business, and shall promptly inform Merck of any and all (and provide copies of any written) information or communications received from the EPA with respect to Fipronil. If the EPA has not issued or reissued a document assessing the risk of the use of Fipronil in the Animal Health Business before June 15, 1997, then RP shall (or shall cause the relevant RP Company to) arrange a meeting with the EPA (which is attended also by a Merck representative) to discuss these matters prior to the Closing. RP and RM shall use all commercially reasonable efforts to counteract or oppose any withdrawal or limitations to the conditional approval granted by the EPA to RM to use Fipronil in the Animal Health Business.

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SECTION 11.14. Rhone Merieux, Inc. Restructuring

     The Parties agree that the following steps shall be undertaken after the Closing Date and before December 31, 1997 with respect to Rhone Merieux, Inc. (“RMI”):

          (a) RP shall (or shall cause the relevant RP Company to) license Fipronil for the U.S. market to Merial (in accordance with the RP Ag License Agreement);

          (b) Merial and RMI shall enter into a manufacturing agreement for Fipronil spray, pursuant to which RMI shall manufacture on a cost-plus basis;

          (c) Merial and RMI shall enter into a research and development agreement for all non-vaccine research and development, pursuant to which RMI shall provide research and development services on a cost-plus basis;

          (d) RMI will transfer or license its U.S. product registrations to Merial;

          (e) all new equipment and other property purchases for the U.S. market shall be made by Merial;

          (f) to the extent possible under applicable collective bargaining agreements and applicable Laws, by December 31, 1997, or as soon as practicable thereafter, RMI’s sales force shall be terminated but shall receive employment offers from Merial;

          (g) vaccine patents and research and development activities shall be transferred by RMI to a new partnership, with Merial contributing cash as the other partner. RMI shall receive a preferred return equal to the product of (i) [*] as published monthly by the IRS, calculated assuming annual compounding, as in effect on the date of such transfer to the new partnership by RMI (such rate being the “[*]”), and (ii) the fair market value of its

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contribution, and then RMI and Merial shall share the residual return pari passu until RMI has obtained an internal rate of return on the fair market value of its contribution equal to [*]. Merial shall receive [*] of the residual return, i.e., the economic value remaining after RMI’s internal rate of return has reached [*].

SECTION 11.15. Fundamental Public Authority Approvals

     The appropriate Merck Companies and RP Companies shall use all commercially reasonable efforts to obtain the approvals of Public Authorities necessary for the Merck Group and the RP Group to consummate the Transactions as set forth in Schedule 11.15. However, to the extent such approvals have not been obtained on or prior to the Closing Date, the Parties shall find and give effect to a solution that will provide the Merial Venture and the Principals with the same economic benefits as if they had been obtained.

SECTION 11.16. Duration of Certain Ancillary Agreements

     RP hereby agrees with Merck that RP shall, (i) for so long as RPA is a Subsidiary of RP, cause RPA (and RP and Merck shall take all actions within their legal ability to cause Merial) to renew for the longest period enforceable under applicable Laws the RPA Research Agreement, the RPA License Agreement and the RPA Supply Agreement no later than two (2) years prior to the end of the term of each such respective agreement or of any renewal thereof, and (ii) should RP ever agree to sell or otherwise dispose of some or all of its interest in RPA or should RPA effect a transaction (collectively, a “Deconsolidation Event”) which Deconsolidation Event would result in RPA no longer being a Subsidiary of RP, to renew, prior to giving effect to any such Deconsolidation Event, the RPA Research Agreement, the RPA License Agreement and the RPA Supply Agreement, in each case for the longest period enforceable under applicable Laws. RP hereby agrees with Merck that RP shall, (i) for so long as PMSV is a Subsidiary of RP, cause PMSV (and RP and Merck shall take all actions within their legal ability to cause Merial) to renew for the longest period enforceable under applicable Laws the PMSV Research Agreement no later than two (2) years prior to the end of the term of such

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agreement or of any renewal thereof, and (ii) should there be a Deconsolidation Event with respect to PMSV which Deconsolidation Event would result in PMSV no longer being a Subsidiary of RP, to renew, prior to giving effect to any such Deconsolidation Event, the PMSV Research Agreement for the longest period enforceable under applicable Laws.

     RP shall, for so long as RPA and PMSV remain Subsidiaries of RP, indemnify and hold harmless the Merial Venture and (only to the extent Merck or any of its Subsidiaries suffer Damages separate and distinct from Damages suffered by the Merial Venture) Merck and its Subsidiaries from and against any Damages arising out of, based upon or resulting from, the termination or alleged termination of any of the RPA Ancillary Agreements referred to in this Section 11.16 or the PMSV Research Agreement by, through or on behalf of RP, RPA or PMSV or any of their respective Affiliates (or any termination by a court or other tribunal arising in any dispute or controversy between Merial, on the one hand, and any of the foregoing Persons, on the other hand, provided that Merial has not alleged to such court or other tribunal in such dispute or controversy that the duration of such Ancillary Agreement is invalid or non-enforceable under French law), as the case may be, as a result of the invalidity or the alleged invalidity or non-enforceability or alleged non-enforceability under French law of the duration of such Ancillary Agreements as provided for therein or in this Section 11.16.

     This Section 11.16 relates to the term of the Ancillary Agreements referred to in this Section 11.16 and extensions of the term thereof and does not, and is not intended to, change (x) the time periods as set forth in (i) the non-competition provisions of Section 15.1 of this Agreement or (ii) the non-competition or obligation of first offer provisions of any of such Ancillary Agreements applicable to RP or to any of its Subsidiaries, or (y) the rights of the parties to the Ancillary Agreements referred to in this Section 11.16 to terminate early or modify any such Ancillary Agreements in accordance with the provisions of such Ancillary Agreements.

SECTION 11.17. Ancillary Agreements

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     To the extent any Ancillary Agreement contemplates any actions or discussions by the Merck Animal Health Executive and/or the RP Animal Health Executive (or similar officers or representatives), Merck and RP each agrees to cause such individuals to take such actions or engage in such discussions consistently with the terms of such Ancillary Agreement (whether or not Merck or RP, as the case may be, or any of their respective Subsidiaries, is a party to such Ancillary Agreement

SECTION 11.18. Further Action

     Each of the Parties hereto shall use commercially reasonable efforts to take, or cause to be taken, all appropriate action, do or cause to be done all things necessary, proper or advisable under applicable Laws, and execute and deliver such documents and other papers, as may be required to carry out the provisions of this Agreement and the Ancillary Agreements.

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ARTICLE XII
CLOSING

SECTION 12.1. Conduct Prior to Closing

     (a) General. Prior to the Closing, each of RM and Merck hereby agrees that it shall not, and shall not cause or permit any Transferred Subsidiary or, in the case of Merck, any Merck Subsidiary engaged in Merial Venture Business activities, to take any action that will result in any violation of any covenant or cause any representation or warranty contained herein including in Sections 8.9 and 10.9, to become untrue as of the Closing Date. Without limitation of the foregoing, each of RM and Merck hereby agrees that (except as otherwise expressly contemplated by this Agreement or the applicable Ancillary Agreements, set forth in Schedule 8.9 or 10.9, as applicable, or specifically agreed to by the other in writing), from and after the date hereof and prior to the Closing:

     (i) Ordinary Course. It shall (A) carry on, or cause to be carried on, its and its Subsidiaries’ Merial Venture Business activities in the ordinary course of business in substantially the same manner as heretofore conducted, (B) operate, or cause to be operated, all of its and its Subsidiaries’ assets material to its or their Merial Venture Business activities in the ordinary course of business in substantially the same manner as heretofore operated, (C) do, or cause to be done, all things necessary to obtain, preserve, renew, extend and keep in full force and effect the rights, licenses, permits, franchises, authorizations and Proprietary Rights material to its and its Subsidiaries’ Merial Venture Business activities, (D) maintain and preserve, or cause to be maintained and preserved, all property material to the conduct of its and its Subsidiaries’ Merial Venture Business activities, (E) keep, or cause to be kept, such property in good repair, working order and condition, and from time to time make, or cause to be made, all needful and proper repairs, renewals, additions, improvements and replacements thereto necessary in order that its and its Subsidiaries’ Merial Venture Business activities may be properly conducted at all times, (F) maintain, or cause to be maintained,

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insurance with reputable insurance companies on all of its and its Subsidiaries’ assets material to its or their Merial Venture Business activities to the extent and in the manner consistent with past practice and will bear the risk of any loss to all of such assets through the Closing, and (G) use all reasonable efforts to preserve intact its present business organization, keep available the services of its present officers and employees and preserve its relationships with customers, suppliers and others having business dealings with it with respect to the Merial Venture Business; all of the foregoing, to the end that the goodwill and other assets of its and its Subsidiaries’ Merial Venture Business shall be unimpaired in any material respect at the Closing. Without limiting the generality of the foregoing, RP and Merck shall cause each of their respective Transferred Subsidiaries to comply with this subparagraph (i) with respect to the portion of the Merial Venture Businesses of the RP Group and the Merck Group, respectively, conducted by, and the portion of the assets material to the conduct of such Merial Venture Businesses owned, used or held by, such Transferred Subsidiary.

     (ii) Notice of Changes. Without limiting the effect of Section 12.6, it shall promptly advise the other Principal orally and in writing of (A) any information that indicates that any of its or its Subsidiaries’ representations or warranties contained in this Agreement was not true and correct as of the date hereof or will not be true and correct as of the Closing Date, (B) the occurrence of any event which will result, or has a reasonable prospect of resulting, in the failure to satisfy a condition specified in Section 12.6, (C) any notice or other communication from any Public Authority or Third Party alleging that the consent of such Public Authority or Third Party is or may be required in connection with the Transactions, other than any such required consents already indicated in Schedules 8.20-1 or 10.22B, and (D) any other change or event having, or which, insofar as can reasonably be foreseen, would have, a Material Adverse Change or Effect.

     (iii) Contracts. Without the consent of the other Principal, it shall not and shall not permit any of its Subsidiaries to, enter into, amend, alter, modify or

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terminate (other than in accordance with its terms) any agreement which is or would be required to be reported in Schedule 8.20-1 or 10.22B, as applicable, other than (x) with respect to any agreement with a Third Party, in the ordinary course of business consistent with past practice of RM and its Subsidiaries or the Merck Contributed Business, or (y) the Ancillary Agreements.

     (b) Business of Merial. RP and IM agree that, prior to the Closing, Merial shall not enter into any transactions or business or have any operations, assets or Liabilities except those necessary to give effect to the Transactions as contemplated by this Agreement and the Ancillary Agreements.

     (c) Satisfaction of Closing Conditions. Each Party shall use its reasonable best efforts to satisfy all conditions to the Closing on or prior to the date scheduled for the Closing (to the extent contemplated by this Agreement to be satisfied by such Party or its Affiliates) and to facilitate, consummate and give effect to the Transactions, including by preparing, executing, delivering and filing, or causing to be executed, delivered and filed, such schedules assignments, deeds, bills of sale, consents and other instruments, and taking such other actions, as shall be reasonably necessary or desirable for such purpose.

SECTION 12.2. Pre-Closing Actions

     (a) RP Pre-Closing Actions. Prior to the Closing, RP shall, at its cost and expense, (i) have caused all the obligations remboursables en actions and any warrants associated therewith (together, “ORAs” or convertible bonds) issued by RM to be repurchased and cancelled, and (ii) cause the entirety of the share capital of Rhodia Merieux Veterinaria Ltda (Brazil) that is owned by Rhodia S.A. to be repurchased by RM or a Subsidiary of RM with the effect that Rhodia Merieux Veterinaria Ltda (Brazil) shall be a (direct or indirect) wholly-owned Subsidiary of RM on the Closing Date.

     (b) Merck Pre-Closing Actions. On or before the Closing, Merck shall ensure that the agreement between Merck Foreign Sales Corp. and Hubbard Farms Inc. shall terminate.

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SECTION 12.3. Closing

     Unless otherwise agreed to in writing by the Principals, and subject to each Principal’s respective right not to consummate the Transactions until the conditions set forth in Section 12.6 have been satisfied, the closing of the Transactions, including the Closing, shall take place on the last day of the month in which the last of the approvals of Public Authorities that are conditions to Closing is obtained. The day on which the Closing takes place is referred to herein as the “Closing Date”.

SECTION 12.4. Execution and Delivery of Ancillary Agreements

     At the Closing, the Ancillary Agreements listed in Section 1.3(b) shall (if not done previously) be executed and delivered in substantially the form of each such Ancillary Agreement attached hereto as an exhibit, by or on behalf of the applicable parties thereto (and, if any such applicable party is a Subsidiary of a Principal, then such Principal shall cause such Subsidiary to so execute and deliver).

SECTION 12.5. Merial Closing Meetings

     On the Closing Date, (i) the members of Merial at such time shall hold a meeting at which they shall, in addition to the actions contemplated by Section 1.3(a)(i), appoint the members of Merial’s Board of Directors, and (ii) the Board of Directors shall hold a meeting at which they shall, among other things, appoint Coopers & Lybrand and Arthur Andersen as joint auditors to audit the consolidated financial statements of Merial for the Fiscal Years ending December 31, 1997 and December 31, 1998, approve the debt contributions, appoint the Executive Chairman, the Chief Executive Officer and the Executive Officers and take any and all such other actions as may be necessary to commence the operations of the Merial Venture. Such meetings of the Members and Board of Directors shall together be the “Closing Meetings”.

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SECTION 12.6. Conditions to Closing

     (a) The obligations of the RP Group and of the Merck Group to consummate the Transactions shall be subject to the satisfaction of each of the following conditions on or before the Closing Date:

     (i) the applicable waiting period under the HSR Act shall have expired or been terminated and the appropriate permissions or clearances shall have been obtained from the European Commission under the EU Merger Regulation;

     (ii) no action, suit or proceeding shall be pending before any court or any Public Authority and no investigation of any Public Authority shall have been commenced (and be pending) seeking to restrain, enjoin, invalidate or delay (or questioning the validity or legality of) the Transactions, or seeking material damages in connection therewith, which either Principal, in good faith and with the advice of counsel, believes will result in a Material Adverse Change or Effect with respect to such Principal or the Merial Venture; provided, however, that the Parties hereto shall use all commercially reasonable efforts to end any such action, suit, proceeding or investigation; and

     (iii) no Public Authority shall have enacted, issued, promulgated, enforced, or entered any statute, rule, regulation, injunction or other order (whether temporary, preliminary or permanent) which is in effect and has the effect of making the Transactions illegal or otherwise restraining or prohibiting the consummation of the Transactions in any material respect; provided, however, that the Parties hereto shall use all commercially reasonable efforts to comply with or have vacated any such statute, rule, regulation, injunction or other order.

     (b) The obligation of the RP Group to consummate the Transactions shall be subject to the satisfaction of each of the following conditions, or waiver thereof by RP, on or before the Closing Date:

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     (i) the representations and warranties of the Merck Group set forth in Article X shall be true and correct when made and as of the Closing Date, unless the effect of such representations and warranties not being true and correct when made or as of the Closing Date, as the case may be, does not adversely impact the value of, or does not otherwise have an adverse effect on, the Merial Venture of [*];

     (ii) each of the Merck Companies shall have complied in all material respects with all of their material obligations set forth herein and in the Ancillary Agreements to be performed by them between the date hereof and the Closing Date;

     (iii) RP shall have received a certificate signed by an executive officer of Merck certifying the matters set forth in clauses (i) and (ii);

     (iv) the agrément fiscal described in Section 11.2(b) shall have been obtained;

     (v) no information shall have been communicated by the EPA which indicates that the EPA is likely to withdraw, or impose significant limitations on, the conditional approval granted to RM to use Fipronil in the Animal Health Business; and

     (vi) no fact, event, condition or contingency shall have occurred after the date hereof, which results in a Material Adverse Change or Effect (other than changes or effects arising from or related to (x) economic, industry or competitive conditions or (y) this Agreement or the Transactions and/or (z) changes in or effects on results of operations or financial condition arising from any of the foregoing described in (x) or (y)) that adversely impacts the value of, or otherwise has an adverse effect on, the Merck Contributed Business of [*]; provided, however, that the Parties hereto shall use all commercially reasonable efforts to counteract the effect of any such fact, event, condition or contingency.

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     (c) The obligation of the Merck Group to consummate the Transactions shall be subject to the satisfaction of each of the following conditions, or waiver thereof by Merck, on or before the Closing Date:

     (i) the representations and warranties of IM and RM set forth in Article VIII and of RP set forth in Article IX shall be true and correct when made and as of the Closing Date, unless the effect of such representations and warranties not being true and correct when made or as of the Closing Date, as the case may be, does not adversely impact the value of, or does not otherwise have an adverse effect on, the Merial Venture of [*];

     (ii) each of the RP Companies shall have complied in all material respects with all of their material obligations set forth herein and in the Ancillary Agreements to be performed by them between the date hereof and the Closing Date;

     (iii) Merck shall have received a certificate signed by an executive officer of each of IM and RP certifying the matters set forth in clauses (i) and (ii) as they apply to IM and RM or to RP, respectively;

     (iv) the tax ruling from the I.R.S. described in Section 11.2(b) shall have been obtained;

     (v) no information shall have been communicated by the EPA which indicates that the EPA is likely to withdraw, or impose significant limitations on, the conditional approval granted to RM to use Fipronil in the Animal Health Business and, if required pursuant to Section 11.13 [EPA Fipronil Risk Assessment], the meeting with the EPA contemplated by the last sentence of Section 11.13 shall have occurred; and

     (vi) no fact, event, condition or contingency shall have occurred after the date hereof, which results in a Material Adverse Change or Effect (other than

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changes or effects arising from or related to (x) economic, industry or competitive conditions or (y) this Agreement or the Transactions and/or (z) changes in or effects on results of operations or financial condition arising from any of the foregoing described in (x) or (y)) that adversely impacts the value of, or otherwise has an adverse effect on, RM and its Subsidiaries taken together of [*]; provided, however, that the Parties hereto shall use all commercially reasonable efforts to counteract the effect of any such fact, event, condition or contingency.

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ARTICLE XIII

GUARANTEES OF PERFORMANCE

SECTION 13.1. Guaranty by RP

          RP hereby unconditionally and irrevocably guarantees to each of Merck (and any Subsidiary of Merck which is a party to this Agreement or any Ancillary Agreement) and the Merial Venture Companies the performance of, and compliance with, the agreements, covenants and obligations contained in this Agreement or any Ancillary Agreement: (i) of IM (and of any Subsidiary of RP that succeeds IM as Member), (ii) with respect to any covenants or obligations relating to the period prior to the Closing, of RM and its Subsidiaries, and (iii) so long it is a wholly-owned (other than directors’ qualifying and nominee shares) Subsidiary of RP, each of RP Ag and PMSV.

SECTION 13.2. Guaranty by Merck

     Merck hereby unconditionally and irrevocably guarantees to each of RP (and any Subsidiary of RP which is a party to this Agreement or any Ancillary Agreement) and the Merial Venture Companies the performance of, and compliance with, the agreements, covenants and obligations contained in this Agreement or any Ancillary Agreement (i) of Merck SH (and of any Subsidiary of Merck that succeeds Merck SH as Member), and (ii) so long as it is a wholly-owned (other that directors’ qualifying and nominee shares) Subsidiary of Merck, of each Subsidiary of Merck.

SECTION 13.3. Guaranty by Merial

     Merial hereby unconditionally and irrevocably guarantees to each Principal (and to any Subsidiary of such Principal which is a party to this Agreement or any Ancillary Agreement) the performance of, and compliance with, the agreements, covenants and obligations contained in any of the Ancillary Agreements or the Transfer Agreements of any of the Subsidiaries of Merial (including RM) that is a party to any such Ancillary Agreement or the Transfer Agreements.

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SECTION 13.4. Procedures

     (a) Definitions. The term “Guarantor” shall mean (i) Merck, with respect to any Subsidiary of Merck referred to in Section 13.2, (ii) RP, with respect to any Subsidiary of RP referred to in Section 13.1, or (iii) Merial, with respect to any Subsidiary of Merial referred to in Section 13.3. The term “Beneficiary” shall mean (i) in the case of Section 13.1, the Merial Venture Companies, Merck and any Subsidiary of Merck referred to in Section 13.1, and (ii) in the case of Section 13.2, the Merial Venture Companies and RP, and any Subsidiary of RP referred to in Section 13.2, and (iii) in the case of Section 13.3, each of the Principals and any Subsidiary of such Principal referred to in Section 13.3. The term “Guaranteed Obligations” shall mean, as to any Guarantor, all the obligations, or performances, observances or payments, now or hereafter owing, due, required, contracted or payable under or out of this Agreement or any Ancillary Agreement guaranteed by such Guarantor pursuant to this Article XIII.

     (b) Direct Action Against a Guarantor. In the event that any Subsidiary of a Guarantor shall default in the payment of or fail to perform or observe any of the Guaranteed Obligations when and as the same shall become due, any Beneficiary may proceed directly against the Guarantor under this Article XIII, subject to the dispute resolution and arbitration procedures set forth in the Ancillary Agreements and Article XVIII.

     (c) Notice; Claims, Etc. Each Guarantor hereby waives any and all notice of the creation, renewal, amendment, extension or accrual of any of the Guaranteed Obligations. Nothing contained herein shall affect (i) the right of a Guarantor to assert any claim it may have against any Beneficiary in a separate action or proceeding, or (ii) any defense (other than the bankruptcy or other insolvency of the Guarantor or its Subsidiary which is a Member), set-off or counterclaim the Guarantor or any Subsidiary of the Guarantor may have against any Beneficiary, its successors or assigns. Notwithstanding the foregoing, in the event that the Liability of any Person in respect of Guaranteed Obligations shall have been determined pursuant to the dispute resolution and arbitration procedures set forth in Article XVIII hereof, the Guarantor of such Person’s

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obligations shall not be entitled under any circumstances to invoke such procedures with regard to the same subject matter that was arbitrated in such procedures.

     (d) Remedies Not Exclusive. No remedy conferred by this Article XIII is intended to be exclusive of any other available remedy or remedies, and each and every such remedy shall, subject to Section 14.6 and Article XVIII, be cumulative and shall be in addition to every other remedy given under this Agreement or any Ancillary Agreement, now or hereafter existing at law or in equity or by statute.

SECTION 13.5. Identity of Company Entitled to Receive Payment

     (a) Where RP is liable under Section 13.1 to make a payment for a Guaranteed Obligation to any Subsidiary of Merck described in Section 13.1, the amount so payable shall be claimed by Merck as trustee for the benefit of the relevant Merck Subsidiary and the amount shall be paid to Merck on trust for the Subsidiary. The payment to Merck shall be deemed by all Parties to this Agreement to be full and good discharge of the Guarantee obligation of RP to the extent of such payment.

     (b) Where Merck is liable under Section 13.2 to make a payment for a Guaranteed Obligation to any Subsidiary of RP described in Section 13.2, the amount so payable shall be claimed by RP as trustee for the benefit of the relevant RP Subsidiary and the amount shall be paid to RP on trust for the Subsidiary. The payment to RP shall be deemed by all Parties to this Agreement to be full and good discharge of the Guarantee obligation of Merck to the extent of such payment.

     (c) Where RP or Merck is liable under Section 13.1 or 13.2, respectively, to make a payment for a Guaranteed Obligation to any Subsidiary of Merial, the amount so payable shall be claimed by Merial as trustee for the relevant Merial Subsidiary and the amount shall be paid to Merial on trust for the Subsidiary. The payment to Merial shall be deemed by all Parties to this Agreement to be full and good discharge of the Guarantee obligation of RP or Merck, as the case may be, to the extent of such payment.

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     (d) Where Merial is liable under Section 13.3 to make a payment for a Guaranteed Obligation to any Subsidiary of RP or of Merck described in Section 13.3, the amount so payable shall be claimed by RP or Merck, as the case may be, as trustee for the benefit of its relevant Subsidiary and the amount shall be paid to RP or Merck, as the case may be, on trust for the Subsidiary. The payment to RP or Merck, as the case may be, shall be deemed by all Parties to this Agreement to be full and good discharge of the Guarantee obligation of Merial to the extent of such payment.

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ARTICLE XIV

INDEMNITIES

SECTION 14.1. General Indemnity

     (a) Merck shall defend, indemnify and hold harmless the Merial Venture Companies and (only to the extent RP or any of its Subsidiaries suffer Damages separate and distinct from Damages suffered by the Merial Venture) RP and its Subsidiaries from and against any and all Damages (whether or not incurred in connection with a Third Party Claim) arising out of, based upon or resulting from (i) any inaccuracy as of the date hereof or the Closing Date of any representation, or breach of any warranty, of Merck or any of its Subsidiaries contained in Article X of this Agreement or in any of the schedules referred to therein, other than representations or warranties with respect to Taxes, or (ii) any failure by Merck or the Merck Member to comply with any of its covenants or agreements in this Agreement.

     (b) RP shall defend, indemnify and hold harmless the Merial Venture Companies and (only to the extent Merck or any of its Subsidiaries suffer Damages separate and distinct from Damages suffered by the Merial Venture) Merck and its Subsidiaries from and against any and all Damages (whether or not incurred in connection with a Third Party Claim) arising out of, based upon or resulting from (i) any inaccuracy as of the date hereof or the Closing Date of any representation, or breach of any warranty, of RP or any of its Subsidiaries contained in Article VIII or IX, as applicable, or in any of the schedules referred to therein, other than representations or warranties with respect to Taxes, or (ii) any failure by RP or the RP Member or, in the case of any covenants or obligations relating to the period up to the Closing, by RM, to comply with any of its covenants or agreements in this Agreement.

     (c) Merial shall (and shall cause the other Merial Venture Companies to) defend, indemnify and hold harmless both Principals and their respective Subsidiaries from and against any and all Damages arising out of, based upon or resulting from any

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failure by any Merial Venture Company to comply with any of its covenants or agreements in this Agreement.

     (d) The representations and warranties in this Agreement shall survive in accordance with Sections 8.23, 9.11 and 10.24. The right to indemnity under this Section 14.1 shall survive such expiration for the longest period permitted by applicable law if the Indemnified Party shall have notified the Indemnifying Party in writing of the claim for which indemnity is sought before the expiration of the applicable representation or warranty.

SECTION 14.2. Indemnities Relating to Contributed Operations and Assets

     (a) Indemnification by the Principals. Each Principal shall (subject to Section 5.1(a)(ii)(E)(2)) defend, indemnify and hold harmless each Merial Venture Company and (only to the extent a Principal or any of its Subsidiaries suffer Damages separate and distinct from Damages suffered by the Merial Venture) the other Principal and its Subsidiaries from and against any and all Damages arising out of, based upon or resulting from (x) an action or claim brought by a Third Party, or (y) an Environmental Liability, in either case to the extent arising out of, based upon or resulting from any act, omission, fact, circumstance, event or condition which occurred or existed prior to the Closing Date in connection with (i) the conduct of such Principal’s Merial Venture Business operations (or those of any of its Subsidiaries), or (ii) (A) in the case of RP, the Intellectual Property, assets and properties of RM and its Subsidiaries, and (B) in the case of Merck, the Merck Contributed Assets or the Intellectual Property, assets and properties of the Merck Transferred Subsidiaries.

     Notwithstanding the foregoing in this Section 14.2(a), no Principal shall be liable for any Damages pursuant to this Section 14.2(a):

     (xx) to the extent (not to exceed [*] for all such Damages, [*]) that such Damages are specifically reflected in Schedule 14.2A-1 in the case of Merck or 14.2A-2 in the case of RM. Schedule

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14.2A-1 or 14.2A-2, as the case may be, shall list all reserves included in the December 31, 1996 balance sheets of the Merck Contributed Business Financials or the RM Financials, respectively, and subsequently recorded until the execution of this Agreement, excluding (A) deferred tax reserves, (B) pension and benefit plan reserves and (C) reserves for current assets (including reserves for receivables or inventory). To the extent specific reserves, subject to the exceptions described above, are recorded on either Merck’s or RM’s Closing Date Balance Sheet but not listed on Schedule 14.2A-1 or 14.2A-2, as the case may be, these unscheduled reserves (not to exceed [*] for each Principal) shall be included with those reserves listed on Schedule 14.2A-1 or 14.2A-2, as the case may be, for the purpose of determining if the [*] has been exceeded (but without increasing such aggregate [*]). The first time any Party brings an indemnification claim against another Party pursuant to any of Sections 7.5(a)(ii), 7.5(b)(ii), 14.1(a)(i), 14.1(b)(i) or 14.2, the amount, if any, by which the “Excess Damages” (as defined below) is greater than the “Excess Reserves” (as defined below) shall be counted (on a dollar-for-dollar basis) toward determining if the Threshold Amount (as defined in Section 14.6(a)) has been reached, and, if and to the extent the Threshold Amount has been reached, shall be indemnifiable pursuant to said Sections. The “Excess Damages” shall equal the aggregate of the amounts, calculated on a matter by matter basis, by which the Damages that would have been indemnifiable pursuant to this Section 14.2(a) (but for this clause (xx)), exceed the respective amounts for such matters specifically reflected in Schedule 14.2A-1 or 14.2A-2 or the Closing Date Balance Sheets (subject to the [*] limitation above). The “Excess Reserves” shall equal the aggregate of the amounts, calculated on a matter by matter basis, by which the respective amounts for such matters specifically reserved in Schedule 14.2A-1 or 14.2A-2 or the Closing Date Balance Sheets (subject to the [*] limitation above), exceed the Damages actually incurred or suffered in connection with any matters reserved for therein that are finally determined or settled. If, after taking into account the difference between the Excess Damages and the Excess Reserves as described above, the Threshold Amount has not been reached, the same calculations shall be made again the next time an indemnification claim is brought;

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     (yy) incurred solely due to a change of applicable Laws after the Closing Date; or

     (zz) to the extent such Damages result from the failure of the Indemnified Party or its Affiliates to take reasonable steps to mitigate such Damages.

     The Indemnifying Party shall, in addition to any indemnification obligation it may have under this Section 14.2(a) in respect of any Damages, reimburse the Merial Venture for all costs and expenses it incurs in mitigating such Damages.

     Notice of any claim for indemnification under this Section 14.2(a) relating to (i) any Environmental Liability (including any off-site Liability other than resulting from migration from any real property directly or indirectly contributed by either Principal to the Merial Venture) must be given before the tenth (10th) anniversary of the Closing Date, except that notice of any claim for Damages relating to or arising from soil or groundwater contamination at or migrating from any real property directly or indirectly contributed by either Principal to the Merial Venture must be given before the seventh (7th) anniversary of the Closing Date; and (ii) Damages arising out of, based upon, or resulting from the design, manufacture, development, testing, use, sale, disposal, transport or otherwise with respect to a product (including Animal Health Products or Poultry Genetics Products) must be given before the tenth (10th) anniversary of the Closing Date if the Damage was suffered as a result of the death or injury of a human being and otherwise must be given before the fifth (5th) anniversary of the Closing Date. Notice of any other claim for indemnification under this Section 14.2(a) must be given before the fifth (5th) anniversary of the Closing Date. In the event notice of any claim for indemnification hereunder shall have been given (within the meaning of Section 14.7) within the time limitations specified above, the potential right to indemnification pursuant to such claim shall survive until such time as such claim is finally resolved.

     (b) Indemnification by Merial. To the extent either of the Principals or their respective Subsidiaries suffer Damages separate and distinct from Damages suffered by the Merial Venture, Merial shall (except as specified in the proviso to clause (2) of

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Section 5.1(a)(ii)(E)) defend, indemnify and hold harmless the Principals and their respective Subsidiaries from and against any and all Damages to the extent arising out of, based upon or resulting from any act, omission, fact, circumstance, event or condition which first occurs or exists after the Closing Date in connection with (i) the conduct of the Merial Venture’s operations, or (ii) the Intellectual Property, assets and properties of the Merial Venture.

     Notwithstanding the foregoing in this Section 14.2(b), Merial shall not be liable to a Principal or its Subsidiaries for any Damages pursuant to this Section 14.2(b):

     (x) to the extent that such Damages arise due to or result from (A) any breach by such Principal or any of its Subsidiaries of any of their respective representations, warranties, covenants or other agreements in this Agreement or (B) any action or omission on the part of such Principal or any of its Subsidiaries for which (and to the extent) such Principal or Subsidiary is obliged to indemnify the Merial Venture pursuant to an Ancillary Agreement to which such Principal or Subsidiary is a party (in the case of either (A) or (B), as applicable, an “RP Breach” or a “Merck Breach,” as the case may be), or

     (y) to the extent such Damages result from the failure of the Indemnified Party or its Affiliates to take all reasonable steps to mitigate such Damages.

     Merial shall, in addition to any indemnification obligation it may have under this Section 14.2(b) in respect of any Damages, reimburse the relevant Indemnified Party for all costs or expenses it incurs in mitigating such Damages.

     (c) Provisions Not Applicable to Taxes and Employee Benefit Plans True-ups. The provisions of this Section 14.2 shall not apply to any Damages relating to employee benefit plans or to Taxes, which are indemnified or the subject of a specified dividend under Article VII and Sections 14.11, 14.12 and 14.18, respectively.

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SECTION 14.3. Indemnities Relating to Ancillary Agreements

     The respective indemnification rights and obligations of the Parties to the Ancillary Agreements shall be as set forth in the Ancillary Agreements.

SECTION 14.4   Identity of Company to be Indemnified; Extension of Indemnification of Officers, Directors, Employees, Agents, Representatives, Successors and Permitted Assigns

     (a) Where either of Merck or RP is liable under any provision of this Agreement to make a payment by way of indemnification for any Tax or other Damage suffered by any Subsidiary of Merial or the Merial Venture, the amount so payable shall be claimed by Merial as trustee for the relevant Merial Subsidiary which has suffered the Tax or Damage and the amount shall be paid to Merial on trust for the Subsidiary. The payment to Merial shall be deemed by all Parties to this Agreement to be full and good discharge to such indemnification obligation to the extent of such payment.

     (b) Where either of Merck or Merial is liable under any provision of this Agreement to make a payment by way of indemnification for any Tax or other Damage suffered by any Subsidiary of RP, the amount so payable shall be claimed by RP as trustee for the relevant RP Subsidiary which has suffered the Tax or Damage and the amount shall be paid to RP on trust for the Subsidiary. The payment to RP shall be deemed by all Parties to this Agreement to be full and good discharge to such indemnification obligation to the extent of such payment.

     (c) Where either of RP or Merial is liable under any provision of this Agreement to make a payment by way of indemnification for any Tax or other Damage suffered by any Subsidiary of Merck, the amount so payable shall be claimed by Merck as trustee for the relevant Merck Subsidiary which has suffered the Tax or Damage and the amount shall be paid to Merck on trust for the Subsidiary. The payment to Merck shall be deemed by all Parties to this Agreement to be full and good discharge to such indemnification obligation to the extent of such payment.

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     (d) The obligation to indemnify any Person for any Damages under Sections 14.1 through 14.3 shall include the obligation to indemnify that Person for any Damages suffered or incurred by that Person’s officers, directors, employees, agents, representatives, successors and permitted assignees in relation to that indemnity. For the avoidance of doubt, this Section does not confer on any Person’s officers, directors, employees, agents or representatives any cause of action under this Agreement, nor shall any Person be liable to account to its or any other Person’s officers, directors, employees, agents or representatives for any such Damages.

SECTION 14.5. Tax Gross-Up

     If any Taxing Authority subjects any sum paid under any indemnification provision in this Agreement to any Taxes, then the Party making the indemnification payment shall also pay (subject to Section 14.6(d)) such additional amount as shall be required to ensure that the total amount paid, less the Tax chargeable on such amount (or that would be so chargeable but for the use or setoff of any tax relief), is equal to the amount that would otherwise be payable under the relevant indemnification provision.

SECTION 14.6. Limitations of Indemnification

     The obligations of the Parties under this Article XIV shall be subject to the following limitations:

     (a) An Indemnifying Party shall have no obligation pursuant to Sections 7.5(a)(ii), 7.5(b)(ii), 14.1(a)(i), 14.1(b)(i) or 14.2(a) unless the aggregate amount of Damages (suffered by all Merial Venture Companies and other Indemnified Parties taken collectively, but without duplication) in respect of all claims for indemnification that would otherwise be indemnifiable by such Indemnifying Party and its Affiliates under said Sections shall exceed [*] (the “Threshold Amount”) and then only to the extent such aggregate amount of Damages exceeds the Threshold Amount. With respect to any Taxes indemnifiable pursuant to Sections 14.11 and 14.12, such indemnifiable Taxes shall not be subject to the [*] Threshold

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Amount but shall be subject to a separate Threshold Amount of [*] and any Damages indemnifiable pursuant to Sections 14.11 and 14.12 shall not be taken into account in determining whether the general [*] Threshold Amount has been reached. For the purposes of this Section 14.6(a), in computing the aggregate amount of claims, the amount of each claim shall be deemed to be an amount (i) net of any net Tax Benefit actually realized by the Indemnified Party, and (ii) net of any net insurance proceeds and any indemnity, contribution or other similar payment actually recovered by the Indemnified Party from any Third Party with respect thereto.

     (b) Payments by an Indemnifying Party pursuant to this Article XIV of any particular Damages shall be limited to the amount of any Damages that remains after deducting therefrom (i) any net Tax Benefit actually realized by the Indemnified Party, and (ii) any net insurance proceeds and any indemnity, contribution or other similar payment actually recovered by the Indemnified Party from any Third Party with respect thereto. If a payment is made by the Indemnifying Party in accordance with this Article XIV, and if in a subsequent taxable year a net Tax Benefit is realized by the Indemnified Party or any such payment is recovered from any Third Party (that was not previously taken into account to reduce an amount otherwise payable by the Indemnifying Party under this Article XIV), the Indemnified Party shall pay to the Indemnifying Party at the time of such realization or recovery the amount of such net Tax Benefit (to the extent that the Tax Benefit would have resulted in a reduction in the amount paid by the Indemnifying Party under Section 14.6 if the Tax Benefit had been obtained in the year of such payment) or of such payment actually recovered from such Third Party, as the case may be. A Tax Benefit will be considered to be realized for purposes of this Section 14.6 and Section 14.15(f) at the time that it is reflected on a Tax return of the Indemnified Party or any consolidated tax group to which such Indemnified Party belongs in the form of a refund, credit or reduction of Taxes otherwise due and payable.

     (c) Notwithstanding anything to the contrary contained in this Agreement, no Party shall have any Liability under any provision of this Agreement for any consequential loss damages or for punitive or penalty damages except (i) with respect to consequential loss damages, to the extent (A) the value of a Principal’s interest in the

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Merial Venture (consistent with the values contemplated by the Principals on the date of this Agreement) is diminished as a result of an inaccuracy of a representation or a breach of a warranty, covenant or agreement for which the other Principal has or would have indemnification obligations pursuant to Section 14.1 or as a result of a claim based on an Environmental Liability for which the other Principal has or would have indemnification obligations pursuant to Section 14.2 and (B) the Principal claiming indemnification for such consequential loss damages has not been and will not be compensated by application of Section 6.4 [Early Year Adjustment] or Section 6.5 [Band Adjustment], and (ii) with respect to either punitive or penalty damages or consequential loss damages, to the extent such damages result from a final decision or settlement of an Action or claim of a Third Party against the Indemnified Party. Each Party shall take all reasonable steps to mitigate its Damages upon and after becoming aware of any event which could reasonably be expected to give rise to any Damages indemnifiable under this Agreement.

     (d) Anything to the contrary herein notwithstanding, no Indemnified Party shall be entitled to recover an aggregate amount under the indemnities or under the guarantees set forth in this Agreement with respect to any particular matter that results in duplicative compensation for the same Damages.

SECTION 14.7. Indemnification Procedures

     All claims for indemnification under this Agreement (other than claims made pursuant to Sections 14.11, 14.12 and 14.18 with respect to Taxes, procedures with respect to which are provided therein and in Section 14.17) shall be asserted and resolved as follows:

     (a) A Principal or a Subsidiary thereof or a Merial Venture Company claiming indemnification under this Agreement (the “Indemnified Party”) shall promptly notify in writing the Person from whom indemnification is sought (the “Indemnifying Party”) of any Third Party claim or claims (“Third Party Claim”) asserted or threatened against the Indemnified Party which could give rise to a right of indemnification under this Agreement; provided, however, that the failure to give such notice shall not relieve the

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Indemnifying Party of its indemnity obligation hereunder except to the extent that such failure substantially prejudices its rights hereunder, and provided further that in the event that (i) any member of the RP Group is the Indemnifying Party, the Merck Companies and Merial Venture Companies shall be deemed to satisfy such notice obligation by giving such notice to RP, and (ii) any member of the Merck Group is the Indemnifying Party, the RP Companies and Merial Venture Companies shall be deemed to satisfy such notice obligation by giving such notice to Merck. The Indemnifying Party shall have the right to defend, at its sole cost and expense, such Third Party Claim by all appropriate proceedings, which proceedings shall be prosecuted diligently by the Indemnifying Party to a final conclusion or compromised or settled at the discretion of the Indemnifying Party; provided, however, that the Indemnifying Party may not enter into any such compromise or settlement which involves equitable relief against the Indemnified Party unless the Indemnified Party consents thereto, which consent shall not be unreasonably withheld; and provided further that the Indemnifying Party may not enter into any such compromise or settlement that does not include as an unconditional term thereof, the giving by each claimant or plaintiff to each Indemnified Party of a release from all Liability in respect of such claim. If requested by the Indemnifying Party, the Indemnified Party agrees, at the sole cost and expense of the Indemnifying Party (excluding costs and expenses not owed to Third Parties by the Indemnified Party), to cooperate with the Indemnifying Party and its counsel in contesting any Third Party Claim which the Indemnifying Party elects to contest, including the making of any related counterclaim against the person asserting the Third Party Claim or any cross-complaint against any person. The Indemnified Party may participate in, but not control, any defense or settlement of any Third Party Claim controlled by the Indemnifying Party pursuant to this Section 14.7 and shall bear its own costs and expenses with respect to such participation; provided, however, that the Indemnifying Party shall bear such costs and expenses if counsel for the Indemnifying Party shall have reasonably determined that such counsel may not properly represent both the Indemnified and Indemnifying Parties.

     If the Indemnifying Party fails to notify the Indemnified Party within twenty (20) days after receipt of notice in accordance with the first sentence of this Section 14.7(a) that the Indemnifying Party elects to defend the Indemnified Party pursuant to this

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Section 14.7(a), or if the Indemnifying Party elects to defend the Indemnified Party pursuant to this Section but fails to prosecute or settle the Third Party Claim diligently and promptly, then the Indemnified Party shall have the right to defend, at the sole cost and expense of the Indemnifying Party, the Third Party Claim by all appropriate proceedings, which proceedings shall be promptly and vigorously prosecuted by the Indemnified Party to a final conclusion or settled; provided, however, that in no event shall an Indemnifying Party be required to indemnify an Indemnified Party for any amount paid or payable by such Indemnified Party in the settlement of any such Third Party Claim agreed to without the consent of the Indemnifying Party (which shall not be unreasonably withheld or delayed, it being understood that a timely notification disputing an Indemnity Notice under Section 14.7(b) shall constitute a reasonable basis for withholding consent).

     (b) In the event any Indemnified Party has a claim for indemnification by any Indemnifying Party hereunder which does not involve a Third Party Claim, or knowledge of facts which could reasonably be expected to give rise to such a claim, the Indemnified Party shall transmit to the Indemnifying Party a written notice (an “Indemnity Notice”) describing in reasonable detail the nature of the claim, an estimate, if reasonably possible, of the amount of Damages attributable to such claim and the basis of the Indemnified Party’s claim for indemnification under this Agreement, provided that the failure to give such notice shall not relieve the Indemnifying Party of its indemnity obligations hereunder except to the extent that such failure substantially prejudices its right hereunder. Any notice by an Indemnified Party of an asserted or threatened Third Party Claim given pursuant to Section 14.7(a) shall also constitute an Indemnity Notice for the purposes of this Section 14.7(b) and of Section 18.1. If the Indemnifying Party does not notify the Indemnified Party within sixty (60) days from its receipt of the Indemnity Notice that the Indemnifying Party disputes such claim, the claim specified by the Indemnified Party in the Indemnity Notice shall be deemed a Liability of the Indemnifying Party hereunder. If the Indemnifying Party has timely disputed such claim, as provided above, such dispute shall be resolved in accordance with Article XVIII of this Agreement.

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     (c) Notwithstanding any other provisions contained in this Agreement, each of the Parties hereby irrevocably consents to the right and ability of either Principal to (i) bring a claim on behalf of any Merial Venture Company against the other Principal or any of its Subsidiaries, or (ii) represent Merial in defending against any claim brought by the other Principal or any of its Subsidiaries against Merial, it being understood that, should either Principal bring a claim on behalf of a Merial Venture Company, any amounts recovered by the Principal shall be for the account of the Merial Venture Company.

     (d) The Parties expressly acknowledge and agree that any and all disputes between the Parties with respect to claims for indemnification under this Article XIV shall, whether or not the procedures for such claims are otherwise governed by this Section 14.7, be resolved in accordance with the provisions of Article XVIII.

SECTION 14.8. [Intentionally Deleted]

SECTION 14.9. Receipt of Information, Etc.

     The obligations of the Principals and Merial under this Article XIV shall not in any way be affected by any investigation by or on behalf of any of the Principals, Merial or any of their respective Subsidiaries or by any information which any of the foregoing may have obtained with respect thereto, in each case whether prior or subsequent to the Closing Date.

SECTION 14.10. Subrogation

     In the event that either of the Principals or Merial shall be an Indemnifying Party pursuant to this Agreement with respect to a Third Party Claim, it shall, upon payment in full of its indemnification obligation hereunder arising with respect to such Third Party Claim, be subrogated to all rights of the Indemnified Party as against the Third Party with respect to the claims to which such indemnification relates.

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SECTION 14.11. Tax Indemnity by RP

     (a) Subject to sections 14.11(b) and 14.17(a), RP shall be liable for, and shall indemnify and hold harmless the Merial Venture Companies from and against:

     (i) (A) any and all Income Taxes of the RM Transferred Subsidiaries to the extent such Income Taxes are paid or become payable on or after the Closing but represent liabilities in respect of the Pre-Closing Tax Period, (B) any and all Income Taxes of the RM Transferred Subsidiaries for a Straddle Period apportioned to RP pursuant to Section 14.13, and (C) any Other Taxes of the RM Transferred Subsidiaries with respect to any of (1) a Pre-Closing Tax Period, (2) a Straddle Period, limited (X) in the case of sales, transfer, excise, withholding, value added, gross receipts and any other taxes levied on transfers or transactions, to Tax Liabilities accruing with respect to transfers or transactions occurring on or before the time of Closing, and (Y) in the case of any Other Taxes not otherwise enumerated, to Tax Liabilities attributable, on a days-elapsed basis, to the portion of such Straddle Period ending on the Closing Date, or (3) in the case of Other Taxes which are not reported on a periodic basis, any such Other Taxes attributable to transactions occurring prior to the Closing.

     (ii) any and all Taxes assessed or imposed by any Taxing Authority against the RM Transferred Subsidiaries (including the assets of any such Subsidiaries) and properly attributable to any RP Company that is not an RM Transferred Subsidiary.

     (iii) any and all property Taxes of or assessed against the RM Transferred Subsidiaries (including the assets of any such Subsidiaries) and properly attributable (on a days-elapsed basis) to periods prior to the Closing. To the extent such property Taxes have been paid by RP prior to the Closing Date with respect to the current fiscal period, RP’s Liability with respect thereto shall be reduced by such amount; provided, however, that if such payment of property Taxes exceeds the property Tax Liability RP is responsible for pursuant to this

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Section 14.11 with respect to the current fiscal period, RP’s Liability with respect thereto shall be reduced by such amount, and Merial shall pay RP the amount of such excess promptly upon receipt of a Tax refund, credit, or reduction of the amount of such Taxes otherwise paid or required to be paid by the Merial Venture.

     The Taxes described in clauses (i), (ii) and (iii) above shall each be an “RM Pre-Closing Tax”, and shall together be the “RM Pre-Closing Taxes”. For the avoidance of doubt, RM Pre-Closing Taxes shall not include any deferred Taxes, except to the extent payments are actually required to be made by a Merial Venture Company for RM deferred Taxes arising prior to the Closing.

     (b) RP’s indemnification obligation in favor of the Merial Venture under this Section 14.11 shall apply to the RM Pre-Closing Taxes paid or payable on or after the Closing, to the extent such Taxes exceed the RM Accrued Current Tax Liabilities. Each indemnity required under this Section 14.11 shall be made by RP to Merial (in accordance with Section 14.4) prior to or on the later of ten (10) days after Merial’s request therefor and five (5) days prior to the date on which the related Tax is due. Upon receiving Merial’s request for any such indemnification, RP shall have the right, at its cost and expense, to challenge the assessment or imposition of the Tax before the appropriate Taxing Authority or Public Authority, and in such case Merial shall, and shall procure that the Merial Venture Companies shall cooperate with any reasonable request by RP for assistance or information necessary to such challenge, including as may be necessary to permit RP to bring the challenge in the appropriate Merial Venture Company’s name.

SECTION 14.12. Tax Indemnity by Merck

     (a) Subject to Sections 14.12(b) and 14.17(a), Merck shall be liable for, and shall indemnify and hold harmless the Merial Venture Companies from and against:

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     (i) (A) any and all Income Taxes of the Merck Transferred Subsidiaries or any and all Income Taxes imposed on or with respect to, or otherwise related to, the Merck Contributed Assets, in each case to the extent such Income Taxes are paid or become payable on or after the Closing but represent liabilities in respect of the Pre-Closing Tax Period, (B) any and all Income Taxes of the Merck Transferred Subsidiaries or any and all Income Taxes imposed on or with respect to, or otherwise related to, the Merck Contributed Assets, for a Straddle Period apportioned to Merck pursuant to Section 14.13, and (C) any Other Taxes of the Merck Transferred Subsidiaries or any and all Other Taxes imposed on or with respect to, or otherwise related to, the Merck Contributed Assets, with respect to any of (1) a Pre-Closing Tax Period, (2) a Straddle Period, limited (X) in the case of sales, transfer, excise, withholding, value added, gross receipts and any other taxes levied on transfers or transactions, to Tax Liabilities accruing with respect to transfers or transactions occurring on or before the time of Closing (or, with respect to assets transferred after the Closing, on or before the time of transfer), and (Y) in the case of any Other Taxes not otherwise enumerated, to Tax Liabilities attributable, on a days-elapsed basis, to the portion of such Straddle Period ending on the Closing Date, or (3) in the case of Other Taxes which are not reported on a periodic basis, any such Other Taxes attributable to transactions occurring prior to the Closing.

     (ii) any and all Taxes assessed or imposed by any Taxing Authority against the Merck Transferred Subsidiaries or Merck Contributed Assets and properly attributable to any Merck Company that is not a Merck Transferred Subsidiary.

     (iii) any and all property Taxes assessed against the Merck Transferred Subsidiaries or assessed against any other Merial Venture Companies in respect of Merck Contributed Assets and properly attributable (on a days-elapsed basis) to periods prior to the Closing. To the extent such property Taxes have been paid by Merck prior to the Closing Date with respect to the current fiscal period, Merck’s Liability with respect thereto shall be reduced by such amount; provided, however,

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that if such payment of property Taxes exceeds the property Tax Liability Merck is responsible for pursuant to this Section 14.12 with respect to the current fiscal period, Merck’s Liability with respect thereto shall be reduced by such amount, and Merial shall pay Merck the amount of such excess promptly upon receipt of a Tax refund, credit, or reduction of the amount of such Taxes otherwise paid or required to be paid by the Merial Venture.

     The Taxes described in clauses (i), (ii) and (iii) above shall each be a “Merck Pre-Closing Tax”, and shall together be the “Merck Pre-Closing Taxes”. For the avoidance of doubt, Merck Pre-Closing Taxes shall not include any deferred Taxes, except to the extent payments are actually required to be made by a Merial Venture Company for Merck deferred Taxes arising prior to the Closing.

     (b) Merck’s indemnification obligation in favor of the Merial Venture under this Section 14.12 shall apply to the Merck Pre-Closing Taxes paid or payable on or after the Closing, to the extent such Taxes exceed the Merck Accrued Current Tax Liabilities. Each indemnity required under this Section 14.12 shall be made by Merck to Merial (in accordance with Section 14.4) prior to or on the later of ten (10) days after Merial’s request therefor and five (5) days prior to the date on which the related Tax is due. Upon receiving Merial’s request for any such indemnification, Merck shall have the right, at its cost and expense, to challenge the assessment or imposition of the Tax before the appropriate Taxing Authority or Public Authority, and in such case Merial shall, and shall procure that the Merial Venture Companies shall cooperate with any reasonable request by Merck for assistance or information necessary to such challenge, including as may be necessary to permit Merck to bring the challenge in the appropriate Merial Venture Company’s name.

SECTION 14.13. Allocation of Certain Income Taxes

     Any Income Taxes of the Merial Venture attributable to a Straddle Period shall be apportioned between (a) RP and Merck, on the one hand, based on the actual operations and transactions of or involving (i) the RM Transferred Subsidiaries or the assets of any

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such Subsidiaries and (ii) the Merck Transferred Subsidiaries or the Merck Contributed Assets, respectively, during the portion of such period ending on the Closing Date, and (b) the respective Merial Venture Companies, on the other hand, based on each of such company’s actual operations and transactions during the portion of such period beginning on the day following the Closing Date; provided, however, that to the extent estimated Income Taxes have been paid prior to the Closing Date with respect to a Straddle Period by either RP or Merck, their respective Liability with respect thereto shall be reduced by that amount.

SECTION 14.14. Filing Responsibility

     (a) RP shall timely prepare and file, or cause to be timely prepared and filed, all Returns of the RM Transferred Subsidiaries (i) for all Pre-Closing Tax Periods or (ii) required to be filed on or prior to the Closing Date, taking into account extensions of the time to file, and timely pay, or cause to be paid, when due, all Taxes relating to such Returns. Such Returns shall be prepared or completed in a manner consistent with prior practice of such Transferred Subsidiaries concerning their respective income, properties or operations (including elections and accounting methods and conventions), except as determined in RP’s good faith reasonable judgment as otherwise required by law or regulation, or otherwise agreed to by Merck prior to the filing thereof. Prior to the filing of any Return described in this Section 14.14(a) that was not filed before the Closing Date, RP shall provide, or cause to be provided, to Merck a substantially final draft of such Return at least fifteen (15) Business Days prior to the due date for filing such Return, and Merck shall have the right to review such Return prior to the filing of such Return. Merck shall notify RP at least eight (8) Business Days prior to such due date for filing of any reasonable objections Merck may have to any items set forth in such draft Return which (i) are inconsistent with prior practice, (ii) would have a Material Adverse Effect or (iii) are contrary to law or regulation, and Merck and RP agree to consult and resolve in good faith any such objection and to mutually consent to the filing of such Return.

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     (b) Merck shall timely prepare and file, or cause to be timely prepared and filed, all Returns of the Merck Transferred Subsidiaries (i) for all Pre-Closing Tax Periods or (ii) required to be filed on or prior to the Closing Date, taking into account extensions of the time to file, and timely pay, or cause to be paid, when due, all Taxes relating to such Returns. Such Returns shall be prepared or completed in a manner consistent with prior practice of such Transferred Subsidiaries concerning their respective income, properties or operations (including elections and accounting methods and conventions), except as determined in Merck’s good faith reasonable judgment as otherwise required by law or regulation, or otherwise agreed to by RP prior to the filing thereof. Prior to the filing of any Return described in this Section 14.14(b) that was not filed before the Closing Date, Merck shall provide, or cause to be provided, to RP a substantially final draft of such Return at least fifteen (15) Business Days prior to the due date for filing such Return, and RP shall have the right to review such Return prior to the filing of such Return. RP shall notify Merck at least eight (8) Business Days prior to such due date for filing of any reasonable objections RP may have to any items set forth in such draft Return which (i) are inconsistent with prior practice, (ii) would have a Material Adverse Effect or (iii) are contrary to law or regulation, and RP and Merck agree to consult and resolve in good faith any such objection and to mutually consent to the filing of such Return.

     (c) Merial shall prepare and file, or cause to be prepared and filed, subject to RP’s and Merck’s review and approval (which approval shall not be unreasonably withheld), all Returns for a Straddle Period relating to each of the Transferred Subsidiaries not otherwise required to be filed by RP or Merck pursuant to Section 14.14(a) or (b).

SECTION 14.15. Refunds and Carrybacks

     (a) RP (or any other RP Company designated by RP) shall be entitled to any refunds of Income Taxes paid by or on behalf of the RM Transferred Subsidiaries (including refunds paid by means of a credit against other or future Tax Liabilities) arising with respect to Pre-Closing Tax Periods.

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     (b) Merck (or any other Merck Company designated by Merck) shall be entitled to any refunds of Income Taxes paid by or on behalf of the Merck Transferred Subsidiaries (including refunds paid by means of a credit against other or future Tax Liabilities) arising with respect to Pre-Closing Tax Periods.

     (c) Refunds of Income Taxes received by the Merial Venture, RP or Merck or their respective Subsidiaries (including refunds paid by means of a credit against other or future Tax Liabilities) arising with respect to Straddle Periods shall be allocated to whichever of RP or Merck (or their respective Subsidiaries) or the Merial Venture Companies initially bore the items to which such refund is attributable.

     (d) Merial shall promptly forward, or cause to be forwarded, to RP, or reimburse, or cause to be reimbursed to, RP, any refunds due RP (pursuant to the terms of this Section 14.15) after receipt thereof. Merial shall promptly forward, or cause to be forwarded, to Merck, or reimburse, or cause to be reimbursed to, Merck, any refunds due Merck (pursuant to the terms of this Section 14.15) after receipt thereof. In the case of a refund received in the form of a credit against other or future Tax Liabilities, reimbursement in respect of such refund shall be due in each case on the due date for payment of the Taxes against which such refund has been credited.

     (e) Merial agrees that the RM Transferred Subsidiaries and the Merck Transferred Subsidiaries shall not carry back any item of loss, deduction or credit which arises in any taxable period ending after the Closing Date (“Subsequent Loss”) into any taxable period beginning before the Closing Date, except as required by law. If an RM Transferred Subsidiary or a Merck Transferred Subsidiary carries back any Subsequent Loss into any taxable period beginning before the Closing Date in compliance with the immediately preceding sentence, the Merial Venture shall be entitled to any Tax Benefit or refund of Taxes actually realized as a result thereof.

     (f) If, as a result of the Merial Venture’s participation in the CFM Agreement, the Merial Venture actually realizes a Tax Benefit and the RP Group is actually deprived of a Tax Benefit or its Tax costs increase as a result of the Merial Venture realizing such

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Tax Benefit, Merial shall take such action as may be necessary (including the payment of any monetary amount resulting from the realization of such Tax Benefit) to provide such Tax Benefit to RP (or a Subsidiary of RP designated by RP) but only to the extent the RP Group is actually deprived of a Tax Benefit or its Tax costs increase as a result of the Merial Venture realizing such Tax Benefit.

SECTION 14.16. Tax Cooperation

     After the Closing, (a) RP and Merck shall make available to the Merial Venture and (b) the Merial Venture shall make available to RP and Merck, in each case as reasonably requested, and to any appropriate Taxing Authority, all information, records and documents relating to Tax Liabilities or potential Tax Liabilities of the RM Transferred Subsidiaries and the Merck Transferred Subsidiaries, as relevant, for any Tax period and shall preserve all such information, records and documents until the expiration of any applicable statute of limitations or extension thereof. The Merial Venture shall prepare and provide to RP or Merck, as the case may be, such Tax information packages as such parties shall reasonably request for their respective use in preparing any Return that relates to the RM Transferred Subsidiaries or the Merck Transferred Subsidiaries, as the case may be. Such Tax information packages shall be completed by the Merial Venture and provided to RP or Merck, as the case may be, within 60 days after RP’s or Merck’s request therefor.

SECTION 14.17. Time Limits for Tax Indemnity; Tax Audits

     (a) In the case of Taxes indemnifiable pursuant to Sections 14.11 or 14.12, the indemnifying Party shall not be obligated to provide indemnity for any claim with respect to any Tax first asserted by or on behalf of an indemnified Party after the fifteenth (15th) anniversary of the Closing Date, unless the indemnifying Party received notice of the existence of a claim with respect to such Tax prior to the 15th anniversary of the Closing Date, in which case the obligation to provide indemnity with respect to the Tax shall survive forever, subject to applicable statutes of limitations. For purposes of the preceding sentence, (i) a “claim” means any (x) legally enforceable deficiency or (y)

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deficiency asserted or assessed, orally or in writing, by any Taxing Authority, whether or not legally enforceable, and (ii) “notice” means any (x) written notice from a Taxing Authority or the Merial Venture or (y) oral advice from a Taxing Authority or the Merial Venture received by any employee, agent or representative of the RP Group or the Merck Group, as the case may be, whose duties relate to Taxes which may be indemnifiable hereunder.

     (b) Merial shall promptly notify RP or Merck, as the case may be, in writing upon receipt by any Merial Venture Company of notice of any pending or threatened Tax Matter which may affect the Tax Liabilities for which RP or Merck, as the case may be, would be liable under Sections 14.11 and 14.12 hereunder, respectively; provided, however, that the failure to give such notice shall not relieve the indemnifying Party of its indemnification obligation hereunder except to the extent that such failure substantially prejudices its rights hereunder. RP or Merck, as the case may be, shall have the sole right to represent its own interests and any relevant Transferred Subsidiary’s interests in any Tax Matter involving a Tax Liability or potential Tax Liability for which RP or Merck, as the case may be, would be solely liable under Sections 14.11 and 14.12 hereunder, respectively, and to employ counsel of its choice at its expense. Merial agrees that it will (and will cause its Subsidiaries to) cooperate fully with RP or Merck, as the case may be, and their respective counsel, in the defense or compromise of any such Tax Matter. All other Tax Matters shall be controlled by Merial; provided, however, that RP and Merck shall have the right to participate at their own expense in any Tax Matter which relates to a Straddle Period and involves a Tax Liability or potential Tax Liability for which RP or Merck, as the case may be, would be liable under Sections 14.11 and 14.12 hereunder, respectively, and no such Tax Matter shall be settled without the consent of RP or Merck, as the case may be, which consent shall not be unreasonably withheld.

SECTION 14.18. Tax Sharing

     Other than the CFM Agreement (which shall continue in effect after the Closing Date but without any obligation on the part of any Merial Venture Company to make any

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compensatory payments thereunder, other than any payments pursuant to Section 14.15(f)), any and all existing Tax sharing, allocation, compensation or like agreements or arrangements, whether or not written, that include the Transferred Subsidiaries, including, without limitation, any arrangement by which the Transferred Subsidiaries make compensating payments to any member of any affiliated, consolidated, combined, unitary or other similar Tax group for the use of certain Tax attributes, shall be terminated as of the Closing Date (pursuant to a writing executed on or before the Closing Date by all parties concerned) and shall have no further force or effect. With respect to the CFM Agreement, RP shall be liable for and shall indemnify and hold harmless the Merck Group and the Merial Venture from and against any and all Taxes assessed against any member of the Merck Group or any Merial Venture Company which would not have been payable but for the participation of Merial or any Merial Venture Company in the CFM Agreement (and any other Damages suffered as a result of the assessment of any such Taxes). Any and all powers of attorney relating to Tax Matters concerning the Transferred Subsidiaries (other than such matters relating solely to a Pre-Closing Tax Period but only to the extent RP or Merck, as the case may be, is liable therefor under Sections 14.11 and 14.12 hereunder, respectively) shall be terminated as to the Transferred Subsidiaries on or prior to the Closing Date and shall have no further force or effect.

SECTION 14.19. Tax Reserves Adjustments

     (a) Merck Tax Reserves Adjustment. The Merck Member shall have an entitlement (the “Merck Section 14.19 Entitlement”) equal to the amount, if any, by which the Merck Accrued Current Tax Liabilities exceed the aggregate of all Merck Pre-Closing Taxes actually paid by the Merial Venture on or prior to the date on which the Net Special Dividend in respect of the year 1998 is calculated. If the Merial Venture expects to have to pay any such Taxes after such date, the Merck Pre-Closing Taxes used for the purposes of calculating the Merck Section 14.19 Entitlement shall be increased by the amount the Merial Venture would accrue for the payment of such Taxes based on its accounting principles and practices consistently applied.

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     (b) RP Tax Reserves Adjustment. The RP Member shall have an entitlement (the “RP Section 14.19 Entitlement”) equal to the amount, if any, by which the RM Accrued Current Tax Liabilities exceed the aggregate of all RM Pre-Closing Taxes actually paid by the Merial Venture on or prior to the date on which the Net Special Dividend in respect of the year 1998 is calculated. If the Merial Venture expects to have to pay any such Taxes after such date, the RM Pre-Closing Taxes used for the purposes of calculating the RP Section 14.19 Entitlement shall be increased by the amount the Merial Venture would accrue for the payment of such Taxes based on its accounting principles and practices consistently applied.

     (c) Tax Reserves Adjustment Special Dividend. The “Tax Reserves Adjustment Special Dividend” shall be equal to the difference between the respective Section 14.19 Entitlements of the Principals, if any, as calculated pursuant to Sections 14.19(a) and (b) above. The Tax Reserves Adjustment Special Dividend shall be credited to the RP Member if the RP Section 14.19 Entitlement is greater than the Merck Section 14.19 Entitlement, or credited to the Merck Member if the Merck Section 14.19 Entitlement is greater than the RP Section 14.19 Entitlement, in calculating the Net Special Dividend in respect of the 1998 Fiscal Year pursuant to Section 6.2.

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ARTICLE XV
NON-COMPETITION

SECTION 15.1. Merial Venture Business

[*]  [Note: Approximately two and one-half pages of text are omitted.]

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SECTION 15.2. Non-Solicitation of Merial Venture Employees

     During the Non-Solicitation Period (as hereinafter defined), each Principal will not without the express written consent of Merial (and will cause its Subsidiaries not to), directly or indirectly, solicit any employee of the Merial Venture Companies: (x) to leave such employ or (y) to accept any other position or employment, or assist any Third Party in hiring such employee; provided, however, that (A) an employee of the Merial Venture Companies who is terminated by all such Merial Venture Companies shall be eligible thereafter to be offered employment by either Principal or any of its Subsidiaries; and (B) an employee of the Merial Venture who will no longer be employed by the Merial Venture (or any successor) due to the Dissolution of the Merial Venture shall be eligible to be offered employment by either Principal or any of its Subsidiaries at any time following the Dissolution Date. The Parties acknowledge and agree that, during the Non-Solicitation Period, neither Principal nor any Subsidiary thereof shall offer employment to an employee of the Merial Venture Companies (or a former employee of a Merial Venture Company who resigned after the Closing Date) without the prior written consent of the other Principal (which shall not be unreasonably withheld or delayed). For purposes of this Section 15.2, the “Non-Solicitation Period” with respect to a Principal

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shall mean the period beginning on the Closing Date and ending on the date that is [*] after the Closing Date.

SECTION 15.3. Modification of Non-Competition Provisions

     Each Principal acknowledges and agrees (and agrees not to dispute) that each of the restrictions set forth in Sections 15.1 and 15.2 constitutes an entirely separate and independent restriction and that the duration, extent and application of each restriction are no greater than is reasonable and necessary for the protection of the respective interests of the Principals but that, if any such restriction shall be adjudged by any Public Authority of competent jurisdiction to be void or unenforceable but would be valid if part of the wording thereof were to be deleted and/or the period thereof were to be reduced and/or the geographic and/or subject matter scope thereof were to be reduced, the said restriction shall apply within the jurisdiction of that Public Authority with such modifications as are necessary to make it valid and effective.

SECTION 15.4. Arrangements with Banyu

     Merck and RP agree that (i) Merck shall be entitled to all the benefits and detriments of that certain letter dated October 18, 1996 between Banyu and Merck and any other agreements, arrangements or understandings between Merck and Banyu (and their respective Affiliates) (collectively, the “Banyu Arrangements”), and (ii) Merck shall treat any molecules or compounds for which Merck (or its Subsidiaries) exercises an option and thereby obtains rights pursuant to the Banyu Arrangements with utility within the Field of the Animal Health or Poultry Genetics Businesses as if they were invented within Merck (outside of Animal Basic Research) under (and as defined in) the Merck Research Agreement and subject to the terms and conditions of the Merck Research Agreement.

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ARTICLE XVI
TERMINATION

SECTION 16.1. Termination Prior to Closing

     (a) Either Principal may cause the termination of this Agreement prior to the Closing by giving written notice of termination to the other Principal in case of the occurrence of any of the following events:

     (i) the Closing shall not have occurred on or prior to December 31, 1997 for any reason whatsoever, other than such Principal’s (or one of its Subsidiaries’) breach of or failure to perform or comply with any agreement or provision hereof to be performed or complied with by such Principal or such Subsidiary on or prior to the Closing Date;

     (ii) any Event of Insolvency affecting the Member of the other Group or any person of which such Member is a direct or indirect Subsidiary;

     (iii) a refusal to authorize the proposed Merial Venture by the European Commission or by any other competent Public Authority, which refusal would result in a failure to satisfy a condition to the obligation of the Principal wishing to cause the termination of this Agreement to consummate the Transactions pursuant to Section 12.6; or

     (iv) a court of competent jurisdiction in the United States, France or the United Kingdom shall have decreed, issued or entered an injunction or other order which has the effect of making the Transactions illegal or otherwise restraining or prohibiting the consummation of the Transactions in any material respect and such injunction or other order is or becomes final and non-appealable.

     (b) This Agreement may be terminated at any time prior to Closing upon the mutual agreement of the Principals to do so.

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SECTION 16.2. Duration

     Subject to any termination pursuant to this Article XVI, the duration of the Merial Venture shall be perpetual.

SECTION 16.3. Termination Following Event of Insolvency, Material Breach or Change of Control

     (a) This Agreement may be terminated and the Merial Venture Dissolved according to the provisions of this Section 16.3 upon the occurrence of any of the following events:

     (i) Any Event of Insolvency affecting a Member or any person of which a Member is a direct or indirect Subsidiary. In any such event, the Principal of such Member’s Group shall immediately notify the other Principal in writing of the occurrence of such Event of Insolvency. Whether or not such other Principal has received such notification, the other Principal shall, as of the occurrence of such Event of Insolvency, have the rights of a Calling Principal governed by the terms of Section 16.3(b) below).

     (ii) The election by the non-breaching Principal (the “Non-Breaching Principal”), to terminate this Agreement and Dissolve the Merial Venture, following the occurrence of a “Breach Termination Event”, as defined in the next sentence. A “Breach Termination Event” shall be deemed to have occurred if (A) the other Principal or any Subsidiary thereof (the Group of such other Principal or Subsidiary being the “Breaching Group”) breaches or fails to comply with any of its material covenants, agreements and obligations (including representations and warranties) under this Agreement or any Ancillary Agreement in any material respect, (B) such breach has a Material Adverse Effect on the Merial Venture and materially frustrates the ability of the Merial Venture to conduct the Merial Venture Business, and (C) subject to Section 18.4, such breach continues unremedied for a period of sixty (60) days after receipt by the Principal

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of the Breaching Group of notice thereof from the Non-Breaching Principal specifying such breach or, in the event such breach does not concern the payment of monies and is of a nature that it cannot, with due diligence and in good faith, be cured within said sixty (60) day period, the Breaching Group fails to commence and pursue with due diligence and good faith, to the extent reasonably possible, the cure of such breach within the sixty (60) day period following its receipt of notice of such breach. Unless the Principal of the Breaching Group acknowledges in writing that a Breach Termination Event has occurred, any such alleged breach and the nature and effect thereof shall first be subject to the dispute resolution and arbitration procedures set forth in Article XVIII. Should the Arbitrators determine, pursuant to an arbitration proceeding conducted in accordance with Article XVIII, that (x) a Breach Termination Event has occurred, and (y) the Breaching Group does not pay and perform the award rendered by the Arbitrators within sixty (60) days of the date of its receipt of the award (or if such award does not concern solely the payment of monies and is of a nature that cannot, with due diligence and in good faith, be performed within said sixty (60) day period, the Breaching Group fails to commence and pursue with due diligence and good faith, to the extent reasonably possible, the performance of such award within the sixty (60) day period following its receipt of the award), then the Non-Breaching Principal shall, subject to Section 16.4(a)(ii) below, have the rights of a Calling Principal governed by the terms of Section 16.3(b) below.

     (iii) A Change of Control, a Merck Restructuring Event or an RP Restructuring Event, if such event satisfies the relevant conditions set forth in Section 17.4. The Principal not subject to such Change of Control or to such Restructuring Event, as the case may be, shall have the rights of a Calling Principal governed by the terms of Section 16.3(b) below.

     (b) Call or Sale Right. If either Principal shall have rights pursuant to Sections 16.3(a)(i), 16.3(a)(ii) or 16.3(a)(iii) above, then the Principal with such rights (the “Calling Principal”) shall have the option (i) to purchase the Merial Venture Interest of the other Principal (the “Callable Principal”), (ii) to require that the Merial Venture be

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sold in its entirety to the highest bidder, or (iii) not to exercise either of options (i) or (ii). The Calling Principal shall notify the Callable Principal of its decision within the later of (x) [*] after the Calling Principal’s learning of the Event of Insolvency, Change of Control, or Restructuring Event on which the exercise of the option is based or [*] after an award of the Arbitrators pursuant to Section 16.3(a)(ii), as the case may be, and (y) [*] after its receipt of the determination of the Merial Venture Value pursuant to Section 16.3(c) below.

     In the event the Calling Principal exercises its call right option pursuant to Section 16.3(b)(i), the Calling Principal shall purchase the Callable Principal’s Merial Venture Interest at a price equal to fifty percent (50%) (subject to adjustment as contemplated by Sections 6.4(f) [Early Year Adjustment], 6.5(e) [Band Adjustment], 6.6(d) [Poultry Genetics] or 6.10 [Research Payment]) of the Merial Venture Value determined according to the procedures set forth in Section 16.3(c). Any exercise of such call right shall be governed by the provisions of Section 16.5. In the event the Calling Principal decides to exercise its sale right option pursuant to Section 16.3(b)(ii), the Calling Principal shall so notify the Callable Principal, and such sale shall be governed by the provisions of Section 16.4(b).

     (c) Merial Venture Value. The “Merial Venture Value” shall mean the value of the Merial Venture as a going concern, giving due consideration to all circumstances relevant to such value, determined by a panel of three Investment Banks. In the event the Calling Principal wishes to proceed with the determination of the Merial Venture Value, the Calling Principal shall notify the Callable Principal in writing and each Principal shall, within fifteen (15) days of such notification, select an Investment Bank. Such two Investment Banks together shall select a third Investment Bank. If the two Investment Banks have not selected a third Investment Bank within fifteen (15) days of the later of the dates on which they were selected, such third Investment Bank shall be selected and appointed by the ICE. The Principals shall procure that each of the two Investment Banks is provided with all relevant information reasonably available. Each of the two Investment Banks shall, within thirty (30) days of the selection of the third Investment Bank, present their respective valuations of the Merial Venture to such third Investment

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Bank which shall, within thirty (30) days after the later of the dates on which such two valuations were presented, select one of such valuations as the Merial Venture Value. The valuation selected by the third Investment bank shall be final and binding on all the Parties. The fees and expenses of the Investment Banks shall be divided equally between the Principals.

SECTION 16.4. Termination Following Mutual Consent or Mutual Breach

     (a) This Agreement may be terminated and the Merial Venture Dissolved according to the provisions of this Section 16.4 upon the occurrence of any of the following events:

     (i) The mutual consent of the Parties. In any such event, the Principals shall meet to confirm or shall exchange a joint written acknowledgement confirming their mutual desire to Dissolve the Merial Venture, which Dissolution shall be governed by the terms of Section 16.4(b).

     (ii) Following the termination of the dispute resolution and arbitration procedures set forth in Article XVIII, the Arbitrators determine that the Merck Group and the RP Group have each satisfied the provisions of Section 16.3(a)(ii) to be qualified as both a Non-Breaching Principal and a Breaching Group. If the Arbitrators make such determination, the Dissolution of the Merial Venture shall be governed by the procedures set forth in Section 16.4(b).

     (iii) The Calling Principal opts pursuant to the terms of Section 16.3(b) to require the sale of the Merial Venture pursuant to the terms of Section 16.4(b).

     (b) Sale of Merial Venture. If the Merial Venture is to be Dissolved pursuant to Section 16.4(a)(i), 16.4 (a)(ii) or 16.4(a)(iii) above, then the Merial Venture shall be sold in its entirety to the highest bidder as an independent going concern. The Principals shall, within [*] after (i) the date they have confirmed their mutual intent to Dissolve the Merial Venture, or (ii) the date [*] after the date of the award of

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the Arbitrators that is the basis for such Dissolution or from the date of the decision of the Calling Principal to exercise the option set forth in clause (ii) of Section 16.3(b), as the case may be, together select an Investment Bank to represent them in such sale. In the event the Principals cannot agree on an Investment Bank within such [*] period, the Investment Bank shall be selected and appointed by the ICE. The fees and expenses of the Investment Bank shall be divided equally between the Principals. Following consultations with both Principals, the Investment Bank shall determine the conditions of the sale, including the date by which prospective purchasers must have made their bids. Such conditions shall be consistent with the other terms of this Agreement and the Ancillary Agreements continuing in effect after such sale. Either or both Principals may concurrently bid to buy the Merial Venture Interest of the other Principal on the conditions determined by the Investment Bank, and any such bid to buy the Merial Venture Interest of the other Principal shall be multiplied by two (subject to adjustment as contemplated by Sections 6.4(f) [Early Year Adjustment], 6.5(e) [Band Adjustment], 6.6(d) [Poultry Genetics] or 6.10 [Research Payment]) in comparing it with the bids of Third Parties to buy the entire Merial Venture to determine the highest bidder. The net proceeds from any sale of the Merial Venture to a Third Party shall be split 50% (fifty percent) to each of the Principals, subject to adjustment as contemplated by Sections 6.4(f) [Early Year Adjustment], 6.5(e) [Band Adjustment], 6.6(d) [Poultry Genetics] or 6.10 [Research Payment].

SECTION 16.5. Sale of Merial Venture Interest to the Other Principal

     In the event either Principal (the “Selling Principal”) sells or causes the sale of its Merial Venture Interest to the other Principal (the “Non-Selling Principal”) pursuant to the provisions of Section 16.3, Section 16.4 or Section 17.2, the Non-Selling Principal shall pay the purchase price as determined by the Section applicable to such sale (subject to adjustment as contemplated by Sections 6.4(f) [Early Year Adjustment], 6.5(e) [Band Adjustment], 6.6(d) [Poultry Genetics] or 6.10 [Research Payment]) upon the closing of such sale pursuant to the definitive sale agreement. The purchase price will (subject to Section 17.2(f) in the case of a sale pursuant to Section 17.2) be payable in cash. The Non-Selling Principal may assign to Merial (or any wholly-owned Subsidiary of Merial)

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its right to purchase the Merial Venture Interest of the Selling Principal (but such assignment shall not release or reduce the Non-Selling Principal’s obligations to pay the purchase price for such Merial Venture Interest or otherwise consummate such purchase under this Agreement or any other obligations under the definitive sale agreement applicable to such purchase).

     The names of each and every Merial Venture Company will be changed to remove any reference, if any, to the Selling Principal therefrom and filings will be made with appropriate Public Authorities to effect such changes.

     The definitive sale agreement to be concluded by the Principals in the event one of them sells its Merial Venture Interest to the other shall include: (i) representations and warranties similar to those set forth in Sections 10.1 [Organization, Powers], 10.2 [Authorization], and 10.3 [Enforceability], and to the effect that the Merial Venture Interest is delivered free of Encumbrances and adverse claims; (ii) conditions to closing including: (x) conditions similar to the conditions set forth in Sections 12.6(b)(i)-(iii) [representations and warranties of Selling Principal substantially true as of date of closing and material compliance with covenants in sale agreements through closing — certified by officer’s certificate], (y) a condition that no injunction or other court or regulatory order blocking the sale shall be in effect as of the closing, and (z) a condition that all required governmental and regulatory consents that are material shall have been obtained; provided, however, that if the Principals disagree as to whether any material governmental or regulatory consents are required to consummate the sale, the Non-Selling Principal shall obtain an opinion of independent counsel (reasonably acceptable to the Selling Principal) to the effect that such consent is required; and provided further that if no such opinion is obtained, such condition shall not be included in such agreement; and (iii) a provision allowing the Selling Principal (in addition to exercising any other applicable legal remedies) to terminate the agreement if (in the absence of fault on the part of the Selling Principal or any of its Subsidiaries) the closing thereunder shall not occur (x) within [*] after the determination of the Merial Venture Value if the condition set forth in clause (ii) (z) above is not included in the sale agreement, or (y) within [*] after the determination of the Merial Venture Value if such

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condition is included in the sale agreement, subject to an extension of no more than [*], if a filing has been duly submitted under the HSR Act or an application has been duly submitted to the Commission of the European Union with respect to the purchase of such Merial Venture Interest and such extension is required to permit completion of the relevant approval process pursuant to such filing or submission.

SECTION 16.6. Consequences of Termination

     (a) The termination of this Agreement in accordance with to the provisions of Sections 16.3, 16.4, 16.5 and/or 17.2(c)(i) or (ii) shall be effective as of the date the sale of the Merial Venture or of the Merial Venture Interest of one of the Principals, as the case may be, is consummated in full compliance with the provisions of the applicable Section, which shall also be the dissolution date of the Merial Venture (the “Dissolution Date”).

     (b) In the event the Merial Venture is sold to a Thirty Party pursuant to Sections 16.3, 16.4 and/or 17.2(c)(i), the Principals shall include in the relevant agreements, and shall not waive, a condition to such sale requiring that such Third Party purchaser and any parent company thereof, as appropriate, enter into a written guaranty in favor of each Group guaranteeing the performance by the Merial Venture Companies of their respective obligations to each Group under any Ancillary and Future Agreements in effect on the date of such sale. The Parties shall cause all Ancillary Agreements and Future Agreement in effect on the date of such sale to remain in full force and effect until terminated in accordance with their terms, except that (i) the non-competition provision and all provisions relating to any further research under the Research Agreements shall terminate, as more specifically set forth in each Research Agreement, but all other provisions of the Research Agreements, including those relating to confidentiality, licenses granted in or out prior to such date and royalties payable, shall remain in effect, except as otherwise provided therein; and (ii) each Future Agreement may expressly provide that certain or all of its provisions shall terminate in the event of a sale of the Merial Venture to a Third Party.

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     (c) In the event the Merial Venture Interest of one Principal is sold to the other Principal pursuant to Sections 16.3, 16.4, 16.5 and/or 17.2(c)(ii), the Parties shall cause all Ancillary Agreements and Future Agreements in effect on the date of such sale to remain in full force and effect until terminated in accordance with their terms, except that: (i) if Merck is the Selling Principal, all provisions relating to further research under the Merck Research Agreement shall terminate effective on the Dissolution Date, as more specifically set forth therein, and the non-competition provision thereunder shall terminate [*] following the Dissolution Date; (ii) if RP is the selling Principal, all provisions relating to further research under the RP Ag Research Agreement, the RPR Research Agreement and the PMSV Research Agreement shall terminate effective on the Dissolution Date, as more specifically set forth in each such agreement, and the respective non-competition provisions under such agreements shall terminate [*] following the Dissolution Date; provided that, in the case of either (i) or (ii), all other provisions in the relevant agreement(s), including those relating to confidentiality, licenses granted in or out prior to such date and royalties payable, shall remain in effect after such sale, except as otherwise provided therein; and (iii) each Future Agreement may expressly provide that certain or all of its provisions shall terminate in the event of a sale of the Merial Venture Interest of one Principal to the other Principal.

     (d) The termination of this Agreement as specified herein shall not serve to eliminate any Liability arising out of circumstances or conduct prior to the actual date of termination hereof and any Party hereto may, following such termination, pursue such remedies as may be available with respect to such Liabilities. The termination of this Agreement shall not affect any rights or obligations of any Party under this Agreement which are intended by the Parties to survive such termination. Without limiting the generality of the foregoing, the following provisions of this Agreement shall survive the termination hereof for the longest period permitted by applicable law: Article II; Section 11.16; Section 11.17; this Section 16.6; Article XIII; Article XIV and the other indemnities in this Agreement, including indemnities in Section 5.1(a)(ii)(D) or (E), 5.1(b)(i) or (ii), Article VII or Article XI; Article XV (for the duration specified therein); Article XVIII; and Article XIX (in the case of Section 19.3, [*] termination of this Agreement).

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ARTICLE XVII

TRANSFER OF INTERESTS; CHANGE OF CONTROL

SECTION 17.1. Limitations on Transfer

     (a) General. Except in compliance with this Article XVII, neither IM nor Merck SH may sell, assign, pledge, encumber, hypothecate or otherwise transfer in any manner (including through any contractual grant of its economic or voting rights) all or any part of its Merial Venture Interest (each a “Transfer”) except with the written consent of the other Member, which it shall be in the sole discretion of such other Member to grant or withhold. Upon any Transfer, the transferee of any Merial Venture Interest shall be admitted as a Member to the extent of the Merial Venture Interest that such transferee has acquired, and for all purposes of this Agreement shall be deemed to have the capacity of a Member. Any such permitted Transfer shall not cause the dissolution of any of the Merial Venture Companies.

     (b) Transfer to an Affiliate. Either Member may transfer all (but not less than all) of its Merial Venture Interest to any of its Affiliates; provided, however, that, in the case of the Merck Group, Merck owns, directly or indirectly, at least fifty-one percent (51%) of both the outstanding capital stock and the voting power of such Affiliate, and, in the case of the RP Group, RP owns, directly or indirectly, at least fifty-one percent (51%) of both the outstanding capital stock and the voting power of such Affiliate, and, provided further that in each case such transfer would not (and would not be reasonably expected to) have or result in a Material Adverse Change or Effect on the Merial Venture Companies. It shall be a condition to any Transfer of a Merial Venture Interest that: (i) the Affiliate to which such Transfer is made shall have executed a deed of adherence in the form of Exhibit XIII under which it agrees to assume and be bound by all of the obligations of the transferor under this Agreement and (ii) any amendments to this Agreement reasonably requested by the non-transferring Member in connection with such Transfer shall be made; provided, however, that no such Transfer shall release the transferor from its obligations hereunder except to the extent such obligations are performed by such Affiliate. This Section 17.1(b) shall not prevent either Member from

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appointing any of its Affiliates (other than the Merial Venture Companies) to act as its agent in connection with the performance of such Member’s obligations pursuant to this Agreement.

SECTION 17.2. Transfer to a Non-Affiliate

     (a) General. At any time subsequent to the date (the “Permitted Transfer Date”) of the earlier of (i) receipt by the Members of the audited financial statements of the Merial Venture for the Fiscal Year ended December 31, 2001, or (ii) ninety (90) days after the last day of such Fiscal Year, either Principal shall have the right, at its sole discretion, to Transfer all (but not less than all) of its Merial Venture Interest pursuant to the procedures set forth in this Section 17.2. During the period from delivery of the applicable Offer Notice to the sale of such Merial Venture Interest as provided below, Merial will operate, or cause the operation of, the Merial Venture only in the ordinary course of business according to the latest annual budget and Business Plan.

     (b) Offer Notice. In the event that one Principal (the “Transferring Principal”) has negotiated a bona fide offer (the “Offer”) from any Third Party (the “Bona Fide Purchaser”) to purchase all (but not less than all) of such Selling Principal’s Merial Venture Interest after the Permitted Transfer Date, such Selling Principal shall promptly deliver a written notice (the “Offer Notice”) of the Offer to the other Principal (the “Non-Transferring Principal”), indicating the name of the Bona Fide Purchaser, the identities of the persons or entities that Control the Bona Fide Purchaser, to the extent known, if the Bona Fide Purchaser does not have equity securities which are then publicly traded, the Offer price, including the amount and kind of consideration proposed to be paid with respect to such Transfer (the “Offer Price”) and describing in reasonable detail all other material terms and conditions relating to the Offer.

     (c) Rights of Non-Transferring Principal. Following its receipt of an Offer Notice, the Non-Transferring Principal shall have the following rights:

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     (i) Should the Non-Transferring Principal also wish to sell its Merial Venture Interest, the Transferring Principal shall not transfer its Merial Venture Interest to the Bona Fide Purchaser unless the Bona Fide Purchaser also purchases all (but not less than all) of the Non-Transferring Principal’s Merial Venture Interest at the same Offer Price and on substantially the same terms and conditions as those specified in the Offer Notice. The net proceeds from any such sale to such Bona Fide Purchaser shall be split 50% (fifty percent) to each of the Principals, subject to adjustment as contemplated by Sections 6.4(f) [Early Year Adjustment], 6.5(e) [Band Adjustment], 6.6(d) [Poultry Genetics] or 6.10 [Research Payment].

     (ii) Alternatively, at the election of the Non-Transferring Principal, the Transferring Principal shall transfer all (but not less than all) of its Merial Venture Interest to the Non-Transferring Principal at a price equal to the Offer Price (subject to adjustment as contemplated by Sections 6.4(f) [Early Year Adjustment], 6.5(e) [Band Adjustment], 6.6(d) [Poultry Genetics] or 6.10 [Research Payment]) and on substantially the same terms and conditions as those specified in the Offer Notice (but subject to subsection (f) below relating to any non-cash consideration). Any such Transfer shall be subject to the provisions of Sections 16.5 and 16.6.

     In order to exercise either of its rights described in (i) or (ii) above, the Non-Transferring Principal must notify the Transferring Principal in writing of its election (a “Notice of Election”) to exercise such rights within [*] of having received the Offer Notice. For the purposes of this Section 17.2(c), the “Transferring Period” shall be defined as the period ending [*] after the end of the [*] period referred to in the immediately preceding sentence or such longer period (up to [*] in the aggregate) as is required by the necessity of obtaining any material approval or consent from a Public Authority before proceeding with such Transfer, to the extent that (and only for the additional period during which) such approval or consent has not been obtained for any reason other than the failure by the Transferring Principal or its Subsidiaries or by the Bona Fide Purchaser to diligently attempt to obtain such consent or approval. If the Non-Transferring Principal does not elect to exercise either of its rights

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by delivery of a Notice of Election within such [*] period, (x) the Transferring Principal may Transfer its Merial Venture Interest within the Transferring Period to the Bona Fide Purchaser for the Offer Price and on substantially the terms and conditions set forth in the Offer Notice, and the Non-Transferring Principal (and every Subsidiary of the Non-Transferring Principal which is a Party) shall be deemed to have irrevocably consented, for purposes of Section 17.1, to the Transfer of the Transferring Principal’s Merial Venture Interest to the Bona Fide Purchaser, and (y) the Non-Transferring Principal will cooperate with any reasonable proposal by the Transferring Principal to restructure the Merial Venture so as to reduce the transfer taxes otherwise payable by the Bona Fide Purchaser (or, if applicable, by the Transferring Principal or any of its Subsidiaries) in connection with such Transfer, provided such restructuring will not have any materially adverse tax, legal or other business consequences to the Non-Transferring Principal, its Subsidiaries or the Merial Venture (and any monetary cost of such restructuring is borne by the Transferring Principal).

     In the event the Transfer to the Bona Fide Purchaser pursuant to the Offer as set forth in the Offer Notice is not concluded within the Selling Period for any reason other than a material lack of cooperation on behalf of the Non-Selling Principal or its Subsidiaries, the Selling Principal may not Transfer its Merial Venture Interests except by submitting another Offer Notice and complying with the provisions set forth in this Section 17.2.

     (d) Consequence of Sale to a Bona Fide Purchaser. The Transferring Principal shall not effect a Transfer of its Merial Venture Interest to a Bona Fide Purchaser unless (x) such Bona Fide Purchaser shall execute a deed of adherence in the form of Exhibit XIII under which it agrees to assume and be bound by all the obligations of the Transferring Principal and its Subsidiaries pursuant to this Agreement (but not the Ancillary or Future Agreements); and (y) any parent company (or companies) of the Bona Fide Purchaser will enter into a written guaranty reasonably satisfactory to the Non-Transferring Principal guaranteeing the performance of all provisions of this Agreement that are applicable to the Transferring Principal or, at the election of the Non-Transferring Principal, will become a party (or parties) to this Agreement.

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Notwithstanding the Transfer by the Transferring Principal of its Merial Venture Interest, all of the Ancillary Agreements and Future Agreements then in effect shall remain in full force and effect, subject to the exceptions set forth in Section 16.6(c)(i) — (iii).

     (e) Timing of Transfer to Bona Fide Purchaser. If the Non-Transferring Principal elects to exercise its right pursuant to clause (i) of Section 17.2(c) above, (i) the Transferring Principal shall promptly seek to cause the Bona Fide Purchaser to purchase both its and the Non-Transferring Principal’s entire Merial Venture Interest, and (ii) the Transferring Principal may transfer its Merial Venture Interest only if the Bona Fide Purchaser purchases its and the Non-Transferring Principal’s entire Merial Venture Interests for the Offer Price (as adjusted to reflect the Transfer of the entire Merial Venture) and on substantially the terms and conditions specified in the Offer Notice, within [*] of the Notice of Election or such longer period up to [*] as is required by the necessity of obtaining any material approval or consent from a Public Authority before proceeding with such Transfer, to the extent that (and only for the additional period during which) such approval or consent has not been obtained for any reason other than the failure by the Transferring Principal or its Subsidiaries the Non-Transferring Principal or its Subsidiaries or by the Bona Fide Purchaser to diligently in attempt to obtain such consent or approval.

     (f) Non-Cash Consideration. In the event the Offer Price specified in the Offer Notice includes any property or other consideration other than cash (including notes or other evidences or indebtedness) (collectively, “Non-Cash Consideration”), such Offer Price shall be deemed to be the sum of the amount of any cash included in the Offer Price plus the fair market value of such other property and other consideration. The fair market value of such property and other consideration (the “Property Value”) shall be determined in good faith by the Transferring Principal and set forth in the Offer Notice. If, within fourteen (14) days after receipt of the Offer Notice, the Non-Transferring Principal questions such determination, then (i) the Property Value shall be determined in accordance with the provisions for establishing Fair Market Value (as defined in Section 17.2(g)) and (ii) the [*] period referred to in Section 17.2(c) shall not commence until the determination of the Property Value. Any consideration to be paid

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by the Non-Transferring Principal to the Transferring Principal pursuant to an election to exercise its right pursuant to clause (ii) of Section 17.2(c) shall be, at the option of the Non-Transferring Principal (x) in cash in an amount equal to the sum of the amount of cash and the Property Value (as determined above) included in the Offer Price, or (y) the Offer Price, including the cash and the Non-Cash Consideration components thereof.

     (g) For purposes of this Section 17.2, the “Fair Market Value” of property shall mean the dollar value of such property determined (i) by mutual agreement of the Principals, or (ii) if the Principals cannot so agree within fifteen (15) days after the Non-Transferring Principal first questions in writing the Transferring Principal’s proposed determination of the Fair Market Value of such property, by an Investment Bank selected by the Principals by mutual consent. If the Principals have not agreed on their selection of an Investment Bank within fifteen (15) days after the end of the fifteen (15) day period referred to in clause (i), the Investment Bank shall be selected and appointed by the ICE. The Parties agree that (x) any determination by the Investment Bank shall be final and binding on all the Parties, (y) the Investment Bank shall act as expert and not as arbitrator, and (z) the Principals shall procure that the Investment Bank is provided with all relevant information reasonably available. The fees and expenses of the Investment Bank shall be divided equally between the Principals.

SECTION 17.3. Ownership of a Member

     For so long as Merck SH or any other Subsidiary of Merck, in the case of Merck, or IM or any other Subsidiary of RP, in the case of RP, shall be a Member, Merck and RP each agrees that it shall not take, and shall not permit any of its Subsidiaries to take, any action which would result in Merck or RP (as the case may be) owning less than fifty-one percent (51%) of both the outstanding capital stock and voting power of such Member (after giving effect to all equity interests owned by Third Parties in any Person in the chain of ownership of Merck SH or IM, respectively).

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SECTION 17.4. Change of Control; RP Restructuring Event or Merck Restructuring Event

     (a) In the event of a Change of Control of either Principal or of an RP Restructuring Event or a Merck Restructuring Event, the affected Principal shall deliver a written notice to the other Principal within thirty (30) days of the closing of the Change of Control or the Restructuring Event, as the case may be, stating that the transaction has occurred and describing such transaction in reasonable detail.

     (b) In the event a Change of Control either (i) subject to the following sentence, results in the Principal that is subject to such Change of Control being at any time thereafter an Affiliate of one or more companies (such Principal and its Affiliates together, the “Affiliated Animal Health Companies”) which together have annual sales of Animal Health Products in excess of [*], or (ii) would result in a Material Adverse Change or Effect with respect to the Merial Venture, then the Principal that is not subject to the Change of Control (the “Other Principal”) shall have the rights of a Calling Principal governed by the terms of Section 16.3(b). With respect to clause (i) of the preceding sentence, the Other Principal’s rights as a Calling Principal shall only be exercisable after a period of either (A) one year from the date of the Change of Control, if the sales of Animal Health Products by the Affiliated Animal Health Companies exceeded [*] during the last four full consecutive calendar quarters preceding the Change of Control and could reasonably be expected to again exceed such amount during the calendar year in which the Change of Control takes place, or (B) one year from the last day of the calendar year in which the Change of Control occurs, if the sales of Animal Health Products by the Affiliated Animal Health Companies first exceed [*] in any subsequent calendar year, provided that the Other Principal shall have no rights as a Calling Principal pursuant to Section 17.4(b)(i) if, at any time prior to the expiry of the relevant one year period described in clauses (A) or (B), the Affiliated Animal Health Companies divest some or all of their Animal Health Business activities such that they could no longer be reasonably expected to have annual sales of Animal Health Products in excess of [*].

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     (c) In the event of an RP Restructuring Event, Merck shall have the rights of a Calling Principal governed by the terms of Section 16.3(b) if the RP Restructuring Event (i) would result in a material adverse effect on the practical or legal ability of the Subsidiary or Subsidiaries of RP that were the subject of the RP Restructuring Event to perform the activities contemplated by, or fulfill the obligations under, the Ancillary Agreements to which they are parties, or (ii) would result in a Material Adverse Change or Effect with respect to the Merial Venture.

     (d) In the event of a Merck Restructuring Event, RP shall have the rights of a Calling Principal governed by the terms of Section 16.3(b) if the Merck Restructuring Event (i) would result in a material adverse effect on the practical or legal ability of Merck to perform the activities contemplated by, or fulfill its obligations under, the affected Ancillary Agreement, or (ii) would result in a Material Adverse Change or Effect with respect to the Merial Venture.

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ARTICLE XVIII

DISPUTE RESOLUTION AND ARBITRATION

SECTION 18.1. Good Faith Settlement

     Each of the Parties agrees to negotiate in good faith as provided in this Section 18.1 to resolve amicably any dispute which arises respecting or in connection with this Agreement or any Ancillary Agreement. Any Party may serve a written notice (a “Dispute Notice”) at any time upon Merial and the other Parties stating that such a dispute has arisen and containing a brief statement describing the nature of the dispute. A timely notification by an Indemnifying Party disputing an Indemnity Claim under Section 14.7(b) shall be deemed to be a Dispute Notice under this Article XVIII. Other than with respect to any matter referred to in Sections 5.3(b), 6.2(d), 7.1(b), 7.1(c), 16.3(c), 16.4(b) or 17.2(g) of this Agreement, which shall be resolved in accordance with the procedures set forth therein, or any other matter for which another dispute resolution procedure is expressly set forth in any Ancillary Agreement, Merial shall submit the matter described in any Dispute Notice for resolution to the RP Animal Health Executive and the Merck Animal Health Executive immediately upon receiving any such Dispute Notice.

     Upon receiving any such Dispute Notice, or upon receiving notice of a deadlock pursuant to Section 4.2(h) or Section 4.3(h), as the case may be, RP and Merck, respectively, shall cause the RP Animal Health Executive and the Merck Animal Health Executive, respectively, to negotiate in good faith to resolve any such dispute or deadlock amicably. Throughout the pendency of any such dispute or deadlock, the Parties shall cause the Merial Venture to continue to conduct its business activities in accordance with the Business Plan of the Merial Venture then in effect, if any. The RP Animal Health Executive and the Merck Animal Health Executive, may, if they so desire, consult outside experts for assistance in arriving at a resolution. The resolution of any matter that is accepted by both the RP Animal Health Executive and the Merck Animal Health Executive in accordance with this Section 18.1 shall be binding on the Parties for all purposes. If the RP Animal Health Executive and the Merck Animal Health Executive

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are unable to resolve any Arbitrable Matter (as defined in Section 18.2) within thirty (30) days of its having been referred to them in accordance with this Section 18.1, the provisions of Section 18.2 shall apply with respect to such Arbitrable Matter.

SECTION 18.2. Arbitration

     (a) Arbitrable Matters. Any dispute, controversy or claim (including, without limitation, disputes, controversies or claims sounding in tort) between a Merck Company and an RP Company (or between any Merck Company or RP Company, on the one hand, and any Merial Venture Company, on the other hand) respecting or in connection with, without limitation, the validity, interpretation, termination or performance of this Agreement, or any Ancillary Agreement, which dispute, controversy or claim has not been resolved pursuant to the procedures set forth in Section 18.1, shall be an “Arbitrable Matter”; provided, however, that (A) any deadlock within the Members’ Meeting or the Board of Directors with respect to any matter submitted to such body for its consideration relating to the business activities or strategy of the Merial Venture, (B) any other failure to agree between the Members or their respective Representatives on matters of business judgment, or (C) any matter referred to in Sections 5.5 [Certain US Tax Matters], 6.2(d) [Special Dividend Calculation Dispute Resolution], 16.3(c) [Merial Venture Value], 16.4(b) [Sale of Merial Venture], or 17.2(g) [Fair Market Value of Property] of this Agreement, which shall be resolved in accordance with the procedures set forth therein, or (D) any other matter for which another dispute resolution procedure is expressly set forth in any Ancillary Agreement, shall not be an “Arbitrable Matter”. Any matter which is not an Arbitrable Matter shall not be referred to arbitration under this Article XVIII and no Party shall, or permit any of its Subsidiaries to, resort to any means whatsoever, including litigation, arbitration, dissolution by a judicial forum or by operation of law, appointment of a trustee, receiver, custodian or similar person, or to any other form of proceeding, other than the procedures provided for in Section 18.1, to seek any resolution or settlement of any matter which is not an Arbitrable Matter.

     No Party shall, or permit any of its Subsidiaries to, make recourse to arbitration under this Agreement until the procedure set out in Section 18.1 has been followed. If

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the RP Animal Health Executive and the Merck Animal Health Executive shall fail to resolve any Arbitrable Matter within thirty (30) days of the referral to them of such Arbitrable Matter in accordance with Section 18.1, either Principal may commence an arbitration proceeding in respect of such Arbitrable Matter by delivering an arbitration request (an “Arbitration Request”) in accordance with this Section 18.2 to the ICC with a copy thereof to the other Principal. The Principal delivering such Arbitration Request is herein referred to as the “Claimant” and the Principal receiving the Arbitration Request, as the “Respondent.”

     (b) Parties in Interest Bound. In any arbitration pursuant to this Article XVIII, RP, on the one hand, and Merck, on the other hand, shall be deemed to constitute the two parties in interest and each Principal may (i) assert claims on its behalf or on behalf of any of its Subsidiaries against the other Principal or against Merial or against any of their respective Subsidiaries that have obligations under this Agreement or an Ancillary Agreement, or (ii) bring claims on behalf of any Merial Venture Company against the other Principal or any such Subsidiary. Each of the Parties hereby irrevocably consents to the ability of either Principal to (i) bring a claim on behalf of any of its Subsidiaries or any Merial Venture Company against the other Principal or a Subsidiary thereof that has obligations under this Agreement or an Ancillary Agreement, as the case may be, or (ii) represent Merial or any Merial Venture Company in defending against any claim brought by the other Principal or a Subsidiary thereof against such Merial Venture Company. All the Parties hereby irrevocably consent to be bound by the award of the Arbitrators (as defined below) pursuant to any such claim. In connection with any proceeding to compel arbitration related hereto, any arbitration pursuant to this Article XVIII, any proceeding seeking interim relief related hereto, and any proceeding in connection with the recognition and enforcement of any award related hereto, no Party shall make, and each Party hereby expressly and irrevocably waives, any defense or claim based on assertions of sovereign immunity or similar grounds.

     (c) Arbitration Proceedings. All Arbitrable Matters not resolved pursuant to Section 18.1 shall be finally resolved by three (or, if there are more than two parties in interest, more than three) arbitrators (the “Arbitrators”) in accordance with the Rules of

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Conciliation and Arbitration of the ICC (the “ICC Rules”). If there are two parties in interest, the third Arbitrator, who will act as chairman of the arbitral tribunal, shall be nominated jointly by the two Arbitrators nominated by the parties (one by each). If the two Arbitrators nominated by the parties cannot agree on the nomination of the third Arbitrator within fifteen (15) Business Days of the date the identity of the second to be nominated Arbitrator was communicated to the first to be nominated Arbitrator, the third Arbitrator shall be nominated by the International Court of Arbitration in accordance with Article 1.4 of the ICC Rules. The seat of the arbitration shall be in Geneva, Switzerland. The arbitration proceedings shall be conducted, and the award shall be rendered in writing, in the English language. No party shall be entitled to commence proceedings before the courts of any jurisdiction, including England and Wales, in connection with the conduct of any arbitration proceedings, provided that the parties shall be free to commence proceedings before such courts for the purposes of enforcing any arbitral award.

     The Arbitrators shall apportion the costs of the arbitration (including any administrative costs and fees of the Arbitrators and fees of experts hired by the Arbitrators, but excluding any fees of counsel or other experts of the Claimant or the Respondent) as part of their arbitral award. Among other remedies otherwise available to them, such Arbitrators shall be authorized to order injunctive relief or the specific performance of any provision contained herein or in any Ancillary Agreement. Any award rendered by the Arbitrators shall be final and binding upon the parties to such arbitration, and judgment upon such award, including any costs of arbitration referred to above, together with interest, may be entered in accordance with applicable Laws in any court of competent jurisdiction.

     (d) Confidentiality. All arbitration proceedings under this Article XVIII shall be confidential and the Arbitrators may issue appropriate protective orders to safeguard the Confidential Information of any Party or Merial Venture Company. Except as required by Laws, none of the parties to the arbitration proceedings shall make (or request any Arbitrator or permit any Merial Venture Company to make) any public announcement with respect to the proceedings or decisions of the Arbitrators without the

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prior written consent of the other party or parties thereto. The existence of any dispute submitted to arbitration, and the award of the Arbitrators, shall be kept in strict confidence, except as required in connection with the enforcement of such award or as otherwise required by applicable Laws.

SECTION 18.3. Interim Equitable Relief

     (a) Notwithstanding the provisions of Section 18.1 and Section 18.2, each of the Parties, to the extent allowed by Article 8.5 of the ICC Rules, may initiate legal proceedings in a court of competent jurisdiction, as provided in Section 18.3(b), in respect of a dispute that is an Arbitrable Matter hereunder, solely for the purpose of seeking interim relief, and prior to the time the file is transmitted to the Arbitrators, preserving the status quo and preventing irreparable harm that would befall the Party initiating such proceedings, Merial or any other Merial Venture Company in the absence of such relief.

     (b) Each of the Parties consents to jurisdiction and venue, and expressly waives any objection thereto, in any court of competent jurisdiction in connection with the proceedings for interim equitable relief contemplated in Section 18.3(a).

SECTION 18.4. Tolling of Breach Period

     From the date of mailing of the Dispute Notice and until (i) sixty (60) days after the date of the Arbitrators’ award, or (ii) if neither the Claimant nor the Respondent delivers an Arbitration Request to the other with respect to such Arbitrable Matter, 60 days after the date of mailing of the Dispute Notice, the running of any sixty (60) day period referred to in Section 16.3(a)(ii)(C) with respect to any alleged material breach (a “Breach Period”) shall be suspended as to such alleged material breach.

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ARTICLE XIX

MISCELLANEOUS

SECTION 19.1. Expenses

     Except as otherwise expressly provided herein or therein, each Party shall bear its own expenses in connection with the negotiation and execution of, and the Closing and performance under, this Agreement and the Ancillary Agreements. For the avoidance of doubt, the Parties acknowledge that each of RP and Merck will bear the legal, accounting and banking fees and commissions incurred by (or on behalf of) any members of the RP Group or the Merck Group or their respective Merial Venture Businesses in connection with the negotiation of this Agreement and the Ancillary Agreements and with the formation of the Merial Venture and the preparation and consummation of the Closing.

SECTION 19.2. Notices

     Notices and other communications provided for herein shall be in writing and shall be delivered by registered mail, by hand or overnight courier service as follows:

     (a)  If to Rhône-Poulenc or any Subsidiary thereof, to:

Rhône-Poulenc S.A.
25 Quai Paul Doumer
92408 Courbevoie Cedex
France
Attention:   Corporate Secretary

Facsimile:   (33 1) 47.68.11.33

with a copy to:

Institut Mérieux S.A.
17 rue Bourgelat
69002 Lyon
France
Attention:   General Counsel
Facsimile:   (33 4) 72.73.70.61

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     (b)  If to Merck or any Subsidiary thereof, to:

Merck & Co., Inc.
One Merck Drive
P.O. Box 100
Whitehouse Station, New Jersey 08889
Attention:   General Counsel
Facsimile:   (908) 735-1244

     (c)  If to Merial, to:

Registered Office, London, England
Attention:   General Counsel

with a copy to Merck, Rhône-Poulenc and Institut Mérieux at the addresses specified above.

     All notices and other communications given to any Party in accordance with the provisions of this Agreement or any such Ancillary Agreement shall be deemed to have been given ten days after the date of mailing if sent by registered mail, or on the date of receipt if delivered by hand or overnight courier service, in each case delivered or sent to such Party as provided in this Section 19.2 or in accordance with the latest unrevoked direction from such Party (which direction shall have been given in accordance with this Section 19.2). In the event any notice is given pursuant to any Ancillary Agreement, a copy will also be provided to the head of the applicable operating division of the Party to which the notice is addressed.

SECTION 19.3. Confidentiality

     (a) General. Except as expressly set forth in this Section 19.3, each Party shall, and shall cause its Affiliates and its and their officers, directors, employees, agents and subcontractors (collectively, “Agents”) to, keep confidential and not disclose to any other person, nor use for any purpose other than the purposes of this Agreement or any Ancillary Agreement or Future Agreement, any and all information received from another Party, its Affiliates or any of their respective Agents, as a result of negotiating, entering into or performing this Agreement or any Ancillary Agreement or Future Agreement (all such information being “Confidential Information”), other than information which:

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     (i) is or hereafter becomes generally available to the trade or public (other than through disclosure by the receiving person or any Affiliate or Agent thereof);

     (ii) is disclosed to the receiving person or any Affiliate or Agent thereof by a Third Party who has the right to disclose such information;

     (iii) was or is independently known to, or developed by or on behalf of, the receiving person or any of its Affiliates, without reliance on information which is otherwise Confidential Information hereunder;

     (iv) is submitted by the receiving person to Public Authorities to facilitate the issuance of marketing approvals (or to maintain such approvals) for a Merial Venture Product, provided that reasonable measures shall be taken to assure confidential treatment of such information and provided further that such information shall remain Confidential Information for all other purposes unless subparagraphs (i) through (iii) above otherwise apply; or

     (v) based on such person’s good faith judgment with the advice of counsel, is otherwise required by a Public Authority to be disclosed in compliance with applicable Laws, provided that such person shall use reasonable efforts to obtain assurance that confidential treatment will be accorded such information, and provided further that such information shall remain Confidential Information for all other purposes unless subparagraphs (i) through (iv) above otherwise apply.

     Each Party shall be entitled, in addition to any other right or remedy it may have, to an injunction, without the posting of any bond or other security, enjoining or restraining any other person, as appropriate, from any violation or threatened violation of this Section 19.3, and no Party shall, or permit any of its Subsidiaries to, object to the entry of any such injunction.

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     (b) Use of Confidential Information. No Party shall, or permit any of its Subsidiaries to, except as contemplated or otherwise permitted under any Ancillary Agreement or any Future Agreement:

     (i) use any Confidential Information in its own businesses except as necessary to the fulfillment of the rights and obligations of the Parties under this Agreement, any Ancillary Agreement and any Future Agreement;

     (ii) assign, license, sublicense, market, transfer or loan, directly or indirectly, any Confidential Information except as necessary to the fulfillment of the rights and obligations of the Parties under this Agreement, any Ancillary Agreement and any Future Agreement; or

     (iii) permit any Confidential Information to be used or exploited by any RP Company or Merck Company or by any of their respective Agents for their benefit or the benefit of any relationships with customers of such RP Company or Merck Company.

     (c) Protection of Confidential Information. Each Party shall, and shall cause its Subsidiaries to, deal with Confidential Information so as to protect it from disclosure with a degree of care not less than that used by it in dealing with its own information intended to remain exclusively within its knowledge and shall take reasonable steps to minimize the risk of disclosure of Confidential Information which shall include ensuring that only its Affiliates and its and their Agents who have a bona fide “need to know” such Confidential Information for purposes permitted or contemplated by this Agreement, any Ancillary Agreement or any Future Agreement shall have access thereto. Each Party shall, and shall cause its Subsidiaries to, notify all of its Affiliates and its and their respective Agents who have access to Confidential Information of its confidentiality and the care therefor required, and shall obtain from any Third Party (other than attorneys and accountants for such Party or its Affiliates), who is permitted access to such Confidential Information in accordance with this Section 19.3, an agreement of confidentiality incorporating the restrictions set forth herein.

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     (d) Survival of Obligations. The obligations set forth in this Section 19.3 shall survive the expiration, termination or assignment of this Agreement, any Ancillary Agreement or any Future Agreement; the obligations set forth in this Section 19.3 shall terminate seven (7) years after the termination of this Agreement pursuant to a Dissolution.

     (e) Exceptions to Confidentiality. Notwithstanding anything in this Agreement to the contrary, in connection with any proposed Transfer of the Merial Venture or of either Principal’s Merial Venture Interest pursuant to Article XVI or Section 17.2, RP and/or Merck, as the case may be, may disclose, and may permit its Subsidiaries and its and their Agents to disclose, to any prospective purchaser and to any Investment Bank or other financial advisor retained by RP or Merck, as the case may be, or the prospective purchaser in connection with such proposed Transfer, such Confidential Information of the type that is customarily provided to prospective purchasers or as may reasonably be requested by the recipient; provided, however, that prior to the receipt of any such Confidential Information concerning the Merial Venture or the Merial Venture Business, the recipient shall have entered into a written confidentiality agreement incorporating the terms of this Section 19.3.

     (f) No Impairment of Other Confidentiality Provisions. Nothing in this Section 19.3 shall limit, expand, modify or otherwise affect any rights or obligations of the parties to any Ancillary Agreement, Future Agreement or license or similar agreement. Accordingly, and without limiting the generality of the foregoing, the Parties hereto expect that the confidentiality of certain scientific or technical information may be governed by more stringent provisions in such Ancillary Agreements, Future Agreements or license or similar agreements.

SECTION 19.4. Governing Law

     The LLC Agreement shall be construed in accordance with and governed by the Laws of the State of Delaware. The Association Documents and this Agreement shall be construed in accordance with and governed by the Laws of England and Wales. In the

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event of any inconsistency between the terms of this Agreement and the provisions of the Association Documents, the terms of this Agreement shall prevail as between the Parties.

SECTION 19.5. Decisions of the Parties

     Any decision or action expressly required by the terms of this Agreement to be made or taken by the Parties or by agreement of the Parties or any of them (other than by vote in the Merial Board of Directors or Members’ Meeting) shall be made or taken only by means of a writing signed on behalf of each Party by (i) the Chairman, President, chief executive officer or chief operating officer of such Party, or (ii) any such other officer or employee of such Party as the chief executive officer of such Party shall have previously designated in writing to the other Parties as being authorized to bind such Party with respect to the matters set forth in such writing.

SECTION 19.6. Successors and Assigns

     (a) This Agreement shall be binding upon and inure to the benefit of the Parties (upon such Party’s execution hereof) and their respective successors and permitted assigns.

     (b) Except as set forth in Article XVII, no Party hereto shall assign this Agreement or any of its rights or obligations hereunder without the prior written consent of each of the other Parties.

SECTION 19.7. Waiver; Amendment

     No provision of this Agreement may be waived except by a writing signed by the Party entitled to the benefit thereof, and no such waiver of any provision hereof in one instance shall constitute a waiver of any other provision or of such provision in any other instance. No omission, delay or failure on the part of any Party in exercising any rights hereunder will constitute a waiver of such rights or of any other rights hereunder. Neither this Agreement nor any provision hereof may be waived, amended or modified

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except pursuant to an agreement or agreements in writing entered into by each Party, which instrument shall specifically indicate that it is the desire of the Parties to waive, amend or modify this Agreement.

SECTION 19.8. Severability

     In the event any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby, unless the absence of the invalidated provision materially and adversely affects the substantive rights of the Parties. To the extent permitted by applicable law, each Party waives any provision of law which renders any provision hereof invalid, illegal or unenforceable in any respect. Each Principal acknowledges and agrees that if any provision of this Agreement shall be adjudged by any Public Authority of competent jurisdiction to be void or unenforceable but would be valid if part of the wording thereof were to be deleted, the said provision shall apply within the jurisdiction of that court or competent authority with such modifications as are necessary to make it valid and effective.

SECTION 19.9. Counterparts

     This Agreement may be executed in two or more counterparts, each of which shall constitute an original but all of which when taken together shall constitute but one instrument.

SECTION 19.10. Terms Generally

     The definitions in this Agreement shall apply equally to both the singular and plural forms of the terms defined.

     Whenever the context may require, any pronoun shall include the corresponding masculine, feminine, neuter, singular and plural forms.

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     The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”.

     The terms “hereof”, “herein” and words of similar import shall be deemed to refer to this Agreement as a whole and not to any particular provision, paragraph, Section or Article hereof.

     All references herein to Articles, Sections, Exhibits and Schedules shall be deemed references to Articles and Sections of, and Exhibits and Schedules to, this Agreement unless the context requires otherwise.

     All Exhibits and Schedules referred to herein (whether appended hereto at the time of execution hereof or delivered subsequently to such execution pursuant to the terms hereof) form an integral part of this Agreement and are deemed incorporated herein and shall be included in any reference to “this Agreement”, “hereof”, “herein” and words of similar import, and such Exhibits and Schedules referred to in any Article or Section form an integral part of such Article or Section and are deemed incorporated therein and shall be included in any reference to such Article or Section as if set out therein in full.

     A reference in any representation or warranty to any Law includes any amendment, modification or successor thereto enacted or promulgated prior to the Closing Date; all other references to Laws include amendments, modifications or successors to such Laws enacted or promulgated at any time.

     A reference to any person includes its permitted successors and permitted assigns.

     Except as otherwise expressly provided herein, all references herein to $ or dollars shall be deemed to refer to U.S. dollars and all terms of an accounting or financial nature relating to the Merial Venture shall be construed in accordance with U.S. GAAP, as in effect from time to time. All references herein to FF are to French francs.

SECTION 19.11. Headings

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     Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement.

SECTION 19.12. Entire Agreement

     This Agreement, the Association Documents, the LLC Agreement and the Ancillary Agreements set forth the entire agreement and understanding between the Parties as to the subject matter hereof and merge, cancel and supersede all prior memoranda of intent, memoranda of terms, and other documents heretofore executed by or exchanged, circulated or discussed between the Parties with respect to the subject matter hereof unless any such other written agreement by its terms specifically overrides this Section 19.12. None of the Parties shall be bound by any conditions, definitions, warranties, understandings, representations, covenants or agreements with respect to such subject matter other than as expressly provided in this Agreement, the Association Documents, the LLC Agreement and the Ancillary Agreements or as fully set forth in a written instrument dated after the date hereof signed by a representative of the Party to be bound thereby.

     It is further agreed that:

          (a) no Party has entered into this Agreement in reliance upon any representation, warranty or undertaking of any other Party or its Affiliates or representatives which is not expressly set out or referred to in this Agreement, the Articles of Association, the LLC Agreement or the Ancillary Agreements;

          (b) a Party may claim in contract for breach of the representations, warranties, agreements or other undertakings under this Agreement but shall have no, and no Party shall claim in any proceeding that it has any, other claim or remedy under this Agreement in respect of any misrepresentation (whether negligent or otherwise, and whether made prior to, and/or in, this Agreement) or untrue statement made by any other Party or its Affiliates or representatives; and

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          (c) this Section 19.12 shall not exclude any liability for fraudulent misrepresentation.

SECTION 19.13. Publicity

     No Party shall, without the prior written consent of the other Parties, issue any press release or make any other public announcement or furnish any statement to any Third Party concerning the terms and conditions of this Agreement or any Ancillary Agreement or the Transactions, except for (i) disclosures made in compliance with Section 19.3(a) or 19.3(e), (ii) disclosures made on a confidential basis to attorneys, consultants and accountants retained to represent such Party in connection with the Transactions, and (iii) occasional, brief comments by the respective officers of RP and Merck consistent with the press release issued jointly by RP and Merck on December 19, 1996 and such other guidelines for public statements as may be mutually agreed by RP and Merck in connection with interviews with analysts or members of the press. In addition, after consultation with counsel, each Party in its own right may make such further announcements and disclosure, if any, as may be required by applicable Laws, in which case the Party making the announcement or disclosure will use its best efforts to give advance notice to, and discuss such announcement or disclosure with, the other Parties. Once any information is publicly disclosed in accordance with this Section 19.13, it shall no longer be considered Confidential Information.

SECTION 19.14. No Third Party Beneficiaries

     Except as otherwise provided expressly herein or, with respect to the Ancillary Agreements, therein, (i) nothing in this Agreement is intended to confer on any person other than the Parties or their respective successors or permitted assigns, any rights or obligations under or by reason of this Agreement or any Ancillary Agreements, and (ii) there are no Third Party beneficiaries to this Agreement or any Ancillary Agreement except for the rights under Article XIV hereof of the Merial Venture Companies and of the Subsidiaries of either Principal and of Indemnified Parties as described therein.

263

SECTION 19.15. Enforcement of Judgments

     Each Party is fully cognizant, and agrees and acknowledges, that any arbitral award made pursuant to Section 18.2 may include the imposition of mandatory injunctive relief and/or an award of monetary penalties, and hereby irrevocably consents to the recognition and enforcement by any Public Authority of competent jurisdiction of any such arbitral award.

SECTION 19.16. Ancillary Agreements

     The parties hereto acknowledge that certain provisions of this Agreement are incorporated by reference in, or by their terms otherwise apply to, the Ancillary Agreements, and agree that such provisions shall be given full effect in interpreting and enforcing the Ancillary Agreements.

SECTION 19.17. References to Master Agreement

     All references in the Ancillary Agreements to the “Master Agreement” or to the “Master Merial Venture Agreement, dated as of May 23, 1997” (or similar terminology) shall be deemed to refer to this Agreement (as it may be amended from time to time).

264

IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.

[Signatures omitted]

EX-31.1

Exhibit 31.1

CERTIFICATION

     I, Richard T. Clark, certify that:

     1. I have reviewed this quarterly report on Form 10-Q of Merck & Co., Inc.;

     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

     4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

     a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

     a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: July 31, 2008

By:	/s/ Richard T. Clark RICHARD T. CLARK
	Chairman, President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

     I, Peter N. Kellogg, certify that:

     1. I have reviewed this quarterly report on Form 10-Q of Merck & Co., Inc.;

     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

     4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

     a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

     a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: July 31, 2008

By:	/s/ Peter N. Kellogg PETER N. KELLOGG
	Executive Vice President & Chief Financial Officer

EX-32.1

Exhibit 32.1

Section 1350
Certification of Chief Executive Officer

     Pursuant to 18 U.S.C. Section 1350, the undersigned officer of Merck & Co., Inc. (the “Company”), hereby certifies that the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2008 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: July 31, 2008	/s/ Richard T. Clark
	Name:	Richard T. Clark
	Title:	Chairman, President and Chief Executive Officer

EX-32.2

Exhibit 32.2

Section 1350
Certification of Chief Financial Officer

     Pursuant to 18 U.S.C. Section 1350, the undersigned officer of Merck & Co., Inc. (the “Company”), hereby certifies that the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2008 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: July 31, 2008	/s/ Peter N. Kellogg
	Name:	Peter N. Kellogg
	Title:	Executive Vice President & Chief Financial Officer