<SEC-DOCUMENT>0000950123-99-007558-index.html : 19990813 <SEC-HEADER>0000950123-99-007558.hdr.sgml : 19990813 ACCESSION NUMBER: 0000950123-99-007558 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MERCK & CO INC CENTRAL INDEX KEY: 0000064978 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 221109110 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-03305 FILM NUMBER: 99686099 BUSINESS ADDRESS: STREET 1: ONE MERCK DR STREET 2: P O BOX 100 CITY: WHITEHOUSE STATION STATE: NJ ZIP: 08889-0100 BUSINESS PHONE: 9084234044 MAIL ADDRESS: STREET 1: ONE MERCK DR STREET 2: PO BOX 100 WS3AB-05 CITY: WHITEHOUSE STATION STATE: NJ ZIP: 08889-0100 </SEC-HEADER> <DOCUMENT> <TYPE>10-Q <SEQUENCE>1 <DESCRIPTION>MERCK & CO INC <TEXT> <PAGE> 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ----------- ----------- Commission File No. 1-3305 MERCK & CO., INC. P. O. Box 100 One Merck Drive Whitehouse Station, N.J. 08889-0100 (908) 423-1000 Incorporated in New Jersey I.R.S. Employer Identification No. 22-1109110 The number of shares of common stock outstanding as of the close of business on July 30, 1999: <TABLE> <CAPTION> Class Number of Shares Outstanding ----- ---------------------------- <S> <C> Common Stock 2,345,522,850 </TABLE> Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No <PAGE> 2 Part I - Financial Information MERCK & CO., INC. AND SUBSIDIARIES INTERIM CONSOLIDATED STATEMENT OF INCOME THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998 ($ in millions except per share amounts) <TABLE> <CAPTION> Three Months Six Months Ended June 30 Ended June 30 ------------------------- -------------------------- 1999 1998 1999 1998 ---------- ---------- ---------- ---------- <S> <C> <C> <C> <C> Sales $ 8,018.2 $ 6,470.4 $ 15,554.8 $ 12,529.2 ---------- ---------- ---------- ---------- Costs, Expenses and Other Materials and production 4,370.2 3,383.4 8,524.4 6,619.0 Marketing and administrative 1,184.4 1,058.8 2,338.6 2,054.0 Research and development 482.7 441.0 924.4 829.5 Equity income from affiliates (179.6) (271.1) (354.4) (497.1) Other (income) expense, net (170.1) 32.2 (51.6) 62.5 ---------- ---------- ---------- ---------- 5,687.6 4,644.3 11,381.4 9,067.9 ---------- ---------- ---------- ---------- Income Before Taxes 2,330.6 1,826.1 4,173.4 3,461.3 Taxes on Income 852.5 510.0 1,395.7 980.8 ---------- ---------- ---------- ---------- Net Income $ 1,478.1 $ 1,316.1 $ 2,777.7 $ 2,480.5 ========== ========== ========== ========== Basic Earnings per Common Share $ .63 $ .55 $ 1.18 $ 1.04 Earnings per Common Share Assuming Dilution $ .61 $ .54 $ 1.15 $ 1.01 Dividends Declared per Common Share $ .27 $ .22-1/2 $ .54 $ .45 </TABLE> The accompanying notes are an integral part of this consolidated financial statement. - 1 - <PAGE> 3 MERCK & CO., INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET JUNE 30, 1999 AND DECEMBER 31, 1998 ($ in millions) <TABLE> <CAPTION> June 30 December 31 1999 1998 --------- --------- <S> <C> <C> ASSETS Current Assets Cash and cash equivalents $ 2,267.9 $ 2,606.2 Short-term investments 1,273.4 749.5 Accounts receivable 3,380.1 3,374.1 Inventories 2,566.3 2,623.9 Prepaid expenses and taxes 939.4 874.8 --------- --------- Total current assets 10,427.1 10,228.5 --------- --------- Investments 4,366.5 3,607.7 Property, Plant and Equipment, at cost, net of allowance for depreciation of $4,371.3 in 1999 and $4,042.8 in 1998 8,525.0 7,843.8 Goodwill and Other Intangibles, net of accumulated amortization of $1,306.9 in 1999 and $1,123.9 in 1998 7,746.9 8,287.2 Other Assets 2,144.6 1,886.2 --------- --------- $33,210.1 $31,853.4 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable and accrued liabilities $ 3,632.7 $ 3,682.1 Loans payable and current portion of long-term debt 612.4 624.2 Income taxes payable 1,663.4 1,125.1 Dividends payable 636.1 637.4 --------- --------- Total current liabilities 6,544.6 6,068.8 --------- --------- Long-Term Debt 3,212.8 3,220.8 --------- --------- Deferred Income Taxes and Noncurrent Liabilities 6,764.6 6,057.0 --------- --------- Minority Interests 3,713.2 3,705.0 --------- --------- Stockholders' Equity Common stock Authorized - 5,400,000,000 shares Issued - 2,967,945,540 shares-1999 - 2,967,851,980 shares-1998 29.7 29.7 Other paid-in capital 5,579.1 5,614.5 Retained earnings 21,690.3 20,186.7 Accumulated other comprehensive loss (23.6) (21.3) --------- --------- 27,275.5 25,809.6 Less treasury stock, at cost 617,641,343 shares - 1999 607,399,428 shares - 1998 14,300.6 13,007.8 --------- --------- Total stockholders' equity 12,974.9 12,801.8 --------- --------- $33,210.1 $31,853.4 ========= ========= </TABLE> The accompanying notes are an integral part of this consolidated financial statement. - 2 - <PAGE> 4 MERCK & CO., INC. AND SUBSIDIARIES INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 1999 AND 1998 ($ in millions) <TABLE> <CAPTION> Six Months Ended June 30 -------------------------- 1999 1998 ----------- ----------- <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES Income before taxes $ 4,173.4 $ 3,461.3 Adjustments to reconcile income before taxes to cash provided from operations before taxes: Depreciation and amortization 577.2 472.7 Other (344.5) (286.6) Net changes in assets and liabilities (119.4) (297.4) ----------- ----------- CASH PROVIDED BY OPERATING ACTIVITIES BEFORE TAXES 4,286.7 3,350.0 INCOME TAXES PAID (1,047.2) (772.1) ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES 3,239.5 2,577.9 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (1,089.2) (772.7) Purchase of securities, subsidiaries and other investments (17,686.2) (10,855.5) Proceeds from sale of securities, subsidiaries and other investments 16,333.5 10,426.6 Proceeds from relinquishment of certain AstraZeneca product rights 1,679.9 -- Other (16.7) (30.7) ----------- ----------- NET CASH USED BY INVESTING ACTIVITIES (778.7) (1,232.3) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Net change in short-term borrowings (4.1) 218.5 Proceeds from issuance of debt 11.4 499.1 Payments on debt (15.9) (86.9) Purchase of treasury stock (1,525.1) (773.2) Dividends paid to stockholders (1,275.4) (1,075.8) Other 99.6 215.6 ----------- ----------- NET CASH USED BY FINANCING ACTIVITIES (2,709.5) (1,002.7) ----------- ----------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (89.6) (43.1) ----------- ----------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (338.3) 299.8 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,606.2 1,125.1 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,267.9 $ 1,424.9 =========== =========== </TABLE> The accompanying notes are an integral part of this consolidated financial statement. Notes to Consolidated Financial Statements 1. The accompanying unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain information and disclosures required by generally accepted accounting principles for complete financial statements are not included herein. The interim statements should be read in conjunction with the financial statements and notes thereto included in the Company's latest Annual Report on Form 10-K. Interim statements are subject to possible adjustments in connection with the annual audit of the Company's accounts for the full year 1999; in the Company's opinion, all adjustments necessary for a fair presentation of these interim statements have been included and are of a normal and recurring nature. All share and per share amounts for current and prior periods presented in these financial statements reflect a two-for-one stock split of the Company's common stock, effective February 1999. Certain reclassifications have been made to prior year amounts to conform with current year presentation. - 3 - <PAGE> 5 Notes to Consolidated Financial Statements (continued) 2. In April 1999, Astra AB (Astra) merged with Zeneca Group Plc (Zeneca). As a result of this merger, Astra was required to make two one-time payments to Merck totaling approximately $1.8 billion. In exchange for Merck's relinquishment of option rights to future Astra products with no existing or pending U.S. patents at the time of the merger, Astra paid $967.4 million (the Advance Payment), which is subject to a true-up calculation in 2008 that may require repayment of all or a portion of this amount. The true up cannot reasonably be estimated because it is directly dependent on the fair market value in 2008 of the Astra product rights retained by the Company which extend to compounds currently in development as well as compounds that have not as yet entered development. Accordingly, the Company has deferred recognition of this contingent income until the realizable amount, if any, is determinable, which is not anticipated prior to 2008. In connection with the Company's July 1998 acquisition of Astra's one-half interest in Astra Merck, Inc. (renamed KBI), the Company agreed to relinquish rights to the pharmaceutical products of any company that would merge with or acquire Astra. These rights, which protected the value of KBI's perpetual interest in Astra's pipeline, were relinquished in exchange for a payment (the Lump Sum Payment) to be made in the event of the merger or acquisition of Astra. The Company estimates that it is entitled to receive a Lump Sum Payment of $822.0 million as the result of the merger of Astra and Zeneca. In the second quarter of 1999, Astra paid $712.5 million of the Lump Sum Payment and is disputing its obligation to pay the remainder. The Company is in arbitration seeking to enforce its rights under the agreement with respect to the disputed amount. Although the Company retains an interest in current and future Astra products with an existing or pending U.S. patent, this merger effectively curtailed the Company's perpetual interest in Astra's pipeline and, thus, reduced the going concern value acquired by the Company in July 1998. Accordingly, one-half of the expected payment is an adjustment to the purchase price paid by the Company for Astra's one-half interest in KBI reducing goodwill by $411.0 million. The balance represents compensation to the Company for the reduction of the value of its original one-half interest in KBI and was recorded in Other (income) expense, net. Because the reduction in goodwill is not tax-effected and the Lump Sum Payment is fully taxable, this transaction, net of a reserve relating to disputed proceeds, yielded an after-tax gain of $74.6 million. This gain was largely offset on an after-tax basis by $110.0 million of pretax nonrecurring charges ($66.2 million after tax) also recorded in Other (income) expense, net. (See Note 6.) The AstraZeneca merger also triggers a partial redemption in 2008 of Merck's limited partnership interest in Astra Pharmaceuticals, L.P., the U.S. limited partnership formed in July 1998 as part of the restructuring of the Company's joint venture with Astra. Additionally, Astra's option to buy the Company's interest in the KBI products is now only exercisable in 2010 and the Company now has the right to require Astra to purchase such interest at fair market value in 2008. As a result of the merger, the $1.4 billion note issued to Astra in July 1998, originally due in 2038, is payable in 2008. 3. Inventories consisted of: <TABLE> <CAPTION> ($ in millions) ------------------------- June 30 December 31 1999 1998 -------- ----------- <S> <C> <C> Finished goods $1,673.8 $1,701.2 Raw materials and work in process 819.0 851.6 Supplies 73.5 71.1 -------- -------- Total (approximates current cost) 2,566.3 2,623.9 Reduction to LIFO cost -- -- -------- -------- $2,566.3 $2,623.9 ======== ======== </TABLE> 4. The Company, along with numerous other defendants, is a party in several antitrust actions brought by retail pharmacies and consumers, alleging conspiracies in restraint of trade and challenging pricing and/or purchasing practices, one of which has been certified as a federal class action and a number of which have been certified as state class actions. In 1996, the Company and several other defendants finalized an agreement to settle the federal class action alleging conspiracy, which represents the single largest group of retail pharmacy claims, pursuant to which the Company paid $51.8 million. Since that time, the Company has entered into other settlements on satisfactory terms. The Company has not engaged in any conspiracy, and no admission of wrongdoing was made nor was included in the final agreements. While it is not feasible to predict or determine the final outcome of these proceedings, management does not believe that they should result in a materially adverse effect on the Company's financial position, results of operations or liquidity. - 4 - <PAGE> 6 Notes to Consolidated Financial Statements (continued) 5. Sales consisted of: <TABLE> <CAPTION> ($ in millions) ----------------------------------------------------------- Three Months Six Months Ended June 30 Ended June 30 -------------------------- ---------------------------- 1999 1998 1999 1998 ---------- ----------- ----------- ----------- <S> <C> <C> <C> <C> Elevated cholesterol $ 1,239.9 $ 1,153.4 $ 2,410.4 $ 2,202.5 Hypertension/heart failure 1,204.3 1,141.3 2,292.2 2,141.2 Osteoporosis 243.3 165.7 474.6 347.4 Anti-ulcerants 191.9 228.7 452.1 550.0 Vaccines/biologicals 221.4 217.7 392.8 403.1 Antibiotics 187.0 169.7 376.8 371.1 Human immunodeficiency virus (HIV) 175.9 183.7 325.8 335.0 Ophthalmologicals 162.6 149.9 314.2 298.4 Other Merck products 635.3 226.7 1,182.4 391.2 Merck-Medco 3,756.6 2,833.6 7,333.5 5,489.3 ---------- ----------- ----------- ----------- $ 8,018.2 $ 6,470.4 $ 15,554.8 $ 12,529.2 ========== =========== =========== =========== </TABLE> Other Merck products include sales of other human pharmaceuticals, continuing sales to divested businesses and pharmaceutical and animal health supply sales to the Company's joint ventures and, as of July 1, 1998, supply sales to Astra Pharmaceuticals, L.P. 6. Other (income) expense, net, consisted of: <TABLE> <CAPTION> ($ in millions) ------------------------------------------------ Three Months Six Months Ended June 30 Ended June 30 ---------------------- ---------------------- 1999 1998 1999 1998 --------- --------- --------- -------- <S> <C> <C> <C> <C> Interest income $ (89.4) $ (63.8) $(168.9) $(125.6) Interest expense 68.9 42.6 140.3 81.8 Exchange (gains) losses (7.3) (6.7) 2.1 (12.6) Minority interests 57.3 22.7 106.7 65.2 Amortization of goodwill and other intangibles 77.8 48.3 161.1 96.5 Other, net (277.4) (10.9) (292.9) (42.8) -------- ------- ------- ------- $(170.1) $ 32.2 $ (51.6) $ 62.5 ======== ======= ======= ======= </TABLE> Minority interests include third parties' share of exchange gains and losses arising from translation of the financial statements into U.S. dollars. Increase in minority interests for the three- and six-month periods reflects dividends paid to AstraZeneca on $2.4 billion par value preferred stock of a subsidiary beginning in July 1998. Other, net, for the three- and six-month periods ended June 30, 1999 includes income of $411.0 million associated with the Lump Sum Payment from Astra, offset by a reserve relating to disputed proceeds (see Note 2) and nonrecurring charges of $110.0 million primarily comprised of provisions for the funding of both The Merck Company Foundation and The Merck Genome Research Institute and provisions for the settlement of claims. Interest paid for the six-month periods ended June 30, 1999 and 1998 was $105.0 million and $50.3 million, respectively. 7. Income taxes paid for the six-month periods ended June 30, 1999 and 1998 were $1,047.2 million and $772.1 million, respectively. - 5 - <PAGE> 7 Notes to Consolidated Financial Statements (continued) 8. The net income effect of dilutive securities was not significant to the Company's calculation of Earnings per common share assuming dilution. A reconciliation of weighted average common shares outstanding to weighted average common shares outstanding assuming dilution follows: <TABLE> <CAPTION> Three Months Six Months Ended June 30 Ended June 30 --------------------- --------------------- 1999 1998 1999 1998 ------- ------- ------- ------- <S> <C> <C> <C> <C> Average common shares outstanding 2,357.6 2,389.8 2,359.2 2,389.8 Common shares issuable(1) 56.0 61.4 59.4 62.6 ------- ------- ------- ------- Average common shares outstanding assuming dilution 2,413.6 2,451.2 2,418.6 2,452.4 ======= ======= ======= ======= (1) Issuable primarily under stock option plans. </TABLE> 9. Comprehensive income for the three months ended June 30, 1999 and 1998, representing all changes in Stockholders' equity during the period other than changes resulting from the Company's stock, was $1,474.5 million and $1,313.0 million, respectively. Comprehensive income for the six months ended June 30, 1999 and 1998 was $2,775.4 and $2,479.1, respectively. 10. The Company's operations are principally managed on a products and services basis and are comprised of two reportable segments: Merck Pharmaceutical and Merck-Medco. Merck Pharmaceutical products consist of therapeutic agents, sold by prescription, for the treatment of human disorders. Merck-Medco revenues are derived from the filling and management of prescriptions and health management programs. All Other includes non-reportable human and animal health segments. Revenues and profits for these segments are as follows: <TABLE> <CAPTION> ($ in millions) -------------------------------------------------------- Three Months Six Months Ended June 30 Ended June 30 ------------------------ ------------------------- 1999 1998 1999 1998 --------- --------- --------- --------- <S> <C> <C> <C> <C> Segment revenues: Merck Pharmaceutical $ 3,606.8 $ 3,158.8 $ 6,885.7 $ 6,136.7 Merck-Medco 4,435.2 3,506.0 8,729.7 6,832.0 All Other 611.5 426.1 1,242.5 808.2 --------- --------- --------- --------- $ 8,653.5 $ 7,090.9 $16,857.9 $13,776.9 ========= ========= ========= ========= Segment profits: Merck Pharmaceutical $ 2,200.7 1,902.5 4,195.1 $ 3,742.3 Merck-Medco 127.7 128.1 251.4 222.5 All Other 572.5 602.9 1,133.4 1,115.3 --------- --------- --------- --------- $ 2,900.9 $ 2,633.5 $ 5,579.9 $ 5,080.1 ========= ========= ========= ========= </TABLE> Segment profits are comprised of segment revenues less certain elements of materials and production costs and operating expenses, including components of equity income (loss) from joint ventures and depreciation and amortization expenses. The vast majority of indirect production costs, research and development expenses and general and administrative expenses, all predominantly related to the Merck Pharmaceutical business, as well as the cost of financing these activities, are not included in the marketing segment profits. The vast majority of goodwill and other intangibles amortization, as well as the cost of financing capital employed, are not included in Merck-Medco segment profits. - 6 - <PAGE> 8 Notes to Consolidated Financial Statements (continued) A reconciliation of total segment profits to consolidated income before taxes is as follows: <TABLE> <CAPTION> ($ in millions) -------------------------------------------------------- Three Months Six Months Ended June 30 Ended June 30 ------------------------ ------------------------ 1999 1998 1999 1998 -------- -------- -------- -------- <S> <C> <C> <C> <C> Segment profits $2,900.9 $2,633.5 $5,579.9 $5,080.1 Other profits 19.8 26.1 45.4 41.4 Adjustments 49.7 40.8 88.8 76.5 Unallocated: Interest income 89.4 63.8 168.9 125.6 Interest expense (68.9) (42.6) (140.3) (81.8) Equity income (loss) from affiliates 59.8 (78.5) 145.5 (134.4) Depreciation and amortization expenses (231.1) (177.0) (455.3) (355.6) Research and development expenses (482.7) (441.0) (924.4) (829.5) Other expenses, net (6.3) (199.0) (335.1) (461.0) -------- -------- -------- -------- $2,330.6 $1,826.1 $4,173.4 $3,461.3 ======== ======== ======== ======== </TABLE> Other profits primarily represent operating income related to divested products or businesses. Adjustments represent the elimination of the effect of double counting certain items of income and expense. Equity income (loss) from affiliates includes taxes paid at the joint venture level and a portion of equity income that is not reported in segment profits. Other expenses, net, include expenses from corporate and manufacturing cost centers and other miscellaneous income (expense), net. 11. Legal proceedings to which the Company is a party are discussed in Part 1 Item 3, Legal Proceedings, in the Annual Report on Form 10-K. There were no material developments in the six-month period ended June 30, 1999. - 7 - <PAGE> 9 MANAGEMENT'S ANALYSIS OF INTERIM FINANCIAL INFORMATION Earnings per share for the second quarter of 1999 were $0.61, an increase of 13% over the second quarter of 1998. Second quarter net income increased 12% to $1,478.1 million. Sales for the quarter were $8.0 billion, up 24% from the same period last year. For the first six months, earnings per share were $1.15, an increase of 14% from the first six months of 1998. Net income was $2,777.7 million for the first six months of 1999, an increase of 12% from the first six months of 1998. Sales rose 24% to $15.6 billion. Sales growth for the quarter and the first half of 1999 was led by the established major products, the newer products, including the 1999 launch of 'Vioxx', as well as growth from the Merck-Medco Managed Care business. Solid volume gains in both domestic and international operations as well as a three point benefit attributable to the restructuring of Astra Merck, Inc. (AMI) contributed to the second quarter results. Foreign exchange reduced the second quarter sales growth by one percentage point, but had essentially no effect on the six month performance. Excluding exchange and including the effect of the AMI restructuring, sales of Merck human health products increased 20% and 19% for the second quarter and six months, respectively. Sales of Merck human health products outside the United States accounted for 41% of Merck human health first half 1999 sales. Income growth for the first six months was driven by solid sales volume gains as well as the effects of ongoing productivity improvements in manufacturing and general and administrative expenses. The savings from productivity improvements were partially offset by increases in selling and promotion expenses to support the recent product launches. Results for the first six months were paced by sales volume gains of 'Zocor', 'Fosamax', 'Cozaar'*, 'Hyzaar'* and 'Prinivil'. Also contributing to the volume growth were 'Singulair', 'Propecia', 'Cosopt', 'Maxalt' and 'Aggrastat', all introduced in 1998, and 'Vioxx', which was launched in May 1999 in the United States. Prescription volume growth in the Merck-Medco Managed Care business also contributed significantly to the sales increase. 'Zocor' continues its solid volume growth and is the world's leading "statin" medicine. Today, almost 10 million people in 117 countries are taking 'Zocor'. Last year, the U.S. Food and Drug Administration (FDA) approved a new 80 mg tablet, which lowers LDL ("bad") cholesterol by 47%, on average. Together, 'Zocor' and 'Mevacor', Merck's other cholesterol-lowering medicines, hold more than a 40 percent share of the growing worldwide statin market. Even in the U.S. market, only about one-third of eligible patients are receiving treatment. 'Fosamax', Merck's medicine to treat and prevent postmenopausal osteoporosis and reduce the risk of fractures due to osteoporosis, continues to be the only nonhormonal medicine proven to reduce the incidence of hip fractures, the most serious kind of fracture. 'Fosamax' was cleared by the FDA in May for the treatment of osteoporosis in men and women with low bone density who are taking glucocorticoids (also known as steroids or corticosteroids) in a daily dosage equivalent to 7.5 mg or greater of prednisone. Glucocorticoids are widely used to treat patients with chronic inflammatory and autoimmune diseases. Glucocorticoid users can lose large amounts of bone rapidly, leading to fractures in 30% to 50% of patients on chronic therapy. 'Fosamax' is an important therapeutic advance for patients with glucocorticoid-induced osteoporosis. Regulatory authorities in 14 other countries, including Canada and Austria, have also cleared 'Fosamax' for this use. Merck's angiotensin II antagonist (AIIA) 'Cozaar' and its companion agent, 'Hyzaar', are among Merck's fastest-growing products. 'Cozaar' has been introduced in 82 countries to date and 'Hyzaar' has been introduced in 67, making these medicines together the world's most widely prescribed in the AIIA class. Several large multi-national clinical trials are under way to investigate 'Cozaar' for additional indications, including renal protection and a reduction in post-myocardial infarction mortality. 'Cozaar' is the only product in its class cleared for the treatment of heart failure in any market. It has been approved for this use in 21 countries to date, including Germany and Spain, and applications for this indication are pending in other countries. Merck has not yet filed an application for the treatment of heart failure in the United States. *'Cozaar' and 'Hyzaar' are registered trademarks of E.I. du Pont de Nemours and Company, Wilmington, DE, USA. - 8 - <PAGE> 10 MANAGEMENT'S ANALYSIS OF INTERIM FINANCIAL INFORMATION (continued) 'Singulair', Merck's once-a-day tablet to treat chronic asthma in adults and children ages six and older, has become the most widely prescribed leukotriene-antagonist in the United States. The product has been introduced in 57 other countries, including the United Kingdom, Spain, Germany and Canada. A study published last week in the British Medical Journal showed that patients with chronic asthma who took 'Singulair' in addition to their inhaled steroid medicine were able to reduce their daily doses of inhaled steroids by 47% (vs. 30% on placebo) and still keep their asthma under control. In addition, 40% of these patients were able to gradually stop taking inhaled steroids completely (vs. 29% on placebo). 'Propecia', the first and only tablet for the treatment of male pattern hair loss, offers men a highly effective, generally well tolerated and easy-to-use option in managing hair loss on the vertex and anterior mid-scalp. 'Propecia' has been introduced in 26 countries to date, including the United States, Canada, France, Spain, Germany, Italy and Australia. Launches are pending in 13 countries. Since the product's introduction last year in the United States, approximately 700,000 men have started treatment worldwide and that number continues to grow. Since its introduction last year, 'Maxalt' has become the fastest growing oral migraine medication in the United States and has been successfully introduced in major European markets. 'Maxalt' is the first migraine medicine available in both conventional tablets and a tablet formulation, 'Maxalt-MLT', that disintegrates within seconds on the tongue without liquids. Merck's "platelet blocker," 'Aggrastat', is now available in more than 20 countries, including the United States, Switzerland, Germany and Mexico. It is indicated to reduce the risk of early myocardial infarction (MI) in patients with unstable angina or non-Q wave MI. Following a six-month priority review, on May 20 the FDA cleared 'Vioxx', Merck's once-daily COX-2 specific inhibitor, for relief of the signs and symptoms of osteoarthritis, management of acute pain in adults, and treatment of menstrual pain. Since then, more than 400,000 U.S. patients have taken the product. Merck has introduced 'Vioxx' in nine other countries including the United Kingdom, Switzerland and Mexico. The Company is conducting additional clinical studies with 'Vioxx' to determine whether it is useful in treating rheumatoid arthritis and in preventing and treating Alzheimer's disease. Studies will begin later this year to ascertain whether 'Vioxx' might help prevent colon cancer. In April 1999, Astra AB (Astra) merged with Zeneca Group Plc. As a result of this merger, Astra was required to make two one-time payments to Merck totaling approximately $1.8 billion. The Company has deferred recognition of the first payment, which approximated $967.4 million, since all or a portion of the amount is subject to repayment in 2008. One-half of the second payment which is estimated to be $822.0 million (the Lump Sum Payment) was an adjustment of the purchase price of Astra's 50% interest in Astra Merck Inc., reducing goodwill by $411.0 million. The balance was recorded in Other (income) expense, net and, after a reserve relating to disputed proceeds, yielded an after-tax gain of $74.6 million. (See Note 2 to the consolidated financial statements for further information.) This gain was largely offset on an after-tax basis by $110.0 million of pretax nonrecurring charges ($66.2 million after tax) also recorded in Other (income) expense, net, primarily comprised of provisions for the funding of both The Merck Company Foundation and The Merck Genome Research Institute and provisions for the settlement of claims. The growth in pretax income for the second quarter was affected by the income from the Lump Sum Payment net of the nonrecurring charges. However, the net increase in pretax growth related to these nonrecurring items was substantially offset by an increase in the Company's effective tax rate principally because the reduction in goodwill associated with the Lump Sum Payment is not tax-effected. On May 25, 1999, the Board of Directors declared a quarterly dividend of 27 cents per share on the Company's common stock for the third quarter of 1999. On July 27, 1999, the Board of Directors declared a quarterly dividend of 29 cents per share of common stock for the fourth quarter of 1999. The Company's total dividends paid during 1999 will be $1.10 per share, a 16% increase over the amount paid in 1998. The amount of dividends reflects the Company's two-for-one stock split effective February 1999. - 9 - <PAGE> 11 MANAGEMENT'S ANALYSIS OF INTERIM FINANCIAL INFORMATION (continued) In June 1998, the Financial Accounting Standards Board (FASB) issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities (FAS 133). The Statement establishes accounting and reporting standards requiring that every derivative instrument be recorded in the balance sheet as either an asset or liability measured at fair value and that changes in fair value be recognized currently in earnings, unless specific hedge accounting criteria are met. In June 1999, the FASB issued Statement No. 137, Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133, which delays the required adoption of FAS 133 to fiscal 2001. The timing of adoption of the Statement and effect of FAS 133 on the Company's financial position or results of operations have not yet been determined. As disclosed in our Annual Report on Form 10-K for the year ended December 31, 1998, the Company initiated a program in 1996 to assess the risks of Year 2000 noncompliance, remediate all noncompliant systems and assess the readiness of key third parties. The risks identified by this program remain the same and the Company's assessment and remediation plans have not changed materially in terms of scope, timing or estimated costs to complete. The inventory and assessment phases are complete for critical internal information technology (IT) systems and the Company is approximately 90% complete with the remediation phase as of June 30, 1999. The inventory and assessment phase for non-IT systems is substantially complete and remediation is under way. Contingency plans (including the substitution of systems, use of manual methods and other means to prevent the failure of critical systems from having a material effect on the Company) are being developed, particularly for high risk areas such as those involving supplier and product management. While some of the risks relating to third party readiness are outside of the Company's control, the Company has instituted programs, including internal records review and external questionnaires and supplier audits, to identify key third parties and assess their level of Year 2000 readiness. As of June 30, 1999, key third parties have been identified and the assessment of their readiness is being completed. Third party-based contingency plans, including securing alternate suppliers and alternate lines of communication with customers and suppliers, as well as advance ordering and staging of materials, are being developed to address the risks of noncompliance. Additionally, the Company is assessing the need to maintain increased inventory levels to satisfy potential increased customer demand at year-end. All critical aspects of the Company's Year 2000 compliance program are expected to be completed by the end of the third quarter 1999. In addition, the Company is continually evaluating and, as necessary, updating its contingency plans for its high risk areas. Total costs to resolve the Year 2000 issue are not expected to be material to the Company's financial position, results of operations or cash flows. - 10 - <PAGE> 12 CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS This report and other written reports and oral statements made from time to time by the Company may contain so-called "forward-looking statements," all of which are subject to risks and uncertainties. One can identify these forward-looking statements by their use of words such as "expects," "plans," "will," "estimates," "forecasts," "projects" and other words of similar meaning. One can also identify them by the fact that they do not relate strictly to historical or current facts. These statements are likely to address the Company's growth strategy, financial results, product approvals and development programs. One must carefully consider any such statement and should understand that many factors could cause actual results to differ from the Company's forward-looking statements. These factors include inaccurate assumptions and a broad variety of other risks and uncertainties, including some that are known and some that are not. No forward-looking statement can be guaranteed and actual future results may vary materially. The Company does not assume the obligation to update any forward-looking statement. One should carefully evaluate such statements in light of factors described in the Company's filings with the Securities and Exchange Commission, especially on Forms 10-K, 10-Q and 8-K (if any). In Item 1 of the Company's Annual Report on Form 10-K for the year ended December 31, 1998, as filed on March 24, 1999, the Company discusses in more detail various important factors that could cause actual results to differ from expected or historic results. The Company notes these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. One should understand that it is not possible to predict or identify all such factors. Consequently, the reader should not consider any such list to be a complete statement of all potential risks or uncertainties. - 11 - <PAGE> 13 Part II - Other Information Item 4. Submission of Matters to a Vote of Security Holders The following matters were voted upon at the Annual Meeting of Stockholders held on April 27, 1999, and received the votes set forth below: 1. All of the following persons nominated were elected to serve as directors and received the number of votes set opposite their respective names: <TABLE> <CAPTION> For Withheld --- -------- <S> <C> <C> Carleton S. Fiorina 1,969,855,821 14,374,854 H. Brewster Atwater, Jr. 1,970,348,378 13,882,297 Raymond V. Gilmartin 1,972,219,611 12,011,064 Edward M. Scolnick, M.D. 1,972,213,274 12,017,401 Samuel O. Thier, M.D. 1,970,765,664 13,465,011 Dennis Weatherstone 1,970,612,680 13,617,995 </TABLE> 2. A proposal to ratify the appointment of independent public accountants received 1,973,670,530 votes FOR and 3,404,366 votes AGAINST, with 7,155,779 abstentions. 3. A stockholder proposal concerning annual election of directors received 771,798,032 votes FOR and 769,206,896 votes AGAINST, with 52,012,397 abstentions and 391,213,350 broker non-votes. 4. A stockholder proposal concerning bonuses for executive officers received 73,776,293 votes FOR and 1,461,753,074 votes AGAINST, with 57,487,896 abstentions and 391,213,412 broker non-votes. 5. A stockholder proposal concerning nomination of a wage-roll employee to the Board of Directors received 71,532,675 votes FOR and 1,452,705,078 votes AGAINST, with 68,779,469 abstentions and 391,213,453 broker non-votes. - 12 - <PAGE> 14 Part II - Other Information (Cont'd) Item 6. Exhibits and Reports on Form 8-K (a) Exhibits <TABLE> <CAPTION> Number Description Method of Filing ------ ----------- ---------------- <S> <C> <C> 3(a) Restated Certificate of Incorporated by reference Incorporation of Merck to Form 10-K Annual Report & Co., Inc. (May 6, 1992) for the fiscal year ended December 31, 1992 3(b) Certificate of Amendment to Incorporated by reference the Certificate of to Form 10-K Annual Report Incorporation of Merck & for the fiscal year ended Co., Inc. (as amended December 31, 1998 January 14, 1999, effective February 16, 1999) 3(c) By-Laws of Merck & Co., Inc. Incorporated by reference (as amended effective to Form 10-Q Quarterly February 25, 1997) Report for the period ended March 31, 1997 10(a) 1996 Non-Employee Directors Filed with this document Stock Option Plan (as amended April 27, 1999) 10(b) Plan for Deferred Payment of Filed with this document Directors' Compensation (Restated as of June 1, 1999) 10(c) 1996 Incentive Stock Plan Filed with this document (as amended November 28, 1998) 10(d) Stock Purchase Agreement Filed with this document between Raymond V. Gilmartin and the Company dated June 16, 1999 12 Computation of Ratios of Filed with this document Earnings to Fixed Charges 27 Financial Data Schedule Filed with this document </TABLE> (b) Reports on Form 8-K During the three-month period ending June 30, 1999, no current reports on Form 8-K were filed. - 13 - <PAGE> 15 Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MERCK & CO., INC. Date: August 11, 1999 /s/ Mary McDonald ----------------- MARY MCDONALD Senior Vice President and General Counsel Date: August 11, 1999 /s/ Richard C. Henriques ------------------------ RICHARD C. HENRIQUES Vice President, Controller - 14 - <PAGE> 16 EXHIBIT INDEX Exhibits <TABLE> <CAPTION> Number Description ------ ----------- <S> <C> 3(a) Restated Certificate of Incorporation of Merck & Co., Inc. (May 6, 1992) - Incorporated by reference to Form 10-K Annual Report for the fiscal year ended December 31, 1992 3(b) Certificate of Amendment to the Certificate of Incorporation of Merck & Co., Inc. (as amended January 14, 1999, effective February 16, 1999) - Incorporated by reference to Form 10-K Annual Report for the fiscal year ended December 31, 1998 3(c) By-Laws of Merck & Co., Inc. (as amended effective February 25, 1997) - Incorporated by reference to Form 10-Q Quarterly Report for the period ended March 31, 1997 10(a) 1996 Non-Employee Directors Stock Option Plan (as amended April 27, 1999) 10(b) Plan for Deferred Payment of Directors' Compensation (Restated as of June 1, 1999) 10(c) 1996 Incentive Stock Plan (as amended November 28, 1998) 10(d) Stock Purchase Agreement between Raymond V. Gilmartin and the Company dated June 16, 1999 12 Computation of Ratios of Earnings to Fixed Charges 27 Financial Data Schedule </TABLE> </TEXT> </DOCUMENT> <DOCUMENT> <TYPE>EX-10.A <SEQUENCE>2 <DESCRIPTION>STOCK OPTION PLAN <TEXT> <PAGE> 1 ================================================================================ MERCK & CO., INC. 1996 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN (AMENDED APRIL 27, 1999) ================================================================================ <PAGE> 2 1996 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN The 1996 Non-Employee Directors Stock Option Plan (the "Plan") is established to attract, retain and compensate for service as members of the Board of Directors of Merck & Co., Inc. (the "Company") highly qualified individuals who are not current or former employees of the Company and to enable them to increase their ownership in the Company's Common Stock. The Plan will be beneficial to the Company and its stockholders since it will allow these directors to have a greater personal financial stake in the Company through the ownership of Company stock, in addition to underscoring their common interest with stockholders in increasing the value of the Company stock longer term. 1. Eligibility All members of the Company's Board of Directors who are not current or former employees of the Company or any of its subsidiaries ("Non-Employee Directors") are eligible to participate in this Plan. 2. Options Only nonqualified stock options ("NQSOs") may be granted under this Plan. 3. Shares Available a) Number of Shares Available: There is hereby reserved for issuance under this Plan 450,000 shares of Merck Common Stock, par value $0.01 per share, which may be authorized but unissued shares, treasury shares, or shares purchased on the open market. b) Recapitalization Adjustment: In the event of a reorganization, recapitalization, stock split, stock dividend, combination of shares, merger, consolidation, rights offering, or any other change in the corporate structure or shares of the Company, adjustments in the number and kind of shares authorized by this Plan, in the number and kind of shares covered by, and in the option price of outstanding NQSOs under this Plan shall be made if, and in the same manner as, such adjustments are made to NQSOs issued under the Company's then current Incentive Stock Plan. 4. Annual Grant of Nonqualified Stock Options Each year on the first Friday following the Company's Annual Meeting of Stockholders, each individual elected, reelected or continuing as a Non-Employee Director shall automatically receive NQSOs covering five thousand (5,000) shares of Merck Common Stock. Notwithstanding the foregoing, if, on that first Friday, the General Counsel of the Company determines, in her/his sole discretion, that the Company is in possession of material, undisclosed information about the Company, then the annual grant of NQSOs to Non-Employee Directors shall be suspended until the second day after public dissemination of such information and the price, exercisability date and option period shall then be determined by reference to such later date. If Merck Common Stock is not traded on the New York Stock Exchange on any date a grant would otherwise be 1 <PAGE> 3 awarded, then the grant shall be made the next day thereafter that Merck Common Stock is so traded. 5. Option Price The price of the NQSO shall be the closing price on the date of the grant of the Company's Common Stock as quoted on the composite tape of the New York Stock Exchange. 6. Option Period A NQSO granted under this Plan shall become exercisable five years after date of grant and shall expire ten years after date of grant ("Option Period"). 7. Payment The NQSO price shall be paid in cash in U.S. dollars at the time the NQSO is exercised. 8. Cessation of Service Upon cessation of service as a Non-Employee Director (for reasons other than retirement or death), only those NQSOs immediately exercisable at the date of cessation of service shall be exercisable by the grantee. Such NQSOs must be exercised within ninety days of cessation of service (but in no event after the expiration of the Option Period) or they shall be forfeited. 9. Retirement If a grantee ceases service as a Non-Employee Director and is at least age 65 with ten or more years of service or age 70 with five or more years of service, then any of his/her outstanding NQSOs shall continue to become exercisable. All outstanding NQSOs must be exercised by the earlier of (i) sixty months following the date of such cessation of service or (ii) the expiration of the Option Period, or such NQSOs shall be forfeited. 10. Death Upon the death of a grantee, those NQSOs which had been held for at least twelve months at date of death shall become immediately exercisable upon death. The NQSOs which become exercisable upon the date of death and those NQSOs which were exercisable on the date of death may be exercised by the grantee's legal representatives or heirs by the earlier of (i) thirty-six months from the date of death or (ii) the expiration of the Option Period; if not exercised by the earlier of (i) or (ii), such NQSOs shall be forfeited. 11. Administration and Amendment of the Plan This Plan shall be administered by the Board of Directors of Merck & Co., Inc. This Plan may be terminated or amended by the Board of Directors as it deems advisable. However, an amendment 2 <PAGE> 4 revising the price, date of exercisability, option period of, or amount of shares under a NQSO shall not be made more frequently than every six months unless necessary to comply with applicable laws or regulations. No amendment may revoke or alter in a manner unfavorable to the grantees any NQSOs then outstanding, nor may the Board amend this Plan without stockholder approval where the absence of such approval would cause the Plan to fail to comply with Rule 16b-3 under the Securities Exchange Act of 1934 (the "Act"), or any other requirement of applicable law or regulation. A NQSO may not be granted under this Plan after December 31, 2000 but NQSOs granted prior to that date shall continue to become exercisable and may be exercised according to their terms. 12. Transferability Except as set forth in this section, the NQSOs granted under this Plan shall not be exercisable during the grantee's lifetime by anyone other than the grantee, the grantee's legal guardian or the grantee's legal representative, and shall not be transferable other than by will or by the laws of descent and distribution. NQSOs granted under this Plan shall be transferable during a grantee's lifetime only in accordance with the following provisions: The grantee may only transfer an NQSO while serving as a Non-Employee Director of the Company or within one year of ceasing service as a Non-Employee Director due to retirement as defined in Section 9. The NQSO may be transferred only to the grantee's spouse, children (including adopted children and stepchildren) and grandchildren (collectively, "Family Members"), to one or more trusts for the benefit of Family Members or, at the discretion of the Board of Directors, to one or more partnerships where the grantee and his Family Members are the only partners, in accordance with the rules set forth in this section. The grantee shall not receive any payment or other consideration for such transfer (except that if the transfer is to a partnership, the grantee shall be permitted to receive an interest in the partnership in consideration for the transfer). Any NQSO transferred in accordance with this section shall continue to be subject to the same terms and conditions in the hands of the transferee as were applicable to such NQSO prior to the transfer, except that the grantee's right to transfer such NQSO in accordance with this section shall not apply to the transferee. However, if the transferee is a natural person, upon the transferee's death, the NQSO privileges may be exercised by the legal representatives or beneficiaries of the transferee within the exercise periods otherwise applicable to the NQSO. Any purported transfer of an NQSO under this section shall not be effective unless, prior to such transfer, the grantee has (1) met the minimum stock ownership target then in place for Directors of the Company, (2) notified the Company of the transferee's name and address, the number of shares under the Option to be transferred, and the grant date and exercise price of such shares, and (3) demonstrated, if requested by the Board of Directors, that the proposed transferee qualifies as a permitted transferee under the rules set forth in this section. In addition, the transferee must sign an agreement that he or she is bound by the rules and regulations of the Plans and by the same insider trading restrictions that apply to the grantee. No transfer shall be effective unless the Company has in effect a registration statement filed under the Securities Act of 1933 covering the securities to be acquired by the transferee upon exercise of the NQSO, or the General Counsel of Merck & Co., Inc. has determined that registration of such shares is not necessary. 3 <PAGE> 5 13. Compliance with SEC Regulations It is the Company's intent that the Plan comply in all respects with Rule 16b-3 of the Act, and any regulations promulgated thereunder. If any provision of this Plan is later found not to be in compliance with the Rule, the provision shall be deemed null and void. All grants and exercises of NQSOs under this Plan shall be executed in accordance with the requirements of Section 16 of the Act, as amended, and any regulations promulgated thereunder. 14. Miscellaneous Except as provided in this Plan, no Non-Employee Director shall have any claim or right to be granted a NQSO under this Plan. Neither the Plan nor any action thereunder shall be construed as giving any director any right to be retained in the service of the Company. 15. Effective Date This Plan shall be effective April 23, 1996 or such later date as stockholder approval is obtained. 4 </TEXT> </DOCUMENT> <DOCUMENT> <TYPE>EX-10.B <SEQUENCE>3 <DESCRIPTION>PLAN FOR DEFERRED PAYMENT OF COMPENSATION <TEXT> <PAGE> 1 ================================================================================ MERCK & CO., INC. PLAN FOR DEFERRED PAYMENT OF DIRECTORS' COMPENSATION (Restated as of June 1, 1999) ================================================================================ <PAGE> 2 TABLE OF CONTENTS Page Article I Purpose 1 Article II Election of Deferral, Measurement Methods and Distribution Schedule 1 Article III Valuation of Deferred Amounts 2 Article IV Redesignation Within a Deferral Account 3 Article V Redesignation of Deferred Amounts Measured by 4 Certain Measurement Methods on June 30, 1999 Article VI Payment of Deferred Amounts 4 Article VII Designation of Beneficiary 6 Article VIII Plan Amendment or Termination 6 Schedule A Measurement Methods 7 (i) <PAGE> 3 MERCK & CO., INC. PLAN FOR DEFERRED PAYMENT OF DIRECTORS' COMPENSATION I. PURPOSE To provide an arrangement under which directors of Merck & Co., Inc. other than current employees may (i) elect to voluntarily defer payment of the annual retainer and meeting and committee fees until after termination of their service as a director, and (ii) value compensation mandatorily deferred on their behalf. II. ELECTION OF DEFERRAL, MEASUREMENT METHODS AND DISTRIBUTION SCHEDULE A. Election of Voluntary Deferral Amount 1. Prior to December 28 of each year, each director is entitled to make an irrevocable election to defer until termination of service as a director receipt of payment of (a) 50% or 100% of the retainer for the 12 months beginning April 1 of the next calendar year, (b) 50% or 100% of the Committee Chairperson retainer beginning April 1 of the next calendar year, and (c) 50% or 100% of the meeting and committee fees for the 12 months beginning April 1 of the next calendar year. 2. Prior to commencement of duties as a director, a director newly elected or appointed to the Board during a calendar year must make the election under this paragraph for the portion of the Voluntary Deferral Amount applicable to such director's first year of service (or part thereof). 3. The Voluntary Deferral Amount shall be credited as follows: (1) Meeting and committee fees that are deferred are credited as of the day the director's services are rendered; (2) if the Board retainer and/or Committee Chairperson retainer is deferred, a pro-rata share of the deferred retainer is credited on the last business day of each calendar quarter. The dates the Voluntary Deferral Amount, or parts thereof, are credited to the director's deferred account are hereinafter referred to as the Voluntary Deferral Dates. B. Mandatory Deferral Amount 1. Effective April 27, 1999, on the Friday following the Company's Annual Meeting of Stockholders (such Friday hereinafter referred to as the "Mandatory Deferral Date"), each director will be credited with an amount equivalent to one-third of the annual cash retainer for the 12 month period beginning on the April 1 preceding the Annual Meeting (the "Mandatory Deferral Amount"). The Mandatory Deferral Amount will be measured by the Merck Common Stock account. 2. A director newly elected or appointed to the Board after the Mandatory Deferral Date will be credited with a pro rata portion of the Mandatory Deferral Amount applicable to such director's first year of service (or part thereof). Such pro rata portion shall be credited to the director's account on the first day of such director's service. 1 <PAGE> 4 C. Election of Measurement Method Each such annual election referred to in Section A shall include an election as to the measurement method or methods by which the value of amounts deferred will be measured in accordance with Article III, below. The available measurement methods are set forth on Schedule A hereto. D. Election of Distribution Schedule Each annual election referred to in Section A above shall also include an election to receive payment following termination of service as a director of all Voluntary Deferral Amounts and Mandatory Deferral Amounts in a lump sum either immediately or one year after such termination, or in quarterly or annual installments over five, ten or fifteen years. III. VALUATION OF DEFERRED AMOUNTS A. Common Stock 1. Initial Crediting. The annual Mandatory Deferral Amount shall be used to determine the number of full and partial shares of Merck Common Stock which such amount would purchase at the Composite Closing Price of the Common Stock on the Mandatory Deferral Date. That portion of the Voluntary Deferral Amount allocated to Merck Common Stock shall be used to determine the number of full and partial shares of Merck Common Stock which such amount would purchase at the Composite Closing Price of the Common Stock on the applicable Voluntary Deferral Date. However, should it be determined by the Committee on Directors of the Board of Directors that a measurement of Merck Common Stock on any Mandatory or Voluntary Deferral Date would not constitute fair market value, then the Committee shall decide on which date fair market value shall be determined using the valuation method set forth in this Article III, Section A.1. At no time during the deferral period will any shares of Merck Common Stock be purchased or earmarked for such deferred amounts nor will any rights of a shareholder exist with respect to such amounts. 2. Dividends. Each director's account will be credited with the additional number of full and partial shares of Merck Common Stock which would have been purchasable with the dividends on shares previously credited to the account at the Composite Closing Price of the Common Stock on the date each dividend was paid. 3. Distributions. Distribution from the Merck Common Stock account will be valued at the Composite Closing Price of Merck Common Stock on the distribution date. 2 <PAGE> 5 B. Mutual Funds 1. Initial Crediting. The amount allocated to each Mutual Fund shall be used to determine the full and partial Mutual Fund shares which such amount would purchase at the closing net asset value of the Mutual Fund shares on the Mandatory or Voluntary Deferral Date, whichever is applicable. The director's account will be credited with the number of full and partial Mutual Fund shares so determined. At no time during the deferral period will any Mutual Fund shares be purchased or earmarked for such deferred amounts nor will any rights of a shareholder exist with respect to such amounts. 2. Dividends. Each director's account will be credited with the additional number of full and partial Mutual Fund shares which would have been purchasable, at the closing net asset value of the Mutual Fund shares as of the date each dividend is paid on the Mutual Fund shares, with the dividends which would have been paid on the number of shares previously credited to such account (including pro rata dividends on any partial shares). 3. Distributions. Mutual Fund distributions will be valued based on the closing net asset value of the Mutual Fund shares on the distribution date. C. Adjustments In the event of a reorganization, recapitalization, stock split, stock dividend, combination of shares, merger, consolidation, rights offering or any other change in the corporate structure or shares of the Company or a Mutual Fund, the number and kind of shares or units of such investment measurement method available under this Plan and credited to each director's account shall be adjusted accordingly. IV. REDESIGNATION WITHIN A DEFERRAL ACCOUNT A. General A director may request a change in the measurement methods used to value all or a portion of his/her account other than Merck Common Stock. AMOUNTS DEFERRED USING THE MERCK COMMON STOCK METHOD AND ANY EARNINGS ATTRIBUTABLE TO SUCH DEFERRALS MAY NOT BE REDESIGNATED. The change will be effective on (i) the day when the redesignation request is received pursuant to administrative guidelines established by the Director, Benefits Financing, provided the request is received prior to the close of the New York Stock Exchange on such day or (ii) the next following business day if the request is received when the New York Stock Exchange is closed. B. When Redesignation May Occur 1. During Active Service. Effective June 1, 1999, there is no limit on the number of times a director may redesignate the portion of his/her deferred account permitted to be redesignated. Each such request shall be irrevocable and can be designated in whole percentages or as a dollar amount. 3 <PAGE> 6 2. After Death. Following the death of a director, the legal representative or beneficiary of such director may redesignate subject to the same rules as for active directors set forth in Article IV, Section B.1. C. Valuation of Amounts to be Redesignated The portion of the director's account to be redesignated will be valued at its cash equivalent and such cash equivalent will be converted into shares or units of the other measurement method(s). For purposes of such redesignations, the cash equivalent of the value of the Mutual Fund shares shall be the closing net asset value of such Mutual Fund on (i) the day when the redesignation request is received pursuant to administrative guidelines established by the Director, Benefits Financing, provided the request is received prior to the close of the New York Stock Exchange on such day or (ii) the next following business day if the request is received when the New York Stock Exchange is closed. V. REDESIGNATION OF DEFERRED AMOUNTS MEASURED BY CERTAIN MEASUREMENT METHODS ON JUNE 30, 1999 Prior to June 30, 1999, each director who has any part of his/her deferred account measured by the six investment funds listed in the chart below may elect the investments by which such part of the deferred account will be measured as of July 1, 1999. If a director fails to make an election regarding amounts measured by those six funds, then the amount in each such fund shall automatically be redesignated as of July 1, 1999, to the investments specified in the chart below as the replacement investments. The value to be redesignated will be the closing value on June 30, 1999 as determined in accordance with Article III. <TABLE> <CAPTION> INVESTMENT FUND OPTION TO BE REPLACED REPLACEMENT INVESTMENT FUND OPTION ---------------------------- ---------------------------------- <S> <C> Lehman Intermediate Treasury Bond Index Fidelity Spartan Government Income Lehman Long Term Treasury Bond Index PIMCO Long Term US Government The Bond Fund of America A PIMCO Total Return Institutional IDS Global Bond Fund A PIMCO Global Bond Institutional Merrill Lynch Developing Capital Markets A Templeton Developing Markets A Salomon 91-Day T-Bill Index Fidelity Retirement Government Money Market </TABLE> VI. PAYMENT OF DEFERRED AMOUNTS A. Payment All payments to directors of amounts deferred will be in cash in accordance with the distribution schedule elected by the director pursuant to Article II, Section D. Distributions shall be pro rata by measurement method. Distributions shall be valued on the fifteenth day of the distribution month (or, if such day is not a business day, the next business day) and paid as soon thereafter as possible. 4 <PAGE> 7 B. Changes to Distribution Schedule Prior to Termination Upon the request of a director made at any time during the calendar year immediately preceding the calendar year in which service as a director is expected to terminate, the Committee on Directors of the Board of Directors ("Committee on Directors"), in its sole discretion, may authorize: (a) an extension of a payment period beyond that originally elected by the director not to exceed that otherwise allowable under Article II, Section D, and/or (b) a payment frequency different from that originally elected by the director. Such request may not be made with regard to amounts deferred after December 31, 1990 using the Merck Common Stock method and to any earnings attributable to such deferrals. Deferrals into Merck Common Stock made after December 31, 1990 and any earnings thereon may only be distributed in accordance with the schedule elected by the director under Article II, Section D or determined by the Committee on Directors under Article VII. C. Post-Termination Changes to Distribution Schedule Following termination of service as a director, each director may make one request for a further extension of the period for distribution of his/her deferred compensation. Such request must be received by the Committee on Directors prior to the first distribution to the participant under his/her previously elected distribution schedule. Any revised distribution schedule may not exceed the deferral period otherwise allowable under Article II, Section C. This request may be granted and a new payment schedule determined in the sole discretion of the Committee on Directors. Such request may not be made with regard to amounts deferred after December 31, 1990 using the Merck Common Stock Method and to any earnings attributable to such deferrals. Any retired director who is not subject to U.S. income tax may petition the Committee on Directors to change payment frequency, including a lump sum distribution, and the Committee on Directors may grant such petition if, in its discretion, it considers there to be reasonable justification therefor. Deferrals into Merck Common Stock made after December 30, 1990 and any earnings thereon may only be distributed in accordance with the schedule elected by the director under Article II, Section D or determined by the Committee on Directors under Article VII. D. Forfeitures A director's deferred amount attributable to the Mandatory Deferral Amount and earnings thereon shall be forfeited upon his or her removal as a director or upon a determination by the Committee on Directors in its sole discretion, that a director has: (i) joined the Board of, managed, operated, participated in a material way in, entered employment with, performed consulting (or any other) services for, or otherwise been connected in any material manner with a company, corporation, enterprise, firm, limited partnership, partnership, person, sole proprietorship or any other business entity determined by the Committee on Directors in its sole discretion to be competitive with the business of the Company, its subsidiaries or its affiliates (a "Competitor"); (ii) directly or indirectly acquired an equity interest of five (5) percent or greater in a Competitor; or 5 <PAGE> 8 (iii) disclosed any material trade secrets or other material confidential information, including customer lists, relating to the Company or to the business of the Company to others, including a Competitor. VII. DESIGNATION OF BENEFICIARY In the event of the death of a director, the deferred amount at the date of death shall be paid to the last named beneficiary or beneficiaries designated by the director, or, if no beneficiary has been designated, to the director's legal representative, in one or more installments as the Committee on Directors in its sole discretion may determine. VIII. PLAN AMENDMENT OR TERMINATION The Committee on Directors shall have the right to amend or terminate this Plan at any time for any reason. 6 <PAGE> 9 SCHEDULE A MEASUREMENT METHODS (EFFECTIVE JULY 1, 1999) MERCK COMMON STOCK MUTUAL FUNDS Acorn Fund Fidelity Destiny I Fidelity Equity Income Fund Fidelity Magellan Fund Fidelity Retirement Government Money Market Fidelity Spartan Government Income Spartan(R) U.S. Equity Index Fund PIMCO Long Term US Government PIMCO Total Return Institutional PIMCO Global Bond Institutional Scudder Growth & Income Fund Sequoia Fund T. Rowe Price Small-Cap Value Fund T. Rowe Price International Stock Fund Templeton Developing Markets A Templeton Growth Fund, Inc. I Vanguard Wellington Fund 7 </TEXT> </DOCUMENT> <DOCUMENT> <TYPE>EX-10.C <SEQUENCE>4 <DESCRIPTION>1996 INCENTIVE STOCK PLAN <TEXT> <PAGE> 1 ================================================================================ MERCK & CO., INC. 1996 INCENTIVE STOCK PLAN ================================================================================ Amended 11/24/98 <PAGE> 2 1996 INCENTIVE STOCK PLAN The 1996 Incentive Stock Plan ("ISP"), effective January 1, 1996, is established to encourage employees of Merck & Co., Inc. (the "Company"), its subsidiaries, its affiliates, its joint ventures and the Merck Institute for Therapeutic Research to acquire Common Stock in the Company. It is believed that the ISP will stimulate employees' efforts on the Company's behalf, will tend to maintain and strengthen their desire to remain with the Company, will be in the interest of the Company and its Stockholders, and will encourage such employees to have a greater personal financial investment in the Company through ownership of its Common Stock. 1. ADMINISTRATION The ISP shall be administered by the Compensation and Benefits Committee of the Board of Directors of the Company (the "Committee"). The Committee is authorized, subject to the provisions of the ISP, to establish such rules and regulations as it deems necessary for the proper administration of the ISP, and to make such determinations and to take such action in connection therewith or in relation to the ISP as it deems necessary or advisable, consistent with the ISP. The Committee may delegate some or all of its power and authority hereunder to the Chief Executive Officer or other senior member of management as the Committee deems appropriate; provided, however, that the Committee may not delegate its authority with regard to any matter or action affecting an officer subject to Section 16 of the Securities Exchange Act of 1934. For the purpose of this section and all subsequent sections, the ISP shall be deemed to include this plan and any comparable sub-plans established by subsidiaries which, in the aggregate, shall constitute one plan governed by the terms set forth herein. 2. ELIGIBILITY Regular full-time and part-time employees of the Company, its subsidiaries, its affiliates, its joint ventures and the Merck Institute for Therapeutic Research, including officers, whether or not directors of the Company, and employees of a joint venture partner or affiliate of the Company who provide services to the joint venture with such partner or affiliate and who are not directors or officers of the Company for purposes of Section 16 of the Securities Exchange Act of 1934, shall be eligible to participate in the ISP ("Eligible Employees") if designated by the Committee or its delegate. Those directors who are not regular employees are not eligible. 3. INCENTIVES Incentives under the ISP may be granted in any one or a combination of (a) Incentive Stock Options (or other statutory stock option); (b) Nonqualified Stock Options; (c) Stock Appreciation Rights; (d) Restricted Stock Grants and (e) Performance Shares (together "Incentives"). All Incentives shall be subject to the terms and conditions set forth herein and to such other terms and conditions as may be established by the Committee. Determinations by the Committee under the ISP including without limitation, determinations of the Eligible Employees, the form, amount and timing of Incentives, the terms and provisions of Incentives, and the agreements evidencing Incentives, need not be uniform and may be made selectively among Eligible Employees who receive, or are eligible to receive, Incentives hereunder, whether or not such Eligible Employees are similarly situated. 1 <PAGE> 3 4. SHARES AVAILABLE FOR INCENTIVES (a) SHARES SUBJECT TO ISSUANCE OR TRANSFER. Subject to adjustment as provided in Section 4(c) hereof, there is hereby reserved for issuance under the ISP 130 million shares of the Company's Common Stock ("Common Stock"). The shares available for granting awards shall be increased by the number of shares as to which options or other benefits granted under the Plan have lapsed, expired, terminated or been canceled. In addition, any shares reserved for issuance under the Company's 1991 Incentive Stock Plan and 1987 Incentive Stock Plan ("Prior Plans") in excess of the number of shares as to which options or other benefits have been awarded thereunder, plus any such shares as to which options or other benefits granted under the Prior Plans may lapse, expire, terminate or be canceled, shall also be reserved and available for issuance or reissuance under the ISP. Shares under this Plan may be delivered by the Company from its authorized but unissued shares of Common Stock or from Common Stock held in the Treasury. (b) LIMIT ON AN INDIVIDUAL'S INCENTIVES. In any given year, no Eligible Employee may receive Incentives covering more than three million shares of the Company's Common Stock (such number of shares may be adjusted in accordance with Section 4(c)). (c) RECAPITALIZATION ADJUSTMENT. In the event of a reorganization, recapitalization, stock split, stock dividend, combination of shares, merger, consolidation, rights offering, or any other change in the corporate structure or shares of the Company, the Committee shall make such adjustment, if any, as it may deem appropriate in the number and kind of shares authorized by the ISP, in the number and kind of shares covered by Incentives granted, in the case of Stock Options, in the option price, and in the case of stock appreciation rights, in the fair market value. 5. STOCK OPTIONS The Committee may grant options qualifying as Incentive Stock Options under the Internal Revenue Code of 1986, as amended, or any successor code thereto (the "Code"), other statutory options under the Code, and Nonqualified Options (collectively "Stock Options"). Such Stock Options shall be subject to the following terms and conditions and such other terms and conditions as the Committee may prescribe: (a) OPTION PRICE. The option price per share with respect to each Stock Option shall be determined by the Committee, but shall not be less than 100% of the fair market value of the Common Stock on the date the Stock Option is granted, as determined by the Committee. (b) PERIOD OF OPTION. The period of each Stock Option shall be fixed by the Committee but shall not exceed ten (10) years. (c) PAYMENT. The option price shall be payable in cash at the time the Stock Option is exercised. No shares shall be issued until full payment therefor has been made. A grantee of a Stock Option shall have none of the rights of a stockholder until the shares are issued. (d) EXERCISE OF OPTION. The shares covered by a Stock Option may be purchased in such installments and on such exercise dates as the Committee or its delegate may determine. Any shares not purchased on the applicable exercise date may be purchased thereafter at any time prior to the final expiration of the Stock Option. In no event (including those specified in paragraphs (e), (f) and (g) of this section) shall any Stock Option be exercisable after its specified expiration period. (e) TERMINATION OF EMPLOYMENT. Upon the termination of a Stock Option grantee's employment (for any reason other than retirement, death or termination for deliberate, willful or gross misconduct), Stock Option privileges shall be limited to the shares which were immediately exercisable at the date of such termination. The Committee, however, in its discretion, may provide 2 <PAGE> 4 that any Stock Options outstanding but not yet exercisable upon the termination of a Stock Option grantee's employment may become exercisable in accordance with a schedule to be determined by the Committee. Such Stock Option privileges shall expire unless exercised or surrendered under a Stock Appreciation Right within such period of time after the date of termination of employment as may be established by the Committee, but in no event later than the expiration date of the Stock Option. If a Stock Option grantee's employment is terminated for deliberate, willful or gross misconduct, as determined by the Company, all rights under the Stock Option shall expire upon receipt of the notice of such termination. (f) RETIREMENT. Upon retirement of a Stock Option grantee, Stock Option privileges shall apply to those shares immediately exercisable at the date of retirement. The Committee, however, in its discretion, may provide that any Stock Options outstanding but not yet exercisable upon the retirement of a Stock Option grantee may become exercisable in accordance with a schedule to be determined by the Committee. Stock Option privileges shall expire unless exercised within such period of time as may be established by the Committee, but in no event later than the expiration date of the Stock Option. (g) DEATH. Upon the death of a Stock Option grantee, Stock Option privileges shall apply to those shares which were immediately exercisable at the time of death. The Committee, however, in its discretion, may provide that any Stock Options outstanding but not yet exercisable upon the death of a Stock Option grantee may become exercisable in accordance with a schedule to be determined by the Committee. Such privileges shall expire unless exercised by legal representatives within a period of time as determined by the Committee but in no event later than the expiration date of the Stock Option. (h) LIMITS ON INCENTIVE STOCK OPTIONS. Except as may otherwise be permitted by the Code, the Committee shall not grant to an Eligible Employee Incentive Stock Options, that, in the aggregate, are first exercisable during any one calendar year to the extent that the aggregate fair market value of the Common Stock, at the time the Incentive Stock Options are granted, exceeds $100,000. 6. STOCK APPRECIATION RIGHTS The Committee may, in its discretion, grant a right to receive the appreciation in the fair market value of shares of Common Stock ("Stock Appreciation Right") either singly or in combination with an underlying Stock Option granted hereunder or under the Prior Plans. Such Stock Appreciation Rights shall be subject to the following terms and conditions and such other terms and conditions as the Committee may prescribe: (a) TIME AND PERIOD OF GRANT. If a Stock Appreciation Right is granted with respect to an underlying Stock Option, it may be granted at the time of the Stock Option Grant or at any time thereafter but prior to the expiration of the Stock Option Grant. If a Stock Appreciation Right is granted with respect to an underlying Stock Option, at the time the Stock Appreciation Right is granted the Committee may limit the exercise period for such Stock Appreciation Right, before and after which period no Stock Appreciation Right shall attach to the underlying Stock Option. In no event shall the exercise period for a Stock Appreciation Right granted with respect to an underlying Stock Option exceed the exercise period for such Stock Option. If a Stock Appreciation Right is granted without an underlying Stock Option, the period for exercise of the Stock Appreciation Right shall be set by the Committee. (b) VALUE OF STOCK APPRECIATION RIGHT. If a Stock Appreciation Right is granted with respect to an underlying Stock Option, the grantee will be entitled to surrender the Stock Option which is then exercisable and receive in exchange therefor an amount equal to the excess of the fair market value of 3 <PAGE> 5 the Common Stock on the date the election to surrender is received by the Company over the Stock Option price multiplied by the number of shares covered by the Stock Option which are surrendered. If a Stock Appreciation Right is granted without an underlying Stock Option, the grantee will receive upon exercise of the Stock Appreciation Right an amount equal to the excess of the fair market value of the Common Stock on the date the election to surrender such Stock Appreciation Right is received by the Company over the fair market value of the Common Stock on the date of grant multiplied by the number of shares covered by the grant of the Stock Appreciation Right. (c) PAYMENT OF STOCK APPRECIATION RIGHT. Payment of a Stock Appreciation Right shall be in the form of shares of Common Stock, cash, or any combination of shares and cash. The form of payment upon exercise of such a right shall be determined by the Committee either at the time of grant of the Stock Appreciation Right or at the time of exercise of the Stock Appreciation Right. 7. PERFORMANCE SHARE AWARDS The Committee may grant awards under which payment may be made in shares of Common Stock, cash or any combination of shares and cash if the performance of the Company or any subsidiary, division or affiliate of the Company selected by the Committee during the Award Period meets certain goals established by the Committee ("Performance Share Awards"). Such Performance Share Awards shall be subject to the following terms and conditions and such other terms and conditions as the Committee may prescribe: (a) AWARD PERIOD AND PERFORMANCE GOALS. The Committee shall determine and include in a Performance Share Award grant the period of time for which a Performance Share Award is made ("Award Period"). The Committee shall also establish performance objectives ("Performance Goals") to be met by the Company, subsidiary or division during the Award Period as a condition to payment of the Performance Share Award. The Performance Goals may include earnings per share, return on stockholders' equity, return on assets, net income, or any other financial or other measurement established by the Committee. The Performance Goals may include minimum and optimum objectives or a single set of objectives. (b) PAYMENT OF PERFORMANCE SHARE AWARDS. The Committee shall establish the method of calculating the amount of payment to be made under a Performance Share Award if the Performance Goals are met, including the fixing of a maximum payment. The Performance Share Award shall be expressed in terms of shares of Common Stock and referred to as "Performance Shares." After the completion of an Award Period, the performance of the Company, subsidiary or division shall be measured against the Performance Goals, and the Committee shall determine whether all, none or any portion of a Performance Share Award shall be paid. The Committee, in its discretion, may elect to make payment in shares of Common Stock, cash or a combination of shares and cash. Any cash payment shall be based on the fair market value of Performance Shares on, or as soon as practicable prior to, the date of payment. (c) REVISION OF PERFORMANCE GOALS. At any time prior to the end of an Award Period, the Committee may revise the Performance Goals and the computation of payment if unforeseen events occur which have a substantial effect on the performance of the Company, subsidiary or division and which in the judgment of the Committee make the application of the Performance Goals unfair unless a revision is made. 4 <PAGE> 6 (d) REQUIREMENT OF EMPLOYMENT. A grantee of a Performance Share Award must remain in the employ of the Company until the completion of the Award Period in order to be entitled to payment under the Performance Share Award; provided that the Committee may, in its sole discretion, provide for a partial payment where such an exception is deemed equitable. (e) DIVIDENDS. The Committee may, in its discretion, at the time of the granting of a Performance Share Award, provide that any dividends declared on the Common Stock during the Award Period, and which would have been paid with respect to Performance Shares had they been owned by a grantee, be (i) paid to the grantee, or (ii) accumulated for the benefit of the grantee and used to increase the number of Performance Shares of the grantee. (f) LIMIT ON PERFORMANCE SHARE AWARDS. Incentives granted as Performance Share Awards under this section and Restricted Stock Grants under Section 8 shall not exceed, in the aggregate, 12 million shares of Common Stock (such number of shares may be adjusted in accordance with Section 4(c)). 8. RESTRICTED STOCK GRANTS The Committee may award shares of Common Stock to a grantee, which shares shall be subject to the following terms and conditions and such other terms and conditions as the Committee may prescribe ("Restricted Stock Grant"): (a) REQUIREMENT OF EMPLOYMENT. A grantee of a Restricted Stock Grant must remain in the employment of the Company during a period designated by the Committee ("Restriction Period") in order to retain the shares under the Restricted Stock Grant. If the grantee leaves the employment of the Company prior to the end of the Restriction Period, the Restricted Stock Grant shall terminate and the shares of Common Stock shall be returned immediately to the Company; provided that the Committee may, at the time of the grant, provide for the employment restriction to lapse with respect to a portion or portions of the Restricted Stock Grant at different times during the Restriction Period. The Committee may, in its discretion, also provide for such complete or partial exceptions to the employment restriction as it deems equitable. (b) RESTRICTIONS ON TRANSFER AND LEGEND ON STOCK CERTIFICATES. During the Restriction Period, the grantee may not sell, assign, transfer, pledge, or otherwise dispose of the shares of Common Stock except to a successor under Section 10 hereof. Each certificate for shares of Common Stock issued hereunder shall contain a legend giving appropriate notice of the restrictions in the grant. (c) ESCROW AGREEMENT. The Committee may require the grantee to enter into an escrow agreement providing that the certificates representing the Restricted Stock Grant will remain in the physical custody of an escrow holder until all restrictions are removed or expire. (d) LAPSE OF RESTRICTIONS. All restrictions imposed under the Restricted Stock Grant shall lapse upon the expiration of the Restriction Period if the conditions as to employment set forth above have been met. The grantee shall then be entitled to have the legend removed from the certificates. (e) DIVIDENDS. The Committee shall, in its discretion, at the time of the Restricted Stock Grant, provide that any dividends declared on the Common Stock during the Restriction Period shall either be (i) paid to the grantee, or (ii) accumulated for the benefit of the grantee and paid to the grantee only after the expiration of the Restriction Period. 5 <PAGE> 7 (f) LIMIT ON RESTRICTED STOCK GRANT. Incentives granted as Restricted Stock Grants under this section and Performance Share Awards under Section 7 shall not exceed, in the aggregate, 12 million shares of Common Stock (such number of shares may be adjusted in accordance with Section 4(c)). 9. DISCONTINUANCE OR AMENDMENT OF THE PLAN The Board of Directors may discontinue the ISP at any time and may from time to time amend or revise the terms of the ISP as permitted by applicable statutes, except that it may not revoke or alter, in a manner unfavorable to the grantees of any Incentives hereunder, any Incentives then outstanding, nor may the Board amend the ISP without stockholder approval where the absence of such approval would cause the Plan to fail to comply with Rule 16b-3 under the Securities Exchange Act of 1934, or any other requirement of applicable law or regulation. No Incentive shall be granted under the ISP after December 31, 2000, but Incentives granted theretofore may extend beyond that date. 10. NONTRANSFERABILITY Each Incentive Stock Option granted under the ISP shall not be transferable other than by will or the laws of descent and distribution; each other Incentive granted under the ISP may be transferable subject to the terms and conditions as may be established by the Committee in accordance with regulations promulgated under the Securities Exchange Act of 1934, or any other applicable law or regulation. 11. NO RIGHT OF EMPLOYMENT The ISP and the Incentives granted hereunder shall not confer upon any Eligible Employee the right to continued employment with the Company, its subsidiaries, its affiliates, its joint ventures or the Merck Institute for Therapeutic Research or affect in any way the right of such entities to terminate the employment of an Eligible Employee at any time and for any reason. 12. TAXES The Company shall be entitled to withhold the amount of any tax attributable to any option granted, any amount payable or shares deliverable under the ISP after giving the person entitled to receive such amount or shares notice as far in advance as practicable. 6 </TEXT> </DOCUMENT> <DOCUMENT> <TYPE>EX-10.D <SEQUENCE>5 <DESCRIPTION>STOCK PURCHASE AGREEMENT <TEXT> <PAGE> 1 STOCK PURCHASE AGREEMENT This Agreement is made as of this 16th day of June, 1999 by and between Mr. Raymond V. Gilmartin ("Seller") and Merck & Co., Inc., a New Jersey corporation having its principal offices at One Merck Drive, P.O. Box 100, Whitehouse Station, NJ 08889-0100 ("Merck"). WHEREAS, Seller and Merck entered into an Employment Agreement (the "Employment Agreement") as of June 9, 1994, pursuant to which Seller received a grant of 50,000 shares (as adjusted for a 2-for-1 stock split on February 16, 1999) of restricted common stock of Merck; WHEREAS, on June 16, 1999, the grant of restricted stock under the Employment Agreement vested and Merck has an obligation under state and federal tax laws to withhold funds from Seller with respect to the income realized by Seller upon the vesting of the restricted shares of common stock; WHEREAS, Seller wishes to sell 18,225 shares of common stock of Merck (the "Shares") and Merck desires to purchase the Shares in order to satisfy Merck's tax withholding obligations; NOW THEREFORE, in consideration of the mutual promises hereinafter contained, the parties hereby agree as follows: 1. Purchase and Sale of Shares 1.1 Subject to the terms and conditions hereof, Merck hereby purchases from Seller, and Seller hereby sells, assigns and delivers to Merck, the Shares for a purchase price per share of $68.625, which is the Composite Closing Price of Merck common stock on the date hereof. 1.2 Seller herewith delivers to Merck one or more certificates representing all of the Shares, fully endorsed or with appropriate stock powers in form sufficient for transfer of the Shares to Merck in order to effect transfer of title to the Shares. 1.3 Merck shall retain the Shares' aggregate purchase price and use such funds to satisfy its tax withholding obligations concerning Seller. 2. Representations and Warranties by Seller Seller represents and warrants to Merck as follows: (a) This Agreement is binding on and enforceable against Seller in accordance with its terms; (b) Seller is the sole and exclusive record and beneficial owner of all right, title and interest in and to the Shares, free and clear security interests, claims, encumbrances and liens (collectively, "Liens") of any nature whatsoever; and <PAGE> 2 2 (c) Upon the delivery of the Shares to Merck against payment as provided for herein, good title to the Shares, free and clear of all Liens will pass to Merck and Seller will execute and deliver to Merck such documents and take such further action as may be reasonably requested by Merck in order to transfer ownership of and title to all Shares to Merck. 3. Representations and Warranties by Merck Merck represents and warrants to Seller as follows: (a) Merck is a corporation duly incorporated, validly existing and in good standing under the laws of the state of New Jersey, with all necessary corporate power and authority to enter into and perform its obligations under this Agreement; (b) This Agreement has been duly and validly authorized, executed and delivered by Merck and is binding on and enforceable against Merck in accordance with its terms; and (c) Merck is acquiring the Shares for its own account for investment and not for or with a view to or for resale in connection with any distribution thereof within the meaning of the Securities Act of 1933, as amended. 4. Survival of Representations The parties hereto each agree that all representations, warranties, covenants and agreements contained herein shall survive the execution and delivery of the Agreement, the transfer and payment for the Shares and any investigation or audit made by any party hereto. 5. General This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof. It may not be altered, amended or supplemented except by an agreement in writing signed by both parties. It shall be governed by and construed in accordance with the laws of the state of New Jersey. It shall be binding upon the parties and their respective successors and assigns. This Agreement may be executed in counterparts, each of which shall be deemed an original and both of which shall constitute one and the same instrument. MERCK & CO., INC. By: /s/ MARY M. McDONALD --------------------------------- Name: Mary M. McDonald Title: Sr. VP and General Counsel By: /s/ RAYMOND V. GILMARTIN --------------------------------- Raymond V. Gilmartin </TEXT> </DOCUMENT> <DOCUMENT> <TYPE>EX-12 <SEQUENCE>6 <DESCRIPTION>COMPUTATION OF RATIOS <TEXT> <PAGE> 1 Exhibit 12 MERCK & CO., INC. AND SUBSIDIARIES Computation Of Ratios Of Earnings To Fixed Charges (In millions except ratio data) <TABLE> <CAPTION> Six Months Ended Years Ended December 31 June 30 -------------------------------------------------------------------- 1999 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- -------- <S> <C> <C> <C> <C> <C> <C> Income Before Taxes $4,173.4 $8,133.1 $6,462.3 $5,540.8 $4,797.2 $4,415.2 Add: One-third of rents 32.9 56.0 47.0 41.0 28.1 36.0 Interest expense, net 106.7 150.6 98.2 103.2 60.3 96.0 Preferred stock dividends 59.8 62.1 49.6 70.0 2.1 -- -------- -------- -------- -------- -------- -------- Earnings $4,372.8 $8,401.8 $6,657.1 $5,755.0 $4,887.7 $4,547.2 ======== ======== ======== ======== ======== ======== One-third of rents $ 32.9 $ 56.0 $ 47.0 $ 41.0 $ 28.1 $ 36.0 Interest expense 140.3 205.6 129.5 138.6 98.7 124.4 Preferred stock dividends 59.8 62.1 49.6 70.0 2.1 -- -------- -------- -------- -------- -------- -------- Fixed Charges $ 233.0 $ 323.7 $ 226.1 $ 249.6 $ 128.9 $ 160.4 ======== ======== ======== ======== ======== ======== Ratio of Earnings to Fixed Charges 19 26 29 23 38 28 == == == == == == </TABLE> For purposes of computing these ratios, "earnings" consist of income before taxes, one-third of rents (deemed by the Company to be representative of the interest factor inherent in rents), interest expense, net of amounts capitalized, and dividends on preferred stock of subsidiary companies. "Fixed charges" consist of one-third of rents, interest expense as reported in the Company's consolidated financial statements and dividends on preferred stock of subsidiary companies. </TEXT> </DOCUMENT> <DOCUMENT> <TYPE>EX-27 <SEQUENCE>7 <DESCRIPTION>FINANCIAL DATA SCHEDULE <TEXT> <TABLE> <S> <C> <ARTICLE> 5 <LEGEND> This schedule contains summary financial information extracted from the consolidated statement of income for the six months ended June 30, 1999 and the consolidated balance sheet as of June 30, 1999 and is qualified in its entirety by reference to such financial statements. </LEGEND> <MULTIPLIER> 1,000,000 <S> <C> <PERIOD-TYPE> 6-MOS <FISCAL-YEAR-END> DEC-31-1999 <PERIOD-END> JUN-30-1999 <CASH> 2,268 <SECURITIES> 1,273 <RECEIVABLES> 3,380 <ALLOWANCES> 0<F1> <INVENTORY> 2,566 <CURRENT-ASSETS> 10,427 <PP&E> 12,896 <DEPRECIATION> (4,371) <TOTAL-ASSETS> 33,210 <CURRENT-LIABILITIES> 6,545 <BONDS> 3,213 <PREFERRED-MANDATORY> 0 <PREFERRED> 0 <COMMON> 30 <OTHER-SE> 12,945 <TOTAL-LIABILITY-AND-EQUITY> 33,210 <SALES> 15,555 <TOTAL-REVENUES> 15,555 <CGS> 8,524 <TOTAL-COSTS> 8,524 <OTHER-EXPENSES> 924 <LOSS-PROVISION> 0<F1> <INTEREST-EXPENSE> 140 <INCOME-PRETAX> 4,173 <INCOME-TAX> 1,396 <INCOME-CONTINUING> 2,778 <DISCONTINUED> 0 <EXTRAORDINARY> 0 <CHANGES> 0 <NET-INCOME> 2,778 <EPS-BASIC> 1.18 <EPS-DILUTED> 1.15 <FN> <F1>Not material to the consolidated financial statements. </FN> </TABLE> </TEXT> </DOCUMENT> </SEC-DOCUMENT>