SCHEDULE 14A
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
MERCK & CO., INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
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(4) Date Filed:
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Raymond V. Gilmartin Merck & Co., Inc.
Chairman, President & Chief Executive Officer One Merck Drive
P.O. Box 100
Whitehouse Station, NJ
08889-0100
[LOGO] MERCK
March 21, 2002
Dear Stockholders:
It is my pleasure to invite you to Merck's 2002 Annual Meeting of
Stockholders. We will hold the meeting on Tuesday, April 23, 2002, at 2:00
p.m., in the Edward Nash Theatre at Raritan Valley Community College, Route 28
and Lamington Road, North Branch, New Jersey. During the Annual Meeting, we
will discuss each item of business described in the Notice of Annual Meeting
and Proxy Statement and give a report on the Company's business operations.
There will also be time for questions.
This booklet includes the Notice of Annual Meeting and Proxy Statement. The
Proxy Statement provides information about Merck in addition to describing the
business we will conduct at the meeting.
We hope you will be able to attend the Annual Meeting. Whether or not you
expect to attend, please vote your shares using any of the following methods:
vote by telephone or the Internet, as described in the instructions you
receive; sign, date and return the proxy card or voting instruction card in the
prepaid envelope; or vote in person at the meeting.
Sincerely,
/s/ Raymond V. Gilmartin
TABLE OF CONTENTS
Page
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Notice of Annual Meeting of Stockholders................................................ 1
Questions and Answers About the Annual Meeting and Voting............................... 3
Election of Directors................................................................... 7
. Nominees.......................................................................... 7
. Directors Whose Terms Expire in 2003.............................................. 9
. Directors Whose Terms Expire in 2004.............................................. 10
. Board Committees.................................................................. 11
. Board's Role in Strategic Planning................................................ 12
. Board and Board Committee Meetings................................................ 13
. Relationships with Outside Firms.................................................. 13
. Compensation of Directors......................................................... 13
. Security Ownership of Directors and Executive Officers............................ 14
. Compensation and Benefits Committee Report on Executive Compensation.............. 15
. Summary Compensation Table........................................................ 18
. Option/SAR Grants in Last Fiscal Year............................................. 19
. Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values.. 20
. Annual Benefits Payable Under Merck & Co., Inc. Retirement Plans.................. 20
. Pension Plan Tables............................................................ 21
. Compensation Committee Interlocks and Insider Participation....................... 22
. Indebtedness of Management........................................................ 22
. Performance Graph................................................................. 23
. Audit Committee................................................................... 24
. Audit Committee's Report....................................................... 24
. Change in Independent Public Accountants.......................................... 25
Ratification of Appointment of Independent Public Accountants........................... 25
Stockholder Proposal Concerning Annual Election of Directors............................ 25
Stockholder Proposal Concerning Voting "Against" Directors.............................. 27
Stockholder Proposal Concerning Pharmaceutical Pricing.................................. 27
Stockholder Proposal Concerning a "Glass Ceiling" Review................................ 29
Section 16(a) Beneficial Ownership Reporting Compliance................................. 30
Other Matters........................................................................... 31
[LOGO] MERCK
Merck & Co., Inc.
Notice of Annual Meeting of Stockholders
April 23, 2002
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To the Stockholders:
The stockholders of Merck & Co., Inc. will hold their Annual
Meeting on Tuesday, April 23, 2002, at 2:00 p.m., in the Edward Nash
Theatre at Raritan Valley Community College, Route 28 and Lamington
Road, North Branch, New Jersey. The purposes of the meeting are to:
. elect one director for a term ending in 2004 and four
directors for terms ending in 2005;
. consider and act upon a proposal to ratify the appointment of
PricewaterhouseCoopers LLP as the Company's independent public
accountants for 2002;
. consider and act upon a stockholder proposal concerning annual
election of directors;
. consider and act upon a stockholder proposal concerning voting
"against" directors;
. consider and act upon a stockholder proposal concerning
pharmaceutical pricing;
. consider and act upon a stockholder proposal concerning a
"glass ceiling" review; and
. transact such other business as may properly come before the
meeting.
Only stockholders listed on the Company's records at the close of
business on March 8, 2002 are entitled to vote.
By order of the Board of Directors,
CELIA A. COLBERT
Vice President, Secretary and
Assistant General Counsel
March 21, 2002
[This Page Intentionally Left Blank]
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Merck & Co., Inc.
P. O. Box 100
Whitehouse Station, New Jersey 08889-0100
(908) 423-1000
March 21, 2002
Proxy Statement
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QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING
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Q: Why did I receive this proxy statement?
A: The Board of Directors is soliciting your proxy to vote at the Annual
Meeting because you are a stockholder as of the close of business on March
8, 2002, the record date, and are entitled to vote at the meeting.
This proxy statement and 2001 annual report, along with either a proxy card
or a voting instruction card, are being mailed to stockholders beginning
March 21, 2002. The proxy statement summarizes the information you need to
know to vote at the Annual Meeting. You do not need to attend the Annual
Meeting to vote your shares.
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Q: What is the difference between holding shares as a stockholder of record and
as a beneficial owner?
A: If your shares are registered directly in your name with Merck's transfer
agent, Wells Fargo Bank Minnesota, N.A., you are considered, with respect to
those shares, the "stockholder of record." The proxy statement, annual
report and proxy card have been sent directly to you by Merck.
If your shares are held in a stock brokerage account or by a bank or other
nominee, you are considered the "beneficial owner" of shares held in street
name. The proxy statement and annual report have been forwarded to you by
your broker, bank or nominee who is considered, with respect to those
shares, the stockholder of record. As the beneficial owner, you have the
right to direct your broker, bank or nominee how to vote your shares by
using the voting instruction card included in the mailing.
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Q: What is "householding" and how does it affect me?
A: Merck has adopted a process for mailing the annual report and proxy
statement called "householding," which has been approved by the Securities
and Exchange Commission. Householding means that stockholders who share the
same last name and address will receive only one copy of the annual report
and proxy statement, unless we receive contrary instructions from any
stockholder at that address. Merck will continue to mail a proxy card to
each stockholder of record.
If you prefer to receive multiple copies of the proxy statement and annual
report at the same address, additional copies will be provided to you upon
request. If you are a stockholder of record, you may contact us by writing
to Merck Stockholder Services, P.O. Box 100, Whitehouse Station, NJ
08889-0100 or by calling our toll-free number 1-800-613-2104. Eligible
stockholders of record receiving multiple copies of the annual report and
proxy statement can request householding by contacting Merck in the same
manner. Merck has undertaken householding to reduce printing costs and
postage fees, and we encourage you to participate.
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If you are a beneficial owner, you may request additional copies of the
proxy statement and annual report or you may request householding by
notifying your broker, bank or nominee.
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Q. Can I access the proxy statement and annual report on the Internet instead
of receiving paper copies?
A: This proxy statement and the 2001 annual report are located on Merck's web
site. Most stockholders can access future proxy statements and annual
reports on the Internet instead of receiving paper copies in the mail.
If you are a stockholder of record, you can choose this option by marking
the appropriate box on your proxy card or by following the instructions if
you vote by telephone or the Internet. If you choose to access future proxy
statements and annual reports on the Internet, you will receive a proxy card
in the mail next year with instructions containing the Internet address for
those materials. Your choice will remain in effect until you advise us
otherwise.
If you are a beneficial owner, please refer to the information provided by
your broker, bank or nominee for instructions on how to elect to access
future proxy statements and annual reports on the Internet. Most beneficial
owners who elect electronic access will receive an e-mail message next year
containing the Internet address for access to the proxy statement and annual
report.
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Q: What am I voting on?
A: . Election of five directors: Mr. William M. Daley, Mr. Raymond V.
Gilmartin, Dr. Edward M. Scolnick, Ms. Anne M. Tatlock and Dr. Samuel O.
Thier; and
. Ratification of PricewaterhouseCoopers LLP as independent public
accountants for 2002.
The Board recommends a vote FOR each of the nominees to the Board of
Directors and FOR the appointment of PricewaterhouseCoopers LLP as
independent public accountants for 2002.
You will also vote on the following stockholder proposals:
. a proposal concerning annual election of directors;
. a proposal concerning voting "against" directors;
. a proposal concerning pharmaceutical pricing; and
. a proposal concerning a "glass ceiling" review.
The Board recommends a vote AGAINST the stockholder proposals.
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Q: What is the voting requirement to elect the directors and to approve each of
the proposals?
A: In the election of directors, the five persons receiving the highest number
of affirmative votes will be elected. The ratification of the appointment of
PricewaterhouseCoopers LLP as independent public accountants and approval of
the stockholder proposals each require the affirmative vote of a majority of
the votes cast. If you are present or represented by proxy at the Annual
Meeting and you abstain, your abstention, as well as broker non-votes, are
not counted as votes cast on any matter to which they relate.
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Q: How many votes do I have?
A: You are entitled to one vote for each share of Common Stock that you hold,
except for the election of directors. Because you may cumulate your votes in
the election of directors, you are entitled to as many votes as equal the
number of shares held by you at the close of business on the record date,
multiplied by the number of directors to be elected.
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Q: How do I cumulate my votes in the election of directors?
A: In connection with the cumulative voting feature for the election of
directors, you are each entitled to as many votes as equal the number of
shares held by you at the close of business on the record date, multiplied
by the number of directors to be elected. You may cast all of your votes for
a single nominee or may apportion your votes among any two or more nominees.
For example, when five directors are to be elected, a holder of 100 shares
may cast 500 votes for a single nominee, apportion 100 votes to each of five
nominees or apportion 500 votes in any other manner by so noting in the
space provided on the proxy card. Beneficial owners should contact their
broker, bank or nominee if you wish to cumulate votes for directors. The
cumulative voting feature for the election of directors is also available by
voting in person at the Annual Meeting; it is not available by telephone or
the Internet.
You may withhold votes from any or all nominees. Except for the votes that
stockholders of record withhold from any or all nominees, the persons named
in the proxy card will vote such proxy FOR and, if necessary, will exercise
their cumulative voting rights to elect the nominees as directors of the
Company.
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Q: How do I vote?
A: You may vote using any of the following methods:
. Proxy card or voting instruction card--Be sure to sign and date the card
and return it in the prepaid envelope. If you are a stockholder of
record and you return your signed proxy card but do not indicate your
voting preferences, the persons named in the proxy card will vote FOR
the election of directors and the ratification of PricewaterhouseCoopers
LLP as independent public accountants for 2002 and AGAINST the
stockholder proposals on your behalf.
. By telephone or the Internet--The telephone and Internet voting
procedures established by Merck for stockholders of record are designed
to authenticate your identity, to allow you to give your voting
instructions and to confirm that these instructions have been properly
recorded. We have been advised by legal counsel that the Company's
voting procedures comply with applicable law.
The availability of telephone and Internet voting for beneficial owners
will depend on the voting processes of your broker, bank or nominee.
Therefore, we recommend that you follow the voting instructions in the
materials you receive.
. In person at the Annual Meeting--All stockholders may vote in person at
the Annual Meeting. You may also be represented by another person at the
meeting by executing a proper proxy designating that person. If you are
a beneficial owner of shares, you must obtain a legal proxy from your
broker, bank or nominee and present it to the inspectors of election
with your ballot when you vote at the meeting.
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Q: What can I do if I change my mind after I vote my shares?
A: If you are a stockholder of record, you may revoke your proxy at any time
before it is voted at the Annual Meeting by:
. sending written notice of revocation to the Secretary of the Company;
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. submitting a new, proper proxy by telephone, Internet or paper ballot,
after the date of the revoked proxy; or
. attending the Annual Meeting and voting in person.
If you are a beneficial owner of shares, you may submit new voting
instructions by contacting your broker, bank or nominee. You may also vote
in person at the Annual Meeting if you obtain a legal proxy as described in
the answer to the previous question.
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Q: Who will count the vote?
A: Representatives of IVS Associates, Inc. will tabulate the votes and act as
inspectors of election.
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Q: What shares are included on the proxy card?
A: The shares on your proxy card represent shares registered in your name as
well as shares in the Merck Stock Investment Plan.
However, the proxy card does not include shares held for participants in the
Merck & Co., Inc. Employee Savings and Security Plan, Merck & Co., Inc.
Employee Stock Purchase and Savings Plan, Hubbard ISA LLC Employee Savings
Plan, Merck-Medco Managed Care 401(k) Savings Plan, Merck Puerto Rico
Employee Savings and Security Plan, Merck Frosst Canada Inc. Stock Purchase
Plan ("Merck Frosst Plan"), MSD Employee Share Ownership Plan and Merial
401(k) Savings Plan ("Merial Plan"). Instead, these participants will
receive from plan trustees separate voting instruction cards covering these
shares. If voting instructions are not received from participants in the
Merck Frosst Plan, the plan trustee will vote the shares in accordance with
the recommendations of the Board of Directors. If voting instructions are
not received from participants in the Merial Plan, the plan trustee will
vote the shares in the same proportion as it votes shares for which voting
instructions are received. Trustees for the other plans will not vote shares
for which no voting instructions are received from plan participants.
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Q: What constitutes a quorum?
A: As of the record date, 2,271,050,547 shares of Merck Common Stock were
issued and outstanding. A majority of the outstanding shares, present or
represented by proxy, constitutes a quorum for the purpose of adopting
proposals at the Annual Meeting. If you submit a properly executed proxy,
then you will be considered part of the quorum.
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Q: Who can attend the Annual Meeting?
A: All stockholders as of the record date may attend the Annual Meeting but
must have an admission ticket. If you are a stockholder of record, the
ticket attached to the proxy card will admit you and one guest. If you are a
beneficial owner, you may request a ticket by writing to the Office of the
Secretary, WS 3AB-05, Merck & Co., Inc., P.O. Box 100, Whitehouse Station,
New Jersey 08889-0100 or faxing your request to 908-735-1224. You must
provide evidence of your ownership of shares with your ticket request, which
you can obtain from your broker, bank or nominee. We encourage you or your
broker to fax your ticket request and proof of ownership in order to avoid
any mail delays.
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Q: Are there any stockholders who own more than five percent of the Company's
shares?
A: On December 31, 2001, we knew of no individual, corporation or other entity
that beneficially owned more than five percent of the Company's outstanding
Common Stock.
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Q: When are the stockholder proposals due for the 2003 Annual Meeting?
A: In order to be considered for inclusion in next year's proxy statement,
stockholder proposals must be submitted in writing by November 21, 2002 to
Celia A. Colbert, Vice President, Secretary and Assistant General Counsel,
WS 3A-65, Merck & Co., Inc., One Merck Drive, Whitehouse Station, NJ
08889-0100.
If you notify us after February 4, 2003 of an intent to present a proposal
at the Company's 2003 Annual Meeting, we will have the right to exercise
discretionary voting authority with respect to such proposal, if presented
at the meeting, without including information regarding such proposal in our
proxy materials.
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Q: What happens if a nominee for director is unable to serve as a director?
A: If any of the nominees becomes unavailable for election, which we do not
expect, votes will be cast for such substitute nominee or nominees as may be
designated by the Board of Directors, unless the Board of Directors reduces
the number of directors.
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Q: How much did this proxy solicitation cost?
A: Morrow & Co., Inc. has been hired by the Company to assist in the
distribution of proxy materials and solicitation of votes for $25,000, plus
reasonable out-of-pocket expenses. Employees, officers and directors of the
Company may also solicit proxies. We will reimburse brokerage houses and
other custodians, nominees and fiduciaries for their reasonable
out-of-pocket expenses for forwarding proxy and solicitation material to the
owners of Common Stock.
1. ELECTION OF DIRECTORS
Five directors are to be elected at the Annual Meeting. Stockholders will
elect one director for the two remaining years of a term expiring in 2004 and
four directors for three-year terms expiring in 2005. The Board's nominees are
Mr. William M. Daley for a term expiring in 2004 and Mr. Raymond V. Gilmartin,
Dr. Edward M. Scolnick, Ms. Anne M. Tatlock and Dr. Samuel O. Thier for terms
expiring in 2005. Mr. Daley is a new candidate for election by stockholders at
this Annual Meeting. All other candidates have previously been elected by
stockholders. Mr. Erskine B. Bowles resigned from the Board effective October
17, 2001. After the election of five directors at the Annual Meeting, the
Company will have thirteen directors, including the eight continuing directors
whose present terms extend beyond the meeting. Information on the nominees and
continuing directors follows.
Name, Age and
Year First Business Experience and Other Directorships
Elected Director or Significant Affiliations
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Nominees
For a term expiring in 2004
[PHOTO] President, SBC Communications, Inc. (diversified telecommunications) since December
2001; Vice Chairman, Evercore Capital Partners L.P. (January to November 2001);
Chairman, Vice President Albert Gore's 2000 presidential election campaign (June to
William M. Daley December 2000); Secretary of Commerce (January 1997 to June 2000)
Director, John F. Kennedy Center for the Performing Arts
William M. Daley
Age--53
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Name, Age and
Year First Business Experience and Other Directorships
Elected Director or Significant Affiliations
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For terms expiring in 2005
[PHOTO] Chairman of the Board, President and Chief Executive Officer of the Company for more
than five years
Raymond V. Gilmartin
Director, General Mills, Inc., Microsoft Corporation, Public Service Enterprise Group
and Pharmaceutical Research and Manufacturers of America; Member, The Business
Council and The Business Roundtable
Raymond V. Gilmartin
Age--61
1994
[PHOTO] Executive Vice President, Science and Technology and President, Merck Research
Laboratories for more than five years
Edward M. Scolnick, M.D.
Director, Millipore Corporation, McLean Hospital and National Institute of Mental
Health Council; Member, National Academy of Sciences and its Institute of Medicine
Edward M. Scolnick, M.D.
Age--61
1997
[PHOTO] Chairman (since June 2000) and Chief Executive Officer (since September 1999),
Fiduciary Trust Company International (global asset management services); Vice
Anne M. Tatlock Chairman, Franklin Resources, Inc. (since January 2001); President, Fiduciary Trust
Company International (1994 to 2000)
Director, Fortune Brands, Inc.; Trustee, American Ballet Theatre Foundation, The
Andrew W. Mellon Foundation, Cultural Institutions Retirement Systems, Howard
Hughes Medical Institute, Teagle Foundation and Vassar College
Anne M. Tatlock
Age--62
2000
[PHOTO] President (since April 1997) and Chief Executive Officer (since July 1996), Partners
HealthCare System, Inc.
Samuel O. Thier, M.D.
Director, Partners HealthCare System, Inc., Charles River Laboratories, Inc. and Federal
Reserve Bank of Boston; Member, Institute of Medicine of the National Academy of
Sciences; Fellow, American Academy of Arts and Sciences; Trustee, Boston Museum
of Science, Cornell University, The Commonwealth Fund and WGBH Public
Television; Master, American College of Physicians
Samuel O. Thier, M.D.
Age--64
1994
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Name, Age and
Year First Business Experience and Other Directorships
Elected Director or Significant Affiliations
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Directors Whose Terms Expire in 2003
[PHOTO] Chairman (since July 2001), Chief Executive Officer (July 2001 to February 2002) (also
Chairman and Chief Executive Officer from December 1999 to April 2000), Honeywell
Lawrence A. Bossidy International Inc. (aerospace, home and industrial controls, specialty materials and
transportation products); Chairman and Chief Executive Officer, AlliedSignal, Inc.
(1991 to 1999)
Director, J.P. Morgan Chase & Co.; Member, The Business Council and The Business
Roundtable
Lawrence A. Bossidy
Age--67
1992
[PHOTO] Retired (2001); Presidential Distinguished Professor, Emory University (September
1998 through August 2001); President, Spelman College (1987 to June 1997)
Johnnetta B. Cole, Ph.D.
Director, Coca-Cola Enterprises; Trustee, Rockefeller Foundation and Gallaudet
University; Member, Council on Foreign Relations and National Council of Negro
Women; Fellow, American Anthropological Association
Johnnetta B. Cole, Ph.D.
Age--65
1994
[PHOTO] Chairman and Chief Executive Officer (since December 2001), President and Chief
Executive Officer (January to December 2001), J.P. Morgan Chase & Co. (financial
William B. Harrison, Jr. services); Chairman and Chief Executive Officer (January through December 2000),
President and Chief Executive Officer (June through December 1999), Vice Chairman
(1991 to December 1999), The Chase Manhattan Corporation
William B. Harrison, Jr.
Age--58
1999
[PHOTO] Professor of Medicine, Biochemistry and Biophysics, University of Pennsylvania
School of Medicine since February 2000; Chief Executive Officer, University of
William N. Kelley, M.D. Pennsylvania Health System, Dean of the School of Medicine and Executive Vice
President, University of Pennsylvania (1989 to February 2000)
Director, Beckman Coulter, Inc.; Trustee, Emory University; Fellow, American
Academy of Arts and Sciences; Member, American Philosophical Society, Institute of
Medicine of the National Academy of Sciences; Master, American College of Physicians
William N. Kelley, M.D.
Age--62
1992
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Name, Age and
Year First Business Experience and Other Directorships
Elected Director or Significant Affiliations
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[PHOTO]
Executive Vice President of Strategy and Development, Bank One Corporation since
Heidi G. Miller, Ph.D. March 2002; Vice Chairman, Marsh Inc. (January 2001 to March 2002); Senior
Executive Vice President, Chief Financial Officer and Director, Priceline.com (February
to November 2000); Chief Financial Officer, Citigroup (1998 to 2000); Chief Financial
Officer, Travelers Group (1995 to 1998)
Director, General Mills, Inc.; Trustee, Princeton University and NYU Medical School
Heidi G. Miller, Ph.D.
Age--48
2000
Directors Whose Terms Expire in 2004
[PHOTO] President, The Andrew W. Mellon Foundation (philanthropic foundation) for more than
five years
William G. Bowen, Ph.D.
Director, American Express Company; Member, Board of Overseers, Teachers
Insurance and Annuity Association of America-College Retirement Equities Fund
William G. Bowen, Ph.D.
Age--68
1986
[PHOTO] Chairman, Unilever PLC and Vice Chairman, Unilever NV (foods, home and personal
care) since September 1996
Niall FitzGerald
Director, Telefonaktiebolaget LM Ericsson; Trustee, Leverhulme Trust; Member, The
Business Council, The Conference Board, EU-China Business Council, Trilateral
Commission and World Economic Forum
Niall FitzGerald
Age--56
2000
[PHOTO] Elkins Professor (since 1984) and Chairman (since 1996), Department of Molecular
Biology, Princeton University; Investigator, Howard Hughes Medical Institute (1989 to
Thomas E. Shenk, Ph.D. 1999)
Director, Cell Genesys, Inc.; Member, National Academy of Sciences and its Institute of
Medicine and American Academy of Microbiology
Thomas E. Shenk, Ph.D.
Age--55
2001
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Board Committees
The Board of Directors has six standing committees: Committee on Directors,
Finance Committee, Executive Committee, Compensation and Benefits Committee,
Audit Committee and Committee on Public Policy and Social Responsibility.
Members of the individual committees are named below:
Committee on
Public Policy
Committee on Compensation and Social
Directors Finance Executive and Benefits Audit Responsibility
------------ ------- --------- ------------ ----- --------------
L. A. Bossidy J. B. Cole L. A. Bossidy L. A. Bossidy(*) W. B. Harrison, Jr. W. G. Bowen
W. G. Bowen (*) N. FitzGerald W. G. Bowen W. G. Bowen H. G. Miller (*) J. B. Cole
W. N. Kelley H. G. Miller R. V. Gilmartin (*) J. B. Cole T. E. Shenk T. E. Shenk
A. M. Tatlock A. M. Tatlock (*) S. O. Thier W. N. Kelley S. O. Thier S. O. Thier (*)
S. O. Thier
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(*) Chairperson
The Committee on Directors, which is made up of independent directors,
considers and makes recommendations on matters related to the practices,
policies and procedures of the Board. As part of its duties, the Committee
assesses the size, structure and composition of the Board and Board committees,
coordinates evaluation of Board performance and reviews Board compensation. The
Committee also acts as a screening and nominating committee for candidates
considered for election to the Board. In this capacity it concerns itself with
the composition of the Board with respect to depth of experience, balance of
professional interests, required expertise and other factors, and evaluates
prospective nominees identified by the Committee on its own initiative or
referred to it by other Board members, management, stockholders or external
sources. A stockholder may recommend a person as a nominee for director by
writing to the Secretary of the Company. Recommendations must be received by
January 23, 2003 and must comply with the procedures set forth in the Company's
By-Laws in order to be considered at the 2003 Annual Meeting.
The Finance Committee, which is made up of independent directors, considers
and makes recommendations on matters related to the financial affairs and
policies of the Company, including capital structure issues, dividend policy,
investment and debt policies, asset and portfolio management and financial
transactions, as necessary.
The Executive Committee acts for the Board of Directors when formal Board
action is required between meetings in connection with matters already approved
in principle by the full Board or to fulfill the formal duties of the Board.
The Compensation and Benefits Committee, which is made up of independent
directors, administers the Company's Executive Incentive Plan, Base Salary
Deferral Plan, Deferral Program and Incentive Stock Plan and also appoints and
monitors the Management Pension Investment Committee. The Compensation and
Benefits Committee consults generally with management on matters concerning
executive compensation and on pension, savings and welfare benefit plans where
Board or stockholder action is contemplated with respect to the adoption of or
amendments to such plans. It makes recommendations to the Board of Directors on
compensation generally, executive officer salaries, bonus awards and stock
option grants, special awards and supplemental compensation. The Committee also
makes recommendations on organization, succession, the election of officers,
consultantships and similar matters where Board approval is required.
The Audit Committee, which is made up of independent directors, oversees the
Company's financial reporting process and internal controls. The Audit
Committee is governed by a Board approved charter that contains, among other
things, the Committee's membership requirements and responsibilities. As part
of its duties, the Committee consults with management, internal auditors and
the Company's independent public accountants during the year on matters related
to the annual audit, internal controls, the published financial statements and
the accounting principles and auditing procedures being applied. The Committee
reviews the
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independent accountants' audit fees, discusses relationships and non-audit
services to ensure no compromise of independence and submits to the Board of
Directors its recommendations for the appointment of an audit firm for the
upcoming year. The Committee is also charged with monitoring compliance with
the Foreign Corrupt Practices Act and the Company's policies on ethical
business practices and reporting on the same to the Board of Directors
annually. The Audit Committee's Report is included on page 24 of this proxy
statement.
The Committee on Public Policy and Social Responsibility, which is made up
of independent directors, advises the Board of Directors and management on
Company policies and practices that pertain to the Company's responsibilities
as a global corporate citizen, its obligations as a pharmaceutical company
whose products and services affect health and quality of life around the world,
and its commitment to high standards of ethics and integrity. It reviews
social, political, economic and environmental trends that affect the Company's
business; reviews the positions and strategies that the Company pursues to
influence public policy; monitors and evaluates the Company's corporate
citizenship programs and activities; and reviews legislative, regulatory,
privacy and other matters that impact the Company's shareholders, customers,
employees and communities in which it operates.
Board's Role in Strategic Planning
The Board of Directors has the legal responsibility for overseeing the
affairs of the Company and, thus, an obligation to keep informed about the
Company's business and strategies. This involvement enables the Board to
provide guidance to management in formulating and developing plans and to
exercise independently its decision-making authority on matters of importance
to the Company. Acting as a full Board and through the Board's six standing
committees (Committee on Directors, Finance, Executive, Compensation and
Benefits, Audit and Committee on Public Policy and Social Responsibility), the
Board is fully involved in the Company's strategic planning process.
Each year, typically in the summer, senior management sets aside a specific
period to develop, discuss and refine the Company's long-range operating plan
and overall corporate strategy. Strategic areas of importance include basic
research and clinical development, global marketing and sales, manufacturing
strategy, capability and capacity, and the public and political environments
that affect the Company's business and operations. Specific operating
priorities are developed to effectuate the Company's long-range plan. Some of
the priorities are short-term in focus; others are based on longer-term
planning horizons. Senior management reviews the conclusions reached at its
summer meeting with the Board at an extended meeting that usually occurs in the
fall. This meeting is focused on corporate strategy and involves both
management presentations and input from the Board regarding the assumptions,
priorities and strategies that will form the basis for management's operating
plans and strategies.
At subsequent Board meetings, the Board continues to substantively review
the Company's progress against its strategic plans and to exercise oversight
and decision-making authority regarding strategic areas of importance and
associated funding authorizations. For example, the Board typically reviews the
Company's overall annual performance at its November meeting and considers the
following year's operating budget and capital plan in December. The Board at
its February meeting usually finalizes specific criteria against which the
Company's performance will be evaluated for that year. In addition, Board
meetings held throughout the year target specific strategies (for example,
basic research) and critical areas (for example, U.S. healthcare public policy
issues) for extended, focused Board input and discussion.
The role that the Board plays is inextricably linked to the development and
review of the Company's strategic plan. Through these procedures, the Board,
consistent with good corporate governance, encourages the long-term success of
the Company by exercising sound and independent business judgment on the
strategic issues that are important to the Company's business.
12
Board and Board Committee Meetings
In 2001, the Board of Directors met nine times. Board committees met as
follows during 2001: Committee on Directors, six times; Compensation and
Benefits Committee, four times; Audit Committee, three times; Finance Committee
and Committee on Public Policy and Social Responsibility, once. No meetings of
the Executive Committee were held in 2001. All directors, except Niall
FitzGerald, attended at least 75% of the meetings of the Board and of the
committees on which they served.
Relationships with Outside Firms
William B. Harrison, Jr. is a director of the Company and in 2001 was the
Chairman and Chief Executive Officer of J.P. Morgan Chase & Co., which provided
financial advisory, commercial and investment banking services to the Company
during 2001.
Compensation of Directors
Each director who is not a Company employee is compensated for services as a
director by an annual retainer of $45,000 and a meeting fee of $1,200 for each
Board and Committee meeting attended. In addition, Chairpersons of the
Committee on Directors, Finance Committee, Compensation and Benefits Committee,
Audit Committee and Committee on Public Policy and Social Responsibility are
compensated for such services by an annual retainer of $5,000. Those directors
who are Company employees do not receive any compensation for their services as
directors. The Company reimburses all directors for travel and other necessary
business expenses incurred in the performance of their services for the Company.
Under the Merck & Co., Inc. Plan for Deferred Payment of Directors'
Compensation ("Plan for Deferred Payment of Directors' Compensation"), each
director may elect to defer all or a portion of such compensation. Any amount
so deferred is, at the director's election, valued as if invested in any of 22
investment measures, including the Company's Common Stock, and is payable in
cash in installments or as a lump sum on or after termination of services as a
director. In addition to the compensation described above, on the first Friday
following the Annual Meeting of Stockholders, each director receives a credit
to his/her Merck stock account of an amount equal to the value of one-third of
the annual cash retainer.
In 1996, the Retirement Plan for the Directors of Merck & Co., Inc. (the
"Directors' Retirement Plan") (which excludes current or former employees of
the Company) was discontinued for directors who join the Board after December
31, 1995. Directors at the time of the change were asked to elect to either
continue to accrue benefits under the Directors' Retirement Plan or, in lieu of
accruing benefits under the Directors' Retirement Plan, receive additional
compensation to be deferred in accordance with the terms of the Plan for
Deferred Payment of Directors' Compensation. Eligible directors who elected not
to accrue additional retirement benefits under the Directors' Retirement Plan
will receive at retirement a pension benefit based on the amount of service
accrued as of March 31, 1997. No current director is accruing a benefit under
the Directors' Retirement Plan.
Under the Non-Employee Directors Stock Option Plan adopted by stockholders
in 2001 (the "2001 Non-Employee Directors Stock Option Plan"), on the first
Friday following the Company's Annual Meeting of Stockholders, non-employee
directors each receive an option to purchase 5,000 shares of Common Stock. The
options become exercisable five years from date of grant and expire ten years
from date of grant. The exercise price of the options is the average of the
high and low prices of the Company's Common Stock on the date of grant as
quoted on the New York Stock Exchange. The exercise price is payable in cash at
the time the stock options are exercised. In addition, the 2001 Non-Employee
Directors Stock Option Plan and the prior plans, the 1996 Non-Employee
Directors Stock Option Plan and the Non-Employee Directors Stock Option Plan,
allow directors under certain circumstances to transfer stock options to
members of their immediate family, family partnerships and family trusts.
13
Security Ownership of Directors and Executive Officers
The table below reflects the number of shares beneficially owned by each
director and nominee for director of the Company, each executive officer of the
Company named in the Summary Compensation Table and all directors, nominees and
executive officers as a group as of December 31, 2001. Unless otherwise stated,
the beneficial owners exercise sole voting and/or investment power over their
shares.
Company Common Stock
--------------------------------------------------
Right to Acquire Percent
Shares Ownership Under Options of
Name of Beneficial Owner Owned (a) Exercisable Within 60 Days Class
------------------------ --------- -------------------------- -------
Raymond V. Gilmartin.......................... 256,383(b)(c) 2,010,000 *
Lawrence A. Bossidy........................... 36,475 8,000 *
William G. Bowen.............................. 33,856(b)(c) 2,000 *
Johnnetta B. Cole............................. 6,899 2,400 *
William M. Daley**............................ 100 -- *
Niall FitzGerald.............................. 1,294 -- *
William B. Harrison, Jr....................... 3,519 -- *
William N. Kelley............................. 18,940 8,000 *
Heidi G. Miller............................... 3,486(b)(c) -- *
Edward M. Scolnick............................ 250,312(b) 400,000 *
Thomas E. Shenk............................... 1,567 -- *
Anne M. Tatlock............................... 3,069(c)(d) -- *
Samuel O. Thier............................... 3,304 -- *
David W. Anstice.............................. 125,051(b) 520,000 *
Judy C. Lewent................................ 184,522 703,600 *
Per Wold-Olsen................................ 106,605 423,600 *
All Directors, Nominees and Executive Officers
as a Group.................................. 1,120,305(b) 5,360,250 *
--------
(a) Includes equivalent shares of Common Stock held by the Trustee of the Merck
& Co., Inc. Employee Savings and Security Plan for the accounts of
individuals as follows: Mr. Gilmartin--4,727 shares, Dr. Scolnick--3,732
shares, Mr. Anstice--3,999 shares, Ms. Lewent--5,428 shares, Mr.
Wold-Olsen--5,909 shares and all directors and executive officers as a
group--55,341 shares. Also includes shares of phantom Common Stock held in
the Plan for Deferred Payment of Directors' Compensation or in the Merck &
Co., Inc. Deferral Program as follows: Mr. Gilmartin--74,437 shares, Mr.
Bossidy--6,475 shares, Dr. Bowen--4,891 shares, Dr. Cole--6,439 shares, Mr.
FitzGerald--1,060 shares, Mr. Harrison--2,119 shares, Dr. Kelley--17,240
shares, Dr. Miller--886 shares, Dr. Shenk--567 shares, Ms. Tatlock--2,140
shares, Dr. Thier--3,284 shares, Mr. Anstice--6,075 shares, Ms.
Lewent--8,182 shares, and all directors and executive officers as a
group--151,078 shares.
(b) Excludes shares of Common Stock held by family members in which beneficial
ownership is disclaimed by the individuals as follows: Mr.
Gilmartin--22,600 shares, Dr. Miller--3,000 shares, Dr. Scolnick--28,000
shares, Mr. Anstice--539 shares and all directors and executive officers as
a group--79,454 shares. Excludes 1,800 shares held by a trust of which Dr.
Bowen is a trustee and in which he disclaims beneficial ownership. Excludes
23,335 shares beneficially held by a family limited partnership in a trust
for the benefit of Mr. Gilmartin's family; Mr. Gilmartin disclaims
beneficial ownership in the trust of which his spouse is a trustee.
(c) Includes shares of Common Stock as follows: 132,235 shares held by Mr.
Gilmartin in a family limited partnership in which he shares voting and
investment power; 2,000 shares held by Dr. Bowen's spouse in which he
shares voting and investment power; 600 shares held in custodial accounts
for minor children over which Dr. Miller has voting and investment power;
and 529 shares held by Ms. Tatlock's spouse in which she shares voting and
investment power.
14
(d) Ms. Tatlock is the investment manager for certain customer accounts at
Fiduciary Trust Company International. Those accounts may, at times, hold
shares of Merck Common Stock. However, Ms. Tatlock has divested all voting
and/or investment power over any shares of Merck Common Stock held in those
accounts and she disclaims beneficial ownership of any such shares.
* Less than one percent of the Company's outstanding shares of Common Stock.
** Shares owned by this nominee for director are as of March 1, 2002.
Compensation and Benefits Committee
Report on Executive Compensation
The Compensation and Benefits Committee of the Board (the "Committee")
approves compensation objectives and policies for all employees and sets
compensation for the Company's executive officers, including the individuals
named in the Summary Compensation Table.
The Committee is made up entirely of independent outside directors.
Objectives and Policies
The Committee seeks to ensure that:
. rewards are closely linked to Company-wide, division, area, team and
individual performance;
. the interests of the Company's employees are aligned with those of its
stockholders through potential stock ownership; and
. compensation and benefits are set at levels that enable the Company to
attract and retain the high-quality employees it needs.
The Committee applies these objectives and policies through the broad and
deep availability of both performance-based cash incentives and stock option
grants.
Further, consistent with the long-term focus inherent within the Company's
R&D-based pharmaceutical business, it is the policy of the Committee to make a
high proportion of executive officer compensation dependent on long-term
performance and on enhancing stockholder value.
The Company employs a formal system for developing measures of executive
officer performance and for evaluating performance.
Provided that other compensation objectives are met, it is the Committee's
intention that executive officer compensation be deductible for federal income
tax purposes.
Total Compensation
Total compensation for executive officers comprises both short-term and
longer-term elements. The short-term elements are base salary and bonus awards
under the stockholder-approved Executive Incentive Plan ("EIP"). The
longer-term element is stock option grants under the stockholder-approved
Incentive Stock Plan ("ISP").
Comparisons of total compensation (including the above-stated elements) are
made within the healthcare industry by reference to U.S.-headquartered
companies. In 2001, other leading healthcare companies included Abbott
Laboratories, American Home Products, Bristol-Myers Squibb, Johnson & Johnson,
Eli Lilly, Pfizer, Pharmacia and Schering-Plough. Companies headquartered
outside the United States are generally excluded from this comparison since
executive officers of such companies typically reside in the country where
their company is based and compensation practices differ. The Committee also
considers broader industry information that it judges to be appropriate.
15
Base Salary
Executive officer base salaries are based on level of position within the
Company and individual contribution, with reference to base salary levels of
U.S.-based executives at other leading healthcare companies.
Bonus Awards
The Committee aims to provide performance-based cash incentive opportunities
broadly and deeply throughout the organization.
Executive officer bonus targets are based on level of position within the
Company and individual contribution, with reference to levels of bonus and
total cash compensation (base salary plus bonus) of U.S.-based executives at
other leading healthcare companies.
Individual bonus awards are determined with reference to Company-wide,
division, area, team and individual performance for the previous fiscal year,
based on a wide range of measures that permit comparisons with competitors'
performance and internal targets set before the start of each fiscal year.
Performance measures for 2001 covered operational, strategic and human
resources areas. The operational measures were earnings per share growth and
sales growth compared to other leading healthcare companies (American Home
Products, AstraZeneca, Bristol-Myers Squibb, GlaxoSmithKline, Johnson &
Johnson, Eli Lilly, Novartis, Pfizer, Pharmacia, Roche Holding and
Schering-Plough) and the change in the Company's return on operating assets
versus the prior year. The strategic measures refer to the Company's
communicated goal of being a top-tier growth company by continuing a strong
commitment to research, achieving the full potential of managed pharmaceutical
care, with particular reference to Merck-Medco, and preserving profitability
through continuing productivity improvements in manufacturing. The human
resources measures refer to teamwork, respect for the individual, flexibility
and agility. These were assessed through a review of Company achievements in
fostering a productive work environment and strengthening individual
competencies so that the Company can attract, develop and retain employees with
the skills, abilities and leadership attributes to meet business requirements
now and in the future. The Company met its overall performance objectives in
2001. In addition to Company-wide measures of performance, the Committee
considered those performance factors particular to each executive officer
(i.e., the performance of the division or area for which such officer had
management responsibility and individual managerial accomplishments).
The Committee judged that executive officer bonus awards for 2001 were
consistent with the level of accomplishment and appropriately reflected Company
performance, including earnings per share growth, sales growth, return on
operating assets and strong progress in research, managed pharmaceutical care,
manufacturing productivity and the management of human resources. The Committee
relied heavily, but not exclusively, on these measures. It exercised subjective
judgment and discretion in light of these measures and in view of the Company's
compensation objectives and policies described above to determine overall bonus
funds and individual bonus awards.
Stock Options
Within the total number of shares authorized by stockholders, the Committee
aims to provide stock option grants broadly and deeply throughout the
organization.
Executive officer stock option grants are based on level of position within
the Company and individual contribution, with reference to levels of stock
options and total direct compensation (total cash compensation plus stock
options) of U.S.-based executives at other leading healthcare companies. The
Committee also considers stock option grants previously made and the aggregate
of such grants. As with the determination of base salaries and bonus awards,
the Committee exercises subjective judgment and discretion in view of the above
criteria and its general policies. The exercise price of stock option grants is
set at fair market value on grant date.
16
Subject to the terms applicable to such grants, the stock options granted to
executive officers are first exercisable five years from the grant date and
expire ten years from the grant date. The Company's long-term performance
ultimately determines compensation from stock options, since gains from stock
option exercises are entirely dependent on the long-term growth of the
Company's stock price.
The Committee expects the CEO and other executive officers named in the
Summary Compensation Table to hold Merck Common Stock in an amount representing
a multiple of base salary. For the CEO, the multiple is ten; for the other
executive officers, the multiple is five. The Committee further expects that,
until such multiples are reached, the CEO and the other executive officers hold
a proportion of shares that may be purchased from the net gain on stock option
exercise, after deducting exercise price, taxes and transaction costs. For the
CEO, the proportion is 70%; for the other executive officers, the proportion is
60%.
Compensation of the Chief Executive Officer
Mr. Gilmartin's compensation in 2001, including base salary, bonus award and
stock option grant, was determined within the same framework established for
all executive officers of the Company.
Effective March 1, 2001, Mr. Gilmartin's base salary was increased to
$1,400,004 from $1,300,008.
Mr. Gilmartin's bonus award was $1,500,000 for 2001, in comparison to
$1,700,000 for 2000. The award was determined in light of the Company
performance measures of earnings per share growth, sales growth, return on
operating assets and continuing strong progress in research, managed
pharmaceutical care, manufacturing productivity and the management of human
resources. As stated previously, the Company met its overall performance
objectives in 2001.
On March 2, 2001, Mr. Gilmartin was granted a stock option to purchase
500,000 shares of Merck Common Stock. The exercise price of the stock option
was set at fair market value on the grant date. Subject to the terms applicable
to his grant, the stock option is first exercisable five years from the grant
date and expires ten years from the grant date.
The Committee exercised its subjective judgment and discretion in
determining the level of each element of compensation, individually and in
aggregate, for Mr. Gilmartin in 2001.
Compensation Analyses and Reviews
The Company periodically retains outside compensation and benefits
consultants to compare base salary and incentive compensation programs for the
Company's executive officers with those of other leading healthcare companies
and leading industrial companies to ensure that they are appropriate to the
Company's objectives. The Committee exercises judgment and discretion in the
information it reviews and the analyses it considers.
Compensation and Benefits Committee
Lawrence A. Bossidy
Chairperson
William G. Bowen Johnnetta B. Cole
William N. Kelley
17
Summary Compensation Table
The following table summarizes compensation earned in 2001, 2000 and 1999 by
the Chief Executive Officer and the four other most highly paid individuals who
were executive officers at the end of 2001.
Annual Compensation Long-Term Compensation
---------------------------------- --------------------------------------
Awards Payouts
-------------------------- -----------
Other Restricted Securities All
Annual Stock Underlying LTIP Other
Salary Bonus Compensation Awards Options/SARs(a) Payouts(b) Compensation
Name and Principal Position Year ($) ($) ($) ($) (#) ($) ($)
--------------------------- ---- ---------- ---------- ------------ ---------- --------------- ----------- ------------
Raymond V. Gilmartin 2001 $1,383,338 $1,500,000 -- -- 500,000 $ -- $ 7,650(c)
Chairman of the Board, 2000 1,283,340 1,700,000 -- -- 400,000 -- 7,650(c)
President and Chief 1999 1,183,334 1,500,000 -- -- 400,000 -- 3,438,450(d)
Executive Officer
Edward M. Scolnick 2001 820,000 825,000 -- -- 200,000 -- 3,825(c)
Executive Vice President, 2000 790,000 860,000 -- -- 200,000 -- 3,825(c)
Science and Technology 1999 759,334 825,000 -- -- 185,000 1,419,744 3,600(c)
and President, Merck
Research Laboratories
Judy C. Lewent 2001 563,334 600,000 -- -- 150,000 -- 7,650(c)
Executive Vice President 2000 525,838 600,000 -- -- 130,000 -- 7,650(c)
and Chief Financial Officer 1999 500,840 505,000 -- -- 160,000 757,134 7,200(c)
David W. Anstice 2001 563,334 500,000 -- -- 150,000 -- 7,650(c)
President, The Americas 2000 526,670 600,000 -- -- 130,000 -- 7,650(c)
and U.S. Human Health 1999 506,334 510,000 -- -- 130,000 757,134 7,200(c)
Per Wold-Olsen 2001 520,834 540,000 -- -- 130,000 -- 7,650(c)
President, Human Health- 2000 495,838 515,000 -- -- 130,000 -- 7,650(c)
Europe, Middle East & 1999 466,674 350,000 -- -- 130,000 473,225 7,200(c)
Africa
--------
(a) No stock appreciation rights were granted to the executive officers named
in the Summary Compensation Table.
(b) Prior to 1995, awards of Performance Shares were made under the Strategic
Performance Feature ("SPF") of the EIP. Those awards provided for payment
of stock or cash or a combination thereof at the end of five-year periods,
the last of which ended in 1998. Payments in cash were equal to the market
value on the payment date of the stock that the cash replaces. Payments
were based on the Company's achievement of specified performance targets.
The SPF was discontinued in 1995. The last payouts were made in 1999 for
services performed during the five-year award cycle 1994-1998.
(c) Company contribution to the Merck & Co., Inc. Employee Savings and Security
Plan.
(d) Includes Company contribution of $7,200 to the Merck & Co., Inc. Employee
Savings and Security Plan and $3,431,250, which was the value of 50,000
shares of restricted stock held by Mr. Gilmartin at $68.625 per share (the
closing price of the Company's Common Stock on June 16, 1999, the date on
which the restricted stock vested).
18
The following table provides information on stock options granted in 2001 to
each of the Company's executive officers named in the Summary Compensation
Table and stock options granted to all employees as a group. The table also
shows the hypothetical gains that would exist for the options at the end of
their ten-year terms for the executive officers named in the Summary
Compensation Table and for all employees as a group (assuming their options had
ten-year terms) at assumed compound rates of stock appreciation of 5% and 10%.
The actual future value of the options will depend on the market value of the
Company's Common Stock. All option exercise prices are based on fair market
value on the date of grant.
Option/SAR Grants In Last Fiscal Year
Individual Grants(a)
------------------------------------------------
Percent
of Total
Number of Options/
Securities SARs Potential Realizable Value
Underlying Granted at Assumed Annual Rates
Options/ To Exercise of Stock Price Appreciation
Date SARs Employees or Base For Option Term (b)
of Granted in Fiscal Price Expiration --------------------------------------
Name Grant (#) Year ($/Sh) Date 0%($) 5%($) 10%($)
---- ------- ---------- --------- -------- ---------- ----- -------------- --------------
Raymond V. Gilmartin.... 3/02/01 500,000 1.36% $79.93 3/01/11 -- $ 25,133,774 $ 63,693,917
Edward M. Scolnick...... 3/02/01 200,000 0.54% 79.93 3/01/11 -- 10,053,510 25,477,567
Judy C. Lewent.......... 3/02/01 150,000 0.41% 79.93 3/01/11 -- 7,540,132 19,108,175
David W. Anstice........ 3/02/01 150,000 0.41% 79.93 3/01/11 -- 7,540,132 19,108,175
Per Wold-Olsen.......... 3/02/01 130,000 0.35% 79.93 3/01/11 -- 6,534,781 16,560,419
All Employees as a Group (c) 36,724,754 100.00% (c) (c) -- $1,827,297,816(d) $4,630,731,435(d)
-----------------
0% 5% 10%
-- ---------------- ----------------
Total potential stock price appreciation from March 2, 2001 to March 1, 2011 for all
stockholders at assumed rates of stock price appreciation(e)........................... -- $115,791,382,319 $293,438,097,033
Potential actual realizable value of options granted to all employees, assuming ten-year
option terms, as a percentage of total potential stock price appreciation from March 2,
2001 to March 1, 2011 for all stockholders at assumed rates of stock price appreciation -- 1.58% 1.58%
--------
(a) Options granted under the ISP to the Company's executive officers named in
the Summary Compensation Table are first exercisable five years from date
of grant and include a transferable stock option feature that allows the
transfer of stock options to immediate family members, family partnerships
and family trusts. The Company did not issue stock appreciation rights in
2001 to any of the executive officers named in the Summary Compensation
Table.
(b) These amounts, based on assumed appreciation rates of 0% and the 5% and 10%
rates prescribed by the Securities and Exchange Commission rules, are not
intended to forecast possible future appreciation, if any, of the Company's
stock price.
(c) Options were granted under the ISP throughout 2001 with various vesting
schedules and expiration dates through the year 2011. The average exercise
price of all options granted to employees in 2001 is $79.1175.
(d) No gain to the optionees is possible without an increase in stock price,
which will benefit all stockholders.
(e) Based on a price of $79.93 on March 2, 2001, and a total of 2,303,501,723
shares of Common Stock outstanding.
19
The following table shows the number of shares acquired on exercise of stock
options and the aggregate gains realized on exercise in 2001 by the Company's
executive officers named in the Summary Compensation Table. The table also
shows the number of shares covered by exercisable and unexercisable options
held by such executives on December 31, 2001 and the aggregate gains that would
have been realized had these options been exercised on December 31, 2001, even
though these options were not exercised and the unexercisable options could not
have been exercised on December 31, 2001.
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
Number of Securities Value of Unexercised In-
Underlying Unexercised The-Money Options/SARs
Options/SARs at FY-End at Fiscal Year-End (b)
Shares Acquired Value (#) ($)
On Exercise Realized (a) ------------------------- -------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
---- --------------- ------------ ----------- ------------- ----------- -------------
Raymond V. Gilmartin -- $ -- 1,660,000 2,000,000 $64,649,250 $3,473,750
Edward M. Scolnick.. -- -- 200,000 985,000 5,247,500 1,985,000
Judy C. Lewent...... 30,000 1,272,759 563,600 720,000 19,850,930 1,389,500
David W. Anstice.... -- -- 340,000 730,000 11,353,250 1,786,500
Per Wold-Olsen...... 19,050 732,249 303,600 650,000 10,702,492 1,191,000
--------
(a) Market value on the date of exercise of shares covered by options
exercised, less option exercise price.
(b) Market value of shares covered by in-the-money options on December 31, 2001
less option exercise price. Options are in-the-money if the market value of
the shares covered by the options is greater than the option exercise price.
The Long-Term Incentive Plans--Awards in Last Fiscal Year table is not
included since the Company does not have a long-term incentive plan.
Annual Benefits Payable Under Merck & Co., Inc. Retirement Plans
Annual benefits payable under the Retirement Plan for Salaried Employees of
Merck & Co., Inc. and the Merck & Co., Inc. Supplemental Retirement Plan are
based on a formula which (1) multiplies (a) the participant's final average
compensation (as defined in the plans) by (b) a multiplier of 2% for years of
credited service (as defined in the plans) earned prior to July 1, 1995 and a
multiplier of 1.6% for years of credited service earned after that date (total
credited service not to exceed 35 years) and then (2) subtracts 1.6% of the
participant's Social Security benefits multiplied by years of credited service
(as defined in the plans), not to exceed 50% of the primary Social Security
benefit.
The following tables show the estimated annual benefits payable using the
1.6% and 2% multipliers, respectively, under the Retirement Plan for Salaried
Employees and the Supplemental Retirement Plan at age 65 to persons in
specified compensation and years-of-service classifications, based on a
straight-life annuity form of retirement income and without regard to the
Social Security offset. Annual benefits payable under the plans can be
estimated by adding the years of service earned prior to July 1, 1995 (Table 2)
to those which could be earned after that date (Table 1).
20
Pension Plan Tables
Table 1: 1.6% Formula
Years of Service
Remuneration (Estimated Annual Retirement Benefits For Years
(Average Pension Compensation During of Credited Service Shown Below)(a)
Highest Five Consecutive Years in the --------------------------------------------------------
Last Ten Years Before Retirement) 15 20 25 30 35
--------------------------------- -------- ---------- ---------- ---------- ----------
$ 800,000........................... $192,000 $ 256,000 $ 320,000 $ 384,000 $ 448,000
1,000,000........................... 240,000 320,000 400,000 480,000 560,000
1,200,000........................... 288,000 384,000 480,000 576,000 672,000
1,400,000........................... 336,000 448,000 560,000 672,000 784,000
1,600,000........................... 384,000 512,000 640,000 768,000 896,000
1,800,000........................... 432,000 576,000 720,000 864,000 1,008,000
2,000,000........................... 480,000 640,000 800,000 960,000 1,120,000
2,200,000........................... 528,000 704,000 880,000 1,056,000 1,232,000
2,400,000........................... 576,000 768,000 960,000 1,152,000 1,344,000
2,600,000........................... 624,000 832,000 1,040,000 1,248,000 1,456,000
2,800,000........................... 672,000 896,000 1,120,000 1,344,000 1,568,000
3,000,000........................... 720,000 960,000 1,200,000 1,440,000 1,680,000
3,200,000........................... 768,000 1,024,000 1,280,000 1,536,000 1,792,000
3,400,000........................... 816,000 1,088,000 1,360,000 1,632,000 1,904,000
3,600,000........................... 864,000 1,152,000 1,440,000 1,728,000 2,016,000
3,800,000........................... 912,000 1,216,000 1,520,000 1,824,000 2,128,000
Table 2: 2% Formula(b)
Years of Service
Remuneration (Estimated Annual Retirement Benefits for Years
(Average Pension Compensation During of Credited Service Shown Below)(a)
Highest Five Consecutive Years in the -----------------------------------------------
Last Ten Years Before Retirement) 10 15 20 25
--------------------------------- ---------- ---------- ---------- ----------
$ 800,000.................................... $ 160,000 $ 240,000 $ 320,000 $ 400,000
1,000,000.................................... 200,000 300,000 400,000 500,000
1,200,000.................................... 240,000 360,000 480,000 600,000
1,400,000.................................... 280,000 420,000 560,000 700,000
1,600,000.................................... 320,000 480,000 640,000 800,000
1,800,000.................................... 360,000 540,000 720,000 900,000
2,000,000.................................... 400,000 600,000 800,000 1,000,000
2,200,000.................................... 440,000 660,000 880,000 1,100,000
2,400,000.................................... 480,000 720,000 960,000 1,200,000
2,600,000.................................... 520,000 780,000 1,040,000 1,300,000
2,800,000.................................... 560,000 840,000 1,120,000 1,400,000
3,000,000.................................... 600,000 900,000 1,200,000 1,500,000
3,200,000.................................... 640,000 960,000 1,280,000 1,600,000
3,400,000.................................... 680,000 1,020,000 1,360,000 1,700,000
3,600,000.................................... 720,000 1,080,000 1,440,000 1,800,000
3,800,000.................................... 760,000 1,140,000 1,520,000 1,900,000
--------
(a) Benefits shown above are exclusive of the Social Security offset provided
for by the benefit formula.
(b) Credited service is shown for the years specified to approximate the actual
years of credited service earned prior to July 1, 1995 (at the 2%
multiplier) by the executive officers named in the Summary Compensation
Table other than Mr. Gilmartin. Mr. Gilmartin earned 1.0 year prior to July
1, 1995.
21
Years of actual credited service in the Retirement Plan for Salaried
Employees and the Supplemental Retirement Plan as of July 1, 1995 and December
31, 2001, respectively, are: Dr. Scolnick--13 years and 19.5 years; Ms.
Lewent--15 years and 21.5 years; Mr. Anstice--20.5 years and 27 years; Mr.
Wold-Olsen--21.5 years and 28 years. In addition, if these individuals retire
from service with the Company at age 65 and with less than 35 years of actual
credited service, pursuant to the enhanced pension provision of the
Supplemental Retirement Plan applicable to bona fide executives, described in
greater detail below, they will receive an additional month of credited service
for each month of actual credited service prior to January 1, 1995 up to an
aggregate total of 35 years of credited service. As of July 1, 1995 and
December 31, 2001, Mr. Gilmartin had 1.0 and 7.5 years, respectively, of actual
credited service in the Retirement Plan for Salaried Employees and the
Supplemental Retirement Plan. Pursuant to an employment agreement that was in
effect from June 9, 1994 until October 31, 1999, Mr. Gilmartin was credited
with 28 years of credited service under the Supplemental Retirement Plan and
the multiplier to be used in the formula for benefit calculation will be 1.6%.
Benefits payable under the Company plans will be net of retirement benefits
payable by Mr. Gilmartin's former employer.
For purposes of the Retirement Plan for Salaried Employees and the
Supplemental Retirement Plan, pension compensation for a particular year, as
used for the calculation of retirement benefits, includes salaries and annual
EIP bonus awards received during the year. Pension compensation for 2001
differs from compensation reported in the Summary Compensation Table in that
pension compensation includes the annual EIP bonus awards received in 2001 for
services in 2000 rather than the EIP bonus awards received in 2002 for services
in 2001. Pension compensation in 2001 was $3,083,338 for Mr. Gilmartin,
$1,680,000 for Dr. Scolnick, $1,163,334 for Ms. Lewent, $1,163,334 for Mr.
Anstice, and $1,035,834 for Mr. Wold-Olsen.
The Supplemental Retirement Plan is an unfunded plan providing benefits to
participants in certain retirement plans (the "primary plans") maintained by
the Company and its subsidiaries as follows: (1) benefits not payable by the
primary plans because of the limitations on benefits stipulated by the Internal
Revenue Code, (2) benefits not payable by the primary plans because of the
exclusion of deferred compensation from the benefit formulas of those plans
("supplemental benefit"), (3) a minimum annual aggregate benefit under this
plan and the primary plans of $50,000 on a straight-life annuity basis for the
incumbents at time of actual retirement in positions designated as bona fide
executive or high policymaking under the Company's Corporate Policy on
Executive Retirement (which includes all the named executive officers in the
Summary Compensation Table), reduced in the event of retirement or death prior
to normal retirement date and (4) for employees who, prior to January 1, 1995,
were determined by the Company to have occupied bona fide executive or high
policymaking positions and who do not have 35 years of credited service, an
enhanced benefit payable upon retirement from active service at age 65 (unless
the Compensation and Benefits Committee of the Board consents to payment upon
early retirement, death or disability prior to age 65). The enhanced benefit is
an amount calculated under the benefit formula in the primary plan using one
additional month of credited service for each month of credited service accrued
prior to January 1, 1995, during, or prior to attainment of, the designated
position (up to the 35-year total) less (1) the minimum benefit, where
applicable, or the supplemental benefit, (2) the primary plan benefit and (3)
any retirement benefit payable from a plan not sponsored by the Company. The
Supplemental Retirement Plan was amended as of January 1, 1995 to eliminate
prospectively the enhanced benefit except for certain grandfathered
participants. In general, other terms and conditions of benefit payments are
determined by reference to the provisions of the primary plans.
Compensation Committee Interlocks and Insider Participation
Lawrence A. Bossidy, William G. Bowen, Johnnetta B. Cole and William N.
Kelley served on the Compensation and Benefits Committee during 2001. There
were no Compensation and Benefits Committee interlocks or insider (employee)
participation during 2001.
Indebtedness of Management
Dr. Douglas A. Greene, Executive Vice President, Clinical Sciences and
Product Development, who joined the Company and became an executive officer in
May 2000, received a loan from the Company in connection
22
with his relocation. During 2001, the largest aggregate amount outstanding
under the loan was $450,000 and as of December 31, 2001, $350,000 was still
outstanding. The loan from the Company is interest free.
Dr. Peter S. Kim, Executive Vice President, Research and Development, who
joined the Company and became an executive officer in February 2001, also
received an interest-free loan from the Company in connection with his
relocation. During 2001, the largest aggregate amount outstanding under the
loan was $500,000 and as of December 31, 2001, $475,000 was still outstanding.
Performance Graph
The following graph compares the cumulative total stockholder return (stock
price appreciation plus reinvested dividends) on the Company's Common Stock
with the cumulative total return (including reinvested dividends) of the Dow
Jones Pharmaceutical Index--United States Owned Companies ("DJPI") and the
Standard & Poor's 500 Index ("S&P 500 Index") for the five years ending
December 31, 2001. Amounts below have been rounded to the nearest dollar or
percent.
Comparison of Five-Year Cumulative Total Return*
Merck & Co., Inc., Dow Jones Pharmaceutical Index and S&P 500 Index
End of 2001/1996
Period Value CAGR**
------------ ---------
Merck.................................. $161 10%
DJPI................................... 239 19
S&P 500................................ 166 11
[CHART]
1996 1997 1998 1999 2000 2001
---- ---- ---- ---- ---- ----
MERCK 100.00 135.51 191.36 177.10 250.93 160.91
DJPI 100.00 154.21 229.26 206.54 286.48 239.36
S&P 500 100.00 133.35 171.46 207.54 188.65 166.24
--------
* Assumes that the value of the investment in Company Common Stock and each
index was $100 on December 31, 1996 and that all dividends were reinvested.
** Compound Annual Growth Rate.
23
Audit Committee
The Audit Committee's Report for 2001 follows.
Audit Committee's Report
The Audit Committee of the Board of Directors, comprised of four outside
directors, held three meetings during 2001.
The Audit Committee met with the independent public accountants, management
and internal auditors to assure that all were carrying out their respective
responsibilities. The Committee reviewed the performance and fees of the
independent public accountants prior to recommending their appointment, and met
with them to discuss the scope and results of their audit work, including the
adequacy of internal controls and the quality of financial reporting. The
Committee discussed with the independent public accountants their judgments
regarding the quality and acceptability of the Company's accounting principles,
the clarity of its disclosures and the degree of aggressiveness or conservatism
of its accounting principles and underlying estimates. The Committee discussed
with and received a letter from the independent public accountants confirming
their independence. Both the independent public accountants and the internal
auditors had full access to the Committee, including regular meetings without
management present. Additionally, the Committee reviewed and discussed the
audited financial statements with management and recommended to the Board of
Directors that these financial statements be included in the Company's Form
10-K filing with the Securities and Exchange Commission.
Audit Committee
Heidi G. Miller
Chairperson
William B. Harrison, Jr. Thomas E. Shenk
Samuel O. Thier
As part of its duties, the Audit Committee also considered whether the
provision of services other than audit services during fiscal year 2001 by
Arthur Andersen LLP, the Company's independent public accountants for that
period, is compatible with maintaining the accountants' independence. See All
Other Fees below.
Fees for all services provided by Arthur Andersen LLP for fiscal year 2001
are as follows:
Audit Fees
Amounts billed by Arthur Andersen LLP related to the 2001 annual financial
statement audit and reviews of quarterly financial statements filed in the
reports on Form 10-Q were approximately $4.3 million.
Financial Information Systems Design and Implementation Fees
No amounts were billed by Arthur Andersen LLP in 2001 for financial
information systems design and implementation services.
All Other Fees
Amounts billed by Arthur Andersen LLP for tax services and audit-related
services, including employee benefit plan audits, were approximately $2.2
million. The Company uses a rigorous evaluation process to
24
determine when and if to engage the independent public accountants to perform
other professional services. The Audit Committee approves all other
professional services only if such services would not impair the accountant's
independence in fact or appearance. As a result of this process, the
independent public accountants perform other professional services only in
limited circumstances.
Change in Independent Public Accountants
On February 26, 2002, the Board of Directors and its Audit Committee decided
to no longer engage Arthur Andersen LLP as the Company's independent public
accountants and engaged PricewaterhouseCoopers LLP to serve as the Company's
independent public accountants for the fiscal year 2002, subject to stockholder
ratification. See Ratification of Appointment of Independent Public Accountants
below.
Arthur Andersen's reports on the Company's consolidated financial statements
for each of the years ended 2001 and 2000 did not contain an adverse opinion or
disclaimer of opinion, nor were they qualified or modified as to uncertainty,
audit scope or accounting principles.
During the years ended December 31, 2001 and 2000 and through the date of
this proxy statement, there were no disagreements with Arthur Andersen on any
matter of accounting principle or practice, financial statement disclosure, or
auditing scope or procedure which, if not resolved to Arthur Andersen's
satisfaction, would have caused them to make reference to the subject matter in
connection with their report on the Company's consolidated financial statements
for such years; and there were no reportable events as defined in Item
304(a)(l)(v) of Regulation S-K.
During the years ended December 31, 2001 and 2000 and through the date of
the Board's decision, the Company did not consult PricewaterhouseCoopers with
respect to the application of accounting principles to a specified transaction,
either completed or proposed, or the type of audit opinion that might be
rendered on the Company's consolidated financial statements, or any other
matters or reportable events as set forth in Items 304(a)(2)(i) and (ii) of
Regulation S-K.
2. RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and its Audit Committee, composed of independent
members of the Board, has appointed PricewaterhouseCoopers LLP as independent
public accountants of the Company with respect to its operations for the year
2002, subject to ratification by the holders of Common Stock of the Company. In
taking this action, the members of the Board and the Audit Committee considered
PricewaterhouseCoopers LLP's independence with respect to the services to be
performed and its general reputation for adherence to professional auditing
standards. Representatives of both PricewaterhouseCoopers LLP and Arthur
Andersen LLP, the Company's independent public accountants for 2001, will be
present at the Annual Meeting to make a statement if they desire to do so. They
will also be available to answer appropriate questions from stockholders.
There will be presented at the Annual Meeting a proposal for the
ratification of the appointment of PricewaterhouseCoopers LLP, which the Board
of Directors believes is advisable and in the best interest of the
stockholders. If the appointment of PricewaterhouseCoopers LLP is not ratified,
the matter of the appointment of independent public accountants will be
considered by the Board of Directors.
The Board of Directors recommends a vote FOR this proposal.
3. STOCKHOLDER PROPOSAL CONCERNING ANNUAL ELECTION OF DIRECTORS
Mrs. Evelyn Y. Davis, Watergate Office Building, 2600 Virginia Avenue N.W.,
Suite 215, Washington, D.C. 20037, owner of 450 shares of Common Stock of the
Company, has given notice that she intends to present for action at the Annual
Meeting the following resolution:
25
"RESOLVED: That the stockholders of Merck recommend that the Board of
Directors take the necessary steps to reinstate the election of directors
ANNUALLY, instead of the stagger system which was recently adopted.
"REASONS: Until recently, directors of Merck were elected annually by all
shareholders.
"The great majority of New York Stock Exchange listed corporations elect
all their directors each year.
"This insures that ALL directors will be more accountable to ALL
shareholders each year and to a certain extent prevents the
self-perpetuation of the Board.
"Last year the owners of 714,403,717 shares, representing approximately
51.5% of shares voting, voted FOR this proposal.
"If you AGREE, please mark your proxy FOR this resolution."
Board of Directors' Statement in Opposition to the Resolution
The Company currently has three classes of directors, with members of each
class serving three-year terms. This system for electing directors was approved
by the Board and adopted by the Company's stockholders in 1985 by an
affirmative vote of 79%.
Stockholder resolutions calling for the annual election of directors
received support from 52.8% of the voting shares in 2000 and 51.3% of the
voting shares in 2001. Those proposals were recommendations that the Board take
the necessary steps to reinstate the annual election of directors. The steps
necessary to eliminate the classified board are adoption of an amendment to the
Company's Certificate of Incorporation by the Board and then approval of the
amendment by the affirmative vote of 80% of the shares entitled to vote. Each
of these proposals received careful consideration by the Board of Directors.
For the reasons noted below, the Board decided that it was not in the best
interests of the Company or its stockholders to take these steps.
The Merck Board believes that the staggered system helps assure continuity
and stability of the Company's business strategies and policies. This benefit
is particularly important to a research-based organization such as Merck, where
product development often takes many years. Moreover, the Board does not
believe that directors who serve three-year terms are any less accountable for
short-term results than directors who serve a series of one-year terms. The
Company's short- and long-term results demonstrate the commitment of our
directors to achieving the Company's goals.
Also, in the event of any unfriendly or unsolicited proposal to take over or
restructure the Company, the staggered system would permit the Company time to
negotiate with the sponsor, to consider alternative proposals, and to assure
that stockholder value is maximized. The Board appreciates that the sustained
size and strength of the Company's market capitalization make takeover concerns
less relevant to Merck than to certain other companies. However, our research
continues to show that smaller institutions and individual stockholders,
important constituencies to the Company, find the types of protections we
outlined particularly valuable.
We think it is important to note that our full Board considers the merits of
each stockholder proposal that will come before stockholders. In addition,
because of the important corporate governance issues raised by a proposal
calling for the annual election of directors, the Board's Committee on
Directors reviews the proposal separately to ensure that it receives a complete
assessment. Our system of Committee and full Board review of this issue has
been in place for several years.
The Board does not take lightly any majority vote received on a stockholder
proposal, particularly one raising important corporate governance concerns. It
continues to evaluate this issue regularly; however, the Board currently
believes that this proposal is not in the best interests of the Company or its
stockholders.
The Board of Directors recommends a vote AGAINST this proposal.
26
4. STOCKHOLDER PROPOSAL CONCERNING VOTING "AGAINST" DIRECTORS
Mr. Robert D. Morse, 212 Highland Avenue, Moorestown, New Jersey 08057-2717,
owner of 1,200 shares of Common Stock of the Company, has given notice that he
intends to present for action at the Annual Meeting the following resolution:
"Management and Directors are requested to change the format of the Proxy
Material in the two areas which are not fair to the shareowners: Remove the
word 'EXCEPT' and re-apply the word 'AGAINST' in the Vote For Directors
column. Remove the statement (if applicable) placed in the lower section
announcing that all signed proxies but not voted as to choice will be voted
at the discretion of Management.
"REASONS:
"This entirely unfair voting arrangement has benefited Management and
Directors in their determination to stay in office by whatever means. Note
that this is the only area in which an 'AGAINST' choice is omitted, and has
been so for about 15 years with no successful objections. Claiming of votes
by Management is unfair, as a shareowner has the right to sign as 'Present'
and not voting, showing receipt of material and only preventing further
solicitation of a vote.
"FURTHER:
"Since Management claims the right to advise an 'AGAINST' vote in matters
presented by Shareowners, I likewise have the right to ask for a vote
'AGAINST' all Company select nominees for Director until directors stop the
practice of excessive extra remuneration for Management other than base pay
and some acceptable perks. THANK YOU."
Board of Directors' Statement in Opposition to the Resolution
The Company's proxy materials, including the proxy cards distributed in
connection with its Annual Meetings, are consistent with federal and state law
requirements. The proposal would require changes to the proxy card that are
unnecessary and will be confusing to stockholders.
The Board believes that the voting procedure is clearly indicated on the
proxy card and further explained in the proxy statement. The Company carefully
examines and reviews its voting directions to ensure clarity and compliance
with legal requirements. The Board believes the changes required by the
proposal are unnecessary and not in the best interests of the Company or its
stockholders.
The Board of Directors recommends a vote AGAINST this proposal.
5. STOCKHOLDER PROPOSAL CONCERNING PHARMACEUTICAL PRICING
The Province of St. Joseph of the Capuchin Order, 1015 North Ninth Street,
Milwaukee, Wisconsin 53233, owner of 200 shares of Common Stock of the Company,
and 27 co-proponents, whose names, addresses and shareholdings will be
furnished by the Company promptly upon receiving an oral or written request
from a stockholder addressed to the Secretary of the Company, have given notice
that they intend to present for action at the Annual Meeting the following
resolution:
"WHEREAS:
"We believe that access to needed health care services and products is
essential to human development and well-being;
"Pharmaceutical products play a significant role in restoring,
maintaining and enhancing human health;
"Millions of Americans lack access to prescription medicines or pay
dearly for them because they are un-insured or under-insured;
27
"Because the industry prices pharmaceuticals very differently for retail
and for group purchasers, people buying at local retail pharmacies pay the
highest out-of-pocket prices for the medicines they need;
"A Report prepared for the President by the Department of Health and
Human Services (Prescription Drug Coverage, Spending, Utilization, and
Prices, April 2000) found that:
. For the most commonly prescribed drugs, the price difference between
cash customers and those with third-party coverage grew substantially larger
between 1996 and 1999.
. In 1999, for a quarter of the most common drugs, the price
difference between cash and third parties (group purchasers) was over 20%.
. Neither the wholesalers nor the retailers are creating the high
prices. The wholesale markup, after purchase from the manufacturer, is
'generally small, perhaps 2%-4%' (ch. 3, p. 101). The Report also suggested
that local pharmacy profit margins have been falling in recent years (p.
103).
"A May 2001 report by the National Institute for Health Care Management
Foundation found that while doctors are writing more prescriptions for
higher-cost drugs, price increases accounted for 22% of the increase in
retail spending on prescription drugs in the year 2000 (NY Times, May 11,
2001).
"THEREFORE BE IT RESOLVED:
"Shareholders request the Board of Directors to report to shareholders by
September 2002 on the creation and implementation of a policy of price
restraint on prescription drugs, utilizing a combination of approaches to
keep drug prices at reasonable levels (withholding any competitive
information, and at reasonable cost).
"SUPPORTING STATEMENT:
"We suggest that the policy include a restraint on each individual drug
and that it not be based on averages which can mask tremendous disparities:
a low price increase for one compound and a high price increase for another;
one price for a 'favored customer' (usually low) and another for the retail
customer (usually high).
"We appreciate the need for research and the role that our company has
played in the development of new medicines. We are also aware that the cost
of research is only one determinant for the final price of a drug.
Advertising is another significant company expenditure, and now includes
'direct to consumer' campaigns. Merck & Co. spent $6.16 billion on
Marketing/Advertising/Administration in the year 2000.
"Thus, we believe that price restraint can be achieved without
sacrificing necessary research efforts.
"We urge a vote FOR this resolution."
Board of Directors' Statement in Opposition to the Resolution
The Board agrees that, for many Americans, the cost of medicines represents
a substantial barrier to access. The answer to this problem is to provide all
Americans with access to affordable prescription drug coverage. For those in
the United States who have such coverage, the emergence of powerful buyers
through managed care organizations and health plans has created and intensified
price competition for pharmaceuticals.
Competition can ensure that those who pay for medicines receive good value
for their money. In this system, the price of a Merck medicine, like that of
other products resulting from research and creativity, is determined by the
value of the knowledge it represents--knowledge that prevents and cures disease
and relieves suffering. In contrast, a policy of arbitrary price controls--no
matter how imposed--would decrease the incentives for researching and
developing new medicines. That would harm the patients who are waiting for the
cures.
For seniors in the United States, the Company supports adding an outpatient
prescription drug benefit to a modernized and strengthened Medicare program.
Beneficiaries should be able to choose among private-sector health plans that
include prescription drug coverage. The government should provide assistance to
beneficiaries to ensure that they can afford coverage.
28
For those who are not Medicare beneficiaries and who are not eligible for
coverage under Medicaid, state children's health programs or other initiatives,
the problem of the lack of coverage affects all health services--not just
drugs--and the issue needs to be addressed in this broader context. The Company
is interested in participating in such a debate.
In the interim, Merck continues to provide access to free medicines to
low-income persons in the United States through a combination of patient
assistance programs. Working with physicians throughout the nation, Merck views
these assistance programs as a short-term solution for those who need medicines
they cannot afford.
Concerns about access to pharmaceuticals are best addressed by continuing
the Company's commitment to leadership in advocating prescription drug
insurance coverage that gives individuals access to medicines at negotiated
prices. The Board believes that an across-the-board, unilateral imposition of a
restraint on pricing prescription drugs is unnecessary and not in the best
interests of patients, the Company or its stockholders.
The Board of Directors recommends a vote AGAINST this proposal.
6. STOCKHOLDER PROPOSAL CONCERNING A "GLASS CEILING" REVIEW
Sisters of the Blessed Sacrament, 1663 Bristol Pike, Bensalem, Pennsylvania
19020-5796, owners of 200 shares of Common Stock of the Company, and three
co-proponents, whose names, addresses and shareholdings will be furnished by
the Company promptly upon receiving an oral or written request from a
stockholder addressed to the Secretary of the Company, have given notice that
they intend to present for action at the Annual Meeting the following
resolution:
"WHEREAS: The term 'glass ceiling' describes an artificial barrier to the
advancement of women and minorities into corporate management positions.
"Women have made significant gains since 1995 in obtaining top-earner
spots; yet of America's 500 largest companies, women hold only 3.3% of these
spots and only 11.2% of the board seats (1999 Catalyst Census of Women
Corporate Officers and Top Earners). A 1998 study showed that women with
equivalent jobs, training, experience and union representation earn 12% less
than men (conducted by the Council of Economic Advisors as reported by Dan
Seligman in Forbes January 22, 2001).
"Not only employees recognize the problem. When the Texas Society for
Human Resource Management polled employers in 1999, nearly 75% said that
minorities face barriers to advancement.
"The existence of a glass ceiling poses a serious financial risk. In
2000, Coca Cola settled a racial discrimination suit at a historic $192.5
million.
"Private companies with the highest rating on equal employment
opportunity have performed better in the stock market than companies with
poor performances in areas related to hiring and advancing women and
non-whites, with earnings 2.5 times higher on average. (Covenant Investment
Management and Executive Update, July, 2000).
"We believe that successful corporations, at minimum, incorporate
demographic trends and realities by reflecting diversity in all aspects of
corporate operations and especially on the top rungs of the decision-making
ladder.
"RESOLVED that shareholders request: The Board of Directors prepare a
report, at reasonable cost and excluding confidential information, available
to shareholders four months after the annual shareholder meeting on our
progress concerning the Glass Ceiling Commission's business recommendations
including a review of:
1. Steps the company has taken to use the Glass Ceiling Commission
Report and management's recommendations flowing from it.
29
2. Company-wide policies addressing leadership development, employee
mentoring, workforce diversity initiatives and family friendly programs.
3. An explanation of how executive compensation packages and
performance evaluations include executive efforts in breaking the glass
ceiling.
4. The top one hundred or one percent of company wage earners broken
down by gender and race."
Board of Directors' Statement in Opposition to the Resolution
The Board of Directors and senior management of the Company are committed to
advancing diversity at Merck. Senior management at Merck, led by Raymond
Gilmartin, Chairman and Chief Executive Officer of the Company, foster and
promote diversity by their example and in programs designed to develop the
leadership skills of all Merck people. These programs, and other policies and
initiatives implemented by the Company, are consistent with the guidelines of
the Glass Ceiling Commission.
In a further effort to promote diversity, Merck's Office of Diversity
oversees the Company's integrated approach of including diversity in all of its
business practices. The Company's diversity strategy strives to ensure that its
workforce reflects the available talent in the marketplace. To achieve this
objective, Merck constantly reviews the representation of women and minorities
within its workforce and our progress in hiring and promoting women and
minorities. In addition, the Company has a number of processes and programs in
place to prepare women and minorities for senior positions. These programs
include an employee development program, leadership training, formal and
informal mentoring programs and structured succession planning processes. Merck
has a strong commitment to ensuring that diversity is integrated at every level
of the Company and that it remains a key business initiative.
The Company's activities are described in a booklet called "Diversity at
Merck," which summarizes the Company's commitment to diversity and some of the
steps it has taken to promote diversity at Merck. This booklet has been
available to stockholders of the Company for the last three years, as noted on
the back page of the Company's Annual Report. It is also available on the Merck
website. The booklet, which is updated annually, already contains a section
reporting on the representation of women and minorities in the Company's
workforce. Accordingly, the report called for by the proposal would be
duplicative of information already widely available to stockholders. The Board
of Directors therefore opposes the stockholder proposal.
The Board of Directors recommends a vote AGAINST this proposal.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership of such securities with the Securities and
Exchange Commission and the New York Stock Exchange. Officers, directors and
greater than ten-percent beneficial owners are required by applicable
regulations to furnish the Company with copies of all Section 16(a) forms they
file. We are not aware of any beneficial owner of more than ten percent of our
Common Stock.
Based solely upon a review of the copies of the forms furnished to the
Company, or written representations from certain reporting persons that no
Forms 5 were required, we believe that all filing requirements applicable to
our officers and directors were complied with during the 2001 fiscal year.
30
OTHER MATTERS
The Board of Directors is not aware of any other matters to come before the
meeting. However, if any other matters properly come before the meeting, it is
the intention of the persons named in the enclosed proxy to vote said proxy in
accordance with their judgment in such matters.
MERCK & CO., INC.
March 21, 2002
31
[LOGO] MERCK
Merck & Co., Inc.
[LOGO] MERCK YOUR VOTE IS IMPORTANT
VOTE BY TELEPHONE / INTERNET
24 HOURS A DAY, 7 DAYS A WEEK
VOTE BY PHONE: Call TOLL-FREE: 1-888-297-9639
. Use any touch-tone telephone.
. Have your proxy card ready.
. Enter your Control Number located in the box below.
. Follow the simple recorded instructions.
VOTE BY INTERNET: The Web Address is: http://www.proxyvoting.com/merck
. Go to the web address listed above.
. Have your proxy card ready.
. Enter your Control Number located in the box below.
. Follow the simple instructions that appear on your computer
screen.
IF YOU VOTE BY TELEPHONE OR BY INTERNET, DO NOT MAIL THE PROXY CARD. YOUR
------
TELEPHONE OR INTERNET VOTE AUTHORIZES THE NAMED PROXIES TO VOTE YOUR SHARES IN
THE SAME MANNER AS IF YOU VOTED YOUR PROXY CARD EXCEPT FOR THE CUMULATIVE VOTING
FEATURE APPLICABLE TO THE ELECTION OF DIRECTORS, WHICH IS ONLY AVAILABLE BY
VOTING THE PROXY CARD. THE TELEPHONE AND INTERNET VOTING FACILITIES WILL CLOSE
AT 12:01 A.M. ON APRIL 23, 2002.
----------------------------
CONTROL NUMBER FOR
TELEPHONE / INTERNET VOTING
----------------------------
\/ DETACH PROXY CARD HERE IF YOU ARE NOT VOTING BY TELEPHONE OR BY INTERNET \/
----------------------- The Board of Directors recommends a vote FOR Items 1 and 2. -----------------------------
FOR AGAINST ABSTAIN Proxy Card
1. Election of Directors - The Board of Directors 2. Ratification of the Appointment [_] [_] [_]
recommends a vote FOR the nominees listed below: of Independent Public Accountants
Nominees: 01 - William M. Daley* 02 - Raymond V. I plan to
Gilmartin** attend the [_]
03 - Edward M. Scolnick** 04 - Anne M. ----------------------------------------------------------- Annual
05 - Samuel O. Thier** Tatlock** The Board of Directors recommends a vote AGAINST Meeting.
*Term expiring 2004 **Term expiring 2005 Items 3, 4, 5 and 6
FOR AGAINST ABSTAIN
FOR all WITHHOLD AUTHORITY EXCEPTIONS 3. Stockholder Proposal Concerning [_] [_] [_] I would
nominees listed to vote for all nominees Annual Election of Directors like to
listed access
[_] [_] [_] future
Proxy
To withhold authority to vote for any individual 4. Stockholder Proposal Concerning [_] [_] [_] Statements [_]
nominee, mark the "Exceptions" box and write that Voting "Against" Directors and Annual
nominee's name in the space provided below. Reports
electronically
(as described in
Exceptions___________________________________________ 5. Stockholder Proposal Concerning [_] [_] [_] the enclosed
Pharmaceutical Pricing document).
To cumulate votes as to a particular nominee(s) as
explained in the Proxy Statement, indicate the name(s)
and the number of votes to be given to such nominee(s). 6. Stockholder Proposal Concerning [_] [_] [_]
a "Glass Ceiling" Review
Cumulate_____________________________________________
Please sign exactly as name or names appear on this Proxy Card.
When signing as attorney, executor, administrator, trustee, custodian or
guardian, give full title. If there is more than one named stockholder, all should sign
unless evidence of authority to sign on behalf of others is attached.
Dated:_________________________________________________________________________________
_______________________________________________________________________________________
Signature of Stockholder
_______________________________________________________________________________________
Signature of Stockholder
Please complete, sign, date and return the Proxy Card promptly using the enclosed envelope.
ADMISSION TICKET
[LOGO] MERCK Annual Meeting of Stockholders
Tuesday, April 23, 2002, 2:00 p.m.
Edward Nash Theatre, Raritan Valley Community College
Route 28 and Lamington Road, North Branch, New Jersey
[MAP]
Follow Raritan Valley Community College signs at Exit 26 on Interstate 78 and on
Route 22 in North Branch. Enter Raritan Valley Community College at Lamington
Road entrance. Proceed to Parking Lot 5, which is reserved for Merck
stockholders. A continuous shuttle bus service from the parking lot to the
Theatre will be available.
This ticket admits the named Stockholder(s) and one guest.
[LOGO] MERCK
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints RAYMOND V. GILMARTIN, KENNETH C.
FRAZIER and CELIA A. COLBERT as Proxies, each with the power to
appoint his or her substitute, and hereby authorizes them to represent
and to vote ALL of the stock of MERCK & CO., INC. standing in the name
of the undersigned at the ANNUAL MEETING OF STOCKHOLDERS to be held on
April 23, 2002, and at all adjournments thereof, upon the matters set
forth on the reverse side, as designated (including the power to vote
cumulatively in the election of directors), and upon such other
matters as may properly come before the meeting. This card also
provides voting instructions for shares held for the account of the
undersigned in the Merck Stock Investment Plan, as described in the
Proxy Statement. Any prior proxy or voting instructions are hereby
revoked.
The shares represented by this proxy will be voted as directed by the
stockholder. If no specification is made, the shares will be voted FOR
items 1 and 2 and AGAINST items 3, 4, 5 and 6.
(Continued, and to be signed and dated on the reverse side.)