Company Name: Merck & Co., Inc.
Public Availability Date: December 21, 2006
Document Sections:
INQUIRY LETTER
STAFF REPLY LETTER
[INQUIRY LETTER]
VIA OVERNIGHT DELIVERY
November 17, 2006
U.S. Securities and Exchange Commission
Division of Corporation Finance
Office of the Chief Counsel
100 F Street, N.E.
Washington, DC 20549
Re: Merck & Co., Inc. Shareholder Proposal
Dear Ladies and Gentlemen:
Merck & Co., Inc. (the "Company" or "Merck") has received a shareholder's
proposal (the "Proposal") from Laszlo R. Treiber (the "Proponent") for inclusion
in the Company's proxy materials for the 2007 Annual Meeting of Stockholders
(the "Proxy Materials"). The Proposal requests that the Proxy Materials include
the following proposed resolution:
RESOLVED: It is all but impossible for Merck to build trust with patients,
health care providers and investors without requesting the involvement of law
enforcement agencies to determine the causes leading to the Vioxx disaster.
Therefore, I propose that in order to restore its good name and reputation Merck
take legal action in civil as well as criminal courts against all individuals,
who have, in spite of having knowledge of its dangerous side effects,
contributed to bringing Vioxx to the market.
For your information, the Proponent is a former Company employee whose
employment was terminated in 1999. Every year since 2000, he has submitted a
shareholder proposal seeking to require the Company to inform shareholders and
others about various aspects of disputes within the Company. In each instance,
the Division of Corporation Finance (the "Staff") has agreed that the Company
may exclude the Proponent's proposal.
As described in greater detail below, we believe that the Proposal properly may
be omitted from the Proxy Materials for the following reasons, each of which in
and of itself should be sufficient.
▪ First, we believe the Proposal may be omitted in accordance with Rule
14a-8(i)(4) as it relates to the redress of a personal claim or grievance
against the Company.
▪ Second, we believe that the Proposal may be excluded in accordance with
14a-8(i)(7) as it deals with the Company's ordinary business operations, i.e.,
general conduct of a legal compliance program.
▪ Third, we believe that the Proposal may be excluded in accordance with
14a-8(i)(3) as it impugns character, integrity and personal reputations without
factual foundation.
▪ Finally, we believe that the Proposal violates New Jersey law and therefore is
excludable unless it is recast as a recommendation or request to Merck's Board
of Directors (the "Board") under Rule 14a-8(i)(1).
The Proponent's supporting statement for his Proposal is attached as Appendix A.
DISCUSSION
Personal Grievance
The Proponent was employed by the Company in its research department for over 20
years. His employment was terminated in 1999. Every year since 2000 he has
submitted a shareholder proposal alleging various impropriety by the Company and
its personnel, and every year the Division has agreed there was basis to exclude
the proposal. See Merck & Co., Inc. (January 19, 2005), Merck & Co., Inc.
(January 16, 2004), Merck & Co., Inc. (January 23, 2003), Merck & Co., Inc.
(March 7, 2002) and Merck & Co., Inc. (February 9, 2001).
The Proponent is a former employee who continues his campaign to seek redress of
a personal claim or grievance that he has against the Company and senior members
of the Company's research department. The Division repeatedly has stated that
although a proposal does not on its face evidence a personal claim or grievance,
it nevertheless may be excluded if it appears to be part of a campaign designed
to redress an existing personal grievance. See Merck & Co., Inc. (January 23,
2003) (proposal from the Proponent was excludable under Rule 14a-8(i)(4) as
relating to the redress of a personal claim or grievance, or designed to result
in a benefit to the proponent or further a personal interest, which benefit or
interest is not shared with other security holders at large); USX Corporation
(December 28, 1995) (proposal to adopt and maintain a code of ethics); Texaco,
Inc. (March 18, 1993) (proposal regarding limits on executive and consultant
compensation).
The Proposal is a variation on the substance of the proposals the Proponent has
been raising for several years and we continue to believe the Proposal properly
may be excluded under Rule 14a-8(i)(4) as related to the redress of a personal
claim or grievance, or designed to result in a benefit to the Proponent or
further a personal interest, which benefit or interest is not shared with other
security holders at large.
Relates to Ordinary Business Operations (legal compliance program)
Merck is a global research-driven pharmaceutical company dedicated to putting
patients first. Established in 1891, Merck discovers, develops, manufactures and
markets vaccines and medicines to address unmet medical needs. The Company also
devotes extensive efforts to increase access to medicines through far-reaching
programs that not only donate Merck medicines but help deliver them to the
people who need them. Merck also publishes unbiased health information as a
not-for-profit service.
Under Rule 14a-8(i)(7), a shareholder proposal may be excluded if it deals with
a matter relating to a Company's ordinary business operations. The Proposal
directly relates to the management of the workforce and operations that are at
the core of the Company's business. The Proposal seeks to dictate a legal
compliance program by requiring the Company to undertake litigation against the
people who assisted it in its core business operations of discovering,
developing, manufacturing and marketing medicine.
The Staff regards general conduct of legal compliance program as relating to a
company's ordinary business. See H&R Block, Inc. (June 26, 2006) (proposal
regarding review of company's sales practices excludable as relating to ordinary
business operations, i.e., general conduct of a legal compliance program);
Halliburton Company (March 10, 2006) (proposal regarding alleged violations and
investigations excludable as relating to a legal compliance program); Conoco
Phillips, (February 23, 2006) (proposal regarding allegations by the proponent
relating to prospectus regarding proposed merger, excludable as relating to
general legal compliance program). Allstate Corporation (February 16, 1999)
(proposal regarding investigation of illegal activity excludable as relating to
the general conduct of a legal compliance program); and Associates First Capital Corporation (February 23, 1999) (relating to proposal to form committee on
predatory lending practices excludable as legal compliance program).
Because the Proposal seeks to impose a legal compliance program on the Company,
we believe the Proposal properly should be excluded under rule 14a-8a(i)(7).
Impugns Character
As clarified in Staff Legal Bulletin No. 14B, Rule 14a-8(i)(3) permits exclusion
of proposals where statements
directly or indirectly impugn character, integrity, or personal reputation, or
directly or indirectly make charges concerning improper, illegal, or immoral
conduct or association, without factual basis.
The Proposal requires that "Merck take legal action in civil as well as criminal
courts against" unnamed Merck employees. Thus, without so much as an attempt at
factual basis, the Proposal accuses Merck employees of tortious and criminal
conduct, directly impugning the character, integrity and personal reputation of
the Company and its employees.
The Proposal also requires the reader to assume that the Company and its
employees have engaged in some unspecified improper and illegal conduct which
justifies commencing civil or criminal litigation, again without any attempt at
factual basis.
Because the Proposal without factual basis directly impugns the character,
integrity and personal reputation of Merck employees and makes charges of
improper and illegal conduct, it should be excluded from the Proxy Materials
under rule 14a-8(i)(3).
Improper Under State Law
Rule 14a-8(i)(1) permits exclusion of a proposal that is not a proper subject
for action by shareholders under the laws of the jurisdiction of the company's
organization. Depending on the subject matter, Rule 14a-8(i)(1) notes that "some
proposals are not considered proper under state law if they would be binding on
a company if approved by shareholders." Merck is a corporation organized and
existing under the laws of the State of New Jersey. The Proposal would be
binding on the Company and therefore would violate N.J.S.A. Sec. 14A:6-1(1),
which provides that "The business and affairs of a corporation shall be managed
by or under the direction of its board, except as in this act or in its
certificate of incorporation otherwise provided."
As the Securities Exchange Commission noted in adopting the predecessor to Rule
14a-8(i)(1)
it is the Commission's understanding that the laws of most states do not
explicitly indicate those matters which are proper for security holders to act
upon but instead provide only that the `business and affairs of every
corporation organized under this law shall be managed by its board of directors'
or words to that effect. Under such a statute, the board may be considered to
have exclusive discretion in corporate matters. Accordingly, proposals by
security holders that mandate or direct the board to take certain action may
constitute an unlawful intrusion on the board's discretionary authority under
the typical statute.
Exchange Act Release No. 34-12999 (November 22, 1976).
I am licensed to practice law and a member in good standing of the Bar of the
State of New Jersey. I have reviewed the New Jersey Business Corporation Act
(the "Act") and the Company's certificate of incorporation (the "Certificate").
Nothing in the Act or the Certificate suggests that any entityother than the
Boardis responsible for the business and affairs of the Company. The Division
consistently has held that such proposals may be excluded unless they are recast
in the form of requests. See, for example, American Electric Power Company, Inc.
(February 18, 2003) and Lucent Technologies Inc. (November 6, 2001). To the
extent required by Rule 14a-8(j)(2)(iii), this letter is intended to constitute
a letter of opinion of counsel. Because it would violate New Jersey law, the
Proposal should be excluded unless it is recast as a recommendation or request
to the Board.
CONCLUSION
Based on the foregoing, we respectfully request that the Staff not recommend any
enforcement action to the Commission if the Company omits the Proposal from its
Proxy Materials for its 2007 Annual Meeting of the Stockholders pursuant to Rule
14a-8(i)(4), Rule 14a-8(i)(7), Rule 14a-8(i)(3) or Rule 14a-8(i)(1).
If the Staff believes that it will not be able to concur in our view that the
Proposal may be omitted, we would very much appreciate the opportunity to
discuss this issue in more detail with the appropriate persons before issuance
of a formal response.
In accordance with Rule 14a-8(j)(2), we have enclosed six copies of this letter
and six copies of the Proposal, including the statement in support thereof. An
additional copy is included, which we ask that you use to acknowledge receipt of
this submission by date stamping and returning to me in the enclosed
self-addressed envelope.
By copy of this letter to Mr. Treiber, the Company is notifying the Proponent of
its intention to omit the Proposal from the Proxy Materials.
For the Staff's information, the Company anticipates beginning to print its
proxy card on or about March 1, 2007.
If you have any questions regarding this matter or require further information,
please contact me at (908) 423-5671.
Thank you for your time and consideration.
Very truly yours,
MERCK & CO., INC.
/s/
Bruce Ellis
Counsel
Employee Benefits & Executive Compensation
Enc.
CC: Laszlo R. Treiber, Ph.D
[STAFF REPLY LETTER]
December 21, 2006
Response of the Office of Chief Counsel Division of Corporation Finance
Re: Merck & Co., Inc. Incoming letter dated November 17, 2006
The proposal requests that Merck take legal action in civil as well as criminal
courts against all individuals who, despite having knowledge of its dangerous
side effects, contributed to bringing Vioxx to the market.
There appears to be some basis for your view that Merck may exclude the proposal
under rule 14a-8(i)(7), as relating to its ordinary business operations.
Accordingly, we will not recommend enforcement action to the Commission if Merck
omits the proposal from its proxy materials in reliance on rule 14a-8(i)(7). In
reaching this position, we have not found it necessary to address the
alternative bases for omission upon which Merck relies.
Sincerely,
/s/
Amanda McManus
Attorney-Adviser
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