Company Name: Merck & Co., Inc.
Public Availability Date: December 11, 2006
Document Sections:
INQUIRY LETTER
STAFF REPLY LETTER
[INQUIRY LETTER]
VIA OVERNIGHT MAIL
November 20, 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 Lamar Owens (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:
The Stockholders propose that Merck & Company (MRK) Board of Directors pass a
resolution requiring management for each brand and operating entity to hold an
annual formal review and presentation of advertising agencies. Said review shall
include a minimum of two competitive advertising agencies and the current agency
for each MRK entity. Management may decide to retain the existing agency no more
than three consecutive years. On the third year review the current agency shall
be deleted from the review process.
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, the Proposal may be omitted in accordance with Rule 14a-8(b) (failure
to prove eligibility).
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.,
the manner in which a company advertises its products.
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.
Our correspondence informing him of the requirement to demonstrate eligibility
is attached as Appendix B.
DISCUSSION
Failure to Prove Eligibility
In response to his correspondence, which we received on May 15, 2006, we
provided the Proponent with the following notice on May 16, 2006:
Rule 14a-8(b) of the SEC's Regulation 14A for the Solicitation of Proxies
requires that in order to be eligible to submit a proposal, a shareholder must
have continuously held at least $2,000 in market value of Company (Merck)
securities for at least one year by the date of submitting the proposal. Since
you do not appear in the Company's records as a registered holder, you must
provide a written statement from the "record" holder of the Merck securities
(usually a broker or bank) verifying that you have held at least $2,000 in
market value of Merck securities continuously for one year as of the date the
proposal was submitted. In addition, you must provide a written statement that
you will continue to hold the requisite market value of Merck securities through
the date of the Annual Meeting.
In order to complete the eligibility requirements in connection with the
submission of the stockholder proposal, a response must be postmarked, or faxed
to (908) 735-1224, within 14 calendar days from the date you receive this
letter. Please direct a response to my attention.
See Appendix B.
The Proponent never responded to our notice. Therefore the Proposal is
excludible under rule 14a-8(b) as specified in rule 14a-8(f).
Relates to Ordinary Business Operations
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.
As explained in Exchange Act Release No. 34-40018, 14a-8(i)(7), a proposal may
be excluded if it deals with a matter relating to a Company's ordinary business
operations for two reasons. First, the exclusion recognizes that certain tasks
are fundamental to a company's day-to-day operations and cannot practically be
subject to direct shareholder oversight. Second, the exclusion recognizes that
shareholders are not in a position to "micro-manage" a company by delving into
complex business matters.
The Proposal seeks both to improperly interfere with Merck's day-to-day
operations by regulating its marketing function and to micro-manage by very
precisely specifying a method of carrying out the Proponent's personal view of
managing advertising agencies. Therefore, the Proposal implicates both aspects
of rule 14a-8(i)(7) as explained in Exchange Act Release No. 34-40018 and should
be excluded.
The Staff has several times agreed that proposals seeking to regulate a
company's advertising and marketing functions are excludible under rule
14a-8(i)(7). See, for example, Abercrombie & Fitch (March 24, 2006) (exclusion
on basis of ordinary business operation, i.e., the manner in which a company
advertises its products); General Electric (January 18, 2005) (same);
Hewlett-Packard Co. (October 8, 2004) (exclusion on basis of ordinary business
operation, i.e., brand name to use for marketing and advertising purposes);
Johnson & Johnson (January 12, 2004) (exclusion on basis of ordinary business
operation, i.e., marketing and advertising).
Therefore, I believe the Proposal is excludible under rule 14a-8(i)(7).
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(b), 14a-8(i)(7), or 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,
the Proposal, including the statement in support thereof and our correspondence
to the Proponent. 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 him, 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: C. Lamar Owens
[STAFF REPLY LETTER]
December 11, 2006
Response of the Office of Chief Counsel Division of Corporation Finance
Re: Merck & Co., Inc. Incoming letter dated November 20, 2006
The proposal relates to annual review and presentation of advertising agencies.
There appears to be some basis for your view that Merck may exclude the proposal
under rule 14a-8(f). We note that the proponent appears not to have responded to
Merck's request for documentary support indicating that the proponent has
satisfied the minimum ownership requirement for the one-year period required by
rule 14a-8(b). Accordingly, we will not recommend enforcement action to the
Commission if Merck omits the proposal from its proxy materials in reliance on
rules 14a-8(b) and 14a-8(f). 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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