Exhibit 10.5

 

 

 

MERCK & CO., INC.

2006 NON-EMPLOYEE DIRECTORS

STOCK OPTION PLAN

(Effective as Amended and Restated on the Closing Date of the Transactions)

 

 

 

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2006 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN

The 2006 Non-Employee Directors Stock Option Plan (the “Plan”) was established
and is maintained to attract, retain and compensate for service as members of
the Board of Directors of Merck & Co., Inc. highly qualified individuals who are
not current or former employees of the Company and to enable them to increase
their ownership in the Company’s Common Stock. As of the Closing Date (“Closing
Date”) of the Agreement and Plan of Merger dated as of March 8, 2009, as
amended, by and among Merck & Co., Inc. Schering Plough Corporation, SP Merger
Subsidiary One, Inc., and SP Merger Subsidiary Two, Inc. (the “Transactions”),
the Plan is being amended and restated. For purposes of this Plan, the “Company
or “Merck” includes (a) Merck & Co., Inc. as in effect prior to the consummation
of the Transactions and (b) Merck & Co., Inc. (formerly known as Schering-Plough
Corporation) as in effect on and after the consummation of the Transactions. The
Plan will be beneficial to the Company and its stockholders since it will allow
these Directors to have a greater personal financial stake in the Company
through the ownership of Company stock, in addition to underscoring their common
interest with stockholders in increasing the value of the Company stock longer
term.

 

1. Eligibility

All members of the Company’s Board of Directors who are not current or former
employees of the Company or any of its subsidiaries (“Non-Employee Directors”)
shall participate in this Plan; provided, however, that any Non-Employee
Director who was a member of the Board of Directors of Schering-Plough
Corporation on the Closing Date shall not be eligible to participate in this
Plan, unless Company shareholders re-approve this Plan at shareholder meeting
held after the Closing Date.

 

2. Awards

Only nonqualified stock options to purchase shares of Merck Common Stock
(“NQSOs”) and Restricted Stock Grants (collectively, “Incentives”) may be
granted under this Plan.

 

3. Shares Available

 

  a) Number of Shares Available: There is hereby reserved for issuance under
this Plan 1 million shares of Merck Common Stock, which may be authorized but
unissued shares, treasury shares, or shares purchased on the open market.

 

  b) Recapitalization Adjustment: In the event of a reorganization,
recapitalization, stock split, stock dividend, extraordinary cash dividend,
combination of shares, merger, consolidation, rights offering or other similar
change in the capital structure or shares of the Company, adjustments in the
number and kind of shares authorized by this Plan, in the number and kind of
shares covered by Incentives, and in the option price of outstanding NQSOs
under, this Plan shall be made if, and in the same manner as, such adjustments
are made to incentives issued under the then current Incentive Stock Plan for
Merck (including the Merck Sharp & Dohme Corp. 2007 Stock Incentive Plan, as
amended and restated, until Company shareholders approve a Merck Incentive Stock
Plan after the consummation of the Transactions) (the “ISP”) subject to any
required action by the Board of Directors or the stockholders of the Company and
compliance with applicable securities laws.

 

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4. Annual Grant of Nonqualified Stock Options

Each year on the first Friday following the Company’s Annual Meeting of
Stockholders, each individual elected, reelected or continuing as a Non-Employee
Director shall automatically receive an NQSO to purchase 5,000 shares of Merck
Common Stock or such other amount as may be determined by the Board from time to
time. Notwithstanding the foregoing, if, on that first Friday, the General
Counsel of the Company determines, in her/his sole discretion, that the Company
is in possession of material, undisclosed information about the Company, then
the annual grant of NQSOs to Non-Employee Directors shall be suspended until the
second business day after public dissemination of such information and the
price, exercisability date and option period shall then be determined by
reference to such later date. If Merck Common Stock is not traded on the New
York Stock Exchange on any date a grant would otherwise be awarded, then the
grant shall be made the next day thereafter that Merck Common Stock is so
traded.

 

5. Option Price

The price of the NQSO shall be the closing price of Merck Common Stock on the
date of the grant as quoted on the New York Stock Exchange.

 

6. Option Period

An NQSO granted under this Plan shall become exercisable at 12:01 a.m. in three
equal installments (subject to rounding) on each of the first, second and third
anniversaries of the date of grant and shall expire at 11:59 p.m. on the day
before the tenth anniversary thereof (“Option Period”). As used in this Plan,
all times shall mean the time for New York, NY.

 

7. Payment

The NQSO price and any required tax withholding, if any, shall be paid in cash
in U.S. dollars at the time the NQSO is exercised or in such other manner as
permitted for option exercises under the ISP applicable to “officers” (as
defined in Rule 16a-1 of the Securities Exchange Act of 1934 (the “Exchange
Act”)) of Merck and its affiliates. If the Compensation and Benefits Committee
of the Board of Directors of the Company approves the use of previously owned
shares of Common Stock for any portion of the exercise price for NQSOs granted
under the ISP, then that same provision also shall apply to this Plan. The NQSOs
shall be exercised through the Company’s broker-assisted stock option exercise
program, provided such program is available at the time of the option exercise,
or by such other means as in effect from time to time for the ISP.

 

8. Cessation of Service

Upon cessation of service as a Non-Employee Director (for reasons other than
Retirement or death), only those NQSOs immediately exercisable at the date of
cessation of service shall be exercisable by the grantee. Such NQSOs must be
exercised by 11:59 p.m. on the day before the same day of the third month after
such cessation of service (but in no event after the expiration of the Option
Period) or they shall be forfeited. For example, if service ends on January 12
and this section applies, the NQSOs would expire no later than 11:59 p.m. on
April 11. All other NQSOs shall expire at 11:59 p.m. on the day of such
cessation of service.

 

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9. Retirement

If a grantee ceases service as a Non-Employee Director and is then at least age
65 with ten or more years of service or age 70 with five or more years of
service (such cessation of service is a “Retirement” and begins on the first day
after service ends), then any of his/her outstanding NQSOs shall continue to
become exercisable as if service had continued. All outstanding NQSOs must be
exercised by the expiration of the Option Period, or such NQSOs shall be
forfeited. Notwithstanding the foregoing, if a grantee dies before the NQSOs are
forfeited, Section 10 shall control.

 

10. Death

Upon the death of a grantee, all unvested NQSOs shall become immediately
exercisable. The NQSOs which become exercisable upon the date of death and those
NQSOs which were exercisable on the date of death may be exercised by the
grantee’s legal representatives or heirs by the earlier of (i) 11:59 p.m. on the
day before the third anniversary of the date of death (ii) the expiration of the
Option Period; if not exercised by the earlier of (i) or (ii), such NQSOs shall
be forfeited. Notwithstanding the foregoing, if local law applicable to a
deceased grantee requires a longer or shorter exercise period, these provisions
shall comply with that law.

 

11. Restricted Stock Grant

The Board may award actual shares of Common Stock (“Restricted Stock”) or
phantom shares of Common Stock (“Restricted Stock Units”) to a Non-Employee
Director, which shares shall be subject to the terms and conditions and as the
Board may prescribe from time to time.

 

12. Administration and Amendment of the Plan

This Plan shall be administered by the Board of Directors of Merck. The Board
may delegate to any person or group, who may further so delegate, the Board’s
powers and obligations hereunder as they relate to day to day administration of
the exercise process. This Plan may be terminated or amended by the Board of
Directors as it deems advisable. However, an amendment revising the price, date
of exercisability, option period of, or amount of shares under an NQSO shall not
be made more frequently than every six months unless necessary to comply with
applicable laws or regulations. Unless approved by the Company’s stockholders,
no adjustments or reduction of the exercise price of any outstanding NQSO shall
be made directly or by cancellation of outstanding NQSOs and the subsequent
regranting of NQSOs at a lower price to the same individual. No amendment may
revoke or alter in a manner unfavorable to the grantees any Incentives then
outstanding, nor may the Board amend this Plan without stockholder approval
where the absence of such approval would cause the Plan to fail to comply with
Rule 16b-3 under the Exchange Act or any other requirement of applicable law or
regulation. An Incentive may not be granted under this Plan after December 31,
2015 but NQSOs granted prior to that date shall continue to become exercisable
and may be exercised, and Restricted Stock Grants shall continue to vest,
according to their terms,

 

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13. Transferability

Except as set forth in this section, the NQSOs granted under this Plan shall not
be exercisable during the grantee’s lifetime by anyone other than the grantee,
the grantee’s legal guardian or the grantee’s legal representative, and shall
not be transferable other than by will or by the laws of descent and
distribution. Incentives granted under this Plan shall be transferable during a
grantee’s lifetime only in accordance with the following provisions.

The grantee may only transfer an NQSO while serving as a Non-Employee Director
of the Company or within one year of ceasing service as a Non-Employee Director
due to Retirement as defined in Section 9.

The NQSO may be transferred only to the grantee’s spouse, children (including
adopted children and stepchildren) and grandchildren (collectively, “Family
Members”), to one or more trusts for the benefit of Family Members or, at the
discretion of the Board of Directors, to one or more partnerships where the
grantee and his Family Members are the only partners, in accordance with the
rules set forth in this section. The grantee shall not receive any payment or
other consideration for such transfer (except that if the transfer is to a
partnership, the grantee shall be permitted to receive an interest in the
partnership in consideration for the transfer).

Any NQSO transferred in accordance with this section shall continue to be
subject to the same terms and conditions in the hands of the transferee as were
applicable to such NQSO prior to the transfer, except that the grantee’s right
to transfer such NQSO in accordance with this section shall not apply to the
transferee. However, if the transferee is a natural person, upon the
transferee’s death, the NQSO privileges may be exercised by the legal
representatives or beneficiaries of the transferee within the exercise periods
otherwise applicable to the NQSO.

Any purported transfer of an NQSO under this section shall not be effective
unless, prior to such transfer, the grantee has (1) met the minimum stock
ownership target then in place for Directors of the Company, (2) notified the
Company of the transferee’s name and address, the number of shares under the
Option to be transferred, and the grant date and exercise price of such shares,
and (3) demonstrated, if requested by the Board of Directors, that the proposed
transferee qualifies as a permitted transferee under the rules set forth in this
section. In addition, the transferee must sign an agreement that he or she is
bound by the rules and regulations of the Plan and by the same insider trading
restrictions that apply to the grantee and provide any additional documents
requested by the Company in order to effect the transfer. No transfer shall be
effective unless the Company has in effect a registration statement filed under
the Securities Act of 1933 covering the securities to be acquired by the
transferee upon exercise of the NQSO, or the General Counsel of Merck has
determined that registration of such shares is not necessary.

 

14. Compliance with SEC Regulations

It is the Company’s intent that the Plan comply in all respects with Rule 16b-3
of the Exchange Act, and any regulations promulgated thereunder. If any
provision of this Plan is later found not to be in compliance with the Rule, the
provision shall be deemed null and void. All grants and exercises of NQSOs under
this Plan shall be executed in accordance with the requirements of Section 16 of
the Exchange Act, as amended, and any regulations promulgated thereunder.

 

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15. Miscellaneous

Except as provided in this Plan, no Non-Employee Director shall have any claim
or right to be granted an NQSO under this Plan. Neither the Plan nor any action
thereunder shall be construed as giving any director any right to be retained in
the service of the Company.

 

16. Effective Date

This Plan shall be effective April 25, 2006 or such later date as stockholder
approval is obtained and is being amended and restated as of the Closing Date.

 

17. No Constraint on Corporate Action

Nothing in this Plan shall be construed (i) to limit or impair or otherwise
affect the Company’s right or power to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure, or to merge or
consolidate, liquidate, sell or transfer all or any part of its business or
assets, or (ii) except as provided in Section 12, to limit the right or power of
the Company or any subsidiary to take any action which such entity deems to be
necessary or appropriate.

 

18. Governing Law

This Plan, and all agreements hereunder, shall be construed in accordance with
and governed by the laws of the State of New Jersey.

 

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