Document:

exv10w38

 

Exhibit
10.38

2002 ITT Industries Stock Option Plan
for

Non-Employee Directors

1.      Purpose

The purpose of the 2002 ITT Industries Stock Option Plan for
Non-Employee Directors is to attract, retain, motivate and
reward Directors of superior ability. In addition, the Plan is
intended to further opportunities for stock ownership by
Directors in order to increase their proprietary interest in the
Company and, as a result, their interest in the success of the
Company.

2.      Definitions

When used herein, the following terms shall have the following
meanings:

“Acceleration Event” means the occurrence of an event
defined in Section 7 of the Plan.

“Award” means an award in the form of Options granted
to any Director in accordance with the provisions of the Plan.

“Award Agreement” means the written agreement
evidencing each Award.

“Beneficiary” means the person or persons designated
pursuant to Section 8 of the Plan as being authorized to
act on behalf of a Director in the case of Death.

“Board” means the board of directors of the Company.

“Commission” means the Securities and Exchange
Commission of the United States government or any successor
agency performing the same or similar functions.

“Committee” means the Compensation and Personnel
Committee of the Board or such other committee as may be
designated by the Board to administer the Plan.

“Company” means ITT Industries, Inc., an Indiana
corporation, and its successors and assigns.

“Director” means any person who is a member of the
Board and who is not, as of the date of an Award, an employee of
the Company or any of its subsidiaries.

“Fair Market Value”, unless otherwise indicated in the
provisions of the Plan, means, as of any date, the composite
closing price for one share of Stock on the New York Stock
Exchange or, if no sales of Stock have taken place on such date,
the composite closing price on the most recent date on which
selling prices were quoted, the determination to be made in the
discretion of the Committee.

 

 

“Guardian” means the person or persons designated
pursuant to Section 8 of the Plan as being authorized to
act on behalf of a Director in the case of Total Disability.

“Option” means a non-qualified stock option awarded
under Section 5 of the Plan to purchase Stock.

“Plan” means the 2002 ITT Industries Stock Option Plan
for Non-Employee Directors, as the same may be amended,
administered or interpreted from time to time.

“Plan Year” means the calendar year.

“Retirement” means termination of service from the
Board; provided, however, that Retirement shall not include
termination for cause, including gross misconduct, fraud,
misrepresentation, embezzlement, misappropriation or conversion
of assets or opportunities of the Company or any of its
subsidiaries.

“Stock” means the common stock ($1 par value) of the
Company.

“Total Disability” means a physical or mental
impairment that leads to the complete and permanent inability of
a Director to perform his or her duties as a Director, as
reasonably determined by the Committee upon the basis of such
evidence, including independent medical reports and data, as the
Committee deems appropriate or necessary.

“1933 Act” means the Securities Act of 1933, as
amended.

“1934 Act” means the Securities Exchange Act of 1934,
as amended.

3.      Shares Subject to the
Plan

The aggregate number of shares of Stock which may be subject to
Awards under the Plan during any Plan Year shall not exceed the
greater of (i) that number of shares as shall be a multiple
of (a) the number of Directors to receive an Award as of
the date of grant times (b) the amount of the annual
retainer for such Plan Year, divided by the value of an option
to purchase one share of Stock, such value to be in accordance
with the valuation methodology as determined by the Company to
establish stock option values, plus a prorata amount with
respect to each Director elected after such date but within the
same Plan Year or (ii) .15% of the total of the issued and
outstanding shares of Stock and treasury stock as reported in
the Annual Report on Form 10-K for the Company for the
fiscal year ending immediately prior to the Plan Year, subject
to adjustment as provided in Section 11 of the Plan.

Any unused portion of the annual limit for any Plan Year shall
be carried forward and made available for Awards in succeeding
Plan Years. Subject to the above limitations, shares of Stock to
be issued under the Plan may be made available from the
authorized but unissued shares, shares held by the Company in
treasury or shares purchased in the open market or otherwise. If
any Awards under the Plan are forfeited, terminated or expire
unexercised, such shares of Stock shall again be available for
Awards under the Plan.

 

 

4.      Grant of Awards and
Award Agreements

(a) Subject to the provisions of the Plan, the Board shall
(i) authorize the granting of non-qualified stock options;
(ii) determine the number of shares of Stock subject to
each Option; (iii) determine the exercise price with
respect to each Option (which may not be less than 100% of the
fair-market value of ITT Stock on the date of grant);
(iv) determine the time or times when and the manner in
which each Option shall be exercisable and the duration of the
exercise period; and (v) determine all other terms and
conditions of each Award.

(b) Each Award granted under the Plan shall be evidenced by
a written Award Agreement. The Award Agreement shall be subject
to and incorporate the express terms and conditions, if any,
required under the Plan or required by the Board.

5.      Stock Options

(a) The exercise period for a non-qualified stock option
shall not exceed ten years and two days from the date of grant.

(b) The Option price per share shall be determined by the
Board at the time any Option is granted and shall be not less
than the Fair Market Value of one share of Stock on the date the
Option is granted.

(c) No part of any Option may be exercised until the
Director who has been granted the Award shall have remained as a
member of the Board for such period or periods after the date of
grant and all other conditions precedent to exercise as the
Board may specify shall have been satisfied.

(d) The purchase price of the shares as to which an Option
shall be exercised, along with the applicable tax withholding
obligation relating thereto, shall be paid to the Company at the
time of exercise, as agreed upon by the Committee, (i) in
United States dollars by check, bank draft or wire transfer,
(ii) by tendering shares of Stock already owned by the
Director having a total Fair Market Value equal to the required
amount, (iii) any combination of United States dollars and
Stock, (iv) by instructing the Company to withhold from the
number of shares of Stock for which the Option is being
exercised such number of shares of Stock as have a Fair Market
Value equal to the required amount, (v) through a
“cashless” exercise with an independent broker/dealer
in a procedure approved by the Committee, or (vi) by such
other methods as the Committee shall authorize. Such payments
shall be consistent with the procedures and limitations
established by the Committee from time to time.

(e) In case of termination of service from the Board, the
following provisions shall apply:

		
	 	      
        (A) If a Director who has been granted an Option shall die
        before such Option has expired, his or her Option shall become
        fully exercisable and may be exercised by the person or persons
        designated as the

 

 

		
	 	
        Beneficiary pursuant to Section 8 of the Plan or, if there
        is no such designation, the person or persons to whom the
        Director’s rights under the Option pass by will or, if no
        such person has such right, by his or her executors or
        administrators, at any time, or from time to time, within one
        year after the date of the Director’s death or within such
        other period, and subject to such terms and conditions as the
        Board may specify, but not later than the Option’s normal
        expiration date.
	 
	 	      
        (B) If the Director’s service on the Board ceases
        because of his or her Retirement or Total Disability, his or her
        Option shall become fully exercisable and may be exercised at
        any time, or from time to time, within one year after the date
        his or her service on the Board so ceases, or after such Total
        Disability as the case may be, or within such other period, and
        subject to such terms and conditions, as the Board may specify,
        but not later than the Option’s normal expiration date.
	 
	 	      
        (C) Except as provided in Section 7 of the Plan, if
        the Director is terminated for cause as determined by the
        Committee, all outstanding Options shall be cancelled as of the
        effective date of such termination.

(f) Except as otherwise specifically provided in the Plan,
no Option granted under the Plan shall be assignable or
transferable, whether directly, by operation of law or
otherwise, other than by will or by the laws of descent and
distribution. During the lifetime of the Director, an Option
shall be exercisable only by the Director or, in the case of
Total Disability, as provided for in Section 8 of the Plan.

6.      Certificates for Awards
of Stock

(a) The Company shall not be required to issue or deliver
any certificates for shares of Stock prior to (i) the
listing of such shares on any stock exchange on which the Stock
may then be listed and (ii) the completion of any
registration or qualification of such shares under any federal
or state law, or any ruling or regulation of any governmental
body which the Committee shall, in its sole discretion,
determine to be necessary or advisable. In making such
determination, the Committee may rely upon an opinion of counsel
for the Company.

(b) All certificates for shares of Stock delivered under
the Plan shall also be subject to such stop-transfer orders and
other restrictions as the Committee may deem advisable under the
rules, regulations, and other requirements of the Commission,
any stock exchange upon which the Stock is then listed and any
applicable federal or state securities laws, and the Committee
may cause a legend or legends to be placed on any such
certificates to make appropriate reference to such restrictions.
The foregoing provisions of this Section 6(b) shall not be
effective if and to the extent that the Committee determines
that application of such provisions is no longer required or
desirable. In making such determination, the Committee may rely
upon an opinion of counsel for the Company.

 

 

(c) No Director shall have any right as a stockholder with
respect to any shares of Stock covered by his or her Option
prior to the date of issuance to him or her of a certificate or
certificates for such shares.

7.   Acceleration Events

(a) For the purposes of this Plan, an Acceleration Event
shall occur if (i) a report on Schedule 13D shall be
filed with the Commission pursuant to Section 13(d) of the
1934 Act disclosing that any person (within the meaning of
Section 13(d) of the 1934 Act), other than the Company or a
subsidiary of the Company or any employee benefit plan sponsored
by the Company or a subsidiary of the Company, is the beneficial
owner directly or indirectly of twenty percent or more of the
outstanding Stock; (ii) any person (within the meaning of
Section 13(d) of the 1934 Act), other than the Company or a
subsidiary of the Company or any employee benefit plan sponsored
by the Company or a subsidiary of the Company, shall purchase
shares pursuant to a tender offer or exchange offer to acquire
any Stock (or securities convertible into Stock) for cash,
securities or any other consideration, provided that after
consummation of the offer, the person in question is the
beneficial owner (as such term is defined in Rule 13d-3
under the 1934 Act), directly or indirectly, of fifteen percent
or more of the outstanding Stock (calculated as provided in
paragraph (d) of Rule 13d-3 under the 1934 Act in the
case of rights to acquire Stock); (iii) the stockholders of
the Company shall approve (A) any consolidation or merger
of the Company in which the Company is not the continuing or
surviving corporation or pursuant to which shares of Stock would
be converted into cash, securities or other property, other than
a merger of the Company in which holders of Stock immediately
prior to the merger have the same proportionate ownership of
common stock of the surviving corporation immediately after the
merger as immediately before, or (B) any sale, lease,
exchange or other transfer (in one transaction or a series of
related transactions) of all or substantially all the assets of
the Company; or (iv) there shall have been a change in a
majority of the members of the Board within a 12-month period
unless the election or nomination for election by the
Company’s stockholders of each new director during such
12-month period was approved by the vote of two-thirds of the
directors then still in office who were directors at the
beginning of such 12-month period.

(b) Notwithstanding any provisions in the Plan to the
contrary, each outstanding Option granted under the Plan shall
become immediately exercisable in full for the aggregate number
of shares covered thereby upon the occurrence of an Acceleration
Event described in this Section 7 and shall continue to be
exercisable in full for a period of 60 calendar days beginning
on the date that such Acceleration Event occurs and ending on
the 60th calendar day following that date; provided, however,
that no Option shall be exercisable beyond the expiration date
of its original term.

 

 

8.   Beneficiary/ Guardian

(a) Each Director shall file with the Company a written
designation of one or more persons as the Beneficiary who shall
be entitled to exercise the Option after his or her death and
one or more persons as Guardian to act on the Director’s
behalf in the case of his or her Total Disability. A Director
may from time to time revoke or change his or her Beneficiary or
Guardian designation without the consent of any prior
Beneficiary or Guardian by filing a new designation with the
Company. The last such designation received by the Company shall
be controlling; provided, however, that no designation, change
or revocation thereof shall be effective unless received by the
Company prior to the Director’s death or Total Disability,
as the case may be, and in no event shall it be effective as of
a date prior to such receipt.

(b) If no such Beneficiary designation is in effect at the
time of a Director’s death, or if no designated Beneficiary
survives the Director, or if such designation conflicts with
law, the Director’s estate shall be entitled to exercise
the Option after his or her death. If the Committee is in doubt
as to the right of any person to exercise such Option, whether
in the case of Death or Total Disability, the Company may retain
such Award, without liability for any interest therein, until
the Committee makes a determination with respect thereto, or the
Company may deposit such Award with any court of appropriate
jurisdiction for a determination with respect to who should be
entitled to exercise the Option, and such delivery shall be a
complete discharge of the liability of the Company therefor.

9.   Administration of the Plan

(a) Each member of the Committee shall be both a member of
the Board and a “Non-Employee Director” within the
meaning of Rule 16b-3 under the 1934 Act or successor rule
or regulation.

(b) All decisions, determinations or actions of the
Committee made or taken pursuant to the Plan shall be made or
taken in the sole discretion of the Committee and shall be
final, conclusive and binding on all persons for all purposes.

(c) The Committee shall have full power, discretion and
authority to interpret, construe and administer the Plan and any
part thereof, and its interpretations and constructions thereof
and actions taken thereunder, except as otherwise determined by
the Board, shall be final, conclusive and binding on all persons
for all purposes.

(d) The Committee’s decisions and determinations under
the Plan need not be uniform and may be made selectively among
Directors, whether or not such Directors are similarly situated.

(e) The Committee may, in its sole discretion, delegate
such of its powers as it deems appropriate.

 

 

(f) If an Acceleration Event has not occurred and if the
Committee determines that a Director has taken action inimical
to the best interests of the Company or any of its subsidiaries,
the Committee may, in its sole discretion, terminate in whole or
in part such portion of any Option as has not yet become
exercisable at the time of termination.

10.   Amendment, Extension or Termination

The Board may, at any time, amend or terminate the Plan.
However, no amendment shall, without approval by a majority of
the Company’s stockholders, (a) alter the group of
persons eligible to participate in the Plan, (b) except as
provided in Section 11 of the Plan, increase the maximum
number of shares of Stock which are available for Awards under
the Plan or (c) extend the period during which Awards may
be granted beyond December 31, 2011. If an Acceleration
Event has occurred, no amendment or termination shall impair the
rights of any person with respect to a prior Award.

11.   Adjustments in Event of Change in Common
Stock

In the event of any equity restructuring (within the meaning of
Financial Accounting Standards No. 123 (revised 2004) that
causes the per share value of shares of Stock to change, such as a
stock dividend, stock split, spin off, rights offering, or
recapitalization through a large, nonrecurring cash dividend, the
Committee shall cause there to be made an equitable adjustment to
(a) the number and, if applicable, kind of shares that may be
subject to Awards under the Plan during any Plan Year and
(b) the number and, if applicable, kind of shares subject to
(and the exercise price of) any then outstanding Awards. In the event
of any other change in corporate structure or capitalization, such as
a merger, consolidation, any reorganization (whether or not such
reorganization comes within the definition of such term in
Section 368 of the Code) or any partial or complete liquidation
of the Company, the Committee may make such adjustment described in
the foregoing sentence as the Committee deems equitable. Any
fractional shares resulting from adjustments made pursuant to this
Section 11 shall be eliminated. Any adjustment made pursuant to
this Section 11 shall be conclusive and binding for all purposes
of the Plan.

12.   Miscellaneous

(a) Except as provided in Section 7 of the Plan,
nothing in this Plan or any Award granted hereunder shall confer
upon any Director any right to continue on the Board. No
Director shall have any claim to an Award until it is actually
granted under the Plan. To the extent that any person acquires
an Option, such Option shall be deemed to include rights no
greater than the right of an unsecured general creditor of the
Company. All amounts to be delivered hereunder shall come from
the general funds of the Company and no special or separate fund
shall be established and no segregation of assets shall be made
to assure delivery of such amounts.

(b) The Committee may cause to be made, as a condition
precedent to the exercise of any Option, or otherwise,
appropriate arrangements with the Director or his or her
Beneficiary or Guardian for the payment of, or withholding with
respect to, federal, state, local or foreign taxes, which may
include arrangements for the withholding of Stock from the Award
or the tendering of Stock already owned by the Director in an
amount having a Fair Market Value equal to such taxes.

 

 

(c) The Plan and the grant of Awards shall be subject to
all applicable federal and state laws, rules, and regulations
and to such approvals by any governmental or regulatory
authority or agency as may be required.

(d) The terms of the Plan shall be binding upon the Company
and its successors and assigns.

(e) Captions preceding the sections hereof are inserted
solely as a matter of convenience and in no way define or limit
the scope or intent of any provision hereof.

13.   Effective Date, Term of Plan and
Stockholder Approval

The Plan shall become effective as of the date of its approval
by the Company’s stockholders at their 2002 Annual Meeting.
The Plan’s termination date shall be December 31,
2011. No Award shall be granted under this Plan after the
Plan’s termination date. The Plan will continue in effect
for existing Awards as long as any such Award is outstanding.EX-10.4

 

Exhibit 10.4

 

 

MERCK & CO., INC.

1996 INCENTIVE STOCK PLAN

(Amended and Restated as of December 19, 2006)

 

 

 

 

1996 INCENTIVE STOCK PLAN

     The 1996 Incentive Stock Plan (“ISP”), effective January 1, 1996, is established to encourage
employees of Merck & Co., Inc. (the “Company”), its subsidiaries, its affiliates, its joint
ventures and the Merck Institute for Therapeutic Research to acquire Common Stock in the Company.
It is believed that the ISP will stimulate employees’ efforts on the Company’s behalf, will tend to
maintain and strengthen their desire to remain with the Company, will be in the interest of the
Company and its Stockholders, and will encourage such employees to have a greater personal
financial investment in the Company through ownership of its Common Stock.

1. Administration

     The ISP shall be administered by the Compensation and Benefits Committee of the Board of
Directors of the Company (the “Committee”). The Committee is authorized, subject to the provisions
of the ISP, to establish such rules and regulations as it deems necessary for the proper
administration of the ISP, and to make such determinations and to take such action in connection
therewith or in relation to the ISP as it deems necessary or advisable, consistent with the ISP.
The Committee may delegate some or all of its power and authority hereunder to the Chief Executive
Officer or other senior member of management as the Committee deems appropriate; provided, however,
that the Committee may not delegate its authority with regard to any matter or action affecting an
officer subject to Section 16 of the Securities Exchange Act of 1934.

     For the purpose of this section and all subsequent sections, the ISP shall be deemed to
include this plan and any comparable sub-plans established by subsidiaries which, in the aggregate,
shall constitute one plan governed by the terms set forth herein.

2. Eligibility

     Regular full-time and part-time employees of the Company, its subsidiaries, its affiliates,
its joint ventures and the Merck Institute for Therapeutic Research, including officers, whether or
not directors of the Company, and employees of a joint venture partner or affiliate of the Company
who provide services to the joint venture with such partner or affiliate and who are not directors
or officers of the Company for purposes of Section 16 of the Securities Exchange Act of 1934, shall
be eligible to participate in the ISP (“Eligible Employees”) if designated by the Committee or its
delegate. Those directors who are not regular employees are not eligible.

3. Incentives

     Incentives under the ISP may be granted in any one or a combination of (a) Incentive Stock
Options (or other statutory stock option); (b) Nonqualified Stock Options; (c) Stock Appreciation
Rights; (d) Restricted Stock Grants, and (e) Performance Shares (together “Incentives”). All
Incentives shall be subject to the terms and conditions set forth herein and to such other terms
and conditions as may be established by the Committee. Determinations by the Committee under the
ISP including without limitation, determinations of the Eligible Employees, the form, amount and
timing of Incentives, the terms and provisions of Incentives, and the agreements evidencing
Incentives, need not be uniform and may be made selectively among Eligible Employees who receive,
or are eligible to receive, Incentives hereunder, whether or not such Eligible Employees are
similarly situated.

4. Shares Available for Incentives

     (a) Shares Subject to Issuance or Transfer. Subject to adjustment as provided in Section
4(c) hereof, there is hereby reserved for issuance under the ISP 130 million shares of the
Company’s Common Stock (“Common Stock”). The shares available for granting awards shall be
increased by the number of shares as to which options or other benefits granted under the Plan
have lapsed, expired, terminated or been cancelled. In addition, any shares reserved for issuance
under the Company’s 1991 Incentive Stock Plan and 1987 Incentive Stock Plan (“Prior Plans”) in

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excess of the number of shares as to which options or other benefits have been awarded thereunder,
plus any such shares as to which options or other benefits granted under the Prior Plans may lapse,
expire, terminate or be cancelled, shall also be reserved and available for issuance or reissuance
under the ISP. Shares under this Plan may be delivered by the Company from its authorized but
unissued shares of Common Stock or from Common Stock held in the Treasury.

     (b) Limit on an Individual’s Incentives. In any given year, no Eligible Employee may receive
Incentives covering more than three million shares of the Company’s Common Stock (such number of
shares may be adjusted in accordance with Section 4(c)).

     (c) Adjustment of Shares. In the event of a reorganization, recapitalization, stock split,
stock dividend, extraordinary cash dividend, combination of shares, merger, consolidation, rights
offering, spin off, split off, split up or other similar change in the capital structure of the
Company, the Committee shall make equitable adjustments to (i) the number and kind of shares
authorized for issuance under the ISP, (ii) the number and kind of shares subject to outstanding
Incentives, (iii) the option price of Stock Options and (iv) the grant value of Stock Appreciation
Rights. Any such determination shall be final, binding and conclusive on all parties.

5. Stock Options

     The Committee may grant options qualifying as Incentive Stock Options under the Internal
Revenue Code of 1986, as amended, or any successor code thereto (the “Code”), other statutory
options under the Code, and Nonqualified Options (collectively “Stock Options”). Such Stock
Options shall be subject to the following terms and conditions and such other terms and conditions
as the Committee may prescribe:

     (a) Option Price. The option price per share with respect to each Stock Option shall be
determined by the Committee, but shall not be less than 100% of the fair market value of the Common
Stock on the date the Stock Option is granted, as determined by the Committee.

     (b) Period of Option. The period of each Stock Option shall be fixed by the Committee but
shall not exceed ten (10) years.

     (c) Payment. The option price shall be payable in cash at the time the Stock Option is
exercised. No shares shall be issued until full payment therefore has been made. A grantee of a
Stock Option shall have none of the rights of a stockholder until the shares are issued.

     (d) Exercise of Option. The shares covered by a Stock Option may be purchased in such
installments and on such exercise dates as the Committee or its delegate may determine. Any shares
not purchased on the applicable exercise date may be purchased thereafter at any time prior to the
final expiration of the Stock Option. In no event (including those specified in paragraphs (e),
(f) and (g) of this section) shall any Stock Option be exercisable after its specified expiration
period.

     (e) Termination of Employment. Upon the termination of a Stock Option grantee’s employment
(for any reason other than retirement, death or termination for deliberate, willful or gross
misconduct), Stock Option privileges shall be limited to the shares which were immediately
exercisable at the date of such termination. The Committee, however, in its discretion, may provide
that any Stock Options outstanding but not yet exercisable upon the termination of a Stock Option
grantee’s employment may become exercisable in accordance with a schedule to be determined by the
Committee. Such Stock Option privileges shall expire unless exercised or surrendered under a Stock
Appreciation Right within such period of time after the date of termination of employment as may be
established by the Committee, but in no event later than the expiration date of the Stock Option.
If a Stock Option grantee’s employment is terminated for
deliberate, willful or gross misconduct, as determined by the Company, all rights under the Stock
Option shall expire upon receipt of the notice of such termination.

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     (f) Retirement. Upon retirement of a Stock Option grantee, Stock Option privileges shall
apply to those shares immediately exercisable at the date of retirement. The Committee, however,
in its discretion, may provide that any Stock Options outstanding but not yet exercisable upon the
retirement of a Stock Option grantee may become exercisable in accordance with a schedule to be
determined by the Committee. Stock Option privileges shall expire unless exercised within such
period of time as may be established by the Committee, but in no event later than the expiration
date of the Stock Option.

     (g) Death. Upon the death of a Stock Option grantee, Stock Option privileges shall apply to
those shares which were immediately exercisable at the time of death. The Committee, however, in
its discretion, may provide that any Stock Options outstanding but not yet exercisable upon the
death of a Stock Option grantee may become exercisable in accordance with a schedule to be
determined by the Committee. Such privileges shall expire unless exercised by legal
representatives within a period of time as determined by the Committee but in no event later than
the expiration date of the Stock Option.

     (h) Limits on Incentive Stock Options. Except as may otherwise be permitted by the Code, the
Committee shall not grant to an Eligible Employee Incentive Stock Options, that, in the aggregate,
are first exercisable during any one calendar year to the extent that the aggregate fair market
value of the Common Stock, at the time the Incentive Stock Options are granted, exceeds $100,000.

6. Stock Appreciation Rights

     The Committee may, in its discretion, grant a right to receive the appreciation in the fair
market value of shares of Common Stock (“Stock Appreciation Right”) either singly or in combination
with an underlying Stock Option granted hereunder or under the Prior Plans. Such Stock
Appreciation Rights shall be subject to the following terms and conditions and such other terms and
conditions as the Committee may prescribe:

     (a) Time and Period of Grant. If a Stock Appreciation Right is granted with respect to an
underlying Stock Option, it may be granted at the time of the Stock Option Grant or at any time
thereafter but prior to the expiration of the Stock Option Grant. If a Stock Appreciation Right is
granted with respect to an underlying Stock Option, at the time the Stock Appreciation Right is
granted the Committee may limit the exercise period for such Stock Appreciation Right, before and
after which period no Stock Appreciation Right shall attach to the underlying Stock Option. In no
event shall the exercise period for a Stock Appreciation Right granted with respect to an
underlying Stock Option exceed the exercise period for such Stock Option. If a Stock Appreciation
Right is granted without an underlying Stock Option, the period for exercise of the Stock
Appreciation Right shall be set by the Committee.

     (b) Value of Stock Appreciation Right. If a Stock Appreciation Right is granted with respect
to an underlying Stock Option, the grantee will be entitled to surrender the Stock Option which is
then exercisable and receive in exchange therefore an amount equal to the excess of the fair market
value of the Common Stock on the date the election to surrender is received by the Company over the
Stock Option price multiplied by the number of shares covered by the Stock Option which are
surrendered. If a Stock Appreciation Right is granted without an underlying Stock Option, the
grantee will receive upon exercise of the Stock Appreciation Right an amount equal to the excess of
the fair market value of the Common Stock on the date the election to surrender such Stock
Appreciation Right is received by the Company over the fair market value of the Common Stock on the
date of grant multiplied by the number of shares covered by the grant of the Stock Appreciation
Right.

     (c) Payment of Stock Appreciation Right. Payment of a Stock Appreciation Right shall be in
the form of shares of Common Stock, cash, or any combination of shares and cash. The form of
payment upon exercise of such a right shall be determined by the Committee either at the time of
grant of the Stock Appreciation Right or at the time of exercise of the Stock Appreciation Right.

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7. Performance Share Awards

     The Committee may grant awards under which payment may be made in shares of Common Stock, cash
or any combination of shares and cash if the performance of the Company or any subsidiary, division
or affiliate of the Company selected by the Committee during the Award Period meets certain goals
established by the Committee (“Performance Share Awards”). Such Performance Share Awards shall be
subject to the following terms and conditions and such other terms and conditions as the Committee
may prescribe:

     (a) Award Period and Performance Goals. The Committee shall determine and include in a
Performance Share Award grant the period of time for which a Performance Share Award is made
(“Award Period”). The Committee shall also establish performance objectives (“Performance Goals”)
to be met by the Company, subsidiary or division during the Award Period as a condition to payment
of the Performance Share Award. The Performance Goals may include earnings per share, return on
stockholders’ equity, return on assets, net income, or any other financial or other measurement
established by the Committee. The Performance Goals may include minimum and optimum objectives or
a single set of objectives.

     (b) Payment of Performance Share Awards. The Committee shall establish the method of
calculating the amount of payment to be made under a Performance Share Award if the Performance
Goals are met, including the fixing of a maximum payment. The Performance Share Award shall be
expressed in terms of shares of Common Stock and referred to as “Performance Shares.” After the
completion of an Award Period, the performance of the Company, subsidiary or division shall be
measured against the Performance Goals, and the Committee shall determine whether all, none or any
portion of a Performance Share Award shall be paid. The Committee, in its discretion, may elect to
make payment in shares of Common Stock, cash or a combination of shares and cash. Any cash payment
shall be based on the fair market value of Performance Shares on, or as soon as practicable prior
to, the date of payment.

     (c) Revision of Performance Goals. At any time prior to the end of an Award Period, the
Committee may revise the Performance Goals and the computation of payment if unforeseen events
occur which have a substantial effect on the performance of the Company, subsidiary or division and
which in the judgment of the Committee make the application of the Performance Goals unfair unless
a revision is made.

     (d) Requirement of Employment. A grantee of a Performance Share Award must remain in the
employ of the Company until the completion of the Award Period in order to be entitled to payment
under the Performance Share Award; provided that the Committee may, in its sole discretion, provide
for a partial payment where such an exception is deemed equitable.

     (e) Dividends. The Committee may, in its discretion, at the time of the granting of a
Performance Share Award, provide that any dividends declared on the Common Stock during the Award
Period, and which would have been paid with respect to Performance Shares had they been owned by a
grantee, be (i) paid to the grantee, or (ii) accumulated for the benefit of the grantee and used to
increase the number of Performance Shares of the grantee.

     (f) Limit on Performance Share Awards. Incentives granted as Performance Share Awards under
this section and Restricted Stock Grants under Section 8 shall not exceed, in the aggregate, 12
million shares of Common Stock (such number of shares may be adjusted in accordance with Section
4(c)).

8. Restricted Stock Grants

     The Committee may award shares of Common Stock to a grantee, which shares shall be subject to
the following terms and conditions and such other terms and conditions as the Committee may
prescribe (“Restricted Stock Grant”):

4

 

     (a) Requirement of Employment. A grantee of a Restricted Stock Grant must remain in the
employment of the Company during a period designated by the Committee (“Restriction Period”) in
order to retain the shares under the Restricted Stock Grant. If the grantee leaves the employment
of the Company prior to the end of the Restriction Period, the Restricted Stock Grant shall
terminate and the shares of Common Stock shall be returned immediately to the Company; provided
that the Committee may, at the time of the grant, provide for the employment restriction to lapse
with respect to a portion or portions of the Restricted Stock Grant at different times during the
Restriction Period. The Committee may, in its discretion, also provide for such complete or
partial exceptions to the employment restriction as it deems equitable.

     (b) Restrictions on Transfer and Legend on Stock Certificates. During the Restriction
Period, the grantee may not sell, assign, transfer, pledge, or otherwise dispose of the shares of
Common Stock except to a successor under Section 10 hereof. Each certificate for shares of Common
Stock issued hereunder shall contain a legend giving appropriate notice of the restrictions in the
grant.

     (c) Escrow Agreement. The Committee may require the grantee to enter into an escrow
agreement providing that the certificates representing the Restricted Stock Grant will remain in
the physical custody of an escrow holder until all restrictions are removed or expire.

     (d) Lapse of Restrictions. All restrictions imposed under the Restricted Stock Grant shall
lapse upon the expiration of the Restriction Period if the conditions as to employment set forth
above have been met. The grantee shall then be entitled to have the legend removed from the
certificates.

     (e) Dividends. The Committee shall, in its discretion, at the time of the Restricted Stock
Grant, provide that any dividends declared on the Common Stock during the Restriction Period shall
either be (i) paid to the grantee, or (ii) accumulated for the benefit of the grantee and paid to
the grantee only after the expiration of the Restriction Period.

     (f) Limit on Restricted Stock Grant. Incentives granted as Restricted Stock Grants under
this section and Performance Share Awards under Section 7 shall not exceed, in the aggregate, 12
million shares of Common Stock (such number of shares may be adjusted in accordance with Section
4(c)).

9. Discontinuance or Amendment of the Plan

     The Board of Directors may discontinue the ISP at any time and may from time to time amend or
revise the terms of the ISP as permitted by applicable statutes, except that it may not revoke or
alter, in a manner unfavorable to the grantees of any Incentives hereunder, any Incentives then
outstanding, nor may the Board amend the ISP without stockholder approval where the absence of such
approval would cause the Plan to fail to comply with Rule 16b-3 under the Securities Exchange Act
of 1934, or any other requirement of applicable law or regulation. No Incentive shall be granted
under the ISP after December 31, 2000, but Incentives granted theretofore may extend beyond that
date.

10. Nontransferability

     Each Incentive Stock Option granted under the ISP shall not be transferable other than by will
or the laws of descent and distribution; each other Incentive granted under the ISP may be
transferable subject to the terms and conditions as may be established by the Committee in
accordance with regulations promulgated under the Securities Exchange Act of 1934, or any other
applicable law or regulation.

11. No Right of Employment

     The ISP and the Incentives granted hereunder shall not confer upon any Eligible Employee the
right to continued employment with the Company, its subsidiaries, its affiliates, its joint
ventures or the Merck Institute for Therapeutic Research or affect in any way the right of

5

 

such
entities to terminate the employment of an Eligible Employee at any time and for any reason.

12. Taxes

     The Company shall be entitled to withhold the amount of any tax attributable to any option
granted, any amount payable or shares deliverable under the ISP after giving the person entitled to
receive such amount or shares notice as far in advance as practicable.

Merck Change in Control

(a) Options.

     1. Vesting of Options Other Than Key R&D Options. Upon the occurrence of a Change in
Control, each Stock Option which is outstanding immediately prior to the Change in Control, other
than the Key R&D Options, shall immediately become fully vested and exercisable.

     2. Vesting of Key R&D Options.

     (i) Subject to (a)(2)(ii) of this Schedule, upon the occurrence of a Change in Control, each
Key R&D Option shall continue to be subject to the performance-based vesting schedule applicable
thereto immediately prior to the Change in Control.

     (ii) Notwithstanding (a)(2)(i) of this Schedule, if the Stock Options do not continue to be
outstanding following the Change in Control or are not exchanged for or converted into options to
purchase securities of a successor entity (“Successor Options”), then, upon the occurrence of a
Change in Control, all or a portion of each Key R&D Option shall immediately vest and become
exercisable in the following percentages: (A) if such Key R&D Option’s first milestone has not been
reached before the date of the Change in Control, 14% of the then-unvested portion of the Key R&D
Option shall vest and become exercisable and the remainder shall be forfeited; (B) if only such Key
R&D Option’s first milestone has been reached before the date of the Change in Control, 42% of the
then-unvested portion of the Key R&D Option shall vest and become exercisable and the remainder
shall be forfeited; and (C) if such Key R&D Option’s first and second milestones have been reached
before the date of the Change in Control, 100% of the then-unvested portion of the Key R&D Option
shall vest and become exercisable.

     3. Post-Termination Exercise Period. If Stock Options continue to be outstanding following
the Change in Control or are exchanged for or converted into Successor Options, then the portion of
such Stock Options or such Successor Options, as applicable, that is vested and exercisable
immediately following the termination of employment of the holder thereof after the Change in
Control shall remain exercisable following such termination for five years from the date of such
termination (but not beyond the remainder of the term thereof) provided, however, that, if such
termination is by reason of gross misconduct, death or retirement (as these terms are applied to
awards granted under the Plans), then those provisions of the Plan that are applicable to a
termination by reason of gross misconduct, death or retirement, if any, shall apply to such
termination. If the effect of vesting pursuant to this Section (a) would cause a Stock Option or
Successor Stock Option to terminate earlier than if such accelerated vesting had not occurred, then
the term of such Stock Option shall not expire earlier than if such accelerated vesting had not
occurred.

     4. Cashout of Stock Options. If the Stock Options do not continue to be outstanding
following the Change in Control and are not exchanged for or converted into Successor Options, each
holder of a vested and exercisable option shall be entitled to receive, as soon as practicable
following the Change in Control, for each share of Common Stock subject to a vested and exercisable
option, an amount of cash determined by the Committee prior to the Change in Control but in no
event less than the excess of the Change in Control Price over the exercise price thereof (subject
to any existing deferral elections then in effect). If the consideration to be paid in a Change in
Control is not entirely shares of common stock of an acquiring or resulting

6

 

corporation, then the
Committee may, prior to the Change in Control, provide for the cancellation of outstanding Stock
Options at the time of the Change in Control, in whole or in part, for cash pursuant to this
provision or may provide for the exchange or conversion of outstanding Stock Options at the time of
the Change in Control, in whole or in part, and, in connection with any such provision, may (but
shall not be obligated to) permit holders of Stock Options to make such elections related thereto
as it determines are appropriate.

     5. Incentive Stock Options Not Amended. This Section does not apply to any incentive stock
option within the meaning of Section 422 of the Internal Revenue Code.

(b) Restricted Stock Units and Performance Share Units.

     1. Vesting of Restricted Stock Units. Upon the occurrence of a Change in Control, each
unvested restricted stock unit award which is outstanding immediately prior to the Change in
Control under the Plan shall immediately become fully vested.

     2. Vesting of Performance Share Units. Upon the occurrence of a Change in Control, each
unvested performance share unit award which is outstanding immediately prior to the Change in
Control under the Plan shall immediately become vested in an amount equal to the PSU Pro Rata
Amount.

     3. Settlement of Restricted Stock Units and Performance Share Units.

     (i) If the Common Stock continues to be widely held and freely tradable following the Change
in Control or is exchanged for or converted into securities of a successor entity that are widely
held and freely tradable, then the restricted stock units and the vested performance share units
shall be paid in shares of Common Stock or such other securities as soon as practicable after the
date of the Change in Control (subject to any existing deferral elections then in effect).

     (ii) If the Common Stock does not continue to be widely held and freely tradable following the
Change in Control and is not exchanged for or converted into securities of a successor entity that
are widely held and freely tradable, then the restricted stock units and the vested performance
share units shall be paid in cash as soon as practicable after the date of the Change in Control
(subject to any existing deferral elections then in effect).

(c) Other Provisions.

     1. Except to the extent required by applicable law, for the entirety of the Protection
Period, the material terms of the Plan shall not be modified in any manner that is materially
adverse to the Qualifying Participants (it being understood that this Section (c) of this Schedule
shall not require that any specific type or levels of equity awards be granted to Qualifying
Participants following the Change in Control).

     2. During the Protection Period, the Plan may not be amended or modified to reduce or
eliminate the protections set forth in Section (c)(1) of this Schedule and may not be terminated.

     3. The Company shall pay all legal fees and related expenses (including the costs of experts,
evidence and counsel) reasonably and in good faith incurred by a Qualifying Participant if the
Qualifying Participant prevails on his or her claim for relief in an action (x) by the Qualifying
Participant claiming that the provisions of Section (c)(1) or (c)(2) of this Schedule have been
violated (but, for avoidance of doubt, excluding claims for Plan benefits in the
ordinary course) and (y) if applicable, by the Company or the Qualifying Participant’s employer to
enforce post-termination covenants against the Qualifying Participant.

     4. This section does not apply to any incentive stock option within the meaning of Section
422 of the Internal Revenue Code.

     5. Anything in the Plan as amended by this Schedule notwithstanding, the Company reserves the
right to make such further changes as may be required if and to the extent required to avoid
adverse consequences under the American Jobs Creation Act of 2004, as amended.

7

 

(d) Definitions.

     For purposes of this Schedule, the following terms shall have the following meanings:

     1. “Change in Control” shall have the meaning set forth in the Company’s Change in Control
Separation Benefits Plan; provided, however, that, as to any award under the Plan that consists of
deferred compensation subject to Section 409A of the Code, the definition of “Change in Control”
shall be deemed modified to the extent necessary to comply with Section 409A of the Code.

     2. “Change in Control Price” shall mean, with respect to a share of Common Stock, the higher
of (A) the highest reported sales price, regular way, of such share in any transaction reported on
the New York Stock Exchange Composite Tape or other national exchange on which such shares are
listed or on the NASDAQ National Market during the 10-day period prior to and including the date of
a Change in Control and (B) if the Change in Control is the result of a tender or exchange offer,
merger, or other, similar corporate transaction, the highest price per such share paid in such
tender or exchange offer, merger or other, similar corporate transaction; provided that, to the
extent all or part of the consideration paid in any such transaction consists of securities or
other non-cash consideration, the value of such securities or other non-cash consideration shall be
determined by the Committee.

     3. “Key R&D Options” shall mean those performance-based options granted to employees under the
Key Research and Development Program described in the applicable Schedule to the Rules and
Regulations for the Plan, if any.

     4. “Protection Period” shall mean the period beginning on the date of the Change in Control
and ending on the second anniversary of the date of the Change in Control.

     5. “PSU Pro Rata Amount” shall mean for each Performance Share Unit award, the amount
determined by multiplying (x) and (y), where (x) is the number of Target Shares subject to the
Performance Share Unit award times the Assumed Performance Percentage and (y) is a fraction, the
numerator of which is the number of whole and partial calendar months elapsed during the applicable
performance period (counting any partial month as a whole month for this purpose) and the
denominator of which is the total number of months in the applicable performance period. The
Assumed Performance Percentage shall be determined by (1) averaging the ranks during the Award
Period as follows: (A) as to any completed performance year as of the Change in Control, the actual
rank (except that, if fewer than 90 days have elapsed since the completion of such performance
year, the Target Rank shall be used), and (B) as to any performance year that is incomplete or has
not yet begun as of the Change in Control, the Target Rank, (2) rounding the average rank
calculated pursuant to the foregoing clause (1) to the nearest whole number using ordinary
numerical rounding, and (3) using the Final Award Percentage associated with the number determined
in the foregoing clause (2). The Target Rank is the rank associated with 100% on the chart of Final
Award Percentages.

     6. “Qualifying Participants” shall mean those individuals who participate in the Plan
(whether as current or former employees) as of immediately prior to the Change in Control.

(e) Application.

     This Schedule shall apply to Stock Options, restricted stock unit awards and performance share
unit awards under the Plans granted prior to November 24, 2004.

8

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