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Corporate Governance
Independence of Directors |
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Independence Determinations
In accordance with the NYSE Corporate Governance Listing Standards and the categorical standards reflected in the Policies of the Board, the Board reviewed
relationships between the Company and each Director and Director nominee. As a result of that review, the Board has determined that, with the exception of Kenneth C. Frazier, our Chairman and CEO, each Director and Director nominee has only
immaterial relationships with the Company, and accordingly, each is independent under these standards. The Board also has determined that each member of the Audit Committee, the Compensation and Benefits Committee and the Governance Committee is
independent within the meaning of the NYSE Corporate Governance Listing Standards and the rules of the SEC.
In making these determinations, the Board considered
relationships that exist between the Company and other organizations where each Director (or Director nominee) serves, as well as the fact that in the ordinary course of business, transactions may occur between such organizations and the Company or
one of our subsidiaries. The Board also evaluated whether there were any other facts or circumstances that might impair a Directors or a Director nominees independence.
As previously disclosed, the Company and Corning Incorporated (Corning), for which Mr. Weeks serves as Chairman, Chief Executive Officer and President,
are parties to a Joint Research and Development Agreement (R&D Agreement) aimed at developing new glass materials. In 2011, the R&D Agreement was first reviewed and approved by the Governance Committee and reviewed by the Board
(other than Mr. Weeks) to confirm Mr. Weeks continued independence. In 2014, Merck and Corning entered into two follow-on agreements: a multi-year component supply agreement (Supply Agreement) with minimum volume
commitments and a royalty agreement (Royalty Agreement and, together with the R&D Agreement and the Supply Agreement, the Corning Agreements). The Royalty Agreement also amended the R&D Agreement. Both agreements were
reviewed and approved by the Governance Committee and the entire Board (again, with Mr. Weeks recusing himself). The Governance Committee has conducted regular oversight of the Corning Agreements.
In 2019, Merck and Corning amended the Corning Agreements to eliminate the previously agreed minimum volume commitments, provide for additional development work under
the R&D Agreement and revise a payment date in the Supply Agreement. In connection with these amendments, Merck agreed to pay Corning an aggregate amount of up to $5 million per year until December 31, 2023. For the additional development
work, Merck agreed to pay Corning an aggregate amount of up to $6.25 million per year until January 31, 2023. Finally, under the revised payment date in the Supply Agreement, Merck will pay to Corning by the end of 2023 the $15 million that had
been agreed previously. The parties also agreed to negotiate and enter into a new supply agreement by the end of 2023 and, if they do not, Merck will pay to Corning an additional amount of $20 million. The amendments to the Corning Agreements were
reviewed and recommended for approval by the Governance Committee. Mr. Brun, a member of the board of directors of Corning, did not participate in the review or recommendation by the Governance Committee. The amendments were then approved by
the entire Board (with both Mr. Weeks and Mr. Brun recusing themselves).
Prior to 2019, Merck reimbursed Corning for an aggregate of $25.2 million for
development costs incurred under the R&D Agreement and intellectual property filing costs. In 2019, Merck paid Corning an additional $1 million for development costs incurred under the R&D Agreement upon the achievement of agreed milestones.
An additional $6 million of reimbursable costs remain to be paid upon the achievement of a milestone agreed to under the R&D Agreement. In 2019, Merck reimbursed Corning an additional approximately $600,000 for intellectual property filing costs
incurred in 2018.
Merck expects to reimburse Corning for additional intellectual property filing costs in the future. In addition, in 2019, the Company made
purchases from Corning in the ordinary course of business unrelated to the Supply Agreement. Commencing in 2020, the Company expects to begin receiving royalties under the Royalty Agreement.
Drs. Cech, Lavizzo-Mourey, Rothman and Seidman are employed at medical or academic institutions with which the Company engages in purchase and/or sale transactions in
the ordinary course of business. In addition, Mr. Thulin was employed by 3M Company until June 1, 2019, and the Company engages in routine business transactions with 3M Company. The Board reviewed transactions with each of these entities
and determined that the applicable individual Director or Director nominee had no role with respect to the Companys decision to make any of the purchases or sales, and the aggregate amounts in each case were less than 2% of the consolidated
gross revenues of the other organization and the Company.
Merck & Co., Inc. 2020 Proxy Statement