Report of the Supervisory Board 

The Supervisory Board again properly executed its duties in 2010 in accordance with the law as well as the company’s Articles of Association and rules of procedure. In particular, the Supervisory Board monitored the work of the Executive Board diligently and regularly.

Cooperation with the Executive Board

The cooperation with the Executive Board was characterized by intensive, trustworthy exchange. During fiscal 2010, the Executive Board provided the Supervisory Board with regular written and verbal reports on the business development of Merck KGaA and the Merck Group. In particular, the Supervisory Board was informed about the market and sales situation of the company against the background of the macroeconomic development, the financial position of the company and its subsidiaries along with their earnings development, as well as corporate planning. Within the scope of quarterly reporting, the sales and operating results were presented for the Merck Group as a whole, and broken down by division and region. Aside from the Supervisory Board meetings, the Chairman of the Supervisory Board also maintained and continues to maintain a regular exchange of information with the Chairman of the Executive Board.

Key topics of the Supervisory Board meetings

Four Supervisory Board meetings were held in fiscal 2010. In these meetings, the Supervisory Board discussed the reports of the Executive Board in detail and discussed company developments and strategic issues together with the Executive Board.

In the meeting held on February 18, 2010, the Supervisory Board dealt mainly with the annual financial statements and consolidated financial statements for 2009. The Executive Board reported on business developments in 2009 and the key information contained in the 2009 annual financial statements. In addition, the auditor reported on the examination of the financial statements. Lastly, the Supervisory Board approved the proposals to be made to the Annual General Meeting and adopted the statement on corporate governance including the Statement of Compliance with the German Corporate Governance Code in a joint report of the Executive Board and Supervisory Board.

The meeting held on April 27, 2010 focused on current business developments. In particular, the effects of economic recovery on the Chemicals business were discussed. Moreover, the Executive Board informed the Supervisory Board about the current status of the Millipore transaction.

In its meeting held on July 28, 2010, the Supervisory Board discussed the positive business development in the first half of 2010 and also dealt intensively with the internal auditing system and company risk management. For this purpose, the head of Corporate Auditing and the company risk manager presented their annual report. These reports are a standard part of the July meeting every year. With regard to risk management, important individual risks were identified, which were reported in detail to the Supervisory Board. No risks that threaten the continued existence of the company were identified.

The fourth Supervisory Board meeting in fiscal 2010 was held on October 25, 2010. In this meeting, the Supervisory Board focused mainly on the report of the Executive Board on business developments in the third quarter of 2010. In addition, the head of Corporate Legal & Compliance presented the compliance report of 2010 to the Supervisory Board. This report is a standard part of the October meeting every year. In addition, the Supervisory Board was informed about current changes to the German Corporate Governance Code and discussed the objectives with regard to its composition.

Annual financial statements

The annual financial statements of Merck KGaA, the consolidated financial statements of the Merck Group, and the management reports for Merck KGaA and the Merck Group, including the accounts, were audited by KPMG AG Wirtschaftsprüfungsgesellschaft. The auditors issued an unqualified audit opinion on the annual financial statements and management report for Merck KGaA in accordance with German Auditing Standards. For the consolidated financial statements prepared in accordance with International Financial Reporting Standards, the auditors issued the auditor’s report, reproduced in the Annual Report of the Merck Group. In addition, the auditors audited the calculation of Merck KGaA’s participation in the profits of E. Merck KG in accordance with Art. 27 (2) of the Articles of Association. The annual financial statements of Merck KGaA, the consolidated financial statements of the Merck Group, the management reports for Merck KGaA and the Merck Group, and the proposal by the Executive Board for the appropriation of the net retained profit were presented and distributed to the Supervisory Board, together with the auditor’s reports.

In accordance with Art. 14 (2) of the Articles of Association, the Supervisory Board also examined the annual financial statements of Merck KGaA and the management report for Merck KGaA, the proposal for the appropriation of the net retained profit and the auditor’s report presented in accordance with Art. 27 (2) of the Articles of Association. It also examined the consolidated financial statements of the Merck Group, the management report for the Merck Group, and took note of the auditor’s report of KPMG AG Wirtschaftsprüfungsgesellschaft.

The discussion of the relevant agenda item at the Supervisory Board’s meeting on February 17, 2011 to approve the financial statements was also attended by the auditors who sign the audit opinion on the annual financial statements of Merck KGaA and the consolidated financial statements of the Merck Group, and who reported on their audit. The Supervisory Board took note of and approved the results of the audit. On completion of its examination, the Supervisory Board raised no objections and thus approves the annual financial statements and management report for Merck KGaA, the consolidated financial statements of the Merck Group and the management report for the Merck Group prepared by the Executive Board, as well as the report presented by the auditors in accordance with Art. 27 (2) of the Articles of Association. The Supervisory Board gives its consent to the proposal for the appropriation of the net retained profit.

Corporate governance and Statement of Compliance

Corporate governance is a topic of high priority for the Supervisory Board. According to its own estimation, the Supervisory Board consists of a sufficient number of independent members. There were no conflicts of interest, as defined by the German Corporate Governance Code, involving Supervisory Board members during 2010. After addressing corporate governance topics in detail, the Executive Board and Supervisory Board resolved to adopt and issued the updated Statement of Compliance on February 8, 2011 (Executive Board) and on February 17, 2011 (Supervisory Board) in accordance with section 161 of the German Stock Corporation Act (Aktiengesetz). The statement is permanently available on the website of Merck KGaA. More information about corporate governance at Merck KGaA, including the compensation of the Executive Board and Supervisory Board, is given in the "Statement of Compliance" of the Annual Report.

Committees

The Supervisory Board of Merck KGaA currently has no committees on account of the special features that apply to the Supervisory Board of a corporation with general partners (KGaA) under German company law and because a corresponding need for this has not emerged to date. Therefore, no report is given on the work of committees.

Personnel matters

With just a few exceptions, all members of the Supervisory Board attended the four Supervisory Board meetings held in 2010. Ms. Edeltraud Glänzer, Dr. Karl-Heinz Scheider, Mr. Osman Ulusoy and Mr. Heiner Wilhelm were absent from the third meeting, and were excused.

There were no personnel decisions or changes in the composition of the Supervisory Board in 2010. In particular, there were no new elections, new appointments to bodies or formations of new bodies.

Darmstadt, February 17, 2011

The Supervisory Board of Merck KGaA