Document:

Exhibit 4.2

 

EXECUTION VERSION

COVENTRY HEALTH CARE, INC.,

Issuer,

AETNA INC.,

Guarantor

and

U.S. BANK NATIONAL ASSOCIATION

Trustee

__________________________________

FIRST SUPPLEMENTAL INDENTURE

Dated as of May 7, 2013

to

Indenture dated as of January 28, 2005

__________________________________

 

 

  

  

  

 

FIRST SUPPLEMENTAL INDENTURE (this “Supplemental Indenture”), dated as of May 7, 2013, among Coventry Health Care, Inc., a Delaware corporation (the “Company”), Aetna Inc., a Pennsylvania corporation (the “Guarantor”), and U.S. Bank National Association, a national banking association, as successor to Wachovia Bank, National Association, as trustee (the “Trustee”).  All capitalized terms used herein but not otherwise defined herein shall have the respective meanings ascribed to such terms in the Indenture (as defined below).

RECITALS

WHEREAS, the Company and the Trustee have heretofore executed and delivered an indenture, dated as of January 28, 2005 (as amended, supplemented or otherwise modified, the “Indenture”), providing for the issuance of the Company’s 6 1⁄8% Senior Notes due 2015 (the “Notes”);

WHEREAS, the Company has issued the Notes pursuant to the Indenture;

WHEREAS, Section 4.03 of the Indenture provides, among other things, that the Company shall furnish to the Trustee and the holders of Notes, whether or not required by the Commission, the annual reports, quarterly reports and current reports that the Company would be required to file with the Commission on Form 10-K, 10-Q and 8-K if the Company were required to file such reports;

WHEREAS, pursuant to an Agreement and Plan of Merger, dated as of August 19, 2012 (as amended, supplemented or otherwise modified, the “Merger Agreement”), by and among the Company, the Guarantor and Jaguar Merger Subsidiary, Inc. (“Merger Sub”), Merger Sub will be merged with and into the Company, with the Company continuing as the surviving corporation (the “Merger”, and the time at which the Merger becomes effective, the “Merger Effective Time”);

WHEREAS, in connection with the Merger, the Company will become a wholly owned subsidiary of the Guarantor, will cease to be a reporting company under the Exchange Act and will cease to have an obligation, other than pursuant to the Indenture, to file reports with the Commission pursuant to Section 13 or Section 15(d) of the Exchange Act;

WHEREAS, as of the Merger Effective Time, the Guarantor desires (and represents it has received authority of its Board of Directors) to (i) fully and unconditionally guarantee all payment obligations of the Company with respect to the Notes on the terms set forth herein and (ii) assume the reporting obligations set forth in Section 4.03 of the Indenture in lieu of the Company;

 

  

  

  

 

WHEREAS, Section 9.01 of the Indenture provides, among other things, that, without the consent of any Holder, the Company and the Trustee may amend or supplement the Indenture or the Notes in certain respects, including, without limitation, to (i) add Guarantees (as defined in the Indenture) with respect to the Notes and (ii) make any change that does not adversely affect the rights of the Holders; and

WHEREAS, the Company and Guarantor have requested that the Trustee execute and deliver this Supplemental Indenture pursuant to Section 9.01 of the Indenture.

NOW, THEREFORE, in consideration of the foregoing Recitals (made solely by the Company and the Guarantor) and the mutual agreements, provisions and covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company, the Guarantor and the Trustee agree as follows:

 

 

 

ARTICLE 1

Guarantee

 

The Guarantor agrees that:

 

Section 1.01.  The Guarantee.  Subject to the provisions of this Article 1, the Guarantor hereby fully and unconditionally guarantees the full and punctual payment (whether at maturity, upon acceleration, upon redemption or otherwise) of the principal of (and premium, if any) and interest on, and all other amounts payable under, the Notes, and the full and punctual payment of all other amounts payable by the Company to the Holders or the Trustee under the Indenture (the “Guarantee”).  Upon the failure by the Company to pay punctually any such amount, the Guarantor shall forthwith on demand pay the amount not so paid at the place and in the manner specified in the Indenture.

 

Section 1.02.  Guarantee Unconditional.  The Guarantee shall be unconditional and absolute and, without limiting the generality of the foregoing, shall not be released, discharged or otherwise affected by:

 

(a)      any extension, renewal, settlement, compromise, waiver or release in respect of any obligation of the Company under the Indenture or the Notes, by operation of law or otherwise;

 

(b)      any modification or amendment of or supplement to the Indenture or the Notes (other than a modification, amendment or supplement effected in 

 

  

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accordance with the terms of the Indenture which expressly releases, discharges or otherwise affects the Guarantee);

 

(c)      any change in the corporate existence, structure or ownership of the Company, or any insolvency, bankruptcy, reorganization or other similar proceeding affecting the Company or its assets or any resulting release or discharge of any obligation of the Company contained in the Indenture or the Notes;

 

(d)      the existence of any claim, set-off or other right that the Guarantor may have at any time against the Company, the Trustee or any other Person, whether in connection with the Indenture or an unrelated transaction, provided that nothing herein prevents the assertion of any such claim by separate suit or compulsory counterclaim;

 

(e)      any invalidity, irregularity or unenforceability relating to, or against the Company for any reason of, the Indenture or the Notes, or any provision of applicable law or regulation purporting to prohibit the payment by the Company of the principal of or interest on the Notes or any other amount payable by the Company under the Indenture; or

 

(f)      any other act or omission to act or delay of any kind by the Company, the Trustee or any other Person or any other circumstance whatsoever which might, but for the provisions of this Section 1.02, constitute a legal or equitable discharge of or defense to the Guarantor’s obligations hereunder (other than an act contemplated by the parenthetical in Section 1.02(b) above).

 

Section 1.03.  Discharge Only Upon Payment in Full; Reinstatement in Certain Circumstances.  Subject to Section 1.08, the Guarantee shall remain in full force and effect until the principal of (and premium, if any) and interest on, and all other amounts payable under, the Notes, and all other amounts payable by the Company to the Holders or the Trustee under the Indenture have been paid in full.  If at any time any payment of the principal of (or premium, if any) or interest on, or any other amounts payable under, the Notes or any other amount payable by the Company to the Holders or the Trustee under the Indenture is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of the Company or otherwise, the Guarantee with respect to such payment shall be reinstated as though such payment had been due but not made at such time.

 

Section 1.04.  Waiver by the Guarantor.  The Guarantor irrevocably waives acceptance hereof, presentment, demand, protest and any notice not provided for herein, as well as any requirement that at any time any action be taken by any Person against the Company or any other Person.

 

 

  

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Section 1.05.  Subrogation.  The Guarantor agrees that, until the indefeasible payment and satisfaction in full in cash of all applicable obligations under the Notes, the Guarantee and the Indenture, the Guarantor shall waive any claim and shall not exercise any right or remedy, direct or indirect, arising by reason of any performance by it of the Guarantee, whether by subrogation or otherwise, against the Company.

 

Section 1.06.  Stay of Acceleration.  If acceleration of the time for payment of any amount payable by the Company to the Holders under the Indenture or the Notes is stayed upon the insolvency, bankruptcy or reorganization of the Company, all such amounts otherwise subject to acceleration under the terms of the Indenture are nonetheless payable by the Guarantor hereunder forthwith on demand by the Trustee or the Holders.

 

Section 1.07.  Notation of Guarantee Not Required.  The Guarantor acknowledges that the Guarantee shall remain in full force and effect notwithstanding the absence on any Note of a notation relating to the Guarantee.

 

Section 1.08.  Release of Guarantor.  The Guarantor’s obligations under the Guarantee shall terminate upon (a) satisfaction and discharge of the Indenture pursuant to Article 10 of the Indenture or (b) Legal Defeasance or Covenant Defeasance pursuant to Article 8 of the Indenture.

 

Upon delivery by the Company to the Trustee of an Officers’ Certificate and an Opinion of Counsel to the foregoing effect and reasonably satisfactory to the Trustee, the Trustee shall execute any documents reasonably required in order to evidence the release of the Guarantor pursuant to this Section 1.08 from its obligations under the Guarantee.

 

Section 1.09.  Benefits Acknowledged.  The Guarantor acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by the Indenture and that the guarantee and waivers made by the Guarantor pursuant to the Guarantee are knowingly made in contemplation of such benefits.

 

 

ARTICLE 2

Amendment of Indenture

 

Section 2.01.  Amendment of Section 1.01 of the Indenture.  Section 1.01 of the Indenture is hereby amended by (i) inserting the following definition in its appropriate alphabetical placement therein:

 

““Guarantor” means Aetna Inc., a Pennsylvania corporation.”

 

  

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and (ii) amending and restating the last sentence of the definition of “Guarantee” to provide that:

 

“The term “Guarantors” shall mean Guarantor and any other Persons Guaranteeing any obligation.”

 

Section 2.02.   Amendment of Section 4.02(c) of the Indenture.  Section 4.02(c) of the Indenture is hereby amended and restated to read in its entirety as follows:

 

“(c) The Company hereby designates the Trustee c/o U.S. Bank National Association, 1021 East Cary Street, 18th Floor, Richmond, VA  23219, as one such office, drop facility or agency of the Company in accordance with Section 2.03.”

 

Section 2.03.  Amendment of Section 4.03 of the Indenture.  Section 4.03 of the Indenture is hereby amended and restated to read in its entirety as follows:

 

“Section 4.03. Commission Reports.

 

Whether or not required by the Commission, so long as any Notes are outstanding, the Guarantor shall furnish to the Trustee and the Holders of Notes, within the time periods specified in the Commission’s rules and regulations:

 

(a) all quarterly and annual reports that would be required to be filed with the Commission on Forms 10-Q and 10-K if the Guarantor were required to file such reports, including a “Management's Discussion and Analysis of Financial Condition and Results of Operations” and, with respect to the annual information only, a report on the annual financial statements by the Guarantor’s independent registered public accountants; and

 

(b) all current reports that would be required to be filed with the Commission on Form 8-K if the Guarantor were required to file such reports.

 

All such reports shall be prepared in accordance with the rules and regulations of the Commission applicable to such reports.

 

In addition, following the consummation of the merger of a subsidiary of the Guarantor with and into the Company (the “Merger”), whether or not required by the Commission, the Guarantor shall file a copy of all of the information and reports referred to in clauses (a) and (b) above with the Commission for public availability within the time periods specified in the Commission's rules and regulations (unless the 

 

  

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Commission will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. The Guarantor’s reporting obligations with respect to clauses (a) and (b) above shall be deemed satisfied in the event the Guarantor files such reports with the Commission on EDGAR (or any successor to EDGAR) and delivers a copy of such reports to the Trustee.

 

If, at any time after consummation of the Merger, the Guarantor is no longer subject to the periodic reporting requirements of the Exchange Act for any reason, the Guarantor shall nevertheless continue filing the reports specified in the preceding paragraphs with the Commission, within the time periods specified above unless the Commission will not accept such a filing. The Guarantor agrees that it will not take any action for the sole purpose of causing the Commission not to accept any such filings. If, notwithstanding the foregoing, the Commission will not accept the Guarantor’s filings for any reason, the Guarantor shall post such reports on its website within the time periods that would apply if the Guarantor were required to file those reports with the Commission.”

 

Section 2.04.  Amendment of Section 4.04(b) of the Indenture.  Section 4.04(b) of the Indenture is hereby amended and restated to read in its entirety as follows:

 

“(b) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered to the Trustee pursuant to Section 4.03 above shall be accompanied by a written statement of the Guarantor’s independent registered public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements, nothing has come to their attention that would lead them to believe that the Company or the Guarantor has violated any provisions of Articles 4 or 5 hereof applicable to it or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation.”

 

Section 2.05.  Amendment of Section 4.07 of the Indenture.  Section 4.07 of the Indenture is hereby amended and restated to read in its entirety as follows:

 

“Section 4.07. Corporate Existence.

 

Subject to Article 5 hereof, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect (i) its corporate existence, and the corporate, partnership or other existence of

 

 

  

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each of its Significant Subsidiaries, in accordance with the respective organizational documents (as the same may be amended from time to time) of the Company or any such Significant Subsidiary and (ii) the rights (charter and statutory), licenses and franchises of the Company and its Significant Subsidiaries; provided, however, that (A) nothing herein shall prevent the Company from effecting a conversion of its legal form from a corporation to a limited liability company if the Board of Directors shall determine that such conversion is not adverse in any material respect to the Holders of the Notes and (B) the Company shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any of its Significant Subsidiaries, if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Restricted Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any material respect to the Holders of the Notes.

 

Section 2.06.  Amendment of Section 11.02 of the Indenture.  Section 11.02 of the Indenture is hereby amended by replacing the address for the Trustee provided therein with the following address:

 

“U.S. Bank National Association

1021 East Cary Street, 18th Floor

Richmond, VA 23219

Telecopier No.: (804) 343-1566

Attention: Corporation Trust Dept.”

 

 

ARTICLE 3

Miscellaneous

 

Section 3.01.  Effectiveness of Supplemental Indenture. Notwithstanding anything to the contrary elsewhere herein, this Supplemental Indenture shall become effective only as of, and shall become effective as of, the Merger Effective Time.  Promptly after the Merger Effective Time, the Company shall provide notice thereof to the Trustee.  If the Guarantor notifies the Trustee in writing that the Merger Effective Time will not occur, then the provisions hereof shall not become effective.  Upon the effectiveness of this Supplemental Indenture, the Indenture shall be and be deemed to be modified and amended in accordance herewith and the respective rights, limitations of rights, obligations, duties and immunities under the Indenture of the Trustee, the Company and the Holders affected thereby shall hereafter be determined, exercised and enforced hereunder subject in all respects to such modifications and amendments, and all the terms and conditions of this Supplemental Indenture shall be and be deemed to be part of the terms and conditions of the Indenture for any and all purposes, subject to Section 3.08 hereof.

 

  

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Section 3.02.  Indenture Remains in Full Force and Effect.  Except as amended and supplemented hereby, all provisions in the Indenture shall remain in full force and effect.

 

Section 3.03.  Supplemental Indenture Controls.  If there is any conflict or inconsistency between the Indenture and this Supplemental Indenture, the provisions of this Supplemental Indenture shall control.

 

Section 3.04.  No Recourse Against Others.  No past, present or future director, officer, employee, incorporator or shareholder of the Guarantor or any successor of the Guarantor shall have any liability by reason of his, her or its status as such under or upon any obligation, covenant or agreement of the Guarantor contained in this Supplemental Indenture, the Indenture or the Notes, or because of any indebtedness evidenced thereby, all such liability being expressly waived and released by the acceptance of the Guarantee and as part of the consideration for the making of the Guarantee.

 

Section 3.05.  Notices and Demands.  (a) Any notice, demand, direction, request or other document that is required or permitted by any provision of this Supplemental Indenture or the Indenture to be given or made by the Trustee or by the Holders to or upon the Guarantor shall be given or made by postage-prepaid, first-class mail addressed (until another address of the Guarantor is filed by the Guarantor with the Trustee) to Aetna Inc. at 151 Farmington Avenue, RC6A, Hartford, Connecticut 06156, attention: General Counsel.

 

(b)      Any notice, demand, direction, request or other document that is required or permitted by any provision of this Supplemental Indenture or the Indenture to be given or made by the Guarantor to or upon the Trustee or the Holders shall be given or made in accordance with Section 11.02 of the Indenture.  As of the date of this Supplemental Indenture, the address for any such notice, demand, direction, request or other document to be given or made to or upon the Trustee is U.S. Bank National Association, 1021 East Cary Street, 18th Floor, Richmond, VA 23219, attention: Corporate Trust Dept.

 

Section 3.06.  Benefits of Supplemental Indenture.  Nothing in this Supplemental Indenture, express or implied, shall give or be construed to give to any Person, other than the parties hereto, any Paying Agent, any Registrar, any successors to the foregoing hereunder and the Holders, any benefit or any legal or equitable right, remedy or claim under the Indenture or this Supplemental Indenture.

 

Section 3.07.  Successors and Assigns.  All covenants and agreements in this Supplemental Indenture made by the Company, the Guarantor or the Trustee shall bind their respective successors and assigns, whether so expressed or not, subject to Section 3.08 hereof.

 

  

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Section 3.08.  Severability.  If any provision of this Supplemental Indenture shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions hereof shall not in any way be affected or impaired thereby, and no Holder shall have any claim therefor against any party hereto.

 

SECTION 3.09.  GOVERNING LAW.  THIS SUPPLEMENTAL INDENTURE AND THE RIGHTS AND DUTIES OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO ANY PROVISION THEREOF RELATING TO CONFLICTS OF LAWS PRINCIPLES THAT WOULD APPLY THE LAWS OF ANOTHER JURISDICTION), EXCEPT TO THE EXTENT THAT THE TRUST INDENTURE ACT IS APPLICABLE.

 

Section 3.10.  Counterparts.  This Supplemental Indenture may be executed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

 

Section 3.11.  Headings.  The Article and Section headings herein are for convenience only and shall not affect the construction hereof.

 

Section 3.12.  Obligations Under Indenture.  For the avoidance of doubt, the Guarantor shall not be bound by any obligations or covenants under the Indenture except as set forth in this Supplemental Indenture or as otherwise required by the Trust Indenture Act.

 

[The remainder of this page is intentionally left blank]

 

  

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IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed as of the day and year first written above.

 

	 	
COVENTRY HEALTH CARE, INC.

	 	 	 
	 	 	
 

	 	By:	/s/ Shirley R. Smith	 
	 	  	
Name:

	Shirley R. Smith	
 

	 	  	
Title:

	
Senior Vice President, 

Secretary

	
 

 

	 	
AETNA INC., 

  as Guarantor

	 
	 	 	 
	 	 	 
	 	
By:

	
/s/ Shawn M. Guertin

	 
	 	  	
Name:

	
Shawn M. Guertin

	 
	 	  	
Title:

	
Senior Vice President and

Chief Financial Officer

	 

 

	 	
U.S. BANK NATIONAL ASSOCIATION,

  as Trustee

	 
	 	 	 
	 	 	 
	 	
By:

	
/s/ Monique L. Green

	 
	 	  	
Name:

	
Monique L. Green

	 
	 	  	
Title:

	
Vice President

	 

 

 

 

 

 

[Signature Page to Supplemental Indenture]exhibit10_11q13.htm

	
 

 

Exhibit 10.1

 

 

 

 

 

 

Management Team

 

 

 

 

Performance Incentive Plan and

Plan Summary

 

 

Effective as of January 1, 2013

 

 

 

 

 

 

 

  

  

  

1.           Introduction

As a member of the management team, you have direct impact to the profitability of Henry Schein.  To align your interest with that of the Company, you have been nominated to participate in the Performance Incentive Plan (“PIP,” or the “Plan”), the incentive-based cash compensation program for the management team of Henry Schein, Inc. (the “Company”).  This program was approved by the Compensation Committee of the Company’s Board of Directors (the “Compensation Committee”) on March 1, 2013, and is effective beginning January 1, 2013.  This document serves as both the Plan and the Plan Summary.

Plan participants include the Company’s management team of directors and vice presidents who have been designated by the Company to participate in the Plan (the “Participant”).  The Plan has been designed to align all Participants in a concerted effort to drive our business toward achieving common objectives that benefit the Company as a whole, the management team and each Participant. The Plan is specifically designed to:

	
·  

	
Foster achievement of specific corporate, business unit and individual performance goals on an annual basis (“Goals”);

	
·  

	
Provide each Participant with an annual cash bonus opportunity based on the achievement of the Goals (“PIP Award”); and

	
·  

	
Recognize and reward Participants for individual and group team achievements.

The Goals will be set forth in writing each year, and you will receive documentation regarding your annual Goals each year you are a Participant.  Annual Goals may be modified from time to time, and any modification will also be set forth in writing.  Any mid-year changes must be approved by the CEO, the appropriate EMC or by the Compensation Committee before the commencement of the fourth quarter.   The Compensation Committee must be notified of any material changes.   For purposes of the Plan, performance and achievement of Goals will be measured each calendar year or any other period specified by the Compensation Committee.

The PIP Award, in conjunction with a Participant’s base compensation, is intended to provide Participants with competitive total annual cash compensation for comparable positions at companies in our industry and at other similarly sized organizations.

The Chief Executive Officer of the Company (the “CEO”) (solely with respect to Participants other than executive officers) or the Compensation Committee has the sole authority to adopt, alter and repeal such administrative rules, guidelines and practices governing the PIP and to construe and interpret the terms and provisions of the PIP and any PIP Award and make all other determinations and take any other action necessary or appropriate for the administration of the Plan, including, without limitation, correcting any defect, supplying any omission or reconciling any inconsistency in the Plan and any PIP Award in the manner and to the extent deemed necessary to carry the Plan into effect.

Any decision, interpretation or other action made or taken by or at the direction of the CEO (solely with respect to Participants other than executive officers) or the Compensation Committee will be final, binding and conclusive on Henry Schein and all Participants and their respective heirs, executors, administrators, successors and assigns.  The CEO is authorized to act on behalf of the Compensation Committee under the Plan or to exercise any discretion that the Compensation Committee has under the Plan, provided that such act or exercise of discretion by the CEO may not apply to Participants who are executive officers.

 

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The Compensation Committee may, in its sole discretion, delegate any of its responsibilities under the PIP (including administrative tasks) to the extent permitted by applicable law.  The Compensation Committee may rely on information, and consider recommendations, provided by the Company’s Board of Directors or members of Company management.

2.           Eligibility

The CEO annually determines eligibility for participation in the Plan, except that the Compensation Committee makes this determination with respect to executive officers.  Participation is intended to be ongoing.  However, changes in assignments may result in a Participants being ineligible to participate in the Plan.  Participation in one year does not imply or guarantee participation in another year.  Team Schein Members will be notified at the beginning of each year regarding their eligibility to participate in the Plan and will be notified during the year if that status changes.

PIP awards for newly hired or promoted TSMs will be pro-rated.  However, no new entry will be included after September of each performance year.

 3.           PIP Awards and Individual Performance Goals

PIP Awards are based on the following three goals:

	
a)  

	
Company Financial Performance Goals

	
·  

	
The Company’s annual profitability, specifically measured against earnings per share (“EPS”), net income or other predetermined profitability Goals.

	
b)  

	
Functional Area Financial Performance Goals

	
·  

	
The Participant’s business unit or functional area’s level of achievement in financial and other performance Goals.

	
c)  

	
Individual Performance Goals

	
·  

	
The Participant’s achievement of his or her individual MBO Performance Goals.

The Company Financial Performance Goals are determined annually by the Compensation Committee.  The Functional Financial Performance Goal and the MBO Performance Goal evaluation and analysis are conducted annually, unless otherwise specified.  The PIP Award payouts corresponding to levels of achievement of Company Financial Performance Goals are determined by the Compensation Committee in its sole discretion on an annual basis.  The PIP Award payouts for meeting or exceeding Functional Area Financial Goals and each Participant’s individualized MBO Performance Goals are also determined by the Compensation Committee in its sole discretion on an annual basis.

Each Participant’s Goals will be determined at the start of each year by their Manager and then reviewed, as applicable, by the Manager’s Executive Management Committee (EMC) Member, CEO or the Compensation Committee.  There will be an ongoing review of these Goals.  Any changes during the year must be approved by the Manager, the Manager’s EMC Member, Vice President – Global Human Resources and Financial Operations and, if appropriate, by the CEO.  Each Participant and his or her Manager are encouraged to have performance evaluations during the year to monitor progress and, if necessary, to modify Goals (with the approval of the CEO and/or the Compensation Committee, if appropriate) for the balance of the year.

 

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The following table illustrates Performance Goals for different types of management positions.  This table is intended to provide guidelines for the development of a specific performance plan for each Participant based upon individual positions, roles and other factors.  Final weighting of performance Goals for each Participant will be determined by the Participant’s Manager and, if appropriate, approved by the CEO and/or the Compensation Committee.

	
Performance Goals Based on 

Position and Role

	  
	
 

 

Management Segment

	
 

Range of Performance Goal Categories

 

	
Functional

Financial

Performance

	
Company

Financial

Performance

 

	
 

MBO Performance

	
Corporate

Management Participants

(e.g. Finance, Supply Chain TSM’s,   

etc)

	
10% - 40%

	
15% - 40%

	
30% - 50%

	
Major Business

Unit Participants

(e.g. Dental Group, Medical Group 

TSM’s, etc.)

	
55% - 65%

	
15% - 35%

	
10% - 25%

	
Supporting Corporate Function 

Participants (e.g. Legal Department, 

Human Resources Department TSM’s, 

etc.)

	
10% - 20%

	
15% - 35%

	
40% - 60%

4.           Company Financial Performance Goals

 

The Company Financial Performance Goals are determined by the Compensation Committee in its sole discretion with input from the Executive Management team.  Each year, the Compensation Committee may, as it decides in its sole discretion, make adjustments to the Company Financial Performance Goals in accordance with Section 7 below.

In determining whether the Company Financial Performance Goals have been achieved, the Compensation Committee, in its sole discretion, will take into account the quality of earnings and/or circumstances of achievement.

5.           Functional Area Financial Performance Goals

For Participants managing a Group, Division or Subsidiary: Functional Area Financial Goals are based on the financial performance of the Group, Division or Subsidiary measured against annual financial budgets, in the following areas:

	
·  

	
Group/Divisional/Subsidiary sales Goals.

	
·  

	
Group/Divisional/Subsidiary gross profit Goals.

	
·  

	
Group/Divisional/Subsidiary pre-tax income after “service and capital charge” Goals.

	
·  

	
Group/Divisional/Subsidiary net income Goals.

 

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For all other Participants: Goals are based on expense performance relative to the budget.

In determining whether Functional Area Financial Goals have been achieved, the Compensation Committee, in its sole discretion, will take into account the quality of earnings and/or circumstances of achievement.

6.           MBO Performance Goals

Specific, measurable MBO Performance Goals will be approved for each Participant by the CEO, the appropriate EMC, or by the Compensation Committee in its sole discretion, with respect to executive officers.  These MBO Performance Goals should drive toward and support five enterprise-wide initiatives: Profitability; Process Excellence; Customer Satisfaction; Strategic Planning; and Organizational Development.  To drive performance and to focus management energy, it is recommended that the number of MBOs be limited to five to nine critical objectives.

	
·  

	
Profitability - e.g., reduce expenses as a percent of sales; increase gross profit percentage and gross profit dollars; increase business unit sales; reduce inventory.

	
·  

	
Process Excellence - e.g., implement a new policy; reduce errors to customers; reduce DSOs; increase inventory turns.

	
·  

	
Customer Satisfaction - e.g., increase frequency of salesperson to customer contacts; implement project to develop computer screens to aid in positive customer interactions; support internal customer by completing all recruits within a reasonable predetermined time period; develop customer feedback program, such as surveys and focus groups.

	
·  

	
Strategic Planning - e.g., develop strategic plan based on individual responsibilities; benchmark Participant’s unit against similar companies’ functions.

	
·  

	
Organizational Development - e.g. personal business development; succession planning; diversity Goals; staff development; recruitment goals.

MBO Performance Goals should be specific, measurable, attainable, realistic and time-bound.  In order to obtain an award of over 100% of the original MBO target amount, performance must have substantially exceeded the original parameters and expectations of the MBO Performance Goal in a measurable way.  In summary, awards earned in excess of 100% should only be considered when significant benefits are realized when compared to the original MBO Performance Goal.

In determining whether MBO Performance Goals have been achieved or exceeded, the Compensation Committee, in its sole discretion, will take into account the quality of earnings and/or circumstances of achievement.

7.           Adjustments to EPS Goals

Each year, the Compensation Committee may adjust, as it decides in its sole discretion, the Company Financial Performance, Functional Area Financial and MBO Performance Goals (the “Goals”) for:

	
·  

	
Acquisitions and new business ventures (based on the approved model) not initially considered when developing the target including:

	
·  

	
Accretion or dilution, relating to unbudgeted acquisitions (or dispositions), and

	
·  

	
Unbudgeted acquisition and professional fees and expenses relating to closed acquisitions or dispositions; and

	
·  

	
Unbudgeted acquisition and professional fees and expenses relating to individual unclosed acquisitions or dispositions, where such fees and expenses exceed $300,000, in which case all such fees and expenses (from the first dollar) shall be excluded;

 

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·  

	
Certain capital transactions (including capital stock repurchases);

	
·  

	
Other budgeted changes in average outstanding shares (other than those resulting from capital transactions referred to above);

	
·  

	
Changes in a designated foreign exchange rate outside a pre-established range;

	
·  

	
Unforeseen events or circumstances affecting the Company; and

	
·  

	
Changes in accounting principles or in applicable laws or regulations.

In addition, the Compensation Committee may further adjust the Goals for any other unforeseeable event or other facts and circumstances beyond the control of the Company, by an amount equal to a reasonable estimate of the expected accretion or dilution, based on information provided to them by the Executive Management team.  In the event the Compensation Committee makes adjustments in accordance with the preceding sentence, the Compensation Committee in its sole discretion will determine the PIP Award payouts that correspond to the levels of achievement of the adjusted Goal.

 

8.           PIP Awards

During the first fiscal quarter of each year, individual performance for the previous year is evaluated relative to Goals.  PIP Awards are determined for each performance category, as applicable.  A Participant’s total PIP Award will equal the sum of the awards earned in each category for the previous year’s performance.

Notwithstanding anything herein to the contrary, the Compensation Committee or the CEO (solely with respect to Participants other than executive officers) may, at any time, provide that all or a portion of a PIP Award is payable: (i) upon the attainment of any goal (including the Goals), as determined by the Compensation Committee or the CEO, as applicable; or (ii) regardless of whether the applicable Goals are attained, subject to the Compensation Committee’s or the CEO’s (solely with respect to Participants other than executive officers) sole discretion as to the quality of earnings and the circumstances of their achievement.

Any action by the Compensation Committee (or its delegate) hereunder will be made pursuant to resolutions documenting such action.

In order to receive any PIP Award, Participants must be actively employed on the payment date of the year the PIP Award is to be paid out.  A prorated PIP Award may be available, at the discretion of the Compensation Committee or the CEO (solely with respect to Participants other than executive officers), if a Participant in the Plan dies, becomes permanently disabled, retires at the normal Social Security retirement age during the Plan year, or in other special circumstances.

PIP awards, less applicable withholdings, will be made by the end of the first fiscal quarter of each year.

To the extent applicable, unless payments are deferred as may be permitted by the Company, payments under the Plan are intended to be short-term deferrals within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and the guidance issued thereunder (collectively, “Section 409A”) that are exempt from the applicable requirements of Section 409A and the Plan will be limited, construed and interpreted in accordance with such intent.

Notwithstanding anything to the contrary,  the Company does not guarantee, and nothing in the Plan or otherwise is intended to provide a guarantee of, any particular tax treatment with respect to payments or benefits under the Plan or otherwise, and the Company will not be responsible for their compliance with or exemption from Section 409A.

 

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9.           Forfeiture Conditions and Recoupment

 

Notwithstanding anything herein to the contrary, each PIP Award granted under the Plan is conditioned on the applicable Participant not engaging in any Competitive Activity (as defined below) from the effective date of the grant of the PIP Award through the first anniversary of the applicable payment date of such PIP Award (such applicable payment date, the “Payment Date”). If, on or after the effective date of grant of the PIP Award but prior to the Payment Date, a Participant engages in a Competitive Activity, 100% of all PIP Awards issued and payable to such Participant under the Plan shall be immediately forfeited in its entirety, and such Participant shall have no further rights or interests with respect to such PIP Awards.  In the event that a Participant engages in a Competitive Activity on or after the Payment Date but on or prior to the first anniversary of such Payment Date, the Company will have the right to recoup from the Participant, and such Participant will repay to the Company, within thirty (30) days following demand by the Company, an amount in cash equal to 100% of the PIP Awards paid to the Participant on the Payment Date pursuant to the Plan.  The Company also has the right to set off (or cause to be set off) any amounts otherwise due to a Participant from the Company in satisfaction of such repayment obligation, provided that any such amounts are exempt from, or set off in a manner intended to comply with, the requirements of Section 409A.

Participants receiving PIP Awards hereby acknowledge and agree that the forfeiture and recoupment conditions set forth in this section 9, in view of the nature of the business in which the Company and its affiliates are engaged, are reasonable in scope and necessary in order to protect the legitimate business interests of the Company and its affiliates, and that any violation thereof would result in irreparable harm to the Company and its affiliates. Each Participant hereby acknowledge and agree that (i) it is a material inducement and condition to the Company’s issuance of the PIP Award that such Participant agrees to be bound by such forfeiture and recoupment conditions and, further, that the amounts required to be forfeited or repaid to the Company pursuant to this Section 9 are reasonable, and (ii) nothing in the Plan is intended to preclude the Company (or any affiliate thereof) from seeking any remedies available at law, in equity, under contract to the Company or otherwise, and the Company (or any affiliate thereof) shall have the right to seek any such remedy with respect to the PIP Award or otherwise.

For purposes of the Plan, the Participant will be deemed to engage in a “Competitive Activity” if, either directly or indirectly, without the express prior written consent of the Company, the Participant (i) takes other employment with, render services to, or otherwise engages in any business activities with, companies or other entities that are competitors of the Company or any of its affiliates, (ii) solicits or induces, or in any manner attempts to solicit or induce, any person employed by or otherwise providing services to the Company or any of its affiliates, to terminate such person’s employment or service relationship, as the case may be, with the Company or any of its affiliates, (iii) diverts, or attempts to divert, any person or entity from doing business with the Company or any of its affiliates or induces, or attempts to induce, any such person or entity from ceasing to be a customer or other business partner of the Company or any of its affiliates, (iv) violates any agreement between the Participant and the Company or any of its affiliates relating to the non-disclosure of proprietary or confidential information of the Company or any of its affiliates, and/or (v) conducts himself or herself in a manner adversely affecting the Company or any of its affiliates, including, without limitation, making false, misleading or negative statements, either orally or in writing, about the Company or any of its affiliates. The determination as to whether a Participant has engaged in a Competitive Activity shall be made by the Compensation Committee in its sole discretion.

 

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10.          Miscellaneous

 

All expenses of the Plan will be borne by the Company.

This Plan is not intended to, nor does it constitute, a contract or guarantee of continued employment. Nothing in the Plan or in any notice of a PIP Award will affect the right of the Company or any of its affiliates to terminate the employment or service of any Participant or to increase or decrease the compensation payable to the Participant from the rate in effect at the commencement of a year or to otherwise modify the terms of such Participant’s employment.

Except to the extent required by applicable law, no PIP Award or payment thereof nor any right or benefit under the Plan will be subject to anticipation, alienation, sale, assignment, pledge, encumbrance, garnishment, execution or levy of any kind or charge, and any attempt to anticipate, alienate, sell, assign, pledge, encumber, charge, garnish, execute upon or levy upon the same will be void and will not be recognized or given effect by the Company.

No person will have any claim or right to participate in the Plan or to receive any PIP Award for any particular year.

The Company reserves the right to amend, suspend or terminate the Plan at any time without notice.

The Plan has not been adopted by shareholders and is not designed for Code Section 162(m) compliance.

No member of the Compensation Committee and no other director or TSM of the Company or its affiliates to whom any duty or power relating to the administration or interpretation of the Plan has been delegated will be liable for any action, omission, or determination relating to the Plan, and the Company will indemnify and hold harmless each member of the Compensation Committee and each other director or TSM of the Company or its affiliates to whom any duty or power relating to the administration or interpretation of the Plan has been delegated against any cost or expense (including counsel fees, which fees shall be paid as incurred) or liability (including any sum paid in settlement of a claim with the approval of the Compensation Committee) arising out of or in connection with any action, omission or determination relating to the Plan, unless, in each case, such action, omission or determination was taken or made by such member, director or TSM in bad faith and without reasonable belief that it was in the best interests of the Company. The foregoing provisions of this paragraph are in addition to and shall not be deemed to limit or modify, any exculpatory rights or rights to indemnification or the advancement of expenses that any such persons may now or hereafter have, whether under the Company’s Amended and Restated Certificate of Incorporation (as amended), the Company’s Amended and Restated Bylaws (as amended), the Delaware General Corporation Law or otherwise.

In the event that any one or more of the provisions contained in the Plan will, for any reason, be held to be invalid, illegal or unenforceable, in any respect, such invalidity, illegality or unenforceability will not affect any other provision of the Plan and the Plan will be construed as if such invalid, illegal or unenforceable provisions had never been contained therein.

The Company will have the right to make any provisions that it deems necessary or appropriate to satisfy any obligations it may have under law to withhold federal, state or local income or other taxes incurred by reason of payments pursuant to the Plan.

The Plan and any amendments thereto will be construed, administered, and governed in all respects in accordance with the laws of the State of New York (regardless of the law that might otherwise govern under applicable principles of conflict of laws).

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