Document:

EX-10.1

 

Exhibit 10.1

Management Team

2006

Performance Incentive Plan Summary

 

 

1. Introduction

Congratulations on being designated a participant in the Performance Incentive Plan (“PIP,” or
the “Plan”), Henry Schein’s incentive-based cash compensation program for its management team.
Plan participants include the entire management team of directors and vice presidents. The Plan
has been designed to bind all participants together 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:

	 	•	 	Provide each participating management team member (“Participant”) with an
annual cash bonus opportunity;
	 
	 	•	 	Foster achievement of specific corporate, business unit and individual
performance goals (“Goals”);
	 
	 	•	 	Recognize and reward Participants for individual and group team achievements;

The PIP cash bonus 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 organizations of our size.

This program was reviewed and approved by the Compensation Committee of the Board of Directors.

The Compensation Committee or the Chief Executive Officer (the “CEO”) (solely with respect to
Participants other than executive officers) has the 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 award issued under the PIP.

Any decision, interpretation or other action made or taken in good faith by or at the direction of
the Compensation Committee or the CEO (solely with respect to Participants other than executive
officers) will be final, binding and conclusive on Henry Schein and all Participants and their
respective heirs, executors, administrators, successors and assigns.

The Compensation Committee may, in its sole discretion, delegate any of its responsibilities under
the PIP with respect to the implementation of the Plan (including administrative tasks).

2. Eligibility

The CEO annually determines eligibility for participation in the Plan. Participation is
intended to be ongoing. However, changes in assignments may result in a Participant’s being
ineligible to participate in the Plan. Team Schein Members will be notified at the beginning of
each year regarding their eligibility to participate in the Plan.

3. PIP Awards

PIP awards are based on:

	 	•	 	The Company’s annual profitability, specifically measured against earnings per
share (“EPS”), net income or other predetermined profitability Goals;
	 
	 	•	 	The participant’s business unit or functional area’s level of achievement in
financial and other performance goals.
	 
	 	•	 	The participant’s achievement of his or her individual goals.

2

 

4. Individual Performance Goals

A Participant’s individual performance Goals are classified into three categories:

	 	•	 	Company financial performance
	 
	 	•	 	Functional area financial performance
	 
	 	•	 	MBO performance

The Company Financial Performance Goals are based on annual earnings per share (EPS) achievement.
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 set forth on Exhibit A. The PIP award
payouts for meeting or exceeding Functional Area Financial Goals and each Participant’s
individualized MBO Performance Goals are set forth on Exhibits B and C, respectively.

The CEO or the Compensation Committee, as applicable, and the person to whom the Participant
reports (“Manager”) will determine the Participant’s Goals at the start of each year. There will
be an ongoing review of these goals. Any changes during the year must be approved by the Manager
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, if appropriate) for the balance of the year.

The following table illustrates performance Goals for different types of management positions:

	 	 	 	 	 	 	 	 	 	 	 	 	 
	Performance
Goals Based on
	 	 
	Position
and Role
	 	 
	 	 	Range of Performance Goal Categories
	 	 	Functional	 	Company	 	 
	 	 	Financial	 	Financial	 	 
	Management Segment	 	Performance	 	Performance	 	MBO Performance
	Corporate
	 	 	10% - 40	%	 	 	15% - 40	%	 	 	30% - 50	%
	Management Participants
	 	 	 	 	 	 	 	 	 	 	 	 
	(e.g. Finance, Supply Chain TSM’s,
	 	 	 	 	 	 	 	 	 	 	 	 
	etc)
	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Major Business
	 	 	55% - 65	%	 	 	15% - 35	%	 	 	10% - 25	%
	Unit Participants
	 	 	 	 	 	 	 	 	 	 	 	 
	(e.g. Dental Group, Medical Group,
	 	 	 	 	 	 	 	 	 	 	 	 
	Veterinary Group TSM’s, etc.)
	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Supporting Corporate Function
	 	 	10% - 20	%	 	 	15% - 35	%	 	 	40% - 60	%
	Participants (e.g. Legal Department,
	 	 	 	 	 	 	 	 	 	 	 	 
	Human Resources Department TSM’s, etc.)
	 	 	 	 	 	 	 	 	 	 	 	 

 

			
	Note:	 	This schedule is intended to provide guidelines for development of a specific
performance plan for each Participant. Final weighting of performance Goals for each
Participant will be determined by the Participant’s Manager and, if appropriate, approved by
the CEO.

3

 

5. Company Financial Performance Goals

The Company net income goal will be set for the entire Management Team based on the annually
set EPS target. The internally developed EPS base Goal is determined by the Compensation Committee
with input from the Executive Management team. The Compensation Committee will make adjustments to
the 2006 EPS goal for acquisitions based on information provided to them by the Executive
Management team. Changes to the goal will be provided to the participants.

See Exhibit A for PIP award payouts for achieving Company Financial Performance Goals.

6. Functional Area Financial Performance Goals

For Participants managing areas that impact a P&L, these Goals are based on the
business unit’s financial performance measured against annual financial budgets, in the following
areas:

	 	•	 	Group/ Divisional gross profit goals.
	 
	 	•	 	Group/Divisional contribution dollars.
	 
	 	•	 	Group/Divisional Pre-Tax income after “service charges.”
	 
	 	•	 	Group/Divisional net income Goals.
	 
	 	•	 	Pre-Tax Income of operating subsidiaries — sales, gross profit and operating income Goals.

For Participants with infrastructure or supporting responsibilities, these Goals are based
on expense performance relative to the budget and other quantitative goals versus the budget.

See Exhibit B for PIP award payouts for achieving levels of the Functional Area Financial Goals.

7. MBO Performance Goals

Specific, measurable MBO Performance Goals will be developed for each Participant. 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 MBO’s 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
DSO’s; 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.

See Exhibit C for PIP award payouts for achieving and exceeding MBO Performance Goals.

4

 

8. Acquisitions, New Business Ventures and Other Adjustments

Functional Financial and MBO goals will be adjusted for acquisitions and new business ventures
that were not initially considered when developing the original Company target. The Compensation
Committee will adjust the Company Financial Performance Goal for unbudgeted acquisitions by an
amount equal to a reasonable estimate of the expected accretion or dilution. In the event the
Compensation Committee adjusts the Company Financial Performance Goal for unbudgeted acquisitions
in accordance with the preceding sentence, the PIP award payouts set forth on Exhibit A will
correspond to the levels of achievement of the adjusted Company Financial Goal.

Adjustments may also be made to the Company Financial Performance Goals in the discretion of the
Compensation Committee for items resulting from, for example, unforeseeable events or other facts
and circumstances beyond the control of the Company. Notwithstanding anything to the contrary, all
items of gain, loss or expense as presented to the Compensation Committee for, or during, the
applicable fiscal year, that are related to the following items will not be considered in the
calculation of Company Financial Performance Goals:

(i) (a) the disposal of a business or discontinued operations; (b) capital transactions undertaken
by the Company during the fiscal year; or (c) the Company’s repurchase of any class of its
securities during the fiscal year; or

(ii) changes in accounting principles or to changes in applicable law or regulations.

9. Plan 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 Plan 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, as determined by the Compensation Committee or the CEO (solely
with respect to Participants other than executive officers) in their sole discretion.

In order to receive any PIP award, Participants must be actively employed on March 15 of the year
the Plan award is to be paid out. A prorated Plan award may be available, at the discretion of the
CEO, if a Participant in the Plan dies, becomes permanently disabled, retires at the normal
retirement age during the Plan year, or in other special circumstances.

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

This Plan is not intended to, nor does it constitute, a contract or guarantee of continued
employment. The Company reserves the right to change or terminate the Plan at any time without
notice.

5EX-10.1

 

Exhibit 10.1

March 15, 2006

Mr. Peter Loescher

Dear Peter:

On behalf of Merck & Co., Inc. (“Merck”), it is my pleasure to extend you the offer of employment
for the position of President, Global Human Health. In this position, you will report to me at
Whitehouse Station. Our offer includes the following:

Total Compensation

Base Salary: You will be paid a gross monthly salary of $91,667, which equates to $1,100,004 on
an annual basis. Your salary will be reviewed annually. The date of your first merit increase,
if any, will be March 1, 2007.

Executive Incentive Plan: You will be eligible to participate in Merck’s Executive Incentive
Plan (EIP), subject to the terms of the plan. The target bonus for your position is 105% of
your annual base salary. The bonus is discretionary and the amount of the bonus, if any is
awarded, depends on individual performance, division performance and corporate performance.
Notwithstanding the preceding sentence, the Compensation and Benefits Committee of the Board of
Directors of Merck & Co., Inc. (the “Compensation and Benefits Committee”) has approved a
guaranteed bonus for you for Performance Year 2006 of 118% of your annual base salary. Based on
the level of your job within the Company, you will have the opportunity within the first 30
calendar days of the first day of your employment (provided that your first day is no later than
December 1, 2006) to elect to defer all or part of the EIP bonus you will receive for
Performance Year 2006. This 30-day period represents your only opportunity to elect an EIP
deferral for Performance Year 2006. Information about the Deferral Program and instructions
pertaining to this election will be contained in your new-hire materials when you join the
Company. If you do not receive Deferral Program information and instructions, please contact
the Merck Benefits Center at 800-66MERCK (800-666-3725).

Long-Term Incentive (LTI) Program: Starting in 2006, you will be eligible for consideration for
annual grants of stock-based incentives under the Merck & Co., Inc. Incentive Stock Plan. (The
next annual grant date is expected to be in February 2007.) In any given year, our incentives
may include stock options, performance share units (PSUs), restricted stock units (RSUs) or any
combination thereof, with the number and proportion of shares covered by such incentives
determined by the Compensation and Benefits Committee. For illustrative purposes, a typical
grant for a position at your job level would be in the range of 96,000 stock options, 18,000
PSUs and 18,000 RSUs. Currently, annual grants of Merck stock options vest in equal
installments over three years; PSUs have a three-year performance period; and RSUs have a
three-year restriction period. Distribution of shares in connection with both PSUs and RSUs is
dependent on continued employment with the Company; additionally, the level of payout associated
with PSUs is contingent on Company performance. Please note that terms and conditions of any
future grants may change from time to time. The specific terms and conditions of your grants
will be provided at the time the grants are made to you. Based on your job level within the Company, you will be covered by Merck’s stock ownership
guidelines. The guidelines are intended to reinforce our philosophy concerning “ownership” and,
in a concrete way, quantify our expectations concerning ownership of Merck stock. Based on your
job level within the Company, the guidelines provide that you should acquire Merck stock,
over time, equal in value to five times your annual base salary. Importantly, the LTI program –
and retention of shares earned in connection therewith – is intended to facilitate the
acquisition of shares. Also, there is currently no time frame under which you will be required
to achieve the multiple of salary.

 

 

Mr. Peter Loescher

Page 2

March 15, 2006

Sign-On Incentives

Sign-On Bonus. You will be paid a one-time sign-on bonus of $250,000 before taxes, which you
will receive in your first regularly scheduled paycheck following your start date. The sign-on
bonus will be paid to you in a lump sum. However, it is conditioned upon your continued
employment with Merck & Co., Inc. or its subsidiaries for twelve months. If your employment is
voluntarily terminated by you within twelve months of your start date, you will be required to
repay a pro-rata portion of the sign-on bonus based on months of completed service.

Stock Option Grant. The Compensation and Benefits Committee has approved your receiving a stock
option to purchase 175,000 shares of Merck common stock at a fixed price per share that is set
by the Company at fair market value on the first Friday following your start date. Subject to
its terms, this stock option grant will vest in equal installments on the first, second and
third anniversaries of the grant date and expire on the day before the tenth anniversary of the
grant date. A summary of terms and conditions associated with this stock option grant will be
provided to you shortly after the grant is made.

Restricted Stock Unit Grant. The Compensation and Benefits Committee has approved your receiving a grant of 80,000 RSUs to be
made on the same date as the stock option grant referenced in the preceding paragraph. Subject
to its terms, this RSU grant will vest in its entirety on the third anniversary of the grant
date. A summary of terms and conditions associated with this RSU grant will be provided to you
shortly after the grant is made.

Benefits

Flexible Benefits Program: As a salaried employee of Merck, you will be eligible to participate
in the Flexible Benefits Program, which allows you to choose among various options for medical,
dental, vision, employee term life insurance, accidental death and dismemberment insurance,
survivors’ income benefits, dependent life insurance, long-term disability, health care
reimbursement, dependent care reimbursement account, and long-term care plans. For most
benefits, participation begins on your date of hire. A Merck Benefits New Hire Kit will be
mailed within 2 weeks of your hire date to your home address from Fidelity Investments, service
provider for both the Flexible Benefits Program and the Merck Savings Plan. This kit provides
important information and instructions for enrolling in your Merck benefits. You will have 30
days from the date Fidelity mails your benefit information, to enroll in the benefits available
to you under the Flexible Benefits Program. If you do not enroll by that date, you will be
automatically enrolled for a minimal level of coverage for yourself only under certain of the
available benefit coverages.

Please note that general information about Merck’s benefits is also available through the Merck
Benefits Internet website at www.merck.com/benefits.

Retirement Plan: You will participate in the Merck Retirement Plan for Salaried Employees (a
“qualified” plan) and the Supplemental Retirement Plan (a “non-qualified” plan). The
supplemental plan provides payment of that portion of an employee’s regular benefit that is in
excess of the portion that can be paid under the qualified plan, as stipulated by the Internal
Revenue Code. The supplemental plan is unfunded and may be terminated at any time for any
reason. Participation in the retirement plans will begin the earlier of the July 1 or January 1
on or immediately following your start date.

Please note that Merck has an executive retirement policy that applies to employees at your job
level within the Company. Consistent with the limited exemption provided for in the Age
Discrimination in Employment Act (“ADEA”), it is Merck’s policy that employees who are “bona
fide executives” or “high policymakers” within the meaning of the ADEA and who meet the other
necessary criteria set forth in the ADEA, will be required to retire on the first day of the
month following their 65th birthday.

Savings Plan: You will be eligible to participate in the Employee Savings and Security Plan for
Salaried Employees. Currently, the savings plan includes pre- and after-tax savings options and
Merck matching contributions of 75 cents for each dollar saved up to 6% of base pay per pay
period (up to the IRS limit). More information about the Savings Plan will be provided to you
at a later date.

 

 

Mr. Peter Loescher

Page 3

March 15, 2006

Financial Planning: Based on your job level within the Company, you will be eligible to
participate, on a voluntary basis, in Merck’s executive financial planning program. Under the
program, the Company will reimburse you for payments that you make to one or more of our
selected financial planners. Reimbursement will be up to $12,500 in the first calendar year of
your participation and up to $10,000 per calendar year thereafter. Reimbursement will be made
by paycheck, less applicable tax withholding, and will be included in your W-2 income. You will
be provided more information about the program shortly after joining the Company.

Vacation and Paid Holiday Policy: Your vacation benefit will be 5 weeks annually (or 25 days),
in accordance with Merck policy. In addition to your vacation benefit, Merck policy currently
provides 13 paid holidays; 10 of these holidays are predetermined holidays and 3 are personal
floating holidays. Personal floating holidays are selected at your discretion and are subject
to supervisory approval. The number of vacation days and personal floating holidays for which
you are eligible in your first year of employment is dependent upon your date of hire.

Relocation

Relocation. As part of our standard relocation benefits, the Company will reimburse you for
certain reasonable expenses associated with your move in accordance with Merck’s Relocation
Policy.

The compensation and benefits described in this letter are provided under and subject to the terms
and conditions of the applicable Merck plans, programs and policies. Nothing in this letter in any
way limits Merck’s right to amend or terminate those plans, programs or policies.

This offer is contingent upon your successful completion of a pre-placement drug screen,
satisfactory verification of your employment, education, criminal check and background check
results and proof of your eligibility to work in the United States (see attached List of Acceptable
Documents, which you are required to bring with you on your first day of work). Your employment at
Merck & Co., Inc. is at-will and additionally will be subject to Merck’s terms and conditions of
employment, which will be provided to you when this offer is confirmed. We advise you not to
alter your current employment status until we confirm the contingent offer. 

Please contact Ms. Ann Tidball (908-423-6919, ann_tidball@merck.com), who will assist you in
beginning your “on boarding” process for employment, including relocation. In addition, please
sign both copies of this letter and return one to Ms. Tidball, Merck & Co,. Inc., One Merck Drive,
WS 3A-10, Whitehouse Station, New Jersey 08889-0100 by March 31, 2006.

Peter, I look forward to our partnership in returning Merck to a leadership position in the
pharmaceutical industry. I am optimistic that with your proven abilities and experience, we will
successfully implement a Strategic Plan that will be a benefit to our patients, employees and
stockholders.

Sincerely,

 

/s/ Richard T. Clark

Enclosures

cc: A. Tidball

I accept the employment offer and its terms contained in this letter.

 

	 	 	 	 
	 

	 	 	 
	Signature

	 	Date	 

 

 

Merck & Co., Inc.

LIST OF ACCEPTABLE DOCUMENTS

	 	 	 	 	 
	 

	 	 	 	 

	LIST
A            	OR  	LIST B         	AND  	LIST
C          
	 

	 	 	 	 

	Documents that Establish Both	Documents that Establish	 	Documents that Establish Employment
	Identity and Employment Eligibility	Identity	 	Eligibility
	 

	 	 	 	 

	1.	 	U.S. Passport (unexpired or expired)
	 
	2.	 	Certificate of U.S. Citizenship (INS Form N-560 or N-561)
	 
	3.	 	Certificate of Naturalization (INS Form N-550 or N-570)
	 
	4.	 	Unexpired foreign passport with I-551 stamp or attached INS Form I-94
indicating unexpired employment authorization
	 
	5.	 	Alien Registration Receipt Card with photograph (INS Form I-151 or I-551)
	 
	6.	 	Unexpired Temporary Resident Card (INS Form I-688)
	 
	7.	 	Unexpired Employment Authorization Card (INS Form I-688A)
	 
	8.	 	Unexpired Reentry Permit (INS Form I-327)
	 
	9.	 	Unexpired Refugee Travel Document (INS Form I-571)
	 
	10.	 	Unexpired Employment Authorization Document issued by the INS which
contains a photograph (INS Form I-688B)

	1.	 	Driver’s license or ID card issued by a state or outlying possession of the
United States provided it contains a photograph or information such as name,
date of birth, sex, height, eye color, and address
	 
	2.	 	ID card issued by federal, state, or local government agencies or entities
provided it contains a photograph or information such as name, date of birth,
sex, height, eye color, and address
	 
	3.	 	School ID card with a photograph
	 
	4.	 	Voter’s registration card
	 
	5.	 	U.S. Military card or draft record
	 
	6.	 	Military dependent’s ID card
	 
	7.	 	U.S. Coast Guard Merchant Mariner card
	 
	8.	 	Native American tribal document
	 
	9.	 	Driver’s license issued by a Canadian government authority

For persons under age 18 who are unable to present a document listed above:

	10.	 	School record or report card
	 
	11.	 	Clinic, doctor, or hospital record
	 
	12.	 	Day-care or nursery school record

	1.	 	U.S. social security card issued by the Social Security Administration (other
than a card stating it is not valid for employment)
	 
	2.	 	Certification of Birth Abroad issued by the Department of State (Form FS-545 or
Form DS-1350)
	 
	3.	 	Original or certified copy of a birth certificate issued by a state, county,
municipal authority or outlying possession of the United States bearing an
official seal.
	 
	4.	 	Native American tribal document
	 
	5.	 	U.S. Citizen ID Card (INS Form I-197)
	 
	6.	 	ID Card for use of Resident Citizen in the United States (INS Form I-179)
	 
	7.	 	Unexpired employment authorization document issued by the INS (other than those listed under
List A)

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