UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934

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HENRY SCHEIN, INC.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 28, 2009

 

Dear Stockholder:

 

You are cordially invited to attend the Annual Meeting of Stockholders of Henry Schein, Inc. (the “Company”), to be held at 9:00 a.m., on Thursday, May 28, 2009 at the Melville Marriott Long Island, 1350 Old Walt Whitman Road, Melville, New York 11747.

 

The Annual Meeting will be held for the following purposes:

 

 

Only stockholders of record at the close of business on April 6, 2009 are entitled to notice of and to vote at the meeting or any adjournments or postponements thereof.

 

The Company is pleased to take advantage of the Securities and Exchange Commission rules that allow issuers to furnish proxy materials to their stockholders on the Internet. The Company believes the rules allow it to provide its stockholders with the information they need, while lowering the costs of delivery and reducing the environmental impact of the Annual Meeting of Stockholders. Accordingly, stockholders of record at the close of business on April 6, 2009 will receive a Notice Regarding the Availability of Proxy Materials and may vote at the Annual Meeting and any adjournment or postponement of the meeting.

 

To assure your representation at the Annual Meeting, you are urged to cast your vote, as instructed in the Notice Regarding the Availability of Proxy Materials, over the Internet or by telephone as promptly as possible. You may also request a paper proxy card to submit your vote by mail, if you prefer. Any stockholder of record attending the Annual Meeting may vote in person, even if he or she has voted over the Internet, by telephone or returned a completed proxy card.

 

Whether or not you expect to attend the meeting in person, your vote is very important. Please cast your vote regardless of the number of shares you hold. I believe that you can be proud, excited and confident to be a stockholder of Henry Schein. I look forward to discussing our plans for the Company’s future at the Annual Meeting, and I hope to see you there.

 

STANLEY M. BERGMAN

Chairman and Chief Executive Officer

 

Melville, New York

April 16, 2009

 

HENRY SCHEIN, INC.
135 DURYEA ROAD
MELVILLE, NEW YORK 11747

 

 

 

 

PROXY STATEMENT

 

 

 

 

The Board of Directors of Henry Schein, Inc. (the “Company”) has fixed the close of business on April 6, 2009 as the record date for determining the holders of the Company’s common stock, par value $0.01, entitled to notice of, and to vote at, the 2009 Annual Meeting of Stockholders (the “Annual Meeting”). As of that date, 89,919,215 shares of common stock were outstanding, each of which entitles the holder of record to one vote. The Notice of Annual Meeting, this proxy statement and the form of proxy are being made available to stockholders of record of the Company on or about April 16, 2009. A copy of our 2008 Annual Report to Stockholders is being made available with this proxy statement, but is not incorporated herein by reference.

 

The presence, in person or by proxy, of the holders of a majority of the shares eligible to vote is necessary to constitute a quorum in connection with the transaction of business at the Annual Meeting. Abstentions and broker non-votes (i.e., proxies from brokers or nominees indicating that such persons have not received instructions from the beneficial owner or other persons eligible to vote shares as to a matter with respect to which the brokers or nominees do not have discretionary power to vote) are counted as present for purposes of determining the presence or absence of a quorum for the transaction of business.

 

Abstentions and broker non-votes will have no effect on the election of directors (Proposal 1), which is by plurality vote.

 

Abstentions will, in effect, be votes against the amendment to the Company’s 1994 Stock Incentive Plan (Proposal 2), against the amendment to the Company’s Section 162(m) Cash Bonus Plan (Proposal 3) and against the ratification of the selection of the independent registered public accounting firm (Proposal 4), as these items require the affirmative vote of a majority of the shares present and eligible to vote on such items. Broker non-votes will not be considered votes cast on Proposal 4 and the shares represented by broker non-votes with respect to this proposal will be considered present but not eligible to vote on this proposal.

 

We will pay all expenses of this proxy solicitation. In addition to this proxy solicitation, proxies may be solicited in person or by telephone or other means (including by our directors or employees without additional compensation). We will reimburse brokerage firms and other nominees, custodians and fiduciaries for costs incurred by them in distributing proxy materials to the beneficial owners of shares held of record by such persons.

 

If your shares of common stock are registered directly in your name with the Company’s transfer agent, you are considered, with respect to those shares, the stockholder of record. In accordance with rules and regulations adopted by the Securities and Exchange Commission, instead of mailing a printed copy of our proxy materials to each stockholder of record, we may furnish proxy materials to our stockholders on the Internet. If you received a Notice Regarding the Availability of Proxy Materials (the “Notice of Internet Availability”) by mail, you will not receive a printed copy of these proxy materials. Instead, the Notice of Internet Availability will instruct you as to how you may access and review all of the important information contained in these proxy materials. The Notice of Internet Availability also instructs you as to how you may submit your proxy on the Internet. If you received a Notice of Internet Availability by mail and would like to receive a printed copy of our proxy materials, including a proxy card, you should follow the instructions for requesting such materials included in the Notice of Internet Availability.

 

If your shares are held in an account at a brokerage firm, bank, broker-dealer or other similar organization, then you are the beneficial owner of shares held in “street name,” and the Notice of Internet Availability was forwarded to you by that organization. The organization holding your account is considered the stockholder of record for purposes of voting at the Annual Meeting. As a beneficial owner, you have the right to direct that organization on how to vote the shares held in your account.

 

Shares of common stock held in a stockholder’s name as the stockholder of record may be voted in person at the Annual Meeting. Shares of common stock held beneficially in street name may be voted in person only if you obtain a legal proxy from the broker, trustee or nominee that holds your shares giving you the right to vote the shares.

Whether you hold shares directly as the stockholder of record or beneficially in street name, you may direct how your shares are voted without attending the Annual Meeting. If you are a stockholder of record, you may vote by submitting a proxy electronically via the Internet, by telephone or if you have requested a paper copy of these proxy materials, by returning the proxy or voting instruction card. If you hold shares beneficially in street name, you may vote by submitting voting instructions to your broker, trustee or nominee.

 

Whether or not you are able to attend the Annual Meeting, you are urged to complete and return your proxy or voting instructions, which are being solicited by the Company’s Board of Directors and which will be voted as you direct on your proxy or voting instructions when properly completed. In the event no directions are specified, such proxies and voting instructions will be voted FOR the nominees for election to the Board of Directors, FOR the amendment to the Company’s 1994 Stock Incentive Plan, FOR the amendment to the Company’s 162(m) Cash Bonus Plan, FOR the ratification of BDO Seidman, LLP as the Company’s independent registered public accountants for the fiscal year ending December 26, 2009 and in the discretion of the proxy holders as to other matters that may properly come before the Annual Meeting.

 

You may revoke or change your proxy or voting instructions at any time before the Annual Meeting. To revoke your proxy, send a written notice of revocation or another signed proxy with a later date to the Corporate Secretary of the Company at Henry Schein, Inc., 135 Duryea Road, Melville, New York 11747 before the beginning of the Annual Meeting. You may also automatically revoke your proxy by attending the Annual Meeting and voting in person. Attendance at the Annual Meeting will not in and of itself constitute revocation of a proxy. To revoke your voting instructions, submit new voting instructions to your broker, trustee or nominee; alternatively, if you have obtained a legal proxy from your broker or nominee giving you the right to vote your shares, you may attend the Annual Meeting and vote in person. All shares represented by a valid proxy received prior to the Annual Meeting will be voted.

 

PROPOSAL 1
ELECTION OF DIRECTORS

 

The Board of Directors has approved the thirteen persons named below as nominees for election at the Annual Meeting to serve as directors until the 2010 Annual Meeting of Stockholders and until their successors are elected and qualified. Directors will be elected by plurality vote. Any executed proxies returned to the Company will be voted for the election of all of such persons except to the extent the proxy is specifically marked to withhold such authority with respect to one or more of such persons. All of the nominees for director currently serve as directors and were elected by the stockholders at the 2008 Annual Meeting. All of the nominees have consented to be named and, if elected, to serve, except as otherwise noted below in the case of Dr. Hamburg. In the event that any of the nominees is unable or declines to serve as a director at the time of the Annual Meeting, the proxies may be voted in the discretion of the persons acting pursuant to the proxy for the election of other nominees. Set forth below is certain information, as of April 6, 2009, concerning the nominees:

 

 

BARRY J. ALPERIN has been a director since 1996. Mr. Alperin, a private consultant since 1995, served as Vice Chairman of Hasbro, Inc. from 1990 through 1995, as Co-Chief Operating Officer of Hasbro, Inc. from 1989 through 1990 and as Senior Vice President or Executive Vice President of Hasbro, Inc. from 1985 through 1989. Mr. Alperin served as a director of Seaman Furniture Company, Inc. from 1992 to 2001. He currently serves as a director of K’NEX Industries, Inc., The Hain Celestial Group, Inc. and K-Sea Transportation Partners L.P.

 

GERALD A. BENJAMIN has been our Executive Vice President and Chief Administrative Officer since 2000 and a director since 1994. Prior to holding his current position, Mr. Benjamin was Senior Vice President of Administration and Customer Satisfaction since 1993. Mr. Benjamin was Vice President of Distribution Operations from 1990 to 1992 and Director of Materials Management from 1988 to 1990. Before joining us in 1988, Mr. Benjamin was employed for thirteen years in various management positions at Estée Lauder, Inc., where his last position was Director of Materials Planning and Control.

 

STANLEY M. BERGMAN has been our Chairman and Chief Executive Officer since 1989 and a director since 1982. Mr. Bergman held the position of President of the Company from 1989 to 2005. Mr. Bergman held the position of Executive Vice President from 1985 to 1989 and Vice President of Finance and Administration from 1980 to 1985.

 

JAMES P. BRESLAWSKI has been our President and Chief Operating Officer since 2005 and a director since 1992. Mr. Breslawski held the position of Executive Vice President and President of U.S. Dental from 1990 to 2005, with primary responsibility for the North American Dental Group. Between 1980 and 1990, Mr. Breslawski held various positions with us, including Chief Financial Officer, Vice President of Finance and Administration and Corporate Controller.

PAUL BRONS has been a director since 2005. Between 1994 and 2002, Mr. Brons served as an executive board member of Akzo Nobel, N.V. From 1965 to 1994, Mr. Brons held various positions with Organon International BV, including President from 1983 to 1994 and Deputy President from 1979 to 1983. From 1975 to 1979, Mr. Brons served as the General Manager of the OTC operations of Chefaro. Both Organon and Chefaro operated within the Akzo Nobel group. Mr. Brons currently serves on the Board of Directors of Laboratorios Almirall S.A.

 

MARGARET A. HAMBURG, M.D. has been a director since 2003. Since 2005, Dr. Hamburg has served as Senior Scientist for the Nuclear Threat Initiative where she served as Vice President of Biological Programs from 2001 to 2004. From 1997 to 2001, Dr. Hamburg served as the Assistant Secretary for Planning and Evaluation, U.S. Department of Health and Human Services. From 1991 to 1997, Dr. Hamburg served as the Commissioner of Health for the City of New York. From 1988 to 1990, Dr. Hamburg held positions with the National Institute of Allergy & Infectious Diseases and the Office of Disease Prevention and Health Promotion, Office of the Assistant Secretary for Health, U.S. Department of Health and Human Services. On March 14, 2009, President Barack Obama nominated Dr. Hamburg as Commissioner of the Food and Drug Administration. On March 25, 2009 Dr. Hamburg’s nomination was sent to the United States Senate for confirmation. If Dr. Hamburg is confirmed, she has informed us that she intends to resign as a member of our Board of Directors.

 

DONALD J. KABAT has been a director since 1996. Mr. Kabat was the Chief Financial Officer of Central Park Skaters, Inc. from 1992 to 1995 and the President of D.J.K. Consulting Services, Inc. from 1995 to 2006. From 1970 to 1992, Mr. Kabat was a partner in Andersen Consulting (now known as Accenture, Ltd.). Mr. Kabat currently serves on the Board of Directors of Phoenix House Development Fund.

 

PHILIP A. LASKAWY has been a director since 2002. Mr. Laskawy joined the accounting firm of Ernst & Young LLP in 1961 and served as a partner in the firm from 1971 to 2001, when he retired. Mr. Laskawy served in various senior management positions at Ernst & Young including Chairman and Chief Executive Officer, to which he was appointed in 1994. Mr. Laskawy currently serves on the Board of Directors of Cap Gemini SA, General Motors Corporation and Loews Corporation and is the Non-Executive Chairman of Federal National Mortgage Association (Fannie Mae).

 

KARYN MASHIMA has been a director since 2008. Ms. Mashima, a private consultant, served as the Senior Vice President, Strategy and Technology of Avaya Inc. from 2000 to January 2009. Prior to holding such position at Avaya, Ms. Mashima held similar positions with the Enterprise Communications unit of Lucent Technologies and AT&T from 1994 to 2000. Ms. Mashima was Vice President of Marketing at Proteon Technologies, Inc. from 1993 to 1994 and Vice President of Marketing at Network Equipment Technologies, Inc. from 1990 to 1992. From 1984 to 1990, Ms. Mashima was Product and Marketing Manager at Hewlett-Packard Company. From 1981 to 1984, Ms. Mashima was employed at Xerox Corp., where her last position was Product Manager of Xerox’s Office Systems division.

 

NORMAN S. MATTHEWS has been a director since 2002. Since 1989, Mr. Matthews has worked as an independent consultant and venture capitalist. From 1978 to 1988, Mr. Matthews served in various senior management positions for Federated Department Stores, Inc., including President from 1987 to 1988. Mr. Matthews currently serves on the Board of Directors of The Progressive Corporation, Finlay Fine Jewelry Corporation and The Children’s Place Retail Stores, Inc.

 

MARK E. MLOTEK has been our Executive Vice President, Corporate Business Development since 2004 and was Senior Vice President of Corporate Business Development from 2000 to 2004. Prior to that, Mr. Mlotek was Vice President, General Counsel and Secretary from 1994 to 1999 and became a director in 1995. Prior to joining us, Mr. Mlotek was a partner in the law firm of Proskauer Rose LLP, our legal counsel, specializing in mergers and acquisitions, corporate reorganizations and tax law from 1989 to 1994.

 

STEVEN PALADINO has been our Executive Vice President and Chief Financial Officer since 2000. Prior to holding his current position, Mr. Paladino was Senior Vice President and Chief Financial Officer from 1993 to 2000 and has been a director since 1992. From 1990 to 1992, Mr. Paladino served as Vice President and Treasurer and from 1987 to 1990 served as Controller. Before joining us, Mr. Paladino was employed as a public accountant for

seven years, most recently with the international accounting firm of BDO Seidman. Mr. Paladino is a certified public accountant.

 

LOUIS W. SULLIVAN, M.D. has been a director since 2003. Since 2002, Dr. Sullivan has been President Emeritus of Morehouse School of Medicine in Atlanta, Georgia. From 1993 to 2002, Dr. Sullivan was President of Morehouse School of Medicine. From 1989 to 1993, Dr. Sullivan served as U.S. Secretary of Health and Human Services. Dr. Sullivan currently serves on the Board of Directors of United Therapeutics Corporation, BioSante Pharmaceuticals, Inc. and Emergent BioSolutions Inc.

 

THE AFFIRMATIVE VOTE OF THE HOLDERS OF A PLURALITY OF THE OUTSTANDING SHARES OF COMMON STOCK PRESENT IN PERSON OR REPRESENTED BY PROXY AND ENTITLED TO VOTE ON THIS MATTER AT THE ANNUAL MEETING IS REQUIRED TO APPROVE THE PROPOSED NOMINEES FOR DIRECTOR. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSED NOMINEES FOR DIRECTOR.

 

CORPORATE GOVERNANCE

 

Board of Directors Meetings and Committees

 

During the fiscal year ended December 27, 2008 (“fiscal 2008”), the Board of Directors held six meetings. The Board of Directors has an Audit Committee, Compensation Committee, Nominating and Governance Committee and a Strategic Advisory Committee. During fiscal 2008, the Audit Committee held four meetings, the Compensation Committee held eight meetings, the Nominating and Governance Committee held three meetings and the Strategic Advisory Committee held four meetings. During fiscal 2008, each director attended 75% or more of the aggregate number of meetings of the Board of Directors and committees on which such directors served, other than Dr. Hamburg (who attended seven of ten, or 70% of the aggregate number of Board of Directors’ and committee meetings on which she served). Each of the committees of the Board of Directors acts pursuant to a separate written charter adopted by the Board of Directors.

 

Independent Directors

 

The Board of Directors has affirmatively determined that Messrs. Alperin, Brons, Kabat, Laskawy and Matthews, Ms. Mashima and Drs. Hamburg and Sullivan are “independent,” as defined under Rule 5605(a)(2) of The Nasdaq Stock Market (“Nasdaq”). In determining Ms. Mashima’s independence, the Board of Directors considered her significant other’s employment with the Company’s independent registered public accounting firm. He is a non-audit principal of such firm.

 

Independent directors, as defined under Nasdaq’s Rule 5605(a)(2), meet at regularly scheduled executive sessions without members of Company management present.

 

Audit Committee

 

The Audit Committee currently consists of Messrs. Kabat (Chairman), Alperin and Laskawy. All of the members of the Audit Committee are independent directors as defined under Nasdaq’s Rule 5605(a)(2). The Board of Directors has determined that each of the members of the Audit Committee are “audit committee financial experts,” as defined under the rules of the Securities and Exchange Commission (“SEC”) and, as such, each satisfy the requirements of Nasdaq’s Rule 5605(c)(2)(A).

 

The Audit Committee oversees (i) our accounting and financial reporting processes, (ii) our audits and (iii) the integrity of our financial statements on behalf of the Board of Directors, including the review of our consolidated financial statements and the adequacy of our internal controls. In fulfilling its responsibility, the Audit Committee has direct and sole responsibility, subject to stockholder approval, for the appointment, compensation, oversight and termination of the independent registered public accounting firm for the purpose of preparing or issuing an audit report or related work. Additionally, the Audit Committee oversees those aspects of risk management and legal and regulatory compliance monitoring processes, which may impact our financial reporting. The Audit Committee meets at least four times each year and periodically meets separately with our management, internal auditor and the independent registered public accounting firm to discuss the results of their audit or review of the Company’s consolidated financial statements, their evaluation of our internal controls, the overall quality of the Company’s financial reporting, our critical accounting policies and to review and approve any related party transactions. We maintain procedures for the receipt, retention and the handling of complaints, which the Audit Committee established. The Audit Committee operates under a charter available on our Internet website at www.henryschein.com, under the Corporate Information-Corporate Governance caption.

 

Compensation Committee

 

The Compensation Committee currently consists of Messrs. Alperin (Chairman), Kabat and Matthews. The Compensation Committee reviews and approves (i) all incentive and equity-based compensation plans in which officers or employees may participate, (ii) the Company’s employee and executive benefits plans, and all related policies, programs and practices and (iii) arrangements with executive officers relating to their employment relationships with the Company, including, without limitation, employment agreements, severance agreements, supplemental pension or savings arrangements, change in control agreements and restrictive covenants. In addition,

the Compensation Committee has overall responsibility for evaluating and approving the Company’s compensation and benefit plans, policies and programs. Each member of the Compensation Committee is an independent director as defined under Nasdaq’s Rule 5605(a)(2), “non-employee director” as defined under the SEC’s rules and “outside director” as defined under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). The Compensation Committee may form subcommittees, consisting of members of the committee, and delegate authority to such subcommittees as it deems appropriate. The Compensation Committee operates under a charter available on our Internet website at www.henryschein.com, under the Corporate Information-Corporate Governance caption.

 

Use of Outside Advisors

 

In making its determinations with respect to executive compensation, the Compensation Committee has historically engaged the services of an independent compensation consultant, Pearl Meyer & Partners. Pearl Meyer & Partners has also assisted the Compensation Committee with several special projects, including advice on director compensation and the Company’s Long-Term Incentive Program (“LTIP”).

 

The Compensation Committee retains Pearl Meyer & Partners directly, although in carrying out assignments, Pearl Meyer & Partners also interacts with Company management when necessary and appropriate in order to obtain compensation and performance data for the executives and the Company. In addition, Pearl Meyer & Partners may, in its discretion, seek input and feedback from management regarding its consulting work product prior to presentation to the Compensation Committee in order to confirm alignment with the Company’s business strategy, identify data questions or other similar issues, if any, prior to presentation to the Compensation Committee.

 

The Compensation Committee annually reviews competitive compensation data prepared by Towers Perrin, a human resources consulting firm which provides a number of services to the Company.

 

The Compensation Committee has the authority to retain, terminate and set the terms of its relationship with any outside advisors who assist the Committee in carrying out its responsibilities.

 

Nominating and Governance Committee

 

The Nominating and Governance Committee currently consists of Messrs. Laskawy (Chairman) and Alperin and Dr. Sullivan. The purpose of the Nominating and Governance Committee is to identify individuals qualified to become Board of Directors members, recommend to the Board of Directors the persons to be nominated by the Board of Directors for election as directors at the annual meeting of stockholders, determine the criteria for selecting new directors and oversee the evaluation of the Board of Directors and management. In addition, the Nominating and Governance Committee reviews and reassesses our corporate governance procedures and practices and recommends any proposed changes to the Board of Directors for its consideration. All of the members of the Nominating and Governance Committee are independent directors as defined under Nasdaq’s Rule 5605(a)(2). The Nominating and Governance Committee operates under a charter available on the Company’s Internet website at www.henryschein.com, under the Corporate Information-Corporate Governance caption.

 

The Nominating and Governance Committee will consider for nomination to the Board of Directors candidates suggested by stockholders, provided that such recommendations are delivered to the Company, together with the information required to be filed in a proxy statement with the SEC regarding director nominees and each such nominee’s consent to serve as a director if elected, no later than the deadline for submission of stockholder proposals. Our policy is to consider nominations to the Board of Directors from stockholders who comply with the procedures set forth in the Company’s Amended and Restated Certificate of Incorporation, as amended, for nominations at the Company’s Annual Meeting of Stockholders and to consider such nominations using the same criteria it applies to evaluate nominees recommended by other sources. To date, we have not received any recommendations from stockholders requesting that the Nominating and Governance Committee consider a candidate for inclusion among the Committee’s slate of nominees in the Company’s proxy statement.

In evaluating director nominees, the Nominating and Governance Committee currently considers the following factors:

 

 

The Nominating and Governance Committee may also consider such other factors that it deems are in the best interests of the Company and its stockholders.

 

The Nominating and Governance Committee identifies nominees by first evaluating the current members of the Board of Directors willing to continue in service. Current members of the Board of Directors with skills and experience that are relevant to the Company’s business and who are willing to continue in service are considered for re-nomination, balancing the value of continuity of service by existing members of the Board of Directors with that of obtaining a new perspective. If any member of the Board of Directors does not wish to continue in service or if the Nominating and Governance Committee or the Board of Directors decides not to re-nominate a member for re-election, the Nominating and Governance Committee identifies the desired skills and experience of a new nominee, and discusses with the Board of Directors suggestions as to individuals that meet the criteria. In addition, the Nominating and Governance Committee has the authority to retain third party search firms to evaluate or assist in identifying or evaluating potential nominees.

 

With the goal of increasing the effectiveness of the Board of Directors and its relationship to management, the Nominating and Governance Committee evaluates the Board of Director’s performance as a whole. The evaluation process, which occurs at least annually, includes a survey of the individual views of all directors, which are then shared with the full Board of Directors. In addition, each of the committees performs a similar annual self-evaluation.

 

Strategic Advisory Committee

 

The Strategic Advisory Committee currently consists of Messrs. Matthews (Chairman), Brons and Laskawy and Drs. Hamburg and Sullivan and Ms. Mashima. The purpose of the Strategic Advisory Committee is to provide advice to the Board of Directors and to our management regarding the monitoring and implementation of our corporate strategic plan, as well as general strategic planning. All of the members of the Strategic Advisory Committee are independent directors as defined under Nasdaq’s Rule 5605(a)(2). The Strategic Advisory Committee operates under a charter available on our Internet website at www.henryschein.com, under the Corporate Information-Corporate Governance caption.

 

Stockholder Communications

 

Stockholders who wish to communicate with the Board of Directors may do so by writing to the Corporate Secretary of the Company at Henry Schein, Inc., 135 Duryea Road, Melville, New York 11747. The office of the Corporate Secretary will receive the correspondence and forward it to the Chairman of the Nominating and Governance Committee or to any individual director or directors to whom the communication is directed, unless the communication is unduly hostile, threatening, illegal, does not reasonably relate to the Company or its business or is similarly inappropriate.

 

Our policy is to encourage our Board of Directors members to attend the Annual Meeting of Stockholders, and all of our directors standing for election attended the 2008 Annual Meeting of Stockholders.

Corporate Governance Guidelines

 

The Board of Directors has adopted Corporate Governance Guidelines, a copy of which is available on our Internet website at www.henryschein.com, under the Corporate Information-Corporate Governance caption. Our Corporate Governance Guidelines address topics such as (i) role of the Board of Directors, (ii) director responsibilities, (iii) Board of Directors composition, (iv) definition of independence, (v) committees, (vi) selection of Board of Directors nominees, (vii) orientation and continuing education of directors, (viii) executive session of independent directors, (ix) management development and succession planning, (x) Board of Directors compensation, (xi) attendance of directors at the Annual Meeting of Stockholders, (xii) Board of Directors access to management and independent advisors, (xiii) annual evaluation of Board of Directors and committees, (xiv) submission of director resignations and (xv) communicating with the Board of Directors.

 

Among other things, the Company’s Corporate Governance Guidelines provide that it is the Board of Directors’ policy to periodically review issues related to the selection and performance of the Chief Executive Officer. At least annually, the Chief Executive Officer must report to the Board of Directors on the Company’s program for management development and on succession planning. In addition, the Board of Directors and Chief Executive Officer shall periodically discuss the Chief Executive Officer’s recommendations as to a successor in the event of the sudden resignation, retirement or disability of the Chief Executive Officer.

 

The Company’s Corporate Governance Guidelines also provide that it is the Board of Directors’ policy that, in light of the increased oversight and regulatory demands facing directors, directors must be able to devote sufficient time to carrying out their duties and responsibilities effectively. Accordingly, directors should not serve on more than five other boards of public companies in addition to the Company’s Board of Directors.

 

Code of Business Conduct and Ethics

 

In addition to our Worldwide Business Standards applicable to all employees, we have adopted a Code of Business Conduct and Ethics that applies to our Chief Executive Officer, Chief Financial Officer, Controller (if any) and Vice President of Corporate Finance (if any) or persons performing similar functions. The Code of Business Conduct and Ethics is posted on our Internet website at www.henryschein.com, under the Corporate Information-Corporate Governance caption. We intend to disclose on our website any amendment to, or waiver of, a provision of the Code of Business Conduct and Ethics that applies to the Chief Executive Officer, Chief Financial Officer, Controller (if any), and Vice President of Corporate Finance (if any) or persons performing similar functions.

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table presents certain information regarding beneficial ownership of our common stock as of April 6, 2009 by (i) each person we know is the beneficial owner of more than 5% of the outstanding shares of common stock, (ii) each director of the Company, (iii) each nominee for director of the Company, (iv) our Chief Executive Officer, our Chief Financial Officer and each of the other three most highly paid executive officers serving as of December 27, 2008 (the “Named Executive Officers”) and (v) all directors and executive officers as a group.

 

 

 

^* Represents less than 1%.

 

¹ Unless otherwise indicated, the address for each person is c/o Henry Schein, Inc., 135 Duryea Road, Melville, New York 11747.

 

² Represents (i) 4,000 shares owned directly and over which he has sole voting and dispositive power, (ii) 5,851 shares of restricted common stock, (iii) outstanding options to purchase 97,721 shares that either are exercisable or will become exercisable within 60 days and (iv) 2,095 shares of the Company held in his Non-Employee Director Deferred Compensation Plan account.

 

³ Represents (i) 12,435 shares owned directly and over which he has sole voting and dispositive power, (ii) 30,441 shares of restricted common stock, (iii) outstanding options to purchase 142,770 shares that either are exercisable or will become exercisable within 60 days and (iv) 2,649 shares of the Company held in a 401(k) Plan account.

 

⁴ Represents (i) 21,260 shares that Mr. Bergman owns directly and over which he has sole voting and dispositive power, (ii) 47,904 shares of restricted common stock, (iii) outstanding options to purchase 55,062 shares that either are exercisable or will become exercisable within 60 days, (iv) 4,108 shares of the Company held in a 401(k) Plan account, (v) 1,056,461 shares over which Marion Bergman, Mr. Bergman’s wife, and Lawrence O. Sneag have shared voting and dispositive power as co-trustees of the Stanley M. Bergman Continuing Trust dated September 15, 1994, (vi) 5,392 shares over which Mr. Bergman’s sons have shared voting and dispositive power as trustees of a trust for the benefit of a third party, wherein Mr. Bergman is the grantor and (vii) 423 shares owned indirectly by Mr. Bergman’s wife over which Mr. Bergman has shared voting and dispositive power. Mr. Bergman disclaims beneficial ownership with respect to the 5,392 shares held in trust by his sons for the benefit of a third party.

 

⁵ Represents (i) 107,517 shares owned directly and over which he has sole voting and dispositive power, (ii) 36,681 shares of restricted common stock, (iii) outstanding options to purchase 243,071 shares that either are exercisable or will become exercisable within 60 days and (iv) 3,214 shares of the Company held in a 401(k) Plan account.

 

⁶ Represents (i) 500 shares owned directly and over which he has sole voting and dispositive power and (ii) outstanding options to purchase 25,721 shares that either are exercisable or will become exercisable within 60 days.

 

⁷ Represents (i) 1,000 shares owned directly and over which she has sole voting and dispositive power, (ii) 5,851 shares of restricted common stock, (iii) outstanding options to purchase 60,721 shares that either are exercisable or will become exercisable within 60 days and (iv) 7,159 shares of the Company held in her Non-Employee Director Deferred Compensation Plan account.

 

⁸ Represents (i) 5,851 shares of restricted common stock, (ii) 2,000 shares held indirectly over which Mr. Kabat and his wife are co-trustees for the benefit of his wife and over which Mr. Kabat has shared voting and dispositive power, (iii) outstanding options

 

 

to purchase 92,721 shares that either are exercisable or will become exercisable within 60 days and (iv) 1,490 shares of the Company held in his Non-Employee Director Deferred Compensation Plan account.

 

⁹ Represents (i) 6,316 shares owned directly and over which he has sole voting and dispositive power, (ii) 30,441 shares of restricted common stock, (iii) outstanding options to purchase 150,795 shares that either are exercisable or will become exercisable within 60 days and (iv) 121 shares of the Company held in a 401(k) Plan account.

 

¹⁰ Represents (i) 5,851 shares of restricted common stock, (ii) 4,000 shares owned indirectly by Mr. Laskawy’s wife over which he has shared voting and dispositive power, (iii) outstanding options to purchase 75,721 shares that either are exercisable or will become exercisable within 60 days, and (iv) 9,083 shares of the Company held in his Non-Employee Director Deferred Compensation Plan account.

 

¹¹ Represents (i) 550 shares owned directly and over which she has sole voting and dispositive power, (ii) 2,003 shares of restricted common stock and (iii) 1,502 shares of the Company held in her Non-Employee Director Deferred Compensation Plan account.

 

¹² Represents (i) 10,000 shares owned directly and over which he has sole voting and dispositive power, (ii) 5,851 shares of restricted common stock, (iii) 9,400 shares owned indirectly by Mr. Matthews’ wife, Peter Banks and Harold Tanner as trustees of a trust for the benefit of Mr. Matthews’ wife over which he has shared voting and dispositive power, (iv) outstanding options to purchase 75,721 shares that either are exercisable or will become exercisable within 60 days and (v) 9,656 shares of the Company held in his Non-Employee Director Deferred Compensation Plan account.

 

¹³ Represents (i) 6,116 shares owned directly and over which he has sole voting and dispositive power, (ii) 30,441 shares of restricted common stock, (iii) 800 shares owned indirectly by Mr. Mlotek’s children over which he has shared voting and dispositive power, (iv) options to purchase 127,080 shares that either are exercisable or will become exercisable within 60 days and (v) 1,852 shares of the Company held in a 401(k) Plan account.

 

¹⁴ Represents (i) 18,836 shares owned directly and over which he has sole voting and dispositive power, (ii) 30,441 shares of restricted common stock, (iii) outstanding options to purchase 281,595 shares that either are exercisable or will become exercisable within 60 days and (iv) 3,105 shares of the Company held in a 401(k) Plan account.

 

¹⁵ Represents (i) 500 shares owned directly and over which he has sole voting and dispositive power, (ii) 5,851 shares of restricted common stock, (iii) outstanding options to purchase 60,221 shares that either are exercisable or will become exercisable within 60 days and (iv) 4,726 shares of the Company held in his Non-Employee Director Deferred Compensation Plan account.

 

¹⁶ The principal office of FMR LLC is 82 Devonshire Street, Boston, Massachusetts 02109. The foregoing information regarding the stock holdings of FMR LLC and its affiliates is based on an amended Schedule 13G filed by FMR LLC with the SEC on February 17, 2009.

 

¹⁷ The principal office of T. Rowe Price Associates, Inc. (“Price Associates”) is 100 East Pratt Street, Baltimore, Maryland 21202. These securities are owned by various individual and institutional investors which Price Associates serves as investment adviser with power to direct investments and/or sole power to vote the securities. For purposes of the reporting requirements of the Securities Exchange Act of 1934, as amended, Price Associates is deemed to be a beneficial owner of such securities; however, Price Associates expressly disclaims that it is, in fact, the beneficial owner of such securities. The foregoing information regarding the stock holdings of Price Associates and its affiliates is based on an amended Schedule 13G filed by Price Associates with the SEC on February 12, 2009.

 

¹⁸ Includes (i) with respect to all directors and Named Executive Officers, (a) 1,510,424 shares, directly or indirectly, beneficially owned, including restricted common stock, (b) 50,760 shares of the Company held in 401(k) Plan accounts and in Non-Employee Director Deferred Compensation Plan accounts, as applicable and (c) options to purchase 1,488,920 shares that either are exercisable or will become exercisable within 60 days; and (ii) with respect to all executive officers that are not Named Executive Officers or directors, (a) 122,325 shares, directly or indirectly, beneficially owned, including restricted common stock, (b) 6,664 shares of the Company held in 401(k) Plan accounts and (c) options to purchase 381,736 shares that either are exercisable or will become exercisable within 60 days.

 

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Our executive officers and directors are required under the Securities Exchange Act of 1934 (the “Exchange Act”) to file reports of ownership of common stock of the Company with the SEC. Copies of those reports must also be furnished to the Company. Based solely on a review of the copies of reports furnished to the Company and written representations that no other reports were required, the Company believes that during fiscal 2008 the executive officers and directors of the Company timely complied with all applicable filing requirements, except that Mr. Michael Racioppi and Mr. Benjamin each filed one late Form 4 with respect to the sale of shares of Company common stock held in their 401(k) Plan accounts, respectively, and Ms. Mashima filed one late Form 4 with respect to a grant of stock options and restricted stock awarded to her by the Company in connection with her election as a member of the Board of Directors.

 

COMPENSATION DISCUSSION AND ANALYSIS

 

Compensation Objectives and Strategy

 

The Company’s executive officer compensation program is designed to attract and retain the caliber of officers needed to ensure the Company’s continued growth and profitability and to reward them for their performance, the Company’s performance and for creating long term value for stockholders. The primary objectives of the program are to:

 

 

The Company’s executive compensation programs are approved and administered by the Compensation Committee of the Board of Directors. Working with management and outside advisors, the Compensation Committee has developed a compensation and benefits strategy that rewards performance and behaviors and reinforces a culture that the Compensation Committee believes will drive long-term success.

 

The compensation program rewards team accomplishments while promoting individual accountability. The executive officer compensation program depends, in significant measure, on Company results, but business unit results and individual accomplishments are also very important factors in determining each executive’s compensation. The Company has a robust planning and goal-setting process that is fully integrated into the compensation system, enhancing a strong relationship between individual efforts, Company results, and financial rewards.

 

A major portion of total compensation is placed at risk through annual and long-term incentives. As shown in the Summary Compensation Table, in 2008 the sum of restricted stock awards, options, non-equity incentive plan compensation (annual incentive awards), and bonus, if any, represented between 62% and 69% of the total compensation for the Named Executive Officers. The combination of incentives is designed to balance annual operating objectives and Company earnings performance with longer-term stockholder value creation.

 

We seek to provide competitive compensation that is commensurate with performance. We target compensation at the median of the market, and calibrate both annual and long-term incentive opportunities to generate less-than-median awards when goals are not fully achieved and greater-than-median awards when goals are exceeded.

 

We seek to promote a long-term commitment to the Company by our senior executives. We believe that there is great value to the Company in having a team of long-tenure, seasoned managers. Our team-focused culture and management processes are designed to foster this commitment. The vesting schedules attached to restricted stock and option awards reinforce this long-term orientation.

 

Role of the Compensation Committee

 

General

 

The Compensation Committee provides overall guidance for our executive compensation policies and determines the amounts and elements of compensation for our executive officers. The Compensation Committee’s function is more fully described in its charter which has been approved by our Board of Directors. The charter is available on our Internet website at www.henryschein.com, under the Corporate Information-Corporate Governance caption.

 

When considering decisions concerning the compensation of our executive officers, other than the Chief Executive Officer, the Compensation Committee asks for Mr. Bergman’s recommendations, including his detailed evaluation of each executive’s performance. When considering decisions concerning the compensation of our outside directors, the Compensation Committee reviews management’s recommendation before making its own determination.

Use of Outside Advisors

 

In making its determinations with respect to executive compensation, the Compensation Committee has historically engaged the services of Pearl Meyer & Partners, an independent compensation consultant. In addition, the Compensation Committee annually reviews competitive compensation data prepared by Towers Perrin, an independent human resources consulting firm which provides a number of services to the Company.

 

Compensation Structure

 

Pay Elements – Overview

 

The Company utilizes four main components of compensation:

 

 

Pay Elements – Details

 

Base Salary

 

The Compensation Committee annually reviews executive officer salaries and makes adjustments as warranted based on individual responsibilities and performance, Company performance in light of market conditions and competitive practice. Salary adjustments are generally approved and implemented during the first quarter of the calendar year. For 2008, salary adjustments for the Named Executive Officers were as follows: Mr. Breslawki from $535,613 to $600,000, Mr. Paladino from $416,665 to $475,000, Mr. Mlotek from $412,738 to $475,000, Mr. Komaroff from $414,235 to $475,000 and Mr. Bergman from $1,035,000 to $1,150,000. In determining 2008 compensation for the Named Executive Officers, the Compensation Committee reviewed two competitive compensation analyses prepared by Towers Perrin (an analysis of competitive data for companies with revenues between $4 billion and $8 billion and a peer group analysis). (See “Pay Levels and Benchmarking” set forth below for a list of the peer group members.) Based on such review, the Compensation Committee determined that the Named Executive Officers’ total direct compensation (base salary, annual incentive compensation and equity-based awards) was below the median (the target at which the Compensation Committee sets executive officers’ total direct compensation). The Compensation Committee therefore made an adjustment to the Named Executive Officers’ base salaries to bring 2008 base salaries and 2008 total direct compensation in line with the median of the competitive market. In January 2009, in light of current economic conditions, the Company announced a salary freeze for all employees (except in connection with certain promotions and contractual obligations), including the Named Executive Officers, for the fiscal year 2009. (See “Compensation Structure—Pay Elements Details—Changes in Pay Elements for 2009”.)

 

Annual Incentive Compensation

 

Annual incentive compensation for each of the Company’s executive officers is paid under the Performance Incentive Plan (“PIP”) for such year. The components of the PIP are designed to reward the achievement of pre-established corporate, business unit and individual performance goals. At the beginning of each year, the Chief Executive Officer recommends to the Compensation Committee which executive officers should participate in the PIP for that year and, following review and approval by the Compensation Committee, such officers are notified of their participation. The Chief Executive Officer recommends to the Compensation Committee the PIP’s performance goals and target payout for executive officers (other than himself), subject to the Compensation Committee’s review and approval, and determines such goals and target payout for participants who are not executive officers.

PIP awards for 2008 performance for the Named Executive Officers were established at the beginning of 2008. For the Named Executive Officers (other than Mr. Bergman), the performance goals under the 2008 PIP were based on (i) the Company’s 2008 earnings per share measured against pre-established standards, as may be adjusted pursuant to the terms of the 2008 PIP (the “2008 EPS Target”), (ii) achievement of financial goals in their respective business units (“Business Financial Goal”) and (iii) achievement of individual objectives (“Individual Performance Goal”). In adjusting the Named Executive Officers’ total direct compensation to bring it in line with the median of the competitive market (the target at which the Compensation Committee sets executive officers’ total direct compensation), the target awards under the 2008 PIP as a percentage of 2008 base salary for the Named Executive Officers (other than Mr. Bergman) increased by an average of 6% over target awards under the 2007 PIP as a percentage of 2007 base salary.

 

The weight (as a percentage of the PIP target payout) for each component of the PIP awards for Messrs. Breslawski, Komaroff, Paladino and Mlotek are as follows:

 

 

In March 2008, the Compensation Committee set the 2008 EPS Target at $2.96, representing the target goal designed to result in a PIP award payout equal to 100%. Pursuant to the 2008 PIP, the Compensation Committee may (i) adjust the PIP goals for acquisitions and new business ventures not initially considered when developing the target, (ii) exclude from the calculation of the 2008 EPS items of gain, loss or expense related to the disposal of a business or discontinued operations, capital transactions undertaken by the Company during the fiscal year, the Company’s repurchase of any class of its securities during the fiscal year or changes in accounting principles or changes in applicable law or regulations and (iii) adjust the EPS target for items resulting from unforeseen events or facts and circumstances outside the Company’s control and may take into account the quality of earnings and/or circumstances of achievement when determining awards. Also, the Compensation Committee or the CEO (solely with respect to non-executive officers) may award all or a portion of a PIP award (i) upon the attainment of any goals (including the applicable predefined goals) or (ii) regardless of whether the applicable predefined goals are attained. To account for the impact of the Company’s stock buyback program, acquisitions and certain capital transactions that occurred in 2008, the Compensation Committee increased the 2008 EPS Target from $2.96 to $3.00. Our 2008 EPS from continuing operations was $2.75, which included the effects of an $0.18 per share charge the Company incurred in 2008 for restructuring costs. The Compensation Committee considered this charge when evaluating whether the 2008 EPS target was achieved and adjusted EPS from continuing operations to $2.93, which resulted in a payout of 95% of PIP target based on a pre-established weighted formula set by the Compensation Committee under the 2008 PIP.

 

The Compensation Committee believes that the Business Financial Goal and Individual Performance Goal are designed to motivate management to achieve challenging, but attainable goals for talented executives. Achievement of these targets is substantially uncertain at the time such targets are established. The Compensation Committee sets the targets for PIP awards such that incentive compensation is paid at less-than-median of the market awards when Business Financial Goal or Individual Performance Goal are not fully achieved and greater-than-median awards when goals are exceeded.

 

During the first quarter of 2009, the Chief Executive Officer reviewed the relevant financial and operating performance achievements of the Company and its business units, as well as the individual performance of the participating officers, against the PIP performance goals that had been previously established, and submitted proposed PIP awards for the participating officers (other than the executive officers) to the Compensation Committee for approval. The total PIP payments for 2008 for the Named Executive Officers, other than

Mr. Bergman, averaged 87% of salary, a decrease of 41% over the prior year. There were no discretionary amounts paid under the PIP awards in 2008 for the Named Executive Officers.

 

PIP awards for the Named Executive Officers appear in the Summary Compensation Table in the column captioned “Non-Equity Incentive Plan Compensation.”

 

Mr. Bergman’s annual incentive award is based on pre-established performance goals set under the Company’s Section 162(m) Cash Bonus Plan and the PIP. Mr. Bergman’s 2008 award under the Section 162(m) Cash Bonus Plan was based on the Company’s 2008 EPS Target (weighted at 75% of his total award under both plans) and the average performance of the Company’s other executive officers with respect to their Business Financial Goal (weighted at 121/2% of his total award under both plans). Mr. Bergman’s 2008 award under the PIP was based on the average performance for Individual Performance Goal of the Company’s other executive officers (weighted at 121/2% of his total award under both plans).

 

The Compensation Committee determined that Mr. Bergman was eligible for a bonus under the Company’s Section 162(m) Cash Bonus Plan equal to $1,426,144 with respect to 2008 performance. In making its bonus determination, the Compensation Committee certified the achievement of the 2008 performance goals that were set in March 2008 and evaluated the Company’s 2008 EPS Target (as adjusted) and the average bonuses earned by the Company’s executive officers (including the Named Executive Officers) that related to the achievement of their objective Business Financial Goals as compared to their target bonus opportunities.

 

The Compensation Committee also determined that Mr. Bergman was eligible for a bonus under the 2008 PIP equal to $234,384 with respect to 2008 performance. In making such bonus determination, the Compensation Committee certified the achievement level of the average actual bonuses earned by the Company’s executive officers (including the Named Executive Officers) that relate to their objective Individual Performance Goals as compared to their target bonus goals. Such bonus was awarded based on the Company’s strong team-based approach and to further motivate Mr. Bergman to facilitate the individual performance of the Company’s executive officers.

 

Such achievements, under both the Section 162(m) Cash Bonus Plan and the 2008 PIP, generated a total bonus amount of $1,660,528. However, given the Company’s strong team-based approach, the Company’s general philosophy regarding executive compensation and current market conditions, Mr. Bergman suggested to the Compensation Committee that in determining his 2008 bonus it should consider reducing his bonus in line with the percentage received by the other Named Executive Officers compared with their prior year’s bonuses. (The 2008 PIP bonuses were, on average, 76% of the amounts payable to the Named Executive Officers (other than Mr. Bergman) with respect to their 2007 PIP.) The Compensation Committee considered and accepted Mr. Bergman’s proposal and reduced Mr. Bergman’s 2008 bonus to $1,400,000 (78% of the amount Mr. Bergman received with respect to his 2007 PIP). The decision to adjust the amount payable to Mr. Bergman is in no way a reflection on his performance, but instead reflects the strong team-based philosophy of management.

 

Equity-Based Awards

 

The Company and the Compensation Committee believe that equity-based awards are an important factor in aligning the long-term financial interest of the officers and stockholders. The Compensation Committee continually evaluates the use of equity-based awards and intends to continue to use such awards in the future as part of designing and administering the Company’s compensation program. Beginning March 2009, equity-based awards were granted solely in the form of restricted stock and restricted stock units. (See “Compensation Structure—Pay Elements Details—Changes in Pay Elements for 2009”.) In 2006, 2007 and 2008, the Compensation Committee granted equity incentives with a mix of 50% options and 50% restricted stock or restricted stock units. The stated percentages were based on value, with values for options being based on the Black-Scholes option pricing model. Prior to 2006, the Compensation Committee granted equity incentives solely in the form of options. For all option awards, the exercise price of such options has always been the grant date closing market price per share and options used time-based vesting and vested in four equal annual installments beginning on the first anniversary of the grant date, provided that no termination of service had occurred. The current method of allocating the equity-based awards solely to restricted stock and restricted stock units is designed to use fewer shares while continuing to provide long-term incentives with a strong retention component to participants. Performance-based restricted stock and restricted stock units vest 100% on the third anniversary of the grant date (three year cliff vesting) and time-based restricted stock and restricted stock

units vest 100% on the fourth anniversary of the grant date (four year cliff vesting), in each case provided that no termination of service had occurred. For all participants, other than executive officers, the restricted stock/units are allocated as 50% performance-based awards and 50% time-based awards. Mr. Bergman receives his awards of restricted stock as 100% performance-based awards. Executive officers (other than Mr. Bergman) receive 65% of their awards in the form of performance-based restricted stock and 35% of their awards in the form of time-based restricted stock. Non-employee directors receive their awards of restricted stock units as 100% time-based awards. Except with respect to new hires, all grants are issued on the date they are approved by the Compensation Committee. In the case of new hires, grants are approved by the Compensation Committee for grant on the last business day of the fiscal quarter in which such grant was approved.

 

Awards of restricted stock granted to the Named Executive Officers use performance-based vesting and vest at the end of three years if certain Company performance goals are met, provided that no termination of service has occurred (“Performance-Contingent Restricted Shares”). Performance goals are tied solely to growth of the Company’s diluted earnings per share (“EPS”). For 2006, 2007 and 2008, these performance goals were based on the Company’s long-term earnings growth objectives of earnings per share growth in the mid-teens (as a percentage) per year. For awards of performance-based restricted stock and restricted stock units granted in 2009, we continue to tie the performance goals solely to the Company’s EPS but at a lower growth rate to reflect current economic conditions. (See “Compensation Structure—Pay Elements Details—Changes in Pay Elements for 2009” for additional details.) On March 2, 2009 the performance-based restricted stock granted under the 2006 LTIP vested with an achievement of 101.75% of the EPS performance goal and a payout awarded in shares of Company common stock equal to 130.71% of the original number of shares granted and not otherwise forfeited. With respect to equity-based awards granted in 2007 and 2008, given current economic conditions and expected Company performance, it is unlikely that our executives will earn the full target awards for those years’ grants. Pursuant to the 2006, 2007 and 2008 LTIP, the Compensation Committee is required to (i) adjust the LTIP goals for acquisitions and new business ventures not initially considered when developing the target, (ii) exclude from the calculation of the 2008 EPS items of gain, loss or expense related to the disposal of a business or discontinued operations, capital transactions undertaken by the Company during the fiscal year, the Company’s repurchase of any class of its securities during the fiscal year or changes in accounting principles or changes in applicable law or regulations and (iii) adjust the EPS target for items of gain, loss or expense that are related to extraordinary, special, unusual or non-recurring items, events or circumstances affecting the Company. To account for the impact of the Company’s stock buyback program, acquisitions and various capital transactions that occurred in 2008, the Compensation Committee increased the three year EPS goal for the Performance-Based Contingent Restricted Shares granted in 2006 by 0.5%, increased the three year EPS goal for the Performance-Based Contingent Restricted Shares granted in 2007 by 0.9% and increased the three year EPS goal for the Performance-Based Contingent Restricted Shares granted in 2008 by 1.2%.

 

Other Benefits and Perquisites

 

The Company’s executive compensation program also includes other benefits and perquisites. These benefits include annual matching contributions to executive officers’ 401(k) Plan accounts, annual allocations to the Company’s Supplemental Executive Retirement Plan (“SERP”) accounts, health benefits, automobile allowances and life insurance coverage. The Company annually reviews these other benefits and perquisites and makes adjustments as warranted based on competitive practices and the Company’s performance. A portion of the administrative services provided to Mr. Bergman have been determined to be non-business related and such portion is included in his taxable income as additional compensation. In addition to the executive benefits and perquisites provided to other senior executives, Mr. Bergman is provided with use of an automobile provided by the Company. The Compensation Committee has approved these other benefits and perquisites as a reasonable component of the Company’s executive officer compensation program in light of historical and competitive practices. (See the “All Other Compensation” column in the Summary Compensation Table.)

Changes in Pay Elements for 2009

 

In response to the macro-economic challenges currently affecting the economy and its current and potential future impact on the Company, the Compensation Committee has implemented the following changes to the Company’s compensation structure effective for the fiscal year ending December 26, 2009. The Company has implemented a salary freeze for all employees (except in connection with certain promotions and contractual obligations), including the Named Executive Officers. Additionally, 2009 target bonuses for all employees, including the Named Executive Officers, have been kept consistent with 2008 target bonuses. Beginning March 2009, equity-based awards were granted solely in the form of restricted stock and restricted stock units. Allocating the equity-based awards solely to restricted stock and restricted stock units is designed to use fewer shares while continuing to provide long-term incentives with a strong retention component to participants. The allocation of performance-based and time-based restricted stock and restricted stock units has also changed for executive officers (other than Mr. Bergman). Mr. Bergman will continue to receive his awards of restricted stock as 100% performance-based awards. Executive officers (other than Mr. Bergman) will receive 65% of their awards in the form of performance-based restricted stock and 35% of their awards in the form of time-based restricted stock (as opposed to 100% of their award in the form of performance-based restricted stock). This change is to balance the fact that such executive officers no longer receive time-based stock option awards. Non-employee directors will continue to receive their awards of restricted stock units as 100% time-based awards and awards for all other participants will be a combination of 50% performance-based awards and 50% time-based awards. Additionally, in March 2009, the Compensation Committee reduced the value of the equity-based awards for all participants receiving grants under the 1994 Stock Incentive Plan, including the Named Executive Officers, by 20% compared with the value of the equity-based awards given to such individuals in fiscal 2008. The value of the equity-based awards granted to the Non-Employee Directors who receive grants under the 1996 Non-Employee Director Plan was reduced by 10% compared with the value of the equity-based awards received by the Non-Employee Directors in fiscal 2008.

 

Pay Mix

 

We utilize the particular elements of compensation described above because we believe that it provides a well-proportioned mix of secure compensation, retention value and at-risk compensation which produces short-term and long-term performance incentives and rewards without encouraging excessive risk-taking by our executive officers. By following this approach, we provide the executive a measure of security with a minimum expected level of compensation, while motivating the executive to focus on business metrics that will produce a high level of short term and long-term performance for the Company and long-term wealth creation for the executive, as well as reducing the risk of recruitment of top executive talent by competitors. The mix of metrics used for our annual incentive program (i.e., the PIP and the Section 162(m) Cash Bonus Plan) and our annual LTIP likewise provides an appropriate balance between short-term financial performance and long-term financial and stock performance.

 

For executive officers, the mix of compensation is weighted heavily toward at-risk pay (annual incentives and long-term incentives). Maintaining this pay mix results fundamentally in a pay-for-performance orientation for our executives, which is aligned with our stated compensation philosophy of providing compensation commensurate with performance, while targeting pay at approximately the 50^th percentile of the competitive market.

 

Pay Levels and Benchmarking

 

Pay levels for executive officers are determined based on a number of factors, including the individual’s roles and responsibilities within the Company, the individual’s experience and expertise, the pay levels for peers within the Company, pay levels in the marketplace for similar positions and performance of the individual and the Company as a whole. The Compensation Committee is responsible for approving pay levels for the executive officers. In determining the pay levels, the Compensation Committee considers all forms of compensation and benefits, using tools such as wealth creation tally sheets to review the total value delivered through all elements of pay.

 

The Compensation Committee assesses “competitive market” compensation using a number of sources. One of the data sources used in setting competitive market levels for the executive officers is the information publicly

disclosed by a peer group of the Company, which is reviewed annually and may change from year to year. The peer group of companies is set by the Compensation Committee and consists of companies engaged in the distribution and/or manufacturing of healthcare products or industrial equipment and supplies. With Towers Perrin’s assistance, the Compensation Committee determines the peer group of companies based on the following considerations, among other things: (i) Standard Industrial Classification or SIC codes; (ii) Global Industry Classification System or GICS; (iii) companies identified by Hoover’s, Inc. as our peer companies; (iv) companies listed as peers by our current list of peer companies and (v) company size, including, among other things size by market capitalization, revenue and number of employees. Based on such analysis, the Compensation Committee has determined the peer group of companies to be Dentsply International Inc., MSC Industrial Direct Co., Inc., Omnicare, Inc., Owens & Minor, Inc., Patterson Companies, Inc., PSS World Medical, Inc. and W.W. Grainger, Inc. The Company also reviews comparative data supplied by Towers Perrin for companies with revenues between $4 billion and $8 billion.

 

After consideration of the data collected on external competitive levels of compensation and internal relationships within the executive group, the Compensation Committee makes decisions regarding individual executives’ target total compensation goals based on the need to attract, motivate and retain an experienced and effective management team.

 

Relative to the competitive market data, the Compensation Committee generally intends that the base salary and target annual incentive compensation for each executive will be at the median of the competitive market.

 

As noted above, notwithstanding the Company’s overall pay positioning objectives, pay goals for specific individuals vary based on a number of factors such as scope of duties, tenure, institutional knowledge and/or difficulty in recruiting a new executive. Actual total compensation in a given year will vary above or below the target compensation levels based primarily on the attainment of operating goals and the creation of stockholder value.

 

Conclusion

 

The level and mix of compensation that is finally decided upon is considered within the context of both the objective data from our competitive assessment of compensation and performance, as well as discussion of the subjective factors as outlined above. The Compensation Committee believes that each of the compensation packages is within the competitive range of practices when compared to the objective comparative data even where subjective factors have influenced the compensation decisions.

 

Post Termination and Change in Control

 

The Company has entered into an employment agreement with Mr. Bergman in order to ensure his continuing employment by the Company. This agreement currently extends through December 31, 2011, and may be renewed for successive three-year periods by the Company. The Board of Directors has determined that Mr. Bergman’s long-term commitment to the Company is a valuable asset to the organization. Under the agreement, the Company will provide certain severance benefits to Mr. Bergman upon the termination of his employment both before and after a change in control and under other post termination scenarios. For example, if Mr. Bergman’s employment with us is terminated (i) by us without cause, (ii) by Mr. Bergman for good reason, (iii) as a result of his disability or (iv) as a result of a non-renewal of the employment term by us, Mr. Bergman will receive, among other things, a severance payment equal to 200% of his then annual base salary plus 200% of his average annual incentive compensation paid or payable with respect to the immediately preceding three fiscal years, and for a period of two years after termination, Mr. Bergman will also be entitled to an office and related office support and use of the Company’s car service and, at Mr. Bergman’s option, use of an automobile. If Mr. Bergman resigns within two years following a change in control of the Company for good reason or if Mr. Bergman’s employment is terminated by us without cause within two years following a change in control or during a specified period in advance of a change in control, Mr. Bergman will receive, among other things, as severance pay, in lieu of the foregoing, 300% of his then annual base salary plus 300% of his incentive compensation paid or payable with respect to whichever of the immediately preceding two fiscal years of the Company ending prior to the date of termination was higher and all unvested outstanding options and shares of restricted stock will become fully vested. Mr. Bergman shall also be entitled to an office and related office support and use of the Company’s car service and, at Mr. Bergman’s option, use of an

automobile for a period of two full years after the year of termination following a change in control. As a result of the deferred compensation rules under Section 409A of the Code, an additional cash payment will be made to Mr. Bergman in lieu of such benefits through the third anniversary of termination. These benefits are more fully described and quantified in the section entitled “Employment Agreements and Post Termination and Change in Control Arrangements” under Executive and Director Compensation.

 

The Company believes that a strong, motivated management team is essential to the best interests of the Company and its stockholders. The Company recognizes that the possibility of a change in control could arise and that such a possibility could result in the departure or distraction of members of the management team to the detriment of the Company and its stockholders. Since 2003, we have had change in control agreements with the Named Executive Officers, other than Mr. Bergman, in order to minimize employment security concerns arising in the course of negotiating and completing a significant transaction. These benefits are payable both before and after a change in control. For example, if the executive’s employment is terminated by us without cause or by the executive for good reason within two years following a change in control of the Company or within 90 days prior to a change in control or after the first public announcement of the pendency of the change in control, the executive will receive, among other things, severance pay equal to 300% of the sum of the executive’s base salary (defined to include salary plus the executive’s annual automobile allowance and the Company’s contribution to the 401(k) Plan and SERP for the year prior to the change in control) and target bonus, a pro rata annual incentive award at a target level for the year in which termination occurs, immediate vesting of all outstanding options, restricted or deferred stock awards and non-qualified retirement benefits, elimination of all restrictions on any restricted or deferred stock awards, and continued participation in all health and welfare plans for 24 months. In the event any payments to the executive as set forth above become subject to the excise tax imposed by Section 4999 of the Code, we will gross up the tax payments. These benefits to the Named Executive Officers are more fully described and quantified in the section entitled “Employment Agreements and Post Termination and Change in Control Arrangements” under Executive and Director Compensation.

 

The Company has also entered into an employment agreement with Mr. Komaroff under which benefits are payable upon the termination of his employment. For example, upon Mr. Komaroff’s death or disability, or if Mr. Komaroff’s employment with us is terminated (i) by us without cause, (ii) by Mr. Komaroff for any reason or (iii) as a result of a non-renewal of the employment term by us (through the 2009 employment term), Mr. Komaroff (or his heirs or estate) will receive, among other things, a pro rata annual incentive award for the fiscal year in which termination occurs. If Mr. Komaroff’s employment is terminated by us without cause or by Mr. Komaroff with good reason, or if we provide Mr. Komaroff with notice of non-renewal (in each case, with respect to any period prior to January 1, 2010), Mr. Komaroff will receive, as severance pay, his annual salary and his prior year’s annual incentive compensation. Such severance payment will not be due to Mr. Komaroff under the agreement for any reason after December 31, 2009. Upon Mr. Komaroff’s termination of employment for any reason, termination by us without cause, his equity-based awards will be treated as follows: (i) his termination will be treated as a retirement under our equity plans; (ii) his equity-based awards (other than stock options) will vest in full subject to satisfaction of any performance-based restrictions; and (iii) his stock options will continue to vest for 30 months following retirement (at which time all unvested stock options will vest in full) and will remain exercisable for at least three years (but not beyond the original term). If he terminates due to death or disability, to the extent provided to our senior management, his equity based awards will immediately vest in full and will remain exercisable following termination, provided that his stock options will remain exercisable for at least three years (but not beyond the original term). These benefits to Mr. Komaroff are more fully described and quantified in the section entitled “Employment Agreements and Post Termination and Change in Control Arrangements” under Executive and Director Compensation.

 

Messrs. Bergman’s and Komaroff’s employment agreements and the change in control agreements with the Named Executive Officers were amended and restated in 2008 in order to (i) address the requirements of Section 409A of the Code regarding the tax rules governing deferred compensation, (ii) extend Mr. Bergman’s employment agreement until December 31, 2011 (which extension was contemplated pursuant to the automatic extension provision that existed in the employment agreement prior to 2008) and (iii) make certain clarifying revisions to the employment agreements. At the time that we initially entered into our employment agreements with Messrs. Bergman and Komaroff and our change in control agreements with the Named Executive Officers, we

believed that it was appropriate to include a gross-up for excise taxes under Section 4999 of the Code in order to attract and retain our Named Executive Officers and to ensure that they would focus on the Company’s business without being unduly distracted by concerns about a potential change in control or their job security. As described above, we made very limited changes to these agreements in 2008 (most of which were directed to legally required changes under the deferred compensation rules under Section 409A of the Code and the extension of Mr. Bergman’s contract in a manner consistent with the pre-2008 automatic extension provision). Although we have not renegotiated our historic tax gross-up provisions with our Named Executive Officers, the Compensation Committee does not intend to extend tax gross-ups to any other employee of the Company in the future other than tax gross-ups that apply on a broad basis such as under our relocation policy.

 

Stock Ownership Policy

 

The Company believes that, to align the interests of the executive officers and directors of the Company with the stockholders of the Company, the executive officers and directors of the Company should have a financial stake in the Company. In March 2006, the Board of Directors adopted a policy requiring each executive officer to own, no later than three years from the effective date of the policy, equity in the Company equal to a minimum of three times such executive officer’s annual base salary. Each director should own, no later than three years from the effective date of the policy, equity in the Company equal to a minimum of 100% of such director’s annual retainer. Newly appointed executive officers and directors will have three years from the date of their appointment to comply with the stock ownership policy. The Board of Directors will evaluate whether exceptions should be made for any executive officer or director on whom this requirement would impose a financial hardship or for other appropriate reasons as determined by the Board of Directors. Equity includes: shares of any class of capital stock; shares of vested restricted stock; unexercised vested options; vested shares of common stock held in such executive officer’s 401(k) Plan account; warrants or rights to acquire shares of capital stock; and securities that are convertible into shares of capital stock; provided that an amount equal to at least 20% of such director’s or executive officer’s annual base salary or annual retainer, as the case may be, must be owned by such director or executive officer in the form of shares of common stock.

 

Further, as a guideline, executive officers may only sell up to one-half of the equity value above the ownership requirement.

 

As of April 6, 2009, certain of our Named Executive Officers did not comply with the three times annual base salary component of our stock ownership policy solely due to the decrease in our stock price, although using the average closing price for our common stock for 2008, these Named Executive Officers would have satisfied this requirement. The Company’s Compensation Committee and Nominating & Governance Committee recognize that compliance under the policy is highly vulnerable to current economic turmoil and abrupt changes in the stock price, and will review the structure of the policy to ensure that it continues to align the interests of executive officers and directors of the Company with the stockholders of the Company.

 

Impact of Tax and Accounting

 

As a general matter, the Compensation Committee considers the various tax and accounting implications of compensation vehicles employed by the Company.

 

When determining amounts of long-term incentive grants to executives and employees, the Compensation Committee examines the accounting cost associated with the grants. Under Statement of Financial Accounting Standards 123 (revised 2004) (“FAS 123R”), grants of options, restricted stock, restricted stock units and other share-based payments result in an accounting charge for the Company. The accounting charge is equal to the fair value of the instruments being issued. For restricted stock and restricted stock units, the cost is equal to the fair value of the stock on the date of grant multiplied by the number of shares or units granted. For options, the cost is equal to the Black-Scholes value on the date of grant multiplied by the number of shares or units granted. This expense is amortized over the requisite service period, or vesting period of the instruments. The Compensation Committee is mindful of the fact that, with respect to stock options, the accounting charge is not reversible should the stock option expire with an exercise price less than the market price, Additionally, the Compensation Committee may grant compensation that does not constitute performance-based compensation under Section 162(m) of the Code if it

considers it appropriate and in the best interest of the Company. Grants under the Company’s Section 162(m) Cash Bonus Plan, option grants and awards of performance-based restricted stock are generally intended to be performance-based under Section 162(m) of the Code; although grants under the PIP are tied to the Company’s performance, these are not intended to meet the requirements under Section 162(m).

 

Section 162(m) of the Code generally prohibits any publicly held corporation from taking a federal income tax deduction for compensation paid in excess of $1 million in any taxable year to certain Named Executive Officers. Exceptions are made for qualified performance-based compensation, among other things. It is the Compensation Committee’s policy to maximize the effectiveness of our executive compensation plans, however, the Compensation Committee reserves the right to make adjustments that may result in the payment of non-deductible compensation.

 

COMPENSATION COMMITTEE REPORT

 

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management and based on the review and discussions, the Compensation Committee recommended to the Company’s Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference into the Company’s annual report on Form 10-K.

 

THE COMPENSATION COMMITTEE

Barry J. Alperin, Chairman

Donald J. Kabat

Norman S. Matthews

 

EXECUTIVE AND DIRECTOR COMPENSATION

 

Executive Officers

 

Our executive officers and their ages and positions as of April 6, 2009 are:

 

 

The biographies for Messrs. Benjamin, Bergman, Breslawski, Mlotek and Paladino follow the table listing our directors under “Proposal 1 – Election of Directors” above. Biographies for our other executive officers are:

 

LEONARD A. DAVID has been our Senior Vice President and Chief Compliance Officer since 2006. Mr. David held the position of Vice President and Chief Compliance Officer from 2005 to 2006. Mr. David held the position of Vice President of Human Resources and Special Counsel from 1995 to 2005. Mr. David held the office of Vice President, General Counsel and Secretary from 1990 to 1995 and practiced corporate and business law for eight years prior to joining us.

 

JAMES HARDING has been our Corporate Chief Technology Officer since 2005 and Senior Vice President since 2001. Prior to holding his current position, Mr. Harding was Chief Information Officer since 2001, with primary responsibility for worldwide information technology.

 

STANLEY KOMAROFF has been our Senior Advisor since 2003. Prior to joining us, Mr. Komaroff was a partner for 35 years in the law firm of Proskauer Rose LLP, our legal counsel. He served as Chairman of that firm from 1991 to 1999.

 

MICHAEL RACIOPPI has been our Senior Vice President, Chief Merchandising Officer since 2008. Prior to holding his current position, Mr. Racioppi was President of the Medical Division from 2000 to 2008, Interim President from 1999 to 2000 and Corporate Vice President from 1994 to 2008. Mr. Racioppi served as Senior Director, Corporate Merchandising from 1992 to 1994. Before joining us in 1992, Mr. Racioppi was employed by Ketchum Distributors, Inc. as the Vice President of Purchasing and Marketing.

 

MICHAEL ZACK has been President of our International Group since 2006. Mr. Zack held the position of Senior Vice President of the International Group from 1989 to 2006. Mr. Zack was employed by Polymer Technology (a subsidiary of Bausch & Lomb) as Vice President of International Operations from 1984 to 1989 and by Gruenenthal GmbH as Manager of International Subsidiaries from 1975 to 1984.

Summary Compensation Table for Fiscal 2008, Fiscal 2007¹ and Fiscal 2006²

 

 

¹ Fiscal year ended December 29, 2007 (“fiscal 2007”).

 

² Fiscal year ended December 30, 2006 (“fiscal 2006”).

 

³ Represents, other than with respect to Mr. Bergman, that portion of the executive’s annual bonuses paid under the PIP that was awarded at the discretion of the Compensation Committee. See “Compensation Structure – Pay Elements – Details – Annual Incentive Compensation” under the Compensation Discussion and Analysis for a description of the PIP.

 

⁴ Represents restricted stock awards valued based on compensation cost of the award over the requisite service period, as described in FAS 123R. Such amount includes additional shares of performance-based restricted stock which were issued on March 2, 2009 relating to the vesting of performance-based restricted stock grants under the 2006 LTIP and excludes shares of performance-based restricted stock which we estimate will not be issued relating to the performance-based restricted stock grants under the 2007 LTIP and 2008 LTIP. The method and assumptions used to determine the compensation cost of the award over the requisite service period are discussed in Note 14 to our consolidated financial statements in our annual report on Form 10-K filed on February 24, 2009.

 

⁵ Represents options valued based on compensation cost of the award over the requisite service period, as described in FAS 123R. The method and assumptions used to determine the compensation cost of the award over the requisite service period are discussed in Note 14 to our consolidated financial statements in our annual report on Form 10-K filed on February 24, 2009.

 

⁶ Represents annual bonuses paid under the PIP, or with respect to Mr. Bergman, under the Company’s Section 162(m) Cash Bonus Plan and the PIP.

 

⁷ Represents the above-market or preferential portion of the change in value of the executive officer’s account under our SERP Plan. See “Compensation Structure – Pay Elements – Details – Other Benefits and Perquisites” under Compensation Discussion & Analysis for a description of our SERP.

 

 

⁸ Includes the following: (i) $2,550 of automobile expenses (ii) $14,772 of personal commuting expenses for personal use of Company’s car service; (iii) $148,143 for the cost of providing administrative services to Mr. Bergman; (iv) $436 for the cost of providing telephone services; (v) $2,550 as a payment to Mr. Bergman to cover the tax incurred resulting from his use of the Company provided automobile; (vi) $13,933 matching contribution under 401(k) Plan account; (vii) $7,998 excess life insurance premiums; (viii) $64,710 SERP contributions and (ix) $44,484 in legal fees in connection with the negotiation of Mr. Bergman’s employment agreement. The amount totaling $195,613 (under items (iii), (iv), (v) and (ix) above was included on Mr. Bergman’s W-2 as additional compensation for which he is responsible for paying the applicable taxes.

 

⁹ Includes the following: (i) $6,600 of automobile expenses; (ii) $154,967 for the cost of providing administrative services to Mr. Bergman; (iii) $570 for the cost of providing telephone services; (iv) $6,600 as a payment to Mr. Bergman to cover the tax incurred resulting from his use of the Company provided automobile; (v) $13,462 matching contribution under 401(k) Plan account; (vi) $7,999 excess life insurance premiums and (vii) $58,423 SERP contributions. The amount totaling $162,137 (under items (ii), (iii) and (iv) above) was included on Mr. Bergman’s W-2 as additional compensation for which he is responsible for paying the applicable taxes.

 

¹⁰ Includes the following: (i) $10,295 of automobile expenses; (ii) $149,647 for the cost of providing administrative services to Mr. Bergman; (iii) $1,421 for the cost of providing telephone services; (iv) $10,295 as a payment to Mr. Bergman to cover the tax incurred resulting from his use of the Company provided automobile; (v) $11,698 matching contribution under 401(k) Plan account; (vi) $7,922 excess life insurance premiums and (vii) $58,301 SERP contributions. The amount totaling $161,363 (under items (ii), (iii) and (iv) above) was included on Mr. Bergman’s W-2 as additional compensation for which he is responsible for paying the applicable taxes.

 

¹¹ Includes the following: (i) $18,000 automobile allowance; (ii) $6,180 matching contribution under 401(k) Plan account; (iii) $2,818 excess life insurance premiums and (iv) $33,750 SERP contribution.

 

¹² Includes the following: (i) $18,000 automobile allowance; (ii) $5,971 matching contribution under 401(k) Plan account; (iii) $2,795 excess life insurance premiums; (iv) $25,915 SERP contribution and (v) $1,969 in entertainment and travel vouchers.

 

¹³ Includes the following: (i) $18,000 automobile allowance; (ii) $5,766 matching contribution under 401(k) Plan account; (iii) $2,660 excess life insurance premiums; (iv) $25,037 SERP contribution and (v) $1,856 in entertainment and travel vouchers.

 

¹⁴ Includes the following: (i) $18,000 automobile allowance; (ii) $5,609 matching contribution under 401(k) Plan account; (iii) $2,161 excess life insurance premiums and (iv) $26,699 SERP contribution.

 

¹⁵ Includes the following: (i) $18,000 automobile allowance; (ii) $5,419 matching contribution under 401(k) Plan account; (iii) $2,143 excess life insurance premiums; (iv) $23,520 SERP contribution, (v) $2,000 as a cash award for twenty years of service with the Company and (vi) $2,258 in entertainment and travel vouchers.

 

¹⁶ Includes the following: (i) $18,000 automobile allowance; (ii) $5,236 matching contribution under 401(k) Plan account; (iii) $1,337 excess life insurance premiums; (iv) $22,724 SERP contribution and (v) $1,975 in entertainment and travel vouchers.

 

¹⁷ Includes the following: (i) $18,000 automobile allowance; (ii) $5,576 matching contribution under 401(k) Plan account; (iii) $15,336 excess life insurance premiums and (iv) $26,692 SERP contribution.

 

¹⁸ Includes the following: (i) $18,000 automobile allowance; (ii) $5,388 matching contribution under 401(k) Plan account; (iii) $15,250 excess life insurance premiums; (iv) $23,383 SERP contribution and (v) $2,398 in entertainment and travel vouchers.

 

¹⁹ Includes the following: (i) $18,000 automobile allowance; (ii) $5,193 matching contribution under 401(k) Plan account; (iii) $14,897 excess life insurance premiums; (iv) $22,540 SERP contribution and (v) $1,738 in entertainment and travel vouchers.

 

²⁰ Includes the following: (i) $18,000 automobile allowance; (ii) $5,556 matching contribution under 401(k) Plan account; (iii) $2,139 excess life insurance premiums and (iv) $26,688 SERP contribution.

 

²¹ Includes the following: (i) $18,000 automobile allowance; (ii) $5,368 matching contribution under 401(k) Plan account; (iii) $2,122 excess life insurance premiums; (iv) $23,298 SERP contribution and (v) $2,401 in entertainment and travel vouchers.

 

²² Includes the following: (i) $18,000 automobile allowance; (ii) $5,186 matching contribution under 401(k) Plan account; (iii) $2,028 excess life insurance premiums; (iv) $22,510 SERP contribution and (v) $1,975 in entertainment and travel vouchers.

Employment Agreements and Post Termination and Change in Control Arrangements

 

Chief Executive Officer

 

The Company and Stanley M. Bergman agreed to an extension of Mr. Bergman’s employment agreement by entering into an amended and restated employment agreement, dated as of December 31, 2008. The agreement, which is based on the prior employment agreement, dated as of January 1, 2003, as amended, provides for Mr. Bergman’s continued employment as our Chairman of the Board of Directors and Chief Executive Officer until December 31, 2011, subject to successive three-year extensions. Mr. Bergman’s annual base salary is set at the rate of $1,150,000 and may be increased from time to time. In addition, his employment agreement provides for incentive compensation to be determined by the Compensation Committee or the Board of Directors. See “Compensation Structure – Pay Elements – Details – Equity-Based Awards” under the Compensation Discussion and Analysis for a discussion on stock awards and option awards. See “Compensation Structure – Pay Elements – Details – Annual Incentive Compensation” under the Compensation Discussion and Analysis for a discussion on non-equity incentive plan compensation. It also provides that Mr. Bergman will be entitled to participate in all benefit, welfare, perquisite, equity or similar plans, policies and programs generally available to our senior executive officers.

 

Pursuant to his employment agreement, if Mr. Bergman’s employment with us is terminated (i) by us without cause, (ii) by Mr. Bergman for good reason, (iii) as a result of his disability or (iv) as a result of a non-renewal of the employment term by us, Mr. Bergman will receive all amounts then owed to him as salary and deferred compensation and all benefits accrued and owed to him or his beneficiaries under the then applicable benefit plans, programs and policies of the Company. In addition, Mr. Bergman will receive, as severance pay, a lump sum equal to 200% of his then annual base salary plus 200% of his average annual incentive compensation paid or payable with respect to the immediately preceding three fiscal years, and a payment equal to the account balance or accrued benefit Mr. Bergman would have been credited with under each retirement plan maintained by us if we had continued contributions until the end of the year of the termination, less his vested account balance or accrued benefits under each retirement plan. Under such circumstances, for a period of two years after termination, Mr. Bergman shall also be entitled to (i) an office comparable to that used by him prior to termination and related office support, including making available the services of one executive assistant and (ii) use of the Company’s car service and, at Mr. Bergman’s option, use of an automobile.

 

If Mr. Bergman resigns within two years following a change in control of the Company for good reason or if Mr. Bergman’s employment is terminated by us without cause within two years following a change in control or during a specified period in advance of a change in control, Mr. Bergman will receive, as severance pay, in lieu of the foregoing, 300% of his then annual base salary plus 300% of Mr. Bergman’s incentive compensation paid or payable with respect to whichever of the immediately preceding two fiscal years of the Company ending prior to the date of termination was higher, and a payment equal to the account balance or accrued benefit Mr. Bergman would have been credited with under each retirement plan maintained by us if we had continued contributions thereunder until the end of the year of the termination, less Mr. Bergman’s vested account balance or accrued benefits under each retirement plan upon a change in control, and all unvested outstanding options and shares of restricted stock shall become fully vested, except that in the case of a termination during a specified period in advance of a change in control, Mr. Bergman will receive a cash payment equal to the difference between the consideration paid in the change in control and the strike price of Mr. Bergman’s forfeited stock options as of the date of termination as provided in his employment agreement. Additionally, under such circumstances, for a period of two full years after the year of termination, Mr. Bergman shall be entitled to an office comparable to that used by him prior to termination and related office support, including making available the services of one executive assistant. In such event, Mr. Bergman is also entitled to use of the Company’s car service and, at Mr. Bergman’s option, use of an automobile for two full years after the year of termination. However, as a result of the deferred compensation rules under Section 409A of the Code, Mr. Bergman will receive a cash payment in lieu of transportation and office support benefits for the period between the end of the second calendar year following the calendar year in which Mr. Bergman’s termination occurs until the third anniversary of termination due to termination by us without cause, non-renewal of the employment term by us, Mr. Bergman’s resignation for good reason, or solely with respect to office support benefits, due to disability, in each case within two years after the date of a change in control. If any amounts owed to Mr. Bergman are subject to the excise tax imposed by Section 4999 of the Code, we will pay

Mr. Bergman an additional amount such that the amount retained by him, after reduction for such excise tax, equals the amounts owed to him prior to imposition of the excise tax.

 

Unless his employment agreement is terminated for cause or pursuant to Mr. Bergman’s voluntary resignation, we will continue the participation of Mr. Bergman and his spouse in the health and medical plans, policies and programs in effect with respect to our senior executive officers and their families after the termination or expiration of his employment agreement, with coverage for Mr. Bergman and his spouse continuing until their respective deaths except that such coverage may be provided pursuant to a fully-insured replacement policy or annual cash payments to obtain a replacement policy on a grossed-up basis. Additionally, we will provide Mr. Bergman with use of the Company’s car service and, at Mr. Bergman’s option, use of an automobile for two years after termination.

 

Mr. Bergman is subject to restrictive covenants, including non-solicitation and non-compete provisions, while he is employed by us and for specified periods of time thereafter. Pursuant to such provisions in his employment agreement, Mr. Bergman shall not, directly or indirectly, engage in any activity competitive with a material segment of the Company’s business or recruit, solicit or induce any employee of the Company to terminate their employment with the Company, during Mr. Bergman’s employment term and (i) for one year thereafter if his employment is terminated (a) by us without cause, (b) by Mr. Bergman for good reason, or (c) as a result of his disability, or (ii) until the later of (a) the second anniversary of the expiration of his employment term and (b) his termination date if such termination is by us for cause or due to Mr. Bergman terminating his employment by giving 180 days’ notice. We may, at our option, extend the initial one-year term of the non-compete described by clause (i) above for an additional year if we provide Mr. Bergman notice of such extension no later than 180 days prior to expiration of the term and we pay Mr. Bergman his annual base salary in effect on his date of termination. Mr. Bergman is also subject to confidentiality provisions.

 

No material modifications were made to Mr. Bergman’s employment agreement when it was amended and restated on December 31, 2008. Although the amendment and restatement of Mr. Bergman’s employment agreement extended the term through December 31, 2011, such extension was contemplated pursuant to the automatic extension provision that existed in the employment agreement prior to 2008.

 

Stanley Komaroff

 

The Company and Mr. Komaroff entered into an amended and restated employment agreement dated December 11, 2008 and an amended and restated change in control agreement, dated December 12, 2008, which are based on the prior agreements dated October 10, 2003 and as subsequently amended. No material modifications were made to Mr. Komaroff’s employment agreement when it was amended and restated on December 11, 2008, as the modifications included changes to address the requirements of Section 409A of the Code regarding the tax rules governing deferred compensation, clarifying that he will not be entitled to receive severance under the agreement, after December 31, 2009 and clarifying the language surrounding the treatment of his equity-based awards as described below. The change in control agreement is described below in the section entitled “Named Executive Officers Other than the Chief Executive Officer.”

 

Pursuant to his employment agreement, upon Mr. Komaroff’s death or disability, or if Mr. Komaroff’s employment with us is terminated (i) by us without cause, (ii) by Mr. Komaroff for any reason or (iii) as a result of a non-renewal of the employment term by us (through the 2009 employment term), Mr. Komaroff (or his heirs or estate) will receive (a) all amounts then owed to him as salary and deferred compensation, (b) any unpaid annual incentive compensation for the last full fiscal year prior to termination, (c) all benefits owed to him or his beneficiaries under the then applicable benefit plans, programs and policies of the Company, and (d) a pro rata annual incentive award for the fiscal year in which termination occurs. If Mr. Komaroff’s employment is terminated by us for cause, Mr. Komaroff will receive solely the amounts described in (a) and (c) above.

 

In addition to the amounts specified above, if Mr. Komaroff’s employment is terminated by us without cause or by Mr. Komaroff with good reason, or if we provide Mr. Komaroff with notice of non-renewal (in each case, with respect to any period prior to January 1, 2010), Mr. Komaroff will receive, as severance pay, his annual base salary, and his prior year’s annual incentive compensation. Such severance payment will not be due to Mr. Komaroff under the agreement for any reason after December 31, 2009.

If Mr. Komaroff terminates his employment for any reason or if he is terminated by us without cause, his equity-based awards will be treated as follows: (i) his termination will be treated as a retirement under our equity plans; (ii) his equity-based awards (other than stock options) will vest in full subject to satisfaction of any performance-based restrictions; and (iii) his stock options will continue to vest for 30 months following retirement (at which time all unvested stock options will vest in full) and will remain exercisable for at least three years (but not beyond the original term). If he terminates due to death or disability, to the extent provided to our senior management, his equity based awards will immediately vest in full and will remain exercisable following termination, provided that his stock options will remain exercisable for at least three years (but not beyond the original term).

 

Pursuant to his employment agreement, Mr. Komaroff is subject to confidentiality provisions. Additionally, during his employment, Mr. Komaroff will not (other than on behalf of the Company) in any capacity whatsoever (other than as the holder of not more than one percent of the total outstanding stock of a publicly held company) engage in any activity competitive with a material segment of the business of the Company.

 

Named Executive Officers Other than the Chief Executive Officer

 

We have entered into change in control agreements with the Named Executive Officers, other than Mr. Bergman, that provide that if the executive’s employment is terminated by us without cause or by the executive for good reason within two years following a change in control of the Company, we will pay and provide the executive with (i) the executive’s base salary (defined to include salary plus the executive’s annual automobile allowance and the Company’s contribution to the 401(k) Plan and SERP for the year prior to the change in control) through the termination date, (ii) severance pay equal to 300% of the sum of the executive’s base salary (as defined in (i)) and target bonus, (iii) a pro rata annual incentive award at a target level for the year in which termination occurs, (iv) immediate vesting of all outstanding options, restricted or deferred stock awards and non-qualified retirement benefits, (v) elimination of all restrictions on any restricted or deferred stock awards, (vi) settlement of all deferred compensation arrangements in accordance with the applicable plan and (vii) continued participation in all health and welfare plans for 24 months (provided that such coverage will terminate when the executive receives substantially equivalent coverage from a subsequent employer) at the same level of participation for each executive on the termination date, except that the health coverage may be provided pursuant to a fully-insured replacement policy or two annual cash payments to obtain a replacement policy on a grossed-up basis. Notwithstanding the foregoing, if an executive’s employment is terminated by us without cause or by the executive for good reason, in either case, (i) within 90 days prior to a change in control or (ii) after the first public announcement of the pendency of the change in control, the executive will be entitled to the benefits described above. In the event any payments to the executive become subject to the excise tax imposed by Section 4999 of the Code, we will pay the executive an additional amount such that the amount retained by the executive after reduction for such excise tax equals the amount to be paid to the executive prior to imposition of the excise tax. No material modifications were made to the change in control agreements when they were amended and restated in December, as the modifications solely addressed the requirements of Section 409A of the Code regarding the tax rules governing deferred compensation.

 

Pursuant to the change in control agreements, the Named Executive Officers, other than Mr. Bergman (who is subject to restrictive covenants under his employment agreement as opposed to a change in control agreement), are also subject to restrictive covenants, such as confidentiality and non-disparagement provisions. Additionally, during each Named Executive Officer’s employment and for a period of 24 months thereafter, each Named Executive Officer agreed that he will not, without the Company’s prior written consent, solicit our employees for employment.

Post Termination and Change in Control Calculations

 

The amounts set forth in the table below represent amounts that would have been paid to the Named Executive Officers, pursuant to their employment and change in control agreements, if such Named Executive Officers’ employment was terminated by the Company on December 26, 2008 under the various scenarios set forth below or if a change in control occurred on such date.

 

 

 

¹ Represents the value of unvested outstanding options and restricted stock that would accelerate and vest on termination. In the case of options, the value is calculated by multiplying the number of shares underlying each accelerated unvested option by the difference between the per share closing price of common stock on December 26, 2008 (the “Per Share Closing Price”) and the

 

 

per share exercise price. In the case of restricted stock, the value is calculated by multiplying the number of shares of restricted stock that accelerate by the Per Share Closing Price. The 1994 Stock Incentive Plan provides that upon a change in control without termination, a participant’s unvested outstanding options become fully vested. The value of such accelerated options for Messrs. Bergman, Breslawski, Komaroff, Paladino and Mlotek is $0 because all of the exercise prices exceeded the Per Share Closing Price.

 

² The SERP Plan provides that upon a change in control without termination, a participant’s vested SERP account balance becomes payable. Such account balances are as of December 31, 2008.

 

³ The Company will have no further obligation to Mr. Bergman, except payment of his vested SERP account balance.

 

⁴ Includes (i) payment of vested SERP account balance, (ii) the product of the annual incentive compensation payable for the last full fiscal year multiplied by a fraction of days employed over 365, (iii) 200% current annual salary, (iv) 200% average annual incentive compensation paid in the previous three years, (v) health and welfare coverage for Mr. Bergman and his wife until death and (vi) use of the Company’s car service, automobile, office space and administrative assistance provided to Mr. Bergman for two years.

 

⁵ Includes (i) payment of vested SERP account balance, (ii) the product of the annual incentive compensation payable for the last full fiscal year multiplied by a fraction of days employed over 365, (iii) 300% current annual salary, (iv) 300% of highest annual incentive compensation paid in the previous two years, (v) all unvested outstanding options and shares of restricted stock becomes fully vested, (vi) health and welfare coverage for Mr. Bergman and his wife until death, (vii) use of the Company’s car service, automobile, office space and administrative assistance for three years and (viii) gross-up of IRC Section 4999 excise tax at the actual marginal tax rate.

 

⁶ Includes (i) payment of vested SERP account balance, (ii) the product of the annual incentive compensation payable for the last full fiscal year multiplied by a fraction of days employed over 365 and (iii) health and welfare coverage for Mr. Bergman’s wife until death.

 

⁷ The Company will have no further obligation to Mr. Komaroff, except payment of his vested SERP account balance.

 

⁸ Includes (i) payment of vested SERP account balance, (ii) the product of the annual incentive award payable for the year in which termination occurs multiplied by a fraction of days employed over 365, (iii) all equity-based awards (other than stock options) become fully vested, subject to satisfaction of any performance-based restrictions and (iv) all unvested options continue to vest for two and a half years after termination upon which time they will fully vest.

 

⁹ Includes (i) payment of vested SERP account balance, (ii) the product of the annual incentive award payable for the year in which termination occurs multiplied by a fraction of days employed over 365, (iii) current annual salary, (iv) prior year’s annual incentive compensation, (v) all equity-based awards (other than stock options) become fully vested, subject to satisfaction of any performance-based restrictions and (vi) all unvested options continue to vest for two and a half years after termination upon which time they will fully vest.

 

¹⁰ Includes (i) the product of the annual incentive compensation at target level in year of termination multiplied by a fraction of days employed over 365, (ii) 300% current annual salary (defined to include salary plus the executive’s annual automobile allowance and the Company’s contribution to the 401(k) Plan and SERP plan for the full year preceding the change in control), (iii) 300% annual incentive compensation at target level in year of termination, (iv) all unvested outstanding options and shares of restricted stock become fully vested, (v) health and welfare continuation of plans for 24 months following termination or until coverage with subsequent employer begins, (vi) payment of vested SERP account balance and (vii) gross-up of IRC Section 4999 excise tax at actual marginal tax rate.

Other Information Related to Summary Compensation Table

 

Stock Awards and Option Awards

 

See “Compensation Structure – Pay Elements – Details – Equity – Based Awards” under the Compensation Discussion and Analysis for a discussion on stock awards and option awards.

 

Non-Equity Incentive Plan Compensation

 

See “Compensation Structure – Pay Elements – Details – Annual Incentive Compensation” under the Compensation Discussion and Analysis for a discussion on non-equity incentive plan compensation.

 

Change in Pension Value and Non-Qualified Deferred Compensation Earnings

 

For employees of the Company, including Named Executive Officers, we do not maintain a qualified defined benefit plan.

 

We maintain a Supplemental Executive Retirement Plan for certain eligible participants who are not able to receive the full Company matching contribution under our 401(k) Plan due to certain limits. The SERP provides for various vesting schedules based on the timing of the contribution. Vesting will also occur upon a participant’s death, disability or attainment of age 65 or upon a change in control, in each case, while employed. Investment return on the contributions is generally equal to the earnings and losses that would occur if 40% of the contributions were invested in the Company stock fund under our 401(k) Plan and 60% were invested in the other investment alternatives available under our 401(k) Plan. A participant’s vested SERP benefit is paid following a termination of employment (subject to a six month delay in certain instances) or a change in control.

 

All Other Compensation

 

See “Compensation Structure – Pay Elements – Details – Other Benefits and Perquisites” under the Compensation Discussion and Analysis for a discussion on all other compensation.

Grants of Plan-Based Awards for Fiscal 2008

 

 

¹ “PIP” means annual bonuses paid under the Company’s 2007 PIP. “162(m)” means annual bonuses paid under the Company’s Section 162(m) Cash Bonus Plan. “RS” means performance-based restricted stock awards made pursuant to the Company’s 1994 Stock Incentive Plan. “SO” means time-based options awards made pursuant to the Company’s 1994 Stock Incentive Plan. See “Compensation Structure – Pay Elements – Details – Annual Incentive Compensation” under the Compensation Discussion and Analysis for a discussion on the PIP and the Section 162(m) Cash Bonus Plan.

 

² The 2008 LTIP provides that EPS results above target generate additional payouts and the award potential is uncapped.

 

³ None of the Named Executive Officers were awarded time-based restricted stock in Fiscal 2008.

 

⁴ Time-based option awards made pursuant to the Company’s 1994 Stock Incentive Plan.

 

⁵ These amounts are valued based on the aggregate grant date fair value of the award determined in accordance with FAS 123R. The method and assumptions used to determine the compensation cost of the award over the requisite service period are discussed in Note 14 to our consolidated financial statements in our annual report on Form 10-K filed on February 24, 2009. The amounts reflect the accounting expense for these awards and do not correspond to actual value that may be recognized by such persons with respect to these awards. Such number excludes shares of performance-based restricted stock which we estimate will not be issued relating to the performance-based restricted stock grant under the 2008 LTIP.

 

Estimated Potential Payouts Under Non-Equity Incentive Plan Awards

 

The PIP awards paid to the Named Executive Officers appear in the Summary Compensation Table in the column captioned “Non-Equity Incentive Plan Compensation.” The threshold, target and maximum amount of these PIP awards appear in the Grants of Plan-Based Awards Table in the column captioned “Estimated Future Payouts Under Non-Equity Incentive Plan Awards.”

 

Estimated Future Payouts Under Equity Incentive Plan Awards, All Other Stock Awards and All Other Option Awards

 

Awards of the Performance-Contingent Restricted Shares and option awards paid to the Named Executive Officers appear in the Summary Compensation Table in the columns captioned “Stock Awards” and “Option Awards.” We did not grant Named Executive Officers time-based restricted stock in fiscal 2008.

 

The threshold, target and maximum amount of the Performance-Contingent Restricted Shares appear in the Grants of Plan-Based Awards Table in the column captioned “Estimated Future Payouts Under Equity Incentive Plan Awards.”

 

Exercise or Base Price of Option Awards

 

See “Compensation Structure – Pay Elements – Details – Equity-Based Awards” under the Compensation Discussion and Analysis for a discussion on the exercise price of option awards.

Outstanding Equity Awards at 2008 Fiscal Year-End