Performance Share Unit Terms Under the Merck & Co., Inc. 2004 Incentive Stock Plan

     
 
 
   

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Exhibit 10.1

PERFORMANCE SHARE UNIT TERMS UNDER THE
MERCK & CO., INC. 2004 INCENTIVE STOCK PLAN

Except as otherwise indicated in this schedule, the terms of Performance Shares granted under thisSchedule are the same as those described in the Rules and Regulations. Except as defined below,defined terms under this Schedule are the same as under the Rules and Regulations.

I. Definitions For the purpose of this Schedule:

“Award Period” shall mean three years, with the first Award Period commencing on January 1,2004 and ending December 31, 2006. The next Award Period also shall be three years,commencing January 1, 2005.

“Final Award Percentage” for each Award Period shall mean the percentage of Target describedin Article IV.

“Grant Date” shall mean the date a Performance Share Award is granted, and shall not belater than 90 days after the beginning of an Award Period with respect to that Award Period.

“Leading Healthcare Peers” shall mean the group of healthcare companies used by the Board ofDirectors in evaluating the Company’s annual performance for that year.

“Leading Healthcare Peers Earnings Per Share” for a Year shall mean the change in EarningsPer Share for each Leading Healthcare Peer from the prior year using the same methodapplicable to the Board’s evaluation of the Company’s annual performance; provided, however,that the calculation shall be as of the most reasonably practicable date prior to the dateon which the Earnings Per Share is calculated.

“Performance Award Grantee” shall mean an Eligible Employee who receives a Performance ShareAward as described in Article II.

“Performance Share Award” shall mean an award of Performance Shares as described in thisSchedule.

“Performance Measure” shall mean the change in the Company’s Earnings Per Share for a Yearand each Leading Healthcare Peers Earnings Per Share for the same Year to the extent datafor the same Year is available.

“Performance Share” shall mean a phantom share of Merck Common Stock. Until distributedpursuant to Article VII, Performance Shares shall not entitle the holder to any of therights of a holder of Merck Common Stock; provided, however, that the Committee retains theright to make adjustments in the case of a corporate restructuring as described in Section 6of the ISP.

“Target Shares” shall mean the number of Performance Shares that will be distributable ifthe Performance Measures are achieved at the 6th of 12 Final Ranks as describedin Article IV.

“Year” means calendar year.

II. Eligibility

Each Eligible Employee who also is a Grade 1 or Grade 2 employee on the Grant Date iseligible to receive Performance Shares if the Committee, in its sole and non-reviewablediscretion, designates him or her to receive a Performance Share Award (“Performance AwardGrantee”).

III. Establishment of Targets

The Committee, in its sole and non-reviewable discretion, shall determine the Target Sharesfor each Performance Share Award for each Performance Award Grantee.

IV. Determination of Performance Share Awards

The Committee expects that there will be 11 Leading Healthcare Peers for each Award Period.

For each Year, the Performance Measure shall be calculated for the Company and each LeadingHealthcare Peer. Each Leading Healthcare Peer and the Company shall then be assigned a rank(“Rank”) from one to 12, highest to lowest Performance Measure, as appropriate.

After the end of the Award Period, the Ranks of each Leading Healthcare Peer and the Companyfor all Years within the Award Period shall be averaged, and the averages shall then beranked (the “Final Rank”) from one (the highest rank) to 12 (the lowest rank), asappropriate.

The Final Award Percentage shall be the following percentage of Target Shares based on theCompany’s Final Rank for an Award Period.

                                                                                         
1
    2       3       4       5       6       7       8       9       10       11       12  
 
                                                                                       
 
                                                                                       
200%
    180 %     160 %     140 %     120 %     100 %     80 %     60 %     40 %     0 %     0 %     0 %
 
                                                                                       

If at any time the number of Leading Healthcare Peers is not 11, the Committee intends toadjust the above schedule appropriately to retain a similar range of Performance Share Awardopportunities with a maximum Final Award Percentage of 200% and a minimum of 0%. TheCommittee also intends that, in case of multiple changes in the Leading Healthcare Peergroup during an Award Period, replacement companies shall be substituted based on thesubstitutes’ market capitalization relative to the other Leading Healthcare Peer group.

Notwithstanding the above, for the Award Period commencing January 1, 2005 and endingDecember 31, 2007 (the “Special Award Period”), the Rank of the Company with respect to thefirst Year only shall not be based on a comparison to the Leading Healthcare Peers EarningsPer Share but instead be based on the Company’s earnings per share against business plan.[Pre-determined targets established by Company omitted.]

The Rank of each Leading Healthcare Peer for the first Year of the Special Award Periodshall be determined using the Performance Measure except that each Leading Healthcare Peerwith a Rank that is equal to or lower than the Company’s Rank for the first Year willinstead assume a Rank that is one Rank lower than its Rank using the Performance Measure.[Reference to pre-determined targets established by Company omitted.] All LeadingHealthcare Peers with Ranks from one to five for the first Year using the PerformanceMeasure will retain their Ranks; the Leading Healthcare Peers with Ranks from six to 11 willinstead assume Ranks from seven to 12, respectively. The Company intends that grants bedeductible by the Company under Section 162(m) of the Internal Revenue Code and reserves theright to make such adjustments as may be required to comply with Section 162(m).

V. Dividends

Dividends shall not be paid, accrued or accumulated on Performance Shares during the AwardPeriod.

VI. Termination of Employment

A. General Rule. Upon the termination of the employment of a Performance Award Grantee forany reason other than those specified in paragraphs B through F of this Article (includingbut not limited to voluntary or involuntary resignation, or failure or refusal to acceptrelocation or reassignment within the Company or employment with a Joint Venture), any FinalAward shall be distributed to the Performance Award Grantee with respect to any Award Periodthat was completed prior to the employment termination. All other Performance Share Awardsshall expire and be forfeited in their entirety at the end of the last day of employment.Failure to satisfy each and every condition described in paragraphs B through F (in theCommittee’s determination) shall render a Performance Share Award subject to this paragraphA upon termination of employment.

B. Separation. If a Performance Award Grantee’s employment is terminated at an employer’sinitiative (as determined by the Company or Joint Venture in its sole discretion) due tolack of work because, for example, the Company eliminates the Performance Award Grantee’sjob or divests itself of a business resulting in his/her loss of employment with theCompany, then the Performance Award Grantee shall be considered “Separated.” In case ofSeparated Performance Award Grantees, with respect to any Award Period completed prior tothe employment termination, the Final Award shall be distributed at the time activePerformance Award Grantees receive such distributions. With respect to any otherPerformance Share Award, the Final Award shall be multiplied by a fraction, the numerator ofwhich is the number of completed months in the Award Period during which the PerformanceAward Grantee was employed by the Company or Joint Venture, and the denominator of which is36. Such pro rata amount shall be distributed at the time active Performance Award Granteesreceive such distributions with respect to that Award Period.

C. Retirement. Upon a Performance Award Grantee’s retirement (including early anddisability retirement):

Performance Share Awards granted in 2004 shall continue and be distributable inaccordance with their terms as if employment had continued; such Performance Share Awardsshall be distributed at the time active Performance Award Grantees receive suchdistributions with respect to that Award Period.

Performance Share Awards granted in 2005 and later: Performance Share Awards grantedless than six months prior to such retirement date shall expire and be forfeited in theirentirety at the end of the last day of employment. Performance Share Awards granted atleast six months prior to such retirement date shall be distributable on a pro rata basis atthe time active Performance Award Grantees receive such distributions with respect to thatAward Period; the pro rata portion shall be determined by multiplying the Final Award by afraction, the numerator of which is the number of completed months in the Award Periodduring which the Performance Award Grantee was employed by the Company or Joint Venture, andthe denominator of which is 36.

D. Death. Upon a Performance Award Grantee’s death, any Final Award shall be distributed tothe Performance Award Grantee with respect to any Award Period that was completed prior tothe Performance Award Grantee’s death. All other Performance Share Awards shall assume aTarget Shares payout and be multiplied by a fraction, the numerator of which is the numberof completed months in the Award Period during which the Performance Award Grantee wasalive, and the denominator of which is 36. Such amount shall be distributed as soon asadministratively practicable following the date of death.

E. Gross Misconduct. If the employment of a Performance Award Grantee is terminated fordeliberate, willful or gross misconduct, all Performance Share Awards, including but notlimited to those for which the Award Period has ended, shall immediately be forfeited.

F. Joint Venture Service. For the purposes of this Article, notwithstanding a PerformanceAward Grantee’s termination of employment with the Company, if he or she assumes and retainsa position in a Joint Venture in accordance with this paragraph, employment with the JointVenture will be treated as if it were employment with the Company. To qualify for thisparagraph, (i) a Performance Award Grantee must transfer employment directly from theCompany to the Joint Venture without an intervening break in employment, (ii) thePerformance Award Grantee’s transfer to the Joint Venture must be made with the input andapproval of his/her senior management and a representative of the Company’s Corporate HumanResources department and (iii) the Company’s Corporate Human Resources representative and asimilar representative from the Joint Venture must agree that the transfer meets thebusiness needs of the Company and the Joint Venture.

Where a Performance Award Grantee transfers employment from a Joint Venture to the Company,employment will be treated as if it continued with the Company if (i) the Performance AwardGrantee transfers employment directly from the Joint Venture to the Company without anintervening break in employment, and (ii) the Company’s Corporate Human Resourcesrepresentative and a similar representative from the Joint Venture agree that the transfermeets the business needs of the Company and the Joint Venture.

This paragraph does not apply to a transfer of employment to the Joint Venture’s parent orother affiliate unless that entity is within the Company’s controlled group of entities.

VII. Distribution of Performance Shares

A. General Rule. Following the end of an Award Period, each Performance Award Grantee shallbe entitled to receive a number of shares of Merck Common stock equal to the Target Sharestimes the Final Award Percentage, rounded down to the nearest whole number (no fractional shares shall be issued). Prior to distribution, the Performance Award Grantee shall deliverto the Company an amount the Company determines sufficient to satisfy any amount required towithheld, include applicable taxes. The Committee, in its discretion, may permit PerformanceAward Grantee to elect to direct the Company to withhold any applicable taxes directly froma Performance Share Award before it is denominated in actual shares of Merck Common Stock.Moreover, the Committee may permit the Performance Award Grantee to defer the value of aPerformance Share Award into the Merck & Co., Inc. Deferral Program (the “Deferral Program”)or such other Company-sponsored deferral program; provided, however, the Committee intendsthat any such deferral shall for so long as it remains within the Deferral Program belimited to investment denominated as Merck Common Stock and ultimately distributed as such.An election to defer a Performance Share Award into the Deferral Program shall be made inaccordance with rules applicable to the Deferral Program.

B. Death. In the case of distribution on account of a Performance Award Grantee’s death,the portion of the Performance Share Award distributable shall be distributed to thePerformance Award Grantee’s estate. Prior to distribution, the Company shall receive fromthe Performance Award Grantee’s representative or estate an amount, if any, the Companydetermines sufficient to satisfy any amount required to be withheld, include applicabletaxes. The Committee in its discretion may provide that the Company will withhold anyapplicable taxes directly from a Performance Award before it is denominated in actual sharesof Merck Common Stock.

VIII. Transferability

Prior to distribution pursuant to Article VII, Performance Share Awards shall not betransferable, assignable or alienable except according to the laws of descent ordistribution following a Performance Award Grantee’s death.

IX. Administrative Powers

In addition to the Committee’s powers set forth in the Incentive Stock Plan, anything inthis Schedule to the contrary notwithstanding, with respect to any Performance Share Awardnot intended to constitute “performance-based compensation” under Section 162(m) of theCode, the Committee may revise the terms of any Performance Share Award not yet granted orgranted but prior to the end of an Award Period if unforeseen events occur and which, in thejudgment of the Committee, make the application of original terms of this Schedule or thePerformance Share Award unfair and contrary to the intentions of this Schedule unless arevision is made.

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