Exhibit 10.2
Medco Health Solutions, Inc.
2002 STOCK INCENTIVE PLAN
As amended and restated
May 15, 2003 and March 14, 2011
and approved by shareholders
on May 31, 2005 and May 24, 2011

 

 

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2002 STOCK INCENTIVE PLAN
(As amended and restated May 15, 2003 and March 14, 2011 and approved by
shareholders on
May 31, 2005 and May 24, 2011)
1. Purpose
The 2002 Stock Incentive Plan (the “Plan”), effective June 17, 2002 is
established to encourage employees of Medco Health Solutions, Inc. (the
“Company”), its parent, if any, its subsidiaries, its affiliates and its joint
ventures to acquire Common Stock in the Company (“Common Stock”). It is believed
that the Plan will serve the interests of the Company and its stockholders
because it allows employees to have a greater personal financial interest in the
Company through ownership of, or the right to acquire its Common Stock, which in
turn will stimulate employees’ efforts on the Company’s behalf, and maintain and
strengthen their desire to remain with the Company or one of its related
entities. It is believed that the Plan will also assist in the recruitment of
employees.
2. Administration
The Plan shall be administered by the Compensation Committee of the Board of
Directors of the Company (the “Committee”). A Director of the Company may serve
on the Committee only if he or she (i) is a “Non-Employee Director” for purposes
of Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), and (ii) satisfies the requirements of an “outside director”
for purposes of Section 162(m) of the Internal Revenue Code (the “Code”). The
Committee shall be responsible for the administration of the Plan including,
without limitation, determining which Eligible Persons receive Incentives, the
types of Incentives they receive under the Plan, the number of shares covered by
Incentives granted under the Plan, and the other terms and conditions of such
Incentives. Determinations by the Committee under the Plan including, without
limitation, determinations of the Eligible Persons, the form, amount and timing
of Incentives, the terms and provisions of Incentives and the writings
evidencing Incentives, need not be uniform and may be made selectively among
Eligible Persons who receive, or are eligible to receive, Incentives hereunder,
whether or not such Eligible Persons are similarly situated.
The Committee shall have the responsibility of construing and interpreting the
Plan, including the right to construe disputed or doubtful Plan provisions, and
of establishing, amending and construing such rules and regulations as it may
deem necessary or desirable for the proper administration of the Plan including
adopting sub-plans and special rules to facilitate compliance or achieve
desirable tax results or other Company objectives for grants made to employees
outside the U.S. and to determine the consequences of termination of employment
or other relationships for grants made to non-employee directors, independent
contractors, leased employees or consultants when the grants are made. In
addition, as to any Performance Share Award not intended to constitute
“performance-based compensation” under Section 162(m) of the Code, at any time
prior to the end of an Award Period (as defined in Section 9), the Committee may
revise the Performance Goals and the computation of payment if unforeseen events
occur which have a substantial effect on the performance of the Company, its
parent, subsidiary, division, affiliate or joint venture of the Company and
which, in the judgment of the Committee, make the application of the Performance
Goals (as defined in Section 9) unfair (as determined in the sole discretion of
the Committee) unless a revision is made. Any decision or action taken or to be
taken by the Committee, arising out of or in connection with the construction,
administration, interpretation and effect of the Plan and of its rules and
regulations, shall, to the maximum extent permitted by applicable law, be within
its absolute discretion (except as otherwise specifically provided herein) and
shall be final, binding and conclusive upon the Company, all Eligible Persons
and any person claiming under or through any Eligible Person.
The Committee may delegate any or all of its power and authority hereunder to
the Chief Executive Officer or President and such other officers as the
Committee deems appropriate; provided, however, that the Committee may not
delegate its authority with regard to (i) any matter or action affecting an
officer subject to Section 16 of the Exchange Act; (ii) any matter related to
Incentives intended to be qualified under Section 162(m) of the Code; or
(iii) any matter or action related to grants of Incentives to Non-Employee
Directors.
For the purpose of this section and all subsequent sections, the Plan shall be
deemed to include this Plan and any sub-plans which, in the aggregate, shall
constitute one Plan governed by the terms set forth herein.

 

 

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3. Eligibility
(a) Employees. Any person employed by the Company, its parent, if any, or its
subsidiaries, its affiliates and its joint ventures, including officers, whether
or not directors of the Company, and employees of a joint venture partner or
affiliate of the Company who provide services to the joint venture with such
partner or affiliate (each such person, an “Employee”), shall be eligible to
participate in the Plan if designated by the Committee (“Eligible Persons”).
(b) Non-employees. The term “Employee” shall not include a non-employee director
or a person hired as an independent contractor, leased employee or consultant,
provided, however, that the Committee may determine that any such person is
eligible to receive Incentives under the Plan (and, if such a determination is
made as to any such person, such person shall be an Eligible Person under the
Plan). Such person shall not participate in this Plan except to the extent that
the Committee so determines, even if such person is subsequently determined to
be an “employee” by any governmental or judicial authority.
(c) No Right To Continued Employment. Nothing in the Plan shall interfere with
or limit in any way the right of the Company, its parent, its subsidiaries, its
affiliates or its joint ventures to terminate the employment of any participant
at any time, nor confer upon any participant the right to continue in the employ
of the Company, its parent, its subsidiaries, its affiliates or its joint
ventures. No Eligible Person shall have a right to receive an Incentive or any
other benefit under this Plan or having been granted an Incentive or other
benefit, to receive any additional Incentive or other benefit. Neither the award
of an Incentive nor any benefits arising under such Incentives shall constitute
an employment contract with the Company, its parent, its subsidiaries, its
affiliates or its joint ventures, and accordingly, this Plan and the benefits
hereunder may be terminated at any time in the sole and exclusive discretion of
the Company without giving rise to liability on the part of the Company, its
parent, its subsidiaries, its affiliates or its joint ventures for severance
(except as otherwise required under applicable local law). Except as may be
otherwise specifically stated in any other employee benefit plan, policy or
program, or as required under applicable local law, neither any Incentive under
this Plan nor any amount realized from any such Incentive shall be treated as
compensation for any purposes of calculating an employee’s benefit under any
such plan, policy or program.
4. Term of the Plan
This Plan was effective on June 17, 2002 and originally approved by shareholders
on July 21, 2003. The Plan is being extended pursuant to the amendments and
restatements made on March 14, 2011 such that no Incentive shall be granted
under the Plan after May 24, 2021, but the term and exercise of Incentives
granted theretofore may extend beyond that date.

 

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5. Incentives
(a) Types of Incentives. Incentives under the Plan may be granted in any one or
a combination of (i) Incentive Stock Options; (ii) Nonqualified Stock Options;
(iii) Stock Appreciation Rights; (iv) Restricted Stock Grants, (v) Performance
Shares, (vi) Share Awards and (vii) Phantom Stock Awards (Incentive Stock
Options and Nonqualified Stock Options shall be referred to collectively as
“Stock Options” and together with Restricted Stock Grants, Performance Shares,
Share Awards and Phantom Stock Awards shall be referred to collectively as
“Incentives”) Incentives other than Stock Options and Stock Appreciation Rights
are “Full Value Awards.” All Incentives shall be subject to the terms and
conditions set forth herein and to such other terms and conditions as may be
established by the Committee.
(b) No Repricing. Except in connection with a corporate transaction involving
the company (including, without limitation, any stock dividend, stock split,
extraordinary cash dividend, recapitalization, reorganization, merger,
consolidation, split-up, spin-off, combination, or exchange of shares), the
terms of outstanding awards may not be amended to reduce the option price of
outstanding Stock Options or Stock Appreciation Rights or cancel outstanding
Stock Options or in exchange for cash, other awards or Stock Options or with an
option price that is less than the option price of the original Stock Options or
Stock Appreciation Rights without stockholder approval.
6. Shares Available for Incentives
(a) Shares Available. Subject to the provisions of Section 6(c), the maximum
number of shares of Common Stock of the Company that may be issued under the
Plan as of December 31, 2010 is twenty-nine million, four hundred sixty-five
thousand, three hundred eighteen (29,465,318) which includes twelve million,
sixty-five thousand, three hundred eighteen (12,065,318) shares remaining from
the original fifty-four million (54,000,000) shares that were approved by
shareholders on May 31, 2005 and an additional seventeen million, four hundred
thousand (17,400,000) shares added in connection with the amendment and
restatement of the Plan on March 14, 2011.
For all grants made after December 31, 2010, the share reserve shall be reduced
by (1) one common share for each common share issued with respect to a Stock
Option or Stock Appreciation Right; and (b) 2.16 common shares for each common
share issue with respect to Full Value Awards. Upon the exercise of a
stock-settled Stock Appreciation Right, the number of shares subject to the
Award that are then being exercised shall be counted against the maximum
aggregate number of shares that may be issued under the Plan, on the basis of
one share for every share subject thereto, regardless of the actual number of
shares used to settle the Stock Appreciation Right upon exercise.
In addition to the foregoing, the following shares of Common Stock related to
Incentives under this Plan may again be used for the grant of Incentives under
the Plan: (i) shares related to Incentives paid in cash; (ii) shares related to
Incentives that expire, are forfeited or cancelled or terminate for any other
reason without issuance of shares of Common Stock; and (iii) any shares of
Common Stock related to Incentives that are assumed, converted or substituted as
a result of the acquisition of another company by the Company or a combination
of the Company with another company. Regardless of when Incentives are granted,
effective January 1, 2011, shares tendered in payment of the option price or
grant price for Stock Options and Stock Appreciation Rights or shares withheld
from Incentives (including Full Value Awards) for tax payments or withholding
for taxes shall not be added back into the Plan.
Shares under this Plan may be delivered by the Company from its authorized but
unissued shares of Common Stock or from issued and reacquired Common Stock held
as treasury stock, or both. In no event shall fractional shares of Common Stock
be issued under the Plan.
(b) Limit on an Individual’s Incentives. In any calendar year, no Eligible
Person may receive (i) Incentives (including Stock Options and Stock
Appreciation Rights) covering more than two million (2,000,000) shares of the
Company’s Common Stock (such number of shares shall be adjusted in accordance
with Section 6(c)), or (ii) any Incentive if such person owns more than ten
percent of the stock of the Company within the meaning of Section 422 of the
Code, or (iii) any Incentive Stock Option, as defined in Section 422 of the
Code, which would result in such person receiving a grant of Incentive Stock
Options for stock that would have an aggregate fair market value in excess of
$100,000, determined as of the time that the Incentive Stock Option is granted,
that would be exercisable for the first time by such person during any calendar
year.

 

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(c) Adjustment of Shares. In the event of a reorganization, recapitalization,
stock split, stock dividend, combination of shares, merger, consolidation,
rights offering, spin off, split off, split up or other event identified by the
Committee, the Committee shall make such adjustments, if any, as it may deem
appropriate in (i) the number and kind of shares authorized for issuance under
the Plan, (ii) the number and kind of shares subject to outstanding Incentives
and (iii) the option price/grant price of Stock Options and Stock Appreciation
Rights. For the purposes of (i) and (ii) above, fractions of a share will be
rounded down to the nearest whole share (other than for Incentive Stock
Options). Any such determination shall be final, binding and conclusive on all
parties.
(d) Minimum Vesting for Full Value Awards. With respect to at least 95% of Full
Value Awards (other than Performance Share Awards) granted after December 31,
2010, vesting of such Incentives will occur over a minimum of three years from
the grant date. For Performance Share Awards, at least 95% of these Incentives
granted after December 31, 2010 will vest over a minimum of one year from the
grant date.
7. Stock Options
The Committee may grant options qualifying as Incentive Stock Options as defined
in Section 422 of the Code to employees of the Company or a parent or subsidiary
corporation within the meaning of Section 424 of the Code, and options other
than Incentive Stock Options (“Nonqualified Options”) (collectively “Stock
Options”). Such Stock Options shall be subject to the following terms and
conditions and such other terms and conditions as the Committee may prescribe:
(a) Stock Option Price. The option price per share with respect to each Stock
Option shall be determined by the Committee, but shall not be less than 100% of
the Fair Market Value of the Common Stock (as defined below) on the date the
Stock Option is granted, as determined by the Committee. Unless the Committee
determines otherwise, “Fair Market Value” shall mean the closing stock price of
a share of Common Stock, as reported on the New York Stock Exchange (or any
other reporting system selected by the Committee, in its sole discretion) on the
date as of which the determination is being made or, if no sale of shares of
Common Stock is reported on this date, on the next preceding day on which there
were sales of shares of Common Stock reported.
(b) Period of Stock Option. The period of each Stock Option shall be fixed by
the Committee, provided that the period for all Stock Options shall not exceed
ten (10) years from the grant. The Committee may, subsequent to the granting of
any Stock Option, extend the term thereof, but in no event shall the extended
term exceed ten years from the original grant date.
(c) Exercise of Stock Option and Payment Therefore. No shares shall be issued
until full payment of the option price has been made. The option price may be
paid in cash or, if the Committee determines, in shares of Common Stock or a
combination of cash and shares of Common Stock. If the Committee approves the
use of shares of Common Stock as a payment method, the Committee shall establish
such conditions as it deems appropriate for the use of Common Stock to exercise
a Stock Option. Stock Options awarded under the Plan shall be exercised through
such procedure or program as the Committee may establish or define from time to
time, which may include a designated broker that must be used in exercising such
Stock Options.
(d) First Exercisable Date. The Committee shall determine how and when shares
covered by a Stock Option may be purchased. The Committee may establish waiting
periods, the dates on which Stock Options become exercisable or ''vested’’ and,
subject to paragraph (b) of this section, exercise periods. The Committee may
accelerate the exercisability of any Stock Option or portion thereof.

 

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(e) Termination of Employment. Unless determined otherwise by the Committee,
upon the termination of a Stock Option grantee’s employment (for any reason
other than gross misconduct), outstanding Stock Options which were not
exercisable at the date of such termination shall be immediately forfeited upon
termination. The Committee, however, in its discretion, may provide that any
Stock Options outstanding but not yet exercisable upon the termination of a
Stock Option grantee’s employment may become exercisable in accordance with a
schedule determined by the Committee. Such Stock Options shall expire unless
exercised within such period of time after the date of termination of employment
as may be established by the Committee, but in no event later than the
expiration date of the Stock Option.
(f) Termination Due to Misconduct. If a Stock Option grantee’s employment is
terminated for gross misconduct, as determined by the Company, all outstanding
Stock Options (regardless of whether vested or not upon termination) shall
expire upon the date of such termination.
(g) Limits on Incentive Stock Options. Except as may otherwise be permitted by
the Code, an Eligible Person may not receive a grant of Incentive Stock Options
for stock that would have an aggregate fair market value in excess of $100,000
(or such other amount as the Internal Revenue Service may decide from time to
time), determined as of the time that the Incentive Stock Option is granted,
that would be exercisable for the first time by such person during any calendar
year. All shares that have been authorized to be issued under the Plan may be
used for the grant of Incentive Stock Options.
8. Stock Appreciation Rights
The Committee may, in its discretion, grant a right to receive the appreciation
in the fair market value of shares of Common Stock (“Stock Appreciation Right”)
either singly or in combination with an underlying Stock Option granted
hereunder. Such Stock Appreciation Right shall be subject to the following terms
and conditions and such other terms and conditions as the Committee may
prescribe:
(a) Time and Period of Grant. If a Stock Appreciation Right is granted with
respect to an underlying Stock Option, it may be granted at the time of the
Stock Option grant or at any time thereafter but prior to the expiration of the
Stock Option grant. If a Stock Appreciation Right is granted with respect to an
underlying Stock Option, at the time the Stock Appreciation Right is granted the
Committee may limit the exercise period for such Stock Appreciation Right,
before and after which period no Stock Appreciation Right shall attach to the
underlying Stock Option. In no event shall the exercise period for a Stock
Appreciation Right granted with respect to an underlying Stock Option exceed the
exercise period for such Stock Option. If a Stock Appreciation Right is granted
without an underlying Stock Option, the term of the Stock Appreciation Right
shall be set by the Committee, but in no event shall exceed ten (10) years from
the grant.
(b) Value of Stock Appreciation Right. If a Stock Appreciation Right is granted
with respect to an underlying Stock Option, the grantee will be entitled to
surrender the Stock Option which is then exercisable and receive in exchange an
amount equal to the excess of the fair market value of the Common Stock on the
date the election to surrender is received by the Company in accordance with
exercise procedures established by the Company over the Stock Option price
multiplied by the number of shares covered by the Stock Option which is
surrendered. If a Stock Appreciation Right is granted without an underlying
Stock Option, the grantee will receive upon exercise of the Stock Appreciation
Right an amount equal to the excess of the fair market value of the Common Stock
on the date the election to surrender such Stock Appreciation Right is received
by the Company in accordance with exercise procedures established by the Company
over the fair market value of the Common Stock on the date of grant multiplied
by the number of shares covered by the grant of the Stock Appreciation Right.
All Stock Appreciation Rights shall have a grant price that is not less than
100% of the Fair Market Value of the Common Stock on the date the Stock
Appreciation Right is granted.
(c) Payment of Stock Appreciation Right. Payment of a Stock Appreciation Right
shall be in the form of shares of Common Stock, cash or any combination of
shares and cash. The form of payment upon exercise of such a right shall be
determined by the Committee either at the time of grant of the Stock
Appreciation Right or at the time of exercise of the Stock Appreciation Right.

 

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9. Performance Share Awards
The Committee may grant awards under which payment may be made in shares of
Common Stock, cash or any combination of shares and cash if the performance of
the Company or its parent, if any, or any subsidiary, affiliate or joint venture
of the Company or based on an individual grantee’s performance, team, division
or group performance or any other defined group that the Committee determines
during the Award Period meets certain goals established by the Committee
(“Performance Share Awards”). Such Performance Share Awards shall be subject to
the following terms and conditions and such other terms and conditions as the
Committee may prescribe:
(a) Award Period and Performance Goals. The Committee shall determine and
include in a Performance Share Award grant the period of time for which a
Performance Share Award is made (“Award Period”). The Committee shall also
establish performance objectives (“Performance Goals”) to be met by the Company,
its parent, if any, subsidiary, affiliate or joint venture of the Company or
individual grantee or team, division or group determined by the Committee during
the Award Period as a condition to payment of the Performance Share Award. The
Performance Goals may include any one or more of the following Company measures,
as interpreted by the Committee, which (to the extent applicable) will be
determined in accordance with GAAP: earnings per share; net-new sales; new named
sales; client retention; client satisfaction; employee satisfaction; member
satisfaction; revenue performance; corporate earnings performance; return on
assets; return on equity; return on invested capital; cash flow; cash balances;
market value added; economic value added; earnings before interest, taxes,
depreciation and amortization; mail and total prescription volumes; mail
penetration rate; cost and expense controls; drug trend management; clinical
program effectiveness; generic dispensing rates; specialty segment performance;
covered lives; productivity and growth in new markets, products and/or services.
Performance Measures may be measured before or after taking taxes into
consideration, in the discretion of the Committee. The Performance Goals may
include minimum and optimum objectives or a single set of objectives. In
determining attainment of Performance Goals, the Committee will exclude unusual
or infrequently occurring items, charges for restructurings (employee severance
liabilities, asset impairment costs, and exit costs), discontinued operations,
extraordinary items and the cumulative effect of changes in accounting
treatment, and may determine no later than ninety (90) days after the
commencement of any applicable Award Period to exclude other items, each
determined in accordance with GAAP (to the extent applicable) and as identified
in the financial statements, notes to the financial statements or discussion and
analysis of management. If the Committee desires that compensation payable
pursuant to any Performance Share Award be qualified performance-based
compensation within the meaning of Section 162(m) of the Code for covered
employees, the Performance Goals (i) shall be established by the Committee no
later than the end of the first quarter of the Award Period (or such other time
designated by the United States Internal Revenue Service) and (ii) shall satisfy
all other applicable requirements imposed under United States Treasury
Regulations promulgated under Section 162(m) of the Code, including the
requirement that such Performance Goals be stated in terms of an objective
formula or standard.
(b) Payment of Performance Share Awards. The Committee shall establish the
method of calculating the amount of payment to be made under a Performance Share
Award if the Performance Goals are met, including the fixing of a maximum
payment. The Performance Share Award shall be expressed in terms of shares of
Common Stock and referred to as “Performance Shares.” After the completion of an
Award Period, the performance of the Company, its parent, if any, subsidiary,
affiliate or joint venture of the Company or individual grantee or team,
division or group (whichever is relevant under the terms of the Performance
Share Award) shall be measured against the Performance Goals, and the Committee
shall determine, in accordance with the terms of such Performance Share Award,
whether all, none or any portion of a Performance Share Award shall be paid. The
Committee, in its discretion, may elect to make payment in shares of Common
Stock, cash or a combination of shares and cash. Any cash payment shall be based
on the Fair Market Value of Performance Shares at the end of the Award Period.

 

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(c) Requirement of Employment. A grantee of a Performance Share Award must
remain in the employ of the Company, its parent, if any, subsidiary, affiliate
or joint venture until the completion of the Award Period in order to be
entitled to payment under the Performance Share Award; provided that the
Committee may, in its discretion, provide for a full or partial payment where
such an exception is deemed equitable. However, to the extent that the
Performance Share Award is intended to constitute performance-based
compensation, the Committee shall only make exceptions in the event that the
covered employee’s employment terminates due to death, disability or upon a
change of control provided payments are not made until after the completion of
the Award Period and certification that the Performance Goals have been attained
as required pursuant to Section 162(m).
(d) Dividend Equivalents. Dividend equivalents shall not be paid during the
Award Period and may only be paid on vested Performance Shares to the extent
determined by the Committee.
10. Restricted Stock Grants
The Committee may award shares of Common Stock to an Eligible Person, which
shares shall be subject to the following terms and conditions and such other
terms and conditions as the Committee may prescribe (“Restricted Stock Grant”):
(a) Requirement of Employment. A grantee of a Restricted Stock Grant must remain
in the employment of the Company or its parent, if any, its subsidiaries, its
affiliates and its joint ventures during a period designated by the Committee
(“Restriction Period”) in order to retain the shares under the Restricted Stock
Grant. If the grantee’s employment with the Company or its parent, if any, its
subsidiaries, its affiliates and its joint ventures terminates prior to the end
of the Restriction Period, the Restricted Stock Grant shall terminate and the
shares of Common Stock shall be returned immediately to the Company provided
that the Committee may, at the time of the grant, provide for the employment
restriction to lapse with respect to a portion or portions of the Restricted
Stock Grant at different times during the Restriction Period. The Committee may,
in its discretion, also provide for such complete or partial exceptions to the
employment restriction as it deems equitable.
(b) Restrictions on Transfer and Legend on Stock Certificates. During the
Restriction Period, the grantee may not sell, assign, transfer, pledge or
otherwise dispose of the shares of Common Stock. Each certificate for shares of
Common Stock issued hereunder shall contain a legend giving appropriate notice
of the restrictions in the grant.
(c) Escrow Agreement. The Committee may require the grantee to enter into an
escrow agreement providing that the certificates representing the Restricted
Stock Grant will remain in the physical custody of an escrow holder until all
restrictions are removed or expire.
(d) Lapse of Restrictions. All restrictions imposed under the Restricted Stock
Grant shall lapse upon the expiration of the Restriction Period if the
conditions as to employment set forth above have been met. The grantee shall
then be entitled to have the legend removed from the certificates and/or request
shares to be transferred to him or her from the escrow holder, if any.

 

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(e) Dividends. The Committee shall, in its discretion, at the time of the
Restricted Stock Grant, provide that any dividends declared on the Common Stock
during the Restriction Period shall either be (i) paid to the grantee as soon as
practicable after the dividend is declared, or (ii) accumulated for the benefit
of the grantee and paid to the grantee only after the expiration of the
Restriction Period.
(f) Performance Goals. The Committee may designate whether any Restricted Stock
Grant is intended to be “performance-based compensation” as that term is used in
Section 162(m) of the Code. Any such Restricted Stock Grant designated to be
“performance-based compensation” shall be conditioned on the achievement of one
or more Performance Goals (as defined in Section 9(a)), to the extent required
by Section 162(m).
11. Other Share-Based Awards
(a) Share Awards. The Committee may grant an award of shares of common stock (a
“Share Award”) to any Eligible Person on such terms and conditions as the
Committee may determine in its sole discretion.
(b) Phantom Stock Awards. The Committee may, in its discretion, grant a right
representing a number of hypothetical shares, including restricted stock units
(a “Phantom Stock Award”), to any Eligible Person on such terms and conditions,
including whether payment of such Phantom Stock Award will be in cash or shares,
as the Committee may determine in its sole discretion.
12. Transferability
Each Incentive, other than Nonqualified Options, granted under the Plan shall
not be transferable or assignable other than by will or the laws of descent and
distribution and shall be exercisable during the grantee’s lifetime only by the
grantee. Nonqualified Options shall not be transferable or assignable by the
recipient, and may not be made subject to execution, attachment or similar
procedures, other than by will or the laws of descent and distribution or
pursuant to a domestic relations order within the meaning of Rule 16a-12 under
the Exchange Act. Notwithstanding the foregoing, the Committee, in its
discretion, may adopt rules permitting the transfer, solely as gifts during the
grantee’s lifetime, of Stock Options (other than Incentive Stock Options) to
trusts or family partnerships for the benefit of immediate family members, but
in no event will awards be transferable for value or consideration. For this
purpose, immediate family member means the grantee’s spouse, parent, child,
stepchild, grandchild and the spouses of such family members. The terms of a
Stock Option shall be final, binding and conclusive upon the beneficiaries,
executors, administrators, heirs and successors of the grantee.
13. Discontinuance or Amendment of the Plan
The Board of Directors may discontinue the Plan at any time and may from time to
time amend or revise the terms of the Plan as permitted by applicable statutes,
except that it may not, without the consent of the grantees affected, revoke or
alter, in a manner unfavorable to the grantees of any Incentives hereunder, any
Incentives then outstanding, nor may the Board amend the Plan without
stockholder approval where the absence of such approval would cause the Plan to
fail to comply with Rule 16b-3 under the Exchange Act, or any other requirement
of applicable law or regulation.
14. No Constraint on Corporate Action
Nothing in the Plan shall be construed (i) to limit, impair or otherwise affect
the Company’s right or power to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure, or to merge or
consolidate, or dissolve, liquidate, sell or transfer all or any part of its
business or assets, or (ii) except as provided in Section 13, to limit the right
or power of the Company, its parent, or any subsidiary, affiliate or joint
venture to take any action which such entity deems to be necessary or
appropriate.

 

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15. Withholding Taxes
The Company and its parent, if any, its subsidiaries, its affiliates and its
joint ventures shall be entitled to collect income taxes, social insurance
contributions, payment on account amounts, any local taxes and any other taxes
related to the grant, vesting or exercise of Incentives or acquisition or sale
of shares acquired under the Plan legally due by grantee and required to be
withheld by the Company (or one of its affiliates) or grantee’s employer (“Tax
Withholding Amounts”) by any of the following methods: (i) withholding from
shares of Common Stock or cash issuable or due under the Incentive;
(ii) withholding from compensation, salary, bonuses or any other amounts due to
grantee; or (iii) forcing shares of Common Stock to be sold that are issued
pursuant to Incentives and using the proceeds to cover the Tax Withholding
Amounts. In addition and in accordance with any applicable administrative
guidelines it establishes, the Committee may allow a grantee to pay the Tax
Withholding Amounts by withholding from any payment of Common Stock due as a
result of such Incentive, or by permitting the grantee to deliver to the
Company, shares of Common Stock having a fair market value, as determined by the
Committee, equal to the amount of the Tax Withholding Amounts. Regardless of
when Incentives are granted, effective January 1, 2011, shares tendered in
payment of the option price or grant price for Stock Options and Stock
Appreciation Rights or withheld from Incentives (including Full Value Awards)
for tax payments or withholding for taxes shall not be added back into the Plan.
16. Compliance with Section 16
With respect to Eligible Persons subject to Section 16 of the Exchange Act
(“Section 16 Officers”), transactions under the Plan are intended to comply with
all applicable conditions of Rule 16b-3 or its successor under the Exchange Act.
To the extent that compliance with any Plan provision applicable solely to the
Section 16 Officers is not required in order to bring a transaction by such
Section 16 Officer into compliance with Rule 16b-3, it shall be deemed null and
void as to such transaction, to the extent permitted by law and deemed advisable
by the Committee and its delegees. To the extent any provision of the Plan or
action by the Plan administrators involving such Section 16 Officers is deemed
not to comply with an applicable condition of Rule 16b-3, it shall be deemed
null and void as to such Section 16 Officers, to the extent permitted by law and
deemed advisable by the Plan administrators.
17. Use of Proceeds
The proceeds received by the Company from the sale of stock under the Plan shall
be added to the general funds of the Company and shall be used for such
corporate purposes as the Board of Directors shall direct.
18. Change in Control
Unless otherwise provided in an award agreement, or for Incentives that do not
constitute deferred compensation under Section 409A of the Code, unless
determined by the Committee in its discretion, in the event of a Change in
Control (as defined below), each Incentive outstanding as of the Change in
Control shall be assumed, continued, or substituted with a new Incentive that
has: (i) an intrinsic value equivalent to that of the original Incentive; and
(ii) terms at least as beneficial to the grantee as those contained in the
original award agreement. If within two years following a Change in Control, a
grantee is terminated for any reason (or constructively terminated as determined
by the Committee in its sole discretion) except for “Cause” (as defined below)
all of the grantee’s outstanding Incentives which have not vested shall
immediately vest and become exercisable (if applicable) and all restrictions on
such awards or shares shall immediately lapse.

 

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For purposes of this Section 18, the term “Cause” shall mean that a grantee:
(i) has been convicted of, or entered a plea of nolo contendere to, a crime that
constitutes a felony under U.S. Federal or state law or equivalent under any
applicable foreign law; (ii) has engaged in willful gross misconduct in the
performance of the grantee’s duties to the Company or a parent, subsidiary or
affiliate; or (iii) has committed a material breach of any written agreement
with the Company or any parent, subsidiary or affiliate with respect to
confidentiality, noncompetition, nonsolicitation or similar restrictive
covenant. The Committee shall have the discretion of determining whether a
grantee has been terminated for Cause for the purposes of this Section 18.
A “Change in Control” shall mean the occurrence during the term of the Plan of
any one of the following events:
(a) An acquisition (other than directly from the Company) of any shares of
Common Stock or other voting securities of the Company by any “Person” (for
purposes of this Section only, as the term “person” is used for purposes of
Section 13(d) or 14(d) of the Exchange Act), immediately after which such Person
has “Beneficial Ownership” (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of forty percent (40%) or more of either (i) the then
outstanding shares of Common Stock or (ii) the combined voting power of the
Company’s then outstanding voting securities entitled to vote for the election
of directors (the “Voting Securities”); provided, however, in determining
whether a Change in Control has occurred, shares of Common Stock or Voting
Securities which are acquired in a “Non-Control Acquisition” (as hereinafter
defined) shall not constitute an acquisition which would cause a Change in
Control. A “Non-Control Acquisition” shall mean an acquisition by (i) an
employee benefit plan (or a trust forming a part thereof) maintained by (A) the
Company or (B) any corporation or other Person of which a majority of its voting
power or its voting equity securities or equity interest is owned, directly or
indirectly, by the Company (for purposes of this definition, a “Related
Entity”), (ii) the Company or any Related Entity, or (iii) any Person in
connection with a “Non-Control Transaction” (as hereinafter defined); or
(b) The individuals who, immediately after the acquisition or transaction, are
members of the Board of Directors of the Company (the “Incumbent Board”),
(i) cease for any reason to constitute at least a majority of the members of the
Board of Directors of the Company, or (ii) following a Merger (as hereinafter
defined), do not constitute at least a majority of the board of directors of
(x) the Surviving Corporation (as hereinafter defined), if fifty percent (50%)
or more of the combined voting power of the then outstanding voting securities
of the Surviving Corporation is not Beneficially Owned, directly or indirectly
by a Parent Corporation, or (y) if there is one or more Parent Corporations, the
ultimate Parent Corporation (as hereinafter defined); provided, however, that if
the election, or nomination for election by the Company’s common stockholders,
of any new director was approved by a vote of at least a majority of the
Incumbent Board, such new director shall, for purposes of this Plan, be
considered as a member of the Incumbent Board; provided, further, however, that
no individual shall be considered a member of the Incumbent Board if such
individual initially assumed office as a result of an actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board of Directors of the Company (a “Proxy Contest”), including by reason of
any agreement intended to avoid or settle any Proxy Contest; or

 

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(c) The consummation of:
(i) A merger, consolidation or reorganization with or into the Company or a
direct or indirect subsidiary of the Company or in which securities of the
Company are issued (a “Merger”), unless the Merger is a “Non-Control
Transaction.” A “Non-Control Transaction” shall mean:
(A) the stockholders of the Company immediately before such Merger own directly
or indirectly immediately following the Merger at least fifty percent (50%) of
the outstanding common stock and the combined voting power of the outstanding
voting securities of (x) the corporation resulting from such Merger (the
“Surviving Corporation”), if fifty percent (50%) or more of the combined voting
power of the then outstanding voting securities of the Surviving Corporation is
not Beneficially Owned, directly or indirectly by another corporation (a “Parent
Corporation”), or (y) if there is one or more Parent Corporations, the ultimate
Parent Corporation;
(B) the individuals who were members of the Incumbent Board immediately prior to
the execution of the agreement providing for the Merger, constitute at least a
majority of the members of the board of directors of, (x) the Surviving
Corporation, if fifty percent (50%) or more of the combined voting power of the
then outstanding voting securities of the Surviving Corporation is not
Beneficially Owned, directly or indirectly by a Parent Corporation, or (y) if
there is one or more Parent Corporations, the ultimate Parent Corporation; and
(C) no Person other than (1) the Company or another corporation that is a party
to the agreement of Merger, (2) any Related Entity, or (3) any employee benefit
plan (or any trust forming a part thereof) that, immediately prior to the
Merger, was maintained by the Company or any Related Entity, or (4) any Person
who, immediately prior to the Merger had Beneficial Ownership of forty percent
(40%) or more of the then outstanding shares of Common Stock or Voting
Securities, has Beneficial Ownership, directly or indirectly, of forty percent
(40%) or more of the combined voting power of the outstanding voting securities
or common stock of (x) the Surviving Corporation, if fifty percent (50%) or more
of the combined voting power of the then outstanding voting securities of the
Surviving Corporation is not Beneficially Owned, directly or indirectly by a
Parent Corporation, or (y) if there is one or more Parent Corporations, the
ultimate Parent Corporation.
(ii) A complete liquidation or dissolution of the Company; or
(iii) The sale or other disposition of all or substantially all of the assets of
the Company and its subsidiaries taken as a whole to any Person (other than a
transfer to a Related Entity or under conditions that would constitute a
Non-Control Transaction with the disposition of assets being regarded as a
Merger for this purpose or the distribution to the Company’s stockholders of the
stock of a Related Entity or any other assets).
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur
solely because any Person (the “Subject Person”) acquired Beneficial Ownership
of more than the permitted amount of the then outstanding shares of Common Stock
or Voting Securities as a result of the acquisition of shares of Common Stock or
Voting Securities by the Company which, by reducing the number of shares of
Common Stock or Voting Securities then outstanding, increases the proportional
number of shares Beneficially Owned by the Subject Persons; provided, that if a
Change in Control would occur (but for the operation of this sentence) as a
result of the acquisition of shares of Common Stock or Voting Securities by the
Company, and after such share acquisition by the Company, the Subject Person
becomes the Beneficial Owner of any additional shares of Common Stock or Voting
Securities which increases the percentage of the then outstanding shares of
Common Stock or Voting Securities Beneficially Owned by the Subject Person, then
a Change in Control shall occur.
Also, notwithstanding the foregoing, to the extent that any Incentive
constitutes a deferral of compensation subject to Code Section 409A, and if that
Incentive provides for a change in the time or form of payment upon a Change in
Control, then no Change in Control shall be deemed to have occurred upon an
event described in this Section 18 unless the event would also constitute a
change in ownership or effective control of, or a change in the ownership of a
substantial portion of the assets of, the Company under Code Section 409A.
19. Governing Law
The Plan, and all agreements hereunder, shall be construed in accordance with
and governed by the laws of the State of Delaware without giving effect to the
principles of conflicts of laws.

 

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ADDENDUM
TO THE
MEDCO HEALTH SOLUTIONS, INC.
2002 STOCK INCENTIVE PLAN
This addendum is intended to cause the Medco Health Solutions, Inc. 2002 Stock
Incentive Plan (the “Plan”) to meet the requirements of a written plan as
described in Q&A 21 of Internal Revenue Service Notice 2005-1 with respect to
restricted stock units, performance shares or other share based awards subject
to deferral (“Stock Units”) granted under the Plan. Capitalized terms used
herein but not defined shall have the meaning ascribed to them in the Plan.
1. Deferrals of Stock Units Permitted
(a) Receipt of stock or other payment pursuant to the conversion of a Stock Unit
granted under the Plan may be deferred at the election of a grantee beyond the
taxable year in which the Stock Unit vests and becomes non-forfeitable provided
permitted by the Committee.
(b) This deferral program is intended to meet the requirements of an unfunded
“top-hat” plan maintained primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated employees,
within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA. No
grantee shall be permitted to make a deferral election if such grantee’s
participation in the deferral program would cause the Plan to fail to be treated
as a top-hat plan.
(c) Stock Units granted to members of the Board of Directors are not affected by
this Addendum.
2. Deferral Period
(a) The deferral may be until any of the following:
(i) six months after the date of a grantee’s separation from service,
(ii) the date the participant becomes disabled (within the meaning of
Section 409A(a)(2)(C) of Code),
(iii) death,
(iv) a specified date (or pursuant to a fixed schedule),
(v) to the extent provided in regulations, a change in the ownership or
effective control of the Company, or in the ownership of a substantial portion
of the assets of the Company, or
(vi) the occurrence of an unforeseeable emergency (as defined in Section 409A of
the Code or the regulations promulgated thereunder).
3. No Acceleration
Acceleration of the deferral period elected by the grantee shall not be
permitted, except as provided in regulations promulgated under Section 409A of
the Code.

 

 

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4. Deferral Elections
Deferral elections shall be made in compliance with Section 409A of the Code. In
accordance with IRS Notice 2005-1, deferral elections with respect to Stock
Units outstanding but unvested as of March 15, 2005 may be made on or before
March 15, 2005. Changes in the time and form of payments with respect to Stock
Units for which an initial deferral is in effect shall be permitted in
accordance with Section 409A(a)(4)(C) of the Code, the terms of which shall be
incorporated into this Addendum.
5. Compliance with Section 409A
Awards granted under the Plans are intended to comply with the requirements of
Section 409A of the Internal Revenue Code of 1986, as amended. In order to
comply with Section 409A, Stock Units granted under the Plans to employees who
are not participants in the 2006 Executive Severance Plan at the time of grant
shall be administered such that a separation from service of the grantee does
not result in deferred compensation as defined in Section 409A unless the
recipient has made a voluntary deferral election. As a result, Stock Units shall
be converted and paid as soon as practicable following the date on which the
Stock Units vest and become non-forfeitable. Stock Units granted under the Plans
to employees who are participants in the 2006 Executive Severance Plan shall be
administered such that a separation from service of the grantee does not result
in the acceleration of payment of a Stock Unit. As a result, Stock Units shall
not be converted and paid prior to the “Vesting Date” specified on the Term
Sheet issued in respect of the award. The purpose of the prior sentence is to
document that, except in the case of death or termination Within Two Years
following a Change in Control, Stock Units granted to a participant in the 2006
Executive Severance Plan are paid on a date certain unless the recipient has
made a specific deferral election in writing.
6. Transition Relief
Notwithstanding the foregoing, Stock Units that have become vested on or before
October 22, 2008 and have not been paid as of such date, shall, if held by an
employee who is not a participant in the Executive Severance Plan, be paid on or
about February 24, 2009. This provision has been added as of October 22, 2008
and is intended to comply with the 409A transition guidance.
7. Change in Control Provisions
In order to comply with Section 409A in connection with the payment of any Stock
Units following or in connection with a “Change in Control,” the following
applies:
a. The definition of Change in Control in Section 18 of the Plan shall apply for
purposes of determining the extent to which an Incentive has vested.
b. Any payment provisions applicable to a Stock Unit that are conditioned upon
the occurrence of a Change in Control shall only apply if the Change in Control
is also a change in the ownership or effective control, or a change in the
ownership of a substantial portion of the assets of the Company as defined in
Treasury Regulation Section 1.409A-3(i)(5).

 

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