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EXHIBIT 10.12
CARDINAL HEALTH, INC.
INCENTIVE DEFERRED COMPENSATION PLAN
(THE "PLAN")
I
PURPOSE
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Cardinal Health, Inc. and its affiliates (collectively, the "Company")
is willing to provide supplemental retirement benefits out of its general
assets to certain key employees as an incentive for those individuals to
continue their relationship with the Company and to provide the benefits such
individuals could otherwise earn under the Cardinal Health, Inc., Profit
Sharing and Retirement Savings Plan (the "Qualified Plan") if certain federal
law restructions did not apply. Only a select group of the Company's
management or highly compensated employees will be eligible to participate in
this program. The Company's goal is to retain and reward its key employees by
helping them to accumulate benefits for a comfortable retirement.
II
ELIGIBILITY
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Selection of the Company employees eligible to participate in the Plan
is within the sole discretion of the Chairman of Cardinal Health, Inc. Only
high income or key management employees are eligible for selection by the
Chairman. If you fall into one of these groups and are chosen by the Chairman
to participate in the Plan, you will sign an Incentive Deferred Compensation
Agreement which details the requirements you must satisfy to be eligible to
receive this supplemental retirement benefit from the Company. The Chairman
will review and determine his selections each year. Thus, selection in one
year does not automatically confer a right to participate in succeeding years.
III
INCENTIVE DEFERRED COMPENSATION ACCUMULATIONS
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The benefits provided to participants under their Incentive Deferred
Compensation Agreements are paid from the Company's general assets. The
program is, therefore, considered to be an "unfunded" arrangement as amounts
are not set aside or held by the Company in a trust, escrow, or similar account
or fiduciary relationship on your behalf. Each participant's rights to
benefits under the Plan are equivalent to the rights of any unsecured general
creditor of the Company. However, the Company may open accounts with one or
more investment companies selected by the Chairman, in his discretion,
including from among those used as investment options under the Qualified Plan,
and may invest funds subject to this Plan in these mutual funds. Each
participant may be permitted to direct how the portion of the Company's
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funds allocable to him or her is invested from among the available options, if
such investment accounts are established. The Company currently expects any
such options to be similar to those available under the Qualified Plan, but is
not obligated to make these or any other particular investment options
available. All investments shall at all times continue to be a part of the
Company's general assets for all purposes.
To measure the amount of the Company's obligations to a participant in
this program, the Company will maintain a bookkeeping record or account of each
participant's "Accumulations". There are three basic components of each
participant's Accumulations:
First, the Company may credit to your Accumulations each
calendar year during which you are selected to participate in the Plan
an amount equal to 3% of your compensation from the Company in excess
of the compensation limit applicable to the Qualified Plan under the
Internal Revenue Code (currently $150,000 per year) but not more than
$250,000. For this purpose, your compensation includes salary,
commission and bonus payments made for the year, but does not include
other cash or noncash compensation, expense reimbursements or other
benefits provided by the Company, other than your own salary deferrals
into this Plan or the Qualified Plan. In addition, the Company may
make an additional profit sharing contribution to the Plan for a year,
in the Company's discretion, to be credited to your Accumulations. One
of the purposes of these contributions is to make up the portion of
automatic and special profit sharing contributions to the Qualified
Plan that you are losing due to the capping of pay eligible for
consideration under the Qualified Plan under Internal Revenue Code
rules. All contributions under this provision to your Accumulations,
as adjusted for earnings or losses (described below), are referred to
as your "PROFIT SHARING VALUE."
Second, to encourage each participant to invest in his or her own
future, you may also elect to defer your compensation from the Company.
These are two types of deferral elections that you may make under the
Plan. You may elect (within 30 days of when you first become eligible
to participate in the Plan for your initial year of participation or,
for subsequent years, not later than the December 31 prior to each such
year) to defer payment of a portion of your compensation to be earned
during the balance of the current or next calendar year, as applicable,
as a credit to your Accumulations. Under special circumstances, the
Chairman may also determine, in his discretion, that you may be
periodically eligible to make a special election after the beginning of
the year to defer any compensation for the remainder of the year which
is not yet payable to you. This second source of Accumulations,
adjusted for earnings or losses as described below, is known as the
"DEFERRAL VALUE." The minimum amount you may defer under either type
of election is 1%, and the maximum amount you may defer in the
aggregate is 15% (of the first $250,000 of your compensation), less the
amount deferrable through the Qualified Plan. Also, who is eligible
to participate in the deferral portion of the Plan is determined on a
year to year basis
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by the Company. If you were a participant one year but are not
eligible in a succeeding year, you will still be a participant, but
will be treated as "inactive."
Third, the Company will also match your deferral at the same
rate it is generally matching 401(k) deferrals under the Qualified Plan
for the period in question. Any "caps" on the match under the
Qualified Plan will also apply to this Plan, with the match under this
Plan being offset by the match to the Qualified Plan to the extent
duplicative. For example, if the Qualified Plan match for the year is
75 cents on the dollar, up to the first 3% of salary deferrals, and you
are eligible to defer 5% of the first $150,000 of pay to the Qualified
Plan (under the special discrimination-testing rules of that plan),
then only the first 3% of deferrals from the portion of your salary
above $150,000 but less than $250,000 will be matched under this Plan.
The amounts credited to your Accumulations on a matching basis,
adjusted for earnings or losses as described below, are referred to as
your "MATCHING VALUE."
EARNINGS (OR LOSSES): At least once each calendar year while you have a
credit balance in your Accumulations, the Company will credit your
Accumulations with earnings (or losses), if any, for the period since the last
such crediting and determine the value of your Accumulations at that time. The
earnings (or losses) may either be credited on the basis of the earnings (or
losses) allocable to your directed portion of the Company investments, if any,
or on the basis of a hypothetical earnings rate, as determinied by the Company
in its sole discretion. The Company also reserves the right to adjust the
earnings (or losses) credited to your Accumulations and to determine the value
of your Accumulations as of any date by adjusting such earnings (or losses) or
such fair market value for the Company's tax and other costs of providing this
Plan.
These earnings will compensate for the postponement of the receipt of
the Accumulations and give you the benefit of tax-deferred growth of the
accumulating amounts. Under current federal income tax rules, the amounts
credited to your Accumulations, including earnings, will not be taxable income
to you in the year they are credited to your acocunt. You, or your
beneficiaries in the event of your death, will generally be taxable on these
amounts and the credited earnings only if and when benefits are actually paid
to you. Thus, this program provides the opportunity to defer income and the
payment of income taxes.
IV
BENEFITS
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A. VESTING
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If you participate in the deferral portion of the Plan, your Deferral
Value will always be 100% "vested". This means you will always be entitled to
receive benefits from this portion of your Accumulations.
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The portion of your Accumulations derived from the Profit
Sharing Value and the Matching Value will not be fully vested until you
complete 5 years of service for the Company. A "year of service" for
this purpose means a period of 12 consecutive calendar months during
which you were employed by the Company and worked at least 1,000 hours.
Years of service are calculated from the date you were first hired as
an employee by the Company, and anniversaries of that date. The
schedule for vesting is as follows:
Vested
Years of Service Percentage
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Less than 2 None
2 but less than 3 25%
3 but less than 4 50%
4 but less than 5 75%
5 or more 100%
In addition, you also become 100% vested in your Accumulations
upon your death or if you become permanently disabled prior to
retirement or other termination of service with the Company, or upon a
"Change in Control," regardless of your years of service. "Change in
Control" means: (i) the purchase or other acquisition by any person,
entity or group of persons (within the meaning of Section 13(d) or
14(d) of the Securities Exchange Act of 1934 ("Act"), or any comparable
successor provisions), directly or indirectly, which results in
beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Act) of such person, entity or group of persons equalling 30
percent or more of either the outstanding common shares of Cardinal
Health, Inc. ("Cardinal") or the combined voting power of the
then-outstanding securities of Cardinal entitled to vote in the
election of directors of Cardinal, or (ii) the approval by the
shareholders of Cardinal of a reorganization, merger, or consolidation,
with respect to which in each case persons who were shareholders of
Cardinal immediately prior to such reorganization, merger or
consolidation do not (solely because of their common shares of Cardinal
owned immediately prior to such reorganization, merger, or
consolidation) immediately thereafter, own more than 50 percent of the
combined voting power entitled to vote in the election of directors of
the then-outstanding securities of the reorganized, merged or
consolidated company, or (iii) a liquidation or dissolution of
Cardinal, or (iv) the sale of all or substantially all of Cardinal's
assets.
B. Forfeiture of Benefits
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If your employment with the Company terminates for any reason
other than death, disability, or a Change in Control prior to the time
you have completed 5 years of service, you will forfeit some or all
(based on the above schedule) rights to receive benefits under the
Plan, except that you will still be entitled to receive benefits based
on your Deferral Value.
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C. Payment of Benefits.
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1. RETIREMENT BENEFITS. You will be eligible to receive
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retirement benefits under the plan upon your retirement after attaining
age 65 with five years of service. Retirement benefits will generally
be paid as a monthly benefit payable for 60 months. The amount of your
benefit will equal the amount necessary to amortize your total
Accumulations over the 60 month period. The amount payable each month
will either be based on an approximately equal amortization of
principal plus actual earnings (or less actual losses) or an
amortization based on an assumed interest rate declared by the Company
from time to time during the period of distribution. You must give the
Company at least 30 days advance written notice of your intention to
retire and receive retirement benefits. Actual benefit payments will
begin on the first day of the second month following your satisfaction
of all requirements for payment.
2. DISABILITY BENEFITS. If you become totally disabled
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before satisfying the requirements for retirement benefits, you will be
eligible to receive payment of the amounts credited to your
Accumulations as a monthly benefit commencing after six months of total
disability and payable for 60 months. The amount of the benefit will
be determined in the same manner as retirement benefits. For this
purpose, "total disability" means a physical or mental condition which
totally and presumably permanently prevents you from engaging in any
substantially gainful activity. It is up to the Company to determine
whether you qualify as being totally disabled and the Company may
require you to submit to periodic medical examinations to confirm that
you are, and continue to be, totally disabled. If your disability
ends, your disability benefit payments will stop. However, you could
continue to qualify for benefits under another provision of the Plan.
3. DEATH BENEFITS. In the event of your death while
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receiving benefit payments under the Plan, the Company will pay the
beneficiary or beneficiaries designated by you any remaining payments
due under the terms of your Incentive Deferred Compensation Agreement,
using the same method of distribution in effect to you at the date of
your death. In the event of death prior to beginning to receive
benefits under the Incentive Deferred Compensation Agreement, the
Company will pay any vested benefits to your beneficiary or
beneficiaries, beginning as soon as practicable after your death. In
this case, benefits will generally be paid as a monthly benefit payable
for 60 months computed in the same manner as retirement benefits. The
Company will provide you with the form for designating your beneficiary
or beneficiaries. If you fail to make a beneficiary designation, or if
your designated beneficiary predeceases you or cannot be located, any
death benefits will be paid to your estate.
4. OTHER TERMINATION OF SERVICE. If your service with the
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Company terminates for any reason other than retirement, death, or
total disability, then the vested portion of your Accumulations will be
paid to you as a monthly benefit payable for 60 months computed in the
same manner as retirement benefits, beginning as soon as
administratively practicable after your employment terminates.
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5. PAYMENT ALTERNATIVES. At the Company's election, or
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upon your request, benefits may be paid in a lump sum or over a shorter
or longer period of time than the 60 months generally called for, as
described above. However, no request by you or your beneficiaries for
a different payment method will be binding on the Company, and any
accelerated or deferred payment of benefits shall be made only in the
sole discretion of the Company. In addition, the Company may alter the
payment method in effect from time to time in its discretion, for
example, in order to avoid the loss of a deduction under Code Sec.
162(m). If the payment method is altered, the amount you or your
beneficiaries will receive will be computed under one of the
alternative methods for determining payment amounts provided for under
the normal form of distribution for your Accumulations, determined by
the Company in its discretion.
6. CHANGE IN CONTROL. If a Change in Control occurs, and
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your employment with the Company (or its successor) terminates within
two years after the Change in Control occurred, then you shall be
entitled to receive your Accumulations in a single lump sum within 30
days of your termination of employment, notwithstanding any other
provision of this Plan or your Incentive Deferred Compensation
Agreement. Also, following a Change in Control, the Company's
discretion to alter the payment methodology (described in Sec. 5,
above) is limited to accelerating your benefits; the Company cannot,
after a Change in Control, defer the commencement of payments or extend
the period of distribution beyond the normal period described in the
preceding sections (1-4).
V
MISCELLANEOUS PROVISIONS
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A. NO RIGHT TO COMPANY ASSETS.
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As explained previously, this Incentive Deferred Compensation
Plan is an unfunded arrangement and the agreement you will enter into
with the Company does not create a trust or any kind of a fiduciary
relationship between the Company and you, your designated beneficiaries
or any other person. To the extent you, your designated beneficiaries,
or any other person acquires a right to receive payments from the
Company under the Incentive Deferred Compensation Agreement, that right
is no greater than the right of any unsecured general creditor of the
Company.
B. MODIFICATION OR REVOCATION.
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Your Incentive Deferred Compensation Agreement will continue in effect
until revoked, terminated, or all benefits are paid, even during any period of
time when you are an "inactive" participant because you are not designated by
the Company as eligible to accumulate additional benefits. However, the
Incentive Deferred Compensation Agreement and this Plan may be amended or
revoked at any time, in whole or in part, by the Company in its sole
discretion. Unless you agree otherwise, you will still be
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entitled to the vested benefit, if any, that you have earned through
the date of any amendment or revocation. Such benefits will be payable
at the times and in the amounts provided for in the Incentive Deferred
Compensation Agreement, or the Company may elect to accelerate
distribution and pay all amounts due immediately.
C. Rights Preserved.
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Nothing in the Incentive Deferred Compensation Agreement or
this Plan gives any employee the right to continued employment by the
Company. The relationship between you and the Company shall continue
to be "at will" and may be terminated at any time by the Company or
you, with or without cause, except as may be specifically set forth in
any separate written employment agreement between you and the Company.
D. Controlling Documents.
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This is merely a summary of the key provisions of the Incentive
Deferred Compensation Agreement currently in use by the Company. In
the event of any conflict between the provisions of this Plan and the
Incentive Deferred Compensation Agreement, the agreement shall in all
cases control.
The Company has executed this Plan in Dublin, Ohio on the date set
forth below.
Cardinal Health, Inc.
By: /s/ Lisa Stillings
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Its: Director, Benefits
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Date: June 19, 1995
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