Proposal 1—Election of Directors
Our Board has nominated 11 directors for election at this Annual Meeting to serve until the next Annual Meeting of Shareholders and until his or her successor is duly elected and qualified. All of the nominees currently are directors of Cardinal Health. Each agreed to be named in this proxy statement and to serve if elected. If, due to death or other unexpected occurrence, one or more of the director nominees is not available for election, proxies will be voted for the election of all remaining nominees and any substitute nominee(s) the Board selects.
The Board, through the Nominating and Governance Committee, seeks a board that, as a whole, possesses the experience, skills and diversity of backgrounds to perform effectively in light of the
company's current and evolving business and strategic direction and to properly perform its oversight responsibilities. All of our director nominees bring to the Board a wealth of executive leadership experience derived from their professional backgrounds and areas of expertise. As a group, they provide extensive healthcare and global business experience, financial expertise, business acumen and diverse perspectives, as well as public company board experience. Each of our director nominees has sound judgment and integrity and is able to commit sufficient time and attention to the activities of the Board. All director nominees other than the Chairman and Chief Executive Officer are independent.
Biographies of our Director Nominees
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David J. Anderson
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Age
67
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Director since
2014
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Senior Vice President and Chief Financial Officer of Honeywell International Inc. (retired)
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Independent Director
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Director Qualification Highlights
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Other Public Boards:
American Electric Power Company, Inc., a public utility holding company (since 2011); B/E Aerospace, Inc., a manufacturer of aircraft interior products (since 2014); Fifth Street Asset Management Inc., an alternative asset manager (2014 - 2015)
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Financial Literacy / Expertise - Former CFO
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International
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Executive Leadership
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Strategic Planning / Acquisitions
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Technology
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Mr. Anderson is the former Chief Financial Officer of Honeywell International Inc., a global diversified technology and manufacturing company, serving in that role from 2003 to 2014. While at Honeywell, Mr. Anderson was responsible for the company’s corporate finance activities including domestic and international tax, accounting, treasury, audit, investments, financial planning, acquisitions and real estate. Prior to joining Honeywell, Mr. Anderson held a number of other finance-related executive positions with ITT Corporation, Newport News Shipbuilding, RJR Nabisco and Quaker Oats Company.
Skills and Qualifications of Particular Relevance to Cardinal Health
Through his prior finance leadership positions as Chief Financial Officer at Honeywell and at other leading companies, Mr. Anderson brings to the Board relevant experience in the areas of global finance, management, executive leadership, strategic planning, acquisitions, information technology and international markets. His extensive finance expertise provides valuable insight in the areas of financial reporting and accounting and controls, as well as international tax and finance. He also brings to the Board valuable perspective and insights from his service on the boards of directors of American Electric Power, including its Audit and Finance Committees and B/E Aerospace, including its Audit Committee.
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Proposal 1—Election of Directors
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Colleen F. Arnold
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Age
59
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Director since
2007
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Senior Vice President, Sales and Distribution, International Business Machines Corporation (retired)
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Independent Director
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Director Qualification Highlights
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Other Public Boards:
None
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Technology
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International and Global Leadership
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Operations
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Executive Leadership
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Strategic Planning
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Ms. Arnold was Senior Vice President, Sales and Distribution of International Business Machines Corporation ("IBM"), a provider of systems, financing, software and services, from 2014 until her retirement in March 2016. Prior to that, she held a number of senior positions with IBM from 1998 to 2014, including Senior Vice President, Application Management Services, IBM Global Business Services, General Manager of GBS Strategy, Global Consulting Services, Global Industries and Global Application Services, General Manager, Europe, and General Manager, Australia, Global Services.
Skills and Qualifications of Particular Relevance to Cardinal Health
A former senior executive of IBM for over 17 years, Ms. Arnold's significant experience in the areas of global business operations and information technology contributes to the Board's discussions regarding information technology in our business and global strategies. Her extensive international business experience, including leadership of international commercial operations at IBM, provides valuable insight for our growing presence in international markets. She also brings to the Board more than 30 years of relevant experience in the areas of operations, management, executive leadership and strategic planning.
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George S. Barrett
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Age
61
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Director since
2009
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Chairman and Chief Executive Officer, Cardinal Health, Inc.
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Other Public Boards
: Eaton Corporation plc, a diversified power management company (2011 - 2015)
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Director Qualification Highlights
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Healthcare
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Operations
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Strategic Planning
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Executive Leadership
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International
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Regulatory / Public Policy
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Financial Expertise
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Mr. Barrett has served as Chairman and Chief Executive Officer of Cardinal Health, Inc. since 2009. He joined Cardinal Health in 2008 as Vice Chairman and Chief Executive Officer of the company's Healthcare Supply Chain Services segment. Prior to joining Cardinal Health, Mr. Barrett held a number of executive positions with Teva Pharmaceutical Industries Ltd., a multinational generic and branded pharmaceutical manufacturer, from 1999 to 2007, including President and Chief Executive Officer of Teva North America.
Skills and Qualifications of Particular Relevance to Cardinal Health
Having served in leadership positions with companies in the pharmaceutical industry for over 30 years, Mr. Barrett has extensive healthcare experience in the areas of operations, management, regulatory compliance, finance, executive leadership, strategic planning, human resources, corporate governance and global markets. As a result, he provides the Board with unique perspective and insights regarding our businesses and our growing international presence, industry, challenges and opportunities. He also brings to the Board valuable perspective and insights from his service on other public and not-for-profit boards of directors, including his prior service on Eaton’s board of directors.
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Proposal 1—Election of Directors
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Carrie S. Cox
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Age
59
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Director since
2009
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Chairman and Chief Executive Officer of Humacyte, Inc.; Executive Vice President and President of Global Pharmaceuticals, Schering-Plough Corporation (retired)
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Independent Director
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Director Qualification Highlights
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Other Public Boards:
Texas Instruments Incorporated, a developer, manufacturer and marketer of semiconductors (since 2004); Celgene Corporation, a biopharmaceutical company (since 2009)
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Healthcare
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International
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Operations
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Executive Leadership
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Strategic Planning
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Regulatory / Public Policy
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Ms. Cox has served as Chief Executive Officer of Humacyte, Inc., a privately held, development stage company focused on regenerative medicine, since 2010 and as Chairman of Humacyte since 2013. From 2003 to 2009, she served as Executive Vice President and President of Global Pharmaceuticals at Schering-Plough Corporation, a multinational branded pharmaceutical manufacturer. Ms. Cox previously was Executive Vice President and President of Global Prescription Business of Pharmacia Corporation from 1997 to 2003.
Skills and Qualifications of Particular Relevance to Cardinal Health
Through her roles as a former executive officer of Schering-Plough, President of Pharmacia's Global Prescription business and a licensed pharmacist, and now with Humacyte, Ms. Cox brings to the Board substantial expertise in healthcare, particularly the pharmaceutical and international aspects of our business. She has worked in the global pharmaceutical industry for over 30 years, giving her relevant experience with large, multinational pharmaceutical companies in the areas of operations, management, regulatory compliance, executive leadership, strategic planning and global markets. She also brings to the Board valuable perspective and insights from her service on the boards of directors of Texas Instruments, including its Compensation Committee and service as its Lead Director, and Celgene.
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Calvin Darden
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Age
66
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Director since
2005
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Senior Vice President of U.S. Operations of United Parcel Service, Inc. (retired)
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Independent Director
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Director Qualification Highlights
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Other Public Boards:
Target Corporation, an operator of large-format general merchandise discount stores (since 2003); Coca-Cola Enterprises, Inc., a marketer, manufacturer and distributor of nonalcoholic beverages in selected international markets (2004 - 2016)
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Operations
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Distribution / Supply Chain
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Executive Leadership
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Strategic Planning
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Labor Relations
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International
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Mr. Darden was Senior Vice President of U.S. Operations of United Parcel Service, Inc. ("UPS"), an express carrier and package delivery company, from January 2000 until his retirement in 2005. During his 33-year career with UPS, he served in a number of senior leadership positions, including developing the corporate quality strategy for UPS and leading the business and logistics operations for its Pacific Region, the largest region of UPS at that time.
Skills and Qualifications of Particular Relevance to Cardinal Health
A former executive officer of UPS, Mr. Darden has expertise in supply chain networks and logistics that contributes to the Board’s understanding of this important aspect of our business. He has over 30 years of relevant experience in the areas of operations, distribution and supply chain, executive leadership, efficiency and quality control, strategic planning and labor relations. As a former member of Coca-Cola Enterprises' board of directors, Mr. Darden provides the Board with a valuable understanding of distribution operations in international markets. He also brings to the Board valuable perspective and insights from his service on Target’s board of directors, including its Compensation Committee, and his prior service on Coca-Cola Enterprises’ Human Resources and Compensation Committee.
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Proposal 1—Election of Directors
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Bruce L. Downey
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Age
68
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Director since
2009
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Chairman and Chief Executive Officer of Barr Pharmaceuticals, Inc. (retired); Partner of NewSpring Health Capital II, L.P.
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Independent Director
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Director Qualification Highlights
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Other Public Boards:
Momenta Pharmaceuticals, Inc., a biotechnology company (since 2009)
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Healthcare
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Regulatory / Public Policy
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Operations
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International
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Financial Expertise
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Executive Leadership
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Strategic Planning
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Mr. Downey was Chairman and Chief Executive Officer of Barr Pharmaceuticals, Inc., a global generic pharmaceutical manufacturer, from 1994 to 2008. Mr. Downey has served on a part-time basis as a Partner of NewSpring Health Capital II, L.P., a venture capital firm, since 2009.
Skills and Qualifications of Particular Relevance to Cardinal Health
Having spent 14 years as Chairman and Chief Executive Officer of Barr Pharmaceuticals, Mr. Downey brings to the Board substantial global healthcare experience in the areas of operations, management, regulatory compliance, finance, executive leadership, strategic planning, human resources and corporate governance. He also offers valuable experience in the pharmaceutical and growing international aspects of our businesses, having served as Chief Executive Officer of Barr Pharmaceuticals. Mr. Downey brings to the Board valuable perspective and insights from his service on Momenta Pharmaceuticals’ board of directors, including its Audit Committee, and from his prior service as Chairman of Barr Pharmaceutical's board of directors. Before his career at Barr Pharmaceuticals, Mr. Downey was a practicing attorney for 20 years, having worked in both private practice and with the U.S. Department of Justice.
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Patricia A. Hemingway Hall
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Age
63
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Director since
2013
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President and Chief Executive Officer of Health Care Service Corporation (retired)
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Independent Director
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Director Qualification Highlights
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Other Public Boards:
ManpowerGroup, Inc., a workforce solutions company (since 2011)
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Healthcare
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Regulatory / Public Policy / Government
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Operations
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Financial Expertise
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Executive Leadership
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Strategic Planning
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Technology
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Ms. Hemingway Hall served as President and Chief Executive Officer of Health Care Service Corporation, a mutual health insurer ("HCSC"), from 2008 until her retirement in 2015. Previously, she held several leadership positions at HCSC, including President and Chief Operating Officer from 2007 to 2008 and Executive Vice President of Internal Operations from 2006 to 2007.
Skills and Qualifications of Particular Relevance to Cardinal Health
As retired President and Chief Executive Officer of HCSC, the largest customer-owned health insurer in the United States and fourth largest overall operating through Blue Cross and Blue Shield Plans in Texas, Illinois, Montana, New Mexico and Oklahoma, Ms. Hemingway Hall brings to the Board valuable experience regarding evolving healthcare payment models at a time of change and reform in the healthcare industry. She has worked in the healthcare industry for over 30 years, first as a registered nurse and most recently in health insurance, and has relevant experience in the areas of healthcare reform, operations, management, regulatory compliance, government relations, finance, executive leadership, strategic planning, technology and human resources. In addition, Ms. Hemingway Hall provides the Board with a deep understanding of operations, management and technology from her experience in previous roles at HCSC. She also brings to the Board valuable perspective and insights from her service on ManpowerGroup's board of directors, including its Audit Committee.
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Proposal 1—Election of Directors
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Clayton M. Jones
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Age
67
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Director since
2012
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Chairman, President and Chief Executive Officer of Rockwell Collins, Inc. (retired)
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Independent Director
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Director Qualification Highlights
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Other Public Boards:
Deere & Company, an agricultural and construction machinery manufacturer (since 2007); Motorola Solutions, Inc., a data communications and telecommunications equipment provider (since 2015); Rockwell Collins, Inc. (2001 - 2014)
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Operations
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Executive Leadership
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Strategic Planning
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Technology
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Financial Expertise
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International
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Regulatory / Public Policy / Government
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Mr. Jones served as Chairman of the Board of Rockwell Collins, Inc. ("Rockwell Collins"), a multinational aviation electronics and communications equipment company, from 2002 through 2014, and as Chief Executive Officer from 2001 until his retirement in 2013. He previously served as president of Rockwell Collins and corporate officer and senior vice president of Rockwell International, which he joined in 1979.
Skills and Qualifications of Particular Relevance to Cardinal Health
As retired Chairman, President and Chief Executive Officer of Rockwell Collins, Mr. Jones brings to the Board relevant experience in highly regulated industries as well as in the areas of operations, management, finance, executive leadership, strategic planning, information technology, human resources, corporate governance, international markets and government contracting. He provides the Board with a valuable understanding of commercial operations in international markets. As a former member of the President's National Security Telecommunications Advisory Committee and a current member of The Business Council, Mr. Jones provides insights in regulatory affairs, government and public policy matters. He also brings to the Board valuable perspective and insights from his service on Motorola Solutions' board of directors, including its Audit Committee, and Deere & Company's board of directors, as well as from his previous service as Chairman of Rockwell Collins' board of directors.
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Gregory B. Kenny
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Age
63
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Director since
2007
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President and Chief Executive Officer of General Cable Corporation (retired)
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Independent Lead Director
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Director Qualification Highlights
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Other Public Boards:
Ingredion Incorporated, a corn refining and ingredient company (since 2005); AK Steel Holding Corporation, an integrated producer of flat-rolled, carbon and electrical stainless steels and tubular products (since January 2016); General Cable Corporation (1997 - 2015)
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Executive Leadership
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Operations
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Strategic Planning
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International
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Financial Expertise
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Mr. Kenny served as President and Chief Executive Officer of General Cable Corporation, a global manufacturer of aluminum, copper and fiber-optic wire and cable products from 2001 until his retirement in 2015. Prior to that, he was President and Chief Operating Officer of General Cable from 1999 to 2001 and Executive Vice President and Chief Operating Officer from 1997 to 1999. Mr. Kenny previously also served in executive level positions at Penn Central Corporation, where he was responsible for corporate business strategy, and in diplomatic service as a Foreign Service Officer with the United States Department of State.
Skills and Qualifications of Particular Relevance to Cardinal Health
As retired Chief Executive Officer of General Cable, Mr. Kenny brings to the Board substantial experience in the areas of executive leadership, operations, management, finance, strategic planning, human resources, corporate governance and international markets. He provides the Board with a deep understanding of strategic and financial implications impacting a global business with manufacturing and distribution operations. Mr. Kenny also brings to the Board valuable perspective and insights from his service on Ingredion's board of directors and from his prior service on General Cable's board of directors. As our independent Lead Director, Mr. Kenny also draws upon his governance and leadership experience as Chair of our Human Resources and Compensation Committee from 2008 to 2014 and current Chair of our Nominating and Governance Committee, Chair of Ingredion's Corporate Governance and Nominating Committee since 2014 and Chair of the Compensation Committee of IDEX Corporation from 2003 to 2007.
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Cardinal Health
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2016 Proxy Statement
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Proposal 1—Election of Directors
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Nancy Killefer
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Age
63
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Director since
2015
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Senior Partner, Public Sector Practice, McKinsey & Company, Inc. (retired)
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Independent Director
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Director Qualification Highlights
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Other Public Boards:
The Advisory Board Company, a provider of software and solutions to the healthcare and education industries (since 2013); Avon Products, Inc., a global manufacturer and marketer of beauty products (since 2013); CSRA, Inc., a provider of information technology services to the U.S. federal government (since 2015); Computer Sciences Corporation, a global provider of information technology services (2013 - 2015)
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Strategic Planning
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Healthcare
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Regulatory / Public Policy / Government
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Technology
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Executive Leadership
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Financial Expertise
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Ms. Killefer served as Senior Partner of McKinsey & Company, Inc., a global management consulting firm, from 1992 until her retirement in 2013. She joined McKinsey in 1979 and held a number of key leadership roles, including serving as a member of the firm's governing board. Ms. Killefer founded McKinsey's Public Sector Practice in 2007 and served as its managing partner until her retirement. She also served as Assistant Secretary for Management, Chief Financial Officer and Chief Operating Officer for the United States Department of Treasury from 1997 to 2000.
Skills and Qualifications of Particular Relevance to Cardinal Health
Having served in key leadership positions in both the public and private sectors and provided strategic counsel to healthcare and consumer-based companies during her 30 years with McKinsey, Ms. Killefer brings to the Board substantial experience in the areas of strategic planning, including healthcare strategy, marketing and brand building, executive leadership and information technology. Her extensive experience as a partner of a global consulting firm and as a chief financial officer of a government agency provides valuable insight in these areas as well as in government relations and public policy. Ms. Killefer also brings to the Board valuable perspective and insights from her service on the boards of directors of The Advisory Board, Avon Products, including its Compensation and Management Development Committee, and CSRA, Inc., including her service as independent Chairman since August 2016.
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David P. King
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Age
60
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Director since
2011
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Chairman, President and Chief Executive of Laboratory Corporation of America Holdings
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Independent Director
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Director Qualification Highlights
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Other Public Boards:
Laboratory Corporation of America Holdings (since 2007)
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Healthcare
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Regulatory / Public Policy
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Strategic Planning
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Operations
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Executive Leadership
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Financial Expertise
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International
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Mr. King has served as President and Chief Executive Officer of Laboratory Corporation of America Holdings, a global healthcare diagnostics company ("LabCorp"), since 2007, and as Chairman of LabCorp since 2009. Previously he held other senior positions with LabCorp, including Executive Vice President and Chief Operating Officer, Executive Vice President, Strategic Planning and Corporate Development, and Senior Vice President, General Counsel and Chief Compliance Officer.
Skills and Qualifications of Particular Relevance to Cardinal Health
Having spent 15 years in senior executive roles with LabCorp, including the past nine years as its Chief Executive Officer, Mr. King brings to the Board substantial experience in the areas of healthcare, operations, management, regulatory compliance, finance, executive leadership, strategic planning, human resources, corporate governance and global healthcare markets. He also brings to the Board valuable perspective and insights from his position as Chairman of LabCorp’s board of directors. Before his career at LabCorp, Mr. King was a practicing attorney for 17 years, having worked in both private practice focusing on healthcare and with the U.S. Department of Justice.
The Board recommends that you vote FOR the election of these director nominees.
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2016 Proxy Statement
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Proposal 1—Election of Directors
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Our director nominees possess relevant experience, skills and qualifications that contribute to a well-functioning Board to effectively oversee the Company's strategy and management. A chart of director skills and expertise is provided below:
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Cardinal Health
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Corporate Governance
Board of Directors
Our Board of Directors currently consists of 11 members.
The Board held six meetings during fiscal 2016. During fiscal 2016 each director attended 75% or more of the meetings of the Board and Board committees on which he or she served. Ten of our
directors attended the 2015 Annual Meeting of Shareholders. Absent unusual circumstances, each director is expected to attend the Annual Meeting of Shareholders.
Board Leadership Structure
Under our Corporate Governance Guidelines, the Board is responsible for selecting the Chairman of the Board and the Chief Executive Officer. The Board, through the Nominating and Governance Committee, periodically reviews and assesses its leadership structure to ensure it is appropriate for the circumstances. The Board has determined that combining these roles, together with a strong independent Lead Director role, provides the most effective leadership structure for the Company at this time. This structure has allowed the Board to function effectively in fulfilling its responsibility for overseeing and providing appropriate input to management while fostering clear accountability and maintaining the Board's independence from management.
The Board has also determined that our Chief Executive Officer is best situated to serve as Chairman because of his unique knowledge of our business, industry and shareholders. By serving as both Chairman of the Board and Chief Executive Officer, Mr. Barrett has been able to draw on his knowledge of our daily operations, his knowledge of the healthcare industry and the developments within it, and his knowledge of our customers, vendors, employees, shareholders and other business partners to provide our Board with leadership in setting its agendas and focusing its discussions. This structure fosters effective decision-making and alignment between the Board and management, and allows a single person to speak on behalf of the Board and the company to our customers, vendors, employees, shareholders and regulators. After considering these factors and Mr. Barrett's strong and effective leadership of the Board, in August 2015 the Board renewed his employment agreement to continue to serve in the combined role of Chairman and Chief Executive Officer for an additional three years.
The Board ensures strong independent leadership through an active and engaged independent Lead Director with clearly defined responsibilities. The independent directors annually elect an independent director to serve as Lead Director. In selecting a Lead Director, the independent directors consider the skills and characteristics necessary to carry out the leadership
responsibilities assigned to the position, including promoting strong governance, open dialogue and engagement among all directors, and an understanding of the company's strategy, business and operations. The independent directors hold executive sessions during in-person board meetings in which Mr. Barrett and other members of management do not participate. The independent Lead Director:
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presides at all meetings of the Board at which the Chairman is not present, including executive sessions of the independent directors;
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has authority to call additional executive sessions of the independent directors;
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serves as a liaison between the Chairman and the independent directors;
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approves the information sent to the Board and approves the agenda and schedule for Board meetings;
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coordinates the Board's annual self-evaluation and reviews the results of the evaluation of individual directors with those directors;
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contributes to the annual performance review of the Chief Executive Officer; and
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participates in engagement with major shareholders.
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Mr. Kenny has served as Lead Director since November 2014. During his time serving in this role he has been actively engaged in Board leadership. He has chaired executive sessions of the independent directors, which were held at each of the five in-person Board meetings during fiscal 2016. Mr. Kenny also serves as Chair of the Nominating and Governance Committee and coordinates the annual evaluation of the Board and the individual evaluation of each director, including discussing with each Board member the results of his or her individual evaluation. Over the past year, Mr. Kenny has met regularly with Mr. Barrett and worked closely with him in developing Board agendas, schedules and topics, including discussions regarding long-term strategy and
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capital deployment. In addition, Mr. Kenny participated in the Compensation Committee discussions relating to the annual performance evaluation of, and compensation decisions regarding, Mr. Barrett. Finally, during the year, Mr. Kenny held
governance discussions with several large investors and attended a major healthcare investor conference with management, where he met with a large number of our investors.
Committees of the Board of Directors
The Board has established four committees: the Audit Committee, the Nominating and Governance Committee, the Human Resources and Compensation Committee and the Executive Committee. The charter for each committee is available on our website at
www.cardinalhealth.com
under “About Us — Corporate — Investor Relations — Corporate Governance — Board Committees and Charters.” This information also is available in print (free of charge) to any shareholder who requests it from our Investor Relations department.
For fiscal 2016, each member of the Audit, Nominating and Governance and Compensation Committees was determined by the Board to be independent as defined by the rules of the NYSE and in accordance with our Corporate Governance Guidelines. The chart below identifies the current committee members and the number of meetings held during fiscal 2016.
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Audit Committee
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Human Resources and Compensation Committee*
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Nominating and Governance Committee*
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Executive Committee*
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Meetings in Fiscal 2016: 9
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Meetings in Fiscal 2016: 6
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Meetings in Fiscal 2016: 4
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Meetings in Fiscal 2016: 0
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Members:
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Members:
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Members:
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Members:
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Clayton M. Jones (Chair)
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David P. King (Chair)
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Gregory B. Kenny (Chair)
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George S. Barrett (Chair)
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David J. Anderson
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Carrie S. Cox
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Colleen F. Arnold
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Clayton M. Jones
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Bruce L. Downey
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Calvin Darden
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Patricia A. Hemingway Hall
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Gregory B. Kenny
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Patricia A. Hemingway Hall
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Nancy Killefer
†
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David P. King
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*
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Richard C. Notebaert served on the Human Resources and Compensation, Nominating and Governance and Executive Committees until his term as a director expired at the 2015 Annual Meeting of Shareholders.
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†
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The Board appointed Ms. Killefer to the Compensation Committee effective November 2015.
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Audit Committee
The Audit Committee's primary duties are to assist the Board in overseeing:
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the integrity of our financial statements;
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the independent auditor’s qualifications, independence and performance;
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our internal audit function;
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the ethics and compliance program and our compliance with legal and regulatory requirements; and
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our process for assessing and managing risk.
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The Audit Committee reviews quarterly and annual financial statements, including earnings releases, before they are filed or announced. It also reviews matters such as the significant financial reporting issues and judgments made in connection with the preparation of our financial statements, the effect of regulatory and
accounting initiatives and the adequacy and effectiveness of our internal controls and disclosure controls and procedures.
The Audit Committee reviews quarterly reports from our Chief Legal and Compliance Officer regarding our ethics and compliance program, including compliance by Cardinal Health with applicable legal requirements and the
Standards of Business Conduct
described below. The Audit Committee discusses with management our major financial and information technology risk exposures and the steps management has taken to monitor and control these exposures, including our financial risk assessment and financial risk management policies. It also discusses with management and oversees our process for assessing and managing risk through our enterprise risk management process (see "Board's Role in Risk Oversight" on page 15 below).
The Audit Committee appoints, compensates and oversees the independent auditor, including resolution of any disagreements with management regarding financial reporting and overseeing the rotation of the lead audit partner as required by law. The Audit
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Committee also pre-approves all services provided by the independent auditor and reviews our internal audit plan and the functions as well as the structure of our internal audit department.
The Board has determined that each member of the Audit Committee is an “audit committee financial expert” for purposes of the SEC rules and is independent, including under the heightened independence requirements applicable for audit committee members as set forth in the NYSE rules.
Nominating and Governance Committee
The Nominating and Governance Committee’s primary duties are to:
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identify, review the qualifications of, and recruit candidates for the Board (consistent with criteria approved by the Board);
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annually review our Corporate Governance Guidelines and recommend changes to these Guidelines, as appropriate;
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make recommendations to the Board concerning the structure, composition and functions of the Board and its committees;
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review the Board's leadership and leadership structure and recommend changes to the Board as appropriate;
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perform a leadership role in shaping and overseeing our corporate governance practices;
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conduct the annual evaluation of the Board’s effectiveness and performance;
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oversee the orientation process for new directors and ongoing education for directors; and
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oversee our policies and practices regarding political expenditures and review corporate political contributions.
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In fulfilling the above duties, the Nominating and Governance Committee also considers and recommends criteria to the Board for identifying and evaluating potential Board candidates; reviews and considers any Board candidates recommended by shareholders; assesses the qualifications, attributes, skills, contributions and independence of individual directors; and considers and makes recommendations to the Board regarding any resignations tendered by a director.
Human Resources and Compensation Committee
The Compensation Committee’s primary duties are to:
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develop an executive compensation program to support overall business strategies and objectives, attract and retain executives, link compensation with business objectives and organizational performance and provide competitive compensation programs;
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approve compensation for the Chief Executive Officer, including relevant performance goals, and evaluate his performance;
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approve compensation for our other executive officers and oversee their evaluations;
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make recommendations to the Board with respect to the adoption of equity-based compensation plans and incentive compensation plans;
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review the outside directors’ compensation program and recommend any changes to the Board;
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oversee the management succession process for the Chief Executive Officer and senior executives;
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oversee workplace diversity initiatives and progress;
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oversee and assess the appropriateness of any material risks related to compensation arrangements; and
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assess the independence of compensation consultants or other outside advisors who provide advice to the Compensation Committee.
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The Compensation Discussion and Analysis, which begins on page 34, discusses how the Compensation Committee makes compensation-related decisions regarding our executive officers. The Compensation Committee acts as the administrator of our equity and non-equity incentive plans covering executive officers and other senior management. Generally, the Compensation Committee delegates to our officers authority to administer the plans, including selecting participants and determining award levels within plan parameters, but may not delegate any such responsibility with respect to our officers subject to Section 16 of the Exchange Act.
The Board has determined that each member of the Compensation Committee is independent, including under the heightened independence requirements applicable for compensation committee members as set forth in the NYSE rules.
Executive Committee
The Executive Committee is comprised of the Chairman and Chief Executive Officer, the chairpersons of each of the Audit, Nominating and Governance and Compensation Committees, and the independent Lead Director. The Committee acts from time to time on behalf of the Board when specific authority is delegated to it by the Board or to consider or act upon a matter promptly in intervals between meetings of the Board.
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12
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Cardinal Health
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2016 Proxy Statement
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Director Independence
The Board has established standards to assist it in determining director independence. These standards can be found within our Corporate Governance Guidelines on our website at
www.cardinalhealth.com
under “About Us — Corporate — Investor Relations — Corporate Governance — Corporate Governance Documents." They address, among other things, employment and compensation relationships, relationships with our auditor and customer and business relationships.
The Board assesses at least annually the independence of directors and, based on the recommendation of the Nominating and Governance Committee, determines which directors are independent. The Board has determined that each of Messrs. Anderson, Darden, Downey, Jones, Kenny and King, and each of Mmes. Arnold, Cox, Hemingway Hall and Killefer, is independent under the listing standards of the NYSE and our Corporate Governance Guidelines. The Board also previously determined that Mr. Notebaert, a director who served during fiscal 2016 through the date of our 2015 Annual Meeting of Shareholders, was independent.
In determining that Mr. Downey is independent, the Nominating and Governance Committee considered that he holds partnership
interests of less than 2% in NewSpring Health Capital II, L.P., which in turn held a minority interest in a small company that we acquired during fiscal 2016.
In determining that Mr. King is independent, the Nominating and Governance Committee considered that he is Chairman, President and Chief Executive Officer of LabCorp. We receive payments from LabCorp for medical and laboratory products that it purchases from us in the ordinary course of business. LabCorp's payments to us were less than 1% of our and less than 2% of LabCorp's revenue for each of the last three years.
The Board previously determined that each of Ms. Arnold, who retired as an executive officer of IBM in March 2016, and Ms. Hemingway Hall, who retired as Chief Executive Officer of HCSC in December 2015, was independent at the time each of them served as executives of those entities. The Nominating and Governance Committee considered that our relationships with both IBM and HCSC are in the ordinary course of business. For each of the last three years, our business with IBM was less than 1% of our and IBM's revenue, and our business with HCSC was less than 1% of our and HCSC's revenue.
Director Qualification Standards
The Nominating and Governance Committee reviews with the Board the appropriate skills and characteristics required of Board members and develops criteria for identifying and evaluating qualified Board candidates. These criteria, as described in our Corporate Governance Guidelines, include business experience, qualifications, attributes and skills, such as relevant industry knowledge, independence (including independence from the interests of a particular group of shareholders), judgment, integrity, ability to commit sufficient time and attention to the activities of the Board and the absence of potential conflicts with our interests.
The Nominating and Governance Committee considers the foregoing criteria when assessing the operation and goals of the Board as a whole and seeks to achieve diversity of skills, experience and backgrounds on the Board, including ethnic and gender diversity. The Nominating and Governance Committee assesses the effectiveness of this process by gathering data and discussing the diversity of the Board in the annual self-assessments of the Nominating and Governance Committee and the Board.
If the Nominating and Governance Committee believes that a potential candidate may be appropriate for the Board, the committee takes time to learn more about the candidate and gives the candidate an opportunity to learn more about Cardinal Health, the Board and its governance practices. Ultimately, the Board is responsible for selecting candidates for election as directors based on the recommendation of the Nominating and Governance Committee.
Shareholders also may nominate directors and request proxy access under which director nominees may be included in our proxy materials by satisfying the applicable provisions in the Code of Regulations. See "Submitting Proxy Proposals and Director Nominations for the Next Annual Meeting of Shareholders" on page 58.
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Cardinal Health
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2016 Proxy Statement
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13
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Board Performance Assessment
The Board, through the Nominating and Governance Committee, assesses its performance by conducting an annual evaluation. Each of the Audit, Nominating and Governance and Compensation Committees also conducts an annual self-evaluation. To facilitate this process, a third party experienced in corporate governance matters interviews each director to obtain his or her feedback regarding the effectiveness of the Board, which is compiled anonymously.
The Board evaluation process includes an assessment of both Board process and substance, including:
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the Board's effectiveness, structure, composition and culture;
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the Board's performance in key areas, including oversight of strategy, succession planning, regulatory compliance and risk management;
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specific agenda items which should be discussed in the future;
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quality of board discussions and the amount of time devoted to discussion; and
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overall Board dynamics.
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The Chair of the Nominating and Governance Committee leads a discussion with the Board in executive session based on feedback gathered by the outside facilitator. The Board identifies items for additional consideration, which are addressed at subsequent Board and committee meetings and reported back to full Board, where appropriate.
As part of the interview process, each director is also asked to provide feedback with respect to the performance of each other director. The Lead Director provides each director with feedback on his or her individual contribution to the Board and its committees. We believe this approach supports the Board's effectiveness and continuous improvement.
Resignation Policy for Incumbent Directors Not Receiving Majority Votes
Our Corporate Governance Guidelines require any incumbent director who is not re-elected by shareholders in an uncontested election to promptly tender a resignation to the Chairman of the Board. Within 90 days following the certification of the shareholder
vote, the Nominating and Governance Committee will recommend to the Board whether to accept the resignation. Thereafter, the Board will promptly act and publicly disclose its decision and the rationale behind the decision.
Communicating with the Board
Shareholders and other interested parties may communicate with the Board, any committee of the Board, any individual director or the independent directors as a group, by writing to the Office of the Corporate Secretary, Cardinal Health, Inc., 7000 Cardinal Place, Dublin, Ohio 43017 or sending an e-mail to bod@cardinalhealth.com. Communications from shareholders
will be distributed to the entire Board unless addressed to a particular committee, director or group of directors. The Corporate Secretary will not distribute communications that are unrelated to the duties of the Board, such as spam, junk mail, mass mailings, business solicitations and advertisements.
Shareholder Recommendations for Director Nominees
The Nominating and Governance Committee will consider candidates recommended by shareholders for election as director. Shareholder recommendations will be evaluated against the same criteria used to evaluate other director nominees, which criteria are discussed above under “Director Qualification Standards.” Shareholders who wish to recommend a candidate may do so by writing to the Nominating and Governance Committee in care of the Office of the Corporate Secretary, Cardinal Health, Inc., 7000 Cardinal Place, Dublin, Ohio 43017. To be considered by the Committee for consideration at the 2017 Annual Meeting of
Shareholders, a shareholder recommendation must be received no later than April 1, 2017.
Recommendations must include, at a minimum, the following information:
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the name and address of the shareholder making the recommendation;
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the name and address of the person recommended for nomination;
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Cardinal Health
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2016 Proxy Statement
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if the shareholder is not a shareholder of record, a representation and satisfactory proof of share ownership;
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a statement in support of the shareholder’s recommendation, including sufficient information to permit the Nominating and Governance Committee to evaluate the candidate’s qualifications, skills and experience;
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a description of all direct or indirect arrangements or understandings between the shareholder and the candidate recommended by the shareholder;
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information regarding the candidate as would be required to be included in a proxy statement filed in accordance with SEC rules; and
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the candidate’s written, signed consent to serve if elected.
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Shareholders who wish to nominate directors directly for election at an Annual Meeting of Shareholders in accordance with the procedures in our Code of Regulations, including under our proxy access provision, should follow the instructions under “Submitting Proxy Proposals and Director Nominations for the Next Annual Meeting of Shareholders" on page 58 and the details contained in our Code of Regulations.
Strategy and Risk Oversight
Board’s Oversight of Strategy
The Board regularly discusses the strategic direction and opportunities for the company in light of company performance, developments and trends in the healthcare industry and the general business and economic environment. Throughout the year, the Board in its oversight capacity provides guidance to management on strategy and business plans and reviews and approves capital deployment, including dividends, share repurchase plans and large acquisitions. In addition, at two regular meetings each year, the Board holds in-depth strategy sessions with senior management to discuss external environmental factors and review specific businesses and new business opportunities. In the last three years, these strategy sessions have included external speakers such as business partners and advisors, as well as off-site visits to company facilities and customer locations. The Board also discusses risks related to our strategies, including those resulting from the changing U.S. healthcare environment. The full Board is supported in its strategic planning and risk oversight function through the collective backgrounds, skills and experiences of our directors.
Board’s Role in Risk Oversight
The Board is responsible for overseeing our policies and programs for assessing and managing risk. Management is responsible for assessing and managing our exposures to risk on a day-to-day basis, including the creation of appropriate risk management policies and procedures. Management also is responsible for reviewing with the Board our most significant risks and plans for managing those risks.
To assist the Board and management in exercising their respective responsibilities, we have developed an enterprise risk management process that our Audit Committee oversees and our Chief Legal and Compliance Officer administers. Under this process, management identifies and prioritizes enterprise risks and develops systems to assess, monitor and mitigate those risks. Management reviews and discusses with the Board significant risks identified through the process. The Audit Committee also is responsible for discussing with management our major financial risk exposures, as well as our ethics and compliance program, compliance with legal and regulatory requirements and associated risks. In connection with its risk oversight role, the Audit Committee regularly meets with representatives from our independent registered public accounting firm and our Chief Financial Officer, Chief Legal and Compliance Officer and the head of our internal audit function. In addition, the Board and Audit Committee receive regular updates on business information systems risks and cyber security risks and mitigation strategies.
Risk Assessment of Compensation Programs
Management has assessed our compensation programs and concluded that our compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on Cardinal Health. This risk assessment included reviewing the design and operation of our compensation programs, identifying and evaluating situations or compensation elements that could raise more significant risks and evaluating other controls and processes designed to identify and manage risk. The Compensation Committee reviewed and discussed the risk assessment and the Committee's independent compensation consultant reviewed the risk assessment and concurred with management's conclusion.
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Cardinal Health
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2016 Proxy Statement
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15
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Ethics and Compliance Program
The Board has adopted written
Standards of Business Conduct
that outline our corporate values and standards of integrity and behavior. The Standards of Business Conduct are designed to foster a culture of integrity, drive compliance with legal and regulatory requirements and protect and promote the reputation of our company. The full text of the
Standards of Business Conduct
is posted on our website at
www.cardinalhealth.com
under “About Us — Our Business — Ethics and Compliance.” This information also is available in print (free of charge) to any shareholder who requests it from our Investor Relations department.
Our Chief Legal and Compliance Officer has responsibility to implement and maintain an effective ethics and compliance program. He also has responsibility to provide quarterly updates on our ethics and compliance program to the Audit Committee and an update to the full Board at least once a year. He reports to the Chair of the Audit Committee and to the Chief Executive Officer and meets in separate executive sessions quarterly with the Audit Committee.
Management Succession Planning
The Board is actively engaged in our talent management program. The Compensation Committee oversees the process for succession planning for the Chief Executive Officer and senior executives, and management provides an organizational update at each quarterly Compensation Committee meeting. The Board maintains an emergency succession plan as well as a long-term succession plan for the position of Chief Executive Officer. The Board holds a formal succession planning and talent review
session annually which includes succession planning for other senior management positions. These talent review and succession planning discussions take into account desired leadership skills, key capabilities and experience in light of our current and evolving business and strategic direction. Directors also have exposure to leaders through Board presentations and discussions, as well as informal events and interactions with key talent throughout the year.
Recognizing the benefits that come from dialogue with our shareholders, we have had a proactive, extensive shareholder engagement program for many years. We engage with shareholders throughout each year in order for management and the Board to better understand shareholder views and perspectives on governance, executive compensation and other topics that are important to them. During the past two years, our
independent Lead Director participated in outreach discussions with several of our largest shareholders. In addition, as in past years, we contacted governance professionals from our largest shareholders collectively owning more than 50% of our outstanding shares during fiscal 2016. An overview of our engagement process is below.
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2016 Proxy Statement
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After considering feedback received from shareholders in recent years, we have:
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adopted a proxy access right for shareholders;
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enhanced our disclosures regarding the Board's role in strategy and risk oversight;
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formalized additional responsibilities for the independent Lead Director and enhanced our disclosure about the Lead Director’s activities;
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formalized our annual individual director evaluation process and expanded our disclosure about the annual Board evaluation process;
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expanded and enhanced the Proxy Summary and the Compensation Discussion and Analysis Executive Summary;
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enhanced readability of our proxy statement with graphics, charts and colors; and
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added a chart of director qualifications and experience on page 9 of this proxy statement.
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Corporate Governance Guidelines
You can find the full text of our Corporate Governance Guidelines on our website at
www.cardinalhealth.com
under “About Us —Corporate — Investor Relations — Corporate Governance —
Corporate Governance Documents.” This information also is available in print (free of charge) to any shareholder who requests it from our Investor Relations department.
Proxy Access
In June 2016, following input from our shareholders, the Board amended our Code of Regulations to include a provision for proxy access. Under proxy access, a shareholder, or a group of up to 20 shareholders, owning at least three percent of our outstanding common shares continuously for at least three years, may nominate and include in our proxy materials director nominees
constituting up to the greater of two nominees or 20% of the Board, if the shareholders and the nominees satisfy the requirements specified in our Code of Regulations. See “Submitting Proxy Proposals and Director Nominations for the Next Annual Meeting of Shareholders" on page 58.
Other Matters
Submitting Proxy Proposals and Director Nominations for the Next Annual Meeting of Shareholders
If you intend to present a proposal to be included in the proxy statement and form of proxy relating to our 2017 Annual Meeting of Shareholders under Exchange Act Rule 14a-8, we must receive the proposal at our principal executive office not later than the close of business (5:00 p.m. Eastern Time) on May 19, 2017. The proposal should be addressed to our Corporate Secretary at Cardinal Health, Inc., 7000 Cardinal Place, Dublin, Ohio 43017. We will not be required to include in our proxy statement or form of proxy a shareholder proposal that we receive after that date or that otherwise fails to meet the requirements for shareholder proposals established by SEC regulations.
If you intend to present a proposal for other business, or a nomination for election to the Board of Directors, at our 2017 Annual Meeting of Shareholders (other than any such proposal included in our proxy statement and form of proxy under Exchange Act Rule 14a-8), you must comply with the notice requirements set forth in our Code of Regulations and such business must be a proper matter for shareholder action. Among other requirements, you must deliver proper written notice to our Corporate Secretary at our principal executive office no earlier than July 6, 2017 and
no later than the close of business on August 5, 2017. If the date of the 2017 Annual Meeting of Shareholders is more than 30 days before, or more than 60 days after, November 3, 2017, written notice must be delivered after the close of business on the 120th day prior to the meeting, but before the close of business on the later of the 90th day prior to the meeting or the 10th day after we first publicly announce the date of the meeting.
If you intend to request that director nominees be included in our proxy materials under our new proxy access provision, you must comply with the notice and other requirements set forth in our Code of Regulations. Among other requirements, you must deliver proper written notice to our Corporate Secretary at our principal executive office no earlier than April 19, 2017 and not later than the close of business on May 19, 2017. If the date of the 2017 Annual Meeting of Shareholders is more than 30 days before, or more than 60 days after, November 3, 2017, written notice must be delivered after the close of business on the 150th day prior to the meeting, but before the close of business on the later of the 120th day prior to the meeting or the 10th day after we first publicly announce the date of the meeting.
Other Information
This solicitation of proxies is made by and on behalf of the Board of Directors. The cost of the solicitation will be borne by Cardinal Health. In addition to solicitation by mail, proxies may be solicited by our directors, officers and employees in person or by telephone or other means of communication. These individuals will receive no additional compensation for soliciting proxies but may be reimbursed for reasonable out-of-pocket expenses in connection with such solicitation. We have retained Alliance Advisors at an estimated cost of $16,000, plus reimbursement of expenses, to assist in our solicitation of proxies from brokers, nominees, institutions and individuals. We also will make arrangements with custodians, nominees and fiduciaries to forward proxy solicitation materials to beneficial owners of shares held of record by such custodians, nominees and fiduciaries, and we will reimburse these persons for reasonable expenses they may incur.
If you and other residents at your mailing address own common shares in street name, your broker or bank may have sent you a notice that your household will receive only one set of proxy materials unless you instruct otherwise. This practice is known as “householding,” and is designed to reduce our printing and postage
costs. However, if you wish to receive, now or in the future, a separate annual report and proxy statement, you may write to our Investor Relations department at 7000 Cardinal Place, Dublin, Ohio 43017, or call the Investor Relations Line at (614) 757-4757. We will promptly deliver a separate copy (free of charge) upon request. If you and other residents at your mailing address are currently receiving multiple copies of annual reports and proxy statements and wish to receive only a single copy, you should contact your broker or bank directly.
By Order of the Board of Directors.
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JESSICA L. MAYER
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Senior Vice President, Deputy General Counsel and Corporate Secretary
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September 16, 2016
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2016 Proxy Statement
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APPENDIX A
Amended
Cardinal Health, Inc. 2011 Long-Term Incentive Plan
(As Amended November 3, 2016)
The purpose of the Plan is to align with the interests of shareholders the compensation of key personnel whose long-term employment is considered
essential
important
to the Company’s continued progress and, thereby, encourage such personnel to act in the shareholders’ interest and share in the Company’s success. The Plan also is intended to
provide an opportunity to incentivize or reward key personnel and to
assist the Company in the recruitment of new employees
, including through the award of annual cash incentives
.
As used herein, the following definitions apply:
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(a)
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“
2005
2007 Directors
Plan”
means the Cardinal Health, Inc.
2005 Long-Term
2007 Nonemployees Directors Equity
Incentive Plan, as
amended and restated as of November 5, 2008, as further
amended. No awards may be granted under the
2005
2007 Directors
Plan following the
effective
date of the
Plan
Company’s 2016 Annual Meeting of Shareholders
.
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(b)
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“
Administrator
” means the Board,
any
the
Committee, or such delegates as may be administering the Plan in accordance with Section 4 of the Plan.
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(c)
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“
Affiliate
” means any Subsidiary or other entity that is directly or indirectly controlled by the Company or any entity in which the Company has a significant ownership interest as determined by the Administrator.
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(d)
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“
Applicable Law
” means the requirements relating to the administration of incentive plans under U.S. federal and state laws, any stock exchange or quotation system on which the Company has listed or submitted for quotation the Common Shares to the extent provided under the terms of the Company’s agreement with such exchange or quotation system, and, with respect to Awards subject to the laws of any foreign jurisdiction where Awards are, or will be, granted under the Plan, the laws of such jurisdiction.
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(e)
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“
Award
” means a Cash Award, Stock Award, Option, Stock Appreciation Right, or Other Stock-Based Award granted in accordance with the terms of the Plan.
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(f)
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“
Awardee
” means
an Employee
a person
who has been granted an Award under the Plan.
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(g)
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“
Award Agreement
” means
a Cash Award Agreement, Stock Award Agreement, Option Agreement, Stock Appreciation Right Agreement, and/or Other Stock-Based Award Agreement, which may be
one or more documents prepared by the Company,
in written or electronic format,
in such form and with such terms as may be specified by the Administrator, evidencing
that individually or collectively set forth
the terms and conditions of an
individual Award. Each Award Agreement is subject to the terms and conditions of the Plan.
Award as authorized or approved by the Administrator and granted under the Plan. An Award Agreement may be in the form of either (i) an agreement that is accepted, acknowledged or consented to (including by negative consent) by the Awardee or (ii) certificates, notices or other documents evidencing the Award.
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(h)
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“
Board
” means the Board of Directors of the Company.
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(i)
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“
Cash Award
” means a
cash
bonus opportunity awarded under Section 13 of the Plan pursuant to which a Participant may become entitled to receive an amount
denominated in dollars or another appropriate currency
based on the satisfaction of such performance
or vesting
criteria as are specified in the
agreement or, if no agreement is entered into with respect to the Cash Award, other documents evidencing the Award (the “Cash
Award Agreement
”)
.
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Cardinal Health
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2016 Proxy Statement
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A-1
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(j)
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“
Change of Control
” means
, except as may otherwise be provided in an applicable Award Agreement,
any of the following:
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(i)
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the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or more of either (A) the then outstanding Common Shares
of the Company
(the “Outstanding Company Common Shares”), or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of Directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this subsection (i), the following acquisitions do not constitute a Change of Control: (W) any acquisition directly from the Company or any corporation controlled by the Company; (X) any acquisition by the Company or any corporation controlled by the Company; (Y) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; or (Z) any acquisition by any corporation that is a Non-Control Acquisition (as defined in subsection (iii) of this Section 2(j)); or
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(ii)
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during any period of two consecutive years, individuals who, as of the beginning of such two-year period, constitute the Board of the Company (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board of the Company; provided, however, that any individual becoming a Director subsequent to the beginning of such two-year period whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the Directors then comprising the Incumbent Board will be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or
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(iii)
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consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company or the acquisition by the Company of assets or shares of another corporation (a “Business Combination”), unless, such Business Combination is a Non-Control Acquisition. A “Non-Control Acquisition” means a Business Combination where: (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Shares and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Business Combination of the Outstanding Company Common Shares and Outstanding Company Voting Securities, as the case may be; (B) no Person (excluding any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 30% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination (including any ownership that existed in the Company or the company being acquired, if any); and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or
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(iv)
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approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.
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For purposes of this definition, (A) the term “corporation” includes a business entity of any type, including without limitation a partnership or a limited liability company, (B) the term “board of directors” includes the governing body of a business entity other than a corporation having the same general authority as the board of directors of a corporation, and (C) the term “common stock” includes the common equity of a business entity other than a corporation.
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(k)
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“
Code
” means the U.S. Internal Revenue Code of 1986, as amended.
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A-2
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Cardinal Health
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2016 Proxy Statement
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(l)
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“
Committee
” means
a
the Human Resources and Compensation Committee of the Board or another
committee
of Directors
appointed by the Board
from among its members
in accordance with Section 4 of the Plan
or the Human Resources and Compensation Committee of the Board
.
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(m)
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“
Common Shares
” means the common shares, without par value, of the Company.
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(n)
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“
Company
” means Cardinal Health, Inc., an Ohio corporation, or, except as utilized in the definition of Change of Control, its successor.
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(o)
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“
Conversion Awards
” has the meaning set forth in Section 4(b)(xii) of the Plan.
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(p)
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“
Director
” means a member of the Board.
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(q)
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“
Disability
,” unless the Administrator determines otherwise, has the meaning specified in the Company’s long-term disability plan applicable to the Participant at the time of the disability.
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(r)
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“
Disaffiliation
” means
a Subsidiary’s or
an
Affiliate’s ceasing to be
a Subsidiary or
an
Affiliate for any reason (including, without limitation, as a result of a public offering, or a
spinoff
spin-off
or sale by the Company, of the stock of the
Subsidiary or
Affiliate) or a sale of a division of the Company and its Affiliates.
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(s)
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“
Employee
” means a regular, active employee of the Company or any Affiliate, or a person who has agreed to commence serving as an employee of the Company or any Affiliate within 90 days of the Grant Date, including an Officer and/or Director who is also a regular, active employee of the Company or any Affiliate. For any and all purposes under the Plan, except as provided in Section 4(b)(viii), the term “Employee” does not include a person hired as an independent contractor, leased employee, consultant, or a person otherwise designated by the Administrator, the Company or an Affiliate at the time of hire as not eligible to participate in or receive benefits under the Plan or not on the payroll, even if such ineligible person is subsequently determined to be a common law employee of the Company or an Affiliate or otherwise an employee by any governmental or judicial authority. Unless otherwise determined by the Administrator in its sole discretion, for purposes of the Plan, an Employee is considered to have terminated employment and ceased to be an Employee if his or her employer ceases to be an Affiliate, even if he or she continues to be employed by such employer.
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(t)
|
“
Exchange Act
” means the Securities Exchange Act of 1934, as amended.
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(u)
|
“
Fair Market Value
” means the fair market value of the Common Shares as determined by the Administrator from time to time. Unless otherwise determined by the Administrator, the fair market value is the closing price for the Common Shares reported on a consolidated basis on the New York Stock Exchange on the relevant date or, if there were no sales on such date, the closing price on the nearest preceding date on which sales occurred.
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(v)
|
“
Grant Date
” means, with respect to each Award, the date upon which an Award that is granted to an Awardee pursuant to the Plan becomes effective, which will not be earlier than the date of action by the Administrator.
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(w)
|
“
Incentive Stock Option
” means an Option that is identified in the
Option
Award
Agreement as intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder, and that actually does so qualify.
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(x)
|
“
Non-Employee Director
” means a Director who is not an employee of the Company or any of its Affiliates.
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(y)
|
(x)
“
Nonqualified Stock Option
” means an Option that is not an Incentive Stock Option.
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(z)
|
(y)
“
Officer
” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.
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(aa)
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(z)
“
Option
” means a right granted under Section 8 of the Plan to purchase a number of Shares at such exercise price, at such times, and on such other terms and conditions as are specified in the
agreement or other documents evidencing
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the
Award
(the “Option
Agreement
”)
. Both Incentive Stock Options and Nonqualified Stock Options may be granted under the Plan.
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(bb)
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(aa) “
Other Stock-Based Award
” means an Award granted pursuant to Section 12 of the Plan on such terms and conditions as are specified in the agreement or other documents evidencing the Award (the “Other Stock-Based Award Agreement”).
“
Other Stock-Based Award
” means any other type of equity-based or equity-related Award not otherwise described by the terms of the Plan (including the grant or offer for sale of unrestricted Shares) granted under Section 12 of the Plan in such amount and subject to such terms and conditions as the Administrator will determine. Such Awards may involve the transfer of actual Shares to Participants, or payment in cash or otherwise of amounts based on the value of Shares.
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(cc)
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(bb)
“
Participant
” means the Awardee or any person (including any estate) to whom an Award has been assigned or transferred as permitted hereunder.
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(dd)
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(cc)
“
Plan
” means this
Amended Cardinal Health, Inc.
2011 Long-Term Incentive Plan
, which was originally approved at the 2011 Annual Meeting of Shareholders and was amended effective as of the date of the Company’s 2016 Annual Meeting of Shareholders, subject to shareholder approval at such Annual Meeting of Shareholders
.
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(ee)
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(dd)
“Prior Plans”
means the
Cardinal Health, Inc.
2005
Long-Term Incentive
Plan
, as amended
, the Cardinal Health, Inc. Amended and Restated Equity Incentive Plan, as amended, and the Cardinal Health, Inc. Broadly-based Equity Incentive Plan, as amended.
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(ff)
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(ee)
“
Qualifying Performance Criteria
” has the meaning set forth in Section 14(b) of the Plan.
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(gg)
|
(ff)
“
Replaced Award
” has the meaning set forth in Section 16(b)(i) of the Plan.
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(hh)
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(gg)
“
Replacement Award
” has the meaning set forth in Section 16(b)(i) of the Plan.
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(ii)
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(hh)
“
Retirement
” means, unless the Administrator determines otherwise, Termination of Employment (other than by death or Disability and other than in the event of Termination for Cause) by an Awardee from the Company and its Affiliates after attaining age 55 and having at least 10 years of continuous service with the Company and its Affiliates, including service with an Affiliate of the Company prior to the time that such Affiliate became an Affiliate of the Company.
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(jj)
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(ii)
“
Securities Act
” means the Securities Act of 1933, as amended.
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(kk)
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(jj)
“
Share
” means a Common Share, as adjusted in accordance with Section 16 of the Plan
, or any security into which such Common Shares may be changed by reason of any transaction or event of the type referred to in Section 16(a) of the Plan
.
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(ll)
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(kk)
“
Stock Appreciation Right
” means a right granted under Section 10 of the Plan on such terms and conditions as are specified in the
agreement or other documents evidencing the Award (the “Stock Appreciation Right
Award
Agreement
”)
.
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(mm)
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(ll)
“
Stock Award
” means an award or issuance of Shares or Stock Units made under Section 11 of the Plan, the grant, issuance, retention, vesting, and/or transferability of which is subject during specified periods of time to such conditions (including without limitation continued employment or performance conditions) and terms as are expressed in the
agreement or other documents evidencing the Award (the “Stock
Award Agreement
”)
.
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(nn)
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(mm)
“
Stock Unit
” means a bookkeeping entry representing an amount equivalent to one Share, payable in cash, property, or Shares
, as determined by the Administrator
. Stock Units represent an unfunded and unsecured obligation of the Company, except as otherwise provided for by the Administrator.
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(oo)
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(nn)
“
Subsidiary
” means any company (other than the Company) in an unbroken chain of companies beginning with the Company, provided each company in the unbroken chain (other than the Company) owns, at the time of determination,
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stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other companies in such chain.
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(pp)
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(oo)
“
Termination for Cause
” means, unless otherwise provided in an Award Agreement, Termination of Employment on account of any act of fraud or intentional misrepresentation or embezzlement, intentional misappropriation, or conversion of assets of the Company or any Affiliate, or the intentional
and repeated
violation of the written policies or procedures of the Company, provided that for an Employee who is party to an individual severance or employment agreement defining Cause, “Cause” has the meaning set forth in such agreement. For purposes of the Plan, a Participant’s Termination of Employment will be deemed to be a Termination for Cause if, after the Participant’s employment has terminated, facts and circumstances are discovered that would have justified, in the opinion of the
Committee
Administrator
, a Termination for Cause.
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(qq)
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(pp)
“
Termination for Good Reason
” means, unless otherwise provided in an Award Agreement or an individual severance or employment agreement to which the Employee is a party, Termination of Employment by an Employee on account of any of the following: (i) a material reduction in the Employee’s total compensation
and such reduction is not related to either individual or corporate performance
; (ii) a material reduction in the Employee’s annual or long-term incentive opportunities (including a material adverse change in the method of calculating the Employee’s annual or long-term incentives); (iii) a material diminution in the Employee’s duties, responsibilities, or authority; or (iv) a relocation of more than 50 miles from the Employee’s office or location, except for travel reasonably required in the performance of the Employee’s responsibilities.
Notwithstanding the foregoing, no Termination of Employment by the Employee will constitute a “Termination for Good Reason” unless (A) the Employee gives the Company written notice of the event described in clauses (i) through (iv) above giving rise to the Employee’s intended Termination for Good Reason within 60 days following the occurrence of such event, (B) the Company does not remedy such event (if it can be remedied) within 30 days of the date of receipt of such written notice, and (C) the Employee terminates employment within 30 days of the end of such cure period.
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(rr)
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(qq)
“
Termination of Employment
” means, unless otherwise provided in an Award Agreement, ceasing to be an Employee; provided, however, that, unless otherwise determined by the Administrator, for purposes of this Plan an Awardee is not deemed to have had a Termination of Employment if such Awardee continues to be
or
, or in connection with ceasing to be an Employee
becomes
,
a
Non-Employee
Director. Notwithstanding the foregoing, the Administrator also may determine that, for purposes of the Plan, an Awardee is not deemed to have had a Termination of Employment if such Awardee continues to be or becomes an independent contractor, leased employee, or consultant to the Company. Also notwithstanding the foregoing, for purposes of Incentive Stock Options, Termination of Employment will occur when the Awardee ceases to be an employee (as determined in accordance with Section 3401(c) of the Code and the regulations promulgated thereunder) of the Company or one of its Subsidiaries.
With respect to a Non-Employee Director, references to “employment” shall be deemed to refer to service as a Director and “Termination of Employment” shall mean ceasing to serve as a Director.
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3.
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Shares Subject to the Plan.
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(a)
Aggregate Limit
. Subject to the provisions of Section 16(a) of the Plan, the maximum aggregate number of Shares which may be issued or transferred based on Awards granted under the Plan is 30,000,000 Shares, plus
any
(i) 9,608,190
Shares
that become
, which became
available under the Plan
as a result of forfeiture, expiration, or cash settlement of awards or as a result of shares being withheld or tendered
between September 6, 2011 and June 30, 2016 as a result of the share counting provisions contained in the Plan prior to the Company’s 2016 Annual Meeting of Shareholders and which relate to Shares subject to awards previously granted under the Prior Plans that were forfeited or expired or were tendered or withheld
to satisfy withholding tax liabilities on awards other than options or stock appreciation rights
previously granted under the Prior Plans, in each case as provided in Section 3(c)(ii) below
, and (ii) after the date of the Company’s 2016 Annual Meeting of Shareholders, an additional 5,000,000 Shares
. The aggregate number of Shares available for issuance or transfer under the Plan
will be
is
reduced by (i) one Share for every
one Share subject to an option or stock appreciation right granted under the 2005 Plan between September 6, 2011 and the effective date of the Plan pursuant to Section 6 below, (ii) two and one-half Shares for every one Share subject to an award other than an option or stock appreciation right granted under the 2005 Plan between September 6, 2011 and the effective date of the Plan, (iii) one Share for every one
Share issued or transferred upon exercise of an Option or Stock Appreciation Right granted under the Plan, and (
iv
ii
) two and one-half Shares for every
one
Share issued or transferred in connection with an Award other than
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an Option or Stock Appreciation Right granted under the Plan. Subject to the provisions of Section 3(c) of the Plan, Shares covered by an Award granted under the Plan will not be counted as used unless and until they are actually issued or transferred.
(b)
Code
Section
Sections
162(m) and 422
and Director Compensation
Limits
.
(i)
Subject to the provisions of Section 16(a) of the Plan, the aggregate number of Shares as of the Grant Date that may be subject to Options and Stock Appreciation Rights granted under the Plan during any fiscal year to any one Awardee may not exceed 1,500,000 Shares.
(ii)
Subject to the provisions of Section 16(a) of the Plan, the aggregate number of Shares as of the Grant Date that may be subject to Stock Awards and Other Stock-Based Awards granted under the Plan during any fiscal year to any one Awardee that are intended to satisfy the requirements for “performance-based compensation” under Section 162(m) of the Code may not exceed 750,000 Shares.
(iii)
The aggregate maximum value as of the Grant Date of Cash Awards granted under the Plan during any fiscal year to any one Awardee that are intended to satisfy the requirements for “performance-based compensation” under Section 162(m) of the Code may not exceed U.S.$10,000,000.
(iv)
Subject to the provisions of Section 16(a) of the Plan, the aggregate number of Shares that may be issued or transferred upon the exercise of all Incentive Stock Options granted under the Plan is 20,000,000 Shares.
(v)
Notwithstanding anything to the contrary in this Section 3(b), with respect to any Non-Employee Director, the aggregate dollar value of (A) any Share-based Awards granted under the Plan (based on the grant date fair value of Share-based Awards as determined for financial reporting purposes) and (B) any cash compensation otherwise paid by the Company with respect to the Non-Employee Director’s service as a Director for any fiscal year may not exceed $600,000. The Board may make an exception to the foregoing limit for a non-executive chair of the Board.
Notwithstanding anything to the contrary in the Plan, the limitations set forth in
this Section
Sections
3(b
)(i) and (ii
) are subject to adjustment under Section 16(a) of the Plan only to the extent that such adjustment does not affect the status of any Award intended to qualify as “performance-based compensation” under Section 162(m) of the Code.
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(c)
|
Share Counting Rules.
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(i)
If any
Shares issued or transferred pursuant to an
Award
are
is
forfeited,
or an Award
cancelled,
expires or is settled for cash (in whole or in part), the Shares issued or transferred pursuant to
or otherwise subject to
such Award will, to the extent of such forfeiture,
cancellation,
expiration, or cash settlement, again be available for issuance or transfer under Section 3(a) above in accordance with Section 3(c)(
v
iv
) below. In the event that withholding tax liabilities arising from an Award other
than
an Option or Stock Appreciation Right are satisfied by the tendering of Shares (either actually or by attestation) or by the withholding of Shares by the Company, the Shares so tendered or withheld will again be available for issuance or transfer under Section 3(a) above in accordance with Section 3(c)(
v
iv
) below.
(ii) If after September 6, 2011, any Shares subject to an award granted under the Prior Plans are forfeited, or an award granted under the Prior Plans expires or is settled for cash (in whole or in part), the Shares subject to such award will, to the extent of such forfeiture, expiration, or cash settlement, be available for issuance or transfer under Section 3(a) above in accordance with Section 3(c)(v) below. In the event that, after September 6, 2011, withholding tax liabilities arising from an award other than an option or stock appreciation right granted under the Prior Plans are satisfied by the tendering of Shares (either actually or by attestation) or by the withholding of Shares by the Company, the Shares so tendered or withheld will be available for issuance or transfer under Section 3(a) above in accordance with Section 3(c)(v) below.
(ii)
(iii)
Notwithstanding anything to the contrary contained in this Section 3, the following Shares will not be added to the aggregate number of Shares available for issuance or transfer under Section 3(a) above: (A) Shares tendered by the Participant or withheld by the Company in payment of the exercise or purchase price of an Option
(or an option granted under the Prior Plans)
, or to satisfy any tax withholding obligation with respect to Options or Stock Appreciation Rights
(or options or stock appreciation rights granted under the Prior Plans)
; (B) Shares subject to a Stock Appreciation Right
(or a stock appreciation right granted under
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the Prior Plans)
that are not issued in connection with its Share settlement on exercise thereof; and (C) Shares reacquired by the Company on the open market or otherwise using cash proceeds from the exercise of Options
(or options granted under the Prior Plans)
.
(iii)
(iv)
Shares issued or transferred under Conversion Awards will not reduce the aggregate number of Shares available for issuance or transfer
under the Plan or count against the other limitations under Sections 3(b)(i) through 3(b)(iii) of the Plan, nor will Shares subject to a Conversion Award again be available for Awards under the Plan as provided in
Sections
Section
3(c)(i
) through 3(c)(iii
) above. Additionally, in the event that a company acquired by the Company or any
Subsidiary
Affiliate
or with which the Company or any
Subsidiary
Affiliate
combines has shares available under a pre-existing plan approved by shareholders and not adopted in contemplation of such acquisition or combination, the shares available for grant pursuant to the terms of such pre-existing plan (as adjusted, to the extent appropriate, using the exchange ratio or other adjustment or valuation ratio or formula used in such acquisition or combination to determine the consideration payable to the holders of common stock of the entities party to such acquisition or combination) may be used for Awards under the Plan and will not reduce the Shares available for issuance or transfer under the Plan; provided that Awards using such available shares may not be made after the date awards or grants could have been made under the terms of the pre-existing plan, absent the acquisition or combination, and may only be made to individuals who were not Employees or Directors prior to such acquisition or combination.
(iv)
(v)
Any Shares that become available for issuance or transfer under the Plan under this Section 3
(c)
will be added back as (A) one Share if such Shares were subject to
options or stock appreciation rights
Options or Stock Appreciation Rights
granted under the
Prior Plans
Plan
, and (B) as two and one-half
Shares if such Shares were
issued or transferred pursuant
subject
to Awards other than Options or Stock Appreciation Rights granted under the Plan
(or were subject to awards other than options or stock appreciation rights granted under the Prior Plans)
.
(d)
Character of Shares
. The Shares issued or transferred pursuant to the Plan may be either Shares reacquired by the Company, including Shares purchased in the open market, or authorized but unissued Shares.
4.
Administration of the Plan.
(a)
Procedure
.
(i)
Multiple Administrative Bodies
. The Plan will be administered by the Board, the Committee
as designated by the Board to so administer the Plan
or their respective delegates.
(ii)
Section 162(m)
. To the extent that the Administrator determines it to be desirable to qualify Awards granted hereunder as “performance-based compensation” within the meaning of Section 162(m) of the Code, Awards
to “covered employees” within the meaning of Section 162(m) of the Code or to Employees that the Committee determines may be “covered employees” in the future
will be made by
a
the
Committee
or by a subcommittee of the Committee composed
of two or more “outside directors” within the meaning of Section 162(m) of the Code. Notwithstanding any other provision of the Plan, the Administrator does not have any discretion or authority to make changes to any Award that is intended to qualify as “performance-based compensation” to the extent that the existence of such discretion or authority would cause such Award not to so qualify.
(iii)
Rule 16b-3
. To the extent desirable to qualify transactions hereunder as exempt under Rule 16b-3 promulgated under the Exchange Act (“Rule 16b-3”), Awards to Officers will be made by the entire Board
or a
, by the
Committee
or by a subcommittee of the Committee composed
of two or more “non-employee directors” within the meaning of Rule 16b-3.
(iv)
Other Administration
. Except to the extent prohibited by Applicable Law, the Board or the Committee may delegate to one or more Directors or to authorized officers of the Company the power to
approve
grant
Awards to
, and administer Awards for,
persons eligible to receive Awards under the Plan who are not (A) subject to Section 16 of the Exchange Act or (B) at the time of such approval, “covered employees” under Section 162(m) of the Code
and any such person(s) when acting within the scope of such delegation shall be deemed one of the Plan’s Administrators with respect to such Awards
.
(v)
Delegation of Authority for the Day-to-Day Administration of the Plan
. Except to the extent prohibited by Applicable Law, the Administrator
may delegate to one or more individuals
hereby delegates to the Company’s Chairman and Chief Executive Officer and Chief Human Resources Officer, each individually, and to such persons as they may designate,
the day-to-
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day administration of the Plan
and any of the functions assigned to it in the Plan
, including the authority to execute on behalf of the Company any instrument required to effect the grant of an Award previously granted by the Administrator, and such other functions as the Administrator may determine from time to time
. Such delegation may be revoked at any time.
(b)
Powers of the Administrator
. Subject to the provisions of the Plan and, in the case of the Committee or delegates acting as the Administrator, subject to the specific duties delegated to such Committee or delegates, the Administrator has the authority, in its discretion:
(i)
to select the
Employees of the Company or its Affiliates
Awardees
to whom Awards are to be granted hereunder;
(ii)
to
determine the number of Common Shares to be covered by each Award granted hereunder;
grant Awards or provide for the grant of Awards, either from time to time in the discretion of the Administrator or automatically upon the occurrence of specified events, including, without limitation, the achievement of performance criteria or the satisfaction of an event or condition whether or not within the control of the Awardee;
(iii)
to determine the type
(s)
of Award to be granted to the selected
Employees
Awardees and the number of Shares, if any, to be covered by each Award granted hereunder
;
(iv)
to approve forms of Award Agreements;
(v)
to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Award granted hereunder. Such terms and conditions may include, but are not limited to, the exercise and/or purchase price, the time or times when an Award may be exercised (which may or may not be based on performance criteria
, including Qualifying Performance Criteria under Section 14(b)
), the vesting schedule, any vesting and/or exercisability provisions, terms regarding acceleration of Awards or waiver of forfeiture restrictions, the acceptable forms of consideration for payment for an Award, the term, and any restriction or limitation regarding any Award or the Shares relating thereto, based in each case on such factors as the Administrator, in its sole discretion, determines and which may be established at the time an Award is granted or thereafter;
(vi)
to correct defects and omissions in the Plan or an Award
and
,
to correct administrative errors
, and to reconcile any inconsistency so that the Plan or any Award complies with Applicable Law and to avoid any unanticipated consequences or address any unanticipated events (including any temporary closure of the stock exchange upon which the Common Shares are traded, disruption of communications or natural catastrophe) deemed by the Administrator to be inconsistent with the purposes of the Plan or any Award
;
(vii)
to construe and interpret the terms of the Plan (including sub-plans and Plan addenda) and Awards granted pursuant to the Plan;
(viii)
to adopt rules and procedures relating to the operation and administration of the Plan to accommodate the specific requirements of local laws
and
,
procedures
, and customs
. Without limiting the generality of the foregoing,
and subject to Section 30,
the Administrator is specifically authorized (A) to adopt the rules and procedures regarding the conversion of local currency, the shift of tax liability from employer to employee (where legally permitted), and withholding procedures and handling of stock certificates which vary with local requirements, (B) to adopt sub-plans and Plan addenda as the Administrator deems desirable, to accommodate foreign laws, regulations, and practice, and (C) to designate a leased employee as an Employee if such person provides services to the Company or any Affiliate that are substantially equivalent to those typically provided by a regular, active employee;
(ix)
to prescribe, amend, and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans and Plan addenda;
(x)
to modify or amend each Award, including, but not limited to,
providing for
the
continuation or
acceleration of vesting and/or exercisability; provided, however, that any such modification or amendment is subject to the Plan amendment provisions set forth in Section 17 of the Plan;
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(xi)
to
allow
permit
or require Participants to satisfy withholding tax amounts by electing to
deliver to the Company, or to
have the Company withhold from the Shares to be issued
or transferred
upon exercise of a Nonqualified Stock Option or vesting or settlement of a Stock Award or upon any other event in connection with an Award that the Company determines may result in any domestic or foreign tax withholding obligation that number of Shares having a
Fair Market Value equal to
value not in excess of
the amount
permitted or
required to be withheld. The
Fair Market Value
value
of the Shares to be withheld will be determined in such manner and on such date that the Administrator determines or, in the absence of provision otherwise, on the date that the amount of tax to be withheld is to be determined. All elections by a Participant to have Shares withheld for this purpose will be made in such form and under such conditions as the Administrator may provide;
(xii)
to authorize conversion or substitution under the Plan of any or all stock options, stock appreciation rights, or other stock awards held by awardees of an entity acquired by the Company
or an Affiliate
(the “Conversion Awards”). Any conversion or substitution will be effective as of the close of the merger or acquisition. The Conversion Awards may be Nonqualified Stock Options or Incentive Stock Options, as determined by the Administrator, with respect to options granted by the acquired entity;
(xiii)
to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Award previously granted by the Administrator;
(xiv)
to impose such restrictions, conditions, or limitations as it determines appropriate as to the timing and manner of any resales by a Participant or of other subsequent transfers by the Participant of any Shares issued as a result of or under an Award or upon the exercise of an Award, including without limitation, (A) restrictions under an insider trading policy, (B) restrictions as to the use of a specified brokerage firm for such resales or other transfers, and (C) restrictions to suspend the right to exercise Awards or transfer Shares granted pursuant to Awards during any “blackout” period that is necessary or desirable to comply with the requirements of Applicable Law or to extend the Award exercise period in a manner consistent with Applicable Law; and
(xv)
to make all other determinations deemed necessary or advisable for administering the Plan and any Award granted hereunder.
For the avoidance of doubt, the Administrator is authorized to take any action it determines in its sole discretion to be appropriate subject only to express limitations contained in this Plan, and no authorization in any Plan section or other provision of this Plan is intended or shall be deemed to constitute a limitation on the authority of the Administrator.
(c)
Effect of Administrator’s Decision
. All questions arising under the Plan or under any Award will be decided by the Administrator in its sole and absolute discretion. All decisions, determinations, and interpretations by the Administrator regarding the Plan, any rules and regulations under the Plan, and the terms and conditions of any Award granted hereunder, will be final and binding on all Participants
and other persons claiming rights under the Plan or any Award
. The Administrator may consider such factors as it deems relevant, in its sole and absolute discretion, to making such decisions, determinations, and interpretations including, without limitation, the recommendations or advice of any officer or other employee of the Company and such attorneys, consultants, and accountants as it may select.
5.
Eligibility.
Awards may be granted only to Employees
of the Company or any of its Affiliates. Awards may not be granted to a Director unless such Director otherwise qualifies as an Employee of the Company or one of its Affiliates
or Non-Employee Directors
.
The Plan
will become
originally became
effective upon its approval by shareholders of the Company
at the Company’s 2011 Annual Meeting of Shareholders and was amended subject to shareholder approval effective as of the date of the Company’s 2016 Annual Meeting of Shareholders
. Subject to Section 17 of the Plan, the Plan will continue in effect
for a term of 10 years from the date it is approved by the shareholders of the Company.
until November 3, 2026.
Subject to the provisions of the Plan, the term of each Award will be determined by the Administrator and stated in the Award Agreement. In the case of an Option or Stock Appreciation Right, the term will be 10 years from the Grant Date or such shorter term as may be provided in the Award Agreement
, subject to the last sentence of Section 8(e)
.
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The Administrator may grant an Option or provide for the grant of an Option, either from time to time in the discretion of the Administrator or automatically upon the occurrence of specified events, including, without limitation, the achievement of performance criteria or the satisfaction of an event or condition within the control of the Awardee or within the control of others.
(a)
Option
Award
Agreement
. Each
Option
Award
Agreement
with respect to an Option
will contain provisions regarding (i) the number of Shares that may be issued upon exercise of the Option, (ii) the type of Option, (iii) the exercise price of the Option and the means of payment of such exercise price, (iv) the term of the Option, (v) such terms and conditions on the vesting and/or exercisability of an Option as may be determined from time to time by the Administrator, (vi) restrictions on the transfer of the Option and forfeiture provisions, and (vii) such further terms and conditions, in each case not inconsistent with the Plan, as may be determined from time to time by the Administrator.
(b)
Exercise Price
. The per share exercise price for the Shares to be issued
or transferred
pursuant to exercise of an Option will be determined by the Administrator, except that the per Share exercise price will be no less than 100% of the Fair Market Value per Share on the Grant Date. Notwithstanding the preceding sentence, at the Administrator’s discretion, Conversion Awards may be granted in substitution and/or conversion of options of an acquired entity, with a per Share exercise price of less than 100% of the Fair Market Value per Share on the date of such substitution and/or conversion.
(c)
No Repricings
. Except in connection with a corporate transaction or event described in Section 16(a) of the Plan, the terms of outstanding Options that have an exercise price in excess of the Fair Market Value of a Share may not be amended to reduce the exercise price of outstanding Options or cancel outstanding Options in exchange for cash, other awards, or Options with an exercise price that is less than the exercise price of the original Options without shareholder approval.
(d)
No Reload Grants
. Options may not be granted under the Plan in consideration for and may not be conditioned upon the delivery of Shares to the Company in payment of the exercise price and/or tax withholding obligation under any other
employee
stock option.
(e)
Vesting Period and Exercise Dates
. Options granted under the Plan will vest and/or be exercisable at such time and in such installments during the period prior to the expiration of the Option’s term as determined by the Administrator. The Administrator has the right to make the timing of the ability to exercise any Option granted under the Plan subject to continued active employment, the passage of time, and/or such performance requirements as deemed appropriate by the Administrator. At any time after the grant of an Option, the Administrator may reduce or eliminate any restrictions surrounding any Participant’s right to exercise all or part of the Option.
The Administrator may provide that the period of time over which an Option other than an Incentive Stock Option may be exercised shall be extended if on the scheduled expiration date of such Option, the Participant’s exercise of such Option would violate Applicable Law (as interpreted consistent with Section 409A of the Code); provided, however, that during such extended exercise period, the Option may only be exercised to the extent the Option was exercisable in accordance with its terms immediately prior to such scheduled expiration date and that such extended exercise period shall end not later than 30 days after the first day on which the exercise of such Option would no longer violate such Applicable Law.
(f)
Form of Consideration
for Exercising an Option
. The Administrator will determine the acceptable form of consideration for exercising an Option, including the method of payment, either through the terms of the
Option
Award
Agreement or at the time of exercise of an Option. Acceptable forms of consideration may include:
(i)
cash;
(ii)
check or wire transfer (denominated in U.S. Dollars);
(iii)
subject to any conditions or limitations established by the Administrator, other Shares which have a Fair Market Value on the date of surrender equal to or greater than the aggregate exercise price of the Shares as to which said Option will be exercised (it being agreed that the excess of the Fair Market Value over the aggregate exercise price will be refunded to the Awardee in cash);
(iv)
subject to any conditions or limitations established by the Administrator, the Company’s withholding
shares
Shares
otherwise issuable upon exercise of an Option pursuant to a “net exercise” arrangement (it being understood that,
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solely for purposes of determining the number of treasury shares held by the Company, the
shares
Shares
so withheld will not be treated as issued and acquired by the Company upon such exercise);
(v)
to the extent permitted by Applicable Law, consideration received by the Company under a broker-assisted sale and remittance program acceptable to the Administrator;
(vi)
such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Law; or
(vii)
any combination of the foregoing methods of payment.
(g)
Procedure for Exercise; Rights as a Shareholder
.
(i)
Any Option granted hereunder will be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Administrator and set forth in the applicable
Option
Award
Agreement.
(ii)
An Option will be deemed exercised when the Company receives (A) written or electronic notice of exercise (in accordance with the
Option
Award
Agreement or procedures established by the Administrator) from the person entitled to exercise the Option, (B) full payment for the Shares with respect to which the related Option is exercised, and (C) with respect to Nonqualified Stock Options,
confirmation that
provisions acceptable to the Administrator have been made for payment of all applicable withholding taxes.
(iii)
Until the Shares are issued
or transferred
(as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a shareholder exist with respect to the Shares subject to an Option, notwithstanding the exercise of the Option.
(iv)
The Company shall issue
or transfer
(or cause to be issued) such Shares as soon as administratively practicable after the Option is exercised. An Option may not be exercised for a fraction of a Share.
(v)
The exercise of an Option will result in the cancellation on a share-for-share basis of any tandem Stock Appreciation Right under Section 10 of the Plan.
(h)
Termination of Employment
. The Administrator shall determine as of the Grant Date (subject to modification subsequent to the Grant Date) the effect a Termination of Employment due to
(i)
Disability,
(ii)
Retirement,
(iii)
death
,
or
(iv)
otherwise (including Termination for Cause) will have on any Option.
9.
Incentive Stock Option Limitations/Terms.
(a)
Eligibility
. Only employees (as determined in accordance with Section 3401(c) of the Code and the regulations promulgated thereunder) of the Company or any of its Subsidiaries may be granted Incentive Stock Options. No Incentive Stock Option may be granted to any such employee who as of the Grant Date owns stock possessing more than 10% of the total combined voting power of the Company.
(b)
$100,000 Limitation
. Notwithstanding the designation “Incentive Stock Option” in an
Option
Award
Agreement, if and to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Awardee during any calendar year (under all plans of the Company and any of its Subsidiaries) exceeds U.S.$100,000, such Options will be treated as Nonqualified Stock Options. For purposes of this Section 9(b) of the Plan, Incentive Stock Options will be taken into account in the order in which they were granted. The Fair Market Value of the Shares will be determined as of the Grant Date.
(c)
Transferability
. The
Option
Award
Agreement must provide that an Incentive Stock Option cannot be transferable by the Awardee otherwise than by will or the laws of descent and distribution, and, during the lifetime of such Awardee, must not be exercisable by any other person. If the terms of an Incentive Stock Option are amended to permit
other
transferability, the Option will be treated for tax purposes as a Nonqualified Stock Option.
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(d)
Exercise Price
. The per Share exercise price of an Incentive Stock Option will in no event be inconsistent with the requirements for qualification of the Incentive Stock Option under Section 422 of the Code.
(e)
Other Terms
.
Option
Award
Agreements evidencing Incentive Stock Options will contain such other terms and conditions as may be necessary to qualify, to the extent determined desirable by the Administrator, with the applicable provisions of Section 422 of the Code.
10.
Stock Appreciation Rights.
(a)
A “Stock Appreciation Right” is a right that entitles the Awardee to receive, in cash or Shares (as determined by the Administrator), value equal to or otherwise based on the excess of (i) the Fair Market Value of a specified number of Shares at the time of exercise over (ii) the aggregate base price of the right, as established by the Administrator on the Grant Date; provided that such base price per Share may be no less than 100% of the Fair Market Value per Share on the Grant Date. Notwithstanding the preceding sentence, at the Administrator’s discretion, Conversion Awards may be granted in substitution and/or conversion of stock appreciation rights of an acquired entity, with a per Share base price of less than 100% of the Fair Market Value per Share on the date of such substitution and/or conversion. Stock Appreciation Rights may be granted to Awardees either alone (“freestanding”) or in addition to or in tandem with other Awards granted under the Plan and may, but need not, relate to a specific Option granted under Section 8 of the Plan. Any Stock Appreciation Right granted in tandem with an Option may be granted at the same time such Option is granted or at any time thereafter before exercise or expiration of such Option
; provided, however, that a Stock Appreciation Right granted in tandem with an Incentive Stock Option must be granted concurrently with such Incentive Stock Option
. All Stock Appreciation Rights under the Plan will be granted subject to the same terms and conditions applicable to Options as set forth in Sections 7 and 8 of the Plan; provided, however, that Stock Appreciation Rights granted in tandem with a previously granted Option will have the terms and conditions of such Option. Subject to the provisions of Sections 7 and 8 of the Plan,
to the extent applicable,
the Administrator may impose such other conditions or restrictions on any Stock Appreciation Right as it may deem appropriate. Stock Appreciation Rights may be settled in Shares or cash as determined by the Administrator.
(b)
No Repricings
. Except in connection with a corporate transaction or event described in Section 16(a) of the Plan, the terms of outstanding Stock Appreciation Rights that have a base price in excess of the Fair Market Value of a Share may not be amended to reduce the base price of Stock Appreciation Rights or cancel outstanding Stock Appreciation Rights in exchange for cash, other Awards, or Stock Appreciation Rights with a base price that is less than the base price of the original Stock Appreciation Rights without shareholder approval.
11.
Stock Awards.
(a)
Stock
Award Agreement
. Each
Stock
Award Agreement
with respect to a Stock Award
will contain provisions regarding (i) the number of Shares subject to such Stock Award or a formula for determining such number, (ii) the purchase price of the Shares, if any, and the means of payment for the Shares, (iii) the performance criteria, if any, and level of achievement versus these criteria that determines the number of Shares granted, issued, retainable, and/or vested, (iv) such terms and conditions on the grant, issuance, vesting, and/or forfeiture of the Shares as may be determined from time to time by the Administrator, (v) restrictions on the transferability of the Stock Award, and (vi) such further terms and conditions in each case not inconsistent with the Plan as may be determined from time to time by the Administrator.
(b)
Restrictions and Performance Criteria
. The grant, issuance, retention, and/or vesting of each Stock Award may be subject to such performance criteria and level of achievement versus these criteria as the Administrator determines, which criteria may be
Qualifying Performance Criteria and/or otherwise
based on financial
, business or operational
performance, personal performance evaluations, and/or completion of service by the Awardee.
Notwithstanding anything to the contrary herein, the performance criteria for any Stock Award that is intended to satisfy the requirements for “performance-based compensation” under Section 162(m) of the Code will be established by the Administrator based on one or more Qualifying Performance Criteria selected by the Administrator and specified in writing not later than 90 days after the commencement of the period of service (or, if earlier, the elapse of 25% of such period) to which the performance criteria relate, provided that the outcome is substantially uncertain at that time.
(c)
Termination of Employment
. The Administrator shall determine as of the Grant Date (subject to modification subsequent to the Grant Date) the effect a Termination of Employment due to
(i)
Disability,
(ii)
Retirement,
(iii)
death
,
or
(iv)
otherwise (including Termination for Cause) will have on any Stock Award.
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(d)
Rights as a Shareholder
. Unless otherwise provided for by the Administrator and subject to Section 15 of the Plan, the Participant will have the rights equivalent to those of a shareholder and will be a shareholder only after Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) to the Participant.
12.
Other Stock-Based Awards.
(a)
Other Stock-Based Awards
. An “Other Stock-Based Award” means any other type of equity-based or equity-related Award not otherwise described by the terms of the Plan (including the grant or offer for sale of unrestricted Shares) in such amount and subject to such terms and conditions as the Administrator will determine. Such Awards may involve the transfer of actual Shares to Participants, or payment in cash or otherwise of amounts based on the value of Shares
Award Agreement
. Each Other Stock-Based Award will be evidenced by an Award Agreement containing such terms and conditions as may be determined from time to time by the Administrator.
(b)
Value of Other Stock-Based Awards
. Each Other Stock-Based Award will be expressed in terms of Shares or Stock Units, as determined by the Administrator. The Administrator may establish performance criteria in its discretion. If the Administrator exercises its discretion to establish performance criteria, the number, and/or value of Other Stock-Based Awards that will be paid out to the Participant will depend on the extent to which the performance criteria are met.
Notwithstanding anything to the contrary herein, the performance criteria for any Other Stock-Based Award that is intended to satisfy the requirements for “performance-based compensation” under Section 162(m) of the Code will be established by the Administrator based on one or more Qualifying Performance Criteria selected by the Administrator and specified in writing not later than 90 days after the commencement of the period of service (or, if earlier, the elapse of 25% of such period) to which the performance criteria relate and otherwise within the time period required by the Code and the applicable Treasury Regulations, provided that the outcome is substantially uncertain at that time.
(c)
Payment of Other Stock-Based Awards
. Subject to Section 15 of the Plan, payment, if any, with respect to Other Stock-Based Awards will be made in accordance with the terms of the Award, in cash or Shares as the Administrator determines.
(d)
Termination of Employment
. The Administrator will determine as of the Grant Date (subject to modification subsequent to the Grant Date) the effect a Termination of Employment due to
(i)
Disability,
(ii)
Retirement,
(iii)
death
,
or
(iv)
otherwise (including Termination for Cause) will have on any Other Stock-Based Award.
13.
Cash Awards.
Each Cash Award confers upon the Participant the opportunity to earn a future payment tied to the level of achievement with respect to one or more performance criteria established for a performance period.
(a)
Cash Award
.
Each Cash Award may contain
The Administrator may establish in its discretion the following
provisions
regarding
with respect to each Cash Award:
(i) the amounts
, or the formula for the amounts,
potentially payable to the Participant as a Cash Award, (ii) the performance criteria and level of achievement versus these criteria which will determine the amount of such payment
or the vesting criteria otherwise applicable to the Award
, (iii) the period as to which performance
or vesting
will be measured for establishing the amount of any payment, (iv) the timing of any payment earned by virtue of performance, (v) restrictions on the alienation or transfer of the Cash Award prior to actual payment, (vi) forfeiture provisions, and (vii) such further terms and conditions, in each case not inconsistent with the Plan, as may be determined from time to time by the Administrator.
(b)
Performance Criteria
.
The
If the
Administrator
shall
exercises its discretion to
establish
the
performance criteria
and level of achievement versus these criteria which will determine the amounts payable under a Cash Award, which
, such
criteria may be
Qualifying Performance Criteria and/or otherwise
based on financial
, business or operational
performance,
and/or
personal performance evaluations
. The Administrator may specify the percentage of the target Cash Award that is intended to satisfy the requirements for “performance-based compensation” under Section 162(m) of the Code. Notwithstanding anything to the contrary herein, the performance criteria for any portion of a Cash Award that is intended to satisfy the requirements for “performance-based compensation” under Section 162(m) of the Code will be a measure established by the Administrator based on one or more Qualifying Performance Criteria selected by the Administrator and specified in writing not later than 90 days after the commencement of the period of service (or, if earlier, the elapse of 25% of such period)
, and/or completion of services by the Awardee, and the Administrator shall determine the value of the Cash Award paid out to the Participant based upon the extent
to which the performance criteria
relate, provided that the outcome is substantially uncertain at that time.
are met.
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(c)
Timing and Form of Payment
. The Administrator shall determine the timing of payment of any Cash Award
; provided, however, that unless specifically provided otherwise in the Award Agreement, such payment will occur on or before the 15
th
day of the third month after the end of the applicable performance period, if any
. The Administrator may provide for or, subject to such terms and conditions as the Administrator may specify, may permit an Awardee to elect
(in a manner consistent with Section 409A of the Code)
for the payment of any Cash Award to be deferred to a specified date or event. The Administrator may specify the form of payment of Cash Awards, which may be cash or other property
(including Shares or other Awards)
, or may provide for an Awardee to have the option for his or her Cash Award, or such portion thereof as the Administrator may specify, to be paid in whole or in part in cash or other property
(including Shares or other Awards)
. To the extent that a Cash Award is in the form of cash, the Administrator may determine whether a payment is in U.S. dollars or foreign currency.
(d)
Termination of Employment
. The
Administrator shall determine as of the Grant Date (subject to modification subsequent to the Grant Date) the effect a
following provisions shall apply to Cash Awards upon
Termination of Employment
due to (i) Disability, (ii) Retirement, (iii) death, or (iv) otherwise (including Termination for Cause) will have on any Cash Award
unless the Administrator determines otherwise
.
(i)
Termination of Employment Due to Disability, Retirement or Death
. In the event of a Participant’s Termination of Employment by reason of Disability, Retirement or death during the applicable performance period, the Cash Award determined by the Administrator to be paid will be prorated based upon the length of time that the Participant was employed by the Company during the applicable performance period. In the case of a Participant’s Disability, Termination of Employment will be deemed to occur as of the date that the Administrator determines was the date on which the definition of Disability was satisfied. The Cash Award will be paid at the same time payments are made to Participants who did not terminate employment during the applicable performance period and will be based on the level of financial, business or operational performance actually achieved, to the extent applicable to such Award. The right of the Participant to receive any payment under this Plan will pass to the Participant’s estate in the event of the Participant’s death.
(ii)
Involuntary Termination of Employment (Not Disability or Retirement Eligible) During Last One-Fourth of Performance Period
. In the event of a Participant’s Termination of Employment by the Company (other than as a Termination for Cause) on or after the first day of the last one-fourth of the applicable performance period and before the date the Cash Award is paid, the Cash Award determined by the Administrator to be paid will be prorated based upon the length of time that the Participant was employed by the Company during the applicable performance period. The Cash Award will be paid at the same time payments are made to Participants who did not terminate employment during or after completion of the applicable performance period and will be based on the level of financial, business or operational performance actually achieved, to the extent applicable to such Award.
(iii)
Other Terminations of Employment
. In the event a Participant’s Termination of Employment before the last one-fourth of the applicable performance period for a reason other than due to Disability, Retirement or death, all of the Participant’s rights to any Cash Award for that performance period will be forfeited. In addition, if a Participant terminates his or her employment for a reason other than Disability, Retirement or death before the date the Cash Award is paid, all of the Participant’s rights to any Cash Award for that performance period will be forfeited.
14.
Other Provisions Applicable to Awards.
(a)
Non-Transferability of Awards
. Unless determined otherwise by the Administrator in accordance with this Section
14(a)
, an Award may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by beneficiary designation, will, or by the laws of descent or distribution. The Administrator may make an Award transferable to an Awardee’s family member or trusts, partnerships, or other entities for the benefit of the Awardee, Awardee’s family members, or charitable causes. If the Administrator makes an Award transferable, either as of the Grant Date or thereafter, such Award will contain such additional terms and conditions as the Administrator deems appropriate, and any transferee will be deemed to be bound by such terms
and the terms of the Plan
upon acceptance of such transfer. In no event may Awards be transferred in exchange for consideration. This Section 14(a) is subject to the provisions of
Section
Sections 9(c) and
27(b) of the Plan.
(b)
Qualifying Performance Criteria
. For purposes of the Plan, the term “Qualifying Performance Criteria” means any one or more of the following performance criteria
or derivations of such performance criteria
, either individually, alternatively or in any combination, applied to either the Company as a whole or to a business
segment, division, department, region, function or
unit, Affiliate, or
business segment
product or product category
, either individually, alternatively, or in any combination, and measured either
periodically,
annually or
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cumulatively over
a period of
multiple periods or
years, on an absolute basis or relative to a pre-established target, to
previous years’
prior-period
results
(i.e., growth)
or to
an index or
a designated comparison group
or to divisions, departments, regions, functions or units within such comparison group, and either calculated in accordance with U.S. Generally Accepted Accounting Principles or as adjusted based on factors identified at the time of grant
, in each case as specified by the Committee for the Award: (i) cash flow
(including operating cash flow and free cash flow)
; (ii) earnings (including gross margin
or gross margin rate
, operating earnings, earnings before interest and taxes,
segment profit,
earnings before taxes and discontinued operations, earnings from continuing operations, and net earnings); (iii) earnings per share; (iv)
growth in earnings or earnings per share; (v)
stock price; (
vi) return on equity or average
v)
shareholders’ equity; (
vii
vi
) total shareholder return; (
viii) invested capital or return on
vii)
capital or invested capital; (
ix) return on
viii)
assets or net assets; (
x) return on investment; (xi) revenue; (xii) income or net income; (xiii) operating income or net operating income; (xiv) operating profit or net operating profit (whether before or after taxes); (xv) economic profit or profit margin; (xvi) operating margin; (xvii) return on operating revenue; (xviii) tangible capital or return on tangible capital; (xix) market share; (xx
ix) return on investment; (x) revenue; (xi) economic profit; (xii) tangible capital; (xiii) market share; (xiv
) contract awards or backlog; (
xxi
xv
) distribution, selling, general, and/or administrative expenses; (
xxii) overhead or other expense reduction; (xxiii) growth in shareholder value relative to the moving average of the S&P 500 Index or a peer group index; (xxiv) credit rating or credit rating measures; (xxv) dividend payment yield or growth or dividend payout ratio; (xxvi
xvi) credit rating; (xvii) dividend payments; (xviii
) improvement in workforce diversity; (
xxvii
xix
) customer satisfaction, retention, or loyalty; (
xxviii
xx
) employee satisfaction or retention; (
xxix
xxi
) service levels; (
xxx
xxii
) net working capital or net working capital days; (
xxxi
xxiii
) days sales outstanding; (
xxxii
xxiv
) days inventory on hand; (
xxxiii
xxv
) days payable outstanding; (
xxxiv
xxvi
) capital expenditures; (
xxxv
xxvii
) generics penetration; and (
xxxvi
xxviii
) preferred product growth. With respect to any Award that is intended to satisfy the requirements for “performance-based compensation” under Section 162(m) of the Code, the performance criteria must be Qualifying Performance Criteria, and the
Administrator
Committee
will (within the first quarter of the performance period, but in no event
more
later
than
the earlier of
90 days
or 25% of the time
into that period) establish the specific performance targets (including thresholds and whether to exclude
certain extraordinary, non-recurring
the effect of events that are unusual in nature or infrequently occurring
, or similar items) and award amounts (subject to the right of the
Administrator
Committee
to exercise discretion to reduce payment amounts following the conclusion of the performance period). If the
Administrator
Committee
determines that a change in the business, operations, corporate structure, or capital structure of the Company, or the manner in which it conducts its business, or other events or circumstances render the performance criteria applicable to an Award, including Qualifying Performance Criteria, unsuitable, the
Administrator
Committee
may in its discretion modify such performance criteria or the related minimum acceptable level of achievement, in whole or in part, as the
Administrator
Committee
deems appropriate and equitable. In the case of Qualifying Performance Criteria (other than in connection with
death, Disability or
a Change of Control) where such action would result in the loss of the otherwise available
exemption
qualification
of the Award under Section 162(m) of the Code, the
Administrator
Committee
may not make any modification of the Qualifying Performance Criteria or minimum acceptable level of achievement with respect to the Awardee to whom the Award subject to such Qualifying Performance Criteria was granted.
Awards under the Plan that are subject to performance criteria may qualify or not qualify as “performance-based compensation” under Section 162(m) of the Code, as determined by the Committee. Awards that are intended to qualify as “performance-based” compensation under Section 162(m) of the Code will be granted only to key Employees.
(c)
Certification
. Prior to the payment of any compensation under an Award intended to qualify as “performance-based compensation” under Section 162(m) of the Code, the Committee shall certify in writing the extent to which any Qualifying Performance Criteria and any other material terms under such Award have been satisfied (other than in cases where such criteria relate solely to the increase in the value of the Common Shares).
(d)
Discretionary Adjustments Pursuant to Section 162(m)
. Notwithstanding
the
satisfaction of any
completion of any
Qualifying Performance Criteria
, to the extent specified as of the Grant Date
, the number or amount of Shares, Options, cash, or other benefits granted, issued, retainable, payable, and/or vested under an Award on account of satisfaction of such Qualifying Performance Criteria may be reduced by the Committee on the basis of such further considerations as the Committee in its sole discretion determines.
15.
Dividends and Dividend Equivalents.
To the extent permitted by Section 409A of the Code, any Award other than an Option or Stock Appreciation Right may provide the Awardee with the right to receive dividend payments or dividend equivalent payments on the Shares subject to the Award; provided, however, that dividends or other distributions on Awards with restrictions that lapse as a result of the achievement of performance criteria will be deferred until, and paid
contingent upon
after
, the achievement of the applicable performance criteria. Such payments may be made in cash or may be credited as cash or Stock Units to an Awardee’s account and later settled in cash or Shares or a combination thereof, as determined by the Administrator. Such payments and credits may be subject to such conditions and contingencies as the Administrator may establish.
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|
(a)
Adjustment Clause
. In the event of (i) a stock dividend, stock split, reverse stock split, share combination,
extraordinary cash dividend,
or recapitalization or similar event affecting the capital structure of the Company
(each, a “Share Change”)
, or (ii) a merger, consolidation, acquisition of property or shares, separation,
spinoff
spin-off, split-off, spin-out, split-up
, reorganization, stock rights offering,
partial or complete
liquidation, Disaffiliation,
or other distribution of assets, issuance of rights or warrants to purchase securities
or similar event affecting the Company or any of its
Subsidiaries
Affiliates
(each, an “Organic Change”), the Administrator
or the Board
shall make such substitutions or adjustments as it deems appropriate and equitable to (
U
T
) the Share limitations set forth in
Sections
Section
3 of the Plan, (
V
U
) the number and kind of Shares covered by each outstanding Award,
and
(
W
V
) the price per Share subject to each such outstanding Award
, and (W) other Award terms, including to the extent applicable, any performance criteria
. Such adjustments may include, without limitation, (X) the cancellation of outstanding Awards in exchange for payments of cash, property or a combination thereof having an aggregate value equal to the value of such Awards, as determined by the Administrator
or the Board
in its sole discretion (it being understood that in the case of an Organic Change with respect to which shareholders receive consideration other than publicly traded equity securities of the ultimate surviving entity, any such determination by the Administrator that the value of an Option or Stock Appreciation Right will for this purpose be deemed to equal the excess, if any, of the value of the consideration being paid for each Share pursuant to such Organic Change over the exercise price of such Option or Stock Appreciation Right will conclusively be deemed valid); (Y) the substitution of other property (including, without limitation, cash or other securities of the Company and securities of entities other than the Company) for the Shares subject to outstanding Awards; and (Z) in connection with any Disaffiliation, arranging for the assumption of Awards, or replacement of Awards with new awards based on other property or other securities (including, without limitation, other securities of the Company and securities of entities other than the Company), by the affected
Subsidiary,
Affiliate
,
or division or by the entity that controls such
Subsidiary,
Affiliate
,
or division following such Disaffiliation (as well as any corresponding adjustments to Awards that remain based upon Company securities).
(b)
Change of Control
. In the event of a Change of Control, unless otherwise determined by the Administrator or set forth in an Award Agreement or as provided
for
in an individual severance or employment agreement to which a Participant is a party, the following acceleration, exercisability, and valuation provisions apply:
(i)
Upon a Change of Control, outstanding
Employee
Options and Stock Appreciation Rights will become fully vested and exercisable and outstanding
Employee
Stock Awards, Other Stock-Based Awards, and Cash Awards will become fully vested, except to the extent that an award meeting the requirements of Section 16(b)(
ii
iii
) (a “Replacement Award”) is provided to the Participant
in accordance with Section 16(a) of the Plan
to replace or adjust each outstanding Award (a “Replaced Award”).
(ii)
Upon a Change of Control, outstanding Non-Employee Director Options and Stock Appreciation Rights will become fully vested and exercisable and outstanding Non-Employee Director Stock Awards, Other Stock-Based Awards, and Cash Awards will become fully vested, except to the extent that (A) the Participant continues to serve on the Board or to serve as a member of the board of directors (or similar governing body) of the Company’s successor in the Change of Control or of another entity that is affiliated with the Company or its successor following the Change of Control and (B) a Replacement Award is provided to the Participant to replace or adjust each Replaced Award.
(iii)
(ii)
An award meets the conditions of this Section 16(b)(
ii
iii
) (and hence qualifies as a Replacement Award) if (A) it is of the same type as the Replaced Award, (B) it has a value at
the time of grant or adjustment at
least equal to the value of the Replaced Award, (C) it relates to publicly traded equity securities of the Company or its successor in the Change of Control or another entity that is affiliated with the Company or its successor following the Change of Control, (D) if the Participant is subject to U.S. federal income tax under the Code, the tax consequences to the Participant under the Code of the Replacement Award are not less favorable to Participant than the tax consequences of the Replaced Award, and (E) its other terms and conditions are not less favorable to the Participant than the terms and conditions of the Replaced Award (including the provisions that would apply in the event of a subsequent Change of Control).
For purposes of clause (B) of the preceding sentence, “value” with respect to Options and Stock Appreciation Rights means the Fair Market Value of the Common Shares as determined in connection with the Change of Control over the applicable exercise price.
Without limiting the generality of the foregoing, the Replacement Award may take the form of a continuation of the Replaced Award if the requirements of the preceding sentence are satisfied. The determination of whether the conditions of this Section 16(b)(
ii
iii
) are satisfied will be made by the Administrator, as constituted immediately before the Change of Control, in its sole discretion.
(iv)
(iii)
Upon (A) a Termination for Good Reason, (B) a Termination of Employment by the Company or its successor in the Change of Control other than a Termination for Cause, or (C) the Participant’s death or Disability, in each case, occurring
in
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connection with
at
or during the period of two years after a Change of Control (Y) all Replacement Awards held by the Participant will become fully vested
and, if applicable, exercisable
, and (Z) all Options and Stock Appreciation Rights held by the Participant immediately before such Termination of Employment that the Participant held as of the date of the Change of Control or that constitute Replacement Awards will
become fully exercisable and will
remain exercisable
for not less than three years following such Termination of Employment or
until the expiration of the stated term of such Option
, whichever period is shorter (provided, that if the applicable Award Agreement provides for a longer period of exercisability, that provision will control)
.
(c)
In the event of any transaction or event described in Section 16(a) or a Change of Control, the Administrator may, prior to such to such transaction, event or Change of Control, provide in substitution for any or all outstanding Awards under this Plan such alternative consideration (including cash), if any, as it, in good faith, may determine to be equitable in the circumstances and shall require in connection therewith the surrender of all Awards so replaced in a manner that complies with Section 409A of the Code. For the avoidance of doubt, for each Option or Stock Appreciation Right with an exercise price greater than the consideration offered in connection with any transaction or event described in this Section 16(a) or a Change of Control, the Administrator may in its discretion elect to cancel such Option or Stock Appreciation Right without any payment to the person holding such Option or Stock Appreciation Right.
(d)
Section 409A
.
(i)
(c)
Section 409A
.
Notwithstanding the foregoing (
i
A
) any adjustments made pursuant to Section 16(a) of the Plan to Awards that are considered “deferred compensation” within the meaning of Section 409A of the Code will be made in compliance with the requirements of Section 409A of the Code, (
ii
B
) any adjustments made pursuant to Section 16(a) of the Plan to Awards that are not considered “deferred compensation” subject to Section 409A of the Code will be made in such a manner as to ensure that after such adjustment, the Awards either continue not to be subject to Section 409A of the Code or comply with the requirements of Section 409A of the Code,
and
(
iii
C
) the Administrator does not have the authority to make any adjustments pursuant to Section 16(a) of the Plan to the extent that the existence of such authority would cause an Award that is not intended to be subject to Section 409A of the Code to be subject thereto, and (
iv
D
) if any Award is subject to Section 409A of the Code, Section 16(b) of the Plan will be applicable only to the extent specifically provided in the Award Agreement and permitted pursuant to Section 27 of the Plan.
(ii)
Solely with respect to any Award that constitutes “deferred compensation” subject to Section 409A of the Code and that is payable on account of a Change of Control (including any installments or stream of payments that are accelerated on account of a Change in Control), a Change of Control shall occur only if such event also constitutes a “change in the ownership,” “change in effective control,” or a “change in the ownership of a substantial portion of assets” of the Company as those terms are defined under Treasury Regulation §1.409A-3(i)(5), but only to the extent necessary to establish a time or form of payment that complies with Section 409A of the Code, without altering the definition of Change of Control for purposes of determining whether a Participant's rights to such Award become vested or otherwise unconditional upon the Change of Control.
17.
Amendment and Termination of the Plan.
(a)
Amendment and Termination
. The Administrator may amend, alter, or discontinue the Plan or any Award Agreement, but any such amendment will be subject to approval of the shareholders of the Company in the manner and to the extent required by Applicable Law. In addition, without limiting the foregoing, unless approved by the shareholders of the Company and subject to Section 16(a) of the Plan, no such amendment may be made that would:
(i)
increase the maximum aggregate number of Shares which may be issued or transferred based on Awards granted under the Plan;
(ii)
reduce the minimum exercise price or base price, as applicable, for Options or Stock Appreciation Rights granted under the Plan; or
(iii)
result in a repricing of outstanding Options or Stock Appreciation Rights as described in Section 8(c) and 10(b), respectively.
(b)
Effect of Amendment or Termination
. No amendment, suspension, or termination of the Plan
or an Award
may impair the rights of any Participant with respect to an outstanding Award unless agreed to by the Participant and the Company, which agreement must
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be in writing and signed by the Participant and the Company. Other than following a Change of Control, no such agreement will be required if the Administrator determines in its sole discretion that such amendment either (i) is required or advisable in order for the Company, the Plan, or the Award to satisfy any Applicable Law or to meet the requirements of any accounting standard or (ii) is not reasonably likely to significantly diminish the benefits provided under such Award, or that any such diminishment has been adequately compensated
, including pursuant to Section 16(c)
. Termination of the Plan will not affect the Administrator’s ability to exercise the powers granted to it hereunder with respect to Awards granted under the Plan prior to the date of such termination.
(c)
Effect of the Plan on Other Arrangements
. Neither the adoption of the Plan by the Board or the Committee nor the submission of the Plan to the shareholders of the Company for approval will be construed as creating any limitations on the power of the Board or
any
the
Committee to adopt such other
incentive
compensation
arrangements
for persons other than Non-Employee Directors
as it or they may deem desirable, including, without limitation, the granting of restricted shares
or
,
restricted share units
or
,
stock options
or cash awards
otherwise than under the Plan, and such arrangements may be either generally applicable or applicable only in specific cases.
18.
Designation of Beneficiary.
Beneficiary Upon Participant’s Death.
(a) An Awardee may file a written designation of a beneficiary who is to receive the Awardee’s rights pursuant to Awardee’s Award or the Awardee may include his or her Awards in an omnibus beneficiary designation for all benefits under the Plan. To the extent that Awardee has completed a designation of beneficiary while employed with Company, such beneficiary designation will remain in effect with respect to any Award hereunder until changed by the Awardee to the extent enforceable under Applicable Law.
(b) Such designation of beneficiary may be changed by the Awardee at any time by written notice. In the event of the death of an Awardee and in the absence of a beneficiary validly designated under the Plan who is living at the time of such Awardee’s death, the Company will allow the legal representative of the Awardee’s estate to exercise the Award.
To the extent that the transfer of a Participant’s Award at death is permitted by the Plan or under an Award Agreement, (a) a Participant’s Award will be transferable to the beneficiary, if any, designated on forms prescribed by and filed with the Administrator and (b) upon the death of the Participant, such beneficiary will succeed to the rights of the Participant permitted by law and the Plan. If no such designations of a beneficiary has been made, the Participant’s legal representative will succeed to the Awards, which will be transferable by will or pursuant to laws of descent and distribution to the extent permitted by the Plan or under an Award Agreement.
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19.
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No Right to Awards or to Employment.
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No person has any claim or right to be granted an Award and the grant of any Award will not be construed as giving an Awardee the right to continue in the employ of the Company or its Affiliates. Further, the Company and its Affiliates expressly reserve the right, at any time, to dismiss any Employee or Awardee without liability or any claim under the Plan, except as provided herein or in any Award Agreement entered into hereunder.
The Plan will be administered in compliance with Section 10D of the Exchange Act, any applicable rules or regulations promulgated by the Securities and Exchange Commission or any national securities exchange or national securities association on which the Shares may be traded, and any Company policy adopted pursuant to such law, rules, or regulations. In its discretion, moreover, the Administrator may require repayment to the Company of all or any portion of any Award if the amount of the Award was calculated based upon the achievement of
certain
financial results that were subsequently the subject of a restatement of the Company’s financial statements, the Participant engaged in misconduct that caused or contributed to the need for the restatement of the financial statements, and the amount payable to the Participant would have been lower than the amount actually paid to the Participant had the financial results been properly reported.
The Administrator also may, in its discretion, require that all or any portion of an Award is subject to an obligation of repayment to the Company upon the violation of a non-competition and confidentiality covenant applicable to the Participant.
This Section 20 will not be the Company’s exclusive remedy with respect to such matters and
, except as otherwise required by Applicable Law,
will not apply after a Change of Control.
The Company is not required to issue any fractional Shares pursuant to the Plan. The Administrator may provide for the elimination of fractions or for the settlement thereof in cash.
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Shares will not be issued pursuant to an Award unless such Award and the issuance and delivery of such Shares will comply with Applicable Law. Unless the Awards and Shares covered by the Plan have been registered under the Securities Act or the Company has determined that such registration is unnecessary, each person receiving an Award and/or Shares pursuant to any Award may be required by the Company to give a representation in writing that such person is acquiring such Shares for his or her own account for investment and not with a view to, or for sale in connection with, the distribution of any part thereof.
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23.
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Inability to Obtain Authority.
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To the extent the Company is unable to or the Administrator deems it infeasible to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be advisable or necessary to the lawful issuance and sale of any Shares hereunder, the Company will be relieved of any liability with respect to the failure to issue or sell such Shares as to which such requisite authority will not have been obtained.
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24.
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Reservation of Shares.
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The Company, during the term of the Plan, shall at all times reserve and keep available such number of Shares sufficient to satisfy the requirements of the Plan.
Any written notice to the Company required by any provisions of the Plan must be addressed to the Secretary of the Company and will be effective when received.
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26.
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Governing Law; Interpretation of Plan and Awards.
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(a)
The Plan and all determinations made and actions taken pursuant hereto are governed by the substantive laws, but not the choice of law rules, of the state of Ohio, except as to matters governed by U.S. federal law.
(b)
In the event that any provision of the Plan or any Award granted under the Plan is declared to be illegal, invalid, or otherwise unenforceable by a court of competent jurisdiction
or would disqualify the Plan or an Award under any Applicable Law
, such provision will be reformed, if possible, to the extent necessary to render it legal, valid, and enforceable, or otherwise deleted, and the remainder of the terms of the Plan and/or Award will not be affected except to the extent necessary to reform or delete such illegal, invalid, or unenforceable provision.
(c)
The headings preceding the text of the sections hereof are inserted solely for convenience of reference, and do not constitute a part of the Plan, nor do they affect its meaning, construction, or effect.
(d)
The terms of the Plan and any Award will inure to the benefit of and be binding upon the parties hereto and their respective permitted heirs, beneficiaries, successors, and assigns.
27.
Section 409A.
(a)
To the extent applicable, it is intended that the Plan and any grants made hereunder comply with the provisions of Section 409A of the Code, so that the income inclusion provisions of Section 409A(a)(1) of the Code do not apply to
the
a
Participant. The Plan and any grants made hereunder will be administered in a manner consistent with this intent. Any reference in the Plan to Section 409A of the Code will also include any regulations or any other formal guidance promulgated with respect to such
Section
section
by the U.S. Department of the Treasury or the Internal Revenue Service.
(b)
Neither a Participant nor any of a Participant’s creditors or beneficiaries will have the right to subject any deferred compensation (within the meaning of Section 409A of the Code) payable under the Plan and grants hereunder to any anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment. Except as permitted under Section 409A of the Code, any deferred compensation (within the meaning of Section 409A of the Code) payable to a Participant or for a Participant’s benefit under the Plan and grants hereunder may not be reduced by, or offset against, any amount owing by a Participant to the Company or any of its affiliates.
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(c)
If, at the time of a Participant’s separation from service (within the meaning of Section 409A of the Code), (i) the Participant is a specified employee (within the meaning of Section 409A of the Code and using the identification methodology selected by the Company from time to time) and (ii) the Company makes a good faith determination that an amount payable hereunder constitutes deferred compensation (within the meaning of Section 409A of the Code) the payment of which is required to be delayed pursuant to the six-month delay rule set forth in Section 409A of the Code in order to avoid taxes or penalties under Section 409A of the Code, then the Company will not pay such amount on the otherwise scheduled payment date but, unless otherwise provided in the Award Agreement, will instead pay it on the first business day of the seventh month after such separation from service, and if payable in cash with interest thereon from the date that such amount would have been paid absent such determination through the date of payment at the long-term applicable federal rate, determined under Section 1274(d) of the Code.
(d)
Notwithstanding any provision of the Plan and grants hereunder to the contrary, in light of the uncertainty with respect to the proper application of Section 409A of the Code, the Company reserves the right to make amendments to the Plan and grants hereunder as the Company deems necessary or desirable to avoid the imposition of taxes or penalties under Section 409A of the Code. In any case, a Participant is solely responsible and liable for the satisfaction of all taxes and penalties that may be imposed on a Participant or for a Participant’s account in connection with the Plan and grants hereunder (including any taxes and penalties under Section 409A of the Code), and neither the Company nor any of its affiliates have any obligation to indemnify or otherwise hold a Participant harmless from any or all of such taxes or penalties.
28.
Limitation on Liability.
The Company and any Affiliate which is in existence or hereafter comes into existence will not be liable to a Participant, an Employee, an Awardee, or any other persons as to:
(a)
The Non-Issuance of Shares
. The non-issuance or sale of Shares as to which the Company has been unable to obtain from any regulatory body having jurisdiction the authority deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any shares hereunder; and
(b)
Tax or Exchange Control Consequences
. Any tax consequence expected, but not realized, or any exchange control obligation owed, by any Participant, Employee, Awardee, or other person due to the receipt, exercise or settlement of any Option or other Award granted hereunder.
29.
Unfunded Plan.
Insofar as it provides for Awards, the Plan is unfunded. Although bookkeeping accounts may be established with respect to Awardees who are granted Stock Awards under the Plan, any such accounts will be used merely as a bookkeeping convenience. The Company is not required to segregate any assets which may at any time be represented by Awards, nor will the Plan be construed as providing for such segregation, nor will the Company nor the Administrator be deemed to be a trustee of stock or cash to be awarded under the Plan. Any liability of the Company to any Participant with respect to an Award will be based solely upon any contractual obligations which may be created by the Plan; no such obligation of the Company will be deemed to be secured by any pledge or other encumbrance on any property of the Company. Neither the Company nor the Administrator are required to give any security or bond for the performance of any obligation which may be created by the Plan.
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30.
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Foreign
Employees
Awardees
.
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Awards may be granted hereunder to
Employees
persons
who are foreign nationals, who are located outside the United States or who are not compensated from a payroll maintained in the United States, or who are otherwise subject to (or could cause the Company to be subject to) legal or regulatory provisions of countries or jurisdictions outside the United States, on such terms and conditions different from those specified in the Plan as may, in the judgment of the Administrator, be necessary or desirable to foster and promote achievement of the purposes of the Plan, and, in furtherance of such purposes, the Administrator may make such modifications, amendments, procedures, or subplans, as may be necessary or advisable to comply with such legal or regulatory provisions.
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Each Participant shall pay to the Company, or make arrangements satisfactory to the Company regarding the payment of, any federal, state, local, or foreign taxes of any kind required by law to be withheld with respect to any Award under the Plan no later than the date as of which any amount under such Award first becomes includible as compensation of the Participant for any tax purposes with respect to which the Company has a tax withholding obligation.
Unless otherwise
To the extent
determined by the Administrator, withholding obligations may be settled with Shares, including Shares that are part of the Award that gives rise to the withholding requirement; provided, however, that not more than the legally required
minimum
withholding may be settled with Shares
, and withholding above the minimum withholding requirements shall be available only after the Administrator has authorized such
. The obligations of the Company under the Plan will be conditional on such payment or arrangements, and the Company and its Affiliates will, to the extent permitted by law, have the right to deduct any such taxes from any Shares or any other payment due to the participant at that time or at any future time. The Administrator may establish such procedures as it deems appropriate, including making irrevocable elections, for the settlement of withholding obligations with Shares.
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