MEDCO HEALTH SOLUTIONS INC (Form: 8-K, Received: 02/08/2005 13:00:12)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): February 2, 2005

MEDCO HEALTH SOLUTIONS, INC.

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of incorporation)


1-31312		22-3461740
(Commission File Number)		(I.R.S. Employer Identification No.)

100 Parsons Pond Drive, Franklin Lakes, NJ		07417
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: 201-269-3400

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01. Entry into a Material Definitive Agreement.

On February 2, 2005, the board of directors of Medco Health Solutions, Inc. adopted the Medco Health Solutions, Inc. Executive Annual Incentive Plan (the “Executive AIP”), which provides for annual performanced-based cash bonuses. All executive officers of the Corporation are eligible to participate in the Plan. The board also established performance goals for 2005 of achieving pre-established levels of earnings per share, net new sales, customer satisfaction and member satisfaction. The board established target bonuses so that a participant under the Executive AIP would be entitled to receive from 40% to 100% of salary as a target bonus, depending on management level, with a payout ranging from 20% to 250% of target bonus depending upon the attainment of total performance goals. The board has the discretion to reduce, but not increase, the amount of a participant’s bonus under the Executive AIP. The Executive AIP is filed with this report as Exhibit 10.1.

In addition, on February 2, 2005, the board approved the equity portion of the board’s annual compensation. On the date of the Corporation’s annual meeting of shareholders, each director will be granted a stock option to purchase 8,000 shares of common stock and a restricted stock unit with respect to 2,000 shares. The awards vest on the first anniversary of the grant date and the restricted stock units are deferred until the end of the director’s service with the Corporation. The board also approved an initial award for Mr. Charles Lillis of 8,000 stock options and 6,000 restricted stock units. The awards have the same terms as the annual awards. Forms of the award term sheets are filed with this report as Exhibit 10.2. A summary of the Corporation’s general compensation arrangements for non-management directors is filed as Exhibit 10.3 to this Current Report on Form 8-K.

Item 9.01. Financial Statements and Exhibits.

(c)

Exhibits


Exhibit Number		Description
10.1		Medco Health Solutions, Inc. Executive Annual Incentive Plan

10.2		Form of terms and conditions for director stock option and restricted stock unit award

10.3		Description of Non-Management Compensation

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


	MEDCO HEALTH SOLUTIONS, INC.

Date: February 8, 2005	By:	/s/ David S. Machlowitz
		David S. Machlowitz
		Senior Vice President, General Counsel and Secretary

Exhibit 10.1

MEDCO HEALTH SOLUTIONS, INC.

EXECUTIVE INCENTIVE COMPENSATION PLAN

Adopted February 2, 2005

1. PURPOSE.

The principal purposes of the Medco Health Solutions, Inc. Executive Incentive Compensation Plan (the “Plan”) are to provide annual incentives and rewards to executive officers of Medco Health Solutions, Inc. (“Medco”) for contributing to the success and growth of Medco and to assist Medco in attracting, motivating and retaining these key employees on a competitive basis.

2. ADMINISTRATION OF THE PLAN.

The Plan shall be administered by the Compensation Committee of the Board of Directors of Medco (the “Committee”). The Committee shall consist of two or more members of the Board who qualify as outside directors for purposes of section 162(m) of the Internal Revenue Code and the regulations promulgated thereunder (“Section 162(m)”).

The Committee shall have all powers vested in it by the terms of this Plan, such powers to include authority (within the limitations described herein) to select the persons to be granted awards under the Plan, to determine the time when awards will be granted, to determine whether performance objectives and conditions for earning awards have been met, to determine whether awards will be paid following the end of the award period or deferred, and to determine whether an award or payment of an award should be reduced or eliminated.

For each Medco fiscal year, the Committee shall establish in writing (on or before the latest date permitted under Section 162(m)) one or more performance goals to be attained, which performance goals may be stated as alternative performance goals. Performance goals may be based on any one or more of the following business criteria as the Committee, in its sole discretion, may select: earnings per share; net new sales; client satisfaction; member satisfaction; revenue growth; corporate earnings; return on assets; return on equity; return on investment capital; profits; cash flow; market value added; economic value added; or earnings before interest, taxes, depreciation and amortization.

The Committee shall have full power and authority to administer and interpret the Plan and to adopt such rules, regulations, agreements, guidelines and instruments for the administration of the Plan and for the conduct of its business as the Committee deems necessary or advisable. The Committee’s interpretations of the Plan, and all actions taken and determinations made by the Committee pursuant to the powers vested in it hereunder, shall be conclusive and binding on all parties concerned, including Medco, its shareholders and any person receiving an award under the Plan.

3. ELIGIBILITY.

Executive officers of Medco are eligible to be granted awards under the Plan.

4. AWARDS.

(a) Setting Awards . For each Medco fiscal year, the Committee shall establish maximum incentive awards for particular levels of performance by Medco’s executive officers. Subject to these maximums, target incentive awards may also be established. The pre-established maximum awards shall apply to all individuals who either are executive officers at the beginning of the fiscal year or become executive officers during the fiscal year.

(b) Payment of Awards . Awards will be payable for a fiscal year upon certification by the Committee that Medco achieved the performance target(s) that the Committee had previously established for the year. No payment will be made if the minimum performance target(s) is not met. The Committee may, in its discretion, permit executives to defer the payment of awards in accordance with Section 409A of the Internal Revenue Code of 1986, as amended.

(c) Negative Discretion . Notwithstanding the attainment by Medco of one or more specified performance targets, the Committee has the discretion, by participant, to pay less than the maximum incentive award that relates to that level of performance.

(d) Maximum Possible Award . No participant may receive an incentive award for a Medco fiscal year that is more than $3,500,000.

5. MISCELLANEOUS PROVISIONS.

(a) Guidelines . The Committee may adopt from time to time written policies for its implementation of the Plan.

(b) Withholding Taxes . Medco shall have the right to deduct from all Plan awards any federal, state, local or foreign taxes required by law to be withheld with respect to such awards.

(c) No Implied Rights . Except as set forth herein, no employee or other person shall have any claim or right to be granted an award under the Plan. No employee shall be entitled to payment of an award under this Plan unless they are employed by Medco on the payment date. Neither the Plan nor any action taken hereunder shall be construed as giving any employee any right to be retained in the employ of Medco or any of its subsidiaries, divisions or affiliates.

(d) Costs and Expenses . The cost and expenses of administering the Plan shall be borne by Medco and not charged to any award or to any employee receiving an award.

(e) Funding of Plan . Medco shall not be required to establish any special or separate fund or to make any other segregation of assets to assure the payment of any award under the Plan.

6. EFFECTIVE DATE, AMENDMENTS AND TERMINATION.

(a) Effective Date . The Plan shall become effective upon its approval by Medco’s shareholders.

(b) Amendments . The Committee may at any time terminate or from time to time amend the Plan in whole or in part, but no such action shall adversely affect any rights or obligations with respect to any awards theretofore made under the Plan.

In addition, unless the shareholders of Medco shall have first approved, no amendment of the Plan shall be effective which would: (i) modify the eligibility requirements for participation in the Plan, (ii) increase the maximum possible award that may be paid to a participant under the Plan, or (iii) change the business criteria that may be used for performance goals.

(c) Termination . No awards shall be made under the Plan after March 31, 2010. Determination of the actual amount to be paid and payment may occur later.

Exhibit 10.2

MEDCO HEALTH SOLUTIONS, INC. 2002 STOCK INCENTIVE PLAN

RESTRICTED STOCK UNIT

SUMMARY OF 2004 DIRECTOR GRANT TERMS

This is a summary of the terms applicable to the grant specified on this document. Different terms may apply to any other grant under the Medco Health Solutions, Inc. 2002 Stock Incentive Plan.

I. GENERAL INFORMATION

This grant becomes fully vested and nonforfeitable on the Vesting Date indicated in the accompanying box. If your service with Medco Health Solutions, Inc. (Company) ends for any reason prior to the Vesting Date, your right to this grant will be determined according to the terms in Section II.


Grant Amount:
Grant Type:		Restricted Stock Unit (RES)
Grant Code:		BOD
Grant Date:

Vesting Date		Portion that Vests
		100%

II. TERMINATION OF SERVICE

A. General Rule. If your service as a member of the Board of Directors terminates for any reason other than voluntary resignation or removal, this grant, if unvested, will vest on the date your service ends.

B. Removal. If you are removed from the Board pursuant to Article Seventh of the Company’s Amended and Restated Certificate of Incorporation, this grant, if unvested, will be forfeited immediately upon such removal.

C. Voluntary Resignation. If your service terminates as a result of your voluntary resignation, a prorated portion of the grant shall vest based on the number of full and partial months since the Grant Date.

III. CONVERSION OF UNITS

Restricted Stock Units that have vested may only be converted to shares of Common Stock following the end of your service as a member of the Board of Directors. Restricted Stock Units may not be converted while you are a member of the Board.

IV. ADJUSTMENTS

In the event of a reorganization, recapitalization, stock split, stock dividend, combination of shares, merger, consolidation, rights offering, spin off, split off, split up or other event identified by the Board of Directors, the Board shall make such adjustments, if any, as it may deem appropriate to the number and kind of shares subject to this award (provided that fractions of a share will be rounded down to the nearest whole share). Any such determination shall be final, binding and conclusive on all parties.

This grant is subject to the provisions of the 2002 Stock Incentive Plan and the Rules and Regulations thereunder established by the Board of Directors of Medco Health Solutions, Inc. or its Compensation Committee as in effect on the Grant Date.

MEDCO HEALTH SOLUTIONS, INC. 2002 STOCK INCENTIVE PLAN

NON-QUALIFIED STOCK OPTION (NQSO)

SUMMARY OF 2004 DIRECTOR GRANT TERMS

This is a summary of the terms applicable to the stock option specified on this document. Different terms may apply to any other stock option under the Medco Health Solutions, Inc. 2002 Stock Incentive.

I. GENERAL INFORMATION

This stock option becomes exercisable on the Vesting Date indicated in the accompanying box. This stock option expires on its Expiration Date, which is the day before the tenth anniversary of the Grant Date. If your service with Medco Health Solutions, Inc. (Company) ends for any reason prior to the Vesting Date, your right to exercise this stock option will be determined according to the terms in Section II.


Grant Amount:		8,000 options
Grant Type:		Nonqualified Stock Option (NQ)
Grant Code:		BOD
Option Price:		$
Grant Date:
Expiration Date:

Vesting Date		Portion that Vests
		100%

II. TERMINATION OF SERVICE

III. MISCELLANEOUS

A. Transferability . Except as specifically permitted by the Compensation Committee, this option may not be assigned or otherwise transferred. The Committee may permit this stock option to be transferred to family members or certain family partnerships or trusts in accordance with rules and regulations adopted by the Committee.

B. Reorganization . In the event of a reorganization, recapitalization, stock split, stock dividend, combination of shares, merger, consolidation, rights offering, spin off, split off, split up or other event identified by the Board of Directors, the Board shall make such adjustments, if any, as it may deem appropriate to the number and kind of shares subject to this option and/or the option price (provided that fractions of a share will be rounded down to the nearest whole share). Any such determination shall be final, binding and conclusive on all parties.

This stock option is subject to the provisions of the 2002 Stock Incentive Plan and the Rules and Regulations thereunder established by the Board of Directors of Medco Health Solutions, Inc. or its Compensation Committee as in effect on the Grant Date.

Exhibit 10.3

Summary of

Compensation Arrangements

With Non-Management Directors


Retainer for Board Service		$40,000 per year paid quarterly

Retainer for Committee Chair		$10,000 per year paid quarterly (applies to audit, compensation and governance and nominating committees; other committee chairs will be compensated $5,000 per year)

Additional Retainer for Audit Committee Members		$10,000 per year for the chair and $5,000 for each member

Meeting Fee		$1,000 per meeting paid shortly after each meeting

Initial Equity Grant		6,000 restricted stock units and 8,000 stock options upon initial election or appointment to board

Annual Equity Grant		2,000 restricted stock units and 8,000 stock options granted on the date of the annual meeting of shareholders

Retainers are paid quarterly; meeting fees are paid after each meeting. Travel expenses in connection with the attendance of meetings are reimbursed.

Stock options and restricted stock units vest on the first anniversary of the grant and options expire 10 years after grant. All restricted stock units are deferred until retirement or other termination from the Board of Directors.