CHANGE IN CONTROL POLICY FOR
SELECTED EXECUTIVE EMPLOYEES
(Amended and Restated on
April 21, 2009)
CHANGE IN CONTROL POLICY FOR
SELECTED EXECUTIVE EMPLOYEES
(Amended and Restated on
April 21, 2009)
1. ADOPTION
AND PURPOSE OF POLICY.
The McKesson
Corporation Change in Control Policy for Selected Executive
Employees (the “Policy”) was adopted effective
November 1, 2006 by McKesson to provide a program of severance
payments to certain employees of McKesson and its designated
subsidiaries whose employment is terminated as the result of a
Change in Control. The Policy is an employee welfare benefit plan
within the meaning of Section 3(1) of the Employee Retirement
Income Security Act of 1974, as amended (“ERISA”) and
Section 2510.3-1 of the regulations issued thereunder. This
document constitutes both the plan document and the summary plan
description of the Policy. The plan administrator of the Policy for
purposes of ERISA is McKesson. The Committee amended and restated
this Policy effective as of November 1, 2006, October 29,
2008, and to read as set forth herein on April 21,
2009.
2. CHANGE IN
CONTROL BENEFITS.
(a) Basic
Change in Control Benefits . In the event of the occurrence of
a Change in Control where a Participant’s employment is
terminated under circumstances that constitute a Separation from
Service (i) proximate to and initiated at the direction of the
person or entity that is involved in, or otherwise in connection
with, such Change in Control, for any reason other than Cause or
(ii) initiated by the Participant for Good Reason, and if such
termination of employment occurs within the period six
(6) months preceding or twenty-four (24) months following
a Change in Control, that Participant shall be entitled to a Change
in Control benefit equal to the following:
Tier One
Participant: 2.99 times Earnings
Tier Two
Participant: 2 times Earnings
Tier Three
Participant: 1 times Earnings
(b) Other
Change in Control Benefits . A Participant who is entitled to
the basic Change in Control benefit provided in (a) above also
shall be entitled to the following:
(i) If the
Participant is a Tier One Participant and is covered by the
Executive Benefit Retirement Plan, his or her straight life annuity
benefits under that Plan shall be calculated by adding three
additional years of age and three (3) additional years of
service to the Participant’s actual age and service;
provided, however, that the actuarially equivalent lump sum value
amount shall be based on the Participant’s actual age;
and
(ii) The
Participant is and his or her eligible dependents are eligible to
have continued coverage under McKesson-sponsored medical plan
benefits or comparable medical plan benefits in which the
Participant was a participant at the time of Separation from
Service for the number of years set forth below from the date of
Separation from Service, at a cost no greater than the cost in
effect at the time of the Change in Control:
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Tier One Participant
3 years
Tier
Two Participant 2 years
Tier Three Participant
1 year
(iii) The
Participant is eligible to have continued Company-paid life
insurance at the level in effect on the date of the Change in
Control for the number of years set forth below from the date of
termination:
Tier One Participant
3 years
Tier
Two Participant 2 years
Tier Three Participant
1 year
(iv) The
Participant is eligible for reasonable outplacement services, in an
amount not to exceed the amount determined by the Executive Vice
President, Human Resources; provided, however, that the expenses
for such services shall not be incurred by the Participant at any
time after the last day of the second (2 nd )
taxable year following the taxable year in which the
Participant’s Separation from Service occurs, and such
expenses shall not be reimbursed by McKesson at any time after the
last day of the third (3 rd )
taxable year following the taxable year in which Executive’s
Separation from Service occurs.
(v) If, as a
result of the Participant’s employment with McKesson or
termination thereof, the benefits received by the Participant (the
“Total Payments”) are subject to the excise tax
provision set forth in Section 4999 of the Code (the
“Excise Tax”), McKesson shall pay to Participant an
additional amount (the “Gross-Up Payment”) such that
the net amount retained by Participant, after deduction of any
Excise Tax on the benefits received hereunder and any federal,
state and local income and employment taxes and Excise Tax upon the
Gross-Up Payment, shall be equal to the Total Payments; provided,
however, that subject to paragraph c the Gross-Up Payment shall be
made to Participant no later than the end of the taxable year
following the taxable year in which his or her applicable taxes are
remitted to the taxing authorities. For purposes of determining
whether any of the Total Payments will be subject to the Excise Tax
and the amount of such Excise Tax, (A) all of the Total
Payments shall be treated as “parachute payments”
(within the meaning of Section 280G(b)(2) of the Code) unless, in
the opinion of tax counsel (“Tax Counsel”) reasonably
acceptable to the Participant and selected by the accounting firm
which was, immediately prior to the Change in Control, the
Company’s independent auditor (the “Auditor”),
such payments or benefits (in whole or in part) do not constitute
parachute payments, including by reason of
Section 280G(b)(4)(A) of the Code, (B) all “excess
parachute payments” within the meaning of
Section 280G(b)(1) of the Code shall be treated as subject to
the Excise Tax unless, in the opinion of Tax Counsel, such excess
parachute payments (in whole or in part) represent
“reasonable compensation” for services actually
rendered (within the meaning of Section 280G(b)(4)(B) of the
Code) in excess of the Base Amount (as defined in Section
280G(b)(3) of the Code) allocable to such reasonable compensation,
or are otherwise not subject to the Excise Tax, and (C) the
value of any noncash benefits or any deferred
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payment or
benefit shall be determined by the Auditor in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up Payment, the
Participant shall be deemed to pay federal income tax at the
highest marginal rate of federal income taxation in the calendar
year in which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rate of taxation in the
state and locality of the Participant’s residence on the date
of termination (or if there is no date of termination, then the
date on which the Gross-Up Payment is calculated for purposes of
this paragraph, net of the maximum reduction in federal income
taxes which could be obtained from deduction of such state and
local taxes). In the event that the Excise Tax is finally
determined to be less than the amount taken into account hereunder
in calculating the Gross-Up Payment, the Participant shall repay to
McKesson, within five (5) business days following the time
that the amount of such reduction in the Excise Tax is finally
determined, the portion of the Gross-Up Payment attributable to
such reduction (plus that portion of the Gross-Up Payment
attributable to the Excise Tax and federal, state and local income
and employment taxes imposed on the Gross-Up Payment being repaid
by the Participant, to the extent that such repayment results in a
reduction in the Excise Tax and a dollar-for-dollar reduction in
the Participant’s taxable income and wages for purposes of
federal, state and local income and employment taxes, plus interest
on the amount of such repayment at one hundred twenty percent
(120%) of the rate provided in Section 1274(b)(2)(B) of the
Code). In the event that the Excise Tax is determined to exceed the
amount taken into account hereunder in calculating the Gross-Up
Payment (including by reason of any payment the existence or amount
of which cannot be determined at the time of the Gross-Up Payment),
McKesson shall make an additional Gross-Up Payment in respect of
such excess (plus any interest, penalties or additions payable by
the Participant with respect to such excess) within five business
days following the time that the amount of such excess is finally
determined. The Participant and McKesson shall each reasonably
cooperate with the other in connection with any administrative or
judicial proceedings concerning the existence or amount of
liability for Excise Tax with respect to the Total
Payments.
(vi) Each benefit
provided for in this paragraph (b) is a separate
“payment” within the meaning of Treasury Regulation
section 1.409A-2(b)(2)(i). The benefit provided in subparagraphs
(ii) — (iv) above may be in the form of a reimbursement
or an in-kind benefit (payment made directly to the provider of the
benefits). Such reimbursements or in-kind benefits provided during
a calendar year may not affect the expenses eligible for
reimbursement, or in-kind benefits to be provided, in any other
calendar year.
(c) If any
of the payments or benefits payable to Executive under this
Agreement when considered together with any other payments or
benefits which may be considered deferred compensation under
Section 409A of Code would result in the imposition of
additional tax under Section 409A of the Code if paid to
Executive on or within the six (6) month period following
Executive’s Separation from Service, then to the extent such
portion of the payments or benefits resulting in the imposition of
additional tax would otherwise have been payable on or within the
first six (6) months following his or her Separation from Service,
shall be paid or reimbursed in a lump sum in the seventh (7th)
month following such Separation (or such longer period as is
required to avoid the imposition of additional tax under
Section 409A of the Code). If any
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amount due
under paragraph (a) above is delayed under this paragraph (c),
then such lump sum amount shall accrue interest at DCAP Rate for
the period of such deferral, which interest shall be paid together
with such payment. All subsequent payment or benefits will be
payable in accordance with the payment schedule applicable to each
such payment or benefits.
(d) Nothing in this Policy shall alter or
impair any rights a Participant may have upon his or her Separation
from Service under any other plan or program of the Company;
provided, however, if a Participant receives payments under this
Policy that Participant will be precluded from receiving payment
under any other Company-sponsored severance plan or policy.
Notwithstanding the foregoing, no individual covered by an
agreement with the Company or an affiliate that provides for
benefits in the event of a change in control or similar event shall
be a Participant in this Policy.
(e) Notwithstanding any provision in this
Policy, no payments will be made to a Participant under this Policy
until the Participant provides to the Company a signed a release of
claims, in a form that the Company provides to the Participant, and
does not revoke such release during the applicable statutory period
provided to revoke a release, if any (the “revocation
period”). If the Participant does not revoke his or her
signed release by the end of the revocation period, then the
Participant shall have an “Effective Release” on file
with the Company. No payments will be made to a Participant under
this Policy unless the Company has an Effective Release from that
Participant prior to sixty-five (65) days after the
Participant’s Separation from Service.
The benefit
described in Section 2(a) shall be paid in a lump sum within ninety
(90) days following the date of the Participant’s
Separation from Service, but in no event prior to the effectiveness
of a Release (as defined in Section 2(e)); provided, however,
that if the Participant is a Specified Employee on the date of his
or her Separation from Service, any payment or portion of the
payment that is scheduled to be made in the six (6) month
period following the Participant’s Separation from Service,
when considered together with any other severance payments or
separation benefits which may be considered deferred compensation
under Section 409A of the Code, would result in the imposition
of additional tax under Section 409A of the Code if paid to
the Participant on or within the six (6) month period
following his or her Separation from Service if made in such six
(6) month period shall be made in the seventh (7
th ) month following the month in which the
Participant’s Separation from Service occurs. Such payment
shall include an additional amount representing interest credited
at the rate being credited to accounts under McKesson’s
Deferred Compensation Administration Plan III during the period of
delay measured from Participant’s Separation from Service
until the scheduled payment date.
4. EFFECT OF
DEATH OF EMPLOYEE.
Should a
Participant die after a Separation from Service and becoming
eligible to receive the benefits provided in Section 2(a) prior to
the payment of the entire benefit due hereunder, but prior to the
benefit being paid to the Participant, the benefit payable under
Section 2(a) shall be paid in a lump sum to the Participant’s
surviving spouse, or, if none, to his or her surviving children or,
if none, to his or her estate, as soon as reasonably practicable,
but in no event later than ninety (90) days, after the date of
death. The benefits set forth in Section 2(b) (other than
subsection (iv)) shall continue to apply following the
Participant’s death. If a Participant dies
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prior to
Separation from Service, no payments will be made or benefits
provided under this Policy.
5. AMENDMENT
AND TERMINATION.
McKesson
reserves the right to amend the Policy or increase or decrease the
amount of any benefit provided under the Policy by action of the
Compensation Committee of the Board. Furthermore, no such action
shall have the effect of decreasing the benefit of a Participant
whose Separation from Service following a Change in Control
occurred prior to the date of the Board’s or Compensation
Committee’s action, and, no action taken within six
(6) months before or twenty-four (24) months after a
Change in Control shall be effective if the result of such action
would be to decrease the benefit of any individual who has been
designated a Participant pursuant to
Section 10(g)(i).
The Board in
its discretion may at any time terminate the Policy in accordance
with Treasury Regulation section 1.409A-3(j)(4)(ix).
6.
ADMINISTRATION AND FIDUCIARIES.
(a) Plan
Sponsor and Administrator . McKesson is the “plan
sponsor” and the “Administrator” of the Policy,
within the meaning of ERISA.
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