UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2015
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to            
Commission File Number: 1-13252
 
McKESSON CORPORATION
(Exact name of registrant as specified in its charter)
 
Delaware
 
94-3207296
(State or other jurisdiction
of incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
One Post Street, San Francisco, California
 
94104
(Address of principal executive offices)
 
(Zip Code)
(415) 983-8300
(Registrant’s telephone number, including area code)
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
x
  
Accelerated filer
 
o
 
 
 
 
 
 
 
Non-accelerated filer
 
o (Do not check if a smaller reporting company)
  
Smaller reporting company
 
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
 
Outstanding as of
September 30, 2015
Common stock, $0.01 par value
 
230,109,093 shares

McKESSON CORPORATION

TABLE OF CONTENTS
 
 
Item
Page
 
 
 
 
 
 
 
 
1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2.
 
 
 
3.
 
 
 
4.
 
 
 
 
 
 
 
 
1.
 
 
 
1A.
 
 
 
2.
 
 
 
3.
 
 
 
4.
 
 
 
5.
 
 
 
6.
 
 
 
 



2
McKESSON CORPORATION

PART I—FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
(Unaudited)
 
 
Quarter Ended September 30,
 
Six Months Ended September 30,
 
2015

2014
 
2015
 
2014
Revenues
$
48,761

 
$
44,160

 
$
96,307

 
$
87,636

Cost of Sales
(45,917
)
 
(41,296
)
 
(90,615
)
 
(82,040
)
Gross Profit
2,844

 
2,864

 
5,692

 
5,596

Operating Expenses
(1,890
)
 
(2,077
)
 
(3,807
)
 
(4,128
)
Operating Income
954

 
787

 
1,885

 
1,468

Other Income, Net
17

 
22

 
30

 
41

Interest Expense
(91
)
 
(95
)
 
(180
)
 
(191
)
Income from Continuing Operations Before Income Taxes
880

 
714

 
1,735

 
1,318

Income Tax Expense
(244
)
 
(223
)
 
(500
)
 
(408
)
Income from Continuing Operations
636


491

 
1,235


910

Loss from Discontinued Operations, Net of Tax
(6
)

(14
)
 
(16
)

(22
)
Net Income
630


477

 
1,219


888

Net Income Attributable to Noncontrolling Interests
(13
)
 
(8
)
 
(26
)
 
(16
)
Net Income Attributable to McKesson Corporation
$
617

 
$
469

 
$
1,193

 
$
872

 
 
 
 
 
 
 
 
Earnings (Loss) Per Common Share Attributable
to McKesson Corporation



 



Diluted
 

 
 





Continuing operations
$
2.65


$
2.05

 
$
5.15


$
3.80

Discontinued operations
(0.02
)

(0.06
)
 
(0.07
)

(0.09
)
Total
$
2.63


$
1.99

 
$
5.08


$
3.71

Basic
 
 
 
 





Continuing operations
$
2.68


$
2.08

 
$
5.21


$
3.86

Discontinued operations
(0.02
)

(0.06
)
 
(0.06
)

(0.09
)
Total
$
2.66


$
2.02

 
$
5.15


$
3.77

 
 
 
 
 
 
 
 
Dividends Declared Per Common Share
$
0.28

 
$
0.24

 
$
0.52

 
$
0.48

 
 
 
 
 
 
 
 
Weighted Average Common Shares
 
 
 
 
 
 
 
Diluted
235

 
235

 
235

 
235

Basic
232

 
232

 
232

 
231




See Financial Notes

3
McKESSON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In millions)
(Unaudited)
 
 
Quarter Ended September 30,
 
Six Months Ended September 30,
 
2015

2014
 
2015
 
2014
Net Income
$
630

 
$
477

 
$
1,219

 
$
888

 
 
 
 
 
 
 
 
Other Comprehensive Income (Loss), Net of Tax
 
 
 
 
 
 
 
Foreign currency translation adjustments arising during period
(243
)
 
(677
)
 
104

 
(579
)
 
 
 
 
 
 
 
 
Unrealized gains (losses) on cash flow hedges arising during period
2

 
—

 
6

 
(2
)
 
 
 
 
 
 
 
 
Retirement-related benefit plans
11

 
6

 
(17
)
 
8

Other Comprehensive Income (Loss), Net of Tax
(230
)
 
(671
)
 
93

 
(573
)
 
 
 
 
 
 
 
 
Comprehensive Income (Loss)
400

 
(194
)
 
1,312

 
315

Comprehensive Loss (Income) Attributable to Noncontrolling Interests
7

 
131

 
(50
)
 
135

Comprehensive Income (Loss) Attributable to McKesson Corporation
$
407

 
$
(63
)
 
$
1,262

 
$
450








See Financial Notes

4
McKESSON CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except per share amounts)
(Unaudited)
 
September 30,
2015
 
March 31,
2015
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
5,359

 
$
5,341

Receivables, net
16,798

 
15,914

Inventories, net
15,587

 
14,296

Prepaid expenses and other
1,005

 
1,119

Total Current Assets
38,749

 
36,670

Property, Plant and Equipment, Net
2,108

 
2,045

Goodwill
9,811

 
9,817

Intangible Assets, Net
3,254

 
3,441

Other Assets
1,897

 
1,897

Total Assets
$
55,819

 
$
53,870

 
 
 
 
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
 
 
 
Current Liabilities
 
 
 
Drafts and accounts payable
$
27,151

 
$
25,166

Short-term borrowings
142

 
135

Deferred revenue
807

 
1,078

Deferred tax liabilities
1,915

 
1,820

Current portion of long-term debt
1,110

 
1,529

Other accrued liabilities
3,650

 
3,769

Total Current Liabilities
34,775

 
33,497

 
 
 
 
Long-Term Debt
8,136

 
8,180

Other Noncurrent Liabilities
2,625

 
2,722

Commitments and Contingent Liabilities (Note 13)

 

Redeemable Noncontrolling Interests
1,410

 
1,386

McKesson Corporation Stockholders’ Equity
 
 
 
Preferred stock, $0.01 par value, 100 shares authorized, no shares issued or outstanding
—

 
—

Common stock, $0.01 par value, 800 shares authorized at September 30, 2015 and March 31, 2015, 385 and 384 shares issued at September 30, 2015 and March 31, 2015
4

 
4

Additional Paid-in Capital
7,212

 
6,968

Retained Earnings
13,780

 
12,705

Accumulated Other Comprehensive Loss
(1,644
)
 
(1,713
)
Other
(3
)
 
(7
)
Treasury Shares, at Cost, 155 and 152 at September 30, 2015 and March 31, 2015
(10,561
)
 
(9,956
)
Total McKesson Corporation Stockholders’ Equity
8,788

 
8,001

Noncontrolling Interests
85

 
84

Total Equity
8,873

 
8,085

Total Liabilities, Redeemable Noncontrolling Interests and Equity
$
55,819

 
$
53,870


See Financial Notes

5
McKESSON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 
Six Months Ended September 30,
 
2015
 
2014
Operating Activities
 
 
 
Net income
$
1,219

 
$
888

Adjustments to reconcile to net cash provided by operating activities:
 
 
 
Depreciation and amortization
451

 
538

Deferred taxes
23

 
114

Charges associated with last-in-first-out inventory method
182

 
192

Share-based compensation expense
78

 
82

Gain from the sale of businesses
(102
)
 
(6
)
Other non-cash items
7

 
24

Changes in operating assets and liabilities, net of acquisitions:
 
 
 
Receivables
(1,037
)
 
(1,531
)
Inventories
(1,469
)
 
(1,122
)
Drafts and accounts payable
1,960

 
1,463

Deferred revenue
(258
)
 
(253
)
Taxes
203

 
(66
)
Other
(6
)
 
(158
)
Net cash provided by operating activities
1,251

 
165

 
 
 
 
Investing Activities
 
 
 
Property acquisitions
(178
)
 
(190
)
Capitalized software expenditures
(96
)
 
(80
)
Acquisitions, net of cash and cash equivalents acquired
(11
)
 
(31
)
Proceeds from sale of businesses
204

 
(2
)
Other
12

 
(4
)
Net cash used in investing activities
(69
)
 
(307
)
 
 
 
 
Financing Activities
 
 
 
Proceeds from short-term borrowings
1,501

 
1,790

Repayments of short-term borrowings
(1,501
)
 
(1,572
)
Proceeds from issuances of long-term debt
—

 
3

Repayments of long-term debt
(498
)
 
(231
)
Common stock transactions:
 
 
 
Issuances
72

 
66

Share repurchases, including shares surrendered for tax withholding
(605
)
 
(105
)
Dividends paid
(114
)
 
(115
)
Other
(45
)
 
(4
)
Net cash used in financing activities
(1,190
)
 
(168
)
Effect of exchange rate changes on cash and cash equivalents
26

 
(79
)
Net increase (decrease) in cash and cash equivalents
18

 
(389
)
Cash and cash equivalents at beginning of period
5,341

 
4,193

Cash and cash equivalents at end of period
$
5,359

 
$
3,804


See Financial Notes

6
McKESSON CORPORATION
FINANCIAL NOTES
(UNAUDITED)


1.
Significant Accounting Policies
Basis of Presentation: The condensed consolidated financial statements of McKesson Corporation (“McKesson,” the “Company,” or “we” and other similar pronouns) include the financial statements of all wholly-owned subsidiaries and majority‑owned or controlled companies. We also evaluate our ownership, contractual and other interests in entities to determine if they are variable interest entities (“VIEs”), if we have a variable interest in those entities and the nature and extent of those interests. These evaluations are highly complex and involve judgment and the use of estimates and assumptions based on available historical information and management’s judgment, among other factors. Based on our evaluations, if we determine we are the primary beneficiary of such VIEs, we consolidate such entities into our financial statements. Investments in business entities in which we do not have control, but have the ability to exercise significant influence over operating and financial policies, are accounted for using the equity method and our proportionate share of income or loss is recorded in Other Income, Net. Intercompany transactions and balances have been eliminated. The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) and, therefore, do not include all information and footnote disclosures normally included in the annual consolidated financial statements.
To prepare the financial statements in conformity with GAAP, management must make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of these financial statements and income and expenses during the reporting period. Actual amounts may differ from these estimated amounts. In our opinion, the accompanying unaudited condensed consolidated financial statements include all normal recurring adjustments necessary for a fair presentation of our financial position, results of operations and cash flows for the interim periods presented.
The results of operations for the quarter and six months ended September 30, 2015 are not necessarily indicative of the results that may be expected for the entire year. These interim financial statements should be read in conjunction with the annual audited financial statements, accounting policies and financial notes included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2015 previously filed with the SEC on May 12, 2015 (“2015 Annual Report”).
Certain prior period amounts, which relate to our discontinued operations, have been reclassified to conform to the current period presentation.
The Company’s fiscal year begins on April 1 and ends on March 31. Unless otherwise noted, all references to a particular year shall mean the Company’s fiscal year.
Recently Adopted Accounting Pronouncements
Discontinued Operations: In the first quarter of 2016, we adopted amended guidance for reporting of discontinued operations and disclosures of disposals of components.  The amended guidance revises the criteria for disposals to qualify as discontinued operations and permits significant continuing involvement and continuing cash flows with the discontinued operation.  In addition, the amended guidance requires additional disclosures for discontinued operations and new disclosures for individually material disposal transactions that do not meet the definition of a discontinued operation. Refer to Financial Notes 4 and 5, “Divestiture of Businesses” and “Discontinued Operations,” for more information regarding the impact of this amended guidance on our condensed consolidated financial statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
Business Combinations: In September 2015, amended guidance was issued for an acquirer’s accounting for measurement-period adjustments. The amended guidance eliminates the requirement that an acquirer in a business combination account for measurement-period adjustments retrospectively and instead requires that measurement-period adjustments be recognized during the period in which it determines the amount of adjustments. In addition, the amended guidance requires that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The amended guidance is effective for us prospectively commencing in the first quarter of 2017. Early adoption is permitted.


7
McKESSON CORPORATION
FINANCIAL NOTES (CONTINUED)
(UNAUDITED)

Inventory: In July 2015, amended guidance was issued for the subsequent measurement of inventory. The amended guidance requires entities to measure inventory at the lower of cost or net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The requirement would replace the current lower of cost or market evaluation. Accounting guidance is unchanged for inventory measured using last-in, first-out (“LIFO”) or the retail method. The amended guidance will become effective for us commencing in the first quarter of 2018. Early adoption is permitted. We are currently evaluating the impact of this amended guidance on our condensed consolidated financial statements.
Fair Value Measurement: In May 2015, amended guidance was issued that limits disclosures and removes the requirement to categorize investments within the fair value hierarchy if the fair value of the investment is measured using the net asset value per share practical expedient. The amended guidance will become effective for us commencing in the first quarter of 2017.  Early adoption is permitted.  We are currently evaluating the impact of this amended guidance on our condensed consolidated financial statements.
Fees Paid in a Cloud Computing Arrangement:  In April 2015, amended guidance was issued for a customer’s accounting for fees paid in a cloud computing arrangement.  The amended guidance requires customers to determine whether or not an arrangement contains a software license element. If the arrangement contains a software element, the related fees paid should be accounted for as an acquisition of a software license. If the arrangement does not contain a software license, it is accounted for as a service contract. The amended guidance will become effective for us commencing in the first quarter of 2017.  Early adoption is permitted.  We are currently evaluating the impact of this amended guidance on our condensed consolidated financial statements.
Debt Issuance Costs:  In April 2015, amended guidance was issued for the balance sheet presentation of debt issuance costs. The amended guidance requires debt issuance costs related to a recognized debt liability to be reported in the balance sheet as a direct deduction from the carrying amount of that debt liability.  The recognition and measurement guidance for debt issuance costs are not affected by the amended guidance. In August 2015, a clarification was added to this amended guidance that debt issuance costs related to line-of-credit arrangements can continue to be deferred and presented as an asset on the balance sheet. The amended guidance will become effective for us commencing in the first quarter of 2017.  Early adoption is permitted.  We do not expect the adoption of this guidance to have a material effect on our condensed consolidated financial statements.
Consolidation: In February 2015, amended guidance was issued for consolidating legal entities in which a reporting entity holds a variable interest.  The amended guidance modifies the evaluation of whether limited partnerships and similar legal entities are VIEs and changes the consolidation analysis of reporting entities that are involved with VIEs that have fee arrangements and related party relationships. The amended guidance will become effective for us commencing in the first quarter of 2017.  Early adoption is permitted.  We are currently evaluating the impact of this amended guidance on our condensed consolidated financial statements.
Revenue Recognition: In May 2014, amended guidance was issued for recognizing revenue from contracts with customers.  The amended guidance eliminates industry specific guidance and applies to all companies.  Revenues will be recognized when an entity satisfies a performance obligation by transferring control of a promised good or service to a customer in an amount that reflects the consideration to which the entity expects to be entitled for that good or service. Revenue from a contract that contains multiple performance obligations is allocated to each performance obligation generally on a relative standalone selling price basis. The amended guidance also requires additional quantitative and qualitative disclosures. In August 2015, additional guidance was issued to defer the effective date of the amended revenue recognition guidance by one year. As a result, the amended guidance is effective for us commencing in the first quarter of 2019.  The amended guidance allows for either full retrospective adoption or modified retrospective adoption. Early adoption is permitted but not prior to our first quarter of 2018. We are currently evaluating the impact of this amended guidance on our condensed consolidated financial statements.


8
McKESSON CORPORATION
FINANCIAL NOTES (CONTINUED)
(UNAUDITED)

2.
Business Combinations
In September 2015, we entered into an agreement to acquire the pharmaceutical distribution business of UDG Healthcare Plc (“UDG”) based in Ireland for €408 million in cash (or, using the currency exchange ratio of $1.12/€1 as of September 30, 2015, approximately $457 million).  The business primarily provides pharmaceutical and other healthcare products to retail and hospital pharmacies.  The transaction was approved by UDG shareholders on October 13, 2015, and is subject to the approval from the applicable regulatory authorities as well as other customary closing conditions. The acquisition is currently expected to close in the first half of calendar year 2016.
In July 2015, we also announced plans to acquire the pharmacy business of J Sainsbury Plc (“Sainsbury”) based in the U.K. for £125 million in cash (or, using the currency exchange ratio of $1.52/£1 as of September 30, 2015, approximately $190 million). Under the terms of the transaction, we will acquire 281 pharmacies in the U.K. including 277 in-store pharmacies and four located in hospitals. The transaction is subject to the approval of the applicable regulatory authorities as well as other customary closing conditions and is currently expected to close during the fourth quarter of 2016.
Upon closing, the acquired UDG and Sainsbury businesses will be included as part of our International pharmaceutical distribution and services business within our Distribution Solutions segment.
In addition to our February 2014 acquisition of Celesio AG (“Celesio”), we completed a number of smaller acquisitions within our Distribution Solutions segment during the last two years. Financial results for our business acquisitions have been included in our consolidated financial statements since their respective acquisition dates. Purchase prices for our business acquisitions have been allocated based on estimated fair values at the date of acquisition. Goodwill recognized for our business acquisitions is generally not expected to be deductible for tax purposes. However, if we acquire the assets of a company, the goodwill may be deductible for tax purposes.
3.
Redeemable Noncontrolling Interests
Under a domination and profit and loss transfer agreement (the “Domination Agreement”), McKesson is obligated to pay an annual recurring compensation amount of €0.83 per Celesio share (“Compensation Amount”) to the noncontrolling shareholders of Celesio. Additionally, the noncontrolling interests in Celesio are redeemable at the option of the holder as a result of a right to put their Celesio shares at €22.99 per share (“Put Right”) under the Domination Agreement. Accordingly, the noncontrolling interests in Celesio are presented as “Redeemable Noncontrolling Interests” on the accompanying condensed consolidated balance sheet. The Put Right amount is increased annually for interest in the amount of five percentage points above a base rate published by the German Bundesbank semiannually, less the guaranteed dividend paid during the second quarter of 2016 related to calendar year 2014 (“Guaranteed Dividend”) and any Compensation Amount already paid in respect of the relevant time period (“Put Amount”). The Domination Agreement was approved at the general shareholders’ meeting of Celesio on July 15, 2014, approved by the Stuttgart Higher Regional Court for registration on December 2, 2014, and was registered in the commercial register of Celesio at the local court of Stuttgart on December 2, 2014.
Subsequent to the Domination Agreement’s registration, certain noncontrolling shareholders of Celesio initiated appraisal proceedings (“Appraisal Proceedings”) with the Stuttgart Higher Regional Court to challenge the Compensation Amount, Guaranteed Dividend and/or Put Amount. As long as any Appraisal Proceedings are pending, the Compensation Amount, Guaranteed Dividend and/or Put Amount will be paid as specified currently in the Domination Agreement. If any such Appraisal Proceedings result in an adjustment to the Compensation Amount, Guaranteed Dividend and/or Put Amount, Celesio Holdings Deutschland GmbH & Co. KGaA (formerly known as “McKesson Deutschland GmbH & Co. KGaA”) would be required to make certain additional payments for any shortfall to all Celesio noncontrolling shareholders who previously received the Guaranteed Dividend, Compensation Amount and/or Put Amount. The Put Right specified in the Domination Agreement may be exercised until two months after the announcement regarding the end of the Appraisal Proceedings. In addition, if the Domination Agreement is terminated, the Put Right may be exercised for a two-month period after the date of termination.


9
McKESSON CORPORATION
FINANCIAL NOTES (CONTINUED)
(UNAUDITED)

The exercise of the Put Right will reduce the balance of redeemable noncontrolling interests. There were no material exercises during the second quarter and first six months of 2016. The balance of redeemable noncontrolling interests is reported at the greater of its carrying value or its maximum redemption value at each reporting date. The redemption value is the Put Amount adjusted for exchange rate fluctuations each period. At September 30, 2015 and March 31, 2015, the carrying value of redeemable noncontrolling interests of $1.41 billion and $1.39 billion exceeded the maximum redemption value of $1.26 billion and $1.21 billion. At September 30, 2015 and March 31, 2015, we owned approximately 76.0% of Celesio’s outstanding common shares.
Changes in redeemable noncontrolling interests were as follows:
(In millions)
Redeemable
Noncontrolling
Interests
Balance, March 31, 2015
$
1,386

Net income attributable to noncontrolling interests
22

Other comprehensive income
24

Reclassification of recurring compensation to other accrued liabilities
(22
)
Balance, September 30, 2015
$
1,410

The effects of changes in our ownership interest in Celesio on McKesson’s equity are as follows:
 
Quarter Ended September 30,
 
Six Months Ended September 30,
(In millions)
2015
 
2014
 
2015
 
2014
Net income attributable to McKesson Corporation
$
617

 
$
469

 
$
1,193

 
$
872

Transfers to noncontrolling and redeemable noncontrolling interests:
 
 
 
 
 
 
 
Decrease in McKesson Corporation’s paid-in capital for purchase of noncontrolling shares
—

 
(6
)
 
—

 
(3
)
Net transfers to noncontrolling and redeemable noncontrolling interests
—

 
(6
)
 
—

 
(3
)
Changes from net income attributable to McKesson Corporation and transfers to noncontrolling and redeemable noncontrolling interests
$
617

 
$
463

 
$
1,193

 
$
869



10
McKESSON CORPORATION
FINANCIAL NOTES (CONTINUED)
(UNAUDITED)

4.
Divestiture of Businesses
In August 2015, we sold our ZEE Medical business within our Distribution Solutions segment for a total purchase price of $134 million. We recorded a pre-tax gain from this sale of $51 million ($33 million after-tax) during the second quarter of 2016 and $51 million ($29 million after-tax) during the first six months of 2016.
During the first quarter of 2016, we also sold our nurse triage business within our Technology Solutions segment for net sale proceeds of $84 million and recorded a pre-tax gain of $51 million ($38 million after-tax) from the sale.
These divestitures did not meet the criteria to qualify as discontinued operations under the amended guidance, which became effective for us in the first quarter of 2016.  Accordingly, pre-tax gains from both divestitures were recorded in operating expenses within continuing operations of our condensed consolidated statements of operations. Pre and after-tax income of these businesses were not material for the quarters and six months ended September 30, 2015 and 2014.
5.
Discontinued Operations
During the fourth quarter of 2015, we committed to a plan to sell our Brazilian pharmaceutical distribution business and a small business from our Distribution Solutions segment. We acquired the Brazilian distribution business through our February 2014 acquisition of Celesio. The results of operations and cash flows of these businesses are classified as discontinued operations for all periods presented in our condensed consolidated financial statements.
During the fourth quarter of 2015, we recorded $241 million of non-cash pre-tax ($235 million after-tax) impairment charges to reduce the carrying value of this Brazilian distribution business to its estimated fair value, less cost to sell. The ultimate loss from the sale may be higher or lower than our current assessment of the business’ fair value and will be recorded in discontinued operations. In April 2015, a fire destroyed one of our Brazilian warehouses. While we maintain property loss and business interruption insurance, this event may impact the fair value of our Brazilian business.
During the first quarter of 2015, we decided to retain the workforce business within our International Technology business, which had been classified as a discontinued operation since the time we committed to a plan to sell the International Technology business in the first quarter of 2014. As a result, the workforce business was reclassified to continuing operations effective in the first quarter of 2015 for all periods presented and we recorded a non-cash pre-tax charge of $34 million primarily in cost of sales relating to depreciation and amortization expense for the period in 2014 while the business was classified as held for sale. The workforce business, which provided workforce management solutions for the National Health Service in the United Kingdom, was transitioned to another service provider during the first quarter of 2016.
We completed the sale of a software business within our International Technology business during the second quarter of 2015 and at that time, we recorded a pre-tax and after-tax loss of $6 million within the discontinued operations of our condensed consolidated statements of operations.


11
McKESSON CORPORATION
FINANCIAL NOTES (CONTINUED)
(UNAUDITED)

A summary of results of discontinued operations is as follows:
 
Quarter Ended September 30,
 
Six Months Ended September 30,
(In millions)
2015
 
2014
 
2015
 
2014
Revenues
$
418

 
$
601

 
$
865

 
$
1,219

Cost of sales
(377
)
 
(543
)
 
(782
)
 
(1,086
)
Operating expenses
(42
)
 
(71
)
 
(92
)
 
(155
)
Other income (loss), net
(8
)
 
4

 
(13
)
 
1

Pre-tax loss from discontinued operations
(9
)
 
(9
)
 
(22
)
 
(21
)
Loss on sale
—

 
(6
)
 
—

 
(6
)
Income tax benefit
3

 
1

 
6

 
5

Loss from discontinued operations, net of tax
$
(6
)
 
$
(14
)
 
$
(16
)
 
$
(22
)
A summary of carrying amounts of major classes of assets and liabilities included as part of discontinued operations is as follows:
 
September 30,
 
March 31,
(In millions)
2015
 
2015
Receivables, net
$
248

 
$
314

Inventories, net
210

 
254

Other assets
84

 
92

Total assets of discontinued operations (1)
542

 
660

Drafts and account payable
182

 
209

Short-term borrowings
110

 
126

Other liabilities
260

 
328

Total liabilities of discontinued operations (1)
$
552

 
$
663

(1) Assets and liabilities of discontinued operations are included under the captions “Prepaid expenses and other” and “Other accrued liabilities” within our condensed consolidated balance sheets.


12
McKESSON CORPORATION
FINANCIAL NOTES (CONTINUED)
(UNAUDITED)

6.
Income Taxes
During the second quarters of 2016 and 2015, income tax expense related to continuing operations was $244 million and $223 million and included net discrete tax benefits of $24 million and $6 million. During the first six months of 2016 and 2015, income tax expense related to continuing operations was $500 million and $408 million and included net discrete tax benefits of $29 million and $18 million. Our reported income tax rates for the second quarters of 2016 and 2015 were 27.7% and 31.2% and for the first six months of 2016 and 2015 were 28.8% and 31.0%. The fluctuations in our reported income tax rates are primarily due to changes within our business mix, including varying proportions of income attributable to foreign countries that have lower income tax rates and discrete items.
During the second quarter of 2016, we evaluated the recent U.S. Tax Court’s decision in Altera Corp. v. Commissioner related to the treatment of stock-based compensation expense in an intercompany cost-sharing agreement and recognized a discrete tax benefit of $25 million based on our historical tax filing position.
As of September 30, 2015, we had $548 million of unrecognized tax benefits, of which $374 million would reduce income tax expense and the effective tax rate, if recognized. As of June 30, 2015, we had $497 million of unrecognized tax benefits, of which $337 million would reduce income tax expense and the effective tax rate, if recognized. The increase in unrecognized tax benefits for the quarter mainly relates to the filing of a refund claim with the state of California. During the next twelve months, it is reasonably possible that audit resolutions and the expiration of statutes of limitations could potentially reduce our unrecognized tax benefits by up to $124 million. However, this amount may change as we continue to have ongoing negotiations with various taxing authorities throughout the year.
We report interest and penalties on tax deficiencies as income tax expense. We recognized income tax benefit of $1 million and income tax expense of $3 million during the second quarters of 2016 and 2015 and income tax expense of $5 million and $7 million during the first six months of 2016 and 2015, before any tax benefit, related to interest and penalties in our condensed consolidated statements of operations. At September 30, 2015 and 2014, before any tax benefits, our accrued interest and penalties on unrecognized tax benefits amounted to $75 million and $161 million.
We file income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions and various foreign jurisdictions. During the first quarter of 2015, we reached an agreement with the Internal Revenue Service (“IRS”) to settle all outstanding issues relating to years 2003 through 2006 and recognized a discrete tax benefit of $17 million to record a previously unrecognized tax benefit. The IRS is currently examining our U.S. corporation income tax returns for 2007 through 2009 and may issue a Revenue Agent Report before the end of our fiscal year 2016.
We previously received reassessments from the Canada Revenue Agency (“CRA”) related to a transfer pricing matter impacting years 2003 through 2010. On December 13, 2013, the Tax Court of Canada dismissed our appeal of the 2003 reassessment and we filed a Notice of Appeal to the Federal Court of Appeal. During the first quarter of 2016, we reached an agreement to settle the transfer pricing matter for years 2003 through 2010 and recorded a discrete income tax benefit of $12 million for a previously unrecognized tax benefit. The CRA is currently examining our Canadian income tax returns for years 2011 through 2013.



13
McKESSON CORPORATION
FINANCIAL NOTES (CONTINUED)
(UNAUDITED)

7.
Earnings Per Common Share
Basic earnings per common share are computed by dividing net income by the weighted average number of common shares outstanding during the reporting period. Diluted earnings per common share are computed similar to basic earnings per common share except that it reflects the potential dilution that could occur if dilutive securities or other obligations to issue common stock were exercised or converted into common stock.
The computations for basic and diluted earnings per common share are as follows:
  
Quarter Ended September 30,
 
Six Months Ended September 30,
(In millions, except per share amounts)
2015
 
2014
 
2015
 
2014
Income from continuing operations
$
636

 
$
491

 
$
1,235

 
$
910

Net income attributable to noncontrolling interests
(13
)
 
(8
)
 
(26
)
 
(16
)
Income from continuing operations attributable to McKesson
623

 
483

 
1,209

 
894

Loss from discontinued operations, net of tax
(6
)
 
(14
)
 
(16
)
 
(22
)
Net income attributable to McKesson
$
617

 
$
469

 
$
1,193

 
$
872

 
 
 
 
 
 
 
 
Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic
232

 
232

 
232

 
231

Effect of dilutive securities:
 
 
 
 
 
 
 
Options to purchase common stock
2

 
1

 
1

 
2

Restricted stock units
1

 
2

 
2

 
2

Diluted
235

 
235

 
235

 
235

 
 
 
 
 
 
 
 
Earnings (loss) per common share attributable to McKesson: (1)
 
 
 
 
 
 
 
Diluted
 
 
 
 
 
 
 
Continuing operations
$
2.65

 
$
2.05

 
$
5.15

 
$
3.80

Discontinued operations
(0.02
)
 
(0.06
)
 
(0.07
)
 
(0.09
)
Total
$
2.63

 
$
1.99

 
$
5.08

 
$
3.71

Basic
 
 
 
 
 
 
 
Continuing operations
$
2.68

 
$
2.08

 
$
5.21

 
$
3.86

Discontinued operations
(0.02
)
 
(0.06
)
 
(0.06
)
 
(0.09
)
Total
$
2.66

 
$
2.02

 
$
5.15

 
$
3.77

(1)
Certain computations may reflect rounding adjustments.
Potentially dilutive securities include outstanding stock options, restricted stock units, and performance-based and other restricted stock units. Approximately 1 million potentially dilutive securities were excluded from the computations of diluted net earnings per common share for each of the quarters ended September 30, 2015 and 2014 and 1 million and 2 million potentially dilutive securities were excluded from the computations of diluted net earnings per common share for the six months ended September 30, 2015 and 2014, as they were anti-dilutive.


14
McKESSON CORPORATION
FINANCIAL NOTES (CONTINUED)
(UNAUDITED)

8.
Goodwill and Intangible Assets, Net
Changes in the carrying amount of goodwill were as follows:
(In millions)
Distribution
Solutions
 
Technology
Solutions
 
Total
Balance, March 31, 2015
$
7,994

 
$
1,823

 
$
9,817

Goodwill acquired
11

 
—

 
11

Goodwill related to businesses sold
(59
)
 
(26
)
 
(85
)
Acquisition accounting, transfers and other adjustments
8

 
—

 
8

Foreign currency translation adjustments, net
63

 
(3
)
 
60

Balance, September 30, 2015
$
8,017

 
$
1,794

 
$
9,811

As of September 30, 2015 and March 31, 2015, the accumulated goodwill impairment losses were $36 million in our Technology Solutions segment.
Information regarding intangible assets is as follows:
 
September 30, 2015
 
March 31, 2015
(Dollars in millions)
Weighted
Average
Remaining
Amortization
Period
(years)
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
Customer lists
9
 
$
2,686

 
$
(1,234
)
 
$
1,452

 
$
2,683

 
$
(1,116
)
 
$
1,567

Service agreements
15
 
945

 
(240
)
 
705

 
957

 
(215
)
 
742

Pharmacy licenses
26
 
897

 
(97
)
 
800

 
874

 
(65
)
 
809

Trademarks and trade names
15
 
315

 
(90
)
 
225

 
315

 
(82
)
 
233

Technology
3
 
209

 
(189
)
 
20

 
213

 
(184
)
 
29

Other
4
 
168

 
(116
)
 
52

 
162

 
(101
)
 
61

Total
 
 
$
5,220


$
(1,966
)
 
$
3,254

 
$
5,204

 
$
(1,763
)
 
$
3,441

Amortization expense of intangible assets was $109 million and $221 million for the quarter and six months ended September 30, 2015 and $130 million and $259 million for the quarter and six months ended September 30, 2014. Estimated annual amortization expense of these assets is as follows: $180 million, $382 million, $366 million, $331 million and $304 million for the remainder of 2016 and each of the succeeding years through 2020 and $1,691 million thereafter. All intangible assets were subject to amortization as of September 30, 2015 and March 31, 2015.


15
McKESSON CORPORATION
FINANCIAL NOTES (CONTINUED)
(UNAUDITED)

9.
Debt and Financing Activities
Long-Term Debt
Our long-term debt includes Euro-denominated corporate bonds consisting of 4.00% bonds due October 18, 2016 and 4.50% bonds due April 26, 2017. At September 30, 2015 and March 31, 2015, $400 million and $388 million of the 4.00% bonds and $580 million and $563 million of the 4.50% bonds, for a total of $980 million and $951 million, were outstanding.
At March 31, 2015, we had a term loan with an outstanding balance of $89 million (or £60 million). During the first quarter of 2016, we repaid this term loan for $93 million. During the second quarter of 2016, we repaid our $400 million floating rate notes due September 10, 2015 at maturity.
Accounts Receivable Facilities
We have an accounts receivable sales facility (the “Facility”) with a committed balance of $1.35 billion, although from time to time, the available amount of the Facility may be less than $1.35 billion based on accounts receivable concentration limits and other eligibility requirements. During the first six months of 2016 and 2015, there were no borrowings under the Facility. At September 30, 2015 and March 31, 2015, there were no borrowings and related securitized accounts receivable outstanding under the Facility.
This Facility contains requirements relating to the performance of the accounts receivable and covenants relating to the Company. If we do not comply with these covenants, our ability to use the Facility may be suspended and repayment of any outstanding balances under the Facility may be required. At September 30, 2015 and March 31, 2015, we were in compliance with all covenants. Following the execution of a new $3.5 billion revolving credit facility in October 2015, as further discussed below, we provided notice to terminate the Facility. As a result, the available committed balance of the Facility is expected to be terminated in November 2015.
We also have accounts receivable factoring facilities (the “Factoring Facilities”) denominated in foreign currencies with a total committed balance of $172 million. During the first six months of 2016 and 2015, we borrowed $883 million and $1,575 million and repaid $887 million and $1,545 million in short-term borrowings under these facilities. At September 30, 2015 and March 31, 2015, there were $139 million and $135 million in secured borrowings outstanding under these facilities. The Factoring Facilities will expire through January 2016.
Revolving Credit Facilities and Lines of Credit
We had a syndicated $1.3 billion five-year senior unsecured revolving credit facility, which was to expire in September 2016. Borrowings under this facility would bear interest based upon either the London Interbank Offered Rate or a prime rate. There were no borrowings under this facility during the first six months of 2016 and 2015. As of September 30, 2015 and March 31, 2015, there were no amounts outstanding under this facility.
We also had a syndicated €500 million five-year senior unsecured revolving credit facility, which was to expire in February 2018. Borrowings under this facility would bear interest based upon the Euro Interbank Offered Rate plus an agreed margin. There were no borrowings under this facility during the first six months of 2016 and 2015 and no amounts were outstanding as of September 30, 2015 and March 31, 2015. This revolving credit facility was terminated in advance of the execution of the new $3.5 billion revolving credit facility in October 2015, as further discussed below.
We also maintain bilateral credit lines primarily denominated in Euros with a total committed and uncommitted balance of $1.3 billion. During the first six months of 2016 and 2015, we borrowed $618 million and $207 million and repaid $616 million and $33 million under these credit lines primarily related to short-term borrowings. As of September 30, 2015 and March 31, 2015, there were $31 million and $29 million outstanding under these credit lines.


16
McKESSON CORPORATION
FINANCIAL NOTES (CONTINUED)
(UNAUDITED)

In October 2015, we entered into a syndicated $3.5 billion five-year senior unsecured revolving credit facility (the “New Credit Facility”) and terminated our $1.3 billion and €500 million syndicated revolving credit facilities, and provided notice to terminate our $1.35 billion accounts receivable sales facility, which is expected to be terminated in November 2015. The New Credit Facility has a $3.15 billion aggregate sublimit of availability in Canadian dollars, British pounds sterling and Euros. The remaining terms and conditions of the New Credit Facility are substantially similar to those previously in place under our previous $1.3 billion revolving credit facility, including a debt to capital covenant ratio of no greater than 65%.
10.
Pension Benefits
The net periodic expense for our defined pension benefit plans is as follows:
 
U.S. Plans
 
Non-U.S. Plans
 
U.S. Plans
 
Non-U.S. Plans
 
Quarter Ended September 30,
 
Quarter Ended September 30,
 
Six Months Ended
September 30,
 
Six Months Ended
September 30,
(In millions)
2015
 
2014
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
Service cost - benefits earned during the year
$
2

 
$
—

 
$
5

 
$
5

 
$
2

 
$
1

 
$
10

 
$
9

Interest cost on projected benefit obligation
4

 
4

 
6

 
9

 
9

 
9

 
12

 
18

Expected return on assets
(4
)
 
(5
)
 
(8
)
 
(8
)
 
(9
)
 
(11
)
 
(16
)
 
(15
)
Amortization of unrecognized actuarial loss and prior service costs
12

 
6

 
1

 
1

 
21

 
10

 
2

 
2

Net periodic pension expense
$
14

 
$
5

 
$
4

 
$
7

 
$
23

 
$
9

 
$
8

 
$
14

Cash contributions to these plans were $10 million and $44 million for the second quarter and first six months of 2016 and $16 million and $31 million for the second quarter and first six months of 2015. The projected unit credit method is utilized in measuring net periodic pension expense over the employees’ service life for the pension plans. Unrecognized actuarial losses exceeding 10% of the greater of the projected benefit obligation or the market value of assets are amortized straight-line over the average remaining future service periods and expected life expectancy.
11.
Hedging Activities
In the normal course of business, we are exposed to interest rate changes and foreign currency fluctuations. At times, we limit these risks through the use of derivatives such as interest rate swaps and forward foreign exchange contracts. In accordance with our policy, derivatives are only used for hedging purposes. We do not use derivatives for trading or speculative purposes.
Foreign currency rate risk
The majority of our operations are conducted in U.S. dollars; however, certain assets and liabilities, revenues and expense and purchasing activities are incurred in and exposed to other currencies. We have certain foreign currency rate risk programs that manage the impact of foreign currency fluctuations primarily through the use of foreign currency forward-exchange contracts. These contracts are typically used to offset the potential earnings effects from intercompany foreign currency loans. These programs reduce but do not entirely eliminate foreign currency rate risk.
At September 30, 2015 and March 31, 2015, forward contracts to hedge the U.S. dollar against cash flows denominated in Canadian dollars with total notional values of $399 million were designated for hedge accounting. These contracts will mature between March 2016 and March 2020. Changes in the fair values of contracts designated for hedge accounting are recorded to accumulated other comprehensive income and reclassified into earnings in the same period in which the hedged transaction affects earnings; amounts recorded to earnings for these contracts were not material during the quarter and six months ended September 30, 2015 and 2014.


17
McKESSON CORPORATION
FINANCIAL NOTES (CONTINUED)
(UNAUDITED)

We also have a number of forward contracts to primarily hedge the Euro against cash flows denominated in British pounds and other European currencies. At September 30, 2015 and March 31, 2015, the total notional value of these contracts was $1,894 million and $1,755 million. These contracts will mature from October 2015 to June 2016 and none of these contracts were designated for hedge accounting. Changes in the fair values of contracts not designated for hedge accounting are recorded directly to earnings and accordingly, net gains of $67 million and $22 million for the second quarter and first six months of 2016 and net losses of $30 million and $50 million for the second quarter and first six months of 2015 were recorded within operating expenses. However, the gains and losses from these contracts are largely offset by changes in the value of the underlying intercompany foreign currency loans.
Information regarding the fair value of derivatives on a gross basis is as follows:
 
Balance Sheet
Caption
September 30, 2015
 
March 31, 2015
 
Fair Value of
Derivative
U.S. Dollar Notional
 
Fair Value of
Derivative
U.S Dollar Notional
(In millions)
Asset
Liability
 
Asset
Liability
Derivatives designated for hedge accounting
 
 
 
 
 
 
 
 
Foreign exchange contracts (current)
Prepaid expenses and other
$
17

$
—

$
76

 
$
14

$
—

$
76

Foreign exchange contracts (non-current)
Other assets
69

—

323

 
53

—

323

Total
 
$
86

$
—

 
 
$
67

$
—

 
Derivatives not designated for hedge accounting
 
 
 
 
 
 
 
 
Foreign exchange contracts (current)
Prepaid expenses and other
$
26

$
—

$
1,769

 
$
7

$
—

$
493

Foreign exchange contracts (current)
Other accrued liabilities
—

7

125

 
—

79

1,262

Total
 
$
26

$
7

 
 
$
7

$
79

 
Refer to Financial Note 12, "Fair Value Measurements," for more information on these recurring fair value measurements.


18
McKESSON CORPORATION
FINANCIAL NOTES (CONTINUED)
(UNAUDITED)

12.
Fair Value Measurements
At September 30, 2015 and March 31, 2015, the carrying amounts of cash, certain cash equivalents, restricted cash, marketable securities, receivables, drafts and accounts payable, short-term borrowings and other current liabilities approximated their estimated fair values because of the short maturity of these financial instruments.
Our long-term debt and other financing are carried at amortized cost. The carrying amounts and estimated fair values of these liabilities were $9.2 billion and $9.6 billion at September 30, 2015 and $9.7 billion and $10.4 billion at March 31, 2015. The estimated fair values of our long-term debt and other financing were determined using quoted market prices in a less active market and other observable inputs from available market information, which are considered to be Level 2 inputs, and may not be representative of actual values that could have been realized or that will be realized in the future.
Included in cash and cash equivalents at September 30, 2015 and March 31, 2015 were investments in money market funds, time deposits and repurchase agreements of $4.3 billion and $4.2 billion, which are reported at fair value. The fair value of these investments was determined by using quoted prices for identical investments in active markets, which are considered to be Level 1 inputs under the fair value measurements and disclosure guidance. The carrying value of all other cash equivalents approximates their fair value due to their relatively short-term nature.
Fair values of our forward foreign currency derivatives were determined using quoted market prices of similar instruments in an active market and other observable inputs from available market information.  These inputs are considered Level 2 under the fair value measurements and disclosure guidance, and may not be representative of actual values that could have been realized or that will be realized in the future. Refer to Financial Note 11, "Hedging Activities," for more information on our forward foreign currency derivatives.
There were no transfers between Level 1, Level 2 or Level 3 of the fair value hierarchy during the quarters and six months ended September 30, 2015 and 2014.
13.
Commitments and Contingent Liabilities
In addition to commitments and obligations in the ordinary course of business, we are subject to various claims, other pending and potential legal actions for damages, investigations relating to governmental laws and regulations and other matters arising out of the normal conduct of our business. As described below, many of these proceedings are at preliminary stages and many seek an indeterminate amount of damages.
When a loss is considered probable and reasonably estimable, we record a liability in the amount of our best estimate for the ultimate loss. However, the likelihood of a loss with respect to a particular contingency is often difficult to predict and determining a meaningful estimate of the loss or a range of loss may not be practicable based on the information available and the potential effect of future events and decisions by third parties that will determine the ultimate resolution of the contingency. Moreover, it is not uncommon for such matters to be resolved over many years, during which time relevant developments and new information must be reevaluated at least quarterly to determine both the likelihood of potential loss and whether it is possible to reasonably estimate a range of possible loss. When a loss is probable but a reasonable estimate cannot be made, disclosure of the proceeding is provided.
Disclosure also is provided when it is reasonably possible that a loss will be incurred or when it is reasonably possible that the amount of a loss will exceed the recorded provision. We review all contingencies at least quarterly to determine whether the likelihood of loss has changed and to assess whether a reasonable estimate of the loss or range of loss can be made. As discussed above, development of a meaningful estimate of loss or a range of potential loss is complex when the outcome is directly dependent on negotiations with or decisions by third parties, such as regulatory agencies, the court system and other interested parties. Such factors bear directly on whether it is possible to reasonably estimate a range of potential loss and boundaries of high and low estimates.


19
McKESSON CORPORATION
FINANCIAL NOTES (CONTINUED)
(UNAUDITED)

Significant developments in previously reported proceedings and in other litigation and claims, since the filing of our 2015 Annual Report on Form 10-K and our Quarterly Report on Form 10-Q for the period ended June 30, 2015, are set out below. Unless otherwise stated, we are currently unable to estimate a range of reasonably possible losses for the unresolved proceedings described below. Should any one or a combination of more than one of these proceedings be successful, or should we determine to settle any or a combination of these matters, we may be required to pay substantial sums, become subject to the entry of an injunction or be forced to change the manner in which we operate our business, which could have a material adverse impact on our financial position or results of operations.
Litigation, Government Subpoenas and Investigations
On August 29, 2007, PSKW, LLC filed a lawsuit against McKesson Specialty Arizona Inc. in the New York Supreme Court, New York County, alleging that McKesson Specialty Arizona misappropriated trade secrets and confidential information in launching its LoyaltyScript® program, PSKW, LLC v. McKesson Specialty Arizona Inc., Index No. 602921/07.  Plaintiff later amended its complaint twice to add additional, but related claims. On August 31, 2011, McKesson Specialty Arizona moved for summary judgment on all claims.  On December 23, 2013, the court dismissed PSKW’s cause of action for misappropriation of ideas.  PSKW appealed this decision and on October 21, 2014, the Appellate Division reversed.  On January 30, 2015, the trial court granted McKesson Specialty Arizona’s motion to strike the jury and later set trial for June 15, 2015. The trial began on June 22, 2015 and will resume in January 2016.
In May 2013, True Health Chiropractic, Inc. filed a class action against McKesson Corporation, claiming that McKesson sent unsolicited marketing faxes in violation of the Telephone Consumer Protection Act of 1991 (“TCPA”), as amended by the Junk Fax Protection Act of 2005 or JFPA. In July 2014, Plaintiff amended its complaint, adding an additional named plaintiff and McKesson Technologies Inc. as a defendant. Plaintiffs purport to represent all persons who were sent marketing faxes that did not contain proper opt-out notices and from whom McKesson did not obtain prior express permission from June 2009 to the present. The case is pending in the Northern District of California. True Health Chiropractic Inc., et al. v. McKesson Corporation, et al., CV-13-02219 (HG). In August 2015, McKesson was granted a waiver from the opt out requirement from the Federal Communications Commission. Plaintiffs have appealed that decision.
From time-to-time, the Company receives subpoenas or requests for information from various government agencies. The Company generally responds to such subpoenas and requests in a cooperative, thorough and timely manner. These responses sometimes require time and effort and can result in considerable costs being incurred by the Company. Such subpoenas and requests also can lead to the assertion of claims or the commencement of civil or criminal legal proceedings against the Company and other members of the health care industry, as well as to settlements. Examples of such subpoenas and investigations are included in the Company’s 2015 Annual Report on Form 10-K. The Company continues to receive and respond to these requests.
Value Added Tax Assessments
We operate in various countries outside the United States which collect value added taxes (“VAT”).  The determination of the manner in which a VAT applies to our foreign operations is subject to varying interpretations arising from the complex nature of the tax laws. We have received assessments for VAT which are in various stages of appeal. We disagree with these assessments and believe that we have strong legal arguments to defend our tax positions.  Certain VAT assessments relate to years covered by an indemnification agreement.  Due to the complex nature of the tax laws, it is not possible to estimate the outcome of these matters.  However, based on the currently available information, we believe the ultimate outcome of these matters will not have a material adverse effect on our financial position, cash flows or results of operations.
14.
Stockholders’ Equity
Each share of the Company’s outstanding common stock is permitted one vote on proposals presented to stockholders and is entitled to share equally in any dividends declared by the Company’s Board of Directors (the “Board”).
In July 2015, the Company’s quarterly dividend was raised from $0.24 to $0.28 per common share for dividends declared on or after such date by the Board. The Company anticipates that it will continue to pay quarterly cash dividends in the future.  However, the payment and amount of future dividends remain within the discretion of the Board and will depend upon the Company's future earnings, financial condition, capital requirements and other factors.


20
McKESSON CORPORATION
FINANCIAL NOTES (CONTINUED)
(UNAUDITED)

In May 2015, the Board authorized the repurchase of up to $500 million of the Company’s common stock. During the second quarter of 2016, we bought 2.5 million shares at an average price per share of $196.20. At September 30, 2015, no authorized amounts remain available for future repurchases of the Company’s common stock under the May 2015 Board approved share purchase plan. In October 2015, the Board authorized the repurchase of up to $2 billion of the Company’s common stock.
Other Comprehensive Income (Loss)
Information regarding other comprehensive income (loss) including noncontrolling and redeemable noncontrolling interests, net of tax, by component is as follows:
 
Quarter Ended September 30,
 
Six Months Ended September 30,
 (In millions)
2015
 
2014
 
2015
 
2014
Foreign currency translation adjustments(1)
 
 
 
 
 
 
 
Foreign currency translation adjustments arising during period, net of income tax expense of nil, nil, nil and nil (2) (3)
$
(243
)
 
$
(667
)
 
$
104

 
$
(569
)
Reclassified to income statement, net of income tax expense of nil, nil, nil and nil
—

 
(10
)
 
—

 
(10
)
 
(243
)
 
(677
)
 
104

 
(579
)
 
 
 
 
 
 
 
 
Unrealized gains (losses) on cash flow hedges
 
 
 
 
 
 
 
Unrealized gains (losses) on cash flow hedges arising during period, net of income tax expense of nil, nil, nil and nil
2

 
—

 
6

 
(2
)
 
 
 
 
 
 
 
 
Changes in retirement-related benefit plans
 
 
 
 
 
 
 
Net actuarial gain (loss) and prior service cost arising during the period, net of income tax benefit of $1, nil, $9 and nil (4)
1

 
—

 
(28
)
 
—

Amortization of actuarial loss and prior service costs, net of income tax expense of $5, $2, $9 and $3 (5)
8

 
3

 
15

 
6

Foreign currency translation adjustments, net of income tax expense of nil, nil, nil and nil
2

 
3

 
(4
)
 
2

 
11

 
6

 
(17
)
 
8

 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of tax
$
(230
)
 
$
(671
)
 
$
93

 
$
(573
)
(1)
Foreign currency translation adjustments result from the conversion of non-U.S. dollar financial statements of our foreign subsidiaries into the Company’s reporting currency, U.S. dollars, and were primarily related to our foreign subsidiary, Celesio, in 2016 and 2015.
(2)
The net foreign currency translation losses during the second quarter of 2016 were primarily due to the weakening of the British pound sterling against the U.S. dollar from July 1, 2015 to September 30, 2015. The net foreign currency translation gains during first six months of 2016 were primarily due to the recovery of the Euro and British pound sterling against the U.S. dollar from April 1, 2015 to September 30, 2015. During the second quarter and first six months of 2015, the currency translation losses were primarily due to the weakening of the Euro and British pound sterling against the U.S. dollar from April 1, 2014 to September 30, 2014.
(3)
The second quarter and first six months of 2016 include net foreign currency translation losses of $20 million and gains of $30 million and the second quarter and first six months of 2015 include net foreign currency translation losses of $139 million and $151 million, which are attributable to noncontrolling and redeemable noncontrolling interests.
(4)
The second quarter and first six months of 2016 include net actuarial losses of nil and $6 million attributable to redeemable noncontrolling interests.
(5)
Pre-tax amount reclassified into cost of sales and operating expenses in our condensed consolidated statements of operations. The related tax expense was reclassified into income tax expense in our condensed consolidated statements of operations.


21
McKESSON CORPORATION
FINANCIAL NOTES (CONTINUED)
(UNAUDITED)

Accumulated Other Comprehensive Income (Loss)
Information regarding changes in our accumulated other comprehensive income (loss), net of tax, by component for the second quarter and first six months of 2016 is as follows:
(In millions)
Foreign Currency Translation Adjustments, Net of Tax
 
Unrealized Gains (Losses) on Cash Flow Hedges,
Net of Tax
 
Unrealized Net Gains (Losses) and Other Components of Benefit Plans, Net of Tax
 
Total Accumulated Other Comprehensive Income (Loss)
Balance at June 30, 2015
$
(1,123
)
 
$
(17
)
 
$
(294
)
 
$
(1,434
)
 
 
 
 
 
 
 
 
Other comprehensive income (loss) before reclassifications
(243
)
 
2

 
1

 
(240
)
Amounts reclassified to earnings and other
—

 
—

 
10

 
10

Other comprehensive income (loss)
(243
)
 
2

 
11

 
(230
)
Less: amounts attributable to noncontrolling and redeemable noncontrolling interests
(20
)
 
—

 
—

 
(20
)
Other comprehensive income (loss) attributable to McKesson
(223
)
 
2

 
11

 
(210
)
Balance at September 30, 2015
$
(1,346
)
 
$
(15
)
 
$
(283
)
 
$
(1,644
)
 
Balance at March 31, 2015
$
(1,420
)
 
$
(21
)
 
$
(272
)
 
$
(1,713
)
 
 
 
 
 
 
 
 
Other comprehensive income (loss) before reclassifications
104

 
6

 
(28
)
 
82

Amounts reclassified to earnings and other
—

 
—

 
11

 
11

Other comprehensive income (loss)
104

 
6

 
(17
)
 
93

Less: amounts attributable to noncontrolling and redeemable noncontrolling interests
30

 
—

 
(6
)
 
24

Other comprehensive income (loss) attributable to McKesson
74

 
6

 
(11
)
 
69

Balance at September 30, 2015
$
(1,346
)
 
$
(15
)
 
$
(283
)
 
$
(1,644
)



22
McKESSON CORPORATION
FINANCIAL NOTES (CONCLUDED)
(UNAUDITED)

15.
Segment Information
We report our operations in two operating segments: McKesson Distribution Solutions and McKesson Technology Solutions. The factors for determining the reportable segments included the manner in which management evaluates the performance of the Company combined with the nature of the individual business activities. We evaluate the performance of our operating segments on a number of measures, including operating profit before interest expense, income taxes and results from discontinued operations.
Financial information relating to our reportable operating segments and reconciliations to the condensed consolidated totals is as follows:
 
Quarter Ended September 30,
 
Six Months Ended September 30,
(In millions)
2015
 
2014
 
2015
 
2014
Revenues
 
 
 
 
 
 
 
Distribution Solutions (1)
 
 
 
 
 
 
 
North America pharmaceutical distribution and services
$
40,603

 
$
35,147

 
$
80,135

 
$
69,451

International pharmaceutical distribution and services
5,866

 
6,714

 
11,704

 
13,739

Medical-Surgical distribution and services
1,571

 
1,529

 
3,011

 
2,908

Total Distribution Solutions
48,040

 
43,390

 
94,850

 
86,098

 
 
 
 
 
 
 
 
Technology Solutions - products and services
721

 
770

 
1,457

 
1,538

Total Revenues
$
48,761

 
$
44,160

 
$
96,307

 
$
87,636

 
 
 
 
 
 
 
 
Operating profit
 
 
 
 
 
 
 
Distribution Solutions (2)
$
926

 
$
790

 
$
1,836

 
$
1,530

Technology Solutions (3)
146

 
125

 
304

 
193

Total
1,072

 
915

 
2,140

 
1,723

Corporate Expenses, Net
(101
)
 
(106
)
 
(225
)
 
(214
)
Interest Expense
(91
)
 
(95
)
 
(180
)
 
(191
)
Income from Continuing Operations Before Income Taxes
$
880

 
$
714

 
$
1,735

 
$
1,318

(1)
Revenues derived from services represent less than 2% of this segment’s total revenues.
(2)
Distribution Solutions operating profit for the second quarter and first six months of 2016 include $91 million and $182 million in pre-tax charges related to our last-in, first-out (“LIFO”) method of accounting for inventories. The second quarter and first six months of 2015 include pre-tax LIFO charges of $94 million and $192 million. The second quarter and first six months of 2016 include a pre-tax gain of $51 million recognized from the sale of our ZEE Medical business, and the first six months of 2016 include $59 million of cash proceeds representing our share of net settlements of antitrust class action lawsuits against drug manufacturers.
(3)
Technology Solutions operating profit for the first six months of 2016 includes a pre-tax gain of $51 million recognized from the sale of our nurse triage business, and for the first six months of 2015 includes a non-cash pre-tax charge of $34 million related to the retained workforce business within our International Technology business.


23
McKESSON CORPORATION
FINANCIAL REVIEW
(UNAUDITED)


Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.

GENERAL
Management’s discussion and analysis of financial condition and results of operations, referred to as the Financial Review, is intended to assist the reader in the understanding and assessment of significant changes and trends related to the results of operations and financial position of the Company together with its subsidiaries. This discussion and analysis should be read in conjunction with the condensed consolidated financial statements and accompanying financial notes in Item 1 of Part I of this Quarterly Report on Form 10-Q and in Item 8 of Part II of our Annual Report on Form 10-K for the fiscal year ended March 31, 2015 previously filed with the SEC on May 12, 2015 (“2015 Annual Report”).
The Company’s fiscal year begins on April 1 and ends on March 31. Unless otherwise noted, all references to a particular year shall mean the Company’s fiscal year.
Certain statements in this report constitute forward-looking statements. See “Factors Affecting Forward-Looking Statements” included in this Quarterly Report on Form 10-Q.
Results of Operations
Overview:
(Dollars in millions, except per share data)
Quarter Ended September 30,
 
 
 
Six Months Ended September 30,
 
 
2015
 
2014
Change
 
2015
 
2014
Change
Revenues
$
48,761

 
$
44,160

10

%
 
$
96,307

 
$
87,636

10

%
 
 
 
 
 
 
 
 
 
 
 
 
Income from Continuing Operations Before Income Taxes
$
880

 
$
714

23

%
 
$
1,735

 
$
1,318

32

%
Income Tax Expense
(244
)
 
(223
)
9

 
 
(500
)
 
(408
)
23

 
Income from Continuing Operations
636

 
491

30

 
 
1,235

 
910

36

 
Loss from Discontinued Operations, Net of Tax
(6
)
 
(14
)
(57
)
 
 
(16
)
 
(22
)
(27
)
 
Net Income
630

 
477

32

 
 
1,219

 
888

37

 
Net Income Attributable to Noncontrolling Interests
(13
)
 
(8
)
63

 
 
(26
)
 
(16
)
63

 
Net Income Attributable to McKesson Corporation
$
617

 
$
469

32

%
 
$
1,193

 
$
872

37

%
 
 
 
 
 
 
 
 
 
 
 
 
Diluted Earnings (Loss) Per Common Share Attributable to McKesson Corporation
 
 
 
 
 
 
 
 
 
 
 
Continuing Operations
$
2.65

 
$
2.05

29

%
 
$
5.15

 
$
3.80

36

%
Discontinued Operations
(0.02
)
 
(0.06
)
(67
)
 
 
(0.07
)
 
(0.09
)
(22
)
 
Total
$
2.63

 
$
1.99

32

%
 
$
5.08

 
$
3.71

37

%
 
 
 
 
 
 
 
 
 
 
 
 
Weighted Average Diluted Common Shares
235

 
235

—

%
 
235

 
235

—

%
Revenues for the second quarter and first six months of 2016 increased 10% compared to the same periods a year ago. Excluding unfavorable foreign currency effects of 4% and 3%, revenues increased 14% and 13% for the second quarter and first six months of 2016 primarily reflecting market growth and expanded business with existing customers, partially offset by price deflation associated with brand to generic drug conversions within our North America pharmaceutical distribution businesses.


24
McKESSON CORPORATION
FINANCIAL REVIEW (CONTINUED)
(UNAUDITED)


Income from continuing operations before income taxes for the second quarter and first six months of 2016 increased 23% and 32% compared to the same periods a year ago primarily due to higher operating profit from our North America pharmaceutical distribution businesses. Income from continuing operations for the second quarter and first six months of 2016 includes pre-tax gains of $51 million and $102 million resulting from the second quarter sale of our ZEE Medical business within our Distribution Solutions segment and the first quarter sale of our nurse triage business within our Technology Solutions segment. Additionally, financial results for the first six months of 2016 reflect $59 million of cash proceeds representing our share of antitrust legal settlements within our Distribution Solutions segment.
Income tax expense for 2016 includes a $25 million discrete tax benefit based on our assessment of a recent U.S. Tax Court ruling.
Net income attributable to McKesson Corporation for the second quarters of 2016 and 2015 was $617 million and $469 million and for the first six months of 2016 was $1,193 million and $872 million. Diluted earnings per common share attributable to McKesson for the second quarters of 2016 and 2015 were $2.63 and $1.99 and for the first six months of 2016 and 2015 were $5.08 and $3.71.
Revenues:
 
Quarter Ended September 30,
 
 
 
 
Six Months Ended September 30,
 
 
(Dollars in millions)
2015
 
2014
 
Change
 
2015
 
2014
Change
Distribution Solutions
 
 
 
 
 
 
 
 
 
 
 
 
North America pharmaceutical distribution and services
$
40,603

 
$
35,147

 
16

%
 
$
80,135

 
$
69,451

15

%
International pharmaceutical distribution and services
5,866

 
6,714

 
(13
)
 
 
11,704

 
13,739

(15
)
 
Medical-Surgical distribution and services
1,571

 
1,529

 
3

 
 
3,011

 
2,908

4

 
Total Distribution Solutions
48,040

 
43,390

 
11

 
 
94,850

 
86,098

10

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Technology Solutions - products and services
721

 
770

 
(6
)
 
 
1,457

 
1,538

(5
)
 
Total Revenues
$
48,761

 
$
44,160

 
10

%
 
$
96,307

 
$
87,636

10

%
Revenues for the second quarter and first six months of 2016 increased 10% compared to the same periods a year ago. Excluding unfavorable foreign currency effects of 4% and 3%, revenues increased 14% and 13% for the second quarter and first six months of 2016 primarily due to our Distribution Solutions segment, which accounted for approximately 99% of our consolidated revenues.
Distribution Solutions
North America pharmaceutical distribution and services revenues for the second quarter and first six months of 2016 increased primarily due to market growth, which reflects growing drug utilization (price and volume increases, as well as newly launched drugs), and our business mix, which includes increased volume with existing customers. These increases were partially offset by price deflation associated with brand to generics drug conversions.
International pharmaceutical distribution and services revenues for the second quarter and first six months of 2016 decreased 13% and 15%. Excluding unfavorable foreign currency effects of 15% and 16%, revenues increased 2% and 1% for the second quarter and first six months of 2016 primarily due to a new distribution agreement with a manufacturer in the United Kingdom, partially offset by lower revenues in Norway due to the loss of a hospital contract.
Medical-Surgical distribution and services revenues increased primarily due to market growth, partially offset by a decrease in revenues associated with the sale of our ZEE Medical business.
Technology Solutions: Technology Solutions revenues for the second quarter and first six months of 2016 decreased primarily due to a decline in hospital software service revenues and the sale of our nurse triage business in the first quarter of 2016. These decreases were partially offset by higher revenues in our other businesses.


25
McKESSON CORPORATION
FINANCIAL REVIEW (CONTINUED)
(UNAUDITED)


Gross Profit:
 
Quarter Ended September 30,
 
 
 
Six Months Ended September 30,
 
 
 
(Dollars in millions)
2015
 
2014
 
Change
2015
 
2014
 
Change
Gross Profit
 
 
 
 
 
 
 
 
 
 
 
 
Distribution Solutions
$
2,458

 
$
2,481

 
(1
)
%
$
4,951

 
$
4,874

 
2

%
Technology Solutions
386

 
383

 
1

 
741

 
722

 
3

  
Total
$
2,844

 
$
2,864

 
(1
)
%
$
5,692

 
$
5,596

 
2

%
Gross Profit Margin
 
 
 
 
 
 
 
 
 
 
 
 
Distribution Solutions
5.12

 
5.72

 
(60
)
bp 
5.22

 
5.66

 
(44
)
bp 
Technology Solutions
53.54

 
49.74

 
380

 
50.86

 
46.94

 
392

  
Total
5.83

 
6.49

 
(66
)
 
5.91

 
6.39

 
(48
)
  
bp - basis points
Gross profit for the second quarter of 2016 decreased 1% and for the first six months of 2016 increased 2% compared to the same periods a year ago. Excluding unfavorable foreign currency effects of 5%, gross profit increased 4% and 7% for the second quarter and first six months of 2016 primarily due to an increase in our Distribution Solutions segment. Gross profit margin for the second quarter and first six months of 2016 decreased primarily due to a decline within our Distribution Solutions segment.
Distribution Solutions
Distribution Solutions segment’s gross profit for the second quarter of 2016 decreased 1% and for the first six months of 2016 increased 2% compared to the same periods a year ago. Excluding unfavorable foreign currency effects of 5%, gross profit increased 4% and 7% for the second quarter and first six months of 2016 primarily due to increased sales volume within our North America businesses. Gross profit for the first six months of 2016 also included $59 million of cash proceeds representing our share of antitrust legal settlements, which were recorded as a reduction to cost of sales.
Distribution Solutions segment’s gross profit margin decreased in the second quarter and first six months of 2016 primarily due to our North America distribution business’ decrease in sell margin, which was partially offset by increases in their buy margin. The decrease in sell margin primarily reflects higher customer sales volume. Buy margin primarily reflects volume and timing of compensation we receive from pharmaceutical manufacturers. Gross profit margin was also unfavorably impacted by foreign currency effects, a decline in U.S. generic drug price increases and our mix of business. Gross profit margin for the first six months of 2016 was also favorably affected by the receipt of the antitrust legal settlements.
Our last-in-first-out (“LIFO”) inventory expense was $91 million and $94 million in the second quarters of 2016 and 2015, and $182 million and $192 million in the first six months of 2016 and 2015. Our North America distribution business uses the LIFO method of accounting for the majority of its inventories, which results in cost of sales that more closely reflects replacement cost than under other accounting methods. The business’ practice is to pass on to customers published price changes from suppliers. Manufacturers generally provide us with price protection, which limits price-related inventory losses. A LIFO expense is recognized when the net effect of price increases on pharmaceutical and non-pharmaceutical products held in inventory exceeds the impact of price declines including the effect of branded pharmaceutical products that have lost market exclusivity and lower net deflation of generic pharmaceutical products. A LIFO credit is recognized when the net effect of price declines exceeds the impact of price increases on pharmaceutical and non-pharmaceutical products held in inventory. Our annual LIFO expense, which we estimate on a quarterly basis, is affected by expected changes in year-end inventory quantities, product mix and manufacturer pricing practices, which may be affected by market and other external influences. Changes to any of the above factors could have a material impact to our annual LIFO expense.


26
McKESSON CORPORATION
FINANCIAL REVIEW (CONTINUED)
(UNAUDITED)


Technology Solutions
Technology Solutions segment’s gross profit and gross profit margin for the second quarter and first six months of 2016 increased compared to the same periods a year ago. Gross profit and gross profit margin for the first six months of 2016 was higher primarily due to a $34 million pre-tax charge recorded in 2015, which represented a catch up in depreciation and amortization expense not recognized in 2014 when certain assets were classified as held for sale within our International Technology business. The increase was partially offset by a $20 million reduction-in-workforce severance charge associated with the wind down of a product line.  The severance charge was recorded as follows: $15 million in cost of sales and $5 million in operating expenses. Additionally, gross profit margin for 2016 was favorably affected by changes in revenue mix.
In 2014, we committed to a plan to sell our International Technology and Hospital Automation businesses from our Technology Solutions segment. As required, we classified the results of operations and cash flows of these businesses as discontinued operations for all periods presented in our consolidated financial statements in 2014 and depreciation and amortization expense was not recognized as the assets were held for sale. During the first quarter of 2015, we decided to retain the workforce business, which provided workforce management solutions for the National Health Service in the United Kingdom, within our International Technology business. As a result, we reclassified the workforce business, which had been designated as a discontinued operation during 2014, as a continuing operation for all periods presented effective in the first quarter of 2015. Additionally, we recorded a pre-tax charge of $34 million as a catch-up of depreciation and amortization expense not recognized in 2014 when the assets were classified as held for sale. The non-cash charge was primarily recorded in cost of sales. The workforce business was transitioned to another service provider during the first quarter of 2016.
Operating Expenses and Other Income, Net: 
 
Quarter Ended September 30,
 
 
 
 
Six Months Ended September 30,
 
 
 
(Dollars in millions)
2015
 
2014
 
Change
 
2015
 
2014
 
Change
Operating Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
Distribution Solutions
$
1,545

 
$
1,708

 
(10
)
%
 
$
3,137

 
$
3,378

 
(7
)
%
Technology Solutions 
240

 
260

 
(8
)
  
 
438

 
531

 
(18
)
 
 Corporate
105

 
109

 
(4
)
  
 
232

 
219

 
6

 
Total
$
1,890

 
$
2,077

 
(9
)
%
 
$
3,807

 
$
4,128

 
(8
)
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Expenses as a Percentage of Revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
Distribution Solutions
3.22

 
3.94

 
(72
)
bp 
 
3.31

 
3.92

 
(61
)
bp 
Technology Solutions
33.29

 
33.77

 
(48
)
  
 
30.06

 
34.53

 
(447
)
 
Total
3.88

 
4.70

 
(82
)
bp
 
3.95

 
4.71

 
(76
)
bp
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other Income, Net
 
 
 
 
 
 
 
 
 
 
 
 
 
Distribution Solutions
$
13

 
$
17

 
(24
)
%
 
$
22

 
$
34

 
(35
)
%
Technology Solutions
—

 
2

 
(100
)
  
 
1

 
2

 
(50
)
 
Corporate
4

 
3

 
33

 
 
7

 
5

 
40

 
Total
$
17

 
$
22

 
(23
)
%
 
$
30

 
$
41

 
(27
)
%
Operating expenses for the second quarter and first six months of 2016 decreased 9% and 8% compared to the same periods a year ago. Excluding foreign currency effects of 6%, operating expenses decreased 3% and 2% for the second quarter and first six months of 2016. Operating expenses for the second quarter and first six months of 2016 include pre-tax gains of $51 million and $102 million from the sale of two businesses, as further described below.


27
McKESSON CORPORATION
FINANCIAL REVIEW (CONTINUED)
(UNAUDITED)


Distribution Solutions segment’s operating expenses for the second quarter and first six months of 2016 decreased 10% and 7% compared to the same periods a year ago. Excluding foreign currency effects of 7%, operating expenses decreased 3% for the second quarter and were flat for the first six months of 2016. Operating expenses and operating expenses as a percentage of revenues for 2016 benefited from a $51 million pre-tax gain from the sale of our ZEE Medical business.
Technology Solutions segment’s operating expenses and operating expenses as a percentage of revenue in 2016 decreased compared to the same periods a year ago primarily due to lower compensation and benefits costs, and professional service expenses. Additionally, operating expenses for the first six months of 2016 include a pre-tax gain of $51 million recognized from the sale of our nurse triage business in the first quarter of 2016.
Corporate expenses decreased for the second quarter of 2016 compared to the same period a year ago primarily due to lower compensation and benefit costs. Corporate expenses increased for the first six months of 2016 compared to the same period a year ago primarily due to higher compensation and benefit costs, partially offset by lower acquisition-related expenses and prior period foreign currency losses.
Acquisition Expenses and Related Adjustments
Acquisition expenses and related adjustments, which include transaction and integration expenses that are directly related to acquisitions made by the Company, were $33 million and $63 million in the second quarter and first six months of 2016 and $62 million and $111 million in the second quarter and first six months of 2015. These expenses were primarily related to our 2014 acquisition of Celesio AG (“Celesio”) and our 2013 acquisition of PSS World Medical, Inc. (“PSSI”).
Acquisition expenses and related adjustments were as follows:
 
Quarter Ended September 30,
 
Six Months Ended September 30,
(Dollars in millions)
2015
 
2014
 
2015
 
2014
Operating Expenses and Other Income, Net
 
 
 
 
 
 
 
Integration related expenses
$
28

 
$
42

 
$
57

 
$
70

Severance and relocation
—

 
18

 
1

 
35

Transaction closing expenses
5

 
2

 
5

 
6

Total Acquisition Expenses and Related Adjustments
$
33

 
$
62

 
$
63

 
$
111

Acquisition expenses and related adjustments by segment were as follows:
 
Quarter Ended September 30,
 
Six Months Ended September 30,
(Dollars in millions)
2015
 
2014
 
2015
 
2014
Operating Expenses and Other Income, Net
 
 
 
 
 
 
 
Distributions Solutions
$
33

 
$
58

 
62

 
$
100

Technology Solutions
—

 
1

 
—

 
1

Corporate
—

 
3

 
1

 
10

Total Acquisition Expenses and Related Adjustments
$
33

 
$
62

 
$
63

 
$
111

We incurred $10 million and $40 million of acquisition-related expenses for the second quarters of 2016 and 2015 and $13 million and $75 million for the first six months of 2016 and 2015 for our acquisition of Celesio as well as recently announced planned acquisitions. We incurred $22 million and $21 million of acquisition-related expenses for the second quarters of 2016 and 2015 and $45 million and $35 million for the first six months of 2016 and 2015 for our acquisition of PSSI. These expenses primarily include facility closure-related expenses, legal and other expenses to integrate the businesses.


28
McKESSON CORPORATION
FINANCIAL REVIEW (CONTINUED)
(UNAUDITED)


Amortization Expenses of Acquired Intangible Assets
Amortization expenses of acquired intangible assets purchased in connection with business acquisitions were $109 million and $130 million for the second quarters of 2016 and 2015 and $221 million and $259 million for the first six months of 2016 and 2015, which were primarily recorded in operating expenses. Amortization expenses decreased in 2016 compared to 2015 primarily due to foreign currency effects.
Amortization expenses by segment were as follows:
 
Quarter Ended September 30,
 
Six Months Ended September 30,
(Dollars in millions)
2015
 
2014
 
2015
 
2014
Distribution Solutions
$
98

 
$
117

 
$
201

 
$
234

Technology Solutions
11

 
13

 
20

 
25

Total
$
109

 
$
130

 
$
221

 
$
259

Other Income, Net: Other income, net, for the second quarter and first six months of 2016 decreased compared to the same period a year ago primarily due to gains recognized from the sale of certain small investments in 2015. There were no material foreign currency effects.
Segment Operating Profit, Corporate Expenses, Net and Interest Expense:
 
Quarter Ended September 30,
 
 
 
 
Six Months Ended September 30,
 
 
 
(Dollars in millions)
2015
 
2014
 
Change
 
2015
 
2014
 
Change
Segment Operating Profit (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
Distribution Solutions
$
926

 
$
790

 
17

%
 
$
1,836

 
$
1,530

 
20

%
Technology Solutions
146

 
125

 
17

 
 
304

 
193

 
58

  
Subtotal
1,072

 
915

 
17

 
 
2,140

 
1,723

 
24

  
Corporate Expenses, Net
(101
)
 
(106
)
 
(5
)
 
 
(225
)
 
(214
)
 
5

  
Interest Expense
(91
)
 
(95
)
 
(4
)
  
 
(180
)
 
(191
)
 
(6
)
  
Income from Continuing Operations Before Income Taxes
$
880

 
$
714

 
23

%
 
$
1,735

 
$
1,318

 
32

%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Segment Operating Profit Margin
 
 
 
 
 
 
 
 
 
 
 
 
 
Distribution Solutions
1.93

%
1.82

%
11

bp 
 
1.94

%
1.78

%
16

bp 
Technology Solutions
20.25

 
16.23

 
402

 
 
20.86

 
12.55

 
831

  
(1)
Segment operating profit includes gross profit, net of operating expenses, as well as other income, net, for our two operating segments.
Segment Operating Profit
Distribution Solutions: Operating profit margin for the segment increased in 2016 compared to the same periods a year ago primarily due to lower operating expenses, partially offset by a decline in gross profit margin. Additionally, operating profit margin for 2016 includes a $51 million pre-tax gain from the sale of our ZEE Medical business and for the first six months of 2016, $59 million of cash proceeds representing our share of antitrust legal settlements.


29
McKESSON CORPORATION
FINANCIAL REVIEW (CONTINUED)
(UNAUDITED)


Technology Solutions: Operating profit margin for the segment increased in 2016 compared to the same periods a year ago primarily due to higher gross profit margin and lower operating expenses as a percentage of revenues. Operating profit margin for the first six months of 2016 includes a $51 million pre-tax gain from the sale of our nurse triage business, which was partially offset by a $20 million severance charge recorded in the first quarter of 2016. Additionally, operating profit margin for the first six months of 2015 included a $34 million pre-tax catch-up depreciation and amortization charge relating to the reclassification of the workforce business within our International Technology business from discontinued operations to continuing operations.
Corporate: Corporate expenses, net, decreased for the second quarter of 2016 and increased for the first six months of 2016 primarily due to changes in operating expenses.
Interest Expense: Interest expense for the second quarter and first six months of 2016 decreased primarily due to repayments of certain foreign currency denominated bilateral credit lines.
Income Taxes: Our reported income tax rates for the second quarters of 2016 and 2015 were 27.7% and 31.2% and for the first six months of 2016 and 2015 were 28.8% and 31.0%. Fluctuations in our reported income tax rates are primarily due to changes within our business mix, including varying proportions of income attributable to foreign countries that have lower income tax rates and discrete items. Income tax expense for the second quarters of 2016 and 2015 included net discrete tax benefits of $24 million and $6 million and for the first six months of 2016 and 2015, $29 million and $18 million. During the second quarter of 2016, we recorded a $25 million discrete tax benefit based on our assessment of a recent U.S. Tax Court ruling.
Loss from Discontinued Operations, Net of Tax: Loss from discontinued operations, net of tax, was $6 million and $14 million for the second quarters of 2016 and 2015 and $16 million and $22 million for the first six months of 2016 and 2015. Diluted loss per common share from discontinued operations for the second quarter of 2016 was $0.02 compared to $0.06 for the same period a year ago and for the first six months of 2016 was $0.07 compared to $0.09 for the same period a year ago.
Net Income Attributable to Noncontrolling Interests: Net income attributable to noncontrolling interests for 2016 primarily represents the accrual of the annual recurring compensation amount of €0.83 per Celesio share that McKesson is obligated to pay to the noncontrolling shareholders of Celesio under a domination and profit and loss transfer agreement (the “Domination Agreement”). For 2016, the estimated annual compensation is $45 million based on the Euro to U.S. dollar exchange rate and shares owned by the noncontrollling interests as of September 30, 2015. Net income attributable to noncontrolling interests for 2015 primarily represented the portion of Celesio’s net income that was not attributable to McKesson Corporation. Refer to Financial Note 3, “Redeemable Noncontrolling Interests,” to the accompanying condensed consolidated financial statements appearing in this Quarterly Report on Form10-Q for additional information.
Net Income Attributable to McKesson Corporation: Net income attributable to McKesson Corporation was $617 million and $469 million, and diluted earnings per common share attributable to McKesson Corporation were $2.63 and $1.99 for the second quarters of 2016 and 2015. Net income attributable to McKesson Corporation was $1,193 million and $872 million, and diluted earnings per common share attributable to McKesson Corporation were $5.08 and $3.71 for the first six months of 2016 and 2015.
Weighted Average Diluted Common Shares Outstanding: Diluted earnings per common share were calculated based on a weighted average number of shares outstanding of 235 million and 235 million for the second quarters of 2016 and 2015 and 235 million and 235 million for the first six months of 2016 and 2015.
We conduct businesses in a number of foreign countries in local currencies. As a result, the comparability of our results reported in U.S. dollars can be affected by changes in foreign currency exchange rates.  In discussing our operating results, we may use the term “foreign currency effect” which refers to the effect of changes in foreign currency exchange rates used to convert the local currency results of foreign countries where the functional currency is not the U.S. dollar. We present this information to provide a framework for assessing how our business performed excluding the effect of foreign currency rate fluctuations.  In computing foreign currency effect, we translate our current year results in local currencies into U.S dollars by applying average foreign exchange rates of the corresponding prior year periods, and we subsequently compare those results to the previously reported results of the comparable prior year periods in U.S. dollars.


30
McKESSON CORPORATION
FINANCIAL REVIEW (CONTINUED)
(UNAUDITED)


Business Combinations
In September 2015, we entered into an agreement to acquire the pharmaceutical distribution business of UDG Healthcare Plc (“UDG”) based in Ireland for €408 million in cash (or, using the currency exchange ratio of $1.12/€1 as of September 30, 2015, approximately $457 million).  The business primarily provides pharmaceutical and other healthcare products to retail and hospital pharmacies. The transaction was approved by UDG shareholders on October 13, 2015, and is subject to the approval from the applicable regulatory authorities as well as other customary closing conditions.  The acquisition is currently expected to close in the first half of calendar year 2016.
In July 2015, we also announced plans to acquire the pharmacy business of J Sainsbury Plc (“Sainsbury”) based in the U.K. for £125 million in cash (or, using the currency exchange ratio of $1.52/£1 as of September 30, 2015, approximately $190 million). Under the terms of the transaction, we will acquire 281 pharmacies in the U.K. including 277 in-store pharmacies and four located in hospitals. The transaction is subject to the approval of the applicable regulatory authorities as well as other customary closing conditions and is currently expected to close during the fourth quarter of 2016.
Upon closing, the acquired UDG and Sainsbury businesses will be included as part of our International pharmaceutical distribution and services business within our Distribution Solutions segment.
Refer to Financial Note 2, “Business Combinations,” to the accompanying condensed consolidated financial statements appearing in this Quarterly Report on Form 10‑Q for further information.
New Accounting Pronouncements
New accounting pronouncements that we have recently adopted as well as those that have been recently issued but not yet adopted by us are included in Financial Note 1, “Significant Accounting Policies,” to the accompanying condensed consolidated financial statements appearing in this Quarterly Report on Form 10-Q.


31
McKESSON CORPORATION
FINANCIAL REVIEW (CONTINUED)
(UNAUDITED)


Financial Condition, Liquidity and Capital Resources
We expect our available cash generated from operations, together with our existing sources of liquidity from commercial paper issuance and our credit facilities will be sufficient to fund our long-term and short-term capital expenditures, working capital and other cash requirements. In addition, from time to time, we may access the long-term debt capital markets to discharge our other liabilities.
Operating activities generated cash of $1,251 million and $165 million during the first six months of 2016 and 2015. Operating activities for the first six months of 2016 were affected by higher drafts and accounts payable and increases in receivables and inventories primarily associated with revenue growth. Cash flows from operations can be significantly impacted by factors such as timing of receipts from customers, inventory receipts and payments to vendors. Additionally, working capital is primarily a function of sales and purchase volumes, inventory requirements and vendor payment terms.
Investing activities utilized cash of $69 million and $307 million during the first six months of 2016 and 2015. Investing activities for the first six months of 2016 included $204 million in net proceeds from the sale of businesses. Additionally, investing activities reflect cash paid for purchases of property and capitalized software.
Financing activities utilized cash of $1,190 million and $168 million during the first six months of 2016 and 2015. Financing activities for the first six months of 2016 include cash receipts and payments of $1,501 million for short-term borrowings. Long-term debt repayments during the first six months of 2016 were primarily due to the repayment of a $400 million bond, while long-term debt repayments in the first six months of 2015 were due to cash paid on foreign currency denominated bilateral lines of credit. Financing activities for the six months of 2015 include cash receipts of $1,790 million and payments of $1,572 million for short-term borrowings. Additionally, financing activities for the first six months of 2016 and 2015 included $605 million and $105 million of cash paid for stock repurchases, including shares surrendered for tax withholding.
Stock repurchases may be made from time to time in open market transactions, privately negotiated transactions such as accelerated share repurchase programs, or by any combination of such methods.  The timing of any repurchases and the actual number of shares repurchased will depend on a variety of factors, including corporate and regulatory requirements, restrictions under our debt obligations and other market and economic conditions. At September 30, 2015, no Board authorized amounts remain available for future repurchases of the Company’s common stock. In October 2015, the Board authorized the repurchase of up to $2 billion of the Company’s common stock.
We believe that our operating cash flow, financial assets and current access to capital and credit markets, including our existing credit facilities, will give us the ability to meet our financing needs for the foreseeable future. However, there can be no assurance that future volatility and disruption in the global capital and credit markets will not impair our liquidity or increase our costs of borrowing.
Selected Measures of Liquidity and Capital Resources
(Dollars in millions)
September 30, 2015
 
March 31, 2015
 
Cash and cash equivalents
$
5,359

 
$
5,341

 
Working capital
3,974

 
3,173

 
Debt, net of cash and cash equivalents
4,029

 
4,503

 
Debt to capital ratio (1)
51.7

%
55.2

%
Net debt to net capital employed (2)
31.4

 
36.0

 
Return on McKesson stockholders’ equity (3)
20.6

 
17.0

 
(1)
Ratio is computed as total debt divided by the sum of total debt and McKesson stockholders’ equity, which excludes noncontrolling and redeemable noncontrolling interests.
(2)
Ratio is computed as total debt, net of cash and cash equivalents (“net debt”), divided by the sum of net debt and McKesson stockholders’ equity, which excludes noncontrolling and redeemable noncontrolling interests (“net capital employed”).
(3)
Ratio is computed as net income attributable to McKesson Corporation for the last four quarters, divided by a five-quarter average of McKesson stockholders’ equity, which excludes noncontrolling and redeemable noncontrolling interests.


32
McKESSON CORPORATION
FINANCIAL REVIEW (CONTINUED)
(UNAUDITED)


Cash equivalents, which are available-for-sale, are carried at fair value. Cash equivalents are primarily invested in AAA rated prime and U.S. government money market funds denominated in U.S. dollars, AAA rated prime money market funds denominated in Euros, overnight repurchase agreements collateralized by U.S. government securities, Canadian government securities and/or securities that are guaranteed or sponsored by the U.S. government and an AAA rated prime money market fund denominated in British pound sterling.
The remaining cash and cash equivalents are deposited with several financial institutions. We mitigate the risk of our short‑term investment portfolio by depositing funds with reputable financial institutions and monitoring risk profiles and investment strategies of money market funds.
Our cash and cash equivalents balance as of September 30, 2015 included approximately $2.2 billion of cash held by our subsidiaries outside of the United States. Our primary intent is to utilize this cash for foreign operations as well as to fund certain research and development activities for an indefinite period of time. Although the vast majority of cash held outside the United States is available for repatriation, doing so could subject us to U.S. federal, state and local income tax.
Working capital primarily includes cash and cash equivalents, receivables and inventories net of drafts and accounts payable, short-term borrowings, current portion of long-term debt, deferred revenue and other current liabilities. Our Distribution Solutions segment requires a substantial investment in working capital that is susceptible to large variations during the year as a result of inventory purchase patterns and seasonal demands. Inventory purchase activity is a function of sales activity and other requirements.
Our ratio of net debt to net capital employed decreased in 2016 due to a decrease in our debt and an increase in cash and cash equivalents and McKesson stockholders’ equity.
At September 30, 2015, the carrying value of redeemable noncontrolling interests related to Celesio was $1.41 billion, which exceeded the maximum redemption value of $1.26 billion. The balance of redeemable noncontrolling interests is reported at the greater of its carrying value or its maximum redemption value at each reporting date. Under the Domination Agreement, the noncontrolling shareholders of Celesio received the right to put their Celesio shares to McKesson at €22.99 per share, which price is increased annually for interest in the amount of five percentage points above a base rate published by the German Bundesbank semiannually, less the guaranteed dividend paid during the second quarter of 2016 related to calendar year 2014 and any compensation amount already paid in respect of the relevant time period (“Put Amount”).  The redemption value is the Put Amount adjusted for exchange rate fluctuations each period. The ultimate amount and timing of any future cash payments related to the Put Amount are uncertain. Refer to Financial Note 3 “Redeemable Noncontrolling Interests,” to the accompanying condensed consolidated financial statements appearing in this Quarterly Report on Form 10-Q for additional information.
In July 2015, the Company’s quarterly dividend was raised from $0.24 to $0.28 per common share for dividends declared on or after such date by the Board. The Company anticipates that it will continue to pay quarterly cash dividends in the future.  However, the payment and amount of future dividends remain within the discretion of the Board and will depend upon the Company's future earnings, financial condition, capital requirements and other factors.
Credit Resources
We fund our working capital requirements primarily with cash and cash equivalents as well as short-term borrowings from commercial paper issuances and our credit facilities.
In October 2015, we entered into a syndicated $3.5 billion five-year senior unsecured revolving credit facility (the “New Credit Facility”) and terminated our $1.3 billion and €500 million syndicated revolving credit facilities, and provided notice to terminate our $1.35 billion accounts receivable sales facility, which is expected to be terminated in November 2015. The New Credit Facility has a $3.15 billion aggregate sublimit of availability in Canadian dollars, British pounds sterling and Euros. The remaining terms and conditions of the New Credit Facility are substantially similar to those previously in place under our previous $1.3 billion revolving credit facility, including a debt to capital covenant ratio of no greater than 65%.
Funds necessary for future debt maturities and our other cash requirements are expected to be met by existing cash balances, cash flow from operations, existing credit sources and other capital market transactions. Detailed information regarding our debt and financing activities is included in Financial Note 9, “Debt and Financing Activities,” to the accompanying condensed consolidated financial statements appearing in this Quarterly Report on Form 10-Q.


33
McKESSON CORPORATION
FINANCIAL REVIEW (CONCLUDED)
(UNAUDITED)


FACTORS AFFECTING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2 of Part I of this report, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Some of these statements can be identified by the use of forward-looking terminology such as “believes,” “expects,” “anticipates,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates,” or the negative of these words and other comparable terminology. The discussion of financial trends, strategy, plans or intentions may also include forward-looking statements. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected, anticipated or implied. Although it is not possible to predict or identify all such risks and uncertainties, they may include, but are not limited to, the following factors. The reader should not consider this list to be a complete statement of all potential risks and uncertainties:
▪
changes in the U.S. healthcare industry and regulatory environment;
▪
foreign operations subject us to a number of operating, economic, political and regulatory risks;
▪
changes in the Canadian healthcare industry and regulatory environment;
▪
general European economic conditions together with austerity measures taken by certain European governments;
▪
changes in the European regulatory environment with respect to privacy and data protection regulations;
▪
foreign currency fluctuations;
▪
the Company’s ability to successfully identify, consummate, finance and integrate strategic acquisitions;
▪
the Company’s ability to manage and complete divestitures;
▪
material adverse resolution of pending legal and regulatory proceedings;
▪
competition;
▪
substantial defaults in payments or a material reduction in purchases by, or the loss of, a large customer or group purchasing organization;
▪
the loss of government contracts as a result of compliance or funding challenges;
▪
public health issues in the United States or abroad;
▪
malfunction, failure or breach of sophisticated internal information systems;
▪
cyber attacks or other privacy or data security breaches;
▪
the adequacy of insurance to cover property loss or liability claims;
▪
the Company’s failure to attract and retain customers for its software products and solutions due to integration and implementation challenges, or due to an inability to keep pace with technological advances;
▪
the Company’s proprietary products and services may not be adequately protected, and its products and solutions may be found to infringe on the rights of others;
▪
system errors or failure of our technology products and solutions to conform to specifications;
▪
disaster or other event causing interruption of customer access to the data residing in our service centers;
▪
the delay or extension of our sales or implementation cycles for external software products;
▪
changes in circumstances that could impair our goodwill or intangible assets;
▪
new or revised tax legislation or challenges to our tax positions;
▪
general economic conditions, including changes in the financial markets that may affect the availability and cost of credit to the Company, its customers or suppliers;
▪
changes in accounting principles generally accepted in the United States of America; and
▪
withdrawal from participation in one or more multiemployer pension plans or if such plans are reported to have underfunded liabilities.

These and other risks and uncertainties are described herein and in other information contained in our publicly available Securities and Exchange Commission filings and press releases. Readers are cautioned not to place undue reliance on forward‑looking statements, which speak only as of the date such statements were first made. Except to the extent required by law, we undertake no obligation to publicly release the result of any revisions to our forward-looking statements to reflect events or circumstances after the date hereof, or to reflect the occurrence of unanticipated events.




34
McKESSON CORPORATION

Item 3.
Quantitative and Qualitative Disclosures about Market Risk.
We believe there has been no material change in our exposure to risks associated with fluctuations in interest and foreign currency exchange rates as disclosed in our 2015 Annual Report on Form 10-K.
Item 4.
Controls and Procedures.
Our Chief Executive Officer and our Chief Financial Officer, with the participation of other members of the Company’s management, have evaluated the effectiveness of the Company’s “disclosure controls and procedures” (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)) as of the end of the period covered by this quarterly report, and our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures are effective based on their evaluation of these controls and procedures as required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15.
There were no changes in our “internal control over financial reporting” (as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 and 15d-15 that occurred during our second quarter of 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II—OTHER INFORMATION
Item 1.
Legal Proceedings.
The information set forth in Financial Note 13, “Commitments and Contingent Liabilities,” to the accompanying condensed consolidated financial statements appearing in this Quarterly Report on Form 10-Q is incorporated herein by reference.
Item 1A.
Risk Factors.
There have been no material changes during the period covered by this Quarterly Report on Form 10-Q to the risk factors disclosed in Part I, Item 1A, of our 2015 Annual Report on Form 10-K.

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
Stock repurchases may be made from time to time in open market transactions, privately negotiated transactions, through accelerated share repurchase programs, or by any combination of such methods.  The timing of any repurchases and the actual number of shares repurchased will depend on a variety of factors, including our stock price, corporate and regulatory requirements, restrictions under our debt obligations and other market and economic conditions.
There were no authorized amounts outstanding for repurchases of the Company’s common stock at September 30, 2015.


35
McKESSON CORPORATION

The following table provides information on the Company’s share repurchases during the second quarter of 2016.
 
Share Repurchases (1)
(In millions, except price per share)
Total Number
of Shares
Purchased
 
Average Price
Paid Per Share
 
Total Number of
Shares Purchased
As Part of Publicly
Announced
Program
 
Approximate
Dollar Value of
Shares that May
Yet Be Purchased Under the Programs
July 1, 2015 – July 31, 2015
—
$
—
 
—
$
500
August 1, 2015 – August 31, 2015
0.2
 
194.13
 
0.2
 
458
September 1, 2015 – September 30, 2015
2.3
 
196.39
 
2.3
 
—
Total
2.5
 

 
2.5
 
—
(1)
This table does not include shares tendered to satisfy the exercise price in connection with cashless exercises of employee stock options or shares tendered to satisfy tax withholding obligations in connection with employee equity awards.
In October 2015, the Board authorized the repurchase of up to $2 billion of the Company’s common stock.
Item 3.
Defaults Upon Senior Securities.
None
Item 4.
Mine Safety Disclosures.
Not Applicable
Item 5.
Other Information.
None


36
McKESSON CORPORATION

Item 6.
Exhibits.
Exhibit
Number
Description
10.1*
Forms of Statement of Terms and Conditions Applicable to Awards Pursuant to the McKesson Corporation 2013 Stock Plan.
 
 
31.1
Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
31.2
Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
32†
Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
101
The following materials from the McKesson Corporation Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, formatted in Extensible Business Reporting Language (XBRL): (i) Condensed Consolidated Statements of Operations, (ii) Condensed Consolidated Statements of Comprehensive Income, (iii) Condensed Consolidated Balance Sheets, (iv) Condensed Consolidated Statements of Cash Flows, and (v) related Financial Notes.

*
Management contract or compensation plan or arrangement in which directors and/or executive officers are eligible to participate.
†
Furnished herewith.



37
McKESSON CORPORATION

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, thereunto duly authorized.
 
 
 
 
MCKESSON CORPORATION
 
 
 
 
Date:
October 29, 2015
 
/s/ James A. Beer
 
 
 
James A. Beer
 
 
 
Executive Vice President and Chief Financial Officer
 

 
 
 
MCKESSON CORPORATION
 
 
 
 
Date:
October 29, 2015
 
/s/ Nigel A. Rees
 
 
 
Nigel A. Rees
 
 
 
Senior Vice President and Controller



38


Exhibit 10.1

OUTSIDE DIRECTOR


McKESSON CORPORATION
STATEMENT OF TERMS AND CONDITIONS APPLICABLE TO
RESTRICTED STOCK UNITS GRANTED TO
OUTSIDE DIRECTORS PURSUANT TO THE 2013 STOCK PLAN
Effective for Grants Beginning July 29, 2015
I.
INTRODUCTION
The following terms and conditions shall apply to Restricted Stock Unit Awards granted under the Plan and are subject to the terms and conditions of the Plan. This Statement of Terms and Conditions is intended to meet the requirements of Code Section 409A and any regulations and rules promulgated thereunder. In the event of any inconsistency between this Statement of Terms and Conditions and the Plan, the Plan shall govern. Capitalized terms not otherwise defined in this Statement of Terms and Conditions shall have the meaning set forth in the Plan.
II.
RESTRICTED STOCK UNITS
1.    Award Agreement. A Restricted Stock Unit Award granted to an Outside Director under the Plan shall be evidenced by a Restricted Stock Unit Agreement to be executed by the Outside Director and the Corporation setting forth the terms and conditions of the Restricted Stock Unit Award. Each Restricted Stock Unit Grant Notice shall incorporate by reference and be subject to this Statement of Terms and Conditions and together both documents shall constitute the Restricted Stock Unit Agreement. The Restricted Stock Units are also subject to the terms and conditions of the Plan.
2.    Terms and Conditions. The Administrator administering the Plan has authority to determine the Outside Directors to whom, and the time or times at which, grants of Restricted Stock Units will be made, the number of Units to be awarded, and all other terms and conditions of such awards. With respect to annual Restricted Stock Unit Awards granted to Outside Directors under the Plan, such awards shall be subject to the following terms, conditions and restrictions.
(A)    Grant Date. Each Outside Director may be granted a Restricted Stock Unit Award on the date of each annual meeting of stockholders. An Outside Director that is elected to the Board between annual meetings of stockholders may also be granted a Restricted Stock Unit Award on the date that the Board determines in its sole discretion.
(B)    Number of Units. Unless otherwise determined by the Board or the Committee, the number of Units granted for the annual meeting grant will be determined by dividing the Fair Market Value of a Share on the date of grant into $180,000 (with any fractional Unit rounded up to the nearest whole Unit). In addition, unless otherwise determined by the Board or the Committee, the Lead Independent Director shall be granted an annual meeting grant determined by dividing the Fair Market Value of a Share on the date of grant into $25,000 (with any fractional Unit rounded up to the nearest whole Unit). Notwithstanding the foregoing, in no event shall the aggregate number of Units granted to a director pursuant to such annual meeting grant or grants exceed 5,000. A newly elected Outside Director may receive a prorated annual meeting grant effective upon the date of the Outside Director’s election to the Board.


2013 Stock Plan STC (Outside Director)




(C)    No Restrictions. Each Restricted Stock Unit Award granted to an Outside Director will be fully vested on the date of grant.
3.    Dividend Equivalents. Dividend equivalents in respect of Restricted Stock Units may be credited on behalf of an Outside Director to a deferred cash account or converted into additional Restricted Stock Units, which will be subject to all of the terms and conditions of the underlying Restricted Stock Unit Award. Currently, dividend equivalents in respect of Restricted Stock Units granted to Outside Directors are credited to a deferred cash account and accrue interest at a rate determined by the Committee until such time as the underlying Shares are issued.
4.    Assignability. An Outside Director shall not be permitted to sell, transfer, pledge, assign or encumber Restricted Stock Units, other than pursuant to a qualified domestic relations order as defined in the Code or Title I of the U.S. Employee Retirement Income Security Act.
5.    No Stockholder Rights. Neither an Outside Director nor any person entitled to exercise an Outside Director’s rights in the event of the Outside Director’s death shall have any of the rights of a stockholder with respect to a Restricted Stock Unit Award except to the extent that a book entry has been entered in the records of the Corporation’s transfer agent with respect to the underlying Shares paid upon the settlement of any Restricted Stock Unit Award as described in Section II.6 below.
6.    Time of Payment of Restricted Stock Units. Except as noted in Section II.7 below, Restricted Stock Units granted to Outside Directors shall not be paid until after the Outside Director’s separation of service with the Corporation (“Automatic Deferral Requirement”). “Separation of service” shall have the meaning provided under the McKesson Corporation Deferred Compensation Administration Plan III (“DCAP III”). Payment shall be made in Shares in the form of an appropriate book entry entered in the records of the Corporation’s transfer agent recording the Outside Director’s unrestricted interest in the number of Shares subject to the Restricted Stock Unit Award.
7.    Satisfaction of Director Stock Ownership Guidelines. For those Outside Directors who have met the Director Stock Ownership Guidelines in effect at the time, Restricted Stock Unit grants shall not be subject to the Automatic Deferral Requirement and such grants will be immediately converted into Shares and distributed to the Outside Director; provided, however, that the Outside Director may elect to defer receipt of the Shares underlying the Restricted Stock Units.
8.    Deferrals of Restricted Stock Units. Deferrals of Restricted Stock Units, whether elective or pursuant to the Automatic Deferral Requirement, shall be subject to the terms and conditions of DCAP III.
III.
MISCELLANEOUS
1.    No Effect on Terms of Service with the Corporation. Nothing contained in this Statement of Terms and Conditions, the Plan or a Restricted Stock Unit Agreement shall affect the Corporation’s right to terminate the service of any Outside Director.
2.    Grants to Outside Directors in Foreign Countries. If an Outside Director is not a United States citizen, the Board has the full discretion to deviate from this Statement of Terms and

2




Conditions in order to adjust a Restricted Stock Unit Award to prevailing local conditions, including custom and legal and tax requirements. Furthermore, the Corporation reserves the right to impose other requirements on the Outside Director’s participation in the Plan, on the Award and on any Shares acquired under the Plan, to the extent the Corporation determines it is necessary or advisable in order to comply with local law or facilitate the administration of the Plan, and to require the Outside Director to sign any additional agreements or undertaking that may be necessary to accomplish the foregoing.
3.    Information Notification. Any information required to be given under the terms of a Restricted Stock Unit Award shall be addressed to the Corporation in care of its Corporate Secretary at McKesson Corporation, One Post Street, San Francisco, California 94104, and any notice to be given to an Outside Director shall be addressed to the Outside Director at the address indicated beneath the Outside Director’s name on the Restricted Stock Unit Agreement or such other address as either party may designate in writing to the other. Any such notice shall be deemed to have been duly given when enclosed in a properly sealed envelope or wrapper addressed as aforesaid, registered or certified and deposited (postage or registration or certification fee prepaid) in a post office or branch post office.
4.    Administrator Decisions Conclusive. All decisions of the Administrator administering the Plan upon any questions arising under the Plan, under this Statement of Terms and Conditions, or under a Restricted Stock Unit Agreement, shall be conclusive and binding on all persons.
5.    No Effect on Other Benefit Plans. Nothing herein contained shall affect an Outside Director’s right, if any, to participate in and receive benefits from and in accordance with the then current provisions of any benefit plan or program offered by the Corporation.
6.    Withholding. Each Outside Director shall agree to make appropriate arrangements with the Corporation for satisfaction of any applicable federal, state or local income tax withholding requirements or payroll tax requirements, if any is required.
7.    Successors. This Statement of Terms and Conditions and the Restricted Stock Unit Agreements shall be binding upon and inure to the benefit of any successor or successors of the Corporation. “Outside Director” as used herein shall include the Outside Director’s Beneficiary.
8.    Delaware Law. The interpretation, performance, and enforcement of this Statement of Terms and Conditions and all Restricted Stock Unit Agreements shall be governed by the laws of the State of Delaware.

3

CHIEF EXECUTIVE OFFICER



McKESSON CORPORATION
STATEMENT OF TERMS AND CONDITIONS APPLICABLE TO
OPTIONS, RESTRICTED STOCK, RESTRICTED STOCK UNITS,
PERFORMANCE SHARES AND TSR UNIT AWARDS GRANTED TO
CHIEF EXECUTIVE OFFICER PURSUANT TO THE 2013 STOCK PLAN
Effective for Grants Beginning May 26, 2015
I.
INTRODUCTION
The following terms and conditions shall apply to an Award granted under the Plan and are subject to the terms and conditions of the Plan. This Statement of Terms and Conditions is intended to meet the requirements of Code Section 409A and any rules promulgated thereunder. In the event of any inconsistency between this Statement of Terms and Conditions and the Plan, the Plan shall govern. Capitalized terms not otherwise defined in this Statement of Terms and Conditions shall have the meaning set forth in the Plan.
II.
OPTIONS
1.    Option Agreement. An Option granted under the Plan shall be evidenced by an Option Agreement setting forth the terms and conditions of the Option, including whether the Option is an Incentive Stock Option or a Nonstatutory Stock Option and the number of Shares subject to the Option. Each Stock Option Grant Notice shall incorporate by reference and be subject to this Statement of Terms and Conditions and together both documents shall constitute the Option Agreement. The Option is also subject to the terms and conditions of the Plan.
2.    Exercise Price. The Exercise Price of an Option, as specified in the Option Agreement, shall be equal to or greater than the Fair Market Value of the Shares underlying the Option on the Grant Date.
3.    Option Period. An Option shall be exercisable only during the applicable Option Period, and during such Option Period the exercisability of the Option shall be subject to the vesting provisions of Section II.4 as modified by the rules set forth in Sections II.5 and V. The Option Period shall be not more than seven years from the Grant Date.
4.    Vesting of Right to Exercise Options.
(A)    Except as provided in Sections II.5 and V, an Option shall be exercisable during the Option Period in accordance with the following vesting schedule:  (i) 25% of the Shares subject to the Option shall vest on the first anniversary of the Grant Date; (ii) an additional 25% of the Shares shall vest on the second anniversary of the Grant Date; (iii) an additional 25% of the Shares shall vest on the third anniversary of the Grant Date; and (iv) the remaining 25% of the Shares subject to the Option shall vest on the fourth anniversary of the Grant Date. Notwithstanding the foregoing, the Administrator may specify a different vesting schedule at the time the Option is granted, which will be specified in the Option Grant Notice.


2013 Stock Plan STC (CEO)




(B)    Any vested portion of an Option not exercised hereunder shall accumulate and be exercisable at any time on or before the Expiration Date, subject to the rules set forth in Sections II.5 and V. No Option may be exercised for less than 5% of the total number of Shares then available for exercise under such Option. In no event shall the Corporation be required to issue fractional Shares.
5.    Limits on Option Period and Acceleration of Vesting. The Option Period may end before the Expiration Date, and in certain circumstances the vesting schedule of an Option may be accelerated (subject to the provisions of Section V), as follows:
(A)    If a Participant ceases to be a bona fide employee of the Corporation or of its Affiliates during the Option Period for reasons other than for Cause, Long‑Term Disability, Normal Retirement, Early Retirement or death, the Option Period shall end on the earlier of (x) 90 days after the date of the Participant’s termination of employment and (y) the Expiration Date, and in all cases the Option shall be exercisable only to the extent that it was exercisable under the provisions of the foregoing Section II.4 at the time of such termination of employment. If a Participant is absent from work with the Corporation or an Affiliate because of the Participant's Short‑Term Disability or because the Participant is on an approved leave of absence, the Participant shall not be deemed during the period of any such absence, by virtue of such absence alone, to have terminated employment with the Corporation or an Affiliate except as the Administrator may otherwise expressly determine.
(B)    If a Participant’s employment is terminated for Cause during the Option Period, the Option Period shall end on the date of such termination of employment and the Option shall thereupon not be exercisable to any extent whatsoever.
(C)    If a Participant ceases to be a bona fide employee of the Corporation or of its Affiliates due to Long‑Term Disability during the Option Period, the vesting schedule of the Participant’s Option shall be accelerated, the Option shall become fully exercisable and the Option Period shall end on the earlier of (x) three years after the date of the Participant’s termination of employment and (y) the Expiration Date.
(D)    If a Participant ceases to be a bona fide employee of the Corporation or of its Affiliates during the Option Period by reason of Early Retirement, (i) the Option shall be exercisable only to the extent that it was exercisable under the provisions of the foregoing Section II.4 at the time of such retirement and (ii) the Option Period for that portion of the Option designated as a Nonstatutory Stock Option shall end on the earlier of (x) three years after the date of such retirement and (y) the Expiration Date.
(E)    If a Participant ceases to be a bona fide employee of the Corporation or of its Affiliates during the Option Period by reason of Normal Retirement:
(i)    If such Normal Retirement occurs prior to the first anniversary of the Grant Date of the Option, such Option shall be subject to the provisions of Section II.5(D) as though the Participant were eligible for Early Retirement; and

2




(ii)    If such Normal Retirement occurs on or after the first anniversary of the Grant Date of an Option, (i) the Option shall continue to vest as set forth in the foregoing Section II.4 as though the Participant had continued to be employed by the Corporation or one of its Affiliates during such vesting period, and (ii) the Option Period shall end on the Expiration Date.
(F)    If a Participant should die (i) while in the employ of the Corporation or an Affiliate and (ii) during the Option Period, the vesting schedule of the Participant’s Option shall be accelerated and the Option shall become fully exercisable, the Option Period shall end on the earlier of (x) three years after the date of death and (y) the Expiration Date, and the Participant’s Beneficiary may exercise the entire unexercised portion of the then exercisable Shares covered by such Option (or any lesser amount) remaining on the date of death.
(G)    If a Participant who ceases to be a bona fide employee of the Corporation or an Affiliate is subsequently rehired prior to the expiration of the Participant's Option, then the Option shall continue to remain outstanding until the earlier of (x) such time as the Participant subsequently terminates employment and (y) the Expiration Date. Upon the Participant’s subsequent termination of employment, the post‑termination exercise period calculated pursuant to the terms and conditions of this Section II.5 shall be reduced by the number of days between the date of the Participant’s initial termination of employment and the Participant's re‑hire date; provided, however, that if the rehired Participant continues to be employed by the Corporation or an Affiliate for at least one year from the Participant's rehire date, then the post termination exercise period for the Option shall be determined in accordance with Sections II.5(A) through (F) and shall not be adjusted as described in this Section II.5(G).
6.    Method of Exercise. A Participant may exercise an Option with respect to all or any part of the exercisable Shares as follows:
(A)    By giving the Corporation, or its authorized representative designated for this purpose, written notice of such exercise specifying the number of Shares as to which the Option is so exercised. Such notice shall be accompanied by an amount equal to the Exercise Price multiplied by the number of Shares exercised, in the form of any one or combination of the following:  cash or a certified check, bank draft, postal or express money order payable to the order of the Corporation in lawful money of the United States. Unless otherwise determined by the Administrator in its sole discretion, the Participant may pay the Exercise Price, in whole or in part, by tendering to the Corporation or its authorized representative Shares, which have been owned by the Participant for at least six months prior to said tender, and having a fair market value, as determined by the Corporation, equal to the Exercise Price, or in lieu of the delivery of actual Shares in such tender, the Corporation may accept an attestation by the Participant, in a form prescribed by the Corporation or its authorized representative, that the Participant owns sufficient Shares of record or in an account in street name to satisfy the Exercise Price, and such attestation will be deemed a tender of Shares for purposes of this method of exercise. The Corporation or its authorized representative may accept payment of the amount due upon the exercise of the Option in the form of a Participant’s personal check. Payment may also be made by delivery (including by FAX transmission) to the Corporation or its authorized representative of an executed irrevocable Option exercise form together with

3




irrevocable instructions to an approved registered investment broker to sell Shares in an amount sufficient to pay the Exercise Price plus any applicable Tax-Related Items (as defined in Section VIII.6) and to transfer the proceeds of such sale to the Corporation.
(B)    If required by the Corporation, by giving satisfactory assurance in writing, signed by the Participant, the Participant shall give the Participant's assurance that the Shares subject to the Option are being purchased for investment and not with a view to the distribution thereof; provided that such assurance shall be deemed inapplicable to (1) any sale of the Shares by such Participant made in accordance with the terms of a registration statement covering such sale, which has heretofore been (or may hereafter be) filed and become effective under the U.S. Securities Act of 1933, as amended (the “Securities Act”) and with respect to which no stop order suspending the effectiveness thereof has been issued, and (2) any other sale of the Shares with respect to which, in the opinion of counsel for the Corporation, such assurance is not required to be given in order to comply with the provisions of the Securities Act.
(C)    As soon as practicable after receipt of the notice and the assurance described in Sections II.6(A) and (B), the Corporation shall, without transfer or issue tax (except for withholding tax arrangements contemplated in Section VIII.6) and without other incidental expense to the Participant, credit the purchased Shares to the Participant’s brokerage account of record. If the Participant does not have a brokerage account of record, then the Corporation shall cause an appropriate book entry to be entered in the records of the Corporation’s transfer agent recording the Participant’s unrestricted interest in the purchased Shares; provided, however, that the time of such delivery may be postponed by the Corporation for such period as may be required for it with reasonable diligence to comply with applicable registration requirements under the Securities Act, the Exchange Act, any applicable listing requirements of any national securities exchange and requirements under any other law or regulation applicable to the issuance or transfer of the Shares.
7.    Limitations on Transfer. An Option shall, during a Participant’s lifetime, be exercisable only by the Participant. No Option or any right granted thereunder shall be transferable by the Participant by operation of law or otherwise, other than by will or the laws of descent and distribution. Notwithstanding the foregoing: (i) a Participant may designate a beneficiary to succeed, after the Participant’s death, to all of the Participant’s Options outstanding on the date of death; (ii) a Nonstatutory Stock Option may be transferable pursuant to a qualified domestic relations order as defined in the Code or Title I of the U.S. Employee Retirement Income Security Act; and (iii) any Participant, who is a senior executive officer recommended by the Chief Executive Officer of the Corporation and approved by the Administrator may voluntarily transfer any Nonstatutory Stock Option to a Family Member as a gift or through a transfer to an entity in which more than 50% of the voting interests are owned by Family Members (or the Participant) in exchange for an interest in that entity. In the event of any attempt by a Participant to alienate, assign, pledge, hypothecate, or otherwise dispose of an Option or of any right thereunder, except as provided herein, or in the event of the levy of any attachment, execution, or similar process upon the rights or interest hereby conferred, the Corporation at its election may terminate the affected Option by notice to the Participant and the Option shall thereupon become null and void.

4




8.    No Stockholder Rights. Neither a Participant nor any person entitled to exercise a Participant’s rights in the event of the Participant’s death shall have any of the rights of a stockholder with respect to the Shares subject to an Option except to the extent that a book entry has been entered in the records of the Corporation’s transfer agent with respect to such Shares upon the exercise of an Option.
III.
RESTRICTED STOCK
1.    Restricted Stock Agreement. A Restricted Stock Award granted under the Plan shall be evidenced by a Restricted Stock Agreement to be executed by the Participant and the Corporation setting forth the terms and conditions of the Restricted Stock Award. Each Restricted Stock Grant Notice shall incorporate by reference and be subject to this Statement of Terms and Conditions and together both documents shall constitute the Restricted Stock Agreement. The Restricted Stock Award is also subject to the terms and conditions of the Plan.
2.    Rights with Respect to Shares of Restricted Stock. Upon written acceptance of a Restricted Stock Award by a Participant, including the restrictions and other terms and conditions described in the Plan and the Restricted Stock Agreement, the Corporation shall cause an appropriate book entry to be entered in the records of the Corporation’s transfer agent recording the Participant’s interest in the Restricted Stock. From and after the Grant Date, the Participant shall have the rights of Common Stock ownership, including the right to vote and to receive dividends on Shares of Restricted Stock, subject to the terms, conditions and restrictions described in the Plan and the Restricted Stock Agreement.
3.    Special Restrictions. Each Restricted Stock Award made under the Plan shall be subject to the following terms, conditions and restrictions and such additional terms, conditions and restrictions as may be determined by the Administrator; provided, however, that no Restricted Stock grant shall be subject to additional terms, conditions and restrictions which are more favorable to a Participant than the terms, conditions and restrictions set forth elsewhere in the Plan or the Restricted Stock Agreement.
(A)    Restrictions. Until the restrictions imposed on any Restricted Stock grant shall lapse (the “Restriction Period”), Shares of Restricted Stock granted to a Participant (i) shall not be sold, assigned, transferred, pledged, hypothecated, or otherwise disposed of, other than pursuant to a qualified domestic relations order as defined in the Code or Title I of the U.S. Employee Retirement Income Security Act and (ii) shall, if the Participant’s continuous employment with the Corporation or any of its Affiliates shall terminate for any reason (except as otherwise provided in the Plan or in Section III.3(B)) be returned to the Corporation forthwith, and all the rights of the Participant to such Shares shall immediately terminate. If a Participant is absent from work with the Corporation or an Affiliate because of the Participant's Short‑Term Disability or because the Participant is on an approved leave of absence, the Participant shall not be deemed during the period of any such absence, by virtue of such absence alone, to have terminated employment with the Corporation or an Affiliate except as the Administrator may otherwise expressly determine.
(B)    Termination of Employment by Reason of Death, Long‑Term Disability or Normal Retirement. Notwithstanding any provision contained herein or in the Plan or the Restricted

5




Stock Agreement to the contrary, if a Participant who has been in the continuous employment of the Corporation or any of its Affiliates since the Grant Date of a Restricted Stock Award ceases to be a bona fide employee of the Corporation or an Affiliate as a result of:
(i)    Death or Long‑Term Disability, then the restrictions imposed on any Restricted Stock Award shall lapse as to all Shares granted to such Participant pursuant to such Restricted Stock Award on the date of such termination; or
(ii)    Normal Retirement on or after the first anniversary of the Grant Date of any time-based vesting Restricted Stock Award, the restrictions applicable to such Restricted Stock Award shall continue to lapse at such time(s) as are set forth in the applicable Grant Notice, as though the Participant had continued to be employed by the Corporation or one of its Affiliates during such restricted period; provided, that notwithstanding any other provision of the Plan or this Statement of Terms and Conditions, this Section III.3(B)(ii) shall not apply to any Restricted Stock Award the vesting of which is based, in whole or in part, on attainment of performance objectives. The procedures set forth in Section VIII.6 will be applied for any taxes due upon the lapse of restrictions imposed on a Restricted Stock Award due to a Participant’s Normal Retirement eligibility.
(C)    Restriction on Sale. The Compensation Committee reserves the right to impose a restriction on the sale of Shares that the Participant receives upon the vesting and settlement of a Restricted Stock Award, unless the Participant has satisfied the ownership targets applicable to the Participant as provided in the Stock Ownership Policy.
4.    Dividends. Cash dividends paid with respect to Restricted Stock during the Restriction Period shall be credited on behalf of the Participant to a deferred cash account (in a manner designed to comply with Code Section 409A) and the restrictions on such cash dividends shall lapse at the same time that the restrictions lapse on the associated Restricted Stock Award. Stock dividends paid with respect to Restricted Stock during the Restriction Period shall be treated as Restricted Stock which shall be subject to the same restrictions as the original award for the duration of the Restriction Period.
5.    Election to Recognize Gross Income in the Year of Grant. If any Participant validly elects within 30 days of the Grant Date, to include in gross income for federal income tax purposes an amount equal to the fair market value of the Shares of Restricted Stock granted on the Grant Date, such Participant shall (at the same time or prior to the date that the Participant files the Participant's election with the Internal Revenue Service) (A) pay to the Corporation, or make arrangements satisfactory to the Administrator to pay to the Corporation in the year of such grant, any federal, state or local taxes required to be withheld with respect to such Shares in accordance with Section VIII.6 and (B) provide the Administrator with a copy of the election filed with the Internal Revenue Service.
6.    Restrictive Legend. Each book entry in the records of the Corporation’s transfer agent evidencing Shares granted pursuant to a Restricted Stock grant may bear an appropriate legend referring to the terms, conditions and restrictions described in the Plan and/or the Restricted Stock Agreement.

6




7.    Expiration of Restriction Period. If and when the Restriction Period applicable to the Restricted Stock expires without a prior forfeiture, Shares shall be credited to the Participant’s brokerage account of record. If the Participant does not have a brokerage account of record, then an appropriate book entry recording the Participant’s interest in the unrestricted Shares shall be entered on the records of the Corporation’s transfer agent.
IV.
RESTRICTED STOCK UNITS AND PERFORMANCE SHARES
1.    Award Agreement.
(A)    Restricted Stock Units granted under the Plan shall be evidenced by a Restricted Stock Unit Agreement to be executed by the Participant and the Corporation setting forth the terms and conditions of the Restricted Stock Units. Each Restricted Stock Unit Grant Notice shall incorporate by reference and be subject to this Statement of Terms and Conditions and together both documents shall constitute the Restricted Stock Unit Agreement. The Restricted Stock Units are also subject to the terms and conditions of the Plan.
(B)    Performance Shares granted under the Plan shall be evidenced by a Performance Share Agreement to be executed by the Participant and the Corporation setting forth the terms and conditions of the Performance Shares. Each Performance Share Grant Notice shall incorporate by reference and be subject to this Statement of Terms and Conditions and together both documents shall constitute the Performance Share Agreement. Performance Shares are also subject to the terms and conditions of the Plan.
2.    Special Restrictions. Restricted Stock Units and Performance Shares granted under the Plan shall be subject to the following terms, conditions and restrictions and such additional terms, conditions and restrictions as may be determined by the Administrator, consistent with the terms of the Plan.
(A)    Restrictions. If a Participant ceases to be a bona fide employee of the Corporation or any Affiliate (except as otherwise provided in the Plan or in Section IV.2(B)) prior to the lapse of the restrictions imposed on the Award, the unvested Restricted Stock Units or Performance Shares shall be canceled, and all the rights of the Participant to such Awards shall immediately terminate. If a Participant is absent from work with the Corporation or an Affiliate because of the Participant's Short‑Term Disability or because the Participant is on an approved leave of absence, the Participant shall not be deemed during the period of any such absence, by virtue of such absence alone, to have terminated employment with the Corporation or an Affiliate except as the Administrator may otherwise expressly determine.
(B)    Termination of Employment by Reason of Death, Long‑Term Disability or Normal Retirement. Notwithstanding any provision contained herein or in the Plan, the Restricted Stock Unit Agreement or Performance Share Agreement to the contrary, if a Participant who has been in the continuous employment of the Corporation or any of its Affiliates since the Grant Date shall, while in such employment, be terminated as a result of:

7




(i)    Death or Long‑Term Disability, then the restrictions imposed on any Award of Restricted Stock Units or Performance Shares shall lapse on the date of such termination; or
(ii)    Normal Retirement on or after the first anniversary of the Grant Date of any time-based vesting Restricted Stock Units, the restrictions applicable to such Restricted Stock Units shall continue to lapse at such time(s) as are set forth in the applicable Grant Notice, as though the Participant had continued to be employed by the Corporation or one of its Affiliates during such restricted period; provided, that notwithstanding any other provision of the Plan or this Statement of Terms and Conditions, this Section IV.2(B)(ii) shall not apply to any Performance Shares or any Restricted Stock Units the vesting of which is based, in whole or in part, on attainment of performance objectives.
(C)    Restriction on Sale. The Compensation Committee reserves the right to impose a restriction on the sale of Shares that the Participant receives upon the settlement of Restricted Stock Units or Performance Shares, unless the Participant has satisfied the ownership targets applicable to the Participant as provided in the Stock Ownership Policy.
3.    Dividend Equivalents. Subject to the discretion of the Compensation Committee, dividend equivalents shall be credited in respect of Restricted Stock Units and Performance Shares. Cash dividends shall be credited on behalf of the Participant to a deferred cash account (in a manner designed to comply with Code Section 409A) and the restrictions on such cash dividends shall lapse at the same time that the restrictions lapse on the associated Award of Restricted Stock Units or Performance Shares (as applicable), and cash dividends, along with accrued interest (if any) on such cash dividends, shall be paid in a lump sum at the same time that the Shares underlying the Restricted Stock Unit or Performance Share Award, and to which the cash dividends relate, are distributed. Stock dividends shall be converted into additional Restricted Stock Units or Performance Shares, which will be subject to all of the terms and conditions of the underlying Restricted Stock Units or Performance Shares, including the same vesting restrictions as the underlying Award.
4.    Assignability. A Participant shall not be permitted to sell, transfer, pledge, assign or encumber Restricted Stock Units or Performance Shares, other than pursuant to a qualified domestic relations order as defined in the Code or Title I of the U.S. Employee Retirement Income Security Act.
5.    No Stockholder Rights. Neither a Participant nor any person entitled to exercise a Participant’s rights in the event of the Participant’s death shall have any of the rights of a stockholder with respect to an Award of Restricted Stock Units or Performance Shares except to the extent that a book entry has been entered in the records of the Corporation’s transfer agent with respect to the Shares paid upon the settlement of any vested Restricted Stock Units or Performance Shares.
6.    Time of Payment of Restricted Stock Units and Performance Shares. Upon the lapse of the restriction imposed on Restricted Stock Units or Performance Shares, all Restricted Stock Units and Performance Shares that were not forfeited pursuant to Section IV.2(A) or V shall be paid to the Participant as soon as reasonably practicable after the restrictions lapse. Payment shall be

8




made in Shares to the Participant’s brokerage account of record. If the Participant does not have a brokerage account of record, then in the form of an appropriate book entry entered in the records of the Corporation’s transfer agent recording the Participant’s unrestricted interest in the number of Shares subject to the Restricted Stock Units or Performance Shares.
Notwithstanding the foregoing, if a Participant becomes eligible for Normal Retirement prior to the date of the lapse of restrictions imposed on Restricted Stock Units and the vesting provisions of Section IV(2)(B)(ii) apply, then such Restricted Stock Units shall be paid to the Participant’s brokerage account of record as soon as reasonably practicable after the originally scheduled vesting date and in any event before the end of the calendar year in which such date occurs, subject to the delay of payment (if applicable) provided in Section VIII.14. The procedures set forth in Section VIII.6 will be applied for any taxes due upon the lapse of restrictions imposed on the Restricted Stock Units due to a Participant’s Normal Retirement eligibility.
V.
TOTAL SHAREHOLDER RETURN (“TSR”) UNIT AWARDS
1.    Award Agreement. TSR Unit Awards shall be evidenced by a TSR Unit Target Award Notification to be executed by the Participant and the Corporation setting forth the terms and conditions of the TSR Unit Award. TSR Unit Awards are “Other Share-Based Awards” as provided under Section 11 of the Plan. Each TSR Unit Target Notification shall incorporate by reference and be subject to this Statement of Terms and Conditions, and together both documents shall constitute the TSR Unit Award Agreement. TSR Unit Awards are also subject to the terms and conditions of the Plan.
2.    Number of Shares Granted Based on Performance. The performance period of a TSR Unit Award shall be greater than one year, and performance shall be based on such criteria as the Compensation Committee shall determine in its discretion at the beginning of the performance period. Following the end of the performance period, the Compensation Committee shall determine the extent to which the criteria have been achieved, and shall authorize the grant and issuance of Shares in respect of the TSR Unit Award.
3.    Special Conditions. TSR Unit Awards shall be subject to the following terms, conditions and restrictions and such additional terms, conditions and restrictions as may be determined by the Compensation Committee, consistent with the terms of the Plan.
(A)    Forfeiture. If a Participant ceases to be a bona fide employee of the Corporation or any Affiliate (except as otherwise provided in the Plan or in Section V.3(B)) prior to the end of the performance period, any then-outstanding TSR Unit Awards shall be canceled, and all the rights of the Participant to such Awards shall immediately terminate. If a Participant is absent from work with the Corporation or an Affiliate because of the Participant's Short-Term Disability or because the Participant is on an approved leave of absence, the Participant shall not be deemed during the period of any such absence, by virtue of such absence alone, to have terminated employment with the Corporation or an Affiliate except as the Compensation Committee may otherwise expressly determine.

9




(B)    Termination of Employment by Reason of Death, Long-Term Disability or Normal Retirement. Notwithstanding any provision contained herein or in the Plan, the TSR Unit Award Agreement to the contrary, if a Participant who has been in the continuous employment of the Corporation or any of its Affiliates since the Grant Date of such Award ceases to be a bona fide employee of the Corporation or an Affiliate as a result of:
(i)    Death or Long-Term Disability, the Participant shall be eligible to receive, following completion of the applicable performance period, an amount in cash equal to the value of a prorated portion of each such TSR Unit Award, equal to (1) the target number of TSR Units subject to such Award, multiplied by (2) the performance criteria determined by the Compensation Committee to apply to such Award, multiplied by (3) a fraction, the numerator of which is the number of whole calendar months, rounded down to the nearest whole month, during which the Participant provided Service to the Corporation or an Affiliate during the performance period applicable to such Award, and the denominator of which is the number of calendar months in such performance period; provided, that for purposes of this clause (3), “whole calendar months” shall be calculated commencing on the applicable Grant Date; and provided, however, that in no event shall such amount exceed any applicable cap or limitation set forth in the TSR Unit Target Award Notification; or
(ii)    Normal Retirement on or after the first anniversary of the Grant Date, the Participant shall be eligible to receive, following completion of the applicable performance period, an amount in cash equal to the value of such TSR Unit Award, calculated as though the Participant had continued to be employed by the Corporation or one of its Affiliates during the entire performance period.
Amounts, if any, to be paid under this Section V.3(B) shall be paid in accordance with Section V.7 and, if applicable, Section VIII.14.
(C)    Restriction on Sale of Shares. The Compensation Committee reserves the right to impose a restriction on the sale of Shares that the Participant receives with respect to the settlement of a TSR Unit Award, unless the Participant has satisfied the ownership targets applicable to the Participant as provided in the Stock Ownership Policy.
4.    Dividend Equivalents. Unless otherwise determined by the Administrator in its sole discretion, Dividend Equivalents shall not be accrued with respect to TSR Unit Awards during the performance period.
5.    Assignability. A Participant shall not be permitted to sell, transfer, pledge, assign or encumber all or any portion of a TSR Unit Award.
6.    No Stockholder Rights. Neither a Participant nor any person entitled to exercise a Participant’s rights in the event of the Participant’s death shall have any of the rights of a stockholder with respect to a TSR Unit Award, except to the extent that a book entry has been entered in the records of the Corporation’s transfer agent with respect to the Shares paid upon the settlement of any TSR Unit Award.

10




7.    Time of Payment of TSR Unit Awards. The Compensation Committee shall determine the extent to which Shares are payable pursuant to a TSR Unit Award as soon as practicable following the end of the performance period, and such Shares shall be paid as soon as practicable thereafter and in any event no later than the end of the period under which payment would be deemed to be a “short-term deferral” as defined in the regulations under Code Section 409A. Except as provided in Section V.3(B), payment shall be made in the form of Shares to the Participant’s brokerage account of record. If the Participant does not have a brokerage account of record, then in the form of an appropriate book entry entered in the records of the Corporation’s transfer agent recording the Participant’s unrestricted interest in the number of Shares earned pursuant to the TSR Unit Award.
VI.
SPECIAL FORFEITURE AND REPAYMENT RULES
Any other provision of this Statement of Terms and Conditions to the contrary notwithstanding, if the Administrator determines that a Participant has engaged in any of the actions described in 3 below, the consequences set forth in 1 and 2 below shall result:
1.    Any outstanding Option shall immediately and automatically terminate, be forfeited and shall cease to be exercisable, without limitation. In addition, any Award of Restricted Stock, Restricted Stock Units, or Performance Shares as to which the restrictions have not lapsed shall immediately and automatically be forfeited, TSR Unit Awards shall immediately and automatically be forfeited and any such Shares of Restricted Stock shall be returned to the Corporation and all of the rights of the Participant to such Awards and the underlying Shares shall immediately terminate.
2.    If the Participant exercised an Option within 12 months prior to the date upon which the Corporation discovered that the Participant engaged in any actions described in 3 below, the Participant, upon written notice from the Corporation, shall immediately pay to the Corporation the economic value realized or obtained by the exercise of such Option measured at the date of exercise. In addition, if the restrictions imposed on any Award of Restricted Stock, Restricted Stock Units or Performance Shares (including any unpaid dividends or Dividend Equivalents) lapsed, or any TSR Unit Award was settled, within 12 months prior to the date the Corporation discovered that the Participant engaged in any action described in 3 below, the Participant, upon written notice from the Corporation, shall immediately pay to the Corporation the economic value realized or obtained with respect to such Award, measured at the date such Award vested.
3.    The consequences described in 1 and 2 above shall apply if the Participant, either before or after termination of employment with the Corporation or its Affiliates:
(A)    Discloses to others, or takes or uses for the Participant’s own purpose or the purpose of others, any trade secrets, confidential information, knowledge, data or know‑how or any other proprietary information or intellectual property belonging to the Corporation or its Affiliates and obtained by the Participant during the term of the Participant’s employment, whether or not they are the Participant’s work product. Examples of such confidential information or trade secrets include, without limitation, customer lists, supplier lists, pricing and cost data, computer programs, delivery routes, advertising plans, wage and salary data, financial information, research and development plans, processes, equipment, product information and all other types and categories

11




of information as to which the Participant knows or has reason to know that the Corporation or its Affiliates intends or expects secrecy to be maintained;
(B)    Fails to promptly return all documents and other tangible items belonging to the Corporation or its Affiliates in the Participant’s possession or control, including all complete or partial copies, recordings, abstracts, notes or reproductions of any kind made from or about such documents or information contained therein, upon termination of employment, whether pursuant to retirement or otherwise;
(C)    Fails to provide the Corporation with at least 30 days’ written notice prior to directly or indirectly engaging in, becoming employed by, or rendering services, advice or assistance to any business in competition with the Corporation or its Affiliates. As used herein, “business in competition” means any person, organization or enterprise which is engaged in or is about to become engaged in any line of business engaged in by the Corporation or its Affiliates at the time of the termination of the Participant’s employment with the Corporation or its Affiliates;
(D)    Fails to inform any new employer, before accepting employment, of the terms of this paragraph and of the Participant’s continuing obligation to maintain the confidentiality of the trade secrets and other confidential information belonging to the Corporation or its Affiliates and obtained by the Participant during the term of the Participant’s employment with the Corporation or any of its Affiliates;
(E)    Induces or attempts to induce, directly or indirectly, any of the customers of the Corporation or its Affiliates, employees, representatives or consultants to terminate, discontinue or cease working with or for the Corporation or its Affiliates, or to breach any contract with the Corporation or any of its Affiliates, in order to work with or for, or enter into a contract with, the Participant or any third party;
(F)    Engages in conduct which is not in good faith and which disrupts, damages, impairs or interferes with the business, reputation or employees of the Corporation or its Affiliates; or
(G)    Fails to meet the Participant’s continuing obligations with respect to non-disclosure, non-competition and/or non-solicitation under the Participant’s agreement with the Corporation or any Affiliate.
The Administrator shall determine in its sole discretion whether the Participant has engaged in any of the acts set forth in (A) through (G) above, and its determination shall be conclusive and binding on all interested persons.
Any provision of this Section V which is determined by a court of competent jurisdiction to be invalid or unenforceable should be construed or limited in a manner that is valid and enforceable and that comes closest to the business objectives intended by such invalid or unenforceable provision, without invalidating or rendering unenforceable the remaining provisions of this Section V.
VII.
CHANGE IN CONTROL

12




If as a result of a Change in Control, the Common Stock ceases to be listed for trading on a national securities exchange (an “Exchange”), any Option, Restricted Stock Award, Restricted Stock Unit Award, Performance Share Award or TSR Unit Award that is unvested on the effective date of the Change in Control shall continue to vest according to the terms and conditions of such Award, provided that such Award is replaced with an award for voting securities of the resulting corporation or the acquiring corporation, as the case may be, (including without limitation, the voting securities of any corporation which as a result of the Change in Control owns the Corporation or all or substantially all of the Corporation’s assets either directly or through one or more subsidiaries) (the “Surviving Company”) which are traded on an Exchange (a “Replacement Award”), which Replacement Award, (i) in the case of an Option, shall consist of an option with the number of underlying shares and exercise price determined in a manner consistent with Code Section 424(a) with vesting and any other terms continuing in the same manner as the replaced Option; (ii) in the case of a Performance Share Award or TSR Unit Award, shall consist of restricted stock or restricted stock units with a value (determined using the Surviving Company’s stock price as of the effective date of the Change in Control) equal to the value of the Performance Share Award or TSR Unit Award (determined using the Corporation’s stock price and assuming attainment of target performance or actual performance achieved, if greater, as of the effective date of the Change in Control), with any restrictions on such restricted stock or restricted stock units lapsing at the end of the measuring period over which performance for the replaced Performance Share Award or TSR Unit Award was to be measured prior to the granting of the Replacement Award; and (iii) in the case of a Restricted Stock Award or Restricted Stock Unit Award, shall consist of restricted stock or restricted stock units with a value (determined using the Surviving Company’s stock price as of the effective date of the Change in Control) equal to the value of the Restricted Stock Award or Restricted Stock Unit Award (determined using the Corporation’s stock price as of the effective date of the Change in Control), with any restrictions on such restricted stock or restricted stock units lapsing at the same time and manner as the replaced Award; provided, however, that in the event of the Participant’s involuntary Separation from Service by the Corporation without Cause or Separation from Service by the Participant for Good Reason during the vesting period of any Replacement Award, the Replacement Award shall immediately vest and be paid as soon as practicable following such Separation from Service (subject to Section VIII.14), based on the fair market value of the underlying shares on the vesting date, or in the case of options, based on the excess of the fair market value of the underlying shares over the option exercise price on the vesting date. If any Option, Restricted Stock Award, Restricted Stock Unit Award, Performance Share Award or TSR Unit Award that is unvested at the effective time of the Change in Control is not replaced with a Replacement Award, such Award shall immediately vest and, in the case of a Performance Share Award or TSR Unit Award, shall vest based upon deemed attainment of target performance or actual performance achieved, if greater.
If as a result of a Change in Control, the Common Stock continues to be listed for trading on an Exchange, any unvested Option, Restricted Stock Award, or Restricted Stock Unit Award shall continue to vest according to the terms and conditions of such Award and any Performance Share Award or TSR Unit Award shall be replaced with a Restricted Stock Award or Restricted Stock Unit Award where the number of shares subject to such Restricted Stock Award or Restricted Stock Unit Award shall be equal to the number of Shares assuming attainment of target performance or actual performance achieved, if greater, as of the effective date of the Change in Control with

13




any restrictions on such Restricted Stock Award or Restricted Stock Unit Award lapsing at the end of the measuring period over which performance for the replaced Performance Share Award or TSR Unit Award was to be measured prior to the granting of the replacement Award; provided however, that, in the event of the Participant’s involuntary Separation from Service by the Corporation without Cause or Separation from Service by the Participant for Good Reason during the vesting period of an Award, such Award shall immediately vest and be paid as soon as practicable following such Separation from Service (subject to Section VIII.14).
VIII.
MISCELLANEOUS
1.    No Effect on Terms of Employment. Participation in the Plan shall not create a right to further employment with the Participant’s employer (the “Employer”) and shall not interfere with the ability of the Employer to terminate, with or without cause, or change the terms of employment of a Participant at any time.
2.    Grants to Participants in Foreign Countries. In making grants to Participants in foreign countries, the Administrator has the full discretion to deviate from this Statement of Terms and Conditions in order to adjust grants under the Plan to prevailing local conditions, including custom and legal and tax requirements. Furthermore, the Corporation reserves the right to impose other requirements on the Participant’s participation in the Plan on the Award and on any Shares acquired under the Plan, to the extent the Corporation determines it is necessary or advisable in order to comply with local law or facilitate the administration of the Plan, and to require the Participant to sign any additional agreements or undertaking that may be necessary to accomplish the foregoing.
3.    Information Notification. Any information required to be given under the terms of an Award shall be addressed to the Corporation in care of its Corporate Secretary at McKesson Corporation, One Post Street, San Francisco, California 94104, and any notice to be given to a Participant shall be addressed to such Participant at the address indicated beneath the Participant's name on the Award Agreement or such other address as either party may designate in writing to the other. Any such notice shall be deemed to have been duly given when enclosed in a properly sealed envelope or wrapper addressed as aforesaid, registered or certified and deposited (postage or registration or certification fee prepaid) in a post office or branch post office.
4.    Administrator Decisions Conclusive. All decisions of the Administrator administering the Plan upon any questions arising under the Plan or under an Award Agreement, shall be conclusive and binding on all interested persons.
5.    No Effect on Other Benefit Plans. Nothing herein contained shall affect a Participant’s right to participate in and receive benefits from and in accordance with the then current provisions of any pensions, insurance or other employment welfare plan or program offered by the Corporation.
6.    Withholding. Regardless of any action the Corporation or the Employer takes with respect to any federal, state or local income tax, social insurance, payroll tax, payment on account or other tax-related items related to the Participant’s participation in the Plan and legally applicable

14




to the Participant (“Tax-Related Items”), the Participant acknowledges that the ultimate liability for all Tax-Related Items is and remains the Participant's responsibility and may exceed the amount actually withheld by the Corporation or the Employer. The Participant further acknowledges that the Corporation and/or the Employer (1) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Award, including the grant, vesting or exercise of the Award, as applicable, the subsequent sale of Shares acquired pursuant to the Plan and the receipt of any dividends and/or dividend equivalents; and (2) do not commit and are under no obligation to structure the terms of the grant or any aspect of the Award to reduce or eliminate the Participant’s liability for Tax-Related Items or achieve any particular tax result. Further, if the Participant has become subject to tax in more than one jurisdiction between the Grant Date and the date of any relevant taxable event, the Participant acknowledges that the Corporation and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.
Prior to any relevant taxable or tax withholding event, as applicable, the Participant will pay or make adequate arrangements satisfactory to the Corporation and/or the Employer, or their respective agents, at their discretion, to satisfy the obligations with regard to all Tax-Related Items by one or a combination of the following: (1) withholding from the Participant’s wages or other cash compensation paid to the Participant by the Corporation and/or the Employer; (2) withholding from proceeds of the sale of Shares acquired under the Plan either through a voluntary sale or through a mandatory sale arranged by the Corporation (on the Participant’s behalf pursuant to this authorization and any other authorization the Corporation and/or the broker designated by the Corporation may require the Participant to sign in connection with the sale of Shares); or (3) withholding Shares to be issued upon grant, vesting/settlement or exercise, as applicable. Calculation of the number of Shares to be withheld shall be made based on the closing price of the Common Stock on the New York Stock Exchange on the date that the amount of tax to be withheld is determined. In no event, however, shall the Corporation be required to issue fractional Shares. With respect to an Award other than an Option, if adequate arrangements to satisfy the obligations with regard to all Tax-Related Items are not made by the Participant with the Corporation and/or the Employer prior to the relevant taxable event, the Corporation will satisfy such obligations as provided above in clause (3) of this paragraph.
To avoid negative accounting treatment, the Corporation may withhold or account for Tax-Related Items by considering applicable minimum statutory withholding amounts or other applicable withholding rates. If the obligation for Tax-Related Items is satisfied by withholding in Shares, for tax purposes, the Participant will be deemed to have been issued the full number of Shares subject to the Award, notwithstanding that a number of the Shares are held back solely for the purpose of paying the Tax-Related Items due as a result of any aspect of the Participant’s participation in the Plan.
Finally, the Participant shall pay to the Corporation or the Employer any amount of Tax-Related Items that the Corporation or the Employer may be required to withhold or account for as a result of the Participant’s participation in the Plan that cannot be satisfied by the means previously described. The Corporation may refuse to issue or deliver the Shares or the proceeds of the sale of

15




Shares if the Participant fails to comply with the Participant's obligations in connection with the Tax-Related Items.
The Administrator shall be authorized to establish such rules, forms and procedures as it deems necessary to implement the foregoing.
7.    Successors. The Award Agreements shall be binding upon and inure to the benefit of any successor or successors of the Corporation. “Participant” as used herein shall include the Participant’s Beneficiary.
8.    Delaware Law. The interpretation, performance, and enforcement of all Award Agreements shall be governed by the laws of the State of Delaware.
9.    Nature of Grant. In accepting the grant, the Participant acknowledges that:
(A)    the Plan is established voluntarily by the Corporation, it is discretionary in nature and it may be modified, amended, suspended or terminated by the Corporation at any time;
(B)    the grant of the Award is voluntary and occasional and does not create any contractual or other right to receive future Award grants, or benefits in lieu of Awards, even if Awards have been granted repeatedly in the past;
(C)    all decisions with respect to future Awards, if any, will be at the sole discretion of the Corporation;
(D)    the Participant is voluntarily participating in the Plan;
(E)    the Award is not part of normal or expected compensation for any purpose, including, but not limited to, calculating any severance, resignation, termination, redundancy, dismissal, end of service payments, bonuses, long-service awards, pension or retirement benefits or similar payments;
(F)    the Award will not be interpreted to form an employment contract or relationship with the Corporation; and furthermore, the Award will not be interpreted to form an employment contract with any subsidiary or Affiliate of the Corporation;
(G)    the future value of the underlying Shares is unknown, indeterminable and cannot be predicted with certainty;
(H)    if the underlying Shares do not increase in value, the Options will have no value;
(I)    in consideration of the grant of the Award, no claim or entitlement to compensation or damages shall arise from forfeiture of the Award which results from termination of the Participant’s employment with the Employer or the Corporation or one of its Affiliates (for any reason whatsoever) and the Participant irrevocably releases the Corporation or its Affiliates from any such claim that may arise; if, notwithstanding the foregoing, any such claim is found by

16




a court of competent jurisdiction to have arisen, then, by accepting the Award, the Participant shall be deemed irrevocably to have waived the Participant's entitlement to pursue such claim;
(J)    for purposes of an Award, the Participant’s employment relationship will be considered terminated as of the date the Participant is no longer a bona fide employee of the Corporation or one of its Affiliates (regardless of the reason for such termination and whether or not later found to be invalid or in breach of the employment laws in the jurisdiction where the Participant is employed or the terms of the Participant’s employment agreement, if any), and unless otherwise expressly provided in this Award Agreement or determined by the Corporation in its sole discretion, the Participant’s right to receive Awards and vest in Awards under the Plan, if any, will terminate effective as of such date and will not be extended by any notice period mandated under local law; similarly, any right to exercise Options under the Plan after termination of employment will be measured as of the date the Participant is no longer a bona fide employee of the Corporation or one of its Affiliates and will not be extended by any notice period mandated under local law; the Administrator shall have the sole discretion to determine when the Participant is no longer a bona fide employee;
(K)    the Corporation is not providing any tax, legal or financial advice, nor is the Corporation making any recommendations regarding participation in the Plan or the Participant’s acquisition or sale of Shares; and
(L)    Participant is hereby advised to consult with the Participant's own personal tax, legal and financial advisors regarding Participant’s participation in the Plan before taking any action related to the Plan.
10.    Data Privacy. By accepting the Award, the Participant hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of the Participant's personal data as described in this document by and among, as applicable, the Employer and the Corporation and its Affiliates for the exclusive purpose of implementing, administering and managing participation in the Plan.
The Participant understands that the Corporation and the Employer hold certain personal information about the Participant, including, but not limited, the Participant's name, home address and telephone number, date of birth, social insurance or other identification number, salary, nationality, job title, any Shares or directorships held in the Corporation, details of all Options, Restricted Stock, Restricted Stock Units, Performance Shares, Other Share-Based Awards, or any other entitlement to Shares awarded, canceled, exercised, vested, unvested or outstanding in the Participant’s favor, for the purpose of implementing, administering and managing the Plan (“Data”). The Participant understands that Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that recipients of Data may be located in the United States or elsewhere, and that the recipient’s country may have different data privacy laws and protections than the Participant’s country. The Participant understands that if the Participant resides outside of the United States, the Participant may request a list with the names and addresses of any potential recipients of the Data by contacting the local human resources representative. The Participant authorizes the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing participation in the

17




Plan, including any requisite transfer of such Data as may be required to a broker or other third party with whom the Participant may elect to deposit any Shares acquired under the Plan. The Participant understands that Data will be held only as long as is necessary to implement, administer and manage the Participant's participation in the Plan. The Participant understands that if the Participant resides outside of the United States, the Participant may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, without cost, by contacting in writing the local human resources representative. Further, the Participant understands that the Participant is providing the consents herein on a purely voluntary basis. If the Participant does not consent, or if the Participant later seeks to revoke the Participant's consent, the Participant’s employment status or service and career with the Employer will not be adversely affected; the only adverse consequence of refusing or withdrawing the Participant's consent is that the Corporation would not be able to grant the Participant Awards or administer or maintain such Awards. Therefore, the Participant understands that refusing or withdrawing consent may affect the Participant's ability to participate in the Plan. For more information on the consequences of refusal to consent or withdrawal of consent, the Participant understands that the Participant may contact the local human resources representative.
11.    Severability. The provisions in this Statement of Terms and Conditions are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.
12.    Language. If the Participant has received this Statement of Terms and Conditions or any other document related to the Plan translated into a language other than English and if the meaning of the translated version is different than the English version, the English version will control.
13.    Electronic Delivery. The Corporation may, in its sole discretion, decide to deliver any documents related to current or future participation in the Plan by electronic means. The Participant hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by the Corporation or a third party designated by the Corporation.
14.    Employment Agreement. Notwithstanding any provision contained in these Statement of Terms and Conditions, the Plan or the Grant Notice to the contrary, if there is a conflict between Statement of Terms and Conditions, the Plan or the Grant Notice and the employment agreement by and between the Participant and the Corporation, as amended from time to time (the “Employment Agreement”), then the Employment Agreement shall govern.
15.    Section 409A. If (i) the Participant is a Specified Employee at the time of the Participant’s Separation from Service, and (ii) some or any portion of the amounts payable to the Participant, if any, when considered together with any other payments or benefits which may be considered deferred compensation under section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”) and subject to the plan aggregation rules under Treasury Regulation section 1.409A-1(c)(3)(viii) (together, the “Deferred Compensation Benefits”) would result in the imposition of additional tax under Section 409A if paid to the Participant on or within the six month

18




period following the Separation from Service, then to the extent such portion of the Deferred Compensation Benefits resulting in the imposition of additional tax would otherwise have been payable on or within the first six months following the Separation from Service, it will instead become payable on the first payroll date that occurs in the seventh month following the Separation from Service (or such longer period as is required to avoid the imposition of additional tax under Section 409A). All subsequent Deferred Compensation Separation Benefits, if any, will be payable in accordance with the payment schedule applicable to each payment or benefit.
IX.
DEFINITIONS
When capitalized in this Statement of Terms and Conditions, the following terms shall have the meaning set forth below:
1.    “Award Agreement” means an agreement between the Participant and the Corporation evidencing the grant of an Option, Restricted Stock Award, Restricted Stock Award, Performance Shares or Other Share-Based Award, as applicable.
2.    “Cause” means termination of the Participant’s employment with the Corporation or an Affiliate upon the Participant’s negligent or willful engagement in misconduct which, in the sole determination of the Board (or its designee), is injurious to the Corporation, its employees, or its customers.
3.    “Early Retirement” means a termination of employment which occurs prior to Normal Retirement but on or after the date on which the Participant’s age (expressed in terms of years and completed months) plus service with the Corporation or an Affiliate equals 65. For purposes of determining eligibility for Early Retirement, the term “service” shall include years and completed whole months of service.
4.    “Family Member” means any person identified as an “immediate family” member in Rule 16(a)‑1(e) of the Exchange Act, as such Rule may be amended from time to time. Notwithstanding the foregoing, the Administrator may designate any other person(s) or entity(ies) as a “family member.”
5.    “Good Reason” means any of the following actions, if taken without the express written consent of the Participant, which shall not be affected by the Participant’s incapacity due to physical or mental illness:
(A)    Any material change by the Corporation in the Participant’s functions, duties or responsibilities as President and Chief Executive Officer, which change would cause the Participant’s position with the Corporation to become of less dignity, responsibility, importance, or scope as compared to the position and attributes that applied to the Participant immediately prior to the Change in Control, or an adverse change in the Participant’s title, position or the Participant’s obligation and right to report directly to the Board, provided, however that Good Reason shall not be deemed to exist if the Participant ceases to serve as Chairman;

19




(B)    Any reduction in the Participant’s base annual salary, MIP target or Long Term Incentive compensation (LTI) targets, which LTI targets include cash awards with performance periods greater than one year and equity based grants, except for reductions that are equivalent to reductions applicable to executive officers of the Corporation;
(C)    Any material failure by the Corporation to comply with any of the provisions of an award (or of any employment agreement between the parties) subsequent to a Change in Control;
(D)    The Corporation’s requiring the Participant to be based at any office or location more than 25 miles from the office at which the Participant is based on the date immediately preceding the Change in Control, except for travel reasonably required in the performance of the Participant’s responsibilities;
(E)    Cancellation of the automatic renewal mechanism set forth in the Participant’s employment agreement;
(F)    If the Board removes the Participant as Chairman at or after a Change in Control (or prior to a Change in Control if at the request of any third party participating in or causing the Change in Control), unless such removal is required by then‑applicable law; or
(G)    A change in the majority of the members of the Board as it was construed immediately prior to the Change in Control;
Provided that the Participant gives notice to the Corporation of the existence of the Good Reason condition within 30 days of the initial existence of the Good Reason condition and the Corporation is provided 30 days after receipt of the Participant’s notice to remedy the Good Reason condition; provided further that the Participant’s Separation from Service must occur within six months from the initial existence of the Good Reason condition if the Corporation does not remedy such condition for such separation to be considered to be for Good Reason.
6.    “Expiration Date” means the date that an Option expires as set forth in the Option Grant Notice as the “Expiration Date.”
7.    “Grant Date” means the date the Administrator grants the Award.
8.    “Grant Notice” means the notice of an Award granted to the Participant, which sets forth certain terms of such Award.
9.    “Long‑Term Disability” means a physical or mental condition in respect of which the administrator of the Corporation’s long-term disability plan has determined that the Participant is eligible to receive income replacement benefits; or, if the Participant is not then a participant in the Corporation’s long-term disability plan, a physical or mental condition that the administrator of the Corporation’s long-term disability plan determines would have rendered the Participant eligible to receive income replacement benefits, had the Participant been enrolled in such plan.


20




10.    “Normal Retirement” means retirement at age 60 (57, in the case of a participant in the McKesson Corporation 1984 Executive Benefit Retirement Plan) with at least 10 years of service with the Corporation or an Affiliate. For purposes of determining eligibility for Normal Retirement, “service” shall mean completed whole years of service (12 consecutive months).
11.    “Option Period” means the period commencing on the Grant Date of an Option and, except at otherwise provided in Section II.5, ending on the Expiration Date.
12.    “Separation from Service” means termination of employment with the Corporation or an affiliate. A Participant shall be deemed to have had a Separation from Service if the Participant’s service with the Corporation or an affiliate is reduced to an annual rate that is equal to or less than 20% of the services rendered, on average, during the immediately preceding three years of service with the Corporation or an affiliate (or, if providing service to the Corporation or an affiliate for less than three years, such lesser period).
13.    “Short‑Term Disability” means short‑term disability as defined in the Corporation’s short‑term disability plan.
14.    “Specified Employee” means those employees identified by the Corporation as "Specified Employees" for purposes of Section 409A of the Code.
15.    “Stock Ownership Policy” means the Corporation’s Stock Ownership Policy, as amended from time to time, which can be found on McKNet. A Participant or a Participant’s beneficiary may also request a copy of the Stock Ownership Policy by writing to the Corporate Secretary at McKesson Corporation, One Post Street, San Francisco, CA 94104.


21

EXECUTIVE COMMITTEE OTHER THAN THE CEO



McKESSON CORPORATION
STATEMENT OF TERMS AND CONDITIONS APPLICABLE TO
OPTIONS, RESTRICTED STOCK, RESTRICTED STOCK UNITS,
PERFORMANCE SHARES AND TSR UNIT AWARDS GRANTED TO
EXECUTIVE COMMITTEE MEMBERS PURSUANT TO THE 2013 STOCK PLAN
Effective for Grants Beginning May 26, 2015
I.
INTRODUCTION
The following terms and conditions shall apply to an Award granted under the Plan and are subject to the terms and conditions of the Plan. This Statement of Terms and Conditions is intended to meet the requirements of Code Section 409A and any rules promulgated thereunder. In the event of any inconsistency between this Statement of Terms and Conditions and the Plan, the Plan shall govern. Capitalized terms not otherwise defined in this Statement of Terms and Conditions shall have the meaning set forth in the Plan.
II.
OPTIONS
1.    Option Agreement. An Option granted under the Plan shall be evidenced by an Option Agreement setting forth the terms and conditions of the Option, including whether the Option is an Incentive Stock Option or a Nonstatutory Stock Option and the number of Shares subject to the Option. Each Stock Option Grant Notice shall incorporate by reference and be subject to this Statement of Terms and Conditions, including the special terms and conditions in the Appendix for the Participant’s country (if any) which forms part of this Statement of Terms and Conditions, and together both documents shall constitute the Option Agreement. The Option is also subject to the terms and conditions of the Plan.
2.    Exercise Price. The Exercise Price of an Option, as specified in the Option Agreement, shall be equal to or greater than the Fair Market Value of the Shares underlying the Option on the Grant Date.
3.    Option Period. An Option shall be exercisable only during the applicable Option Period, and during such Option Period the exercisability of the Option shall be subject to the vesting provisions of Section II.4 as modified by the rules set forth in Sections II.5 and V. The Option Period shall be not more than seven years from the Grant Date.
4.    Vesting of Right to Exercise Options.
(A)    Except as provided in Sections II.5 and V, an Option shall be exercisable during the Option Period in accordance with the following vesting schedule:  (i) 25% of the Shares subject to the Option shall vest on the first anniversary of the Grant Date; (ii) an additional 25% of the Shares shall vest on the second anniversary of the Grant Date; (iii) an additional 25% of the Shares shall vest on the third anniversary of the Grant Date; and (iv) the remaining 25% of the Shares subject to the Option shall vest on the fourth anniversary of the Grant Date. Notwithstanding

2013 Stock Plan STC (Exec Comm)




the foregoing, the Administrator may specify a different vesting schedule at the time the Option is granted, which will be specified in the Option Grant Notice.
(B)    Any vested portion of an Option not exercised hereunder shall accumulate and be exercisable at any time on or before the Expiration Date, subject to the rules set forth in Sections II.5 and V. No Option may be exercised for less than 5% of the total number of Shares then available for exercise under such Option. In no event shall the Corporation be required to issue fractional Shares.
5.    Limits on Option Period and Acceleration of Vesting. The Option Period may end before the Expiration Date, and in certain circumstances the vesting schedule of an Option may be accelerated (subject to the provisions of Section V), as follows:
(A)    If a Participant ceases to be a bona fide employee of the Corporation or of its Affiliates during the Option Period for reasons other than for Cause, Long-Term Disability, Normal Retirement, Early Retirement or death, the Option Period shall end on the earlier of (x) 90 days after the date of the Participant’s termination of employment and (y) the Expiration Date, and in all cases the Option shall be exercisable only to the extent that it was exercisable under the provisions of the foregoing Section II.4 at the time of such termination of employment. If a Participant is absent from work with the Corporation or an Affiliate because of the Participant's Short-Term Disability or because the Participant is on an approved leave of absence, the Participant shall not be deemed during the period of any such absence, by virtue of such absence alone, to have terminated employment with the Corporation or an Affiliate except as the Administrator may otherwise expressly determine.
(B)    If a Participant’s employment is terminated for Cause during the Option Period, the Option Period shall end on the date of such termination of employment and the Option shall thereupon not be exercisable to any extent whatsoever.
(C)    If a Participant ceases to be a bona fide employee of the Corporation or of its Affiliates due to Long-Term Disability during the Option Period, the vesting schedule of the Participant’s Option shall be accelerated, the Option shall become fully exercisable and the Option Period shall end on the earlier of (x) three years after the date of the Participant’s termination of employment and (y) the Expiration Date.
(D)    If a Participant ceases to be a bona fide employee of the Corporation or of its Affiliates during the Option Period by reason of Early Retirement, (i) the Option shall be exercisable only to the extent that it was exercisable under the provisions of the foregoing Section II.4 at the time of such retirement and (ii) the Option Period for that portion of the Option designated as a Nonstatutory Stock Option shall end on the earlier of (x) three years after the date of such retirement and (y) the Expiration Date.
(E)    If a Participant ceases to be a bona fide employee of the Corporation or of its Affiliates during the Option Period by reason of Normal Retirement:

2


(i)    If such Normal Retirement occurs prior to the first anniversary of the Grant Date of the Option, such Option shall be subject to the provisions of Section II.5(D) as though the Participant were eligible for Early Retirement; and
(ii)    If such Normal Retirement occurs on or after the first anniversary of the Grant Date of an Option, (i) the Option shall continue to vest as set forth in the foregoing Section II.4 as though the Participant had continued to be employed by the Corporation or one of its Affiliates during such vesting period, and (ii) the Option Period shall end on the Expiration Date.
(F)    If a Participant should die (i) while in the employ of the Corporation or an Affiliate and (ii) during the Option Period, the vesting schedule of the Participant’s Option shall be accelerated and the Option shall become fully exercisable, the Option Period shall end on the earlier of (x) three years after the date of death and (y) the Expiration Date, and the Participant’s Beneficiary may exercise the entire unexercised portion of the then exercisable Shares covered by such Option (or any lesser amount) remaining on the date of death.
(G)    If a Participant who ceases to be a bona fide employee of the Corporation or an Affiliate is subsequently rehired prior to the expiration of the Participant's Option, then the Option shall continue to remain outstanding until the earlier of (x) such time as the Participant subsequently terminates employment and (y) the Expiration Date. Upon the Participant’s subsequent termination of employment, the post-termination exercise period calculated pursuant to the terms and conditions of this Section II.5 shall be reduced by the number of days between the date of the Participant’s initial termination of employment and the Participant's re-hire date; provided, however, that if the rehired Participant continues to be employed by the Corporation or an Affiliate for at least one year from the Participant's rehire date, then the post termination exercise period for the Option shall be determined in accordance with Sections II.5(A) through (F) and shall not be adjusted as described in this Section II.5(G).
6.    Method of Exercise. A Participant may exercise an Option with respect to all or any part of the exercisable Shares as follows:
(A)    By giving the Corporation, or its authorized representative designated for this purpose, written notice of such exercise specifying the number of Shares as to which the Option is so exercised. Such notice shall be accompanied by an amount equal to the Exercise Price multiplied by the number of Shares exercised, in the form of any one or combination of the following:  cash or a certified check, bank draft, postal or express money order payable to the order of the Corporation in lawful money of the United States. Unless otherwise determined by the Administrator in its sole discretion, the Participant may pay the Exercise Price, in whole or in part, by tendering to the Corporation or its authorized representative Shares, which have been owned by the Participant for at least six months prior to said tender, and having a fair market value, as determined by the Corporation, equal to the Exercise Price, or in lieu of the delivery of actual Shares in such tender, the Corporation may accept an attestation by the Participant, in a form prescribed by the Corporation or its authorized representative, that the Participant owns sufficient Shares of record or in an account in street name to satisfy the Exercise Price, and such attestation will be deemed a tender of Shares for purposes of this method of exercise. The Corporation or its authorized representative may accept

3


payment of the amount due upon the exercise of the Option in the form of a Participant’s personal check. Payment may also be made by delivery (including by FAX transmission) to the Corporation or its authorized representative of an executed irrevocable Option exercise form together with irrevocable instructions to an approved registered investment broker to sell Shares in an amount sufficient to pay the Exercise Price plus any applicable Tax-Related Items (as defined in Section VIII.6) and to transfer the proceeds of such sale to the Corporation.
(B)    If required by the Corporation, by giving satisfactory assurance in writing, signed by the Participant, the Participant shall give the Participant's assurance that the Shares subject to the Option are being purchased for investment and not with a view to the distribution thereof; provided that such assurance shall be deemed inapplicable to (1) any sale of the Shares by such Participant made in accordance with the terms of a registration statement covering such sale, which has heretofore been (or may hereafter be) filed and become effective under the U.S. Securities Act of 1933, as amended (the “Securities Act”) and with respect to which no stop order suspending the effectiveness thereof has been issued, and (2) any other sale of the Shares with respect to which, in the opinion of counsel for the Corporation, such assurance is not required to be given in order to comply with the provisions of the Securities Act.
(C)    As soon as practicable after receipt of the notice and the assurance described in Sections II.6(A) and (B), the Corporation shall, without transfer or issue tax (except for withholding tax arrangements contemplated in Section VIII.6) and without other incidental expense to the Participant, credit the purchased Shares to the Participant’s brokerage account of record. If the Participant does not have a brokerage account of record, then the Corporation shall cause an appropriate book entry to be entered in the records of the Corporation’s transfer agent recording the Participant’s unrestricted interest in the purchased Shares; provided, however, that the time of such delivery may be postponed by the Corporation for such period as may be required for it with reasonable diligence to comply with applicable registration requirements under the Securities Act, the Exchange Act, any applicable listing requirements of any national securities exchange and requirements under any other law or regulation applicable to the issuance or transfer of the Shares.
7.    Limitations on Transfer. An Option shall, during a Participant’s lifetime, be exercisable only by the Participant. No Option or any right granted thereunder shall be transferable by the Participant by operation of law or otherwise, other than by will or the laws of descent and distribution. Notwithstanding the foregoing: (i) a Participant may designate a beneficiary to succeed, after the Participant’s death, to all of the Participant’s Options outstanding on the date of death; (ii) a Nonstatutory Stock Option may be transferable pursuant to a qualified domestic relations order as defined in the Code or Title I of the U.S. Employee Retirement Income Security Act; and (iii) any Participant, who is a senior executive officer recommended by the Chief Executive Officer of the Corporation and approved by the Administrator may voluntarily transfer any Nonstatutory Stock Option to a Family Member as a gift or through a transfer to an entity in which more than 50% of the voting interests are owned by Family Members (or the Participant) in exchange for an interest in that entity. In the event of any attempt by a Participant to alienate, assign, pledge, hypothecate, or otherwise dispose of an Option or of any right thereunder, except as provided herein, or in the event of the levy of any attachment, execution, or similar process upon the rights or interest

4


hereby conferred, the Corporation at its election may terminate the affected Option by notice to the Participant and the Option shall thereupon become null and void.
8.    No Stockholder Rights. Neither a Participant nor any person entitled to exercise a Participant’s rights in the event of the Participant’s death shall have any of the rights of a stockholder with respect to the Shares subject to an Option except to the extent that a book entry has been entered in the records of the Corporation’s transfer agent with respect to such Shares upon the exercise of an Option.
III.
RESTRICTED STOCK
1.    Restricted Stock Agreement. A Restricted Stock Award granted under the Plan shall be evidenced by a Restricted Stock Agreement to be executed by the Participant and the Corporation setting forth the terms and conditions of the Restricted Stock Award. Each Restricted Stock Grant Notice shall incorporate by reference and be subject to this Statement of Terms and Conditions, including the special terms and conditions in the Appendix for the Participant’s country (if any) which forms part of this Statement of Terms and Conditions, and together both documents shall constitute the Restricted Stock Agreement. The Restricted Stock Award is also subject to the terms and conditions of the Plan.
2.    Rights with Respect to Shares of Restricted Stock. Upon written acceptance of a Restricted Stock Award by a Participant, including the restrictions and other terms and conditions described in the Plan and the Restricted Stock Agreement, the Corporation shall cause an appropriate book entry to be entered in the records of the Corporation’s transfer agent recording the Participant’s interest in the Restricted Stock. From and after the Grant Date, the Participant shall have the rights of Common Stock ownership, including the right to vote and to receive dividends on Shares of Restricted Stock, subject to the terms, conditions and restrictions described in the Plan and the Restricted Stock Agreement.
3.    Special Restrictions. Each Restricted Stock Award made under the Plan shall be subject to the following terms, conditions and restrictions and such additional terms, conditions and restrictions as may be determined by the Administrator; provided, however, that no Restricted Stock grant shall be subject to additional terms, conditions and restrictions which are more favorable to a Participant than the terms, conditions and restrictions set forth elsewhere in the Plan or the Restricted Stock Agreement.
(A)    Restrictions. Until the restrictions imposed on any Restricted Stock grant shall lapse (the “Restriction Period”), Shares of Restricted Stock granted to a Participant (i) shall not be sold, assigned, transferred, pledged, hypothecated, or otherwise disposed of, other than pursuant to a qualified domestic relations order as defined in the Code or Title I of the U.S. Employee Retirement Income Security Act and (ii) shall, if the Participant’s continuous employment with the Corporation or any of its Affiliates shall terminate for any reason (except as otherwise provided in the Plan or in Section III.3(B)) be returned to the Corporation forthwith, and all the rights of the Participant to such Shares shall immediately terminate. If a Participant is absent from work with the Corporation or an Affiliate because of the Participant's Short‑Term Disability or because the Participant is on an approved leave of absence, the Participant shall not be deemed during the period

5


of any such absence, by virtue of such absence alone, to have terminated employment with the Corporation or an Affiliate except as the Administrator may otherwise expressly determine.
(B)    Termination of Employment by Reason of Death, Long-Term Disability or Normal Retirement. Notwithstanding any provision contained herein or in the Plan or the Restricted Stock Agreement to the contrary, if a Participant who has been in the continuous employment of the Corporation or any of its Affiliates since the Grant Date of a Restricted Stock Award ceases to be a bona fide employee of the Corporation or an Affiliate as a result of:
(i)    Death or Long-Term Disability, then the restrictions imposed on any Restricted Stock Award shall lapse as to all Shares granted to such Participant pursuant to such Restricted Stock Award on the date of such termination; or
(ii)    Normal Retirement on or after the first anniversary of the Grant Date of any time-based vesting Restricted Stock Award, the restrictions applicable to such Restricted Stock Award shall continue to lapse at such time(s) as are set forth in the applicable Grant Notice, as though the Participant had continued to be employed by the Corporation or one of its Affiliates during such restricted period; provided, that notwithstanding any other provision of the Plan or this Statement of Terms and Conditions, this Section III.3(B)(ii) shall not apply to any Restricted Stock Award the vesting of which is based, in whole or in part, on attainment of performance objectives. The procedures set forth in Section VIII.6 will be applied for any taxes due upon the lapse of restriction imposed on a Restricted Stock Award due to a Participant’s Normal Retirement eligibility.
(C)    Restriction on Sale. The Administrator reserves the right to impose a restriction on the sale of Shares that the Participant receives upon the vesting and settlement of a Restricted Stock Award, unless the Participant has satisfied the ownership targets applicable to the Participant as provided in the Stock Ownership Policy.
4.    Dividends. Cash dividends paid with respect to Restricted Stock during the Restriction Period shall be credited on behalf of the Participant to a deferred cash account (in a manner designed to comply with Code Section 409A) and the restrictions on such cash dividends shall lapse at the same time that the restrictions lapse on the associated Restricted Stock Award. Stock dividends paid with respect to Restricted Stock during the Restriction Period shall be treated as Restricted Stock which shall be subject to the same restrictions as the original award for the duration of the Restriction Period.
5.    Election to Recognize Gross Income in the Year of Grant. If any Participant validly elects within 30 days of the Grant Date, to include in gross income for federal income tax purposes an amount equal to the fair market value of the Shares of Restricted Stock granted on the Grant Date, such Participant shall (at the same time or prior to the date that the Participant files the Participant's election with the Internal Revenue Service) (A) pay to the Corporation, or make arrangements satisfactory to the Administrator to pay to the Corporation in the year of such grant, any federal, state or local taxes required to be withheld with respect to such Shares in accordance with Section VIII.6 and (B) provide the Administrator with a copy of the election filed with the Internal Revenue Service.

6


6.    Restrictive Legend. Each book entry in the records of the Corporation’s transfer agent evidencing Shares granted pursuant to a Restricted Stock grant may bear an appropriate legend referring to the terms, conditions and restrictions described in the Plan and/or the Restricted Stock Agreement.
7.    Expiration of Restriction Period. If and when the Restriction Period applicable to the Restricted Stock expires without a prior forfeiture, Shares shall be credited to the Participant’s brokerage account of record. If the Participant does not have a brokerage account of record, then an appropriate book entry recording the Participant’s interest in the unrestricted Shares shall be entered on the records of the Corporation’s transfer agent.
IV.
RESTRICTED STOCK UNITS AND PERFORMANCE SHARES
1.    Award Agreement.
(A)    Restricted Stock Units granted under the Plan shall be evidenced by a Restricted Stock Unit Agreement to be executed by the Participant and the Corporation setting forth the terms and conditions of the Restricted Stock Units. Each Restricted Stock Unit Grant Notice shall incorporate by reference and be subject to this Statement of Terms and Conditions, including the special terms and conditions in the Appendix for the Participant’s country (if any) which forms part of this Statement of Terms and Conditions, and together both documents shall constitute the Restricted Stock Unit Agreement. The Restricted Stock Units are also subject to the terms and conditions of the Plan.
(B)    Performance Shares granted under the Plan shall be evidenced by a Performance Share Agreement to be executed by the Participant and the Corporation setting forth the terms and conditions of the Performance Shares. Each Performance Share Grant Notice shall incorporate by reference and be subject to this Statement of Terms and Conditions, including the special terms and conditions in the Appendix for the Participant’s country (if any) which forms part of this Statement of Terms and Conditions, and together both documents shall constitute the Performance Share Agreement. Performance Shares are also subject to the terms and conditions of the Plan.
2.    Special Restrictions. Restricted Stock Units and Performance Shares granted under the Plan shall be subject to the following terms, conditions and restrictions and such additional terms, conditions and restrictions as may be determined by the Administrator, consistent with the terms of the Plan.
(A)    Restrictions. If a Participant ceases to be a bona fide employee of the Corporation or any Affiliate (except as otherwise provided in the Plan or in Section IV.2(B)) prior to the lapse of the restrictions imposed on the Award, the unvested Restricted Stock Units or Performance Shares shall be canceled, and all the rights of the Participant to such Awards shall immediately terminate. If a Participant is absent from work with the Corporation or an Affiliate because of the Participant's Short-Term Disability or because the Participant is on an approved leave of absence, the Participant shall not be deemed during the period of any such absence, by virtue of

7


such absence alone, to have terminated employment with the Corporation or an Affiliate except as the Administrator may otherwise expressly determine.
(B)    Termination of Employment by Reason of Death, Long-Term Disability or Normal Retirement. Notwithstanding any provision contained herein or in the Plan, the Restricted Stock Unit Agreement or Performance Share Agreement to the contrary, if a Participant who has been in the continuous employment of the Corporation or any of its Affiliates since the Grant Date of such Award ceases to be a bona fide employee of the Corporation or an Affiliate as a result of:
(i)    Death or Long-Term Disability, then the restrictions imposed on any Award of Restricted Stock Units or Performance Shares shall lapse on the date of such termination; or
(ii)    Normal Retirement on or after the first anniversary of the Grant Date of any time-based vesting Restricted Stock Units, the restrictions applicable to such Restricted Stock Units shall continue to lapse at such time(s) as are set forth in the applicable Grant Notice, as though the Participant had continued to be employed by the Corporation or one of its Affiliates during such restricted period; provided, that notwithstanding any other provision of the Plan or this Statement of Terms and Conditions, this Section IV.2(B)(ii) shall not apply to any Performance Shares or any Restricted Stock Units the vesting of which is based, in whole or in part, on attainment of performance objectives.
(C)    Restriction on Sale. The Compensation Committee reserves the right to impose a restriction on the sale of Shares that the Participant receives upon the settlement of Restricted Stock Units or Performance Shares, unless the Participant has satisfied the ownership targets applicable to the Participant as provided in the Stock Ownership Policy.
3.    Dividend Equivalents. Subject to the discretion of the Compensation Committee, dividend equivalents shall be credited in respect of Restricted Stock Units and Performance Shares. Cash dividends shall be credited on behalf of the Participant to a deferred cash account (in a manner designed to comply with Code Section 409A) and the restrictions on such cash dividends shall lapse at the same time that the restrictions lapse on the associated Award of Restricted Stock Units or Performance Shares (as applicable), and cash dividends, along with accrued interest (if any) on such cash dividends, shall be paid in a lump sum at the same time that the Shares underlying the Restricted Stock Unit or Performance Share Award, and to which the cash dividends relate, are distributed. Stock dividends shall be converted into additional Restricted Stock Units or Performance Shares, which will be subject to all of the terms and conditions of the underlying Restricted Stock Units or Performance Shares, including the same vesting restrictions as the underlying Award.
4.    Assignability. A Participant shall not be permitted to sell, transfer, pledge, assign or encumber Restricted Stock Units or Performance Shares, other than pursuant to a qualified domestic relations order as defined in the Code or Title I of the U.S. Employee Retirement Income Security Act.

8


5.    No Stockholder Rights. Neither a Participant nor any person entitled to exercise a Participant’s rights in the event of the Participant’s death shall have any of the rights of a stockholder with respect to an Award of Restricted Stock Units or Performance Shares except to the extent that a book entry has been entered in the records of the Corporation’s transfer agent with respect to the Shares paid upon the settlement of any vested Restricted Stock Units or Performance Shares.
6.    Time of Payment of Restricted Stock Units and Performance Shares. Upon the lapse of the restriction imposed on Restricted Stock Units or Performance Shares, all Restricted Stock Units and Performance Shares that were not forfeited pursuant to Section IV.2(A) or V shall be paid to the Participant as soon as reasonably practicable after the restrictions lapse. Payment shall be made in Shares to the Participant’s brokerage account of record. If the Participant does not have a brokerage account of record, then in the form of an appropriate book entry entered in the records of the Corporation’s transfer agent recording the Participant’s unrestricted interest in the number of Shares subject to the Restricted Stock Units or Performance Shares.
Notwithstanding the foregoing, if a Participant becomes eligible for Normal Retirement prior to the date of the lapse of restrictions imposed on Restricted Stock Units and the vesting provisions of Section IV.2(B)(ii) apply, then such Restricted Stock Units shall be paid to the Participant’s brokerage account of record as soon as reasonably practicable after the originally scheduled vesting date and in any event before the end of the calendar year in which such date occurs, subject to the delay of payment (if applicable) provided in Section VIII.14. The procedures set forth in Section VIII.6 will be applied for any taxes due upon the lapse of restrictions imposed on a Restricted Stock Award due to a Participant’s Normal Retirement eligibility.
V.
TOTAL SHAREHOLDER RETURN (“TSR”) UNIT AWARDS
1.    Award Agreement. TSR Unit Awards shall be evidenced by a TSR Unit Target Award Notification to be executed by the Participant and the Corporation setting forth the terms and conditions of the TSR Unit Award. TSR Unit Awards are “Other Share-Based Awards” as provided under Section 11 of the Plan. Each TSR Unit Target Notification shall incorporate by reference and be subject to this Statement of Terms and Conditions, including the special terms and conditions in the Appendix for the Participant’s country (if any) which forms part of this Statement of Terms and Conditions, and together both documents shall constitute the TSR Unit Award Agreement. The TSR Unit Awards are also subject to the terms and conditions of the Plan.
2.    Number of Shares Granted Based on Performance. The performance period of a TSR Unit Award shall be greater than one year, and performance shall be based on such criteria as the Compensation Committee shall determine in its discretion at the beginning of the performance period. Following the end of the performance period, the Compensation Committee shall determine the extent to which the criteria have been achieved, and shall authorize the grant and issuance of Shares in respect of the TSR Unit Award.
3.    Special Conditions. TSR Unit Awards shall be subject to the following terms, conditions and restrictions and such additional terms, conditions and restrictions as may be determined by the Compensation Committee, consistent with the terms of the Plan.

9


(A)    Forfeiture. If a Participant ceases to be a bona fide employee of the Corporation or any Affiliate (except as otherwise provided in the Plan or in Section V.3(B)) prior to the end of the performance period, any then-outstanding TSR Unit Awards shall be canceled, and all the rights of the Participant to such Awards shall immediately terminate. If a Participant is absent from work with the Corporation or an Affiliate because of the Participant's Short-Term Disability or because the Participant is on an approved leave of absence, the Participant shall not be deemed during the period of any such absence, by virtue of such absence alone, to have terminated employment with the Corporation or an Affiliate except as the Compensation Committee may otherwise expressly determine.
(B)    Termination of Employment by Reason of Death, Long-Term Disability or Normal Retirement. Notwithstanding any provision contained herein or in the Plan, the TSR Unit Award Agreement to the contrary, if a Participant who has been in the continuous employment of the Corporation or any of its Affiliates since the Grant Date of such Award ceases to be a bona fide employee of the Corporation or an Affiliate as a result of:
(i)    Death or Long-Term Disability, the Participant shall be eligible to receive, following completion of the applicable performance period, an amount in cash equal to the value of a prorated portion of each such TSR Unit Award, equal to (1) the target number of TSR Units subject to such Award, multiplied by (2) the performance criteria determined by the Compensation Committee to apply to such Award, multiplied by (3) a fraction, the numerator of which is the number of whole calendar months, rounded down to the nearest whole month, during which the Participant provided Service to the Corporation or an Affiliate during the performance period applicable to such Award, and the denominator of which is the number of calendar months in such performance period; provided, that for purposes of this clause (3), “whole calendar months” shall be calculated commencing on the applicable Grant Date; provided, however, that in no event shall such amount exceed any applicable cap or limitation set forth in the TSR Unit Target Award Notification; or
(ii)    Normal Retirement on or after the first anniversary of the Grant Date, the Participant shall be eligible to receive, following completion of the applicable performance period, an amount in cash equal to the value of such TSR Unit Award, calculated as though the Participant had continued to be employed by the Corporation or one of its Affiliates during the entire performance period.
Amounts, if any, to be paid under this Section V.3(B) shall be paid in accordance with Section V.7 and, if applicable, Section VIII.14.
(C)    Restriction on Sale of Shares. The Compensation Committee reserves the right to impose a restriction on the sale of Shares that the Participant receives with respect to the settlement of a TSR Unit Award, unless the Participant has satisfied the ownership targets applicable to the Participant as provided in the Stock Ownership Policy.
4.    Dividend Equivalents. Unless otherwise determined by the Administrator in its sole discretion, Dividend Equivalents shall not be accrued with respect to TSR Unit Awards during the performance period.

10


5.    Assignability. A Participant shall not be permitted to sell, transfer, pledge, assign or encumber all or any portion of a TSR Unit Award.
6.    No Stockholder Rights. Neither a Participant nor any person entitled to exercise a Participant’s rights in the event of the Participant’s death shall have any of the rights of a stockholder with respect to a TSR Unit Award, except to the extent that a book entry has been entered in the records of the Corporation’s transfer agent with respect to the Shares paid upon the settlement of any TSR Unit Award.
7.    Time of Payment of TSR Unit Awards. The Compensation Committee shall determine the extent to which Shares are payable pursuant to a TSR Unit Award as soon as practicable following the end of the performance period, and such Shares shall be paid as soon as practicable thereafter and in any event no later than the end of the period under which payment would be deemed to be a “short-term deferral” as defined in the regulations under Code Section 409A. Except as provided in Section V.3(B), payment shall be made in the form of Shares to the Participant’s brokerage account of record. If the Participant does not have a brokerage account of record, then in the form of an appropriate book entry entered in the records of the Corporation’s transfer agent recording the Participant’s unrestricted interest in the number of Shares earned pursuant to the TSR Unit Award.
VI.
SPECIAL FORFEITURE AND REPAYMENT RULES
Any other provision of this Statement of Terms and Conditions to the contrary notwithstanding, if the Administrator determines that a Participant has engaged in any of the actions described in 3 below, the consequences set forth in 1 and 2 below shall result:
1.    Any outstanding Option shall immediately and automatically terminate, be forfeited and shall cease to be exercisable, without limitation. In addition, any Award of Restricted Stock, Restricted Stock Units or Performance Shares as to which the restrictions have not lapsed shall immediately and automatically be forfeited, TSR Unit Awards shall immediately and automatically be forfeited and any such Shares of Restricted Stock shall be returned to the Corporation and all of the rights of the Participant to such Awards and the underlying Shares shall immediately terminate.
2.    If the Participant exercised an Option within 12 months prior to the date upon which the Corporation discovered that the Participant engaged in any actions described in 3 below, the Participant, upon written notice from the Corporation, shall immediately pay to the Corporation the economic value realized or obtained by the exercise of such Option measured at the date of exercise. In addition, if the restrictions imposed on any Award of Restricted Stock, Restricted Stock Units or Performance Shares (including any unpaid dividends or Dividend Equivalents) lapsed, or any TSR Unit Award was settled, within 12 months prior to the date the Corporation discovered that the Participant engaged in any action described in 3 below, the Participant, upon written notice from the Corporation, shall immediately pay to the Corporation the economic value realized or obtained with respect to such Award, measured at the date such Award vested.
3.    The consequences described in 1 and 2 above shall apply if the Participant, either before or after termination of employment with the Corporation or its Affiliates:

11


(A)    Discloses to others, or takes or uses for the Participant’s own purpose or the purpose of others, any trade secrets, confidential information, knowledge, data or know‑how or any other proprietary information or intellectual property belonging to the Corporation or its Affiliates and obtained by the Participant during the term of the Participant’s employment, whether or not they are the Participant’s work product. Examples of such confidential information or trade secrets include, without limitation, customer lists, supplier lists, pricing and cost data, computer programs, delivery routes, advertising plans, wage and salary data, financial information, research and development plans, processes, equipment, product information and all other types and categories of information as to which the Participant knows or has reason to know that the Corporation or its Affiliates intends or expects secrecy to be maintained;
(B)    Fails to promptly return all documents and other tangible items belonging to the Corporation or its Affiliates in the Participant’s possession or control, including all complete or partial copies, recordings, abstracts, notes or reproductions of any kind made from or about such documents or information contained therein, upon termination of employment, whether pursuant to retirement or otherwise;
(C)    Fails to provide the Corporation with at least 30 days’ written notice prior to directly or indirectly engaging in, becoming employed by, or rendering services, advice or assistance to any business in competition with the Corporation or its Affiliates. As used herein, “business in competition” means any person, organization or enterprise which is engaged in or is about to become engaged in any line of business engaged in by the Corporation or its Affiliates at the time of the termination of the Participant’s employment with the Corporation or its Affiliates;
(D)    Fails to inform any new employer, before accepting employment, of the terms of this paragraph and of the Participant’s continuing obligation to maintain the confidentiality of the trade secrets and other confidential information belonging to the Corporation or its Affiliates and obtained by the Participant during the term of the Participant’s employment with the Corporation or any of its Affiliates;
(E)    Induces or attempts to induce, directly or indirectly, any of the customers of the Corporation or its Affiliates, employees, representatives or consultants to terminate, discontinue or cease working with or for the Corporation or its Affiliates, or to breach any contract with the Corporation or any of its Affiliates, in order to work with or for, or enter into a contract with, the Participant or any third party;
(F)    Engages in conduct which is not in good faith and which disrupts, damages, impairs or interferes with the business, reputation or employees of the Corporation or its Affiliates; or
(G)    Fails to meet the Participant’s continuing obligations with respect to non-disclosure, non-competition and/or non-solicitation under the Participant’s agreement with the Corporation or any Affiliate.

12


The Administrator shall determine in its sole discretion whether the Participant has engaged in any of the acts set forth in (A) through (G) above, and its determination shall be conclusive and binding on all interested persons.
Any provision of this Section V which is determined by a court of competent jurisdiction to be invalid or unenforceable should be construed or limited in a manner that is valid and enforceable and that comes closest to the business objectives intended by such invalid or unenforceable provision, without invalidating or rendering unenforceable the remaining provisions of this Section V.
VII.
CHANGE IN CONTROL
If as a result of a Change in Control, the Common Stock ceases to be listed for trading on a national securities exchange (an “Exchange”), any Option, Restricted Stock Award, Restricted Stock Unit Award, Performance Share Award or TSR Unit Award that is unvested on the effective date of the Change in Control shall continue to vest according to the terms and conditions of such Award, provided that such Award is replaced with an award for voting securities of the resulting corporation or the acquiring corporation, as the case may be, (including without limitation, the voting securities of any corporation which as a result of the Change in Control owns the Corporation or all or substantially all of the Corporation’s assets either directly or through one or more subsidiaries) (the “Surviving Company”) which are traded on an Exchange (a “Replacement Award”), which Replacement Award, (i) in the case of an Option, shall consist of an option with the number of underlying shares and exercise price determined in a manner consistent with Code Section 424(a) with vesting and any other terms continuing in the same manner as the replaced Option; (ii) in the case of a Performance Share Award or TSR Unit Award, shall consist of restricted stock or restricted stock units with a value (determined using the Surviving Company’s stock price as of the effective date of the Change in Control) equal to the value of the Performance Share Award or TSR Unit Award (determined using the Corporation’s stock price and assuming attainment of target performance or actual performance achieved, if greater, as of the effective date of the Change in Control), with any restrictions on such restricted stock or restricted stock units lapsing at the end of the measuring period over which performance for the replaced Performance Share Award or TSR Unit Award was to be measured prior to the granting of the Replacement Award; and (iii) in the case of a Restricted Stock Award or Restricted Stock Unit Award, shall consist of restricted stock or restricted stock units with a value (determined using the Surviving Company’s stock price as of the effective date of the Change in Control) equal to the value of the Restricted Stock Award or Restricted Stock Unit Award (determined using the Corporation’s stock price as of the effective date of the Change in Control), with any restrictions on such restricted stock or restricted stock units lapsing at the same time and manner as the replaced Award; provided, however, that in the event of the Participant’s involuntary Separation from Service by the Corporation without Cause or Separation from Service by the Participant for Good Reason during the vesting period of any Replacement Award, the Replacement Award shall immediately vest and be paid as soon as practicable following such Separation from Service (subject to Section VIII.14), based on the fair market value of the underlying shares on the vesting date, or in the case of options, based on the excess of the fair market value of the underlying shares over the option exercise price on the vesting date. If any Option, Restricted Stock Award, Restricted Stock Unit Award, Performance Share Award or TSR Unit Award that is unvested at the effective time of the Change in Control is not replaced

13


with a Replacement Award, such Award shall immediately vest and, in the case of a Performance Share Award or TSR Unit Award, shall vest based upon deemed attainment of target performance or actual performance achieved, if greater.
If as a result of a Change in Control, the Common Stock continues to be listed for trading on an Exchange, any unvested Option, Restricted Stock Award, or Restricted Stock Unit Award shall continue to vest according to the terms and conditions of such Award and any Performance Share Award or TSR Unit Award shall be replaced with a Restricted Stock Award or Restricted Stock Unit Award where the number of shares subject to such Restricted Stock Award or Restricted Stock Unit Award shall be equal to the number of Shares assuming attainment of target performance or actual performance achieved, if greater, as of the effective date of the Change in Control with any restrictions on such Restricted Stock Award or Restricted Stock Unit Award lapsing at the end of the measuring period over which performance for the replaced Performance Share Award or TSR Unit Award was to be measured prior to the granting of the replacement Award; provided however, that, in the event of the Participant’s involuntary Separation from Service by the Corporation without Cause or Separation from Service by the Participant for Good Reason during the vesting period of an Award, such Award shall immediately vest and be paid as soon as practicable following such Separation from Service (subject to Section VIII.14).
VIII.
MISCELLANEOUS
1.    No Effect on Terms of Employment. Participation in the Plan shall not create a right to further employment with the Participant’s employer (the “Employer”) and shall not interfere with the ability of the Employer to terminate, with or without cause, or change the terms of employment of a Participant at any time.
2.    Grants to Participants in Foreign Countries. In making grants to Participants in foreign countries, the Administrator has the full discretion to deviate from this Statement of Terms and Conditions in order to adjust grants under the Plan to prevailing local conditions, including custom and legal and tax requirements. Furthermore, the Corporation reserves the right to impose other requirements on the Participant’s participation in the Plan on the Award and on any Shares acquired under the Plan, to the extent the Corporation determines it is necessary or advisable in order to comply with local law or facilitate the administration of the Plan, and to require the Participant to sign any additional agreements or undertaking that may be necessary to accomplish the foregoing.
3.    Information Notification. Any information required to be given under the terms of an Award shall be addressed to the Corporation in care of its Corporate Secretary at McKesson Corporation, One Post Street, San Francisco, California 94104, and any notice to be given to a Participant shall be addressed to such Participant at the address indicated beneath the Participant's name on the Award Agreement or such other address as either party may designate in writing to the other. Any such notice shall be deemed to have been duly given when enclosed in a properly sealed envelope or wrapper addressed as aforesaid, registered or certified and deposited (postage or registration or certification fee prepaid) in a post office or branch post office.

14


4.    Administrator Decisions Conclusive. All decisions of the Administrator administering the Plan upon any questions arising under the Plan or under an Award Agreement, shall be conclusive and binding on all interested persons.
5.    No Effect on Other Benefit Plans. Nothing herein contained shall affect a Participant’s right to participate in and receive benefits from and in accordance with the then current provisions of any pensions, insurance or other employment welfare plan or program offered by the Corporation.
6.    Withholding. Regardless of any action the Corporation or the Employer takes with respect to any federal, state or local income tax, social insurance, payroll tax, payment on account or other tax-related items related to the Participant’s participation in the Plan and legally applicable to the Participant (“Tax-Related Items”), the Participant acknowledges that the ultimate liability for all Tax-Related Items is and remains the Participant's responsibility and may exceed the amount actually withheld by the Corporation or the Employer. The Participant further acknowledges that the Corporation and/or the Employer (1) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Award, including the grant, vesting or exercise of the Award, as applicable, the subsequent sale of Shares acquired pursuant to the Plan and the receipt of any dividends and/or dividend equivalents; and (2) do not commit and are under no obligation to structure the terms of the grant or any aspect of the Award to reduce or eliminate the Participant’s liability for Tax-Related Items or achieve any particular tax result. Further, if the Participant has become subject to tax in more than one jurisdiction between the Grant Date and the date of any relevant taxable event, the Participant acknowledges that the Corporation and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.
Prior to any relevant taxable or tax withholding event, as applicable, the Participant will pay or make adequate arrangements satisfactory to the Corporation and/or the Employer, or their respective agents, at their discretion, to satisfy the obligations with regard to all Tax-Related Items by one or a combination of the following: (1) withholding from the Participant’s wages or other cash compensation paid to the Participant by the Corporation and/or the Employer; (2) withholding from proceeds of the sale of Shares acquired under the Plan either through a voluntary sale or through a mandatory sale arranged by the Corporation (on the Participant’s behalf pursuant to this authorization and any other authorization the Corporation and/or the broker designated by the Corporation may require the Participant to sign in connection with the sale of Shares); or (3) withholding Shares to be issued upon grant, vesting/settlement or exercise, as applicable. Calculation of the number of Shares to be withheld shall be made based on the closing price of the Common Stock on the New York Stock Exchange on the date that the amount of tax to be withheld is determined. In no event, however, shall the Corporation be required to issue fractional Shares. With respect to an Award other than an Option, if adequate arrangements to satisfy the obligations with regard to all Tax-Related Items are not made by the Participant with the Corporation and/or the Employer prior to the relevant taxable event, the Corporation will satisfy such obligations as provided above in clause (3) of this paragraph.

15


To avoid negative accounting treatment, the Corporation may withhold or account for Tax-Related Items by considering applicable minimum statutory withholding amounts or other applicable withholding rates. If the obligation for Tax-Related Items is satisfied by withholding in Shares, for tax purposes, the Participant will be deemed to have been issued the full number of Shares subject to the Award, notwithstanding that a number of the Shares are held back solely for the purpose of paying the Tax-Related Items due as a result of any aspect of the Participant’s participation in the Plan.
Finally, the Participant shall pay to the Corporation or the Employer any amount of Tax-Related Items that the Corporation or the Employer may be required to withhold or account for as a result of the Participant’s participation in the Plan that cannot be satisfied by the means previously described. The Corporation may refuse to issue or deliver the Shares or the proceeds of the sale of Shares if the Participant fails to comply with the Participant's obligations in connection with the Tax-Related Items.
The Administrator shall be authorized to establish such rules, forms and procedures as it deems necessary to implement the foregoing.
7.    Successors. The Award Agreements shall be binding upon and inure to the benefit of any successor or successors of the Corporation. “Participant” as used herein shall include the Participant’s Beneficiary.
8.    Delaware Law. The interpretation, performance, and enforcement of all Award Agreements shall be governed by the laws of the State of Delaware.
9.    Nature of Grant. In accepting the grant, the Participant acknowledges that:
(A)    the Plan is established voluntarily by the Corporation, it is discretionary in nature and it may be modified, amended, suspended or terminated by the Corporation at any time;
(B)    the grant of the Award is voluntary and occasional and does not create any contractual or other right to receive future Award grants, or benefits in lieu of Awards, even if Awards have been granted repeatedly in the past;
(C)    all decisions with respect to future Awards, if any, will be at the sole discretion of the Corporation;
(D)    the Participant is voluntarily participating in the Plan;
(E)    the Award is not part of normal or expected compensation for any purpose, including, but not limited to, calculating any severance, resignation, termination, redundancy, dismissal, end of service payments, bonuses, long-service awards, pension or retirement benefits or similar payments;
(F)    the Award will not be interpreted to form an employment contract or relationship with the Corporation; and furthermore, the Award will not be interpreted to form an employment contract with any subsidiary or Affiliate of the Corporation;

16


(G)    the future value of the underlying Shares is unknown, indeterminable and cannot be predicted with certainty;
(H)    if the underlying Shares do not increase in value, the Options will have no value;
(I)    in consideration of the grant of the Award, no claim or entitlement to compensation or damages shall arise from forfeiture of the Award which results from termination of the Participant’s employment with the Employer or the Corporation or one of its Affiliates (for any reason whatsoever) and the Participant irrevocably releases the Corporation or its Affiliates from any such claim that may arise; if, notwithstanding the foregoing, any such claim is found by a court of competent jurisdiction to have arisen, then, by accepting the Award, the Participant shall be deemed irrevocably to have waived the Participant's entitlement to pursue such claim;
(J)    for purposes of an Award, the Participant’s employment relationship will be considered terminated as of the date the Participant is no longer a bona fide employee of the Corporation or one of its Affiliates (regardless of the reason for such termination and whether or not later found to be invalid or in breach of the employment laws in the jurisdiction where the Participant is employed or the terms of the Participant’s employment agreement, if any), and unless otherwise expressly provided in this Award Agreement or determined by the Corporation in its sole discretion, the Participant’s right to receive Awards and vest in Awards under the Plan, if any, will terminate effective as of such date and will not be extended by any notice period mandated under local law; similarly, any right to exercise Options under the Plan after termination of employment will be measured as of the date the Participant is no longer a bona fide employee of the Corporation or one of its Affiliates and will not be extended by any notice period mandated under local law; the Administrator shall have the sole discretion to determine when the Participant is no longer a bona fide employee;
(K)    the Corporation is not providing any tax, legal or financial advice, nor is the Corporation making any recommendations regarding participation in the Plan or the Participant’s acquisition or sale of Shares; and
(L)    Participant is hereby advised to consult with the Participant's own personal tax, legal and financial advisors regarding Participant’s participation in the Plan before taking any action related to the Plan.
10.    Data Privacy. By accepting the Award, the Participant hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of the Participant's personal data as described in this document by and among, as applicable, the Employer and the Corporation and its Affiliates for the exclusive purpose of implementing, administering and managing participation in the Plan.
The Participant understands that the Corporation and the Employer hold certain personal information about the Participant, including, but not limited, the Participant's name, home address and telephone number, date of birth, social insurance or other identification number, salary, nationality, job title, any Shares or directorships held in the Corporation, details of all Options,

17


Restricted Stock, Restricted Stock Units, Performance Shares, Other Share-Based Awards, or any other entitlement to Shares awarded, canceled, exercised, vested, unvested or outstanding in the Participant’s favor, for the purpose of implementing, administering and managing the Plan (“Data”). The Participant understands that Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that recipients of Data may be located in the United States or elsewhere, and that the recipient’s country may have different data privacy laws and protections than the Participant’s country. The Participant understands that if the Participant resides outside of the United States, the Participant may request a list with the names and addresses of any potential recipients of the Data by contacting the local human resources representative. The Participant authorizes the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing participation in the Plan, including any requisite transfer of such Data as may be required to a broker or other third party with whom the Participant may elect to deposit any Shares acquired under the Plan. The Participant understands that Data will be held only as long as is necessary to implement, administer and manage the Participant's participation in the Plan. The Participant understands that if the Participant resides outside of the United States, the Participant may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, without cost, by contacting in writing the local human resources representative. Further, the Participant understands that the Participant is providing the consents herein on a purely voluntary basis. If the Participant does not consent, or if the Participant later seeks to revoke the Participant's consent, the Participant’s employment status or service and career with the Employer will not be adversely affected; the only adverse consequence of refusing or withdrawing the Participant's consent is that the Corporation would not be able to grant the Participant Awards or administer or maintain such Awards. Therefore, the Participant understands that refusing or withdrawing consent may affect the Participant's ability to participate in the Plan. For more information on the consequences of refusal to consent or withdrawal of consent, the Participant understands that the Participant may contact the local human resources representative.
11.    Severability. The provisions in this Statement of Terms and Conditions are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.
12.    Language. If the Participant has received this Statement of Terms and Conditions or any other document related to the Plan translated into a language other than English and if the meaning of the translated version is different than the English version, the English version will control.
13.    Electronic Delivery. The Corporation may, in its sole discretion, decide to deliver any documents related to current or future participation in the Plan by electronic means. The Participant hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by the Corporation or a third party designated by the Corporation.

18


14.    Section 409A. If (i) the Participant is a Specified Employee at the time of the Participant’s Separation from Service, and (ii) some or any portion of the amounts payable to the Participant, if any, when considered together with any other payments or benefits which may be considered deferred compensation under section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”) and subject to the plan aggregation rules under Treasury Regulation section 1.409A-1(c)(3)(viii) (together, the “Deferred Compensation Benefits”) would result in the imposition of additional tax under Section 409A if paid to the Participant on or within the six month period following the Separation from Service, then to the extent such portion of the Deferred Compensation Benefits resulting in the imposition of additional tax would otherwise have been payable on or within the first six months following the Separation from Service, it will instead become payable on the first payroll date that occurs in the seventh month following the Separation from Service (or such longer period as is required to avoid the imposition of additional tax under Section 409A). All subsequent Deferred Compensation Separation Benefits, if any, will be payable in accordance with the payment schedule applicable to each payment or benefit.
IX.
DEFINITIONS
When capitalized in this Statement of Terms and Conditions, the following terms shall have the meaning set forth below:
1.    “Award Agreement” means an agreement between the Participant and the Corporation evidencing the grant of an Option, Restricted Stock Award, Restricted Stock Award, Performance Shares or Other Share-Based Award, as applicable.
2.    “Cause” means termination of the Participant’s employment with the Corporation or an Affiliate upon the Participant’s negligent or willful engagement in misconduct which, in the sole determination of the Chief Executive Officer of the Corporation (or the Chief Executive Officer’s designee), is injurious to the Corporation, its employees, or its customers.
3.    “Early Retirement” means a termination of employment which occurs prior to Normal Retirement but on or after the date on which the Participant’s age (expressed in terms of years and completed months) plus service with the Corporation or an Affiliate equals 65. For purposes of determining eligibility for Early Retirement, the term “service” shall include years and completed whole months of service.
4.    “Family Member” means any person identified as an “immediate family” member in Rule 16(a)‑1(e) of the Exchange Act, as such Rule may be amended from time to time. Notwithstanding the foregoing, the Administrator may designate any other person(s) or entity(ies) as a “family member.”
5.    “Good Reason” means any of the following actions, if taken without the express written consent of the Participant:
(A)    Any material change by the Corporation in the Participant’s functions, duties, or responsibilities, which change would cause the Participant’s position with the Corporation to

19


become of less dignity, responsibility, importance, or scope from the position and attributes that applied to the Participant immediately prior to the Change in Control;
(B)    Any significant reduction in the Participant’s aggregate base annual salary and target incentive opportunity, as in effect immediately prior to the Change in Control;
(C)    Any material failure by the Corporation to comply with any of the provisions of an Award subsequent to a Change in Control;
(D)    The Corporation’s requiring the Participant to be based at any location which would increase the Participant’s regular one-way commute by more than 25 miles from that in effect immediately preceding the Change in Control, except for travel reasonably required in the performance of the Participant’s responsibilities; or
(E)    Any change in the person to whom the Participant reports, as this relationship existed immediately prior to a Change in Control;
Provided that the Participant gives notice to the Corporation of the existence of the Good Reason condition within 30 days of the initial existence of the Good Reason condition and the Corporation is provided 30 days after receipt of the Participant’s notice to remedy the Good Reason condition; provided further that the Participant’s Separation from Service must occur within six months from the initial existence of the Good Reason condition if the Corporation does not remedy such condition for such separation to be considered to be for Good Reason.
6.    “Expiration Date” means the date that an Option expires as set forth in the Option Grant Notice as the “Expiration Date.”
7.    “Grant Date” means the date the Administrator grants the Award.
8.    “Grant Notice” means the notice of an Award granted to the Participant, which sets forth certain terms of such Award.
9.    “Long‑Term Disability” means a physical or mental condition in respect of which the administrator of the Corporation’s long-term disability plan has determined that the Participant is eligible to receive income replacement benefits; or, if the Participant is not then a participant in the Corporation’s long-term disability plan, a physical or mental condition that the administrator of the Corporation’s long-term disability plan determines would have rendered the Participant eligible to receive income replacement benefits, had the Participant been enrolled in such plan.
10.    “Normal Retirement” means retirement at age 60 (57, in the case of a participant in the McKesson Corporation 1984 Executive Benefit Retirement Plan) with at least 10 years of service with the Corporation or an Affiliate. For purposes of determining eligibility for Normal Retirement, “service” shall mean completed whole years of service (12 consecutive months).
11.    “Option Period” means the period commencing on the Grant Date of an Option and, except at otherwise provided in Section II.5, ending on the Expiration Date.

20


12.    “Separation from Service” means termination of employment with the Corporation or an affiliate. A Participant shall be deemed to have had a Separation from Service if the Participant’s service with the Corporation or an affiliate is reduced to an annual rate that is equal to or less than 20% of the services rendered, on average, during the immediately preceding three years of service with the Corporation or an affiliate (or, if providing service to the Corporation or an affiliate for less than three years, such lesser period).
13.    “Short-Term Disability” means short-term disability as defined in the Corporation’s short-term disability plan.
14.    “Specified Employee” means those employees identified by the Corporation as "Specified Employees" for purposes of Section 409A of the Code.
15.    “Stock Ownership Policy” means the Corporation’s Stock Ownership Policy, as amended from time to time, which can be found on McKNet. A Participant or a Participant’s beneficiary may also request a copy of the Stock Ownership Policy by writing to the Corporate Secretary at McKesson Corporation, One Post Street, San Francisco, CA 94104.


21
EMPLOYEES SUBJECT TO STOCK OWNERSHIP POLICY




McKESSON CORPORATION
STATEMENT OF TERMS AND CONDITIONS APPLICABLE TO
OPTIONS, RESTRICTED STOCK, RESTRICTED STOCK UNITS AND
PERFORMANCE SHARES GRANTED TO EMPLOYEES
SUBJECT TO STOCK OWNERSHIP POLICY PURSUANT
TO THE 2013 STOCK PLAN
Effective for Grants Beginning May 26, 2015
I.
INTRODUCTION
The following terms and conditions shall apply to an Award granted under the Plan and are subject to the terms and conditions of the Plan. This Statement of Terms and Conditions is intended to meet the requirements of Code Section 409A and any rules promulgated thereunder. In the event of any inconsistency between this Statement of Terms and Conditions and the Plan, the Plan shall govern. Capitalized terms not otherwise defined in this Statement of Terms and Conditions shall have the meaning set forth in the Plan.
II.
OPTIONS
1.    Option Agreement. An Option granted under the Plan shall be evidenced by an Option Agreement setting forth the terms and conditions of the Option, including whether the Option is an Incentive Stock Option or a Nonstatutory Stock Option and the number of Shares subject to the Option. Each Stock Option Grant Notice shall incorporate by reference and be subject to this Statement of Terms and Conditions, including the special terms and conditions in the Appendix for the Participant’s country (if any) which forms part of this Statement of Terms and Conditions, and together both documents shall constitute the Option Agreement. The Option is also subject to the terms and conditions of the Plan.
2.    Exercise Price. The Exercise Price of an Option, as specified in the Option Agreement, shall be equal to or greater than the Fair Market Value of the Shares underlying the Option on the Grant Date.
3.    Option Period. An Option shall be exercisable only during the applicable Option Period, and during such Option Period the exercisability of the Option shall be subject to the vesting provisions of Section II.4 as modified by the rules set forth in Sections II.5 and V. The Option Period shall be not more than seven years from the Grant Date.
4.    Vesting of Right to Exercise Options.
(A)    Except as provided in Sections II.5 and V, an Option shall be exercisable during the Option Period in accordance with the following vesting schedule:  (i) 25% of the Shares subject to the Option shall vest on the first anniversary of the Grant Date; (ii) an additional 25% of the Shares shall vest on the second anniversary of the Grant Date; (iii) an additional 25% of the Shares shall vest on the third anniversary of the Grant Date; and (iv) the remaining 25% of the

2013 Stock Plan STC (ECOT)



Shares subject to the Option shall vest on the fourth anniversary of the Grant Date. Notwithstanding the foregoing, the Administrator may specify a different vesting schedule at the time the Option is granted, which will be specified in the Option Grant Notice.
(B)    Any vested portion of an Option not exercised hereunder shall accumulate and be exercisable at any time on or before the Expiration Date, subject to the rules set forth in Sections II.5 and V. No Option may be exercised for less than 5% of the total number of Shares then available for exercise under such Option. In no event shall the Corporation be required to issue fractional Shares.
5.    Limits on Option Period and Acceleration of Vesting. The Option Period may end before the Expiration Date, and in certain circumstances, the vesting schedule of an Option may be accelerated (subject to the provisions of Section V), as follows:
(A)    If a Participant ceases to be a bona fide employee of the Corporation or of its Affiliates during the Option Period for reasons other than for Cause, Long‑Term Disability, Normal Retirement, Early Retirement or death, the Option Period shall end on the earlier of (x) 90 days after the date of the Participant’s termination of employment and (y) the Expiration Date, and in all cases the Option shall be exercisable only to the extent that it was exercisable under the provisions of the foregoing Section II.4 at the time of such termination of employment. If a Participant is absent from work with the Corporation or an Affiliate because of the Participant's Short‑Term Disability or because the Participant is on an approved leave of absence, the Participant shall not be deemed during the period of any such absence, by virtue of such absence alone, to have terminated employment with the Corporation or an Affiliate except as the Administrator may otherwise expressly determine.
(B)    If the Participant’s employment is terminated for Cause during the Option Period, the Option Period shall end on the date of such termination of employment and the Option shall thereupon not be exercisable to any extent whatsoever.
(C)    If a Participant ceases to be a bona fide employee of the Corporation or of its Affiliates due to Long‑Term Disability during the Option Period, the vesting schedule of the Participant’s Option shall be accelerated, the Option shall become fully exercisable and the Option Period shall end on the earlier of (x) three years after the date of the Participant’s termination of employment and (y) the Expiration Date.
(D)    If a Participant ceases to be a bona fide employee of the Corporation or of its Affiliates during the Option Period by reason of Early Retirement, (i) the Option shall be exercisable only to the extent that it was exercisable under the provisions of the foregoing Section II.4 at the time of such retirement and (ii) the Option Period for that portion of the Option designated as a Nonstatutory Stock Option shall end on the earlier of (x) three years after the date of such retirement and (y) the Expiration Date.
(E)    If a Participant ceases to be a bona fide employee of the Corporation or of its Affiliates during the Option Period by reason of Normal Retirement:

2


(i)    If such Normal Retirement occurs prior to the first anniversary of the Grant Date of the Option, such Option shall be subject to the provisions of Section II.5(D) as though the Participant were eligible for Early Retirement; and
(ii)    If such Normal Retirement occurs on or after the first anniversary of the Grant Date of an Option, (i) the Option shall continue to vest as set forth in the foregoing Section II.4 as though the Participant had continued to be employed by the Corporation or one of its Affiliates during such vesting period, and (ii) the Option Period shall end on the Expiration Date.
(F)    If a Participant should die (i) while in the employ of the Corporation or an Affiliate and (ii) during the Option Period, the vesting schedule of the Participant’s Option shall be accelerated and the Option shall become fully exercisable, the Option Period shall end on the earlier of (x) three years after the date of death and (y) the Expiration Date, and the Participant’s Beneficiary may exercise the entire unexercised portion of the then exercisable Shares covered by such Option (or any lesser amount) remaining on the date of death.
(G)    If a Participant who ceases to be a bona fide employee of the Corporation or an Affiliate is subsequently rehired prior to the expiration of the Participant's Option, then the Option shall continue to remain outstanding until the earlier of (x) such time as the Participant subsequently terminates employment and (y) the Expiration Date. Upon the Participant’s subsequent termination of employment, the post‑termination exercise period calculated pursuant to the terms and conditions of this Section II.5 shall be reduced by the number of days between the date of the Participant’s initial termination of employment and the Participant's re‑hire date; provided, however, that if the rehired Participant continues to be employed by the Corporation or an Affiliate for at least one year from the Participant's rehire date, then the post termination exercise period for the Option shall be determined in accordance with Sections II.5(A) through (F) and shall not be adjusted as described in this Section II.5(G).
6.    Method of Exercise. A Participant may exercise an Option with respect to all or any part of the exercisable Shares as follows:
(A)    By giving the Corporation, or its authorized representative designated for this purpose, written notice of such exercise specifying the number of Shares as to which the Option is so exercised. Such notice shall be accompanied by an amount equal to the Exercise Price multiplied by the number of Shares exercised, in the form of any one or combination of the following:  cash or a certified check, bank draft, postal or express money order payable to the order of the Corporation in lawful money of the United States. Unless otherwise determined by the Administrator in its sole discretion, the Participant may pay the Exercise Price, in whole or in part, by tendering to the Corporation or its authorized representative Shares, which have been owned by the Participant for at least six months prior to said tender, and having a fair market value, as determined by the Corporation, equal to the Exercise Price, or in lieu of the delivery of actual Shares in such tender, the Corporation may accept an attestation by the Participant, in a form prescribed by the Corporation or its authorized representative, that the Participant owns sufficient Shares of record or in an account in street name to satisfy the Exercise Price, and such attestation will be deemed a tender of Shares for purposes of this method of exercise. The Corporation or its authorized representative may accept

3


payment of the amount due upon the exercise of the Option in the form of a Participant’s personal check. Payment may also be made by delivery (including by FAX transmission) to the Corporation or its authorized representative of an executed irrevocable Option exercise form together with irrevocable instructions to an approved registered investment broker to sell Shares in an amount sufficient to pay the Exercise Price plus any applicable Tax-Related Items (as defined in Section VII.6) and to transfer the proceeds of such sale to the Corporation.
(B)    If required by the Corporation, by giving satisfactory assurance in writing, signed by the Participant, the Participant shall give the Participant's assurance that the Shares subject to the Option are being purchased for investment and not with a view to the distribution thereof; provided that such assurance shall be deemed inapplicable to (1) any sale of the Shares by such Participant made in accordance with the terms of a registration statement covering such sale, which has heretofore been (or may hereafter be) filed and become effective under the U.S. Securities Act of 1933, as amended (the “Securities Act”) and with respect to which no stop order suspending the effectiveness thereof has been issued, and (2) any other sale of the Shares with respect to which, in the opinion of counsel for the Corporation, such assurance is not required to be given in order to comply with the provisions of the Securities Act.
(C)    As soon as practicable after receipt of the notice and the assurance described in Sections II.6(A) and (B), the Corporation shall, without transfer or issue tax (except for withholding tax arrangements contemplated in Section VII.6) and without other incidental expense to the Participant, credit the purchased Shares to the Participant’s brokerage account of record. If the Participant does not have a brokerage account of record, then the Corporation shall cause an appropriate book entry to be entered in the records of the Corporation’s transfer agent recording the Participant’s unrestricted interest in the purchased Shares; provided, however, that the time of such delivery may be postponed by the Corporation for such period as may be required for it with reasonable diligence to comply with applicable registration requirements under the Securities Act, the Exchange Act, any applicable listing requirements of any national securities exchange and requirements under any other law or regulation applicable to the issuance or transfer of the Shares.
7.    Limitations on Transfer. An Option shall, during a Participant’s lifetime, be exercisable only by the Participant. No Option or any right granted thereunder shall be transferable by the Participant by operation of law or otherwise, other than by will or the laws of descent and distribution. Notwithstanding the foregoing: (i) a Participant may designate a beneficiary to succeed, after the Participant’s death, to all of the Participant’s Options outstanding on the date of death; (ii) a Nonstatutory Stock Option may be transferable pursuant to a qualified domestic relations order as defined in the Code or Title I of the U.S. Employee Retirement Income Security Act; and (iii) any Participant, who is a senior executive officer recommended by the Chief Executive Officer of the Corporation and approved by the Administrator may voluntarily transfer any Nonstatutory Stock Option to a Family Member as a gift or through a transfer to an entity in which more than 50% of the voting interests are owned by Family Members (or the Participant) in exchange for an interest in that entity. In the event of any attempt by a Participant to alienate, assign, pledge, hypothecate, or otherwise dispose of an Option or of any right thereunder, except as provided herein, or in the event of the levy of any attachment, execution, or similar process upon the rights or interest

4


hereby conferred, the Corporation at its election may terminate the affected Option by notice to the Participant and the Option shall thereupon become null and void.
8.    No Stockholder Rights. Neither a Participant nor any person entitled to exercise a Participant’s rights in the event of the Participant’s death shall have any of the rights of a stockholder with respect to the Shares subject to an Option except to the extent that a book entry has been entered in the records of the Corporation’s transfer agent with respect to such Shares upon the exercise of an Option.
III.
RESTRICTED STOCK
1.    Restricted Stock Agreement. A Restricted Stock Award granted under the Plan shall be evidenced by a Restricted Stock Agreement to be executed by the Participant and the Corporation setting forth the terms and conditions of the Restricted Stock Award. Each Restricted Stock Grant Notice shall incorporate by reference and be subject to this Statement of Terms and Conditions, including the special terms and conditions in the Appendix for the Participant’s country (if any) which forms part of this Statement of Terms and Conditions, and together both documents shall constitute the Restricted Stock Agreement. The Restricted Stock Award is also subject to the terms and conditions of the Plan.
2.    Rights with Respect to Shares of Restricted Stock. Upon written acceptance of a Restricted Stock Award by a Participant, including the restrictions and other terms and conditions described in the Plan and the Restricted Stock Agreement, the Corporation shall cause an appropriate book entry to be entered in the records of the Corporation’s transfer agent recording the Participant’s interest in the Restricted Stock. From and after the Grant Date, the Participant shall have the rights of Common Stock ownership, including the right to vote and to receive dividends on Shares of Restricted Stock, subject to the terms, conditions and restrictions described in the Plan and the Restricted Stock Agreement.
3.    Special Restrictions. Each Restricted Stock Award made under the Plan shall be subject to the following terms, conditions and restrictions and such additional terms, conditions and restrictions as may be determined by the Administrator; provided, however, that no Restricted Stock grant shall be subject to additional terms, conditions and restrictions which are more favorable to a Participant than the terms, conditions and restrictions set forth elsewhere in the Plan or the Restricted Stock Agreement.
(A)    Restrictions. Until the restrictions imposed on any Restricted Stock grant shall lapse (the “Restriction Period”), Shares of Restricted Stock granted to a Participant (i) shall not be sold, assigned, transferred, pledged, hypothecated, or otherwise disposed of, other than pursuant to a qualified domestic relations order as defined in the Code or Title I of the U.S. Employee Retirement Income Security Act and (ii) shall, if the Participant’s continuous employment with the Corporation or any of its Affiliates shall terminate for any reason (except as otherwise provided in the Plan or in Section III.3(B)) be returned to the Corporation forthwith, and all the rights of the Participant to such Shares shall immediately terminate. If a Participant is absent from work with the Corporation or an Affiliate because of the Participant's Short‑Term Disability or because the Participant is on an approved leave of absence, the Participant shall not be deemed during the period

5


of any such absence, by virtue of such absence alone, to have terminated employment with the Corporation or an Affiliate except as the Administrator may otherwise expressly determine.
(B)    Termination of Employment by Reason of Death, Long‑Term Disability or Normal Retirement. Notwithstanding any provision contained herein or in the Plan or the Restricted Stock Agreement to the contrary, if a Participant who has been in the continuous employment of the Corporation or any of its Affiliates since the Grant Date of a Restricted Stock Award ceases to be a bona fide employee of the Corporation or an Affiliate as a result of:
(i)    Death or Long‑Term Disability, then the restrictions imposed on any Restricted Stock Award shall lapse as to all Shares granted to such Participant pursuant to such Restricted Stock Award on the date of such termination; or
(ii)    Normal Retirement on or after the first anniversary of the Grant Date of any time-based vesting Restricted Stock Award, the restrictions applicable to such Restricted Stock Award shall continue to lapse at such time(s) as are set forth in the applicable Grant Notice, as though the Participant had continued to be employed by the Corporation or one of its Affiliates during such restricted period; provided, that notwithstanding any other provision of the Plan or this Statement of Terms and Conditions, this Section III.3(B)(ii) shall not apply to any Restricted Stock Award the vesting of which is based, in whole or in part, on attainment of performance objectives. The procedures set forth in Section VIII.6 will be applied for any taxes due upon the lapse of restrictions imposed on a Restricted Stock Award due to a Participant’s Normal Retirement eligibility.
(C)    Restriction on Sale. The Compensation Committee reserves the right to impose a restriction on the sale of Shares that the Participant receives upon the vesting and settlement of a Restricted Stock Award, unless the Participant has satisfied the ownership targets applicable to the Participant as provided in the Stock Ownership Policy.
4.    Dividends. Cash dividends paid with respect to Restricted Stock during the Restriction Period shall be credited on behalf of the Participant to a deferred cash account (in a manner designed to comply with Code Section 409A) and the restrictions on such cash dividends shall lapse at the same time that the restrictions lapse on the associated Restricted Stock Award. Stock dividends paid with respect to Restricted Stock during the Restriction Period shall be treated as Restricted Stock which shall be subject to the same restrictions as the original award for the duration of the Restriction Period.
5.    Election to Recognize Gross Income in the Year of Grant. If any Participant validly elects within 30 days of the Grant Date, to include in gross income for federal income tax purposes an amount equal to the fair market value of the Shares of Restricted Stock granted on the Grant Date, such Participant shall (at the same time or prior to the date that the Participant files the Participant's election with the Internal Revenue Service) (A) pay to the Corporation, or make arrangements satisfactory to the Administrator to pay to the Corporation in the year of such grant, any federal, state or local taxes required to be withheld with respect to such Shares in accordance with Section VII.6 and (B) provide the Administrator with a copy of the election filed with the Internal Revenue Service.

6


6.    Restrictive Legend. Each book entry in the records of the Corporation’s transfer agent evidencing Shares granted pursuant to a Restricted Stock grant may bear an appropriate legend referring to the terms, conditions and restrictions described in the Plan and/or the Restricted Stock Agreement.
7.    Expiration of Restriction Period. If and when the Restriction Period applicable to the Restricted Stock expires without a prior forfeiture, Shares shall be credited to the Participant’s brokerage account of record. If the Participant does not have a brokerage account of record, then an appropriate book entry recording the Participant’s interest in the unrestricted Shares shall be entered on the records of the Corporation’s transfer agent.
IV.
RESTRICTED STOCK UNITS AND PERFORMANCE SHARES
1.    Award Agreement.
(A)    Restricted Stock Units granted under the Plan shall be evidenced by a Restricted Stock Unit Agreement to be executed by the Participant and the Corporation setting forth the terms and conditions of the Restricted Stock Units. Each Restricted Stock Unit Grant Notice shall incorporate by reference and be subject to this Statement of Terms and Conditions, including the special terms and conditions in the Appendix for the Participant’s country (if any) which forms part of this Statement of Terms and Conditions, and together both documents shall constitute the Restricted Stock Unit Agreement. The Restricted Stock Units are also subject to the terms and conditions of the Plan.
(B)    Performance Shares granted under the Plan shall be evidenced by a Performance Share Agreement to be executed by the Participant and the Corporation setting forth the terms and conditions of the Performance Shares. Each Performance Share Grant Notice shall incorporate by reference and be subject to this Statement of Terms and Conditions, including the special terms and conditions in the Appendix for the Participant’s country (if any) which forms part of this Statement of Terms and Conditions, and together both documents shall constitute the Performance Share Agreement. Performance Shares are also subject to the terms and conditions of the Plan.
2.    Special Restrictions. Restricted Stock Units and Performance Shares granted under the Plan shall be subject to the following terms, conditions and restrictions and such additional terms, conditions and restrictions as may be determined by the Administrator, consistent with the terms of the Plan.
(A)    Restrictions. If a Participant ceases to be a bona fide employee of the Corporation or any Affiliate (except as otherwise provided in the Plan or in Section IV.2(B)) prior to the lapse of the restrictions imposed on the Award, the unvested Restricted Stock Units or Performance Shares shall be canceled, and all the rights of the Participant to such Awards shall immediately terminate. If a Participant is absent from work with the Corporation or an Affiliate because of the Participant's Short‑Term Disability or because the Participant is on an approved leave of absence, the Participant shall not be deemed during the period of any such absence, by

7


virtue of such absence alone, to have terminated employment with the Corporation or an Affiliate except as the Administrator may otherwise expressly determine.
(B)    Termination of Employment by Reason of Death, Long‑Term Disability or Normal Retirement. Notwithstanding any provision contained herein or in the Plan, the Restricted Stock Unit Agreement or Performance Share Agreement to the contrary, if a Participant who has been in the continuous employment of the Corporation or any of its Affiliates since the Grant Date of such Award ceases to be a bona fide employee of the Corporation or an Affiliate as a result of:
(i)    Death or Long‑Term Disability, then the restrictions imposed on any Award of Restricted Stock Units or Performance Shares shall lapse on the date of such termination; or
(ii)    Normal Retirement on or after the first anniversary of the Grant Date of any time-based vesting Restricted Stock Units, the restrictions applicable to such Restricted Stock Units shall continue to lapse at such time(s) as are set forth in the applicable Grant Notice, as though the Participant had continued to be employed by the Corporation or one of its Affiliates during such restricted period; provided, that notwithstanding any other provision of the Plan or this Statement of Terms and Conditions, this Section IV.2(B)(ii) shall not apply to any Performance Shares or any Restricted Stock Units the vesting of which is based, in whole or in part, on attainment of performance objectives.
(C)    Restriction on Sale. The Compensation Committee reserves the right to impose a restriction on the sale of Shares that the Participant receives upon the settlement of Restricted Stock Units or Performance Shares, unless the Participant has satisfied the ownership targets applicable to the Participant as provided in the Stock Ownership Policy.
3.    Dividend Equivalents. Subject to the discretion of the Compensation Committee, dividend equivalents shall be credited in respect of Restricted Stock Units and Performance Shares. Cash dividends shall be credited on behalf of the Participant to a deferred cash account (in a manner designed to comply with Code Section 409A) and the restrictions on such cash dividends shall lapse at the same time that the restrictions lapse on the associated Award of Restricted Stock Units or Performance Shares (as applicable), and cash dividends, along with accrued interest (if any) on such cash dividends, shall be paid in a lump sum at the same time that the Shares underlying the Restricted Stock Unit or Performance Share Award, and to which the cash dividends relate, are distributed. Stock dividends shall be converted into additional Restricted Stock Units or Performance Shares, which will be subject to all of the terms and conditions of the underlying Restricted Stock Units or Performance Shares, including the same vesting restrictions as the underlying Award.
4.    Assignability. A Participant shall not be permitted to sell, transfer, pledge, assign or encumber Restricted Stock Units or Performance Shares, other than pursuant to a qualified domestic relations order as defined in the Code or Title I of the U.S. Employee Retirement Income Security Act.

8


5.    No Stockholder Rights. Neither a Participant nor any person entitled to exercise a Participant’s rights in the event of the Participant’s death shall have any of the rights of a stockholder with respect to an Award of Restricted Stock Units or Performance Shares except to the extent that a book entry has been entered in the records of the Corporation’s transfer agent with respect to the Shares paid upon the settlement of any vested Restricted Stock Units or Performance Shares.
6.    Time of Payment of Restricted Stock Units and Performance Shares. Upon the lapse of the restriction imposed on Restricted Stock Units or Performance Shares, all Restricted Stock Units and Performance Shares that were not forfeited pursuant to Section IV.2(A) or V shall be paid to the Participant as soon as reasonably practicable after the restrictions lapse. Payment shall be made in Shares to the Participant’s brokerage account of record. If the Participant does not have a brokerage account of record, then in the form of an appropriate book entry entered in the records of the Corporation’s transfer agent recording the Participant’s unrestricted interest in the number of Shares subject to the Restricted Stock Units or Performance Shares.
Notwithstanding the foregoing, if a Participant becomes eligible for Normal Retirement prior to the date of the lapse of restrictions imposed on Restricted Stock Units and the vesting provisions of Section IV(2)(B)(ii) apply, then such Restricted Stock Units shall be paid to the Participant’s brokerage account of record as soon as reasonably practicable after the originally scheduled vesting date and in any event before the end of the calendar year in which such date occurs, subject to the delay of payment (if applicable) provided in Section VII.14. The procedures set forth in Section VII.6 will be applied for any taxes due upon the lapse of restrictions imposed on the Restricted Stock Units due to a Participant’s Normal Retirement eligibility.
V.
SPECIAL FORFEITURE AND REPAYMENT RULES
Any other provision of this Statement of Terms and Conditions to the contrary notwithstanding, if the Administrator determines that a Participant has engaged in any of the actions described in 3 below, the consequences set forth in 1 and 2 below shall result:
1.    Any outstanding Option shall immediately and automatically terminate, be forfeited and shall cease to be exercisable, without limitation. In addition, any Award of Restricted Stock, Restricted Stock Units or Performance Shares as to which the restrictions have not lapsed shall immediately and automatically be forfeited and such Shares of Restricted Stock shall be returned to the Corporation and all of the rights of the Participant to such Awards and the underlying Shares shall immediately terminate.
2.    If the Participant exercised an Option within 12 months prior to the date upon which the Corporation discovered that the Participant engaged in any actions described in 3 below, the Participant, upon written notice from the Corporation, shall immediately pay to the Corporation the economic value realized or obtained by the exercise of such Option measured at the date of exercise. In addition, if the restrictions imposed on any Award of Restricted Stock, Restricted Stock Units or Performance Shares (including any unpaid dividends or Dividend Equivalents) lapsed within 12 months prior to the date the Corporation discovered that the Participant engaged in any action described in 3 below, the Participant, upon written notice from the Corporation, shall immediately

9


pay to the Corporation the economic value realized or obtained with respect to such Award, measured at the date such Award vested.
3.    The consequences described in 1 and 2 above shall apply if the Participant, either before or after termination of employment with the Corporation or its Affiliates:
(A)    Discloses to others, or takes or uses for the Participant’s own purpose or the purpose of others, any trade secrets, confidential information, knowledge, data or know‑how or any other proprietary information or intellectual property belonging to the Corporation or its Affiliates and obtained by the Participant during the term of the Participant’s employment, whether or not they are the Participant’s work product. Examples of such confidential information or trade secrets include, without limitation, customer lists, supplier lists, pricing and cost data, computer programs, delivery routes, advertising plans, wage and salary data, financial information, research and development plans, processes, equipment, product information and all other types and categories of information as to which the Participant knows or has reason to know that the Corporation or its Affiliates intends or expects secrecy to be maintained;
(B)    Fails to promptly return all documents and other tangible items belonging to the Corporation or its Affiliates in the Participant’s possession or control, including all complete or partial copies, recordings, abstracts, notes or reproductions of any kind made from or about such documents or information contained therein, upon termination of employment, whether pursuant to retirement or otherwise;
(C)    Fails to provide the Corporation with at least 30 days’ written notice prior to directly or indirectly engaging in, becoming employed by, or rendering services, advice or assistance to any business in competition with the Corporation or its Affiliates. As used herein, “business in competition” means any person, organization or enterprise which is engaged in or is about to become engaged in any line of business engaged in by the Corporation or its Affiliates at the time of the termination of the Participant’s employment with the Corporation or its Affiliates;
(D)    Fails to inform any new employer, before accepting employment, of the terms of this paragraph and of the Participant’s continuing obligation to maintain the confidentiality of the trade secrets and other confidential information belonging to the Corporation or its Affiliates and obtained by the Participant during the term of the Participant’s employment with the Corporation or any of its Affiliates;
(E)    Induces or attempts to induce, directly or indirectly, any of the customers of the Corporation or its Affiliates, employees, representatives or consultants to terminate, discontinue or cease working with or for the Corporation or its Affiliates, or to breach any contract with the Corporation or any of its Affiliates, in order to work with or for, or enter into a contract with, the Participant or any third party;
(F)    Engages in conduct which is not in good faith and which disrupts, damages, impairs or interferes with the business, reputation or employees of the Corporation or its Affiliates; or

10


(G)    Fails to meet the Participant’s continuing obligations with respect to non-disclosure, non-competition and/or non-solicitation under the Participant’s agreement with the Corporation or any Affiliate.
The Administrator shall determine in its sole discretion whether the Participant has engaged in any of the acts set forth in (A) through (G) above, and its determination shall be conclusive and binding on all interested persons.
Any provision of this Section V which is determined by a court of competent jurisdiction to be invalid or unenforceable should be construed or limited in a manner that is valid and enforceable and that comes closest to the business objectives intended by such invalid or unenforceable provision, without invalidating or rendering unenforceable the remaining provisions of this Section V.
VI.
CHANGE IN CONTROL
If as a result of a Change in Control, the Common Stock ceases to be listed for trading on a national securities exchange (an “Exchange”), any Option, Restricted Stock Award, Restricted Stock Unit Award, or Performance Share Award that is unvested on the effective date of the Change in Control shall continue to vest according to the terms and conditions of such Award, provided that such Award is replaced with an award for voting securities of the resulting corporation or the acquiring corporation, as the case may be, (including without limitation, the voting securities of any corporation which as a result of the Change in Control owns the Corporation or all or substantially all of the Corporation’s assets either directly or through one or more subsidiaries) (the “Surviving Company”) which are traded on an Exchange (a “Replacement Award”), which Replacement Award, (i) in the case of an Option, shall consist of an option with the number of underlying shares and exercise price determined in a manner consistent with Code Section 424(a) with vesting and any other terms continuing in the same manner as the replaced Option; (ii) in the case of a Performance Share Award, shall consist of restricted stock or restricted stock units with a value (determined using the Surviving Company’s stock price as of the effective date of the Change in Control) equal to the value of the Performance Share Award (determined using the Corporation’s stock price and assuming attainment of target performance or actual performance achieved, if greater, as of the effective date of the Change in Control), with any restrictions on such restricted stock or restricted stock units lapsing at the end of the measuring period over which performance for the replaced Performance Share Award was to be measured prior to the granting of the Replacement Award; and (iii) in the case of a Restricted Stock Award or Restricted Stock Unit Award, shall consist of restricted stock or restricted stock units with a value (determined using the Surviving Company’s stock price as of the effective date of the Change in Control) equal to the value of the Restricted Stock Award or Restricted Stock Unit Award (determined using the Corporation’s stock price as of the effective date of the Change in Control), with any restrictions on such restricted stock or restricted stock units lapsing at the same time and manner as the replaced Award; provided, however, that in the event of the Participant’s involuntary Separation from Service by the Corporation without Cause or Separation from Service by the Participant for Good Reason during the vesting period of any Replacement Award, the Replacement Award shall immediately vest and be paid as soon as practicable following such Separation from Service (subject to Section VII.14), based on the fair market value of the underlying shares on the vesting date, or in the case of options, based on the

11


excess of the fair market value of the underlying shares over the option exercise price on the vesting date. If any Option, Restricted Stock Award, Restricted Stock Unit Award, or Performance Share Award that is unvested at the effective time of the Change in Control is not replaced with a Replacement Award, such Award shall immediately vest and, in the case of a Performance Share Award, shall vest based upon deemed attainment of target performance or actual performance achieved, if greater.
If as a result of a Change in Control, the Common Stock continues to be listed for trading on an Exchange, any unvested Option, Restricted Stock Award, or Restricted Stock Unit Award shall continue to vest according to the terms and conditions of such Award and any Performance Share Award shall be replaced with a Restricted Stock Award or Restricted Stock Unit Award where the number of shares subject to such Restricted Stock Award or Restricted Stock Unit Award shall be equal to the number of Performance Shares assuming attainment of target performance or actual performance achieved, if greater, as of the effective date of the Change in Control with any restrictions on such Restricted Stock Award or Restricted Stock Unit Award lapsing at the end of the measuring period over which performance for the replaced Performance Share Award was to be measured prior to the granting of the replacement Award; provided however, that, in the event of the Participant’s involuntary Separation from Service by the Corporation without Cause or Separation from Service by the Participant for Good Reason during the vesting period of an Award, such Award shall immediately vest and be paid as soon as practicable following such Separation from Service (subject to Section VII.14).
VII.
MISCELLANEOUS
1.    No Effect on Terms of Employment. Participation in the Plan shall not create a right to further employment with the Participant’s employer (the “Employer”) and shall not interfere with the ability of the Employer to terminate, with or without cause, or change the terms of employment of a Participant at any time.
2.    Grants to Participants in Foreign Countries. In making grants to Participants in foreign countries, the Administrator has the full discretion to deviate from this Statement of Terms and Conditions in order to adjust grants under the Plan to prevailing local conditions, including custom and legal and tax requirements. Furthermore, the Corporation reserves the right to impose other requirements on the Participant’s participation in the Plan on the Award and on any Shares acquired under the Plan, to the extent the Corporation determines it is necessary or advisable in order to comply with local law or facilitate the administration of the Plan, and to require the Participant to sign any additional agreements or undertaking that may be necessary to accomplish the foregoing.
3.    Information Notification. Any information required to be given under the terms of an Award shall be addressed to the Corporation in care of its Corporate Secretary at McKesson Corporation, One Post Street, San Francisco, California 94104, and any notice to be given to a Participant shall be addressed to such Participant at the address indicated beneath the Participant's name on the Award Agreement or such other address as either party may designate in writing to the other. Any such notice shall be deemed to have been duly given when enclosed in a properly sealed

12


envelope or wrapper addressed as aforesaid, registered or certified and deposited (postage or registration or certification fee prepaid) in a post office or branch post office.
4.    Administrator Decisions Conclusive. All decisions of the Administrator administering the Plan upon any questions arising under the Plan or under an Award Agreement, shall be conclusive and binding on all interested persons.
5.    No Effect on Other Benefit Plans. Nothing herein contained shall affect a Participant’s right to participate in and receive benefits from and in accordance with the then current provisions of any pensions, insurance or other employment welfare plan or program offered by the Corporation.
6.    Withholding. Regardless of any action the Corporation or the Employer takes with respect to any federal, state or local income tax, social insurance, payroll tax, payment on account or other tax-related items related to the Participant’s participation in the Plan and legally applicable to the Participant (“Tax-Related Items”), the Participant acknowledges that the ultimate liability for all Tax-Related Items is and remains the Participant's responsibility and may exceed the amount actually withheld by the Corporation or the Employer. The Participant further acknowledges that the Corporation and/or the Employer (1) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Award, including the grant, vesting or exercise of the Award, as applicable, the subsequent sale of Shares acquired pursuant to the Plan and the receipt of any dividends and/or dividend equivalents; and (2) do not commit and are under no obligation to structure the terms of the grant or any aspect of the Award to reduce or eliminate the Participant’s liability for Tax-Related Items or achieve any particular tax result. Further, if the Participant has become subject to tax in more than one jurisdiction between the Grant Date and the date of any relevant taxable event, the Participant acknowledges that the Corporation and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.
Prior to any relevant taxable or tax withholding event, as applicable, the Participant will pay or make adequate arrangements satisfactory to the Corporation and/or the Employer, or their respective agents, at their discretion, to satisfy the obligations with regard to all Tax-Related Items by one or a combination of the following: (1) withholding from the Participant’s wages or other cash compensation paid to the Participant by the Corporation and/or the Employer; (2) withholding from proceeds of the sale of Shares acquired under the Plan either through a voluntary sale or through a mandatory sale arranged by the Corporation (on the Participant’s behalf pursuant to this authorization and any other authorization the Corporation and/or the broker designated by the Corporation may require the Participant to sign in connection with the sale of Shares); or (3) withholding Shares to be issued upon grant, vesting/settlement or exercise, as applicable. Calculation of the number of Shares to be withheld shall be made based on the closing price of the Common Stock on the New York Stock Exchange on the date that the amount of tax to be withheld is determined. In no event, however, shall the Corporation be required to issue fractional Shares. With respect to an Award other than an Option, if adequate arrangements to satisfy the obligations with regard to all Tax-Related Items are not made by the Participant with the Corporation and/or

13


the Employer prior to the relevant taxable event, the Corporation will satisfy such obligations as provided above in clause (3) of this paragraph.
To avoid negative accounting treatment, the Corporation may withhold or account for Tax-Related Items by considering applicable minimum statutory withholding amounts or other applicable withholding rates. If the obligation for Tax-Related Items is satisfied by withholding in Shares, for tax purposes, the Participant will be deemed to have been issued the full number of Shares subject to the Award, notwithstanding that a number of the Shares are held back solely for the purpose of paying the Tax-Related Items due as a result of any aspect of the Participant’s participation in the Plan.
Finally, the Participant shall pay to the Corporation or the Employer any amount of Tax-Related Items that the Corporation or the Employer may be required to withhold or account for as a result of the Participant’s participation in the Plan that cannot be satisfied by the means previously described. The Corporation may refuse to issue or deliver the Shares or the proceeds of the sale of Shares if the Participant fails to comply with the Participant's obligations in connection with the Tax-Related Items.
The Administrator shall be authorized to establish such rules, forms and procedures as it deems necessary to implement the foregoing.
7.    Successors. The Award Agreements shall be binding upon and inure to the benefit of any successor or successors of the Corporation. “Participant” as used herein shall include the Participant’s Beneficiary.
8.    Delaware Law. The interpretation, performance, and enforcement of all Award Agreements shall be governed by the laws of the State of Delaware.
9.    Nature of Grant. In accepting the grant, the Participant acknowledges that:
(A)    the Plan is established voluntarily by the Corporation, it is discretionary in nature and it may be modified, amended, suspended or terminated by the Corporation at any time;
(B)    the grant of the Award is voluntary and occasional and does not create any contractual or other right to receive future Award grants, or benefits in lieu of Awards, even if Awards have been granted repeatedly in the past;
(C)    all decisions with respect to future Awards, if any, will be at the sole discretion of the Corporation;
(D)    the Participant is voluntarily participating in the Plan;
(E)    the Award is not part of normal or expected compensation for any purpose, including, but not limited to, calculating any severance, resignation, termination, redundancy, dismissal, end of service payments, bonuses, long-service awards, pension or retirement benefits or similar payments;

14


(F)    the Award will not be interpreted to form an employment contract or relationship with the Corporation; and furthermore, the Award will not be interpreted to form an employment contract with any subsidiary or Affiliate of the Corporation;
(G)    the future value of the underlying Shares is unknown, indeterminable and cannot be predicted with certainty;
(H)    if the underlying Shares do not increase in value, the Options will have no value;
(I)    in consideration of the grant of the Award, no claim or entitlement to compensation or damages shall arise from forfeiture of the Award which results from termination of the Participant’s employment with the Employer or the Corporation or one of its Affiliates (for any reason whatsoever) and the Participant irrevocably releases the Corporation or its Affiliates from any such claim that may arise; if, notwithstanding the foregoing, any such claim is found by a court of competent jurisdiction to have arisen, then, by accepting the Award, the Participant shall be deemed irrevocably to have waived the Participant's entitlement to pursue such claim;
(J)    for purposes of an Award, the Participant’s employment relationship will be considered terminated as of the date the Participant is no longer a bona fide employee of the Corporation or one of its Affiliates (regardless of the reason for such termination and whether or not later found to be invalid or in breach of the employment laws in the jurisdiction where the Participant is employed or the terms of the Participant’s employment agreement, if any), and unless otherwise expressly provided in this Award Agreement or determined by the Corporation in its sole discretion, the Participant’s right to receive Awards and vest in Awards under the Plan, if any, will terminate effective as of such date and will not be extended by any notice period mandated under local law; similarly, any right to exercise Options under the Plan after termination of employment will be measured as of the date the Participant is no longer a bona fide employee of the Corporation or one of its Affiliates and will not be extended by any notice period mandated under local law; the Administrator shall have the sole discretion to determine when the Participant is no longer a bona fide employee;
(K)    the Corporation is not providing any tax, legal or financial advice, nor is the Corporation making any recommendations regarding participation in the Plan or the Participant’s acquisition or sale of Shares; and
(L)    Participant is hereby advised to consult with the Participant's own personal tax, legal and financial advisors regarding Participant’s participation in the Plan before taking any action related to the Plan.
10.    Data Privacy. By accepting the Award, the Participant hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of the Participant's personal data as described in this document by and among, as applicable, the Employer and the Corporation and its Affiliates for the exclusive purpose of implementing, administering and managing participation in the Plan.

15


The Participant understands that the Corporation and the Employer hold certain personal information about the Participant, including, but not limited, the Participant's name, home address and telephone number, date of birth, social insurance or other identification number, salary, nationality, job title, any Shares or directorships held in the Corporation, details of all Options, Restricted Stock, Restricted Stock Units, Performance Shares, Other Share-Based Awards, or any other entitlement to Shares awarded, canceled, exercised, vested, unvested or outstanding in the Participant’s favor, for the purpose of implementing, administering and managing the Plan (“Data”). The Participant understands that Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that recipients of Data may be located in the United States or elsewhere, and that the recipient’s country may have different data privacy laws and protections than the Participant’s country. The Participant understands that if the Participant resides outside of the United States, the Participant may request a list with the names and addresses of any potential recipients of the Data by contacting the local human resources representative. The Participant authorizes the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing participation in the Plan, including any requisite transfer of such Data as may be required to a broker or other third party with whom the Participant may elect to deposit any Shares acquired under the Plan. The Participant understands that Data will be held only as long as is necessary to implement, administer and manage the Participant's participation in the Plan. The Participant understands that if the Participant resides outside of the United States, the Participant may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, without cost, by contacting in writing the local human resources representative. Further, the Participant understands that the Participant is providing the consents herein on a purely voluntary basis. If the Participant does not consent, or if the Participant later seeks to revoke the Participant's consent, the Participant’s employment status or service and career with the Employer will not be adversely affected; the only adverse consequence of refusing or withdrawing the Participant's consent is that the Corporation would not be able to grant the Participant Awards or administer or maintain such Awards. Therefore, the Participant understands that refusing or withdrawing consent may affect the Participant's ability to participate in the Plan. For more information on the consequences of refusal to consent or withdrawal of consent, the Participant understands that the Participant may contact the local human resources representative.
11.    Severability. The provisions in this Statement of Terms and Conditions are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.
12.    Language. If the Participant has received this Statement of Terms and Conditions or any other document related to the Plan translated into a language other than English and if the meaning of the translated version is different than the English version, the English version will control.
13.    Electronic Delivery. The Corporation may, in its sole discretion, decide to deliver any documents related to current or future participation in the Plan by electronic means. The Participant hereby consents to receive such documents by electronic delivery and agrees to

16


participate in the Plan through an on-line or electronic system established and maintained by the Corporation or a third party designated by the Corporation.
14.    Section 409A. If (i) the Participant is a Specified Employee at the time of the Participant’s Separation from Service, and (ii) some or any portion of the amounts payable to the Participant, if any, when considered together with any other payments or benefits which may be considered deferred compensation under section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”) and subject to the plan aggregation rules under Treasury Regulation section 1.409A-1(c)(3)(viii) (together, the “Deferred Compensation Benefits”) would result in the imposition of additional tax under Section 409A if paid to the Participant on or within the six month period following the Separation from Service, then to the extent such portion of the Deferred Compensation Benefits resulting in the imposition of additional tax would otherwise have been payable on or within the first six months following the Separation from Service, it will instead become payable on the first payroll date that occurs in the seventh month following the Separation from Service (or such longer period as is required to avoid the imposition of additional tax under Section 409A). All subsequent Deferred Compensation Separation Benefits, if any, will be payable in accordance with the payment schedule applicable to each payment or benefit.
VII.
DEFINITIONS
When capitalized in this Statement of Terms and Conditions, the following terms shall have the meaning set forth below:
1.    “Award Agreement” means an agreement between the Participant and the Corporation evidencing the grant of an Option, Restricted Stock Award, Restricted Stock Award, Performance Shares or Other Share-Based Award, as applicable.
2.    “Cause” means termination of the Participant’s employment with the Corporation or an Affiliate upon the Participant’s negligent or willful engagement in misconduct which, in the sole determination of the Chief Executive Officer of the Corporation (or the Chief Executive Officer’s designee), is injurious to the Corporation, its employees, or its customers.
3.    “Early Retirement” means a termination of employment which occurs prior to Normal Retirement but on or after the date on which the Participant’s age (expressed in terms of years and completed months) plus service with the Corporation or an Affiliate equals 65. For purposes of determining eligibility for Early Retirement, the term “service” shall include years and completed whole months of service.
4.    “Family Member” means any person identified as an “immediate family” member in Rule 16(a)‑1(e) of the Exchange Act, as such Rule may be amended from time to time. Notwithstanding the foregoing, the Administrator may designate any other person(s) or entity(ies) as a “family member.”
5.    “Good Reason” means any of the following actions, if taken without the express written consent of the Participant:

17


(A)    Any material change by the Corporation in the Participant’s functions, duties, or responsibilities, which change would cause the Participant’s position with the Corporation to become of less dignity, responsibility, importance, or scope from the position and attributes that applied to the Participant immediately prior to the Change in Control; provided, however, that, any such change attributable to the Corporation’s no longer being a company with publicly traded common stock shall not constitute Good Reason; and provided, further, that a reduction in the Participant’s functions, duties or responsibilities solely by virtue of the Corporation being acquired and made part of a larger entity (for example, if following a Change in Control the Participant retains the Participant’s position, or has a comparable position, with respect to a division or subsidiary of the acquirer that contains the Corporation’s business) shall not constitute Good Reason;
(B)    Any significant reduction in the Participant’s aggregate base annual salary and target incentive opportunity, as in effect immediately prior to the Change in Control;
(C)    Any material failure by the Corporation to comply with any of the provisions of an Award subsequent to a Change in Control; or
(D)    The Corporation’s requiring the Participant to be based at any location which would increase the Participant’s regular one-way commute by more than 25 miles from that in effect immediately preceding the Change in Control, except for travel reasonably required in the performance of the Participant’s responsibilities;
Provided that the Participant gives notice to the Corporation of the existence of the Good Reason condition within 30 days of the initial existence of the Good Reason condition and the Corporation is provided 30 days after receipt of the Participant’s notice to remedy the Good Reason condition; provided further that the Participant’s Separation from Service must occur within six months from the initial existence of the Good Reason condition if the Corporation does not remedy such condition for such separation to be considered to be for Good Reason.
6.    “Expiration Date” means the date that an Option expires as set forth in the Option Grant Notice as the “Expiration Date.”
7.    “Grant Date” means the date the Administrator grants the Award.
8.    “Grant Notice” means the notice of an Award granted to the Participant, which sets forth certain terms of such Award.
9.    “Long‑Term Disability” means a physical or mental condition in respect of which the administrator of the Corporation’s long-term disability plan has determined that the Participant is eligible to receive income replacement benefits; or, if the Participant is not then a participant in the Corporation’s long-term disability plan, a physical or mental condition that the administrator of the Corporation’s long-term disability plan determines would have rendered the Participant eligible to receive income replacement benefits, had the Participant been enrolled in such plan.
10.    “Normal Retirement” means retirement at age 60 (57, in the case of a participant in the McKesson Corporation 1984 Executive Benefit Retirement Plan) with at least 10 years of service

18


with the Corporation or an Affiliate. For purposes of determining eligibility for Normal Retirement, “service” shall mean completed whole years of service (12 consecutive months).
11.    “Option Period” means the period commencing on the Grant Date of an Option and, except at otherwise provided in Section II.5, ending on the Expiration Date.
12.    “Separation from Service” means termination of employment with the Corporation or an affiliate. A Participant shall be deemed to have had a Separation from Service if the Participant’s service with the Corporation or an affiliate is reduced to an annual rate that is equal to or less than 20% of the services rendered, on average, during the immediately preceding three years of service with the Corporation or an affiliate (or, if providing service to the Corporation or an affiliate for less than three years, such lesser period).
13.    “Short‑Term Disability” means short‑term disability as defined in the Corporation’s short‑term disability plan.
14.    “Specified Employee” means those employees identified by the Corporation as "Specified Employees" for purposes of Section 409A of the Code.
15.    “Stock Ownership Policy” means the Corporation’s Stock Ownership Policy, as amended from time to time, which can be found on McKNet. A Participant or a Participant’s beneficiary may also request a copy of the Stock Ownership Policy by writing to the Corporate Secretary at McKesson Corporation, One Post Street, San Francisco, CA 94104.


19
EMPLOYEE



McKESSON CORPORATION
STATEMENT OF TERMS AND CONDITIONS APPLICABLE TO
OPTIONS, RESTRICTED STOCK, RESTRICTED STOCK UNITS AND
PERFORMANCE SHARES GRANTED TO EMPLOYEES PURSUANT
TO THE 2013 STOCK PLAN
Effective for Grants Beginning May 26, 2015
I.
INTRODUCTION
The following terms and conditions shall apply to an Award granted under the Plan and are subject to the terms and conditions of the Plan. This Statement of Terms and Conditions is intended to meet the requirements of Code Section 409A and any rules promulgated thereunder. In the event of any inconsistency between this Statement of Terms and Conditions and the Plan, the Plan shall govern. Capitalized terms not otherwise defined in this Statement of Terms and Conditions shall have the meaning set forth in the Plan.
II.
OPTIONS
1.    Option Agreement. An Option granted under the Plan shall be evidenced by an Option Agreement setting forth the terms and conditions of the Option, including whether the Option is an Incentive Stock Option or a Nonstatutory Stock Option and the number of Shares subject to the Option. Each Stock Option Grant Notice shall incorporate by reference and be subject to this Statement of Terms and Conditions, including the special terms and conditions in the Appendix for the Participant’s country (if any) which forms part of this Statement of Terms and Conditions, and together both documents shall constitute the Option Agreement. The Option is also subject to the terms and conditions of the Plan.
2.    Exercise Price. The Exercise Price of an Option, as specified in the Option Agreement, shall be equal to or greater than the Fair Market Value of the Shares underlying the Option on the Grant Date.
3.    Option Period. An Option shall be exercisable only during the applicable Option Period, and during such Option Period the exercisability of the Option shall be subject to the vesting provisions of Section II.4 as modified by the rules set forth in Sections II.5 and V. The Option Period shall be not more than seven years from the Grant Date.
4.    Vesting of Right to Exercise Options.
(A)    Except as provided in Sections II.5 and V, an Option shall be exercisable during the Option Period in accordance with the following vesting schedule:  (i) 25% of the Shares subject to the Option shall vest on the first anniversary of the Grant Date; (ii) an additional 25% of the Shares shall vest on the second anniversary of the Grant Date; (iii) an additional 25% of the Shares shall vest on the third anniversary of the Grant Date; and (iv) the remaining 25% of the Shares subject to the Option shall vest on the fourth anniversary of the Grant Date. Notwithstanding

2013 Stock Plan STC (Employee)



the foregoing, the Administrator may specify a different vesting schedule at the time the Option is granted, which will be specified in the Option Grant Notice.
(B)    Any vested portion of an Option not exercised hereunder shall accumulate and be exercisable at any time on or before the Expiration Date, subject to the rules set forth in Sections II.5 and V. No Option may be exercised for less than 5% of the total number of Shares then available for exercise under such Option. In no event shall the Corporation be required to issue fractional Shares.
5.    Limits on Option Period and Acceleration of Vesting. The Option Period may end before the Expiration Date, and in certain circumstances the vesting schedule of an Option may be accelerated (subject to the provisions of Section V), as follows:
(A)    If a Participant ceases to be a bona fide employee of the Corporation or of its Affiliates during the Option Period for reasons other than for Cause, Long‑Term Disability, Normal Retirement, Early Retirement or death, the Option Period shall end on the earlier of (x) 90 days after the date of the Participant’s termination of employment and (y) the Expiration Date, and in all cases the Option shall be exercisable only to the extent that it was exercisable under the provisions of the foregoing Section II.4 at the time of such termination of employment. If a Participant is absent from work with the Corporation or an Affiliate because of the Participant's Short‑Term Disability or because the Participant is on an approved leave of absence, the Participant shall not be deemed during the period of any such absence, by virtue of such absence alone, to have terminated employment with the Corporation or an Affiliate except as the Administrator may otherwise expressly determine.
(B)    If a Participant’s employment is terminated for Cause during the Option Period, the Option Period shall end on the date of such termination of employment and the Option shall thereupon not be exercisable to any extent whatsoever.
(C)    If a Participant ceases to be a bona fide employee of the Corporation or of its Affiliates due to Long‑Term Disability during the Option Period, the vesting schedule of the Participant’s Option shall be accelerated, the Option shall become fully exercisable and the Option Period shall end on the earlier of (x) three years after the date of the Participant’s termination of employment and (y) the Expiration Date.
(D)    If a Participant ceases to be a bona fide employee of the Corporation or of its Affiliates during the Option Period by reason of Early Retirement, (i) the Option shall be exercisable only to the extent that it was exercisable under the provisions of the foregoing Section II.4 at the time of such retirement and (ii) the Option Period for that portion of the Option designated as a Nonstatutory Stock Option shall end on the earlier of (x) three years after the date of such retirement and (y) the Expiration Date.
(E)    If a Participant ceases to be a bona fide employee of the Corporation or of its Affiliates during the Option Period by reason of Normal Retirement:

2


(i)    If such Normal Retirement occurs prior to the first anniversary of the Grant Date of the Option, such Option shall be subject to the provisions of Section II.5(D) as though the Participant were eligible for Early Retirement; and
(ii)    If such Normal Retirement occurs on or after the first anniversary of the Grant Date of an Option, (i) that portion of the Option designated as a Nonstatutory Stock Option shall continue to vest as set forth in the foregoing Section II.4 as though the Participant had continued to be employed by the Corporation or one of its Affiliates during such vesting period, and (ii) the Option Period for such portion of the Option designated as a Nonstatutory Stock Option shall end on the Expiration Date.
(F)    If a Participant should die (i) while in the employ of the Corporation or an Affiliate and (ii) during the Option Period, the vesting schedule of the Participant’s Option shall be accelerated and the Option shall become fully exercisable, the Option Period shall end on the earlier of (x) three years after the date of death and (y) the Expiration Date, and the Participant’s Beneficiary may exercise the entire unexercised portion of the then exercisable Shares covered by such Option (or any lesser amount) remaining on the date of death.
(G)    If a Participant who ceases to be a bona fide employee of the Corporation or an Affiliate is subsequently rehired prior to the expiration of the Participant's Option, then the Option shall continue to remain outstanding until the earlier of (x) such time as the Participant subsequently terminates employment and (y) the Expiration Date. Upon the Participant’s subsequent termination of employment, the post‑termination exercise period calculated pursuant to the terms and conditions of this Section II.5 shall be reduced by the number of days between the date of the Participant’s initial termination of employment and the Participant's re‑hire date; provided, however, that if the rehired Participant continues to be employed by the Corporation or an Affiliate for at least one year from the Participant's rehire date, then the post termination exercise period for the Option shall be determined in accordance with Sections II.5(A) through (F) and shall not be adjusted as described in this Section II.5(G).
6.    Method of Exercise. A Participant may exercise an Option with respect to all or any part of the exercisable Shares as follows:
(A)    By giving the Corporation, or its authorized representative designated for this purpose, written notice of such exercise specifying the number of Shares as to which the Option is so exercised. Such notice shall be accompanied by an amount equal to the Exercise Price multiplied by the number of Shares exercised, in the form of any one or combination of the following:  cash or a certified check, bank draft, postal or express money order payable to the order of the Corporation in lawful money of the United States. Unless otherwise determined by the Administrator in its sole discretion, the Participant may pay the Exercise Price, in whole or in part, by tendering to the Corporation or its authorized representative Shares, which have been owned by the Participant for at least six months prior to said tender, and having a fair market value, as determined by the Corporation, equal to the Exercise Price, or in lieu of the delivery of actual Shares in such tender, the Corporation may accept an attestation by the Participant, in a form prescribed by the Corporation or its authorized representative, that the Participant owns sufficient Shares of record or in an account in street name to satisfy the Exercise Price, and such attestation will be deemed a tender of Shares

3


for purposes of this method of exercise. The Corporation or its authorized representative may accept payment of the amount due upon the exercise of the Option in the form of a Participant’s personal check. Payment may also be made by delivery (including by FAX transmission) to the Corporation or its authorized representative of an executed irrevocable Option exercise form together with irrevocable instructions to an approved registered investment broker to sell Shares in an amount sufficient to pay the Exercise Price plus any applicable Tax-Related Items (as defined in Section VII.6) and to transfer the proceeds of such sale to the Corporation.
(B)    If required by the Corporation, by giving satisfactory assurance in writing, signed by the Participant, the Participant shall give the Participant's assurance that the Shares subject to the Option are being purchased for investment and not with a view to the distribution thereof; provided that such assurance shall be deemed inapplicable to (1) any sale of the Shares by such Participant made in accordance with the terms of a registration statement covering such sale, which has heretofore been (or may hereafter be) filed and become effective under the U.S. Securities Act of 1933, as amended (the “Securities Act”) and with respect to which no stop order suspending the effectiveness thereof has been issued, and (2) any other sale of the Shares with respect to which, in the opinion of counsel for the Corporation, such assurance is not required to be given in order to comply with the provisions of the Securities Act.
(C)    As soon as practicable after receipt of the notice and the assurance described in Sections II.6(A) and (B), the Corporation shall, without transfer or issue tax (except for withholding tax arrangements contemplated in Section VII.6) and without other incidental expense to the Participant, credit the purchased Shares to the Participant’s brokerage account of record. If the Participant does not have a brokerage account of record, then the Corporation shall cause an appropriate book entry to be entered in the records of the Corporation’s transfer agent recording the Participant’s unrestricted interest in the purchased Shares; provided, however, that the time of such delivery may be postponed by the Corporation for such period as may be required for it with reasonable diligence to comply with applicable registration requirements under the Securities Act, the Exchange Act, any applicable listing requirements of any national securities exchange and requirements under any other law or regulation applicable to the issuance or transfer of the Shares.
7.    Limitations on Transfer. An Option shall, during a Participant’s lifetime, be exercisable only by the Participant. No Option or any right granted thereunder shall be transferable by the Participant by operation of law or otherwise, other than by will or the laws of descent and distribution. Notwithstanding the foregoing: (i) a Participant may designate a beneficiary to succeed, after the Participant’s death, to all of the Participant’s Options outstanding on the date of death; (ii) a Nonstatutory Stock Option may be transferable pursuant to a qualified domestic relations order as defined in the Code or Title I of the U.S. Employee Retirement Income Security Act; and (iii) any Participant, who is a senior executive officer recommended by the Chief Executive Officer of the Corporation and approved by the Administrator may voluntarily transfer any Nonstatutory Stock Option to a Family Member as a gift or through a transfer to an entity in which more than 50% of the voting interests are owned by Family Members (or the Participant) in exchange for an interest in that entity. In the event of any attempt by a Participant to alienate, assign, pledge, hypothecate, or otherwise dispose of an Option or of any right thereunder, except as provided herein, or in the event of the levy of any attachment, execution, or similar process upon the rights or interest

4


hereby conferred, the Corporation at its election may terminate the affected Option by notice to the Participant and the Option shall thereupon become null and void.
8.    No Stockholder Rights. Neither a Participant nor any person entitled to exercise a Participant’s rights in the event of the Participant’s death shall have any of the rights of a stockholder with respect to the Shares subject to an Option except to the extent that a book entry has been entered in the records of the Corporation’s transfer agent with respect to such Shares upon the exercise of an Option.
III.
RESTRICTED STOCK
1.    Restricted Stock Agreement. A Restricted Stock Award granted under the Plan shall be evidenced by a Restricted Stock Agreement to be executed by the Participant and the Corporation setting forth the terms and conditions of the Restricted Stock Award. Each Restricted Stock Grant Notice shall incorporate by reference and be subject to this Statement of Terms and Conditions, including the special terms and conditions in the Appendix for the Participant’s country (if any) which forms part of this Statement of Terms and Conditions, and together both documents shall constitute the Restricted Stock Agreement. The Restricted Stock Award is also subject to the terms and conditions of the Plan.
2.    Rights with Respect to Shares of Restricted Stock. Upon written acceptance of a Restricted Stock Award by a Participant, including the restrictions and other terms and conditions described in the Plan and the Restricted Stock Agreement, the Corporation shall cause an appropriate book entry to be entered in the records of the Corporation’s transfer agent recording the Participant’s interest in the Restricted Stock. From and after the Grant Date, the Participant shall have the rights of Common Stock ownership, including the right to vote and to receive dividends on Shares of Restricted Stock, subject to the terms, conditions and restrictions described in the Plan and the Restricted Stock Agreement.
3.    Special Restrictions. Each Restricted Stock Award made under the Plan shall be subject to the following terms, conditions and restrictions and such additional terms, conditions and restrictions as may be determined by the Administrator; provided, however, that no Restricted Stock grant shall be subject to additional terms, conditions and restrictions which are more favorable to a Participant than the terms, conditions and restrictions set forth elsewhere in the Plan or the Restricted Stock Agreement.
(A)    Restrictions. Until the restrictions imposed on any Restricted Stock grant shall lapse (the “Restriction Period”), Shares of Restricted Stock granted to a Participant (i) shall not be sold, assigned, transferred, pledged, hypothecated, or otherwise disposed of, other than pursuant to a qualified domestic relations order as defined in the Code or Title I of the U.S. Employee Retirement Income Security Act and (ii) shall, if the Participant’s continuous employment with the Corporation or any of its Affiliates shall terminate for any reason (except as otherwise provided in the Plan or in Section III.3(B)) be returned to the Corporation forthwith, and all the rights of the Participant to such Shares shall immediately terminate. If a Participant is absent from work with the Corporation or an Affiliate because of the Participant's Short‑Term Disability or because the Participant is on an approved leave of absence, the Participant shall not be deemed during the period

5


of any such absence, by virtue of such absence alone, to have terminated employment with the Corporation or an Affiliate except as the Administrator may otherwise expressly determine.
(B)    Termination of Employment by Reason of Death, Long‑Term Disability or Normal Retirement. Notwithstanding any provision contained herein or in the Plan or the Restricted Stock Agreement to the contrary, if a Participant who has been in the continuous employment of the Corporation or any of its Affiliates since the Grant Date of a Restricted Stock Award ceases to be a bona fide employee of the Corporation or an Affiliate as a result of:
(i)    Death or Long‑Term Disability, then the restrictions imposed on any Restricted Stock Award shall lapse as to all Shares granted to such Participant pursuant to such Restricted Stock Award on the date of such termination; or
(ii)    Normal Retirement on or after the first anniversary of the Grant Date of any time-based vesting Restricted Stock Award, the restrictions applicable to such Restricted Stock Award shall continue to lapse at such time(s) as are set forth in the applicable Grant Notice, as though the Participant had continued to be employed by the Corporation or one of its Affiliates during such restricted period; provided, that notwithstanding any other provision of the Plan or this Statement of Terms and Conditions, this Section III.3(B)(ii) shall not apply to any Restricted Stock Award the vesting of which is based, in whole or in part, on attainment of performance objectives. The procedures set forth in Section VII.6 will be applied for any taxes due upon the lapse of restrictions imposed on a Restricted Stock Award due to a Participant’s Normal Retirement eligibility.
4.    Dividends. Cash dividends paid with respect to Restricted Stock during the Restriction Period shall be credited on behalf of the Participant to a deferred cash account (in a manner designed to comply with Code Section 409A) and the restrictions on such cash dividends shall lapse at the same time that the restrictions lapse on the associated Restricted Stock Award. Stock dividends paid with respect to Restricted Stock during the Restriction Period shall be treated as Restricted Stock which shall be subject to the same restrictions as the original award for the duration of the Restriction Period.
5.    Election to Recognize Gross Income in the Year of Grant. If any Participant validly elects within 30 days of the Grant Date, to include in gross income for federal income tax purposes an amount equal to the fair market value of the Shares of Restricted Stock granted on the Grant Date, such Participant shall (at the same time or prior to the date that the Participant files the Participant's election with the Internal Revenue Service) (A) pay to the Corporation, or make arrangements satisfactory to the Administrator to pay to the Corporation in the year of such grant, any federal, state or local taxes required to be withheld with respect to such Shares in accordance with Section VII.6 and (B) provide the Administrator with a copy of the election filed with the Internal Revenue Service.
6.    Restrictive Legend. Each book entry in the records of the Corporation’s transfer agent evidencing Shares granted pursuant to a Restricted Stock grant may bear an appropriate legend referring to the terms, conditions and restrictions described in the Plan and/or the Restricted Stock Agreement.

6


7.    Expiration of Restriction Period. If and when the Restriction Period applicable to the Restricted Stock expires without a prior forfeiture, Shares shall be credited to the Participant’s brokerage account of record. If the Participant does not have a brokerage account of record, then an appropriate book entry recording the Participant’s interest in the unrestricted Shares shall be entered on the records of the Corporation’s transfer agent.
IV.
RESTRICTED STOCK UNITS AND PERFORMANCE SHARES
1.    Award Agreement.
(A)    Restricted Stock Units granted under the Plan shall be evidenced by a Restricted Stock Unit Agreement to be executed by the Participant and the Corporation setting forth the terms and conditions of the Restricted Stock Units. Each Restricted Stock Unit Grant Notice shall incorporate by reference and be subject to this Statement of Terms and Conditions, including the special terms and conditions in the Appendix for the Participant’s country (if any) which forms part of this Statement of Terms and Conditions, and together both documents shall constitute the Restricted Stock Unit Agreement. The Restricted Stock Units are also subject to the terms and conditions of the Plan.
(B)    Performance Shares granted under the Plan shall be evidenced by a Performance Share Agreement to be executed by the Participant and the Corporation setting forth the terms and conditions of the Performance Shares. Each Performance Share Grant Notice shall incorporate by reference and be subject to this Statement of Terms and Conditions, including the special terms and conditions in the Appendix for the Participant’s country (if any) which forms part of this Statement of Terms and Conditions, and together both documents shall constitute the Performance Share Agreement. Performance Shares are also subject to the terms and conditions of the Plan.
2.    Special Restrictions. Restricted Stock Units and Performance Shares granted under the Plan shall be subject to the following terms, conditions and restrictions and such additional terms, conditions and restrictions as may be determined by the Administrator, consistent with the terms of the Plan.
(A)    Restrictions. If a Participant ceases to be a bona fide employee of the Corporation or any Affiliate (except as otherwise provided in the Plan or in Section IV.2(B)) prior to the lapse of the restrictions imposed on the Award, the unvested Restricted Stock Units or Performance Shares shall be canceled, and all the rights of the Participant to such Awards shall immediately terminate. If a Participant is absent from work with the Corporation or an Affiliate because of the Participant's Short‑Term Disability or because the Participant is on an approved leave of absence, the Participant shall not be deemed during the period of any such absence, by virtue of such absence alone, to have terminated employment with the Corporation or an Affiliate except as the Administrator may otherwise expressly determine.
(B)    Termination of Employment by Reason of Death, Long‑Term Disability or Normal Retirement. Notwithstanding any provision contained herein or in the Plan, the Restricted Stock Unit Agreement or Performance Share Agreement to the contrary, if a Participant who has

7


been in the continuous employment of the Corporation or any of its Affiliates since the Grant Date of such Award ceases to be a bona fide employee of the Corporation or an Affiliate as a result of:
(i)    Death or Long‑Term Disability, then the restrictions imposed on any Award of Restricted Stock Units or Performance Shares shall lapse on the date of such termination; or
(ii)    Normal Retirement on or after the first anniversary of the Grant Date of any time-based vesting Restricted Stock Units, the restrictions applicable to such Restricted Stock Units shall continue to lapse at such time(s) as are set forth in the applicable Grant Notice, as though the Participant had continued to be employed by the Corporation or one of its Affiliates during such restricted period; provided, that notwithstanding any other provision of the Plan or this Statement of Terms and Conditions, this Section IV.2(B)(ii) shall not apply to any Performance Shares or to any Restricted Stock Units the vesting of which is based, in whole or in part, on attainment of performance objectives.
3.    Dividend Equivalents. Subject to the discretion of the Compensation Committee, dividend equivalents shall be credited in respect of Restricted Stock Units and Performance Shares. Cash dividends shall be credited on behalf of the Participant to a deferred cash account (in a manner designed to comply with Code Section 409A) and the restrictions on such cash dividends shall lapse at the same time that the restrictions lapse on the associated Award of Restricted Stock Units or Performance Shares (as applicable), and cash dividends, along with accrued interest (if any) on such cash dividends, shall be paid in a lump sum at the same time that the Shares underlying the Restricted Stock Unit or Performance Share Award, and to which the cash dividends relate, are distributed. Stock dividends shall be converted into additional Restricted Stock Units or Performance Shares, which will be subject to all of the terms and conditions of the underlying Restricted Stock Units or Performance Shares, including the same vesting restrictions as the underlying Award.
4.    Assignability. A Participant shall not be permitted to sell, transfer, pledge, assign or encumber Restricted Stock Units or Performance Shares, other than pursuant to a qualified domestic relations order as defined in the Code or Title I of the U.S. Employee Retirement Income Security Act.
5.    No Stockholder Rights. Neither a Participant nor any person entitled to exercise a Participant’s rights in the event of the Participant’s death shall have any of the rights of a stockholder with respect to an Award of Restricted Stock Units or Performance Shares except to the extent that a book entry has been entered in the records of the Corporation’s transfer agent with respect to the Shares paid upon the settlement of any vested Restricted Stock Units or Performance Shares.
6.    Time of Payment of Restricted Stock Units and Performance Shares. Upon the lapse of the restriction imposed on Restricted Stock Units or Performance Shares, all Restricted Stock Units and Performance Shares that were not forfeited pursuant to Section IV.2(A) or V shall be paid to the Participant as soon as reasonably practicable after the restrictions lapse. Payment shall be made in Shares to the Participant’s brokerage account of record. If the Participant does not have a brokerage account of record, then in the form of an appropriate book entry entered in the records

8


of the Corporation’s transfer agent recording the Participant’s unrestricted interest in the number of Shares subject to the Restricted Stock Units or Performance Shares.
Notwithstanding the foregoing, if a Participant becomes eligible for Normal Retirement prior to the date of the lapse of restrictions imposed on Restricted Stock Units and the vesting provisions of Section IV(2)(B)(ii) apply, then such Restricted Stock Units shall be paid to the Participant’s brokerage account of record as soon as reasonably practicable after the originally scheduled vesting date and in any event before the end of the calendar year in which such date occurs, subject to the delay of payment (if applicable) provided in Section VII.14. The procedures set forth in Section VII.6 will be applied for any taxes due upon the lapse of restrictions imposed on the Restricted Stock Units due to a Participant’s Normal Retirement eligibility.
V.
SPECIAL FORFEITURE AND REPAYMENT RULES
Any other provision of this Statement of Terms and Conditions to the contrary notwithstanding, if the Administrator determines that a Participant has engaged in any of the actions described in 3 below, the consequences set forth in 1 and 2 below shall result:
1.    Any outstanding Option shall immediately and automatically terminate, be forfeited and shall cease to be exercisable, without limitation. In addition, any Award of Restricted Stock, Restricted Stock Units or Performance Shares as to which the restrictions have not lapsed shall immediately and automatically be forfeited and such Shares of Restricted Stock shall be returned to the Corporation and all of the rights of the Participant to such Awards and the underlying Shares shall immediately terminate.
2.    If the Participant exercised an Option within 12 months prior to the date upon which the Corporation discovered that the Participant engaged in any actions described in 3 below, the Participant, upon written notice from the Corporation, shall immediately pay to the Corporation the economic value realized or obtained by the exercise of such Option measured at the date of exercise. In addition, if the restrictions imposed on any Award of Restricted Stock, Restricted Stock Units or Performance Shares (including any unpaid dividends or Dividend Equivalents) lapsed within 12 months prior to the date the Corporation discovered that the Participant engaged in any action described in 3 below, the Participant, upon written notice from the Corporation, shall immediately pay to the Corporation the economic value realized or obtained with respect to such Award, measured at the date such Award vested.
3.    The consequences described in 1 and 2 above shall apply if the Participant, either before or after termination of employment with the Corporation or its Affiliates:
(A)    Discloses to others, or takes or uses for the Participant’s own purpose or the purpose of others, any trade secrets, confidential information, knowledge, data or know‑how or any other proprietary information or intellectual property belonging to the Corporation or its Affiliates and obtained by the Participant during the term of the Participant’s employment, whether or not they are the Participant’s work product. Examples of such confidential information or trade secrets include, without limitation, customer lists, supplier lists, pricing and cost data, computer programs, delivery routes, advertising plans, wage and salary data, financial information, research

9


and development plans, processes, equipment, product information and all other types and categories of information as to which the Participant knows or has reason to know that the Corporation or its Affiliates intends or expects secrecy to be maintained;
(B)    Fails to promptly return all documents and other tangible items belonging to the Corporation or its Affiliates in the Participant’s possession or control, including all complete or partial copies, recordings, abstracts, notes or reproductions of any kind made from or about such documents or information contained therein, upon termination of employment, whether pursuant to retirement or otherwise;
(C)    Fails to provide the Corporation with at least 30 days’ written notice prior to directly or indirectly engaging in, becoming employed by, or rendering services, advice or assistance to any business in competition with the Corporation or its Affiliates. As used herein, “business in competition” means any person, organization or enterprise which is engaged in or is about to become engaged in any line of business engaged in by the Corporation or its Affiliates at the time of the termination of the Participant’s employment with the Corporation or its Affiliates;
(D)    Fails to inform any new employer, before accepting employment, of the terms of this paragraph and of the Participant’s continuing obligation to maintain the confidentiality of the trade secrets and other confidential information belonging to the Corporation or its Affiliates and obtained by the Participant during the term of the Participant’s employment with the Corporation or any of its Affiliates;
(E)    Induces or attempts to induce, directly or indirectly, any of the customers of the Corporation or its Affiliates, employees, representatives or consultants to terminate, discontinue or cease working with or for the Corporation or its Affiliates, or to breach any contract with the Corporation or any of its Affiliates, in order to work with or for, or enter into a contract with, the Participant or any third party;
(F)    Engages in conduct which is not in good faith and which disrupts, damages, impairs or interferes with the business, reputation or employees of the Corporation or its Affiliates; or
(G)    Fails to meet the Participant’s continuing obligations with respect to non-disclosure, non-competition and/or non-solicitation under the Participant’s agreement with the Corporation or any Affiliate.
The Administrator shall determine in its sole discretion whether the Participant has engaged in any of the acts set forth in (A) through (G) above, and its determination shall be conclusive and binding on all interested persons.
Any provision of this Section V which is determined by a court of competent jurisdiction to be invalid or unenforceable should be construed or limited in a manner that is valid and enforceable and that comes closest to the business objectives intended by such invalid or unenforceable provision, without invalidating or rendering unenforceable the remaining provisions of this Section V.

10


VI.
CHANGE IN CONTROL
If as a result of a Change in Control, the Common Stock ceases to be listed for trading on a national securities exchange (an “Exchange”), any Option, Restricted Stock Award, Restricted Stock Unit Award, or Performance Share Award that is unvested on the effective date of the Change in Control shall continue to vest according to the terms and conditions of such Award, provided that such Award is replaced with an award for voting securities of the resulting corporation or the acquiring corporation, as the case may be, (including without limitation, the voting securities of any corporation which as a result of the Change in Control owns the Corporation or all or substantially all of the Corporation’s assets either directly or through one or more subsidiaries) (the “Surviving Company”) which are traded on an Exchange (a “Replacement Award”), which Replacement Award, (i) in the case of an Option, shall consist of an option with the number of underlying shares and exercise price determined in a manner consistent with Code Section 424(a) with vesting and any other terms continuing in the same manner as the replaced Option; (ii) in the case of a Performance Share Award, shall consist of restricted stock or restricted stock units with a value (determined using the Surviving Company’s stock price as of the effective date of the Change in Control) equal to the value of the Performance Share Award (determined using the Corporation’s stock price and assuming attainment of target performance or actual performance achieved, if greater, as of the effective date of the Change in Control), with any restrictions on such restricted stock or restricted stock units lapsing at the end of the measuring period over which performance for the replaced Performance Share Award was to be measured prior to the granting of the Replacement Award; and (iii) in the case of a Restricted Stock Award or Restricted Stock Unit Award, shall consist of restricted stock or restricted stock units with a value (determined using the Surviving Company’s stock price as of the effective date of the Change in Control) equal to the value of the Restricted Stock Award or Restricted Stock Unit Award (determined using the Corporation’s stock price as of the effective date of the Change in Control), with any restrictions on such restricted stock or restricted stock units lapsing at the same time and manner as the replaced Award; provided, however, that in the event of the Participant’s involuntary Separation from Service by the Corporation without Cause or Separation from Service by the Participant for Good Reason during the vesting period of any Replacement Award, the Replacement Award shall immediately vest and be paid as soon as practicable following such Separation from Service (subject to Section VII.14), based on the fair market value of the underlying shares on the vesting date, or in the case of options, based on the excess of the fair market value of the underlying shares over the option exercise price on the vesting date. If any Option, Restricted Stock Award, Restricted Stock Unit Award, or Performance Share Award that is unvested at the effective time of the Change in Control is not replaced with a Replacement Award, such Award shall immediately vest and, in the case of a Performance Share Award, shall vest based upon deemed attainment of target performance or actual performance achieved, if greater.
If as a result of a Change in Control, the Common Stock continues to be listed for trading on an Exchange, any unvested Option, Restricted Stock Award, or Restricted Stock Unit Award shall continue to vest according to the terms and conditions of such Award and any Performance Share Award shall be replaced with a Restricted Stock Award or Restricted Stock Unit Award where the number of shares subject to such Restricted Stock Award or Restricted Stock Unit Award shall be equal to the number of Performance Shares assuming attainment of target performance or actual

11


performance achieved, if greater, as of the effective date of the Change in Control with any restrictions on such Restricted Stock Award or Restricted Stock Unit Award lapsing at the end of the measuring period over which performance for the replaced Performance Share Award was to be measured prior to the granting of the replacement Award; provided however, that, in the event of the Participant’s involuntary Separation from Service by the Corporation without Cause or Separation from Service by the Participant for Good Reason during the vesting period of an Award, such Award shall immediately vest and be paid as soon as practicable following such Separation from Service (subject to Section VII.14).
VII.
MISCELLANEOUS
1.    No Effect on Terms of Employment. Participation in the Plan shall not create a right to further employment with the Participant’s employer (the “Employer”) and shall not interfere with the ability of the Employer to terminate, with or without cause, or change the terms of employment of a Participant at any time.
2.    Grants to Participants in Foreign Countries. In making grants to Participants in foreign countries, the Administrator has the full discretion to deviate from this Statement of Terms and Conditions in order to adjust grants under the Plan to prevailing local conditions, including custom and legal and tax requirements. Furthermore, the Corporation reserves the right to impose other requirements on the Participant’s participation in the Plan on the Award and on any Shares acquired under the Plan, to the extent the Corporation determines it is necessary or advisable in order to comply with local law or facilitate the administration of the Plan, and to require the Participant to sign any additional agreements or undertaking that may be necessary to accomplish the foregoing.
3.    Information Notification. Any information required to be given under the terms of an Award shall be addressed to the Corporation in care of its Corporate Secretary at McKesson Corporation, One Post Street, San Francisco, California 94104, and any notice to be given to a Participant shall be addressed to such Participant at the address indicated beneath the Participant's name on the Award Agreement or such other address as either party may designate in writing to the other. Any such notice shall be deemed to have been duly given when enclosed in a properly sealed envelope or wrapper addressed as aforesaid, registered or certified and deposited (postage or registration or certification fee prepaid) in a post office or branch post office.
4.    Administrator Decisions Conclusive. All decisions of the Administrator administering the Plan upon any questions arising under the Plan or under an Award Agreement, shall be conclusive and binding on all interested persons.
5.    No Effect on Other Benefit Plans. Nothing herein contained shall affect a Participant’s right to participate in and receive benefits from and in accordance with the then current provisions of any pensions, insurance or other employment welfare plan or program offered by the Corporation.
6.    Withholding. Regardless of any action the Corporation or the Employer takes with respect to any federal, state or local income tax, social insurance, payroll tax, payment on account

12


or other tax-related items related to the Participant’s participation in the Plan and legally applicable to the Participant (“Tax-Related Items”), the Participant acknowledges that the ultimate liability for all Tax-Related Items is and remains the Participant's responsibility and may exceed the amount actually withheld by the Corporation or the Employer. The Participant further acknowledges that the Corporation and/or the Employer (1) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Award, including the grant, vesting or exercise of the Award, as applicable, the subsequent sale of Shares acquired pursuant to the Plan and the receipt of any dividends and/or dividend equivalents; and (2) do not commit and are under no obligation to structure the terms of the grant or any aspect of the Award to reduce or eliminate the Participant’s liability for Tax-Related Items or achieve any particular tax result. Further, if the Participant has become subject to tax in more than one jurisdiction between the Grant Date and the date of any relevant taxable event, the Participant acknowledges that the Corporation and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.
Prior to any relevant taxable or tax withholding event, as applicable, the Participant will pay or make adequate arrangements satisfactory to the Corporation and/or the Employer, or their respective agents, at their discretion, to satisfy the obligations with regard to all Tax-Related Items by one or a combination of the following: (1) withholding from the Participant’s wages or other cash compensation paid to the Participant by the Corporation and/or the Employer; (2) withholding from proceeds of the sale of Shares acquired under the Plan either through a voluntary sale or through a mandatory sale arranged by the Corporation (on the Participant’s behalf pursuant to this authorization and any other authorization the Corporation and/or the broker designated by the Corporation may require the Participant to sign in connection with the sale of Shares); or (3) withholding Shares to be issued upon grant, vesting/settlement or exercise, as applicable. Calculation of the number of Shares to be withheld shall be made based on the closing price of the Common Stock on the New York Stock Exchange on the date that the amount of tax to be withheld is determined. In no event, however, shall the Corporation be required to issue fractional Shares. With respect to an Award other than an Option, if adequate arrangements to satisfy the obligations with regard to all Tax-Related Items are not made by the Participant with the Corporation and/or the Employer prior to the relevant taxable event, the Corporation will satisfy such obligations as provided above in clause (3) of this paragraph.
To avoid negative accounting treatment, the Corporation may withhold or account for Tax-Related Items by considering applicable minimum statutory withholding amounts or other applicable withholding rates. If the obligation for Tax-Related Items is satisfied by withholding in Shares, for tax purposes, the Participant will be deemed to have been issued the full number of Shares subject to the Award, notwithstanding that a number of the Shares are held back solely for the purpose of paying the Tax-Related Items due as a result of any aspect of the Participant’s participation in the Plan.
Finally, the Participant shall pay to the Corporation or the Employer any amount of Tax-Related Items that the Corporation or the Employer may be required to withhold or account for as a result of the Participant’s participation in the Plan that cannot be satisfied by the means previously described. The Corporation may refuse to issue or deliver the Shares or the proceeds of the sale of

13


Shares if the Participant fails to comply with the Participant's obligations in connection with the Tax-Related Items.
The Administrator shall be authorized to establish such rules, forms and procedures as it deems necessary to implement the foregoing.
7.    Successors. The Award Agreements shall be binding upon and inure to the benefit of any successor or successors of the Corporation. “Participant” as used herein shall include the Participant’s Beneficiary.
8.    Delaware Law. The interpretation, performance, and enforcement of all Award Agreements shall be governed by the laws of the State of Delaware.
9.    Nature of Grant. In accepting the grant, the Participant acknowledges that:
(A)    the Plan is established voluntarily by the Corporation, it is discretionary in nature and it may be modified, amended, suspended or terminated by the Corporation at any time;
(B)    the grant of the Award is voluntary and occasional and does not create any contractual or other right to receive future Award grants, or benefits in lieu of Awards, even if Awards have been granted repeatedly in the past;
(C)    all decisions with respect to future Awards, if any, will be at the sole discretion of the Corporation;
(D)    the Participant is voluntarily participating in the Plan;
(E)    the Award is not part of normal or expected compensation for any purpose, including, but not limited to, calculating any severance, resignation, termination, redundancy, dismissal, end of service payments, bonuses, long-service awards, pension or retirement benefits or similar payments;
(F)    the Award will not be interpreted to form an employment contract or relationship with the Corporation; and furthermore, the Award will not be interpreted to form an employment contract with any subsidiary or Affiliate of the Corporation;
(G)    the future value of the underlying Shares is unknown, indeterminable and cannot be predicted with certainty;
(H)    if the underlying Shares do not increase in value, the Options will have no value;
(I)    in consideration of the grant of the Award, no claim or entitlement to compensation or damages shall arise from forfeiture of the Award which results from termination of the Participant’s employment with the Employer or the Corporation or one of its Affiliates (for any reason whatsoever) and the Participant irrevocably releases the Corporation or its Affiliates from any such claim that may arise; if, notwithstanding the foregoing, any such claim is found by

14


a court of competent jurisdiction to have arisen, then, by accepting the Award, the Participant shall be deemed irrevocably to have waived the Participant's entitlement to pursue such claim;
(J)    for purposes of an Award, the Participant’s employment relationship will be considered terminated as of the date the Participant is no longer a bona fide employee of the Corporation or one of its Affiliates (regardless of the reason for such termination and whether or not later found to be invalid or in breach of the employment laws in the jurisdiction where the Participant is employed or the terms of the Participant’s employment agreement, if any), and unless otherwise expressly provided in this Award Agreement or determined by the Corporation in its sole discretion, the Participant’s right to receive Awards and vest in Awards under the Plan, if any, will terminate effective as of such date and will not be extended by any notice period mandated under local law; similarly, any right to exercise Options under the Plan after termination of employment will be measured as of the date the Participant is no longer a bona fide employee of the Corporation or one of its Affiliates and will not be extended by any notice period mandated under local law; the Administrator shall have the sole discretion to determine when the Participant is no longer a bona fide employee;
(K)    the Corporation is not providing any tax, legal or financial advice, nor is the Corporation making any recommendations regarding participation in the Plan or the Participant’s acquisition or sale of Shares; and
(L)    Participant is hereby advised to consult with the Participant's own personal tax, legal and financial advisors regarding Participant’s participation in the Plan before taking any action related to the Plan.
10.    Data Privacy. By accepting the Award, the Participant hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of the Participant's personal data as described in this document by and among, as applicable, the Employer and the Corporation and its Affiliates for the exclusive purpose of implementing, administering and managing participation in the Plan.
The Participant understands that the Corporation and the Employer hold certain personal information about the Participant, including, but not limited, the Participant's name, home address and telephone number, date of birth, social insurance or other identification number, salary, nationality, job title, any Shares or directorships held in the Corporation, details of all Options, Restricted Stock, Restricted Stock Units, Performance Shares, Other Share-Based Awards, or any other entitlement to Shares awarded, canceled, exercised, vested, unvested or outstanding in the Participant’s favor, for the purpose of implementing, administering and managing the Plan (“Data”). The Participant understands that Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that recipients of Data may be located in the United States or elsewhere, and that the recipient’s country may have different data privacy laws and protections than the Participant’s country. The Participant understands that if the Participant resides outside of the United States, the Participant may request a list with the names and addresses of any potential recipients of the Data by contacting the local human resources representative. The Participant authorizes the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing participation in the

15


Plan, including any requisite transfer of such Data as may be required to a broker or other third party with whom the Participant may elect to deposit any Shares acquired under the Plan. The Participant understands that Data will be held only as long as is necessary to implement, administer and manage the Participant's participation in the Plan. The Participant understands that if the Participant resides outside of the United States, the Participant may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, without cost, by contacting in writing the local human resources representative. Further, the Participant understands that the Participant is providing the consents herein on a purely voluntary basis. If the Participant does not consent, or if the Participant later seeks to revoke the Participant's consent, the Participant’s employment status or service and career with the Employer will not be adversely affected; the only adverse consequence of refusing or withdrawing the Participant's consent is that the Corporation would not be able to grant the Participant Awards or administer or maintain such Awards. Therefore, the Participant understands that refusing or withdrawing consent may affect the Participant's ability to participate in the Plan. For more information on the consequences of refusal to consent or withdrawal of consent, the Participant understands that the Participant may contact the local human resources representative.
11.    Severability. The provisions in this Statement of Terms and Conditions are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.
12.    Language. If the Participant has received this Statement of Terms and Conditions or any other document related to the Plan translated into a language other than English and if the meaning of the translated version is different than the English version, the English version will control.
13.    Electronic Delivery. The Corporation may, in its sole discretion, decide to deliver any documents related to current or future participation in the Plan by electronic means. The Participant hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by the Corporation or a third party designated by the Corporation.
14.    Section 409A. If (i) the Participant is a Specified Employee at the time of the Participant’s Separation from Service, and (ii) some or any portion of the amounts payable to the Participant, if any, when considered together with any other payments or benefits which may be considered deferred compensation under section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”) and subject to the plan aggregation rules under Treasury Regulation section 1.409A-1(c)(3)(viii) (together, the “Deferred Compensation Benefits”) would result in the imposition of additional tax under Section 409A if paid to the Participant on or within the six month period following the Separation from Service, then to the extent such portion of the Deferred Compensation Benefits resulting in the imposition of additional tax would otherwise have been payable on or within the first six months following the Separation from Service, it will instead become payable on the first payroll date that occurs in the seventh month following the Separation from Service (or such longer period as is required to avoid the imposition of additional tax under

16


Section 409A). All subsequent Deferred Compensation Separation Benefits, if any, will be payable in accordance with the payment schedule applicable to each payment or benefit.
VIII.
DEFINITIONS
When capitalized in this Statement of Terms and Conditions, the following terms shall have the meaning set forth below:
1.    “Award Agreement” means an agreement between the Participant and the Corporation evidencing the grant of an Option, Restricted Stock Award, Restricted Stock Award, Performance Shares or Other Share-Based Award, as applicable.
2.    “Cause” means termination of the Participant’s employment with the Corporation or an Affiliate upon the Participant’s negligent or willful engagement in misconduct which, in the sole determination of the Chief Executive Officer of the Corporation (or the Chief Executive Officer’s designee), is injurious to the Corporation, its employees, or its customers.
3.    “Early Retirement” means a termination of employment which occurs prior to Normal Retirement but on or after the date on which the Participant’s age (expressed in terms of years and completed months) plus service with the Corporation or an Affiliate equals 65. For purposes of determining eligibility for Early Retirement, the term “service” shall include years and completed whole months of service.
4.    “Family Member” means any person identified as an “immediate family” member in Rule 16(a)‑1(e) of the Exchange Act, as such Rule may be amended from time to time. Notwithstanding the foregoing, the Administrator may designate any other person(s) or entity(ies) as a “family member.”
5.    “Good Reason” means any of the following actions, if taken without the express written consent of the Participant:
(A)    Any material change by the Corporation in the Participant’s functions, duties, or responsibilities, which change would cause the Participant’s position with the Corporation to become of less dignity, responsibility, importance, or scope from the position and attributes that applied to the Participant immediately prior to the Change in Control; provided, however, that, any such change attributable to the Corporation’s no longer being a company with publicly traded common stock shall not constitute Good Reason; and provided, further, that a reduction in the Participant’s functions, duties or responsibilities solely by virtue of the Corporation being acquired and made part of a larger entity (for example, if following a Change in Control the Participant retains the Participant’s position, or has a comparable position, with respect to a division or subsidiary of the acquirer that contains the Corporation’s business) shall not constitute Good Reason;
(B)    Any significant reduction in the Participant’s aggregate base annual salary and target incentive opportunity, as in effect immediately prior to the Change in Control;

17


(C)    Any material failure by the Corporation to comply with any of the provisions of an Award subsequent to a Change in Control; or
(D)    The Corporation’s requiring the Participant to be based at any location which would increase the Participant’s regular one-way commute by more than 25 miles from that in effect immediately preceding the Change in Control, except for travel reasonably required in the performance of the Participant’s responsibilities;
Provided that the Participant gives notice to the Corporation of the existence of the Good Reason condition within 30 days of the initial existence of the Good Reason condition and the Corporation is provided 30 days after receipt of the Participant’s notice to remedy the Good Reason condition; provided further that the Participant’s Separation from Service must occur within six months from the initial existence of the Good Reason condition if the Corporation does not remedy such condition for such separation to be considered to be for Good Reason.
6.    “Expiration Date” means the date that an Option expires as set forth in the Option Grant Notice as the “Expiration Date.”
7.    “Grant Date” means the date the Administrator grants the Award.
8.    “Grant Notice” means the notice of an Award granted to the Participant, which sets forth certain terms of such Award.
9.    “Long‑Term Disability” means a physical or mental condition in respect of which the administrator of the Corporation’s long-term disability plan has determined that the Participant is eligible to receive income replacement benefits; or, if the Participant is not then a participant in the Corporation’s long-term disability plan, a physical or mental condition that the administrator of the Corporation’s long-term disability plan determines would have rendered the Participant eligible to receive income replacement benefits, had the Participant been enrolled in such plan.
10.    “Normal Retirement” means retirement at age 60 (57, in the case of a participant in the McKesson Corporation 1984 Executive Benefit Retirement Plan) with at least 10 years of service with the Corporation or an Affiliate. For purposes of determining eligibility for Normal Retirement, “service” shall mean completed whole years of service (12 consecutive months).
11.    “Option Period” means the period commencing on the Grant Date of an Option and, except at otherwise provided in Section II.5, ending on the Expiration Date.
12.    “Separation from Service” means termination of employment with the Corporation or an affiliate. A Participant shall be deemed to have had a Separation from Service if the Participant’s service with the Corporation or an affiliate is reduced to an annual rate that is equal to or less than 20% of the services rendered, on average, during the immediately preceding three years of service with the Corporation or an affiliate (or, if providing service to the Corporation or an affiliate for less than three years, such lesser period).

18


13.    “Short‑Term Disability” means short‑term disability as defined in the Corporation’s short‑term disability plan.
14.    “Specified Employee” means those employees identified by the Corporation as "Specified Employees" for purposes of Section 409A of the Code.


19
OUTSIDE DIRECTOR

FORM OF
MCKESSON CORPORATION 2013 STOCK PLAN
RESTRICTED STOCK UNIT GRANT NOTICE
    

Grantee Name:
 
Grantee Address:
 
Number of RSUs Granted:
 
Date of Grant:
 
Vesting Dates:
 

Vesting Schedule: 100% vested on grant date.

McKesson Corporation (the “Company”) is pleased to grant you restricted stock units (“RSUs”) under the Company’s 2013 Stock Plan, as may be amended from time to time (the “Plan”) to receive ownership of shares of common stock of the Company (“Shares”). This Grant Notice (“Notice”), together with the Statement of Terms and Conditions, as provided as an attachment to this Notice (the “ST&Cs”), constitute your Restricted Stock Unit Agreement, which along with the Plan set forth the terms of your grant.

Below is a list of documents that are made available to you in connection with this Notice. PLEASE BE SURE TO READ THESE DOCUMENTS BECAUSE THEY CONTAIN IMPORTANT INFORMATION SPECIFIC TO THIS GRANT OF RSUs. This grant, along with any other grants you may have received in the past can be viewed on the Merrill Lynch web site at www.benefits.ml.com.

By signing below, I acknowledge that:
1.
I agree to receive copies of the stockholder information, including copies of any annual report, proxy and Form 10-K, from the Investor Resources section of the McKesson website at www.mckesson.com; and
2.
I also acknowledge that copies of the Plan, Plan prospectus, Plan information and stockholder information are available upon written or telephonic request to the Corporate Secretary (1-800-826-9360); and
3.
I have access to the Company’s web site; and
4.
I consent to receiving electronically a copy of the documents set forth above and attachments to this Notice; and
5.
The Plan and ST&Cs are incorporated by reference to this Notice; and
6.
The Company recommends that the Grantee consult with a tax advisor prior to accepting or vesting of this grant of RSUs; and
7.
I accept ALL the terms and conditions as set forth in the Plan and the ST&Cs applicable to this grant of RSUs.

IN WITNESS WHEREOF, the Grantee has executed this Agreement, and the Company has caused these presents to be executed in its name and on its behalf, all as of the Grant Date.
By:

__________________________________________    ________________________________________
John H. Hammergren Date Grantee Signature Date
Chairman, President and Chief Executive Officer
McKesson Corporation

1
OUTSIDE DIRECTOR


PLEASE RETURN ONE SIGNED COPY OF THIS
AGREEMENT TO:
      McKesson Corporation
      Stock Administration
      One Post Street, 35th Floor, San Francisco, CA 94104
      Attention: Evelyn Shaffer
        ATTACHMENTS:
2013 Stock Plan
2013 Stock Plan Prospectus for Non-Employee Directors
ST&Cs Applicable to Outside Director
Hedging & Pledging Policy
Insider Trading Policy
Designation of Beneficiary Form
July 2014


2


CEO Other EOs ECOT

FORM OF
MCKESSON CORPORATION 2013 STOCK PLAN
STOCK OPTION GRANT NOTICE

Optionee Name:
 
Optionee Address:
 
Type of Option:
Nonstatutory Stock Option
Grant Date:
 
Shares Granted:
 
Price per Share:
 
Vesting Schedule:
 
Expiration Date:
 

McKesson Corporation (the “Company”) is pleased to grant you a nonstatutory stock option under the Company’s 2013 Stock Plan (the “Plan”) to purchase shares of common stock of the Company (“Shares”). This Grant Notice (“Notice”), together with the Statement of Terms and Conditions, as provided as an attachment to this Notice (the “ST&Cs”), constitute your Stock Option Agreement, which along with the Plan (note that the Plan incorporates by reference the Company’s Compensation Recoupment Policy (the “Recoupment Policy”) and the Company’s Stock Ownership Policy (the “Company Stock Ownership Policy”) as both are amended from time to time) set forth the terms of your grant.

Below is a list of documents that are made available to you in connection with this Notice. PLEASE BE SURE TO READ THESE DOCUMENTS BECAUSE THEY CONTAIN IMPORTANT INFORMATION SPECIFIC TO THIS GRANT OF AN OPTION. This grant, along with any other grants you may have received in the past can be viewed on the Merrill Lynch web site at www.benefits.ml.com.

This Option is subject to earlier termination than the expiration date set above in certain circumstances, as set forth in the Plan and ST&Cs. For more information about stock options, including information on how to exercise your Option, visit the Corporate Secretary’s Website on McKNET under About McKesson/Legal/Corporate Secretary/Stock Administration.

By signing below, I acknowledge that:
1.
I agree to receive copies of the Plan, the Plan prospectus and other Plan information, including information prepared to comply with the laws outside the United States, from the Company’s website and stockholder information, including copies of any annual report, proxy and Form
2.
10-K, from the Investor Resources section of the McKesson website at www.mckesson.com; and
3.
I also acknowledge that copies of the Plan, Plan prospectus, Plan information and stockholder information are available upon written or telephonic request to the Corporate Secretary (1-800-826-9360); and
4.
I have access to the Company’s web site; and
5.
I consent to receiving electronically a copy of the document set forth above and attachments to this Notice; and
6.
The Plan, (including the Recoupment Policy and Stock Ownership Policy) and ST&Cs are incorporated by reference to this Notice; and
7.
The Company recommends that the Optionee consult with a tax advisor prior to accepting or exercising this Option; and
8.
I accept ALL the terms and conditions as set forth in the Plan and ST&Cs applicable to this Option.
9.
IN WITNESS WHEREOF, the Optionee has executed this Agreement, and the Company has caused these presents to be executed in its name and on its behalf, all as of the Grant Date.

1



 
 
 
Name Date         Optionee Signature Date
Title        
McKesson Corporation

ATTACHMENTS:
* ST&Cs Applicable to _____________
* 2013 Stock Plan
* 2013 Stock Plan Prospectus
* Compensation Recoupment Policy
* Stock Ownership Policy
* Hedging and Pledging Policy (Section 16 only)
* Insider Trading Policy

October 2013


2


EMPLOYEE

FORM OF
MCKESSON CORPORATION 2013 STOCK PLAN
STOCK OPTION GRANT NOTICE


Optionee Name:
 
Optionee Address:
 
Type of Option:
Nonstatutory Stock Option
Grant Date:
 
Shares Granted:
 
Price per Share:
 
Vesting Schedule:
 
Expiration Date:
 

McKesson Corporation (the “Company”) is pleased to grant you a nonstatutory stock option under the Company’s 2013 Stock Plan (the “Plan”) to purchase shares of common stock of the Company (“Shares”). This Grant Notice (“Notice”), together with the Statement of Terms and Conditions, as provided as an attachment to this Notice (the “ST&Cs”), constitute your Stock Option Agreement, which along with the Plan (note that the Plan incorporates by reference the Company’s Compensation Recoupment Policy, as amended from time to time (the “Recoupment Policy”)) set forth the terms of your grant.

Below is a list of documents that are made available to you in connection with this Notice. PLEASE BE SURE TO READ THESE DOCUMENTS BECAUSE THEY CONTAIN IMPORTANT INFORMATION SPECIFIC TO THIS GRANT OF AN OPTION. This grant, along with any other grants you may have received in the past can be viewed on the Merrill Lynch web site at www.benefits.ml.com.

This Option is subject to earlier termination than the expiration date set above in certain circumstances, as set forth in the Plan and ST&Cs. For more information about stock options, including information on how to exercise your Option, visit the Corporate Secretary’s Website on McKNET under About McKesson/Legal//Corporate Secretary/Stock Administration.
By signing below, I acknowledge that:
1.
I agree to receive copies of the Plan, the Plan prospectus and other Plan information, including information prepared to comply with the laws outside the United States, from the Company’s website and stockholder information, including copies of any annual report, proxy and Form
2.
10-K, from the Investor Resources section of the McKesson website at www.mckesson.com; and
3.
I also acknowledge that copies of the Plan, Plan prospectus, Plan information and stockholder information are available upon written or telephonic request to the Corporate Secretary (1-800-826-9360); and
4.
I have access to the Company’s web site; and
5.
I consent to receiving electronically a copy of the document set forth above and attachments to this Notice; and
6.
The Plan (including the Recoupment Policy) and ST&Cs are incorporated by reference to this Notice; and
7.
The Company recommends that the Optionee consult with a tax advisor prior to accepting or exercising this Option; and

1


8.
I accept ALL the terms and conditions as set forth in the Plan and the ST&Cs applicable to this Option.

IN WITNESS WHEREOF, the Optionee has executed this Agreement, and the Company has caused these presents to be executed in its name and on its behalf, all as of the Grant Date.

 
 
 
Name Date             Optionee Signature Date
Title    
McKesson Corporation

ATTACHMENTS:
* ST&Cs Applicable to Employee
* 2013 Stock Plan
* 2013 Stock Plan Prospectus
* Compensation Recoupment Policy
* Insider Trading Policy
* Appendix - (country specific)

October 2013


2


McKESSON CORPORATION
Total Shareholder Return Unit (“TSRU”)
TARGET AWARD NOTIFICATION
Fiscal Years 20__ - 20__

The Compensation Committee (the “Committee”) of the Board of Directors of McKesson Corporation has approved your target number of Total Shareholder Return Units (TSRUs) under the TSRU Program for the three-year performance period beginning ______, 20__ and ending on ______, 20__ (the “Performance Period”). The final number of shares of McKesson Corporation common stock that may be issued to you under the TSRU Program will be based on achievement against the performance criteria described below. Your participation in the TSRU Program will be subject to the terms of the McKesson Corporation 2013 Stock Plan (the “2013 Stock Plan”), which includes the Statement of Terms and Conditions that is delivered with this notice. In the event of any conflict between the 2013 Stock Plan and this document, the 2013 Stock Plan will control. This notice of your participation in the TSRU Program sets forth your TSRU Target and the TSRU Performance Criteria.


Participant Name
 
Target Number of Units
 
Date Target Approved
 
Performance Period
 
Vesting Date
 

Award and Vesting
Provided that:
•
You continue to be employed by McKesson Corporation or one of its affiliates through the date on which the Committee meets to determine achievement against the performance criteria, and
•
The Committee determines that, based on achievement of the performance criteria, a grant of shares of McKesson common stock will be made to you under the TSRU Program for _____-_____, then
•
You will receive a grant of shares following the date the Committee meets in _____ 20__. No additional vesting period will apply.

TSR Calculation - Performance Criteria and Measurement
•
The performance criteria for the TSRU Program will be a comparison over the Performance Period of McKesson’s total shareholder return (TSR) and the TSR of each of the companies comprising the S&P 500 Health Care Index (the “Index”).
•
There will be a 30 calendar-day measurement period to set the beginning and ending values for the TSR calculation for McKesson and each of the Index companies.
•
At the end of the Performance Period, McKesson’s TSR will be ranked against the TSR of each of the companies comprising the S&P Health Care Index.
•
If the performance criteria are met at no less than the threshold level, you will receive a grant of shares.
•
You may earn from 0% to 200% of the Target Number of Units set forth above; however, if the absolute value of McKesson’s TSR over the performance period is negative, the number of shares you receive will not exceed the Target Number of Units.

The Committee has the authority to adjust the performance criteria and the amount of your final award. The Committee may adjust the final award to take into account, for example, a significant change in the Index companies. The Committee will make the final determination of the TSR calculation for the Performance Period in its discretion.

1



I acknowledge that I have received, read and understand this Total Shareholder Return Restricted Stock Unit (TSRU) Target Award Notification.
________________________________________    __________________
Employee Signature                 Date

Encl - 2013 Stock Plan and Statement of Terms and Conditions



2


CEO Other EOs ECOT

FORM OF
MCKESSON CORPORATION 2013 STOCK PLAN
RESTRICTED STOCK UNIT GRANT NOTICE

Grantee Name:
 
Grantee Address:
 
Number of RSUs Granted:
 
Date of Grant:
 
Vesting Dates:
 

Vesting Schedule: Provided you continue to provide service to the company or any Affiliate of the Company through the vesting date, the RSUs will become vested _________ on ___________________.

McKesson Corporation (the “Company”) is pleased to grant you restricted stock units (“RSUs”) under the Company’s 2013 Stock Plan (the “Plan”) to receive ownership of shares of common stock of the Company (“Shares”). This Grant Notice (“Notice”), together with the Statement of Terms and Conditions, as provided as an attachment to this Notice (the “ST&Cs”), constitute your Restricted Stock Unit Agreement, which along with the Plan (note that the Plan incorporates by reference the Company’s Compensation Recoupment Policy (the “Recoupment Policy”) and the Company’s Stock Ownership Policy (the “Company Stock Ownership Policy”), as both are amended from time to time) set forth the terms of your grant.
Below is a list of documents that are made available to you in connection with this Notice. PLEASE BE SURE TO READ THESE DOCUMENTS BECAUSE THEY CONTAIN IMPORTANT INFORMATION SPECIFIC TO THIS GRANT OF RSUs. This grant, along with any other grants you may have received in the past can be viewed on the Merrill Lynch web site at www.benefits.ml.com.

By signing below, I acknowledge that:
1.
I agree to receive copies of the Plan, the Plan prospectus and other Plan information, including information prepared to comply with the laws outside the United States, from the Company’s website and stockholder information, including copies of any annual report, proxy and Form 10-K, from the Investor Resources section of the McKesson website at www.mckesson.com; and
2.
I also acknowledge that copies of the Plan, Plan prospectus, Plan information and stockholder information are available upon written or telephonic request to the Corporate Secretary (1-800-826-9360); and
3.
I have access to the Company’s web site; and
4.
I consent to receiving electronically a copy of the documents set forth above and attachments to this Notice; and
5.
The Plan (including the Recoupment Policy and Stock Ownership Policy) and ST&Cs are incorporated by reference to this Notice; and
6.
The Company recommends that the Grantee consult with a tax advisor prior to accepting or vesting of this grant of RSUs; and
7.
I accept ALL the terms and conditions as set forth in the Plan and ST&Cs applicable to this grant of RSUs.
8.
IN WITNESS WHEREOF, the Grantee has executed this Agreement, and the Company has caused these presents to be executed in its name and on its behalf, all as of the Grant Date.



1


 
 
 
John H. Hammergren                 Grantee Signature Date
Chairman of the Board, President and Chief Executive Officer            
McKesson Corporation

ATTACHMENTS:
* ST&Cs Applicable to _____________
* 2013 Stock Plan
* 2013 Stock Plan Prospectus
* Compensation Recoupment Policy
* Stock Ownership Policy
* Hedging and Pledging Policy (Section 16 only)
* Insider Trading Policy
October 2013


2




EMPLOYEE
FORM OF
MCKESSON CORPORATION 2013 STOCK PLAN
RESTRICTED STOCK UNIT GRANT NOTICE

Grantee Name:
 
Grantee Address:
 
Number of RSUs Granted:
 
Date of Grant:
 
Vesting Dates:
 

Vesting Schedule: Provided you continue to provide service to the company or any Affiliate of the Company through the vesting date, the RSUs will become vested ____ on __________________.

McKesson Corporation (the “Company”) is pleased to grant you restricted stock units (“RSUs”) under the Company’s 2013 Stock Plan (the “Plan”) to receive ownership of shares of common stock of the Company (“Shares”). This Grant Notice (“Notice”), together with the Statement of Terms and Conditions, as provided as an attachment to this Notice (the “ST&Cs”), constitute your Restricted Stock Unit Agreement, which along with the Plan (note that the Plan incorporates by reference the Company’s Compensation Recoupment Policy, as amended from time to time (the “Recoupment Policy”)) set forth the terms of your grant.

Below is a list of documents that are made available to you in connection with this Notice. PLEASE BE SURE TO READ THESE DOCUMENTS BECAUSE THEY CONTAIN IMPORTANT INFORMATION SPECIFIC TO THIS GRANT OF RSUs. This grant, along with any other grants you may have received in the past can be viewed on the Merrill Lynch web site at www.benefits.ml.com.

By signing below, I acknowledge that:
1.
I agree to receive copies of the Plan, the Plan prospectus and other Plan information, including information prepared to comply with the laws outside the United States, from the Company’s website and stockholder information, including copies of any annual report, proxy and Form 10-K, from the Investor Resources section of the McKesson website at www.mckesson.com; and
2.
I also acknowledge that copies of the Plan, Plan prospectus, Plan information and stockholder information are available upon written or telephonic request to the Corporate Secretary (1-800-826-9360); and
3.
I have access to the Company’s web site; and
4.
I consent to receiving electronically a copy of the documents set forth above and attachments to this Notice; and
5.
The Plan (including the Recoupment Policy) and ST&Cs are incorporated by reference to this Notice; and
6.
The Company recommends that the Grantee consult with a tax advisor prior to accepting or vesting of this grant of RSUs; and
7.
I accept ALL the terms and conditions as set forth in the Plan and the ST&Cs applicable to this grant of RSUs.

IN WITNESS WHEREOF, the Grantee has executed this Agreement, and the Company has caused these presents to be executed in its name and on its behalf, all as of the Grant Date.


1



 
 
 
John H. Hammergren                 Grantee Signature Date
Chairman of the Board, President and Chief Executive Officer            
McKesson Corporation

ATTACHMENTS:
* ST&Cs Applicable to Employees
* 2013 Stock Plan
* 2013 Stock Plan Prospectus
* Compensation Recoupment Policy
* Insider Trading Policy
* Appendix - (country specific)

October 2013




2




Exhibit 31.1
CERTIFICATION PURSUANT TO
RULE 13a-14(a) AND RULE 15d-14(a) OF THE SECURITIES EXCHANGE ACT, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, John H. Hammergren, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of McKesson Corporation;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:
October 29, 2015
 
/s/    John H. Hammergren
 
 
 
John H. Hammergren
 
 
 
Chairman of the Board, President and Chief Executive Officer








Exhibit 31.2
CERTIFICATION PURSUANT TO
RULE 13a-14(a) AND RULE 15d-14(a) OF THE SECURITIES EXCHANGE ACT, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, James A. Beer, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of McKesson Corporation;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:
October 29, 2015
 
/s/ James A. Beer
 
 
 
James A. Beer
 
 
 
Executive Vice President and Chief Financial Officer







Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


In connection with the quarterly report of McKesson Corporation (the “Company”) on Form 10-Q for the quarterly period ended September 30, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, in the capacities and on the dates indicated below, each hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of their knowledge:
1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/    John H. Hammergren
 
 
John H. Hammergren
 
 
Chairman of the Board, President and Chief Executive Officer
 
 
October 29, 2015
 
 
 
 
 
/s/ James A. Beer
 
 
James A. Beer
 
 
Executive Vice President and Chief Financial Officer
 
 
October 29, 2015
 
 
 
 
 

This certification accompanies the Report pursuant to § 906 of the Sarbanes-Oxley Act of 2002, and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
A signed original of this written statement required by Section 906 has been provided to McKesson Corporation and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.



McKesson (NYSE:MCK)
Historical Stock Chart
From Mar 2024 to Apr 2024 Click Here for more McKesson Charts.
McKesson (NYSE:MCK)
Historical Stock Chart
From Apr 2023 to Apr 2024 Click Here for more McKesson Charts.