Medco Health Solutions, Inc. 2006 Change In Control Executive Severance Plan

Exhibit 10.2


MEDCO HEALTH SOLUTIONS, INC.


2006 CHANGE IN CONTROL EXECUTIVE SEVERANCE PLAN

SECTION 1

PURPOSE

The Board of Directors of the Company recognizes that there are circumstances under which the occurrence of a Change in Control could be in the best interests of the Company and its stockholders. However, the threat or the occurrence of a Change in Control can result in significant distractions of the Company' s key executive personnel because of the uncertainties inherent in such a situation. The Board has determined that it is essential and in the best interests of the Company and its stockholders to retain the services of its key executive personnel in the event of a threat of a Change in Control and to ensure their continued dedication and efforts in such event without undue concern for their personal financial and employment security. Accordingly, the Company has adopted, effective as of the Effective Date, this Medco Health Solutions, Inc. Change in Control Executive Severance Plan as set forth in this document.

SECTION 2

DEFINITIONS


As used herein, the following words and phrases shall have the following meanings:


2.1 The term " Affiliate" shall mean, with respect to any person or entity, any entity directly or indirectly controlled by, controlling or under common control with such person or entity.


2.2 The term " Annual Salary Amount" shall mean a Participant' s annual base salary as in effect immediately prior to a Change in Control or, if greater, at any time thereafter, in each case without reduction for any pre-tax contributions to benefit plans. Base Salary does not include bonuses, commissions, overtime pay, shift pay, premium pay, cost of living allowances or income from stock options, stock grants or other incentives.


2.3 The term " Board" shall mean the Board of Directors of the Company.

2.4 The term " Bonus Amount" shall mean, as to any Participant, an amount equal to the Participant' s annual cash bonus paid for the last completed performance year.


2.5 The term " Bonus Plan" shall mean the Medco Health Solutions, Inc. Executive Incentive Compensation Plan (or successors thereto).

2.6 " Cause" for termination by the Employer of the Participant' s employment shall mean (i) willful and continued failure by the Participant to substantially perform the Participant' s duties on behalf of the Employer (other than any such failure resulting from the Participant' s incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination for Good Reason by the Participant) for a period of at least thirty consecutive days after a written demand for substantial performance has been delivered to the Participant by the Board, which demand specifically identifies the manner in which the Board believes that the Participant has not substantially performed the Participant' s duties, (ii) willful misconduct or gross negligence by the Participant which is demonstrably

and materially injurious to the Company or any of its subsidiaries, or (iii) the Participant is convicted of, or has entered a plea of nolo contendere to, (x) a felony or (y) any crime (whether or not a felony) involving dishonesty, fraud, embezzlement or breach of trust. For purposes of clauses (i) and (ii) of this definition, an act, or failure to act, on the Participant' s part shall not be deemed " willful" if done, or omitted to be done, by the Participant in good faith and with reasonable belief that the Participant' s act, or failure to act, was in the best interest of the Company. In addition, a Participant shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to the Participant a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board (after reasonable notice to the Participant and an opportunity for the Participant, together with the Participant' s counsel, to be heard before the Board), finding in good faith that the Participant has committed Cause as set forth in such clauses and specifying the circumstances constituting Cause.

2.7 A " Change in Control" shall mean the occurrence during the term of the Plan of any one of the following events: (a) An acquisition (other than directly from the Company) of any shares of Common Stock or other voting securities of the Company by any " Person" (for purposes of this Section only, as the term " person" is used for purposes of Section 13(d) or 14(d) of the Exchange Act), immediately after which such Person has " Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of forty percent (40%) or more of either (i) the then outstanding shares of Common Stock or (ii) the combined voting power of the Company' s then outstanding voting securities entitled to vote for the election of directors (the " Voting Securities" ); provided, however, in determining whether a Change in Control has occurred, shares of Common Stock or Voting Securities which are acquired in a " Non-Control Acquisition" (as hereinafter defined) shall not constitute an acquisition which would cause a Change in Control. A " Non-Control Acquisition" shall mean an acquisition by (i) an employee benefit plan (or a trust forming a part thereof) maintained by (A) the Company or (B) any corporation or other Person of which a majority of its voting power or its voting equity securities or equity interest is owned, directly or indirectly, by the Company (for purposes of this definition, a " Related Entity" ), (ii) the Company or any Related Entity, or (iii) any Person in connection with a " Non-Control Transaction" (as hereinafter defined); or

(b) The individuals who, immediately after the Effective Date, are members of the Board of Directors of the Company (the " Incumbent Board" ), (i) cease for any reason to constitute at least a majority of the members of the Board of Directors of the Company, or (ii) following a Merger (as hereinafter defined), do not constitute at least a majority of the board of directors of (x) the Surviving Corporation (as hereinafter defined), if fifty percent (50%) or more of the combined voting power of the then outstanding voting securities of the Surviving Corporation is not Beneficially Owned, directly or indirectly by a Parent Corporation, or (y) if there is one or more Parent Corporations, the ultimate Parent Corporation (as hereinafter defined); provided, however, that if the election, or nomination for election by the Company' s common stockholders, of any new director was approved by a vote of at least a majority of the Incumbent Board, such new director shall, for purposes of this Plan, be considered as a member of the Incumbent Board; provided, further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of an


2 actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors of the Company (a " Proxy Contest" ), including by reason of any agreement intended to avoid or settle any Proxy Contest; or

(c) The consummation of:

(i) A merger, consolidation or reorganization with or into the Company or a direct or indirect subsidiary of the Company or in which securities of the Company are issued (a " Merger" ), unless the Merger is a " Non-Control Transaction." A " Non-Control Transaction" shall mean:


(A) the stockholders of the Company immediately before such Merger own directly or indirectly immediately following the Merger at least fifty percent (50%) of the outstanding common stock and the combined voting power of the outstanding voting securities of (x) the corporation resulting from such Merger (the " Surviving Corporation" ), if fifty percent (50%) or more of the combined voting power of the then outstanding voting securities of the Surviving Corporation is not Beneficially Owned, directly or indirectly by another corporation (a " Parent Corporation" ), or (y) if there is one or more Parent Corporations, the ultimate Parent Corporation;

(B) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for the Merger, constitute at least a majority of the members of the board of directors of, (x) the Surviving Corporation, if fifty percent (50%) or more of the combined voting power of the then outstanding voting securities of the Surviving Corporation is not Beneficially Owned, directly or indirectly by a Parent Corporation, or (y) if there is one or more Parent Corporations, the ultimate Parent Corporation; and


(C) no Person other than (1) the Company or another corporation that is a party to the agreement of Merger, (2) any Related Entity, or (3) any employee benefit plan (or any trust forming a part thereof) that, immediately prior to the Merger, was maintained by the Company or any Related Entity, or (4) any Person who, immediately prior to the Merger had Beneficial Ownership of twenty percent (20%) or more of the then outstanding shares of Common Stock or Voting Securities, has Beneficial Ownership, directly or indirectly, of twenty percent (20%) or more of the combined voting power of the outstanding voting securities or common stock of (x) the Surviving Corporation, if fifty percent (50%) or more of the combined voting power of the then outstanding voting securities of the Surviving Corporation is not Beneficially Owned, directly or indirectly by a Parent Corporation, or (y) if there is one or more Parent Corporations, the ultimate Parent Corporation.


(ii) A complete liquidation or dissolution of the Company; or


(iii) The sale or other disposition of all or substantially all of the assets of the Company and its subsidiaries taken as a whole to any Person (other than a transfer to a Related Entity or under conditions that would constitute a Non-Control Transaction with the disposition of assets being regarded as a Merger for this purpose or the distribution to the Company' s stockholders of the stock of a Related Entity or any other assets).


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2.8 The term " Code" shall mean the Internal Revenue Code of 1986, as amended.

2.9 " Common Stock" shall mean the common stock of the Company, par value $0.01.


2.10 The term " Company" shall mean Medco Health Solutions, Inc.


2.11 The term " Earned But Unpaid Bonus Amount" shall mean as to any Participant whose Termination Date occurs prior to the date on which annual cash bonuses are paid under the Company' s Bonus Plan in respect of the Fiscal Year Preceding Termination, an amount equal to the bonus awarded to the Participant under the Company' s Bonus Plan in respect of the Fiscal Year Preceding Termination (which may be zero); provided, however, if bonuses have not yet been awarded by the Termination Date, the Earned But Unpaid Bonus Amount shall be equal to the annual cash bonus, if any, paid to or deferred by such Participant in respect of the fiscal year ended immediately prior to the Fiscal Year Preceding Termination. The Earned But Unpaid Bonus Amount shall not duplicate any bonus paid or deferred in respect of the Fiscal Year Preceding Termination. By way of example, if a Participant' s Termination Date is February 1, 2006 (and assuming bonuses have not yet been awarded under the Company' s Bonus Plan in respect of fiscal year 2005 by such date), the Earned But Unpaid Bonus Amount for such Eligible Individual shall be equal to the Eligible Individual' s annual bonus in respect of 2004, if any.

2.12 The " Effective Date" of the Plan is February 1, 2006, the date of its approval by the Board.


2.13 The term " Employer" shall mean, as applicable to any Participant, the Company or a subsidiary of the Company that employs the Participant.

2.14 The term " ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended.

2.15 The term " Executive Officer" shall mean as of a particular day, the executive officers of the Company as most recently designated by the Board.


2.16 The term " Excise Tax" shall mean the excise tax imposed by Section 4999 of the Code, together with any interest or penalties imposed with respect to such excise tax.

2.17 The term " Fiscal Year Preceding Termination" shall mean the most recent fiscal year of the Company ended prior to a Participant' s Termination Date.


2.18 " Good Reason" for termination by the Participant of the Participant' s employment shall mean the occurrence (without the Participant' s express written consent) of any one of the following acts by the Employer, or failures by the Employer to act, following the occurrence of a Change in Control:

(a) a significant adverse change in the Participant' s authority, duties, responsibilities or position from those in effect immediately prior to the Change in Control; provided that, notwithstanding the foregoing, the following is not " Good Reason" : (A) an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Employer promptly after receipt of notice thereof given by the Participant, (B) a change in the person to whom (but not the position to which) the Participant reports, or (C) the Participant ceasing to be an executive officer subject to Section 16(b) of the Exchange Act; or


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(b)(i) a reduction in the Participant' s annual base salary as in effect immediately prior to the Change in Control or as the same may be increased from time to time following the Change in Control, or a reduction in the level of the Participant' s bonus opportunity under the Bonus Plan as in effect immediately prior to the Change in Control or as the same may be increased from time to time following the Change in Control;


(ii) the failure by the Company or the Employer (as applicable) to pay to the Participant (A) any portion of the Participant' s annual base salary, (B) any awards earned pursuant to the Bonus Plan or (C) any portion of an installment of deferred compensation under any deferred compensation program of the Company or any of its Affiliates (including restricted stock units), in each case within seven days of the date such compensation is due;


(iii) (A) the failure by the Company or the Employer (as applicable) to continue in effect any compensation plan or program in which the Participant participates immediately prior to the Change in Control and which is material to the Participant' s total compensation, including, without limitation, the Bonus Plan and the Company' s Incentive Stock Plans, or any plans or programs adopted in substitution therefore prior to the Change in Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan or program) has been made with respect to such plan or program, or (B) the failure by the Company or the Employer (as applicable) to continue the Participant' s participation therein (or in such substitute or alternative plan or program) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of the Participant' s participation relative to other positions as existed at the time of the Change in Control;

(iv) the failure of the Company to obtain a satisfactory agreement from any successor to assume and agree to perform this Plan, as contemplated in Article VII hereof, if required to do so; or

(v) any purported termination of the Participant' s employment by the Company or the Employer (as applicable) which is not effected pursuant to a Notice of Termination satisfying the requirements of Article V hereof (and for purposes of this Plan, no such purported termination shall be effective).

The Participant' s right to terminate the Participant' s employment for Good Reason shall not be affected by the Participant' s incapacity due to physical or mental illness. The Participant' s continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder.

Notwithstanding the foregoing, the occurrence of an event that would otherwise constitute Good Reason hereunder shall cease to be an event constituting Good Reason if (i) the Participant fails to provide the Company with notice of the occurrence of any of foregoing within the thirty-day period immediately following the date on which the Participant first becomes aware (or reasonably should have become aware) of the occurrence of such event, (ii) the Participant fails to provide the Company with a period of at least thirty days from the date of such notice to cure such event prior to terminating his or her employment for Good Reason or (iii) Notice of Termination is not provided to the Company by the Participant within thirty days following the day on which the thirty-day period set forth in the preceding clause (ii) expires; provided, that the thirty-day notice period required by clause (ii) and referred to in clause (iii) shall end two days prior to the first anniversary of the Change in Control in the event that the first anniversary of the Change in Control would occur during such thirty-day period.


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2.19 The term " Incentive Stock Plans" shall mean as to the applicable Participant the Medco Health Solutions, Inc. 2002 Stock Incentive Plan, the Accredo Health Incorporated 2002 Long Term Incentive Plan and any similar plan adopted in the future providing for long term equity compensation.

2.20 The term " Leave of Absence" shall mean any leave of absence, whether or not approved by the Company or the Employer, other than (i) family medical leave, (ii) personal leave for jury duty, (iii) military leave, and (iv) any leave of absence approved for a period of less than six months (including vacation time and paid time off) and (v) any leave of absence approved for a period of six months or more from which the Participant actually returns to work in less than six months.

2.21 The term " Notice of Termination" shall mean a notice that indicates the specific provisions in this Plan relied upon as the basis for any termination of employment and sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of a Participant' s employment under the provision so indicated. No purported termination of employment shall be effective without a Notice of Termination.

2.22 The term " Participants" shall mean Executive Officers of the Company who meet the eligibility requirements of Article III of the Plan, excluding (x) individuals on Leave of Absence and (y) individuals who remain employed solely pursuant to a separation agreement with the Company or the Employer. An individual excluded as a Participant pursuant to clause (x) of this Section 2.xx shall be so excluded only during such Leave of Absence.


2.23 The term " Payment" shall mean any payment or distribution in the nature of compensation (within the meaning of Section 280G (b) (2) of the Code) to or for the benefit of a Participant, whether paid or payable pursuant to this Plan or otherwise.


2.24 The term " Permanent Disability" shall mean (i) that a Participant is receiving long-term disability benefits under the disability plan in which the Participant partici ...