SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
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PRELIMINARY PROXY -- SUBJECT TO COMPLETION
[MCKESSON HBOC LOGO]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
OF MCKESSON CORPORATION.
The 2002 Annual Meeting of Stockholders of McKesson Corporation will be held on
Wednesday, July 31, 2002 at 10:00 a.m. at the Nob Hill Masonic Center, 1111
California Street, San Francisco, California to:
- Elect three Directors to three-year terms;
- Approve an amendment to the Company's Restated Certificate of
Incorporation to increase the number of authorized shares of common stock
from 400,000,000 to 800,000,000;
- Approve an amendment to the 2000 Employee Stock Purchase Plan;
- Approve an amendment to the Amended and Restated Long Term Incentive
Plan;
- Ratify the appointment of Deloitte & Touche LLP as independent auditors
for the fiscal year ending March 31, 2003;
- Conduct such other business as may properly be brought before the
meeting.
Stockholders of record at the close of business on June 3, 2002 are entitled to
receive notice of and to vote at the Annual Meeting or any adjournment or
postponement thereof. A list of such stockholders will be available at the
meeting and, for a ten-day period preceding the meeting, at the Office of the
Secretary, One Post Street, San Francisco, California, during ordinary business
hours.
YOUR VOTE IS IMPORTANT. We encourage you to read the proxy statement and vote
your shares as soon as possible. A return envelope for your proxy card is
enclosed for your convenience. You may also vote by telephone or via the
Internet; specific instructions on how to vote using either of these methods are
included on the proxy card.
By Order of the Board of Directors
/s/ IVAN D. MYERSON
Ivan D. Meyerson
Senior Vice President, General Counsel
and Secretary
One Post Street
San Francisco, CA 94104-5296
June , 2002
CONTENTS
PAGE
----
General Information......................................... 1
- Proxies and Voting at the Meeting.................... 1
- Proxy Materials and Annual Report.................... 1
- Attendance at the Meeting............................ 1
- Dividend Reinvestment Plan........................... 2
- Vote Required and Method of Counting Votes........... 2
- Profit-Sharing Investment Plan....................... 2
Principal Stockholders...................................... 3
- Security Ownership of Certain Beneficial Owners...... 3
- Security Ownership of Directors and Executive
Officers.............................................. 3
Election of Directors (Item 1).............................. 5
- Nominees for Directors............................... 5
Board Meetings and Committees............................... 7
Committees of the Board..................................... 7
Director Compensation....................................... 9
Indemnity Agreements........................................ 9
Report of the Compensation Committee on Executive
Compensation.............................................. 9
Executive Compensation...................................... 13
- Summary Compensation Table........................... 13
- Option/SAR Grants in the Last Fiscal Year............ 14
- Aggregated Options/SAR Exercises in the Last Fiscal
Year and Fiscal Year-End Option/SAR Values............ 15
Proposal to Amend the Restated Certificate of Incorporation
to Increase the Number of Shares of Common Stock from
400,000,000 to 800,000,000 (Item 2)....................... 16
Proposal to Amend the 2000 Employee Stock Purchase Plan
(Item 3).................................................. 17
Proposal to Amend the Long Term Incentive Plan (Item 4)..... 20
Employment Agreements, Executive Severance Policy and
Termination of Employment and Change in Control
Arrangements.............................................. 22
Certain Relationships and Related Transactions.............. 26
Certain Legal Proceedings................................... 26
Indebtedness of Executive Officers.......................... 28
Audit Committee Report...................................... 29
Ratification of Appointment of Deloitte & Touche LLP as
Independent Auditors (Item 5)............................. 30
Equity Compensation Plan Information........................ 31
Other Matters............................................... 32
Appendix A: 2000 Employee Stock Purchase Plan............... A-1
Appendix B: Long Term Incentive Plan........................ B-1
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PRELIMINARY PROXY -- SUBJECT TO COMPLETION
PROXY STATEMENT
GENERAL INFORMATION
Proxies and Voting at the Meeting
The Company's Board of Directors is soliciting proxies to be voted at the Annual
Meeting of Stockholders to be held July 31, 2002 (the "Meeting"). This proxy
statement includes information about the issues to be voted upon at the Meeting.
On June , 2002, the Company began mailing these proxy materials to all
stockholders of record at the close of business on June 3, 2002. On that date,
there were approximately shares of the Company's common stock
outstanding and entitled to vote. Each share is entitled to one vote on each
matter properly brought before the Meeting.
Shares can be voted only if the stockholder is present at the Meeting in person
or by proxy. Any person giving a proxy may revoke it at any time before the
Meeting by sending in a written revocation or a proxy bearing a later date.
Stockholders may also revoke their proxies by attending the Meeting in person
and casting a ballot.
Stockholders of record and participants in the Company's Profit-Sharing
Investment Plan ("PSIP") can give proxies by calling a toll free number, by
using the Internet, or by mailing their signed proxy cards. Specific
instructions for voting by means of the telephone or Internet are set forth on
the enclosed proxy card. All shares represented by valid proxies will be voted
as specified. If no specification is made, the proxies will be voted "FOR":
1. The election of three Directors to three year terms;
2. Approving an amendment to the Company's Restated Certificate of
Incorporation to increase the number of authorized shares of common
stock from 400,000,000 to 800,000,000;
3. Approving an amendment to the 2000 Employee Stock Purchase Plan to
increase the number of shares available under the Plan;
4. Approving an amendment to the Amended and Restated Long Term Incentive
Plan;
5. Ratifying the appointment of Deloitte & Touche LLP as the Company's
independent auditors for the fiscal year ending March 31, 2003.
The Board of Directors knows of no other matters to be presented at the Meeting.
If any other matters come before the Meeting, it is the intention of the proxy
holders to vote on such matters in accordance with their best judgment.
Proxy Materials and Annual Report
The Company's Notice of Annual Meeting and Proxy Statement is available on the
Company's website under the Investor Resource tab on the Internet at
www.mckesson.com.
The Company's Annual Report on Form 10-K for the fiscal year ended March 31,
2002 ("FY 2002") accompanies these proxy materials and can also be found on the
Company's website.
Attendance at the Meeting
If you plan to attend the Meeting, you will need to bring your admission ticket.
You will find an admission ticket attached to the proxy card if you are a
registered holder or PSIP participant. If your shares are held in the name of a
bank, broker or other holder of record and you plan to
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attend the Meeting in person, you may obtain an admission ticket in advance by
sending a request, along with proof of ownership, such as a bank or brokerage
account statement, to the Company's Corporate Secretary, One Post Street, San
Francisco, California 94104. Stockholders who do not have an admission ticket
will only be admitted upon verification of ownership at the door.
Dividend Reinvestment Plan
For those stockholders who participate in the Company's Automatic Dividend
Reinvestment Plan, the enclosed proxy includes all full shares of common stock
held in the stockholder's dividend reinvestment plan account on the record date
for the Meeting, as well as shares held of record by the stockholder.
Vote Required and Method of Counting Votes
The presence in person or by proxy of holders of a majority of the outstanding
shares of common stock entitled to vote will constitute a quorum for the
transaction of business at the Meeting. Provided a quorum is present, directors
will be elected by a plurality of the votes cast by the holders of the Company's
shares of common stock voting in person or by proxy at the Meeting. The
affirmative vote of a majority of the outstanding shares of the Company's common
stock is required for the proposal to amend the Restated Certificate of
Incorporation to increase the number of authorized shares of common stock from
400 million to 800 million, and therefore, shares not voted, including
abstentions and broker nonvotes (i.e., when a broker does not have the authority
to vote on a specific issue) will have the effect of a vote against the
proposal. The affirmative vote of the holders of the majority of the shares
present or represented by proxy is required for the approval of the amendment to
the 2000 Employee Stock Purchase Plan, the amendment to the Long Term Incentive
Plan and the ratification of the appointment of Deloitte & Touche LLP.
Abstentions for these matters will be treated as votes cast on a particular
matter as well as shares present and represented for purposes of establishing a
quorum. Broker nonvotes will not be treated as votes cast on any of these
matters, but will be treated as shares present or represented for purposes of
establishing a quorum.
Profit-Sharing Investment Plan
Participants in the Company's PSIP have the right to instruct the PSIP Trustee,
on a confidential basis, how the shares allocated to their accounts are to be
voted and will receive a separate PSIP voting instruction card for that purpose.
Shares that have been allocated to PSIP participants' PAYSOP accounts for which
no voting instructions are received will not be voted. The PSIP provides that
all other shares for which no voting instructions are received from participants
and unallocated shares of common stock held in the leveraged employee stock
ownership plan established as part of the PSIP, will be voted by the Trustee in
the same proportion as shares as to which voting instructions are received.
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PRINCIPAL STOCKHOLDERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of December 31, 2001, unless otherwise noted,
information regarding ownership of the Company's outstanding common stock, by
any entity or person known by the Company to be the beneficial owner of more
than five percent of the outstanding shares of common stock.
AMOUNT AND NATURE OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
------------------------------------ -------------------- ----------
FMR Corp.
82 Devonshire Street
Boston, MA 02109.................................... 42,264,452(1) 14.70
Wellington Management Company, LLP
75 State Street
Boston, MA 02109.................................... 35,033,852(2) 12.25
JP Morgan Chase
as Trustee for the McKesson Corporation
Profit-Sharing Investment Plan
270 Park Avenue
New York, NY 10017.................................. 16,258,868(3) 5.69
Legg Mason, Inc.
100 Light Street
Baltimore, MD 21202................................. 16,484,766(4) 5.76
------------
(1) This information is based upon a Schedule 13G filed with the Securities and
Exchange Commission ("SEC") by FMR Corp. and reports voting and dispositive
power as follows: Fidelity Management Research Company, a wholly owned
subsidiary of FMR Corp. ("Fidelity") is the beneficial owner of 35,729,828
shares; Fidelity Management Trust Company, a wholly-owned subsidiary of FMR
Corp. is the beneficial owner of 4,780,624 shares. Edward C. Johnson 3d, and
FMR Corp, through its control of Fidelity and the Fidelity Funds, each has
sole dispositive power with respect to 35,729,828 shares, and sole voting
power with respect to shares. Edward C. Johnson 3d and FMR Corp., through
its control of Fidelity Management Trust Company, each has sole dispositive
power with respect to 4,780,624 shares and sole voting power with respect to
4,461,024 shares and no voting power with respect to 319,600 shares.
Fidelity International Limited, Pembroke Hall, 42 Crowe Lane, Hamilton,
Bermuda is the beneficial owner of 1,714,665 shares.
(2) This information is based on a Schedule 13G filed with the SEC by Wellington
Management Company LLP ("WMC"), as investment adviser, and reports shared
voting power with respect to 17,567,629 shares and shared dispositive power
with respect to 35,033,852 shares.
(3) This information is based on a Schedule 13G filed with the SEC and reports
shares held in trust for the benefit of participants in the McKesson
Corporation Profit-Sharing Investment Plan, for which JP Morgan Chase is a
Trustee.
(4) This information is based on a Schedule 13G filed with the SEC by Legg
Mason, Inc. and reports shared voting power and dispositive power with
respect to 16,484,766 shares.
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, as of May 15, 2002, except as otherwise noted,
information regarding ownership of the Company's outstanding common stock by (i)
each Named Executive Officer, as defined on page 13, (ii) each director and
(iii) all executive officers and directors as a group. The table also includes
the number of shares subject to outstanding options to
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purchase common stock of the Company which are currently exercisable within 60
days of May 15, 2002.
PERCENT
SHARES OF COMMON STOCK OF
NAME OF INDIVIDUAL BENEFICIALLY OWNED(1) CLASS
------------------ ---------------------- -------
Alfred C. Eckert III........................... 20,104(2)(5) *
Tully M. Friedman.............................. 83,876(3)(4)(5)(6) *
William R. Graber.............................. 272,140(5)(7) *
John H. Hammergren............................. 2,867,968(5)(7) *
Alton F. Irby III.............................. 119,460(5) *
M. Christine Jacobs............................ 54,314(3)(5) *
Paul C. Julian................................. 594,618(5)(7) *
Graham O. King................................. 902,960(5)(7) *
Marie L. Knowles............................... 7,500(5) *
Martin M. Koffel............................... 36,653(3)(5) *
Gerald E. Mayo................................. 154,020(5) *
Ivan D. Meyerson............................... 760,996(5)(7)(8) *
James V. Napier................................ 149,776(3)(5) *
Carl E. Reichardt.............................. 75,594(3)(5)(6) *
Alan Seelenfreund.............................. 1,802,402(3)(5)(7) *
Jane E. Shaw................................... 79,115(3)(4)(5)(6) *
Richard F. Syron............................... 7,500(5) *
All Directors and Executive Officers as a group
(20 Persons)................................. 8,350,685(5)(6)(7)(8) 2.88%
------------
* Less than 1%
(1) Represents shares held as of May 15, 2002 directly and with sole voting and
investment power (or with voting and investment power shared with a spouse)
unless otherwise indicated. The number of shares of common stock owned by
each director, or executive officer represents less than 1% of the
outstanding shares of such class. All directors and executive officers as a
group own 2.88% of the outstanding shares of common stock.
(2) Includes 740 shares held by Mr. Eckert's spouse in an Individual Retirement
Account, for which beneficial ownership is disclaimed.
(3) Includes restricted stock units and share units accrued under the 1997
Non-Employee Directors' Equity Compensation and Deferral Plan, and the 1994
Stock Option and Restricted Stock Plan as follows: Mr. Friedman, 6,819
units; Ms. Jacobs, 2,705 units; Mr. Koffel, 380 units; Mr. Napier, 1,422
units; Mr. Reichardt, 5,179 units; Mr. Seelenfreund, 511 units; and Dr.
Shaw, 7,277 units and all non-employee directors as a group, 24,293 units.
Directors have neither voting nor investment power in respect of such units.
(4) Includes common stock units accrued under the Directors' Deferred
Compensation Plan, as follows: Mr. Friedman, 642 units; Dr. Shaw, 5,192
units; and those directors as a group 5,834 units. Participating directors
have neither voting nor investment power in respect of such units.
(5) Includes shares that may be acquired by exercise of stock options within 60
days of May 15, 2002 as follows: Mr. Eckert, 19,364; Mr. Friedman, 60,415;
Mr. Graber, 268,750; Mr. Hammergren, 2,500,175; Mr. Irby, 119,460; Ms.
Jacobs, 51,609; Mr. Julian, 520,000; Mr. King, 862,694; Ms. Knowles, 7,500;
Mr. Koffel, 36,273; Mr. Mayo, 152,020, Mr. Meyerson, 617,140; Mr. Napier,
131,174; Mr. Reichardt, 60,415; Mr. Seelenfreund,
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1,669,920 ; Dr. Shaw, 56,206; Mr. Syron, 7,500; and all directors and executive
officers as a group, 7,416,473.
(6) Includes shares held by family trusts as to which each of the following
named directors and their respective spouses have shared voting and
investment power: Mr. Reichardt, 10,000 shares; and Dr. Shaw, 10,473 shares;
and those directors as a group, 20,473 shares. Also includes 16,000 shares
held in a revocable trust established by and for the benefit of Mr. Friedman
who is the sole trustee of such trust.
(7) Includes shares held under the Company's PSIP as of March 31, 2002, as to
which the participants have sole voting but no investment power, as follows:
Mr. Hammergren, 1,973 shares; Mr. Graber, 390 shares; Mr. Julian, 1,961
shares; Mr. King, 542 shares; Mr. Meyerson, 12,768 shares; Mr. Seelenfreund,
20,558 shares; and all directors and executive officers as a group, 43,924
shares.
(8) Includes 1,400 shares held by Mr. Meyerson as custodian for his minor child
and for which beneficial ownership is disclaimed.
PROPOSALS TO BE VOTED ON
ITEM 1. ELECTION OF DIRECTORS
The Board is divided into three classes for purposes of election. One class is
elected at each annual meeting of stockholders to serve for a three-year term.
Directors hold office until the end of their terms and until their successors
have been elected and qualified, or until their earlier death, resignation, or
removal. If a nominee is unavailable for election, your proxy authorizes the
persons named in the proxy to vote for a replacement nominee if the Board names
one. As an alternative, the Board may reduce the number of directors to be
elected at the meeting. The Board is not aware that any nominee named in the
proxy statement will be unwilling or unable to serve as a director. Alan
Seelenfreund, a director of the Company since 1988, Alfred C. Eckert III and
Gerald E. Mayo, directors of the Company since 1999, are not standing for
re-election and effective upon the expiration of their terms, the Board of
Directors has amended the Company's Restated By-Laws to provide that the
authorized number of directors shall be ten.
The following is a brief description of the principal occupation for at least
the past five years, age and major affiliations of each director.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES.
Directors Whose Terms will Expire in 2005
MARIE L. KNOWLES
Executive Vice President, Chief Financial Officer, Retired, ARCO
Ms. Knowles, age 55, retired from Atlantic Richfield Company ("ARCO") in 2000
and was Executive Vice President and Chief Financial Officer from 1996 until
2000 and a director from 1996 until 1998. From 1993 until 1996 she was Senior
Vice President of ARCO and President, ARCO Transportation Company. She joined
ARCO in 1972. Ms. Knowles is a director of URS Corporation, America West
Holdings Corporation and America West Airlines, Inc., and Phelps Dodge
Corporation. She is a member of the Board of Trustees of the Fidelity Funds. She
has been a director of the Company since March 2002.
RICHARD F. SYRON,
Chairman and Chief Executive Officer, Thermo Electron Corporation
Mr. Syron, age 58, has been Chairman of the Board of Thermo Electron
Corporation, a company that develops, manufactures and sells technology-based
instrument systems, components and
5
solutions to monitor, collect and analyze data, since January 2000, and
President and Chief Executive Officer since June 1999. From April 1994 until May
1999, Mr. Syron was the Chairman and Chief Executive Officer of the American
Stock Exchange Inc. He is a member of the Board of Governors of the American
Stock Exchange and is a director of John Hancock Mutual Life Insurance Company.
He has been a director of the Company since March 2002.
JANE E. SHAW
Chairman of the Board and Chief Executive Officer, Aerogen, Inc.
Dr. Shaw, age 63, has been Chairman of the Board and Chief Executive Officer of
Aerogen, Inc., a company specializing in development of pulmonary drug delivery
systems, since 1998. She is a director of Boise Cascade Corporation and Intel
Corporation. Dr. Shaw has been a director of the Company since 1992. She is
Chairman of the Audit Committee and a member of the Committee on Directors and
Corporate Governance.
Directors Whose Terms will Expire in 2003
TULLY M. FRIEDMAN
Chairman and Chief Executive Officer, Friedman Fleischer & Lowe, LLC
Mr. Friedman, age 60, has been Chairman and Chief Executive Officer of Friedman
Fleischer & Lowe, LLC, a private investment firm founded in 1997. He was
founding partner of Hellman & Friedman from 1984 until 1997. He is a director of
CapitalSource Holdings LLC, The Clorox Company, Levi Strauss & Co. and Mattel,
Inc. Mr. Friedman has been a director of the Company since 1992. He is Chairman
of the Finance Committee and a member of the Compensation Committee.
ALTON F. IRBY III
Chairman, Cobalt Media Group
Mr. Irby, age 61, has been Chairman and founder of Cobalt Media Group, a media
finance company, since 1999. He was Chairman, HawkPoint Partners, from 1997
until 2000. He was co-founder of J.O. Hambro Magan Irby Holdings from 1988 until
1997. He is a Partner of Gleacher & Co. He also serves as a director of City
Capital Counseling, Inc., Crown Communications Ltd., and Ciex Ltd. Mr. Irby has
been a director of the Company since 1999, and was previously a director of HBO
& Company ("HBOC"). He is a member of the Compensation Committee.
JAMES V. NAPIER
Chairman of the Board, Retired, Scientific-Atlanta, Inc.
Mr. Napier, age 65, retired as Chairman of the Board, Scientific-Atlanta, Inc.,
a cable and telecommunications network company in November 2000. He had been the
Chairman of the Board since 1993. He is also a director of Engelhard
Corporation, Personnel Group of America, Inc., Vulcan Materials Company,
Intelligent Systems, Inc. and WABTEC Corporation. Mr. Napier has been a director
of the Company since 1999, and was previously a director of HBOC. He is a member
of the Audit Committee.
CARL E. REICHARDT
Vice-Chairman of Ford Motor Company
Mr. Reichardt, age 70, was named Vice Chairman of Ford Motor Company in October,
2001 and he had been the Chairman of the Board, Retired, Wells Fargo & Company,
a bank holding company, since 1994. In addition to his directorship at Ford
Motor Company, he is also a director of HCA-The Healthcare Company, ConAgra,
Inc., Newhall Management Corporation, and PG&E Corporation. Mr. Reichardt has
been a director of the Company since 1996. He is Chairman of
6
the Committee on Directors and Corporate Governance and a member of the Audit
and Compensation Committees.
Directors Whose Terms will Expire in 2004
JOHN H. HAMMERGREN
Chairman of the Board Elect
President and Chief Executive Officer
Mr. Hammergren, age 43, was named Chairman of the Board effective July 31, 2002
and was named President and Chief Executive Officer of the Company effective
April 1, 2001. He was Co-President and Co-Chief Executive Officer of the Company
from July 1999 until April 2001. He was Executive Vice President of the Company
and President and Chief Executive Officer of the Supply Management Business from
January 1999 to July 1999; Group President, McKesson Health Systems from 1997 to
1999 and Vice President of the Company since 1996. He is a director of Nadro,
S.A. de C.V. (Mexico) and Verispan. He has been a director of the Company since
1999.
M. CHRISTINE JACOBS
Chairman of the Board, President and Chief Executive Officer, Theragenics
Corporation
Ms. Jacobs, age 51, has been Chairman of the Board, President and Chief
Executive Officer, Theragenics Corporation, a cancer treatment products
manufacturing and distributing company, since 1998. She was Co-Chairman of the
Board from 1997 to 1998 and was elected President in 1992 and Chief Executive
Officer in 1993. She is a director of Landauer, Inc. Ms. Jacobs has been a
director of the Company since 1999, and she was previously a director of HBOC.
She is a member of the Compensation Committee and the Committee on Directors and
Corporate Governance.
MARTIN M. KOFFEL
Chairman of the Board and Chief Executive Officer, URS Corporation
Mr. Koffel, age 63, has been Chairman of the Board and Chief Executive Officer
of URS Corporation, a global engineering company, since 1989. He is a director
of James Hardie Industries Limited. Mr. Koffel has been a director of the
Company since 2000. He is a member of the Finance Committee.
BOARD MEETINGS AND COMMITTEES
During the fiscal year ended March 31, 2002, the Board of Directors met 7 times.
No director attended fewer than 75% of the aggregate number of meetings of the
Board and of all the committees on which he or she served. Directors meet their
responsibilities not only by attending Board and committee meetings, but also
through communication with executive management on matters affecting the
Company.
The members of each standing committee are elected by the Board each year for a
term of one year or until his or her successor is elected.
COMMITTEES OF THE BOARD
The Audit Committee, which consists of Jane E. Shaw, Chair, Gerald E. Mayo,
James V. Napier and Carl E. Reichardt, met 7 times during the year ended March
31, 2002. The Audit Committee is responsible for, among other things, reviewing
the annual audited financial statements with management, including major issues
regarding accounting and auditing principles and practices as well as the
adequacy and effectiveness of internal controls that could significantly affect
the Company's financial statements; reviewing with financial management and the
independent
7
auditor the interim financial statements prior to the filing of the Company's
quarterly reports on Form 10-Q; recommending to the Board the appointment of the
independent auditor; monitoring the independence and evaluating the performance
of the independent auditor; approving the fees to be paid the independent
auditor; reviewing and accepting the annual audit plan, including the scope of
the audit activities of the independent auditor; at least annually reassessing
the adequacy of the Committee's charter and recommending to the Board any
proposed changes; reviewing major changes to the Company's auditing and
accounting principles and practices; reviewing the appointment, performance, and
replacement of the senior internal audit department executive; advising the
Board with respect to the Company's policies and procedures regarding compliance
with applicable laws and regulations and with the Company's code of conduct;
performing such other activities and considering such other matters, within the
scope of its responsibilities, as the Committee or Board deems necessary or
appropriate. The composition of the Audit Committee, the attributes of its
members, and the responsibilities of the Committee, as reflected in its charter,
are intended to be in accord with the Securities and Exchange Commission and New
York Stock Exchange listing requirements adopted in December of 1999 with regard
to corporate audit committee charters.
The Compensation Committee, which consists of Alfred C. Eckert III, Chairman,
Tully M. Friedman, Alton F. Irby III, M. Christine Jacobs and Carl E. Reichardt,
met 5 times during the year ended March 31, 2002. The Committee has
responsibility for administering a compensation program for managerial level
employees; the stock plans and certain incentive plans and oversight for other
incentive plans; approving the selection of trustees and investment advisors and
establishing the overall investment policies for those funds that are part of
the Company's retirement program; reviewing and approving compensation and other
terms and conditions of employment for corporate officers at the Senior Vice
President level and above; evaluating the President's and Chief Executive
Officer's performance with the other non-employee directors of the Board; making
recommendations to the Board regarding the compensation and terms and conditions
of employment of the Chairman of the Board and the President and Chief Executive
Officer and recommending a successor in the event of a vacancy; and reviewing
and monitoring management's succession plans for officers.
The Finance Committee, which consists of Tully M. Friedman, Chairman, Alfred C.
Eckert III, Martin Koffel and Alan Seelenfreund, met 4 times during the year
ended March 31, 2002. The Finance Committee has responsibility for reviewing the
long-range financial policies of the Company; providing advice and counsel to
management on the financial aspects of significant acquisitions and
divestitures, major capital commitments, proposed financings and other
significant transactions; making recommendations concerning significant changes
in the capital structure of the Company; approving the principal terms and
conditions of securities that may be issued by the Company; and approving the
terms and conditions of acquisitions in the Company's core business areas,
including the consideration to be used in such transactions.
The Committee on Directors and Corporate Governance, which consists of Carl E.
Reichardt, Chairman, M. Christine Jacobs, Gerald E. Mayo and Jane E. Shaw met 2
times during the year ended March 31, 2002. The Committee has responsibility for
recommending guidelines and criteria to be used to select candidates for Board
membership; reviewing the size and composition of the Board to assure that
proper skills and experience are represented; recommending the slate of nominees
to be proposed for election at the annual meeting of stockholders; recommending
qualified candidates to fill Board vacancies; evaluating the Board's overall
performance; advising the Board on matters of corporate governance, including
directorship practices and committee composition; and advising the Board
regarding director compensation and administering the directors' equity plan.
In evaluating candidates for the Board of Directors, the Committee on Directors
and Corporate Governance seeks individuals of proven judgment and competence
that are outstanding in their chosen fields. It also considers factors such as
education, geographic location, background,
8
anticipated participation in the Board activities and special talents or
personal attributes. Stockholders who wish to suggest qualified candidates to
the Committee should write to the Secretary of the Company, at One Post Street,
San Francisco, CA 94104, stating in detail the candidate's qualifications for
consideration by the Board. A stockholder who wishes to nominate a director must
comply with certain procedures set forth in the Company's Restated By-Laws.
DIRECTOR COMPENSATION
The compensation for each non-employee director of the Company includes an
annual retainer of $27,500. Under the 1997 Non-Employee Directors' Equity
Compensation and Deferral Plan, each director is required to defer 50% of his or
her annual retainer into either Restricted Stock Units ("RSUs") or Nonqualified
Stock Options ("Options"). Each director may also defer the remaining 50% of the
annual retainer into RSUs, Options or into the Company's deferred compensation
plan ("DCAP II"), or may elect to receive cash. Directors also receive $1,000
for each Board or Committee meeting attended, and Committee chairs receive an
annual retainer of $3,000. These fees may be deferred into RSUs or DCAP II or
may be paid in cash. Directors are also paid their reasonable expenses for
attending Board and Committee meetings.
Currently, each January directors are also granted an Option for 10,000 shares
of the Company's common stock. The Options are granted at fair market value, are
immediately exercisable, and have a term of ten years.
Directors who are employees of the Company or its subsidiaries do not receive
any compensation for service on the Board. In his capacity as non-executive
Chairman, Mr. Seelenfreund received [$ ], as well as his reasonable
expenses for the period beginning July 2001 through July 2002, for his services
to the Board.
INDEMNITY AGREEMENTS
The Company has entered into indemnity agreements with each of its directors and
executive officers that provide for defense and indemnification against any
judgment or costs assessed against them in the course of their service. Such
agreements do not permit indemnification for acts or omissions for which
indemnification is not permitted under Delaware law. See Certain Legal
Proceedings at page [24].
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Company's executive compensation program is administered by the Compensation
Committee (the "Committee") of the Board of Directors, which consists
exclusively of nonemployee directors. The Committee has sole responsibility for
reviewing all aspects of the compensation program for the Company's executive
officers. The Committee makes recommendations to the Board for compensation
actions for the Chief Executive Officer and considers and approves compensation
actions affecting other executive officers.
The Committee uses a nationally recognized independent compensation consulting
firm to assist it in carrying out its responsibilities and its review and
analysis of the executive compensation program. Using that firm's proprietary
database and identifying participants closely aligned with the Company's size,
lines of business, profitability and complexity as the Company's peer group, the
Committee establishes the parameters for base salary, short term cash and long
term compensation that are competitive in the market. This peer group includes a
broad cross-section of American companies. This report describes the policies
and the criteria used by the Committee in establishing the principal components
of, and setting the level of compensation for, executive officers.
9
THE COMPANY'S PHILOSOPHY OF EXECUTIVE COMPENSATION
The Company's executive compensation program is based on the principle of "pay
for performance". The program's objective is to provide total compensation at
competitive levels and incentive compensation that aligns the interests of the
Company's executives with those of its stockholders. To further promote the
alignment of the interests of executives with those of the Company's
stockholders, the Committee has established executive stock ownership guidelines
for the CEO, other senior officers and participants in the Long Term Incentive
Plan. Under these guidelines, executives are expected to reach levels of
ownership of Company stock equal in value to specified multiples of their base
pay.
Base salary and annual bonuses for executive officers are targeted at
approximately the median level for executive officers at companies similar in
size, complexity or lines of business to McKesson Corporation. The long-term
compensation program is designed to achieve competitive total compensation and
to enhance shareholder value by linking a large part of executive officers'
compensation directly to the Company's long-term performance.
Many factors enter into the Committee's deliberations on the appropriate levels
of short-and long-term compensation for individual executive officers. The
factors include the Company's performance as measured against financial and
nonfinancial targets approved by the Committee at the beginning of each fiscal
year; the individual performance of each executive officer; the overall
competitive environment for executives and the level of compensation needed to
attract, retain and motivate executive talent. The recommendations of the
independent compensation consulting firm as well as surveys supplied by other
independent professional compensation consultants provide the quantitative basis
for the Committee's decisions.
COMPONENTS OF COMPENSATION
The Company's executive compensation program consists of base salary, a
short-term incentive plan and long-term incentives (stock options, restricted
stock and cash). The Committee's objective is a competitive program with an
appropriate mix of short-term and long-term compensation weighted toward
long-term, performance-based incentives.
Base Pay
Base salary is reviewed annually. Actual base salary is driven by individual
performance, competitive practices and level of responsibility. Salary increases
for FY 2002 reflected the Committee's determination that base salary levels
should be increased, in certain cases, to recognize increased responsibilities
and to remain competitive at the median levels of targeted companies.
Short Term Incentives
Under the Company's short-term incentive plan (the "Management Incentive Plan"
or "MIP"), individual target awards are set as a percentage of the executive's
base salary and vary by level of responsibility. The target awards are designed
to be competitive with those set for executive officers at companies in the
Company's executive compensation comparator group. Annual MIP awards can range
from zero to three times the executives' target awards and are determined by the
Company's and/or individual business unit's performance versus pre-established
objectives. The actual awards may be reduced from the maximums established by
the foregoing procedure by the Committee exercising "negative discretion" in
accordance with regulations under Section 162(m) of the Internal Revenue Code
("Section 162(m)") with respect to this type of plan.
10
Long Term Incentives
The Company's long-term incentive program has two components: a stock option
component and a cash component. Under this program:
- participants are granted nonqualified stock options to purchase shares of
the Company's common stock at fair market value;
- the Committee establishes a target cash award for each participant under
the Long-Term Incentive Plan ("LTIP"), the cash component of the long
term incentive program which is adjusted to reflect actual achievement
against financial targets. No new awards were made under the LTIP to
Named Executive Officers (defined below under Executive Compensation) for
performance periods commencing during FY 2002.
Restricted stock, another form of long-term incentive, has been used by the
Company with the approval of the Committee on an individual basis for the
purpose of attracting and/or retaining key employees. There were no awards of
restricted stock to any of the Named Executive Officers during FY 2002
POLICY REGARDING TAX DEDUCTION FOR COMPENSATION UNDER INTERNAL REVENUE CODE
SECTION 162(m)
Section 162(m) limits the Company's tax deduction to $1 million for compensation
paid to Named Executive Officers unless the compensation is "performance based"
within the meaning of that Section and regulations thereunder. The MIP,
previously approved by stockholders, meets the requirement of a
performance-based pay program within the meaning of Section 162(m). Proceeds
from stock options granted under the 1994 Stock Option and Restricted Stock
Plan, which was also approved by stockholders, are also "performance-based" and
are eligible for an exception to the deduction limitation. In past years, the
Company faced unique challenges in retaining key employees, and from time to
time the Committee concluded that in certain circumstances it was appropriate to
make grants of options beyond the limits imposed to satisfy Section 162(m) and
outside the structure of the Company's 1994 Stock Option and Restricted Stock
Plan. These grants are reflected in the table entitled Aggregate Options/SAR
Exercises in the Last Fiscal Year and Fiscal Year-End Options/SAR Values.
The Committee's intention is and has been to comply with the requirements of
Section 162(m) unless the Committee concludes that adherence to the limitations
imposed by these provisions would not be in the best interest of the Company or
its stockholders.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
John Hammergren was named President and Chief Executive Officer effective April
1, 2001. The Board agreed on the specific economic measures of Earnings Before
Interest and Taxes, Return on Committed Capital and Earnings Per Share and
continued staff development as areas of focus and improvement for FY 2002.
During FY 2002, under Mr. Hammergren's leadership, the Company achieved strong
financial performance in both of its operating segments. The Pharmaceutical
Supply Business drove revenue growth in excess of market and continued margin
expansion. The Information Solutions Business, bolstered by strong market
acceptance of its clinical products, achieved significantly improved financial
results. Both businesses were strengthened through strategic acquisitions to
fill market niches and significant improvements were measured in both customer
and employee satisfaction.
With all major lines of business stabilized and showing accelerating revenue
growth, senior management developed a three-year strategic plan for the Company
and for each line of
11
business. The plan was presented to, and approved by, the Board of Directors.
The plan includes identification of new market opportunities to enhance revenue
growth and profitability.
During FY 2001, Mr. Hammergren initiated a disciplined process to conduct a
thorough review of the performance and potential of the top 300 executives of
the Company. This ongoing process has resulted in a clear understanding of
management development needs and identification of those executives prepared to
assume greater responsibility and a more senior role in management of the
Company.
With the advice of an independent compensation consultant, the Committee made
adjustments to the base salary and short-term incentive target for the CEO to
take his increase in responsibilities as of April 1, 2001 into account. Actual
short-term and long-term incentive awards made to the CEO for FY 2002 reflect
the strong performance discussed above and are consistent with the Company's
philosophy of linking total compensation to performance and the creation of
shareholder value.
It is the Committee's view that the total compensation package for the Chief
Executive Officer for FY 2002, as reflected in the Summary Compensation Table
that follows, was based on an appropriate balance of the Company's performance,
his own performance and competitive practice.
Compensation Committee of the Board
Alfred C. Eckert III, Chairman
Tully M. Friedman
Alton F. Irby III
M. Christine Jacobs
Carl E. Reichardt
12
EXECUTIVE COMPENSATION
The following table discloses compensation earned by the President and Chief
Executive Officer as well as the Company's four other most highly paid executive
officers (the "Named Executive Officers") for the three fiscal years ended March
31, 2002:
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
-----------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
----------------------------- ----------------------- ---------------------
OTHER SECURITIES
ANNUAL RESTRICTED UNDERLYING ALL OTHER
COMPEN- STOCK OPTIONS/ LTIP COMPEN-
SALARY BONUS SATION AWARD(S) SARS PAYOUTS SATION
NAME AND PRINCIPAL POSITION YEAR ($) ($)(1) ($)(2) ($)(3) (#) ($) ($)(4)
--------------------------- ---- ------- --------- ------- ---------- ---------- --------- ---------
John H. Hammergren.......... 2002 947,596 3,000,000 50,000 0 800,000 1,250,000 217,286
President and Chief 2001 823,556 2,300,000 119,028 0 450,000 0 72,499
Executive Officer 2000 692,308 0 108,491 4,200,000 2,300,000 60,970 74,229
William R. Graber(5)........ 2002 469,615 625,000 140,000 0 70,000 0 15,874
Senior Vice President and 2001 450,000 520,000 301,839 0 75,000 0 5,088
Chief Financial Officer
Paul C. Julian.............. 2002 573,558 1,000,000 75,000 0 450,000 0 97,150
Senior Vice President and 2001 447,436 1,000,000 177,972 0 200,000 0 40,222
President, McKesson Supply 2000 362,500 315,000 51,992 1,260,000 500,000 0 28,862
Solutions
Graham O. King.............. 2002 651,890 700,000 164,488 0 60,000 0 27,004
Senior Vice President and 2001 638,000 800,000 142,533 0 125,000 0 8,139
President, McKesson 2000 515,760 0 48,841 525,000 1,125,000 0 1,254,845
Information Solutions
Ivan D. Meyerson............ 2002 399,423 510,000 -- 0 86,000 375,000 75,682
Senior Vice President, 2001 370,000 560,000 -- 0 75,000 0 41,981
General Counsel and 2000 350,000 0 -- 1,260,000 275,000 45,466 50,845
Secretary
------------
(1) Represents the portion of the Named Executive Officers' bonus award for FY
2002 under the MIP that was either paid in cash or deferred at the
executive's election under DCAP II.
(2) Other Annual Compensation includes for Messrs. Hammergren, Graber and
Julian, annual housing assistance payments of $50,000, $140,000 and $75,000
respectively, described under "Indebtedness of Executive Officers"; and for
Mr. King, travel and living expense payments of $103,000 in connection with
his principal place of business in Alpharetta, Georgia.
(3) The number and value of the aggregate restricted stock holdings of the Named
Executive Officers on March 31, 2002 were as follows: Mr. Hammergren,
200,000 shares; $7,486,000; Mr. Julian, 60,000 shares; $2,245,800; Mr. King,
25,000 shares; $935,750; and Mr. Meyerson, 60,000 shares; $2,245,800.
(4) For FY 2002, includes the aggregate value of (i) the Company's stock
contributions under the PSIP, a plan designed to qualify as an employee
stock ownership plan under the Internal Revenue Code ("Code"), allocated to
the accounts of the Named Executive Officers as follows: Mr. Hammergren
$12,359; Mr. Graber $8,190; Mr. Julian $14,926; Mr. King $8,870; and Mr.
Meyerson $12,768; (ii) employer matching contributions under the
Supplemental PSIP, an unfunded nonqualified plan established because of
limitations on annual contributions contained in the Code, as follows: Mr.
Hammergren $131,117; Mr. Julian $55,619; Mr. King $18,134; and Mr. Meyerson
$39,945; (iii) above market interest accrued on deferred compensation as
follows: Mr. Hammergren $73,810; Mr. Graber $7,684; Mr. Julian $26,605; and
Mr. Meyerson $11,808.
(5) Mr. Graber became an executive officer of the Company effective March 25,
2000.
13
The following table provides information on stock option grants during fiscal
year 2002 to the Named Executive Officers:
OPTION/SAR GRANTS IN THE LAST FISCAL YEAR
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR GRANT DATE
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT VALUE
NAME GRANTED(#)(1)(2) FISCAL 2002 ($/SH) DATE ($)(3)
---- ---------------- ------------ ----------- ---------- -------------
John H. Hammergren........... 300,000 3.12% 38.65 7/26/11 4,164,750
500,000 5.21% 38.20 1/30/12 6,860,400
William R. Graber............ 30,000 0.31% 38.65 7/26/11 416,475
40,000 0.41% 38.20 1/30/12 548,832
Paul C. Julian............... 250,000 2.60% 38.65 7/26/11 3,470,625
200,000 2.08% 38.20 1/30/12 2,744,160
Graham O. King............... 30,000 0.31% 38.65 7/26/11 416,475
30,000 0.31% 38.20 1/30/12 411,624
Ivan D. Meyerson............. 26,000 0.27% 38.65 7/26/11 360,945
60,000 0.63% 38.20 1/30/12 823,248
------------
(1) No options were granted with SARs and no freestanding SARs have ever been
granted. Optionees may satisfy the exercise price by submitting currently
owned shares and/or cash. Income tax withholding obligations may be
satisfied by electing to have the Company withhold shares otherwise issuable
under the option with a fair market value equal to such obligations.
(2) The option exercise price of the indicated options was 100% of the fair
market value on the date of grant. The options generally become exercisable
in installments of 25% on each of the first, second, third and fourth
anniversaries of the date of grant and expire ten years after the date of
the grant.
(3) In accordance with SEC rules, a modified Black-Scholes option-pricing model
was chosen to estimate the grant date present value for the options set
forth in this table. The assumptions used in calculating the reported value
included: an option term of 6 years and a dividend yield of 0.52%; stock
volatility, 31.5% and risk-free interest rate, 3.8%. The Company does not
believe that the Black-Scholes model, or any other model, can accurately
determine the value of an option. Accordingly, there is no assurance that
the value, if any, realized by an executive, will be at or near this value
estimated by the Black-Scholes model. Future compensation resulting from
option grants is based solely on the performance of the Company's stock
price.
14
The following table provides information on the value of each of the Named
Executive Officers' stock options at March 31, 2002:
AGGREGATED OPTION/SAR EXERCISES IN THE LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN
SHARES OPTIONS/SARS AT THE MONEY OPTIONS/ SARS
ACQUIRED VALUE MARCH 31, 2002(#) AT MARCH 31, 2002($)(1)
ON EXERCISE REALIZED ------------------------- -------------------------
NAME (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ----------- --------- ------------------------- -------------------------
John H. Hammergren........ 0 0 2,500,175 / 2,543,341 12,728,770 / 12,500,000
William R. Graber......... 0 0 268,750 / 376,250 4,147,200 / 4,414,100
Paul C. Julian............ 0 0 520,000 / 900,000 4,292,000 / 4,420,250
Graham O. King............ 0 0 737,694 / 800,950 5,614,978 / 5,789,469
Ivan D. Meyerson.......... 41,768 1,326,253 617,140 / 354,750 6,492,017 / 1,794,631
------------
(1) Calculated based upon the fair market value share price of $37.43 on March
28, 2002, less the price to be paid upon exercise. There is no guarantee
that if and when these options are exercised they will have this value.
15
FIVE YEAR CUMULATIVE TOTAL RETURN*
[PERFORMANCE GRAPH]
--------------------------------------------------------------------------------
3/31/97 3/31/98 3/31/99 3/31/00 3/31/01 3/31/02
--------------------------------------------------------------------------------
McKesson
Corporation $100.00 $182.41 $209.64 $67.33 $86.87 $122.36
S&P 500 Index $100.00 $147.96 $175.01 $204.52 $158.35 $156.57
Value Line
HealthCare
Sector Index $100.00 $156.75 $196.73 $184.19 $207.66 $209.97
--------------------------------------------------------------------------------
---------------
* Assumes $100 invested in McKesson Common Stock and in each index on March 31,
1997 and that all dividends are reinvested.
ITEM 2. PROPOSAL TO AMEND THE RESTATED CERTIFICATE OF INCORPORATION TO INCREASE
THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK FROM 400,000,000 TO
800,000,000.
THE BOARD OF DIRECTORS RECOMMENDS AT VOTE FOR AMENDING THE RESTATED CERTIFICATE
OF INCORPORATION
The Company's Restated Certificate of Incorporation currently authorizes the
issuance of 400,000,000 shares of common stock and 100,000,000 shares of Series
Preferred Stock. The Board of Directors is recommending an amendment to increase
the number of authorized shares of common stock to 800,000,000. The Board
approved this increase at its meeting on May 29, 2002, subject to the approval
of the Company's stockholders.
As of March 31, 2002, approximately 385 million of the 400 million common shares
had been used or reserved for use as follows: 288 million issued and outstanding
shares and approximately 97 million shares reserved for issuance under the
Company's stock incentive and other employee benefit plans, and upon the
conversion of the Trust Convertible Preferred Securities. This leaves
approximately 15 million authorized but unissued shares of common stock
available for future use.
16
Increasing the number of authorized shares of common stock will give the Company
greater flexibility for stock splits and stock dividends, issuances under
employee benefit and employee stock incentive plans, financings, corporate
mergers and acquisitions and other general corporate purposes. Having this
additional authorized capital stock available for future use will allow the
Company to issue additional shares of common stock without the expense and delay
of a special meeting of stockholders. The additional shares would then be
available for issuance without further action by the stockholders of the Company
unless such action is required by applicable law or under the rules of any stock
exchange on which the Company's common stock may then be listed.
Stockholders' current ownership of common stock will not give them automatic
rights to purchase any of the additional authorized shares. Any future issuance
of additional authorized shares of common stock may, among other things, have a
dilutive effect on earnings per share of common stock and on the equity and
voting rights of those holding common stock at the time the additional
authorized shares are issued.
One of the effects of the amendment may be to enable the Board to issue shares
of common stock in a manner that might have the effect of discouraging or making
it more difficult for a third party to acquire control of the Company by means
of a merger, tender offer, proxy contest or otherwise that isn't favored by the
Board of Directors, and as a result protect the continuity of present
management. For example. without further stockholder approval, the Board of
Directors could strategically sell shares of common stock in a private
transaction to purchasers who would oppose a takeover or favor the current Board
of Directors. Such additional shares also could be used to dilute the stock
ownership of persons seeing to obtain control of the Company. However, the Board
of Directors is not presenting the proposal to amend the Restated Certificate of
Incorporation for anti-takeover purposes and is not aware of any effort to
accumulate the Company's common stock or to obtain control of the Company by
means of a merger, tender offer, solicitation in opposition to management or
otherwise.
The Company is not presently negotiating with anyone concerning the issuance or
use of any of the additional authorized shares of common stock and the Company
has no present arrangements, understanding or plans concerning the issuance or
use of any of the additional authorized shares.
If the proposed amendment to the Certificate is approved by the stockholders, it
will become effective on the date upon which the Amendment to the Restated
Certificate is filed with the Delaware Secretary of State.
ITEM 3. PROPOSAL TO AMEND THE 2000 EMPLOYEE STOCK PURCHASE PLAN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR AMENDING THE ESPP
We are asking stockholders to approve an amendment to the 2000 Employee Stock
Purchase Plan (the "ESPP") to increase the number of authorized shares of the
Company's common stock under the ESPP by 5,000,000 shares. In March 2002, the
Board of Directors, approved an increase in the number of shares of common stock
available for issuance under the ESPP from 6,100,000 to 11,100,000, subject to
the approval of the Company's stockholders. As of May 1, 2002 approximately
2,100,000 shares of common stock were available for issuance under the plan.
The ESPP is designed to provide employees, including officers, with an
opportunity to purchase shares of the Company's common stock on favorable terms
by means of an automatic payroll deduction mechanism. The purpose of the ESPP is
to advance and promote the interests of the stockholders of the Company by
making available to eligible employees of the Company and participating
subsidiaries and related entities the opportunity to acquire a proprietary
interest, or to increase their existing proprietary interest, in the Company.
The Board believes that employee
17
ownership of the ESPP shares serves as an incentive, to motivate and retain
employees and encourage superior performance.
The ESPP is intended to qualify as an "employee stock purchase plan" within the
meaning of Section 423 of the Internal Revenue Code of 1986, as amended (the
Code"). In March 2002 the Board amended the ESPP to allow for participation in
the plan by employees of certain of the Company's international and certain
other subsidiaries. As to those employees, the ESPP does not so qualify.
The ESPP was adopted by the Board of Directors of HBOC prior to January 12,
1999, the date when HBOC and a wholly owned subsidiary of the Company merged,
causing HBOC to become a wholly owned subsidiary of the Company (the "Merger").
The ESPP was amended and restated by the Board of Directors of the Company (the
"Board") effective as of the closing of the Merger, and further amended by the
Board on January 27, 1999, April 26, 1999, August 25, 1999, October 27, 1999 and
March 27, 2002.
ESSP purchases occur each April and October on behalf of participants, and
therefore, to assure that sufficient shares will be available to permit the ESPP
to continue to operate, the Board of Directors has approved an increase in the
number of shares of common stock reserved for issuance under the plan from
6,100,000 to 11,100,000 (subject to adjustment for any stock split, stock
dividend or other relevant change in the Company's capitalization). This
increase is subject to stockholder approval.
A vote in favor of this proposal will increase by 5,000,000 the number of shares
available for purchase under the ESPP. A vote not to approve will mean that the
number of shares reserved for issuance under the ESPP will remain at 6,100,000.
The following summary of the ESPP is qualified by reference to the full text of
the ESPP, a copy of which is in Appendix A to this Proxy Statement.
PLAN ADMINISTRATION
The ESPP is administered by the Compensation Committee of the Board (the
"Committee"), which has the authority to make rules and regulations governing
the ESPP.
ELIGIBLE EMPLOYEES
Each employee of the Company (and subsidiaries and related entities designated
by the Committee) who has been employed for 60 days or more prior to the
beginning of an Offering Period and who customarily works at least 20 hours per
week and more than five months in any calendar year is eligible to participate
in the ESPP. As of May 1, 2002 approximately 24,000 employees were eligible to
participate in the ESPP and 6,700 employees had elected to participate.
OFFERING PERIODS
The ESPP is implemented through a continuous series of 24-month offerings
beginning on the first trading day on or after each May 1 and November 1 (the
"Offering Dates") and ending on the last trading day of the month which is 24
months later (the "Offering Periods") and six-month periods beginning on each
May 1 and November 1 and ending on the following October 31 and April 30, during
which contributions may be made toward the purchase of common stock under the
plan ("Purchase Periods"). For purposes of determining the purchase price of a
share of common stock (see "Purchase Price"), the applicable Offering Period is
determined as follows:
Once a participant is enrolled in the ESPP for an Offering Period, that Offering
Period will continue to apply until the earliest of (i) the end of that Offering
Period, (ii) the date the
18
participant elects to discontinue contributions and receive a distribution of
the amount credited to the participant's cash account or (iii) the participant
re-enrolls in a subsequent Offering Period. If the fair market value of a share
of company stock on the first day of the Offering Period in which a participant
is enrolled is higher than on the first day of any subsequent Offering Period,
the participant will automatically be re-enrolled for the subsequent Offering
Period.
PAYROLL DEDUCTIONS
Each eligible employee may become a participant in the ESPP by making an
election, at least ten days prior to any Offering Date, authorizing regular
payroll deductions during the next succeeding Purchase Period, the amount of
which may not exceed 15% of a participant's compensation for any payroll period.
Payroll deductions are credited to a cash account for each participant. At the
end of each Purchase Period, the funds in each cash account will be used to
purchase shares of the Company's common stock, which are then held in a stock
account. A participant has the right to vote the shares credited to his or her
stock account, and may withdraw these shares at any time.
PURCHASE PRICE
The purchase price of each share of the Company's common stock will be the
lesser of (i) 85% of the fair market value of such share on the first day of the
Offering Period; or (ii) 85% of the fair market value of such share on the last
day of the applicable Purchase Period. The purchase price is subject to
adjustment to reflect certain changes in the Company's capitalization.
In general, the maximum number of shares of common stock that may be purchased
by a participant for each Purchase Period is determined by dividing $12,500 by
the fair market value of one share of common stock on the Offering Date. In no
event may a Participant purchase shares with a fair market value in excess of
$25,000 in each calendar year.
EFFECT OF TERMINATION OF EMPLOYMENT OF PARTICIPANT
If a participant terminates employment with the Company, its subsidiaries and
related entities during a Purchase Period, the balance of the participant's cash
account will either be returned to the participant or held in the cash account
until the end of the Purchase Period and applied to purchase the Company's
common stock.
NON-TRANSFERABILITY OF PURCHASE RIGHTS
Rights to acquire the Company's common stock under the ESPP are not transferable
by any participant and may in general be exercised only by the participant.
AMENDMENT AND TERMINATION
The Board of Directors may amend the ESPP in any respect. Certain amendments
require stockholder approval.
The ESPP will terminate when the number of shares available for issuance under
the ESPP has been substantially exhausted, or at any earlier time by action of
the Board.
PLAN BENEFITS
Because levels of participation and the eventual purchase prices are not
presently known, the future benefits to be received by any person under the ESPP
are not determinable at this time.
19
CERTAIN FEDERAL INCOME TAX EFFECTS
The following discussion is for general information only and is based on the
Federal income tax laws now in effect, which are subject to change, possibly
retroactively.
Taxation of Shares Acquired Upon Exercise of Purchase Rights. For employees of
the Company and its subsidiaries (as defined in Section 424(f) of the Code), the
Plan is intended to qualify as an "employee stock purchase plan" within the
meaning of Section 423(b) of the Code. For employees of other subsidiaries and
participating entities, the Plan cannot so qualify, so the taxation rules are
different.
Employees of the Company and Section 424(f) subsidiaries. A participant will
pay no Federal income tax upon enrolling in the Employee Stock Purchase Plan or
upon purchase of shares under the plan. A participant may recognize income
and/or capital gain or loss upon the sale or other disposition of shares
purchased under the plan, the amount and character of which will depend on
whether the shares are held for at least two years after the first day of the
Offering Period in which the shares were purchased and at least one year after
the last day of the Purchase Period in which the shares were purchased (the
"Required Holding Period").
If the participant sells or otherwise disposes of the shares before expiration
of the Required Holding Period, the participant will recognize ordinary income
in the year of the sale in an amount equal to the excess of (i) the fair market
value of the shares on the purchase date over (ii) the purchase price paid by
the participant for the shares. The Company or applicable subsidiary will be
entitled to a Federal income tax deduction in the same amount
In contrast, if the participant holds the shares until after the Required
Holding Period expires, the participant will generally recognize ordinary income
at the time of sale in an amount equal to the lesser of (i) 15 percent of the
fair market value of the shares on the first day of the Offering Period in which
the shares were purchased, or (ii) the excess of the fair market value of the
shares at the time the shares were sold over the purchase price of the shares.
The Company will not in this case be entitled to any deduction for Federal
income tax purposes.
Employees of other subsidiaries and participating entities. A participant will
not realize taxable income at the time Purchase Rights are granted under the
plan. When the shares are actually purchased, the participant will realize
taxable income in the amount of the difference between the fair market value of
the shares and the purchase price paid under the plan. (As described under
"Purchase Price," the price paid for shares purchased under the ESPP will always
be at least 15% less than the Fair Market Value of the shares on the Purchase
Date). The basis of the shares will be increased by the amount includible as
ordinary income. When the shares are sold, the gain or loss on the shares will
be treated as capital gain or loss.
Capital Gain or Loss. Net capital gain (i.e., generally, capital gain in excess
of capital losses) recognized by the participant from the sale of shares that
have been held for more than 12 months will generally be subject to tax at a
rate not to exceed 20%. Net capital gain recognized from the sale of shares held
for 12 months or less will be subject to tax at ordinary income tax rates.
ITEM 4. PROPOSAL TO AMEND THE LONG TERM INCENTIVE PLAN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR AMENDING THE LTIP
We are asking the stockholders to approve an amendment to the McKesson
Corporation Amended and Restated Long Term Incentive Plan ("LTIP"). On May 29,
2002, the Board of Directors, subject to approval of the Company's stockholders,
adopted resolutions to amend and restate the LTIP. The LTIP was originally
approved by the stockholders in 1981. The purpose of the LTIP is to advance and
promote the interests of the stockholders of the Company by attracting and
retaining employees who strive for excellence, and to motivate those employees
to
20
set and achieve above-average financial objectives by providing cash-incentive
awards for those designated full-time key officers and other employees (the
"eligible employees") who contribute most to the operating progress and earning
power of the Company, its subsidiaries and affiliates.
The proposed LTIP amendments (the "LTIP Amendments") were prepared primarily to
facilitate compliance with the requirements of Section 162(m) of the Internal
Revenue Code regarding performance-based compensation and thus to ensure that
compensation which may be payable under the LTIP to certain executive officers
will qualify as performance-based compensation which is fully tax-deductible.
The LTIP Amendments and Plan restatement are being submitted to stockholders for
approval at the 2002 Annual Meeting. If approved by stockholders, the proposed
LTIP Amendments will take effect for incentive awards, if any, payable with
respect to performance periods commencing on and after March 31, 2002. The LTIP
Amendments will have no effect on awards payable with respect to earlier
performance periods.
Set forth below is a summary of certain important features of the LTIP
Amendments, which summary is qualified in its entirety by reference to the full
text of the LTIP, as amended and restated, which is included as Appendix B of
this Proxy Statement. The proposed LTIP Amendments are shown in bold in the Plan
document.
ADMINISTRATION
The LTIP will continue to be administered by a committee (the "Committee"). The
Committee shall be appointed by the Board of Directors of the Corporation and
will be composed of not less than two Directors, each of whom qualifies as an
"outside director" for purposes of Section 162(m).
No member of the Committee will be eligible to receive any benefits from the
LTIP. All decisions, determinations and interpretations made by the Committee,
in its sole discretion, shall be final and binding on all LTIP participants and
other interested parties.
ELIGIBLE EMPLOYEES
Only those employees of the Company, its subsidiaries and affiliates who are
selected from time to time by the Committee shall be eligible to participate in
the LTIP. Currently, there are approximately [25] employees eligible to
participate in the LTIP.
INCENTIVE AWARDS
Payment of incentive awards to eligible employees will be the dollar amount
selected by the Committee in its sole discretion. However, the award amount for
the chief executive officer and the four highest-compensated officers of the
Corporation (other than the chief executive officer) shall be subject to the
following limitations: (a) 2% of the Company's "Annual Income" for the
performance period shall be set aside for awards to such officers; and (b) the
maximum awards to the following officers shall equal the indicated percentage of
the aggregate fund set forth in (a) above, determined pursuant to the following
schedule:
OFFICER PERCENTAGE
------- ----------
Chief Executive Officer..................................... 40%
The four highest-compensated officers (other than the
CEO)...................................................... 15% each
----------
Total............................................. 100%
"Annual Income" shall mean reported net income before gains and loses from the
sales of businesses and settlements or awards paid or accrued for claims,
controversies or litigation against or related to the Company or its businesses.
21
Prior to the LTIP Amendments, the LTIP provided that the Committee designated
specified performance objectives (e.g., earnings per share, return on capital
employed, total shareholder return) for each performance period. The LTIP also
limited awards to 125% of a participant's rate of basic compensation at the
beginning of a performance period multiplied by the number of years in the
performance period, and adjusted by the compound rate of total shareholder
return for the Company since the beginning of the last performance period.
NEGATIVE DISCRETION
Notwithstanding the foregoing, the Committee has the discretion to reduce (but
not increase) some or all of an award that would otherwise be paid to the chief
executive officer and the four highest-compensated officers (other than the
CEO). In no event, however, shall any such reduction result in an increase of an
award payable to any other LTIP participant.
AMENDMENTS AND TERMINATION
The Board of Directors may amend or terminate the LTIP so long as such action
does not adversely affect any right or obligations with respect to awards
already outstanding under the LTIP.
PLAN BENEFITS
The incentive awards payable under the amended and restated LTIP for services to
be rendered in or after FY 2003 are not determinable until completion of the
performance period for which the incentive award will be paid. However, on May
29, 2002, the Committee approved the following maximum LTIP awards (subject to
further limitation as described above) for the [three]-year period from April 1,
2002 through March 31, 2005, subject to approval of the LTIP amendments by the
stockholders:
MAXIMUM DOLLAR
NAME VALUE OF AWARD
---- --------------
John H. Hammergren.......................................... *
William R. Graber........................................... *
Paul C. Julian.............................................. *
Graham O. King.............................................. *
Ivan D. Meyerson............................................ *
Executive Group ( persons excluding those named
above).................................................... *
Non-Executive Group ( persons).......................... *
------------
* Information not yet available, to be included in final proxy.
EMPLOYMENT AGREEMENTS, EXECUTIVE SEVERANCE POLICY AND TERMINATION OF EMPLOYMENT
AND CHANGE IN CONTROL ARRANGEMENTS
Employment Agreements
The Company has entered into an employment agreement ("Agreement") with each of
Messrs. Hammergren, Julian and King that provides for, among other things, the
term of employment, compensation and benefits payable during the term of the
Agreement as well as for specified payments in case of termination of
employment. In each case, the Agreement provides that the executive will
participate in all compensation and fringe benefit programs made available to
all executive officers.
The Company entered into an amended and restated Agreement with John H.
Hammergren effective as of June 21, 1999, replacing his prior employment
agreement with the Company. The
22
term of the Amended and Restated Agreement shall expire March 31, 2004, and
provides that the term will be automatically extended by one year on March 31,
2004, and each anniversary thereof, unless either party gives notice that such
term will not be so extended. The Agreement provides for an annual base salary
of at least $750,000 and such additional incentive compensation, if any, as may
be determined by the Board of Directors; provided that, any incentive
compensation awarded to him under the Company's MIP shall be calculated using an
Individual Target Award of 100% of base salary. In addition, he was granted
options to purchase 2 million shares of Company common stock at an exercise
price of $29.8125 per share. In addition, the Agreement provides that, in the
event (i) the Company terminates him without "Cause," (ii) he terminates for
"Good Reason" (as defined in the Agreement) or (iii) the Company elects not to
extend the term of the Agreement, he will be entitled to (A) receive payment of
his then base salary and incentive compensation (using an Individual Target
Award of 100% of base salary), for the remainder of the term of the Agreement,
but in no event for less than two years; (B) continued monthly automobile
allowance and participation in the DCAP II for the term of the Agreement, (C)
continued accrual and vesting in his rights and benefits under the Executive
ESBP and EBRP, calculated on the basis of his receiving (x) Approved Retirement
commencing on the expiration of the Agreement and (y) with respect to the EBRP,
a benefit calculated on the basis of 60% of Average Final Compensation then
specified in the EBRP without any reduction for early retirement (see "Pension
Benefits"), (D) lifetime coverage under the Company's Executive Medical Plan and
financial counseling program, as well as, lifetime office space and secretarial
support; (E) accelerated vesting of all his stock options and restricted stock;
(F) with respect to Long Term Incentive Plan awards, receive such awards on a
pro-rata basis in accordance with the terms and conditions applicable to
Approved Retirement with the exception that the "Service-based Portion of the
Target Award," if any, shall be paid as if the executive continued employment
throughout the performance period. In the event such termination occurs within
two years following a Change in Control (as defined in the Amended and Restated
Agreement), executive will be entitled to a gross-up payment to cover the excise
taxes and interest imposed on "excess parachute payments" as defined in Section
280G of the Code.
The Company entered into an Agreement with Paul C. Julian, effective as of
August 1, 1999 which Agreement was amended in 2000. The term of the Agreement
shall expire March 31, 2004. The Agreement provides for an annual base salary of
at least $500,000 and such additional compensation, if any, as may be determined
by the Board of Directors; provided that, any incentive compensation awarded to
the executive under the Company's MIP shall be calculated using an Individual
Target Award of 75% of base salary. In addition, Mr. Julian was granted options
to purchase 200,000 shares of Company common stock with an exercise price of
$29.8125 per share. The Agreement provides that, in the event the Company
terminates the executive without "Cause," or the executive terminates for "Good
Reason," both as defined in the Agreement, the Company shall (A) continue his
then base salary, reduced by any compensation he receives from a subsequent
employer during such term (B) consider him for a bonus under the Company's MIP
for the fiscal year in which termination occurs, (C) continue his automobile
allowance and Executive Medical Plan benefits until the expiration date of the
Agreement (D) continue the accrual and vesting of his rights, benefits and
existing awards for the remainder of the term of the Agreement for purposes of
the EBRP, ESBP and the Stock Option and Restricted Stock Plan.
The Company entered into an Agreement with Graham O. King effective as of June
21, 1999. The term of the Agreement shall expire the earlier of March 31, 2004
or the date that Mr. King shall have been granted "Approved Retirement" status
under the Company's EBRP. The Agreement provides for an annual base salary of at
least $580,000, a retention payment of $2.5 million, payable in two installments
of $1.25 million, plus such additional incentive compensation, if any, as may be
determined by the Board; provided that any compensation awarded to Mr. King
under the Company's MIP shall be calculated using an Individual Target Award of
75% of base salary.
23
Mr. King was granted a nonqualified option to purchase 1 million shares of the
Company's common stock, with an exercise price of $29.8125 per share. With
respect to Mr. King's participation in the EBRP and ESBP, the Chief Executive
Officer shall recommend to the Board that he be granted Approved Retirement upon
the satisfaction of certain requirements, and if Mr. King accrues 5 years of
actual service credit pursuant to the EBRP and the ESBP, he shall be granted
additional service credit for prior service with HBOC and a previous employer.
The Agreement provides that in the event the Company terminates the executive
without "Cause" or the executive terminates for "Good Reason," both as defined
in the Agreement, the Company shall (A) continue his then base salary, reduced
by any compensation he receives from a subsequent employer during such term (B)
consider him for a bonus under the Company's MIP for the fiscal year in which
termination occurs (C) continue his automobile allowance, financial planning
allowance and Executive Medical Plan benefits until the expiration of the
Agreement, (D) continue the accrual and vesting of his rights, benefits and
existing awards for purposes of the EBRP, ESBP, and Stock Option and Restricted
Stock Plan.
The Company may terminate any of the executives, under the terms of their
respective Agreements, for "cause" (as defined in each Agreement) in which case
the Company's obligations under the Agreements cease.
In the event any executive is prevented from performing his duties under his
respective Agreement due to a disability, the Company shall continue to pay the
current salary during the period of disability, provided however that if the
executive is continuously disabled for more than 12 months, the Company's
obligations under the Agreement cease. In the event of death of the executive
during the term of the Agreement, his salary will continue to be paid to his
surviving spouse for six months following the death and thereafter the Company's
obligations under the Agreement cease.
Executive Severance Policy
The Company has implemented an Executive Severance Policy (the "Policy"), which
applies in the event an executive officer is terminated by the Company for
reasons other than for cause at any time other than within two years following a
change in control (as defined in the Policy) of the Company. The benefit payable
to executive officers under the Policy is equal to 12 months' base salary plus
one month's pay per year of service, up to a maximum of 24 months. Such benefits
would be reduced or eliminated by any income the executive officer receives from
subsequent employers during the severance payment period. Executive officers who
are age 55 or older and have 15 or more years of service with the Company at the
time of such involuntary termination are granted "approved retirement" for
purposes of the EBRP and the ESBP. The Policy also provides that, upon such
involuntary termination, awards under the LTIP are prorated for all cycles then
in progress. In addition, vesting of stock options and lapse of restrictions on
restricted stock awards will cease as of the date of termination, and no
severance benefits will be paid beyond age 62. A terminated executive who is
receiving payments under the terms of an employment agreement he or she may have
with the Company is not entitled to receive additional payments under the
Policy.
Termination of Employment and Change in Control Arrangements
The Company has entered into termination agreements with certain of its
executive officers, including certain of the Named Executive Officers. The
agreements operate independently of the Policy, continue through December 31 of
each year, and are automatically extended in one-year increments until
terminated by the Compensation Committee (or by the Board of Directors in the
case of the Chief Executive Officer). The agreements are automatically extended
for a period of two years following any change in control.
24
The agreements provide for the payment of certain severance and other benefits
to executive officers whose employment is terminated within two years of a
change in control of the Company. Specifically, if following a change in
control, the executive officer is terminated by the Company for any reason,
other than for "Cause" (as defined in the agreements), or if such executive
officer terminates his or her employment for "Good Reason" (as that term is
defined in the agreements), then the Company will pay to the executive officer,
as severance pay in cash, an amount equal to 2.99 times his or her "base amount"
(as that term is defined in Section 280G of the Code) less any amount which
constitutes a "parachute payment" (as defined in Section 280G). The Company will
also continue the executive officer's coverage in the health and welfare benefit
plans in which he or she was a participant as of the date of termination of
employment, and the executive officer will continue to accrue benefits under the
EBRP, in both such cases for the period of time with respect to which the
executive officer would be entitled to payments under the Policy described above
if the executive officer's termination of employment had been covered by such
Policy. In addition, if the executive officer is age 55 or older and has 15 or
more years of service (as determined under such plan on the date of executive's
termination of employment), then such termination will automatically be deemed
to be an "approved retirement" under the terms of the EBRP. The amount of
severance benefits paid shall be no higher than the amount that is not subject
to disallowance of deduction under Section 280G of the Internal Revenue Code.
Change in Control
For purposes of the termination agreements and as used elsewhere in this proxy
statement, a "change in control" is generally deemed to occur if: (i) any
"person" (as defined in the Securities Exchange Act of 1934, as amended) other
than the Company or any of its subsidiaries or a trustee or any fiduciary
holding securities under an employee benefit plan of the Company or any of its
subsidiaries, acquires securities representing 30% or more of the combined
voting power of the Company's then outstanding securities; (ii) during any
period of not more than two consecutive years, individuals who at the beginning
of such period constitute the Board of Directors of the Company and any new
director whose election by the Board of Directors or nomination for election by
the Company's stockholders was approved by a vote of at least two-thirds ( 2/3)
of the directors then still in office who either were directors at the beginning
of the period or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority thereof; (iii) the
stockholders of the Company approve a merger or consolidation of the Company
with any other Company, other than (a) a merger or consolidation which would
result in the voting securities of the Company outstanding immediately prior
thereto continuing to represent, in combination with the ownership of any
trustee or other fiduciary holding securities under an employee benefit plan of
the Company, at least 50% of the combined voting power of the voting securities
of the Company or such surviving entity outstanding immediately after such
merger or consolidation, or (b) a merger or consolidation effected to implement
a recapitalization of the Company (or similar transaction) in which no person
acquires more than 50% of the combined voting power of the Company's then
outstanding securities; or (iv) the stockholders approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of its assets.
25
PENSION BENEFITS
The table below illustrates the estimated combined annual benefits payable upon
retirement at age 62 under the Company's qualified retirement plan and
supplemental EBRP in the specified compensation and years of service
classifications. The benefits are computed as single life annuity amounts.
YEARS OF SERVICE
FIVE YEAR
AVERAGE
COMPENSATION 15 20 25 30 35
------------ -------- ---------- ---------- ---------- ----------
$ 600,000 $279,300 $ 332,400 $ 360,000 $ 360,000 $ 360,000
$ 800,000 372,400 443,200 480,000 480,000 480,000
$1,000,000 465,500 554,000 600,000 600,000 600,000
$1,200,000 558,600 664,800 720,000 720,000 720,000
$1,400,000 651,700 775,600 840,000 840,000 840,000
$1,600,000 744,800 886,400 960,000 960,000 960,000
$1,800,000 837,900 997,200 1,080,000 1,080,000 1,080,000
$2,000,000 931,000 1,108,000 1,200,000 1,200,000 1,200,000
The benefit under the EBRP is a percentage of final average pay based on years
of service or as determined by the Board of Directors. The maximum benefit is
60% of final average pay. The total paid under the EBRP is not reduced by Social
Security benefits but is reduced by those benefits payable on a single life
basis under the Company's qualified retirement plan and the annuitized value of
the Retirement Share Plan allocations of common stock made to the PSIP assuming
12% growth in the value of the stock. Mr. Hammergren will receive benefits from
the EBRP based on 60% of final pay and not reduced by any early retirement
reduction (see "Employment Agreements").
The compensation covered under the plans whose benefits are summarized in the
above table includes the base salary and annual bonus amounts reported in the
Summary Compensation Table plus any annual bonus amounts foregone to purchase
grants of Bonus Options.
The estimated years of service for purposes of the EBRP at March 31, 2002 for
the Named Executive Officers are as follows: Mr. Hammergren, 6; Mr. Graber, 2;
Mr. Julian, 4; Mr. King, 3; and Mr. Meyerson, 23.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company and its subsidiaries have transactions in the ordinary course of
business with unaffiliated companies of which certain of the Company's
non-employee directors are directors and/or executive officers. The Company does
not consider the amounts involved in such transactions to be material in
relation to the businesses of such other companies or the interests of the
directors involved. The Company anticipates that similar transactions will occur
in fiscal year 2003.
CERTAIN LEGAL PROCEEDINGS
Since the Company's announcements, in April, May and July of 1999 (the
"Company's Announcements") that certain software sales transactions in its
Information Technology Business unit, formerly HBO & Company and now known as
McKesson Information Solutions, Inc. ("HBOC"), were improperly recorded as
revenue and reversed, as of May 10, 2002, ninety-one lawsuits have been filed
against the Company, HBOC, certain of the Company's or HBOC's current or former
officers or directors, and other defendants, including Bear Stearns & Co. Inc.
and Arthur Andersen LLP.
26
Sixty-seven of these actions have been filed in Federal Court (the "Federal
Actions"). Of these, sixty-one were filed in the U.S. District Court for the
Northern District of California. All others have either been voluntarily
dismissed or transferred to the Northern District.
On November 2, 1999, the Honorable Ronald M. Whyte of the Northern District of
California issued an order consolidating fifty-three of these actions under the
caption In re McKesson HBOC, Inc. Securities Litigation, (Case No. C-99-20743
RMW) (the "Consolidated Action"). By order dated December 22, 1999, Judge Whyte
appointed the New York State Common Retirement Fund as lead plaintiff ("Lead
Plaintiff") and approved Lead Plaintiff's choice of counsel.
Lead Plaintiff filed an Amended and Consolidated Class Action Complaint (the
"ACCAC") on February 25, 2000. The ACCAC named the Company, but not HBOC, as a
defendant and generally alleged that the Company violated the federal securities
laws in connection with the events leading to the Company's Announcements. On
September 28, 2000, Judge Whyte dismissed all of the ACCAC claims against the
Company under Section 11 of the Securities Act with prejudice, dismissed a claim
under Section 14(a) of the Exchange Act with leave to amend, ruled that the
Company would not be liable for the conduct of HBOC as its "successor-in
interest," and declined to dismiss a claim against the Company under Section
10(b) of the Exchange Act based on its conduct after the January 12, 1999 merger
transaction with HBOC (the "Merger").
On November 14, 2000, Lead Plaintiff filed its Second Amended and Consolidated
Class Action Complaint ("SAC"). As with its ACCAC, Lead Plaintiff's SAC
generally alleged that the Company violated the federal securities laws in
connection with the events leading to the Company's Announcements. The SAC named
the Company, HBOC, certain of the Company's or HBOC's current or former officers
or directors, Arthur Andersen and Bear Stearns as defendants. On January 7,
2002, Judge Whyte dismissed the claims against the Company under Sections 10(b),
to the extent based on pre-Merger conduct, and 14(a) of the Exchange Act,
granting Lead Plaintiff thirty (30) days leave "for one last opportunity" to
amend those claims. Judge Whyte also dismissed the claim against HBOC under
Section 14(a) of the Exchange Act without leave to amend.
On February 15, 2002, Lead Plaintiff filed a Third Amended and Consolidated
Class Action Complaint (the "TAC"). The TAC, like the SAC, purports to state
claims against the Company and HBOC under Sections 10(b) and 14(a) of the
Exchange Act in connection with the events leading to the Company's
Announcements, and names the Company, HBOC, certain of the Company's or HBOC's
current or former officers or directors, Arthur Andersen and Bear Stearns as
defendants. On April 5, 2002, the Company filed a motion to dismiss Lead
Plaintiff's claim under Section 10(b) of the Exchange Act to the extent it is
based on the Company's pre-Merger conduct, and the claim under Section 14(a) of
the Exchange Act in its entirety. The Company's motion to dismiss is currently
set for hearing on June 7, 2002.
By order dated February 7, 2000, Judge Whyte coordinated a class action alleging
claims under the Employee Retirement Income Security Act (commonly known as
"ERISA"), Chang v. McKesson HBOC, Inc. et al., (Case No. C-00-20030 RMW filed on
November 24, 1999) and a shareholder derivative action that had been filed in
the Northern District under the caption Cohen v. McCall et. al., (Case No.
C-99-20916 RMW filed on June 17, 1999) with the Consolidated Action. On February
7, 2002, Adams v. McKesson Information Solutions, Inc. et al., No. C-02-0685
JCS, a class action alleging claims under ERISA, was filed in the Northern
District of California. The Adams action has been consolidated with the
Consolidated Action under Judge Whyte's Pretrial Order No. 1. All three of these
actions name certain of the Company's current and former officers and directors.
Two other cases were filed in federal court naming certain of McKesson's
officers and directors, generally alleging misconduct by the Company or HBOC in
connection with the events leading to
27
the Company's need to restate HBOC's financial statements: Pacha, et al., v.
McKesson HBOC, Inc., et al., (No. C01-20713 PVT), filed on July 27, 2001, and
Hess v. McKesson HBOC, Inc. et al., Case No. C-20003862), which was originally
filed in Arizona state court, was removed to federal court and transferred to
the Northern District of California.
The remaining Federal Actions, naming the Company, HBOC or certain of the
Company's or HBOC's former officers or directors, have either been consolidated
with the Consolidated Action for pre-trial purposes, are stayed or have been
dismissed.
Twenty-four actions have also been filed in various state courts in California,
Colorado, Delaware, Georgia, Louisiana and Pennsylvania (the "State Actions").
The State Actions, like the Consolidated Action, generally allege misconduct by
the Company or HBOC in connection with the events leading to the Company's need
to restate HBOC's financial statements. Of those, two cases, both derivative
actions, assert claims against the directors: Ash, et al. v. McCall, et al.,
(Case No. 17132), filed in the Delaware Chancery Court on April 30, 1999 and
Mitchell v. McCall et al., (Case. No. 304415), filed in California Superior
Court, City and County of San Francisco on June 23, 1999. The Company is a
nominal defendant in these actions. Merrill Lynch Fundamental Growth Fund et al.
v. McKesson HBOC, Inc. et al., CGC-02-405792, filed on March 19, 2002, in the
San Francisco Superior Court, names one current officer of the Company, but does
not assert claims against any current directors. The remaining twenty-one State
Actions were brought against the Company, HBOC, or certain of the Company's or
HBOC's former officers or directors. Of those, seven have been dismissed.
None of the Federal or State Actions name Mr. Hammergren, Ms. Knowles, Mr.
Koffel or Mr. Syron as a defendant.
INDEBTEDNESS OF EXECUTIVE OFFICERS
Under the 1999 Executive Stock Purchase Plan (the "1999 ESPP"), full recourse
unsecured loans for the purchase of Company common stock, having a term of five
years and bearing interest at the rate of 4.7% per annum, were made on February
5, 1999 (the "Purchase Date") to certain executive officers, including Mr.
Hammergren and Mr. Meyerson. Pursuant to the 1999 ESPP, Messrs. Hammergren and
Meyerson purchased 100,000 and 30,000 shares, respectively, at a purchase price
of $63.8125 per share, which was the fair market value of the common stock on
the Purchase Date. In addition, under the Company's Stock Purchase Plan (the
"SPP") full recourse loans, having a term of five years were made on the
Purchase Date to certain executive officers and other key executives not named
in the Summary Compensation Table. Such loans were for the purchase of common
stock at the fair market value on the Purchase Date and are secured by a pledge
of the shares purchased under the SPP. In fiscal years 1998, 1997, and 1995
additional loans to certain executive officers named in the Summary Compensation
Table and other executive officers of the Company were made under the SPP to
purchase common stock at the fair market value on the dates of purchase, bearing
interest from 7.1% to 8% per annum. The terms of the loans made in 1997 have
been extended until July 2003, at an interest rate of 2.72%. All shares
purchased by the current executive officers under the 1999 ESPP and the SPP are
included in the Security Ownership of Directors and Executive Officers table on
page .
The table below shows, as to each executive officer who was indebted to the
Company in an amount exceeding $60,000 at any time during the period April 1,
2001 through May 1, 2002, (i) the largest aggregate amount of indebtedness
outstanding during such period, and (ii) the amount of indebtedness outstanding
at May 1, 2002. For each individual listed in the table below, unless additional
loans are described later in this paragraph, the indebtedness shown resulted
from loans previously outstanding or those made on the Purchase Date under the
1999 ESPP or under the SPP. The indebtedness shown for Messrs. Hammergren,
Graber and Kirincic also includes the balance owed on a secured housing loan in
the original principal amount of
28
$500,000 each. The indebtedness shown for Mr. Julian also includes the balance
owed on secured housing loans in the aggregate amount of $1,250,000. These
housing loans are without interest unless and until the individuals fail to pay
any amount under the loans when due and thereafter at a market rate. See
footnote 2 to the Summary Compensation Table on page for further information
regarding the housing loans made to Messrs. Hammergren, Julian and Graber.
LARGEST
AGGREGATE AMOUNT OF
AMOUNT OF INDEBTEDNESS
INDEBTEDNESS AT MAY 1, 2002
------------ --------------
John H. Hammergren............................... $9,716,937 $9,716,937
William R. Graber................................ 500,000 500,000
Paul C. Julian................................... 2,936,669 2,936,669
Graham O. King................................... 908,036 908,036
Paul E. Kirincic................................. 500,000 500,000
Ivan D. Meyerson................................. 2,801,323 2,193,477
Carmine J. Villani............................... 2,218,053 2,218,053
AUDIT COMMITTEE REPORT
The Audit Committee of the Company's Board of Directors (the "Audit Committee")
assists the Board in fulfilling its responsibility for oversight of the quality
and integrity of the Company's financial reporting processes. The functions of
the Audit Committee are described in greater detail in the Audit Committee's
written charter, which has been adopted by the Company's Board of Directors. The
Committee is composed exclusively of directors who are independent under the New
York Stock Exchange listing standards. The Audit Committee's members are not
professionally engaged in the practice of accounting or auditing, and are not
experts in either of those fields or in auditor independence and they
necessarily rely on the work and assurances of the Company's management and the
independent auditors. Management has the primary responsibility for the
financial statements and the reporting process, including the system of internal
controls. The Company's independent auditors, Deloitte & Touche LLP, are
responsible for performing an independent audit of the Company's consolidated
financial statements in accordance with generally accepted auditing standards
and for issuing a report thereon.
The Audit Committee has reviewed and discussed the audited financial statements
of the Company for the year ended March 31, 2002 (the "Audited Financial
Statements") with management. In addition, the Audit Committee has discussed
with Deloitte & Touche LLP the matters required to be discussed by Statement on
Auditing Standards No. 61 (Communications with Audit Committees), as amended.
The Audit Committee also has received the written disclosures and the letter
from the independent auditors required by the Independence Standards Board
Standard No. 1 (Independence Discussions with Audit Committees) and has
discussed with that firm its independence from the Company. The Audit Committee
further considered whether the provision of the non-audit related services by
Deloitte & Touche LLP to the Company is compatible with maintaining the
independence of Deloitte & Touche LLP from the Company. The Audit Committee has
also discussed with management of the Company and Deloitte & Touche LLP such
other matters and received such assurances from them as it deemed appropriate.
The Audit Committee discussed with the Company's internal and independent
auditors the overall scope and plans for their respective audits. The Audit
Committee meets regularly with the internal and independent auditors, with and
without management present, to discuss the results of their examinations, the
evaluations of the Company's internal controls, and the overall quality of the
Company's accounting principles.
29
In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors, and the Board has approved,
that the audited financial statements be included in the Company's Annual Report
on Form 10-K for the period ended March 31, 2002 for filing with the SEC. The
Committee has also recommended to the Board, subject to stockholder
ratification, the selection of Deloitte & Touche LLP as the Company's
independent auditors for 2003, and the Board concurred in its recommendation.
Audit Committee of the Board
Jane E. Shaw, Chairman
Gerald E. Mayo
James V. Napier
Carl E. Reichardt
ITEM 5. RATIFICATION OF APPOINTMENT OF DELOITTE & TOUCHE LLP AS INDEPENDENT
AUDITORS FOR 2003
The Audit Committee of the Board has recommended, and the Board of Directors has
approved Deloitte & Touche LLP as the independent auditor to audit the
consolidated financial statements of the Company and its subsidiaries for the
fiscal year ending March 31, 2003. Deloitte & Touche LLP has acted as the
Company's independent auditors for several years, is knowledgeable about the
Company's operations and accounting practices, and is well qualified to act in
the capacity of independent auditors.
Representatives of Deloitte & Touche LLP are expected to be present at the
Meeting to respond to appropriate questions and to make a statement if they
desire to do so.
The aggregate fees billed by Deloitte & Touche LLP, the member firms of Deloitte
& Touche Tohmatsu and their respective affiliates, including Deloitte
Consulting, for the fiscal year ended March 31, 2002 are as follows:
Audit Fees.................................................. $2,600,000
Financial Information System Design and Implementation
Fees...................................................... 0
All Other Fees*............................................. 3,800,000
----------
Total.................................................. $6,400,000
==========
* All other fees consisted primarily of $2.3 million for tax planning services
and approximately $900,000 for miscellaneous other services, including but not
limited to, certain audit-related services involving audits of employee benefit
plans, consultation on accounting standards or transactions and comfort letters
and consents related to SEC and other registration statements. Other fees also
included $600,000 paid to Deloitte Consulting for consulting services regarding
business and operating processes ("consulting fees"). Deloitte & Touche LLP has
recently announced its intent to separate Deloitte Consulting from the firm.
In January 2002, the Audit Committee adopted a policy with respect to the
retention of the independent auditors for work not related to their audit of the
Company's financial statements. The policy provides that, absent prior
discussion with the Committee, consulting fees should not exceed 25% of the
total fees paid to the firm (less consulting fees) in any one year.
30
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information as of March 31, 2002 with respect to
the plans under which the Company's common stock is authorized for issuance. The
table does not include stock which may be issuable under the proposed amendment
to the Company's ESPP.
(A) (B) (C)
-------------------- -------------------- -----------------------
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
NUMBER OF SECURITIES FUTURE ISSUANCE UNDER
TO BE ISSUED UPON WEIGHTED-AVERAGE EQUITY COMPENSATION
EXERCISE OF EXERCISE PRICE OF PLANS (EXCLUDING
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, SECURITIES REFLECTED IN
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS COLUMN (A))
------------- -------------------- -------------------- -----------------------
Equity compensation plans approved
by security holders(1)........... 22,880,164 $ * 10,814,873(2)
Equity compensation plans not
approved by security
holders(3),(4)................... 35,427,999 $ * 5,499,496
------------
* Information not yet available; to be included in final proxy.
(1) Includes the 1973 Stock Purchase Plan, the 1994 Stock Option and Restricted
Stock Plan (the "1994 Plan"), the 1997 Non-Employee Directors' Equity
Compensation and Deferral Plan, and the ESPP (not including the 5,000,000
shares for which stockholder approval is being sought at this meeting).
(2) Includes 3,033,575 shares which remained available for purchase under the
ESPP at March 31, 2002. On April 30, 2002 a purchase of shares occurred on
behalf of participants reducing the number of shares available under the
ESPP to 2,175,732.
(3) Includes the broad-based 1999 Stock Option and Restricted Stock Plan, the
1998 Canadian Stock Incentive Plan, the 1999 Executive Stock Purchase Plan,
a small assumed sharesave scheme (similar to the ESPP) in the United Kingdom
with fewer than 25,000 shares remaining, (the "U.K. Sharesave Scheme") and
two Stock Option Plans.
(4) As a result of acquisitions, the Company currently has 35 assumed option
plans under which options are exercisable for 4,902,734 shares of Company
common stock. No further awards
31
will be made under any of the assumed plans and information regarding the
assumed options is not included in the table above.
The material terms of all of the Company's plans are described, in accordance
with the requirements of the Statement of Financial Accounting Standards No.
123, in a footnote to the Company's financial statements which appears in the
section captioned "Selected Financial Data" of the Company's 10-K filed
[ ]. This information is incorporated herein by reference.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires certain persons,
including the Company's directors and executive officers, to file reports of
ownership and changes in ownership with the SEC. Based on the Company's review
of the reporting forms received by it, the Company believes that all such filing
requirements were satisfied for FY 2002.
SOLICITATION OF PROXIES
The Company is paying the cost of preparing, printing and mailing these proxy
materials. We will reimburse banks, brokerage firms and others for their
reasonable expenses in forwarding proxy materials to beneficial owners and
obtaining their instructions. The Company has engaged Georgeson Shareholder
Communications Inc., a proxy solicitation firm, to assist in the solicitation of
proxies. We expect Georgeson's fee to be approximately $10,000 plus
out-of-pocket expenses. A few officers and employees of the Company may also
participate in the solicitation without additional compensation.
OTHER MATTERS
In addition to voting choices specifically marked, and unless otherwise
indicated by the stockholder, the proxy card confers discretionary authority on
the named proxy holders to vote on any matter that properly comes before the
Meeting which is not described in these proxy materials. At the time this proxy
statement went to press, the Company knew of no other matters which might be
presented for stockholder action at the Meeting.
STOCKHOLDER PROPOSALS FOR THE 2003 ANNUAL MEETING
To be eligible for inclusion in the Company's 2003 Proxy Statement pursuant to
Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), stockholder proposals must be sent to the Secretary of the Company at the
principal executive offices of the Company, One Post Street, San Francisco, CA
94104, and must be received no later than February , 2003. In order for
stockholder proposals made outside of Rule 14a-8 under the Exchange act to be
considered "timely" within the meaning of Rule 14a-4(c) under the Exchange Act,
such proposals must be sent to the Secretary of the Company at the address set
forth above and must be received no later than May , 2003. The Company's
Advance Notice By-Law provisions require that stockholder proposals made outside
of Rule 14a-8 under the Exchange Act must be submitted in accordance with the
requirements of the By-Laws, not later than May , 2003 and not earlier than
April , 2003.
A copy of the full text of the Company's Advance Notice By-Law provisions
referred to above may be obtained by writing to the Secretary of the Company.
ONLINE ACCESS TO ANNUAL REPORTS ON FORM 10-K AND PROXY STATEMENTS
Most stockholders can elect to view future proxy statements and annual reports
on Form 10-K over the Internet instead of receiving paper copies in the mail.
Those stockholders will be given
32
the opportunity to consent to future Internet delivery when they vote their
proxy. For some stockholders, this option is only available if you vote on the
Internet.
If you are not given an opportunity to consent to Internet delivery when you
vote your proxy, contact the bank, broker or other holder of record through
which you hold your shares and inquire about the availability of such an option
for you.
If you consent, your account will be so noted and when the Company's Annual
Report on Form 10-K for the 2003 and proxy statement for the 2003 annual meeting
become available, you will be notified on how to access them on the Internet.
Stockholders of record may indicate their consent on this year's proxy card, and
will receive a paper proxy card for next year's annual meeting in the mail.
If you elect to receive your materials via the Internet, you can still request
paper copies by leaving a message with Investor Relations at (800) 826-9360 or
by e-mail at investors@mckesson.com.
By Order of the Board of Directors
/s/ IVAN D. MYERSON
Ivan D. Meyerson
Senior Vice President, General Counsel
and Secretary
June , 2002
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED
MARCH 31, 2002, ON FILE WITH THE SECURITIES AND EXCHANGE COMMISSION, EXCLUDING
CERTAIN EXHIBITS, MAY BE OBTAINED WITHOUT CHARGE BY WRITING TO INVESTOR
RELATIONS, BOX K, MCKESSON CORPORATION, ONE POST STREET, SAN FRANCISCO, CA
94104.
33
APPENDIX A
MCKESSON CORPORATION
2000 EMPLOYEE STOCK PURCHASE PLAN
(As amended through March 27, 2002)
1. PURPOSE
The McKesson Corporation 1998 Employee Stock Purchase Plan (the "Plan") is
intended to encourage the employees of the Company and certain of its
subsidiaries to acquire a proprietary interest, or to increase their existing
proprietary interest, in the Company. The Board of Directors of the Company (the
"Board") believes that employee ownership of the Company's stock will serve as
an incentive, encouraging employees to continue their employment and to perform
diligently their duties as employees. The Plan is intended to qualify as an
"employee stock purchase plan" within the meaning of Section 423 of the Internal
Revenue Code of 1986, as amended (the "Code") and which does not so qualify for
eligible employees of other entities which are designated to participate in the
Plan by the Company.
2. STOCK RESERVED FOR THE PLAN
The Company will reserve 6,100,000 (which number has been adjusted to reflect
the 2:1 stock split effected by the former HBO & Company on May 27, 1998, and
the Exchange Ratio as defined in the Merger Agreement) shares of the Company's
common stock, $.01 par value per share ("Stock"), for purchase by employees
under the Plan. The number of shares of Stock reserved for the Plan may further
be adjusted as provided in Section 16. The shares of Stock reserved for the Plan
may be shares now or hereafter authorized but unissued, shares that have been
reacquired by the Company, or shares of treasury stock.
3. ADMINISTRATION
The Plan will be administered by the Compensation Committee of the Board (the
"Committee"), consisting of members of the Board designated by the Board. The
Board from time to time may remove members from, or add members to, the
Committee. Vacancies on the Committee will be filled by the Board. Subject to
the express provisions of the Plan, the Committee will have authority to
interpret the Plan, to prescribe rules and regulations for administering the
Plan, and to make all other determinations necessary or advisable in
administering the Plan. The determinations of the Committee will be final and
binding upon all persons, unless otherwise determined by the Board. A majority
of the members of the Committee will constitute a quorum, and the Committee may
act by vote of a majority of its members at a meeting at which a quorum is
present, or without a meeting by a written consent signed by all members of the
Committee. To the extent consistent with applicable law, the Committee may
delegate its duties hereunder to a sub-committee, whose members need not be
members of the Board.
4. ELIGIBILITY
(a) Eligible Employees. Except as set forth in subsections (b) and (c) below,
all employees of the Company, and all employees of any parent corporation, as
defined in Code Section 424(e) (a "Parent") or any subsidiary corporation as
defined in Code Section 424(f) (a "Subsidiary") of the Company that is
designated by the Board as a participating Parent or Subsidiary, will be
eligible to participate in the Plan. In addition, the Board may designate as a
subsidiary any other entity controlled directly or indirectly by the Company
which does not qualify as a subsidiary corporation as defined in Section 424(f)
of the Code and the employees of that Subsidiary shall
A-1
be eligible to participate in the Plan although the Plan will not qualify as an
employee stock purchase plan within the meaning of Section 423 of the Code as to
those employees. Such employees are referred to herein as "Employees." No person
who is not an Employee will be eligible to participate in the Plan.
(b) Excluded Employees. The following Employees will not be eligible to
participate in the Plan:
(i) any Employee whose customary employment is less than 20 hours per week
or for not more than 5 months in any calendar year; and
(ii) any Employee who, immediately after a right to purchase Stock is
granted hereunder, would own shares of Stock, or of the stock of a
Subsidiary, possessing 5 percent or more of the total combined voting power
or value of all classes of such stock. In determining whether an Employee
owns 5 percent of such shares, (A) the attribution of ownership rules of
Code Section 424(d) will apply, and (B) an Employee will be deemed to own
the shares of stock underlying any outstanding option which he has been
granted (whether under the Plan or any other plan or arrangement); and
(iii) effective for the first Purchase Period commencing after September
30, 1999 and for any subsequent Purchase Period, any Employee who as of the
first day of any such Purchase Period has not completed a period of
employment of at least 30 days.
5. OFFERING DATES
The Plan will be implemented by a continuous series of 24-month offerings
beginning on the first trading day on or after May 1 and November 1 of each
calendar year and terminating on the last trading day of the month which is 24
months later (the "Offering Periods") and six-month periods commencing on each
May 1 and November 1 and ending on the following October 31 and April 30, during
which contributions may be made toward the purchase of Stock under the Plan (the
"Accumulation Periods"). For purposes of calculating the purchase price under
Section 9, the applicable Offering Period shall be determined as follows:
(i) Once a Participant is enrolled in the Plan for an Offering Period, such
Offering Period shall continue to apply to the Participant until the
earliest of (A) the end of such Offering Period, (B) the date the
Participant elects to discontinue contributions to the Plan and receive a
distribution of his Cash Account, or (C) re-enrollment in a subsequent
Offering Period under paragraph (ii) below.
(ii) In the event that the Fair Market Value of the Stock on the last
trading day before the commencement of the Offering Period in which the
Participant is enrolled is higher than on the last trading day before the
commencement of any subsequent Offering Period, the first Offering Period
shall be canceled and the Participant shall automatically be re-enrolled
for such subsequent Offering Period.
6. ELECTION TO PARTICIPATE
(a) Initial Election. Each Employee who is eligible to participate in the Plan
may become a participant (a "Participant") by making an election, prior to any
Offering Date and in accordance with procedures established by the Committee,
authorizing specified regular payroll deductions over the next succeeding
Purchase Period (an "Election Form"). Each election will be expressed as a
percentage of the Employee's Compensation (as defined below), which may not
exceed 15 percent of the Employee's Compensation for any payroll period or be
less than 1 percent of the Employee's Compensation for any payroll period (or
such other maximum and minimum percentages as the Committee may determine). An
Employee's "Compensation" is his "compensation" as that term is defined in the
McKesson Corporation Profit-Sharing Investment Plan. Payroll deductions for a
Participant will be made regularly and in equal amounts during the
A-2
Purchase Period by the Company, and will be credited to a bookkeeping account
established by the Company in the name of the Participant (the "Cash Account").
No interest will be paid on or credited to Cash Accounts.
(b) Changes in Rate of Payroll Deductions. A Participant may change the amount
of payroll deductions elected for a Purchase Period by providing notice in
accordance with procedures established by the Committee.
(c) Discontinuance of Contributions. At any time during a Purchase Period, (but
not later than five business days prior to the Purchase Date), a Participant may
discontinue participation in the Plan for the current Purchase Period by
providing notice in accordance with procedures established by the Committee.
Upon such discontinuance, at the Participant's election, the balance of his Cash
Account will be (i) returned to the Participant as soon as practicable, or (ii)
held in the Cash Account until the end of the Purchase Period and applied to
purchase Stock in accordance with Section 10. A Participant who discontinues
payroll deductions may recommence his participation in the Plan as of the
Offering Date for any other succeeding Purchase Period, provided he otherwise is
eligible to participate and timely files a new Election Form with the Committee.
7. PURCHASE PERIOD LIMITATION ON RIGHTS TO PURCHASE STOCK
(a) In General. Subject to the annual limitations in Section 8 below, the
maximum number of shares of Stock each Participant will have the right to
purchase under the Plan during a Purchase Period is determined by dividing (i)
$12,500 by (ii) the Fair Market Value of one share of Stock on the Offering Date
for such Purchase Period.
(b) Insufficient Shares of Stock. If at any time the number of shares of Stock
available for purchase under the Plan is insufficient to grant to each
Participant the right to purchase the full number of shares to which he
otherwise would be entitled, then each Participant will have the right to
purchase that number of available shares of Stock that is equal to the total
number of available shares of Stock multiplied by a fraction, the numerator of
which is the amount of Compensation credited to the Participant's Cash Account
for the Purchase Period, and the denominator of which is the total amount of
Compensation credited to the Cash Accounts of all Participants for the Purchase
Period.
8. ANNUAL LIMITATION ON RIGHTS TO PURCHASE STOCK
No right to purchase shares of Stock under the Plan will be granted to an
Employee if such right, when combined with all other rights and options granted
under all of the Code Section 423 employee stock purchase plans of the Company
or any Parent or Subsidiary would permit the Employee to purchase shares of
Stock with a Fair Market Value (determined at the time the right or option is
granted) in excess of $25,000 for each calendar year in which the right or
option is outstanding at any time, determined in accordance with Code Section
423(b)(8).
9. PURCHASE PRICE
(a) In General. The purchase price of each share of Stock purchased at the close
of an Accumulation Period will be the lower of (i) 85 percent of the Fair Market
Value of the such share on the last trading day of such Accumulation Period, or
(ii) 85 percent of the Fair Market Value of such share on the first day of the
applicable Offering Period (as determined under Section 5).
(b) Fair Market Value. The Fair Market Value of the Stock, as of any date, will
be equal to the closing price of the Stock on the New York Stock Exchange
("NYSE"), for such date as reported in The Wall Street Journal. If no
transaction is reported for a particular date, Fair Market Value will be the
closing price on the closest preceding date for which any transaction is
A-3
reported. If the Stock is not traded on the NYSE, Fair Market Value will be
determined using the method established by the Committee.
10. PURCHASE OF STOCK
Subject to the share limitations set forth in Sections 7 and 8 above, as of each
Purchase Date, the Committee will purchase from the Company using the funds in
each Cash Account on such date, on behalf of each Participant having funds in
his Cash Account, the number of whole and fractional shares of Stock determined
by dividing the amount in such Cash Account on such date by the purchase price
determined under Section 9.
11. STOCK ACCOUNTS
(a) Establishment of Accounts. As soon as reasonably practicable after each
Purchase Date, the Company will deliver to a custodian selected by the Committee
(the "Custodian"), in electronic form, the total number of shares purchased by
all Participants in the Purchase Period. The Custodian will maintain a separate
"Stock Account" for each Participant, which will be credited with the number of
whole and fractional shares of Stock purchased by the Participant under the
Plan.
(b) Withdrawals from Stock Accounts. A Participant may at any time withdraw any
whole shares of Stock credited to his Stock Account as to which the holding
period requirements of Code Section 423(a)(1) have been satisfied. As soon as
practicable after such request by a Participant, the Custodian will cause such
whole shares to be transferred in electronic form to a broker designated by the
Participant or will cause a certificate representing such Shares to be delivered
to the Participant.
(c) Rights as Shareholders. A Participant will have all of the rights of a
stockholder of the Company with respect to all of the shares of Stock credited
to his Stock Account, including the right to vote and receive dividends on such
Shares.
12. TERMINATION OF EMPLOYMENT
(a) Termination Other Than Due to Death, Disability or Retirement. If a
Participant terminates employment with the Company or any Parent or Subsidiary
during a Purchase Period for any reason other than death, disability, or
Retirement, then the Participant's participation in the Plan will immediately
terminate and the balance of the Participant's Cash Account will be returned to
the Participant. For purposes of the Plan, a Participant who is on an approved
leave of absence will not be considered to have terminated employment until the
91st day of such leave of absence or such longer period as the Participant's
right to re-employment is guaranteed by law or contract.
(b) Termination Due to Death. If a Participant terminates employment with the
Company or any Parent or Subsidiary during a Purchase Period due to death, then,
at the election of the Participant's beneficiary, the balance of the
Participant's Cash Account will be (i) delivered to the beneficiary or (ii) held
in the Cash Account until the end of the Purchase Period and applied to purchase
Stock in accordance with Section 10.
(c) Termination Due to Disability or Retirement. If a Participant terminates
employment with the Company or any Parent or Subsidiary due to Retirement or
disability no more than 3 months before the Purchase Date for a Purchase Period,
then, at the Participant's election, the balance of the Participant's Cash
Account will be (i) returned to the Participant, or (ii) held in the Cash
Account until the end of the Purchase Period and applied to purchase Stock in
accordance with Section 10. If a Participant terminates employment due to
Retirement or disability more than 3 months before the Purchase Date for a
Purchase Period, then the Participant's participation in
A-4
the Plan will immediately terminate and the balance of the Participant's Cash
Account will be returned to the Participant.
(d) Definition of Retirement. For purposes of the Plan, Retirement will mean the
attainment by a Participant of age plus whole years of service with the Company
or any Parent or Subsidiary totaling 65 or more.
13. BENEFICIARY
In the event of the Participant's death, his beneficiary shall be his surviving
spouse, or if there is none, his surviving children in equal shares, or if there
are none, his estate.
14. COMPLIANCE WITH SECURITIES LAW
All shares of Stock issued under the Plan will be subject to such restrictions
as the Committee may deem advisable under any applicable federal or state
securities laws, and the Committee may cause a legend or legends making
reference to such restrictions to be placed on the certificates representing
such shares.
15. RIGHTS NOT TRANSFERABLE
Neither payroll deductions credited to a Participant's account nor any rights
under the Plan may be assigned, transferred, pledged or otherwise disposed of in
any way by the Participant (other than by will or the laws of descent and
distribution or as provided in Section 13 hereof). Rights under the Plan are
exercisable during the lifetime of the Participant only by the Participant.
16. ADJUSTMENT IN CASE OF CHANGES AFFECTING THE COMPANY'S STOCK
(a) In General. In the event of a subdivision or consolidation of outstanding
shares of Stock, the payment of a stock dividend thereon, stock split, reverse
stock split, or in the event of any "corporate transaction" as defined in
Treasury Regulations Section 1.425-1(a)(1)(ii) (now relating to Code Section
424), the number of shares reserved or authorized to be reserved under the Plan,
the number and price of such shares subject to purchase pursuant to rights
outstanding hereunder, the maximum number of shares each Participant may
purchase during each Purchase Period (pursuant to Section 7) or during each
calendar year (pursuant to Section 8), and the number of shares credited to
Participants' Stock Accounts, will be adjusted in such manner as may be deemed
necessary or equitable by the Board to give proper effect to such event, subject
to the limitations of Code Section 424.
(b) Effect of Merger. Following consummation of the Merger, outstanding purchase
rights of HBO & Company employees under the Plan remained in effect and were
assumed by the Company, with appropriate changes to reflect the issuance of
shares of Stock.
17. FOREIGN EMPLOYEES
The Committee may provide for such special terms for Participants who are
foreign nationals, or who are employed by the Company or a Parent or Subsidiary
outside of the United States of America, as the Committee may consider necessary
or appropriate to accommodate differences in local law, tax policy or custom.
Moreover, the Committee may approve such supplements to or amendments,
restatements, or alternative versions of, this Plan as it may consider necessary
or appropriate for such purposes without thereby affecting the terms of this
Plan as in effect for any other purpose; provided, however, that no such
supplements, amendments, restatements or alternative versions will include any
provisions that are inconsistent with the terms of this Plan, as then in effect,
unless this Plan could have been amended to eliminate such inconsistency without
further approval by the shareholders of the Company, or which would cause the
Plan to fail to meet the requirements of Section 423 of the Code.
A-5
18. AMENDMENT OF THE PLAN
The Board may amend the Plan in any respect; provided, however, that, any
amendment (i) increasing the number of shares of Stock reserved under the Plan
(other than as provided in Section 16), or (ii) any change in the designation of
corporations whose employees may be eligible to participate in the Plan, other
than a corporation who is a Parent or a Subsidiary, must be approved, within 12
months of the adoption of such an amendment, by the holders of a majority of the
voting power of the outstanding shares of Stock.
19. TERMINATION OF THE PLAN
The Plan and all rights of Employees hereunder will terminate:
(a) as of the Purchase Date on which Participants purchase a number of
shares of Stock that substantially exhausts the number of shares available
for issuance under the Plan, to such an extent that the Committee
determines that no subsequent offerings are practicable; or
(b) at any time upon action of the Board; provided, however, that if the
Plan is terminated during any Purchase Period, any amounts in a
Participant's Cash Account will be returned to the Participant.
20. EFFECTIVE DATE
This Amendment and Restatement will become effective as of May 1, 2000. For
Offering Periods prior to May 1, 2000 the terms of the Plan as in effect from
time to time are applicable.
21. GOVERNMENT AND OTHER REGULATIONS
(a) In General. The Plan, and the grant and exercise of the rights to purchase
shares of Stock hereunder, and the Company's obligation to sell and deliver
shares of Stock, will be subject to all applicable federal, state and foreign
laws, rules and regulations, and to such approvals by any regulatory or
government agency as may, in the opinion of counsel for the Company, be
required.
(b) Withholding Obligations. Each Participant will, no later than the date as of
which the value of any purchase right granted under the Plan first becomes
includible in the gross income of the Participant for federal income tax
purposes, pay to the Company, or make arrangements satisfactory to the Company,
regarding payment of any federal, state, or local taxes of any kind required by
law to be withheld with respect to such purchase right. The obligations of the
Company under the Plan will be conditional on the making of such payments or
arrangements and the Company will, to the extent permitted by law, have the
right to deduct any such taxes from any payment of any kind otherwise due to the
Participant.
A-6
22. INDEMNIFICATION OF COMMITTEE
In addition to such other rights of indemnification as they have as directors or
as members of the Committee, the members of the Committee will be indemnified by
the Company against reasonable expenses (including, without limitation,
attorneys' fees) actually and necessarily incurred in connection with the
defense of any action, suit or proceeding, or in connection with any appeal, to
which they or any of them may be a party by reason of any action taken or
failure to act under or in connection with the Plan or any right granted
hereunder, and against all amounts paid by them in settlement thereof (provided
such settlement is approved to the extent required by and in the manner provided
by the Bylaws of the Company relating to indemnification of directors) or paid
by them in satisfaction of a judgment in any such action, suit or proceeding,
except in relation to matters as to which it will be adjudged in such action,
suit or proceeding that such Committee member did not act in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Company.
A-7
APPENDIX B
MCKESSON CORPORATION
LONG-TERM INCENTIVE PLAN
(As Amended and Restated Effective May 29, 2002)
(Proposed amendments are shown in BOLD)
1. NAME AND PURPOSE.
The name of this plan is the McKesson Corporation Long-Term Incentive Plan (the
"Plan"). Its purpose is to advance and promote the interests of the stockholders
of McKesson Corporation, a Delaware corporation (the "Company") by attracting
and retaining employees who strive for excellence, and to motivate those
employees to set and achieve above-average financial objectives by providing
competitive compensation for those who contribute most to the operating progress
and earning power of the Company, its subsidiaries and affiliates.
2. ADMINISTRATION OF THE PLAN.
The Plan shall be administered by a committee (the "Committee") consisting of
not less than two directors of the Company to be appointed by the Board, each of
whom is an "outside director" within the meaning of Section 162(m) of the
Internal Revenue Code of 1986, as amended. No member of the Committee shall be
eligible to receive benefits under the Plan. The Committee shall have the sole
authority, in its absolute discretion, to adopt, amend, and rescind such rules
and regulations as, in its opinion, may be advisable in the administration of
the Plan, to construe and interpret the Plan, the rules and regulations, and to
make all other determinations deemed necessary or advisable for the
administration of the Plan. All decisions, determinations and interpretations of
the Committee shall be final and binding on all EMPLOYEES WHO PARTICIPATE IN THE
PLAN (THE "PARTICIPANTS") and other interested parties.
3. ELIGIBILITY.
Participation in the Plan shall be limited to those full-time, salaried key
officers and/OR other employees of the Company, its subsidiaries and affiliates
who are selected from time to time by the Committee. Participants in the Plan
are also eligible to participate in any incentive plan of the Company.
4. CALCULATION OF AWARDS.
AWARDS UNDER THE PLAN SHALL BE MADE IN THE SOLE DISCRETION OF THE COMMITTEE.
AFTER THE CLOSE OF THE PERIOD FOR WHICH AN AWARD MAY BE MADE (A "PERFORMANCE
PERIOD"), THE COMMITTEE SHALL DETERMINE THE DOLLAR AMOUNT OF THE AWARD TO BE
MADE TO EACH PARTICIPANT WHOM THE COMMITTEE HAS SELECTED TO BE AN AWARD
RECIPIENT FOR THAT PERFORMANCE PERIOD; PROVIDED, HOWEVER, THAT THE AWARD AMOUNT
FOR ANY INDIVIDUAL WHO IS A "COVERED EMPLOYEE" (AS DEFINED IN REGULATIONS
ADOPTED PURSUANT TO SECTION 162(M) OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED) OF THE COMPANY ON THE LAST DAY OF A PERFORMANCE PERIOD (THE "SPECIFIED
OFFICERS") SHALL BE SUBJECT TO THE FOLLOWING LIMITATIONS:
(A) 2% OF THE COMPANY'S AGGREGATE "ANNUAL INCOME" FOR THE PERFORMANCE
PERIOD SHALL BE SET ASIDE FOR AWARDS TO THE SPECIFIED OFFICERS. FOR THIS
PURPOSE, "ANNUAL INCOME" SHALL MEAN REPORTED NET INCOME BEFORE GAINS AND
LOSSES FROM THE SALES OF BUSINESSES AND SETTLEMENTS OR AWARDS PAID OR
ACCRUED FOR CLAIMS, CONTROVERSIES OR LITIGATION AGAINST OR RELATED TO THE
COMPANY OR ITS BUSINESSES.
B-1
(B) THE MAXIMUM AWARDS TO THE FOLLOWING SPECIFIED OFFICERS SHALL EQUAL THE
INDICATED PERCENTAGE OF THE AGGREGATE FUND SET FORTH IN (A) ABOVE,
DETERMINED PURSUANT TO THE FOLLOWING SCHEDULE:
OFFICER PERCENTAGE
------- ----------
CHIEF EXECUTIVE OFFICER..................................... 40%
THE FOUR HIGHEST COMPENSATED OFFICERS (OTHER THAN THE
CEO)...................................................... 15% EACH
TOTAL............................................. 100%
(C) THE COMMITTEE IN ITS SOLE DISCRETION MAY REDUCE THE AWARD OTHERWISE
PAYABLE TO ANY SPECIFIED OFFICER AS DETERMINED ABOVE, BUT IN NO EVENT MAY
ANY SUCH REDUCTION RESULT IN AN INCREASE OF THE AWARD PAYABLE TO ANY OTHER
PARTICIPANT, INCLUDING BUT NOT LIMITED TO ANY OTHER SPECIFIED OFFICER.
5. PAYMENT OF AWARDS.
All awards to Participants pursuant to the Plan shall be paid in cash, provided,
however, that, at the Participant's election, receipt of all or part of an award
may be deferred under the terms of the Company's Deferred Compensation
Administration Plan II in the manner prescribed by regulations established by
the Committee.
A Participant shall have no right to receive payment of any award under the Plan
unless he or she has satisfied regulations prescribed by the Committee at the
time of making the award and the Committee has determined that the performance
objectives applicable to such award, if any, have been achieved.
Any other provision of the Plan to the contrary notwithstanding, if the
Committee determines that a Participant has engaged in any of the actions
described in (c) below, the consequences set forth in (a) and (b) below shall
result:
(a) Any outstanding award shall be forfeited immediately and automatically
and shall not be payable to the Participant under any circumstances.
(b) If the Participant received payment of an award within six months prior
to the date that the Company discovered that the Participant engaged in any
action described in (c) below the Participant, upon written notice from the
Company, shall immediately repay to the Company in cash the amount of such
award (including any amounts withheld pursuant to Paragraph 8).
(c) The consequences described in (a) and (b) shall apply if the
Participant, either before or after termination of employment with the
Company or one of its subsidiaries or affiliates:
(i) discloses to others, or takes or uses for his or her own purpose or
the purpose of others, any trade secrets, confidential information,
knowledge, data or know-how belonging to the Company or any of its
subsidiaries or affiliates and obtained by the Participant during the
term of his or her employment, whether or not they are the Participant's
work product. Examples of such confidential information or trade secrets
include (but are not limited to) 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 Company or its subsidiaries or affiliates
intends or expects secrecy to be maintained;
(ii) fails to promptly return all documents and other tangible items
belonging to the Company or any of its subsidiaries or affiliates in the
Participant's possession or control, including all complete or partial
copies recordings, abstracts, notes or reproductions of
B-2
any kind made from or about such documents or information contained
therein, upon termination of employment, whether pursuant to retirement
or otherwise;
(iii) fails to provide the Company with at least thirty (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 Company or any of its subsidiaries or
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 Company or any of its
subsidiaries or affiliates at the time of the termination of the
Participant's employment with the Company or any of its subsidiaries or
affiliates;
(iv) fails to inform any new employer, before accepting employment, of
the terms of this paragraph 5 an of the Participant's continuing
obligation to maintain the confidentiality of the trade secrets and
other confidential information belonging to the Company or any of its
subsidiaries or affiliates and obtained by the Participant during the
term of his or her employment with the Company or any of its
subsidiaries or affiliates;
(v) induces or attempts to induce, directly or indirectly, any of the
customers of the Company or its subsidiaries or affiliates, employees,
representatives or consultants to terminate, discontinue or cease
working with or for the Company, or any of its subsidiaries or
affiliates, or to breach any contract with the Company or any of its
subsidiaries or affiliates, in order to work with or for, or enter into
a contract with the Participant or any third party;
(vi) engages in conduct which is not in good faith and which disrupts,
damages, impairs or interferes with the business, reputation or
employees of the Company or any of its subsidiaries or affiliates; OR
(VII) DIRECTLY OR INDIRECTLY ENGAGES IN, BECOMES EMPLOYED BY, OR RENDERS
SERVICES, ADVICE OR ASSISTANCE TO ANY BUSINESS IN COMPETITION WITH THE
COMPANY OR ITS AFFILIATES, AT ANY TIME DURING THE TWELVE MONTHS
FOLLOWING TERMINATION OF EMPLOYMENT WITH THE COMPANY.
The Committee shall determine in its sole discretion whether the Participant has
engaged in any of the acts set forth in (i) through (vii) above, and its
determination shall be conclusive and binding on all interested persons.
Any provision of this paragraph 5 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
paragraph 5.
6. CHANGE IN CONTROL.
THE STATEMENT OF TERMS AND CONDITIONS ADOPTED PURSUANT TO THE PLAN SHALL
PRESCRIBE RULES FOR THE ACCELERATION OF AWARDS IN THE EVENT OF A "CHANGE IN
CONTROL" OF THE COMPANY. FOR THIS PURPOSE, A CHANGE IN CONTROL SHALL BE DEEMED
TO HAVE OCCURRED IF ANY OF THE EVENTS SET FORTH IN ANY ONE OF THE FOLLOWING
PARAGRAPHS SHALL OCCUR:
(A) ANY "PERSON" (AS SUCH TERM IS USED IN SECTION 13(D) AND 14(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 ("EXCHANGE ACT")), EXCLUDING THE COMPANY OR
ANY OF ITS AFFILIATES, A TRUSTEE OR ANY FIDUCIARY HOLDING SECURITIES UNDER
AN EMPLOYEE BENEFIT PLAN OF THE COMPANY OR ANY OF ITS AFFILIATES, AND
UNDERWRITER TEMPORARILY HOLDING SECURITIES PURSUANT TO AN OFFER OF SUCH
SECURITIES OR A COMPANY OWNED, DIRECTLY OR INDIRECTLY, BY STOCKHOLDERS OF
THE COMPANY IN SUBSTANTIALLY THE SAME PROPORTIONS AS THEIR OWNERSHIP OF THE
COMPANY, IS
B-3
OR BECOMES THE "BENEFICIAL OWNER" (AS DEFINED IN RULE 13D-3 UNDER THE
EXCHANGE ACT), DIRECTLY OR INDIRECTLY, OF SECURITIES OF THE COMPANY
REPRESENTING 30% OR MORE OF THE COMBINED VOTING POWER OF THE COMPANY'S
THEN-OUTSTANDING SECURITIES; OR
(B) DURING ANY PERIOD OF NOT MORE THAN TWO CONSECUTIVE YEARS, INDIVIDUALS
WHO AT THE BEGINNING OF SUCH PERIOD CONSTITUTE THE BOARD AND ANY NEW
DIRECTOR (OTHER THAN A DIRECTOR DESIGNATED BY A PERSON WHO HAS ENTERED INTO
AN AGREEMENT WITH THE COMPANY TO EFFECT A TRANSACTION DESCRIBED IN CLAUSE
(A), (C) OR (D) OF THIS PARAGRAPH) WHOSE ELECTION BY THE BOARD OR
NOMINATION FOR ELECTION BY THE COMPANY'S STOCKHOLDERS WAS APPROVED BY A
VOTE OF AT LEAST TWO-THIRDS ( 2/3) OF THE DIRECTORS THEN STILL IN OFFICE
WHO EITHER WERE DIRECTORS AT THE BEGINNING OF THE PERIOD WHOSE ELECTION OR
NOMINATION FOR ELECTION WAS PREVIOUSLY SO APPROVED, CEASE FOR ANY REASON TO
CONSTITUTE A MAJORITY THEREOF; OR
(C) THE STOCKHOLDERS OF THE COMPANY APPROVE A MERGER OR CONSOLIDATION OF
THE COMPANY WITH ANOTHER COMPANY, OTHER THAN (I) A MERGER OR CONSOLIDATION
WHICH WOULD RESULT IN THE VOTING SECURITIES OF THE COMPANY OUTSTANDING
IMMEDIATELY PRIOR THERETO CONTINUING TO REPRESENT (EITHER BY REMAINING
OUTSTANDING OR BY BEING CONVERTED INTO VOTING SECURITIES OF THE SURVIVING
ENTITY), IN COMBINATION WITH THE OWNERSHIP OF ANY TRUSTEE OR OTHER
FIDUCIARY HOLDING SECURITIES UNDER AN EMPLOYEE BENEFIT PLAN OF THE COMPANY,
AT LEAST 50% OF THE COMBINED VOTING POWER OF THE VOTING SECURITIES OF THE
COMPANY OR SUCH SURVIVING ENTITY OUTSTANDING IMMEDIATELY AFTER SUCH MERGE
OR CONSOLIDATION, OR (II) A MERGER OR CONSOLIDATION EFFECTED TO IMPLEMENT A
RECAPITALIZATION OF THE COMPANY (OR SIMILAR TRANSACTION) IN WHICH NO PERSON
ACQUIRES MORE THAN 50% OF THE COMBINED VOTING POWER OF THE COMPANY'S THEN
OUTSTANDING SECURITIES; OR
(D) THE STOCKHOLDERS OF THE COMPANY APPROVE A PLAN OF COMPLETE LIQUIDATION
OF THE COMPANY OR AN AGREEMENT FOR THE SALE OR DISPOSITION BY THE COMPANY
OF ALL OR SUBSTANTIALLY ALL OF THE COMPANY'S ASSETS.
NOTWITHSTANDING THE FOREGOING, NO CHANGE IN CONTROL SHALL BE DEEMED TO HAVE
OCCURRED IF THERE IS CONSUMMATED ANY TRANSACTION OR SERIES OF INTEGRATED
TRANSACTIONS IMMEDIATELY FOLLOWING WHICH THE HOLDERS OF THE STOCK IMMEDIATELY
PRIOR TO SUCH TRANSACTION OR SERIES OF TRANSACTIONS CONTINUE TO HAVE THE SAME
PROPORTIONATE OWNERSHIP IN AN ENTITY WHICH OWNS ALL OR SUBSTANTIALLY ALL OF THE
ASSETS OF THE COMPANY IMMEDIATELY PRIOR TO SUCH TRANSACTION OR SERIES OF
TRANSACTIONS.
7. TRANSFERABILITY.
Awards made pursuant to the Plan are not transferable or assignable by the
Participant other than by will or the laws of descent and distribution, and
payment thereunder during the Participant's lifetime shall be made only to the
Participant or to the guardian or legal representative of the Participant.
Payments which are due to a deceased Participant pursuant to the Plan shall be
paid to the person or persons to whom such right to payment shall have been
transferred by will or the laws of descent and distribution.
8. WITHHOLDING TAXES.
Whenever the payment of an award is made, such payment shall be net of an amount
sufficient to satisfy federal, state and local withholding tax requirements and
authorized deductions.
9. FUNDING.
No provision of the Plan, or regulations adopted hereunder, shall require the
Company, for the purpose of satisfying any obligations under the Plan, to
purchase assets or segregate or place any assets in a trust or other entity to
which contributions are made.
B-4
10. AMENDMENT.
The Plan may be amended or revised by the Board of Directors of the Company AT
ANY TIME AND FOR ANY REASON.
11. TERMINATION.
The Plan may be terminated at any time AND FOR ANY REASON by resolution of the
Board of Directors of the Company by the affirmative vote of a majority of the
directors in office; provided, however, that such termination shall not affect
any incentive award which shall have been granted prior to such termination.
12. GOVERNING LAW.
THE VALIDITY, CONSTRUCTION AND EFFECT OF THE PLAN AND ANY SUCH ACTIONS TAKEN
UNDER OR RELATING TO THE PLAN SHALL BE DETERMINED IN ACCORDANCE WITH THE
EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED, ("ERISA") AND THE
LAWS OF THE STATE OF CALIFORNIA TO THE EXTENT THE LATTER IS NOT PREEMPTED BY
ERISA.
13. NOTICES.
ALL NOTICES UNDER THIS PLAN SHALL BE SENT IN WRITING TO THE SECRETARY OF THE
COMPANY. ALL CORRESPONDENCE TO A PARTICIPANT SHALL BE SENT IN WRITING TO THE
PARTICIPANT AT THE ADDRESS WHICH IS HIS OR HER RECORDED ADDRESS AS LISTED ON THE
MOST RECENT ELECTION FORM OR AS SPECIFIED IN THE COMPANY'S RECORDS.
14. SEVERABILITY.
IF ANY PROVISION OF THE PLAN SHALL BE HELD BY A COURT OF COMPETENT JURISDICTION
TO BE INVALID OR UNENFORCEABLE, THE REMAINING PROVISIONS HEREUNDER SHALL
CONTINUE TO BE EFFECTIVE.
15. SUCCESSOR OF THE COMPANY.
THIS PLAN SHALL BE BINDING UPON AND INURE TO THE BENEFIT OF ANY SUCCESSOR OR
SUCCESSORS OF THE COMPANY.
B-5
FRONT OF PROXY
"Preliminary Proxy - Subject to Completion"
MCKESSON CORPORATION
PROXY FOR ANNUAL MEETING
10:00 A.M., JULY 31, 2002
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE CORPORATION
The undersigned, whose signature appears on the reverse side, hereby constitutes
and appoints John H. Hammergren and Ivan D. Meyerson, and each of them, with
full power of substitution, proxies to vote all stock of McKesson Corporation
which the undersigned is entitled to vote at the Annual Meeting of Stockholders
to be held at the Nob Hill Masonic Center, 1111 California Street, San
Francisco, California on July 31, 2002 at 10:00 a.m. and any adjournment
thereof, as specified upon the matters indicated on the reverse side, and in
their discretion upon any other matter that may properly come before said
meeting.
ELECTION OF DIRECTORS
NOMINEES FOR ELECTION FOR THREE-YEAR TERMS EXPIRING IN 2005
Marie L. Knowles
Richard F. Syron
Jane E. Shaw
YOUR SHARES WILL NOT BE VOTED UNLESS YOU (1) VOTE BY TELEPHONE, (2) VOTE VIA THE
INTERNET, AS DESCRIBED ON THE REVERSE SIDE, OR (3) SIGN AND RETURN THIS CARD.
SEE REVERSE
SIDE
FOLD AND DETACH HERE
ANNUAL MEETING OF STOCKHOLDERS
OF
MCKESSON CORPORATION
10:00 A.M.
WEDNESDAY, JULY 31, 2002
NOB HILL MASONIC CENTER
1111 CALIFORNIA STREET
SAN FRANCISCO, CA 94108
PLEASE PRESENT THIS ADMISSION TICKET AT THE ANNUAL
MEETING OF STOCKHOLDERS AS VERIFICATION OF YOUR
MCKESSON CORPORATION SHARE OWNERSHIP.
BACK OF PROXY
Please mark your Votes as in this example. [ ]
This proxy, when properly executed, will be voted as directed, but if no
direction is given, this proxy will be voted FOR Proposals 1 through 5.
The Board of Directors Recommends a Vote FOR Each of the
following Proposals:
1. Election of FOR WITHHELD
Directors (see
Reverse)
For, except vote withheld from the following nominee(s)
------------------------------
2. Approving an amendment FOR AGAINST ABSTAIN
to the Company's Restated
Certificate of Incorporation to
increase the number of
authorized shares of common stock
from 400,000,000 to 800,000,000.
3. Approving an FOR AGAINST ABSTAIN
amendment to the
2000 Employee Stock
Purchase Plan.
4. Approving an FOR AGAINST ABSTAIN
amendment to the
Amended and
Restated Long Term
Incentive Plan.
5. Ratifying the FOR AGAINST ABSTAIN
appointment of
Deloitte & Touche LLP
as the Company's
independent auditors.
PLEASE CAST YOUR VOTE BY TELEPHONE OR VIA THE
INTERNET AS INSTRUCTED BELOW OR
COMPLETE, DATE, SIGN AND MAIL THIS
PROXY PROMPTLY IN THE ENCLOSED
BUSINESS REPLY ENVELOPE.
SIGNATURE(S)_____________________________ DATE_______________
NOTE: Please sign exactly as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such.
FOLD AND DETACH HERE -- IF YOU ARE RETURNING YOUR PROXY CARD BY MAIL
LOGO
McKESSON CORPORATION
PROXY VOTING INSTRUCTION CARD
Your vote is important. Casting your vote in one of the three ways described on
this instruction card votes all common shares of McKesson Corporation that you
are entitled to vote.
Please consider the issues discussed in the proxy statement and cast your vote
by:
- Accessing the World Wide Web site http://eproxyvote.com/mck to vote via the
Internet.
- Using a touch-tone telephone to vote by phone toll free from the U.S. or
Canada, simply dial 1-877-779-8683 and follow the instructions. When you
are finished voting, your vote will be confirmed and the call will end.
- Completing, dating, signing and mailing the proxy card in the postage-paid
envelope included with the proxy statement or sending it to McKesson
Corporation, c/o EquiServe, P. O. Box 8614, Edison, New Jersey 08818-9122
You can vote by phone or via the Internet anytime prior to July 31, 2002. You
will need the control number printed at the top of this instruction card to vote
by phone or via the Internet. If you do so, you do not need to mail in your
proxy card.