<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 18, 1997
REGISTRATION NO. 333-26443
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
<TABLE>
<S> <C> <C>
MCKESSON CORPORATION DELAWARE 94-3207296
MCKESSON FINANCING TRUST DELAWARE 52-6841546
(EXACT NAME OF REGISTRANT (STATE OF OTHER JURISDICTION OF (I.R.S. EMPLOYER
AS SPECIFIED IN ITS CHARTER) INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>
MCKESSON PLAZA, ONE POST STREET, SAN FRANCISCO, CALIFORNIA 94104,
(415) 983-8300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
NANCY A. MILLER
VICE PRESIDENT AND CORPORATE SECRETARY
MCKESSON CORPORATION
MCKESSON PLAZA, ONE POST STREET, SAN FRANCISCO, CALIFORNIA 94104,
(415) 983-8300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
----------------
COPY TO:
GREGG A. NOEL, ESQ. IVAN D. MEYERSON, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP MCKESSON CORPORATION
300 SOUTH GRAND AVENUE, MCKESSON PLAZA, ONE POST STREET
LOS ANGELES, CALIFORNIA 90071 SAN FRANCISCO, CALIFORNIA 94104
(213) 687-5000 (415) 983-8300
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after this Registration Statement becomes effective.
----------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), other than securities offered only in
connection with dividend or interest reinvestment plans, please check the
following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JUNE 18, 1997
PROSPECTUS
4,000,000 TRUST CONVERTIBLE PREFERRED SECURITIES
MCKESSON FINANCING TRUST
5% TRUST CONVERTIBLE PREFERRED SECURITIES
(LIQUIDATION AMOUNT $50 PER CONVERTIBLE PREFERRED SECURITY)
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY
MCKESSON CORPORATION
-----------
This Prospectus relates to the 5% Trust Convertible Preferred Securities (the
"Convertible Preferred Securities") which represent preferred undivided
beneficial interests in the assets of McKesson Financing Trust, a statutory
business trust formed under the laws of the State of Delaware ("McKesson
Financing Trust" or the "Trust"), and the shares of common stock, par value
$.01 per share ("McKesson Common Stock" or the "Common Stock"), of McKesson
Corporation, a Delaware corporation ("McKesson" or the "Company"), issuable
upon conversion of the Convertible Preferred Securities. The Convertible
Preferred Securities were issued and sold (the "Original Offering") on February
20, 1997 (the "Original Offering Date") to the Initial Purchaser (as defined
herein) and were simultaneously sold by the Initial Purchaser in transactions
exempt from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"), in the United States to persons reasonably
believed by the Initial Purchaser to be qualified institutional buyers as
defined in Rule 144A under the Securities Act, to certain qualified
institutional buyers acting on behalf of institutional "accredited investors"
(as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) and
outside the United States to non-U.S. persons in offshore transactions in
reliance on Regulation S under the Securities Act. The Company directly or
indirectly owns all the common securities (the "Common Securities" and,
together with the Convertible Preferred Securities, the "Trust Securities")
representing undivided beneficial interests in the assets of the Trust. The
Trust exists for the sole purpose of issuing the Trust Securities and investing
the proceeds of the sale thereof in 5% Convertible Junior Subordinated
Debentures (the "Convertible Debentures") of McKesson in an aggregate principal
amount equal to the aggregate liquidation amount of the Trust Securities. Upon
an event of default under the Declaration (as defined herein), the holders of
Convertible Preferred Securities will have a preference over the holders of the
Common Securities with respect to payments in respect of distributions and
payments upon redemption, liquidation or otherwise.
The Convertible Preferred Securities and the Company Common Stock issuable
upon conversion of the Convertible Preferred Securities (collectively, the
"Offered Securities") may be offered and sold from time to time by the holders
named herein or by their transferees, pledgees, donees or their successors
(collectively, the "Selling Holders") pursuant to this Prospectus. The Offered
Securities may be sold by the Selling Holders from time to time (i) to or
through underwriters or dealers; (ii) directly to one or more other purchasers;
(iii) through agents on a best-efforts basis or otherwise; or (iv) through a
combination of any such methods of sale. The Offered Securities may be sold
from time to time in one or more transactions at a fixed price or prices, which
may be changed, or at market prices prevailing at the time of sale, at prices
unrelated to such prevailing market prices, or at negotiated prices. See
"Selling Holders" and "Plan of Distribution." If required, the names of any
such agents or underwriters involved in the sale of the Offered Securities and
the applicable agent's commission, dealer's purchase price or underwriter's
discount, if any, will be set forth in an accompanying supplement to this
Prospectus (the "Prospectus Supplement"). The Selling Holders will receive all
of the net proceeds from the sale of the Offered Securities and will pay all
underwriting discounts, selling commissions and transfer taxes, if any,
applicable to any such sale. The Company is responsible for payment of all
other expenses incident to the registration of the Offered Securities. The
Selling Holders and any broker-dealers, agents or underwriters that participate
in the distribution of the Offered Securities may be deemed to be
"underwriters" within the meaning of the Securities Act, and any commission
received by them and any profit on the resale of the Offered Securities
purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act. See "Plan of Distribution" for a description of
indemnification arrangements.
(continued on next page)
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR CERTAIN INFORMATION
RELEVANT TO AN INVESTMENT IN THE CONVERTIBLE PREFERRED SECURITIES.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1997.
<PAGE>
Holders of the Convertible Preferred Securities are entitled to receive
cumulative cash distributions at an annual rate of 5% of the liquidation
amount of $50 per Convertible Preferred Security, accruing from the first date
that any Convertible Preferred Securities are issued and payable quarterly in
arrears on March 1, June 1, September 1 and December 1 of each year,
commencing June 1, 1997 ("distributions"). The payment of distributions out of
monies held by McKesson Financing Trust and payments on liquidation of
McKesson Financing Trust or the redemption of Convertible Preferred
Securities, as set forth below, are guaranteed by McKesson (the "Guarantee")
to the extent described herein. The Guarantee covers payments of distributions
and other payments on the Convertible Preferred Securities only if and to the
extent that McKesson Financing Trust has funds available therefor, which will
not be the case unless McKesson has made corresponding payments of interest or
principal or other payments on the Convertible Debentures held by McKesson
Financing Trust. The Guarantee, when taken together with McKesson's
obligations under the Convertible Debentures and the Indenture (as defined
herein) and its obligations under the Declaration, including its liabilities
to pay costs, expenses, debts and obligations of McKesson Financing Trust
(other than with respect to the Trust Securities), provide a full and
unconditional guarantee, to the extent set forth herein, of amounts due on the
Convertible Preferred Securities. See "Risk Factors--Limitations of the
Guarantee."
The obligations of McKesson under the Guarantee are subordinate and junior
in right of payment to all other liabilities of McKesson and pari passu with
the most senior preferred stock issued from time to time, if any, by McKesson.
The obligations of McKesson under the Convertible Debentures are subordinate
and junior in right of payment to all present and future Senior Indebtedness
(as defined herein) of McKesson.
The Convertible Debentures purchased by the Trust may be subsequently
distributed pro rata to holders of the Trust Securities in connection with the
dissolution of the Trust, upon the occurrence of certain events.
Each Convertible Preferred Security is convertible in the manner described
herein at the option of the holder, at any time beginning May 21, 1997 and
prior to the Conversion Expiration Date (as defined herein), into shares of
common stock, par value $.01 per share, of McKesson ("McKesson Common Stock"
or the "Common Stock"), at the rate of .6709 shares of McKesson Common Stock
for each Convertible Preferred Security (equivalent to a conversion price of
$74.53 per share (the "Conversion Price") of McKesson Common Stock), subject
to adjustment in certain circumstances. See "Description of Convertible
Preferred Securities--Conversion Rights." On June 17, 1997, the reported last
sale price of McKesson Common Stock, which is reported under the symbol "MCK"
on the New York Stock Exchange, was $79 7/8 per share.
The distribution rate and the distribution payment dates and other payment
dates for the Convertible Preferred Securities correspond to the interest rate
and interest payment dates and other payment dates of the Convertible
Debentures, which are the sole assets of the Trust. As a result, if principal
and interest are not paid on the Convertible Debentures, no amounts will be
paid on the Convertible Preferred Securities.
So long as McKesson shall not be in default in the payment of interest on
the Convertible Debentures, McKesson has the right to defer payments of
interest on the Convertible Debentures by extending the interest payment
period on the Convertible Debentures at any time for up to 20 consecutive
quarters (each, an "Extension Period"). If interest payments are so deferred,
distributions will continue to accumulate with interest thereon (to the extent
permitted by applicable law) at the distribution rate, compounded quarterly.
During any Extension Period, holders of Convertible Preferred Securities will
be required to include deferred interest income in their gross income for
United States federal income tax purposes in advance of receipt of the cash
distributions with respect to such deferred interest payments. There could be
multiple Extension Periods of varying lengths throughout the term of the
Convertible Debentures. See "Description of the Convertible Debentures--Option
to Extend Interest Payment Period," "Risk Factors--Delay of Interest Payments"
and "United States Federal Income Taxation--Potential Extension of Interest
Payment Period and Original Issue Discount."
The Convertible Debentures are redeemable by McKesson, in whole or in part,
from time to time, on or after March 4, 2000, at the prices set forth herein
(the "Redemption Price"), plus accrued and unpaid interest
2
<PAGE>
(continued from previous page)
thereon to the date fixed for redemption (the "Redemption Date"). In addition,
in certain circumstances upon the occurrence of a Tax Event (as defined
herein) the Convertible Debentures may be redeemed by McKesson at 100% of the
principal amount thereof plus accrued and unpaid interest thereon. If McKesson
redeems the Convertible Debentures, the Trust must redeem Convertible
Preferred Securities having an aggregate liquidation amount equal to the
aggregate principal amount of the Convertible Debentures so redeemed. See
"Description of the Convertible Preferred Securities--Mandatory Redemption."
The outstanding Convertible Preferred Securities will be redeemed when the
Convertible Debentures mature on June 1, 2027.
Upon the occurrence of a Special Event (as defined herein), unless the
Convertible Debentures are redeemed in the limited circumstances described
herein, the Trust may be dissolved (with the consent of McKesson), with the
result that the Convertible Debentures would be distributed to the holders of
the Convertible Preferred Securities, on a pro rata basis. If McKesson
declines to consent to such dissolution and distribution, McKesson may incur
an obligation to pay additional sums. See "Description of the Convertible
Preferred Securities--Special Event Distribution; Tax Event Redemption" and
"Description of the Convertible Debentures--Additional Sums."
In addition, subject to certain conditions, McKesson has the right at any
time to cause the Trust to be dissolved and cause the Convertible Debentures
to be distributed to the holders of the Convertible Preferred Securities on a
pro rata basis, in lieu of any cash distribution. See "Description of the
Convertible Preferred Securities--Liquidation of Trust and Distribution of
Convertible Debentures to Holders" and "Description of the Convertible
Debentures."
In the event of the involuntary dissolution, winding up or termination of
the Trust, the holders of the Convertible Preferred Securities are entitled to
receive for each Convertible Preferred Security a liquidation amount of $50
plus accrued and unpaid distributions thereon to the date of payment, unless,
in connection with such dissolution, winding up or termination of the Trust,
the Convertible Debentures are distributed to the holders of the Convertible
Preferred Securities. See "Description of the Convertible Preferred
Securities--Liquidation Distribution Upon Dissolution."
3
<PAGE>
Certain persons participating in this offering may engage in transactions
that stabilize, maintain, or otherwise affect the price of the Offered
Securities. Specifically, the underwriters, if any, may overallot in
connection with the offering, and may bid for, and purchase, shares of the
Offered Securities in the open market. For a description of those activities,
see "Plan of Distribution."
Unless otherwise stated herein or the context otherwise requires, all
references herein to the "principal" of the Convertible Debentures shall be
deemed to include a reference to "and premium, if any."
AVAILABLE INFORMATION
This Prospectus constitutes a part of a combined Registration Statement on
Form S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") filed by McKesson and McKesson Financing Trust with the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933,
as amended (the "Securities Act"), with respect to the Offered Securities.
This Prospectus does not contain all of the information set forth in such
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission, although it does include a
summary of the material terms of the Indenture and the Declaration (each as
defined herein). Reference is made to such Registration Statement and to the
exhibits relating thereto for further information with respect to the Company,
McKesson Financing Trust and the Offered Securities. Any statements contained
herein concerning the provisions of any document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission or incorporated
by reference herein are not necessarily complete, and, in each instance,
reference is made to the copy of such document so filed for a more complete
description of the matter involved. Each such statement is qualified in its
entirety by such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information filed by the
Company with the Commission can be inspected and copied at the Commission's
Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549, or at
the public reference facilities of the regional offices in Chicago and New
York. The addresses of these regional offices are as follows: 500 West Madison
Street, Chicago, Illinois 66061, and 7 World Trade Center, 13th Floor, New
York, New York 10048. Copies of such material also can be obtained by mail
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon payment of the fees prescribed by the rules and
regulations of the Commission. Reports, proxy statements, and other
information concerning the Company may also be inspected at the offices of the
New York Stock Exchange, Inc. at 20 Broad Street, New York, New York 10005 and
at the offices of the Pacific Exchange, Inc. at 301 Pine Street, San
Francisco, California 94014. The Company's Common Stock is listed on both
exchanges. Such material may also be accessed electronically by means of the
Commission's home page on the Internet at http://www.sec.gov.
No separate financial statements of the Trust have been included or
incorporated by reference herein. The Company and the Trust do not consider
that such financial statements would be material to holders of the Convertible
Preferred Securities because (i) all of the voting securities of the Trust
will be owned, directly or indirectly, by the Company, a reporting company
under the 1934 Act, (ii) the Trust is a special purpose entity, has no
operating history, has no independent operations and is not engaged in, and
does not propose to engage in, any activity other than issuing Trust
Securities representing undivided beneficial interests in the assets of the
Trust and investing the proceeds thereof in Convertible Debentures issued by
the Company and (iii) McKesson's obligations described herein under the
Declaration, the Guarantee with respect to the Convertible Preferred
Securities issued by the Trust, the Convertible Debentures purchased by the
Trust and the Indenture, taken together, constitute a full and unconditional
guarantee of payments due on the Convertible Preferred Securities of the
Trust. See "McKesson Financing Trust," "Description of the Convertible
Preferred Securities," "Description of the Guarantee" and "Description of the
Convertible Debentures." The Trust is a statutory business trust formed under
the laws of the state of Delaware. The Company, as of the date of this
Prospectus, owns all of the beneficial interests in the Trust.
4
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
There are hereby incorporated by reference in this Prospectus the following
documents previously filed or to be filed by the Company with the Commission
pursuant to the Exchange Act:
1. Annual Report on Form 10-K for the fiscal year ended March 31, 1996, as
amended by Amendment No. 1 on Form 10-K/A, filed on February 13, 1997 to
reflect Armor All (as defined herein) and Millbrook (as defined herein) as
discontinued operations (the "Form 10-K").
2. Quarterly Reports on Form 10-Q for the quarters ended (i) June 30, 1996,
(as amended by Amendment No. 1 on Form 10-Q/A, filed on February 13, 1997 to
reflect Armor All and Millbrook as discontinued operations; and as further
amended by Amendment No. 2 on Form 10-Q/A, filed on June 6, 1997 to reflect in
the first quarter ended June 30, 1996, the $48.2 million charge to write off
the portion of the purchase price of Automated Healthcare, Inc. allocated to
technology for which feasibility had not been established as of the
acquisition date. Such charge was recorded in the third quarter ended December
31, 1996 in the originally filed financial statements (the "AHI Amendment"));
(ii) September 30, 1996, (as amended by Amendment No. 1 on Form 10-Q/A, filed
on February 13, 1997 to reflect Armor All and Millbrook as discontinued
operations; and as further amended by Amendment No. 2 on Form 10-Q/A, filed on
June 6, 1997 to reflect the AHI Amendment); and (iii) December 31, 1996, (as
amended by Amendment No. 1 on Form 10-Q/A, filed on June 6, 1997 to reflect
the AHI Amendment).
3. Current Reports on Form 8-K dated April 8, 1996, April 30, 1996, October
9, 1996 (as amended by Amendment No. 1 on Form 8-K/A filed December 20, 1996,
excluding Exhibit 99 thereto), November 22, 1996 (as amended by Amendment No.
1 on Form 8-K/A, filed on January 21, 1997, as further amended by Amendment
No. 2 on Form 8-K/A, filed on April 28, 1997), December 10, 1996, January 13,
1997, February 5, 1997, February 12, 1997, February 24, 1997, April 7, 1997
and June 16, 1997.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the 1934 Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Convertible Preferred Securities
offered hereby shall be deemed to be incorporated by reference in this
Prospectus and to be part hereof from the date of filing of such documents.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person upon the written or
oral request of such person, a copy of any or all of the foregoing documents
incorporated herein by reference, other than exhibits to such documents
(unless such exhibits are specifically incorporated by reference into such
documents). Requests for such documents shall be directed to Nancy A. Miller,
Vice President and Corporate Secretary, McKesson Corporation, McKesson Plaza,
One Post Street, San Francisco, California 94104 (telephone number (415) 983-
8301).
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain of the matters discussed under the captions "Risk Factors,"
"Financial Review," "The Company" and elsewhere in this Prospectus or in the
information incorporated by reference herein may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995 (the "Reform Act") and as such may involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of McKesson to be materially different from any future
results, performance or achievements expressed or implied by such forward-
looking statements. Some of the factors that may cause such material
differences are set forth herein or attached hereto under the captions "Risk
Factors" and "Financial Review."
5
<PAGE>
RISK FACTORS
Prospective purchasers of Convertible Preferred Securities should carefully
review the information contained elsewhere and incorporated by reference in
this Prospectus and should particularly consider the following matters.
Certain statements set forth below under this caption constitute "forward-
looking statements" within the meaning of the Reform Act. See "Special Note
Regarding Forward-Looking Statements" above for additional factors relating to
such statements.
SUBORDINATE RANKING OF OBLIGATIONS UNDER THE GUARANTEE AND CONVERTIBLE
DEBENTURES
McKesson's obligations under the Guarantee are subordinate and junior in
right of payment to all liabilities of McKesson (other than any other
obligations that may be made pari passu expressly by their terms) and pari
passu in right of payment with the most senior preferred stock issued, from
time to time, if any, by McKesson. The obligations of McKesson under the
Convertible Debentures are subordinate and junior in right of payment to all
present and future Senior Indebtedness of McKesson. No payment of principal
(including redemption payments, if any), premium, if any, or interest on the
Convertible Debentures may be made if (i) the payment of principal, premium,
if any, interest or any other payment due on any Senior Indebtedness of
McKesson is not paid when due and any applicable grace period with respect to
such default has ended with such default not having been cured or waived or
ceasing to exist or (ii) the maturity of any Senior Indebtedness has been
accelerated because of a default and such acceleration has not been rescinded.
There are no terms in the Convertible Preferred Securities, the Convertible
Debentures or the Guarantee that limit McKesson's ability to incur additional
indebtedness, including indebtedness that ranks senior to the Convertible
Debentures and the Guarantee, or to grant security interests to secure
outstanding or new indebtedness. There was approximately $825 million of
Senior Indebtedness outstanding as of March 31, 1997. See "Description of the
Guarantee--Status of the Guarantee" and "Description of the Convertible
Debentures--Subordination."
LIMITATIONS OF THE GUARANTEE
The Guarantee Trustee (as defined herein) holds the Guarantee for the
benefit of the holders of the Convertible Preferred Securities. Under the
Guarantee, McKesson irrevocably and unconditionally guarantees on a
subordinated basis to the holders of the Convertible Preferred Securities, to
the extent not paid by the Trust, the payment in full of (i) all accrued and
unpaid distributions that are required to be paid on the Convertible Preferred
Securities to the extent the Trust has funds available therefor, (ii) the
Redemption Price plus accrued and unpaid distributions with respect to any
Convertible Preferred Securities called for redemption by the Trust, to the
extent the Trust has funds available therefor and (iii) upon a voluntary or
involuntary dissolution, winding-up or termination of the Trust (other than in
connection with the distribution of Convertible Debentures to the holders of
Convertible Preferred Securities or the redemption of all the Convertible
Preferred Securities), the lesser of (a) the aggregate of the liquidation
amount and all accrued and unpaid distributions on the Convertible Preferred
Securities to the date of the payment to the extent the Trust has funds
available therefor or (b) the amount of assets of the Trust remaining
available for distribution to holders of the Convertible Preferred Securities
in liquidation of the Trust. Because the Guarantee is limited by the amount of
the funds in the Trust, if McKesson were to default on its obligation to pay
amounts payable on the Convertible Debentures, the Trust would lack available
funds for the payment of distributions or amounts payable on redemption of the
Convertible Preferred Securities or otherwise, and, in such event, holders of
the Convertible Preferred Securities would not be able to rely upon the
Guarantee for payment of such amounts. Instead, holders of the Convertible
Preferred Securities would rely on the enforcement (1) by the Institutional
Trustee (as defined herein) of its rights as registered holder of the
Convertible Debentures against McKesson pursuant to the terms of the
Convertible Debentures or (2) by such holder of its right of Direct Action (as
defined herein) against McKesson as described below to enforce payments on the
Convertible Debentures. See "Description of the Guarantee--Events of Default."
The Declaration provides that each holder of Convertible Preferred Securities,
by acceptance thereof, agrees to the provisions of the Guarantee, including
the subordination provisions thereof, and the Indenture.
6
<PAGE>
LIMITATION OF ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF CONVERTIBLE
PREFERRED SECURITIES
If (i) McKesson Financing Trust fails to pay distributions in full on the
Convertible Preferred Securities (other than pursuant to a deferral pursuant
to an Extension Period) or (ii) a Declaration Event of Default (as defined
herein) occurs and is continuing, then the holders of Convertible Preferred
Securities would rely on the enforcement by the Institutional Trustee of its
rights as a holder of the Convertible Debentures against McKesson. In
addition, the holders of a majority in liquidation amount of the Convertible
Preferred Securities have the right to direct the time, method, and place of
conducting any proceeding for any remedy available to the Institutional
Trustee or to direct the exercise of any trust or power conferred upon the
Institutional Trustee under the Declaration, including the right to direct the
Institutional Trustee to exercise the remedies available to it as a holder of
the Convertible Debentures. If the Institutional Trustee fails to enforce its
rights under the Convertible Debentures, a holder of Convertible Preferred
Securities may institute a legal proceeding directly against McKesson to
enforce the Institutional Trustee's rights under the Convertible Debentures
without first instituting any legal proceeding against the Institutional
Trustee or any other person or entity. Notwithstanding the foregoing, if a
Declaration Event of Default has occurred and is continuing and such event is
attributable to the failure of McKesson to pay interest or principal on the
Convertible Debentures on the date such interest or principal is otherwise
payable (or in the case of redemption, on the Redemption Date), then a holder
of Convertible Preferred Securities may directly institute a proceeding for
enforcement of payment to such holder of the principal of or interest on the
Convertible Debentures having a principal amount equal to the aggregate
liquidation amount of the Convertible Preferred Securities of such holder (a
"Direct Action") on or after the respective due date specified in the
Convertible Debentures. In connection with such Direct Action, McKesson will
be subrogated to the rights of such holder of Convertible Preferred Securities
under the Declaration to the extent of any payment made by McKesson to such
holder of Convertible Preferred Securities in such Direct Action. The holders
of Convertible Preferred Securities will not be able to exercise directly any
other remedy available to the holders of Convertible Debentures. See
"Description of the Convertible Preferred Securities--Declaration Events of
Default."
DELAY OF INTEREST PAYMENTS
So long as McKesson shall not be in default in the payment of interest on
the Convertible Debentures, McKesson has the right under the Indenture to
defer payments of interest on the Convertible Debentures by extending the
interest payment period at any time, and from time to time, on the Convertible
Debentures. As a consequence of such an extension, quarterly distributions on
the Convertible Preferred Securities would be deferred by the Trust during any
such Extension Period. Prior to the termination of any such Extension Period,
McKesson may further extend such Extension Period; provided, that such
Extension Period, together with all such previous and further extensions
thereof, may not exceed 20 consecutive quarters or extend beyond the maturity
of the Convertible Debentures. Upon the termination of any Extension Period
and the payment of all amounts then due, McKesson may commence a new Extension
Period, subject to the above requirements. See "Description of the Convertible
Preferred Securities--Distributions" and "Description of the Convertible
Debentures--Option to Extend Interest Payment Period."
Should McKesson exercise its right to defer payments of interest by
extending the interest payment period, each holder of Convertible Preferred
Securities will continue to accrue interest income (as original issue discount
("OID")) in respect of the deferred stated interest allocable to its share of
Convertible Preferred Securities for United States federal income tax
purposes. As a result, each such holder of Convertible Preferred Securities
will include such income in gross income for United States federal income tax
purposes in advance of the receipt of cash attributable thereto, and will not
receive the cash from McKesson Financing Trust related to such income if such
holder disposes of its Convertible Preferred Securities prior to the record
date on which distributions of such amounts are made. McKesson has no current
intention of exercising its right to defer payments of interest by extending
the interest payment period of the Convertible Debentures. However, should
McKesson elect to exercise such right in the future, the market price of the
Convertible Preferred Securities is likely to be affected. A holder that
disposes of its Convertible Preferred Securities during an Extension Period,
therefore, might not receive the same return on its investment as a holder
that continues to hold its Convertible Preferred Securities.
7
<PAGE>
In addition, as a result of the existence of McKesson's right to defer
interest payments, the market price of the Convertible Preferred Securities
(which represent an undivided beneficial interest in the Convertible
Debentures) may be more volatile than other OID securities that do not have
such interest deferral rights. See "United States Federal Income Taxation--
Potential Extension of Interest Payment Period and Original Issue Discount."
PROPOSED TAX LEGISLATION
On February 6, 1997, as part of the fiscal 1998 budget proposal submitted to
Congress, the Clinton Administration proposed certain changes to Federal
income tax law which would, among other things, generally treat as equity, for
Federal income tax purposes, certain debt obligations, such as the Convertible
Debentures, that are "issued on or after the date of first Congressional
Committee action" (the "Clinton Proposal"). On June 9, 1997, House Ways and
Means Committee Chairman Bill Archer released the Chairman's Mark Relating to
Revenue Reconciliation Provisions that are proposed to be included in 1997 tax
legislation (the "Chairman's Mark"). The Chairman's Mark constitutes "first
Congressional Committee action" with respect to the provisions contained
therein. The Chairman's Mark does not include the Clinton Proposal that would
require instruments with terms similar to the Convertible Debentures to be
treated as equity for Federal income tax purposes.
In light of the Chairman's Mark, it appears that "first Congressional
Committee action" has not yet occurred with respect to the Clinton Proposal.
Furthermore, given the issue date of the Convertible Debentures and the
effective date transitional rules relating to certain capital markets
provisions included in the Chairman's Mark (as well as transitional rules
provided for in 1996 proposed legislation similar to the Clinton Proposal), it
is anticipated that the Clinton Proposal, even if acted upon by Congress in
the future, would not apply to the Convertible Debentures.
There can be no assurance, however, that the Clinton Proposal or similar
legislation will not ultimately be enacted into law, that the effective date
and transitional rules relating thereto would be enacted as anticipated, or
that other developments will not occur after the date hereof that would
adversely affect the tax treatment of the Convertible Debentures and could
result in the exchange of the Convertible Debentures for Convertible Preferred
Securities or, in certain limited circumstances, the redemption of the
Convertible Debentures by the Company and the distribution of the resulting
cash in redemption of the Convertible Preferred Securities. See "Description
of the Convertible Preferred Securities -- Special Event Distribution;
Redemption."
SPECIAL EVENT DISTRIBUTION; TAX EVENT REDEMPTION
Upon the occurrence of a Special Event (as defined herein), McKesson
Financing Trust could be dissolved (with the consent of McKesson), except in
the limited circumstance described below, with the result that the Convertible
Debentures would be distributed to the holders of the Trust Securities in
connection with the liquidation of the Trust. In certain circumstances,
McKesson would have the right to redeem the Convertible Debentures, in whole
or in part, in lieu of a distribution of the Convertible Debentures by the
Trust, in which event the Trust would redeem the Trust Securities on a pro
rata basis to the same extent as the Convertible Debentures are redeemed by
McKesson. See "Description of the Convertible Preferred Securities--Special
Event Distribution; Tax Event Redemption."
Under current United States federal income tax law, a distribution of
Convertible Debentures upon the dissolution of McKesson Financing Trust would
not be a taxable event to holders of the Convertible Preferred Securities.
However, a dissolution of McKesson Financing Trust in which holders of the
Convertible Preferred Securities receive cash would be a taxable event to such
holders. See "United States Federal Income Taxation--Receipt of Convertible
Debentures or Cash Upon Liquidation of the Trust."
There can be no assurance as to the market prices for the Convertible
Preferred Securities or the Convertible Debentures that may be distributed in
exchange for Convertible Preferred Securities if a dissolution or liquidation
of the Trust were to occur. Accordingly, the Convertible Preferred Securities
that an investor may purchase, whether pursuant to the offer made hereby or in
the secondary market, or the Convertible Debentures that a
8
<PAGE>
holder of Convertible Preferred Securities may receive on dissolution and
liquidation of the Trust, may trade at a discount to the price that the
investor paid to purchase the Convertible Preferred Securities offered hereby.
Because holders of Convertible Preferred Securities may receive Convertible
Debentures upon the occurrence of a Special Event, prospective purchasers of
Convertible Preferred Securities are also making an investment decision with
regard to the Convertible Debentures and should carefully review all the
information regarding the Convertible Debentures contained herein. See
"Description of the Convertible Preferred Securities--Special Event
Distribution; Tax Event Redemption" and "Description of the Convertible
Debentures--General."
ABSENCE OF VOTING RIGHTS
Generally, holders of the Convertible Preferred Securities do not have any
voting rights with respect to McKesson's governance, nor are they entitled to
vote to appoint, remove or replace, or to increase or decrease the number of,
MFT Trustees (as defined herein), which voting rights are vested exclusively
in the holder of the Common Securities. See "Description of the Convertible
Preferred Securities--Voting Rights."
TRADING PRICE
The Convertible Preferred Securities may trade at a price that does not
accurately reflect the value of accrued but unpaid interest (or OID if the
Convertible Debentures are treated as having been issued, or reissued, with
OID) with respect to the underlying Convertible Debentures. A holder who
disposes of his Convertible Preferred Securities will be required to include
in ordinary income (i) any portion of the amount realized that is attributable
to such accrued but unpaid interest to the extent not previously included in
income or (ii) any amount of OID, in either case, that has accrued on his pro
rata share of the underlying Convertible Debentures during the taxable year of
sale through the date of disposition. Any such income inclusion will increase
the holder's adjusted tax basis in his Convertible Preferred Securities
disposed of. To the extent that the amount realized in the sale is less than
the holder's adjusted tax basis, a holder will recognize a capital loss.
Subject to certain limited exceptions, capital losses cannot be applied to
offset ordinary income for United States federal income tax purposes.
RISKS GENERALLY ASSOCIATED WITH ACQUISITIONS
An element of the Company's growth strategy is to pursue strategic
acquisitions that either expand or complement the Company's business.
Acquisitions involve a number of special risks, including the diversion of
management's attention to the assimilation of the operations from other
business concerns, difficulties in the integration of operations and systems,
the assimilation and retention of the personnel of the acquired companies,
challenges in retaining the acquired business' customers and potential adverse
short-term effects on the Company's operating results. In addition, the
Company may require additional debt or equity financing for future
acquisitions, which may not be available on terms favorable to the Company, if
at all. The inability of the Company to successfully finance, complete and
integrate strategic acquisitions in a timely manner could have an adverse
impact on the Company's results of operations and its ability to effect a
portion of its growth strategy.
CHANGING UNITED STATES HEALTHCARE ENVIRONMENT
In recent years, the healthcare industry has undergone significant change
driven by various efforts to reduce costs, including potential national
healthcare reform, trends toward managed care, cuts in Medicare, consolidation
of pharmaceutical and medical/surgical supply distributors and the development
of large, sophisticated purchasing groups. The Company cannot predict whether
any healthcare reform efforts will be enacted and what effect or to what
extent any such reforms may have on the Company, its practices and products or
its customers and suppliers. Changes in governmental support of healthcare
services, the method by which such services are delivered, the prices for such
services or other legislation or regulations governing such services or
mandated benefits may have a material adverse effect on the Company's results
of operations.
9
<PAGE>
THE COMPANY
McKesson is the largest health care supply management company in
North America. The Company also develops and manages innovative marketing
programs for drug manufacturers and, through McKesson Water Products Company,
processes and markets pure drinking water.
The Company's objective is to become the world leader in health care supply
and comprehensive pharmaceutical management across the entire supply chain,
from manufacturer to patient. In pursuit of this goal, the Company has
completed a number of acquisitions in its core health care business. Since
late 1995, the Company has acquired General Medical Inc. ("General Medical"),
a leading distributor of medical and surgical supplies to the acute care,
physician care and extended care markets, the drug distribution business of
FoxMeyer Corporation ("FoxMeyer"), Automated Healthcare, Inc. ("AHI"), a
manufacturer of automated drug dispensing equipment for hospitals, and Ogden
BioServices Corporation (now "McKesson Bioservices Corporation"), a provider
of support services to government and commercial organizations engaged in drug
research and development.
The Company conducts its operations through two operating business segments
which generated annual sales in fiscal 1996 of $9.95 billion, approximately
97% of which were generated by the Health Care Services segment and
approximately 3% of which were generated primarily by McKesson's Water
Products (as hereinafter defined) business. In fiscal 1996, operating profits
for the Health Care Services business and the Water Products business were
$206.1 million and $39.6 million, respectively.
The principal executive offices of the Company are located at McKesson
Plaza, One Post Street, San Francisco, California, 94104, and the telephone
number is (415) 983-8300.
RECENT ACQUISITIONS AND DISPOSITIONS
McKesson has recently undertaken several initiatives to further focus the
Company on its core health care business:
. In March 1997, McKesson disposed of Millbrook Distribution Services Inc.
("Millbrook") for an amount on an after-tax basis which approximates
Millbrook's book value. Millbrook is reflected as a discontinued
operation in the Company's financial statements. Millbrook is engaged in
distributing health and beauty care products, general merchandise, and
specialty foods to retail stores.
. In February 1997, McKesson acquired General Medical, the largest multi-
market distributor of medical and surgical supplies, for $775 million.
. In December 1996, the Company disposed of its 55% equity interest in
Armor All Products Corporation ("Armor All"), a non-health care business.
. In November 1996, the Company acquired FoxMeyer out of bankruptcy for
approximately $600 million.
. In April 1996, the Company acquired AHI, a business that specializes in
centralized robotic pharmaceutical dispensing systems for hospitals, for
$65 million.
. In December 1995, the Company acquired McKesson Bioservices Corporation,
a business that provides product marketing and support services for the
pharmaceutical industry, for approximately $20 million.
MCKESSON HEALTH CARE SERVICES
Through its Health Care Services segment, the Company is the largest
distributor of ethical and proprietary drugs and health and beauty care
products in North America, generating approximately 84% of the Company's
operating profits from continuing operations in fiscal 1996. The Company is
the market leader in its core U.S. drug distribution business. U.S. health
care operations also include Healthcare Delivery Systems, Inc. ("HDS") and
McKesson Bioservices Corporation, through which the Company provides marketing
and other support services to drug manufacturers, AHI, a business that
specializes in automated pharmaceutical dispensing systems for hospitals, and
Zee Medical, Inc., a distributor of first-aid products and supplies to
industrial and commercial customers.
10
<PAGE>
International operations include Medis Health and Pharmaceutical Services
Inc., a wholly-owned subsidiary and the largest drug distributor in Canada,
and the Company's 22.7% equity interest in Nadro, S.A. de C.V., the largest
drug distributor in Mexico.
The Company's domestic distribution operations supply drugs and health and
beauty care products to independent and chain drug stores, hospitals,
alternate-site facilities, food stores and mass merchandisers in all 50
states. Using the names "Economost" and "Econolink" and a number of related
service marks, the Company has promoted electronic order entry systems and a
wide range of computerized merchandising and asset management services for
drug retailers and hospitals. The Company also supplies computer-based
practice management systems to drug retailers. The Company believes that its
financial strength, purchasing leverage, nationwide network of distribution
centers, and advanced logistics and information technologies provide
competitive advantages to its drug distribution operations. For example, the
Company uses Acumax(R), a computerized bar-code scanning system, to track
items in its warehouses. Acumax enables the Company to achieve order filling
and inventory accuracy levels of more than 99%, ensuring that the right
product arrives at the right time and place for both the Company's customers
and their patients.
Health Care Services serves three primary customer segments: retail
independent pharmacies, retail chains and institutional providers (including
hospitals, health care facilities and pharmacy service operators) which
represented approximately 41%, 30%, and 21%, respectively, of U.S. Health Care
Services revenues for fiscal 1996. A fourth customer category is
pharmaceutical manufacturers, which is managed by McKesson's Pharmaceutical
and Retail Services Business group.
INDEPENDENT PHARMACIES. In addition to distribution services, the Company
provides value added services to independent retail pharmacies through
management information systems, including inventory management, electronic
billing, current pricing and other financial management offerings. In
February 1996, McKesson launched the OmniLink(SM) centralized pharmacy
technology platform and the associated CareMax(SM) network of independent
pharmacies. The combined offering links independent pharmacies, creating a
"virtual chain" for contracting with pharmaceutical suppliers and managed
care organizations. As of December 31, 1996, OmniLink had been installed in
over 1,600 pharmacies.
OmniLink offers pharmacies streamlined transaction processing through
OmniLink's connectivity with managed care organizations, while promoting
compliance with managed care formularies and appropriate reimbursement from
managed care plans. The service also improves cash flow for pharmacies and
enhances pharmacy revenues through programs such as 24-hour advanced
funding of third-party reimbursements, prescription refill reminders,
patient direct marketing and distribution of coupons and samples for over-
the-counter products.
The Company currently has two pharmacy programs for independent
pharmacies--Valu-Rite(R), a voluntary cooperative program, and Health
Mart(R), a franchise program. Through Valu-Rite, the Company provides its
independent U.S. retail drug store customers with a common marketing
identity, group advertising, purchasing programs, promotional merchandise
and access to a pharmacy provider network. At December 31, 1996, over 5,200
stores were participating in the Valu-Rite program. Through Health Mart,
acquired as part of FoxMeyer, the Company provides its community
pharmacists with a franchise program. Currently, Health Mart has
approximately 700 franchisees. Together, Valu-Rite and Health Mart
pharmacies comprise approximately 20% of the nation's independent retail
pharmacies.
RETAIL CHAINS. Retail drug chains do business with the Company in three
ways: primary sourcing, secondary sourcing and dock-to-dock (warehousing).
In primary sourcing, a chain depends on the Company to supply its
logistics, warehousing and contract administration functions, much as the
Company performs primary distribution for all other retail customers. In
secondary sourcing, the Company "backs up" the chains' own warehouses with
deliveries on an as-needed basis. In dock-to-dock, the Company transfers
large-quantity (bulk) shipments from manufacturers to chains and provides
billing services.
INSTITUTIONAL BUSINESS. The Company, through its McKesson Health Systems
unit, provides drug distribution services, and related logistics and
management information systems support, to the institutional
11
<PAGE>
market, which includes hospitals, alternate-sites and integrated health
networks. The acquisition of FoxMeyer strengthened the Company's position
in the institutional marketplace. Similarly, the completion of the
acquisition of General Medical further enhances the Company's
competitiveness, particularly in the fast-growing alternate-site segment.
MANUFACTURERS. Pharmaceutical and Retail Services develops innovative
marketing and distribution services to build and sustain sales for
manufacturers' pharmaceutical products. Through its HDS unit, this group
operates integrated systems for specialized delivery of biotech and other
high-cost pharmaceutical therapies. These systems manage manufacturer cost
and information requirements through financial assistance programs for
patients, reimbursement support and patient advocacy programs, product hot-
lines, pharmacy-based sampling and physician and patient information
programs. These services are also provided to manufacturers on a stand-
alone basis outside of integrated service systems. Through McKesson
Bioservices Corporation, this group also provides support services to
commercial, non-profit and governmental organizations engaged in drug
development and biomedical research including biological repository
management, clinical trials support and regulatory process management
services.
McKesson also provides a key service to drug manufacturers with McKesson
Select Generics(SM), an enhancement of the Company's Multi-Source Complete(R)
generic drug program which was launched in May 1996. Through the Select
Generics program, retail customers have access to a broad line of over
1,300 generic items, and single suppliers are chosen for each item, thereby
offering to manufacturers the advantage of exclusivity and compliance.
GENERAL MEDICAL ACQUISITION
On February 21, 1997, McKesson acquired General Medical for approximately
$775 million, including $347 million for the equity, half in the Company's
Common Stock and half in cash, and the assumption of approximately $428
million in debt. The acquisition of General Medical extends the Company's
product line to include medical and surgical supplies in addition to the drugs
and health and beauty care products it currently distributes. The combination
of McKesson and General Medical creates a strong force to address the
increasingly complex clinical supply needs of physicians, extended-care
facilities and integrated health care networks.
General Medical is the nation's leading supplier of medical-surgical
supplies to the full range of alternate-site health care facilities, including
physicians and clinics (primary care), long-term care and home-care sites
(extended care), and is the third largest distributor of medical-surgical
supplies to hospitals. In the year ended December 31, 1995, General Medical
had revenues of approximately $1.5 billion, of which 58% were derived from the
acute care market, 31% from primary care and 11% from extended care. In
addition to marketing to each market segment separately, General Medical
emphasizes sales to these three market segments through integrated health care
networks which operate health care facilities across the market spectrum.
General Medical distributes a broad array of products, comprising
approximately 130,000 products supplied by over 4,000 medical and surgical
product manufacturers, through a 700-person sales force to more than
200,000 care providers nationwide, including 500 account managers calling on
physicians. Additionally, General Medical offers a variety of value-added
services to its customers, particularly in the area of cost containment and
inventory management. The acquisition of General Medical is a major step
forward in solidifying the Company's position as the world leader in health
care supply management.
FOXMEYER ACQUISITION
Prior to its acquisition by the Company, FoxMeyer's drug distribution
business was the fourth largest in the United States. The acquisition of
FoxMeyer pairs the Company's financial capabilities and information technology
expertise with the substantial customer base of FoxMeyer and strengthens the
Company's position in all three customer segments (health care institutions,
retail independents and retail chains). The acquisition also gives the Company
access to new customers and opportunities for consolidation economics,
particularly cost reduction and distribution network reconfiguration.
12
<PAGE>
MCKESSON WATER PRODUCTS COMPANY
McKesson Water Products Company ("Water Products") is a leading provider in
the $3.4 billion bottled water industry in the United States. Except in the
State of Washington, it is the largest bottled water company in the geographic
markets in which it competes. In fiscal 1996, Water Products generated
approximately $40 million in pretax operating profit, and its operating margin
was 15%. Water Products is primarily engaged in the processing and sale of
bottled drinking water delivered to more than 500,000 homes and businesses
under its Sparkletts(R), Alhambra(R), and Crystal(TM) brands in California,
Arizona, Nevada, Oklahoma, Washington and Texas. It also sells packaged water
through retail stores in approximately 40 states.
USE OF PROCEEDS
The Selling Holders will receive all of the proceeds from the sale of the
Offered Securities. Neither the Company nor the Trust will receive any
proceeds from the sale of the Offered Securities.
ACCOUNTING TREATMENT
The financial statements of the Trust will be consolidated with McKesson's
financial statements, with the Preferred Securities accounted for as minority
interests and captioned in the consolidated balance sheet as "McKesson-
obligated mandatorily redeemable preferred securities of subsidiary grantor
trust whose sole assets are junior subordinated debentures of McKesson."
RATIO OF EARNINGS TO FIXED CHARGES
(UNAUDITED)
The following table sets forth the Company's ratio of earnings to fixed
charges on a historical basis for each of the five fiscal years in the period
ended March 31, 1996, and for each of the nine months ended December 31, 1996
and December 31, 1995. The deficiency of earnings to fixed charges for fiscal
1995 totaled $0.7 million.
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEAR ENDED MARCH 31, ENDED DECEMBER 31
------------------------------- -----------------
1996 1995 1994 1993 1992 1996 1995
----- ------ ----- ----- ----- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed
Charges..................... 4.71x (0.01x) 3.42x 2.97x 1.45x 0.43x 4.40x
</TABLE>
The ratio of earnings to fixed charges was computed by dividing fixed
charges (interest expense including the interest portion of capital and
operating leases) into earnings available for fixed charges (income from
continuing operations plus taxes on income and fixed charges).
13
<PAGE>
MCKESSON FINANCING TRUST
McKesson Financing Trust is a statutory business trust formed under Delaware
law pursuant to (i) a Declaration of Trust, as amended by an Amended and
Restated Declaration of Trust (the "Declaration"), executed by McKesson, as
sponsor (the "Sponsor"), and the trustees of McKesson Financing Trust (the
"MFT Trustees") and (ii) the filing of a certificate of trust with the
Secretary of State of the State of Delaware. McKesson owns Common Securities
in an aggregate liquidation amount equal to 3% of the total capital of
McKesson Financing Trust. The assets of the Trust consist solely of the
Convertible Debentures. McKesson Financing Trust exists for the exclusive
purposes of (i) issuing the Trust Securities representing undivided beneficial
interests in the assets of the Trust, (ii) investing the gross proceeds of the
Trust Securities in the Convertible Debentures, and (iii) engaging in only
those other activities necessary or incidental thereto.
Pursuant to the Declaration, the number of MFT Trustees is initially five.
Three of the MFT Trustees (the "Regular Trustees") are persons who are
employees or officers of or who are affiliated with McKesson. The fourth
trustee is an entity that maintains its principal place of business in the
state of Delaware (the "Delaware Trustee"). The fifth trustee (the
"Institutional Trustee") is a financial institution that is unaffiliated with
McKesson and serves as institutional trustee under the Declaration and acts as
indenture trustee under the Declaration for the purposes of compliance with
the provisions of the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"). The First National Bank of Chicago, is the Institutional
Trustee until removed or replaced by the holder of the Common Securities. The
First National Bank of Chicago also acts as trustee (the "Guarantee Trustee")
under the Guarantee and as trustee (the "Debt Trustee") under the Indenture.
First Chicago Delaware Inc., an affiliate of the Institutional Trustee, acts
as Delaware Trustee. See "Description of the Convertible Preferred
Securities--Voting Rights."
The Institutional Trustee holds title to the Convertible Debentures for the
benefit of the holders of the Trust Securities and the Institutional Trustee
has the power to exercise all rights, powers and privileges under the
Indenture as the holder of the Convertible Debentures. In addition, the
Institutional Trustee maintains exclusive control of a segregated non-interest
bearing bank account (the "Property Account") to hold all payments made in
respect of the Convertible Debentures for the benefit of the holders of the
Trust Securities. The Institutional Trustee will make payments of
distributions and payments on liquidation, redemption and otherwise to the
holders of the Trust Securities out of funds from the Property Account. The
Guarantee Trustee holds the Guarantee for the benefit of the holders of the
Convertible Preferred Securities. McKesson, as the holder of all of the Common
Securities, has the right to appoint, remove or replace any MFT Trustee and to
increase or decrease the number of MFT Trustees. McKesson is to pay all fees
and expenses related to McKesson Financing Trust and the Original Offering of
the Trust Securities. See "Description of the Convertible Debentures--
Miscellaneous."
The Common Securities rank pari passu, and payments are made thereon pro
rata, with the Convertible Preferred Securities, except that upon the
occurrence and continuance of an event of default under the Declaration
resulting from an Event of Default under the Indenture, the rights of the
holders of the Common Securities to payment in respect of distributions and
payments upon liquidation, redemption or otherwise will be subordinated to the
rights of holders of the Convertible Preferred Securities. See "Description of
Convertible Preferred Securities--General."
The rights of the holders of the Convertible Preferred Securities, including
economic rights, rights to information and voting rights, are set forth in the
Declaration and the Delaware Business Trust Act (the "Trust Act"). The
Declaration, the Indenture and the Guarantee also incorporate by reference the
terms of the Trust Indenture Act. It is expected that, at the time the Shelf
Registration Statement becomes effective, the Declaration, the Indenture and
the Guarantee will be qualified under the Trust Indenture Act.
The place of business and the telephone number of the Trust are the
principal executive offices and telephone number of the Company. See "The
Company."
14
<PAGE>
DESCRIPTION OF THE CONVERTIBLE PREFERRED SECURITIES
The Convertible Preferred Securities were issued pursuant to the terms of
the Declaration. The Declaration incorporates by reference terms of the Trust
Indenture Act. The Declaration will be qualified under the Trust Indenture
Act. The Institutional Trustee acts as indenture trustee for the Convertible
Preferred Securities under the Declaration for purposes of compliance with the
provisions of the Trust Indenture Act. The terms of the Convertible Preferred
Securities include those stated in the Declaration and those made part of the
Declaration by the Trust Indenture Act. The following summary of certain terms
and provisions of the Convertible Preferred Securities does not purport to be
complete and is subject to, and qualified in its entirety by reference to, the
Declaration, the Trust Act and the Trust Indenture Act.
GENERAL
The Declaration authorized the Regular Trustees to issue, on behalf of the
Trust, the Trust Securities, which represent undivided beneficial interests in
the assets of the Trust. All of the Common Securities are owned by McKesson.
The Common Securities rank pari passu, and payments are made thereon on a pro
rata basis, with the Convertible Preferred Securities, except that upon the
occurrence and during the continuance of a Declaration Event of Default, the
rights of the holders of the Common Securities to receive payment of periodic
distributions and payments upon liquidation, redemption and otherwise will be
subordinated to the rights of the holders of the Convertible Preferred
Securities. The Declaration does not permit the issuance by the Trust of any
securities other than the Trust Securities or the incurrence of any
indebtedness by the Trust. Pursuant to the Declaration, the Institutional
Trustee holds the Convertible Debentures purchased by the Trust for the
benefit of the holders of the Trust Securities. The payment of distributions
out of money held by the Trust, and payments upon redemption of the
Convertible Preferred Securities or liquidation of the Trust, are guaranteed
by McKesson to the extent described under "Description of the Guarantee." The
Guarantee is held by the Guarantee Trustee for the benefit of the holders of
the Convertible Preferred Securities. The Guarantee does not cover payment of
distributions when the Trust does not have sufficient available funds to pay
such distributions. In such event, the remedy of a holder of Convertible
Preferred Securities is to vote to direct the Institutional Trustee to enforce
the Institutional Trustee's rights under the Convertible Debentures or, in
certain limited circumstances, to take Direct Action. See "--Voting Rights"
and "--Declaration Events of Default."
DISTRIBUTIONS
Distributions on the Convertible Preferred Securities are fixed at a rate
per annum (the "distribution rate") of 5% of the stated liquidation amount of
$50 per Convertible Preferred Security. Distributions in arrears for more than
one quarter will accrue interest thereon at the distribution rate (to the
extent permitted by applicable law), compounded quarterly. The term
"distribution" as used herein includes any such interest payable unless
otherwise stated. The amount of distributions payable for any period will be
computed on the basis of a 360-day year of twelve 30-day months. The amount of
distributions payable for any period shorter than a full quarterly period for
which distributions are computed will be computed on the basis of the actual
number of days elapsed per 30-day month.
Distributions on the Convertible Preferred Securities will be cumulative,
will accrue from the first date that any Convertible Preferred Securities are
issued, and will be payable quarterly in arrears on March 1, June 1, September
1 and December 1 of each year, commencing June 1, 1997, when, as and if
available for payment. Distributions will be made by the Institutional
Trustee, except as otherwise described below.
So long as McKesson shall not be in default in the payment of interest on
the Convertible Debentures, McKesson has the right under the Indenture to
defer payments of interest on the Convertible Debentures by extending the
interest payment period from time to time on the Convertible Debentures,
which, if exercised, would defer quarterly distributions on the Convertible
Preferred Securities (though such distributions would continue to accumulate
with interest thereon (to the extent permitted by applicable law) at the
distribution rate, compounded quarterly, since interest would continue to
accrue on the Convertible Debentures) during any such
15
<PAGE>
Extension Period. Such right to extend the interest payment period for the
Convertible Debentures is limited to a period not exceeding 20 consecutive
quarters and such period may not extend beyond the maturity of the Convertible
Debentures. Each Extension Period, if any, will end on an Interest Payment
Date (as defined herein) for the Convertible Debentures; such date will also
be a distribution payment date for the Convertible Preferred Securities. In
the event that McKesson exercises its right to defer payment of interest,
then, during such Extension Period McKesson shall not (a) declare or pay
dividends on, make distributions with respect to, or redeem, purchase or
acquire, or make a liquidation payment with respect to, any of its capital
stock or (b) make any payment of interest, principal or premium, if any, on or
repay, repurchase or redeem any debt securities issued by McKesson that rank
pari passu with or junior in interest to the Convertible Debentures or make
any guarantee payments with respect to any guarantee by the Company of the
debt securities of any subsidiary of the Company if such guarantee ranks pari
passu with or junior in interest to the Convertible Debentures (other than (i)
as a result of a reclassification of McKesson capital stock or the exchange or
conversion of one class or series of McKesson capital stock for another class
or series of McKesson capital stock, (ii) the purchase of fractional interests
in shares of McKesson capital stock pursuant to the conversion or exchange
provisions of such McKesson capital stock or the security being converted or
exchanged for McKesson capital stock, (iii) dividends or distributions in
Common Stock of the Company, (iv) any declaration of a dividend in connection
with the implementation of a stockholders' rights plan, or the issuance of
stock under any such plan in the future, or the redemption or repurchase of
any such rights pursuant thereto, (v) payments under the Guarantee and Common
Securities Guarantee (as defined herein), (vi) purchases of Common Stock
related to the issuance of Common Stock or rights under any of the Company's
benefit plans for its directors, officers or employees and (vii) obligations
under any dividend reinvestment and stock purchase plans). Prior to the
termination of any such Extension Period, McKesson may further extend the
interest payment period; provided that such Extension Period, together with
all such previous and further extensions, may not exceed 20 consecutive
quarters or extend beyond the maturity of the Convertible Debentures. Upon the
termination of any Extension Period and the payment of all amounts then due,
McKesson may commence a new Extension Period, subject to the above
requirements. Consequently, there could be multiple Extension Periods of
varying length throughout the term of the Convertible Debentures. See
"Description of the Convertible Debentures--Interest" and "--Option to Extend
Interest Payment Period." If distributions are deferred, the deferred
distributions and interest thereon shall be payable on the distribution
payment date on which the relevant Extension Period terminates and shall be
paid to holders of record of the Convertible Preferred Securities as they
appear on the books and records of the Trust at the close of business on the
record date next preceding such distribution payment date.
Distributions on the Convertible Preferred Securities must be paid on the
date payable to the extent that the Trust has funds available for the payment
of such distributions. The Trust's funds available for distribution to the
holders of the Convertible Preferred Securities will be limited to payments
received from McKesson on the Convertible Debentures. See "Description of the
Convertible Debentures." The payment of distributions out of monies held by
the Trust is guaranteed by McKesson to the extent set forth under "Description
of the Guarantee."
Distributions on the Convertible Preferred Securities will be payable to the
holders thereof as they appear on the books and records of the Trust at the
close of business on the relevant record dates, which will be fifteen days
prior to the relevant payment dates. Such distributions will be paid through
the Institutional Trustee who will hold amounts received in respect of the
Convertible Debentures for the benefit of the holders of the Trust Securities.
Subject to any applicable laws and regulations and the provisions of the
Declaration, each such payment will be made as described under "--Form,
Denomination and Registration" below. In the event that any date on which
distributions are to be made on the Convertible Preferred Securities is not a
Business Day (as defined herein), then payment of the distributions payable on
such date will be made on the next succeeding day that is a Business Day (and
without any interest or other payment in respect of any such delay), except
that, if such Business Day is in the next succeeding calendar year, such
payment shall be made on the immediately preceding Business Day, in each case
with the same force and effect as if made on such date. A "Business Day" shall
mean any day other than Saturday, Sunday or any other day on which banking
institutions in The City of New York or Wilmington, Delaware are permitted or
required by any applicable law to close.
16
<PAGE>
CONVERSION RIGHTS
General. The Convertible Preferred Securities are convertible at any time
beginning May 21, 1997 through the close of business on the Business Day prior
to the maturity date of the Convertible Debentures (or, in the case of
Convertible Preferred Securities called for redemption, prior to the close of
business on the Business Day prior to the Redemption Date) (the "Conversion
Expiration Date"), at the option of the holders thereof and in the manner
described below, into shares of McKesson Common Stock at an initial conversion
rate of .6709 shares of McKesson Common Stock for each Convertible Preferred
Security (equivalent to a conversion price (the "Conversion Price") of $74.53
per share of McKesson Common Stock), subject to adjustment as described under
"--Conversion Price Adjustments--General" below.
The terms of the Convertible Preferred Securities provide that a holder of a
Convertible Preferred Security wishing to exercise its conversion right shall
surrender such Convertible Preferred Security, together with an irrevocable
conversion notice, to the Institutional Trustee, as conversion agent (the
"Conversion Agent") which shall, on behalf of such holder, exchange such
Convertible Preferred Security for an equivalent portion of the Convertible
Debentures and immediately convert an equivalent amount of Convertible
Debentures into McKesson Common Stock. Holders may obtain copies of the
required form of the conversion notice from the Conversion Agent. Additional
procedures for converting book-entry Convertible Preferred Securities into
shares of McKesson Common Stock are described below under "--Form,
Denomination and Registration."
Accrued distributions will not be paid on the Convertible Preferred
Securities that are converted, provided, however, that if any Convertible
Preferred Security is converted after the close of business on a record date
for payment of distributions thereon, the distributions payable on the related
payment date with respect to such Convertible Preferred Security shall be paid
on such distribution date to the person who was the registered holder thereof
at the close of business on such record date, despite such conversion, unless
such Convertible Preferred Security has been called for redemption on a
Redemption Date falling between such record date and the corresponding
distribution payment date, in which case the amount of such payment shall
include distributions accrued to, but excluding, such Redemption Date and such
payment shall be made to the converting holder. Except as provided in the
immediately preceding sentence, neither the Trust nor McKesson shall make any
payment, allowance or adjustment for accumulated and unpaid distributions on
converted Convertible Preferred Securities. McKesson will make no payment or
allowance for distributions on the shares of McKesson Common Stock issued upon
such conversion, except to the extent that such shares of McKesson Common
Stock are held of record on the record date for any such distributions.
No fractional shares of McKesson Common Stock will be issued as a result of
conversion, but in lieu thereof such fractional interest will be paid by
McKesson in cash based on the Closing Price (as defined in the Declaration) of
McKesson Common Stock on the date such Convertible Preferred Securities are
surrendered for conversion.
Conversion Price Adjustments--General. The initial conversion price of
$74.53 per share of McKesson Common Stock is subject to adjustment (under
formulae set forth in the Indenture) in certain events, including (i) the
issuance of shares of McKesson Common Stock as a dividend or a distribution
with respect to McKesson Common Stock, (ii) certain subdivisions and
combinations of McKesson Common Stock, (iii) the issuance to all holders of
McKesson Common Stock of certain rights or warrants entitling them to
subscribe for or purchase shares of McKesson Common Stock, (iv) the
distribution to all holders of McKesson Common Stock of shares of capital
stock (other than McKesson Common Stock) or evidences of indebtedness of
McKesson or of assets (including securities, but excluding those rights,
warrants, dividends and distributions referred to above or paid in cash), (v)
distributions consisting of cash, excluding any quarterly cash dividend on
McKesson Common Stock to the extent that the aggregate cash dividend per share
of McKesson Common Stock in any quarter does not exceed the greater of (x) the
amount per share of McKesson Common Stock of the next preceding quarterly
dividend on McKesson Common Stock to the extent that such preceding quarterly
dividend did not require an adjustment of the conversion rate pursuant to this
clause (v) (as adjusted to reflect subdivisions or combinations of McKesson
Common Stock), and (y) 3.75% of the average of the daily Closing Price (as
defined in the
17
<PAGE>
Indenture) of McKesson Common Stock during the ten consecutive Trading Days
(as defined in the Indenture) immediately prior to the date of declaration of
such dividend, and excluding any dividend or distribution in connection with
the liquidation, dissolution or winding-up of McKesson, (vi) payment to
holders of McKesson Common Stock in respect of a tender or exchange offer by
McKesson or any subsidiary for McKesson Common Stock to the extent that the
cash and value of any other consideration included in such payment per share
of McKesson Common Stock exceeds the Closing Price (as defined in the
Indenture) per share of Common Stock on the Trading Day next succeeding the
last date on which tenders or exchanges may be made pursuant to such tender or
exchange offer, and (vii) payment in respect of a tender offer or exchange
offer by a person other than McKesson or any subsidiary of McKesson in which,
as of the closing date of the offer, the Board of Directors is not
recommending rejection of the offer. If an adjustment is required to be made
as set forth in clause (v) above as a result of a distribution that is a
quarterly dividend, such adjustment would be based upon the amount by which
such distribution exceeds the amount of the quarterly cash dividend permitted
to be excluded pursuant to such clause (v). If an adjustment is required to be
made based upon the full amount of the distribution that is not a quarterly
dividend, such adjustment would be based upon the full amount of the
distribution. The adjustment referred to in clause (vii) above will only be
made (A) if the tender offer or exchange offer is for an amount that increases
that person's ownership of McKesson Common Stock to more than 25% of the total
shares of McKesson Common Stock outstanding and (B) if the cash and value of
any other consideration included in such payment per share of McKesson Common
Stock exceeds the Closing Price per share of McKesson Common Stock on the
Business Day next succeeding the last date on which tenders or exchanges may
be made pursuant to such tender or exchange offer. The adjustment referred to
in clause (vii) above will not be made, however, if, as of the closing of the
offer, the offering documents with respect to such offer disclose a plan or an
intention to cause McKesson to engage in a consolidation or merger of McKesson
or a sale of all or substantially all of McKesson's assets. The Convertible
Debentures provide for corresponding anti-dilution adjustments.
McKesson from time to time may to the extent permitted by law reduce the
conversion price of the Convertible Debentures (and thus the conversion price
of the Convertible Preferred Securities) by any amount for any period of at
least 20 days, in which case McKesson shall give at least 15 days' notice of
such reduction.
No adjustment in the conversion price will be required unless such
adjustment would require a change of at least one percent (1%) in the
conversion price then in effect; provided, however, that any adjustment that
would not be required to be made shall be carried forward and taken into
account in any subsequent adjustment. If any action would require adjustment
of the conversion price pursuant to more than one of the provisions described
above, only one adjustment shall be made and such adjustment shall be the
amount of adjustment that has the highest absolute value to the holder of the
Convertible Preferred Securities. Except as stated above, the conversion price
will not be adjusted for the issuance of McKesson Common Stock or any
securities convertible into or exchangeable for McKesson Common Stock or
carrying the right to purchase any of the foregoing.
Conversion Price Adjustments--Merger, Consolidation or Sale of Assets of
McKesson. If any transaction shall occur (including without limitation (i) any
recapitalization or reclassification of shares of McKesson Common Stock (other
than a change in par value, or from par value to no par value, or from no par
value to par value, or as a result of a subdivision or combination of McKesson
Common Stock), (ii) any consolidation or merger of McKesson with or into
another person or any merger of another person into McKesson (other than a
merger that does not result in a reclassification, conversion, exchange or
cancellation of McKesson Common Stock), (iii) any sale or transfer of all or
substantially all of the assets of McKesson, or (iv) any compulsory share
exchange) pursuant to which either shares of McKesson Common Stock shall be
converted into the right to receive other securities, cash or other property,
or, in the case of a sale or transfer of all or substantially all of the
assets of McKesson, the holders of McKesson Common Stock shall be entitled to
receive other securities, cash or other property, then appropriate provision
shall be made so that the holder of each Convertible Preferred Security then
outstanding shall have the right thereafter to convert such Convertible
Preferred Security only into:
(x) in the case of any such transaction that does not constitute a Common
Stock Fundamental Change (as defined below) and subject to funds being
legally available for such purpose under applicable law at the time of such
conversion, the kind and amount of the securities, cash or other property
that would have been
18
<PAGE>
receivable upon such recapitalization, reclassification, consolidation,
merger, sale, transfer or share exchange by a holder of the number of
shares of McKesson Common Stock issuable upon conversion of such
Convertible Preferred Security immediately prior to such recapitalization,
reclassification, consolidation, merger, sale, transfer or share exchange,
after giving effect, in the case of any Non-Stock Fundamental Change (as
defined below), to any adjustment in the conversion price in accordance
with clause (i) of the second following paragraph, and
(y) in the case of any such transaction that constitutes a Common Stock
Fundamental Change, common stock of the kind received by holders of
McKesson Common Stock as a result of such Common Stock Fundamental Change
in an amount determined in accordance with clause (ii) of the second
following paragraph.
The company formed by such consolidation or resulting from such merger or
that acquires assets or that acquires McKesson's shares, as the case may be,
shall make provisions in its certificate or articles of incorporation or other
constituent document to establish such right. Such certificate or articles of
incorporation or other constituent document shall provide for adjustments
that, for events subsequent to the effective date of such certificate or
articles of incorporation or other constituent documents, shall be as nearly
equivalent as may be practicable to the relevant adjustments provided for in
the preceding paragraphs and in this paragraph.
Notwithstanding any other provision in the preceding paragraphs to the
contrary, if any Fundamental Change (as defined below) occurs, then the
conversion price in effect will be adjusted immediately after such Fundamental
Change as follows:
(i) in the case of a Non-Stock Fundamental Change, the conversion price
of the Convertible Preferred Securities immediately following such Non-
Stock Fundamental Change shall be the lower of (A) the conversion price in
effect immediately prior to such Non-Stock Fundamental Change, but after
giving effect to any other prior adjustments effected pursuant to the
preceding paragraphs, and (B) the product of (1) the greater of the
Applicable Price (as defined below) and the then applicable Reference
Market Price (as defined below) and (2) a fraction, the numerator of which
is $50 and the denominator of which is (x) the amount of the redemption
price for one Convertible Preferred Security if the redemption date were
the date of such Non-Stock Fundamental Change (or, for the twelve-month
periods commencing March 4, 1997, March 4, 1998 and March 4, 1999, the
product of 105.0%, 104.5% and 104.0%, respectively, times $50) plus (y) any
then-accrued and unpaid distributions on one Convertible Preferred
Security; and
(ii) in the case of a Common Stock Fundamental Change, the conversion
price of Convertible Preferred Securities immediately following such Common
Stock Fundamental Change shall be the conversion price in effect
immediately prior to such Common Stock Fundamental Change, but after giving
effect to any other prior adjustments effected pursuant to the preceding
paragraphs, multiplied by a fraction, the numerator of which is the
Purchaser Stock Price (as defined below) and the denominator of which is
the Applicable Price; provided, however, that in the event of a Common
Stock Fundamental Change in which (A) 100% of the value of the
consideration received by a holder of McKesson Common Stock is common stock
of the successor, acquiror or other third party (and cash, if any, paid
with respect to any fractional interests in such common stock resulting
from such Common Stock Fundamental Change) and (B) all of the McKesson
Common Stock shall have been exchanged for, converted into or acquired for,
common stock of the successor, acquiror or other third party (and any cash
with respect to fractional interests), the conversion price of the
Convertible Preferred Securities immediately following such Common Stock
Fundamental Change shall be the conversion price in effect immediately
prior to such Common Stock Fundamental Change multiplied by a fraction, the
numerator of which is one (1) and the denominator of which is the number of
shares of common stock of the successor, acquiror or other third party
received by a holder of one share of McKesson Common Stock as a result of
such Common Stock Fundamental Change.
Depending upon whether a Fundamental Change is a Non-Stock Fundamental
Change or a Common Stock Fundamental Change, a holder may receive
significantly different consideration upon conversion. In the event of a Non-
Stock Fundamental Change, the holder has the right to convert Convertible
Preferred Securities into the
19
<PAGE>
kind and amount of the shares of stock and other securities or property or
assets (including cash), except as otherwise provided above, as is determined
by the number of shares of McKesson Common Stock receivable upon conversion at
the conversion price as adjusted in accordance with clause (i) of the
preceding paragraph. However, in the event of a Common Stock Fundamental
Change in which less than 100% of the value of the consideration received by a
holder of McKesson Common Stock is common stock of the successor, acquiror or
other third party, a holder of a Convertible Preferred Security who converts
such share following the Common Stock Fundamental Change will receive
consideration in the form of such common stock only, whereas a holder who
converted such share prior to the Common Stock Fundamental Change would have
received consideration in the form of such common stock as well as any other
securities or assets (which may include cash) issuable upon conversion of such
Convertible Preferred Security immediately prior to such Common Stock
Fundamental Change.
The term "Applicable Price" means (i) in the event of a Non-Stock
Fundamental Change in which the holders of McKesson Common Stock receive only
cash, the amount of cash received by a holder of one share of McKesson Common
Stock and (ii) in the event of any other Fundamental Change, the average of
the daily Closing Price (as defined in the Indenture) for one share of
McKesson Common Stock during the 10 Trading Days immediately prior to the
record date for the determination of the holders of McKesson Common Stock
entitled to receive cash, securities, property or other assets in connection
with such Fundamental Change or, if there is no such record date, prior to the
date upon which the holders of McKesson Common Stock shall have the right to
receive such cash, securities, property or other assets.
The term "Common Stock Fundamental Change" means any Fundamental Change in
which more than 50% of the value (as determined in good faith by the Board of
Directors of McKesson) of the consideration received by holders of McKesson
Common Stock consists of common stock that, for the 10 Trading Days
immediately prior to such Fundamental Change, has been admitted for listing or
admitted for listing subject to notice of issuance on a national securities
exchange or quoted on The Nasdaq National Market; provided, however, that a
Fundamental Change shall not be a Common Stock Fundamental Change unless
either (i) McKesson continues to exist after the occurrence of such
Fundamental Change and the outstanding Convertible Preferred Securities
continue to exist as outstanding Convertible Preferred Securities, or (ii) not
later than the occurrence of such Fundamental Change, the outstanding
Convertible Preferred Securities are converted into or exchanged for shares of
convertible preferred stock or debentures of a corporation succeeding to the
business of McKesson, which convertible preferred stock has powers,
preferences and relative, participating, optional or other rights, and
qualifications, limitations and restrictions substantially similar to those of
the Convertible Preferred Securities and which debentures have terms
substantially similar to those of the Convertible Debentures.
The term "Fundamental Change" means the occurrence of any transaction or
event or series of transactions or events pursuant to which all or
substantially all of the McKesson Common Stock shall be exchanged for,
converted into, acquired for or shall constitute solely the right to receive
cash, securities, property or other assets (whether by means of an exchange
offer, liquidation, tender offer, consolidation, merger, combination,
reclassification, recapitalization or otherwise); provided, however, in the
case of any such series of transactions or events, for purposes of adjustment
of the conversion price, such Fundamental Change shall be deemed to have
occurred when substantially all of the McKesson Common Stock shall have been
exchanged for, converted into or acquired for, or shall constitute solely the
right to receive, such cash, securities, property or other assets, but the
adjustment shall be based upon the consideration that the holders of McKesson
Common Stock received in the transaction or event as a result of which more
than 50% of the McKesson Common Stock shall have been exchanged for, converted
into or acquired for, or shall constitute solely the right to receive, such
cash, securities, property or other assets.
The term "Non-Stock Fundamental Change" means any Fundamental Change other
than a Common Stock Fundamental Change.
20
<PAGE>
The term "Purchaser Stock Price" means, with respect to any Common Stock
Fundamental Change, the average of the daily Closing Price for one share of
the common stock received by holders of McKesson Common Stock (determined as
provided in the Declaration) in such Common Stock Fundamental Change during
the 10 Trading Days immediately prior to the date fixed for the determination
of the holders of McKesson Common Stock entitled to receive such common stock
or, if there is no such date, prior to the date upon which the holders of
McKesson Common Stock shall have the right to receive such common stock.
The Term "Reference Market Price" shall initially mean $39.75 (which is an
amount equal to 66 2/3% of the reported last sale price for McKesson Common
Stock on the New York Stock Exchange on February 13, 1997 (the date of the
pricing of the Original Offering)) and, in the event of any adjustment to the
conversion price other than as a result of a Fundamental Change, the Reference
Market Price shall also be adjusted so that the ratio of the Reference Market
Price to the conversion price after giving effect to any such adjustment shall
also be the same as the ratio of the initial Reference Market Price to the
initial conversion price of $74.53 per share.
MANDATORY REDEMPTION
The Convertible Preferred Securities will be redeemed upon repayment of the
Convertible Debentures at their maturity or to the extent that the Convertible
Debentures are redeemed or repaid upon acceleration. The Convertible
Debentures will mature on June 1, 2027, and may be redeemed, in whole or in
part, at any time on or after March 4, 2000, or at any time in certain
circumstances upon the occurrence of a Tax Event (as defined below). Upon the
repayment of the Convertible Debentures, whether at maturity, upon redemption
or otherwise, the proceeds from such repayment shall simultaneously be applied
to redeem Trust Securities having an aggregate liquidation amount equal to the
aggregate principal amount of the Convertible Debentures so repaid or redeemed
at the appropriate Redemption Price (expressed as percentages of the
liquidation amount of the Convertible Preferred Securities) set forth below,
together with accrued and unpaid distributions (including, if distributions
shall have been deferred as the result of an Extension Period, interest
thereon to the extent permitted by applicable law) to, but excluding, the
redemption date, if redeemed during the 12-month period beginning March 4 of
the applicable year set forth below; provided, that holders of Trust
Securities shall be given not less than 30 nor more than 60 days notice of
such redemption. See "Description of the Convertible Debentures--Redemption at
the Option of McKesson." In the event that fewer than all of the outstanding
Convertible Preferred Securities are to be redeemed, the Convertible Preferred
Securities will be redeemed pro rata as described under "--Form, Denomination
and Registration" below.
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
2000........................ 103.5%
2001........................ 103.0
2002........................ 102.5
2003........................ 102.0
2004........................ 101.5
2005........................ 101.0
2006........................ 100.5
</TABLE>
and 100.0% if redeemed on or after March 4, 2007. If Convertible Preferred
Securities are redeemed on any distribution payment date, accumulated and
unpaid distributions shall be payable to holders of record on the relevant
record date.
SPECIAL EVENT DISTRIBUTION; TAX EVENT REDEMPTION
"Tax Event" means that the Regular Trustees shall have received an opinion
of nationally recognized independent tax counsel experienced in such matters
(a "Dissolution Tax Opinion") to the effect that as a result of (a) any
amendment to, clarification of, or change (including any announced prospective
change) in the laws,
21
<PAGE>
or any regulations thereunder, of the United States or any political
subdivision or taxing authority thereof or therein, (b) any judicial decision,
official administrative pronouncement, ruling, regulatory procedure, notice or
announcement, including any notice or announcement of intent to adopt such
procedures or regulations (an "Administrative Action"), or (c) any amendment
to, clarification of, or change in the official position or the interpretation
of such Administrative Action or judicial decision that differs from the
theretofore generally accepted position, in each case, by any legislative
body, court, governmental authority or regulatory body, irrespective of the
manner in which such amendment, clarification or change is made known, which
amendment, clarification, or change is effective or such pronouncement or
decision is announced, in each case, on or after February 13, 1997, there is
the creation by such amendment, clarification, change or Administrative Action
of more than an insubstantial risk that (i) the Trust is or will be subject to
United States federal income tax with respect to interest accrued or received
on the Convertible Debentures, (ii) the Trust is or will be subject to more
than a de minimis amount of taxes (other than withholding taxes), duties or
other governmental charges, or (iii) interest paid in cash by McKesson to the
Trust on the Convertible Debentures is not, or will not be, deductible, in
whole or in part, by McKesson for United States federal income tax purposes.
Notwithstanding the foregoing, a Tax Event shall not include any change in tax
law that requires McKesson for United States federal income tax purposes to
defer taking a deduction for any OID that accrues with respect to the
Convertible Debentures until the interest payment related to such OID is paid
by the Company in cash; provided, that such change in tax law does not create
more than an insubstantial risk that McKesson will be prevented from taking a
deduction for OID accruing with respect to the Convertible Debentures at a
date that is no later than the date the interest payment related to such OID
is actually paid by McKesson in cash.
"Investment Company Event" means that the Regular Trustees shall have
received an opinion of nationally recognized independent counsel experienced
in such matters to the effect that, as a result of the occurrence of a change
in law or regulation or a written change in interpretation or application of
law or regulation by any legislative body, court, governmental agency or
regulatory authority on or after February 13, 1997, there is more than an
insubstantial risk that the Trust is or will be considered an "investment
company" that is required to be registered under the Investment Company Act of
1940, as amended (the "1940 Act").
If, at any time, a Tax Event or an Investment Company Event (each, a
"Special Event") shall occur and be continuing, the Trust may with the consent
of McKesson, except in the limited circumstances described below, be dissolved
with the result that Convertible Debentures with an aggregate principal amount
equal to the aggregate stated liquidation amount of, with an interest rate
identical to the distribution rate of, and accrued and unpaid interest equal
to accrued and unpaid distributions on, the Trust Securities, would be
distributed to the holders of the Trust Securities in liquidation of such
holders' interest in the Trust on a pro rata basis within 90 days following
the occurrence of the Special Event; provided, that such dissolution and
distribution shall be conditioned on (i) the Regular Trustees' receipt of an
opinion of independent tax counsel experienced in such matters (a "No
Recognition Opinion"), which opinion may rely on published revenue rulings of
the Internal Revenue Service, to the effect that the holders of the Trust
Securities will not recognize any income, gain or loss for United States
federal income tax purposes as a result of such dissolution and distribution
of Convertible Debentures, (ii) McKesson or the Trust being unable to avoid
such Special Event within such 90-day period by taking some ministerial action
or pursuing some other reasonable measure that will have no adverse effect on
the Trust, McKesson or the holders of the Trust Securities and (iii)
McKesson's prior written consent to such dissolution and distribution. If
McKesson declines to consent to such dissolution and distribution, McKesson
may incur an obligation to pay Additional Sums. See "Description of the
Convertible Debentures--Additional Sums." Furthermore, if after receipt of a
Dissolution Tax Opinion by the Regular Trustees (i) McKesson has received an
opinion (a "Redemption Tax Opinion") of nationally recognized independent tax
counsel experienced in such matters that, as a result of a Tax Event, there is
more than an insubstantial risk that McKesson would be precluded from
deducting the interest on the Convertible Debentures for United States federal
income tax purposes even after the Convertible Debentures were distributed to
the holders of Trust Securities in liquidation of such holders' interests in
the Trust as described above, or (ii) the Regular Trustees shall have been
informed by such tax counsel that it cannot deliver a No Recognition Opinion
to the Trust,
22
<PAGE>
McKesson shall have the right, upon not less than 30 nor more than 60 days
notice, to redeem the Convertible Debentures, in whole or in part, at 100% of
the principal amount thereof plus accrued and unpaid interest thereon for cash
within 90 days following the occurrence of such Tax Event. Following such
redemption, Trust Securities with an aggregate liquidation amount equal to the
aggregate principal amount of the Convertible Debentures so redeemed shall be
redeemed by the Trust at the liquidation amount thereof plus accrued and
unpaid distributions thereon to the redemption date on a pro rata basis;
provided, however, that if at the time there is available to McKesson or the
Trust the opportunity to eliminate, within such 90 day period, the Tax Event
by taking some ministerial action, such as filing a form or making an election
or pursuing some other similar reasonable measure that will have no adverse
effect on the Trust, McKesson or the holders of Trust Securities, McKesson or
the Trust will pursue such measure in lieu of redemption.
After the date for any distribution of Convertible Debentures upon
dissolution of the Trust, (i) the Trust Securities will no longer be deemed to
be outstanding and (ii) certificates representing Trust Securities will be
deemed to represent Convertible Debentures having an aggregate principal
amount equal to the aggregate stated liquidation amount of, with an interest
rate identical to the distribution rate of, and accrued and unpaid interest
(including Compound Interest (as defined herein)) equal to accrued and unpaid
distributions on, such Trust Securities until such certificates are presented
to McKesson or its agent for transfer or reissuance.
REDEMPTION PROCEDURES FOR REDEMPTION BY THE TRUST
The Trust may not redeem fewer than all of the outstanding Convertible
Preferred Securities unless all accrued and unpaid distributions have been
paid on all Convertible Preferred Securities for all quarterly distribution
periods terminating on or prior to the date of redemption.
The Trust shall not be required to (i) in the event of any redemption in
part, issue, register the transfer of or exchange any Convertible Preferred
Securities during a period beginning at the opening of business 15 days before
any selection for redemption of Convertible Preferred Securities and ending at
the close of business on the earliest date in which the relevant notice of
redemption is deemed to have been given to all holders of Convertible
Preferred Securities to be so redeemed or (ii) register the transfer of or
exchange any Convertible Preferred Securities selected for redemption, in
whole or in part, except for the unredeemed portion of any Convertible
Preferred Securities being redeemed in part.
If the Trust gives a notice of redemption in respect of Convertible
Preferred Securities (which notice will be irrevocable), then, by 12:00 noon,
New York City time, on the redemption date, provided that McKesson has paid to
the Institutional Trustee a sufficient amount of cash in connection with the
related redemption of the Convertible Debentures, the Trust will irrevocably
deposit with the depositary for the Global Securities (the "Depository") funds
sufficient to pay the amount payable on redemption of all book-entry
certificates and will give the Depository irrevocable instructions and
authority to pay such amount in respect of the Global Securities and will
irrevocably deposit with the paying agent for the Convertible Preferred
Securities funds sufficient to pay such amount in respect of any certificated
Convertible Preferred Securities and will give such paying agent irrevocable
instructions and authority to pay such amount to the holders of certificated
Convertible Preferred Securities upon surrender of their certificates. If
notice of redemption shall have been given and funds deposited as required,
then, from and after the redemption date, distributions will cease to accrue
and all rights of holders of such Convertible Preferred Securities so called
for redemption will cease, except the right of the holders of such Convertible
Preferred Securities to receive the Redemption Price plus accrued and unpaid
distributions on the Convertible Preferred Securities to be redeemed, but
without interest on such Redemption Price. In the event that any date fixed
for redemption of Convertible Preferred Securities is not a Business Day, then
payment of the Redemption Price payable on such date will be made on the next
succeeding day that is a Business Day (without any interest or other payment
in respect of any such delay) except that, if such Business Day falls in the
next calendar year, such payment will be made on the immediately preceding
Business Day. In the event that payment of the Redemption Price in respect of
Convertible Preferred Securities is improperly withheld or refused and not
paid either by the Trust or by McKesson pursuant to the Guarantee,
distributions on such Convertible Preferred
23
<PAGE>
Securities will continue to accrue at the then applicable rate from the
original redemption date to the date of payment, in which case the actual
payment date will be considered the date fixed for redemption for purposes of
calculating the Redemption Price.
In the event that fewer than all of the outstanding Convertible Preferred
Securities are to be redeemed, the Convertible Preferred Securities will be
redeemed pro rata.
Subject to the foregoing and applicable law (including without limitation,
United States federal securities laws), McKesson or its subsidiaries may at
any time, and from time to time, purchase outstanding Convertible Preferred
Securities by tender, in the open market or by private agreement.
SUBORDINATION OF COMMON SECURITIES
Payment of distributions on, and the amount payable upon redemption of, the
Trust Securities, as applicable, shall be made pro rata based on the
liquidation amount of the Trust Securities; provided however, that, if on any
distribution date or Redemption Date a Declaration Event of Default shall have
occurred and be continuing, no payment of any distribution on, or amount
payable upon redemption of, any Common Security and no other payment on
account of the redemption, liquidation or other acquisition of any Common
Security shall be made unless payment in full in cash of all accumulated and
unpaid distributions on all outstanding Convertible Preferred Securities for
all distribution periods terminating on or prior thereto, or in the case of
payment of the amount payable upon redemption of the Convertible Preferred
Securities, the full Redemption Price, together with accumulated and unpaid
distributions, in respect of all outstanding Convertible Preferred Securities
called for redemption shall have been made or provided for, and all funds
available to the Institutional Trustee shall first be applied to the payment
in full in cash of all distributions on, or the amount payable upon redemption
of, Convertible Preferred Securities then due and payable.
In the case of any Declaration Event of Default, the holder of Common
Securities will be deemed to have waived any such Declaration Event of Default
until all Declaration Events of Default with respect to the Convertible
Preferred Securities have been cured, waived or otherwise eliminated. Until
any such Declaration Events of Default with respect to the Convertible
Preferred Securities have been so cured, waived or otherwise eliminated, the
Institutional Trustee shall act solely on behalf of the holders of the
Convertible Preferred Securities and not the holder of the Common Securities,
and only the holders of the Convertible Preferred Securities will have the
right to direct the Institutional Trustee to act in accordance with the terms
of the Convertible Preferred Securities and the Common Securities.
LIQUIDATION OF TRUST AND DISTRIBUTION OF CONVERTIBLE DEBENTURES TO HOLDERS
McKesson has the right at any time to cause the Trust to be dissolved with
the result that, after satisfaction of creditors of the Trust, Convertible
Debentures with an aggregate principal amount equal to the aggregate stated
liquidation amount of the Convertible Preferred Securities and the Common
Securities would be distributed on a pro rata basis to the holders of the
Convertible Preferred Securities and the Common Securities in liquidation of
such holders' interests in the Trust within 90 days following notice given to
the holders of the Convertible Preferred Securities, subject to the Regular
Trustees' having received an opinion of nationally recognized independent
counsel experienced in such matters to the effect that the holders will not
recognize any income, gain or loss for United States federal income tax
purposes as a result of the dissolution of the Trust and such distribution to
holders of Convertible Preferred Securities.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
In the event of any voluntary or involuntary liquidation, dissolution,
winding-up or termination of the Trust (each a "Liquidation"), the then
holders of the Convertible Preferred Securities will be entitled to receive
out of the assets of the Trust, after satisfaction of liabilities to
creditors, distributions in an amount equal to the aggregate of the stated
liquidation amount of $50 per Convertible Preferred Security plus accrued and
unpaid
24
<PAGE>
distributions thereon (including, if distributions have been deferred as the
result of an Extension Period, interest thereon to the extent permitted by
applicable law) to the date of payment (the "Liquidation Distribution"),
unless, in connection with such Liquidation, Convertible Debentures in an
aggregate stated principal amount equal to the aggregate stated liquidation
amount of, with an interest rate identical to the distribution rate of, and
accrued and unpaid interest equal to accrued and unpaid distributions on, the
Convertible Preferred Securities have been distributed on a pro rata basis to
the holders of the Convertible Preferred Securities.
If, upon any such Liquidation, the Liquidation Distribution can be paid only
in part because the Trust has insufficient assets available to pay in full the
aggregate Liquidation Distribution, then the amounts payable directly by the
Trust on the Convertible Preferred Securities shall be paid on a pro rata
basis. The holders of the Common Securities will be entitled to receive
distributions upon any such dissolution pro rata with the holders of the
Convertible Preferred Securities, except that if a Declaration Event of
Default has occurred and is continuing, the Convertible Preferred Securities
shall have a preference over the Common Securities with regard to such
distributions.
Pursuant to the Declaration, the Trust shall terminate (i) on June 1, 2032,
the expiration of the term of the Trust, (ii) upon the bankruptcy of McKesson
or the holder of the Common Securities, (iii) upon the filing of a certificate
of dissolution or its equivalent with respect to the holder of the Common
Securities or McKesson, the filing of a certificate of cancellation with
respect to the Trust after obtaining the consent of the holders of at least a
majority in liquidation amount of the Trust Securities voting together as a
single class to file such certificate of cancellation, or the revocation of
the charter of the holder of the Common Securities or McKesson and the
expiration of 90 days after the date of revocation without a reinstatement
thereof, (iv) upon the distribution of Convertible Debentures upon the
occurrence of a Special Event, (v) upon the entry of a decree of a judicial
dissolution of the holder of the Common Securities, McKesson or the Trust,
(vi) upon the redemption of all the Trust Securities or (vii) upon the
distribution of McKesson Common Stock to all holders of Convertible Preferred
Securities upon conversion of all outstanding Convertible Preferred
Securities.
There can be no assurance as to the market price for the Convertible
Debentures which may be distributed in exchange for Trust Securities if a
dissolution and liquidation of the Trust were to occur. Accordingly, the
Convertible Debentures that the investor may subsequently receive on
dissolution and liquidation of the Trust may trade at a discount to the price
of the Trust Securities exchanged.
DECLARATION EVENTS OF DEFAULT
An event of default under the Indenture (an "Indenture Event of Default")
constitutes an event of default under the Declaration with respect to the
Trust Securities (a "Declaration Event of Default"), provided, that pursuant
to the Declaration, the holder of the Common Securities will be deemed to have
waived any Declaration Event of Default with respect to the Common Securities
until all Declaration Events of Default with respect to the Convertible
Preferred Securities have been cured, waived or otherwise eliminated. Until
such Declaration Events of Default with respect to the Convertible Preferred
Securities have been so cured, waived or otherwise eliminated, the
Institutional Trustee will be deemed to be acting solely on behalf of the
holders of the Convertible Preferred Securities and only the holders of the
Convertible Preferred Securities will have the right to direct the
Institutional Trustee with respect to certain matters under the Declaration,
and therefore the Indenture.
If the Institutional Trustee fails to enforce its rights under the
Convertible Debentures, any holder of Convertible Preferred Securities may
institute a legal proceeding against any person to enforce the Institutional
Trustee's rights under the Convertible Debentures. Notwithstanding the
foregoing, if a Declaration Event of Default has occurred and is continuing
and such event is attributable to the failure of McKesson to pay interest or
principal on the Convertible Debentures on the date such interest or principal
is otherwise payable (or in the case of redemption, the Redemption Date), then
a holder of Convertible Preferred Securities may institute a Direct Action for
payment on or after the respective due dates specified in the Convertible
Debentures. In connection with such Direct Action, McKesson will be subrogated
to the rights of such holders of Convertible
25
<PAGE>
Preferred Securities under the Declaration to the extent of any payment made
by McKesson to such holder of Convertible Preferred Securities in such Direct
Action. The holders of Convertible Preferred Securities will not be able to
exercise directly any other remedy available to the holders of the Convertible
Debentures.
Upon the occurrence of a Declaration Event of Default, the Institutional
Trustee as the sole holder of the Convertible Debentures will have the right
under the Indenture to declare the principal of and accrued and unpaid
interest on the Convertible Debentures to be immediately due and payable.
McKesson and the Trust are each required to file annually with the
Institutional Trustee an officer's certificate as to its compliance with all
conditions and covenants under the Declaration.
VOTING RIGHTS
Except as described herein, under the Trust Act and under the Trust
Indenture Act, and as otherwise required by law and the Declaration, the
holders of the Convertible Preferred Securities have no voting rights.
Subject to the requirement of the Institutional Trustee obtaining a tax
opinion in certain circumstances set forth in the last sentence of the next
paragraph, the holders of a majority in aggregate liquidation amount of the
Convertible Preferred Securities then outstanding have the right to direct the
time, method and place of conducting any proceeding for any remedy available
to the Institutional Trustee, or direct the exercise of any trust or power
conferred upon the Institutional Trustee under the Declaration, including the
right to direct the Institutional Trustee, as holder of the Convertible
Debentures, to (i) exercise the remedies available under the Indenture with
respect to the Convertible Debentures, (ii) waive any past Indenture Event of
Default that is waivable under the Indenture, or (iii) exercise any right to
rescind or annul a declaration that the principal of all the Convertible
Debentures shall be due and payable; provided, however, that if an Indenture
Event of Default has occurred and is continuing then, the holders of 25% of
the aggregate liquidation amount of the Convertible Preferred Securities then
outstanding may direct the Institutional Trustee to declare the principal of
and interest on the Convertible Debentures immediately due and payable;
provided, further, that, where a consent or action under the Indenture would
require the consent or action of holders of more than a majority in principal
amount of the Convertible Debentures then outstanding (a "Super-Majority")
affected thereby, only the holders of at least such Super-Majority in
aggregate liquidation amount of the Convertible Preferred Securities then
outstanding may direct the Institutional Trustee to give such consent or take
such action.
The Institutional Trustee shall notify all holders of the Convertible
Preferred Securities of any notice of default received from the Debt Trustee
with respect to the Convertible Debentures. Such notice shall state that such
Indenture Event of Default also constitutes a Declaration Event of Default.
Except with respect to directing the time, method and place of conducting a
proceeding for a remedy, the Institutional Trustee shall not take any of the
actions described in clauses (i), (ii) or (iii) above unless the Institutional
Trustee has obtained an opinion of nationally recognized independent tax
counsel experienced in such matters to the effect that, as a result of such
action, the Trust will not be classified as other than a grantor trust for
United States federal income tax purposes.
In the event the consent of the Institutional Trustee, as the holder of the
Convertible Debentures, is required under the Indenture with respect to any
amendment, modification or termination of the Indenture or the Convertible
Debentures, the Institutional Trustee shall request the direction of the
holders of the Trust Securities with respect to such amendment, modification
or termination and shall vote with respect to such amendment, modification or
termination as directed by a majority in liquidation amount of the Trust
Securities then outstanding, voting together as a single class; provided,
however, that where a consent under the Indenture would require the consent of
a Super-Majority, the Institutional Trustee may only give such consent at the
direction of the holders of at least the proportion in liquidation amount of
the Trust Securities then outstanding which the relevant Super-Majority
represents of the aggregate principal amount of the Convertible Debentures
then outstanding. The Institutional Trustee shall be under no obligation to
take any such action in accordance with the directions of the holders of the
Trust Securities unless the Institutional Trustee has obtained an opinion of
nationally recognized independent tax counsel experienced in such matters to
the effect that for the purposes of United States federal income tax the Trust
will not be classified as other than a grantor trust.
26
<PAGE>
A waiver of an Indenture Event of Default will constitute a waiver of the
corresponding Declaration Event of Default.
Any required approval or direction of holders of Convertible Preferred
Securities may be given at a separate meeting of holders of Convertible
Preferred Securities convened for such purpose, at a meeting of all of the
holders of Trust Securities or pursuant to written consent. The Regular
Trustees will cause a notice of any meeting at which holders of Convertible
Preferred Securities are entitled to vote, or of any matter upon which action
by written consent of such holders is to be taken, to be mailed to each holder
of record of Convertible Preferred Securities. Each such notice will include a
statement setting forth the following information: (i) the date of such
meeting or the date by which such action is to be taken; (ii) a description of
any resolution proposed for adoption at such meeting on which such holders are
entitled to vote or of such matter upon which written consent is sought; and
(iii) instructions for the delivery of proxies or consents. No vote or consent
of the holders of Convertible Preferred Securities is required for the Trust
to redeem and cancel Convertible Preferred Securities or distribute
Convertible Debentures in accordance with the Declaration.
Notwithstanding that holders of Convertible Preferred Securities are
entitled to vote or consent under any of the circumstances described above,
any of the Convertible Preferred Securities that are owned at such time by
McKesson or any entity directly or indirectly controlling or controlled by, or
under direct or indirect common control with, McKesson, shall not be entitled
to vote or consent and shall, for purposes of such vote or consent, be treated
as if such Convertible Preferred Securities were not outstanding.
The procedures by which holders of Convertible Preferred Securities may
exercise their voting rights are described below. See "--Form, Denomination
and Registration."
Holders of the Convertible Preferred Securities have no rights to appoint or
remove the Regular Trustees, who may be appointed, removed or replaced solely
by McKesson as the indirect or direct holder of all of the Common Securities.
MODIFICATION OF THE DECLARATION
The Declaration may be amended from time to time by the holders of a
majority of the Common Securities and the Institutional Trustee, without the
consent of the holders of the Convertible Preferred Securities (i) to cure any
ambiguity, correct or supplement any provisions in the Declaration that may be
inconsistent with any other provision, or to make any other provisions with
respect to matters or questions arising under the Declaration, which shall not
be inconsistent with the other provisions of the Declaration, or (ii) to
modify, eliminate or add to any provisions of the Declaration to such extent
as shall be necessary to ensure that the Trust will be classified for United
States federal income tax purposes as a grantor trust at all times that any
Trust Securities are outstanding or to ensure that the Trust will not be
required to register as an investment company under the 1940 Act; provided,
however, such action shall not adversely affect in any material respect the
interests of any holder of Trust Securities, and any amendments of the
Declaration shall become effective when notice thereof is given to the holders
of Trust Securities. The Declaration may be amended by the holders of a
majority of the Common Securities and the Institutional Trustee with (i) the
consent of holders representing not less than a majority (based upon
liquidation amounts) of the outstanding Convertible Preferred Securities and
(ii) receipt by the Regular Trustees of an opinion of nationally recognized
independent counsel experienced in such matters to the effect that such
amendment or the exercise of any power granted to the Regular Trustees in
accordance with such amendment will not affect the Trust's status as a grantor
trust for United States federal income tax purposes or the Trust's exemption
from status as an "investment company" under the 1940 Act, provided that
without the consent of each holder of Trust Securities, the Declaration may
not be amended to (i) change the amount or timing of any distribution on the
Trust Securities or otherwise adversely affect the amount of any distribution
required to be made in respect of the Trust Securities as of a specified date
or (ii) restrict the right of a holder of Trust Securities to institute suit
for the enforcement of any such payment on or after such date.
27
<PAGE>
No vote or consent of the holders of Convertible Preferred Securities will
be required to redeem and cancel Convertible Preferred Securities in
accordance with the Declaration.
PROPOSED TAX LEGISLATION
On February 6, 1997, as part of the fiscal 1998 budget proposal submitted to
Congress, the Clinton Administration proposed certain changes to Federal
income tax law which would, among other things, generally treat as equity, for
Federal income tax purposes, certain debt obligations, such as the Convertible
Debentures, that are "issued on or after the date of first Congressional
Committee action" (the "Clinton Proposal"). On June 9, 1997, House Ways and
Means Committee Chairman Bill Archer released the Chairman's Mark Relating to
Revenue Reconciliation Provisions that are proposed to be included in 1997 tax
legislation (the "Chairman's Mark"). The Chairman's Mark constitutes "first
Congressional Committee action" with respect to the provisions contained
therein. The Chairman's Mark does not include the Clinton Proposal that would
require instruments with terms similar to the Convertible Debentures to be
treated as equity for Federal income tax purposes.
In light of the Chairman's Mark, it appears that "first Congressional
Committee action" has not yet occurred with respect to the Clinton Proposal.
Furthermore, given the issue date of the Convertible Debentures and the
effective date transitional rules relating to certain capital markets
provisions included in the Chairman's Mark (as well as transitional rules
provided for in 1996 proposed legislation similar to the Clinton Proposal), it
is anticipated that the Clinton Proposal, even if acted upon by Congress in
the future, would not apply to the Convertible Debentures.
There can be no assurance, however, that the Clinton Proposal or similar
legislation will not ultimately be enacted into law, that the effective date
and transitional rules relating thereto would be enacted as anticipated, or
that other developments will not occur after the date hereof that would
adversely affect the tax treatment of the Convertible Debentures and could
result in the exchange of the Convertible Debentures for Convertible Preferred
Securities or, in certain limited circumstances, the redemption of the
Convertible Debentures by the Company and the distribution of the resulting
cash in redemption of the Convertible Preferred Securities. See "Description
of the Convertible Preferred Securities -- Special Event Distribution;
Redemption."
MERGERS, CONSOLIDATIONS OR AMALGAMATION
The Trust may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets as an
entirety or substantially as an entirety to, any corporation or other entity,
except as described below. The Trust may, with the consent of the Regular
Trustees or, if there are more than two Regular Trustees, a majority of the
Regular Trustees and without the consent of the holders of the Trust
Securities, the Institutional Trustee or the Delaware Trustee, consolidate,
amalgamate, merge with or into, or be replaced by a trust organized as such
under the laws of any state of the United States: provided, that (i) if the
Trust is not the survivor, such successor entity either (x) expressly assumes
all of the obligations of the Trust under the Trust Securities or (y)
substitutes for the Convertible Preferred Securities other securities having
substantially the same terms as the Convertible Preferred Securities (the
"Successor Securities"), so long as the Successor Securities rank the same as
the Convertible Preferred Securities with respect to distributions and
payments upon liquidation, redemption and otherwise, (ii) McKesson expressly
acknowledges a trustee of such successor entity possessing the same powers and
duties as the Institutional Trustee as the holder of the Convertible
Debentures, (iii) such merger, consolidation, amalgamation or replacement does
not cause the Convertible Preferred Securities (including any Successor
Securities) to be downgraded by any nationally recognized statistical rating
organization, (iv) such merger, consolidation, amalgamation or replacement
does not adversely affect the rights, preferences and privileges of the
holders of the Trust Securities (including any Successor Securities) in any
material respect (other than with respect to any dilution of the holders'
interest in the new entity), (v) such successor entity has a purpose identical
to that of the Trust, (vi) prior to such merger, consolidation, amalgamation
or replacement, McKesson has received an opinion of a nationally recognized
independent counsel to the Trust experienced in such matters to the effect
that: (A) such merger, consolidation, amalgamation or replacement does not
adversely affect the rights, preferences and privileges of the holders of the
Trust Securities (including any Successor Securities) in any material respect
(other than with respect to any
28
<PAGE>
dilution of the holders' interest in the new entity), (B) following such
merger, consolidation, amalgamation or replacement, neither the Trust nor such
successor entity will be required to register as an investment company under
the 1940 Act, and (C) following such merger, consolidation, amalgamation or
replacement, the Trust (or such successor entity) will continue to be
classified as a grantor trust for United States federal income tax purposes and
(vii) McKesson guarantees the obligations of such successor entity under the
Successor Securities at least to the extent provided by the Guarantee and the
Common Securities Guarantee (as defined herein). Notwithstanding the foregoing,
the Trust shall not, except with the consent of holders of 100% in liquidation
amount of the Trust Securities, consolidate, amalgamate, merge with or into, or
be replaced by any other entity or permit any other entity to consolidate,
amalgamate, merge with or into, or replace it, if such consolidation,
amalgamation, merger or replacement would cause the Trust or the successor
entity to be classified as other than a grantor trust for United States federal
income tax purposes.
REGISTRATION RIGHTS
In connection with the Original Offering, McKesson and the Trust (together,
the "Registrants") entered into a registration rights agreement with the
Initial Purchaser (the "Registration Rights Agreement") pursuant to which the
Registrants, at McKesson's expense, agreed for the benefit of the holders of
the Convertible Preferred Securities, to (i) file with the commission the Shelf
Registration Statement covering resale of the Convertible Preferred Securities,
the Guarantee, the Convertible Debentures and the McKesson Common Stock
issuable upon conversion of the convertible securities within 90 days after the
latest date of original issuance of the Convertible Preferred Securities, (ii)
use their reasonable best efforts to cause the Shelf Registration Statement to
become effective as promptly as practicable and (iii) use their reasonable best
efforts to keep the Shelf Registration Statement effective until the earlier of
(a) the sale pursuant to the Shelf Registration Statement or Rule 144 under the
Securities Act of all the Registrable Securities and (b) the expiration of the
holding period applicable to sales of Registrable Securities under Rule 144(k)
under the Securities Act, or any successor provision. The Registrants are
permitted to suspend the use of the prospectus which is a part of the Shelf
Registration Statement for a period not to exceed 60 days (whether or not
consecutive) in any 12-month period under certain circumstances relating to
pending corporate developments, public filings with the Commission and similar
events, or because the prospectus contains an untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary in order to make the statements therein not misleading. The
Registrants have agreed to pay a Liquidated Damages Amount (as defined in the
Registration Rights Agreement) to holders of Registrable Securities if the
Shelf Registration Statement is not timely filed, or if the prospectus is
unavailable for periods in excess of the period set forth above, until such
time as the Shelf Registration Statement is filed or the prospectus is again
made available, as the case may be. A holder who wishes to sell Registerable
Securities pursuant to the Shelf Registration Statement is required to provide
certain advance notification of such proposed sales to the Company, and
generally is required to be named as a selling securityholder in the related
prospectus, deliver a prospectus to purchasers and be bound by those provisions
of the Registration Rights Agreement that are applicable to such holder
(including indemnification provisions). In addition, the Registration Rights
Agreement provides that, if the prospectus contains an untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements therein not misleading, the Registrants are to notify the holders to
suspend the use of the prospectus until such time as the Registrants have
amended or supplemented the prospectus so that it does not contain such
material misstatement or omission, and the holders are required to suspend
their use of the prospectus during such period. McKesson is to pay all expenses
of the Shelf Registration Statement, provide to each registered holder copies
of such prospectus, notify each registered holder when the Shelf Registration
Statement has become effective and take certain other actions as are required
to permit, subject to the foregoing, unrestricted resales of the Registrable
Securities. The plan of distribution of the Shelf Registration Statement
permits resales of Registrable Securities by selling securityholders through
brokers and dealers. However, neither McKesson nor the Trust is obligated under
the Registration Rights Agreement to pay certain costs and expenses, such as
opinions of counsel of such selling securityholders or accountants' "cold
comfort" letters, and neither the officers and directors of McKesson nor the
trustees of the Trust are obligated under the Registration Rights Agreement to
participate in marketing efforts on behalf of such selling securityholders.
McKesson agreed in the Registration Rights Agreement to use its reasonable
best efforts to cause the Common Stock issuable upon conversion of the
Convertible Securities to be listed on each securities exchange
29
<PAGE>
or quotation system on which the McKesson Common Stock is listed upon
effectiveness of the Shelf Registration Statement.
The summary herein of certain provisions of the Registration Rights Agreement
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which is attached as an exhibit to the Registration
Statement of which this Prospectus forms a part and is available upon request
to McKesson.
FORM, DENOMINATION AND REGISTRATION
The Convertible Preferred Securities were issued in fully registered form.
The description of book-entry procedures in this Prospectus includes summaries
of certain rules and operating procedures of The Depository Trust Company, New
York, New York ("DTC") that effect transfers of interest in the global
certificate or certificates issued in connection with sales of Convertible
Preferred Securities made pursuant to this Prospectus. Except for those sold to
institutional "accredited investors" (as defined in Rule 501(a)(1), (2), (3) or
(7) under the Securities Act), the Convertible Preferred Securities were issued
only as fully registered securities registered in the name of Cede & Co.
("Cede") (as nominee for DTC). One or more fully registered global Convertible
Preferred Security certificates (the "Global Securities") will be issued,
representing, in the aggregate, Convertible Preferred Securities sold pursuant
to this Prospectus, and will be deposited with DTC. In the event of a transfer
of securities that were issued in fully registered, certificated form, the
holder of such certificates will be required to exchange them for interests in
the Global Certificates representing the number of Convertible Preferred
Securities being transferred. Except as set forth below, the record ownership
of the Global Security may be transferred, in whole or in part, only to DTC,
another nominee of DTC or to a successor of DTC or its nominee.
Holders of Convertible Preferred Securities may hold their interests in the
Global Security directly through DTC, or indirectly through organizations which
are participants in DTC ("Participants"). Transfers between Participants will
be effected in the ordinary way in accordance with DTC rules and will be
settled in immediately available funds. Holders of Convertible Preferred
Securities who are not Participants may beneficially own interests in the
Global Security held by DTC only through Participants, or certain banks,
brokers, dealers, trust companies and other parties that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participants"). So long as Cede, as the nominee of DTC,
is the registered owner of the Global Security, Cede for all purposes will be
considered the sole holder of the Global Security. Except as provided below,
owners of beneficial interests in the Global Security will not be entitled to
have certificates registered in their names, will not receive or be entitled to
receive physical delivery of certificates in definitive form, and will not be
considered the holder thereof.
Distributions on the Global Security will be made to Cede, the nominee for
DTC, as the registered owner of the Global Security by wire transfer of
immediately available funds. None of McKesson, the Trust or any Trustee will
have any responsibility or liability for any aspect of the records relating to
or payments made on account of beneficial ownership interests in the Global
Security or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
DTC's practice is to credit Participants' accounts on the relevant payment
date with payments in amounts proportionate to their respective beneficial
interests in the Convertible Preferred Securities represented by the Global
Security as shown on the records of DTC (adjusted as necessary so that such
payments are made with respect to whole Convertible Preferred Securities only),
unless DTC has reason to believe that it will not receive payment on such
payment date. Payments by Participants to owners of beneficial interests in
Convertible Preferred Securities represented by the Global Security held
through such Participants will be the responsibility of such Participants, as
is now the case with securities held for the accounts of customers registered
in "street name."
Beneficial holders of Convertible Preferred Securities who desire to convert
them into Underlying Common Stock (as defined herein) should contact their
brokers or other Participants or Indirect Participants to obtain information on
procedures, including proper forms and cut-off times, for submitting such
request. Because DTC
30
<PAGE>
can only act on behalf of Participants, who in turn act on behalf of Indirect
Participants, the ability of a person having a beneficial interest in the
Convertible Preferred Securities represented by the Global Security to pledge
such interest to persons or entities that do not participate in the DTC system,
or otherwise take actions in respect of such interest, may be affected by the
lack of a physical certificate evidencing such interest.
None of McKesson, the Trust or any Trustee (or any registrar, paying agent or
conversion agent) will have any responsibility for the performance by DTC or
its Participants or Indirect Participants of their respective obligations under
the rules and procedures governing their operations. DTC has advised McKesson
and the Trust that it will take any action permitted to be taken by a holder of
Convertible Preferred Securities (including, without limitation, the
presentation of Convertible Preferred Securities for conversion) only at the
direction of one or more Participants to whose account with DTC interests in
the Global Security are credited.
DTC has advised McKesson and the Trust as follows: DTC is a limited purpose
trust company organized under the laws of the State of New York, a member of
the Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its Participants and to facilitate the clearance and settlement
of securities transactions between Participants through electronic book-entry
changes to accounts of its Participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and may include
certain other organizations such as the Initial Purchaser. Certain of such
Participants (or their representatives), together with other entities, own DTC.
Indirect access to the DTC system is available to others such as banks,
brokers, dealers and trust companies that clear through, or maintain a
custodial relationship with a Participant, either directly or indirectly.
The laws of some jurisdictions require that certain purchasers of securities
take physical delivery of securities in definitive form. Such laws may impair
the ability to transfer beneficial interests in the Global Security.
Conveyance of notices and other communications by DTC to Participants, by
Participants to Indirect Participants and Indirect Participants to beneficial
owners will be governed by arrangements among them, subject to any statutory or
regulatory requirements that may be in effect from time to time. Redemption
notices shall be sent to Cede. If less than all of the Convertible Preferred
Securities are being redeemed, DTC will reduce the amount of the interest of
each Participant in such Convertible Preferred Securities in accordance with
its procedures.
Although voting with respect to the Convertible Preferred Securities is
limited, in those cases where a vote is required, neither DTC nor Cede will
itself consent or vote with respect to Convertible Preferred Securities. Under
its usual procedures, DTC would mail an Omnibus Proxy to the Trust as soon as
possible after the record date. The Omnibus Proxy assigns Cede consenting or
voting rights to those Participants to whose accounts the Convertible Preferred
Securities are credited on the record date (identified in a listing attached to
the Omnibus Proxy). McKesson and the Trust believe that the arrangements among
DTC, the Participants and Indirect Participants, and beneficial owners will
enable the beneficial owners to exercise rights equivalent in substance to the
rights that can be directly exercised by a holder of a beneficial interest in
the Trust.
DTC may discontinue providing its services as securities depositary with
respect to the Convertible Preferred Securities at any time by giving notice to
the Trust. In the event that (i) DTC notifies the Trust that it is unwilling or
unable to continue as depositary for the Global Securities or if at any time
DTC ceases to be a clearing agency registered as such under the Exchange Act
when DTC is required to be so registered to act as such depositary and no
successor depositary shall have been appointed within 90 days of such
notification or of the Trust becoming aware of DTC's ceasing to be so
registered, as the case may be, (ii) the Regular Trustees (with the consent of
the Company) in their sole discretion determine that the Global Securities
shall be exchanged for certificated Convertible Preferred Securities or (iii)
there shall have occurred and be continuing a Declaration Event of Default,
certificates for the Convertible Preferred Securities will be printed and
delivered in exchange for interests in the Global Securities. Any Global
Security that is exchangeable pursuant to the preceding
31
<PAGE>
sentence shall be exchangeable for Convertible Preferred Securities registered
in such names as DTC shall direct.
It is expected that such instructions will be based upon directions received by
DTC from its Participants with respect to ownership of beneficial interests in
such Global Security.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that McKesson and the Trust believe to be
reliable, but neither McKesson nor the Trust takes responsibility for the
accuracy thereof.
INFORMATION CONCERNING THE INSTITUTIONAL TRUSTEE
The Institutional Trustee, prior to the occurrence of a default with respect
to the Trust Securities and after the curing of any defaults that may have
occurred, undertakes to perform only such duties as are specifically set forth
in the Declaration and, after default, shall exercise the same degree of care
as a prudent person would exercise in the conduct of his or her own affairs.
Subject to such provisions, the Institutional Trustee is under no obligation to
exercise any of the powers vested in it by the Declaration at the request of
any holder of Convertible Preferred Securities, unless offered reasonable
indemnity by such holder against the costs, expenses and liabilities which
might be incurred thereby. The holders of Convertible Preferred Securities will
not be required to offer such indemnity in the event such holders, by
exercising their voting rights, direct the Institutional Trustee to take any
action it is empowered to take under the Declaration following a Declaration
Event of Default. The Institutional Trustee also serves as Guarantee Trustee
under the Guarantee and as Debt Trustee under the Indenture.
CONVERSION AGENT, PAYING AGENT, REGISTRAR AND TRANSFER AGENT
The Institutional Trustee acts as Registrar, Transfer Agent, Conversion Agent
and Paying Agent for the Convertible Preferred Securities.
Registration of transfers of Convertible Preferred Securities will be
effected without charge by or on behalf of the Trust, but upon payment in
respect of any tax or other government charges that may be imposed in relation
to it.
The Trust will not be required to register or cause to be registered the
transfer of Convertible Preferred Securities after such Convertible Preferred
Securities have been selected for redemption.
GOVERNING LAW
The Declaration and the Convertible Preferred Securities are governed by, and
construed in accordance with, the internal laws of the State of Delaware.
MISCELLANEOUS
The Regular Trustees are authorized and directed to operate the Trust in such
a way so that the Trust will not be required to register as an "investment
company" under the 1940 Act or characterized as other than a grantor trust for
United States federal income tax purposes and so that the Convertible
Debentures will be treated as indebtedness of the Company for United States
federal income tax purposes. In this connection, McKesson and the Regular
Trustees are authorized to take any action, not inconsistent with applicable
law, the certificate of trust of the Trust, the Declaration or the articles of
incorporation of McKesson, that each of McKesson and the Regular Trustees
determine in their discretion to be necessary or desirable to achieve such end,
as long as such action does not adversely affect the interests of the holders
of the Convertible Preferred Securities or vary the terms thereof.
Holders of the Convertible Preferred Securities have no preemptive rights.
32
<PAGE>
DESCRIPTION OF THE GUARANTEE
Set forth below is a summary of information concerning the Guarantee that was
executed and delivered by McKesson for the benefit of the holders from time to
time of Convertible Preferred Securities. The summary does not purport to be
complete and is subject in all respects to the provisions of, and is qualified
in its entirety by reference to, the Guarantee. The Guarantee incorporates by
reference the terms of the Trust Indenture Act. The Guarantee will be qualified
under the Trust Indenture Act. The Guarantee Trustee holds the Guarantee for
the benefit of the holders of the Convertible Preferred Securities.
GENERAL
Pursuant to and to the extent set forth in the Guarantee, McKesson agrees, to
the extent set forth therein, to pay in full to the holders of the Convertible
Preferred Securities (except to the extent paid by the Trust), as and when due,
regardless of any defense, right of set off or counterclaim which the Trust may
have or assert, the following payments (the "Guarantee Payments"), without
duplication: (i) all accrued and unpaid distributions that are required to be
paid on the Convertible Preferred Securities to the extent the Trust has funds
available therefor, (ii) the Redemption Price plus accrued and unpaid
distributions with respect to any Convertible Preferred Securities called for
redemption by the Trust, to the extent the Trust has funds available therefor,
and (iii) upon a voluntary or involuntary dissolution, winding-up or
termination of the Trust (other than in connection with the distribution of
Convertible Debentures to the holders of Convertible Preferred Securities or
the redemption of all the Convertible Preferred Securities), the lesser of (a)
the aggregate of the liquidation amount and all accrued and unpaid
distributions on the Convertible Preferred Securities to the date of payment to
the extent the Trust has funds available therefor and (b) the amount of assets
of the Trust remaining available for distribution to holders of Convertible
Preferred Securities then outstanding upon the liquidation of the Trust. The
holders of a majority in liquidation amount of the Convertible Preferred
Securities have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Guarantee Trustee or to direct
the exercise of any trust or power conferred upon the Guarantee Trustee under
the Guarantee. If the Guarantee Trustee fails to enforce the Guarantee, any
holder of Convertible Preferred Securities may directly institute a legal
proceeding against McKesson to enforce the Guarantee Trustee's rights under the
Guarantee without first instituting a legal proceeding against the Trust, the
Guarantee Trustee or any other person or entity. If McKesson were to default on
its obligation to pay amounts payable on the Convertible Debentures, the Trust
would lack available funds for the payment of distributions or amounts payable
on redemption of the Convertible Preferred Securities or otherwise, and in such
event holders of the Convertible Preferred Securities would not be able to rely
upon the Guarantee for payment of such amounts. Instead, a holder of the
Convertible Preferred Securities would be required to rely on the enforcement
(1) by the Institutional Trustee of its rights, as registered holder of the
Convertible Debentures, against McKesson pursuant to the terms of the
Convertible Debentures or (2) by such holder of Convertible Preferred
Securities of its rights against McKesson to enforce payments on Convertible
Debentures. See "Description of the Convertible Debentures." The Declaration
provides that each holder of Convertible Preferred Securities, by acceptance
thereof, agrees to the provisions of the Guarantee, including the subordination
provisions thereof, and the Indenture.
The Guarantee is a guarantee on a subordinated basis with respect to the
Convertible Preferred Securities from the time of issuance of such Convertible
Preferred Securities but does apply to any payment of distributions or
Redemption Price, or to payments upon the dissolution, winding-up or
termination of the Trust, except to the extent the Trust shall have funds
available therefor. If McKesson does not make interest payments on the
Convertible Debentures, the Trust will not pay distributions on the Convertible
Preferred Securities and will not have funds available therefor. See "Risk
Factors--Limitations of the Guarantee" and "Description of the Convertible
Debentures." The Guarantee, when taken together with McKesson's obligations
under the Convertible Debentures, the Indenture and the Declaration, including
its obligations to pay costs, expenses, debts and liabilities of the Trust
(other than with respect to the Trust Securities) provides a full and
unconditional guarantee on a subordinated basis by McKesson on payments due on
the Convertible Preferred Securities.
McKesson has also agreed separately to irrevocably and unconditionally
guarantee the obligations of the Trust with respect to the Common Securities
(the "Common Securities Guarantee") to the same extent as the
33
<PAGE>
Guarantee, except that upon the occurrence and during the continuation of a
Declaration Event of Default, holders of Convertible Preferred Securities
shall have priority over holders of Common Securities with respect to
Guarantee Payments.
CERTAIN COVENANTS OF MCKESSON
In the Guarantee, McKesson has covenanted that, so long as any Convertible
Preferred Securities remain outstanding, if (i) the Company has exercised its
option to defer interest payments on the Convertible Debentures by extending
the interest payment period and such extension period, or any extension
thereof, shall be continuing, (ii) the Company shall be in default with
respect to its payment or other obligations under the Guarantee or (iii) there
shall have occurred and be continuing a Declaration Event of Default or any
event that, with the giving of notice or lapse of time or both, would
constitute a Declaration Event of Default, then McKesson shall not (a) declare
or pay dividends on, make distributions with respect to, or redeem, purchase
or acquire, or make a liquidation payment with respect to, any of its capital
stock or (b) make any payment of interest, principal or premium, if any, on or
repay, repurchase or redeem any debt securities of the Company that rank pari
passu with or junior in interest to the Convertible Debentures or make any
guarantee payment with respect to any guarantee by the Company of the debt
securities of any subsidiary of the Company if such guarantee ranks pari passu
with or junior in interest to the Convertible Debentures (other than (i) as a
result of a reclassification of McKesson capital stock or the exchange or
conversion of one class or series of McKesson capital stock for another class
or series of McKesson capital stock, (ii) the purchase of fractional interests
in shares of McKesson capital stock pursuant to the conversion or exchange
provisions of such capital stock of McKesson or the security being converted
into or exchanged for capital stock of McKesson, (iii) dividends or
distributions in McKesson Common Stock, (iv) any declaration of a dividend in
connection with the implementation of a stockholders' rights plan, or the
issuance of stock under any such plan in the future, or the redemption or
repurchase of any such rights pursuant thereto, (v) payments under the
Guarantee and Common Securities Guarantee, (vi) purchases of McKesson Common
Stock related to the issuance of McKesson Common Stock or rights under any of
the Company's benefit plans for its directors, officers or employees and (vii)
obligations under any dividend reinvestment and stock purchase plans).
As part of the Guarantee, the Company agreed that it would honor all
obligations relating to the conversion of the Convertible Preferred Securities
into McKesson Common Stock as described in "Description of the Convertible
Preferred Securities--Conversion Rights."
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not materially adversely affect
the rights of holders of Convertible Preferred Securities (in which case no
vote will be required), the Guarantee may be amended only with the prior
approval of the holders of at least a majority in liquidation amount of all
the Convertible Preferred Securities then outstanding. The manner of obtaining
any such approval of holders of the Convertible Preferred Securities will be
as set forth under "Description of the Convertible Preferred Securities--
Voting Rights." All guarantees and agreements contained in the Guarantee shall
bind the successors, assigns, receivers, trustees and representatives of
McKesson and shall inure to the benefit of the holders of the Convertible
Preferred Securities then outstanding. Except in connection with any permitted
merger or consolidation of McKesson with or into another entity or any
permitted sale, transfer or lease of McKesson's assets to another entity as
described under "Description of the Convertible Debentures--Certain
Covenants," the Company may not assign its rights or delegate its obligations
under the Guarantee without the prior approval of the holders of at least a
majority of the aggregate stated liquidation amount of the Convertible
Preferred Securities then outstanding.
TERMINATION OF THE GUARANTEE
The Guarantee will terminate as to each holder of Convertible Preferred
Securities upon (i) full payment of the Redemption Price and accrued and
unpaid distributions with respect to all Convertible Preferred Securities,
(ii) distribution of the Convertible Debentures held by the Trust to the
holders of the Convertible Preferred
34
<PAGE>
Securities, (iii) full payment of the amounts payable under the Declaration
upon liquidation of the Trust or (iv) the distribution of McKesson Common
Stock to such holder upon conversion of such holder's Convertible Preferred
Securities into McKesson Common Stock, and will terminate completely upon full
payment of the amounts payable in accordance with the Declaration. The
Guarantee will continue to be effective or will be reinstated, as the case may
be, if at any time any holder of Convertible Preferred Securities must restore
payment of any sum paid under such Convertible Preferred Securities or the
Guarantee.
EVENTS OF DEFAULT
An event of default under the Guarantee will occur upon (a) the failure of
McKesson to perform any of its payment or other obligations thereunder or (b)
if applicable, the failure by McKesson to deliver McKesson Common Stock upon
an appropriate election by the holder or holders of Convertible Preferred
Securities to convert the Convertible Preferred Securities into shares of
McKesson Common Stock.
The holders of a majority in liquidation amount of Convertible Preferred
Securities then outstanding relating to the Guarantee have the right to direct
the time, method and place of conducting any proceeding for any remedy
available to the Guarantee Trustee in respect of the Guarantee or to direct
the exercise of any trust or power conferred upon the Guarantee Trustee under
the Convertible Preferred Securities. If the Guarantee Trustee fails to
enforce the Guarantee, any holder of Convertible Preferred Securities may
institute a legal proceeding directly against McKesson to enforce the
Guarantee Trustee's rights under the Guarantee, without first instituting a
legal proceeding against the Trust, the Guarantee Trustee or any other person
or entity. Notwithstanding the foregoing, if McKesson has failed to make a
guarantee payment, a holder of Convertible Preferred Securities may directly
institute a proceeding against McKesson for enforcement of the Guarantee for
such payment. McKesson waives any right or remedy to require that any action
be brought first against the Trust or any other person or entity before
proceeding directly against McKesson.
STATUS OF THE GUARANTEE; SUBORDINATION
The Guarantee constitutes an unsecured obligation of McKesson and ranks (i)
subordinate and junior in right of payment to all other liabilities of
McKesson (except any liabilities that may be pari passu expressly by their
terms), (ii) pari passu with the most senior preferred or preference stock now
or hereafter issued by McKesson and with any guarantee now or hereafter
entered into by McKesson in respect of any preferred or preference stock of
any affiliate of McKesson, and (iii) senior to McKesson Common Stock. The
terms of the Convertible Preferred Securities provide that each holder of
Convertible Preferred Securities issued by the Trust by acceptance thereof
agrees to the subordination provisions and other terms of the Guarantee
relating thereto. See, also, "Risk Factors--Subordinate Ranking of Obligations
Under the Guarantee and Convertible Debentures."
The Guarantee constitutes a guarantee of payment and not of collection (that
is, the guaranteed party may institute a legal proceeding directly against the
Company to enforce its rights under the Guarantee without instituting a legal
proceeding against any other person or entity). The Guarantee does not place a
limitation on the amount of additional indebtedness that may be incurred by
McKesson. McKesson expects from time to time to incur additional indebtedness
senior to the Convertible Debentures.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, prior to the occurrence of a default with respect to
the Guarantee, undertakes to perform only such duties as are specifically set
forth in the Guarantee and, after default with respect to the Guarantee, shall
exercise the same degree of care as a prudent person would exercise in the
conduct of his or her own affairs. Subject to such provision, the Guarantee
Trustee is under no obligation to exercise any of the powers vested in it by
the Guarantee at the request of any holder of Convertible Preferred Securities
unless it is offered reasonable indemnity against the costs, expenses and
liabilities that might be incurred thereby.
GOVERNING LAW
The Guarantee is governed by, and construed in accordance with, the laws of
the State of New York.
35
<PAGE>
DESCRIPTION OF THE CONVERTIBLE DEBENTURES
Set forth below is a description of certain terms of the Convertible
Debentures in which the Trust invested the proceeds from the issuance and sale
of the Trust Securities. The following description does not purport to be
complete and is subject to, and is qualified in its entirety by reference to
the Indenture entered into by McKesson and the Debt Trustee, a copy of which
may be obtained from McKesson upon request. Certain capitalized terms used
herein are defined in the Indenture. The Indenture will be qualified under the
Trust Indenture Act.
Under certain circumstances involving the dissolution of the Trust following
the occurrence of a Special Event, Convertible Debentures may be distributed
to the holders of the Trust Securities in liquidation of the Trust. See
"Description of the Convertible Preferred Securities--Special Event
Distribution; Tax Event Redemption."
GENERAL
The Convertible Debentures were issued as unsecured debt under the
Indenture. The Convertible Debentures are limited in aggregate principal
amount to $206,186,000, such amount being the sum of the aggregate stated
liquidation amount of the Convertible Preferred Securities and the capital
contributed by McKesson in exchange for the Common Securities.
The Convertible Debentures are not subject to a sinking fund provision. The
entire principal amount of the Convertible Debentures will mature and become
due and payable, together with any accrued and unpaid interest thereon,
including Additional Sums (as defined herein), if any, and (to the extent
permitted by applicable law) Compound Interest, if any, on June 1, 2027.
McKesson has the right at any time to cause the Trust to be dissolved with the
result that, after satisfaction of creditors of the Trust, Convertible
Debentures with an aggregate principal amount equal to the aggregate stated
liquidation amount of the Convertible Preferred Securities and the Common
Securities would be distributed on a pro rata basis to the holders of the
Convertible Preferred Securities and the Common Securities in liquidation of
such holders' interests in the Trust, within 90 days following notice given to
the holders of the Convertible Preferred Securities, subject to the Regular
Trustees' having received an opinion of nationally recognized independent
counsel experienced in such matters to the effect that the holders will not
recognize any income, gain or loss for United States federal income tax
purposes as a result of the dissolution of the Trust and such distribution to
holders of Convertible Preferred Securities.
If Convertible Debentures are distributed to holders of Convertible
Preferred Securities in liquidation of such holders' interests in the Trust,
such Convertible Debentures will initially be issued in the same form as the
Convertible Preferred Securities that such Convertible Debentures replace.
Under certain limited circumstances, Convertible Debentures may be issued in
certificated form in exchange for a Global Security. See "--Book-Entry and
Settlement" below. In the event that Convertible Debentures are issued in
certificated form, such Convertible Debentures will be in denominations of $50
and integral multiples thereof and may be transferred or exchanged at the
offices described below. Payments on Convertible Debentures issued as a Global
Security will be made to DTC, a successor depositary or, in the event that no
depositary is used, to a paying agent for the Convertible Debentures. With
respect to Convertible Debentures issued in certificated form, principal and
interest is payable, the transfer of the Convertible Debentures is registrable
and Convertible Debentures are exchangeable for Convertible Debentures of
other denominations of a like aggregate principal amount at the office or
agency of the Company maintained for such purpose in the Borough of Manhattan,
The City of New York; provided that payment of interest may be made at the
option of McKesson by check mailed to the address of the holder entitled
thereto or by wire transfer to an account appropriately designated by the
holder entitled thereto. Notwithstanding the foregoing, so long as the holder
of any Convertible Debenture is the Institutional Trustee, the payment of
principal and interest on such Convertible Debenture will be made at such
place and to such account as may be designated by the Institutional Trustee.
The Indenture does not contain provisions that afford holders of the
Convertible Debentures protection in the event of a highly levered transaction
involving McKesson that would adversely affect such holders.
36
<PAGE>
INTEREST
Each Convertible Debenture shall bear interest at the rate of 5% per annum
from the first date of original issuance, payable quarterly in arrears on
March 1, June 1, September 1 and December 1 of each year (each an "Interest
Payment Date"), commencing June 1, 1997, to the person in whose name such
Convertible Debenture is registered, subject to certain exceptions, 15 days
prior to such Interest Payment Date.
The amount of interest payable for any period will be computed on the basis
of a 360-day year of twelve 30-day months. The amount of interest payable for
any period shorter than a full quarterly period for which interest is computed
will be computed on the basis of the actual number of days elapsed per 30-day
month. In the event that any date on which interest is payable on the
Convertible Debentures is not a Business Day, then payment of the interest
payable on such date will be made on the next succeeding day that is a
Business Day (and without any interest or other payment in respect of any such
delay), except that, if such Business Day is in the next succeeding calendar
year, then such payment shall be made on the immediately preceding Business
Day, in each case with the same force and effect as if made on such date.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
So long as McKesson shall not be in default in the payment of interest on
the Convertible Debentures, McKesson shall have the right at any time, and
from time to time, during the term of the Convertible Debentures to defer
payments of interest by extending the interest payment period for a period not
exceeding 20 consecutive quarters, at the end of which Extension Period
McKesson shall pay all interest then accrued and unpaid; together with
interest thereon compounded quarterly at the rate specified for the
Convertible Debentures to the extent permitted by applicable law ("Compound
Interest") and any Additional Sums; provided that during any such Extension
Period, McKesson shall not (a) declare or pay dividends on, make any
distributions with respect to, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of its capital stock or (b) make any
payment of interest, principal or premium, if any, on or repay, repurchase or
redeem any debt securities issued by McKesson that rank pari passu with or
junior in interest to the Convertible Debentures or make any guarantee
payments with respect to any guarantee by the Company of the debt securities
of any subsidiary of the Company if such guarantee ranks pari passu with or
junior in interest to the Convertible Debentures (other than (i) as a result
of a reclassification of McKesson capital stock or the exchange or conversion
of one class or series of McKesson capital stock for another class or series
of McKesson capital stock, (ii) the purchase of fractional interests in shares
of McKesson capital stock pursuant to the conversion or exchange provisions of
such McKesson capital stock or the security being converted into or exchanged
for McKesson capital stock, (iii) dividends or distributions in common stock
of the Company, (iv) any declaration of a dividend in connection with the
implementation of a stockholders' rights plan, or the issuance of stock under
any such plan in the future, or the redemption or repurchase of any such
rights pursuant thereto, (v) payments under the Guarantee and Common
Securities Guarantee, (vi) purchases of common stock related to the issuance
of common stock or rights under any of the Company's benefit plans for its
directors, officers or employees and (vii) obligations under any dividend
reinvestment and stock purchase plans). Prior to the termination of any such
Extension Period, McKesson may further defer payments of interest by extending
the interest payment period; provided, however, that, such Extension Period,
including all such previous and further extensions, may not exceed 20
consecutive quarters or extend beyond the maturity of the Convertible
Debentures. Upon the termination of any Extension Period and the payment of
all amounts then due, McKesson may commence a new Extension Period, subject to
the terms set forth in this section. Each Extension Period, if any, will end
on an Interest Payment Date. No interest shall be due and payable during an
Extension Period, except on the last day thereof, but McKesson may prepay at
any time all or any portion of the interest accrued during an Extension
Period. On the last day of each Extension Period, all accrued and unpaid
interest (including Additional Sums, if any, and, to the extent permitted by
applicable law, Compound Interest) shall be due and payable and shall be paid
to the holders of record of the Convertible Debentures at the close of
business on the record date next preceding such Interest Payment Date.
McKesson has no present intention of exercising its right to defer payments of
interest by extending the interest payment period on the Convertible
Debentures. If the Institutional Trustee shall be the sole holder of the
Convertible Debentures, McKesson shall give the Regular Trustees, the
Institutional Trustee and the Debt
37
<PAGE>
Trustee notice of its selection of such Extension Period at least one Business
Day prior to the earlier of (i) the date distributions on the Convertible
Preferred Securities are payable or (ii) the date the Regular Trustees are
required to give notice to any applicable self-regulatory organization or to
holders of the Convertible Preferred Securities of the record or payment date
of such related distribution, but in any event not less than 10 Business Days
prior to such record date. McKesson shall cause the Trust to give notice of
McKesson's selection of such Extension Period to holders of the Convertible
Preferred Securities. If the Institutional Trustee shall not be the sole
holder of the Convertible Debentures, McKesson shall give the Debt Trustee,
the Institutional Trustee and the holders of the Convertible Debentures notice
of its selection of such Extension Period at least 10 Business Days prior to
the earlier of (i) the next succeeding Interest Payment Date and (ii) the date
McKesson is required to give notice to any applicable self-regulatory
organization or to holders of Convertible Debentures of the record or payment
date of such related interest payment, but in any event not less than two
Business Days prior to such record date.
ADDITIONAL SUMS
If at any time the Trust shall be required to pay any taxes, duties,
assessments or governmental charges of whatever nature (other than withholding
taxes) imposed by the United States, or any other taxing authority, then, in
any such case, McKesson will pay as additional sums ("Additional Sums") such
additional amounts as shall be required so that the net amounts received and
retained by the Trust after paying any such taxes, duties, assessments or
other governmental charges will be not less than the amounts the Trust would
have received had no such taxes, duties, assessments or other governmental
charges been imposed so long as the Trust is the holder of the Convertible
Debentures.
PROPOSED TAX LEGISLATION
Please refer to discussion above under the heading "Description of the
Convertible Preferred Securities--Proposed Tax Legislation."
SUBORDINATION
The Indenture provides that the Convertible Debentures are subordinated and
junior in right of payment to all existing and future Senior Indebtedness of
McKesson. No payment of principal (including redemption payments, if any),
premiums, if any, or interest on the Convertible Debentures may be made (i) if
any principal, premium if any, interest or any other payment due on any Senior
Indebtedness of McKesson is not paid when due and any applicable grace period
with respect to such default has ended with such default not having been cured
or waived or ceasing to exist or (ii) if the maturity of any Senior
Indebtedness of McKesson has been accelerated because of a default and such
acceleration has not been rescinded.
Upon any distribution of assets of McKesson to creditors upon any
dissolution, winding-up, liquidation or reorganization, whether voluntary or
involuntary, or in bankruptcy, insolvency, receivership or other proceedings,
all principal, premium, if any, and interest due or to become due on all
Senior Indebtedness of McKesson must be paid in full before the holders of
Convertible Debentures are entitled to receive or retain any payment. Upon
satisfaction of all claims of all Senior Indebtedness then outstanding, the
rights of the holders of the Convertible Debentures will be subrogated to the
rights of the holders of Senior Indebtedness of McKesson to receive payments
or distributions applicable to Senior Indebtedness until all amounts owing on
the Convertible Debentures are paid in full.
The term "Senior Indebtedness" means, with respect to McKesson, (i) the
principal, premium, if any, and interest in respect of (A) indebtedness of
such obligor for money borrowed (but excluding trade accounts payable arising
in the ordinary course of business) under any credit agreements, notes,
guarantees or similar documents and (B) indebtedness evidenced by securities,
debentures, bonds or other similar instruments issued by such obligor, (ii)
all capital lease obligations of such obligor, (iii) all obligations of such
obligor issued or assumed as the deferred purchase price of property, all
conditional sale obligations of such obligor and all obligations of
38
<PAGE>
such obligor under any title retention agreement (but excluding trade accounts
payable arising in the ordinary course of business), (iv) all obligations of
such obligor for the reimbursement on any letter of credit, bankers'
acceptance, security purchase facility or similar credit transaction, (v) all
obligations of such obligor (contingent or otherwise) with respect to an
interest rate or other swap, cap or collar agreements or other similar
instruments or agreements or foreign currency hedge, exchange, purchase or
similar instruments or agreements, (vi) all obligations of the types referred
to in clauses (i) through (v) above of other persons for the payment of which
such obligor is responsible or liable as obligor, guarantor or otherwise and
(vii) all obligations of the types referred to in clauses (i) through (vi)
above of other persons secured by any lien on any property or asset of such
obligor (whether or not such obligation is assumed by such obligor), whether
outstanding on the date of the Indenture or thereafter created, incurred,
assumed, guaranteed or in effect guaranteed by such obligor, except for any
such indebtedness that is by its terms subordinated to or pari passu with the
Convertible Debentures. Such Senior Indebtedness shall continue to be Senior
Indebtedness and be entitled to the benefits of the subordination provisions
irrespective of any deferrals, renewals, extensions or refundings of, or
amendments, modifications, supplements or waivers of any term of such Senior
Indebtedness. There was approximately $825 million of Senior Indebtedness
outstanding as of March 31, 1997.
The Indenture does not limit the aggregate amount of Senior Indebtedness
that may be issued by McKesson.
In the event of (i) any insolvency, bankruptcy, receivership, liquidation,
reorganization, readjustment, composition or other similar proceeding relating
to the Company, its creditors or its property, (ii) any proceeding for the
liquidation, dissolution or other winding up of the Company voluntary or
involuntary, whether or not involving insolvency or bankruptcy proceedings,
(iii) any assignment by the Company for the benefit of creditors or (iv) any
other marshalling of the assets of the Company, all Senior Indebtedness
(including any interest thereon accruing after the commencement of any such
proceedings) shall first be paid in full before any payment or distribution,
whether in cash, securities or other property, shall be made on account of the
principal of or premium, if any, or interest, if any, on the Convertible
Debentures. In such event, any payment or distribution on account of the
principal of or premium, if any, or interest, on the Convertible Debentures,
whether in cash, securities or other property (other than securities of the
Company or any other corporation provided for by a plan of reorganization or
readjustment the payment of which is subordinate, at least to the extent
provided in the subordination provisions with respect to the Convertible
Debentures, to the payment of all Senior Indebtedness at the time outstanding,
and to any securities issued in respect thereof under any such plan of
reorganization or readjustment), which would otherwise (but for the
subordination provisions) be payable or deliverable in respect of the
Convertible Debentures shall be paid or delivered directly to the holders of
Senior Indebtedness in accordance with the priorities then existing among such
holders until all Senior Indebtedness (including any interest thereon accruing
after the commencement of any such proceedings) shall have been paid in full.
In the event of any such proceeding, after payment in full of all sums owing
with respect to Senior Indebtedness the holders of Convertible Debentures,
together with the holders of any obligations of the Company ranking on a
parity with the Convertible Debentures, shall be entitled to be paid from the
remaining assets of the Company the amounts at the time due and owing on
account of unpaid principal of and premium, if any, and interest, if any, on
the Convertible Debentures and such other obligations before any payment or
other distribution, whether in cash, property or otherwise, shall be made on
account of any capital stock or obligations of the Company ranking junior to
the Convertible Debentures and such other obligations. If any payment or
distribution on account of the principal of or interest on the Convertible
Debentures of any character or any security, whether in cash, securities or
other property (other than securities of the Company or any other corporation
provided for by a plan of reorganization or readjustment the payment of which
is subordinate, at least to the extent provided in the subordination
provisions with respect to the Convertible Debentures, to the payment of all
Senior Indebtedness at the time outstanding and to any securities issued in
respect thereof under any such plan of reorganization or readjustment) shall
be received by the Debt Trustee or any holder of any Convertible Debentures in
contravention of any of the terms hereof and before all the Senior
Indebtedness shall have been paid in full, such payment or distribution or
security shall be received in trust for the benefit of, and shall be paid over
or delivered and transferred to, the holders of the Senior Indebtedness at the
time outstanding
39
<PAGE>
in accordance with the priorities then existing among such holders and
creditors for application to the payment of all Senior Indebtedness remaining
unpaid to the extent necessary to pay all such Senior Indebtedness in full. By
reason of such subordination, in the event of the insolvency of the Company
holders of Senior Indebtedness may receive more, ratably, and holders of the
Convertible Debentures having a claim pursuant to such securities may receive
less, ratably, than the other creditors of the Company. Such subordination
will not prevent the occurrence of any Event of Default in respect of the
Convertible Debentures.
CERTAIN COVENANTS
In the Indenture, McKesson has covenanted that, so long as any Convertible
Debentures are outstanding, if (i) there shall have occurred and be continuing
any Indenture Event of Default or any event that, with the giving of notice or
lapse of time or both, would constitute an Indenture Event of Default, (ii)
McKesson shall be in default with respect to its payment or other obligations
under the Guarantee, or (iii) McKesson shall have given notice of its election
to defer interest payments on the Convertible Debentures by extending the
interest payment period and such period, or any extension thereof, shall be
continuing, then McKesson (a) shall not declare or pay dividends on, make
distributions with respect to, or redeem, purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock or (b) shall not
make any payment of interest, principal or premium, if any, on or repay,
repurchase or redeem any debt securities issued by McKesson that rank pari
passu with or junior in interest to the Convertible Debentures or make any
guarantee payments with respect to any guarantee by the Company of the debt
securities of any subsidiary of the Company if such guarantee ranks pari passu
with or junior in interest to the Convertible Debentures (other than (i) as a
result of a reclassification of McKesson capital stock or the exchange or
conversion of one class or series of McKesson capital stock for another class
or series of McKesson capital stock, (ii) the purchase of fractional interests
in shares of McKesson capital stock pursuant to the conversion or exchange
provisions of such capital stock of McKesson or the security being converted
or exchanged for McKesson capital stock, (iii) dividends or distributions in
Common Stock of the Company, (iv) any declaration of a dividend in connection
with the implementation of a stockholders' rights plan, or the issuance of
stock under any such plan in the future, or the redemption or repurchase of
any such rights pursuant thereto, (v) payments under the Guarantee and Common
Securities Guarantee, (vi) purchases of Common Stock related to the issuance
of Common Stock or rights under any of the Company's benefit plans for its
directors, officers or employees and (vii) obligations under any dividend
reinvestment and stock purchase plan).
McKesson has covenanted (i) to directly or indirectly maintain 100%
ownership of the Trust's Common Securities; provided, however, that any
permitted successor of McKesson under the Indenture may succeed to McKesson's
ownership of such Common Securities, (ii) to use its reasonable efforts to
cause the Trust (x) to remain a statutory business trust, except in connection
with the distribution of Convertible Debentures to the holders of Trust
Securities in liquidation of the Trust, the redemption of all the Trust
Securities of the Trust, or certain mergers, consolidations or amalgamations,
each as permitted by the Declaration, and (y) to continue to be classified as
a grantor trust for United States federal income tax purposes and (iii) to use
its reasonable efforts to cause each holder of Trust Securities to be treated
as owning an undivided beneficial interest in the Convertible Debentures.
The Indenture provides that McKesson will not merge or consolidate with or
into any other person or entity or sell, transfer, lease or otherwise convey
all or substantially all of its assets on a consolidated basis to any person
unless (a)(i) McKesson is the surviving corporation in any such merger or (ii)
if McKesson is not the survivor, the successor is a corporation organized and
existing under the laws of the United States of America, any state thereof or
the District of Columbia and expressly assumes the due and punctual payment of
the principal of, premium, if any, and interest (including Additional Sums and
Compound Interest) on all Convertible Debentures issued thereunder and the
performance of every other covenant and agreement in the Indenture and the
Registration Rights Agreement on the part of the Company, (b) immediately
thereafter no Indenture Event of Default and no event which, after notice or
lapse of time or both, would become an Indenture Event of Default shall have
occurred and be continuing, and (c) McKesson has delivered to the Debt Trustee
the officers'
40
<PAGE>
certificate and opinion of counsel required by the Indenture. Upon any such
consolidation, merger, sale, transfer, lease or conveyance, the successor
corporation shall succeed to and be substituted for McKesson under the
Indenture and thereafter (except in the case of a lease) the predecessor
corporation shall be relieved of all obligations and covenants under the
Indenture, the Convertible Debentures and the Registration Rights Agreement.
REDEMPTION AT THE OPTION OF MCKESSON
McKesson has the right to redeem the Convertible Debentures, in whole or in
part, from time to time, on or after March 4, 2000, upon not less than 30 nor
more than 60 days notice, at the following prices (expressed as percentages of
the principal amount of the Convertible Debentures), together with accrued and
unpaid interest (including Additional Sums, if any, and, to the extent
permitted by applicable law, Compound Interest, if any), to but excluding the
redemption date, if redeemed during the 12-month period beginning March 4 of
the applicable year set forth below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
2000........................ 103.5%
2001........................ 103.0
2002........................ 102.5
2003........................ 102.0
2004........................ 101.5
2005........................ 101.0
2006........................ 100.5
</TABLE>
and 100.0% if redeemed on or after March 4, 2007.
McKesson may not redeem fewer than all of the outstanding Convertible
Debentures unless all accrued and unpaid interest has been paid on all
Convertible Debentures for all quarterly interest payment periods terminating
on or prior to the date of redemption. If Convertible Debentures are redeemed
on any interest payment date, accrued and unpaid interest shall be payable to
holders of record on the relevant record date.
McKesson also has the right to redeem the Convertible Debentures, in whole
or in part, at any time in certain circumstances upon the occurrence of a Tax
Event as described under "Description of the Convertible Preferred
Securities--Special Event Distribution; Tax Event Redemption" at 100% of the
principal amount thereof, together with accrued and unpaid interest (including
Additional Sums, if any, and, to the extent permitted by applicable law,
Compound Interest, if any) to the Redemption Date.
Any redemption of Convertible Debentures shall be made on not less than 30
nor more than 60 days notice to holders of the Convertible Debentures. In the
event that fewer than all of the outstanding Convertible Debentures are to be
redeemed, the Convertible Debentures will be redeemed pro rata. So long as the
corresponding Trust Securities are outstanding, the proceeds from the
redemption of the Convertible Debentures will be used to redeem the Trust
Securities.
CONVERSION OF THE CONVERTIBLE DEBENTURES
The Convertible Debentures are convertible into McKesson Common Stock at the
option of the holders of the Convertible Debentures at any time beginning May
21, 1997 and prior to the close of business on the Business Day prior to the
maturity date of the Convertible Debentures (or, in the case of Convertible
Debentures called for redemption, the close of business on the Business Day
prior to the Redemption Date) at an initial conversion rate of .6709 shares of
McKesson Common Stock for each $50 in principal amount of Convertible
Debentures (equivalent to a conversion price of $74.53 per share of McKesson
Common Stock), subject to adjustment and reset as described under "Description
of the Convertible Preferred Securities--Conversion Rights." The Trust has
agreed not to convert Convertible Debentures held by it except pursuant to a
notice of
41
<PAGE>
conversion delivered to the Conversion Agent by a holder of Convertible
Preferred Securities. Upon surrender of a Convertible Preferred Security to
the Conversion Agent for conversion, the Trust will distribute $50 principal
amount of Convertible Debentures for each $50 in liquidation amount of
Convertible Preferred Securities surrendered to the Conversion Agent on behalf
of the holder of the Convertible Preferred Securities so converted, whereupon
the Conversion Agent will convert such Convertible Debentures into McKesson
Common Stock on behalf of such holder. McKesson's delivery to the holders of
the Convertible Debentures (through the Conversion Agent) of the fixed number
of shares of McKesson Common Stock into which the Convertible Debentures are
convertible (together with the cash payment, if any, in lieu of fractional
shares) will be deemed to satisfy McKesson's obligation to pay the principal
amount of the Convertible Debentures so converted, and the accrued and unpaid
interest thereon attributable to the period from the last date to which
interest has been paid or duly provided for; provided, however, that if any
Convertible Debenture is converted after the close of business on a record
date for payment of interest, the interest payable on the related Interest
Payment Date with respect to such Convertible Debenture shall be paid on such
Interest Payment Date to the person who was the registered holder thereof on
such record date, despite such conversion, unless such Convertible Debenture
has been called for redemption on a Redemption Date falling between such
record date and the corresponding Interest Payment Date, in which case the
amount of such payment shall include interest accrued to, but excluding, such
Redemption Date and such payment shall be made to the converting holder.
INDENTURE EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events, which has occurred and is continuing, constitutes an "Indenture Event
of Default" with respect to the Convertible Debentures: (i) failure for 30
days to pay interest on the Convertible Debentures, including any Additional
Sums, Compound Interest and Liquidated Damages in respect thereof, when due;
provided that a valid extension of an interest payment period will not
constitute a default in the payment of interest (including any Additional
Sums, Compound Interest or Liquidated Damages) for this purpose; or (ii)
failure to pay principal of or premium, if any, on the Convertible Debentures
when due whether at maturity, upon redemption, by declaration or otherwise, or
(iii) failure by McKesson to deliver shares of McKesson Common Stock upon an
election by a holder of Convertible Preferred Securities or Convertible
Debentures to convert such Convertible Preferred Securities or Convertible
Debentures, as the case may be, (iv) failure to observe or perform any other
covenant contained in the Indenture for 30 days after notice to McKesson by
the Debt Trustee or by the holders of at least 25% in aggregate outstanding
principal amount of the Convertible Debentures; (v) the dissolution, winding
up or termination of the Trust, except in connection with the distribution of
Convertible Debentures to the holders of Convertible Preferred Securities in
liquidation of the Trust upon the occurrence of a Special Event or upon the
occurrence of events as described under "Description of the Convertible
Preferred Securities--Liquidation of Trust and Distribution of Convertible
Debentures to Holders," upon the redemption of all outstanding Convertible
Preferred Securities, upon the conversion of all outstanding Convertible
Preferred Securities into McKesson Common Stock or in connection with certain
mergers, consolidations or amalgamations permitted by the Declaration; or (vi)
certain events of bankruptcy, insolvency or reorganization of McKesson which
are voluntary or, if involuntary, continue for a period of 90 days.
If any Indenture Event of Default shall occur and be continuing, the
Institutional Trustee or the holders of not less than 25% in aggregate
principal amount of the Convertible Debentures then outstanding may declare
the principal of and the accrued and unpaid interest on the Convertible
Debentures (including Additional Sums, if any, and (to the extent permitted by
applicable law) Compound Interest, if any) and any other amounts payable under
the Indenture to be forthwith due and payable and to enforce its other rights
as a creditor with respect to the Convertible Debentures; provided, however,
that after such acceleration, but before a judgment or decree based on such
acceleration is obtained, the holders of a majority in aggregate principal
amount of the Convertible Debentures then outstanding may, under certain
circumstances, rescind and annul such acceleration if all Indenture Events of
Default, other than the nonpayment of accelerated principal and interest, have
been cured or waived as provided in the Indenture. An Indenture Event of
Default also constitutes a Declaration Event of Default. The holders of
Convertible Preferred Securities in certain circumstances have the right to
direct the Institutional Trustee to exercise its rights as the holder of the
Convertible Debentures. See "Description of the
42
<PAGE>
Convertible Preferred Securities--Declaration Events of Default" and "--Voting
Rights." Notwithstanding the foregoing, if an Indenture Event of Default has
occurred and is continuing and such event is attributable to the failure of
McKesson to pay interest or principal on the Convertible Debentures on the
date such interest or principal is otherwise payable (or in the case of
redemption, the Redemption Date), then a holder of Convertible Preferred
Securities may institute a Direct Action for payment on or after the
respective due dates specified in the Convertible Debentures. Notwithstanding
any payments made to such holder of Convertible Preferred Securities by
McKesson in connection with a Direct Action, McKesson shall remain obligated
to pay the principal of and interest on the Convertible Debentures held by the
Trust or the Institutional Trustee of the Trust, and McKesson shall be
subrogated to the rights of the holder of such Convertible Preferred
Securities with respect to payments on the Convertible Preferred Securities to
the extent of any payments made by McKesson to such holder in any Direct
Action. The holders of Convertible Preferred Securities will not be able to
exercise directly any other remedy available to the holders of the Convertible
Debentures.
The Indenture contains provisions permitting the holders of a majority in
aggregate principal amount of the Convertible Debentures then outstanding, on
behalf of all of the holders of the Convertible Debentures, to waive any past
default in the performance of any of the covenants contained in the Indenture,
except a default in the payment of the principal of or premium, if any, or
interest on any of the Convertible Debentures and certain other defaults;
provided, however, that if the Convertible Debentures are held by the Trust or
the Institutional Trustee of the Trust, such waiver shall not be effective
until the holders of a majority in aggregate liquidation amount of Trust
Securities shall have consented to such waiver; provided, further, that if the
consent of the holder of each outstanding Convertible Debenture affected is
required, such waiver shall not be effective until each holder of the Trust
Securities shall have consented to such waiver.
A default under any other indebtedness of the Company would not constitute
an Indenture Event of Default.
Subject to the provisions of the Indenture relating to the duties of the
Debt Trustee in case an Indenture Event of Default shall occur and be
continuing, the Debt Trustee is under no obligation to exercise any of its
rights or powers under the Indenture at the request or direction of any
holders of Convertible Debentures, unless such holders shall have offered to
the Debt Trustee reasonable indemnity. Subject to such provisions for the
indemnification of the Debt Trustee, the holders of a majority in aggregate
principal amount of the Convertible Debentures then outstanding have the right
to direct the time, method and place of conducting any proceeding for any
remedy available to the Debt Trustee, or exercising any trust or power
conferred on the Debt Trustee.
No holder of any Convertible Debenture has any right to institute any
proceeding with respect to the Indenture or for any remedy thereunder, unless
(i) such holder shall have previously given to the Debt Trustee written notice
of a continuing Indenture Event of Default, (ii) if the Trust is not the sole
holder of Convertible Debentures, the holders of at least 25% in aggregate
principal amount of the Convertible Debentures then outstanding shall have
made written request to the Debt Trustee to institute proceedings, (iii) such
holder has offered reasonable indemnity to the Debt Trustee to institute such
proceeding as Indenture Trustee, (iv) the Debt Trustee shall have failed to
institute such proceeding within 60 days of such notice and offer of
indemnity, and (v) the Debt Trustee shall not have received from the holders
of a majority in aggregate principal amount of the outstanding Convertible
Debentures a direction inconsistent with such request. However, such
limitations do not apply to a suit instituted by a holder of a Convertible
Debenture for enforcement of payment of the principal of, premium, if any, or
interest on such Convertible Debenture on or after the respective due dates
expressed in such Convertible Debenture.
The Company is required to file annually with the Debt Trustee and the
Institutional Trustee a certificate as to whether or not the Company is in
compliance with all the conditions and covenants under the Indenture.
BOOK-ENTRY AND SETTLEMENT
If distributed to holders of Convertible Preferred Securities in connection
with the involuntary or voluntary dissolution, winding-up or liquidation of
the Trust as a result of the occurrence of a Special Event, the
43
<PAGE>
Convertible Debentures will be issued in the same form as the Convertible
Preferred Securities that such Convertible Debentures replace. Except under
the limited circumstances described below, Convertible Debentures represented
by a global security (a "Global Debenture") are not exchangeable for, and are
not otherwise issuable as, Convertible Debentures in definitive form. The
Global Debenture may not be transferred except by DTC to a nominee of DTC or
by a nominee of DTC to DTC or another nominee of DTC or to successor
depositary or its nominee.
The laws of some jurisdictions require that certain purchasers of securities
take physical delivery of such securities in definitive form. Such laws may
impair the ability to transfer or pledge beneficial interests in a Global
Debenture.
Except as provided below, owners of beneficial interests in a Global
Debenture are not entitled to receive physical delivery of Convertible
Debentures in definitive form and are not considered the holders (as defined
in the Indenture) thereof for any purpose under the Indenture, and no Global
Debenture representing Convertible Debentures shall be exchangeable, except
for another Global Debenture of like denomination and tenor to be registered
in the name of DTC or its nominee or a successor depositary or its nominee.
Accordingly, each beneficial owner must rely on the procedures of DTC or if
such person is not a Participant, on the procedures of the Participant through
which such person owns its interest to exercise any rights of a holder under
the Indenture.
THE DEPOSITARY
If Convertible Debentures are distributed to holders of Convertible
Preferred Securities in liquidation of such holders' interests in the Trust
and a Global Debenture is issued, DTC will act as securities depositary for
the Global Debenture. For a description of DTC and the specific terms of the
depositary arrangements, see "Description of the Convertible Preferred
Securities--Form, Denomination and Registration--Global Convertible Preferred
Securities; Book-Entry Form." As of the date of this Prospectus, the
description therein of DTC's book-entry system and DTC's practices as they
relate to purchases, transfers, notices and payments with respect to the
Convertible Preferred Securities apply in all material respects to any debt
obligations represented by one or more global securities held by DTC. McKesson
may appoint a successor to DTC or any successor depositary in the event DTC or
such successor depositary is unable or unwilling to continue as a depositary
for such Global Debenture.
None of McKesson, the Trust, the Debt Trustee, any paying agent and any
other agent of McKesson or the Debt Trustee have any responsibility or
liability for any aspect of the records relating to or payments made on
account of beneficial ownership interests in a Global Debenture or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
DISCONTINUANCE OF THE DEPOSITARY'S SERVICES
DTC may discontinue providing its services as securities depositary with
respect to the Global Debenture at any time by giving notice to the Company.
In the event that (i) DTC notifies the Company that it is unwilling or unable
to continue as a depositary for the Global Debenture or if at any time DTC
ceases to be a clearing agency registered as such under the Securities
Exchange Act of 1934 when DTC is required to be so registered to act as such
depositary and no successor depositary shall have been appointed within 90
days of such notification or of the Company becoming aware of DTC's ceasing to
be so registered, as the case may be, (ii) the Company in its sole discretion
determines that the Global Debenture shall be exchanged for certificated
Convertible Debentures or (iii) there shall have occurred and be continuing an
Indenture Event of Default, certificates for the Convertible Debentures will
be printed and delivered in exchange for interests in the Global Debentures.
Any Global Debenture that is exchangeable pursuant to the preceding sentence
shall be exchangeable for Convertible Debentures registered in such names as
DTC shall direct. It is expected that such instructions will be based upon
directions received by DTC from its Participants with respect to ownership of
beneficial interests in such Global Debenture.
44
<PAGE>
MODIFICATIONS AND AMENDMENTS OF THE INDENTURE
The Indenture contains provisions permitting the Company and the Debt
Trustee, with the consent of the holders of not less than a majority in
aggregate principal amount of the outstanding Convertible Debentures, to
modify the Indenture or the rights of the holders of Convertible Debentures;
provided, however, that no such modification may, without the consent of the
holder of each outstanding Convertible Debenture affected thereby, (i) extend
the stated maturity of the Convertible Debentures or reduce the principal
amount thereof, or reduce the rate or extend the time for payment of interest
thereon, or reduce any premium payable upon the redemption thereof, or
adversely affect the right to convert Convertible Debentures or the
subordination provisions of the Indenture, or (ii) reduce the percentage in
aggregate principal amount of outstanding Convertible Debentures, the holders
of which are required to consent to any such supplemental indenture.
In addition, the Company and the Debt Trustee may execute, without the
consent of any holder of Convertible Debentures, any supplemental indenture to
cure any ambiguities, defects or inconsistencies, comply with the Trust
Indenture Act and for certain other customary purposes.
INFORMATION CONCERNING THE DEBT TRUSTEE
The Debt Trustee, prior to default, undertakes to perform only such duties
as are specifically set forth in the Indenture and, after default, shall
exercise the same degree of care as a prudent person would exercise in the
conduct of his or her own affairs. Subject to such provision, the Debt Trustee
is under no obligation to exercise any of the powers vested in it by the
Indenture at the request of any holder of Convertible Debentures, unless
offered reasonable indemnity by such holder against the costs, expenses and
liabilities which might be incurred thereby. The Debt Trustee is not required
to expend or risk its own funds or otherwise incur personal financial
liability in the performance of its duties if the Debt Trustee reasonably
believes that repayment or adequate indemnity is not reasonably assured to it.
The Indenture also contains limitations on the right of the Debt Trustee, as
a creditor of McKesson, to obtain payment of claims in certain cases or to
realize on certain property received in respect of any such claim as security
or otherwise. In addition, the Debt Trustee may be deemed to have a
conflicting interest and may be required to resign as Debt Trustee if at the
time of a default under the Indenture it is a creditor of McKesson. The
Company may from time to time maintain deposit accounts and conduct its
banking transactions with the Debt Trustee in the ordinary course of business.
GOVERNING LAW
The Indenture and the Convertible Debentures are governed by, and construed
in accordance with, the internal laws of the State of New York.
MISCELLANEOUS
The Indenture provides that McKesson is to pay all fees and expenses related
to (i) the original offering of the Trust Securities and the Convertible
Debentures, (ii) the organization, maintenance and dissolution of the Trust,
(iii) the retention of the MFT Trustees and (iv) the enforcement by the
Institutional Trustee of the rights of the holders of the Convertible
Preferred Securities.
McKesson will have the right at all times to assign any of its respective
rights or obligations under the Indenture to a direct or indirect wholly-owned
subsidiary of McKesson; provided that, in the event of any such assignment,
McKesson will remain liable for all of its obligations. Subject to the
foregoing, the Indenture is binding upon and inures to the benefit of the
parties thereto and their respective successors and assigns. The Indenture
provides that it may not otherwise be assigned by the parties thereto.
45
<PAGE>
EFFECT OF OBLIGATIONS UNDER THE
CONVERTIBLE DEBENTURES AND THE GUARANTEE
As set forth in the Declaration, the sole purpose of the Trust is to issue
the Trust Securities evidencing undivided beneficial interests in the assets
of the Trust, and to invest the proceeds from such issuance and sale in the
Convertible Debentures.
As long as payments of interest and other payments are made when due on the
Convertible Debentures, such payments will be sufficient to cover
distributions and payments due on the Trust Securities because of the
following factors: (i) the aggregate principal amount of Convertible
Debentures is equal to the sum of the aggregate stated liquidation amount of
the Trust Securities; (ii) the interest rate and the interest and other
payment dates on the Convertible Debentures match the distribution rate and
distribution and other payment dates for the Convertible Preferred Securities;
(iii) McKesson shall pay all, and the Trust shall not be obligated to pay,
directly or indirectly, any costs, expenses, debt and obligations of the Trust
(other than with respect to the Trust Securities); and (iv) the Declaration
further provides that the MFT Trustees shall not take or cause or permit the
Trust to, among other things, engage in any activity that is not consistent
with the purposes of the Trust.
Payments of distributions (to the extent funds therefor are available) and
other payments due on the Convertible Preferred Securities (to the extent
funds therefor are available) are guaranteed by McKesson as and to the extent
set forth under "Description of the Guarantee" herein. If McKesson does not
make interest payments on the Convertible Debentures purchased by the Trust,
it is expected that the Trust will not have sufficient funds to pay
distributions on the Convertible Preferred Securities. The Guarantee is a full
guarantee on a subordinated basis with respect to the Convertible Preferred
Securities issued by the Trust from the time of its issuance but does not
apply to any payment of distributions unless and until the Trust has
sufficient funds for the payment of such distributions. The Guarantee covers
the payment of distributions and other payments on the Convertible Preferred
Securities only if and to the extent that McKesson has made a payment of
interest or principal on the Convertible Debentures held by the Trust as its
sole asset. See "Risk Factors--Limitations of the Guarantee." The Guarantee,
when taken together with McKesson's obligations under the Convertible
Debentures, the Indenture and the Declaration, including its obligations to
pay costs, expenses, debts and liabilities of the Trust (other than with
respect to the Trust Securities), provides a full and unconditional guarantee
of amounts on the Convertible Preferred Securities.
If McKesson fails to make interest or other payments on the Convertible
Debentures when due (taking account of any Extension Period), the Declaration
provides a mechanism whereby a holder of the Convertible Preferred Securities,
using the procedures described in "Description of the Convertible Preferred
Securities--Voting Rights," may direct the Institutional Trustee to enforce
its rights under the Convertible Debentures. If the Institutional Trustee
fails to enforce its rights under the Convertible Debentures, any holder of
Convertible Preferred Securities may directly institute a legal proceeding
against McKesson to enforce the Institutional Trustee's rights under the
Convertible Debentures without first instituting legal proceedings against the
Institutional Trustee or any other person or entity. Notwithstanding the
foregoing, if a Declaration Event of Default has occurred and is continuing
and such event is attributable to the failure of the Company to pay interest
or principal on the Convertible Debentures on the date such interest or
principal is otherwise payable (or in the case of redemption on the Redemption
Date), a holder of Convertible Preferred Securities may institute a Direct
Action for payment on or after the respective due dates specified in the
Convertible Debentures. In connection with such Direct Action, McKesson will
be subrogated to the rights of such holder of Convertible Preferred Securities
under the Declaration to the extent of any payment made by McKesson to such
holder of Convertible Preferred Securities in such Direct Action. McKesson,
under the Guarantee, acknowledges that the Guarantee Trustee shall enforce the
Guarantee on behalf of holders of the Convertible Preferred Securities. If
McKesson fails to make payments under the Guarantee, the Guarantee provides a
mechanism whereby the holders of the Convertible Preferred Securities may
direct the Guarantee Trustee to enforce its rights thereunder. Any holder of
Convertible Preferred Securities may institute a legal proceeding directly
against McKesson to enforce such holder's right to receive payment under the
Guarantee without first instituting a legal proceeding against the Trust, the
Guarantee Trustee or any other person or entity.
46
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The description of the Company's capital stock and of certain provisions of
Delaware law do not purport to be complete and are subject to and qualified in
their entirety by reference to the Company's Restated Certificate of
Incorporation (the "Certificate") and Restated By-Laws (the "By-Laws") and
Delaware law, and, with respect to certain rights of holders of shares of
Common Stock, the Rights Agreement (as hereinafter defined). Copies of such
documents have been filed with the Commission.
As of the date hereof, the capital stock of McKesson consists of 200,000,000
authorized shares of Common Stock and 100,000,000 authorized shares of
preferred stock.
COMMON STOCK
As of June 2, 1997, there were 45,897,016 shares of Common Stock issued and
outstanding. The holders of outstanding shares of Common Stock are entitled to
receive dividends out of assets legally available therefor at such times and
in such amounts as the McKesson Board of Directors (the "Board") may from time
to time determine. The shares of Common Stock are neither redeemable nor
convertible, and the holders thereof have no preemptive or subscription rights
to purchase any securities of McKesson. Upon liquidation, dissolution or
winding up of McKesson, the holders of Common Stock are entitled to receive
the assets of McKesson, which are legally available for distribution, after
payment of all debts, other liabilities and any liquidation preferences of
outstanding preferred stock. Each outstanding share of Common Stock is
entitled to one vote on all matters submitted to a vote of stockholders. There
is no cumulative voting.
SERIES PREFERRED STOCK
As of June 2, 1997, there were no shares of series preferred stock issued
and outstanding. The Board is authorized to issue series preferred stock in
classes or series and to fix the designations, preferences, qualifications,
limitations, or restrictions of any class or series with respect to the rate
and nature of dividends, the price and terms and conditions on which shares
may be redeemed, the amount payable in the event of voluntary or involuntary
liquidation, the terms and conditions for conversion or exchange into any
other class or series of the stock, voting rights and other terms.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE COMPANY'S RESTATED CERTIFICATE OF
INCORPORATION AND BYLAWS
The Certificate and By-Laws of McKesson contain certain provisions that may
be deemed to have an anti-takeover effect and may delay, deter or prevent a
tender offer or takeover attempt that a stockholder might consider in its best
interest, including those attempts that might result in a premium over the
market price for the shares held by stockholders.
Pursuant to the Certificate, the Board is divided into three classes serving
staggered three-year terms. Directors can be removed from office only for
cause and only by the affirmative vote of the holders of at least a majority
of the voting power of the then outstanding shares of any class or series of
capital stock of the Company entitled to vote generally in the election of
directors. Vacancies and newly created directorships on the Board may be
filled only by a majority of the remaining directors or by the plurality vote
of the stockholders.
The Certificate also provides that any action required or permitted to be
taken by the holders of Common Stock may be effected only at an annual or
special meeting of such holders, and that stockholders may act in lieu of such
meetings only by unanimous written consent. The By-Laws provide that special
meetings of holders of Common Stock may be called only by the Chairman or the
President of the Company or the Board. Holders of Common Stock are not
permitted to call a special meeting or to require that the Board call a
special meeting of stockholders.
The By-Laws establish an advance notice procedure for the nomination, other
than by or at the direction of the Board, of candidates for election as
directors as well as for other stockholder proposals to be considered at
47
<PAGE>
annual meetings of stockholders. In general, notice of intent to nominate a
director or raise business at such meetings must be received by the Company
not less than 60 nor more than 90 days prior to the date of the annual meeting
and must contain certain specified information concerning the person to be
nominated or the matters to be brought before the meeting and concerning the
stockholder submitting the proposal.
The Certificate also provides that certain provisions of the By-Laws may
only be amended by the affirmative vote of the holders of 75% of the shares of
the Company outstanding and entitled to vote. The Certificate also provides
that, in addition to any affirmative vote required by law, the affirmative
vote of holders of 80% of the voting stock of the Company and two-thirds of
the voting stock other than voting stock held by an interested stockholder
shall be necessary to approve certain business combinations proposed by an
interested stockholder.
The foregoing summary is qualified in its entirety by the provisions of the
Certificate and By-Laws, copies of which have been filed with the Commission.
RIGHTS PLAN
Pursuant to the Company's Rights Agreement (as defined below), the Board
declared a dividend distribution of one right (a "Right") for each outstanding
share of Common Stock to stockholders of record of the Company at November 1,
1994 (the "Record Date"). Each Right entitles the registered holder to
purchase from the Company a unit consisting of one one-hundredth of a share of
Series A Junior Participating Preferred Stock (the "Series A Preferred Stock")
at a purchase price of $100 per unit. The terms of the Rights are set forth in
a Rights Agreement between the Company and a Rights Agent (the "Rights
Agreement"), a copy of which is filed with the Commission. The following
summary outlines certain provisions of the Rights Agreement and is qualified
by reference to the full text of the form of the Rights Agreement.
The Rights are attached to all Common Stock certificates representing shares
outstanding at the Record Date and shares issued between the Record Date and
the Distribution Date (as hereinafter defined), and no separate rights
certificates (the "Rights Certificates") have been distributed. The Rights
will separate from the Common Stock, separate Rights Certificates will be
issued and a distribution date (the "Distribution Date") will occur upon the
earlier to occur of (i) ten business days following the date of a public
announcement that there is an Acquiring Person (as defined below) (such date,
the "Stock Acquisition Date"), (ii) ten business days following commencement
of a tender or exchange offer that would result in the offeror beneficially
owning 15% or more of the Common Stock or (iii) ten business days after the
Board determines that the ownership of 10% or more of the Company's
outstanding Common Stock by a person is (A) intended to cause the Company to
repurchase the Common Stock beneficially owned by such person or (B) is
causing, or is reasonably likely to cause, a material adverse impact on the
Company.
The term "Acquiring Person" means any person who, together with affiliates
and associates, acquires beneficial ownership of shares of Common Stock
representing 15% or more of the Common Stock, but shall not include the
Company, any subsidiary of the Company, any employee benefit plan of the
Company or of any Subsidiary of the Company, or any person or entity
organized, appointed or established by the Company for or pursuant to the
terms of such plan.
In the event that a person becomes an Acquiring Person (except pursuant to
an offer for all outstanding shares of Common Stock which the independent
directors determine to be fair to and otherwise in the best interests of the
Company and its stockholders), each holder of a Right will thereafter have the
right to receive, upon exercise, Common Stock (or, in certain circumstances,
cash, property or other securities of the Company) having a calculated value
equal to two times the exercise price of the Right. Notwithstanding the
foregoing, following the occurrence of such event, all Rights that are, or
(under certain circumstances specified in the Rights Agreement) were,
beneficially owned by an Acquiring Person and certain related persons and
transferees will be null and void. However, Rights are not exercisable
following the occurrence of such event until such time as the Rights are no
longer redeemable as set forth below.
48
<PAGE>
The Rights expire on September 14, 2004, unless redeemed earlier by the
Board.
At any time prior to the tenth day following the Stock Acquisition Date, the
Company may redeem the Rights, in whole, but not in part, at a price of $.01
per Right.
Until a Right is exercised, the holder thereof, as such, will have no rights
as a stockholder of the Company, including without limitation, the right to
vote or to receive dividends.
In general, the Rights Agreement may be amended by the Board (i) prior to
the Distribution Date in any manner, and (ii) on or after the Distribution
Date in certain respects including (a) to shorten or lengthen any time period
and (b) in a manner not adverse to the interests of Rights holders. However,
amendments extending the redemption period must be made while the Rights are
still redeemable.
The Rights have certain anti-takeover effects and will cause substantial
dilution to a person or group that attempts to acquire the Company on terms
not approved by the Board. The Rights should not interfere with any merger or
other business combination approved by the Board, since the Board may redeem
the Rights as provided above.
SECTION 203 OF DELAWARE GENERAL CORPORATION LAW
The Company is subject to the "business combination" statute of the Delaware
General Corporation Law (Section 203). In general, such statute prohibits a
publicly held Delaware corporation from engaging in a "business combination"
with any "interested stockholder" for a period of three years after the date
of the transaction in which the person became an "interested stockholder,"
unless (i) such transaction is approved by the board of directors prior to the
date the interested stockholder obtains such status, (ii) upon consummation of
such transaction, the "interested stockholder" beneficially owned at least 85%
of the voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned by (a) persons who are directors and also
officers and (b) employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer, or (iii) the "business
combination" is approved by the board of directors and authorized at an annual
or special meeting of stockholders by the affirmative vote of at least 66 2/3%
of the outstanding voting stock which is not owned by the "interested
stockholder." A "business combination" includes mergers, asset sales and other
transactions resulting in financial benefit to the "interested stockholder."
An "interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years, did own) beneficially 15% or more of
a corporation's voting stock. The statute could prohibit or delay mergers or
other takeover or change in control attempts with respect to the Company and,
accordingly, may discourage attempts to acquire the Company.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
The Company's authorized but unissued shares of Common Stock and series
preferred stock may be issued without additional stockholder approval and may
be utilized for a variety of corporate purposes, including future offerings to
raise additional capital or to facilitate corporate acquisitions.
The issuance of series preferred stock could have the effect of delaying or
preventing a change in control of the Company. The issuance of preferred stock
could decrease the amount of earnings and assets available for distribution to
the holders of Common Stock or could adversely affect the rights and powers,
including voting rights, of the holders of the Common Stock. In certain
circumstances, such issuance could have the effect of decreasing the market
price of the Common Stock.
One of the effects of the existence of unissued and unreserved Common Stock
or series preferred stock may be to enable the Board to issue shares to
persons friendly to current management which could render more difficult or
discourage an attempt to obtain control of the Company by means of a merger,
tender offer, proxy
49
<PAGE>
contest or otherwise, and thereby protect the continuity of management. Such
additional shares also could be used to dilute the stock ownership of persons
seeking to obtain control of the Company.
The Company plans to issue additional shares of Common Stock (i) upon the
exercise of options which have been granted or which may be granted in the
future to directors, officers and employees of the Company and (ii) upon
conversion of the Trust Securities. The Company does not currently have any
plans to issue shares of preferred stock, although, 10,000,000 shares of
Series A Preferred Stock have been designated pursuant to the Company's Rights
Plan. See "--Rights Plan."
LIMITATION OF DIRECTORS LIABILITY
The Certificate contains a provision that limits the liability of McKesson's
directors for monetary damages for breach of fiduciary duty as a director to
the fullest extent permitted by the Delaware General Corporation Law. Such
limitation does not, however, affect the liability of a director (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law, (iii) in respect of certain unlawful
dividend payments or stock redemptions or purchases and (iv) for any
transaction from which the director derives an improper personal benefit. The
effect of this provision is to eliminate the rights of the Company and its
stockholders (through stockholders' derivative suits on behalf of the Company)
to recover monetary damages against a director for breach of the fiduciary
duty of care as a director (including breaches resulting from negligent or
grossly negligent behavior) except in the situations described in clauses (i)
through (iv) above. This provision does not limit or eliminate the rights of
the Company or any stockholder to seek non-monetary relief such as an
injunction or rescission in the event of a breach of a director's duty of
care. In addition, the directors and officers of the Company have
indemnification protection.
50
<PAGE>
UNITED STATES FEDERAL INCOME TAXATION
GENERAL
The following is a summary of certain United States federal income tax
consequences of the purchase, ownership and disposition of the Convertible
Preferred Securities. Unless otherwise stated, this summary only deals with
Convertible Preferred Securities held as capital assets (generally, assets
held for investment). The tax treatment of a holder of Convertible Preferred
Securities may vary depending on his particular situation. This summary does
not address all of the tax consequences that may be relevant to holders who
may be subject to special tax treatment such as, for example, insurance
companies, broker-dealers, tax-exempt organizations, or, except to the extent
described below, foreign taxpayers. In addition, this summary does not address
any aspects of state, local, or foreign tax laws. This summary is based on the
United States federal income tax law in effect as of the date hereof, which is
subject to change, possibly on a retroactive basis. Each investor is urged to
consult his tax advisor as to the particular tax consequences of purchasing,
owning, and disposing of the Convertible Preferred Securities, including the
application and effect of United States federal, state, local, foreign, and
other tax laws.
CLASSIFICATION OF THE CONVERTIBLE DEBENTURES
In connection with the issuance of the Convertible Debentures, Skadden,
Arps, Slate, Meagher & Flom LLP, special tax counsel to the Company and the
Trust ("Tax Counsel"), will render an opinion generally to the effect that
under current law and assuming full compliance with the terms of the Indenture
and certain other documents, and based on certain facts and assumptions
contained in such opinion, the Convertible Debentures to be held by the Trust
will be classified, for United States federal income tax purposes, as
indebtedness of the Company.
CLASSIFICATION OF THE TRUST
In connection with the issuance of the Convertible Preferred Securities, Tax
Counsel will render an opinion generally to the effect that, under current law
and assuming full compliance with the terms of the Declaration, the Indenture,
and certain other documents, and based on certain facts and assumptions
contained in such opinion, the Trust will be classified for United States
federal income tax purposes, as a grantor trust and not as an association
taxable as a corporation. Accordingly, for United States federal income tax
purposes, each holder of Convertible Preferred Securities will generally be
treated as the owner of an undivided interest in the Convertible Debentures,
and as further discussed below, each holder will be required to include in
ordinary income his allocable share of interest (or OID, if any) paid or
accrued on the Convertible Debentures.
POTENTIAL EXTENSION OF INTEREST PAYMENT PERIOD AND ORIGINAL ISSUE DISCOUNT
Under recently issued Treasury regulations (the "Regulations"), a debt
instrument will be deemed to be issued with OID if there is more that a
"remote" contingency that periodic stated interest payments due on the
instrument will not be timely paid. Because the exercise by the Company of its
option to defer the payment of stated interest on the Convertible Debentures
would prevent the Company from declaring dividends on any class of equity, the
Company believes that the likelihood of its exercising the option is "remote"
within the meaning of the Regulations. As a result, the Company intends to
take the position, based on the advice of Tax Counsel, that the Convertible
Debentures will not be deemed to be issued with OID. Accordingly, based on
this position, stated interest payments on the Convertible Debentures will be
includible in the ordinary income of a holder at the time that such payments
are paid or accrued in accordance with the holder's regular method of
accounting. Because the Regulations have not yet been addressed in any
published rulings or other published interpretations issued by the Internal
Revenue Service, it is possible that the Internal Revenue Service could take a
position contrary the position taken by the Company.
Exercise of Deferral Option. If the Company were to exercise its option to
defer the payment of stated interest on the Convertible Debentures, the
Convertible Debentures would be treated, solely for purpose of the
51
<PAGE>
OID rules, as being "re-issued" at such time with OID. Under these rules, a
holder of the Convertible Debentures would be required to include OID in
ordinary income, on a current basis, over the period that the instrument is
held even though the Company would not be making any actual cash payments
during the extended interest payment period. The amount of interest income
includible in the taxable income of a holder of the Convertible Debentures
would be determined on the basis of a constant yield method over the remaining
term of the instrument and the actual receipt of future payments of stated
interest on the Convertible Debentures would no longer be separately reported
as taxable income. The amount of OID that would accrue, in the aggregate,
during the extended interest payment period would be approximately equal to
the amount of the cash payment due at the end of such period. Any OID included
in income would increase the holder's adjusted tax basis in the Convertible
Debentures and the holder's actual receipt of interest payments would reduce
such basis.
Because income on the Convertible Preferred Securities will constitute
interest income for United States Federal income tax purposes, corporate
holders of Convertible Preferred Securities will not be entitled to claim a
dividends received deduction in respect of such income.
MARKET DISCOUNT AND BOND PREMIUM
To the extent a holder acquires Convertible Preferred Securities at a price
that is greater or less than the adjusted issue price (which should generally
approximate the face amount plus accrued but unpaid interest on the
Convertible Debentures) of such holder's proportionate share of the
Convertible Debentures, the holder may be deemed to have acquired its
undivided interest in the Convertible Debentures with acquisition premium or
market discount.
A holder who acquires an undivided beneficial interest in the Convertible
Debentures at a market discount will generally be required to recognize
ordinary income to the extent of accrued market discount on the Convertible
Debentures upon their retirement or, to the extent of any gain, upon the
disposition of the Convertible Preferred Securities. Such market discount will
accrue ratably or, at the election of the holder, under a constant yield
method over the remaining term of the Convertible Debentures. A holder will
also be required to defer the deduction of a portion of the interest paid or
accrued on indebtedness incurred to purchase or carry Convertible Preferred
Securities that represent an undivided interest in Convertible Debentures
acquired with market discount. In lieu of the foregoing, a holder may elect to
include market discount in income currently as it accrues on all market
discount instruments acquired by such holder in the taxable year of the
election or thereafter, in which case the interest deferral rule will not
apply. A holder will not recognize income for any accrued market discount
attributable to Convertible Preferred Securities surrendered for conversion
into McKesson Common Stock. Upon disposition of the McKesson Common Stock
received however, any gain will be treated as ordinary income to the extent of
such accrued market discount.
A holder who acquires an undivided beneficial interest in the Convertible
Debentures at a premium will be able to offset the amount of such holder's
amortizable bond premium attributable to that taxable year against such
holder's allocable share of interest (or OID, if any) paid or accrued on the
Convertible Debentures.
Holders are advised to consult their tax advisors regarding the market
discount and acquisition premium rules.
RECEIPT OF CONVERTIBLE DEBENTURES OR CASH UPON LIQUIDATION OF THE TRUST
If Company exercises its right to liquidate the Trust and cause the
Convertible Debentures to be distributed on a pro rata basis to the holders of
the Convertible Preferred Securities, such distribution would be treated as a
nontaxable event to the holders. In such event, each holder of Convertible
Preferred Securities would have an adjusted tax basis in the Convertible
Debentures received in the liquidation equal to the adjusted tax basis in his
Convertible Preferred Securities surrendered therefor and the holding period
of the Convertible Debentures would include the period during which the holder
had held the Convertible Preferred Securities. If, however, the Trust is
characterized, for United States Federal income tax purposes, as an
association taxable as a corporation
52
<PAGE>
at the time of such liquidation, the distribution of the Convertible
Debentures would constitute a taxable event to the holders of Convertible
Preferred Securities.
If the Convertible Debentures are redeemed for cash and the proceeds of such
redemption are distributed to holders in redemption of their Convertible
Preferred Securities, the redemption would be treated as a sale of the
Convertible Preferred Securities, in which gain or loss would be recognized,
as described immediately below.
SALE OF CONVERTIBLE PREFERRED SECURITIES
Upon the sale of the Convertible Preferred Securities, a holder will
recognize gain or loss in an amount equal to the difference between his
adjusted tax basis in the Convertible Preferred Securities and the amount
realized in the sale (except to the extent of any amount received in respect
of accrued but unpaid interest not previously included in income). Subject to
the market discount rules described above, such gain or loss will be a capital
gain or loss and will be a long term capital gain or loss if the Convertible
Preferred Securities have been held for more than one year.
The Convertible Preferred Securities may trade at a price that does not
accurately reflect the value of accrued but unpaid interest (or OID if the
Convertible Debentures are treated as having been issued, or reissued, with
OID) with respect to the underlying Convertible Debentures. A holder who
disposes of his Convertible Preferred Securities will be required to include
in ordinary income (i) any portion of the amount realized that is attributable
to such accrued but unpaid interest to the extent not previously included in
income or (ii) any amount of OID, in either case, that has accrued on his pro
rata share of the underlying Convertible Debentures during the taxable year of
sale through the date of disposition. Any such income inclusion will increase
the holder's adjusted tax basis in his Convertible Preferred Securities
disposed of. To the extent that the amount realized in the sale is less than
the holder's adjusted tax basis, a holder will recognize a capital loss.
Subject to certain limited exceptions, capital losses cannot be applied to
offset ordinary income for United States Federal income tax purposes.
CONVERSION OF CONVERTIBLE PREFERRED SECURITIES INTO MCKESSON COMMON STOCK
Except possibly to the extent attributable to accrued and unpaid interest
(including OID, if any) on the Convertible Debentures, a holder of Convertible
Preferred Securities will not recognize income, gain or loss upon the
conversion of the Convertible Preferred Securities into McKesson Common Stock
through the Conversion Agent. A holder of Convertible Preferred Securities
will, however, recognize gain upon the receipt of cash in lieu of a fractional
share of McKesson Common Stock equal to the amount of cash received less such
holder's tax basis in such fractional share. Such a holder's tax basis in the
McKesson Common Stock received upon conversion should generally be equal to
such holder's tax basis in the Convertible Preferred Securities delivered to
the Conversion Agent for exchange less the basis allocated to any fractional
share for which cash is received and such holder's holding period in the
McKesson Common Stock received upon conversion should generally begin on the
date such holder acquired the Convertible Preferred Securities delivered to
the Conversion Agent for exchange.
ADJUSTMENT OF CONVERSION PRICE
If at any time the Company makes a distribution of property to stockholders
that would be taxable to such stockholders as a dividend for United States
federal income tax purposes and, in accordance with the antidilution
provisions of the Convertible Preferred Securities, the Conversion Price of
the Convertible Preferred Securities is decreased, the amount of such decrease
may be deemed to be the payment of a taxable dividend to holders of the
Convertible Preferred Securities. For example, a decrease in the Conversion
Price in the event of distributions of evidences of indebtedness or assets of
the Company will generally result in deemed dividend treatment to holders of
the Convertible Preferred Securities, but generally a decrease in the event of
stock dividends or the distribution of rights to subscribe for McKesson Common
Stock will not. See "Description of the Convertible Preferred Securities--
Conversion Rights."
53
<PAGE>
PROPOSED TAX LEGISLATION
On February 6, 1997, as part of the fiscal 1998 budget proposal submitted to
Congress, the Clinton Administration proposed certain changes to Federal
income tax law which would, among other things, generally treat as equity, for
Federal income tax purposes, certain debt obligations, such as the Convertible
Debentures, that are "issued on or after the date of first Congressional
Committee action" (the "Clinton Proposal"). On June 9, 1997, House Ways and
Means Committee Chairman Bill Archer released the Chairman's Mark Relating to
Revenue Reconciliation Provisions that are proposed to be included in 1997 tax
legislation (the "Chairman's Mark"). The Chairman's Mark constitutes "first
Congressional Committee action" with respect to the provisions contained
therein. The Chairman's Mark does not include the Clinton Proposal that would
require instruments with terms similar to the Convertible Debentures to be
treated as equity for Federal income tax purposes.
In light of the Chairman's Mark, it appears that "first Congressional
Committee action" has not yet occurred with respect to the Clinton Proposal.
Furthermore, given the issue date of the Convertible Debentures and the
effective date transitional rules relating to certain capital markets
provisions included in the Chairman's Mark (as well as transitional rules
provided for in 1996 proposed legislation similar to the Clinton Proposal), it
is anticipated that the Clinton Proposal, even if acted upon by Congress in
the future, would not apply to the Convertible Debentures.
There can be no assurance, however, that the Clinton Proposal or similar
legislation will not ultimately be enacted into law, that the effective date
and transitional rules relating thereto would be enacted as anticipated, or
that other developments will not occur after the date hereof that would
adversely affect the tax treatment of the Convertible Debentures and could
result in the exchange of the Convertible Debentures for Convertible Preferred
Securities or, in certain limited circumstances, the redemption of the
Convertible Debentures by the Company and the distribution of the resulting
cash in redemption of the Convertible Preferred Securities. See "Description
of the Convertible Preferred Securities -- Special Event Distribution;
Redemption."
NON-U.S. HOLDERS
For purposes of this discussion, a "Non-U.S. Holder" is any corporation,
individual, partnership, estate or trust that is, as to the United States, a
foreign corporation, a nonresident alien individual, a foreign partnership, or
a nonresident fiduciary of a foreign estate or trust.
Payments made to a holder of Convertible Preferred Securities who is a Non-
U.S. Holder will not be subject to withholding of United States federal income
tax, provided that (a) the beneficial owner of the Convertible Preferred
Securities does not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of the Company entitled to vote,
(b) the beneficial owner of the Convertible Preferred Securities is not a
controlled foreign corporation that is related to the Company through stock
ownership, and (c) either (A) the beneficial owner of the Convertible
Preferred Securities certifies to the Trust or its agent, under the penalty of
perjury, that it is not a United States holder and provides his name and
address or (B) a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course of its
trade or business (a "Financial Institution"), and holds the Convertible
Preferred Securities in such capacity, certifies to the Trust or its agent,
under the penalty of perjury, that such statement has been received from the
beneficial owner by it or by a Financial Institution between it and the
beneficial owner and furnishes the Trust or its agent with a copy thereof. In
addition, a Non-U.S. Holder of Convertible Preferred Securities will not be
subject to withholding of United States federal income tax on any gain
realized upon the sale or other disposition of a Preferred Security.
If the Convertible Preferred Securities are converted into McKesson Common
Stock, any dividends paid to a Non-U.S. Holder will be subject to withholding
of United States Federal income tax at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty unless the dividend is
effectively connected with the conduct of a trade or business of a Non-U.S.
Holder with the U.S.
INFORMATION REPORTING
Generally, income on the Convertible Preferred Securities will be reported
to holders on Forms 1099, which forms should be mailed to holders of
Convertible Preferred Securities by January 31 following each calendar year.
54
<PAGE>
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the United States Internal Revenue Code of 1986, as amended (the "Code"),
impose certain restrictions on (a) employee benefit plans (as defined in
Section 3(3) of ERISA), (b) plans described in section 4975(e)(1) of the Code,
including individual retirement accounts or Keogh plans, (c) any entities
whose underlying assets include plan assets by reason of a plan's investment
in such entities (each a "Plan") and (d) persons who have certain specified
relationships to such Plans ("Parties-in-Interest" under ERISA and
"Disqualified Persons" under the Code). Moreover, based on the reasoning of
the United States Supreme Court in John Hancock Life Ins. Co. v. Harris Trust
and Sav. Bank, 114 S. Ct. 517 (1993), an insurance company's general account
may be deemed to include assets of the Plans investing in the general account
(e.g., through the purchase of an annuity contract), and the insurance company
might be treated as a Party-in-Interest with respect to a Plan by virtue of
such investment. ERISA also imposes certain duties on persons who are
fiduciaries of Plans subject to ERISA and prohibits certain transactions
between a Plan and Parties-in-Interest or Disqualified Persons with respect to
such Plans.
The Department of Labor ("DOL") has issued a regulation (29 C.F.R.
(S) 2510.3-101) concerning the definition of what constitutes the assets of a
Plan (the "Plan Assets Regulation"). This regulation provides that, as a
general rule, the underlying assets and properties of corporations,
partnerships, trusts and certain other entities in which a Plan purchases an
"equity interest" will be deemed for purposes of ERISA to be assets of the
investing Plan unless certain exceptions apply.
The Plan Assets Regulation defines an "equity interest" as any interest in
an entity other than an instrument that is treated as indebtedness under
applicable local law and which has no substantial equity features. It is
likely that the Convertible Preferred Securities would be treated as "equity
interests" for purposes of the Plan Assets Regulation. In addition, there can
be no assurance that any of the exceptions set forth in the Plan Assets
Regulation will apply to the purchase of the Convertible Preferred Securities.
Information regarding the potential applicability of any such exceptions will
be provided in the Prospectus Supplement.
Under the terms of the Plan Assets Regulation, if the Trust were deemed to
hold Plan assets by reason of a Plan's investment in the Convertible Preferred
Securities, such Plan assets would include an undivided interest in the assets
held by the Trust, including the Convertible Debentures. In such event, any
party exercising authority or control regarding the management or disposition
of the Convertible Debentures may be deemed to be a Plan "fiduciary," and thus
subject to the fiduciary requirements and prohibited transaction provisions of
ERISA and the Code. Furthermore, inasmuch as the Trustee may become a
fiduciary with respect to the ERISA Plans that purchase the Convertible
Preferred Securities, there may be an improper delegation by such ERISA Plans
of the responsibility to manage Plan assets.
In addition, if McKesson or any affiliate is a Party-in-Interest or
Disqualified Person with respect to an investing Plan, such Plan's investment
could be deemed to constitute a transaction prohibited under Title I of ERISA
or Section 4975 of the Code (e.g., the extension of credit between a Plan and
a Party-in-Interest or Disqualified Person). Such transactions may, however,
be subject to one or more statutory or administrative exemptions such as
Prohibited Transaction Class Exemption ("PTCE") 90-1, which exempts certain
transactions involving insurance company pooled separate accounts; PTCE 95-60,
which exempts certain transactions involving insurance company general
accounts; PTCE 91-38, which exempts certain transactions involving bank
collective investment funds; PTCE 84-14, which exempts certain transactions
effected on behalf of a Plan by a "qualified professional asset manager"; and
PTCE 96-23, which exempts certain transactions effected on behalf of a Plan by
an "in-house asset manager"; or pursuant to any other available exemption.
Such exemptions may not, however, apply to all of the transactions that could
be deemed prohibited transactions in connection with the Convertible Preferred
Securities.
Each purchaser of the Convertible Preferred Securities will be deemed to
have represented and agreed that either (i) it is not purchasing the
Convertible Preferred Securities with the assets of any Plan or (ii) one or
more exemptions from the prohibited transaction rules of ERISA and the Code
applies to such purchase, such that the
55
<PAGE>
use of such assets to acquire and hold the Convertible Preferred Securities
does not and will not constitute a non-exempt prohibited transaction for
purposes of Section 406 of ERISA and Section 4975 of the Code.
Any purchaser that is an insurance company using the assets of an insurance
company general account should note that the Small Business Job Protection Act
of 1996 added new Section 401(c) of ERISA relating to the status of the assets
of insurance company general accounts under ERISA and Section 4975 of the
Code. Pursuant to Section 401(c), the Department of Labor is required to issue
final regulations (the "General Account Regulations") not later than December
31, 1997 with respect to insurance policies issued on or before December 31,
1998 that are supported by an insurer's general account. The General Account
Regulations are to provide guidance on which assets held by the insurer
constitute "plan assets" for purposes of the fiduciary responsibility
provisions of ERISA and Section 4975 of the Code. Section 401(c) also provides
that, except in the case of avoidance of the General Account Regulation and
actions brought by the Secretary of Labor relating to certain breaches of
fiduciary duties that also constitute breaches of state or federal criminal
law, until the date that is 18 months after the General Account Regulations
become final, no liability under the fiduciary responsibility and prohibited
transaction provisions of ERISA and Section 4975 may result on the basis of a
claim that the assets of the general account of an insurance company
constitute the plan assets of any such plan. The plan asset status of
insurance company separate accounts is unaffected by new Section 401(c) of
ERISA, and separate account assets continue to be treated as the assets of any
Plan invested in a separate account.
Any Plan fiduciary that proposes to cause a Plan to purchase Convertible
Preferred Securities should consult with its counsel as to the potential
applicability of ERISA and the Code to such investment and whether any
exemption from the prohibited transaction rules would be applicable and
determine on its own whether all conditions of such exemption or exemptions
are satisfied. Moreover, each Plan fiduciary should take into account, among
other considerations, whether the fiduciary has the authority to make the
investment; the composition of the Plan's portfolio with respect to
diversification by type of asset; the Plan's funding objectives; the tax
effects of the investment; and whether under the general fiduciary standards
of investment prudence and diversification an investment in the Convertible
Preferred Securities is appropriate for the Plan, taking into account the
overall investment policy of the Plan and the composition of the Plan's
investment portfolio.
SELLING HOLDERS
The Convertible Preferred Securities were originally issued by the Trust and
sold by Morgan Stanley & Co. Incorporated (the "Initial Purchaser"), in a
transaction exempt from the registration requirements of the Securities Act,
to persons reasonably believed by such Initial Purchaser to be "qualified
institutional buyers" (as defined in Rule 144A under the Securities Act), to
certain qualified institutional buyers acting on behalf of institutional
"accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under
the Securities Act), or outside the United States to non-U.S. persons in
offshore transactions in reliance on Regulation S under the Securities Act.
The Selling Holders may from time to time offer and sell pursuant to this
Prospectus any or all of the Convertible Preferred Securities, any Convertible
Debentures and McKesson Common Stock issued upon conversion of the Preferred
Securities. The term Selling Holder includes the holders listed below and the
beneficial owners of the Convertible Preferred Securities and their
transferees, pledgees, donees or other successors.
The following table sets forth information with respect to the Selling
Holders of the Convertible Preferred Securities and the respective number of
Convertible Preferred Securities beneficially owned by each Selling Holder
that may be offered pursuant to this Prospectus.
<TABLE>
<CAPTION>
NUMBER OF
CONVERTIBLE
PREFERRED
SELLING HOLDER SECURITIES
-------------- -----------
<S> <C> <C>
1. FIDELITY HASTINGS STREET TRUST: FIDELITY FUND(1).......... 297,400
2. AIM CHARTER FUND.......................................... 230,000
3. PALISADE CAPITAL MANAGEMENT L.L.C......................... 211,000
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
CONVERTIBLE
PREFERRED
SELLING HOLDER SECURITIES
-------------- -----------
<S> <C> <C>
4. NEW YORK LIFE INSURANCE COMPANY....................... 210,000
5. EQUITY PORTFOLIO(2)................................... 200,000
6. THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY(3)..... 145,000
7. THE TCW GROUP, INC.................................... 125,600
8. FROLEY, REVY INVESTMENT CO. INC....................... 125,025
9. FIDELITY FINANCIAL TRUST: FIDELITY CONVERTIBLE
SECURITIES FUND(1)................................... 112,200
10. NORWEST BANK N.A...................................... 99,900
11. ALLSTATE INSURANCE COMPANY............................ 72,500
12. NICHOLAS-APPLEGATE CORE GROWTH FUND................... 68,100
13. ALLSTATE LIFE INSURANCE COMPANY....................... 65,000
14. PIMCO RENAISSANCE FUND................................ 65,000
15. NEW YORK LIFE INSURANCE & ANNUITY CORPORATION......... 60,000
16. OCM CONVERTIBLE TRUST................................. 56,000
17. SAN DIEGO COUNTY...................................... 47,550
18. SELIGMAN INCOME FUND, INC............................. 46,000
19. STATE OF CONNECTICUT COMBINED INVESTMENT FUNDS........ 42,600
20. GOLDMAN, SACHS & CO................................... 40,000
21. NICHOLAS-APPLEGATE INCOME & GROWTH FUND............... 36,100
22. DELTA AIR LINES MASTER TRUST.......................... 31,600
23. NICHOLAS-APPLEGATE GROWTH EQUITY FUND................. 31,200
24. PHOENIX DUFF & PHELPS................................. 27,500
25. MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY........... 26,140
26. BOND FUND SERIES--OPPENHEIMER BOND FUND FOR GROWTH.... 25,000
27. VANGUARD CONVERTIBLE SECURITIES FUND, INC............. 24,000
28. AIM BALANCED FUND..................................... 22,100
29. AIM VI GROWTH AND INCOME FUND......................... 22,000
30. GLOBAL SERIES FUND II--PRUDENTIAL INCONVERTIBLE
FUND I............................................... 20,000
31. KEMPER BLUE CHIP FUND INC............................. 20,000
32. PACIFIC MUTUAL LIFE INSURANCE CO...................... 20,000
33. NAC REINSURANCE CORPORATION........................... 17,500
34. FIDELITY MANAGEMENT TRUST COMPANY(4).................. 16,200
35. LUTHERAN BROTHERHOOD SERIES INCOME FUND, INC.......... 15,000
36. THE PAUL REVERE LIFE INSURANCE COMPANY................ 12,000
37. SAN DIEGO CITY RETIREMENT............................. 11,150
38. HUGHES AIRCRAFT COMPANY MASTER RETIREMENT TRUST....... 10,800
39. FIDUCIARY TRUST COMPANY INTERNATIONAL................. 10,000
40. STATE EMPLOYEES' RETIREMENT FUND OF THE STATE OF
DELAWARE............................................. 10,000
41. VARIABLE INSURANCE PRODUCTS FUND III: GROWTH & INCOME
PORTFOLIO(1)......................................... 9,400
42. MASSMUTUAL HIGH YIELD PARTNERS LLC.................... 9,150
43. WAKE FOREST UNIVERSITY................................ 8,900
44. THE PAUL REVERE VARIABLE ANNUITY INSURANCE GROUP...... 8,000
45. MASSMUTUAL CORPORATE VALUE PARTNERS LIMITED........... 7,840
46. MORGAN STANLEY & CO., INC............................. 5,900
47. ENGINEERS JOINT PENSION FUND.......................... 5,700
48. PHYSICIANS LIFE....................................... 5,000
49. MASSMUTUAL CORPORATE INVESTORS........................ 4,580
50. AUSTIN FIREFIGHTERS................................... 4,100
51. SELIGMAN PORTFOLIOS INC.--SELIGMAN INCOME PORTFOLIO... 4,000
52. BAPTIST HOSPITAL...................................... 3,600
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
CONVERTIBLE
PREFERRED
SELLING HOLDER SECURITIES
-------------- -----------
<S> <C> <C>
53. OCCIDENTAL COLLEGE.................................... 3,350
54. FIDELITY ADVISOR SERIES I: FIDELITY ADVISOR GROWTH &
INCOME FUND(1)....................................... 3,200
55. MASSMUTUAL PARTICIPATION INVESTORS.................... 2,290
56. BOSTON MUSEUM OF FINE ART............................. 1,550
57. DUNHAM & ASSOCIATES FUND II........................... 1,000
58. DUNHAM & ASSOCIATES SER III........................... 400
59. ANY OTHER HOLDER OF CONVERTIBLE PREFERRED SECURITIES
OR FUTURE TRANSFEREE FROM ANY SUCH HOLDER............ 1,184,875
---------
Total............................................... 4,000,000
=========
</TABLE>
- --------
(1) The entity is either an investment company or a portfolio of an investment
company registered under Section 8 of the Investment Company Act of 1940,
as amended, or a private investment account advised by Fidelity Management
& Research Company ("FMR Co."). FMR Co. is a Massachusetts corporation and
an investment advisor registered under Section 203 of the Investment
Advisers Act of 1940, as amended, and provides investment advisory
services to each of such Fidelity entities identified above, and to other
registered investment companies and to certain other funds which are
generally offered to a limited group of investors. FMR Co. is a wholly-
owned subsidiary of FMR Corp. ("FMR"), a Massachusetts corporation. The
holdings are as of June 10, 1997.
(2) Equity Portfolio is a portfolio in the Preferred Master Trust Group (the
"Trust Group") and is a series of an investment company registered under
the Investment Company Act of 1940, as amended. American Express Financial
Corporation ("AEFC"), an investment adviser registered under the
Investment Advisers Act of 1940, as amended, provides investment advisory
services to the Trust Group and to certain other registered investment
companies. AEFC is a wholly-owned subsidiary of American Express Company.
The information set forth in the table with respect to each portfolio in
the Fund and the information set forth in this footnote was provided by
AEFC.
(3) Includes 5000 shares held in The Northwestern Mutual Life Insurance
Company Group Annuity Separate Account.
(4) Shares indicated as owned by such entity are owned directly by various
private investment accounts, primarily employee benefit plans for which
Fidelity Management Trust Company ("FMTC") serves as trustee or managing
agent. FMTC is a wholly-owned subsidiary of FMR and a bank as defined in
Section 3(a)(6) of the Securities Exchange Act of 1934, as amended. The
holdings are as of June 10, 1997.
Because the Selling Holders may, pursuant to this Prospectus, offer all or
some portion of the Convertible Preferred Securities, the Convertible
Debentures or the McKesson Common Stock issuable upon conversion of the
Convertible Preferred Securities, no estimate can be given as to the amount of
the Convertible Preferred Securities, the Convertible Debentures or the
McKesson Common Stock issuable upon conversion of the Convertible Preferred
Securities that will be held by the Selling Holders upon termination of any
such sales. In addition, the Selling Holders identified above may have sold,
transferred or otherwise disposed of all or a portion of their Convertible
Preferred Securities since the date on which they provided the information
regarding their Convertible Preferred Securities, in transactions exempt from
the registration requirements of the Securities Act.
58
<PAGE>
PLAN OF DISTRIBUTION
The Selling Holders may offer the Offered Securities from time to time
following effectiveness of the Registration Statement of which this Prospectus
constitutes a part. The Selling Holders may sell the Offered Securities (i) to
or through underwriters, brokers or dealers; (ii) directly to one or more
other purchasers; (iii) through agents on a best-efforts basis or otherwise;
or (iv) through a combination of any such methods of sale. The Offered
Securities may be sold from time to time in one or more transactions at a
fixed price or prices, which may be changed, or at market prices prevailing at
the time of sale, at prices related to such prevailing market prices, or at
negotiated prices. The Selling Holders and any underwriters, broker-dealers or
agents that participate in the distribution of Offered Securities may be
deemed to be "underwriters" within the meaning of the Securities Act and any
profit on the sale of such securities and any discounts, commissions,
concessions or other compensation received by any such underwriter, broker-
dealer or agent may be deemed to be underwriting discounts and commissions
under the Securities Act. At the time a particular offering of the Offered
Securities is made, a Prospectus Supplement, if required, will be distributed
which will set forth the aggregate amount and type of Offered Securities being
offered and the terms of the offering, including the name or names of any
underwriters, broker-dealers or agents, any discounts, commissions and other
terms constituting compensation from the Selling Holders and any discounts,
commissions or concessions allowed or reallowed or paid to broker-dealers.
To comply with the securities laws of certain jurisdictions, if applicable,
the Offered Securities will be offered or sold in such jurisdictions only
through registered or licensed brokers or dealers. In addition, in certain
jurisdictions the Offered Securities may not be offered or sold unless they
have been registered or qualified for sale in such jurisdictions or any
exemption from registration or qualification is available and is complied
with.
In order to facilitate the offering of the Offered Securities, the
underwriters, if any, may engage in transactions that stabilize, maintain or
otherwise affect the price of the Offered Securities. Specifically, the
underwriters, if any, may overallot in connection with the offering, creating
a short position in the Offered Securities for their own account. In addition,
to cover overallotments or to stabilize the price of the Offered Securities,
the underwriters, if any, may bid for, and purchase, the Offered Securities in
the open market. Finally, the underwriting syndicate, if any, may reclaim
selling concessions allowed to an underwriter or a dealer for distributing the
Offered Securities in the offering, if the syndicate repurchases previously
distributed Offered Securities in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the Offered Securities above
independent market levels. The underwriters, if any, are not required to
engage in these activities, and may end any of these activities at any time.
Pursuant to the Registration Rights Agreement, all expenses of the
registration of the Offered Securities will be paid by the Company, including,
without limitation, Commission filing fees and expenses of compliance with
state securities or "blue sky" laws; provided, however, that the Selling
Holders will pay all underwriting discounts and selling commissions, if any.
The Selling Holders will be indemnified by the Company and the Trust, jointly
and severally, against certain civil liabilities, including certain
liabilities under the Securities Act, or will be entitled to contribution in
connection therewith. The Company and the Trust will be indemnified by the
Selling Holders severally against certain civil liabilities, including certain
liabilities under the Securities Act, or will be entitled to contribution in
connection therewith.
59
<PAGE>
EXPERTS
The consolidated financial statements of McKesson and the related financial
statement schedule incorporated in this Prospectus by reference from the
Company's Annual Report on Form 10-K/A for the year ended March 31, 1996 and
the consolidated financial statements of FoxMeyer Corporation for the year
ended March 31, 1996 incorporated in this Prospectus by reference from the
Company's Current Report on Form 8-K/A filed with the Commission on April 28,
1997 have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports incorporated herein by reference (which report dated
May 13, 1996 (December 31, 1996 as to Notes 8 and 17) on the Company's
consolidated financial statements expresses an unqualified opinion and
includes an explanatory paragraph relating to a change in the Company's method
of accounting for post employment benefits to conform with Statement of
Financial Accounting Standards No. 112 and report on FoxMeyer Corporation's
consolidated financial statements dated June 28, 1996 (March 18, 1997 as to
paragraph seven of Note Q), which report expresses an unqualified opinion and
includes an explanatory paragraph relating to the sale of the principal assets
of FoxMeyer Corporation and its Chapter 7 bankruptcy filing). Such
consolidated financial statements and financial statement schedule have been
so incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters with respect to the Convertible Preferred Securities,
the Convertible Debentures and the Guarantee being offered hereby and the
Common Stock issuable upon conversion of the Convertible Debentures and
certain United States federal income taxation matters have been passed upon
for McKesson and the Trust by Skadden, Arps, Slate, Meagher & Flom LLP.
60
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION
WITH THE OFFERING MADE BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
MCKESSON FINANCING TRUST, MCKESSON CORPORATION, THE SELLING HOLDERS OR ANY OF
THEIR AGENTS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN
THE AFFAIRS OF MCKESSON FINANCING TRUST OR MCKESSON CORPORATION SINCE THE DATE
HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information...................................................... 4
Incorporation of Certain Documents by Reference............................ 5
Special Note Regarding Forward-Looking Statements 5
Risk Factors............................................................... 6
The Company................................................................ 10
Use of Proceeds............................................................ 13
Accounting Treatment....................................................... 13
Ratio of Earnings to Fixed Charges......................................... 13
McKesson Financing Trust................................................... 14
Description of the Convertible Preferred Securities........................ 15
Description of the Guarantee............................................... 33
Description of the Convertible Debentures.................................. 36
Effect of Obligations Under the Convertible Debentures and the Guarantee... 46
Description of Capital Stock............................................... 47
United States Federal Income Taxation...................................... 51
ERISA Considerations....................................................... 55
Selling Holders............................................................ 56
Plan of Distribution....................................................... 59
Experts.................................................................... 60
Legal Matters.............................................................. 60
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
4,000,000 CONVERTIBLE
PREFERRED SECURITIES
MCKESSON
FINANCING TRUST
5% TRUST CONVERTIBLE
PREFERRED SECURITIES
GUARANTEED TO THE EXTENT
SET FORTH HEREIN BY,
MCKESSON
CORPORATION
----------------
PROSPECTUS
----------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following expenses (other than the SEC filing fee) are estimated.
<TABLE>
<S> <C>
SEC registration fee......................................... $ 68,181.82
Printing and engraving expenses.............................. 55,000.00
Legal fees and expenses...................................... 30,000.00
Accounting fees and expenses................................. 10,000.00
Transfer agent and trustee fees.............................. 12,500.00
Information agent fees and expenses.......................... 5,000.00
Miscellaneous................................................ 9,318.18
-----------
Total..................................................... $190,000.00
===========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTOR AND OFFICERS.
Article VIII of the By-Laws of the Company, in accordance with the
provisions of Section 145 of the General Corporation Law of Delaware (the
"Delaware Corporation Law"), provides that the Company shall indemnify any
person in connection with any threatened, pending or completed legal
proceeding (other than a legal proceeding by or in the right of the
Company) by reason of the fact that he is or was a director or officer of
the Company or is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership or
other enterprise against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred in
connection with such legal proceeding if he acted in good faith and in a
manner that he reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, if he had no reasonable cause to believe that his conduct was
unlawful. If the legal proceeding is by or in the right of the Company, the
director or officer may be indemnified by the Company against expenses
(including attorneys' fees) actually and reasonably incurred in connection
with the defense or settlement of such legal proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Company, except that he may not be indemnified in
respect of any claim, issue or matter as to which he shall have been
adjudged to be liable to the Company unless a court determines otherwise.
Article VIII of the Company's By-Laws allows the Company to maintain
director and officer liability insurance on behalf of any person who is or
was a director or officer of the Company or such person who serves or
served as director, officer, employee or agent of another corporation,
partnership or other enterprise at the request of the Company.
Article VI of the Company's Certificate, in accordance with Section
102(b)(7) of the Delaware Corporation Law, provides that no director of the
Company shall be personally liable to the Company or its stockholders for
monetary damages for any breach of his fiduciary duty as a director;
provided, however, that such clause shall not apply to any liability of a
director (1) for any breach of his duty of loyalty to the Company or its
stockholders, (2) for acts or omissions that are not in good faith or
involve intentional misconduct or a knowing violation of the law, (3) under
Section 174 of the Delaware Corporation Law, or (4) for any transaction
from which the director derived an improper personal benefit.
The Declaration of the Trust limits the liability to the Trust and
certain other persons, and provides for the indemnification by the Company
of Trustees, their officers, directors and employees and certain other
persons.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
A. EXHIBITS
The Exhibits listed in the following Exhibit Index are filed as part of the
Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.1 Certificate of Trust of McKesson Financing Trust.*
4.2 Amended and Restated Declaration of Trust of McKesson Financing Trust,
dated as of February 20, 1997, among McKesson Corporation, as Sponsor,
The First National Bank of Chicago, as Institutional Trustee, First
Chicago Delaware Inc., as Delaware Trustee and William A. Armstrong,
Ivan D. Meyerson and Nancy A. Miller, as Regular Trustees.
4.3 Indenture for the 5% Convertible Junior Subordinated Debentures, dated
as of February 20, 1997, among McKesson Corporation and The First
National Bank of Chicago, as Debt Trustee.*
4.4 Form of 5% Trust Convertible Preferred Securities (included in Exhibit
A-1 to Exhibit 4.2 above).
4.5 Form of 5% Convertible Junior Subordinated Debentures (included in
Exhibit A to Exhibit 4.3 above).*
4.7 McKesson Corporation Preferred Securities Guarantee Agreement, dated
as of February 20, 1997, between McKesson Corporation, as Guarantor,
and The First National Bank of Chicago, as Preferred Guarantor
Trustee.*
4.8 Restated Certificate of Incorporation of the Company (Exhibit 3.1(1)).
4.9 Restated By-Laws of the Company, as amended through April 1, 1997
(Exhibit 4.2(2)).
4.10 Rights Agreement, dated as of September 14, 1994, by and between the
Company and First Chicago Trust Company of New York, as Rights Agent
(Exhibit 4.1(3)).
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to the legality
of the Convertible Preferred Securities, Convertible Junior
Subordinated Debentures, Guarantee and Common Stock of McKeeson
Corporation being registered hereby.
8.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to certain tax
matters.*
10.1 Registration Rights Agreement, dated February 20, 1997, among McKesson
Corporation, McKesson Financing Trust and Morgan Stanley & Co.
Incorporated, as Initial Purchaser.*
12.1 Ratio of Earnings to Fixed Charges of McKesson Corporation.*
23.1 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in
Exhibits 5.1 and 8.1).*
23.2 Independent Auditors' Consent.
24 Power of Attorney.*
25.1 Form T-1 Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of The First National Bank of Chicago, as Debt
Trustee under the 5% Convertible Junior Subordinated Debenture
Indenture.
25.2 Form T-1 Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of The First National Bank of Chicago, as
Institutional Trustee under the Amended and Restated Declaration of
Trust.
25.3 Form T-1 Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of The First National Bank of Chicago, as Preferred
Guarantee Trustee under the Guarantee.
</TABLE>
- --------
<TABLE>
<C> <S>
* Previously filed.
(1) Incorporated by reference to designated exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1996, as amended
by Amendment No. 1 on Form 10-K/A, filed on February 13, 1997.
(2) Incorporated by reference to designated exhibit to the Company's
Registration Statement on Form S-3 filed with the Commission on April 29,
1997, Registration No. 333-26103.
(3) Incorporated by reference to designated exhibit to Amendment No. 3 to the
Company's Registration Statement on Form 10 filed with the Commission on
October 27, 1994, File No. 1-13252.
</TABLE>
II-2
<PAGE>
B. FINANCIAL STATEMENTS AND SCHEDULES
All schedules for which provision is made in Regulation S-X of the
Securities and Exchange Commission either are not required under the related
instructions or the information required to be included therein has been
included in the financial statements of the Company.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes as follows:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the lower high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
provided, however, that paragraphs (a)(l)(i) and (a)(l)(ii) do not apply if
the registration statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities which remain unsold at the termination of the
offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
(d) The undersigned registrant hereby undertakes to file an application for
the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act in accordance with
the rules and regulations prescribed by the Commission under Section 305(b)(2)
of the Trust Indenture Act.
(e) The Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrants pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective; and
(2) For purposes of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of Prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF SAN FRANCISCO, STATE OF CALIFORNIA, ON JUNE 18,
1997.
McKESSON CORPORATION
/s/ Richard H. Hawkins
By: _________________________________
Name: Richard H. Hawkins
Title: Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Act of 1933, the registration
statement has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on June 18, 1997.
SIGNATURE TITLE
* Chairman of the Board
- -------------------------------------
ALAN SEELENFREUND
/s/ Mark A. Pulido President and Chief Executive
- ------------------------------------- Officer and Director
MARK A. PULIDO (principal executive officer)
/s/ Richard H. Hawkins Vice President and Chief
- ------------------------------------- Financial Officer
RICHARD H. HAWKINS (principal financial officer)
/s/ Heidi E. Yodowitz Controller
- ------------------------------------- (principal accounting officer)
HEIDI E. YODOWITZ
* Director
- -------------------------------------
MARY G.F. BITTERMAN
* Director
- -------------------------------------
TULLY M. FRIEDMAN
* Director
- -------------------------------------
JOHN M. PIETRUSKI
* Director
- -------------------------------------
CARL E. REICHARDT
* Director
- -------------------------------------
JANE E. SHAW
* Director
- -------------------------------------
ROBERT H. WATERMAN, JR.
Director
- -------------------------------------
DAVID S. POTTRUCK
/s/ Nancy A. Miller
*By: ________________________________
NANCY A. MILLER
ATTORNEY-IN-FACT
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, MCKESSON
FINANCING TRUST CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT
MEETS ALL THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF SAN FRANCISCO, STATE OF CALIFORNIA,
ON JUNE 18, 1997.
McKESSON FINANCING TRUST
By /s/ Ivan D. Meyerson
-----------------------------------
Ivan D. Meyerson
Trustee
By /s/ Nancy A. Miller
----------------------------------
Nancy A. Miller
Trustee
By /s/ William A. Armstrong
----------------------------------
William A. Armstrong
Trustee
II-6
<PAGE>
EXHIBIT 4.2
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
McKESSON FINANCING TRUST
February 20, 1997
AMENDED AND RESTATED DECLARATION OF TRUST ("Declaration") dated and
effective as of February 20, 1997, by the Trustees (as defined herein), the
Sponsor (as defined herein) and by the holders, from time to time, of undivided
beneficial interests in the Trust to be issued pursuant to this Declaration;
WHEREAS, the Trustees and the Sponsor established McKesson Financing Trust
(the "Trust"), a trust under the Delaware Business Trust Act pursuant to a
Declaration of Trust dated as of February 5, 1997 (the "Original Declaration"),
and a Certificate of Trust filed with the Secretary of State of the State of
Delaware on February 5, 1997, for the sole purpose of issuing and selling
certain securities representing undivided beneficial interests in the assets of
the Trust and investing the proceeds thereof in certain Debentures (as defined
herein) of the Debenture Issuer (as defined herein);
WHEREAS, as of the date hereof, no interests in the Trust have been issued;
and
WHEREAS, all of the Trustees and the Sponsor, by this Declaration, amend
and restate each and every term and provision of the Original Declaration;
NOW, THEREFORE, it being the intention of the parties hereto to continue
the Trust as a business trust under the Business Trust Act and that this
Declaration constitutes the governing instrument of such business trust, the
Trustees declare that all assets contributed to the Trust will be held in trust
for the benefit of the holders, from time to time, of the securities
representing undivided beneficial interests in the assets of the Trust issued
hereunder, subject to the provisions of this Declaration.
ARTICLE I
INTERPRETATION AND DEFINITIONS
SECTION 1.1. Definitions.
Unless the context otherwise requires:
(a) Capitalized terms used in this Declaration but not defined in the
preamble above have the respective meanings assigned to them in this Section
1.1;
(b) a term defined anywhere in this Declaration has the same meaning
throughout;
1
<PAGE>
(c) all references to "the Declaration" or "this Declaration" are to this
Declaration as modified, supplemented or amended from time to time;
(d) all references in this Declaration to Articles and Sections and Annexes
and Exhibits are to Articles and Sections of and Annexes and Exhibits of or to
this Declaration unless otherwise specified;
(e) a term defined in the Trust Indenture Act has the same meaning when
used in this Declaration unless otherwise defined in this Declaration or unless
the context otherwise requires; and
(f) a reference to the singular includes the plural and vice versa.
"144A Global Certificate" has the meaning assigned such term in Section
9.4(b).
"Affiliate" has the same meaning as given to that term in Rule 405 of the
Securities Act or any successor rule thereunder.
"Agent" means any Paying Agent or Conversion Agent.
"Authorized Officer" of a Person means any Person that is authorized to
bind such Person.
"Book Entry Interest" means a beneficial interest in a Global Certificate,
ownership and transfers of which shall be maintained and made through book
entries by a Clearing Agency as described in Section 9.4.
"Business Day" means any day other than a Saturday, Sunday or any other day
on which banking institutions in New York, New York or Wilmington, Delaware are
permitted or required by any applicable law to close.
"Business Trust Act" means Chapter 38 of Title 12 of the Delaware Code, 12
Del. Code (S)3801 et seq., as it may be amended from time to time, or any
successor legislation.
"Certificate" means a Common Security Certificate or a Convertible
Preferred Security Certificate.
"Clearing Agency" means an organization registered as a "Clearing Agency"
pursuant to Section 17A of the Exchange Act that is acting as depositary for the
Convertible Preferred Securities and in whose name or in the name of a nominee
of that organization shall be registered a Global Certificate and which shall
undertake to effect book entry transfers and pledges of the Convertible
Preferred Securities.
"Clearing Agency Participant" means a broker, dealer, bank, other financial
institution or other Person for whom from time to time the Clearing Agency
effects book entry transfers and pledges of securities deposited with the
Clearing Agency.
2
<PAGE>
"Closing Date" means February 20, 1997.
"Closing Price" has the meaning specified in Annex I.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor legislation.
"Commission" means the Securities and Exchange Commission.
"Common Securities Guarantee" means the guarantee agreement to be dated as
of February 20, 1997 of the Sponsor in respect of the Common Securities.
"Common Securities Registration Rights Agreement" means the Registration
Rights Agreement dated February 20, 1997, between McKesson Corporation and the
Trust, relating to the Common Securities.
"Common Security" has the meaning specified in Section 7.1.
"Common Security Certificate" means a definitive certificate in fully
registered form representing a Common Security substantially in the form of
Exhibit A-2.
"Common Stock" means the common stock of McKesson Corporation, a Delaware
corporation, par value $.01 per share, and any other shares of common stock as
may constitute "Common Stock" under the Indenture.
"Company Indemnified Person" means (a) any Regular Trustee; (b) any
Affiliate of any Regular Trustee; (c) any officers, directors, shareholders,
members, partners, employees, representatives or agents of any Regular Trustee;
or (d) any officer, employee or agent of the Trust or its Affiliates.
"Conversion Agent" has the meaning specified in Section 7.4.
"Convertible Preferred Securities Guarantee" means the guarantee agreement
to be dated as of February 20, 1997, of the Sponsor in respect of the
Convertible Preferred Securities.
"Convertible Preferred Security" has the meaning specified in Section 7.1.
"Convertible Preferred Security Beneficial Owner" means, with respect to a
Book Entry Interest, a Person who is the beneficial owner of such Book Entry
Interest, as reflected on the books of the Clearing Agency, or on the books of a
Person maintaining an account with such Clearing Agency (directly as a Clearing
Agency Participant or as an indirect participant, in each case in accordance
with the rules of such Clearing Agency).
"Convertible Preferred Security Certificate" means a certificate
representing a Preferred Security substantially in the form of Exhibit A-1.
3
<PAGE>
"Corporate Trust Office" means the office of the Institutional Trustee at
which the corporate trust business of the Institutional Trustee shall, at any
particular time, be principally administered, which office at the date of
execution of this Agreement is located at One First National Plaza, Suite 0126,
Chicago, Illinois 60670-0126, Attention: Corporate Trust Services Division.
"Covered Person" means: (a) any officer, director, shareholder, partner,
member, representative, employee or agent of (i) the Trust or (ii) the Trust's
Affiliates; and (b) any Holder of Securities.
"Debenture Issuer" means McKesson Corporation, a Delaware corporation, in
its capacity as issuer of the Debentures under the Indenture.
"Debenture Trustee" means The First National Bank of Chicago, as trustee
under the Indenture until a successor is appointed thereunder, and thereafter
means such successor trustee.
"Debentures" means the series of Debentures to be issued by the Debenture
Issuer under the Indenture to be held by the Institutional Trustee, a specimen
certificate for such series of Debentures being Exhibit B.
"Delaware Trustee" has the meaning set forth in Section 5.1.
"Definitive Convertible Preferred Security Certificates" has the meaning
set forth in Section 9.4.
"Distribution" means a distribution payable to Holders of Securities in
accordance with Section 6.1.
"DTC" means The Depository Trust Company, the initial Clearing Agency.
"Event of Default" in respect of the Securities means an Event of Default
(as defined in the Indenture) has occurred and is continuing in respect of the
Debentures.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time, or any successor legislation.
"Fiduciary Indemnified Person" has the meaning set forth in Section
10.4(b).
"Global Certificate" has the meaning set forth in Section 9.4(b).
"Holder" means a Person in whose name a Certificate representing a Security
is registered, such Person being a beneficial owner within the meaning of the
Business Trust Act.
"Indemnified Person" means each Company Indemnified Person and each
Fiduciary Indemnified Person.
4
<PAGE>
"Indenture" means the Indenture dated as of February 20, 1997 between the
Debenture Issuer and the Debenture Trustee.
"Institutional Trustee" means the Trustee meeting the eligibility
requirements set forth in Section 5.3.
"Institutional Trustee Account" has the meaning set forth in Section
3.8(c).
"Investment Company" means an investment company as defined in the
Investment Company Act.
"Investment Company Act" means the Investment Company Act of 1940, as
amended from time to time, or any successor legislation.
"Investment Company Event" has the meaning set forth in Annex I hereto.
"Legal Action" has the meaning set forth in Section 3.6(g).
"Liquidated Distribution" has the meaning specified in the terms of the
Securities as set forth in Annex I.
"Majority in liquidation amount of the Securities" means, except as
provided in the terms of the Convertible Preferred Securities or by the Trust
Indenture Act, Holder(s) of outstanding Securities voting together as a single
class or, as the context may require, Holders of outstanding Convertible
Preferred Securities or Holders of outstanding Common Securities voting
separately as a class, who are the record owners of more than 50% of the
aggregate liquidation amount (including the stated amount that would be paid on
redemption, liquidation or otherwise, plus accrued and unpaid Distributions to
the date upon which the voting percentages are determined) of all outstanding
Securities of the relevant class.
"Ministerial Action" has the meaning set forth in the terms of the
Securities as set forth in Annex I.
"Non-U.S. Person" means a Person other than a U.S. person (as such term is
defined in Regulation S).
"Offered Securities" means the Convertible Preferred Securities, the
Convertible Preferred Securities Guarantee, the Debentures, the shares of Common
Stock issuable upon conversion of the Debentures and the Rights attached
thereto.
"Officers' Certificate" means, with respect to any Person, a certificate
signed by two Authorized Officers of such Person. Any Officers' Certificate
delivered with respect to compliance with a condition or covenant provided for
in this Declaration shall include:
(a) a statement that each officer signing the Certificate has read the
covenant or condition and the definitions relating thereto;
5
<PAGE>
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Certificate;
(c) a statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such officer
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(d) a statement as to whether, in the opinion of each such officer, such
condition or covenant has been complied with.
"Option Closing Date" means the date of closing of any sale of Additional
Securities (as defined in the Placement Agreement).
"Paying Agent" has the meaning specified in Section 3.8(h).
"Payment Amount" has the meaning set forth in Section 6.1.
"Person" means any individual, corporation, estate, partnership, joint
venture, association, joint stock company, limited liability company, trust,
unincorporated association, or government or any agency or political subdivision
thereof, or any other entity of whatever nature.
"Placement Agreement" means the Placement Agreement for the offering and
sale of Convertible Preferred Securities in the form of Exhibit C.
"PORTAL Market" means the Private Offerings, Resales and Trading through
Automated Linkages Market operated by the National Association of Securities
Dealers, Inc. or any successor thereto.
"Preferred Securities Registration Rights Agreement" means the Registration
Rights Agreement dated February 20, 1997, among McKesson Corporation, the Trust
and Morgan Stanley & Co. Incorporated, as Initial Purchaser, relating to the
Convertible Preferred Securities.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"Quorum" means a majority of the Regular Trustees or, if there are only two
Regular Trustees, both of them.
"Registration Rights Agreements" means the Preferred Securities
Registration Rights Agreement and the Common Securities Registration Rights
Agreement.
"Regular Trustee" has the meaning set forth in Section 5.1.
"Regulation S" means Regulation S under the Securities Act or any successor
provision.
"Regulation S Global Certificate" has the meaning assigned such term in
Section 9.4(b).
6
<PAGE>
"Related Party" means, with respect to the Sponsor, any direct or indirect
wholly owned subsidiary of the Sponsor or any other Person that owns, directly
or indirectly, 100% of the outstanding voting securities of the Sponsor.
"Responsible Officer" means, with respect to the Institutional Trustee, any
officer within the Corporate Trust Office of the Institutional Trustee,
including any vice president, any assistant vice president, any assistant
secretary, the treasurer, any assistant treasurer or other officer of the
Corporate Trust Office of the Institutional Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also means, with respect to a particular corporate trust matter, any other
officer to whom such matter is referred because of that officer's knowledge of
and familiarity with the particular subject.
"Restricted Security" has the meaning specified in Section 9.1(d).
"Rights" has the meaning specified in the Rights Agreement, dated September
14, 1994, between the Sponsor and The First Chicago Trust Company of New York.
"Rule 144A" means Rule 144A as promulgated under the Securities Act, or any
successor rule.
"Rule 144(k)" means Rule 144(k) as promulgated under the Securities Act, or
any successor rule.
"Rule 3a-5" means Rule 3a-5 under the Investment Company Act or any
successor rule.
"Securities" means the Common Securities and the Convertible Preferred
Securities.
"Securities Act" means the Securities Act of 1933, as amended from time to
time, or any successor legislation.
"Securities Guarantees" means the Common Securities Guarantee and the
Convertible Preferred Securities Guarantee.
"Special Event" has the meaning set forth in Annex I hereto.
"Sponsor" or "McKesson" means McKesson Corporation, a Delaware corporation,
or any successor entity in a merger, consolidation or amalgamation, in its
capacity as sponsor of the Trust.
"Super Majority" has the meaning set forth in Section 2.6(a)(ii).
"Tax Event" has the meaning set forth in Annex I hereto.
"Transfer Restriction Termination Date" means the earlier of the first date
on which (i) the Securities and any Common Stock issued or issuable upon the
conversion or exchange thereof (other than (A) Securities acquired by the Trust
or any Affiliate thereof and (B) Common
7
<PAGE>
Stock issued upon the conversion or exchange of any Security described in clause
(A) above) may be sold pursuant to Rule 144(k) and (ii) all the Securities have
been sold pursuant to an effective registration statement.
"Treasury Regulations" means the income tax regulations, including
temporary and proposed regulations, promulgated under the Code by the United
States Treasury.
"Trustee" or "Trustees" means each Person who has signed this Declaration
as a trustee, so long as such Person shall continue in office in accordance with
the terms hereof, and all other Persons who may from time to time be duly
appointed, qualified and serving as Trustees in accordance with the provisions
hereof, and references herein to a Trustee or the Trustees shall refer to such
Person or Persons solely in their capacity as trustees hereunder.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended
from time to time, or any successor legislation.
"Trust Property" means (i) the Debentures, (ii) any cash on deposit in, or
owing to, the Institutional Trustee Account and (iii) all proceeds and rights in
respect of the foregoing to be held by the Institutional Trustee pursuant to the
terms of this Declaration for the benefit of the Securityholders.
"25% in liquidation amount of the Securities" means, except as provided in
the terms of the Convertible Preferred Securities or by the Trust Indenture Act,
Holder(s) of outstanding Securities voting together as a single class or, as the
context may require, Holders of outstanding Convertible Preferred Securities or
Holders of outstanding Common Securities voting separately as a class, who are
the record owners of 25% or more of the aggregate liquidation amount (including
the stated amount that would be paid on redemption, liquidation or otherwise,
plus accrued and unpaid Distributions to the date upon which the voting
percentages are determined) of all outstanding Securities of the relevant class.
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1. Trust Indenture Act: Application.
(a) This Declaration is subject to the provisions of the Trust Indenture
Act that are required to be part of this Declaration and shall, to the extent
applicable, be governed by such provisions. The Trust Indenture Act shall be
applicable to this Declaration except as otherwise set forth herein, as if the
Securities had been sold pursuant to an effective registration statement.
(b) The Institutional Trustee shall be the only Trustee which is a Trustee
for the purposes of the Trust Indenture Act.
8
<PAGE>
(c) If, and to the extent that, any provision of this Declaration limits,
qualifies or conflicts with the duties imposed by (S)(S) 310 to 317, inclusive,
of the Trust Indenture Act, such duties imposed under the Trust Indenture Act
shall control.
(d) The application of the Trust Indenture Act to this Declaration shall
not affect the nature of the Securities as equity securities representing
undivided beneficial interests in the assets of the Trust.
SECTION 2.2. Lists of Holders of Securities.
(a) Each of the Sponsor and the Regular Trustees on behalf of the Trust
shall provide the Institutional Trustee (i) within 14 days after each record
date for payment of Distributions, a list in such form as the Institutional
Trustee may reasonably require of the names and addresses of the Holders of the
Securities ("List of Holders") as of such record date, provided that, neither
the Sponsor nor the Regular Trustees on behalf of the Trust shall be obligated
to provide such List of Holders at any time the List of Holders does not differ
from the most recent List of Holders given to the Institutional Trustee by the
Sponsor and the Regular Trustees on behalf of the Trust, and (ii) at any other
time, within 30 days of receipt by the Trust of a written request for a List of
Holders as of a date no more than 14 days before such List of Holders is given
to the Institutional Trustee. The Institutional Trustee shall preserve, in as
current a form as is reasonably practicable, all information contained in the
Lists of Holders given to it or which it receives in the capacity as Paying
Agent (if acting in such capacity), provided that, the Institutional Trustee may
destroy any List of Holders previously given to it on receipt of a new List of
Holders.
(b) The Institutional Trustee shall comply with its obligations under
(S)(S) 311(a), 311(b) and 312(b) of the Trust Indenture Act.
SECTION 2.3. Reports by the Institutional Trustee.
Within 60 days after May 15 of each year, the Institutional Trustee shall
provide to the Holders of the Convertible Preferred Securities such reports as
are required by (S) 313 of the Trust Indenture Act, if any, in the form and in
the manner provided by (S) 313 of the Trust Indenture Act. The Institutional
Trustee shall also comply with the requirements of (S) 313(d) of the Trust
Indenture Act.
SECTION 2.4. Periodic Reports to Institutional Trustee.
Each of the Sponsor and the Regular Trustees on behalf of the Trust shall
provide to the Institutional Trustee such documents, reports and information as
required by (S) 314 (if any) and the compliance certificate required by (S) 314
of the Trust Indenture Act in the form, in the manner and at the times required
by (S) 314 of the Trust Indenture Act.
Delivery of such reports, information and documents to the Institutional
Trustee is for informational purposes only and the Institutional Trustee's
receipt of such shall not constitute constructive notice of any information
contained therein or determinable from information
9
<PAGE>
contained therein, including the Sponsor's compliance with any of its covenants
hereunder (as to which the Institutional Trustee is entitled to rely exclusively
on Officers' Certificates).
SECTION 2.5. Evidence of Compliance with Conditions Precedent.
Each of the Sponsor and the Regular Trustees on behalf of the Trust shall
provide to the Institutional Trustee such evidence of compliance with any
conditions precedent, if any, provided for in this Declaration that relate to
any of the matters set forth in (S) 314(c) of the Trust Indenture Act. Any
certificate or opinion required to be given by an officer pursuant to (S)
314(c)(1) may be given in the form of an Officers' Certificate.
SECTION 2.6. Events of Default; Waiver.
(a) The Holders of a Majority in liquidation amount of Convertible
Preferred Securities may by vote on behalf of the Holders of all of the
Convertible Preferred Securities, waive any past Event of Default in respect of
the Convertible Preferred Securities and its consequences, provided that, if the
underlying Event of Default under the Indenture:
(i) is not waivable under the Indenture, the Event of Default under the
Declaration shall also not be waivable; or
(ii) requires the consent or vote of greater than a majority in
principal amount of the holders of the Debentures (a "Super Majority") to
be waived under the Indenture, the Event of Default under the Declaration
may only be waived by the vote of the Holders of at least the proportion in
liquidation amount of the Convertible Preferred Securities that the
relevant Super Majority represents of the aggregate principal amount of the
Debentures outstanding.
The foregoing provisions of this Section 2.6(a) shall be in lieu of (S)
316(a)(1)(B) of the Trust Indenture Act and such (S) 316(a)(1)(B) of the Trust
Indenture Act is hereby expressly excluded from this Declaration and the
Securities, as permitted by the Trust Indenture Act. Upon such waiver, any such
default shall cease to exist, and any Event of Default with respect to the
Convertible Preferred Securities arising therefrom shall be deemed to have been
cured, for every purpose of this Declaration, but no such waiver shall extend to
any subsequent or other default or an Event of Default with respect to the
Convertible Preferred Securities or impair any right consequent thereon. Any
waiver by the Holders of the Convertible Preferred Securities of an Event of
Default with respect to the Convertible Preferred Securities shall also be
deemed to constitute a waiver by the Holders of the Common Securities of any
such Event of Default with respect to the Common Securities for all purposes of
this Declaration without any further act, vote, or consent of the Holders of the
Common Securities.
(b) The Holders of a Majority in liquidation amount of the Common
Securities may, by vote, on behalf of the Holders of all of the Common
Securities, waive any past Event of Default with respect to the Common
Securities and its consequences, provided that, if the underlying Event of
Default under the Indenture:
10
<PAGE>
(i) is not waivable under the Indenture, except where the Holders of
the Common Securities are deemed to have waived such Event of Default under
the Declaration as provided below in this Section 2.6(b), the Event of
Default under the Declaration shall also not be waivable; or
(ii) requires the consent or vote of a Super Majority to be waived,
except where the Holders of the Common Securities are deemed to have waived
such Event of Default under the Declaration as provided below in this
Section 2.6(b), the Event of Default under the Declaration may only be
waived by the vote of the Holders of at least the proportion in liquidation
amount of the Common Securities that the relevant Super Majority represents
of the aggregate principal amount of the Debentures outstanding;
provided further, that each Holder of Common Securities will be deemed to have
waived any such Event of Default and all Events of Default with respect to the
Common Securities and its consequences until all Events of Default with respect
to the Convertible Preferred Securities have been cured, waived or otherwise
eliminated, and until such Events of Default have been so cured, waived or
otherwise eliminated, the Institutional Trustee shall act solely on behalf of
the Holders of the Convertible Preferred Securities and only the Holders of the
Convertible Preferred Securities will have the right to direct the Institutional
Trustee to act in accordance with the terms of the Securities. The foregoing
provisions of this Section 2.6(b) shall be in lieu of (S)(S) 316(a)(1)(A) and
316(a)(1)(B) of the Trust Indenture Act and such (S)(S) 316(a)(1)(A) and
316(a)(1)(B) of the Trust Indenture Act are hereby expressly excluded from this
Declaration and the Securities, as permitted by the Trust Indenture Act.
Subject to the foregoing provisions of this Section 2.6(b), upon such waiver,
any such default shall cease to exist and any Event of Default with respect to
the Common Securities arising therefrom shall be deemed to have been cured for
every purpose of this Declaration, but no such waiver shall extend to any
subsequent or other default or Event of Default with respect to the Common
Securities or impair any right consequent thereon.
(c) A waiver of an Event of Default under the Indenture by the
Institutional Trustee at the direction of the Holders of the Convertible
Preferred Securities, constitutes a waiver of the corresponding Event of Default
under this Declaration. The foregoing provisions of this Section 2.6(c) shall
be in lieu of (S) 316(a)(1)(B) of the Trust Indenture Act and such (S)
316(a)(1)(B) of the Trust Indenture Act is hereby expressly excluded from this
Declaration and the Securities, as permitted by the Trust Indenture Act.
SECTION 2.7. Event of Default; Notice.
(a) The Institutional Trustee shall, within 90 days after the occurrence of
an Event of Default actually known to a Responsible Officer of the Institutional
Trustee, transmit by mail, first class postage prepaid, to the Holders of the
Securities, notices of all such defaults with respect to the Securities unless
such defaults have been cured before the giving of such notice (the term
"defaults" for the purposes of this Section 2.7(a) being hereby defined to be an
Event of Default as defined in the Indenture, not including any periods of grace
provided for therein and irrespective of the giving of any notice provided
therein); provided that, except for a default in the payment of principal of (or
premium, if any) or interest on any of the Debentures or in the
11
<PAGE>
payment of any sinking fund installment established for the Debentures, the
Institutional Trustee shall be protected in withholding such notice if and so
long as a Responsible Officer of the Institutional Trustee in good faith
determines that the withholding of such notice is in the interests of the
Holders of the Securities. Any such notice given pursuant to this Section
2.7(a) shall state that an Event of Default under the Indenture also constitutes
an Event of Default under this Declaration.
(b) The Institutional Trustee shall not be deemed to have knowledge of any
default except:
(i) a default under Sections 5.1(a) and 5.1(b) of the Indenture; or
(ii) any default as to which the Institutional Trustee shall have
received written notice or of which a Responsible Officer of the
Institutional Trustee charged with the administration of the Declaration
shall have actual knowledge.
ARTICLE III
ORGANIZATION
SECTION 3.1. Name.
The Trust is named "McKesson Financing Trust" as such name may be modified
from time to time by the Regular Trustees following written notice to the
Holders of Securities. The Trust's activities may be conducted under the name
of the Trust or any other name deemed advisable by the Regular Trustees.
SECTION 3.2. Office.
The address of the principal office of the Trust is c/o McKesson
Corporation, McKesson Plaza, One Post Street, San Francisco, CA, 94104. On at
least ten Business Days written notice to the Holders of Securities, the Regular
Trustees may designate another principal office.
SECTION 3.3. Purpose.
The exclusive purposes and functions of the Trust are (a) to issue and sell
Securities and use the proceeds from such sale to acquire the Debentures, and
(b) except as otherwise limited herein, to engage in only those other activities
necessary, or incidental thereto. The Trust shall not borrow money, issue debt
or reinvest proceeds derived from investments, pledge any of its assets, or
otherwise undertake (or permit to be undertaken) any activity that would cause
the Trust not to be classified for United States federal income tax purposes as
a grantor trust.
12
<PAGE>
SECTION 3.4. Authority.
(a) Subject to the limitations provided in this Declaration and to the
specific duties of the Institutional Trustee, the Regular Trustees shall have
exclusive and complete authority to carry out the purposes of the Trust. An
action taken by the Regular Trustees in accordance with their powers shall
constitute the act of and serve to bind the Trust and an action taken by the
Institutional Trustee on behalf of the Trust in accordance with its powers shall
constitute the act of and serve to bind the Trust. In dealing with the Trustees
acting on behalf of the Trust, no person shall be required to inquire into the
authority of the Trustees to bind the Trust. Persons dealing with the Trust are
entitled to rely conclusively on the power and authority of the Trustees as set
forth in this Declaration.
(b) Except as expressly set forth in this Declaration and except if a
meeting of the Regular Trustees is called with respect to any matter over which
the Regular Trustees have power to act, any power of the Regular Trustees may be
exercised by, or with the consent of, any one such Regular Trustee.
(c) Unless otherwise determined by the Regular Trustees, and except as
otherwise required by the Business Trust Act or applicable law, any Regular
Trustee is authorized to execute on behalf of the Trust any documents which the
Regular Trustees have the power and authority to cause the Trust to execute
pursuant to Section 3.6, provided, that the registration statement referred to
in Section 3.6, including any amendments thereto, shall, subject to Section
3.4(d), be signed by all of the Regular Trustees; and
(d) A Regular Trustee may, by power of attorney consistent with applicable
law, delegate to any other natural person over the age of 21 his or her power
for the purposes of executing any documents which the Regular Trustees have
power and authority to cause the Trust to execute pursuant to Section 3.6.
SECTION 3.5. Title to Property of the Trust.
Except as provided in Section 3.8 with respect to the Debentures and the
Institutional Trustee Account or as otherwise provided in this Declaration,
legal title to all assets of the Trust shall be vested in the Trust. The
Holders of Securities shall not have legal title to any part of the assets of
the Trust, but shall have an undivided beneficial interest in the assets of the
Trust.
SECTION 3.6. Powers and Duties of the Regular Trustees.
The Regular Trustees shall have the exclusive power, duty and authority to
cause the Trust to engage in the following activities:
(a) to issue and sell the Securities in accordance with this Declaration;
provided, however, that the Trust may issue no more than one series of
Convertible Preferred Securities and no more than one series of Common
Securities, and provided further, that there shall be no interests in the Trust
other than the Securities, and the issuance of Securities shall be limited to
13
<PAGE>
a simultaneous issuance of both Convertible Preferred Securities and Common
Securities on the Closing Date and Option Closing Date, if any;
(b) in connection with the issue and sale of the Securities, at the
direction of the Sponsor, to:
(i) prepare and execute, if necessary, an offering memorandum (the
"Offering Memorandum") in preliminary and final form prepared by the
Sponsor, in relation to the offering and sale of Convertible Preferred
Securities to qualified institutional buyers in reliance on Rule 144A under
the Securities Act, to institutional "accredited investors" (as defined in
Rule 501(a)(1), (2), (3) or (7) under the Securities Act) and outside the
United States to non-U.S. persons in offshore transactions in reliance on
Regulation S under the Securities Act and to execute and file with the
Commission, at such time as determined by the Sponsor, a registration
statement on Form S-3 prepared by the Sponsor, including any amendments
thereto in relation to the Convertible Preferred Securities;
(ii) execute and file an application, prepared by the Sponsor, to the
Private Offerings, Resale and Trading through Automated Linkages ("PORTAL")
Market and, at such time as determined by the Sponsor, to the New York
Stock Exchange or any other national stock exchange or the Nasdaq Stock
Market's National Market for listing or quotation of the Preferred
Securities;
(iii) execute and deliver letters, documents, or instruments with The
Depository Trust Company relating to the Convertible Preferred Securities;
(iv) execute and file with the Commission, at such time as determined
by the Sponsor, a registration statement on Form 8-A, including any
amendments thereto, prepared by the Sponsor relating to the registration of
the Convertible Preferred Securities under Section 12(b) of the Exchange
Act;
(v) execute and enter into the Placement Agreement, Registration
Rights Agreements and other related agreements providing for the sale of
the Securities;
(vi) execute and file any documents prepared by the Sponsor, or take any
acts as determined by the Sponsor to be necessary in order to qualify or
register all or part of the Convertible Preferred Securities in any State
in which the Sponsor has determined to qualify or register such Convertible
Preferred Securities for sale or resale, as the case may be; and
(vii) take all actions and perform such duties as may be required of
the Regular Trustees to open checking, deposit or similar banking accounts
as may be necessary in connection with the issuance and sale of the
Securities;
(c) to acquire the Debentures with the proceeds of the sale of the
Convertible Preferred Securities and the Common Securities; provided, however,
that the Regular Trustees shall cause legal title to the Debentures to be held
of record in the name of the Institutional
14
<PAGE>
Trustee for the benefit of the Holders of the Convertible Preferred Securities
and the Holders of Common Securities;
(d) to give the Sponsor and the Institutional Trustee prompt written notice
of the occurrence of a Special Event; provided that the Regular Trustees shall
consult with the Sponsor and the Institutional Trustee before taking or
refraining from taking any Ministerial Action in relation to a Special Event;
(e) to establish a record date with respect to all actions to be taken
hereunder that require a record date be established, including and with respect
to, for the purposes of (S)316 (c) of the Trust Indenture Act, Distributions,
voting rights, redemptions and exchanges, and to issue relevant notices to the
Holders of Convertible Preferred Securities and Holders of Common Securities as
to such actions and applicable record dates;
(f) to take all actions and perform such duties as may be required of the
Regular Trustees pursuant to the terms of the Securities;
(g) to bring or defend, pay, collect, compromise, arbitrate, resort to
legal action, or otherwise adjust claims or demands of or against the Trust
("Legal Action"), unless pursuant to Section 3.8(e), the Institutional Trustee
has the exclusive power to bring such Legal Action;
(h) to employ or otherwise engage employees and agents (who may be
designated as officers with titles) and managers, contractors, advisors and
consultants, and pay reasonable compensation for such services;
(i) to cause the Trust to comply with the Trust's obligations under the
Trust Indenture Act;
(j) to give the certificate required by (S) 314(a)(4) of the Trust
Indenture Act to the Institutional Trustee, which certificate may be executed by
any Regular Trustee;
(k) to incur expenses that are necessary or incidental to carry out any of
the purposes of the Trust;
(l) to act as, or appoint another Person to act as, registrar, transfer
agent, Paying Agent and Conversion Agent for the Securities;
(m) to give prompt written notice to the Holders of the Securities of any
notice received from the Debenture Issuer of its election to defer payments of
interest on the Debentures by extending the interest payment period under the
Indenture;
(n) to execute all documents or instruments, perform all duties and powers,
and do all things for and on behalf of the Trust in all matters necessary or
incidental to the foregoing;
(o) to take all action that may be necessary or appropriate for the
preservation and the continuation of the Trust's valid existence, rights,
franchises and privileges as a statutory
15
<PAGE>
business trust under the laws of the State of Delaware and of each other
jurisdiction in which such existence is necessary to protect the limited
liability of the Holders of the Convertible Preferred Securities or to enable
the Trust to effect the purposes for which the Trust was created;
(p) to take any action, not inconsistent with this Declaration or with
applicable law, that the Regular Trustees determine in their discretion to be
necessary or desirable in carrying out the activities of the Trust as set out in
this Section 3.6, including, but not limited to:
(i) causing the Trust not to be deemed to be an Investment Company
required to be registered under the Investment Company Act;
(ii) causing the Trust to be classified for United States federal income
tax purposes as a grantor trust; and
(iii) cooperating with the Debenture Issuer to ensure that the Debentures
will be treated as indebtedness of the Debenture Issuer for United States
federal income tax purposes,
provided that such action does not adversely affect the interests of Holders or
vary the terms of the Convertible Preferred Securities;
(q) to take all action necessary to cause all applicable tax returns and
tax information reports that are required to be filed with respect to the Trust
to be duly prepared and filed by the Regular Trustees, on behalf of the Trust;
(r) to take all actions and perform such duties as may be required of the
Regular Trustees pursuant to Section 11.2 herein; and
(s) to the extent provided in this Declaration, the winding up of the
affairs of and liquidation of the Trust and the preparation, execution and
filing of the Certificate of Cancellation with the Secretary of State of the
State of Delaware.
The Regular Trustees must exercise the powers set forth in this Section 3.6
in a manner that is consistent with the purposes and functions of the Trust set
out in Section 3.3, and the Regular Trustees shall not take any action that is
inconsistent with the purposes and functions of the Trust set forth in Section
3.3.
Subject to this Section 3.6, the Regular Trustees shall have none of the
powers or the authority of the Institutional Trustee set forth in Section 3.8.
Any expenses incurred by the Regular Trustees pursuant to this Section 3.6
shall be reimbursed by the Sponsor.
The Trust initially appoints the Institutional Trustee as transfer agent
and registrar for the Convertible Preferred Securities.
16
<PAGE>
SECTION 3.7. Prohibition of Actions by the Trust and the Trustees.
(a) The Trust shall not, and the Trustees (including the Institutional
Trustee) shall cause the Trust not to engage in any activity other than as
required or authorized by this Declaration. In particular the Trust shall not
and the Trustees (including the Institutional Trustee) shall cause the Trust not
to:
(i) invest any proceeds received by the Trust from holding the
Debentures, but shall distribute all such proceeds to Holders of Securities
pursuant to the terms of this Declaration and of the Securities;
(ii) acquire any assets other than as expressly provided herein;
(iii) possess Trust property for other than a Trust purpose;
(iv) make any loans or incur any indebtedness other than loans
represented by the Debentures;
(v) possess any power or otherwise act in such a way as to vary the
Trust assets or the terms of the Securities in any way whatsoever except as
permitted by the terms of this Declaration;
(vi) issue any securities or other evidences of beneficial ownership of,
or beneficial interest in, the Trust other than the Securities; or
(vii) other than as provided in this Declaration or Annex I hereto, (A)
direct the time, method and place of exercising any trust or power
conferred upon the Debenture Trustee with respect to the Debentures, (B)
waive any past default that is not waivable under the Indenture, (C)
exercise any right to rescind or annul any declaration that the principal
of all the Debentures shall be due and payable, or (D) consent to any
amendment, modification or termination of the Indenture or the Debentures
where such consent shall be required unless the Trust shall have received
an opinion of counsel to the effect that such modification will not cause
more than an insubstantial risk that (x) the Trust will be deemed an
Investment Company required to be registered under the Investment Company
Act or (y) the Trust will not be classified as a grantor trust for United
States federal income tax purposes.
SECTION 3.8. Powers and Duties of the Institutional Trustee.
(a) The legal title to the Debentures shall be owned by and held of record
in the name of the Institutional Trustee in trust for the benefit of the Trust
and the Holders of the Securities. The right, title and interest of the
Institutional Trustee to the Debentures shall vest automatically in each Person
who may hereafter be appointed as Institutional Trustee in accordance with
Section 5.6. Such vesting and cessation of title shall be effective whether or
not conveyancing documents with regard to the Debentures have been executed and
delivered.
17
<PAGE>
(b) The Institutional Trustee shall not transfer its right, title and
interest in the Debentures to the Regular Trustees or to the Delaware Trustee
(if the Institutional Trustee does not also act as Delaware Trustee).
(c) The Institutional Trustee shall:
(i) establish and maintain a segregated non-interest bearing trust
account (the "Institutional Trustee Account") in the name of and under the
exclusive control of the Institutional Trustee on behalf of the Holders of
the Securities and, upon the receipt of payments of funds made in respect
of the Debentures held by the Institutional Trustee, deposit such funds
into the Institutional Trustee Account and make payments to the Holders of
the Convertible Preferred Securities and Holders of the Common Securities
from the Institutional Trustee Account in accordance with Section 6.1.
Funds in the Institutional Trustee Account shall be held uninvested until
disbursed in accordance with this Declaration. The Institutional Trustee
Account shall be an account that is maintained with a banking institution
the rating on whose long-term unsecured indebtedness is at least equal to
the rating assigned to the Convertible Preferred Securities (or, if the
Convertible Preferred Securities are not rated, the rating assigned to
McKesson's senior debt) by a "nationally recognized statistical rating
organization," as that term is defined for purposes of Rule 436(g)(2) under
the Securities Act;
(ii) engage in such ministerial activities as shall be necessary or
appropriate to effect the redemption of the Convertible Preferred
Securities and the Common Securities to the extent the Debentures are
redeemed or mature;
(iii) engage in such ministerial activities as shall be necessary or
appropriate to effect the distribution of the Trust Property in accordance
with the terms of this Declaration; and
(iv) to the extent provided for in this Declaration, take such
ministerial actions necessary in connection with the winding up of the
affairs of and liquidation of the Trust and the preparation, execution and
filing of the Certificate of Cancellation with the Secretary of State of
the State of Delaware.
(d) The Institutional Trustee shall take all actions and perform such
duties as may be specifically required of the Institutional Trustee pursuant to
the terms of the Securities.
(e) The Institutional Trustee shall take any Legal Action which arises out
of or in connection with, an Event of Default of which a Responsible Officer of
the Institutional Trustee has actual knowledge, or the Institutional Trustee's
duties and obligations under this Declaration or the Trust Indenture Act;
provided however, that if a Declaration Event of Default has occurred and is
continuing and such event is attributable to the failure of the Debenture Issuer
to pay interest or principal on the Debentures on the date such interest or
principal is otherwise payable (or in the case of redemption, on the redemption
date), then a Holder of Convertible Preferred Securities may directly institute
a proceeding for enforcement of payment to such Holder of the principal of or
interest on the Debentures having a principal amount equal to the
18
<PAGE>
aggregate liquidation amount of the Convertible Preferred Securities of such
Holder (a "Direct Action") on or after the respective due date specified in the
Debentures and provided, further, that if the Institutional Trustee fails to
enforce its rights under the Debentures, any Holder of Convertible Preferred
Securities may institute a legal proceeding against any person to enforce the
Institutional Trustee's rights under the Debentures. In connection with such
Direct Action, the rights of the Holders of the Common Securities will be
subrogated to the rights of such Holder of Convertible Preferred Securities to
the extent of any payment made by the Debenture Issuer to such Holder of
Convertible Preferred Securities in such Direct Action. Except as provided in
the preceding sentences, the Holders of Convertible Preferred Securities will
not be able to exercise directly any other remedy available to the holders of
the Debentures.
(f) The Institutional Trustee shall continue to serve as a Trustee until
either:
(i) the Trust has been completely liquidated and the proceeds of the
liquidation distributed to the Holders of Securities pursuant to the terms
of the Securities; or
(ii) a Successor Institutional Trustee has been appointed and has
accepted that appointment in accordance with Section 5.6.
(g) The Institutional Trustee shall have the legal power to exercise all of
the rights, powers and privileges of a holder of Debentures under the Indenture
and, if an Event of Default actually known to a Responsible Officer of the
Institutional Trustee occurs and is continuing, the Institutional Trustee shall,
for the benefit of Holders of the Securities, enforce its rights as holder of
the Debentures subject to the rights of the Holders pursuant to the terms of
such Securities.
(h) The Institutional Trustee may authorize one or more Persons (each, a
"Paying Agent") to pay Distributions, redemption payments or Liquidation
Distributions on behalf of the Trust with respect to all Securities and any such
Paying Agent shall comply with (S) 317(b) of the Trust Indenture Act. Any
Paying Agent may be removed by the Institutional Trustee at any time and a
successor Paying Agent or additional Paying Agents may be appointed at any time
by the Institutional Trustee.
(i) Subject to this Section 3.8, the Institutional Trustee shall have none
of the duties, liabilities, powers or the authority of the Regular Trustees set
forth in Section 3.6.
The Institutional Trustee must exercise the powers set forth in this
Section 3.8 in a manner that is consistent with the purposes and functions of
the Trust set out in Section 3.3, and the Institutional Trustee shall not take
any action that is inconsistent with the purposes and functions of the Trust set
out in Section 3.3.
SECTION 3.9. Certain Duties and Responsibilities of the Institutional
Trustee.
(a) The Institutional Trustee, before the occurrence of any Event of
Default and after the curing of all Events of Default that may have occurred,
shall undertake to perform only such duties as are specifically set forth in
this Declaration and no implied covenants shall be read into
19
<PAGE>
this Declaration against the Institutional Trustee. In case an Event of Default
has occurred (that has not been cured or waived pursuant to Section 2.6) of
which a Responsible Officer of the Institutional Trustee has actual knowledge,
the Institutional Trustee shall exercise such of the rights and powers vested in
it by this Declaration, and use the same degree of care and skill in their
exercise, as a prudent person would exercise or use under the circumstances in
the conduct of his or her own affairs.
(b) No provision of this Declaration shall be construed to relieve the
Institutional Trustee from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct, except that:
(i) prior to the occurrence of an Event of Default and after the curing
or waiving of all such Events of Default that may have occurred:
(A) the duties and obligations of the Institutional Trustee shall
be determined solely by the express provisions of this Declaration and
the Institutional Trustee shall not be liable except for the
performance of such duties and obligations as are specifically set
forth in this Declaration, and no implied covenants or obligations
shall be read into this Declaration against the Institutional Trustee;
and
(B) in the absence of bad faith on the part of the Institutional
Trustee, the Institutional Trustee may conclusively rely, as to the
truth of the statements and the correctness of the opinions expressed
therein, upon any certificates or opinions furnished to the
Institutional Trustee and conforming to the requirements of this
Declaration; but in the case of any such certificates or opinions that
by any provision hereof are specifically required to be furnished to
the Institutional Trustee, the Institutional Trustee shall be under a
duty to examine the same to determine whether or not they conform to
the requirements of this Declaration;
(ii) the Institutional Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer of the Institutional
Trustee, unless it shall be proved that the Institutional Trustee was
negligent in ascertaining the pertinent facts;
(iii) the Institutional Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance with
the direction of the Holders of not less than a Majority in liquidation
amount of the Securities relating to the time, method and place of
conducting any proceeding for any remedy available to the Institutional
Trustee, or exercising any trust or power conferred upon the Institutional
Trustee under this Declaration;
(iv) no provision of this Declaration shall require the Institutional
Trustee to expend or risk its own funds or otherwise incur personal
financial liability in the performance of any of its duties or in the
exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that the repayment of such funds or liability is not
reasonably assured to it under the terms of this Declaration or indemnity
20
<PAGE>
reasonably satisfactory to the Institutional Trustee against such risk or
liability is not reasonably assured to it;
(v) the Institutional Trustee's sole duty with respect to the
custody, safe keeping and physical preservation of the Debentures and the
Institutional Trustee Account shall be to deal with such property in a
similar manner as the Institutional Trustee deals with similar property for
its own account, subject to the protections and limitations on liability
afforded to the Institutional Trustee under this Declaration and the Trust
Indenture Act;
(vi) the Institutional Trustee shall have no duty or liability for
or with respect to the value, genuineness, existence or sufficiency of the
Debentures or the payment of any taxes or assessments levied thereon or in
connection therewith;
(vii) the Institutional Trustee shall not be liable for any interest
on any money received by it except as it may otherwise agree in writing
with the Sponsor. Money held by the Institutional Trustee need not be
segregated from other funds held by it except in relation to the
Institutional Trustee Account maintained by the Institutional Trustee
pursuant to Section 3.8(c)(i) and except to the extent otherwise required
by law; and
(viii) the Institutional Trustee shall not be responsible for monitoring
the compliance by the Regular Trustees or the Sponsor with their respective
duties under this Declaration, nor shall the Institutional Trustee be
liable for any default or misconduct of the Regular Trustees or the
Sponsor.
SECTION 3.10. Certain Rights of Institutional Trustee.
(a) Subject to the provisions of Section 3.9:
(i) the Institutional Trustee may conclusively rely and shall be
fully protected in acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document believed by it to be genuine and to
have been signed, sent or presented by the proper party or parties;
(ii) any direction or act of the Sponsor or the Regular Trustees
contemplated by this Declaration shall be sufficiently evidenced by an
Officers' Certificate;
(iii) whenever in the administration of this Declaration, the
Institutional Trustee shall deem it desirable that a matter be proved or
established before taking, suffering or omitting any action hereunder, the
Institutional Trustee (unless other evidence is herein specifically
prescribed) may, in the absence of bad faith on its part, request and
conclusively rely upon an Officers' Certificate which, upon receipt of such
request, shall be promptly delivered by the Sponsor or the Regular
Trustees;
21
<PAGE>
(iv) the Institutional Trustee shall have no duty to see to any
recording, filing or registration of any instrument (including any
financing or continuation statement or any filing under tax or securities
laws) or any rerecording, refiling or registration thereof;
(v) the Institutional Trustee may consult with counsel of its
selection or other experts and the advice or opinion of such counsel and
experts with respect to legal matters or advice within the scope of such
experts' area of expertise shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in accordance with such advice or opinion.
Such counsel may be counsel to the Sponsor or any of its Affiliates, and
may include any of its employees. The Institutional Trustee shall have the
right at any time to seek instructions concerning the administration of
this Declaration from any court of competent jurisdiction;
(vi) the Institutional Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Declaration at
the request or direction of any Holder, unless such Holder shall have
provided to the Institutional Trustee security and indemnity, reasonably
satisfactory to the Institutional Trustee, against the costs, expenses
(including attorneys' fees and expenses and the expenses of the
Institutional Trustee's agents, nominees or custodians) and liabilities
that might be incurred by it in complying with such request or direction,
including such reasonable advances as may be requested by the Institutional
Trustee provided, that, nothing contained in this Section 3.10(a)(vi) shall
be taken to (a) require the Holders of Convertible Preferred Securities to
offer such indemnity in the event such Holders direct the Institutional
Trustee to take any action it is empowered to take under this Declaration
following an Event of Default or (b) relieve the Institutional Trustee,
upon the occurrence of an Event of Default, of its obligation to exercise
the rights and powers vested in it by this Declaration;
(vii) the Institutional Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document, but the Institutional Trustee, in
its discretion, may make such further inquiry or investigation into such
facts or matters as it may see fit;
(viii) the Institutional Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly or by or
through agents, custodians, nominees or attorneys and the Institutional
Trustee shall not be responsible for any misconduct or negligence on the
part of any agent or attorney appointed with due care by it hereunder;
(ix) any action taken by the Institutional Trustee or its agents
hereunder shall bind the Trust and the Holders of the Securities, and the
signature of the Institutional Trustee or its agents alone shall be
sufficient and effective to perform any such action and no third party
shall be required to inquire as to the authority of the Institutional
Trustee to so act or as to its compliance with any of the terms and
provisions of this
22
<PAGE>
Declaration, both of which shall be conclusively evidenced by the
Institutional Trustee's or its agent's taking such action;
(x) whenever in the administration of this Declaration the
Institutional Trustee shall deem it desirable to receive written
instructions with respect to enforcing any remedy or right or taking any
other action hereunder, the Institutional Trustee (i) may request written
instructions from the Holders of the Securities which instructions may only
be given by the Holders of the same proportion in liquidation amount of the
Securities as would be entitled to direct the Institutional Trustee under
the terms of the Securities in respect of such remedy, right or action,
(ii) may refrain from enforcing such remedy or right or taking such other
action until such instructions are received, and (iii) shall be protected
in conclusively relying on or acting in or accordance with such
instructions;
(xi) except as otherwise expressly provided by this Declaration,
the Institutional Trustee shall not be under any obligation to take any
action that is discretionary under the provisions of this Declaration; and
(xii) the Institutional Trustee shall not be liable for any action
taken, suffered, or omitted to be taken by it in good faith and reasonably
believed by it to be authorized or within the discretion or rights or
powers conferred upon it by this Declaration.
(b) No provision of this Declaration shall be deemed to impose any duty
or obligation on the Institutional Trustee to perform any act or acts or
exercise any right, power, duty or obligation conferred or imposed on it, in any
jurisdiction in which it shall be illegal, or in which the Institutional Trustee
shall be unqualified or incompetent in accordance with applicable law, to
perform any such act or acts, or to exercise any such right, power, duty or
obligation. No permissive power or authority available to the Institutional
Trustee shall be construed to be a duty.
SECTION 3.11. Delaware Trustee.
Notwithstanding any other provision of this Declaration other than Section
5.2, the Delaware Trustee shall not be entitled to exercise any powers, nor
shall the Delaware Trustee have any of the duties and responsibilities of the
Regular Trustees, the Institutional Trustee or the Trustees generally (except as
may be required under the Business Trust Act) described in this Declaration.
Except as set forth in Section 5.2, the Delaware Trustee shall be a Trustee for
the sole and limited purpose of fulfilling the requirements of (S) 3807 of the
Business Trust Act.
SECTION 3.12. Execution of Documents.
Except as otherwise required by the Business Trust Act, any Regular Trustee
is authorized to execute on behalf of the Trust any documents that the Regular
Trustees have the power and authority to execute pursuant to Section 3.6;
provided that, the registration statement referred to in Section 3.6(b)(i),
including any amendments thereto, shall, subject to Section 3.4(d), be signed by
all of the Regular Trustees.
23
<PAGE>
SECTION 3.13. Not Responsible for Recitals or Issuance of Securities.
The recitals contained in this Declaration and the Securities shall be
taken as the statements of the Sponsor, and the Trustees do not assume any
responsibility for their correctness. The Trustees make no representations as
to the value or condition of the property of the Trust or any part thereof. The
Trustees make no representations as to the validity or sufficiency of this
Declaration or the Securities.
SECTION 3.14. Duration of Trust.
The Trust, unless terminated pursuant to the provisions of Article VIII
hereof, shall have existence for thirty-five (35) years from June 1, 1997.
SECTION 3.15. Mergers.
(a) The Trust may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets as an
entirety or substantially as an entirety to any corporation or other body,
except as described in Section 3.15(b) and (c).
(b) The Trust may, with the consent of the Regular Trustees or, if there
are more than two, a majority of the Regular Trustees and without the consent of
the Holders of the Securities, the Delaware Trustee or the Institutional
Trustee, consolidate, amalgamate, merge with or into, or be replaced by a trust
organized as such under the laws of any State; provided that
(i) such successor entity (the "Successor Entity") either:
(A) expressly assumes all of the obligations of the Trust under
the Securities; or
(B) substitutes for the Convertible Preferred Securities other
securities having substantially the same terms as the Convertible
Preferred Securities (the "Successor Securities") so long as the
Successor Securities rank the same as the Convertible Preferred
Securities rank with respect to Distributions and payments upon
liquidation, redemption and otherwise;
(ii) the Debenture Issuer expressly acknowledges a trustee of the
Successor Entity that possesses the same powers and duties as the
Institutional Trustee as the Holder of the Debentures;
(iii) such merger, consolidation, amalgamation or replacement does
not cause the Convertible Preferred Securities (including any Successor
Securities) to be downgraded by any nationally recognized statistical
rating organization;
(iv) such merger, consolidation, amalgamation or replacement does
not adversely affect the rights, preferences and privileges of the Holders
of the Securities
24
<PAGE>
(including any Successor Securities) in any material respect (other than
with respect to any dilution of the Holders' interest in the Successor
Entity);
(v) such Successor Entity has a purpose identical to that of the
Trust;
(vi) prior to such merger, consolidation, amalgamation or
replacement, the Sponsor has received an opinion of nationally recognized
independent counsel to the Trust experienced in such matters to the effect
that:
(A) such merger, consolidation, amalgamation or replacement does
not adversely affect the rights, preferences and privileges of the
Holders of the Securities (including any Successor Securities) in any
material respect (other than with respect to any dilution of the
Holders' interest in the Successor Entity);
(B) following such merger, consolidation, amalgamation or
replacement, neither the Trust nor the Successor Entity will be
required to register as an Investment Company; and
(C) following such merger, consolidation, amalgamation or
replacement, the Trust (or such Successor Entity) will continue to be
classified as a grantor trust for United States federal income tax
purposes; and
(vii) the Sponsor guarantees the obligations of the Successor Entity
under the Successor Securities at least to the extent provided by the
Securities Guarantees.
(c) Notwithstanding Section 3.15(b), the Trust shall not, except with the
consent of Holders of 100% in liquidation amount of the Securities, consolidate,
amalgamate, merge with or into, or be replaced by any other entity or permit any
other entity to consolidate, amalgamate, merge with or into, or replace it, if
such consolidation, amalgamation, merger or replacement would cause the Trust or
the Successor Entity to be classified as other than a grantor trust for United
States federal income tax purposes.
ARTICLE IV
SPONSOR
SECTION 4.1. Sponsor's Purchase of Common Securities.
On the Closing Date the Sponsor will purchase all of the Common Securities
issued by the Trust, in an amount at least equal to 3% of the capital of the
Trust, at the same time as the Convertible Preferred Securities are sold.
25
<PAGE>
SECTION 4.2. Responsibilities of the Sponsor.
In connection with the issue and sale of the Convertible Preferred
Securities, the Sponsor shall have the exclusive right and responsibility to
engage in the following activities:
(a) prepare and execute, if necessary, the Offering Memorandum in
preliminary and final form, in relation to the offering and sale by the Trust of
Convertible Preferred Securities to qualified institutional buyers in reliance
on Rule 144A under the Securities Act, to institutional "accredited investors"
(as defined in Rule 501(a)(1),(2), (3) or (7) under the Securities Act) and
outside the United States to Non-U.S. persons in offshore transactions in
reliance on Regulation S under the Securities Act;
(b) to prepare for filing by the Trust with the Commission a registration
statement on Form S-3 in relation to the Securities, including any amendments
thereto;
(c) prepare for execution and filing by the Trust of an application,
prepared by the Sponsor, to the PORTAL Market and, at such time as determined by
the Sponsor, to the New York Stock Exchange or any other national stock exchange
or the Nasdaq Stock Market's National Market for listing or quotation of the
Convertible Preferred Securities;
(d) prepare for execution and filing by the Trust of documents, or
instruments to be delivered to The Depository Trust Company relating to the
Convertible Preferred Securities;
(e) prepare for execution and filing by the Trust of a registration
statement on Form 8-A, including any amendments thereto, prepared by the Sponsor
relating to the registration of the Convertible Preferred Securities under
Section 12(b) of the Exchange Act;
(f) to determine the States in which to take appropriate action to
qualify or register for sale all or part of the Convertible Preferred Securities
and to do any and all such acts, other than actions which must be taken by the
Trust, and advise the Trust of actions it must take, and prepare for execution
and filing any documents to be executed and filed by the Trust, as the Sponsor
deems necessary or advisable in order to comply with the applicable laws of any
such States;
(g) to negotiate the terms of the Placement Agreement providing for the
sale of the Convertible Preferred Securities; and
(h) to negotiate the terms of the Registration Rights Agreements
providing for, among other things, the registration under the Securities Act of
resales from time to time of the Securities.
26
<PAGE>
ARTICLE V
TRUSTEES
SECTION 5.1. Number of Trustees.
The number of Trustees initially shall be five (5), and:
(a) at any time before the issuance of any Securities, the Sponsor may,
by written instrument, increase or decrease the number of Trustees; and
(b) after the issuance of any Securities, the number of Trustees may be
increased or decreased by vote of the Holders of a majority in liquidation
amount of the Common Securities voting as a class at a meeting of the Holders of
the Common Securities; provided, however, that the number of Trustees shall in
no event be less than two (2); provided further, that (i) one Trustee, in the
case of a natural person, shall be a person who is a resident of the State of
Delaware or that, if not a natural person, is an entity which has its principal
place of business in the State of Delaware (the "Delaware Trustee"); (ii) there
shall be at least one Trustee who is an employee or officer of, or is affiliated
with the Sponsor (a "Regular Trustee"); and (iii) one Trustee shall be the
Institutional Trustee, and such Trustee may also serve as Delaware Trustee if it
meets the applicable requirements.
SECTION 5.2. Delaware Trustee.
If required by the Business Trust Act, one Trustee shall be:
(a) a natural person who is a resident of the State of Delaware; or
(b) if not a natural person, an entity which has its principal place of
business in the State of Delaware, and otherwise meets the requirements of
applicable law;
provided that, if the Institutional Trustee has its principal place of business
in the State of Delaware and otherwise meets the requirements of applicable law,
then the Institutional Trustee shall also be the Delaware Trustee and Section
3.11 shall have no application.
The Initial Delaware Trustee shall be: First Chicago Delaware Inc.
SECTION 5.3. Institutional Trustee; Eligibility.
(a) There shall at all times be one Trustee which shall act as
Institutional Trustee which shall:
(i) not be an Affiliate of the Sponsor; and
(ii) be a corporation organized and doing business under the laws
of the United States of America or any State or Territory thereof or of the
District of Columbia, or a
27
<PAGE>
corporation or Person permitted by the Commission to act as an
institutional trustee under the Trust Indenture Act, authorized under such
laws to exercise corporate trust powers, having a combined capital and
surplus of at least 50 million U.S. dollars ($50,000,000), and subject to
supervision or examination by federal, state, territorial or District of
Columbia authority. If such corporation publishes reports of condition at
least annually, pursuant to law or to the requirements of the supervising
or examining authority referred to above, then for the purposes of this
Section 5.3(a)(ii), the combined capital and surplus of such corporation
shall be deemed to be its combined capital and surplus as set forth in its
most recent report of condition so published.
(b) If at any time the Institutional Trustee shall cease to be eligible
to so act under Section 5.3(a), the Institutional Trustee shall immediately
resign in the manner and with the effect set forth in Section 5.6(c).
(c) If the Institutional Trustee has or shall acquire any "conflicting
interest" within the meaning of (S) 310(b) of the Trust Indenture Act, the
Institutional Trustee and the Holder of the Common Securities (as if it were the
obligor referred to in (S) 310(b) of the Trust Indenture Act) shall in all
respects comply with the provisions of (S) 310(b) of the Trust Indenture Act.
(d) The Convertible Preferred Securities Guarantee shall be deemed to be
specifically described in this Declaration for purposes of clause (i) of the
first provision contained in Section 310(b) of the Trust Indenture Act.
(e) The initial Institutional Trustee shall be: The First National Bank
of Chicago.
SECTION 5.4. Certain Qualifications of Regular Trustees and Delaware
Trustee Generally.
Each Regular Trustee and the Delaware Trustee (unless the Institutional
Trustee also acts as Delaware Trustee) shall be either a natural person who is
at least 21 years of age or a legal entity that shall act through one or more
Authorized Officers.
SECTION 5.5. Regular Trustees.
The initial Regular Trustees shall be:
William A. Armstrong
Ivan D. Meyerson
Nancy Miller
(a) Except as expressly set forth in this Declaration and except if a
meeting of the Regular Trustees is called with respect to any matter over which
the Regular Trustees have power to act, any power of the Regular Trustees may be
exercised by, or with the consent of, any one such Regular Trustee.
28
<PAGE>
(b) Unless otherwise determined by the Regular Trustees, and except as
otherwise required by the Business Trust Act or applicable law, any Regular
Trustee is authorized to execute on behalf of the Trust any documents which the
Regular Trustees have the power and authority to cause the Trust to execute
pursuant to Section 3.6, provided, that, the registration statement referred to
in Section 3.6, including any amendments thereto, shall, subject to Section
3.4(d), be signed by all of the Regular Trustees; and
SECTION 5.6. Appointment, Removal and Resignation of Trustees.
(a) Subject to Section 5.6(b), Trustees may be appointed or removed
without cause at any time:
(i) until the issuance of any Securities, by written instrument
executed by the Sponsor; and
(ii) after the issuance of any Securities, by vote of the Holders
of a Majority in liquidation amount of the Common Securities voting as a
class at a meeting of the Holders of the Common Securities.
(b) (i) The Trustee that acts as Institutional Trustee shall not be
removed in accordance with Section 5.6(a) until a Successor Institutional
Trustee has been appointed and has accepted such appointment by written
instrument executed by such Successor Institutional Trustee and delivered to the
Regular Trustees and the Sponsor; and
(ii) the Trustee that acts as Delaware Trustee shall not be removed
in accordance with Section 5.6(a) until a successor Trustee possessing the
qualifications to act as Delaware Trustee under Sections 5.2 and 5.4 (a
"Successor Delaware Trustee") has been appointed and has accepted such
appointment by written instrument executed by such Successor Delaware
Trustee and delivered to the Regular Trustees and the Sponsor.
(c) A Trustee appointed to office shall hold office until his successor
shall have been appointed or until his death, removal or resignation. Any
Trustee may resign from office (without need for prior or subsequent accounting)
by an instrument in writing signed by the Trustee and delivered to the Sponsor
and the Trust, which resignation shall take effect upon such delivery or upon
such later date as is specified therein; provided, however, that:
(i) No such resignation of the Trustee that acts as the
Institutional Trustee shall be effective:
(A) until a Successor Institutional Trustee has been
appointed and has accepted such appointment by instrument executed by
such Successor Institutional Trustee and delivered to the Trust, the
Sponsor and the resigning Institutional Trustee; or
29
<PAGE>
(B) until the assets of the Trust have been completely
liquidated and the proceeds thereof distributed to the holders of the
Securities; and
(ii) no such resignation of the Trustee that acts as the Delaware
Trustee shall be effective until a Successor Delaware Trustee has been
appointed and has accepted such appointment by instrument executed by such
Successor Delaware Trustee and delivered to the Trust, the Sponsor and the
resigning Delaware Trustee.
(d) the Holders of the Common Securities shall use their best efforts to
promptly appoint a Successor Delaware Trustee or Successor Institutional Trustee
as the case may be if the Institutional Trustee or the Delaware Trustee delivers
an instrument of resignation in accordance with this Section 5.6.
(e) If no Successor Institutional Trustee or Successor Delaware Trustee
shall have been appointed and accepted appointment as provided in this Section
5.6 within 60 days after delivery of an instrument of resignation or removal,
the Institutional Trustee or Delaware Trustee resigning or being removed, as
applicable, may petition any court of competent jurisdiction for appointment of
a Successor Institutional Trustee or Successor Delaware Trustee. Such court may
thereupon, after prescribing such notice, if any, as it may deem proper and
prescribe, appoint a Successor Institutional Trustee or Successor Delaware
Trustee, as the case may be.
(f) No Institutional Trustee or Delaware Trustee shall be liable for the
acts or omissions to act of any Successor Institutional Trustee or Successor
Delaware Trustee, as the case may be.
SECTION 5.7. Vacancies Among Trustees.
If a Trustee ceases to hold office for any reason and the number of
Trustees is not reduced pursuant to Section 5.1, or if the number of Trustees is
increased pursuant to Section 5.1, a vacancy shall occur. A resolution
certifying the existence of such vacancy by the Regular Trustees or, if there
are more than two, a majority of the Regular Trustees shall be conclusive
evidence of the existence of such vacancy. The vacancy shall be filled with a
Trustee appointed in accordance with Section 5.6.
SECTION 5.8. Effect of Vacancies.
The death, resignation, retirement, removal, bankruptcy, dissolution,
liquidation, incompetence or incapacity to perform the duties of a Trustee shall
not operate to annul the Trust. Whenever a vacancy in the number of Regular
Trustees shall occur, until such vacancy is filled by the appointment of a
Regular Trustee in accordance with Section 5.6, the Regular Trustees in office,
regardless of their number, shall have all the powers granted to the Regular
Trustees and shall discharge all the duties imposed upon the Regular Trustees by
this Declaration.
30
<PAGE>
SECTION 5.9. Meetings.
If there is more than one Regular Trustee, meetings of the Regular Trustees
shall be held from time to time upon the call of any Regular Trustee. Regular
meetings of the Regular Trustees may be held at a time and place fixed by
resolution of the Regular Trustees. Notice of any in-person meetings of the
Regular Trustees shall be hand delivered or otherwise delivered in writing
(including by facsimile, with a hard copy by overnight courier) not less than 48
hours before such meeting. Notice of any telephonic meetings of the Regular
Trustee or any committee thereof shall be hand delivered or otherwise delivered
in writing (including by facsimile, with a hard copy by overnight courier) not
less than 24 hours before a meeting. Notices shall contain a brief statement of
the time, place and anticipated purposes of the meeting. The presence (whether
in person or by telephone) of a Regular Trustee at a meeting shall constitute a
waiver of notice of such meeting except where a Regular Trustee attends a
meeting for the express purpose of objecting to the transaction of any activity
on the ground that the meeting has not been lawfully called or convened. Unless
provided otherwise in this Declaration, any action of the Regular Trustees may
be taken at a meeting by vote of a majority of the Regular Trustees present
(whether in person or by telephone) and eligible to vote with respect to such
matter, provided that a Quorum is present, or without a meeting by the unanimous
written consent of the Regular Trustees. In the event there is only one Regular
Trustee, any and all action of such Regular Trustee shall be evidenced by a
written consent of such Regular Trustee.
SECTION 5.10. Delegation of Power.
A Regular Trustee may, by power of attorney consistent with applicable law,
delegate to any other natural person over the age of 21 his or her power for the
purposes of executing any documents contemplated in Section 3.6, including any
registration statement or amendment thereto filed with the Commission, or making
any other governmental filing.
The Regular Trustees shall have power to delegate from time to time to such
of their number or to officers of the Trust the doing of such things and the
execution of such instruments either in the name of the Trust or the names of
the Regular Trustees or otherwise as the Regular Trustees may deem expedient, to
the extent such delegation is not prohibited by applicable law or contrary to
the provisions of the Trust, as set forth herein.
SECTION 5.11. Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Institutional Trustee or the Delaware
Trustee, as the case may be, may be merged or converted or with which either may
be consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Institutional Trustee or the Delaware Trustee, as the
case may be, shall be a party, or any corporation succeeding to all or
substantially all the corporate trust business of the Institutional Trustee or
the Delaware Trustee, as the case may be, shall be the successor of the
Institutional Trustee or the Delaware Trustee, as the case may be, hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto.
31
<PAGE>
ARTICLE VI
DISTRIBUTIONS
SECTION 6.1. Distributions.
Holders of Securities shall receive Distributions (as defined herein) in
accordance with the applicable terms of the relevant Holder's Securities.
Distributions shall be made on the Convertible Preferred Securities and the
Common Securities in accordance with the preferences set forth in their
respective terms. If and to the extent that the Debenture Issuer makes a
payment of interest (including Compound Interest (as defined in the Indenture)
and Additional Sums (as defined in the Indenture)), premium and/or principal on
the Debentures held by the Institutional Trustee (the amount of any such payment
being a "Payment Amount"), the Institutional Trustee shall and is directed, to
the extent funds are available for that purpose, to make a distribution (a
"Distribution") of the Payment Amount to Holders.
ARTICLE VII
ISSUANCE OF SECURITIES
SECTION 7.1. General Provisions Regarding Securities.
(a) The Regular Trustees shall on behalf of the Trust issue one class of
convertible preferred securities representing undivided beneficial interests in
the assets of the Trust having such terms as are set forth in Annex I (the
"Convertible Preferred Securities") and one class of convertible common
securities representing undivided beneficial interests in the assets of the
Trust having such terms as are set forth in Annex I (the "Common Securities").
The Trust shall issue no securities or other interests in the assets of the
Trust other than the Convertible Preferred Securities and the Common Securities.
(b) The consideration received by the Trust for the issuance of the
Securities shall constitute a contribution to the capital of the Trust and
shall not constitute a loan to the Trust.
(c) Upon issuance of the Securities as provided in this Declaration, the
Securities so issued shall be deemed to be validly issued, fully paid and
non-assessable.
(d) Every Person, by virtue of having become a Holder or a Convertible
Preferred Security Beneficial Owner in accordance with the terms of this
Declaration, shall be deemed to have expressly assented and agreed to the terms
of and shall be bound by this Declaration.
SECTION 7.2. Execution and Authentication.
(a) The Certificates shall be signed on behalf of the Trust by a Regular
Trustee. In case any Regular Trustee of the Trust who shall have signed any of
the Securities shall cease
32
<PAGE>
to be such Regular Trustee before the Certificates so signed shall be delivered
by the Trust, such Certificates nevertheless may be delivered as though the
person who signed such Certificates had not ceased to be such Regular Trustee;
and any Certificate may be signed on behalf of the Trust by such persons who, at
the actual date of execution of such Security, shall be the Regular Trustees of
the Trust, although at the date of the execution and delivery of the Declaration
any such person was not such a Regular Trustee.
(b) One Regular Trustee shall sign the Convertible Preferred Securities
for the Trust by manual or facsimile signature. Unless otherwise determined by
the Trust, such signature shall, in the case of Common Securities, be a manual
signature.
A Convertible Preferred Security shall not be valid until authenticated by
the manual signature of an authorized signatory of the Institutional Trustee.
The signature shall be conclusive evidence that the Convertible Preferred
Security has been authenticated under this Declaration.
Upon a written order of the Trust signed by one Regular Trustee, the
Institutional Trustee shall authenticate the Convertible Preferred Securities
for original issue.
The Institutional Trustee may appoint an authenticating agent acceptable to
the Trust to authenticate Convertible Preferred Securities. An authenticating
agent may authenticate Convertible Preferred Securities whenever the
Institutional Trustee may do so. Each reference in this Declaration to
authentication by the Institutional Trustee includes authentication by such
agent. An authenticating agent has the same rights as the Institutional Trustee
to deal with the Company or an Affiliate.
SECTION 7.3. Form and Dating.
The Convertible Preferred Securities and the Institutional Trustee's
certificate of authentication shall be substantially in the form of Exhibit A-1
and the Common Securities shall be substantially in the form of Exhibit A-2,
each of which is hereby incorporated in and expressly made a part of this
Declaration. Certificates may be printed, lithographed or engraved or may be
produced in any other manner as is reasonably acceptable to the Regular
Trustees, as evidenced by their execution thereof. The Securities may have
letters, numbers, notations, other marks of identification or designation or
other changes or additions thereto or deletions therefrom as may be required by
ordinary usage, custom or practice and such legends or endorsements required by
law, stock exchange rule and agreements to which the Trust is subject, if any
(provided that any such notation, legend or endorsement is in a form acceptable
to the Trust). The Trust at the direction of the Sponsor shall furnish any such
legend not contained in Exhibit A-1 to the Institutional Trustee in writing.
Each Convertible Preferred Security Certificate shall be dated the date of its
authentication. The terms and provisions of the Securities set forth in Annex I
and the forms of Securities set forth in Exhibits A-1 and A-2 are part of the
terms of this Declaration and, to the extent applicable, the Institutional
Trustee and the Sponsor, by their execution and delivery of this Declaration,
expressly agree to such terms and provisions and to be bound thereby.
33
<PAGE>
SECTION 7.4. Paying Agent. The Trust shall maintain in the Borough of
Manhattan, City of New York, State of New York, an office or agency where
Convertible Preferred Securities not held in book-entry only form may be
presented for payment ("Paying Agent"). The Trust shall maintain an office or
agency where Securities may be presented for conversion ("Conversion Agent").
The Trust may appoint the Paying Agent and the Conversion Agent and may appoint
one or more additional paying agents and one or more additional conversion
agents in such other locations as it shall determine. The term "Paying Agent"
includes any additional paying agent and the term "Conversion Agent" includes
any additional conversion agent. The Trust may change any Paying Agent or
Conversion Agent without prior notice to any Holder. The Trust shall notify the
Institutional Trustee in writing of the name and address of any Agent not a
party to this Declaration. If the Trust fails to appoint or maintain another
entity as Paying Agent or Conversion Agent, the Institutional Trustee shall act
as such. The Trust or any of its Affiliates may act as Paying Agent or
Conversion Agent. The Trust shall act as Paying Agent and Conversion Agent for
the Common Securities.
The Trust initially appoints The First National Bank of Chicago, c/o First
Chicago Trust Company of New York, 14 Wall Street, 8th Floor - Window 2, New
York, NY 10005, Attention: Corporate Trust Administration as Paying Agent and
Conversion Agent for the Convertible Preferred Securities.
ARTICLE VIII
TERMINATION OF TRUST
SECTION 8.1. Termination of Trust.
(a) The Trust shall terminate:
(i) upon the bankruptcy of the Sponsor or the Holder of the Common
Securities;
(ii) upon the filing of a certificate of dissolution or its
equivalent with respect to the Sponsor or the Holder of the Common
Securities; the filing of a certificate of cancellation with respect to the
Trust after having obtained the consent of at least a Majority in
liquidation amount of the Securities voting together as a single class to
file such certificate of cancellation; or the revocation of the Sponsor's
charter or the charter of the Holder of the Common Securities and the
expiration of 90 days after the date of revocation without a reinstatement
thereof;
(iii) upon the entry of a decree of judicial dissolution of the
Sponsor, the Trust or the Holder of the Common Securities;
(iv) when all of the Securities shall have been called for redemption
and the amounts necessary for redemption thereof shall have been paid to
the Holders in accordance with the terms of the Securities;
34
<PAGE>
(v) upon the occurrence and continuation of a Special Event pursuant
to which the Trust shall have been dissolved in accordance with the terms
of the Securities and all of the Debentures held by the Institutional
Trustee shall have been distributed to the Holders of Securities in
exchange for all of the Securities;
(vi) upon the written direction to the Institutional Trustee from the
Sponsor at any time to terminate the Trust and, after satisfaction of
liabilities to creditors of the Trust as provided by applicable law, the
distribution of Debentures to Holders in exchange for the Securities,
subject to the Regular Trustees' receipt of an opinion of nationally
recognized independent counsel experienced in such matters to the effect
that the holders of the Convertible Preferred Securities will not recognize
any income, gain or loss for United States federal income tax purposes as a
result of the dissolution of the Trust and such distribution to Holders.
(vii) upon the distribution of the Sponsor's Common Stock to all
Holders of Convertible Preferred Securities upon conversion of all
outstanding Convertible Preferred Securities;
(viii) the expiration of the term of the Trust on June 1, 2032; or
(ix) before the issuance of any Securities, with the consent of all
of the Regular Trustees and the Sponsor.
(b) As soon as is practicable after the occurrence of an event referred
to in Section 8.1(a), the Trustees shall file a certificate of cancellation with
the Secretary of State of the State of Delaware.
(c) The provisions of Sections 3.9 and 3.10 and Article X shall survive
the termination of the Trust.
ARTICLE IX
TRANSFER OF INTERESTS
SECTION 9.1. Transfer of Securities.
(a) Securities may only be transferred, in whole or in part, in
accordance with the terms and conditions set forth in this Declaration and in
the terms of the Securities. Any transfer or purported transfer of any Security
not made in accordance with this Declaration shall be null and void.
(b) Subject to this Article IX, Convertible Preferred Securities shall be
transferable.
(c) Subject to this Article IX, the Sponsor and any Related Party may
only transfer Common Securities to the Sponsor or a Related Party of the
Sponsor; provided that, any such
35
<PAGE>
transfer is subject to the condition precedent that the transferor obtain the
written opinion of nationally recognized independent counsel experienced in such
matters that such transfer would not cause more than an insubstantial risk that:
(i) the Trust would not be classified for United States federal
income tax purposes as a grantor trust; and
(ii) the Trust would be an Investment Company required to register
under the Investment Company Act or the transferee would become an
Investment Company required to register under the Investment Company Act.
(d) Each Security that bears or is required to bear the legend set forth
in this Section 9.1(d) (a "Restricted Security") shall be subject to the
restrictions on transfer provided in the legend set forth in this Section
9.1(d), unless such restrictions on transfer shall be waived by the written
consent of the Regular Trustees, and the Holder of each Restricted Security, by
such securityholder's acceptance thereof, agrees to be bound by such
restrictions on transfer. As used in this Section 9.1(d) and in Section 9.1(e),
the term "transfer" encompasses any sale, pledge, transfer or other disposition
of any Restricted Security.
Prior to the Transfer Restriction Termination Date, any certificate
evidencing a Security shall bear a legend in substantially the following form,
unless otherwise agreed by the Regular Trustees (with written notice thereof to
the Institutional Trustee):
THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY
NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS
ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B)
IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2),
(3) OR (7) UNDER THE SECURITIES ACT) ("INSTITUTIONAL ACCREDITED INVESTOR") OR
(C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THE SECURITY EVIDENCED HEREBY IN AN
OFFSHORE TRANSACTION, (2) AGREES THAT IT WILL NOT PRIOR TO THE EXPIRATION OF THE
HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE
144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION) RESELL OR OTHERWISE
TRANSFER THE SECURITY EVIDENCED HEREBY OR THE COMMON STOCK, ISSUABLE UPON
CONVERSION OR EXCHANGE OF THIS SECURITY EXCEPT (A) TO McKESSON CORPORATION (THE
"COMPANY") OR ANY SUBSIDIARY THEREOF, (B) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT, (C) TO A QUALIFIED INSTITUTIONAL BUYER IN
COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (D) TO AN INSTITUTIONAL
ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE FOR
THE CONVERTIBLE PREFERRED SECURITIES OR THE CONVERTIBLE DEBENTURES, AS THE CASE
MAY BE (OR, IF THIS CERTIFICATE EVIDENCES COMMON STOCK, THE TRANSFER
36
<PAGE>
AGENT FOR THE COMMON STOCK), A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS
AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE SECURITY
EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM SUCH TRUSTEE OR
TRANSFER AGENT), (E) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER
THE SECURITIES ACT OR (F) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED
BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) AND (3) AGREES THAT IT WILL
DELIVER TO EACH PERSON TO WHOM THE SECURITY EVIDENCED HEREBY IS TRANSFERRED A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY
TRANSFER OF THE SECURITY EVIDENCED HEREBY PRIOR TO THE EXPIRATION OF THE HOLDING
PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K)
UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), THE HOLDER MUST CHECK THE
APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH
TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE FOR THE CONVERTIBLE
PREFERRED SECURITIES OR THE CONVERTIBLE DEBENTURES, AS THE CASE MAY BE (OR, IF
THIS CERTIFICATE EVIDENCES COMMON STOCK, SUCH HOLDER MUST FURNISH TO THE
TRANSFER AGENT SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE
COMPANY OR McKESSON FINANCING TRUST ("THE TRUST") MAY REASONABLY REQUIRE TO
CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTIONS NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT). IF THIS CERTIFICATE DOES NOT EVIDENCE COMMON STOCK AND IF THE PROPOSED
TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR OR A PURCHASER WHO IS NOT A
U.S. PERSON, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE FOR
THE CONVERTIBLE PREFERRED SECURITIES OR THE CONVERTIBLE DEBENTURES, AS THE CASE
MAY BE, SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE COMPANY
OR THE TRUST MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE
PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND WILL BE REMOVED
AFTER THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY
EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT. AS USED HEREIN, THE
TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE
MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
Following the Transfer Restriction Termination Date, any Security or
security issued in exchange or substitution therefor (other than (i) Securities
acquired by McKesson or any Affiliate and (ii) Common Stock issued upon the
conversion or exchange of any Security described in clause (i) above) may upon
surrender of such Security for exchange to any Regular Trustee on behalf of the
Trust in accordance with the provisions of Section 9.2, be exchanged for a new
Security or Securities, of like tenor and aggregate liquidation amount, which
shall not bear the restrictive legend required by this Section 9.1(d).
37
<PAGE>
Any Convertible Preferred Security or Common Stock issued upon the
conversion or exchange of a Convertible Preferred Security that, prior to the
Transfer Restriction Termination Date, is purchased or owned by the Company or
any Affiliate thereof may not be resold by the Company or such Affiliate unless
registered under the Securities Act or resold pursuant to an exemption from the
registration requirements of the Securities Act in a transaction which results
in such Convertible Preferred Securities or Common Stock, as the case may be, no
longer being "restricted securities" (as defined under Rule 144).
SECTION 9.2. Transfer of Certificates.
The Regular Trustees shall provide for the registration of Certificates and
of transfers of Certificates, which will be effected without charge, but only
upon payment in respect of any tax or other government charges that may be
imposed in relation to it. Upon surrender for registration of transfer of any
Certificate, the Regular Trustees shall cause one or more new Certificates to be
issued in the name of the designated transferee or transferees. Every
Certificate surrendered for registration of transfer shall be accompanied by a
written instrument of transfer in form satisfactory to the Regular Trustees duly
executed by the Holder or such Holder's attorney duly authorized in writing.
Each Certificate surrendered for registration of transfer shall be canceled by
the Regular Trustees. A transferee of a Certificate shall be entitled to the
rights and subject to the obligations of a Holder hereunder upon the receipt by
such transferee of a Certificate. By acceptance of a Certificate, each
transferee shall be deemed to have agreed to be bound by this Declaration.
SECTION 9.3. Deemed Security Holders.
The Trustees may treat the Person in whose name any Certificate shall be
registered on the books and records of the Trust as the sole holder of such
Certificate and of the Securities represented by such Certificate for purposes
of receiving Distributions and for all other purposes whatsoever and,
accordingly, shall not be bound to recognize any equitable or other claim to or
interest in such Certificate or in the Securities represented by such
Certificate on the part of any Person, whether or not the Trust shall have
actual or other notice thereof.
SECTION 9.4. Book Entry Interests.
(a) So long as Convertible Preferred Securities are eligible for book-
entry settlement with the Clearing Agency or unless otherwise required by law,
all Convertible Preferred Securities that are so eligible may be represented by
one or more fully registered Convertible Preferred Security Certificates (each a
"Global Certificate") in global form to be delivered to DTC, the initial
Clearing Agency, by, or on behalf of, the Trust. Such Global Certificates shall
initially be registered on the books and records of the Trust in the name of
Cede & Co., the nominee of DTC, and no Convertible Preferred Security Beneficial
Owner will receive a definitive Convertible Preferred Security Certificate
representing such Convertible Preferred Security Beneficial Owner's interests in
such Global Certificates, except as provided in Section 9.7 below. The transfer
and exchange of beneficial interests in any such Security in global form shall
be effected through the Clearing Agency in accordance with this Declaration and
the procedures of the Clearing Agency therefor.
38
<PAGE>
(b) Convertible Preferred Securities that upon initial issuance are
beneficially owned by QIBs may, at the option of the Trust, be represented by
one or more Global Certificates (a "144A Global Security"), and Convertible
Preferred Securities that upon initial issuance are beneficially owned by
Non-U.S. Persons may, at the option of the Trust, be represented by one or more
Global Certificates (a "Regulation S Global Security"). Transfers of interests
in the Convertible Preferred Securities between any 144A Global Security and any
Regulation S Global Security will be made in accordance with the standing
instructions and procedures of the Clearing Agency and its participants. The
Institutional Trustee shall make appropriate endorsements to reflect increases
or decreases in the amount of such Convertible Preferred Securities in global
form to reflect any such transfers.
Except as provided below, beneficial owners of a Convertible Preferred
Security in global form shall not be entitled to have certificates registered in
their names, will not receive or be entitled to receive physical delivery of
certificates in definitive form and will not be considered Holders of such
Convertible Preferred Security in global form.
(c) So long as the Convertible Preferred Securities are eligible for
book-entry settlement and to the extent Convertible Preferred Securities held by
QIBs or Non-U.S. Persons, as the case may be, are held in a global form, or
unless otherwise required by law, upon any transfer of a definitive Convertible
Preferred Security to a QIB in accordance with Rule 144A or to a Non-U.S. Person
in accordance with Regulation S, unless otherwise requested by the transferor,
and upon receipt of the definitive Convertible Preferred Security or Convertible
Preferred Securities being so transferred, together with a certification from
the transferor that the transfer is being made in compliance with Rule 144A or
Regulation S, as the case may be (or other evidence satisfactory to the
Institutional Trustee on behalf of the Trust), the Institutional Trustee on
behalf of the Trust shall make an endorsement on any 144A Global Security or any
Regula tion S Global Security, as the case may be, to reflect an increase in the
number of Convertible Preferred Securities represented by such Global
Certificate, and the Institutional Trustee on behalf of the Trust shall cancel
such definitive Convertible Preferred Security or Convertible Preferred
Securities in accordance with the standing instructions and procedures of the
Clearing Agency, the number of Convertible Preferred Securities represented by
such Convertible Preferred Security in global form to be increased accordingly;
provided that no definitive Convertible Preferred Security, or portion thereof,
in respect of which the Trust or an Affiliate of the Trust held any beneficial
interest shall be included in such Convertible Preferred Security in global form
until such definitive Convertible Preferred Security is freely tradeable in
accordance with Rule 144(k); provided further that the Trust shall issue
Convertible Preferred Securities in definitive form upon any transfer of a
beneficial interest in the Convertible Preferred Security in global form to the
Company or any Affiliate of the Company.
(d) Any Global Certificate may be endorsed with or have incorporated in the
text thereof such legends or recitals or changes not inconsistent with the
provisions of this Declaration as may be required by the Clearing Agency, by any
national securities exchange or by the National Association of Securities
Dealers, Inc. in order for the Convertible Preferred Securities to be tradeable
on the PORTAL Market or as may be required for the Convertible Preferred
Securities to be tradeable on any other market developed for trading of
securities pursuant to Rule 144A or required to comply with any applicable law
or any regulation
39
<PAGE>
thereunder or with the rules and regulations of any securities exchange upon
which the Convertible Preferred Securities may be listed or traded or to conform
with any usage with respect thereto, or to indicate any special limitations or
restrictions to which any particular Convertible Preferred Securities are
subject.
(e) Unless and until definitive, fully registered Convertible Preferred
Security Certificates (the "Definitive Convertible Preferred Security
Certificates") have been issued to the Convertible Preferred Security Beneficial
Owners of a Convertible Preferred Security in global form pursuant to Section
9.7:
(i) the provisions of this Section 9.4 shall be in full force and
effect with respect to such Convertible Preferred Securities;
(ii) the Trust and the Trustees shall be entitled to deal with the
Clearing Agency for all purposes of this Declaration (including the payment
of Distributions on the Global Certificates and receiving approvals, votes
or consents hereunder) as the Holder of such Convertible Preferred
Securities and the sole holder of the Global Certificates and shall have no
obligation to the Convertible Preferred Security Beneficial Owners of such
Convertible Preferred Securities;
(iii) to the extent that the provisions of this Section 9.4 conflict
with any other provisions of this Declaration, the provisions of this
Section 9.4 shall control; and
(iv) the rights of the Convertible Preferred Security Beneficial
Owners of Convertible Preferred Securities in global form shall be
exercised only through the Clearing Agency and shall be limited to those
established by law and agreements between such Convertible Preferred
Security Beneficial Owners and the Clearing Agency and/or the Clearing
Agency Participants. The Clearing Agency will make book-entry transfers
among Clearing Agency Participants and receive and transmit payments of
Distributions on the Global Certificates to such Clearing Agency
Participants. DTC will make book entry transfers among the Clearing Agency
Participants provided, that solely for the purposes of determining whether
the Holders of the requisite amount of Convertible Preferred Securities
have voted on any matter provided for in this Declaration, so long as
Definitive Convertible Preferred Security Certificates have not been
issued, the Trustees may conclusively rely on, and shall be protected in
relying on, any written instrument (including a proxy) delivered to the
Trustees by the Clearing Agency setting forth the Convertible Preferred
Securities Beneficial Owners' votes or assigning the right to vote on any
matter to any other Persons either in whole or in part.
(f) Notwithstanding any other provisions of this Declaration (other than
the provisions set forth in this Section 9.4(f)), a Convertible Preferred
Security in global form may not be transferred as a whole except by the Clearing
Agency to a nominee of the Clearing Agency or by a nominee of the Clearing
Agency to the Clearing Agency or another nominee to a successor Clearing Agency
or a nominee of such successor Clearing Agency.
40
<PAGE>
SECTION 9.5. Notices to Clearing Agency.
Whenever a notice or other communication to the Convertible Preferred
Security Holders is required under this Declaration, unless and until Definitive
Convertible Preferred Security Certificates shall have been issued to the
Convertible Preferred Security Beneficial Owners pursuant to Section 9.7, the
Regular Trustees shall give all such notices and communications specified herein
to be given to the Convertible Preferred Security Holders to the Clearing
Agency, and shall have no notice obligations to the Convertible Preferred
Security Beneficial Owners.
SECTION 9.6. Appointment of Successor Clearing Agency.
If any Clearing Agency notifies the Trust that it is unwilling or unable to
continue its services as securities depositary with respect to the Convertible
Preferred Securities, if such Clearing Agency ceases to perform such services,
or if at any time such Clearing Agency ceases to be a clearing agency registered
as such under the Exchange Act when such Clearing Agency is required to be so
registered to act as such depositary, then the Regular Trustees may, in their
sole discretion, appoint a successor Clearing Agency with respect to such
Convertible Preferred Securities.
SECTION 9.7. Definitive Convertible Preferred Security Certificates Under
Certain Circumstances.
If:
(a) a Clearing Agency notifies the Trust that it is unwilling or unable to
continue its services as securities depositary with respect to the Convertible
Preferred Securities, if at any time such Clearing Agency ceases to be a
clearing agency registered as such under the Exchange Act when such Clearing
Agency is required to be so registered to act as such depositary and no
successor Clearing Agency shall have been appointed pursuant to Section 9.6
within 90 days of such notification;
(b) the Regular Trustees (with the consent of the Sponsor), in their sole
discretion determine that the Convertible Preferred Securities in global from
shall be exchanged for certificated Convertible Preferred Securities; or
(c) there shall have occurred and be continuing an Event of Default;
then:
(d) Definitive Convertible Preferred Security Certificates shall be
prepared by the Regular Trustees on behalf of the Trust with respect to such
Convertible Preferred Securities; and
(e) upon surrender of the Global Certificates by the Clearing Agency,
accompanied by registration instructions, the Regular Trustees shall cause
Definitive Convertible Preferred
41
<PAGE>
Security Certificates to be delivered to Convertible Preferred Security
Beneficial Owners of such Convertible Preferred Securities in accordance with
the instructions of the Clearing Agency.
Neither the Trustees nor the Trust shall be liable for any delay in delivery of
such instructions and each of them may conclusively rely on and shall be
protected in relying on, said instructions of the Clearing Agency. The
Definitive Convertible Preferred Security Certificates shall be printed,
lithographed or engraved or may be produced in any other manner as is reasonably
acceptable to the Regular Trustees, as evidenced by their execution thereof, and
may have such letters, numbers or other marks of identification or designation
and such legends or endorsements as the Regular Trustees may deem appropriate,
or as may be required to comply with any law or with any rule or regulation made
pursuant thereto or with any rule or regulation of any stock exchange on which
Convertible Preferred Securities may be listed, or to conform to usage.
At such time as all interests in a Convertible Preferred Security in global
form have been redeemed, converted, exchanged, repurchased or canceled, such
Convertible Preferred Security in global form shall be, upon receipt thereof,
canceled by the Trust in accordance with standing procedures and instructions of
the Clearing Agency.
Convertible Preferred Securities that upon initial issuance are
beneficially owned by persons that are neither QIBs nor Non-U.S. Persons will be
issued as Definitive Convertible Preferred Security Certificates and may not be
represented by a Global Certificate. Convertible Preferred Securities that upon
initial issuance are beneficially owned by persons that are Non-U.S. Persons
may, at the option of the Trust, be issued as Definitive Convertible Preferred
Security Certificates.
SECTION 9.8. Mutilated, Destroyed, Lost or Stolen Certificates.
If:
(a) any mutilated Certificates should be surrendered to the Regular
Trustees, or if the Regular Trustees shall receive evidence to their
satisfaction of the destruction, loss or theft of any Certificate; and
(b) there shall be delivered to the Institutional Trustee or the Regular
Trustees such security or indemnity as may be required by them to keep each of
them harmless,
then:
in the absence of notice that such Certificate shall have been acquired by
a bona fide purchaser, the Institutional Trustee or any Regular Trustee on
behalf of the Trust shall execute and deliver, in exchange for, or in lieu of,
any such mutilated, destroyed, lost or stolen Certificate, a new Certificate of
like denomination. In connection with the issuance of any new Certificate under
this Section 9.8, the Institutional Trustee or the Regular Trustees may require
the payment of a sum sufficient to cover any tax or other governmental charge
that may be imposed in connection therewith. Any duplicate Certificate issued
pursuant to this Section shall
42
<PAGE>
constitute conclusive evidence of an ownership interest in the relevant
Securities, as if originally issued, whether or not the lost, stolen or
destroyed Certificate shall be found at any time.
ARTICLE X
LIMITATION OF LIABILITY OF HOLDERS OF SECURITIES,
TRUSTEES OR OTHERS
SECTION 10.1. Liability.
(a) Except as expressly set forth in this Declaration, the Securities
Guarantees and the terms of the Securities, the Sponsor shall not be:
(i) personally liable for the return of any portion of the capital
contributions (or any return thereon) of the Holders of the Securities
which shall be made solely from assets of the Trust; or
(ii) be required to pay to the Trust or to any Holder of Securities
any deficit upon dissolution of the Trust or otherwise.
(b) The Holder of the Common Securities shall be liable for all of the
debts and obligations of the Trust (other than with respect to the Securities)
to the extent not satisfied out of the Trust's assets.
(c) Pursuant to (S) 3803(a) of the Business Trust Act, the Holders of the
Convertible Preferred Securities shall be entitled to the same limitation of
personal liability extended to stockholders of private corporations for profit
organized under the General Corporation Law of the State of Delaware.
SECTION 10.2. Exculpation.
(a) No Indemnified Person shall be liable, responsible or accountable in
damages or otherwise to the Trust or any Covered Person for any loss, damage or
claim incurred by reason of any act or omission performed or omitted by such
Indemnified Person in good faith on behalf of the Trust and in a manner such
Indemnified Person reasonably believed to be within the scope of the authority
conferred on such Indemnified Person by this Declaration or by law, except that
an Indemnified Person shall be liable for any such loss, damage or claim
incurred by reason of such Indemnified Person's gross negligence or willful
misconduct with respect to such acts or omissions.
(b) An Indemnified Person shall be fully protected in relying in good faith
upon the records of the Trust and upon such information, opinions, reports or
statements presented to the Trust by any Person as to matters the Indemnified
Person reasonably believes are within such other Person's professional or expert
competence and who has been selected with reasonable care by or on behalf of the
Trust, including information, opinions, reports or statements as to the
43
<PAGE>
value and amount of the assets, liabilities, profits, losses, or any other facts
pertinent to the existence and amount of assets from which Distributions to
Holders of Securities might properly be paid.
SECTION 10.3. Fiduciary Duty.
(a) To the extent that, at law or in equity, an Indemnified Person has
duties (including fiduciary duties) and liabilities relating thereto to the
Trust or to any other Covered Person, an Indemnified Person acting under this
Declaration shall not be liable to the Trust or to any other Covered Person for
its good faith reliance on the provisions of this Declaration. The provisions
of this Declaration, to the extent that they restrict the duties and liabilities
of an Indemnified Person otherwise existing at law or in equity (other than the
duties imposed on the Institutional Trustee under the Trust Indenture Act), are
agreed by the parties hereto to replace such other duties and liabilities of
such Indemnified Person.
(b) Unless otherwise expressly provided herein:
(i) whenever a conflict of interest exists or arises between any
Covered Persons; or
(ii) whenever this Declaration or any other agreement contemplated
herein or therein provides that an Indemnified Person shall act in a manner
that is, or provides terms that are, fair and reasonable to the Trust or
any Holder of Securities, the Indemnified Person shall resolve such
conflict of interest, take such action or provide such terms, considering
in each case the relative interest of each party (including its own
interest) to such conflict, agreement, transaction or situation and the
benefits and burdens relating to such interests, any customary or accepted
industry practices, and any applicable generally accepted accounting
practices or principles. In the absence of bad faith by the Indemnified
Person, the resolution, action or term so made, taken or provided by the
Indemnified Person shall not constitute a breach of this Declaration or any
other agreement contemplated herein or of any duty or obligation of the
Indemnified Person at law or in equity or otherwise.
(c) Whenever in this Declaration an Indemnified Person is permitted or
required to make a decision:
(i) in its "discretion" or under a grant of similar authority, the
Indemnified Person shall be entitled to consider such interests and factors
as it desires, including its own interests, and shall have no duty or
obligation to give any consideration to any interest of or factors
affecting the Trust or any other Person; or
(ii) in its "good faith" or under another express standard, the
Indemnified Person shall act under such express standard and shall not be
subject to any other or different standard imposed by this Declaration or
by applicable law.
44
<PAGE>
SECTION 10.4. Indemnification.
(a) (i) the Debenture Issuer shall indemnify, to the full extent
permitted by law, any Company Indemnified Person who was or is a party or
is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Trust) by
reason of the fact that he is or was a Company Indemnified Person against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Trust, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction,
or upon a plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the Company Indemnified Person did not act in
good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Trust, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe that his
conduct was unlawful.
(ii) The Debenture Issuer shall indemnify, to the full extent
permitted by law, any Company Indemnified Person who was or is a party or
is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Trust to procure a judgment in its
favor by reason of the fact that he is or was a Company Indemnified Person
against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action
or suit if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Trust and except that no
such indemnification shall be made in respect of any claim, issue or matter
as to which such Company Indemnified Person shall have been adjudged to be
liable to the Trust unless and only to the extent that the Court of
Chancery of Delaware or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which such
Court of Chancery or such other court shall deem proper.
(iii) To the extent that a Company Indemnified Person shall be
successful on the merits or otherwise (including dismissal of an action
without prejudice or the settlement of an action without admission of
liability) in defense of any action, suit or proceeding referred to in
paragraphs (i) and (ii) of this Section 10.4(a), or in defense of any
claim, issue or matter therein, he shall be indemnified, to the full extent
permitted by law, against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
(iv) Any indemnification under paragraphs (i) and (ii) of this
Section 10.4(a) (unless ordered by a court) shall be made by the Debenture
Issuer only as authorized in the specific case upon a determination that
indemnification of the Company Indemnified
45
<PAGE>
Person is proper in the circumstances because he has met the applicable
standard of conduct set forth in paragraphs (i) or (ii). Such determination
shall be made (1) by the Regular Trustees by a majority vote of a quorum
consisting of such Regular Trustees who were not parties to such action,
suit or proceeding, (2) if such a quorum is not obtainable, or, even if
obtainable, if a quorum of disinterested Regular Trustees so directs, by
independent legal counsel in a written opinion, or (3) by the Common
Security Holder of the Trust.
(v) Expenses (including attorneys' fees) incurred by a Company
Indemnified Person in defending a civil, criminal, administrative or
investigative action, suit or proceeding referred to in paragraphs (i) and
(ii) of this Section 10.4(a) shall be paid by the Debenture Issuer in
advance of the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of such Company Indemnified
Person to repay such amount if it shall ultimately be determined that he is
not entitled to be indemnified by the Debenture Issuer as authorized in
this Section 10.4(a). Notwithstanding the foregoing, no advance shall be
made by the Debenture Issuer if a determination is reasonably and promptly
made (i) by the Regular Trustees by a majority vote of a quorum of
disinterested Regular Trustees, (ii) if such a quorum is not obtainable,
or, even if obtainable, if a quorum of disinterested Regular Trustees so
directs, by independent legal counsel in a written opinion or (iii) by the
Common Security Holder of the Trust, that, based upon the facts known to
the Regular Trustees, counsel or the Common Security Holder at the time
such determination is made, such Company Indemnified Person acted in bad
faith or in a manner that such person did not believe to be in or not
opposed to the best interests of the Trust, or, with respect to any
criminal proceeding, that such Company Indemnified Person believed or had
reasonable cause to believe his conduct was unlawful. In no event shall
any advance be made in instances where the Regular Trustees, independent
legal counsel or Common Security Holder reasonably determine that such
person deliberately breached his duty to the Trust or its Common or
Convertible Preferred Security Holders.
(vi) The indemnification and advancement of expenses provided by,
or granted pursuant to, the other paragraphs of this Section 10.4(a) shall
not be deemed exclusive of any other rights to which those seeking
indemnification and advancement of expenses may be entitled under any
agreement, vote of stockholders or disinterested directors of the Debenture
Issuer or Convertible Preferred Security Holders of the Trust or otherwise,
both as to action in his official capacity and as to action in another
capacity while holding such office. All rights to indemnification under
this Section 10.4(a) shall be deemed to be provided by a contract between
the Debenture Issuer and each Company Indemnified Person who serves in such
capacity at any time while this Section 10.4(a) is in effect. Any repeal or
modification of this Section 10.4(a) shall not affect any rights or
obligations then existing.
(vii) The Debenture Issuer or the Trust may purchase and maintain
insurance on behalf of any person who is or was a Company Indemnified
Person against any liability asserted against him and incurred by him in
any such capacity, or arising out of his status
46
<PAGE>
as such, whether or not the Debenture Issuer would have the power to
indemnify him against such liability under the provisions of this Section
10.4(a)
(viii) For purposes of this Section 10.4(a), references to "the
Trust" shall include, in addition to the resulting or surviving entity, any
constituent entity (including any constituent of a constituent) absorbed in
a consolidation or merger, so that any person who is or was a director,
trustee, officer or employee of such constituent entity, or is or was
serving at the request of such constituent entity as a director, trustee,
officer, employee or agent of another entity, shall stand in the same
position under the provisions of this Section 10.4(a) with respect to the
resulting or surviving entity as he would have with respect to such
constituent entity if its separate existence had continued.
(ix) The indemnification and advancement of expenses provided by,
or granted pursuant to, this Section 10.4(a) shall, unless otherwise
provided when authorized or ratified, continue as to a person who has
ceased to be a Company Indemnified Person and shall inure to the benefit of
the heirs, executors and administrators of such a person.
(b) The Debenture Issuer agrees to indemnify the (i) Institutional
Trustee, (ii) the Delaware Trustee, (iii) any Affiliate of the Institutional
Trustee and the Delaware Trustee, and (iv) any officers, directors,
shareholders, members, partners, employees, representatives, custodians,
nominees or agents of the Institutional Trustee and the Delaware Trustee (each
of the Persons in (i) through (iv) being referred to as a "Fiduciary Indemnified
Person") for, and to hold each Fiduciary Indemnified Person harmless against,
any loss, liability or expense incurred without negligence or bad faith on its
part, arising out of or in connection with the acceptance or administration or
the trust or trusts hereunder, including the costs and expenses (including
reasonable legal fees and expenses) of defending itself against or investigating
any claim or liability in connection with the exercise or performance of any of
its powers or duties hereunder. The provisions of this Section 10.4(b) shall
survive the satisfaction and discharge of this Declaration or the resignation or
removal of the Institutional Trustee or the Delaware Trustee, as the case may
be.
SECTION 10.5. Outside Business.
Any Covered Person, the Sponsor, the Delaware Trustee and the Institutional
Trustee may engage in or possess an interest in other business ventures of any
nature or description, independently or with others, similar or dissimilar to
the business of the Trust, and the Trust and the Holders of Securities shall
have no rights by virtue of this Declaration in and to such independent ventures
or the income or profits derived therefrom, and the pursuit of any such venture,
even if competitive with the business of the Trust, shall not be deemed wrongful
or improper. No Covered Person, the Sponsor, the Delaware Trustee, or the
Institutional Trustee shall be obligated to present any particular investment or
other opportunity to the Trust even if such opportunity is of a character that,
if presented to the Trust, could be taken by the Trust, and any Covered Person,
shall have the right to take for its own account (individually or as a partner
or fiduciary) or to recommend to others any such particular investment or other
opportunity. Any Covered Person, the Delaware Trustee and the Institutional
Trustee may engage or be interested in any financial or other transaction with
the Sponsor or any Affiliate of the Sponsor, or may act as depositary for,
trustee or agent for, or act on any committee or body of holders of, securities
or other obligations of the Sponsor or its Affiliates.
47
<PAGE>
ARTICLE XI
ACCOUNTING
SECTION 11.1. Fiscal Year.
The fiscal year ("Fiscal Year") of the Trust shall be the same as the
fiscal year of the Company.
SECTION 11.2. Certain Accounting Matters.
(a) At all times during the existence of the Trust, the Regular Trustees
shall keep, or cause to be kept, full books, records and supporting documents,
which shall reflect in detail, each transaction of the Trust. The books of
account shall be maintained on the accrual method of accounting in compliance
with generally accepted accounting principles, consistently applied. The Trust
shall use the accrual method of accounting for the United States federal income
tax purposes. The books of account and the records of the Trust shall be
examined by and reported upon as of the end of each Fiscal Year of the Trust by
a firm of independent certified public accountants selected by the Regular
Trustees.
(b) The Sponsor shall cause to be prepared and delivered to each of the
Holders of Securities, within 90 days after the end of each Fiscal Year of the
Sponsor, annual financial statements of the Sponsor, including a balance sheet
of the Sponsor as of the end of such Fiscal Year, and the related statements of
income or loss.
(c) The Regular Trustees shall cause to be duly prepared and delivered to
each of the Holders of Securities, any annual United States federal income tax
information statement, required by the Code, containing such information with
regard to the Securities held by each Holder as is required by the Code and the
Treasury Regulations. Notwithstanding any right under the Code to deliver any
such statement at a later date, the Regular Trustees shall endeavor to deliver
all such statements within 30 days after the end of each Fiscal Year of the
Trust.
(d) The Regular Trustees shall cause to be duly prepared and filed with the
appropriate taxing authority, an annual United States federal income tax return,
on a Form 1041 or such other form required by United States federal income tax
law, and any other annual income tax returns required to be filed by the Regular
Trustees on behalf of the Trust with any state or local taxing authority.
SECTION 11.3. Banking.
The Trust shall maintain one or more bank accounts in the name and for the
sole benefit of the Trust; provided, however, that all payments of funds in
respect of the Debentures held by
48
<PAGE>
the Institutional Trustee shall be made directly to the Institutional Trustee
Account and no other funds of the Trust shall be deposited in the Institutional
Trustee Account. The sole signatories for such accounts shall be designated by
the Regular Trustees; provided, however, that the Institutional Trustee shall
designate the signatories for the Institutional Trustee Account.
SECTION 11.4. Withholding.
The Trust and the Regular Trustees shall comply with all withholding
requirements under United States federal, state and local law. The Trust shall
request, and the Holders shall provide to the Trust, such forms or certificates
as are necessary to establish an exemption from withholding with respect to each
Holder, and any representations and forms as shall reasonably be requested by
the Trust to assist it in determining the extent of, and in fulfilling, its
withholding obligations. The Regular Trustees shall file required forms with
applicable jurisdictions and, unless an exemption from withholding is properly
established by a Holder, shall remit amounts withheld with respect to the Holder
to applicable jurisdictions. To the extent that the Trust is required to
withhold and pay over any amounts to any authority with respect to distributions
or allocations to any Holder, the amount withheld shall be deemed to be a
distribution in the amount of the withholding to the Holder. In the event of
any claimed over-withholding, Holders shall be limited to an action against the
applicable jurisdiction. If the amount required to be withheld was not withheld
from actual Distributions made, the Trust may reduce subsequent Distributions by
the amount of such withholding. Furthermore, if withholding is imposed on
payments of interest on the Debentures, to the extent such withholding is
attributable to ownership by a specific Holder of Convertible Preferred
Securities, the amount withheld shall be deemed a distribution in the amount of
the withholding to such specific Holder.
ARTICLE XII
AMENDMENTS AND MEETINGS
SECTION 12.1. Amendments.
Except as otherwise provided in this Declaration or by any applicable terms
of the Securities,
(a) this Declaration may only be amended by a written instrument approved
and executed by the Regular Trustees (or, if there are more than two Regular
Trustees a majority of the Regular Trustees) and:
(i) if the amendment affects the rights, powers, duties,
obligations or immunities of the Institutional Trustee, also by the
Institutional Trustee; and
(ii) if the amendment affects the rights, powers, duties,
obligations or immunities of the Delaware Trustee, also by the Delaware
Trustee;
49
<PAGE>
(b) no amendment shall be made, and any such purported amendment shall be
void and ineffective:
(i) unless, in the case of any proposed amendment, the
Institutional Trustee shall have first received an Officers' Certificate
from each of the Trust and the Sponsor that such amendment is permitted by,
and conforms to, the terms of this Declaration (including the terms of the
Securities);
(ii) unless, in the case of any proposed amendment which affects
the rights, powers, duties, obligations or immunities of the Institutional
Trustee, the Institutional Trustee shall have first received:
(A) an Officers' Certificate from each of the Trust and the
Sponsor that such amendment is permitted by, and conforms to, the
terms of this Declaration (including the terms of the Securities); and
(B) an opinion of counsel (who may be counsel to the Sponsor or
the Trust) that such amendment is permitted by, and conforms to, the
terms of this Declaration (including the terms of the Securities); and
(iii) to the extent the result of such amendment would be to:
(A) cause the Trust to fail to continue to be classified for
purposes of United States federal income taxation as a grantor trust;
(B) reduce or otherwise adversely affect the powers of the
Institutional Trustee; or
(C) cause the Trust to be deemed to be an Investment Company
required to be registered under the Investment Company Act;
(c) at such time after the Trust has issued any securities that remain
outstanding, any amendment that would adversely affect the rights, privileges or
preferences of any Holder of Securities may be effected only with such
additional requirements as may be set forth in the terms of such Securities;
(d) Section 9.1(c) and this Section 12.1 shall not be amended without the
consent of all of the Holders of the Securities;
(e) Article IV shall not be amended without the consent of the Holders of a
Majority in liquidation amount of the Common Securities;
(f) the rights of the holders of the Common Securities under Article V to
increase or decrease the number of, and appoint and remove Trustees shall not be
amended without the consent of the Holders of a Majority in liquidation amount
of the Common Securities; and
50
<PAGE>
(g) notwithstanding Section 12.1(c), this Declaration may be amended from
time to time by the Holders of a Majority in liquidation amount of the Common
Securities and the Institutional Trustee, without the consent of the Holders of
the Convertible Preferred Securities to:
(i) cure any ambiguity, correct or supplement any provision in
this Declaration that may be inconsistent with any other provision, or to
make any other provisions with respect to matters or questions arising
under this Declaration, which shall not be inconsistent with the other
provisions of this Declaration; or
(ii) to modify, eliminate or add to any provisions of this
Declaration to such extent as shall be necessary to ensure that the Trust
will be classified for United States federal income tax purposes as a
grantor trust at all times that any Securities are outstanding or to ensure
that the Trust will not be required to register as an investment company
under the Investment Company Act;
provided, however, such action shall not adversely affect in any material
respect the interests of any Holder of Securities;
(h) this Declaration may be amended by the Holders of a Majority in
liquidation amount of the Common Securities and the Institutional Trustee if:
(i) the Holders of a Majority in liquidation amount of the
Convertible Preferred Securities consent to such amendment and
(ii) the Regular Trustees have received an opinion of nationally
recognized independent counsel experienced in such matters to the effect
that such amendment or the exercise of any power granted to the Regular
Trustees in accordance with such amendment will not affect the Trust's
status as a grantor trust for United States federal income tax purposes or
the Trust's exemption from status as an "investment company" under the
Investment Company Act,
provided, that without the consent of each Holder of Securities, this
Declaration may not be amended to:
(x) change the amount or timing of any distribution on the
Securities or otherwise adversely affect the amount of any distribution
required to be made in respect of the Securities as of a specified date or
(y) restrict the right of a Holder of Securities to institute
suit for the enforcement of any such payment on or after such date.
(i) Any amendments of this Declaration shall become effective when notice
thereof is given to Holders of Securities.
51
<PAGE>
SECTION 12.2. Meetings of the Holders of Securities; Action by Written
Consent.
(a) Meetings of the Holders of any class of Securities may be called at any
time by the Regular Trustees (or as provided in the terms of the Securities) to
consider and act on any matter on which Holders of such class of Securities are
entitled to act under the terms of this Declaration, the terms of the Securities
or the rules of any stock exchange on which the Convertible Preferred Securities
are listed or admitted for trading. The Regular Trustees shall call a meeting of
the Holders of such class if directed to do so by the Holders of at least 25% in
liquidation amount of such class of Securities. Such direction shall be given by
delivering to the Regular Trustees one or more calls in a writing stating that
the signing Holders of Securities wish to call a meeting and indicating the
general or specific purpose for which the meeting is to be called. Any Holders
of Securities calling a meeting shall specify in writing the Security
Certificates held by the Holders of Securities exercising the right to call a
meeting and only those Securities specified shall be counted for purposes of
determining whether the required percentage set forth in the second sentence of
this paragraph has been met.
(b) Except to the extent otherwise provided in the terms of the Securities,
the following provisions shall apply to meetings of Holders of Securities:
(i) notice of any such meeting shall be given to all the Holders
of Securities having a right to vote thereat at least 7 days and not more
than 60 days before the date of such meeting. Whenever a vote, consent or
approval of the Holders of Securities is permitted or required under this
Declaration or the rules of any stock exchange on which the Convertible
Preferred Securities are listed or admitted for trading, such vote, consent
or approval may be given at a meeting of the Holders of Securities. Any
action that may be taken at a meeting of the Holders of Securities may be
taken without a meeting if a consent in writing setting forth the action so
taken is signed by the Holders of Securities owning not less than the
minimum amount of Securities in liquidation amount that would be necessary
to authorize or take such action at a meeting at which all Holders of
Securities having a right to vote thereon were present and voting. Prompt
notice of the taking of action without a meeting shall be given to the
Holders of Securities entitled to vote who have not consented in writing.
The Regular Trustees may specify that any written ballot submitted to the
Security Holder for the purpose of taking any action without a meeting
shall be returned to the Trust within the time specified by the Regular
Trustees;
(ii) each Holder of a Security may authorize any Person to act for
it by proxy on all matters in which a Holder of Securities is entitled to
participate, including waiving notice of any meeting, or voting or
participating at a meeting. No proxy shall be valid after the expiration of
11 months from the date thereof unless otherwise provided in the proxy.
Every proxy shall be revocable at the pleasure of the Holder of Securities
executing it. Except as otherwise provided herein, all matters relating to
the giving, voting or validity of proxies shall be governed by the General
Corporation Law of the State of Delaware relating to proxies, and judicial
interpretations thereunder, as if the Trust were a Delaware corporation and
the Holders of the Securities were stockholders of a Delaware corporation;
52
<PAGE>
(iii) each meeting of the Holders of the Securities shall be
conducted by the Regular Trustees or by such other Person that the Regular
Trustees may designate; and
(iv) unless the Business Trust Act, this Declaration, the terms of
the Securities, the Trust Indenture Act or the listing rules of any stock
exchange on which the Convertible Preferred Securities are then listed or
trading, otherwise provides, the Regular Trustees, in their sole
discretion, shall establish all other provisions relating to meetings of
Holders of Securities, including notice of the time, place or purpose of
any meeting at which any matter is to be voted on by any Holders of
Securities, waiver of any such notice, action by consent without a meeting,
the establishment of a record date, quorum requirements, voting in person
or by proxy or any other matter with respect to the exercise of any such
right to vote.
ARTICLE XIII
REPRESENTATIONS OF INSTITUTIONAL TRUSTEE AND
DELAWARE TRUSTEE
SECTION 13.1. Representations and Warranties of Institutional Trustee.
The Trustee that acts as initial Institutional Trustee represents and
warrants to the Trust and to the Sponsor at the date of this Declaration, and
each Successor Institutional Trustee represents and warrants, as applicable, to
the Trust and the Sponsor at the time of the Successor Institutional Trustee's
acceptance of its appointment as Institutional Trustee that:
(a) the Institutional Trustee is a national banking association with trust
powers, duly organized, validly existing and in good standing, with trust power
and authority to execute and deliver, and to carry out and perform its
obligations under the terms of, the Declaration;
(b) the execution, delivery and performance by the Institutional Trustee of
the Declaration has been duly authorized by all necessary corporate action on
the part of the Institutional Trustee. The Declaration has been duly executed
and delivered by the Institutional Trustee, and it constitutes a legal, valid
and binding obligation of the Institutional Trustee, enforceable against it in
accordance with its terms, subject to applicable bankruptcy, reorganization,
moratorium, insolvency, and other similar laws affecting creditors' rights
generally and to general principles of equity and the discretion of the court
(regardless of whether the enforcement of such remedies is considered in a
proceeding in equity or at law);
(c) the execution, delivery and performance of the Declaration by the
Institutional Trustee does not conflict with or constitute a breach of the
charter or by-laws of the Institutional Trustee; and
(d) no consent, approval or authorization of, or registration with or
notice to, any state or federal banking authority is required for the execution,
delivery or performance by the Institutional Trustee, of the Declaration.
53
<PAGE>
SECTION 13.2. Representations and Warranties of Delaware Trustee.
The Trustee that acts as initial Delaware Trustee represents and warrants
to the Trust and to the Sponsor at the date of this Declaration, and each
Successor Delaware Trustee represents and warrants to the Trust and the Sponsor
at the time of the Successor Delaware Trustee's acceptance of its appointment as
Delaware Trustee that:
(a) The Delaware Trustee is a Delaware corporation, duly organized, validly
existing and in good standing, with corporate power and authority to execute and
deliver, and to carry out and perform its obligations under the terms of, the
Declaration.
(b) The Delaware Trustee has been authorized to perform its obligations
under the Certificate of Trust and the Declaration. The Declaration under
Delaware law constitutes a legal, valid and binding obligation of the Delaware
Trustee, enforceable against it in accordance with its terms, subject to
applicable bankruptcy, reorganization, moratorium, insolvency, and other similar
laws affecting creditors' rights generally and to general principles of equity
and the discretion of the court (regardless of whether the enforcement of such
remedies is considered in a proceeding in equity or at law).
(c) No consent, approval or authorization of, or registration with or
notice to, any Delaware or federal banking authority is required for the
execution, delivery or performance by the Delaware Trustee, of the Declaration.
(d) The Delaware Trustee is a natural person who is a resident of the State
of Delaware or, if not a natural person, an entity which has its principal place
of business in the State of Delaware.
ARTICLE XIV
MISCELLANEOUS
SECTION 14.1. Notices.
All notices provided for in this Declaration shall be in writing, duly
signed by the party giving such notice, and shall be delivered, telecopied or
mailed by first class mail, as follows:
54
<PAGE>
(a) if given to the Trust, in care of the Regular Trustees at the Trust's
mailing address set forth below (or such other address as the Trust may give
notice of to the Holders of the Securities):
McKesson Financing Trust
c/o McKesson Corporation
McKesson Plaza
One Post Street
San Francisco, California 94104
Attention: General Counsel
(b) if given to the Delaware Trustee, at the mailing address set forth
below (or such other address as Delaware Trustee may give notice of to the
Holders of the Securities):
First Chicago Delaware Inc.
300 King street
Wilmington, Delaware 19801
Attention: Michael J. Majchrzak
(c) if given to the Institutional Trustee, at its Corporate Trust Office's
mailing address set forth below (or such other address as the Institutional
Trustee may give notice of to the Holders of the Securities).
The First National Bank of Chicago
One First National Plaza, Suite 0126
Chicago, Illinois 60670-0126
Attention: Corporate Trust Services Division
(d) if given to the Holder of the Common Securities, at the mailing address
of the Sponsor set forth below (or such other address as the Holder of the
Common Securities may give notice to the Trust):
McKesson Corporation
McKesson Plaza
One Post Street
San Francisco, California 94104
Attention: General Counsel
(e) if given to any other Holder, at the address set forth on the books and
records of the Trust.
All such notices shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid except that if a notice or other document is refused delivery or
cannot be delivered because of a changed address of which no notice was given,
such notice or other document shall be deemed to have been delivered on the date
of such refusal or inability to deliver.
55
<PAGE>
SECTION 14.2. Governing Law.
This Declaration and the rights of the parties hereunder shall be governed
by and interpreted in accordance with the laws of the State of Delaware and all
rights and remedies shall be governed by such laws without regard to principles
of conflict of laws.
SECTION 14.3. Intention of the Parties.
It is the intention of the parties hereto that the Trust be classified for
United States federal income tax purposes as a grantor trust. The provisions of
this Declaration shall be interpreted to further this intention of the parties.
SECTION 14.4. Headings.
Headings contained in this Declaration are inserted for convenience of
reference only and do not affect the interpretation of this Declaration or any
provision hereof.
SECTION 14.5. Successors and Assign.
Whenever in this Declaration any of the parties hereto is named or referred
to, the successors and assigns of such party shall be deemed to be included, and
all covenants and agreements in this Declaration by the Sponsor and the Trustees
shall bind and inure to the benefit of their respective successors and assigns,
whether so expressed.
SECTION 14.6. Partial Enforceability.
If any provision of this Declaration, or the application of such provision
to any Person or circumstance, shall be held invalid, the remainder of this
Declaration, or the application of such provision to persons or circumstances
other than those to which it is held invalid, shall not be affected thereby.
SECTION 14.7. Counterparts.
This Declaration may contain more than one counterpart of the signature
page and this Declaration may be executed by the affixing of the signature of
each of the Trustees to one of such counterpart signature pages. All of such
counterpart signature pages shall be read as though one, and they shall have the
same force and effect as though all of the signers had signed a single signature
page.
56
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused these presents to be
executed as of the day and year first above written.
____________________________________________________
IVAN D. MEYERSON, as Regular Trustee
Solely as trustee and not in his individual capacity
____________________________________________________
WILLIAM A. ARMSTRONG, as Regular Trustee
Solely as trustee and not in his individual capacity
____________________________________________________
NANCY A. MILLER, as Regular Trustee
Solely as trustee and not in her individual capacity
FIRST CHICAGO DELAWARE INC., as
Delaware Trustee
By: /s/ Richard D. Manella
-----------------------------------------------
Name: Richard D. Manella
Title: Vice President
THE FIRST NATIONAL BANK OF CHICAGO,
as Institutional Trustee
By: /s/ Richard D. Manella
-----------------------------------------------
Name: Richard D. Manella
Title: Vice President
McKESSON CORPORATION, as Sponsor
By: /s/ Ivan D. Meyerson
-----------------------------------------------
Name: Ivan D. Meyerson
Title: Vice President
57
<PAGE>
ANNEX I
TERMS OF
5% CONVERTIBLE PREFERRED SECURITIES
5% CONVERTIBLE COMMON SECURITIES
Pursuant to Section 7.1 of the Amended and Restated Declaration of Trust,
dated as of February 20, 1997 (as amended from time to time, the "Declaration"),
the designation, rights, privileges, restrictions, preferences and other terms
and provisions of the Convertible Preferred Securities and the Common Securities
are set out below (each capitalized term used but not defined herein has the
meaning set forth in the Declaration or, if not defined in such Declaration, as
defined in the Offering Memorandum referred to below):
1. Designation and Number.
----------------------
(a) Convertible Preferred Securities. 3,500,000 Convertible Preferred
--------------------------------
Securities of the Trust (4,000,000 Convertible Preferred Securities if the
Initial Purchaser's over-allotment option is exercised in full) with an
aggregate liquidation amount with respect to the assets of the Trust of One
Hundred Seventy-Five Million Dollars ($175,000,000) (Two Hundred Million Dollars
($200,000,000) if the Initial Purchaser's over-allotment option is exercised in
full), and a liquidation amount with respect to the assets of $50 per
convertible preferred security, are hereby designated for the purposes of
identification only as "5% Trust Convertible Preferred Securities" (the
"Convertible Preferred Securities"). The Convertible Preferred Security
Certificates evidencing the Convertible Preferred Securities shall be
substantially in the form of Exhibit A-1 to the Declaration, with such letters,
numbers, notations, other means of identification or designation or other
changes or additions thereto or deletions therefrom as may be required by
ordinary usage, custom or practice and such legends or endorsements required by
law, state exchange rule and agreements to which the Trust is subject, if any
(provided that any such notation, legend or endorsement is in a form acceptable
to the Trust).
(b) Common Securities. 108,260 Common Securities of the Trust (123,720
-----------------
Common Securities if the Initial Purchaser's over-allotment option is exercised
in full) with an aggregate liquidation amount with respect to the assets of the
Trust of Five Million Four Hundred Thirteen Thousand Dollars ($5,413,000) (Six
Million One Hundred Eighty-Six Thousand Dollars ($6,186,000) if the Initial
Purchaser's over-allotment option is exercised in full), and a liquidation
amount with respect to the assets of the Trust of $50 per common security, are
hereby designated for the purposes of identification only as "5% Common
Securities" (the "Common Securities"). The Common Securities Certificates
evidencing the Common Securities shall be in the form of Exhibit A-2 to the
Declaration, with such letters, numbers, notations, other means of
identification or designation or other changes or additions thereto or deletions
therefrom as may be required by ordinary usage, custom or practice and such
legends or endorsements required by law, state exchange rule and agreements to
which the Trust is subject, if any (provided that any such notation, legend or
endorsement is in a form acceptable to the Trust).
I-1
<PAGE>
2. Distributions.
-------------
(a) Distributions payable on each Security will be fixed at a rate per
annum of 5% (the "Coupon Rate") of the stated liquidation amount of $50 per
Security, such rate being the rate of interest payable on the Debentures to be
held by the Institutional Trustee. Distributions in arrears for more than one
quarter will bear interest thereon compounded quarterly at the Coupon Rate (to
the extent permitted by applicable law). The term "Distributions" as used
herein includes such interest payable unless otherwise stated. A Distribution
is payable only to the extent that payments are made in respect of the
Debentures held by the Institutional Trustee and to the extent the Institutional
Trustee has funds available therefor. The amount of Distributions payable for
any period will be computed for any full quarterly Distribution period on the
basis of a 360-day year of twelve 30-day months, and for any period shorter than
a full quarterly Distribution period for which Distributions are computed,
Distributions will be computed on the basis of the actual number of days elapsed
per 30-day month.
(b) Distributions on the Securities will be cumulative, will accrue from
February 20, 1997 and will be payable quarterly in arrears, on March 1, June 1,
September 1 and December 1 of each year, commencing on June 1, 1997, except as
otherwise described below. So long as the Debenture Issuer shall not be in
default in the payment of interest on the Debentures, the Debenture Issuer has
the right under the Indenture to defer payments of interest on the Debentures
by extending the interest payment period from time to time on the Debentures for
a period not exceeding 20 consecutive quarters (each an "Extension Period"),
during which Extension Period no interest shall be due and payable on the
Debentures, provided that no Extension Period shall last beyond the date of
maturity or any redemption date of the Debentures. As a consequence of such
deferral, Distributions will also be deferred. Despite such deferral, quarterly
Distributions will continue to accrue with interest thereon (to the extent
permitted by applicable law) at the Coupon Rate compounded quarterly during any
such Extension Period. Prior to the termination of any such Extension Period,
the Debenture Issuer may further extend such Extension Period; provided that
such Extension Period together with all such previous and further extensions
thereof may not exceed 20 consecutive quarters or extend beyond the maturity or
any redemption date of the Debentures. Payments of accrued Distributions and,
to the extent permitted by applicable law, accrued interest thereon shall be
payable on the Distribution payment date on which the relevant Extension Period
terminates and shall be payable to Holders as they appear on the books and
records of the Trust at the close of business on the record date next preceding
such Distribution payment date. Upon the termination of any Extension Period
and the payment of all amounts then due, the Debenture Issuer may commence a new
Extension Period, subject to the above requirements. Each Extension Period, if
any, will end on an interest payment date for the Debentures; such date will
also be a Distribution payment date for the Securities. In the event that the
Debenture Issuer exercises its right to defer payment of interest, then during
such Extension Period the Debenture Issuer shall not (a) declare or pay
dividends on, make distributions with respect to, or redeem, purchase or
acquire, or make a liquidation payment with respect to, any of its capital
stock, or (b) make any payment of interest, principal or premium, if any, on or
repay, repurchase or redeem any debt securities issued by the Debenture Issuer
that rank pari passu with
I-2
<PAGE>
or junior in interest to the Debentures or make any guarantee payments with
respect to any guarantee by the Debenture Issuer of the debt securities of any
subsidiary of the Debenture Issuer if such guarantee ranks pari passu with or
junior in interest to the Debentures (other than (i) as a result of a
reclassification of the capital stock of the Debenture Issuer or the exchange or
conversion of one class or series of the capital stock of the Debenture Issuer
for another class or series of the capital stock of the Debenture Issuer, (ii)
the purchase of fractional interests in shares of the capital stock of the
Debenture Issuer pursuant to the conversion or exchange provisions of such
capital stock or the security being converted into or exchanged for such capital
stock, (iii) dividends or distributions in Common Stock of the Debenture Issuer,
(iv) any declaration of a dividend in connection with the implementation of a
stockholders' rights plan, or the issuance of stock under any such plan in the
future, or the redemption or repurchase of any such rights pursuant thereto, (v)
payments under the Securities Guarantees, (vi) purchases of Common Stock of the
Debenture Issuer related to the issuance of Common Stock of the Debenture Issuer
or rights under any of the Debenture Issuer's benefit plans for its directors,
officers or employees and (vii) obligations under any dividend reinvestment and
stock purchase plans).
(c) Distributions on the Securities will be payable to the Holders thereof
as they appear on the books and records of the Trust on the relevant record
dates, which shall be fifteen days prior to the relevant payment dates, which
payment dates correspond to the record and interest payment dates on the
Debentures. The relevant record dates for the Common Securities shall be the
same record dates as for the Convertible Preferred Securities. Distributions
payable on any Securities that are not punctually paid on any Distribution
payment date, as a result of the Debenture Issuer having failed to make a
payment under the Debentures, will cease to be payable to the Person in whose
name such Securities are registered on the relevant record date, and such
defaulted Distribution will instead be payable to the Person in whose name such
Securities are registered on the special record date or other specified date
determined in accordance with the Indenture. If any date on which Distributions
are payable on the Securities is not a Business Day, then payment of the
Distributions payable on such date will be made on the next succeeding day that
is a Business Day (and without any interest or other payment in respect of any
such delay) except that, if such Business Day is in the next succeeding calendar
year, such payment shall be made on the immediately preceding Business Day, in
each case with the same force and effect as if made on such date.
(d) In the event of an election by the Holder to convert its Securities
through the Conversion Agent into Common Stock pursuant to the terms of the
Securities as set forth in this Annex I to the Declaration, no payment,
allowance or adjustment shall be made with respect to accumulated and unpaid
Distributions on such Securities, or be required to be made; provided, however,
that Holders of Securities at the close of business on any record date for the
payment of Distributions will be entitled to receive the Distributions payable
on such Securities on the corresponding payment date notwithstanding the
conversion of such Securities into Common Stock following such record date;
provided, further that if the date of any redemption of related Debentures falls
between such record date and such corresponding payment date, the amount of such
Distribution shall include accumulated and unpaid Distributions accrued to but
excluding such date of redemption and such payment shall be made to the
converting holder.
(e) In the event that there is any money or other property held by or for
the Trust that is not accounted for hereunder, such property shall be
distributed Pro Rata (as defined herein) among the Holders of the Securities.
I-3
<PAGE>
3. Liquidation Distribution Upon Dissolution.
-----------------------------------------
The Debenture Issuer will have the right at any time to cause the Trust to
be dissolved with the result that, after satisfaction of creditors of the Trust,
Debentures having an aggregate principal amount equal to the aggregate stated
liquidation amount of the Convertible Preferred Securities and the Common
Securities will be distributed on a pro rata basis to the Holders of the
Convertible Preferred Securities and the Common Securities in liquidation of
such Holders' interests in the Trust, within 90 days following notice given to
the Holders of the Convertible Preferred Securities, subject to the Regular
Trustees' receipt of an opinion of nationally recognized independent counsel
experienced in such matters to the effect that the Holders will not recognize
any income, gain or loss for United States federal income tax purposes as a
result of the dissolution of the Trust and such distribution to Holders of
Convertible Preferred Securities.
In the event of any voluntary or involuntary liquidation, dissolution,
winding-up or termination of the Trust (each a "Liquidation"), the Holders of
the Securities on the date of the Liquidation will be entitled to receive out of
the assets of the Trust available for distribution to Holders of Securities
after satisfaction of liabilities of creditors an amount equal to the aggregate
of the stated liquidation amount of $50 per Security plus accrued and unpaid
Distributions thereon to the date of payment (such amount being the "Liquidation
Distribution"), unless, in connection with such Liquidation, Debentures in an
aggregate stated principal amount equal to the aggregate stated liquidation
amount of such Securities, with an interest rate equal to the Coupon Rate of,
and bearing accrued and unpaid interest in an amount equal to the accrued and
unpaid Distributions on, such Securities, shall have been distributed on a Pro
Rata basis to the Holders of the Securities in exchange for such Securities.
If, upon any such Liquidation, the Liquidation Distribution can be paid
only in part because the Trust has insufficient assets available to pay in full
the aggregate Liquidation Distribution, then the amounts payable directly by the
Trust on the Securities shall be paid on a Pro Rata basis.
4. Redemption and Distribution.
---------------------------
(a) The Debentures will mature on June 1, 2027, and may be redeemed, in
whole or in part, at any time on or after March 4, 2000, or at any time in
certain circumstances upon the occurrence of a Tax Event (as defined below).
Upon the repayment of the Debentures in whole or in part, whether at maturity,
upon redemption (either at the option of the Debenture Issuer or pursuant to a
Tax Event as described below) or otherwise, the proceeds from such repayment or
payment shall be simultaneously applied to redeem Securities having an aggregate
liquidation amount equal to the aggregate principal amount of the Debentures so
repaid or redeemed at a redemption price per Security equal to the redemption
price of the Debentures, together with accrued and unpaid Distributions thereon
to, but excluding, the date of the redemption, payable in cash (the "Redemption
Price"). Holders will be given not less than 30 nor more than 60 days' notice
of such redemption.
I-4
<PAGE>
(b) If fewer than all the outstanding Securities are to be so redeemed,
the Common Securities and the Convertible Preferred Securities will be redeemed
Pro Rata and the Convertible Preferred Securities to be redeemed will be as
described in Section 4(f) below.
(c) If, at any time, a Tax Event or an Investment Company Event (each, as
defined below, a "Special Event") shall occur and be continuing, the Regular
Trustees may with the consent of the Debenture Issuer, except in certain limited
circumstances in relation to a Tax Event described in this Section 4(c),
dissolve the Trust and, after satisfaction of creditors, cause Debentures held
by the Institutional Trustee, having an aggregate principal amount equal to the
aggregate stated liquidation amount of, with an interest rate identical to the
Coupon Rate of, and accrued and unpaid interest equal to accrued and unpaid
Distributions on, and having the same record date for payment as the Securities,
to be distributed to the Holders of the Securities in liquidation of such
Holders' interests in the Trust on a Pro Rata basis, within 90 days following
the occurrence of such Special Event (the "90 Day Period"); provided, however,
that such dissolution and distribution shall be conditioned on (i) the Regular
Trustees' receipt of an opinion of nationally recognized independent tax counsel
experienced in such matters (a "No Recognition Opinion"), which opinion may rely
on published revenue rulings of the Internal Revenue Service, to the effect that
the Holders of the Securities will not recognize any gain or loss for United
States federal income tax purposes as a result of the dissolution of the Trust
and the distribution of Debentures, (ii) in the case of a Tax Event, the
Debenture Issuer or the Trust being unable to avoid, within the 90 Day Period,
the Tax Event by taking some ministerial action, such as filing a form or making
an election, or pursuing some other similar reasonable measure that has no
adverse effect on the Trust, the Debenture Issuer, the Sponsor or the Holders of
the Securities ("Ministerial Action"), and (iii) the Debenture Issuer's prior
written consent to such dissolution and distribution.
Furthermore, if (i) after receipt of a Dissolution Tax Opinion (as defined
hereinafter) by the Regular Trustees, the Debenture Issuer has received an
opinion (a "Redemption Tax Opinion") of nationally recognized independent tax
counsel experienced in such matters that, as a result of a Tax Event, there is
more than an insubstantial risk that the Debenture Issuer would be precluded
from deducting the interest on the Debentures for United States federal income
tax purposes even after the Debentures were distributed to the Holders of
Securities in liquidation of such Holders' interests in the Trust as described
in this Section 4(c), or (ii) the Regular Trustees shall have been informed by
such tax counsel that it cannot deliver a No Recognition Opinion to the Trust,
the Debenture Issuer shall have the right, upon not less than 30 nor more than
60 days' notice, to redeem the Debentures, in whole or in part, at a redemption
price equal to 100% of the principal amount thereof plus accrued and unpaid
interest thereon, for cash within 90 days following the occurrence of such Tax
Event. Following such redemption, Securities with an aggregate liquidation
amount equal to the aggregate principal amount of the Debentures so redeemed
shall be redeemed by the Trust at the Redemption Price on a Pro Rata basis;
provided, however, that, if at the time there is available to the Debenture
Issuer or the Trust the opportunity to eliminate, within such 90 day period, the
Tax Event by taking some Ministerial Action, the Trust or the Debenture Issuer
will pursue such Ministerial Action in lieu of redemption.
I-5
<PAGE>
"Tax Event" means that the Regular Trustees shall have received an opinion
of nationally recognized independent tax counsel experienced in such matters (a
"Dissolution Tax Opinion") to the effect that on or after February 20, 1997, as
a result of (a) any amendment to, clarification of, or change (including any
announced prospective change) in the laws (or any regulations thereunder) of the
United States or any political subdivision or taxing authority thereof or
therein affecting taxation, (b) any judicial decision, official administrative
pronouncement, ruling, regulatory procedure, notice or announcement, including
any notice or announcement of intent to adopt such procedures or regulations (an
"Administrative Action") or (c) any amendment to, clarification of, or change in
the official position or the interpretation of such Administrative Action or
judicial decision that differs from the theretofore generally accepted position,
in each case, by any legislative body, court, governmental authority or
regulatory body, irrespective of the manner in which such amendment,
clarification, change or Administrative Action is made known, which amendment,
clarification, change or Administrative Action is effective or such
pronouncement or decision is announced, in each case, on or after, February 20,
1997, there is the creation by such amendment, clarification, change or
Administrative Action of more than an insubstantial risk that (i) the Trust is,
or will be within 90 days of the date thereof, subject to United States federal
income tax with respect to income accrued or received on the Debentures, (ii)
the Trust is, or will be within 90 days of the date thereof, subject to more
than a de minimis amount of taxes (other than withholding taxes), duties or
other governmental charges, or (iii) interest paid in cash by the Debenture
Issuer to the Trust on the Debentures is not, or within 90 days of the date
thereof will not be, deductible, in whole or in part, by the Debenture Issuer
for United States federal income tax purposes. Notwithstanding the foregoing, a
Tax Event shall not include any change in tax law that requires the Debenture
Issuer for United States federal income tax purposes to defer taking a deduction
for any original issue discount ("OID") that accrues with respect to the
Debentures until the interest payment related to such OID is paid by the
Debenture Issuer in cash; provided, that such change in tax law does not create
more than an insubstantial risk that the Debenture Issuer will be prevented from
taking a deduction for OID accruing with respect to the Debentures at a date
that is no later than the date the interest payment related to such OID is
actually paid by the Debenture Issuer in cash.
"Investment Company Event" means that the Regular Trustees shall have
received an opinion of nationally recognized independent counsel experienced in
such matters to the effect that, as a result of the occurrence of a change in
law or regulation or a written change in interpretation or application of law or
regulation by any legislative body, court, governmental agency or regulatory
authority on or after February 20, 1997 (a "Change in 1940 Act Law"), there is
more than an insubstantial risk that the Trust is or will be considered an
"investment company" that is required to be registered under the Investment
Company Act of 1940, as amended (the "1940 Act").
After the date fixed by the Regular Trustees for any distribution of
Debentures upon dissolution of the Trust: (i) the Securities will no longer be
deemed to be outstanding, (ii) The Depository Trust Company (the "Depository")
or its nominee (or any successor Clearing Agency or its nominee), as the record
Holder of the Convertible Preferred Securities held in global form, will receive
a registered certificate or certificates representing the Debentures held in
global form to be delivered upon such distribution, and (iii) certificates
representing Securities held in
I-6
<PAGE>
definitive form, except for certificates representing Convertible Preferred
Securities held by the Depository or its nominee (or any successor Clearing
Agency or its nominee), will be deemed to represent Debentures having an
aggregate principal amount equal to the aggregate stated liquidation amount of,
with an interest rate identical to the Coupon Rate of, and accrued and unpaid
interest (including Compound Interest (as defined in the Indenture)) equal to
accrued and unpaid Distributions on such Securities until such certificates are
presented to the Debenture Issuer or its agent for transfer or reissue.
(d) The Trust may not redeem fewer than all the outstanding Securities
unless all accrued and unpaid Distributions have been paid on all Securities for
all quarterly Distribution periods terminating on or prior to the date of
redemption.
(e) (i) Notice of any redemption of, or notice of distribution of
Debentures in exchange for, the Securities (a "Redemption/Distribution
Notice") will be given by the Trust by mail to each Holder of Securities to
be redeemed or exchanged not fewer than 30 nor more than 60 days before the
date fixed for redemption or exchange thereof which, in the case of a
redemption, will be the date fixed for redemption of the Debentures. For
purposes of the calculation of the date of redemption or exchange and the
dates on which notices are given pursuant to this Section 4(e), a
Redemption/Distribution Notice shall be deemed to be given on the day such
notice is first mailed by first-class mail, postage prepaid, or by such
other means suitable to assure delivery of such written notice, to Holders
of Securities. Each Redemption/Distribution Notice shall be addressed to
the Holders of Securities at the address of each such Holder appearing in
the books and records of the Trust. No defect in the
Redemption/Distribution Notice or in the mailing of either thereof with
respect to any Holder of Securities shall affect the validity of the
redemption or exchange proceedings with respect to any other Holder of
Securities.
(ii) In addition to the Redemption/Distribution Notice to be
provided to the Holders of Securities pursuant to clause (i) of this
Section 4(e), the Debenture Issuer or the Trust shall give public notice of
any such redemption by the issuance of a press release through the services
of the Dow Jones Broad Tape, Reuters News Service and Bloomberg News
Service.
(f) In the event that fewer than all the outstanding Securities are to be
redeemed, the Securities to be redeemed shall be redeemed Pro Rata from each
Holder of Convertible Preferred Securities, it being understood that, in respect
of Convertible Preferred Securities registered in the name of and held of record
by the Depository or its nominee (or any successor Clearing Agency or its
nominee) or any nominee, the distribution of the proceeds of such redemption
will be made to each Clearing Agency Participant (or Person on whose behalf such
nominee holds such securities) in accordance with the procedures applied by such
agency or nominee.
(g) If Securities are to be redeemed and the Trust gives a
Redemption/Distribution Notice, which notice may only be issued for a redemption
if the Debentures are redeemed as set out in Article X of the Indenture (which
notice will be irrevocable), then (i) with respect to Convertible Preferred
Securities held in book-entry form by 12:00 noon, New York City time,
I-7
<PAGE>
on the redemption date, provided that the Debenture Issuer has paid the
Institutional Trustee a sufficient amount of cash in connection with the related
redemption of the Debentures, the Institutional Trustee will deposit irrevocably
with the Depository or its nominee (or successor Clearing Agency or its nominee)
funds sufficient to pay the applicable Redemption Price with respect to such
Convertible Preferred Securities and will give the Depository irrevocable
instructions and authority to pay the Redemption Price to the Holders of such
Convertible Preferred Securities, and (ii) with respect to Convertible Preferred
Securities issued in definitive form and Common Securities, provided that the
Debenture Issuer has paid the Institutional Trustee a sufficient amount of cash
in connection with the related redemption of the Debentures, the Institutional
Trustee will pay the relevant Redemption Price to the Holders of such Securities
by check mailed to the address of the relevant Holder appearing on the books and
records of the Trust on the redemption date. If a Redemption/Distribution Notice
shall have been given in connection with a redemption and funds deposited as
required, then from and after the required date of such deposit, distributions
will cease to accrue on the Securities so called for redemption and all rights
of Holders of such Securities so called for redemption will cease, except the
right of the Holders of such Securities to receive the Redemption Price, but
without interest on such Redemption Price. If any date fixed for redemption of
Securities is not a Business Day, then payment of the Redemption Price payable
on such date will be made on the next succeeding Business Day (and without any
interest or other payment in respect of any such delay) except that, if such
Business Day falls in the next calendar year, such payment will be made on the
immediately preceding Business Day, in each case with the same force and effect
as if made on such date fixed for redemption. If payment of the Redemption Price
in respect of any Securities is improperly withheld or refused and not paid
either by the Institutional Trustee or by the Sponsor as guarantor pursuant to
the relevant Securities Guarantee, Distributions on such Securities will
continue to accrue from the original redemption date to the actual date of
payment, in which case the actual payment date will be considered the date fixed
for redemption for purposes of calculating the Redemption Price.
Neither the Regular Trustees nor the Trust shall be required (i) in the
event of any redemption in part, to issue, register the transfer of or exchange
any Securities during a period beginning at the opening of business 15 days
before any selection for redemption of Securities and ending at the close of
business on the earliest date in which the relevant Redemption/Distribution
Notice is deemed to have been given to all holders of Securities to be so
redeemed or (ii) to register the transfer of or exchange any Securities selected
for redemption, in whole or in part, except for the unredeemed portion of any
Securities being redeemed in part.
(h) Redemption/Distribution Notices shall be sent by the Regular Trustees
on behalf of the Trust to (i) in respect of Convertible Preferred Securities
held in global form, the Depository or its nominee (or any successor Clearing
Agency or its nominee), (ii) with respect to Convertible Preferred Securities
held in definitive form, to the Holders thereof, and (iii) in respect of the
Common Securities, to the Holders thereof.
(i) Subject to the foregoing and applicable law (including, without
limitation, United States federal securities laws), the Sponsor or any of its
subsidiaries may at any time and from time to time purchase outstanding
Convertible Preferred Securities by tender, in the open market or otherwise.
I-8
<PAGE>
5. Conversion Rights.
-----------------
The Holders of Securities shall have the right at any time, beginning May
21, 1997 through the close of business on May 28, 2027 (or, in the case of
Securities called for redemption, prior to the close of business on the
Business Day prior to the redemption date), at their option, to cause the
Conversion Agent to convert Securities, on behalf of the converting Holders,
into shares of Common Stock in the manner described herein on and subject to the
following terms and conditions:
(a) The Securities will be convertible at the office of the Conversion
Agent into fully paid and nonassessable shares of Common Stock pursuant to the
Holder's direction to the Conversion Agent to exchange such Securities for a
portion of the Debentures theretofore held by the Trust on the basis of one
Security per $50 principal amount of Debentures, and immediately convert such
amount of Debentures into fully paid and nonassessable shares of Common Stock at
an initial rate of .6709 shares of Common Stock per $50 principal amount of
Debentures (which is equivalent to a conversion price of $74.53 per share of
Common Stock, subject to certain adjustments set forth in Article XII of the
Indenture (as so adjusted, "Conversion Price")).
(b) In order to convert Securities into Common Stock, the Holder shall
submit to the Conversion Agent at its office an irrevocable request to convert
Securities on behalf of such Holder (the "Conversion Request"), together, if the
Securities are in certificated form, with such certificates. The Conversion
Request shall (i) set forth the number of Securities to be converted and the
name or names, if other than the Holder, in which the shares of Common Stock
should be issued and (ii) direct the Conversion Agent (a) to exchange such
Securities for a portion of the Debentures held by the Trust (at the rate of
exchange specified in the preceding paragraph) and (b) to immediately convert
such Debentures on behalf of such Holder, into Common Stock (at the conversion
rate specified in the preceding paragraph). The Conversion Agent shall notify
the Trust of the Holder's election to exchange Securities for a portion of the
Debentures held by the Trust and the Trust shall, upon receipt of such notice,
deliver to the Conversion Agent the appropriate principal amount of Debentures
for exchange in accordance with this Section. The Conversion Agent shall
thereupon notify McKesson of the Holder's election to convert such Debentures
into shares of Common Stock. Holders of Securities at the close of business on
a Distribution record date will be entitled to receive the Distribution payable
on such securities on the corresponding Distribution payment date
notwithstanding the conversion of such Securities following such record date but
prior to such distribution payment date; provided, however, that if the date of
any redemption of the related Debentures falls between such record date and the
related Distribution payment date, the amount of such Distribution shall include
accumulated and unpaid Distributions accrued to but excluding such date of
redemption, and such payment shall be made to the converting Holder. Except as
provided above, neither the Trust nor the Sponsor will make, or be required to
make, any payment, allowance or adjustment upon any conversion on account of any
accumulated and unpaid Distributions accrued on the Securities (including any
Additional Amounts accrued thereon) surrendered for conversion, or on account of
any accumulated and unpaid dividends on the shares of Common Stock issued upon
such conversion, except to the extent that such shares are held of record on the
record date for any such distributions. Securities shall be deemed to have been
converted immediately prior to the close of business on
I-9
<PAGE>
the day on which a Notice of Conversion relating to such Securities is received
by the Trust in accordance with the foregoing provision (the "Conversion Date").
The Person or Persons entitled to receive Common Stock issuable upon conversion
of the Debentures shall be treated for all purposes as the record holder or
holders of such Common Stock at such time. As promptly as practicable on or
after the Conversion Date, McKesson shall issue and deliver at the office of the
Conversion Agent a certificate or certificates for the number of full shares of
Common Stock issuable upon such conversion, together with the cash payment, if
any, in lieu of any fraction of any share to the Person or Persons entitled to
receive the same, unless otherwise directed by the Holder in the notice of
conversion and the Conversion Agent shall distribute such certificate or
certificates to such Person or Persons.
(c) Each Holder of a Security by his acceptance thereof appoints The First
National Bank of Chicago as "Conversion Agent" for the purpose of effecting the
conversion of Securities in accordance with this Section. In effecting the
conversion and transactions described in this Section, the Conversion Agent
shall be acting as agent of the Holders of Securities directing it to effect
such conversion transactions. The Conversion Agent is hereby authorized (i) to
exchange Securities from time to time for Debentures held by the Trust in
connection with the conversion of such Securities in accordance with this
Section and (ii) to convert all or a portion of the Debentures into Common Stock
and thereupon to deliver such shares of Common Stock in accordance with the
provisions of this Section and to deliver to the Trust a new Debenture or
Debentures for any resulting unconverted principal amount.
(d) No fractional shares of Common Stock will be issued as a result of
conversion of Securities, but in lieu thereof such fractional interest will be
paid in cash by McKesson, in an amount based on the Closing Price of the Common
Stock on the date such Securities are surrendered for conversion, to the
Conversion Agent, which in turn will make such payment to the Holder or Holders
of Securities so converted.
(e) McKesson shall at all times reserve and keep available out of its
authorized and unissued Common Stock, solely for issuance upon the conversion of
the Debentures, free from any preemptive or other similar rights, such number of
shares of Common Stock as shall from time to time be issuable upon the
conversion of all the Debentures then outstanding. Notwithstanding the
foregoing, McKesson shall be entitled to deliver upon conversion of Debentures,
shares of Common Stock reacquired and held in the treasury of McKesson (in lieu
of the issuance of authorized and unissued shares of Common Stock), so long as
any such treasury shares are free and clear of all liens, charges, security
interests or encumbrances. Any shares of Common Stock issued upon conversion of
the Debentures shall be duly authorized, validly issued and fully paid and
nonassessable. The Trust shall deliver the shares of Common Stock received upon
conversion of the Debentures to the converting Holder free and clear of all
liens, charges, security interests and encumbrances, except for United States
withholding taxes. Each of McKesson and the Trust shall prepare and shall use
its best efforts to obtain and keep in force such governmental or regulatory
permits or other authorizations as may be required by law, and shall comply with
all applicable requirements as to registration or qualification of Common Stock
(and all requirements to list Common Stock issuable upon conversion of
Debentures that are at the time applicable), in order to enable McKesson to
lawfully issue Common Stock to the Trust
I-10
<PAGE>
upon conversion of the Debentures and the Trust to lawfully deliver Common Stock
to each Holder upon conversion of the Securities.
(f) McKesson will pay any and all taxes that may be payable in respect of
the issue or delivery of shares of Common Stock on conversion of Debentures and
the delivery of the shares of Common Stock by the Trust upon conversion of the
Securities. McKesson shall not, however, be required to pay any tax which may
be payable in respect of any transfer involved in the issue and delivery of
shares of Common Stock in a name other than that in which the Securities so
converted were registered, and no such issue or delivery shall be made unless
and until the person requesting such issue has paid to the Trust the amount of
any such tax, or has established to the satisfaction of the Trust that such tax
has been paid.
(g) Nothing in the preceding Paragraph (f) shall limit the requirement of
the Trust to withhold taxes pursuant to the terms of the Securities or as set
forth in this Annex I to the Declaration or to the Declaration itself or
otherwise require the Institutional Trustee or the Trust to pay any amounts on
account of such withholdings.
(h) The term "Closing Price" with respect to any security on any day means
the last reported sale price, regular way on such day, or, if no sale takes
place on such day, the average of the reported closing bid and asked prices on
such day, regular way, in either case as reported on the NYSE Composite Tape,
or, if such security is not listed or admitted to trading on the NYSE, on the
principal national securities exchange on which such security is listed or
admitted to trading, or, if such security is not listed or admitted to trading
on a national securities exchange, on the National Market System of the National
Association of Securities Dealers, Inc., or, if such security is not quoted or
admitted to trading on such quotation system, on the principal quotation system
on which such security is listed or admitted to trading or quoted, or, if not
listed or admitted to trading or quoted on any national securities exchange or
quotation system, the average of the closing bid and asked prices of such
security in the over-the-counter market on the day in question as reported by
the National Quotation Bureau Incorporated, or a similar generally accepted
reporting service, or, if not so available in such manner, as furnished by any
NYSE member firm selected from time to time by the board of Directors (or any
committee duly authorized by the Board of Directors) of the Debenture Issuer for
that purpose or, if not so available in such manner, as otherwise determined in
good faith by the Board of Directors (or any committee duly authorized by the
Board of Directors) of the Debenture Issuer.
6. Voting and Other Rights - Convertible Preferred Securities.
----------------------------------------------------------
(a) Except as provided under Sections 6(b) and 8 of this Annex I to the
Declaration and as otherwise required by law and the Declaration, the Holders of
the Convertible Preferred Securities will not have voting rights.
(b) Subject to the requirements set forth in this paragraph, the Holders
of a Majority in liquidation amount of the Convertible Preferred Securities then
outstanding, voting separately as a class, may direct the time, method, and
place of conducting any proceeding for any remedy available to the Institutional
Trustee, or may direct the exercise of any trust or power conferred upon the
Institutional Trustee under the Declaration, including the right to direct the
Institutional
I-11
<PAGE>
Trustee, as holder of the Debentures, to (i) exercise the remedies available
under the Indenture with respect to the Debentures, (ii) waive any past default
and its consequences that is waivable under Section 5.9 of the Indenture, or
(iii) exercise any right to rescind or annul a declaration that the principal of
all the Debentures shall be due and payable, provided, however, that if an Event
of Default under the Indenture has occurred and is continuing then the holders
of 25% of the aggregate liquidation amount of the Convertible Preferred
Securities then outstanding may direct the Institutional Trustee to declare the
principal of and interest on the Debentures immediately due and payable; and
provided, further, that, where a consent under the Indenture would require the
consent or act of the Holders of greater than a majority of the Holders in
principal amount of Debentures then outstanding (a "Super Majority") affected
thereby, the Institutional Trustee may only give such consent or take such
action at the written direction of the Holders of at least the proportion in
liquidation amount of the Convertible Preferred Securities which the relevant
Super Majority represents of the aggregate principal amount of the Debentures
then outstanding. The Institutional Trustee shall not revoke any action
previously authorized or approved by a vote of the Holders of the Convertible
Preferred Securities. Other than with respect to directing the time, method and
place of conducting any remedy available to the Institutional Trustee as set
forth above, the Institutional Trustee shall not take any action in accordance
with the directions of the Holders of the Convertible Preferred Securities under
this paragraph unless the Institutional Trustee has obtained an opinion of
nationally recognized independent tax counsel experienced in such matters to the
effect that for the purposes of United States federal income tax the Trust will
not be classified as other than a grantor trust as a result of such action. If
the Institutional Trustee fails to enforce its rights under the Debentures, any
Holder of Convertible Preferred Securities may institute a legal proceeding
against any person to enforce the Institutional Trustee's rights under the
Debentures. If a Declaration Event of Default has occurred and is continuing and
such event is attributable to the failure of the Debenture Issuer to pay
interest or principal on the Debentures on the date such interest or principal
is otherwise payable (or in the case of redemption, on the redemption date),
then a Holder of Convertible Preferred Securities may directly institute a
proceeding for enforcement of payment to such Holder of the principal of or
interest on the Debentures having a principal amount equal to the aggregate
liquidation amount of the Convertible Preferred Securities of such Holder (a
"Direct Action") on or after the respective due date specified in the
Debentures. In connection with such Direct Action, the rights of the Holders of
Common Securities will be subrogated to the rights of such Holder of Convertible
Preferred Securities to the extent of any payment made by the Issuer to such
Holder of Convertible Preferred Securities in such Direct Action. Except as
provided in the preceding sentences, the Holders of Convertible Preferred
Securities will not be able to exercise directly any other remedy available to
the holders of the Debentures.
Any approval or direction of Holders of Convertible Preferred Securities
may be given at a separate meeting of Holders of Convertible Preferred
Securities convened for such purpose, at a meeting of all of the Holders of
Securities in the Trust or pursuant to written consent. The Regular Trustees
will cause a notice of any meeting at which Holders of Convertible Preferred
Securities are entitled to vote, or of any matter upon which action by written
consent of such Holders is to be taken, to be mailed to each Holder of record of
Convertible Preferred Securities. Each such notice will include a statement
setting forth (i) the date of such meeting or the date by which such action is
to be taken, (ii) a description of any resolution proposed for
I-12
<PAGE>
adoption at such meeting on which such Holders are entitled to vote or of such
matter upon which written consent is sought and (iii) instructions for the
delivery of proxies or consents.
No vote or consent of the Holders of the Convertible Preferred Securities
will be required for the Trust to redeem and cancel Convertible Preferred
Securities or to distribute the Debentures in accordance with the Declaration
and the terms of the Securities.
Notwithstanding that Holders of Convertible Preferred Securities are
entitled to vote or consent under any of the circumstances described above, any
of the Convertible Preferred Securities that are owned by the Sponsor or any
Affiliate of the Sponsor shall not be entitled to vote or consent and shall, for
purposes of such vote or consent, be treated as if they were not outstanding.
7. Voting Rights - Common Securities.
---------------------------------
(a) Except as provided under Sections 7(b), 7(c) and 8 of this Annex I of
the Declaration and as otherwise required by law and the Declaration, the
Holders of the Common Securities will not have voting rights.
(b) The Holders of the Common Securities are entitled, in accordance with
Article V of the Declaration, to vote to appoint, remove or replace any Trustee
or to increase or decrease the number of Trustees.
(c) Subject to Section 2.6 of the Declaration and only after any Event of
Default with respect to the Convertible Preferred Securities has been cured,
waived, or otherwise eliminated and subject to the requirements of the second to
last sentence of this paragraph, the Holders of a Majority in liquidation amount
of the Common Securities, voting separately as a class, may direct the time,
method, and place of conducting any proceeding for any remedy available to the
Institutional Trustee, or exercising any trust or power conferred upon the
Institutional Trustee under the Declaration, including (i) directing the time,
method, place of conducting any proceeding for any remedy available to the
Debenture Trustee, or exercising any trust or power conferred on the Debenture
Trustee with respect to the Debentures, (ii) waive any past default and its
consequences that is waivable under Section 5.9 of the Indenture, or (iii)
exercise any right to rescind or annul a declaration that the principal of all
the Debentures shall be due and payable, provided that, where a consent or
action under the Indenture would require the consent or act of the relevant
Super Majority, the Institutional Trustee may only give such consent or take
such action at the written direction of the Holders of at least the proportion
in liquidation amount of the Common Securities which the relevant Super Majority
represents of the aggregate principal amount of the Debentures outstanding. The
Institutional Trustee shall not revoke any action previously authorized or
approved by a vote of the Holders of the Convertible Preferred Securities.
Other than with respect to directing the time, method and place of conducting
any remedy available to the Institutional Trustee or the Debenture Trustee as
set forth above, the Institutional Trustee shall not take any action in
accordance with the directions of the Holders of the Common Securities under
this paragraph unless the Institutional Trustee has obtained an opinion of
nationally recognized independent tax counsel experienced in such matters to the
effect that for the purposes of United States federal income tax the Trust will
not be classified
I-13
<PAGE>
as other than a grantor trust on account of such action. If the Institutional
Trustee fails to enforce its rights under the Declaration, any Holder of Common
Securities may institute a legal proceeding directly against any Person to
enforce the Institutional Trustee's rights under the Declaration, without first
instituting a legal proceeding against the Institutional Trustee or any other
Person.
Any approval or direction of Holders of Common Securities may be given at a
separate meeting of Holders of Common Securities convened for such purpose, at a
meeting of all of the Holders of Securities in the Trust or pursuant to written
consent. The Regular Trustees will cause a notice of any meeting at which
Holders of Common Securities are entitled to vote, or of any matter upon which
action by written consent of such Holders is to be taken, to be mailed to each
Holder of record of Common Securities. Each such notice will include a
statement setting forth (i) the date of such meeting or the date by which such
action is to be taken, (ii) a description of any resolution proposed for
adoption at such meeting on which such Holders are entitled to vote or of such
matter upon which written consent is sought and (iii) instructions for the
delivery of proxies or consents.
No vote or consent of the Holders of the Common Securities will be required
for the Trust to redeem and cancel Common Securities or to distribute the
Debentures in accordance with the Declaration and the terms of the Securities.
8. Amendments to Declaration and Indenture.
---------------------------------------
(a) In addition to any requirements under Section 12.1 of the Declaration,
if any proposed amendment to the Declaration provides for, or the Regular
Trustees otherwise propose to effect, (i) any action that would adversely affect
the powers, preferences or special rights of the Securities, whether by way of
amendment to the Declaration or otherwise, or (ii) the dissolution, winding-up
or termination of the Trust, other than as described in Section 8.1 of the
Declaration, then the Holders of outstanding Securities voting together as a
single class, will be entitled to vote on such amendment or proposal (but not on
any other amendment or proposal) and such amendment or proposal shall not be
effective except with the approval of the Holders of at least a Majority in
liquidation amount of the Securities then outstanding affected thereby;
provided, however, if any amendment or proposal referred to in clause (i) above
would adversely affect only the Convertible Preferred Securities or only the
Common Securities, then only the affected class will be entitled to vote on such
amendment or proposal and such amendment or proposal shall not be effective
except with the approval of a Majority in liquidation amount of such class of
Securities then outstanding.
(b) In the event the consent of the Institutional Trustee as the holder of
the Debentures is required under the Indenture with respect to any amendment,
modification or termination of the Indenture or the Debentures, the
Institutional Trustee shall request the written direction of the Holders of the
Securities with respect to such amendment, modification or termination and shall
vote with respect to such amendment, modification or termination as directed by
a Majority in liquidation amount of the Securities then outstanding, voting
together as a single class; provided, however, that where a consent under the
Indenture would require the consent of the relevant Super Majority, the
Institutional Trustee may only give such consent at the direction
I-14
<PAGE>
of the Holders of at least the proportion in liquidation amount of the
Securities then outstanding which the relevant Super Majority represents of the
aggregate principal amount of the Debentures then outstanding; provided,
further, that the Institutional Trustee shall not take any action in accordance
with the directions of the Holders of the Securities under this Section 8(b)
unless the Institutional Trustee has obtained an opinion of nationally
recognized independent tax counsel experienced in such matters to the effect
that for the purposes of United States federal income tax the Trust will not be
classified as other than a grantor trust as a result of such action.
9. Pro Rata.
--------
A reference in these terms of the Securities to any distribution or
treatment as being "Pro Rata" shall mean pro rata to each Holder of Securities
according to the aggregate liquidation amount of the Securities held by the
relevant Holder in relation to the aggregate liquidation amount of all
Securities outstanding unless, in relation to a payment, an Event of Default
under the Declaration has occurred and is continuing, in which case any funds
available to make such payment shall be paid first in cash to each Holder of the
Convertible Preferred Securities pro rata according to the aggregate liquidation
amount of Convertible Preferred Securities held by the relevant Holder relative
to the aggregate liquidation amount of all Convertible Preferred Securities
outstanding, and only after satisfaction of all amounts owed to the Holders of
the Convertible Preferred Securities, to each Holder of Common Securities pro
rata according to the aggregate liquidation amount of Common Securities held by
the relevant Holder relative to the aggregate liquidation amount of all Common
Securities outstanding.
10. Ranking.
-------
The Convertible Preferred Securities rank pari passu and payment thereon
shall be made Pro Rata with the Common Securities except that, where a
Declaration Event of Default occurs and is continuing, the rights of Holders of
the Common Securities to payment in respect of Distributions and payments upon
liquidation, redemption and otherwise are subordinated to the rights to payment
of the Holders of the Convertible Preferred Securities.
11. Acceptance of Securities Guarantee and Indenture.
------------------------------------------------
Each Holder of Convertible Preferred Securities and Common Securities, by
the acceptance thereof, agrees to the provisions of the Convertible Preferred
Securities Guarantee and the Common Securities Guarantee, respectively,
including the subordination provisions therein and to the provisions of the
Indenture.
12. No Preemptive Rights.
--------------------
The Holders of the Securities shall have no preemptive rights to subscribe
for any additional securities.
I-15
<PAGE>
13. Miscellaneous.
-------------
These terms constitute a part of the Declaration.The Sponsor will provide a
copy of the Declaration, the Convertible Preferred Securities Guarantee or the
Common Securities Guarantee (as may be appropriate), and the Indenture to a
Holder without charge on written request to the Sponsor at its principal place
of business.
I-16
<PAGE>
EXHIBIT A-1
[FORM OF CONVERTIBLE PREFERRED SECURITY CERTIFICATE]
[IF THE CONVERTIBLE PREFERRED SECURITY IS TO BE A GLOBAL CERTIFICATE INSERT
- - THIS CONVERTIBLE PREFERRED SECURITY IS A GLOBAL CERTIFICATE WITHIN THE MEANING
OF THE DECLARATION HEREIN AFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE
DEPOSITORY TRUST COMPANY (THE "DEPOSITARY") OR A NOMINEE OF THE DEPOSITARY.
THIS CONVERTIBLE PREFERRED SECURITY IS EXCHANGEABLE FOR CONVERTIBLE PREFERRED
SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS
NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE DECLARATION AND NO
TRANSFER OF THIS CONVERTIBLE PREFERRED SECURITY (OTHER THAN A TRANSFER OF THIS
CONVERTIBLE PREFERRED SECURITY AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE
DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER
NOMINEE OF THE DEPOSITARY) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES.
UNLESS THIS CONVERTIBLE PREFERRED SECURITY IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW
YORK) TO THE TRUST OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY CONVERTIBLE PREFERRED SECURITY ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY AND ANY PAYMENT HEREON IS MADE TO
CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A
PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.]
CERTIFICATE NUMBER:
NUMBER OF CONVERTIBLE PREFERRED SECURITIES:
CUSIP NO.: [IF RULE 144A - 58155P204] [IF INSTITUTIONAL ACCREDITED INVESTOR -
58155P303] [IF REGULATION S - U58088102]
[ISIN NO.: USU580881022 - ONLY IF REGULATION S]
[COMMON CODE: . - ONLY IF REGULATION S]
A1-1
<PAGE>
Certificate Evidencing Convertible Preferred Securities
of
McKESSON FINANCING TRUST
[PRIOR TO THE TRANSFER RESTRICTION TERMINATION DATE, ANY CERTIFICATE
EVIDENCING A CONVERTIBLE PREFERRED SECURITY SHALL BEAR A LEGEND IN
SUBSTANTIALLY THE FOLLOWING FORM, UNLESS OTHERWISE AGREED BY THE REGULAR
TRUSTEES (WITH WRITTEN NOTICE TO THE INSTITUTIONAL TRUSTEE): THE SECURITY
EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY
ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS
DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT)
("INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS
ACQUIRING THE SECURITY EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION, (2)
AGREES THAT IT WILL NOT PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD
APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K)
UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION) RESELL OR OTHERWISE
TRANSFER THE SECURITY EVIDENCED HEREBY OR IF THIS SECURITY IS CONVERTIBLE
INTO COMMON STOCK THE COMMON STOCK ISSUABLE UPON CONVERSION OR EXCHANGE OF
THIS SECURITY EXCEPT (A) TO McKESSON CORPORATION (THE "COMPANY") OR ANY
SUBSIDIARY THEREOF, (B) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT, (C) TO A QUALIFIED INSTITUTIONAL BUYER IN
COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (D) TO AN INSTITUTIONAL
ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE
FOR THE CONVERTIBLE PREFERRED SECURITIES OR THE CONVERTIBLE DEBENTURES, AS
THE CASE MAY BE (OR, IF THIS CERTIFICATE EVIDENCES COMMON STOCK, THE
TRANSFER AGENT FOR THE COMMON STOCK), A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF
THE SECURITY EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED
FROM SUCH TRUSTEE OR TRANSFER AGENT), (E) OUTSIDE THE UNITED STATES IN
COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT OR (F) PURSUANT TO THE
EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT
(IF AVAILABLE) AND (3) AGREES
A1-2
<PAGE>
THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE SECURITY EVIDENCED HEREBY
IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN
CONNECTION WITH ANY TRANSFER OF THE SECURITY EVIDENCED HEREBY PRIOR TO
EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY
EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY
SUCCESSOR PROVISION), THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH
ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT
THIS CERTIFICATE TO THE TRUSTEE FOR THE CONVERTIBLE PREFERRED SECURITIES OR
THE CONVERTIBLE DEBENTURES, AS THE CASE MAY BE (OR, IF THIS CERTIFICATE
EVIDENCES COMMON STOCK, SUCH HOLDER MUST FURNISH TO THE TRANSFER AGENT SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE COMPANY OR
McKESSON FINANCIAL TRUST (THE "TRUST") MAY REASONABLY REQUIRE TO CONFIRM
THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT). IF THIS CERTIFICATE DOES NOT EVIDENCE COMMON STOCK AND IF THE
PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR OR A PURCHASER
WHO IS NOT A U.S. PERSON, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH
TO THE TRUSTEE FOR THE CONVERTIBLE PREFERRED SECURITIES OR THE CONVERTIBLE
DEBENTURES, AS THE CASE MAY BE, SUCH CERTIFICATIONS, LEGAL OPINIONS OR
OTHER INFORMATION AS THE COMPANY OR THE TRUST MAY REASONABLY REQUIRE TO
CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR
IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT. THIS LEGEND WILL BE REMOVED AFTER THE EXPIRATION OF THE
HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER
RULE 144(K) UNDER THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO
THEM BY REGULATION S UNDER THE SECURITIES ACT.]
5% Trust Convertible Preferred Securities (liquidation amount $50 per Trust
Convertible Preferred Security)
McKesson Financing Trust, a statutory business trust formed under the laws
of the State of Delaware (the "Trust"), hereby certifies that __________________
(the "Holder") is the registered owner of convertible preferred securities of
the Trust representing undivided beneficial interests in the assets of the Trust
designated the 5% Trust Convertible Preferred Securities (liquidation amount $50
per Trust Convertible Preferred Security) (the "Convertible Preferred
Securities"). The Convertible Preferred Securities are transferable on the books
and records of the Trust, in person or by a duly authorized attorney, upon
surrender of this certificate duly endorsed and in proper form for transfer.
A1-3
<PAGE>
The designation, rights, privileges, restrictions, preferences and other
terms and provisions of the Convertible Preferred Securities represented hereby
are issued and shall in all respects be subject to the provisions of the Amended
and Restated Declaration of Trust of the Trust dated as of February 20, 1997, as
the same may be amended from time to time (the "Declaration"), including the
designation of the terms of the Convertible Preferred Securities as set forth in
Annex I to the Declaration.
Capitalized terms used herein but not defined shall have the meaning given
them in the Declaration. The Holder is entitled to the benefits of the
Convertible Preferred Securities Guarantee to the extent provided therein. The
Sponsor will provide a copy of the Declaration, the Convertible Preferred
Securities Guarantee and the Indenture to the Holder without charge upon written
request to the Trust at its principal place of business.
Upon receipt of this certificate, the Holder is bound by the Declaration
and is entitled to the benefits thereunder.
By acceptance, the Holder agrees to treat, for United States federal income
tax purposes, the Debentures as indebtedness and the Convertible Preferred
Securities as evidence of indirect beneficial ownership in the Debentures.
Unless the Institutional Trustee's Certificate of Authentication hereon has
been properly executed, these Convertible Preferred Securities shall not be
entitled to any benefit under the Declaration or be valid or obligatory for any
purpose.
A1-4
<PAGE>
IN WITNESS WHEREOF, the Trust has executed this certificate this 20th day
of February, 1997.
McKesson Financing Trust
By: ____________________________________
Name:
Title: Trustee
Solely as trustee and not in his
individual capacity
A1-5
<PAGE>
[FORM OF CERTIFICATE OF AUTHENTICATION]
INSTITUTIONAL TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Convertible Preferred Securities referred to in the
within-mentioned Declaration.
Dated: February 20, 1997
THE FIRST NATIONAL BANK OF CHICAGO,
as Institutional Trustee or as Authentication Agent
By: _______________________________ By: _______________________________
Authorized Signatory Authorized Signatory
A1-6
<PAGE>
[FORM OF REVERSE OF SECURITY]
Distributions payable on each Convertible Preferred Security will be fixed
at a rate per annum of 5% (the "Coupon Rate") of the stated liquidation amount
of $50 per Preferred Security, such rate being the rate of interest payable on
the Debentures to be held by the Institutional Trustee. Distributions in arrears
for more than one quarter will bear interest thereon compounded quarterly at the
Coupon Rate (to the extent permitted by applicable law). The term
"Distributions" as used herein includes such cash distributions and any such
interest payable unless otherwise stated. A Distribution is payable only to the
extent that payments are made in respect of the Debentures held by the
Institutional Trustee and to the extent the Institutional Trustee has funds
available therefor. The amount of Distributions payable for any period will be
computed for any full quarterly Distribution period on the basis of a 360-day
year of twelve 30-day months, and for any period shorter than a full quarterly
Distribution period for which Distributions are computed, Distributions will be
computed on the basis of the actual number of days elapsed per 30-day month.
Except as otherwise described below, Distributions on the Convertible
Preferred Securities will be cumulative, will accrue from February 20, 1997 and
will be payable quarterly in arrears, on March 1, June 1, September 1 and
December 1 of each year, commencing on June 1, 1997, which payment dates shall
correspond to the interest payment dates on the Debentures, to Holders of record
at the close of business on the regular record date for such Distribution which
shall be the close of business 15 days prior to such Distribution payment date
unless otherwise provided in the Declaration. The Debenture Issuer has the right
under the Indenture to defer payments of interest by extending the interest
payment period from time to time on the Debentures for a period not exceeding 20
consecutive quarters (each an "Extension Period"); provided that no Extension
Period shall last beyond the date of the maturity or any redemption date of the
Debentures and, as a consequence of such deferral, Distributions will also be
deferred. Despite such deferral, quarterly Distributions will continue to accrue
with interest thereon (to the extent permitted by applicable law) at the Coupon
Rate compounded quarterly during any such Extension Period. Prior to the
termination of any such Extension Period, the Debenture Issuer may further
extend such Extension Period; provided that such Extension Period together with
all such previous and further extensions thereof may not exceed 20 consecutive
quarters or extend beyond the maturity or any redemption date of the Debentures.
Upon the termination of any Extension Period and the payment of all amounts then
due, the Debenture Issuer may commence a new Extension Period, subject to the
above requirements.
The Convertible Preferred Securities shall be redeemable as provided in the
Declaration.
The Convertible Preferred Securities shall be convertible into shares of
Common Stock, through (i) the exchange of Convertible Preferred Securities for a
portion of the Debentures and (ii) the immediate conversion of such Debentures
into Debenture Issuer Common Stock, in the manner and according to the terms set
forth in the Declaration.
A1-7
<PAGE>
CONVERSION REQUEST
To: The First National Bank of Chicago,
as Institutional Trustee of McKesson Financing Trust
The undersigned owner of these Convertible Preferred Securities hereby
irrevocably exercises the option to convert these Convertible Preferred
Securities, or the portion below designated, into Common Stock of McKesson
Corporation (the "Common Stock") in accordance with the terms of the Amended and
Restated Declaration of Trust (the "Declaration"), dated as of February 20,
1997, by William A. Armstrong and Ivan D. Meyerson, as Regular Trustees, First
Chicago Delaware Inc., as Delaware Trustee, The First National Bank of Chicago,
as Institutional Trustee, McKesson Corporation, as Sponsor, and by the Holders,
from time to time, of individual beneficial interests in the Trust to be issued
pursuant to the Declaration. Pursuant to the afore mentioned exercise of the
option to convert these Convertible Preferred Securities, the undersigned
hereby directs the Conversion Agent (as that term is defined in the Declaration)
to (i) exchange such Convertible Preferred Securities for a portion of the
Debentures (as that term is defined in the Declaration) held by the Trust (at
the rate of exchange specified in the terms of the Convertible Preferred
Securities set forth as Annex I to the Declaration) and (ii) immediately convert
such Debentures on behalf of the undersigned, into Common Stock (at the
conversion rate specified in the terms of the Convertible Preferred Securities
set forth as Annex I to the Declaration).
The undersigned does also hereby direct the Conversion Agent that the
shares issuable and deliverable upon conversion, together with any check in
payment for fractional shares, be issued in the name of and delivered to the
undersigned, unless a different name has been indicated in the assignment below.
If shares are to be issued in the name of a person other than the undersigned,
the undersigned will pay all transfer taxes payable with respect thereto.
A1-8
<PAGE>
Date: _______________, ____
in whole _____ in part _____
Number of Convertible Preferred Securities to be
converted: ____________________
If a name or names other than the undersigned,
please indicate in the spaces below the name or
names in which the shares of Common Stock are to
be issued, along with the address or addresses of
such person or persons
__________________________________________________
__________________________________________________
__________________________________________________
__________________________________________________
__________________________________________________
__________________________________________________
Signature (for conversion only)
Please Print or Typewrite Name and Address,
Including Zip Code, and Social Security or Other
Identifying Number
__________________________________________________
__________________________________________________
__________________________________________________
Signature Guarantee:/*/ __________________________
____________________
/*/(Signature must be guaranteed by an "eligible guarantor institution,"
that is, a bank, stockbroker, savings and loan association or credit union
meeting the requirements of the Conversion Agent, which requirements include
membership or participation in the Securities Transfer Agents Medallion Program
("STAMP") or such other "signature guarantee program" as may be determined by
the Conversion Agent in addition to, or in substitution for, STAMP, all in
accordance with the Securities Exchange Act of 1934, as amended.)
A1-9
<PAGE>
[FORM OF ASSIGNMENT FOR DEFINITIVE CONVERTIBLE
PREFERRED SECURITY]
For value received ______________________ hereby sell(s), assign(s) and
transfer(s) unto _______________________________________________________________
(Please insert social security or other taxpayer identification number of
assignee.)
the within security and hereby irrevocably constitutes and appoints ____________
attorney to transfer the said security on the books of the Company, with full
power of substitution in the premises.
In connection with any transfer of the within security occurring prior to the
Transfer Restriction Termination Date, the undersigned confirms that such
security is being transferred:
[_] To McKesson Corporation or a subsidiary thereof; or
[_] Pursuant to and in compliance with Rule 144A under the Securities Act
of 1933, as amended; or
[_] To an Institutional Accredited Investor pursuant to and in compliance
with the Securities Act of 1933, as amended; or
[_] Pursuant to and in compliance with Regulation S under the Securities
Act of 1933, as amended; or
[_] Pursuant to and in compliance with Rule 144 under the Securities Act
of 1933, as amended; or
[_] Pursuant to an effective registration statement.
A1-10
<PAGE>
and unless the box below is checked, the undersigned confirms that such security
is not being transferred to an "affiliate" of the Company as defined in Rule 144
under the Securities Act of 1933, as amended (an "Affiliate"):
[_] The transferee is an Affiliate of the Company.
Dated: ___________________________
Signature(s)
______________________________________
______________________________________
______________________________________
Signature Guarantee/*/
NOTICE: The above signatures of the holder(s) hereof must correspond with the
name as written upon the face of this Security in every particular without
alteration or enlargement or any change whatever.
___________________
/*/ (Signature must be guaranteed by an "eligible guarantor institution,"
that is, a bank, stockbroker, savings and loan association or credit union
meeting the requirements of the Conversion Agent, which requirements include
membership or participation in the Securities Transfer Agents Medallion Program
("STAMP") or such other "signature guarantee program" as may be determined by
the Conversion Agent in addition to, or in substitution for, STAMP, all in
accordance with the Securities Exchange Act of 1934, as amended.)
A1-11
<PAGE>
SCHEDULE I
CHANGES TO NUMBER OF CONVERTIBLE PREFERRED SECURITIES
IN GLOBAL SECURITY
<TABLE>
<CAPTION>
Number of Convertible
Preferred Securities by
which this Global
Security Is To Be Remaining Convertible
Reduced or Increased, Preferred Securities
and Reason for Represented by this
Date Reduction or Increase Global Security Notation Made By
- ---------- ----------------------- --------------------- ------------------
<S> <C> <C> <C>
</TABLE>
A1-12
<PAGE>
EXHIBIT A-2
FORM OF COMMON SECURITY CERTIFICATE
CERTIFICATE NUMBER:
NUMBER OF COMMON SECURITIES:
Certificate Evidencing Common Securities
of
McKESSON FINANCING TRUST
5% Common Securities
(liquidation amount $50 per Common Security)
THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD UNLESS SUCH OFFER AND SALE ARE
REGISTERED UNDER OR ARE EXEMPT FROM REGISTRATION UNDER THE SECURITIES
ACT. THE TRANSFER OF THE SECURITY EVIDENCED HEREBY IS ALSO SUBJECT TO
THE RESTRICTIONS SET FORTH IN THE DECLARATION REFERRED TO BELOW.
McKesson Financing Trust, a statutory business trust formed under the laws
of the State of Delaware (the "Trust"), hereby certifies that
________________________________________ (the "Holder") is the registered owner
of common securities of the Trust representing undivided beneficial interests in
the assets of the Trust designated the 5% Common Securities (liquidation amount
$50 per Common Security) (the "Common Securities"). The Common Securities are
transferable on the books and records of the Trust, in person or by a duly
authorized attorney, upon surrender of this certificate duly endorsed and in
proper form for transfer.
The designation, rights, privileges, restrictions, preferences and other
terms and provisions of the Common Securities represented hereby are issued and
shall in all respects be subject to the provisions of the Amended and Restated
Declaration of Trust of the Trust dated as of February 20, 1997, as the same may
be amended from time to time (the "Declaration"), including the designation of
the terms of the Common Securities as set forth in Annex I to the Declaration.
Capitalized terms used herein but not defined shall have the meaning given
them in the Declaration. The Holder is entitled to the benefits of the Common
Securities Guarantee to the extent provided therein. The Sponsor will provide a
copy of the Declaration, the Common
A2-1
<PAGE>
Securities Guarantee and the Indenture to a Holder without charge upon written
request to the Trust at its principal place of business.
Upon receipt of this certificate, the Holder is bound by the Declaration
and is entitled to the benefits thereunder.
By acceptance, the Holder agrees to treat, for United States federal income
tax purposes, the Debentures as indebtedness and the Common Securities as
evidence of indirect beneficial ownership in the Debentures.
A2-2
<PAGE>
IN WITNESS WHEREOF, the Trust has executed this certificate this 20th day
of February, 1997.
McKesson Financing Trust
By: ____________________________________________
Name:
Title: Trustee
Solely as trustee and not in his individual
capacity
A2-3
<PAGE>
[FORM OF REVERSE OF SECURITY]
Distributions payable on each Common Security will be fixed at a rate per
annum, of 5% (the "Coupon Rate") of the stated liquidation amount of $50 per
Common Security, such rate being the rate of interest payable on the Debentures
to be held by the Institutional Trustee. Distributions in arrears for more than
one quarter will bear interest thereon compounded quarterly at the Coupon Rate
(to the extent permitted by applicable law). The term "Distributions" as used
herein includes such cash distributions and any such interest payable unless
otherwise stated. A Distribution is payable only to the extent that payments are
made in respect of the Debentures held by the Institutional Trustee and to the
extent the Institutional Trustee has funds available therefor. The amount of
Distributions payable for any period will be computed for any full quarterly
Distribution period on the basis of a 360-day year of twelve 30-day months, and
for any period shorter than a full quarterly Distribution period for which
Distributions are computed, Distributions will be computed on the basis of the
actual number of days elapsed per 30-day month.
Except as otherwise described below, Distributions on the Common Securities
will be cumulative, will accrue from February 20, 1997 and will be payable
quarterly in arrears, on March 1, June 1, September 1 and December 1 of each
year, commencing on June 1, 1997, which payment dates shall correspond to the
interest payment dates on the Debentures, to Holders of record at the close of
business on the regular record date for such Distribution which shall be the
close of business 15 days prior to such Distribution payment date unless
otherwise provided in the Declaration. The Debenture Issuer has the right under
the Indenture to defer payments of interest by extending the interest payment
period from time to time on the Debentures for a period not exceeding 20
consecutive quarters (each an "Extension Period"), provided that no Extension
Period shall last beyond the date of maturity of the Debentures and, as a
consequence of such deferral, Distributions will also be deferred. Despite such
deferral, quarterly Distributions will continue to accrue with interest thereon
(to the extent permitted by applicable law) at the Coupon Rate compounded
quarterly during any such Extension Period. Prior to the termination of any such
Extension Period, the Debenture Issuer may further extend such Extension Period;
provided that such Extension Period together with all such previous and further
extensions thereof may not exceed 20 consecutive quarters or extend beyond the
date of maturity of the Debentures. Upon the termination of any Extension Period
and the payment of all amounts then due, the Debenture Issuer may commence a new
Extension Period, subject to the above requirements.
The Common Securities shall be redeemable as provided in the Declaration.
The Common Securities shall be convertible into shares of Common Stock,
through (i) the exchange of Common Securities for a portion of the Debentures
and (ii) the immediate conversion of such Debentures into Debenture Issuer
Common Stock, in the manner and according to the term set forth in the
Declaration.
A2-4
<PAGE>
CONVERSION REQUEST
To: The First National Bank of Chicago,
as Institutional Trustee of McKesson Financing Trust
The undersigned owner of these Common Securities hereby irrevocably
exercises the option to convert these Common Securities, or the portion below
designated, into Common Stock of McKesson Corporation (the "Common Stock") in
accordance with the terms of the Amended and Restated Declaration of Trust (the
"Declaration"), dated as of February 20, 1997, by William A. Armstrong and Ivan
D. Meyerson, as Regular Trustees, First Chicago Delaware Inc., as Delaware
Trustee, The First National Bank of Chicago, as Institutional Trustee, McKesson
Corporation, as Sponsor, and by the Holders, from time to time, of individual
beneficial interests in the Trust to be issued pursuant to the Declaration.
Pursuant to the aforementioned exercise of the option to convert these Common
Securities, the undersigned hereby directs the Conversion Agent (as that term is
defined in the Declaration) to (i) exchange such Common Securities for a portion
of the Debentures (as that term is defined in the Declaration) held by the Trust
(at the rate of exchange specified in the terms of the Common Securities set
forth as Annex I to the Declaration) and (ii) immediately convert such
Debentures on behalf of the undersigned, into Common Stock (at the conversion
rate specified in the terms of the Common Securities set forth as Annex I to the
Declaration).
The undersigned does also hereby direct the Conversion Agent that the
shares issuable and deliverable upon conversion, together with any check in
payment for fractional shares, be issued in the name of and delivered to the
undersigned, unless a different name has been indicated in the assignment below.
If shares are to be issued in the name of a person other than the undersigned,
the undersigned will pay all transfer taxes payable with respect thereto.
A2-5
<PAGE>
Date: _______________, ____
in whole _____ in part _____
Number of Convertible Preferred Securities to be
converted: ____________________
If a name or names other than the undersigned,
please indicate in the spaces below the name or
names in which the shares of Common Stock are to
be issued, along with the address or addresses of
such person or persons
__________________________________________________
__________________________________________________
__________________________________________________
__________________________________________________
__________________________________________________
__________________________________________________
Signature (for conversion only)
Please Print or Typewrite Name and Address,
Including Zip Code, and Social Security or Other
Identifying Number
__________________________________________________
__________________________________________________
__________________________________________________
Signature Guarantee:/*/ __________________________
___________________
/*/ (Signature must be guaranteed by an "eligible guarantor institution,"
that is, a bank, stockbroker, savings and loan association or credit union
meeting the requirements of the Conversion Agent, which requirements include
membership or participation in the Securities Transfer Agents Medallion Program
("STAMP") or such other "signature guarantee program" as may be determined by
the Conversion Agent in addition to, or in substitution for, STAMP, all in
accordance with the Securities Exchange Act of 1934, as amended.)
A2-6
<PAGE>
[FORM OF ASSIGNMENT FOR SECURITY OR
COMMON STOCK ISSUABLE UPON CONVERSION THEREOF]
For value received ______________________ hereby sell(s), assign(s) and
transfer(s) unto _______________________________________________________________
(Please insert social security or other taxpayer identification number of
assignee.)
the within security and hereby irrevocably constitutes and appoints ____________
attorney to transfer the said security on the books of the Company, with full
power of substitution in the premises.
In connection with any transfer of the within security occurring prior to the
Transfer Restriction Termination Date, the undersigned confirms that such
security is being transferred:
[_] To McKesson Corporation or a subsidiary thereof; or
[_] Pursuant to and in compliance with Rule 144A under the Securities Act
of 1933, as amended; or
[_] To an Institutional Accredited Investor pursuant to and in compliance
with the Securities Act of 1933, as amended; or
[_] Pursuant to and in compliance with Regulation S under the Securities
Act of 1933, as amended; or
[_] Pursuant to and in compliance with Rule 144 under the Securities Act
of 1933, as amended; or
[_] Pursuant to an effective registration statement.
A2-7
<PAGE>
and unless the box below is checked, the undersigned confirms that such security
is not being transferred to an "affiliate" of the Company as defined in Rule 144
under the Securities Act of 1933, as amended (an "Affiliate"):
[_] The transferee is an Affiliate of the Company.
Dated: ____________________________
Signature(s)
______________________________________
______________________________________
______________________________________
Signature Guarantee/*/
NOTICE: The above signatures of the holder(s) hereof must correspond with the
name as written upon the face of this Security in every particular without
alteration or enlargement or any change whatever.
______________________
/*/ (Signature must be guaranteed by an "eligible guarantor institution,"
that is, a bank, stockbroker, savings and loan association or credit union
meeting the requirements of the Conversion Agent, which requirements include
membership or participation in the Securities Transfer Agents Medallion Program
("STAMP") or such other "signature guarantee program" as may be determined by
the Conversion Agent in addition to, or in substitution for, STAMP, all in
accordance with the Securities Exchange Act of 1934, as amended.)
A2-8
<PAGE>
EXHIBIT B
SPECIMEN OF DEBENTURE
B-1
<PAGE>
EXHIBIT C
PLACEMENT AGREEMENT
C-1
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP]
May 2, 1997
McKesson Corporation
McKesson Financing Trust
c/o McKesson Corporation
McKesson Plaza
One Post Street
San Francisco, CA 94104
Ladies and Gentlemen:
We have acted as special counsel to McKesson Corporation, a Delaware
corporation (the "Company"), and McKesson Financing Trust, a business trust
formed under the Business Trust Act of the State of Delaware (Chapter 38, Title
12, of the Delaware Code, 12 Del. L. Sec. 3801 et. seq.) (the "Trust"), in
connection with the preparation of the Registration Statement on Form S-3 (such
Registration Statement being hereinafter referred to as the "Registration
Statement") to be filed by the Company and the Trust with the Securities and
Exchange Commission (the "Commission") on the date hereof with respect to the
registration under the Securities Act of 1933, as amended (the "Act"), (i) by
the Trust of 4,000,000 5% Trust Convertible Preferred Securities (the
"Convertible Preferred Securities"); (ii) by the Company of its guarantee of
payments of cash distributions and payments on liquidation of the Trust or
redemption of the Convertible Preferred Securities pursuant to the Preferred
Securities Guarantee Agreement (the "Guarantee Agreement"), (iii) by the Company
of $200,000,000 aggregate principal amount of its 5% Convertible Subordinated
Debentures due June 1, 2027 (the "Convertible Subordinated Debentures") and (iv)
by the Company of such number of shares of common stock of the Company, par
value $0.01 per share ("Company Common Stock"), as are issuable upon conversion
of the Convertible Subordinated Debentures and such indeterminate number of
shares of Company Common Stock as may be issuable pursuant to certain anti-
dilution adjustments.
The Convertible Preferred Securities were issued pursuant to the
Amended and Restated Declaration of Trust of the Trust, dated as of February 20,
1997 (the "Declaration"), among Nancy A. Miller, William A. Armstrong and Ivan
D. Meyerson, as regular trustees, The First National Bank of Chicago, as
<PAGE>
McKesson Corporation
McKesson Financing Trust
May 2, 1997
Page 2
trustee (the "Institutional Trustee"), First Chicago Delaware Inc., as Delaware
trustee and the Company, as sponsor.
This opinion is being furnished in accordance with the requirements of
Item 601(b)(5) of Regulation S-K under the Act.
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of (i) the Registration
Statement; (ii) an executed copy of the Registration Rights Agreement, dated as
of February 20, 1997 (the "Registration Rights Agreement"), among the Company,
the Trust and Morgan Stanley & Co. Incorporated; (iii) an executed copy of the
Indenture, dated as of February 20, 1997, between The First National Bank of
Chicago, as trustee, and the Company; (iv) the form of the Convertible Preferred
Securities and a specimen certificate thereof; (v) the form of the Convertible
Subordinated Debentures and a specimen certificate thereof; (vi) the Guarantee
Agreement; (vii) the Restated Certificate of Incorporation and Restated By-Laws
of the Company; (viii) the Certificate of Trust of the Trust filed with the
Secretary of State of the State of Delaware on February 5, 1997; and (ix) the
Declaration. We have also examined originals or copies, certified or otherwise
identified to our satisfaction, of such other documents, certificates and
records as we have deemed necessary or appropriate as a basis for the opinions
set forth herein. The documents referred to in clauses (ii), (iii), (vi), (viii)
and (ix) are hereinafter referred to as the "Operative Documents".
In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such latter documents. In making our
examination of documents executed by parties other than the Company and the
Trust, we have assumed that such parties had the power, corporate or other, to
enter into and perform all obligations thereunder and have also assumed the due
authorization by all requisite
<PAGE>
McKesson Corporation
McKesson Financing Trust
May 2, 1997
Page 3
action, corporate or other, and execution and delivery by such parties of such
documents and, except to the extent set forth in paragraphs 2 and 3 below, the
validity and binding effect thereof on such parties. We have also assumed that
the execution and delivery by the Company of the Guarantee Agreement, the
Indenture and the Convertible Subordinated Debentures and the performance of its
obligations thereunder do not and will not violate, conflict with or constitute
a default under (i) any agreement or instrument to which the Company or its
properties is subject (except that we do not make the assumption set forth in
this clause (i) with respect to the Restated Certificate of Incorporation or the
Restated By-Laws of the Company or the Operative Documents), (ii) any law, rule,
or regulation to which the Company is subject (except that we do not make the
assumption set forth in this clause (ii) with respect to the Delaware Business
Trust Act, the Delaware General Corporation Law (the "DGCL") or those laws,
rules and regulations of the State of New York and the United States of America
which, in our experience, are normally applicable to transactions of the type
contemplated by the Operative Documents, but without our having made any special
investigation concerning any other laws, rules or regulations), (iii) any
judicial or regulatory order or decree of any governmental authority or (iv) any
consent, approval, license, authorization or validation of, or filing, recording
or registration with any governmental authority. As to any facts material to the
opinions expressed herein which we did not independently establish or verify, we
have relied upon oral or written statements and representations of officers,
trustees and other representatives of the Company, the Trust and others.
Members of our firm are admitted to the Bar of the State of New York,
and we do not express any opinion as to the laws of any jurisdiction other than
the laws of the State of New York, the DGCL and the Business Trust Act of the
State of Delaware.
Based upon and subject to the foregoing, we are of the opinion that:
1. The Convertible Preferred Securities have been duly authorized
for issuance by the Trust, and repre-
<PAGE>
McKesson Corporation
McKesson Financing Trust
May 2, 1997
Page 4
sent, subject to the qualifications set forth in paragraph 5 below, fully paid
and nonassessable undivided beneficial interests in the assets of the Trust.
2. The Guarantee Agreement has been duly authorized, executed and
delivered by the Company, and is a valid, legal and binding agreement of the
Company in favor of the holders of Convertible Preferred Securities, enforceable
against the Company in accordance with its terms, except (a) to the extent that
enforcement thereof may be limited by (i) bankruptcy, insolvency (including,
without limitation, all laws relating to fraudulent transfers), reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally, and (ii) general principles of equity (regardless
of whether enforcement is considered in a proceeding in equity or at law), and
(b) we express no opinion regarding the enforceability or effect of Section 8.2
of the Guarantee Agreement.
3. The Convertible Subordinated Debentures have been duly authorized,
executed, issued and delivered by the Company, and constitute valid, legal and
binding obligations of the Company entitled to the benefits of the Indenture and
enforceable against the Company in accordance with their terms, except (a) to
the extent that enforcement thereof may be limited by (i) bankruptcy, insolvency
(including, without limitation, all laws relating to fraudulent transfers),
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally, and (ii) general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or at
law), and (b) we express no opinion regarding the enforceability or effect of
Section 6.7 of the Indenture.
4. The shares of Company Common Stock initially issuable upon
conversion of the Convertible Subordinated Debentures have been duly authorized
and reserved for issuance by the Company and, if and when issued, upon
conversion of the Convertible Subordinated Debentures in accordance with the
provisions of the Indenture, at conversion prices at or in excess of the par
value of such shares of Company
<PAGE>
McKesson Corporation
McKesson Financing Trust
May 2, 1997
Page 5
Common Stock, such shares of Company Common Stock will be validly issued, fully
paid and nonassessable.
5. The holders of the Convertible Preferred Securities will be
entitled to the same limitation of personal liability extended to stockholders
of private corporations for profit organized under the DGCL. We bring to your
attention, however, that the holders of the Convertible Preferred Securities may
be obligated, pursuant to the Declaration, to (i) provide indemnity and/or
security in connection with, and pay taxes or governmental charges arising from,
transfers of Convertible Preferred Securities and the issuance of replacement
Convertible Preferred Securities and (ii) provide security and indemnity in
connection with requests of or directions to the Institutional Trustee to
exercise its rights and powers under the Declaration.
We hereby consent to the filing of this opinion with the Commission as
an exhibit to the Registration Statement. We also consent to the reference to
our firm under the caption "Legal Matters" in the Registration Statement. In
giving this consent, we do not thereby admit that we are included in the
category of persons whose consent is required under Section 7 of the Act or the
rules and regulations of the Commission. This opinion is expressed as of the
date hereof, and we disclaim any undertaking to advise you of any subsequent
changes in the facts stated or assumed herein or of any subsequent changes in
applicable law.
Very truly yours,
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
McKesson Corporation ("McKesson") on Amendment No. 1 to Form S-3 of our
reports dated May 13, 1996 (December 31, 1996 as to Notes 8 and 17) on
McKesson's consolidated financial statements (which report expresses an
unqualified opinion and includes an explanatory paragraph relating to a change
in the Company's method of accounting for post employment benefits to conform
with Statement of Financial Accounting Standards No. 112) and our report dated
May 13, 1996 (December 31, 1996 as to Notes 8 and 17) on McKesson's
consolidated supplementary financial schedule, both such reports appearing in
the Annual Report on Form 10-K/A of McKesson Corporation for the year ended
March 31, 1996, and our report on FoxMeyer Corporation's consolidated
financial statements dated June 28, 1996 (March 18, 1997 as to paragraph seven
of Note Q), which report expresses an unqualified opinion and includes an
explanatory paragraph relating to the sale of the principal assets of FoxMeyer
Corporation and its Chapter 7 bankruptcy filing, appearing in the Current
Report on Form 8-K/A of McKesson Corporation filed with the Securities and
Exchange Commission on April 28, 1997. We also consent to the reference to us
under the heading "Experts" in the Prospectus, which is part of this
Registration Statement.
/s/ DELOITTE & TOUCHE LLP
San Francisco, California
Dallas, Texas
June 18, 1997
<PAGE>
Exhibit 25.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
--------
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY
OF A TRUSTEE PURSUANT TO SECTION 305(B)(2) _____
_________________________________
THE FIRST NATIONAL BANK OF CHICAGO
(EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER)
A NATIONAL BANKING ASSOCIATION 36-0899825
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
ONE FIRST NATIONAL PLAZA, CHICAGO, ILLINOIS 60670-0126
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
THE FIRST NATIONAL BANK OF CHICAGO
ONE FIRST NATIONAL PLAZA, SUITE 0286
CHICAGO, ILLINOIS 60670-0286
ATTN: LYNN A. GOLDSTEIN, LAW DEPARTMENT (312) 732-6919
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
___________________________________
MCKESSON CORPORATION
(EXACT NAME OF OBLIGOR AS SPECIFIED IN ITS CHARTER)
DELAWARE 36-6784329
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
MCKESSON PLAZA
ONE POST STREET
SAN FRANCISCO, CALIFORNIA 94104
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
5% CONVERTIBLE JUNIOR SUBORDINATED DEBENTURES DUE 2027
(TITLE OF INDENTURE SECURITIES)
1
<PAGE>
ITEM 1. GENERAL INFORMATION. FURNISH THE FOLLOWING
--------------------
INFORMATION AS TO THE TRUSTEE:
(A) NAME AND ADDRESS OF EACH EXAMINING OR
SUPERVISING AUTHORITY TO WHICH IT IS SUBJECT.
Comptroller of Currency, Washington, D.C.,
Federal Deposit Insurance Corporation,
Washington, D.C., The Board of Governors of
the Federal Reserve System, Washington D.C.
(B) WHETHER IT IS AUTHORIZED TO EXERCISE
CORPORATE TRUST POWERS.
The trustee is authorized to exercise corporate
trust powers.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR. IF THE OBLIGOR
------------------------------
IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH
SUCH AFFILIATION.
No such affiliation exists with the trustee.
ITEM 16. LIST OF EXHIBITS. LIST BELOW ALL EXHIBITS FILED AS A
-----------------
PART OF THIS STATEMENT OF ELIGIBILITY.
1. A copy of the articles of association of the
trustee now in effect.*
2. A copy of the certificates of authority of the
trustee to commence business.*
3. A copy of the authorization of the trustee to
exercise corporate trust powers.*
4. A copy of the existing by-laws of the trustee.*
5. Not Applicable.
6. The consent of the trustee required by
Section 321(b) of the Act.
2
<PAGE>
7. A copy of the latest report of condition of the
trustee published pursuant to law or the
requirements of its supervising or examining
authority.
8. Not Applicable.
9. Not Applicable.
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, The First National Bank of Chicago, a national
banking association organized and existing under the laws of the United
States of America, has duly caused this Statement of Eligibility to be
signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of Chicago and State of Illinois, on the 18th day of June
1997.
THE FIRST NATIONAL BANK OF CHICAGO,
TRUSTEE
BY /S/ RICHARD D. MANELLA
RICHARD D. MANELLA
VICE PRESIDENT
* EXHIBITS 1, 2, 3 AND 4 ARE HEREIN INCORPORATED BY REFERENCE TO EXHIBITS
BEARING IDENTICAL NUMBERS IN ITEM 16 OF THE FORM T-1 OF THE FIRST NATIONAL BANK
OF CHICAGO, FILED AS EXHIBIT 25.1 TO THE REGISTRATION STATEMENT ON FORM S-3 OF
SUNAMERICA INC. FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 25,
1996 (REGISTRATION NO. 333-14201).
3
<PAGE>
EXHIBIT 6
THE CONSENT OF THE TRUSTEE REQUIRED
BY SECTION 321(b) OF THE ACT
June 18, 1997
Securities and Exchange Commission
Washington, D.C. 20549
Gentlemen:
In connection with the qualification of an indenture between McKesson
Corporation and The First National Bank of Chicago, the undersigned, in
accordance with Section 321(b) of the Trust Indenture Act of 1939, as amended,
hereby consents that the reports of examinations of the undersigned, made by
Federal or State authorities authorized to make such examinations, may be
furnished by such authorities to the Securities and Exchange Commission upon its
request therefor.
Very truly yours,
THE FIRST NATIONAL BANK OF CHICAGO
BY: /S/ RICHARD D. MANELLA
RICHARD D. MANELLA
VICE PRESIDENT
4
<PAGE>
EXHIBIT 7
Legal Title of Bank: The First National Bank of Chicago Call Date: 09/30/96
Address: One First National Plaza, Ste 0460 ST-BK: 17-1630
City, State Zip: Chicago, IL 60670 FFIEC 031 Page RC-1
FDIC Certificate No.: 0/3/6/1/8
---------
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS FOR SEPTEMBER 30, 1996
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding of the last business day of the
quarter.
SCHEDULE RC--BALANCE SHEET
<TABLE>
<CAPTION>
DOLLAR AMOUNTS IN C400 Less than
------------ ----------
THOUSANDS RCFD BIL MIL THOU
----------------- ---- ------------
ASSETS
<S> <C> <C> <C> <C>
1. Cash and balances due from depository institutions
(from Schedule RC-A):
a. Noninterest-bearing balances and currency
and coin(1).............................................. 0081 4,041,784 1.a.
b. Interest-bearing balances(2).......................... 0071 5,184,890 1.b.
2. Securities
a. Held-to-maturity securities(from Schedule
RC-B, column A)......................................... 1754 0 2.a.
b. Available-for-sale securities (from
Schedule RC-B, column D)................................ 1773 3,173,481 2.b.
3. Federal funds sold and securities purchased under
agreements to resell in domestic offices
of the bank and its Edge and Agreement subsidiaries,
and in IBFs:
a. Federal Funds sold................................... 0276 3,505,874 3.a.
b. Securities purchased under agreements to resell 0277 145,625 3.b.
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned income RC-C)....... RCFD 2122 22,835,958 4.a.
b. LESS: Allowance for loan and lease losses............ RCFD 3123 418,851 4.b.
c. LESS: Allocated transfer risk reserve................ RCFD 3128 0 4.c.
d. Loans and leases, net of unearned
income, allowance, and
reserve (item 4.a minus 4.b and 4.c)................. 2125 22,417,107 4.d.
5. Assets held in trading accounts......................... 3545 8,121,948 5.
6. Premises and fixed assets (including capitalized
leases)................................................ 2145 707,971 6.
7. Other real estate owned (from Schedule RC-M)............ 2150 9,184 7.
8. Investments in unconsolidated subsidiaries and
associated companies (from Schedule RC-M)............... 2130 53,803 8.
9. Customers' liability to this bank on acceptances
outstanding............................................. 2155 626,690 9.
10. Intangible assets (from Schedule RC-M).................. 2143 310,246 10.
11. Other assets (from Schedule RC-F)....................... 2160 1,658,123 11.
12. Total assets (sum of items 1 through 11)................ 2170 49,956,726 12.
</TABLE>
__________________
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
5
<PAGE>
Legal Title of Bank: The First National Bank of Chicago 09/30/96 ST-BK:
Address: One First National Plaza, Ste 0460 17-1630 FFIEC 031
City, State Zip: Chicago, IL 60670 Page RC-2
FDIC Certificate No.: 0/3/6/1/8
---------
SCHEDULE RC-CONTINUED
<TABLE>
<CAPTION>
DOLLAR AMOUNTS IN
THOUSANDS BIL MIL THOU
------------------ ------------
<S> <C> <C> <C> <C>
LIABILITIES
13. Deposits:
a. In domestic offices (sum of totals of
columns A and C from Schedule RC-E, part 1)............. RCON 2200 22,369,341 13.a.
(1) Noninterest-bearing(1).............................. RCON 6631 9,726,987 13.a.(1)
(2) Interest-bearing.................................... RCON 6636 12,642,354 13.a.(2)
b. In foreign offices, Edge and Agreement
subsidiaries, and IBFs (from Schedule
RC-E, part II).......................................... RCFN 2200 10,026,286 13.b.
(1) Noninterest bearing................................. RCFN 6631 336,746 13.b.(1)
(2) Interest-bearing.................................... RCFN 6636 9,689,540 13.b.(2)
14. Federal funds purchased and securities sold
under agreements to repurchase in domestic
offices of the bank and of its Edge and
Agreement subsidiaries, and in IBFs:
a. Federal funds purchased................................. RCFD 0278 884,553 14.a.
b. Securities sold under agreements to repurchase.......... RCFD 0279 717,211 14.b.
15. a. Demand notes issued to the U.S. Treasury................ RCON 2840 14,120 15.a.
b. Trading Liabilities..................................... RCFD 3548 5,409,585 15b.
16. Other borrowed money:
a. With original maturity of one year or less.............. RCFD 2332 3,414,577 16.a.
b. With original maturity of more than one year............ RCFD 2333 46,685 16b.
17. Mortgage indebtedness and obligations under
capitalized leases......................................... RCFD 2910 285,671 17.
18. Bank's liability on acceptance executed and
outstanding................................................ RCFD 2920 626,690 18.
19. Subordinated notes and debentures.......................... RCFD 3200 1,250,000 19.
20. Other liabilities (from Schedule RC-G)..................... RCFD 2930 1,005,205 20.
21. Total liabilities (sum of items 13 through 20)............. RCFD 2948 46,049,924 21.
22. Limited-Life preferred stock and related surplus........... RCFD 3282 0 22.
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus.............. RCFD 3838 0 23.
24. Common stock............................................... RCFD 3230 200,858 24.
25. Surplus (exclude all surplus related to preferred stock) RCFD 3839 2,925,894 25.
26. a. Undivided profits and capital reserves.................. RCFD 3632 770,670 26.a.
b. Net unrealized holding gains (losses) on
available-for-sale securities........................... RCFD 8434 10,194 26.b.
27. Cumulative foreign currency translation adjustments........ RCFD 3284 (814) 27.
28. Total equity capital (sum of items 23 through 27).......... RCFD 3210 3,906,802 28.
29. Total liabilities, limited-life preferred stock, and equity
capital (sum of items 21, 22, and 28)...................... RCFD 3300 49,956,726 29.
</TABLE>
Memorandum
To be reported only with the March Report of Condition.
1. Indicate in the box at the right the number of the statement below that
best describes the most comprehensive level of auditing work performed for
the bank by independent external Number
---------
auditors as of any date during 1995........... RCFD 6724........ N/A
---------
<TABLE>
<S> <C>
1 = Independent audit of the bank conducted in accordance 4. = Directors' examination of the bank performed by other
with generally accepted auditing standards by a external auditors (may be required by state
certified public accounting firm which submits a report chartering authority)
on the bank
2 = Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements by external
conducted in accordance with generally accepted auditors
auditing standards by a certified public accounting 6 = Compilation of the bank's financial statements by external
firm which submits a report on the consolidated holding auditors
company (but not on the bank separately) 7 = Other audit procedures (excluding tax preparation work)
3 = Directors' examination of the bank conducted in 8 = No external audit work
accordance with generally accepted auditing
standards by a certified public accounting firm (may
be required by state chartering authority)
</TABLE>
___________________
(1) Includes total demand deposits and noninterest-bearing time and savings
deposits.
6
<PAGE>
Exhibit 25.2
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
--------
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY
OF A TRUSTEE PURSUANT TO SECTION 305(B)(2) _____
_________________________________
THE FIRST NATIONAL BANK OF CHICAGO
(EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER)
A NATIONAL BANKING ASSOCIATION 36-0899825
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
ONE FIRST NATIONAL PLAZA, CHICAGO, ILLINOIS 60670-0126
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
THE FIRST NATIONAL BANK OF CHICAGO
ONE FIRST NATIONAL PLAZA, SUITE 0286
CHICAGO, ILLINOIS 60670-0286
ATTN: LYNN A. GOLDSTEIN, LAW DEPARTMENT (312) 732-6919
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
___________________________________
MCKESSON FINANCING TRUST
(EXACT NAME OF OBLIGOR AS SPECIFIED IN ITS CHARTER)
DELAWARE 52-6841546
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
MCKESSON PLAZA
ONE POST STREET
SAN FRANCISCO, CALIFORNIA 94104
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
5% TRUST CONVERTIBLE PREFERRED SECURITIES
(TITLE OF INDENTURE SECURITIES)
1
<PAGE>
ITEM 1. GENERAL INFORMATION. FURNISH THE FOLLOWING
--------------------
INFORMATION AS TO THE TRUSTEE:
(A) NAME AND ADDRESS OF EACH EXAMINING OR
SUPERVISING AUTHORITY TO WHICH IT IS SUBJECT.
Comptroller of Currency, Washington, D.C.,
Federal Deposit Insurance Corporation,
Washington, D.C., The Board of Governors of
the Federal Reserve System, Washington D.C.
(B) WHETHER IT IS AUTHORIZED TO EXERCISE
CORPORATE TRUST POWERS.
The trustee is authorized to exercise corporate
trust powers.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR. IF THE OBLIGOR
------------------------------
IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH
SUCH AFFILIATION.
No such affiliation exists with the trustee.
ITEM 16. LIST OF EXHIBITS. LIST BELOW ALL EXHIBITS FILED AS A
-----------------
PART OF THIS STATEMENT OF ELIGIBILITY.
1. A copy of the articles of association of the
trustee now in effect.*
2. A copy of the certificates of authority of the
trustee to commence business.*
3. A copy of the authorization of the trustee to
exercise corporate trust powers.*
4. A copy of the existing by-laws of the trustee.*
5. Not Applicable.
6. The consent of the trustee required by
Section 321(b) of the Act.
2
<PAGE>
7. A copy of the latest report of condition of the
trustee published pursuant to law or the
requirements of its supervising or examining
authority.
8. Not Applicable.
9. Not Applicable.
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, The First National Bank of Chicago, a national
banking association organized and existing under the laws of the United
States of America, has duly caused this Statement of Eligibility to be
signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of Chicago and State of Illinois, on the 18th day of June
1997.
THE FIRST NATIONAL BANK OF CHICAGO,
TRUSTEE
BY /S/ RICHARD D. MANELLA
RICHARD D. MANELLA
VICE PRESIDENT
* EXHIBITS 1, 2, 3 AND 4 ARE HEREIN INCORPORATED BY REFERENCE TO EXHIBITS
BEARING IDENTICAL NUMBERS IN ITEM 16 OF THE FORM T-1 OF THE FIRST NATIONAL BANK
OF CHICAGO, FILED AS EXHIBIT 25.1 TO THE REGISTRATION STATEMENT ON FORM S-3 OF
SUNAMERICA INC. FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 25,
1996 (REGISTRATION NO. 333-14201).
3
<PAGE>
EXHIBIT 6
THE CONSENT OF THE TRUSTEE REQUIRED
BY SECTION 321(b) OF THE ACT
June 18, 1997
Securities and Exchange Commission
Washington, D.C. 20549
Gentlemen:
In connection with the qualification of the Amended and Restated Declaration of
Trust of McKesson Financing Trust, the undersigned, in accordance with Section
321(b) of the Trust Indenture Act of 1939, as amended, hereby consents that the
reports of examinations of the undersigned, made by Federal or State authorities
authorized to make such examinations, may be furnished by such authorities to
the Securities and Exchange Commission upon its request therefor.
Very truly yours,
THE FIRST NATIONAL BANK OF CHICAGO
BY: /S/ RICHARD D. MANELLA
RICHARD D. MANELLA
VICE PRESIDENT
4
<PAGE>
EXHIBIT 7
Legal Title of Bank: The First National Bank of Call Date: 09/30/96
Address: Chicago One First National ST-BK: 17-1630 FFIEC 031
City, State Zip: Plaza, Ste 0460 Chicago, Page RC-1
FDIC Certificate No.: IL 60670 0/3/6/1/8
---------
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS FOR SEPTEMBER 30, 1996
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount
outstanding of the last business day of the quarter.
SCHEDULE RC--BALANCE SHEET
<TABLE>
<CAPTION>
DOLLAR AMOUNTS IN C400 LESS THAN -
--------- -----------
THOUSANDS RCFD BIL MIL THOU
----------------- ---- ------------
<S> <C> <C> <C> <C>
ASSETS
1. Cash and balances due from depository institutions (from Schedule
RC-A):
a. Noninterest-bearing balances and currency
and coin(1)........................................................ 0081 4,041,784 1.a.
b. Interest-bearing balances(2).................................... 0071 5,184,890 1.b.
2. Securities
a. Held-to-maturity securities(from Schedule
RC-B, column A).................................................... 1754 0 2.a.
b. Available-for-sale securities (from
Schedule RC-B, column D)........................................... 1773 3,173,481 2.b.
3. Federal funds sold and securities purchased under agreements to
resell in domestic offices of the bank and its Edge and Agreement
subsidiaries, and in IBFs:
a. Federal Funds sold.............................................. 0276 3,505,874 3.a.
b. Securities purchased under agreements to resell................. 0277 145,625 3.b.
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned income (from Schedule RC-C)
b. LESS: Allowance for loan and lease losses....................... RCFD 3123 418,851 4.b.
c. LESS: Allocated transfer risk reserve........................... RCFD 3128 0 4.c.
d. Loans and leases, net of unearned income, allowance, and
reserve (item 4.a minus 4.b and 4.c)............................... 2125 22,417,107 4.d.
5. Assets held in trading accounts.................................... 3545 8,121,948 5.
6. Premises and fixed assets (including capitalized leases)........... 2145 707,971 6.
7. Other real estate owned (from Schedule RC-M)....................... 2150 9,184 7.
8. Investments in unconsolidated subsidiaries and associated
companies (from Schedule RC-M)..................................... 2130 53,803 8.
9. Customers' liability to this bank on acceptances outstanding....... 2155 626,690 9.
10. Intangible assets (from Schedule RC-M)............................. 2143 310,246 10.
11. Other assets (from Schedule RC-F).................................. 2160 1,658,123 11.
12. Total assets (sum of items 1 through 11)........................... 2170 49,956,726 12.
</TABLE>
__________________
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
5
<PAGE>
Legal Title of Bank: The First National Bank of Call Date: 09/30/96
Address: Chicago One First National Plaza, ST-BK: 17-1630 FFIE
City, State Zip: Ste 0460 Chicago, IL 60670 031 Page RC-2
FDIC Certificate No.: 0/3/6/1/8
---------
SCHEDULE RC-CONTINUED
<TABLE>
<CAPTION>
DOLLAR AMOUNTS IN
Thousands BIL MIL THOU
------------------ ------------
<S> <C> <C> <C> <C>
LIABILITIES
13. Deposits:
a. In domestic offices (sum of totals of
columns A and C from Schedule RC-E, part 1)...... RCON 2200 22,369,341 13.a.
(1) Noninterest-bearing(1)....................... RCON 6631 9,726,987 13.a.(1)
(2) Interest-bearing............................. RCON 6636 12,642,354 13.a.(2)
b. In foreign offices, Edge and Agreement
subsidiaries, and IBFs (from Schedule
RC-E, part II)................................... RCFN 2200 10,026,286 13.b.
(1) Noninterest bearing.......................... RCFN 6631 336,746 13.b.(1)
(2) Interest-bearing............................. RCFN 6636 9,689,540 13.b.(2)
14. Federal funds purchased and securities
sold under agreements to repurchase in
domestic offices of the bank and of
its Edge and Agreement subsidiaries,
and in IBFs:
a. Federal funds purchased.......................... RCFD 0278 884,553 14.a.
b. Securities sold under agreements
to repurchase.................................... RCFD 0279 717,211 14.b.
15. a. Demand notes issued to the U.S. Treasury......... RCON 2840 14,120 15.a.
b. Trading Liabilities.............................. RCFD 3548 5,409,585 15b.
16. Other borrowed money:
a. With original maturity of one year or less....... RCFD 2332 3,414,577 16.a.
b. With original maturity of more than
one year......................................... RCFD 2333 46,685 16b.
17. Mortgage indebtedness and obligations under
capitalized leases.................................. RCFD 2910 285,671 17.
18. Bank's liability on acceptance executed and
outstanding......................................... RCFD 2920 626,690 18.
19. Subordinated notes and debentures................... RCFD 3200 1,250,000 19.
20. Other liabilities (from Schedule RC-G).............. RCFD 2930 1,005,205 20.
21. Total liabilities (sum of items 13 through 20)...... RCFD 2948 46,049,924 21.
22. Limited-Life preferred stock and related surplus.... RCFD 3282 0 22.
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus....... RCFD 3838 0 23.
24. Common stock........................................ RCFD 3230 200,858 24.
25. Surplus (exclude all surplus related to preferred
stock).............................................. RCFD 3839 2,925,894 25.
26. a. Undivided profits and capital reserves........... RCFD 3632 770,670 26.a.
b. Net unrealized holding gains (losses) on
available-for-sale securities.................... RCFD 8434 10,194 26.b.
27. Cumulative foreign currency translation adjustments. RCFD 3284 (814) 27.
28. Total equity capital (sum of items 23 through 27)... RCFD 3210 3,906,802 28.
29. Total liabilities, limited-life preferred stock,
and equity capital (sum of items 21, 22, and 28).... RCFD 3300 49,956,726 29.
</TABLE>
Memorandum
To be reported only with the March Report of Condition.
1. Indicate in the box at the right the number of the statement below that best
describes the most
comprehensive level of auditing work performed for the bank by independent
external Number
---------
auditors as of any date during 1995...........RCFD 6724.. N/A M.1.
---------
<TABLE>
<S> <C>
1 = Independent audit of the bank conducted in 4. = Directors' examination of the bank performed
accordance by other
with generally accepted auditing standards by external auditors (may be required by state
a certified chartering
public accounting firm which submits a report authority)
on the bank
2 = Independent audit of the bank's parent holding 5 = Review of the bank's financial statements by
company external
conducted in accordance with generally auditors
accepted auditing
standards by a certified public accounting 6 = Compilation of the bank's financial
firm which statements by external
submits a report on the consolidated holding auditors
company
(but not on the bank separately) 7 = Other audit procedures (excluding tax
preparation work)
3 = Directors' examination of the bank conducted in 8 = No external audit work
accordance with generally accepted auditing
standards by a certified public accounting firm
(may be required by state chartering authority)
</TABLE>
___________________
(1) Includes total demand deposits and noninterest-bearing time and savings
deposits.
6
<PAGE>
Exhibit 25.3
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
--------
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY
OF A TRUSTEE PURSUANT TO SECTION 305(B)(2) _____
__________________________________
THE FIRST NATIONAL BANK OF CHICAGO
(EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER)
A NATIONAL BANKING ASSOCIATION 36-0899825
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
ONE FIRST NATIONAL PLAZA, CHICAGO, ILLINOIS 60670-0126
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
THE FIRST NATIONAL BANK OF CHICAGO
ONE FIRST NATIONAL PLAZA, SUITE 0286
CHICAGO, ILLINOIS 60670-0286
ATTN: LYNN A. GOLDSTEIN, LAW DEPARTMENT (312) 732-6919
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
__________________________________
MCKESSON FINANCING TRUST
(EXACT NAME OF OBLIGOR AS SPECIFIED IN ITS CHARTER)
DELAWARE 52-6841546
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
MCKESSON PLAZA
ONE POST STREET
SAN FRANCISCO, CALIFORNIA 94104
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
GUARANTEE OF 5% TRUST CONVERTIBLE PREFERRED SECURITIES
MCKESSON FINANCING TRUST
(TITLE OF INDENTURE SECURITIES)
1
<PAGE>
ITEM 1. GENERAL INFORMATION. FURNISH THE FOLLOWING
--------------------
INFORMATION AS TO THE TRUSTEE:
(A) NAME AND ADDRESS OF EACH EXAMINING OR
SUPERVISING AUTHORITY TO WHICH IT IS SUBJECT.
Comptroller of Currency, Washington, D.C.,
Federal Deposit Insurance Corporation,
Washington, D.C., The Board of Governors of
the Federal Reserve System, Washington D.C.
(B) WHETHER IT IS AUTHORIZED TO EXERCISE
CORPORATE TRUST POWERS.
The trustee is authorized to exercise corporate
trust powers.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR. IF THE OBLIGOR
------------------------------
IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH
SUCH AFFILIATION.
No such affiliation exists with the trustee.
ITEM 16. LIST OF EXHIBITS. LIST BELOW ALL EXHIBITS FILED AS A
-----------------
PART OF THIS STATEMENT OF ELIGIBILITY.
1. A copy of the articles of association of the
trustee now in effect.*
2. A copy of the certificates of authority of the
trustee to commence business.*
3. A copy of the authorization of the trustee to
exercise corporate trust powers.*
4. A copy of the existing by-laws of the trustee.*
5. Not Applicable.
6. The consent of the trustee required by
Section 321(b) of the Act.
2
<PAGE>
7. A copy of the latest report of condition of the
trustee published pursuant to law or the
requirements of its supervising or examining
authority.
8. Not Applicable.
9. Not Applicable.
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, The First National Bank of Chicago, a national
banking association organized and existing under the laws of the United
States of America, has duly caused this Statement of Eligibility to be
signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of Chicago and State of Illinois, on the 18th day of June
1997.
THE FIRST NATIONAL BANK OF CHICAGO,
TRUSTEE
BY /S/ RICHARD D. MANELLA
RICHARD D. MANELLA
VICE PRESIDENT
* EXHIBITS 1, 2, 3 AND 4 ARE HEREIN INCORPORATED BY REFERENCE TO EXHIBITS
BEARING IDENTICAL NUMBERS IN ITEM 16 OF THE FORM T-1 OF THE FIRST NATIONAL BANK
OF CHICAGO, FILED AS EXHIBIT 25.1 TO THE REGISTRATION STATEMENT ON FORM S-3 OF
SUNAMERICA INC. FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 25,
1996 (REGISTRATION NO. 333-14201).
3
<PAGE>
EXHIBIT 6
THE CONSENT OF THE TRUSTEE REQUIRED
BY SECTION 321(b) OF THE ACT
June 18, 1997
Securities and Exchange Commission
Washington, D.C. 20549
Gentlemen:
In connection with the qualification of an indenture between McKesson
Corporation and The First National Bank of Chicago, the undersigned, in
accordance with Section 321(b) of the Trust Indenture Act of 1939, as amended,
hereby consents that the reports of examinations of the undersigned, made by
Federal or State authorities authorized to make such examinations, may be
furnished by such authorities to the Securities and Exchange Commission upon its
request therefor.
Very truly yours,
THE FIRST NATIONAL BANK OF CHICAGO
BY: /S/ RICHARD D. MANELLA
RICHARD D. MANELLA
VICE PRESIDENT
4
<PAGE>
EXHIBIT 7
Legal Title of Bank: The First National Bank of Chicago Call Date: 09/30/96
Address: One First National Plaza, Ste 0460 ST-BK: 17-1630 FFI
City, State Zip: Chicago, IL 60670 EC 031
FDIC Certificate No.: 0/3/6/1/8 Page RC-1
---------
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS FOR SEPTEMBER 30, 1996
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding of the last business day of the
quarter.
SCHEDULE RC--BALANCE SHEET
<TABLE>
<CAPTION>
DOLLAR AMOUNTS IN C400 LESS THAN-
------------ -----------
THOUSANDS RCFD BIL MIL THOU
----------------- ---- ------------
ASSETS
<S> <C> <C> <C> <C>
1. Cash and balances due from depository institutions
(from Schedule RC-A):
a. Noninterest-bearing balances and currency
and coin(1)....................................... 0081 4,041,784 1.a.
b. Interest-bearing balances(2)................... 0071 5,184,890 1.b.
2. Securities
a. Held-to-maturity securities(from Schedule
RC-B, column A)................................... 1754 0 2.a.
b. Available-for-sale securities (from
Schedule RC-B, column D).......................... 1773 3,173,481 2.b.
3. Federal funds sold and securities purchased under
agreements to resell in domestic offices of the
bank and its Edge and Agreement subsidiaries,
and in IBFs:
a. Federal Funds sold............................. 0276 3,505,874 3.a.
b. Securities purchased under agreements to
resell............................................ 0277 145,625 3.b.
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned
income (from Schedule RC-C)....................... RCFD 2122 22,835,958 4.a.
b. LESS: Allowance for loan and lease
losses............................................ RCFD 3123 418,851 4.b.
c. LESS: Allocated transfer risk reserve.......... RCFD 3128 0 4.c.
d. Loans and leases, net of unearned
income, allowance, and reserve
(item 4.a minus 4.b and 4.c)...................... 2125 22,417,107 4.d.
5. Assets held in trading accounts................... 3545 8,121,948 5.
6. Premises and fixed assets (including
capitalized leases)............................... 2145 707,971 6.
7. Other real estate owned (from Schedule RC-M)...... 2150 9,184 7.
8. Investments in unconsolidated subsidiaries and
associated companies (from Schedule RC-M)......... 2130 53,803 8.
9. Customers' liability to this bank on acceptances
outstanding....................................... 2155 626,690 9.
10. Intangible assets (from Schedule RC-M)............ 2143 310,246 10.
11. Other assets (from Schedule RC-F)................. 2160 1,658,123 11.
12. Total assets (sum of items 1 through 11).......... 2170 49,956,726 12.
</TABLE>
__________________
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
5
<PAGE>
<TABLE>
<S> <C> <C> <C>
Legal Title of Bank: The First National Bank of Chicago Call Date: 09/30/96 ST-BK: 17-1630 FFIEC 031
Address: One First National Plaza, Ste 0460 Page RC-2
City, State Zip: Chicago, IL 60670
FDIC Certificate No.: 0/3/6/1/8
---------
SCHEDULE RC-CONTINUED
DOLLAR AMOUNTS IN
Thousands BIL MIL THOU
----------------- ------------
LIABILITIES
<S> <C> <C> <C> <C> <C>
13. Deposits:
a. In domestic offices (sum of
totals of columns A and C
from Schedule RC-E, part 1)............ RCON 2200 22,369,341 13.a.
(1) Noninterest-bearing(1)............. RCON 6631 9,726,987 13.a.(1)
(2) Interest-bearing................... RCON 6636 12,642,354 13.a.(2)
b. In foreign offices, Edge and
Agreement subsidiaries, and
IBFs (from Schedule RC-E, part II)..... RCFN 2200 10,026,286 13.b.
(1) Noninterest bearing................ RCFN 6631 336,746 13.b.(1)
(2) Interest-bearing................... RCFN 6636 9,689,540 13.b.(2)
14. Federal funds purchased and
securities sold under agreements
to repurchase in domestic offices
of the bank and of its Edge and
Agreement subsidiaries, and
in IBFs:
a. Federal funds purchased................ RCFD 0278 884,553 14.a.
b. Securities sold under.................. RCFD 0279 717,211 14.b.
agreements to repurchase
15. a. Demand notes issued to the
U.S. Treasury............................. RCON 2840 14,120 15.a.
b. Trading Liabilities.................... RCFD 3548 5,409,585 15b.
16. Other borrowed money:
a. With original maturity of one
year or less.............................. RCFD 2332 3,414,577 16.a.
b. With original maturity of more
than one year............................. RCFD 2333 46,685 16b.
17. Mortgage indebtedness and
obligations under capitalized
leases.................................... RCFD 2910 285,671 17.
18. Bank's liability on acceptance
executed and outstanding.................. RCFD 2920 626,690 18.
19. Subordinated notes and debentures......... RCFD 3200 1,250,000 19.
20. Other liabilities (from Schedule
RC-G)..................................... RCFD 2930 1,005,205 20.
21. Total liabilities (sum of items
13 through 20)............................ RCFD 2948 46,049,924 21.
22. Limited-Life preferred stock and
related surplus........................... RCFD 3282 0 22.
EQUITY CAPITAL
23. Perpetual preferred stock and
related surplus........................... RCFD 3838 0 23.
24. Common stock.............................. RCFD 3230 200,858 24.
25. Surplus (exclude all surplus
related to preferred stock)............... RCFD 3839 2,925,894 25.
26. a. Undivided profits and capital reserves. RCFD 3632 770,670 26.a.
b. Net unrealized holding gains
(losses) on available-for-sale
securities................................ RCFD 8434 10,194 26.b.
27. Cumulative foreign currency
translation adjustments................... RCFD 3284 (814) 27.
28. Total equity capital (sum of
items 23 through 27)...................... RCFD 3210 3,906,802 28.
29. Total liabilities, limited-life
preferred stock, and equity
capital (sum of items 21, 22, and
28)....................................... RCFD 3300 49,956,726 29.
</TABLE>
<TABLE>
<S> <C>
Memorandum
To be reported only with the March Report of Condition.
1. Indicate in the box at the right the number of the statement below that best
describes the most
comprehensive level of auditing work performed for the bank by independent
external Number
----------------
auditors as of any date during 1995 . . . . . . . . . . . . . . . . ....RCFD 6724...... N/A M.1.
----------------
</TABLE>
<TABLE>
<S> <C>
1 = Independent audit of the bank conducted in 4. = Directors' examination of the bank performed
accordance with generally accepted auditing standards by by other external auditors (may be required by state
a certified public accounting firm which submits a report chartering authority)
on the bank 5 = Review of the bank's financial statements by
2 = Independent audit of the bank's parent holding external auditors
company conducted in accordance with generally 6 = Compilation of the bank's financial
accepted auditing standards by a certified public statements by external auditors
accounting firm which submits a report on the 7 = Other audit procedures (excluding tax
consolidated holding company auditors preparation work)
(but not on the bank separately) 8 = No external audit work
3 = Directors' examination of the bank conducted in
accordance with generally accepted auditing
standards by a certified public accounting
firm (may be required by state chartering authority)
</TABLE>
_______________________
(1) Includes total demand deposits and noninterest-bearing time and savings
deposits.
6
