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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
McKesson Corporation
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
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[LETTERHEAD OF MCKESSON]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 29, 1998
The Annual Meeting of Stockholders of McKesson Corporation, a Delaware
corporation (hereinafter called "McKesson" or the "Corporation"), will be held
at 10:00 A.M. on Wednesday, July 29, 1998 in the Gold Room, at The Fairmont
Hotel, 950 Mason Street, San Francisco, California, to consider and take action
upon the following matters:
1. election of three directors for terms expiring at the annual meeting in
2001;
2. a proposal to amend the Corporation's Restated Certificate of Incorporation
to increase the number of authorized shares of Common Stock from 200,000,000
to 400,000,000;
and such other business as may properly come before the meeting or any
adjournment thereof.
Holders of record of the Corporation's Common Stock at the close of business on
June 1, 1998 are entitled to receive notice of and to vote at the meeting.
You are cordially invited to attend the meeting in person. However, whether you
plan to attend or not, we urge you to mark, sign, date and return the
accompanying proxy in the enclosed business reply envelope. If you are a
stockholder of record or a participant in the Corporation's Profit-Sharing
Investment Plan ("PSIP") you may use the toll-free telephone number listed on
the proxy/PSIP voting card to have your shares voted. Returning your proxy does
not deprive you of your right to attend the meeting, to withdraw your proxy,
(whether previously voted by telephone or by mail) and to vote your shares in
person.
By Order of the Board of Directors
/s/ Nancy A. Miller
Nancy A. Miller
Vice President and Corporate Secretary
June 17, 1998
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
General Information....................................................... 1
Voting Securities and Record Date......................................... 2
Security Ownership of Certain Beneficial Owners........................... 3
Security Ownership of Directors and Executive Officers.................... 3
Election of Directors (Proxy Item No. 1).................................. 4
Section 16(a) Beneficial Ownership Reporting Compliance................... 7
Board of Directors and Committees of the Board............................ 7
Compensation of Directors................................................. 9
Report of the Compensation Committee on Executive Compensation............ 11
Stock Price Performance Graphs............................................ 14
Executive Officer Compensation............................................ 16
Summary Compensation Table.............................................. 16
Option Grants in the Last Fiscal Year................................... 17
Aggregated Option/SAR Exercises in the Last Fiscal Year................. 18
Long-Term Incentive Plan Awards in the Last Fiscal Year................. 18
Employment Agreements................................................... 18
Executive Severance Policy and Change in Control Arrangements........... 19
Pension Benefits........................................................ 20
Certain Transactions...................................................... 21
Indebtedness of Executive Officers........................................ 21
Amendment to Restated Certificate of Incorporation to Increase the Number
of Authorized Shares of Common Stock (Proxy Item No. 2).................. 22
Independent Certified Public Accountants.................................. 25
Additional Information.................................................... 25
Stockholder Proposals for the 1999 Annual Meeting......................... 25
</TABLE>
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[LETTERHEAD OF MCKESSON]
June 17, 1998
PROXY STATEMENT
The Corporation was organized in the state of Delaware on July 7, 1994 as a
wholly-owned subsidiary of McKesson Corporation, a Delaware corporation ("Old
McKesson"), for the purpose of owning and operating the businesses of Old
McKesson following the acquisition of Old McKesson's pharmaceutical benefits
management business (the "PCS Business") by a subsidiary of Eli Lilly and
Company (the "PCS Transaction").
As part of the PCS Transaction, on November 21, 1994 (the "Closing Date") the
Corporation acquired all of the assets and liabilities of Old McKesson, other
than those related to the PCS Business, and Old McKesson distributed to its
stockholders one share of the Corporation's Common Stock for each share of Old
McKesson Common Stock outstanding as of November 19, 1994.
THE CORPORATION HAD NO MATERIAL ASSETS, OPERATIONS OR ACTIVITIES PRIOR TO
NOVEMBER 21, 1994. AFTER THAT DATE, THE CORPORATION HAS CONTINUED THE
BUSINESSES OF OLD MCKESSON, OTHER THAN THE PCS BUSINESS, ON AN UNINTERRUPTED
BASIS. FOR THE PURPOSE OF COMPLETENESS, THIS PROXY STATEMENT INCLUDES, FOR
PERIODS PRIOR TO THE CLOSING DATE, INFORMATION WITH RESPECT TO OLD MCKESSON;
AND REFERENCES TO THE "CORPORATION" WITH RESPECT TO SUCH PERIODS SHALL REFER TO
THE BUSINESS, OPERATIONS, CAPITALIZATION AND ACTIVITIES OF OLD MCKESSON, EXCEPT
WHERE OTHERWISE INDICATED.
GENERAL INFORMATION
This Proxy Statement is being mailed on or about June 17, 1998 to stockholders
of McKesson in connection with the solicitation of proxies by the Board of
Directors of the Corporation for use at the Annual Meeting of Stockholders to
be held on July 29, 1998, and at any and all adjournments of that meeting,
pursuant to the accompanying Notice of Meeting. Shares represented by a
properly executed proxy will be voted as indicated on the proxy.
The information contained in this Proxy Statement has been adjusted, where
appropriate, to give effect to a two-for-one split of the Corporation's Common
Stock, effected in the form of a stock dividend of one additional share for
each share owned by stockholders of record on December 1, 1997, distributed on
January 2, 1998.
This year stockholders of record and participants in the Corporation's Profit-
Sharing Investment Plan ("PSIP") can vote their shares either by returning a
signed proxy card or by telephone. The "vote-by-phone" option is convenient and
easy to use. The toll free number and procedures for voting by telephone are
included on the enclosed proxy/PSIP voting card.
If your shares are held in the name of a bank or broker, follow the voting
instructions on the form you receive. The availability of telephone voting will
depend on their voting processes.
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Stockholders have the right to revoke their proxies at any time before their
shares are actually voted by written notice of revocation or by a later-dated
proxy, in either case delivered using the telephone voting procedures or by
mail to the Secretary of the Corporation; or by attending the meeting,
withdrawing their proxy, and voting in person.
It is proposed that at the meeting action will be taken on the matters set
forth in the accompanying Notice of Meeting and described in this Proxy
Statement. The Board of Directors knows of no other matters that properly may
be presented for action at the meeting. If any other matters do properly come
before the meeting, the persons named on the enclosed proxy will have
discretionary authority to vote thereon in accordance with their best judgment.
Under the Corporation's Restated By-Laws, for business to be properly brought
before an annual meeting by a stockholder, the Secretary of the Corporation
must have received written notice thereof not less than 60 days nor more than
90 days prior to the meeting (except, if fewer than 70 days' notice or prior
public disclosure of the meeting date is given or made to stockholders, not
later than the close of business on the 10th day following the day of mailing
notice of the meeting or public disclosure thereof). The notice must contain
certain information about the proposed business and the stockholder who
proposes to bring the business before the annual meeting, including (a) a brief
description of the proposed business and the reasons for conducting such
business at the annual meeting, (b) the stockholder's name and record address,
(c) the class and number of shares beneficially owned by the stockholder, and
(d) any material interest of the stockholder in the business so proposed.
Notwithstanding anything in the Restated By-Laws to the contrary, no business
shall be conducted at an annual meeting except in accordance with the foregoing
procedures.
The cost of soliciting proxies will be borne by the Corporation. In addition to
solicitations by mail, officers and regular employees of the Corporation may
solicit proxies personally or by telephone, telegraph or other means without
additional compensation. Arrangements will also be made with banks, brokerage
houses and other custodians, nominees and fiduciaries to forward solicitation
material to the beneficial owners of stock held of record by such persons, and
the Corporation will, upon request, reimburse them for their reasonable
expenses in so doing. Georgeson & Company, Inc., New York, N.Y., has been
retained by the Corporation to assist in the solicitation of proxies for an
anticipated fee of approximately $6,000 plus out-of-pocket costs and expenses.
VOTING SECURITIES AND RECORD DATE
At the close of business on June 1, 1998, there were shares of Common Stock
of the Corporation, par value $0.01 per share (the "Common Stock"), outstanding
and entitled to vote at the meeting. Each share of Common Stock outstanding on
such date entitles the stockholder of record thereof to one vote on each matter
to be voted upon at the meeting. The presence in person or by proxy of holders
of a majority of the outstanding shares of Common Stock entitled to vote will
constitute a quorum for the transaction of business at the meeting. Abstentions
and broker non-votes will be counted for purposes of determining the presence
or absence of a quorum. Provided a quorum is present, directors will be elected
by a plurality of the votes cast by the holders of the Corporation's Common
Stock voting in person or by proxy at the meeting. The proposal to approve an
amendment to the Corporation's Restated Certificate of Incorporation to
increase the number of authorized shares of Common Stock will require the
affirmative vote of the holders of a majority of the Corporation's Common Stock
present in person or by proxy and entitled to vote at the meeting. Thus,
abstentions will have the same practical effect as a negative vote on this
proposal, but will have no effect on the vote for election of directors. Broker
non-votes, if any, will not be included in vote totals and will have no effect
on the outcome of the vote.
If a stockholder participates in the Corporation's Automatic Dividend
Reinvestment Plan, the enclosed proxy includes all full shares of Common Stock
held in the stockholder's dividend reinvestment plan account on the record date
for the annual meeting, as well as shares held of record by the stockholder.
Participants in the Corporation's Profit-Sharing Investment Plan (the "PSIP")
have the right to instruct the Plan Trustee, on a confidential basis, how the
shares allocated to their accounts are to be voted and will receive a separate
PSIP voting instruction card for that purpose.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The table below lists as of June 1, 1998, unless otherwise indicated,
information about the only persons believed by the Corporation to be beneficial
owners of more than five percent of the Corporation's Common Stock.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER OWNERSHIP CLASS
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<S> <C> <C>
The Chase Manhattan (1)
Bank, N.A., as Trustee for the
McKesson Corporation Profit-
Sharing Investment Plan
1 Chase Manhattan Plaza
New York, NY 10081
FMR Corp 10,409,937(2) 11.12
82 Devonshire Street
Boston, MA 02109
</TABLE>
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(1) These shares are held in trust for the benefit of participants in the PSIP
for which The Chase Manhattan Bank, N.A. is the Trustee. Shares that have
been allocated to the individual accounts of participants in the PSIP are
voted by the Trustee as instructed by PSIP participants. Shares allocated
to participants' PAYSOP accounts for which no voting instructions are
received will not be voted. The PSIP provides that all other shares for
which no voting instructions are received from participants and unallocated
shares of Common Stock held in the leveraged employee stock ownership plan
(the "Leveraged ESOP") established as part of the PSIP, will be voted by
the Trustee in the same proportion as shares as to which voting
instructions are received.
(2) This information is based on an amended Schedule 13G filed with the
Securities and Exchange Commission reporting that as of February 28, 1998,
FMR Corp., in its capacity as a parent holding company, had sole voting
power as to 665,625 shares and sole dispositive power as to all 10,409,937
shares. According to such Schedule 13G, no one person has an interest in
FMR Corp. that would give such person more than a five percent interest in
the Corporation's outstanding Common Stock.
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The table below shows the number of shares of the Corporation's Common Stock
beneficially owned as of June 1, 1998, by each current director, each executive
officer named in the Summary Compensation Table on page 16, and by all
directors and executive officers as a group.
<TABLE>
<CAPTION>
PERCENT
SHARES OF COMMON STOCK OF STOCK
NAME OF INDIVIDUAL BENEFICIALLY OWNED (1) CLASS UNITS(2)(3)
------------------ ------------------------------- ------- -----------
<S> <C> <C> <C>
Mary G.F. Bitterman..... 14,000(4)(5)(6) * 1,736
Tully M. Friedman....... 25,000(5)(7) * 4,516
John M. Pietruski....... 23,000(5) * 5,287
David S. Pottruck....... 15,000(5) * 1,330
Mark A. Pulido.......... 500,720(5)(8)(9) * --
Carl E. Reichardt....... 13,000(5)(6) * 1,795
Alan Seelenfreund....... 1,207,229(5)(9) --
Jane E. Shaw............ 19,457(5)(6) * 8,162
Robert H. Waterman, Jr.. 19,000(5)(6) * 4,831
John H. Hammergren...... 120,529(5)(8)(9) * --
Richard H. Hawkins...... 248,909(5)(9) * --
David L. Mahoney........ 385,389(5)(9) * --
Mark T. Majeske......... 81,957(5)(8)(9) * --
All Directors and
Executive Officers as a
group (21 Persons)..... 3,894,647(4)(5)(6)(7)(8)(9)(10) 26,967
</TABLE>
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* Less than 1%
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(1) Represents shares held as of June 1, 1998 directly and with sole voting and
investment power (or with voting and investment power shared with a spouse)
unless otherwise indicated. The number of shares of Common Stock owned by
each director or executive officer (other than Mr. Seelenfreund) represents
less than 1% of the outstanding shares of such class. All directors and
executive officers as a group own % of the outstanding shares of Common
Stock.
(2) Includes restricted stock units accrued under the 1997 Non-Employee
Directors' Equity Compensation and Deferral Plan, as described beginning on
page 9, as follows: Dr. Bitterman, 1,736 units; Mr. Friedman, 3,891 units;
Mr. Pietruski, 5,287 units; Mr. Pottruck, 1,330 units; Mr. Reichardt, 1,795
units; Dr. Shaw, 3,112 units and Mr. Waterman, 4,831 units; and all non-
employee Directors as a group, 21,982 units. Directors have neither voting
nor investment power in respect of such units.
(3) Includes common stock units accrued under the Directors' Deferred
Compensation Plan, as described beginning on page 10, as follows: Mr.
Friedman, 625 units; Dr. Shaw, 5,050 units; and those directors as a group,
5,675 units. Participating directors have neither voting nor investment
power in respect of such units.
(4) Includes 2,000 shares held by Dr. Bitterman's husband through an Individual
Retirement Account, for which beneficial ownership is disclaimed.
(5) Includes shares that may be acquired by exercise of stock options within 60
days after June 1, 1998 as follows: Dr. Bitterman, 10,000; Mr. Friedman,
9,000; Mr. Pietruski, 9,000; Mr. Pottruck, 10,000; Mr. Pulido, 200,000; Mr.
Reichardt, 3,000; Mr. Seelenfreund, 1,064,558; Dr. Shaw, 9,000; Mr.
Waterman, 9,000; Mr. Hammergren, 40,000; Mr. Hawkins, 180,072; Mr. Mahoney,
330,700; Mr. Majeske, 25,950; and all directors and executive officers as a
group, 2,858,618.
(6) Includes shares held by family trusts as to which each of the following
named directors and their respective spouses have shared voting and
investment power: Dr. Bitterman, 2,000 shares; Mr. Reichardt, 10,000
shares; Dr. Shaw, 10,457 shares; Mr. Waterman, 6,000 shares; and those
directors as a group, 28,438 shares.
(7) Includes 14,000 shares held in a revocable trust established by and for the
benefit of Mr. Friedman who is the sole Trustee of such trust.
(8) Includes shares subject to possible forfeiture under the terms of the
Corporation's 1994 Stock Option and Restricted Stock Plan and the 1988
Restricted Stock Plan of Old McKesson, as follows: Mr. Pulido, 40,000
shares; Mr. Hammergren, 40,000 shares; Mr. Majeske, 15,000 shares; and all
directors and executive officers as a group, 136,002 shares.
(9) Includes shares held under the PSIP as to which the participant has sole
voting but no investment power, as follows: Mr. Seelenfreund, 18,083; Mr.
Pulido, 720; Mr. Hammergren, 529; Mr. Hawkins, 5,807; Mr. Mahoney, 3,689;
Mr. Majeske, 1,007; and all directors and executive officers as a group,
70,406.
(10) Includes 4,400 shares held by members of the group as custodians for their
minor children.
ELECTION OF DIRECTORS (PROXY ITEM NO. 1)
The Board of Directors is divided into three classes. At each annual meeting of
stockholders, one class of directors, on a rotating basis, is elected to hold
office for a three-year term.
The Board of Directors elects directors to fill vacancies on the Board, as they
occur, as well as newly created directorships. A director elected to fill a
vacancy is elected to the same class as the director he or she succeeds, and a
director elected to fill a newly created directorship holds office until the
next election by the stockholders of the class to which such director is
elected.
The Board of Directors has designated Mary G.F. Bitterman, Mark A. Pulido and
Robert H. Waterman, Jr. as nominees for election as directors at the 1998
Annual Meeting for a three-year term expiring in 2001. Each nominee has
consented to being named in the proxy statement and to serve if elected. All of
the nominees are currently serving as directors and were previously elected by
the stockholders.
It is the intention of the persons named in the enclosed form of proxy, unless
authorization to do so is withheld, to vote for the election of the three
nominees named below. If prior to the annual meeting any nominee should become
unavailable for election, an event that is not now anticipated by the Board,
the proxies will be voted for the election as directors of such other person or
persons as shall be determined by the persons named in the enclosed form of
proxy in accordance with their judgment, or the number of authorized directors
may be reduced.
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Biographical information follows for each person nominated and each person
whose term of office as a director will continue after the Annual Meeting.
Directors' ages are as of June 1, 1998.
NOMINEES FOR ELECTION FOR A THREE-YEAR TERM EXPIRING AT THE ANNUAL MEETING IN
2001
MARY G.F. BITTERMAN
President and Chief Executive Officer, KQED, Inc.
Dr. Bitterman, age 54, has been President and Chief Executive Officer of KQED,
Inc. (public broadcasting) since November 1993. For the five years prior to
joining KQED she was a private consultant on development, communications and
international affairs. Previously, Dr. Bitterman served as Executive Director
of the Hawaii Public Broadcasting Authority (1974-1980), Director of the Voice
of America (1980-1981), Director of the Hawaii State Department of Commerce and
Consumer Affairs (1981-1983) and Director of the East-West Center's Institute
of Culture and Communication (1984-1988). She is a Director of Pacific Century
Financial Corporation, the Bank of Hawaii, and Pacific Century Investment
Group; a member of the Board of Governors of Pacific Forum/CSIS, and a member
of the Board of Directors of the Association of American Public Television
Stations, the World Affairs Council and the Bay Area Council. Dr. Bitterman has
served as a director of the Corporation since 1995. She is a member of the
Audit and Finance Committees of the Board.
MARK A. PULIDO
President and Chief Executive Officer
Mr. Pulido, age 45, became Chief Executive Officer of McKesson on April 1,
1997. He has served as President and Chief Operating Officer since joining the
Corporation in May 1996. He has spent his entire career in the health care
industry, beginning in the wholesale pharmaceutical distribution business with
McKesson Drug Company, where he held a variety of distribution and marketing
management positions. He joined FoxMeyer Drug Co. in 1986, serving in senior-
level sales and marketing positions before becoming Executive Vice President of
that company. In 1990, he left FoxMeyer to become President and Chief Operating
Officer of Red Line Healthcare Corporation, an affiliate of Sandoz
International Ltd., the nation's largest provider of medical supplies and
reimbursement services to the long-term care industry. He held the positions of
Chairman, President and Chief Executive Officer from 1992-1994. In 1994, he
became Chief Operating Officer of Sandoz Pharmaceuticals Corporation, then
Chief Executive Officer in 1996, responsible for all aspects of the company's
U.S. pharmaceutical, consumer products and generic drug businesses. Mr. Pulido
has served as a director of the Corporation since 1996. He is a member of the
Executive Committee of the Board.
ROBERT H. WATERMAN, JR.
Chairman, The Waterman Group, Inc.
Mr. Waterman, age 61, is the founder and Chairman of The Waterman Group, Inc.,
a management research and publishing firm established in 1986, and the founder
and Chairman of MindSteps, Inc., a private career development software company
established in 1995. He is the author of What America Does Right, Advocacy: the
Power to Change, The Renewal Factor and co-author of In Search of Excellence.
He is a director of the AES Corporation, a trustee of the World Wildlife Fund
and an adviser to the President of the National Academy of Sciences. Mr.
Waterman previously served as a director of Old McKesson since 1990 and has
served as a director of the Corporation since 1994. He is Chairman of the
Committee on Directors and Corporate Governance and a member of the Audit and
Executive Committees of the Board.
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DIRECTORS CONTINUING IN OFFICE UNTIL THE ANNUAL MEETING IN 1999
DAVID S. POTTRUCK
President, Co-Chief Executive Officer and Chief Operating Officer, The Charles
Schwab Corporation
Mr. Pottruck, age 49, became the Co-Chief Executive Officer and a director of
The Charles Schwab Corporation in January 1998, and has been the Chief
Operating Officer since 1994 and the President of that company, and the Chief
Executive Officer of Charles Schwab & Co., Inc., since 1992. He is a director
of The Charles Schwab Corporation, Decibel Instruments, Inc. and Preview
Travel, Inc. Mr. Pottruck has served as director of the Corporation since 1997.
He is a member of the Audit and Compensation Committees of the Board.
ALAN SEELENFREUND
Chairman of the Board
Mr. Seelenfreund, age 61, has been Chairman of the Board of Directors of the
Corporation and Old McKesson since November 1989. He was Chief Executive
Officer of the Corporation and Old McKesson from November 1989 until April
1997. Previously he served Old McKesson as Executive Vice President from
November 1986 to November 1989; Chief Financial Officer from April 1984 to
April 1990; and held various other senior financial positions since joining Old
McKesson in 1975. Mr. Seelenfreund is a director of PG&E Corporation and
Pacific Gas and Electric Company. He previously served as a director of Old
McKesson since 1988 and has served as a director of the Corporation since 1994.
He is a member of the Finance Committee and Chairman of the Executive Committee
of the Board.
JANE E. SHAW
Chairman of the Board and Chief Executive Officer, AeroGen, Inc.
Dr. Shaw, age 59, became Chairman of the Board, and Chief Executive Officer of
AeroGen, Inc., a private company specializing in the development of pulmonary
drug delivery systems, on January 19, 1998. She founded The Stable Network, a
biopharmaceutical consulting firm, in 1995. In September 1994, Dr. Shaw
resigned as President and Chief Operating Officer of ALZA Corporation, a
pharmaceutical research, manufacturing and marketing firm with which she had
been associated in various technical and executive positions since 1970. She is
a director of AeroGen, Inc., Aviron Corporation, Boise Cascade Corporation and
Intel Corporation. Dr. Shaw previously served as a director of Old McKesson
since 1992 and has served as a director of the Corporation since 1994. She is
Chairman of the Audit Committee and a member of the Committee on Directors and
Corporate Governance and the Compensation and Executive Committees of the
Board.
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DIRECTORS CONTINUING IN OFFICE UNTIL THE ANNUAL MEETING IN 2000
TULLY M. FRIEDMAN
Chairman and Chief Executive Officer, Friedman & Fleischer, LLC
Mr. Friedman, age 56, is Chairman and Chief Executive Officer of Friedman &
Fleischer, LLC, a private investment firm founded in 1997. For the 13 years
prior to 1997 he was a Managing Partner of Hellman & Friedman. He is currently
on the Advisory Board of Tevecap, S.A., the Boards of Directors of The Clorox
Company, Levi Strauss & Co., and Mattel, Inc. Mr. Friedman is a member of the
Executive Committee and a Trustee of the American Enterprise Institute, and a
Director of the Stanford Management Company. Mr. Friedman previously served as
a director of Old McKesson since 1992, and has served as a director of the
Corporation since 1994. He is Chairman of the Finance Committee and a member of
the Committee on Directors and Corporate Governance and the Compensation and
Executive Committees of the Board.
JOHN M. PIETRUSKI
Chairman, Texas Biotechnology Corporation; Chairman and Chief Executive
Officer, Retired, Sterling Drug Inc.
Mr. Pietruski, age 65, is Chairman of the Board of Texas Biotechnology
Corporation, a publicly held pharmaceutical research and development company.
In September 1988, Mr. Pietruski retired as Chairman and Chief Executive
Officer of Sterling Drug Inc. with which company he had been associated in
various executive positions since 1977. He is a director of General Public
Utilities Corporation, Hershey Foods Corporation, Lincoln National Corporation
and Professional Detailing, Inc. and is a Regent of Concordia College. Mr.
Pietruski previously served as a director of Old McKesson since 1990 and has
served as a director of the Corporation since 1994. He is Chairman of the
Compensation Committee and a member of the Committee on Directors and Corporate
Governance and the Executive Committee of the Board.
CARL E. REICHARDT
Chairman of the Board, Retired, Wells Fargo & Company
Mr. Reichardt, age 66, retired as Chairman of the Board and Chief Executive
Officer of Wells Fargo & Company and its principal subsidiary, Wells Fargo
Bank, N.A., at the end of 1994, having occupied those positions since 1983. Mr.
Reichardt joined Wells Fargo & Company in 1970, was named Executive Vice
President in 1973 and President of Wells Fargo Bank, N.A., in 1978. He is a
director of Columbia/HCA Healthcare Corporation, ConAgra, Inc., Ford Motor
Company, Newhall Management Corporation, PG&E Corporation, Pacific Gas and
Electric Company and SunAmerica Inc. Mr. Reichardt has served as a director of
the Corporation since 1996. He is a member of the Audit, Compensation and
Finance Committees of the Board.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Corporation's
Directors, its executive officers and persons who own more than ten percent of
the Corporation's Common Stock to file reports of ownership of the
Corporation's Common Stock and any subsequent changes in that ownership with
the Securities and Exchange Commission, the New York Stock Exchange and the
Corporation. Based on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Form 5 reports
were required to be filed for those persons, the Corporation believes that,
during the last fiscal year, all such filing requirements were satisfied.
BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
The Board of Directors has the responsibility for establishing broad corporate
policies and for the overall performance of the Corporation, although it is not
involved in day-to-day operating management. Members of
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the Board are kept informed of the Corporation's business by various reports
and documents sent to them on a regular basis, as well as by operating and
financial reports made at Board meetings by the Chief Executive Officer and
other executive officers.
Attendance at Meetings
The Board of Directors held eleven meetings during the year ended March 31,
1998. Attendance at Board and Committee meetings combined averaged 88.6%. Each
director attended more than 75% of the combined total meetings of the Board and
Committees of the Board on which the director served at any time during the
year except for Mr. Pottruck who attended 73.3% of such meetings.
Certain Committees of the Board
To assist in the discharge of its responsibilities, the Board has designated
several standing committees including an Audit Committee, a Compensation
Committee and a Committee on Directors and Corporate Governance. The members of
each standing committee are elected by the Board of Directors at its
organizational meeting following the annual stockholders' meeting, each for a
term of one year or until his or her successor is elected.
The Audit Committee, composed of five directors who are neither officers nor
employees of the Corporation, held three meetings during the year ended March
31, 1998. The Audit Committee recommends to the Board the retention or
discharge of the Corporation's independent auditors; reviews the engagement of
the independent auditors including the scope, extent and procedures of the
audit and fees to be paid therefor; reviews, in consultation with the
independent auditors, the audit results and their auditor's report and related
management letter, if any; reviews the independence of the independent auditors
and, in this connection, reviews the engagement of the independent auditors for
services of a non-audit nature; reviews and approves the audited financial
statements and recommends to the Board their inclusion in the Corporation's
annual report on Form 10-K to the Securities and Exchange Commission and in the
annual report to stockholders; consults with the independent auditors, the
internal auditors and management (together or separately) on the adequacy of
internal accounting controls and reviews the results thereof; reviews, on a
continuing basis, the procedures designed to implement the corporate code of
conduct and compliance therewith; directs and supervises investigations into
matters within the scope of the Committee's duties; and performs such other
functions as may be necessary in the efficient discharge of its duties.
The Compensation Committee, composed of five directors who are neither officers
nor employees of the Corporation, held six meetings during the year ended March
31, 1998. The Compensation Committee administers the Corporation's 1989
Management Incentive Plan, the 1981 Long-Term Incentive Plan, the Deferred
Compensation Administration Plan II, the Deferred Compensation Administration
Plan and the Management Deferred Compensation Plan and all stock option,
restricted stock or stock purchase plans; reviews the administration of all
other incentive plans within the Corporation; approves the selection of
trustees and investment advisers and managers and establishes the overall
investment policies with respect to the funds incident to the Corporation's
retirement program; reviews and makes recommendations to the Board with respect
to salary and other terms and conditions of employment and changes therein of
the Chief Executive Officer and approves salaries and other terms and
conditions of employment and changes therein of the other executive officers
and key management employees of the Corporation above specified salary grades;
and examines and makes recommendations to the Board regarding the Corporation's
overall compensation program for managerial level employees.
The Committee on Directors and Corporate Governance, established in 1996 and
composed of four directors who are neither officers nor employees of the
Corporation, held three meetings during the year ended March 31, 1998. The
Committee reviews and makes recommendations to the Board, as appropriate,
concerning the size and composition of the Board; the guidelines and criteria
for election of members to the Board; retirement from the Board; director
compensation and benefits; the structure, functions and membership of Board
committees, administers the 1997 Non-Employee Directors' Equity Compensation
and Deferral Plan and
8
<PAGE>
oversees matters of corporate governance. The Committee also recommends to the
Board the slate of nominees for election by the stockholders at the annual
meeting and recommends and nominates candidates to fill Board vacancies that
occur. The Committee will consider nominees recommended by stockholders.
Stockholders wishing to recommend Board nominees should write to the Vice
President and Corporate Secretary, McKesson Corporation, One Post Street, San
Francisco, CA 94104, stating in detail the qualifications of the proposed
nominee for consideration by the Committee.
The Restated By-Laws of the Corporation provide that a stockholder may nominate
a person for election as a director at a meeting of stockholders only if
written notice thereof has been received by the Secretary of the Corporation
not less than 60 days nor more than 90 days prior to the meeting; provided,
however, that in the event that less than 70 days' notice or prior public
disclosure of the meeting date is given or made to stockholders, notice by the
stockholder to be timely must be so received not later than the close of
business on the 10th day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made. The notice must
contain certain information about the proposed nominee, including such person's
name, age, business and residence addresses, principal occupation or
employment, the class and number of shares of the Corporation beneficially
owned by the person and any other information relating to the person that would
be required to be included in a proxy statement soliciting proxies for election
of directors, and certain information about the nominating stockholder. The
Corporation may also require any proposed nominee to furnish other information
reasonably required by the Corporation to determine the proposed nominee's
eligibility to serve as a director.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Corporation or its subsidiaries receive
an annual retainer of $27,500, a fee of $1,000 for each Board or committee
meeting attended, and are reimbursed for all expenses incurred in attending
such meetings. Committee chairpersons receive an additional retainer of $3,000
per year. Directors who are employees of the Corporation do not receive any
compensation for their service as directors.
Under the stockholder-approved 1997 Non-Employee Directors' Equity Compensation
and Deferral Plan, as amended, (the "1997 Plan"), each director is required to
defer the receipt of 50% of his or her annual retainer fee, in the form of
Restricted Stock Units, ("RSUs") or Retainer Options ("ROs"), as elected by the
director. Directors may also elect to defer the remaining portion of their
annual retainer into additional RSUs or ROs, or to receive that amount in cash.
The number of RSUs is determined based on the fair market value of the
Corporation's Common Stock on the last trading day of the quarter immediately
preceding the date such amounts would otherwise be payable. RO shares are
granted to non-employee directors in January each year at the same time as
annual stock option grants are made to employees. The number of ROs granted is
determined using the same conversion rate that is employed each year for the
purpose of determining the number of stock options to be granted to employees
who have elected to receive options in lieu of some portion of their
anticipated annual bonus awards under the Corporation's Management Incentive
Plan. The conversion value is set each November for the following calendar year
and is based on the discounted Black Scholes valuation of the Corporation's
Common Stock. For calendar year 1998, the ROs have a cash conversion value of
$9.00 per share. ROs are granted at fair market value on the date of grant,
become fully vested one year after the grant date and have a term of ten years.
Non-employee directors may elect to receive the remainder of their fees (other
than the portion of the annual retainer subject to mandatory deferral) earned
in any calendar year prior to the termination or expiration of the 1997 Plan in
cash, or to defer all or a portion of such fees in the form of additional RSUs
or under the terms of the Corporation's Deferred Compensation Administration
Plan II ("DCAP II"). The minimum amount that may be deferred under DCAP II for
any year is $5,000 and the minimum deferral period is generally five years,
except in cases of death, disability, retirement, pre-retirement termination or
a change in control of the Corporation, where the minimum deferral period does
not apply. The interest rate on DCAP II deferrals is determined by the
Compensation Committee each year based upon several related factors, including
the
9
<PAGE>
Corporation's cost of funds and tax bracket, the size and years of deferrals,
the number and ages of participants and mortality and turnover patterns.
On the date of each Annual Meeting prior to the termination or expiration of
the 1997 Plan, each non-employee director receives a grant of 400 RSUs. Non-
employee directors holding RSUs are credited with a number of additional RSUs
equal to any dividends and other distributions paid by the Corporation on the
Common Stock.
Effective December 31, 1996 (the "Termination Date"), the Corporation
terminated benefits to new directors, and froze the accrual of future benefits
to then existing non-employee directors under the Retirement Program for Non-
Employee Directors, (the "Retirement Program"). Non-employee directors who had
an accrued benefit under the Retirement Program and agreed in writing to waive
their rights to receive such benefits received a one-time transition grant of
RSUs equal in number to the directors' accrued benefit under the Retirement
Program on the Termination Date.
The 1997 Plan also provides for the automatic grant to each non-employee
director on the date of his or her initial election to the Board at any annual
or special meeting of the Corporation's stockholders of a nonqualified option
to purchase 5,000 shares of Common Stock. These options are immediately
exercisable in full but expire in five equal annual installments. On the date
of each subsequent annual meeting, each nonemployee director continuing in
office is automatically granted an option for an additional 1,500 shares which
is immediately exercisable in full. All options are granted at fair market
value on the effective date of grant, and, subject to the above-mentioned
expiration provisions applicable to the initial grant, have a term of five
years.
The 1997 Plan provides that upon the occurrence of a change in control of the
Corporation, all outstanding options become immediately exercisable and Common
Stock to be issued in respect of RSUs will be immediately distributed.
Prior to January 1, 1994, non-employee directors could defer compensation
received for their services as directors under the Directors' Deferred
Compensation Plan, thereby automatically becoming participants in the Deferred
Compensation Administration Plan (the "DCAP"), or under the Management Deferred
Compensation Plan (the "MDCP", or together with the DCAP, the "Prior Deferred
Plans"). Although the Prior Deferred Plans have been superseded and replaced by
DCAP II as to future compensation deferrals, previous deferrals under these
plans will continue to be administered in accordance with the respective
provisions of the plan under which the original deferrals were made. Interest
on deferral balances held under the Prior Deferred Plans is credited each year
at the same rate as that determined by the Compensation Committee for deferrals
under DCAP II.
In the event of a change in control of the Corporation (as defined in DCAP II
and the Prior Deferred Plans), deferred amounts will be distributed immediately
upon the effective date of the change unless the director has made an
irrevocable election (at least twelve months in advance of the effective date
of any such change) to receive payment of any deferral balance in accordance
with his or her most recent valid election on file with the Corporation rather
than in a single sum. Any deferral election under DCAP II or the Prior Deferred
Plans may be modified as to the length of the deferral period and the timing of
the distribution, provided such changes are made at least twelve months prior
to the previously scheduled date of commencement of payments and payments do
not begin earlier than twelve months from the date of the modified election.
On March 28, 1997, the Corporation and Mr. Seelenfreund entered into a
Consulting Agreement (the "Agreement") in connection with Mr. Seelenfreund's
planned retirement as an executive officer and employee of the Corporation on
July 31, 1997. Pursuant to the Agreement, Mr. Seelenfreund will continue to
serve the Corporation as non-executive Chairman of the Board, and will render
such consulting and advisory services and perform such special assignments as
may be requested by the Board of Directors or the Chief Executive Officer until
July 31, 1998, unless the Agreement is extended by mutual agreement of the
parties. In consideration of such services, for the period July 31, 1997
through March 31, 1998, Mr. Seelenfreund received
10
<PAGE>
a pro rata payment of his annual retainer of $250,000 in the amount of $218,333
and an additional payment of $xxxxxxxx, calculated on the same basis as if he
had continued to participate in the Corporation's Management Incentive Plan for
FY 1998 with a target bonus of 60% of his annual retainer. In addition, on
January 28, 1998, Mr. Seelenfreund received a stock option grant of 16,666
shares pursuant to his election to receive such grant in lieu of a portion of
the additional payment provided for in the Agreement for FY 1998. Also, Mr.
Seelenfreund is reimbursed for reasonable and documented travel and other
expenses incurred in performing services for the Corporation and is furnished
with office space, secretarial support, an automobile and driver and membership
in various luncheon clubs. So long as he is receiving payments pursuant to this
Agreement, Mr. Seelenfreund will not receive a retainer or fees for his service
as a non-employee director of the Corporation. On March 25, 1998, the
Corporation and Mr. Seelenfreund extended, by mutual agreement, the term of the
Agreement until July 31, 1999 on the same terms.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Corporation's executive compensation program is administered by the
Compensation Committee (the "Committee") of the Board of Directors. The
Committee is composed entirely of independent, nonemployee directors. The
Committee is responsible for administering the Corporation's stock option and
restricted stock plan, reviewing and making recommendations to the full Board
with respect to the salary, incentive compensation and other terms and
conditions of employment of the Chief Executive Officer and approving salaries,
incentive compensation and other terms and conditions of employment of
executive officers, including those named in the Summary Compensation Table on
page 16 (the "named executive officers").
This report describes the policies and the criteria used by the Committee in
establishing the principal components and setting the level of compensation for
executive officers during FY 1998.
The overall objective of the executive compensation program is to provide base
salary and annual cash bonuses for executive officers at approximately the
median level for executive officers at companies similar in size, complexity or
line of business, while providing a long term compensation target at the 75th
percentile. The program is designed to enhance shareholder value by linking a
large part of executive officers' compensation directly to McKesson's
performance.
The companies used in the comparative analysis of executive compensation are
selected by the Committee with the help of professional compensation
consultants. The companies represent a broad cross-section of non-manufacturing
service companies and are selected based on a number of factors including
similarity to McKesson in financial attributes, size and complexity. They
include some of the companies in the Value Line Health Care Sector Index (the
"Health Care Index") used in the Performance Graph, as well as other companies
in the distribution and pharmaceutical wholesale/retail business. The Committee
relies on a broad array of companies in various industries for the comparative
analysis of executive compensation because it believes that McKesson's
competition for executive talent is more varied than the companies in the
Health Care Index.
Many factors enter into the Committee's deliberations in the design of the
compensation plans and direct pay for executive officers of McKesson. The
factors include the Corporation's performance as measured against targets
approved by the Committee and against last year's performance; the individual
performance of each executive officer; compensation surveys supplied by
professional compensation consultants approved by the Committee and retained by
McKesson for this purpose; the overall competitive environment for executives
and the level of compensation needed to attract and retain executive talent;
and the recommendations of professional compensation consultants.
Components of Compensation
McKesson's executive compensation program consists of base salary, a short-term
incentive plan and long-term incentives (stock and cash). Base pay is reviewed
annually. Actual base pay is driven by individual
11
<PAGE>
performance, competitive practices and level of responsibility. The FY 1998
salaries of executive officers were determined primarily on the basis of each
executive officer's responsibilities and performance, McKesson's performance
and competitive pay practices. Salary increases reflect the Committee's
determination that base pay levels should be increased to reward performance
and remain competitive.
Under McKesson's short-term incentive plan (the "1989 Management Incentive
Plan" or "MIP"), individual target awards are set as a percentage of the
executive's base salary and vary by level of responsibility. The target awards
are designed to be competitive with those set for executive officers at
companies in McKesson's executive compensation comparator group. Annual MIP
awards can range from zero to three times the executives' target awards. The
actual awards to the named executive officers for FY 1998 were determined by
McKesson's and/or individual business unit's performance versus pre-established
income objectives and the contribution the executive officer was judged to have
made to McKesson's overall results.
In FY 1997 McKesson's long-term incentive program was completely redesigned.
Under the former program, generally executives received annual option grants
under the Corporation's 1994 Stock Option and Restricted Stock Plan (the "1994
Plan") and annual awards under the Long-Term Incentive Plan ("LTIP") providing
for cash award targets and financial objectives to be achieved over a four-year
award period. The redesigned long-term incentive program has a stock option
component, a stock purchase component and a cash component. Every three years:
. A nonqualified stock option to purchase shares of McKesson Common Stock at
100% of fair market value on the date of grant is granted to participants
under the 1994 Plan; and
. An offer to purchase McKesson Common Stock is made under the Stock Purchase
Plan. The purchase price is equal to the fair market value of the stock on
the day the executive accepts the offer to purchase the shares. At the same
time, the Corporation makes a five-year, full recourse, interest-bearing
loan to the executive to purchase the stock; and
. A cash long-term incentive target is established with the actual payout
based on McKesson's Total Shareholder Return ("TSR") compared to the S&P 400
(the S&P 500 excluding financial institutions) over a five-year measurement
period. The target amounts are competitive with those set for executive
officers at companies in McKesson's executive compensation comparison group.
The last award cycle for the former program is for the period April 1, 1996
through March 31, 2000. The two measures of performance under the long-term
cash component of the former program are compound growth in annual earnings per
share ("EPS") and average return on stockholder equity ("ROE"). These measures
are weighted equally in calculating awards for each incentive period. The LTIP
payouts for the named executive officers for the four year period ended March
31, 1998, shown in the Summary Compensation Table on page 16 reflected
McKesson's achievement of 124% of the LTIP targets.
In July, 1997 a consolidation of operations into three business groups resulted
in increased responsibilities for certain executive officers which was
recognized by the Committee with additional stock option grants, a cash target
award under the LTIP and offers to purchase Common Stock under the new long-
term incentive program. The July 1997 stock option grants are included in the
Summary Compensation Table.
During the last fiscal year the Corporation implemented a "bonus option"
program pursuant to which participants in the Corporation's 1989 Management
Incentive Plan could make irrevocable elections to receive a stock option grant
in lieu of all or a portion of their respective bonus awards under such Plan.
The first such option awards, which were made on January 28, 1998, are included
in the Summary Compensation Table and the table of Option Grants in the Last
Fiscal Year.
Policy Regarding Tax Deduction for Compensation Under Internal Revenue Code
Section 162(m)
Section 162(m) of the Internal Revenue Code (the "Code") limits the
Corporation's tax deduction to $1 million for compensation paid to certain
executive officers named in the proxy statement unless the
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<PAGE>
compensation is performance-based. It has been determined that the limitations
did not impact the Corporation in FY 1998. The Committee's present intention is
to comply with the requirements of Section 162(m) unless the Committee
concludes that the required changes would not be in the best interests of the
Corporation or its stockholders.
The Committee believes that the total compensation paid to the named executive
officers in FY 1998 reflects the achievement of the Corporation's goals,
attainment of business strategy and performance consistent with the interests
of its stockholders.
Compensation of the Chief Executive Officer
On April 1, 1997, Mark A. Pulido, President and Chief Operating Officer, added
the title and duties of Chief Executive Officer to his responsibilities. In
recognition of this change, Mr. Pulido's base salary was increased to $700,000
per year effective April 1, 1997 and in July, 1997, he was granted an option to
purchase 320,000 shares of Common Stock, at fair market value and accepted an
offer extended to him under the Stock Purchase Plan to purchase 80,000 shares
of Common Stock.
At the time of Mr. Pulido's promotion, he and the Board agreed on the goals he
would work to achieve for FY 1998. Specific targets were set for economic
measures including earnings per share, profitable revenue growth, efficiency
gain, strategy fulfillment, and innovation, while qualitative measures were
established for organization development, and communication with investors and
employees. The Board then reviewed Mr. Pulido's achievement against these goals
at the end of the fiscal year.
For FY 1998, Mr. Pulido received an MIP Award of $XXX,XXX which reflected his
performance versus objectives for FY 1998, and McKesson's operating results for
the year. He also received a pro rata cash award of $XXX,XXX under the former
LTIP for the four-year period ended FY 1998 which represented a 124%
achievement of McKesson's long-term financial objectives for the period.
The Corporation's continued success in meeting financial objectives and
implementing its strategic goals was recognized by the investment community.
During FY 1998, the Corporation's TSR was XX.X% compared to the TSR of AB.C%
for the S&P 500 Index, the TSR of YY.Y% for the S&P 400 Index and XY.Z% for the
Value Line Health Care Sector Index. McKesson's TSR for FY 1998 placed it XX
among the companies in the S&P 400 Index and YY among the companies in the
Value Line Health Care Sector Index. The Wall Street Journal's Annual
Shareholder Scoreboard, published February 26, 1998, showed McKesson first
among drug based retailers for the one-year return and the three-year and five-
year average returns. McKesson ranked sixth in the Honor Roll. The Annual
Shareholder Scoreboard looks at the 718 U.S. stocks on the Dow Jones Global
Indexes plus the 282 largest U.S corporations that aren't included in the
indexes. To be on the Honor Roll a company must be among the top 20 percent of
companies in TSR for the last year and over the last three, five and ten year
periods.
It is the Committee's view that the total compensation package for the Chief
Executive Officer for FY 1998 was based on an appropriate balance of the
Corporation's performance, his own performance and competitive practice.
The Compensation Committee
John M. Pietruski, Chairman
Tully M. Friedman
David S. Pottruck
Carl E. Reichardt
Jane E. Shaw
13
<PAGE>
STOCK PRICE PERFORMANCE GRAPHS
The following graphs compare the cumulative total stockholder return on the
Corporation's Common Stock for the periods indicated with the Standard & Poor's
500 Stock Index, the Standard & Poor's 400 Midcap Index and the Value Line
Health Care Sector Index (composed of 107 companies in the health care
industry, including the Corporation). The stock price performance depicted in
the performance graphs is not necessarily indicative of future price
performance.
FIVE YEAR CUMULATIVE TOTAL RETURN*
[PERFORMANCE GRAPH APPEARS HERE]
FISCAL YEARS
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
McKesson $100.00 $137.18 $336.65 $436.37 $555.58 $1,013.41
------------------------------------------------------------------------------------------------
S&P 500 Index $100.00 $101.73 $117.60 $155.40 $186.39 $ 275.72
------------------------------------------------------------------------------------------------
S&P 400 Index $100.00 $103.08 $111.96 $143.48 $158.86 $ 237.38
------------------------------------------------------------------------------------------------
Value Line Health Care
Sector $100.00 $ 99.88 $136.22 $196.41 $239.16 $ 376.64
</TABLE>
* Assumes $100 invested in McKesson Common Stock and in each index
on March 31, 1993 and that all dividends are reinvested. Prior to
the PCS Transaction, Old McKesson was included in the S&P 500
Index. Since November 21, 1994, the date New McKesson commenced
operations, the Corporation has been included in the S&P 400
Midcap Index.
14
<PAGE>
CUMULATIVE TOTAL RETURN SINCE NOVEMBER 21, 1994 *
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
11/21/94 3/31/95 3/31/96 3/31/97 3/31/98
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
McKesson $100.00 $134.69 $174.59 $222.29 $405.46
---------------------------------------------------------------------------------------
S&P 500 Index $100.00 $111.35 $147.15 $176.49 $261.08
---------------------------------------------------------------------------------------
S&P 400 Index $100.00 $109.37 $140.16 $155.18 $231.88
---------------------------------------------------------------------------------------
Value Line Health Care
Sector $100.00 $113.47 $163.62 $199.23 $313.75
</TABLE>
* Assumes $100 invested in McKesson Common Stock and in each index
on November 21, 1994, on which date New McKesson commenced
operations, and that all dividends are reinvested. Prior to the
PCS Transaction, Old McKesson was included in the S&P 500 Index.
Since November 21, 1994, the Corporation has been included in the
S&P 400 Midcap Index.
15
<PAGE>
EXECUTIVE OFFICER COMPENSATION
The following table sets forth the compensation for services in all capacities
to the Corporation and its subsidiaries for the three fiscal years ended March
31, 1996, 1997 and 1998, of the Chief Executive Officer and each of the other
four most highly compensated executive officers of the Corporation in FY 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------- -------------------------------
AWARDS PAYOUTS
--------------------- -------
OTHER SECURITIES
ANNUAL RESTRICTED UNDERLYING ALL OTHER
COMPEN- STOCK OPTIONS/ LTIP COMPEN-
NAME AND PRINCIPAL SATION AWARD(S) SARS PAYOUTS SATION
POSITION YEAR SALARY ($) BONUS ($) ($)(1) ($)(2)(3) (#)(3) ($) ($)(4)
------------------ ---- ---------- --------- ------- ---------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mark A. Pulido(5) 1998 700,000 (6)61,887(7) -- 370,000(8) 186,000 129,558
President and Chief Ex- 1997 437,500 700,000 333,654 910,000 720,000 196,500 27,450
ecutive Officer
John H. Hammergren(5) 1998 401,667 (6)73,733(7) -- 109,666(8) 43,400 29,434
Vice President and Group 1997 350,000 295,000 478,739 -- 84,000 22,925 9,148
President, McKesson 1996 58,333 277,000 980,000 80,000 -- 428
Health Systems Group
Richard H. Hawkins 1998 285,000 (6) -- -- 100,000(8) 40,920 46,420
Vice President and Chief 1997 256,250 275,000 -- -- 84,000 41,134 37,774
Financial 1996 208,333 125,000 -- -- 20,000 39,250 22,023
Officer
David L. Mahoney 1998 358,333 (6)93,312(7) -- 106,900(8) 62,000 38,453
Vice President and Group 1997 306,250 195,000 -- -- 84,000 58,950 31,186
President, 1996 265,000 125,000 -- -- 30,000 52,500 29,312
Pharmaceutical Services
and International Group
Mark T. Majeske(5) 1998 330,000 (6)104,529(7) -- 88,445(8) 47,120 21,653
Vice President and Group 1997 268,750 195,000 69,207 -- 84,000 35,370 16,516
President, 1996 202,083 75,000 -- 239,375 20,000 -- 6,738
Customer Operations
Group
</TABLE>
- --------
(1) Except as noted in the footnotes below, the dollar value of perquisites and
other personal benefits for each named executive officer during FY 1998 was
less than established reporting thresholds.
(2) No restricted stock awards were made in FY 1998 to any named executive
officers. The number and value of the aggregate restricted stock holdings
of the named executive officers on March 31, 1998 (based on the closing
market value stock price of $57.75) were as follows: Mr. Pulido, 40,000 and
$2,310,000; Mr. Hammergren, 40,000 and $2,310,000; Mr. Hawkins, 0 and $0;
Mr. Mahoney, 0 and $0; and Mr. Majeske 15,000 and $866,250. Dividends are
paid on the restricted stock and at the same rate and at the same time as
on the Common Stock.
(3) The numbers reported in the Restricted Stock Awards and Securities
Underlying Options Columns have been adjusted to reflect the two-for-one
stock split effective January 2, 1998.
(4) For FY 1998, includes the aggregate value of (i) the Corporation's stock
contributions under the PSIP, a plan designed to qualify as an employee
stock ownership plan under the Internal Revenue Code ("Code"), allocated to
the accounts of the named executive officers, as follows: Mr. Pulido,
$19,244; Mr. Hammergren, $17,644; Mr. Hawkins, $25,429; Mr. Mahoney,
$19,379; and Mr. Majeske, $17,673; (ii) employer matching contributions
under the Supplemental PSIP, an unfunded, nonqualified plan established
because of limitations on annual contributions to the PSIP contained in the
Code, as follows: Mr. Pulido, $108,541; Mr. Hammergren, $3,467; Mr.
Hawkins, $8,125; Mr. Mahoney, $13,684; and Mr. Majeske, $217; and (iii)
above-market interest accrued on deferred compensation for the following
executive officers: Mr. Pulido, $1,773; Mr. Hammergren, $8,323; Mr.
Hawkins, $12,866; Mr. Mahoney, $5,390; and Mr. Majeske, $3,763.
(5) Mr. Pulido, joined the Corporation in May 1996 and has served as Chief
Executive Officer and President since April 1, 1997. Mr. Hammergren became
an executive officer when he joined the Corporation in January 1996; and
Mr. Majeske, who joined the Corporation in July, 1994, became an executive
officer in September 1996.
(6) Represents the portion of the named executive officers' bonus award for FY
1998 under the MIP that was either paid in cash or deferred at the
executive's election under DCAP II.
(7) Other Annual Compensation for FY 1998 includes: (i) for Mr. Pulido, $18,312
representing reimbursements for temporary housing and relocation expenses
and a $26,000 annual automobile allowance; (ii) for Mr. Hammergren, an
annual housing assistance payment of $50,000, which is equal to 1/10th of
the original principal amount of the housing loan made to him and discussed
under "Indebtedness of Executive Officers" on page 21; (iii) for Mr.
Mahoney, $40,000 representing a country club initiation fee and
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<PAGE>
$31,949 to mitigate potential additional taxes payable by him in connection
with such fee; and (iv) for Mr. Majeske, $31,061 representing reimbursement
for temporary housing and relocation expenses and an annual housing
assistance payment of $50,000, which is equal to 1/10th of the original
principal amount of the housing loan made to him and discussed under
"Indebtedness of Executive Officers" on page 21.
(8) Of the options indicated, the following shares were granted on January 28,
1998, to the named executive officers under the Corporation's 1994 Stock
Option and Restricted Stock Plan pursuant to such persons' irrevocable
elections to receive a stock option grant in lieu of all or a portion of
their respective bonus awards for FY 1998 under the MIP; Mr. Pulido,
50,000; Mr. Hammergren, 25,666; Mr. Hawkins, 16,000; Mr. Mahoney, 22,900;
and Mr. Majeske, 4,445. The number of options granted was based on a cash
conversion value of $9.00 per share. The options vest one year after the
date of grant and are exercisable at a price per share equal to the fair
market value of the Corporation's Common Stock on the date of grant. The
balance of the options indicated were awarded in July 1997 in recognition
of the named exectives' increased responsiblities in connection with a
consolidation of operations into three business groups.
OPTION GRANTS IN THE LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
-------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE OR GRANT DATE
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT
NAME GRANTED(#)(1) FISCAL YEAR ($/SH)(2) DATE VALUE(3)
---- ------------- ------------ ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Mark A. Pulido.......... 320,000(4) 12.75 43.594 07/30/2007 $3,320,119
50,000(5) 1.99 50.375 01/28/2008 715,325
John H. Hammergren...... 84,000(4) 3.35 43.594 07/30/2007 871,531
25,666(5) 1.02 50.375 01/28/2008 367,191
Richard H. Hawkins...... 84,000(4) 3.35 43.594 07/30/2007 871,531
16,000(5) 0.64 50.375 01/28/2008 228,904
David L. Mahoney........ 84,000(4) 3.35 43.594 07/30/2007 871,531
22,900(5) 0.91 50.375 01/28/2008 327,619
Mark T. Majeske......... 84,000(4) 3.35 43.594 07/30/2007 871,531
4,445(5) 0.18 50.375 01/28/2008 63,592
</TABLE>
- --------
(1) Where applicable, the number of options and the exercise prices have been
adjusted to reflect the two-for-one stock split effective January 2, 1998.
Unless otherwise indicated, the options granted become exercisable in
installments of 50% on the third anniversary, and 25% on each of the fourth
and fifth anniversaries of the grant date, and expire ten years after the
grant date. No options were granted with SARs and no freestanding SARs have
ever been granted. Upon the occurrence of a change in control of the
Corporation (as defined in the 1994 Plan), all options granted by the
Corporation become immediately exercisable.
(2) All options were granted at 100% of fair market value on the grant date.
Optionees may satisfy the exercise price by submitting currently owned
shares and/or cash. Income tax withholding obligations may be satisfied by
electing to have the Corporation withhold shares otherwise issuable under
the option with a fair market value equal to such obligations.
(3) In accordance with Securities and Exchange Commission rules, a Black-
Scholes option pricing model was chosen to estimate the grant date present
value for the options set forth in this table. The assumptions used in
calculating the reported value included: an option term of five years and
dividend yield of 1% for both grants; and for the grant expiring on
7/30/2007: stock volatility, 24.32%; and risk-free interest rate, 6.12%;
and for the grant expiring on 1/28/2008: stock volatility, 25.62%; and
risk-free interest rate, 5.42%.The Corporation does not believe that the
Black-Scholes model, or any other model can accurately determine the value
of an option. Accordingly, there is no assurance that the value, if any,
realized by an executive, will be at or near the value estimated by the
Black-Scholes model. Future compensation resulting from option grants is
based solely on the performance of the Corporation's stock price.
(4) The indicated stock options were awarded in July 1997 in recognition of the
executives' increased responsibilities in connection with a consolidation
of operations into three business groups.
(5) The indicated stock options were granted to the named executive officers
pursuant to such person's irrevocable elections to receive a stock option
grant under the 1994 Plan in lieu of all or a portion of their respective
bonus awards for FY 1998 under the Corporation's 1989 Management Incentive
Plan. The number of options granted was determined by dividing the amount
of the bonus deferral by the cash conversion value of $9.00 per share. The
conversion value is set each November for the following calendar year and
is based on the discounted Black Scholes valuation of the Corporation's
Common Stock. The option exercise price was the fair market value on the
date of grant. The options become fully exercisable on the first
anniversary of the date of grant and expire ten years after the date of the
grant.
17
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN THE LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS/SARS AT IN THE MONEY OPTIONS/
ACQUIRED VALUE MARCH 31, 1998 (#)(1) SARS AT MARCH 31, 1998($)(1)(3)
ON EXERCISE REALIZED ------------------------- ---------------------------------
NAME (#)(1) ($)(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- --------- ----------- ------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Mark A. Pulido.......... 0 0 100,000 990,000 3,500,000 24,958,734
John H. Hammergren...... 0 0 40,000 233,666 1,310,000 5,197,908
Richard H. Hawkins...... 5,000 227,325 180,072 199,000 8,928,213 4,345,371
David L. Mahoney........ 20,000 781,105 330,700 213,400 16,064,342 4,660,633
Mark T. Majeske......... 40,000 1,117,962 8,968 201,927 312,452 4,895,273
</TABLE>
- --------
(1) Adjusted to reflect the two-for-one stock split effective January 2, 1998.
(2) Fair market value of securities underlying options on the date of exercise
minus the exercise price.
(3) Calculated based upon the fair market value share price of $57.75 on March
31, 1998, less the share price to be paid upon exercise. There is no
guarantee that if and when these options are exercised they will have this
value.
LONG-TERM INCENTIVE PLAN AWARDS IN THE LAST FISCAL YEAR
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS UNDER
PERFORMANCE OR NON-STOCK PRICE-BASED PLANS(1)
OTHER PERIOD --------------------------------
UNTIL MATURATION THRESHOLD TARGET MAXIMUM
NAME OR PAYOUT ($) ($) ($)
---- ---------------- --------------------- ----------
<S> <C> <C> <C> <C>
Mark A. Pulido Five years 325,000 1,300,000 1,300,000
John H. Hammergren Five years 187,500 750,000 750,000
Richard H. Hawkins Five years 187,500 750,000 750,000
David L. Mahoney Five years 187,500 750,000 750,000
Mark T. Majeske Five years 187,500 750,000 750,000
</TABLE>
- --------
(1) The table above represents potential payouts of cash awards, if earned,
upon completion of the five-year incentive period beginning July 30, 1998
and ending July 30, 2003. Twenty-five percent of the amounts shown in the
Maximum column will be paid on the completion of five years of service. Any
payment in excess of 25% of the maximum is performance-based and will be
contingent upon the Corporation's TSR performance percentile at the end of
the five-year performance period. One hundred percent of the maximum amount
will be paid if the average TSR for the five-year period is at or above the
75th percentile of the S&P 400. Lower awards will be paid for lower
performance. No award above the service-based 25% of maximum will be paid
if TSR is less than the 50th percentile. There are no target awards as such
under the LTIP. The amount shown in the Target column represents the amount
of the maximum which would have been paid based on the Corporation's TSR
return for the five-year period ended March 31, 1998.
EMPLOYMENT AGREEMENTS
Effective January 30, 1996, the Corporation entered into a three-year
employment agreement with Mr. Hammergren covering the terms and conditions of
his employment as Vice President of the Corporation and President of McKesson
Health Systems. The agreement provides for an annual base salary of at least
$350,000, plus such incentive compensation, if any, as may be voted to Mr.
Hammergren yearly by the Compensation Committee of the Board; a one-time
employment bonus of $225,000; a monthly car allowance of $1,000; initial grants
of 80,000 stock options and 40,000 shares of restricted stock under the
Corporation's 1994 Plan; cash target awards under the Corporation's LTIP of
$17,500 for FY 1997, $35,000 for FY 1998, $52,500 for FY 1999 and $70,000 for
FY 2000, subject to achievement by the Corporation of the financial targets
specified for each performance period; an annual housing assistance payment by
the Corporation of $50,000, which amount is equal to 1/10th of the original
principal amount of the housing loan made to Mr. Hammergren and discussed under
"Indebtedness of Executive Officers" on page 21; and, other benefits of
employment generally available to other members of senior management when and
as he becomes eligible therefor. If Mr. Hammergren should become disabled
during the term of the agreement, the Corporation will continue to pay his then
current salary for a period of up to twelve (12) months. In the event of death,
his salary will continue to be paid to his surviving spouse or designee (as the
case may be) through the six-month period following the
18
<PAGE>
end of the calendar month in which death occurs. If the Corporation terminates
Mr. Hammergren's employment during the term of his agreement other than for
cause, he will be entitled to receive (i) continued payment of his then base
salary for the remainder of the term of the agreement (reduced by any
compensation received from a subsequent employer during the term); (ii) be
considered for a pro rata bonus award under the Corporation's MIP for the year
in which termination occurs; (iii) continued coverage under the Executive
Medical Plan until the earlier of expiration of the agreement or the effective
date of coverage under a subsequent employer's plan; and (iv) continued accrual
and vesting of rights, benefits and existing awards for the remainder of the
term of the agreement for purposes of the Executive Benefit Retirement Plan,
Executive Survivor Benefits Plan and the 1994 Stock Option and Restricted Stock
Plan.
Effective May 20, 1996, the Corporation entered into a three-year employment
agreement with Mr. Pulido covering the terms and conditions of his employment
as President and Chief Operating Officer of the Corporation. The agreement
provides for an annual base salary of at least $500,000 per annum, plus such
incentive compensation, if any, as may be voted to him yearly by the Board; a
monthly car allowance of $1,000; initial grants of 400,000 stock options and
40,000 shares of restricted stock under the Corporation's 1994 Plan; a cash
target award of 30% of base salary under the Corporation's LTIP for the
incentive period ended March 31, 1997, subject to achievement by the
Corporation of the financial targets specified for such performance period; a
target award of 60% of base salary under the Corporation's MIP; and, other
benefits of employment generally available to other members of senior
management when and as he becomes eligible therefor. If Mr. Pulido should
become disabled during the term of the agreement, the Corporation will continue
to pay his then current salary for a period of up to twelve (12) months. In the
event of death, his salary will continue to be paid to his surviving spouse or
designee (as the case may be) through the six-month period following the end of
the calendar month in which death occurs. If the Corporation terminates Mr.
Pulido's employment during the term of his agreement other than for cause, he
will be entitled to (i) receive continued payment of his then base salary for
the remainder of the term of the agreement (reduced by any compensation
received from a subsequent employer during the term); (ii) be considered for a
bonus award under the Corporation's MIP for the year in which termination
occurs; (iii) receive a continued monthly automobile allowance and coverage
under the Executive Medical Plan until the earlier of expiration of the
agreement or the effective date of coverage under a subsequent employer's plan;
(iv) continued accrual and vesting of rights, benefits and existing awards for
the remainder of the term of the agreement for purposes of the Executive
Benefit Retirement Plan, Executive Survivor Benefits Plan and the 1994 Plan and
(v) awards under the LTIP for all performance periods then in effect for the
remainder of the term of the agreement.
EXECUTIVE SEVERANCE POLICY AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
The Corporation has implemented an Executive Severance Policy (the "Policy"),
which applies in the event an executive officer is terminated by the
Corporation for reasons other than for cause at any time other than within two
years following a change in control (as defined in the Policy) of the
Corporation . The benefit payable to executive officers under the Policy is
equal to 12 months' base salary plus one month's pay per year of service, up to
a maximum of 24 months. Such benefits would be reduced or eliminated by any
income the executive officer receives from subsequent employers during the
severance payment period and discontinued in the event the executive officer is
employed by a competitor. Executive officers who are age 55 or older and have
15 or more years of service with the Corporation at the time of such
involuntary termination are granted "approved retirement" for purposes of the
Corporation's 1984 Executive Benefit Retirement Plan (the "EBRP") and the 1988
Executive Survivor Benefits Plan. The Policy also provides that, upon such
involuntary termination, awards under the LTIP are prorated for all cycles then
in progress. In addition, vesting of stock options and lapse of restrictions on
restricted stock awards will cease as of the date of termination, and no
severance benefits will be paid beyond age 62.
The Corporation has entered into termination agreements with 13 executive
officers, including Messrs. Pulido, Hammergren, Hawkins, Mahoney and Majeske.
The agreements operate independently of the Policy, continue
19
<PAGE>
through December 31 of each year, and are automatically extended in one-year
increments until terminated by the Compensation Committee (or by the Board of
Directors in the case of Mr. Pulido's agreement). The agreements are
automatically extended for a period of two years following any change in
control.
The agreements provide for the payment of certain severance and other benefits
to executive officers whose employment is terminated within two years of a
change in control of the Corporation. Specifically, if following a change in
control, the executive officer is terminated by the Corporation for any reason,
other than for "Cause" (as defined in the agreements), or if such executive
officer terminates his or her employment for "Good Reason" (as that term is
defined in the agreements), then the Corporation will pay to the executive
officer, as severance pay in cash, an amount equal to 2.99 times his or her
"base amount" (as that term is defined in Section 280G of the Code) less any
amount which constitutes a "parachute payment" (as defined in Section 280G).
The Corporation will also continue the executive officer's coverage in the
health and welfare benefit plans in which he or she was a participant as of the
date of termination of employment, and the executive officer will continue to
accrue benefits under the EBRP, in both such cases for the period of time with
respect to which the executive officer would be entitled to payments under the
Policy described above if the executive officer's termination of employment had
been covered by such Policy. In addition, if the executive officer is age 55 or
older and has 15 or more years of service (as determined under such plan on the
date of executive's termination of employment), then such termination will
automatically be deemed to be an "approved retirement" under the terms of the
EBRP. The amount of severance benefits paid shall be no higher than the amount
that is not subject to disallowance of deduction under Section 280G of the
Internal Revenue Code.
For purposes of the termination agreements and as used elsewhere in this proxy
statement, a "change in control" is generally deemed to occur if: (i) any
"person" (as defined in the Securities Exchange Act of 1934, as amended) other
than the Corporation or any of its subsidiaries or a trustee or any fiduciary
holding securities under an employee benefit plan of the Corporation or any of
its subsidiaries, acquires securities representing 30% or more of the combined
voting power of the Corporation's then outstanding securities; (ii) during any
period of not more than two consecutive years, individuals who at the beginning
of such period constitute the Board of Directors of the Corporation and any new
director whose election by the Board of Directors or nomination for election by
the Corporation's stockholders was approved by a vote of at least two-thirds
(2/3) of the directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority thereof;
(iii) the stockholders of the Corporation approve a merger or consolidation of
the Corporation with any other corporation, other than (a) a merger or
consolidation which would result in the voting securities of the Corporation
outstanding immediately prior thereto continuing to represent, in combination
with the ownership of any trustee or other fiduciary holding securities under
an employee benefit plan of the Corporation, at least 50% of the combined
voting power of the voting securities of the Corporation or such surviving
entity outstanding immediately after such merger or consolidation, or (b) a
merger or consolidation effected to implement a recapitalization of the
Corporation (or similar transaction) in which no person acquires more than 50%
of the combined voting power of the Corporation's then outstanding securities;
or (iv) the stockholders approve a plan of complete liquidation of the
Corporation or an agreement for the sale or disposition by the Corporation of
all or substantially all of its assets.
PENSION BENEFITS
The table below illustrates the estimated combined annual benefits payable upon
retirement at age 62 under the Corporation's qualified retirement plans and the
supplemental EBRP in the specified compensation and years-of-service
classifications. The benefits are computed as single life annuity amounts.
20
<PAGE>
YEARS OF SERVICE
<TABLE>
<CAPTION>
FIVE YEAR
AVERAGE
COMPENSATION 15 20 25 30 35
- ------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 200,000 $ 93,100 $110,800 $120,000 $120,000 $120,000
$ 400,000 186,200 221,600 240,000 240,000 240,000
$ 600,000 279,300 332,400 360,000 360,000 360,000
$ 800,000 372,400 443,200 480,000 480,000 480,000
$1,000,000 465,500 554,000 600,000 600,000 600,000
$1,200,000 558,600 664,800 720,000 720,000 720,000
$1,400,000 651,700 775,600 840,000 840,000 840,000
</TABLE>
The compensation covered under the plans whose benefits are summarized in the
above table includes the base salary and annual bonus amounts reported in the
Summary Compensation Table.
The estimated years of service for purposes of the EBRP at March 31, 1998 for
each of the executive officers named in the Summary Compensation Table are as
follows: Mr. Pulido, 1; Mr. Hammergren, 2; Mr. Hawkins, 14; Mr. Mahoney, 7, and
Mr. Majeske, 3.
The benefit under the EBRP is a percentage of final average pay based on years
of service or as determined by the Board of Directors. The maximum benefit is
60% of final average pay. The total paid under the EBRP is not reduced by
Social Security benefits but is reduced by those benefits payable on a single
life basis under the Corporation's qualified retirement plan and the annuitized
value of the Retirement Share Plan allocations of Common Stock made to the PSIP
assuming 12% growth in the value of the stock.
CERTAIN TRANSACTIONS
The Corporation and its subsidiaries also have transactions in the ordinary
course of business with unaffiliated corporations of which certain of the
Corporation's non-employee directors are directors and/or executive officers.
The Corporation does not consider the amounts involved in such transactions to
be material in relation to the businesses of such other corporations or the
interests of the directors involved. The Corporation anticipates that similar
transactions will occur in FY 1999.
INDEBTEDNESS OF EXECUTIVE OFFICERS
Under the Stock Purchase Plan (the "SPP"), which plan was assumed by the
Corporation from Old McKesson upon consummation of the PCS Transaction, loans
bearing interest at rates of 6.1% to 8% per annum have been made to key
employees of the Corporation and its business units for the purchase of shares
of the Corporation's Common Stock at 100% of the fair market value on the date
of purchase. On July 30, 1997, full recourse, interest bearing loans, having a
term of five years, were made to each of the executive officers named in the
Summary Compensation Table on page 16 to purchase an aggregate of 160,000
shares of the Corporation's Common Stock at a price of $43.5938 per share under
the SPP. Interest at 6.65% per annum is payable prior to maturity to the extent
of dividends or other distributions paid in cash on the shares purchased, with
the balance due at the maturity of the loan. The loans are secured by a pledge
of the shares of Common Stock acquired under the SPP.
The table below shows as to each director or executive officer who was indebted
to the Corporation in an amount exceeding $60,000 at any time during the period
April 1, 1997 through May 15, 1998, (i) the largest aggregate amount of
indebtedness outstanding during such period, and (ii) the amount of
indebtedness outstanding at May 15, 1998. All indebtedness shown in the case of
Messrs. Dalby, Hawkins, Mahoney, Meyerson, Norris, Pulido and Villani resulted
from loans previously outstanding or those made on July 30, 1997 under the SPP.
The indebtedness shown for Messrs. Armstrong, Hammergren, and Majeske also
includes balances owed on secured loans in the original principal amounts of
$95,000, $500,000 and $500,000,
21
<PAGE>
respectively, given to assist those named executives with housing relocation
from other areas upon joining the Corporation (see footnote (7) to the Summary
Compensation Table on page 16 for further information regarding the housing
loans made to Messrs. Hammergren and Majeske.) Such housing loans are without
interest so long as the individuals remain in the employ of the Corporation or
are under an employment contract and thereafter at a market rate.
<TABLE>
<CAPTION>
LARGEST AMOUNT OF
AGGREGATE INDEBTEDNESS
AMOUNT OF AT
INDEBTEDNESS MAY 15, 1998
------------ ------------
<S> <C> <C>
William A. Armstrong........................... $ 684,537 $ 684,537
Michael T. Dalby............................... 642,505 642,505
John H. Hammergren............................. 2,002,441 2,002,441
Richard H. Hawkins............................. 1,608,506 1,608,506
David L. Mahoney............................... 1,576,189 1,576,189
Mark T. Majeske................................ 2,002,441 2,002,441
Ivan D. Meyerson............................... 589,537 589,537
Charles A. Norris.............................. 589,537 589,537
Mark A. Pulido................................. 7,902,152 7,902,152
Carmine J. Villani............................. 593,527 593,527
</TABLE>
PROPOSED AMENDMENT TO RESTATED CERTIFICATE OF INCORPORATION TO INCREASE THE
NUMBER OF AUTHORIZED SHARES OF COMMON STOCK (PROXY ITEM NO. 2)
The Corporation's Restated Certificate of Incorporation (the "Certificate")
currently authorizes the issuance of 200,000,000 shares of Common Stock and
100,000,000 shares of Series Preferred Stock. The Board of Directors has
unanimously approved, and recommends that stockholders consider and approve, an
amendment to the Corporation's Certificate to increase the number of authorized
shares of Common Stock from 200,000,000 to 400,000,000. If the amendment is
approved, the first paragraph of Article IV of the Certificate would be amended
to read as follows (new language is underscored):
"The total number of shares of stock of all classes which the Corporation
has authority to issue is 500,000,000 shares, divided into 100,000,000
shares of Series Preferred Stock, par value $.01 per share (herein called
the "Series Preferred Stock"), and 400,000,000 shares of Common Stock, par
value $.01 per share (herein called the "Common Stock"). The aggregate par
value of all shares having par value is $5,000,000."
In October 1997, the Board of Directors authorized a two-for-one stock split,
effected in the form of a stock dividend, which was distributed to stockholders
on January 2, 1998. This reduced significantly the number of authorized but
unissued shares of Common Stock available to the Corporation for future use. As
of June 1, 1998, there were approximately shares of Common
Stock issued and outstanding, shares held in treasury and
approximately shares reserved for issuance upon conversion of
Trust Convertible Preferred Securities and under the Corporation's stock option
and other employee benefit plans. This leaves approximately
authorized but unissued shares of Common Stock available for future use. The
amendment would not change the 100,000,000 shares of Series Preferred Stock
authorized by the Certificate, of which 10,000,000 shares have been designated
as Series A Junior Participating Preferred Stock in connection with the Rights
Agreement discussed below.
Although the Board of Directors has no plans, agreements, commitments or
understandings at this time with respect to the additional shares of Common
Stock to be made available by this amendment, the Board of Directors believes
that it is desirable to have a sufficient number of additional shares of Common
Stock available, as the occasion may arise, for proper corporate purposes
including, but not limited to, possible future financing and acquisition
transactions, stock dividends or splits and stock issuances pursuant to
employee
22
<PAGE>
benefit plans. Having such additional shares available for issuance in the
future would give the Corporation greater flexibility and allow shares of
Common Stock to be issued without the expense and delay of a special
stockholders' meeting. The additional shares of Common Stock would then be
available for issuance without further action by the stockholders of the
Corporation, unless such action is required by applicable law or under the
rules of any stock exchange on which the Corporation's Common Stock may then be
listed.
The holders of any of the additional shares of Common Stock issued in the
future would have the same rights and privileges as the holders of the shares
of Common Stock currently authorized and outstanding. The Corporation's
stockholders do not have preemptive rights under the Certificate and will not
have such rights with respect to the future issuance of any such additional
shares of Common Stock.
The issuance of such additional shares of Common Stock may, among other things,
have a dilutive effect on the earnings per share of the Common Stock and on the
equity and voting power of those holding Common Stock at the time of issuance.
In addition, the proposed amendment also may be perceived as having anti-
takeover effects, by enabling the Board of Directors to issue shares in
transactions that would make a change in control of the Corporation more
difficult or costly and therefore less likely. The Board of Directors is not
presenting the proposal to amend the Certificate for anti-takeover purposes and
is not aware of any effort to accumulate the Corporation's Common Stock or to
obtain control of the Corporation by means of a merger, tender offer,
solicitation in opposition to management or otherwise.
Anti-Takeover Effects of Provisions of the Corporation's Certificate and
Restated By-Laws
The Certificate and Restated By-Laws of the Corporation 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 Corporation 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 Restated By-Laws provide that special
meetings of holders of Common Stock may be called only by the Chairman or the
President of the Corporation 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 Restated By-Laws contain certain provisions which regulate the manner and
timing of stockholder proposals and stockholder nominations for the Board of
Directors, which provisions are described herein on page 9.
The Certificate also provides that certain provisions of the Restated By-Laws
may only be amended by the affirmative vote of the holders of 75% of the shares
of the Corporation 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 Corporation 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.
23
<PAGE>
Rights Agreement
On October 21, 1994 the Corporation entered into a Rights Agreement, which was
designed to protect McKesson stockholders from coercive or unfair takeover
tactics. Pursuant to the Rights Agreement, the Board of Directors declared a
dividend distribution of one Right (a "Right") for each then outstanding share
of Common Stock to stockholders of record of the Corporation at November 1,
1994 and authorized the issuance of one Right for each share of Common Stock
issued after the date of the Rights Agreement, but prior to triggering of the
Right. As a result of the two-for-one stock split effective January 2, 1998,
each share of Common Stock has attached to it one-half of a Right. Each Right
entitles a registered holder to purchase, upon the occurrence of certain
specified events, a unit consisting of one one-hundredth of a share of Series A
Junior Participating Preferred Stock at a purchase price of $100 per unit. The
description and terms of the Rights are set forth in the Rights Agreement, a
copy of which is filed with the Securities and Exchange Commission. In general,
pursuant to the Rights Agreement, upon the occurrence of specified triggering
events, such as the acquisition by any person (other than McKesson or any of
its subsidiaries) of the beneficial ownership of securities representing 15% or
more of the outstanding Common Stock without the prior approval of the McKesson
Board, each holder of a Right will have the right to receive, upon exercise of
the Right, that amount of Common Stock having a value equal to two times the
exercise price of the Right. The Rights Agreement further provides that if the
Corporation is acquired in a merger or other business combination or it sells
more than 50% of its assets and such transaction is not approved by the Board,
McKesson's stockholders will have the right to receive, with respect to each
Right, common stock of the acquiring company having a value equal to two times
the exercise price of the Right. Under certain circumstances, McKesson may
redeem the Rights for a redemption price of $.01 per Right, which will
otherwise expire on the tenth anniversary of the adoption of the Rights
Agreement. The Rights have certain anti-takeover effects and will cause
substantial dilution to the ownership interest of a person or group that
attempts to acquire the Corporation 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 Corporation 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 Corporation and, accordingly, may discourage attempts to acquire the
Corporation.
Certain Effects of Authorized But Unissued Stock
The Corporation's authorized but unissued shares of Common Stock and 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.
24
<PAGE>
The issuance of Preferred Stock could have the effect of delaying or preventing
a change in control of the Corporation. 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 would 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
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 Corporation by means of a merger, tender
offer, proxy 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 Corporation.
If the proposed amendment to the Certificate is approved by the stockholders it
will become effective on the date upon which the Amendment to the Restated
Certificate is filed with the Delaware Secretary of State.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE PROPOSAL TO
AMEND THE RESTATED CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
At the recommendation of the Audit Committee, the Board of Directors has
reappointed the firm of Deloitte & Touche LLP as the principal independent
auditors to audit the consolidated financial statements of the Corporation and
its subsidiaries for the fiscal year ending March 31, 1999, such appointment to
continue at the pleasure of the Board of Directors. Deloitte & Touche has acted
as the Corporation's independent auditors for several years, is knowledgeable
about the Corporation's operations and accounting practices, and is well
qualified to act in the capacity of auditor.
Representatives of Deloitte & Touche are expected to be present at the meeting
to respond to appropriate questions and to make a statement if they desire to
do so.
ADDITIONAL INFORMATION
The Corporation's Annual Report for the fiscal year ended March 31, 1998,
including the audited financial statements, accompanies this Proxy Statement.
STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
A stockholder who intends to submit a proposal for inclusion pursuant to Rule
14a-8 under the Securities Exchange Act of 1934 in the proxy statement for the
1999 Annual Meeting, must send the proposal so as to be received by the Vice
President and Corporate Secretary at the principal executive offices of the
Corporation, One Post Street, San Francisco, CA 94104, no later than February
18, 1999.
By Order of the Board of Directors
/s/ Nancy A. Miller
Nancy A. Miller
Vice President and Corporate Secretary
June 17, 1998
A COPY OF THE CORPORATION'S ANNUAL REPORT ON FORM 10-K TO THE SECURITIES AND
EXCHANGE COMMISSION FOR THE FISCAL YEAR ENDED MARCH 31, 1998, EXCLUDING CERTAIN
EXHIBITS THERETO, MAY BE OBTAINED WITHOUT CHARGE, BY WRITING TO INVESTOR
RELATIONS, BOX K, MCKESSON CORPORATION, ONE POST STREET, SAN FRANCISCO, CA
94104.
25
<PAGE>
PSIP VOTING CARD
DIRECTIONS TO TRUSTEE, McKESSON CORPORATION PROFIT-SHARING INVESTMENT PLAN
To: The Chase Manhattan Bank, N.A.
I direct you as Trustee of the McKesson Corporation Profit-Sharing Investment
Plan to vote (in person or by proxy) as I have specified on the reverse side
hereof all shares of McKesson Corporation Common Stock allocated to my accounts
under the plan at the Annual Meeting of Stockholders of McKesson Corporation on
July 29, 1998. You may vote according to your discretion (or that of your proxy
holder) on any other matter which may properly come before the meeting.
Election of Directors
Nominees for three-year terms expiring in 2001
Mary G.F. Bitterman
Mark A. Pulido
Robert H. Waterman, Jr.
YOUR SHARES WILL NOT BE VOTED UNLESS YOU (1) VOTE BY TELEPHONE AS DESCRIBED ON
THE REVERSE SIDE, OR (2) SIGN AND RETURN THIS CARD.
*********************
* SEE REVERSE SIDE *
*********************
- --------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT!
PSIP PARTICIPANTS CAN VOTE IN ONE OF TWO WAYS:
1. Call toll free 1-800-840-1208 from a Touch Tone telephone and follow the
instructions on the reverse side of this form. There is NO CHARGE to you
for this call.
OR
2. Mark, sign and date your voting instruction card and return it promptly
in the enclosed business reply envelope.
PLEASE VOTE
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2.
PLEASE MARK YOUR VOTES AS INDICATED [X]
1. Election of Directors WITH FOR ALL
FOR HOLD EXCEPT
[ ] [ ] [ ]
Mary G.F. Bitterman
Mark A. Pulido
Robert H. Waterman, Jr.
If you do not wish your shares voted "FOR" a particular nominee, mark
the "For All Except" box and strike a line through the nominee(s) name.
Your shares will be voted for the remaining nominee(s).
2. Approval of Amendment to the
Restated Certificate of FOR AGAINST ABSTAIN
Incorporation to Increase [ ] [ ] [ ]
the Number of Authorized
Shares of Common Stock.
PLEASE CAST YOUR VOTE BY TELEPHONE AS INSTRUCTED BELOW OR COMPLETE, DATE, SIGN
AND MAIL THIS VOTING INSTRUCTION CARD PROMPTLY IN THE ENCLOSED BUSINESS REPLY
ENVELOPE.
[ ]
THIS VOTING INSTRUCTION CARD, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED,
BUT IF NO DIRECTION IS GIVEN, IT WILL BE VOTED FOR PROPOSALS 1 AND 2.
Signature(s): Dated: , 1998
---------------------------------- -----------
================================================================================
* *
* * FOLD AND DETACH HERE - IF YOU ARE RETURNING YOUR VOTING CARD BY MAIL * *
- --------------------------------------------------------------------------------
IF YOU WISH TO VOTE BY TELEPHONE, PLEASE READ THE INSTRUCTIONS BELOW
- --------------------------------------------------------------------------------
VOTE BY TELEPHONE
QUICK - EASY
PSIP participants may instruct the Plan Trustee how to vote the shares allocated
to their account by telephone 24 hours a day, 7 days a week. If you wish to do
so, dial 1-800-840-1208 on a touch-tone telephone.
You will be asked to enter a Control Number which is located in the box in the
lower right hand corner of this form.
- --------------------------------------------------------------------------------
OPTION #1:
To vote as the Board of Directors recommends on ALL proposals: press 1.
- --------------------------------------------------------------------------------
WHEN ASKED, PLEASE CONFIRM YOUR VOTE BY PRESSING 1.
- --------------------------------------------------------------------------------
OPTION #2:
If you choose to vote on each proposal separately, press 0. You will hear these
instructions:
- --------------------------------------------------------------------------------
PROPOSAL 1:
To vote FOR ALL nominees, press 1; to WITHHOLD FOR ALL nominees, press 9.
To withhold FOR AN INDIVIDUAL nominee, press 0 and listen to the instructions.
PROPOSAL 2:
To vote FOR, press 1; AGAINST, press 9; ABSTAIN, press 0.
WHEN ASKED, PLEASE CONFIRM YOUR VOTE BY PRESSING 1.
- --------------------------------------------------------------------------------
PLEASE DO NOT RETURN YOUR VOTING INSTRUCTION CARD IF YOU HAVE VOTED BY PHONE.
- --------------------------------------------------------------------------------
Call TOLL FREE ANYTIME From a Touch Tone Telephone ************************
*(PIN # to appear here)*
1-800-840-1208 * *
* *
************************
There is NO CHARGE to you for this call.
<PAGE>
PROXY
McKESSON CORPORATION
PROXY FOR ANNUAL MEETING
10:00 A.M., JULY 29, 1998
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE CORPORATION
The undersigned, whose signature appears on the reverse side, hereby constitutes
and appoints Mark A. Pulido, Ivan D. Meyerson and Nancy A. Miller, and each of
them, with full power of substitution, proxies to vote all stock of McKesson
Corporation which the undersigned is entitled to vote at the Annual Meeting of
Stockholders to be held in the Gold Room at the Fairmont Hotel, 950 Mason
Street, San Francisco, California, on July 29, 1998, and any adjournments
thereof, as specified upon the matters indicated on the reverse side, and in
their discretion upon any other matter that may properly come before said
meeting.
Election of Directors
Nominees for three-year terms expiring in 2001
1. Mary G.F. Bitterman
2. Mark A. Pulido
3. Robert H. Waterman, Jr.
YOUR SHARES WILL NOT BE VOTED UNLESS YOU (1) VOTE BY TELEPHONE AS DESCRIBED ON
THE REVERSE SIDE, OR (2) SIGN AND RETURN THIS CARD.
***************
* SEE REVERSE *
* SIDE *
***************
================================================================================
YOUR VOTE IS IMPORTANT!
YOU CAN VOTE IN ONE OF TWO WAYS:
1. Call toll free as described in the instructions on the reverse side.
There is NO CHARGE to you for this call, if calling from the United
States, Canada, Puerto Rico and the U.S. Virgin Islands.
OR
2. Mark, sign and date your proxy card and return it promptly in the
enclosed business reply envelope.
PLEASE VOTE
<PAGE>
[X] PLEASE MARK YOUR VOTE AS IN THIS EXAMPLE
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED, BUT IF NO
DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR EACH OF THE FOLLOWING
PROPOSALS.
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE FOLLOWING PROPOSALS:
- --------------------------------------------------------------------------------
1. Election of Directors WITH
(see reverse) FOR HELD
[ ] [ ]
For, except vote withheld from the following nominee(s):
--------------------------------------------------------
2. Approval of Amendment to the
Restated Certificate of FOR AGAINST ABSTAIN
Incorporation to Increase [ ] [ ] [ ]
the Number of Authorized
Shares of Common Stock.
PLEASE CAST YOUR VOTE BY TELEPHONE AS INSTRUCTED BELOW OR COMPLETE, DATE, SIGN
AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED BUSINESS REPLY ENVELOPE.
Please sign exactly as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
SIGNATURE(S) DATE
================================================================================
* *
* * FOLD AND DETACH HERE - IF YOU ARE RETURNING YOUR VOTING CARD BY MAIL * *
VOTE BY TELEPHONE
QUICK & EASY
McKESSON encourages stockholders to take advantage of a new cost-effective and
convenient way to vote their shares - by telephone. You may vote by telephone 24
hours a day, 7 days a week. To access the telephone voting system, you must use
a touch-tone telephone and follow the instructions below:
. Stockholders calling from the United States, Canada, Puerto Rico and the U.S.
Virgin Islands may dial toll-free 1-800-652-8683 (1-800-OK2-VOTE). If you call
from other locations, you may dial 201-324-0377, and you will bear the normal
cost of international telephone access charges to use the telephone voting
service.
. When requested, enter the last 4 digits of your Social Security Number (if you
have one) and your Voter Control Number printed in the box above, just below
the perforation.
. The instruction will lead you through the simple voting process.
TELEPHONE VOTING PROVIDES THE SAME AUTHORIZATION TO VOTE YOUR SHARES AS IF YOU
MARKED, SIGNED, DATED AND RETURNED THE PROXY CARD. IF YOU VOTE BY TELEPHONE,
PLEASE DO NOT MAIL YOUR PROXY CARD.
THANK YOU FOR VOTING.
<PAGE>
[LETTERHEAD OF MCKESSON]
June 17, 1998
Dear McKesson Profit-Sharing Investment Plan Participant:
As a participant in the McKesson Corporation Profit-Sharing Investment Plan
("PSIP"), you are a stockholder in the Corporation. At the Annual Stockholders
Meeting, you have the right to instruct the Plan Trustee, on a confidential
basis, how the shares of McKesson Common Stock in your account are to be voted
on matters that come before the meeting. Your PSIP account includes the shares
held for the Company Matching Contributions, PAYSOP, ESOP, Retirement Share
Plan, PSIP Plus and Quarterly Contributions.
The enclosed Proxy Statement describes two proposals to be voted on at this
year's meeting. The Board of Directors recommends that you vote FOR both
proposals. THIS YEAR PARTICIPANTS IN THE PSIP CAN VOTE THEIR SHARES BY
TELEPHONE. THE TOLL-FREE NUMBER AND PROCEDURES FOR VOTING BY TELEPHONE ARE
INCLUDED ON THE ENCLOSED PSIP VOTING CARD. ALTERNATIVELY, YOU MAY CAST YOUR
VOTE BY COMPLETING, SIGNING AND RETURNING THE PSIP VOTING CARD IN THE BUSINESS
REPLY ENVELOPE PROVIDED. If you sign and return the card without marking your
choices, your shares will be voted in accordance with the Board of Directors'
recommendations as indicated above. This card or your telephone voting
instructions also give the Trustee authority to vote on your behalf on any
other matters that may properly come before the meeting. PLEASE DO NOT RETURN
YOUR PSIP VOTING CARD IF YOU VOTE BY TELEPHONE.
If the Trustee receives no voting instructions for shares credited to
participants' PAYSOP accounts, no vote will be cast on those shares. The PSIP
provides that all other shares for which the Trustee receives no voting
instructions from participants, as well as all unallocated shares of Common
Stock, will be voted by the Trustee in the same proportion as shares for which
voting instructions are received.
Participants who own shares of McKesson Common Stock by means other than
through the PSIP will receive a separate proxy card and instructions for voting
those shares.
To ensure that your shares are represented and voted at the meeting according
to your wishes, your telephone voting instructions or signed PSIP voting card
must be received by the Trustee by July 24, 1998. The Corporation's Annual
Report for the fiscal year ended March 31, 1998, including the audited
financial statements, accompanies this Proxy Statement.
We urge you to exercise your voting rights as a stockholder. Your vote does
make a difference.
Sincerely,
/s/ Mark A. Pulido
Mark A. Pulido
President and Chief Executive
Officer
