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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. 1)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[_] Definitive Proxy Statement
[X] Definitive Revised Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
McKesson HBOC, Inc.
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(Name of Registrant as Specified In Its Charter)
McKesson HBOC, Inc.
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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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[McKesson Logo Appears Here]
Notice of Annual Meeting of Stockholders
of McKesson HBOC, Inc.
Date: Wednesday, August 25, 1999
Time: 10:00 A.M., Pacific Daylight Time
Place: Palace Hotel
2 New Montgomery Street
San Francisco, California 94105
Purpose: .Elect four directors
. Approve the Employee Stock Purchase Plan
. Approve an increase in the number of authorized shares for the Stock
Purchase Plan
. Conduct other business if properly raised
Your Board of Directors recommends that you vote in favor of the three
proposals outlined in this proxy statement.
Stockholders of record at the close of business on July 14, 1999, may vote at
the Annual Meeting or any adjournment or postponement thereof.
Your vote is important. Whether you plan to attend the meeting, or not, please
cast your vote by telephone, through the Internet or complete, sign and return
the enclosed proxy card in the envelope provided. If you attend the meeting and
prefer to vote in person, you may do so even if you have previously voted by
proxy.
By Order of the Board of Directors
/s/ IVAN D. MEYERSON
IVAN D. MEYERSON
Senior Vice President, General
Counsel and Secretary
One Post Street
San Francisco, CA 94104-5296
July 21, 1999
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
General Information....................................................... 1
Proxies and Voting at the Meeting......................................... 1
Proxy Materials and Annual Report......................................... 2
Attendance at the Meeting................................................. 2
Dividend Reinvestment Plan................................................ 2
Profit-Sharing Investment Plan............................................ 2
Vote Required and Method of Counting Votes................................ 2
Security Ownership of Certain Beneficial Owners........................... 2
Security Ownership of Directors and Executive Officers.................... 3
Election of Directors..................................................... 4
Board Meetings and Committees............................................. 7
Compensation of Directors................................................. 8
Report of the Compensation Committee on Executive Compensation............ 11
Executive Compensation.................................................... 13
Summary Compensation Table.............................................. 14
Option/SAR Grants in the Last Fiscal Year............................... 15
Aggregated Option/SAR Exercises in the Last Fiscal Year and Fiscal Year-
End Option/ SAR Values................................................. 16
Long-Term Incentive Plan Awards in the Last Fiscal Year................. 17
Stock Price Performance Graph............................................. 18
Approval of the McKesson HBOC, Inc. Employee Stock Purchase Plan.......... 19
Proposal to Amend the McKesson HBOC, Inc. Stock Purchase Plan............. 21
Employment Agreements, Executive Severance Policy and Termination of
Employment and Change in Control Arrangements............................ 23
Pension Benefits.......................................................... 27
Certain Relationships and Related Transactions............................ 27
Indebtedness of Executive Officers........................................ 28
Independent Auditors...................................................... 29
Section 16(a) Beneficial Ownership Reporting Compliance................... 29
Solicitation of Proxies................................................... 29
Other Matters............................................................. 29
Advance Notice Procedures................................................. 29
Stockholder Proposals for 2000 Annual Meeting............................. 30
Appendix A--McKesson HBOC, Inc. 1998 Employee Stock Purchase Plan......... A-1
</TABLE>
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PROXY STATEMENT
General Information
On January 12, 1999, McKesson Corporation ("McKesson"), a Delaware corporation,
completed a merger with HBO & Company ("HBOC") upon the approval of the
transaction by stockholders of both McKesson and HBOC (the "Merger"). Holders
of HBOC common stock received 0.37 of a share of McKesson common stock in
exchange for each share of HBOC common stock that they owned. McKesson then
changed its name to McKesson HBOC, Inc. (the "Company").
On June 21, 1999, the Company announced, among other things, that its Board of
Directors elected Alan Seelenfreund Chairman of the Board and, effective July
15, 1999, elected John H. Hammergren and David L. Mahoney as Co-Presidents and
Co-Chief Executive Officers of the Company. Heidi E. Yodowitz, Senior Vice
President and Controller, was appointed acting Chief Financial Officer. Mark A.
Pulido resigned from his position as Chief Executive Officer and director and
Richard H. Hawkins resigned from his position as Executive Vice President and
Chief Financial Officer effective July 15, 1999. Since the announcement, John
H. Hammergren and David L. Mahoney have been elected directors of the Company.
On the same date the Company announced that Charles W. McCall was removed as
Chairman of the Board and dismissed as an employee of the Company and that
Albert J. Bergonzi, formerly President and Chief Executive Officer of the
Information Technology Business (formerly HBOC), was dismissed for cause.
These changes are reflected in the information that follows.
Proxies and Voting at the Meeting
The Company's Board of Directors is soliciting proxies to be voted at the
Annual Meeting of Stockholders to be held August 25, 1999 (the "Meeting"). This
proxy statement includes information about the issues to be voted upon at the
Meeting.
On July 21, 1999 the Company began mailing these proxy materials to all
stockholders of record at the close of business on July 14, 1999. On this date,
there were approximately 281,333,000 shares of the Company's common stock
outstanding and entitled to vote. Each share is entitled to one vote on each
matter properly brought before the Meeting.
As required by Delaware law, a list of stockholders entitled to vote at the
Meeting will be available at the Palace Hotel, 2 New Montgomery Street, San
Francisco, California, on August 25, 1999, and for 10 days prior to the
Meeting, during normal business hours, at the offices of the Company, One Post
Street, San Francisco, California 94104.
Shares can be voted only if the stockholder is present at the Meeting in person
or by proxy. Any person giving a proxy may revoke it at any time before the
Meeting by sending in a written revocation or a proxy bearing a later date.
Stockholders may also revoke their proxies by attending the Meeting in person
and casting a ballot.
Stockholders of record can give proxies by calling a toll free telephone
number, by using the Internet, or by mailing their signed proxy cards. Specific
instructions for stockholders of record who wish to use the telephone or
Internet voting procedures are set forth on the enclosed proxy card.
Participants in the Company's Profit-Sharing Investment Plan ("PSIP") can give
proxies by calling a toll free telephone number or by mailing their signed
proxy cards.
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Proxy Materials and Annual Report
The Company's Notice of Annual Meeting and Proxy Statement is available on the
Company's website under the Investor Resource tab on the Internet at
www.mckhboc.com.
The Company's 1999 Annual Report to Stockholders, which includes the Annual
Report on Form 10-K for the fiscal year ended March 31, 1999 ("FY 1999"),
accompanies these proxy materials.
Attendance at the Meeting
If you plan to attend the Meeting, you will need to bring your admission
ticket. You will find an admission ticket attached to the proxy card and to the
PSIP voting instruction card. If your shares are held in the name of a bank,
broker or other holder of record and you plan to attend the Meeting in person,
you may obtain an admission ticket in advance by sending a written request,
along with proof of ownership, such as a bank or brokerage account statement,
to the Company's transfer agent, First Chicago Trust Company of New York, 525
Washington Blvd., Suite 4690, Jersey City, New Jersey 07310. Stockholders who
do not have admission tickets will only be admitted upon verification of
ownership at the door.
Dividend Reinvestment Plan
For those stockholders who participate in the Company's Automatic Dividend
Reinvestment Plan, the enclosed proxy includes all full shares of common stock
held in the stockholder's dividend reinvestment plan account on the record date
for the Meeting, as well as shares held of record by the stockholder.
Profit-Sharing Investment Plan
Participants in the Company's PSIP have the right to instruct the PSIP Trustee,
on a confidential basis, how the shares allocated to their accounts are to be
voted and will receive a separate PSIP voting instruction card for that
purpose.
Vote Required and Method of Counting Votes
The presence in person or by proxy of holders of a majority of the outstanding
shares of common stock entitled to vote will constitute a quorum for the
transaction of business at the Meeting. The director nominees who receive the
greatest number of votes cast in person or by proxy at the Meeting will be
elected directors of the Company. The affirmative vote of the holders of the
majority of the shares present or represented by proxy at the Meeting is
required for the approval of each of the other matters to be voted upon.
Abstentions for these matters will be treated as votes cast on a particular
matter as well as shares present and represented for purposes of establishing a
quorum. Broker nonvotes (i.e., when a broker does not have authority to vote on
a specific issue) will not be treated as votes cast on a particular matter but
will be treated as shares present or represented for purposes of establishing a
quorum.
Security Ownership of Certain Beneficial Owners
The following table sets forth, as of July 1, 1999, information regarding
ownership of the Company's outstanding common stock, by any entity or person
known by the Company to be the beneficial owner of more than five percent of
the outstanding shares of common stock.
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<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 Bank, N.A.,
as Trustee for the McKesson HBOC, Inc.
Profit-Sharing Investment Plan
1 Chase Manhattan Plaza
New York, NY 10081.............................. 19,141,103(1) 6.81
The Equitable Companies Incorporated, AXA
and the Mutuelles AXA as a group(2)............. 33,057,493(3) 12.2
</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 a Schedule 13G filed with the Securities and
Exchange Commission by: The Equitable Companies Incorporated, 1290 Avenue
of the Americas, New York, New York 10104; AXA, 9 Place Vendome, 75001
Paris France; and the Mutuelles AXA as a group as follows: AXA Conseil Vie
Assurance Mutuelle, 100-101 Terrasse Boieldieu, 92042 Paris La Defense
France; AXA Assurances I.A.R.D. Mutuelle and AXA Assurances Vie Mutuelle,
21, rue de Chateaudun, 75009 Paris France; AXA Courtage Assurance Mutuelle,
26 rue Louis le Grand, 75002 Paris France.
(3) The above described beneficial owners report voting and dispositive power
as of June 30, 1999, as follows: The Equitable Companies Incorporated
reports no voting power and no dispositive power; its subsidiary Alliance
Capital Management L.P., sole voting power with respect to 10,225,717
shares; shared voting power with respect to 17,088,724 shares; sole
dispositive power with respect to 32,609,146 shares and shared dispositive
power with respect to 3,262 shares; its subsidiary Donaldson, Lufkin &
Jenrette, sole dispositive power with respect to (36,840) shares and shared
dispositive power with respect to 47,375 shares; and its subsidiary The
Equitable Life Assurance Society of the United States, sole voting power
with respect to 81,537 shares, shared voting power with respect to
342,320 shares, sole dispositive power with respect to 423,857 shares. AXA
and the Mutuelles AXA as a group each report no voting power and no
dispositive power.
Security Ownership of Directors and Executive Officers
The following table sets forth, as of July 1, 1999, information regarding
ownership of the Company's outstanding common stock by (i) each Named Executive
Officer, as defined on page 14, (ii) each director and (iii) all executive
officers and directors as a group. The table also includes the number of shares
subject to outstanding options to purchase common stock of the Company which
are currently exercisable or become exercisable within 60 days of July 1, 1999.
<TABLE>
<CAPTION>
Percent
Shares of Common Stock of Stock
Name of Individual Beneficially Owned(1) Class Units(2)(3)
------------------ ---------------------- ------- -----------
<S> <C> <C> <C>
Alfred C. Eckert III.... 33,040(4)(5) * --
Tully M. Friedman....... 39,555(5)(6) * 7,317
Alton F. Irby III....... 81,040(5) * --
M. Christine Jacobs..... 17,400(5) * 159
Gerald E. Mayo.......... 110,160(5) * --
Charles W. McCall....... 2,879,677(5)(7) 1.02 --
James V. Napier......... 120,980(5) * 496
David S. Pottruck....... 27,555(5) * 2,997
Mark A. Pulido.......... 2,141,184(5)(7) * --
Carl E. Reichardt....... 27,555(5)(6) * 2,723
Alan Seelenfreund....... 1,314,254(5)(7) * 500
Jane E. Shaw............ 34,069(5)(6) * 11,191
Albert J. Bergonzi...... 787,824(5) * --
John H. Hammergren...... 481,762(5)(7)(8) * --
David L. Mahoney........ 901,032(5)(7) * --
All Directors and
Executive Officers as a
group (18 Persons)..... 9,984,983(4)(5)(6)(7)(8)(9) 3.55 25,383
</TABLE>
* Less than 1%
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(1) Represents shares held as of July 1, 1999, 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, except for Mr. McCall, or executive officer
represents less than 1% of the outstanding shares of such class. All
directors and executive officers as a group own 3.55% of the outstanding
shares of common stock.
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(2) Includes restricted stock units and share units accrued under the 1997 Non-
Employee Directors' Equity Compensation and Deferral Plan (the "1997
Plan"), as described on page 9, and the 1994 Stock Option and Restricted
Stock Plan (the "1994 Plan"), as follows: Mr. Friedman, 6,688 units; Ms.
Jacobs, 159 units; Mr. Napier, 496 units; Mr. Pottruck, 2,997 units; Mr.
Reichardt, 2,723 units; Mr. Seelenfreund, 500 units and Dr. Shaw, 6,114
units, and all non-employee directors as a group, 19,583 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 on page 10, as follows: Mr. Friedman, 629
units; Dr. Shaw, 5,077 units; and those directors as a group, 5,706 units.
Participating directors have neither voting nor investment power in respect
of such units.
(4) Includes 7,500 shares held by Mr. Eckert in an Individual Retirement
Account. Also, includes 740 shares held by Mr. Eckert's spouse in 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 of July 1, 1999, as follows: Mr. Eckert, 17,400; Mr. Friedman, 23,555;
Mr. Irby, 76,600; Ms. Jacobs, 17,400; Mr. Mayo, 109,160; Mr. Napier,
91,400; Mr. Pottruck, 22,555; Mr. Reichardt, 17,555; Mr. Seelenfreund,
1,171,956; Dr. Shaw, 23,555; Mr. Hammergren, 300,816; Mr. Mahoney, 744,100;
; Mr. Pulido, 1,690,000; Mr. McCall, 1,184,000; Mr. Bergonzi, 685,536; and
all directors and executive officers as a group, 6,892,816.
(6) Includes shares held by family trusts as to which each of the following
named directors and their respective spouses have shared voting and
investment power: Mr. Reichardt, 10,000 shares; and Dr. Shaw, 10,514
shares; and those directors as a group, 20,514 shares. Also 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.
(7) Includes shares held under the Company's PSIP, as to which the participants
have sole voting but no investment power, as follows: Mr. Seelenfreund,
18,085 shares; Mr. Hammergren, 946 shares; Mr. Mahoney, 5,932 shares: Mr.
Pulido, 1,184 shares; Mr. McCall, 13,416 shares; and all directors and
executive officers as a group, 60,797 shares.
(8) Includes 40,000 shares subject to possible forfeiture under the terms of
the Company's 1994 Plan.
(9) Includes 400 shares held by a member of the group as custodian for his
minor child.
PROPOSALS TO BE VOTED ON
1. Election of Directors
On July 12, 1999, the Board of Directors amended the Company's Restated By-Laws
to provide for a Board of Directors consisting of fourteen members, and then
elected John H. Hammergren and David L. Mahoney to serve as directors of the
Company. Following the resignation of Mark A. Pulido as a director effective
July 15, 1999, the Board amended the Restated By-Laws to provide for a Board
consisting of thirteen members.
The Board is divided into three classes for purposes of election. One class is
elected at each annual meeting of stockholders to serve for a three-year term.
Directors hold office until the end of their terms and until their successors
have been elected and qualified, or until their earlier death, resignation, or
removal. If a nominee is unavailable for election, your proxy authorizes the
persons named in the proxy to vote for a replacement nominee if the Board names
one. As an alternative, the Board may reduce the number of directors to be
elected at the meeting. The Board is not aware that any nominee named in this
proxy statement will be unwilling or unable to serve as a director.
The following is a brief description of the principal occupation for at least
the past five years, age and major affiliations of each director.
Nominees for Election for Terms that will Expire in 2002
The Board of Directors recommends a vote FOR all Nominees.
Alfred C. Eckert III
President, Greenwich Street Capital Partners, Inc.
Mr. Eckert, age 51, has been President of Greenwich Street Capital Partners,
Inc., a private investment firm, since January 1994. In 1991, he co-founded the
South Street Funds and was formerly a partner with Goldman Sachs & Co. Mr.
Eckert is the Chairman of the Board of Day International, Inc. and a
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director of Telex Communications, Inc., Eastgate Group Limited and IPC
Magazines. He was a director of HBOC from 1990 until the Merger, and he became
a director of the Company in January 1999. He is Chairman of the Compensation
Committee of the Board.
Gerald E. Mayo
Chairman of the Board, Retired, Midland Financial Services, Inc.
Mr. Mayo, age 66, retired in 1997 as Chairman of the Board of Midland Financial
Services, Inc., the holding company for the Midland Life Insurance Company. He
was President from 1994 until early 1996. He joined the Midland Life Insurance
Company's predecessor in 1968, was elected to its Board of Directors in 1970,
became its President and Chief Executive Officer in 1980, and was named
Chairman of the Board in 1986. Mr. Mayo is a director of Columbia Energy Group,
Dominion Homes, Inc. and was a director of HBOC from 1991 until the Merger. He
became a director of the Company in January 1999. He is a member of the Audit
Committee of the Board.
Alan Seelenfreund
Chairman of the Board
Mr. Seelenfreund, age 62, was elected Chairman of the Board in June 1999. He
previously served as Chairman of the Board from 1989 until January 1999. He was
Chief Executive Officer of the Company from 1989 until 1997; Executive Vice
President from 1986 to 1989; Chief Financial Officer from 1984 to 1989; and he
held various other senior financial positions since joining the Company in
1975. Mr. Seelenfreund is a director of Golden Gate National Park Association,
Nadro, S.A. de C.V. (Mexico), World Wildlife Fund and The Nature Conservancy.
He has served as director of the Company since 1988. He is Chairman of the
Audit Committee of the Board.
Jane E. Shaw
Chairman of the Board and Chief Executive Officer, AeroGen, Inc.
Dr. Shaw, age 60, has been Chairman of the Board and Chief Executive Officer of
AeroGen, Inc., a private company specializing in the development of pulmonary
drug delivery systems, since January, 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 has been a director of the Company since 1992. She is a
member of the Audit Committee of the Board.
Directors Whose Terms will Expire in 2000
Tully M. Friedman
Chairman and Chief Executive Officer, Friedman Fleischer & Lowe, LLC
Mr. Friedman, age 57, is Chairman and Chief Executive Officer of Friedman
Fleischer & Lowe, 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., and a director 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 has served as a
director of the Company since 1992. He is a member of the Compensation
Committee of the Board.
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Alton F. Irby III
Deputy Chairman and Chief Executive of NatWest Markets Global Corporate
Advisory Limited
Mr. Irby, age 58, has been Chief Executive of NatWest Global Corporate Advisory
since 1997, when the company acquired Hambro Magan Irby Holdings. He is also
Chief Executive of Hawkpoint Partners, an affiliate of NatWest Global Corporate
Advisory. Mr. Irby co-founded J.O. Hambro Magan Irby Holdings in 1988 following
his retirement as a Director of Sedgwick Plc in 1987. Mr. Irby is a director of
City Capital Counseling, Inc., Eastgate Group Ltd., Crown Communications Ltd.,
Input Typesetting Ltd. and was a director of HBOC from 1990 until the Merger.
He is also a Trustee of the Victoria & Albert Museum. Mr. Irby became a
director of the Company in January 1999. He is a member of the Compensation
Committee of the Board.
James V. Napier
Chairman of the Board, Scientific-Atlanta, Inc.
Mr. Napier, age 62, is Chairman of the Board of Scientific-Atlanta, Inc. He has
been a private investor for more than five years and was a director of HBOC
from 1981 until the Merger. Mr. Napier is a director of Engelhard Corporation,
Intelligent Systems Corporation, Vulcan Materials Company, Personnel Group of
America, Inc. and Westinghouse Air Brake Corporation. Mr. Napier became a
director of the Company in January 1999. He is a member of the Audit Committee
of the Board.
Carl E. Reichardt
Chairman of the Board, Retired, Wells Fargo & Company
Mr. Reichardt, age 67, 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 and Pacific Gas and
Electric Company. Mr. Reichardt has served as a director of the Company since
1996. He is a member of the Compensation Committee of the Board.
Directors Whose Terms will Expire in 2001
M. Christine Jacobs
Chairman, President and Chief Executive Officer, Theragenics Company
Ms. Jacobs, age 48, has been Chairman of the Board of Theragenics Corporation
since 1998 and served as Co-Chairman of its Board from 1997 to 1998. She has
been President and Chief Executive Officer of Theragenics since 1993 and was
President and Chief Operating Officer from 1992 until 1993. She joined
Theragenics in 1987. Ms. Jacobs was a director of HBOC from 1998 until the
Merger. Currently she is serving a three-year term on the Board of Councilors
of the Carter Center in Atlanta, and is a trustee of Georgia State University
Foundation. She is a member and former director of the Georgia Biomedical
Partnership and she serves on the Georgia Secretary of State's Small Business
Taskforce. Ms. Jacobs became a director of the Company in January 1999.
Charles W. McCall
Director
Mr. McCall, age 55, was Chairman of the Board of Directors of the Company from
January 1999 until June 1999, when he was removed from that office. Mr. McCall
was Chairman of the Board of HBOC from February 1998 until January 1999, and
President, Chief Executive Officer and a director of
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HBOC from 1991 until the Merger. From 1977 until 1991, Mr. McCall served in
various positions with CompuServe, Inc., most recently as President and Chief
Executive Officer. Mr. McCall is a director of EIS International, Inc. and
WestPoint Stevens, Inc.
David S. Pottruck
President, Co-Chief Executive Officer and Chief Operating Officer, The Charles
Schwab Corporation
Mr. Pottruck, age 50, became the Co-Chief Executive Officer of The Charles
Schwab Corporation in January 1998, and has been the Chief Operating Officer
and a member of the Schwab board 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, Intel Corporation, Preview
Travel, Inc., Bay Area Sports Organizing Committee and U.S. Ski and Snowboard
Team Foundation, and a Trustee of the University of Pennsylvania. Mr. Pottruck
has served as director of the Company since 1997.
John H. Hammergren
Co-President and Co-Chief Executive Officer
Mr. Hammergren, age 40, was elected Co-President and Co-Chief Executive
Officer, effective July 15, 1999, and director, effective July 12, 1999. He was
Executive Vice President of the Company and President and Chief Executive
Officer of the Supply Management Business from January 1999 to July 1999; Group
President, McKesson Health Systems Group from August 1997 to January 1999, and
Vice President of the Company since 1996. He was President of Kendall
Healthcare Products Company, Medical/Surgical Division from 1993 to 1996.
David L. Mahoney
Co-President and Co-Chief Executive Officer
Mr. Mahoney, age 45, was elected Co-President and Co-Chief Executive Officer
effective July 15, 1999, and director effective July 12, 1999. He was Executive
Vice President of the Company and President and Chief Executive Officer of the
Pharmaceutical Services Business from January 1999 to July 1999; Group
President, Pharmaceutical Services and International Group from August 1997 to
January 1999; President, Pharmaceutical and Retail Services from August 1996 to
August 1997; President, Pharmaceutical Services Group from December 1995 to
August 1996; President of the Company's Healthcare Delivery Systems, Inc. from
September 1994 to December 1995 and Vice President of Strategic Planning from
1990 to 1994.
Board Meetings and Committees
During the fiscal year ended March 31, 1999, the Board of Directors met 16
times, 15 times prior to the Merger, and once since the Merger. No director
attended fewer than 79% of the aggregate number of meetings of the Board and of
all committees on which he or she served. Directors meet their responsibilities
not only by attending Board and committee meetings, but also through
communication with executive management on matters affecting the Company.
Since the Merger, the Board of Directors established standing Audit and
Compensation Committees to aid it in the discharge of its responsibilities. The
members of each standing committee are elected by the Board each year for a
term of one year or until his or her successor is elected. The full Board acts
as a nominating committee. The Board will consider re-establishing certain
committees that were disbanded at the time of the Merger.
The Audit Committee, which since the Merger consists of Alan Seelenfreund,
Chairman, Gerald E. Mayo, James V. Napier and Jane E. Shaw, met three times
prior to the Merger and once since the
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Merger during the year ended March 31, 1999. The Audit Committee is responsible
for recommending to the Board the annual selection of the Company's independent
auditors, the scope of audit to be performed and the compensation to be paid
for such services; reviewing the audit results and the auditor's report and
related management letter, if any; reviewing and approving the audited
financial statements and recommending to the Board their inclusion in the
Company's Annual Report on Form 10-K; reviewing the engagement of the auditors
for services of a non-audit nature; consulting with the independent auditors,
the internal auditors and management on the adequacy of internal accounting
controls; reviewing procedures designed to implement the corporate code of
conduct and compliance with those procedures; directing and supervising
investigations into matters within the scope of the Committee's duties; and
performing other functions as may be necessary to discharge its duties, which
has included the matters arising out of the Company's restatement of its
financial results announced on April 28, 1999.
The Compensation Committee, which since the Merger consists of Alfred C. Eckert
III, Chairman, Tully M. Friedman, Alton F. Irby III and Carl E. Reichardt, met
twice prior to the Merger and once since the Merger during the year ended March
31, 1999. The Committee has responsibility for recommending to the Board a
compensation program for managerial level employees; advising the Board
regarding director compensation; administering the stock plans and certain
incentive plans and reviewing the administration of other incentive plans;
approving the selection of trustees and investment advisors and establishing
the overall investment policies for those funds that are part of the Company's
retirement program; reviewing and approving compensation and other terms and
conditions of employment for corporate officers at the Senior Vice President
level and above; recommending the factors and measures to be used to evaluate
the Co-President and Co-Chief Executive Officers' performance for the current
fiscal year and evaluating such performance with the other non-employee
directors; making recommendations to the Board regarding the compensation and
terms and conditions of employment of the Chairman of the Board and the Co-
President and Co-Chief Executive Officers and recommending their successors in
the event of a vacancy; and reviewing and monitoring management's succession
plans for officers.
Since the Merger, the full Board has acted as a nominating committee. The
Board, in evaluating candidates, seeks individuals of proven judgment and
competence who are outstanding in their chosen fields. It also considers
factors such as education, geographic location, anticipated participation in
Board activities and special talents or personal attributes. Stockholders who
wish to suggest qualified candidates to the Board should write to the Secretary
of the Company, at One Post Street, San Francisco, California 94104, stating in
detail the candidate's qualifications for consideration by the Board. A
stockholder who wishes to nominate a director must comply with certain
procedures set out in the Company's Restated By-Laws (see "Advance Notice
Procedures").
On June 21, 1999, the Company announced that the Board established an Ad Hoc
Committee consisting of Alan Seelenfreund, Chairman, Tully M. Friedman, Gerald
E. Mayo and Carl E. Reichardt to consult with, and provide counsel and guidance
to, senior management of the Company.
Compensation of Directors
Directors who are not employees of the Company 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 Company 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"),
8
<PAGE>
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 Company'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 directors in January each year at the same time 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 Company's 1989 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 Company's common
stock. For calendar year 1999, the ROs have a cash conversion value of $14.00
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.
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
into an interest-bearing cash account under the terms of the Company'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. The interest rate on DCAP II deferrals is determined
by the Compensation Committee each year based upon several related factors,
including the Company's cost of funds and tax bracket, the size and years of
deferrals, the number and ages of participants and mortality and turnover
patterns.
Under the 1997 Plan, and under the 1994 Plan (pursuant to which plan all non-
employee directors' options were granted prior to calendar year 1997), non-
employee directors are permitted to make an election whereby receipt and
taxation of the gain upon the exercise of stock options may be deferred,
provided the director uses the stock-for-stock method of exercise. Rather than
receiving a certificate for the option shares acquired at the time of exercise,
the shares are credited in the form of share units to a bookkeeping account
maintained by the Company and distributed according to the director's election.
Effective January 27, 1999, the Board of Directors amended the 1997 Plan to
delete the provision providing for the annual grant of 400 RSUs to each
Director on the date of the Annual Meeting each year. In addition, the annual
grant provision under the 1997 Plan was also amended to (i) eliminate the
initial grant of a nonqualified option to purchase 5,000 shares of common stock
to each director upon election to the Board, and subsequent annual grants of
1,500 shares on the date of the Annual Meeting each year to each director
continuing in office, and (ii) substitute instead an annual nonqualified option
grant to purchase 10,000 shares, automatically made to each director who is a
director as of the date of the Board of Directors meeting in January each year.
Any director elected to the Board later in the calendar year will receive an
automatic grant of a reduced number of option shares, prorated based on the
number of calendar quarters in which the director will serve as such during the
remainder of such year. All such options are granted at fair market value on
the effective date of grant, are immediately exercisable in full and have an
option term of ten years.
The 1997 Plan provides that upon the occurrence of a change in control of the
Company, all outstanding options become immediately exercisable and common
stock to be issued in respect of RSUs will be immediately distributed, unless
the director has made an irrevocable election to have the acceleration
provisions respecting RSUs waived. All current directors of the Company who
also served on the Board immediately prior to the Merger elected to waive such
acceleration provisions.
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
9
<PAGE>
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 Company (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 Company rather than
in a single sum. All current directors of the Company who also served on the
Board prior to the Merger had such elections on file. 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.
The Company has entered into indemnity agreements with each of its directors
that provides for indemnification against any judgment or costs assessed
against them in the course of their service as directors. Such agreements do
not permit indemnification for acts or omissions for which indemnification is
not permitted under Delaware law.
On March 25, 1998, the Company and Mr. Seelenfreund extended by mutual
agreement the term of the consulting agreement (the "Agreement") entered into
by them in March 1997 in connection with Mr. Seelenfreund's retirement in July
1997 as an executive officer and employee of the Company. Pursuant to the
Agreement, as extended, Mr. Seelenfreund was to continue to serve the Company
as non-executive Chairman of the Board and to render such consulting and
advisory services and perform such special assignments as may be requested by
the Board or the Chief Executive Officer until July 31, 1999. In connection
with the Merger, Mr. Seelenfreund resigned as Chairman of the Board (but
continued to serve as a non-employee director of the Company) and the Agreement
was terminated effective January 12, 1999. In consideration for his services
under the Agreement for the period July 31, 1998 to January 12, 1999, Mr.
Seelenfreund received a pro rata payment of his annual retainer of $250,000 and
an additional payment of $312,000, calculated on the same basis as if he had
continued to participate in the Company's Management Incentive Plan ("MIP") for
FY 1999. In addition, on January 27, 1999, Mr. Seelenfreund received a stock
option grant of 11,000 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 1999. In connection with his election as Chairman, and in consideration for
Mr. Seelenfreund's agreement to provide significant services to the Company,
including his guidance and support to the new senior management team, the Board
has authorized the Company to enter into an agreement with Mr. Seelenfreund for
a term of two years, that will provide for, among other things, an annual
payment of $500,000 per year, a MIP target of 100%, a grant of a nonqualified
option for 1 million shares of the Company's common stock, with a 2-year
vesting schedule, under certain circumstances, accelerated vesting of such
option upon early termination of the agreement and a gross-up payment to cover
excise taxes and interest imposed on "excess parachute payments" as defined in
Section 280G of the Internal Revenue Code of 1986, as amended (the "Code").
10
<PAGE>
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, which
consists exclusively of non-employee directors. The Committee relies on
independent executive compensation consultants and survey data to determine
competitive levels of executive compensation. 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 1999.
The Company's Philosophy of Executive Compensation
The overall objective of the Company's 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 total compensation
target at the 75th percentile. The program is designed to enhance stockholder
value by linking a large part of executive officers' compensation directly to
the Company's performance.
Many factors enter into the Committee's deliberations in the design of the
compensation plans and direct pay for executive officers of the Company. The
factors include the Company's performance as measured against targets approved
by the Committee; the individual performance of each executive officer; the
overall competitive environment for executives and the level of compensation
needed to attract and retain executive talent; compensation surveys supplied by
and the recommendations of independent executive compensation consultants
approved by the Committee and retained by the Company for this purpose.
The Committee has selected a group of comparator companies, with the help of
independent executive compensation consultants, to establish the parameters for
meeting the base salary and total compensation targets. As a result of the
Merger, the group of comparator companies was refined, and now represents a
cross-section of pharmaceutical, healthcare services and other nonmanufacturing
companies as well as information technology and software companies, based on a
number of factors including similarities to the Company in financial attributes
and size.
Components of Compensation
Base Salary
The Company's executive compensation program consists of base salary, a short-
term incentive plan and long-term incentives (stock options, stock purchases
and cash). Base salary is reviewed annually. Actual base salary is driven by
individual performance, competitive practices and level of responsibility.
Salary increases for FY 1999 reflect the Committee's determination that base
salary levels should be increased to recognize increased responsibilities, to
reward performance and to remain competitive.
Short Term Incentives
Under the Company's short-term incentive plan (the "Management Incentive Plan"
or "MIP"), individual target awards are set as a percentage of the executive's
base salary and vary by level of responsibility. The target awards are designed
to be competitive with those set for executive officers at companies in the
Company's executive compensation comparator group. Annual MIP awards can range
from zero to two times the executives' target awards and are determined by the
Company's and/or individual business unit's performance as compared to pre-
established income objectives. The actual awards to the named executives for FY
1999 have been reduced from the maximums established by the above procedure by
the Committee exercising "negative discretion" in accordance with regulations
under Section 162(m) of the Code with respect to this type of plan. Final
awards reflect the contribution the executive officer was judged to have made
to the Company's overall results.
11
<PAGE>
Prior to the Merger, HBOC had a short-term incentive plan similar in concept
and application to the Company's MIP, with award cycles based on a calendar
year. Individual target awards were set and varied by level of responsibility.
The target awards were designed to be competitive with those set for executive
officers at companies in HBOC's executive compensation comparator group. Annual
awards ranged from zero to two times the executives' target awards with final
award amounts driven entirely by HBOC's financial results as compared to pre-
established targets. Awards for calendar year 1998 were based on HBOC's
financial results for that period, and were paid in 1999. That plan was
modified by the Committee to establish a one-time plan year, from January
through March 1999. Messrs. McCall and Bergonzi did not receive awards for that
3-month period because pre-established income objectives for HBOC were not met.
Long Term Incentives
The Company's long-term incentive program has 3 components: a stock option
component, a stock purchase component and a cash component. Under the program
every 3 years:
. participants are granted nonqualified options to purchase shares of the
Company's common stock at fair market value;
. participants are offered the opportunity to purchase the Company's common
stock under the Stock Purchase Plan or the 1999 Executive Stock Purchase
Plan. The purchase price is equal to the fair market value of the stock
on the day the participant accepts the offer to purchase the shares. At
the same time, the Company makes a five-year, full recourse, interest-
bearing loan to the executive to purchase the stock;
. The Compensation Committee establishes a target award for each
participant under the Long-Term Incentive Plan (the "LTIP"), which cash
award is reduced if financial targets are not met.
The review of executive compensation conducted in mid-1998 established that the
market for seasoned executive talent had changed dramatically and compensation
elements had increased substantially. As a result, in July 1998, a grant of
premium-priced stock options was made to certain executives. Premium-priced
options are granted with an exercise price above the fair market value of the
stock at the time of grant and are subject to strict forfeiture provisions. The
primary purpose of these options is to strongly motivate executive officers to
achieve outstanding returns for the Company's stockholders. Unlike fair market
value options (under which the executive receives compensation from any
increase in stock value after the date of grant) premium-priced options are
designed so that an executive receives no compensation until the value of the
stock exceeds the above-market exercise price. Thus stockholders will receive
significant appreciation in their investment in the Company before executives
can realize any gains on their premium priced options. The options were granted
with exercise prices set at 33%, 66% and 100% premiums above the average fair
market value for the 30 trading days preceding the date of grant, or $90.9332
per share, $113.4955 per share and $136.7416 per share, respectively. The
Merger resulted in a change in control (see "Change in Control" at page 26),
and thus these options have vested and are no longer subject to forfeiture.
Under the Company's LTIP, which was amended in 1997 principally to comply with
Section 162(m) of the Code, awards to named executive officers had been granted
for the period April 1, 1996 though March 31, 1999, which awards are reflected
in the Summary Compensation Table.
Policy Regarding Tax Deduction for Compensation Under Internal Revenue Code
Section 162(m)
Section 162(m) of the Code limits the Company's tax deduction to $1 million for
compensation paid to certain executive officers named in the proxy statement
unless the compensation is "performance-based" within the meaning of Section
162(m). The Committee's intention is and has been to comply with the
requirements of Section 162(m) unless the Committee concludes that such
compliance would not be in the best interest of the Company or its
stockholders.
12
<PAGE>
As noted above, the Merger was deemed to be a "change in control" under many of
the Company's executive compensation programs. As a result, under the Long-Term
Incentive Plan, awards granted in January and July, 1997 became payable. The
awards, when granted, were performance based and so in the normal course
payments would have been exempt from Section 162(m). However, regulations under
Section 162(m) specifically remove the "performance based compensation"
protections from amounts paid on an accelerated basis, so LTIP payments which
together with base salary exceed $1 million will not be deductible to the
Company.
The McKessonHBOC 1994 Stock Option and Restricted Stock Plan (the "1994 Plan")
restricts the maximum number of stock options that can be granted to an
individual in any year to 600,000 shares. The Committee concluded that
complying with this restriction in FY 1999, was not in the best interest of the
Company or its stockholders. The much larger and more complex company that
emerged from the Merger supports incentive compensation levels for named
executives beyond the limits imposed under the 1994 Plan. The reorganization
into three business units has increased the responsibilities of the business
unit heads. The Company faces a unique challenge to retain key employees from
both McKesson and HBOC and to foster a unified vision for the future. The
Committee concluded that it was appropriate to make grants of options beyond
the limit imposed, and outside the structure of the 1994 Plan. These grants are
displayed in the table entitled "Option/SAR Grants in the Last Fiscal Year" on
page 15.
Compensation of the Chief Executive Officer
Mark A. Pulido resigned from the Company effective July 15, 1999. Mr. Pulido's
base salary of $850,000 for FY 1999 was established by the Board in April 1998
following a review of his performance for FY 1998. Goals were established at
that time for FY 1999, which included specific targets for economic measures
such as earnings per share, revenue growth, efficiency gain, strategy
fulfillment and innovation, while qualitative measures were established for
organization development, and communication with investors and employees. The
Merger constituted a "change in control" under the terms of the LTIP which
resulted in accelerated payments to Mr. Pulido of $6,000,000 during FY 1999. He
also received a pro rata cash award of $189,000 under the LTIP for the four-
year period ended March 31, 1999. Also during FY 1999, he was awarded options
for 3,660,000 shares of common stock, 600,000 of which are premium-priced
options, as described above. On March 26, 1999, the Company and Mr. Pulido
entered into an Amended and Restated Employment Agreement (the "Agreement"), as
more fully described under "Employment Agreements." In accordance with the
terms of the Agreement, Mr. Pulido received a payment under the MIP for FY 1999
in the amount of $722,500. Future payments to Mr. Pulido will be paid in
accordance with the terms of the Agreement.
The Compensation Committee
Alfred C. Eckert III, Chairman
Tully M. Friedman
Alton F. Irby III
Carl E. Reichardt
Executive Compensation
Note: In the tables that follow, information is presented as to the stock
ownership of certain executive officers. The Merger, which was accounted for as
a pooling of interests, constituted a "change in control" under the Company's
equity-based incentive plans (see "Change in Control" at page 26), which would
have caused the acceleration of vesting for stock options and restricted stock.
However, for certain tax and accounting reasons, such acceleration was
generally postponed until the end of the pooling period, which occurred on
April 22, 1999. This information has been reflected in footnotes, as
appropriate.
13
<PAGE>
The following table discloses compensation earned by the Chief Executive
Officer and the four other most highly paid executive officers (the "Named
Executive Officers") for the three fiscal years ended March 31, 1999:
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------------- -----------------------------------------
Awards Payouts
--------------------- -------------------
Other Securities
Annual Restricted Underlying All Other
Compen- Stock Options/ LTIP Compen-
Salary Bonus sation Award(s) SARs Payouts sation
Name and Principal Position Year ($) ($)(1) ($)(2) ($)(3) (#)(4) ($)(5) ($)(6)
- --------------------------- ---- ------- --------- ------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Charles W. McCall(7) 1999 708,333 1,365,989 -- -- 2,000,000 -- 4,334
Chairman of the Board
Mark A. Pulido(7) 1999 850,000 -- -- -- 3,660,000 6,189,000 525,972
President and Chief 1998 700,000 1,550,000 61,887 -- 370,000 186,000 129,558
Executive Officer 1997 437,500 700,000 333,654 910,000 720,000 196,500 27,450
Albert J. Bergonzi(7) 1999 453,333 816,660 -- -- 1,000,000 -- --
Executive Vice
President, President and
Chief Executive Officer,
Information Technology
Business
John H. Hammergren(7) 1999 420,000 622,100 76,992 -- 1,219,850 1,566,150 1,676,275
Executive Vice 1998 401,667 396,006 73,733 -- 109,666 43,400 29,434
President, President and 1997 350,000 295,000 478,739 -- 84,000 22,925 9,148
Chief Executive Officer,
Supply Management
Business
David L. Mahoney(7) 1999 400,000 504,990 -- -- 1,215,715 1,566,780 1,655,424
Executive Vice 1998 358,333 353,900 93,312 -- 106,900 62,000 38,453
President, President and 1997 306,250 195,000 -- -- 84,000 58,950 31,186
Chief Executive Officer,
Pharmaceutical Services
Business
</TABLE>
- --------
(1) Represents the portion of the Named Executive Officers' bonus award for FY
1999 under the MIP that was either paid in cash or deferred at the
executives' election under DCAP II except for Messrs. McCall and Bergonzi
whose bonus awards were paid by HBOC prior to the Merger pursuant to the
HBOC short term incentive plan.
(2) Except as noted, the dollar value of perquisites and other personal
benefits for each Named Executive Officer during FY 1999 was less than
established reporting thresholds. Other Annual Compensation for FY 1999
includes 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 28.
(3) No restricted stock awards were made in FY 1999 to any Named Executive
Officers. The number and value of the aggregate restricted stock holdings
of the named executive officers on March 31, 1999 (based on the closing
price for the Company's common stock of $66.00) were as follows: Mr.
Pulido, 40,000 shares and $2,640,000; Mr. McCall, 0 shares and $0; Mr.
Bergonzi, 0 shares and $0; Mr. Hammergren, 40,000 shares and $2,640,000;
Mr. Mahoney, 0 shares and $0. Following the Merger, restrictions on the
shares of restricted stock previously granted to Mr. Pulido were removed in
accordance with the "change in control" provisions of the 1994 Plan. See
"Note" above. The restrictions on Mr. Hammergren's restricted stock will
lapse in January 2000.
(4) For FY 1999, includes shares granted on January 27, 1999, to the Named
Executive Officers under the 1994 Plan pursuant to such persons'
irrevocable election to receive a stock option grant in lieu of all or a
portion of their respective bonus awards, if any, for FY 1999 under the
MIP; Mr. Pulido, 60,000, Mr. Hammergren, 19,850 and Mr. Mahoney
15,715. Options granted to Messrs. McCall and Bergonzi in FY 1999 were
cancelled upon their dismissals.
(5) Includes for FY 1999 accelerated payments under the LTIP resulting from the
Merger, which constituted a "change in control" under the terms of the
LTIP.
(6) For FY 1999, includes the aggregate value of (i) the Company's stock
contributions under the PSIP, a plan designed to qualify as an employee
stock ownership plan under the Code, allocated to the accounts of the Named
Executive Officers as follows: Mr. Pulido, $17,018; Mr. Hammergren,
$15,418; Mr. Mahoney, $17,136; (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, $500,765, Mr. Hammergren, $134,814, Mr. Mahoney,
$125,288, Mr. McCall,
14
<PAGE>
$0, Mr. Bergonzi, $0, and (iii) above market interest accrued on deferred
compensation for the following executive officers: Mr. Pulido, $8,189, Mr.
Hammergren, $26,044 and Mr. Mahoney, $13,000. Amounts for Messrs. Hammergren
and Mahoney include for each a $1.5 million retention payment, 50% of which
is to be repaid if he voluntarily resigns from the Company within 12 months
following the execution of his employment agreement. In FY 1999, HBOC paid
the annual premium in the amount of $4,334 on a $1,000,000 term life
insurance policy for the benefit of Mr. McCall and his family.
(7) Charles W. McCall and Albert J. Bergonzi became executive officers of the
Company at the time of the Merger. On June 21, 1999, the Company announced
that Mr. McCall had been removed as Chairman of the Board and dismissed as
an employee and that Mr. Bergonzi had been dismissed as an employee for
cause. Mr. Pulido resigned from the Company and Messrs. Hammergren and
Mahoney were named Co-Presidents and Co-Chief Executive Officers effective
July 15, 1999 (see "General Information" above).
The following table provides information on stock option grants during FY 1999
to the Named Executive Officers:
Option/SAR Grants in the Last Fiscal Year
<TABLE>
<CAPTION>
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or Grant Date
Options Employees in Base Price Expiration Present Value
Name Granted (#)(1) Fiscal 1999 ($/Sh) Date ($)(#)(2)
---- -------------- ------------ ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Charles W. McCall....... 600,000(3)(4) 3.88 73.00 01/26/2009 13,603,380
1,400,000(3)(4) 9.06 73.00 01/26/2009 31,741,220
Mark A. Pulido.......... 200,000(5) 1.29 90.9332 05/28/2008 4,256,180
200,000(5) 1.29 113.4955 05/28/2008 3,128,060
200,000(5) 1.29 136.7416 05/28/2008 2,306,360
60,000(6) 0.39 73.00 01/26/2009 1,360,338
600,000(3) 3.88 73.00 01/26/2009 13,603,380
2,400,000(3) 15.53 73.00 01/26/2009 54,413,520
Albert J. Bergonzi...... 600,000(3)(4) 3.88 73.00 01/26/2009 13,603,380
400,000(3)(4) 2.59 73.00 01/26/2009 9,068,920
John H. Hammergren...... 66,666(5) 0.43 90.9332 05/28/2008 1,418,712
66,667(5) 0.43 113.4955 05/28/2008 1,042,692
66,667(5) 0.43 136.7416 05/28/2008 768,791
19,850(6) 0.13 73.00 01/26/2009 450,045
600,000(3) 3.88 73.00 01/26/2009 13,603,380
400,000(3) 2.59 73.00 01/26/2009 9,068,920
David L. Mahoney........ 66,666(5) 0.43 90.9332 05/28/2008 1,418,712
66,667(5) 0.43 113.4955 05/28/2008 1,042,692
66,667(5) 0.43 136.7416 05/28/2008 768,791
15,715(6) 0.10 73.00 01/26/2009 356,295
600,000(3) 3.88 73.00 01/26/2009 13,603,380
400,000(3) 2.59 73.00 01/26/2009 9,068,920
</TABLE>
- --------
(1) No options were granted with stock appreciation rights ("SARs") and no
freestanding SARs have ever been granted. Optionees may satisfy the
exercise price by submitting currently owned shares and/or cash. Income tax
withholding obligations may be satisfied by electing to have the Company
withhold shares otherwise issuable under the option with a fair market
value equal to such obligations. As a result of the change in control at
the time of the Merger, all of the options granted by the Company prior to
the Merger and reflected in this table became immediately exercisable
except for those options granted to Mr. Hammergren who executed a waiver
for tax reasons. See Note under the heading "Executive Compensation" above.
In the case of the other Named Executives Officers, they could not engage
in any transactions related to their options until after the pooling period
had elapsed.
(2) In accordance with Securities and Exchange Commission ("SEC") rules, a
modified Black-Scholes option pricing model was chosen to estimate the
grant date present value for the options set forth in this table. The
assumptions used in
15
<PAGE>
calculating the reported value included: an option term of 5 years and a
dividend yield of 1.5%; stock volatility, 31.4% and risk-free interest rate,
4.8%. The Company does not believe that the Black-Scholes model, or any other
model, can accurately determine the value of an option. Accordingly, there is
no assurance that the value, if any, realized by an executive, will be at or
near this value estimated by the Black-Scholes model. Future compensation
resulting from option grants is based solely on the performance of the
Company's stock price.
(3) The option exercise price of the indicated options was 100% of the fair
market value on the date of grant. The options become exercisable in
installments of 50% on the second anniversary of the date of grant, and 25%
on each of the third and fourth anniversaries of the date of grant and
expire ten years after the date of the grant.
(4) As a result of their dismissals as employees, those options granted to
Messrs. McCall and Bergonzi in FY 1999 were cancelled. None of these
options was exercisable prior to its cancellation.
(5) The indicated options are premium-priced stock options with an option term
of ten years from the date of grant, which options vested following the
"change in control" resulting from the Merger.
(6) The indicated stock options were granted to the Named Executive Officers
pursuant to such persons' 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 1999 under the MIP. The number of options granted was
determined by dividing the amount of the bonus deferral by the cash
conversion value of $14.00 per share. The conversion value is set each
November for the following calendar year and is based on the discounted
Black-Scholes valuation of the Company's common stock. The option exercise
price was 100% of the fair market value on the date of grant. The options
become fully exercisable on the first anniversary of the date of grant and
expire ten years after the date of the grant.
The following table provides information on the value of each of the Named
Executive Officers' Options at March 31, 1999:
Aggregated Option/SAR Exercises in the Last Fiscal Year
and Fiscal Year-End Option/SAR Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In the Money Options/
Shares Options/SARs at SARs at
Acquired Value March 31, 1999 (#) March 31, 1999 ($)(2)
on Exercise Realized ------------------------- -------------------------
Name (#) ($)(1) Exercisable/Unexercisable Exercisable/Unexercisable
---- ----------- --------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Charles W. McCall....... 155,400 4,046,486 148,000/3,036,000(3) 0/11,094,080
Mark A. Pulido.......... 0 0 250,000/4,500,000(4) 9,431,250/28,019,984
Albert J. Bergonzi...... 44,400 2,541,660 140,896/1,544,640(3) 3,220,220/11,777,544
John H. Hammergren...... 0 0 85,666/1,407,850(4) 2,861,031/ 5,904,621
David L. Mahoney........ 0 0 368,600/1,391,215(4) 19,821,679/ 5,392,121
</TABLE>
- --------
(1) Fair market value of securities underlying options on the date of exercise
minus the exercise price.
(2) Calculated based upon the fair market value share price of $66.00 on March
31, 1999, 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. As of July 12, 1999 the closing price of the Company's common stock
was $32.875.
(3) The number of options indicated as exercisable and unexercisable for
Messrs. McCall and Bergonzi was adjusted following their dismissals as
employees of the Company. For Mr. McCall, the options exercisable and
unexercisable as of June 18, 1999, were 1,184,000 and 0, respectively; and
for Mr. Bergonzi, 685,000 and 0, respectively. All options granted to them
by the Company subsequent to the Merger were cancelled. Pursuant to the
"change in control" provisions of the HBOC option plans under which their
options were granted prior to the Merger, the vesting of such options
generally accelerates so that they become immediately exercisable as of the
date of termination of employment, and remain available for exercise for
the full terms of the original option grants. The table above reflects this
treatment.
(4) As explained in the Note above under the heading "Executive Compensation,"
the vesting of options granted to Messrs. Pulido, Hammergren and Mahoney
prior to January 1999 accelerated at the end of the pooling period on April
22, 1999 (except for 172,850 options granted to Mr. Hammergren, as to which
he waived acceleration). Accordingly, as of April 22, 1999, the options
exercisable and unexercisable were as follows: Mr. Pulido, 1,690,000 and
3,060,000; Mr. Hammergren, 300,816 and 1,192,700; and Mr. Mahoney, 744,100
and 1,015,715. Mr. Pulido's options will continue to vest through March 31,
2004 pursuant to the terms of his employment agreement, as more fully
described under "Employment Agreements" begining on page 23.
16
<PAGE>
Long-Term Incentive Plan Awards in the Last Fiscal Year
<TABLE>
<CAPTION>
Estimated Future Payouts Under Estimated Future Payouts Under
Performance or Non-Stock Price-Based Plans(1) Performance or Non-Stock Price-Based Plans(1)
Other Period -------------------------------- Other Period --------------------------------
Until Maturation Threshold Target Maximum Until Maturation Threshold Target Maximum
Name or Payout ($) ($) ($) or Payout ($) ($) ($)
---- ---------------- --------------------- ---------- ---------------- --------------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Charles W. McCall.... Three years 0 0 0 Five years 0 0 0
Mark A. Pulido....... Three years 1,250,000 5,000,000 5,000,000 Five years 1,250,000 5,000,000 5,000,000
Albert J. Bergonzi... Three years 1,250,000 5,000,000 5,000,000 Five years 1,250,000 5,000,000 5,000,000
John H. Hammergren... Three years 1,250,000 5,000,000 5,000,000 Five years 1,250,000 5,000,000 5,000,000
David L. Mahoney..... Three years 1,250,000 5,000,000 5,000,000 Five years 1,250,000 5,000,000 5,000,000
</TABLE>
- --------
(1) The table above represents potential payouts of cash awards, if earned,
upon completion of the three and five-year incentive periods beginning
January 27, 1999 and ending January 27, 2003. Twenty-five percent of the
amounts shown in the Maximum column will be paid on the completion of three
and five years of service. Any payment in excess of 25% of the maximum is
performance-based and will be contingent upon the Company's Total
Shareholder Return ("TSR"), performance percentile at the end of the
performance period as defined in the LTIP. One hundred percent of the
maximum amount will be paid if the average TSR for the performance period
is at or above the 75th percentile of the S&P 500 without the financial
institutions. Lower awards will be paid for lower performance. No awards
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 Company's TSR return for the five-
year period ended March 31, 1999. In the case of Mr. Bergonzi, this award
was cancelled upon his dismissal.
17
<PAGE>
Stock Price Performance Graph
The following graph compares the cumulative total stockholder return* on the
Company's common stock beginning on November 21, 1994, when the Company
completed the PCS Transaction,** and for the periods indicated with the
Standard & Poor's 500 Index and the Value Line Health Care Sector Index
(composed of 107 companies in the health care industry, including the Company).
The stock price performance depicted in the performance graph (i) is not
necessarily indicative of future price performance and (ii) does not reflect
the price of the Company's common stock following its April 28, 1999
announcement that it would restate its financial results for the fourth quarter
and fiscal year ended March 31, 1999. The closing price for the Company's
common stock on March 31, 1999 was $66.00; and on April 28, 1999 it was $34.50.
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
11/21/94 03/31/95 03/31/96 03/31/97 03/31/98 03/31/99
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
McKessonHBOC............. $100.00 $134.69 $174.59 $222.29 $405.46 $466.01
S&P 500 Index............ $100.00 $111.35 $147.13 $176.47 $261.38 $309.16
Value Line HealthCare
Index................... $100.00 $113.49 $164.37 $200.15 $316.32 $393.72
</TABLE>
- --------
* Assumes $100 invested in the Company's common stock and in each index on
November 21, 1994 and that all dividends are reinvested.
** The Company 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 Company 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 Company's common stock for
each share of Old McKesson common stock outstanding as of November 19, 1994.
The Company had no material assets, operations or activities prior to
November 21, 1994. After that date, the Company has continued the businesses
of Old McKesson, other than the PCS Business, on an uninterrupted basis.
18
<PAGE>
2. Approval of the McKesson HBOC, Inc. Employee Stock Purchase Plan
The Board of Directors Recommends a Vote FOR the Plan
The McKesson HBOC, Inc. 1998 Employee Stock Purchase Plan (the "Employee Stock
Purchase Plan") is being submitted for approval by the Company's stockholders
at the 1999 Annual Meeting, to permit participation in the plan by certain
employees of the Company and its subsidiaries who are not currently eligible to
participate.
The Employee Stock Purchase Plan is designed to provide employees, including
officers, with an opportunity to purchase shares of the Company's common stock
on favorable terms by means of an automatic payroll deduction mechanism. The
Employee Stock Purchase Plan is intended to qualify under Section 423 of the
Code.
The Employee Stock Purchase Plan, which was assumed by the Company in the
Merger, was originally adopted by the HBOC Board of Directors on November 11,
1997, and was approved by the HBOC stockholders on May 12, 1998. Since the
Merger, employees of HBOC and its subsidiaries have continued to participate in
the plan, but other employees of the Company and its subsidiaries have been
excluded from participation by the terms of the plan.
The Company's Board of Directors has amended the Employee Stock Purchase Plan
to permit participation by substantially all employees of the Company. To
reflect such increased participation, the Board of Directors has also approved
an increase in the number of shares of common stock reserved for issuance under
the plan from 1,100,000 to 6,100,000 (subject to adjustment for any stock
split, stock dividend or other relevant change in the Company's
capitalization). These changes are subject to stockholder approval. The Board
has also made a number of technical amendments with regard to administration of
the Employee Stock Purchase Plan.
A vote in favor of the Employee Stock Purchase Plan will permit participation
in the plan by certain employees of the Company and its subsidiaries who are
not currently eligible to participate, and increase the number of shares
available for purchase under the plan. A vote not to approve the Employee Stock
Purchase Plan will mean that only employees of HBOC and its subsidiaries will
continue to participate in the plan, and that the number of shares reserved for
issuance under the plan will remain at 1,100,000.
The following summary of the Employee Stock Purchase Plan is qualified by
reference to the full text of the Employee Stock Purchase Plan, a copy of which
is attached as Appendix A.
Plan Administration; Eligible Employees
The Employee Stock Purchase Plan is administered by the Compensation Committee
of the Board, which has the authority to make rules and regulations governing
the plan. Committee members will in general be indemnified by the Company with
respect to the plan.
Substantially all employees of the Company who work at least 20 hours per week
and more than five (5) months in any calendar year will be eligible to
participate in the plan. As of June 1, 1999 approximately 7,940 employees of
HBOC and its subsidiaries were eligible to participate in the Employee Stock
Purchase Plan, and 3,142 employees had elected to participate. If the Employee
Stock Purchase Plan is approved by the stockholders, an additional 23,000
employees of the Company would become eligible to participate in the plan.
19
<PAGE>
Purchase Periods; Payroll Deductions; Purchase Price
The Employee Stock Purchase Plan will generally be implemented by a series of
year-long offerings (each one a "Purchase Period") beginning on April 1st of
each calendar year (the "Offering Date"). Certain adjustments with respect to
the Purchase Period have been made in connection with the Merger, and if the
Employee Stock Purchase Plan is approved by stockholders, a new Purchase Period
will begin shortly following the date of the 1999 Annual Meeting, in order that
newly-eligible employees may begin participating in the plan.
Each eligible employee may become a participant in the Employee Stock Purchase
Plan by making an election, prior to any Offering Date, authorizing regular
payroll deductions during the following Purchase Period, the amount of which
may not exceed 10% of a participant's compensation for any payroll period and
certain other limitations imposed by the Code.
Payroll deductions are credited to a cash account for each participant. At the
end of each Purchase Period, the funds in each cash account will be used to
purchase shares of the Company's common stock, which are then held in a stock
account. A participant has the right to vote the shares credited to his or her
stock account, and may withdraw these shares at any time.
The purchase price of each share of the Company's common stock will be the
lesser of (i) 85% of the fair market value of the Company's common stock on the
first day of the Purchase Period, or (ii) 85% of the fair market value of the
Company's common stock on the last day of the Purchase Period. The purchase
price is subject to adjustment to reflect certain changes in the Company's
capitalization.
Effect of Termination of Employment of Participant
If a participant terminates employment with the Company and its subsidiaries
during a Purchase Period, the balance of the participant's cash account will
either be returned to the participant or held in the cash account until the end
of the Purchase Period and applied to purchase the Company's common stock.
Non-Transferability of Purchase Rights
Rights to acquire the Company's common stock under the Employee Stock Purchase
Plan are not transferable by any participant and may in general be exercised
only by the participant.
Amendment; Termination of Plan
The Board may amend the Employee Stock Purchase Plan in any respect. However,
any amendment increasing the number of shares of the Company's common stock
reserved under the plan or changing the designated class of employees eligible
to participate in the plan must be approved by the stockholders of the Company.
The Employee Stock Purchase Plan will terminate when the number of shares
available for issuance under the plan has been substantially exhausted, or at
any earlier time by action of the Board.
New Plan Benefits
Because levels of participation and the eventual purchase prices are not
presently known, the future benefits to be received by any person under the
Employee Stock Purchase Plan are not determinable at this time.
20
<PAGE>
Certain Federal Income Tax Effects
The following discussion is for general information only and is based on the
Federal income tax laws now in effect, which are subject to change, possibly
retroactively.
The Employee Stock Purchase Plan is intended to qualify as an "employee stock
purchase plan" under Section 423 of the Code. As a result, a participant will
pay no Federal income tax upon enrolling in the Employee Stock Purchase Plan or
upon purchase of shares under the plan. A participant may recognize income
and/or capital gain or loss upon the sale or other disposition of shares
purchased under the plan, the amount and character of which will depend on
whether the shares are held for at least one year after the last day of the
Purchase Period in which the shares were purchased (the "Required Holding
Period").
If the participant sells or otherwise disposes of the shares before expiration
of the Required Holding Period, the participant will recognize ordinary income
in the year of the sale in an amount equal to the excess of (i) the fair market
value of the shares on the purchase date over (ii) the purchase price paid by
the participant for the shares. The Company will be entitled to a Federal
income tax deduction in the same amount.
In contrast, if the participant holds the shares until after the Required
Holding Period expires, the participant will generally recognize ordinary
income at the time of sale in an amount equal to the lesser of (i) 15 percent
of the fair market value of the shares on the first day of the Purchase Period
in which the shares were purchased, or (ii) the excess of the fair market value
of the shares at the time the shares were sold over the purchase price of the
shares. The Company will not in this case be entitled to any deduction for
Federal income tax purposes.
Net capital gain (i.e., generally, capital gain in excess of capital losses)
recognized by the participant from the sale of shares that have been held for
more than 12 months will generally be subject to tax at a rate not to exceed
20%. Net capital gain recognized from the sale of shares held for 12 months or
less will be subject to tax at ordinary income rates.
3. Proposal to Amend the McKesson HBOC, Inc. Stock Purchase Plan
The Board of Directors Recommends a Vote FOR the Amendment to the Stock
Purchase Plan
On April 26, 1999, the Board of Directors, subject to approval of the Company's
stockholders, amended the McKesson HBOC, Inc. Stock Purchase Plan (the "SPP")
to make available for purchase thereunder an additional 2,500,000 shares of the
Company's common stock. The SPP was (i) originally approved by the stockholders
of the Company's predecessor in 1973, (ii) amended with stockholder approval in
1974 to add 400,000 additional shares to the SPP, (iii) assumed by the Company
in November 1994 and (iv) amended and restated with stockholder approval in
1997, among other things to add 450,000 shares to the SPP. The SPP provides for
the grant to designated key employees of rights to purchase shares of the
Company's common stock at a price equal to its closing price on the New York
Stock Exchange on the date the right is exercised.
Administration
The SPP is administered by the Committee consisting of not less than two
directors of the Company appointed by the Board, each of whom is a "non-
employee director" within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934, as amended (the "Act"). The Committee has the right to
interpret the SPP and make final and binding determinations in connection with
the SPP.
21
<PAGE>
Eligibility
Rights may be granted under the SPP to those key employees of the Company
designated from time to time by the Committee. No member of the Committee is
eligible to receive benefits under the SPP.
Stock Subject to the Plan
As of June 30, 1999, 10,200 shares remained available for issuance pursuant to
future grants of rights to purchase the Company's common stock under the SPP.
Approval of the proposed amendment to the SPP would make an additional
2,500,000 shares available for issuance pursuant to future grants under the
SPP.
Terms and Conditions of the Purchase Rights; Purchase Price
The purchase price of the Company common stock subject to rights granted under
the SPP will be not less than the fair market value of the Company common stock
on the date the right is exercised, which for purposes of the SPP is the
closing price of the Company common stock on the New York Stock Exchange
(NYSE). Each person granted a right to purchase Company common stock under the
SPP will have at most thirty days in which to exercise the purchase right.
Purchases will be evidenced by a written Stock Purchase Agreement, on terms and
conditions established by the Committee, which may provide for the payment of
the purchase price (i) in cash, (ii) entirely by a promissory note or (iii) by
any combination of cash and promissory note. Stock purchased by an employee
under the SPP will be pledged to the Company as collateral for the purchase
loan upon terms and conditions set forth in the Stock Purchase Agreement.
Voting and Dividend Rights
Shares purchased under the SPP are entitled to voting, dividend and other
rights of holders of shares of the Company's common stock.
Amendment and Termination
The Board of Directors may at any time suspend, terminate or amend the SPP as
it may deem advisable.
Change In Control
In the event of a change in control of the Company, the shares being held as
collateral against outstanding SPP loans will be released from all transfer and
pledge restrictions and the remaining balances due under the promissory notes
will become due and payable within a limited period of time following the
change in control.
New Plan Benefits
It has not yet been determined which executives will be granted awards under
the SPP if the proposed amendment to add 2,500,000 shares to the SPP is
approved by stockholders. In FY 1999, the most recent year in which awards were
made under the SPP, the following awards were made:
<TABLE>
<CAPTION>
Dollar Value
Number of on Date
Name Shares of Purchase
---- --------- ------------
<S> <C> <C>
Charles W. McCall....................................... 0 --
Mark A. Pulido.......................................... 0 --
Albert J. Bergonzi...................................... 0 --
John H. Hammergren...................................... 0 --
David L. Mahoney........................................ 0 --
Executive Officer Group (8 persons, including those
named above)........................................... 20,000 $ 1,276,350
Non-Executive Officer Group (63 persons)................ 540,000 34,458,750
</TABLE>
22
<PAGE>
The consideration for each purchase was an initial cash payment of the $.01 per
share par value of the common stock plus delivery of a full recourse promissory
note for the balance of the purchase price, bearing interest at an annual rate
of 4.7%, and payable in full on February 5, 2004, subject to the terms of the
SPP and a Stock Purchase Agreement entered into between the Company and the
purchaser.
Any stockholder may obtain a copy of the current SPP by writing to the
Secretary of the Company, One Post Street, San Francisco, California 94104.
Employment Agreements, Executive Severance Policy and Termination of Employment
and Change in Control Arrangements
Employment Agreements
The Company has entered into an employment agreement ("Agreement") with each of
Messrs. Pulido, Bergonzi, Hammergren and Mahoney, but not with Mr. McCall, that
provides for, among other things, the term of employment, compensation and
benefits payable during the term of the Agreement as well as for specified
payments in case of termination of employment. The term of each Agreement is
until March 31, 2003, except for Mr. Pulido's Agreement which runs until
March 31, 2004. In each case, the Agreement provides that the executive will
participate in all compensation and fringe benefit programs made available to
all executive officers.
The Company may terminate any of the executives, under the terms of their
respective Agreements, for "Cause" (as defined in each Agreement) in which case
the Company's obligations under the Agreements cease.
Mr. Bergonzi's Agreement provided for an annual base salary of at least
$580,000, and a retention payment of $6 million, 50% of which was to have been
repaid upon his voluntary resignation from the Company within 12 months from
the effective time of the Merger. He had been granted an LTIP award of $10
million payable, if earned, 50% at the end of three years, and 50% at the end
of five years, which amounts would have been reduced accordingly had financial
targets not been met. He was granted a nonqualified option for 1 million shares
of the Company's common stock and he purchased 100,000 shares of the Company's
common stock under the 1999 Executive Stock Purchase Plan. Mr. Bergonzi was
dismissed as an employee for cause on June 18, 1999. Accordingly, the Company's
obligations under his Agreement ceased on that date, he did not receive a
retention payment and his awards under his Agreement have been cancelled.
Messrs. Hammergren's and Mahoney's Agreements provide for an annual base salary
of at least $500,000 and a retention payment of $1.5 million, 50% of which is
to be repaid if either such executive voluntarily resigns from the Company
within 12 months following the execution of the Agreement. Each of Messrs.
Hammergren and Mahoney will be granted incentive compensation, if any, as
determined by the Compensation Committee. Each has been granted an LTIP award
of $10 million payable, if earned, 50% at the end of three years, and 50% at
the end of five years, which amounts will reduced accordingly if financial
targets are not met. Each was granted a nonqualified option for 1 million
shares of the Company's common stock and each purchased 100,000 shares of the
Company's common stock under the 1999 Executive Stock Purchase Plan (see
"Indebtedness of Executive Officers" on page 28).
Mr. Pulido's Agreement provides for an annual base salary of at least $850,000
and such additional incentive compensation, if any, as may be determined by the
Board of Directors. For fiscal year 1999, any incentive compensation awarded to
Mr. Pulido under the Company's MIP shall be calculated using an Individual
Target Award of 85% of his base salary. For fiscal year 2000 and thereafter any
incentive compensation awarded to Mr. Pulido under the Company's MIP will be
23
<PAGE>
calculated using an Individual Target Award of 100% of his base salary for the
applicable year. Mr. Pulido has resigned from the Company effective July 15,
1999. As a result, in addition to his base salary and any incentive
compensation, pursuant to his Agreement, the Company will continue Mr. Pulido's
participation in "DCAP II" and his automobile allowance until March 31, 2004,
the accrual and vesting of his rights and benefits under the Executive Survivor
Benefits Plan ("ESBP") and Executive Benefit Retirement Plan ("EBRP"), and with
respect to these two plans, calculated on the basis of his receiving (i)
Approved Retirement commencing on the expiration of his Agreement and (ii) with
respect to the EBRP, a benefit calculated on the basis of the greater of 60% or
the maximum percentage of Average Final Compensation then specified in the EBRP
without any reduction for early retirement (see "Pension Benefits"), continue
the vesting of all awards under the Company's Stock Option and Restricted Stock
Plans and LTIP until March 31, 2004, and provide him with lifetime coverage
under the Company's Executive Medical Plan and financial counseling program,
office space and secretarial support.
In the event any executive is prevented from performing his duties under his
respective Agreement due to a disability, the Company shall continue to pay the
current salary during the period of disability, provided however that if the
executive is continuously disabled for more than 12 months, the Company's
obligations under the Agreement cease. In the event of death of the executive
during the term of the Agreement, his salary will continue to be paid to his
surviving spouse for six months following the death and thereafter the
Company's obligations under the Agreement cease.
The Company may terminate Messrs. Hammergren and Mahoney other than for "Cause"
or each such executive may terminate for "Good Reason" under the terms of their
respective Agreements (each as defined in each Agreement), in which case the
Company's obligations generally will continue for the remainder of the term of
the Agreement in lieu of any benefits payable under the Executive Severance
Policy so long as payments and benefits equal or exceed those under that
Policy; stock options granted prior to January 1, 1999 will continue to vest
according to their original vesting schedule and options granted after January
1, 1999 will be cancelled. Continuing salary payments made under the Agreement
are reduced by any compensation received from a subsequent employer. If either
of Messrs. Hammergren or Mahoney voluntarily terminates his employment other
than for "Good Reason" prior to the expiration of his Employment Agreement, the
Company is under no obligation to make any additional payments or provide any
benefits to either executive.
Mr. Bergonzi agreed not to become associated with any business competing with
the Company or any affiliated company for a period of one-year following his
termination of employment. Each executive agreed not to solicit employees or
customers of the Company following his termination of employment.
The Company anticipates entering into new employment agreements with Messrs.
Hammergren and Mahoney reflecting their new positions and increased
responsibilities as of July 15, 1999. The Board of Directors has authorized the
following terms for these agreements. The term of the agreements is until March
31, 2004, and will be automatically extended by one year on March 31, 2004, and
thereafter, unless either party gives notice that the term will not be
extended. Each agreement will provide for, among other things, an annual base
salary of at least $750,000 and additional incentive compensation, if any, as
may be determined by the Board of Directors. Any incentive compensation awarded
to either executive under the Company's MIP shall be calculated using an
Individual Target Award of 100% of base salary. In addition, each executive
will be granted options to purchase 2,000,000 shares of Company common stock.
Each agreement will provide that, in the event (i) the Company terminates the
executive without "Cause," (ii) the executive terminates for "Good Reason"
(each as to be defined in the agreements) or (iii) the Company elects not to
extend the term of the agreement, the executive will be entitled to receive
payment of his then base salary and incentive
24
<PAGE>
compensation (using an Individual Target Award of 100% of base salary), for the
remainder of the term of the agreement, but in no event for less than two
years, continued participation in the DCAP II for the term of the agreement,
continued accrual and vesting in his rights and benefits under the ESBP and
EBRP, calculated on the basis of his receiving (A) Approved Retirement
commencing on the expiration of the agreement and (B) with respect to the EBRP,
a benefit calculated on the basis of 60% of Average Final Compensation then
specified in the EBRP without any reduction for early retirement (see "Pension
Benefits"); lifetime coverage under the Company's Executive Medical Plan and
financial counseling program, with respect to LTIP awards granted January 27,
1999, receive such awards in accordance with the terms and conditions
applicable to Approved Retirement with the exception that the "Service-based
Portion of the Target Award" shall be paid as if executive continued employment
throughout the performance period; and if such termination occurs prior to
August 1, 2000, acceleration of vesting of all unvested options granted to the
executive prior to July 1, 1999, and 50% of the unvested options granted to the
executive after July 1, 1999, and if such termination occurs on or after August
1, 2000, acceleration of vesting of all unvested options. In the event such
termination occurs within two years following a Change in Control (to be
defined in the agreement), executive will be entitled to a gross-up payment to
cover the excise taxes and interest imposed on "excess parachute payments" as
defined in Section 280G of the Code.
Executive Severance Policy
The Company has implemented an Executive Severance Policy (the "Policy"), which
applies in the event an executive officer is terminated by the Company for
reasons other than for cause at any time other than within two years following
a change in control (as defined in the Policy) of the Company. The benefit
payable to executive officers under the Policy is equal to 12 months' base
salary plus one month's pay per year of service, up to a maximum of 24 months.
Such benefits would be reduced or eliminated by any income the executive
officer receives from subsequent employers during the severance payment period
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 Company at the time of such involuntary termination
are granted "approved retirement" for purposes of the EBRP and the ESBP. The
Policy also provides that, upon such involuntary termination, awards under the
LTIP are prorated for all cycles then in progress. In addition, vesting of
stock options and lapse of restrictions on restricted stock awards will cease
as of the date of termination, and no severance benefits will be paid beyond
age 62.
Termination of Employment and Change in Control Arrangements
The Company has entered into termination agreements with 16 executive officers,
including Messrs. Pulido, Bergonzi, Hammergren and Mahoney, but not with Mr.
McCall. The termination agreements operate independently of the Policy,
continue through December 31 of each year, and are automatically extended in
one-year increments until terminated by the Committee (or by the Board of
Directors in the case of the Chief Executive Officer). The agreements are
automatically extended for a period of two years following any change in
control.
The termination agreements provide for the payment of certain severance and
other benefits to executive officers whose employment is terminated within two
years of a change in control of the Company. Specifically, if following a
change in control, the executive officer is terminated by the Company for any
reason, other than for "Cause" (as defined in the agreements), or if such
executive officer terminates his or her employment for "Good Reason" (as that
term is defined in the termination agreements), then the Company will pay to
the executive officer, as severance pay in cash, an amount equal to 2.99 times
his or her "base amount" (as that term is defined in Section 280G of the Code)
less any amount which constitutes a "parachute payment" (as defined in
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<PAGE>
Section 280G). The Company will also continue the executive officer's coverage
in the health and welfare benefit plans in which he or she was a participant as
of the date of termination of employment, and the executive officer will
continue to accrue benefits under the EBRP, in both such cases for the period
of time with respect to which the executive officer would be entitled to
payments under the Policy described above if the executive officer's
termination of employment had been covered by such Policy. In addition, if the
executive officer is age 55 or older and has 15 or more years of service (as
determined under such plan on the date of executive's termination of
employment), then such termination will automatically be deemed to be an
"Approved Retirement" under the terms of the EBRP. The amount of severance
benefits paid shall be no higher than the amount that is not subject to
disallowance of deduction under Section 280G of the Code.
Change in Control
For purposes of the termination agreements and as used elsewhere in this proxy
statement, a "change in control" is generally deemed to occur if: (i) any
"person" (as defined in the Securities Exchange Act of 1934, as amended) other
than the Company or any of its subsidiaries or a trustee or any fiduciary
holding securities under an employee benefit plan of the Company or any of its
subsidiaries, acquires securities representing 30% or more of the combined
voting power of the Company's then outstanding securities; (ii) during any
period of not more than two consecutive years, individuals who at the beginning
of such period constitute the Board of Directors of the Company and any new
director whose election by the Board of Directors or nomination for election by
the Company's stockholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the beginning of
the period or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority thereof; (iii) the
stockholders of the Company approve a merger or consolidation of the Company
with any other Company, other than (a) a merger or consolidation which would
result in the voting securities of the Company outstanding immediately prior
thereto continuing to represent, in combination with the ownership of any
trustee or other fiduciary holding securities under an employee benefit plan of
the Company, at least 50% of the combined voting power of the voting securities
of the Company or such surviving entity outstanding immediately after such
merger or consolidation, or (b) a merger or consolidation effected to implement
a recapitalization of the Company (or similar transaction) in which no person
acquires more than 50% of the combined voting power of the Company's then
outstanding securities; or (iv) the stockholders approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of its assets.
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<PAGE>
Pension Benefits
The table below illustrates the estimated combined annual benefits payable upon
retirement at age 62 under the Company's qualified retirement plan and
supplemental EBRP in the specified compensation and years of service
classifications. The benefits are computed as single life annuity amounts.
Years of Service
<TABLE>
<CAPTION>
Five Year
Average
Compensation 15 20 25 30 35
- ------------ -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$ 600,000 $279,300 $ 332,400 $ 360,000 $ 360,000 $ 360,000
$ 800,000 372,400 443,200 480,000 480,000 480,000
$1,000,000 465,500 554,000 600,000 600,000 600,000
$1,200,000 558,600 664,800 720,000 720,000 720,000
$1,400,000 651,700 775,600 840,000 840,000 840,000
$1,600,000 744,800 886,400 960,000 960,000 960,000
$1,800,000 837,900 997,200 1,080,000 1,080,000 1,080,000
$2,000,000 931,000 1,108,000 1,200,000 1,200,000 1,200,000
</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 plus any annual bonus amounts foregone for grants of
bonus options.
The estimated years of service for purposes of the EBRP at March 31, 1999 for
each of the executive officers named in the Summary Compensation Table are as
follows: Mr. Pulido, 2; Mr. McCall, 0; Mr. Bergonzi, 0; Mr. Hammergren, 3; Mr.
Mahoney, 8.
The benefit under the EBRP is a percentage of final average pay based on years
of service or as determined by the Board of Directors. The maximum benefit is
60% of final average pay. The total paid under the EBRP is not reduced by
Social Security benefits but is reduced by those benefits payable on a single
life basis under the Company's qualified retirement plan and the annuitized
value of the Retirement Share Plan allocations of Company common stock made to
the PSIP assuming 12% growth in the value of the stock. Mr. Pulido will receive
benefits from the EBRP based on 60% of final pay and not reduced by any early
retirement reduction (see "Employment Agreements").
Certain Relationships and Related Transactions
A limited partnership established by the Pulido family ("PLP"), holds an
interest of approximately 62% in Humco Holdings Group, Inc. ("HHG"), which is a
supplier of certain over-the-counter sundry products and vitamins, minerals and
supplements. A brother of Mr. Pulido is the Chairman and Chief Executive
Officer of HHG and holds a 40% interest in PLP. The Company has purchased
products from HHG for more than 40 years, most recently pursuant to a five-year
contract executed in August 1998. During fiscal year 1999, aggregate purchases
by the Company from HHG totaled approximately $5.3 million and are expected to
be slightly higher in fiscal year 2000. Mark Pulido holds a 24.66% interest in
PLP, his father, approximately 16%, another brother, approximately 8% and his
sister, less than 1%.
The Company and its subsidiaries also engage in transactions in the ordinary
course of business with unaffiliated companies of which certain of the
Company's non-employee directors are directors and/or executive officers. The
Company does not consider the amounts involved in such transactions to be
material in relation to the businesses of such other Companies or the interests
of the directors involved. The Company anticipates that similar transactions
will occur in FY 2000.
27
<PAGE>
Indebtedness of Executive Officers
Under the 1999 ESPP, full recourse unsecured loans for the purchase of Company
common stock, such loans having a term of five years, bearing interest at the
rate of 4.7% per annum, were made on February 5, 1999 (the "Purchase Date") to
six executive officers, including the Named Executive Officers, other than Mr.
McCall. Pursuant to the 1999 ESPP, Mr. Pulido purchased 150,000 shares and
Messrs. Bergonzi, Hammergren and Mahoney purchased 100,000 shares each, all at
a purchase price of $63.8125 per share, which was the fair market value of the
Company's common stock on the Purchase Date. In addition, under the SPP full
recourse loans, having a term of five years, bearing interest at the rate of
4.7% per annum, were made on the Purchase Date to certain executive officers
and other key executives not named in the Summary Compensation Table. Such
loans were for the purchase of Company common stock at the fair market value on
the Purchase Date and are secured by a pledge of the shares purchased under the
SPP. In fiscal years 1998, 1997, and 1995 loans to certain executive officers
named in the Summary Compensation Table and other executive officers of the
Company were made to purchase Company common stock at the fair market value on
the dates of purchase, bearing interest at rates ranging from 7.1% to 8% per
annum. All shares purchased by the executive officers under the 1999 ESPP and
the SPP are included in the Security Ownership of Directors and Executive
Officers table on page 3.
The table below shows as to each executive officer who was indebted to the
Company in an amount exceeding $60,000 at any time during the period April 1,
1998 through June 30, 1999, (i) the largest aggregate amount of indebtedness
outstanding during such period, and (ii) the amount of indebtedness outstanding
at June 30, 1999. For each individual listed in the table below, unless
additional loans are described later in this paragraph, the indebtedness shown
resulted from loans previously outstanding or those made on the Purchase Date
under the 1999 ESPP or under the SPP. The indebtedness shown for Mr. Hammergren
also includes the balance owed on a secured housing loan in the original
principal amount of $500,000. The indebtedness shown for Ms. Yodowitz also
includes balances owed on secured housing loans in the original principal
amounts of $500,000 and $150,000. These housing loans are without interest
unless and until the individuals fail to pay any amount under the loans when
due, and thereafter at a market rate. The indebtedness shown for Mr. Hawkins
also includes the balance owed on a secured housing loan in the amount of
$300,000, bearing interest at the rate of 7.1% per annum. See Footnote 2 to the
Summary Compensation Table on page 14 for further information regarding the
housing loan made to Mr. Hammergren.
<TABLE>
<CAPTION>
Largest Amount of
Aggregate Indebtedness
Amount of at June 30,
Indebtedness 1999
------------ ------------
<S> <C> <C>
Albert J. Bergonzi............................... $ 6,455,619 $ 6,455,619
John H. Hammergren............................... 8,535,910 8,535,910
Richard H. Hawkins............................... 8,427,768 8,427,768
David L. Mahoney................................. 8,110,908 8,110,908
Ivan D. Meyerson................................. 2,554,053 2,554,053
Mark A. Pulido................................... 17,802,042 17,802,042
Heidi E. Yodowitz................................ 1,941,124 1,941,124
</TABLE>
28
<PAGE>
Independent Auditors
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 Company and its
subsidiaries for the fiscal year ending March 31, 2000, such appointment to
continue at the pleasure of the Board of Directors. Deloitte & Touche LLP has
acted as the Company's independent auditors for several years, is knowledgeable
about the Company's operations and accounting practices, and is well qualified
to act in the capacity of independent auditors.
Representatives of Deloitte & Touche LLP are expected to be present at the
meeting to respond to appropriate questions and to make a statement if they
desire to do so.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Act requires the Company's directors, its executive
officers and persons who own more than ten percent of the Company's common
stock to file reports regarding their ownership of the Company's common stock
and any subsequent changes in that ownership with the SEC, the NYSE and the
Company. 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 Company believes that, during
the last fiscal year, all such reporting requirements were satisfied.
Solicitation of Proxies
The Company is paying the cost of preparing, printing and mailing these proxy
materials. We will reimburse banks, brokerage firms and others for their
reasonable expenses in forwarding proxy materials to beneficial owners and
obtaining their instructions. The Company has engaged Georgeson Shareholder
Communications Inc., a proxy solicitation firm, to assist in the solicitation
of proxies. We expect Georgeson's fee to be approximately $10,000, plus out-of-
pocket expenses. A few officers and employees of the Company may also
participate in the solicitation without additional compensation.
Other Matters
In addition to voting choices specifically marked, and unless otherwise
indicated by the stockholder, the proxy card confers discretionary authority on
the named proxy holders to vote on any matter that properly comes before the
Meeting which is not described in these proxy materials. At the time this proxy
statement went to press, the Company knew of no other matters which might be
presented for stockholder action at the Meeting.
Advance Notice Procedures
Under the Company's Restated By-Laws, no business may be brought before an
annual meeting except as specified in the notice of meeting (which includes
stockholder proposals that the Company is required to include in its proxy
statement under Rule 14a-8 of the Act) or as otherwise brought before the
meeting by or at the direction of the Board or by a stockholder entitled to
vote who has delivered notice to the Company (containing certain information
specified in the Restated By-Laws and required to be included) not less than 90
nor more than 120 days prior to the first anniversary of the preceding year's
annual meeting. These requirements are separate and apart from, and in addition
to, the SEC's requirements that a stockholder must meet to have a stockholder
proposal included in the Company's proxy statement under Rule 14a-8.
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<PAGE>
The Restated By-Laws also provide that nominations for Director may be made
only by the Board or a Board committee, or a stockholder entitled to vote who
delivered notice not less than 90 nor more than 120 days prior to the first
anniversary of the preceding year's annual meeting.
A copy of the full text of the By-Law provisions discussed above may be
obtained by writing to the Secretary of the Company at the address below.
Stockholder Proposals for 2000 Annual Meeting
Proposals intended for inclusion in next year's proxy statement should be sent
to the Secretary of the Company at the principal executive offices of the
Company, One Post Street, San Francisco, CA 94104, and must be received by
March 24, 2000.
By Order of the Board of Directors
/s/ IVAN D. MEYERSON
IVAN D. MEYERSON
Senior Vice President, General
Counsel and Secretary
July 21, 1999
A copy of the Company's Annual Report on Form 10-K to the Securities and
Exchange Commission for the fiscal year ended March 31, 1999, excluding certain
exhibits thereto, may be obtained without charge, by writing to Investor
Relations, Box K, McKesson HBOC, Inc., One Post Street, San Francisco, CA
94104.
30
<PAGE>
Appendix A
McKesson HBOC, Inc.
1998 Employee Stock Purchase Plan
As Amended and Restated Through April 26, 1999
WHEREAS, the Board of Directors of HBO & Company, a Delaware corporation
("HBOC"), adopted the 1998 Employee Discount Stock Purchase Plan on November
11, 1997, subject to the approval of the stockholders of HBOC, which approval
was obtained on May 12, 1998; and
WHEREAS, McKesson Corporation, a Delaware corporation ("McKesson"), HBOC, and
McKesson Merger Sub, Inc., a Delaware corporation ("Merger Sub"), entered into
an Agreement and Plan of Merger (the "Merger Agreement"), dated as of October
17, 1998, whereby Merger Sub was merged with and into HBOC, and HBOC thereby
became a direct, wholly-owned subsidiary of McKesson (the "Merger"); and
WHEREAS, pursuant to the Merger Agreement, upon consummation of the Merger, the
name of the combined entity was changed to McKesson HBOC, Inc. (the "Company");
and
WHEREAS, upon consummation of the Merger, the 1998 Employee Discount Stock
Purchase Plan was renamed the McKesson HBOC, Inc. 1998 Employee Stock Purchase
Plan; and
WHEREAS, the Boards of Directors of each of McKesson and HBOC have adopted
resolutions amending and restating the 1998 Employee Stock Purchase Plan in the
form below (the "Amendment and Restatement"):
1. Purpose
The McKesson HBOC, Inc. 1998 Employee Stock Purchase Plan (the "Plan") is
intended to encourage the employees of the Company and certain of its
subsidiaries to acquire a proprietary interest, or to increase their existing
proprietary interest, in the Company. The Board of Directors of the Company
(the "Board") believes that employee ownership of the Company's stock will
serve as an incentive, encouraging employees to continue their employment and
to perform diligently their duties as employees. The Plan is intended to
qualify as an "employee stock purchase plan" within the meaning of Section 423
of the Internal Revenue Code of 1986, as amended (the "Code").
2. Stock Reserved for the Plan
The Company will reserve 6,100,000 (which number has been adjusted to reflect
the 2:1 stock split effected by HBO on May 27, 1998, and the Exchange Ratio as
defined in the Merger Agreement) shares of the Company's common stock, $.01 par
value per share ("Stock"), for purchase by employees under the Plan. The number
of shares of Stock reserved for the Plan may further be adjusted as provided in
Section 16. The shares of Stock reserved for the Plan may be shares now or
hereafter authorized but unissued, shares that have been reacquired by the
Company, or shares of treasury stock.
3. Administration
The Plan will be administered by the Compensation Committee of the Board (the
"Committee"), consisting of members of the Board designated by the Board. The
Board from time to time may remove members from, or add members to, the
Committee. Vacancies on the Committee will be filled by the Board. Subject to
the express provisions of the Plan, the Committee will have authority
A-1
<PAGE>
to interpret the Plan, to prescribe rules and regulations for administering the
Plan, and to make all other determinations necessary or advisable in
administering the Plan. The determinations of the Committee will be final and
binding upon all persons, unless otherwise determined by the Board. A majority
of the members of the Committee will constitute a quorum, and the Committee may
act by vote of a majority of its members at a meeting at which a quorum is
present, or without a meeting by a written consent signed by all members of the
Committee. To the extent consistent with applicable law, the Committee may
delegate its duties hereunder to a sub-committee, whose members need not be
members of the Board.
4. Eligibility
(a) Eligible Employees. Except as set forth in subsections (b) and (c) below,
all employees of the Company, and all employees of any parent corporation, as
defined in Code Section 424(e) (a "Parent") or any subsidiary corporation as
defined in Code Section 424(f) (a "Subsidiary") of the Company that is
designated by the Board as a participating Parent or Subsidiary, will be
eligible to participate in the Plan. Such employees are referred to herein as
"Employees." No person who is not an Employee will be eligible to participate
in the Plan.
(b) Excluded Employees. The following Employees will not be eligible to
participate in the Plan:
(i) any Employee whose customary employment is 20 hours or less per week or
for not more than 5 months in any calendar year; and
(ii) any Employee who, immediately after a right to purchase Stock is
granted hereunder, would own shares of Stock, or of the stock of a
Subsidiary, possessing 5 percent or more of the total combined voting power
or value of all classes of such stock. In determining whether an Employee
owns 5 percent of such shares, (A) the attribution of ownership rules of
Code Section 424(d) will apply, and (B) an Employee will be deemed to own
the shares of stock underlying any outstanding option which he has been
granted (whether under the Plan or any other plan or arrangement).
(c) Participation by Certain Employees Subject to Stockholder
Approval. Employees of the Company or any Subsidiary who are employed neither
by HBOC nor by any subsidiary (as defined in Code Section 424(f)) (the
"Contingent Participants"), will not be eligible to participate in the Plan
unless and until the stockholders of the Company approve this Amendment and
Restatement on or prior to January 12, 2000 (the date of such approval, the
"Stockholder Approval Date").
5. Offering Dates
(a) In General. Except as set forth in subsections (b) and (c) below, the Plan
will be implemented by a continuous series of offerings beginning on the first
trading day on or after April 1st of each calendar year (the "Offering Date")
and terminating on the last trading day of the following March (the "Purchase
Date"). A trading day will be a day on which the New York Stock Exchange (or
any other exchange or quotation system on which the Stock may from time to time
be listed) will be open. The period for which each such offering is effective
is referred to herein as a "Purchase Period."
(b) Special Purchase Periods. The Offering Date for the first Purchase Period
under the Plan was March 1, 1998 and the Purchase Date for the first Purchase
Period under the Plan was the last trading day on or before February 28, 1999.
The Offering Date for the second Purchase Period under the Plan was the first
trading day on or after March 1, 1999, and the Purchase Date for the second
Purchase Period under the Plan will be the last trading day on or before March
31, 2000.
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<PAGE>
(c) Application to Contingent Participants. Subject to Section 4(c) above,
Contingent Participants may elect to participate in the Plan beginning with the
first offering commencing on or after the Stockholder Approval Date. The
Committee may establish a special Purchase Period following the Stockholder
Approval Date to permit Contingent Participants to commence participation in
the Plan prior to the next regularly scheduled Offering Date.
6. Election to Participate
(a) Initial Election. Each Employee who is eligible to participate in the Plan
may become a participant (a "Participant") by making an election, prior to any
Offering Date and in accordance with procedures established by the Committee,
authorizing specified regular payroll deductions over the next succeeding
Purchase Period (an "Election Form"). Each election will be expressed as a
percentage of the Employee's Compensation (as defined below), which may not
exceed 10 percent of the Employee's Compensation for any payroll period or be
less than 1 percent of the Employee's Compensation for any payroll period (or
such other maximum and minimum percentages as the Committee may determine). An
Employee's "Compensation" is his total cash compensation from the Company and
its affiliates. Payroll deductions for a Participant will be made regularly and
in equal amounts during the Purchase Period by the Company, and will be
credited to a bookkeeping account established by the Company in the name of the
Participant (the "Cash Account"). No interest will be paid on or credited to
Cash Accounts.
(b) Changes in Rate of Payroll Deductions. A Participant may discontinue making
payroll deductions in accordance with Section 6(c), but may not otherwise
increase or decrease the amount of payroll deductions elected for a Purchase
Period.
(c) Discontinuance of Contributions. At any time during a Purchase Period, a
Participant may discontinue participation in the Plan for the current Purchase
Period by providing notice in accordance with procedures established by the
Committee. Upon such discontinuance, at the Participant's election, the balance
of his Cash Account will be (i) returned to the Participant as soon as
practicable, or (ii) held in the Cash Account until the end of the Purchase
Period and applied to purchase Stock in accordance with Section 10. A
Participant who discontinues payroll deductions may recommence his
participation in the Plan as of the Offering Date for any other succeeding
Purchase Period, provided he otherwise is eligible to participate and timely
files a new Election Form with the Committee.
7. Purchase Period Limitation on Rights to Purchase Stock
(a) In General. Except as provided in Section 7(b) below with respect to the
first Purchase Period under the Plan, and subject to the annual limitations in
Section 8 below, the maximum number of shares of Stock each Participant will
have the right to purchase under the Plan during a Purchase Period is
determined by dividing (i) $25,000 by (ii) the Fair Market Value of one share
of Stock on the Offering Date for such Purchase Period.
(b) First Purchase Period. For purposes of the first Purchase Period hereunder,
the maximum number of shares of Stock each Participant had the right to
purchase under the Plan was determined by dividing (i) $25,000 by (ii) the
quotient of (A) the closing price of the common stock, par value $.005 per
share, of HBOC as quoted on the Nasdaq National Market on February 27, 1998
divided by (B) the Exchange Ratio (as defined in the Merger Agreement).
(c) Insufficient Shares of Stock. If at any time the number of shares of Stock
available for purchase under the Plan is insufficient to grant to each
Participant the right to purchase the full number of shares to which he
otherwise would be entitled, then each Participant will have the right to
purchase that number of available shares of Stock that is equal to the total
number of available shares of
A-3
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Stock multiplied by a fraction, the numerator of which is the amount of
Compensation credited to the Participant's Cash Account for the Purchase
Period, and the denominator of which is the total amount of Compensation
credited to the Cash Accounts of all Participants for the Purchase Period.
8. Annual Limitation on Rights to Purchase Stock
No right to purchase shares of Stock under the Plan will be granted to an
Employee if such right, when combined with all other rights and options granted
under all of the Code Section 423 employee stock purchase plans of the Company
or any Parent or Subsidiary would permit the Employee to purchase shares of
Stock with a Fair Market Value (determined at the time the right or option is
granted) in excess of $25,000 for each calendar year in which the right or
option is outstanding at any time, determined in accordance with Code
Section 423(b)(8).
9. Purchase Price
(a) In General. Except as provided in Section 9(b) with respect to the purchase
of Stock under the first offering of the Plan, the purchase price of each share
of Stock will be the lesser of (i) 85 percent of the Fair Market Value of the
Stock on the Offering Date, or (ii) 85 percent of the Fair Market Value of the
Stock on the Purchase Date.
(b) Effect of Merger. The purchase price for each share of Stock purchased
under the first Purchase Period of the Plan was the lesser of (i) 85 percent of
the closing price of the common stock, par value $.005 per share, of HBOC as
quoted on the Nasdaq National Market on February 27, 1998 divided by the
Exchange Ratio (as defined in the Merger Agreement), or (ii) 85 percent of the
Fair Market Value of the Stock on the Purchase Date.
(c) Fair Market Value. The Fair Market Value of the Stock, as of any date, will
be equal to the closing price of the Stock on the New York Stock Exchange
("NYSE"), for such date as reported in The Wall Street Journal. If no
transaction is reported for a particular date, Fair Market Value will be the
closing price on the closest preceding date for which any transaction is
reported. If the Stock is not traded on the NYSE, Fair Market Value will be
determined using the method established by the Committee.
10. Purchase of Stock
(a) Funds in Cash Account Used to Purchase Whole Shares of Stock. Subject to
the share limitations set forth in Sections 7 and 8 above, as of each Purchase
Date, the Committee will purchase from the Company using the funds in each Cash
Account on such date, on behalf of each Participant having funds in his Cash
Account, the number of whole shares of Stock determined by dividing the amount
in such Cash Account on such date by the purchase price determined under
Section 9.
(b) No Fractional Shares. No fractional shares will be issued under the Plan.
To the extent that, following the purchase of shares of Stock on any Purchase
Date, there remains in any Cash Account payroll deduction amounts insufficient
to purchase at least one full share of Stock, such amounts will be retained in
the Participant's Cash Account and applied to the next subsequent Purchase
Period, subject to withdrawal by the Participant as provided in Section 6(c)
hereof.
(c) Return of Excess Contributions. Any additional amounts remaining in a
Participant's Cash Account following the purchase of shares of Stock on any
Purchase Date that are equal to or in excess of the amount required under
Section 10(a) to purchase at least one full share of Stock will be returned to
the Participant as soon as reasonably practicable following the Purchase Date.
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11. Stock Accounts
(a) Establishment of Accounts. As soon as reasonably practicable after each
Purchase Date, the Company will deliver to a custodian selected by the
Committee (the "Custodian") a certificate or certificates representing the
total number of shares purchased by all Participants in the Purchase Period.
The Custodian will maintain a separate "Stock Account" for each Participant,
which will be credited with the number of shares of Stock purchased by the
Participant under the Plan.
(b) Withdrawals from Stock Accounts. A Participant may at any time withdraw any
shares of Stock credited to his Stock Account. As soon as practicable after
such request by a Participant, the Custodian will cause a certificate
representing such Shares to be delivered to the Participant.
(c) Rights as Shareholders. A Participant will have all of the rights of a
stockholder of the Company with respect to all of the shares of Stock credited
to his Stock Account, including the right to vote and receive dividends on such
Shares.
12. Termination of Employment
(a) Termination Other Than Due to Death, Disability or Retirement. If a
Participant terminates employment with the Company or any Parent or Subsidiary
during a Purchase Period for any reason other than death, disability, or
Retirement, then the Participant's participation in the Plan will immediately
terminate and the balance of the Participant's Cash Account will be returned to
the Participant. For purposes of the Plan, a Participant who is on an approved
leave of absence will not be considered to have terminated employment until the
91st day of such leave of absence or such longer period as the Participant's
right to re-employment is guaranteed by law or contract.
(b) Termination Due to Death. If a Participant terminates employment with the
Company or any Parent or Subsidiary during a Purchase Period due to death,
then, at the election of the Participant's beneficiary, the balance of the
Participant's Cash Account will be (i) delivered to the beneficiary or (ii)
held in the Cash Account until the end of the Purchase Period and applied to
purchase Stock in accordance with Section 1.
(c) Termination Due to Disability or Retirement. If a Participant terminates
employment with the Company or any Parent or Subsidiary due to Retirement or
disability no more than 3 months before the Purchase Date for a Purchase
Period, then, at the Participant's election, the balance of the Participant's
Cash Account will be (i) returned to the Participant, or (ii) held in the Cash
Account until the end of the Purchase Period and applied to purchase Stock in
accordance with Section 10. If a Participant terminates employment due to
Retirement or disability more than 3 months before the Purchase Date for a
Purchase Period, then the Participant's participation in the Plan will
immediately terminate and the balance of the Participant's Cash Account will be
returned to the Participant.
(d) Definition of Retirement. For purposes of the Plan, Retirement will mean
the attainment by a Participant of age plus whole years of service with the
Company or any Parent or Subsidiary totaling 65 or more.
13. Designation of Beneficiary
In accordance with procedures established by the Committee, a Participant may
designate one or more beneficiaries to receive benefits in the event of the
Participant's death. If a Participant fails to properly designate a
beneficiary, the Participant's estate will be considered the Participant's
beneficiary for purposes of the Plan.
A-5
<PAGE>
14. Compliance with Securities Law
All shares of Stock issued under the Plan will be subject to such restrictions
as the Committee may deem advisable under any applicable federal or state
securities laws, and the Committee may cause a legend or legends making
reference to such restrictions to be placed on the certificates representing
such shares.
15. Rights Not Transferable
Neither payroll deductions credited to a Participant's account nor any rights
under the Plan may be assigned, transferred, pledged or otherwise disposed of
in any way by the Participant (other than by will or the laws of descent and
distribution or as provided in Section 13 hereof). Rights under the Plan are
exercisable during the lifetime of the Participant only by the Participant.
16. Adjustment in Case of Changes Affecting the Company's Stock
(a) In General. In the event of a subdivision or consolidation of outstanding
shares of Stock, the payment of a stock dividend thereon, stock split, reverse
stock split, or in the event of any "corporate transaction" as defined in
Treasury Regulations Section 1.425 1(a)(1)(ii) (now relating to Code Section
424), the number of shares reserved or authorized to be reserved under the
Plan, the number and price of such shares subject to purchase pursuant to
rights outstanding hereunder, the maximum number of shares each Participant may
purchase during each Purchase Period (pursuant to Section 7) or during each
calendar year (pursuant to Section 8), and the number of shares credited to
Participants' Stock Accounts, will be adjusted in such manner as may be deemed
necessary or equitable by the Board to give proper effect to such event,
subject to the limitations of Code Section 424.
(b) Effect of Merger. Following consummation of the Merger, outstanding
purchase rights of HBOC employees under the Plan remained in effect and were
assumed by the Company, with appropriate changes to reflect the issuance of
shares of Stock.
17. Foreign Employees
To the extent permitted under Section 423 of the Code, the Committee may
provide for such special terms for Participants who are foreign nationals, or
who are employed by the Company or a Parent or Subsidiary outside of the United
States of America, as the Committee may consider necessary or appropriate to
accommodate differences in local law, tax policy or custom. Moreover, the
Committee may approve such supplements to or amendments, restatements, or
alternative versions of, this Plan as it may consider necessary or appropriate
for such purposes without thereby affecting the terms of this Plan as in effect
for any other purpose; provided, however, that no such supplements, amendments,
restatements or alternative versions will include any provisions that are
inconsistent with the terms of this Plan, as then in effect, unless this Plan
could have been amended to eliminate such inconsistency without further
approval by the shareholders of the Company, or which would cause the Plan to
fail to meet the requirements of Section 423 of the Code.
18. Amendment of the Plan
The Board may amend the Plan in any respect; provided, however, that, any
amendment (i) increasing the number of shares of Stock reserved under the Plan
(other than as provided in Section 16), or (ii) changing the designated class
of employees eligible to participate in the Plan as provided in Section 4, must
be approved, within 12 months of the adoption of such an amendment, by the
holders of a majority of the voting power of the outstanding shares of Stock.
A-6
<PAGE>
19. Termination of the Plan
The Plan and all rights of Employees hereunder will terminate:
(i)as of the Purchase Date on which Participants purchase a number of shares of
Stock that substantially exhausts the number of shares available for issuance
under the Plan, to such an extent that the Committee determines that no
subsequent offerings are practicable; or
(ii)at any time upon action of the Board; provided, however, that if the Plan
is terminated during any Purchase Period, any amounts in a Participant's Cash
Account will be returned to the Participant.
20. Effective Date
This Amendment and Restatement will become effective as of April 26, 1999;
provided, that the increase of shares of Common Stock reserved for issuance
under the plan under Section 2 and the participation of Contingent Participants
in the Plan shall become effective only upon stockholder approval of this
Amendment and Restatement on or prior to January 12, 2000. Participation in the
Plan by Employees who are employed by HBOC or by any subsidiary (as defined in
Code Section 424(f)) designated as eligible to participate will continue in
full force and effect and will not be affected by any failure to obtain such
stockholder approval.
21. Government and Other Regulations
(a) In General. The Plan, and the grant and exercise of the rights to purchase
shares of Stock hereunder, and the Company's obligation to sell and deliver
shares of Stock, will be subject to all applicable federal, state and foreign
laws, rules and regulations, and to such approvals by any regulatory or
government agency as may, in the opinion of counsel for the Company, be
required.
(b) Withholding Obligations. Each Participant will, no later than the date as
of which the value of any purchase right granted under the Plan first becomes
includible in the gross income of the Participant for federal income tax
purposes, pay to the Company, or make arrangements satisfactory to the Company,
regarding payment of any federal, state, or local taxes of any kind required by
law to be withheld with respect to such purchase right. The obligations of the
Company under the Plan will be conditional on the making of such payments or
arrangements and the Company will, to the extent permitted by law, have the
right to deduct any such taxes from any payment of any kind otherwise due to
the Participant.
22. Indemnification of Committee
In addition to such other rights of indemnification as they have as directors
or as members of the Committee, the members of the Committee will be
indemnified by the Company against reasonable expenses (including, without
limitation, attorneys' fees) actually and necessarily incurred in connection
with the defense of any action, suit or proceeding, or in connection with any
appeal, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan or any right
granted hereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved to the extent required by and in the
manner provided by the Bylaws of the Company relating to indemnification of
directors) or paid by them in satisfaction of a judgment in any such action,
suit or proceeding, except in relation to matters as to which it will be
adjudged in such action, suit or proceeding that such Committee member did not
act in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company.
A-7
<PAGE>
[RECYCLE LOGO APPEARS HERE]
Printed on Recycled Paper
<PAGE>
P R O X Y
McKESSON HBOC, INC.
Proxy for Annual Meeting
10:00 A.M., August 25, 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 Alan Seelenfreund and Ivan D. Mayerson, and each of them, with full
power of substitution, proxies to vote all stock of McKesson HBOC, Inc. which
the undersigned is entitled to vote at the Annual Meeting of Stockholders to be
held at the Palace Hotel, 2 New Montgomery Street, San Francisco, California, on
August 25, 1999, 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 2002
(01) Alfred C. Eckert III
(02) Gerald E. Mayo
(03) Alan Seelenfreund
(04) Jane E. Shaw.
Your shares will not be voted unless you (1) vote by telephone, (2) vote via
the Internet, as described on the reverse side, or (3) sign and return this
card.
-------------
SEE REVERSE
SIDE
-------------
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
ANNUAL MEETING OF STOCKHOLDERS
OF
McKESSON HBOC, INC.
Wednesday, August 25, 1999
Palace Hotel
2 New Montgomery Street
San Francisco, CA 94105
----------------------------------------------------
Please present this ADMISSION TICKET at the Annual
Meeting of Stockholders as verification of your
McKesson HBOC, Inc. share ownership.
----------------------------------------------------
<PAGE>
[X] Please mark your votes as in this example.
This proxy, when properly executed, will be voted as directed, but if no
direction is given, this proxy will be voted FOR each of the following
proposals.
- --------------------------------------------------------------------------------
The Board of Directors Recommends a Vote FOR Each of the Following Proposals:
- --------------------------------------------------------------------------------
FOR WITHHELD
1. Election of [_] [_]
Directors
(See reverse)
For, except vote withheld from the following nominee(s):
____________________________
FOR AGAINST ABSTAIN
2. Approve the Employee Stock Purchase Plan [_] [_] [_]
3. Approve an Increase in Number of Authorized
Shares for the Stock Purchase Plan [_] [_] [_]
PLEASE CAST YOUR VOTE BY TELEPHONE OR VIA THE INTERNET AS INSTRUCTED BELOW OR
COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED BUSINESS REPLY
ENVELOPE.
YES NO
Please indicate if you plan to attend the Annual Meeting: [_] [_]
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 PROXY CARD BY MAIL
McKesson HBOC, Inc. encourages you to take advantage of a new and convenient way
by which you can vote your shares - by either telephone or the Internet.
- - By Telephone. Stockholders calling from the United States, Canada, Puerto Rico
and the U.S. Virgin Islands may dial toll-free 1-877-779-8683 (1-877-PRX-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. Listen to the recorded instructions, use the control number
printed in the box in the upper right corner of this proxy card to access the
system, and use your telephone key pad to vote.
- -Over the Internet. Access the World Wide Web site "http://www.eproxyvote.
com/mck" and follow the instructions posted on the web
site.
Your my telephone or over the Internet authorizes the proxies named on the
front of this proxy card to vote your shares in the same manner as if you
marked, signed, dated and returned the proxy card. If you choose to vote your
shares by either of these electronic means, there is no need for you to mail
back your proxy card.
Your vote is important. Thank you for voting.
<PAGE>
PSIP VOTING CARD
DIRECTIONS TO TRUSTEE, McKESSON HBOC, INC. PROFIT-SHARING INVESTMENT PLAN
To: The Chase Manhattan Bank, N.A.
I direct you as Trustee of the McKesson HBOC, Inc. Profit-Sharing Investment
Plan to vote (in person or by proxy) as I have specified on the reverse side
hereof all shares of McKesson HBOC, Inc. common stock allocated to my accounts
under the plan at the Annual Meeting of Stockholders of McKesson HBOC, Inc. on
August 25, 1999. 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 2002
Alfred C. Eckert III
Gerald E. Mayo
Alan Seelenfreund
Jane E. Shaw
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
-----------
ANNUAL MEETING OF STOCKHOLDERS
OF
McKESSON HBOC, INC.
Wednesday, August 25, 1999
Palace Hotel
2 New Montgomery Street
San Francisco, CA 94105
----------------------------------------------------------------------
Please present this ADMISSION TICKET at the Annual
Meeting of Stockholders as verification of your participation in
the McKesson HBOC, Inc. Profit-Sharing Investment Plan.
----------------------------------------------------------------------
<PAGE>
The Board of Directors recommends a Vote FOR ALL Proposals
Please mark your votes as indicated [X]
With- For all
For hold Except
1. Election of Directors [_] [_] [_]
Alfred C. Eckert III
Gerald E. Mayo
Alan Seelenfreund
Jane E. Shaw
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).
FOR AGAINST ABSTAIN
2. Approve the Employee Stock Purchase Plan. [_] [_] [_]
3. Approve an Increase in Number of Authorized Shares [_] [_] [_]
for the Stock Purchase Plan.
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.
YES NO
PLEASE INDICATE IF YOU PLAN TO ATTEND THE ANNUAL MEETING: [_] [_]
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, 2,
and 3.
Signature ___________________________________ Dated: __________________ 1999
- --------------------------------------------------------------------------------
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.
Proposals 2 and 3: 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>
McKesson HBOC, Inc.
One Post Street, San Francisco CA 94104-5296
July 21, 1999
Dear McKesson HBOC, Inc. Profit-Sharing Investment Plan Participant:
As a participant in the McKesson HBOC, Inc. Profit-Sharing Investment Plan
("PSIP"), you are a stockholder in the Company. At the Annual Stockholders
Meeting, you have the right to instruct the Plan Trustee, on a confidential
basis, how the shares of McKesson HBOC common stock in your account are to be
voted on matters that come before the meeting.
The enclosed Proxy Statement describes three proposals to be voted on at this
year's meeting. The Board of Directors recommends that you vote FOR all
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 HBOC 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 August 20, 1999. The Company's Annual Report
for the fiscal year ended March 31, 1999 accompanies this Proxy Statement.
We urge you to exercise your voting rights as a stockholder. Your vote does
make a difference.
Sincerely,
/s/ John H. Hammergren /s/ David L. Mahoney
John H. Hammergren David L. Mahoney
Co-President and Co-President and
Co-Chief Executive Officer Co-Chief Executive Officer
