<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [ ]
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))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
McKesson HBOC, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] 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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[ ] 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
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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<PAGE> 2
[McKESSON HBOC LOGO]
June 19, 2000
To the Stockholders of McKesson HBOC, Inc.
You are cordially invited to attend the 2000 Annual Meeting of Stockholders,
which will be held on Wednesday, July 26, 2000, at 10:00 a.m. in the Grand
Ballroom of the Palace Hotel, 2 New Montgomery Street, San Francisco,
California.
The accompanying notice of meeting and proxy statement describe the matters to
be voted on at the meeting. We will also take the opportunity to review our
fiscal year 2000 business results.
YOUR VOTE IS IMPORTANT. We encourage you to read the proxy statement and vote
your shares as soon as possible. A return envelope for your proxy card is
enclosed for your convenience. You may also vote by telephone or via the
Internet; specific instructions on how to vote using either of these methods are
included on the proxy card.
Sincerely,
<TABLE>
<S> <C>
/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
</TABLE>
<PAGE> 3
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Notice of Annual Meeting of Stockholders of McKesson HBOC,
Inc.......................................................
General Information......................................... 1
Proxies and Voting at the Meeting........................... 1
Proxy Materials and Annual Report........................... 1
Attendance at the Meeting................................... 1
Dividend Reinvestment Plan.................................. 2
Profit Sharing Investment Plan.............................. 2
Vote Required and Method of Counting Votes.................. 2
Principal Stockholders...................................... 2
Proposals to be Voted Upon.................................. 5
1. Election of Directors.................................. 5
Board Meetings and Committees............................... 8
Committees of the Board..................................... 8
Director Compensation....................................... 9
Indemnity Agreements........................................ 10
Report of the Compensation Committee on Executive
Compensation.............................................. 10
Executive Compensation...................................... 13
Summary Compensation Table............................. 13
Option/SAR Grants in the Last Fiscal Year.............. 14
Aggregated Option/SAR Exercises in the Last Fiscal Year
and Fiscal Year-End Option/SAR Values................. 15
2. Approval of the McKesson HBOC, Inc. 1989 Management
Incentive Plan......................................... 15
Stock Price Performance Graph............................... 16
Employment Agreements, Executive Severance Policy and
Termination of Employment and Change in Control
Arrangements.............................................. 17
Pension Benefits............................................ 21
Certain Relationships and Related Transactions.............. 21
Certain Legal Proceedings................................... 22
Indebtedness of Executive Officers.......................... 23
Independent Auditors........................................ 24
Section 16(a) Beneficial Ownership Reporting Compliance..... 24
Solicitation of Proxies..................................... 24
Other Matters............................................... 24
Advance Notice Procedures................................... 24
Stockholder Proposals for the 2001 Annual Meeting........... 25
Appendix A--McKesson HBOC, Inc. 1989 Management Incentive
Plan...................................................... A-1
</TABLE>
<PAGE> 4
[MCKESSON HBOC LOGO]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
OF MCKESSON HBOC, INC.
The 2000 Annual Meeting of Stockholders of McKesson HBOC, Inc. will be held on
Wednesday, July 26, 2000 at 10:00 a.m. in the Grand Ballroom of the Palace
Hotel, 2 New Montgomery Street, San Francisco, California for the purpose of:
- Electing four directors to three-year terms
- Approving the 1989 Management Incentive Plan
- Conducting other business if properly raised
Your Board of Directors recommends that you vote in favor of the two proposals
outlined in this proxy statement.
Stockholders of record at the close of business on June 5, 2000 are entitled to
receive notice of and to vote at the Annual Meeting or any adjournment or
postponement thereof. A list of such stockholders will be available at the
meeting and, for a ten-day period preceding the meeting, at the Office of the
Secretary, One Post Street, San Francisco, California, during ordinary business
hours.
By Order of the Board of Directors
/s/ IVAN D. MYERSON
IVAN D. MEYERSON
Senior Vice President, General
Counsel
and Secretary
One Post Street
San Francisco, CA 94104-5296
June 19, 2000
<PAGE> 5
PROXY STATEMENT
GENERAL INFORMATION
On January 12, 1999, McKesson Corporation, a Delaware corporation ("McKesson"),
acquired HBO & Company ("HBOC") (the Acquisition"). 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 had 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. They were also elected directors of the
Company. Mark A. Pulido resigned from his position as Chief Executive Officer
and director effective July 15, 1999.
PROXIES AND VOTING AT THE MEETING
The Company's Board of Directors is soliciting proxies to be voted at the Annual
Meeting of Stockholders to be held July 26, 2000 (the "Meeting"). This proxy
statement includes information about the issues to be voted upon at the Meeting.
On June 19, 2000, the Company began mailing these proxy materials to all
stockholders of record at the close of business on June 5, 2000. On this date,
there were approximately 284,184,989 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 Montgomery Street, San
Francisco, California on July 26, 2000, 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 and participants in the Company's Profit-Sharing
Investment Plan ("PSIP") can give proxies by calling a toll free number, by
using the Internet, or by mailing their signed proxy cards. Specific
instructions for voting by means of the telephone or Internet are set forth on
the enclosed proxy card.
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 2000 Annual Report to Stockholders and Annual Report on Form 10-K
for the fiscal year ended March 31, 2000 ("FY 2000") accompany 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 if you are a
registered holder or PSIP participant. If your shares are held in the name of a
bank, broker or other holder of record and you plan to attend the Meeting in
person, you may obtain an admission ticket in advance by sending a request,
along with proof of ownership, such as a bank or brokerage account statement, to
the Company's transfer agent, First Chicago Trust Company of New York, a
division of EquiServe,
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<PAGE> 6
P.O. Box 2500, Jersey City, New Jersey 07303. Stockholders who do not have an
admission ticket will only be admitted upon verification of ownership at the
door.
DIVIDEND REINVESTMENT PLAN
For those stockholders who participate in the Company's Automatic Dividend
Reinvestment Plan, the enclosed proxy includes all full shares of common stock
held in the stockholder's dividend reinvestment plan account on the record date
for the Meeting, as well as shares held of record by the stockholder.
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 the other matter 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 the 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.
PRINCIPAL STOCKHOLDERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of December 31, 1999, unless otherwise noted,
information regarding ownership of the Company's outstanding common stock, by
any entity or person known by the Company to be the beneficial owner of more
than five percent of the outstanding shares of common stock.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
------------------------------------ -------------------- ----------
<S> <C> <C>
ESL Partners, L.P.(1)................................ 25,138,217(2) 8.92
Wellington Management Company, LLP
75 State Street
Boston, MA 02109..................................... 21,380,895(3) 7.59
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................................... 18,495,916(4) 6.56
AXA Financial, Inc.,
AXA and the Mutuelles AXA as a group(5).............. 15,646,788(6) 5.6
Legg Mason, Inc.
100 Light Street
Baltimore, MD 21202.................................. 14,920,093(7) 5.30
</TABLE>
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<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
------------------------------------ -------------------- ----------
<S> <C> <C>
Vanguard Specialized Funds--
Vanguard Health Care Fund
P.O. Box 2600
Valley Forge, PA 19482............................... 14,495,250(8) 5.15
David Geffen
The David Geffen Company
10 Universal City Plaza, 27th Floor
Universal City, CA 91608............................. 14,087,700(9) 5.0
</TABLE>
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(1) This information is based upon a Schedule 13G/A filed with the Securities
and Exchange Commission ("SEC") by: ESL Partners, L.P., ESL Institutional
Partners, L.P. and CBL Partners, L.P., One Lafayette Place, Greenwich
Connecticut 06830, ESL Limited, Hemisphere House, 9 Church Street, Hamilton,
Bermuda, MSD Portfolio L.P.--Investments, RPKS, Investments, LLC, Triple
Marlin Investments, LLC and Michael Dell Personal Income Trust: c/o MSD
Capital L.P., 780 3rd Avenue 43rd Floor, New York, New York, 10017, Ziff
Asset Management, L.P.: c/o PBK Holdings, Inc., 283 Greenwich Avenue, Third
Floor, Greenwich, Connecticut 06830.
(2) The above described beneficial owners report voting and dispositive power as
of December 31, 1999 as follows: ESL Partners reports sole voting and
dispositive power with respect to 10,521,057 shares; ESL Limited reports
sole voting and dispositive power with respect to 2,488,849 shares; ESL
Institutional Partners reports sole voting and dispositive power with
respect to 219,628 shares; CBL Partners, L.P. reports sole voting and
dispositive power with respect to 8,533,777 shares; MSD portfolio
L.P.--Investments reports sole voting and dispositive power with respect to
2,624,117 shares and disclaims beneficial ownership of all shares
beneficially owned by ESL, Limited, Institutional, CBL and Ziff; RPKS
Investments, LLC reports no voting power and no dispositive power and
disclaims beneficial ownership of all shares beneficially owned by ESL,
Limited, Institutional, CBL and Ziff; Triple Marlin Investments, LLC reports
no voting or dispositive power and disclaims beneficial ownership of all
shares beneficially owned by ESL, Limited, Institutional, CBL and Ziff;
Michael Dell Personal Income Trust reports sole voting and dispositive power
with respect to 50,000 shares and disclaims beneficial ownership of all
shares beneficially owned by ESL, Limited, Institutional, CBL and Ziff; Ziff
Asset Management, L.P. reports sole voting and dispositive power with
respect to 750,789 shares and disclaims beneficial ownership of all shares
beneficially owned by ESL, Limited, Institutional, CBL, MSD, RPKS, Triple
and Trust.
(3) This information is based on a Schedule 13G filed with the SEC by Wellington
Management Company LLP ("WMC"), as investment adviser, and reports shared
voting power with respect to 5,111,045 shares and shared dispositive power
with respect to 21,380,895 shares. Vanguard Health Care Fund, a client of
WMC, is the record holder of more than five percent of the shares reported
by WMC. See Footnote 8.
(4) This information is based on a Schedule 13G filed with the SEC and reports
shares held in trust for the benefit of participants in the McKesson HBOC
Profit-Sharing Investment Plan, for which the Chase Manhattan Bank, N.A. is
the Trustee. Shares that have been 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 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.
(5) This information is based on a Schedule 13G filed with the SEC by: AXA, 9
Place Vendome, 75001 Paris France and AXA Financial, Inc. (formerly known as
The Equitable Companies Incorporated), 1290 Avenue of the Americas, New
York, NY 10104; 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.
(6) The above described owners report voting and dispositive power as of
December 31, 1999 as follows: The Mutuelles AXA as a group, AXA, AXA
Financial, Inc. each report no voting or dispositive power, their
subsidiaries report as follows: Allance Capital Management L.P. reports
shared voting power with respect to 1,453,807 shares, shared voting power
with respect to 13,195,275 shares, sole dispositive power with respect to
14,814,253 shares and shared dispositive power with respect to 76 shares;
Donaldson, Lufkin & Jenrette Securities Corporation reports sole voting
power with respect to 70,288 shares, sole dispositive power with respect to
77,373 shares and shared dispositive power with respect to 62,214 shares;
the Equitable Life Assurance Society of the United States reports sole
voting power with respect to 303,000 shares, shared voting power with
respect to 386,320 shares, and sole dispositive power with respect to
689,320 shares; and Wood, Struthers & Winthrop management Corporation
reports sole dispositive power with respect to 3,552 shares.
(7) This information is based on a Schedule 13G filed with the SEC by Legg
Mason, Inc. and reports sole voting power with respect to 10,750,014 shares,
shared voting power with respect to 4,170,079 shares and shared dispositive
power with respect to 14,920,093 shares.
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<PAGE> 8
(8) This information is based on a Schedule 13G filed with the SEC by Vanguard
Specialized Funds--Vanguard Health Care Fund and reports sole voting power
with respect to 14,495,250 shares and shared dispositive power with respect
to 14,495,250 shares. See Footnote 3.
(9) This information is based on a Schedule 13D filed with the SEC by David
Geffen as of February 11, 2000, and reports sole voting and dispositive
power with respect to 14,087,700 shares.
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, as of June 1, 2000, except as otherwise noted,
information regarding ownership of the Company's outstanding common stock by (i)
each Named Executive Officer, as defined on page 13, (ii) each director and
(iii) all executive officers and directors as a group. The table also includes
the number of shares subject to outstanding options to purchase common stock of
the Company which are currently exercisable within 60 days of June 1, 2000.
<TABLE>
<CAPTION>
PERCENT
SHARES OF COMMON STOCK OF
NAME OF INDIVIDUAL BENEFICIALLY OWNED(1) CLASS
------------------ ---------------------- -------
<S> <C> <C>
Alfred C. Eckert III........................ 80,004(2)(6) *
Tully M. Friedman........................... 57,755(3)(4)(6)(7) *
John H. Hammergren.......................... 749,696(6)(8) *
Alton F. Irby III........................... 93,004(6) *
M. Christine Jacobs......................... 28,398(3)(6) *
Paul C. Julian.............................. 143,722(6)(8) *
Martin M. Koffel............................ 7,500(6) *
Graham O. King.............................. 96,809(6)(8) *
David L. Mahoney............................ 1,117,615(5)(6)(8) *
Mark T. Majeske............................. 734,557(6)(8) *
Gerald E. Mayo.............................. 123,124(6) *
James V. Napier............................. 138,494(3)(6) *
David S. Pottruck........................... 39,827(3)(6) *
Mark A. Pulido.............................. 2,191,293(6)(8) *
Carl E. Reichardt........................... 43,166(3)(6)(7) *
Alan Seelenfreund........................... 1,326,492(3)(6)(8) *
Jane E. Shaw................................ 55,990(3)(4)(6)(7) *
All Directors and Executive Officers as a
group (20 Persons)........................ 7,602,782(6)(7)(8)(9) 2.68%
</TABLE>
* Less than 1%
------------
(1) Represents shares held as of June 1, 2000 directly and with sole voting and
investment power (or with voting and investment power shared with a spouse)
unless otherwise indicated. The number of shares of common stock owned by
each director, or executive officer represents less than 1% of the
outstanding shares of such class. All directors and executive officers as a
group own 2.68% of the outstanding shares of common stock.
(2) Includes 49,900 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.
(3) Includes restricted stock units and share units accrued under the 1997
Non-Employee Directors' Equity Compensation and Deferral Plan, as described
beginning on page 9, and the 1994 Stock Option and Restricted Stock Plan as
follows: Mr. Friedman, 5,603 units; Ms. Jacobs, 998 units; Mr. Napier, 1,045
units; Mr. Pottruck, 2,308 units; Mr. Reichardt, 3,647 units; Mr.
Seelenfreund 503 units and Dr. Shaw, 4,883 units and all non-employee
directors as a group, 18,987 units. Directors have neither voting nor
investment power in respect of such units.
(4) Includes common stock units accrued under the Directors' Deferred
Compensation Plan, as described on page 9, as follows: Mr. Friedman, 633
units; Dr. Shaw, 5,115 units; and those directors as a group, 5,748 units.
Participating directors have neither voting nor investment power in respect
of such units.
(5) Includes 6,000 shares held jointly with spouse.
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<PAGE> 9
(6) Includes shares that may be acquired by exercise of stock options within 60
days of June 1, 2000 as follows: Mr. Eckert, 29,364; Mr. Friedman, 35,519;
Mr. Hammergren, 382,675; Mr. Irby, 88,564; Ms. Jacobs, 27,400; Mr. Julian,
70,000; Mr. King, 59,244; Mr. Koffel, 7,500; Mr. Mahoney, 759,815; Mr.
Majeske, 392,810; Mr. Mayo, 121,124; Mr. Napier, 109,069; Mr. Pottruck,
32,519; Mr. Pulido, 1,750,000; Mr. Reichardt, 29,519; Mr. Seelenfreund,
1,184,920; Dr. Shaw, 35,519; and all directors and executive officers as a
group, 5,463,917.
(7) Includes shares held by family trusts as to which each of the following
named directors and their respective spouses have shared voting and
investment power: Mr. Reichardt, 10,000 shares; and Dr. Shaw, 10,473 shares;
and those directors as a group, 20,473 shares. Also includes 14,000 shares
held in a revocable trust established by and for the benefit of Mr. Friedman
who is the sole trustee of such trust.
(8) Includes shares held under the Company's PSIP as of March 31, 2000, as to
which the participants have sole voting but no investment power, as follows:
Mr. Hammergren, 1,201 shares; Mr. Julian, 1,065 shares; Mr. King, 65 shares;
Mr. Mahoney, 6,290 shares; Mr. Majeske, 1,747 shares; Mr. Pulido, 1,293
shares; Mr. Seelenfreund, 19,156 shares: and all directors and executive
officers as a group, 45,973 shares.
(9) Includes 1,400 shares held by a member of the group as custodian for his
minor child.
PROPOSALS TO BE VOTED ON
1. ELECTION OF DIRECTORS
The Board is divided into three classes for purposes of election. One class is
elected at each annual meeting of stockholders to serve for a three-year term.
Directors hold office until the end of their terms and until their successors
have been elected and qualified, or until their earlier death, resignation, or
removal. If a nominee is unavailable for election, your proxy authorizes the
persons named in the proxy to vote for a replacement nominee if the Board names
one. As an alternative, the Board may reduce the number of directors to be
elected at the meeting. The Board is not aware that any nominee named in the
proxy statement will be unwilling or unable to serve as a director.
--------------------------------------------------------------------------------
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 2003
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES.
TULLY M. FRIEDMAN
Chairman and Chief Executive Officer, Friedman Fleischer & Lowe, LLC
Mr. Friedman, age 58, is Chairman and Chief Executive Officer of Friedman
Fleischer & Lowe, LLC, a private investment firm founded in 1997. He was a
founding partner of Hellman & Friedman from 1984 until 1997. He is a director of
The Clorox Company, Levi Strauss & Co. and Mattel, Inc. Mr. Friedman has been a
director of the Company since 1992. He is a member of the Ad Hoc and
Compensation Committees of the Board.
ALTON F. IRBY III
Chairman, Hawkpoint Partners
Mr. Irby, age 59, has been Chairman of Hawkpoint Partners (formerly NatWest
Global Corporate Advisory) a London based investment banking business, since
1997. He was co-founder of J.O. Hambro Magan Irby Holdings from 1988 until 1997.
He is Chairman and Founder of MM Media Capital Partners Ltd. and is a Partner of
Gleacher & Co. He is also a director of City Capital Counseling, Inc., Eastgate
Group Ltd., and Crown Communications Ltd. Mr. Irby has been a director of the
Company since January 1999, and was a director of HBOC from 1990 until the
Acquisition. He is a member of the Compensation Committee of the Board.
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<PAGE> 10
JAMES V. NAPIER
Chairman of the Board, Scientific-Atlanta, Inc.
Mr. Napier, age 63, has been Chairman of the Board, Scientific-Atlanta, Inc., a
cable and telecommunications network company, since 1993. He is also a director
of Engelhard Corporation, Personnel Group of America, Inc., Vulcan Materials
Company, Intelligent Systems, Inc. and WABTEC Corporation. Mr. Napier has been a
director of the Company since January 1999, and was a director of HBOC from 1980
until the Acquisition. 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 68, has been Chairman of the Board, Retired, Wells Fargo &
Company, a bank holding company, since 1994. He is also a director of HCA-The
Healthcare Co., ConAgra, Inc., Ford Motor Company, Newhall Management
Corporation, PG&E Corporation and HSBC Holdings, plc. Mr. Reichardt has been a
director of the Company since 1996. He is a member of the Ad Hoc, Audit, and
Compensation Committees of the Board.
DIRECTORS WHOSE TERMS WILL EXPIRE IN 2002
ALFRED C. ECKERT III
Chairman and Chief Executive Officer of GSC Partners
Mr. Eckert, age 52, has been Chairman and Chief Executive Officer of GSC
Partners, a private investment firm, since January 1994. He is also a director
of Eastgate Group Limited. Mr. Eckert became a director of the Company in
January 1999, and was a director of HBOC from 1990 until the Acquisition. He is
Chairman of the Compensation Committee of the Board.
GERALD L. MAYO
Chairman of the Board, Retired, Midland Financial Services, Inc.
Mr. Mayo, age 67, has been Chairman of the Board, Retired, Midland Financial
Services, Inc., the holding company for the Midland Life Insurance Company since
1997. Mr. Mayo is also a director of Columbia Energy Group, and Dominion Homes,
Inc. He has been a director of the Company since January 1999, and was a
director of HBOC from 1991 until the Acquisition. He is a member of the Ad Hoc
and Audit Committees of the Board.
ALAN SEELENFREUND
Chairman of the Board
Mr. Seelenfreund, age 63, 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. 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 been a director
of the Company since 1988. He is Chairman of the Ad Hoc Committee of the Board.
JANE E. SHAW
Chairman of the Board and Chief Executive Officer, AeroGen, Inc.
Dr. Shaw, age 61, 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. She is Chairman of the Board of
IntraBiotics Pharmaceuticals, Inc., and a director of Boise
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<PAGE> 11
Cascade Corporation and Intel Corporation. Dr. Shaw has been a director of the
Company since 1992. She is Chairman of the Audit Committee of the Board.
DIRECTORS WHOSE TERMS WILL EXPIRE IN 2001
JOHN H. HAMMERGREN
Co-President and Co-Chief Executive Officer
Mr. Hammergren, age 41, has been Co-President and Co-Chief Executive Officer
since July 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. He has been a director since July 1999.
M. CHRISTINE JACOBS
Chairman, President and Chief Executive Officer, Theragenics Corporation
Ms. Jacobs, age 49, is Chairman, President & Chief Executive Officer,
Theragenics Corporation, a cancer treatment products manufacturing and
distributing company, since 1998. She was Co-Chairman of the Board from 1997 to
1998 and was elected President in 1992 and Chief Executive Officer in 1993. Ms.
Jacobs became a director of the Company in January 1999, and she was a director
of HBOC from 1998 until the Acquisition. She is a member of the Compensation
Committee of the Board.
MARTIN M. KOFFEL
Chairman, Chief Executive Officer and Director, URS Corporation
Mr. Koffel, age 61, is Chairman, Chief Executive Officer and Director of URS
Corporation, a global engineering and design company since 1989. He is a
director of James Hardie Industries Limited. He became a director of the Company
in March 2000.
DAVID L. MAHONEY
Co-President and Co-Chief Executive Officer
Mr. Mahoney, age 46, has been Co-President, Co-Chief Executive Officer and
Director of the Company since July 1999. He was Executive Vice President and
Chief Executive Officer of the Pharmaceutical Services Business of the Company
from January 1999 to July 1999; Group President, Pharmaceutical Services and
International Group from August 1997 to January 1999; President, Pharmaceutical
Services Group from December 1995 to August 1996 and President, Health Care
Delivery Systems, Inc. subsidiary from 1994 until December 1995. He has been a
director since July 1999.
DAVID S. POTTRUCK
President, Co-Chief Executive Officer & Chief Operating Officer, The Charles
Schwab Corporation
Mr. Pottruck, age 51, has been President and Co-Chief Executive Officer of The
Charles Schwab Corporation, a financial services provider since 1998. He was
Chief Operating Officer from 1994 until 1998 and has been President and Chief
Executive Officer of Charles Schwab & Co, Inc. since 1992. He is a director of
DoveBid, Inc., Epoch Partners, Inc., Intel Corporation and is a member of the
Board of Governors of the National Association of Securities Dealers. Mr.
Pottruck has been a director of the Company since 1997. He is a member of the
Compensation Committee of the Board.
7
<PAGE> 12
BOARD MEETINGS AND COMMITTEES
During the fiscal year ended March 31, 2000, the Board of Directors met 13
times. No director attended fewer than 75% of the aggregate number of meetings
of the Board and of all the committees on which he or she served except for Mr.
Pottruck who attended 68% of the meetings. Directors meet their responsibilities
not only by attending Board and committee meetings, but also through
communication with executive management on matters affecting the Company.
The members of each standing committee are elected by the Board each year for a
term of one year or until his or her successor is elected. The full Board acts
as a nominating committee.
COMMITTEES OF THE BOARD
The Audit Committee, which consists of Jane E. Shaw, Chair, Gerald E. Mayo,
James V. Napier and Carl E. Reichardt, met 15 times during the year ended March
31, 2000. The Audit Committee is responsible for, among other things, reviewing
the annual audited financial statements with management, including major issues
regarding accounting and auditing principles and practices as well as the
adequacy and effectiveness of internal controls that could significantly affect
the Company's financial statements; reviewing with financial management and the
independent auditor the interim financial statements prior to the filing of the
Company's quarterly reports on Form 10-Q; recommending to the Board the
appointment of the independent auditor; evaluating the performance of the
independent auditor; approving the fees to be paid the independent auditor;
reviewing and accepting the annual audit plan, including the scope of the audit
activities of the independent auditor; at least annually reassessing the
adequacy of the Committee's charter and recommending to the Board any proposed
changes; reviewing major changes to the Company's auditing and accounting
principles and practices; reviewing the appointment, performance, and
replacement of the senior internal audit department executive; advising the
Board with respect to the Company's policies and procedures regarding compliance
with applicable laws and regulations and with the Company's code of conduct;
performing such other activities and considering such other matters, within the
scope of its responsibilities, as the Committee or Board deems necessary or
appropriate. The composition of the Audit Committee, the attributes of its
members, and the responsibilities of the Committee, as reflected in its charter,
are intended to be in accord with the Securities and Exchange Commission and New
York Stock Exchange listing requirements adopted in December of 1999 with regard
to corporate audit committee charters.
The Compensation Committee, which consists of Alfred C. Eckert III, Chairman,
Tully M. Friedman, Alton F. Irby III, M. Christine Jacobs, David S. Pottruck and
Carl E. Reichardt, met nine times during the year ended March 31, 2000. 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 of the Board;
making recommendations to the Board regarding the compensation and terms and
conditions of employment of the Chairman of the Board and the 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.
The Ad Hoc Committee, which consists of Alan Seelenfreund, Chairman, Tully M.
Friedman, Gerald E. Mayo and Carl E. Reichardt, met three times during the year
ended March 31, 2000.
8
<PAGE> 13
The Committee has responsibility for consulting with and providing counsel and
guidance to the senior management of the Company on an ad hoc basis.
The full Board acts as a nominating committee, and met two times in this
capacity during the year ended March 31, 2000. The Board, in evaluating
candidates, seeks individuals of proven judgment and competence that are
outstanding in their chosen fields. It also considers factors such as education,
geographic location, background, anticipated participation in the 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, CA 94104, stating in detail the
candidate's qualifications for consideration by the Board. A stockholder who
wishes to nominate a director must comply with certain procedures set forth in
the Company's Restated By-Laws (see "Advance Notice Procedures").
DIRECTOR COMPENSATION
Directors who are employees of the Company or its subsidiaries do not receive
any compensation for service on the Board. Cash compensation for non-employee
directors includes the following:
- an annual retainer of $27,500
- $1,000 for each Board or committee meeting attended
- an annual retainer of $3,000 to committee chairpersons, and
- expenses of attending Board and committee meetings.
Non-Employee Directors' Equity Compensation and Deferral Plan
Non-employee directors participate in the 1997 Non-Employee Directors' Equity
Compensation and Deferral Plan. Under this plan, each director is required to
defer the receipt of 50% of his or her annual retainer into one of the
following:
- Restricted Stock Units, as 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 are payable; or
- Retainer Options, as shares granted to directors in January of each year
using the same conversion rate that is used for employee bonus options
for the purpose of determining the number of shares, which for calendar
year 2000, is 20% of the closing stock price on the date of grant. The
Retainer Options are granted at fair market value on the date of grant,
become fully vested after one year from date of grant and have a term of
ten years.
The remainder of director fees earned in any calendar year may be paid as
follows:
- Cash;
- Deferred Compensation under the Deferred Compensation Administration Plan
II with a minimum deferral of $5,000 for a period of at least 5 years; or
- Additional Restricted Stock Units.
Directors may also elect to defer the gain and subsequent taxation of an
exercise of an expiring stock option. The shares resulting from an exercise are
credited to the Director's account in the form of share units and distributed at
a future time according to the Director's election.
Each January, directors are also granted a non-qualified stock option for 10,000
shares of the Company's common stock. Directors who join the board after January
will receive a prorated option grant. The options are immediately exercisable,
are granted at the fair market value on the date of grant, and have a term of
ten years.
9
<PAGE> 14
Change in Control Provision
The Non-Employee Directors' Equity Compensation and Deferral Plan provides that
in the event of a change in control:
- Outstanding options become immediately exercisable;
- Restricted Stock Units will be immediately distributed unless the
director has made an irrevocable election to have the acceleration
provisions waived;
- Deferred amounts held in the DCAP II will be immediately distributed
unless the director has made an irrevocable election to have the
acceleration provisions waived at least 12 months prior to a change in
control.
Prior Deferred Plans
Prior to January 1994, non-employee directors could defer fees under the
Directors' Deferred Compensation Plan, and thereby become participants in the
Company's predecessor deferred compensation plans. Such plans have been replaced
by DCAP II; however previous deferrals under the prior plans will continue to be
administered in accordance with the terms of each plan. Interest on deferrals
under the prior plans is credited at the DCAP II rate, which for fiscal year
ended March 31, 2000 was 9.5%
INDEMNITY AGREEMENTS
The Company has entered into indemnity agreements with each of its directors and
executive officers that provides for indemnification against any judgment or
costs assessed against them in the course of their service. Such agreements do
not permit indemnification for acts or omissions for which indemnification is
not permitted under Delaware law. See Certain Legal Proceedings at page 22.
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 nonemployee 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.
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 long term compensation 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 professional compensation consultants
approved by the Committee and retained by the Company for this purpose.
10
<PAGE> 15
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 long term compensation targets. That group
represents a cross-section of pharmaceutical, healthcare services and other
nonmanufacturing companies as well as information technology and software
companies and were selected based on a number of factors including similarity to
the Company in financial attributes and size.
COMPONENTS OF COMPENSATION
Base Pay
The Company's executive compensation program consists of base salary, a
short-term incentive plan and long-term incentives (stock options, restricted
stock and cash). Base salary is reviewed annually. Actual base salary is driven
by individual performance, competitive practices and level of responsibility.
Salary increases for FY 2000 reflect the Committee's determination that base
salary levels should be increased to recognize increased responsibilities 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 versus pre-established
income objectives. The actual awards to the executives are reduced, from the
maximums established by the above procedure, by the Committee exercising
"negative discretion" in accordance with regulations under Section 162(m) with
respect to this type of plan. Based on the Company's and individual business
unit's results for FY 2000, only one Named Executive Officer (defined below
under Executive Compensation) received an award under the MIP. That award
reflects strong performance of the business unit the executive managed for FY
2000. The former Chief Executive Officer also received a payment for FY 2000
pursuant to his employment agreement.
Long Term Incentives
The Company's long-term incentive program has two components: a stock option
component and a cash component. Under this program:
- participants are granted nonqualified stock options to purchase shares of
the Company's common stock at fair market value;
- the Committee establishes a target cash award for each participant under
the Long-Term Incentive Plan ("LTIP"), the cash component of the long
term incentive program, which cash award is reduced if financial targets
are not met.
No cash award was made under this LTIP during FY 2000.
Payments were made in FY 2000 under the Company's former LTIP, which was amended
in 1997 principally to comply with the provisions of Section 162(m) of the Code.
These payments to certain Named Executive Officers reflect awards that had been
granted for the period April 1996 through March 31, 2000, which payments are
reflected in the Summary Compensation Table.
11
<PAGE> 16
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.
The McKesson HBOC 1994 Stock Option and Restricted Stock Plan restricts the
maximum restricted stock grant that can be made to an individual in a year to
40,000 shares and the maximum option grant to an individual to 600,000 shares.
The Company's restatement of its financial results made during FY 2000 reduced,
and in many instances eliminated, the value of options held by employees of the
Company. The Company faces a severe challenge to retain key employees. The
Committee therefore concluded that it was necessary to make additional grants of
options and restricted stock grants to certain executives under new plans. All
grants are reflected in the Summary Compensation Table.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICERS
Mark A. Pulido, the former CEO, resigned from the Company effective July 15,
1999; John Hammergren and David Mahoney were promoted to the positions of
Co-Presidents and Co-CEOs at that time. Management, with the assistance of
outside consultants, prepared a market analysis of the Co-CEO position. After
review, and based on market data, their annual base salaries were each raised to
$750,000. In August, Messrs. Hammergren and Mahoney were each granted an option
to purchase 2 million shares of the Company's common stock at fair market value.
In January, Messrs. Hammergren and Mahoney were each granted an additional
option to purchase 300,000 shares of common stock at fair market value as part
of the normal option grant cycle, and they were each granted 200,000 shares of
restricted stock. Taken together, these grants are consistent with the
Committee's guidelines to provide long-term compensation at the 75th
percentile and belief that executive compensation should be linked to increasing
stockholder value. In addition, they each received cash awards under the former
LTIP for the four-year period ending March 31, 2000 which awards appear in the
Summary Compensation Table.
Because the Company's financial results were below targets set for FY 2000, no
awards were made to Messrs. Hammergren or Mahoney under the MIP.
At the time of their promotion, no specific performance targets were established
for the Co-CEOs for the balance of FY 2000. Their charge from the Board was to
reestablish financial integrity and management stability. As illustrated by the
following accomplishments during the year, these two goals have been
substantially achieved.
An experienced and highly qualified Chief Financial Officer was hired in
February 2000. The senior management team at the former HBOC has been replaced,
and the employee base has largely been stabilized. The supply management
business has been reorganized combining pharmaceutical and medical distribution
under a single focused management team. Changes in shared services operations
designed to enhance margins in the supply management business are underway.
The successful sale of the McKesson Water Products Company for approximately
$1.1 billion in cash will allow management to focus solely on the health care
industry. $175 million was realized from the Company's investment in WebMD and
other non-core holdings and a private placement of $335 million of debt
instruments was accomplished during the year. These activities have
significantly strengthened the Company's balance sheet.
12
<PAGE> 17
It is the Committee's view that the total compensation package for the Co-Chief
Executive Officers for FY 2000 was based on an appropriate balance of the
Company's performance, their own performance and competitive practices.
Compensation Committee of the Board
Alfred C. Eckert III
Tully M. Friedman
Alton F. Irby III
M. Christine Jacobs
David S. Pottruck
Carl E. Reichardt
EXECUTIVE COMPENSATION
The following table discloses compensation earned by the Co-Presidents and
Co-Chief Executive Officers, the former Chief Executive Officer and the four
other most highly paid executive officers (the "Named Executive Officers") for
the three fiscal years ended March 31, 2000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------------- -----------------------------------------------
AWARDS PAYOUTS
----------------------- ---------------------
OTHER SECURITIES
ANNUAL RESTRICTED UNDERLYING ALL OTHER
COMPEN- STOCK OPTIONS/ LTIP COMPEN-
SALARY BONUS SATION AWARD(S) SARs PAYOUTS SATION
NAME AND PRINCIPAL POSITION YEAR ($) ($)(1) ($)(2) ($)(3) (#) ($) ($)(4)
--------------------------- ---- ------- --------- ------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Alan Seelenfreund(5) 2000 369,231 0 77,757 0 1,150,000 228,202 347,114
Chairman of the Board
John H. Hammergren 2000 692,308 0 108,491 4,200,000 2,300,000 60,970 74,229
Co-President and Co-Chief 1999 420,000 622,100 76,992 0 1,219,850 1,556,150 1,676,275
Executive Officer 1998 401,667 396,006 73,733 0 109,666 43,400 29,434
David L. Mahoney 2000 692,308 0 33,382 4,200,000 2,300,000 48,776 56,776
Co-President and Co-Chief 1999 400,000 504,990 0 0 1,215,715 1,566,780 1,655,424
Executive Officer 1998 358,333 353,900 93,312 0 106,900 62,000 38,453
Paul C. Julian(5) 2000 362,500 315,000 51,992 1,260,000 500,000 0 28,862
Senior Vice President and
President, Supply Management
Business
Graham O. King(5) 2000 515,760 0 48,841 525,000 1,125,000 0 1,254,845
Senior Vice President and
President, Information Technology
Business
Mark T. Majeske(5) 2000 425,000 0 28,030 4,200,000 350,000 52,260 45,880
Senior Vice President and Group 1999 400,000 554,990 68,592 0 1,203,215 1,556,700 1,509,776
President, Retail and 1998 330,000 493,995 104,529 0 88,445 47,120 21,653
Customer Operations
Mark A. Pulido(5) 2000 850,000 850,000 44,124 0 0 130,650 21,739
1999 850,000 0 0 0 3,660,000 6,189,000 525,972
1998 700,000 1,550,000 61,887 0 370,000 186,000 129,558
</TABLE>
------------
(1) For FY 2000 no bonuses were paid to any of the Named Executive Officers
under the MIP except to Mr. Julian, reflecting strong performance in his
business unit and to Mr. Pulido who was paid in accordance with the terms of
his amended employment agreement with the Company entered as of March 26,
1999. His bonus payment was reduced by $117,500 to reflect amounts owing for
bonus options granted in FY 1999.
(2) Other Annual Compensation includes for Mr. Seelenfreund, use of the
Company's aircraft $35,853; for Mr. Hammergren, an annual housing assistance
payment of $50,000, described under "Indebtedness of Executive Officers";
for Mr. Julian, Executive Medical Benefits, $14,992 and an annual housing
assistance payment of $25,000, also described under "Indebtedness of
Executive Officers"; and for Mr. Pulido, includes amounts paid for certain
benefits pursuant to the terms of his employment agreement with the Company.
(3) The number and value of the aggregate restricted stock holdings of the Named
Executive Officers on March 31, 2000 (based on the closing price for the
Company's common stock of $21.00 on that date) were as follows: Mr.
Seelenfreund 0, $0; Messrs. Hammergren, Mahoney and Majeske each have
200,000 shares, with a value for each of $4,200,000; Mr. Pulido, 0, $0; Mr.
Julian, 60,000, $1,260,000; and Mr. King, 25,000, $525,000.
13
<PAGE> 18
(4) For FY 2000, includes the aggregate value of (i) the Company's stock
contributions under the PSIP, a plan designed to qualify as an employee
stock ownership plan under the Internal Revenue Code ("Code"), allocated to
the accounts of the Named Executive Officers as follows: Mr. Seelenfreund
$22,485; Mr. Hammergren $5,871; Mr. Mahoney $8,377; Mr. Julian $8,141; Mr.
King $1,365; Mr. Majeske $8,246; Mr. Pulido $3,736 (ii) employer matching
contributions under the Supplemental PSIP, an unfunded nonqualified plan
established because of limitations on annual contributions contained in the
Code, as follows: Mr. Seelenfreund $0, Mr. Hammergren $19,875, Mr. Mahoney
$33,748, Mr. Julian $9,915, Mr. King $3,480, Mr. Majeske $25,420 and Mr.
Pulido $4,038, and (iii) above market interest accrued on deferred
compensation as follows: Mr. Seelenfreund $283,129, Mr. Hammergren $48,483,
Mr. Mahoney $14,651, Mr. Julian $10,806, Mr. King $0, Mr. Majeske $12,214,
and Mr. Pulido $13,965. Amounts for Mr. King include a $1,250,000 retention
payment, representing 50% of the total retention payment of $2.5 million
payable in two installments. As a nonemployee director, in FY 2000, Mr.
Seelenfreund received $41,500 in retainer and meeting fees in the form of
restricted stock units and retainer options as described in "Director
Compensation" prior to his becoming an executive officer of the Company.
(5) Mr. Seelenfreund became an executive officer of the Company effective July
1, 1999. Messrs. Julian and King each became executive officers of the
Company effective August 25, 1999. Mr. Majeske has resigned from the Company
effective June 30, 2000. Mr. Pulido resigned from the Company effective July
15, 1999.
The following table provides information on stock option grants during fiscal
year 2000 to the Named Executive Officers:
OPTION/SAR GRANTS IN THE LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARs
UNDERLYING GRANTED TO EXERCISE OR GRANT DATE
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT VALUE
NAME GRANTED #(1)(2) FISCAL 2000 ($/SH) DATE $#(3)
---- --------------- ------------ ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Alan Seelenfreund............. 1,000,000 4.3 29.81 8/15/09 12,703,300
150,000 .65 20.56 1/30/10 1,349,040
John H. Hammergren............ 2,000,000 8.62 29.81 8/15/09 25,406,600
300,000 1.29 20.56 1/30/10 2,698,080
David L. Mahoney.............. 2,000,000 8.62 29.81 8/15/09 25,406,600
300,000 1.29 20.56 1/30/10 2,698,080
Paul C. Julian................ 200,000 .86 29.81 8/15/09 2,540,660
300,000 1.29 20.56 1/30/10 2,698,080
Graham O. King................ 1,000,000 4.3 29.81 8/15/09 12,703,301
125,000 .67 20.56 1/30/10 1,124,200
Mark T. Majeske............... 250,000 1.08 29.81 8/15/09 3,175,826
100,000 .43 20.56 1/30/10 999,360
</TABLE>
------------
(1) No options were granted with SARs and no freestanding SARs have ever been
granted. Optionees may satisfy the exercise price by submitting currently
owned shares and/or cash. Income tax withholding obligations may be
satisfied by electing to have the Company withhold shares otherwise issuable
under the option with a fair market value equal to such obligations.
(2) The option exercise price of the indicated options was 100% of the fair
market value on the date of grant. For options expiring on 8/15/09, 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. For
options expiring 1/30/10, the options become exercisable in installments of
25% on each of the first, second, third and fourth anniversaries of the date
of grant and expire ten years after the date of the grant.
(3) In accordance with SEC rules, a modified Black-Scholes option-pricing model
was chosen to estimate the grant date present value for the options set
forth in this table. The assumptions used in calculating the reported value
included: an option term of 5 years and a dividend yield of 1.5%; stock
volatility, 46.0% and risk-free interest rate, 6.1%. The Company does not
believe that the Black-Scholes model, or any other model, can accurately
determine the value of an option. Accordingly, there is no assurance that
the value, if any, realized by an executive, will be at or near this value
estimated by the Black-Scholes model. Future compensation resulting from
option grants is based solely on the performance of the Company's stock
price.
14
<PAGE> 19
The following table provides information on the value of each of the Named
Executive Officers' Options at March 31, 2000:
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, 2000 (#) MARCH 31, 2000 ($)(1)
ON EXERCISE REALIZED ------------------------- -------------------------
NAME (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ----------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Alan Seelenfreund.......... 0 0 1,184,920/1,150,000 10,430,283/ 65,625
John H. Hammergren......... 0 0 382,675/3,410,841 0/131,250
David L. Mahoney........... 0 0 759,815/3,300,000 3,997,367/131,250
Paul C. Julian............. 0 0 70,000/ 700,000 0/131,250
Graham O. King............. 0 0 59,244/1,294,400 0/ 54,688
Mark T. Majeske............ 0 0 392,810/1,371,300 129,157/ 43,750
Mark A. Pulido............. 0 0 1,750,000/3,000,000 0/0
</TABLE>
------------
(1) Calculated based upon the fair market value share price of $21.00 on March
31, 2000, 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 June 1, 2000 the closing price of the Company's common stock
was $16.50.
2. APPROVAL OF THE MCKESSON HBOC, INC. 1989 MANAGEMENT INCENTIVE PLAN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE 1989 MANAGEMENT INCENTIVE PLAN
We are asking stockholders to re-approve the 1989 Management Incentive Plan
("MIP") to meet certain tax law requirements, as explained below. The MIP was
last approved by the stockholders at the 1995 Annual Meeting.
The purpose of the MIP is to attract, retain and motivate key employees by
providing cash incentive awards to approximately 1,700 designated executive,
managerial and professional employees of the Company, including the Named
Executive Officers; and the Plan is designed to link managers' interests more
closely with the interests of the Company's stockholders. Payment of incentive
awards to designated employees will be based on (i) individual target awards set
as a percentage of base salary, (ii) individual performance during the year, and
(iii) the achievement by the Company of specified performance goals which have
been established in advance by the Compensation Committee of the Board. No
awards will be paid to designated employees if minimum financial targets are not
met. Such compensation is intended to qualify as "performance-based
compensation" which is fully tax deductible under Section 162(m) of the Internal
Revenue Code with respect to awards to each of the Named Executive Officers. If
the MIP is not approved by the stockholders, the MIP will remain in effect
however, the tax treatment as to deductibility allowed by Section 162(m) will
not be available to the Company.
Section 162(m) of the Internal Revenue Code places a limit of $1 million on the
amount of compensation that may be taken as a tax deduction by the Company in
any tax year with respect to each of the Named Executive Officers. Certain
performance-based compensation approved by the stockholders, including
compensation awarded under the MIP, is not subject to the deduction limit. The
range of performance criteria which can be utilized in the administration of the
MIP is set forth in the Plan. To continue to qualify under Section 162(m), the
stockholders must approve the MIP at least every five years. Accordingly, we are
requesting that the stockholders approve the MIP and extend qualification of the
MIP under Section 162(m) for another five years, from 2000 through 2004. For
more information about the MIP, see Appendix A of this Proxy Statement.
15
<PAGE> 20
No payments were made to the Named Executive Officers or other officers of the
Company for FY 2000 under the MIP, as certain financial performance objectives
for FY 2000 were not met, except in the case of Mr. Julian, who received
$315,000 for FY 2000, and whose business unit's performance qualified for MIP
awards. In addition, Mr. Pulido will receive an MIP award as required by his
existing employment agreement with the Company. The amount of awards payable, if
any, to any individual in any given year is not determinable as awards may vary
from target awards based upon the degree to which pre-established performance
objective are met.
STOCK PRICE PERFORMANCE GRAPH
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
MCKESSON HBOC, INC., STANDARD & POORS 500 AND PEER GROUP
(PERFORMANCE RESULTS THROUGH 3/31/00)
PERFORMANCE GRAPH
<TABLE>
<CAPTION>
VALUE LINE HEALTHCARE
MCKESSON HBOC S&P 500 INDEX SECTOR INDEX
------------- ------------- ---------------------
<S> <C> <C> <C>
3/31/95 100.00 100.00 100.00
3/31/96 129.62 132.14 144.71
3/31/97 165.03 158.49 177.81
3/31/98 301.03 234.75 283.11
3/31/99 345.98 277.65 352.81
3/31/00 111.12 324.47 330.87
</TABLE>
---------------
* Assumes $100 invested in the Company's common stock and in each index at the
close of trading on March 31, 1995 and that all dividends are reinvested.
16
<PAGE> 21
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. Seelenfreund, Hammergren, Mahoney, King, Julian, Majeske and Pulido that
provides for, among other things, the term of employment, compensation and
benefits payable during the term of the Agreement as well as for specified
payments in case of termination of employment. In each case, the Agreement
provides that the executive will participate in all compensation and fringe
benefit programs made available to all executive officers.
The Company entered into an Agreement with Alan Seelenfreund, dated as of August
1, 1999, which expires June 30, 2001. The Agreement provides for an annual base
salary of at least $500,000 and additional incentive compensation, if any, as
may be determined by the Board of Directors; provided that, any incentive
compensation awarded under the MIP will be calculated using an individual target
award of 100% of base salary. The Agreement also provides Mr. Seelenfreund with
options to purchase 1 million shares of the Company's common stock with an
exercise price of $29.8125 per share. In addition, the Agreement provides that,
in the event (i) the Company terminates Mr. Seelenfreund's employment without
"Cause" or (ii) he terminates his employment for "Good Reason" (each as defined
in the Agreement), he will be entitled to (A) his then base salary and incentive
compensation (using an individual target award of 100% of base salary), for the
remainder of the term of the Agreement; (B) continued monthly automobile
allowance for the remainder of the term of the Agreement; and (C) accelerated
vesting of all his stock options. Under such circumstances, Mr. Seelenfreund's
participation in the Company's tax-qualified profit-sharing plans and stock
purchase plans will terminate as of his date of termination, in accordance with
the plans. Under the Agreement, the Company will pay Mr. Seelenfreund a gross-up
payment to cover the excise taxes and interest imposed on "excess parachute
payments" as defined in Section 280G of the Code.
The Company has entered into amended and restated Agreements with each of John
H. Hammergren and David L. Mahoney, respectively, replacing their prior
employment agreements with the Company. The term of the Amended and Restated
Agreements shall expire March 31, 2004, provided, that the term will be
automatically extended by one year on March 31, 2004, and each anniversary
thereof, unless either party gives notice that such term will not be so
extended. Each Agreement provides for an annual base salary of at least $750,000
and such additional incentive compensation, if any, as may be determined by the
Board of Directors; provided that, any incentive compensation awarded to either
executive under the Company's MIP shall be calculated using an Individual Target
Award of 100% of base salary. In addition, each executive was granted options to
purchase 2 million shares of Company common stock at an exercise price of
$29.8125 per share. In addition, each Amended and Restated Agreement provides
that, in the event (i) the Company terminates the executive without "Cause,"
(ii) the executive terminates for "Good Reason" (each as defined in the
Agreements) or (iii) the Company elects not to extend the term of the Agreement,
the executive will be entitled to (A) receive payment of his then base salary
and incentive compensation (using an Individual Target Award of 100% of base
salary), for the remainder of the term of the Agreement, but in no event for
less than two years; (B) continued monthly automobile allowance and
participation in the Deferred Compensation Administration Plan II for the term
of the Agreement, (C) continued accrual and vesting in his rights and benefits
under the Executive ESBP and EBRP, calculated on the basis of his receiving (x)
Approved Retirement commencing on the expiration of the Agreement and (y) with
respect to the EBRP, a benefit calculated on the basis of 60% of Average Final
Compensation then specified in the EBRP without any reduction for early
retirement (see "Pension Benefits"), (D) lifetime coverage under the Company's
Executive Medical Plan and financial counseling program, as well as, lifetime
office space and secretarial support; (E) with respect to Long Term Incentive
Plan awards granted January 27, 1999, receive such awards in accordance with the
17
<PAGE> 22
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 (F) if such
termination occurs (x) 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 (y) 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 (as
defined in the Amended and Restated Agreement), executive will be entitled to a
gross-up payment to cover the excise taxes and interest imposed on "excess
parachute payments" as defined in Section 280G of the Code.
The Company entered into an Agreement with Graham O. King effective as of June
21, 1999. The term of the Agreement shall expire the earlier of March 31, 2004
or the date that Mr. King shall have been granted "Approved Retirement" status
under the Company's EBRP. The Agreement provides for an annual base salary of at
least $580,000, a retention payment of $2.5 million, payable in two installments
of $1.25 million, plus such additional incentive compensation, if any, as may be
determined by the Board; provided that, any compensation awarded to Mr. King
under the Company's MIP shall be calculated using an Individual Target Award of
75% of base salary. Mr. King was granted a nonqualified option to purchase 1
million shares of the Company's common stock, with an exercise price of $29.8125
per share. With respect to Mr. King's participation in the EBRP and ESBP, the
Co-Chief Executive Officers shall recommend to the Board that he be granted
Approved Retirement upon the satisfaction of certain requirements, and if Mr.
King accrues 5 years of actual service credit pursuant to the EBRP and the ESBP,
he shall be granted additional service credit for prior service with HBOC and a
previous employer. The Agreement provides that in the event the Company
terminates the executive without "Cause" or the executive terminates for "Good
Reason", both as defined in the Agreement, the Company shall (A) continue his
then base salary, reduced by any compensation he receives from a subsequent
employer during such term (B) consider him for a bonus under the Company's MIP
for the fiscal year in which termination occurs (C) continue his automobile
allowance, financial planning allowance and Executive Medical Plan benefits
until the expiration of the Agreement, (D) continue the accrual and vesting of
his rights, benefits and existing awards for purposes of the EBRP, ESBP, and
Stock Option and Restricted Stock Plan.
The Company entered into an Agreement with Paul C. Julian, effective as of
August 1, 1999. The term of the Agreement shall expire March 31, 2002. The
Agreement provides for an annual base salary of at least $350,000, which annual
base salary was recently increased to $500,000 to reflect his increased
responsibilities, and such additional compensation, if any, as may be determined
by the Board of Directors; provided that, any incentive compensation awarded to
the executive under the Company's MIP shall be calculated using an Individual
Target Award of 60% of base salary, reduced by any compensation he receives from
a subsequent employer during such term. In addition, Mr. Julian was granted
options to purchase 200,000 shares of Company common stock with an exercise
price of $29.8125 per share. The Agreement provides that, in the event the
Company terminates the executive without "Cause," or the executive terminates
for "Good Reason", both as defined in the Agreement, the Company shall (A)
continue his then base salary, reduced by any compensation he receives from a
subsequent employer during such term (B) consider him for a bonus under the
Company's MIP for the fiscal year in which termination occurs, (C) continue his
automobile allowance and Executive Medical Plan benefits until the expiration
date of the Agreement (D) continue the accrual and vesting of his rights,
benefits and existing awards for the remainder of the term of the Agreement for
purposes of the EBRP, ESBP and the Stock Option and Restricted Stock Plan.
The Company entered into an Agreement with Mark T. Majeske, effective as of
March 31, 1999. The term of the Agreement shall expire March 31, 2003. The
Agreement provides for an annual base salary of at least $425,000, plus such
additional incentive compensation, if any, as may be determined by the Board,
and a retention payment of $1.5 million, Mr. Majeske was also granted
18
<PAGE> 23
an LTIP award of $5 million payable, if earned, 50% at the end of three years,
and 50% at the end of five years, which amounts will be reduced accordingly if
financial targets are not met. Mr. Majeske was granted a nonqualified option for
1 million shares of the Company's common stock with an exercise price of $73 per
share. In addition, the Agreement provides that in the event the Company
terminates the executive without "Cause" or the executive terminates for "Good
Reason", both as defined in the Agreement, the Company shall (A) continue his
then base salary, reduced by any compensation he receives from a subsequent
employer during such term (B) consider him for a bonus under the Company's MIP
for the fiscal year in which termination occurs, (C) continue his automobile
allowance and Executive Medical Plan benefits until the earlier of the
expiration date of the Agreement or the effective date of his medical coverage
under a subsequent employer's plan or policy (D) continue the accrual and
vesting of his rights, benefits and existing awards for the remainder of the
term of the Agreement for purposes of the EBRP, ESBP, and the Stock Option and
Restricted Stock Plan (E) continue his participation in the Company's LTIP for
the remainder of the term of the Agreement. Mr. Majeske has resigned from the
Company effective June 30, 2000.
Mr. Pulido resigned from the Company effective July 15, 1999. In his former
capacity as Chief Executive Officer of the Company, the Company entered into an
Agreement with Mr. Pulido effective as of May 20, 1996, which Agreement was
Amended and Restated by mutual agreement effective March 26, 1999, and expires
March 31, 2004. Mr. Pulido's Agreement provides that on termination of
employment (for any reason other than cause) the Company, for the remainder of
the term of the Agreement, shall (i) continue his annual base salary of
$850,000, without increase or decrease, and (ii) continue his annual incentive
award compensation under the terms of the Company's MIP, such MIP awards to be
calculated, in each case, using an Individual Target Award of 100% of his base
salary. Additionally, the Company will continue the accrual and vesting of his
rights and benefits under the ESBP and 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, continue the vesting of all awards under the
Company's Stock Option and Restricted Stock Plans and Long Term Incentive Plan
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.
The Company may terminate any of the executives, under the terms of their
respective Agreements, for "cause" (as defined in each Agreement) in which case
the Company's obligations under the Agreements cease.
In the event any executive is prevented from performing his duties under his
respective Agreement due to a disability, the Company shall continue to pay the
current salary during the period of disability, provided however that if the
executive is continuously disabled for more than 12 months, the Company's
obligations under the Agreement cease. In the event of death of the executive
during the term of the Agreement, his salary will continue to be paid to his
surviving spouse for six months following the death and thereafter the Company's
obligations under the Agreement cease.
Executive Severance Policy
The Company has implemented an Executive Severance Policy (the "Policy"), which
applies in the event an executive officer is terminated by the Company for
reasons other than for cause at any time other than within two years following a
change in control (as defined in the Policy) of the Company. The benefit payable
to executive officers under the Policy is equal to 12 months' base salary plus
one month's pay per year of service, up to a maximum of 24 months. Such benefits
would be reduced or eliminated by any income the executive officer receives from
19
<PAGE> 24
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 all of its executive
officers, including the Named Executive Officers. The agreements operate
independently of the Policy, continue through December 31 of each year, and are
automatically extended in one-year increments until terminated by the
Compensation Committee (or by the Board of Directors in the case of the Co-
Chief Executive Officers). The agreements are automatically extended for a
period of two years following any change in control.
The agreements provide for the payment of certain severance and other benefits
to executive officers whose employment is terminated within two years of a
change in control of the Company. Specifically, if following a change in
control, the executive officer is terminated by the Company for any reason,
other than for "Cause" (as defined in the agreements), or if such executive
officer terminates his or her employment for "Good Reason" (as that term is
defined in the agreements), then the Company will pay to the executive officer,
as severance pay in cash, an amount equal to 2.99 times his or her "base amount"
(as that term is defined in Section 280G of the Code) less any amount which
constitutes a "parachute payment" (as defined in Section 280G). The Company will
also continue the executive officer's coverage in the health and welfare benefit
plans in which he or she was a participant as of the date of termination of
employment, and the executive officer will continue to accrue benefits under the
EBRP, in both such cases for the period of time with respect to which the
executive officer would be entitled to payments under the Policy described above
if the executive officer's termination of employment had been covered by such
Policy. In addition, if the executive officer is age 55 or older and has 15 or
more years of service (as determined under such plan on the date of executive's
termination of employment), then such termination will automatically be deemed
to be an "approved retirement" under the terms of the EBRP. The amount of
severance benefits paid shall be no higher than the amount that is not subject
to disallowance of deduction under Section 280G of the Internal Revenue Code.
Change in Control
For purposes of the termination agreements and as used elsewhere in this proxy
statement, a "change in control" is generally deemed to occur if: (i) any
"person" (as defined in the Securities Exchange Act of 1934, as amended) other
than the Company or any of its subsidiaries or a trustee or any fiduciary
holding securities under an employee benefit plan of the Company or any of its
subsidiaries, acquires securities representing 30% or more of the combined
voting power of the Company's then outstanding securities; (ii) during any
period of not more than two consecutive years, individuals who at the beginning
of such period constitute the Board of Directors of the Company and any new
director whose election by the Board of Directors or nomination for election by
the Company's stockholders was approved by a vote of at least two-thirds ( 2/3)
of the directors then still in office who either were directors at the beginning
of the period or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority thereof; (iii) the
stockholders of the Company approve a merger or consolidation of the Company
with any other Company, other than (a) a merger or consolidation which would
result in the voting securities of the Company outstanding immediately
20
<PAGE> 25
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.
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 benefit under the EBRP is a percentage of final average pay based on years
of service or as determined by the Board of Directors. The maximum benefit is
60% of final average pay. The total paid under the EBRP is not reduced by Social
Security benefits but is reduced by those benefits payable on a single life
basis under the Company's qualified retirement plan and the annuitized value of
the Retirement Share Plan allocations of common stock made to the PSIP assuming
12% growth in the value of the stock. Messrs. Hammergren, Mahoney and Pulido
will receive benefits from the EBRP based on 60% of final pay and not reduced by
any early retirement reduction (see "Employment Agreements").
The compensation covered under the plans whose benefits are summarized in the
above table includes the base salary and annual bonus amounts reported in the
Summary Compensation Table plus any annual bonus amounts foregone to purchase
grants of Bonus Options.
The estimated years of service for purposes of the EBRP at March 31, 2000 for
certain of the Named Executive Officers are as follows: Mr. Hammergren, 4; Mr.
Mahoney, 9; Mr. King, 1; Mr. Julian, 3; Mr. Majeske, 5; and Mr. Pulido, 3.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company and its subsidiaries have transactions in the ordinary course of
business with unaffiliated companies of which certain of the Company's
non-employee directors are directors and/or executive officers. The Company does
not consider the amounts involved in such transactions to be material in
relation to the businesses of such other companies or the interests of the
directors involved. The Company anticipates that similar transactions will occur
in FY 2001.
A limited partnership established by the Pulido family ("PLP") holds an interest
of approximately 62% in Humco Holding 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
21
<PAGE> 26
Chairman and Chief Executive Officer of HHG and holds 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
2000, aggregate purchases by the Company from HHG totaled approximately $5.6
million and are expected to be slightly higher in fiscal year 2001. Mark Pulido
holds a 24.66% interest in PLP, his father, approximately 16%, another brother,
approximately 8% and his sister, less than 1%.
CERTAIN LEGAL PROCEEDINGS
Since the Company's announcements last year that certain software sales
transactions in its Information Technology Business Unit, formerly HBOC, were
improperly recorded as revenue and reversed and as of June 1, 2000, seventy-nine
lawsuits have been filed against the Company, certain of its current or former
directors or officers, and other defendants. Sixty-one of these actions have
been filed in Federal Court (the "Federal Actions"); of these, fifty-eight were
filed in the U.S. District Court for the Northern District of California.
On November 2, 1999, the Honorable Ronald M. Whyte of the Northern District of
California issued an order consolidating fifty-three of the Federal Actions into
one action entitled In re McKesson HBOC, Inc. Securities Litigation, (Case No.
C-99-20743-RMW) (the "Consolidated Action"). On December 22, 1999, Judge Whyte
appointed the New York State Common Retirement Fund as lead plaintiff ("Lead
Plaintiff") and approved Lead Plaintiff's choice of counsel.
On February 25, 2000, Lead Plaintiff filed an Amended and Consolidated Class
Action Complaint (the "Consolidated Complaint"). The Consolidated Complaint (as
well as the other pending federal and state actions) generally allege that the
defendants violated the federal securities laws in connection with the events
leading to the Company's need to restate its financial statements. The
Consolidated Complaint seeks (i) a declaration that the action is maintainable
as a class action and that the Lead Plaintiff is a proper class representative,
(ii) unspecified compensatory damages, (iii) reasonable attorneys' fees, and
(iv) any other relief deemed proper by the Court.
All of the Directors (other than Mr. Koffel and Ms. Jacobs), as well as certain
former Directors and executive officers, (including Mr. Pulido) are named as
defendants in the Consolidated Action.
Eighteen actions were filed in various state courts in California, Colorado,
Delaware, Georgia, Louisiana and Pennsylvania (the "State Actions"). The State
Actions are generally based on the same transactions and events giving rise to
the Consolidated Action. Two of the State Actions are shareholder derivative
actions purportedly brought on behalf of the Company: Ash, et al. v. McCall, et.
al, (Del C.A. No. 17132), filed in the Delaware Chancery Court, and Mitchell v.
McCall et. al, (Case. No. 304415), filed in California Superior Court, City and
County of San Francisco. The Company is a nominal defendant in these actions and
the plaintiffs seek to assert claims against the Directors (other than Mr.
Koffel) and others on behalf of the company. The Directors were named as
defendants in only two additional State Actions: Carroll v. McKesson HBOC, Inc.,
(Case No. 17454), and Kelly v. McKesson HBOC, Inc., et. al. (Case No. 17282-NC).
Both of these actions were filed in the Delaware Superior Court and voluntarily
dismissed without prejudice. Included as Defendants in the remaining fourteen
State Actions are the Company, HBOC and certain former officers or directors
including Mr. Pulido and Mr. McCall. None of the State Actions name Mr. Koffel
as a defendant.
Pursuant to indemnity agreements in force with these individuals, (see Indemnity
Agreements, on page 10), the Company is paying their attorneys fees and costs in
defense of these securities actions. In addition, should they be subject to any
liability arising out of this litigation, the Company will be obligated to
indemnify the individuals and hold them harmless from such liability
22
<PAGE> 27
unless the defendants fail to meet the standard of conduct required for
indemnification pursuant to Delaware law.
INDEBTEDNESS OF EXECUTIVE OFFICERS
Under the 1999 Executive Stock Purchase Plan (the "1999 ESPP"), full recourse
unsecured loans for the purchase of Company common stock, 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 eight executive officers, including
Messrs. Hammergren, Mahoney and Pulido. Pursuant to the 1999 ESPP, Messrs.
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 common stock on the
purchase date. In addition, under the Stock Purchase Plan (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 common stock at the fair market value on the Purchase
Date and are secured by a pledge of the shares purchased under the SPP. In
fiscal years 1998, 1997, and 1995 additional loans to certain executive officers
named in the Summary Compensation Table and other executive officers of the
Company were made under the SPP to purchase common stock at the fair market
value on the dates of purchase, bearing interest from 7.1% to 8% per annum. 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 4.
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,
1999 through June 1, 2000, (i) the largest aggregate amount of indebtedness
outstanding during such period, and (ii) the amount of indebtedness outstanding
at June 1, 2000. For each individual listed in the table below, unless
additional loans are described later in this paragraph, the indebtedness shown
resulted from loans previously outstanding or those made on the Purchase Date
under the 1999 ESPP or under the SPP. The indebtedness shown for Messrs.
Hammergren and Graber also includes the balance owed on a secured housing loan
in the original principal amount of $500,000 each. 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. The indebtedness shown for
Mr. Julian also includes the balance owed on secured housing loans in the
aggregate amount of $1,750,000. These housing loans are without interest unless
and until the individuals fail to pay any amount under the loans when due and
thereafter at a market rate. See footnote 2 to the Summary Compensation Table on
page 13 for further information regarding the housing loans made to Messrs.
Hammergren and Julian.
<TABLE>
<CAPTION>
LARGEST AMOUNT OF
AGGREGATE INDEBTEDNESS
AMOUNT OF AT JUNE 1,
INDEBTEDNESS 2000
------------ ------------
<S> <C> <C>
William R. Graber.............................. $ 500,000 $ 500,000
John H. Hammergren............................. 8,936,595 8,936,595
Paul C. Julian................................. 3,290,657 3,290,657
Graham O. King................................. 843,602 843,602
David L. Mahoney............................... 8,504,140 8,504,140
Ivan D. Meyerson............................... 2,682,937 2,682,937
Mark A. Pulido................................. 18,793,348 18,793,348
Heidi E. Yodowitz.............................. 1,999,780 1,999,780
</TABLE>
23
<PAGE> 28
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, 2001, 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 Securities Exchange Act of 1934 requires certain persons,
including the Company's directors and executive officers, to file reports of
ownership and changes in ownership with the SEC. Based on the Company's review
of the reporting forms received by it and written representations from certain
persons that no Form 5 reports were required to be filed for those persons, the
Company believes that all such filing requirements were satisfied for FY 2000,
except that Mr. Irby inadvertently failed to file one Form 4 reflecting certain
immaterial sales of the Company's common stock by certain trusts.
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 SEC Rule 14a-8) 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) 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.
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.
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<PAGE> 29
A copy of the full text of the By-Law provisions discussed above may be obtained
by writing to the Secretary of the Company.
STOCKHOLDER PROPOSALS FOR THE 2001 ANNUAL MEETING
To be eligible for inclusion in the Company's 2001 Proxy Statement, stockholder
proposals must be sent to the Secretary of the Company at the principal
executive offices of the Company, One Post Street, San Francisco, CA 94104, and
must be received no later than February 19, 2001.
By Order of the Board of Directors
/s/ IVAN D. MYERSON
IVAN D. MEYERSON
Senior Vice President, General
Counsel and
Secretary
June 19, 2000
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, 2000, 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.
25
<PAGE> 30
APPENDIX A
MCKESSON HBOC, INC.
1989 MANAGEMENT INCENTIVE PLAN
AMENDED AS OF JANUARY 27, 1999
The name of this plan shall be the McKesson HBOC, Inc. 1989 Management Incentive
Plan. This Plan replaces in their entirety both the Company's Management
Incentive Plan and its Performance Award Plan for Key Employees. This Plan is
effective for fiscal years of the Company commencing on and after April 1, 1989.
A. PURPOSE
The purpose of the Plan is to attract, retain and motivate key employees by
providing cash incentive awards to designated executive, managerial and
professional employees of the Company, its subsidiaries and affiliates. The Plan
is designed to link managers' interests more closely with the interests of the
Company's shareholders.
The Plan is established as a single incentive plan to reward designated
executives, managers and professionals who contribute to shareholder value. Each
Participant's award will take into account corporate performance as well as,
where appropriate, his or her own business unit's performance. The Plan also
provides that awards will reflect individual performance, subject to Article G.
Incentive awards paid under this Plan are intended to qualify as
performance-based compensation deductible by the Company under the Code.
B. ADMINISTRATION
The Compensation Committee of the Board of Directors ("Committee") shall have
full power and authority, subject to the provisions of the Plan, to review and
approve the designation of Participants and to promulgate such rules and
regulations as it deems necessary for the proper administration of the Plan, to
interpret the provisions and supervise the administration of the Plan, and to
take all action in connection therewith or in relation to the Plan as it deems
necessary or advisable. Decisions and selections of the Committee shall be made
by a majority of its members and, if made pursuant to the provisions of the
Plan, shall be final. Any decision reduced to writing and signed by all of the
members of the Committee shall be fully effective as if it had been made at a
meeting duly held. The Committee shall consist solely of Disinterested Persons,
in conformance with Section 162(m) of the Code ("Section 162(m)").
C. PARTICIPATION
1. Eligibility--Executives, Managers and Professionals
Only active employees of the Company, its subsidiaries or affiliates who are
employed in an executive, managerial or professional capacity may be designated
as Participants under the Plan.
2. Designation and Removal of Participants
No person shall be entitled to any award under this Plan for any Year unless he
or she is so designated as a Participant for that Year. The Chief Executive
Officer (CEO) of the Company and such other persons as the CEO may designate,
shall recommend to the Committee employees (who may include such recommending
persons) for selection as Participants. The Committee shall review and approve
Plan Participants recommended by management from among those employees who are
eligible to participate. The Committee may add to or delete individuals from the
list of designated Participants at any time and from time to time, at its sole
discretion.
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3. Notice of Participation
As soon as reasonably practicable, each person who is a Participant in the Plan
for a Year will be notified.
D. INDIVIDUAL TARGET AWARDS FOR PARTICIPANTS
1. Targets, In General
At the beginning of each Year, an Individual Target Award shall be established
for each Participant. An Individual Target Award shall only be a target and the
amount of the target may or may not be paid to the Participant. Establishment of
an Individual Target Award for an employee for any Year shall not imply or
require that an Individual Target Award be set for any subsequent year. The
amount of any actual award paid to any Participant may be greater or less than
this target. As set forth in paragraph F4 below (but subject to the limitations
applicable to Covered Employees contained in Article G), the actual award may be
as much as three times target or as low as zero for any Year. The establishment
of an Individual Target Award for an employee shall not affect the right of the
Company, its subsidiaries or affiliates to terminate, with or without cause,
such employee's employment at any time.
2. Percentage of Base Salary
Individual Target Awards shall be a percentage of the Participant's base salary
reviewed and approved by the Committee in its sole discretion.
E. BASIS OF AWARDS
Awards will be based on contribution to shareholder value and individual
performance. The Committee shall establish measures, which may include financial
and non-financial objectives ("Performance Goals"), to calculate the shareholder
value contribution for each segment of the Company. These Performance Goals
shall be determined by the Committee in advance of each Year or such period as
may be permitted by the regulations issued under Section 162(m), and shall be
based on one or more of the following criteria: (i) the attainment of a
specified percentage return on total capital employed by the Company (or a
subsidiary or division of the Company); (ii) the attainment of a specified
percentage return on total stockholder equity of the Company; (iii) the
attainment of a specified percentage increase in earnings per share from
continuing operations; (iv) the attainment of a specified percentage increase in
Net Income of the Company; (v) the attainment of a specified percentage increase
in profit before taxation of the Company (or a subsidiary or division of the
Company); (vi) the attainment of a specified percentage increase in revenues of
the Company (or a subsidiary or division of the Company); and (vii) the
attainment of profit after-tax at specified levels of equity investment. In
addition, such Performance Goals may be based upon the attainment of specified
levels of Company performance under one or more of the measures described above
relative to the performance of other corporations.
Awards may be based on performance against objectives for more than one segment
of the Company. For example, awards for corporate management will be based on
overall corporate performance against objectives, but awards for a unit's
management may be based on a combination of corporate, unit and sub-unit
performance against objectives.
Subject to the limitations set forth in Article G below, individual performance
of each Participant will also be measured and used in determining awards under
this Plan.
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F. AWARD DETERMINATION
1. Award Determined by Committee
After any Year for which an Individual Target Award is established for a
Participant under this Plan, the Committee shall review and approve, modify or
disapprove the amount, if any, to be paid to the Participant for the Year. The
amount paid shall be the Individual Target Award adjusted to reflect both the
Company's financial performance and the Participant's individual performance.
All awards will be subject to the sole discretion of the Committee.
2. Financial Performance
Individual Target Award amounts will be modified by achievement of financial
objectives by the Company and relevant units and sub-units. Performance results
against financial objectives shall be reviewed and approved by the Committee.
The Committee may as a result of this review modify or change objectives or
performance results for the Year as it determines to be necessary or appropriate
to take into account changes during the year including, but not limited to,
changes in accounting methods, acquisitions or divestitures, and unusual or
non-recurring financial or other events, to the extent not precluded by Section
162(m).
3. Individual Performance
Any Individual Target Award, adjusted to reflect financial performance, will be
further adjusted with the review and approval of the Committee to give full
weight to the Participant's individual performance during the Year.
4. Overall Effect
The combination of any financial performance adjustment and individual
performance adjustment may increase the amount paid under this Plan to a
Participant for any Year to as much as three times the Individual Target Award,
and may reduce any amount payable to zero, subject to Article G.
G. PROCEDURES APPLICABLE TO CERTAIN DESIGNATED PARTICIPANTS
Awards under the Plan to Participants who are Covered Employees shall be subject
to preestablished Performance Goals as set forth herein. Notwithstanding the
provisions of Paragraph F.3 above, the Committee shall not have discretion to
modify the terms of awards to such Participants except as specifically set forth
in this Article G.
1. Target Award. At the beginning of a Year, the Committee shall establish
Individual Target Awards to such of the Participants who may be Covered
Employees, payment of which shall be conditioned upon satisfaction of specific
Performance Goals for the Year established by the Committee in writing in
advance of the Year, or within such period as may be permitted by regulations
issued under Section 162(m) of the Code. The extent, if any, to which an Award
will be payable will be based upon the degree of achievement of the Performance
Goals; provided, however, that the Committee may, in its sole discretion, reduce
some or all of the amount which would otherwise be payable with respect to an
Award.
2. Performance Goals. The Performance Goals established by the Committee shall
be the same as those objectives set for all Plan Participants and shall be based
on one or more of the criteria set forth in Article E above.
3. Payment of Awards. At the time the Performance Goals are established, the
Committee shall prescribe a formula to determine the percentage of the
Individual Target Award which may be payable based upon the degree of attainment
of the Performance Goals during the Year. If the minimum Performance Goals
established by the Committee are not met, no payment will be made to a
Participant who is a Covered Employee. To the extent that the minimum
Performance
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<PAGE> 33
Goals are satisfied or surpassed, and upon written certification by the
Committee that the Performance Goals have been satisfied to a particular extent,
payment of the award shall be made on the Payment Date in accordance with the
prescribed formula based upon a percentage of the Individual Target Award unless
the Committee determines, in its sole discretion, to reduce the payment to be
made.
4. Maximum Award. The maximum award payable to any Participant who is a Covered
Employee for any Year shall not exceed two percent (2%) of the Company's Net
Income for that Year.
H. ELECTIONS
1. Election to Defer Payment. At the time established under the Company's
Deferred Compensation Administration Plan II ("DCAP II"), any Participant who is
eligible to participate in DCAP II may irrevocably elect, in writing and in
accordance with DCAP II, to defer his or her award under this Plan so it is paid
at the time and in the manner of, and subject to the terms and conditions
provided by, DCAP II. If an election to defer an award is not made, then any
award under this Plan shall be paid in a single sum to the Participant as soon
as reasonably practicable after the amount of the award is determined.
Notwithstanding the above provisions, no amount shall be deferred for the Year
under DCAP II unless the actual award under this Plan for that Year is at least
$5,000. No awards may be deferred by a Participant under DCAP II unless he or
she is an active employee of the Company as of the end of the Year.
2. Election to Receive Stock Option Grant in Lieu of Award Under the
Plan. Prior to the end of a calendar year, any Participant may irrevocably
elect, in writing on the form prescribed by the Committee, to receive a stock
option grant under the 1994 Stock Option and Restricted Stock Plan in lieu of
all or a portion of such Participant's award under this Plan for the Year in
which that calendar year ends. Annually management of the Company shall
determine the rate at which stock option grants will be made in lieu of an award
under the Plan and that conversion rate shall be communicated to Participants
prior to the deadline for making the election described in the preceding
sentence. The minimum number of option shares that a Participant may elect to
receive pursuant to such election is 500, subject to adjustment in the event of
a stock split, stock dividend, consolidation or other similar recapitalization
involving the capital stock of the Company. In addition, the Company annually
shall prescribe a maximum portion of a Participant's Target Award that may be
made subject to an election to receive a stock option grant in lieu of an award
under the Plan. If for any reason the Company does not make the stock option
grant contemplated by the Participant's election, the Participant shall be
deemed to have elected to make a deferral election pursuant to Section H.1 of
the award that was the subject of the election to receive a stock option.
I. NO MANAGEMENT INCENTIVE FUND
Awards paid under this Plan shall not be based on or payable from a "pool" or a
"Management Incentive Fund".
J. EMPLOYMENT AT YEAR END GENERALLY REQUIRED FOR AWARD
No award shall be made to any Participant who is not an active employee of the
Company or one of its subsidiaries or affiliates at the end of the Year;
provided, however, that the Committee, in its sole and absolute discretion, may
make pro-rata awards to Participants during a year in circumstances that
Committee deems appropriate including, but not limited to, a Participant's
death, disability, retirement or other termination of employment during such
Year. Any such pro-rated awards shall be determined by the Committee in
accordance with Section F above after taking into account the portion of the
Year then completed.
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<PAGE> 34
K. NONASSIGNMENT AND PARTICIPANTS ARE GENERAL CREDITORS
The interest of any Participant under the Plan shall not be assignable either by
voluntary or involuntary assignment or by operation of law, except by
designation of a beneficiary or beneficiaries to the extent allowed under the
Company's DCAP.
L. AMENDMENT OR TERMINATION
While the Company hopes to continue the Plan indefinitely, it reserves the right
in its Board of Directors to amend, suspend or terminate the Plan or adopt a new
plan at any time; provided that no such amendment shall (i) without prior
approval of the Company's stockholders, alter the business criteria on which the
Performance Goals may be based, increase the maximum amount set forth in
Paragraph F.4 above, or modify the requirements as to eligibility for
participation in the Plan, or (ii) retroactively and adversely affect the
payment of any award previously made. In case any one or more of the provisions
contained in the Plan shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of the Plan, but the Plan shall be
construed as if such invalid, illegal or unenforceable provisions had never been
contained herein.
M. INTERPRETATION
This Plan is intended to comply with Section 162(m), and all provisions
contained herein shall be construed and interpreted in a manner to so comply.
N. DEFINITIONS
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Committee" means the Compensation Committee of the Board of Directors of
McKesson HBOC, Inc..
"Company" means McKesson HBOC, Inc., a Delaware corporation.
"Covered Employees" shall mean eligible Participants designated by the Committee
who are, or are expected to be, "covered employees" within the meaning of
Section 162(m) of the Code for the Year in which an award is payable hereunder.
"Disinterested Person" shall mean a member of the Board of Directors who
qualifies as an "outside director" for purposes of Section 162(m) of the Code.
"Individual Target Award" means the target award established for each
Participant under Article D.
"Net Income" shall mean after tax income from continuing operations before
special items and the effect of any accounting changes.
"Participants" mean those employees specifically designated as Participants for
a Year under Article C.
"Payment Date" shall mean the date following the conclusion of a Year on which
the Committee certifies that applicable Performance Goals have been satisfied
and authorizes payment of corresponding awards.
"Performance Goals" shall have the meaning set forth in Section E. hereof.
"Plan" means the McKesson HBOC, Inc. 1989 Management Incentive Plan.
"Year" means the fiscal year of the Company.
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Executed effective as of January 27, 1999.
McKESSON HBOC, INC.
By /s/ E. CHRISTINE RUMSEY
------------------------------------
E. Christine Rumsey
Senior Vice President,
Human Resources and Administration
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<PAGE> 36
RECYCLE LOGO
Printed on Recycled Paper
<PAGE> 37
McKESSON HBOC, INC.
P PROXY FOR ANNUAL MEETING
10:00 A.M., JULY 26, 2000
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE CORPORATION
R
The undersigned, whose signature appears on the reverse side, hereby
constitutes and appoints Alan Seelenfreund and Ivan D. Meyerson, and each
O 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 in the Grand Ballroom of the
X Palace Hotel, 2 New Montgomery Street, San Francisco, California, on July
26, 2000 at 10:00 A.M. and any adjournment thereof, as specified upon the
matters indicated on the reverse side, and in their discretion upon any
Y other matter that may properly come before said meeting.
Election of Directors
Nominees for three-year terms expiring in 2003
01 Tully M. Friedman
02 Alton F. Irby III
03 James V. Napier
04 Carl E. Reichardt
-------------
YOUR SHARES WILL NOT BE VOTED UNLESS YOU (1) VOTE BY SEE REVERSE
TELEPHONE, (2) VOTE VIA THE INTERNET, AS DESCRIBED ON SIDE
THE REVERSE SIDE, OR (3) SIGN AND RETURN THIS CARD. -------------
FOLD AND DETACH HERE
ANNUAL MEETING OF STOCKHOLDERS
OF
McKESSON HBOC, INC.
10:00 A.M.
WEDNESDAY, JULY 26, 2000
GRAND BALLROOM, 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> 38
<TABLE>
<S><C>
[X] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
THIS PROXY, WHICH 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 FOR AGAINST ABSTAIN
1. Election of
Directors (see [ ] [ ] 2. Approve the Management incentive Plan. [ ] [ ] [ ]
reverse)
For, except vote withheld from the Please indicate if you plan to attend the
following nominee(s): Annual Meeting. [ ]
---------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
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.
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
</TABLE>
FOLD AND DETACH HERE -- IF YOU ARE RETURNING YOUR PROXY CARD BY MAIL
[McKESSONHBOC LOGO]
PROXY VOTING INSTRUCTION CARD
Your vote is important. Casting your vote in one of the three ways described on
this instruction card votes all common shares of McKesson HBOC, Inc. that you
are entitled to vote.
Please consider the issues discussed in the proxy statement and cast your vote
by:
o Accessing the World Wide Web site http://www.eproxyvote.com/mck to vote
via the Internet.
o Using a touch-tone telephone to vote by phone toll free from the U.S. or
Canada. Simply dial 1-877-779-8683 and follow the instructions. When you
are finished voting, your vote will be confirmed and the call will end.
o Completing, dating, signing and mailing the proxy card in the
postage-paid envelope included with the proxy statement or sending it to
McKesson HBOC, Inc., c/o First Chicago Trust Company of New York, P.O.
Box 8614, Edison, New Jersey 08818-9122.
You can vote by phone or via the Internet any time prior to July 26, 2000. You
will need the control number printed at the top of this instruction card to vote
by phone or via the Internet. If you do so, you do not need to mail in your
proxy card.
