-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, F5mvrVJBP2qW4PoN0DFLbLNRRI1nXjnDyyTvS+B14EfGPHyd3irSiTgROxLljxcf q5wLrHbcjOikMgEoI2HZTw== 0000929624-97-000506.txt : 19970520 0000929624-97-000506.hdr.sgml : 19970520 ACCESSION NUMBER: 0000929624-97-000506 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 14 FILED AS OF DATE: 19970502 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MCKESSON CORP CENTRAL INDEX KEY: 0000927653 STANDARD INDUSTRIAL CLASSIFICATION: 5122 IRS NUMBER: 943207296 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: S-3 SEC ACT: 1933 Act SEC FILE NUMBER: 333-26443-01 FILM NUMBER: 97594833 BUSINESS ADDRESS: STREET 1: ONE POST ST CITY: SAN FRANCISCO STATE: CA ZIP: 94104 BUSINESS PHONE: 4159838300 FORMER COMPANY: FORMER CONFORMED NAME: SP VENTURES INC DATE OF NAME CHANGE: 19940728 S-3 1 FORM S-3 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 2, 1997 REGISTRATION NO. 33- - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
MCKESSON CORPORATION DELAWARE 94-3207296 MCKESSON FINANCING TRUST DELAWARE 52-6841546 (EXACT NAME OF REGISTRANT (STATE OF OTHER JURISDICTION OF (I.R.S. EMPLOYER AS SPECIFIED IN ITS CHARTER) INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
MCKESSON PLAZA, ONE POST STREET, SAN FRANCISCO, CALIFORNIA 94104, (415) 983- 8300 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) NANCY A. MILLER VICE PRESIDENT AND CORPORATE SECRETARY MCKESSON CORPORATION MCKESSON PLAZA, ONE POST STREET, SAN FRANCISCO, CALIFORNIA 94104, (415) 983- 8300 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) --------------- COPY TO: GREGG A. NOEL, ESQ. IVAN D. MEYERSON, ESQ. SKADDEN, ARPS, SLATE, MEAGHER & FLOM MCKESSON CORPORATION LLP MCKESSON PLAZA, ONE POST STREET 300 SOUTH GRAND AVENUE, SAN FRANCISCO, CALIFORNIA 94104 LOS ANGELES, CALIFORNIA 90071 (415) 983-8300 --------------- (213) 687-5000 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to time after this Registration Statement becomes effective. --------------- If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [_] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the "Securities Act"), other than securities offered only in connection with dividend or interest reinvestment plans, please check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] CALCULATION OF REGISTRATION FEE - - ------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION SECURITIES TO BE REGISTERED BE REGISTERED PER SECURITY OFFERING PRICE FEE - - ----------------------------------------------------------------------------------------------------- Trust Convertible Preferred Securities of McKesson Financing Trust.............................. 4,000,000 $56.25(1)(2) $225,000,000.00(1)(2) $68,181.82 - - ----------------------------------------------------------------------------------------------------- Convertible Subordinated Debentures of McKesson Corporation............ (3) -- -- -- - - ----------------------------------------------------------------------------------------------------- Common Stock of McKesson Corporation, $0.01 par value per share.............................. 2,766,604(4) -- -- -- Rights to purchase Preferred Stock.. 2,766,604(5) -- -- -- - - ----------------------------------------------------------------------------------------------------- Guarantee(6)........................ -- -- -- -- - - ----------------------------------------------------------------------------------------------------- Total............................. 6,766,604 100% $225,000,000.00 $68,181.82
- - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- (1) Estimated solely for the purpose of computing the registration fee in accordance with Rule 457(c) of the Securities Act. (2) Exclusive of accrued interest and distributions, if any. (3) $200,000,000 in aggregate principal amount of 5% Convertible Junior Subordinated Debentures (the "Convertible Debentures") of McKesson Corporation (the "Company") were issued and sold to McKesson Financing Trust (the "Trust") in connection with the issuance by the Trust of 4,000,000 of its 5% Trust Convertible Preferred Securities (the "Convertible Preferred Securities"). The Convertible Debentures may be distributed, under certain circumstances, to the holders of Convertible Preferred Securities for no additional consideration. (4) Such shares of Company Common Stock are issuable upon conversion of the Convertible Preferred Securities registered hereunder. This Registration Statement also covers such shares as may be issuable pursuant to anti- dilution adjustments. (5) Associated with the Company Common Stock are Rights to purchase Series A Preferred Stock that will not be exercisable or evidenced separately from the Company Common Stock prior to the occurrence of certain events. (6) Includes the rights of holders of the Convertible Preferred Securities under the Guarantee and certain back-up undertakings as described in the Registration Statement. No separate consideration will be received for the Guarantee and the back-up undertakings. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. --------------- - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED MAY 2, 1997 PROSPECTUS 4,000,000 TRUST CONVERTIBLE PREFERRED SECURITIES MCKESSON FINANCING TRUST 5% TRUST CONVERTIBLE PREFERRED SECURITIES (LIQUIDATION AMOUNT $50 PER CONVERTIBLE PREFERRED SECURITY) GUARANTEED TO THE EXTENT SET FORTH HEREIN BY MCKESSON CORPORATION ----------- This Prospectus relates to the 5% Trust Convertible Preferred Securities (the "Convertible Preferred Securities") which represent preferred undivided beneficial interests in the assets of McKesson Financing Trust, a statutory business trust formed under the laws of the State of Delaware ("McKesson Financing Trust" or the "Trust"), and the shares of common stock, par value $.01 per share ("McKesson Common Stock" or the "Common Stock"), of McKesson Corporation, a Delaware corporation ("McKesson" or the "Company"), issuable upon conversion of the Convertible Preferred Securities. The Convertible Preferred Securities were issued and sold (the "Original Offering") on February 20, 1997 (the "Original Offering Date") to the Initial Purchaser (as defined herein) and were simultaneously sold by the Initial Purchaser in transactions exempt from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"), in the United States to persons reasonably believed by the Initial Purchaser to be qualified institutional buyers as defined in Rule 144A under the Securities Act, to certain qualified institutional buyers acting on behalf of institutional "accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) and outside the United States to non-U.S. persons in offshore transactions in reliance on Regulation S under the Securities Act. The Company directly or indirectly owns all the common securities (the "Common Securities" and, together with the Convertible Preferred Securities, the "Trust Securities") representing undivided beneficial interests in the assets of the Trust. The Trust exists for the sole purpose of issuing the Trust Securities and investing the proceeds of the sale thereof in 5% Convertible Junior Subordinated Debentures (the "Convertible Debentures") of McKesson in an aggregate principal amount equal to the aggregate liquidation amount of the Trust Securities. Upon an event of default under the Declaration (as defined herein), the holders of Convertible Preferred Securities will have a preference over the holders of the Common Securities with respect to payments in respect of distributions and payments upon redemption, liquidation or otherwise. The Convertible Preferred Securities and the Company Common Stock issuable upon conversion of the Convertible Preferred Securities (collectively, the "Offered Securities") may be offered and sold from time to time by the holders named herein or by their transferees, pledgees, donees or their successors (collectively, the "Selling Holders") pursuant to this Prospectus. The Offered Securities may be sold by the Selling Holders from time to time (i) to or through underwriters or dealers; (ii) directly to one or more other purchasers; (iii) through agents on a best-efforts basis or otherwise; or (iv) through a combination of any such methods of sale. The Offered Securities may be sold from time to time in one or more transactions at a fixed price or prices, which may be changed, or at market prices prevailing at the time of sale, at prices unrelated to such prevailing market prices, or at negotiated prices. See "Selling Holders" and "Plan of Distribution." If required, the names of any such agents or underwriters involved in the sale of the Offered Securities and the applicable agent's commission, dealer's purchase price or underwriter's discount, if any, will be set forth in an accompanying supplement to this Prospectus (the "Prospectus Supplement"). The Selling Holders will receive all of the net proceeds from the sale of the Offered Securities and will pay all underwriting discounts, selling commissions and transfer taxes, if any, applicable to any such sale. The Company is responsible for payment of all other expenses incident to the registration of the Offered Securities. The Selling Holders and any broker-dealers, agents or underwriters that participate in the distribution of the Offered Securities may be deemed to be "underwriters" within the meaning of the Securities Act, and any commission received by them and any profit on the resale of the Offered Securities purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. See "Plan of Distribution" for a description of indemnification arrangements. (continued on next page) SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR CERTAIN INFORMATION RELEVANT TO AN INVESTMENT IN THE CONVERTIBLE PREFERRED SECURITIES. ----------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Prospectus is , 1997. Holders of the Convertible Preferred Securities are entitled to receive cumulative cash distributions at an annual rate of 5% of the liquidation amount of $50 per Convertible Preferred Security, accruing from the first date that any Convertible Preferred Securities are issued and payable quarterly in arrears on March 1, June 1, September 1 and December 1 of each year, commencing June 1, 1997 ("distributions"). The payment of distributions out of monies held by McKesson Financing Trust and payments on liquidation of McKesson Financing Trust or the redemption of Convertible Preferred Securities, as set forth below, are guaranteed by McKesson (the "Guarantee") to the extent described herein. The Guarantee covers payments of distributions and other payments on the Convertible Preferred Securities only if and to the extent that McKesson Financing Trust has funds available therefor, which will not be the case unless McKesson has made corresponding payments of interest or principal or other payments on the Convertible Debentures held by McKesson Financing Trust. The Guarantee, when taken together with McKesson's obligations under the Convertible Debentures and the Indenture (as defined herein) and its obligations under the Declaration, including its liabilities to pay costs, expenses, debts and obligations of McKesson Financing Trust (other than with respect to the Trust Securities), provide a full and unconditional guarantee, to the extent set forth herein, of amounts due on the Convertible Preferred Securities. See "Risk Factors--Limitations of the Guarantee." The obligations of McKesson under the Guarantee are subordinate and junior in right of payment to all other liabilities of McKesson and pari passu with the most senior preferred stock issued from time to time, if any, by McKesson. The obligations of McKesson under the Convertible Debentures are subordinate and junior in right of payment to all present and future Senior Indebtedness (as defined herein) of McKesson. The Convertible Debentures purchased by the Trust may be subsequently distributed pro rata to holders of the Trust Securities in connection with the dissolution of the Trust, upon the occurrence of certain events. Each Convertible Preferred Security is convertible in the manner described herein at the option of the holder, at any time beginning May 21, 1997 and prior to the Conversion Expiration Date (as defined herein), into shares of common stock, par value $.01 per share, of McKesson ("McKesson Common Stock" or the "Common Stock"), at the rate of .6709 shares of McKesson Common Stock for each Convertible Preferred Security (equivalent to a conversion price of $74.53 per share (the "Conversion Price") of McKesson Common Stock), subject to adjustment in certain circumstances. See "Description of Convertible Preferred Securities--Conversion Rights." On May 1, 1997, the reported last sale price of McKesson Common Stock, which is reported under the symbol "MCK" on the New York Stock Exchange, was $72 1/8 per share. The distribution rate and the distribution payment dates and other payment dates for the Convertible Preferred Securities correspond to the interest rate and interest payment dates and other payment dates of the Convertible Debentures, which are the sole assets of the Trust. As a result, if principal and interest are not paid on the Convertible Debentures, no amounts will be paid on the Convertible Preferred Securities. So long as McKesson shall not be in default in the payment of interest on the Convertible Debentures, McKesson has the right to defer payments of interest on the Convertible Debentures by extending the interest payment period on the Convertible Debentures at any time for up to 20 consecutive quarters (each, an "Extension Period"). If interest payments are so deferred, distributions will continue to accumulate with interest thereon (to the extent permitted by applicable law) at the distribution rate, compounded quarterly. During any Extension Period, holders of Convertible Preferred Securities will be required to include deferred interest income in their gross income for United States federal income tax purposes in advance of receipt of the cash distributions with respect to such deferred interest payments. There could be multiple Extension Periods of varying lengths throughout the term of the Convertible Debentures. See "Description of the Convertible Debentures--Option to Extend Interest Payment Period," "Risk Factors--Delay of Interest Payments" and "United States Federal Income Taxation--Potential Extension of Interest Payment Period and Original Issue Discount." The Convertible Debentures are redeemable by McKesson, in whole or in part, from time to time, on or after March 4, 2000, at the prices set forth herein (the "Redemption Price"), plus accrued and unpaid interest 2 (continued from previous page) thereon to the date fixed for redemption (the "Redemption Date"). In addition, in certain circumstances upon the occurrence of a Tax Event (as defined herein) the Convertible Debentures may be redeemed by McKesson at 100% of the principal amount thereof plus accrued and unpaid interest thereon. If McKesson redeems the Convertible Debentures, the Trust must redeem Convertible Preferred Securities having an aggregate liquidation amount equal to the aggregate principal amount of the Convertible Debentures so redeemed. See "Description of the Convertible Preferred Securities--Mandatory Redemption." The outstanding Convertible Preferred Securities will be redeemed when the Convertible Debentures mature on June 1, 2027. Upon the occurrence of a Special Event (as defined herein), unless the Convertible Debentures are redeemed in the limited circumstances described herein, the Trust may be dissolved (with the consent of McKesson), with the result that the Convertible Debentures would be distributed to the holders of the Convertible Preferred Securities, on a pro rata basis. If McKesson declines to consent to such dissolution and distribution, McKesson may incur an obligation to pay additional sums. See "Description of the Convertible Preferred Securities--Special Event Distribution; Tax Event Redemption" and "Description of the Convertible Debentures--Additional Sums." In addition, subject to certain conditions, McKesson has the right at any time to cause the Trust to be dissolved and cause the Convertible Debentures to be distributed to the holders of the Convertible Preferred Securities on a pro rata basis, in lieu of any cash distribution. See "Description of the Convertible Preferred Securities--Liquidation of Trust and Distribution of Convertible Debentures to Holders" and "Description of the Convertible Debentures." In the event of the involuntary dissolution, winding up or termination of the Trust, the holders of the Convertible Preferred Securities are entitled to receive for each Convertible Preferred Security a liquidation amount of $50 plus accrued and unpaid distributions thereon to the date of payment, unless, in connection with such dissolution, winding up or termination of the Trust, the Convertible Debentures are distributed to the holders of the Convertible Preferred Securities. See "Description of the Convertible Preferred Securities--Liquidation Distribution Upon Dissolution." 3 Certain persons participating in this offering may engage in transactions that stabilize, maintain, or otherwise affect the price of the Offered Securities. Specifically, the underwriters, if any, may overallot in connection with the offering, and may bid for, and purchase, shares of the Offered Securities in the open market. For a description of those activities, see "Plan of Distribution." Unless otherwise stated herein or the context otherwise requires, all references herein to the "principal" of the Convertible Debentures shall be deemed to include a reference to "and premium, if any." AVAILABLE INFORMATION This Prospectus constitutes a part of a combined Registration Statement on Form S-3 (together with all amendments and exhibits thereto, the "Registration Statement") filed by McKesson and McKesson Financing Trust with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the Offered Securities. This Prospectus does not contain all of the information set forth in such Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission, although it does include a summary of the material terms of the Indenture and the Declaration (each as defined herein). Reference is made to such Registration Statement and to the exhibits relating thereto for further information with respect to the Company, McKesson Financing Trust and the Offered Securities. Any statements contained herein concerning the provisions of any document filed as an exhibit to the Registration Statement or otherwise filed with the Commission or incorporated by reference herein are not necessarily complete, and, in each instance, reference is made to the copy of such document so filed for a more complete description of the matter involved. Each such statement is qualified in its entirety by such reference. The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Commission. Such reports, proxy statements and other information filed by the Company with the Commission can be inspected and copied at the Commission's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549, or at the public reference facilities of the regional offices in Chicago and New York. The addresses of these regional offices are as follows: 500 West Madison Street, Chicago, Illinois 66061, and 7 World Trade Center, 13th Floor, New York, New York 10048. Copies of such material also can be obtained by mail from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of the fees prescribed by the rules and regulations of the Commission. Reports, proxy statements, and other information concerning the Company may also be inspected at the offices of the New York Stock Exchange, Inc. at 20 Broad Street, New York, New York 10005 and at the offices of the Pacific Exchange, Inc. at 301 Pine Street, San Francisco, California 94014. The Company's Common Stock is listed on both exchanges. Such material may also be accessed electronically by means of the Commission's home page on the Internet at http://www.sec.gov. No separate financial statements of the Trust have been included or incorporated by reference herein. The Company and the Trust do not consider that such financial statements would be material to holders of the Convertible Preferred Securities because (i) all of the voting securities of the Trust will be owned, directly or indirectly, by the Company, a reporting company under the 1934 Act, (ii) the Trust is a special purpose entity, has no operating history, has no independent operations and is not engaged in, and does not propose to engage in, any activity other than issuing Trust Securities representing undivided beneficial interests in the assets of the Trust and investing the proceeds thereof in Convertible Debentures issued by the Company and (iii) McKesson's obligations described herein under the Declaration, the Guarantee with respect to the Convertible Preferred Securities issued by the Trust, the Convertible Debentures purchased by the Trust and the Indenture, taken together, constitute a full and unconditional guarantee of payments due on the Convertible Preferred Securities of the Trust. See "McKesson Financing Trust," "Description of the Convertible Preferred Securities," "Description of the Guarantee" and "Description of the Convertible Debentures." The Trust is a statutory business trust formed under the laws of the state of Delaware. The Company, as of the date of this Prospectus, owns all of the beneficial interests in the Trust. 4 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE There are hereby incorporated by reference in this Prospectus the following documents previously filed or to be filed by the Company with the Commission pursuant to the Exchange Act: 1. Annual Report on Form 10-K for the fiscal year ended March 31, 1996, as amended by Amendment No. 1 on Form 10-K/A, filed on February 13, 1997 to reflect Armor All (as defined herein) and Millbrook (as defined herein) as discontinued operations (the "Form 10-K"). 2. Quarterly Reports on Form 10-Q for the quarters ended June 30, 1996, as amended by Amendment No. 1 on Form 10-Q/A, filed on February 13, 1997 to reflect Armor All and Millbrook as discontinued operations (the "June Form 10- Q"), September 30, 1996, as amended by Amendment No. 1 on Form 10-Q/A, filed on February 13, 1997 to reflect Armor All and Millbrook as discontinued operations (the "September Form 10-Q") and December 31, 1996 (the "December Form 10-Q"). 3. Current Reports on Form 8-K dated April 8, 1996, April 30, 1996, October 9, 1996 (as amended by Amendment No. 1 on Form 8-K/A filed December 20, 1996, excluding Exhibit 99 thereto), November 22, 1996 (as amended by Amendment No. 1 on Form 8-K/A, filed on January 21, 1997, as further amended by Amendment No. 2 on Form 8-K/A, filed on April 28, 1997), December 10, 1996, January 13, 1997, February 5, 1997, February 12, 1997, February 24, 1997 and April 7, 1997. All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the 1934 Act subsequent to the date of this Prospectus and prior to the termination of the offering of the Convertible Preferred Securities offered hereby shall be deemed to be incorporated by reference in this Prospectus and to be part hereof from the date of filing of such documents. Any statement contained herein or in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Company will provide without charge to each person upon the written or oral request of such person, a copy of any or all of the foregoing documents incorporated herein by reference, other than exhibits to such documents (unless such exhibits are specifically incorporated by reference into such documents). Requests for such documents shall be directed to Nancy A. Miller, Vice President and Corporate Secretary, McKesson Corporation, McKesson Plaza, One Post Street, San Francisco, California 94104 (telephone number (415) 983- 8301). SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain of the matters discussed under the captions "Risk Factors," "Financial Review," "The Company" and elsewhere in this Prospectus or in the information incorporated by reference herein may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act") and as such may involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of McKesson to be materially different from any future results, performance or achievements expressed or implied by such forward- looking statements. Some of the factors that may cause such material differences are set forth herein or attached hereto under the captions "Risk Factors" and "Financial Review." 5 RISK FACTORS Prospective purchasers of Convertible Preferred Securities should carefully review the information contained elsewhere and incorporated by reference in this Prospectus and should particularly consider the following matters. Certain statements set forth below under this caption constitute "forward- looking statements" within the meaning of the Reform Act. See "Special Note Regarding Forward-Looking Statements" above for additional factors relating to such statements. SUBORDINATE RANKING OF OBLIGATIONS UNDER THE GUARANTEE AND CONVERTIBLE DEBENTURES McKesson's obligations under the Guarantee are subordinate and junior in right of payment to all liabilities of McKesson (other than any other obligations that may be made pari passu expressly by their terms) and pari passu in right of payment with the most senior preferred stock issued, from time to time, if any, by McKesson. The obligations of McKesson under the Convertible Debentures are subordinate and junior in right of payment to all present and future Senior Indebtedness of McKesson. No payment of principal (including redemption payments, if any), premium, if any, or interest on the Convertible Debentures may be made if (i) the payment of principal, premium, if any, interest or any other payment due on any Senior Indebtedness of McKesson is not paid when due and any applicable grace period with respect to such default has ended with such default not having been cured or waived or ceasing to exist or (ii) the maturity of any Senior Indebtedness has been accelerated because of a default and such acceleration has not been rescinded. There are no terms in the Convertible Preferred Securities, the Convertible Debentures or the Guarantee that limit McKesson's ability to incur additional indebtedness, including indebtedness that ranks senior to the Convertible Debentures and the Guarantee, or to grant security interests to secure outstanding or new indebtedness. There was approximately $825 million of Senior Indebtedness outstanding as of March 31, 1997. See "Description of the Guarantee--Status of the Guarantee" and "Description of the Convertible Debentures--Subordination." LIMITATIONS OF THE GUARANTEE The Guarantee Trustee (as defined herein) holds the Guarantee for the benefit of the holders of the Convertible Preferred Securities. Under the Guarantee, McKesson irrevocably and unconditionally guarantees on a subordinated basis to the holders of the Convertible Preferred Securities, to the extent not paid by the Trust, the payment in full of (i) all accrued and unpaid distributions that are required to be paid on the Convertible Preferred Securities to the extent the Trust has funds available therefor, (ii) the Redemption Price plus accrued and unpaid distributions with respect to any Convertible Preferred Securities called for redemption by the Trust, to the extent the Trust has funds available therefor and (iii) upon a voluntary or involuntary dissolution, winding-up or termination of the Trust (other than in connection with the distribution of Convertible Debentures to the holders of Convertible Preferred Securities or the redemption of all the Convertible Preferred Securities), the lesser of (a) the aggregate of the liquidation amount and all accrued and unpaid distributions on the Convertible Preferred Securities to the date of the payment to the extent the Trust has funds available therefor or (b) the amount of assets of the Trust remaining available for distribution to holders of the Convertible Preferred Securities in liquidation of the Trust. Because the Guarantee is limited by the amount of the funds in the Trust, if McKesson were to default on its obligation to pay amounts payable on the Convertible Debentures, the Trust would lack available funds for the payment of distributions or amounts payable on redemption of the Convertible Preferred Securities or otherwise, and, in such event, holders of the Convertible Preferred Securities would not be able to rely upon the Guarantee for payment of such amounts. Instead, holders of the Convertible Preferred Securities would rely on the enforcement (1) by the Institutional Trustee (as defined herein) of its rights as registered holder of the Convertible Debentures against McKesson pursuant to the terms of the Convertible Debentures or (2) by such holder of its right of Direct Action (as defined herein) against McKesson as described below to enforce payments on the Convertible Debentures. See "Description of the Guarantee--Events of Default." The Declaration provides that each holder of Convertible Preferred Securities, by acceptance thereof, agrees to the provisions of the Guarantee, including the subordination provisions thereof, and the Indenture. 6 LIMITATION OF ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF CONVERTIBLE PREFERRED SECURITIES If (i) McKesson Financing Trust fails to pay distributions in full on the Convertible Preferred Securities (other than pursuant to a deferral pursuant to an Extension Period) or (ii) a Declaration Event of Default (as defined herein) occurs and is continuing, then the holders of Convertible Preferred Securities would rely on the enforcement by the Institutional Trustee of its rights as a holder of the Convertible Debentures against McKesson. In addition, the holders of a majority in liquidation amount of the Convertible Preferred Securities have the right to direct the time, method, and place of conducting any proceeding for any remedy available to the Institutional Trustee or to direct the exercise of any trust or power conferred upon the Institutional Trustee under the Declaration, including the right to direct the Institutional Trustee to exercise the remedies available to it as a holder of the Convertible Debentures. If the Institutional Trustee fails to enforce its rights under the Convertible Debentures, a holder of Convertible Preferred Securities may institute a legal proceeding directly against McKesson to enforce the Institutional Trustee's rights under the Convertible Debentures without first instituting any legal proceeding against the Institutional Trustee or any other person or entity. Notwithstanding the foregoing, if a Declaration Event of Default has occurred and is continuing and such event is attributable to the failure of McKesson to pay interest or principal on the Convertible Debentures on the date such interest or principal is otherwise payable (or in the case of redemption, on the Redemption Date), then a holder of Convertible Preferred Securities may directly institute a proceeding for enforcement of payment to such holder of the principal of or interest on the Convertible Debentures having a principal amount equal to the aggregate liquidation amount of the Convertible Preferred Securities of such holder (a "Direct Action") on or after the respective due date specified in the Convertible Debentures. In connection with such Direct Action, McKesson will be subrogated to the rights of such holder of Convertible Preferred Securities under the Declaration to the extent of any payment made by McKesson to such holder of Convertible Preferred Securities in such Direct Action. The holders of Convertible Preferred Securities will not be able to exercise directly any other remedy available to the holders of Convertible Debentures. See "Description of the Convertible Preferred Securities--Declaration Events of Default." DELAY OF INTEREST PAYMENTS So long as McKesson shall not be in default in the payment of interest on the Convertible Debentures, McKesson has the right under the Indenture to defer payments of interest on the Convertible Debentures by extending the interest payment period at any time, and from time to time, on the Convertible Debentures. As a consequence of such an extension, quarterly distributions on the Convertible Preferred Securities would be deferred by the Trust during any such Extension Period. Prior to the termination of any such Extension Period, McKesson may further extend such Extension Period; provided, that such Extension Period, together with all such previous and further extensions thereof, may not exceed 20 consecutive quarters or extend beyond the maturity of the Convertible Debentures. Upon the termination of any Extension Period and the payment of all amounts then due, McKesson may commence a new Extension Period, subject to the above requirements. See "Description of the Convertible Preferred Securities--Distributions" and "Description of the Convertible Debentures--Option to Extend Interest Payment Period." Should McKesson exercise its right to defer payments of interest by extending the interest payment period, each holder of Convertible Preferred Securities will continue to accrue interest income (as original issue discount ("OID")) in respect of the deferred stated interest allocable to its share of Convertible Preferred Securities for United States federal income tax purposes. As a result, each such holder of Convertible Preferred Securities will include such income in gross income for United States federal income tax purposes in advance of the receipt of cash attributable thereto, and will not receive the cash from McKesson Financing Trust related to such income if such holder disposes of its Convertible Preferred Securities prior to the record date on which distributions of such amounts are made. McKesson has no current intention of exercising its right to defer payments of interest by extending the interest payment period of the Convertible Debentures. However, should McKesson elect to exercise such right in the future, the market price of the Convertible Preferred Securities is likely to be affected. A holder that disposes of its Convertible Preferred Securities during an Extension Period, therefore, might not receive the same return on its investment as a holder that continues to hold its Convertible Preferred Securities. 7 In addition, as a result of the existence of McKesson's right to defer interest payments, the market price of the Convertible Preferred Securities (which represent an undivided beneficial interest in the Convertible Debentures) may be more volatile than other OID securities that do not have such interest deferral rights. See "United States Federal Income Taxation-- Potential Extension of Interest Payment Period and Original Issue Discount." PROPOSED TAX LEGISLATION On February 6, 1997, as part of President Clinton's Fiscal 1998 Budget Proposal, the United States Treasury Department proposed legislation that would, among other things, deny an issuer a deduction for United States federal income tax purposes for the payment of interest on instruments with characteristics similar to the Convertible Debentures. If the proposed legislation were enacted in its current form, it is not expected to apply to the Convertible Debentures since the proposed effective date for this provision is the date of first Congressional committee action. There can be no assurances, however, that the proposed legislation, if enacted, or similar legislation enacted after the date hereof, would not adversely affect the tax treatment of the Convertible Debentures, resulting in a Tax Event (as defined herein) which would allow the Company to redeem the Convertible Preferred Securities. See "Description of the Convertible Preferred Securities--Special Event Distribution; Tax Redemption." SPECIAL EVENT DISTRIBUTION; TAX EVENT REDEMPTION Upon the occurrence of a Special Event (as defined herein), McKesson Financing Trust could be dissolved (with the consent of McKesson), except in the limited circumstance described below, with the result that the Convertible Debentures would be distributed to the holders of the Trust Securities in connection with the liquidation of the Trust. In certain circumstances, McKesson would have the right to redeem the Convertible Debentures, in whole or in part, in lieu of a distribution of the Convertible Debentures by the Trust, in which event the Trust would redeem the Trust Securities on a pro rata basis to the same extent as the Convertible Debentures are redeemed by McKesson. See "Description of the Convertible Preferred Securities--Special Event Distribution; Tax Event Redemption." Under current United States federal income tax law, a distribution of Convertible Debentures upon the dissolution of McKesson Financing Trust would not be a taxable event to holders of the Convertible Preferred Securities. However, a dissolution of McKesson Financing Trust in which holders of the Convertible Preferred Securities receive cash would be a taxable event to such holders. See "United States Federal Income Taxation--Receipt of Convertible Debentures or Cash Upon Liquidation of the Trust." There can be no assurance as to the market prices for the Convertible Preferred Securities or the Convertible Debentures that may be distributed in exchange for Convertible Preferred Securities if a dissolution or liquidation of the Trust were to occur. Accordingly, the Convertible Preferred Securities that an investor may purchase, whether pursuant to the offer made hereby or in the secondary market, or the Convertible Debentures that a holder of Convertible Preferred Securities may receive on dissolution and liquidation of the Trust, may trade at a discount to the price that the investor paid to purchase the Convertible Preferred Securities offered hereby. Because holders of Convertible Preferred Securities may receive Convertible Debentures upon the occurrence of a Special Event, prospective purchasers of Convertible Preferred Securities are also making an investment decision with regard to the Convertible Debentures and should carefully review all the information regarding the Convertible Debentures contained herein. See "Description of the Convertible Preferred Securities--Special Event Distribution; Tax Event Redemption" and "Description of the Convertible Debentures--General." ABSENCE OF VOTING RIGHTS Generally, holders of the Convertible Preferred Securities do not have any voting rights with respect to McKesson's governance, nor are they entitled to vote to appoint, remove or replace, or to increase or decrease the number of, MFT Trustees (as defined herein), which voting rights are vested exclusively in the holder of the Common Securities. See "Description of the Convertible Preferred Securities--Voting Rights." 8 TRADING PRICE The Convertible Preferred Securities may trade at a price that does not accurately reflect the value of accrued but unpaid interest (or OID if the Convertible Debentures are treated as having been issued, or reissued, with OID) with respect to the underlying Convertible Debentures. A holder who disposes of his Convertible Preferred Securities will be required to include in ordinary income (i) any portion of the amount realized that is attributable to such accrued but unpaid interest to the extent not previously included in income or (ii) any amount of OID, in either case, that has accrued on his pro rata share of the underlying Convertible Debentures during the taxable year of sale through the date of disposition. Any such income inclusion will increase the holder's adjusted tax basis in his Convertible Preferred Securities disposed of. To the extent that the amount realized in the sale is less than the holder's adjusted tax basis, a holder will recognize a capital loss. Subject to certain limited exceptions, capital losses cannot be applied to offset ordinary income for United States federal income tax purposes. RISKS GENERALLY ASSOCIATED WITH ACQUISITIONS An element of the Company's growth strategy is to pursue strategic acquisitions that either expand or complement the Company's business. Acquisitions involve a number of special risks, including the diversion of management's attention to the assimilation of the operations from other business concerns, difficulties in the integration of operations and systems, the assimilation and retention of the personnel of the acquired companies, challenges in retaining the acquired business' customers and potential adverse short-term effects on the Company's operating results. In addition, the Company may require additional debt or equity financing for future acquisitions, which may not be available on terms favorable to the Company, if at all. The inability of the Company to successfully finance, complete and integrate strategic acquisitions in a timely manner could have an adverse impact on the Company's results of operations and its ability to effect a portion of its growth strategy. CHANGING UNITED STATES HEALTHCARE ENVIRONMENT In recent years, the healthcare industry has undergone significant change driven by various efforts to reduce costs, including potential national healthcare reform, trends toward managed care, cuts in Medicare, consolidation of pharmaceutical and medical/surgical supply distributors and the development of large, sophisticated purchasing groups. The Company cannot predict whether any healthcare reform efforts will be enacted and what effect or to what extent any such reforms may have on the Company, its practices and products or its customers and suppliers. Changes in governmental support of healthcare services, the method by which such services are delivered, the prices for such services or other legislation or regulations governing such services or mandated benefits may have a material adverse effect on the Company's results of operations. 9 THE COMPANY McKesson is the largest health care supply management company in North America. The Company also develops and manages innovative marketing programs for drug manufacturers and, through McKesson Water Products Company, processes and markets pure drinking water. The Company's objective is to become the world leader in health care supply and comprehensive pharmaceutical management across the entire supply chain, from manufacturer to patient. In pursuit of this goal, the Company has completed a number of acquisitions in its core health care business. Since late 1995, the Company has acquired General Medical Inc. ("General Medical"), a leading distributor of medical and surgical supplies to the acute care, physician care and extended care markets, the drug distribution business of FoxMeyer Corporation ("FoxMeyer"), Automated Healthcare, Inc. ("AHI"), a manufacturer of automated drug dispensing equipment for hospitals, and Ogden BioServices Corporation (now "McKesson Bioservices Corporation"), a provider of support services to government and commercial organizations engaged in drug research and development. The Company conducts its operations through two operating business segments which generated annual sales in fiscal 1996 of $9.95 billion, approximately 97% of which were generated by the Health Care Services segment and approximately 3% of which were generated primarily by McKesson's Water Products (as hereinafter defined) business. In fiscal 1996, operating profits for the Health Care Services business and the Water Products business were $206.1 million and $39.6 million, respectively. The principal executive offices of the Company are located at McKesson Plaza, One Post Street, San Francisco, California, 94104, and the telephone number is (415) 983-8300. RECENT ACQUISITIONS AND DISPOSITIONS McKesson has recently undertaken several initiatives to further focus the Company on its core health care business: . In March 1997, McKesson disposed of Millbrook Distribution Services Inc. ("Millbrook") for an amount on an after-tax basis which approximates Millbrook's book value. Millbrook is reflected as a discontinued operation in the Company's financial statements. Millbrook is engaged in distributing health and beauty care products, general merchandise, and specialty foods to retail stores. . In February 1997, McKesson acquired General Medical, the largest multi- market distributor of medical and surgical supplies, for $775 million. . In December 1996, the Company disposed of its 55% equity interest in Armor All Products Corporation ("Armor All"), a non-health care business. . In November 1996, the Company acquired FoxMeyer out of bankruptcy for approximately $600 million. . In April 1996, the Company acquired AHI, a business that specializes in centralized robotic pharmaceutical dispensing systems for hospitals, for $65 million. . In December 1995, the Company acquired McKesson Bioservices Corporation, a business that provides product marketing and support services for the pharmaceutical industry, for approximately $20 million. MCKESSON HEALTH CARE SERVICES Through its Health Care Services segment, the Company is the largest distributor of ethical and proprietary drugs and health and beauty care products in North America, generating approximately 84% of the Company's operating profits from continuing operations in fiscal 1996. The Company is the market leader in its core U.S. drug distribution business. U.S. health care operations also include Healthcare Delivery Systems, Inc. ("HDS") and McKesson Bioservices Corporation, through which the Company provides marketing and other support services to drug manufacturers, AHI, a business that specializes in automated pharmaceutical dispensing systems for hospitals, and Zee Medical, Inc., a distributor of first-aid products and supplies to industrial and commercial customers. 10 International operations include Medis Health and Pharmaceutical Services Inc., a wholly-owned subsidiary and the largest drug distributor in Canada, and the Company's 22.7% equity interest in Nadro, S.A. de C.V., the largest drug distributor in Mexico. The Company's domestic distribution operations supply drugs and health and beauty care products to independent and chain drug stores, hospitals, alternate-site facilities, food stores and mass merchandisers in all 50 states. Using the names "Economost" and "Econolink" and a number of related service marks, the Company has promoted electronic order entry systems and a wide range of computerized merchandising and asset management services for drug retailers and hospitals. The Company also supplies computer-based practice management systems to drug retailers. The Company believes that its financial strength, purchasing leverage, nationwide network of distribution centers, and advanced logistics and information technologies provide competitive advantages to its drug distribution operations. For example, the Company uses Acumax(R), a computerized bar-code scanning system, to track items in its warehouses. Acumax enables the Company to achieve order filling and inventory accuracy levels of more than 99%, ensuring that the right product arrives at the right time and place for both the Company's customers and their patients. Health Care Services serves three primary customer segments: retail independent pharmacies, retail chains and institutional providers (including hospitals, health care facilities and pharmacy service operators) which represented approximately 41%, 30%, and 21%, respectively, of U.S. Health Care Services revenues for fiscal 1996. A fourth customer category is pharmaceutical manufacturers, which is managed by McKesson's Pharmaceutical and Retail Services Business group. INDEPENDENT PHARMACIES. In addition to distribution services, the Company provides value added services to independent retail pharmacies through management information systems, including inventory management, electronic billing, current pricing and other financial management offerings. In February 1996, McKesson launched the OmniLinkSM centralized pharmacy technology platform and the associated CareMaxSM network of independent pharmacies. The combined offering links independent pharmacies, creating a "virtual chain" for contracting with pharmaceutical suppliers and managed care organizations. As of December 31, 1996, OmniLink had been installed in over 1,600 pharmacies. OmniLink offers pharmacies streamlined transaction processing through OmniLink's connectivity with managed care organizations, while promoting compliance with managed care formularies and appropriate reimbursement from managed care plans. The service also improves cash flow for pharmacies and enhances pharmacy revenues through programs such as 24-hour advanced funding of third-party reimbursements, prescription refill reminders, patient direct marketing and distribution of coupons and samples for over- the-counter products. The Company currently has two pharmacy programs for independent pharmacies--Valu-Rite(R), a voluntary cooperative program, and Health Mart(R), a franchise program. Through Valu-Rite, the Company provides its independent U.S. retail drug store customers with a common marketing identity, group advertising, purchasing programs, promotional merchandise and access to a pharmacy provider network. At December 31, 1996, over 5,200 stores were participating in the Valu-Rite program. Through Health Mart, acquired as part of FoxMeyer, the Company provides its community pharmacists with a franchise program. Currently, Health Mart has approximately 700 franchisees. Together, Valu-Rite and Health Mart pharmacies comprise approximately 20% of the nation's independent retail pharmacies. RETAIL CHAINS. Retail drug chains do business with the Company in three ways: primary sourcing, secondary sourcing and dock-to-dock (warehousing). In primary sourcing, a chain depends on the Company to supply its logistics, warehousing and contract administration functions, much as the Company performs primary distribution for all other retail customers. In secondary sourcing, the Company "backs up" the chains' own warehouses with deliveries on an as-needed basis. In dock-to-dock, the Company transfers large-quantity (bulk) shipments from manufacturers to chains and provides billing services. INSTITUTIONAL BUSINESS. The Company, through its McKesson Health Systems unit, provides drug distribution services, and related logistics and management information systems support, to the institutional 11 market, which includes hospitals, alternate-sites and integrated health networks. The acquisition of FoxMeyer strengthened the Company's position in the institutional marketplace. Similarly, the completion of the acquisition of General Medical further enhances the Company's competitiveness, particularly in the fast-growing alternate-site segment. MANUFACTURERS. Pharmaceutical and Retail Services develops innovative marketing and distribution services to build and sustain sales for manufacturers' pharmaceutical products. Through its HDS unit, this group operates integrated systems for specialized delivery of biotech and other high-cost pharmaceutical therapies. These systems manage manufacturer cost and information requirements through financial assistance programs for patients, reimbursement support and patient advocacy programs, product hot- lines, pharmacy-based sampling and physician and patient information programs. These services are also provided to manufacturers on a stand- alone basis outside of integrated service systems. Through McKesson Bioservices Corporation, this group also provides support services to commercial, non-profit and governmental organizations engaged in drug development and biomedical research including biological repository management, clinical trials support and regulatory process management services. McKesson also provides a key service to drug manufacturers with McKesson Select GenericsSM, an enhancement of the Company's Multi-Source Complete(R) generic drug program which was launched in May 1996. Through the Select Generics program, retail customers have access to a broad line of over 1,300 generic items, and single suppliers are chosen for each item, thereby offering to manufacturers the advantage of exclusivity and compliance. GENERAL MEDICAL ACQUISITION On February 21, 1997, McKesson acquired General Medical for approximately $775 million, including $347 million for the equity, half in the Company's Common Stock and half in cash, and the assumption of approximately $428 million in debt. The acquisition of General Medical extends the Company's product line to include medical and surgical supplies in addition to the drugs and health and beauty care products it currently distributes. The combination of McKesson and General Medical creates a strong force to address the increasingly complex clinical supply needs of physicians, extended-care facilities and integrated health care networks. General Medical is the nation's leading supplier of medical-surgical supplies to the full range of alternate-site health care facilities, including physicians and clinics (primary care), long-term care and home-care sites (extended care), and is the third largest distributor of medical-surgical supplies to hospitals. In the year ended December 31, 1995, General Medical had revenues of approximately $1.5 billion, of which 58% were derived from the acute care market, 31% from primary care and 11% from extended care. In addition to marketing to each market segment separately, General Medical emphasizes sales to these three market segments through integrated health care networks which operate health care facilities across the market spectrum. General Medical distributes a broad array of products, comprising approximately 130,000 products supplied by over 4,000 medical and surgical product manufacturers, through a 700-person sales force to more than 200,000 care providers nationwide, including 500 account managers calling on physicians. Additionally, General Medical offers a variety of value-added services to its customers, particularly in the area of cost containment and inventory management. The acquisition of General Medical is a major step forward in solidifying the Company's position as the world leader in health care supply management. FOXMEYER ACQUISITION Prior to its acquisition by the Company, FoxMeyer's drug distribution business was the fourth largest in the United States. The acquisition of FoxMeyer pairs the Company's financial capabilities and information technology expertise with the substantial customer base of FoxMeyer and strengthens the Company's position in all three customer segments (health care institutions, retail independents and retail chains). The acquisition also gives the Company access to new customers and opportunities for consolidation economics, particularly cost reduction and distribution network reconfiguration. 12 MCKESSON WATER PRODUCTS COMPANY McKesson Water Products Company ("Water Products") is a leading provider in the $3.4 billion bottled water industry in the United States. Except in the State of Washington, it is the largest bottled water company in the geographic markets in which it competes. In fiscal 1996, Water Products generated approximately $40 million in pretax operating profit, and its operating margin was 15%. Water Products is primarily engaged in the processing and sale of bottled drinking water delivered to more than 500,000 homes and businesses under its Sparkletts(R), Alhambra(R), and Crystal(TM) brands in California, Arizona, Nevada, Oklahoma, Washington and Texas. It also sells packaged water through retail stores in approximately 40 states. USE OF PROCEEDS The Selling Holders will receive all of the proceeds from the sale of the Offered Securities. Neither the Company nor the Trust will will receive any proceeds from the sale of the Offered Securities. ACCOUNTING TREATMENT The financial statements of the Trust will be consolidated with McKesson's financial statements, with the Preferred Securities accounted for as minority interests and captioned in the consolidated balance sheet as "McKesson- obligated mandatorily redeemable preferred securities of subsidiary grantor trust whose sole assets are junior subordinated debentures of McKesson." RATIO OF EARNINGS TO FIXED CHARGES (UNAUDITED) The following table sets forth the Company's ratio of earnings to fixed charges on a historical basis for each of the five fiscal years in the period ended March 31, 1996, and for each of the nine months ended December 31, 1996 and December 31, 1995. The deficiency of earnings to fixed charges for fiscal 1995 totaled $0.7 million.
NINE MONTHS FISCAL YEAR ENDED MARCH 31, ENDED DECEMBER 31 ------------------------------- ----------------- 1996 1995 1994 1993 1992 1996 1995 ----- ------ ----- ----- ----- -------- -------- Ratio of Earnings to Fixed Charges..................... 4.71x (0.01x) 3.42x 2.97x 1.45x 0.43x 4.40x
The ratio of earnings to fixed charges was computed by dividing fixed charges (interest expense including the interest portion of capital and operating leases) into earnings available for fixed charges (income from continuing operations plus taxes on income and fixed charges). 13 MCKESSON FINANCING TRUST McKesson Financing Trust is a statutory business trust formed under Delaware law pursuant to (i) a Declaration of Trust, as amended by an Amended and Restated Declaration of Trust (the "Declaration"), executed by McKesson, as sponsor (the "Sponsor"), and the trustees of McKesson Financing Trust (the "MFT Trustees") and (ii) the filing of a certificate of trust with the Secretary of State of the State of Delaware. McKesson owns Common Securities in an aggregate liquidation amount equal to 3% of the total capital of McKesson Financing Trust. The assets of the Trust consist solely of the Convertible Debentures. McKesson Financing Trust exists for the exclusive purposes of (i) issuing the Trust Securities representing undivided beneficial interests in the assets of the Trust, (ii) investing the gross proceeds of the Trust Securities in the Convertible Debentures, and (iii) engaging in only those other activities necessary or incidental thereto. Pursuant to the Declaration, the number of MFT Trustees is initially five. Three of the MFT Trustees (the "Regular Trustees") are persons who are employees or officers of or who are affiliated with McKesson. The fourth trustee is an entity that maintains its principal place of business in the state of Delaware (the "Delaware Trustee"). The fifth trustee (the "Institutional Trustee") is a financial institution that is unaffiliated with McKesson and serves as institutional trustee under the Declaration and acts as indenture trustee under the Declaration for the purposes of compliance with the provisions of the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The First National Bank of Chicago, is the Institutional Trustee until removed or replaced by the holder of the Common Securities. The First National Bank of Chicago also acts as trustee (the "Guarantee Trustee") under the Guarantee and as trustee (the "Debt Trustee") under the Indenture. First Chicago Delaware Inc., an affiliate of the Institutional Trustee, acts as Delaware Trustee. See "Description of the Convertible Preferred Securities--Voting Rights." The Institutional Trustee holds title to the Convertible Debentures for the benefit of the holders of the Trust Securities and the Institutional Trustee has the power to exercise all rights, powers and privileges under the Indenture as the holder of the Convertible Debentures. In addition, the Institutional Trustee maintains exclusive control of a segregated non-interest bearing bank account (the "Property Account") to hold all payments made in respect of the Convertible Debentures for the benefit of the holders of the Trust Securities. The Institutional Trustee will make payments of distributions and payments on liquidation, redemption and otherwise to the holders of the Trust Securities out of funds from the Property Account. The Guarantee Trustee holds the Guarantee for the benefit of the holders of the Convertible Preferred Securities. McKesson, as the holder of all of the Common Securities, has the right to appoint, remove or replace any MFT Trustee and to increase or decrease the number of MFT Trustees. McKesson is to pay all fees and expenses related to McKesson Financing Trust and the Original Offering of the Trust Securities. See "Description of the Convertible Debentures-- Miscellaneous." The Common Securities rank pari passu, and payments are made thereon pro rata, with the Convertible Preferred Securities, except that upon the occurrence and continuance of an event of default under the Declaration resulting from an Event of Default under the Indenture, the rights of the holders of the Common Securities to payment in respect of distributions and payments upon liquidation, redemption or otherwise will be subordinated to the rights of holders of the Convertible Preferred Securities. See "Description of Convertible Preferred Securities--General." The rights of the holders of the Convertible Preferred Securities, including economic rights, rights to information and voting rights, are set forth in the Declaration and the Delaware Business Trust Act (the "Trust Act"). The Declaration, the Indenture and the Guarantee also incorporate by reference the terms of the Trust Indenture Act. It is expected that, at the time the Shelf Registration Statement becomes effective, the Declaration, the Indenture and the Guarantee will be qualified under the Trust Indenture Act. The place of business and the telephone number of the Trust are the principal executive offices and telephone number of the Company. See "The Company." 14 DESCRIPTION OF THE CONVERTIBLE PREFERRED SECURITIES The Convertible Preferred Securities were issued pursuant to the terms of the Declaration. The Declaration incorporates by reference terms of the Trust Indenture Act. The Declaration will be qualified under the Trust Indenture Act. The Institutional Trustee acts as indenture trustee for the Convertible Preferred Securities under the Declaration for purposes of compliance with the provisions of the Trust Indenture Act. The terms of the Convertible Preferred Securities include those stated in the Declaration and those made part of the Declaration by the Trust Indenture Act. The following summary of certain terms and provisions of the Convertible Preferred Securities does not purport to be complete and is subject to, and qualified in its entirety by reference to, the Declaration, the Trust Act and the Trust Indenture Act. GENERAL The Declaration authorized the Regular Trustees to issue, on behalf of the Trust, the Trust Securities, which represent undivided beneficial interests in the assets of the Trust. All of the Common Securities are owned by McKesson. The Common Securities rank pari passu, and payments are made thereon on a pro rata basis, with the Convertible Preferred Securities, except that upon the occurrence and during the continuance of a Declaration Event of Default, the rights of the holders of the Common Securities to receive payment of periodic distributions and payments upon liquidation, redemption and otherwise will be subordinated to the rights of the holders of the Convertible Preferred Securities. The Declaration does not permit the issuance by the Trust of any securities other than the Trust Securities or the incurrence of any indebtedness by the Trust. Pursuant to the Declaration, the Institutional Trustee holds the Convertible Debentures purchased by the Trust for the benefit of the holders of the Trust Securities. The payment of distributions out of money held by the Trust, and payments upon redemption of the Convertible Preferred Securities or liquidation of the Trust, are guaranteed by McKesson to the extent described under "Description of the Guarantee." The Guarantee is held by the Guarantee Trustee for the benefit of the holders of the Convertible Preferred Securities. The Guarantee does not cover payment of distributions when the Trust does not have sufficient available funds to pay such distributions. In such event, the remedy of a holder of Convertible Preferred Securities is to vote to direct the Institutional Trustee to enforce the Institutional Trustee's rights under the Convertible Debentures or, in certain limited circumstances, to take Direct Action. See "--Voting Rights" and "--Declaration Events of Default." DISTRIBUTIONS Distributions on the Convertible Preferred Securities are fixed at a rate per annum (the "distribution rate") of 5% of the stated liquidation amount of $50 per Convertible Preferred Security. Distributions in arrears for more than one quarter will accrue interest thereon at the distribution rate (to the extent permitted by applicable law), compounded quarterly. The term "distribution" as used herein includes any such interest payable unless otherwise stated. The amount of distributions payable for any period will be computed on the basis of a 360-day year of twelve 30-day months. The amount of distributions payable for any period shorter than a full quarterly period for which distributions are computed will be computed on the basis of the actual number of days elapsed per 30-day month. Distributions on the Convertible Preferred Securities will be cumulative, will accrue from the first date that any Convertible Preferred Securities are issued, and will be payable quarterly in arrears on March 1, June 1, September 1 and December 1 of each year, commencing June 1, 1997, when, as and if available for payment. Distributions will be made by the Institutional Trustee, except as otherwise described below. So long as McKesson shall not be in default in the payment of interest on the Convertible Debentures, McKesson has the right under the Indenture to defer payments of interest on the Convertible Debentures by extending the interest payment period from time to time on the Convertible Debentures, which, if exercised, would defer quarterly distributions on the Convertible Preferred Securities (though such distributions would continue to accumulate with interest thereon (to the extent permitted by applicable law) at the distribution rate, compounded quarterly, since interest would continue to accrue on the Convertible Debentures) during any such 15 Extension Period. Such right to extend the interest payment period for the Convertible Debentures is limited to a period not exceeding 20 consecutive quarters and such period may not extend beyond the maturity of the Convertible Debentures. Each Extension Period, if any, will end on an Interest Payment Date (as defined herein) for the Convertible Debentures; such date will also be a distribution payment date for the Convertible Preferred Securities. In the event that McKesson exercises its right to defer payment of interest, then, during such Extension Period McKesson shall not (a) declare or pay dividends on, make distributions with respect to, or redeem, purchase or acquire, or make a liquidation payment with respect to, any of its capital stock or (b) make any payment of interest, principal or premium, if any, on or repay, repurchase or redeem any debt securities issued by McKesson that rank pari passu with or junior in interest to the Convertible Debentures or make any guarantee payments with respect to any guarantee by the Company of the debt securities of any subsidiary of the Company if such guarantee ranks pari passu with or junior in interest to the Convertible Debentures (other than (i) as a result of a reclassification of McKesson capital stock or the exchange or conversion of one class or series of McKesson capital stock for another class or series of McKesson capital stock, (ii) the purchase of fractional interests in shares of McKesson capital stock pursuant to the conversion or exchange provisions of such McKesson capital stock or the security being converted or exchanged for McKesson capital stock, (iii) dividends or distributions in Common Stock of the Company, (iv) any declaration of a dividend in connection with the implementation of a stockholders' rights plan, or the issuance of stock under any such plan in the future, or the redemption or repurchase of any such rights pursuant thereto, (v) payments under the Guarantee and Common Securities Guarantee (as defined herein), (vi) purchases of Common Stock related to the issuance of Common Stock or rights under any of the Company's benefit plans for its directors, officers or employees and (vii) obligations under any dividend reinvestment and stock purchase plans). Prior to the termination of any such Extension Period, McKesson may further extend the interest payment period; provided that such Extension Period, together with all such previous and further extensions, may not exceed 20 consecutive quarters or extend beyond the maturity of the Convertible Debentures. Upon the termination of any Extension Period and the payment of all amounts then due, McKesson may commence a new Extension Period, subject to the above requirements. Consequently, there could be multiple Extension Periods of varying length throughout the term of the Convertible Debentures. See "Description of the Convertible Debentures--Interest" and "--Option to Extend Interest Payment Period." If distributions are deferred, the deferred distributions and interest thereon shall be payable on the distribution payment date on which the relevant Extension Period terminates and shall be paid to holders of record of the Convertible Preferred Securities as they appear on the books and records of the Trust at the close of business on the record date next preceding such distribution payment date. Distributions on the Convertible Preferred Securities must be paid on the date payable to the extent that the Trust has funds available for the payment of such distributions. The Trust's funds available for distribution to the holders of the Convertible Preferred Securities will be limited to payments received from McKesson on the Convertible Debentures. See "Description of the Convertible Debentures." The payment of distributions out of monies held by the Trust is guaranteed by McKesson to the extent set forth under "Description of the Guarantee." Distributions on the Convertible Preferred Securities will be payable to the holders thereof as they appear on the books and records of the Trust at the close of business on the relevant record dates, which will be fifteen days prior to the relevant payment dates. Such distributions will be paid through the Institutional Trustee who will hold amounts received in respect of the Convertible Debentures for the benefit of the holders of the Trust Securities. Subject to any applicable laws and regulations and the provisions of the Declaration, each such payment will be made as described under "--Form, Denomination and Registration" below. In the event that any date on which distributions are to be made on the Convertible Preferred Securities is not a Business Day (as defined herein), then payment of the distributions payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. A "Business Day" shall mean any day other than Saturday, Sunday or any other day on which banking institutions in The City of New York or Wilmington, Delaware are permitted or required by any applicable law to close. 16 CONVERSION RIGHTS General. The Convertible Preferred Securities are convertible at any time beginning May 21, 1997 through the close of business on the Business Day prior to the maturity date of the Convertible Debentures (or, in the case of Convertible Preferred Securities called for redemption, prior to the close of business on the Business Day prior to the Redemption Date) (the "Conversion Expiration Date"), at the option of the holders thereof and in the manner described below, into shares of McKesson Common Stock at an initial conversion rate of .6709 shares of McKesson Common Stock for each Convertible Preferred Security (equivalent to a conversion price (the "Conversion Price") of $74.53 per share of McKesson Common Stock), subject to adjustment as described under "--Conversion Price Adjustments--General" below. The terms of the Convertible Preferred Securities provide that a holder of a Convertible Preferred Security wishing to exercise its conversion right shall surrender such Convertible Preferred Security, together with an irrevocable conversion notice, to the Institutional Trustee, as conversion agent (the "Conversion Agent") which shall, on behalf of such holder, exchange such Convertible Preferred Security for an equivalent portion of the Convertible Debentures and immediately convert an equivalent amount of Convertible Debentures into McKesson Common Stock. Holders may obtain copies of the required form of the conversion notice from the Conversion Agent. Additional procedures for converting book-entry Convertible Preferred Securities into shares of McKesson Common Stock are described below under "--Form, Denomination and Registration." Accrued distributions will not be paid on the Convertible Preferred Securities that are converted, provided, however, that if any Convertible Preferred Security is converted after the close of business on a record date for payment of distributions thereon, the distributions payable on the related payment date with respect to such Convertible Preferred Security shall be paid on such distribution date to the person who was the registered holder thereof at the close of business on such record date, despite such conversion, unless such Convertible Preferred Security has been called for redemption on a Redemption Date falling between such record date and the corresponding distribution payment date, in which case the amount of such payment shall include distributions accrued to, but excluding, such Redemption Date and such payment shall be made to the converting holder. Except as provided in the immediately preceding sentence, neither the Trust nor McKesson shall make any payment, allowance or adjustment for accumulated and unpaid distributions on converted Convertible Preferred Securities. McKesson will make no payment or allowance for distributions on the shares of McKesson Common Stock issued upon such conversion, except to the extent that such shares of McKesson Common Stock are held of record on the record date for any such distributions. No fractional shares of McKesson Common Stock will be issued as a result of conversion, but in lieu thereof such fractional interest will be paid by McKesson in cash based on the Closing Price (as defined in the Declaration) of McKesson Common Stock on the date such Convertible Preferred Securities are surrendered for conversion. Conversion Price Adjustments--General. The initial conversion price of $74.53 per share of McKesson Common Stock is subject to adjustment (under formulae set forth in the Indenture) in certain events, including (i) the issuance of shares of McKesson Common Stock as a dividend or a distribution with respect to McKesson Common Stock, (ii) certain subdivisions and combinations of McKesson Common Stock, (iii) the issuance to all holders of McKesson Common Stock of certain rights or warrants entitling them to subscribe for or purchase shares of McKesson Common Stock, (iv) the distribution to all holders of McKesson Common Stock of shares of capital stock (other than McKesson Common Stock) or evidences of indebtedness of McKesson or of assets (including securities, but excluding those rights, warrants, dividends and distributions referred to above or paid in cash), (v) distributions consisting of cash, excluding any quarterly cash dividend on McKesson Common Stock to the extent that the aggregate cash dividend per share of McKesson Common Stock in any quarter does not exceed the greater of (x) the amount per share of McKesson Common Stock of the next preceding quarterly dividend on McKesson Common Stock to the extent that such preceding quarterly dividend did not require an adjustment of the conversion rate pursuant to this clause (v) (as adjusted to reflect subdivisions or combinations of McKesson Common Stock), and (y) 3.75% of the average of the daily Closing Price (as defined in the 17 Indenture) of McKesson Common Stock during the ten consecutive Trading Days (as defined in the Indenture) immediately prior to the date of declaration of such dividend, and excluding any dividend or distribution in connection with the liquidation, dissolution or winding-up of McKesson, (vi) payment to holders of McKesson Common Stock in respect of a tender or exchange offer by McKesson or any subsidiary for McKesson Common Stock to the extent that the cash and value of any other consideration included in such payment per share of McKesson Common Stock exceeds the Closing Price (as defined in the Indenture) per share of Common Stock on the Trading Day next succeeding the last date on which tenders or exchanges may be made pursuant to such tender or exchange offer, and (vii) payment in respect of a tender offer or exchange offer by a person other than McKesson or any subsidiary of McKesson in which, as of the closing date of the offer, the Board of Directors is not recommending rejection of the offer. If an adjustment is required to be made as set forth in clause (v) above as a result of a distribution that is a quarterly dividend, such adjustment would be based upon the amount by which such distribution exceeds the amount of the quarterly cash dividend permitted to be excluded pursuant to such clause (v). If an adjustment is required to be made based upon the full amount of the distribution that is not a quarterly dividend, such adjustment would be based upon the full amount of the distribution. The adjustment referred to in clause (vii) above will only be made (A) if the tender offer or exchange offer is for an amount that increases that person's ownership of McKesson Common Stock to more than 25% of the total shares of McKesson Common Stock outstanding and (B) if the cash and value of any other consideration included in such payment per share of McKesson Common Stock exceeds the Closing Price per share of McKesson Common Stock on the Business Day next succeeding the last date on which tenders or exchanges may be made pursuant to such tender or exchange offer. The adjustment referred to in clause (vii) above will not be made, however, if, as of the closing of the offer, the offering documents with respect to such offer disclose a plan or an intention to cause McKesson to engage in a consolidation or merger of McKesson or a sale of all or substantially all of McKesson's assets. The Convertible Debentures provide for corresponding anti-dilution adjustments. McKesson from time to time may to the extent permitted by law reduce the conversion price of the Convertible Debentures (and thus the conversion price of the Convertible Preferred Securities) by any amount for any period of at least 20 days, in which case McKesson shall give at least 15 days' notice of such reduction. No adjustment in the conversion price will be required unless such adjustment would require a change of at least one percent (1%) in the conversion price then in effect; provided, however, that any adjustment that would not be required to be made shall be carried forward and taken into account in any subsequent adjustment. If any action would require adjustment of the conversion price pursuant to more than one of the provisions described above, only one adjustment shall be made and such adjustment shall be the amount of adjustment that has the highest absolute value to the holder of the Convertible Preferred Securities. Except as stated above, the conversion price will not be adjusted for the issuance of McKesson Common Stock or any securities convertible into or exchangeable for McKesson Common Stock or carrying the right to purchase any of the foregoing. Conversion Price Adjustments--Merger, Consolidation or Sale of Assets of McKesson. If any transaction shall occur (including without limitation (i) any recapitalization or reclassification of shares of McKesson Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination of McKesson Common Stock), (ii) any consolidation or merger of McKesson with or into another person or any merger of another person into McKesson (other than a merger that does not result in a reclassification, conversion, exchange or cancellation of McKesson Common Stock), (iii) any sale or transfer of all or substantially all of the assets of McKesson, or (iv) any compulsory share exchange) pursuant to which either shares of McKesson Common Stock shall be converted into the right to receive other securities, cash or other property, or, in the case of a sale or transfer of all or substantially all of the assets of McKesson, the holders of McKesson Common Stock shall be entitled to receive other securities, cash or other property, then appropriate provision shall be made so that the holder of each Convertible Preferred Security then outstanding shall have the right thereafter to convert such Convertible Preferred Security only into: (x) in the case of any such transaction that does not constitute a Common Stock Fundamental Change (as defined below) and subject to funds being legally available for such purpose under applicable law at the time of such conversion, the kind and amount of the securities, cash or other property that would have been 18 receivable upon such recapitalization, reclassification, consolidation, merger, sale, transfer or share exchange by a holder of the number of shares of McKesson Common Stock issuable upon conversion of such Convertible Preferred Security immediately prior to such recapitalization, reclassification, consolidation, merger, sale, transfer or share exchange, after giving effect, in the case of any Non-Stock Fundamental Change (as defined below), to any adjustment in the conversion price in accordance with clause (i) of the second following paragraph, and (y) in the case of any such transaction that constitutes a Common Stock Fundamental Change, common stock of the kind received by holders of McKesson Common Stock as a result of such Common Stock Fundamental Change in an amount determined in accordance with clause (ii) of the second following paragraph. The company formed by such consolidation or resulting from such merger or that acquires assets or that acquires McKesson's shares, as the case may be, shall make provisions in its certificate or articles of incorporation or other constituent document to establish such right. Such certificate or articles of incorporation or other constituent document shall provide for adjustments that, for events subsequent to the effective date of such certificate or articles of incorporation or other constituent documents, shall be as nearly equivalent as may be practicable to the relevant adjustments provided for in the preceding paragraphs and in this paragraph. Notwithstanding any other provision in the preceding paragraphs to the contrary, if any Fundamental Change (as defined below) occurs, then the conversion price in effect will be adjusted immediately after such Fundamental Change as follows: (i) in the case of a Non-Stock Fundamental Change, the conversion price of the Convertible Preferred Securities immediately following such Non- Stock Fundamental Change shall be the lower of (A) the conversion price in effect immediately prior to such Non-Stock Fundamental Change, but after giving effect to any other prior adjustments effected pursuant to the preceding paragraphs, and (B) the product of (1) the greater of the Applicable Price (as defined below) and the then applicable Reference Market Price (as defined below) and (2) a fraction, the numerator of which is $50 and the denominator of which is (x) the amount of the redemption price for one Convertible Preferred Security if the redemption date were the date of such Non-Stock Fundamental Change (or, for the twelve-month periods commencing March 4, 1997, March 4, 1998 and March 4, 1999, the product of 105.0%, 104.5% and 104.0%, respectively, times $50) plus (y) any then-accrued and unpaid distributions on one Convertible Preferred Security; and (ii) in the case of a Common Stock Fundamental Change, the conversion price of Convertible Preferred Securities immediately following such Common Stock Fundamental Change shall be the conversion price in effect immediately prior to such Common Stock Fundamental Change, but after giving effect to any other prior adjustments effected pursuant to the preceding paragraphs, multiplied by a fraction, the numerator of which is the Purchaser Stock Price (as defined below) and the denominator of which is the Applicable Price; provided, however, that in the event of a Common Stock Fundamental Change in which (A) 100% of the value of the consideration received by a holder of McKesson Common Stock is common stock of the successor, acquiror or other third party (and cash, if any, paid with respect to any fractional interests in such common stock resulting from such Common Stock Fundamental Change) and (B) all of the McKesson Common Stock shall have been exchanged for, converted into or acquired for, common stock of the successor, acquiror or other third party (and any cash with respect to fractional interests), the conversion price of the Convertible Preferred Securities immediately following such Common Stock Fundamental Change shall be the conversion price in effect immediately prior to such Common Stock Fundamental Change multiplied by a fraction, the numerator of which is one (1) and the denominator of which is the number of shares of common stock of the successor, acquiror or other third party received by a holder of one share of McKesson Common Stock as a result of such Common Stock Fundamental Change. Depending upon whether a Fundamental Change is a Non-Stock Fundamental Change or a Common Stock Fundamental Change, a holder may receive significantly different consideration upon conversion. In the event of a Non- Stock Fundamental Change, the holder has the right to convert Convertible Preferred Securities into the 19 kind and amount of the shares of stock and other securities or property or assets (including cash), except as otherwise provided above, as is determined by the number of shares of McKesson Common Stock receivable upon conversion at the conversion price as adjusted in accordance with clause (i) of the preceding paragraph. However, in the event of a Common Stock Fundamental Change in which less than 100% of the value of the consideration received by a holder of McKesson Common Stock is common stock of the successor, acquiror or other third party, a holder of a Convertible Preferred Security who converts such share following the Common Stock Fundamental Change will receive consideration in the form of such common stock only, whereas a holder who converted such share prior to the Common Stock Fundamental Change would have received consideration in the form of such common stock as well as any other securities or assets (which may include cash) issuable upon conversion of such Convertible Preferred Security immediately prior to such Common Stock Fundamental Change. The term "Applicable Price" means (i) in the event of a Non-Stock Fundamental Change in which the holders of McKesson Common Stock receive only cash, the amount of cash received by a holder of one share of McKesson Common Stock and (ii) in the event of any other Fundamental Change, the average of the daily Closing Price (as defined in the Indenture) for one share of McKesson Common Stock during the 10 Trading Days immediately prior to the record date for the determination of the holders of McKesson Common Stock entitled to receive cash, securities, property or other assets in connection with such Fundamental Change or, if there is no such record date, prior to the date upon which the holders of McKesson Common Stock shall have the right to receive such cash, securities, property or other assets. The term "Common Stock Fundamental Change" means any Fundamental Change in which more than 50% of the value (as determined in good faith by the Board of Directors of McKesson) of the consideration received by holders of McKesson Common Stock consists of common stock that, for the 10 Trading Days immediately prior to such Fundamental Change, has been admitted for listing or admitted for listing subject to notice of issuance on a national securities exchange or quoted on The Nasdaq National Market; provided, however, that a Fundamental Change shall not be a Common Stock Fundamental Change unless either (i) McKesson continues to exist after the occurrence of such Fundamental Change and the outstanding Convertible Preferred Securities continue to exist as outstanding Convertible Preferred Securities, or (ii) not later than the occurrence of such Fundamental Change, the outstanding Convertible Preferred Securities are converted into or exchanged for shares of convertible preferred stock or debentures of a corporation succeeding to the business of McKesson, which convertible preferred stock has powers, preferences and relative, participating, optional or other rights, and qualifications, limitations and restrictions substantially similar to those of the Convertible Preferred Securities and which debentures have terms substantially similar to those of the Convertible Debentures. The term "Fundamental Change" means the occurrence of any transaction or event or series of transactions or events pursuant to which all or substantially all of the McKesson Common Stock shall be exchanged for, converted into, acquired for or shall constitute solely the right to receive cash, securities, property or other assets (whether by means of an exchange offer, liquidation, tender offer, consolidation, merger, combination, reclassification, recapitalization or otherwise); provided, however, in the case of any such series of transactions or events, for purposes of adjustment of the conversion price, such Fundamental Change shall be deemed to have occurred when substantially all of the McKesson Common Stock shall have been exchanged for, converted into or acquired for, or shall constitute solely the right to receive, such cash, securities, property or other assets, but the adjustment shall be based upon the consideration that the holders of McKesson Common Stock received in the transaction or event as a result of which more than 50% of the McKesson Common Stock shall have been exchanged for, converted into or acquired for, or shall constitute solely the right to receive, such cash, securities, property or other assets. The term "Non-Stock Fundamental Change" means any Fundamental Change other than a Common Stock Fundamental Change. 20 The term "Purchaser Stock Price" means, with respect to any Common Stock Fundamental Change, the average of the daily Closing Price for one share of the common stock received by holders of McKesson Common Stock (determined as provided in the Declaration) in such Common Stock Fundamental Change during the 10 Trading Days immediately prior to the date fixed for the determination of the holders of McKesson Common Stock entitled to receive such common stock or, if there is no such date, prior to the date upon which the holders of McKesson Common Stock shall have the right to receive such common stock. The Term "Reference Market Price" shall initially mean $39.75 (which is an amount equal to 66 2/3% of the reported last sale price for McKesson Common Stock on the New York Stock Exchange on February 13, 1997 (the date of the pricing of the Original Offering)) and, in the event of any adjustment to the conversion price other than as a result of a Fundamental Change, the Reference Market Price shall also be adjusted so that the ratio of the Reference Market Price to the conversion price after giving effect to any such adjustment shall also be the same as the ratio of the initial Reference Market Price to the initial conversion price of $74.53 per share. MANDATORY REDEMPTION The Convertible Preferred Securities will be redeemed upon repayment of the Convertible Debentures at their maturity or to the extent that the Convertible Debentures are redeemed or repaid upon acceleration. The Convertible Debentures will mature on June 1, 2027, and may be redeemed, in whole or in part, at any time on or after March 4, 2000, or at any time in certain circumstances upon the occurrence of a Tax Event. Upon the repayment of the Convertible Debentures, whether at maturity, upon redemption or otherwise, the proceeds from such repayment shall simultaneously be applied to redeem Trust Securities having an aggregate liquidation amount equal to the aggregate principal amount of the Convertible Debentures so repaid or redeemed at the appropriate Redemption Price (expressed as percentages of the liquidation amount of the Convertible Preferred Securities) set forth below, together with accrued and unpaid distributions (including, if distributions shall have been deferred as the result of an Extension Period, interest thereon to the extent permitted by applicable law) to, but excluding, the redemption date, if redeemed during the 12-month period beginning March 4 of the applicable year set forth below; provided, that holders of Trust Securities shall be given not less than 30 nor more than 60 days notice of such redemption. See "Description of the Convertible Debentures--Redemption at the Option of McKesson." In the event that fewer than all of the outstanding Convertible Preferred Securities are to be redeemed, the Convertible Preferred Securities will be redeemed pro rata as described under "--Form, Denomination and Registration" below.
YEAR REDEMPTION PRICE ---- ---------------- 2000........................ 103.5% 2001........................ 103.0 2002........................ 102.5 2003........................ 102.0 2004........................ 101.5 2005........................ 101.0 2006........................ 100.5
and 100.0% if redeemed on or after March 4, 2007. If Convertible Preferred Securities are redeemed on any distribution payment date, accumulated and unpaid distributions shall be payable to holders of record on the relevant record date. SPECIAL EVENT DISTRIBUTION; TAX EVENT REDEMPTION "Tax Event" means that the Regular Trustees shall have received an opinion of nationally recognized independent tax counsel experienced in such matters (a "Dissolution Tax Opinion") to the effect that as a result of (a) any amendment to, clarification of, or change (including any announced prospective change) in the laws, 21 or any regulations thereunder, of the United States or any political subdivision or taxing authority thereof or therein, (b) any judicial decision, official administrative pronouncement, ruling, regulatory procedure, notice or announcement, including any notice or announcement of intent to adopt such procedures or regulations (an "Administrative Action"), or (c) any amendment to, clarification of, or change in the official position or the interpretation of such Administrative Action or judicial decision that differs from the theretofore generally accepted position, in each case, by any legislative body, court, governmental authority or regulatory body, irrespective of the manner in which such amendment, clarification or change is made known, which amendment, clarification, or change is effective or such pronouncement or decision is announced, in each case, on or after February 13, 1997, there is the creation by such amendment, clarification, change or Administrative Action of more than an insubstantial risk that (i) the Trust is or will be subject to United States federal income tax with respect to interest accrued or received on the Convertible Debentures, (ii) the Trust is or will be subject to more than a de minimis amount of taxes (other than withholding taxes), duties or other governmental charges, or (iii) interest paid in cash by McKesson to the Trust on the Convertible Debentures is not, or will not be, deductible, in whole or in part, by McKesson for United States federal income tax purposes. Notwithstanding the foregoing, a Tax Event shall not include any change in tax law that requires McKesson for United States federal income tax purposes to defer taking a deduction for any OID that accrues with respect to the Convertible Debentures until the interest payment related to such OID is paid by the Company in cash; provided, that such change in tax law does not create more than an insubstantial risk that McKesson will be prevented from taking a deduction for OID accruing with respect to the Convertible Debentures at a date that is no later than the date the interest payment related to such OID is actually paid by McKesson in cash. "Investment Company Event" means that the Regular Trustees shall have received an opinion of nationally recognized independent counsel experienced in such matters to the effect that, as a result of the occurrence of a change in law or regulation or a written change in interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority on or after February 13, 1997, there is more than an insubstantial risk that the Trust is or will be considered an "investment company" that is required to be registered under the Investment Company Act of 1940, as amended (the "1940 Act"). If, at any time, a Tax Event or an Investment Company Event (each, a "Special Event") shall occur and be continuing, the Trust may with the consent of McKesson, except in the limited circumstances described below, be dissolved with the result that Convertible Debentures with an aggregate principal amount equal to the aggregate stated liquidation amount of, with an interest rate identical to the distribution rate of, and accrued and unpaid interest equal to accrued and unpaid distributions on, the Trust Securities, would be distributed to the holders of the Trust Securities in liquidation of such holders' interest in the Trust on a pro rata basis within 90 days following the occurrence of the Special Event; provided, that such dissolution and distribution shall be conditioned on (i) the Regular Trustees' receipt of an opinion of independent tax counsel experienced in such matters (a "No Recognition Opinion"), which opinion may rely on published revenue rulings of the Internal Revenue Service, to the effect that the holders of the Trust Securities will not recognize any income, gain or loss for United States federal income tax purposes as a result of such dissolution and distribution of Convertible Debentures, (ii) McKesson or the Trust being unable to avoid such Special Event within such 90-day period by taking some ministerial action or pursuing some other reasonable measure that will have no adverse effect on the Trust, McKesson or the holders of the Trust Securities and (iii) McKesson's prior written consent to such dissolution and distribution. If McKesson declines to consent to such dissolution and distribution, McKesson may incur an obligation to pay Additional Sums. See "Description of the Convertible Debentures--Additional Sums." Furthermore, if after receipt of a Dissolution Tax Opinion by the Regular Trustees (i) McKesson has received an opinion (a "Redemption Tax Opinion") of nationally recognized independent tax counsel experienced in such matters that, as a result of a Tax Event, there is more than an insubstantial risk that McKesson would be precluded from deducting the interest on the Convertible Debentures for United States federal income tax purposes even after the Convertible Debentures were distributed to the holders of Trust Securities in liquidation of such holders' interests in the Trust as described above, or (ii) the Regular Trustees shall have been informed by such tax counsel that it cannot deliver a No Recognition Opinion to the Trust, 22 McKesson shall have the right, upon not less than 30 nor more than 60 days notice, to redeem the Convertible Debentures, in whole or in part, at 100% of the principal amount thereof plus accrued and unpaid interest thereon for cash within 90 days following the occurrence of such Tax Event. Following such redemption, Trust Securities with an aggregate liquidation amount equal to the aggregate principal amount of the Convertible Debentures so redeemed shall be redeemed by the Trust at the liquidation amount thereof plus accrued and unpaid distributions thereon to the redemption date on a pro rata basis; provided, however, that if at the time there is available to McKesson or the Trust the opportunity to eliminate, within such 90 day period, the Tax Event by taking some ministerial action, such as filing a form or making an election or pursuing some other similar reasonable measure that will have no adverse effect on the Trust, McKesson or the holders of Trust Securities, McKesson or the Trust will pursue such measure in lieu of redemption. After the date for any distribution of Convertible Debentures upon dissolution of the Trust, (i) the Trust Securities will no longer be deemed to be outstanding and (ii) certificates representing Trust Securities will be deemed to represent Convertible Debentures having an aggregate principal amount equal to the aggregate stated liquidation amount of, with an interest rate identical to the distribution rate of, and accrued and unpaid interest (including Compound Interest (as defined herein)) equal to accrued and unpaid distributions on, such Trust Securities until such certificates are presented to McKesson or its agent for transfer or reissuance. REDEMPTION PROCEDURES FOR REDEMPTION BY THE TRUST The Trust may not redeem fewer than all of the outstanding Convertible Preferred Securities unless all accrued and unpaid distributions have been paid on all Convertible Preferred Securities for all quarterly distribution periods terminating on or prior to the date of redemption. The Trust shall not be required to (i) in the event of any redemption in part, issue, register the transfer of or exchange any Convertible Preferred Securities during a period beginning at the opening of business 15 days before any selection for redemption of Convertible Preferred Securities and ending at the close of business on the earliest date in which the relevant notice of redemption is deemed to have been given to all holders of Convertible Preferred Securities to be so redeemed or (ii) register the transfer of or exchange any Convertible Preferred Securities selected for redemption, in whole or in part, except for the unredeemed portion of any Convertible Preferred Securities being redeemed in part. If the Trust gives a notice of redemption in respect of Convertible Preferred Securities (which notice will be irrevocable), then, by 12:00 noon, New York City time, on the redemption date, provided that McKesson has paid to the Institutional Trustee a sufficient amount of cash in connection with the related redemption of the Convertible Debentures, the Trust will irrevocably deposit with the depositary for the Global Securities (the "Depository") funds sufficient to pay the amount payable on redemption of all book-entry certificates and will give the Depository irrevocable instructions and authority to pay such amount in respect of the Global Securities and will irrevocably deposit with the paying agent for the Convertible Preferred Securities funds sufficient to pay such amount in respect of any certificated Convertible Preferred Securities and will give such paying agent irrevocable instructions and authority to pay such amount to the holders of certificated Convertible Preferred Securities upon surrender of their certificates. If notice of redemption shall have been given and funds deposited as required, then, from and after the redemption date, distributions will cease to accrue and all rights of holders of such Convertible Preferred Securities so called for redemption will cease, except the right of the holders of such Convertible Preferred Securities to receive the Redemption Price plus accrued and unpaid distributions on the Convertible Preferred Securities to be redeemed, but without interest on such Redemption Price. In the event that any date fixed for redemption of Convertible Preferred Securities is not a Business Day, then payment of the Redemption Price payable on such date will be made on the next succeeding day that is a Business Day (without any interest or other payment in respect of any such delay) except that, if such Business Day falls in the next calendar year, such payment will be made on the immediately preceding Business Day. In the event that payment of the Redemption Price in respect of Convertible Preferred Securities is improperly withheld or refused and not paid either by the Trust or by McKesson pursuant to the Guarantee, distributions on such Convertible Preferred 23 Securities will continue to accrue at the then applicable rate from the original redemption date to the date of payment, in which case the actual payment date will be considered the date fixed for redemption for purposes of calculating the Redemption Price. In the event that fewer than all of the outstanding Convertible Preferred Securities are to be redeemed, the Convertible Preferred Securities will be redeemed pro rata. Subject to the foregoing and applicable law (including without limitation, United States federal securities laws), McKesson or its subsidiaries may at any time, and from time to time, purchase outstanding Convertible Preferred Securities by tender, in the open market or by private agreement. SUBORDINATION OF COMMON SECURITIES Payment of distributions on, and the amount payable upon redemption of, the Trust Securities, as applicable, shall be made pro rata based on the liquidation amount of the Trust Securities; provided however, that, if on any distribution date or Redemption Date a Declaration Event of Default shall have occurred and be continuing, no payment of any distribution on, or amount payable upon redemption of, any Common Security and no other payment on account of the redemption, liquidation or other acquisition of any Common Security shall be made unless payment in full in cash of all accumulated and unpaid distributions on all outstanding Convertible Preferred Securities for all distribution periods terminating on or prior thereto, or in the case of payment of the amount payable upon redemption of the Convertible Preferred Securities, the full Redemption Price, together with accumulated and unpaid distributions, in respect of all outstanding Convertible Preferred Securities called for redemption shall have been made or provided for, and all funds available to the Institutional Trustee shall first be applied to the payment in full in cash of all distributions on, or the amount payable upon redemption of, Convertible Preferred Securities then due and payable. In the case of any Declaration Event of Default, the holder of Common Securities will be deemed to have waived any such Declaration Event of Default until all Declaration Events of Default with respect to the Convertible Preferred Securities have been cured, waived or otherwise eliminated. Until any such Declaration Events of Default with respect to the Convertible Preferred Securities have been so cured, waived or otherwise eliminated, the Institutional Trustee shall act solely on behalf of the holders of the Convertible Preferred Securities and not the holder of the Common Securities, and only the holders of the Convertible Preferred Securities will have the right to direct the Institutional Trustee to act in accordance with the terms of the Convertible Preferred Securities and the Common Securities. LIQUIDATION OF TRUST AND DISTRIBUTION OF CONVERTIBLE DEBENTURES TO HOLDERS McKesson has the right at any time to cause the Trust to be dissolved with the result that, after satisfaction of creditors of the Trust, Convertible Debentures with an aggregate principal amount equal to the aggregate stated liquidation amount of the Convertible Preferred Securities and the Common Securities would be distributed on a pro rata basis to the holders of the Convertible Preferred Securities and the Common Securities in liquidation of such holders' interests in the Trust within 90 days following notice given to the holders of the Convertible Preferred Securities, subject to the Regular Trustees' having received an opinion of nationally recognized independent counsel experienced in such matters to the effect that the holders will not recognize any income, gain or loss for United States federal income tax purposes as a result of the dissolution of the Trust and such distribution to holders of Convertible Preferred Securities. LIQUIDATION DISTRIBUTION UPON DISSOLUTION In the event of any voluntary or involuntary liquidation, dissolution, winding-up or termination of the Trust (each a "Liquidation"), the then holders of the Convertible Preferred Securities will be entitled to receive out of the assets of the Trust, after satisfaction of liabilities to creditors, distributions in an amount equal to the aggregate of the stated liquidation amount of $50 per Convertible Preferred Security plus accrued and unpaid 24 distributions thereon (including, if distributions have been deferred as the result of an Extension Period, interest thereon to the extent permitted by applicable law) to the date of payment (the "Liquidation Distribution"), unless, in connection with such Liquidation, Convertible Debentures in an aggregate stated principal amount equal to the aggregate stated liquidation amount of, with an interest rate identical to the distribution rate of, and accrued and unpaid interest equal to accrued and unpaid distributions on, the Convertible Preferred Securities have been distributed on a pro rata basis to the holders of the Convertible Preferred Securities. If, upon any such Liquidation, the Liquidation Distribution can be paid only in part because the Trust has insufficient assets available to pay in full the aggregate Liquidation Distribution, then the amounts payable directly by the Trust on the Convertible Preferred Securities shall be paid on a pro rata basis. The holders of the Common Securities will be entitled to receive distributions upon any such dissolution pro rata with the holders of the Convertible Preferred Securities, except that if a Declaration Event of Default has occurred and is continuing, the Convertible Preferred Securities shall have a preference over the Common Securities with regard to such distributions. Pursuant to the Declaration, the Trust shall terminate (i) on June 1, 2032, the expiration of the term of the Trust, (ii) upon the bankruptcy of McKesson or the holder of the Common Securities, (iii) upon the filing of a certificate of dissolution or its equivalent with respect to the holder of the Common Securities or McKesson, the filing of a certificate of cancellation with respect to the Trust after obtaining the consent of the holders of at least a majority in liquidation amount of the Trust Securities voting together as a single class to file such certificate of cancellation, or the revocation of the charter of the holder of the Common Securities or McKesson and the expiration of 90 days after the date of revocation without a reinstatement thereof, (iv) upon the distribution of Convertible Debentures upon the occurrence of a Special Event, (v) upon the entry of a decree of a judicial dissolution of the holder of the Common Securities, McKesson or the Trust, (vi) upon the redemption of all the Trust Securities or (vii) upon the distribution of McKesson Common Stock to all holders of Convertible Preferred Securities upon conversion of all outstanding Convertible Preferred Securities. There can be no assurance as to the market price for the Convertible Debentures which may be distributed in exchange for Trust Securities if a dissolution and liquidation of the Trust were to occur. Accordingly, the Convertible Debentures that the investor may subsequently receive on dissolution and liquidation of the Trust may trade at a discount to the price of the Trust Securities exchanged. DECLARATION EVENTS OF DEFAULT An event of default under the Indenture (an "Indenture Event of Default") constitutes an event of default under the Declaration with respect to the Trust Securities (a "Declaration Event of Default"), provided, that pursuant to the Declaration, the holder of the Common Securities will be deemed to have waived any Declaration Event of Default with respect to the Common Securities until all Declaration Events of Default with respect to the Convertible Preferred Securities have been cured, waived or otherwise eliminated. Until such Declaration Events of Default with respect to the Convertible Preferred Securities have been so cured, waived or otherwise eliminated, the Institutional Trustee will be deemed to be acting solely on behalf of the holders of the Convertible Preferred Securities and only the holders of the Convertible Preferred Securities will have the right to direct the Institutional Trustee with respect to certain matters under the Declaration, and therefore the Indenture. If the Institutional Trustee fails to enforce its rights under the Convertible Debentures, any holder of Convertible Preferred Securities may institute a legal proceeding against any person to enforce the Institutional Trustee's rights under the Convertible Debentures. Notwithstanding the foregoing, if a Declaration Event of Default has occurred and is continuing and such event is attributable to the failure of McKesson to pay interest or principal on the Convertible Debentures on the date such interest or principal is otherwise payable (or in the case of redemption, the Redemption Date), then a holder of Convertible Preferred Securities may institute a Direct Action for payment on or after the respective due dates specified in the Convertible Debentures. In connection with such Direct Action, McKesson will be subrogated to the rights of such holders of Convertible 25 Preferred Securities under the Declaration to the extent of any payment made by McKesson to such holder of Convertible Preferred Securities in such Direct Action. The holders of Convertible Preferred Securities will not be able to exercise directly any other remedy available to the holders of the Convertible Debentures. Upon the occurrence of a Declaration Event of Default, the Institutional Trustee as the sole holder of the Convertible Debentures will have the right under the Indenture to declare the principal of and accrued and unpaid interest on the Convertible Debentures to be immediately due and payable. McKesson and the Trust are each required to file annually with the Institutional Trustee an officer's certificate as to its compliance with all conditions and covenants under the Declaration. VOTING RIGHTS Except as described herein, under the Trust Act and under the Trust Indenture Act, and as otherwise required by law and the Declaration, the holders of the Convertible Preferred Securities have no voting rights. Subject to the requirement of the Institutional Trustee obtaining a tax opinion in certain circumstances set forth in the last sentence of the next paragraph, the holders of a majority in aggregate liquidation amount of the Convertible Preferred Securities then outstanding have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Institutional Trustee, or direct the exercise of any trust or power conferred upon the Institutional Trustee under the Declaration, including the right to direct the Institutional Trustee, as holder of the Convertible Debentures, to (i) exercise the remedies available under the Indenture with respect to the Convertible Debentures, (ii) waive any past Indenture Event of Default that is waivable under the Indenture, or (iii) exercise any right to rescind or annul a declaration that the principal of all the Convertible Debentures shall be due and payable; provided, however, that if an Indenture Event of Default has occurred and is continuing then, the holders of 25% of the aggregate liquidation amount of the Convertible Preferred Securities then outstanding may direct the Institutional Trustee to declare the principal of and interest on the Convertible Debentures immediately due and payable; provided, further, that, where a consent or action under the Indenture would require the consent or action of holders of more than a majority in principal amount of the Convertible Debentures then outstanding (a "Super-Majority") affected thereby, only the holders of at least such Super-Majority in aggregate liquidation amount of the Convertible Preferred Securities then outstanding may direct the Institutional Trustee to give such consent or take such action. The Institutional Trustee shall notify all holders of the Convertible Preferred Securities of any notice of default received from the Debt Trustee with respect to the Convertible Debentures. Such notice shall state that such Indenture Event of Default also constitutes a Declaration Event of Default. Except with respect to directing the time, method and place of conducting a proceeding for a remedy, the Institutional Trustee shall not take any of the actions described in clauses (i), (ii) or (iii) above unless the Institutional Trustee has obtained an opinion of nationally recognized independent tax counsel experienced in such matters to the effect that, as a result of such action, the Trust will not be classified as other than a grantor trust for United States federal income tax purposes. In the event the consent of the Institutional Trustee, as the holder of the Convertible Debentures, is required under the Indenture with respect to any amendment, modification or termination of the Indenture or the Convertible Debentures, the Institutional Trustee shall request the direction of the holders of the Trust Securities with respect to such amendment, modification or termination and shall vote with respect to such amendment, modification or termination as directed by a majority in liquidation amount of the Trust Securities then outstanding, voting together as a single class; provided, however, that where a consent under the Indenture would require the consent of a Super-Majority, the Institutional Trustee may only give such consent at the direction of the holders of at least the proportion in liquidation amount of the Trust Securities then outstanding which the relevant Super-Majority represents of the aggregate principal amount of the Convertible Debentures then outstanding. The Institutional Trustee shall be under no obligation to take any such action in accordance with the directions of the holders of the Trust Securities unless the Institutional Trustee has obtained an opinion of nationally recognized independent tax counsel experienced in such matters to the effect that for the purposes of United States federal income tax the Trust will not be classified as other than a grantor trust. 26 A waiver of an Indenture Event of Default will constitute a waiver of the corresponding Declaration Event of Default. Any required approval or direction of holders of Convertible Preferred Securities may be given at a separate meeting of holders of Convertible Preferred Securities convened for such purpose, at a meeting of all of the holders of Trust Securities or pursuant to written consent. The Regular Trustees will cause a notice of any meeting at which holders of Convertible Preferred Securities are entitled to vote, or of any matter upon which action by written consent of such holders is to be taken, to be mailed to each holder of record of Convertible Preferred Securities. Each such notice will include a statement setting forth the following information: (i) the date of such meeting or the date by which such action is to be taken; (ii) a description of any resolution proposed for adoption at such meeting on which such holders are entitled to vote or of such matter upon which written consent is sought; and (iii) instructions for the delivery of proxies or consents. No vote or consent of the holders of Convertible Preferred Securities is required for the Trust to redeem and cancel Convertible Preferred Securities or distribute Convertible Debentures in accordance with the Declaration. Notwithstanding that holders of Convertible Preferred Securities are entitled to vote or consent under any of the circumstances described above, any of the Convertible Preferred Securities that are owned at such time by McKesson or any entity directly or indirectly controlling or controlled by, or under direct or indirect common control with, McKesson, shall not be entitled to vote or consent and shall, for purposes of such vote or consent, be treated as if such Convertible Preferred Securities were not outstanding. The procedures by which holders of Convertible Preferred Securities may exercise their voting rights are described below. See "--Form, Denomination and Registration." Holders of the Convertible Preferred Securities have no rights to appoint or remove the Regular Trustees, who may be appointed, removed or replaced solely by McKesson as the indirect or direct holder of all of the Common Securities. MODIFICATION OF THE DECLARATION The Declaration may be amended from time to time by the holders of a majority of the Common Securities and the Institutional Trustee, without the consent of the holders of the Convertible Preferred Securities (i) to cure any ambiguity, correct or supplement any provisions in the Declaration that may be inconsistent with any other provision, or to make any other provisions with respect to matters or questions arising under the Declaration, which shall not be inconsistent with the other provisions of the Declaration, or (ii) to modify, eliminate or add to any provisions of the Declaration to such extent as shall be necessary to ensure that the Trust will be classified for United States federal income tax purposes as a grantor trust at all times that any Trust Securities are outstanding or to ensure that the Trust will not be required to register as an investment company under the 1940 Act; provided, however, such action shall not adversely affect in any material respect the interests of any holder of Trust Securities, and any amendments of the Declaration shall become effective when notice thereof is given to the holders of Trust Securities. The Declaration may be amended by the holders of a majority of the Common Securities and the Institutional Trustee with (i) the consent of holders representing not less than a majority (based upon liquidation amounts) of the outstanding Convertible Preferred Securities and (ii) receipt by the Regular Trustees of an opinion of nationally recognized independent counsel experienced in such matters to the effect that such amendment or the exercise of any power granted to the Regular Trustees in accordance with such amendment will not affect the Trust's status as a grantor trust for United States federal income tax purposes or the Trust's exemption from status as an "investment company" under the 1940 Act, provided that without the consent of each holder of Trust Securities, the Declaration may not be amended to (i) change the amount or timing of any distribution on the Trust Securities or otherwise adversely affect the amount of any distribution required to be made in respect of the Trust Securities as of a specified date or (ii) restrict the right of a holder of Trust Securities to institute suit for the enforcement of any such payment on or after such date. 27 No vote or consent of the holders of Convertible Preferred Securities will be required to redeem and cancel Convertible Preferred Securities in accordance with the Declaration. PROPOSED TAX LEGISLATION On February 6, 1997, as part of President Clinton's Fiscal 1998 Budget Proposal, the United States Treasury Department proposed legislation that would, among other things, deny an issuer a deduction for United States federal income tax purposes for the payment of interest on instruments with characteristics similar to the Convertible Debentures. If the proposed legislation were enacted in its current form, it is not expected to apply to the Convertible Debentures since the proposed effective date for this provision is the date of first Congressional committee action. There can be no assurances, however, that the proposed legislation, if enacted, or similar legislation enacted after the date hereof, would not adversely affect the tax treatment of the Convertible Debentures, resulting in a Tax Event which would allow the Company to redeem the Convertible Preferred Securities. See "Description of the Convertible Preferred Securities--Special Event Distribution; Tax Redemption." MERGERS, CONSOLIDATIONS OR AMALGAMATION The Trust may not consolidate, amalgamate, merge with or into, or be replaced by, or convey, transfer or lease its properties and assets as an entirety or substantially as an entirety to, any corporation or other entity, except as described below. The Trust may, with the consent of the Regular Trustees or, if there are more than two Regular Trustees, a majority of the Regular Trustees and without the consent of the holders of the Trust Securities, the Institutional Trustee or the Delaware Trustee, consolidate, amalgamate, merge with or into, or be replaced by a trust organized as such under the laws of any state of the United States: provided, that (i) if the Trust is not the survivor, such successor entity either (x) expressly assumes all of the obligations of the Trust under the Trust Securities or (y) substitutes for the Convertible Preferred Securities other securities having substantially the same terms as the Convertible Preferred Securities (the "Successor Securities"), so long as the Successor Securities rank the same as the Convertible Preferred Securities with respect to distributions and payments upon liquidation, redemption and otherwise, (ii) McKesson expressly acknowledges a trustee of such successor entity possessing the same powers and duties as the Institutional Trustee as the holder of the Convertible Debentures, (iii) such merger, consolidation, amalgamation or replacement does not cause the Convertible Preferred Securities (including any Successor Securities) to be downgraded by any nationally recognized statistical rating organization, (iv) such merger, consolidation, amalgamation or replacement does not adversely affect the rights, preferences and privileges of the holders of the Trust Securities (including any Successor Securities) in any material respect (other than with respect to any dilution of the holders' interest in the new entity), (v) such successor entity has a purpose identical to that of the Trust, (vi) prior to such merger, consolidation, amalgamation or replacement, McKesson has received an opinion of a nationally recognized independent counsel to the Trust experienced in such matters to the effect that: (A) such merger, consolidation, amalgamation or replacement does not adversely affect the rights, preferences and privileges of the holders of the Trust Securities (including any Successor Securities) in any material respect (other than with respect to any dilution of the holders' interest in the new entity), (B) following such merger, consolidation, amalgamation or replacement, neither the Trust nor such successor entity will be required to register as an investment company under the 1940 Act, and (C) following such merger, consolidation, amalgamation or replacement, the Trust (or such successor entity) will continue to be classified as a grantor trust for United States federal income tax purposes and (vii) McKesson guarantees the obligations of such successor entity under the Successor Securities at least to the extent provided by the Guarantee and the Common Securities Guarantee (as defined herein). Notwithstanding the foregoing, the Trust shall not, except with the consent of holders of 100% in liquidation amount of the Trust Securities, consolidate, amalgamate, merge with or into, or be replaced by any other entity or permit any other entity to consolidate, amalgamate, merge with or into, or replace it, if such consolidation, amalgamation, merger or replacement would cause the Trust or the successor entity to be classified as other than a grantor trust for United States federal income tax purposes. 28 REGISTRATION RIGHTS In connection with the Original Offering, McKesson and the Trust (together, the "Registrants") entered into a registration rights agreement with the Initial Purchaser (the "Registration Rights Agreement") pursuant to which the Registrants, at McKesson's expense, agreed for the benefit of the holders of the Convertible Preferred Securities, to (i) file with the commission the Shelf Registration Statement covering resale of the Convertible Preferred Securities, the Guarantee, the Convertible Debentures and the McKesson Common Stock issuable upon conversion of the convertible securities within 90 days after the latest date of original issuance of the Convertible Preferred Securities, (ii) use their reasonable best efforts to cause the Shelf Registration Statement to become effective as promptly as practicable and (iii) use their reasonable best efforts to keep the Shelf Registration Statement effective until the earlier of (a) the sale pursuant to the Shelf Registration Statement or Rule 144 under the Securities Act of all the Registrable Securities and (b) the expiration of the holding period applicable to sales of Registrable Securities under Rule 144(k) under the Securities Act, or any successor provision. The Registrants are permitted to suspend the use of the prospectus which is a part of the Shelf Registration Statement for a period not to exceed 60 days (whether or not consecutive) in any 12-month period under certain circumstances relating to pending corporate developments, public filings with the Commission and similar events, or because the prospectus contains an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading. The Registrants have agreed to pay a Liquidated Damages Amount (as defined in the Registration Rights Agreement) to holders of Registrable Securities if the Shelf Registration Statement is not timely filed, or if the prospectus is unavailable for periods in excess of the period set forth above, until such time as the Shelf Registration Statement is filed or the prospectus is again made available, as the case may be. A holder who wishes to sell Registerable Securities pursuant to the Shelf Registration Statement is required to provide certain advance notification of such proposed sales to the Company, and generally is required to be named as a selling securityholder in the related prospectus, deliver a prospectus to purchasers and be bound by those provisions of the Registration Rights Agreement that are applicable to such holder (including indemnification provisions). In addition, the Registration Rights Agreement provides that, if the prospectus contains an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements therein not misleading, the Registrants are to notify the holders to suspend the use of the prospectus until such time as the Registrants have amended or supplemented the prospectus so that it does not contain such material misstatement or omission, and the holders are required to suspend their use of the prospectus during such period. McKesson is to pay all expenses of the Shelf Registration Statement, provide to each registered holder copies of such prospectus, notify each registered holder when the Shelf Registration Statement has become effective and take certain other actions as are required to permit, subject to the foregoing, unrestricted resales of the Registrable Securities. The plan of distribution of the Shelf Registration Statement permits resales of Registrable Securities by selling securityholders through brokers and dealers. However, neither McKesson nor the Trust is obligated under the Registration Rights Agreement to pay certain costs and expenses, such as opinions of counsel of such selling securityholders or accountants' "cold comfort" letters, and neither the officers and directors of McKesson nor the trustees of the Trust are obligated under the Registration Rights Agreement to participate in marketing efforts on behalf of such selling securityholders. McKesson agreed in the Registration Rights Agreement to use its reasonable best efforts to cause the Common Stock issuable upon conversion of the Convertible Securities to be listed on each securities exchange or quotation system on which the McKesson Common Stock is listed upon effectiveness of the Shelf Registration Statement. The summary herein of certain provisions of the Registration Rights Agreement does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the Registration Rights Agreement, a copy of which is attached as an exhibit to the Registration Statement of which this Prospectus forms a part and is available upon request to McKesson. 29 FORM, DENOMINATION AND REGISTRATION The Convertible Preferred Securities were issued in fully registered form. The description of book-entry procedures in this Prospectus includes summaries of certain rules and operating procedures of The Depository Trust Company, New York, New York ("DTC") that effect transfers of interest in the global certificate or certificates issued in connection with sales of Convertible Preferred Securities made pursuant to this Prospectus. Except for those sold to institutional "accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act), the Convertible Preferred Securities were issued only as fully registered securities registered in the name of Cede & Co. ("Cede") (as nominee for DTC). One or more fully registered global Convertible Preferred Security certificates (the "Global Securities") will be issued, representing, in the aggregate, Convertible Preferred Securities sold pursuant to this Prospectus, and will be deposited with DTC. In the event of a transfer of securities that were issued in fully registered, certificated form, the holder of such certificates will be required to exchange them for interests in the Global Certificates representing the number of Convertible Preferred Securities being transferred. Except as set forth below, the record ownership of the Global Security may be transferred, in whole or in part, only to DTC, another nominee of DTC or to a successor of DTC or its nominee. Holders of Convertible Preferred Securities may hold their interests in the Global Security directly through DTC, or indirectly through organizations which are participants in DTC ("Participants"). Transfers between Participants will be effected in the ordinary way in accordance with DTC rules and will be settled in immediately available funds. Holders of Convertible Preferred Securities who are not Participants may beneficially own interests in the Global Security held by DTC only through Participants, or certain banks, brokers, dealers, trust companies and other parties that clear through or maintain a custodial relationship with a Participant, either directly or indirectly ("Indirect Participants"). So long as Cede, as the nominee of DTC, is the registered owner of the Global Security, Cede for all purposes will be considered the sole holder of the Global Security. Except as provided below, owners of beneficial interests in the Global Security will not be entitled to have certificates registered in their names, will not receive or be entitled to receive physical delivery of certificates in definitive form, and will not be considered the holder thereof. Distributions on the Global Security will be made to Cede, the nominee for DTC, as the registered owner of the Global Security by wire transfer of immediately available funds. None of McKesson, the Trust or any Trustee will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the Global Security or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. DTC's practice is to credit Participants' accounts on the relevant payment date with payments in amounts proportionate to their respective beneficial interests in the Convertible Preferred Securities represented by the Global Security as shown on the records of DTC (adjusted as necessary so that such payments are made with respect to whole Convertible Preferred Securities only), unless DTC has reason to believe that it will not receive payment on such payment date. Payments by Participants to owners of beneficial interests in Convertible Preferred Securities represented by the Global Security held through such Participants will be the responsibility of such Participants, as is now the case with securities held for the accounts of customers registered in "street name." Beneficial holders of Convertible Preferred Securities who desire to convert them into Underlying Common Stock (as defined herein) should contact their brokers or other Participants or Indirect Participants to obtain information on procedures, including proper forms and cut-off times, for submitting such request. Because DTC can only act on behalf of Participants, who in turn act on behalf of Indirect Participants, the ability of a person having a beneficial interest in the Convertible Preferred Securities represented by the Global Security to pledge such interest to persons or entities that do not participate in the DTC system, or otherwise take actions in respect of such interest, may be affected by the lack of a physical certificate evidencing such interest. 30 None of McKesson, the Trust or any Trustee (or any registrar, paying agent or conversion agent) will have any responsibility for the performance by DTC or its Participants or Indirect Participants of their respective obligations under the rules and procedures governing their operations. DTC has advised McKesson and the Trust that it will take any action permitted to be taken by a holder of Convertible Preferred Securities (including, without limitation, the presentation of Convertible Preferred Securities for conversion) only at the direction of one or more Participants to whose account with DTC interests in the Global Security are credited. DTC has advised McKesson and the Trust as follows: DTC is a limited purpose trust company organized under the laws of the State of New York, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the Uniform Commercial Code and a "clearing agency" registered pursuant to the provisions of Section 17A of the Exchange Act. DTC was created to hold securities for its Participants and to facilitate the clearance and settlement of securities transactions between Participants through electronic book-entry changes to accounts of its Participants, thereby eliminating the need for physical movement of certificates. Participants include securities brokers and dealers, banks, trust companies and clearing corporations and may include certain other organizations such as the Initial Purchaser. Certain of such Participants (or their representatives), together with other entities, own DTC. Indirect access to the DTC system is available to others such as banks, brokers, dealers and trust companies that clear through, or maintain a custodial relationship with a Participant, either directly or indirectly. The laws of some jurisdictions require that certain purchasers of securities take physical delivery of securities in definitive form. Such laws may impair the ability to transfer beneficial interests in the Global Security. Conveyance of notices and other communications by DTC to Participants, by Participants to Indirect Participants and Indirect Participants to beneficial owners will be governed by arrangements among them, subject to any statutory or regulatory requirements that may be in effect from time to time. Redemption notices shall be sent to Cede. If less than all of the Convertible Preferred Securities are being redeemed, DTC will reduce the amount of the interest of each Participant in such Convertible Preferred Securities in accordance with its procedures. Although voting with respect to the Convertible Preferred Securities is limited, in those cases where a vote is required, neither DTC nor Cede will itself consent or vote with respect to Convertible Preferred Securities. Under its usual procedures, DTC would mail an Omnibus Proxy to the Trust as soon as possible after the record date. The Omnibus Proxy assigns Cede consenting or voting rights to those Participants to whose accounts the Convertible Preferred Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy). McKesson and the Trust believe that the arrangements among DTC, the Participants and Indirect Participants, and beneficial owners will enable the beneficial owners to exercise rights equivalent in substance to the rights that can be directly exercised by a holder of a beneficial interest in the Trust. DTC may discontinue providing its services as securities depositary with respect to the Convertible Preferred Securities at any time by giving notice to the Trust. In the event that (i) DTC notifies the Trust that it is unwilling or unable to continue as depositary for the Global Securities or if at any time DTC ceases to be a clearing agency registered as such under the Exchange Act when DTC is required to be so registered to act as such depositary and no successor depositary shall have been appointed within 90 days of such notification or of the Trust becoming aware of DTC's ceasing to be so registered, as the case may be, (ii) the Regular Trustees (with the consent of the Company) in their sole discretion determine that the Global Securities shall be exchanged for certificated Convertible Preferred Securities or (iii) there shall have occurred and be continuing a Declaration Event of Default, certificates for the Convertible Preferred Securities will be printed and delivered in exchange for interests in the Global Securities. Any Global Security that is exchangeable pursuant to the preceding sentence shall be exchangeable for Convertible Preferred Securities registered in such names as DTC shall direct. It is expected that such instructions will be based upon directions received by DTC from its Participants with respect to ownership of beneficial interests in such Global Security. 31 The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that McKesson and the Trust believe to be reliable, but neither McKesson nor the Trust takes responsibility for the accuracy thereof. INFORMATION CONCERNING THE INSTITUTIONAL TRUSTEE The Institutional Trustee, prior to the occurrence of a default with respect to the Trust Securities and after the curing of any defaults that may have occurred, undertakes to perform only such duties as are specifically set forth in the Declaration and, after default, shall exercise the same degree of care as a prudent person would exercise in the conduct of his or her own affairs. Subject to such provisions, the Institutional Trustee is under no obligation to exercise any of the powers vested in it by the Declaration at the request of any holder of Convertible Preferred Securities, unless offered reasonable indemnity by such holder against the costs, expenses and liabilities which might be incurred thereby. The holders of Convertible Preferred Securities will not be required to offer such indemnity in the event such holders, by exercising their voting rights, direct the Institutional Trustee to take any action it is empowered to take under the Declaration following a Declaration Event of Default. The Institutional Trustee also serves as Guarantee Trustee under the Guarantee and as Debt Trustee under the Indenture. CONVERSION AGENT, PAYING AGENT, REGISTRAR AND TRANSFER AGENT The Institutional Trustee acts as Registrar, Transfer Agent, Conversion Agent and Paying Agent for the Convertible Preferred Securities. Registration of transfers of Convertible Preferred Securities will be effected without charge by or on behalf of the Trust, but upon payment in respect of any tax or other government charges that may be imposed in relation to it. The Trust will not be required to register or cause to be registered the transfer of Convertible Preferred Securities after such Convertible Preferred Securities have been selected for redemption. GOVERNING LAW The Declaration and the Convertible Preferred Securities are governed by, and construed in accordance with, the internal laws of the State of Delaware. MISCELLANEOUS The Regular Trustees are authorized and directed to operate the Trust in such a way so that the Trust will not be required to register as an "investment company" under the 1940 Act or characterized as other than a grantor trust for United States federal income tax purposes and so that the Convertible Debentures will be treated as indebtedness of the Company for United States federal income tax purposes. In this connection, McKesson and the Regular Trustees are authorized to take any action, not inconsistent with applicable law, the certificate of trust of the Trust, the Declaration or the articles of incorporation of McKesson, that each of McKesson and the Regular Trustees determine in their discretion to be necessary or desirable to achieve such end, as long as such action does not adversely affect the interests of the holders of the Convertible Preferred Securities or vary the terms thereof. Holders of the Convertible Preferred Securities have no preemptive rights. 32 DESCRIPTION OF THE GUARANTEE Set forth below is a summary of information concerning the Guarantee that was executed and delivered by McKesson for the benefit of the holders from time to time of Convertible Preferred Securities. The summary does not purport to be complete and is subject in all respects to the provisions of, and is qualified in its entirety by reference to, the Guarantee. The Guarantee incorporates by reference the terms of the Trust Indenture Act. The Guarantee will be qualified under the Trust Indenture Act. The Guarantee Trustee holds the Guarantee for the benefit of the holders of the Convertible Preferred Securities. GENERAL Pursuant to and to the extent set forth in the Guarantee, McKesson agrees, to the extent set forth therein, to pay in full to the holders of the Convertible Preferred Securities (except to the extent paid by the Trust), as and when due, regardless of any defense, right of set off or counterclaim which the Trust may have or assert, the following payments (the "Guarantee Payments"), without duplication: (i) all accrued and unpaid distributions that are required to be paid on the Convertible Preferred Securities to the extent the Trust has funds available therefor, (ii) the Redemption Price plus accrued and unpaid distributions with respect to any Convertible Preferred Securities called for redemption by the Trust, to the extent the Trust has funds available therefor, and (iii) upon a voluntary or involuntary dissolution, winding-up or termination of the Trust (other than in connection with the distribution of Convertible Debentures to the holders of Convertible Preferred Securities or the redemption of all the Convertible Preferred Securities), the lesser of (a) the aggregate of the liquidation amount and all accrued and unpaid distributions on the Convertible Preferred Securities to the date of payment to the extent the Trust has funds available therefor and (b) the amount of assets of the Trust remaining available for distribution to holders of Convertible Preferred Securities then outstanding upon the liquidation of the Trust. The holders of a majority in liquidation amount of the Convertible Preferred Securities have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee or to direct the exercise of any trust or power conferred upon the Guarantee Trustee under the Guarantee. If the Guarantee Trustee fails to enforce the Guarantee, any holder of Convertible Preferred Securities may directly institute a legal proceeding against McKesson to enforce the Guarantee Trustee's rights under the Guarantee without first instituting a legal proceeding against the Trust, the Guarantee Trustee or any other person or entity. If McKesson were to default on its obligation to pay amounts payable on the Convertible Debentures, the Trust would lack available funds for the payment of distributions or amounts payable on redemption of the Convertible Preferred Securities or otherwise, and in such event holders of the Convertible Preferred Securities would not be able to rely upon the Guarantee for payment of such amounts. Instead, a holder of the Convertible Preferred Securities would be required to rely on the enforcement (1) by the Institutional Trustee of its rights, as registered holder of the Convertible Debentures, against McKesson pursuant to the terms of the Convertible Debentures or (2) by such holder of Convertible Preferred Securities of its rights against McKesson to enforce payments on Convertible Debentures. See "Description of the Convertible Debentures." The Declaration provides that each holder of Convertible Preferred Securities, by acceptance thereof, agrees to the provisions of the Guarantee, including the subordination provisions thereof, and the Indenture. The Guarantee is a guarantee on a subordinated basis with respect to the Convertible Preferred Securities from the time of issuance of such Convertible Preferred Securities but does apply to any payment of distributions or Redemption Price, or to payments upon the dissolution, winding-up or termination of the Trust, except to the extent the Trust shall have funds available therefor. If McKesson does not make interest payments on the Convertible Debentures, the Trust will not pay distributions on the Convertible Preferred Securities and will not have funds available therefor. See "Risk Factors--Limitations of the Guarantee" and "Description of the Convertible Debentures." The Guarantee, when taken together with McKesson's obligations under the Convertible Debentures, the Indenture and the Declaration, including its obligations to pay costs, expenses, debts and liabilities of the Trust (other than with respect to the Trust Securities) provides a full and unconditional guarantee on a subordinated basis by McKesson on payments due on the Convertible Preferred Securities. McKesson has also agreed separately to irrevocably and unconditionally guarantee the obligations of the Trust with respect to the Common Securities (the "Common Securities Guarantee") to the same extent as the 33 Guarantee, except that upon the occurrence and during the continuation of a Declaration Event of Default, holders of Convertible Preferred Securities shall have priority over holders of Common Securities with respect to Guarantee Payments. CERTAIN COVENANTS OF MCKESSON In the Guarantee, McKesson has covenanted that, so long as any Convertible Preferred Securities remain outstanding, if (i) the Company has exercised its option to defer interest payments on the Convertible Debentures by extending the interest payment period and such extension period, or any extension thereof, shall be continuing, (ii) the Company shall be in default with respect to its payment or other obligations under the Guarantee or (iii) there shall have occurred and be continuing a Declaration Event of Default or any event that, with the giving of notice or lapse of time or both, would constitute a Declaration Event of Default, then McKesson shall not (a) declare or pay dividends on, make distributions with respect to, or redeem, purchase or acquire, or make a liquidation payment with respect to, any of its capital stock or (b) make any payment of interest, principal or premium, if any, on or repay, repurchase or redeem any debt securities of the Company that rank pari passu with or junior in interest to the Convertible Debentures or make any guarantee payment with respect to any guarantee by the Company of the debt securities of any subsidiary of the Company if such guarantee ranks pari passu with or junior in interest to the Convertible Debentures (other than (i) as a result of a reclassification of McKesson capital stock or the exchange or conversion of one class or series of McKesson capital stock for another class or series of McKesson capital stock, (ii) the purchase of fractional interests in shares of McKesson capital stock pursuant to the conversion or exchange provisions of such capital stock of McKesson or the security being converted into or exchanged for capital stock of McKesson, (iii) dividends or distributions in McKesson Common Stock, (iv) any declaration of a dividend in connection with the implementation of a stockholders' rights plan, or the issuance of stock under any such plan in the future, or the redemption or repurchase of any such rights pursuant thereto, (v) payments under the Guarantee and Common Securities Guarantee, (vi) purchases of McKesson Common Stock related to the issuance of McKesson Common Stock or rights under any of the Company's benefit plans for its directors, officers or employees and (vii) obligations under any dividend reinvestment and stock purchase plans). As part of the Guarantee, the Company agreed that it would honor all obligations relating to the conversion of the Convertible Preferred Securities into McKesson Common Stock as described in "Description of the Convertible Preferred Securities--Conversion Rights." AMENDMENTS AND ASSIGNMENT Except with respect to any changes that do not materially adversely affect the rights of holders of Convertible Preferred Securities (in which case no vote will be required), the Guarantee may be amended only with the prior approval of the holders of at least a majority in liquidation amount of all the Convertible Preferred Securities then outstanding. The manner of obtaining any such approval of holders of the Convertible Preferred Securities will be as set forth under "Description of the Convertible Preferred Securities-- Voting Rights." All guarantees and agreements contained in the Guarantee shall bind the successors, assigns, receivers, trustees and representatives of McKesson and shall inure to the benefit of the holders of the Convertible Preferred Securities then outstanding. Except in connection with any permitted merger or consolidation of McKesson with or into another entity or any permitted sale, transfer or lease of McKesson's assets to another entity as described under "Description of the Convertible Debentures--Certain Covenants," the Company may not assign its rights or delegate its obligations under the Guarantee without the prior approval of the holders of at least a majority of the aggregate stated liquidation amount of the Convertible Preferred Securities then outstanding. TERMINATION OF THE GUARANTEE The Guarantee will terminate as to each holder of Convertible Preferred Securities upon (i) full payment of the Redemption Price and accrued and unpaid distributions with respect to all Convertible Preferred Securities, (ii) distribution of the Convertible Debentures held by the Trust to the holders of the Convertible Preferred 34 Securities, (iii) full payment of the amounts payable under the Declaration upon liquidation of the Trust or (iv) the distribution of McKesson Common Stock to such holder upon conversion of such holder's Convertible Preferred Securities into McKesson Common Stock, and will terminate completely upon full payment of the amounts payable in accordance with the Declaration. The Guarantee will continue to be effective or will be reinstated, as the case may be, if at any time any holder of Convertible Preferred Securities must restore payment of any sum paid under such Convertible Preferred Securities or the Guarantee. EVENTS OF DEFAULT An event of default under the Guarantee will occur upon (a) the failure of McKesson to perform any of its payment or other obligations thereunder or (b) if applicable, the failure by McKesson to deliver McKesson Common Stock upon an appropriate election by the holder or holders of Convertible Preferred Securities to convert the Convertible Preferred Securities into shares of McKesson Common Stock. The holders of a majority in liquidation amount of Convertible Preferred Securities then outstanding relating to the Guarantee have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee in respect of the Guarantee or to direct the exercise of any trust or power conferred upon the Guarantee Trustee under the Convertible Preferred Securities. If the Guarantee Trustee fails to enforce the Guarantee, any holder of Convertible Preferred Securities may institute a legal proceeding directly against McKesson to enforce the Guarantee Trustee's rights under the Guarantee, without first instituting a legal proceeding against the Trust, the Guarantee Trustee or any other person or entity. Notwithstanding the foregoing, if McKesson has failed to make a guarantee payment, a holder of Convertible Preferred Securities may directly institute a proceeding against McKesson for enforcement of the Guarantee for such payment. McKesson waives any right or remedy to require that any action be brought first against the Trust or any other person or entity before proceeding directly against McKesson. STATUS OF THE GUARANTEE; SUBORDINATION The Guarantee constitutes an unsecured obligation of McKesson and ranks (i) subordinate and junior in right of payment to all other liabilities of McKesson (except any liabilities that may be pari passu expressly by their terms), (ii) pari passu with the most senior preferred or preference stock now or hereafter issued by McKesson and with any guarantee now or hereafter entered into by McKesson in respect of any preferred or preference stock of any affiliate of McKesson, and (iii) senior to McKesson Common Stock. The terms of the Convertible Preferred Securities provide that each holder of Convertible Preferred Securities issued by the Trust by acceptance thereof agrees to the subordination provisions and other terms of the Guarantee relating thereto. See, also, "Risk Factors--Subordinate Ranking of Obligations Under the Guarantee and Convertible Debentures." The Guarantee constitutes a guarantee of payment and not of collection (that is, the guaranteed party may institute a legal proceeding directly against the Company to enforce its rights under the Guarantee without instituting a legal proceeding against any other person or entity). The Guarantee does not place a limitation on the amount of additional indebtedness that may be incurred by McKesson. McKesson expects from time to time to incur additional indebtedness senior to the Convertible Debentures. INFORMATION CONCERNING THE GUARANTEE TRUSTEE The Guarantee Trustee, prior to the occurrence of a default with respect to the Guarantee, undertakes to perform only such duties as are specifically set forth in the Guarantee and, after default with respect to the Guarantee, shall exercise the same degree of care as a prudent person would exercise in the conduct of his or her own affairs. Subject to such provision, the Guarantee Trustee is under no obligation to exercise any of the powers vested in it by the Guarantee at the request of any holder of Convertible Preferred Securities unless it is offered reasonable indemnity against the costs, expenses and liabilities that might be incurred thereby. GOVERNING LAW The Guarantee is governed by, and construed in accordance with, the laws of the State of New York. 35 DESCRIPTION OF THE CONVERTIBLE DEBENTURES Set forth below is a description of certain terms of the Convertible Debentures in which the Trust invested the proceeds from the issuance and sale of the Trust Securities. The following description does not purport to be complete and is subject to, and is qualified in its entirety by reference to the Indenture entered into by McKesson and the Debt Trustee, a copy of which may be obtained from McKesson upon request. Certain capitalized terms used herein are defined in the Indenture. The Indenture will be qualified under the Trust Indenture Act. Under certain circumstances involving the dissolution of the Trust following the occurrence of a Special Event, Convertible Debentures may be distributed to the holders of the Trust Securities in liquidation of the Trust. See "Description of the Convertible Preferred Securities--Special Event Distribution; Tax Event Redemption." GENERAL The Convertible Debentures were issued as unsecured debt under the Indenture. The Convertible Debentures are limited in aggregate principal amount to $206,186,000, such amount being the sum of the aggregate stated liquidation amount of the Convertible Preferred Securities and the capital contributed by McKesson in exchange for the Common Securities. The Convertible Debentures are not subject to a sinking fund provision. The entire principal amount of the Convertible Debentures will mature and become due and payable, together with any accrued and unpaid interest thereon, including Additional Sums (as defined herein), if any, and (to the extent permitted by applicable law) Compound Interest, if any, on June 1, 2027. McKesson has the right at any time to cause the Trust to be dissolved with the result that, after satisfaction of creditors of the Trust, Convertible Debentures with an aggregate principal amount equal to the aggregate stated liquidation amount of the Convertible Preferred Securities and the Common Securities would be distributed on a pro rata basis to the holders of the Convertible Preferred Securities and the Common Securities in liquidation of such holders' interests in the Trust, within 90 days following notice given to the holders of the Convertible Preferred Securities, subject to the Regular Trustees' having received an opinion of nationally recognized independent counsel experienced in such matters to the effect that the holders will not recognize any income, gain or loss for United States federal income tax purposes as a result of the dissolution of the Trust and such distribution to holders of Convertible Preferred Securities. If Convertible Debentures are distributed to holders of Convertible Preferred Securities in liquidation of such holders' interests in the Trust, such Convertible Debentures will initially be issued in the same form as the Convertible Preferred Securities that such Convertible Debentures replace. Under certain limited circumstances, Convertible Debentures may be issued in certificated form in exchange for a Global Security. See "--Book-Entry and Settlement" below. In the event that Convertible Debentures are issued in certificated form, such Convertible Debentures will be in denominations of $50 and integral multiples thereof and may be transferred or exchanged at the offices described below. Payments on Convertible Debentures issued as a Global Security will be made to DTC, a successor depositary or, in the event that no depositary is used, to a paying agent for the Convertible Debentures. With respect to Convertible Debentures issued in certificated form, principal and interest is payable, the transfer of the Convertible Debentures is registrable and Convertible Debentures are exchangeable for Convertible Debentures of other denominations of a like aggregate principal amount at the office or agency of the Company maintained for such purpose in the Borough of Manhattan, The City of New York; provided that payment of interest may be made at the option of McKesson by check mailed to the address of the holder entitled thereto or by wire transfer to an account appropriately designated by the holder entitled thereto. Notwithstanding the foregoing, so long as the holder of any Convertible Debenture is the Institutional Trustee, the payment of principal and interest on such Convertible Debenture will be made at such place and to such account as may be designated by the Institutional Trustee. The Indenture does not contain provisions that afford holders of the Convertible Debentures protection in the event of a highly levered transaction involving McKesson that would adversely affect such holders. 36 INTEREST Each Convertible Debenture shall bear interest at the rate of 5% per annum from the first date of original issuance, payable quarterly in arrears on March 1, June 1, September 1 and December 1 of each year (each an "Interest Payment Date"), commencing June 1, 1997, to the person in whose name such Convertible Debenture is registered, subject to certain exceptions, 15 days prior to such Interest Payment Date. The amount of interest payable for any period will be computed on the basis of a 360-day year of twelve 30-day months. The amount of interest payable for any period shorter than a full quarterly period for which interest is computed will be computed on the basis of the actual number of days elapsed per 30-day month. In the event that any date on which interest is payable on the Convertible Debentures is not a Business Day, then payment of the interest payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day is in the next succeeding calendar year, then such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. OPTION TO EXTEND INTEREST PAYMENT PERIOD So long as McKesson shall not be in default in the payment of interest on the Convertible Debentures, McKesson shall have the right at any time, and from time to time, during the term of the Convertible Debentures to defer payments of interest by extending the interest payment period for a period not exceeding 20 consecutive quarters, at the end of which Extension Period McKesson shall pay all interest then accrued and unpaid; together with interest thereon compounded quarterly at the rate specified for the Convertible Debentures to the extent permitted by applicable law ("Compound Interest") and any Additional Sums; provided that during any such Extension Period, McKesson shall not (a) declare or pay dividends on, make any distributions with respect to, or redeem, purchase, acquire or make a liquidation payment with respect to, any of its capital stock or (b) make any payment of interest, principal or premium, if any, on or repay, repurchase or redeem any debt securities issued by McKesson that rank pari passu with or junior in interest to the Convertible Debentures or make any guarantee payments with respect to any guarantee by the Company of the debt securities of any subsidiary of the Company if such guarantee ranks pari passu with or junior in interest to the Convertible Debentures (other than (i) as a result of a reclassification of McKesson capital stock or the exchange or conversion of one class or series of McKesson capital stock for another class or series of McKesson capital stock, (ii) the purchase of fractional interests in shares of McKesson capital stock pursuant to the conversion or exchange provisions of such McKesson capital stock or the security being converted into or exchanged for McKesson capital stock, (iii) dividends or distributions in common stock of the Company, (iv) any declaration of a dividend in connection with the implementation of a stockholders' rights plan, or the issuance of stock under any such plan in the future, or the redemption or repurchase of any such rights pursuant thereto, (v) payments under the Guarantee and Common Securities Guarantee, (vi) purchases of common stock related to the issuance of common stock or rights under any of the Company's benefit plans for its directors, officers or employees and (vii) obligations under any dividend reinvestment and stock purchase plans). Prior to the termination of any such Extension Period, McKesson may further defer payments of interest by extending the interest payment period; provided, however, that, such Extension Period, including all such previous and further extensions, may not exceed 20 consecutive quarters or extend beyond the maturity of the Convertible Debentures. Upon the termination of any Extension Period and the payment of all amounts then due, McKesson may commence a new Extension Period, subject to the terms set forth in this section. Each Extension Period, if any, will end on an Interest Payment Date. No interest shall be due and payable during an Extension Period, except on the last day thereof, but McKesson may prepay at any time all or any portion of the interest accrued during an Extension Period. On the last day of each Extension Period, all accrued and unpaid interest (including Additional Sums, if any, and, to the extent permitted by applicable law, Compound Interest) shall be due and payable and shall be paid to the holders of record of the Convertible Debentures at the close of business on the record date next preceding such Interest Payment Date. McKesson has no present intention of exercising its right to defer payments of interest by extending the interest payment period on the Convertible Debentures. If the Institutional Trustee shall be the sole holder of the Convertible Debentures, McKesson shall give the Regular Trustees, the Institutional Trustee and the Debt 37 Trustee notice of its selection of such Extension Period at least one Business Day prior to the earlier of (i) the date distributions on the Convertible Preferred Securities are payable or (ii) the date the Regular Trustees are required to give notice to any applicable self-regulatory organization or to holders of the Convertible Preferred Securities of the record or payment date of such related distribution, but in any event not less than 10 Business Days prior to such record date. McKesson shall cause the Trust to give notice of McKesson's selection of such Extension Period to holders of the Convertible Preferred Securities. If the Institutional Trustee shall not be the sole holder of the Convertible Debentures, McKesson shall give the Debt Trustee, the Institutional Trustee and the holders of the Convertible Debentures notice of its selection of such Extension Period at least 10 Business Days prior to the earlier of (i) the next succeeding Interest Payment Date and (ii) the date McKesson is required to give notice to any applicable self-regulatory organization or to holders of Convertible Debentures of the record or payment date of such related interest payment, but in any event not less than two Business Days prior to such record date. ADDITIONAL SUMS If at any time the Trust shall be required to pay any taxes, duties, assessments or governmental charges of whatever nature (other than withholding taxes) imposed by the United States, or any other taxing authority, then, in any such case, McKesson will pay as additional sums ("Additional Sums") such additional amounts as shall be required so that the net amounts received and retained by the Trust after paying any such taxes, duties, assessments or other governmental charges will be not less than the amounts the Trust would have received had no such taxes, duties, assessments or other governmental charges been imposed so long as the Trust is the holder of the Convertible Debentures. PROPOSED TAX LEGISLATION Please refer to discussion above under the heading "Description of the Convertible Preferred Securities--Proposed Tax Legislation." SUBORDINATION The Indenture provides that the Convertible Debentures are subordinated and junior in right of payment to all existing and future Senior Indebtedness of McKesson. No payment of principal (including redemption payments, if any), premiums, if any, or interest on the Convertible Debentures may be made (i) if any principal, premium if any, interest or any other payment due on any Senior Indebtedness of McKesson is not paid when due and any applicable grace period with respect to such default has ended with such default not having been cured or waived or ceasing to exist or (ii) if the maturity of any Senior Indebtedness of McKesson has been accelerated because of a default and such acceleration has not been rescinded. Upon any distribution of assets of McKesson to creditors upon any dissolution, winding-up, liquidation or reorganization, whether voluntary or involuntary, or in bankruptcy, insolvency, receivership or other proceedings, all principal, premium, if any, and interest due or to become due on all Senior Indebtedness of McKesson must be paid in full before the holders of Convertible Debentures are entitled to receive or retain any payment. Upon satisfaction of all claims of all Senior Indebtedness then outstanding, the rights of the holders of the Convertible Debentures will be subrogated to the rights of the holders of Senior Indebtedness of McKesson to receive payments or distributions applicable to Senior Indebtedness until all amounts owing on the Convertible Debentures are paid in full. The term "Senior Indebtedness" means, with respect to McKesson, (i) the principal, premium, if any, and interest in respect of (A) indebtedness of such obligor for money borrowed (but excluding trade accounts payable arising in the ordinary course of business) under any credit agreements, notes, guarantees or similar documents and (B) indebtedness evidenced by securities, debentures, bonds or other similar instruments issued by such obligor, (ii) all capital lease obligations of such obligor, (iii) all obligations of such obligor issued or assumed as the deferred purchase price of property, all conditional sale obligations of such obligor and all obligations of 38 such obligor under any title retention agreement (but excluding trade accounts payable arising in the ordinary course of business), (iv) all obligations of such obligor for the reimbursement on any letter of credit, bankers' acceptance, security purchase facility or similar credit transaction, (v) all obligations of such obligor (contingent or otherwise) with respect to an interest rate or other swap, cap or collar agreements or other similar instruments or agreements or foreign currency hedge, exchange, purchase or similar instruments or agreements, (vi) all obligations of the types referred to in clauses (i) through (v) above of other persons for the payment of which such obligor is responsible or liable as obligor, guarantor or otherwise and (vii) all obligations of the types referred to in clauses (i) through (vi) above of other persons secured by any lien on any property or asset of such obligor (whether or not such obligation is assumed by such obligor), whether outstanding on the date of the Indenture or thereafter created, incurred, assumed, guaranteed or in effect guaranteed by such obligor, except for any such indebtedness that is by its terms subordinated to or pari passu with the Convertible Debentures. Such Senior Indebtedness shall continue to be Senior Indebtedness and be entitled to the benefits of the subordination provisions irrespective of any deferrals, renewals, extensions or refundings of, or amendments, modifications, supplements or waivers of any term of such Senior Indebtedness. There was approximately $825 million of Senior Indebtedness outstanding as of March 31, 1997. The Indenture does not limit the aggregate amount of Senior Indebtedness that may be issued by McKesson. In the event of (i) any insolvency, bankruptcy, receivership, liquidation, reorganization, readjustment, composition or other similar proceeding relating to the Company, its creditors or its property, (ii) any proceeding for the liquidation, dissolution or other winding up of the Company voluntary or involuntary, whether or not involving insolvency or bankruptcy proceedings, (iii) any assignment by the Company for the benefit of creditors or (iv) any other marshalling of the assets of the Company, all Senior Indebtedness (including any interest thereon accruing after the commencement of any such proceedings) shall first be paid in full before any payment or distribution, whether in cash, securities or other property, shall be made on account of the principal of or premium, if any, or interest, if any, on the Convertible Debentures. In such event, any payment or distribution on account of the principal of or premium, if any, or interest, on the Convertible Debentures, whether in cash, securities or other property (other than securities of the Company or any other corporation provided for by a plan of reorganization or readjustment the payment of which is subordinate, at least to the extent provided in the subordination provisions with respect to the Convertible Debentures, to the payment of all Senior Indebtedness at the time outstanding, and to any securities issued in respect thereof under any such plan of reorganization or readjustment), which would otherwise (but for the subordination provisions) be payable or deliverable in respect of the Convertible Debentures shall be paid or delivered directly to the holders of Senior Indebtedness in accordance with the priorities then existing among such holders until all Senior Indebtedness (including any interest thereon accruing after the commencement of any such proceedings) shall have been paid in full. In the event of any such proceeding, after payment in full of all sums owing with respect to Senior Indebtedness the holders of Convertible Debentures, together with the holders of any obligations of the Company ranking on a parity with the Convertible Debentures, shall be entitled to be paid from the remaining assets of the Company the amounts at the time due and owing on account of unpaid principal of and premium, if any, and interest, if any, on the Convertible Debentures and such other obligations before any payment or other distribution, whether in cash, property or otherwise, shall be made on account of any capital stock or obligations of the Company ranking junior to the Convertible Debentures and such other obligations. If any payment or distribution on account of the principal of or interest on the Convertible Debentures of any character or any security, whether in cash, securities or other property (other than securities of the Company or any other corporation provided for by a plan of reorganization or readjustment the payment of which is subordinate, at least to the extent provided in the subordination provisions with respect to the Convertible Debentures, to the payment of all Senior Indebtedness at the time outstanding and to any securities issued in respect thereof under any such plan of reorganization or readjustment) shall be received by the Debt Trustee or any holder of any Convertible Debentures in contravention of any of the terms hereof and before all the Senior Indebtedness shall have been paid in full, such payment or distribution or security shall be received in trust for the benefit of, and shall be paid over or delivered and transferred to, the holders of the Senior Indebtedness at the time outstanding 39 in accordance with the priorities then existing among such holders and creditors for application to the payment of all Senior Indebtedness remaining unpaid to the extent necessary to pay all such Senior Indebtedness in full. By reason of such subordination, in the event of the insolvency of the Company holders of Senior Indebtedness may receive more, ratably, and holders of the Convertible Debentures having a claim pursuant to such securities may receive less, ratably, than the other creditors of the Company. Such subordination will not prevent the occurrence of any Event of Default in respect of the Convertible Debentures. CERTAIN COVENANTS In the Indenture, McKesson has covenanted that, so long as any Convertible Debentures are outstanding, if (i) there shall have occurred and be continuing any Indenture Event of Default or any event that, with the giving of notice or lapse of time or both, would constitute an Indenture Event of Default, (ii) McKesson shall be in default with respect to its payment or other obligations under the Guarantee, or (iii) McKesson shall have given notice of its election to defer interest payments on the Convertible Debentures by extending the interest payment period and such period, or any extension thereof, shall be continuing, then McKesson (a) shall not declare or pay dividends on, make distributions with respect to, or redeem, purchase or acquire, or make a liquidation payment with respect to, any of its capital stock or (b) shall not make any payment of interest, principal or premium, if any, on or repay, repurchase or redeem any debt securities issued by McKesson that rank pari passu with or junior in interest to the Convertible Debentures or make any guarantee payments with respect to any guarantee by the Company of the debt securities of any subsidiary of the Company if such guarantee ranks pari passu with or junior in interest to the Convertible Debentures (other than (i) as a result of a reclassification of McKesson capital stock or the exchange or conversion of one class or series of McKesson capital stock for another class or series of McKesson capital stock, (ii) the purchase of fractional interests in shares of McKesson capital stock pursuant to the conversion or exchange provisions of such capital stock of McKesson or the security being converted or exchanged for McKesson capital stock, (iii) dividends or distributions in Common Stock of the Company, (iv) any declaration of a dividend in connection with the implementation of a stockholders' rights plan, or the issuance of stock under any such plan in the future, or the redemption or repurchase of any such rights pursuant thereto, (v) payments under the Guarantee and Common Securities Guarantee, (vi) purchases of Common Stock related to the issuance of Common Stock or rights under any of the Company's benefit plans for its directors, officers or employees and (vii) obligations under any dividend reinvestment and stock purchase plan). McKesson has covenanted (i) to directly or indirectly maintain 100% ownership of the Trust's Common Securities; provided, however, that any permitted successor of McKesson under the Indenture may succeed to McKesson's ownership of such Common Securities, (ii) to use its reasonable efforts to cause the Trust (x) to remain a statutory business trust, except in connection with the distribution of Convertible Debentures to the holders of Trust Securities in liquidation of the Trust, the redemption of all the Trust Securities of the Trust, or certain mergers, consolidations or amalgamations, each as permitted by the Declaration, and (y) to continue to be classified as a grantor trust for United States federal income tax purposes and (iii) to use its reasonable efforts to cause each holder of Trust Securities to be treated as owning an undivided beneficial interest in the Convertible Debentures. The Indenture provides that McKesson will not merge or consolidate with or into any other person or entity or sell, transfer, lease or otherwise convey all or substantially all of its assets on a consolidated basis to any person unless (a)(i) McKesson is the surviving corporation in any such merger or (ii) if McKesson is not the survivor, the successor is a corporation organized and existing under the laws of the United States of America, any state thereof or the District of Columbia and expressly assumes the due and punctual payment of the principal of, premium, if any, and interest (including Additional Sums and Compound Interest) on all Convertible Debentures issued thereunder and the performance of every other covenant and agreement in the Indenture and the Registration Rights Agreement on the part of the Company, (b) immediately thereafter no Indenture Event of Default and no event which, after notice or lapse of time or both, would become an Indenture Event of Default shall have occurred and be continuing, and (c) McKesson has delivered to the Debt Trustee the officers' 40 certificate and opinion of counsel required by the Indenture. Upon any such consolidation, merger, sale, transfer, lease or conveyance, the successor corporation shall succeed to and be substituted for McKesson under the Indenture and thereafter (except in the case of a lease) the predecessor corporation shall be relieved of all obligations and covenants under the Indenture, the Convertible Debentures and the Registration Rights Agreement. REDEMPTION AT THE OPTION OF MCKESSON McKesson has the right to redeem the Convertible Debentures, in whole or in part, from time to time, on or after March 4, 2000, upon not less than 30 nor more than 60 days notice, at the following prices (expressed as percentages of the principal amount of the Convertible Debentures), together with accrued and unpaid interest (including Additional Sums, if any, and, to the extent permitted by applicable law, Compound Interest, if any), to but excluding the redemption date, if redeemed during the 12-month period beginning March 4 of the applicable year set forth below:
YEAR REDEMPTION PRICE ---- ---------------- 2000........................ 103.5% 2001........................ 103.0 2002........................ 102.5 2003........................ 102.0 2004........................ 101.5 2005........................ 101.0 2006........................ 100.5
and 100.0% if redeemed on or after March 4, 2007. McKesson may not redeem fewer than all of the outstanding Convertible Debentures unless all accrued and unpaid interest has been paid on all Convertible Debentures for all quarterly interest payment periods terminating on or prior to the date of redemption. If Convertible Debentures are redeemed on any interest payment date, accrued and unpaid interest shall be payable to holders of record on the relevant record date. McKesson also has the right to redeem the Convertible Debentures, in whole or in part, at any time in certain circumstances upon the occurrence of a Tax Event as described under "Description of the Convertible Preferred Securities--Special Event Distribution; Tax Event Redemption" at 100% of the principal amount thereof, together with accrued and unpaid interest (including Additional Sums, if any, and, to the extent permitted by applicable law, Compound Interest, if any) to the Redemption Date. Any redemption of Convertible Debentures shall be made on not less than 30 nor more than 60 days notice to holders of the Convertible Debentures. In the event that fewer than all of the outstanding Convertible Debentures are to be redeemed, the Convertible Debentures will be redeemed pro rata. So long as the corresponding Trust Securities are outstanding, the proceeds from the redemption of the Convertible Debentures will be used to redeem the Trust Securities. CONVERSION OF THE CONVERTIBLE DEBENTURES The Convertible Debentures are convertible into McKesson Common Stock at the option of the holders of the Convertible Debentures at any time beginning May 21, 1997 and prior to the close of business on the Business Day prior to the maturity date of the Convertible Debentures (or, in the case of Convertible Debentures called for redemption, the close of business on the Business Day prior to the Redemption Date) at an initial conversion rate of .6709 shares of McKesson Common Stock for each $50 in principal amount of Convertible Debentures (equivalent to a conversion price of $74.53 per share of McKesson Common Stock), subject to adjustment and reset as described under "Description of the Convertible Preferred Securities--Conversion Rights." The Trust has agreed not to convert Convertible Debentures held by it except pursuant to a notice of 41 conversion delivered to the Conversion Agent by a holder of Convertible Preferred Securities. Upon surrender of a Convertible Preferred Security to the Conversion Agent for conversion, the Trust will distribute $50 principal amount of Convertible Debentures for each $50 in liquidation amount of Convertible Preferred Securities surrendered to the Conversion Agent on behalf of the holder of the Convertible Preferred Securities so converted, whereupon the Conversion Agent will convert such Convertible Debentures into McKesson Common Stock on behalf of such holder. McKesson's delivery to the holders of the Convertible Debentures (through the Conversion Agent) of the fixed number of shares of McKesson Common Stock into which the Convertible Debentures are convertible (together with the cash payment, if any, in lieu of fractional shares) will be deemed to satisfy McKesson's obligation to pay the principal amount of the Convertible Debentures so converted, and the accrued and unpaid interest thereon attributable to the period from the last date to which interest has been paid or duly provided for; provided, however, that if any Convertible Debenture is converted after the close of business on a record date for payment of interest, the interest payable on the related Interest Payment Date with respect to such Convertible Debenture shall be paid on such Interest Payment Date to the person who was the registered holder thereof on such record date, despite such conversion, unless such Convertible Debenture has been called for redemption on a Redemption Date falling between such record date and the corresponding Interest Payment Date, in which case the amount of such payment shall include interest accrued to, but excluding, such Redemption Date and such payment shall be made to the converting holder. INDENTURE EVENTS OF DEFAULT The Indenture provides that any one or more of the following described events, which has occurred and is continuing, constitutes an "Indenture Event of Default" with respect to the Convertible Debentures: (i) failure for 30 days to pay interest on the Convertible Debentures, including any Additional Sums, Compound Interest and Liquidated Damages in respect thereof, when due; provided that a valid extension of an interest payment period will not constitute a default in the payment of interest (including any Additional Sums, Compound Interest or Liquidated Damages) for this purpose; or (ii) failure to pay principal of or premium, if any, on the Convertible Debentures when due whether at maturity, upon redemption, by declaration or otherwise, or (iii) failure by McKesson to deliver shares of McKesson Common Stock upon an election by a holder of Convertible Preferred Securities or Convertible Debentures to convert such Convertible Preferred Securities or Convertible Debentures, as the case may be, (iv) failure to observe or perform any other covenant contained in the Indenture for 30 days after notice to McKesson by the Debt Trustee or by the holders of at least 25% in aggregate outstanding principal amount of the Convertible Debentures; (v) the dissolution, winding up or termination of the Trust, except in connection with the distribution of Convertible Debentures to the holders of Convertible Preferred Securities in liquidation of the Trust upon the occurrence of a Special Event or upon the occurrence of events as described under "Description of the Convertible Preferred Securities--Liquidation of Trust and Distribution of Convertible Debentures to Holders," upon the redemption of all outstanding Convertible Preferred Securities, upon the conversion of all outstanding Convertible Preferred Securities into McKesson Common Stock or in connection with certain mergers, consolidations or amalgamations permitted by the Declaration; or (vi) certain events of bankruptcy, insolvency or reorganization of McKesson which are voluntary or, if involuntary, continue for a period of 90 days. If any Indenture Event of Default shall occur and be continuing, the Institutional Trustee or the holders of not less than 25% in aggregate principal amount of the Convertible Debentures then outstanding may declare the principal of and the accrued and unpaid interest on the Convertible Debentures (including Additional Sums, if any, and (to the extent permitted by applicable law) Compound Interest, if any) and any other amounts payable under the Indenture to be forthwith due and payable and to enforce its other rights as a creditor with respect to the Convertible Debentures; provided, however, that after such acceleration, but before a judgment or decree based on such acceleration is obtained, the holders of a majority in aggregate principal amount of the Convertible Debentures then outstanding may, under certain circumstances, rescind and annul such acceleration if all Indenture Events of Default, other than the nonpayment of accelerated principal and interest, have been cured or waived as provided in the Indenture. An Indenture Event of Default also constitutes a Declaration Event of Default. The holders of Convertible Preferred Securities in certain circumstances have the right to direct the Institutional Trustee to exercise its rights as the holder of the Convertible Debentures. See "Description of the 42 Convertible Preferred Securities--Declaration Events of Default" and "--Voting Rights." Notwithstanding the foregoing, if an Indenture Event of Default has occurred and is continuing and such event is attributable to the failure of McKesson to pay interest or principal on the Convertible Debentures on the date such interest or principal is otherwise payable (or in the case of redemption, the Redemption Date), then a holder of Convertible Preferred Securities may institute a Direct Action for payment on or after the respective due dates specified in the Convertible Debentures. Notwithstanding any payments made to such holder of Convertible Preferred Securities by McKesson in connection with a Direct Action, McKesson shall remain obligated to pay the principal of and interest on the Convertible Debentures held by the Trust or the Institutional Trustee of the Trust, and McKesson shall be subrogated to the rights of the holder of such Convertible Preferred Securities with respect to payments on the Convertible Preferred Securities to the extent of any payments made by McKesson to such holder in any Direct Action. The holders of Convertible Preferred Securities will not be able to exercise directly any other remedy available to the holders of the Convertible Debentures. The Indenture contains provisions permitting the holders of a majority in aggregate principal amount of the Convertible Debentures then outstanding, on behalf of all of the holders of the Convertible Debentures, to waive any past default in the performance of any of the covenants contained in the Indenture, except a default in the payment of the principal of or premium, if any, or interest on any of the Convertible Debentures and certain other defaults; provided, however, that if the Convertible Debentures are held by the Trust or the Institutional Trustee of the Trust, such waiver shall not be effective until the holders of a majority in aggregate liquidation amount of Trust Securities shall have consented to such waiver; provided, further, that if the consent of the holder of each outstanding Convertible Debenture affected is required, such waiver shall not be effective until each holder of the Trust Securities shall have consented to such waiver. A default under any other indebtedness of the Company would not constitute an Indenture Event of Default. Subject to the provisions of the Indenture relating to the duties of the Debt Trustee in case an Indenture Event of Default shall occur and be continuing, the Debt Trustee is under no obligation to exercise any of its rights or powers under the Indenture at the request or direction of any holders of Convertible Debentures, unless such holders shall have offered to the Debt Trustee reasonable indemnity. Subject to such provisions for the indemnification of the Debt Trustee, the holders of a majority in aggregate principal amount of the Convertible Debentures then outstanding have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Debt Trustee, or exercising any trust or power conferred on the Debt Trustee. No holder of any Convertible Debenture has any right to institute any proceeding with respect to the Indenture or for any remedy thereunder, unless (i) such holder shall have previously given to the Debt Trustee written notice of a continuing Indenture Event of Default, (ii) if the Trust is not the sole holder of Convertible Debentures, the holders of at least 25% in aggregate principal amount of the Convertible Debentures then outstanding shall have made written request to the Debt Trustee to institute proceedings, (iii) such holder has offered reasonable indemnity to the Debt Trustee to institute such proceeding as Indenture Trustee, (iv) the Debt Trustee shall have failed to institute such proceeding within 60 days of such notice and offer of indemnity, and (v) the Debt Trustee shall not have received from the holders of a majority in aggregate principal amount of the outstanding Convertible Debentures a direction inconsistent with such request. However, such limitations do not apply to a suit instituted by a holder of a Convertible Debenture for enforcement of payment of the principal of, premium, if any, or interest on such Convertible Debenture on or after the respective due dates expressed in such Convertible Debenture. The Company is required to file annually with the Debt Trustee and the Institutional Trustee a certificate as to whether or not the Company is in compliance with all the conditions and covenants under the Indenture. BOOK-ENTRY AND SETTLEMENT If distributed to holders of Convertible Preferred Securities in connection with the involuntary or voluntary dissolution, winding-up or liquidation of the Trust as a result of the occurrence of a Special Event, the 43 Convertible Debentures will be issued in the same form as the Convertible Preferred Securities that such Convertible Debentures replace. Except under the limited circumstances described below, Convertible Debentures represented by a global security (a "Global Debenture") are not exchangeable for, and are not otherwise issuable as, Convertible Debentures in definitive form. The Global Debenture may not be transferred except by DTC to a nominee of DTC or by a nominee of DTC to DTC or another nominee of DTC or to successor depositary or its nominee. The laws of some jurisdictions require that certain purchasers of securities take physical delivery of such securities in definitive form. Such laws may impair the ability to transfer or pledge beneficial interests in a Global Debenture. Except as provided below, owners of beneficial interests in a Global Debenture are not entitled to receive physical delivery of Convertible Debentures in definitive form and are not considered the holders (as defined in the Indenture) thereof for any purpose under the Indenture, and no Global Debenture representing Convertible Debentures shall be exchangeable, except for another Global Debenture of like denomination and tenor to be registered in the name of DTC or its nominee or a successor depositary or its nominee. Accordingly, each beneficial owner must rely on the procedures of DTC or if such person is not a Participant, on the procedures of the Participant through which such person owns its interest to exercise any rights of a holder under the Indenture. THE DEPOSITARY If Convertible Debentures are distributed to holders of Convertible Preferred Securities in liquidation of such holders' interests in the Trust and a Global Debenture is issued, DTC will act as securities depositary for the Global Debenture. For a description of DTC and the specific terms of the depositary arrangements, see "Description of the Convertible Preferred Securities--Form, Denomination and Registration--Global Convertible Preferred Securities; Book-Entry Form." As of the date of this Prospectus, the description therein of DTC's book-entry system and DTC's practices as they relate to purchases, transfers, notices and payments with respect to the Convertible Preferred Securities apply in all material respects to any debt obligations represented by one or more global securities held by DTC. McKesson may appoint a successor to DTC or any successor depositary in the event DTC or such successor depositary is unable or unwilling to continue as a depositary for such Global Debenture. None of McKesson, the Trust, the Debt Trustee, any paying agent and any other agent of McKesson or the Debt Trustee have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in a Global Debenture or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. DISCONTINUANCE OF THE DEPOSITARY'S SERVICES DTC may discontinue providing its services as securities depositary with respect to the Global Debenture at any time by giving notice to the Company. In the event that (i) DTC notifies the Company that it is unwilling or unable to continue as a depositary for the Global Debenture or if at any time DTC ceases to be a clearing agency registered as such under the Securities Exchange Act of 1934 when DTC is required to be so registered to act as such depositary and no successor depositary shall have been appointed within 90 days of such notification or of the Company becoming aware of DTC's ceasing to be so registered, as the case may be, (ii) the Company in its sole discretion determines that the Global Debenture shall be exchanged for certificated Convertible Debentures or (iii) there shall have occurred and be continuing an Indenture Event of Default, certificates for the Convertible Debentures will be printed and delivered in exchange for interests in the Global Debentures. Any Global Debenture that is exchangeable pursuant to the preceding sentence shall be exchangeable for Convertible Debentures registered in such names as DTC shall direct. It is expected that such instructions will be based upon directions received by DTC from its Participants with respect to ownership of beneficial interests in such Global Debenture. 44 MODIFICATIONS AND AMENDMENTS OF THE INDENTURE The Indenture contains provisions permitting the Company and the Debt Trustee, with the consent of the holders of not less than a majority in aggregate principal amount of the outstanding Convertible Debentures, to modify the Indenture or the rights of the holders of Convertible Debentures; provided, however, that no such modification may, without the consent of the holder of each outstanding Convertible Debenture affected thereby, (i) extend the stated maturity of the Convertible Debentures or reduce the principal amount thereof, or reduce the rate or extend the time for payment of interest thereon, or reduce any premium payable upon the redemption thereof, or adversely affect the right to convert Convertible Debentures or the subordination provisions of the Indenture, or (ii) reduce the percentage in aggregate principal amount of outstanding Convertible Debentures, the holders of which are required to consent to any such supplemental indenture. In addition, the Company and the Debt Trustee may execute, without the consent of any holder of Convertible Debentures, any supplemental indenture to cure any ambiguities, defects or inconsistencies, comply with the Trust Indenture Act and for certain other customary purposes. INFORMATION CONCERNING THE DEBT TRUSTEE The Debt Trustee, prior to default, undertakes to perform only such duties as are specifically set forth in the Indenture and, after default, shall exercise the same degree of care as a prudent person would exercise in the conduct of his or her own affairs. Subject to such provision, the Debt Trustee is under no obligation to exercise any of the powers vested in it by the Indenture at the request of any holder of Convertible Debentures, unless offered reasonable indemnity by such holder against the costs, expenses and liabilities which might be incurred thereby. The Debt Trustee is not required to expend or risk its own funds or otherwise incur personal financial liability in the performance of its duties if the Debt Trustee reasonably believes that repayment or adequate indemnity is not reasonably assured to it. The Indenture also contains limitations on the right of the Debt Trustee, as a creditor of McKesson, to obtain payment of claims in certain cases or to realize on certain property received in respect of any such claim as security or otherwise. In addition, the Debt Trustee may be deemed to have a conflicting interest and may be required to resign as Debt Trustee if at the time of a default under the Indenture it is a creditor of McKesson. The Company may from time to time maintain deposit accounts and conduct its banking transactions with the Debt Trustee in the ordinary course of business. GOVERNING LAW The Indenture and the Convertible Debentures are governed by, and construed in accordance with, the internal laws of the State of New York. MISCELLANEOUS The Indenture provides that McKesson is to pay all fees and expenses related to (i) the original offering of the Trust Securities and the Convertible Debentures, (ii) the organization, maintenance and dissolution of the Trust, (iii) the retention of the MFT Trustees and (iv) the enforcement by the Institutional Trustee of the rights of the holders of the Convertible Preferred Securities. McKesson will have the right at all times to assign any of its respective rights or obligations under the Indenture to a direct or indirect wholly-owned subsidiary of McKesson; provided that, in the event of any such assignment, McKesson will remain liable for all of its obligations. Subject to the foregoing, the Indenture is binding upon and inures to the benefit of the parties thereto and their respective successors and assigns. The Indenture provides that it may not otherwise be assigned by the parties thereto. 45 EFFECT OF OBLIGATIONS UNDER THE CONVERTIBLE DEBENTURES AND THE GUARANTEE As set forth in the Declaration, the sole purpose of the Trust is to issue the Trust Securities evidencing undivided beneficial interests in the assets of the Trust, and to invest the proceeds from such issuance and sale in the Convertible Debentures. As long as payments of interest and other payments are made when due on the Convertible Debentures, such payments will be sufficient to cover distributions and payments due on the Trust Securities because of the following factors: (i) the aggregate principal amount of Convertible Debentures is equal to the sum of the aggregate stated liquidation amount of the Trust Securities; (ii) the interest rate and the interest and other payment dates on the Convertible Debentures match the distribution rate and distribution and other payment dates for the Convertible Preferred Securities; (iii) McKesson shall pay all, and the Trust shall not be obligated to pay, directly or indirectly, any costs, expenses, debt and obligations of the Trust (other than with respect to the Trust Securities); and (iv) the Declaration further provides that the MFT Trustees shall not take or cause or permit the Trust to, among other things, engage in any activity that is not consistent with the purposes of the Trust. Payments of distributions (to the extent funds therefor are available) and other payments due on the Convertible Preferred Securities (to the extent funds therefor are available) are guaranteed by McKesson as and to the extent set forth under "Description of the Guarantee" herein. If McKesson does not make interest payments on the Convertible Debentures purchased by the Trust, it is expected that the Trust will not have sufficient funds to pay distributions on the Convertible Preferred Securities. The Guarantee is a full guarantee on a subordinated basis with respect to the Convertible Preferred Securities issued by the Trust from the time of its issuance but does not apply to any payment of distributions unless and until the Trust has sufficient funds for the payment of such distributions. The Guarantee covers the payment of distributions and other payments on the Convertible Preferred Securities only if and to the extent that McKesson has made a payment of interest or principal on the Convertible Debentures held by the Trust as its sole asset. See "Risk Factors--Limitations of the Guarantee." The Guarantee, when taken together with McKesson's obligations under the Convertible Debentures, the Indenture and the Declaration, including its obligations to pay costs, expenses, debts and liabilities of the Trust (other than with respect to the Trust Securities), provides a full and unconditional guarantee of amounts on the Convertible Preferred Securities. If McKesson fails to make interest or other payments on the Convertible Debentures when due (taking account of any Extension Period), the Declaration provides a mechanism whereby a holder of the Convertible Preferred Securities, using the procedures described in "Description of the Convertible Preferred Securities--Voting Rights," may direct the Institutional Trustee to enforce its rights under the Convertible Debentures. If the Institutional Trustee fails to enforce its rights under the Convertible Debentures, any holder of Convertible Preferred Securities may directly institute a legal proceeding against McKesson to enforce the Institutional Trustee's rights under the Convertible Debentures without first instituting legal proceedings against the Institutional Trustee or any other person or entity. Notwithstanding the foregoing, if a Declaration Event of Default has occurred and is continuing and such event is attributable to the failure of the Company to pay interest or principal on the Convertible Debentures on the date such interest or principal is otherwise payable (or in the case of redemption on the Redemption Date), a holder of Convertible Preferred Securities may institute a Direct Action for payment on or after the respective due dates specified in the Convertible Debentures. In connection with such Direct Action, McKesson will be subrogated to the rights of such holder of Convertible Preferred Securities under the Declaration to the extent of any payment made by McKesson to such holder of Convertible Preferred Securities in such Direct Action. McKesson, under the Guarantee, acknowledges that the Guarantee Trustee shall enforce the Guarantee on behalf of holders of the Convertible Preferred Securities. If McKesson fails to make payments under the Guarantee, the Guarantee provides a mechanism whereby the holders of the Convertible Preferred Securities may direct the Guarantee Trustee to enforce its rights thereunder. Any holder of Convertible Preferred Securities may institute a legal proceeding directly against McKesson to enforce such holder's right to receive payment under the Guarantee without first instituting a legal proceeding against the Trust, the Guarantee Trustee or any other person or entity. 46 DESCRIPTION OF CAPITAL STOCK The description of the Company's capital stock and of certain provisions of Delaware law do not purport to be complete and are subject to and qualified in their entirety by reference to the Company's Restated Certificate of Incorporation (the "Certificate") and Restated By-Laws (the "By-Laws") and Delaware law, and, with respect to certain rights of holders of shares of Common Stock, the Rights Agreement (as hereinafter defined). Copies of such documents have been filed with the Commission. As of the date hereof, the capital stock of McKesson consists of 200,000,000 authorized shares of Common Stock and 100,000,000 authorized shares of preferred stock. COMMON STOCK As of March 31, 1997, there were 45,784,949 shares of Common Stock issued and outstanding. The holders of outstanding shares of Common Stock are entitled to receive dividends out of assets legally available therefor at such times and in such amounts as the McKesson Board of Directors (the "Board") may from time to time determine. The shares of Common Stock are neither redeemable nor convertible, and the holders thereof have no preemptive or subscription rights to purchase any securities of McKesson. Upon liquidation, dissolution or winding up of McKesson, the holders of Common Stock are entitled to receive the assets of McKesson, which are legally available for distribution, after payment of all debts, other liabilities and any liquidation preferences of outstanding preferred stock. Each outstanding share of Common Stock is entitled to one vote on all matters submitted to a vote of stockholders. There is no cumulative voting. SERIES PREFERRED STOCK As of March 31, 1997, there were no shares of series preferred stock issued and outstanding. The Board is authorized to issue series preferred stock in classes or series and to fix the designations, preferences, qualifications, limitations, or restrictions of any class or series with respect to the rate and nature of dividends, the price and terms and conditions on which shares may be redeemed, the amount payable in the event of voluntary or involuntary liquidation, the terms and conditions for conversion or exchange into any other class or series of the stock, voting rights and other terms. ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION AND BYLAWS The Certificate and By-Laws of McKesson contain certain provisions that may be deemed to have an anti-takeover effect and may delay, deter or prevent a tender offer or takeover attempt that a stockholder might consider in its best interest, including those attempts that might result in a premium over the market price for the shares held by stockholders. Pursuant to the Certificate, the Board is divided into three classes serving staggered three-year terms. Directors can be removed from office only for cause and only by the affirmative vote of the holders of at least a majority of the voting power of the then outstanding shares of any class or series of capital stock of the Company entitled to vote generally in the election of directors. Vacancies and newly created directorships on the Board may be filled only by a majority of the remaining directors or by the plurality vote of the stockholders. The Certificate also provides that any action required or permitted to be taken by the holders of Common Stock may be effected only at an annual or special meeting of such holders, and that stockholders may act in lieu of such meetings only by unanimous written consent. The By-Laws provide that special meetings of holders of Common Stock may be called only by the Chairman or the President of the Company or the Board. Holders of Common Stock are not permitted to call a special meeting or to require that the Board call a special meeting of stockholders. The By-Laws establish an advance notice procedure for the nomination, other than by or at the direction of the Board, of candidates for election as directors as well as for other stockholder proposals to be considered at 47 annual meetings of stockholders. In general, notice of intent to nominate a director or raise business at such meetings must be received by the Company not less than 60 nor more than 90 days prior to the date of the annual meeting and must contain certain specified information concerning the person to be nominated or the matters to be brought before the meeting and concerning the stockholder submitting the proposal. The Certificate also provides that certain provisions of the By-Laws may only be amended by the affirmative vote of the holders of 75% of the shares of the Company outstanding and entitled to vote. The Certificate also provides that, in addition to any affirmative vote required by law, the affirmative vote of holders of 80% of the voting stock of the Company and two-thirds of the voting stock other than voting stock held by an interested stockholder shall be necessary to approve certain business combinations proposed by an interested stockholder. The foregoing summary is qualified in its entirety by the provisions of the Certificate and By-Laws, copies of which have been filed with the Commission. RIGHTS PLAN Pursuant to the Company's Rights Agreement (as defined below), the Board declared a dividend distribution of one right (a "Right") for each outstanding share of Common Stock to stockholders of record of the Company at November 1, 1994 (the "Record Date"). Each Right entitles the registered holder to purchase from the Company a unit consisting of one one-hundredth of a share of Series A Junior Participating Preferred Stock (the "Series A Preferred Stock") at a purchase price of $100 per unit. The terms of the Rights are set forth in a Rights Agreement between the Company and a Rights Agent (the "Rights Agreement"), a copy of which is filed with the Commission. The following summary outlines certain provisions of the Rights Agreement and is qualified by reference to the full text of the form of the Rights Agreement. The Rights are attached to all Common Stock certificates representing shares outstanding at the Record Date and shares issued between the Record Date and the Distribution Date (as hereinafter defined), and no separate rights certificates (the "Rights Certificates") have been distributed. The Rights will separate from the Common Stock, separate Rights Certificates will be issued and a distribution date (the "Distribution Date") will occur upon the earlier to occur of (i) ten business days following the date of a public announcement that there is an Acquiring Person (as defined below) (such date, the "Stock Acquisition Date"), (ii) ten business days following commencement of a tender or exchange offer that would result in the offeror beneficially owning 15% or more of the Common Stock or (iii) ten business days after the Board determines that the ownership of 10% or more of the Company's outstanding Common Stock by a person is (A) intended to cause the Company to repurchase the Common Stock beneficially owned by such person or (B) is causing, or is reasonably likely to cause, a material adverse impact on the Company. The term "Acquiring Person" means any person who, together with affiliates and associates, acquires beneficial ownership of shares of Common Stock representing 15% or more of the Common Stock, but shall not include the Company, any subsidiary of the Company, any employee benefit plan of the Company or of any Subsidiary of the Company, or any person or entity organized, appointed or established by the Company for or pursuant to the terms of such plan. In the event that a person becomes an Acquiring Person (except pursuant to an offer for all outstanding shares of Common Stock which the independent directors determine to be fair to and otherwise in the best interests of the Company and its stockholders), each holder of a Right will thereafter have the right to receive, upon exercise, Common Stock (or, in certain circumstances, cash, property or other securities of the Company) having a calculated value equal to two times the exercise price of the Right. Notwithstanding the foregoing, following the occurrence of such event, all Rights that are, or (under certain circumstances specified in the Rights Agreement) were, beneficially owned by an Acquiring Person and certain related persons and transferees will be null and void. However, Rights are not exercisable following the occurrence of such event until such time as the Rights are no longer redeemable as set forth below. 48 The Rights expire on September 14, 2004, unless redeemed earlier by the Board. At any time prior to the tenth day following the Stock Acquisition Date, the Company may redeem the Rights, in whole, but not in part, at a price of $.01 per Right. Until a Right is exercised, the holder thereof, as such, will have no rights as a stockholder of the Company, including without limitation, the right to vote or to receive dividends. In general, the Rights Agreement may be amended by the Board (i) prior to the Distribution Date in any manner, and (ii) on or after the Distribution Date in certain respects including (a) to shorten or lengthen any time period and (b) in a manner not adverse to the interests of Rights holders. However, amendments extending the redemption period must be made while the Rights are still redeemable. The Rights have certain anti-takeover effects and will cause substantial dilution to a person or group that attempts to acquire the Company on terms not approved by the Board. The Rights should not interfere with any merger or other business combination approved by the Board, since the Board may redeem the Rights as provided above. SECTION 203 OF DELAWARE GENERAL CORPORATION LAW The Company is subject to the "business combination" statute of the Delaware General Corporation Law (Section 203). In general, such statute prohibits a publicly held Delaware corporation from engaging in a "business combination" with any "interested stockholder" for a period of three years after the date of the transaction in which the person became an "interested stockholder," unless (i) such transaction is approved by the board of directors prior to the date the interested stockholder obtains such status, (ii) upon consummation of such transaction, the "interested stockholder" beneficially owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer, or (iii) the "business combination" is approved by the board of directors and authorized at an annual or special meeting of stockholders by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the "interested stockholder." A "business combination" includes mergers, asset sales and other transactions resulting in financial benefit to the "interested stockholder." An "interested stockholder" is a person who, together with affiliates and associates, owns (or within three years, did own) beneficially 15% or more of a corporation's voting stock. The statute could prohibit or delay mergers or other takeover or change in control attempts with respect to the Company and, accordingly, may discourage attempts to acquire the Company. CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK The Company's authorized but unissued shares of Common Stock and series preferred stock may be issued without additional stockholder approval and may be utilized for a variety of corporate purposes, including future offerings to raise additional capital or to facilitate corporate acquisitions. The issuance of series preferred stock could have the effect of delaying or preventing a change in control of the Company. The issuance of preferred stock could decrease the amount of earnings and assets available for distribution to the holders of Common Stock or could adversely affect the rights and powers, including voting rights, of the holders of the Common Stock. In certain circumstances, such issuance could have the effect of decreasing the market price of the Common Stock. One of the effects of the existence of unissued and unreserved Common Stock or series preferred stock may be to enable the Board to issue shares to persons friendly to current management which could render more difficult or discourage an attempt to obtain control of the Company by means of a merger, tender offer, proxy 49 contest or otherwise, and thereby protect the continuity of management. Such additional shares also could be used to dilute the stock ownership of persons seeking to obtain control of the Company. The Company plans to issue additional shares of Common Stock (i) upon the exercise of options which have been granted or which may be granted in the future to directors, officers and employees of the Company and (ii) upon conversion of the Trust Securities. The Company does not currently have any plans to issue shares of preferred stock, although, 10,000,000 shares of Series A Preferred Stock have been designated pursuant to the Company's Rights Plan. See "--Rights Plan." LIMITATION OF DIRECTORS LIABILITY The Certificate contains a provision that limits the liability of McKesson's directors for monetary damages for breach of fiduciary duty as a director to the fullest extent permitted by the Delaware General Corporation Law. Such limitation does not, however, affect the liability of a director (i) for any breach of the director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (iii) in respect of certain unlawful dividend payments or stock redemptions or purchases and (iv) for any transaction from which the director derives an improper personal benefit. The effect of this provision is to eliminate the rights of the Company and its stockholders (through stockholders' derivative suits on behalf of the Company) to recover monetary damages against a director for breach of the fiduciary duty of care as a director (including breaches resulting from negligent or grossly negligent behavior) except in the situations described in clauses (i) through (iv) above. This provision does not limit or eliminate the rights of the Company or any stockholder to seek non-monetary relief such as an injunction or rescission in the event of a breach of a director's duty of care. In addition, the directors and officers of the Company have indemnification protection. 50 UNITED STATES FEDERAL INCOME TAXATION GENERAL The following is a summary of certain United States federal income tax consequences of the purchase, ownership and disposition of the Convertible Preferred Securities. Unless otherwise stated, this summary only deals with Convertible Preferred Securities held as capital assets (generally, assets held for investment). The tax treatment of a holder of Convertible Preferred Securities may vary depending on his particular situation. This summary does not address all of the tax consequences that may be relevant to holders who may be subject to special tax treatment such as, for example, insurance companies, broker-dealers, tax-exempt organizations, or, except to the extent described below, foreign taxpayers. In addition, this summary does not address any aspects of state, local, or foreign tax laws. This summary is based on the United States federal income tax law in effect as of the date hereof, which is subject to change, possibly on a retroactive basis. Each investor is urged to consult his tax advisor as to the particular tax consequences of purchasing, owning, and disposing of the Convertible Preferred Securities, including the application and effect of United States federal, state, local, foreign, and other tax laws. CLASSIFICATION OF THE CONVERTIBLE DEBENTURES In connection with the issuance of the Convertible Debentures, Skadden, Arps, Slate, Meagher & Flom LLP, special tax counsel to the Company and the Trust ("Tax Counsel"), will render an opinion generally to the effect that under current law and assuming full compliance with the terms of the Indenture and certain other documents, and based on certain facts and assumptions contained in such opinion, the Convertible Debentures to be held by the Trust will be classified, for United States federal income tax purposes, as indebtedness of the Company. CLASSIFICATION OF THE TRUST In connection with the issuance of the Convertible Preferred Securities, Tax Counsel will render an opinion generally to the effect that, under current law and assuming full compliance with the terms of the Declaration, the Indenture, and certain other documents, and based on certain facts and assumptions contained in such opinion, the Trust will be classified for United States federal income tax purposes, as a grantor trust and not as an association taxable as a corporation. Accordingly, for United States federal income tax purposes, each holder of Convertible Preferred Securities will generally be treated as the owner of an undivided interest in the Convertible Debentures, and as further discussed below, each holder will be required to include in ordinary income his allocable share of interest (or OID, if any) paid or accrued on the Convertible Debentures. POTENTIAL EXTENSION OF INTEREST PAYMENT PERIOD AND ORIGINAL ISSUE DISCOUNT Under recently issued Treasury regulations (the "Regulations"), a debt instrument will be deemed to be issued with OID if there is more that a "remote" contingency that periodic stated interest payments due on the instrument will not be timely paid. Because the exercise by the Company of its option to defer the payment of stated interest on the Convertible Debentures would prevent the Company from declaring dividends on any class of equity, the Company believes that the likelihood of its exercising the option is "remote" within the meaning of the Regulations. As a result, the Company intends to take the position, based on the advice of Tax Counsel, that the Convertible Debentures will not be deemed to be issued with OID. Accordingly, based on this position, stated interest payments on the Convertible Debentures will be includible in the ordinary income of a holder at the time that such payments are paid or accrued in accordance with the holder's regular method of accounting. Because the Regulations have not yet been addressed in any published rulings or other published interpretations issued by the Internal Revenue Service, it is possible that the Internal Revenue Service could take a position contrary the position taken by the Company. Exercise of Deferral Option. If the Company were to exercise its option to defer the payment of stated interest on the Convertible Debentures, the Convertible Debentures would be treated, solely for purpose of the 51 OID rules, as being "re-issued" at such time with OID. Under these rules, a holder of the Convertible Debentures would be required to include OID in ordinary income, on a current basis, over the period that the instrument is held even though the Company would not be making any actual cash payments during the extended interest payment period. The amount of interest income includible in the taxable income of a holder of the Convertible Debentures would be determined on the basis of a constant yield method over the remaining term of the instrument and the actual receipt of future payments of stated interest on the Convertible Debentures would no longer be separately reported as taxable income. The amount of OID that would accrue, in the aggregate, during the extended interest payment period would be approximately equal to the amount of the cash payment due at the end of such period. Any OID included in income would increase the holder's adjusted tax basis in the Convertible Debentures and the holder's actual receipt of interest payments would reduce such basis. Because income on the Convertible Preferred Securities will constitute interest income for United States Federal income tax purposes, corporate holders of Convertible Preferred Securities will not be entitled to claim a dividends received deduction in respect of such income. MARKET DISCOUNT AND BOND PREMIUM To the extent a holder acquires Convertible Preferred Securities at a price that is greater or less than the adjusted issue price (which should generally approximate the face amount plus accrued but unpaid interest on the Convertible Debentures) of such holder's proportionate share of the Convertible Debentures, the holder may be deemed to have acquired its undivided interest in the Convertible Debentures with acquisition premium or market discount. A holder who acquires an undivided beneficial interest in the Convertible Debentures at a market discount will generally be required to recognize ordinary income to the extent of accrued market discount on the Convertible Debentures upon their retirement or, to the extent of any gain, upon the disposition of the Convertible Preferred Securities. Such market discount will accrue ratably or, at the election of the holder, under a constant yield method over the remaining term of the Convertible Debentures. A holder will also be required to defer the deduction of a portion of the interest paid or accrued on indebtedness incurred to purchase or carry Convertible Preferred Securities that represent an undivided interest in Convertible Debentures acquired with market discount. In lieu of the foregoing, a holder may elect to include market discount in income currently as it accrues on all market discount instruments acquired by such holder in the taxable year of the election or thereafter, in which case the interest deferral rule will not apply. A holder will not recognize income for any accrued market discount attributable to Convertible Preferred Securities surrendered for conversion into McKesson Common Stock. Upon disposition of the McKesson Common Stock received however, any gain will be treated as ordinary income to the extent of such accrued market discount. A holder who acquires an undivided beneficial interest in the Convertible Debentures at a premium will be able to offset the amount of such holder's amortizable bond premium attributable to that taxable year against such holder's allocable share of interest (or OID, if any) paid or accrued on the Convertible Debentures. Holders are advised to consult their tax advisors regarding the market discount and acquisition premium rules. RECEIPT OF CONVERTIBLE DEBENTURES OR CASH UPON LIQUIDATION OF THE TRUST If Company exercises its right to liquidate the Trust and cause the Convertible Debentures to be distributed on a pro rata basis to the holders of the Convertible Preferred Securities, such distribution would be treated as a nontaxable event to the holders. In such event, each holder of Convertible Preferred Securities would have an adjusted tax basis in the Convertible Debentures received in the liquidation equal to the adjusted tax basis in his Convertible Preferred Securities surrendered therefor and the holding period of the Convertible Debentures would include the period during which the holder had held the Convertible Preferred Securities. If, however, the Trust is characterized, for United States Federal income tax purposes, as an association taxable as a corporation 52 at the time of such liquidation, the distribution of the Convertible Debentures would constitute a taxable event to the holders of Convertible Preferred Securities. If the Convertible Debentures are redeemed for cash and the proceeds of such redemption are distributed to holders in redemption of their Convertible Preferred Securities, the redemption would be treated as a sale of the Convertible Preferred Securities, in which gain or loss would be recognized, as described immediately below. SALE OF CONVERTIBLE PREFERRED SECURITIES Upon the sale of the Convertible Preferred Securities, a holder will recognize gain or loss in an amount equal to the difference between his adjusted tax basis in the Convertible Preferred Securities and the amount realized in the sale (except to the extent of any amount received in respect of accrued but unpaid interest not previously included in income). Subject to the market discount rules described above, such gain or loss will be a capital gain or loss and will be a long term capital gain or loss if the Convertible Preferred Securities have been held for more than one year. The Convertible Preferred Securities may trade at a price that does not accurately reflect the value of accrued but unpaid interest (or OID if the Convertible Debentures are treated as having been issued, or reissued, with OID) with respect to the underlying Convertible Debentures. A holder who disposes of his Convertible Preferred Securities will be required to include in ordinary income (i) any portion of the amount realized that is attributable to such accrued but unpaid interest to the extent not previously included in income or (ii) any amount of OID, in either case, that has accrued on his pro rata share of the underlying Convertible Debentures during the taxable year of sale through the date of disposition. Any such income inclusion will increase the holder's adjusted tax basis in his Convertible Preferred Securities disposed of. To the extent that the amount realized in the sale is less than the holder's adjusted tax basis, a holder will recognize a capital loss. Subject to certain limited exceptions, capital losses cannot be applied to offset ordinary income for United States Federal income tax purposes. CONVERSION OF CONVERTIBLE PREFERRED SECURITIES INTO MCKESSON COMMON STOCK Except possibly to the extent attributable to accrued and unpaid interest (including OID, if any) on the Convertible Debentures, a holder of Convertible Preferred Securities will not recognize income, gain or loss upon the conversion of the Convertible Preferred Securities into McKesson Common Stock through the Conversion Agent. A holder of Convertible Preferred Securities will, however, recognize gain upon the receipt of cash in lieu of a fractional share of McKesson Common Stock equal to the amount of cash received less such holder's tax basis in such fractional share. Such a holder's tax basis in the McKesson Common Stock received upon conversion should generally be equal to such holder's tax basis in the Convertible Preferred Securities delivered to the Conversion Agent for exchange less the basis allocated to any fractional share for which cash is received and such holder's holding period in the McKesson Common Stock received upon conversion should generally begin on the date such holder acquired the Convertible Preferred Securities delivered to the Conversion Agent for exchange. ADJUSTMENT OF CONVERSION PRICE If at any time the Company makes a distribution of property to stockholders that would be taxable to such stockholders as a dividend for United States federal income tax purposes and, in accordance with the antidilution provisions of the Convertible Preferred Securities, the Conversion Price of the Convertible Preferred Securities is decreased, the amount of such decrease may be deemed to be the payment of a taxable dividend to holders of the Convertible Preferred Securities. For example, a decrease in the Conversion Price in the event of distributions of evidences of indebtedness or assets of the Company will generally result in deemed dividend treatment to holders of the Convertible Preferred Securities, but generally a decrease in the event of stock dividends or the distribution of rights to subscribe for McKesson Common Stock will not. See "Description of the Convertible Preferred Securities-- Conversion Rights." 53 PROPOSED TAX LEGISLATION On February 6, 1997, as part of President Clinton's Fiscal 1998 Budget Proposal, the United States Treasury Department proposed legislation that would, among other things, deny an issuer a deduction for United States federal income tax purposes for the payment of interest on instruments with characteristics similar to the Convertible Debentures. If the proposed legislation were enacted in its current form, it is not expected to apply to the Convertible Debentures since the proposed effective date for this provision is the date of first Congressional committee action. There can be no assurances, however, that the proposed legislation, if enacted, or similar legislation enacted after the date hereof, would not adversely affect the tax treatment of the Convertible Debentures, resulting in a Tax Event which would allow the Company to redeem the Convertible Preferred Securities. See "Description of the Convertible Preferred Securities--Special Event Distribution; Tax Redemption." NON-U.S. HOLDERS For purposes of this discussion, a "Non-U.S. Holder" is any corporation, individual, partnership, estate or trust that is, as to the United States, a foreign corporation, a nonresident alien individual, a foreign partnership, or a nonresident fiduciary of a foreign estate or trust. Payments made to a holder of Convertible Preferred Securities who is a Non- U.S. Holder will not be subject to withholding of United States federal income tax, provided that (a) the beneficial owner of the Convertible Preferred Securities does not actually or constructively own 10% or more of the total combined voting power of all classes of stock of the Company entitled to vote, (b) the beneficial owner of the Convertible Preferred Securities is not a controlled foreign corporation that is related to the Company through stock ownership, and (c) either (A) the beneficial owner of the Convertible Preferred Securities certifies to the Trust or its agent, under the penalty of perjury, that it is not a United States holder and provides his name and address or (B) a securities clearing organization, bank or other financial institution that holds customers' securities in the ordinary course of its trade or business (a "Financial Institution"), and holds the Convertible Preferred Securities in such capacity, certifies to the Trust or its agent, under the penalty of perjury, that such statement has been received from the beneficial owner by it or by a Financial Institution between it and the beneficial owner and furnishes the Trust or its agent with a copy thereof. In addition, a Non-U.S. Holder of Convertible Preferred Securities will not be subject to withholding of United States federal income tax on any gain realized upon the sale or other disposition of a Preferred Security. If the Convertible Preferred Securities are converted into McKesson Common Stock, any dividends paid to a Non-U.S. Holder will be subject to withholding of United States Federal income tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty unless the dividend is effectively connected with the conduct of a trade or business of a Non-U.S. Holder with the U.S. INFORMATION REPORTING Generally, income on the Convertible Preferred Securities will be reported to holders on Forms 1099, which forms should be mailed to holders of Convertible Preferred Securities by January 31 following each calendar year. 54 ERISA CONSIDERATIONS The Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and the United States Internal Revenue Code of 1986, as amended (the "Code"), impose certain restrictions on (a) employee benefit plans (as defined in Section 3(3) of ERISA), (b) plans described in section 4975(e)(1) of the Code, including individual retirement accounts or Keogh plans, (c) any entities whose underlying assets include plan assets by reason of a plan's investment in such entities (each a "Plan") and (d) persons who have certain specified relationships to such Plans ("Parties-in-Interest" under ERISA and "Disqualified Persons" under the Code). Moreover, based on the reasoning of the United States Supreme Court in John Hancock Life Ins. Co. v. Harris Trust and Sav. Bank, 114 S. Ct. 517 (1993), an insurance company's general account may be deemed to include assets of the Plans investing in the general account (e.g., through the purchase of an annuity contract), and the insurance company might be treated as a Party-in-Interest with respect to a Plan by virtue of such investment. ERISA also imposes certain duties on persons who are fiduciaries of Plans subject to ERISA and prohibits certain transactions between a Plan and Parties-in-Interest or Disqualified Persons with respect to such Plans. The Department of Labor ("DOL") has issued a regulation (29 C.F.R. (S) 2510.3-101) concerning the definition of what constitutes the assets of a Plan (the "Plan Assets Regulation"). This regulation provides that, as a general rule, the underlying assets and properties of corporations, partnerships, trusts and certain other entities in which a Plan purchases an "equity interest" will be deemed for purposes of ERISA to be assets of the investing Plan unless certain exceptions apply. The Plan Assets Regulation defines an "equity interest" as any interest in an entity other than an instrument that is treated as indebtedness under applicable local law and which has no substantial equity features. It is likely that the Convertible Preferred Securities would be treated as "equity interests" for purposes of the Plan Assets Regulation. In addition, there can be no assurance that any of the exceptions set forth in the Plan Assets Regulation will apply to the purchase of the Convertible Preferred Securities. Information regarding the potential applicability of any such exceptions will be provided in the Prospectus Supplement. Under the terms of the Plan Assets Regulation, if the Trust were deemed to hold Plan assets by reason of a Plan's investment in the Convertible Preferred Securities, such Plan assets would include an undivided interest in the assets held by the Trust, including the Convertible Debentures. In such event, any party exercising authority or control regarding the management or disposition of the Convertible Debentures may be deemed to be a Plan "fiduciary," and thus subject to the fiduciary requirements and prohibited transaction provisions of ERISA and the Code. Furthermore, inasmuch as the Trustee may become a fiduciary with respect to the ERISA Plans that purchase the Convertible Preferred Securities, there may be an improper delegation by such ERISA Plans of the responsibility to manage Plan assets. In addition, if McKesson or any affiliate is a Party-in-Interest or Disqualified Person with respect to an investing Plan, such Plan's investment could be deemed to constitute a transaction prohibited under Title I of ERISA or Section 4975 of the Code (e.g., the extension of credit between a Plan and a Party-in-Interest or Disqualified Person). Such transactions may, however, be subject to one or more statutory or administrative exemptions such as Prohibited Transaction Class Exemption ("PTCE") 90-1, which exempts certain transactions involving insurance company pooled separate accounts; PTCE 95-60, which exempts certain transactions involving insurance company general accounts; PTCE 91-38, which exempts certain transactions involving bank collective investment funds; PTCE 84-14, which exempts certain transactions effected on behalf of a Plan by a "qualified professional asset manager"; and PTCE 96-23, which exempts certain transactions effected on behalf of a Plan by an "in-house asset manager"; or pursuant to any other available exemption. Such exemptions may not, however, apply to all of the transactions that could be deemed prohibited transactions in connection with the Convertible Preferred Securities. Each purchaser of the Convertible Preferred Securities will be deemed to have represented and agreed that either (i) it is not purchasing the Convertible Preferred Securities with the assets of any Plan or (ii) one or more exemptions from the prohibited transaction rules of ERISA and the Code applies to such purchase, such that the 55 use of such assets to acquire and hold the Convertible Preferred Securities does not and will not constitute a non-exempt prohibited transaction for purposes of Section 406 of ERISA and Section 4975 of the Code. Any purchaser that is an insurance company using the assets of an insurance company general account should note that the Small Business Job Protection Act of 1996 added new Section 401(c) of ERISA relating to the status of the assets of insurance company general accounts under ERISA and Section 4975 of the Code. Pursuant to Section 401(c), the Department of Labor is required to issue final regulations (the "General Account Regulations") not later than December 31, 1997 with respect to insurance policies issued on or before December 31, 1998 that are supported by an insurer's general account. The General Account Regulations are to provide guidance on which assets held by the insurer constitute "plan assets" for purposes of the fiduciary responsibility provisions of ERISA and Section 4975 of the Code. Section 401(c) also provides that, except in the case of avoidance of the General Account Regulation and actions brought by the Secretary of Labor relating to certain breaches of fiduciary duties that also constitute breaches of state or federal criminal law, until the date that is 18 months after the General Account Regulations become final, no liability under the fiduciary responsibility and prohibited transaction provisions of ERISA and Section 4975 may result on the basis of a claim that the assets of the general account of an insurance company constitute the plan assets of any such plan. The plan asset status of insurance company separate accounts is unaffected by new Section 401(c) of ERISA, and separate account assets continue to be treated as the assets of any Plan invested in a separate account. Any Plan fiduciary that proposes to cause a Plan to purchase Convertible Preferred Securities should consult with its counsel as to the potential applicability of ERISA and the Code to such investment and whether any exemption from the prohibited transaction rules would be applicable and determine on its own whether all conditions of such exemption or exemptions are satisfied. Moreover, each Plan fiduciary should take into account, among other considerations, whether the fiduciary has the authority to make the investment; the composition of the Plan's portfolio with respect to diversification by type of asset; the Plan's funding objectives; the tax effects of the investment; and whether under the general fiduciary standards of investment prudence and diversification an investment in the Convertible Preferred Securities is appropriate for the Plan, taking into account the overall investment policy of the Plan and the composition of the Plan's investment portfolio. SELLING HOLDERS The Convertible Preferred Securities were originally issued by the Trust and sold by Morgan Stanley & Co. Incorporated (the "Initial Purchaser"), in a transaction exempt from the registration requirements of the Securities Act, to persons reasonably believed by such Initial Purchaser to be "qualified institutional buyers" (as defined in Rule 144A under the Securities Act), to certain qualified institutional buyers acting on behalf of institutional "accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act), or outside the United States to non-U.S. persons in offshore transactions in reliance on Regulation S under the Securities Act. The Selling Holders may from time to time offer and sell pursuant to this Prospectus any or all of the Convertible Preferred Securities, any Convertible Debentures and McKesson Common Stock issued upon conversion of the Preferred Securities. The term Selling Holder includes the record holders and the beneficial owners of the Convertible Preferred Securities and their transferees, pledgees, donees or other successors. The following table sets forth information with respect to the record holders of the Convertible Preferred Securities as of April 7, 1997.
NUMBER OF CONVERTIBLE PREFERRED SELLING HOLDER SECURITIES -------------- ----------- 1.CEDE & CO.................................................... 3,981,000 2.SALKELD & CO................................................. 13,400 3.MORGAN STANLEY & CO. INCORPORATED............................ 5,600 --------- Total........................................................ 4,000,000 =========
56 Because the Selling Holders may, pursuant to this Prospectus, offer all or some portion of the Convertible Preferred Securities, the Convertible Debentures or the McKesson Common Stock issuable upon conversion of the Convertible Preferred Securities, no estimate can be given as to the amount of the Convertible Preferred Securities, the Convertible Debentures or the McKesson Common Stock issuable upon conversion of the Convertible Preferred Securities that will be held by the Selling Holders upon termination of any such sales. In addition, the Selling Holders identified above may have sold, transferred or otherwise disposed of all or a portion of their Convertible Preferred Securities since the date on which they provided the information regarding their Convertible Preferred Securities, in transactions exempt from the registration requirements of the Securities Act. PLAN OF DISTRIBUTION The Selling Holders may offer the Offered Securities from time to time following effectiveness of the Registration Statement of which this Prospectus constitutes a part. The Selling Holders may sell the Offered Securities (i) to or through underwriters, brokers or dealers; (ii) directly to one or more other purchasers; (iii) through agents on a best-efforts basis or otherwise; or (iv) through a combination of any such methods of sale. The Offered Securities may be sold from time to time in one or more transactions at a fixed price or prices, which may be changed, or at market prices prevailing at the time of sale, at prices related to such prevailing market prices, or at negotiated prices. The Selling Holders and any underwriters, broker-dealers or agents that participate in the distribution of Offered Securities may be deemed to be "underwriters" within the meaning of the Securities Act and any profit on the sale of such securities and any discounts, commissions, concessions or other compensation received by any such underwriter, broker- dealer or agent may be deemed to be underwriting discounts and commissions under the Securities Act. At the time a particular offering of the Offered Securities is made, a Prospectus Supplement, if required, will be distributed which will set forth the aggregate amount and type of Offered Securities being offered and the terms of the offering, including the name or names of any underwriters, broker-dealers or agents, any discounts, commissions and other terms constituting compensation from the Selling Holders and any discounts, commissions or concessions allowed or reallowed or paid to broker-dealers. To comply with the securities laws of certain jurisdictions, if applicable, the Offered Securities will be offered or sold in such jurisdictions only through registered or licensed brokers or dealers. In addition, in certain jurisdictions the Offered Securities may not be offered or sold unless they have been registered or qualified for sale in such jurisdictions or any exemption from registration or qualification is available and is complied with. In order to facilitate the offering of the Offered Securities, the underwriters, if any, may engage in transactions that stabilize, maintain or otherwise affect the price of the Offered Securities. Specifically, the underwriters, if any, may overallot in connection with the offering, creating a short position in the Offered Securities for their own account. In addition, to cover overallotments or to stabilize the price of the Offered Securities, the underwriters, if any, may bid for, and purchase, the Offered Securities in the open market. Finally, the underwriting syndicate, if any, may reclaim selling concessions allowed to an underwriter or a dealer for distributing the Offered Securities in the offering, if the syndicate repurchases previously distributed Offered Securities in transactions to cover syndicate short positions, in stabilization transactions or otherwise. Any of these activities may stabilize or maintain the market price of the Offered Securities above independent market levels. The underwriters, if any, are not required to engage in these activities, and may end any of these activities at any time. Pursuant to the Registration Rights Agreement, all expenses of the registration of the Offered Securities will be paid by the Company, including, without limitation, Commission filing fees and expenses of compliance with state securities or "blue sky" laws; provided, however, that the Selling Holders will pay all underwriting discounts and selling commissions, if any. The Selling Holders will be indemnified by the Company and the Trust, jointly and severally, against certain civil liabilities, including certain liabilities under the Securities Act, or will be entitled to contribution in connection therewith. The Company and the Trust will be indemnified by the Selling Holders severally against certain civil liabilities, including certain liabilities under the Securities Act, or will be entitled to contribution in connection therewith. 57 EXPERTS The consolidated financial statements of McKesson and the related financial statement schedule incorporated in this Prospectus by reference from the Company's Annual Report on Form 10-K/A for the year ended March 31, 1996 and the consolidated financial statements of FoxMeyer Corporation for the year ended March 31, 1996 incorporated in this Prospectus by reference from the Company's Current Report on Form 8-K/A filed with the Commission on April 28, 1997 have been audited by Deloitte & Touche LLP, independent auditors, as stated in their reports incorporated herein by reference (which report dated May 13, 1996 (December 31, 1996 as to Notes 8 and 17) on the Company's consolidated financial statements expresses an unqualified opinion and includes an explanatory paragraph relating to a change in the Company's method of accounting for post employment benefits to conform with Statement of Financial Accounting Standards No. 112 and report on FoxMeyer Corporation's consolidated financial statements dated June 28, 1996 (March 18, 1997 as to paragraph seven of Note Q), which report expresses an unqualified opinion and includes an explanatory paragraph relating to the sale of the principal assets of FoxMeyer Corporation and its Chapter 7 bankruptcy filing. Such consolidated financial statements and financial statement schedule have been so incorporated in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. LEGAL MATTERS Certain legal matters with respect to the Convertible Preferred Securities, the Convertible Debentures and the Guarantee being offered hereby and the Common Stock issuable upon conversion of the Convertible Debentures and certain United States federal income taxation matters have been passed upon for McKesson and the Trust by Skadden, Arps, Slate, Meagher & Flom LLP. 58 - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY MCKESSON FINANCING TRUST, MCKESSON CORPORATION, THE SELLING HOLDERS OR ANY OF THEIR AGENTS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF MCKESSON FINANCING TRUST OR MCKESSON CORPORATION SINCE THE DATE HEREOF. ---------------- TABLE OF CONTENTS
PAGE ---- Available Information...................................................... 4 Incorporation of Certain Documents by Reference............................ 5 Special Note Regarding Forward-Looking Statements 5 Risk Factors............................................................... 6 The Company................................................................ 10 Use of Proceeds............................................................ 13 Accounting Treatment....................................................... 13 Ratio of Earnings to Fixed Charges......................................... 13 McKesson Financing Trust................................................... 14 Description of the Convertible Preferred Securities........................ 15 Description of the Guarantee............................................... 33 Description of the Convertible Debentures.................................. 36 Effect of Obligations Under the Convertible Debentures and the Guarantee... 46 Description of Capital Stock............................................... 47 United States Federal Income Taxation...................................... 51 ERISA Considerations....................................................... 55 Selling Holders............................................................ 56 Plan of Distribution....................................................... 57 Experts.................................................................... 58 Legal Matters.............................................................. 58
- - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- 4,000,000 CONVERTIBLE PREFERRED SECURITIES MCKESSON FINANCING TRUST 5% TRUST CONVERTIBLE PREFERRED SECURITIES GUARANTEED TO THE EXTENT SET FORTH HEREIN BY, MCKESSON CORPORATION ---------------- PROSPECTUS ---------------- - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following expenses (other than the SEC filing fee) are estimated. SEC registration fee......................................... $ 68,181.82 Printing and engraving expenses.............................. 55,000.00 Legal fees and expenses...................................... 30,000.00 Accounting fees and expenses................................. 10,000.00 Transfer agent and trustee fees.............................. 12,500.00 Information agent fees and expenses.......................... 5,000.00 Miscellaneous................................................ 9,318.18 ----------- Total..................................................... $190,000.00 ===========
ITEM 15. INDEMNIFICATION OF DIRECTOR AND OFFICERS. Article VIII of the By-Laws of the Company, in accordance with the provisions of Section 145 of the General Corporation Law of Delaware (the "Delaware Corporation Law"), provides that the Company shall indemnify any person in connection with any threatened, pending or completed legal proceeding (other than a legal proceeding by or in the right of the Company) by reason of the fact that he is or was a director or officer of the Company or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership or other enterprise against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with such legal proceeding if he acted in good faith and in a manner that he reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, if he had no reasonable cause to believe that his conduct was unlawful. If the legal proceeding is by or in the right of the Company, the director or officer may be indemnified by the Company against expenses (including attorneys' fees) actually and reasonably incurred in connection with the defense or settlement of such legal proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company, except that he may not be indemnified in respect of any claim, issue or matter as to which he shall have been adjudged to be liable to the Company unless a court determines otherwise. Article VIII of the Company's By-Laws allows the Company to maintain director and officer liability insurance on behalf of any person who is or was a director or officer of the Company or such person who serves or served as director, officer, employee or agent of another corporation, partnership or other enterprise at the request of the Company. Article VI of the Company's Certificate, in accordance with Section 102(b)(7) of the Delaware Corporation Law, provides that no director of the Company shall be personally liable to the Company or its stockholders for monetary damages for any breach of his fiduciary duty as a director; provided, however, that such clause shall not apply to any liability of a director (1) for any breach of his duty of loyalty to the Company or its stockholders, (2) for acts or omissions that are not in good faith or involve intentional misconduct or a knowing violation of the law, (3) under Section 174 of the Delaware Corporation Law, or (4) for any transaction from which the director derived an improper personal benefit. The Declaration of the Trust limits the liability to the Trust and certain other persons, and provides for the indemnification by the Company of Trustees, their officers, directors and employees and certain other persons. II-1 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. A. EXHIBITS The Exhibits listed in the following Exhibit Index are filed as part of the Registration Statement:
EXHIBIT NUMBER DESCRIPTION ------- ----------- 4.1 Certificate of Trust of McKesson Financing Trust. 4.2 Amended and Restated Declaration of Trust of McKesson Financing Trust, dated as of February 20, 1997, among McKesson Corporation, as Sponsor, The First National Bank of Chicago, as Institutional Trustee, First Chicago Delaware Inc., as Delaware Trustee and William A. Armstrong, Ivan D. Meyerson and Nancy A. Miller, as Regular Trustees. 4.3 Indenture for the 5% Convertible Junior Subordinated Debentures, dated as of February 20, 1997, among McKesson Corporation and The First National Bank of Chicago, as Debt Trustee. 4.4 Form of 5% Trust Convertible Preferred Securities (included in Exhibit A-1 to Exhibit 4.2 above). 4.5 Form of 5% Convertible Junior Subordinated Debentures (included in Exhibit A to Exhibit 4.3 above). 4.7 McKesson Corporation Preferred Securities Guarantee Agreement, dated as of February 20, 1997, between McKesson Corporation, as Guarantor, and The First National Bank of Chicago, as Preferred Guarantor Trustee. 4.8 Restated Certificate of Incorporation of the Company (Exhibit 3.1(1)). 4.9 Restated By-Laws of the Company, as amended through April 1, 1997 (Exhibit 4.2(2)). 4.10 Rights Agreement, dated as of September 14, 1994, by and between the Company and First Chicago Trust Company of New York, as Rights Agent (Exhibit 4.1(3)). 5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to the legality of the Convertible Preferred Securities, Convertible Junior Subordinated Debentures, Guarantee and Common Stock of McKeeson Corporation being registered hereby. 8.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to certain tax matters. 10.1 Registration Rights Agreement, dated February 20, 1997, among McKesson Corporation, McKesson Financing Trust and Morgan Stanley & Co. Incorporated, as Initial Purchaser. 12.1 Ratio of Earnings to Fixed Charges of McKesson Corporation. 23.1 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibits 5.1 and 8.1). 23.2 Independent Auditors' Consent. 24 Power of Attorney. 25.1 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939, as amended, of The First National Bank of Chicago, as Debt Trustee under the 5% Convertible Junior Subordinated Debenture Indenture. 25.2 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939, as amended, of The First National Bank of Chicago, as Institutional Trustee under the Amended and Restated Declaration of Trust. 25.3 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939, as amended, of The First National Bank of Chicago, as Preferred Guarantee Trustee under the Guarantee. - - -------- (1) Incorporated by reference to designated exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1996, as amended by Amendment No. 1 on Form 10-K/A, filed on February 13, 1997. (2) Incorporated by reference to designated exhibit to the Company's Registration Statement on Form S-3 filed with the Commission on April 29, 1997, Registration No. 333-26103. (3) Incorporated by reference to designated exhibit to Amendment No. 3 to the Company's Registration Statement on Form 10 filed with the Commission on October 27, 1994, File No. 1-13252.
II-2 B. FINANCIAL STATEMENTS AND SCHEDULES All schedules for which provision is made in Regulation S-X of the Securities and Exchange Commission either are not required under the related instructions or the information required to be included therein has been included in the financial statements of the Company. ITEM 17. UNDERTAKINGS. (a) The undersigned registrant hereby undertakes as follows: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the lower high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; provided, however, that paragraphs (a)(l)(i) and (a)(l)(ii) do not apply if the registration statement is on Form S-3, Form S-8 or Form F-3, and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities which remain unsold at the termination of the offering. (b) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. II-3 (d) The undersigned registrant hereby undertakes to file an application for the purpose of determining the eligibility of the trustee to act under subsection (a) of Section 310 of the Trust Indenture Act in accordance with the rules and regulations prescribed by the Commission under Section 305(b)(2) of the Trust Indenture Act. (e) The Company hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of Prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of Prospectus filed by the Registrants pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective; and (2) For purposes of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of Prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF SAN FRANCISCO, STATE OF CALIFORNIA, ON MAY 2, 1997. McKESSON CORPORATION /s/ Richard H. Hawkins By: _________________________________ Name:Richard H. Hawkins Title: Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Act of 1933, the registration statement has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on May 2, 1997. SIGNATURE TITLE
* Chairman of the Board - - ------------------------------------- ALAN SEELENFREUND /s/ Mark A. Pulido President and Chief Executive - - ------------------------------------- Officer MARK A. PULIDO and Director (principal executive officer) /s/ Richard H. Hawkins Vice President and Chief - - ------------------------------------- Financial Officer RICHARD H. HAWKINS (principal financial officer) /s/ Heidi E. Yodowitz Controller - - ------------------------------------- (principal accounting officer) HEIDI E. YODOWITZ * Director - - ------------------------------------- MARY G.F. BITTERMAN * Director - - ------------------------------------- TULLY M. FRIEDMAN * Director - - ------------------------------------- JOHN M. PIETRUSKI * Director - - ------------------------------------- CARL E. REICHARDT * Director - - ------------------------------------- JANE E. SHAW * Director - - ------------------------------------- ROBERT H. WATERMAN, JR. /s/ Nancy A. Miller *By: ________________________________ NANCY A. MILLER ATTORNEY-IN-FACT
II-5 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, MCKESSON FINANCING TRUST CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF SAN FRANCISCO, STATE OF CALIFORNIA, ON MAY 2, 1997. McKESSON FINANCING TRUST By __________________________________ /s/ Ivan D. Meyerson Ivan D. Meyerson Trustee By __________________________________ /s/ Nancy A. Miller Nancy A. Miller Trustee By __________________________________ /s/ William A. Armstrong William A. Armstrong Trustee II-6 EX-4.1 2 CERTIFICATE OF TRUST Exhibit 4.1 ----------- CERTIFICATE OF TRUST The undersigned, the trustees of McKesson Financing Trust, desiring to form a business trust pursuant to Delaware Business Trust Act, 12 Del. C. (S) ---- -- 3801 et seq., hereby certify as follows: -- --- 1. The name of the business trust being formed hereby (the "Trust") is "McKesson Financing Trust". 2. The name and business address of the trustee of the Trust which has its principal place of business in the State of Delaware is as follows: First Chicago Delaware Inc. 300 King Street Wilmington, DE 19801 3. This Certificate of Trust shall be effective as of the date of its filing. Dated: February 5, 1997 /s/ William A. Armstrong ----------------------------------- Name: William A. Armstrong Title: Regular Trustee /s/ Ivan D. Meyerson ----------------------------------- Name: Ivan D. Meyerson Title: Regular Trustee /s/ Nancy Miller ----------------------------------- Name: Nancy Miller Title: Regular Trustee THE FIRST NATIONAL BANK OF CHICAGO, as Institutional Trustee By: /s/ Richard D. Manella ------------------------------- Name: Richard D. Manella Title: Vice President FIRST CHICAGO DELAWARE INC., as Delaware Trustee By: /s/ Richard D. Manella ------------------------------- Name: Richard D. Manella Title: Vice President 2 EX-4.2 3 AMENDED AND RESTATED DECLARATION OF TRUST Exhibit 4.2 ----------- - - -------------------------------------------------------------------------------- AMENDED AND RESTATED DECLARATION OF TRUST MCKESSON FINANCING TRUST DATED AS OF FEBRUARY 20, 1997 - - -------------------------------------------------------------------------------- TABLE OF CONTENTS
Page ---- ARTICLE I INTERPRETATION AND DEFINITIONS SECTION 1.1. Definitions.................................................. 1 ARTICLE II TRUST INDENTURE ACT SECTION 2.1. Trust Indenture Act: Application............................. 8 SECTION 2.2. Lists of Holders of Securities............................... 9 SECTION 2.3. Reports by the Institutional Trustee......................... 9 SECTION 2.4. Periodic Reports to Institutional Trustee.................... 9 SECTION 2.5. Evidence of Compliance with Conditions Precedent............. 10 SECTION 2.6. Events of Default; Waiver.................................... 10 SECTION 2.7. Event of Default; Notice..................................... 11 ARTICLE III ORGANIZATION SECTION 3.1. Name......................................................... 12 SECTION 3.2. Office....................................................... 12 SECTION 3.3. Purpose...................................................... 12 SECTION 3.4. Authority.................................................... 13 SECTION 3.5. Title to Property of the Trust............................... 13 SECTION 3.6. Powers and Duties of the Regular Trustees.................... 13 SECTION 3.7. Prohibition of Actions by the Trust and the Trustees......... 17 SECTION 3.8. Powers and Duties of the Institutional Trustee............... 17 SECTION 3.9. Certain Duties and Responsibilities of the Institutional Trustee..................................................... 19 SECTION 3.10. Certain Rights of Institutional Trustee...................... 21 SECTION 3.11. Delaware Trustee............................................. 23 SECTION 3.12. Execution of Documents....................................... 23 SECTION 3.13. Not Responsible for Recitals or Issuance of Securities....... 24 SECTION 3.14. Duration of Trust............................................ 24 SECTION 3.15. Mergers...................................................... 24
i ARTICLE IV SPONSOR SECTION 4.1. Sponsor's Purchase of Common Securities...................... 25 SECTION 4.2. Responsibilities of the Sponsor.............................. 26 ARTICLE V TRUSTEES SECTION 5.1. Number of Trustees........................................... 27 SECTION 5.2. Delaware Trustee............................................. 27 SECTION 5.3. Institutional Trustee; Eligibility........................... 27 SECTION 5.4. Certain Qualifications of Regular Trustees and Delaware Trustee Generally........................................... 28 SECTION 5.5. Regular Trustees........................... 28 SECTION 5.6. Appointment, Removal and Resignation of Trustees............. 29 SECTION 5.7. Vacancies Among Trustees..................................... 30 SECTION 5.8. Effect of Vacancies.......................................... 30 SECTION 5.9. Meetings..................................................... 30 SECTION 5.10. Delegation of Power.......................................... 31 SECTION 5.11. Merger, Conversion, Consolidation or Succession to Business.................................................... 31 ARTICLE VI DISTRIBUTIONS SECTION 6.1. Distributions................................................ 32 ARTICLE VII ISSUANCE OF SECURITIES SECTION 7.1. General Provisions Regarding Securities...................... 32 SECTION 7.2. Execution and Authentication................................. 32 SECTION 7.3. Form and Dating.............................................. 33 SECTION 7.4. Paying Agent................................................. 34
ii ARTICLE VIII TERMINATION OF TRUST SECTION 8.1. Termination of Trust......................................... 34 ARTICLE IX TRANSFER OF INTERESTS SECTION 9.1. Transfer of Securities....................................... 35 SECTION 9.2. Transfer of Certificates..................................... 38 SECTION 9.3. Deemed Security Holders...................................... 38 SECTION 9.4. Book Entry Interests......................................... 38 SECTION 9.5. Notices to Clearing Agency................................... 41 SECTION 9.6. Appointment of Successor Clearing Agency..................... 41 SECTION 9.7. Definitive Convertible Preferred Security Certificates Under Certain Circumstances....................................... 41 SECTION 9.8. Mutilated, Destroyed, Lost or Stolen Certificates............ 42 ARTICLE X LIMITATION OF LIABILITY OF HOLDERS OF SECURITIES, TRUSTEES OR OTHERS SECTION 10.1. Liability.................................................... 43 SECTION 10.2. Exculpation.................................................. 43 SECTION 10.3. Fiduciary Duty............................................... 44 SECTION 10.4. Indemnification.............................................. 44 SECTION 10.5. Outside Business............................................. 47 ARTICLE XI ACCOUNTING SECTION 11.1. Fiscal Year.................................................. 48 SECTION 11.2. Certain Accounting Matters................................... 48 SECTION 11.3. Banking...................................................... 48 SECTION 11.4. Withholding.................................................. 49
iii ARTICLE XII AMENDMENTS AND MEETINGS SECTION 12.1. Amendments................................................... 49 SECTION 12.2. Meetings of the Holders of Securities; Action by Written Consent..................................................... 51 ARTICLE XIII REPRESENTATIONS OF INSTITUTIONAL TRUSTEE AND DELAWARE TRUSTEE SECTION 13.1. Representations and Warranties of Institutional Trustee...... 53 SECTION 13.2. Representations and Warranties of Delaware Trustee........... 53 ARTICLE XIV MISCELLANEOUS SECTION 14.1. Notices...................................................... 54 SECTION 14.2. Governing Law................................................ 55 SECTION 14.3. Intention of the Parties..................................... 55 SECTION 14.4. Headings..................................................... 56 SECTION 14.5. Successors and Assign........................................ 56 SECTION 14.6. Partial Enforceability....................................... 56 SECTION 14.7. Counterparts................................................. 56
iv CROSS-REFERENCE TABLE*
Section of Trust Indenture Act Section of of 1939, as amended Declaration - - ------------------- ----------- 310(a) ....................................................... 5.3(a) 310(c) ....................................................... Inapplicable 311(c) ....................................................... Inapplicable 312(a) ....................................................... 2.2(a) 312(b) ....................................................... 2.2(b) 313 ....................................................... 2.3 314(a) ....................................................... 2.4 314(b) ....................................................... Inapplicable 314(c) ....................................................... 2.5 314(d) ....................................................... Inapplicable 314(f) ....................................................... Inapplicable 315(a) ....................................................... 3.9(b) 315(c) ....................................................... 3.9(a) 315(d) ....................................................... 3.9(a) 316(a) ....................................................... Annex I 316(c) ....................................................... 3.6(e)
__________ * This Cross-Reference table does not constitute part of the Declaration and shall not affect the interpretation of any of its terms or provisions. v AMENDED AND RESTATED DECLARATION OF TRUST OF McKESSON FINANCING TRUST February 20, 1997 AMENDED AND RESTATED DECLARATION OF TRUST ("Declaration") dated and effective as of February 20, 1997, by the Trustees (as defined herein), the Sponsor (as defined herein) and by the holders, from time to time, of undivided beneficial interests in the Trust to be issued pursuant to this Declaration; WHEREAS, the Trustees and the Sponsor established McKesson Financing Trust (the "Trust"), a trust under the Delaware Business Trust Act pursuant to a Declaration of Trust dated as of February 5, 1997 (the "Original Declaration"), and a Certificate of Trust filed with the Secretary of State of the State of Delaware on February 5, 1997, for the sole purpose of issuing and selling certain securities representing undivided beneficial interests in the assets of the Trust and investing the proceeds thereof in certain Debentures (as defined herein) of the Debenture Issuer (as defined herein); WHEREAS, as of the date hereof, no interests in the Trust have been issued; and WHEREAS, all of the Trustees and the Sponsor, by this Declaration, amend and restate each and every term and provision of the Original Declaration; NOW, THEREFORE, it being the intention of the parties hereto to continue the Trust as a business trust under the Business Trust Act and that this Declaration constitutes the governing instrument of such business trust, the Trustees declare that all assets contributed to the Trust will be held in trust for the benefit of the holders, from time to time, of the securities representing undivided beneficial interests in the assets of the Trust issued hereunder, subject to the provisions of this Declaration. ARTICLE I INTERPRETATION AND DEFINITIONS SECTION 1.1. Definitions. Unless the context otherwise requires: (a) Capitalized terms used in this Declaration but not defined in the preamble above have the respective meanings assigned to them in this Section 1.1; (b) a term defined anywhere in this Declaration has the same meaning throughout; 1 (c) all references to "the Declaration" or "this Declaration" are to this Declaration as modified, supplemented or amended from time to time; (d) all references in this Declaration to Articles and Sections and Annexes and Exhibits are to Articles and Sections of and Annexes and Exhibits of or to this Declaration unless otherwise specified; (e) a term defined in the Trust Indenture Act has the same meaning when used in this Declaration unless otherwise defined in this Declaration or unless the context otherwise requires; and (f) a reference to the singular includes the plural and vice versa. "144A Global Certificate" has the meaning assigned such term in Section 9.4(b). "Affiliate" has the same meaning as given to that term in Rule 405 of the Securities Act or any successor rule thereunder. "Agent" means any Paying Agent or Conversion Agent. "Authorized Officer" of a Person means any Person that is authorized to bind such Person. "Book Entry Interest" means a beneficial interest in a Global Certificate, ownership and transfers of which shall be maintained and made through book entries by a Clearing Agency as described in Section 9.4. "Business Day" means any day other than a Saturday, Sunday or any other day on which banking institutions in New York, New York or Wilmington, Delaware are permitted or required by any applicable law to close. "Business Trust Act" means Chapter 38 of Title 12 of the Delaware Code, 12 Del. Code (S)3801 et seq., as it may be amended from time to time, or any successor legislation. "Certificate" means a Common Security Certificate or a Convertible Preferred Security Certificate. "Clearing Agency" means an organization registered as a "Clearing Agency" pursuant to Section 17A of the Exchange Act that is acting as depositary for the Convertible Preferred Securities and in whose name or in the name of a nominee of that organization shall be registered a Global Certificate and which shall undertake to effect book entry transfers and pledges of the Convertible Preferred Securities. "Clearing Agency Participant" means a broker, dealer, bank, other financial institution or other Person for whom from time to time the Clearing Agency effects book entry transfers and pledges of securities deposited with the Clearing Agency. 2 "Closing Date" means February 20, 1997. "Closing Price" has the meaning specified in Annex I. "Code" means the Internal Revenue Code of 1986, as amended from time to time, or any successor legislation. "Commission" means the Securities and Exchange Commission. "Common Securities Guarantee" means the guarantee agreement to be dated as of February 20, 1997 of the Sponsor in respect of the Common Securities. "Common Securities Registration Rights Agreement" means the Registration Rights Agreement dated February 20, 1997, between McKesson Corporation and the Trust, relating to the Common Securities. "Common Security" has the meaning specified in Section 7.1. "Common Security Certificate" means a definitive certificate in fully registered form representing a Common Security substantially in the form of Exhibit A-2. "Common Stock" means the common stock of McKesson Corporation, a Delaware corporation, par value $.01 per share, and any other shares of common stock as may constitute "Common Stock" under the Indenture. "Company Indemnified Person" means (a) any Regular Trustee; (b) any Affiliate of any Regular Trustee; (c) any officers, directors, shareholders, members, partners, employees, representatives or agents of any Regular Trustee; or (d) any officer, employee or agent of the Trust or its Affiliates. "Conversion Agent" has the meaning specified in Section 7.4. "Convertible Preferred Securities Guarantee" means the guarantee agreement to be dated as of February 20, 1997, of the Sponsor in respect of the Convertible Preferred Securities. "Convertible Preferred Security" has the meaning specified in Section 7.1. "Convertible Preferred Security Beneficial Owner" means, with respect to a Book Entry Interest, a Person who is the beneficial owner of such Book Entry Interest, as reflected on the books of the Clearing Agency, or on the books of a Person maintaining an account with such Clearing Agency (directly as a Clearing Agency Participant or as an indirect participant, in each case in accordance with the rules of such Clearing Agency). "Convertible Preferred Security Certificate" means a certificate representing a Preferred Security substantially in the form of Exhibit A-1. 3 "Corporate Trust Office" means the office of the Institutional Trustee at which the corporate trust business of the Institutional Trustee shall, at any particular time, be principally administered, which office at the date of execution of this Agreement is located at One First National Plaza, Suite 0126, Chicago, Illinois 60670-0126, Attention: Corporate Trust Services Division. "Covered Person" means: (a) any officer, director, shareholder, partner, member, representative, employee or agent of (i) the Trust or (ii) the Trust's Affiliates; and (b) any Holder of Securities. "Debenture Issuer" means McKesson Corporation, a Delaware corporation, in its capacity as issuer of the Debentures under the Indenture. "Debenture Trustee" means The First National Bank of Chicago, as trustee under the Indenture until a successor is appointed thereunder, and thereafter means such successor trustee. "Debentures" means the series of Debentures to be issued by the Debenture Issuer under the Indenture to be held by the Institutional Trustee, a specimen certificate for such series of Debentures being Exhibit B. "Delaware Trustee" has the meaning set forth in Section 5.1. "Definitive Convertible Preferred Security Certificates" has the meaning set forth in Section 9.4. "Distribution" means a distribution payable to Holders of Securities in accordance with Section 6.1. "DTC" means The Depository Trust Company, the initial Clearing Agency. "Event of Default" in respect of the Securities means an Event of Default (as defined in the Indenture) has occurred and is continuing in respect of the Debentures. "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, or any successor legislation. "Fiduciary Indemnified Person" has the meaning set forth in Section 10.4(b). "Global Certificate" has the meaning set forth in Section 9.4(b). "Holder" means a Person in whose name a Certificate representing a Security is registered, such Person being a beneficial owner within the meaning of the Business Trust Act. "Indemnified Person" means each Company Indemnified Person and each Fiduciary Indemnified Person. 4 "Indenture" means the Indenture dated as of February 20, 1997 between the Debenture Issuer and the Debenture Trustee. "Institutional Trustee" means the Trustee meeting the eligibility requirements set forth in Section 5.3. "Institutional Trustee Account" has the meaning set forth in Section 3.8(c). "Investment Company" means an investment company as defined in the Investment Company Act. "Investment Company Act" means the Investment Company Act of 1940, as amended from time to time, or any successor legislation. "Investment Company Event" has the meaning set forth in Annex I hereto. "Legal Action" has the meaning set forth in Section 3.6(g). "Liquidated Distribution" has the meaning specified in the terms of the Securities as set forth in Annex I. "Majority in liquidation amount of the Securities" means, except as provided in the terms of the Convertible Preferred Securities or by the Trust Indenture Act, Holder(s) of outstanding Securities voting together as a single class or, as the context may require, Holders of outstanding Convertible Preferred Securities or Holders of outstanding Common Securities voting separately as a class, who are the record owners of more than 50% of the aggregate liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accrued and unpaid Distributions to the date upon which the voting percentages are determined) of all outstanding Securities of the relevant class. "Ministerial Action" has the meaning set forth in the terms of the Securities as set forth in Annex I. "Non-U.S. Person" means a Person other than a U.S. person (as such term is defined in Regulation S). "Offered Securities" means the Convertible Preferred Securities, the Convertible Preferred Securities Guarantee, the Debentures, the shares of Common Stock issuable upon conversion of the Debentures and the Rights attached thereto. "Officers' Certificate" means, with respect to any Person, a certificate signed by two Authorized Officers of such Person. Any Officers' Certificate delivered with respect to compliance with a condition or covenant provided for in this Declaration shall include: (a) a statement that each officer signing the Certificate has read the covenant or condition and the definitions relating thereto; 5 (b) a brief statement of the nature and scope of the examination or investigation undertaken by each officer in rendering the Certificate; (c) a statement that each such officer has made such examination or investigation as, in such officer's opinion, is necessary to enable such officer to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of each such officer, such condition or covenant has been complied with. "Option Closing Date" means the date of closing of any sale of Additional Securities (as defined in the Placement Agreement). "Paying Agent" has the meaning specified in Section 3.8(h). "Payment Amount" has the meaning set forth in Section 6.1. "Person" means any individual, corporation, estate, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated association, or government or any agency or political subdivision thereof, or any other entity of whatever nature. "Placement Agreement" means the Placement Agreement for the offering and sale of Convertible Preferred Securities in the form of Exhibit C. "PORTAL Market" means the Private Offerings, Resales and Trading through Automated Linkages Market operated by the National Association of Securities Dealers, Inc. or any successor thereto. "Preferred Securities Registration Rights Agreement" means the Registration Rights Agreement dated February 20, 1997, among McKesson Corporation, the Trust and Morgan Stanley & Co. Incorporated, as Initial Purchaser, relating to the Convertible Preferred Securities. "QIB" means a "qualified institutional buyer" as defined in Rule 144A. "Quorum" means a majority of the Regular Trustees or, if there are only two Regular Trustees, both of them. "Registration Rights Agreements" means the Preferred Securities Registration Rights Agreement and the Common Securities Registration Rights Agreement. "Regular Trustee" has the meaning set forth in Section 5.1. "Regulation S" means Regulation S under the Securities Act or any successor provision. "Regulation S Global Certificate" has the meaning assigned such term in Section 9.4(b). 6 "Related Party" means, with respect to the Sponsor, any direct or indirect wholly owned subsidiary of the Sponsor or any other Person that owns, directly or indirectly, 100% of the outstanding voting securities of the Sponsor. "Responsible Officer" means, with respect to the Institutional Trustee, any officer within the Corporate Trust Office of the Institutional Trustee, including any vice president, any assistant vice president, any assistant secretary, the treasurer, any assistant treasurer or other officer of the Corporate Trust Office of the Institutional Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of that officer's knowledge of and familiarity with the particular subject. "Restricted Security" has the meaning specified in Section 9.1(d). "Rights" has the meaning specified in the Rights Agreement, dated September 14, 1994, between the Sponsor and The First Chicago Trust Company of New York. "Rule 144A" means Rule 144A as promulgated under the Securities Act, or any successor rule. "Rule 144(k)" means Rule 144(k) as promulgated under the Securities Act, or any successor rule. "Rule 3a-5" means Rule 3a-5 under the Investment Company Act or any successor rule. "Securities" means the Common Securities and the Convertible Preferred Securities. "Securities Act" means the Securities Act of 1933, as amended from time to time, or any successor legislation. "Securities Guarantees" means the Common Securities Guarantee and the Convertible Preferred Securities Guarantee. "Special Event" has the meaning set forth in Annex I hereto. "Sponsor" or "McKesson" means McKesson Corporation, a Delaware corporation, or any successor entity in a merger, consolidation or amalgamation, in its capacity as sponsor of the Trust. "Super Majority" has the meaning set forth in Section 2.6(a)(ii). "Tax Event" has the meaning set forth in Annex I hereto. "Transfer Restriction Termination Date" means the earlier of the first date on which (i) the Securities and any Common Stock issued or issuable upon the conversion or exchange thereof (other than (A) Securities acquired by the Trust or any Affiliate thereof and (B) Common 7 Stock issued upon the conversion or exchange of any Security described in clause (A) above) may be sold pursuant to Rule 144(k) and (ii) all the Securities have been sold pursuant to an effective registration statement. "Treasury Regulations" means the income tax regulations, including temporary and proposed regulations, promulgated under the Code by the United States Treasury. "Trustee" or "Trustees" means each Person who has signed this Declaration as a trustee, so long as such Person shall continue in office in accordance with the terms hereof, and all other Persons who may from time to time be duly appointed, qualified and serving as Trustees in accordance with the provisions hereof, and references herein to a Trustee or the Trustees shall refer to such Person or Persons solely in their capacity as trustees hereunder. "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended from time to time, or any successor legislation. "Trust Property" means (i) the Debentures, (ii) any cash on deposit in, or owing to, the Institutional Trustee Account and (iii) all proceeds and rights in respect of the foregoing to be held by the Institutional Trustee pursuant to the terms of this Declaration for the benefit of the Securityholders. "25% in liquidation amount of the Securities" means, except as provided in the terms of the Convertible Preferred Securities or by the Trust Indenture Act, Holder(s) of outstanding Securities voting together as a single class or, as the context may require, Holders of outstanding Convertible Preferred Securities or Holders of outstanding Common Securities voting separately as a class, who are the record owners of 25% or more of the aggregate liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accrued and unpaid Distributions to the date upon which the voting percentages are determined) of all outstanding Securities of the relevant class. ARTICLE II TRUST INDENTURE ACT SECTION 2.1. Trust Indenture Act: Application. (a) This Declaration is subject to the provisions of the Trust Indenture Act that are required to be part of this Declaration and shall, to the extent applicable, be governed by such provisions. The Trust Indenture Act shall be applicable to this Declaration except as otherwise set forth herein, as if the Securities had been sold pursuant to an effective registration statement. (b) The Institutional Trustee shall be the only Trustee which is a Trustee for the purposes of the Trust Indenture Act. 8 (c) If, and to the extent that, any provision of this Declaration limits, qualifies or conflicts with the duties imposed by (S)(S) 310 to 317, inclusive, of the Trust Indenture Act, such duties imposed under the Trust Indenture Act shall control. (d) The application of the Trust Indenture Act to this Declaration shall not affect the nature of the Securities as equity securities representing undivided beneficial interests in the assets of the Trust. SECTION 2.2. Lists of Holders of Securities. (a) Each of the Sponsor and the Regular Trustees on behalf of the Trust shall provide the Institutional Trustee (i) within 14 days after each record date for payment of Distributions, a list in such form as the Institutional Trustee may reasonably require of the names and addresses of the Holders of the Securities ("List of Holders") as of such record date, provided that, neither the Sponsor nor the Regular Trustees on behalf of the Trust shall be obligated to provide such List of Holders at any time the List of Holders does not differ from the most recent List of Holders given to the Institutional Trustee by the Sponsor and the Regular Trustees on behalf of the Trust, and (ii) at any other time, within 30 days of receipt by the Trust of a written request for a List of Holders as of a date no more than 14 days before such List of Holders is given to the Institutional Trustee. The Institutional Trustee shall preserve, in as current a form as is reasonably practicable, all information contained in the Lists of Holders given to it or which it receives in the capacity as Paying Agent (if acting in such capacity), provided that, the Institutional Trustee may destroy any List of Holders previously given to it on receipt of a new List of Holders. (b) The Institutional Trustee shall comply with its obligations under (S)(S) 311(a), 311(b) and 312(b) of the Trust Indenture Act. SECTION 2.3. Reports by the Institutional Trustee. Within 60 days after May 15 of each year, the Institutional Trustee shall provide to the Holders of the Convertible Preferred Securities such reports as are required by (S) 313 of the Trust Indenture Act, if any, in the form and in the manner provided by (S) 313 of the Trust Indenture Act. The Institutional Trustee shall also comply with the requirements of (S) 313(d) of the Trust Indenture Act. SECTION 2.4. Periodic Reports to Institutional Trustee. Each of the Sponsor and the Regular Trustees on behalf of the Trust shall provide to the Institutional Trustee such documents, reports and information as required by (S) 314 (if any) and the compliance certificate required by (S) 314 of the Trust Indenture Act in the form, in the manner and at the times required by (S) 314 of the Trust Indenture Act. Delivery of such reports, information and documents to the Institutional Trustee is for informational purposes only and the Institutional Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information 9 contained therein, including the Sponsor's compliance with any of its covenants hereunder (as to which the Institutional Trustee is entitled to rely exclusively on Officers' Certificates). SECTION 2.5. Evidence of Compliance with Conditions Precedent. Each of the Sponsor and the Regular Trustees on behalf of the Trust shall provide to the Institutional Trustee such evidence of compliance with any conditions precedent, if any, provided for in this Declaration that relate to any of the matters set forth in (S) 314(c) of the Trust Indenture Act. Any certificate or opinion required to be given by an officer pursuant to (S) 314(c)(1) may be given in the form of an Officers' Certificate. SECTION 2.6. Events of Default; Waiver. (a) The Holders of a Majority in liquidation amount of Convertible Preferred Securities may by vote on behalf of the Holders of all of the Convertible Preferred Securities, waive any past Event of Default in respect of the Convertible Preferred Securities and its consequences, provided that, if the underlying Event of Default under the Indenture: (i) is not waivable under the Indenture, the Event of Default under the Declaration shall also not be waivable; or (ii) requires the consent or vote of greater than a majority in principal amount of the holders of the Debentures (a "Super Majority") to be waived under the Indenture, the Event of Default under the Declaration may only be waived by the vote of the Holders of at least the proportion in liquidation amount of the Convertible Preferred Securities that the relevant Super Majority represents of the aggregate principal amount of the Debentures outstanding. The foregoing provisions of this Section 2.6(a) shall be in lieu of (S) 316(a)(1)(B) of the Trust Indenture Act and such (S) 316(a)(1)(B) of the Trust Indenture Act is hereby expressly excluded from this Declaration and the Securities, as permitted by the Trust Indenture Act. Upon such waiver, any such default shall cease to exist, and any Event of Default with respect to the Convertible Preferred Securities arising therefrom shall be deemed to have been cured, for every purpose of this Declaration, but no such waiver shall extend to any subsequent or other default or an Event of Default with respect to the Convertible Preferred Securities or impair any right consequent thereon. Any waiver by the Holders of the Convertible Preferred Securities of an Event of Default with respect to the Convertible Preferred Securities shall also be deemed to constitute a waiver by the Holders of the Common Securities of any such Event of Default with respect to the Common Securities for all purposes of this Declaration without any further act, vote, or consent of the Holders of the Common Securities. (b) The Holders of a Majority in liquidation amount of the Common Securities may, by vote, on behalf of the Holders of all of the Common Securities, waive any past Event of Default with respect to the Common Securities and its consequences, provided that, if the underlying Event of Default under the Indenture: 10 (i) is not waivable under the Indenture, except where the Holders of the Common Securities are deemed to have waived such Event of Default under the Declaration as provided below in this Section 2.6(b), the Event of Default under the Declaration shall also not be waivable; or (ii) requires the consent or vote of a Super Majority to be waived, except where the Holders of the Common Securities are deemed to have waived such Event of Default under the Declaration as provided below in this Section 2.6(b), the Event of Default under the Declaration may only be waived by the vote of the Holders of at least the proportion in liquidation amount of the Common Securities that the relevant Super Majority represents of the aggregate principal amount of the Debentures outstanding; provided further, that each Holder of Common Securities will be deemed to have waived any such Event of Default and all Events of Default with respect to the Common Securities and its consequences until all Events of Default with respect to the Convertible Preferred Securities have been cured, waived or otherwise eliminated, and until such Events of Default have been so cured, waived or otherwise eliminated, the Institutional Trustee shall act solely on behalf of the Holders of the Convertible Preferred Securities and only the Holders of the Convertible Preferred Securities will have the right to direct the Institutional Trustee to act in accordance with the terms of the Securities. The foregoing provisions of this Section 2.6(b) shall be in lieu of (S)(S) 316(a)(1)(A) and 316(a)(1)(B) of the Trust Indenture Act and such (S)(S) 316(a)(1)(A) and 316(a)(1)(B) of the Trust Indenture Act are hereby expressly excluded from this Declaration and the Securities, as permitted by the Trust Indenture Act. Subject to the foregoing provisions of this Section 2.6(b), upon such waiver, any such default shall cease to exist and any Event of Default with respect to the Common Securities arising therefrom shall be deemed to have been cured for every purpose of this Declaration, but no such waiver shall extend to any subsequent or other default or Event of Default with respect to the Common Securities or impair any right consequent thereon. (c) A waiver of an Event of Default under the Indenture by the Institutional Trustee at the direction of the Holders of the Convertible Preferred Securities, constitutes a waiver of the corresponding Event of Default under this Declaration. The foregoing provisions of this Section 2.6(c) shall be in lieu of (S) 316(a)(1)(B) of the Trust Indenture Act and such (S) 316(a)(1)(B) of the Trust Indenture Act is hereby expressly excluded from this Declaration and the Securities, as permitted by the Trust Indenture Act. SECTION 2.7. Event of Default; Notice. (a) The Institutional Trustee shall, within 90 days after the occurrence of an Event of Default actually known to a Responsible Officer of the Institutional Trustee, transmit by mail, first class postage prepaid, to the Holders of the Securities, notices of all such defaults with respect to the Securities unless such defaults have been cured before the giving of such notice (the term "defaults" for the purposes of this Section 2.7(a) being hereby defined to be an Event of Default as defined in the Indenture, not including any periods of grace provided for therein and irrespective of the giving of any notice provided therein); provided that, except for a default in the payment of principal of (or premium, if any) or interest on any of the Debentures or in the 11 payment of any sinking fund installment established for the Debentures, the Institutional Trustee shall be protected in withholding such notice if and so long as a Responsible Officer of the Institutional Trustee in good faith determines that the withholding of such notice is in the interests of the Holders of the Securities. Any such notice given pursuant to this Section 2.7(a) shall state that an Event of Default under the Indenture also constitutes an Event of Default under this Declaration. (b) The Institutional Trustee shall not be deemed to have knowledge of any default except: (i) a default under Sections 5.1(a) and 5.1(b) of the Indenture; or (ii) any default as to which the Institutional Trustee shall have received written notice or of which a Responsible Officer of the Institutional Trustee charged with the administration of the Declaration shall have actual knowledge. ARTICLE III ORGANIZATION SECTION 3.1. Name. The Trust is named "McKesson Financing Trust" as such name may be modified from time to time by the Regular Trustees following written notice to the Holders of Securities. The Trust's activities may be conducted under the name of the Trust or any other name deemed advisable by the Regular Trustees. SECTION 3.2. Office. The address of the principal office of the Trust is c/o McKesson Corporation, McKesson Plaza, One Post Street, San Francisco, CA, 94104. On at least ten Business Days written notice to the Holders of Securities, the Regular Trustees may designate another principal office. SECTION 3.3. Purpose. The exclusive purposes and functions of the Trust are (a) to issue and sell Securities and use the proceeds from such sale to acquire the Debentures, and (b) except as otherwise limited herein, to engage in only those other activities necessary, or incidental thereto. The Trust shall not borrow money, issue debt or reinvest proceeds derived from investments, pledge any of its assets, or otherwise undertake (or permit to be undertaken) any activity that would cause the Trust not to be classified for United States federal income tax purposes as a grantor trust. 12 SECTION 3.4. Authority. (a) Subject to the limitations provided in this Declaration and to the specific duties of the Institutional Trustee, the Regular Trustees shall have exclusive and complete authority to carry out the purposes of the Trust. An action taken by the Regular Trustees in accordance with their powers shall constitute the act of and serve to bind the Trust and an action taken by the Institutional Trustee on behalf of the Trust in accordance with its powers shall constitute the act of and serve to bind the Trust. In dealing with the Trustees acting on behalf of the Trust, no person shall be required to inquire into the authority of the Trustees to bind the Trust. Persons dealing with the Trust are entitled to rely conclusively on the power and authority of the Trustees as set forth in this Declaration. (b) Except as expressly set forth in this Declaration and except if a meeting of the Regular Trustees is called with respect to any matter over which the Regular Trustees have power to act, any power of the Regular Trustees may be exercised by, or with the consent of, any one such Regular Trustee. (c) Unless otherwise determined by the Regular Trustees, and except as otherwise required by the Business Trust Act or applicable law, any Regular Trustee is authorized to execute on behalf of the Trust any documents which the Regular Trustees have the power and authority to cause the Trust to execute pursuant to Section 3.6, provided, that the registration statement referred to in Section 3.6, including any amendments thereto, shall, subject to Section 3.4(d), be signed by all of the Regular Trustees; and (d) A Regular Trustee may, by power of attorney consistent with applicable law, delegate to any other natural person over the age of 21 his or her power for the purposes of executing any documents which the Regular Trustees have power and authority to cause the Trust to execute pursuant to Section 3.6. SECTION 3.5. Title to Property of the Trust. Except as provided in Section 3.8 with respect to the Debentures and the Institutional Trustee Account or as otherwise provided in this Declaration, legal title to all assets of the Trust shall be vested in the Trust. The Holders of Securities shall not have legal title to any part of the assets of the Trust, but shall have an undivided beneficial interest in the assets of the Trust. SECTION 3.6. Powers and Duties of the Regular Trustees. The Regular Trustees shall have the exclusive power, duty and authority to cause the Trust to engage in the following activities: (a) to issue and sell the Securities in accordance with this Declaration; provided, however, that the Trust may issue no more than one series of Convertible Preferred Securities and no more than one series of Common Securities, and provided further, that there shall be no interests in the Trust other than the Securities, and the issuance of Securities shall be limited to 13 a simultaneous issuance of both Convertible Preferred Securities and Common Securities on the Closing Date and Option Closing Date, if any; (b) in connection with the issue and sale of the Securities, at the direction of the Sponsor, to: (i) prepare and execute, if necessary, an offering memorandum (the "Offering Memorandum") in preliminary and final form prepared by the Sponsor, in relation to the offering and sale of Convertible Preferred Securities to qualified institutional buyers in reliance on Rule 144A under the Securities Act, to institutional "accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) and outside the United States to non-U.S. persons in offshore transactions in reliance on Regulation S under the Securities Act and to execute and file with the Commission, at such time as determined by the Sponsor, a registration statement on Form S-3 prepared by the Sponsor, including any amendments thereto in relation to the Convertible Preferred Securities; (ii) execute and file an application, prepared by the Sponsor, to the Private Offerings, Resale and Trading through Automated Linkages ("PORTAL") Market and, at such time as determined by the Sponsor, to the New York Stock Exchange or any other national stock exchange or the Nasdaq Stock Market's National Market for listing or quotation of the Preferred Securities; (iii) execute and deliver letters, documents, or instruments with The Depository Trust Company relating to the Convertible Preferred Securities; (iv) execute and file with the Commission, at such time as determined by the Sponsor, a registration statement on Form 8-A, including any amendments thereto, prepared by the Sponsor relating to the registration of the Convertible Preferred Securities under Section 12(b) of the Exchange Act; (v) execute and enter into the Placement Agreement, Registration Rights Agreements and other related agreements providing for the sale of the Securities; (vi) execute and file any documents prepared by the Sponsor, or take any acts as determined by the Sponsor to be necessary in order to qualify or register all or part of the Convertible Preferred Securities in any State in which the Sponsor has determined to qualify or register such Convertible Preferred Securities for sale or resale, as the case may be; and (vii) take all actions and perform such duties as may be required of the Regular Trustees to open checking, deposit or similar banking accounts as may be necessary in connection with the issuance and sale of the Securities; (c) to acquire the Debentures with the proceeds of the sale of the Convertible Preferred Securities and the Common Securities; provided, however, that the Regular Trustees shall cause legal title to the Debentures to be held of record in the name of the Institutional 14 Trustee for the benefit of the Holders of the Convertible Preferred Securities and the Holders of Common Securities; (d) to give the Sponsor and the Institutional Trustee prompt written notice of the occurrence of a Special Event; provided that the Regular Trustees shall consult with the Sponsor and the Institutional Trustee before taking or refraining from taking any Ministerial Action in relation to a Special Event; (e) to establish a record date with respect to all actions to be taken hereunder that require a record date be established, including and with respect to, for the purposes of (S)316 (c) of the Trust Indenture Act, Distributions, voting rights, redemptions and exchanges, and to issue relevant notices to the Holders of Convertible Preferred Securities and Holders of Common Securities as to such actions and applicable record dates; (f) to take all actions and perform such duties as may be required of the Regular Trustees pursuant to the terms of the Securities; (g) to bring or defend, pay, collect, compromise, arbitrate, resort to legal action, or otherwise adjust claims or demands of or against the Trust ("Legal Action"), unless pursuant to Section 3.8(e), the Institutional Trustee has the exclusive power to bring such Legal Action; (h) to employ or otherwise engage employees and agents (who may be designated as officers with titles) and managers, contractors, advisors and consultants, and pay reasonable compensation for such services; (i) to cause the Trust to comply with the Trust's obligations under the Trust Indenture Act; (j) to give the certificate required by (S) 314(a)(4) of the Trust Indenture Act to the Institutional Trustee, which certificate may be executed by any Regular Trustee; (k) to incur expenses that are necessary or incidental to carry out any of the purposes of the Trust; (l) to act as, or appoint another Person to act as, registrar, transfer agent, Paying Agent and Conversion Agent for the Securities; (m) to give prompt written notice to the Holders of the Securities of any notice received from the Debenture Issuer of its election to defer payments of interest on the Debentures by extending the interest payment period under the Indenture; (n) to execute all documents or instruments, perform all duties and powers, and do all things for and on behalf of the Trust in all matters necessary or incidental to the foregoing; (o) to take all action that may be necessary or appropriate for the preservation and the continuation of the Trust's valid existence, rights, franchises and privileges as a statutory 15 business trust under the laws of the State of Delaware and of each other jurisdiction in which such existence is necessary to protect the limited liability of the Holders of the Convertible Preferred Securities or to enable the Trust to effect the purposes for which the Trust was created; (p) to take any action, not inconsistent with this Declaration or with applicable law, that the Regular Trustees determine in their discretion to be necessary or desirable in carrying out the activities of the Trust as set out in this Section 3.6, including, but not limited to: (i) causing the Trust not to be deemed to be an Investment Company required to be registered under the Investment Company Act; (ii) causing the Trust to be classified for United States federal income tax purposes as a grantor trust; and (iii) cooperating with the Debenture Issuer to ensure that the Debentures will be treated as indebtedness of the Debenture Issuer for United States federal income tax purposes, provided that such action does not adversely affect the interests of Holders or vary the terms of the Convertible Preferred Securities; (q) to take all action necessary to cause all applicable tax returns and tax information reports that are required to be filed with respect to the Trust to be duly prepared and filed by the Regular Trustees, on behalf of the Trust; (r) to take all actions and perform such duties as may be required of the Regular Trustees pursuant to Section 11.2 herein; and (s) to the extent provided in this Declaration, the winding up of the affairs of and liquidation of the Trust and the preparation, execution and filing of the Certificate of Cancellation with the Secretary of State of the State of Delaware. The Regular Trustees must exercise the powers set forth in this Section 3.6 in a manner that is consistent with the purposes and functions of the Trust set out in Section 3.3, and the Regular Trustees shall not take any action that is inconsistent with the purposes and functions of the Trust set forth in Section 3.3. Subject to this Section 3.6, the Regular Trustees shall have none of the powers or the authority of the Institutional Trustee set forth in Section 3.8. Any expenses incurred by the Regular Trustees pursuant to this Section 3.6 shall be reimbursed by the Sponsor. The Trust initially appoints the Institutional Trustee as transfer agent and registrar for the Convertible Preferred Securities. 16 SECTION 3.7. Prohibition of Actions by the Trust and the Trustees. (a) The Trust shall not, and the Trustees (including the Institutional Trustee) shall cause the Trust not to engage in any activity other than as required or authorized by this Declaration. In particular the Trust shall not and the Trustees (including the Institutional Trustee) shall cause the Trust not to: (i) invest any proceeds received by the Trust from holding the Debentures, but shall distribute all such proceeds to Holders of Securities pursuant to the terms of this Declaration and of the Securities; (ii) acquire any assets other than as expressly provided herein; (iii) possess Trust property for other than a Trust purpose; (iv) make any loans or incur any indebtedness other than loans represented by the Debentures; (v) possess any power or otherwise act in such a way as to vary the Trust assets or the terms of the Securities in any way whatsoever except as permitted by the terms of this Declaration; (vi) issue any securities or other evidences of beneficial ownership of, or beneficial interest in, the Trust other than the Securities; or (vii) other than as provided in this Declaration or Annex I hereto, (A) direct the time, method and place of exercising any trust or power conferred upon the Debenture Trustee with respect to the Debentures, (B) waive any past default that is not waivable under the Indenture, (C) exercise any right to rescind or annul any declaration that the principal of all the Debentures shall be due and payable, or (D) consent to any amendment, modification or termination of the Indenture or the Debentures where such consent shall be required unless the Trust shall have received an opinion of counsel to the effect that such modification will not cause more than an insubstantial risk that (x) the Trust will be deemed an Investment Company required to be registered under the Investment Company Act or (y) the Trust will not be classified as a grantor trust for United States federal income tax purposes. SECTION 3.8. Powers and Duties of the Institutional Trustee. (a) The legal title to the Debentures shall be owned by and held of record in the name of the Institutional Trustee in trust for the benefit of the Trust and the Holders of the Securities. The right, title and interest of the Institutional Trustee to the Debentures shall vest automatically in each Person who may hereafter be appointed as Institutional Trustee in accordance with Section 5.6. Such vesting and cessation of title shall be effective whether or not conveyancing documents with regard to the Debentures have been executed and delivered. 17 (b) The Institutional Trustee shall not transfer its right, title and interest in the Debentures to the Regular Trustees or to the Delaware Trustee (if the Institutional Trustee does not also act as Delaware Trustee). (c) The Institutional Trustee shall: (i) establish and maintain a segregated non-interest bearing trust account (the "Institutional Trustee Account") in the name of and under the exclusive control of the Institutional Trustee on behalf of the Holders of the Securities and, upon the receipt of payments of funds made in respect of the Debentures held by the Institutional Trustee, deposit such funds into the Institutional Trustee Account and make payments to the Holders of the Convertible Preferred Securities and Holders of the Common Securities from the Institutional Trustee Account in accordance with Section 6.1. Funds in the Institutional Trustee Account shall be held uninvested until disbursed in accordance with this Declaration. The Institutional Trustee Account shall be an account that is maintained with a banking institution the rating on whose long-term unsecured indebtedness is at least equal to the rating assigned to the Convertible Preferred Securities (or, if the Convertible Preferred Securities are not rated, the rating assigned to McKesson's senior debt) by a "nationally recognized statistical rating organization," as that term is defined for purposes of Rule 436(g)(2) under the Securities Act; (ii) engage in such ministerial activities as shall be necessary or appropriate to effect the redemption of the Convertible Preferred Securities and the Common Securities to the extent the Debentures are redeemed or mature; (iii) engage in such ministerial activities as shall be necessary or appropriate to effect the distribution of the Trust Property in accordance with the terms of this Declaration; and (iv) to the extent provided for in this Declaration, take such ministerial actions necessary in connection with the winding up of the affairs of and liquidation of the Trust and the preparation, execution and filing of the Certificate of Cancellation with the Secretary of State of the State of Delaware. (d) The Institutional Trustee shall take all actions and perform such duties as may be specifically required of the Institutional Trustee pursuant to the terms of the Securities. (e) The Institutional Trustee shall take any Legal Action which arises out of or in connection with, an Event of Default of which a Responsible Officer of the Institutional Trustee has actual knowledge, or the Institutional Trustee's duties and obligations under this Declaration or the Trust Indenture Act; provided however, that if a Declaration Event of Default has occurred and is continuing and such event is attributable to the failure of the Debenture Issuer to pay interest or principal on the Debentures on the date such interest or principal is otherwise payable (or in the case of redemption, on the redemption date), then a Holder of Convertible Preferred Securities may directly institute a proceeding for enforcement of payment to such Holder of the principal of or interest on the Debentures having a principal amount equal to the 18 aggregate liquidation amount of the Convertible Preferred Securities of such Holder (a "Direct Action") on or after the respective due date specified in the Debentures and provided, further, that if the Institutional Trustee fails to enforce its rights under the Debentures, any Holder of Convertible Preferred Securities may institute a legal proceeding against any person to enforce the Institutional Trustee's rights under the Debentures. In connection with such Direct Action, the rights of the Holders of the Common Securities will be subrogated to the rights of such Holder of Convertible Preferred Securities to the extent of any payment made by the Debenture Issuer to such Holder of Convertible Preferred Securities in such Direct Action. Except as provided in the preceding sentences, the Holders of Convertible Preferred Securities will not be able to exercise directly any other remedy available to the holders of the Debentures. (f) The Institutional Trustee shall continue to serve as a Trustee until either: (i) the Trust has been completely liquidated and the proceeds of the liquidation distributed to the Holders of Securities pursuant to the terms of the Securities; or (ii) a Successor Institutional Trustee has been appointed and has accepted that appointment in accordance with Section 5.6. (g) The Institutional Trustee shall have the legal power to exercise all of the rights, powers and privileges of a holder of Debentures under the Indenture and, if an Event of Default actually known to a Responsible Officer of the Institutional Trustee occurs and is continuing, the Institutional Trustee shall, for the benefit of Holders of the Securities, enforce its rights as holder of the Debentures subject to the rights of the Holders pursuant to the terms of such Securities. (h) The Institutional Trustee may authorize one or more Persons (each, a "Paying Agent") to pay Distributions, redemption payments or Liquidation Distributions on behalf of the Trust with respect to all Securities and any such Paying Agent shall comply with (S) 317(b) of the Trust Indenture Act. Any Paying Agent may be removed by the Institutional Trustee at any time and a successor Paying Agent or additional Paying Agents may be appointed at any time by the Institutional Trustee. (i) Subject to this Section 3.8, the Institutional Trustee shall have none of the duties, liabilities, powers or the authority of the Regular Trustees set forth in Section 3.6. The Institutional Trustee must exercise the powers set forth in this Section 3.8 in a manner that is consistent with the purposes and functions of the Trust set out in Section 3.3, and the Institutional Trustee shall not take any action that is inconsistent with the purposes and functions of the Trust set out in Section 3.3. SECTION 3.9. Certain Duties and Responsibilities of the Institutional Trustee. (a) The Institutional Trustee, before the occurrence of any Event of Default and after the curing of all Events of Default that may have occurred, shall undertake to perform only such duties as are specifically set forth in this Declaration and no implied covenants shall be read into 19 this Declaration against the Institutional Trustee. In case an Event of Default has occurred (that has not been cured or waived pursuant to Section 2.6) of which a Responsible Officer of the Institutional Trustee has actual knowledge, the Institutional Trustee shall exercise such of the rights and powers vested in it by this Declaration, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. (b) No provision of this Declaration shall be construed to relieve the Institutional Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) prior to the occurrence of an Event of Default and after the curing or waiving of all such Events of Default that may have occurred: (A) the duties and obligations of the Institutional Trustee shall be determined solely by the express provisions of this Declaration and the Institutional Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Declaration, and no implied covenants or obligations shall be read into this Declaration against the Institutional Trustee; and (B) in the absence of bad faith on the part of the Institutional Trustee, the Institutional Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Institutional Trustee and conforming to the requirements of this Declaration; but in the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Institutional Trustee, the Institutional Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Declaration; (ii) the Institutional Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Institutional Trustee, unless it shall be proved that the Institutional Trustee was negligent in ascertaining the pertinent facts; (iii) the Institutional Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than a Majority in liquidation amount of the Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Institutional Trustee, or exercising any trust or power conferred upon the Institutional Trustee under this Declaration; (iv) no provision of this Declaration shall require the Institutional Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Declaration or indemnity 20 reasonably satisfactory to the Institutional Trustee against such risk or liability is not reasonably assured to it; (v) the Institutional Trustee's sole duty with respect to the custody, safe keeping and physical preservation of the Debentures and the Institutional Trustee Account shall be to deal with such property in a similar manner as the Institutional Trustee deals with similar property for its own account, subject to the protections and limitations on liability afforded to the Institutional Trustee under this Declaration and the Trust Indenture Act; (vi) the Institutional Trustee shall have no duty or liability for or with respect to the value, genuineness, existence or sufficiency of the Debentures or the payment of any taxes or assessments levied thereon or in connection therewith; (vii) the Institutional Trustee shall not be liable for any interest on any money received by it except as it may otherwise agree in writing with the Sponsor. Money held by the Institutional Trustee need not be segregated from other funds held by it except in relation to the Institutional Trustee Account maintained by the Institutional Trustee pursuant to Section 3.8(c)(i) and except to the extent otherwise required by law; and (viii) the Institutional Trustee shall not be responsible for monitoring the compliance by the Regular Trustees or the Sponsor with their respective duties under this Declaration, nor shall the Institutional Trustee be liable for any default or misconduct of the Regular Trustees or the Sponsor. SECTION 3.10. Certain Rights of Institutional Trustee. (a) Subject to the provisions of Section 3.9: (i) the Institutional Trustee may conclusively rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed, sent or presented by the proper party or parties; (ii) any direction or act of the Sponsor or the Regular Trustees contemplated by this Declaration shall be sufficiently evidenced by an Officers' Certificate; (iii) whenever in the administration of this Declaration, the Institutional Trustee shall deem it desirable that a matter be proved or established before taking, suffering or omitting any action hereunder, the Institutional Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part, request and conclusively rely upon an Officers' Certificate which, upon receipt of such request, shall be promptly delivered by the Sponsor or the Regular Trustees; 21 (iv) the Institutional Trustee shall have no duty to see to any recording, filing or registration of any instrument (including any financing or continuation statement or any filing under tax or securities laws) or any rerecording, refiling or registration thereof; (v) the Institutional Trustee may consult with counsel of its selection or other experts and the advice or opinion of such counsel and experts with respect to legal matters or advice within the scope of such experts' area of expertise shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with such advice or opinion. Such counsel may be counsel to the Sponsor or any of its Affiliates, and may include any of its employees. The Institutional Trustee shall have the right at any time to seek instructions concerning the administration of this Declaration from any court of competent jurisdiction; (vi) the Institutional Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Declaration at the request or direction of any Holder, unless such Holder shall have provided to the Institutional Trustee security and indemnity, reasonably satisfactory to the Institutional Trustee, against the costs, expenses (including attorneys' fees and expenses and the expenses of the Institutional Trustee's agents, nominees or custodians) and liabilities that might be incurred by it in complying with such request or direction, including such reasonable advances as may be requested by the Institutional Trustee provided, that, nothing contained in this Section 3.10(a)(vi) shall be taken to (a) require the Holders of Convertible Preferred Securities to offer such indemnity in the event such Holders direct the Institutional Trustee to take any action it is empowered to take under this Declaration following an Event of Default or (b) relieve the Institutional Trustee, upon the occurrence of an Event of Default, of its obligation to exercise the rights and powers vested in it by this Declaration; (vii) the Institutional Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Institutional Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit; (viii) the Institutional Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents, custodians, nominees or attorneys and the Institutional Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; (ix) any action taken by the Institutional Trustee or its agents hereunder shall bind the Trust and the Holders of the Securities, and the signature of the Institutional Trustee or its agents alone shall be sufficient and effective to perform any such action and no third party shall be required to inquire as to the authority of the Institutional Trustee to so act or as to its compliance with any of the terms and provisions of this 22 Declaration, both of which shall be conclusively evidenced by the Institutional Trustee's or its agent's taking such action; (x) whenever in the administration of this Declaration the Institutional Trustee shall deem it desirable to receive written instructions with respect to enforcing any remedy or right or taking any other action hereunder, the Institutional Trustee (i) may request written instructions from the Holders of the Securities which instructions may only be given by the Holders of the same proportion in liquidation amount of the Securities as would be entitled to direct the Institutional Trustee under the terms of the Securities in respect of such remedy, right or action, (ii) may refrain from enforcing such remedy or right or taking such other action until such instructions are received, and (iii) shall be protected in conclusively relying on or acting in or accordance with such instructions; (xi) except as otherwise expressly provided by this Declaration, the Institutional Trustee shall not be under any obligation to take any action that is discretionary under the provisions of this Declaration; and (xii) the Institutional Trustee shall not be liable for any action taken, suffered, or omitted to be taken by it in good faith and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Declaration. (b) No provision of this Declaration shall be deemed to impose any duty or obligation on the Institutional Trustee to perform any act or acts or exercise any right, power, duty or obligation conferred or imposed on it, in any jurisdiction in which it shall be illegal, or in which the Institutional Trustee shall be unqualified or incompetent in accordance with applicable law, to perform any such act or acts, or to exercise any such right, power, duty or obligation. No permissive power or authority available to the Institutional Trustee shall be construed to be a duty. SECTION 3.11. Delaware Trustee. Notwithstanding any other provision of this Declaration other than Section 5.2, the Delaware Trustee shall not be entitled to exercise any powers, nor shall the Delaware Trustee have any of the duties and responsibilities of the Regular Trustees, the Institutional Trustee or the Trustees generally (except as may be required under the Business Trust Act) described in this Declaration. Except as set forth in Section 5.2, the Delaware Trustee shall be a Trustee for the sole and limited purpose of fulfilling the requirements of (S) 3807 of the Business Trust Act. SECTION 3.12. Execution of Documents. Except as otherwise required by the Business Trust Act, any Regular Trustee is authorized to execute on behalf of the Trust any documents that the Regular Trustees have the power and authority to execute pursuant to Section 3.6; provided that, the registration statement referred to in Section 3.6(b)(i), including any amendments thereto, shall, subject to Section 3.4(d), be signed by all of the Regular Trustees. 23 SECTION 3.13. Not Responsible for Recitals or Issuance of Securities. The recitals contained in this Declaration and the Securities shall be taken as the statements of the Sponsor, and the Trustees do not assume any responsibility for their correctness. The Trustees make no representations as to the value or condition of the property of the Trust or any part thereof. The Trustees make no representations as to the validity or sufficiency of this Declaration or the Securities. SECTION 3.14. Duration of Trust. The Trust, unless terminated pursuant to the provisions of Article VIII hereof, shall have existence for thirty-five (35) years from June 1, 1997. SECTION 3.15. Mergers. (a) The Trust may not consolidate, amalgamate, merge with or into, or be replaced by, or convey, transfer or lease its properties and assets as an entirety or substantially as an entirety to any corporation or other body, except as described in Section 3.15(b) and (c). (b) The Trust may, with the consent of the Regular Trustees or, if there are more than two, a majority of the Regular Trustees and without the consent of the Holders of the Securities, the Delaware Trustee or the Institutional Trustee, consolidate, amalgamate, merge with or into, or be replaced by a trust organized as such under the laws of any State; provided that (i) such successor entity (the "Successor Entity") either: (A) expressly assumes all of the obligations of the Trust under the Securities; or (B) substitutes for the Convertible Preferred Securities other securities having substantially the same terms as the Convertible Preferred Securities (the "Successor Securities") so long as the Successor Securities rank the same as the Convertible Preferred Securities rank with respect to Distributions and payments upon liquidation, redemption and otherwise; (ii) the Debenture Issuer expressly acknowledges a trustee of the Successor Entity that possesses the same powers and duties as the Institutional Trustee as the Holder of the Debentures; (iii) such merger, consolidation, amalgamation or replacement does not cause the Convertible Preferred Securities (including any Successor Securities) to be downgraded by any nationally recognized statistical rating organization; (iv) such merger, consolidation, amalgamation or replacement does not adversely affect the rights, preferences and privileges of the Holders of the Securities 24 (including any Successor Securities) in any material respect (other than with respect to any dilution of the Holders' interest in the Successor Entity); (v) such Successor Entity has a purpose identical to that of the Trust; (vi) prior to such merger, consolidation, amalgamation or replacement, the Sponsor has received an opinion of nationally recognized independent counsel to the Trust experienced in such matters to the effect that: (A) such merger, consolidation, amalgamation or replacement does not adversely affect the rights, preferences and privileges of the Holders of the Securities (including any Successor Securities) in any material respect (other than with respect to any dilution of the Holders' interest in the Successor Entity); (B) following such merger, consolidation, amalgamation or replacement, neither the Trust nor the Successor Entity will be required to register as an Investment Company; and (C) following such merger, consolidation, amalgamation or replacement, the Trust (or such Successor Entity) will continue to be classified as a grantor trust for United States federal income tax purposes; and (vii) the Sponsor guarantees the obligations of the Successor Entity under the Successor Securities at least to the extent provided by the Securities Guarantees. (c) Notwithstanding Section 3.15(b), the Trust shall not, except with the consent of Holders of 100% in liquidation amount of the Securities, consolidate, amalgamate, merge with or into, or be replaced by any other entity or permit any other entity to consolidate, amalgamate, merge with or into, or replace it, if such consolidation, amalgamation, merger or replacement would cause the Trust or the Successor Entity to be classified as other than a grantor trust for United States federal income tax purposes. ARTICLE IV SPONSOR SECTION 4.1. Sponsor's Purchase of Common Securities. On the Closing Date the Sponsor will purchase all of the Common Securities issued by the Trust, in an amount at least equal to 3% of the capital of the Trust, at the same time as the Convertible Preferred Securities are sold. 25 SECTION 4.2. Responsibilities of the Sponsor. In connection with the issue and sale of the Convertible Preferred Securities, the Sponsor shall have the exclusive right and responsibility to engage in the following activities: (a) prepare and execute, if necessary, the Offering Memorandum in preliminary and final form, in relation to the offering and sale by the Trust of Convertible Preferred Securities to qualified institutional buyers in reliance on Rule 144A under the Securities Act, to institutional "accredited investors" (as defined in Rule 501(a)(1),(2), (3) or (7) under the Securities Act) and outside the United States to Non-U.S. persons in offshore transactions in reliance on Regulation S under the Securities Act; (b) to prepare for filing by the Trust with the Commission a registration statement on Form S-3 in relation to the Securities, including any amendments thereto; (c) prepare for execution and filing by the Trust of an application, prepared by the Sponsor, to the PORTAL Market and, at such time as determined by the Sponsor, to the New York Stock Exchange or any other national stock exchange or the Nasdaq Stock Market's National Market for listing or quotation of the Convertible Preferred Securities; (d) prepare for execution and filing by the Trust of documents, or instruments to be delivered to The Depository Trust Company relating to the Convertible Preferred Securities; (e) prepare for execution and filing by the Trust of a registration statement on Form 8-A, including any amendments thereto, prepared by the Sponsor relating to the registration of the Convertible Preferred Securities under Section 12(b) of the Exchange Act; (f) to determine the States in which to take appropriate action to qualify or register for sale all or part of the Convertible Preferred Securities and to do any and all such acts, other than actions which must be taken by the Trust, and advise the Trust of actions it must take, and prepare for execution and filing any documents to be executed and filed by the Trust, as the Sponsor deems necessary or advisable in order to comply with the applicable laws of any such States; (g) to negotiate the terms of the Placement Agreement providing for the sale of the Convertible Preferred Securities; and (h) to negotiate the terms of the Registration Rights Agreements providing for, among other things, the registration under the Securities Act of resales from time to time of the Securities. 26 ARTICLE V TRUSTEES SECTION 5.1. Number of Trustees. The number of Trustees initially shall be five (5), and: (a) at any time before the issuance of any Securities, the Sponsor may, by written instrument, increase or decrease the number of Trustees; and (b) after the issuance of any Securities, the number of Trustees may be increased or decreased by vote of the Holders of a majority in liquidation amount of the Common Securities voting as a class at a meeting of the Holders of the Common Securities; provided, however, that the number of Trustees shall in no event be less than two (2); provided further, that (i) one Trustee, in the case of a natural person, shall be a person who is a resident of the State of Delaware or that, if not a natural person, is an entity which has its principal place of business in the State of Delaware (the "Delaware Trustee"); (ii) there shall be at least one Trustee who is an employee or officer of, or is affiliated with the Sponsor (a "Regular Trustee"); and (iii) one Trustee shall be the Institutional Trustee, and such Trustee may also serve as Delaware Trustee if it meets the applicable requirements. SECTION 5.2. Delaware Trustee. If required by the Business Trust Act, one Trustee shall be: (a) a natural person who is a resident of the State of Delaware; or (b) if not a natural person, an entity which has its principal place of business in the State of Delaware, and otherwise meets the requirements of applicable law; provided that, if the Institutional Trustee has its principal place of business in the State of Delaware and otherwise meets the requirements of applicable law, then the Institutional Trustee shall also be the Delaware Trustee and Section 3.11 shall have no application. The Initial Delaware Trustee shall be: First Chicago Delaware Inc. SECTION 5.3. Institutional Trustee; Eligibility. (a) There shall at all times be one Trustee which shall act as Institutional Trustee which shall: (i) not be an Affiliate of the Sponsor; and (ii) be a corporation organized and doing business under the laws of the United States of America or any State or Territory thereof or of the District of Columbia, or a 27 corporation or Person permitted by the Commission to act as an institutional trustee under the Trust Indenture Act, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least 50 million U.S. dollars ($50,000,000), and subject to supervision or examination by federal, state, territorial or District of Columbia authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the supervising or examining authority referred to above, then for the purposes of this Section 5.3(a)(ii), the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. (b) If at any time the Institutional Trustee shall cease to be eligible to so act under Section 5.3(a), the Institutional Trustee shall immediately resign in the manner and with the effect set forth in Section 5.6(c). (c) If the Institutional Trustee has or shall acquire any "conflicting interest" within the meaning of (S) 310(b) of the Trust Indenture Act, the Institutional Trustee and the Holder of the Common Securities (as if it were the obligor referred to in (S) 310(b) of the Trust Indenture Act) shall in all respects comply with the provisions of (S) 310(b) of the Trust Indenture Act. (d) The Convertible Preferred Securities Guarantee shall be deemed to be specifically described in this Declaration for purposes of clause (i) of the first provision contained in Section 310(b) of the Trust Indenture Act. (e) The initial Institutional Trustee shall be: The First National Bank of Chicago. SECTION 5.4. Certain Qualifications of Regular Trustees and Delaware Trustee Generally. Each Regular Trustee and the Delaware Trustee (unless the Institutional Trustee also acts as Delaware Trustee) shall be either a natural person who is at least 21 years of age or a legal entity that shall act through one or more Authorized Officers. SECTION 5.5. Regular Trustees. The initial Regular Trustees shall be: William A. Armstrong Ivan D. Meyerson Nancy Miller (a) Except as expressly set forth in this Declaration and except if a meeting of the Regular Trustees is called with respect to any matter over which the Regular Trustees have power to act, any power of the Regular Trustees may be exercised by, or with the consent of, any one such Regular Trustee. 28 (b) Unless otherwise determined by the Regular Trustees, and except as otherwise required by the Business Trust Act or applicable law, any Regular Trustee is authorized to execute on behalf of the Trust any documents which the Regular Trustees have the power and authority to cause the Trust to execute pursuant to Section 3.6, provided, that, the registration statement referred to in Section 3.6, including any amendments thereto, shall, subject to Section 3.4(d), be signed by all of the Regular Trustees; and SECTION 5.6. Appointment, Removal and Resignation of Trustees. (a) Subject to Section 5.6(b), Trustees may be appointed or removed without cause at any time: (i) until the issuance of any Securities, by written instrument executed by the Sponsor; and (ii) after the issuance of any Securities, by vote of the Holders of a Majority in liquidation amount of the Common Securities voting as a class at a meeting of the Holders of the Common Securities. (b) (i) The Trustee that acts as Institutional Trustee shall not be removed in accordance with Section 5.6(a) until a Successor Institutional Trustee has been appointed and has accepted such appointment by written instrument executed by such Successor Institutional Trustee and delivered to the Regular Trustees and the Sponsor; and (ii) the Trustee that acts as Delaware Trustee shall not be removed in accordance with Section 5.6(a) until a successor Trustee possessing the qualifications to act as Delaware Trustee under Sections 5.2 and 5.4 (a "Successor Delaware Trustee") has been appointed and has accepted such appointment by written instrument executed by such Successor Delaware Trustee and delivered to the Regular Trustees and the Sponsor. (c) A Trustee appointed to office shall hold office until his successor shall have been appointed or until his death, removal or resignation. Any Trustee may resign from office (without need for prior or subsequent accounting) by an instrument in writing signed by the Trustee and delivered to the Sponsor and the Trust, which resignation shall take effect upon such delivery or upon such later date as is specified therein; provided, however, that: (i) No such resignation of the Trustee that acts as the Institutional Trustee shall be effective: (A) until a Successor Institutional Trustee has been appointed and has accepted such appointment by instrument executed by such Successor Institutional Trustee and delivered to the Trust, the Sponsor and the resigning Institutional Trustee; or 29 (B) until the assets of the Trust have been completely liquidated and the proceeds thereof distributed to the holders of the Securities; and (ii) no such resignation of the Trustee that acts as the Delaware Trustee shall be effective until a Successor Delaware Trustee has been appointed and has accepted such appointment by instrument executed by such Successor Delaware Trustee and delivered to the Trust, the Sponsor and the resigning Delaware Trustee. (d) the Holders of the Common Securities shall use their best efforts to promptly appoint a Successor Delaware Trustee or Successor Institutional Trustee as the case may be if the Institutional Trustee or the Delaware Trustee delivers an instrument of resignation in accordance with this Section 5.6. (e) If no Successor Institutional Trustee or Successor Delaware Trustee shall have been appointed and accepted appointment as provided in this Section 5.6 within 60 days after delivery of an instrument of resignation or removal, the Institutional Trustee or Delaware Trustee resigning or being removed, as applicable, may petition any court of competent jurisdiction for appointment of a Successor Institutional Trustee or Successor Delaware Trustee. Such court may thereupon, after prescribing such notice, if any, as it may deem proper and prescribe, appoint a Successor Institutional Trustee or Successor Delaware Trustee, as the case may be. (f) No Institutional Trustee or Delaware Trustee shall be liable for the acts or omissions to act of any Successor Institutional Trustee or Successor Delaware Trustee, as the case may be. SECTION 5.7. Vacancies Among Trustees. If a Trustee ceases to hold office for any reason and the number of Trustees is not reduced pursuant to Section 5.1, or if the number of Trustees is increased pursuant to Section 5.1, a vacancy shall occur. A resolution certifying the existence of such vacancy by the Regular Trustees or, if there are more than two, a majority of the Regular Trustees shall be conclusive evidence of the existence of such vacancy. The vacancy shall be filled with a Trustee appointed in accordance with Section 5.6. SECTION 5.8. Effect of Vacancies. The death, resignation, retirement, removal, bankruptcy, dissolution, liquidation, incompetence or incapacity to perform the duties of a Trustee shall not operate to annul the Trust. Whenever a vacancy in the number of Regular Trustees shall occur, until such vacancy is filled by the appointment of a Regular Trustee in accordance with Section 5.6, the Regular Trustees in office, regardless of their number, shall have all the powers granted to the Regular Trustees and shall discharge all the duties imposed upon the Regular Trustees by this Declaration. 30 SECTION 5.9. Meetings. If there is more than one Regular Trustee, meetings of the Regular Trustees shall be held from time to time upon the call of any Regular Trustee. Regular meetings of the Regular Trustees may be held at a time and place fixed by resolution of the Regular Trustees. Notice of any in-person meetings of the Regular Trustees shall be hand delivered or otherwise delivered in writing (including by facsimile, with a hard copy by overnight courier) not less than 48 hours before such meeting. Notice of any telephonic meetings of the Regular Trustee or any committee thereof shall be hand delivered or otherwise delivered in writing (including by facsimile, with a hard copy by overnight courier) not less than 24 hours before a meeting. Notices shall contain a brief statement of the time, place and anticipated purposes of the meeting. The presence (whether in person or by telephone) of a Regular Trustee at a meeting shall constitute a waiver of notice of such meeting except where a Regular Trustee attends a meeting for the express purpose of objecting to the transaction of any activity on the ground that the meeting has not been lawfully called or convened. Unless provided otherwise in this Declaration, any action of the Regular Trustees may be taken at a meeting by vote of a majority of the Regular Trustees present (whether in person or by telephone) and eligible to vote with respect to such matter, provided that a Quorum is present, or without a meeting by the unanimous written consent of the Regular Trustees. In the event there is only one Regular Trustee, any and all action of such Regular Trustee shall be evidenced by a written consent of such Regular Trustee. SECTION 5.10. Delegation of Power. A Regular Trustee may, by power of attorney consistent with applicable law, delegate to any other natural person over the age of 21 his or her power for the purposes of executing any documents contemplated in Section 3.6, including any registration statement or amendment thereto filed with the Commission, or making any other governmental filing. The Regular Trustees shall have power to delegate from time to time to such of their number or to officers of the Trust the doing of such things and the execution of such instruments either in the name of the Trust or the names of the Regular Trustees or otherwise as the Regular Trustees may deem expedient, to the extent such delegation is not prohibited by applicable law or contrary to the provisions of the Trust, as set forth herein. SECTION 5.11. Merger, Conversion, Consolidation or Succession to Business. Any corporation into which the Institutional Trustee or the Delaware Trustee, as the case may be, may be merged or converted or with which either may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Institutional Trustee or the Delaware Trustee, as the case may be, shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Institutional Trustee or the Delaware Trustee, as the case may be, shall be the successor of the Institutional Trustee or the Delaware Trustee, as the case may be, hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. 31 ARTICLE VI DISTRIBUTIONS SECTION 6.1. Distributions. Holders of Securities shall receive Distributions (as defined herein) in accordance with the applicable terms of the relevant Holder's Securities. Distributions shall be made on the Convertible Preferred Securities and the Common Securities in accordance with the preferences set forth in their respective terms. If and to the extent that the Debenture Issuer makes a payment of interest (including Compound Interest (as defined in the Indenture) and Additional Sums (as defined in the Indenture)), premium and/or principal on the Debentures held by the Institutional Trustee (the amount of any such payment being a "Payment Amount"), the Institutional Trustee shall and is directed, to the extent funds are available for that purpose, to make a distribution (a "Distribution") of the Payment Amount to Holders. ARTICLE VII ISSUANCE OF SECURITIES SECTION 7.1. General Provisions Regarding Securities. (a) The Regular Trustees shall on behalf of the Trust issue one class of convertible preferred securities representing undivided beneficial interests in the assets of the Trust having such terms as are set forth in Annex I (the "Convertible Preferred Securities") and one class of convertible common securities representing undivided beneficial interests in the assets of the Trust having such terms as are set forth in Annex I (the "Common Securities"). The Trust shall issue no securities or other interests in the assets of the Trust other than the Convertible Preferred Securities and the Common Securities. (b) The consideration received by the Trust for the issuance of the Securities shall constitute a contribution to the capital of the Trust and shall not constitute a loan to the Trust. (c) Upon issuance of the Securities as provided in this Declaration, the Securities so issued shall be deemed to be validly issued, fully paid and non-assessable. (d) Every Person, by virtue of having become a Holder or a Convertible Preferred Security Beneficial Owner in accordance with the terms of this Declaration, shall be deemed to have expressly assented and agreed to the terms of and shall be bound by this Declaration. SECTION 7.2. Execution and Authentication. (a) The Certificates shall be signed on behalf of the Trust by a Regular Trustee. In case any Regular Trustee of the Trust who shall have signed any of the Securities shall cease 32 to be such Regular Trustee before the Certificates so signed shall be delivered by the Trust, such Certificates nevertheless may be delivered as though the person who signed such Certificates had not ceased to be such Regular Trustee; and any Certificate may be signed on behalf of the Trust by such persons who, at the actual date of execution of such Security, shall be the Regular Trustees of the Trust, although at the date of the execution and delivery of the Declaration any such person was not such a Regular Trustee. (b) One Regular Trustee shall sign the Convertible Preferred Securities for the Trust by manual or facsimile signature. Unless otherwise determined by the Trust, such signature shall, in the case of Common Securities, be a manual signature. A Convertible Preferred Security shall not be valid until authenticated by the manual signature of an authorized signatory of the Institutional Trustee. The signature shall be conclusive evidence that the Convertible Preferred Security has been authenticated under this Declaration. Upon a written order of the Trust signed by one Regular Trustee, the Institutional Trustee shall authenticate the Convertible Preferred Securities for original issue. The Institutional Trustee may appoint an authenticating agent acceptable to the Trust to authenticate Convertible Preferred Securities. An authenticating agent may authenticate Convertible Preferred Securities whenever the Institutional Trustee may do so. Each reference in this Declaration to authentication by the Institutional Trustee includes authentication by such agent. An authenticating agent has the same rights as the Institutional Trustee to deal with the Company or an Affiliate. SECTION 7.3. Form and Dating. The Convertible Preferred Securities and the Institutional Trustee's certificate of authentication shall be substantially in the form of Exhibit A-1 and the Common Securities shall be substantially in the form of Exhibit A-2, each of which is hereby incorporated in and expressly made a part of this Declaration. Certificates may be printed, lithographed or engraved or may be produced in any other manner as is reasonably acceptable to the Regular Trustees, as evidenced by their execution thereof. The Securities may have letters, numbers, notations, other marks of identification or designation or other changes or additions thereto or deletions therefrom as may be required by ordinary usage, custom or practice and such legends or endorsements required by law, stock exchange rule and agreements to which the Trust is subject, if any (provided that any such notation, legend or endorsement is in a form acceptable to the Trust). The Trust at the direction of the Sponsor shall furnish any such legend not contained in Exhibit A-1 to the Institutional Trustee in writing. Each Convertible Preferred Security Certificate shall be dated the date of its authentication. The terms and provisions of the Securities set forth in Annex I and the forms of Securities set forth in Exhibits A-1 and A-2 are part of the terms of this Declaration and, to the extent applicable, the Institutional Trustee and the Sponsor, by their execution and delivery of this Declaration, expressly agree to such terms and provisions and to be bound thereby. 33 SECTION 7.4. Paying Agent. The Trust shall maintain in the Borough of Manhattan, City of New York, State of New York, an office or agency where Convertible Preferred Securities not held in book-entry only form may be presented for payment ("Paying Agent"). The Trust shall maintain an office or agency where Securities may be presented for conversion ("Conversion Agent"). The Trust may appoint the Paying Agent and the Conversion Agent and may appoint one or more additional paying agents and one or more additional conversion agents in such other locations as it shall determine. The term "Paying Agent" includes any additional paying agent and the term "Conversion Agent" includes any additional conversion agent. The Trust may change any Paying Agent or Conversion Agent without prior notice to any Holder. The Trust shall notify the Institutional Trustee in writing of the name and address of any Agent not a party to this Declaration. If the Trust fails to appoint or maintain another entity as Paying Agent or Conversion Agent, the Institutional Trustee shall act as such. The Trust or any of its Affiliates may act as Paying Agent or Conversion Agent. The Trust shall act as Paying Agent and Conversion Agent for the Common Securities. The Trust initially appoints The First National Bank of Chicago, c/o First Chicago Trust Company of New York, 14 Wall Street, 8th Floor - Window 2, New York, NY 10005, Attention: Corporate Trust Administration as Paying Agent and Conversion Agent for the Convertible Preferred Securities. ARTICLE VIII TERMINATION OF TRUST SECTION 8.1. Termination of Trust. (a) The Trust shall terminate: (i) upon the bankruptcy of the Sponsor or the Holder of the Common Securities; (ii) upon the filing of a certificate of dissolution or its equivalent with respect to the Sponsor or the Holder of the Common Securities; the filing of a certificate of cancellation with respect to the Trust after having obtained the consent of at least a Majority in liquidation amount of the Securities voting together as a single class to file such certificate of cancellation; or the revocation of the Sponsor's charter or the charter of the Holder of the Common Securities and the expiration of 90 days after the date of revocation without a reinstatement thereof; (iii) upon the entry of a decree of judicial dissolution of the Sponsor, the Trust or the Holder of the Common Securities; (iv) when all of the Securities shall have been called for redemption and the amounts necessary for redemption thereof shall have been paid to the Holders in accordance with the terms of the Securities; 34 (v) upon the occurrence and continuation of a Special Event pursuant to which the Trust shall have been dissolved in accordance with the terms of the Securities and all of the Debentures held by the Institutional Trustee shall have been distributed to the Holders of Securities in exchange for all of the Securities; (vi) upon the written direction to the Institutional Trustee from the Sponsor at any time to terminate the Trust and, after satisfaction of liabilities to creditors of the Trust as provided by applicable law, the distribution of Debentures to Holders in exchange for the Securities, subject to the Regular Trustees' receipt of an opinion of nationally recognized independent counsel experienced in such matters to the effect that the holders of the Convertible Preferred Securities will not recognize any income, gain or loss for United States federal income tax purposes as a result of the dissolution of the Trust and such distribution to Holders. (vii) upon the distribution of the Sponsor's Common Stock to all Holders of Convertible Preferred Securities upon conversion of all outstanding Convertible Preferred Securities; (viii) the expiration of the term of the Trust on June 1, 2032; or (ix) before the issuance of any Securities, with the consent of all of the Regular Trustees and the Sponsor. (b) As soon as is practicable after the occurrence of an event referred to in Section 8.1(a), the Trustees shall file a certificate of cancellation with the Secretary of State of the State of Delaware. (c) The provisions of Sections 3.9 and 3.10 and Article X shall survive the termination of the Trust. ARTICLE IX TRANSFER OF INTERESTS SECTION 9.1. Transfer of Securities. (a) Securities may only be transferred, in whole or in part, in accordance with the terms and conditions set forth in this Declaration and in the terms of the Securities. Any transfer or purported transfer of any Security not made in accordance with this Declaration shall be null and void. (b) Subject to this Article IX, Convertible Preferred Securities shall be transferable. (c) Subject to this Article IX, the Sponsor and any Related Party may only transfer Common Securities to the Sponsor or a Related Party of the Sponsor; provided that, any such 35 transfer is subject to the condition precedent that the transferor obtain the written opinion of nationally recognized independent counsel experienced in such matters that such transfer would not cause more than an insubstantial risk that: (i) the Trust would not be classified for United States federal income tax purposes as a grantor trust; and (ii) the Trust would be an Investment Company required to register under the Investment Company Act or the transferee would become an Investment Company required to register under the Investment Company Act. (d) Each Security that bears or is required to bear the legend set forth in this Section 9.1(d) (a "Restricted Security") shall be subject to the restrictions on transfer provided in the legend set forth in this Section 9.1(d), unless such restrictions on transfer shall be waived by the written consent of the Regular Trustees, and the Holder of each Restricted Security, by such securityholder's acceptance thereof, agrees to be bound by such restrictions on transfer. As used in this Section 9.1(d) and in Section 9.1(e), the term "transfer" encompasses any sale, pledge, transfer or other disposition of any Restricted Security. Prior to the Transfer Restriction Termination Date, any certificate evidencing a Security shall bear a legend in substantially the following form, unless otherwise agreed by the Regular Trustees (with written notice thereof to the Institutional Trustee): THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) ("INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THE SECURITY EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION, (2) AGREES THAT IT WILL NOT PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION) RESELL OR OTHERWISE TRANSFER THE SECURITY EVIDENCED HEREBY OR THE COMMON STOCK, ISSUABLE UPON CONVERSION OR EXCHANGE OF THIS SECURITY EXCEPT (A) TO McKESSON CORPORATION (THE "COMPANY") OR ANY SUBSIDIARY THEREOF, (B) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, (C) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (D) TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE FOR THE CONVERTIBLE PREFERRED SECURITIES OR THE CONVERTIBLE DEBENTURES, AS THE CASE MAY BE (OR, IF THIS CERTIFICATE EVIDENCES COMMON STOCK, THE TRANSFER 36 AGENT FOR THE COMMON STOCK), A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE SECURITY EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM SUCH TRUSTEE OR TRANSFER AGENT), (E) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT OR (F) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE SECURITY EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THE SECURITY EVIDENCED HEREBY PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE FOR THE CONVERTIBLE PREFERRED SECURITIES OR THE CONVERTIBLE DEBENTURES, AS THE CASE MAY BE (OR, IF THIS CERTIFICATE EVIDENCES COMMON STOCK, SUCH HOLDER MUST FURNISH TO THE TRANSFER AGENT SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE COMPANY OR McKESSON FINANCING TRUST ("THE TRUST") MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTIONS NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT). IF THIS CERTIFICATE DOES NOT EVIDENCE COMMON STOCK AND IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR OR A PURCHASER WHO IS NOT A U.S. PERSON, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE FOR THE CONVERTIBLE PREFERRED SECURITIES OR THE CONVERTIBLE DEBENTURES, AS THE CASE MAY BE, SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE COMPANY OR THE TRUST MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND WILL BE REMOVED AFTER THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. Following the Transfer Restriction Termination Date, any Security or security issued in exchange or substitution therefor (other than (i) Securities acquired by McKesson or any Affiliate and (ii) Common Stock issued upon the conversion or exchange of any Security described in clause (i) above) may upon surrender of such Security for exchange to any Regular Trustee on behalf of the Trust in accordance with the provisions of Section 9.2, be exchanged for a new Security or Securities, of like tenor and aggregate liquidation amount, which shall not bear the restrictive legend required by this Section 9.1(d). 37 Any Convertible Preferred Security or Common Stock issued upon the conversion or exchange of a Convertible Preferred Security that, prior to the Transfer Restriction Termination Date, is purchased or owned by the Company or any Affiliate thereof may not be resold by the Company or such Affiliate unless registered under the Securities Act or resold pursuant to an exemption from the registration requirements of the Securities Act in a transaction which results in such Convertible Preferred Securities or Common Stock, as the case may be, no longer being "restricted securities" (as defined under Rule 144). SECTION 9.2. Transfer of Certificates. The Regular Trustees shall provide for the registration of Certificates and of transfers of Certificates, which will be effected without charge, but only upon payment in respect of any tax or other government charges that may be imposed in relation to it. Upon surrender for registration of transfer of any Certificate, the Regular Trustees shall cause one or more new Certificates to be issued in the name of the designated transferee or transferees. Every Certificate surrendered for registration of transfer shall be accompanied by a written instrument of transfer in form satisfactory to the Regular Trustees duly executed by the Holder or such Holder's attorney duly authorized in writing. Each Certificate surrendered for registration of transfer shall be canceled by the Regular Trustees. A transferee of a Certificate shall be entitled to the rights and subject to the obligations of a Holder hereunder upon the receipt by such transferee of a Certificate. By acceptance of a Certificate, each transferee shall be deemed to have agreed to be bound by this Declaration. SECTION 9.3. Deemed Security Holders. The Trustees may treat the Person in whose name any Certificate shall be registered on the books and records of the Trust as the sole holder of such Certificate and of the Securities represented by such Certificate for purposes of receiving Distributions and for all other purposes whatsoever and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such Certificate or in the Securities represented by such Certificate on the part of any Person, whether or not the Trust shall have actual or other notice thereof. SECTION 9.4. Book Entry Interests. (a) So long as Convertible Preferred Securities are eligible for book- entry settlement with the Clearing Agency or unless otherwise required by law, all Convertible Preferred Securities that are so eligible may be represented by one or more fully registered Convertible Preferred Security Certificates (each a "Global Certificate") in global form to be delivered to DTC, the initial Clearing Agency, by, or on behalf of, the Trust. Such Global Certificates shall initially be registered on the books and records of the Trust in the name of Cede & Co., the nominee of DTC, and no Convertible Preferred Security Beneficial Owner will receive a definitive Convertible Preferred Security Certificate representing such Convertible Preferred Security Beneficial Owner's interests in such Global Certificates, except as provided in Section 9.7 below. The transfer and exchange of beneficial interests in any such Security in global form shall be effected through the Clearing Agency in accordance with this Declaration and the procedures of the Clearing Agency therefor. 38 (b) Convertible Preferred Securities that upon initial issuance are beneficially owned by QIBs may, at the option of the Trust, be represented by one or more Global Certificates (a "144A Global Security"), and Convertible Preferred Securities that upon initial issuance are beneficially owned by Non-U.S. Persons may, at the option of the Trust, be represented by one or more Global Certificates (a "Regulation S Global Security"). Transfers of interests in the Convertible Preferred Securities between any 144A Global Security and any Regulation S Global Security will be made in accordance with the standing instructions and procedures of the Clearing Agency and its participants. The Institutional Trustee shall make appropriate endorsements to reflect increases or decreases in the amount of such Convertible Preferred Securities in global form to reflect any such transfers. Except as provided below, beneficial owners of a Convertible Preferred Security in global form shall not be entitled to have certificates registered in their names, will not receive or be entitled to receive physical delivery of certificates in definitive form and will not be considered Holders of such Convertible Preferred Security in global form. (c) So long as the Convertible Preferred Securities are eligible for book-entry settlement and to the extent Convertible Preferred Securities held by QIBs or Non-U.S. Persons, as the case may be, are held in a global form, or unless otherwise required by law, upon any transfer of a definitive Convertible Preferred Security to a QIB in accordance with Rule 144A or to a Non-U.S. Person in accordance with Regulation S, unless otherwise requested by the transferor, and upon receipt of the definitive Convertible Preferred Security or Convertible Preferred Securities being so transferred, together with a certification from the transferor that the transfer is being made in compliance with Rule 144A or Regulation S, as the case may be (or other evidence satisfactory to the Institutional Trustee on behalf of the Trust), the Institutional Trustee on behalf of the Trust shall make an endorsement on any 144A Global Security or any Regula tion S Global Security, as the case may be, to reflect an increase in the number of Convertible Preferred Securities represented by such Global Certificate, and the Institutional Trustee on behalf of the Trust shall cancel such definitive Convertible Preferred Security or Convertible Preferred Securities in accordance with the standing instructions and procedures of the Clearing Agency, the number of Convertible Preferred Securities represented by such Convertible Preferred Security in global form to be increased accordingly; provided that no definitive Convertible Preferred Security, or portion thereof, in respect of which the Trust or an Affiliate of the Trust held any beneficial interest shall be included in such Convertible Preferred Security in global form until such definitive Convertible Preferred Security is freely tradeable in accordance with Rule 144(k); provided further that the Trust shall issue Convertible Preferred Securities in definitive form upon any transfer of a beneficial interest in the Convertible Preferred Security in global form to the Company or any Affiliate of the Company. (d) Any Global Certificate may be endorsed with or have incorporated in the text thereof such legends or recitals or changes not inconsistent with the provisions of this Declaration as may be required by the Clearing Agency, by any national securities exchange or by the National Association of Securities Dealers, Inc. in order for the Convertible Preferred Securities to be tradeable on the PORTAL Market or as may be required for the Convertible Preferred Securities to be tradeable on any other market developed for trading of securities pursuant to Rule 144A or required to comply with any applicable law or any regulation 39 thereunder or with the rules and regulations of any securities exchange upon which the Convertible Preferred Securities may be listed or traded or to conform with any usage with respect thereto, or to indicate any special limitations or restrictions to which any particular Convertible Preferred Securities are subject. (e) Unless and until definitive, fully registered Convertible Preferred Security Certificates (the "Definitive Convertible Preferred Security Certificates") have been issued to the Convertible Preferred Security Beneficial Owners of a Convertible Preferred Security in global form pursuant to Section 9.7: (i) the provisions of this Section 9.4 shall be in full force and effect with respect to such Convertible Preferred Securities; (ii) the Trust and the Trustees shall be entitled to deal with the Clearing Agency for all purposes of this Declaration (including the payment of Distributions on the Global Certificates and receiving approvals, votes or consents hereunder) as the Holder of such Convertible Preferred Securities and the sole holder of the Global Certificates and shall have no obligation to the Convertible Preferred Security Beneficial Owners of such Convertible Preferred Securities; (iii) to the extent that the provisions of this Section 9.4 conflict with any other provisions of this Declaration, the provisions of this Section 9.4 shall control; and (iv) the rights of the Convertible Preferred Security Beneficial Owners of Convertible Preferred Securities in global form shall be exercised only through the Clearing Agency and shall be limited to those established by law and agreements between such Convertible Preferred Security Beneficial Owners and the Clearing Agency and/or the Clearing Agency Participants. The Clearing Agency will make book-entry transfers among Clearing Agency Participants and receive and transmit payments of Distributions on the Global Certificates to such Clearing Agency Participants. DTC will make book entry transfers among the Clearing Agency Participants provided, that solely for the purposes of determining whether the Holders of the requisite amount of Convertible Preferred Securities have voted on any matter provided for in this Declaration, so long as Definitive Convertible Preferred Security Certificates have not been issued, the Trustees may conclusively rely on, and shall be protected in relying on, any written instrument (including a proxy) delivered to the Trustees by the Clearing Agency setting forth the Convertible Preferred Securities Beneficial Owners' votes or assigning the right to vote on any matter to any other Persons either in whole or in part. (f) Notwithstanding any other provisions of this Declaration (other than the provisions set forth in this Section 9.4(f)), a Convertible Preferred Security in global form may not be transferred as a whole except by the Clearing Agency to a nominee of the Clearing Agency or by a nominee of the Clearing Agency to the Clearing Agency or another nominee to a successor Clearing Agency or a nominee of such successor Clearing Agency. 40 SECTION 9.5. Notices to Clearing Agency. Whenever a notice or other communication to the Convertible Preferred Security Holders is required under this Declaration, unless and until Definitive Convertible Preferred Security Certificates shall have been issued to the Convertible Preferred Security Beneficial Owners pursuant to Section 9.7, the Regular Trustees shall give all such notices and communications specified herein to be given to the Convertible Preferred Security Holders to the Clearing Agency, and shall have no notice obligations to the Convertible Preferred Security Beneficial Owners. SECTION 9.6. Appointment of Successor Clearing Agency. If any Clearing Agency notifies the Trust that it is unwilling or unable to continue its services as securities depositary with respect to the Convertible Preferred Securities, if such Clearing Agency ceases to perform such services, or if at any time such Clearing Agency ceases to be a clearing agency registered as such under the Exchange Act when such Clearing Agency is required to be so registered to act as such depositary, then the Regular Trustees may, in their sole discretion, appoint a successor Clearing Agency with respect to such Convertible Preferred Securities. SECTION 9.7. Definitive Convertible Preferred Security Certificates Under Certain Circumstances. If: (a) a Clearing Agency notifies the Trust that it is unwilling or unable to continue its services as securities depositary with respect to the Convertible Preferred Securities, if at any time such Clearing Agency ceases to be a clearing agency registered as such under the Exchange Act when such Clearing Agency is required to be so registered to act as such depositary and no successor Clearing Agency shall have been appointed pursuant to Section 9.6 within 90 days of such notification; (b) the Regular Trustees (with the consent of the Sponsor), in their sole discretion determine that the Convertible Preferred Securities in global from shall be exchanged for certificated Convertible Preferred Securities; or (c) there shall have occurred and be continuing an Event of Default; then: (d) Definitive Convertible Preferred Security Certificates shall be prepared by the Regular Trustees on behalf of the Trust with respect to such Convertible Preferred Securities; and (e) upon surrender of the Global Certificates by the Clearing Agency, accompanied by registration instructions, the Regular Trustees shall cause Definitive Convertible Preferred 41 Security Certificates to be delivered to Convertible Preferred Security Beneficial Owners of such Convertible Preferred Securities in accordance with the instructions of the Clearing Agency. Neither the Trustees nor the Trust shall be liable for any delay in delivery of such instructions and each of them may conclusively rely on and shall be protected in relying on, said instructions of the Clearing Agency. The Definitive Convertible Preferred Security Certificates shall be printed, lithographed or engraved or may be produced in any other manner as is reasonably acceptable to the Regular Trustees, as evidenced by their execution thereof, and may have such letters, numbers or other marks of identification or designation and such legends or endorsements as the Regular Trustees may deem appropriate, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which Convertible Preferred Securities may be listed, or to conform to usage. At such time as all interests in a Convertible Preferred Security in global form have been redeemed, converted, exchanged, repurchased or canceled, such Convertible Preferred Security in global form shall be, upon receipt thereof, canceled by the Trust in accordance with standing procedures and instructions of the Clearing Agency. Convertible Preferred Securities that upon initial issuance are beneficially owned by persons that are neither QIBs nor Non-U.S. Persons will be issued as Definitive Convertible Preferred Security Certificates and may not be represented by a Global Certificate. Convertible Preferred Securities that upon initial issuance are beneficially owned by persons that are Non-U.S. Persons may, at the option of the Trust, be issued as Definitive Convertible Preferred Security Certificates. SECTION 9.8. Mutilated, Destroyed, Lost or Stolen Certificates. If: (a) any mutilated Certificates should be surrendered to the Regular Trustees, or if the Regular Trustees shall receive evidence to their satisfaction of the destruction, loss or theft of any Certificate; and (b) there shall be delivered to the Institutional Trustee or the Regular Trustees such security or indemnity as may be required by them to keep each of them harmless, then: in the absence of notice that such Certificate shall have been acquired by a bona fide purchaser, the Institutional Trustee or any Regular Trustee on behalf of the Trust shall execute and deliver, in exchange for, or in lieu of, any such mutilated, destroyed, lost or stolen Certificate, a new Certificate of like denomination. In connection with the issuance of any new Certificate under this Section 9.8, the Institutional Trustee or the Regular Trustees may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. Any duplicate Certificate issued pursuant to this Section shall 42 constitute conclusive evidence of an ownership interest in the relevant Securities, as if originally issued, whether or not the lost, stolen or destroyed Certificate shall be found at any time. ARTICLE X LIMITATION OF LIABILITY OF HOLDERS OF SECURITIES, TRUSTEES OR OTHERS SECTION 10.1. Liability. (a) Except as expressly set forth in this Declaration, the Securities Guarantees and the terms of the Securities, the Sponsor shall not be: (i) personally liable for the return of any portion of the capital contributions (or any return thereon) of the Holders of the Securities which shall be made solely from assets of the Trust; or (ii) be required to pay to the Trust or to any Holder of Securities any deficit upon dissolution of the Trust or otherwise. (b) The Holder of the Common Securities shall be liable for all of the debts and obligations of the Trust (other than with respect to the Securities) to the extent not satisfied out of the Trust's assets. (c) Pursuant to (S) 3803(a) of the Business Trust Act, the Holders of the Convertible Preferred Securities shall be entitled to the same limitation of personal liability extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware. SECTION 10.2. Exculpation. (a) No Indemnified Person shall be liable, responsible or accountable in damages or otherwise to the Trust or any Covered Person for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Indemnified Person in good faith on behalf of the Trust and in a manner such Indemnified Person reasonably believed to be within the scope of the authority conferred on such Indemnified Person by this Declaration or by law, except that an Indemnified Person shall be liable for any such loss, damage or claim incurred by reason of such Indemnified Person's gross negligence or willful misconduct with respect to such acts or omissions. (b) An Indemnified Person shall be fully protected in relying in good faith upon the records of the Trust and upon such information, opinions, reports or statements presented to the Trust by any Person as to matters the Indemnified Person reasonably believes are within such other Person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Trust, including information, opinions, reports or statements as to the 43 value and amount of the assets, liabilities, profits, losses, or any other facts pertinent to the existence and amount of assets from which Distributions to Holders of Securities might properly be paid. SECTION 10.3. Fiduciary Duty. (a) To the extent that, at law or in equity, an Indemnified Person has duties (including fiduciary duties) and liabilities relating thereto to the Trust or to any other Covered Person, an Indemnified Person acting under this Declaration shall not be liable to the Trust or to any other Covered Person for its good faith reliance on the provisions of this Declaration. The provisions of this Declaration, to the extent that they restrict the duties and liabilities of an Indemnified Person otherwise existing at law or in equity (other than the duties imposed on the Institutional Trustee under the Trust Indenture Act), are agreed by the parties hereto to replace such other duties and liabilities of such Indemnified Person. (b) Unless otherwise expressly provided herein: (i) whenever a conflict of interest exists or arises between any Covered Persons; or (ii) whenever this Declaration or any other agreement contemplated herein or therein provides that an Indemnified Person shall act in a manner that is, or provides terms that are, fair and reasonable to the Trust or any Holder of Securities, the Indemnified Person shall resolve such conflict of interest, take such action or provide such terms, considering in each case the relative interest of each party (including its own interest) to such conflict, agreement, transaction or situation and the benefits and burdens relating to such interests, any customary or accepted industry practices, and any applicable generally accepted accounting practices or principles. In the absence of bad faith by the Indemnified Person, the resolution, action or term so made, taken or provided by the Indemnified Person shall not constitute a breach of this Declaration or any other agreement contemplated herein or of any duty or obligation of the Indemnified Person at law or in equity or otherwise. (c) Whenever in this Declaration an Indemnified Person is permitted or required to make a decision: (i) in its "discretion" or under a grant of similar authority, the Indemnified Person shall be entitled to consider such interests and factors as it desires, including its own interests, and shall have no duty or obligation to give any consideration to any interest of or factors affecting the Trust or any other Person; or (ii) in its "good faith" or under another express standard, the Indemnified Person shall act under such express standard and shall not be subject to any other or different standard imposed by this Declaration or by applicable law. 44 SECTION 10.4. Indemnification. (a) (i) the Debenture Issuer shall indemnify, to the full extent permitted by law, any Company Indemnified Person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Trust) by reason of the fact that he is or was a Company Indemnified Person against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Trust, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the Company Indemnified Person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Trust, and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his conduct was unlawful. (ii) The Debenture Issuer shall indemnify, to the full extent permitted by law, any Company Indemnified Person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Trust to procure a judgment in its favor by reason of the fact that he is or was a Company Indemnified Person against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Trust and except that no such indemnification shall be made in respect of any claim, issue or matter as to which such Company Indemnified Person shall have been adjudged to be liable to the Trust unless and only to the extent that the Court of Chancery of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such Court of Chancery or such other court shall deem proper. (iii) To the extent that a Company Indemnified Person shall be successful on the merits or otherwise (including dismissal of an action without prejudice or the settlement of an action without admission of liability) in defense of any action, suit or proceeding referred to in paragraphs (i) and (ii) of this Section 10.4(a), or in defense of any claim, issue or matter therein, he shall be indemnified, to the full extent permitted by law, against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. (iv) Any indemnification under paragraphs (i) and (ii) of this Section 10.4(a) (unless ordered by a court) shall be made by the Debenture Issuer only as authorized in the specific case upon a determination that indemnification of the Company Indemnified 45 Person is proper in the circumstances because he has met the applicable standard of conduct set forth in paragraphs (i) or (ii). Such determination shall be made (1) by the Regular Trustees by a majority vote of a quorum consisting of such Regular Trustees who were not parties to such action, suit or proceeding, (2) if such a quorum is not obtainable, or, even if obtainable, if a quorum of disinterested Regular Trustees so directs, by independent legal counsel in a written opinion, or (3) by the Common Security Holder of the Trust. (v) Expenses (including attorneys' fees) incurred by a Company Indemnified Person in defending a civil, criminal, administrative or investigative action, suit or proceeding referred to in paragraphs (i) and (ii) of this Section 10.4(a) shall be paid by the Debenture Issuer in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such Company Indemnified Person to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Debenture Issuer as authorized in this Section 10.4(a). Notwithstanding the foregoing, no advance shall be made by the Debenture Issuer if a determination is reasonably and promptly made (i) by the Regular Trustees by a majority vote of a quorum of disinterested Regular Trustees, (ii) if such a quorum is not obtainable, or, even if obtainable, if a quorum of disinterested Regular Trustees so directs, by independent legal counsel in a written opinion or (iii) by the Common Security Holder of the Trust, that, based upon the facts known to the Regular Trustees, counsel or the Common Security Holder at the time such determination is made, such Company Indemnified Person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the Trust, or, with respect to any criminal proceeding, that such Company Indemnified Person believed or had reasonable cause to believe his conduct was unlawful. In no event shall any advance be made in instances where the Regular Trustees, independent legal counsel or Common Security Holder reasonably determine that such person deliberately breached his duty to the Trust or its Common or Convertible Preferred Security Holders. (vi) The indemnification and advancement of expenses provided by, or granted pursuant to, the other paragraphs of this Section 10.4(a) shall not be deemed exclusive of any other rights to which those seeking indemnification and advancement of expenses may be entitled under any agreement, vote of stockholders or disinterested directors of the Debenture Issuer or Convertible Preferred Security Holders of the Trust or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. All rights to indemnification under this Section 10.4(a) shall be deemed to be provided by a contract between the Debenture Issuer and each Company Indemnified Person who serves in such capacity at any time while this Section 10.4(a) is in effect. Any repeal or modification of this Section 10.4(a) shall not affect any rights or obligations then existing. (vii) The Debenture Issuer or the Trust may purchase and maintain insurance on behalf of any person who is or was a Company Indemnified Person against any liability asserted against him and incurred by him in any such capacity, or arising out of his status 46 as such, whether or not the Debenture Issuer would have the power to indemnify him against such liability under the provisions of this Section 10.4(a) (viii) For purposes of this Section 10.4(a), references to "the Trust" shall include, in addition to the resulting or surviving entity, any constituent entity (including any constituent of a constituent) absorbed in a consolidation or merger, so that any person who is or was a director, trustee, officer or employee of such constituent entity, or is or was serving at the request of such constituent entity as a director, trustee, officer, employee or agent of another entity, shall stand in the same position under the provisions of this Section 10.4(a) with respect to the resulting or surviving entity as he would have with respect to such constituent entity if its separate existence had continued. (ix) The indemnification and advancement of expenses provided by, or granted pursuant to, this Section 10.4(a) shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a Company Indemnified Person and shall inure to the benefit of the heirs, executors and administrators of such a person. (b) The Debenture Issuer agrees to indemnify the (i) Institutional Trustee, (ii) the Delaware Trustee, (iii) any Affiliate of the Institutional Trustee and the Delaware Trustee, and (iv) any officers, directors, shareholders, members, partners, employees, representatives, custodians, nominees or agents of the Institutional Trustee and the Delaware Trustee (each of the Persons in (i) through (iv) being referred to as a "Fiduciary Indemnified Person") for, and to hold each Fiduciary Indemnified Person harmless against, any loss, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration or the trust or trusts hereunder, including the costs and expenses (including reasonable legal fees and expenses) of defending itself against or investigating any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. The provisions of this Section 10.4(b) shall survive the satisfaction and discharge of this Declaration or the resignation or removal of the Institutional Trustee or the Delaware Trustee, as the case may be. SECTION 10.5. Outside Business. Any Covered Person, the Sponsor, the Delaware Trustee and the Institutional Trustee may engage in or possess an interest in other business ventures of any nature or description, independently or with others, similar or dissimilar to the business of the Trust, and the Trust and the Holders of Securities shall have no rights by virtue of this Declaration in and to such independent ventures or the income or profits derived therefrom, and the pursuit of any such venture, even if competitive with the business of the Trust, shall not be deemed wrongful or improper. No Covered Person, the Sponsor, the Delaware Trustee, or the Institutional Trustee shall be obligated to present any particular investment or other opportunity to the Trust even if such opportunity is of a character that, if presented to the Trust, could be taken by the Trust, and any Covered Person, shall have the right to take for its own account (individually or as a partner or fiduciary) or to recommend to others any such particular investment or other opportunity. Any Covered Person, the Delaware Trustee and the Institutional Trustee may engage or be interested in any financial or other transaction with the Sponsor or any Affiliate of the Sponsor, or may act as depositary for, trustee or agent for, or act on any committee or body of holders of, securities or other obligations of the Sponsor or its Affiliates. 47 ARTICLE XI ACCOUNTING SECTION 11.1. Fiscal Year. The fiscal year ("Fiscal Year") of the Trust shall be the same as the fiscal year of the Company. SECTION 11.2. Certain Accounting Matters. (a) At all times during the existence of the Trust, the Regular Trustees shall keep, or cause to be kept, full books, records and supporting documents, which shall reflect in detail, each transaction of the Trust. The books of account shall be maintained on the accrual method of accounting in compliance with generally accepted accounting principles, consistently applied. The Trust shall use the accrual method of accounting for the United States federal income tax purposes. The books of account and the records of the Trust shall be examined by and reported upon as of the end of each Fiscal Year of the Trust by a firm of independent certified public accountants selected by the Regular Trustees. (b) The Sponsor shall cause to be prepared and delivered to each of the Holders of Securities, within 90 days after the end of each Fiscal Year of the Sponsor, annual financial statements of the Sponsor, including a balance sheet of the Sponsor as of the end of such Fiscal Year, and the related statements of income or loss. (c) The Regular Trustees shall cause to be duly prepared and delivered to each of the Holders of Securities, any annual United States federal income tax information statement, required by the Code, containing such information with regard to the Securities held by each Holder as is required by the Code and the Treasury Regulations. Notwithstanding any right under the Code to deliver any such statement at a later date, the Regular Trustees shall endeavor to deliver all such statements within 30 days after the end of each Fiscal Year of the Trust. (d) The Regular Trustees shall cause to be duly prepared and filed with the appropriate taxing authority, an annual United States federal income tax return, on a Form 1041 or such other form required by United States federal income tax law, and any other annual income tax returns required to be filed by the Regular Trustees on behalf of the Trust with any state or local taxing authority. SECTION 11.3. Banking. The Trust shall maintain one or more bank accounts in the name and for the sole benefit of the Trust; provided, however, that all payments of funds in respect of the Debentures held by 48 the Institutional Trustee shall be made directly to the Institutional Trustee Account and no other funds of the Trust shall be deposited in the Institutional Trustee Account. The sole signatories for such accounts shall be designated by the Regular Trustees; provided, however, that the Institutional Trustee shall designate the signatories for the Institutional Trustee Account. SECTION 11.4. Withholding. The Trust and the Regular Trustees shall comply with all withholding requirements under United States federal, state and local law. The Trust shall request, and the Holders shall provide to the Trust, such forms or certificates as are necessary to establish an exemption from withholding with respect to each Holder, and any representations and forms as shall reasonably be requested by the Trust to assist it in determining the extent of, and in fulfilling, its withholding obligations. The Regular Trustees shall file required forms with applicable jurisdictions and, unless an exemption from withholding is properly established by a Holder, shall remit amounts withheld with respect to the Holder to applicable jurisdictions. To the extent that the Trust is required to withhold and pay over any amounts to any authority with respect to distributions or allocations to any Holder, the amount withheld shall be deemed to be a distribution in the amount of the withholding to the Holder. In the event of any claimed over-withholding, Holders shall be limited to an action against the applicable jurisdiction. If the amount required to be withheld was not withheld from actual Distributions made, the Trust may reduce subsequent Distributions by the amount of such withholding. Furthermore, if withholding is imposed on payments of interest on the Debentures, to the extent such withholding is attributable to ownership by a specific Holder of Convertible Preferred Securities, the amount withheld shall be deemed a distribution in the amount of the withholding to such specific Holder. ARTICLE XII AMENDMENTS AND MEETINGS SECTION 12.1. Amendments. Except as otherwise provided in this Declaration or by any applicable terms of the Securities, (a) this Declaration may only be amended by a written instrument approved and executed by the Regular Trustees (or, if there are more than two Regular Trustees a majority of the Regular Trustees) and: (i) if the amendment affects the rights, powers, duties, obligations or immunities of the Institutional Trustee, also by the Institutional Trustee; and (ii) if the amendment affects the rights, powers, duties, obligations or immunities of the Delaware Trustee, also by the Delaware Trustee; 49 (b) no amendment shall be made, and any such purported amendment shall be void and ineffective: (i) unless, in the case of any proposed amendment, the Institutional Trustee shall have first received an Officers' Certificate from each of the Trust and the Sponsor that such amendment is permitted by, and conforms to, the terms of this Declaration (including the terms of the Securities); (ii) unless, in the case of any proposed amendment which affects the rights, powers, duties, obligations or immunities of the Institutional Trustee, the Institutional Trustee shall have first received: (A) an Officers' Certificate from each of the Trust and the Sponsor that such amendment is permitted by, and conforms to, the terms of this Declaration (including the terms of the Securities); and (B) an opinion of counsel (who may be counsel to the Sponsor or the Trust) that such amendment is permitted by, and conforms to, the terms of this Declaration (including the terms of the Securities); and (iii) to the extent the result of such amendment would be to: (A) cause the Trust to fail to continue to be classified for purposes of United States federal income taxation as a grantor trust; (B) reduce or otherwise adversely affect the powers of the Institutional Trustee; or (C) cause the Trust to be deemed to be an Investment Company required to be registered under the Investment Company Act; (c) at such time after the Trust has issued any securities that remain outstanding, any amendment that would adversely affect the rights, privileges or preferences of any Holder of Securities may be effected only with such additional requirements as may be set forth in the terms of such Securities; (d) Section 9.1(c) and this Section 12.1 shall not be amended without the consent of all of the Holders of the Securities; (e) Article IV shall not be amended without the consent of the Holders of a Majority in liquidation amount of the Common Securities; (f) the rights of the holders of the Common Securities under Article V to increase or decrease the number of, and appoint and remove Trustees shall not be amended without the consent of the Holders of a Majority in liquidation amount of the Common Securities; and 50 (g) notwithstanding Section 12.1(c), this Declaration may be amended from time to time by the Holders of a Majority in liquidation amount of the Common Securities and the Institutional Trustee, without the consent of the Holders of the Convertible Preferred Securities to: (i) cure any ambiguity, correct or supplement any provision in this Declaration that may be inconsistent with any other provision, or to make any other provisions with respect to matters or questions arising under this Declaration, which shall not be inconsistent with the other provisions of this Declaration; or (ii) to modify, eliminate or add to any provisions of this Declaration to such extent as shall be necessary to ensure that the Trust will be classified for United States federal income tax purposes as a grantor trust at all times that any Securities are outstanding or to ensure that the Trust will not be required to register as an investment company under the Investment Company Act; provided, however, such action shall not adversely affect in any material respect the interests of any Holder of Securities; (h) this Declaration may be amended by the Holders of a Majority in liquidation amount of the Common Securities and the Institutional Trustee if: (i) the Holders of a Majority in liquidation amount of the Convertible Preferred Securities consent to such amendment and (ii) the Regular Trustees have received an opinion of nationally recognized independent counsel experienced in such matters to the effect that such amendment or the exercise of any power granted to the Regular Trustees in accordance with such amendment will not affect the Trust's status as a grantor trust for United States federal income tax purposes or the Trust's exemption from status as an "investment company" under the Investment Company Act, provided, that without the consent of each Holder of Securities, this Declaration may not be amended to: (x) change the amount or timing of any distribution on the Securities or otherwise adversely affect the amount of any distribution required to be made in respect of the Securities as of a specified date or (y) restrict the right of a Holder of Securities to institute suit for the enforcement of any such payment on or after such date. (i) Any amendments of this Declaration shall become effective when notice thereof is given to Holders of Securities. 51 SECTION 12.2. Meetings of the Holders of Securities; Action by Written Consent. (a) Meetings of the Holders of any class of Securities may be called at any time by the Regular Trustees (or as provided in the terms of the Securities) to consider and act on any matter on which Holders of such class of Securities are entitled to act under the terms of this Declaration, the terms of the Securities or the rules of any stock exchange on which the Convertible Preferred Securities are listed or admitted for trading. The Regular Trustees shall call a meeting of the Holders of such class if directed to do so by the Holders of at least 25% in liquidation amount of such class of Securities. Such direction shall be given by delivering to the Regular Trustees one or more calls in a writing stating that the signing Holders of Securities wish to call a meeting and indicating the general or specific purpose for which the meeting is to be called. Any Holders of Securities calling a meeting shall specify in writing the Security Certificates held by the Holders of Securities exercising the right to call a meeting and only those Securities specified shall be counted for purposes of determining whether the required percentage set forth in the second sentence of this paragraph has been met. (b) Except to the extent otherwise provided in the terms of the Securities, the following provisions shall apply to meetings of Holders of Securities: (i) notice of any such meeting shall be given to all the Holders of Securities having a right to vote thereat at least 7 days and not more than 60 days before the date of such meeting. Whenever a vote, consent or approval of the Holders of Securities is permitted or required under this Declaration or the rules of any stock exchange on which the Convertible Preferred Securities are listed or admitted for trading, such vote, consent or approval may be given at a meeting of the Holders of Securities. Any action that may be taken at a meeting of the Holders of Securities may be taken without a meeting if a consent in writing setting forth the action so taken is signed by the Holders of Securities owning not less than the minimum amount of Securities in liquidation amount that would be necessary to authorize or take such action at a meeting at which all Holders of Securities having a right to vote thereon were present and voting. Prompt notice of the taking of action without a meeting shall be given to the Holders of Securities entitled to vote who have not consented in writing. The Regular Trustees may specify that any written ballot submitted to the Security Holder for the purpose of taking any action without a meeting shall be returned to the Trust within the time specified by the Regular Trustees; (ii) each Holder of a Security may authorize any Person to act for it by proxy on all matters in which a Holder of Securities is entitled to participate, including waiving notice of any meeting, or voting or participating at a meeting. No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the Holder of Securities executing it. Except as otherwise provided herein, all matters relating to the giving, voting or validity of proxies shall be governed by the General Corporation Law of the State of Delaware relating to proxies, and judicial interpretations thereunder, as if the Trust were a Delaware corporation and the Holders of the Securities were stockholders of a Delaware corporation; 52 (iii) each meeting of the Holders of the Securities shall be conducted by the Regular Trustees or by such other Person that the Regular Trustees may designate; and (iv) unless the Business Trust Act, this Declaration, the terms of the Securities, the Trust Indenture Act or the listing rules of any stock exchange on which the Convertible Preferred Securities are then listed or trading, otherwise provides, the Regular Trustees, in their sole discretion, shall establish all other provisions relating to meetings of Holders of Securities, including notice of the time, place or purpose of any meeting at which any matter is to be voted on by any Holders of Securities, waiver of any such notice, action by consent without a meeting, the establishment of a record date, quorum requirements, voting in person or by proxy or any other matter with respect to the exercise of any such right to vote. ARTICLE XIII REPRESENTATIONS OF INSTITUTIONAL TRUSTEE AND DELAWARE TRUSTEE SECTION 13.1. Representations and Warranties of Institutional Trustee. The Trustee that acts as initial Institutional Trustee represents and warrants to the Trust and to the Sponsor at the date of this Declaration, and each Successor Institutional Trustee represents and warrants, as applicable, to the Trust and the Sponsor at the time of the Successor Institutional Trustee's acceptance of its appointment as Institutional Trustee that: (a) the Institutional Trustee is a national banking association with trust powers, duly organized, validly existing and in good standing, with trust power and authority to execute and deliver, and to carry out and perform its obligations under the terms of, the Declaration; (b) the execution, delivery and performance by the Institutional Trustee of the Declaration has been duly authorized by all necessary corporate action on the part of the Institutional Trustee. The Declaration has been duly executed and delivered by the Institutional Trustee, and it constitutes a legal, valid and binding obligation of the Institutional Trustee, enforceable against it in accordance with its terms, subject to applicable bankruptcy, reorganization, moratorium, insolvency, and other similar laws affecting creditors' rights generally and to general principles of equity and the discretion of the court (regardless of whether the enforcement of such remedies is considered in a proceeding in equity or at law); (c) the execution, delivery and performance of the Declaration by the Institutional Trustee does not conflict with or constitute a breach of the charter or by-laws of the Institutional Trustee; and (d) no consent, approval or authorization of, or registration with or notice to, any state or federal banking authority is required for the execution, delivery or performance by the Institutional Trustee, of the Declaration. 53 SECTION 13.2. Representations and Warranties of Delaware Trustee. The Trustee that acts as initial Delaware Trustee represents and warrants to the Trust and to the Sponsor at the date of this Declaration, and each Successor Delaware Trustee represents and warrants to the Trust and the Sponsor at the time of the Successor Delaware Trustee's acceptance of its appointment as Delaware Trustee that: (a) The Delaware Trustee is a Delaware corporation, duly organized, validly existing and in good standing, with corporate power and authority to execute and deliver, and to carry out and perform its obligations under the terms of, the Declaration. (b) The Delaware Trustee has been authorized to perform its obligations under the Certificate of Trust and the Declaration. The Declaration under Delaware law constitutes a legal, valid and binding obligation of the Delaware Trustee, enforceable against it in accordance with its terms, subject to applicable bankruptcy, reorganization, moratorium, insolvency, and other similar laws affecting creditors' rights generally and to general principles of equity and the discretion of the court (regardless of whether the enforcement of such remedies is considered in a proceeding in equity or at law). (c) No consent, approval or authorization of, or registration with or notice to, any Delaware or federal banking authority is required for the execution, delivery or performance by the Delaware Trustee, of the Declaration. (d) The Delaware Trustee is a natural person who is a resident of the State of Delaware or, if not a natural person, an entity which has its principal place of business in the State of Delaware. ARTICLE XIV MISCELLANEOUS SECTION 14.1. Notices. All notices provided for in this Declaration shall be in writing, duly signed by the party giving such notice, and shall be delivered, telecopied or mailed by first class mail, as follows: 54 (a) if given to the Trust, in care of the Regular Trustees at the Trust's mailing address set forth below (or such other address as the Trust may give notice of to the Holders of the Securities): McKesson Financing Trust c/o McKesson Corporation McKesson Plaza One Post Street San Francisco, California 94104 Attention: General Counsel (b) if given to the Delaware Trustee, at the mailing address set forth below (or such other address as Delaware Trustee may give notice of to the Holders of the Securities): First Chicago Delaware Inc. 300 King street Wilmington, Delaware 19801 Attention: Michael J. Majchrzak (c) if given to the Institutional Trustee, at its Corporate Trust Office's mailing address set forth below (or such other address as the Institutional Trustee may give notice of to the Holders of the Securities). The First National Bank of Chicago One First National Plaza, Suite 0126 Chicago, Illinois 60670-0126 Attention: Corporate Trust Services Division (d) if given to the Holder of the Common Securities, at the mailing address of the Sponsor set forth below (or such other address as the Holder of the Common Securities may give notice to the Trust): McKesson Corporation McKesson Plaza One Post Street San Francisco, California 94104 Attention: General Counsel (e) if given to any other Holder, at the address set forth on the books and records of the Trust. All such notices shall be deemed to have been given when received in person, telecopied with receipt confirmed, or mailed by first class mail, postage prepaid except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver. 55 SECTION 14.2. Governing Law. This Declaration and the rights of the parties hereunder shall be governed by and interpreted in accordance with the laws of the State of Delaware and all rights and remedies shall be governed by such laws without regard to principles of conflict of laws. SECTION 14.3. Intention of the Parties. It is the intention of the parties hereto that the Trust be classified for United States federal income tax purposes as a grantor trust. The provisions of this Declaration shall be interpreted to further this intention of the parties. SECTION 14.4. Headings. Headings contained in this Declaration are inserted for convenience of reference only and do not affect the interpretation of this Declaration or any provision hereof. SECTION 14.5. Successors and Assign. Whenever in this Declaration any of the parties hereto is named or referred to, the successors and assigns of such party shall be deemed to be included, and all covenants and agreements in this Declaration by the Sponsor and the Trustees shall bind and inure to the benefit of their respective successors and assigns, whether so expressed. SECTION 14.6. Partial Enforceability. If any provision of this Declaration, or the application of such provision to any Person or circumstance, shall be held invalid, the remainder of this Declaration, or the application of such provision to persons or circumstances other than those to which it is held invalid, shall not be affected thereby. SECTION 14.7. Counterparts. This Declaration may contain more than one counterpart of the signature page and this Declaration may be executed by the affixing of the signature of each of the Trustees to one of such counterpart signature pages. All of such counterpart signature pages shall be read as though one, and they shall have the same force and effect as though all of the signers had signed a single signature page. 56 IN WITNESS WHEREOF, the undersigned has caused these presents to be executed as of the day and year first above written. ____________________________________________________ IVAN D. MEYERSON, as Regular Trustee Solely as trustee and not in his individual capacity ____________________________________________________ WILLIAM A. ARMSTRONG, as Regular Trustee Solely as trustee and not in his individual capacity FIRST CHICAGO DELAWARE INC., as Delaware Trustee By: /s/ Richard D. Manella ----------------------------------------------- Name: Richard D. Manella Title: Vice President THE FIRST NATIONAL BANK OF CHICAGO, as Institutional Trustee By: /s/ Richard D. Manella ----------------------------------------------- Name: Richard D. Manella Title: Vice President McKESSON CORPORATION, as Sponsor By: /s/ Ivan D. Meyerson ----------------------------------------------- Name: Ivan D. Meyerson Title: Vice President 57 ANNEX I TERMS OF 5% CONVERTIBLE PREFERRED SECURITIES 5% CONVERTIBLE COMMON SECURITIES Pursuant to Section 7.1 of the Amended and Restated Declaration of Trust, dated as of February 20, 1997 (as amended from time to time, the "Declaration"), the designation, rights, privileges, restrictions, preferences and other terms and provisions of the Convertible Preferred Securities and the Common Securities are set out below (each capitalized term used but not defined herein has the meaning set forth in the Declaration or, if not defined in such Declaration, as defined in the Offering Memorandum referred to below): 1. Designation and Number. ---------------------- (a) Convertible Preferred Securities. 3,500,000 Convertible Preferred -------------------------------- Securities of the Trust (4,000,000 Convertible Preferred Securities if the Initial Purchaser's over-allotment option is exercised in full) with an aggregate liquidation amount with respect to the assets of the Trust of One Hundred Seventy-Five Million Dollars ($175,000,000) (Two Hundred Million Dollars ($200,000,000) if the Initial Purchaser's over-allotment option is exercised in full), and a liquidation amount with respect to the assets of $50 per convertible preferred security, are hereby designated for the purposes of identification only as "5% Trust Convertible Preferred Securities" (the "Convertible Preferred Securities"). The Convertible Preferred Security Certificates evidencing the Convertible Preferred Securities shall be substantially in the form of Exhibit A-1 to the Declaration, with such letters, numbers, notations, other means of identification or designation or other changes or additions thereto or deletions therefrom as may be required by ordinary usage, custom or practice and such legends or endorsements required by law, state exchange rule and agreements to which the Trust is subject, if any (provided that any such notation, legend or endorsement is in a form acceptable to the Trust). (b) Common Securities. 108,260 Common Securities of the Trust (123,720 ----------------- Common Securities if the Initial Purchaser's over-allotment option is exercised in full) with an aggregate liquidation amount with respect to the assets of the Trust of Five Million Four Hundred Thirteen Thousand Dollars ($5,413,000) (Six Million One Hundred Eighty-Six Thousand Dollars ($6,186,000) if the Initial Purchaser's over-allotment option is exercised in full), and a liquidation amount with respect to the assets of the Trust of $50 per common security, are hereby designated for the purposes of identification only as "5% Common Securities" (the "Common Securities"). The Common Securities Certificates evidencing the Common Securities shall be in the form of Exhibit A-2 to the Declaration, with such letters, numbers, notations, other means of identification or designation or other changes or additions thereto or deletions therefrom as may be required by ordinary usage, custom or practice and such legends or endorsements required by law, state exchange rule and agreements to which the Trust is subject, if any (provided that any such notation, legend or endorsement is in a form acceptable to the Trust). I-1 2. Distributions. ------------- (a) Distributions payable on each Security will be fixed at a rate per annum of 5% (the "Coupon Rate") of the stated liquidation amount of $50 per Security, such rate being the rate of interest payable on the Debentures to be held by the Institutional Trustee. Distributions in arrears for more than one quarter will bear interest thereon compounded quarterly at the Coupon Rate (to the extent permitted by applicable law). The term "Distributions" as used herein includes such interest payable unless otherwise stated. A Distribution is payable only to the extent that payments are made in respect of the Debentures held by the Institutional Trustee and to the extent the Institutional Trustee has funds available therefor. The amount of Distributions payable for any period will be computed for any full quarterly Distribution period on the basis of a 360-day year of twelve 30-day months, and for any period shorter than a full quarterly Distribution period for which Distributions are computed, Distributions will be computed on the basis of the actual number of days elapsed per 30-day month. (b) Distributions on the Securities will be cumulative, will accrue from February 20, 1997 and will be payable quarterly in arrears, on March 1, June 1, September 1 and December 1 of each year, commencing on June 1, 1997, except as otherwise described below. So long as the Debenture Issuer shall not be in default in the payment of interest on the Debentures, the Debenture Issuer has the right under the Indenture to defer payments of interest on the Debentures by extending the interest payment period from time to time on the Debentures for a period not exceeding 20 consecutive quarters (each an "Extension Period"), during which Extension Period no interest shall be due and payable on the Debentures, provided that no Extension Period shall last beyond the date of maturity or any redemption date of the Debentures. As a consequence of such deferral, Distributions will also be deferred. Despite such deferral, quarterly Distributions will continue to accrue with interest thereon (to the extent permitted by applicable law) at the Coupon Rate compounded quarterly during any such Extension Period. Prior to the termination of any such Extension Period, the Debenture Issuer may further extend such Extension Period; provided that such Extension Period together with all such previous and further extensions thereof may not exceed 20 consecutive quarters or extend beyond the maturity or any redemption date of the Debentures. Payments of accrued Distributions and, to the extent permitted by applicable law, accrued interest thereon shall be payable on the Distribution payment date on which the relevant Extension Period terminates and shall be payable to Holders as they appear on the books and records of the Trust at the close of business on the record date next preceding such Distribution payment date. Upon the termination of any Extension Period and the payment of all amounts then due, the Debenture Issuer may commence a new Extension Period, subject to the above requirements. Each Extension Period, if any, will end on an interest payment date for the Debentures; such date will also be a Distribution payment date for the Securities. In the event that the Debenture Issuer exercises its right to defer payment of interest, then during such Extension Period the Debenture Issuer shall not (a) declare or pay dividends on, make distributions with respect to, or redeem, purchase or acquire, or make a liquidation payment with respect to, any of its capital stock, or (b) make any payment of interest, principal or premium, if any, on or repay, repurchase or redeem any debt securities issued by the Debenture Issuer that rank pari passu with I-2 or junior in interest to the Debentures or make any guarantee payments with respect to any guarantee by the Debenture Issuer of the debt securities of any subsidiary of the Debenture Issuer if such guarantee ranks pari passu with or junior in interest to the Debentures (other than (i) as a result of a reclassification of the capital stock of the Debenture Issuer or the exchange or conversion of one class or series of the capital stock of the Debenture Issuer for another class or series of the capital stock of the Debenture Issuer, (ii) the purchase of fractional interests in shares of the capital stock of the Debenture Issuer pursuant to the conversion or exchange provisions of such capital stock or the security being converted into or exchanged for such capital stock, (iii) dividends or distributions in Common Stock of the Debenture Issuer, (iv) any declaration of a dividend in connection with the implementation of a stockholders' rights plan, or the issuance of stock under any such plan in the future, or the redemption or repurchase of any such rights pursuant thereto, (v) payments under the Securities Guarantees, (vi) purchases of Common Stock of the Debenture Issuer related to the issuance of Common Stock of the Debenture Issuer or rights under any of the Debenture Issuer's benefit plans for its directors, officers or employees and (vii) obligations under any dividend reinvestment and stock purchase plans). (c) Distributions on the Securities will be payable to the Holders thereof as they appear on the books and records of the Trust on the relevant record dates, which shall be fifteen days prior to the relevant payment dates, which payment dates correspond to the record and interest payment dates on the Debentures. The relevant record dates for the Common Securities shall be the same record dates as for the Convertible Preferred Securities. Distributions payable on any Securities that are not punctually paid on any Distribution payment date, as a result of the Debenture Issuer having failed to make a payment under the Debentures, will cease to be payable to the Person in whose name such Securities are registered on the relevant record date, and such defaulted Distribution will instead be payable to the Person in whose name such Securities are registered on the special record date or other specified date determined in accordance with the Indenture. If any date on which Distributions are payable on the Securities is not a Business Day, then payment of the Distributions payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay) except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. (d) In the event of an election by the Holder to convert its Securities through the Conversion Agent into Common Stock pursuant to the terms of the Securities as set forth in this Annex I to the Declaration, no payment, allowance or adjustment shall be made with respect to accumulated and unpaid Distributions on such Securities, or be required to be made; provided, however, that Holders of Securities at the close of business on any record date for the payment of Distributions will be entitled to receive the Distributions payable on such Securities on the corresponding payment date notwithstanding the conversion of such Securities into Common Stock following such record date; provided, further that if the date of any redemption of related Debentures falls between such record date and such corresponding payment date, the amount of such Distribution shall include accumulated and unpaid Distributions accrued to but excluding such date of redemption and such payment shall be made to the converting holder. (e) In the event that there is any money or other property held by or for the Trust that is not accounted for hereunder, such property shall be distributed Pro Rata (as defined herein) among the Holders of the Securities. I-3 3. Liquidation Distribution Upon Dissolution. ----------------------------------------- The Debenture Issuer will have the right at any time to cause the Trust to be dissolved with the result that, after satisfaction of creditors of the Trust, Debentures having an aggregate principal amount equal to the aggregate stated liquidation amount of the Convertible Preferred Securities and the Common Securities will be distributed on a pro rata basis to the Holders of the Convertible Preferred Securities and the Common Securities in liquidation of such Holders' interests in the Trust, within 90 days following notice given to the Holders of the Convertible Preferred Securities, subject to the Regular Trustees' receipt of an opinion of nationally recognized independent counsel experienced in such matters to the effect that the Holders will not recognize any income, gain or loss for United States federal income tax purposes as a result of the dissolution of the Trust and such distribution to Holders of Convertible Preferred Securities. In the event of any voluntary or involuntary liquidation, dissolution, winding-up or termination of the Trust (each a "Liquidation"), the Holders of the Securities on the date of the Liquidation will be entitled to receive out of the assets of the Trust available for distribution to Holders of Securities after satisfaction of liabilities of creditors an amount equal to the aggregate of the stated liquidation amount of $50 per Security plus accrued and unpaid Distributions thereon to the date of payment (such amount being the "Liquidation Distribution"), unless, in connection with such Liquidation, Debentures in an aggregate stated principal amount equal to the aggregate stated liquidation amount of such Securities, with an interest rate equal to the Coupon Rate of, and bearing accrued and unpaid interest in an amount equal to the accrued and unpaid Distributions on, such Securities, shall have been distributed on a Pro Rata basis to the Holders of the Securities in exchange for such Securities. If, upon any such Liquidation, the Liquidation Distribution can be paid only in part because the Trust has insufficient assets available to pay in full the aggregate Liquidation Distribution, then the amounts payable directly by the Trust on the Securities shall be paid on a Pro Rata basis. 4. Redemption and Distribution. --------------------------- (a) The Debentures will mature on June 1, 2027, and may be redeemed, in whole or in part, at any time on or after March 4, 2000, or at any time in certain circumstances upon the occurrence of a Tax Event (as defined below). Upon the repayment of the Debentures in whole or in part, whether at maturity, upon redemption (either at the option of the Debenture Issuer or pursuant to a Tax Event as described below) or otherwise, the proceeds from such repayment or payment shall be simultaneously applied to redeem Securities having an aggregate liquidation amount equal to the aggregate principal amount of the Debentures so repaid or redeemed at a redemption price per Security equal to the redemption price of the Debentures, together with accrued and unpaid Distributions thereon to, but excluding, the date of the redemption, payable in cash (the "Redemption Price"). Holders will be given not less than 30 nor more than 60 days' notice of such redemption. I-4 (b) If fewer than all the outstanding Securities are to be so redeemed, the Common Securities and the Convertible Preferred Securities will be redeemed Pro Rata and the Convertible Preferred Securities to be redeemed will be as described in Section 4(f) below. (c) If, at any time, a Tax Event or an Investment Company Event (each, as defined below, a "Special Event") shall occur and be continuing, the Regular Trustees may with the consent of the Debenture Issuer, except in certain limited circumstances in relation to a Tax Event described in this Section 4(c), dissolve the Trust and, after satisfaction of creditors, cause Debentures held by the Institutional Trustee, having an aggregate principal amount equal to the aggregate stated liquidation amount of, with an interest rate identical to the Coupon Rate of, and accrued and unpaid interest equal to accrued and unpaid Distributions on, and having the same record date for payment as the Securities, to be distributed to the Holders of the Securities in liquidation of such Holders' interests in the Trust on a Pro Rata basis, within 90 days following the occurrence of such Special Event (the "90 Day Period"); provided, however, that such dissolution and distribution shall be conditioned on (i) the Regular Trustees' receipt of an opinion of nationally recognized independent tax counsel experienced in such matters (a "No Recognition Opinion"), which opinion may rely on published revenue rulings of the Internal Revenue Service, to the effect that the Holders of the Securities will not recognize any gain or loss for United States federal income tax purposes as a result of the dissolution of the Trust and the distribution of Debentures, (ii) in the case of a Tax Event, the Debenture Issuer or the Trust being unable to avoid, within the 90 Day Period, the Tax Event by taking some ministerial action, such as filing a form or making an election, or pursuing some other similar reasonable measure that has no adverse effect on the Trust, the Debenture Issuer, the Sponsor or the Holders of the Securities ("Ministerial Action"), and (iii) the Debenture Issuer's prior written consent to such dissolution and distribution. Furthermore, if (i) after receipt of a Dissolution Tax Opinion (as defined hereinafter) by the Regular Trustees, the Debenture Issuer has received an opinion (a "Redemption Tax Opinion") of nationally recognized independent tax counsel experienced in such matters that, as a result of a Tax Event, there is more than an insubstantial risk that the Debenture Issuer would be precluded from deducting the interest on the Debentures for United States federal income tax purposes even after the Debentures were distributed to the Holders of Securities in liquidation of such Holders' interests in the Trust as described in this Section 4(c), or (ii) the Regular Trustees shall have been informed by such tax counsel that it cannot deliver a No Recognition Opinion to the Trust, the Debenture Issuer shall have the right, upon not less than 30 nor more than 60 days' notice, to redeem the Debentures, in whole or in part, at a redemption price equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon, for cash within 90 days following the occurrence of such Tax Event. Following such redemption, Securities with an aggregate liquidation amount equal to the aggregate principal amount of the Debentures so redeemed shall be redeemed by the Trust at the Redemption Price on a Pro Rata basis; provided, however, that, if at the time there is available to the Debenture Issuer or the Trust the opportunity to eliminate, within such 90 day period, the Tax Event by taking some Ministerial Action, the Trust or the Debenture Issuer will pursue such Ministerial Action in lieu of redemption. I-5 "Tax Event" means that the Regular Trustees shall have received an opinion of nationally recognized independent tax counsel experienced in such matters (a "Dissolution Tax Opinion") to the effect that on or after February 20, 1997, as a result of (a) any amendment to, clarification of, or change (including any announced prospective change) in the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein affecting taxation, (b) any judicial decision, official administrative pronouncement, ruling, regulatory procedure, notice or announcement, including any notice or announcement of intent to adopt such procedures or regulations (an "Administrative Action") or (c) any amendment to, clarification of, or change in the official position or the interpretation of such Administrative Action or judicial decision that differs from the theretofore generally accepted position, in each case, by any legislative body, court, governmental authority or regulatory body, irrespective of the manner in which such amendment, clarification, change or Administrative Action is made known, which amendment, clarification, change or Administrative Action is effective or such pronouncement or decision is announced, in each case, on or after, February 20, 1997, there is the creation by such amendment, clarification, change or Administrative Action of more than an insubstantial risk that (i) the Trust is, or will be within 90 days of the date thereof, subject to United States federal income tax with respect to income accrued or received on the Debentures, (ii) the Trust is, or will be within 90 days of the date thereof, subject to more than a de minimis amount of taxes (other than withholding taxes), duties or other governmental charges, or (iii) interest paid in cash by the Debenture Issuer to the Trust on the Debentures is not, or within 90 days of the date thereof will not be, deductible, in whole or in part, by the Debenture Issuer for United States federal income tax purposes. Notwithstanding the foregoing, a Tax Event shall not include any change in tax law that requires the Debenture Issuer for United States federal income tax purposes to defer taking a deduction for any original issue discount ("OID") that accrues with respect to the Debentures until the interest payment related to such OID is paid by the Debenture Issuer in cash; provided, that such change in tax law does not create more than an insubstantial risk that the Debenture Issuer will be prevented from taking a deduction for OID accruing with respect to the Debentures at a date that is no later than the date the interest payment related to such OID is actually paid by the Debenture Issuer in cash. "Investment Company Event" means that the Regular Trustees shall have received an opinion of nationally recognized independent counsel experienced in such matters to the effect that, as a result of the occurrence of a change in law or regulation or a written change in interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority on or after February 20, 1997 (a "Change in 1940 Act Law"), there is more than an insubstantial risk that the Trust is or will be considered an "investment company" that is required to be registered under the Investment Company Act of 1940, as amended (the "1940 Act"). After the date fixed by the Regular Trustees for any distribution of Debentures upon dissolution of the Trust: (i) the Securities will no longer be deemed to be outstanding, (ii) The Depository Trust Company (the "Depository") or its nominee (or any successor Clearing Agency or its nominee), as the record Holder of the Convertible Preferred Securities held in global form, will receive a registered certificate or certificates representing the Debentures held in global form to be delivered upon such distribution, and (iii) certificates representing Securities held in I-6 definitive form, except for certificates representing Convertible Preferred Securities held by the Depository or its nominee (or any successor Clearing Agency or its nominee), will be deemed to represent Debentures having an aggregate principal amount equal to the aggregate stated liquidation amount of, with an interest rate identical to the Coupon Rate of, and accrued and unpaid interest (including Compound Interest (as defined in the Indenture)) equal to accrued and unpaid Distributions on such Securities until such certificates are presented to the Debenture Issuer or its agent for transfer or reissue. (d) The Trust may not redeem fewer than all the outstanding Securities unless all accrued and unpaid Distributions have been paid on all Securities for all quarterly Distribution periods terminating on or prior to the date of redemption. (e) (i) Notice of any redemption of, or notice of distribution of Debentures in exchange for, the Securities (a "Redemption/Distribution Notice") will be given by the Trust by mail to each Holder of Securities to be redeemed or exchanged not fewer than 30 nor more than 60 days before the date fixed for redemption or exchange thereof which, in the case of a redemption, will be the date fixed for redemption of the Debentures. For purposes of the calculation of the date of redemption or exchange and the dates on which notices are given pursuant to this Section 4(e), a Redemption/Distribution Notice shall be deemed to be given on the day such notice is first mailed by first-class mail, postage prepaid, or by such other means suitable to assure delivery of such written notice, to Holders of Securities. Each Redemption/Distribution Notice shall be addressed to the Holders of Securities at the address of each such Holder appearing in the books and records of the Trust. No defect in the Redemption/Distribution Notice or in the mailing of either thereof with respect to any Holder of Securities shall affect the validity of the redemption or exchange proceedings with respect to any other Holder of Securities. (ii) In addition to the Redemption/Distribution Notice to be provided to the Holders of Securities pursuant to clause (i) of this Section 4(e), the Debenture Issuer or the Trust shall give public notice of any such redemption by the issuance of a press release through the services of the Dow Jones Broad Tape, Reuters News Service and Bloomberg News Service. (f) In the event that fewer than all the outstanding Securities are to be redeemed, the Securities to be redeemed shall be redeemed Pro Rata from each Holder of Convertible Preferred Securities, it being understood that, in respect of Convertible Preferred Securities registered in the name of and held of record by the Depository or its nominee (or any successor Clearing Agency or its nominee) or any nominee, the distribution of the proceeds of such redemption will be made to each Clearing Agency Participant (or Person on whose behalf such nominee holds such securities) in accordance with the procedures applied by such agency or nominee. (g) If Securities are to be redeemed and the Trust gives a Redemption/Distribution Notice, which notice may only be issued for a redemption if the Debentures are redeemed as set out in Article X of the Indenture (which notice will be irrevocable), then (i) with respect to Convertible Preferred Securities held in book-entry form by 12:00 noon, New York City time, I-7 on the redemption date, provided that the Debenture Issuer has paid the Institutional Trustee a sufficient amount of cash in connection with the related redemption of the Debentures, the Institutional Trustee will deposit irrevocably with the Depository or its nominee (or successor Clearing Agency or its nominee) funds sufficient to pay the applicable Redemption Price with respect to such Convertible Preferred Securities and will give the Depository irrevocable instructions and authority to pay the Redemption Price to the Holders of such Convertible Preferred Securities, and (ii) with respect to Convertible Preferred Securities issued in definitive form and Common Securities, provided that the Debenture Issuer has paid the Institutional Trustee a sufficient amount of cash in connection with the related redemption of the Debentures, the Institutional Trustee will pay the relevant Redemption Price to the Holders of such Securities by check mailed to the address of the relevant Holder appearing on the books and records of the Trust on the redemption date. If a Redemption/Distribution Notice shall have been given in connection with a redemption and funds deposited as required, then from and after the required date of such deposit, distributions will cease to accrue on the Securities so called for redemption and all rights of Holders of such Securities so called for redemption will cease, except the right of the Holders of such Securities to receive the Redemption Price, but without interest on such Redemption Price. If any date fixed for redemption of Securities is not a Business Day, then payment of the Redemption Price payable on such date will be made on the next succeeding Business Day (and without any interest or other payment in respect of any such delay) except that, if such Business Day falls in the next calendar year, such payment will be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date fixed for redemption. If payment of the Redemption Price in respect of any Securities is improperly withheld or refused and not paid either by the Institutional Trustee or by the Sponsor as guarantor pursuant to the relevant Securities Guarantee, Distributions on such Securities will continue to accrue from the original redemption date to the actual date of payment, in which case the actual payment date will be considered the date fixed for redemption for purposes of calculating the Redemption Price. Neither the Regular Trustees nor the Trust shall be required (i) in the event of any redemption in part, to issue, register the transfer of or exchange any Securities during a period beginning at the opening of business 15 days before any selection for redemption of Securities and ending at the close of business on the earliest date in which the relevant Redemption/Distribution Notice is deemed to have been given to all holders of Securities to be so redeemed or (ii) to register the transfer of or exchange any Securities selected for redemption, in whole or in part, except for the unredeemed portion of any Securities being redeemed in part. (h) Redemption/Distribution Notices shall be sent by the Regular Trustees on behalf of the Trust to (i) in respect of Convertible Preferred Securities held in global form, the Depository or its nominee (or any successor Clearing Agency or its nominee), (ii) with respect to Convertible Preferred Securities held in definitive form, to the Holders thereof, and (iii) in respect of the Common Securities, to the Holders thereof. (i) Subject to the foregoing and applicable law (including, without limitation, United States federal securities laws), the Sponsor or any of its subsidiaries may at any time and from time to time purchase outstanding Convertible Preferred Securities by tender, in the open market or otherwise. I-8 5. Conversion Rights. ----------------- The Holders of Securities shall have the right at any time, beginning May 21, 1997 through the close of business on May 28, 2027 (or, in the case of Securities called for redemption, prior to the close of business on the Business Day prior to the redemption date), at their option, to cause the Conversion Agent to convert Securities, on behalf of the converting Holders, into shares of Common Stock in the manner described herein on and subject to the following terms and conditions: (a) The Securities will be convertible at the office of the Conversion Agent into fully paid and nonassessable shares of Common Stock pursuant to the Holder's direction to the Conversion Agent to exchange such Securities for a portion of the Debentures theretofore held by the Trust on the basis of one Security per $50 principal amount of Debentures, and immediately convert such amount of Debentures into fully paid and nonassessable shares of Common Stock at an initial rate of .6709 shares of Common Stock per $50 principal amount of Debentures (which is equivalent to a conversion price of $74.53 per share of Common Stock, subject to certain adjustments set forth in Article XII of the Indenture (as so adjusted, "Conversion Price")). (b) In order to convert Securities into Common Stock, the Holder shall submit to the Conversion Agent at its office an irrevocable request to convert Securities on behalf of such Holder (the "Conversion Request"), together, if the Securities are in certificated form, with such certificates. The Conversion Request shall (i) set forth the number of Securities to be converted and the name or names, if other than the Holder, in which the shares of Common Stock should be issued and (ii) direct the Conversion Agent (a) to exchange such Securities for a portion of the Debentures held by the Trust (at the rate of exchange specified in the preceding paragraph) and (b) to immediately convert such Debentures on behalf of such Holder, into Common Stock (at the conversion rate specified in the preceding paragraph). The Conversion Agent shall notify the Trust of the Holder's election to exchange Securities for a portion of the Debentures held by the Trust and the Trust shall, upon receipt of such notice, deliver to the Conversion Agent the appropriate principal amount of Debentures for exchange in accordance with this Section. The Conversion Agent shall thereupon notify McKesson of the Holder's election to convert such Debentures into shares of Common Stock. Holders of Securities at the close of business on a Distribution record date will be entitled to receive the Distribution payable on such securities on the corresponding Distribution payment date notwithstanding the conversion of such Securities following such record date but prior to such distribution payment date; provided, however, that if the date of any redemption of the related Debentures falls between such record date and the related Distribution payment date, the amount of such Distribution shall include accumulated and unpaid Distributions accrued to but excluding such date of redemption, and such payment shall be made to the converting Holder. Except as provided above, neither the Trust nor the Sponsor will make, or be required to make, any payment, allowance or adjustment upon any conversion on account of any accumulated and unpaid Distributions accrued on the Securities (including any Additional Amounts accrued thereon) surrendered for conversion, or on account of any accumulated and unpaid dividends on the shares of Common Stock issued upon such conversion, except to the extent that such shares are held of record on the record date for any such distributions. Securities shall be deemed to have been converted immediately prior to the close of business on I-9 the day on which a Notice of Conversion relating to such Securities is received by the Trust in accordance with the foregoing provision (the "Conversion Date"). The Person or Persons entitled to receive Common Stock issuable upon conversion of the Debentures shall be treated for all purposes as the record holder or holders of such Common Stock at such time. As promptly as practicable on or after the Conversion Date, McKesson shall issue and deliver at the office of the Conversion Agent a certificate or certificates for the number of full shares of Common Stock issuable upon such conversion, together with the cash payment, if any, in lieu of any fraction of any share to the Person or Persons entitled to receive the same, unless otherwise directed by the Holder in the notice of conversion and the Conversion Agent shall distribute such certificate or certificates to such Person or Persons. (c) Each Holder of a Security by his acceptance thereof appoints The First National Bank of Chicago as "Conversion Agent" for the purpose of effecting the conversion of Securities in accordance with this Section. In effecting the conversion and transactions described in this Section, the Conversion Agent shall be acting as agent of the Holders of Securities directing it to effect such conversion transactions. The Conversion Agent is hereby authorized (i) to exchange Securities from time to time for Debentures held by the Trust in connection with the conversion of such Securities in accordance with this Section and (ii) to convert all or a portion of the Debentures into Common Stock and thereupon to deliver such shares of Common Stock in accordance with the provisions of this Section and to deliver to the Trust a new Debenture or Debentures for any resulting unconverted principal amount. (d) No fractional shares of Common Stock will be issued as a result of conversion of Securities, but in lieu thereof such fractional interest will be paid in cash by McKesson, in an amount based on the Closing Price of the Common Stock on the date such Securities are surrendered for conversion, to the Conversion Agent, which in turn will make such payment to the Holder or Holders of Securities so converted. (e) McKesson shall at all times reserve and keep available out of its authorized and unissued Common Stock, solely for issuance upon the conversion of the Debentures, free from any preemptive or other similar rights, such number of shares of Common Stock as shall from time to time be issuable upon the conversion of all the Debentures then outstanding. Notwithstanding the foregoing, McKesson shall be entitled to deliver upon conversion of Debentures, shares of Common Stock reacquired and held in the treasury of McKesson (in lieu of the issuance of authorized and unissued shares of Common Stock), so long as any such treasury shares are free and clear of all liens, charges, security interests or encumbrances. Any shares of Common Stock issued upon conversion of the Debentures shall be duly authorized, validly issued and fully paid and nonassessable. The Trust shall deliver the shares of Common Stock received upon conversion of the Debentures to the converting Holder free and clear of all liens, charges, security interests and encumbrances, except for United States withholding taxes. Each of McKesson and the Trust shall prepare and shall use its best efforts to obtain and keep in force such governmental or regulatory permits or other authorizations as may be required by law, and shall comply with all applicable requirements as to registration or qualification of Common Stock (and all requirements to list Common Stock issuable upon conversion of Debentures that are at the time applicable), in order to enable McKesson to lawfully issue Common Stock to the Trust I-10 upon conversion of the Debentures and the Trust to lawfully deliver Common Stock to each Holder upon conversion of the Securities. (f) McKesson will pay any and all taxes that may be payable in respect of the issue or delivery of shares of Common Stock on conversion of Debentures and the delivery of the shares of Common Stock by the Trust upon conversion of the Securities. McKesson shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock in a name other than that in which the Securities so converted were registered, and no such issue or delivery shall be made unless and until the person requesting such issue has paid to the Trust the amount of any such tax, or has established to the satisfaction of the Trust that such tax has been paid. (g) Nothing in the preceding Paragraph (f) shall limit the requirement of the Trust to withhold taxes pursuant to the terms of the Securities or as set forth in this Annex I to the Declaration or to the Declaration itself or otherwise require the Institutional Trustee or the Trust to pay any amounts on account of such withholdings. (h) The term "Closing Price" with respect to any security on any day means the last reported sale price, regular way on such day, or, if no sale takes place on such day, the average of the reported closing bid and asked prices on such day, regular way, in either case as reported on the NYSE Composite Tape, or, if such security is not listed or admitted to trading on the NYSE, on the principal national securities exchange on which such security is listed or admitted to trading, or, if such security is not listed or admitted to trading on a national securities exchange, on the National Market System of the National Association of Securities Dealers, Inc., or, if such security is not quoted or admitted to trading on such quotation system, on the principal quotation system on which such security is listed or admitted to trading or quoted, or, if not listed or admitted to trading or quoted on any national securities exchange or quotation system, the average of the closing bid and asked prices of such security in the over-the-counter market on the day in question as reported by the National Quotation Bureau Incorporated, or a similar generally accepted reporting service, or, if not so available in such manner, as furnished by any NYSE member firm selected from time to time by the board of Directors (or any committee duly authorized by the Board of Directors) of the Debenture Issuer for that purpose or, if not so available in such manner, as otherwise determined in good faith by the Board of Directors (or any committee duly authorized by the Board of Directors) of the Debenture Issuer. 6. Voting and Other Rights - Convertible Preferred Securities. ---------------------------------------------------------- (a) Except as provided under Sections 6(b) and 8 of this Annex I to the Declaration and as otherwise required by law and the Declaration, the Holders of the Convertible Preferred Securities will not have voting rights. (b) Subject to the requirements set forth in this paragraph, the Holders of a Majority in liquidation amount of the Convertible Preferred Securities then outstanding, voting separately as a class, may direct the time, method, and place of conducting any proceeding for any remedy available to the Institutional Trustee, or may direct the exercise of any trust or power conferred upon the Institutional Trustee under the Declaration, including the right to direct the Institutional I-11 Trustee, as holder of the Debentures, to (i) exercise the remedies available under the Indenture with respect to the Debentures, (ii) waive any past default and its consequences that is waivable under Section 5.9 of the Indenture, or (iii) exercise any right to rescind or annul a declaration that the principal of all the Debentures shall be due and payable, provided, however, that if an Event of Default under the Indenture has occurred and is continuing then the holders of 25% of the aggregate liquidation amount of the Convertible Preferred Securities then outstanding may direct the Institutional Trustee to declare the principal of and interest on the Debentures immediately due and payable; and provided, further, that, where a consent under the Indenture would require the consent or act of the Holders of greater than a majority of the Holders in principal amount of Debentures then outstanding (a "Super Majority") affected thereby, the Institutional Trustee may only give such consent or take such action at the written direction of the Holders of at least the proportion in liquidation amount of the Convertible Preferred Securities which the relevant Super Majority represents of the aggregate principal amount of the Debentures then outstanding. The Institutional Trustee shall not revoke any action previously authorized or approved by a vote of the Holders of the Convertible Preferred Securities. Other than with respect to directing the time, method and place of conducting any remedy available to the Institutional Trustee as set forth above, the Institutional Trustee shall not take any action in accordance with the directions of the Holders of the Convertible Preferred Securities under this paragraph unless the Institutional Trustee has obtained an opinion of nationally recognized independent tax counsel experienced in such matters to the effect that for the purposes of United States federal income tax the Trust will not be classified as other than a grantor trust as a result of such action. If the Institutional Trustee fails to enforce its rights under the Debentures, any Holder of Convertible Preferred Securities may institute a legal proceeding against any person to enforce the Institutional Trustee's rights under the Debentures. If a Declaration Event of Default has occurred and is continuing and such event is attributable to the failure of the Debenture Issuer to pay interest or principal on the Debentures on the date such interest or principal is otherwise payable (or in the case of redemption, on the redemption date), then a Holder of Convertible Preferred Securities may directly institute a proceeding for enforcement of payment to such Holder of the principal of or interest on the Debentures having a principal amount equal to the aggregate liquidation amount of the Convertible Preferred Securities of such Holder (a "Direct Action") on or after the respective due date specified in the Debentures. In connection with such Direct Action, the rights of the Holders of Common Securities will be subrogated to the rights of such Holder of Convertible Preferred Securities to the extent of any payment made by the Issuer to such Holder of Convertible Preferred Securities in such Direct Action. Except as provided in the preceding sentences, the Holders of Convertible Preferred Securities will not be able to exercise directly any other remedy available to the holders of the Debentures. Any approval or direction of Holders of Convertible Preferred Securities may be given at a separate meeting of Holders of Convertible Preferred Securities convened for such purpose, at a meeting of all of the Holders of Securities in the Trust or pursuant to written consent. The Regular Trustees will cause a notice of any meeting at which Holders of Convertible Preferred Securities are entitled to vote, or of any matter upon which action by written consent of such Holders is to be taken, to be mailed to each Holder of record of Convertible Preferred Securities. Each such notice will include a statement setting forth (i) the date of such meeting or the date by which such action is to be taken, (ii) a description of any resolution proposed for I-12 adoption at such meeting on which such Holders are entitled to vote or of such matter upon which written consent is sought and (iii) instructions for the delivery of proxies or consents. No vote or consent of the Holders of the Convertible Preferred Securities will be required for the Trust to redeem and cancel Convertible Preferred Securities or to distribute the Debentures in accordance with the Declaration and the terms of the Securities. Notwithstanding that Holders of Convertible Preferred Securities are entitled to vote or consent under any of the circumstances described above, any of the Convertible Preferred Securities that are owned by the Sponsor or any Affiliate of the Sponsor shall not be entitled to vote or consent and shall, for purposes of such vote or consent, be treated as if they were not outstanding. 7. Voting Rights - Common Securities. --------------------------------- (a) Except as provided under Sections 7(b), 7(c) and 8 of this Annex I of the Declaration and as otherwise required by law and the Declaration, the Holders of the Common Securities will not have voting rights. (b) The Holders of the Common Securities are entitled, in accordance with Article V of the Declaration, to vote to appoint, remove or replace any Trustee or to increase or decrease the number of Trustees. (c) Subject to Section 2.6 of the Declaration and only after any Event of Default with respect to the Convertible Preferred Securities has been cured, waived, or otherwise eliminated and subject to the requirements of the second to last sentence of this paragraph, the Holders of a Majority in liquidation amount of the Common Securities, voting separately as a class, may direct the time, method, and place of conducting any proceeding for any remedy available to the Institutional Trustee, or exercising any trust or power conferred upon the Institutional Trustee under the Declaration, including (i) directing the time, method, place of conducting any proceeding for any remedy available to the Debenture Trustee, or exercising any trust or power conferred on the Debenture Trustee with respect to the Debentures, (ii) waive any past default and its consequences that is waivable under Section 5.9 of the Indenture, or (iii) exercise any right to rescind or annul a declaration that the principal of all the Debentures shall be due and payable, provided that, where a consent or action under the Indenture would require the consent or act of the relevant Super Majority, the Institutional Trustee may only give such consent or take such action at the written direction of the Holders of at least the proportion in liquidation amount of the Common Securities which the relevant Super Majority represents of the aggregate principal amount of the Debentures outstanding. The Institutional Trustee shall not revoke any action previously authorized or approved by a vote of the Holders of the Convertible Preferred Securities. Other than with respect to directing the time, method and place of conducting any remedy available to the Institutional Trustee or the Debenture Trustee as set forth above, the Institutional Trustee shall not take any action in accordance with the directions of the Holders of the Common Securities under this paragraph unless the Institutional Trustee has obtained an opinion of nationally recognized independent tax counsel experienced in such matters to the effect that for the purposes of United States federal income tax the Trust will not be classified I-13 as other than a grantor trust on account of such action. If the Institutional Trustee fails to enforce its rights under the Declaration, any Holder of Common Securities may institute a legal proceeding directly against any Person to enforce the Institutional Trustee's rights under the Declaration, without first instituting a legal proceeding against the Institutional Trustee or any other Person. Any approval or direction of Holders of Common Securities may be given at a separate meeting of Holders of Common Securities convened for such purpose, at a meeting of all of the Holders of Securities in the Trust or pursuant to written consent. The Regular Trustees will cause a notice of any meeting at which Holders of Common Securities are entitled to vote, or of any matter upon which action by written consent of such Holders is to be taken, to be mailed to each Holder of record of Common Securities. Each such notice will include a statement setting forth (i) the date of such meeting or the date by which such action is to be taken, (ii) a description of any resolution proposed for adoption at such meeting on which such Holders are entitled to vote or of such matter upon which written consent is sought and (iii) instructions for the delivery of proxies or consents. No vote or consent of the Holders of the Common Securities will be required for the Trust to redeem and cancel Common Securities or to distribute the Debentures in accordance with the Declaration and the terms of the Securities. 8. Amendments to Declaration and Indenture. --------------------------------------- (a) In addition to any requirements under Section 12.1 of the Declaration, if any proposed amendment to the Declaration provides for, or the Regular Trustees otherwise propose to effect, (i) any action that would adversely affect the powers, preferences or special rights of the Securities, whether by way of amendment to the Declaration or otherwise, or (ii) the dissolution, winding-up or termination of the Trust, other than as described in Section 8.1 of the Declaration, then the Holders of outstanding Securities voting together as a single class, will be entitled to vote on such amendment or proposal (but not on any other amendment or proposal) and such amendment or proposal shall not be effective except with the approval of the Holders of at least a Majority in liquidation amount of the Securities then outstanding affected thereby; provided, however, if any amendment or proposal referred to in clause (i) above would adversely affect only the Convertible Preferred Securities or only the Common Securities, then only the affected class will be entitled to vote on such amendment or proposal and such amendment or proposal shall not be effective except with the approval of a Majority in liquidation amount of such class of Securities then outstanding. (b) In the event the consent of the Institutional Trustee as the holder of the Debentures is required under the Indenture with respect to any amendment, modification or termination of the Indenture or the Debentures, the Institutional Trustee shall request the written direction of the Holders of the Securities with respect to such amendment, modification or termination and shall vote with respect to such amendment, modification or termination as directed by a Majority in liquidation amount of the Securities then outstanding, voting together as a single class; provided, however, that where a consent under the Indenture would require the consent of the relevant Super Majority, the Institutional Trustee may only give such consent at the direction I-14 of the Holders of at least the proportion in liquidation amount of the Securities then outstanding which the relevant Super Majority represents of the aggregate principal amount of the Debentures then outstanding; provided, further, that the Institutional Trustee shall not take any action in accordance with the directions of the Holders of the Securities under this Section 8(b) unless the Institutional Trustee has obtained an opinion of nationally recognized independent tax counsel experienced in such matters to the effect that for the purposes of United States federal income tax the Trust will not be classified as other than a grantor trust as a result of such action. 9. Pro Rata. -------- A reference in these terms of the Securities to any distribution or treatment as being "Pro Rata" shall mean pro rata to each Holder of Securities according to the aggregate liquidation amount of the Securities held by the relevant Holder in relation to the aggregate liquidation amount of all Securities outstanding unless, in relation to a payment, an Event of Default under the Declaration has occurred and is continuing, in which case any funds available to make such payment shall be paid first in cash to each Holder of the Convertible Preferred Securities pro rata according to the aggregate liquidation amount of Convertible Preferred Securities held by the relevant Holder relative to the aggregate liquidation amount of all Convertible Preferred Securities outstanding, and only after satisfaction of all amounts owed to the Holders of the Convertible Preferred Securities, to each Holder of Common Securities pro rata according to the aggregate liquidation amount of Common Securities held by the relevant Holder relative to the aggregate liquidation amount of all Common Securities outstanding. 10. Ranking. ------- The Convertible Preferred Securities rank pari passu and payment thereon shall be made Pro Rata with the Common Securities except that, where a Declaration Event of Default occurs and is continuing, the rights of Holders of the Common Securities to payment in respect of Distributions and payments upon liquidation, redemption and otherwise are subordinated to the rights to payment of the Holders of the Convertible Preferred Securities. 11. Acceptance of Securities Guarantee and Indenture. ------------------------------------------------ Each Holder of Convertible Preferred Securities and Common Securities, by the acceptance thereof, agrees to the provisions of the Convertible Preferred Securities Guarantee and the Common Securities Guarantee, respectively, including the subordination provisions therein and to the provisions of the Indenture. 12. No Preemptive Rights. -------------------- The Holders of the Securities shall have no preemptive rights to subscribe for any additional securities. I-15 13. Miscellaneous. ------------- These terms constitute a part of the Declaration.The Sponsor will provide a copy of the Declaration, the Convertible Preferred Securities Guarantee or the Common Securities Guarantee (as may be appropriate), and the Indenture to a Holder without charge on written request to the Sponsor at its principal place of business. I-16 EXHIBIT A-1 [FORM OF CONVERTIBLE PREFERRED SECURITY CERTIFICATE] [IF THE CONVERTIBLE PREFERRED SECURITY IS TO BE A GLOBAL CERTIFICATE INSERT - - - THIS CONVERTIBLE PREFERRED SECURITY IS A GLOBAL CERTIFICATE WITHIN THE MEANING OF THE DECLARATION HEREIN AFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITORY TRUST COMPANY (THE "DEPOSITARY") OR A NOMINEE OF THE DEPOSITARY. THIS CONVERTIBLE PREFERRED SECURITY IS EXCHANGEABLE FOR CONVERTIBLE PREFERRED SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE DECLARATION AND NO TRANSFER OF THIS CONVERTIBLE PREFERRED SECURITY (OTHER THAN A TRANSFER OF THIS CONVERTIBLE PREFERRED SECURITY AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES. UNLESS THIS CONVERTIBLE PREFERRED SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) TO THE TRUST OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CONVERTIBLE PREFERRED SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY AND ANY PAYMENT HEREON IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.] CERTIFICATE NUMBER: NUMBER OF CONVERTIBLE PREFERRED SECURITIES: CUSIP NO.: [IF RULE 144A - 58155P204] [IF INSTITUTIONAL ACCREDITED INVESTOR - 58155P303] [IF REGULATION S - U58088102] [ISIN NO.: USU580881022 - ONLY IF REGULATION S] [COMMON CODE: . - ONLY IF REGULATION S] A1-1 Certificate Evidencing Convertible Preferred Securities of McKESSON FINANCING TRUST [PRIOR TO THE TRANSFER RESTRICTION TERMINATION DATE, ANY CERTIFICATE EVIDENCING A CONVERTIBLE PREFERRED SECURITY SHALL BEAR A LEGEND IN SUBSTANTIALLY THE FOLLOWING FORM, UNLESS OTHERWISE AGREED BY THE REGULAR TRUSTEES (WITH WRITTEN NOTICE TO THE INSTITUTIONAL TRUSTEE): THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) ("INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THE SECURITY EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION, (2) AGREES THAT IT WILL NOT PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION) RESELL OR OTHERWISE TRANSFER THE SECURITY EVIDENCED HEREBY OR IF THIS SECURITY IS CONVERTIBLE INTO COMMON STOCK THE COMMON STOCK ISSUABLE UPON CONVERSION OR EXCHANGE OF THIS SECURITY EXCEPT (A) TO McKESSON CORPORATION (THE "COMPANY") OR ANY SUBSIDIARY THEREOF, (B) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, (C) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (D) TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE FOR THE CONVERTIBLE PREFERRED SECURITIES OR THE CONVERTIBLE DEBENTURES, AS THE CASE MAY BE (OR, IF THIS CERTIFICATE EVIDENCES COMMON STOCK, THE TRANSFER AGENT FOR THE COMMON STOCK), A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE SECURITY EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM SUCH TRUSTEE OR TRANSFER AGENT), (E) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT OR (F) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) AND (3) AGREES A1-2 THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE SECURITY EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THE SECURITY EVIDENCED HEREBY PRIOR TO EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE FOR THE CONVERTIBLE PREFERRED SECURITIES OR THE CONVERTIBLE DEBENTURES, AS THE CASE MAY BE (OR, IF THIS CERTIFICATE EVIDENCES COMMON STOCK, SUCH HOLDER MUST FURNISH TO THE TRANSFER AGENT SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE COMPANY OR McKESSON FINANCIAL TRUST (THE "TRUST") MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT). IF THIS CERTIFICATE DOES NOT EVIDENCE COMMON STOCK AND IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR OR A PURCHASER WHO IS NOT A U.S. PERSON, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE FOR THE CONVERTIBLE PREFERRED SECURITIES OR THE CONVERTIBLE DEBENTURES, AS THE CASE MAY BE, SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE COMPANY OR THE TRUST MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND WILL BE REMOVED AFTER THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.] 5% Trust Convertible Preferred Securities (liquidation amount $50 per Trust Convertible Preferred Security) McKesson Financing Trust, a statutory business trust formed under the laws of the State of Delaware (the "Trust"), hereby certifies that __________________ (the "Holder") is the registered owner of convertible preferred securities of the Trust representing undivided beneficial interests in the assets of the Trust designated the 5% Trust Convertible Preferred Securities (liquidation amount $50 per Trust Convertible Preferred Security) (the "Convertible Preferred Securities"). The Convertible Preferred Securities are transferable on the books and records of the Trust, in person or by a duly authorized attorney, upon surrender of this certificate duly endorsed and in proper form for transfer. A1-3 The designation, rights, privileges, restrictions, preferences and other terms and provisions of the Convertible Preferred Securities represented hereby are issued and shall in all respects be subject to the provisions of the Amended and Restated Declaration of Trust of the Trust dated as of February 20, 1997, as the same may be amended from time to time (the "Declaration"), including the designation of the terms of the Convertible Preferred Securities as set forth in Annex I to the Declaration. Capitalized terms used herein but not defined shall have the meaning given them in the Declaration. The Holder is entitled to the benefits of the Convertible Preferred Securities Guarantee to the extent provided therein. The Sponsor will provide a copy of the Declaration, the Convertible Preferred Securities Guarantee and the Indenture to the Holder without charge upon written request to the Trust at its principal place of business. Upon receipt of this certificate, the Holder is bound by the Declaration and is entitled to the benefits thereunder. By acceptance, the Holder agrees to treat, for United States federal income tax purposes, the Debentures as indebtedness and the Convertible Preferred Securities as evidence of indirect beneficial ownership in the Debentures. Unless the Institutional Trustee's Certificate of Authentication hereon has been properly executed, these Convertible Preferred Securities shall not be entitled to any benefit under the Declaration or be valid or obligatory for any purpose. A1-4 IN WITNESS WHEREOF, the Trust has executed this certificate this 20th day of February, 1997. McKesson Financing Trust By: ____________________________________ Name: Title: Trustee Solely as trustee and not in his individual capacity A1-5 [FORM OF CERTIFICATE OF AUTHENTICATION] INSTITUTIONAL TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Convertible Preferred Securities referred to in the within-mentioned Declaration. Dated: February 20, 1997 THE FIRST NATIONAL BANK OF CHICAGO, as Institutional Trustee or as Authentication Agent By: _______________________________ By: _______________________________ Authorized Signatory Authorized Signatory A1-6 [FORM OF REVERSE OF SECURITY] Distributions payable on each Convertible Preferred Security will be fixed at a rate per annum of 5% (the "Coupon Rate") of the stated liquidation amount of $50 per Preferred Security, such rate being the rate of interest payable on the Debentures to be held by the Institutional Trustee. Distributions in arrears for more than one quarter will bear interest thereon compounded quarterly at the Coupon Rate (to the extent permitted by applicable law). The term "Distributions" as used herein includes such cash distributions and any such interest payable unless otherwise stated. A Distribution is payable only to the extent that payments are made in respect of the Debentures held by the Institutional Trustee and to the extent the Institutional Trustee has funds available therefor. The amount of Distributions payable for any period will be computed for any full quarterly Distribution period on the basis of a 360-day year of twelve 30-day months, and for any period shorter than a full quarterly Distribution period for which Distributions are computed, Distributions will be computed on the basis of the actual number of days elapsed per 30-day month. Except as otherwise described below, Distributions on the Convertible Preferred Securities will be cumulative, will accrue from February 20, 1997 and will be payable quarterly in arrears, on March 1, June 1, September 1 and December 1 of each year, commencing on June 1, 1997, which payment dates shall correspond to the interest payment dates on the Debentures, to Holders of record at the close of business on the regular record date for such Distribution which shall be the close of business 15 days prior to such Distribution payment date unless otherwise provided in the Declaration. The Debenture Issuer has the right under the Indenture to defer payments of interest by extending the interest payment period from time to time on the Debentures for a period not exceeding 20 consecutive quarters (each an "Extension Period"); provided that no Extension Period shall last beyond the date of the maturity or any redemption date of the Debentures and, as a consequence of such deferral, Distributions will also be deferred. Despite such deferral, quarterly Distributions will continue to accrue with interest thereon (to the extent permitted by applicable law) at the Coupon Rate compounded quarterly during any such Extension Period. Prior to the termination of any such Extension Period, the Debenture Issuer may further extend such Extension Period; provided that such Extension Period together with all such previous and further extensions thereof may not exceed 20 consecutive quarters or extend beyond the maturity or any redemption date of the Debentures. Upon the termination of any Extension Period and the payment of all amounts then due, the Debenture Issuer may commence a new Extension Period, subject to the above requirements. The Convertible Preferred Securities shall be redeemable as provided in the Declaration. The Convertible Preferred Securities shall be convertible into shares of Common Stock, through (i) the exchange of Convertible Preferred Securities for a portion of the Debentures and (ii) the immediate conversion of such Debentures into Debenture Issuer Common Stock, in the manner and according to the terms set forth in the Declaration. A1-7 CONVERSION REQUEST To: The First National Bank of Chicago, as Institutional Trustee of McKesson Financing Trust The undersigned owner of these Convertible Preferred Securities hereby irrevocably exercises the option to convert these Convertible Preferred Securities, or the portion below designated, into Common Stock of McKesson Corporation (the "Common Stock") in accordance with the terms of the Amended and Restated Declaration of Trust (the "Declaration"), dated as of February 20, 1997, by William A. Armstrong and Ivan D. Meyerson, as Regular Trustees, First Chicago Delaware Inc., as Delaware Trustee, The First National Bank of Chicago, as Institutional Trustee, McKesson Corporation, as Sponsor, and by the Holders, from time to time, of individual beneficial interests in the Trust to be issued pursuant to the Declaration. Pursuant to the afore mentioned exercise of the option to convert these Convertible Preferred Securities, the undersigned hereby directs the Conversion Agent (as that term is defined in the Declaration) to (i) exchange such Convertible Preferred Securities for a portion of the Debentures (as that term is defined in the Declaration) held by the Trust (at the rate of exchange specified in the terms of the Convertible Preferred Securities set forth as Annex I to the Declaration) and (ii) immediately convert such Debentures on behalf of the undersigned, into Common Stock (at the conversion rate specified in the terms of the Convertible Preferred Securities set forth as Annex I to the Declaration). The undersigned does also hereby direct the Conversion Agent that the shares issuable and deliverable upon conversion, together with any check in payment for fractional shares, be issued in the name of and delivered to the undersigned, unless a different name has been indicated in the assignment below. If shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. A1-8 Date: _______________, ____ in whole _____ in part _____ Number of Convertible Preferred Securities to be converted: ____________________ If a name or names other than the undersigned, please indicate in the spaces below the name or names in which the shares of Common Stock are to be issued, along with the address or addresses of such person or persons __________________________________________________ __________________________________________________ __________________________________________________ __________________________________________________ __________________________________________________ __________________________________________________ Signature (for conversion only) Please Print or Typewrite Name and Address, Including Zip Code, and Social Security or Other Identifying Number __________________________________________________ __________________________________________________ __________________________________________________ Signature Guarantee:/*/ __________________________ ____________________ /*/(Signature must be guaranteed by an "eligible guarantor institution," that is, a bank, stockbroker, savings and loan association or credit union meeting the requirements of the Conversion Agent, which requirements include membership or participation in the Securities Transfer Agents Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Conversion Agent in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.) A1-9 [FORM OF ASSIGNMENT FOR DEFINITIVE CONVERTIBLE PREFERRED SECURITY] For value received ______________________ hereby sell(s), assign(s) and transfer(s) unto _______________________________________________________________ (Please insert social security or other taxpayer identification number of assignee.) the within security and hereby irrevocably constitutes and appoints ____________ attorney to transfer the said security on the books of the Company, with full power of substitution in the premises. In connection with any transfer of the within security occurring prior to the Transfer Restriction Termination Date, the undersigned confirms that such security is being transferred: [_] To McKesson Corporation or a subsidiary thereof; or [_] Pursuant to and in compliance with Rule 144A under the Securities Act of 1933, as amended; or [_] To an Institutional Accredited Investor pursuant to and in compliance with the Securities Act of 1933, as amended; or [_] Pursuant to and in compliance with Regulation S under the Securities Act of 1933, as amended; or [_] Pursuant to and in compliance with Rule 144 under the Securities Act of 1933, as amended; or [_] Pursuant to an effective registration statement. A1-10 and unless the box below is checked, the undersigned confirms that such security is not being transferred to an "affiliate" of the Company as defined in Rule 144 under the Securities Act of 1933, as amended (an "Affiliate"): [_] The transferee is an Affiliate of the Company. Dated: ___________________________ Signature(s) ______________________________________ ______________________________________ ______________________________________ Signature Guarantee/*/ NOTICE: The above signatures of the holder(s) hereof must correspond with the name as written upon the face of this Security in every particular without alteration or enlargement or any change whatever. ___________________ /*/ (Signature must be guaranteed by an "eligible guarantor institution," that is, a bank, stockbroker, savings and loan association or credit union meeting the requirements of the Conversion Agent, which requirements include membership or participation in the Securities Transfer Agents Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Conversion Agent in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.) A1-11 SCHEDULE I CHANGES TO NUMBER OF CONVERTIBLE PREFERRED SECURITIES IN GLOBAL SECURITY
Number of Convertible Preferred Securities by which this Global Security Is To Be Remaining Convertible Reduced or Increased, Preferred Securities and Reason for Represented by this Date Reduction or Increase Global Security Notation Made By - - ---------- ----------------------- --------------------- ------------------
A1-12 EXHIBIT A-2 FORM OF COMMON SECURITY CERTIFICATE CERTIFICATE NUMBER: NUMBER OF COMMON SECURITIES: Certificate Evidencing Common Securities of McKESSON FINANCING TRUST 5% Common Securities (liquidation amount $50 per Common Security) THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD UNLESS SUCH OFFER AND SALE ARE REGISTERED UNDER OR ARE EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT. THE TRANSFER OF THE SECURITY EVIDENCED HEREBY IS ALSO SUBJECT TO THE RESTRICTIONS SET FORTH IN THE DECLARATION REFERRED TO BELOW. McKesson Financing Trust, a statutory business trust formed under the laws of the State of Delaware (the "Trust"), hereby certifies that ________________________________________ (the "Holder") is the registered owner of common securities of the Trust representing undivided beneficial interests in the assets of the Trust designated the 5% Common Securities (liquidation amount $50 per Common Security) (the "Common Securities"). The Common Securities are transferable on the books and records of the Trust, in person or by a duly authorized attorney, upon surrender of this certificate duly endorsed and in proper form for transfer. The designation, rights, privileges, restrictions, preferences and other terms and provisions of the Common Securities represented hereby are issued and shall in all respects be subject to the provisions of the Amended and Restated Declaration of Trust of the Trust dated as of February 20, 1997, as the same may be amended from time to time (the "Declaration"), including the designation of the terms of the Common Securities as set forth in Annex I to the Declaration. Capitalized terms used herein but not defined shall have the meaning given them in the Declaration. The Holder is entitled to the benefits of the Common Securities Guarantee to the extent provided therein. The Sponsor will provide a copy of the Declaration, the Common A2-1 Securities Guarantee and the Indenture to a Holder without charge upon written request to the Trust at its principal place of business. Upon receipt of this certificate, the Holder is bound by the Declaration and is entitled to the benefits thereunder. By acceptance, the Holder agrees to treat, for United States federal income tax purposes, the Debentures as indebtedness and the Common Securities as evidence of indirect beneficial ownership in the Debentures. A2-2 IN WITNESS WHEREOF, the Trust has executed this certificate this 20th day of February, 1997. McKesson Financing Trust By: ____________________________________________ Name: Title: Trustee Solely as trustee and not in his individual capacity A2-3 [FORM OF REVERSE OF SECURITY] Distributions payable on each Common Security will be fixed at a rate per annum, of 5% (the "Coupon Rate") of the stated liquidation amount of $50 per Common Security, such rate being the rate of interest payable on the Debentures to be held by the Institutional Trustee. Distributions in arrears for more than one quarter will bear interest thereon compounded quarterly at the Coupon Rate (to the extent permitted by applicable law). The term "Distributions" as used herein includes such cash distributions and any such interest payable unless otherwise stated. A Distribution is payable only to the extent that payments are made in respect of the Debentures held by the Institutional Trustee and to the extent the Institutional Trustee has funds available therefor. The amount of Distributions payable for any period will be computed for any full quarterly Distribution period on the basis of a 360-day year of twelve 30-day months, and for any period shorter than a full quarterly Distribution period for which Distributions are computed, Distributions will be computed on the basis of the actual number of days elapsed per 30-day month. Except as otherwise described below, Distributions on the Common Securities will be cumulative, will accrue from February 20, 1997 and will be payable quarterly in arrears, on March 1, June 1, September 1 and December 1 of each year, commencing on June 1, 1997, which payment dates shall correspond to the interest payment dates on the Debentures, to Holders of record at the close of business on the regular record date for such Distribution which shall be the close of business 15 days prior to such Distribution payment date unless otherwise provided in the Declaration. The Debenture Issuer has the right under the Indenture to defer payments of interest by extending the interest payment period from time to time on the Debentures for a period not exceeding 20 consecutive quarters (each an "Extension Period"), provided that no Extension Period shall last beyond the date of maturity of the Debentures and, as a consequence of such deferral, Distributions will also be deferred. Despite such deferral, quarterly Distributions will continue to accrue with interest thereon (to the extent permitted by applicable law) at the Coupon Rate compounded quarterly during any such Extension Period. Prior to the termination of any such Extension Period, the Debenture Issuer may further extend such Extension Period; provided that such Extension Period together with all such previous and further extensions thereof may not exceed 20 consecutive quarters or extend beyond the date of maturity of the Debentures. Upon the termination of any Extension Period and the payment of all amounts then due, the Debenture Issuer may commence a new Extension Period, subject to the above requirements. The Common Securities shall be redeemable as provided in the Declaration. The Common Securities shall be convertible into shares of Common Stock, through (i) the exchange of Common Securities for a portion of the Debentures and (ii) the immediate conversion of such Debentures into Debenture Issuer Common Stock, in the manner and according to the term set forth in the Declaration. A2-4 CONVERSION REQUEST To: The First National Bank of Chicago, as Institutional Trustee of McKesson Financing Trust The undersigned owner of these Common Securities hereby irrevocably exercises the option to convert these Common Securities, or the portion below designated, into Common Stock of McKesson Corporation (the "Common Stock") in accordance with the terms of the Amended and Restated Declaration of Trust (the "Declaration"), dated as of February 20, 1997, by William A. Armstrong and Ivan D. Meyerson, as Regular Trustees, First Chicago Delaware Inc., as Delaware Trustee, The First National Bank of Chicago, as Institutional Trustee, McKesson Corporation, as Sponsor, and by the Holders, from time to time, of individual beneficial interests in the Trust to be issued pursuant to the Declaration. Pursuant to the aforementioned exercise of the option to convert these Common Securities, the undersigned hereby directs the Conversion Agent (as that term is defined in the Declaration) to (i) exchange such Common Securities for a portion of the Debentures (as that term is defined in the Declaration) held by the Trust (at the rate of exchange specified in the terms of the Common Securities set forth as Annex I to the Declaration) and (ii) immediately convert such Debentures on behalf of the undersigned, into Common Stock (at the conversion rate specified in the terms of the Common Securities set forth as Annex I to the Declaration). The undersigned does also hereby direct the Conversion Agent that the shares issuable and deliverable upon conversion, together with any check in payment for fractional shares, be issued in the name of and delivered to the undersigned, unless a different name has been indicated in the assignment below. If shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. A2-5 Date: _______________, ____ in whole _____ in part _____ Number of Convertible Preferred Securities to be converted: ____________________ If a name or names other than the undersigned, please indicate in the spaces below the name or names in which the shares of Common Stock are to be issued, along with the address or addresses of such person or persons __________________________________________________ __________________________________________________ __________________________________________________ __________________________________________________ __________________________________________________ __________________________________________________ Signature (for conversion only) Please Print or Typewrite Name and Address, Including Zip Code, and Social Security or Other Identifying Number __________________________________________________ __________________________________________________ __________________________________________________ Signature Guarantee:/*/ __________________________ ___________________ /*/ (Signature must be guaranteed by an "eligible guarantor institution," that is, a bank, stockbroker, savings and loan association or credit union meeting the requirements of the Conversion Agent, which requirements include membership or participation in the Securities Transfer Agents Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Conversion Agent in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.) A2-6 [FORM OF ASSIGNMENT FOR SECURITY OR COMMON STOCK ISSUABLE UPON CONVERSION THEREOF] For value received ______________________ hereby sell(s), assign(s) and transfer(s) unto _______________________________________________________________ (Please insert social security or other taxpayer identification number of assignee.) the within security and hereby irrevocably constitutes and appoints ____________ attorney to transfer the said security on the books of the Company, with full power of substitution in the premises. In connection with any transfer of the within security occurring prior to the Transfer Restriction Termination Date, the undersigned confirms that such security is being transferred: [_] To McKesson Corporation or a subsidiary thereof; or [_] Pursuant to and in compliance with Rule 144A under the Securities Act of 1933, as amended; or [_] To an Institutional Accredited Investor pursuant to and in compliance with the Securities Act of 1933, as amended; or [_] Pursuant to and in compliance with Regulation S under the Securities Act of 1933, as amended; or [_] Pursuant to and in compliance with Rule 144 under the Securities Act of 1933, as amended; or [_] Pursuant to an effective registration statement. A2-7 and unless the box below is checked, the undersigned confirms that such security is not being transferred to an "affiliate" of the Company as defined in Rule 144 under the Securities Act of 1933, as amended (an "Affiliate"): [_] The transferee is an Affiliate of the Company. Dated: ____________________________ Signature(s) ______________________________________ ______________________________________ ______________________________________ Signature Guarantee/*/ NOTICE: The above signatures of the holder(s) hereof must correspond with the name as written upon the face of this Security in every particular without alteration or enlargement or any change whatever. ______________________ /*/ (Signature must be guaranteed by an "eligible guarantor institution," that is, a bank, stockbroker, savings and loan association or credit union meeting the requirements of the Conversion Agent, which requirements include membership or participation in the Securities Transfer Agents Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Conversion Agent in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.) A2-8 EXHIBIT B SPECIMEN OF DEBENTURE B-1 EXHIBIT C PLACEMENT AGREEMENT C-1 EX-4.3 4 INDENTURE FOR 5% CONVERT. JR. SUB. DEBENTURES Exhibit 4.3 ----------- ________________________________________________________________________________ McKESSON CORPORATION and The First National Bank of Chicago, as Trustee _________________ 5% CONVERTIBLE JUNIOR SUBORDINATED DEBENTURES _________________ INDENTURE Dated as of February 20, 1997 ________________________________________________________________________________ McKESSON CORPORATION Reconciliation and tie between Trust Indenture Act of 1939 and Indenture dated as of May 1, 1996
Trust Indenture Act Section Indenture Section - - ----------------- ----------------- 310(a)(1)............................................ 6.10 (a)(2)............................................ 6.10 (a)(3)............................................ Not Applicable (a)(4)............................................ Not Applicable (a)(5)............................................ 6.10 (b)............................................... 6.8, 6.10 311(a)............................................... 6.11 (b)............................................... 6.11 312(a)............................................... 4.1 and 4.2 (b)............................................... 4.2 (c)............................................... 4.2 313(a)(1)-(5) & (7)(8) ............................. 6.6 (a)(6)............................................ Not Applicable (b)(1)............................................ Not Applicable (b)(2)............................................ 6.6 (c)............................................... 6.6 (d)............................................... 6.6 314(a)(1)-(3)........................................ 4.3 (a)(4)............................................ 3.4 (b)............................................... Not Applicable (c)(1)............................................ 11.5 (c)(2)............................................ 11.5 (c)(3)............................................ Not Applicable (d)............................................... Not Applicable (e)............................................... 11.5 (f)............................................... Not Applicable 315(a)............................................... Not Applicable (b)............................................... 6.5 (c)............................................... 6.1 (d)............................................... 6.1 (d)(1)............................................ 6.1 (d)(2)............................................ 6.1 (d)(3)............................................ 6.1 (e)............................................... 5.10
316(a)............................................ 7.4 (a)(1)(A)....................................... 5.8 (a)(1)(B)....................................... 5.1, 5.9 (a)(2).......................................... Not Applicable (b)............................................. 5.6 (c)............................................. 7.1 317(a)(1)......................................... 5.2 (a)(2).......................................... 5.2 (b)............................................. 3.3 318(a)............................................ 11.7
_______________________________ Note: This reconciliation and tie shall not, for any purpose, be deemed to be part of the Indenture. TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS Section 1.1 Certain Terms Defined......................................... 1 ARTICLE II THE CONVERTIBLE DEBENTURES Section 2.1 Designation and Principal Amount.............................. 12 Section 2.2 Maturity...................................................... 12 Section 2.3 Form and Payment.............................................. 12 Section 2.4 Exchange and Registration of Transfer of Convertible Debentures; Restrictions on Transfers; Depositary............. 12 Section 2.5 Interest...................................................... 17 Section 2.6 Authentication and Delivery of Convertible Debentures......... 18 Section 2.7 Execution of Convertible Debentures........................... 19 Section 2.8 Certificate of Authentication................................. 19 Section 2.9 Denomination and Date of Convertible Debentures; Payments of Interest.......................................... 20 Section 2.10 Registration, Transfer and Exchange........................... 21 Section 2.11 Mutilated, Defaced, Destroyed, Lost and Stolen Convertible Debentures........................................ 24 Section 2.12 Cancellation of Convertible Debentures........................ 25 Section 2.13 Temporary Convertible Debentures.............................. 25 ARTICLE III COVENANTS OF THE COMPANY Section 3.1 Payment of Principal and Interest............................. 26 Section 3.2 Offices for Payment, etc...................................... 26 Section 3.3 Paying Agents................................................. 27 Section 3.4 Written Statement to Trustee.................................. 27 Section 3.5 Limitation on Dividends; Transactions with Affiliates......... 28 Section 3.6 Covenants as to McKesson Trust................................ 28 Section 3.7 Existence..................................................... 28
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ARTICLE IV HOLDERS OF CONVERTIBLE DEBENTURES LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE Section 4.1 Company to Furnish Trustee Information as to Names and Addresses of Holders of Convertible Debentures............ 29 Section 4.2 Preservation and Disclosure of Holders of Convertible Debentures' Lists............................................. 29 Section 4.3 Reports by the Company........................................ 30 ARTICLE V REMEDIES OF THE TRUSTEE AND HOLDERS OF CONVERTIBLE DEBENTURES ON EVENT OF DEFAULT Section 5.1 Event of Default Defined; Acceleration of Maturity; Waiver of Default............................................. 31 Section 5.2 Collection of Indebtedness by Trustee; Trustee May Prove Debt.................................................... 33 Section 5.3 Application of Proceeds....................................... 35 Section 5.4 Restoration of Rights on Abandonment of Proceedings........... 36 Section 5.5 Limitations on Suits by Holders of Convertible Debentures.................................................... 36 Section 5.6 Unconditional Right of Holders of Convertible Debentures to Institute Certain Suits......................... 37 Section 5.7 Powers and Remedies Cumulative; Delay or Omission Not Waiver of Default......................................... 37 Section 5.8 Control by Holders of Convertible Debentures.................. 37 Section 5.9 Waiver of Past Defaults....................................... 38 Section 5.10 Right of Court to Require Filing of Undertaking to Pay Costs......................................................... 38 Section 5.11 Suits for Enforcement......................................... 39 ARTICLE VI CONCERNING THE TRUSTEE Section 6.1 Duties of the Trustee......................................... 39 Section 6.2 Rights of Trustee............................................. 40 Section 6.3 Individual Rights of Trustee.................................. 41 Section 6.4 Trustee's Disclaimer.......................................... 41
ii Section 6.5 Notice of Defaults........................................... 41 Section 6.6 Reports by Trustee to Holders................................ 41 Section 6.7 Compensation and Indemnity................................... 41 Section 6.8 Replacement of Trustee....................................... 42 Section 6.9 Successor Trustee by Merger.................................. 43 Section 6.10 Eligibility; Disqualification................................ 43 Section 6.11 Preferential Collection of Claims Against Company............ 43 ARTICLE VII CONCERNING THE HOLDERS OF CONVERTIBLE DEBENTURES Section 7.1 Evidence of Action Taken by Holders of Convertible Debentures.................................................... 43 Section 7.2 Proof of Execution of Instruments............................. 44 Section 7.3 Holders to be Treated as Owners............................... 44 Section 7.4 Convertible Debentures Owned by Company Deemed Not Outstanding................................................... 44 Section 7.5 Right of Revocation of Action Taken........................... 44 ARTICLE VIII SUPPLEMENTAL INDENTURES Section 8.1 Supplemental Indentures Without Consent of Holders of Convertible Debentures........................................ 45 Section 8.2 Supplemental Indentures With Consent of Holders of Convertible Debentures........................................ 46 Section 8.3 Effect of Supplemental Indenture.............................. 47 Section 8.4 Documents to Be Given to Trustee.............................. 47 Section 8.5 Notation on Convertible Debentures in Respect of Supplemental Indentures....................................... 47 ARTICLE IX CONSOLIDATION, MERGER, SALE OR CONVEYANCE Section 9.1 Company May Consolidate, etc., on Certain Terms............... 47 Section 9.2 Successor Corporation Substituted............................. 48 Section 9.3 Opinion of Counsel to Trustee................................. 48
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ARTICLE X REDEMPTION OF THE CONVERTIBLE DEBENTURES Section 10.1 Tax Event Redemption.......................................... 49 Section 10.2 Optional Redemption by Company................................ 49 Section 10.3 No Sinking Fund............................................... 51 Section 10.4 Election to Redeem; Notice of Redemption; Partial Redemptions................................................... 51 Section 10.5 Payment of Convertible Debentures Called for Redemption.................................................... 52 Section 10.6 Exclusion of Certain Convertible Debentures from Eligibility for Selection for Redemption...................... 53 ARTICLE XI EXTENSION OF INTEREST PAYMENT PERIOD Section 11.1 Extension of Interest Payment Period.......................... 53 Section 11.2 Notice of Extension........................................... 54 ARTICLE XII CONVERSION OF CONVERTIBLE DEBENTURES Section 12.1 Conversion Rights............................................. 54 Section 12.2 Conversion Procedures......................................... 55 Section 12.3 Conversion Price Adjustments.................................. 56 Section 12.4 Merger, Consolidation or Sale of Assets....................... 62 Section 12.5 Notice of Adjustments of Conversion Price..................... 63 Section 12.6 Prior Notice of Certain Events................................ 64 Section 12.7 Certain Additional Rights..................................... 65 Section 12.8 Trustee Not Responsible for Determining Conversion Price or Adjustments.......................................... 65 Section 12.9 Reservation of Shares of Common Stock......................... 66 Section 12.10 Payment of Certain Taxes upon Conversion...................... 66 Section 12.11 Nonassessability.............................................. 66
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ARTICLE XIII SUBORDINATION OF CONVERTIBLE DEBENTURES Section 13.1 Convertible Debentures Subordinate to Senior Indebtedness.................................................. 66 Section 13.2 Payment Over of Proceeds upon Dissolution, Etc................ 66 Section 13.3 Prior Payment to Senior Indebtedness upon Acceleration of Convertible Debentures..................................... 68 Section 13.4 No Payment When Senior Indebtedness in Default................ 68 Section 13.5 Payment Permitted in Certain Situations....................... 68 Section 13.6 Subrogation to Rights of Holders of Senior Indebtedness....... 69 Section 13.7 Provisions Solely to Define Relative Rights................... 69 Section 13.8 Trustee to Effectuate Subordination........................... 69 Section 13.9 No Waiver of Subordination Provisions......................... 69 Section 13.10 Notice to Trustee............................................. 70 Section 13.11 Reliance on Judicial Order or Certificate of Liquidating Agent......................................................... 71 Section 13.12 Trustee Not Fiduciary for Holders of Senior Indebtedness...... 71 Section 13.13 Rights of Trustee as Holder of Senior Indebtedness; Preservation of Trustee's Rights.............................. 71 Section 13.14 Article Applicable to Paying Agents........................... 71 Section 13.15 Certain Conversions Deemed Payment............................ 72 ARTICLE XIV EXPENSES Section 14.1 Payment of Expenses........................................... 72 Section 14.2 Payment Upon Resignation or Removal........................... 73 ARTICLE XV MISCELLANEOUS PROVISIONS Section 15.1 Incorporators, Stockholders, Officers and Directors of Company Exempt from Individual Liability...................... 73 Section 15.2 Provisions of Indenture for the Sole Benefit of Parties and Holders of Convertible Debentures......................... 73 Section 15.3 Right to Assign; Successors and Assigns Bound by Indenture..................................................... 74 Section 15.4 Notices and Demands on Company, Trustee and Holders of Convertible Debentures..................................... 74
v Section 15.5 Officers' Certificates and Opinions of Counsel; Statements to Be Contained Therein............................ 75 Section 15.6 Payments Due on Saturdays, Sundays and Holidays............... 76 Section 15.7 Conflict of Any Provision of Indenture with Trust Indenture Act................................................. 76 Section 15.8 New York Law to Govern........................................ 76 Section 15.9 Counterparts.................................................. 76 Section 15.10 Effect of Headings; Gender.................................... 76
vi THIS INDENTURE, dated as of February 20, 1997 between McKESSON CORPORATION, a Delaware corporation (the "Company") and The First National Bank of Chicago, (the "Trustee"), W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Company desires and has requested the Trustee to join it in the execution and delivery of this Indenture in order to establish and provide for the issuance by the Company of Convertible Debentures designated as its 5% Convertible Junior Subordinated Debentures (the "Convertible Debentures"), a specimen copy of which is attached hereto as Exhibit A, on the terms set forth herein; WHEREAS, McKesson Financing Trust, a Delaware statutory business trust ("McKesson Trust" or the "Trust"), has offered to Morgan Stanley & Co. Incorporated (the "Initial Purchaser") in a private placement $200,000,000 aggregate liquidation amount of its 5% Trust Convertible Preferred Securities (the "Convertible Preferred Securities"), representing undivided beneficial interests in the assets of the Trust, and proposes to invest the proceeds from such offering, together with the proceeds of the issuance and sale by the Trust to the Company of $6,186,000 aggregate liquidation amount of its Common Securities, in $206,186,000 aggregate principal amount of the Convertible Debentures; and WHEREAS, all things necessary to make this Indenture a valid agreement of the Company and the Trustee, in accordance with its terms, have been done. NOW, THEREFORE: There is hereby established the terms of the Convertible Debentures to be issued under this Indenture, which shall be as set forth herein and in the form of Convertible Debentures attached hereto as Exhibit A, and in consideration of the premises and the purchase and acceptance of the Convertible Debentures by the holders thereof, the Company mutually covenants and agrees with the Trustee, for the equal and proportionate benefit of all holders of the Convertible Debentures, as follows: ARTICLE I DEFINITIONS Section 1.1 Certain Terms Defined. The following terms (except as other expressly provided or unless the context otherwise clearly requires) for all purposes of this Indenture and of any indenture supplemental hereto shall have the respective meanings specified in this Section. All other terms used in this Indenture that are defined in the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), or the definitions of which in the Securities Act of 1933, as amended (the "Securities Act"), are referred to in the Trust Indenture Act, including terms defined therein by reference to the Securities Act (except as herein otherwise expressly provided or unless the context otherwise clearly requires), shall have the meanings assigned to such terms in the Trust Indenture Act and in the Securities Act as in force at the date of this Indenture. All accounting terms used herein and not expressly defined shall have the meanings assigned to such terms in accordance with generally accepted accounting principles, and the term "generally accepted accounting principles" means such accounting principles as are generally accepted at the time of any computation. The words "herein," "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole, as supplemented and amended from time to time, and not to any particular Article, Section or other subdivision. The terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular. "Additional Sums" shall have the meaning set forth in Section 2.5(c). "Affiliate" has the same meaning as given to that term in Rule 405 of the Securities Act of 1933, as amended, or any successor rule thereunder. "Applicable Price" means (i) in the event of a Non-Stock Fundamental Change in which the holders of the Common Stock receive only cash, the amount of cash received by a holder of one share of Common Stock and (ii) in the event of any other Fundamental Change, the average of the daily Closing Price for one share of Common Stock during the 10 Trading Days immediately prior to the record date for the determination of the holders of Common Stock entitled to receive cash, securities, property or other assets in connection with such Fundamental Change or, if there is no such record date, prior to the date upon which the holders of the Common Stock shall have the right to receive such cash, securities, property or other assets. "Board of Directors" means either the Board of Directors of the Company or any duly authorized committee of that Board. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day" means any day other than a Saturday, Sunday, or any other day on which banking institutions in New York, New York or Wilmington, Delaware are permitted or required by any applicable law to close. "Capital Stock" means, with respect to any Person, any and all shares, interests, units representing interests, participations, rights in or other equivalents (however designated) of such Person's capital stock, including, with respect to partnerships, partnership interests (whether general or limited) and any other interest or participation that confers upon a Person the right to receive a share of the profits and losses of, or distributions of assets of, such partnership, and any rights (other than debt securities convertible into capital stock), warrants or options exchangeable for or convertible into such capital stock. "Certificated Convertible Preferred Securities" means Convertible Preferred Securities issued in definitive registered form. 2 "Clearing Agent" means an organization registered as a "Clearing Agency" pursuant to Section 17A of the Exchange Act that is acting as a depositary for the Convertible Debentures and in whose name or in the name of a nominee of that organization shall be registered one or more Global Debentures and which shall undertake to effect book entry transfers and pledges of the Convertible Debentures. "Closing Price" with respect to any security on any day means the last reported sale price, regular way on such day, or, if no sale takes place on such day, the average of the reported closing bid and asked prices on such day, regular way, in either case as reported on the NYSE Composite Tape, or, if such security is not listed or admitted to trading on the New York Stock Exchange, on the principal national securities exchange on which such security is listed or admitted to trading, or, if such security is not listed or admitted to trading on a national securities exchange, on the National Market System of the National Association of Securities Dealers, Inc., or, if such security is not quoted or admitted to trading on such quotation system, on the principal quotation system on which such security is listed or admitted to trading or quoted, or, if not listed or admitted to trading or quoted on any national securities exchange or quotation system, the average of the closing bid and asked prices of such security in the over-the-counter market on the day in question as reported by the National Quotation Bureau Incorporated, or a similar generally accepted reporting service, or, if not so available in such manner, as furnished by any New York Stock Exchange member firm selected from time to time by the Board of Directors (or any committee duly authorized by the Board of Directors) of the Company for that purpose or, if not so available in such manner, as otherwise determined in good faith by the Board of Directors (or any committee duly authorized by the Board of Directors) of the Company. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, as amended, or if at any time after the execution and delivery of this Indenture such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties on such date. "Common Securities" means undivided beneficial interests in the assets of the McKesson Trust which rank pari passu with Convertible Preferred Securities issued by the McKesson Trust; provided, however, that upon the occurrence of an Event of Default, the rights of holders of Common Securities to payment in respect to distributions and payments upon liquidation, redemption and otherwise are subordinated to the rights of holders of Convertible Preferred Securities. "Common Securities Guarantee" means the Common Securities Guarantee Agreement dated as of February 20, 1997 by the Guarantor. "Common Securities Registration Rights Agreement" means the Registration Rights Agreement dated as of February 20, 1997 by the Company and the Trust, relating to the Common Securities. 3 "Common Stock" includes any stock of any class of the Company which has no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Company and which is not subject to redemption by the Company. "Common Stock Fundamental Change" means any Fundamental Change in which more than 50% of the value (as determined in good faith by the Board of Directors of the Company) of the consideration received by holders of Common Stock consists of common stock that, for the 10 Trading Days immediately prior to such Fundamental Change, has been admitted for listing or admitted for listing subject to notice of issuance on a national securities exchange or quoted on The Nasdaq National Market; provided, however, that a Fundamental Change shall not be a Common Stock Fundamental Change unless either (i) the Company continues to exist after the occurrence of such Fundamental Change and the outstanding Convertible Preferred Securities continue to exist as outstanding Convertible Preferred Securities, or (ii) not later than the occurrence of such Fundamental Change, the outstanding Convertible Preferred Securities are converted into or exchanged for convertible preferred stock or debentures of a corporation succeeding to the business of the Company, which convertible preferred stock has powers, preferences and relative, participating, optional or other rights, and qualifications, limitations and restrictions substantially similar to those of the Convertible Preferred Securities and which debentures have terms substantially similar to those of the Convertible Debentures. "Company" means McKesson Corporation, a Delaware corporation, until a successor corporation shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor corporation. "Compound Interest" shall have the meaning specified in Section 11.1. "Convertible Debenture" or "Convertible Debentures" has the meaning stated in the first recital of this Indenture and more particularly means any Convertible Debentures authenticated and delivered under this Indenture. "Convertible Preferred Securities" has the meaning specified in the recitals to this Indenture. "Conversion Agent" has the meaning assigned thereto in the Declaration. "Conversion Price" has the meaning set forth in Section 12.1. "Corporate Trust Office" means the principal corporate trust office of the Trustee at which at any particular time its corporate trust business shall be administered, which office at the date of execution of this Indenture is located at One First National Plaza, Suite 0126, Chicago, IL 60670-0126, Attention: Corporation Trust Services Division. 4 "Declaration" means the Amended and Restated Declaration of Trust of McKesson Financing Trust, a Delaware statutory business trust, dated as of February 20, 1997. "Debt" of a Person means, all indebtedness of such Person which is for money borrowed. "defaulted interest" has the meaning specified in Section 2.9. "Deferred Interest" has the meaning specified in Section 11.1. "Delaware Trustee" has the meaning specified in the Declaration. "Depositary" means, with respect to the Convertible Debentures issuable or issued in the form of one or more Global Debentures, the Person designated as Depositary by the Company until a successor Depositary shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Depositary" shall mean or include each Person who is then a Depositary hereunder, and if at any time there is more than one such person, "Depositary" as used with respect to the Convertible Debentures shall mean the Depositary with respect to the Global Debentures. "Depositary Convertible Debenture" means a Convertible Debenture executed by the Company and authenticated and delivered by the Trustee to the Depositary or pursuant to the Depositary's instruction, all in accordance with this Indenture, which (i) shall be registered as to principal and interest in the name of the Depositary or its nominee and (ii) shall represent, and shall be denominated in an amount equal to the aggregate principal amount of, all or a portion of the Outstanding Convertible Debentures. "Dissolution Event" means that, as a result of the occurrence and continuation of a Special Event (as described in the Declaration), the Trust is to be dissolved in accordance with the Declaration, and the Convertible Debentures held by the Institutional Trustee are to be distributed to the holders of the Trust Securities issued by the Trust pro rata in accordance with the Declaration. "Dollar" means the coin or currency of the United States of America which as of the time of payment is legal tender for the payment of public and private debts. "Event of Default" has the meaning specified in Section 5.1. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Extension Period" has the meaning specified in Section 11.1. "Fundamental Change" means the occurrence of any transaction or event or series of transactions or events pursuant to which all or substantially all of the Common Stock shall be exchanged for, converted into, acquired for or shall constitute solely the right to receive 5 cash, securities, property or other assets (whether by means of an exchange offer, liquidation, tender offer, consolidation, merger, combination, reclassification, recapitalization or otherwise); provided, however, in the case of any such series of transactions or events, for purposes of adjustment of the Conversion Price, such Fundamental Change shall be deemed to have occurred when substantially all of the Common Stock shall have been exchanged for, converted into or acquired for, or shall constitute solely the right to receive, such cash, securities, property or other assets, but the adjustment shall be based upon the consideration that the holders of Common Stock received in the transaction or event as a result of which more than 50% of the Common Stock shall have been exchanged for, converted into or acquired for, or shall constitute solely the right to receive, such cash, securities, property or other assets. "Global Debenture" has the meaning specified in Section 2.4(a). "Government Obligations" means securities which are (i) direct obligations of the United States government for which its full faith and credit is pledged or (ii) obligations of a Person controlled or supervised by, or acting as an agency or instrumentality of, the United States government, the payment of which obligations is unconditionally guaranteed by the United States government, and which, in either case, are full faith and credit obligations of the United States government, and which are not callable or redeemable at the option of the issuer thereof prior to their stated maturity. "Guarantor" means the Company in its capacity as guarantor under any Trust Securities Guarantees. "Holder" or "Holder of Convertible Debentures" or other similar terms mean the person in whose name such Convertible Debenture is registered in the Security Register. "incur" means to issue, incur, assume, guarantee, become liable, contingently or otherwise, with respect to, or otherwise become responsible for the payment of, any Debt. "Indenture" means this instrument as originally executed and delivered or as it may from time to time be amended or supplemented as herein provided, as so amended or supplemented or both, and shall include the forms and terms of the Convertible Debentures appearing as Exhibit A to this instrument. "Institutional Trustee" has the meaning specified in the Declaration. "Interest Payment Date," when used with respect to any Convertible Debenture, means the Stated Maturity of an installment of interest on such Convertible Debenture. "Lien" means any mortgage or deed of trust, pledge, assignment, security interest, lien, charge, or other encumbrance or preferential arrangement (including, without limitation, any conditional sale or other title retention agreement having substantially the same economic effect as any of the foregoing). 6 "Maturity" when used with respect to any Convertible Debenture means the date on which the principal of such Convertible Debenture or an installment of principal becomes due and payable as therein or herein provided, whether at Stated Maturity or by declaration of acceleration, call for redemption or otherwise. "Maturity Date" means the date on which the Convertible Debentures mature and on which the principal shall be due and payable together with all accrued and unpaid interest thereon including Additional Sums, if any, and (to the extent permitted by applicable law) Compound Interest, if any. "Non-Stock Fundamental Change" means any Fundamental Change other than a Common Stock Fundamental Change. "Non-U.S. Person" means any person that is not a "U.S. person" as such term is defined in Rule 902 under the Securities Act. "Officers' Certificate" means a certificate signed on behalf of the Company by the Chairman of the Board of Directors or the vice chairman or the president or any vice president and by the treasurer, the controller, any assistant treasurer, the secretary or any assistant secretary of the Company and delivered to the Trustee. Each such certificate shall include the statements provided for in Section 15.5. "Opinion of Counsel" means a written opinion of legal counsel, who may be an employee of or counsel to the Company, and who shall be reasonably acceptable to the Trustee. Each Opinion of Counsel shall include the statements provided for in Section 15.5, if and to the extent required hereby. "Optional Redemption Price" has the meaning specified in Section 10.2. "Outstanding" when used with reference to Convertible Debentures, subject to the provisions of Section 7.4, means, as of any particular time, all Convertible Debentures authenticated and delivered under this Indenture, except (a) Convertible Debentures theretofore cancelled by the Trustee or delivered to the Trustee for cancellation; (b) Convertible Debentures, or portions thereof, for the payment or redemption of which moneys in the necessary amount and in the required currency shall have been deposited in trust with the Trustee or with any Paying Agent (other than the Company) or shall have been set aside, segregated and held in trust by the Company for the Holders of such Convertible Debentures (if the Company shall act as its own Paying Agent), provided that if such Convertible Debentures, or portions thereof, are to be redeemed prior to the Maturity thereof, notice of such redemption shall have been given as herein provided, or provision satisfactory to the Trustee shall have been made for giving such notice; and 7 (c) Convertible Debentures that have been paid pursuant to Section 2.11, converted into Common Stock pursuant to Article XII, or in exchange for or in lieu of which other Convertible Debentures have been authenticated and delivered pursuant to the Indenture (except with respect to any such Convertible Debenture as to which proof satisfactory to the Trustee and the Company is presented that such Convertible Debenture is held by a person in whose hands such Convertible Debenture is a legal, valid and binding obligation of the Company). "Paying Agent" means any Person (which may include the Company) authorized by the Company to pay the principal of or interest, if any, on any Convertible Debenture on behalf of the Company. "Persons" or "Person" means any individual, corporation, partnership, joint venture, limited liability company, association, joint stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Place of Payment", when used with respect to the Convertible Debentures, means the place or places where the principal of and interest, if any, on the Convertible Debentures are payable as specified pursuant to Section 3.2. "Placement Agreement" means the Placement Agreement dated February 13, 1997 between the Company and the Trust and Morgan Stanley & Co. Incorporated. "Predecessor Convertible Debenture" of a Convertible Debenture means every previous Convertible Debenture evidencing all or a portion of the same debt as that evidenced by such Convertible Debenture; and, for the purposes of this definition, a Convertible Debenture authenticated and delivered under Section 2.11 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Convertible Debenture shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Convertible Debenture. "Preferred Securities Guarantee" means the Preferred Securities Guarantee Agreement dated as of February 20, 1997 between the Guarantor and The First National Bank of Chicago, as Preferred Guarantee Trustee. "Preferred Securities Registration Rights Agreement" means the Registration Rights Agreement dated as of February 20, 1997 among the Company, the Trust and Morgan Stanley & Co. Incorporated as the Initial Purchaser, relating to the Convertible Preferred Securities. "Preferred Stock", as applied to the Capital Stock of any Person, means Capital Stock of such Person of any class or classes (however designated) that ranks prior, as to the payment of dividends or as to the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of such Person, to shares of Capital Stock of any other class of such Person. 8 "principal" whenever used with reference to the Convertible Debentures or any Convertible Debenture or any portion thereof, shall be deemed to include "and premium, if any." "Purchaser Stock Price" means, with respect to any Common Stock Fundamental Change, the average of the daily Closing Price for one share of the common stock received by holders of Common Stock (determined as provided herein) in such Common Stock Fundamental Change during the 10 Trading Days immediately prior to the date fixed for the determination of the holders of Common Stock entitled to receive such common stock or, if there is no such date, prior to the date upon which the holders of Common Stock shall have the right to receive such common stock. "QIB" or "Qualified Institutional Buyer" shall mean "Qualified Institutional Buyer" as such term is defined in Rule 144A under the Securities Act. "record date" has the meaning specified in Section 2.9. "Reference Market Price" initially means $39.75 (which is an amount equal to 66-2/3% of the reported last sale price for the Common Stock on the New York Stock Exchange on February 13, 1997) and, in the event of any adjustment to the Conversion Price other than as a result of a Fundamental Change, the Reference Market Price shall also be adjusted so that the ratio of the Reference Market Price to the Conversion Price after giving effect to any such adjustment shall also be the same as the ratio of the initial Reference Market Price to the initial Conversion Price. "Registrar" has the meaning specified in Section 2.10. "Registration Rights Agreements" means the Preferred Securities Registration Rights Agreement and the Common Securities Registration Rights Agreement. "Regulation S" means Regulation S under the Securities Act. "Representative" means the (a) indenture trustee or other trustee, agent or representative for any Senior Indebtedness or (b) with respect to any Senior Indebtedness that does not have any such trustee, agent or other representative (i) in the case of such Senior Indebtedness issued pursuant to an agreement providing for voting arrangements as among the holders or owners of such Senior Indebtedness, any holder or owner of such Senior Indebtedness acting with the consent of the required persons necessary to bind such holders or owners of such Senior Indebtedness and (ii) in the case of all other such Senior Indebtedness, the holder or owner of such Senior Indebtedness. "Responsible Officer" when used with respect to the Trustee means any officer within the corporate trust department (or any successor department) of the Trustee including any vice president, assistant vice president, assistant secretary, senior trust officer, trust officer or any other officer or assistant officer of the Trustee customarily performing functions 9 similar to those performed by the persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred at the Corporate Trust Office because of his or her knowledge of and familiarity with the particular subject. "Rule 144" means Rule 144 under the Securities Act. "Rule 144A" means Rule 144A under the Securities Act. "Securities Act" means the Securities Act of 1933, as amended. "Security Register" has the meaning specified in Section 2.10. "Senior Indebtedness" means, with respect to the Company, (i) the principal, premium, if any, and interest in respect of (a) indebtedness of the Company for money borrowed (but excluding trade accounts payable arising in the ordinary course of business) under any credit agreements, notes, guarantees or similar documents and (b) indebtedness evidenced by securities, debentures, bonds or other similar instruments issued by the Company; (ii) all capital lease obligations of the Company; (iii) all obligations of the Company issued or assumed as the deferred purchase price of property, all conditional sale obligations of the Company and all obligations of the Company under any title retention agreement (but excluding trade accounts payable arising in the ordinary course of business); (iv) all obligations of the Company for the reimbursement on any letter of credit, banker's acceptance, security purchase facility or similar credit transaction; (v) all obligations of the Company (contingent or otherwise) with respect to an interest rate or other swap, cap or collar agreements or other similar instruments or agreements or foreign currency hedge, exchange, purchase or similar instruments or agreements; (vi) all obligations of the types referred to in clauses (i) through (v) of other Persons for the payment of which the Company is responsible or liable as obligor, guarantor or otherwise; and (vii) all obligations of the types referred to in clauses (i) through (vi) above of other Persons secured by any lien on any property or asset of the Company (whether or not such obligation is assumed by the Company), whether outstand ing on the date of this Indenture or thereafter created, incurred, assumed, guaranteed or in effect guaranteed by the Company, except for any such indebtedness that is by its terms subordinated to or pari passu with the Convertible Debentures. Such Senior Indebtedness shall continue to be Senior Indebtedness irrespective of any deferrals, renewals, extensions or refundings of, or amendments, modifications, supplements or waivers of any term of such Senior Indebtedness. "Stated Maturity" when used with respect to any Convertible Debenture or any installment of principal thereof or interest thereon, means the date on which the principal of such Convertible Debenture or such installment of principal or interest is due and payable in accordance with the terms thereof. "Subsidiary" means any corporation, association, partnership or other business entity of which more than 50% of the total voting power of the outstanding Capital Stock (or other interests entitled (without regard to the occurrence of any contingency) to vote in the election of directors, general partners, managers, managing members, managing partners or trustees 10 thereof or, if such persons are not elected, to vote on any matter that is submitted to the vote of all persons holding ownership interests in such entity) is at the time owned or controlled, directly or indirectly, by (i) the Company, (ii) the Company and one or more Subsidiaries or (iii) one or more Subsidiaries. "Trading Day" shall mean a day on which any securities are traded on the national securities exchange or quotation system used to determine the Closing Price or any day on which the New York Stock Exchange is open for trading. "Transfer Restriction Termination Date" means the earlier of the first date on which (i) the Convertible Preferred Securities, the Convertible Debentures and any Common Stock issued or issuable upon the conversion or exchange thereof (other than (A) such securities acquired by the Company or any Affiliate thereof since the Issue Date of the Convertible Preferred Securities and (B) Common Stock issued upon the conversion or exchange of any such security described in clause (A) above) may be sold pursuant to Rule 144(k) (or any successor provision) and (ii) all the Offered Securities have been sold pursuant to an effective registration statement. "Trust" or "McKesson Trust" means McKesson Financing Trust, a Delaware statutory business trust. "Trust Indenture Act" or "TIA" (except as otherwise provided in Sections 8.1 and 8.2) means the Trust Indenture Act of 1939, as amended, as in force at the date as of which this Indenture was originally executed. "Trust Securities" means the Common Securities and the Convertible Preferred Securities of McKesson Trust. "Trust Securities Guarantees" means the Common Securities Guarantee and the Preferred Securities Guarantee. "Trustee" means the Person identified as "Trustee" in the first paragraph hereof until a successor Trustee shall have become such pursuant to the provisions hereof, and thereafter, "Trustee" shall mean or include each Person who is then a Trustee hereunder. "United States of America" or "United States" means the United States of America (including the states and the District of Columbia), its territories, possessions, the Commonwealth of Puerto Rico and other areas subject to its jurisdiction. "U.S. Person" means (i) a citizen or resident of the United States, (ii) a corporation, partnership or other entity created or organized in or under the laws of the United States or any state or political subdivision thereof, (iii) an estate the income of which is subject to United States federal income taxation regardless of its sources or (iv) a trust whose administration is subject to the primary supervision of a United States court and which has 11 one or more United States fiduciaries who have the authority to control all substantial decisions of the Trust. "vice president" when used with respect to the Company or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title of "vice president." ARTICLE II THE CONVERTIBLE DEBENTURES Section 2.1 Designation and Principal Amount. There are hereby authorized Debentures designated the "5% Junior Convertible Subordinated Debentures," limited in aggregate principal amount to $206,186,000 which amount shall be as set forth in any written order of the Company for the authentication and delivery of Convertible Debentures pursuant to Section 2.6 of this Indenture. Section 2.2 Maturity. The Maturity Date is June 1, 2027. Section 2.3 Form and Payment. (a) Except as provided in Section 2.6, the Convertible Debentures shall be issued in fully registered certificated form without coupons in denominations of $50 in principal amount and integral multiples thereof. Principal and interest on the Convertible Debentures issued in certificated form will be payable, the transfer of such Convertible Debentures will be registrable and such Convertible Debentures will be exchangeable for Convertible Debentures bearing identical terms and provisions at the office or agency of the Trustee; provided, however, that payment of interest may be made at the option of the Company by check mailed to the Holder at such address as shall appear in the Security Register. Notwithstanding the foregoing, so long as the Holder of any Convertible Debentures is the Institutional Trustee, the payment of the principal of and interest (including Compound Interest and Additional Sums, if any) on such Convertible Debentures held by the Institutional Trustee will be made at such place and to such account as may be designated by the Institutional Trustee. (b) The Convertible Debentures are subject to the terms set forth in this Indenture including, without limitation, Exhibit A hereto, the terms of which --------- are hereby incorporated in their entirety by reference. (c) The Convertible Debentures and the Trustee's Certificate of Authentication to be endorsed thereon are to be substantially in the form of Exhibit A to this Indenture. - - --------- 12 Section 2.4 Exchange and Registration of Transfer of Convertible Debentures; Restrictions on Transfers; Depositary. If distributed to holders of Trust Securities, the Convertible Debentures will be issued to such holders in the same form as the Trust Securities that such Convertible Debentures replace in accordance with the following procedures: (a) So long as Convertible Debentures are eligible for book-entry settlement with the Depositary, or unless otherwise required by law, all Convertible Debentures that are so eligible may be represented by one or more Convertible Debentures in global form registered in the name of the Depositary or the nominee of the Depositary, except as otherwise specified below. The transfer and exchange of beneficial interests in any such Convertible Debenture in global form shall be effected through the Depositary in accordance with this Indenture and the procedures of the Depositary therefor. Convertible Debentures that are distributed to QIBs in replacement of Convertible Preferred Securities represented by a global Convertible Preferred Security will be represented by a global Convertible Debenture (the "144A Global Debenture"). Convertible Debentures that are distributed to Non-U.S. Persons in replacement of Convertible Preferred Securities represented by a global Convertible Preferred Security will be represented by a global Convertible Debenture (the "Regulation S Global Debenture"). Each of the 144A Global Debenture and the Regulation S Global Debenture shall be referred to herein as a Global Debenture. Convertible Debentures that are distributed to QIBs or to Non-U.S. Persons in replacement of Certificated Convertible Preferred Securities will be represented by definitive Convertible Debentures as set forth in Section 2.4(b). If Global Debentures are issued, transfers of interests in the Convertible Debentures between the 144A Global Debenture and the Regulation S Global Debenture will be made in accordance with the standing instructions and procedures of the Depositary and its participants and the Trustee shall make appropriate endorsements to reflect increases or decreases in the principal amounts of such Global Debentures to reflect any such transfers. Except as provided below, beneficial owners of a Convertible Debenture in global form shall not be entitled to have certificates registered in their names, will not receive or be entitled to receive physical delivery of certificates in definitive form and will not be considered Holders of such Convertible Debentures in global form. (b) Convertible Preferred Securities held in certificated form, except for certificates representing Convertible Preferred Securities held by the Depositary or its nominee (or any successor Clearing Agency or its nominee), shall upon presentation to the Trustee by the Institutional Trustee or by the holder thereof or by the Institutional Trustee on behalf of such holder shall be exchanged for Convertible Debentures in fully registered certificated form of like aggregate principal amount and tenor. (c) So long as the Convertible Debentures are eligible for book-entry settlement, and to the extent that Convertible Debentures are held by QIBs or Non-U.S. Persons, as the case may be, in a Global Debenture, or unless otherwise required by law, upon any transfer 13 of a definitive Convertible Debenture to a QIB in accordance with Rule 144A or to a Non-U.S. Person in accordance with Regulation S, unless otherwise requested by the transferor, and upon receipt of the definitive Convertible Debenture or Convertible Debentures being so transferred, together with a certification from the transferor that the transfer is being made in compliance with Rule 144A or Regulation S, as the case may be (or other evidence satisfactory to the Trustee), the Trustee shall make an endorsement on any 144A Global Debenture or any Regulation S Global Debenture, as the case may be, to reflect an increase in the aggregate principal amount of the Convertible Debentures represented by such Global Debenture, and the Trustee shall cancel such definitive Convertible Debenture or Convertible Debentures in accordance with the standing instructions and procedures of the Depositary, the aggregate principal amount of Convertible Debentures represented by such Global Debenture to be increased accordingly; provided that no definitive Convertible Debenture, or portion thereof, in respect of which the Company or an Affiliate of the Company held any beneficial interest shall be included in such Global Debenture until such definitive Convertible Debenture is freely tradable in accordance with Rule 144(k); provided further that the Trustee shall, at the written request of the Company, issue Convertible Debentures in definitive form upon any transfer of a beneficial interest in the Global Debenture to the Company or any Affiliate of the Company. Any Global Debenture may be endorsed with or have incorporated in the text thereof such legends or recitals or changes not inconsistent with the provisions of this Indenture as may be required by the Depositary, by the New York Stock Exchange or by the National Association of Securities Dealers, Inc. in order for the Convertible Debentures to be tradeable on the PORTAL Market or as may be required for the Convertible Debentures to be tradeable on any other market developed for trading of securities pursuant to Rule 144A or required to comply with any applicable law or any regulation thereunder or with the rules and regulations of any securities exchange upon which the Convertible Debentures may be listed or traded or to conform with any usage with respect thereto, or to indicate any special limitations or restrictions to which any particular Convertible Debentures are subject. (d) Each Convertible Debenture that bears or is required to bear the legend set forth in this Section 2.4(d) (a "Restricted Convertible Debenture") shall be subject to the restrictions on transfer provided in the legend set forth in this Section 2.4(d), unless such restrictions on transfer shall be waived by the written consent of the Company, and the Holder of each Restricted Convertible Debenture, by such Holder's acceptance thereof, agrees to be bound by such restrictions on transfer. As used in this Section 2.4(d) and in Section 2.4(e), the term "transfer" encompasses any sale, pledge, transfer or other disposition of any Restricted Convertible Debenture. Prior to the Transfer Restriction Termination Date, any certificate evidencing a Convertible Debenture shall bear a legend in substantially the following form, unless otherwise agreed by the Company (with written notice thereof to the Trustee): THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN 14 THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) ("INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THE SECURITY EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION, (2) AGREES THAT IT WILL NOT PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION) RESELL OR OTHERWISE TRANSFER THE SECURITY EVIDENCED HEREBY OR, IF THIS SECURITY IS CONVERTIBLE INTO COMMON STOCK, THE COMMON STOCK ISSUABLE UPON CONVERSION OR EXCHANGE OF THIS SECURITY EXCEPT (A) TO McKESSON CORPORATION (THE "COMPANY") OR ANY SUBSIDIARY THEREOF, (B) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, (C) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (D) TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE FOR THE CONVERTIBLE PREFERRED SECURITIES OR THE CONVERTIBLE DEBENTURES, AS THE CASE MAY BE (OR, IF THIS CERTIFICATE EVIDENCES COMMON STOCK, THE TRANSFER AGENT FOR THE COMMON STOCK), A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE SECURITY EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM SUCH TRUSTEE OR TRANSFER AGENT), (E) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT OR (F) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE SECURITY EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THE SECURITY EVIDENCED HEREBY PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE FOR THE CONVERTIBLE PREFERRED SECURITIES OR THE CONVERTIBLE DEBENTURES, AS THE CASE MAY BE (OR, IF THIS CERTIFICATE EVIDENCES COMMON STOCK, SUCH HOLDER MUST FURNISH TO THE TRANSFER AGENT SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE COMPANY OR McKESSON 15 FINANCING TRUST (THE "TRUST") MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT). IF THIS CERTIFICATE DOES NOT EVIDENCE COMMON STOCK AND IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR OR A PURCHASER WHO IS NOT A U.S. PERSON, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE FOR THE CONVERTIBLE PREFERRED SECURITIES OR THE CONVERTIBLE DEBENTURES, AS THE CASE MAY BE, SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE COMPANY OR THE TRUST MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND WILL BE REMOVED AFTER THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. Following the Transfer Restriction Termination Date, any Convertible Debenture or security issued in exchange or substitution therefor (other than (i) Convertible Debentures acquired by the Company or any Affiliate thereof since the issue date of the Convertible Preferred Securities and (ii) Common Stock issued upon the conversion or exchange of any Convertible Debenture described in clause (i) above) may upon surrender of such Convertible Debenture for exchange to the Registrar in accordance with the provisions of this Section 2.4, be exchanged for a new Convertible Debenture or Convertible Debentures, of like tenor and aggregate principal amount, which shall not bear the restrictive legend required by this Section 2.4(d). Notwithstanding any other provisions of this Indenture (other than the provisions set forth in this Section 2.4(d)), a Global Debenture may not be transferred as a whole except by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee to a successor Depositary or a nominee of such successor Depositary. The Depositary shall be a clearing agency registered under the Exchange Act. The Company initially appoints The Depository Trust Company to act as Depositary with respect to all or a portion of the Convertible Debentures in global form. Initially, the Global Debentures shall be issued to the Depositary, registered in the name of Cede & Co., as the nominee of the Depositary, and deposited with the Trustee as custodian for Cede & Co. Definitive Convertible Debentures issued in exchange for all or a part of a Global Debenture pursuant to this Section 2.4(d) shall be registered in such names and in such authorized denominations as the Depositary, pursuant to instructions from its direct or 16 indirect participants or otherwise, shall instruct the Trustee. Upon execution and authentication, the Trustee shall deliver such definitive Convertible Debentures to the person in whose names such definitive Convertible Debentures are so registered. At such time as all interests in a Global Debenture have been redeemed, converted, exchanged, repurchased or canceled, such Global Debenture shall be, upon receipt thereof, canceled by the Trustee in accordance with standing procedures and instructions of the Depositary. At any time prior to such cancellation, if any interest in a Global Debenture is exchanged for definitive Convertible Debentures, redeemed, converted, exchanged or repurchased by the Company pursuant to Article X or canceled, or transferred for part of a Global Debenture, the principal amount of such Global Debenture shall, in accordance with the standing procedures and instructions of the Depositary be reduced or increased, as the case may be, and an endorsement shall be made on such Global Debenture by, or at the direction of, the Trustee to reflect such reduction or increase. (e) Any Convertible Debenture or Common Stock issued upon the conversion or exchange of a Convertible Debenture that, prior to the Transfer Restriction Termination Date, is purchased or owned by the Company or any Affiliate thereof may not be resold by the Company or such Affiliate unless registered under the Securities Act or resold pursuant to an exemption from the registration requirements of the Securities Act in a transaction which results in such Convertible Debentures or Common Stock, as the case may be, no longer being "restricted securities" (as defined under Rule 144). Section 2.5 Interest. (a) Each Convertible Debenture will bear interest at the rate of 5% per annum (the "Coupon Rate") from February 20, 1997 until the principal thereof becomes due and payable, and on any overdue principal and (to the extent that payment of such interest is enforceable under applicable law) on any overdue installment of interest at the Coupon Rate, compounded quarterly, payable (subject to the provisions of Article XI) quarterly in arrears on March 1, June 1, September 1 and December 1 of each year (each, an "Interest Payment Date"), commencing on June 1, 1997, to the Person in whose name such Convertible Debenture or any Predecessor Convertible Debenture is registered, at the close of business on the record date for such interest installment, which shall be the close of business on the fifteenth day prior to that Interest Payment Date. (b) The amount of interest payable for any period will be computed on the basis of a 360-day year of twelve 30-day months. The amount of interest payable for any period shorter than a full quarterly period for which interest is computed, will be computed on the basis of the actual number of days elapsed per 30-day month. In the event that any date on which interest is payable on the Convertible Debentures is not a Business Day, then payment of interest payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. 17 (c) If at any time the Trust is required to pay any taxes, duties, assessments or governmental charges of whatever nature (other than withholding taxes) imposed by the United States, or any other taxing authority, then, in any such case, the Company will pay as additional sums ("Additional Sums") such additional amounts as shall be required so that the net amounts received and retained by the Trust after paying any such taxes, duties, assessments or other governmental charges will not be less than the amounts the Trust would have received had no such taxes, duties, assessments or other government charges been imposed so long as the Trust is the holder of the Convertible Debentures. The definitive Convertible Debentures shall be printed, lithographed or engraved on steel engraved borders or may be produced in any other manner, all as determined by the officers executing such Convertible Debentures, as evidenced by their execution of such Convertible Debentures. Section 2.6 Authentication and Delivery of Convertible Debentures. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Convertible Debentures in the aggregate principal amount of up to $206,186,000 executed by the Company to the Trustee for authentication, and the Trustee shall thereupon authenticate and make available for delivery such Convertible Debentures to or upon the written order of the Company, signed by both (i) the chairman of its Board of Directors, or any vice chairman of its Board of Directors, or its president or any vice president and (ii) its treasurer or any assistant treasurer or its secretary or any assistant secretary, without any further action by the Company. In authenticating such Convertible Debentures and accepting the additional responsibilities under this Indenture in relation to such Convertible Debentures, the Trustee shall be entitled to receive and (subject to Section 6.1) shall be fully protected in relying upon: (a) a copy of any resolution or resolutions of the Board of Directors relating to the issuance of such Convertible Debentures, in each case certified by the secretary or an assistant secretary of the Company; (b) a supplemental indenture, if any; (c) an Opinion of Counsel, prepared in accordance with Section 15.5, which shall state that the Convertible Debentures have been duly authorized, and, when authenticated and delivered by the Trustee and issued by the Company in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute valid and binding obligations of the Company enforceable in accordance with their terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization or other laws relating to or affecting the enforcement of creditors' rights generally and by general equitable principles, regardless of whether such enforceability is considered in a proceeding in equity or at law. Notwithstanding the provisions of the preceding paragraph, if the Convertible Debentures are not to be originally issued at one time, it shall not be necessary to deliver the resolution of the Board of Directors and Opinion of Counsel otherwise required pursuant to such preceding paragraph at or prior to the time of authentication of each Convertible Deben- 18 ture if such documents are delivered at or prior to the time of authentication upon original issuance of the first Convertible Debentures to be issued. After the original issuance of the first Convertible Debenture to be issued, any separate request by the Company that the Trustee authenticate Convertible Debentures for original issuance will be deemed to be a certification by the Company that it is in compliance with all conditions precedent provided for in this Indenture relating to the authentication and delivery of such Convertible Debentures. The Trustee shall have the right to decline to authenticate and deliver any Convertible Debentures under this Section if the Trustee is advised by counsel in good faith that the issuance of such Convertible Debentures would expose the Trustee to personal liability or is unlawful. If the Convertible Debentures are to be issued in the form of one or more Global Debentures, then the Company shall execute and the Trustee shall, in accordance with this Section, authenticate and deliver one or more Global Debentures that (i) shall represent and shall be denominated in an amount equal to the aggregate principal amount of all of the Convertible Debentures issued and not yet cancelled, (ii) shall be registered in the name of the Depositary for such Global Debenture or Convertible Debentures or the nominee of such Depositary, (iii) shall be delivered by the Trustee to such Depositary or pursuant to such Depositary's instructions and (iv) shall bear a legend substantially to the following effect: "Unless and until it is exchanged in whole or in part for Convertible Debentures in definitive registered form, this Convertible Debenture may not be transferred except as a whole by the Depositary to the nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary." Each Depositary must, at the time of its designation and at all times while it serves as Depositary, be a clearing agency registered under the Exchange Act and any other applicable statute or regulation to be so registered to act as such depositary. Section 2.7 Execution of Convertible Debentures. The Convertible Debentures shall be signed on behalf of the Company by the chairman of its Board of Directors, or any vice chairman of its Board of Directors, or its president or any vice president and attested by its treasurer or any assistant treasurer or its secretary or any assistant secretary, under its corporate seal. Such signatures may be the manual or facsimile signatures of such officers. The seal of the Company may be in the form of a facsimile thereof and may be impressed, affixed, imprinted or otherwise reproduced on the Convertible Debentures. Typographical and other minor errors or defects in any such reproduction of the seal or any such signature shall not affect the validity or enforceability of any Convertible Debenture that has been duly authenticated and delivered by the Trustee. In case any officer of the Company who shall have signed any of the Convertible Debentures shall cease to be such officer before the Convertible Debenture so signed shall be authenticated and delivered by the Trustee or disposed of by the Company, such Convertible Debenture nevertheless may be authenticated and delivered or disposed of as though the person who signed such Convertible Debenture had not ceased to be such officer of the 19 Company; and any Convertible Debenture may be signed on behalf of the Company by such persons as, at the actual date of the execution of such Convertible Debenture, shall be the proper officers of the Company, although at the date of the execution and delivery of this Indenture any such person was not such an officer. Section 2.8 Certificate of Authentication. Only such Convertible Debentures as shall bear thereon a certificate of authentication substantially in the form attached hereto as a part of Exhibit A and executed by the Trustee by the manual signature of one of its authorized signatories shall be entitled to the benefits of this Indenture or be valid or obligatory for any purpose. The execution of such certificate by the Trustee upon any Convertible Debenture executed by the Company shall be conclusive evidence that the Convertible Debenture so authenticated has been duly authenticated and delivered hereunder and that the Holder is entitled to the benefits of this Indenture. Notwithstanding the foregoing, if any Convertible Debenture shall have been duly authenticated and delivered hereunder but never issued and sold by the Company, the Company shall deliver such Convertible Debenture to the Trustee for cancellation as provided in Section 2.12 together with a written statement (which need not comply with Section 15.5 and need not be accompanied by an Opinion of Counsel) stating that such Convertible Debenture has never been issued and sold by the Company, for all purposes of this Indenture such Convertible Debenture shall be deemed never to have been authenticated and delivered hereunder and shall never be entitled to the benefits of this Indenture. Section 2.9 Denomination and Date of Convertible Debentures; Payments of Interest. Convertible Debentures shall be issuable in denominations of $50 and any integral multiple thereof. The Convertible Debentures shall be numbered, lettered, or otherwise distinguished in such manner or in accordance with such plans as the officers of the Company executing the same may determine with the approval of the Trustee as evidenced by the execution and authentication thereof. Each Convertible Debenture shall be dated the date of its authentication. The term "record date" as used with respect to any interest payment date (except for payment of defaulted interest) shall mean the close of business on the fifteenth day preceding such interest payment date, whether or not such record date is a Business Day. Any interest on any Convertible Debenture which is payable, but is not punctually paid or duly provided for, on any interest payment date, subject to the provisions of Article XI (called "defaulted interest" for purposes of this Section) shall forthwith cease to be payable to the Holder on the relevant record date by virtue of his having been such Holder; and such defaulted interest may be paid by the Company, at its election in each case, as provided in clause (1) or clause (2) below: (1) The Company may elect to make payment of any defaulted interest to the persons in whose names any such Convertible Debentures (or their respective predecessor Convertible Debentures) are registered at the close of business on a special 20 special record date for the payment of such defaulted interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Convertible Debentures and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such defaulted interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the persons entitled to such defaulted interest as in this clause provided. Thereupon the Trustee shall fix a special record date for the payment of such defaulted interest in respect of Convertible Debentures which shall not be more than 15 nor less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such special record date and, in the name and at the expense of the Company shall cause notice of the proposed payment of such defaulted interest and the special record date thereof to be mailed, first class postage prepaid, to each Holder at his address as it appears in the Security Register, not less than 10 days prior to such special record date. Notice of the proposed payment of such defaulted interest and the special record date therefor having been mailed as aforesaid, such defaulted interest in respect of Convertible Debentures shall be paid to the person in whose names such Convertible Debentures (or their respective predecessor Convertible Debentures) are registered on such special record date and such defaulted interest shall no longer be payable pursuant to the following clause (2). (2) The Company may make payment of any defaulted interest on the Convertible Debentures in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Convertible Debentures may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such manner of payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section, each Convertible Debenture delivered under this Indenture upon transfer of or in exchange for or in lieu of any other Convertible Debenture shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Convertible Debenture. In the case of any Convertible Debenture which is converted into Common Stock of the Company after any record date and on or prior to the next succeeding Interest Payment Date (other than any Convertible Debenture whose Maturity is prior to such Interest Payment Date), interest whose Stated Maturity is on such Interest Payment Date shall be payable on such Interest Payment Date notwithstanding such conversion, and such interest (whether or not punctually paid or duly provided for) shall be paid to the Person in whose name that Convertible Debenture (or one or more Predecessor Convertible Debentures) is registered at the close of business on such record date. However, if a redemption date falls between a record date and the subsequent Interest Payment Date, the amount of such payment shall include accumulated and unpaid interest accrued to, but excluding, such redemption date. 21 Except as otherwise expressly provided in the first two sentences of this paragraph, in the case of any Convertible Debenture which is converted, interest whose Stated Maturity is after the date of conversion of such Convertible Debenture shall not be payable. Section 2.10 Registration, Transfer and Exchange. The provisions of this Section 2.10 shall be subject in their entirety to the provisions of Section 2.4. The Company will cause to be kept at each office or agency to be maintained for the purpose as provided in Section 3.2 a register or registers (herein sometimes referred to as the "Security Register") in which, subject to such reasonable regulations as it may prescribe, the Company will provide for the registration and the registration of the transfer or exchange of the Convertible Debentures. The Trustee is hereby appointed and accepts the appointment as Registrar (the "Registrar") for purposes of registering, and registering transfers of, the Convertible Debentures. Upon surrender for registration of transfer of any Convertible Debenture at any such office or agency to be maintained for the purpose as provided in Section 3.2, the Company shall execute and the Trustee shall authenticate and make available for delivery in the name of the transferee or transferees a new Convertible Debenture or Convertible Debentures and of a like tenor and containing the same terms (other than the principal amount thereof, if more than one Convertible Debenture is executed, authenticated and delivered in respect to any Convertible Debenture so presented, in which case the aggregate principal amount of the executed, authenticated and delivered Convertible Debentures shall equal the principal amount of the Convertible Debenture presented in respect thereof) and conditions. At the option of the Holder thereof, Convertible Debentures (other than a Global Debenture, except as set forth below) may be exchanged for a Convertible Debenture or Convertible Debentures having authorized denominations and an equal aggregate principal amount, upon surrender of such Convertible Debentures to be exchanged at the agency of the Company that shall be maintained for such purpose in accordance with Section 3.2 and upon payment, if the Company shall so require, of the charge hereinafter provided. Whenever any Convertible Debentures are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Convertible Debentures which the Holder making the exchange is entitled to receive. All Convertible Debentures surrendered upon any exchange or transfer provided for in this Indenture shall be promptly cancelled by the Trustee and the Trustee will deliver a certificate of cancellation thereof to the Company. All Convertible Debentures issued upon any transfer or exchange of Convertible Debentures shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Convertible Debentures surrendered upon such transfer or exchange. Every Convertible Debenture presented or surrendered for registration of transfer or exchange shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by the Holder thereof or his attorney duly authorized in writing. 22 No service charge shall be made to the Holder for any registration of transfer or exchange of Convertible Debentures, but the company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any transfer or exchange of Convertible Debentures, other than exchanges pursuant to Sections 2.13, 8.5 or 12.5 not involving any transfer. The Company shall not be required (i) to issue, register the transfer of or exchange any Convertible Debenture during a 15-day period prior to the day of mailing of the relevant notice of redemption or (ii) to register the transfer of or exchange any Convertible Debenture so selected for redemption in whole or in part, except, in the case of any Convertible Debenture to be redeemed in part, the portion thereof not redeemed. Notwithstanding any other provisions of this Section 2.10, unless and until it is exchanged in whole or in part for Convertible Debentures in definitive registered form, a Global Debenture representing all or a portion of the Convertible Debentures may not be transferred except as a whole by the Depositary to a nominee of such Depositary or by a nominee of such Depositary to such Depositary or another nominee of such Depositary or by such Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. If at any time the Depositary for any Convertible Debentures represented by one or more Global Debentures notifies the Company that it is unwilling or unable to continue as Depositary for such Convertible Debentures or if at any time the Depositary for such Convertible Debentures shall no longer be eligible under Section 2.6, the Company shall appoint a successor Depositary with respect to such Convertible Debentures. If a successor Depositary for such Convertible Debentures is not appointed by the Company within 90 days after the Company receives such notice or becomes aware of such ineligibility, as the case may be, the Company's election that such Convertible Debentures be represented by one or more Global Debentures shall no longer be effective and the Company will execute, and the Trustee, upon receipt of an Officers' Certificate for the authentication and delivery of definitive Convertible Debentures, will authenticate and deliver, Convertible Debentures in definitive registered form, in any authorized denominations, in an aggregate principal amount equal to the principal amount of the Global Debenture or Convertible Debentures representing such Convertible Debentures in exchange for such Global Debenture or Convertible Debentures. The Company may at any time and in its sole discretion determine that the Convertible Debentures issued in the form of one or more Global Debentures shall no longer be represented by a Global Debenture. In such event the Company will execute, and the Trustee, upon receipt of an Officers' Certificate for the authentication and delivery of definitive Convertible Debentures, will authenticate and deliver, Convertible Debentures in definitive registered form, in any authorized denominations, in an aggregate principal amount equal to the principal amount of the Global Debenture, in exchange for such Global Debenture. 23 If an Event of Default occurs and is continuing with respect to Convertible Debentures issued in the form of one or more Global Debentures, upon written notice from the Depositary, the Company will execute, and the Trustee, upon receipt of an Officers' Certificate for the authentication and delivery of definitive Convertible Debentures, will authenticate and deliver, Convertible Debentures in definitive registered form, in any authorized denominations, in an aggregate principal amount equal to the principal amount of the Global Debenture or Convertible Debentures, representing such Convertible Debentures, in exchange for such Global Debenture or Convertible Debentures. If specified by the Company, the Depositary for such Global Debenture may surrender such Global Debenture in exchange in whole or in part for Convertible Debentures in definitive registered form on such terms as are acceptable to the Company and such Depositary. Thereupon, the Company shall execute, and the Trustee shall authenticate and deliver, without service charge to the Holder, (i) to the Person specified by such Depositary a new Convertible Debenture or Convertible Debentures, of any authorized denominations as requested by such Person, in an aggregate principal amount equal to and in exchange for such Person's beneficial interest in the Global Debenture; and (ii) to such Depositary a new Global Debenture in a denomination equal to the difference, if any, between the principal amount of the surrendered Global Debenture and the aggregate principal amount of Convertible Debentures authenticated and delivered pursuant to clause (i) above. Upon the exchange of a Global Debenture for Convertible Debentures in definitive registered form, in authorized denominations, such Global Debenture shall be cancelled by the Trustee or an agent of the Company or the Trustee. Convertible Debentures in definitive registered form issued in exchange for a Global Debenture pursuant to this Section 2.10 shall be registered in such names and in such authorized denominations as the Depositary for such Global Debenture, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee or agent of the Company or the Trustee. The Trustee or such agent shall deliver such Convertible Debentures to or as directed by the Persons in whose names such Convertible Debentures are so registered. Section 2.11 Mutilated, Defaced, Destroyed, Lost and Stolen Convertible Debentures. In case any temporary or definitive Convertible Debenture shall become mutilated or defaced or be destroyed, lost or stolen, then, in the absence of notice to the Company or the Trustee that the Convertible Debenture has been acquired by a bona fide purchaser, the Company shall execute, and upon the written request of any officer of the Company, the Trustee shall authenticate and make available for delivery a new Convertible Debenture and of like tenor and principal amount and with the same terms and conditions, bearing a number not contemporaneously outstanding, in exchange and substitution for the mutilated or defaced Convertible Debenture or in lieu of and substitution for the Convertible Debenture so destroyed, lost or stolen. In every case the applicant for a substitute Convertible Debenture shall furnish to the Company and to the Trustee and to any agent of the Company or the 24 Trustee such security or indemnity as may be required by them to indemnify and defend and to save each of them harmless and, in every case of destruction, loss or theft, evidence to their satisfaction of the destruction, loss or theft of such Convertible Debenture and of the ownership thereof and in the case of mutilation or defacement shall surrender the Convertible Debenture to the Trustee or such agent. Upon the issuance of any substitute Convertible Debenture, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee or its agent) connected therewith. In case any Convertible Debenture which has matured or is about to mature or has been called for redemption in full shall become mutilated or defaced or be destroyed, lost or stolen, the Company may, instead of issuing a substitute Convertible Debenture, pay or authorize, the payment of the same (without surrender thereof except in the case of a mutilated or defaced Convertible Debenture); provided, however, that the applicant for such payment shall furnish to the Company and to the Trustee and any agent of the Company or the Trustee such security or indemnity as any of them may require to save each of them harmless, and, in every case of destruction, loss or theft, the applicant shall also furnish to the Company and the Trustee and any agent of the Company or the Trustee evidence to their satisfaction of the destruction, loss or theft of such Convertible Debenture and of the ownership thereof. Every substitute Convertible Debenture issued pursuant to the provisions of this Section by virtue of the fact that any Convertible Debenture is destroyed, lost or stolen shall constitute an additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Convertible Debenture shall be at any time enforceable by anyone and shall be entitled to all the benefits of (but shall be subject to all the limitations of rights set forth in) this Indenture equally and proportionately with any and all other Convertible Debentures duly authenticated and delivered hereunder. All Convertible Debentures shall be held upon the express condition that, to the extent permitted by law, the foregoing provisions are exclusive with respect to the replacement or payment of mutilated, defaced, destroyed, lost or stolen Convertible Debentures and shall preclude any and all other rights or remedies notwithstanding any law or statute existing or hereafter enacted to the contrary with respect to the replacement or payment of negotiable instruments or other securities without their surrender. Section 2.12 Cancellation of Convertible Debentures. All Convertible Debentures surrendered for payment, redemption, conversion, registration of transfer or exchange, or for credit against any payment in respect of a sinking or analogous fund, shall, if surrendered to the Company or any agent of the Company or the Trustee, be delivered to the Trustee for cancellation or, if surrendered to the Trustee, shall be cancelled by it; and no Convertible Debentures shall be issued in lieu thereof, except as expressly permitted by any of the provisions of this Indenture. The Company may at any time deliver to the Trustee for cancellation any Convertible Debentures previously authenticated hereunder which the Company has not issued and sold and all Convertible Debentures so delivered shall be promptly cancelled by the Trustee. If the Company shall acquire any of the Convertible Debentures, such acquisition shall not operate as a redemption or satisfaction of the indebtedness represented by such Convertible Debentures unless and until the same are 25 delivered to the Trustee for cancellation. All cancelled Convertible Debentures shall be disposed of as directed by a Company Order or, in the absence of such Company Order, in accordance with the Trustee's customary practices. The Trustee shall provide a certificate of destruction to the Company with respect to all Convertible Debentures disposed of by the Trustee. Section 2.13 Temporary Convertible Debentures. Pending the preparation of definitive Convertible Debentures, the Company may execute and the Trustee shall authenticate and make available for delivery temporary Convertible Debentures (printed, lithographed, typewritten or otherwise reproduced, in each case in form reasonably acceptable to the Trustee). Temporary Convertible Debentures shall be issuable in any authorized denomination, and substantially in the form of the definitive Convertible Debentures but with such omissions, insertions and variations as may be appropriate for temporary Convertible Debentures, all as may be determined by the Company with the reasonable concurrence of the Trustee. Temporary Convertible Debentures may contain such reference to any provisions of this Indenture as may be appropriate. Every temporary Convertible Debenture shall be executed by the Company and be authenticated by the Trustee upon the same conditions and in substantially the same manner, and with like effect, as the definitive Convertible Debentures. Without unreasonable delay the Company shall execute and shall furnish definitive Convertible Debentures and thereupon temporary Convertible Debentures may be surrendered in exchange therefor without charge to the Holder at each office or agency to be maintained by the Company for that purpose pursuant to Section 3.2, and the Trustee shall authenticate and make available for delivery in exchange for such temporary Convertible Debentures an equal aggregate principal amount of definitive Convertible Debentures of authorized denominations. Until so exchanged, the temporary Convertible Debentures shall be entitled to the same benefits under this Indenture as definitive Convertible Debentures. ARTICLE III COVENANTS OF THE COMPANY Section 3.1 Payment of Principal and Interest. The Company covenants and agrees for the benefit of the Convertible Debentures that it will duly and punctually pay or cause to be paid the principal of, and interest on, each of the Convertible Debentures in accordance with the terms of such Convertible Debentures and of this Indenture. The interest on Convertible Debentures (together with any additional amounts payable pursuant to the terms of such Convertible Debentures) shall be payable only to or upon the written order of the Holders thereof and at the option of the Company may be paid by wire transfer or by mailing checks for such interest payable to or upon the written order of such Holders at their last addresses as they appear on the Security Register. Payment of principal of and any interest on any Convertible Debenture in definitive global form shall be made to the Person or Persons specified therein. 26 Except as provided in the preceding paragraph, the Company, the Trustee and any agent of the Company and the Trustee shall treat a Person as the Holder of such principal amount of Outstanding Convertible Debentures represented by a Global Debenture as shall be specified in a written statement of the Holder of such Global Debenture. Section 3.2 Offices for Payment, etc. So long as any of the Convertible Debentures remain outstanding, the Company will maintain the following: an office or agency in the Borough of Manhattan, City of New York (a) where the Convertible Debentures may be presented for payment, (b) where the Convertible Debentures may be presented for registration of transfer and for exchange as provided in this Indenture, and (c) where notices and demands may be served upon the Company in respect of the Convertible Debentures, or this Indenture. The Company will give to the Trustee written notice of the location of any such office or agency and of any change of location thereof. In case the Company shall fail to so designate or maintain any such office or agency or shall fail to give such notice of the location or of any change in the location thereof, presentations and demands may be made and notices may be served at the Corporate Trust Office. The Trustee is hereby appointed, and accepts its appointment as, Paying Agent. Section 3.3 Paying Agents. Whenever the Company shall appoint a Paying Agent other than the Trustee with respect to the Convertible Debentures, it will cause such Paying Agent to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section: (a) that it will hold all sums received by it as such Paying Agent for the payment of the principal of or interest on the Convertible Debentures (whether such sums have been paid to it by the Company or by any other obligor on the Convertible Debentures) in trust for the benefit of the Holders of the Convertible Debentures or of the Trustee, and upon the occurrence of an Event of Default and upon the written request of the Trustee, pay over all such sums received by it to the Trustee; and (b) that it will give the Trustee notice of any failure by the Company (or by any other obligor on the Convertible Debentures) to make any payment of the principal of or interest on the Convertible Debentures when the same shall be due and payable. The Company will, on or prior to each due date of the principal of or interest on the Convertible Debentures, deposit in a timely manner with the Paying Agent a sum sufficient to pay such principal or interest so becoming due, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of any failure to take such action. If the Company shall act as its own Paying Agent with respect to the Convertible Debentures, it will, on or before each due date of the principal of or interest on the Convertible Debentures, set aside, segregate and hold in trust for the benefit of the holders 27 of the Convertible Debentures a sum sufficient to pay such principal or interest so becoming due. The Company will promptly notify the Trustee of any failure to take such action. Section 3.4 Written Statement to Trustee. The Company will deliver to the Trustee, within 120 days after the end of each fiscal year of the Company ending after the date hereof, a brief certificate (which need not comply with Section 15.5) from the principal executive, financial or accounting officer of the Company as to his or her knowledge, after due inquiry, of the Company's compliance with all conditions and covenants under this Indenture (such compliance to be determined without regard to any period of grace or requirement of notice provided under this Indenture), and if the Company shall not be in compliance, specifying all such defaults or non-compliance and the nature and status thereof. Section 3.5 Limitation on Dividends; Transactions with Affiliates. If any Convertible Debentures are outstanding and (i) there shall have occurred any Event of Default or any event that, with the giving of notice or lapse of time or both, would constitute an Event of Default, (ii) the Guarantor shall be in default with respect to its payment or other obligations under the Preferred Securities Guarantee or the Common Securities Guarantee, or (iii) the Company shall have given notice of its election to defer payments of interest on Convertible Debentures by extending the interest payment period as provided in Article XI and such period, or any extension thereof, shall be continuing, then the Company shall not (a) declare or pay any dividend on, make any distribution with respect to, or redeem, purchase or make a liquidation payment with respect to, any of its Capital Stock or (b) make any payment of interest, principal or premium, if any, on or repay, repurchase or redeem any debt securities issued by the Company that rank pari passu with or junior in interest to the Convertible Debentures or make any guarantee payments with respect to any guarantee by the Company of the debt securities of any subsidiary of the Company if such guarantee ranks pari passu with or junior in interest to the Convertible Debentures (other than (i) as a result of a reclassification of the Capital Stock of the Company or the exchange or conversion of one class or series of the Capital Stock of the Company for another class or series of the Capital Stock of the Company, (ii) the purchase of fractional interests in shares of the Capital Stock of the Company pursuant to the conversion or exchange provisions of such Capital Stock or the security being converted into or exchanged for such Capital Stock, (iii) dividends or distributions in Common Stock of the Company, (iv) any declaration of a dividend in connection with the implementation of a stockholders' rights plan, or the issuance of stock under any such plan in the future, or the redemption or repurchase of any such rights pursuant thereto, (v) payments under the Trust Securities Guarantees, (vi) purchases of Common Stock of the Company related to the issuance of Common Stock of the Company or rights under any of the Company's benefit plans for its directors, officers or employees and (vii) obligations under any dividend reinvestment and stock purchase plans). Section 3.6 Covenants as to McKesson Trust. For so long as the Trust Securities remain outstanding, the Company will (a) maintain 100% direct or indirect ownership of the Common Securities of McKesson Trust; provided, however, that any permitted successor of the Company under this Indenture may succeed to the Company's ownership of the Common Securities, (b) use its reasonable efforts to cause McKesson Trust (i) to remain a statutory business trust, except in connection with the distribution of Convertible Debentures to the 28 holders of Trust Securities in liquidation of McKesson Trust, the redemption of all of the Trust Securities of McKesson Trust, or certain mergers, consolidations or amalgamations, each as permitted by the Declaration, and (ii) to continue to be classified as a grantor trust for United States federal income tax purposes and (c) to use its reasonable efforts to cause each holder of Trust Securities to be treated as owning an undivided beneficial interest in the Convertible Debentures. Section 3.7 Existence. Subject to Article IX, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its existence, rights (charter and statutory) and franchises; provided, however, that the Company shall not be required to preserve any such right or franchise if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and that the loss thereof is not disadvantageous in any material respect to the Holders. ARTICLE IV HOLDERS OF CONVERTIBLE DEBENTURES LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE Section 4.1 Company to Furnish Trustee Information as to Names and Addresses of Holders of Convertible Debentures. The Company covenants and agrees that it will furnish or cause to be furnished to the Trustee a list in such form as the Trustee may reasonably require of the names and addresses of the Holders of the Convertible Debentures: (a) semiannually and not more than 15 days after each record date for the payment of interest on such Convertible Debentures, as hereinabove specified, as of such record date, and (b) at such other times as the Trustee may reasonably request in writing, within 30 days after receipt by the Company of any such request, such list to be as of a date not more than 15 days prior to the time such information is furnished, provided that if and so long as the Trustee shall be the Registrar, such list shall not be required to be furnished. Section 4.2 Preservation and Disclosure of Holders of Convertible Debentures' Lists. (a) The Trustee shall preserve, in as current a form as is reasonably practicable, all information as to the names and addresses of the Holders of Convertible Debentures contained in the most recent list furnished to it as provided in Section 4.1 or maintained by the Trustee in its capacity as Registrar, if so acting. The Trustee may destroy any list furnished to it as provided in Section 4.1 upon receipt of a new list so furnished. (b) In case three or more Holders of Convertible Debentures (hereinafter referred to as "applicants") apply in writing to the Trustee and furnish to the Trustee reasonable proof 29 that each such applicant has owned a Convertible Debenture for a period of at least six months preceding the date of such application, and such application states that the applicants desire to communicate with other Holders of Convertible Debentures (in which case the applicants must all hold Convertible Debentures) or with Holders of all Convertible Debentures with respect to their rights under this Indenture or under such Convertible Debentures and such application is accompanied by a copy of the form of proxy or other communication which such applicants propose to transmit, then the Trustee shall, within five business days after the receipt of such application, at is election, either (i) afford to such applicants access to the information preserved at the time by the Trustee in accordance with the provisions of subsection (a) of this Section, or (ii) inform such applicants as to the approximate number of Holders of Convertible Debentures or of all Convertible Debentures, as the case may be, whose names and addresses appear in the information preserved at the time by the Trustee, in accordance with the provisions of subsection (a) of this Section, as to the approximate cost of mailing to such Holders of Convertible Debentures the form of proxy or other communication, if any, specified in such application. If the Trustee shall elect not to afford to such applicants access to such information, the Trustee shall, upon the written request of such applicants, mail to each Holder of Convertible Debentures or all Holders of Convertible Debentures, as the case may be, whose name and address appears in the information preserved at the time by the Trustee in accordance with the provisions of subsection (a) of this Section, a copy of the form of proxy or other communication which is specified in such request, with reasonable promptness after a tender to the Trustee of the material to be mailed and of payment, or provision for the payment, of the reasonable expenses of mailing, unless within five days after such tender, the Trustee shall mail to such applicants and file with the Commission together with a copy of the material to be mailed, a written statement to the effect that, in the opinion of the Trustee, such mailing would be contrary to the best interests of the Holders of Convertible Debentures or could be in violation of applicable law. Such written statement shall specify the basis of such opinion. If the Commission, after opportunity for a hearing upon the objections specified in the written statement so filed, shall enter an order refusing to sustain any of such objections or if, after the entry of such order sustaining one or more of such objections, the Commission shall find, after notice and opportunity for hearing, that all the objections so sustained have been met, and shall enter an order so declaring, the Trustee shall mail copies of such material to all such Holders of Convertible Debentures with reasonable promptness after the entry of such order and the renewal of such tender; otherwise the Trustee shall be relieved of any obligation or duty to such applicants respecting their application. (c) Each and every Holder of Convertible Debentures, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of the Company or the Trustee shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Holders of Convertible Debentures in accordance with the provisions of subsection (b) of this Section, regardless of the source from which such information was derived, and that the Trustee shall 30 not be held accountable by reason of mailing any material pursuant to a request made under such subsection (b). Section 4.3 Reports by the Company. The Company covenants: (a) to file with the Trustee, within 15 days after the Company is required to file the same with the Commission, copies of the annual reports and of the information, documents, and other reports (or copies of such portions and any of the foregoing as the Commission may from time to time by rules and regulations prescribe) which the Company may be required to file with the Commission pursuant to Section 13 or Section 15(d) of the Exchange Act, or if the Company is not required to file information, documents, or reports pursuant to either of such Sections, then to file with the Trustee and the Commission to the extent permitted, in accordance with rules and regulations prescribed from time to time by the Commission, such of the supplemen tary and periodic information, documents, and reports which may be required pursuant to Section 13 of the Exchange Act, in respect of a security listed and registered on a national securities exchange as may be prescribed from time to time in such rules and regulations; (b) to file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such additional information, documents, and reports with respect to compliance by the Company with the conditions and covenants provided for in this Indenture as may be required from time to time by such rules and regulations; and (c) to transmit by mail to the Holders of Convertible Debentures in the manner and to the extent required by Sections 6.6 and 15.4, within 30 days after the filing thereof with the Trustee, such summaries of any information, documents, and reports required to be filed by the Company pursuant to subsections (a) and (b) of this Section as may be required to be transmitted to such Holders by rules and regulations prescribed from time to time by the Commission. ARTICLE V REMEDIES OF THE TRUSTEE AND HOLDERS OF CONVERTIBLE DEBENTURES ON EVENT OF DEFAULT Section 5.1 Event of Default Defined; Acceleration of Maturity; Waiver of Default. "Event of Default" with respect to the Convertible Debentures wherever used herein, means any one or more of the following events which shall have occurred and be continuing (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): 31 (a) default in the payment of any interest (including any Additional Sums and Compound Interest) upon or any additional amounts, including any Liquidated Damages Amount (as defined in the Preferred Securities Registration Rights Agreement), payable in respect of any Convertible Debentures when it becomes due and payable, and continuance of such default for a period of 30 days; provided, however, that a valid extension of an interest payment period by the Company in accordance with the terms of this Indenture shall not constitute a default in the payment of interest for this purpose; or (b) default in the payment of the principal of, or premium, if any, on, any Convertible Debentures as and when the same shall become due and payable whether at maturity, upon redemption, by declaration or otherwise; or (c) default in the performance, or breach of any covenant or warranty of the Company contained in the Convertible Debentures or in this Indenture (other than a covenant or warranty a default in whose performance or whose breach is elsewhere in this Section specifically dealt with), and continuance of such default or breach for a period of 30 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in aggregate principal amount of the Outstanding Convertible Debentures a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or (d) the entry by a court having jurisdiction in the premises of (A) a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law or (B) a decree or order adjudging the Company a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjust ment or composition of or in respect of the Company under any applicable federal or state law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of all or any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 90 consecutive days; or (e) the commencement by the Company of a voluntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to the entry of a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law or to the commence ment of any bankruptcy or insolvency case or proceeding against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable federal or state law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or similar official of the Company or of all or any substantial 32 part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company in furtherance of any such action; or (f) failure by the Company to convert Convertible Debentures into shares of Common Stock of the Company upon an appropriate election by a holder of Trust Securities or Convertible Debentures to convert such Trust Securities or Convertible Debentures, as the case may be, into such Common Stock (whether or not conversion or exchange is prohibited by the subordination provisions set forth herein); or (g) the McKesson Trust shall have voluntarily or involuntarily dissolved, wound-up its business or otherwise terminated its existence except in connection with (i) the distribution of Convertible Debentures to holders of Trust Securities in liquidation of their interest in the McKesson Trust upon the occurrence of a Special Event or upon the occurrence of events as described in Section 3 of Annex I to the Declaration, (ii) the redemption of all of the outstanding Trust Securities of the McKesson Trust, (iii) the conversion of all outstanding Convertible Preferred Securities into Common Stock of the Company or (iv) certain mergers, consolidations or amalgamations, each as permitted by the Declaration. If an Event of Default occurs and is continuing, then and in each and every such case, unless the principal of all Convertible Debentures shall have already become due and payable, either the Trustee or the Holders of not less than 25% in aggregate principal amount of the Convertible Debentures then Outstanding hereunder, by notice in writing to the Company (and to the Trustee if given by such Holders), may declare the entire principal of, plus accrued and unpaid interest on, all the Convertible Debentures (including Additional Sums, if any, and, to the extent permitted by applicable law, Compound Interest, if any) and any other amounts payable under this Indenture to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable. These provisions, however, are subject to the condition that if at any time after the principal and other amounts due on the Convertible Debentures shall have been so declared due and payable, and before any judgment or decree for the payment of the moneys due shall have been obtained or entered as hereinafter provided, the Company shall pay or shall deposit with the Trustee a sum sufficient to pay all matured installments of interest, if any, upon all the Convertible Debentures and the principal of any and all Convertible Debentures which shall have become due otherwise than by such acceleration (with interest upon such principal and, to the extent that payment of such interest is enforceable under applicable law, Compound Interest to the date of such payment or deposit in Dollars such amount as shall be sufficient to cover reasonable compensation to the Trustee, its agents, attorneys and counsel and all other expenses and liabilities incurred, and all advances with interest made, by the Trustee, its agents, attorneys and counsel and if any and all defaults under this Indenture, other than the nonpayment of the principal and interest of Convertible Debentures which shall have become due by such acceleration, shall have been cured or waived as provided herein, then and in every such case the Holders of a majority in aggregate principal amount of the Convertible Debentures then Outstanding, by written notice to the Company and to the 33 Trustee for the Convertible Debentures, may waive all defaults and rescind and annul such declaration and its consequences; but no such waiver or rescission and annulment shall extend to or shall affect any subsequent default or shall impair any right consequent thereon. Section 5.2 Collection of Indebtedness by Trustee; Trustee May Prove Debt. The Company covenants that (a) in case default shall be made in the payment of any installment of interest on any of the Convertible Debentures when such interest shall have become due and payable, and such default shall have continued for a period of 30 days, or (b) in case default shall be made in the payment of all or any part of the principal of any of the Convertible Debentures when the same shall have become due and payable, whether upon Maturity or upon any redemption or by declaration or otherwise, then upon demand of the Trustee for the Convertible Debentures, the Company will pay to the Trustee for the benefit of the Holders of the Convertible Debentures the whole amount that then shall have become due and payable on all Convertible Debentures for principal of or interest, as the case may be (with interest to the date of such payment upon the overdue principal and, to the extent that payment of such interest is enforceable under applicable law, on overdue installments of interest at the same rate as the rate of interest specified in the Convertible Debentures); and in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including reasonable compensation to, and all expenses and liabilities incurred and all advances with interest made by, the Trustee and each predecessor Trustee except as a result of its negligence or bad faith. Until such demand is made by the Trustee, the Company may pay the principal of and interest on the Convertible Debentures to the persons entitled thereto, whether or not the principal of and interest on the Convertible Debentures are overdue. In case the Company shall fail forthwith to pay such amounts upon such demand, the Trustee for the Convertible Debentures, in its own name and as trustee of an express trust, shall be entitled and empowered to institute any action or proceedings at law or in equity for the collection of the sums so due and unpaid, and may prosecute any such action or proceedings to judgment or final decree, and may enforce any such judgment or final decree against the Company or other obligor upon such Convertible Debentures and collect in the manner provided by law out of the property of the Company or other obligor upon such Convertible Debentures, wherever situated, the moneys adjudged or decreed to be payable. In case there shall be pending proceedings relative to the Company or any other obligor upon the securities under Title 11 of the United States Code or any other applicable federal or state bankruptcy, insolvency or other similar law, or in case a receiver, assignee or trustee in bankruptcy or reorganization, liquidator, sequestrator or similar official shall have been appointed for or taken possession of the Company or its property or such other obligor, or in case of any other comparable judicial proceedings relative to the Company or other obligor under the Convertible Debentures, or to the property of the Company or such other obligor, the Trustee, irrespective of whether the principal of any Convertible Debentures shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand pursuant to the 34 provisions of this Section, shall be entitled and empowered, by intervention in such proceeding or otherwise: (a) to file and prove a claim or claims for the whole amount of principal and interest owing and unpaid in respect of the Convertible Debentures, and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for reasonable compensation to, and all expenses and liabilities incurred and all advances with interest made by, the Trustee and each predecessor Trustee, and their respective agents, attorneys and counsel, except as a result of negligence or bad faith) and of the Holders of Convertible Debentures allowed in any judicial proceedings relative to the Company or other obligor upon all Convertible Debentures, or to the property of the Company or such obligor, and (b) to collect and receive any moneys or other property payable or deliver able on any such claims, and to distribute all amounts received with respect to the claims of the Holders of Convertible Debentures and of the Trustee on their behalf; and any trustee, receiver, liquidator, custodian or other similar official is hereby authorized by each of the Holders of Convertible Debentures to make payments to the Trustee for the Convertible Debentures, and, in the event that such Trustee shall consent to the making of payments directly to the Holders of Convertible Debentures, to pay to such Trustee such amounts as shall be sufficient to cover reasonable compensation to, and all expenses and liabilities incurred and all advances with interest made by, such Trustee, each predecessor Trustee and their respective agents, attorneys and counsel and all other amounts due to such Trustee or any predecessor Trustee pursuant to Section 6.7, except as a result of Trustee's negligence or bad faith. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder of Convertible Debentures any plan of reorganization, arrangement, adjustment or composition affecting the Convertible Debentures or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder of Convertible Debentures in any such proceeding. All rights of action and of asserting claims under this Indenture, or under any of the Convertible Debentures, may be enforced by the Trustee for the Convertible Debentures without the possession of any of the Convertible Debentures or the production thereof at any trial or other proceedings relative thereto, any such action or proceedings instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment, subject to the payment of the expenses, disbursements and compensation of the Trustee, each predecessor Trustee and their respective agents and attorneys, shall be for the ratable benefit of the Holders of the Convertible Debentures in respect of which such action was taken. In any proceedings brought by the Trustee for the Convertible Debentures (and also any proceedings involving the interpretation of any provision of this Indenture to which the 35 Trustee shall be a party), the Trustee shall be held to represent all the Holders of the Convertible Debentures in respect to which such action was taken, and it shall not be necessary to make any Holders of such Convertible Debentures parties to any such proceedings. Section 5.3 Application of Proceeds. Any moneys collected by the Trustee for the Convertible Debentures pursuant to this Article in respect of the Convertible Debentures shall be applied in the following order at the date or dates fixed by such Trustee and, in case of the distribution of such moneys on account of principal or interest, upon presentation of the several Convertible Debentures in respect of which moneys have been collected and stamping (or otherwise noting) thereon the payment, or issuing Convertible Debentures in reduced principal amounts in exchange for the presented Convertible Debentures if only partially paid, or upon surrender thereof if fully paid: FIRST: To the payment of costs and expenses applicable in respect of which moneys have been collected, including reasonable compensation to, and all expenses and liabilities incurred and all advances with interest made by, the Trustee and each predecessor Trustee and their respective agents and attorneys and all other amounts due to the Trustee or any predecessor Trustee pursuant to Section 6.7, except as a result of Trustee's negligence or bad faith; SECOND: To the payment of the amounts then due and unpaid for interest on the Convertible Debentures for which principal is not yet due and payable in respect of which moneys have been collected, such payments to be made ratably to the persons entitled thereto, without discrimination or preference, according to the amounts then due and payable on such Convertible Debentures for interest; THIRD: To the payment of the amounts then due and unpaid for principal of and interest on the Convertible Debentures for which principal is due and payable in respect of which moneys have been collected, such payments to be made ratably to the persons entitled thereto, without discrimination or preference, according to the amounts then due and payable on such Convertible Debentures of principal and interest, respectively; and FOURTH: To the payment of the remainder, if any, to the Company or any other Person lawfully entitled thereto. Section 5.4 Restoration of Rights on Abandonment of Proceedings. In case the Trustee for the Convertible Debentures or any Holder shall have proceeded to enforce any right under this Indenture and such proceedings shall have been discontinued or abandoned for any reason, or shall have been determined adversely to the Trustee or to such Holder, then and in every such case, subject to the determination in any such proceeding, the Company, the Trustee and the Holders shall be restored respectively to their former positions and rights hereunder, and all rights, remedies and powers of the Company, the Trustee and the Holders of Convertible Debentures shall continue as though no such proceedings had been taken. 36 Section 5.5 Limitations on Suits by Holders of Convertible Debentures. No Holder of any Convertible Debenture shall have any right by virtue or by availing of any provision of this Indenture to institute any action or proceeding at law or in equity or in bankruptcy or otherwise upon or under with respect to this Indenture, or for the appointment of a trustee, receiver, liquidator, custodian or other similar official or for any other remedy hereunder, unless such Holder previously shall have given to the Trustee written notice of any Event of Default and of the continuance thereof, as hereinbefore provided, and unless also the Holders of not less than 25% in aggregate principal amount of the Convertible Debentures then Outstanding shall have made written request upon the Trustee to institute such action or proceedings in its own name as trustee hereunder and shall have offered to the Trustee such reasonable indemnity, as it may require, against the costs, expenses and liabilities to be incurred therein or thereby and the Trustee for 60 days after its receipt of such notice, request and offer of indemnity shall have failed to institute any such action or proceeding and no direction inconsistent with such written request shall have been given to the Trustee during such 60 day period by Holders of a majority in principal amount of the Convertible Debentures then Outstanding; it being understood and intended, and being expressly covenanted by the taker and Holder of every Convertible Debenture with every other taker and Holder of a Convertible Debenture and the Trustee, that no one or more Holders of Convertible Debentures shall have any right in any manner whatever, by virtue or by availing of any provision of this Indenture to affect, disturb or prejudice the rights of any other such Holder of Convertible Debentures, or to obtain or seek to obtain priority over or preference to any other such Holder or to enforce any right under this Indenture, except in the manner herein provided and for the equal, ratable and common benefit of all Holders of Convertible Debentures. Section 5.6 Unconditional Right of Holders of Convertible Debentures to Institute Certain Suits. Notwithstanding any provision in this Indenture and any provision of any Convertible Debenture, the right of any Holder of any Convertible Debenture to receive payment of the principal of and (subject to Section 2.9 and Article XI) interest on such Convertible Debenture at the respective rates, in the respective amount on or after the respective due dates expressed in such Convertible Debenture, and to institute suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. Section 5.7 Powers and Remedies Cumulative; Delay or Omission Not Waiver of Default. Except as provided in Section 2.11 and Section 5.5, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders of Convertible Debentures is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. No delay or omission of the Trustee or of any Holder of Convertible Debentures to exercise any right or power accruing upon any Event of Default occurring and continuing as aforesaid shall impair any such right or power or shall be construed to be a waiver of any 37 such Event of Default or an acquiescence therein; and, subject to Section 5.5, every power and remedy given by this Indenture or by law to the Trustee or to the Holders of Convertible Debentures may be exercised from time to time, and as often as shall be deemed expedient, by the Trustee or the Holders of Convertible Debentures. Section 5.8 Control by Holders of Convertible Debentures. The Holders of a majority in aggregate principal amount of the Convertible Debentures at the time Outstanding shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee with respect to the Convertible Debentures by this Indenture; provided that such direction shall not be in conflict with any rule of law or the provisions of this Indenture; and provided further that the Trustee, being advised by counsel, shall have the right to decline to follow any such direction if the Trustee shall determine that the action or proceedings so directed would involve the Trustee in personal liability or if the Trustee in good faith shall so determine that the actions or forbearance specified in or pursuant to such direction would be unduly prejudicial to the interest of Holders of the Convertible Debentures not joining in the giving of said direction. Section 5.9 Waiver of Past Defaults. The Holders of not less than a majority in aggregate principal amount of the Convertible Debentures at the time Outstanding may on behalf of the Holders of all the Convertible Debentures waive any past default hereunder or its consequences, except a default: (a) in the payment of the principal of (or premium, if any) or any interest on any Convertible Debenture as and when the same shall become due by the terms of Convertible Debentures otherwise than by acceleration (unless such default has been cured and sums sufficient to pay all matured installments of interest and principal and any premium has been deposited with the Trustee (in accordance with Section 5.1)), or (b) in respect of a covenant or provision hereof which under Article VIII cannot be modified or amended without the consent of the Holder of each Outstanding Convertible Debenture affected; provided, however, that if the Convertible Debentures are held by the McKesson Trust or the Institutional Trustee of such Trust, such waiver or modification to such waiver shall not be effective until the holders of a majority in aggregate liquidation amount of Trust Securities of the McKesson Trust shall have consented to such waiver or modification to such waiver; provided further, that if the consent of the Holder of each Outstanding Convertible Debenture is required, such waiver shall not be effective until each holder of the Trust Securities of the McKesson Trust shall have consented to such waiver. Upon any such waiver, such default shall cease to exist and be deemed to have been cured and not to have occurred, and any Event of Default arising therefrom shall be deemed to have been cured and not to have occurred for every purpose of this Indenture; but no such 38 waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon. Section 5.10 Right of Court to Require Filing of Undertaking to Pay Costs. All parties to this Indenture agree, and each Holder of any Convertible Debenture, by his acceptance thereof, shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees and expenses, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Trustee, to any suit instituted by any Holder of Convertible Debentures or group of Holders of Convertible Debentures holding in the aggregate more than 10% in principal amount of the Outstanding Convertible Debentures, or to any suit instituted by a Holder of Convertible Debentures for the enforcement of the payment of the principal of or interest on any Convertible Debenture on or after the due date expressed in such Convertible Debenture or any date fixed for redemption. Section 5.11 Suits for Enforcement. In case an Event of Default has occurred, has not been waived and is continuing, the Trustee may in its discretion proceed to protect and enforce the rights vested in it by this Indenture by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any of such rights, either at law or in equity or in bankruptcy or otherwise, whether for the specific enforcement of any covenant or agreement contained in this Indenture or in aid of the exercise of any power granted in this Indenture or to enforce any other legal or equitable right vested in the Trustee by this Indenture or by law. ARTICLE VI CONCERNING THE TRUSTEE Section 6.1 Duties of the Trustee. (a) If an Event of Default has occurred and is continuing with respect to the Convertible Debentures, the Trustee shall exercise the rights and powers vested in it by this Indenture and use the same degree of care and skill in its exercise as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. (b) Except during the continuance of an Event of Default with respect to the Convertible Debentures: (i) the Trustee need perform only those duties that are specifically set forth in this Indenture and no others; and 39 (ii) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming on their face to the requirements of this Indenture. However, in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall examine the certificates and opinions to determine whether or not they conform on their face to the requirements of this Indenture. (c) The Trustee may not be relieved from liability for its own negligent failure to act or its own willful misconduct, except that: (i) this paragraph (c) does not limit the effect of paragraph (b) of this Section 6.1; (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (iii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 5.8. (d) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), (c) and (e) of this Section 6.1. (e) The Trustee may refuse to perform any duty or exercise any right or power or extend or risk its own funds or otherwise incur any financial liability unless it receives indemnity satisfactory to it against any loss, liability or expense. (f) Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed in writing with the Company. Section 6.2 Rights of Trustee. Subject to Section 6.1 and the provisions of the Trust Indenture Act: (a) The Trustee may rely on any document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. 40 (c) Subject to the provisions of Section 6.1(c), the Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers. (d) The Trustee may consult with counsel of its selection and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon in accordance with such advice or Opinion of Counsel. (e) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction. (f) The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder. Section 6.3 Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Convertible Debentures and may otherwise deal with the Company or its affiliates with the same rights it would have if it were not Trustee. Any Paying Agent, Registrar or co- Registrar may do the same with like rights. However, the Trustee must comply with Sections 6.10 and 6.11. Section 6.4 Trustee's Disclaimer. The Trustee makes no representation as to the validity or adequacy of this Indenture or the Convertible Debentures, it shall not be accountable for the Company's use of the proceeds from the Convertible Debentures, it shall not be responsible for any statement in the registration statement for the Convertible Debentures under the Securities Act or in the Indenture or the Convertible Debentures (other than its certificate of authentication). Section 6.5 Notice of Defaults. If a default occurs and is continuing with respect to any Convertible Debentures and if it is known to the Trustee through oral or written notice to a Responsible Officer, the Trustee shall give to each Holder of Convertible Debentures notice of the default within 90 days after such default occurs. Except in the case of a default described in Section 5.1(a) or (b), the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interest of Holders of Convertible Debentures. Section 6.6 Reports by Trustee to Holders. Within 60 days after each May 15 beginning with the May 15 following the date of this Indenture, the Trustee shall mail to each Holder of Convertible Debentures and each other person specified in TIA Section 313(c) a brief report dated as of such May 15 that complies with TIA Section 313(a) to the extent required thereby. The Trustee also shall comply with TIA Section 313(b). 41 A copy of each report at the time of its mailing to Holders of Convertible Debentures shall be filed with the Commission and each securities exchange on which the Convertible Debentures are listed. The Company agrees promptly to notify the Trustee whenever the Convertible Debentures become listed on any securities exchange and of any delisting thereof. Section 6.7 Compensation and Indemnity. The Company agrees: (a) to pay to the Trustee from time to time in Dollars such compensation as shall be agreed to in writing between the Company and the Trustee for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (b) to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances with interest thereon incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses, advances with interest thereon and disbursements of its agents and counsel), except to the extent any such expense, disbursement or advance may be attributable to its negligence or bad faith; and (c) to indemnify the Trustee in Dollars for, and to hold it harmless against, any loss, liability or expense arising out of or in connection with the acceptance or administration of this trust or the performance of its duties hereunder, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder (including the reasonable compensation and the expenses, advances with interest thereon and disbursements of its agents and counsel), except to the extent that any such loss, liability or expense may be attributable to its negligence or bad faith. As security for the performance of the obligations of the Company in this Section 6.7, the Trustee shall have a lien prior to the Convertible Debentures on all money or property held or collected by the Trustee, except that held in trust to pay the principal of or interest, if any, on particular Convertible Debentures. "Trustee" for purposes of this Section 6.7 includes any predecessor Trustee, provided that the negligence or bad faith of any Trustee shall not be attributable to any other Trustee. The Company's payment obligations pursuant to this Section 6.7 shall survive the discharge of this Indenture. When the Trustee incurs expenses after the occurrence of a default specified in Sections 5.1(d) and 5.1(e), such expenses are intended to constitute expenses of administration under bankruptcy law. Section 6.8 Replacement of Trustee. The Trustee may resign at any time with respect to Convertible Debentures by so notifying the Company; provided, however, no such resignation shall be effective until a successor Trustee has accepted its appointment pursuant to this Section 6.8. The Holders of a majority in aggregate principal amount of the 42 Outstanding Convertible Debentures may remove the Trustee at the time outstanding by so notifying the Trustee and the Company. The Company shall remove the Trustee if: (1) the Trustee fails to comply with Section 6.10; (2) the Trustee is adjudged bankrupt or insolvent; (3) a receiver or public officer takes charge of the Trustee or its property; or (4) the Trustee otherwise becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, with respect to the Convertible Debentures, the Company shall promptly appoint, by resolution of its Board of Directors, a successor Trustee with respect to the Convertible Debentures. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture with respect to the Convertible Debentures. The successor Trustee shall mail a notice of its succession to Holders of Convertible Debentures so affected. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided for in Section 6.7. If a successor Trustee does not take office within 30 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of a majority in aggregate principal amount of the Convertible Debentures at the time Outstanding may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 6.10, any Holder of Convertible Debentures may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Section 6.9 Successor Trustee by Merger. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all its corporate trust business or assets to, another corporation, the resulting, surviving or transferee corporation without any further act shall be the successor Trustee. Section 6.10 Eligibility; Disqualification. The Trustee shall at all times satisfy the requirements of TIA Section 310(a)(1) and Section 310(a)(5). The Trustee shall have combined capital and surplus of at least $50,000,000 as set forth in its most recent published annual report of condition. The Trustee shall comply with TIA Section 310(b). Section 6.11 Preferential Collection of Claims Against Company. The Trustee shall comply with TIA Section 311(a), excluding any creditor relationship listed in TIA Section 43 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein. ARTICLE VII CONCERNING THE HOLDERS OF CONVERTIBLE DEBENTURES Section 7.1 Evidence of Action Taken by Holders of Convertible Debentures. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided in this Indenture to be given or taken by a specified percentage in principal amount of the Holders of Convertible Debentures may be embodied in and evidenced by one or more instruments or substantially similar tenor signed by such specified percentage of Holders of Convertible Debentures in person or by agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee. Proof of execution of any instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Sections 6.1 and 6.2) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Article. (b) The ownership of such Convertible Debentures shall be provided by the Security Register. Section 7.2 Proof of Execution of Instruments. Subject to Sections 6.1 and 6.2, the execution of any instrument by a Holder of Convertible Debentures or his agent or proxy may be proved in accordance with such reasonable rules and regulations as may be prescribed by the Trustee or in such manner as shall be satisfactory to the Trustee. Section 7.3 Holders to be Treated as Owners. The Company, the Trustee and any agent of the Company or the Trustee may deem and treat the person in whose name any Convertible Debenture shall be registered upon the Security Register as the absolute owner of such Convertible Debenture (whether or not such Convertible Debenture shall be overdue and notwithstanding any notification of ownership or other writing thereon) for the purpose of receiving payment of or on account of the principal of and (subject to Section 2.9) interest on such Convertible Debenture and for all other purposes; and neither the Company nor the Trustee nor any agent of the Company or the Trustee shall be affected by any notice to the contrary. Section 7.4 Convertible Debentures Owned by Company Deemed Not Outstanding. In determining whether the Holders of the requisite aggregate principal amount of Outstanding Convertible Debentures have concurred in any direction, consent or waiver under this Indenture, Convertible Debentures which are owned by the Company or any other obligor on the Convertible Debentures with respect to which such determination is being made or by any person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company or any other obligor on the Convertible 44 Debentures with respect to which such determination is being made shall be disregarded and deemed not to be Outstanding for the purpose of any such determination, except that for the purpose of determining whether the Trustee shall be protected in relying on any such direction, consent or waiver only Convertible Debentures which the Trustee knows are so owned shall be so disregarded. Convertible Debentures so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Convertible Debentures and that the pledgee is not the Company or any other obligor upon the Convertible Debentures or any person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company or any other obligor on the Convertible Debentures. Section 7.5 Right of Revocation of Action Taken. At any time prior to (but not after) the evidencing to the Trustee, as provided in Section 7.1, of the taking of any action by the Holders of the percentage in aggregate principal amount of the Convertible Debentures, as the case may be, specified in this Indenture in connection with such action, any Holder of a Convertible Debenture the serial number of which is shown by the evidence to be included among the serial numbers of the Convertible Debentures the Holders of which have consented to such action may, by filing written notice at the Corporate Trust Office and upon proof of holding as provided in this Article, revoke such action so far as concerns such Convertible Debenture. Except as aforesaid any such action taken by the Holder of any Convertible Debentures shall be conclusive and binding upon such Holder and upon all future Holders and owners of such Convertible Debenture and of any Convertible Debentures issued in exchange or substitution therefor, irrespective of whether or not any notation in regard thereto is made upon any such Convertible Debenture. Any action taken by the Holders of the percentage in aggregate principal amount of the Convertible Debentures, as the case may be, specified in this Indenture in connection with such action shall be conclusively binding upon the Company, the Trustee and the Holders of all the Convertible Debentures affected by such action. ARTICLE VIII SUPPLEMENTAL INDENTURES Section 8.1 Supplemental Indentures Without Consent of Holders of Convertible Debentures. The Company, when authorized by a resolution of its Board of Directors, and the Trustee for the Convertible Debentures may from time to time and at any time enter into an indenture or indentures supplemental hereto (which shall conform to the provisions of the Trust Indenture Act as in force at the date of the execution thereof), in form satisfactory to such Trustee, for one or more of the following purposes: (a) to convey, transfer, assign, mortgage or pledge to the Trustee as security for the Convertible Debentures any property or assets; 45 (b) to evidence the succession of another corporation to the Company, or successive successions, and the assumption by the successor corporation of the covenants, agreements and obligations of the Company pursuant to Article IX; (c) to add to the covenants of the Company such further covenants, restrictions, conditions or provisions for the protection of the Holders of Convertible Debentures; (d) to cure any ambiguity or to correct or supplement any provision contained herein or in any supplemental indenture which may be defective or inconsistent with any other provision contained herein or in any supplemental indenture; or to make such other provisions in regard to matters or questions arising under this Indenture or under any supplemental indenture as the Board of Directors may deem necessary or desirable and which shall not materially and adversely affect the interests of the Holders of the Convertible Debentures; or (e) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Convertible Debentures. The Trustee is hereby authorized to join with the Company in the execution of any such supplemental indenture, to make any further appropriate agreements and stipulations which may be therein contained and to accept the conveyance, transfer, assignment, mortgage or pledge of any property thereunder, but the Trustee shall not be obligated to enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. Any supplemental indenture authorized by the provisions of this Section may be executed without the consent of the Holders of any of the Convertible Debentures at the time Outstanding, notwithstanding any of the provisions of Section 8.2. Section 8.2 Supplemental Indentures With Consent of Holders of Convertible Debentures. With the consent (evidenced as provided in Article VII) of the Holders of not less than a majority in aggregate principal amount of the Convertible Debentures at the time Outstanding (voting as one class), the Company, when authorized by a resolution of its Board of Directors, and the Trustee may, from time to time and at any time, enter into an indenture or indentures supplemental hereto (which shall conform to the provisions of the Trust Indenture Act as in force at the date of execution thereof) for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of any supplemental indenture or of modifying in any manner the rights of the Holders of the Convertible Debentures; provided, however, that no such supplemental indenture shall (a) except to the extent permitted by Article XI, extend the Stated Maturity of any Convertible Debenture, or reduce the principal amount thereof or any premium thereon, or reduce the rate or extend the time of payment of interest thereon, or reduce any amount payable on redemption thereof, or make the principal thereof or interest thereon payable in any coin or currency other than that provided in the Convertible Debentures or in accordance with the terms thereof, or impair or affect the right of any Holder of Convertible Debentures 46 to institute suit for payment thereof, or adversely affect the right to convert Convertible Debentures, or modify the subordination provisions of this Indenture in any manner adverse to the Holders of Convertible Debentures without the consent of the Holders of each Convertible Debenture so affected, or (b) reduce the aforesaid percentage of Convertible Debentures, the consent of the Holders of which is required for any such supplemental indenture, without the consent of the Holders of each Convertible Debenture so affected. Upon the request of the Company, accompanied by a copy of a resolution of the Board of Directors certified by the secretary or assistant secretary of the Company authorizing the execution of any such supplemental indenture, and upon the filing with the Trustee of evidence of the consent of Holders of Convertible Debentures as aforesaid and other documents, if any, required by Section 7.1, the Trustee shall join with the Company in the execution of such supplemental indenture or otherwise, in which case such Trustee may in its discretion, but shall not be obligated to, enter into such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. It shall not be necessary for the consent of the Holders of Convertible Debentures under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such consent shall approve the substance thereof. Promptly after the execution by the Company and the Trustee of any supplemental indenture pursuant to the provisions of this Section, the Company shall give notice thereof to the Holders of then Outstanding Convertible Debentures, by mailing a notice thereof by first-class mail to such Holders at their addresses as they shall appear on the Security Register, and in each case such notice shall set forth in general terms the substance of such supplemental indenture. Any failure of the Company to give such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture. Section 8.3 Effect of Supplemental Indenture. Every supplemental indenture executed pursuant to this Article VIII shall conform to the requirements of the Trust Indenture Act. Upon the execution of any supplemental indenture pursuant to the provisions hereof, this Indenture shall be and be deemed to be modified and amended in accordance therewith and the respective rights, limitations of rights, obligations, duties and immunities under this Indenture of the Trustee, the Company and the Holders of Convertible Debentures shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modifications and amendments, and all the terms and conditions of any such supplemental indenture shall be and be deemed to be a part of the terms and conditions of this Indenture for any and all purposes. Section 8.4 Documents to Be Given to Trustee. The Trustee, subject to the provisions of Section 6.1 and 6.2, shall receive an Officers' Certificate and an Opinion of Counsel as conclusive evidence that any supplemental indenture executed pursuant to this Article VIII complies with the applicable provisions of this Indenture. 47 Section 8.5 Notation on Convertible Debentures in Respect of Supplemental Indentures. Convertible Debentures authenticated and delivered after the execution of any supplemental indenture pursuant to the provisions of this Article VIII may bear, upon the direction of the Company, a notation in form satisfactory to the Trustee for the Convertible Debentures as to any matter provided for by such supplemental indenture. If the Company or the Trustee shall so determine, new Convertible Debentures so modified as to conform, in the opinion of the Trustee and the Company, to any modification of this Indenture contained in any such supplemental indenture may be prepared by the Company, authenticated by the Trustee and delivered in exchange for the Convertible Debentures then Outstanding. ARTICLE IX CONSOLIDATION, MERGER, SALE OR CONVEYANCE Section 9.1 Company May Consolidate, etc., on Certain Terms. The Company may sell, transfer, lease or otherwise convey all or substantially all of its assets on a consolidated basis to any Person, or consolidate or merge with or into, any other Person, provided that in any such case, (a) either (i) the Company shall be the continuing corporation, or (ii) if the Company is not the continuing corporation, the successor corporation or Person which acquires by sale, transfer, lease or other conveyance all or substantially all of the assets of the Company, shall be a corporation organized and validly existing under the laws of the United States of America or any state thereof or the District of Columbia and shall expressly assume the due and punctual payment of the principal of, premium, if any, and interest (including Additional Sums and Compound Interest) on all of the Convertible Debentures according to their tenor, and the due and punctual performance and observance of all of the covenants, agreements and conditions (A) of this Indenture to be performed or observed by the Company by supplemental indenture satisfactory to the Trustee, executed and delivered to the Trustee by such corporation or entity, and (B) of the Registration Rights Agreements, by amendment thereto, (b) immediately after such merger or consolidation, or such sale, transfer, lease or other conveyance, no Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, shall have occurred and be continuing, and (c) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that the requirements of this Section have been complied with. Section 9.2 Successor Corporation Substituted. In case of any such consolidation, merger, sale, transfer, lease or conveyance, and following such an assumption by the successor corporation, such successor corporation shall succeed to and be substituted for the Company, with the same effect as if it had been named herein, and the Company shall be discharged from all obligations and covenants under this Indenture, the Convertible Debentures and the Registration Rights Agreements and may be liquidated and dissolved. Such successor corporation may cause to be signed, and may issue either in its own name or in the name of the Company any or all of the Convertible Debentures issuable hereunder which theretofore shall not have been signed by the Company and be delivered to the Trustee; and, upon the order of such successor corporation instead of the Company and 48 subject to all the terms, conditions and limitations in this Indenture prescribed, the Trustee shall authenticate and shall make available for delivery any Convertible Debentures which previously shall have been signed and delivered by the officers of the Company to the Trustee for authentication, and any Convertible Debentures, which such successor corporation thereafter shall cause to be signed and delivered to the Trustee for that purpose. All of the Convertible Debentures so issued shall in all respects have the same legal rank and benefit under this Indenture as the Convertible Debentures theretofore or thereafter issued in accordance with the terms of this Indenture as though all of such Convertible Debentures had been issued at the date of the execution hereof. In case of any such consolidation, merger, sale, transfer, lease or conveyance such changes in phraseology and form (but not in substance) may be made in the Convertible Debentures thereafter to be issued as may be appropriate. Section 9.3 Opinion of Counsel to Trustee. The Trustee, subject to the provisions of Section 6.1 and 6.2, may receive an Opinion of Counsel, prepared in accordance with Section 15.5, as conclusive evidence that any such consolidation, merger, sale, lease or conveyance, and any such assumption, and any such liquidation or dissolution, complies with the applicable provisions of this Indenture. ARTICLE X REDEMPTION OF THE CONVERTIBLE DEBENTURES Section 10.1 Tax Event Redemption. If a Tax Event (as defined in the Declaration) has occurred and is continuing and: (a) the Company has received a Redemption Tax Opinion (as defined in the Declaration); or (b) after receiving a Dissolution Tax Opinion (as defined in the Declaration), the Regular Trustees shall have been informed by tax counsel rendering the Dissolution Tax Opinion that a No-Recognition Opinion (as defined in the Declaration) cannot be delivered to the Trust, then, notwithstanding Section 10.2(a) but subject to Section 10.2(b), the Company shall have the right upon not less than 30 days nor more than 60 days notice to the Holders of the Convertible Debentures to redeem the Convertible Debentures, in whole or in part, for cash within 90 days following the occurrence of such Tax Event (the "90-Day Period") at a redemption price equal to 100% of the principal amount to be redeemed plus any accrued and unpaid interest thereon to the date of such redemption (the "Redemption Price"), provided that if at the time there is available to the Company or the Trust the opportunity to eliminate, within the 90-Day Period, the Tax Event by taking some ministerial action ("Ministerial Action"), such as filing a form or making an election, or pursuing some other similar reasonable measure which has no adverse effect on the Company, the Trust or the 49 Holders of the Trust Securities issued by the Trust, the Company shall pursue such Ministerial Action in lieu of redemption. The Redemption Price shall be paid prior to 12:00 noon, New York time, on the date of such redemption or such earlier time as the Company determines, provided that the Company shall deposit with the Trustee an amount sufficient to pay the Redemption Price prior to the redemption date. Section 10.2 Optional Redemption by Company. (a) Subject to the provisions of Section 10.2(b) and to the provisions of this Article X generally, except as otherwise may be specified in Section 10.1 or elsewhere in this Indenture, the Company shall have the right to redeem the Convertible Debentures, in whole or in part, from time to time, on or after March 4, 2000. Any redemption pursuant to this paragraph will be made upon not less than 30 days nor more than 60 days notice to the Holders of the Convertible Debentures, at the following prices (expressed as percentages of the principal amount of the Convertible Debentures) (the "Optional Redemption Price") together with accrued and unpaid interest (including Additional Sums, if any, and, to the extent permitted by applicable law, Compounded Interest, if any) to, but excluding, the redemption date, if redeemed during the 12-month period beginning March 4, of the applicable year set forth below:
Year Redemption Price ------ ----------------- 2000 103.500% 2001 103.000% 2002 102.500% 2003 102.000% 2004 101.500% 2005 101.000% 2006 100.500%
and 100% if redeemed on or after March 4, 2007. If Convertible Debentures are redeemed on any March 1, June 1, September 1, or December 1, accrued and unpaid interest shall be payable to holders of record on the relevant record date. The Company may not redeem fewer than all of the outstanding Convertible Debentures unless all accrued and unpaid interest has been paid on all Convertible Debentures for all quarterly interest payment periods terminating on or prior to the date of redemption. So long as the corresponding Trust Securities are outstanding, the proceeds from the redemption of the Convertible Debentures will be used to redeem the Trust Securities. 50 If the Convertible Debentures are only partially redeemed pursuant to this Section 10.2, the Convertible Debentures will be redeemed pro rata. The Optional Redemption Price, together with any required interest payment, shall be paid prior to 12:00 noon, New York time, on the redemption date or at such earlier time as the Company determines provided that the Company shall deposit with the Trustee an amount sufficient to pay the Optional Redemption Price, together with any required interest payment, by 10:00 a.m., New York time, on the date such amounts are to be paid. Partial redemptions must be in an amount not less than $1,000 principal amount of Convertible Debentures. If Convertible Debentures selected for partial redemption are converted in part before termination of the conversion right with respect to the portion of the Convertible Debentures so selected, the converted portion of the Convertible Debentures shall be deemed (so far as may be) to be the portion selected for redemption. Convertible Debentures (or portions thereof) which have been converted during a selection of Convertible Debentures to be redeemed shall be treated by the Trustee as Outstanding for the purpose of such selection. In any case where more than one Convertible Debenture is registered in the same name, the Trustee in its discretion may treat the aggregate principal amount so registered as if it were represented by one Convertible Debenture. If any Convertible Debenture called for redemption is converted into Common Stock of the Company, any money deposited with the Trustee or with any Paying Agent or so segregated and held in trust for the redemption of such Convertible Debenture shall (subject to any right of the Holder of such Convertible Debenture or any Predecessor Convertible Debenture to receive interest as provided in the last paragraph of Section 2.9) be paid to the Company upon the Company's request or, if then held by the Company, shall be discharged from such trust. (b) If a partial redemption of the Convertible Debentures would result in the delisting of the Convertible Preferred Securities issued by the Trust from any national securities exchange or other organization on which the Convertible Preferred Securities are then listed, the Company shall not be permitted to effect such partial redemption and may only redeem the Convertible Debentures in whole. Section 10.3 No Sinking Fund. The Convertible Debentures are not entitled to the benefit of any sinking fund or subject to any sinking fund. Section 10.4 Election to Redeem; Notice of Redemption; Partial Redemptions. The election of the Company to redeem any Convertible Debentures shall be evidenced by, or pursuant to, a resolution of the Board of Directors. Notice of redemption to the Holders of Convertible Debentures required to be redeemed or to be redeemed as a whole or in part at the option of the Company shall be given by giving notice of such redemption as provided in Section 15.4, at least 30 days and not more than 60 days prior to the date fixed for redemption to such Holders of Convertible Debentures. Any notice which is mailed in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the Holder receives the notice. Neither the failure to give notice by mail, nor any defect in the 51 notice so mailed to the Holder of any Convertible Debenture designated for redemption as a whole or in part shall affect the validity of the proceedings for such redemption. The notice of redemption to each such Holder shall specify the date fixed for redemption, the "CUSIP" number or numbers for such Convertible Debentures, the redemption price, the Place or Places of Payment, that payment will be made upon presentation and surrender of such Convertible Debentures, that interest accrued to the date fixed for redemption will be paid as specified in such notice and that on and after said date interest thereon or on the portions thereof to be redeemed will cease to accrue, the conversion rate or price, the date on which the right to convert the Convertible Debentures to be redeemed will terminate and the place or places where such Convertible Debentures may be surrendered for conversion. If less than all of the Convertible Debentures are to be redeemed, the notice of redemption shall specify the number of the Convertible Debentures to be redeemed. In case any Convertible Debenture is to be redeemed in part, the notice of redemption shall state the portion of the principal amount thereof to be redeemed and shall state that on and after the date fixed for redemption, upon surrender of such Convertible Debenture, a new Convertible Debenture or Convertible Debentures in principal amount equal to the unredeemed portion thereof will be issued. The notice of redemption of Convertible Debentures to be redeemed at the option of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. If such notice is to be given by the Trustee, the Company shall provide notice of such redemption to the Trustee at least 60 days prior to the date fixed for redemption (unless a shorter notice shall be satisfactory to the Trustee). If such notice is given by the Company, the Company shall provide a copy of such notice given to the Holders of such redemption to the Trustee at least 2 days prior to the date such notice is given to such Holders, but in any event at least 30 days and not more than 60 days prior to the date fixed for redemption. The Company or the Trust shall give public notice of any such redemption by the issuance of a press release through the services of the Dow Jones Broad Tape, Reuters News Service and Bloomberg News Service. Not later than the redemption date specified in the notice of redemption given as provided in this Section, the Company will have on deposit with the Trustee or with one or more Paying Agents (or, if the Company is acting as its own Paying Agent, set aside, segregate and hold in trust as provided in Section 3.3) in funds available on such date an amount of money sufficient to redeem on the redemption date all the Convertible Debentures so called for redemption at the appropriate redemption price, together with accrued interest to the date fixed for redemption. If less than all of the Outstanding Convertible Debentures are to be redeemed at the election of the Company, the Company will deliver to the Trustee at least 60 days prior to the date fixed for redemption (unless a shorter notice shall be satisfactory to the Trustee) an Officers' Certificate stating the aggregate principal amount of Convertible Debentures to be redeemed. 52 For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Convertible Debentures shall relate, in the case of any Convertible Debenture redeemed or to be redeemed only in part, to the portion of the principal amount of such Convertible Debenture which has been or is to be redeemed. Section 10.5 Payment of Convertible Debentures Called for Redemption. If notice of redemption has been given as above provided, the Convertible Debentures or portions of Convertible Debentures specified in such notice shall become due and payable on the date and at the place stated in such notice at the applicable redemption price, together with interest accrued to the date fixed for redemption, and on and after said date (unless the Company shall default in the payment of such Convertible Debentures at the redemption price, together with interest accrued to said date) interest on the Convertible Debentures or portions of Convertible Debentures so called for redemption shall cease to accrue, and, except as provided in Section 6.1, such Convertible Debentures shall cease from and after the date fixed for redemption to be entitled to any benefit or security under this Indenture, and the Holders thereof shall have no right in respect of such Convertible Debentures except the right to receive the redemption price thereof and unpaid interest to the date fixed for redemption. On presentation and surrender of such Convertible Debentures at a Place of Payment specified in said notice, said Convertible Debentures or the specified portions thereof shall be paid and redeemed by the Company at the applicable redemption price, together with interest accrued thereon to the date fixed for redemption; provided that, payment of interest becoming due on or prior to the date fixed for redemption shall be payable to the Holders of such Convertible Debentures registered as such on the relevant record date subject to the terms and provisions of Section 2.9 hereof. If any Convertible Debenture called for redemption shall not be so paid upon surrender thereof for redemption, the principal shall, until paid or duly provided for, bear interest from the date fixed for redemption at the Coupon Rate. Upon presentation of any Convertible Debenture redeemed in part only, the Company shall execute and the Trustee shall authenticate and make available for delivery to or on the order of the Holder thereof, at the expense of the Company, a new Convertible Debenture or Convertible Debentures, of authorized denominations, in principal amount equal to the unredeemed portion of the Convertible Debenture so presented. Section 10.6 Exclusion of Certain Convertible Debentures from Eligibility for Selection for Redemption. Convertible Debentures shall be excluded from eligibility for selection for redemption if they are identified by registration and certificate number in a written statement signed by an authorized officer of the Company and delivered to the Trustee at least 30 days prior to the last date on which notice of redemption may be given as being owned of record and beneficially by, and not pledged or hypothecated by, either (a) the Company or (b) an entity specifically identified in such written statement as directly or indirectly controlling or controlled by or under direct or indirect common control with the Company. 53 ARTICLE XI EXTENSION OF INTEREST PAYMENT PERIOD Section 11.1 Extension of Interest Payment Period. As long as an Event of Default under Section 5.1(a) of this Indenture shall not have occurred and be continuing, the Company shall have the right, at any time and from time to time during the term of the Convertible Debentures, to defer payments of interest by extending the interest payment period of such Convertible Debentures for a period not exceeding 20 consecutive quarters (the "Extension Period"), during which Extension Period no interest shall be due and payable; provided that no Extension Period may extend beyond the Maturity Date or any earlier redemption date. To the extent permitted by applicable law, interest, the payment of which has been deferred because of the extension of the interest payment period pursuant to this Section 11.1, will bear interest thereon at the Coupon Rate compounded quarterly for each quarter of the Extension Period ("Compound Interest"). Each Extension Period, if any, will end on an Interest Payment Date. At the end of the Extension Period, the Company shall pay all interest accrued and unpaid on the Convertible Debentures, including any Additional Sums and, to the extent permitted by law, Compound Interest (together, "Deferred Interest") that shall be payable to the Holders of the Convertible Debentures in whose names the Convertible Debentures are registered in the Security Register at the close of business on the record date next preceding such Interest Payment Date. Before the termination of any Extension Period, the Company may further extend such period, provided that such period together with all previous and further extensions thereof shall not exceed 20 consecutive quarters, or extend beyond the Maturity Date or any earlier redemption date. Upon the termination of any Extension Period and upon the payment of all Deferred Interest then due, the Company may commence a new Extension Period, subject to the foregoing requirements. No interest shall be due and payable during an Extension Period, except at the end thereof, but the Company may prepay at any time all or any portion of the interest accrued during an Extension Period. Section 11.2 Notice of Extension. (a) If the Institutional Trustee is the only registered Holder of the Convertible Debentures at the time the Company selects an Extension Period, the Company shall give written notice to the Regular Trustees, the Institutional Trustee and the Trustee of its selection of such Extension Period at least one Business Day before the earlier of (i) the next succeeding date on which Distributions on the Trust Securities issued by the Trust are payable, or (ii) the date the Regular Trustees are required to give notice of the record date, or the date such Distributions are payable, to the New York Stock Exchange or other applicable self-regulatory organization or to holders of the Convertible Preferred Securities issued by the Trust, but in any event at least ten Business Days before such record date. The Company shall cause the Trust to give notice of the Company's selection of such Extension Period to holders of the Convertible Preferred Securities. (b) If the Institutional Trustee is not the only Holder of the Convertible Debentures at the time the Company selects an Extension Period, the Company shall give the 54 Holders of the Convertible Debentures, the Institutional Trustee and the Trustee written notice of its selection of such Extension Period at least 10 Business Days before the earlier of (i) the next succeeding Interest Payment Date or (ii) the date the Company is required to give notice of the record or payment date of such interest payment to the New York Stock Exchange or other applicable self- regulatory organization or to Holders of the Convertible Debentures, but in any event not less than two Business Days prior to such record date. (c) The quarter in which any notice is given pursuant to paragraphs (a) or (b) of this Section 11.2 shall be counted as one of the 20 consecutive quarters permitted in the maximum Extension Period permitted under Section 11.1. ARTICLE XII CONVERSION OF CONVERTIBLE DEBENTURES Section 12.1 Conversion Rights. Subject to and upon compliance with the provisions of this Article XII, the Convertible Debentures are convertible, at the option of the Holders, at any time beginning May 21, 1997 through the close of business on May 28, 2027 (or, in the case of Convertible Debentures called for redemption, prior to the close of business on the Business Day prior to the corresponding redemption date) into fully paid and nonassessable shares of Common Stock of the Company at an initial conversion rate of .6709 shares of Common Stock for each $50 in principal amount of Convertible Debentures (equivalent to a conversion price of $74.53 per share of Common Stock (the "Conversion Price")), subject to adjustment and reset as described in this Article XII. A Holder of Convertible Debentures may convert any portion of the principal amount of the Convertible Debentures into that number of fully paid and nonassessable shares of Common Stock obtained by dividing the principal amount of the Convertible Debentures to be converted by such Conversion Price. All calculations under this Article XII shall be made to the nearest cent or to the nearest 1/100th of a share, as the case may be. Section 12.2 Conversion Procedures. (a) In order to convert all or a portion of the Convertible Debentures, the Holder thereof shall deliver to the Conversion Agent an irrevocable notice of conversion (the "Notice of Conversion") setting forth the principal amount of Convertible Debentures to be converted, together with the name or names, if other than the Holder, in which the shares of Common Stock should be issued upon conversion and, if such Convertible Debentures are definitive Convertible Debentures, surrender to the Conversion Agent the Convertible Debentures to be converted, duly endorsed or assigned to the Company or in blank. In addition, a holder of Convertible Preferred Securities may exercise its right under the Declaration to convert such Convertible Preferred Securities into Common Stock by delivering to the Conversion Agent an irrevocable Notice of Conversion setting forth the information called for by the preceding sentence and directing the Conversion Agent (i) to exchange such Convertible Preferred Security for a portion of the Convertible Debentures held by the Trust (at an exchange rate of $50 principal amount of Convertible Debentures for each Convertible Preferred Security) 55 and (ii) to immediately convert such Convertible Debentures, on behalf of such holder, into Common Stock of the Company pursuant to this Article XII and, if such Convertible Preferred Securities are in definitive form, surrendering such Convertible Preferred Securities, duly endorsed or assigned to the Company or in blank. So long as any Convertible Preferred Securities are outstanding, the Trust shall not convert any Convertible Debentures except pursuant to a Notice of Conversion delivered to the Conversion Agent by a holder of Convertible Preferred Securities. If a Notice of Conversion is delivered on or after the record date and prior to the subsequent Interest Payment Date, the Holder will be entitled to receive the interest payable on the subsequent Interest Payment Date on the portion of Convertible Debentures to be converted notwithstanding the conversion thereof prior to such Interest Payment Date. However, if a redemption date falls between a record date and the subsequent Interest Payment Date, the Holder will be entitled to receive, on such Interest Payment Date, the interest accrued to, but excluding, the redemption date. Except as otherwise provided in the first and second sentences of this paragraph, in the case of any Convertible Debenture which is converted, interest whose Stated Maturity is after the date of conversion of such Convertible Debenture shall not be payable, and the Company shall not make nor be required to make any other payment, adjustment or allowance with respect to accrued but unpaid interest on the Convertible Debentures being converted, which shall be deemed to be paid in full. Each conversion shall be deemed to have been effected immediately prior to the close of business on the day on which the Notice of Conversion was received (the "Conversion Date") by the Conversion Agent from the Holder or from a holder of the Convertible Preferred Securities effecting a conversion thereof pursuant to its conversion rights under the Declaration, as the case may be. The Person or Persons entitled to receive the Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such Common Stock as of the Conversion Date. As promptly as practicable on or after the Conversion Date, the Company shall issue and deliver at the office of the Conversion Agent, unless otherwise directed by the Holder in the Notice of Conversion, a certificate or certificates for the number of full shares of Common Stock issuable upon such conversion, together with the cash payment, if any, in lieu of any fraction of any share to the Person or Persons entitled to receive the same. The Conversion Agent shall deliver such certificate or certificates to such Person or Persons. (b) The Company's delivery upon conversion of the fixed number of shares of Common Stock into which the Convertible Debentures are convertible (together with the cash payment, if any, in lieu of fractional shares) shall be deemed to satisfy the Company's obligation to pay the principal amount at Maturity of the portion of Convertible Debentures so converted and any unpaid interest (including Compound Interest) accrued on such Convertible Debentures at the time of such conversion. (c) No fractional shares of Common Stock will be issued as a result of conversion, but in lieu thereof, the Company shall pay to the Conversion Agent a cash adjustment in an amount equal to the same fraction of the Closing Price of such fractional interest on the date on which the Convertible Debentures were duly surrendered to the Conversion Agent for conversion, or, if such day is not a Trading Day, on the next Trading 56 Day, and the Conversion Agent in turn will make such payment, if any, to the Holder of the Convertible Debentures or the holder of the Convertible Preferred Securities so converted. (d) In the event of the conversion of any Convertible Debenture in part only, the Company shall execute and the Trustee shall authenticate and make available for delivery to or on the order of the Holder thereof, at the expense of the Company, a new Convertible Debenture or Convertible Debentures in the aggregate principal amount equal to the unconverted portion thereof. (e) In effecting the conversion transactions described in this Section 12.2, the Conversion Agent is acting as agent of the holders of Convertible Preferred Securities (in the exchange of Convertible Preferred Securities for Convertible Debentures) and as agent of the Holders of Convertible Debentures (in the conversion of Convertible Debentures into Common Stock), as the case may be. The Conversion Agent is hereby authorized (i) to exchange Convertible Debentures held by the Trust from time to time for Convertible Preferred Securities in connection with the conversion of such Convertible Preferred Securities in accordance with this Article XII and (ii) to convert all or a portion of the Convertible Debentures into Common Stock and thereupon to deliver such shares of Common Stock in accordance with the provisions of this Article XII and to deliver to the Trust a new Convertible Debenture or Convertible Debentures for any resulting unconverted principal amount. Section 12.3 Conversion Price Adjustments. The Conversion Price shall be adjusted from time to time as follows: (a) In case the Company shall, while any of the Convertible Debentures are outstanding, (i) pay a dividend or make a distribution with respect to Common Stock in shares of Common Stock, (ii) subdivide outstanding shares of Common Stock, (iii) combine outstanding shares of Common Stock into a smaller number of shares or (iv) issue by reclassification of its shares of Common Stock any shares of capital stock of the Company, the conversion privilege and the Conversion Price for the Convertible Debentures shall be adjusted so that the Holder of any Convertible Debenture thereafter surrendered for conversion shall be entitled to receive the number of shares of capital stock of the Company which such Holder would have owned immediately following such action had such Convertible Debenture been converted immediately prior thereto. An adjustment made pursuant to this subsection (a) shall become effective immediately after the record date in the case of a dividend or other distribution and shall become effective immediately after the effective date in case of a subdivision, combination or reclassification (or immediately after the record date if a record date shall have been established for such event). If, as a result of an adjustment made pursuant to this subsection (a), the Holder of any Convertible Debenture thereafter surrendered for conversion shall become entitled to receive shares of two or more classes or series of capital stock of the Company, the Board of Directors (whose determination shall be conclusive and shall be evidenced by a Board Resolution filed with the Trustee) shall determine the allocation of the adjusted Conversion Price for the Convertible Debentures between or among shares of such classes or series of capital stock. 57 (b) In case the Company shall, while any of the Convertible Debentures are outstanding, issue rights or warrants to all holders of its Common Stock entitling them (for a period expiring within 45 days after the record date mentioned below) to subscribe for or purchase shares of Common Stock at a price per share less than the current market price per share of Common Stock (as determined pursuant to subsection (g) below) on the record date mentioned below, the Conversion Price for the Convertible Debentures shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the date of issuance of such rights or warrants by a fraction of which the numerator shall be the number of shares of Common Stock outstanding on the date of issuance of such rights or warrants plus the number of shares which the aggregate offering price of the total number of shares so offered for subscription or purchase would purchase at such current market price, and of which the denominator shall be the number of shares of Common Stock outstanding on the date of issuance of such rights or warrants plus the number of additional shares of Common Stock offered for subscription or purchase. Such adjustment shall become effective immediately after the record date for the determination of stockholders entitled to receive such rights or warrants. To the extent that no shares of Common Stock are so delivered after the expiration of such rights or warrants, the Conversion Price shall be readjusted to the Conversion Price which would then be in effect if such date fixed for the determination of stockholders entitled to receive such rights or warrants had not been fixed. For the purposes of this subsection, the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company. In case any rights or warrants referred to in this subsection in respect of which an adjustment shall have been made shall expire unexercised within 45 days after the same shall have been distributed or issued by the Company, the Conversion Price shall be readjusted at the time of such expiration to the Conversion Price that would have been in effect if no adjustment had been made on account of the distribution or issuance of such expired rights or warrants. (c) Subject to the last sentence of this subsection (c), in case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock evidences of its indebtedness, shares of any class or series of capital stock, cash or assets or rights or warrants to subscribe for or purchase any of its securities (excluding any rights or warrants referred to in subsection (b), any dividend or distribution paid exclusively in cash and any dividend or distribution referred to in subsection (a) of this Section 12.3), the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the effectiveness of the Conversion Price reduction contem plated by this subsection (c) by a fraction of which the numerator shall be the current market price per share (determined as provided in subsection (g)) of the Common Stock on the date fixed for the payment of such distribution (the "Reference Date") less the fair market value (as determined in good faith by the Board of Directors, whose determination shall be conclusive and evidenced by a resolution of the Board of Directors), on the Reference Date, of the portion of the evidences of indebtedness, shares of capital stock, cash and assets so distributed or of such subscription rights or warrants applicable to one share of Common Stock and the denominator shall be such current market price per share of the Common Stock, such reduc tion to become effective immediately prior to the opening of business on the day following the Reference Date; provided, however, that in the 58 event the numerator shall be less than one, in lieu of the foregoing adjustment, adequate provision shall be made so that each Holder of Convertible Debentures shall have the right to receive upon conversion the amount of such distribution such Holder would have received had such Holder converted each Convertible Debenture immediately prior to the Reference Date. In the event that no such dividend or distribution is so paid or made, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such dividend or distribution had not occurred. If the Board of Directors determines the fair market value of any distribution for purposes of this subsection (c) by reference to the actual or when issued trading market for any securities comprising such distribution, it must in doing so consider the prices in such market over the same period used in computing the current market price per share of Common Stock (determined as provided in subsection (g)). For purposes of this subsection (c), any dividend or distribution that includes shares of Common Stock, or rights or warrants of the type described in subsection (b), shall be deemed instead to be a dividend or distribution of the evidences of indebtedness, shares of capital stock, cash or assets or rights or warrants other than such shares of Common Stock, or such rights or warrants of the type described in subsection (b) (making any Conversion Price reduction required by this subsection (c)), immediately followed by a dividend or distribution of such shares of Common Stock or such rights or warrants of the type described in subsection (b) (making any further Conversion Price adjustment required by subsection (a) or (b)), except (A) the Reference Date of such dividend or distribution as defined in this subsection (c) shall be substituted as (1) "the record date in the case of a dividend or other distribution," and (2) "the record date for the determination of stockholders entitled to receive such rights or warrants" and (3) "the date fixed for such determination" within the meaning of subsections (a) and (b) and (B) any shares of Common Stock included in such dividend or distribution shall not be deemed outstanding for purposes of computing any adjustment of the Conversion Price in subsection (b). (d) In case the Company shall pay or make a dividend or other distribution on its Common Stock exclusively in cash (excluding any quarterly cash dividend on Common Stock to the extent that the aggregate cash dividend per share of Common Stock in any quarter does not exceed the greater of (i) the amount per share of Common Stock of the next preceding quarterly dividend on Common Stock to the extent such preceding quarterly dividend did not require an adjustment of the Conversion Price pursuant to this subsection (d) (as adjusted to reflect subdivisions or combinations of Common Stock), and (ii) 3.75% of the daily Closing Price per share determined as provided in subsection (g), and excluding any dividend or distribution in connection with the liquidation, dissolution or winding-up of the Company), the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the effectiveness of the Conversion Price reduction contemplated by this subsection (d) by a fraction of which the numerator shall be the current market price per share (determined as provided in subsection (g)) of the Common Stock on the date fixed for the payment of such distribution less the amount of cash so distributed (and not excluded as provided above) applicable to one share of Common Stock and the denominator shall be such current market price per share of the Common Stock (determined as provided in subsection (g)), such reduction to become effective immediately prior to the opening of business on the day following the date fixed for the payment of such distribution; provided, however, that in the 59 event the portion of the cash so distributed applicable to one share of Common Stock is equal to or greater than the current market price per share (as defined in subsection (g)) of the Common Stock on the record date mentioned above, in lieu of the foregoing adjustment, adequate provision shall be made so that each Holder of shares of Convertible Debentures shall have the right to receive upon conversion the amount of cash such Holder would have received had such Holder converted each Convertible Debenture immediately prior to the record date for the distribution of the cash. If an adjustment is required to be made pursuant to this subsection (d) as a result of a distribution that is a quarterly dividend, such adjustment shall be based upon the amount by which such distribution exceeds the amount of the quarterly cash dividend permitted to be excluded as provided above. If an adjustment is required to be made pursuant to this subsec tion (d) as a result of a distribution that is not a quarterly dividend, such adjustment shall be based upon the full amount of the distribution. In the event that no such dividend or distribution is so paid or made, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such Record Date had not been fixed. (e) In case a tender or exchange offer (other than an odd-lot offer) made by the Company or any Subsidiary of the Company for all or any portion of the Company's Common Stock shall expire and such tender or exchange offer shall involve the payment by the Company or such subsidiary of consideration per share of Common Stock having a fair market value (as determined in good faith by the Board of Directors, whose determination shall be conclusive and evidenced by a resolution of the Board of Directors) at the last time (the "Expiration Time") tenders or exchanges may be made pursuant to such tender or exchange offer (as it shall have been amended) that exceeds the Closing Price of the Common Stock on the Trading Day next succeeding the Expiration Time, the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the effectiveness of the Conversion Price reduction contemplated by this subsection (e) by a fraction (which shall not be greater than one) of which the numerator shall be the number of shares of Common Stock outstanding (including any tendered or exchanged shares) at the Expiration Time multiplied by the Closing Price of the Common Stock on the Trading Day next succeeding the Expiration Time and the denominator shall be the sum of (i) the fair market value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of all shares validly tendered or exchanged and not withdrawn as of the Expiration Time (the shares deemed so accepted, up to any such maximum, being referred to as the "Purchased Shares") and (ii) the product of the number of shares of Common Stock outstanding (less any Purchased Shares) at the Expiration Time and the Closing Price of the Common Stock on the Trading Day next succeeding the Expiration Time, such reduction to become retroactively effective immediately prior to the opening of business on the day following the Expiration Time. (f) In case a tender or exchange offer made by a Person other than the Company or any Subsidiary of the Company for all or any portion of the Common Stock shall expire and such tender or exchange offer shall involve the payment by a Person other than the Company or any Subsidiary of the Company of consideration per share of Common Stock having a fair market value (as determined in good faith by the Board of Directors, whose 60 determination shall be conclusive and evidenced by a resolution of the Board of Directors) at the applicable Expiration Time that exceeds the Closing Price of the Common Stock on the Trading Day next succeeding the applicable Expiration Time in which as of the closing date of the offer the Board of Directors of the Company is not recommending rejection of the offer, the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the effectiveness of the Conversion Price reduction contemplated by this subsection (f) by a fraction (which shall not be greater than one) of which the numerator shall be the number of shares of Common Stock outstanding (including any tendered or exchanged shares) at the Expiration Time multiplied by the Closing Price of the Common Stock on the Trading Day next succeeding the Expiration Time and the denominator shall be the sum of (i) the fair market value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of the Purchased Shares and, (ii) the product of the number of shares of Common Stock outstanding (less any Purchased Shares) at the Expiration Time and the Closing Price of the Common Stock on the Trading Day next succeeding the Expiration Time, such reduction to become retroactively effective immediately prior to the opening of business on the day following the Expiration Time; provided, however, that the reduction of the Conversion Price contemplated by this subsection (f) will only be made if the tender offer or exchange offer is made for an amount which increases that Person's ownership of Common Stock to more than 25% of the total shares of Common Stock outstanding and provided, further, that the reduction of the Conversion Price contemplated by this subsection (f) will not be made if as of the close of the offer, the offering documents with respect to such offer disclose a plan or an intention to cause the Company to engage in a consolidation or merger of the Company or a sale of all or substantially all of the assets of the Company. (g) For the purpose of any computation under subsection (b), (c) or (d), the current market price per share of Common Stock on any date in question shall be deemed to be the average of the daily Closing Prices for the ten Trading Day period ending on the earlier of the day in question and, if applicable, the day before the "ex" date with respect to the issuance or distribution requiring such computation; provided, however, that if more than one event occurs that would require an adjustment pursuant to subsections (a) through (f), inclusive, the Board of Directors may make such adjustments to the Closing Prices during such ten Trading Day period as it deems appropriate to effectuate the intent of the adjustments in this Section 12.3, in which case any such determination by the Board of Directors shall be set forth in a Board Resolution and shall be conclusive. For purposes of this paragraph, the term "ex" date, (1) when used with respect to any issuance or distribution, means the first date on which the Common Stock trades regular way on the New York Stock Exchange or on such successor securities exchange as the Common Stock may be listed or in the relevant market from which the Closing Prices were obtained without the right to receive such issuance or distribution, and (2) when used with respect to any tender or exchange offer means the first date on which the Common Stock trades regular way on such securities exchange or in such market after the Expiration Time of such offer. (h) The Company may make such reductions in the Conversion Price, in addition to those required by subsections (a) through (f), as the Board of Directors considers to be 61 advisable to avoid or diminish any income tax to holders of Common Stock or rights to purchase Common Stock resulting from any dividend or distribution of stock (or rights to acquire stock) or from any event treated as such for income tax purposes. The Company from time to time may reduce the Conversion Price by any amount for any period of time if the period is at least twenty (20) days. Whenever the Conversion Price is reduced pursuant to the preceding sentence, the Company shall mail to Holders of record of the Convertible Debentures a notice of the reduction at least 15 days prior to the date the reduced Conversion Price takes effect, and such notice shall state the reduced Conversion Price and the period it will be in effect. (i) No adjustment in the Conversion Price shall be required unless such adjustment would require an increase or decrease of at least 1% in the Conversion Price; provided, however, that any adjustments which by reason of this subsection (i) are not required to be made shall be carried forward and taken into account in determining whether any subsequent adjustment shall be required. (j) If any action would require adjustment of the Conversion Price pursuant to more than one of the provisions described above, only one adjustment shall be made and such adjustment shall be the amount of adjustment that has the highest absolute value to the Holder of Convertible Debentures. (k) Except as stated above, the Conversion Rate will not be adjusted for the issuance of Common Stock or any securities convertible into, or exchangeable for, Common Stock, or carrying the right to purchase any of the foregoing. Section 12.4 Merger, Consolidation or Sale of Assets. (a) In the event that the Company shall be a party to any transaction (including without limitation (i) any recapitalization or reclassification of the Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination of the Common Stock), (ii) any consolidation of the Company with, or merger of the Company into, any other Person, any merger of another Person into the Company (other than a merger which does not result in a reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock of the Company), (iii) any sale or transfer of all or substantially all of the assets of the Company or (iv) any compulsory share exchange) pursuant to which either shares of Common Stock shall be converted into the right to receive other securities, cash or other property, or, in the case of a sale or transfer of all or substantially all of the assets of the Company, the holders of Common Stock shall be entitled to receive other securities, cash or other property, then lawful provision shall be made as part of the terms of such transaction whereby the Holder of each Convertible Debenture then outstanding shall have the right thereafter to convert such Convertible Debenture only into: (i) in the case of any such transaction that does not constitute a Common Stock Fundamental Change and subject to funds being legally available for such purpose under applicable law at the time of such conversion, the kind and amount of 62 the securities, cash or other property that would have been receivable upon such recapitalization, reclassification, consolidation, merger, sale, transfer or share exchange by a holder of the number of shares of Common Stock issuable upon conversion of such Convertible Debenture immediately prior to such recapitalization, reclassification, consolidation, merger, sale, transfer or share exchange, after giving effect, in the case of any Non-Stock Fundamental Change, to any adjustment in the Conversion Price in accordance with clause (i) of subsection (c) of this Section 12.4; and (ii) in the case of any such transaction that constitutes a Common Stock Fundamental Change, common stock of the kind received by holders of Common Stock as a result of such Common Stock Fundamental Change in an amount determined in accordance with clause (ii) of subsection (c) of this Section 12.4. (b) The Company or the Person formed by such consolidation or resulting from such merger or which acquired such assets or which acquires the Company's shares, as the case may be, shall make provision in its certificate or articles of incorporation or other constituent document to establish such right. Such certificate or articles of incorporation or other constituent document shall provide for adjustments which, for events subsequent to the effective date of such certificate or articles of incorporation or other constituent document, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article XII. The above provisions shall similarly apply to successive transactions of the foregoing type. (c) Notwithstanding any other provision of this Section 12.4 to the contrary, if any Fundamental Change occurs, then the Conversion Price in effect will be adjusted immediately after such Fundamental Change as follows: (i) in the case of a Non-Stock Fundamental Change, the Conversion Price of the Convertible Debentures immediately following such Non-Stock Fundamental Change shall be the lower of (A) the Conversion Price in effect immediately prior to such Non-Stock Fundamental Change, but after giving effect to any other prior adjustments effected pursuant to Section 12.3, and (B) the product of (1) the greater of the Applicable Price and the then applicable Reference Market Price and (2) a fraction, the numerator of which is $50 and the denominator of which is (x) the amount of the Optional Redemption Price set forth in Section 10.2 for $50 in principal amount of Convertible Debentures if the redemption date were the date of such Non- Stock Fundamental Change (or, for the twelve-month periods commencing March 4, 1997, March 4, 1998 and March 4, 1999, the product of 105.0%, 104.5% and 104.0%, respectively, times $50) plus (y) any then-accrued and unpaid interest on $50 principal amount of Convertible Debentures; and (ii) in the case of a Common Stock Fundamental Change, the Conversion Price of the Convertible Debentures immediately following such Common Stock Fundamental Change shall be the Conversion Price in effect immediately prior to such Common Stock Fundamental Change, but after giving effect to any other prior 63 adjustments effected pursuant to Section 12.3, multiplied by a fraction, the numerator of which is the Purchaser Stock Price and the denominator of which is the Applicable Price; provided, however, that in the event of a Common Stock Fundamental Change in which (A) 100% of the value of the consideration received by a holder of Common Stock is common stock of the successor, acquiror or other third party (and cash, if any, paid with respect to any fractional interests in such common stock resulting from such Common Stock Fundamental Change) and (B) all of the Common Stock shall have been exchanged for, converted into or acquired for, common stock of the successor, acquiror or other third party (and any cash with respect to fractional interests), the Conversion Price of the Convertible Debentures immediately following such Common Stock Fundamental Change shall be the Conversion Price in effect immediately prior to such Common Stock Fundamental Change multiplied by a fraction, the numerator of which is one (1) and the denominator of which is the number of shares of common stock of the successor, acquiror or other third party received by a holder of one share of Common Stock as a result of such Common Stock Fundamental Change. Section 12.5 Notice of Adjustments of Conversion Price. Whenever the Conversion Price is adjusted as herein provided: (a) the Company shall compute the adjusted Conversion Price and shall prepare a certificate signed by the Chief Financial Officer or the Treasurer of the Company setting forth the adjusted Conversion Price and showing in reasonable detail the facts upon which such adjustment is based, and such certificate shall forthwith be filed with the Trustee and the transfer agent for the Convertible Preferred Securities and the Convertible Debentures; and (b) a notice stating the Conversion Price has been adjusted and setting forth the adjusted Conversion Price shall as soon as practicable be mailed by the Company to all record holders of Convertible Preferred Securities and the Convertible Debentures at their last addresses as they appear upon the transfer books of the Company and the Trust. Section 12.6 Prior Notice of Certain Events. In case: (a) the Company shall (i) declare any dividend (or any other distribution) on its Common Stock, other than (A) a dividend payable in shares of Common Stock or (B) a dividend payable in cash that would not require an adjustment pursuant to Section 12.3(c) or (d) or (ii) authorize a tender or exchange offer that would require an adjustment pursuant to Section 12.3(e); (b) the Company shall authorize the granting to all holders of Common Stock of rights or warrants to subscribe for or purchase any shares of stock of any class or series or of any other rights or warrants; 64 (c) of any reclassification of Common Stock (other than a subdivision or combination of the outstanding Common Stock, or a change in par value, or from par value to no par value, or from no par value to par value), or of any consolidation or merger to which the Company is a party and for which approval of any stockholders of the Company shall be required, or of the sale or transfer of all or substantially all of the assets of the Company or of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or other property; or (d) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; then the Company shall (i) if any Convertible Preferred Securities are outstanding, cause to be filed with the transfer agent for the Convertible Preferred Securities, and shall cause to be mailed to the holders of record of the Convertible Preferred Securities, at their last addresses as they shall appear upon the stock transfer books of the Trust or (ii) shall cause to be mailed to all Holders at their last addresses as they shall appear in the Security Register, at least 15 days prior to the applicable record or effective date hereinafter specified, a notice stating (A) the date on which a record (if any) is to be taken for the purpose of such dividend, distribution, rights or warrants or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, rights or warrants are to be determined or (B) the date on which such reclassification, consolidation, merger, sale, transfer, share exchange, dissolution, liquidation or winding up is expected to become effec tive, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, share exchange, dissolution, liquidation or winding up (but no failure to mail such notice or any defect therein or in the mailing thereof shall affect the validity of the corporate action required to be specified in such notice). If at any time the Trustee shall not be the Conversion Agent, a copy of such notice shall also forthwith be filed by the Company with the Trustee. Section 12.7 Certain Additional Rights. In case the Company shall, by dividend or otherwise, declare or make a distribution on the Common Stock referred to in Section 12.3(c) or 12.3(d)), the Holder of the Convertible Debentures, upon the conversion thereof subsequent to the close of business on the date fixed for the determination of stockholders entitled to receive such distribution and prior to the effectiveness of the Conversion Price adjustment in respect of such distribution, shall also be entitled to receive for each share of Common Stock into which the Convertible Debentures are converted, the portion of the shares of Common Stock, rights, warrants, evidences of indebtedness, shares of capital stock, cash and assets so distributed applicable to one share of Common Stock; provided, however, that, at the election of the Company (whose election shall be evidenced by a resolution of the Board of Directors) with respect to all Holders so converting, the Company may, in lieu of distributing to such Holder any portion of such distribution not consisting of cash or securities of the Company, pay such Holder an amount in cash equal to the fair market value thereof (as determined in good faith by the Board of Directors, whose determination shall be conclusive and evidenced by a resolution of the Board of Directors). 65 If any conversion of Convertible Debentures described in the immediately preceding sentence occurs prior to the payment date for a distribution to holders of Common Stock which the Holder of Convertible Debentures so converted is entitled to receive in accordance with the immediately preceding sentence, the Company may elect (such election to be evidenced by a resolution of the Board of Directors) to distribute to such Holder a due bill for the shares of Common Stock, rights, warrants, evidences of indebtedness, shares of capital stock, cash or assets to which such Holder is so entitled, provided, that such due bill (a) meets any applicable requirements of the principal national securities exchange or other market on which the Common Stock is then traded and (b) requires payment or delivery of such shares of Common Stock, rights, warrants, evidences of indebtedness, shares of capital stock, cash or assets no later than the date of payment or delivery thereof to holders of shares of Common Stock receiving such distribution. Section 12.8 Trustee Not Responsible for Determining Conversion Price or Adjustments. Neither the Trustee nor any Conversion Agent shall at any time be under any duty or responsibility to any Holder of any Convertible Debenture to determine whether any facts exist which may require any adjustment of the Conversion Price, or with respect to the nature or extent of any such adjustment when made, or with respect to the method employed. Neither the Trustee nor any Conversion Agent shall be accountable with respect to the validity or value (or the kind or amount) of any shares of Common Stock or of any securities or property, which may at any time be issued or delivered upon the conversion of any Conver tible Debenture; and neither the Trustee nor any Conversion Agent makes any representation with respect thereto. Neither the Trustee nor any Conversion Agent shall be responsible for any failure of the Company to make any cash payment or to issue, transfer or deliver any shares of Common Stock or stock certificates or other securities or property upon the surrender of any Convertible Debenture for the purpose of conversion. All Convertible Debentures delivered for conversion shall be delivered to the Trustee to be cancelled by or at the discretion of the Trustee, which shall dispose of the same as provided in Section 2.12 of this Indenture. Section 12.9 Reservation of Shares of Common Stock. The Company shall at all times reserve and keep available, free from preemptive rights, out of its authorized but unissued Common Stock or treasury shares, for the purpose of effecting the conversion of Convertible Debentures, the full number of shares of Common Stock of the Company then issuable upon the conversion of all outstanding Convertible Debentures. Section 12.10 Payment of Certain Taxes upon Conversion. The Company will pay any and all taxes that may be payable in respect of the issue or delivery of shares of its Common Stock on conversion of Convertible Debentures pursuant hereto. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of its Common Stock in a name other than that of the Holder of the Convertible Debenture or Convertible Debentures to be converted, and no such issue or delivery shall be made unless and until the person requesting such issue has paid to the Company the amount of any such tax, or has established, to the satisfaction of the Company, that such tax has been paid. 66 Section 12.11 Nonassessability. The Company covenants that all shares of Common Stock which may be issued upon conversion of Convertible Debentures will upon issue in accordance with the terms hereof be duly and validly issued and fully paid and nonassessable. ARTICLE XIII SUBORDINATION OF CONVERTIBLE DEBENTURES Section 13.1 Convertible Debentures Subordinate to Senior Indebtedness. The Company covenants and agrees, and each Holder of a Convertible Debenture, by the Holder's acceptance thereof, likewise covenants and agrees, that, to the extent and in the manner hereinafter set forth in this Article, the indebtedness represented by the Convertible Debentures and the payment of the principal of (and premium, if any) and interest on each and all of the Convertible Debentures are hereby expressly made subordinate and junior in right of payment to the prior payment in full of all Senior Indebtedness of the Company, whether outstanding at the date of this Indenture or thereafter incurred. No provision of this Article shall prevent the occurrence of any default or Event of Default hereunder. Section 13.2 Payment Over of Proceeds upon Dissolution, Etc. In the event of (i) any insolvency, bankruptcy, receivership, liquidation, reorganization, readjustment, composition or other similar proceeding relating to the Company, its creditors or its property, (ii) any proceeding for the liquidation, dissolution or other winding up of the Company voluntarily or involuntarily, whether or not involving insolvency or bankruptcy proceedings, (iii) any assignment by the Company for the benefit of creditors or (iv) any other marshalling of assets of the Company, all amounts due upon all Senior Indebtedness of the Company (including any interest thereon accruing after the commencement of such proceedings) shall first be paid in full, or payment thereof provided for in money in accordance with its terms, before any payment is made by the Company on account of the principal (and premium, if any) or interest on the Convertible Debentures; and any payment by the Company, or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to which the Holders of the Convertible Debentures or the Trustee would be entitled to receive from the Company, except for the provisions of this Article, shall be paid by the Company or by any receiver, trustee in bankruptcy, liquidation trustee, agent or other Person making such payment or distribution, or by the Holders of the Convertible Debentures or by the Trustee under this Indenture if received by them or it, directly to the holders of Senior Indebtedness of the Company (pro rata to such holders on the basis of the respective amounts of Senior Indebtedness held by such holders, as calculated by the Company) or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing such Senior Indebtedness may have been issued, as their respective interests may appear, to the extent necessary to pay such Senior Indebtedness (including any interest thereon accruing after the commencement of such proceedings) in full, after giving effect to any concurrent payment or distribution to or for the holders of such Senior Indebtedness, before any payment or distribution is made to the Holders of the Convertible Debentures or to the Trustee. 67 In the event that, notwithstanding the foregoing, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, prohibited by the foregoing, shall be received by the Trustee before all Senior Indebtedness of the Company is paid in full, or provision is made for such payment, such payment or distribution shall be held in trust for the benefit of and shall be paid over or delivered to the holders of such Senior Indebtedness or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing such Senior Indebtedness may have been issued, and their respective interests may appear, as calculated by the Company, for application to the payment of all Senior Indebtedness of the Company, as the case may be, remaining unpaid to the extent necessary to pay such Senior Indebtedness in full, after giving effect to any concurrent payment or distribution to or for the benefit of the holders of such Senior Indebtedness. For purposes of this Article only, the words "cash, property or securities" shall not be deemed to include shares of stock of the Company as reorganized or readjusted, or securities of the Company or any other corporation provided for by a plan of reorganization or readjustment which are subordinated in right of payment to all Senior Indebtedness which may at the time be outstanding to substantially the same extent as, or to a greater extent than, the Convertible Debentures are so subordinated as provided in this Article. The consolidation of the Company with, or the merger of the Company into, another Person or the liquidation or dissolution of the Company following the conveyance or transfer of its properties and assets substantially as an entirety to another Person upon the terms and conditions set forth in Article IX of this Indenture shall not be deemed a dissolution, winding up, liquidation, reorganization, readjustment, composition, assignment for the benefit of creditors or marshalling of assets and liabilities of the Company for the purposes of this Section if the Person formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance or transfer such properties and assets substantially as an entirety, as the case may be, shall, as a part of such consolidation, merger, conveyance or transfer, comply with the conditions set forth in Article IX of this Indenture. Section 13.3 Prior Payment to Senior Indebtedness upon Acceleration of Convertible Debentures. In the event that any Convertible Debentures are declared due and payable before their Stated Maturity, then and in such event the holders of Senior Indebtedness shall be entitled to receive payment in full of all amounts due or to become due on or in respect of all Senior Indebtedness or provision shall be made for such payment in cash, before the Holders of the Convertible Debentures are entitled to receive any payment (including any payment which may be payable by reason of the payment of any other indebtedness of the Company being subordinated to the payment of the Convertible Debentures) by the Company on account of the principal of (or premium, if any) or interest on the Convertible Debentures or on account of the purchase or other acquisition of Convertible Debentures. In the event that, notwithstanding the foregoing, the Company shall make any payment to the Trustee or the Holder of any Convertible Debenture prohibited by the foregoing provisions of this Section, and if such fact shall, at or prior to the time of such payment, have been made known to the Trustee or, as the case may be, such Holder, then and in such event such payment shall be paid over and delivered forthwith to the Company. 68 The provisions of this Section shall not apply to any payment with respect to which Section 13.2 would be applicable. Section 13.4 No Payment When Senior Indebtedness in Default. In the event and during the continuation of any default by the Company in the payment of principal, premium, if any, interest or any other payment due on any Senior Indebtedness of the Company, as the case may be, beyond any applicable grace period with respect thereto, or in the event that the maturity of any Senior Indebtedness of the Company has been accelerated because of a default, then, in any such case, no payment shall be made by the Company with respect to the principal (including redemption payments, if any) of, premium, if any, or interest on the Convertible Debentures until such default is cured or waived or ceases to exist or any such acceleration or demand for payment has been rescinded. Section 13.5 Payment Permitted in Certain Situations. Nothing contained in this Article or elsewhere in this Indenture or in the Convertible Debentures shall prevent (a) the Company, at any time except during the pendency of any dissolution, winding-up, liquidation or reorganization of the Company, whether voluntary or involuntary or any bankruptcy, insolvency, receivership or other proceedings of the Company referred to in Section 13.2 or under the conditions described in Section 13.3 or 13.4, from making payments at any time of principal of or premium, if any, or interest on the Convertible Debentures, or (b) the application by the Trustee of any money deposited with it hereunder to the payment of or on account of the principal of, or premium, if any, or interest on the Convertible Debentures or the retention of such payment by the Holders, if, at the time of such application by the Trustee, it did not have knowledge that such payment would have been prohibited by the provisions of this Article. Section 13.6 Subrogation to Rights of Holders of Senior Indebtedness. Subject to the payment in full of all Senior Indebtedness or the provision for such payment in cash or cash equivalents or otherwise in a manner satisfactory to the holders of Senior Indebtedness, the rights of the Holders of Convertible Debentures shall be subrogated to the extent of the payments or distributions made to the holders of such Senior Indebtedness pursuant to the provisions of this Article (equally and ratably with the holders of indebtedness of the Company which by its express terms is subordinated to indebtedness of the Company to substantially the same extent as the Convertible Debentures are subordinated to the Senior Indebtedness and is entitled to like rights of subrogation) to the rights of the holders of such Senior Indebtedness to receive payments and distributions of cash, property and securities applicable to the Senior Indebtedness until the principal of (and premium, if any) and interest on the Convertible Debentures shall be paid in full. For purposes of such subrogation, no payments or distributions to the holders of the Senior Indebtedness of any cash, property or securities to which the Holders of Convertible Debentures or the Trustee would be entitled except for the provisions of this Article, and no payments over pursuant to the provisions of this Article to or for the benefit of the holders of Senior Indebtedness by Holders of Convertible Debentures or the Trustee, shall, as among the Company, its creditors other than holders of Senior Indebtedness and the Holders of Convertible Debentures, be deemed to be a payment or distribution by the Company to or on account of the Senior Indebtedness. 69 Section 13.7 Provisions Solely to Define Relative Rights. The provisions of this Article are and are intended solely for the purpose of defining the relative rights of the Holders of Convertible Debentures on the one hand and the holders of Senior Indebtedness on the other hand. Nothing contained in this Article or elsewhere in this Indenture or in the Convertible Debentures is intended to or shall (a) impair, as among the Company, its creditors other than holders of Senior Indebtedness and the Holders of Convertible Debentures, the obligation of the Company, which is absolute and unconditional (and which, subject to the rights under this Article of the holders of Senior Indebtedness, is intended to rank equally with all other general obligations of the Company), to pay to the Holders of Convertible Debentures the principal of (and premium, if any) and interest on the Convertible Debentures as and when the same shall become due and payable in accordance with their terms; or (b) affect the relative rights against the Company of the Holders of Convertible Debentures and creditors of the Company, as the case may be, other than the holders of Senior Indebtedness; or (c) prevent the Trustee or the Holder of any Convertible Debenture from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article of the holders of Senior Indebtedness to receive cash, property and securities otherwise payable or deliverable to the Trustee or such Holder. Section 13.8 Trustee to Effectuate Subordination. Each Holder of a Convertible Debenture by such Holder's acceptance thereof authorizes and directs the Trustee on such Holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article and appoints the Trustee such Holder's attorney-in-fact for any and all such purposes. Section 13.9 No Waiver of Subordination Provisions. No right of any present or future holder of any Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof any such holder may have or be otherwise charged with. Without in any way limiting the generality of the foregoing paragraph, the holders of Senior Indebtedness may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders of the Convertible Debentures, without incurring responsibility to the Holders of Convertible Debentures and without impairing or releasing the subordination provided in this Article or the obligations hereunder of the Holders of Convertible Debentures to the holders of Senior Indebtedness do any one or more of the following (a) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Senior Indebtedness or otherwise amend or supplement in any manner Senior Indebtedness or any instrument evidencing the same or any agreement under which Senior Indebtedness is outstanding; (b) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Indebtedness; (c) release any Person liable in any manner for the collection of Senior Indebtedness; and (d) exercise or refrain from exercising any rights against the Company and any other Person. 70 Section 13.10 Notice to Trustee. The Company shall give prompt written notice to a Responsible Officer of the Trustee of any fact known to the Company which would prohibit the making of any payment to or by the Trustee in respect of the Convertible Debentures pursuant to the provisions of this Article. Notwithstanding the provisions of this Article or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts which would prohibit the making of any payment to or by the Trustee in respect of the Convertible Debentures pursuant to the provisions of this Article, unless and until a Responsible Officer of the Trustee shall have received written notice thereof from the Company or a holder or holders of Senior Indebtedness or from any trustee therefor; and, prior to the receipt of any such written notice, the Trustee, subject to the provisions of Section 6.2 of this Indenture, shall be entitled in all respects to assume that no such facts exist; provided, however, that if the Trustee shall have not received the notice provided for in this Section at least two Business Days prior to the date upon which by the terms hereof any money may become payable for any purpose (including, without limitation, the payment of the principal of (or premium, if any) or interest on any Convertible Debentures, then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such money and to apply the same to the purposes for which they were received, and shall not be affected by any notice to the contrary that may be received by it within two Business Days prior to such date. Subject to the provisions of Section 6.2 of this Indenture, the Trustee shall be entitled to rely on the delivery to it of a written notice by a Person representing himself to be a holder of Senior Indebtedness (or a trustee therefor) to establish that such notice has been given by a holder of Senior Indebtedness (or a trustee therefor). In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of Senior Indebtedness to participate in any payment or distribution pursuant to this Article, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article, and if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. Section 13.11 Reliance on Judicial Order or Certificate of Liquidating Agent. Upon any payment or distribution of assets of the Company referred to in this Article, the Trustee, subject to the provisions of Section 6.2 of this Indenture, and the Holders of Convertible Debentures shall be entitled to conclusively rely upon any order or decree entered by any court of competent jurisdiction in which such insolvency, bankruptcy, receivership, liquidation, reorganization, dissolution, winding up or similar case or proceeding is pending, or a certificate of the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit of creditors, agent or other Person making such payment or distribution, delivered to the Trustee or to the Holders of Convertible Debentures, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of Senior Indebtedness and other indebtedness of the Company, as the case may be, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article. 71 Section 13.12 Trustee Not Fiduciary for Holders of Senior Indebtedness. With respect to the holders of Senior Indebtedness, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article, and no implied covenants or obligations with respect to the holders of such Senior Indebtedness shall be read into this Indenture against the Trustee. Except with respect to Section 13.4, the Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness and shall not be liable to any such holders or creditors if it shall in good faith pay over or distribute to Holders of Convertible Debentures or to the Company or to any other Person cash, property or securities to which any holders of Senior Indebtedness shall be entitled by virtue of this Article or otherwise. Section 13.13 Rights of Trustee as Holder of Senior Indebtedness; Preservation of Trustee's Rights. The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article with respect to any Senior Indebtedness which may at any time be held by it, to the same extent as any other holder of Senior Indebtedness and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder. Nothing in this Article XIII shall apply to claims of, or payments to, the Trustee under or pursuant to Section 6.7 of this Indenture. Section 13.14 Article Applicable to Paying Agents. In case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term "Trustee" as used in this Article shall in such case (unless the context otherwise requires) be construed as extending to and including such Paying Agent within its meaning as fully for all intents and purposes as if such Paying Agent were named in this Article in addition to or in place of the Trustee; provided, however, that Section 13.13 shall not apply to the Company or any Affiliate of the Company if it or such Affiliate acts as Paying Agent. Section 13.15 Certain Conversions Deemed Payment. For purposes of this Article only, (a) the issuance and delivery of junior securities (or cash paid in lieu of fractional shares) upon conversion of Convertible Debentures in accordance with Article XII shall not be deemed to constitute a payment or distribution on account of the principal of or premium or interest on Convertible Debentures or on account of the purchase or other acquisition of Convertible Debentures, and (b) the payment, issuance or delivery of cash, property or securities (other than junior securities and cash paid in lieu of fractional shares) upon conversion of a Convertible Debenture shall be deemed to constitute payment on account of the principal of such Convertible Debenture. For the purposes of this Section, the term "junior securities" means (i) shares of any stock of any class of the Company and (ii) securities of the Company which are subordinated in right of payment to all Senior Indebtedness which may be outstanding at the time of issuance or delivery of such securities to substantially the same extent as, or to a greater extent than, the Convertible Debentures are so subordinated as provided in this Article. Nothing contained in this Article or elsewhere in this Indenture or in the Convertible Debentures is intended to or shall impair, as among the Company, its creditors other than holders of Senior Indebtedness and the Holders of Convertible Debentures, the right, which is absolute and unconditional, of the Holder of 72 any Convertible Debenture to convert such Convertible Debenture in accordance with Article XII. ARTICLE XIV EXPENSES Section 14.1 Payment of Expenses. In connection with the offering, sale and issuance of the Convertible Debentures to the Institutional Trustee and in connection with the sale of the Trust Securities by the Trust, the Company, in its capacity as borrower with respect to the Convertible Debentures, shall: (a) pay all costs and expenses relating to the offering, sale, issuance and registration under the Securities Act of the Convertible Debentures and the Trust Securities, including commissions to the purchasers payable pursuant to the Placement Agreement and compensation of the Trustee under this Indenture in accordance with the provisions of Section 6.7 of this Indenture; (b) pay all costs and expenses of the Trust (including, but not limited to, costs and expenses relating to the organization of the Trust, the fees and expenses of the Institutional Trustee and the Delaware Trustee, the costs and expenses relating to the operation of the Trust, including without limitation, costs and expenses of accountants, attorneys, statistical or bookkeeping services, expenses for printing and engraving and computing or accounting equipment, paying agent(s), registrar(s), transfer agent(s), duplicating, travel and telephone and other telecommunications expenses and costs and expenses incurred in connection with the acquisition, financing, and disposition of Trust assets); (c) pay all costs and expenses related to the enforcement by the Institutional Trustee of the rights of the holders of the Trust Securities; (d) be primarily liable for any indemnification obligations arising with respect to the Declaration; and (e) pay any and all taxes (other than United States withholding taxes attributable to the Trust or its assets) and all liabilities, costs and expenses with respect to such taxes of the Trust. Section 14.2 Payment Upon Resignation or Removal. Upon termination of this Indenture or the removal or resignation of the Trustee pursuant to Section 6.8 of this Indenture, the Company shall pay to the Trustee all amounts accrued to the date of such termination, removal or resignation. Upon termination of the Declaration or the removal or resignation of the Delaware Trustee or the Institutional Trustee, as the case may be, pursuant to Section 5.6 of the Declaration, the Company shall pay to the Delaware Trustee or the 73 Institutional Trustee, and their respective counsel, as the case may be, all amounts accrued to the date of such termination, removal or resignation. ARTICLE XV MISCELLANEOUS PROVISIONS Section 15.1 Incorporators, Stockholders, Officers and Directors of Company Exempt from Individual Liability. No recourse under or upon any obligations, covenant or agreement contained in this Indenture, in any Convertible Debenture, or because of any indebtedness evidenced thereby, shall be had against any incorporator, as such or against any past, present or future stockholder, officer or director, as such, of the Company or of any successor, either directly or through the Company or any successor, under any rule of law, statute or constitutional provision or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise, all such liability being expressly waived and released by the acceptance of the Convertible Debentures by the Holders thereof and as part of the consideration of the issue of the Convertible Debentures. Section 15.2 Provisions of Indenture for the Sole Benefit of Parties and Holders of Convertible Debentures. Nothing in this Indenture or in the Convertible Debentures, expressed or implied, shall give or be construed to give to any Person, firm or corporation, other than the parties hereto, any Paying Agent and their successors hereunder, the holders of Senior Indebtedness, the holders of Convertible Preferred Securities (to the extent provided herein) and the Holders of the Convertible Debentures any legal or equitable right, remedy or claim under this Indenture or under any covenant or provision herein contained, all such covenants and provisions being for the sole benefit of the parties hereto and their successors and of the Holders of the Convertible Debentures. Section 15.3 Right to Assign; Successors and Assigns Bound by Indenture. The Company shall have the right at all times to assign any of its respective rights or obligations under this Indenture to a direct or indirect wholly-owned Subsidiary of the Company; provided that, in the event of any such assignment, the Company shall remain liable for all of its obligations under this Indenture. Subject to the foregoing, this Indenture will be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. The rights and obligations of the parties under this Indenture may not otherwise be assigned by such parties. All the covenants, stipulations, promises and agreements in this Indenture by the parties hereto shall bind their respective successors and assigns, whether so expressed or not. Section 15.4 Notices and Demands on Company, Trustee and Holders of Convertible Debentures. Any notice or demand which by any provision of this Indenture is required or permitted to be given or served by the Trustee or by the Holders of Convertible Debentures to or on the Company may be given or served by being deposited postage prepaid, first-class mail (except as otherwise specifically provided herein) addressed (until another address of the 74 Company is filed by the Company with the Trustee) to McKesson Corporation, McKesson Plaza, One Post Street, San Francisco, California 94104, Attention: General Counsel. Any notice, direction, request or demand by the Company or any Holder of Convertible Debentures to or upon the Trustee shall be deemed to have been sufficiently given or made, for all purposes, if given or made at the Corporate Trust Office. Where this Indenture provides for notice to Holders of Convertible Debentures of any event such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed by first-class mail, postage prepaid to such Holders as their names and addresses appear in the Convertible Debenture register within the time prescribed. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, shall affect the sufficiency of such notice, and any notice which is mailed in the manner herein provided shall be conclusively presumed to have been duly given. In case, by reason of the suspension of or irregularities in regular mail service, it shall be impracticable to mail notice to the Company and Holders of Convertible Debentures when such notice is required to be given pursuant to any provision of this Indenture, then any manner of giving such notice as shall be reasonably acceptable to the Trustee shall be deemed to be a sufficient giving of such notice. Section 15.5 Officers' Certificates and Opinions of Counsel; Statements to Be Contained Therein. Upon any application or demand by the Company to the Trustee to take action under any of the provisions of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that in the case of any such application or demand as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or demand, no additional certificate or opinion need be furnished. Each certificate or opinion provided for in this Indenture and delivered to the Trustee with respect to compliance with a condition or covenant provided for in this Indenture shall include (a) a statement that the person making such certificate or opinion has read such covenant or condition and the definitions herein relating thereto, (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based, (c) a statement that, in the opinion of such person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with and (d) a statement as to whether or not, in the opinion of such person, such condition or covenant has been complied with. 75 Any certificate, statement or opinion of any officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of or representations by counsel, unless such officer knows that the certificate or opinion or representations with respect to the matters upon which his certificate, statement or opinion may be based as aforesaid are erroneous, or in the exercise of reasonable care should know that the same are erroneous. Any certificate, statement or opinion of counsel may be based, insofar as it relates to factual matters or information with respect to which is in the possession of the Company, upon the certificate, statement or opinion of or representations by an officer or officers of the Company, unless such counsel knows that the certificate, statement or opinion or representations with respect to the matters upon which his certificate, statement or opinion may be based as aforesaid are erroneous, or in the exercise of reasonable care should know that the same are erroneous. Any certificate, statement or opinion of an officer of the Company or of counsel may be based, insofar as it relates to accounting matters, upon a certificate or opinion of or representations by an accountant or firm of accountants in the employ of the Company, unless such officer or counsel, as the case may be, knows that the certificate or opinion or representations with respect to the accounting matters upon which his certificate, statement or opinion may be based as aforesaid are erroneous, or in the exercise of reasonable care should know that the same are erroneous. Any certificate or opinion of any independent firm of public accountants filed with and directed to the Trustee shall contain a statement that such firm is independent. Section 15.6 Payments Due on Saturdays, Sundays and Holidays. Except as otherwise provided in Section 2.5, if the date of Maturity of interest on or principal of the Convertible Debentures or the date fixed for redemption or repayment of any such Convertible Debenture shall not be a Business Day, then payment of interest or principal need not be made on such date, but may be made on the next succeeding Business Day; provided that if such next succeeding Business Day falls in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on the date of Maturity or the date fixed for redemption, and no interest shall accrue for the period after such date. Section 15.7 Conflict of Any Provision of Indenture with Trust Indenture Act. If and to the extent that any provision of this Indenture limits, qualifies or conflicts with another provision included in this Indenture which is required by the Trust Indenture Act, such required provision shall control. Section 15.8 New York Law to Govern. THIS INDENTURE AND THE CONVERTIBLE DEBENTURES SHALL BE DEEMED TO BE CONTRACTS MADE AND TO BE PERFORMED ENTIRELY IN THE STATE OF NEW YORK, AND FOR ALL PURPOSES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF SAID STATE WITHOUT REGARD TO THE CONFLICTS OF LAW RULES OF SAID STATE. 76 Section 15.9 Counterparts. This Indenture may be executed in any number of counterparts, each of which shall be an original; but such counterparts shall together constitute but one and the same instrument. Section 15.10 Effect of Headings; Gender. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. The use of the masculine, feminine or neuter gender herein shall not limit in any way the applicability of any term or provision hereof. 77 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereto affixed and attested, all as of the day and year first above written. McKESSON CORPORATION By: /s/ Ivan D. Meyerson -------------------------- Name: Ivan D. Meyerson Title: Vice President THE FIRST NATIONAL BANK OF CHICAGO, as Trustee By: /s/ Richard D. Manella -------------------------- Name: Richard D. Manella Title: Vice President 78 EXHIBIT A [(FORM OF FACE OF CONVERTIBLE DEBENTURE)] [IF THE DEBENTURE IS TO BE A GLOBAL DEBENTURE, INSERT THE FOLLOWING - - THIS DEBENTURE IS A BOOK-ENTRY DEBENTURE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE OF A DEPOSITARY. THIS DEBENTURE IS EXCHANGEABLE FOR CONVERTIBLE DEBENTURES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS DEBENTURE (OTHER THAN A TRANSFER OF THIS DEBENTURE AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY) MAY BE REGISTERED EXCEPT IN SUCH LIMITED CIRCUMSTANCES. UNLESS THIS DEBENTURE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY DEBENTURE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY AND ANY PAYMENT HEREON IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.] No. __________ CUSIP NO. __________ MCKESSON CORPORATION 5% CONVERTIBLE JUNIOR SUBORDINATED DEBENTURE [PRIOR TO THE TRANSFER RESTRICTION TERMINATION DATE, ANY CERTIFICATE EVIDENCING A CONVERTIBLE DEBENTURE SHALL BEAR A LEGEND IN SUBSTANTIALLY THE FOLLOWING FORM, UNLESS OTHERWISE AGREED BY THE COMPANY (WITH WRITTEN NOTICE THEREOF TO THE TRUSTEE): THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED A-1 INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) ("INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THE SECURITY EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION, (2) AGREES THAT IT WILL NOT PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), RESELL OR OTHERWISE TRANSFER THE SECURITY EVIDENCED HEREBY OR, IF THIS SECURITY IS CONVERTIBLE INTO COMMON STOCK, THE COMMON STOCK ISSUABLE UPON CONVERSION OR EXCHANGE OF THIS SECURITY EXCEPT (A) TO McKESSON CORPORATION (THE "COMPANY") OR ANY SUBSIDIARY THEREOF, (B) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, (C) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (D) TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE FOR THE CONVERTIBLE PREFERRED SECURITIES OR THE CONVERTIBLE DEBENTURES, AS THE CASE MAY BE (OR, IF THIS CERTIFICATE EVIDENCES COMMON STOCK, THE TRANSFER AGENT FOR THE COMMON STOCK), A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE SECURITY EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM SUCH TRUSTEE OR TRANSFER AGENT), (E) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT OR (F) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE SECURITY EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THE SECURITY EVIDENCED HEREBY PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE FOR THE CONVERTIBLE PREFERRED SECURITIES OR THE CONVERTIBLE DEBENTURES, AS THE CASE MAY BE (OR, IF THIS CERTIFICATE EVIDENCES COMMON STOCK, SUCH HOLDER MUST FURNISH TO THE TRANSFER AGENT SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE COMPANY OR McKESSON FINANCING TRUST (THE "TRUST") MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT). IF THIS CERTIFICATE DOES NOT EVIDENCE COMMON STOCK AND IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR OR A PURCHASER WHO IS NOT A U.S. PERSON, THE HOLDER MUST, PRIOR TO A-2 SUCH TRANSFER, FURNISH TO THE TRUSTEE FOR THE CONVERTIBLE PREFERRED SECURITIES OR THE CONVERTIBLE DEBENTURES, AS THE CASE MAY BE, SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE COMPANY OR THE TRUST MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND WILL BE REMOVED AFTER THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.] McKesson Corporation, a Delaware corporation (the "Company", which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to, The First National Bank of Chicago, as Institutional Trustee (the "Institutional Trustee") for McKesson Financing Trust or registered assigns, the principal sum of [Two Hundred Six Million One Hundred Eighty-Six Thousand Dollars ($206,186,000)]/1/ on June 1, 2027 and to pay interest on said principal sum from February 20, 1997, or from the most recent interest payment date to which interest has been paid or duly provided for, quarterly (subject to deferral as set forth herein) in arrears on March 1, June 1, September 1, and December 1 (each such date, an "Interest Payment Date") of each year commencing June 1, 1997, at the rate of 5% per annum until the principal hereof shall have become due and payable, and on any overdue principal and premium, if any, and (without duplication and to the extent that payment of such interest is enforceable under applicable law) on any overdue installment of interest at the same rate per annum compounded quarterly. The amount of interest payable on any Interest Payment Date shall be computed on the basis of a 360-day year of twelve 30-day months. The amount of interest payable for any period shorter than a full quarterly period for which interest is computed, will be computed on the basis of the actual number of days elapsed per 30-day month. In the event that any date on which interest is payable on this Convertible Debenture is not a Business Day, then payment of interest payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. The interest installment so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture (referred to on the reverse hereof) be paid to the person in whose name this Convertible Debenture (or one or more Predecessor Convertible Debentures, as defined in said Indenture) is registered on the record date for such interest installment, which shall be the close of business on the fifteenth day prior to such Interest Payment Date. Any such interest installment not punctually paid or duly provided for shall forthwith cease to be _____________________ /1/ In the case of a Global Debenture the bracketed text will be replaced with the following: "principal amount set forth on Schedule A hereto". A-3 payable to the registered Holders on such record date and may be paid to the Person in whose name this Convertible Debenture (or one or more Predecessor Convertible Debentures) is registered at the close of business on a special record date to be fixed by the Trustee for the payment of such defaulted interest, notice whereof shall be given to the registered Holders of the Convertible Debentures not less than 10 days prior to such special record date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Convertible Debentures may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture. The principal of (and premium, if any) and the interest on this Convertible Debenture shall be payable at the office or agency of the Trustee maintained for that purpose in any coin or currency of the United States of America that at the time of payment is legal tender for payment of public and private debts; provided, however, that payment of interest may be made at the option of the Company by check mailed to the registered Holder at such address as shall appear in the Security Register. Notwith standing the foregoing, so long as the Holder of this Convertible Debenture is the Institutional Trustee, the payment of the principal of (and premium, if any) and interest on this Convertible Debenture will be made at such place and to such account as may be designated by the Institutional Trustee. The indebtedness evidenced by this Convertible Debenture is, to the extent provided in the Indenture, subordinate and junior in right of payment to the prior payment in full of all Senior Indebtedness, and this Convertible Debenture is issued subject to the provisions of the Indenture with respect thereto. Each Holder of this Convertible Debenture, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on his or her behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination so provided and (c) appoints the Trustee his or her attorney-in-fact for any and all such purposes. Each Holder hereof, by his or her acceptance hereof, hereby waives all notice of the acceptance of the subordination provisions contained herein and in the Indenture by each holder of Senior Indebtedness, whether now outstanding or hereafter incurred, and waives reliance by each such holder upon said provisions. This Convertible Debenture shall not be entitled to any benefit under the Indenture hereinafter referred to, be valid or become obligatory for any purpose until the Certificate of Authentication hereon shall have been signed by or on behalf of the Trustee. The provisions of this Convertible Debenture are continued on the reverse side hereof and such continued provisions shall for all purposes have the same effect as though fully set forth at this place. Capitalized terms used but not defined herein shall have the meaning given them in the Indenture. A-4 IN WITNESS WHEREOF, the Company has caused this instrument to be executed. McKESSON CORPORATION By: ____________________________________ Name: Title: Attest: By: ________________________________ Name: Title: A-5 [FORM OF CERTIFICATE OF AUTHENTICATION] CERTIFICATE OF AUTHENTICATION This is one of the Convertible Debentures described in the within-mentioned Indenture. Dated: THE FIRST NATIONAL BANK OF CHICAGO as Trustee By: ________________________________ Authorized Signatory A-6 [FORM OF REVERSE OF DEBENTURE] This Convertible Debenture is one of the 5% Convertible Junior Subordinated Debentures (herein referred to as the "Convertible Debentures"), all issued or to be issued under and pursuant to an Indenture dated as of February 20, 1997, duly executed and delivered between the Company and The First National Bank of Chicago, as Trustee (the "Trustee") (the "Indenture"), to which Indenture and all indentures supplemental thereto reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and the Holders of the Convertible Debentures. The Convertible Debentures are limited in aggregate principal amount as specified in the Indenture. Because of the occurrence and continuation of a Tax Event, in certain circumstances, this Convertible Debenture may become due and payable at the principal amount specified on the face hereof together with any interest accrued thereon (the "Redemption Price"). The Redemption Price shall be paid prior to 12:00 noon, New York City time, on the date of such redemption or at such earlier time as the Company determines. The Company shall have the right to redeem this Convertible Debenture at the option of the Company, upon not less than 30 nor more than 60 days notice, without premium or penalty, in whole or in part at any time on or after March 4, 2000 (an "Optional Redemption") at the following prices (expressed as percentages of the principal amount of the Convertible Debentures) (the "Optional Redemption Price") together with accrued and unpaid interest (including Additional Sums, if any, and, to the extent permitted by applicable law, Compound Interest, if any) to, but excluding, the redemption date, if redeemed during the 12-month period beginning March 4 of the applicable year set forth below:
Year Redemption Price ------ ----------------- 2000 103.500% 2001 103.000% 2002 102.500% 2003 102.000% 2004 101.500% 2005 101.000% 2006 100.500%
and 100% if redeemed on or after March 4, 2007. If Convertible Debentures are redeemed on any March 1, June 1, September 1, or December 1, accrued and unpaid interest shall be payable to holders of record on the relevant record date. So long as the corresponding Trust Securities are outstanding, the proceeds from the redemption of any of the Convertible Debentures will be used to redeem Trust Securities. A-7 If the Convertible Debentures are only partially redeemed by the Company pursuant to an Optional Redemption, the Convertible Debentures will be redeemed pro rata; In the event of redemption of this Convertible Debenture in part only, a new Convertible Debenture or Convertible Debentures for the unredeemed portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof. In case an Event of Default, as defined in the Indenture, shall have occurred and be continuing, the principal of all of the Convertible Debentures and the interest accrued thereon may be declared, and upon such declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture. The Indenture contains provisions permitting the Company and the Trustee, with the consent of the Holders of a majority of the aggregate principal amount of the Convertible Debentures at the time Outstanding, evidenced as provided in the Indenture, to execute supplemental indentures adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any supplemental indenture or modifying in any manner the rights of the Holders of the Convertible Debentures; provided, however, that no such supplemental indenture shall (i) extend the Stated Maturity of any Convertible Debenture, or reduce the principal amount thereof or any premium thereon, or reduce the rate or extend the time of payment of interest thereon, or reduce any amount payable upon redemption thereof, or impair or affect the right of any Holder to institute suit for the payment thereof, without the consent of the Holder of each Convertible Debenture so affected, or (ii) reduce the aforesaid percentage of Convertible Debentures, the Holders of which are required to consent to any such supplemental indenture, without the consent of the Holder of each Convertible Debenture. It is also provided in the Indenture that, with respect to certain defaults or Events of Default regarding the Convertible Debentures, prior to any declaration accelerating the maturity of such Convertible Debentures, the Holders of a majority in aggregate principal amount Outstanding of the Convertible Debentures (or, in the case of certain defaults or Events of Default, all of the Convertible Debentures), may on behalf of the Holders of all the Convertible Debentures waive any such past default or Event of Default and its consequences. The preceding sentence shall not , however, apply to a default in the payment of the principal of or premium, if any, or interest on any of the Convertible Debentures. Any such consent or waiver by the Holder of this Convertible Debenture (unless revoked as provided in the Indenture) shall be conclusive and binding upon such Holder and upon all future Holders and owners of this Convertible Debenture and any Convertible Debenture which may be issued in exchange or substitution therefor, irrespective of whether or not any notation thereof is made upon this Convertible Debenture or such other Convertible Debenture. No reference herein to the Indenture and no provision of this Convertible Debenture or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and premium, if any, and interest on this Convertible Debenture at the time and place and at the rate and in the money herein prescribed. A-8 As long as an Event of Default under Section 5.1(a) of the Indenture shall not have occurred and be continuing, the Company shall have the right at any time during the term of the Convertible Debentures and from time to time to extend the interest payment period of such Convertible Debentures for up to 20 consecutive quarters (an "Extension Period"), at the end of which period the Company shall pay all interest then accrued and unpaid (together with interest thereon at the rate specified for the Convertible Debentures to the extent that payment of such interest is enforceable under applicable law). Before the termination of any such Extension Period, the Company may further extend such Extension Period, provided that such Extension Period together with all such further extensions thereof shall not exceed 20 consecutive quarters. At the termination of any such Extension Period and upon the payment of all accrued and unpaid interest and any additional amounts then due, the Company may commence a new Extension Period. As provided in the Indenture and subject to certain limitations therein set forth, this Convertible Debenture is transferable by the registered Holder hereof on the Security Register of the Company, upon surrender of this Convertible Debenture for registration of transfer at the office or agency of the Trustee in the City and State of New York accompanied by a written instrument or instruments of transfer in form satisfactory to the Company or the Trustee duly executed by the registered Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Convertible Debentures of authorized denominations and for the same aggregate principal amount will be issued to the designated transferee or transferees. No service charge will be made for any such transfer, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in relation thereto. Prior to due presentment for registration of transfer of this Convertible Debenture, the Company, the Trustee, any paying agent and the Registrar may deem and treat the registered holder hereof as the absolute owner hereof (whether or not this Convertible Debenture shall be overdue and notwithstanding any notice of ownership or writing hereon made by anyone other than the Registrar) for the purpose of receiving payment of or on account of the principal hereof and premium, if any, and interest due hereon and for all other purposes, and neither the Company nor the Trustee nor any paying agent nor any Registrar shall be affected by any notice to the contrary. No recourse shall be had for the payment of the principal of or the interest on this Convertible Debenture, or for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture, against any incorporator, stockholder, officer or director, past, present or future, as such, of the Company or of any predecessor or successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issuance hereof, expressly waived and released. The Holder of any Convertible Debenture has the right, exercisable at any time beginning May 21, 1997 through the close of business (New York time) on May 28, 2027 (or, in the case of a Convertible Debenture called for redemption, prior to the close of business on the Business Day prior to the corresponding redemption date), to convert the principal amount thereof (or any portion thereof that is an integral multiple of $50) into shares of Common Stock at the initial A-9 conversion rate of .6709 shares of Common Stock for each Convertible Debenture (equivalent to a Conversion Price of $74.53 per share of Common Stock), subject to adjustment under certain circumstances. To convert a Convertible Debenture, a Holder must (a) complete and sign a conversion notice substantially in the form attached hereto, (b) surrender the Convertible Debenture to a Conversion Agent, (c) furnish appropriate endorsements or transfer documents if required by the Conversion Agent and (d) pay any transfer or similar tax, if required. Upon conversion, no adjustment or payment will be made for interest or dividends, but if any Holder surrenders a Convertible Debenture for conversion on or after the record date for the payment of an installment of interest and prior to the opening of business on the next Interest Payment Date, then, notwithstanding such conversion, the interest payable on such Interest Payment Date will be paid to the registered Holder of such Convertible Debenture on such record date. In such event, such Convertible Debenture, when surrendered for conversion, need not be accompanied by payment of an amount equal to the interest payable on such Interest Payment Date on the portion so converted. However, if a redemption date falls between a record date and the subsequent Interest Payment Date, the Holder will be entitled to receive, on such redemption date, the interest accrued to, but excluding, the redemption date. The number of shares issuable upon conversion of a Convertible Debenture is determined by dividing the principal amount of the Convertible Debenture converted by the Conversion Price in effect on the Conversion Date. No fractional shares will be issued upon conversion but a cash adjustment will be made for any fractional interest. The outstanding principal amount of any Convertible Debenture shall be reduced by the portion of the principal amount thereof converted into shares of Common Stock. The Convertible Debentures are issuable only in registered form without coupons in denominations of $50 and any integral multiple thereof./2/ This Global Debenture is exchangeable for Convertible Debentures in definitive form only under certain limited circumstances set forth in the Indenture. Convertible Debentures so issued are issuable only in registered form without coupons in denominations of $50 and any integral multiple thereof./3/ As provided in the Indenture and subject to certain limitations therein set forth, Convertible Debentures are exchangeable for a like aggregate principal amount of Convertible Debentures of a different authorized denomination, as requested by the Holder surrendering the same. THE INDENTURE AND THE CONVERTIBLE DEBENTURES SHALL BE DEEMED TO BE CONTRACTS MADE AND TO BE PERFORMED ENTIRELY IN THE STATE OF NEW YORK, AND FOR ALL PURPOSES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF SAID STATE WITHOUT REGARD TO THE CONFLICTS OF LAW RULES OF SAID STATE. ______________________ /2/ This text will appear in the case of registered definitive certificates issued to Institutional Accredited Investors. /3/ This text will appear in the case of a Global Debenture. A-10 [FORM OF ELECTION TO CONVERT] ELECTION TO CONVERT To: McKesson Corporation The undersigned owner of this Convertible Debenture hereby irrevocably exercises the option to convert this Convertible Debenture, or the portion below designated, into Common Stock of McKESSON CORPORATION in accordance with the terms of the Indenture referred to in this Convertible Debenture, and directs that the shares issuable and deliverable upon conversion, together with any check in payment for fractional shares, be issued in the name of and delivered to the undersigned, unless a different name has been indicated in the assignment below. If shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. Date: _______________, ____ in whole _____ Portions of Convertible Debenture to be converted ($50 or integral multiples-thereof):$________________ _____________________________________________________ Signature (for conversion only) Please Print or Typewrite Name and Address, Including Zip Code, and Social Security or Other Identifying Number _____________________________________________________ _____________________________________________________ _____________________________________________________ Signature Guarantee:/4/ _____________________________ ___________________ /4/ Signature must be guaranteed by an "eligible guarantor institution" that is a bank, stockbroker, savings and loan association or credit union meeting the requirements of the Conversion Agent, which requirements include membership or participation in the Securities Transfer Agents Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Conversion Agent in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. A-11 ASSIGNMENT [FORM OF ASSIGNMENT FOR CONVERTIBLE DEBENTURES THAT ARE NOT GLOBAL DEBENTURES] For value received__________________________ hereby sell(s), assign(s) and transfer(s) unto _______________________________________________________________ (Please insert social security or other taxpayer identification number of assignee.) the within Convertible Debenture and hereby irrevocably constitutes and appoints _______ attorney to transfer the said Convertible Debenture on the books of the Company, with full power of substitution in the premises. In connection with any transfer of the within Convertible Debenture occurring prior to the Transfer Restriction Termination Date, the undersigned confirms that such Convertible Debenture is being transferred: [_] To McKesson Corporation or a subsidiary thereof; or [_] Pursuant to and in compliance with Rule 144A under the Securities Act of 1933, as amended; or [_] To an Institutional Accredited Investor pursuant to and in compliance with the Securities Act of 1933, as amended; or [_] Pursuant to and in compliance with Regulation S under the Securities Act of 1933, as amended; or [_] Pursuant to and in compliance with Rule 144 under the Securities Act of 1933, as amended; or [_] Pursuant to an effective registration statement. A-12 and unless the box below is checked, the undersigned confirms that such Convertible Debenture is not being transferred to an "affiliate" of the Company as defined in Rule 144 under the Securities Act of 1933, as amended (an "Affiliate"): [_] The transferee is an Affiliate of the Company. Dated: _____________________________ _____________________________ _____________________________ Signature(s) ____________________________________ Signature Guarantee /5/ NOTICE: The above signatures of the holder(s) hereof must correspond with the name as written upon the face of this Convertible Debenture in every particular without alteration or enlargement or any change whatever. ____________________ /5/ (Signature must be guaranteed by an "eligible guarantor institution," that is, a bank, stockbroker, savings and loan association or credit union meeting the requirements of the Registrar, which requirements include membership or participation in the Securities Transfer Agents Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.) A-13 [FORM OF SCHEDULE FOR ENDORSEMENTS ON GLOBAL DEBENTURES TO REFLECT CHANGES IN PRINCIPAL AMOUNT] Schedule A Changes to Principal Amount of Global Debentures Principal Amount of Convertible Debentures by which this Global Debenture is to be Reduced or Increased, Remaining Principal and Reason for Amount of this Date Reduction or Increase Global Debenture Notation Made By - - ------ ----------------------- --------------------- ------------------ A-14 EX-4.7 5 PREFERRED SECURITIES GUARANTEE AGREEMENT Exhibit 4.7 ----------- ________________________________________________________________________________ PREFERRED SECURITIES GUARANTEE AGREEMENT MCKESSON FINANCING TRUST Dated as of February 20, 1997 ________________________________________________________________________________ TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS AND INTERPRETATION SECTION 1.1 Definitions and Interpretation.......................................... 1 ARTICLE II TRUST INDENTURE ACT SECTION 2.1 Trust Indenture Act; Application........................................ 4 SECTION 2.2 Lists of Holders........................................................ 4 SECTION 2.3 Reports by the Preferred Guarantee Trustee.............................. 4 SECTION 2.4 Periodic Reports to Preferred Guarantee Trustee......................... 5 SECTION 2.5 Evidence of Compliance with Conditions Precedent........................ 5 SECTION 2.6 Events of Default; Waiver............................................... 5 SECTION 2.7 Event of Default; Notice................................................ 5 SECTION 2.8 Conflicting Interests................................................... 6 ARTICLE III POWERS, DUTIES AND RIGHTS OF PREFERRED GUARANTEE TRUSTEE SECTION 3.1 Powers and Duties of the Preferred Guarantee Trustee.................... 6 SECTION 3.2 Certain Rights of Preferred Guarantee Trustee........................... 7 SECTION 3.3 Not Responsible for Recitals or Issuance of Preferred Securities Guarantee............................................................... 9 ARTICLE IV PREFERRED GUARANTEE TRUSTEE SECTION 4.1 Preferred Guarantee Trustee: Eligibility................................ 10 SECTION 4.2 Appointment, Removal and Resignation of Preferred Guarantee Trustee....................................................... 10
i ARTICLE V GUARANTEE SECTION 5.1 Guarantee........................................ 11 SECTION 5.2 Waiver of Notice and Demand...................... 11 SECTION 5.3 Obligations Not Affected......................... 12 SECTION 5.4 Rights of Holders................................ 12 SECTION 5.5 Guarantee of Payment............................. 13 SECTION 5.6 Subrogation...................................... 13 SECTION 5.7 Independent Obligations.......................... 13 ARTICLE VI LIMITATION OF TRANSACTIONS; SUBORDINATION SECTION 6.1 Limitation of Transactions....................... 13 SECTION 6.2 Subordination.................................... 14 ARTICLE VII TERMINATION SECTION 7.1 Termination...................................... 14 ARTICLE VIII INDEMNIFICATION SECTION 8.1 Exculpation...................................... 15 SECTION 8.2 Indemnification.................................. 15 ARTICLE IX MISCELLANEOUS SECTION 9.1 Successors and Assigns........................... 16 SECTION 9.2 Amendments....................................... 16 SECTION 9.3 Notices.......................................... 16 SECTION 9.4 Benefit.......................................... 17 SECTION 9.5 Governing Law.................................... 17
ii [PRIOR TO THE TRANSFER RESTRICTION TERMINATION DATE (AS DEFINED IN THE DECLARATION), ANY CERTIFICATE EVIDENCING THIS PREFERRED SECURITIES GUARANTEE SHALL BEAR A LEGEND IN SUBSTANTIALLY THE FOLLOWING FORM, UNLESS OTHERWISE AGREED BY THE REGULAR TRUSTEES (WITH WRITTEN NOTICE TO THE INSTITUTIONAL TRUSTEE) PURSUANT TO SECTION 9.1(D) OF THE DECLARATION: THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) ("INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THE SECURITY EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION, (2) AGREES THAT IT WILL NOT PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION) RESELL OR OTHERWISE TRANSFER THE SECURITY EVIDENCED HEREBY OR THE COMMON STOCK ISSUABLE UPON CONVERSION OR EXCHANGE OF THIS SECURITY EXCEPT (A) TO McKESSON CORPORATION (THE "COMPANY") OR ANY SUBSIDIARY THEREOF, (B) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, (C) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (D) TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE FIRST NATIONAL BANK OF CHICAGO, AS TRUSTEE (OR, IF THIS CERTIFICATE EVIDENCES COMMON STOCK, THE TRANSFER AGENT FOR THE COMMON STOCK), A SIGNED LETTER CONTAINING CERTAIN REPRESEN TATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM SUCH TRUSTEE OR TRANSFER AGENT), (E) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT OR (F) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE SECURITY EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THE SECURITY EVIDENCED HEREBY PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE FIRST NATIONAL BANK OF CHICAGO, AS TRUSTEE (OR, IF THIS CERTIFICATE EVIDENCES COMMON STOCK, SUCH HOLDER MUST FURNISH TO THE TRANSFER AGENT SUCH CERTIFICATIONS, LEGAL iii OPINIONS OR OTHER INFORMATION AS THE COMPANY OR McKESSON FINANCING TRUST (THE "TRUST") MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT). IF THIS CERTIFICATE DOES NOT EVIDENCE COMMON STOCK AND IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR OR A PURCHASER WHO IS NOT A U.S. PERSON, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE FIRST NATIONAL BANK OF CHICAGO, AS TRUSTEE, SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE COMPANY OR THE TRUST MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND WILL BE REMOVED AFTER THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.] iv PREFERRED SECURITIES GUARANTEE AGREEMENT This GUARANTEE AGREEMENT (the "Preferred Securities Guarantee"), dated as of February 20, 1997, is executed and delivered by McKesson Corporation, a Delaware corporation (the "Guarantor"), and The First National Bank of Chicago, as trustee (the "Preferred Guarantee Trustee"), for the benefit of the Holders (as defined herein) from time to time of the Preferred Securities (as defined herein) of McKesson Financing Trust, a Delaware statutory business trust (the "Issuer"). WHEREAS, pursuant to an Amended and Restated Declaration of Trust (the "Declaration"), dated as of February 20, 1997, among the trustees of the Issuer named therein, the Guarantor, as sponsor, and the holders from time to time of undivided beneficial interests in the assets of the Issuer, the Issuer is issuing on the date hereof up to 4,000,000 preferred securities (the "Preferred Securities"), having a liquidation amount of $50 per Preferred Security designated the 5% Trust Convertible Preferred Securities. WHEREAS, as incentive for the Holders to purchase the Preferred Securities, the Guarantor desires irrevocably and unconditionally to agree, to the extent set forth in this Preferred Securities Guarantee, to pay to the Holders of the Preferred Securities the Guarantee Payments (as defined herein) and to make certain other payments on the terms and conditions set forth herein. WHEREAS, as of the date hereof, the Guarantor is also executing and delivering a guarantee agreement (the "Common Securities Guarantee") in substantially identical terms to this Preferred Securities Guarantee for the benefit of the holders of the Common Securities (as defined herein), except that if an Event of Default (as defined in the Indenture), has occurred and is continuing, the rights of holders of the Common Securities to receive Guarantee Payments under the Common Securities Guarantee are subordinated to the rights of Holders of Preferred Securities to receive Guarantee Payments under this Preferred Securities Guarantee. NOW, THEREFORE, in consideration of the purchase by each Holder of Preferred Securities, which purchase the Guarantor hereby agrees shall benefit the Guarantor, the Guarantor executes and delivers this Preferred Securities Guarantee for the benefit of the Holders. ARTICLE I DEFINITIONS AND INTERPRETATION SECTION 1.1 Definitions and Interpretation. In this Preferred Securities Guarantee, unless the context otherwise requires: (a) Capitalized terms used in this Preferred Securities Guarantee but not defined in the preamble above have the respective meanings assigned to them in this Section 1.1; (b) terms defined in the Declaration as at the date of execution of this Preferred Securities Guarantee have the same meaning when used in this Preferred Securities Guarantee unless otherwise defined in this Preferred Securities Guarantee; (c) a term defined anywhere in this Preferred Securities Guarantee has the same meaning throughout; (d) all references to "the Preferred Securities Guarantee" or "this Preferred Securities Guarantee" are to this Preferred Securities Guarantee as modified, supplemented or amended from time to time; (e) all references in this Preferred Securities Guarantee to Articles and Sections are to Articles and Sections of this Preferred Securities Guarantee, unless otherwise specified; term defined in the Trust Indenture Act has the same meaning when used in this Preferred Securities Guarantee, unless otherwise defined in this Preferred Securities Guarantee or unless the context otherwise requires; and (f) a reference to the singular includes the plural and vice versa. "Authorized Officer" of a Person means any Person that is authorized to legally bind such Person provided, however, that the Authorized Officer signing an Officers' Certificate given pursuant to Section 314(a)(4) of the Trust Indenture Act shall be the principal executive, financial or accounting officer of such Person. "Common Securities" means the securities representing common undivided beneficial interests in the assets of the Issuer. "Corporate Trust Office" means the office of the Preferred Guarantee Trustee at which the corporate trust business of the Preferred Guarantee Trustee shall, at any particular time, be principally administered, which office at the date of execution of this Agreement is located at One First National Plaza, Suite 0126, Chicago, Illinois 60670-0126, Attention: Corporate Trust Services Division. "Covered Person" means any Holder or beneficial owner of Preferred Securities. "Event of Default" means (a) a failure by the Guarantor to perform any of its payment or other obligations under this Preferred Securities Guarantee or (b) if applicable, the failure by the Guarantor to deliver Common Stock upon an appropriate election by a Holder of Preferred Securities to convert the Preferred Securities into shares of Common Stock. "Guarantee Payments" means the following payments or distributions, without duplication, with respect to the Preferred Securities, to the extent not paid or made by the Issuer: (i) any accrued and unpaid Distributions (as defined in the Declaration) that are required to be paid on such Preferred Securities to the extent the Issuer shall have funds available therefor, (ii) the redemption price (the "Redemption Price"), and all accrued and unpaid Distributions to the date of redemption, to the extent the Issuer has funds available therefor, with respect to any 2 Preferred Securities called for redemption by the Issuer, and (iii) upon a voluntary or involuntary dissolution, winding-up or termination of the Issuer (other than in connection with the redemption of all of the Preferred Securities or the distribution of Debentures to the Holders in exchange for Preferred Securities as provided in the Declaration), the lesser of (a) the aggregate of the liquidation amount and all accrued and unpaid Distributions on the Preferred Securities to the date of payment, to the extent the Issuer shall have funds available therefor, and (b) the amount of assets of the Issuer remaining available for distribution to Holders of Preferred Securities then outstanding upon the liquidation of the Issuer (in either case, the "Liquidation Distribution"). If an Event of Default (as defined in the Indenture) has occurred and is continuing, the rights of holders of the Common Securities to receive payments under the Common Securities Guarantee Agreement are subordinated to the rights of Holders of Preferred Securities to receive Guarantee Payments. "Holder" shall mean any holder, as registered on the books and records of the Issuer, of any Preferred Securities; provided, however, that, in determining whether the holders of the requisite percentage of Preferred Securities have given any request, notice, consent or waiver hereunder, "Holder" shall not include the Guarantor or any Affiliate of the Guarantor. "Indemnified Person" means the Preferred Guarantee Trustee, any Affiliate of the Preferred Guarantee Trustee, or any officers, directors, shareholders, members, partners, employees, representatives, nominees, custodians or agents of the Preferred Guarantee Trustee. "Indenture" means the Indenture dated as of February 20, 1997, between the Guarantor (the "Debenture Issuer") and The First National Bank of Chicago, as trustee. "Majority in liquidation amount of the Preferred Securities" means, except as provided in the terms of the Convertible Preferred Securities, or except as provided by the Trust Indenture Act, a vote by Holder(s), voting separately as a class, of more than 50% of the liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accrued and unpaid Distributions to the date upon which the voting percentages are determined) of all Preferred Securities. "Preferred Guarantee Trustee" means The First National Bank of Chicago, until a Successor Preferred Guarantee Trustee has been appointed and has accepted such appointment pursuant to the terms of this Preferred Securities Guarantee and thereafter means each such Successor Preferred Guarantee Trustee. "Responsible Officer" means, with respect to the Preferred Guarantee Trustee, any officer within the Corporate Trust Office of the Preferred Guarantee Trustee, including any vice president, any assistant vice president, any assistant secretary, the treasurer, any assistant treasurer or other officer of the Corporate Trust Office of the Preferred Guarantee Trustee customarily performing functions similar to those performed by any of the above designated officers, and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of that officer's knowledge of and familiarity with the particular subject. 3 "Successor Preferred Guarantee Trustee" means a successor Preferred Guarantee Trustee possessing the qualifications to act as Preferred Guarantee Trustee under Section 4.1. "Trust Securities" means the Common Securities and the Preferred Securities. ARTICLE II TRUST INDENTURE ACT SECTION 2.1 Trust Indenture Act; Application. (a) Upon its public offering pursuant to the registration requirements of the Securities Act, this Preferred Securities Guarantee will be subject to the provisions of the Trust Indenture Act that will be required to be part of this Preferred Securities Guarantee and shall, to the extent applicable, be governed by such provisions; and (b) if and to the extent that any provision of this Preferred Securities Guarantee limits, qualifies or conflicts with the duties imposed by Sections 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties shall control. SECTION 2.2 Lists of Holders. (a) The Guarantor shall provide the Preferred Guarantee Trustee with a list, in such form as the Preferred Guarantee Trustee may reasonably require, of the names and addresses of the Holders ("List of Holders") (i) within 14 days after each record date for payment of Distributions, as of such record date, and (ii) at any other time, within 30 days of receipt by the Guarantor of a written request for a List of Holders as of a date no more than 14 days before such List of Holders is given to the Preferred Guarantee Trustee, provided that the Guarantor shall not be obligated to provide such List of Holders at any time the List of Holders does not differ from the most recent List of Holders given to the Preferred Guarantee Trustee by the Guarantor. The Preferred Guarantee Trustee may destroy any List of Holders previously given to it on receipt of a new List of Holders. (b) The Preferred Guarantee Trustee shall comply with its obligations under Sections 311(a), 311(b) and Section 312(b) of the Trust Indenture Act. SECTION 2.3 Reports by the Preferred Guarantee Trustee. Within 60 days after May 15 of each year, the Preferred Guarantee Trustee shall provide to the Holders such reports as are required by Section 313 of the Trust Indenture Act, if any, in the form and in the manner provided by Section 313 of the Trust Indenture Act. The Preferred Guarantee Trustee shall also comply with the requirements of Section 313(d) of the Trust Indenture Act. 4 SECTION 2.4 Periodic Reports to Preferred Guarantee Trustee. The Guarantor shall provide to the Preferred Guarantee Trustee such documents, reports and information (if any) as are required by Section 314 and the compliance certificate required by Section 314 of the Trust Indenture Act in the form, the manner and at the times required by Section 314 of the Trust Indenture Act. Delivery of such reports, information and documents to the Preferred Guarantee Trustee is for informational purposes only and the Preferred Guarantee Trustee's receipt of such shall not constitute constructive notice of any information contained therein, including the Guarantor's compliance with any of its covenants hereunder (as to which the Preferred Guarantee Trustee is entitled to rely exclusively on Officers' Certificates). SECTION 2.5 Evidence of Compliance with Conditions Precedent. The Guarantor shall provide to the Preferred Guarantee Trustee such evidence of compliance with any conditions precedent, if any, provided for in this Preferred Securities Guarantee that relate to any of the matters set forth in Section 314(c) of the Trust Indenture Act. Any certificate or opinion required to be given by an officer pursuant to Section 314(c)(1) may be given in the form of an Officers' Certificate. SECTION 2.6 Events of Default; Waiver. The Holders of a Majority in liquidation amount of Preferred Securities may, by vote, on behalf of the Holders of all of the Preferred Securities, waive any past Event of Default and its consequences. Upon such waiver, any such Event of Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Preferred Securities Guarantee, but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon. SECTION 2.7 Event of Default; Notice. (a) The Preferred Guarantee Trustee shall, within 90 days after the occurrence of an Event of Default actually known to a Responsible Officer of the Preferred Guarantee Trustee, transmit by mail, first class postage prepaid, to the Holders, notices of all such Events of Default unless such defaults have been cured before the giving of such notice, provided that the Preferred Guarantee Trustee shall be protected in withholding such notice if and so long as a Responsible Officer of the Preferred Guarantee Trustee in good faith determines that the withholding of such notice is in the interests of the Holders. (b) The Preferred Guarantee Trustee shall not be deemed to have knowledge of any Event of Default unless the Preferred Guarantee Trustee shall have received written notice thereof, or a Responsible Officer of the Preferred Guarantee Trustee charged with the administration of this Preferred Securities Guarantee shall have obtained actual knowledge thereof. 5 SECTION 2.8 Conflicting Interests. The Declaration shall be deemed to be specifically described in this Preferred Securities Guarantee for the purposes of clause (i) of the first proviso contained in Section 310(b) of the Trust Indenture Act. ARTICLE III POWERS, DUTIES AND RIGHTS OF PREFERRED GUARANTEE TRUSTEE SECTION 3.1 Powers and Duties of the Preferred Guarantee Trustee. (a) This Preferred Securities Guarantee shall be held by the Preferred Guarantee Trustee for the benefit of the Holders and the Preferred Guarantee Trustee shall not transfer this Preferred Securities Guarantee to any Person except a Holder exercising his or her rights pursuant to Section 5.4(b) or to a Successor Preferred Guarantee Trustee on acceptance by such Successor Preferred Guarantee Trustee of its appointment to act as Successor Preferred Guarantee Trustee. The right, title and interest of the Preferred Guarantee Trustee shall automatically vest in any Successor Preferred Guarantee Trustee, and such vesting and succession of title shall be effective whether or not conveyancing documents have been executed and delivered pursuant to the appointment of such Successor Preferred Guarantee Trustee. (b) If an Event of Default actually known to a Responsible Officer of the Preferred Guarantee Trustee has occurred and is continuing, the Preferred Guarantee Trustee shall enforce this Preferred Securities Guarantee for the benefit of the Holders. (c) The Preferred Guarantee Trustee, before the occurrence of any Event of Default and after the curing of all Events of Default that may have occurred, shall undertake to perform only such duties as are specifically set forth in this Preferred Securities Guarantee, and no implied covenants shall be read into this Preferred Securities Guarantee against the Preferred Guarantee Trustee. In case an Event of Default has occurred (that has not been cured or waived pursuant to Section 2.6) and is actually known to a Responsible Officer of the Preferred Guarantee Trustee, the Preferred Guarantee Trustee shall exercise such of the rights and powers vested in it by this Preferred Securities Guarantee, and shall use the same degree of care and skill in its exercise thereof as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. (d) No provision of this Preferred Securities Guarantee shall be construed to relieve the Preferred Guarantee Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) prior to the occurrence of any Event of Default and after the curing or waiving of all such Events of Default that may have occurred: 6 (A) the duties and obligations of the Preferred Guarantee Trustee shall be determined solely by the express provisions of this Preferred Securities Guarantee, and the Preferred Guarantee Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Preferred Securities Guarantee, and no implied covenants or obligations shall be read into this Preferred Securities Guarantee against the Preferred Guarantee Trustee; and (B) in the absence of bad faith on the part of the Preferred Guarantee Trustee, the Preferred Guarantee Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Preferred Guarantee Trustee and con forming to the requirements of this Preferred Securities Guarantee; but in the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Preferred Guarantee Trustee, the Preferred Guarantee Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Preferred Securities Guarantee; (ii) the Preferred Guarantee Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Preferred Guarantee Trustee, unless it shall be proved that the Preferred Guarantee Trustee was negligent in ascertaining the pertinent facts upon which such judgment was made; (iii) the Preferred Guarantee Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than a Majority in liquidation amount of the Preferred Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Preferred Guarantee Trustee, or exercising any trust or power conferred upon the Preferred Guarantee Trustee under this Preferred Securities Guarantee; and (iv) no provision of this Preferred Securities Guarantee shall require the Preferred Guarantee Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if the Preferred Guarantee Trustee shall have reasonable grounds for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Preferred Securities Guarantee or indemnity, reasonably satisfactory to the Preferred Guarantee Trustee, against such risk or liability is not reasonably assured to it. 7 SECTION 3.2 Certain Rights of Preferred Guarantee Trustee. (a) Subject to the provisions of Section 3.1: (i) The Preferred Guarantee Trustee may conclusively rely, and shall be fully protected in acting or refraining from acting upon, any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed, sent or presented by the proper party or parties. (ii) Any direction or act of the Guarantor contemplated by this Preferred Securities Guarantee shall be sufficiently evidenced by an Officers' Certificate. (iii) Whenever, in the administration of this Preferred Securities Guarantee, the Preferred Guarantee Trustee shall deem it desirable that a matter be proved or established before taking, suffering or omitting any action hereunder, the Preferred Guarantee Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part, request and conclusively rely upon an Officers' Certificate which, upon receipt of such request, shall be promptly delivered by the Guarantor. (iv) The Preferred Guarantee Trustee shall have no duty to see to any recording, filing or registration of any instrument (or any rerecording, refiling or re-registration thereof). (v) The Preferred Guarantee Trustee may consult with counsel of its selection, and the advice or opinion of such counsel with respect to legal matters shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with such advice or opinion. Such counsel may be counsel to the Guarantor or any of its Affiliates and may include any of its employees. The Preferred Guarantee Trustee shall have the right at any time to seek instructions concerning the administration of this Preferred Securities Guarantee from any court of competent jurisdiction. (vi) The Preferred Guarantee Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Preferred Securities Guarantee at the request or direction of any Holder, unless such Holder shall have provided to the Preferred Guarantee Trustee such security and indemnity, reasonably satisfactory to the Preferred Guarantee Trustee, against the costs, expenses (including attorneys' fees and expenses and the expenses of the Preferred Guarantee Trustee's agents, nominees or custodians) and liabilities that might be incurred by it in complying with such request or direction, including such reasonable advances as may be requested by the Preferred Guarantee Trustee; provided that nothing contained in this Section 3.2(a)(vi) shall be taken to relieve the Preferred Guarantee Trustee, upon the occurrence of an Event of Default, of its obligation to exercise the rights and powers vested in it by this Preferred Securities Guarantee. 8 (vii) The Preferred Guarantee Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Preferred Guarantee Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit. (viii) The Preferred Guarantee Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents, nominees, custodians or attorneys, and the Preferred Guarantee Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder. (ix) Any action taken by the Preferred Guarantee Trustee or its agents hereunder shall bind the Holders and the signature of the Preferred Guarantee Trustee or its agents alone shall be sufficient and effective to perform any such action. No third party shall be required to inquire as to the authority of the Preferred Guarantee Trustee to so act or as to its compliance with any of the terms and provisions of this Preferred Securities Guarantee, both of which shall be conclusively evidenced by the Preferred Guarantee Trustee's or its agent's taking such action. (x) Whenever in the administration of this Preferred Securities Guarantee the Preferred Guarantee Trustee shall deem it desirable to receive instructions with respect to enforcing any remedy or right or taking any other action hereunder, the Preferred Guarantee Trustee (i) may request instructions from the Holders of a Majority in liquidation amount of the Preferred Securities, (ii) may refrain from enforcing such remedy or right or taking such other action until such instructions are received, and (iii) shall be protected in conclusively relying on or acting in accordance with such instructions. (xi) The Preferred Securities Trustee shall not be liable for any action taken, suffered, or omitted to be taken by it in good faith and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Preferred Securities Guarantee. (b) No provision of this Preferred Securities Guarantee shall be deemed to impose any duty or obligation on the Preferred Guarantee Trustee to perform any act or acts or exercise any right, power, duty or obligation conferred or imposed on it in any jurisdiction in which it shall be illegal, or in which the Preferred Guarantee Trustee shall be unqualified or incompetent in accordance with applicable law, to perform any such act or acts or to exercise any such right, power, duty or obligation. No permissive power or authority available to the Preferred Guarantee Trustee shall be construed to be a duty. 9 SECTION 3.3 Not Responsible for Recitals or Issuance of Preferred Securities Guarantee. The recitals contained in this Preferred Securities Guarantee shall be taken as the statements of the Guarantor, and the Preferred Guarantee Trustee does not assume any responsibility for their correctness. The Preferred Guarantee Trustee makes no representation as to the validity or sufficiency of this Preferred Securities Guarantee. ARTICLE IV PREFERRED GUARANTEE TRUSTEE SECTION 4.1 Preferred Guarantee Trustee: Eligibility. (a) There shall at all times be a Preferred Guarantee Trustee which shall: (i) not be an Affiliate of the Guarantor; and (ii) be a corporation organized and doing business under the laws of the United States of America or any State or Territory thereof or of the District of Columbia, or a corporation or Person permitted by the Securities and Exchange Commission to act as an institutional trustee under the Trust Indenture Act, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least 50 million U.S. dollars ($50,000,000), and subject to supervision or examination by federal, state, territorial or District of Columbia authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the supervising or examining authority referred to above, then, for the purposes of this Section 4.1(a)(ii), the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. (b) If at any time the Preferred Guarantee Trustee shall cease to be eligible to so act under Section 4.1(a), the Preferred Guarantee Trustee shall immediately resign in the manner and with the effect set out in Section 4.2(c). (c) If the Preferred Guarantee Trustee has or shall acquire any "conflicting interest" within the meaning of Section 310(b) of the Trust Indenture Act, the Preferred Guarantee Trustee and Guarantor shall in all respects comply with the provisions of Section 310(b) of the Trust Indenture Act. SECTION 4.2 Appointment, Removal and Resignation of Preferred Guarantee Trustee. (a) Subject to Section 4.2(b), the Preferred Guarantee Trustee may be appointed or removed without cause at any time by the Guarantor. 10 (b) The Preferred Guarantee Trustee shall not be removed in accordance with Section 4.2(a) until a Successor Preferred Guarantee Trustee has been appointed and has accepted such appointment by written instrument executed by such Successor Preferred Guarantee Trustee and delivered to the Guarantor. (c) The Preferred Guarantee Trustee appointed to office shall hold office until a Successor Preferred Guarantee Trustee shall have been appointed or until its removal or resignation. The Preferred Guarantee Trustee may resign from office (without need for prior or subsequent accounting) by an instrument in writing executed by the Preferred Guarantee Trustee and delivered to the Guarantor, which resignation shall not take effect until a Successor Preferred Guarantee Trustee has been appointed and has accepted such appointment by instrument in writing executed by such Successor Preferred Guarantee Trustee and delivered to the Guarantor and the resigning Preferred Guarantee Trustee. (d) If no Successor Preferred Guarantee Trustee shall have been appointed and accepted appointment as provided in this Section 4.2 within 60 days after delivery of an instrument of resignation or removal, the Preferred Guarantee Trustee resigning or being removed may petition any court of competent jurisdiction for appointment of a Successor Preferred Guarantee Trustee. Such court may thereupon, after prescribing such notice, if any, as it may deem proper, appoint a Successor Preferred Guarantee Trustee. (e) No Preferred Guarantee Trustee shall be liable for the acts or omissions to act of any Successor Preferred Guarantee Trustee. (f) Upon termination of this Preferred Securities Guarantee or removal or resignation of the Preferred Guarantee Trustee pursuant to this Section 4.2, the Guarantor shall pay to the Preferred Guarantee Trustee all amounts accrued to the date of such termination, removal or resignation. ARTICLE V GUARANTEE SECTION 5.1 Guarantee. The Guarantor irrevocably and unconditionally agrees to pay in full to the Holders the Guarantee Payments (without duplication of amounts theretofore paid by the Issuer), as and when due, regardless of any defense, right of set-off or counterclaim that the Issuer may have or assert. The Guarantor's obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by the Guarantor to the Holders or by causing the Issuer to pay such amounts to the Holders. The Guarantor will honor all obligations relating to the conversion of the Preferred Securities into the Common Stock of the Guarantor as set forth in the Declaration and the Indenture. 11 SECTION 5.2 Waiver of Notice and Demand. The Guarantor hereby waives notice of acceptance of this Preferred Securities Guarantee and of any liability to which it applies or may apply, presentment, demand for payment, any right or remedy to require a proceeding first against the Issuer or any other Person before proceeding directly against the Guarantor, protest, notice of nonpayment, notice of dishonor, notice of redemption and all other notices and demands. SECTION 5.3 Obligations Not Affected. The obligations, covenants, agreements and duties of the Guarantor under this Preferred Securities Guarantee shall in no way be affected or impaired by reason of the happening from time to time of any of the following: (a) the release or waiver, by operation of law or otherwise, of the performance or observance by the Issuer of any express or implied agreement, covenant, term or condition relating to the Preferred Securities to be performed or observed by the Issuer; (b) the extension of time for the payment by the Issuer of all or any portion of the Distributions, Redemption Price, Liquidation Distribution or any other sums payable under the terms of the Preferred Securities or the extension of time for the performance of any other obligation under, arising out of, or in connection with, the Preferred Securities (other than an extension of time for payment of Distributions, Redemption Price, Liquidation Distribution or other sum payable that results from the extension of any interest payment period on the Debentures); (c) any failure, omission, delay or lack of diligence on the part of the Holders to enforce, assert or exercise any right, privilege, power or remedy conferred on the Holders pursuant to the terms of the Preferred Securities, or any action on the part of the Issuer granting indulgence or extension of any kind; (d) the voluntary or involuntary liquidation, dissolution, sale of any collateral, receiver ship, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of debt of, or other similar proceedings affecting, the Issuer or any of the assets of the Issuer; (e) any invalidity of, or defect or deficiency in, the Preferred Securities; (f) the settlement or compromise of any obligation guaranteed hereby or hereby incurred; or (g) any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a guarantor, it being the intent of this Section 5.3 that the obligations of the Guarantor hereunder shall be absolute and unconditional under any and all circumstances. 12 There shall be no obligation of the Holders to give notice to, or obtain consent of, the Guarantor with respect to the happening of any of the foregoing. SECTION 5.4 Rights of Holders. (a) The Holders of a Majority in liquidation amount of the Preferred Securities then outstanding have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Preferred Guarantee Trustee in respect of this Preferred Securities Guarantee or to direct the exercise of any trust or power conferred upon the Preferred Guarantee Trustee under this Preferred Securities Guarantee. (b) If the Preferred Guarantee Trustee fails to enforce this Preferred Securities Guarantee, any Holder of Preferred Securities may institute a legal proceeding directly against the Guarantor to enforce the Preferred Guarantee Trustee's rights under this Preferred Securities Guarantee, without first instituting a legal proceeding against the Issuer, the Preferred Guarantee Trustee or any other person or entity. The Guarantor waives any right or remedy to require that any action be brought first against the Issuer or any other person or entity before proceeding directly against the Guarantor. Notwithstanding the foregoing, if the Guarantor has failed to make a guarantee payment, a Holder of Preferred Securities may directly institute a proceeding against the Guarantor for enforcement of this Preferred Securities Guarantee for such payment. SECTION 5.5 Guarantee of Payment. This Preferred Securities Guarantee creates a guarantee of payment and not of collection. SECTION 5.6 Subrogation. The Guarantor shall be subrogated to all (if any) rights of the Holders of Preferred Securities against the Issuer in respect of any amounts paid to such Holders by the Guarantor under this Preferred Securities Guarantee; provided, however, that the Guarantor shall not (except to the extent required by mandatory provisions of law) be entitled to enforce or exercise any right that it may acquire by way of subrogation or any indemnity, reimbursement or other agreement, in all cases as a result of payment under this Preferred Securities Guarantee, if, at the time of any such payment, any amounts are due and unpaid under this Preferred Securities Guarantee. If any amount shall be paid to the Guarantor in violation of the preceding sentence, the Guarantor agrees to hold such amount in trust for the Holders and to pay over such amount to the Holders. SECTION 5.7 Independent Obligations. The Guarantor acknowledges that its obligations hereunder are independent of the obligations of the Issuer with respect to the Preferred Securities, and that the Guarantor shall be liable as principal and as debtor hereunder to make Guarantee Payments pursuant to the terms of this Preferred Securities Guarantee notwithstanding the occurrence of any event referred to in subsections (a) through (g), inclusive, of Section 5.3 hereof. 13 ARTICLE VI LIMITATION OF TRANSACTIONS; SUBORDINATION SECTION 6.1 Limitation of Transactions. So long as any Preferred Securities remain outstanding, if (i) the Guarantor has exercised its option to defer interest payments on the Debentures by extending the interest payment period and such extension period, or any extension thereof, shall be continuing, (ii) the Guarantor shall be in default with respect to its payment or other obligations under this Preferred Securities Guarantee or (iii) there shall have occurred and be continuing an Event of Default under the Declaration or any event that, with the giving of notice or lapse of time or both, would constitute an Event of Default under the Declaration, then the Guarantor shall not (a) declare or pay any dividend on, make any distributions with respect to, or redeem, purchase, acquire, or make any liquidation payment with respect to, any of its capital stock or (b) make any payment of interest, principal or premium, if any, on or repay, repurchase or redeem any debt securities of the Guarantor that rank pari passu with or junior in interest to the Debentures or make any guarantee payment with respect to any guarantee by the Guarantor of the debt securities of any subsidiary of the Guarantor if such guarantee ranks pari passu with or junior in interest to the Debentures (other than (i) as a result of a reclassification of the capital stock of the Guarantor or the exchange or conversion of one class or series of the capital stock of the Guarantor for another class or series of the capital stock of the Guarantor, (ii) the purchase of fractional interests in shares of the capital stock of the Guarantor pursuant to the conversion or exchange provisions of such capital stock or the security being converted into or exchanged for such capital stock, (iii) dividends or distributions in Common Stock of the Guarantor, (iv) any declaration of a dividend in connection with the implementation of a stockholders' rights plan, or the issuance of stock under any such plan in the future, or the redemption or repurchase of any such rights pursuant thereto, (v) payments under the Guarantee and Common Securities Guarantee, (vi) purchases of Common Stock of the Guarantor related to the issuance of Common Stock of the Guarantor or rights under any of the Guarantor's benefit plans for its directors, officers or employees and (vii) obligations under any dividend reinvestment and stock purchase plans). SECTION 6.2 Subordination. This Preferred Securities Guarantee will constitute an unsecured obligation of the Guarantor and will rank (i) subordinate and junior in right of payment to all other liabilities of the Guarantor (except any liabilities that may be pari passu expressly by their terms), (ii) pari passu with the most senior preferred or preference stock now or hereafter issued by the Guarantor and with any guaranty now or hereafter entered into by the Guarantor in respect of any preferred or preference stock of any Affiliate of the Guarantor and (iii) senior to the Guarantor's common stock. 14 ARTICLE VII TERMINATION SECTION 7.1 Termination. This Preferred Securities Guarantee shall terminate as to each Holder upon (i) full payment of the Redemption Price and accrued and unpaid distributions with respect to all Preferred Securities, (ii) the distribution of the Common Stock to such Holder upon the conversion of such Holder's Preferred Securities into the Common Stock, (iii) the distribution of the Debentures to the Holders of the Preferred Securities or (iv) full payment of the amounts payable in accordance with the Declaration upon liquidation of the Issuer. This Preferred Securities Guarantee shall terminate completely upon full payment of the amounts payable in accordance with the Declaration. Notwithstanding the foregoing, this Preferred Securities Guarantee will continue to be effective or will be reinstated, as the case may be, if at any time any Holder must restore payment of any sum paid under the Preferred Securities or under this Preferred Securities Guarantee. ARTICLE VIII INDEMNIFICATION SECTION 8.1 Exculpation. (a) No Indemnified Person shall be liable, responsible or accountable in damages or otherwise to the Guarantor or any Covered Person for any loss, damage, liability, expense or claim incurred by reason of any act or omission performed or omitted by such Indemnified Person in good faith in accordance with this Preferred Securities Guarantee and in a manner that such Indemnified Person reasonably believed to be within the scope of the authority conferred on such Indemnified Person by this Preferred Securities Guarantee or by law, except that an Indemnified Person shall be liable for any such loss, damage or claim incurred by reason of such Indemnified Person's negligence or willful misconduct with respect to such acts or omissions. (b) An Indemnified Person shall be fully protected in relying in good faith upon the records of the Guarantor and upon such information, opinions, reports or statements presented to the Guarantor by any Person as to matters the Indemnified Person reasonably believes are within such other Person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Guarantor, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits, losses or any other facts pertinent to the existence and amount of assets from which Distributions to Holders might properly be paid. 15 SECTION 8.2 Indemnification. The Guarantor agrees to indemnify each Indemnified Person for, and to hold each Indemnified Person harmless against, any loss, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including the costs and expenses (including reasonable legal fees and expenses) of defending itself against, or investigating, any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. The provisions of this Section 8.2 shall survive the termination of this Preferred Securities Guarantee or the resignation or removal of the Preferred Guarantee Trustee. When the Preferred Guarantee Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 5.1(d) or Section 5.1(e) of the Indenture, the expenses (including the reasonable charges and expenses of its counsel) and the compensation for services are intended to constitute expenses of administration under any applicable federal or state bankruptcy, insolvency or other similar law. ARTICLE IX MISCELLANEOUS SECTION 9.1 Successors and Assigns. All guarantees and agreements contained in this Preferred Securities Guarantee shall bind the successors, assigns, receivers, trustees and representatives of the Guarantor and shall inure to the benefit of the Holders of the Preferred Securities then outstanding. Except in connection with any merger or consolidation of the Guarantor with or into another entity permitted by Section 9.1 of the Indenture or any sale, transfer or lease of the Guarantor's assets to another entity permitted by Section 9.1 of the Indenture, the Guarantor may not assign its rights or delegate its obligations under this Preferred Securities Guarantee without the prior approval of the holders of at least a Majority in liquidation amount of the Preferred Securities then outstanding. SECTION 9.2 Amendments. Except with respect to any changes that do not adversely affect the rights of Holders (in which case no consent of Holders will be required), this Preferred Securities Guarantee may only be amended with the prior approval of the Holders of at least a Majority in liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accrued and unpaid Distributions to the date upon which the voting percentages are determined) of the Preferred Securities then outstanding. The provisions of Section 12.2 of the Declaration with respect to meetings of Holders apply to the giving of such approval. 16 SECTION 9.3 Notices. All notices provided for in this Preferred Securities Guarantee shall be in writing, duly signed by the party giving such notice, and shall be delivered, telecopied or mailed by first class mail, as follows: (a) If given to the Preferred Guarantee Trustee, at the Preferred Guarantee Trustee's mailing address set forth below (or such other address as the Preferred Guarantee Trustee may give notice of to the Holders of the Preferred Securities): The First National Bank of Chicago One First National Plaza, Suite 0126 Chicago, Illinois 60670-0126 Attention: Corporate Trust Services Division (b) If given to the Guarantor, at the Guarantor's mailing address set forth below (or such other address as the Guarantor may give notice of to the Holders of the Preferred Securities): McKesson Corporation McKesson Plaza One Post Street San Francisco, California 94104 Attention: General Counsel (c) If given to any Holder of Preferred Securities, at the address set forth on the books and records of the Issuer. All such notices shall be deemed to have been given when received in person, telecopied with receipt confirmed, or mailed by first class mail, postage prepaid, except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver. SECTION 9.4 Benefit. This Preferred Securities Guarantee is solely for the benefit of the Holders of the Preferred Securities and, subject to Section 3.1(a), is not separately transferable from the Preferred Securities. 17 SECTION 9.5 Governing Law. THIS PREFERRED SECURITIES GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES THEREOF. 18 THIS PREFERRED SECURITIES GUARANTEE is executed as of the day and year first above written. McKESSON CORPORATION, as Guarantor By: /s/ Ivan D. Meyerson -------------------------------- Name: Ivan D. Meyerson Title: Vice President THE FIRST NATIONAL BANK OF CHICAGO, as Preferred Guarantee Trustee By: /s/ Richard D. Manella -------------------------------- Name: Richard D. Manella Title: Vice President 19 EX-5.1 6 OPINION OF SKADDEN, ARPS, SLATE, MEAGHER & FLOM EXHIBIT 5.1 [LETTERHEAD OF SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP] May 2, 1997 McKesson Corporation McKesson Financing Trust c/o McKesson Corporation McKesson Plaza One Post Street San Francisco, CA 94104 Ladies and Gentlemen: We have acted as special counsel to McKesson Corporation, a Delaware corporation (the "Company"), and McKesson Financing Trust, a business trust formed under the Business Trust Act of the State of Delaware (Chapter 38, Title 12, of the Delaware Code, 12 Del. L. Sec. 3801 et. seq.) (the "Trust"), in connection with the preparation of the Registration Statement on Form S-3 (such Registration Statement being hereinafter referred to as the "Registration Statement") to be filed by the Company and the Trust with the Securities and Exchange Commission (the "Commission") on the date hereof with respect to the registration under the Securities Act of 1933, as amended (the "Act"), (i) by the Trust of 4,000,000 5% Trust Convertible Preferred Securities (the "Convertible Preferred Securities"); (ii) by the Company of its guarantee of payments of cash distributions and payments on liquidation of the Trust or redemption of the Convertible Preferred Securities pursuant to the Preferred Securities Guarantee Agreement (the "Guarantee Agreement"), (iii) by the Company of $200,000,000 aggregate principal amount of its 5% Convertible Subordinated Debentures due June 1, 2027 (the "Convertible Subordinated Debentures") and (iv) by the Company of such number of shares of common stock of the Company, par value $0.01 per share ("Company Common Stock"), as are issuable upon conversion of the Convertible Subordinated Debentures and such indeterminate number of shares of Company Common Stock as may be issuable pursuant to certain anti- dilution adjustments. The Convertible Preferred Securities were issued pursuant to the Amended and Restated Declaration of Trust of the Trust, dated as of February 20, 1997 (the "Declaration"), among William A. Armstrong and Ivan D. Meyerson, as regular trustees, The First National Bank of Chicago, as McKesson Corporation McKesson Financing Trust May 2, 1997 Page 2 trustee (the "Institutional Trustee"), First Chicago Delaware Inc., as Delaware trustee and the Company, as sponsor. This opinion is being furnished in accordance with the requirements of Item 601(b)(5) of Regulation S-K under the Act. In connection with this opinion, we have examined originals or copies, certified or otherwise identified to our satisfaction, of (i) the Registration Statement; (ii) an executed copy of the Registration Rights Agreement, dated as of February 20, 1997 (the "Registration Rights Agreement"), among the Company, the Trust and Morgan Stanley & Co. Incorporated; (iii) an executed copy of the Indenture, dated as of February 20, 1997, between The First National Bank of Chicago, as trustee, and the Company; (iv) the form of the Convertible Preferred Securities and a specimen certificate thereof; (v) the form of the Convertible Subordinated Debentures and a specimen certificate thereof; (vi) the Guarantee Agreement; (vii) the Restated Certificate of Incorporation and Restated By-Laws of the Company; (viii) the Certificate of Trust of the Trust filed with the Secretary of State of the State of Delaware on February 5, 1997; and (ix) the Declaration. We have also examined originals or copies, certified or otherwise identified to our satisfaction, of such other documents, certificates and records as we have deemed necessary or appropriate as a basis for the opinions set forth herein. The documents referred to in clauses (ii), (iii), (vi), (viii) and (ix) are hereinafter referred to as the "Operative Documents". In our examination, we have assumed the legal capacity of all natural persons, the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified or photostatic copies and the authenticity of the originals of such latter documents. In making our examination of documents executed by parties other than the Company and the Trust, we have assumed that such parties had the power, corporate or other, to enter into and perform all obligations thereunder and have also assumed the due authorization by all requisite McKesson Corporation McKesson Financing Trust May 2, 1997 Page 3 action, corporate or other, and execution and delivery by such parties of such documents and, except to the extent set forth in paragraphs 2 and 3 below, the validity and binding effect thereof on such parties. We have also assumed that the execution and delivery by the Company of the Guarantee Agreement, the Indenture and the Convertible Subordinated Debentures and the performance of its obligations thereunder do not and will not violate, conflict with or constitute a default under (i) any agreement or instrument to which the Company or its properties is subject (except that we do not make the assumption set forth in this clause (i) with respect to the Restated Certificate of Incorporation or the Restated By-Laws of the Company or the Operative Documents), (ii) any law, rule, or regulation to which the Company is subject (except that we do not make the assumption set forth in this clause (ii) with respect to the Delaware Business Trust Act, the Delaware General Corporation Law (the "DGCL") or those laws, rules and regulations of the State of New York and the United States of America which, in our experience, are normally applicable to transactions of the type contemplated by the Operative Documents, but without our having made any special investigation concerning any other laws, rules or regulations), (iii) any judicial or regulatory order or decree of any governmental authority or (iv) any consent, approval, license, authorization or validation of, or filing, recording or registration with any governmental authority. As to any facts material to the opinions expressed herein which we did not independently establish or verify, we have relied upon oral or written statements and representations of officers, trustees and other representatives of the Company, the Trust and others. Members of our firm are admitted to the Bar of the State of New York, and we do not express any opinion as to the laws of any jurisdiction other than the laws of the State of New York, the DGCL and the Business Trust Act of the State of Delaware. Based upon and subject to the foregoing, we are of the opinion that: 1. The Convertible Preferred Securities have been duly authorized for issuance by the Trust, and repre- McKesson Corporation McKesson Financing Trust May 2, 1997 Page 4 sent, subject to the qualifications set forth in paragraph 5 below, fully paid and nonassessable undivided beneficial interests in the assets of the Trust. 2. The Guarantee Agreement has been duly authorized, executed and delivered by the Company, and is a valid, legal and binding agreement of the Company in favor of the holders of Convertible Preferred Securities, enforceable against the Company in accordance with its terms, except (a) to the extent that enforcement thereof may be limited by (i) bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally, and (ii) general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law), and (b) we express no opinion regarding the enforceability or effect of Section 8.2 of the Guarantee Agreement. 3. The Convertible Subordinated Debentures have been duly authorized, executed, issued and delivered by the Company, and constitute valid, legal and binding obligations of the Company entitled to the benefits of the Indenture and enforceable against the Company in accordance with their terms, except (a) to the extent that enforcement thereof may be limited by (i) bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally, and (ii) general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law), and (b) we express no opinion regarding the enforceability or effect of Section 6.7 of the Indenture. 4. The shares of Company Common Stock initially issuable upon conversion of the Convertible Subordinated Debentures have been duly authorized and reserved for issuance by the Company and, if and when issued, upon conversion of the Convertible Subordinated Debentures in accordance with the provisions of the Indenture, at conversion prices at or in excess of the par value of such shares of Company McKesson Corporation McKesson Financing Trust May 2, 1997 Page 5 Common Stock, such shares of Company Common Stock will be validly issued, fully paid and nonassessable. 5. The holders of the Convertible Preferred Securities will be entitled to the same limitation of personal liability extended to stockholders of private corporations for profit organized under the DGCL. We bring to your attention, however, that the holders of the Convertible Preferred Securities may be obligated, pursuant to the Declaration, to (i) provide indemnity and/or security in connection with, and pay taxes or governmental charges arising from, transfers of Convertible Preferred Securities and the issuance of replacement Convertible Preferred Securities and (ii) provide security and indemnity in connection with requests of or directions to the Institutional Trustee to exercise its rights and powers under the Declaration. We hereby consent to the filing of this opinion with the Commission as an exhibit to the Registration Statement. We also consent to the reference to our firm under the caption "Legal Matters" in the Registration Statement. In giving this consent, we do not thereby admit that we are included in the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Commission. This opinion is expressed as of the date hereof, and we disclaim any undertaking to advise you of any subsequent changes in the facts stated or assumed herein or of any subsequent changes in applicable law. Very truly yours, EX-8.1 7 OPINION OF SKADDEN, ARPS, SLATE, MEAGHER & FLOM Exhibit 8.1 ----------- [LETTERHEAD OF SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP] May 2, 1997 McKesson Corporation McKesson Financing Trust McKesson Plaza One Post Street San Francisco, California 94104 Re: Registration Statement on Form S-3 ---------------------------------- Ladies and Gentlemen: We have acted as special tax counsel to McKesson Financing Trust, a statutory business trust organized under the Business Trust Act of the State of Delaware (Chapter 38, Title 12 of the Delaware Code, 12 Del. C. Sec. 3801, et seq.) (the "Trust"), in connection with the preparation of a Registration Statement on Form S-3 of McKesson Corporation, a Delaware corporation (the "Company"), and the Trust filed by the Company and the Trust with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Securities Act"), on May 2, 1997 the "Registration Statement"), relating to the registration (i) by the Trust of 4,000,000 shares of the Trust's 5% Trust Convertible Preferred Securities (liquidation amount $50 per convertible preferred security) (the "Convertible Preferred Securities"), representing undivided beneficial interests in the assets of the Trust, and (ii) by the Company of the shares of common stock, par value $.01 per share, of the Company (the "Company Common Stock") issuable upon conversion of the Preferred Securities, and certain other securities. We hereby confirm that, although the discussion set forth in the above captioned registration statement under the heading "UNITED STATES FEDER 1 McKesson Corporation McKesson Financing Trust May 2, 1997 Page 2 AL INCOME TAXATION" does not purport to discuss all possible United States federal income tax consequences of the purchase, ownership and disposition of the Convertible Preferred Securities, in our opinion such discussion constitutes, in all material respects, a fair and accurate summary of the United States federal income tax consequences of the purchase, ownership and disposition of the Convertible Preferred Securities, based upon current law. There can be no assurances that any of the opinions expressed herein will be accepted by the Internal Revenue Service, or if challenged, by a court. We hereby consent to the filing of this opinion with the Commission as Exhibit 8.1 to the Registration Statement. We also consent to the use of our name under the heading "Legal Matters" in the Registration Statement. In giving this consent, we do not thereby admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations of the Commission promulgated thereunder. This opinion is expressed as of the date hereof unless otherwise expressly stated and we disclaim any undertaking to advise you of any subsequent changes of the facts stated or assumed herein or any subsequent changes in applicable law. Very truly yours, SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP 2 EX-10.1 8 REGISTRATION RIGHTS AGREEMENT Exhibit 10.1 ------------ REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and --------- entered into as of February 20, 1997 among McKesson Corporation, a Delaware corporation ("McKesson" or the "Company"), McKesson Financing Trust, a statutory -------- ------- business trust formed under the laws of the State of Delaware (the "Trust"), and ----- Morgan Stanley & Co. Incorporated (the "Initial Purchaser") pursuant to the ----------------- Placement Agreement dated as of February 13, 1997 (the "Placement Agreement") ------------------- among McKesson, the Trust and the Initial Purchaser. In order to induce the Initial Purchaser to enter into the Placement Agreement, McKesson and the Trust have agreed to provide the registration rights set forth in this Agreement. The execution of this Agreement is a condition to the closing under the Placement Agreement. McKesson and the Trust agree with the Initial Purchaser, (i) for its benefit as Initial Purchaser and (ii) for the benefit of the holders from time to time of the Registrable Securities (including the Initial Purchaser) (each of the foregoing a "Holder" and together the "Holders"), as follows: ------ ------- Section 1. Definitions. Capitalized terms used herein without definition shall have their respective meanings set forth in the Placement Agreement. As used in this Agreement, the following terms shall have the following meanings: Affiliate: "Affiliate" has the same meaning as given to that term in Rule 405 of the Securities Act or any successor rule thereunder. Applicable Conversion Price: The Applicable Conversion Price as of any date of determination means the Conversion Price, as it may be adjusted from time to time, in effect as of such date of determination or, if no Convertible Debentures are then outstanding, the Conversion Price that would be in effect were Convertible Debentures then outstanding. Business Day: Any day other than a Saturday, Sunday or any other day on which banking institutions in The City of New York or Wilmington, Delaware are permitted or required by law to close. Common Stock: The shares of common stock, $.01 par value per share, of McKesson and any other shares of common stock as may constitute "Common Stock" for purposes of the Indenture, including the Underlying Common Stock. Conversion Price: Conversion Price shall have the meaning assigned such term in Section 14.1 of the Indenture. Convertible Debentures: The 5% Convertible Junior Subordinated Debentures due 2027 of McKesson to be purchased by the Trust pursuant to the Debenture Purchase Agreement dated as of the date hereof between McKesson and the Trust. Convertible Preferred Securities: The 5% Trust Convertible Preferred Securities of the Trust. Damages Accrual Period: See Section 2(e) hereof. Damages Payment Date: Each distribution payment date under the Declaration, in the case of Convertible Preferred Securities, each Interest Payment Date (as defined in the Indenture), in the case of Convertible Debentures, and each March 1, June 1, September 1, December 1, in the case of Underlying Common Stock; and, in the event that any Convertible Preferred Security or Convertible Debenture (or portion thereof) is called for redemption or surrendered for conversion, the date of redemption or conversion, as the case may be, shall be deemed to be a Damages Payment Date with respect to such Convertible Preferred Security or Convertible Debenture (or portion thereof), as the case may be, unless accrued and unpaid distributions or interest, as the case may be, are to be paid to the holder on a record date prior to such date of conversion (in which case the Damages Payment Date shall be deemed to be the date on which distributions or interest, as the case may be, are payable to such record holder). Declaration: The Amended and Restated Declaration of Trust dated as of the date hereof of the Trust as amended from time to time. Deferral Period: See Section 2(d)(ii) hereof. Effectiveness Period: The period commencing with the date hereof and ending on the date that all Registrable Securities have ceased to be Registrable Securities. Event: See Section 2(e) hereof. Event Date: See Section 2(e) hereof. Event Termination Date: See Section 2(e) hereof. Exchange Act: The Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder. Filing Date: See Section 2(a) hereof. Guarantee: The guarantee by McKesson of the Convertible Preferred Securities pursuant to the Preferred Securities Guarantee Agreement dated as of the date hereof between McKesson and The First National Bank of Chicago, as preferred guarantee trustee. Holder: See the second paragraph of this Agreement. 2 Indenture: The Indenture date as of February 20, 1997 between McKesson and The First National Bank of Chicago, as trustee, pursuant to which the Convertible Debentures are being issued. Initial Purchaser: Morgan Stanley & Co. Incorporated. Initial Shelf Registration: See Section 2(a) hereof. Liquidated Damages Amount: See Section 2(e) hereof. Notice Holder: See Section 2(d)(i) hereof. Placement Agreement: See the first paragraph of this Agreement. Prospectus: The prospectus included in any Registration Statement (including, without limitation, a prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any amendment or prospectus supplement, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. Registrable Securities: The Convertible Preferred Securities, the Guarantee, the Convertible Debentures and the Underlying Common Stock, whether or not such securities have been converted or exchanged, and at all times subsequent to any such conversion or exchange, and any security issued with respect thereto upon any stock dividend, split or similar event until, in the case of any such security, (i) it is effectively registered under the Securities Act and disposed of in accordance with the Registration Statement covering its offering and sale, (ii) it is saleable by the Holder thereof pursuant to Rule 144(k) or any successor provision or (iii) it is sold to the public pursuant to Rule 144 and, as a result of the event or circumstance described in any of the foregoing clauses (i) through (iii), the legends with respect to transfer restrictions required under the Declaration and the Indenture are removed or removable in accordance with the terms of the Declaration or the Indenture, as the case may be. Registration Expenses: See Section 5 hereof. Registration Statement: Any registration statement of McKesson or the Trust which covers any of the Registrable Securities pursuant to the provisions of this Agreement, including the Prospectus or any other prospectus included therein, the information, if any, deemed to be a part of such registration statement pursuant to Rule 430A promulgated under the Securities Act, amendments and supplements to such registration statement, including post-effective amendments, all exhibits, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. Restricted Securities: As this term is defined in Rule 144. 3 Rule 144: Rule 144 under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC. Rule 144A: Rule 144A under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC. SEC: The Securities and Exchange Commission. Securities Act: The Securities Act of 1933, as amended, and the rules and regulations promulgated by the SEC thereunder. Selling Period: See Section 2(d)(i) hereof. Shelf Registration: See Section 2(a) hereof. Special Counsel: Brown & Wood llp or such other counsel as shall be specified by the Holders of a majority of the Registrable Securities, the fees and expenses of which will be paid by McKesson pursuant to Section 5 hereof. Subsequent Shelf Registration: See Section 2(b) hereof. TIA: The Trust Indenture Act of 1939, as amended. Trustee: The First National Bank of Chicago (or any successor entity), the Institutional Trustee under the Declaration or, in the event the Convertible Debentures are distributed to holders of the Convertible Preferred Securities upon dissolution of the Trust, the Trustee under the Indenture. Underlying Common Stock: The Common Stock into which the Convertible Debentures are convertible. Section 2. Shelf Registration. a. Shelf Registration. McKesson and the Trust shall prepare and file with the SEC on or prior to the 90th day after the latest date of original issuance of the Convertible Preferred Securities (the 91st day after the latest date of such original issuance being called the "Filing Date"), a Registration ----------- Statement for an offering to be made on a delayed or continuous basis pursuant to Rule 415 of the Securities Act (a "Shelf Registration") registering the ------------------ resale from time to time by Holders thereof of all of the Registrable Securities (the "Initial Shelf Registration"). The Initial Shelf Registration shall be on -------------------------- Form S-3 or another appropriate form permitting registration of such Registrable Securities for resale by such Holders in the manner or manners designated by them. McKesson and the Trust shall use their reasonable best efforts to cause the Initial Shelf Registration to become effective under the Securities Act as promptly as is practicable and to keep the Initial Shelf Registration continuously effective under the Securities Act until the end of the Effectiveness Period. 4 b. If the Initial Shelf Registration or any Subsequent Shelf Registration, as defined below, ceases to be effective for any reason at any time during the Effectiveness Period (other than because all Registrable Securities shall have ceased to be Registrable Securities), McKesson and the Trust shall use their reasonable best efforts to obtain the prompt withdrawal of any order suspending the effectiveness thereof, and in any event shall, subject to Section 2(d), within 30 days of such cessation of effectiveness amend the Shelf Registration in a manner reasonably expected to obtain the withdrawal of the order suspending the effectiveness thereof, or file an additional Shelf Registration covering all of the Registrable Securities (a "Subsequent Shelf ---------------- Registration"). If a Subsequent Shelf Registration is filed, McKesson and the - - ------------ Trust shall use their reasonable best efforts to cause the Subsequent Shelf Registration to become effective as promptly as is practicable after such filing and to keep such Registration Statement continuously effective until the end of the Effectiveness Period. c. McKesson and the Trust shall, subject to Section 2(d), supplement and amend the Shelf Registration if required by the rules, regulations or instructions applicable to the registration form used by McKesson and the Trust for such Shelf Registration, if required by the Securities Act. d. Each Holder of Registrable Securities agrees that if such Holder wishes to sell its Registrable Securities pursuant to a Shelf Registration and related Prospectus, it will do so only in accordance with this Section 2(d). Each Holder of Registrable Securities agrees to give written notice to McKesson and the Trust at least ten (10) Business Days prior to any intended distribution of Registrable Securities under the Shelf Registration, which notice shall specify the date on which such Holder intends to begin such distribution and any information with respect to such Holder and the intended distribution of Registrable Securities by such Holder required to amend or supplement the Registration Statement with respect to such intended distribution of Registrable Securities by such Holder. As promptly as is practicable after the date such notice is provided, and in any event within five (5) Business Days after such date, McKesson and the Trust shall either: i. (A) prepare and file with the SEC a post-effective amendment to the Shelf Registration or a supplement to the related Prospectus or a supplement or amendment to any document incorporated therein by reference or file any other required document so that such Registration Statement will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and so that, as thereafter delivered to purchasers of the Registrable Securities being sold thereunder, such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that the Trust and McKesson agree to notify the Holders to suspend use of the Prospectus, and the Holders shall suspend use of the Prospectus, until the Trust or McKesson has amended or supplemented the Prospectus so that it does not contain any such misstatement or omission; (B) provide the Holders of the Registrable Securities who gave such notice copies of any documents filed pursuant to Section 2(d)(i)(A); and (C) inform each such Holder that McKesson and the Trust have complied with their obligations in Section 2(d)(i)(A) and that the Registration Statement and the Prospectus may be used for sales of 5 Registrable Securities (or that, if McKesson and the Trust have filed a post- effective amendment to the Shelf Registration which has not yet been declared effective, McKesson and the Trust will notify each such Holder to that effect, will use their reasonable best efforts to secure the effectiveness of such post- effective amendment and will immediately notify each such Holder pursuant to Section 2(d)(i)(A) hereof when the amendment has become effective and that the Registration Statement and the Prospectus may be used for sales of Registrable Securities); each Holder who has given notice of its intention to distribute such Holder's Registrable Securities in accordance with Section 2(d) hereof (a "Notice Holder") will sell all or any or such Registrable Securities pursuant to - - -------------- the Shelf Registration and related Prospectus only during the 45-day period commencing with the date on which McKesson and the Trust give notice, pursuant to Section 2(d)(i)(A), that the Registration Statement and Prospectus may be used for such purpose (such 45-day period is referred to as a "Selling Period"); -------------- the Notice Holders will not sell any Restricted Securities pursuant to such Registration Statement or Prospectus after such Selling Period without giving a new notice of intention to sell pursuant to Section 2(d) hereof and receiving a further notice from McKesson and the Trust pursuant to Section 2(d)(i)(C) hereof; or ii. in the event (A) of the happening of any event of the kind described in Section 2(e)(ii), or (B) that, in the judgment of McKesson, it is advisable to suspend use of the Prospectus for a discrete period of time due to pending material corporate developments or similar material events that have not yet been publicly disclosed and as to which McKesson believes public disclosure will be prejudicial to McKesson or the Trust, McKesson shall deliver a certificate in writing, signed by its Chief Executive Officer or Chief Financial Officer, to the Notice Holders and the Special Counsel to the effect of the foregoing and, upon receipt of such certificate, each such Notice Holder's Selling Period will not commence until such Notice Holder's receipt of copies of the supplemented or amended Prospectus provided for in Section 2(d)(i)(A) hereof, or until it is advised in writing by McKesson that the Prospectus may be used, and has received copies of any additional or supplemental filings that are incorporated or deemed incorporated by reference in such Prospectus. McKesson and the Trust will use their reasonable best efforts to ensure that the use of the Prospectus may be resumed, and the Selling Period will commence, as promptly as is practicable and, in the case of a pending development or event referred to in Section 2(d)(ii)(B) hereof, as soon as the earlier of (x) public disclosure of such pending material corporate development or similar material event or (y) in the judgment of McKesson, public disclosure of such material corporate development or similar material event would not be prejudicial to McKesson or the Trust. Notwithstanding the foregoing, the period during which a Selling Period is suspended (a "Deferral Period") shall not exceed 60 days, whether or --------------- not consecutive, in any 12-month period. e. The parties hereto agree that the Holders of Registrable Securities will suffer damages, and that it would not be feasible to ascertain the extent of such damages with precision, if (i) the Initial Shelf Registration has not been filed prior to the Filing Date, (ii) prior to the end of the Effectiveness Period, the SEC shall have issued a stop order suspending the effectiveness of the Shelf Registration or proceedings have been initiated with respect to the Shelf Registration under Section 8(d) or 8(e) of the Securities Act or (iii) the aggregate number of days in any permitted Deferral Period exceeds the number permitted pursuant to Section 2(d)(ii) hereof (each of the events of a type described in any of the 6 foregoing clauses (i) through (iii) are individually referred to herein as an "Event," and the Filing Date in the case of clause (i), the date on which the - - ------ effectiveness of the Shelf Registration has been suspended or proceedings with respect to the Shelf Registration under Section 8(d) or 8(e) of the Securities Act have been commenced in the case of clause (ii), the date on which the duration of a Deferral Period exceeds the aggregate number of days permitted by Section 2(d)(ii) hereof being referred to herein as an "Event Date"). Events ---------- shall be deemed to continue until the "Event Termination Date," which shall be ---------------------- the following dates with respect to the respective types of Events: the date the Initial Registration Statement is filed in the case of an Event of the type described in clause (i), the date that all stop orders suspending effectiveness of the Shelf Registration have been removed and the proceedings initiated with respect to the Shelf Registration under Section 8(d) or (e) of the Securities Act have terminated, as the case may be, in the case of Events of the types described in clause (ii) and termination of the Deferral Period which caused the limit on the duration of a Deferral Period set forth in Section 2(d)(ii) to be exceeded in the case of the commencement of an Event of the type described in clause (iii). Accordingly, upon the occurrence of any Event Date and until such time as there are no Events that have occurred and are continuing (a "Damages Accrual --------------- Period"), commencing on and including the Event Date on which such Damages - - ------ Accrual Period began, McKesson agrees to pay, as liquidated damages, and not as a penalty, an additional amount (the "Liquidated Damages Amount"): (i) to each ------------------------- Holder of (x) a Convertible Preferred Security or (y) in the event that the Convertible Debentures are distributed to holders of Convertible Preferred Securities upon dissolution of the Trust in accordance with the Declaration, a Convertible Debenture, accruing at a rate equal to one-quarter of one percent per annum (25 basis points) on an amount equal to the liquidation amount of such Convertible Preferred Security or principal amount of such Convertible Debenture, as the case may be, held by such Holder and (ii) to each Holder of Underlying Common Stock, accruing at a rate equal to one-quarter of one percent per annum (25 basis points) calculated on an amount equal to the product of (x) the Applicable Conversion Price as of the Business Day immediately prior to the applicable Damages Payment Date times (y) the number of shares of Common Stock that are Registrable Securities held by such Notice Holder. Notwithstanding the foregoing, no Liquidated Damages Amounts shall accrue with respect to any Registrable Security from and after the earlier of (x) the date such security is no longer a Registrable Security, and (y) expiration of the Effectiveness Period. The rate of accrual of the Liquidated Damages Amount with respect to any period shall not exceed the rate provided for in this paragraph notwithstanding the occurrence of multiple concurrent Events. Liquidated Damages Amounts shall be computed on the basis of a 360-day year of twelve 30- day months, provided that Liquidated Damages Amounts payable for any period shorter than a month will be computed on the basis of the actual number of days elapsed per 30-day month. McKesson shall pay the liquidated damages due on any Convertible Preferred Security, Convertible Debenture or Underlying Common Stock by depositing with the Trustee, in trust for the benefit of the Holders of Convertible Preferred Securities or Convertible Debentures entitled thereto (or, in the case of Underlying Common Stock, by depositing with the transfer agent for the benefit of the Holders of Underlying Common Stock entitled thereto), as the case may be, at least one Business Day prior to the applicable Damages Payment Date, sums sufficient to pay all accrued and unpaid liquidated damages 7 from and including the last Damages Payment Date to which liquidated damages have been paid in full (or, if no liquidated damages have been paid in respect of the relevant Damages Accrual Period, from and including the first day of such Damages Accrual Period) to, but excluding, such Damages Payment Date. The Liquidated Damages Amount due shall be payable on each Damages Payment Date to the Holders of Registrable Securities entitled thereto holding such Registrable Securities on the record date for such Damages Payment Date (which record date, in the case of Underlying Common Stock, shall be established by McKesson but shall in any event be between 10 and 60 days prior to the relevant Damages Payment Date); provided that, if any Convertible Preferred Securities or Convertible Debentures (or portions thereof) are called for redemption, accrued and unpaid liquidated damages thereon shall be paid to the person entitled to receive accrued and unpaid interest thereon; and provided, further, that if any Convertible Preferred Security or Convertible Debenture (or portion thereof) is surrendered for conversion from and after the close of business on a regular record date and prior to the corresponding distribution payment or interest payment date, as the case may be, then accrued and unpaid liquidated damages thereon shall be paid to the person entitled to receive accrued and unpaid distributions or interest, as the case may be, in respect of such Convertible Preferred Security or Convertible Debenture (or portion thereof), as the case may be; and provided, further, that if any Convertible Preferred Security or Convertible Debenture (or portion thereof) is surrendered for conversion at any other time, then the converting Holder thereof shall be entitled to receive all accrued and unpaid Liquidated Damages thereon to but excluding the date of conversion. The Trustee shall be entitled, on behalf of the Notice Holders and the Holders of Convertible Preferred Securities, Convertible Debentures or Underlying Common Stock, to seek any available remedy for the enforcement of this Agreement, including for the payment of such liquidated damages. Notwithstanding the foregoing, the parties agree that the sole damages payable for a violation of the terms of this Agreement with respect to which liquidated damages are expressly provided shall be such liquidated damages. All of McKesson's obligations set forth in this Section 2(e) which are outstanding with respect to any Registrable Security at the time such security ceases to be a Registrable Security shall survive until such time as all such obligations with respect to such security have been satisfied in full (notwithstanding termination of this Agreement pursuant to Section 9(o)). The parties hereto agree that the liquidated damages provided for in this Section 2(e) constitute a reasonable estimate of the damages that may be incurred by Holders of Registrable Securities (other than the Initial Purchaser) by reason of the failure of the Shelf Registration to be filed or declared effective or available (absolutely or as a practical matter) for effecting resales of Registrable Securities in accordance with the provisions hereof. Section 3. Registration Procedures. In connection with the registration obligations of McKesson and the Trust under Section 2 hereof, McKesson and the Trust shall use its reasonable best efforts to effect such registration to permit the sale of the Registrable Securities in accordance with the intended method or methods of disposition thereof, and pursuant thereto McKesson and the Trust shall as soon as reasonably practicable: 8 a. Prepare and file with the SEC a Registration Statement on any appropriate form under the Securities Act available for the sale of the Registrable Securities by the Holders thereof in accordance with the intended method or methods of distribution thereof, and use their reasonable best efforts to cause each such Registration Statement to become effective and remain effective as provided herein; provided, that before the effective date of any such Registration Statement or Prospectus or any amendments or supplements thereto (other than documents that would be incorporated or deemed to be incorporated therein by reference and that McKesson or the Trust is required by applicable securities laws or stock exchange requirements to file) McKesson and the Trust shall furnish to the Initial Purchaser and the Special Counsel copies of all such documents proposed to be filed, which documents will be subject to the review of the Initial Purchaser and the Special Counsel. b. Subject to Section 2(d), prepare and file with the SEC such amendments and post-effective amendments to each Registration Statement as may be necessary to keep such Registration Statement continuously effective for the applicable period specified in Section 2; subject to Section 2(d), cause the related Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) under the Securities Act; and, subject to Section 2(d), comply in all material respects with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement during the applicable period in accordance with the intended methods of disposition by the sellers thereof set forth in such Registration Statement as so amended or such Prospectus as so supplemented. c. Notify the Notice Holders, the Initial Purchaser and the Special Counsel and (if requested by any such person) confirm such notice in writing, (i) when a Prospectus, any Prospectus supplement, a Registration Statement or a post-effective amendment to a Registration Statement has been filed with the SEC and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective, (ii) of any request by the SEC or any other federal or state governmental authority for amendments or supplements to a Registration Statement or related Prospectus or for additional information, (iii) of the issuance by the SEC or any other federal or state governmental authority of any stop order suspending the effectiveness of a Registration Statement or the initiation or threatening of any proceedings for that purpose, (iv) of the receipt by McKesson or the Trust of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, (v) of the existence of any fact or happening of any event which makes any statement of a material fact in such Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue or which would require the making of any changes in the Registration Statement or Prospectus in order that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that, in the case of the Prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and (vi) of the determination by McKesson that a post-effective amendment to a Registration Statement would be appropriate. 9 d. Subject to Section 2(d), use their reasonable best efforts to obtain the withdrawal of any order suspending the effectiveness of a Registration Statement, or the lifting of any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction. e. If reasonably requested by the Initial Purchaser, the Special Counsel or the Holders of a majority of the Registrable Securities being sold and subject to Section 2(d), (i) include in a Prospectus supplement or post- effective amendment to a Registration Statement such information as the Initial Purchaser, Special Counsel, or such Holders, in connection with any offering of Registrable Securities, agree with the Company and its counsel should be included therein as required by applicable law, and (ii) make all required filings of such Prospectus supplement or such post-effective amendment after McKesson and the Trust have received notification of the matters to be included in such Prospectus supplement or post-effective amendment; provided, that McKesson and the Trust shall not be required to take any actions under this Section 3(e) that are not, in the reasonable opinion of counsel for McKesson, in compliance with applicable law. f. Furnish to each selling Holder, the Special Counsel and the Initial Purchaser, without charge, at least one conformed copy of the Registration Statement and any amendment thereto, including financial statements but excluding schedules, all documents incorporated or deemed to be incorporated therein by reference and all exhibits (unless requested in writing by such Holder, the Special Counsel or the Initial Purchaser). g. Subject to Section 2(d), deliver to each selling Holder, the Special Counsel and the Initial Purchaser in connection with any offering of Registrable Securities, without charge, as many copies of the Prospectus or Prospectuses relating to such Registrable Securities (including each preliminary prospectus) and any amendment or supplement thereto as such persons may reasonably request; and, subject to Section 2(d), McKesson and the Trust hereby consent to the use of each such Prospectus (including each such preliminary prospectus) and each amendment or supplement thereto by each of the selling Holders of Registrable Securities in connection with any offering and sale of the Registrable Securities covered by such Prospectus or any amendment or supplement thereto. h. Prior to any public offering of Registrable Securities, to register or qualify or cooperate with the selling Holders and the Special Counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as any selling Holder reasonably requests in writing; use their best efforts to keep each such registration or qualification (or exemption therefrom) effective during the period such Registration Statement is required to be kept effective; and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by the applicable Registration Statement; provided, that neither McKesson nor the Trust will be required to (i) qualify generally to do business or as a foreign corporation or as a dealer in securities in any jurisdiction where each would not otherwise be required to so qualify but for this Section 3(h), (ii) file any general consent to service of process in any jurisdiction where it is not as of the date hereof so subject or (iii) subject itself to taxation in any jurisdiction where it is not otherwise so subject. 10 i. Cause the Registrable Securities covered by the applicable Registration Statement to be registered with or approved by such other governmental agencies or authorities within the United States (except as may be required solely as a consequence of the nature of such selling Holder, in which case McKesson and the Trust will cooperate in all reasonable respects with the filing of such Registration Statement and the granting of such approvals) as may be necessary to enable the selling Holder or Holders thereof to consummate the disposition of such Registrable Securities. j. Subject to Section 2(d), during any Selling Period (other than during a Deferral Period), upon the existence of any fact or the occurrence of any event as a result of which a Registration Statement shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, or a Prospectus shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, prepare and file a post-effective amendment to such Registration Statement or a supplement to such Prospectus or any document incorporated therein by reference or file any other required document (such as a Current Report on Form 8-K) that would be incorporated by reference into the Registration Statement or such Prospectus, as the case may be, so that such Registration Statement shall not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and so that such Prospectus will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, as thereafter delivered to the purchasers of the Registrable Securities being sold thereunder, and, in the case of a post- effective amendment to a Registration Statement, use their reasonable best efforts to cause it to become effective as promptly as is practicable. k. Enter into such customary agreements which are reasonably acceptable to the Trust and the Company and take all such other reasonably requested actions in connection therewith in order to expedite or facilitate the disposition of such Registrable Securities and in such connection (i) make such representations and warranties, subject to the ability of McKesson and the Trust to do so, to the Holders of such Registrable Securities with respect to the business of McKesson and its subsidiaries and the Trust, the Registration Statement, Prospectus and documents incorporated by reference or deemed incorporated by reference, if any, in each case, in form, substance and scope as shall be reasonably satisfactory to the Special Counsel and the Holders of a majority of the Registered Securities being sold, and (ii) deliver such documents and certificates as may be reasonably requested by the Holders of a majority of the Registrable Securities being sold and the Special Counsel to evidence the continued validity of the representations and warranties of McKesson and its subsidiaries and the Trust made pursuant to clause (i) above, provided, however, that any such documents and certificates that are designated in writing by McKesson or the Trust, in good faith, as confidential at the time of delivery of such documents and certificates shall be kept confidential by such Holders and such Special Counsel unless such disclosure is made in connection with a court proceeding or required by law, or such information becomes available to the public generally or through a third party without an accompanying obligation of confidentiality; and provided, further, that the foregoing inspection and information gathering shall, to 11 the greatest extent possible, be coordinated on behalf of the Holders by the Special Counsel and other parties reasonably acceptable to McKesson and the Trust. The plan of distribution of the Registration Statement and the Prospectus included therein shall permit resales of Registrable Securities to be made by selling security holders through brokers and dealers. However, neither McKesson nor the Trust will be obligated hereunder to pay the costs and expenses of opinions of counsel of such selling security holders or accountants' "cold comfort" letters, and neither the officers and directors of McKesson nor the trustees of the Trust will be obligated hereunder to participate in marketing efforts on behalf of such selling securityholders. l. If requested in connection with a disposition of Registrable Securities pursuant to a Registration Statement, make available for inspection by a representative of the Holders of Registrable Securities being sold, the Special Counsel, and any accountant retained by such selling Holders, financial and other records, pertinent corporate documents and properties of McKesson and the Trust and its subsidiaries, and cause the executive officers, directors and employees of the Company and its subsidiaries to supply all information reasonably requested by any such representative, Special Counsel or accountant in connection with such disposition; subject to reasonable assurances by each such person that such information will only be used in connection with matters relating to such Registration Statement and subject further to the confidentiality provisions stated in Section 3(k). m. The Company and the Trust shall each use its best efforts to comply with all applicable rules and regulations of the SEC, and to make generally available to its security-holders as soon as practicable, but in any event not later than 18 months after (i) the effective date (as defined in Rule 158(c) under the Securities Act) of the Registration Statement, (ii) the effective date of each post effective amendment to the Registration Statement, and (iii) the date of each filing by the Company with the SEC of an Annual Report on Form 10-K that is incorporated by reference in the Registration Statement, an earnings statement of the Company and its subsidiaries complying with Section 11(a) of the Securities Act and the rules and regulations of the SEC thereunder (including, at the option of the Company, Rule 158). n. Cooperate with the selling Holders of Registrable Securities to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold and not bearing any restrictive legends; and enable such Registrable Securities to be in such denominations and registered in such names as the Holders may request. o. Provide a CUSIP number for all Registrable Securities not later than the effective date of the Registration Statement and provide the Trustee and the transfer agent for the Common Stock with printed certificates for the Registrable Securities which are in a form eligible for deposit with The Depository Trust Company, as applicable. p. Cause all Underlying Common Stock covered by the Registration Statement to be listed on each securities exchange or quotation system on which the Common Stock is then listed no later than the date the Registration Statement is declared effective and, in connection therewith, to the extent applicable, to make such filings under the Exchange Act 12 (e.g., the filing of a Registration Statement on Form 8-A) and to have such filings declared effective thereunder. q. Cooperate and assist in any filings required to be made with the National Association of Securities Dealers, Inc. Section 4. Holder's Obligations. Each Holder, severally and not jointly, agrees, by acquisition of the Registrable Securities, that such Holder of Registrable Securities shall not be entitled to sell any of such Registrable Securities pursuant to a Registration Statement or to receive a Prospectus relating thereto, unless such Holder has furnished McKesson and the Trust with the notice required pursuant to Section 2(d) hereof (including the information required to accompany such notice) and, promptly after the request by McKesson and the Trust, such other information regarding such Holder and the distribution of such Registrable Securities as McKesson and the Trust may from time to time reasonably request. McKesson and the Trust may exclude from such registration the Registrable Securities of any Holder who does not furnish such information provided above for so long as such information is not so furnished. Each Holder of Registrable Securities as to which any Registration Statement is being effected, severally and not jointly, agrees promptly to furnish to McKesson and the Trust all information required to be disclosed in order to make the information previously furnished to McKesson and the Trust by such Holder not misleading. Any sale of any Registrable Securities by any Holder shall constitute a representation and warranty by such Holder, severally and not jointly, that the information relating to such Holder and its plan of distribution is as set forth in the Prospectus delivered by such Holder in connection with such disposition, that such Prospectus does not as of the time of such sale contain any untrue statement of a material fact relating to such Holder or its plan of distribution and that such Prospectus does not as of the time of such sale omit to state any material fact relating to such Holder or its plan of distribution necessary to make the statements in such Prospectus, in the light of the circumstances under which they were made, not misleading. Section 5. Registration Expenses. Subject to the last sentence of Section 3(k) hereof, all fees and expenses incident to the performance by McKesson and the Trust of or compliance with this Agreement (the "Registration Expenses") shall be borne by McKesson whether or not any of the Registration Statements become effective. Such Registration Expenses shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses (x) with respect to filings required to be made with the National Association of Securities Dealers, Inc. and (y) of compliance with federal and state securities or Blue Sky laws (including, without limitation, fees and disbursements of Special Counsel in connection with Blue Sky qualifications of the Registrable Securities under the laws of such jurisdictions as any Holders of Registrable Securities being sold may designate)), (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities in a form eligible for deposit with The Depositary Trust Company and of printing Prospectuses), (iii) messenger, telephone and delivery expenses and (iv) fees and disbursements of counsel for McKesson and the Trust and reasonable fees and disbursements of the Special Counsel in 13 connection with the Shelf Registration (provided that McKesson shall not be liable for the fees and expenses of more than one counsel for all parties participating in any transaction hereunder). In addition, McKesson shall pay the internal expenses of McKesson and the Trust (including, without limitation, all salaries and expenses of officers and employees performing legal or accounting duties), the expense of any annual audit, the fees and expenses incurred in connection with the listing of the Underlying Common Stock and the fees and expenses of any person, including special experts, retained by McKesson or the Trust. Notwithstanding the provisions of this Section 5, each seller of Registrable Securities shall pay all individual selling expenses of such seller, including such seller's brokers' commissions. Section 6. Indemnification; Contribution. a. Indemnification by McKesson. McKesson and the Trust, jointly and severally, agree to indemnify and hold harmless each Holder and each person, if any, who controls any Holder within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act from and against any and all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) caused by (i) any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement or any amendment thereof, including all documents incorporated therein by reference, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or (ii) any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus or any Prospectus (or amendment or supplement thereto) or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; except insofar as such losses, claims, damages or liabilities are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information relating to any Holder furnished to McKesson and the Trust in writing by such Holder expressly for use therein. McKesson and the Trust, jointly and severally, shall also indemnify each broker-dealer participating in the offering and sale of Registrable Securities and each person who controls any such broker-dealer (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) to the same extent and with the same limitations as provided above with respect to the indemnification of the Holders of Registrable Securities. The foregoing notwithstanding, the Trust and McKesson shall not be liable to the extent that such losses, claims, damages or liabilities arise out of or are based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any Prospectus that is a preliminary prospectus if (i) such indemnified person failed to send or deliver a copy of the Prospectus with or prior to the delivery of written confirmation of the sale of Registrable Securities giving rise to such losses, claims, damages or liabilities and (ii) the Prospectus would have corrected such untrue statement or omission. b. Indemnification by Holder of Registrable Securities. Each Holder agrees, severally and not jointly, to indemnify and hold harmless McKesson and the Trust, McKesson's directors, McKesson's officers who sign a Registration Statement, the MFT 14 Trustees, and each person, if any, who controls McKesson or the Trust within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act from and against any and all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) caused by any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement or any amendment thereof, any preliminary prospectus or any Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto), or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but only with reference to information relating to such Holder furnished to the Company and the Trust in writing by such Holder expressly for use in such Registration Statement, preliminary prospectus, Prospectus or any amendments or supplements thereto. In no event shall the liability of any Holder of Registrable Securities hereunder be greater in amount than the net dollar amount of the proceeds received by such Holder from the sale of the Registrable Securities giving rise to such indemnification obligation. c. Conduct of Indemnification Proceedings. In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to either of the two preceding paragraphs, such person (the "indemnified party") shall promptly ----------------- notify the person against whom such indemnity may be sought (the "indemnifying ------------ party") in writing and the indemnifying party, upon request of the indemnified - - ----- party, shall retain counsel reasonably satisfactory to the indemnified party to represent the indemnified party and any others the indemnifying party may designate in such proceeding and shall pay the reasonable fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the indemnifying party shall not, in respect of the legal expenses of any indemnified party in connection with any proceeding or related proceedings in the same jurisdiction, be liable for (a) the fees and expenses of more than one separate firm (in addition to any local counsel) for all Holders and all persons, if any, who control any Holders within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, and (b) the fees and expenses of more than one separate firm (in addition to any local counsel) for McKesson and the Trust and each person, if any, who controls McKesson or the Trust within the meaning of either such Section, and that all such fees and expenses shall be reimbursed as they are incurred. In the case of any such separate firm for McKesson and the Trust and any such control persons of McKesson or the Trust, such firm shall be designated in writing by McKesson. In the case of any such separate firm for the Holders or any such control persons of any Holders, such firm shall be designated in writing on behalf of the Holders of a majority of the relevant Registrable Securities. The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to 15 indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by the second and third sentences of this paragraph, the indemnifying party agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by such indemnifying party of the aforesaid request and (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding. d. Contribution. To the extent the indemnification provided for in paragraph (a) or (b) of this Section 6 is unavailable to an indemnified party or insufficient in respect of any losses, claims, damages or liabilities referred to herein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative fault of the indemnifying party and the indemnified party in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by such indemnifying party or by such indemnified party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Holders' respective obligations to contribute pursuant to this paragraph are several in proportion to the respective number of Registrable Securities they have sold pursuant to a Registration Statement, and not joint. e. The Company, the Trust and the Holders agree that it would not be just or equitable if contribution pursuant to Section 6(d) were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in paragraph (d) of this Section 6. The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities referred to in paragraph (d) of this Section 6 shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 6, a Holder of Registrable Securities shall not be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities sold by such indemnifying party and distributed to the public were offered to the public pursuant to any Registration Statement exceeds the amount of any damages which such indemnifying party has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any 16 person who was not guilty of such fraudulent misrepresentation. The remedies provided for in this Section 6 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any indemnified party at law or in equity. f. The indemnity and contribution provisions contained in this Section 6 shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of any Holder or any person controlling any Holder, or McKesson or the Trust or any person controlling McKesson or the Trust and (iii) the sale of any Registrable Securities by any Holder. Section 7. Information Requirements. a. McKesson and the Trust shall file the reports required to be filed by it under the Securities Act and the Exchange Act, and if at any time McKesson or the Trust is not required to file such reports, it will, upon the reasonable request of any Holder of Registrable Securities, make publicly available other information so long as necessary to permit sales of Registrable Securities pursuant to Rule 144 and Rule 144A under the Securities Act. Upon the request of any Holder of Registrable Securities, each of McKesson and the Trust shall deliver to such Holder a written statement as to whether it has complied with such filing requirements. McKesson and the Trust further covenant that they will cooperate with any Holder of Registrable Securities and take such further reasonable action as any Holder of Registrable Securities may reasonably request (including, without limitation, making such reasonable representations as any such Holder may reasonably request), all to the extent required from time to time to enable such Holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by Rule 144 and Rule 144A under the Securities Act. Notwithstanding the foregoing, nothing in this Section 7 shall be deemed to require McKesson or the Trust to register any of its securities (other than the Common Stock) under any section of the Exchange Act. b. McKesson and the Trust shall file the reports required to be filed by it under the Exchange Act and shall use its best efforts to comply with all other requirements set forth in the instructions to Form S-3 in order to allow it to be eligible to file registration statements on Form S-3. 17 Section 8. Governing Law THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. Section 9. Miscellaneous a. No Conflicting Agreements. Neither McKesson nor the Trust has, as of the date hereof, entered into, nor shall McKesson or the Trust, on or after the date of this Agreement, enter into, any agreement with respect to its securities which conflicts with the rights granted to the Holders of Registrable Securities in this Agreement. Each of McKesson and the Trust represents and warrants that the rights granted to the Holders of Registrable Securities hereunder do not in any way conflict with the rights granted to the Holders of McKesson's or the Trust's securities under any other agreements. b. Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless McKesson and the Trust have obtained the written consent of Holders of a majority of the then outstanding Underlying Common Stock constituting Registrable Securities (with Holders of Convertible Preferred Securities deemed to be the Holders, for purposes of this Section, of the number of outstanding shares of Underlying Common Stock into which such Convertible Preferred Securities are convertible or exchangeable or, in the event that the Convertible Debentures have been distributed to Holders upon liquidation of the Trust, with the Holders of Convertible Debentures deemed to be the Holders, for purpose of this Section, the number of outstanding shares of Underlying Common Stock into which such Convertible Debentures are convertible). Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders of Registrable Securities whose securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect the rights of other Holders of Registrable Securities may be given by Holders of at least a majority of the Registrable Securities being 18 sold by such Holders; provided, that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the immediately preceding sentence. c. Notices. All notices and other communications provided for or permitted hereunder shall be made in writing and shall be deemed given (i) when made, if made by hand delivery, (ii) upon confirmation, if made by telecopier, (iii) one (1) Business Day after being deposited with a reputable next-day courier, postage prepaid, or (iv) three (3) Business Days after being deposited with the United States Postal Service, with first-class postage prepaid to the parties as follows: (A) if to a Holder of Registrable Securities, at the most current address given by such Holder to McKesson and the Trust in accordance with the provisions of Section 9(e); (B) if to McKesson, to: McKesson Corporation McKesson Plaza One Post Street San Francisco, California 94104 Attention: General Counsel Telecopy: (415) 983-8826 (C) if to the Trust, to: McKesson Financing Trust c/o McKesson Corporation McKesson Plaza One Post Street San Francisco, California 94104 Attention: General Counsel Telecopy: (415) 983-8826 and (D) if to the Special Counsel, to: Brown & Wood llp 555 California Street San Francisco, California 94104 Attention: Paul C. Pringle Eric S. Haueter Telecopy: (415) 397-4621 19 or to such other address as such person may have furnished to the other persons identified in this Section 9(d) in writing in accordance herewith. d. Owner of Registrable Securities. McKesson and the Trust will maintain, or will cause its registrar and transfer agent to maintain, a register with respect to the Registrable Securities in which all transfers of Registrable Securities of which McKesson or the Trust has received notice will be recorded. McKesson and the Trust may deem and treat the person in whose name Registrable Securities are registered in such register of McKesson and the Trust as the owner thereof for all purposes, including, without limitation, the giving of notices under this Agreement. e. Approval of Holders. Whenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, Registrable Securities held by McKesson, the Trust or their respective affiliates (as such term is defined in Rule 405 under the Securities Act) (other than the Initial Purchaser or subsequent Holders of Registrable Securities if such subsequent Holders are deemed to be such affiliates solely by reason of their holdings of such Registrable Securities) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. f. Successors and Assigns. Any person who purchases any Registrable Securities from the Initial Purchaser shall be deemed, for purposes of this Agreement, to be an assignee of such Initial Purchaser. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties and shall inure to the benefit of and be binding upon each Holder of any Registrable Securities. g. Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be original and all of which taken together shall constitute one and the same agreement. h. Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. i. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. j. Severability. If any term, provision, covenant or restriction of this Agreement is held to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby, and the parties hereto shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such which may be hereafter declared invalid, void or unenforceable. 20 k. Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and is intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and the registration rights granted by McKesson and the Trust with respect to the Registrable Securities sold pursuant to the Placement Agreement. Except as provided in the Placement Agreement, there are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein, with respect to the registration rights granted by McKesson and the Trust with respect to the Registrable Securities. This Agreement supersedes all prior agreements and undertakings among the parties with respect to such registration rights. l. Termination. This Agreement and the obligations of the parties hereunder shall terminate upon the end of the Effectiveness Period, except for any liabilities or obligations under Sections 4, 5 or 6 hereof and the obligations to make payments of and provide for liquidated damages under Section 2(e) hereof to the extent such damages accrue prior to the end of the Effectiveness Period, each of which shall remain in effect in accordance with their terms. m. Joint and Several Obligations. Anything herein to the contrary notwithstanding, the representations, warranties, covenants and agreements of McKesson and the Trust contained in this Agreement are joint and several, other than the obligations under Section 5 hereof. n. Majority Holders. To the extent that this Agreement provides for any action, decision or determination to be taken or made by Holders of a majority of all the Registrable Securities or by Holders of a majority of certain Registrable Securities, then the determination of such majority holders shall be made in the same manner as is specified in Section 9(c). 21 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. McKESSON CORPORATION By: /s/ Ivan D. Meyerson ----------------------------- Name: Ivan D. Meyerson Title: Vice President McKESSON FINANCING TRUST By: /s/ William A. Armstrong ----------------------------- Name: William A. Armstrong Title: Trustee Solely as trustee and not in his individual capacity Accepted as of the date first above written, MORGAN STANLEY & CO. INCORPORATED By: /s/ Gordon G. Dean --------------------------- Name: Gordon G. Dean Title: Managing Director EX-12.1 9 RATIO OF EARNINGS EXHIBIT 12.1 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
NINE MONTHS FISCAL YEAR ENDED MARCH 31, ENDED DECEMBER 31, ----------------------------------- -------------------- 1996 1995 1994 1993 1992 1996 1995 ------ ------ ------ ------ ------ --------- --------- Income (loss) before income taxes........... 196.9 (53.5) 114.3 109.0 26.4 (23.2) 139.7 Fixed charges (1)....... 53.1 52.8 47.3 55.2 59.2 40.8 41.1 ------ ------ ------ ------ ------ --------- --------- Total earnings and fixed charges........ 250.0 (0.7) 161.6 164.2 85.6 17.6 180.8 Fixed charges (1)....... 53.1 52.8 47.3 55.2 59.2 40.8 41.1 Ratio of earnings to fixed charges (2)...... 4.71 (0.01) 3.42 2.97 1.45 0.43 4.40 ------ ------ ------ ------ ------ --------- ---------
- - -------- (1) Fixed charges consist of interest expense incurred and the portion of rental expense under operating leases deemed by the Company to be representative of the interest factor. (2) Earnings were inadequate to cover fixed charges by $0.7 million for fiscal 1995. EX-23.2 10 INDEPENDENT AUDITORS' CONSENT EXHIBIT 23.2 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in this Registration Statement of McKesson Corporation ("McKesson") on Form S-3 of our reports dated May 13, 1996 (December 31, 1996 as to Notes 8 and 17) on McKesson's consolidated financial statements (which report expresses an unqualified opinion and includes an explanatory paragraph relating to a change in the Company's method of accounting for post employment benefits to conform with Statement of Financial Accounting Standards No. 112) and our report dated May 13, 1996 (December 31, 1996 as to Notes 8 and 17) on McKesson's consolidated supplementary financial schedule, both such reports appearing in the Annual Report on Form 10-K/A of McKesson Corporation for the year ended March 31, 1996, and our report on FoxMeyer Corporation consolidated financial statements dated June 28, 1996 (March 18, 1997 as to paragraph seven of Note Q), which report expresses an unqualified opinion and includes an explanatory paragraph relating to the sale of the principal assets of FoxMeyer Corporation and its Chapter 7 bankruptcy filing, appearing in the Current Report on Form 8-K/A of McKesson Corporation filed with the Securities and Exchange Commission on April 28, 1997. We also consent to the reference to us under the heading "Experts" in the Prospectus, which is part of this Registration Statement. s/ DELOITTE & TOUCHE LLP San Francisco, California Dallas, Texas May 2, 1997 EX-24 11 POWER OF ATTORNEY Exhibit 24 ---------- POWER OF ATTORNEY Each of the undersigned directors and each of the undersigned officers of McKesson Corporation, a Delaware corporation (the "Company"), does hereby constitute and appoint Mark A. Pulido, Richard H. Hawkins, Ivan D. Meyerson and Nancy A. Miller, and each of them, as his or her true and lawful attorneys-in- fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead in any and all capacities, to execute and deliver in his or her name and on his or her behalf: (a) one or more Registration Statements (with all exhibits thereto) of the Company on Form S-3 or any other appropriate form proposed to be filed by the Company with the Securities and Exchange Commission (the "SEC"), (including, without limitation, Registration Statements filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, or any successor thereto (the "Securities Act")), for the purpose of registering under the Securities Act, the Company's 5% Trust Securities (the "Trust Securi ties"), the guarantees executed by McKesson for the benefit of the holders from time to time of the Trust Securities, the Company's 5% Convertible Junior Subordinated Debentures (the "Convertible Debentures") and the Company's common stock, par value $0.01 per share, issuable upon conversion of the Convertible Debentures (collectively, the "Registrable Securities"); (b) any and all supplements and amendments (including, without limitation, post-effective amendments) to such Registration Statements; and (c) any and all other documents and instruments in connection with the registration of the Registrable Securities which such attorneys-in-fact and agents, or any one of them, deem necessary or advisable to enable the Company to comply with (i) the Securities Act, the Securities Exchange Act of 1934, as amended, and the other federal securities laws of the United States of America and the rules, regulations and require- 1 ments of the SEC in respect of any thereof; (ii) the securities or Blue Sky laws of any state or other governmental subdivision of the United States of America; and (iii) the securities or similar applicable laws of any foreign jurisdiction; and each of the undersigned hereby grants unto such attorneys-in-fact and agents, and each of them, or his or her substitute or substitutes, each and every act and thing requisite and necessary to be done in and about the premises as fully as to all intents and purposes as he or she might or could do in person, and does hereby ratify and confirm as his or her own acts and deeds all that such attorneys-in-fact and agents, and each of them, or his or her substitute or substitutes, shall lawfully do or cause to be done by virtue hereof. Each one of such attorneys-in-fact and agents shall have, and may exercise, all of the powers hereby conferred. IN WITNESS WHEREOF, the undersigned has hereunto sub scribed this power of attorney this 26th day of March 1997. /s/Alan Seelenfreund /s/ John M. Pietruski - - -------------------------------------- ------------------------------------- Alan Seelenfreund John M. Pietruski /s/Mark A. Pulido /s/ Carl E. Reichardt - - -------------------------------------- ------------------------------------- Mark A. Pulido Carl E. Reichardt /s/ Mary G.F. Bitterman /s/ Jane E. Shaw - - -------------------------------------- ------------------------------------- Mary G. F. Bitterman Jane E. Shaw /s/ Tully M. Friedman /s/Robert H. Waterman, Jr. - - -------------------------------------- ------------------------------------- Tully M. Friedman Robert H. Waterman, Jr. /s/ Heidi E. Yodowitz /s/ Richard H. Hawkins - - -------------------------------------- ------------------------------------- Heidi E. Yodowitz Richard H. Hawkins 2 EX-25.1 12 FORM T-1, FNBC AS DEBT TRUSTEE Exhibit 25.1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM T-1 -------- STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(B)(2) _____ _________________________________ THE FIRST NATIONAL BANK OF CHICAGO (EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER) A NATIONAL BANKING ASSOCIATION 36-0899825 (I.R.S. EMPLOYER IDENTIFICATION NUMBER) ONE FIRST NATIONAL PLAZA, CHICAGO, ILLINOIS 60670-0126 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) THE FIRST NATIONAL BANK OF CHICAGO ONE FIRST NATIONAL PLAZA, SUITE 0286 CHICAGO, ILLINOIS 60670-0286 ATTN: LYNN A. GOLDSTEIN, LAW DEPARTMENT (312) 732-6919 (NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE) ___________________________________ MCKESSON CORPORATION (EXACT NAME OF OBLIGOR AS SPECIFIED IN ITS CHARTER) DELAWARE 36-6784329 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) MCKESSON PLAZA ONE POST STREET SAN FRANCISCO, CALIFORNIA 94104 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) 5% CONVERTIBLE JUNIOR SUBORDINATED DEBENTURES DUE 2027 (TITLE OF INDENTURE SECURITIES) 1 ITEM 1. GENERAL INFORMATION. FURNISH THE FOLLOWING -------------------- INFORMATION AS TO THE TRUSTEE: (A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH IT IS SUBJECT. Comptroller of Currency, Washington, D.C., Federal Deposit Insurance Corporation, Washington, D.C., The Board of Governors of the Federal Reserve System, Washington D.C. (B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS. The trustee is authorized to exercise corporate trust powers. ITEM 2. AFFILIATIONS WITH THE OBLIGOR. IF THE OBLIGOR ------------------------------ IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH AFFILIATION. No such affiliation exists with the trustee. ITEM 16. LIST OF EXHIBITS. LIST BELOW ALL EXHIBITS FILED AS A ----------------- PART OF THIS STATEMENT OF ELIGIBILITY. 1. A copy of the articles of association of the trustee now in effect.* 2. A copy of the certificates of authority of the trustee to commence business.* 3. A copy of the authorization of the trustee to exercise corporate trust powers.* 4. A copy of the existing by-laws of the trustee.* 5. Not Applicable. 6. The consent of the trustee required by Section 321(b) of the Act. 2 7. A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority. 8. Not Applicable. 9. Not Applicable. Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the trustee, The First National Bank of Chicago, a national banking association organized and existing under the laws of the United States of America, has duly caused this Statement of Eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Chicago and State of Illinois, on the 8th day of April, 1997. THE FIRST NATIONAL BANK OF CHICAGO, TRUSTEE BY /S/ RICHARD D. MANELLA RICHARD D. MANELLA VICE PRESIDENT * EXHIBITS 1, 2, 3 AND 4 ARE HEREIN INCORPORATED BY REFERENCE TO EXHIBITS BEARING IDENTICAL NUMBERS IN ITEM 16 OF THE FORM T-1 OF THE FIRST NATIONAL BANK OF CHICAGO, FILED AS EXHIBIT 25.1 TO THE REGISTRATION STATEMENT ON FORM S-3 OF SUNAMERICA INC. FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 25, 1996 (REGISTRATION NO. 333-14201). 3 EXHIBIT 6 THE CONSENT OF THE TRUSTEE REQUIRED BY SECTION 321(b) OF THE ACT April 8, 1997 Securities and Exchange Commission Washington, D.C. 20549 Gentlemen: In connection with the qualification of an indenture between McKesson Corporation and The First National Bank of Chicago, the undersigned, in accordance with Section 321(b) of the Trust Indenture Act of 1939, as amended, hereby consents that the reports of examinations of the undersigned, made by Federal or State authorities authorized to make such examinations, may be furnished by such authorities to the Securities and Exchange Commission upon its request therefor. Very truly yours, THE FIRST NATIONAL BANK OF CHICAGO BY: /S/ RICHARD D. MANELLA RICHARD D. MANELLA VICE PRESIDENT 4 EXHIBIT 7 Legal Title of Bank: The First National Bank of Chicago Call Date: 09/30/96 Address: One First National Plaza, Ste 0460 ST-BK: 17-1630 City, State Zip: Chicago, IL 60670 FFIEC 031 Page RC-1 FDIC Certificate No.: 0/3/6/1/8 --------- CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL AND STATE-CHARTERED SAVINGS BANKS FOR SEPTEMBER 30, 1996 All schedules are to be reported in thousands of dollars. Unless otherwise indicated, report the amount outstanding of the last business day of the quarter. SCHEDULE RC--BALANCE SHEET
DOLLAR AMOUNTS IN C400 Less than ------------ ---------- THOUSANDS RCFD BIL MIL THOU ----------------- ---- ------------ ASSETS 1. Cash and balances due from depository institutions (from Schedule RC-A): a. Noninterest-bearing balances and currency and coin(1).............................................. 0081 4,041,784 1.a. b. Interest-bearing balances(2).......................... 0071 5,184,890 1.b. 2. Securities a. Held-to-maturity securities(from Schedule RC-B, column A)......................................... 1754 0 2.a. b. Available-for-sale securities (from Schedule RC-B, column D)................................ 1773 3,173,481 2.b. 3. Federal funds sold and securities purchased under agreements to resell in domestic offices of the bank and its Edge and Agreement subsidiaries, and in IBFs: a. Federal Funds sold................................... 0276 3,505,874 3.a. b. Securities purchased under agreements to resell 0277 145,625 3.b. 4. Loans and lease financing receivables: a. Loans and leases, net of unearned income RC-C)....... RCFD 2122 22,835,958 4.a. b. LESS: Allowance for loan and lease losses............ RCFD 3123 418,851 4.b. c. LESS: Allocated transfer risk reserve................ RCFD 3128 0 4.c. d. Loans and leases, net of unearned income, allowance, and reserve (item 4.a minus 4.b and 4.c)................. 2125 22,417,107 4.d. 5. Assets held in trading accounts......................... 3545 8,121,948 5. 6. Premises and fixed assets (including capitalized leases)................................................ 2145 707,971 6. 7. Other real estate owned (from Schedule RC-M)............ 2150 9,184 7. 8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M)............... 2130 53,803 8. 9. Customers' liability to this bank on acceptances outstanding............................................. 2155 626,690 9. 10. Intangible assets (from Schedule RC-M).................. 2143 310,246 10. 11. Other assets (from Schedule RC-F)....................... 2160 1,658,123 11. 12. Total assets (sum of items 1 through 11)................ 2170 49,956,726 12.
__________________ (1) Includes cash items in process of collection and unposted debits. (2) Includes time certificates of deposit not held for trading. 5 Legal Title of Bank: The First National Bank of Chicago 09/30/96 ST-BK: Address: One First National Plaza, Ste 0460 17-1630 FFIEC 031 City, State Zip: Chicago, IL 60670 Page RC-2 FDIC Certificate No.: 0/3/6/1/8 --------- SCHEDULE RC-CONTINUED
DOLLAR AMOUNTS IN THOUSANDS BIL MIL THOU ------------------ ------------ LIABILITIES 13. Deposits: a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, part 1)............. RCON 2200 22,369,341 13.a. (1) Noninterest-bearing(1).............................. RCON 6631 9,726,987 13.a.(1) (2) Interest-bearing.................................... RCON 6636 12,642,354 13.a.(2) b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from Schedule RC-E, part II).......................................... RCFN 2200 10,026,286 13.b. (1) Noninterest bearing................................. RCFN 6631 336,746 13.b.(1) (2) Interest-bearing.................................... RCFN 6636 9,689,540 13.b.(2) 14. Federal funds purchased and securities sold under agreements to repurchase in domestic offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs: a. Federal funds purchased................................. RCFD 0278 884,553 14.a. b. Securities sold under agreements to repurchase.......... RCFD 0279 717,211 14.b. 15. a. Demand notes issued to the U.S. Treasury................ RCON 2840 14,120 15.a. b. Trading Liabilities..................................... RCFD 3548 5,409,585 15b. 16. Other borrowed money: a. With original maturity of one year or less.............. RCFD 2332 3,414,577 16.a. b. With original maturity of more than one year............ RCFD 2333 46,685 16b. 17. Mortgage indebtedness and obligations under capitalized leases......................................... RCFD 2910 285,671 17. 18. Bank's liability on acceptance executed and outstanding................................................ RCFD 2920 626,690 18. 19. Subordinated notes and debentures.......................... RCFD 3200 1,250,000 19. 20. Other liabilities (from Schedule RC-G)..................... RCFD 2930 1,005,205 20. 21. Total liabilities (sum of items 13 through 20)............. RCFD 2948 46,049,924 21. 22. Limited-Life preferred stock and related surplus........... RCFD 3282 0 22. EQUITY CAPITAL 23. Perpetual preferred stock and related surplus.............. RCFD 3838 0 23. 24. Common stock............................................... RCFD 3230 200,858 24. 25. Surplus (exclude all surplus related to preferred stock) RCFD 3839 2,925,894 25. 26. a. Undivided profits and capital reserves.................. RCFD 3632 770,670 26.a. b. Net unrealized holding gains (losses) on available-for-sale securities........................... RCFD 8434 10,194 26.b. 27. Cumulative foreign currency translation adjustments........ RCFD 3284 (814) 27. 28. Total equity capital (sum of items 23 through 27).......... RCFD 3210 3,906,802 28. 29. Total liabilities, limited-life preferred stock, and equity capital (sum of items 21, 22, and 28)...................... RCFD 3300 49,956,726 29.
Memorandum To be reported only with the March Report of Condition. 1. Indicate in the box at the right the number of the statement below that best describes the most comprehensive level of auditing work performed for the bank by independent external Number --------- auditors as of any date during 1995........... RCFD 6724........ N/A --------- 1 = Independent audit of the bank conducted in accordance 4. = Directors' examination of the bank performed by other with generally accepted auditing standards by a external auditors (may be required by state certified public accounting firm which submits a report chartering authority) on the bank 2 = Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements by external conducted in accordance with generally accepted auditors auditing standards by a certified public accounting 6 = Compilation of the bank's financial statements by external firm which submits a report on the consolidated holding auditors company (but not on the bank separately) 7 = Other audit procedures (excluding tax preparation work) 3 = Directors' examination of the bank conducted in 8 = No external audit work accordance with generally accepted auditing standards by a certified public accounting firm (may be required by state chartering authority)
___________________ (1) Includes total demand deposits and noninterest-bearing time and savings deposits. 6 EX-25.2 13 FORM T-1, FNBC AS INSTITUTIONAL TRUSTEE Exhibit 25.2 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM T-1 -------- STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(B)(2) _____ _________________________________ THE FIRST NATIONAL BANK OF CHICAGO (EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER) A NATIONAL BANKING ASSOCIATION 36-0899825 (I.R.S. EMPLOYER IDENTIFICATION NUMBER) ONE FIRST NATIONAL PLAZA, CHICAGO, ILLINOIS 60670-0126 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) THE FIRST NATIONAL BANK OF CHICAGO ONE FIRST NATIONAL PLAZA, SUITE 0286 CHICAGO, ILLINOIS 60670-0286 ATTN: LYNN A. GOLDSTEIN, LAW DEPARTMENT (312) 732-6919 (NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE) ___________________________________ MCKESSON FINANCING TRUST (EXACT NAME OF OBLIGOR AS SPECIFIED IN ITS CHARTER) DELAWARE 52-6841546 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) MCKESSON PLAZA ONE POST STREET SAN FRANCISCO, CALIFORNIA 94104 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) 5% TRUST CONVERTIBLE PREFERRED SECURITIES (TITLE OF INDENTURE SECURITIES) 1 ITEM 1. GENERAL INFORMATION. FURNISH THE FOLLOWING -------------------- INFORMATION AS TO THE TRUSTEE: (A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH IT IS SUBJECT. Comptroller of Currency, Washington, D.C., Federal Deposit Insurance Corporation, Washington, D.C., The Board of Governors of the Federal Reserve System, Washington D.C. (B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS. The trustee is authorized to exercise corporate trust powers. ITEM 2. AFFILIATIONS WITH THE OBLIGOR. IF THE OBLIGOR ------------------------------ IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH AFFILIATION. No such affiliation exists with the trustee. ITEM 16. LIST OF EXHIBITS. LIST BELOW ALL EXHIBITS FILED AS A ----------------- PART OF THIS STATEMENT OF ELIGIBILITY. 1. A copy of the articles of association of the trustee now in effect.* 2. A copy of the certificates of authority of the trustee to commence business.* 3. A copy of the authorization of the trustee to exercise corporate trust powers.* 4. A copy of the existing by-laws of the trustee.* 5. Not Applicable. 6. The consent of the trustee required by Section 321(b) of the Act. 2 7. A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority. 8. Not Applicable. 9. Not Applicable. Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the trustee, The First National Bank of Chicago, a national banking association organized and existing under the laws of the United States of America, has duly caused this Statement of Eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Chicago and State of Illinois, on the 8th day of April, 1997. THE FIRST NATIONAL BANK OF CHICAGO, TRUSTEE BY /S/ RICHARD D. MANELLA RICHARD D. MANELLA VICE PRESIDENT * EXHIBITS 1, 2, 3 AND 4 ARE HEREIN INCORPORATED BY REFERENCE TO EXHIBITS BEARING IDENTICAL NUMBERS IN ITEM 16 OF THE FORM T-1 OF THE FIRST NATIONAL BANK OF CHICAGO, FILED AS EXHIBIT 25.1 TO THE REGISTRATION STATEMENT ON FORM S-3 OF SUNAMERICA INC. FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 25, 1996 (REGISTRATION NO. 333-14201). 3 EXHIBIT 6 THE CONSENT OF THE TRUSTEE REQUIRED BY SECTION 321(b) OF THE ACT April 8, 1997 Securities and Exchange Commission Washington, D.C. 20549 Gentlemen: In connection with the qualification of the Amended and Restated Declaration of Trust of McKesson Financing Trust, the undersigned, in accordance with Section 321(b) of the Trust Indenture Act of 1939, as amended, hereby consents that the reports of examinations of the undersigned, made by Federal or State authorities authorized to make such examinations, may be furnished by such authorities to the Securities and Exchange Commission upon its request therefor. Very truly yours, THE FIRST NATIONAL BANK OF CHICAGO BY: /S/ RICHARD D. MANELLA RICHARD D. MANELLA VICE PRESIDENT 4 EXHIBIT 7 Legal Title of Bank: The First National Bank of Call Date: 09/30/96 Address: Chicago One First National ST-BK: 17-1630 FFIEC 031 City, State Zip: Plaza, Ste 0460 Chicago, Page RC-1 FDIC Certificate No.: IL 60670 0/3/6/1/8 --------- CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL AND STATE-CHARTERED SAVINGS BANKS FOR SEPTEMBER 30, 1996 All schedules are to be reported in thousands of dollars. Unless otherwise indicated, report the amount outstanding of the last business day of the quarter. SCHEDULE RC--BALANCE SHEET
DOLLAR AMOUNTS IN C400 LESS THAN - --------- ----------- THOUSANDS RCFD BIL MIL THOU ----------------- ---- ------------ ASSETS 1. Cash and balances due from depository institutions (from Schedule RC-A): a. Noninterest-bearing balances and currency and coin(1)........................................................ 0081 4,041,784 1.a. b. Interest-bearing balances(2).................................... 0071 5,184,890 1.b. 2. Securities a. Held-to-maturity securities(from Schedule RC-B, column A).................................................... 1754 0 2.a. b. Available-for-sale securities (from Schedule RC-B, column D)........................................... 1773 3,173,481 2.b. 3. Federal funds sold and securities purchased under agreements to resell in domestic offices of the bank and its Edge and Agreement subsidiaries, and in IBFs: a. Federal Funds sold.............................................. 0276 3,505,874 3.a. b. Securities purchased under agreements to resell................. 0277 145,625 3.b. 4. Loans and lease financing receivables: a. Loans and leases, net of unearned income (from Schedule RC-C) b. LESS: Allowance for loan and lease losses....................... RCFD 3123 418,851 4.b. c. LESS: Allocated transfer risk reserve........................... RCFD 3128 0 4.c. d. Loans and leases, net of unearned income, allowance, and reserve (item 4.a minus 4.b and 4.c)............................... 2125 22,417,107 4.d. 5. Assets held in trading accounts.................................... 3545 8,121,948 5. 6. Premises and fixed assets (including capitalized leases)........... 2145 707,971 6. 7. Other real estate owned (from Schedule RC-M)....................... 2150 9,184 7. 8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M)..................................... 2130 53,803 8. 9. Customers' liability to this bank on acceptances outstanding....... 2155 626,690 9. 10. Intangible assets (from Schedule RC-M)............................. 2143 310,246 10. 11. Other assets (from Schedule RC-F).................................. 2160 1,658,123 11. 12. Total assets (sum of items 1 through 11)........................... 2170 49,956,726 12.
__________________ (1) Includes cash items in process of collection and unposted debits. (2) Includes time certificates of deposit not held for trading. 5 Legal Title of Bank: The First National Bank of Call Date: 09/30/96 Address: Chicago One First National Plaza, ST-BK: 17-1630 FFIE City, State Zip: Ste 0460 Chicago, IL 60670 031 Page RC-2 FDIC Certificate No.: 0/3/6/1/8 --------- SCHEDULE RC-CONTINUED
DOLLAR AMOUNTS IN Thousands BIL MIL THOU ------------------ ------------ LIABILITIES 13. Deposits: a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, part 1)...... RCON 2200 22,369,341 13.a. (1) Noninterest-bearing(1)....................... RCON 6631 9,726,987 13.a.(1) (2) Interest-bearing............................. RCON 6636 12,642,354 13.a.(2) b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from Schedule RC-E, part II)................................... RCFN 2200 10,026,286 13.b. (1) Noninterest bearing.......................... RCFN 6631 336,746 13.b.(1) (2) Interest-bearing............................. RCFN 6636 9,689,540 13.b.(2) 14. Federal funds purchased and securities sold under agreements to repurchase in domestic offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs: a. Federal funds purchased.......................... RCFD 0278 884,553 14.a. b. Securities sold under agreements to repurchase.................................... RCFD 0279 717,211 14.b. 15. a. Demand notes issued to the U.S. Treasury......... RCON 2840 14,120 15.a. b. Trading Liabilities.............................. RCFD 3548 5,409,585 15b. 16. Other borrowed money: a. With original maturity of one year or less....... RCFD 2332 3,414,577 16.a. b. With original maturity of more than one year......................................... RCFD 2333 46,685 16b. 17. Mortgage indebtedness and obligations under capitalized leases.................................. RCFD 2910 285,671 17. 18. Bank's liability on acceptance executed and outstanding......................................... RCFD 2920 626,690 18. 19. Subordinated notes and debentures................... RCFD 3200 1,250,000 19. 20. Other liabilities (from Schedule RC-G).............. RCFD 2930 1,005,205 20. 21. Total liabilities (sum of items 13 through 20)...... RCFD 2948 46,049,924 21. 22. Limited-Life preferred stock and related surplus.... RCFD 3282 0 22. EQUITY CAPITAL 23. Perpetual preferred stock and related surplus....... RCFD 3838 0 23. 24. Common stock........................................ RCFD 3230 200,858 24. 25. Surplus (exclude all surplus related to preferred stock).............................................. RCFD 3839 2,925,894 25. 26. a. Undivided profits and capital reserves........... RCFD 3632 770,670 26.a. b. Net unrealized holding gains (losses) on available-for-sale securities.................... RCFD 8434 10,194 26.b. 27. Cumulative foreign currency translation adjustments. RCFD 3284 (814) 27. 28. Total equity capital (sum of items 23 through 27)... RCFD 3210 3,906,802 28. 29. Total liabilities, limited-life preferred stock, and equity capital (sum of items 21, 22, and 28).... RCFD 3300 49,956,726 29.
Memorandum To be reported only with the March Report of Condition. 1. Indicate in the box at the right the number of the statement below that best describes the most comprehensive level of auditing work performed for the bank by independent external Number --------- auditors as of any date during 1995...........RCFD 6724.. N/A M.1. --------- 1 = Independent audit of the bank conducted in 4. = Directors' examination of the bank performed accordance by other with generally accepted auditing standards by external auditors (may be required by state a certified chartering public accounting firm which submits a report authority) on the bank 2 = Independent audit of the bank's parent holding 5 = Review of the bank's financial statements by company external conducted in accordance with generally auditors accepted auditing standards by a certified public accounting 6 = Compilation of the bank's financial firm which statements by external submits a report on the consolidated holding auditors company (but not on the bank separately) 7 = Other audit procedures (excluding tax preparation work) 3 = Directors' examination of the bank conducted in 8 = No external audit work accordance with generally accepted auditing standards by a certified public accounting firm (may be required by state chartering authority)
___________________ (1) Includes total demand deposits and noninterest-bearing time and savings deposits. 6 EX-25.3 14 FORM T-1, FNBC AS PREFERRED GUARANTEE TRUSTEE Exhibit 25.3 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM T-1 -------- STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(B)(2) _____ __________________________________ THE FIRST NATIONAL BANK OF CHICAGO (EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER) A NATIONAL BANKING ASSOCIATION 36-0899825 (I.R.S. EMPLOYER IDENTIFICATION NUMBER) ONE FIRST NATIONAL PLAZA, CHICAGO, ILLINOIS 60670-0126 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) THE FIRST NATIONAL BANK OF CHICAGO ONE FIRST NATIONAL PLAZA, SUITE 0286 CHICAGO, ILLINOIS 60670-0286 ATTN: LYNN A. GOLDSTEIN, LAW DEPARTMENT (312) 732-6919 (NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE) __________________________________ MCKESSON FINANCING TRUST (EXACT NAME OF OBLIGOR AS SPECIFIED IN ITS CHARTER) DELAWARE 52-6841546 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) MCKESSON PLAZA ONE POST STREET SAN FRANCISCO, CALIFORNIA 94104 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) GUARANTEE OF 5% TRUST CONVERTIBLE PREFERRED SECURITIES MCKESSON FINANCING TRUST (TITLE OF INDENTURE SECURITIES) 1 ITEM 1. GENERAL INFORMATION. FURNISH THE FOLLOWING -------------------- INFORMATION AS TO THE TRUSTEE: (A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH IT IS SUBJECT. Comptroller of Currency, Washington, D.C., Federal Deposit Insurance Corporation, Washington, D.C., The Board of Governors of the Federal Reserve System, Washington D.C. (B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS. The trustee is authorized to exercise corporate trust powers. ITEM 2. AFFILIATIONS WITH THE OBLIGOR. IF THE OBLIGOR ------------------------------ IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH AFFILIATION. No such affiliation exists with the trustee. ITEM 16. LIST OF EXHIBITS. LIST BELOW ALL EXHIBITS FILED AS A ----------------- PART OF THIS STATEMENT OF ELIGIBILITY. 1. A copy of the articles of association of the trustee now in effect.* 2. A copy of the certificates of authority of the trustee to commence business.* 3. A copy of the authorization of the trustee to exercise corporate trust powers.* 4. A copy of the existing by-laws of the trustee.* 5. Not Applicable. 6. The consent of the trustee required by Section 321(b) of the Act. 2 7. A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority. 8. Not Applicable. 9. Not Applicable. Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the trustee, The First National Bank of Chicago, a national banking association organized and existing under the laws of the United States of America, has duly caused this Statement of Eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Chicago and State of Illinois, on the 8th day of April, 1997. THE FIRST NATIONAL BANK OF CHICAGO, TRUSTEE BY /S/ RICHARD D. MANELLA RICHARD D. MANELLA VICE PRESIDENT * EXHIBITS 1, 2, 3 AND 4 ARE HEREIN INCORPORATED BY REFERENCE TO EXHIBITS BEARING IDENTICAL NUMBERS IN ITEM 16 OF THE FORM T-1 OF THE FIRST NATIONAL BANK OF CHICAGO, FILED AS EXHIBIT 25.1 TO THE REGISTRATION STATEMENT ON FORM S-3 OF SUNAMERICA INC. FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 25, 1996 (REGISTRATION NO. 333-14201). 3 EXHIBIT 6 THE CONSENT OF THE TRUSTEE REQUIRED BY SECTION 321(b) OF THE ACT April 8, 1997 Securities and Exchange Commission Washington, D.C. 20549 Gentlemen: In connection with the qualification of an indenture between McKesson Corporation and The First National Bank of Chicago, the undersigned, in accordance with Section 321(b) of the Trust Indenture Act of 1939, as amended, hereby consents that the reports of examinations of the undersigned, made by Federal or State authorities authorized to make such examinations, may be furnished by such authorities to the Securities and Exchange Commission upon its request therefor. Very truly yours, THE FIRST NATIONAL BANK OF CHICAGO BY: /S/ RICHARD D. MANELLA RICHARD D. MANELLA VICE PRESIDENT 4 EXHIBIT 7 Legal Title of Bank: The First National Bank of Chicago Call Date: 09/30/96 Address: One First National Plaza, Ste 0460 ST-BK: 17-1630 FFI City, State Zip: Chicago, IL 60670 EC 031 FDIC Certificate No.: 0/3/6/1/8 Page RC-1 --------- CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL AND STATE-CHARTERED SAVINGS BANKS FOR SEPTEMBER 30, 1996 All schedules are to be reported in thousands of dollars. Unless otherwise indicated, report the amount outstanding of the last business day of the quarter. SCHEDULE RC--BALANCE SHEET
DOLLAR AMOUNTS IN C400 LESS THAN- ------------ ----------- THOUSANDS RCFD BIL MIL THOU ----------------- ---- ------------ ASSETS 1. Cash and balances due from depository institutions (from Schedule RC-A): a. Noninterest-bearing balances and currency and coin(1)....................................... 0081 4,041,784 1.a. b. Interest-bearing balances(2)................... 0071 5,184,890 1.b. 2. Securities a. Held-to-maturity securities(from Schedule RC-B, column A)................................... 1754 0 2.a. b. Available-for-sale securities (from Schedule RC-B, column D).......................... 1773 3,173,481 2.b. 3. Federal funds sold and securities purchased under agreements to resell in domestic offices of the bank and its Edge and Agreement subsidiaries, and in IBFs: a. Federal Funds sold............................. 0276 3,505,874 3.a. b. Securities purchased under agreements to resell............................................ 0277 145,625 3.b. 4. Loans and lease financing receivables: a. Loans and leases, net of unearned income (from Schedule RC-C)....................... RCFD 2122 22,835,958 4.a. b. LESS: Allowance for loan and lease losses............................................ RCFD 3123 418,851 4.b. c. LESS: Allocated transfer risk reserve.......... RCFD 3128 0 4.c. d. Loans and leases, net of unearned income, allowance, and reserve (item 4.a minus 4.b and 4.c)...................... 2125 22,417,107 4.d. 5. Assets held in trading accounts................... 3545 8,121,948 5. 6. Premises and fixed assets (including capitalized leases)............................... 2145 707,971 6. 7. Other real estate owned (from Schedule RC-M)...... 2150 9,184 7. 8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M)......... 2130 53,803 8. 9. Customers' liability to this bank on acceptances outstanding....................................... 2155 626,690 9. 10. Intangible assets (from Schedule RC-M)............ 2143 310,246 10. 11. Other assets (from Schedule RC-F)................. 2160 1,658,123 11. 12. Total assets (sum of items 1 through 11).......... 2170 49,956,726 12.
__________________ (1) Includes cash items in process of collection and unposted debits. (2) Includes time certificates of deposit not held for trading. 5 Legal Title of Bank: The First National Bank of Chicago Call Date: 09/30/96 ST-BK: 17-1630 FFIEC 031 Address: One First National Plaza, Ste 0460 Page RC-2 City, State Zip: Chicago, IL 60670 FDIC Certificate No.: 0/3/6/1/8 --------- SCHEDULE RC-CONTINUED DOLLAR AMOUNTS IN Thousands BIL MIL THOU ----------------- ------------ LIABILITIES 13. Deposits: a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, part 1)............ RCON 2200 22,369,341 13.a. (1) Noninterest-bearing(1)............. RCON 6631 9,726,987 13.a.(1) (2) Interest-bearing................... RCON 6636 12,642,354 13.a.(2) b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from Schedule RC-E, part II)..... RCFN 2200 10,026,286 13.b. (1) Noninterest bearing................ RCFN 6631 336,746 13.b.(1) (2) Interest-bearing................... RCFN 6636 9,689,540 13.b.(2) 14. Federal funds purchased and securities sold under agreements to repurchase in domestic offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs: a. Federal funds purchased................ RCFD 0278 884,553 14.a. b. Securities sold under.................. RCFD 0279 717,211 14.b. agreements to repurchase 15. a. Demand notes issued to the U.S. Treasury............................. RCON 2840 14,120 15.a. b. Trading Liabilities.................... RCFD 3548 5,409,585 15b. 16. Other borrowed money: a. With original maturity of one year or less.............................. RCFD 2332 3,414,577 16.a. b. With original maturity of more than one year............................. RCFD 2333 46,685 16b. 17. Mortgage indebtedness and obligations under capitalized leases.................................... RCFD 2910 285,671 17. 18. Bank's liability on acceptance executed and outstanding.................. RCFD 2920 626,690 18. 19. Subordinated notes and debentures......... RCFD 3200 1,250,000 19. 20. Other liabilities (from Schedule RC-G)..................................... RCFD 2930 1,005,205 20. 21. Total liabilities (sum of items 13 through 20)............................ RCFD 2948 46,049,924 21. 22. Limited-Life preferred stock and related surplus........................... RCFD 3282 0 22. EQUITY CAPITAL 23. Perpetual preferred stock and related surplus........................... RCFD 3838 0 23. 24. Common stock.............................. RCFD 3230 200,858 24. 25. Surplus (exclude all surplus related to preferred stock)............... RCFD 3839 2,925,894 25. 26. a. Undivided profits and capital reserves. RCFD 3632 770,670 26.a. b. Net unrealized holding gains (losses) on available-for-sale securities................................ RCFD 8434 10,194 26.b. 27. Cumulative foreign currency translation adjustments................... RCFD 3284 (814) 27. 28. Total equity capital (sum of items 23 through 27)...................... RCFD 3210 3,906,802 28. 29. Total liabilities, limited-life preferred stock, and equity capital (sum of items 21, 22, and 28)....................................... RCFD 3300 49,956,726 29.
Memorandum To be reported only with the March Report of Condition. 1. Indicate in the box at the right the number of the statement below that best describes the most comprehensive level of auditing work performed for the bank by independent external Number ---------------- auditors as of any date during 1995 . . . . . . . . . . . . . . . . ....RCFD 6724...... N/A M.1. ----------------
1 = Independent audit of the bank conducted in 4. = Directors' examination of the bank performed accordance with generally accepted auditing standards by by other external auditors (may be required by state a certified public accounting firm which submits a report chartering authority) on the bank 5 = Review of the bank's financial statements by 2 = Independent audit of the bank's parent holding external auditors company conducted in accordance with generally 6 = Compilation of the bank's financial accepted auditing standards by a certified public statements by external auditors accounting firm which submits a report on the 7 = Other audit procedures (excluding tax consolidated holding company auditors preparation work) (but not on the bank separately) 8 = No external audit work 3 = Directors' examination of the bank conducted in accordance with generally accepted auditing standards by a certified public accounting firm (may be required by state chartering authority)
_______________________ (1) Includes total demand deposits and noninterest-bearing time and savings deposits. 6 -----END PRIVACY-ENHANCED MESSAGE-----