10-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2002

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-13252

McKESSON CORPORATION

A Delaware Corporation

I.R.S. Employer Identification Number
94-3207296

One Post Street,
San Francisco, CA 94104
Telephone (415) 983-8300

Securities registered pursuant to Section 12(b) of the Act:

(Title of Each Class) Common Stock, $0.01 par value	(Name of Each Exchange on Which Registered) New York Stock Exchange Pacific Exchange, Inc.
Preferred Stock Purchase Rights	New York Stock Exchange Pacific Exchange, Inc.

Securities registered pursuant to Section 12(g) of the Act: None.

     Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x   No o

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

     Aggregate market value of voting stock held by nonaffiliates of the Registrant on June 6, 2002: $10,516,429,238

     Number of shares of common stock outstanding on June 6, 2002: 289,788,626

DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Registrant’s Proxy Statement for its Annual Meeting of Stockholders to be held on July 31, 2002 are incorporated by reference into Part III of this report.

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TABLE OF CONTENTS

PART I
	Item 1. Business
	Item 2. Properties
	Item 3. Legal Proceedings
	Item 4. Submission of Matters to a Vote of Security Holders
	Executive Officers of the Registrant
PART  II
	Item 5. Market for the Registrant’s Common Stock and Related Stockholder Matters
	Item 6. Selected Financial Data
	Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 7A. Quantitative and Qualitative Disclosures about Market Risk
	Item 8. Financial Statements and Supplementary Data
	Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
PART III
	Item 10. Directors and Executive Officers of the Registrant
	Item 11. Executive Compensation
	Item 12. Security Ownership of Certain Beneficial Owners and Management
	Item 13. Certain Relationships and Related Transactions
PART IV
	Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K
SIGNATURES
EXHIBIT INDEX
Exhibit 3.2
Exhibit 4.6
Exhibit 4.7
Exhibit 10.1
Exhibit 10.4
Exhibit 10.5
Exhibit 10.17
Exhibit 10.25
Exhibit 10.43
Exhibit 10.44
Exhibit 21
Exhibit 23.1
Exhibit 24

TABLE OF CONTENTS

Item		Page
	PART  I
1.	Business		3
2.	Properties		8
3.	Legal Proceedings		8
4.	Submission of Matters to a Vote of Security Holders		17
	Executive Officers of the Registrant		17
	PART  II
5.	Market for the Registrant's Common Stock and Related Stockholder Matters		18
6.	Selected Financial Data		18
7.	Management's Discussion and Analysis of Financial Condition and Results of Operations		18
7A.	Quantitative and Qualitative Disclosures About Market Risk		18
8.	Financial Statements and Supplementary Data		18
9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		18
	PART  III
10.	Directors and Executive Officers of the Registrant		18
11.	Executive Compensation		19
12.	Security Ownership of Certain Beneficial Owners and Management		19
13.	Certain Relationships and Related Transactions		19
	PART  IV
14.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K		19
	Signatures		20

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McKESSON CORPORATION

PART  I

Item 1.  Business

General

     McKesson Corporation (“McKesson,” the “Company,” the “Registrant”, or “we” and other similar pronouns), the world’s largest healthcare service and technology company and a Fortune 31 corporation, delivers supply and information management solutions that are designed to reduce costs and improve quality for its healthcare customers.

     The Company’s fiscal year begins on April 1 and ends on March 31. Unless otherwise noted, all references in this document to a particular year shall mean the Company’s fiscal year.

Business Segments

     We conduct our business through three operating segments: Pharmaceutical Solutions, Medical-Surgical Solutions and Information Solutions. The Pharmaceutical Solutions segment includes our U.S. and Canadian pharmaceutical and healthcare products distribution businesses and an equity interest in a leading pharmaceutical distributor in Mexico. Our U.S. Pharmaceutical Solutions business also includes the manufacture and sale of automated pharmaceutical dispensing systems for hospitals and retail pharmacists, medical management services and tools to payors and providers, marketing and other support services to pharmaceutical manufacturers, consulting and outsourcing services to pharmacies, and distribution of first-aid products to industrial and commercial customers. The Medical-Surgical Solutions segment distributes medical-surgical supplies and equipment, and provides logistics and related services within the U.S. The Information Solutions segment delivers enterprise-wide patient care, clinical, financial, supply chain, managed care and strategic management software solutions, as well as outsourcing and other services, to healthcare organizations throughout the U.S. and certain foreign countries.

     Net revenues for our business segments for the last three years were as follows:

(Dollars in billions)	2002				2001				2000
Pharmaceutical Solutions	$	46.3	93	%	$	38.4	92	%	$	33.1	90	%
Medical-Surgical Solutions		2.7	5			2.7	6			2.6	7
Information Solutions		1.0	2			0.9	2			1.0	3
Total	$	50.0	100	%	$	42.0	100	%	$	36.7	100	%

Pharmaceutical Solutions

     Through our Pharmaceutical Solutions segment, we are a leading distributor of ethical and proprietary drugs, and health and beauty care products and we are a leading provider of services to the healthcare industry in North America. Our Pharmaceutical Solutions segment consists of the following businesses: U.S. Pharmaceutical, International Pharmaceutical, Automation, Health Solutions, Zee Medical and Medication Management (collectively, the “Pharmaceutical Solutions” segment).

     The U.S. Pharmaceutical distribution business supplies pharmaceuticals and healthcare related products to three primary customer segments: retail chains (drug chains, food stores, mail order and mass merchandisers), retail independent pharmacies and institutional providers (including hospitals, integrated delivery networks and long-term care providers) through a network of 30 distribution centers that covers 50 states. These three customer categories represented approximately 41%, 22%, and 37% of U.S. Pharmaceutical Distribution’s revenues in 2002. We promote electronic order entry systems and a wide range of computerized merchandising and asset management services for pharmaceutical retailers and healthcare institutions using the trade name of EconoLink® and a number of related service marks. We have developed advanced marketing programs and information services for independent retail pharmacies. These initiatives include the Valu-Rite®, Valu-Rite/CareMax® and Health Mart® retail networks, the OmniLink® centralized pharmacy technology platform, which offers retail network members connectivity with managed care organizations while promoting compliance with managed care plans, McKesson OneStop Generics^SM, our program to purchase generic

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drugs and .com pharmacy solutions^SM, a service initiative that allows independent pharmacies to set up their own websites for selling over the counter products and prescription refills to their customers. The business’ Supply Management OnLine^SM enables ordering of pharmaceuticals and access to information through Internet connections. Our nationwide network of distribution centers utilizes the Acumax® Plus warehouse management system, which provides real-time inventory statistics and tracks products from the receiving dock to shipping using scanned bar code information and radio frequency signals, with accuracy levels above 99%, to help ensure that the right product arrives at the right time and place for both our customers and their patients. We believe that our financial strength, purchasing leverage, affiliation networks, nationwide network of distribution centers, and advanced logistics and information technologies provide competitive advantages to our pharmaceutical distribution operations.

     The International Pharmaceutical business includes Medis Health and Pharmaceutical Services, Inc. (“Medis”), a wholly-owned subsidiary and the largest pharmaceutical distributor in Canada; and our 22% equity interest in Nadro, S.A. de C.V., a leading pharmaceutical distributor in Mexico.

     Automation manufactures and markets automated pharmacy systems and services to hospitals through its McKesson Automated Healthcare (“MAH”) and to retail pharmacies through its McKesson Automated Prescription Systems (“APS”) units. Key products of MAH include the ROBOT-Rx™ system, a robotic pharmacy dispensing and utilization tracking system that enables hospitals to lower pharmacy costs while significantly improving the accuracy of pharmaceutical dispensing, AcuDose-Rx™ unit-based cabinets which automate the storage, dispensing and tracking of commonly used drugs in patient areas, Admin-Rx™, which records, automates, and streamlines drug administration and medication information requirements through bar code scanning at the patient’s bedside and SupplyScan^SM, a point-of-use supply management system. APS manufactures a wide range of pharmaceutical dispensing and productivity products including Baker Cells™ and Baker Cassettes™, modular units that provide pharmacists with quick and accurate counting capabilities combined with efficient space management, Autoscript™, a robotic pharmacy dispensing system that enables retail pharmacies to lower pharmacy costs through high volume dispensing while improving accuracy through the use of bar code technology, and Pharmacy 2000™, an interactive workstation system which combines software and automation to improve productivity throughout the pharmacy prescription sales process.

     Health Solutions offers a comprehensive selection of products and programs that allows payor organizations to better manage patient costs while improving outcomes of medical care. It also provides pharmaceutical and biotechnology manufacturers with a wide array of technology-based marketing and patient support services to help advance their market success. Health Solutions’ CareEnhance™ brand of products and services enables health plans, employers and other payor organizations to improve health care while managing costs. Services such as disease management, 24/7 nurse triage, health counseling and patient education, together with software tools for patient care management, analysis and reporting, serve to enhance quality, improve profitability, reduce risk and optimize program performance. Health Solutions also designs and implements a broad assortment of marketing and patient support programs that help pharmaceutical and biotechnology manufacturers succeed in the marketplace, manages distribution programs that control access to products in short supply, and offers a complete range of specialty pharmaceutical distribution and support services. DTCSolutions® represents a full suite of database management, telecommunications and fulfillment services that work in support of manufacturers’ direct-to-consumer campaigns, and the group’s single point-of-contact Patient Resource Center™ offers direct-to-patient support programs built around a manufacturer’s brand product.

     Zee Medical is the nation’s leading provider of first-aid and safety products, training and services. Zee Medical distributes first-aid products and safety supplies and offers safety programs and materials to assist industrial and commercial customers, reducing their exposure to escalating healthcare costs associated with on-the-job injuries and illnesses.

     Medication Management is a leading pharmacy management, purchasing, consulting and information services company that combines clinical expertise, financial management capabilities, operational tools and technologies and experience to assist healthcare organizations optimize care and pharmaceutical resources. Medication Management provides customized solutions that allow its customers to improve their pharmaceutical distribution, automation and information technology capabilities and measure quality improvement through proven clinical and operational metrics.

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Medical–Surgical Solutions

     The Medical-Surgical Solutions segment offers a full range of medical-surgical supplies, equipment, logistics and related services to healthcare providers that include hospitals, physicians’ offices, extended care, and homecare sites. The Medical-Surgical Solutions segment is the nation’s third largest distributor of medical-surgical supplies to hospitals (acute care) and is the leading provider of supplies to the full range of alternate-site healthcare facilities, including physicians and clinics (primary care), and extended care and homecare sites (extended care). The Medical-Surgical Solutions segment’s electronic ordering system, Supply Management On-Line^SM, provides an advanced way of ordering medical-surgical products over the Internet, and its Optipak® program allows physicians to customize ordering of supplies according to individual surgical procedure preferences.

Information Solutions

     Our Information Solutions segment provides a comprehensive portfolio of software, support and services to help healthcare organizations improve patient safety, reduce the cost and variability of care, and better manage their resources and revenue stream. The Information Solutions segment markets its products and services to integrated delivery networks, hospitals, physician group practices, home health providers, managed care providers and payors. Sixty-one percent of hospital-based integrated delivery networks use one or more products from this segment. The segment also sells its solutions internationally through subsidiaries and/or distribution agreements in Canada, the United Kingdom, Ireland, Cyprus, France, the Netherlands, Saudi Arabia, Kuwait, Australia and New Zealand. This business segment has sales offices in the United Kingdom and Europe and a software manufacturing facility in Ireland.

     The product portfolio for the Information Solutions segment is organized into three major solutions sets — clinical management, revenue cycle management and resource management, with a variety of subsets of these solutions designed to address specific healthcare business issues (e.g., physician access, medication safety and homecare agency needs). To ensure that organizations achieve the maximum value of their information technology investment, the Information Solutions segment also offers a variety of services to support the implementation and use of solutions as well as assist with business and clinical redesign, process re-engineering and staffing (both information technology and back office).

     Clinical Management. The segment’s clinical solutions are designed to enable organizations to improve medication safety, accelerate physician acceptance of information technology and reduce variability in healthcare quality and costs. The clinical management solution set, known as Horizon Clinicals™, is built using architecture to facilitate integration and enable modular deployment of systems. It includes a clinical data repository, document imaging, real-time decision support, point-of-care nursing documentation, enterprise laboratory and pharmacy, an emergency department solution and an ambulatory medical record. Horizon Clinicals™ also includes solutions to facilitate physician access to patient information such as Web-based physician portals and wireless devices that draw on information from the hospital’s information systems.

     Revenue Cycle Management. The segment’s revenue cycle solution sets is designed to reduce days in accounts receivable, facilitate insurance claim processing, reduce costs and improve productivity. Examples of solutions sets include contract management, electronic claims processing and coding compliance checking. The segment’s hospital information systems also play a key role in revenue cycle management by working with these solutions to automate the operation of individual departments and their respective functions within the inpatient environment.

     Resource Management. The segment’s resource management solution consists of an integrated suite of applications that enhance an organization’s ability to forecast and optimize the enterprise-wide use of resources (labor, supplies, equipment and facilities) associated with the delivery of care. The solution helps automate and link resource requirements to care protocols, resulting in increased profitability, enhanced decision-making, and improved business processes.

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     Technology Services. The group works with healthcare organizations to support the operation of their information systems by providing the technical infrastructure designed to maximize application accessibility, availability, security and performance.

     Professional Services. Professional services help customers achieve business results from their software investment through a wide array of quality service options including consulting for business process improvement and re-design, as well as implementation, project management, technical, and education services relating to all products in the Information Solutions segment.

     Outsourcing Services. The Information Solutions segment has been in the business of helping healthcare organizations focus their resources where they are needed while the segment manages their information technology or revenue cycle operations through outsourcing. Outsourcing service options include managing hospital data processing operations, as well as strategic information systems planning and management, revenue cycle processes, payroll processing, business office administration, and major system conversions.

Acquisitions, Investments and Dispositions

     We have undertaken strategic initiatives in recent years designed to further focus on our core healthcare businesses and enhance our competitive position. These include the following significant acquisitions, investments and dispositions:

• On May 17, 2002, the Company and Quintiles Transnational Corporation formed a joint venture, Verispan, L.L.C. (“Verispan”). Verispan is a provider of patient-level data delivered in near real time as well as a supplier of other healthcare information. We have an approximate 46% equity interest in the joint venture. The initial contribution to the joint venture of $12.1 million consisted of $7.7 million in net assets from a Pharmaceutical Solutions’ business and $4.4 million in cash, and is subject to adjustment. We have also committed to provide additional aggregate cash contributions of $9.4 million and to purchase a total of $15.0 million in services from the joint venture through 2007.

• On May 2, 2002, we entered into an agreement to acquire A.L.I. Technologies Inc. (“A.L.I.”), of Vancouver, British Columbia, Canada, by means of a cash tender offer for CN$43.50 per share, or about CN$530 million (approximately US$340 million). A.L.I. provides medical imaging solutions which are designed to streamline access to diagnostic information, automate clinical workflow and eliminate the need for film. The acquisition is expected to close by the second quarter of fiscal 2003, and is subject to regulatory approval and other customary conditions.

• In February 2002, our Pharmaceutical Solutions segment acquired the net assets of PMO, Inc., a national specialty pharmacy business (doing business under the name of VitaRx), that provides mail order pharmaceutical prescription services to managed care patients for approximately $62 million in cash.

• In 2002, we sold three businesses, Abaton.com, Inc., Amysis Managed Care Systems, Inc. and Pro Dental Corporation. Two of these businesses were from our Information Solutions segment and one was from our Pharmaceutical Solutions segment. Net proceeds from the sale of these businesses were $0.2 million.

• In July 2000, we acquired MediVation, Inc., a provider of an automated web-based system for physicians to communicate with patients online, for approximately $24 million in cash, $14 million in our common stock and the assumption of $6 million of employee stock incentives.

• In April 2000, the Company and three other healthcare product distributors announced an agreement to form the New Health Exchange, which was subsequently renamed Health Nexis LLC (“Health Nexis”). In the third quarter of 2002, Health Nexis merged with The Global Health Exchange, which significantly diluted our percentage ownership in the combined organization. As a result, we changed from the equity to the cost method of accounting for this investment. In 2002 and 2001, we invested $7.0 million and $10.8 million in Health Nexis.

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• In November 1999, we acquired Abaton.com, Inc., a provider of internet-based clinical applications for use by physician practices, pharmacy benefit managers, benefit payors, laboratories and pharmacies, for approximately $95 million in cash and the assumption of $8 million of employee stock incentives.

• In February 2000, we disposed of our last non-healthcare business, our wholly-owned subsidiary, McKesson Water Products Company, for approximately $1.1 billion in cash.

• In the fourth quarter of 2000, we sold a software business, Imnet France S.A.R.L. for net proceeds of $0.8 million.

Competition

     In every area of healthcare distribution operations, our Pharmaceutical Solutions and Medical-Surgical Solutions segments face strong competition, both in price and service, from national, regional and local full-line, short-line and specialty wholesalers, service merchandisers, self-warehousing chains, and manufacturers engaged in direct distribution. The Pharmaceutical Solutions and Medical-Surgical Solutions segments face competition from various other service providers and from pharmaceutical and other healthcare manufacturers (as well as other potential customers of the segments) which may from time to time decide to develop, for their own internal needs, supply management capabilities which are provided by the segments and other competing service providers. Price, quality of service, and, in some cases, convenience to the customer are generally the principal competitive elements in these segments.

     Our Information Solutions segment experiences substantial competition from many firms, including other computer services firms, consulting firms, shared service vendors, certain hospitals and hospital groups, hardware vendors and internet-based companies with technology applicable to the healthcare industry. Competition varies in size from small to large companies, in geographical coverage, and in scope and breadth of products and services offered.

Intellectual Property

     The principal trademarks and service marks of the Pharmaceutical Solutions segment include: ECONOLINK®, VALU-RITE®, Valu-Rite/CareMax®, OmniLink®, McKesson OneStop Generics^SM Health Mart®, ASK-A-NURSE®, Credentialer®, Episode Profiler®, InterQual®, America’s Source for Healthcare Answers®, coSource®, ROBOT-Rx™, AcuDose-Rx™, AcuScan-Rx™, Admin-Rx™, Acumax® Plus, Pak Plus-Rx™, SelfPace™, Baker Cells™, Baker Cassettes™, Baker Universal™, Autoscript™, Pharmacy 2000™, CRMS™, Patterns Profiler™, CareEnhance^SM, Closed Loop Distribution^SM, .com Pharmacy Solutions^SM and SupplyScan^SM.

     The substantial majority of technical concepts and codes embodied in the Information Solutions segment’s computer programs and program documentation are not protected by patents or copyrights but constitute trade secrets that are proprietary to us. The principal trademarks and service marks of the Information Solutions segment are: HealthQuest®, Paragon®, Pathways 2000®, TRENDSTAR®, Horizon Clinicals™, HorizonWP™, Series 2000™, STAR 2000™, Connect 2000^SM, and PracticePoint^SM.

     We also own other registered and unregistered trademarks and service marks and similar rights used by our business segments. All of the principal trademarks and service marks are registered in the United States, or registrations have been applied for with respect to such marks, in addition to certain other jurisdictions. The United States federal registrations of these trademarks have terms of ten or twenty years, depending on date of registration, and are subject to unlimited renewals. We believe we have taken all necessary steps to preserve the registration and duration of our trademarks and service marks, although no assurance can be given that we will be able to successfully enforce or protect our rights there under in the event that they are subject to third-party infringement claims. We do not, however, consider any particular patent, license, franchise or concession to be material to our business.

     The segment also offers a comprehensive range of services to help organizations derive greater value from, and ensure maximum return on investment and satisfaction throughout the life of, the solutions implemented. The range of services includes the following:

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Other Information About the Business

     Customers— In recent years, a significant portion of our revenue growth has been with a limited number of large customers. During 2002, sales to our largest customer, Rite Aid Corporation, and ten largest customers accounted for approximately 14% and 55% of our revenues. All of these customers are from our Pharmaceutical Solutions segment.

     Research and Development— Most of our research and development expenses are incurred by our Information Solutions segment, where their product development efforts apply computer technology and installation methodologies to specific information processing needs of hospitals. We believe a substantial and sustained commitment to such research and development (“R&D”) expenditures is important to the long-term success of this business.

     Investment in software development includes both R&D expense as well as capitalized software held for sale. The Information Solutions segment expended $145.1 million (15% of revenue) for R&D activities during 2002, compared to $152.5 million (16% of revenue) and $148.4 million (14% of revenue) during 2001 and 2000. The Information Solutions segment capitalized 21%, 20% and 29% of its R&D expenditures in 2002, 2001 and 2000. Information regarding R&D is included in Financial Note 1 to the consolidated financial statements, “Significant Accounting Policies,” appearing on pages 54 to 57 of this Annual Report on Form 10-K.

     Environmental Legislation—We sold our chemical distribution operations in 1987 and retained responsibility for certain environmental obligations. Agreements with the Environmental Protection Agency and certain states may require environmental assessments and cleanups at several closed sites. These matters are described further in “Item 3. Legal Proceedings” on page 8 of this Annual Report on Form 10-K. Other than any capital expenditures that may be required in connection with those matters, we do not anticipate making substantial capital expenditures for environmental control facilities, or be required to comply with environmental laws and regulations in the future. The amount of our capital expenditures for environmental compliance was not material in 2002 and is not expected to be material in the next year.

     Employees— On March 31, 2002, we employed approximately 24,000 persons compared with 23,000 in 2001 and 21,100 in 2000.

     Financial Information About Foreign and Domestic Operations and Export Sales— Information as to foreign operations is included in Financial Notes 1 and 20 to the consolidated financial statements, “Significant Accounting Policies” and “Segments of Business,” appearing on pages 54 to 57 and 88 to 90 of this Annual Report on Form 10-K.

Item 2.  Properties

     Because of the nature of our principal businesses, plant, warehousing, office and other facilities are operated in widely dispersed locations. The warehouses are typically owned or leased on a long-term basis. We consider our operating properties to be in satisfactory condition and adequate to meet our needs for the next several years without making capital expenditures materially higher than historical levels. Information as to material lease commitments is included in Financial Note 13 to the consolidated financial statements, “Lease Obligations,” appearing on page 68 of this Annual Report on Form 10-K.

Item 3.  Legal Proceedings

I. Accounting Litigation

     Since the announcements by McKesson, formerly known as McKesson HBOC, Inc., in April, May and July of 1999 that McKesson had determined that certain software sales transactions in its Information Technology Business unit (now referred to as the Information Solutions segment), were improperly recorded as revenue and reversed, as of May 10, 2002, ninety-one lawsuits have been filed against McKesson, HBO & Company (“HBOC”), certain of McKesson’s or HBOC’s current or former officers or directors, and other defendants, including Bear Stearns & Co. Inc. (“Bear Stearns”) and Arthur Andersen LLP (“Andersen”).

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Federal Actions

     Sixty-seven of the above-mentioned actions have been filed in Federal Court (the “Federal Actions”). Of these, sixty-one were filed in the U.S. District Court for the Northern District of California, one in the Northern District of Illinois, which has been voluntarily dismissed without prejudice, one in the Northern District of Georgia, which has been transferred to the Northern District of California, one in the Eastern District of Pennsylvania, which has been transferred to the Northern District of California, two in the Western District of Louisiana, which have been transferred to the Northern District of California, and one in the District of Arizona, which has been transferred to the Northern District of California.

     On November 2, 1999, the Honorable Ronald M. Whyte of the Northern District of California issued an order consolidating fifty-three of these actions into one consolidated action entitled In re McKesson HBOC, Inc. Securities Litigation, (Case No. C-99-20743 RMW) (the “Consolidated Action”). By order dated December 22, 1999, Judge Whyte appointed the New York State Common Retirement Fund as lead plaintiff (“Lead Plaintiff”) and approved Lead Plaintiff’s choice of counsel.

     By order dated February 7, 2000, Judge Whyte coordinated a class action alleging claims under the Employee Retirement Income Security Act (commonly known as “ERISA”), Chang v. McKesson HBOC, Inc. et al., (Case No. C-00-20030 RMW), and a shareholder derivative action that had been filed in the Northern District under the caption Cohen v. McCall et al., (Case No. C-99-20916 RMW) with the Consolidated Action. There has been no further significant activity in the Cohen action. Recent developments in the Chang action are discussed below.

     Lead Plaintiff filed an Amended and Consolidated Class Action Complaint (the “ACCAC”) on February 25, 2000. The ACCAC generally alleged that defendants violated the federal securities laws in connection with the events leading to McKesson’s announcements in April, May and July 1999. On September 28, 2000, Judge Whyte dismissed all of the ACCAC claims against McKesson under Section 11 of the Securities Act with prejudice, dismissed a claim under Section 14(a) of the Exchange Act with leave to amend, and declined to dismiss a claim against McKesson under Section 10(b) of the Exchange Act.

     On November 14, 2000, Lead Plaintiff filed its Second Amended and Consolidated Class Action Complaint (“SAC”). As with its ACCAC, Lead Plaintiff’s SAC generally alleged that McKesson violated the federal securities laws in connection with the events leading to McKesson’s announcements in April, May and July 1999. The SAC names McKesson, HBOC, certain of McKesson’s or HBOC’s current or former officers or directors, Andersen and Bear Stearns as defendants. The SAC purported to state claims against McKesson and HBOC under Sections 10(b) and 14(a) of the Exchange Act.

     On January 11, 2001, McKesson filed an action in the U.S. District Court for the Northern District of California against the Lead Plaintiff in the Consolidated Action individually, and as a representative of a defendant class of former HBOC shareholders who exchanged HBOC shares for Company shares in the January 12, 1999 merger of a McKesson subsidiary into HBOC (the “Merger”), McKesson HBOC, Inc. v. New York State Common Retirement Fund, Inc. et al., (Case No. C01-20021 RMW) (the “Complaint and Counterclaim”). In the Complaint and Counterclaim, the Company alleges that the exchanged HBOC shares were artificially inflated due to undisclosed accounting improprieties, and that the exchange ratio therefore provided more shares to former HBOC shareholders than would have otherwise been the case. In this action, the Company seeks to recover the “unjust enrichment” received by those HBOC shareholders who exchanged more than 20,000 HBOC shares in the Merger. The Company does not allege any wrongdoing by these shareholders. On January 9, 2002, Judge Whyte dismissed the Complaint and Counterclaim with prejudice. On February 8, 2002, the Company filed a Notice of Appeal from this ruling to the United States Court of Appeals for the Ninth Circuit (“Ninth Circuit”). The Company’s opening brief to the Ninth Circuit is currently due to be filed on or before July 5, 2002. Because certain decisions of the Ninth Circuit raise a question as to whether the Ninth Circuit has appellate jurisdiction over the Company’s appeal, the Company has also filed a motion before Judge Whyte for an order certifying his January 9 dismissal order for immediate appeal.

     On January 7, 2002, Judge Whyte dismissed the claim in the SAC against McKesson under Section 10(b), to the extent that the claim was based on any pre-Merger conduct or statements by McKesson, and also dismissed the claim against McKesson under Section 14(a) of the Exchange Act, granting Lead Plaintiff thirty (30) days leave “for one last opportunity” to amend those claims. Judge Whyte dismissed the claim against HBOC under Section 14(a) of the

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Exchange Act without leave to amend. The Section 10(b) claim based on post-Merger statements remains pending against McKesson, and a Section 10(b) claim based on pre-Merger statements remains pending against HBOC.

     On February 15, 2002, Lead Plaintiff filed a Third Amended and Consolidated Class Action Complaint (the “TAC”) in the Consolidated Action. The TAC, like the SAC, purports to state claims against McKesson and HBOC under Sections 10(b) and 14(a) of the Exchange Act in connection with the events leading to McKesson’s announcements in April, May and July 1999, and names McKesson, HBOC, certain of McKesson’s or HBOC’s current or former officers or directors, Andersen and Bear Stearns as defendants. On April 5, 2002, McKesson filed a motion to dismiss Lead Plaintiff’s claim under Section 10(b) of the Exchange Act to the extent that it is based on McKesson’s pre-Merger conduct, and the claim under Section 14(a) of the Exchange Act in its entirety. McKesson’s motion to dismiss was heard on June 7, 2002, and the court has not yet issued an opinion.

     Several individual actions have also been filed in or transferred to the Northern District of California. On November 12, 1999, an individual shareholder action was filed in the U.S. District Court for the Northern District of California under the caption Jacobs v. McKesson HBOC, Inc., et al., (C-99-21192 RMW). The Plaintiffs in Jacobs are former HBOC shareholders who acquired their HBOC shares pursuant to a registration statement issued by HBOC prior to the Merger, and then exchanged their HBOC shares for McKesson shares in the Merger. Plaintiffs in Jacobs assert claims under federal and state securities laws and a claim for common law fraud. Plaintiffs seek unspecified compensatory and punitive damages, and costs of suit, including attorneys’ fees. Judge Whyte’s December 22, 1999, order consolidated the Jacobs action with the Consolidated Action. With leave of court, the Jacobs plaintiffs amended their complaint, but the action remains stayed and there has been no discovery, motion practice or other activity in the case.

     On September 21, 2000, the plaintiffs in Jacobs v. McKesson HBOC, Inc., filed a new individual action entitled Jacobs v. HBO & Company (Case No. C-00-20974 RMW). The Jacobs complaint names only HBOC as a defendant and asserts claims under Sections 11 and 12(2) of the Securities Act, Section 10(b) of the Exchange Act and various state law causes of action. The complaint seeks unspecified compensatory and punitive damages, and costs of suit, including attorneys’ fees. This action has been assigned to Judge Whyte and consolidated with the Consolidated Action.

     On December 16, 1999, an individual action was filed in the U.S. District Court for the Northern District of California under the caption Bea v. McKesson HBOC, Inc. et al., (Case No. C-00-20072 RMW). Plaintiffs in Bea filed an Amended Complaint on March 9, 2000. Plaintiffs in Bea allege that they acquired the Company’s common stock prior to the Merger and sold that stock after the April 1999 announcement at a loss. The Bea complaint asserts claims under the federal and state securities laws, and a claim for fraud. Plaintiffs seek (i) unspecified compensatory and punitive damages, and (ii) reasonable costs and expenses of suit, including attorneys’ fees. Bea is currently stayed and has been consolidated with the Consolidated Action.

     On January 7, 2000, an individual action was filed in the U.S. District Court for the Northern District of California under the caption Cater v. McKesson Corporation et al., (Case No. C-00-20327 RMW). The plaintiff is Terry Cater, a former employee of the Company who, at the time he ceased active employment with the Company, held options to purchase shares of Company stock, and also held shares of the Company’s restricted stock. Plaintiff alleges that these options and restricted stock were substantially devalued as a result of the Merger and the subsequent drop in the Company’s stock price. Plaintiff in Cater asserts claims under the federal securities laws as well as claims for breach of good faith and fair dealing, fraud and negligent misrepresentation. Plaintiff seeks (i) unspecified special damages in excess of $50,000, (ii) unspecified general damages, (iii) prejudgment interest and (iv) reasonable attorneys’ fees. The case has been assigned to Judge Whyte and the parties have stipulated to a stay pending the outcome of the motions to dismiss in the Consolidated Action.

     On February 7, 2000, an action entitled Baker v. McKesson HBOC, Inc., et al., (Case No. CV 00-0188) was filed in the U.S. District Court for the Western District of Louisiana. The same plaintiffs then filed a virtually identical parallel action in Louisiana State Court, Rapides Parish, under the caption Baker v. McKesson HBOC, Inc., et al. (filed as Case No. 199018; Case No. CV-00-0522 after removal to federal court). Plaintiffs, former shareholders of Automatic Prescription Services, allege claims under the federal securities laws, and claims for breach of fiduciary duty, misrepresentation and detrimental reliance. The state court action was removed to federal court and the two Baker cases have been transferred to the Northern District of California and consolidated with the Consolidated Action.

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     On July 27, 2001, an action was filed in the United States District Court for the Northern District of California captioned Pacha, et al., v. McKesson HBOC, Inc., et al., (No. C01-20713 PVT) (“Pacha”). The Pacha plaintiffs allege that they were individual shareholders of McKesson stock on November 27, 1998, and assert that McKesson and HBOC violated Section 14(a) of the Exchange Act and SEC Rule 14a-9, and that McKesson, aided by HBOC, breached its fiduciary duties to plaintiffs by issuing a joint proxy statement in connection with the Merger which allegedly contained false and misleading statements or omissions. Plaintiffs name as defendants McKesson, HBOC, certain current or former officers or directors of McKesson or HBOC, Andersen and Bear Stearns. On November 13, 2001, Judge Whyte ordered Pacha consolidated with the Consolidated Action and stayed all further proceedings.

     Hess v. McKesson HBOC, Inc. et al., an action filed in state court in Arizona (Case No. C-20003862) on behalf of former shareholders of Ephrata Diamond Spring Water Company (“Ephrata”) who acquired McKesson shares in exchange for their Ephrata stock when McKesson acquired Ephrata in January 1999, was removed to federal court, transferred to the Northern District and consolidated with the Consolidated Action. Judge Whyte also stayed all further proceedings in Hess except for the filing of an amended complaint, which was filed on or about December 15, 2001 (the “Hess Amended Complaint”). The Hess Amended Complaint generally incorporates the allegations and claims asserted in Lead Plaintiff’s SAC in the Consolidated Action and also includes various common law causes of action relating to McKesson’s acquisition of Ephrata. The Company is not currently required to respond to the Hess Amended Complaint.

     On June 28, 2001, the Chang plaintiffs filed an amended complaint against McKesson, HBOC, certain current or former officers or directors of McKesson or HBOC, and The Chase Manhattan Bank. The amended complaint in Chang generally alleges that the defendants breached their fiduciary duties in connection with administering the McKesson HBOC Profit Sharing Investment Plan (the “PSI Plan”) and the HBOC Profit Sharing and Savings Plan (the “HBOC Plan”). Plaintiffs in Chang are alleged former employees of McKesson and participants in the PSI Plan, and purportedly seek relief under sections 404-405, 409 and 502 of ERISA on behalf of a class defined to include participants in the PSI Plan, including participants under the HBOC Plan, who maintained an account balance under the PSI Plan as of April 27, 1999, who had not received a distribution from the PSI Plan as of April 27, 1999, and who suffered losses as a result of the alleged breaches of duty. Plaintiff seeks (i) a judgment that McKesson and HBOC breached their fiduciary duties, (ii) an order requiring defendants to restore to the PSI Plan all losses caused by these purported breaches of fiduciary duty, and (iii) attorneys’ fees. In October 2001, McKesson, HBOC, Chase and other defendants moved to dismiss the Chang action. These motions are currently set for hearing on May 17, 2002.

     On February 7, 2002, an action was filed in the United States District Court for the Northern District of California captioned Adams v. McKesson Information Solutions, Inc. et al., No. C-02-06 85 JCS (“Adams”). Plaintiff in Adams filed a first amended complaint on March 15, 2002, against McKesson Information Solutions, Inc. (formerly HBOC), McKesson, certain current or former officers, directors or employees of McKesson or HBOC, and other defendants. Plaintiff alleges that he was a participant in the HBOC Plan and generally alleges that McKesson and HBOC breached their fiduciary duties to the HBOC Plan and its participants or engaged in transactions prohibited by ERISA. Plaintiff asserts his claims on behalf of a putative class defined to include all participants in the HBOC Plan and their beneficiaries for whose benefit the HBOC Plan acquired HBOC stock from March 31, 1996 to April 1, 1999. Plaintiff seeks (i) a judgment that McKesson and HBOC breached their fiduciary duties, (ii) an order requiring defendants to restore to the plan all losses caused by these purported breaches of fiduciary duty, and (iii) reasonable attorneys’ fees, costs and expenses. On April 3, 2002, Judge Whyte issued a Related Case Order in which he found that Adams is related to the Consolidated Action. By operation of a pretrial order entered in the Consolidated Action, Judge Whyte’s Related Case Order automatically consolidated Adams into the Consolidated Action. On April 25, 2002, Plaintiff filed an application with the Court requesting that the Adams action be relieved from automatic consolidation with the Consolidated Action, which HBOC intends to oppose. Defendants are presently not obligated to respond to the first amended complaint.

State Actions

     Twenty-four actions have also been filed in various state courts in California, Colorado, Delaware, Georgia, Louisiana and Pennsylvania (the “State Actions”). Like the Consolidated Action, the State Actions generally allege misconduct by McKesson or HBOC in connection with the events leading to McKesson’s decision to restate HBOC’s financial statements.

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     Two of the State Actions are derivative actions: Ash, et al., v. McCall, et al., (Case No. 17132), filed in the Delaware Chancery Court and Mitchell v. McCall et al., (Case. No. 304415), filed in California Superior Court, City and County of San Francisco. McKesson moved to dismiss both of these actions and to stay the Mitchell action in favor of the earlier filed Ash and Cohen derivative actions. Plaintiffs in Mitchell agreed to defer any action by the court on McKesson’s motions pending resolution of McKesson’s dismissal motion in Ash. On September 15, 2000, in the Ash case, the Court of Chancery dismissed all causes of action with leave to re-plead certain of the dismissed claims, and on January 22, 2001, the Ash plaintiffs filed a Third Amended Complaint which is presently the subject of McKesson’s motion to dismiss.

     Five of the State Actions are class actions. Three of these were filed in Delaware Chancery Court: Derdiger v. Tallman et al., (Case No. 17276), Carroll v. McKesson HBOC, Inc., (Case No. 17454), and Kelly v. McKesson HBOC, Inc., et al., (Case No. 17282 NC). Two additional actions were filed in Delaware Superior Court: Edmondson v. McKesson HBOC, Inc., (Case No. 99-951) and Caravetta v. McKesson HBOC, Inc., (Case No. 00C-04-214 WTQ). The Carroll and Kelly actions have been voluntarily dismissed without prejudice. McKesson removed Edmondson to federal court in Delaware and filed a motion to dismiss, which was granted by the federal court on March 5, 2002. McKesson filed motions to stay the Derdiger and Caravetta actions in favor of proceedings in the federal Consolidated Action, which were granted. On December 20, 2001, the plaintiff in the Derdiger action filed a motion to vacate the stay, but that motion has not yet been briefed or heard by the Court.

     Several of the State Actions are individual actions which have been filed in various state courts. Five of these were filed in the California Superior Court, City and County of San Francisco: Yurick v. McKesson HBOC, Inc. et al., (Case No. 303857), The State of Oregon by and through the Oregon Public Employees Retirement Board v. McKesson HBOC, Inc. et al., (Case No. 307619), Utah State Retirement Board v. McKesson HBOC, Inc. et al., (Case No. 311269), Minnesota State Board of Investment v. McKesson HBOC, Inc. et al., (Case No. 311747), and Merrill Lynch Fundamental Growth Fund et al. v. McKesson HBOC, Inc. et al., CGC-02-405792. In Yurick, the trial court has sustained McKesson’s demurrer to the original complaint without leave to amend with respect to all causes of action except plaintiffs’ claims for common law fraud and negligent misrepresentation, which the trial court has allowed to remain in the case. The Court also stayed Yurick pending the commencement of discovery in the Consolidated Action, but allowed the filing of an amended complaint. On May 23, 2001, the California Court of Appeals affirmed the Yurick trial court’s order dismissing claims against certain of the individual defendants without leave to amend. On July 31, 2001, McKesson’s demurrer to the Second Amended Complaint was overruled and McKesson’s alternative motion to strike was denied.

     The Oregon, Utah and Minnesota actions referenced above are individual securities actions filed in the California Superior Court for the City and County of San Francisco by out-of-state pension funds. On April 20, 2001, plaintiffs in Utah and Minnesota filed amended complaints against McKesson, HBOC, certain current or former officers or directors of McKesson or HBOC, Andersen and Bear Stearns. The amended complaints in Utah and Minnesota assert claims under California and Georgia’s securities laws, claims under Georgia’s RICO statute, and various common law claims under California and Georgia law. On June 22, 2001, McKesson and HBOC demurred to and moved to strike portions of the amended complaints and also moved to stay these actions pending the final resolution of the Consolidated Action. The court held hearings on McKesson’s demurrers and motions to strike on November 15, 2001, January 29, 2002, and April 23, 2002, but has not issued a final ruling on the motions. By order dated December 3, 2001, the court denied McKesson’s motion to stay the entire action pending the final resolution of the Consolidated Action but ordered that all discoveries in the Utah and Minnesota actions would be stayed pending the commencement of discovery in the Consolidated Action.

     On May 30, 2001, plaintiffs in Oregon filed a second amended complaint against McKesson, HBOC, certain current or former officers or directors of McKesson or HBOC, and Andersen. The second amended complaint in Oregon asserts claims under California and Georgia’s securities laws, claims under Georgia’s RICO statute, and various common law claims under California and Georgia law. The parties to the Oregon action previously agreed to a stay of all proceedings in that action, other than motions to test the sufficiency of the pleadings, pending the commencement of discovery in the Consolidated Action. On April 4, 2001, the plaintiff in Oregon filed a motion to lift the stipulated stay of discovery, which McKesson and HBOC opposed. McKesson also moved the court for an order modifying the stipulated stay to stay all proceedings in the action pending the final resolution of the Consolidated Action. Also on June 22, 2001, McKesson and HBOC demurred to and moved to strike portions of Oregon’s second amended complaint. The court held hearings on McKesson’s demurrers and motions to strike on November 15, 2001, January

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29, 2002, and April 23, 2002, but has not issued a final ruling on the motions. By order dated December 7, 2001, the court denied McKesson’s motion to stay all proceedings in Oregon but ordered that all discoveries would be stayed pending the commencement of discovery in the Consolidated Action.

     Merrill Lynch Fundamental Growth Fund et al. v. McKesson HBOC, Inc. et al., CGC-02-405792 (“Merrill Lynch Fundamental Growth Fund”) was filed on March 19, 2002, in Superior Court in San Francisco. Plaintiffs in Merrill Lynch Fundamental Growth Fund allege that they purchased Company stock after the Merger and sold that stock at a loss after April 28, 1999. Plaintiffs name as defendants the Company, HBOC, Andersen, Bear Stearns and certain current or former officers or directors of the Company or HBOC, and assert causes of action under California’s securities statutes, Business and Professions Code § 17200, and common law claims for fraud, negligent misrepresentation, conspiracy, and aiding and abetting in connection with the events leading to McKesson’s need to restate HBOC’s financial statements. Plaintiffs also assert claims under New Jersey’s RICO statute, Georgia’s securities statutes, and Georgia RICO. Plaintiffs seek restitution in an unspecified amount, unspecified compensatory and treble damages, reasonable attorneys’ and experts’ fees, and costs and expenses. The Company’s counsel and counsel for the plaintiffs are currently discussing an appropriate response date to the complaint.

     Several individual actions have been filed in various state courts outside of California. Several of these cases have been filed in Georgia state courts. On October 29, 1999, an action was filed in Georgia Superior Court under the caption Powell v. McKesson HBOC, Inc. et al., and (Case No. 1999-CV- 15443). Plaintiff in Powell is a former HBOC employee seeking lost commissions as well as asserting claims under Georgia’s securities and racketeering laws, and various common law causes of action. The Powell action names as defendants the Company, HBOC, Albert Bergonzi and Jay Gilbertson. The Company filed a motion to stay, which was granted as to the Georgia securities law claims but not the Georgia RICO claims. Plaintiff thereafter voluntarily dismissed the action. On September 11, 2000, Plaintiff re-filed his action under the caption Powell v. McKesson HBOC, Inc. et al., Case No. 2000-CV-27864, reasserting the same claims against the same defendants. On October 11, 2000, McKesson and HBOC filed answers, motions to dismiss, and motions for a partial stay. The motions for partial stay were granted. This case has been settled and the action was dismissed on February 22, 2002.

     On December 9, 1999, an action was filed in Georgia State Court, Gwinnett County, under the caption Adler v. McKesson HBOC, Inc. et al., (Case No. 99-C-7980-3). Plaintiff in Adler is a former HBOC shareholder and asserts a claim for common law fraud and fraudulent conveyance. The Adler action names as defendants the Company, HBOC, Albert Bergonzi and Jay Gilbertson. Plaintiff seeks damages in excess of $43 million, as well as punitive damages, and costs of suit, including attorneys’ fees. The Company has answered the complaint in Adler. On May 26, 2000, the court denied McKesson’s motion to stay. On July 14, 2000, plaintiff filed an Amended Complaint, which McKesson and HBOC answered on August 21, 2000. Discovery has commenced in the Adler action and is ongoing.

     On October 24, 2000, an action was filed in Georgia State Court, Fulton County, captioned: Suffolk Partners Limited Partnership et al., v. McKesson HBOC, Inc. et al., (No. 00VS010469A). Plaintiffs in the Suffolk action allegedly purchased the Company’s common stock after the Merger but before the April 1999 announcement. Plaintiffs assert claims under Georgia’s securities and racketeering laws, and for common law fraud, negligent misrepresentation, conspiracy, and aiding and abetting. The Suffolk action names as defendants the Company, HBOC, and certain of the Company’s or HBOC’s current or former officers or directors, and Andersen. Like the Consolidated Action, the claims in the Suffolk action generally arise out of the January 12, 1999, Merger, and the Company’s announcement of the need to restate its financial statements. Plaintiffs seek (i) compensatory damages of approximately $21.8 million, as well as general, rescissory, special, punitive, exemplary, and with respect to certain causes of action, treble damages, and (ii) prejudgment and post-judgment interest and costs of suit, including reasonable attorneys’ and experts’ fees. The Company and HBOC separately answered the complaint on January 9, 2001. The Company and HBOC moved for an order staying the Suffolk action in favor of the Consolidated Action on January 10, 2001. On August 2, 2001, the Court granted the motions to stay, and this case is stayed until all discoveries are completed in the Consolidated Class Action pending in California.

     On November 1, 2000, an action was filed in Georgia State Court, Fulton County, captioned: Curran Partners, L.P. v. McKesson HBOC, Inc. ET al., and (No. 00 VS 010801). Plaintiff in the Curran action allegedly purchased the Company’s common stock after the Merger but before the April 1999 announcement. The claims in the Curran action are identical to the claims in the Suffolk action. Plaintiff seeks (i) compensatory damages of approximately $2.6 million, as well as general, rescissory, special, punitive, exemplary, and with respect to certain causes of action, treble

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damages, and (ii) prejudgment and post-judgment interest and costs of suit, including reasonable attorneys’ and experts’ fees. The Curran action names as defendants the Company, HBOC, and certain of the Company’s or HBOC’s current or former officers or directors, and Andersen. The Company and HBOC separately answered the complaint on January 9, 2001. The Company and HBOC moved for an order staying the Curran action in favor of the Consolidated Action on January 10, 2001. The Court granted the motions to stay on August 22, 2001.

     On December 12, 2001, an action was filed in Georgia State Court, Fulton County, captioned: Drake v. McKesson Corp., et al., and (Case No. 01VS026303A). Plaintiff in Drake is a former HBOC employee seeking lost commissions as well as asserting claims under Georgia’s securities and racketeering laws, and various common law causes of action. Plaintiff seeks (i) approximately $0.3 million in unpaid commissions, (ii) unspecified compensatory, consequential, actual, exemplary, and punitive damages, and (iii) prejudgment and post-judgment interest and costs of suit, including reasonable attorneys’ fees. The Drake action names as defendants the Company, HBOC, Albert Bergonzi and Jay Gilbertson. The parties entered into a Consent Order for Partial Stay on February 27, 2002, which stayed Plaintiff’s Georgia securities law, fraud and RICO claims. On March 4, 2002, McKesson and McKesson Information Solutions Inc. separately filed their answers.

     On January 31, 2002, an action was filed in Georgia Superior Court, Fulton County, under the caption Holcombe T. Green and HTG Corp. v McKesson, Inc. et. al., (Case No. 2002-CV-48407). Plaintiffs in the Green action are former HBOC shareholders and assert claims for common law fraud and fraudulent conveyance. Plaintiff Holcombe Green was also a former officer, chairman and director of HBOC. The Green action names as defendants the Company, HBOC, Albert Bergonzi and Jay Gilbertson. Plaintiffs seek compensatory damages in excess of $100 million, as well as unspecified general, special and punitive damages, and costs of suit, including attorneys’ fees. The Company and HBOC filed their respective answers and counterclaims on April 22, 2002. The Company and HBOC also filed their motions to stay and dismiss. Discovery is under way and will proceed for some time, unless the court grants the Company’s and HBOC’s motions to stay and/or dismiss.

     On February 6, 2002, an action was filed in Georgia Superior Court, Fulton County, under the caption Hall Family Investments, L.P. v. McKesson, Inc. et al., (Case No. 2002-CV-48612). Plaintiff in the Hall action is a former HBOC shareholder and asserts a claim for common law fraud and fraudulent conveyance. The Hall action names as defendants the Company, HBOC, Albert Bergonzi and Jay Gilbertson. Plaintiff seeks compensatory damages in excess of $100 million, as well as unspecified general, special and punitive damages, and costs of suit, including attorneys’ fees. The Company and HBOC filed their respective answers on April 22, 2002. The Company also filed its counterclaim for unjust enrichment. On April 26, 2002, the Company and HBOC filed motions to stay and dismiss. HBOC also filed a third party complaint against Holcombe Green for indemnification. Discovery is under way and will proceed for some time, unless the court grants the Company’s and HBOC’s motions to stay and/or dismiss. Additionally, the defendants in Hall have moved to have the case consolidated with the Green action.

     On September 28, 1999, an action was filed in Delaware Superior Court under the caption Kelly v. McKesson HBOC, Inc. et al., and (C.A. No. 99C-09-265 WCC). Plaintiffs in Kelly are former shareholders of KWS&P/SFA, which merged into McKesson after the HBOC transaction. Plaintiffs assert claims under the federal securities laws, as well as claims for breach of contract and breach of the duty of good faith and fair dealing. On January 17, 2002, the Delaware Superior Court denied the Kelly plaintiffs’ motion for partial summary judgment and denied McKesson’s motion to dismiss, while granting the motions to dismiss for lack of personal jurisdiction that were filed by certain former officers and directors of McKesson and HBOC. The parties thereafter commenced discovery by exchanging document requests and interrogatories. The court in Kelly has scheduled a trial to begin on May 5, 2003.

     The United States Attorneys’ Office and the Securities and Exchange Commission are conducting investigations into the matters leading to the restatement. On May 15, 2000, the United States Attorney’s Office filed a one-count information against former HBOC officer, Dominick DeRosa, charging Mr. DeRosa with aiding and abetting securities fraud, and on May 15, 2000, Mr. DeRosa entered a guilty plea to that charge. On September 28, 2000, an indictment was unsealed in the Northern District of California against former HBOC officer, Jay P. Gilbertson, and former Company and HBOC officer, Albert J. Bergonzi (United States v. Bergonzi, et al., Case No. CR-00-0505). On that same date, a civil complaint was filed by the Securities and Exchange Commission against Mr. Gilbertson, Mr. Bergonzi and Mr. DeRosa (Securities and Exchange Commission v. Gilbertson, et al., Case No. C-00-3570). Mr. DeRosa has settled with the Securities Exchange Commission without admitting or denying the substantive allegations of the complaint. On January 10, 2001, the grand jury returned a superseding indictment in the Northern District of

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California against Messrs. Gilbertson and Bergonzi (United States v. Bergonzi, et al., Case No. CR-00-0505). On September 27, 2001, the Securities and Exchange Commission filed securities fraud charges against six former HBOC officers and employees. Simultaneous with the filing of the Commission’s civil complaints, four of the six defendants settled the claims brought against them by, among other things, consenting, without admitting or denying the allegations of the complaints, to entry of permanent injunctions against all of the alleged violations, and agreed to pay civil penalties in various amounts. On January 3, 2002, the Company was notified in writing by the Securities and Exchange Commission that its investigation has been terminated as to the Company, and that no enforcement action has been recommended to the Commission.

     We do not believe it is feasible to predict or determine the outcome or resolution of the accounting litigation proceedings, or to estimate the amounts of, or potential range of, loss with respect to those proceedings. In addition, the timing of the final resolution of these proceedings is uncertain. The range of possible resolutions of these proceedings could include judgments against the Company or settlements that could require substantial payments by the Company, which could have a material adverse impact on McKesson’s financial position, results of operations and cash flows.

II. Other Litigation and Claims

     In addition to commitments and obligations in the ordinary course of business, we are subject to various claims, other pending and potential legal actions for product liability and other damages, investigations relating to governmental laws and regulations, and other matters arising out of the normal conduct of our business. These include:

     Antitrust Matters

     We are currently a defendant in numerous civil antitrust actions filed since 1993 in federal and state courts by retail pharmacies. The federal cases were coordinated for pretrial purposes in the United States District Court in the Northern District of Illinois and are known as MDL 997. MDL 997 consists of approximately 109 actions brought by approximately 3,500 individual retail, chain and supermarket pharmacies (the “Individual Actions”). In 1999, the court dismissed a related class action following a judgment as a matter of law entered in favor of defendants, which was unsuccessfully appealed. There are numerous other defendants in these actions, including several pharmaceutical manufacturers and several other wholesale distributors. These cases allege, in essence, that the defendants have violated the Sherman Act by conspiring to fix the prices of brand-name pharmaceuticals sold to plaintiffs at artificially high, and non-competitive levels, especially as compared with the prices charged to mail-order pharmacies, managed care organizations and other institutional buyers. The wholesalers’ motion for summary judgment in the Individual Actions has been granted. Plaintiffs have appealed to the Seventh Circuit. On May 6, 2002, the Seventh Circuit affirmed the summary judgment.

     Most of the individual cases brought by chain stores have been settled. The Judicial Panel on Multidistrict Litigation recommended remand of the Sherman Act claims in MDL 997 and on November 2, 2001, the court remanded those claims to their original jurisdictions.

     A state court antitrust case against McKesson and other defendants is currently pending in California. This case is based on essentially the same facts alleged in the Federal Class Action and Individual Actions and asserts violations of state antitrust and/or unfair competition laws. The case (Paradise Drugs, et al. v. Abbott Laboratories, et al., (Case No. CV793852) was filed in the Superior Court of the County of Santa Clara and was transferred to the Superior Court for the County of San Francisco. The case is trailing MDL 997.

     In each of the cases, plaintiffs seek remedies in the form of injunctive relief and unquantified monetary damages, attorneys’ fees and costs. Plaintiffs in the California cases also seek restitution. In addition, treble damages are sought in the Individual Actions and the California case. We and other wholesalers have entered into a judgment sharing agreement with certain pharmaceutical manufacturer defendants, which provides generally that we, together with the other wholesale distributor defendants, will be held harmless by such pharmaceutical manufacturer defendants and will be indemnified against the costs of adverse judgments, if any, against the wholesaler and manufacturers in these or similar actions, in excess of $1 million in the aggregate per wholesale distributor defendant.

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     Product Liability Litigation and Other Claims

     Our subsidiary, McKesson Medical-Surgical, is one of many defendants in approximately 138 cases in which plaintiffs claim that they were injured due to exposure, over many years, to the latex proteins in gloves manufactured by numerous manufacturers and distributed by a number of distributors, including McKesson Medical-Surgical. Efforts to resolve tenders of defense to its suppliers are continuing and a final agreement has been reached with one major supplier. McKesson Medical-Surgical’s insurers are providing coverage for these cases, subject to the applicable deductibles.

     We, along with 134 other companies, have been named in a lawsuit brought by the Lemelson Medical, Educational & Research Foundation (“the Foundation”) alleging that we and our subsidiaries are infringing seven U.S. patents relating to common bar code scanning technology and its use for the automated management and control of product inventory, warehousing, distribution and point-of-sale transactions. The Foundation seeks to enter into a license agreement with us, the lump sum fee for which would be based upon a fraction of a percent of our overall revenues over the past ten years. Due to the pendency of earlier litigation brought against the Foundation attacking the validity of the patents at issue, the court has stayed the action until the conclusion of the earlier case.

III. Environmental Matters

     Primarily as a result of the operation of our former chemical businesses, which were divested in 1987, we are involved in various matters pursuant to environmental laws and regulations. We have received claims and demands from governmental agencies relating to investigative and remedial action purportedly required to address environmental conditions alleged to exist at five sites where we, or entities acquired by us, formerly conducted operations; and we, by administrative order or otherwise, have agreed to take certain actions at those sites, including soil and groundwater remediation.

     Based on a determination by our environmental staff, in consultation with outside environmental specialists and counsel, the current estimate of reasonably possible remediation costs for these five sites is approximately $13 million, net of approximately $1.5 million which third parties have agreed to pay in settlement or which we expect, based either on agreements or nonrefundable contributions which are ongoing, to be contributed by third parties. The $13 million is expected to be paid out between April 2002 and March 2029. Our liability for these environmental matters has been accrued in the accompanying consolidated balance sheets.

     In addition, we have been designated as a potentially responsible party, or PRP, under the Comprehensive Environmental Response Compensation and Liability Act of 1980 (as amended, the “Superfund” law or its state law equivalent) for environmental assessment and cleanup costs as the result of our alleged disposal of hazardous substances at 19 sites. With respect to each of these sites, numerous other PRPs have similarly been designated and, while the current state of the law potentially imposes joint and several liability upon PRPs, as a practical matter costs of these sites are typically shared with other PRPs. Our estimated liability at those 19 PRP sites is approximately $1.1 million. The aggregate settlements and costs paid by us in Superfund matters to date have not been significant. The accompanying consolidated balance sheets include this environmental liability.

     The potential costs to us related to environmental matters are uncertain due to such factors as: the unknown magnitude of possible pollution and cleanup costs; the complexity and evolving nature of governmental laws and regulations and their interpretations; the timing, varying costs and effectiveness of alternative cleanup technologies; the determination of our liability in proportion to other PRPs; and the extent, if any, to which such costs are recover able from insurance or other parties.

     Except as specifically stated above with respect to the litigation matters summarized under “Accounting Litigation” above, we believe, based on current knowledge and the advice of our counsel, that the outcome of the litigation and governmental proceedings discussed under “Legal Proceedings” will not have a material adverse effect on our financial position, results of operations or cash flows.

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Item 4.  Submission of Matters to a Vote of Security Holders

     No matters were submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the three months ended March 31, 2002.

Executive Officers of the Registrant

     The following table sets forth information regarding the executive officers of the Company, including their principal occupations during the past five years. The number of years of service with the Company includes service with predecessor companies.

     There are no family relationships between any of the executive officers or directors of the Company. The executive officers are chosen annually to serve until the first meeting of the Board of Directors following the next annual meeting of stockholders and until their successors are elected and have qualified, or until death, resignation or removal, whichever is sooner.

Name	Age		Position with Registrant and Business Experience
John H. Hammergren		43	President and Chief Executive Officer since April 1, 2001, Co-President and Co-Chief Executive Officer from July 1999 to April 1, 2001 and a director since July 1999. Formerly Executive Vice President, President and Chief Executive Officer of the Supply Solutions Business (January-July 1999); Group President, McKesson Health Systems (1997-1999) and Vice President of the Company since 1996. Service with the Company—6 years.
William R. Graber		59	Senior Vice President and Chief Financial Officer since March 2000; Vice President and Chief Financial Officer, The Mead Corporation (1993-1999). Service with the Company—2 years, 3 months.
Paul C. Julian		46	Senior Vice President since August 1999, and President of the Supply Solutions Business since March 2000; Group President, McKesson General Medical (1997-2000); Executive Vice President, McKesson Health Systems (1996-1997). Service with the Company—6 years.
Graham O. King		62	Senior Vice President and President, Information Solutions Business since July 1999. Group President, Outsourcing Services, HBOC (1998-1999); Chairman and Chief Executive Officer, U.S. Servis, Inc. (1994-1998). Service with the Company—3 years, 6 months.
Paul E. Kirincic		51	Senior Vice President — Human Resources since January 2001; Vice President, Human Resources, Consumer Health Sector, Warner Lambert (1998-2001); Vice President, Human Resources, Whirlpool Europe, Whirlpool Corporation (1996-1998). Service with the Company — 1 year and 4 months.
Ivan D. Meyerson		57	Corporate Secretary since April 1999, and Senior Vice President and General Counsel since January 1999; Vice President and General Counsel (1987-January 1999). Service with the Company—24 years.
Marc E. Owen		42	Senior Vice President, Corporate Strategy and Business Development since October 2001; Consultant to the Company April 2001-September 2001, when he joined the Company; President and CEO, MindCrossing (April-November 2000); Senior Partner, McKinsey and Company (1987-2000). Service with the Company—8 months.
Carmine J. Villani		59	Senior Vice President and Chief Information Officer since January 1999; Vice President and Chief Information Officer (1997- January 1999) and Vice President, Information Management, McKesson Drug Company (1994- 1997). Service with the Company—10 years.

17

McKESSON CORPORATION

PART  II

Item 5.  Market for the Registrant’s Common Stock and Related Stockholder Matters

(a)	Market Information. The principal market on which the Company’s common stock is traded is the New York Stock Exchange. The Company’s common stock is also traded on the Pacific Exchange, Inc. High and low prices for the common stock by quarter are included in Financial Note 21 to the consolidated financial statements, “Quarterly Financial Information (Unaudited),” appearing on pages 90 to 91 of this Annual Report on Form 10-K.
(b)	Holders. The number of record holders of the Company’s common stock at March 31, 2002 was approximately 15,100.
(c)	Dividends. Dividend information is included in Financial Note 21 to the consolidated financial statements, “Quarterly Financial Information (Unaudited),” appearing on pages 90 to 91 of this Annual Report on Form 10-K.

Item 6.  Selected Financial Data

     Selected financial data is presented in the Five-Year Highlights on pages 26 to 27 of this Annual Report on Form 10-K.

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

     Management’s discussion and analysis of the Company’s financial condition and results of operations are presented in the Financial Review on pages 28 to 48 of this Annual Report on Form 10-K.

Item 7A.  Quantitative and Qualitative Disclosures about Market Risk

     Information required by this item is included in the Financial Review on page 44 of this Annual Report on Form 10-K.

Item 8.  Financial Statements and Supplementary Data

     Financial Statements and Supplementary Data appear on pages 49 to 91 of this Annual Report on Form 10-K.

Item 9.  Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

     Not applicable.

PART  III

Item 10.  Directors and Executive Officers of the Registrant

     Information with respect to Directors of the Company is incorporated by reference from the Company’s 2002 Proxy Statement (the “Proxy Statement”). Certain information relating to Executive Officers of the Company appears on page 17 of this Annual Report on Form 10-K. The information with respect to this item required by Item 405 of Regulation S-K is incorporated herein by reference from the Proxy Statement.

18

McKESSON CORPORATION

Item 11.  Executive Compensation

     Information with respect to this item is incorporated herein by reference from the Proxy Statement.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

     Information with respect to this item is incorporated herein by reference from the Proxy Statement.

Item 13.  Certain Relationships and Related Transactions

     Information with respect to certain transactions with management is incorporated by reference from the Proxy Statement. Certain information regarding related party transactions, is also included in the Financial Review on page 44 of this Annual Report on Form 10-K.

PART  IV

Item 14.  Exhibits, Financial Statement Schedule, and Reports on Form 8-K

(a) Financial Statements, Financial Statement Schedule and Exhibits

	Page
Consolidated Financial Statements and Independent Auditors’ Report:
See “Index to Consolidated Financial Information”	25
Supplementary Consolidated Financial Statement Schedule—
Valuation and Qualifying Accounts	21
Financial statements and schedules not included have been omitted because of the absence of conditions under which they are required or because the required information, where material, is shown in the financial statements, financial notes or supplementary financial information
Exhibits:
Exhibits submitted with this Annual Report on Form 10-K as filed with the SEC and those incorporated by reference to other filings are listed on the Exhibit Index	22

(b) Reports on Form 8-K

The following reports on Form 8-K were filed during the three months ended March 31, 2002:

Form 8-K, dated January 22, 2002 and filed on January 24, 2002, relating to our 2002 third quarter financial results and updated legal proceedings.

Form 8-K, dated January 24, 2002 and filed on January 28, 2002, relating to our issuance of $400 million aggregate principal amount of 7.75% notes due 2012.

19

McKESSON CORPORATION

SIGNATURES

     Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		MCKESSON CORPORATION
Dated: June 12, 2002	By	/s/   William R. Graber William R. Graber Senior Vice President and Chief Financial Officer

     Pursuant on behalf of the Registrant and to the requirements of the Securities Act of 1934, this report has been signed below by the following persons in the capacities and on the date indicated:

* John H. Hammergren President and Chief Executive Officer and Director (Principal Executive Officer)	* M. Christine Jacobs, Director
* William R. Graber Senior Vice President and Chief Financial Officer (Principal Financial Officer)	* Martin M. Koffel, Director
* Nigel A. Rees Vice President and Controller (Principal Accounting Officer)	* Gerald E. Mayo, Director
*	*
Alfred C. Eckert III, Director	James V. Napier, Director
*	*
Tully M. Friedman, Director	Marie L. Knowles, Director
*	*
Alton F. Irby III, Director	Carl E. Reichardt, Director
*	*
Richard F. Syron, Director	Alan Seelenfreund, Chairman of the Board
* Jane E. Shaw, Director	/s/ Ivan D. Meyerson Ivan D. Meyerson *Attorney-in-Fact
	Dated: June 12, 2002

20

McKESSON CORPORATION

SCHEDULE II

SUPPLEMENTARY CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended March 31, 2002, 2001 and 2000
(In millions)

			Additions
	Balance at		Charged to			Charged to		Deductions			Balance at
	Beginning		Costs and			Other		From Allowance			End of
Description	of Year		Expenses			Accounts		Accounts(1)			Year(2)
Year Ended March 31, 2002
Allowances for doubtful accounts	$	383.7	$	62.3		$	3.6	$	(160.1	)	$	289.5
Other allowances		36.6		4.8			—		(11.4	)		30.0
	$	420.3	$	67.1		$	3.6	$	(171.5	)	$	319.5
Year Ended March 31, 2001
Allowances for doubtful accounts	$	236.5	$	239.6	(3)	$	9.1	$	(101.5	)	$	383.7
Other allowances		39.0		8.4			—		(10.8	)		36.6
	$	275.5	$	248.0		$	9.1	$	(112.3	)	$	420.3
Year Ended March 31, 2000
Allowances for doubtful accounts	$	140.4	$	216.8	(3)	$	—	$	(120.7	)	$	236.5
Other allowances		40.8		0.5			—		(2.3	)		39.0
	$	181.2	$	217.3		$	—	$	(123.0	)	$	275.5

		2002		2001		2000
(1)	Deductions:
	Written off	$	171.5	$	108.7	$	120.4
	Credited to other accounts		—		3.6		2.6
	Total	$	171.5	$	112.3	$	123.0
(2)	Amounts shown as deductions from:
	Current receivables	$	319.5	$	419.7	$	274.9
	Other assets		—		0.6		0.6
	Total	$	319.5	$	420.3	$	275.5
(3)	Includes charges of $161.1 million and $74.1 million in 2001 and 2000 for customer settlements within our Information Solutions segment. Fiscal 2000 also includes charges of $68.5 million for a change in estimate of receivable allowance requirements for our Information Solutions segment.

21

McKESSON CORPORATION

EXHIBIT INDEX

Exhibit
Number		Description
	2.1	Agreement and Plan of Merger, dated as of October 17, 1998, by and among McKesson Corporation (“the Company”), McKesson Merger Sub, Inc. (“Merger Sub”) and HBOC (Exhibit 2.1(1))
	2.2	Amendment Agreement to Agreement and Plan of Merger, dated as of November 9, 1998, by and among the Company, Merger Sub and HBOC (Exhibit 2.2 (1))
	2.3	Second Amendment Agreement to that certain Agreement and Plan of Merger dated October 17, 1998, as amended by an Amendment Agreement dated as of November 9, 1998 (Exhibit 2.1 (2))
	3.1	Restated Certificate of Incorporation of the Company as filed with the office of the Delaware Secretary of State on November 9, 2001 (18)
	3.2	Amended and Restated By-Laws of the Company dated as of March 27, 2002.
	4.1	Rights Agreement dated as of October 21, 1994 between the Company and First Chicago Trust Company of New York, as Rights Agent (Exhibit 4.1 (6))
	4.2	Amendment No. 1 to the Rights Agreement dated as of October 19, 1998 (Exhibit 99.1 (7))
	4.3	Indenture, dated as of March 11, 1997, between the Company, as Issuer, and The First National Bank of Chicago, as Trustee (Exhibit 4.4 (8))
	4.4	Amended and Restated Declaration of Trust of McKesson Financing Trust, dated as of February 20, 1997, among the Company, The First National Bank of Chicago, as Institutional Trustee, First Chicago, Inc., as Delaware Trustee and the Regular Trustees (Exhibit 4.2 (9))
	4.5	McKesson Corporation Preferred Securities Guarantee Agreement, dated as of February 20, 1997, between the Company, as Guarantor, and The First National Bank of Chicago, as Preferred Guarantor (Exhibit 4.7 (10))
	4.6	Indenture, dated as of January 29, 2002, between the Company, as Issuer and the Bank of New York, as Trustee.
	4.7	7.75 % Notes due 2012.
	4.8	Registrant agrees to furnish to the Commission upon request a copy of each instrument defining the rights of security holders with respect to issues of long-term debt of the Registrant, the authorized principal amount of which does not exceed 10% of the total assets of the Registrant.
	10.1	McKesson Corporation 1999 Stock Option and Restricted Stock Plan, as amended through July 31, 2001.
	10.2	Amended and Restated Employment Agreement, dated as of June 21, 1999, by and between the Company and its President and Chief Executive Officer (16).
	10.3	Form of Termination Agreement by and between the Company and certain designated Corporate Officers (Exhibit 10.23 (11))
	10.4	McKesson Corporation 1994 Stock Option and Restricted Stock Plan, as amended through July 31, 2001.
	10.5	McKesson Corporation 1997 Non-Employee Directors’ Equity Compensation and Deferral Plan, as amended through July 31, 2001
	10.6	McKesson Corporation Supplemental PSIP (Exhibit 10.7 (14))
	10.7	McKesson Corporation Deferred Compensation Administration Plan, amended as of January 27, 1999 (Exhibit 10.8 (14))
	10.8	McKesson Corporation Deferred Compensation Administration Plan II, as amended effective January 27, 1999 (Exhibit 10.9 (14))
	10.9	McKesson Corporation 1994 Option Gain Deferral Plan, as amended effective January 27, 1999 (Exhibit 10.10 (14))
	10.10	McKesson Corporation Directors’ Deferred Compensation Plan, as amended effective January 27, 1999 (Exhibit 10.11 (14))

22

Exhibit
Number		Description
	10.11	McKesson Corporation 1985 Executives’ Elective Deferred Compensation Plan, amended as of January 27, 1999 (Exhibit 10.12 (14)).
	10.12	McKesson Corporation Management Deferred Compensation Plan, amended as of January 27, 1999 (Exhibit 10.13 (14)).
	10.13	McKesson Corporation 1984 Executive Benefit Retirement Plan, as amended through January 27, 1999 (Exhibit 10.14 (14)).
	10.14	McKesson Corporation 1988 Executive Survivor Benefits Plan, as amended effective January 27, 1999 (Exhibit 10.15 (14)).
	10.15	McKesson Corporation Executive Medical Plan Summary (Exhibit 10.16 (14)).
	10.16	McKesson Corporation Severance Policy for Executive Employees, as amended through January 27, 1999 (Exhibit 10.17 (14)).
	10.17	McKesson Corporation Management Incentive Plan, as amended through July 26, 2000.
	10.18	McKesson Corporation Long-Term Incentive Plan, as amended through January 27, 1999 (Exhibit 10.19 (14)).
	10.19	McKesson Corporation Stock Purchase Plan, as amended through January 27, 1999 (Exhibit 10.20 (14)).
	10.20	McKesson Corporation 1999 Executive Stock Purchase Plan (Exhibit 99.1 (12)).
	10.21	Stock Purchase Agreement, dated as of January 10, 2000, by and among the Company, Danone International Brands, Inc. and Groupe Danone SA (Exhibit 99.1 (15)).
	10.22	First Amendment to January 10, 2000 Stock Purchase Agreement, dated as of February 28, 2000 (Exhibit 10.23 (16)).
	10.23	First Amendment to October 22, 1999 Credit Agreement dated as of October 10, 2000 (Exhibit 10.23 (19)).
	10.24	HBOC 1993 Stock Option Plan for Non-employee Directors (Exhibit 4 (13)).
	10.25	Second Amendment to October 5, 2001 Credit Agreement dated as of October 22, 1999.
	10.26	Third Amendment to June 25, 1999 Receivables Purchase Agreement dated as of June 16, 2000 (Exhibit 10.26 (19)).
	10.27	Statement of Terms and Conditions Applicable to Certain Stock Options Granted on January 27, 1999 (Exhibit 10.28 (14)).
	10.28	Credit Agreement dated as of November 10, 1998 among the Company, Medis Health and Pharmaceutical Services Inc., Bank of America National Trust and Savings Association, as Agent, Bank of America Canada, as Canadian Administrative Agent, The Chase Manhattan Bank, as documentation agent, First Union National Bank, as documentation agent, The First National Bank of Chicago, as documentation agent, and the other financial institutions party thereto (Exhibit 10.29 (14)).
	10.29	Stock Option Agreement, dated October 17, 1998, between McKesson and HBOC (Exhibit 99.1 (1)).
	10.30	Stock Option Agreement, dated October 17, 1998, between HBOC and McKesson (Exhibit 99.2 (1)).
	10.31	Credit Agreement dated as of October 22, 1999 among the Company and the several financial institutions from time to time party to the Agreement (“Banks”), The Chase Manhattan Bank, First Union National Bank, Morgan Guaranty Trust Company as documentation agents for Banks and Bank of America N.A. as administrative agent for Banks (Exhibit 10.32 (16)).
	10.32	First Amendment to November 10, 1998 Credit Agreement, dated as of June 28, 1999 (Exhibit 10.33 (16)).
	10.33	Second Amendment to November 10, 1998 Credit Agreement, dated as of December 1, 1999 (Exhibit 10.34 (16)).
	10.34	Receivables Purchase Agreement dated as of June 25, 1999 among the Company, as servicer, CGSF Funding Corporation, as seller, Preferred Receivables Funding Corporation, Falcon Asset Securitization Corporation and Blue Ridge Asset Funding Corporation, as conduits, The First National Bank of Chicago and Wachovia Bank, N.A., as managing agents, the several financial institutions from time to time party to the Agreement, and The First National Bank of Chicago, as collateral agent (Exhibit 10.35 (16)).

23

Exhibit
Number		Description
	10.35	First Amendment to June 25, 1999 Receivables Purchase Agreement, dated as of September 29, 1999 (Exhibit 10.36 (16)).
	10.36	Second Amendment to June 25, 1999 Receivables Purchase Agreement, dated as of December 6, 1999 (Exhibit 10.37 (16)).
	10.37	Statement of Terms and Conditions Applicable to certain Stock Options granted on August 16, 1999 (Exhibit 10.38 (16)).
	10.38	Statement of Terms and Conditions Applicable to certain Restricted Stock grants on January 31, 2000 (Exhibit 10.39 (16)).
	10.39	Syndicated Revolving Promissory Note dated as of May 28, 1999 among the Company, Bank of America National Trust and Savings Association, as Agent, and the other noteholders’ signatures to the Note, Banc of America LLC as Sole Lead Arranger (Exhibit 10.40 (16)).
	10.40	Employment Agreement, dated as of June 21, 1999 by and between the Company and its Senior Vice President, President, Information Solutions Business (Exhibit 10.41 (16)).
	10.41	Employment Agreement, dated as of August 1, 1999 by and between the Company and its Senior Vice President, President, Supply Solutions Business (Exhibit 10.42 (16)).
	10.42	Fourth Amendment to June 25, 1999 Receivables Purchase Agreement, dated as of June 15, 2001 (Exhibit 10.1 (17)).
	10.43	McKesson Corporation 1998 Canadian Stock Incentive Plan, as amended through October 26, 2001.
	10.44	McKesson Corporation 2000 Employee Stock Purchase Plan, as amended through July 31, 2002.
	21	List of Subsidiaries of the Company.
	23.1	Consent of Deloitte & Touche LLP.
	24	Power of Attorney.

Footnotes to Exhibit Index:
(1)	Incorporated by reference to designated exhibit to Amendment No. 1 to McKesson’s Form S-4 Registration Statement No. 333-67299 filed on November 27, 1998.
(2)	Incorporated by reference to designated exhibit to the Company’s Current Report on Form 8-K dated January 14, 1999.
(3)	Incorporated by reference to designated exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1998.
(4)	Incorporated by reference to designated exhibit to the Company’s Form S-8 Registration Statement No. 333-70501 filed on January 12, 1999.
(5)	Incorporated by reference to designated exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999.
(6)	Incorporated by reference to designated exhibit to Amendment No. 3 to the Company’s Registration Statement on Form 10 filed on October 27, 1994.
(7)	Incorporated by reference to designated exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1998.
(8)	Incorporated by reference to designated exhibit to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 1997.
(9)	Incorporated by reference to designated exhibit to Amendment No. 1 to the Company’s Form S-3 Registration Statement No. 333-26433 filed on June 18, 1997.
(10)	Incorporated by reference to designated exhibit to the Company’s Form S-3 Registration Statement No. 333-26433 filed on May 2, 1997.
(11)	Incorporated by reference to designated exhibit to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 1995.
(12)	Incorporated by reference to designated exhibit to the Company’s Form S-8 Registration Statement No. 333-71917 filed on February 5, 1999.
(13)	Incorporated by reference to designated exhibit to HBOC’s Form S-8 Registration Statement No. 33- 67300 filed on August 12, 1993.
(14)	Incorporated by reference to designated exhibit to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 1999.
(15)	Incorporated by reference to designated exhibit to the Company’s Current Report on Form 8-K dated February 1, 2000.
(16)	Incorporated by reference to designated exhibit to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2000.
(17)	Incorporated by reference to designated exhibit to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2001.
(18)	Incorporated by reference to designated exhibit to the Company’s Quarterly Report on Form 10-Q for the period ended December 31, 2001.
(19)	Incorporated by reference to designated exhibit to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2001.

24

McKESSON CORPORATION

INDEX TO CONSOLIDATED FINANCIAL INFORMATION

CONTENTS

		Page
Five-Year Highlights			26
Financial Review			28
Independent Auditors’ Report			49
Consolidated Financial Statements
	Consolidated Statements of Operations for the years ended March 31, 2002, 2001 and 2000		50
	Consolidated Balance Sheets as of March 31, 2002, 2001 and 2000		51
	Consolidated Statements of Stockholders’ Equity for the years ended March 31, 2002, 2001 and 2000		52
	Consolidated Statements of Cash Flows for the years ended March 31, 2002, 2001 and 2000		53
	Financial Notes		54

25

McKESSON CORPORATION

FIVE-YEAR HIGHLIGHTS

				As of and For the Years Ended March 31,
(In millions, except per share amounts)				2002(3)			2001			2000			1999			1998
Operating Results(1)(2)
Revenues				$	50,006.0		$	42,019.1		$	36,708.0		$	29,993.4		$	22,057.0
		Percent change			19.0	%		14.5	%		22.4	%		36.0	%		33.1	%
Gross profit					2,796.9			2,429.1			2,223.4			2,321.8			2,093.8
		Percent of revenues			5.6	%		5.8	%		6.1	%		7.7	%		9.5	%
Income from continuing operations before income taxes					607.4			15.8			313.1			168.2			459.3
Income (loss) from continuing operations					418.6			(42.7	)		184.6			60.6			275.2
Income (loss) from discontinued operations					—			(5.6	)		539.1			24.3			29.4
Net income (loss)					418.6			(48.3	)		723.7			84.9			304.6
Financial Position
Working capital					3,110.7			2,614.3			2,843.7			1,708.0			2,234.3
Operating working capital(4)					3,676.3			3,197.9			3,299.9			2,525.1			2,348.8
Days sales outstanding for:(5)
	Customer receivables				26.4			26.0			27.6			24.8			28.0
	Inventories				44.3			43.0			42.9			41.4			45.6
	Drafts and accounts payable				46.7			45.0			40.1			41.7			38.3
Total assets					13,324.0			11,529.9			10,372.9			9,020.0			7,291.8
Total debt, including capital lease obligations					1,429.6			1,229.7			1,260.0			1,151.2			1,318.4
Stockholders’ equity					3,940.1			3,492.9			3,565.8			2,881.8			2,561.7
Property acquisitions					131.8			158.9			145.1			199.2			166.4
Common Share Information
Common shares outstanding at year-end					287.9			284.0			283.4			280.6			271.0
Shares on which earnings per common share were based
		Diluted(6)			298.1			283.1			284.2			284.4			282.1
		Basic			285.2			283.1			281.3			275.2			266.2
Diluted earnings (loss) per common share(2),(6)
		Continuing operations			1.43			(0.15	)		0.65			0.21			1.00
		Discontinued operations			—			(0.02	)		1.90			0.09			0.10
			Total		1.43			(0.17	)		2.55			0.30			1.10
Cash dividends declared(7)					68.5			68.3			67.5			84.9			62.0
Cash dividends declared per common share(7)					0.24			0.24			0.24			0.44			0.50
Book value per common share(8)					13.68			12.30			12.58			10.27			9.45
Market value per common share — year end					37.43			26.75			21.00			66.00			57.75
SUPPLEMENTAL DATA
				As of and For the Years Ended March 31,
(In millions)				2002			2001			2000			1999			1998
EBITA excluding special charges(9)					823.2			651.5			609.9			699.8			668.7
Capital employed(10)					5,565.8			4,918.5			5,021.6			4,228.6			4,075.5
Debt to capital ratio					25.7	%		25.0	%		25.1	%		27.2	%		32.3	%
Ratio of net debt to net capital employed(11)					17.3	%		17.5	%		14.8	%		22.4	%		18.8	%
Average committed capital(12)					3,772.7			3,463.4			3,194.5			2,715.7			2,098.5
Return on committed capital excluding special charges(13)					21.8	%		18.8	%		19.1	%		25.7	%		31.9	%
Average stockholders’ equity — 5 quarters					3,704.8			3,611.8			3,117.9			2,773.3			2,313.4
Return on stockholders’ equity excluding special charges(14)					11.9	%		7.8	%		8.5	%		12.5	%		14.7	%

26

McKESSON CORPORATION

Footnotes to Five Year Highlights and Supplemental Data:

(1)	In 2002, we reclassified reimbursable “out-of-pocket” expenses from cost of sales to revenues; Corporate revenues and cost of sales were reclassified to other income; and Corporate interest income was reclassified from interest expense to other income. Prior year results have been conformed to this new presentation.
(2)	Income from continuing operations includes special charges, which we believe are not indicative of normal, ongoing operations. Operating results include the following special charges:

		Years Ended March 31,
(Dollars in millions, except per share amounts)		2002			2001			2000			1999			1998
By Type
Restatement-related costs incurred		$	2.2		$	2.5		$	18.9		$	—		$	—
Loss (gain) on investments, net			13.7			97.8			(269.1	)		—			—
Loss on sales of businesses, net			22.0			—			9.4			—			—
Restructuring activities			39.8			355.9			223.3			140.3			—
Costs associated with former employees			(0.8	)		—			23.8			—			—
Other operating items:
	Accounts receivable allowances		—			—			68.5			—			—
	Contract system costs		—			—			31.5			36.2			—
Merger termination, transaction and integration costs			—			—			—			219.4			96.1
Other, net			11.6			2.1			21.2			—			—
Total pre-tax special charges			88.5			458.3			127.5			395.9			96.1
Income tax benefit			(67.9	)		(132.6	)		(47.1	)		(110.1	)		(30.8	)
Total after-tax special charges		$	20.6		$	325.7		$	80.4		$	285.8		$	65.3
Diluted loss per share attributable to special charges		$	0.06		$	1.14		$	0.28		$	1.00		$	0.23
By Statement of Operations Classification
Cost of sales		$	7.5		$	—		$	24.1		$	4.0		$	—
Selling, distribution, administrative, research and development expenses			45.6			337.4			363.1			391.9			96.1
Loss on sales of businesses, net			22.0			—			9.4			—			—
Other income, net			(0.3	)		—			—			—			—
Loss (gain) on investments, net			13.7			120.9			(269.1	)		—			—
Total pre-tax special charges		$	88.5		$	458.3		$	127.5		$	395.9		$	96.1

(3)	Fiscal 2002 results exclude goodwill amortization in accordance with our adoption of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets.”
(4)	Operating working capital represents trade accounts receivable and inventories, net of drafts and accounts payable.
(5)	Based on year-end balances and sales or cost of sales for the last 90 days of the year.
(6)	For 2000 and 1999, the Company has revised diluted earnings per share to include the dilutive effect of stock options and restricted stock. Diluted earnings per share for 2000 from continuing and discontinued operations were reduced by $0.01 each from previously reported amounts of $0.66 and $1.91, for a total of $2.57, based on revised weighted average shares outstanding of 284.2 million. For 1999, diluted earnings per share from continuing operations and total earnings per share were reduced by $0.01 each from previously reported amounts of $0.22 and $0.31, based on revised weighted average shares outstanding of 284.4 million.
(7)	Cash dividends declared and dividends per common share amounts do not reflect the effects of poolings of interest transactions.
(8)	Represents stockholders’ equity divided by year-end common shares outstanding.
(9)	EBITA is defined as income (loss) from continuing operations before amortization of goodwill and intangibles, interest expense, income taxes and dividends on preferred securities of subsidiary trust. EBITA is not intended to represent cash flow from operations, or alternatives to net income, as defined by U.S. generally accepted accounting principles. In addition, the measures of EBITA presented herein may not be comparable to other similarly titled measures used by other companies.
(10)	Consists of total debt, convertible preferred securities of subsidiary trust and stockholders’ equity.
(11)	Ratio is computed as total debt, net of cash, cash equivalents and marketable securities, divided by capital employed, net of cash, cash equivalents and marketable securities.
(12)	Defined as the five-quarter average of total debt, deferred taxes, convertible preferred securities and stockholders’ equity, less cash, cash equivalents, marketable securities and intangible assets.
(13)	Represents EBITA, excluding special charges, divided by average committed capital.
(14)	Ratio is computed as net income, excluding special charges and discontinued operations, divided by a five-quarter average of stockholders’ equity.

27

McKESSON CORPORATION

FINANCIAL REVIEW

Item 7.  Management’s Discussion and Analysis of Results of Operations and Financial Condition

GENERAL

     Management’s discussion and analysis of results of operations and financial condition, referred to as the Financial Review, is intended to assist in the understanding and assessment of significant changes and trends related to the results of operations and financial position of McKesson Corporation (“McKesson,” the “Company” or “we” and other similar pronouns), together with our subsidiaries. This discussion and analysis should be read in conjunction with the consolidated financial statements and accompanying financial notes.

     The Company’s fiscal year begins on April 1 and ends on March 31. Unless otherwise noted, all references in this document to a particular year shall mean the Company’s fiscal year.

BUSINESS SEGMENTS

     We conduct our business through three operating segments: Pharmaceutical Solutions, Medical-Surgical Solutions and Information Solutions. The Pharmaceutical Solutions segment includes our U.S. and Canadian pharmaceutical and healthcare products distribution businesses and an equity interest in a leading pharmaceutical distributor in Mexico. Our U.S. Pharmaceutical Solutions business also includes the manufacture and sale of automated pharmaceutical dispensing systems for hospitals and retail pharmacists, medical management services and tools to payors and providers, marketing and other support services to pharmaceutical manufacturers, consulting and outsourcing services to pharmacies, and distribution of first-aid products to industrial and commercial customers. The Medical-Surgical Solutions segment distributes medical-surgical supplies and equipment, and provides logistics and related services within the U.S. The Information Solutions segment delivers enterprise-wide patient care, clinical, financial, supply chain, managed care and strategic management software solutions, as well as outsourcing and other services, to healthcare organizations throughout the U.S. and certain foreign countries.

RESULTS OF OPERATIONS

     Overview

		Years Ended March 31,
(In millions, except per share data)		2002		2001			2000
Revenues
	Excluding Sales to Customers’ Warehouses(1)	$	36,821.1	$	31,289.3		$	27,961.5
	Sales to Customers’ Warehouses		13,184.9		10,729.8			8,746.5
Total Revenues		$	50,006.0	$	42,019.1		$	36,708.0
As Reported — U.S. GAAP(2)
	Operating Profit(3)	$	883.8	$	370.0		$	322.4
	Net Income (Loss)		418.6		(48.3	)		723.7
	Diluted Earnings (Loss) Per Share(4)		1.43		(0.17	)		2.55
Pro Forma(2),(5)
	Operating Profit		954.0		686.7			653.3
	Net Income		439.2		283.0			265.0
	Diluted Earnings Per Share(4)		1.49		0.99			0.93

(1)	In accordance with Emerging Issues Task Force Issue No. 01-14, “Income Statement Characterization of Reimbursements Received for “Out-of-Pocket” Expenses Incurred,” we reclassified $11.4 million and $23.1 million reimbursable “out-of-pocket” expenses from cost of sales to revenues for 2001 and 2000. In addition, Corporate revenues of $2.3 million and $2.1 million for 2001 and 2000, and related cost of sales, have been reclassified to other income.
(2)	Fiscal 2002 results exclude goodwill amortization in accordance with our adoption of Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets.” For the years ended March 31, 2001 and 2000, pro forma net income as adjusted would have been $329.1 million and $298.9 million, and diluted earnings per share would have been $1.14 and $1.05, excluding pre-tax goodwill amortization of $49.4 million ($46.1 million after-tax) and $37.6 million ($33.9 million after-tax).
(3)	Operating profit is defined as earnings from continuing operations for our three business segments, before Corporate expenses, interest expense, and income taxes.
(4)	Diluted and pro forma diluted earnings per share for 2000 were reduced by $0.02 and $0.01, based on revised weighted average shares outstanding.
(5)	Pro forma financial results exclude the impact of special charges and discontinued operations.

28

McKESSON CORPORATION

FINANCIAL REVIEW (Continued)

     As reported under U.S. generally accepted accounting principles (U.S. GAAP), net income was $418.6 million in 2002, a net loss of $48.3 million in 2001, and net income of $723.7 million in 2000, and diluted earnings (loss) per share were $1.43, $(0.17) and $2.55. U.S. GAAP financial results include pre-tax special charges of $88.5 million, $458.3 million and $127.5 million in 2002, 2001 and 2000. After taxes, these charges amounted to $20.6 million, $325.7 million and $80.4 million in 2002, 2001 and 2000, or $0.06, $1.14 and $0.28 per diluted share. Results for 2001 and 2000 also include after-tax results from discontinued operations of a loss of $5.6 million and income of $23.2 million, or $(0.02) and $0.08 per diluted share, primarily relating to the disposition of our Water Products business. Fiscal 2000 results also include a gain on the disposition of our Water Products business of $515.9 million, or $1.82 per diluted share.

     Net income and net income per diluted share before special charges and discontinued operations increased by 55% and 51% to $439.2 million and $1.49 in 2002, from $283.0 million and $0.99 in 2001. This compares to an increase of 7% and 6% from 2000 to 2001. Revenues increased by 19% to $50.0 billion in 2002 and by 14% to $42.0 billion in 2001, from $36.7 billion in 2000. Excluding the impact of special charges and discontinued operations, the increase in operating profit, net income and earnings per share over the last two years primarily reflects revenue growth and operating margin expansion in our Pharmaceutical Solutions segment and improved operating profit in our Information Solutions segment. The increase in financial results from 2001 to 2002 was also attributable to the discontinuance of goodwill amortization in accordance with our implementation of Statement of Financial Accounting Standards Board (“SFAS”) No. 142, “Goodwill and Other Intangible Assets.”

     Pro forma financial data is provided as an alternative for understanding our results, as we believe such discussion is the most informative representation of recurring and non-recurring, non-transactional-related operating results. Pro forma financial results exclude special charges and discontinued operations. These measures are not in accordance with, or an alternative for, U.S. GAAP and may be different from pro forma measures used by other companies.

     The following discussion regarding our financial results excludes special charges. Special charges are discussed in detail commencing on page 35 which include a reconciliation of pro forma financial results to those reported under U.S. GAAP.

     Revenues:

					Years Ended March 31,
(In millions)					2002		2001		2000
Pharmaceutical Solutions
	Pharmaceutical Distribution & Services
		U.S. Healthcare			$	30,206.3	$	24,987.0	$	22,073.8
		U.S. Healthcare Sales to Customers’ Warehouses				13,184.9		10,729.8		8,746.5
			Total U.S. Healthcare			43,391.2		35,716.8		30,820.3
		International				2,884.8		2,644.7		2,220.2
			Total Pharmaceutical Solutions			46,276.0		38,361.5		33,040.5
Medical-Surgical Solutions						2,726.0		2,715.8		2,626.0
Information Solutions
	Software					182.6		133.6		144.0
	Services					736.1		723.6		805.1
	Hardware					85.3		84.6		92.4
				Total Information Solutions		1,004.0		941.8		1,041.5
Total Revenues(1)					$	50,006.0	$	42,019.1	$	36,708.0
Revenues, Excluding Sales to Customers’ Warehouses:
Pharmaceutical Solutions					$	33,091.1	$	27,631.7	$	24,294.0
Medical-Surgical Solutions						2,726.0		2,715.8		2,626.0
Information Solutions						1,004.0		941.8		1,041.5
	Total(1)				$	36,821.1	$	31,289.3	$	27,961.5

29

McKESSON CORPORATION

FINANCIAL REVIEW (Continued)

(1) In accordance with Emerging Issues Task Force Issue No. 01-14, “Income Statement Characterization of Reimbursements Received for “Out-of-Pocket” Expenses Incurred,” we reclassified $11.4 million and $23.1 million reimbursable “out-of-pocket” expenses from cost of sales to service revenues for 2001 and 2000 for our Information Solutions segment. In addition, Corporate revenues of $2.3 million and $2.1 million for 2001 and 2000, and related cost of sales, have been reclassified to other income.

     Consolidated revenues increased 19% in 2002 and 14% in 2001. Excluding sales to customers’ warehouses, consolidated revenues increased 18% in 2002 as compared to 12% in 2001. The growth in revenues was primarily driven by the Pharmaceutical Solutions segment, which accounted for 93% of our 2002 consolidated revenues. Excluding sales to customers’ warehouses, Pharmaceutical Solutions segment revenues increased 20% in 2002 as compared to 14% in 2001. Consolidated revenues were not materially impacted by business acquisitions, which are described in further detail commencing on page 40.

     The improvement in U.S. Pharmaceutical distribution revenues, excluding sales to customers’ warehouses, was primarily due to increased sales volume to our retail chain and institutional customers. These increases were for both new pharmaceutical business that was previously shipped direct or outside the distribution channel, as well as for increased volume from existing customers. We believe that we have attracted this increase in sales volume due in large part to the wide range of products and services that we can offer our customers. Our retail customers have benefited from our service offerings and programs that focus on broad product selection, service levels, inventory carrying cost reductions, connectivity and automation technologies. Institutional customers have benefited from our focus on reducing both product cost and internal labor and logistics costs for their customers. Services available include pharmaceutical distribution, medical-surgical supply distribution, pharmaceutical dispensing automation, pharmacy outsourcing and utilization reviews. In addition, our ability to provide patient-assisted programs and the distribution of specialty products has also contributed to our increase in revenues. These retail chain and institutional capabilities have resulted in the implementation of significant long-term contracts with major customers.

     The customer mix of our U.S. pharmaceutical distribution revenues, excluding sales to customers’ warehouses, was as follows:

		2002			2001			2000
Independents			22	%		24	%		26	%
Retail Chains			41			42			42
Institutions			37			34			32
	Total		100	%		100	%		100	%

     U.S. pharmaceutical distribution sales to customers’ warehouses increased 23% over each of the comparable prior years, reflecting the addition of a few significant retail chain customers as well as growth from existing customers. Sales to customers’ warehouses represent large volume sales of pharmaceuticals to major self-warehousing drugstore chains whereby we act as an intermediary in the order and subsequent delivery of products directly from the manufacturer to the customers’ warehouses. These sales provide a benefit to our customers in that they can use one source for both their direct store-to-store business and their warehouse business.

     International pharmaceutical distribution revenues, which are derived from our Canadian operations, increased by 9% in 2002 and 19% in 2001, reflecting increased sales volume to our customers. Revenues for 2001 had one extra selling week as compared to 2002 and 2000.

     Medical-Surgical Solutions’ distribution revenues were flat in 2002. Increases in our primary and extended care products were almost fully offset by a decline in revenues for acute care products. Revenues in 2001 increased by 3%, reflecting modest growth in our primary and extended care products, partially offset by a decline in our acute care products. The segment’s decline in its acute care business reflects the competitive environment in which it operates. In addition, in 2002, one large customer began self-warehousing certain products directly from the manufacturers.

30

McKESSON CORPORATION

FINANCIAL REVIEW (Continued)

     Information Solutions segment revenues increased 7% in 2002 compared to a decrease of 10% in 2001. Software revenues increased by 37% in 2002, compared to a decrease of 7% in 2001. The increase in 2002 software revenues was largely due to new contracts for our products from our Horizon Clinicals™ offerings, which was introduced in July of 2001. Our Horizon Clinicals™ products are designed to provide an integrated clinical repository, common architecture and the advanced functionality required to support clinicians in providing high-quality, cost-effective patient care across multiple care settings. The decrease in 2001 software revenues was primarily due to the deferral of revenue under the percentage of completion method of accounting for certain contracts.

     Service revenues increased 2% in 2002 compared to a decrease of 10% in 2001. The increase in service revenues in 2002 primarily reflects additional outsourcing arrangements. Service revenues declined in 2001, reflecting the delayed impact of reduced prior period software sales on implementation service revenues.

     Hardware revenues for 2002 were flat compared to 2001, which was slightly lower than 2000. Hardware is sold as an accommodation to customers at a significantly lower operating margin than software and services. The decrease in 2001 hardware revenues reflects the lower level of software sales, general price declines for hardware and a shift to less costly platforms.

     As of March 31, 2002, backlog for our Information Solutions segment, which includes firm contracts for maintenance fees, implementation and software contracts, and outsourcing agreements, increased to $2.1 billion from $1.5 billion a year ago and from $1.6 billion two years ago. The increase in backlog from 2001 to 2002 resulted primarily from a new ten-year, $480 million outsourcing contract to provide a standardized, fully automated human resources and payroll system for the National Health Service of England and Wales, covering approximately one million employees.

     Gross Profit:

			Years Ended March 31,
(In millions)			2002			2001			2000
Pro Forma Gross Profit
	Pharmaceutical Solutions		$	1,796.8		$	1,514.2		$	1,321.5
	Medical-Surgical Solutions			530.5			520.9			515.4
	Information Solutions			477.1			394.0			410.6
Pro Forma Gross Profit				2,804.4			2,429.1			2,247.5
Special Charges				(7.5	)		—			(24.1	)
Gross Profit — U.S. GAAP			$	2,796.9		$	2,429.1		$	2,223.4
Pro forma Gross Profit Margin(1)
	Pharmaceutical Solutions			5.43	%		5.48	%		5.44	%
	Medical-Surgical Solutions			19.46			19.18			19.63
	Information Solutions			47.52			41.83			39.42
		Total		7.62			7.76			8.04

(1) Excludes sales to customers’ warehouses.

     Pro forma gross profit increased by $375.3 million in 2002 and $181.6 million in 2001. As a percentage of revenues, excluding sales to customers’ warehouses, gross profit margin decreased 14 and 28 basis points in 2002 and 2001. These decreases were primarily the result of a higher proportion of revenues attributable to our U.S. pharmaceutical distribution business, which has lower margins relative to the other product lines in the segment, partially offset by an improvement in gross margins from the Information Solutions segment and to a lesser extent, from the Medical-Surgical Solutions segment. The U.S. pharmaceutical distribution business operates in a highly competitive environment; however, in 2002, the business was able to maintain its gross margins due to expanded product sourcing activities as well as through the penetration of its generic drug offerings. Information Solutions’ gross margin increase reflects the sale of higher margin software in 2002 and a lower revenue base in 2001.

31

McKESSON CORPORATION

FINANCIAL REVIEW (Continued)

     We exclude sales to customer warehouses in analyzing our gross and operating profits and operating expenses as a percentage of revenues as these revenues have a significantly lower gross margin compared to traditional direct store delivery sales because of their low cost-to-serve model (i.e., bulk shipments to warehouses). These sales do, however, contribute positively to our cash flows due to favorable timing between the customer payment and the payment to the supplier.

     Our Pharmaceutical Solutions segment uses the last-in, first-out (LIFO) method of accounting for the majority of its inventories, which results in cost of sales that more closely reflects replacement cost than do other accounting methods, thereby mitigating the effects of inflation and deflation on operating profit. The practice in the Pharmaceutical Solutions distribution businesses is to pass on to customers published price changes from suppliers. Manufacturers generally provide us with price protection, which prevents inventory losses. Price declines on many generic pharmaceutical products in this segment over the last few years have moderated the effects of inflation in other product categories, which resulted in minimal overall price changes in those fiscal years.

     Operating Expenses and Other Income:

				Years Ended March 31,
(In millions)				2002			2001			2000
Pro Forma Operating Expenses
		Pharmaceutical Solutions		$	1,031.4		$	954.1		$	899.7
		Medical-Surgical Solutions			437.1			428.6			404.3
		Information Solutions			422.0			394.1			328.9
		Corporate			145.2			108.6			108.5
			Total		2,035.7			1,885.4			1,741.4
Special Charges(1)					67.6			337.4			372.5
Operating Expenses — U.S. GAAP				$	2,103.3		$	2,222.8		$	2,113.9
Pro Forma Operating Expenses as a Percentage of Revenues:(2)
	Pharmaceutical Solutions				3.12	%		3.45	%		3.70	%
	Medical-Surgical Solutions				16.03			15.78			15.40
	Information Solutions				42.03			41.85			31.58
	Consolidated				5.53			6.03			6.23
Pro Forma Other Income
		Pharmaceutical Solutions		$	37.1		$	33.7		$	38.8
		Medical-Surgical Solutions			1.7			0.1			(0.4	)
		Information Solutions			1.3			0.6			0.3
		Corporate			—			7.6			10.0
			Total	$	40.1		$	42.0		$	48.7
Special (Charges) Income					(13.4	)		(120.9	)		269.1
Other Income (Loss) — U.S. GAAP(3)				$	26.7		$	(78.9	)	$	317.8

(1)	Includes loss on sales of businesses.
(2)	Excludes sales to customers’ warehouses.
(3)	Includes other income and gain (loss) on investments.

     Pro forma operating expenses increased from 2001 to 2002 primarily reflecting additional expenses to support our sales volume growth. Offsetting these increases was the elimination of goodwill amortization in 2002 due to our adoption of SFAS No. 142. Pro forma operating expenses in 2001 and 2000, excluding goodwill amortization of $49.4 million and $37.6 million, was $1,836.0 million and $1,703.8 million. Expenses also increased from 2000 to 2001, which primarily reflect additional expenses to support our increase in sales volume and enhanced customer support, and additional spending in research and development activities to support future product development.

32

McKESSON CORPORATION

FINANCIAL REVIEW (Continued)

     Operating expenses as a percentage of revenues, excluding sales to customers’ warehouses, have declined over the last two years, primarily reflecting productivity improvements in both back-office and field operations and our ability to support additional revenues with a lower proportionate amount of selling, distribution and administrative expenses within our Pharmaceutical Solutions business.

     Other income includes interest income and equity in earnings of our 22% interest in Nadro S.A. de C.V. (“Nadro”), a Mexican pharmaceutical distribution business and Health Nexis, LLC (“Health Nexis”), an Internet-based company we formed with other healthcare companies in 2001, as well as special charges relating to impairments of investments. Also in 2002, we reclassified revenues and cost of sales pertaining to Corporate activities to other income, which increased other income by $1.7 million and $1.5 million in 2001 and 2000.

     Pro forma other income decreased by $1.9 million to $40.1 million in 2002 and by $6.7 million to $42.0 million in 2001. Results for 2002 reflect a decrease in Corporate other income of $7.6 million, which includes $3.0 million of additional losses in Health Nexis as compared to the prior year. In the third quarter of 2002, Health Nexis merged with another entity, thereby significantly diluting our ownership percentage in the combined organization. As a result, we changed from the equity to the cost method of accounting for this investment. Pharmaceutical Solutions other income increased in 2002 and decreased in 2001 compared to the prior year, which includes fluctuations in results from Nadro.

     Operating Profit and Corporate Expenses:

				Years Ended March 31,
(In millions)				2002			2001			2000
Pro Forma Operating Profit
	Pharmaceutical Solutions			$	802.5		$	593.8		$	460.6
	Medical-Surgical Solutions				95.1			92.4			110.7
	Information Solutions				56.4			0.5			82.0
			Total		954.0			686.7			653.3
Pro Forma Corporate Expenses					(145.2	)		(101.0	)		(98.5	)
Special Charges					(88.5	)		(458.3	)		(127.5	)
Income Before Interest Expense, Income Taxes and Dividends on Preferred Securities of Subsidiary Trust					720.3			127.4			427.3
Interest Expense					(112.9	)		(111.6	)		(114.2	)
Income From Continuing Operations, Before Income Taxes and Dividends on Preferred Securities of Subsidiary Trust				$	607.4		$	15.8		$	313.1
Pro Forma Operating Profit Margin(1)
		Pharmaceutical Solutions			2.43	%		2.15	%		1.90	%
		Medical-Surgical Solutions			3.49	%		3.40	%		4.22	%
		Information Solutions			5.62	%		0.05	%		7.87	%

(1) Excludes sales to customers’ warehouses.

     Operating profit is computed as gross margin, less operating expenses, plus other income for our business segments. Pro forma operating profit increased 39% in 2002 and 5% in 2001. Operating profit improvements resulted primarily from continued strong revenue growth and operating margin expansion in our Pharmaceutical Solutions segment, combined with improved operating profits in our Information Solutions segment. Operating profits for 2002 also benefited from the discontinuance of goodwill amortization in accordance with the adoption of SFAS No. 142.

     Excluding sales to customers’ warehouses, pro forma operating profit as a percentage of revenues increased 28 basis points to 2.43% in 2002 and 25 basis points to 2.15% in 2001 for our Pharmaceutical Solutions segment. The increase in pro forma operating profit reflects productivity improvements in operations, expanded product sourcing activities and increased penetration of our generic drug offerings in our U.S. pharmaceutical distribution business

33

McKESSON CORPORATION

FINANCIAL REVIEW (Continued)

offset, in part, by pricing pressures reflecting the competitive environment. The improvement was also partly attributable to our Canadian pharmaceutical business, which reflects new customers, sales growth and operational efficiencies. Fiscal 2002 also benefited from the discontinuance of goodwill amortization. Partially offsetting those increases for 2001, our Health Solutions business experienced a loss of a number of customers and earnings from the segment’s equity interest in Nadro was reduced. Excluding goodwill amortization of $8.0 million in 2001 and $6.5 million in 2000, pro forma operating profit as a percentage of revenues increased 25 basis points in 2002 and 26 basis points in 2001.

     Medical-Surgical Solutions segment’s pro forma operating profit increased modestly in 2002 and decreased in 2001. Excluding goodwill amortization of $19.0 million and $19.3 million in 2001 and 2000, pro forma operating profit as a percentage of revenue was 4.10% and 4.95%, or a decrease of 61 basis points in 2002 and 85 basis points in 2001. The decrease in operating profit as a percentage of revenues over the last two years is largely due to additional operating expenses associated with the segment’s restructuring activities. These expenses include the duplication of payroll, transportation and warehouse costs as the segment gradually migrates to fewer distribution centers.

     Information Solutions segment’s pro forma operating profit in 2002 reflects the increase in higher margin software revenue and the discontinuance of goodwill amortization, offset in part by an increase in operating expenses. The decline in 2001 pro forma operating profit reflects the decrease in revenues and an increase in the level of expenses to enhance customer support and future product introduction. Excluding goodwill amortization of $22.4 million in 2001 and $11.8 million in 2000, pro forma operating profit as a percentage of revenues increased 319 basis points in 2002 and decreased 657 basis points in 2001.

     Pro forma Corporate expenses were $145.2 million, $101.0 million and $98.5 million in 2002, 2001 and 2000. The increase in 2002 Corporate expenses reflects expenses associated with borrowings under our credit facilities, higher benefit costs and our share in the losses of Health Nexis. Pro forma Corporate expenses for 2001 approximated those of 2000.

     Interest Expense: Interest expense for 2002 approximated that of 2001 and 2000. Interest expense for 2002 reflects the issuance of $400.0 million 7.75% notes in January 2002 partially offset by the retirement of $175.0 million 6.875% notes in March 2002. We also sold more receivables in 2002 compared to 2001 in order to meet our financing needs. The costs associated with the sale of receivables are recorded in Corporate expenses. The slight decrease in 2001 interest expense is due to lower average borrowings during the year.

     Income Taxes: The effective income tax rate excluding special charges was 36.0%, 39.0% and 38.5%, for 2002, 2001 and 2000. The reduction in our effective tax rate in 2002 was the result of certain tax planning initiatives and the discontinuance of goodwill amortization, which is generally not tax-deductible. The increase in our effective tax rate from 2000 to 2001 primarily reflects the impact of non-deductible goodwill amortization associated with purchase acquisitions made in these years.

     Discontinued Operations: Discontinued Operations for 2001 of $5.6 million primarily relates to the disposition of our Water Products business. Fiscal 2000 results include a gain on the disposition of our Water Products business of $515.9 million, which we sold for $1.1 billion in cash, and $23.2 million of results from discontinued operations.

     Weighted Average Diluted Shares Outstanding: Diluted earnings per share were calculated based on an average number of shares outstanding of 298.1 million, 283.1 million, and 284.2 million for 2002, 2001 and 2000. The increase in the weighted average number of shares outstanding in 2002 was due to the inclusion of 5.4 million share equivalents relating to our trust convertible preferred securities and 7.5 million of dilutive securities issued under employee benefit plans, which were excluded in 2001 as they were anti-dilutive. The increase was also attributable to a greater number of basic shares outstanding due to option exercises, partially offset by shares repurchased as part of our share repurchase program.

McKESSON CORPORATION

FINANCIAL REVIEW (Continued)

International Operations

     International operations accounted for 6.0%, 6.6% and 6.4%, and 6.5%, 5.7% and 8.7%, of 2002, 2001 and 2000 consolidated revenues and operating profits before special charges, and 6.1%, 5.6% and 5.8% of consolidated assets at March 31, 2002, 2001 and 2000. International operations are subject to certain opportunities and risks, including currency fluctuations. We monitor our operations and adopt strategies responsive to changes in the economic and political environment in each of the countries in which we operate.

34

Special Charges

     We incurred the following special charges in 2002, 2001 and 2000:

		Years Ended March 31,
(In millions)		2002			2001			2000
Restatement-related costs incurred		$	2.2		$	2.5		$	18.9
Loss (gain) on investments, net			13.7			97.8			(269.1	)
Loss on sales of businesses, net(1)			22.0			—			9.4
Restructuring activities			39.8			355.9			223.3
Costs associated with former employees			(0.8	)		—			23.8
Other operating items:
	Accounts receivable allowances		—			—			68.5
	Contract system costs		—			—			31.5
Other, net			11.6			2.1			21.2
Total pre-tax special charges			88.5			458.3			127.5
Income tax benefit			(67.9	)		(132.6	)		(47.1	)
Total after-tax special charges		$	20.6		$	325.7		$	80.4
Diluted loss per share attributable to special charges		$	0.06		$	1.14		$	0.28

(1) Excludes the 2000 sale of the Water Products business, which was treated as a discontinued operation.

     Restatement-Related Costs: In January 1999, we acquired HBO & Company (“HBOC”), and the acquisition was accounted for as a pooling of interests. In April 1999, we discovered improper accounting practices at HBOC. In July 1999, the Audit Committee of our Board of Directors completed an investigation into such matters, which resulted in a previously reported restatement of our historical consolidated financial statements related to HBOC (pre-acquisition) in 1999, 1998 and 1997. In 2002, 2001 and 2000, we incurred expenses totaling $2.2 million, $2.5 million and $18.9 million in connection with the investigation, restatement of the historical consolidated financial statements and the resulting securities litigation arising out of the restatement. Refer also to Financial Note 19, “Other Commitments and Contingent Liabilities,” on pages 80 to 88 to the accompanying consolidated financial statements.

     Loss (Gain) on Investments, net: In 2002, we recorded other-than-temporary impairment losses of $13.7 million on equity and joint venture investments as a result of significant declines in the market values of these investments.

     In 2001, we recorded an other-than-temporary impairment loss of $97.8 million comprised of $93.1 million on our WebMD Inc., (“WebMD”) warrants and $12.5 million on other equity and venture capital investments as a result of significant declines in the market values of these investments, partially offset by a $7.8 million gain on the liquidation of another investment. We also recorded an other-than-temporary impairment loss of $23.1 million on equity investments as a result of significant declines in the market value of these investments in connection with the restructuring of our former iMcKesson segment, which is included in our restructuring activities.

     In 2000, we recorded gains on investments of $269.1 million, consisting of $248.7 million for our investment in WebMD stocks and warrants and $20.3 million for other equity investments. We recorded a cumulative net gain of $155.6 million on our WebMD investment, of which a $93.1 million loss was recognized in 2001 and a $248.7

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million gain was recognized in 2000. The events and related accounting treatment pertaining to these investments are as follows:

     In August 1998, January 1999, and April 1999, we made a series of cash investments in convertible preferred stock for a total of approximately $28 million in WebMD, a private company. As consideration for these investments, we received exclusivity rights to market our products and services on the WebMD network, warrants and other rights to purchase common shares of WebMD, and anti-dilution rights (collectively the “Equity Purchase Rights”). We accounted for our investments in WebMD at cost, as we owned less than a 10% voting interest in WebMD.

     In order to resolve contractual differences between WebMD and the Company, in September 1999, McKesson, WebMD and Healtheon Corporation (“Healtheon”) (at that time, WebMD was contemplating a merger with Healtheon, a public company) entered into an agreement (the “Settlement Agreement”) whereby: various strategic and product agreements between us and WebMD were terminated; we were obligated to convert our preferred stock to common stock prior to the Healtheon/WebMD merger; and all other Equity Purchase Rights that we had under the various preferred stock investments were terminated.

     In exchange for relinquishing our Equity Purchase Rights under the Settlement Agreement, we received warrants to purchase 8.4 million shares of Healtheon/WebMD common stock. We did not attribute any value to these warrants due to the uncertainty still surrounding the Healtheon/WebMD merger and the related difficulties in providing a reasonable estimate of the value of the warrants. As a result, no adjustment to the cost basis or gain recognition was recorded on receipt of the warrants in September 1999.

     In November 1999, WebMD completed its merger with Healtheon, at which time we recognized gains of $93.4 million on the warrants and $168.6 million on the stock based on the market value of our interest in the new public entity. The merged company’s name was later changed to WebMD.

     Subsequent to the Healtheon/WebMD merger, in the third and fourth quarters of 2000, we donated 250,000 WebMD common shares to the McKesson Foundation and sold the remaining WebMD common shares to third parties. As a result of these transactions, we recorded a $9.8 million charge at fair value for the donation and a loss of $13.3 million from the sale of the WebMD stock.

     Since the Healtheon/WebMD merger, we account for our investment in the WebMD warrants in accordance with SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” As we terminated our business relationship with WebMD, our investment in WebMD was classified as “Available-for-Sale” in the third quarter of 2000.

     Loss on Sales of Businesses, net: In 2002, we sold two businesses from our Information Solutions segment and one business from our Pharmaceutical Solutions segment for a total net pre-tax loss of $22.0 million. In 2000, we sold a software business from our Information Solutions segment for a pre-tax loss of $9.4 million. The disposition of this business was part of a 2000 restructuring program.

     Restructuring Activities: In 2002, we recorded net charges for restructuring activities of $39.8 million, consisting of $14.0 million in severance costs, $18.2 million in exit costs (costs to prepare facilities for disposal, and lease costs and property taxes required subsequent to termination of operations) and $7.6 million related to asset impairments as follows:

• We recorded severance charges of $19.8 million, exit-related charges of $19.5 million and asset impairment charges of $7.6 million primarily related to a plan to close 28 and open seven new distribution centers in our Medical-Surgical segment, restructuring activities in our European and U.S. businesses in our Information Solutions segment, and closures of two distribution centers in our Pharmaceutical Solutions segment.

• We also reassessed restructuring plans from prior years, and reversed severance reserves of $5.8 million and exit-related reserves of $1.3 million due to a change in estimated costs to complete these activities.

     In connection with 2002 restructuring activities, approximately 920 employees, primarily in distribution, delivery and associated back-office functions, were given termination notices. We anticipate completing these restructuring

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programs by the end of 2003. As of March 31, 2002, 50 employees had been terminated, eight distribution centers were closed, and four distribution centers were opened.

     In 2001, we recorded net charges for restructuring activities of $355.9 million, consisting of $36.6 million in severance costs, $10.1 million in exit costs and $309.2 million related to asset impairments as follows:

•	In February 2001, we announced the restructuring of our former iMcKesson segment by moving responsibility for iMcKesson’s medical management business to our Pharmaceutical Solutions segment and the physician services business to our Information Solutions segment. The iMcKesson segment was created in the first quarter of 2001 with the intention of focusing on healthcare applications using the Internet and other emerging technologies, and included selected net assets from our former e-Health, Pharmaceutical Solutions and Information Solutions segments as well as other 2001 acquisitions and investments. In connection with the assessment of these businesses, we shut down certain iMcKesson operations. We wrote down goodwill and intangibles totaling $116.2 million arising from the acquisitions of Abaton.com and MediVation, Inc., based upon an updated analysis of discounted cash flows. We also recorded $29.8 million in asset impairments, including $23.1 million for the write–down of equity investments whose market values had significantly declined, $5.2 million in capitalized software costs and $1.5 million in other fixed assets. In addition, we recorded $9.1 million in exit-related costs, including $6.0 million for non-cancelable obligations directly related to discontinued products, $1.5 million for estimated claims resulting from the abandonment of products no longer core to our business and $1.6 million in other exit-related costs.
•	In connection with the above restructuring, we recorded severance costs totaling $29.0 million, consisting of $1.0 million in our Pharmaceutical Solutions segment, $3.3 million in our Information Solutions segment and $24.7 million in our Corporate segment. The severance charges relate to the termination of approximately 220 employees, primarily in sales, service and administration functions.
•	In the fourth quarter of 2001, our Information Solutions segment recorded a $161.1 million charge for estimated customer settlements in connection with the restructuring decision to discontinue overlapping or nonstrategic products, and product development projects to redesign or stabilize several go-forward products. A similar charge of $74.1 million was recorded in 2000. Further detail regarding these charges is as follows:
	Subsequent to the January 1999 merger with HBOC and the events surrounding our announcements in April, May and June of 1999 concerning the improper recording of revenue at HBOC, we restructured our Information Solutions segment, which included the required assembly of a new senior management team and a restructuring of the segment’s sales and customer service organizations, which had experienced significant attrition. The restructuring plan also included a strategic rationalizing of the segment’s product lines, which was carried out in three phases: Phase I-assessment and preliminary planning (October 1999 to January 2000); Phase II-detailed planning and announcement; and Phase III-implementation. The products impacted by this initiative were primarily in the areas of repositories for clinical and administrative data in a healthcare enterprise, surgery scheduling, financial and materials management, mobile clinical documentation, and enterprise solutions for small and mid-sized hospitals. The process required a review of contracts related to approximately 400 affected customers and other information available at that time.
	During Phase II, which began in February 2000 and extended through March 31, 2000, we conducted detailed business reviews, and finalized and announced product rationalization decisions. Rationalization decisions involved either the sunset of certain products or product development projects to redesign or stabilize several go-forward products. At the same time, we undertook an assessment of probable customer impact and concluded that the product rationalization decisions would trigger the assertion of certain claims for breach of contract. Based on information available at that time, we estimated that it would require $74.1 million above then existing allowances to settle probable customer claims. As a result, a charge in that amount was recorded in the fourth quarter of 2000.
	Phase III, which began in 2001, involved a comprehensive, company-wide implementation of Phase II decisions, including an intensive and detailed customer communication process. By the fourth quarter of 2001, we had developed substantially more information on customers’ legal positions as a result of extensive customer interactions and communications. Based upon this newly acquired information about customer demands and expectations, management recognized that it would not be able to settle probable contractual exposures within the previously

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	recorded estimates, and we therefore concluded that additional allowances should be established for customers’ settlements. Accordingly, during the fourth quarter of 2001, an additional customer settlement charge of $161.1 million was recorded.
	These customers settlement charges were reflected as operating expenses rather than a reduction of revenues as the charges primarily related to product strategy decisions that triggered claims for breach of contract. The amounts that have been provided for customer settlements represented our best estimate of the ultimate costs to resolve these customer and product claims and exposures and we are still actively engaged in settlement discussions with affected customers.
•	We also recorded $2.1 million in asset impairments and $2.3 million in exit costs related to workforce reductions in our Pharmaceutical Solutions segment associated with the closure of a pharmaceutical distribution center, closure of a medical management call center, closures of facilities in the pharmaceutical services business and staff reductions in the pharmacy management business. In connection with these restructurings, we recorded severance costs totaling $5.6 million relating to the termination of approximately 240 employees, primarily in sales, service, administration and distribution center functions.
•	In addition, we announced the consolidation of customer service centers and a workforce reduction in our Medical-Surgical Solutions segment. This resulted in the planned termination of approximately 120 employees in primarily customer service functions and the recording of $2.9 million in severance charges.
•	Also in 2001, we reassessed restructuring accruals from prior years and reversed exit-related reserves by $1.3 million and severance by $0.9 million due to a change in estimated costs to complete these activities.

     In 2000, we recorded net charges for restructuring activities of $232.7 million, consisting of $4.2 million in severance costs, income of $5.7 million in exit costs, charges of $224.8 million related to asset impairments and $9.4 million loss on sale of a business. Restructuring charges in 2000 primarily included the following:

•	As discussed above, in the fourth quarter of 2000, we decided to reorganize our Information Solutions segment business and product portfolio and discontinue overlapping or nonstrategic product offerings. We recorded asset impairments of $232.5 million relating to this program, which consisted of a $49.1 million write-off of capitalized product development costs, $39.3 million of purchased software and $50.7 million of intangible assets associated with discontinued product lines based upon an analysis of discounted cash flows. In addition, we recorded a $74.1 million allowance for customer settlements associated with pre-July 1999 software contracts. We also recorded a $9.4 million loss on the sale of a non-core foreign operation, a $7.7 million charge for uncollectible unbilled receivables and a $2.2 million charge for obsolete equipment associated with the discontinued products. Substantially all of these charges were non-cash asset write-offs, except for the customer settlements. In addition, a charge of $0.6 million was recorded for costs to prepare the facilities for disposal, lease costs and property taxes required subsequent to termination of operations and other exit-related activities.
	We recorded a $3.9 million severance charge related to the above activities, for approximately 300 employees, primarily in product development and support and administrative functions, who were terminated at the end of 2000.
•	In the fourth quarter of 2000, we reviewed the operations and cost structure of our Medical-Surgical Solutions segment. This resulted in the planned closure of a sales office and a workforce reduction. We recorded a charge of $0.6 million for exit-related costs and a severance charge of $2.3 million relating to the termination of approximately 200 employees, primarily in warehouse, administration and sales functions.
•	Also in 2000, we reassessed restructuring plans from prior years. This resulted in decisions to retain one of the six pharmaceutical distribution centers previously identified for closure, reduce the number of medical-surgical distribution center closures and close an additional pharmaceutical distribution center. In connection with these reassessments, we reversed $6.9 million in exit-related costs and $2.0 million in severance costs, and recorded additional asset impairments of $1.7 million due to a change in estimated costs to complete these activities.

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• We completed the closures of the three pharmaceutical distribution centers mentioned above. In addition, we realigned our sales organization and eliminated certain other back-office functions. We also completed the closures of three medical-surgical distribution centers.

     Costs Associated With Former Employees: In 2000, we recorded charges of $23.8 million for severance and benefit costs resulting from changes in executive management. The charges were based on the terms of employment contracts in place with these executives. In 2002, we reversed $0.8 million of these severance accruals due to a change in estimate.

     Other Operating Items: Other operating items for 2000 include charges of $61.8 million in our Information Solutions segment for accounts receivable allowances and a $6.7 million charge for customer accounts receivable in the medical management business of our Pharmaceutical Solutions segment. In addition, our Pharmaceutical Solutions segment recorded a charge of $31.5 million for asset impairments and receivables related primarily to a prior year implementation of a contract system.

     Other Charges, net: In 2002, other charges of $11.6 million primarily include $7.5 million of inventory and other asset impairments and a $4.0 million legal settlement. Other charges were $2.1 million in 2001. Fiscal 2000 other charges of $21.2 million primarily included a $9.8 million charge for the donation of 250,000 WebMD warrants to the McKesson Foundation and $7.7 million impairment of a note receivable from a former stockholder of an acquired company.

     Income Taxes on Special Charges: Income taxes on special charges are generally recorded at our annual effective tax rate. For accounting purposes, a tax benefit on the net assets of one of the businesses written down in connection with the restructuring of our former iMcKesson segment in 2001 was not recognized until 2002, when the sale of the business was completed. In addition, in 2002, we sold a business for a pre-tax loss of $2.7 million and an after-tax gain of $4.3 million.

     Additional information regarding our special charges is as follows:

	Years Ended March 31,
(In millions)	2002			2001			2000
By Business Segment
Pharmaceutical Solutions	$	5.1		$	20.4		$	36.2
Medical-Surgical Solutions		30.4			0.7			(1.4	)
Information Solutions		34.7			295.6			296.1
Corporate		18.3			141.6			(203.4	)
Total pre-tax special charges		88.5			458.3			127.5
Income tax benefit		(67.9	)		(132.6	)		(47.1	)
Total after-tax special charges	$	20.6		$	325.7		$	80.4
By Statement of Operations Classification
Cost of goods sold	$	7.5		$	—		$	24.1
Selling expenses		—			(0.6	)		(0.3	)
Distribution expenses		(2.4	)		1.7			(2.6	)
Administrative expenses		48.0			334.2			366.0
Research and development expenses		—			2.1			—
Loss on sales of businesses, net		22.0			—			9.4
Other income, net		(0.3	)		—			—
Loss (gain) on investments, net		13.7			120.9			(269.1	)
Total pre-tax special charges	$	88.5		$	458.3		$	127.5

     Refer to Financial Notes 4 and 5, “Special Charges” and “Restructuring and Related Asset Impairments,” on pages 58 to 64 to the accompanying consolidated financial statements for further discussions regarding our special charges.

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Acquisitions, Investments and Divestitures

     We made the following acquisitions, investments and divestitures over the last three years:

• On May 17, 2002, the Company and Quintiles Transnational Corporation formed a joint venture, Verispan, L.L.C. (“Verispan”). Verispan is a provider of patient-level data delivered in near real time as well as a supplier of other healthcare information. We have an approximate 46% equity interest in the joint venture. The initial contribution to the joint venture of $12.1 million consisted of $7.7 million in net assets from a Pharmaceutical Solutions’ business and $4.4 million in cash, and is subject to adjustment. We have also committed to provide additional aggregate cash contributions of $9.4 million and to purchase a total of $15.0 million in services from the joint venture through 2007.

• On May 2, 2002, we entered into an agreement to acquire A.L.I. Technologies Inc. (“A.L.I.”), of Vancouver, British Columbia, Canada, by means of a cash tender offer for CN$43.50 per share, or about CN$530 million (approximately US$340 million). A.L.I. provides medical imaging solutions which are designed to streamline access to diagnostic information, automate clinical workflow and eliminate the need for film. The acquisition is expected to close in the second quarter of fiscal 2003, and is subject to regulatory approval and other customary conditions.

• In February 2002, our Pharmaceutical Solutions segment acquired the net assets of PMO, Inc., a national specialty pharmacy business (doing business under the name of VitaRx), that provides mail order pharmaceutical prescription services to managed care patients for approximately $62 million in cash.

• In 2002, we sold three businesses, Abaton.com, Inc., Amysis Managed Care Systems, Inc. and Pro Dental Corporation. Two of these businesses were from our Information Solutions segment and one was from our Pharmaceutical Solutions segment. Net proceeds from the sale of these businesses were $0.2 million, resulting in a pre-tax loss of $22.0 million and an after-tax gain of $22.0 million.

• In April 2000, the Company and three other healthcare product distributors announced an agreement to form the New Health Exchange (subsequently renamed “Health Nexis”). In the third quarter of 2002, Health Nexis merged with The Global Health Exchange, which significantly diluted our percentage ownership in the combined organization. As a result, we changed from the equity to the cost method of accounting for this investment. In 2002 and 2001, we invested $7.0 million and $10.8 million in Health Nexis.

• In July 2000, we completed the acquisition of MediVation, Inc., a provider of an automated web-based system for physicians to communicate with patients online, for approximately $24 million in cash, $14 million in our common stock and the assumption of $6 million of employee stock incentives.

• In November 1999, we acquired Abaton.com, a provider of internet-based clinical applications for use by physician practices, pharmacy benefit managers, benefit payors, laboratories and pharmacies, for approximately $95 million in cash and the assumption of approximately $8 million of employee stock incentives.

• In February 2000, we sold our wholly-owned subsidiary, McKesson Water Products Company to Groupe Danone, for approximately $1.1 billion in cash and recognized an after-tax gain of $515.9 million. The Water Products business has been classified as a discontinued operation for all periods presented.

• In the fourth quarter of 2000, we sold a software business, Imnet France S.A.R.L., for net proceeds of $0.8 million. The disposition resulted in a pre-tax and after-tax loss of $9.4 million and $5.6 million.

• During the last three years, we have also made several smaller acquisitions and investments in our Pharmaceutical Solutions and Information Solutions segments.

     Pro forma results of operations have not been presented because the effects of all these acquisitions were not material to the consolidated financial statements on either an individual or aggregate basis.

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CRITICAL ACCOUNTING POLICIES

     Critical accounting policies are those accounting policies that can have a significant impact on the presentation of our financial condition and results of operations, and that require the use of complex and subjective estimates based on past experience and management’s judgment. Because of the uncertainty inherent in such estimates, actual results may differ from these estimates. Below are those policies that we believe are critical to the understanding of our operating results and financial condition. For additional accounting policies, see Financial Note 1, “Significant Accounting Policies,” on pages 54 to 57 of the consolidated financial statements.

     In extending credit terms as well as recording allowances against receivable balances, we use a substantial amount of judgment and estimates regarding the credit-worthiness of our customers. As of March 31, 2002, total trade and notes receivable, and other customer financing was $4,099.3 million and $212.6 million, prior to allowances of $319.5 million. Other customer financing relates to guarantees provided to our customers, or their creditors, regarding the repurchase of inventories, lease and credit financing. As the financial condition of our customers change, these allowances are adjusted. We continuously assess and estimate the collectibility of our receivables and other customer financing and establish allowances for those accounts where collection may be in doubt.

     In 2001 and 2000, we recorded a total of $235.2 million for estimated customer settlements as a result of our decision to discontinue overlapping and nonstrategic products and product development projects to redesign or stabilize several go-forward projects within our Information Solutions segment. These estimates have been developed using a customer and product specific approach, based on numerous interactions between our customers and us. The determination and quantification of our liabilities along with the assessment of an appropriate reserve for uncollectible accounts is an on-going process and we are still actively engaged in settlement discussions with affected customers.

     We state inventories at the lower of cost or market. Inventories for our Pharmaceutical Solutions segment consist of merchandise held for resale with the majority of the cost of domestic inventories determined on the last-in first-out (“LIFO”) method and international inventories stated at average cost. Information Solutions segment inventories consist of computer hardware with cost determined either by the specific identification or first-in, first-out (“FIFO”) method. Valuations are based on estimated future demand and market conditions, changes to which could require the recognition of impairments to inventory.

     We have significant intangible assets which include goodwill and other purchased intangibles. As a result of our adoption of SFAS No. 142, “Goodwill and Other Intangible Assets,” on April 1, 2001 we perform an annual impairment test on goodwill balances and we review the estimated lives of our other intangible assets. An impairment test requires that we determine the estimated undiscounted future cash flows from operations and the fair values of the assets. Fair values can be determined using either discounted cash flows or third party valuations. An impairment loss is recorded if the carrying value exceeds the undiscounted future cash flows from operations. Changes in market conditions, among other factors, may have an impact on these estimates, which may require future adjustments to the carrying value of these assets.

     We use the percentage of completion method of accounting for the recognition of certain revenues, primarily within our Information Solutions’ segment. This method of accounting requires the use of estimates, including the assessment of achieving milestones, costs as of each period end, and costs to complete the revenue process. These estimates can change significantly throughout the period of the contract. Changes in estimates to complete, and revisions in overall profit estimates on percentage of completion contracts, are recognized in the period in which they are determined.

     We are involved in a number of lawsuits regarding the restatement of our 1999 historical financial statements. We do not believe it is feasible to predict or determine the outcome or resolution of these proceedings, or to estimate the amount of, or potential range of, loss with respect to these proceedings. In addition, the timing of the final resolution of these proceedings is uncertain. The range of possible resolutions of these proceedings could include judgments against us or settlements that could require substantial payments by us that could cause us to incur material

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losses which could have a material impact on our financial condition and results of operations. In 2002, 2001 and 2000, we incurred expenses totaling $2.2 million, $2.5 million and $18.9 million in connection with the restatement of the historical consolidated financial statements and the resulting securities litigation arising out of the restatement.

FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES

     Net cash flow from operating activities was $329.3 million in 2002, compared with $332.3 million in 2001 and a use of cash of $314.8 million in 2000. Net cash flow from operating activities reflects the build-up associated with the implementation of new pharmaceutical distribution agreements and other sales growth, as well as purchasing opportunities. The working capital increase in 2001 also reflects the timing of vendor payments, partially offset by the payment of income taxes on the gain on sale of the Water Products business that was sold in late 2000.

     Net cash used by investing activities in 2002 was $386.8 million, compared with $322.0 million in 2001 and a source of cash of $553.6 million in 2000. Investing activities in 2002 include an increase in expenditures for capitalized software reflecting our investment in both software developed for internal use and for resale, offset by a decrease in property acquisitions. Fiscal 2000 investing activities include the sale of our Water Products business for $1.1 billion in cash, which enabled us to reduce short-term borrowings and add to our cash and marketable securities.

     Net cash provided by financing activities was $181.7 million in 2002, compared to a use of cash of $125.5 million in 2001 and a source of cash of $76.4 million in 2000. On January 24, 2002, we completed a public offering of $400.0 million of 7.75% unsecured notes, due 2012. These notes are redeemable at any time, in whole or in part, at our option. Net proceeds from the issuance of these notes were used to repay $175.0 million of term debt in March 2002 and for other general corporate purposes. In February 2000, we completed a private placement of $335 million in term debt, the proceeds of which were also used to retire term debt and for other general corporate purposes. Financing activities also include our stock repurchase program that commenced in 2001 and which allows us to purchase up to $250 million of shares of our common stock in open market or private transactions. In 2002 and 2001, we repurchased 1.2 million and 2.2 million shares of our common stock for $44.2 million and $65.6 million.

Selected Measures of Liquidity and Capital Resources

	March 31,
(In millions)	2002			2001			2000
Cash, cash equivalents and marketable securities	$	563.0		$	445.6		$	605.9
Operating working capital		3,676.3			3,197.9			3,299.9
Debt net of cash, cash equivalents and marketable securities		866.6			784.1			654.1
Debt to capital ratio		25.7	%		25.0	%		25.1	%
Ratio of net debt to net capital employed		17.3	%		17.5	%		14.8	%
Return on committed capital		21.8	%		18.8	%		19.1	%

     Our Pharmaceutical Solutions segment requires a substantial investment in operating working capital (receivables and inventories net of related payables). Operating working capital is susceptible to large variations during the year as a result of inventory purchase patterns and seasonal demands. Inventory purchase activity is a function of sales activity, new customer build-up requirements and the desired level of investment inventory. Consolidated operating working capital at March 31, 2002 was greater than the prior year, primarily reflecting the additional build-up requirements for new distribution agreements. Operating working capital at March 31, 2001 was flat relative to 2000. No trade receivables were sold at the end of each of the last three years. The improvement in the operating working capital ratio in 2001 is due to an increase in days sales outstanding in payables reflecting purchases made late in the year and the timing of vendor payments.

     The ratio of net debt to net capital employed at March 31, 2002 was down slightly from March 31, 2001. This ratio increased at March 31, 2001 from the prior year, primarily reflecting the increase in net debt to fund internal growth. March 31, 2000 balances also benefited from the February 2000 proceeds from the sale of the Water Products business. Return on committed capital improved to 21.8% in 2002 from 18.8% in 2001, reflecting a growth in our operating profit in excess of the growth in the working capital to fund the increase in revenues. Return on committed capital for 2001 was slightly lower than for 2000.

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Contractual Obligations and Commitments

     The table below presents our significant contractual obligations and commitments at March 31, 2002 and those commitments under our Verispan joint venture agreement:

(In millions)		2003		2004		2005		2006		2007		Thereafter		Total
Long-term debt		$	138.3	$	14.4	$	260.6	$	7.9	$	28.6	$	973.3	$	1,423.1
Convertible preferred securities			—		—		—		—		—		196.1		196.1
Capital lease obligations			2.9		1.4		1.0		0.5		0.1		0.6		6.5
Operating leases			98.7		80.5		61.5		54.1		41.6		80.7		417.1
Total financial obligations		$	239.9	$	96.3	$	323.1	$	62.5	$	70.3	$	1,250.7	$	2,042.8
Customer guarantees		$	26.8	$	25.8	$	22.1	$	2.4	$	42.1	$	93.4	$	212.6
Commitments to Verispan
	Cash contributions		6.9		2.5		—		—		—		—		9.4
	Purchases of services		3.0		3.0		3.0		3.0		3.0		—		15.0
Total commitments		$	36.7	$	31.3	$	25.1	$	5.4	$	45.1	$	93.4	$	237.0

     We have agreements with certain of our customers’ financial institutions under which we have guaranteed the repurchase of inventory at a discount in the event that customers are unable to meet certain obligations to those financial institutions. Among other limitations, these inventories must be in resalable condition. We have also guaranteed credit facilities and the payment of leases for certain customers. As of March 31, 2002, these customer guarantees approximated $103.9 million for the repurchase of inventories and $108.7 million for the repayment of credit facilities and lease obligations.

Credit Resources

     Working capital requirements are primarily funded by cash, short-term borrowings and our receivables sale facility. We have a 364-day revolving credit agreement that allows for short-term borrowings of up to $1.075 billion which expires in October 2002, and a $400.0 million five-year revolving credit facility which expires in October 2003. These facilities are primarily intended to support our commercial paper borrowings. We also have a committed revolving receivables sale facility aggregating $850 million, which we intend to renew on or before June 14, 2002. At March 31, 2002, we had no short-term borrowings, no borrowings under the revolving credit facilities, and no borrowing equivalents under the revolving receivables sale facility. We anticipate renewing our 364-day revolving credit facility prior to its expiration.

     Our senior debt credit ratings from S&P, Fitch, and Moody’s are currently BBB, BBB and Baa2, and our commercial paper ratings are currently A-2, F-2, and P-2. Our ratings are on a negative credit outlook. Our various borrowing facilities and long-term debt are subject to certain covenants. Our principal debt covenant is our debt to capital ratio, which cannot exceed 56.5%. If we exceed this ratio, repayment of debt outstanding under the revolving credit facility and $335.0 million of term debt could be accelerated. At March 31, 2002, this ratio was 25.7% and we were in compliance with our other financial covenants. A reduction in our credit ratings or the lack of compliance with our covenants could result in a negative impact on our ability to finance our operations through our credit facilities, as well as the issuance of additional debt at the interest rates then currently available.

     Funds necessary for future debt maturities and our other cash requirements are expected to be met by existing cash balances, cash flows from operations, existing credit sources and other capital market transactions.

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McKESSON CORPORATION

FINANCIAL REVIEW (Continued)

MARKET RISKS

     Our long-term debt bears interest predominately at fixed rates, whereas our short-term borrowings are at variable interest rates. If the underlying weighted average interest rate on our variable rate debt were to have changed by 50 basis points in 2002, interest expense would not have been materially different from that reported.

     As of March 31, 2002, the aggregate fair values of our long-term debt and convertible preferred securities were $1,465.5 million and $220.0 million. Each preferred security is convertible at the rate of 1.3418 shares of our stock, subject to certain circumstances. Fair values were estimated on the basis of quoted market prices, although trading in these debt securities is limited and may not reflect fair value. Fair values are subject to fluctuations based on our performance, our credit ratings, changes in the value of our stock and changes in interest rates for debt securities with similar terms.

     We conduct business in Canada, Mexico, France, the Netherlands, Ireland, Saudi Arabia, Kuwait, Australia, New Zealand and the United Kingdom, and we are subject to foreign currency exchange risk on cash flows related to sales, expenses, financing and investment transactions. If exchange rates on such currencies were to fluctuate 10%, we believe that our results from operations and cash flows would not be materially affected. Aggregate foreign exchange translation gains and losses included in operations, comprehensive income and equity are discussed in Financial Note 1, “Significant Accounting Policies”, on pages 54 to 57 of the accompanying consolidated financial statements.

RELATED PARTY TRANSACTIONS AND BALANCES

     We have outstanding notes receivable from certain of our current and former officers and senior managers totaling $85.5 million, $90.7 million and $94.5 million at March 31, 2002, 2001 and 2000 related to purchases of common stock under our various employee stock purchase plans. Such notes were issued for amounts equal to the market value of the stock on the date of the purchase and are full recourse to the borrower. As of March 31, 2002, the value of the underlying stock collateral was $55.8 million. The notes bear interest at rates ranging from 2.7% to 8.0% and are due at various dates through February 2005. Other transactions with related parties for 2002, 2001 and 2000 were not considered material.

NEW ACCOUNTING PRONOUNCEMENTS

     See Financial Note 1, “Significant Accounting Policies”, on pages 54 to 57 of the accompanying consolidated financial statements.

FACTORS AFFECTING FORWARD-LOOKING STATEMENTS

     In addition to historical information, management’s discussion and analysis includes certain forward-looking statements within the meaning of section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Some of the forward-looking statements can be identified by use of forward-looking words such as “believes,” “expects,” “anticipates,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” or “estimates,” or the negative of these words, or other comparable terminology. The discussion of financial trends, strategy, plans or intentions may also include forward-looking statements. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected. Although it is not possible to predict or identify all such risks and uncertainties, they may include, but are not limited to, the factors discussed under “Additional Factors That May Affect Future Results.” The reader should not consider this list to be a complete statement of all potential risks and uncertainties.

     These and other risks and uncertainties are described herein or in our other public documents. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.

44

McKESSON CORPORATION

FINANCIAL REVIEW (Continued)

We undertake no obligation to publicly release the result of any revisions to these forward-looking statements to reflect events or circumstances after the date hereof, or to reflect the occurrence of unanticipated events.

ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS

     The following additional factors may affect our future results:

Adverse resolution of pending litigation regarding the restatement of our historical financial statements may cause us to incur material losses.

     Subsequent to our April 28, 1999 restatement of financial results announcement, and as of May 10, 2002, 91 lawsuits have been filed against us, certain of our current or former officers or directors, or those of HBOC, and other defendants. In addition, the United States Attorney’s Office for the Northern District of California and the San Francisco District Office of the SEC have also commenced investigations in connection with the matters relating to the restatement of previously reported amounts.

     We do not believe it is feasible to predict or determine the outcome or resolution of these proceedings, or to estimate the amount of, or potential range of, loss with respect to these proceedings. In addition, the timing of the final resolution of these proceedings is uncertain. The range of possible resolutions of these proceedings could include judgments against us or settlements that could require substantial payments by us, which could cause us to incur material losses.

Changes in the United States healthcare environment could have a material negative impact on our revenues and net income.

     Our products and services are intended to function within the structure of the healthcare financing and reimbursement system currently being used in the United States. In recent years, the healthcare industry has changed significantly in an effort to reduce costs. These changes include increased use of managed care, cuts in Medicare reimbursement levels, consolidation of pharmaceutical and medical-surgical supply distributors, and the development of large, sophisticated purchasing groups.

     We expect the healthcare industry to continue to change significantly in the future. Some of these changes, such as a reduction in governmental funding of healthcare services or adverse changes in legislation or regulations governing the privacy of patient information, or the delivery or pricing of pharmaceuticals and healthcare services or mandated benefits, may cause healthcare industry participants to greatly reduce the amount of our products and services they purchase or the price they are willing to pay for our products and services.

     Changes in pharmaceutical manufacturers’ pricing, selling or distribution policies could also significantly reduce our revenues and net income. Due to the diverse range of healthcare supply management and healthcare information technology products and services that we offer, such changes may adversely impact us, while not affecting some of our competitors who offer a narrower range of products and services.

     Healthcare trends indicate that the number of generic drugs will increase over the next few years as a result of the expiration of certain drug patents. In recent years, our revenues and gross margins have increased from our generic drug offering programs. An increase or a decrease in the availability of these generic drugs could have a material impact on our net income.

Substantial defaults in payment or a material reduction in purchases of our products by large customers could have a significant negative impact on our financial condition and results of operations and liquidity.

     In recent years, a significant portion of our revenue growth has been with a limited number of large customers. During the year ended March 31, 2002, sales to our ten largest customers accounted for approximately 55% of our total revenues. Sales to our largest customer, Rite Aid Corporation, represented approximately 14% of our 2002 revenues. As a result, our sales and credit concentration have significantly increased. Any defaults in payment or a

45

McKESSON CORPORATION

FINANCIAL REVIEW (Continued)

material reduction in purchases from us by these large customers could have a significant negative impact on our financial condition, results of operations and liquidity.

Our Pharmaceutical Solutions and Medical-Surgical Solutions segments are dependent upon sophisticated information systems. The malfunction or failure of these systems for any extended period of time could adversely affect our business.

     We rely on sophisticated information systems in our business to obtain, rapidly process, analyze and manage data to: facilitate the purchase and distribution of thousands of inventory items from numerous distribution centers; receive, process and ship orders on a timely basis, manage the accurate billing and collections for thousands of customers and process payments to suppliers. Our business and results of operations may be materially adversely affected if these systems are interrupted, damaged by unforeseen events, or fail for any extended period of time.

The ability of our Information Solutions business to attract and retain customers due to challenges in integrating software products and technological advances may significantly reduce our revenues or increase our expenses.

     Our Information Solutions business delivers enterprise-wide patient care, clinical, financial, managed care, payor and strategic management software solutions, as well as networking technologies, electronic commerce, outsourcing and other services to healthcare organizations throughout the United States and certain foreign countries. Challenges in integrating Information Solutions software products could impair our ability to attract and retain customers and may reduce our revenues or increase our expenses.

     Future advances in the healthcare information systems industry could lead to new technologies, products or services that are competitive with the products and services offered by our Information Solutions business. Such technological advances could also lower the cost of such products and services or otherwise result in competitive pricing pressure. The success of our Information Solutions business will depend, in part, on its ability to be responsive to technological developments, pricing pressures and changing business models. To remain competitive in the evolving healthcare information systems marketplace, our Information Solutions business must develop new products on a timely basis. The failure to develop competitive products and to introduce new products on a timely basis could curtail the ability of our Information Solutions business to attract and retain customers and thereby significantly reduce our net income.

Proprietary technology protections may not be adequate and proprietary rights may infringe on the rights of third parties.

     We rely on a combination of trade secret, patent, copyright and trademark laws, nondisclosure and other contractual provisions and technical measures to protect our proprietary rights to our products. There can be no assurance that these protections will be adequate or that our competitors will not independently develop technologies that are substantially equivalent or superior to our technology. Although we believe that our products and other proprietary rights do not infringe upon the proprietary rights of third parties, from time to time third parties have asserted infringement claims against us and there can be no assurance that third parties will not assert infringement claims against us in the future. Additionally, we may find it necessary to initiate litigation to protect our trade secrets, to enforce our patent, copyright and trademark rights, and to determine the scope and validity of the proprietary rights of others. These types of litigation can be costly and time consuming. These litigation expenses, or any damage payments resulting from adverse determinations of third party claims, could be significant and result in material losses to us.

Potential product liability claims arising from healthcare information technology business products could result in material losses to us.

     We provide products that assist clinical decision-making and relate to patient medical histories and treatment plans. If these products fail to provide accurate and timely information, customers could assert liability claims against us. Litigation with respect to liability claims, regardless of the outcome, could result in substantial cost to us, divert management’s attention from operations and decrease market acceptance of our products. We attempt to limit, by contract, our liability for damages from negligence, errors or mistakes. Despite this precaution, the limitations of liability set forth in the contracts may not be enforceable or may not otherwise protect us from liability for damages.

46

McKESSON CORPORATION

FINANCIAL REVIEW (Continued)

     We maintain general liability insurance coverage, including coverage for errors and omissions. However, this coverage may not continue to be available on acceptable terms or may not be available in sufficient amounts to cover one or more large claims against us. In addition, the insurer might disclaim coverage as to any future claim.

System errors and warranties in Information Solutions segment’s products could cause unforeseen liabilities.

     Our Information Solutions segment’s systems are very complex. As with complex systems offered by others, our systems may contain errors, especially when first introduced. Our Information Solutions business systems are intended to provide information for healthcare providers in providing patient care. Therefore, users of our products have a greater sensitivity to system errors than the market for software products generally. Failure of a client’s system to perform in accordance with our documentation could constitute a breach of warranty and could require us to incur additional expense in order to make the system comply with the documentation. If such failure is not remedied in a timely manner, it could constitute a material breach under a contract, allowing the client to cancel the contract, obtain refunds of amounts previously paid, or assert claims for significant damages.

Potential regulation by the U.S. Food and Drug Administration, or FDA, of Information Solutions products as medical devices could impose increased costs, delay the introduction of new products and negatively impact our business.

     The FDA is likely to become increasingly active in regulating computer software intended for use in the healthcare industry. The FDA has increasingly focused on the regulation of computer products and computer-assisted products as medical devices under the federal Food, Drug and Cosmetic Act. If the FDA chooses to regulate any of our products as medical devices, it can impose extensive requirements upon us. If we fail to comply with the applicable requirements, the FDA could respond by imposing fines, injunctions or civil penalties, requiring recalls or product corrections, suspending production, refusing to grant pre-market clearance of products, withdrawing clearances and initiating criminal prosecution. Any final FDA policy governing computer products, once issued, may increase the cost and time to market new or existing products or may prevent us from marketing our products.

New and potential federal regulations relating to patient confidentiality could depress the demand for our Information Solutions products and impose significant product redesign costs on us.

     State and federal laws regulate the confidentiality of patient records and the circumstances under which those records may be released. These regulations govern both the disclosure and use of confidential patient medical record information and may require the users of such information to implement specified security measures. Regulations governing electronic health data transmissions are evolving rapidly and are often unclear and difficult to apply.

     The Health Insurance Portability and Accountability Act of 1996, or HIPAA, requires national standards for some types of electronic health information transactions and the data elements used in those transactions, standards to ensure the integrity and confidentiality of health information and national health data privacy legislation or regulations. In December 2000, final health data privacy regulations were published that will require healthcare organizations to be in compliance by April 2003.

     Evolving HIPAA-related laws or regulations could restrict the ability of our customers to obtain, use or disseminate patient information. This could adversely affect demand for our products and force product re-design in order to meet the requirements of any new regulations and protect the privacy and integrity of patient data. We may need to expend significant capital, research and development and other resources to modify our products to address these evolving data security and privacy issues.

Due to the length of our sales and implementation cycles for our Information Solutions segment, our future operating results may suffer if a significant number of our customers delay implementation.

     Our Information Solutions segment has long sales and implementation cycles which could range from several months to over two years or more from initial contact with the customer to completion of implementation. How and when to implement, replace, or expand an information system, or modify or add business processes, are major decisions for healthcare organizations. Furthermore, the solutions we provide typically require significant capital

47

McKESSON CORPORATION

FINANCIAL REVIEW (Continued)

expenditures and time commitments by the customer. Any decision by our customers to delay implementation may adversely affect our revenues.

Reduced capacity in the commercial property insurance market exposes us to potential loss.

     In order to provide prompt and complete service to our major Pharmaceutical Solutions customers, we maintain significant product inventory at certain of our distribution centers. While we seek to maintain property insurance coverage in amounts sufficient for our business, available coverage limits have recently decreased while the costs of such insurance have escalated sharply. There can be no assurance that our property insurance will be adequate or available on acceptable terms, if at all. Unless otherwise mitigated by contractual provisions, one or more large casualty losses caused by fire, earthquake or other natural disaster could exceed our coverage limits, and could expose us to losses which would materially harm our business, results of operations or financial condition.

Our business could be hindered if we are unable to complete and integrate acquisitions successfully.

     An element of our strategy is to identify, pursue and consummate acquisitions that either expand or complement our business. Integration of acquisitions involves a number of risks, including the diversion of management’s attention to the assimilation of the operations of businesses we have acquired; difficulties in the integration of operations and systems and the realization of potential operating synergies; the assimilation and retention of the personnel of the acquired companies; challenges in retaining the customers of the combined businesses; and potential adverse effects on operating results. If we are unable to successfully complete and integrate strategic acquisitions in a timely manner, our business and our growth strategies could be negatively affected.

48

McKESSON CORPORATION

INDEPENDENT AUDITORS’ REPORT

The Stockholders and Board of Directors of
McKesson Corporation:

     We have audited the accompanying consolidated balance sheets of McKesson Corporation and subsidiaries (the “Company”) as of March 31, 2002, 2001 and 2000, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the years then ended. Our audits also included the supplementary consolidated financial statement schedule listed in Item 14(a). These consolidated financial statements and supplementary consolidated financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and supplementary consolidated financial statement schedule based on our audits.

     We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company at March 31, 2002, 2001 and 2000, and the results of their operations and their cash flows for the years then ended are in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, based on our audits, such supplementary consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

     As discussed in Financial Note 19 to the consolidated financial statements, the Company is involved in certain shareholder litigation related to HBO & Company and subsidiaries.

DELOITTE & TOUCHE LLP

San Francisco, California
May 17, 2002, except for paragraph nine of Financial Note 19,
      as to which the date is June 7, 2002

49

McKESSON CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)

					Years Ended March 31,
					2002			2001			2000
Revenues					$	50,006.0		$	42,019.1		$	36,708.0
Cost of Sales						47,209.1			39,590.0			34,484.6
Gross Profit						2,796.9			2,429.1			2,223.4
Operating Expenses
		Selling				427.1			381.8			356.2
		Distribution				502.7			509.2			460.7
		Research and development				135.1			147.6			112.6
		Administrative				1,016.4			1,184.2			1,175.0
		Loss on Sales of Businesses, Net				22.0			—			9.4
		Total				2,103.3			2,222.8			2,113.9
Operating Income						693.6			206.3			109.5
Interest Expense						(112.9	)		(111.6	)		(114.2	)
Gain (Loss) on Investments, Net						(13.7	)		(120.9	)		269.1
Other Income, Net						40.4			42.0			48.7
Income from Continuing Operations Before Income Taxes and Dividends on Preferred Securities of Subsidiary Trust						607.4			15.8			313.1
Income Taxes						182.6			52.3			122.3
Income (Loss) from Continuing Operations Before Dividends on Preferred Securities of Subsidiary Trust						424.8			(36.5	)		190.8
Dividends on Preferred Securities of Subsidiary Trust, Net of Tax Benefit of $4.0 per year						(6.2	)		(6.2	)		(6.2	)
Income (Loss) After Income Taxes
		Continuing operations				418.6			(42.7	)		184.6
		Discontinued operations				—			(5.6	)		23.2
		Discontinued operations — Gain on sale of McKesson Water Products Co.				—			—			515.9
Net Income (Loss)					$	418.6		$	(48.3	)	$	723.7
Earnings (Loss) Per Common Share
	Diluted
			Continuing operations		$	1.43		$	(0.15	)	$	0.65
			Discontinued operations			—			(0.02	)		0.08
			Discontinued operations — Gain on sale of McKesson Water Products Co.			—			—			1.82
				Total	$	1.43		$	(0.17	)	$	2.55
	Basic
			Continuing operations		$	1.47		$	(0.15	)	$	0.66
			Discontinued operations			—			(0.02	)		0.08
			Discontinued operations — Gain on sale of McKesson Water Products Co.			—			—			1.83
				Total	$	1.47		$	(0.17	)	$	2.57
Weighted Average Shares
		Diluted				298.1			283.1			284.2
		Basic				285.2			283.1			281.3

See Financial Notes.

50

McKESSON CORPORATION

CONSOLIDATED BALANCE SHEETS
(In millions, except per share amounts)

			March 31,
			2002			2001			2000
ASSETS
Current Assets
	Cash and cash equivalents		$	557.9		$	433.7		$	548.9
	Marketable securities available for sale			5.1			11.9			57.0
	Receivables			4,001.5			3,443.4			3,034.5
	Inventories			6,011.5			5,116.4			4,149.3
	Prepaid expenses			122.7			158.6			175.8
		Total		10,698.7			9,164.0			7,965.5
Property, Plant and Equipment, net				594.7			595.3			555.4
Capitalized Software Held for Sale				118.4			103.7			92.2
Notes Receivable				237.7			131.3			100.9
Goodwill and Other Intangibles				1,115.7			1,064.4			1,185.6
Other Assets				558.8			471.2			473.3
		Total Assets	$	13,324.0		$	11,529.9		$	10,372.9
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
	Drafts and accounts payable		$	6,336.7		$	5,361.9		$	3,883.9
	Deferred revenue			388.1			378.5			368.7
	Current portion of long-term debt			141.2			194.1			16.2
	Salaries and wages			182.3			142.2			115.5
	Taxes			121.8			79.8			354.8
	Other			417.9			393.2			382.7
		Total		7,588.0			6,549.7			5,121.8
Postretirement Obligations and Other Noncurrent Liabilities				311.4			255.8			245.7
Long-Term Debt				1,288.4			1,035.6			1,243.8
McKesson Corporation-Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Grantor Trust Whose Sole Assets are Junior Subordinated Debentures of McKesson Corporation				196.1			195.9			195.8
Other Commitments and Contingent Liabilities (Note 19)
Stockholders’ Equity
	Preferred stock, $0.01 par value, 100.0 shares authorized, no shares issued or outstanding			—			—			—
	Common stock, $0.01 par value, 400.0 shares authorized, 287.9, 286.3 and 283.9 issued and outstanding at March 31, 2002, 2001 and 2000			2.9			2.9			2.8
	Additional paid-in capital			1,831.0			1,828.7			1,791.1
	Other capital			(94.9	)		(108.4	)		(126.1	)
	Retained earnings			2,357.2			2,006.6			2,122.3
	Accumulated other comprehensive losses			(81.6	)		(75.0	)		(97.1	)
	ESOP notes and guarantees			(74.5	)		(89.0	)		(99.9	)
	Treasury shares, at cost, 2.3 and 0.5 shares at March 31, 2001 and 2000			—			(72.9	)		(27.3	)
		Total Stockholders’ Equity		3,940.1			3,492.9			3,565.8
		Total Liabilities and Stockholders’ Equity	$	13,324.0		$	11,529.9		$	10,372.9

See Financial Notes.

51

McKESSON CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Years Ended March 31, 2002, 2001 and 2000
(Shares in thousands, Dollars in millions)

														Accumulated						Treasury
	Common Stock				Additional									Other			ESOP Notes
					Paid-in			Other			Retained			Comprehensive			and			Common						Stockholders'			Comprehensive
	Shares		Amount		Capital			Capital			Earnings			Losses			Guarantees			Shares			Amount			Equity			Income (Loss)
Balances, March 31, 1999		281,123	$	2.8	$	1,725.7		$	(107.7	)	$	1,465.0		$	(57.7	)	$	(115.5	)		(539	)	$	(30.8	)	$	2,881.8		$	82.1
Issuance of shares under employee plans		2,745				61.4			(18.4	)											(92	)		(3.0	)		40.0
Employee Stock Ownership Plan (“ESOP”) note payments																		15.6									15.6
Translation adjustment															(3.7	)											(3.7	)	$	(3.7	)
Additional minimum pension liability, net of tax of $(0.1)															0.3												0.3			0.3
Net income												723.7															723.7			723.7
Acquisition of Abaton.com						8.1																					8.1
Unrealized loss on investments, net of tax of $23.8															(36.0	)											(36.0	)		(36.0	)
Other						(4.1	)					1.1									116			6.5			3.5
Cash dividends declared, $0.24 per common share												(67.5	)														(67.5	)
Balances, March 31, 2000		283,868		2.8		1,791.1			(126.1	)		2,122.3			(97.1	)		(99.9	)		(515	)		(27.3	)		3,565.8		$	684.3
Issuance of shares under employee plans		1,811		0.1		17.6			17.7												429			20.0			55.4
ESOP note payments																		10.9									10.9
Translation adjustment															(15.4	)											(15.4	)	$	(15.4	)
Additional minimum pension liability, net of tax of $(0.8)															1.1												1.1			1.1
Net loss												(48.3	)														(48.3	)		(48.3	)
Acquisition of MediVation.com		625				20.0																					20.0
Unrealized gain on investments, net of tax of $(23.3)															36.4												36.4			36.4
Repurchase of shares																					(2,235	)		(65.6	)		(65.6	)
Other												0.9															0.9
Cash dividends declared, $0.24 per common share												(68.3	)														(68.3	)
Balances, March 31, 2001		286,304		2.9		1,828.7			(108.4	)	$	2,006.6		$	(75.0	)	$	(89.0	)		(2,321	)	$	(72.9	)	$	3,492.9		$	(26.2	)
Issuance of shares under employee plans		1,624				5.3			13.5												3,564			117.1			135.9
ESOP note payments																		14.5									14.5
Translation adjustment															(4.2	)											(4.2	)	$	(4.2	)
Additional minimum pension liability, net of tax of $(1.9)															(3.3	)											(3.3	)		(3.3	)
Net income												418.6															418.6			418.6
Unrealized gain on investments, net of tax of $(0.1)															0.1												0.1			0.1
Repurchase of shares																					(1,243	)		(44.2	)		(44.2	)
Other						(3.0	)					0.5			0.8												(1.7	)		0.8
Cash dividends declared, $0.24 per common share												(68.5	)														(68.5	)
Balances, March 31, 2002		287,928	$	2.9	$	1,831.0		$	(94.9	)	$	2,357.2		$	(81.6	)	$	(74.5	)		—		$	—		$	3,940.1		$	412.0

See Financial Notes.

52

McKESSON CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)

			Years Ended March 31,
			2002			2001			2000
Operating Activities
Income (loss) from continuing operations			$	418.6		$	(42.7	)	$	184.6
Adjustments to reconcile to net cash provided (used) by operating activities:
	Depreciation			118.2			115.6			116.3
	Amortization			89.3			130.5			106.3
	Provision for bad debts			62.3			237.9			212.4
	Deferred taxes on income			76.8			(21.4	)		26.5
	Loss on sales of businesses			22.0			—			9.4
	Other non-cash items			47.6			288.8			122.8
		Total		834.8			708.7			778.3
Effects of changes in:
	Receivables			(736.0	)		(622.6	)		(748.6	)
	Inventories			(901.5	)		(985.0	)		(629.8	)
	Drafts and accounts payable			973.6			1,500.7			296.1
	Deferred revenue			13.2			13.0			14.0
	Taxes			150.9			(296.7	)		17.4
	Other			(5.5	)		20.9			(29.1	)
		Total		(505.3	)		(369.7	)		(1,080.0	)
		Net cash provided (used) by continuing operations		329.5			339.0			(301.7	)
Discontinued operations				(0.2	)		(6.7	)		(13.1	)
		Net cash provided (used) by operating activities		329.3			332.3			(314.8	)
Investing Activities
Capitalized software expenditures				(125.1	)		(97.5	)		(145.6	)
Property acquisitions				(131.8	)		(158.9	)		(145.1	)
Proceeds from sales of businesses				0.2			—			1,077.9
Notes receivable issuances, net				(58.6	)		(30.9	)		(36.9	)
Acquisitions of businesses, less cash and short-term investments acquired				(73.1	)		(51.9	)		(128.9	)
Other				1.6			17.2			(67.8	)
		Net cash provided (used) by investing activities		(386.8	)		(322.0	)		553.6
Financing Activities
Proceeds from issuance of debt				397.3			9.3			335.0
Repayment of debt				(200.7	)		(42.1	)		(222.9	)
Dividends paid on convertible preferred securities of subsidiary trust				(10.0	)		(10.0	)		(10.0	)
Capital stock transactions:
	Issuances			88.1			38.6			26.2
	Share repurchases			(44.2	)		(65.6	)		—
	Dividends paid			(68.5	)		(68.3	)		(67.5	)
	ESOP notes and guarantees			14.5			10.9			15.6
	Other			5.2			1.7			—
		Net cash provided (used) by financing activities		181.7			(125.5	)		76.4
Net increase (decrease) in cash and cash equivalents				124.2			(115.2	)		315.2
Cash and cash equivalents at beginning of year				433.7			548.9			233.7
Cash and cash equivalents at end of year			$	557.9		$	433.7		$	548.9
Supplemental Information:
Cash paid (received) for:
	Interest		$	108.9		$	114.5		$	115.0
	Taxes			(45.7	)		330.5			121.6

See Financial Notes.

53

McKESSON CORPORATION

FINANCIAL NOTES

1. Significant Accounting Policies

     Nature of Operations. The consolidated financial statements of McKesson Corporation (“McKesson,” the “Company,” or “we” and other similar pronouns) include the financial statements of all majority-owned companies. Intercompany transactions and balances have been eliminated. Certain prior year amounts have been reclassified to conform to the current year presentation.

     We conduct our business through three operating segments: Pharmaceutical Solutions, Medical-Surgical Solutions and Information Solutions. The Pharmaceutical Solutions segment includes our U.S. and Canadian pharmaceutical and healthcare products distribution businesses and a 22% equity interest in a pharmaceutical distributor in Mexico. Our U.S. Pharmaceutical Solutions business also includes the manufacture and sale of automated pharmaceutical dispensing systems for hospitals and retail pharmacists, medical management services and tools to payors and providers, marketing and other support services to pharmaceutical manufacturers, consulting and outsourcing services to pharmacies, and distribution of first-aid products to industrial and commercial customers. The Medical-Surgical Solutions segment distributes medical-surgical supplies and equipment, and provides logistics and related services within the U.S. The Information Solutions segment delivers enterprise-wide patient care, clinical, financial, supply chain, managed care and strategic management software solutions, as well as outsourcing and other services, to healthcare organizations throughout the U.S. and certain foreign countries.

     The Company’s fiscal year begins on April 1 and ends on March 31. Unless otherwise noted, all references in this document to a particular year shall mean the Company’s fiscal year.

     Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

     Cash and Cash Equivalents include all highly liquid debt instruments purchased with a maturity of three months or less at the date of acquisition.

     Marketable Securities Available for Sale are carried at fair value and the net unrealized gains and losses, net of the related tax effect, computed in marking these securities to market have been reported within stockholders’ equity.

     Inventories are stated at the lower of cost or market. Inventories for the Pharmaceutical Solutions and Medical-Surgical Solutions segments consist of merchandise held for resale with the majority of the cost of domestic inventories determined on the last-in first-out (“LIFO”) method and international inventories stated at average cost. Information Solutions segment inventories consist of computer hardware with cost determined either by the specific identification or first-in, first-out (“FIFO”) method.

     Property, Plant and Equipment is stated at cost and depreciated on the straight-line method at rates designed to distribute the cost of properties over estimated service lives ranging from one to 50 years.

     Capitalized Software Held for Sale consists of development costs for software held for sale for our Information Solutions segment. Such costs are capitalized once a project has reached the point of technological feasibility. Completed projects are amortized after reaching the point of general availability using the straight-line method based on an estimated useful life of three years. We monitor the net realizable value of capitalized software development investments to ensure that the investment will be recovered through future sales.

     We capitalized software development costs held for sale of $48.0 million, $39.3 million and $54.5 million in 2002, 2001 and 2000. Amortization of capitalized software held for sale totaled $37.2 million, $31.8 million and $32.2 million in 2002, 2001, and 2000. Royalty fees of $20.8 million, $17.9 million and $18.2 million, were expensed in 2002, 2001 and 2000, for software provided by third-party business partners.

54

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

     Long-lived Assets. We assess the recoverability of goodwill on an annual basis and other long-lived assets when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Measurement of impairment losses for long-lived assets, including goodwill, that we expect to hold and use is based on estimated fair values of the assets. Estimates of fair values are based on quoted market prices, when available, the results of valuation techniques utilizing discounted cash flows (using the lowest level of identifiable cash flows) or fundamental analysis. Long-lived assets to be disposed of, either by sale or abandonment, are reported at the lower of carrying amount or fair value less costs to sell.

     Capitalized Software Held for Internal Use is amortized over estimated useful lives ranging from one to 10 years and is included in other assets in the accompanying consolidated balance sheets. As of March 31, 2002, 2001 and 2000, capitalized software held for internal use was $224.3 million, $139.8 million and $95.5 million, net of accumulated amortization of $99.0 million, $90.3 million, and $18.5 million.

     Insurance Programs. Under our insurance programs, we seek to obtain coverage for catastrophic exposures as well as those risks required to be insured by law or contract. It is our policy to retain a significant portion of certain losses related primarily to workers’ compensation and comprehensive general, product, and vehicle liability. Provisions for losses expected under these programs are recorded based upon our estimate of the aggregate liability for claims incurred. Such estimates utilize certain actuarial assumptions followed in the insurance industry.

     Revenue Recognition. Revenues for our Pharmaceutical Solutions segment are recognized when products are shipped or services are provided to customers. Included in these revenues are large volume sales of pharmaceuticals to major self-warehousing drugstore chains whereby we act as an intermediary in the order and subsequent delivery of products directly from the manufacturer to the customers’ warehouses. These sales totaled $13.2 billion in 2002, $10.7 billion in 2001 and $8.7 billion in 2000.

     Revenues for our Information Solutions segment are generated primarily by licensing software systems (consisting of software, hardware and maintenance support), and providing outsourcing and professional services. Software systems are marketed under information systems agreements as well as service agreements. Perpetual software arrangements are recognized at the time of delivery or under the percentage of completion contract method in accordance with Statement of Position (“SOP”) 97-2, “Software Revenue Recognition” and SOP 81-1 “Accounting for Performance of Construction-Type and Certain Product-Type Contracts,” based on the terms and conditions in the contract. Changes in estimates to complete and revisions in overall profit estimates on percentage of completion contracts are recognized in the period in which they are determined. Hardware is generally recognized upon delivery. Multi-year software license agreements are recognized ratably over the term of the agreement. Implementation fees are recognized as the work is performed or under the percentage of completion contract method. Maintenance and support agreements are marketed under annual or multiyear agreements and are recognized ratably over the period covered by the agreements. Remote processing services are recognized monthly as the service is performed. Outsourcing services are recognized as the service is performed.

     We also offer our products on an application service provider (“ASP”) basis, making available our software functionality on a remote processing basis from our data centers. The data centers provide system and administrative support as well as processing services. Revenue on products sold on an ASP basis is recognized on a monthly basis over the term of the contract.

     Other Income, net includes interest income of $23.8 million, $29.1 million and $21.7 million and our share in the net income from investments accounted for under the equity method of accounting of $6.3 million, $5.9 million and $18.2 million in 2002, 2001 and 2000.

     Income Taxes. We account for income taxes under the liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

55

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

     Foreign Currency Translation. Assets and liabilities of our foreign affiliates are translated at current exchange rates, while revenue and expenses are translated at average rates prevailing during the year. Translation adjustments related to our foreign operations are reported as a component of stockholders’ equity.

     Derivative Financial Instruments. Derivative financial instruments are used principally in the management of our foreign currency exposures. Financial instruments are recorded on the balance sheet at fair value. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized as a charge or credit to earnings. If the derivative is designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative are recorded in other comprehensive income (loss) and are recognized in the consolidated statement of earnings when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges are recognized as a charge or credit to earnings. Derivative instruments not designated as hedges are marked-to-market at the end of each accounting period with the results included in income (loss).

     Employee Stock Options. We use the intrinsic value method to account for stock-based compensation in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.”

     New Accounting Pronouncements. On April 1, 2001, we adopted Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended in June 2000 by SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities,” which establishes accounting and reporting standards for derivative instruments and for hedging activities. These statements require that we recognize all derivatives as either assets or liabilities in the statement of financial position and measure these instruments at fair value. The adoption of this accounting standard did not materially impact our consolidated financial statements.

     In June 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141, “Business Combinations,” which eliminated the pooling method of accounting for all business combinations initiated after June 30, 2001 and addresses the initial recognition and measurement of goodwill and other intangible assets acquired in a business combination. We adopted this accounting standard for business combinations initiated after June 30, 2001.

     In June 2001, the FASB issued SFAS No. 142, “Goodwill and Other Intangible Assets,” which addresses the financial accounting and reporting standards for the acquisition of intangible assets outside of a business combination and for goodwill and other intangible assets subsequent to their acquisition. This accounting standard requires that goodwill be separately disclosed from other intangible assets in the statement of financial position, and no longer be amortized but tested for impairment at least annually. We adopted SFAS No. 142 on April 1, 2001 and, as required by this pronouncement, during the year, we completed the transitional and annual impairment tests and we did not record any impairments of goodwill.

     In accordance with SFAS No. 142, we discontinued the amortization of goodwill effective April 1, 2001. A reconciliation of previously reported net income (loss) and earnings (loss) per common share to the amounts adjusted for the exclusion of goodwill amortization net of the related income tax effect follows:

	Years Ended March 31,
(In millions, except per share amounts)	2002		2001			2000
Reported net income (loss)	$	418.6	$	(48.3	)	$	723.7
Goodwill amortization, net of tax		—		46.1			33.9
Adjusted net income (loss)	$	418.6	$	(2.2	)	$	757.6
Diluted earnings (loss) per common share	$	1.43	$	(0.17	)	$	2.55
Goodwill amortization, net of tax		—		0.16			0.12
Adjusted diluted earnings (loss) per common share	$	1.43	$	(0.01	)	$	2.67
Basic earnings (loss) per common share	$	1.47	$	(0.17	)	$	2.57
Goodwill amortization, net of tax		—		0.16			0.12
Adjusted basic earnings (loss) per common share	$	1.47	$	(0.01	)	$	2.69

56

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

     In June 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations,” which addresses financial accounting requirements for retirement obligations associated with tangible long-lived assets. SFAS No. 143 is effective for 2004. We are evaluating what impact, if any, SFAS No. 143 may have on the consolidated financial statements.

     In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” that replaces SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.” SFAS No. 144 requires that long-lived assets to be disposed of by sale, including those of discontinued operations, be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. Discontinued operations will no longer be measured at net realizable value or include amounts for operating losses that have not yet been incurred. SFAS No. 144 also broadens the reporting of discontinued operations to include all components of an entity with operations that can be distinguished from the rest of the entity and that will be eliminated from the ongoing operations of the entity in a disposal transaction. The provisions of SFAS No. 144 are effective for 2003 and are generally to be applied prospectively. The adoption of this accounting standard is not expected to have a material impact on our consolidated financial statements.

     In January 2002, the Emerging Issues Task Force (“EITF”) of the FASB, reached a consensus on Issue 01-14, “Income Statement Characterization of Reimbursements Received for “Out-of-Pocket” Expenses incurred.” EITF Issue 01-14 requires that amounts billed to customers for out-of-pocket expenses be recorded as revenue and not as a reduction of expenses. We historically recorded these items as a reduction of our cost of sales. We adopted the provisions of EITF Issue 01-14 in the fourth quarter of 2002. These reclassifications had no material impact to our consolidated financial statements.

2. Acquisitions and Investments

     We made the following acquisitions and investments over the last three years:

• In February 2002, our Pharmaceutical Solutions segment acquired the net assets of PMO, Inc., a national specialty pharmacy business (doing business under the name of VitaRx), that provides mail order pharmaceutical prescription services to managed care patients for approximately $62 million in cash.

• In April 2000, the Company and three other healthcare product distributors announced an agreement to form the New Health Exchange which was subsequently renamed Health Nexis LLC (“Health Nexis”). In the third quarter of 2002, Health Nexis merged with The Global Health Exchange, which significantly diluted our percentage ownership in the combined organization. As a result, we changed from the equity to the cost method of accounting for this investment. In 2002 and 2001, we invested $7.0 million and $10.8 million in Health Nexis.

• In July 2000, we completed the acquisition of MediVation, Inc., a provider of an automated web-based system for physicians to communicate with patients online, for approximately $24 million in cash, $14 million in our common stock and the assumption of $6 million of employee stock incentives.

• In November 1999, we acquired Abaton.com, Inc., a provider of internet-based clinical applications for use by physician practices, pharmacy benefit managers, benefit payors, laboratories and pharmacies, for approximately $95 million in cash and the assumption of approximately $8 million of employee stock incentives.

• During the last three years, we have also made several smaller acquisitions and investments in both of our business segments.

     Pro forma results of operations for these business acquisitions have not been presented because the effects were not material to the consolidated financial statements on either an individual or aggregate basis.

     Subsequent to year end, on May 2, 2002, we entered into an agreement to acquire A.L.I. Technologies Inc. (“A.L.I.”), of Vancouver, British Columbia, Canada, by means of a cash tender offer for CN$43.50 per share, or about CN$530 million (approximately US$340 million). A.L.I. provides medical imaging solutions which are

57

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

designed to streamline access to diagnostic information, automate clinical workflow and eliminate the need for film. The acquisition is expected to close in the second quarter of fiscal 2003, and is subject to regulatory approval and other customary conditions.

     In addition, on May 17, 2002, the Company and Quintiles Transnational Corporation formed a joint venture, Verispan, L.L.C. (“Verispan”). Verispan is a provider of patient-level data delivered in near real time as well as a supplier of other healthcare information. We have an approximate 46% equity interest in the joint venture. The initial contribution to the joint venture of $12.1 million consisted of $7.7 million in net assets from a Pharmaceutical Solutions’ business and $4.4 million in cash, and is subject to adjustment. We have also committed to provide additional aggregate cash contributions of $9.4 million and to purchase a total of $15.0 million in services from the joint venture through 2007.

3. Discontinued Operations and Other Divestitures

     In February 2000, we sold our wholly-owned subsidiary, McKesson Water Products Company (the “Water Products business”), to Groupe Danone for approximately $1.1 billion in cash. All of the results of operations and net assets of the Water Products business have been classified as discontinued operations and all prior years restated accordingly. Fiscal 2001 results primarily include an adjustment to the gain on discontinued operations for the Water Products business. Results of discontinued operations were as follows:

		Years Ended March 31,
(In millions)		2001			2000
Revenues		$	—		$	366.3
Discontinued operations before income taxes			(9.2	)		38.3
Income taxes			3.6			(15.1	)
Discontinued operations			(5.6	)		23.2
Gain on sale of Water Products business, net of tax of $333.9			—			515.9
	Total	$	(5.6	)	$	539.1

     The net assets of the discontinued operations were not material to our 2002, 2001 and 2000 consolidated financial position.

     In 2002, we sold three businesses, Abaton.com, Inc., Amysis Managed Care Systems, Inc. and ProDental Corporation. Two of these businesses were from our Information Solutions segment and one was from our Pharmaceutical Solutions segment. Net proceeds from the sale of these businesses were $0.2 million, resulting in a pre-tax loss of $22.0 million and an after-tax gain of $22.0 million. For accounting purposes, the net assets of one of these businesses were written down in 2001 in connection with the restructuring of the former iMcKesson segment. The tax benefit could not be recognized until 2002, when the sale of the business was completed.

     In 2000, we sold a software business, Imnet France S.A.R.L., for net proceeds of $0.8 million. The disposition resulted in a pre-tax and after-tax loss of $9.4 million and $5.6 million.

4. Special Charges

     We incurred the following special charges in 2002, 2001 and 2000:

		Years Ended March 31,
(In millions)		2002			2001			2000
Restatement-related costs incurred		$	2.2		$	2.5		$	18.9
Loss (gain) on investments, net			13.7			97.8			(269.1	)
Loss on sales of businesses, net (Financial Note 3)			22.0			—			9.4
Restructuring activities (Financial Note 5)			39.8			355.9			223.3
Costs associated with former employees			(0.8	)		—			23.8
Other operating items:
	Accounts receivable allowances		—			—			68.5
	Contract system costs		—			—			31.5
Other, net			11.6			2.1			21.2
Total pre-tax special charges			88.5			458.3			127.5
Income tax benefit			(67.9	)		(132.6	)		(47.1	)
Total after-tax special charges		$	20.6		$	325.7		$	80.4
Diluted loss per share attributable to special charges		$	0.06		$	1.14		$	0.28

58

     Restatement-Related Costs: In January 1999, we acquired HBO & Company (“HBOC”) and the acquisition was accounted for as a pooling of interests. In April 1999, we discovered improper accounting practices at HBOC (See Financial Note 19). In July 1999, the Audit Committee of our Board of Directors completed an investigation into such matters, which resulted in a previously reported restatement of our historical consolidated financial statements related to HBOC (pre-acquisition) in 1999, 1998 and 1997. In 2002, 2001 and 2000, we incurred expenses totaling $2.2 million, $2.5 million and $18.9 million in connection with the investigation, restatement of the historical consolidated financial statements and the resulting securities litigation arising out of the restatement.

     Loss (Gain) on Investments, net: In 2002, we recorded other-than-temporary impairment losses of $13.7 million on equity and venture capital investments as a result of significant declines in the market values of these investments.

     In 2001, we recorded an other-than-temporary impairment loss of $97.8 million comprised of $93.1 million on our WebMD Inc., (“WebMD”) warrants and $12.5 million on other equity and venture capital investments as a result of significant declines in the market values of these investments, partially offset by a $7.8 million gain on the liquidation of another investment. We also recorded an other-than-temporary impairment loss of $23.1 million on equity investments as a result of significant declines in the market value of these investments in connection with the restructuring of our former iMcKesson segment, which is included in our restructuring activities.

     In 2000, we recorded gains on investments of $269.1 million, consisting of $248.7 million for our investment in WebMD stocks and warrants and $20.3 million for other equity investments. Between 2001 and 2000, we recorded a cumulative net gain of $155.6 million on our WebMD investments of which a $93.1 million loss was recognized in 2001 and a $248.7 million gain was recognized in 2000. The events and related accounting treatment pertaining to these investments are as follows:

     In August 1998, January 1999, and April 1999, we made a series of cash investments in convertible preferred stock for a total of approximately $28 million in WebMD, a private company. As consideration for these investments, we received exclusivity rights to market our products and services on the WebMD network, warrants and other rights to purchase common shares of WebMD, and anti-dilution rights (collectively the “Equity Purchase Rights”). We accounted for our investments in WebMD at cost, as we owned less than a 10% voting interest in WebMD.

     In order to resolve contractual differences between WebMD and the Company, in September 1999, McKesson, WebMD and Healtheon Corporation (“Healtheon”) (at that time, WebMD was contemplating a merger with Healtheon, a public company) entered into an agreement (the “Settlement Agreement”) whereby various strategic and product

59

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

agreements between us and WebMD were terminated; we were obligated to convert our preferred stock to common stock prior to the Healtheon/WebMD merger; and all other Equity Purchase Rights that we had under the various preferred stock investments were terminated.

     In exchange for relinquishing our Equity Purchase Rights under the Settlement Agreement, we received warrants to purchase 8.4 million shares of Healtheon/WebMD common stock. We did not attribute any value to these warrants due to the uncertainty still surrounding the Healtheon/WebMD merger and the related difficulties in providing a reasonable estimate of the value of the warrants. As a result, no adjustment to the cost basis or gain recognition was recorded on receipt of the warrants in September 1999.

     In November 1999, WebMD completed its merger with Healtheon, at which time we recognized gains of $93.4 million on the warrants and $168.6 million on the stock based on the market value of our interest in the new public entity. The merged company’s name was later changed to WebMD.

     Subsequent to the Healtheon/WebMD merger, in the third and fourth quarters of 2000, we donated 250,000 WebMD common shares to the McKesson Foundation and sold the remaining WebMD common shares to third parties. As a result of these transactions, we recorded a $9.8 million charge at fair value for the donation and a loss of $13.3 million from the sale of the WebMD stock.

     Since the Healtheon/WebMD merger, we account for our investment in the WebMD warrants in accordance with SFAS 115, “Accounting for Certain Investments in Debt and Equity Securities.” As we terminated our business relationship with WebMD, our investment in WebMD was classified as “Available-for-Sale” in the third quarter of 2000.

     Costs Associated With Former Employees: In 2000, we recorded charges of $23.8 million for severance and benefit costs resulting from changes in executive management. The charges were based on the terms of employment contracts in place with these executives. In 2002, we reversed $0.8 million of these severance accruals due to a change in estimate.

     Other Operating Items: In 2000, other operating items include charges of $61.8 million in our Information Solutions segment for accounts receivable allowances and a $6.7 million charge for customer accounts receivable in the medical management business of our Pharmaceutical Solutions segment. In addition, our Pharmaceutical Solutions segment recorded a charge of $31.5 million for asset impairments and receivables related primarily to a prior year implementation of a contract system.

     Other Charges, net: In 2002, other charges of $11.6 million primarily include $7.5 million of inventory and other asset impairments and a $4.0 million legal settlement. Other charges were $2.1 million in 2001. Fiscal 2000 other charges of $21.2 million primarily included a $9.8 million charge for the donation of 250,000 WebMD warrants to the McKesson Foundation and $7.7 million impairment of a note receivable from a former stockholder of an acquired company.

     Income Taxes on Special Charges: Income taxes on special charges are generally recorded at our annual effective tax rate. For accounting purposes, a tax benefit on the net assets of one of the businesses written down in connection with the restructuring of our former iMcKesson segment in 2001 was not recognized until 2002, when the sale of the business was completed. In addition, in 2002, we sold a business for a pre-tax loss of $2.7 million and an after-tax gain of $4.3 million.

     To reflect the items discussed above, these charges were recorded within the consolidated statements of operations, as follows:

	Years Ended March 31,
(In millions)	2002			2001			2000
Cost of sales	$	7.5		$	—		$	24.1
Selling expenses		—			(0.6	)		(0.3	)
Distribution expenses		(2.4	)		1.7			(2.6	)
Administrative expenses		48.0			334.2			366.0
Research and development expenses		—			2.1			—
Loss on sales of businesses, net		22.0			—			9.4
Other income, net		(0.3	)		—			—
Loss (gain) on investments, net		13.7			120.9			(269.1	)
Total pre-tax special charges	$	88.5		$	458.3		$	127.5

     Special charges by business segment are disclosed in Financial Note 20.

60

5. Restructuring and Related Asset Impairments

     In 2002, 2001 and 2000, we recorded net charges for restructuring and related asset impairments as follows:

		Years Ended March 31,
(In millions)		2002		2001		2000
Severance		$	14.0	$	36.6	$	4.2
Exit-related costs			18.2		10.1		(5.7	)
Write-down of assets			7.6		309.2		224.8
Loss on sale of business			—		—		9.4
	Total	$	39.8	$	355.9	$	232.7

     A description of the restructuring and asset impairment charges for the three years ended March 31, 2002 is as follows:

Fiscal 2002

     In 2002, we recorded net charges for restructuring activities of $39.8 million, consisting of $14.0 million in severance costs, $18.2 million in exit costs (costs to prepare facilities for disposal, and lease costs and property taxes required subsequent to termination of operations) and $7.6 million related to asset impairments as follows:

• We recorded severance charges of $19.8 million, exit-related charges of $19.5 million and asset impairment charges of $7.6 million primarily related to a plan to close 28 and open seven new distribution centers in our Medical-Surgical Solutions segment, restructuring activities in our European and U.S. businesses in our Information Solutions segment, and closures of two distribution centers in our Pharmaceutical Solutions segment.

• We also reassessed restructuring plans from prior years, and reversed severance reserves of $5.8 million and exit-related reserves of $1.3 million due to a change in estimated costs to complete these activities.

     In connection with 2002 restructuring activities, approximately 920 employees, primarily in distribution, delivery and associated back-office functions, were given termination notices. We anticipate completing these restructuring programs by the end of 2003. As of March 31, 2002, 50 employees had been terminated, eight distribution centers were closed, and four distribution centers were opened.

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Fiscal 2001

     In 2001, we recorded net charges for restructuring activities of $355.9 million, consisting of $36.6 million in severance costs, $10.1 million in exit costs and $309.2 million related to asset impairments as follows:

•	In February 2001, we announced the restructuring of our former iMcKesson segment by moving responsibility for iMcKesson’s medical management business to our Pharmaceutical Solutions segment and the physician services business to our Information Solutions segment. The iMcKesson segment was created in the first quarter of 2001 with the intention of focusing on healthcare applications using the Internet and other emerging technologies, and included selected net assets from our former e-Health, Pharmaceutical Solutions and Information Solutions segments as well as other 2001 acquisitions and investments. In connection with the assessment of these businesses, we shut down certain iMcKesson operations. We wrote down goodwill and intangibles totaling $116.2 million arising from the acquisitions of Abaton.com and MediVation, Inc., based upon an updated analysis of discounted cash flows. We also recorded $29.8 million in asset impairments, including $23.1 million for the write-down of equity investments whose market values had significantly declined, $5.2 million in capitalized software costs and $1.5 million in other fixed assets. In addition, we recorded $9.1 million in exit-related costs including $6.0 million for non-cancelable obligations directly related to discontinued products, $1.5 million for estimated claims resulting from the abandonment of products no longer core to our business and $1.6 million in other exit-related costs.
	In connection with the above restructuring, we recorded severance costs totaling $29.0 million, consisting of $1.0 million in our Pharmaceutical Solutions segment, $3.3 million in our Information Solutions segment and $24.7 million in our Corporate segment. The severance charges relate to the termination of approximately 220 employees, primarily in sales, service and administration functions.
•	In the fourth quarter of 2001, our Information Solutions segment recorded a $161.1 million charge for estimated customer settlements in connection with the restructuring decision to discontinue overlapping or nonstrategic products and product development projects to redesign or stabilize several go-forward products. A similar charge of $74.1 million was recorded in 2000. Further detail regarding these charges is as follows:
	Subsequent to the January 1999 merger with HBOC and the events surrounding our announcements in April, May and June of 1999 concerning the improper recording of revenue at HBOC, we restructured our Information Solutions segment, which included the required assembly of a new senior management team and a restructuring of the segment’s sales and customer service organizations which had experienced significant attrition. The restructuring plan also included a strategic rationalizing of the segment’s product lines, which was carried out in three phases: Phase I-assessment and preliminary planning (October 1999 to January 2000); Phase II-detailed planning and announcement; and Phase III-implementation. The products impacted by this initiative were primarily in the areas of repositories for clinical and administrative data in a healthcare enterprise, surgery scheduling, financial and materials management, and mobile clinical documentation enterprise solutions for small and mid-sized hospitals. The process required a review of contracts related to approximately 400 affected customers and other information available at that time.
	During Phase II, which began in February 2000 and extended through March 31, 2000, we conducted detailed business reviews, finalized and announced product rationalization decisions. Rationalization decisions involved either the sunset of certain products or product development projects to redesign or stabilize several go-forward products. At the same time, we undertook an assessment of probable customer impact and concluded that the product rationalization decisions would trigger the assertion of certain claims for breach of contract. Based on information available at that time, we estimated that it would require $74.1 million above then existing allowances to settle probable customer claims. As a result, a charge in that amount was recorded in the fourth quarter of 2000.
	Phase III, which began in 2001, involved a comprehensive, company-wide implementation of Phase II decisions, including an intensive and detailed customer communication process. By the fourth quarter of 2001, we had developed substantially more information on customers’ legal positions as a result of extensive customer interactions and communications. Based upon this newly acquired information about customer demands and expectations, we recognized that we would not be able to settle probable contractual exposures within the previously

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	recorded estimates, and we therefore concluded that additional allowances should be established for customers’ settlements. Accordingly, during the fourth quarter of 2001, an additional customer settlement charge of $161.1 million was recorded.
	These customer settlement charges were reflected as operating expenses rather than a reduction of revenues as the charges primarily related to product strategy decisions and not the earlier recognition of revenues in prior years. The amounts that have been provided for customer settlements represented our best estimate of the ultimate costs to resolve these customer and product claims and exposures and we are still actively engaged in settlement discussions with affected customers.
•	We also recorded $2.1 million in asset impairments and $2.3 million in exit costs related to workforce reductions in our Pharmaceutical Solutions segment associated with the closure of a pharmaceutical distribution center, closure of a medical management call center, closures of facilities in the pharmaceutical services business and staff reductions in the pharmacy management business. In connection with these restructurings, we recorded severance costs totaling $5.6 million relating to the termination of approximately 240 employees, primarily in sales, service, administration and distribution center functions.
•	In addition, we announced the consolidation of customer service centers and a workforce reduction in our Medical-Surgical Solutions segment. This resulted in the planned termination of approximately 120 employees primarily in customer service functions and the recording of $2.9 million in severance charges.
•	Also in 2001, we reassessed restructuring accruals from prior years, and reversed exit-related reserves by $1.3 million and severance by $0.9 million due to a change in estimated costs to complete these activities.

Fiscal 2000

     In 2000, we recorded net charges for restructuring activities of $232.7 million, consisting of $4.2 million in severance costs, income of $5.7 million in exit costs, charges of $224.8 million related to asset impairments, and $9.4 million loss on sale of business. Restructuring charges in 2000 primarily included the following:

•	As discussed above, in the fourth quarter of 2000, we reorganized our Information Solutions segment business and product portfolio. This resulted in the decision to reorganize the business and to discontinue overlapping or nonstrategic product offerings. We recorded asset impairments of $232.5 million relating to this program, which consisted of a $49.1 million write-off of capitalized product development costs, $39.3 million of purchased software and $50.7 million of intangible assets associated with discontinued product lines based upon an analysis of discounted cash flows. In addition, we recorded a $74.1 million allowance for customer settlements associated with pre-July 1999 software contracts. We also recorded a $9.4 million loss on the sale of a non-core foreign operation, a $7.7 million charge for uncollectible unbilled receivables and a $2.2 million charge for obsolete equipment associated with the discontinued products. Substantially all of these charges were non-cash asset write-offs, except for the customer settlements. In addition, a charge of $0.6 million was recorded for costs to prepare the facilities for disposal, lease costs and property taxes required subsequent to termination of operations and other exit-related activities.
	We recorded a $3.9 million severance charge related to the above activities, for approximately 300 employees, primarily in product development and support and administrative functions, who were terminated at the end of 2000.
•	In the fourth quarter of 2000, we reviewed the operations and cost structure of our Medical-Surgical Solutions segment. This resulted in the planned closure of a sales office and a workforce reduction. We recorded a charge of $0.6 million for exit-related costs and a severance charge of $2.3 million relating to the termination of approximately 200 employees, primarily in warehouse, administration and sales functions.
•	Also in 2000, we reassessed restructuring plans from prior years. This resulted in decisions to retain one of the six pharmaceutical distribution centers previously identified for closure, reduce the number of medical-surgical distribution center closures and close an additional pharmaceutical distribution center. In connection with these reassessments, we reversed $6.9 million in exit-related costs and $2.0 million in severance costs, and recorded additional asset impairments of $1.7 million due to a change in estimated costs to complete these activities.
•	We completed the closures of the three pharmaceutical distribution centers mentioned above. In addition, we realigned our sales organization and eliminated certain other back-office functions. We also completed the closures of three medical-surgical distribution centers.

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     The following table summarizes the activity related to the restructuring liabilities for the three years ending March 31, 2002:

		Pharmaceutical						Medical-Surgical						Information
		Solutions						Solutions						Solutions						Corporate
					Exit-						Exit-						Exit-						Exit-
(In millions)		Severance			Related			Severance			Related			Severance			Related			Severance			Related			Total
Balance, March 31, 1999		$	13.6		$	9.0		$	3.2		$	10.0		$	6.0		$	0.6		$	—		$	—		$	42.4
Current year expenses			—			—			2.3			0.6			3.9			0.6			—			—			7.4
Adjustments to prior years’ expenses			(0.5	)		(3.3	)		(0.7	)		(3.6	)		(0.8	)		—			—			—			(8.9	)
	Net expense for the period		(0.5	)		(3.3	)		1.6			(3.0	)		3.1			0.6			—			—			(1.5	)
Cash expenditures			(9.7	)		(2.2	)		(1.0	)		(0.4	)		(4.2	)		(0.5	)		—			—			(18.0	)
Balance, March 31, 2000			3.4			3.5			3.8			6.6			4.9			0.7			—			—			22.9
Current year expenses			6.6			2.6			2.9			—			3.3			8.5			24.7			0.3			48.9
Adjustments to prior years’ expenses			—			—			(0.9	)		(1.3	)		—			—			—			—			(2.2	)
	Net expense for the period		6.6			2.6			2.0			(1.3	)		3.3			8.5			24.7			0.3			46.7
Cash expenditures			(4.0	)		(2.5	)		(1.8	)		(1.4	)		(4.7	)		(0.2	)		—			—			(14.6	)
Balance, March 31, 2001			6.0			3.6			4.0			3.9			3.5			9.0			24.7			0.3			55.0
Current year expenses			0.7			2.4			11.4			15.7			7.5			1.1			0.2			0.3			39.3
Adjustments to prior years’ expenses			(2.0	)		(0.6	)		(0.9	)		(2.7	)		(1.6	)		2.0			(1.3	)		—			(7.1	)
	Net expense for the period		(1.3	)		1.8			10.5			13.0			5.9			3.1			(1.1	)		0.3			32.2
Cash expenditures			(3.5	)		(1.0	)		(3.6	)		(2.6	)		(3.8	)		(7.6	)		(6.8	)		(0.3	)		(29.2	)
Balance, March 31, 2002		$	1.2		$	4.4		$	10.9		$	14.3		$	5.6		$	4.5		$	16.8		$	0.3		$	58.0

     Accrued restructuring liabilities are included in “other liabilities” in the accompanying consolidated balance sheets. The remaining balances at March 31, 2002 for the Pharmaceutical Solutions and Medical-Surgical Solutions segments relate primarily to the consolidation of certain distribution centers including severance, costs for preparing facilities for disposal, lease costs and property taxes required subsequent to termination of operations. Restructuring liabilities for the Information Solutions segment primarily represent accrued severance and contract liabilities. Corporate accrued severance primarily pertains to retirement costs. With the exception of the retirement costs, which are anticipated to be paid over several years, substantially all other accrued restructuring amounts are anticipated to be paid by the end of 2003.

6. Off-Balance Sheet Risk and Concentrations of Credit Risk

     Trade receivables subject us to a concentration of credit risk with customers in the retail and institutional sectors. A significant proportion of the increase in sales has been to a limited number of large customers and as a result, our credit concentration has increased. Accordingly, any defaults in payment by these large customers could have a significant negative impact on our financial condition, results of operations and liquidity. At March 31, 2002, receivables from our ten largest customers accounted for approximately 41% of total customer accounts receivable. Fiscal 2002 sales to, and March 31, 2002 receivables from, our largest customer, Rite Aid Corporation, represented approximately 14% of consolidated sales and 10% of consolidated customer accounts receivable. No other customers represented greater than 10% of consolidated sales or customer accounts receivable.

     At March 31, 2002, we had an $850 million committed receivables sales facility which was fully available. The program qualifies for sale treatment under SFAS No. 140, “Accounting For Transfers and Servicing Financial Assets and Extinguishments of Liabilities.” Sales are recorded at the estimated fair values of the receivables sold,

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reflecting discounts for the time value of money based on U.S. commercial paper rates and estimated loss provisions.

     We have provided financing arrangements to certain of our customers within the Pharmaceutical Solutions segment, some of which are on a revolving basis. At March 31, 2002, a total of approximately $289.2 million was outstanding and was reflected as other receivables and notes receivable on the consolidated balance sheet. Under the terms of the financing arrangements, we have a security interest in the customers’ assets.

     We have also provided financing to certain customers in the form of guarantees to third parties. We have agreements with certain of our customers’ financial institutions under which we have guaranteed the repurchase of inventory at a discount in the event that customers are unable to meet certain obligations to those financial institutions. Among other limitations, these inventories must be in resalable condition. We have also guaranteed credit facilities and the payment of leases for certain customers. As at March 31, 2002, these guarantees approximated $103.9 million for the repurchase of inventories and $108.7 million for the repayment of credit facilities and lease obligations. The expiration of these guarantees are as follows: $26.8 million, $25.8 million, $22.1 million, $2.4 million, and $42.1 million from 2003 through 2007, and $93.4 million thereafter.

7. Receivables

		March 31,
(In millions)		2002			2001			2000
Customer accounts		$	3,810.1		$	3,298.8		$	2,847.4
Other			510.9			564.3			462.0
	Total		4,321.0			3,863.1			3,309.4
Allowances			(319.5	)		(419.7	)		(274.9	)
	Net	$	4,001.5		$	3,443.4		$	3,034.5

     The allowances are for uncollectible accounts, discounts, returns, refunds, customer settlements and other adjustments.

8. Inventories

     The LIFO method was used to value approximately 90%, 90% and 87% of our inventories at March 31, 2002, 2001 and 2000. Inventories before the LIFO cost adjustment, which approximates replacement cost, were $6,243.5 million, $5,358.4 million and $4,397.2 million at March 31, 2002, 2001 and 2000.

9. Property, Plant and Equipment, net

		March 31,
(In millions)		2002			2001			2000
Land		$	33.8		$	33.8		$	34.5
Building, machinery and equipment			1,145.8			1,225.2			1,115.1
Total property, plant and equipment			1,179.6			1,259.0			1,149.6
	Accumulated depreciation		(584.9	)		(663.7	)		(594.2	)
Property, plant and equipment, net		$	594.7		$	595.3		$	555.4

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10. Goodwill and Other Intangible Assets

     Changes in the carrying amount of goodwill for the three years ended March 31, 2002 were as follows:

	Pharmaceutical			Medical-Surgical			Information
(In millions)	Solutions			Solutions			Solutions			Total
Balance, March 31, 1999	$	226.1		$	730.4		$	32.2		$	988.7
Goodwill acquired, net of purchase price adjustments, and other		21.1			(1.3	)		100.6			120.4
Amortization		(6.5	)		(19.3	)		(11.8	)		(37.6	)
Loss on sale and asset write-down		—			—			(6.5	)		(6.5	)
Balance, March 31, 2000		240.7			709.8			114.5			1,065.0
Goodwill acquired, net of purchase price adjustments, and other		12.3			(1.4	)		44.8			55.7
Amortization		(8.0	)		(19.0	)		(22.4	)		(49.4	)
Asset write-downs (Financial Note 5)		—			—			(107.9	)		(107.9	)
Balance, March 31, 2001		245.0			689.4			29.0			963.4
Goodwill acquired, net of purchase price adjustments and other		58.9			—			—			58.9
Balance, March 31, 2002	$	303.9		$	689.4		$	29.0		$	1,022.3

     Information regarding other intangible assets is as follows:

		March 31,
(In millions)		2002			2001			2000
Customer lists		$	88.1		$	80.8		$	79.4
Technology			44.1			48.0			56.4
Trademarks and other			22.5			21.1			22.3
Gross intangibles			154.7			149.9			158.1
	Accumulated depreciation		(61.3	)		(48.9	)		(37.5	)
Intangibles, net		$	93.4		$	101.0		$	120.6

     Substantially all of the other intangible assets are being amortized. Amortization expense of other intangible assets was $14.4 million, $16.4 million and $17.9 million for 2002, 2001 and 2000. The weighted average remaining amortization period for customer lists, technology and trademarks and other intangible assets are as follows: 7.3 years, 6.8 years and 27.2 years. Estimated future annual amortization expense of these assets is as follows: $15.5 million, $15.2 million, $14.5 million, $10.1 million and $9.7 million for 2003 through 2007.

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11. Long-Term Debt

		March 31,
(In millions)		2002		2001		2000
ESOP related debt		$	74.4	$	88.9	$	99.9
4.50% Exchangeable subordinated debentures due March, 2004			6.4		6.5		28.1
8.91% Series A Senior Notes due February, 2005			100.0		100.0		100.0
8.95% Series B Senior Notes due February, 2007			20.0		20.0		20.0
9.13% Series C Senior Notes due February, 2010			215.0		215.0		215.0
6.875% Notes due March, 2002			—		175.0		175.0
6.55% Notes due November, 2002			125.0		125.0		125.0
6.30% Notes due March, 2005			150.0		150.0		150.0
6.40% Notes due March, 2008			150.0		150.0		150.0
7.75% Notes due February, 2012			398.0		—		—
7.65% Debentures due March, 2027			175.0		175.0		175.0
5.375% IDRBs due through December, 2011			5.5		5.5		9.0
Capital lease obligations (averaging 8.5%)			6.5		16.0		9.9
Other, 7.0% to 10.0%, due through March, 2008			3.8		2.8		3.1
	Total debt		1,429.6		1,229.7		1,260.0
Less current portion			141.2		194.1		16.2
	Total long-term debt	$	1,288.4	$	1,035.6	$	1,243.8

     We have a 364-day revolving credit agreement that allows for short-term borrowings of up to $1.075 billion and which expires in October 2002, and a $400.0 million five-year revolving credit facility which expires in October 2003. These facilities are primarily intended to support our commercial paper borrowings. We also have a committed revolving receivables sale facility aggregating $850 million, which we intend to renew on or before June 14, 2002. At March 31, 2002, we had no short-term borrowings, no borrowings under the revolving credit facilities, and no borrowing equivalents under the revolving receivables sale facility.

     On January 24, 2002, we completed a public offering of $400.0 million of 7.75% unsecured notes, due in 2012. These notes are redeemable at any time, in whole or in part, at our option. Net proceeds of $397.3 million for the issuance of these notes was used to repay term debt and for other general corporate purposes. In 2000, we issued the Series A, B and C senior fixed-rate notes totaling $335.0 million of which the net proceeds were used to repay term debt and for other general corporate purposes.

     ESOP related debt (see Note 15), bears interest at rates ranging from 8.6% fixed rate to approximately 89% of LIBOR or LIBOR plus 0.4% and is due in semi-annual and annual installments through 2009.

     Our various borrowing facilities and long-term debt are subject to certain covenants. Our principal debt covenant is our debt to capital ratio, which cannot exceed 56.5%. If we exceed this ratio, repayment of debt outstanding under the revolving credit facility and $335.0 million of term debt could be accelerated. At March 31, 2002, this ratio was 25.7% and we were in compliance with our other financial covenants.

     Aggregate annual payments on long-term debt, including capital lease obligations, for the years ending March 31, are as follows: $141.2 million in 2003, $15.8 million in 2004, $261.6 million in 2005, $8.4 million in 2006, $28.7 million in 2006 and $973.9 million thereafter.

12. Convertible Preferred Securities

     In February 1997, our wholly-owned subsidiary trust issued 4 million shares of preferred securities to the public and 123,720 common securities to us, which are convertible at the holder’s option into McKesson Corporation common stock. The proceeds of such issuances were invested by the trust in $206,186,000 aggregate principal amount of our 5% Convertible Junior Subordinated Debentures due 2027 (the “Debentures”). The Debentures represent the sole assets of the trust. The Debentures mature on June 1, 2027, bear interest at the rate of 5%, payable quarterly, and are redeemable by us at 102.5% of the principal amount.

     Holders of the securities are entitled to cumulative cash distributions at an annual rate of 5% of the liquidation amount of $50 per security. Each preferred security is convertible at the rate of 1.3418 shares of McKesson Corporation common stock, subject to adjustment in certain circumstances. The preferred securities will be redeemed upon repayment of the Debentures and are callable by us at 102.5% of the liquidation amount.

     We have guaranteed, on a subordinated basis, distributions and other payments due on the preferred securities (the “Guarantee”). The Guarantee, when taken together with our obligations under the Debentures, and in the indenture pursuant to which the Debentures were issued, and our obligations under the Amended and Restated Declaration of Trust governing the subsidiary trust, provides a full and unconditional guarantee of amounts due on the preferred securities.

     The Debentures and related trust investment in the Debentures have been eliminated in consolidation and the preferred securities reflected as outstanding in the accompanying consolidated financial statements.

13. Lease Obligations

     We lease facilities and equipment under both capital and operating leases. Net assets held under capital leases included in property, plant and equipment were $11.2 million, $13.7 million and $9.1 million at March 31, 2002, 2001 and 2000. Amortization of capital leases is included in depreciation expense.

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     Future minimum lease payments and sublease rental income in years ending March 31 are:

		Non-cancelable		Non-cancelable
(In millions)		Operating Leases		Sublease Rentals		Capital Leases
2003		$	98.7	$	5.3	$	3.1
2004			80.5		3.3		1.6
2005			61.5		2.9		1.1
2006			54.1		1.8		0.6
2007			41.6		1.1		0.1
Thereafter			80.7		0.8		0.9
	Total minimum lease payments	$	417.1	$	15.2		7.4
Less amounts representing interest							0.9
	Present value of minimum lease payments					$	6.5

     Rental expense was $110.1 million, $108.7 million and $108.3 million in 2002, 2001 and 2000. Most real property leases contain renewal options and provisions requiring us to pay property taxes and operating expenses in excess of base period amounts.

14. Financial Instruments and Hedging Activities

     At March 31, 2002, we had a currency swap agreement to convert CN$173 million to U.S.$125 million. This agreement matures in November 2002. We also had several currency swap agreements to convert a total of 12.2 million Pounds Sterling to $16.8 million. These agreements have various maturities through December 2004.

     On April 29, 2002, we entered into two interest rate swap agreements. The first agreement exchanges a fixed interest rate of 8.91% per annum to LIBOR plus 4.155%, on a notional amount of $100 million. The second agreement exchanges a fixed interest rate of 6.30% per annum to LIBOR plus 1.575%, on a notional amount of $150 million. These agreements expire in February and March of 2005.

     In February 2001, we paid $8.2 million to terminate two interest rate swap agreements, each with a notional principal amount of $150 million. The swaps were scheduled to mature in 2005 and 2008 and swap fixed interest payments of 6.30% and 6.40%, for floating interest payments based on a LIBOR index. These swaps included an embedded interest rate cap of 7%. The termination fee is being amortized on the straight-line method over the remaining life of the underlying debt.

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     At March 31, 2002, 2001 and 2000, the carrying amounts of cash and cash equivalents, marketable securities, receivables, drafts payable and accounts payable, and other liabilities approximate their estimated fair values because of the short maturity of these financial instruments. The carrying amounts and estimated fair values of our remaining financial instruments at March 31, were as follows:

	2002				2001				2000
	Carrying		Estimated		Carrying		Estimated		Carrying		Estimated
(In millions)	Amount		Fair Value		Amount		Fair Value		Amount		Fair Value
Long-term debt, including current portion	$	1,429.6	$	1,465.5	$	1,229.7	$	1,231.1	$	1,260.0	$	1,180.9
Convertible preferred securities		196.1		220.0		195.9		173.5		195.8		145.5
Interest rate swaps — unrealized loss		—		—		—		—		—		11.0
Foreign currency rate swaps		18.0		18.0		15.0		17.5		5.4		5.6

     The estimated fair values of these instruments were determined based on quoted market prices or market comparables. The estimated fair values may not be representative of actual values of the financial instruments that could have been realized or that will be realized in the future.

15. Pension Plans and Other Postretirement Benefits

     We maintain a number of qualified and nonqualified defined benefit retirement plans and defined contribution plans for eligible employees. We also provide postretirement benefits, consisting of health care and life insurance benefits, for certain eligible U.S. employees.

Defined Benefit Pension Plans

     Prior to 1997, substantially all U.S. full-time employees of McKesson were covered under either the Company-sponsored defined benefit retirement plan or by bargaining unit sponsored multi-employer plans. In 1997, we amended the Company-sponsored U.S. defined benefit plan to freeze all plan benefits based on each employee’s plan compensation and creditable service accrued to that date. Accordingly, U.S. employees joining the Company after 1997 are not eligible for coverage under the Company-sponsored defined benefit retirement plan. The benefits for such Company-sponsored plans are based primarily on age of employees at date of retirement, years of service and employees’ pay during the five years prior to retirement. We also have nonqualified supplemental defined benefit plans for certain U.S executives, which are non-funded.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

     The change in benefit obligation, plan assets and funded status for our U.S. defined benefit retirement plans are as follows:

		Years Ended March 31,
(In millions)		2002			2001			2000
Change in benefit obligations:
Benefit obligation at beginning of year		$	330.0		$	317.7		$	349.4
Service cost			2.2			1.6			2.0
Interest cost			23.7			23.8			24.2
Amendments			—			10.6			5.4
Actuarial losses (gains)			5.5			8.3			(27.8	)
Benefit payments			(29.5	)		(32.0	)		(35.5	)
Benefit obligation at end of year		$	331.9		$	330.0		$	317.7
Change in plan assets:
Fair value of plan assets at beginning of year		$	376.2		$	395.3		$	310.9
Actual return (loss) on plan assets			(4.8	)		12.9			110.0
Employer contributions			5.5			4.9			9.9
Expenses paid			(0.6	)		(4.9	)		—
Benefits paid			(29.5	)		(32.0	)		(35.5	)
Fair value of plan assets at end of year		$	346.8		$	376.2		$	395.3
Funded status:
Funded status at end of year		$	15.1		$	46.2		$	77.6
Unrecognized net actuarial (gain) loss			22.4			(25.0	)		(66.0	)
Unrecognized prior service cost			6.0			6.8			6.1
Prepaid benefit cost		$	43.5		$	28.0		$	17.7
Net amounts recognized in the consolidated balance sheet:
Prepaid benefit cost		$	89.1		$	70.7		$	48.2
Accrued benefit cost			(45.7	)		(42.7	)		(30.5	)
Intangible asset			6.0			6.8			6.0
Minimum pension liability-net of tax of $6.6, $5.3 and $5.9			(12.5	)		(12.1	)		(11.9	)
	Net amount recognized	$	36.9		$	22.7		$	11.8

     The following table provides components of the net periodic pension expense (income) for our U.S. defined benefit retirement plans:

		Years Ended March 31,
(In millions)		2002			2001			2000
Service cost—benefits earned during the year		$	2.2		$	1.6		$	2.0
Interest cost on projected benefit obligation			23.7			23.8			24.2
Expected return on assets			(35.6	)		(37.3	)		(29.3	)
Amortization of unrecognized loss (gain) and prior service costs			0.8			(3.3	)		2.7
Immediate recognition of pension cost (gain) (1)			(1.0	)		9.1			8.3
	Net pension expense (income)	$	(9.9	)	$	(6.1	)	$	7.9

(1) These amounts are primarily associated with changes in executive management, based on the terms of employment contracts.

     The assets of the plan consist primarily of listed common stocks (other than that of the Company) and bonds. These assets are measured at fair value (on a calendar year basis), which is determined based on quoted market prices.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

     The projected unit credit method is utilized for measuring net periodic pension cost over the employees’ service life. Costs are funded based on the recommendations of independent actuaries. The projected benefit obligations for Company-sponsored plans were determined using discount rates of 7.25% at December 31, 2001, 7.5% at December 31, 2000 and 7.75% at December 31, 1999 and an assumed increase in future compensation levels of 4.0% for all periods presented. The expected long-term rate of return on assets used to determine pension expense was 9.75% for all periods.

Defined Contribution Plans

     We have contributory profit sharing investment plans (“PSIP”) for U.S. employees not covered by collective bargaining arrangements. Eligible employees may contribute up to 16% of their compensation to an individual retirement savings account. The Company makes matching contributions equal to or greater than 50% of employee contributions, not to exceed 3% of employee compensation. The Company provides for the U.S. PSIP contributions with its common shares through its leveraged Employee Stock Ownership Program (“ESOP”).

     The ESOP has purchased an aggregate of 24.3 million shares of the Company’s common stock since inception. These purchases have been financed by 10 to 20-year loans from or guaranteed by us. The ESOP’s outstanding borrowings are reported as a liability of the Company and the related receivables from the ESOP are shown as a reduction of stockholders’ equity. The loans are repaid by the ESOP from interest earnings on cash balances and common dividends on shares not yet allocated to participants, common dividends on certain allocated shares and Company cash contributions. The ESOP loan maturities and rates are identical to the terms of related Company borrowings (see Financial Note 11). Stock is made available from the ESOP based on debt service payments on ESOP borrowings.

     Contribution expense for the PSIP for the three years ended 2002 was all ESOP related. After-tax ESOP expense, including interest expense on ESOP debt, was $9.5 million, $9.6 million and $11.3 million, in 2002, 2001 and 2000. Approximately 1.4 million, 1.5 million and 2.6 million shares of common stock were allocated to plan participants in 2002, 2001 and 2000. Through March 31, 2002, 17.6 million common shares have been allocated to plan participants, resulting in a balance of 6.7 million common shares in the ESOP which have not yet been allocated to plan participants.

Healthcare and Life Insurance

     In addition to providing pension benefits, we provide healthcare and life insurance benefits for certain retired employees. Our policy is to fund these benefits as claims are paid.

     The following table presents a reconciliation of the postretirement healthcare and life insurance benefits obligation:

	Years Ended March 31,
(In millions)	2002			2001			2000
Change in benefit obligation:
Benefit obligation at beginning of year	$	133.3		$	123.0		$	120.7
Service cost		0.8			0.7			1.1
Interest cost		9.5			9.1			8.1
Actuarial loss		32.8			14.5			5.4
Benefits paid		(15.7	)		(14.0	)		(12.3	)
Benefit obligation at end of year	$	160.7		$	133.3		$	123.0
Funded Status:
Funded status at end of year	$	(160.7	)	$	(133.3	)	$	(123.0	)
Unrecognized actuarial loss		44.3			20.6			10.0
Unrecognized prior service cost		(5.2	)		(6.1	)		(7.0	)
Accrued post-retirement benefit obligation	$	(121.6	)	$	(118.8	)	$	(120.0	)

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

     Expenses for postretirement healthcare and life insurance benefits consisted of the following:

	Years Ended March 31,
(In millions)	2002			2001			2000
Service cost—benefits earned during the period	$	0.8		$	0.7		$	1.1
Interest cost on projected benefit obligation		9.5			9.1			8.1
Amortization of unrecognized gain and prior service costs		(0.9	)		(0.9	)		(0.9	)
Recognized actuarial loss (gain)		9.1			4.0			(0.3	)
Total	$	18.5		$	12.9		$	8.0

     The assumed healthcare cost trend rates used in measuring the accumulated postretirement benefit obligation were 11.0% in 2002 and 5% in 2001 and 2000. The healthcare cost trend rate assumption has a significant effect on the amounts reported. Increasing the trend rate by one percentage point would increase the accumulated postretirement healthcare and life insurance obligation as of March 31, 2002 by $10.3 million and the related 2002 aggregate service and interest costs by $0.7 million. Decreasing the trend rate by one percentage point would reduce the accumulated postretirement healthcare and life insurance obligation as of March 31, 2002 by $9.2 million and the related 2002 aggregate service and interest cost by $0.6 million. The discount rates used in determining the accumulated postretirement benefit obligation were 7.25%, 7.5% and 7.75% at March 31, 2002, 2001 and 2000.

     We have an employee discount stock purchase plan for eligible employees. Under the plan, participants may authorize payroll deductions of up to 15% of their total cash compensation to purchase our common stock at a 15% discount. The plan has 24-month offering periods with purchases made every 6 months. Purchases are made at the lower of the closing stock price on the first day of the offering period or each purchase date.

16. Income Taxes

     The provision for income taxes related to continuing operations consists of the following:

		Years Ended March 31,
(In millions)		2002		2001			2000
Current
Federal		$	78.3	$	52.4		$	62.9
State and local			4.8		8.2			19.8
Foreign			22.7		13.1			13.1
	Total current		105.8		73.7			95.8
Deferred
Federal			56.4		(16.2	)		30.5
State and local			17.4		(6.9	)		(5.7	)
Foreign			3.0		1.7			1.7
	Total deferred		76.8		(21.4	)		26.5
	Total income taxes	$	182.6	$	52.3		$	122.3

     The principal items accounting for the difference in income taxes on income from continuing operations before income taxes computed at the Federal statutory income tax rate and income taxes are as follows:

		Years Ended March 31,
(In millions)		2002			2001			2000
Income taxes at Federal statutory rate		$	212.6		$	5.5		$	109.6
State and local income taxes net of federal tax benefit			14.4			0.9			14.5
Nondeductible items			(1.4	)		56.9			8.2
Tax settlements			20.7			(12.9	)		—
Foreign taxes (benefit) rate differential			(18.2	)		4.0			0.7
Dividends received from foreign investments			44.3			1.4			1.2
Dispositions			(40.0	)		—			—
Foreign tax credit			(47.0	)		(0.6	)		—
Other—net			(2.8	)		(2.9	)		(11.9	)
	Income taxes	$	182.6		$	52.3		$	122.3

     Foreign pre-tax earnings were $125.1 million, $30.8 million and $40.5 million in 2002, 2001 and 2000. At March 31, 2002, undistributed earnings of our foreign operations totaling $80.8 million were considered to be permanently reinvested. No deferred tax liability has been recognized for the remittance of such earnings to the U.S. since it is our intention to utilize those earnings in the foreign operations as well as to fund certain research and development activities for an indefinite period of time, or to repatriate such earnings when it is tax efficient to do so. The determination of the amount of deferred taxes on these earnings is not practicable since the computation would depend on a number of factors that cannot be known until a decision to repatriate the earnings is made.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

     Deferred tax balances consisted of the following:

			March 31,
(In millions)			2002			2001			2000
Assets
Receivable allowances			$	133.5			159.3		$	104.1
Deferred revenue				91.8			40.2			39.9
Compensation and benefit-related accruals				69.7			96.4			38.8
Other				34.0			53.9			137.7
		Current		329.0			349.8			320.5
Nondeductible accruals for employee benefit plans				70.2			78.6			129.1
Intangibles				50.7			67.2			84.8
Investment valuation				46.7			39.6			0.6
Loss and credit carryforwards and other				30.1			9.7			18.4
		Noncurrent		197.7			195.1			232.9
		Total	$	526.7			544.9		$	553.4
Liabilities
Basis differences for inventory valuation and other assets			$	(293.6	)	$	(251.0	)	$	(208.0	)
Other				(2.0	)		(10.6	)		(0.6	)
		Current		(295.6	)		(261.6	)		(208.6	)
Basis difference for fixed assets				(37.3	)		(34.3	)		(8.3	)
Systems development costs				(110.6	)		(93.6	)		(88.7	)
Retirement plans and other				(37.7	)		(33.0	)		(41.3	)
		Noncurrent		(185.6	)		(160.9	)		(138.3	)
		Total	$	(481.2	)	$	(422.5	)	$	(346.9	)
Total net current—included in prepaid expenses			$	33.4		$	88.2		$	111.9
Total net noncurrent—included in other assets				12.1			34.2			94.6
	Total net deferred tax assets		$	45.5		$	122.4		$	206.5

     We have an alternative minimum tax credit carry forward of $25.5 million, which has an indefinite life.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

17. Stockholders’ Equity

     In October 1994, our Board of Directors declared a dividend of one right (a “Right”) for each then outstanding share of common stock and authorized the issuance of one Right for each share subsequently issued to purchase, upon the occurrence of certain specified triggering events, a unit consisting of one hundredth of a share of Series A Junior Participating Preferred Stock. Triggering events include, without limitation, the acquisition by another entity of 15% or more of our common stock without the prior approval of our Board. The Rights have certain anti-takeover effects and will cause substantial dilution to the ownership interest of a person or group that attempts to acquire us on terms not approved by the Board. The Rights expire in 2004 unless redeemed earlier by the Board. As a result of the two-for-one stock split in 1998, each share of common stock now has attached to it one-half of a Right.

     We have several equity compensation plans (stock option, restricted stock and stock purchase plans) under which employees and non-employee directors receive grants and awards. As a result of acquisitions, we also have 21 other option plans; however, no further awards have been made under these plans since the date of acquisition. Under the active stock option and restricted stock plans, we were authorized to grant up to 76.1 million shares as of March 31, 2002.

     The following are descriptions of equity plans that have been approved by the Company’s stockholders. The plans are administered by the Compensation Committee of the Board of Directors, except for the Directors’ Plan (defined below) which is administered by the Committee on Directors and Corporate Governance.

1994 Stock Option and Restricted Stock Plan

     The 1994 Stock Option and Restricted Stock Plan (the “1994 Plan”) was adopted by the Board of Directors in 1994 and provides for the grant of 41.2 million shares, which includes awards granted under predecessor plans, in the form of nonqualified stock options or incentive stock options (“ISOs”), as defined under Section 422 of the Internal Revenue Code (“the Code”), with or without tandem stock appreciation rights (“SARs”), or restricted stock.

     Options granted under the 1994 Plan are generally subject to the same terms and conditions as those granted under the 1999 Plan, discussed below, except that under the 1994 Plan (i) only executive officers of the Company are eligible to receive option grants, (ii) ISOs may be granted to eligible participants, and (iii) there is an annual per person limit on the number of options for purposes of Section 162(m) of the Code.

1997 Non-Employee Directors’ Equity Compensation and Deferral Plan

     The 1997 Non-Employee Directors’ Equity Compensation and Deferral Plan (the “Directors’ Plan”) was adopted in 1997 and provides for the grant of 1.3 million shares in the form of nonqualified stock options or restricted stock units to non-employee directors of the Company. Shares subject to option grants which cease to be exercisable shall not be counted against the number of shares available under the Directors’ Plan. Restricted stock units (described below), whether or not distributed in the form of restricted stock, will be counted against the number of shares available. The Directors’ Plan will terminate on December 31, 2006 or such earlier date as determined by the Board of Directors.

     The compensation for each non-employee director of the Company includes an annual retainer. Under the Director’s Plan, each director is required to defer 50% of his or her annual retainer into either Restricted Stock Units (“RSUs”) or nonqualified stock options (“Retainer Options”). Each director may also defer the remaining 50% of the annual retainer into RSUs, Retainer Options or into the Company’s deferred compensation plan (“DCAP II”), or may elect to receive cash. Directors may also receive a fee for each Board or Committee meeting attended, and Committee chairs receive an additional annual fee. These fees may be deferred into RSUs or DCAP II or may be paid in cash.

     Retainer Options are granted at not less than fair market value and have a term of ten years. The number of Retainer Options granted is determined by applying a conversion factor to the closing price of the common stock on the date of grant, and dividing that number into the amount of annual retainer being deferred. Retainer Options granted prior to May 29, 2002 vest after one year. Retainer Options granted after that date vest immediately. Currently, each January directors are granted an option for 10,000 shares of the Company’s common stock.

     The number of RSUs granted is determined by the amount of retainer and fees deferred, divided by the fair market value of the Company’s common stock on the last trading day of the calendar quarter in which those amounts would otherwise be payable. RSUs entitle the holder, upon distribution, to receive a cash payment equal to either the fair market value of one share of common stock, or one share of common stock. RSUs terminate upon distribution. Upon the occurrence of a change of control, common stock to be issued in respect of all RSUs will be immediately distributed.

1973 Stock Purchase Plan

     The 1973 Stock Purchase Plan (the “SPP”) was adopted by the stockholders of the Company’s predecessor in 1973. The Company’s stockholders approved an additional 2.5 million shares to be issued under the SPP in 1999, which remain available for issuance under the SPP. Rights to purchase shares are granted under the SPP to key employees of the Company as determined by the Compensation Committee of the Board. Members of the Committee are not eligible to receive awards under the SPP.

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     The purchase price of the Company common stock subject to rights granted under the SPP is the fair market value of such stock on the date the right is exercised (which shall be the closing price of the Company’s common stock on the New York Stock Exchange (“NYSE”)). Purchases are evidenced by written stock purchase agreements which provide for the payment of the purchase price by (i) payment in cash, or (ii) a promissory note payable on a repayment schedule determined by the Committee, or (iii) a combination of (i) and (ii). Subject to the requirements of applicable law, stock purchased by an employee may have to be pledged to the Company as collateral for the promissory note under the terms and conditions within the stock purchase agreement.

2000 Employee Stock Purchase Plan

     The 2000 Employee Stock Purchase Plan (“ESPP”) is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423 of the Code. In March 2002, the Board amended the ESPP to allow for participation in the plan by employees of certain of the Company’s international and other subsidiaries. As to those employees, the ESPP does not so qualify. The ESPP was initially adopted by the Board of Directors of HBOC prior to the Company’s acquisition of HBOC. Currently, 6.1 million shares have been authorized for issuance under the ESPP; however, the Company is asking its stockholders to approve an increase of 5.0 million shares for the ESPP at its 2002 annual meeting.

     Each employee of the Company (and subsidiaries and related entities designated by the Committee) who has been employed for 60 days or more prior to the beginning of an offering period and who customarily works at least 20 hours per week and more than five months in any calendar year is eligible to participate in the ESPP.

     The ESPP is implemented through a continuous series of 24-month offerings beginning on the first trading day on or after each May 1 and November 1 (the “Offering Dates”) and ending on the last trading day of the month which is 24 months later (the “Offering Periods”) and six-month periods beginning on each May 1 and November 1 and ending on the following October 31 and April 30, during which contributions may be made toward the purchase of common stock under the plan (“Purchase Periods”). If the fair market value of a share of the Company’s common stock on the first day of the Offering Period in which a participant is enrolled is higher than on the first day of any subsequent Offering Period, the participant will automatically be re-enrolled for the subsequent Offering Period.

     Each eligible employee may become a participant in the ESPP by making an election, at least ten days prior to any Offering Date, authorizing regular payroll deductions during the next succeeding Purchase Period, the amount of which may not exceed 15% of a participant’s compensation for any payroll period. Payroll deductions are credited to a cash account for each participant. At the end of each Purchase Period, the funds in each cash account will be used to purchase shares of the Company’s common stock, which are then held in a stock account. A participant has the right to vote the shares credited to his or her stock account, and may withdraw these shares at any time.

     The purchase price of each share of the Company’s common stock will be the lesser of (i) 85% of the fair market value of such share on the first day of the Offering Period; or (ii) 85% of the fair market value of such share on the last day of the applicable Purchase Period. The purchase price is subject to adjustment to reflect certain changes in the Company’s capitalization. In general, the maximum number of shares of common stock that may be purchased by a participant for each Purchase Period is determined by dividing $12,500 by the fair market value of one share of common stock on the Offering Date. In no event may a participant purchase shares with a fair market value in excess of $25,000 in each calendar year.

     The following are descriptions of equity plans that have not been submitted for approval by the Company’s stockholders:

1999 Stock Option and Restricted Stock Plan

     The 1999 Stock Option and Restricted Stock Plan (the “Plan”) was adopted by the Board of Directors in 1999. The Plan provides for the grant of 32.7 million shares in the form of nonqualified stock options, with or without SARs or restricted stock. Shares subject to option grants which cease to be exercisable continue to be available for subsequent option grants. Options may be granted under the Plan to eligible employees of the Company. No officers or directors (as defined under the NYSE rules (the “NYSE Rules”)) participate in this Plan, as the Plan is intended to be broadly-based under Section 312 of the NYSE Rules.

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     Options are granted at not less than fair market value and have a term of ten years. Options granted as installment options generally become exercisable in four equal annual installments beginning one year after the grant date, and options granted as non-installment options become fully exercisable at any time after four years from the date of grant. Options are exercisable for up to three months following termination of employment. The post-termination exercise period may generally be extended for a period of time up to three years, but in no event beyond the original option term, if the termination is due to retirement, death or long-term disability. In addition, options are subject to special rules regarding forfeiture in situations when a participant engages in actions specified in the Statement of Terms and Conditions (“ST & C”) as being detrimental to the Company.

     Restricted stock granted under the Plan contains certain restrictions on transferability and may not be sold, assigned, transferred, pledged or otherwise disposed of until such restrictions lapse. Such shares will be forfeited if the grantee’s continuous employment with the Company is terminated (except as provided in the Plan or in the agreement evidencing the restricted stock award) prior to the lapsing of the restrictions or if achievement of performance goals set forth as a condition to the lapsing of restrictions has not been attained. Grantees may elect to use stock to satisfy any withholding tax obligation upon the lapsing of restrictions on restricted stock awards. In addition, restricted stock awards are subject to special rules regarding forfeiture in situations when a participant engages in actions specified in the ST&C as being detrimental to the Company. The Plan also provides that outstanding options become immediately exercisable and the restrictions on restricted stock awards immediately lapse upon the occurrence of a change of control of the Company.

1998 Canadian Stock Incentive Plan

     The 1998 Canadian Stock Incentive Plan (the “Canadian Plan”) was adopted by the Board of Directors in January 1998, following the Company’s acquisition of a Canadian company, to provide nonqualified stock options, with or without tandem SARs, to eligible employees of the Canadian company. The Canadian Plan has subsequently been amended to allow for the grant of stock options to employees of any of the Company’s Canadian subsidiaries. A total of 0.9 million shares have been authorized for issuance under the Canadian Plan.

     Options granted under the Canadian Plan are generally subject to the same terms and conditions as those granted under the 1999 Plan, discussed above, except that (i) options may be granted for less than the fair market value of the Company’s common stock on the date of grant, and (ii) all options will become immediately exercisable upon an employee’s disability or death and must be exercised within three years of such date.

Stock Option Plans Adopted in January 1999 and August 1999

     On January 27, 1999 and August 25, 1999 the Board of Directors adopted certain stock option plans (the “January 1999 Plan” and the “August 1999 Plan”, or together the “Plans”) to provide stock options to purchase shares of the Company’s common stock to eligible employees of the Company. A maximum of 5.2 million and 5.8 million shares of common stock were authorized for issuance under the January 1999 and August 1999 Plans. In each case the Plans state that: (i) under each of the Plans no single officer or director of the Company or any subsidiary could acquire more than 1% of the Company’s common stock outstanding at the time the Plans were adopted and (ii) each of the Plans, together with all stock option or purchase plans, or any other arrangements pursuant to which officers or directors of the Company may acquire common stock (other than stock plans for which stockholder approval is not required under Section 312.03 of the NYSE Rules), does not authorize the issuance of more than 5% of the Company’s common stock outstanding at the time the Plans were adopted (collectively the “NYSE Limits”). Options were granted under each of the Plans to eligible employees of the Company. No further grants will be made from either of the Plans.

     The options were granted at not less than fair market value and have a term of ten years. For options granted under the January 1999 Plan, an optionee must generally remain in the continuous employment of the Company and/or one of its affiliates for a period of at least twenty-four months from the date on which the option was granted in order to become eligible to exercise such option, at which time the option shall be exercisable as to 50% of the shares subject to the option. Thereafter, the option will be exercisable as to 25% of the shares subject to the option after 36 months of continuous employment and shall become exercisable as to the remaining 25% of the shares subject to the option after 48 months of continuous employment. Options granted under the August 1999 Plan as installment options generally become exercisable in four equal annual installments beginning one year after the grant date and options granted as non-installment options become fully exercisable at any time after four years from the date of

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FINANCIAL NOTES (Continued)

grant. Any portion of an option not exercised as it becomes exercisable shall accumulate and may thereafter be exercised by the optionee at any time during the option term. Options are generally exercisable for up to three months following termination of employment. The post-termination exercise period may generally be extended for a period of time up to three years, but in no event beyond the original option term, if the termination is due to retirement, death or long-term disability.

     The Plans provide that outstanding options become fully vested and immediately exercisable upon the occurrence of the optionee’s death, long-term disability, retirement (subject to certain conditions) or a change of control of the Company. In addition, awards under the Plans are subject to special rules regarding forfeiture in situations when a participant engages in actions specified in the ST&C’s as being detrimental to the Company.

Restricted Stock Plan Adopted in January 2000

     On January 31, 2000 the Board adopted a certain restricted stock plan (the “January 2000 Plan”) to make grants of restricted stock to eligible employees of the Company. A maximum of 0.5 million shares of common stock was authorized for issuance under the January 2000 Plan, subject to the NYSE Limits. No further grants will be made from the January 2000 Plan.

     Restricted stock granted under the January 2000 Plan shall contain certain restrictions on transferability and may not be sold, assigned, transferred, pledged or otherwise disposed of until such restrictions lapse. Such shares will be forfeited if the grantee’s continuous employment with the Company is terminated (except as provided in the Plan or in the agreement evidencing the restricted stock award) prior to the lapsing of the restrictions. Grantees may elect to use stock to satisfy any withholding tax obligation upon the lapsing of restrictions on restricted stock awards.

     If a grantee’s employment with the Company terminates as a result of his or her death, disability or retirement (subject to certain conditions), the restrictions on restricted stock awards shall lapse upon the date of such termination. In addition, awards under the January 2000 Plan are subject to special rules regarding forfeiture in situations when a participant engages in actions specified in the ST&Cs as being detrimental to the Company.

1999 Executive Stock Purchase Plan

     The 1999 Executive Stock Purchase Plan (the “1999 SPP”) was adopted by the Board of Directors in February 1999. The 1999 SPP provided for the grant of rights to purchase a maximum of 0.7 million shares of common stock subject to the NYSE Limits. No further grants will be made from the 1999 SPP. Rights to purchase shares were granted under the 1999 SPP to eligible employees of the Company. Members of the Board of Directors who were not employed as regular salaried officers or employees of the Company or any subsidiary of the Company were not permitted to participate in the Plan. Members of the Committee were not eligible to receive awards under the Plan.

     The purchase price of the Company common stock subject to rights granted under the 1999 SPP was equal to the fair market value of the Company’s common stock on the date the right was exercised (which was the closing price of the Company’s common stock on the NYSE). Purchases were evidenced by written stock purchase agreements which provide for the payment of the purchase price by (i) payment in cash, or (ii) a promissory note payable on a repayment schedule determined by the Compensation Committee of the Board, or (iii) a combination of (i) and (ii).

HBOC 1994 UK Sharesave Scheme

     In connection with the acquisition by the Company of HBOC, we assumed the HBOC 1994 UK Sharesave Scheme (“1994 Scheme”) which is similar to the ESPP, under which 24,000 shares remain available for issuance.

     Employees and previous directors of HBOC and its subsidiaries, who are residents of the United Kingdom were eligible to receive options under the 1994 Scheme. The exercise price of the stock covered by each option shall not be less than 85% of the fair market value of the Company’s common stock on the date the option is granted. Participants under

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the 1994 Scheme pay for options through monthly contributions, subject to both minimum and maximum monthly amount limitations. If, after three years from the date an option was granted to a participant, the participant is terminated by reason of his or her death, disability, retirement, change of control or any other reason other than for cause, the participant may exercise the option for a period of three years. In the event the participant is terminated, other than as described in the immediately preceding sentence, or in the event a participant gives notice of his or her intent to discontinue monthly contributions or requests repayment of such monthly contributions, the option shall not be exercisable at all. In the event a participant withdraws from the 1994 Scheme, his or her contributions shall be refunded, provided that such refunded amount shall include interest in the event a participant had made monthly contributions for more than twelve months.

     The following is a summary of options outstanding at March 31, 2002:

					Options Outstanding						Options Exercisable
					Number of		Weighted-Average				Number of
					Options		Remaining		Weighted-		Options		Weighted-
Range of					Outstanding At		Contractual Life		Average		Exercisable at		Average
Exercise Prices					Year End		(Years)		Exercise Price		Year End		Exercise Price
$	0.01	–	$	13.67		1,926,084		2.0	$	6.70		1,901,084	$	6.79
$	13.68	–	$	27.35		11,678,873		6.9		21.26		6,392,777		21.06
$	27.36	–	$	41.02		32,444,657		7.6		32.68		12,794,671		30.57
$	41.03	–	$	54.70		2,254,139		5.1		47.97		2,207,066		48.02
$	54.71	–	$	68.37		798,964		5.6		58.64		738,510		58.09
$	68.38	–	$	82.05		12,857,809		5.9		72.96		10,315,876		72.94
$	82.06	–	$	95.72		491,390		4.8		90.69		491,390		90.69
$	95.73	–	$	123.07		373,334		5.2		113.50		373,334		113.50
$	123.08	–	$	136.74		373,334		5.2		136.74		373,334		136.74
						63,198,584		6.8		40.39		35,588,042		44.34

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     Expiration dates range from April 1, 2002 to March 7, 2012.

     The following is a summary of changes in the options for the stock option plans:

	2002					2001					2000
				Weighted-Average					Weighted-Average					Weighted-Average
	Shares			Exercise Price		Shares			Exercise Price		Shares			Exercise Price
Outstanding at beginning of year		60,732,305		$	39.36		56,275,715		$	42.24		39,472,342		$	55.11
Granted		9,592,339			38.25		11,599,389			28.50		24,650,681			25.68
Exercised		(3,660,236	)		16.73		(1,149,465	)		13.11		(1,212,262	)		14.92
Canceled		(3,465,824	)		41.15		(5,993,334	)		50.42		(6,635,046	)		63.23
Outstanding at year end		63,198,584			40.39		60,732,305			39.36		56,275,715			42.24

     Pursuant to SFAS No. 123, we have elected to account for our stock-based compensation plans under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” Had compensation cost for the stock option plan been recognized based on the fair value at the grant dates for awards under those plans, consistent with the provision of SFAS No. 123, net income (loss) and earnings (loss) per share would have been as indicated in the table below. Since pro forma compensation cost relates to all periods over which the awards vest, the initial impact on pro forma income (loss) from continuing operations may not be representative of compensation cost in subsequent years, when the effect of amortization of multiple awards would be reflected.

		Years Ended March 31,
(in millions, except per share amounts)		2002		2001			2000
Income (loss) from continuing operations
	As reported	$	418.6	$	(42.7	)	$	184.6
	Pro forma		256.9		(179.4	)		82.2
Earnings (loss) per common share—diluted
	As reported	$	1.43	$	(0.15	)	$	0.65
	Pro forma		0.88		(0.63	)		0.29
Earnings (loss) per common share—basic
	As reported	$	1.47	$	(0.15	)	$	0.66
	Pro forma		0.90		(0.63	)		0.29

     Fair values of the options were estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

	Years Ended March 31,
	2002			2001			2000
Expected stock price volatility		31.5	%		48.5	%		46.0	%
Expected dividend yield		0.52	%		0.75	%		1.50	%
Risk-free interest rate		3.8	%		4.7	%		6.1	%
Expected life (in years)		6.0			5.0			5.0

     The weighted average fair values of the options granted during 2002, 2001 and 2000 were $12.22, $13.17 and $11.33 per share.

     Other Capital included in stockholders’ equity, includes notes receivable from certain of our current or former officers and senior managers totaling $85.5 million, $90.7 million and $94.5 million at March 31, 2002, 2001 and 2000 related to purchases of common stock under our employee stock purchase plans. Such notes were issued for amounts equal to the market value of the stock on the date of the purchase and are full recourse to the borrower. As of March 31, 2002, the value of the underlying stock collateral was $55.8 million. The notes bear interest at rates ranging from 2.7% to 8.0% and are due at various dates through February 2005.

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18. Earnings (Loss) Per Share

     Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the reporting period. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that it reflects the potential dilution that could occur if dilutive securities or other obligations to issue common stock were exercised or converted into common stock.

     The computations for basic and diluted earnings (loss) per share from continuing operations are as follows

		Years Ended March 31,
(In millions, except per share amounts)		2002		2001			2000
Income (loss) from continuing operations		$	418.6	$	(42.7	)	$	184.6
Dividends on preferred securities of subsidiary trust			6.2		—			—
Income (loss) from continuing operations — diluted		$	424.8	$	(42.7	)	$	184.6
Weighted average common shares outstanding:
Basic			285.2		283.1			281.3
Effect of dilutive securities:
	Options to purchase common stock		7.0		—			2.9
	Trust convertible preferred securities		5.4		—			—
	Restricted stock		0.5		—			—
Diluted			298.1		283.1			284.2
Earnings (loss) per share from continuing operations:
	Basic	$	1.47	$	(0.15	)	$	0.66
	Diluted	$	1.43	$	(0.15	)	$	0.65

     Approximately 27.4 million and 36.5 million stock options were excluded from the computations of diluted net earnings per share in 2002 and 2000 as their exercise price was higher than the Company’s average stock price. For 2001 and 2000, the convertible preferred securities were excluded from the calculations of diluted earnings per share from continuing operations as they were antidilutive as were the stock options for 2001.

     Diluted earnings per share for 2000 was revised to include the dilutive effect of 2.9 million stock options. Diluted earnings per share from continuing and discontinued operations were reduced by $0.01 each from previously reported amounts of $0.66 and $1.91, for a total of $2.57, based on revised weighted average shares outstanding of 284.2 million.

19. Other Commitments and Contingent Liabilities

I. Accounting Litigation

     Since the announcements by McKesson, formerly known as McKesson HBOC, Inc., in April, May and July of 1999 that McKesson had determined that certain software sales transactions in its Information Technology Business unit (now referred to as the Information Solutions segment) were improperly recorded as revenue and reversed, as of May 10, 2002, ninety-one lawsuits have been filed against McKesson, HBOC, certain of McKesson’s or HBOC’s current or former officers or directors, and other defendants, including Bear Stearns & Co. Inc. (“Bear Stearns”) and Arthur Andersen LLP (“Andersen”).

Federal Actions

     Sixty-seven of the above mentioned actions have been filed in Federal Court (the “Federal Actions”). Of these, sixty-one were filed in the U.S. District Court for the Northern District of California, one in the Northern District of Illinois, which has been voluntarily dismissed without prejudice, one in the Northern District of Georgia, which has been transferred to the Northern District of California, one in the Eastern District of Pennsylvania, which has been transferred to the Northern District of California, two in the Western District of Louisiana, which have been transferred to the Northern District of California, and one in the District of Arizona, which has been transferred to the Northern District of California.

     On November 2, 1999, the Honorable Ronald M. Whyte of the Northern District of California issued an order consolidating fifty-three of these actions into one consolidated action entitled In re McKesson HBOC, Inc. Securities Litigation, (Case No. C-99-20743 RMW) (the “Consolidated Action”). By order dated December 22, 1999, Judge

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Whyte appointed the New York State Common Retirement Fund as lead plaintiff (“Lead Plaintiff”) and approved Lead Plaintiff’s choice of counsel.

     By order dated February 7, 2000, Judge Whyte coordinated a class action alleging claims under the Employee Retirement Income Security Act (commonly known as “ERISA”), Chang v. McKesson HBOC, Inc. et al., (Case No. C-00-20030 RMW), and a shareholder derivative action that had been filed in the Northern District under the caption Cohen v. McCall et al., (Case No. C-99-20916 RMW) with the Consolidated Action. There has been no further significant activity in the Cohen action. Recent developments in the Chang action are discussed below.

     Lead Plaintiff filed an Amended and Consolidated Class Action Complaint (the “ACCAC”) on February 25, 2000. The ACCAC generally alleged that defendants violated the federal securities laws in connection with the events leading to McKesson’s announcements in April, May and July 1999. On September 28, 2000, Judge Whyte dismissed all of the ACCAC claims against McKesson under Section 11 of the Securities Act with prejudice, dismissed a claim under Section 14(a) of the Exchange Act with leave to amend, and declined to dismiss a claim against McKesson under Section 10(b) of the Exchange Act.

     On November 14, 2000, Lead Plaintiff filed its Second Amended and Consolidated Class Action Complaint (“SAC”). As with its ACCAC, Lead Plaintiff’s SAC generally alleged that McKesson violated the federal securities laws in connection with the events leading to McKesson’s announcements in April, May and July 1999. The SAC names McKesson, HBOC, certain of McKesson’s or HBOC’s current or former officers or directors, Bear Stearns and Andersen as defendants. The SAC purported to state claims against McKesson and HBOC under Sections 10(b) and 14(a) of the Exchange Act.

     On January 11, 2001, McKesson filed an action in the U.S. District Court for the Northern District of California against the Lead Plaintiff in the Consolidated Action individually, and as a representative of a defendant class of former HBOC shareholders who exchanged HBOC shares for Company shares in the January 12, 1999 merger of a McKesson subsidiary into HBOC (the “Merger”), McKesson HBOC, Inc. v. New York State Common Retirement Fund, Inc. et al., (Case No. C01-20021 RMW) (the “Complaint and Counterclaim”). In the Complaint and Counterclaim, the Company alleges that the exchanged HBOC shares were artificially inflated due to undisclosed accounting improprieties, and that the exchange ratio therefore provided more shares to former HBOC shareholders than would have otherwise been the case. In this action, the Company seeks to recover the “unjust enrichment” received by those HBOC shareholders who exchanged more than 20,000 HBOC shares in the Merger. The Company does not allege any wrongdoing by these shareholders. On January 9, 2002, Judge Whyte dismissed the Complaint and Counterclaim with prejudice. On February 8, 2002, the Company filed a Notice of Appeal from this ruling to the United States Court of Appeals for the Ninth Circuit (“Ninth Circuit”). The Company’s opening brief to the Ninth Circuit is currently due to be filed on or before July 5, 2002. Because certain decisions of the Ninth Circuit raise a question as to whether the Ninth Circuit has appellate jurisdiction over the Company’s appeal, the Company has also filed a motion before Judge Whyte for an order certifying his January 9 dismissal order for immediate appeal.

     On January 7, 2002, Judge Whyte dismissed the claim in the SAC against McKesson under Section 10(b), to the extent that the claim was based on any pre-Merger conduct or statements by McKesson, and also dismissed the claim against McKesson under Section 14(a) of the Exchange Act, granting Lead Plaintiff thirty (30) days leave “for one last opportunity” to amend those claims. Judge Whyte dismissed the claim against HBOC under Section 14(a) of the Exchange Act without leave to amend. The Section 10(b) claim based on post-Merger statements remains pending against McKesson, and a Section 10(b) claim based on pre-Merger statements remains pending against HBOC.

     On February 15, 2002, Lead Plaintiff filed a Third Amended and Consolidated Class Action Complaint (the “TAC”) in the Consolidated Action. The TAC, like the SAC, purports to state claims against McKesson and HBOC under Sections 10(b) and 14(a) of the Exchange Act in connection with the events leading to McKesson’s announcements in April, May and July 1999, and names McKesson, HBOC, certain of McKesson’s or HBOC’s current or former officers or directors, Andersen and Bear Stearns as defendants. On April 5, 2002, McKesson filed a motion to dismiss Lead Plaintiff’s claim under Section 10(b) of the Exchange Act to the extent that it is based on McKesson’s pre-Merger conduct, and the claim under Section 14(a) of the Exchange Act in its entirety. McKesson’s motion to dismiss was heard on June 7, 2002, and the court has not yet issued an opinion.

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     Several individual actions have also been filed in or transferred to the Northern District of California. On November 12, 1999, an individual shareholder action was filed in the U.S. District Court for the Northern District of California under the caption Jacobs v. McKesson HBOC, Inc., et al., (C-99-21192 RMW). The Plaintiffs in Jacobs are former HBOC shareholders who acquired their HBOC shares pursuant to a registration statement issued by HBOC prior to the Merger, and then exchanged their HBOC shares for McKesson shares in the Merger. Plaintiffs in Jacobs assert claims under federal and state securities laws and a claim for common law fraud. Plaintiffs seek unspecified compensatory and punitive damages, and costs of suit, including attorneys’ fees. Judge Whyte’s December 22, 1999, order consolidated the Jacobs action with the Consolidated Action. With leave of court, the Jacobs plaintiffs amended their complaint, but the action remains stayed and there has been no discovery, motion practice or other activity in the case.

     On September 21, 2000, the plaintiffs in Jacobs v. McKesson HBOC, Inc., filed a new individual action entitled Jacobs v. HBO & Company (Case No. C-00-20974 RMW). The Jacobs complaint names only HBOC as a defendant and asserts claims under Sections 11 and 12(2) of the Securities Act, Section 10(b) of the Exchange Act and various state law causes of action. The complaint seeks unspecified compensatory and punitive damages, and costs of suit, including attorneys’ fees. This action has been assigned to Judge Whyte and consolidated with the Consolidated Action.

     On December 16, 1999, an individual action was filed in the U.S. District Court for the Northern District of California under the caption Bea v. McKesson HBOC, Inc. et al., (Case No. C-00-20072 RMW). Plaintiffs in Bea filed an Amended Complaint on March 9, 2000. Plaintiffs in Bea allege that they acquired the Company’s common stock prior to the Merger and sold that stock after the April 1999 announcement at a loss. The Bea complaint asserts claims under the federal and state securities laws, and a claim for fraud. Plaintiffs seek (i) unspecified compensatory and punitive damages, and (ii) reasonable costs and expenses of suit, including attorneys’ fees. Bea is currently stayed and has been consolidated with the Consolidated Action.

     On January 7, 2000, an individual action was filed in the U.S. District Court for the Northern District of California under the caption Cater v. McKesson Corporation et al., (Case No. C-00-20327 RMW). The plaintiff is Terry Cater, a former employee of the Company who, at the time he ceased active employment with the Company, held options to purchase shares of Company stock, and also held shares of the Company’s restricted stock. Plaintiff alleges that these options and restricted stock were substantially devalued as a result of the Merger and the subsequent drop in the Company’s stock price. Plaintiff in Cater asserts claims under the federal securities laws as well as claims for breach of good faith and fair dealing, fraud and negligent misrepresentation. Plaintiff seeks (i) unspecified special damages in excess of $50,000, (ii) unspecified general damages, (iii) prejudgment interest and (iv) reasonable attorneys’ fees. The case has been assigned to Judge Whyte and the parties have stipulated to a stay pending the outcome of the motions to dismiss in the Consolidated Action.

     On February 7, 2000, an action entitled Baker v. McKesson HBOC, Inc., et al., (Case No. CV 00-0188) was filed in the U.S. District Court for the Western District of Louisiana. The same plaintiffs then filed a virtually identical parallel action in Louisiana State Court, Rapides Parish, under the caption Baker v. McKesson HBOC, Inc., et al. (filed as Case No. 199018; Case No. CV-00-0522 after removal to federal court). Plaintiffs, former shareholders of Automatic Prescription Services, allege claims under the federal securities laws, and claims for breach of fiduciary duty, misrepresentation and detrimental reliance. The state court action was removed to federal court and the two Baker cases have been transferred to the Northern District of California and consolidated with the Consolidated Action.

     On July 27, 2001, an action was filed in the United States District Court for the Northern District of California captioned Pacha, et al., v. McKesson HBOC, Inc., et al., (No. C01-20713 PVT) (“Pacha”). The Pacha plaintiffs allege that they were individual shareholders of McKesson stock on November 27, 1998, and assert that McKesson and HBOC violated Section 14(a) of the Exchange Act and SEC Rule 14a-9, and that McKesson, aided by HBOC, breached its fiduciary duties to plaintiffs by issuing a joint proxy statement in connection with the Merger which allegedly contained false and misleading statements or omissions. Plaintiffs name as defendants McKesson, HBOC, certain current or former officers or directors of McKesson or HBOC, Andersen and Bear Stearns. On November 13, 2001, Judge Whyte ordered Pacha consolidated with the Consolidated Action and stayed all further proceedings.

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     Hess v. McKesson HBOC, Inc. et al., an action filed in state court in Arizona (Case No. C-20003862) on behalf of former shareholders of Ephrata Diamond Spring Water Company (“Ephrata”) who acquired McKesson shares in exchange for their Ephrata stock when McKesson acquired Ephrata in January 1999, was removed to federal court, transferred to the Northern District and consolidated with the Consolidated Action. Judge Whyte also stayed all further proceedings in Hess except for the filing of an amended complaint, which was filed on or about December 15, 2001 (the “Hess Amended Complaint”). The Hess Amended Complaint generally incorporates the allegations and claims asserted in Lead Plaintiff’s SAC in the Consolidated Action and also includes various common law causes of action relating to McKesson’s acquisition of Ephrata. The Company is not currently required to respond to the Hess Amended Complaint.

     On June 28, 2001, the Chang plaintiffs filed an amended complaint against McKesson, HBOC, certain current or former officers or directors of McKesson or HBOC, and The Chase Manhattan Bank. The amended complaint in Chang generally alleges that the defendants breached their fiduciary duties in connection with administering the McKesson HBOC Profit Sharing Investment Plan (the “PSI Plan”) and the HBOC Profit Sharing and Savings Plan (the “HBOC Plan”). Plaintiffs in Chang are alleged former employees of McKesson and participants in the PSI Plan, and purportedly seek relief under sections 404-405, 409 and 502 of ERISA on behalf of a class defined to include participants in the PSI Plan, including participants under the HBOC Plan, who maintained an account balance under the PSI Plan as of April 27, 1999, who had not received a distribution from the PSI Plan as of April 27, 1999, and who suffered losses as a result of the alleged breaches of duty. Plaintiff seeks (i) a judgment that McKesson and HBOC breached their fiduciary duties, (ii) an order requiring defendants to restore to the PSI Plan all losses caused by these purported breaches of fiduciary duty, and (iii) attorneys’ fees. In October 2001, McKesson, HBOC, Chase and other defendants moved to dismiss the Chang action. These motions are currently set for hearing on May 17, 2002.

     On February 7, 2002, an action was filed in the United States District Court for the Northern District of California captioned Adams v. McKesson Information Solutions, Inc. et al., No. C-02-06 85 JCS (“Adams”). Plaintiff in Adams filed a first amended complaint on March 15, 2002, against McKesson Information Solutions, Inc. (formerly HBOC), McKesson, certain current or former officers, directors or employees of McKesson or HBOC, and other defendants. Plaintiff alleges that he was a participant in the HBOC Plan and generally alleges that McKesson and HBOC breached their fiduciary duties to the HBOC Plan and its participants or engaged in transactions prohibited by ERISA. Plaintiff asserts his claims on behalf of a putative class defined to include all participants in the HBOC Plan and their beneficiaries for whose benefit the HBOC Plan acquired HBOC stock from March 31, 1996 to April 1, 1999. Plaintiff seeks (i) a judgment that McKesson and HBOC breached their fiduciary duties, (ii) an order requiring defendants to restore to the plan all losses caused by these purported breaches of fiduciary duty, and (iii) reasonable attorneys’ fees, costs and expenses. On April 3, 2002, Judge Whyte issued a Related Case Order in which he found that Adams is related to the Consolidated Action. By operation of a pretrial order entered in the Consolidated Action, Judge Whyte’s Related Case Order automatically consolidated Adams into the Consolidated Action. On April 25, 2002, Plaintiff filed an application with the Court requesting that the Adams action be relieved from automatic consolidation with the Consolidated Action, which HBOC intends to oppose. Defendants are presently not obligated to respond to the first amended complaint.

State Actions

     Twenty-four actions have also been filed in various state courts in California, Colorado, Delaware, Georgia, Louisiana and Pennsylvania (the “State Actions”). Like the Consolidated Action, the State Actions generally allege misconduct by McKesson or HBOC in connection with the events leading to McKesson’s decision to restate HBOC’s financial statements.

     Two of the State Actions are derivative actions: Ash, et al., v. McCall, et al., (Case No. 17132), filed in the Delaware Chancery Court and Mitchell v. McCall et al., (Case. No. 304415), filed in California Superior Court, City and County of San Francisco. McKesson moved to dismiss both of these actions and to stay the Mitchell action in favor of the earlier filed Ash and Cohen derivative actions. Plaintiffs in Mitchell agreed to defer any action by the court on McKesson’s motions pending resolution of McKesson’s dismissal motion in Ash. On September 15, 2000, in the Ash case, the Court of Chancery dismissed all causes of action with leave to re-plead certain of the dismissed claims, and on January 22, 2001, the Ash plaintiffs filed a Third Amended Complaint which is presently the subject of McKesson’s motion to dismiss.

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     Five of the State Actions are class actions. Three of these were filed in Delaware Chancery Court: Derdiger v. Tallman et al., (Case No. 17276), Carroll v. McKesson HBOC, Inc., (Case No. 17454), and Kelly v. McKesson HBOC, Inc., et al., (Case No. 17282 NC). Two additional actions were filed in Delaware Superior Court: Edmondson v. McKesson HBOC, Inc., (Case No. 99-951) and Caravetta v. McKesson HBOC, Inc., (Case No. 00C-04-214 WTQ). The Carroll and Kelly actions have been voluntarily dismissed without prejudice. McKesson removed Edmondson to federal court in Delaware and filed a motion to dismiss, which was granted by the federal court on March 5, 2002. McKesson filed motions to stay the Derdiger and Caravetta actions in favor of proceedings in the federal Consolidated Action, which were granted. On December 20, 2001, the plaintiff in the Derdiger action filed a motion to vacate the stay, but that motion has not yet been briefed or heard by the Court.

     Several of the State Actions are individual actions which have been filed in various state courts. Five of these were filed in the California Superior Court, City and County of San Francisco: Yurick v. McKesson HBOC, Inc. et al., (Case No. 303857), The State of Oregon by and through the Oregon Public Employees Retirement Board v. McKesson HBOC, Inc. et al., (Case No. 307619), Utah State Retirement Board v. McKesson HBOC, Inc. et al., (Case No. 311269), Minnesota State Board of Investment v. McKesson HBOC, Inc. et al., (Case No. 311747), and Merrill Lynch Fundamental Growth Fund et al. v. McKesson HBOC, Inc. et al., CGC-02-405792. In Yurick, the trial court has sustained McKesson’s demurrer to the original complaint without leave to amend with respect to all causes of action except plaintiffs’ claims for common law fraud and negligent misrepresentation, which the trial court has allowed to remain in the case. The Court also stayed Yurick pending the commencement of discovery in the Consolidated Action, but allowed the filing of an amended complaint. On May 23, 2001, the California Court of Appeals affirmed the Yurick trial court’s order dismissing claims against certain of the individual defendants without leave to amend. On July 31, 2001, McKesson’s demurrer to the Second Amended Complaint was overruled and McKesson’s alternative motion to strike was denied.

     The Oregon, Utah and Minnesota actions referenced above are individual securities actions filed in the California Superior Court for the City and County of San Francisco by out-of-state pension funds. On April 20, 2001, plaintiffs in Utah and Minnesota filed amended complaints against McKesson, HBOC, certain current or former officers or directors of McKesson or HBOC, Andersen and Bear Stearns. The amended complaints in Utah and Minnesota assert claims under California and Georgia’s securities laws, claims under Georgia’s RICO statute, and various common law claims under California and Georgia law. On June 22, 2001, McKesson and HBOC demurred to and moved to strike portions of the amended complaints and also moved to stay these actions pending the final resolution of the Consolidated Action. The court held hearings on McKesson’s demurrers and motions to strike on November 15, 2001, January 29, 2002, and April 23, 2002, but has not issued a final ruling on the motions. By order dated December 3, 2001, the court denied McKesson’s motion to stay the entire action pending the final resolution of the Consolidated Action but ordered that all discoveries in the Utah and Minnesota actions would be stayed pending the commencement of discovery in the Consolidated Action.

     On May 30, 2001, plaintiffs in Oregon filed a second amended complaint against McKesson, HBOC, certain current or former officers or directors of McKesson or HBOC, and Andersen. The second amended complaint in Oregon asserts claims under California and Georgia’s securities laws, claims under Georgia’s RICO statute, and various common law claims under California and Georgia law. The parties to the Oregon action previously agreed to a stay of all proceedings in that action, other than motions to test the sufficiency of the pleadings, pending the commencement of discovery in the Consolidated Action. On April 4, 2001, the plaintiff in Oregon filed a motion to lift the stipulated stay of discovery, which McKesson and HBOC opposed. McKesson also moved the court for an order modifying the stipulated stay to stay all proceedings in the action pending the final resolution of the Consolidated Action. Also on June 22, 2001, McKesson and HBOC demurred to and moved to strike portions of Oregon’s second amended complaint. The court held hearings on McKesson’s demurrers and motions to strike on November 15, 2001, January 29, 2002, and April 23, 2002, but has not issued a final ruling on the motions. By order dated December 7, 2001, the court denied McKesson’s motion to stay all proceedings in Oregon but ordered that all discoveries would be stayed pending the commencement of discovery in the Consolidated Action.

     Merrill Lynch Fundamental Growth Fund et al. v. McKesson HBOC, Inc. et al., CGC-02-405792 (“Merrill Lynch Fundamental Growth Fund”) was filed on March 19, 2002, in Superior Court in San Francisco. Plaintiffs in Merrill Lynch Fundamental Growth Fund allege that they purchased Company stock after the Merger and sold that stock at a loss after April 28, 1999. Plaintiffs name as defendants the Company, HBOC, Andersen, Bear Stearns and certain current or former officers or directors of the Company or HBOC, and assert causes of action under California’s securities statutes, Business and Professions Code § 17200, and common law claims for fraud, negligent

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misrepresentation, conspiracy, and aiding and abetting in connection with the events leading to McKesson’s need to restate HBOC’s financial statements. Plaintiffs also assert claims under New Jersey’s RICO statute, Georgia’s securities statutes, and Georgia RICO. Plaintiffs seek restitution in an unspecified amount, unspecified compensatory and treble damages, reasonable attorneys’ and experts’ fees, and costs and expenses. The Company’s counsel and counsel for the plaintiffs are currently discussing an appropriate response date to the complaint.

     Several individual actions have been filed in various state courts outside of California. Several of these cases have been filed in Georgia state courts. On October 29, 1999, an action was filed in Georgia Superior Court under the caption Powell v. McKesson HBOC, Inc. et al., and (Case No. 1999-CV- 15443). Plaintiff in Powell is a former HBOC employee seeking lost commissions as well as asserting claims under Georgia’s securities and racketeering laws, and various common law causes of action. The Powell action names as defendants the Company, HBOC, Albert Bergonzi and Jay Gilbertson. The Company filed a motion to stay, which was granted as to the Georgia securities law claims but not the Georgia RICO claims. Plaintiff thereafter voluntarily dismissed the action. On September 11, 2000, Plaintiff re-filed his action under the caption Powell v. McKesson HBOC, Inc. et al., Case No. 2000-CV-27864, reasserting the same claims against the same defendants. On October 11, 2000, McKesson and HBOC filed answers, motions to dismiss, and motions for a partial stay. The motions for partial stay were granted. This case has been settled and the action was dismissed on February 22, 2002.

     On December 9, 1999, an action was filed in Georgia State Court, Gwinnett County, under the caption Adler v. McKesson HBOC, Inc. et al., (Case No. 99-C-7980-3). Plaintiff in Adler is a former HBOC shareholder and asserts a claim for common law fraud and fraudulent conveyance. The Adler action names as defendants the Company, HBOC, Albert Bergonzi and Jay Gilbertson. Plaintiff seeks damages in excess of $43 million, as well as punitive damages, and costs of suit, including attorneys’ fees. The Company has answered the complaint in Adler. On May 26, 2000, the court denied McKesson’s motion to stay. On July 14, 2000, plaintiff filed an Amended Complaint, which McKesson and HBOC answered on August 21, 2000. Discovery has commenced in the Adler action and is ongoing.

     On October 24, 2000, an action was filed in Georgia State Court, Fulton County, captioned: Suffolk Partners Limited Partnership et al., v. McKesson HBOC, Inc. et al., (No. 00VS010469A). Plaintiffs in the Suffolk action allegedly purchased the Company’s common stock after the Merger but before the April 1999 announcement. Plaintiffs assert claims under Georgia’s securities and racketeering laws, and for common law fraud, negligent misrepresentation, conspiracy, and aiding and abetting. The Suffolk action names as defendants the Company, HBOC, and certain of the Company’s or HBOC’s current or former officers or directors, and Andersen. Like the Consolidated Action, the claims in the Suffolk action generally arise out of the January 12, 1999, Merger, and the Company’s announcement of the need to restate its financial statements. Plaintiffs seek (i) compensatory damages of approximately $21.8 million, as well as general, rescissory, special, punitive, exemplary, and with respect to certain causes of action, treble damages, and (ii) prejudgment and post-judgment interest and costs of suit, including reasonable attorneys’ and experts’ fees. The Company and HBOC separately answered the complaint on January 9, 2001. The Company and HBOC moved for an order staying the Suffolk action in favor of the Consolidated Action on January 10, 2001. On August 2, 2001, the Court granted the motions to stay, and this case is stayed until all discoveries are completed in the Consolidated Class Action pending in California.

     On November 1, 2000, an action was filed in Georgia State Court, Fulton County, captioned: Curran Partners, L.P. v. McKesson HBOC, Inc. ET al., and (No. 00 VS 010801). Plaintiff in the Curran action allegedly purchased the Company’s common stock after the Merger but before the April 1999 announcement. The claims in the Curran action are identical to the claims in the Suffolk action. Plaintiff seeks (i) compensatory damages of approximately $2.6 million, as well as general, rescissory, special, punitive, exemplary, and with respect to certain causes of action, treble damages, and (ii) prejudgment and post-judgment interest and costs of suit, including reasonable attorneys’ and experts’ fees. The Curran action names as defendants the Company, HBOC, and certain of the Company’s or HBOC’s current or former officers or directors, and Andersen. The Company and HBOC separately answered the complaint on January 9, 2001. The Company and HBOC moved for an order staying the Curran action in favor of the Consolidated Action on January 10, 2001. The Court granted the motions to stay on August 22, 2001.

     On December 12, 2001, an action was filed in Georgia State Court, Fulton County, captioned: Drake v. McKesson Corp., et al., and (Case No. 01VS026303A). Plaintiff in Drake is a former HBOC employee seeking lost commissions as well as asserting claims under Georgia’s securities and racketeering laws, and various common law

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causes of action. Plaintiff seeks (i) approximately $0.3 million in unpaid commissions, (ii) unspecified compensatory, consequential, actual, exemplary, and punitive damages, and (iii) prejudgment and post-judgment interest and costs of suit, including reasonable attorneys’ fees. The Drake action names as defendants the Company, HBOC, Albert Bergonzi and Jay Gilbertson. The parties entered into a Consent Order for Partial Stay on February 27, 2002, which stayed Plaintiff’s Georgia securities law, fraud and RICO claims. On March 4, 2002, McKesson and McKesson Information Solutions Inc. separately filed their answers.

     On January 31, 2002, an action was filed in Georgia Superior Court, Fulton County, under the caption Holcombe T. Green and HTG Corp. v McKesson, Inc. et. al., (Case No. 2002-CV-48407). Plaintiffs in the Green action are former HBOC shareholders and assert claims for common law fraud and fraudulent conveyance. Plaintiff Holcombe Green was also a former officer, chairman and director of HBOC. The Green action names as defendants the Company, HBOC, Albert Bergonzi and Jay Gilbertson. Plaintiffs seek compensatory damages in excess of $100 million, as well as unspecified general, special and punitive damages, and costs of suit, including attorneys’ fees. The Company and HBOC filed their respective answers and counterclaims on April 22, 2002. The Company and HBOC also filed their motions to stay and dismiss. Discovery is under way and will proceed for some time, unless the court grants the Company’s and HBOC’s motions to stay and/or dismiss.

     On February 6, 2002, an action was filed in Georgia Superior Court, Fulton County, under the caption Hall Family Investments, L.P. v. McKesson, Inc. et al., (Case No. 2002-CV-48612). Plaintiff in the Hall action is a former HBOC shareholder and asserts a claim for common law fraud and fraudulent conveyance. The Hall action names as defendants the Company, HBOC, Albert Bergonzi and Jay Gilbertson. Plaintiff seeks compensatory damages in excess of $100 million, as well as unspecified general, special and punitive damages, and costs of suit, including attorneys’ fees. The Company and HBOC filed their respective answers on April 22, 2002. The Company also filed its counterclaim for unjust enrichment. On April 26, 2002, the Company and HBOC filed motions to stay and dismiss. HBOC also filed a third party complaint against Holcombe Green for indemnification. Discovery is under way and will proceed for some time, unless the court grants the Company’s and HBOC’s motions to stay and/or dismiss. Additionally, the defendants in Hall have moved to have the case consolidated with the Green action.

     On September 28, 1999, an action was filed in Delaware Superior Court under the caption Kelly v. McKesson HBOC, Inc. et al., and (C.A. No. 99C-09-265 WCC). Plaintiffs in Kelly are former shareholders of KWS&P/SFA, which merged into McKesson after the HBOC transaction. Plaintiffs assert claims under the federal securities laws, as well as claims for breach of contract and breach of the duty of good faith and fair dealing. On January 17, 2002, the Delaware Superior Court denied the Kelly plaintiffs’ motion for partial summary judgment and denied McKesson’s motion to dismiss, while granting the motions to dismiss for lack of personal jurisdiction that were filed by certain former officers and directors of McKesson and HBOC. The parties thereafter commenced discovery by exchanging document requests and interrogatories. The court in Kelly has scheduled a trial to begin on May 5, 2003.

     The United States Attorneys’ Office and the Securities and Exchange Commission are conducting investigations into the matters leading to the restatement. On May 15, 2000, the United States Attorney’s Office filed a one-count information against former HBOC officer, Dominick DeRosa, charging Mr. DeRosa with aiding and abetting securities fraud, and on May 15, 2000, Mr. DeRosa entered a guilty plea to that charge. On September 28, 2000, an indictment was unsealed in the Northern District of California against former HBOC officer, Jay P. Gilbertson, and former Company and HBOC officer, Albert J. Bergonzi (United States v. Bergonzi, et al., Case No. CR-00-0505). On that same date, a civil complaint was filed by the Securities and Exchange Commission against Mr. Gilbertson, Mr. Bergonzi and Mr. DeRosa (Securities and Exchange Commission v. Gilbertson, et al., Case No. C-00-3570). Mr. DeRosa has settled with the Securities Exchange Commission without admitting or denying the substantive allegations of the complaint. On January 10, 2001, the grand jury returned a superseding indictment in the Northern District of California against Messrs. Gilbertson and Bergonzi (United States v. Bergonzi, et al., Case No. CR-00-0505). On September 27, 2001, the Securities and Exchange Commission filed securities fraud charges against six former HBOC officers and employees. Simultaneous with the filing of the Commission’s civil complaints, four of the six defendants settled the claims brought against them by, among other things, consenting, without admitting or denying the allegations of the complaints, to entry of permanent injunctions against all of the alleged violations, and agreed to pay civil penalties in various amounts. On January 3, 2002, the Company was

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notified in writing by the Securities and Exchange Commission that its investigation has been terminated as to the Company, and that no enforcement action has been recommended to the Commission.

     We do not believe it is feasible to predict or determine the outcome or resolution of the accounting litigation proceedings, or to estimate the amounts of, or potential range of, loss with respect to those proceedings. In addition, the timing of the final resolution of these proceedings is uncertain. The range of possible resolutions of these proceedings could include judgments against the Company or settlements that could require substantial payments by the Company, which could have a material adverse impact on McKesson’s financial position, results of operations and cash flows.

II. Other Litigation and Claims

     In addition to commitments and obligations in the ordinary course of business, we are subject to various claims, other pending and potential legal actions for product liability and other damages, investigations relating to governmental laws and regulations and other matters arising out of the normal conduct of our business. These include:

     Antitrust Matters

     We are currently a defendant in numerous civil antitrust actions filed since 1993 in federal and state courts by retail pharmacies. The federal cases were coordinated for pretrial purposes in the United States District Court in the Northern District of Illinois and are known as MDL 997. MDL 997 consists of approximately 109 actions brought by approximately 3,500 individual retail, chain and supermarket pharmacies (the “Individual Actions”). In 1999, the court dismissed a related class action following a judgment as a matter of law entered in favor of defendants, which was unsuccessfully appealed. There are numerous other defendants in these actions, including several pharmaceutical manufacturers and several other wholesale distributors. These cases allege, in essence, that the defendants have violated the Sherman Act by conspiring to fix the prices of brand-name pharmaceuticals sold to plaintiffs at artificially high, and non-competitive levels, especially as compared with the prices charged to mail- order pharmacies, managed care organizations and other institutional buyers. The wholesalers’ motion for summary judgment in the Individual Actions has been granted. Plaintiffs have appealed to the Seventh Circuit. On May 6, 2002, the Seventh Circuit affirmed the summary judgment.

     Most of the individual cases brought by chain stores have been settled. The Judicial Panel on Multidistrict Litigation recommended remand of the Sherman Act claims in MDL 997 and on November 2, 2001, the court remanded those claims to their original jurisdictions.

     A state court antitrust case against McKesson and other defendants is currently pending in California. This case is based on essentially the same facts alleged in the Federal Class Action and Individual Actions and asserts violations of state antitrust and/or unfair competition laws. The case (Paradise Drugs, et al. v. Abbott Laboratories, et al., (Case No. CV793852) was filed in the Superior Court of the County of Santa Clara and was transferred to the Superior Court for the County of San Francisco. The case is trailing MDL 997.

     In each of the cases, plaintiffs seek remedies in the form of injunctive relief and unquantified monetary damages, attorneys’ fees and costs. Plaintiffs in the California cases also seek restitution. In addition, treble damages are sought in the Individual Actions and the California case. We and other wholesalers have entered into a judgment sharing agreement with certain pharmaceutical manufacturer defendants, which provides generally that we, together with the other wholesale distributor defendants, will be held harmless by such pharmaceutical manufacturer defendants and will be indemnified against the costs of adverse judgments, if any, against the wholesaler and manufacturers in these or similar actions, in excess of $1 million in the aggregate per wholesale distributor defendant.

     Product Liability Litigation and Other Claims

     Our subsidiary, McKesson Medical-Surgical, is one of many defendants in approximately 138 cases in which plaintiffs claim that they were injured due to exposure, over many years, to the latex proteins in gloves

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manufactured by numerous manufacturers and distributed by a number of distributors, including McKesson Medical-Surgical. Efforts to resolve tenders of defense to its suppliers are continuing and a final agreement has been reached with one major supplier. McKesson Medical-Surgical’s insurers are providing coverage for these cases, subject to the applicable deductibles.

     We, along with 134 other companies, have been named in a lawsuit brought by the Lemelson Medical, Educational & Research Foundation (“the Foundation”) alleging that we and our subsidiaries are infringing seven U.S. patents relating to common bar code scanning technology and its use for the automated management and control of product inventory, warehousing, distribution and point-of-sale transactions. The Foundation seeks to enter into a license agreement with us, the lump sum fee for which would be based upon a fraction of a percent of our overall revenues over the past ten years. Due to the pendency of earlier litigation brought against the Foundation attacking the validity of the patents at issue, the court has stayed the action until the conclusion of the earlier case.

III. Environmental Matters

     Primarily as a result of the operation of our former chemical businesses, which were divested in 1987, we are involved in various matters pursuant to environmental laws and regulations. We have received claims and demands from governmental agencies relating to investigative and remedial action purportedly required to address environmental conditions alleged to exist at five sites where we, or entities acquired by us, formerly conducted operations; and we, by administrative order or otherwise, have agreed to take certain actions at those sites, including soil and groundwater remediation.

     Based on a determination by our environmental staff, in consultation with outside environmental specialists and counsel, the current estimate of reasonably possible remediation costs for these five sites is approximately $13 million, net of approximately $1.5 million which third parties have agreed to pay in settlement or which we expect, based either on agreements or nonrefundable contributions which are ongoing, to be contributed by third parties. The $13 million is expected to be paid out between April 2002 and March 2029. Our liability for these environmental matters has been accrued in the accompanying consolidated balance sheets.

     In addition, we have been designated as a potentially responsible party, or PRP, under the Comprehensive Environmental Response Compensation and Liability Act of 1980 (as amended, the “Superfund” law or its state law equivalent) for environmental assessment and cleanup costs as the result of our alleged disposal of hazardous substances at 19 sites. With respect to each of these sites, numerous other PRPs have similarly been designated and, while the current state of the law potentially imposes joint and several liability upon PRPs, as a practical matter costs of these sites are typically shared with other PRPs. Our estimated liability at those 19 PRP sites is approximately $1.1 million. The aggregate settlements and costs paid by us in Superfund matters to date have not been significant. The accompanying consolidated balance sheets include this environmental liability.

     The potential costs to us related to environmental matters are uncertain due to such factors as: the unknown magnitude of possible pollution and cleanup costs; the complexity and evolving nature of governmental laws and regulations and their interpretations; the timing, varying costs and effectiveness of alternative cleanup technologies; the determination of our liability in proportion to other PRPs; and the extent, if any, to which such costs are recover able from insurance or other parties.

     Except as specifically stated above with respect to the litigation matters summarized under “Accounting Litigation” above, we believe, based on current knowledge and the advice of our counsel, that the outcome of the litigation and governmental proceedings discussed under “Legal Proceedings” will not have a material adverse effect on our financial position, results of operations or cash flows.

20. Segments of Business

     As discussed in Financial Note 1, our operating segments include Pharmaceutical Solutions, Medical-Surgical Solutions and Information Solutions. Effective for the year ended March 31, 2002, we expanded the number of segments to include our Medical-Surgical business. Results of this business were previously included in our Pharmaceutical Solutions segment, formerly known as “Supply Solutions.” In addition, results for our MedPath business (which distributes pharmaceutical products to physician offices and oncology clinics) are now reported with our Pharmaceutical Solutions segment. These results were previously reported with our Medical-Surgical business. All segment information has been conformed to this new presentation.

     We evaluate the performance of our operating segments based on operating profit before interest expense, income taxes and results from discontinued operations. Our Corporate segment includes expenses associated with Corporate functions and projects, certain employee benefits, and our investment in Health Nexis. Corporate expenses are allocated to the operating segments to the extent that these items can be directly attributable to the segment.

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     Financial information relating to the reportable operating segments is presented below:

					Years Ended March 31,
(In millions)					2002			2001			2000
Revenues, by segment and by product and services
Pharmaceutical Solutions(1)					$	46,276.0		$	38,361.5		$	33,040.5
Medical-Surgical Solutions						2,726.0			2,715.8			2,626.0
Information Solutions
	Software					182.6			133.6			144.0
	Services					736.1			723.6			805.1
	Hardware					85.3			84.6			92.4
			Total Information Solutions			1,004.0			941.8			1,041.5
				Total	$	50,006.0		$	42,019.1		$	36,708.0
Operating profit
Pharmaceutical Solutions(2)					$	797.4		$	573.4		$	424.4
Medical-Surgical Solutions						64.7			91.7			112.1
Information Solutions						21.7			(295.1	)		(214.1	)
	Total					883.8			370.0			322.4
Interest						(112.9	)		(111.6	)		(114.2	)
Corporate						(163.5	)		(242.6	)		104.9
	Income from continuing operations before income taxes and dividends on preferred securities of subsidiary trust				$	607.4		$	15.8		$	313.1
Special charges (income)
Pharmaceutical Solutions					$	5.1		$	20.4		$	36.2
Medical-Surgical Solutions						30.4			0.7			(1.4	)
Information Solutions						34.7			295.6			296.1
Corporate						18.3			141.6			(203.4	)
	Total				$	88.5		$	458.3		$	127.5
Depreciation and amortization(3)
Pharmaceutical Solutions					$	105.5		$	108.0		$	86.4
Medical-Surgical Solutions						17.3			31.5			31.0
Information Solutions						75.6			101.7			101.1
Corporate						9.1			4.9			4.1
	Total				$	207.5		$	246.1		$	222.6
Expenditures for long-lived assets(4)
Pharmaceutical Solutions					$	178.2		$	133.7		$	194.9
Medical-Surgical Solutions						41.4			35.4			31.5
Information Solutions						81.7			111.4			207.6
Corporate						42.0			73.1			34.7
Total					$	343.3		$	353.6		$	468.7
Segment assets, at year end
Pharmaceutical Solutions					$	10,185.5		$	8,610.9		$	7,110.3
Medical-Surgical Solutions						1,485.6			1,456.5			1,466.3
Information Solutions						674.8			558.9			778.8
				Total		12,345.9			10,626.3			9,355.4
Corporate
		Cash, cash equivalents and marketable securities				563.0			445.6			605.9
		Other				415.1			458.0			411.6
				Total	$	13,324.0		$	11,529.9		$	10,372.9

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(1)	In addition to our pharmaceutical and healthcare products, our Pharmaceutical Solutions segment includes the manufacture and sale of automated pharmaceutical dispensing systems for hospitals and retail pharmacies, medical management services and tools to payors and providers, marketing and other support services to pharmaceutical manufacturers and distribution of first-aid products. Revenues from these products and services were approximately 1% of segment revenues in 2002, 2001 and 2000.
(2)	Includes $6.3 million, $5.9 million and $16.9 million of net pre-tax earnings from equity investments in 2002, 2001 and 2000.
(3)	Includes amortization of intangibles, capitalized software held for sale and capitalized software for internal use.
(4)	Long-lived assets primarily consist of property, plant and equipment, capitalized software, goodwill and other intangibles and equity investments.

     Revenues, operating profit and long-lived assets by geographic areas were as follows:

		Years Ended March 31,
(In millions)		2002		2001		2000
Revenues
United States		$	46,984.6	$	39,253.2	$	34,345.1
International			3,021.4		2,765.9		2,362.9
	Total	$	50,006.0	$	42,019.1	$	36,708.0
Operating profit
United States		$	827.7	$	331.3	$	274.8
International			56.1		38.7		47.6
	Total	$	883.8	$	370.0	$	322.4
Long-lived assets, at year end
United States		$	2,453.6	$	2,227.0	$	2,216.4
International			159.6		104.7		96.4
	Total	$	2,613.2	$	2,331.7	$	2,312.8

     International operations primarily consist of our wholly-owned subsidiary which distributes pharmaceuticals in Canada and a 22% equity investment in a pharmaceutical distributor in Mexico for our Pharmaceutical Solutions segment. Our Information Solutions business has sales offices in the United Kingdom and Europe and a software manufacturing facility in Ireland.

21. Quarterly Financial Information (Unaudited)

		First		Second		Third		Fourth
(In millions, except per share amounts)		Quarter		Quarter		Quarter		Quarter		Year
Fiscal 2002
Revenues		$	11,656.3	$	12,160.1	$	13,198.4	$	12,991.2	$	50,006.0
Gross profit			660.7		663.4		687.9		784.9		2,796.9
Net income			105.4		79.0		108.8		125.4		418.6
Diluted earnings per common share			0.36		0.27		0.37		0.42		1.43
Basic earnings per common share			0.37		0.28		0.38		0.44		1.47
Cash dividends per common share			0.06		0.06		0.06		0.06		0.24
Market prices per common share
	High	$	37.48	$	41.50	$	39.98	$	39.55	$	41.50
	Low		24.85		33.50		34.44		30.40		24.85

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					First		Second		Third			Fourth
(In millions, except per share amounts)					Quarter		Quarter		Quarter			Quarter			Year
Fiscal 2001
Revenues					$	9,719.6	$	9,867.9	$	11,020.3		$	11,411.3		$	42,019.1
Gross profit						566.2		570.9		601.7			690.3			2,429.1
Income (loss) after taxes
	Continuing operations					63.6		61.9		7.3			(175.5	)		(42.7	)
	Discontinued operations					—		—		(5.6	)		—			(5.6	)
			Total		$	63.6	$	61.9	$	1.7		$	(175.5	)	$	(48.3	)
Earnings (loss) per common share
	Diluted
			Continuing operations		$	0.22	$	0.22	$	0.03		$	(0.62	)	$	(0.15	)
			Discontinued operations			—		—		(0.02	)		—			(0.02	)
				Total	$	0.22	$	0.22	$	0.01		$	(0.62	)	$	(0.17	)
		Basic
			Continuing operations		$	0.23	$	0.22	$	0.03		$	(0.62	)	$	(0.15	)
			Discontinued operations			—		—		(0.02	)		—			(0.02	)
				Total	$	0.23	$	0.22	$	0.01		$	(0.62	)	$	(0.17	)
Cash dividends per common share					$	0.06	$	0.06	$	0.06		$	0.06		$	0.24
Market prices per common share
	High				$	22.63	$	31.44	$	37.00		$	35.91		$	37.00
	Low					16.00		20.69		23.88			23.40			16.00

     Financial results from continuing operations include the following special charges:

	First			Second			Third			Fourth
(In millions, except per share amounts)	Quarter			Quarter			Quarter			Quarter			Year
Fiscal 2002
Restatement-related costs incurred	$	0.6		$	0.9		$	0.3		$	0.4		$	2.2
Loss on investments, net		2.3			2.5			0.2			8.7			13.7
Loss on sales of businesses, net		18.4			—			—			3.6			22.0
Restructuring activities		(1.0	)		21.3			—			19.5			39.8
Costs associated with former employees		—			—			—			(0.8	)		(0.8	)
Other, net		3.3			0.9			4.0			3.4			11.6
Total pre-tax special charges		23.6			25.6			4.5			34.8			88.5
Tax benefit		(38.7	)		(9.3	)		(1.6	)		(18.3	)		(67.9	)
Total after-tax special charges	$	(15.1	)	$	16.3		$	2.9		$	16.5		$	20.6
Diluted earnings per share impact	$	(0.05	)	$	0.05		$	0.01		$	0.06		$	0.06
Fiscal 2001
Restatement-related costs incurred	$	—		$	0.7		$	1.1		$	0.7		$	2.5
Loss (gain) on investments, net		—			(7.8	)		98.9			6.7			97.8
Restructuring activities		—			2.8			1.7			351.4			355.9
Other, net		—			2.1			—			—			2.1
Total pre-tax special charges		—			(2.2	)		101.7			358.8			458.3
Tax benefit		—			1.7			(39.7	)		(94.6	)		(132.6	)
Total after-tax special charges	$	—		$	(0.5	)	$	62.0		$	264.2		$	325.7
Diluted earnings per share impact	$	—		$	—		$	(0.21	)	$	(0.93	)	$	(1.14	)

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DIRECTORS AND OFFICERS

BOARD OF DIRECTORS Alan Seelenfreund Chairman John H. Hammergren President and Chief Executive Officer, McKesson Corporation. Alfred C. Eckert III Chairman and Chief Executive Officer, GSC Partners Tully M. Friedman Chairman and Chief Executive Officer, Friedman Fleischer & Lowe, LLC. Alton F. Irby III Chairman, Cobalt Media Group M. Christine Jacobs Chairman, President and Chief Executive Officer, Theragenics Corporation Martin M. Koffel Chairman and Chief Executive Officer, URS Corporation Gerald E. Mayo Chairman, Retired, Midland Financial Services, Inc. James V. Napier Chairman, Retired Scientific-Atlanta, Inc. Marie L. Knowles Executive Vice President, Chief Financial Officer, Retired, Atlantic Richfield Company	CORPORATE OFFICERS Alan Seelenfreund Chairman John H. Hammergren President and Chief Executive Officer William A. Armstrong Senior Vice President, Administration William R. Graber Senior Vice President and Chief Financial Officer Paul C. Julian Senior Vice President and President, McKesson Supply Solutions Graham O. King Senior Vice President and President, McKesson Information Solutions Paul E. Kirincic Senior Vice President, Human Resources Nicholas A. Loiacono Vice President and Treasurer Ivan D. Meyerson Senior Vice President, General Counsel and Secretary Marc E. Owen Senior Vice President Corporate Strategy and Business Development Nigel A. Rees Vice President and Controller
Carl E. Reichardt Vice Chairman, Ford Motor Company	Carmine J. Villani Senior Vice President and Chief Information Officer
Jane E. Shaw, Ph.D. Chairman and Chief Executive Officer, Aerogen, Inc. Richard F. Syron, Ph.D. Chairman of the Board, Thermo Electron Corporation	Heidi E. Yodowitz Senior Vice President, Chief Financial Officer, McKesson Supply Solutions

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CORPORATE INFORMATION

Common Stock

McKesson Corporation common stock is listed on the New York Stock Exchange and the Pacific Stock Exchange (ticker symbol MCK) and is quoted in the daily stock tables carried by most newspapers.

Stockholder Information

EquiServe Trust Company, N.A., P.O. Box 43069, Providence, Rhode Island 02940-3069 acts as transfer agent, registrar, dividend-paying agent and dividend reinvestment plan agent for McKesson Corporation stock and maintains all registered stockholder records for the Company. For information about McKesson Corporation stock or to request replacement of lost dividend checks, stock certificates, 1099’s, or to have your dividend check deposited directly into your checking or savings account, stockholders may call EquiServe’s telephone response center at (800) 756-8200, weekdays 9:00 a.m. to 5:00 p.m., ET. For the hearing impaired call TDD: (201) 222-4955. EquiServe also has a Web site: http://www.equiserve.com — that stockholders may use 24 hours a day to request account information. An Interactive Voice Response System is available 24 hours a day, seven days a week at (800) 756-8200.

Dividends and Dividend Reinvestment Plan

Dividends are generally paid on the first business day of January, April, July and October to stockholders of record on the first day of the preceding month. McKesson Corporation’s Dividend Reinvestment Plan offers stockholders the opportunity to reinvest dividends in common stock and to purchase additional common stock without paying brokerage commissions or other service fees, and to have their stock certificates held in safekeeping. For more information, or to request an enrollment form, call EquiServe’s telephone response center at (800) 414-6280.

Annual Meeting

McKesson Corporation’s Annual Meeting of Stockholders will be held at 10:00 a.m., PDT, on Wednesday July 31, 2002, at the Nob Hill Masonic Center, 1111 California Street, San Francisco, California.

93 EX-3.2 3 f82011exv3w2.txt EXHIBIT 3.2 Exhibit 3.2 AMENDED AND RESTATED BY-LAWS OF MCKESSON CORPORATION A DELAWARE CORPORATION AS AMENDED THROUGH MARCH 27, 2002 ================================================================================ TABLE OF CONTENTS

Page ---- ARTICLE I Offices........................................................1 Section 1 Registered Office..............................................1 Section 2 Other Offices..................................................1 ARTICLE II Stockholders' Meetings.........................................1 Section 1 Place of Meetings..............................................1 Section 2 Annual Meetings................................................1 Section 3 Special Meetings...............................................1 Section 4 Notice of Meetings.............................................2 Section 5 Quorum.........................................................2 Section 6 Voting Rights..................................................3 Section 7 Voting Procedures and Inspectors of Elections..................3 Section 8 List of Stockholders...........................................4 Section 9 Stockholder Proposals at Annual Meetings.......................4 Section 10 Nominations of Persons for Election to the Board of Directors....................................5 ARTICLE III Directors......................................................6 Section 1 General Powers.................................................6 Section 2 Number and Term of Office; Removal.............................6 Section 3 Election of Directors..........................................7 Section 4 Vacancies......................................................7 Section 5 Resignations...................................................7 Section 6 Annual Meetings................................................7 Section 7 Regular Meetings...............................................7 Section 8 Special Meetings; Notice.......................................7 Section 9 Quorum and Manner of Acting....................................8 Section 10 Consent in Writing.............................................8 Section 11 Committees.....................................................8 Section 12 Telephone Meetings.............................................9 Section 13 Compensation...................................................9 Section 14 Interested Directors...........................................9 Section 15 Directors Elected by Special Class or Series..................10 ARTICLE IV Officers......................................................10 Section 1 Designation of Officers.......................................10 Section 2 Term of Office; Resignation; Removal..........................10 Section 3 Vacancies.....................................................10 Section 4 Authority of Officers.........................................10 Section 5 Divisional Titles.............................................11 Section 6 Salaries......................................................11 ARTICLE V Execution of Corporate Instruments and Voting of Securities Owned by the Corporation......................11 Section 1 Execution of Instruments......................................11 Section 2 Voting of Securities Owned by the Corporation.................11

i ARTICLE VI Shares of Stock and Other Securities..........................11 Section 1 Form and Execution of Certificates............................11 Section 2 Lost Certificates.............................................12 Section 3 Transfers.....................................................12 Section 4 Fixing Record Dates...........................................12 Section 5 Registered Stockholders.......................................12 Section 6 Regulations...................................................12 Section 7 Other Securities of the Corporation...........................13 ARTICLE VII Corporate Seal................................................13 ARTICLE VIII Indemnification of Officers, Directors, Employees and Agents..................................................13 Section 1 Power to Indemnify in Actions, Suits or Proceedings other Than Those by or in the Right of the Corporation...........13 Section 2 Power to Indemnify in Actions, Suits or Proceedings by or in the Right of the Corporation .........................14 Section 3 Authorization of Indemnification .............................14 Section 4 Good Faith Defined ...........................................14 Section 5 Indemnification by a Court ...................................14 Section 6 Expenses Payable in Advance ..................................15 Section 7 Nonexclusivity of Indemnification and Advancement of Expenses ................................................15 Section 8 Insurance.....................................................15 Section 9 Certain Definitions...........................................15 Section 10 Survival of Indemnification and Advancement of Expenses ......16 Section 11 Limitation on Indemnification ................................16 Section 12 Indemnification of Employees and Agents.......................16 Section 13 Effect of Amendment ..........................................16 Section 14 Authority to Enter into Indemnification Agreements ...........16 ARTICLE IX Notices.......................................................16 ARTICLE X Amendments....................................................17 ii AMENDED AND RESTATED BY-LAWS OF MCKESSON CORPORATION A DELAWARE CORPORATION ARTICLE I OFFICES SECTION 1. REGISTERED OFFICE. The address of the registered office of Corporation within the State of Delaware is 2711 Centerville Road, City of Wilmington, 19808, County of New Castle. The name of the registered agent of the Corporation at such address is The Prentice-Hall Corporation System, Inc. SECTION 2. OTHER OFFICES. The Corporation shall also have and maintain an office or principal place of business at One Post Street, San Francisco, California and may also have offices at such other places, both within and without the State of Delaware, as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE II STOCKHOLDERS' MEETINGS SECTION 1. PLACE OF MEETINGS. Meetings of the stockholders of the Corporation shall be held at such place, either within or without the State of Delaware, as may be designated from time to time by the Board of Directors, or, if not so designated, then at the office of the Corporation required to be maintained pursuant to Section 2 of ARTICLE I hereof. SECTION 2. ANNUAL MEETINGS. The annual meetings of stockholders of the Corporation for the purpose of election of directors and for such other business as may lawfully come before it, shall be held on such date and at such time as may be designated from time to time by the Board of Directors, or, if not so designated, then at 10:00 a.m. on the last Wednesday in July in each year if not a legal holiday, and, if a legal holiday, at the same hour and place on the next succeeding day not a holiday. SECTION 3. SPECIAL MEETINGS. Special Meetings of the stockholders of the Corporation may be called, for any purpose or purposes, by the Chairman of the Board or the President or the Board of Directors at any time. Stockholders may not call Special Meetings of the stockholders of the Corporation. 1 SECTION 4. NOTICE OF MEETINGS. (a) Except as otherwise provided by law or the Certificate of Incorporation, written notice of each meeting of stockholders, specifying the place, date and hour and purpose or purposes of the meeting, shall be given not less than 10 nor more than 60 days before the date of the meeting to each stockholder entitled to vote thereat, directed to his address as it appears upon the books of the Corporation; except that where the matter to be acted on is a merger or consolidation of the Corporation or a sale, lease or exchange of all or substantially all of its assets, such notice shall be given not less than 20 nor more than 60 days prior to such meeting. (b) If at any meeting action is proposed to be taken which, if taken, would entitle stockholders fulfilling the requirements of Section 262(d) of the Delaware General Corporation Law to an appraisal of the fair value of their shares, the notice of such meeting shall contain a statement of that purpose and to that effect and shall be accompanied by a copy of that statutory section. (c) When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken unless the adjournment is for more than thirty days, or unless after the adjournment a new record date is fixed for the adjourned meeting, in which event a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. (d) Notice of the time, place and purpose of any meeting of stockholders may be waived in writing, either before or after such meeting, and to the extent permitted by law, will be waived by any stockholder by his attendance thereat, in person or by proxy. Any stockholder so waiving notice of such meeting shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given. (e) Unless and until voted, every proxy shall be revocable at the pleasure of the person who executed it or of his legal representatives or assigns, except in those cases where an irrevocable proxy permitted by statute has been given. SECTION 5. QUORUM. At all meetings of stockholders, except where otherwise provided by law, the Certificate of Incorporation, or these By-Laws, the presence, in person or by proxy duly authorized, of the holders of a majority of the outstanding shares of stock entitled to vote shall constitute a quorum for the transaction of business. Shares, the voting of which at said meeting has been enjoined, or which for any reason cannot be lawfully voted at such meeting, shall not be counted to determine a quorum at said meeting. In the absence of a quorum any meeting of stockholders may be adjourned, from time to time, by vote of the holders of a majority of the shares represented thereat, but no other business shall be transacted at such meeting. At such adjourned meeting at which a quorum is present or represented any business may be transacted which might have been transacted at the original meeting. The stockholders present at a duly called or convened meeting, at which a quorum is present, may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. Except as otherwise provided by law, the Certificate of Incorporation or these By-Laws, all action taken by the holders of a majority of the voting power represented at any meeting at which a quorum is present shall be valid and binding upon the Corporation. In the event that at any meeting at which the holders of more than one class or series of the Corporation's capital stock are entitled to vote as a class, a quorum of any such class or series is lacking, the holders of any class or series represented by a quorum may proceed with the transaction of the business to be 2 transacted by that class or series, and if such business is the election of directors, the director whose successors shall not have been elected shall continue in office until their successors shall have been duly elected and shall have qualified. SECTION 6. VOTING RIGHTS. (a) Except as otherwise provided by law, only persons in whose names shares entitled to vote stand on the stock records of the Corporation on the record date for determining the stockholders entitled to vote at said meeting shall be entitled to vote at such meeting. Shares standing in the names of two or more persons shall be voted or represented in accordance with the determination of the majority of such persons, or, if only one of such persons is present in person or represented by proxy, such person shall have the right to vote such shares and such shares shall be deemed to be represented for the purpose of determining a quorum. (b) Every person entitled to vote or execute consents shall have the right to do so either in person or by an agent or agents authorized by a written proxy executed by such person or his duly authorized agent, which proxy shall be filed with the Secretary of the Corporation at or before the meeting at which it is to be used. Said proxy so appointed need not be a stockholder. No proxy shall be voted on after three years from its date unless the proxy provides for a longer period. (c) Without limiting the manner in which a stockholder may authorize another person or persons to act for him as proxy pursuant to subsection (b) of this Section, the following shall constitute a valid means by which a stockholder may grant such authority: (1) A stockholder may execute a writing authorizing another person or persons to act for him as proxy. Execution may be accomplished by the stockholder or his authorized officer, director, employee or agent signing such writing or causing his or her signature to be affixed to such writing by any reasonable means including, but not limited to, by facsimile signature. (2) A stockholder may authorize another person or persons to act for him as proxy by transmitting or authorizing the transmission of a telegram, cablegram, or other means of electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission, provided that any such telegram, cablegram or other means of electronic transmission must either set forth or be submitted with information from which it can be determined that the telegram, cablegram or other electronic transmission was authorized by the stockholder. If it is determined that such telegrams, cablegrams or other electronic transmissions are valid, the inspectors or, if there are no inspectors, such other persons making that determination shall specify the information upon which they relied. (d) Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to subsection (c) of this Section may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission. SECTION 7. VOTING PROCEDURES AND INSPECTORS OF ELECTIONS. (a) The Corporation shall, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting and make a written report thereof. The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is 3 able to act at a meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his ability. (b) The inspectors shall (i) ascertain the number of shares outstanding and the voting power of each, (ii) determine the shares represented at a meeting and the validity of proxies and ballots, (iii) count all votes and ballots, (iv) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors, and (v) certify their determination of the number of shares represented at the meeting, and their count of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of the duties of the inspectors. (c) The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting. No ballot, proxies or votes, nor any revocations thereof or changes thereto, shall be accepted by the inspectors after the closing of the polls unless the Court of Chancery upon application by a stockholder shall determine otherwise. (d) In determining the validity and counting of proxies and ballots, the inspectors shall be limited to an examination of the proxies, any envelopes submitted with those proxies, any information provided in accordance with Section 212(c)(2) of the Delaware General Corporation Law, ballots and the regular books and records of the Corporation, except that the inspectors may consider other reliable information for the limited purpose of reconciling proxies and ballots submitted by or on behalf of banks, brokers, their nominees or similar persons which represent more votes than the holder of a proxy is authorized by the record owner to cast or more votes than the stockholder holds of record. If the inspectors consider other reliable information for the limited purpose permitted herein, the inspectors at the time they make their certification pursuant to subsection (b)(v) of this Section shall specify the precise information considered by them including the person or persons from whom they obtained the information, when the information was obtained, the means by which the information was obtained and the basis for the inspectors' belief that such information is accurate and reliable. (e) The provisions of this Section 7 shall not apply to any annual meeting of stockholders held prior to the annual meeting of stockholders to be held in 1995. SECTION 8. LIST OF STOCKHOLDERS. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least 10 days before every meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order, showing the address of and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 days prior to the meeting, either at a place within the city where the meeting is to be held and which place shall be specified in the notice of the meeting, or, if not specified, at the place where said meeting is to be held, and the list shall be produced and kept at the time and place of meeting during the whole time thereof, and may be inspected by any stockholder who is present. SECTION 9. STOCKHOLDER PROPOSALS AT ANNUAL MEETINGS. At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, otherwise properly brought before the meeting by or at the direction of the Board of Directors or otherwise properly 4 brought before the meeting by a stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 9 and on the record date for the determination of stockholders entitled to vote at such annual meeting and (ii) who complies with the notice procedures set forth in this Section 9. In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation, not less than 90 days nor more than 120 days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within 30 days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever first occurs. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting, (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of the stockholder proposing such business, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by the stockholder, (iv) a description of all arrangements or understandings between the stockholder and any other person or persons (including their names) in connection with the proposal of such business by the stockholder and any material interest of the stockholder in such business, and (v) a representation that the stockholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting. Notwithstanding anything in the By-Laws to the contrary, no business shall be conducted at the annual meeting except in accordance with the procedures set forth in this Section 9, provided, however, that nothing in this Section 9 shall be deemed to preclude discussion by any stockholder of any business properly brought before the annual meeting in accordance with said procedure. The Chairman of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 9, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. SECTION 10. NOMINATIONS OF PERSONS FOR ELECTION TO THE BOARD OF DIRECTORS. In addition to any other applicable requirements, only persons who are nominated in accordance with the following procedures shall be eligible for election as directors. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of stockholders by or at the direction of the Board of Directors, by any nominating committee or person appointed by the Board of Directors or by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 10 and on the record date for the determination of stockholders entitled to vote at such annual meeting and (ii) who complies with the notice procedures set forth in this Section 10. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder's notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 90 days nor more than 120 days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within 30 days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever first occurs. Such stockholder's notice shall set forth (a) 5 as to each person whom the stockholder proposes to nominate for election or re-election as a director, (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class and number of shares of the Corporation which are beneficially owned by the person and (iv) any other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations promulgated thereunder; and (b) as to the stockholder giving the notice, (i) the name and record address of the stockholder, (ii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by the stockholder, (iii) a description of all arrangements or understandings between the stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by the stockholder, (iv) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in such notice and (v) any other information relating to the stockholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for the election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee being named as a nominee and to serve as a director if elected. The Corporation may require any proposed nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as a director of the Corporation. No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth herein. These provisions shall not apply to nomination of any persons entitled to be separately elected by holders of preferred stock. The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. ARTICLE III DIRECTORS SECTION 1. GENERAL POWERS. The property, affairs and business of the Corporation shall be managed under the direction of its Board of Directors, which may exercise all of the powers of the Corporation, except such as are by law or by the Certificate of Incorporation or by these By-Laws expressly conferred upon or reserved to the stockholders. SECTION 2. NUMBER AND TERM OF OFFICE; REMOVAL. The number of directors of the Corporation shall be fixed from time to time by these By-Laws but in no event shall be less than three (3). Until these By-Laws are further amended, the number of directors shall be thirteen (13). The directors shall be divided into three classes. Each such class shall consist, as nearly as may be possible, of one-third of the total number of directors, and any remaining directors shall be included within such group or groups as the Board of Directors shall designate. At the initial annual meeting of stockholders in 1994, a class of directors shall be elected for a one-year term, a class of directors for a two-year term and a class of directors for a three-year term. At each succeeding annual meeting of stockholders, beginning in 1995, successors to the class of directors whose term expires at that annual meeting shall be elected for a three-year term. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, but in no case shall a decrease in the number of directors shorten the term of any incumbent director. A director may be removed from office for cause only and, subject to such removal, death, resignation, 6 retirement or disqualification, shall hold office until the annual meeting for the year in which his term expires and until his successor shall be elected and qualify. No alteration, amendment or repeal of these By-Laws shall be effective to shorten the term of any director holding office at the time of such alteration, amendment or repeal, to permit any such director to be removed without cause, or to increase the number of directors in any class or in the aggregate from that existing at the time of such alteration, amendment or repeal until the expiration of the terms of office of all directors then holding office, unless such alteration, amendment or repeal has been approved by either the holders of all shares of stock entitled to vote thereon or by a vote of a majority of the entire Board of Directors. The provisions of this Section 2 shall not apply to directors governed by Section 15 of this ARTICLE III. SECTION 3. ELECTION OF DIRECTORS. At each meeting of the stockholders for the election of directors, the directors to be elected at such meeting shall be elected by a plurality of votes given at such election. SECTION 4. VACANCIES. Any vacancy occurring in the Board of Directors for any cause other than by reason of an increase in the number of directors may be filled by a majority of the remaining members of the Board of Directors, although such majority is less than a quorum, or by the stockholders. Any vacancy occurring by reason of an increase in the number of directors may be filled by action of a majority of the entire Board of Directors or by the stockholders. A director elected by the Board of Directors to fill a vacancy shall be elected to hold office until the expiration of the term for which he was elected and until his successor shall have been elected and shall have qualified. A director elected by the stockholders to fill a vacancy shall be elected to hold office until the expiration of the term for which he was elected and until his successor shall have been elected and shall have qualified. The provisions of this Section 4 shall not apply to directors governed by Section 15 of this ARTICLE III. SECTION 5. RESIGNATIONS. A director may resign at any time by giving written notice to the Board of Directors or to the Secretary. Such resignation shall take effect at the time specified therein and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 6. ANNUAL MEETINGS. The Board of Directors, as constituted following the vote of stockholders at any meeting of the stockholders for the election of directors, may hold its first meeting for the purpose of organization and the transaction of business, if a quorum be present, immediately after such meeting and at the same place, and notice of such meeting need not be given. Such first meeting may be held at any other time and place specified in a notice given as hereinafter provided for special meetings of the Board of Directors or in a consent and waiver of notice thereof signed by all the directors. SECTION 7. REGULAR MEETINGS. Regular meetings of the Board of Directors may be held without notice at such places and times as may be fixed from time to time by resolution of the Board. SECTION 8. SPECIAL MEETINGS; NOTICE. Special meetings of the Board of Directors may be called at any time by the Chairman of the Board or the President and shall be called by the Secretary upon the written request of any three directors and each special meeting shall be held at such place and time as shall be specified in the notice thereof. At least twenty-four (24) hours' notice of each such special meeting shall be given to each director personally or sent to him addressed to his residence or usual place 7 of business by telephone, telegram or facsimile transmission, or at least 120 hours' notice of each such special meeting shall be given to each director by letter sent to him addressed as aforesaid or on such shorter notice and by such means as the person or persons calling such meeting may deem reasonably necessary or appropriate in light of the circumstances. Any notice by letter or telegram shall be deemed to be given when deposited in the United States mail so addressed or when duly deposited at an appropriate office for transmission by telegram, as the case may be. Such notice need not state the business to be transacted at or the purpose or purposes of such special meeting. No notice of any such special meeting of the Board of Directors need be given to any director who attends in person or who, in writing executed and filed with the records of the meeting, either before or after the holding thereof, waives such notice. No notice need be given of an adjourned meeting of the Board of Directors. SECTION 9. QUORUM AND MANNER OF ACTING. A majority of the total number of directors, but in no event less than two directors, shall constitute a quorum for the transaction of business at any annual, regular or special meeting of the Board of Directors. Except as otherwise provided by law, by the Certificate of Incorporation or by these By-Laws, the act of a majority of the directors present at any meeting, at which a quorum is present, shall be the act of the Board of Directors. In the absence of a quorum, a majority of the directors present may adjourn the meeting from time to time until a quorum be had. SECTION 10. CONSENT IN WRITING. Any action required or permitted to be taken at any meeting of the Board of Directors or any committee thereof may be taken without a meeting, if a written consent to such action is signed by all members of the Board or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board or such committee. SECTION 11. COMMITTEES. (a) Executive Committee. The Board of Directors may, by resolution passed by a majority of a quorum of the Board, appoint an Executive Committee of not less than three members, each of whom shall be a director. The Executive Committee, to the extent permitted by law, shall have and may exercise when the Board of Directors is not in session all powers of the Board in the management of the business and affairs of the Corporation, including, without limitation, the power and authority to declare a dividend or to authorize the issuance of stock, except such Committee shall not have the power or authority (i) to approve, adopt, or recommend to stockholders any action or matter required by the Delaware General Corporation Law to be submitted for stockholder approval; or (ii) to adopt, amend, or repeal any By-Law of the Corporation. (b) Other Committees. The Board of Directors may, by resolution passed by a majority of a quorum of the Board, from time to time appoint such other committees as may be permitted by law. Such other committees appointed by the Board of Directors shall have such powers and perform such duties as may be prescribed by the resolution or resolutions creating such committee, but in no event shall any such committee have the powers denied to the Executive Committee in these By-Laws. (c) Term. The members of all committees of the Board of Directors shall serve a term coexistent with that of the Board of Directors which shall have appointed such committee. The Board, subject to the provisions of subsections (a) or (b) of this Section 11, may at any time increase or decrease the number of members of a committee or terminate the existence of a committee; provided, that no committee shall consist of less than one member. The membership of a committee member shall terminate on the date of his death or voluntary resignation, but the Board may at any time for any reason remove any individual 8 committee member and the Board may fill any committee vacancy created by death, resignation, removal or increase in the number of members of the committee. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee, and, in addition, in the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. (d) Meetings. Unless the Board of Directors shall otherwise provide, regular meetings of the Executive Committee or any other committee appointed pursuant to this Section 11 shall be held at such times and places as are determined by the Board of Directors, or by any such committee, and when notice thereof has been given to each member of such committee, no further notice of such regular meetings need be given thereafter; special meetings of any such committee may be held at the principal office of the Corporation required to be maintained pursuant to Section 2 of ARTICLE I hereof; or at any place which has been designated from time to time by resolution of such committee or by written consent of all members thereof, and may be called by any director who is a member of such committee, upon written notice to the members of such committee of the time and place of such special meeting given in the manner provided for the giving of written notice to members of the Board of Directors of the time and place of special meetings of the Board of Directors. Notice of any special meeting of any committee may be waived in writing at any time after the meeting and will be waived by any director by attendance thereat. A majority of the authorized number of members of any such committee shall constitute a quorum for the transaction of business, and the act of a majority of those present at any meeting at which a quorum is present shall be the act of such committee. SECTION 12. TELEPHONE MEETINGS. The Board of Directors or any committee thereof may participate in a meeting by means of a conference telephone or similar communications equipment if all members of the Board or of such committee, as the case may be, participating in the meeting can hear each other at the same time. Participation in a meeting by these means shall constitute presence in person at the meeting. SECTION 13. COMPENSATION. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors and/or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. SECTION 14. INTERESTED DIRECTORS. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose if (i) the material facts as to his or their relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (ii) the material facts as to his or their relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction. 9 SECTION 15. DIRECTORS ELECTED BY SPECIAL CLASS OR SERIES. To the extent that any holders of any class or series of stock other than Common Stock issued by the Corporation shall have the separate right, voting as a class or series, to elect directors, the directors elected by such class or series shall be deemed to constitute an additional class of directors and shall have a term of office for one year or such other period as may be designated by the provisions of such class or series providing such separate voting right to the holders of such class or series of stock, and any such class of directors shall be in addition to the classes referred to in Section 2 of this ARTICLE III. Any directors so elected shall be subject to removal in such manner as may be provided by law or by the Certificate of Incorporation of this Corporation. The provisions of Sections 2 and 4 of this ARTICLE III do not apply to directors governed by this Section 15. ARTICLE IV OFFICERS SECTION 1. DESIGNATION OF OFFICERS. The officers of the Corporation, who shall be chosen by the Board of Directors at its first meeting after each annual meeting of stockholders, shall be a Chairman of the Board, a President, one or more Vice Presidents, a Treasurer, a Secretary and a Controller. The Board of Directors from time to time may choose such other officers as it shall deem appropriate. Any one person may hold any number of offices of the Corporation at any one time unless specifically prohibited therefrom by law. The Chairman of the Board and the President shall be chosen from among the directors; the other officers need not be directors. SECTION 2. TERM OF OFFICE; RESIGNATION; REMOVAL. The term of office of each officer shall be until the first meeting of the Board of Directors following the next annual meeting of stockholders and until his successor is elected and shall have qualified, or until his death, resignation or removal, whichever is sooner. Any officer may resign at any time by giving written notice to the Board of Directors or to the Secretary. Such resignation shall take effect at the time specified therein and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Any officer may be removed at any time either with or without cause by the Board of Directors. SECTION 3. VACANCIES. A vacancy in any office because of death, resignation, removal, disqualification or any other cause, may be filled for the unexpired portion of the term by the Board of Directors. SECTION 4. AUTHORITY OF OFFICERS. Subject to the power of the Board of Directors in its discretion to change and redefine the duties of the officers of the Corporation by resolution in such manner as it may from time to time determine, the duties of the officers of the Corporation shall be as follows: (a) Chairman of the Board. The Chairman of the Board shall preside at meetings of the stockholders and the Board of Directors. Subject to the direction of the Board of Directors, he shall generally manage the affairs of the Board and perform such other duties as are assigned by the Board. (b) President. The President shall be the Chief Executive Officer of the Corporation, and shall execute all the powers and perform all the duties usual to such office. Subject to the direction of the Board of Directors, he shall have the responsibility for the general management of the affairs of the Corporation. The President shall perform such other duties as may be prescribed or assigned to him from time to time by the Board of Directors. 10 (c) Other Officers. The other officers of the Corporation shall have such powers and shall perform such duties as generally pertain to their respective offices, as well as such powers and duties as the Board of Directors, the Executive Committee or the Chief Executive Officer may prescribe. SECTION 5. DIVISIONAL TITLES. Any one of the Chief Executive Officer, President, or Vice President Human Resources and Administration (each one an "Appointing Person"), may from time to time confer upon any employee of a division of the Corporation the title of President, Vice President, Treasurer or Secretary of such division or any other divisional title or titles deemed appropriate. Any such titles so conferred may be discontinued and withdrawn at any time by any one Appointing Person. Any employee of a division designated by such a divisional title shall have the powers and duties with respect to such division as shall be prescribed by the Appointing Person. The conferring, withdrawal or discontinuance of divisional titles shall be in writing and shall be filed with the Secretary of the Corporation. SECTION 6. SALARIES. The salaries and other compensation of the principal officers of the Corporation shall be fixed from time to time by the Board of Directors. ARTICLE V EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE CORPORATION SECTION 1. EXECUTION OF INSTRUMENTS. The Board of Directors may in its discretion determine the method and designate the signatory officer or officers or other person or persons, to execute any corporate instrument or document, or to sign the corporate name without limitation, except where otherwise provided by law, and such execution or signature shall be binding upon the Corporation. All checks and drafts drawn on banks or other depositories on funds to the credit of the Corporation or in special accounts of the Corporation, shall be signed by such person or persons as the Treasurer or such other person designated by the Board of Directors for that purpose shall authorize so to do. SECTION 2. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock and other securities of other corporations and business entities owned or held by the Corporation for itself, or for other parties in any capacity, shall be voted, and all proxies with respect thereto shall be executed, by the person authorized to do so by resolution of the Board of Directors. ARTICLE VI SHARES OF STOCK AND OTHER SECURITIES SECTION 1. FORM AND EXECUTION OF CERTIFICATES. Certificates for the shares of stock of the Corporation shall be in such form as is consistent with the Certificate of Incorporation and applicable law. Every holder of stock in the Corporation shall be entitled to have a certificate signed by, or in the name of the Corporation by, the Chairman of the Board (if there be such an officer appointed), or by the President or any Vice President and by the Treasurer or Assistant Treasurer or the Secretary or Assistant Secretary, certifying the number of shares owned by him in the Corporation. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued with the same effect as if he were such 11 officer, transfer agent, or registrar at the date of issue. If the Corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. SECTION 2. LOST CERTIFICATES. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost or destroyed certificate or certificates, or his legal representative, to indemnify the Corporation in such manner as it shall require and/or to give the Corporation a surety bond in such form and amount as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost or destroyed. SECTION 3. TRANSFERS. Transfers of record of shares of stock of the Corporation shall be made only upon its books by the holders thereof, in person or by attorney duly authorized, and upon the surrender of a certificate or certificates for a like number of shares, properly endorsed. SECTION 4. FIXING RECORD DATES. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action. If no record date is fixed: (1) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; (2) the record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is necessary, shall be the day on which the first written consent is expressed; (3) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. SECTION 5. REGISTERED STOCKHOLDERS. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. SECTION 6. REGULATIONS. The Board of Directors may make such rules and regulations as it may deem expedient concerning the issue, transfer and registration of certificates for shares of the stock and 12 other securities of the Corporation, and may appoint transfer agents and registrars of any class of stock or other securities of the Corporation. SECTION 7. OTHER SECURITIES OF THE CORPORATION. All bonds, debentures and other corporate securities of the Corporation, other than stock certificates, may be signed by the Chairman of the Board (if there be such an officer appointed), or the President or any Vice President or such other person as may be authorized by the Board of Directors and the corporate seal impressed thereon or a facsimile of such seal imprinted thereon and attested by the signature of the Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer; provided, however, that where any such bond, debenture or other corporate security shall be authenticated by the manual signature of a trustee under an indenture pursuant to which such bond, debenture or other corporate security shall be issued, the signature of the persons signing and attesting the corporate seal on such bond, debenture or other corporate security may be the imprinted facsimile of the signatures of such persons. Interest coupons appertaining to any such bond, debenture or other corporate security, authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an Assistant Treasurer of the Corporation, or such other person as may be authorized by the Board of Directors, or bear imprinted thereon the facsimile signature of such person. In case any officer who shall have signed or attested any bond, debenture or other corporate security or whose facsimile signature shall appear thereon shall have ceased to be such officer before the bond, debenture or other corporate security so signed or attested shall have been delivered, such bond, debenture or other corporate security nevertheless may be adopted by the Corporation and issued and delivered as though the person who signed the same or whose facsimile signature shall have been used thereon had not ceased to be such officer of the Corporation. ARTICLE VII CORPORATE SEAL The corporate seal shall consist of a die bearing the name of the Corporation and the state and date of its incorporation. Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. ARTICLE VIII INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS SECTION 1. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS OTHER THAN THOSE BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of this ARTICLE VIII, the Corporation shall indemnify any 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 Corporation) by reason of the fact that he is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director or officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, 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 Corporation, 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 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 Corporation, and, with respect to 13 any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. The right to indemnification conferred in this ARTICLE VIII shall be a contract right. SECTION 2. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of this ARTICLE VIII, the Corporation shall indemnify any 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 Corporation to procure a judgment in its favor by reason of the fact that he is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise 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 Corporation; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery 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 the Court of Chancery or such other court shall deem proper. SECTION 3. AUTHORIZATION OF INDEMNIFICATION. Any indemnification under this ARTICLE VIII (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director or officer is proper in the circumstances because he has met the applicable standard of conduct set forth in Section 1 or Section 2 of this ARTICLE VIII, as the case may be. Such determination shall be made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the stockholders. To the extent, however, that a director or officer of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding described above, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith, without the necessity of authorization in the specific case. SECTION 4. GOOD FAITH DEFINED. For purposes of any determination under Section 3 of this ARTICLE VIII, a person shall be deemed to have acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe his conduct was unlawful, if his action is based on the records or books of account of the Corporation or another enterprise, or on information supplied to him by the officers of the Corporation or another enterprise in the course of their duties, or on the advice of legal counsel for the Corporation or another enterprise or on information or records given or reports made to the Corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Corporation or another enterprise. The term "another enterprise" as used in this Section 4 shall mean any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise of which such person is or was serving at the request of the Corporation as a director, officer, employee or agent. The provisions of this Section 4 shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth in Sections 1 or 2 of this ARTICLE VIII, as the case may be. SECTION 5. INDEMNIFICATION BY A COURT. Notwithstanding any contrary determination in the specific case under Section 3 of this ARTICLE VIII, and notwithstanding the absence of any determination thereunder, any director or officer may apply to any court of competent jurisdiction in the State of Delaware for indemnification to the extent otherwise permissible under Sections 1 and 2 of this ARTICLE 14 VIII. The basis of such indemnification by a court shall be a determination by such court that indemnification of the director or officer is proper in the circumstances because he has met the applicable standards of conduct set forth in Sections 1 or 2 of this ARTICLE VIII, as the case may be. Neither a contrary determination in the specific case under Section 3 of this ARTICLE VIII nor the absence of any determination thereunder shall be a defense to such application or create a presumption that the director or officer seeking indemnification has not met any applicable standard of conduct. Notice of any application for indemnification pursuant to this Section 5 shall be given to the Corporation promptly upon the filing of such application. If successful, in whole or in part, the director or officer seeking indemnification shall also be entitled to be paid the expense of prosecuting such application. SECTION 6. EXPENSES PAYABLE IN ADVANCE. Expenses incurred by a director or officer in defending or investigating a threatened or pending action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this ARTICLE VIII. SECTION 7. NONEXCLUSIVITY OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES. The indemnification and advancement of expenses provided by or granted pursuant to this ARTICLE VIII shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any By-Law, agreement, contract, vote of stockholders or disinterested directors or pursuant to the direction (howsoever embodied) of any court of competent jurisdiction or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, it being the policy of the Corporation that indemnification of the persons specified in Sections 1 and 2 of this ARTICLE VIII shall be made to the fullest extent permitted by law. The provisions of this ARTICLE VIII shall not be deemed to preclude the indemnification of any person who is not specified in Sections 1 or 2 of this ARTICLE VIII but whom the Corporation has the power or obligation to indemnify under the provisions of the General Corporation Law of the State of Delaware, or otherwise. SECTION 8. INSURANCE. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power or the obligation to indemnify him against such liability under the provisions of this ARTICLE VIII. SECTION 9. CERTAIN DEFINITIONS. For purposes of this ARTICLE VIII, references to "the Corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors or officers, so that any person who is or was a director or officer of such constituent corporation, or is or was a director or officer of such constituent corporation serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, shall stand in the same position under the provisions of this ARTICLE VIII with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. For purposes of this ARTICLE VIII, references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director or officer with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee 15 benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this ARTICLE VIII. SECTION 10. SURVIVAL OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES. The indemnification and advancement of expenses provided by, or granted pursuant to, this ARTICLE VIII shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such a person. SECTION 11. LIMITATION ON INDEMNIFICATION. Notwithstanding anything contained in this ARTICLE VIII to the contrary, except for proceedings to enforce rights to indemnification (which shall be governed by Section 5 hereof), the Corporation shall not be obligated to indemnify any director or officer in connection with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors of the Corporation. SECTION 12. INDEMNIFICATION OF EMPLOYEES AND AGENTS. The Corporation may, to the extent authorized from time to time by the Board of Directors, provide rights to indemnification and to the advancement of expenses to employees and agents of the Corporation similar to those conferred in this ARTICLE VIII to directors and officers of the Corporation. SECTION 13. EFFECT OF AMENDMENT. Any amendment, repeal or modification of this ARTICLE VIII shall not (a) adversely affect any right or protection of any director or officer existing at the time of such amendment, repeal or modification, or (b) apply to the indemnification of any such person for liability, expense, or loss stemming from actions or omissions occurring prior to such amendment, repeal, or modification. SECTION 14. AUTHORITY TO ENTER INTO INDEMNIFICATION AGREEMENTS. The Corporation may enter into indemnification agreements with the directors and officers of the Corporation, including, without limitation, any indemnification agreement in substantially the form set forth in Exhibit 1 attached to these By-Laws. ARTICLE IX NOTICES Whenever, under any provisions of these By-Laws, notice is required to be given to any stockholder, the same shall be given in writing, timely and duly deposited in the United States Mail, postage prepaid, and addressed to his last known post office address as shown by the stock record of the Corporation or its transfer agent. Any notice required to be given to any director may be given by any of the methods stated in Section 8 of ARTICLE III hereof, except that such notice other than one which is delivered personally, shall be sent to such address or (in the case of facsimile telecommunication) facsimile telephone number as such director shall have disclosed in writing to the Secretary of the Corporation, or, in the absence of such filing, to the last known post office address of such director. If no address of a stockholder or director be known, such notice may be sent to the office of the Corporation required to be maintained pursuant to Section 2 of ARTICLE I hereof. An affidavit of mailing, executed by a duly authorized and competent employee of the Corporation or its transfer agent appointed with respect to the class of stock affected, specifying the name and address or the names and addresses of the stockholder or stockholders, director or directors, to whom any such notice or notices was or were given, and the time and method of giving the same, shall be conclusive evidence of the statements therein contained. All notices given by mail, as above provided, shall be deemed to have been given as at the time of mailing and all notices given by telegram or other means of electronic transmission shall be deemed to have been 16 given as at the sending time recorded by the telegraph company or other electronic transmission equipment operator transmitting the same. It shall not be necessary that the same method of giving be employed in respect of all directors, but one permissible method may be employed in respect of any one or more, and any other permissible method or methods may be employed in respect of any other or others. The period or limitation of time within which any stockholder may exercise any option or right, or enjoy any privilege or benefit, or be required to act, or within which any director may exercise any power or right, or enjoy any privilege, pursuant to any notice sent him in the manner above provided, shall not be affected or extended in any manner by the failure of such a stockholder or such director to receive such notice. Whenever any notice is required to be given under the provisions of this statutes or of the Certificate of Incorporation, or of these By-Laws, a waiver thereof in writing signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Whenever notice is required to be given, under any provision of law or of the Certificate of Incorporation or By-Laws of the Corporation, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the Corporation is such as to require the filing of a certificate under any provision of the Delaware General Corporation Law, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful. ARTICLE X AMENDMENTS The Board of Directors is expressly authorized to adopt, alter and repeal the By-Laws of the Corporation in whole or in part at any regular or special meeting of the Board of Directors, by vote of a majority of the entire Board of Directors. Except where ARTICLE V of the Certificate of Incorporation of the Corporation requires a higher vote, the By-Laws may also be adopted, altered or repealed in whole or in part at any annual or special meeting of the stockholders by the affirmative vote of three fourths of the shares of the Corporation outstanding and entitled to vote thereon. CERTIFICATE OF SECRETARY The undersigned, Senior Vice President, General Counsel and Secretary of McKesson Corporation a Delaware corporation, hereby certifies that the foregoing is a full, true and correct copy of the By-Laws of said Corporation, with all amendments to date of this Certificate. WITNESS the signature of the undersigned and the seal of the Corporation this 27th day of March, 2002. /s/ Ivan D. Meyerson ---------------------------------------------------- Ivan D. Meyerson Senior Vice President, General Counsel and Secretary 17 EXHIBIT 1 INDEMNIFICATION AGREEMENT AGREEMENT, effective as of ______, 2001__, between McKesson Corporation, a Delaware corporation (the "Company"), and ______________ (the "Indemnitee"). WHEREAS, it is essential to the Company to retain and attract as directors and officers the most capable persons available. WHEREAS, Indemnitee is a director/officer of the Company; WHEREAS, both the Company and Indemnitee recognize the increased risk of litigation and other claims being asserted against directors of public companies in today's environment; WHEREAS, the Certificate of Incorporation and the By-laws of the Company require the Company to indemnify and advance expenses to its directors to the fullest extent permitted by law and the Indemnitee has been serving and continues to serve as a director or officer of the Company in part in reliance on such Certificate of Incorporation and By-laws; WHEREAS, in recognition of Indemnitee's need for substantial protection against personal liability in order to enhance Indemnitee's continued service to the Company in an effective manner and Indemnitee's reliance on the aforesaid Certificate of Incorporation and By-laws, and in part to provide Indemnitee with specific contractual assurance that the protection promised by such Certificate of Incorporation and By-laws will be available to Indemnitee (regardless of, among other things, any amendment to or revocation of such Certificate of Incorporation and By-laws or any change in the composition of the Company's Board of Directors or acquisition transaction relating to the Company), and in order to induce Indemnitee to continue to provide services to the Company as a director or officer thereof, the Company wishes to provide in this Agreement for the indemnification of and the advancing of expenses to Indemnitee to the fullest extent (whether partial or complete) permitted by law and as set forth in this Agreement, and, to the extent insurance is maintained, for the continued coverage of Indemnitee under the Company's directors' and officers' liability insurance policies. NOW, THEREFORE, in consideration of the premises and of Indemnitee continuing to serve the Company directly or, at its request, with another enterprise, and intending to be legally bound hereby, the parties hereto agree as follows: 1. CERTAIN DEFINITIONS. (a) Change in Control: shall be deemed to have occurred if (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 20% or more of the total voting power represented by the Company's then outstanding Voting Securities, or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the stockholders of the Company approve a merger or consolidation of the Company with 1 any other corporation, other than a merger or consolidation which would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least 80% of the total voting power represented by the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company (in one transaction or a series of transactions) of all or substantially all of the Company's assets. (b) Expense: include attorneys' fees and all other costs, expenses and obligations paid or incurred in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to defend, be a witness in or participate in any Proceeding relating to any Indemnifiable Event. (c) Indemnifiable Event: any event or occurrence that takes place either prior to or after the execution of this Agreement, related to the fact that Indemnitee is or was a director or an officer of the Company, or while a director or officer is or was serving at the request of the Company as a director, officer, employee, trustee, agent or fiduciary of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, or by reason of anything done or not done by Indemnitee in any such capacity. (d) Potential Change in Control: shall be deemed to have occurred if (i) the Company enters into an agreement or arrangement, the consummation of which would result in the occurrence of Change in Control; (ii) any person (including the Company) publicly announces an intention to take or to consider taking actions which if consummated would constitute Change in Control; (iii) any person, other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company acting in such capacity or a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, who is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 10% or more of the combined voting power of the Company's then outstanding Voting Securities, increases his beneficial ownership of such securities by 5% or more over the percentage so owned by such person on the date hereof; or (iv) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred. (e) Proceeding: any threatened, pending or completed action, suit or proceeding, or any inquiry, hearing or investigation, whether conducted by the Company or any other party, that Indemnitee in good faith believes might lead to the institution of any such action, suit or proceeding, whether civil, criminal, administrative, investigative or other. (f) Reviewing Party: any appropriate person or body consisting of a member or members of the Company's Board of Directors or any other person or body appointed by the Board (including the special, independent counsel referred to in Section 3) who is not a party to the particular Proceeding with respect to which Indemnitee is seeking indemnification. (g) Voting Securities: any securities of the Company which vote generally in the election of directors. 2 2. AGREEMENT TO INDEMNIFY. (a) In the event Indemnitee was, is or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in, a Proceeding by reason of (or arising in part out of) an Indemnifiable Event, the Company shall indemnify Indemnitee to the fullest extent permitted by law, as soon as practicable but in any event no later than thirty days after written demand is presented to the Company, against any and all Expenses, judgments, fines, penalties and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses, judgments, fines, penalties or amounts paid in settlement) of such Proceeding and any federal, state, local or foreign taxes imposed on the Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement (including the creation of the Trust). Notwithstanding anything in this Agreement to the contrary and except as provided in Section 5, prior to a Change in Control Indemnitee shall not be entitled to indemnification pursuant to this Agreement in connection with any Proceeding initiated by Indemnitee against the Company or any director or officer of the Company unless the Company has joined in or consented to the initiation of such Proceeding. If so requested by Indemnitee, the Company shall advance (within ten business days of such request) any and all Expenses to Indemnitee (an "Expense Advance"). (b) Notwithstanding the foregoing, (i) the obligations of the Company under Section 2(a) shall be subject to the condition that the Reviewing Party shall not have determined (in a written opinion, in any case in which the special, independent counsel referred to in Section 3 hereof is involved) that Indemnitee would not be permitted to be indemnified under applicable law, and (ii) the obligation of the Company to make an Expense Advance pursuant to Section 2(a) shall be subject to the condition that, if, when and to the extent that the Reviewing Party determines that Indemnitee would not be permitted to be so indemnified under applicable law, the Company shall be entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all such amounts theretofore paid; provided, however, that if Indemnitee has commenced legal proceedings in a court of competent jurisdiction to secure a determination that Indemnitee should be indemnified under applicable law, any determination made by the Reviewing Party that Indemnitee would not be permitted to be indemnified under applicable law shall not be binding and Indemnitee shall not be required to reimburse the Company for any Expense Advance until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed). Indemnitee's obligation to reimburse the Company for Expense Advances shall be unsecured and no interest shall be charged thereon. If there has not been a Change in Control the Reviewing Party shall be selected by the Board of Directors, and if there has been such a Change in Control (other than a Change in Control which has been approved by a majority of the Company's Board of Directors who were directors immediately prior to such Change in Control), the Reviewing Party shall be the special, independent counsel referred to in Section 3 hereof. If there has been no determination by the Reviewing Party or if the Reviewing Party determines that Indemnitee substantively would not be permitted to be indemnified in whole or in part under applicable law, Indemnitee shall have the right to commence litigation in any court in the States of California or Delaware having subject matter jurisdiction thereof and in which venue is proper seeking an initial determination by the court or challenging any such determination by the Reviewing Party or any aspect thereof, and the Company hereby consents to service of process and to appear in any such proceeding. Any determination by the Reviewing Party otherwise shall be conclusive and binding on the Company and Indemnitee. 3. CHANGE IN CONTROL. The Company agrees that if there is a Change in Control of the Company (other than a Change in Control which has been approved by a majority of the Company's Board of Directors who were directors immediately prior to such Change in Control) then with respect to all matters thereafter arising concerning the rights of Indemnitee to indemnity payments and Expense Advances under this Agreement or any other agreement or under applicable law or the Company's Certificate of Incorporation or By-Laws now or hereafter in effect relating to indemnification for Indemnifiable Events, the Company shall seek legal advice only from special, independent counsel selected by Indemnitee and approved by the Company (which approval shall not be unreasonably withheld), and who has not otherwise performed services for the Company or the Indemnitee (other than in connection with such matters) within the last five years. Such independent counsel shall not include any person who, under the 3 applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee's rights under this Agreement. Such counsel, among other things, shall render its written opinion to the Company and Indemnitee as to whether and to what extent the Indemnitee would be permitted to be indemnified under applicable law. The Company agrees to pay the reasonable fees of the special, independent counsel referred to above and to indemnify fully such counsel against any and all expenses (including attorneys' fees), claims, liabilities and damages arising out of or relating to this Agreement or the engagement of special, independent counsel pursuant hereto. 4. ESTABLISHMENT OF TRUST. In the event of a Potential Change in Control, the Company shall, upon written request by Indemnitee, create a Trust for the benefit of the Indemnitee and from time to time upon written request of Indemnitee shall fund such Trust in an amount sufficient to satisfy any and all Expenses reasonably anticipated at the time of each such request to be incurred in connection with investigating, preparing for and defending any Proceeding relating to an Indemnifiable event, and any and all judgments, fines, penalties and settlement amounts of any and all Proceedings relating to an Indemnifiable Event from time to time actually paid or claimed, reasonably anticipated or proposed to be paid. The amount or amounts to be deposited in the Trust pursuant to the foregoing funding obligation shall be determined by the Reviewing Party, in any case in which the special, independent counsel referred to above is involved. The terms of the Trust shall provide that upon a Change in Control (i) the Trust shall not be revoked or the principal thereof invaded, without the written consent of the Indemnitee, (ii) the Trustee shall advance, within ten business days of a request by the Indemnitee, any and all Expenses to the Indemnitee (and the Indemnitee hereby agrees to reimburse the Trust under the circumstances under which the Indemnitee would be required to reimburse the Company under Section 2(b) of this Agreement), (iii) the Trust shall continue to be funded by the Company in accordance with the funding obligation set forth above, (iv) the Trustee shall promptly pay to the Indemnitee all amounts for which the Indemnitee shall be entitled to indemnification pursuant to this Agreement or otherwise, and (v) all unexpended funds in such Trust shall revert to the Company upon a final determination by the Reviewing Party or a court of competent jurisdiction, as the case may be, that the Indemnitee has been fully indemnified under the terms of this Agreement. The Trustee shall be chosen by the Indemnitee. Nothing in this Section 4 shall relieve the Company of any of its obligations under this Agreement. All income earned on the assets held in the Trust shall be reported as income by the Company for federal, state, local and foreign tax purposes. 5. INDEMNIFICATION FOR EXPENSES INCURRED IN ENFORCING THIS AGREEMENT. The Company shall indemnify Indemnitee against any and all expenses (including attorneys' fees), and, if requested by Indemnitee, shall (within ten business days of such request) advance such expenses to Indemnitee, which are incurred by Indemnitee in connection with any claim asserted against or action brought by Indemnitee for (i) indemnification or advance payment of Expenses by the Company under this Agreement or any other agreement or under applicable law or the Company's Certificate of Incorporation or By-laws now or hereafter in effect relating to indemnification for Indemnifiable Events and/or (ii) recovery under any directors' and officers' liability insurance policies maintained by the Company, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advance expense payment or insurance recovery, as the case may be. 4 6. PARTIAL INDEMNITY. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the Expenses, judgments, fines, penalties and amounts paid in settlement of a Proceeding but not, however, for all of the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is entitled. Moreover, notwithstanding any other provision of this Agreement, to the extent that Indemnitee has been successful on the merits or otherwise in defense of any or all Proceedings relating in whole or in part to an Indemnifiable Event or in defense of any issue or matter therein, including dismissal without prejudice, Indemnitee shall be indemnified against all Expenses incurred in connection therewith. 7. DEFENSE TO INDEMNIFICATION, BURDEN OF PROOF AND PRESUMPTIONS. It shall be a defense to any action brought by the Indemnitee against the Company to enforce this Agreement (other than an action brought to enforce a claim for expenses incurred in defending a Proceeding in advance of its final disposition where the required undertaking has been tendered to the Company) that the Indemnitee has not met the standards of conduct that make it permissible under the Delaware General Corporation Law for the Company to indemnify the Indemnitee for the amount claimed. In connection with any determination by the Reviewing Party or otherwise as to whether the Indemnitee is entitled to be indemnified hereunder, the burden of proving such a defense shall be on the Company. Neither the failure of the Company (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action by the Indemnitee that indemnification of the claimant is proper under the circumstances because he or she has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Company (including its Board of Directors, independent legal counsel, or its stockholders) that the Indemnitee had not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the Indemnitee has not met the applicable standard of conduct. For purposes of this Agreement, the termination of any claim, action, suit or proceeding, by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere, or its equivalent, shall not create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law. 8. NON-EXCLUSIVITY. The rights of the Indemnitee hereunder shall be in addition to any other rights Indemnitee may have under the Company's Certificate of Incorporation or By-laws or the Delaware General Corporation Law or otherwise. To the extent that a change in the Delaware General Corporation Law (whether by statute or judicial decision) permits greater indemnification by agreement than would be afforded currently under the Company's Certificate of Incorporation and By-laws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. 9. LIABILITY INSURANCE. To the extent the Company maintains an insurance policy or policies providing directors' and officers' liability insurance, Indemnitee shall be covered by such policy or policies, in accordance with its or their terms, to the maximum extent of the coverage available for any Company director or officer. 10. PERIOD OF LIMITATIONS. No legal action shall be brought and no cause of action shall be asserted by or on behalf of the Company or any affiliate of the Company against Indemnitee, Indemnitee's spouse, heirs, executors or personal or legal representatives after the expiration of two years from the date of accrual of such cause of action, or such longer period as may be required by state law under the circumstances, and any claim or cause of action of the Company or its affiliate shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such period; provided, 5 however, that if any shorter period of limitations is otherwise applicable to any such cause of action such shorter period shall govern. 11. AMENDMENT OF THIS AGREEMENT. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver. 12. SUBROGATION. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the Company effectively to bring suit to enforce such rights. 13. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under this Agreement to make any payment in connection with any claim made against Indemnitee to the extent Indemnitee has otherwise actually received payment (under any insurance policy, By-law or otherwise) of the amounts otherwise indemnifiable hereunder. 14. SETTLEMENT OF CLAIMS. The Company shall not be liable to indemnify Indemnitee under this Agreement for any amounts paid in settlement of any action or claim effected without the Company's written consent. The Company shall not settle any action or claim in any manner which would impose any penalty or limitation on Indemnitee without Indemnitee's written consent. Neither the Company nor the Indemnitee will unreasonably withhold their consent to any proposed settlement. The Company shall not be liable to indemnify the Indemnitee under this Agreement with regard to any judicial award if the Company was not given a reasonable and timely opportunity, at its expense, to participate in the defense of such action. 15. BINDING EFFECT. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors, assigns, including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of the Company, spouses, heirs, and personal and legal representatives. The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all, or a substantial part, of the business and/or assets of the Company, by written agreement in form and substance satisfactory to the Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. This Agreement shall continue in effect regardless of whether Indemnitee continues to serve as a director or officer of the Company or of any other enterprise at the Company's request. 16. SEVERABILITY. The provisions of this Agreement shall be severable in the event that any of the provisions hereof (including any provision within a single section, paragraph or sentence) is held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, and the remaining provisions shall remain enforceable to the fullest extent permitted by law. Furthermore, to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of this Agreement containing any provision held to be invalid, void or otherwise unenforceable, that is not itself invalid, void or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. 6 17. GOVERNING LAW. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware applicable to contracts made and to be performed in such State without giving effect to the principles of conflicts of laws. IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Agreement as of the _______________ day of __________________, 20___. McKESSON CORPORATION By: ____________________________________ Name: Title: ____________________________________ [Indemnitee] 7 EX-4.6 4 f82011exv4w6.txt EXHIBIT 4.6 Exhibit 4.6 ================================================================================ McKESSON CORPORATION and THE BANK OF NEW YORK, as Trustee Indenture Dated as of January 29, 2002 Debt Securities ================================================================================ CROSS REFERENCE SHEET* Between Provisions of Trust Indenture Act (as defined herein) and Indenture, dated as of January 29, 2002, between McKESSON CORPORATION and THE BANK OF NEW YORK, Trustee:

SECTION OF THE ACT SECTION OF INDENTURE 310(a)(1) and (2) ...........................................................6.9 310(a)(3) and (4) ..................................................Inapplicable 310(b) .............................................6.8 and 6.10(a), (b) and (d) 310(c) .............................................................Inapplicable 311(a) .....................................................................6.14 311(b) .....................................................................6.14 311(c) .............................................................Inapplicable 312(a) ..............................................................4.1 and 4.2 312(b) ......................................................................4.2 312(c) ......................................................................4.2 313(a) ......................................................................4.3 313(b)(1) ..........................................................Inapplicable 313(b)(2) ...................................................................4.3 313(c) ...............................................4.3, 5.11, 6.10, 6.11, 8.2 and 12.2 313(d) ......................................................................4.3 314(a) ..............................................................3.5 and 4.2 314(b) .............................................................Inapplicable 314(c)(1) and (2) ..........................................................11.5 314(c)(3) ..........................................................Inapplicable 314(d) .............................................................Inapplicable 314(e) .....................................................................11.5 314(f) .............................................................Inapplicable 315(a), (c) and (d) .........................................................6.1 315(b) .....................................................................5.11 315(e) .....................................................................5.12 316(a)(1) ..........................................................5.9 and 5.10 316(a)(2) ..........................................................Not required 316(a) (last sentence) ......................................................7.4 316(b) ......................................................................5.7 317(a) ......................................................................5.2 317(b) ...........................................................3.4(a) and (b) 318(a) .....................................................................11.7

* This Cross Reference Sheet is not part of the Indenture. TABLE OF CONTENTS

PAGE ---- ARTICLE I DEFINITIONS SECTION 1.1 CERTAIN TERMS DEFINED ...............................1 ARTICLE II SECURITIES SECTION 2.1 FORMS GENERALLY .....................................7 SECTION 2.2 FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION ......................................8 SECTION 2.3 AMOUNT UNLIMITED; ISSUABLE IN SERIES ................8 SECTION 2.4 AUTHENTICATION AND DELIVERY OF SECURITIES ......................................11 SECTION 2.5 EXECUTION OF SECURITIES ............................14 SECTION 2.6 CERTIFICATE OF AUTHENTICATION ......................14 SECTION 2.7 DENOMINATION AND DATE OF SECURITIES; PAYMENT OF INTEREST ....................15 SECTION 2.8 REGISTRATION, TRANSFER AND EXCHANGE ................15 SECTION 2.9 MUTILATED, DEFACED, DESTROYED, LOST AND STOLEN SECURITIES .........................19 SECTION 2.10 CANCELLATION OF SECURITIES; DESTRUCTION THEREOF ................................20 SECTION 2.11 TEMPORARY SECURITIES ...............................20 ARTICLE III COVENANTS OF THE ISSUER SECTION 3.1 PAYMENT OF PRINCIPAL AND INTEREST ..................21 SECTION 3.2 OFFICES FOR PAYMENTS, ETC ..........................21 SECTION 3.3 APPOINTMENT TO FILL A VACANCY IN OFFICE OF TRUSTEE ...............................22 SECTION 3.4 PAYING AGENTS ......................................22 SECTION 3.5 COMPLIANCE CERTIFICATES ............................23 SECTION 3.6 CORPORATE EXISTENCE ................................24 SECTION 3.7 LUXEMBOURG PUBLICATIONS ............................24

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PAGE ---- ARTICLE IV SECURITYHOLDER LISTS AND REPORTS BY THE ISSUER AND THE TRUSTEE SECTION 4.1 ISSUER TO FURNISH TRUSTEE INFORMATION AS TO NAMES AND ADDRESSES OF SECURITYHOLDERS ....................................24 SECTION 4.2 REPORTS BY THE ISSUER ..............................24 SECTION 4.3 REPORTS BY THE TRUSTEE .............................25 ARTICLE V REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS ON EVENT OF DEFAULT SECTION 5.1 EVENT OF DEFAULT DEFINED, ACCELERATION OF MATURITY; WAIVER OF DEFAULT .....................26 SECTION 5.2 COLLECTION OF INDEBTEDNESS BY TRUSTEE; TRUSTEE MAY PROVE DEBT .............................30 SECTION 5.3 APPLICATION OF PROCEEDS ............................32 SECTION 5.4 SUITS FOR ENFORCEMENT ..............................33 SECTION 5.5 RESTORATION OF RIGHTS ON ABANDONMENT OF PROCEEDINGS .....................................34 SECTION 5.6 LIMITATIONS ON SUITS BY SECURITY HOLDERS ...........34 SECTION 5.7 UNCONDITIONAL RIGHT OF SECURITYHOLDERS TO INSTITUTE CERTAIN SUITS .........................34 SECTION 5.8 POWERS AND REMEDIES CUMULATIVE; DELAY OR OMISSION NOT WAIVER OF DEFAULT ..................35 SECTION 5.9 CONTROL BY HOLDERS OF SECURITIES ...................35 SECTION 5.10 WAIVER OF PAST DEFAULTS ............................36 SECTION 5.11 TRUSTEE TO GIVE NOTICE OF DEFAULT, BUT MAY WITHHOLD IN CERTAIN CIRCUMSTANCES ......................................36 SECTION 5.12 RIGHT OF COURT TO REQUIRE FILING OF UNDERTAKING TO PAY COSTS ...........................36 ARTICLE VI CONCERNING THE TRUSTEE SECTION 6.1 DUTIES AND RESPONSIBILITIES OF THE TRUSTEE; DURING DEFAULT; PRIOR TO DEFAULT ...................37 SECTION 6.2 CERTAIN RIGHTS OF THE TRUSTEE ......................38

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PAGE ---- SECTION 6.3 TRUSTEE NOT RESPONSIBLE FOR RECITALS, DISPOSITION OF SECURITIES OR APPLICATION OF PROCEEDS THEREOF ....................39 SECTION 6.4 TRUSTEE AND AGENTS MAY HOLD SECURITIES OR COUPONS; COLLECTIONS, ETC ............40 SECTION 6.5 MONEYS HELD BY TRUSTEE .............................40 SECTION 6.6 COMPENSATION AND INDEMNIFICATION OF TRUSTEE AND ITS PRIOR CLAIM ........................40 SECTION 6.7 RIGHT OF TRUSTEE TO RELY ON OFFICER'S CERTIFICATE, ETC ...................................41 SECTION 6.8 INDENTURES NOT CREATING POTENTIAL CONFLICTING INTERESTS FOR THE TRUSTEE ..............41 SECTION 6.9 QUALIFICATION OF TRUSTEE: CONFLICTING INTERESTS ..............................41 SECTION 6.10 PERSONS ELIGIBLE FOR APPOINTMENT AS TRUSTEE .........................................42 SECTION 6.11 RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR TRUSTEE ...............................41 SECTION 6.12 ACCEPTANCE OF APPOINTMENT BY SUCCESSOR TRUSTEE ..................................43 SECTION 6.13 MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS OF TRUSTEE ..................44 SECTION 6.14 PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE ISSUER .................................45 SECTION 6.15 APPOINTMENT OF AUTHENTICATING AGENT ................45 ARTICLE VII CONCERNING THE SECURITYHOLDERS SECTION 7.1 EVIDENCE OF ACTION TAKEN BY SECURITYHOLDERS ....................................46 SECTION 7.2 PROOF OF EXECUTION OF INSTRUMENTS AND OF HOLDING OF SECURITIES .......................46 SECTION 7.3 HOLDERS TO BE TREATED AS OWNERS ....................46 SECTION 7.4 SECURITIES OWNED BY ISSUER DEEMED NOT OUTSTANDING ....................................47 SECTION 7.5 RIGHT OF REVOCATION OF ACTION TAKEN ................47

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PAGE ---- ARTICLE VIII SUPPLEMENTAL INDENTURES SECTION 8.1 SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF SECURITYHOLDERS 48 SECTION 8.2 SUPPLEMENTAL INDENTURES WITH CONSENT OF SECURITYHOLDERS .........................49 SECTION 8.3 EFFECT OF SUPPLEMENTAL INDENTURE ...................51 SECTION 8.4 DOCUMENTS TO BE GIVEN TO TRUSTEE ...................51 SECTION 8.5 NOTATION ON SECURITIES IN RESPECT OF SUPPLEMENTAL INDENTURES .........................51 ARTICLE IX CONSOLIDATION, MERGER, SALE OR CONVEYANCE SECTION 9.1 ISSUER MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS ..............................52 SECTION 9.2 SUCCESSOR CORPORATION SUBSTITUTED ..................52 SECTION 9.3 OPINION OF COUNSEL TO BE GIVEN TO TRUSTEE ..........52 ARTICLE X SATISFACTION AND DISCHARGE OF INDENTURE; UNCLAIMED MONEYS SECTION 10.1 SATISFACTION AND DISCHARGE OF INDENTURE .......................................53 SECTION 10.2 APPLICATION BY TRUSTEE OF FUNDS DEPOSITED FOR PAYMENT OF SECURITIES ................57 SECTION 10.3 REPAYMENT OF MONEYS HELD BY PAYING AGENT ....................................57 SECTION 10.4 RETURN OF MONEYS HELD BY TRUSTEE AND PAYING AGENT UNCLAIMED FOR TWO YEARS ......................................57 SECTION 10.5 INDEMNITY FOR U.S GOVERNMENT OF OBLIGATIONS .....................................57 SECTION 10.6 EFFECT ON SUBORDINATION PROVISIONS .................58 ARTICLE XI MISCELLANEOUS PROVISIONS SECTION 11.1 INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS OF ISSUER EXEMPT FROM INDIVIDUAL LIABILITY ...............................58

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PAGE ---- SECTION 11.2 PROVISIONS OF INDENTURE FOR THE SOLE BENEFIT OF PARTIES AND HOLDERS OF SECURITIES AND COUPONS .............................58 SECTION 11.3 SUCCESSORS AND ASSIGNS OF ISSUER BOUND BY INDENTURE .................................59 SECTION 11.4 NOTICES AND DEMANDS ON ISSUER, TRUSTEE AND HOLDERS OF SECURITIES AND COUPONS ........................................59 SECTION 11.5 OFFICER'S CERTIFICATES AND OPINIONS OF COUNSEL; STATEMENTS TO BE CONTAINED THEREIN ..................................60 SECTION 11.6 PAYMENTS DUE ON SATURDAYS, SUNDAYS AND HOLIDAYS .......................................61 SECTION 11.7 CONFLICT OF ANY PROVISION OF INDENTURE WITH TRUST INDENTURE ACT ...........................61 SECTION 11.8 NEW YORK LAW TO GOVERN .............................61 SECTION 11.9 COUNTERPARTS .......................................61 SECTION 11.10 EFFECT OF HEADINGS .................................61 SECTION 11.11 SECURITIES IN A FOREIGN CURRENCY ...................61 SECTION 11.12 JUDGMENT CURRENCY ..................................62 SECTION 11.13 AGREEMENT TO SUBORDINATE ...........................63 ARTICLE XII REDEMPTION OF SECURITIES AND SINKING FUNDS SECTION 12.1 APPLICABILITY OF ARTICLE ...........................63 SECTION 12.2 NOTICE OF REDEMPTION; PARTIAL REDEMPTIONS ..........63 SECTION 12.3 PAYMENT OF SECURITIES CALLED FOR REDEMPTION .....................................64 SECTION 12.4 EXCLUSION OF CERTAIN SECURITIES FROM ELIGIBILITY FOR SELECTION FOR REDEMPTION .....................................65 SECTION 12.5 MANDATORY AND OPTIONAL SINKING FUNDS ......................................66

v THIS INDENTURE, dated as of January 29, by and between McKESSON CORPORATION, a Delaware corporation (the "Issuer"), and THE BANK OF NEW YORK, a New York Banking Corporation, as trustee (the "Trustee"), W I T N E S S E T H: WHEREAS, the Issuer has duly authorized the issue from time to time of its unsecured debentures, notes or other evidences of indebtedness to be issued in one or more series (the "Securities") up to such principal amount or amounts as may from time to time be authorized in accordance with the terms of this Indenture; WHEREAS, the Issuer has duly authorized the execution and delivery of this Indenture to provide, among other things, for the authentication, delivery and administration of the Securities; and WHEREAS, all things necessary to make this Indenture a valid indenture and agreement according to its terms have been done; NOW, THEREFORE: In consideration of the premises and the purchases of the Securities by the holders thereof, the Issuer and the Trustee mutually covenant and agree for the equal and proportionate benefit of the respective holders from time to time of the Securities and of the coupons, if any, appertaining thereto as follows: ARTICLE I DEFINITIONS SECTION 1.1 CERTAIN TERMS DEFINED. The following terms (except as otherwise 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 requires), shall have the meaning assigned to such terms in the Trust Indenture Act and in the Securities Act as in effect from time to time. 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 unless a different time shall be specified with respect to such series of Securities as provided for in Section 2.3. The words "herein," "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole 1 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. "Affiliate" has the same meaning as given to that term in Rule 405 of the Securities Act or any successor provision. "Authenticating Agent" shall have the meaning set forth in Section 6.15. "Authorized Newspaper" means a newspaper (which, in the case of The City of New York, will, if practicable, be The Wall Street Journal (Eastern Edition), in the case of the United Kingdom of Great Britain and Northern Ireland (the "United Kingdom"), will, if practicable, be The Financial Times (London Edition) and, in the case of the Grand Duchy of Luxembourg ("Luxembourg"), will, if practicable, be the Luxemburger Wort) published in an official or common language of the country of publication customarily published at least once a day for at least five days in each calendar week and of general circulation in The City of New York, the United Kingdom or Luxembourg, as applicable. If it shall be impractical in the opinion of the Trustee to make any publication of any notice required hereby in an Authorized Newspaper, any publication or other notice in lieu thereof which is made or given with the approval of the Trustee shall constitute a sufficient publication of such notice. "Board of Directors" means either the Board of Directors of the Issuer or any committee of such Board duly authorized to act on its behalf. "Board Resolution" means a copy of one or more resolutions, certified by the secretary or an assistant secretary of the Issuer to have been duly adopted or consented to by the Board of Directors and to be in full force and effect, and delivered to the Trustee. "Business Day" means, with respect to any Security, a day other than any day on which banking institutions in the city (or in any of the cities, if more than one) in which amounts are payable, as specified in the form of such Security, are authorized or required by any applicable law or regulation to be closed. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, 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. "Corporate Trust Office" means the office of the Trustee at which the corporate trust business of the Trustee shall, at any particular time, be principally administered, which office is, as of the date of this Indenture, located at 101 Barclay Street, 21W, New York, New York, 10286, Attn: Corporate Trust Division. "Coupon" means any interest coupon appertaining to an Unregistered Security. 2 "Covenant Defeasance" shall have the meaning set forth in Section 10.1(C). "Depositary" means, with respect to the Securities of any series issuable or issued in the form of one or more Registered Global Securities, the Person designated as Depositary by the Issuer pursuant to Section 2.3 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 Securities of any such series shall mean the Depositary with respect to the Registered Global Securities of that series. "Dollar" or "$" means the coin or currency of the United States of America as at the time of payment is legal tender for the payment of public and private debts. "Event of Default" means any event or condition specified as such in Section 5.1. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Fair Value" when used with respect to any Voting Stock means the fair value as determined in good faith by the Board of Directors of the Issuer. "Foreign Currency" means any coin, currency, currency unit or composite currency, including, without limitation, the euro, issued by the government of one or more countries, other than the United States of America or by any internationally recognized union, confederation or association of such governments. "Holder," "Holder of Securities," "Securityholder" or any other similar terms mean (a) in the case of any Registered Security, the person in whose name such Security is registered in the security register kept by the Issuer for that purpose in accordance with the terms hereof, and (b) in the case of any Unregistered Security, the bearer of such Security, or any Coupon appertaining thereto, as the case may be. "Indenture" means this instrument as originally executed and delivered or, if amended or supplemented as herein provided, as so amended or supplemented or both, and shall include the forms and terms of particular series of Securities established as contemplated hereunder, provided, that, if at any time more than one Person is acting as Trustee under this instrument, "Indenture" shall mean, with respect to one or more series of Securities for which such person is trustee, this instrument as originally executed and delivered or, if amended or supplemented as herein provided, as so amended or supplemented or both, and shall include the forms and terms of those particular series of Securities for which such Person is Trustee established as contemplated hereunder, exclusive, however, of any provisions or terms which relate solely to other series of Securities for which such person is not Trustee, regardless of when such terms or provisions were adopted. 3 "IRS" means the Internal Revenue Service of the United States Department of the Treasury, or any successor entity. "Issuer" means (except as otherwise provided in Article IX) McKesson Corporation, a Delaware corporation, and, subject to Article IX, its successors and assigns. "Issuer Order" means a written statement, request or order of the Issuer signed in its name by the chairman of the Board of Directors, the president, any vice president or the treasurer of the Issuer. "Judgment Currency" has the meaning set forth in Section 11.12. "Non-U.S. Person" means any person that is not a "U.S. person" as such term is defined in Rule 902 of the Securities Act. "Officer's Certificate" means a certificate signed by the chairman of the Board of Directors, the president or any vice president or the treasurer of the Issuer and delivered to the Trustee. Each such certificate shall comply with Section 314 of the Trust Indenture Act and include the statements provided for in Section 11.5. "Opinion of Counsel" means an opinion in writing signed by legal counsel who may be an employee of the Issuer or other counsel satisfactory to the Trustee. Each such opinion shall comply with Section 314 of the Trust Indenture Act and include the statements provided for in Section 11.5. "Original Issue Date" of any Security (or portion thereof) means the earlier of (a) the date of such Security or (b) the date of any Security (or portion thereof) for which such Security was issued (directly or indirectly) on registration of transfer, exchange or substitution. "Original Issue Discount Security" means any Security that provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the maturity thereof pursuant to Section 5.1. "Outstanding" (except as otherwise provided in Section 7.4), when used with reference to Securities, means, subject to the provisions of Section 7.4, as of any particular time, all Securities authenticated and delivered by the Trustee under this Indenture, except: (I) Securities theretofore cancelled by the Trustee or delivered to the Trustee for cancellation; (I) Securities, or portions thereof, for the payment or redemption of which moneys or U.S. Government Obligations (as provided for in Section 10.1) in the necessary amount shall have been deposited in trust with the Trustee or with any paying agent (other than the Issuer) or shall have been set aside, segregated and held in trust by 4 the Issuer for the Holders of such Securities (if the Issuer shall act as its own paying agent), provided, that if such Securities, or portions thereof, are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as herein provided, or provisions satisfactory to the Trustee shall have been made for giving such notice; and (I) Securities which shall have been paid or in substitution for which other Securities shall have been authenticated and delivered pursuant to the terms of Section 2.9 (except with respect to any such Security as to which proof satisfactory to the Trustee is presented that such Security is held by a person in whose hands such Security is a legal, valid and binding obligation of the Issuer). In determining whether the Holders of the requisite principal amount of Outstanding Securities of any or all series have given any request, demand, authorization, direction, notice, consent or waiver hereunder, the principal amount of an Original Issue Discount Security that shall be deemed to be Outstanding for such purposes shall be the amount of the principal thereof that would be due and payable as of the date of such determination upon a declaration of acceleration of the maturity thereof pursuant to Section 5.1. "Periodic Offering" means an offering of Securities of a series from time to time, the specific terms of which Securities, including, without limitation, the rate or rates of interest, if any, thereon, the stated maturity or maturities thereof and the redemption provisions, if any, with respect thereto, are to be determined by the Issuer or its agents upon the issuance of such Securities. "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "principal" whenever used with reference to the Securities or any Security or any portion thereof, shall be deemed to include "and premium, if any," provided, however, that such inclusion of premium, if any, shall under no circumstances result in the double counting of such premium for the purpose of any calculation required hereunder. "record date" shall have the meaning set forth in Section 2.7. "Registered Global Security" means a Security evidencing all or a part of a series of Registered Securities, issued to the Depositary for such series in accordance with Section 2.4, and bearing the legend prescribed in Section 2.4 and any other legend required by the Depositary for such series. "Registered Security" means any Security registered on the Security register of the Issuer. "Required Currency" shall have the meaning set forth in Section 11.12. 5 "Responsible Officer" when used with respect to the Trustee means the chairman of the board of directors, any vice chairman of the board of directors, the chairman of the trust committee, the chairman of the executive committee, any vice chairman of the executive committee, the president, any vice president (whether or not designated by numbers or words added before or after the title "Vice President"), the cashier, the secretary, the treasurer, any trust officer, any assistant trust officer, any assistant vice president, any assistant cashier, any assistant secretary, any assistant treasurer, or any other officer or assistant officer of the Trustee customarily performing functions 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 because of his or her knowledge of and familiarity with the particular subject. "Security" or "Securities" (except as otherwise provided in Section 7.4) has the meaning stated in the first recital of this Indenture, or, as the case may be, Securities that have been authenticated and delivered under this Indenture. "Securities Act" means the Securities Act of 1933, as amended. "Senior Indebtedness", when used with respect to the Subordinated Securities of any series, shall have the meaning established pursuant to Subsection 2.3(9) with respect to the Subordinated Securities of such series. "Senior Securities" means Securities other than Subordinated Securities. "Subordinated Securities" means Securities that by the terms established pursuant to Subsection 2.3(9) are subordinated in right of payment to Senior Indebtedness of the Issuer. "Subordination Provisions", when used with respect to the Subordinated Securities of any series, shall have the meaning established pursuant to Subsection 2.3(9) with respect to the Subordinated Securities of such series. "Subsidiary" means any corporation of which at least a majority of the outstanding stock having the voting power to elect a majority of the Board of Directors of such corporation (irrespective of whether or not at the time stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time of determination directly or indirectly owned by the Issuer, or by one or more of its Subsidiaries, or by the Issuer and one or more of its Subsidiaries. "Trustee" means the Person identified as "Trustee" in the first paragraph hereof and, subject to the provisions of Article VI, shall also include any successor trustee. "Trustee" shall also mean or include each Person who is then a trustee hereunder, and if at any time there is more than one such Person, "Trustee" as used with respect to the Securities of any series shall mean the trustee with respect to the Securities of such series. "Unregistered Security" means any Security other than a Registered Security. 6 "U.S. Government Obligations" shall have the meaning set forth in Section 10.1(A). "Voting Stock" means stock of any class or classes having general voting power under ordinary circumstances to elect a majority of the board of directors, managers or trustees of the corporation in question, provided, that, for the purposes hereof, stock which carries only the right to vote conditionally on the happening of an event shall not be considered voting stock whether or not such event shall have happened. "Yield to Maturity" means the yield to maturity on a series of securities, calculated at the time of issuance of such series, or, if applicable, at the most recent redetermination of interest on such series, and calculated in accordance with accepted financial practice. ARTICLE II SECURITIES SECTION 2.1 FORMS GENERALLY. The Securities of each series and the Coupons, if any, to be attached thereto shall be substantially in such form (not inconsistent with this Indenture) as shall be established by or pursuant to one or more Board Resolutions (as set forth in a Board Resolution or, to the extent established pursuant to but not set forth in a Board Resolution, an Officer's Certificate detailing such establishment) or in one or more indentures supplemental hereto, in each case with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture and may have imprinted or otherwise reproduced thereon such legend or legends or endorsements, not inconsistent with the provisions of this Indenture, as may be required to comply with any law or with any rules or regulations pursuant thereto, or with any rules of any securities exchange or to conform to general usage, all as may be determined by the officers executing such Securities and Coupons, if any, as evidenced by their execution of such Securities and Coupons. The definitive Securities and Coupons, if any, 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 Securities and Coupons, if any, as evidenced by their execution of such Securities and Coupons, if any. 7 SECTION 2.2 FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION. The Trustee's certificate of authentication on all Securities shall be in substantially the following form: "This is one of the Securities referred to in the within-mentioned Indenture. THE BANK OF NEW YORK, as Trustee By ----------------------------------- Authorized Signatory" If at any time there shall be an Authenticating Agent appointed with respect to any series of Securities, then the Trustee's Certificate of Authentication to be borne by the Securities of each such series shall be substantially as follows: "This is one of the Securities referred to in the within-mentioned Indenture. [______________________________________] as Authenticating Agent By ----------------------------------- Authorized Signatory" SECTION 2.3 AMOUNT UNLIMITED; ISSUABLE IN SERIES. The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is unlimited. The Securities may be issued in one or more series. There shall be established in or pursuant to one or more Board Resolutions (and to the extent established pursuant to but not set forth in a Board Resolution, in an Officer's Certificate detailing such establishment) or established in one or more indentures supplemental hereto, prior to the initial issuance of Securities of any series, (1) the designation of the Securities of the series, which shall distinguish the Securities of the series from the Securities of all other series, and which may be part of a series of Securities previously issued; 8 (2) any limit upon the aggregate principal amount of the Securities of the series that may be authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of the series pursuant to Section 2.8, 2.9, 2.11, 8.5 or 12.3); (3) if other than Dollars, the Foreign Currency or Foreign Currencies in which the Securities of the series are denominated; (4) the date or dates on which the principal of the Securities of the series is payable or the method of determination thereof; (5) the rate or rates at which the Securities of the series shall bear interest, if any, the date or dates from which such interest shall accrue, on which such interest shall be payable, the terms and conditions of any deferral of interest and the additional interest, if any, thereon, the right, if any, of the Issuer to extend the interest payment periods and the duration of the extensions on the Subordinated Securities, and (in the case of Registered Securities) the date or dates on which a record shall be taken for the determination of Holders to whom interest is payable and/or the method by which such rate or rates or date or dates shall be determined; (6) the place or places where and the manner in which, the principal of and any interest on Securities of the series shall be payable, if other than as provided in Section 3.2; (7) the right, if any, of the Issuer to redeem Securities, in whole or in part, at its option and the period or periods within which, or the date or dates on which, the price or prices at which and any terms and conditions upon which Securities of the series may be so redeemed, pursuant to any sinking fund or otherwise; (8) the obligation, if any, of the Issuer to redeem, purchase or repay Securities of the series pursuant to any mandatory redemption, sinking fund or analogous provisions or at the option of a Holder thereof and the price or prices at which and the period or periods within which or the date or dates on which, and any terms and conditions upon which Securities of the series shall be redeemed, purchased or repaid, in whole or in part, pursuant to such obligation; (9) if the Securities of such series are Subordinated Securities, the terms pursuant to which the Securities of such series will be made subordinate in right of payment to Senior Indebtedness and the definition of such Senior Indebtedness with respect to such series (in the absence of an express statement to the effect that the Securities of such series are subordinate in right of payment to all such Senior Indebtedness, the Securities of such series shall not be subordinate to Senior Indebtedness and shall not constitute Subordinated Securities); and, in the event that the 9 Securities of such series are Subordinated Securities, a Board Resolution, Officer's Certificate or supplemental indenture, as the case may be, establishing the terms of such series which shall expressly state which articles, sections or other provisions thereof constitute the "Subordination Provisions" with respect to the Securities of such series; (10) if other than denominations of $1,000 and any integral multiple thereof in the case of Registered Securities, or $1,000 and $5,000 in the case of Unregistered Securities, the denominations in which Securities of the series shall be issuable; (11) the percentage of the principal amount at which the Securities will be issued and if other than the principal amount thereof, the portion of the principal amount of Securities of the series which shall be payable upon declaration of acceleration of the maturity thereof; (12) if other than the coin, currency or currencies in which the Securities of the series are denominated, the coin, currency or currencies in which payment of the principal of or interest on the Securities of such series shall be payable, including composite currencies or currency units; (13) if the principal of or interest on the Securities of the series are to be payable, at the election of the Issuer or a Holder thereof, in a coin or currency other than that in which the Securities are denominated, the period or periods within which, and the terms and conditions upon which, such election may be made; (14) if the amount of payments of principal of and interest on the Securities of the series may be determined with reference to an index or formula based on a coin, currency, composite currency or currency unit other than that in which the Securities of the series are denominated, the manner in which such amounts shall be determined; (15) whether the Securities of the series will be issuable as Registered Securities (and if so, whether such Securities will be issuable as Registered Global Securities) or Unregistered Securities (with or without Coupons), or any combination of the foregoing, any restrictions applicable to the offer, sale or delivery of Unregistered Securities or the payment of interest thereon and, if other than as provided in Section 2.8, the terms upon which Unregistered Securities of any series may be exchanged for Registered Securities of such series and vice versa; (16) whether and under what circumstances the Issuer will pay additional amounts on the Securities of the series held by a person who is not a U.S. person in respect of any tax, assessment or governmental charge withheld or deducted and, if so, whether the Issuer will have the option to redeem the Securities of the series rather than pay such additional amounts; 10 (17) if the Securities of the series are to be issuable in definitive form (whether upon original issue or upon exchange of a temporary Security of such series) only upon receipt of certain certificates or other documents or satisfaction of other conditions, the form and terms of such certificates, documents or conditions; (18) any trustees, depositaries, authenticating or paying agents, transfer agents or registrars of any other agents with respect to the Securities of such series; (19) any deletion from modification of or addition to the Events of Default or covenants with respect to the Securities of such series; (20) if the Securities of the series are to be convertible into or exchangeable for any other security or property of the Issuer, including, without limitation, securities of another Person held by the Issuer or its Affiliate; and (21) any other terms of the series (which terms shall not be inconsistent with the provisions of this Indenture). All Securities of any one series and Coupons, if any, appertaining thereto shall be substantially identical, except in the case of Registered Securities as to denomination and except as may otherwise be provided by or pursuant to the Board Resolution or Officer's Certificate referred to above or as set forth in any indenture supplemental hereto. All Securities of any one series need not be issued at the same time and may be issued from time to time without consent of any Holder, consistent with the terms of this Indenture, if so provided by or pursuant to such Board Resolution, such Officer's Certificate or in any indenture supplemental hereto. SECTION 2.4 AUTHENTICATION AND DELIVERY OF SECURITIES. The Issuer may deliver Securities of any series having attached thereto appropriate Coupons, if any, executed by the Issuer to the Trustee for authentication together with the applicable documents referred to below in this Section 2.4, and the Trustee shall thereupon authenticate and deliver such Securities and Coupons, if any, to or upon the order of the Issuer (contained in the Issuer Order referred to below in this Section) or pursuant to such procedures acceptable to the Trustee and to such recipients as may be specified from time to time by an Issuer Order. The maturity date, original issue date, interest rate and any other terms of the Securities of such series and Coupons, if any, appertaining thereto shall be determined by or pursuant to such Issuer Order and procedures. If provided for in such procedures, such Issuer Order may authorize authentication and delivery pursuant to oral or electronic instructions from the Issuer or its duly authorized agent or agents, which instructions, if oral, shall be promptly confirmed in writing. In authenticating such Securities and accepting the additional responsibilities under this Indenture in relation to such Securities, the Trustee shall be entitled to receive (in the case of subparagraphs (2), (3) and (4) below only at or before the time of the first request of the Issuer to the Trustee to authenticate Securities of such series) and (subject 11 to Section 6.1) shall be fully protected in relying upon, the following enumerated documents unless and until such documents have been superseded or revoked: (1) an Issuer Order requesting such authentication and setting forth delivery instructions if the Securities and Coupons, if any, are not to be delivered to the Issuer, provided that, with respect to Securities of a series subject to a Periodic Offering, (a) such Issuer Order may be delivered by the Issuer to the Trustee prior to the delivery to the Trustee of such Securities for authentication and delivery, (b) the Trustee shall authenticate and deliver Securities of such series for original issue from time to time, in an aggregate principal amount not exceeding the aggregate principal amount established for such series, pursuant to an Issuer Order or pursuant to procedures acceptable to the Trustee as may be specified from time to time by an Issuer Order, (c) the maturity date or dates, original issue date or dates, interest rate or rates and any other terms of Securities of such series shall be determined by an Issuer Order or pursuant to such procedures and (d) if provided for in such procedures, such Issuer Order may authorize authentication and delivery pursuant to oral or electronic instructions from the Issuer or its duly authorized agent or agents, which instructions, if oral, shall be promptly confirmed in writing; (2) any Board Resolution, Officer's Certificate and/or executed supplemental indenture referred to in Section 2.1 and 2.3 by or pursuant to which the forms and terms of the Securities and Coupons, if any, were established; (3) an Officer's Certificate setting forth the form or forms and terms of the Securities and Coupons, if any, stating that the form or forms and terms of the Securities and Coupons, if any, have been established pursuant to Sections 2.1 and 2.3 and comply with this Indenture, and covering such other matters as the Trustee may reasonably request; and (4) At the option of the Issuer, either one or more Opinions of Counsel, or a letter addressed to the Trustee permitting it to rely on one or more Opinions of Counsel, substantially to the effect that: (a) the form or forms of the Securities and Coupons, if any, have been duly authorized and established in conformity with the provisions of this Indenture; (b) in the case of an underwritten offering, the terms of the Securities have been duly authorized and established in conformity with the provisions of this Indenture, and, in the case of an offering that is not underwritten, certain terms of the Securities have been established pursuant to a Board Resolution, an Officer's Certificate or a supplemental indenture in accordance with this Indenture, and when such other terms as are to be established pursuant to 12 procedures set forth in an Issuer Order shall have been established, all such terms will have been duly authorized by the Issuer and will have been established in conformity with the provisions of this Indenture; and (c) such Securities and Coupons, if any, when executed by the Issuer and authenticated by the Trustee in accordance with the provisions of this Indenture and delivered to and duly paid for by the purchasers thereof, and subject to any conditions specified in such Opinion of Counsel, will have been duly issued under this Indenture, will be entitled to the benefits of this Indenture, and will be valid and binding obligations of the Issuer, enforceable in accordance with their respective terms except as the enforceability thereof may be limited by (i) bankruptcy, insolvency, reorganization, liquidation, moratorium, fraudulent transfer or similar laws affecting creditors' rights generally, (ii) rights of acceleration, if any, and (iii) the availability of equitable remedies may be limited by equitable principles of general applicability and such counsel need express no opinion with regard to the enforceability of Section 6.6 or of a judgment denominated in a currency other than Dollars. In rendering such opinions, any counsel may qualify any opinions as to enforceability by stating that such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium, fraudulent transfer and other similar laws affecting the rights and remedies of creditors and is subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). Such counsel may rely upon opinions of other counsel (copies of which shall be delivered to the Trustee) reasonably satisfactory to the Trustee, in which case the opinion shall state that such counsel believes he and the Trustee are entitled so to rely. Such counsel may also state that, insofar as such opinion involves factual matters, he has relied, to the extent he deems proper, upon certificates of officers of the Issuer and its subsidiaries and certificates of public officials. The Trustee shall have the right to decline to authenticate and deliver any Securities under this section if the Trustee, being advised by counsel, determines that such action may not lawfully be taken by the Issuer or if the Trustee in good faith by its board of directors or board of trustees, executive committee or a trust committee of directors or trustees shall determine that such action would expose the Trustee to personal liability to existing Holders or would affect the Trustee's own rights, duties or immunities under the Securities, this Indenture or otherwise. If the Issuer shall establish pursuant to Section 2.3 that the Securities of a series are to be issued in the form of one or more Registered Global Securities, then the Issuer shall execute and the Trustee shall, in accordance with this Section and the Issuer Order with respect to such series, authenticate and deliver one or more Registered Global Securities that (i) shall represent and shall be denominated in an amount equal to the aggregate principal amount of all of the Securities of such series issued and not yet cancelled, (ii) shall be registered in the name 13 of the Depositary for such Registered Global Security or Securities or the nominee of such Depositary, (iii) shall be delivered by the Trustee to such Depositary or delivered or held 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 Securities in definitive registered form, this Security 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 designated pursuant to Section 2.3 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. SECTION 2.5 EXECUTION OF SECURITIES. The Securities and each Coupon appertaining thereto, if any, shall be signed on behalf of the Issuer by the chairman or vice chairman of its Board of Directors or its president, or any executive (senior or other), a vice president or its treasurer, under its corporate seal (except in the case of Coupons) which may, but need not, be attested. Such signatures may be the manual or facsimile signatures of the present or any future such officers. The seal of the Issuer may be in the form of a facsimile thereof and may be impressed, affixed, imprinted or otherwise reproduced on the Securities. 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 Security that has been duly authenticated and delivered by the Trustee. In case any officer of the Issuer who shall have signed any of the Securities or Coupons, if any, shall cease to be such officer before the Security or Coupon so signed (or the Security to which the Coupon so signed appertains) shall be authenticated and delivered by the Trustee or disposed of by the Issuer, such Security or Coupon nevertheless may be authenticated and delivered or disposed of as though the person who signed such Security or Coupon had not ceased to be such officer of the Issuer; and any Security or Coupon may be signed on behalf of the Issuer by such persons as, at the actual date of the execution of such Security or Coupon, shall be the proper officers of the Issuer, although at the date of the execution and delivery of this Indenture any such person was not such an officer. SECTION 2.6 CERTIFICATE OF AUTHENTICATION. Only such Securities as shall bear thereon a certificate of authentication substantially in the form hereinbefore recited, executed by the Trustee by the manual signature of one of its authorized officers, shall be entitled to the benefits of this Indenture or be valid or obligatory for any purpose. No Coupon shall be entitled to the benefits of this Indenture or shall be valid and obligatory for any purpose until the certificate of authentication on the Security to which such Coupon appertains shall have been duly executed by the Trustee. The execution of such certificate by the Trustee upon any Security executed by the Issuer shall be conclusive evidence 14 that the Security so authenticated has been duly authenticated and delivered hereunder and that the Holder is entitled to the benefits of this Indenture. SECTION 2.7 DENOMINATION AND DATE OF SECURITIES; PAYMENT OF INTEREST. The Securities of each series shall be issuable as Registered Securities or Unregistered Securities in denominations established as contemplated by Section 2.3 or, with respect to the Registered Securities of any series, if not so established, in denominations of $1,000 and any integral multiple thereof. If denominations of Unregistered Securities of any series are not so established, such Securities shall be issuable in denominations of $1,000 and $5,000. The Securities of each series shall be numbered, lettered or otherwise distinguished in such manner or in accordance with such plan as the officers of the Issuer executing the same may determine with the approval of the Trustee, as evidenced by the execution and authentication thereof. Each Registered Security shall be dated the date of its authentication. Each Unregistered Security shall be dated as provided in the Board Resolution referred to in Section 2.3. The Securities of each series shall bear interest, if any, from the date, and such interest shall be payable on the dates, established as contemplated by Section 2.3. The person in whose name any Registered Security of any series is registered at the close of business on any record date applicable to a particular series with respect to any interest payment date for such series shall be entitled to receive the interest, if any, payable on such interest payment date notwithstanding any transfer or exchange of such Registered Security subsequent to the record date and prior to such interest payment date, except if and to the extent the Issuer shall default in the payment of the interest due on such interest payment date for such series, in which case such defaulted interest shall be paid to the persons in whose names Outstanding Registered Securities for such series are registered at the close of business on a subsequent record date (which shall be not less than five Business Days prior to the date of payment of such defaulted interest) established by notice given by mail by or on behalf of the Issuer to the Holders of Registered Securities not less than 15 days preceding such subsequent record date. The term "record date" as used with respect to any interest payment date (except a date for payment of defaulted interest) for the Securities of any series shall mean the date specified as such in the terms of the Registered Securities of such series established as contemplated by Section 2.3, or, if no such date is so established, if such interest payment date is the first day of a calendar month, the fifteenth day of the preceding calendar month or, if such interest payment date is the fifteenth day of a calendar month, the first day of such calendar month, whether or not such record date is a Business Day. SECTION 2.8 REGISTRATION, TRANSFER AND EXCHANGE. (a) The Issuer will keep at each office or agency to be maintained for the purpose as provided in Section 3.2 for each series of Securities a register or registers in which, subject to such reasonable regulations as the Issuer may prescribe, it will provide for the registration of Registered Securities of such series and the registration of transfer of Registered Securities of such series. 15 Such register shall be in written form in the English language or in any other form capable of being converted into such form within a reasonable time. At all reasonable times such register or registers shall be open for inspection by the Trustee. Upon due presentation for registration of transfer of any Registered Security of any series at any such office or agency to be maintained for the purpose as provided in Section 3.2, the Issuer shall execute and the Trustee shall authenticate and deliver in the name of the transferee or transferees a new Registered Security or Registered Securities of the same series, maturity date, interest rate and original issue date in authorized denominations for a like aggregate principal amount. Unregistered Securities (except for any temporary global Unregistered Securities) and Coupons (except for Coupons attached to any temporary global Unregistered Securities) shall be transferable by delivery. At the option of the Holder thereof, Registered Securities of any series (other than a Registered Global Security, except as set forth below) may be exchanged for a Registered Security or Registered Securities of such series having authorized denominations and an equal aggregate principal amount, upon surrender of such Registered Securities to be exchanged at the agency of the Issuer that shall be maintained for such purpose in accordance with Section 3.2 and upon payment, if the Issuer shall so require, of the charges hereinafter provided. If the Securities of any series are issued in both registered and unregistered form, at the option of the Holder thereof, except as otherwise specified pursuant to Section 2.3, Unregistered Securities of any series may be exchanged for Registered Securities of such series having authorized denominations and an equal aggregate principal amount, upon surrender of such Unregistered Securities to be exchanged at the agency of the Issuer that shall be maintained for such purpose in accordance with Section 3.2, with, in the case of Unregistered Securities that have Coupons attached, all unmatured Coupons and all matured Coupons in default thereto appertaining, and upon payment, if the Issuer shall so require, of the charges hereinafter provided. At the option of the Holder thereof, if Unregistered Securities of any series, maturity date, interest rate and original issue date are issued in more than one authorized denomination, except as otherwise specified pursuant to Section 2.3, such Unregistered Securities may be exchanged for Unregistered Securities of such series having authorized denominations and an equal aggregate principal amount, upon surrender of such Unregistered Securities to be exchanged at the agency of the Issuer that shall be maintained for such purpose in accordance with Section 3.2 or as specified pursuant to Section 2.3, with, in the case of Unregistered Securities that have Coupons attached, all unmatured Coupons and all matured Coupons in default thereto appertaining, and upon payment, if the Issuer shall so require, of the charges hereinafter provided. Registered Securities of any series may not be exchanged for Unregistered Securities of such series unless (1) otherwise specified pursuant to Section 2.3 and (2) the Issuer has delivered to the Trustee an Opinion of Counsel that (x) the Issuer has received from the IRS a ruling or (y) since the date hereof, there has been a change in the applicable United States Federal income tax law, in either case to the effect that the inclusion of terms permitting Registered Securities to be exchanged 16 for Unregistered Securities would result in no United States Federal income tax effect adverse to the Issuer or to any Holder. Whenever any Securities are so surrendered for exchange, the Issuer shall execute, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive. All Securities and Coupons, if any, surrendered upon any exchange or transfer provided for in this Indenture shall be promptly cancelled and disposed of by the Trustee in accordance with its regular procedures, and the Trustee shall deliver a certificate of disposition thereof to the Issuer. All Registered Securities presented for registration of transfer, exchange, redemption or payment shall (if so required by the Issuer or the Trustee) be duly endorsed, or be accompanied by a written instrument or instruments of transfer in form satisfactory to the Issuer and the Trustee duly executed, by the Holder or his attorney duly authorized in writing. The Issuer or the registrar may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any exchange or registration of transfer of Securities. No service charge shall be made for any such transaction. The Issuer shall not be required to exchange or register a transfer of (a) any Securities of any series for a period of 15 days preceding the first mailing of notice of redemption of Securities of such series to be redeemed or (b) any Securities selected, called or being called for redemption, in whole or in part, except, in the case of any Security to be redeemed in part, the portion thereof not so to be redeemed. Notwithstanding any other provision of this Section 2.8, unless and until it is exchanged in whole or in part for Securities in definitive registered form, a Registered Global Security representing all or a portion of the Securities of a series may not be transferred except as a whole by the Depositary for such series 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 for such series or a nominee of such successor Depositary. If at any time the Depositary for any Registered Securities of a series represented by one or more Registered Global Securities notifies the Issuer that it is unwilling or unable to continue as Depositary for such Registered Securities or if at any time the Depositary for such Registered Securities shall no longer be eligible under Section 2.4, the Issuer shall appoint a successor Depositary eligible under Section 2.4 with respect to such Registered Securities. If a successor Depositary eligible under Section 2.4 for such Registered Securities is not appointed by the Issuer within 90 days after the Issuer receives such notice or becomes aware of such ineligibility, the Issuer's election pursuant to Section 2.3 that such Registered Securities be represented by one or more Registered Global Securities shall no longer be effective and the Issuer will execute, and the Trustee, upon receipt of an Officer's Certificate for the authentication and delivery of definitive Securities of such series, will authenticate and deliver, Securities of such series in definitive registered form without coupons, 17 in any authorized denominations, in an aggregate principal amount equal to the principal amount of the Registered Global Security or Securities representing such Registered Securities in exchange for such Registered Global Security or Securities. The Issuer may at any time and in its sole discretion determine that the Registered Securities of any series issued in the form of one or more Registered Global Securities shall no longer be represented by a Registered Global Security or Securities. In such event the Issuer will execute, and the Trustee, upon receipt of any Officer's Certificate for the authentication and delivery of definitive Securities of such series, will authenticate and deliver, Securities of such series in definitive registered form without coupons, in any authorized denominations, in an aggregate principal amount equal to the principal amount of the Registered Global Security or Securities representing such Registered Securities, in exchange for such Registered Global Security or Securities. If specified by the Issuer pursuant to Section 2.3 with respect to Securities represented by a Registered Global Security, the Depositary for such Registered Global Security may surrender such Registered Global Security in exchange in whole or in part for Securities of the same series in definitive registered form on such terms as are acceptable to the Issuer and such Depositary. Thereupon, the Issuer shall execute, and the Trustee shall authenticate and deliver, without service charge, (i) to the Person specified by such Depositary a new Registered Security or Securities of the same series, 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 Registered Global Security; and (ii) to such Depositary a new Registered Global Security in a denomination equal to the difference, if any, between the principal amount of the surrendered Registered Global Security and the aggregate principal amount of Registered Securities authenticated and delivered pursuant to clause (i) above. Upon the exchange of a Registered Global Security for Securities in definitive registered form without coupons, in authorized denominations, such Registered Global Security shall be cancelled by the Trustee or an agent of the Issuer or the Trustee. Securities in definitive registered form without coupons issued in exchange for a Registered Global Security pursuant to this Section 2.8 shall be registered in such names and in such authorized denominations as the Depositary for such Registered Global Security, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee or an agent of the Issuer or the Trustee. The Trustee or such agent shall deliver such Securities to or as directed by the Persons in whose names such Securities are so registered. 18 All Securities issued upon any transfer or exchange of Securities shall be valid obligations of the Issuer, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such transfer or exchange. Notwithstanding anything herein or in the terms of any series of Securities to the contrary, none of the Issuer, the Trustee or any agent of the Issuer or the Trustee (any of which, other than the Issuer, shall rely on an Officer's Certificate and an Opinion of Counsel) shall be required to exchange any Unregistered Security for a Registered Security if such exchange would result in United States Federal income tax consequences adverse to the Issuer (such as, for example, the inability of the Issuer to deduct from its income, as computed for United States Federal income tax purposes, the interest payable on the Unregistered Securities) under then applicable United States Federal income tax laws. SECTION 2.9 MUTILATED, DEFACED, DESTROYED, LOST AND STOLEN SECURITIES. In case any temporary or definitive Security or any Coupon appertaining to any Security shall be mutilated, defaced, destroyed, lost or stolen, the Issuer in its discretion may execute and, upon the written request of any officer of the Issuer, the Trustee shall authenticate and deliver, a new Security of the same series, maturity date, interest rate and original issue date, bearing a number or other distinguishing symbol not contemporaneously outstanding, in exchange and substitution for the mutilated or defaced Security, or in lieu of and in substitution for the Security so destroyed, lost or stolen with Coupons corresponding to the Coupons appertaining to the Securities so mutilated, defaced, destroyed, lost or stolen, or in exchange or substitution for the Security to which such mutilated, defaced, destroyed, lost or stolen Coupon appertained, with Coupons appertaining thereto corresponding to the Coupons so mutilated, defaced, destroyed, lost or stolen. In every case, the applicant for a substitute Security or Coupon shall furnish to the Issuer and to the Trustee and any agent of the Issuer or the 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 Security or Coupon and of the ownership thereof, and in the case of mutilation or defacement shall surrender the Security and related Coupons to the Trustee or such agent. Upon the issuance of any substitute Security or Coupon, the Issuer or the registrar 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 Security or Coupon 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 Issuer may, instead of issuing a substitute Security, pay or authorize the payment of the same or the relevant Coupon (without surrender thereof except in the case of a mutilated or defaced Security or Coupon), if the applicant for such payment shall furnish to the Issuer and to the Trustee and any agent of the Issuer 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 19 to the Issuer and the Trustee and any agent of the Issuer or the Trustee evidence to their satisfaction of the destruction, loss or theft of such Security or Coupons and of the ownership thereof. Every substitute Security or Coupon of any series issued pursuant to the provisions of this Section by virtue of the fact that any such Security or Coupon is destroyed, lost or stolen shall constitute an additional contractual obligation of the Issuer, whether or not the destroyed, lost or stolen Security or Coupon 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 Securities or Coupons of such series duly authenticated and delivered hereunder. All Securities and Coupons shall be held and owned 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 or destroyed, lost or stolen Securities and Coupons 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 2.10 CANCELLATION OF SECURITIES; DESTRUCTION THEREOF. All Securities and Coupons surrendered for payment, redemption, registration of transfer or exchange, or for credit against any payment in respect of a sinking or analogous fund, if any, if surrendered to the Issuer or any agent of the Issuer or the Trustee or any agent of the Trustee, shall be delivered to the Trustee or its agent for cancellation or, if surrendered to the Trustee, shall be cancelled by it; and no Securities or Coupons shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Indenture. The Trustee or its agent shall dispose of cancelled Securities and Coupons held by it in accordance with its regular procedures and deliver a certificate of disposition to the Issuer. If the Issuer or its agent shall acquire any of the Securities or Coupons, such acquisition shall not operate as a redemption or satisfaction of the indebtedness represented by such Securities or Coupons unless and until the same are delivered to the Trustee or its agent for cancellation. SECTION 2.11 TEMPORARY SECURITIES. Pending the preparation of definitive Securities for any series, the Issuer may execute and the Trustee shall authenticate and deliver temporary Securities for such series (printed, lithographed, typewritten or otherwise reproduced, in each case in form satisfactory to the Trustee). Temporary Securities of any series shall be issuable as Registered Securities without coupons, or as Unregistered Securities with or without coupons attached thereto, of any authorized denomination, and substantially in the form of the definitive Securities of such series but with such omissions, insertions and variations as may be appropriate for temporary Securities, all as may be determined by the Issuer with the concurrence of the Trustee as evidenced by the execution and authentication thereof. Temporary Securities may contain such references to any provisions of this Indenture as may be appropriate. Every temporary Security shall be executed by the Issuer and be authenticated by the Trustee upon the same conditions and in substantially the same manner, 20 and with like effect, as the definitive Securities. Without unreasonable delay the Issuer shall execute and shall furnish definitive Securities of such series and thereupon temporary Registered Securities of such series may be surrendered in exchange therefor without charge at each office or agency to be maintained by the Issuer for that purpose pursuant to Section 3.2 and, in the case of Unregistered Securities, at any agency maintained by the Issuer for such purpose as specified pursuant to Section 2.3, and the Trustee shall authenticate and deliver in exchange for such temporary Securities of such series an equal aggregate principal amount of definitive Securities of the same series having authorized denominations and, in the case of Unregistered Securities, having attached thereto any appropriate Coupons. Until so exchanged, the temporary Securities of any series shall be entitled to the same benefits under this Indenture as definitive Securities of such series, unless otherwise established pursuant to Section 2.3. The provisions of this Section are subject to any restrictions or limitations on the issue and delivery of temporary Unregistered Securities of any series that may be established pursuant to Section 2.3 (including any provision that Unregistered Securities of such series initially be issued in the form of a single global Unregistered Security to be delivered to a depositary or agency located outside the United States and the procedures pursuant to which definitive or global Unregistered Securities of such series would be issued in exchange for such temporary global Unregistered Security). ARTICLE III COVENANTS OF THE ISSUER SECTION 3.1 PAYMENT OF PRINCIPAL AND INTEREST. The Issuer covenants and agrees for the benefit of each series of Securities that it will duly and punctually pay or cause to be paid the principal of, and interest on, if any, each of the Securities of such series (together with any additional amounts payable pursuant to the terms of such Securities) at the place or places, at the respective time or times and in the manner provided in such Securities and in the Coupons, if any, appertaining thereto and in this Indenture. The interest on Securities with Coupons attached (together with any additional amounts payable pursuant to the terms of such Securities) shall be payable only upon presentation and surrender of the several Coupons for such interest installments as are evidenced thereby as they severally mature. If any temporary Unregistered Security provides that interest thereon may be paid while such Security is in temporary form, the interest on any such temporary Unregistered Security (together with any additional amounts payable pursuant to the terms of such Security) shall be paid, as to the installments of interest evidenced by Coupons attached thereto, if any, only upon presentation and surrender thereof, and, as to the other installments of interest, if any, only upon presentation of such Securities for notation thereon of the payment of such interest, in each case subject to any restrictions that may be established pursuant to Section 2.3. The interest, if any, on Registered Securities (together with any additional amounts payable pursuant to the terms of such Securities) shall be payable only to or upon the written order of the Holders thereof and, at the option of the Issuer, may be paid by wire transfer or by mailing checks for 21 such interest payable to or upon the written order of such Holders at their last addresses as they appear on the Securities register of the Issuer. SECTION 3.2 OFFICES FOR PAYMENTS, ETC. So long as any Registered Securities are authorized for issuance pursuant to this Indenture or are outstanding hereunder, the Issuer will maintain in the Borough of Manhattan, The City of New York, an office or agency where the Registered Securities of each series may be presented for payment, where the Securities of each series may be presented for exchange as is provided in this Indenture and, if applicable, pursuant to Section 2.3 and where the Registered Securities of each series may be presented for registration of transfer as in this Indenture provided. The Issuer will maintain one or more offices or agencies in a city or cities located outside the United States (including any city in which such an agency is required to be maintained under the rules of any stock exchange on which the Securities of such series are listed) where the Unregistered Securities, if any, of each series and Coupons, if any, appertaining thereto may be presented for payment. No payment on any Unregistered Security or Coupon will be made upon presentation of such Unregistered Security or Coupon at an agency of the Issuer within the United States, nor will any payment be made by transfer to an account in, or by mail to an address in, the United States unless pursuant to applicable United States laws and regulations then in effect such payment can be made without tax consequences adverse to the Issuer. Notwithstanding the foregoing, payments in Dollars of Unregistered Securities of any series and Coupons appertaining thereto which are payable in Dollars may be made at an agency of the Issuer maintained in the Borough of Manhattan, The City of New York if such payment in Dollars at each agency maintained by the Issuer outside the United States for payment on such Unregistered Securities is illegal or effectively precluded by exchange controls or other similar restrictions. The Issuer will maintain in the Borough of Manhattan, The City of New York, an office or agency where notices and demands to or upon the Issuer in respect of the Securities of any series, the Coupons appertaining thereto or this Indenture may be served. The Issuer will give to the Trustee written notice of the location of each such office or agency and of any change of location thereof. In case the Issuer shall fail to maintain any agency required by this Section to be located in the Borough of Manhattan, The City of New York, or shall fail to give such notice of the location or for any change in the location of any of the above agencies, presentations and demands may be made and notices may be served at the Corporate Trust Office of the Trustee. The Issuer may from time to time designate one or more additional offices or agencies where the Securities of a series and any Coupons appertaining thereto may be presented for payment, where the Securities of that series may be presented for exchange as provided in this Indenture and pursuant to Section 2.3 and where the Registered Securities of that series may be presented for registration of transfer as in this Indenture provided, and the 22 Issuer may from time to time rescind any such designation, as the Issuer may deem desirable or expedient; provided, that no such designation or rescission shall in any manner relieve the Issuer of its obligations to maintain the agencies provided for in this Section. The Issuer shall give to the Trustee prompt written notice of any such designation or rescission thereof. SECTION 3.3 APPOINTMENT TO FILL A VACANCY IN OFFICE OF TRUSTEE. The Issuer, whenever necessary to avoid or fill a vacancy in the office of Trustee, will appoint, in the manner provided in Section 6.10, a Trustee, so that there shall at all times be a Trustee with respect to each series of Securities hereunder. SECTION 3.4 PAYING AGENTS. Whenever the Issuer shall appoint a paying agent other than the Trustee with respect to the Securities of any series, it will cause such paying agent to execute and deliver to the Trustee an instrument in which such 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 agent for the payment of the principal of or interest on the Securities of such series (whether such sums have been paid to it by the Issuer or by any other obligor on the Securities of such series) in trust for the benefit of the Holders of the Securities of such series, or Coupons appertaining thereto, if any, or of the Trustee; (b) that it will give the Trustee notice of any failure by the Issuer (or by any other obligor on the Securities of such series) to make any payment of the principal of or interest on the Securities of such series when the same shall be due and payable; and (c) that it will pay any such sums so held in trust by it to the Trustee upon the Trustee's written request at any time during the continuance of the failure referred to in the foregoing clause (b). The Issuer will, on or prior to each due date of the principal of or interest on the Securities of such series, deposit 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 Issuer will promptly notify the Trustee of any failure to take such action. If the Issuer shall act as its own paying agent with respect to the Securities of any series, it will, on or before each due date of the principal of or interest on the Securities of such series, set aside, segregate and hold in trust for the benefit of the Holders of the Securities of such series or the Coupons appertaining thereto a sum sufficient to pay such principal or interest so becoming due. The Issuer will promptly notify the Trustee of any failure to take such action. Anything in this Section to the contrary notwithstanding, but subject to Section 10.1, the Issuer may at any time, for the purpose of obtaining a satisfaction and discharge with 23 respect to one or more or all series of Securities hereunder, or for any other reason, pay or cause to be paid to the Trustee all sums held in trust for any such series by the Issuer or any paying agent hereunder, as required by this Section, such sums to be held by the Trustee upon the trusts herein contained. Anything in this Section to the contrary notwithstanding, the agreement to hold sums in trust as provided in this Section is subject to the provisions of Sections 10.3 and 10.4. SECTION 3.5 COMPLIANCE CERTIFICATES. The Issuer will furnish to the Trustee on or before January 31 in each year (beginning with [ ]) a brief certificate (which need not comply with Section 11.5) from the principal executive, financial or accounting officer of the Issuer stating that in the course of the performance by the signer of his or her duties as an officer of the Issuer he or she would normally have knowledge of any default or non-compliance by the Issuer in the performance of any covenants or conditions contained in this Indenture, stating whether or not he or she has knowledge of any such default or non-compliance and, if so, describing each such default or non-compliance of which the signer has knowledge and the nature thereof. SECTION 3.6 CORPORATE EXISTENCE. Subject to Article IX, the Issuer will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and the rights (charter and statutory), licenses and franchises of the Issuer and its Subsidiaries; provided, that the Issuer shall not be required to preserve any such right, license or franchise, if, in the judgment of the Issuer, the preservation thereof is no longer desirable in the conduct of the business of the Issuer and its Subsidiaries taken as a whole and the loss thereof is not disadvantageous in any material respect to the Securityholders. SECTION 3.7 LUXEMBOURG PUBLICATIONS. In the event of the publication of any notice pursuant to Section 5.11, 6.11, 6.12, 8.2, 10.4, 11.4 or 12.2, the party making such publication in the Borough of Manhattan, The City of New York and London shall also, to the extent that notice is required to be given to Holders of Securities of any series by applicable Luxembourg law or stock exchange regulation, as evidenced by an Officer's Certificate delivered to such party, make a similar publication in Luxembourg. ARTICLE IV SECURITYHOLDER LISTS AND REPORTS BY THE ISSUER AND THE TRUSTEE SECTION 4.1 ISSUER TO FURNISH TRUSTEE INFORMATION AS TO NAMES AND ADDRESSES OF SECURITYHOLDERS. If and so long as the Trustee shall not be the Security registrar for the Securities of any series, the Issuer and any other obligor on the Securities will furnish or cause to be furnished to the Trustee a list in such form as the 24 Trustee may reasonably require of the names and addresses of the Holders of the Registered Securities of such series pursuant to Section 312 of the Trust Indenture Act: (a) semi-annually not more than 5 days after each record date for the payment of interest on such Registered Securities, as hereinabove specified, as of such record date and on dates to be determined pursuant to Section 2.3 for non-interest bearing Registered Securities in each year; and (b) at such other times as the Trustee may reasonably request in writing, within thirty days after receipt by the Issuer of any such request as of a date not more than 15 days prior to the time such information is furnished. SECTION 4.2 REPORTS BY THE ISSUER. The Issuer covenants to file with the Trustee, within 15 days after the Issuer is required to file the same with the Commission, copies of the annual reports and of the information, documents, and other reports that the Issuer may be required to file with the Commission pursuant to Section 13 or Section 15(d) of the Exchange Act or pursuant to Section 314 of the Trust Indenture Act. SECTION 4.3 REPORTS BY THE TRUSTEE. (a) On or before the first July 15 which occurs not less than 60 days after the earliest date of issuance of any Securities and on or before July 15 in each year thereafter, so long as any Securities are Outstanding hereunder, the Trustee shall transmit by mail as provided below to the Securityholders of each series of outstanding Securities, as hereinafter in this Section provided, a brief report dated as of the preceding May 15 with respect to: (i) its eligibility under Section 6.10 and its qualification under Section 6.9, or in lieu thereof, if to the best of its knowledge it has continued to be eligible and qualified under such Sections, a written statement to such effect; (ii) the character and amount of any advances (and if the Trustee elects to so state, the circumstances surrounding the making thereof) made by the Trustee (as such) which remain unpaid on the date of such report and for the reimbursement of which it claims or may claim a lien or charge, prior to that of the Securities of such series, on any property or funds held or collected by it as Trustee, except that the Trustee shall not be required (but may elect) to report such advances if such advances so remaining unpaid aggregate not more than 0.5% of the principal of the Securities of such series outstanding on the date of such report; (iii) the amount, interest rate and maturity date of all other indebtedness owing by the Issuer (or any other obligor on the Securities of such series) to the 25 Trustee in its individual capacity on the date of such report, with a brief description of any property held as collateral security therefor, except any indebtedness based upon a creditor relationship; (iv) the property and funds, if any, physically in the possession of the Trustee (as such) in respect of the Securities of such series on the date of such report; (v) any additional issue of Securities of such series which the Trustee has not previously reported; and (vi) any action taken by the Trustee in the performance of its duties under this Indenture which the Trustee has not previously reported and which in the Trustee's opinion materially affects the Securities of such series, except action in respect of a default, notice of which has been or is to be withheld by it in accordance with the provisions of Section 5.11. (b) The Trustee shall transmit to the Securityholders of each series, as provided in subsection (c) of this Section, a brief report with respect to the character and amount of any advances (and if the Trustee elects so to state, the circumstances surrounding the making thereof) made by the Trustee (as such) in respect of the Securities of such series since the date of the last report transmitted pursuant to the provisions of subsection (a) of this Section (or if no such report has yet been so transmitted, since the date of this Indenture) for the reimbursement of which it claims or may claim a lien or charge prior to that of the Securities of such series on property or funds held or collected by it as Trustee and which it has not previously reported pursuant to this subsection (b), except that the Trustee shall not be required (but may elect) to report such advances if such advances remaining unpaid at any time aggregate 10% or less of the principal amount of Securities of such series outstanding at such time, such report to be transmitted within 90 days after such time. (c) Reports pursuant to this Section shall be transmitted by mail to all Holders of Securities of such series, as the names and addresses of such Holders appear upon the Securities register as of a date not more than 15 days prior to the mailing thereof. (d) A copy of each such report shall, at the time of such transmission to Securityholders, be furnished to the Issuer and be filed by the Trustee with each stock exchange upon which the Securities of such series are listed and also with the Commission. The Issuer agrees to notify the Trustee when and as Securities of any series become listed on any national securities exchange. 26 ARTICLE V REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS ON EVENT OF DEFAULT SECTION 5.1 EVENT OF DEFAULT DEFINED, ACCELERATION OF MATURITY; WAIVER OF DEFAULT. "Event of Default" with respect to Securities of any series, wherever used herein, means any one 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): (a) default in the payment of any installment of interest upon any of the Securities of such series as and when the same shall become due and payable, and continuance of such default for a period of 30 days; provided, that, a valid extension of an interest payment period by the Issuer in accordance with the terms of such Securities shall not constitute a failure to pay interest; or (b) default in the payment of all or any part of the principal on any of the Securities of such series as and when the same shall become due and payable either at maturity, upon any redemption, by declaration or otherwise; or (c) default in the payment of any sinking fund installment as and when the same shall become due and payable by the terms of the Securities of such series; or (d) failure on the part of the Issuer duly to observe or perform any other of the covenants or agreements on the part of the Issuer in the Securities of such series or contained in this Indenture (other than a covenant or agreement included in this Indenture solely for the benefit of a series of Securities other than such series) for a period of 60 days after the date on which written notice specifying such failure, stating that such notice is a "Notice of Default" hereunder and demanding that the Issuer remedy the same, shall have been given by overnight or personal delivery, or by facsimile if confirmed by mail, overnight, or personal delivery, to the Issuer by the Trustee, or to the Issuer and the Trustee by the holders of at least 25% in aggregate principal amount of the Outstanding Securities of the series to which such covenant or agreement relates; or (e) a court having jurisdiction in the premises shall enter a decree or order for relief in respect of the Issuer in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Issuer for any substantial part of its or their property or ordering the winding up or liquidation of 27 its or their affairs, and such decree or order shall remain unstayed and in effect for a period of 60 consecutive days; or (f) the Issuer shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consent to the entry of an order for relief in an involuntary case under any such law, or consent to the appointment or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Issuer or for any substantial part of its or their property, or make any general assignment for the benefit of creditors; or (g) any other Event of Default provided in the supplemental indenture or Board Resolution under which such series of Securities is issued or in the form of Security for such series. If an Event of Default described in clause (a), (b) or (c) occurs and is continuing, then, and in each and every such case, except for any series of Securities the principal of which shall have already become due and payable, either the Trustee or the Holders of not less than 25% in aggregate principal amount of the Securities of each such affected series then Outstanding hereunder (each such series voting as a separate class) by notice in writing to the Issuer (and to the Trustee if given by Securityholders), may declare the entire principal (or, if the Securities of such series are Original Issue Discount Securities, such portion of the principal amount as may be specified in the terms of such series) of all Securities of such series, and the interest accrued thereon, if any, to be due and payable immediately, and upon any such declaration, the same shall become immediately due and payable. Except as otherwise provided in the terms of any series of Senior Securities pursuant to Section 2.3, if an Event of Default described in clause (d) or (g) above with respect to all series of the Senior Securities then Outstanding, occurs and is continuing, then, and in each and every such case, unless the Principal of all of the Senior Securities shall have already become due and payable, either the Trustee or the Holders of not less than 25% in aggregate principal amount of all of the Senior Securities then Outstanding hereunder (treated as one class) by notice in writing to the Issuer (and to the Trustee if given by Securityholders), may declare the entire principal (or, if the Senior Securities of any series are Original Issue Discount Securities, such portion of the principal amount as may be specified in the terms of such series) of all of the Senior Securities then Outstanding, and the interest accrued thereon, if any, to be due and payable immediately, and upon such declaration, the same shall become immediately due and payable. If an Event of Default described in clause (e) or (f) above occurs and is continuing, then the principal amount of all the Senior Securities then Outstanding, and the interest accrued thereon, if any, shall become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. Except as otherwise provided in the terms of any series of Subordinated Securities pursuant to Section 2.3, if an Event of Default described in clause (d) or (g) above 28 with respect to all series of Subordinated Securities then Outstanding, occurs and is continuing, then, and in each and every such case, unless the Principal of all of the Subordinated Securities shall have already become due and payable, either the Trustee or the Holders of not less than 25% in aggregate principal amount of all of the Subordinated Securities then Outstanding hereunder (treated as one class) by notice in writing to the Issuer (and to the Trustee if given by Securityholders), may declare the entire principal (or, if the Subordinated Securities of any series are Original Issue Discount Securities, such portion of the principal amount as may be specified in the terms of such series) of all of the Subordinated Securities then Outstanding, and the interest accrued thereon, if any, to be due and payable immediately, and upon such declaration, the same shall become immediately due and payable. If an Event of Default described in clause (e) or (f) above occurs and is continuing, then the principal amount of all the Subordinated Securities then Outstanding, and the interest accrued thereto, if any, shall become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. If an Event of Default described in clause (d) or (g) occurs and is continuing, which Event of Default is with respect to less than all series of Senior Securities then Outstanding, then, and in each and every such case, except for any series of Senior Securities the principal of which shall have already become due and payable, either the Trustee or the Holders of not less than 25% in aggregate principal amount of the Senior Securities of each such affected series then Outstanding hereunder (each such series voting as a separate class) by notice in writing to the Issuer (and to the Trustee if given by Securityholders), may declare the entire principal (or, if the Securities of such series are Original Issue Discount Securities, such portion of the principal amount as may be specified in the terms of such series) of all Securities of such series, and the interest accrued thereon, if any, to be due and payable immediately, and upon any such declaration, the same shall become immediately due and payable. If an Event of Default described in clause (d) or (g) occurs and is continuing, which Event of Default is with respect to less than all series of Subordinated Securities then Outstanding, then, and in each and every such case, except for any series of Subordinated Securities the principal of which shall have already become due and payable, either the Trustee or the Holders of not less than 25% in aggregate principal amount of the Subordinated Securities of each such affected series then Outstanding hereunder (each such series voting as a separate class) by notice in writing to the Issuer (and to the Trustee if given by Securityholders), may declare the entire principal (or, if the Securities of such series are Original Issue Discount Securities, such portion of the principal amount as may be specified in the terms of such series) of all Securities of such series, and the interest accrued thereon, if any, to be due and payable immediately, and upon any such declaration, the same shall become immediately due and payable. The foregoing provisions are subject to the condition that if, at any time after the principal (or, if the Securities are Original Issue Discount Securities, such portion of the principal as may be specified in the terms thereof) of the Securities of any series (or of all 29 the Securities, as the case may be) 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, (A) the Issuer shall pay or shall deposit with the Trustee a sum sufficient to pay (i) all matured installments of interest upon all the Securities of such series (or all the Securities, as the case may be); and (ii) the principal of any and all Securities of such series (or of all the Securities, as the case may be) which shall have become due otherwise than by acceleration; and (iii) interest upon such 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 or Yield to Maturity (in the case of Original Issue Discount Securities) specified in the Securities of such series (or at the respective rates of interest or Yields to Maturity of all the Securities, as the case may be) to the date of such payment or deposit; and (iv) all amounts payable to the Trustee pursuant to Section 6.6; and (B) all Events of Default under the Indenture, other than the non-payment of the principal of Securities which shall have become due by acceleration, shall have been cured, waived or otherwise remedied as provided herein, then and in every such case the Holders of a majority in aggregate principal amount of all the Securities of such series voting as a separate class (or of all the Securities, as the case may be, voting as a single class), then Outstanding, by written notice to the Issuer and to the Trustee, may waive all defaults with respect to such series (or with respect to all the Securities, as the case may be) 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. For all purposes under this Indenture, if a portion of the principal of any Original Issue Discount Securities shall have been accelerated and declared due and payable pursuant to the provisions hereof, then, from and after such declaration, unless such declaration has been rescinded and annulled, the principal amount of such Original Issue Discount Securities shall be deemed, for all purposes hereunder, to be such portion of the principal thereof as shall be due and payable as a result of such acceleration, and payment of such portion of the principal thereof as shall be due and payable as a result of such acceleration, together with interest, if any, thereon and all other amounts owing thereunder, shall constitute payment in full of such Original Issue Discount Securities. 30 SECTION 5.2 COLLECTION OF INDEBTEDNESS BY TRUSTEE; TRUSTEE MAY PROVE DEBT. The Issuer covenants that (a) in case default shall be made in the payment of any installment of interest on any of the Securities of any series 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 Securities of any series when the same shall have become due and payable, whether upon maturity of the Securities of such series or upon any redemption or by declaration or otherwise, then upon demand of the Trustee, the Issuer will pay to the Trustee for the benefit of the Holders of the Securities of such series the whole amount that then shall have become due and payable on all Securities of such series, and such Coupons, for principal and 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 or Yield to Maturity (in the case of Original Issue Discount Securities) specified in the Securities of such series); and in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, and such other amount due the Trustee under Section 6.6 in respect of Securities of such series. Until such demand is made by the Trustee, the Issuer may pay the principal of and interest on the Securities of any series to the registered Holders, whether or not the Securities of such series be overdue. In case the Issuer shall fail forthwith to pay such amounts upon such demand, the Trustee, in its own name 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 Issuer or other obligor upon the Securities and collect in the manner provided by law out of the property of the Issuer or other obligor upon the Securities, wherever situated, all the moneys adjudged or decreed to be payable. In case there shall be pending proceedings relative to the Issuer 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 Issuer or its property or such other obligor, or in case of any other comparable judicial proceedings relative to the Issuer or other obligor upon the Securities, or to the creditors or property of the Issuer or such other obligor, the Trustee, irrespective of whether the principal of the Securities 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 provisions of this Section, shall be entitled and empowered, by intervention in such proceedings or otherwise: (a) to file and prove a claim or claims for the whole amount of principal and interest (or, if the Securities of any series are Original Issue Discount Securities, such 31 portion of the principal amount as may be specified in the terms of such series) owing and unpaid in respect of the Securities of any series, 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 amounts payable to the Trustee under Section 6.6) and of the Securityholders allowed in any judicial proceedings relative to the Issuer or other obligor upon the Securities, or to the creditors or property of the Issuer or such other obligor; and (b) unless prohibited by applicable law and regulations, to vote on behalf of the holders of the Securities of any series in any election of a receiver, assignee, trustee or a standby trustee in arrangement, reorganization, liquidation or other bankruptcy or insolvency proceedings, custodian or other person performing similar functions in respect of any such proceedings; and (c) to collect and receive any moneys or other property payable or deliverable on any such claims, and to distribute all amounts received with respect to the claims of the Securityholders and of the Trustee on their behalf; and any trustee, receiver, or liquidator, custodian or other similar official performing similar functions in respect of any such proceedings is hereby authorized by each of the Securityholders to make payments to the Trustee, and, in the event that the Trustee shall consent to the making of payments directly to the Securityholders, to pay to the Trustee its costs and expenses of collection and all other amounts due to it pursuant to Section 6.6. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or vote for or accept or adopt on behalf of any Securityholder any plan of reorganization, arrangement, adjustment or composition affecting the Securities of any series or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Securityholder in any such proceeding, except as aforesaid in clause (b). All rights of action and of asserting claims under this Indenture, or under any of the Securities of any series or Coupons appertaining to such Securities, may be enforced by the Trustee without the possession of any of the Securities of such series or Coupons appertaining to such Securities or the production thereof in any trial or other proceedings relative thereto, and 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 shall be awarded to the Trustee for ratable distribution to the Holders of the Securities or Coupons appertaining to such Securities in respect of which such action was taken, after payment of all sums due to the Trustee under Section 6.6 in respect of such Securities. In any proceedings brought by the Trustee (and also any proceedings involving the interpretation of any provision of this Indenture to which the Trustee shall be a party) the Trustee shall be held to represent all the Holders of the Securities or Coupons appertaining to such Securities in respect to which such action was taken, and it shall not be necessary to make 32 any Holders of such Securities or Coupons appertaining to such Securities parties to any such proceedings. SECTION 5.3 APPLICATION OF PROCEEDS. Any moneys collected by the Trustee pursuant to this Article in respect of any series shall be applied in the following order at the date or dates fixed by the Trustee and, in case of the distribution of such moneys on account of principal or interest, upon presentation of the several Securities and Coupons appertaining to such Securities in respect of which monies have been collected and stamping (or otherwise noting) thereon the payment, or issuing Securities of such series in reduced principal amounts in exchange for the presented Securities of like series if only partially paid, or upon surrender thereof if fully paid: FIRST: To the payment of costs and expenses applicable to such series of Securities in respect of which monies have been collected, including all amounts due to the Trustee and each predecessor Trustee pursuant to Section 6.6 in respect to such series of Securities; SECOND: If the Securities of such series are Subordinated Securities, to the payment of amounts then due and unpaid to the holders of Senior Indebtedness with respect to such series, to the extent required pursuant to the Subordination Provisions established with respect to the Securities of such series pursuant to Section 2.3(9). THIRD: In case the principal of the Securities of such series in respect of which moneys have been collected shall not have become and be then due and payable, to the payment of interest on the Securities of such series in default in the order of the maturity of the installments on such interest, with interest (to the extent that such interest has been collected by the Trustee and is permitted by applicable law) upon the overdue installments of interest at the same rate as the rate of interest or Yield to Maturity (in the case of Original Issue Discount Securities) specified in such Securities, such payments to be made ratably to the persons entitled thereto, without discrimination or preference; FOURTH: In case the principal of the Securities of such series in respect of which moneys have been collected shall have become and shall be then due and payable, to the payment of the whole amount then owing and unpaid upon all the Securities of such series for principal and interest, with interest upon the overdue principal, and (to the extent that such interest has been collected by the Trustee and is permitted by applicable law) upon the overdue installations of interest at the same rate as the rate of interest or Yield to Maturity (in the case of Original Issue Discount Securities) specified in the Securities of such series; and in case such moneys shall be insufficient to pay in full the whole amount so due and unpaid upon the Securities of such series, then to the payment 33 of such principal and interest or Yield to Maturity, without preference or priority of principal over interest or Yield to Maturity, or of interest or Yield to Maturity over principal, or of any installment of interest over any other installment of interest or of any Security of such series over any other Security of such series, ratably to the aggregate of such principal and accrued and unpaid interest or Yield to Maturity; and FIFTH: To the payment of the remainder, if any, to the Issuer or to such party as a court of competent jurisdiction shall direct. SECTION 5.4 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. SECTION 5.5 RESTORATION OF RIGHTS ON ABANDONMENT OF PROCEEDINGS. In case the Trustee 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, then and in every such case the Issuer and the Trustee shall be restored respectively to their former positions and rights hereunder, and all rights, remedies and powers of the Issuer, the Trustee and the Securityholders shall continue as though no such proceedings had been taken. SECTION 5.6 LIMITATIONS ON SUITS BY SECURITY HOLDERS. No Holder of any Security of any series or of any Coupon appertaining thereto 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 or with respect to this Indenture or such Security, or for the appointment of a trustee, receiver, liquidator, custodian or other similar official or for any other remedy hereunder or thereunder, unless (a) such Holder previously shall have given to a responsible officer of the Trustee written notice of an Event of Default with respect to Securities of such series and of the continuance thereof, as hereinbefore provided, and (b) the Holders of not less than 25% in aggregate principal amount of the Securities of such affected series then Outstanding (treated as a single class) 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 security and indemnity satisfactory to it as it may require against the costs, expenses and liabilities to be incurred therein or thereby, and (c) 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 (d) no direction inconsistent with such written request shall have been given to the Trustee pursuant to Section 5.9; it being 34 understood and intended, and being expressly covenanted by the taker and Holder of every Security or Coupon with every other taker and Holder and the Trustee, that no one or more Holders of Securities of any series or Coupons appertaining to such Securities shall have any right in any manner whatever by virtue or by availing of any provision of this Indenture or any Security to affect, disturb or prejudice the rights of any other such taker or Holder of Securities or Coupons appertaining to such Securities, or to obtain or seek to obtain priority over or preference to any other such taker or Holder or to enforce any right under this Indenture or any Security, except in the manner herein provided and for the equal, ratable and common benefit of all Holders of Securities of the applicable series and Coupons appertaining to such Securities. For the protection and enforcement of the provisions of this Section, each and every Securityholder and the Trustee shall be entitled to such relief as can be given either at law or in equity. SECTION 5.7 UNCONDITIONAL RIGHT OF SECURITYHOLDERS TO INSTITUTE CERTAIN SUITS. Notwithstanding any other provision in this Indenture and any provision of any Security, the right of any Holder of any Security or Coupon to receive payment of the principal of and interest on such Security or Coupon on or after the respective due dates expressed in such Security or Coupon or the applicable redemption dates provided for in such Security, or 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 5.8 POWERS AND REMEDIES CUMULATIVE; DELAY OR OMISSION NOT WAIVER OF DEFAULT. Except as provided in Section 5.6, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders of Securities or Coupons 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 Securities or Coupons 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 such Event of Default or an acquiescence therein. Every power and remedy given by this Indenture, any Security or law to the Trustee or to the Holders of Securities or Coupons may be exercised from time to time, and as often as shall be deemed expedient, by the Trustee or, subject to Section 5.6, by the Holders of Securities or Coupons. SECTION 5.9 CONTROL BY HOLDERS OF SECURITIES. The Holders of a majority in aggregate principal amount of the Securities of each series affected (with each such series voting as a separate class) 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 Securities of such 35 series by this Indenture; provided, that such direction shall not be otherwise than in accordance with law and the provisions of this Indenture; and provided, further, that (subject to the provisions of Section 6.1) the Trustee shall have the right to decline to follow any such direction if (a) the Trustee, being advised by counsel, shall determine that the action or proceeding so directed may not lawfully be taken; or (b) if the Trustee by its trust committee of directors or Responsible Officers of the Trustee shall determine in good faith that the action or proceedings so directed would involve the Trustee in personal liability; or (c) if the Trustee in good faith shall so determine that the actions or forbearances specified in or pursuant to such direction would be unduly prejudicial to the interests of Holders of the Securities of all affected series not joining in the giving of said direction, it being understood that (subject to Section 6.1) the Trustee shall have no duty to ascertain whether or not such actions or forbearances are unduly prejudicial to such Holders. Nothing in this Indenture shall impair the right of the Trustee in its discretion to take any action deemed proper by the Trustee and which is not inconsistent with such direction or directions by Securityholders. SECTION 5.10 WAIVER OF PAST DEFAULTS. Prior to the declaration of acceleration of the maturity of the Securities of any series as provided in Section 5.1, the Holders of a majority in aggregate principal amount of the Securities of such series (voting as a single class) may on behalf of the Holders of all such Securities waive any past default or Event of Default described in Section 5.1 and its consequences, except a default in respect of a covenant or provision hereof which cannot be modified or amended without the consent of the Holder of each Security affected. In the case of any such waiver, the Issuer, the Trustee and the Holders of all such Securities shall be restored to their former positions and rights hereunder, respectively, and such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. SECTION 5.11 TRUSTEE TO GIVE NOTICE OF DEFAULT, BUT MAY WITHHOLD IN CERTAIN CIRCUMSTANCES. The Trustee shall, within ninety days after the occurrence of a default with respect to the Securities of any series, give notice of all defaults with respect to that series known to the Trustee (i) if any Unregistered Securities of that series are then Outstanding, to the Holders thereof, by publication at least once in an Authorized Newspaper in the Borough of Manhattan, The City of New York and at least once in an Authorized Newspaper in London (and, if required by Section 3.7, at least once in an Authorized Newspaper in Luxembourg) and (ii) to all Holders of Securities of such series in the manner and to the extent provided in Section 313(c) of the Trust Indenture Act, unless in each case such defaults shall have been cured before the mailing or publication of such notice (the term "default" for the purpose of this Section being hereby defined to mean any event or condition which is, or with notice or lapse of time or both would become, an Event of Default); provided, that, except in the case of default in the payment of the principal of or interest on any of the Securities of such series, or in the payment of any sinking fund installment on such series, 36 the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee, or a trust committee of directors or trustees and/or Responsible Officers of the Trustee in good faith determines that the withholding of such notice is in the interests of the Securityholders of such series. SECTION 5.12 RIGHT OF COURT TO REQUIRE FILING OF UNDERTAKING TO PAY COSTS. All parties to this Indenture agree, and each Holder of any Security or Coupon 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, 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 Securityholder or group of Securityholders of any series holding in the aggregate more than 10% in aggregate principal amount of the Securities of such series, or, in the case of any suit relating to or arising under clause (d) or (g) of Section 5.1 (if the suit relates to Securities of more than one but less than all series), 10% in aggregate principal amount of Securities then Outstanding and affected thereby, or in the case of any suit relating to or arising under clause (d) or (g) (if the suit under clause (d) or (g) relates to all the Securities then Outstanding), or (e) or (f) of Section 5.1, 10% in aggregate principal amount of all Securities then Outstanding, or to any suit instituted by any Securityholder for the enforcement of the payment of the principal of or interest on any Security on or after the due date expressed in such Security or any date fixed for redemption. ARTICLE VI CONCERNING THE TRUSTEE SECTION 6.1 DUTIES AND RESPONSIBILITIES OF THE TRUSTEE; DURING DEFAULT; PRIOR TO DEFAULT. Prior to the occurrence of an Event of Default with respect to the Securities of a particular series and after the curing or waiving of all Events of Default which may have occurred with respect to such series, the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture with respect to such series of Securities. In case an Event of Default with respect to the Securities of a series has occurred and has not been cured or waived, the Trustee shall exercise with respect to such series of Securities such of the rights and powers vested in it by this Indenture with respect to such series of Securities, 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. 37 No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that (a) prior to the occurrence of an Event of Default with respect to the Securities of any series and after the curing or waiving of all such Events of Default with respect to such series which may have occurred: (i) the duties and obligations of the Trustee with respect to the Securities of any series shall be determined solely by the express provisions of this Indenture, and the Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (ii) in the absence of bad faith on the part of the Trustee, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any statements, certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such statements, certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture; (b) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer or Responsible Officers of the Trustee, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; and (c) the 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 pursuant to Section 5.9 relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture. None of the provisions contained in this Indenture shall require the 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 there shall be reasonable ground for believing that the repayment of such funds or adequate indemnity against such liability is not reasonably assured to it. The provisions of this Section 6.1 are in furtherance of and subject to Section 315 of the Trust Indenture Act. 38 SECTION 6.2 CERTAIN RIGHTS OF THE TRUSTEE. In furtherance of and subject to the Trust Indenture Act, and subject to Section 6.1: (a) the Trustee may conclusively rely and shall be protected in acting or refraining from acting upon any resolution, Officer's Certificate or any other certificate, statement, instrument, opinion, report, notice, request, consent, order, bond, debenture, note, coupon, security or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) any request, direction, order or demand of the Issuer mentioned herein shall be sufficiently evidenced by an Officer's Certificate (unless other evidence in respect thereof is specifically prescribed herein or in the terms established in respect of any series); and any resolution of the Board of Directors may be evidenced to the Trustee by a copy thereof certified by the secretary or an assistant secretary of the Issuer; (c) the Trustee may consult with counsel of its selection, and any written advice or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted to be taken by it hereunder in good faith and in reliance thereon in accordance with such advice or Opinion of Counsel; (d) the Trustee shall be under no obligation to exercise any of the trusts or powers vested in it by this Indenture at the request, order or direction of any of the Securityholders pursuant to the provisions of this Indenture, unless such Securityholders shall have offered to the Trustee reasonable security or indemnity satisfactory to it against the costs, expenses and liabilities which might be incurred therein or thereby; (e) the Trustee shall not be liable for any action taken or omitted by it in good faith and believed by it to be authorized or within the discretion, rights or powers conferred upon it by this Indenture; (f) prior to the occurrence of an Event of Default hereunder and after the curing or waiving of all Events of Default, the 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, consent, order, approval, appraisal, bond, debenture, note, coupon, security, or other paper or document unless (i) requested in writing so to do by the Holders of not less than a majority in aggregate principal amount of the Securities of all series affected then Outstanding (treated as one class) or (ii) otherwise provided in the terms of any series of securities pursuant to Section 2.3; provided, that, if the payment within a reasonable time to the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation is, in the opinion of the Trustee, not reasonably assured to the Trustee by the security afforded to it by the terms of this Indenture, the Trustee may require reasonable indemnity satisfactory to it against such expenses or liabilities as a condition to 39 proceeding; the reasonable expenses of every such investigation shall be paid by the Issuer or, if paid by the Trustee or any predecessor trustee, shall be repaid by the Issuer upon demand; and (g) 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 not regularly in its employ and the Trustee shall not be responsible for any misconduct or negligence on the part of any such agent or attorney appointed with due care by it hereunder. (h) The Trustee shall not be deemed to have notice of any Event of Default unless a Responsible Officer has actual knowledge thereof or unless written notice of any event which is in fact an Event of Default is received by the Trustee at the Corporate Trust Office and such notice references the Securities, the Issuer or this Indenture. SECTION 6.3 TRUSTEE NOT RESPONSIBLE FOR RECITALS, DISPOSITION OF SECURITIES OR APPLICATION OF PROCEEDS THEREOF. The recitals contained herein and in the Securities, except the Trustee's certificates of authentication, shall be taken as the statements of the Issuer, and the Trustee assumes no responsibility for the correctness of the same. The Trustee makes no representation as to the validity or sufficiency of this Indenture or of the Securities or Coupons. The Trustee shall not be accountable for the use or application by the Issuer of any of the Securities or of the proceeds thereof. The Trustee may request that the Issuer deliver an officer's certificate setting forth the names of individuals and/or titles of officers authorized at such time to take specified actions pursuant to this Indenture, which officers' certificate may be signed by any person authorized to sign an officer's certificate, including any person specified as so authorized in any such certificate previously delivered and not superseded. SECTION 6.4 TRUSTEE AND AGENTS MAY HOLD SECURITIES OR COUPONS; COLLECTIONS, ETC. The Trustee or any agent of the Issuer or of the Trustee, in its individual or any other capacity, may become the owner or pledgee of Securities or Coupons with the same rights it would have if it were not the Trustee or such agent and may otherwise deal with the Issuer and receive, collect, hold and retain collections from the Issuer with the same rights it would have if it were not the Trustee or such agent. SECTION 6.5 MONEYS HELD BY TRUSTEE. Subject to the provisions of Section 10.4 hereof, all moneys received by the Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated from other funds except to the extent required by mandatory provisions of law. Neither the Trustee nor any agent of the Issuer or the Trustee shall be under any liability for interest on any moneys received by it hereunder. 40 SECTION 6.6 COMPENSATION AND INDEMNIFICATION OF TRUSTEE AND ITS PRIOR CLAIM. The Issuer covenants and agrees to pay to the Trustee from time to time, and the Trustee shall be entitled to, reasonable compensation (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust), and the Issuer covenants and agrees to pay or reimburse the Trustee and each predecessor trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by or on behalf of it in accordance with any of the provisions of this Indenture (including the reasonable compensation and the expenses and disbursements of its counsel and of all agents and other persons not regularly in its employ) except any such expense, disbursement or advance as may arise from its negligence or bad faith. The Issuer also covenants to indemnify the Trustee and each predecessor trustee for, and to defend and hold it 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 this Indenture or the trusts hereunder and its duties hereunder, including the costs and expenses of defending itself against or investigating any claim of liability in the premises. The obligations of the Issuer under this Section to compensate and indemnify the Trustee and each predecessor trustee and to pay or reimburse the Trustee and each predecessor trustee for expenses, disbursements and advances shall constitute additional indebtedness hereunder and shall survive the satisfaction and discharge of this Indenture and the resignation or removal of the Trustee. Such additional indebtedness shall be a senior claim to that of the Securities upon all property and funds held or collected by the Trustee as such, except funds held in trust for the benefit of the Holders of particular Securities or Coupons, and the Securities are hereby subordinated to such senior claim. SECTION 6.7 RIGHT OF TRUSTEE TO RELY ON OFFICER'S CERTIFICATE, ETC. Subject to Sections 6.1 and 6.2, whenever in the administration of the trusts of this Indenture the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering or omitting any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of negligence or bad faith on the part of the Trustee, be deemed to be conclusively proved and established by an Officer's Certificate delivered to the Trustee, and such certificate, in the absence of negligence or bad faith on the part of the Trustee, shall be full warrant to the Trustee for any action taken, suffered or omitted by it under the provisions of this Indenture upon the faith thereof. SECTION 6.8 INDENTURES NOT CREATING POTENTIAL CONFLICTING INTERESTS FOR THE TRUSTEE. The following indentures are hereby specifically described for the purposes of Section 310(b)(1) of the Trust Indenture Act: this Indenture with respect to series of Securities that are of an equal priority and the indenture between the Issuer and The First National Bank of Chicago, dated as of March 11, 1997 with respect to series of securities thereunder that are of an equal priority to any series of Securities. SECTION 6.9 QUALIFICATION OF TRUSTEE: CONFLICTING INTERESTS. The Trustee shall comply with Section 310(b) of the Trust Indenture Act. 41 SECTION 6.10 PERSONS ELIGIBLE FOR APPOINTMENT AS TRUSTEE. The Trustee for each series of Securities hereunder shall at all times be a corporation or banking association organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia, having a combined capital and surplus of at least $50,000,000, and which is authorized under such laws to exercise corporate trust powers and is subject to supervision or examination by Federal, state or District of Columbia authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section, 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. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, the Trustee shall resign immediately in the manner and with the effect specified in Section 6.11. The provisions of this Section 6.10 are in furtherance of and subject to Section 310(a) of the Trust Indenture Act. SECTION 6.11 RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR TRUSTEE. (a) The Trustee, or any trustee or trustees hereafter appointed, may at any time resign with respect to one or more or all series of Securities by giving written notice of resignation to the Issuer and (i) if any Unregistered Securities of a series affected are then Outstanding, by giving notice of such resignation to the Holders thereof, by publication at least once in an Authorized Newspaper in the Borough of Manhattan, The City of New York, and at least once in an Authorized Newspaper in London (and, if required by Section 3.7, at least once in an Authorized Newspaper in Luxembourg), (ii) if any Unregistered Securities of a series affected are then Outstanding, by mailing notice of such resignation to the Holders thereof who have filed their names and addresses with the Trustee pursuant to Section 313(c)(2) of the Trust Indenture Act at such addresses as were so furnished to the Trustee and (iii) by mailing notice of such resignation to the Holders of then Outstanding Registered Securities of each series affected at their addresses as they shall appear on the registry books. Upon receiving such notice of resignation, the Issuer shall promptly appoint a successor trustee or trustees with respect to the applicable series by written instrument in duplicate, executed by authority of the Board of Directors, one copy of which instrument shall be delivered to the resigning Trustee and one copy to the successor trustee or trustees. If no successor trustee shall have been so appointed with respect to any series and have accepted appointment within 30 days after the mailing of such notice of resignation, the resigning trustee may petition any court of competent jurisdiction at the expense of the Company for the appointment of a successor trustee, or any Securityholder who has been a bona fide Holder of a Security or Securities of the applicable series for at least six months may, subject to the provisions of Section 5.12, on behalf of himself and all others similarly situated, petition any such court for the appointment of a successor trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, appoint a successor trustee. 42 (b) In case at any time any of the following shall occur: (i) the Trustee shall fail to comply with the provisions of Section 310(b) of the Trust Indenture Act with respect to any series of Securities after written request therefor by the Issuer or by any Securityholder who has been a bona fide Holder of a Security or Securities of such series for at least six months; or (ii) the Trustee shall cease to be eligible in accordance with the provisions of Section 6.10 and Section 310(a) of the Trust Indenture Act and shall fail to resign after written request therefor by the Issuer or by any Securityholder who has been a bona fide Holder of a Security or Securities of such series for at least six months; or (iii) the Trustee shall become incapable of acting with respect to any series of Securities, or shall be adjudged bankrupt or insolvent, or a receiver or liquidator of the Trustee or of its property shall be appointed, or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation; then, in any such case, the Issuer may remove the Trustee with respect to the applicable series of Securities and appoint a successor trustee for such series by written instrument, in duplicate, executed by order of the Board of Directors of the Issuer, one copy of which instrument shall be delivered to the Trustee so removed and one copy to the successor trustee, or, subject to the provisions of Section 315(e) of the Trust Indenture Act, any Securityholder who has been a bona fide Holder of a Security or Securities of such series for at least six months may on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor trustee with respect to such series. Such court may thereupon, after such notice, if any, as it may deem proper and so prescribe, remove the Trustee and appoint a successor trustee. (c) The Holders of a majority in aggregate principal amount of the Securities of each series at the time outstanding may at any time remove the Trustee with respect to Securities of such series and appoint a successor trustee with respect to the Securities of such series by delivering to the Trustee so removed, to the successor trustee so appointed and to the Issuer the evidence provided for in Section 7.1 of the action in that regard taken by the Securityholders. (d) Any resignation or removal of the Trustee with respect to any series and any appointment of a successor trustee with respect to such series pursuant to any of the provisions of this Section 6.11 shall become effective upon acceptance of appointment by the successor trustee as provided in Section 6.12. 43 SECTION 6.12 ACCEPTANCE OF APPOINTMENT BY SUCCESSOR TRUSTEE. Any successor trustee appointed as provided in Section 6.11 shall execute and deliver to the Issuer and to its predecessor trustee an instrument accepting such appointment hereunder, and thereupon the resignation or removal of the predecessor trustee with respect to all or any applicable series shall become effective and such successor trustee, without any further act, deed or conveyance, shall become vested with all rights, powers, duties and obligations with respect to such series of its predecessor hereunder, with like effect as if originally named as trustee for such series hereunder; but, nevertheless, on the written request of the Issuer or of the successor trustee, upon payment of its charges then unpaid, the trustee ceasing to act shall, subject to Section 10.4, pay over to the successor trustee all moneys at the time held by it hereunder and shall execute and deliver an instrument transferring to such successor trustee all such rights, powers, duties and obligations. Upon request of any such successor trustee, the Issuer shall execute any and all instruments in writing for more fully and certainly vesting in and confirming to such successor trustee all such rights and powers. Any trustee ceasing to act shall, nevertheless, retain a prior claim upon all property or funds held or collected by such trustee to secure any amounts then due it pursuant to the provisions of Section 6.6. If a successor trustee is appointed with respect to the Securities of one or more (but not all) series, the Issuer, the predecessor trustee and each successor trustee with respect to the Securities of any applicable series shall execute and deliver an indenture supplemental hereto which shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the predecessor trustee with respect to the Securities of any series as to which the predecessor trustee is not retiring shall continue to be vested in the predecessor trustee, and shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such trustees co-trustees of the same trust and that each such trustee shall be trustee of a trust or trusts under separate indentures. No successor trustee with respect to any series of Securities shall accept appointment as provided in this Section 6.12 unless at the time of such acceptance such successor trustee shall be qualified under Section 310(b) of the Trust Indenture Act and eligible under the provisions of Section 6.10. Upon acceptance of appointment by any successor trustee as provided in this Section 6.12, the Issuer shall give notice thereof (a) if any Unregistered Securities of a series affected are then Outstanding, to the Holders thereof, by publication of such notice at least once in an Authorized Newspaper in the Borough of Manhattan, The City of New York and at least once in an Authorized Newspaper in London (and, if required by Section 3.7, at least once in an Authorized Newspaper in Luxembourg), (b) if any Unregistered Securities of a series affected are then Outstanding, to the Holders thereof who have filed their names and addresses with the Trustee pursuant to Section 313(c)(2) of the Trust Indenture Act, by mailing such 44 notice to such Holders at such addresses as were so furnished to the Trustee (and the Trustee shall make such information available to the Issuer for such purpose) and (c) to the Holders of Registered Securities of each series affected, by mailing such notice to such Holders at their addresses as they shall appear on the registry books. If the acceptance of appointment is substantially contemporaneous with the resignation, then the notice called for by the preceding sentence may be combined with the notice called for by Section 6.11. If the Issuer fails to give such notice within ten days after acceptance of appointment by the successor trustee, the successor trustee shall cause such notice to be given at the expense of the Issuer. SECTION 6.13 MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS OF TRUSTEE. Any corporation or banking association into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation or banking association resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation or banking association succeeding to the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided, that such corporation or banking association shall be qualified under Section 310(b) of the Trust Indenture Act and eligible under the provisions of Section 6.10, without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding. In case at the time such successor to the Trustee shall succeed to the trusts created by this Indenture any of the Securities of any series shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor trustee and deliver such Securities so authenticated; and, in case at that time any of the Securities of any series shall not have been authenticated, any such successor to the Trustee may authenticate such Securities either in the name of any predecessor hereunder or in the name of the successor Trustee; and in all such cases such certificate of authentication shall have the full force which under this Indenture or the Securities of such series it is provided that the certificate of authentication of the Trustee shall have; provided, that the right to adopt the certificate of authentication of any predecessor trustee or to authenticate Securities of any series in the name of any predecessor trustee shall apply only to its successor or successors by merger, conversion or consolidation. SECTION 6.14 PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE ISSUER. The Trustee shall comply with Section 311(a) of the Trust Indenture Act, excluding any creditor relationship listed in Section 311(b) of the Trust Indenture Act. A Trustee who has resigned or been removed shall be subject to Section 311(a) of the Trust Indenture Act to the extent indicated. SECTION 6.15 APPOINTMENT OF AUTHENTICATING AGENT. As long as any Securities of a series remain Outstanding, the Trustee may, by an instrument in writing, appoint with the approval of the Issuer an authenticating agent (the "Authenticating Agent") which shall be authorized to act on behalf of the Trustee to authenticate Securities, including 45 Securities issued upon exchange, registration of transfer, partial redemption or pursuant to Section 2.9. Securities of each such series authenticated by such Authenticating Agent shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee. Whenever reference is made in this Indenture to the authentication and delivery of Securities of any series by the Trustee or to the Trustee's Certificate of Authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent for such series and a Certificate of Authentication executed on behalf of the Trustee by such Authenticating Agent. Such Authenticating Agent shall at all times be a corporation organized and doing business under the laws of the United States of America or of any State, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $45,000,000 (determined as provided in Section 6.10 with respect to the Trustee) and subject to supervision or examination by Federal or state authority. Any corporation into which any Authenticating Agent may be merged or converted, or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which any Authenticating Agent shall be a party, or any corporation succeeding to the corporate agency business of any Authenticating Agent, shall continue to be the Authenticating Agent with respect to all series of Securities for which it served as Authenticating Agent without the execution or filing of any paper or any further act on the part of the Trustee or such Authenticating Agent. Any Authenticating Agent may at any time, and if it shall cease to be eligible shall, resign by giving written notice of resignation to the Trustee and to the Issuer. Upon receiving such a notice of resignation or upon such a termination, or in case at any time any Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section 6.15 with respect to one or more series of Securities, the Trustee shall upon receipt of an Issuer Order appoint a successor Authenticating Agent, and the Issuer shall provide notice of such appointment to all Holders of Securities of such series in the manner and to the extent provided in Section 11.4. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all rights, powers, duties and responsibilities of its predecessor hereunder, with like effect as if originally named as Authenticating Agent. The Issuer agrees to pay to the Authenticating Agent for such series from time to time reasonable compensation. The Authenticating Agent for the Securities of any series shall have no responsibility or liability for any action taken by it as such at the direction of the Trustee. Sections 6.2, 6.3, 6.4, 6.6 and 7.3 shall be applicable to any Authenticating Agent. 46 ARTICLE VII CONCERNING THE SECURITYHOLDERS SECTION 7.1 EVIDENCE OF ACTION TAKEN BY SECURITYHOLDERS. Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by a specified percentage in principal amount of the Securityholders of any or all series may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such specified percentage of Securityholders 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 Issuer, if made in the manner provided in this Article. SECTION 7.2 PROOF OF EXECUTION OF INSTRUMENTS AND OF HOLDING OF SECURITIES. Subject to Sections 6.1 and 6.2, the execution of any instrument by a Securityholder 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. The holding of Registered Securities shall be proved by the Security register or by a certificate of the registrar thereof. SECTION 7.3 HOLDERS TO BE TREATED AS OWNERS. The Issuer, the Trustee and any agent of the Issuer or the Trustee may deem and treat the person in whose name any Security shall be registered upon the Security register for such series as the absolute owner of such Security (whether or not such Security shall be overdue and notwithstanding any notation of ownership or other writing thereon) for the purpose of receiving payment of or on account of the principal of and, subject to the provisions of this Indenture, interest on such Security and for all other purposes; and neither the Issuer nor the Trustee nor any agent of the Issuer or the Trustee shall be affected by any notice to the contrary. The Issuer, the Trustee and any agent of the Issuer or the Trustee may treat the Holder of any Unregistered Security and the Holder of any Coupon as the absolute owner of such Unregistered Security or Coupon (whether or not such Unregistered Security or Coupon shall be overdue) for the purpose of receiving payment thereof or on account thereof and for all other purposes, and neither the Issuer, the Trustee, nor any agent of the Issuer or the Trustee shall be affected by any notice to the contrary. All such payments so made to any such person, or upon his order, shall be valid, and, to the extent of the sum or sums so paid, effectual to satisfy and discharge the liability for moneys payable upon any such Unregistered Security or Coupon. SECTION 7.4 SECURITIES OWNED BY ISSUER DEEMED NOT OUTSTANDING. In determining whether the Holders of the requisite aggregate principal amount of Outstanding Securities of any or all series have concurred in any request, demand, 47 authorization, direction, notice, consent, waiver or other action by Securityholders under this Indenture, Securities which are owned by the Issuer or any other obligor on the Securities 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 Issuer or any other obligor on the Securities 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 action only Securities which the Trustee knows are so owned shall be so disregarded. Securities 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 Securities and that the pledgee is not the Issuer or any other obligor upon the Securities or any person directly or indirectly controlling or controlled by or under direct or indirect common control with the Issuer or any other obligor on the Securities. In case of a dispute as to such right, the advice of counsel shall be full protection in respect of any decision made by the Trustee in accordance with such advice. Upon request of the Trustee, the Issuer shall furnish to the Trustee promptly an Officer's Certificate listing and identifying all Securities, if any, known by the Issuer to be owned or held by or for the account of any of the above-described persons; and, subject to Sections 6.1 and 6.2, the Trustee shall be entitled to accept such Officer's Certificate as conclusive evidence of the facts therein set forth and of the fact that all Securities not listed therein are Outstanding for the purpose of any such determination. 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 Securities of any or all series, as the case may be, specified in this Indenture in connection with such action, any Holder of a Security the serial number of which is shown by the evidence to be included among the serial numbers of the Securities 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 Security. Except as aforesaid, any such action taken by the Holder of any Security shall be conclusive and binding upon such Holder and upon all future Holders and owners of such Security and of any Securities issued in exchange or substitution therefor or on registration of transfer thereof, irrespective of whether or not any notation in regard thereto is made upon any such Security. Any action taken by the Holders of the percentage in aggregate principal amount of the Securities of any or all series, as the case may be, specified in this Indenture in connection with such action shall be conclusively binding upon the Issuer, the Trustee and the Holders of all the Securities affected by such action. 48 ARTICLE VIII SUPPLEMENTAL INDENTURES SECTION 8.1 SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF SECURITYHOLDERS. The Issuer, when authorized by a resolution of its Board of Directors (which resolution may provide general terms or parameters for such action and may provide that the specific terms of such action may be determined in accordance with or pursuant to an Issuer Order), and the Trustee may from time to time and at any time enter into an indenture or indentures supplemental hereto for one or more of the following purposes: (a) to convey, transfer, assign, mortgage or pledge to the Trustee as security for the Securities of one or more series any property or assets; (b) to evidence the succession of another corporation to the Issuer, or successive successions, and the assumption by the successor corporation of the covenants, agreements and obligations of the Issuer pursuant to Article IX; (c) to add to the covenants of the Issuer such further covenants, restrictions, conditions or provisions as the Issuer and the Trustee shall consider to be for the protection of the Holders of Securities or Coupons, and to make the occurrence, or the occurrence and continuance, of a default in any such additional covenants, restrictions, conditions or provisions an Event of Default permitting the enforcement of all or any of the several remedies provided in this Indenture as herein set forth; provided, that in respect of any such additional covenant, restriction, condition or provision such supplemental indenture may provide for a particular period of grace after default (which period may be shorter or longer than that allowed in the case of other defaults) or may provide for an immediate enforcement upon such an Event of Default or may limit the remedies available to the Trustee upon such an Event of Default or may limit the right of the Holders of a majority in aggregate principal amount of the Securities of such series to waive such an Event of Default; (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 any other provisions as the Issuer may deem necessary or desirable, provided, that no such action shall adversely affect the interests of the Holders of the Securities or Coupons; (e) to establish the forms or terms of Securities of any series or of the Coupons appertaining to such Securities as permitted by Sections 2.1 and 2.3; and (f) to evidence and provide for the acceptance of appointment hereunder by a successor trustee with respect to the Securities of one or more series and to add to or 49 change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one trustee, pursuant to the requirements of Section 6.12. The Trustee is hereby authorized to join with the Issuer 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 Securities at the time outstanding, notwithstanding any of the provisions of Section 8.2. SECTION 8.2 SUPPLEMENTAL INDENTURES WITH CONSENT OF SECURITYHOLDERS. (A) Except as set forth in paragraph (C) below, with the consent (evidenced as provided in Article VII) of the Holders of not less than a majority in aggregate principal amount of the Securities at the time Outstanding of all series of Senior Securities affected by such supplemental indenture (voting as one class), the Issuer, when authorized by a resolution of its Board of Directors (which resolution may provide general terms or parameters for such action and may provide that the specific terms of such action may be determined in accordance with or pursuant to an Issuer Order), 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 and effect 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 Securities of each such series or of the Coupons appertaining to such Securities. (B) Except as set forth in paragraph (C) below, with the consent (evidenced as provided in Article VII) of the Holders of not less than a majority in aggregate principal amount of the Securities at the time Outstanding of all series of Subordinated Securities affected by such supplemental indenture (voting as one class), the Issuer, when authorized by a resolution of its Board of Directors (which resolution may provide general terms or parameters for such action and may provide that the specific terms of such action may be determined in accordance with or pursuant to an Issuer Order), 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 and effect 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 50 rights of the Holders of the Securities of each such series or of the Coupons appertaining to such Securities. (C) No such supplemental indenture shall (i) extend the final maturity of any Security, or reduce the principal amount thereof, or premium thereon, if any, 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 (including any amount in respect of original issue discount), or premium thereon, if any, or interest thereon payable in any coin or currency other than that provided in the Securities and Coupons or in accordance with the terms thereof, or reduce the amount of the principal of an Original Issue Discount Security that would be due and payable upon an acceleration of the maturity thereof pursuant to Section 5.1 or the amount thereof provable in bankruptcy pursuant to Section 5.2, or in the case of Subordinated Securities of any series, modify any of the Subordination Provisions or the definition of "Senior Indebtedness" relating to such series in a manner adverse to the holders of such Subordinated Securities, or alter the provisions of Section 11.11 or 11.12 or impair or affect the right of any Securityholder to institute suit for the payment thereof when due or, if the Securities provide therefor, any right of repayment at the option of the Securityholder, in each case without the consent of the Holder of each Security so affected, or (ii) reduce the aforesaid percentage of Securities of any series, the consent of the Holders of which is required for any such supplemental indenture, without the consent of the Holders of each Security so affected. (D) A supplemental indenture which changes or eliminates any covenant or other provision of this Indenture which has expressly been included solely for the benefit of one or more particular series of Securities, or which modifies the rights of Holders of Securities of such series, or of Coupons appertaining to such Securities, with respect to such covenant or provision, shall be deemed not to affect the rights under this Indenture of the Holders of Securities of any other series or of the Coupons appertaining to such Securities. Upon the request of the Issuer, accompanied by a copy of a resolution of the Board of Directors (which resolution may provide general terms or parameters for such action and may provide that the specific terms of such action may be determined in accordance with or pursuant to an Issuer Order) certified by the secretary or an assistant secretary of the Issuer authorizing the execution of any such supplemental indenture, and upon the filing with the Trustee of evidence of the consent of the Holders of the Securities as aforesaid and other documents, if any, required by Section 7.1, the Trustee shall join with the Issuer in the execution of such supplemental indenture unless such supplemental indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such supplemental indenture. It shall not be necessary for the consent of the Securityholders 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. 51 Promptly after the execution by the Issuer and the Trustee of any supplemental indenture pursuant to the provisions of this Section, the Trustee shall give notice thereof (i) to the Holders of then Outstanding Registered Securities of each series affected thereby, by mailing a notice thereof by first-class mail to such Holders at their addresses as they shall appear on the Security register, (ii) if any Unregistered Securities of a series affected thereby are then Outstanding, to the Holders thereof who have filed their names and addresses with the Trustee pursuant to Section 313(c)(2) of the Trust Indenture Act, by mailing a notice thereof by first-class mail to such Holders at such addresses as were so furnished to the Trustee and (iii) if any Unregistered Securities of a series affected thereby are then Outstanding, to all Holders thereof, by publication of a notice thereof at least once in an Authorized Newspaper in the Borough of Manhattan, The City of New York and at least once in an Authorized Newspaper in London (and, if required by Section 3.7, at least once in an Authorized Newspaper in Luxembourg), and in each case such notice shall set forth in general terms the substance of such supplemental indenture. Any failure of the Issuer 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. 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 Issuer and the Holders of Securities of each series affected thereby 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 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 Sections 6.1 and 6.2, may receive an Officer's Certificate and an Opinion of Counsel as conclusive evidence that any supplemental indenture executed pursuant to this Article 8 complies with the applicable provisions of this Indenture. SECTION 8.5 NOTATION ON SECURITIES IN RESPECT OF SUPPLEMENTAL INDENTURES. Securities of any series authenticated and delivered after the execution of any supplemental indenture pursuant to the provisions of this Article may bear a notation in form approved by the Trustee for such series as to any matter provided for by such supplemental indenture or as to any action taken by Securityholders. If the Issuer or the Trustee shall so determine, new Securities of any series so modified as to conform, in the opinion of the Trustee and the Board of Directors, to any modification of this Indenture contained in any such supplemental indenture may be prepared by the Issuer, authenticated by the Trustee and delivered in exchange for the Securities of such series then Outstanding. ARTICLE IX CONSOLIDATION, MERGER, SALE OR CONVEYANCE 52 SECTION 9.1 ISSUER MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS. The Issuer shall not consolidate with or merge into any other Person or transfer or lease its properties and assets substantially as an entirety to any Person, and the Issuer shall not permit any other Person to consolidate with or merge into the Issuer, unless: (a) either the Issuer shall be the continuing corporation, or the successor corporation (if other than the Issuer) formed by such consolidation or into which the Issuer is merged or to which the properties and assets of the Issuer substantially as an entirety are transferred or leased shall be a corporation organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Issuer under the Securities and this Indenture; and (b) immediately after giving effect to such transaction and treating any indebtedness which becomes an obligation of the Issuer or a Subsidiary as a result of such transaction as having been incurred by the Issuer or such Subsidiary at the time of such transaction, no Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, shall have happened and be continuing. SECTION 9.2 SUCCESSOR CORPORATION SUBSTITUTED. The successor corporation formed by such consolidation or into which the Issuer is merged or to which such transfer or lease is made shall succeed to and be substituted for, and may exercise every right and power of, the Issuer under this Indenture with the same effect as if such successor corporation had been named as the Issuer herein, and thereafter (except in the case of a lease to another Person) the predecessor corporation shall be relieved of all obligations and covenants under the Indenture and the Securities and, in the event of such conveyance or transfer, any such predecessor corporation may be dissolved and liquidated. SECTION 9.3 OPINION OF COUNSEL TO BE GIVEN TO TRUSTEE. The Trustee, subject to the provisions of Sections 6.1 and 6.2, may receive an Opinion of Counsel as conclusive evidence that any such consolidation, merger, sale or conveyance, and any such assumption, complies with the provisions of this Article IX. 53 ARTICLE X SATISFACTION AND DISCHARGE OF INDENTURE; UNCLAIMED MONEYS SECTION 10.1 SATISFACTION AND DISCHARGE OF INDENTURE. (A) If at any time (i) the Issuer shall have paid or caused to be paid the principal of and interest on all the Securities of any series Outstanding hereunder and all unmatured Coupons appertaining thereto (other than Securities of such series and Coupons appertaining thereto which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 2.9) as and when the same shall have become due and payable, or (ii) the Issuer shall have delivered to the Trustee for cancellation all Securities of any series theretofore authenticated and all unmatured Coupons appertaining thereto (other than any Securities of such series and Coupons appertaining thereto which shall have been destroyed, lost or stolen and which shall have been replaced or paid as provided in Section 2.9) or (iii) in the case of any series of Securities where the exact amount (including the currency of payment) of principal of and interest due on which can be determined at the time of making the deposit referred to in clause (b) below, (a) all the Securities of such series and all unmatured Coupons appertaining thereto not theretofore delivered to the Trustee for cancellation shall have become due and payable, or are by their terms to become due and payable within one year or are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption, and (b) the Issuer shall have irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust the entire amount in (i) cash (other than moneys repaid by the Trustee or any paying agent to the Issuer in accordance with Section 10.4), (ii) in the case of any series of Securities the payments on which may only be made in Dollars, direct obligations of the United States of America, backed by its full faith and credit ("U.S. Government Obligations"), maturing as to principal and interest at such times and in such amounts as will insure the availability of cash sufficient to pay at such maturity or upon such redemption, as the case may be, or (iii) a combination thereof, sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay (a) the principal and interest on all Securities of such series and Coupons appertaining thereto on each date that such principal or interest is due and payable and (b) any mandatory sinking fund payments on the dates on which such payments are due and payable in accordance with the terms of the Indenture and the Securities of such series; (x) the principal and interest on all Securities of such series and Coupons appertaining thereto on each date that such principal or interest is due and payable and (y) any mandatory sinking fund payments on the dates on which such payments are due and payable in accordance with the terms of the Indenture and the Securities of such series; and if, in any such case, the Issuer shall also pay or cause to be paid all other sums payable hereunder by the Issuer, then this Indenture shall cease to be of further effect (except as to (i) rights of registration of transfer and exchange of Securities of such Series and of Coupons appertaining thereto pursuant to Section 2.8 and the Issuer's right of optional redemption, if any, (ii) substitution of mutilated, defaced, 54 destroyed, lost or stolen Securities or Coupons, (iii) rights of holders of Securities and Coupons appertaining thereto to receive payments of principal thereof and interest thereon, upon the original stated due dates therefor (but not upon acceleration), and remaining rights of the Holders to receive mandatory sinking fund payments, if any, (iv) any optional redemption rights of such series of Securities to the extent to be exercised to make such call for redemption within one year, (v) the rights, obligations, duties and immunities of the Trustee hereunder, including those under Section 6.6, (vi) the rights of the Holders of Securities of such series and Coupons appertaining thereto as beneficiaries hereof with respect to the property so deposited with the Trustee payable to all or any of them, and (vii) the obligations of the Issuer under Section 3.2) and the Trustee, on demand of the Issuer accompanied by an Officer's Certificate and an Opinion of Counsel and at the cost and expense of the Issuer, shall execute proper instruments acknowledging such satisfaction of and discharging this Indenture; provided, that the rights of Holders of the Securities and Coupons to receive amounts in respect of principal of and interest on the Securities and Coupons held by them shall not be delayed longer than required by then-applicable mandatory rules or policies of any securities exchange upon which the Securities are listed. The Issuer agrees to reimburse the Trustee for any costs or expenses thereafter reasonably and properly incurred and to compensate the Trustee for any services thereafter reasonably and properly rendered by the Trustee in connection with this Indenture or the Securities of such series. (B) The following provisions shall apply to the Securities of each series unless specifically otherwise provided in a Board Resolution, Officer's Certificate or indenture supplemental hereto provided pursuant to Section 2.3. In addition to discharge of the Indenture pursuant to the next preceding paragraph, in the case of any series of Securities the exact amounts (including the currency of payment) of principal of and interest due on which can be determined at the time of making the deposit referred to in clause (a) below, the Issuer shall be deemed to have paid and discharged the entire indebtedness on all the Securities of such a series and the Coupons appertaining thereto on the date of the deposit referred to in subparagraph (a) below, and the provisions of this Indenture with respect to the Securities of such series and Coupons appertaining thereto shall no longer be in effect (except as to (i) rights of registration of transfer and exchange of Securities of such series and of Coupons appertaining thereto pursuant to Section 2.8 and the Issuer's right of optional redemption, if any, (ii) substitution of mutilated, defaced, destroyed, lost or stolen Securities or Coupons, (iii) rights of Holders of Securities and Coupons appertaining thereto to receive payments of principal thereof and interest thereon, upon the original stated due dates therefor (but not upon acceleration), and remaining rights of the Holders to receive mandatory sinking fund payments, if any, (iv) any optional redemption rights of such series of Securities to the extent to be exercised to make such call for redemption within one year, (v) the rights, obligations, duties and immunities of the Trustee hereunder, (vi) the rights of the Holders of Securities of such series and Coupons appertaining thereto as beneficiaries hereof with respect to the property so deposited with the Trustee payable to all or any of them and (vii) the obligations of the Issuer under Section 3.2) and the Trustee, at the expense of the Issuer, shall at the Issuer's request, execute proper instruments acknowledging the same, if 55 (b) with reference to this provision the Issuer has irrevocably deposited or caused to be irrevocably deposited with the Trustee as trust funds in trust, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of the Securities of such series and Coupons appertaining thereto (i) cash in an amount, or (ii) in the case of any series of Securities the payments on which may only be made in Dollars, U.S. Government Obligations, maturing as to principal and interest at such times and in such amounts as will insure the availability of cash or (iii) a combination thereof, sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay (A) the principal and interest on all Securities of such series and Coupons appertaining thereto on each date that such principal or interest is due and payable and (b) any mandatory sinking fund payments on the dates on which such payments are due and payable in accordance with the terms of the Indenture and the Securities of such series; (c) such deposit will not result in a breach or violation of, or constitute a default under, any agreement or instrument to which the Issuer is a party or by which it is bound; (d) the Issuer has delivered to the Trustee an Opinion of Counsel based on the fact that (x) the Issuer has received from, or there has been published by, the IRS a ruling or (y) since the date hereof, there has been a change in the applicable United States Federal income tax law, in either case to the effect that, and such opinion shall confirm that, the Holders of the Securities of such series and Coupons appertaining thereto will not recognize income, gain or loss for United States Federal income tax purposes as a result of such deposit, defeasance and discharge and will be subject to United States Federal income tax on the same amount and in the same manner and at the same times, as would have been the case if such deposit, defeasance and discharge had not occurred; and (e) the Issuer has delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for relating to the defeasance contemplated by this provision have been complied with. (C) The Issuer shall be released from its obligations under Sections 3.6 and 9.1 and unless otherwise provided for in the Board Resolution, Officer's Certificate or Indenture supplemental hereto establishing such series of Securities, from all covenants and other obligations referred to in Section 2.3(19) or 2.3(21) with respect to such series of Securities, and any Coupons appertaining thereto, outstanding on and after the date the conditions set forth below are satisfied (hereinafter, "covenant defeasance"). For this purpose, such covenant defeasance means that, with respect to the Outstanding Securities of any series, the Issuer may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in such Section, whether directly or indirectly by reason of any reference elsewhere herein to such Section or by reason of any reference in such Section to any other provision 56 herein or in any other document and such omission to comply shall not constitute an Event of Default under Section 5.1, but the remainder of this Indenture and such Securities and Coupons shall be unaffected thereby. The following shall be the conditions to application of this subsection C of this Section 10.1: (a) The Issuer has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the holders of the Securities of such series and coupons appertaining thereto, (i) cash in an amount, or (ii) in the case of any series of Securities the payments on which may only be made in Dollars, U.S. Government Obligations maturing as to principal and interest at such times and in such amounts as will insure the availability of cash or (iii) a combination thereof, sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay (A) the principal and interest on all Securities of such series and Coupons appertaining thereof and (B) any mandatory sinking fund payments on the day on which such payments are due and payable in accordance with the terms of the Indenture and the Securities of such series; (b) No Event of Default or event which with notice or lapse of time or both would become an Event of Default with respect to the Securities shall have occurred and be continuing on the date of such deposit; (c) Such covenant defeasance shall not cause the Trustee to have a conflicting interest as defined in Section 6.9 and for purposes of the Trust Indenture Act with respect to any securities of the Issuer; (d) Such covenant defeasance shall not result in a breach or violation of, or constitute a default under any agreement or instrument to which the Issuer is a party or by which it is bound; (e) Such covenant defeasance shall not cause any Securities then listed on any registered national securities exchange under the Exchange Act to be delisted; (f) The Issuer shall have delivered to the Trustee an Officer's Certificate and Opinion of Counsel to the effect that the Holders of the Securities of such series and Coupons appertaining thereto will not recognize income, gain or loss for United States Federal income tax purposes as a result of such covenant defeasance and will be subject to United States Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred; and 57 (g) The Issuer shall have delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for relating to the covenant defeasance contemplated by this provision have been complied with. SECTION 10.2 APPLICATION BY TRUSTEE OF FUNDS DEPOSITED FOR PAYMENT OF SECURITIES. Subject to Section 10.4, all moneys deposited with the Trustee (or other trustee) pursuant to Section 10.1 shall be held in trust and applied by it to the payment, either directly or through any paying agent (including the Issuer acting as its own paying agent), to the Holders of the particular Securities of such series and of Coupons appertaining thereto for the payment or redemption of which such moneys have been deposited with the Trustee, of all sums due and to become due thereon for principal and interest; but such money need not be segregated from other funds except to the extent required by law. SECTION 10.3 REPAYMENT OF MONEYS HELD BY PAYING AGENT. In connection with the satisfaction and discharge of this Indenture with respect to Securities of any series, all moneys then held by any paying agent under the provisions of this Indenture with respect to such series of Securities shall, upon demand of the Issuer, be repaid to it or paid to the Trustee and thereupon such paying agent shall be released from all further liability with respect to such moneys. SECTION 10.4 RETURN OF MONEYS HELD BY TRUSTEE AND PAYING AGENT UNCLAIMED FOR TWO YEARS. Any moneys deposited with or paid to the Trustee or any paying agent for the payment of the principal of or interest on any Security of any series and of any Coupons attached thereto and not applied but remaining unclaimed for two years after the date upon which such principal or interest shall have become due and payable, shall, upon the written request of the Issuer and unless otherwise required by mandatory provisions of applicable escheat or abandoned or unclaimed property law, be repaid to the Issuer by the Trustee for such series or such paying agent, and the Holder of the Securities of such series and of any Coupons appertaining thereto shall, unless otherwise required by mandatory provisions of applicable escheat or abandoned or unclaimed property laws, thereafter look only to the Issuer for any payment which such Holder may be entitled to collect, and all liability of the Trustee or any paying agent with respect to such moneys shall thereupon cease; provided, that the Trustee or such paying agent, before being required to make any such repayment with respect to moneys deposited with it for any payment (a) in respect of Registered Securities of any series, shall at the expense of the Issuer, mail by first-class mail to Holders of such Securities at their addresses as they shall appear on the Security register, and (b) in respect of Unregistered Securities of any series, shall at the expense of the Issuer cause to the published once, in an Authorized Newspaper in the Borough of Manhattan, The City of New York and once in an Authorized Newspaper in London (and, if required by Section 3.7, once in an Authorized Newspaper in Luxembourg), notice, that such moneys remain and that, after a date specified therein, which shall not be less than thirty days from the date of such mailing or publication, any unclaimed balance of such money then remaining will be repaid to the Issuer. 58 SECTION 10.5 INDEMNITY FOR U.S. GOVERNMENT OF OBLIGATIONS. The Issuer shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Government Obligations deposited pursuant to Section 10.1 or the principal or interest received in respect of such obligations. SECTION 10.6 EFFECT ON SUBORDINATION PROVISIONS. Unless otherwise expressly established pursuant to Section 2.3 with respect to the Subordinated Securities of any series, the provisions of Section 11.13 hereof, insofar as they pertain to the Subordinated Securities of such series, and the Subordination Provisions established pursuant to Section 2.3(9) with respect to such series, are hereby expressly made subject to the provisions for satisfaction and discharge and defeasance and covenant defeasance set forth in Section 10.1 hereof and, anything herein to the contrary notwithstanding, upon the effectiveness of such satisfaction and discharge and defeasance and covenant defeasance pursuant to Section 10.1 with respect to the Securities of such series, such Securities shall thereupon cease to be so subordinated and shall no longer be subject to the provisions of Section 11.13 or the Subordination Provisions established pursuant to Section 2.3(9) with respect to such series and, without limitation to the foregoing, all moneys, U.S. Government Obligations and other securities or property deposited with the Trustee (or other qualifying trustee) in trust in connection with such satisfaction and discharge, defeasance or covenant defeasance, as the case may be, and all proceeds therefrom may be applied to pay the principal of, premium, if any, and interest, if any, on, and mandatory sinking fund payments, if any, with respect to the Securities of such series as and when the same shall become due and payable notwithstanding the provisions of Section 11.13 or such Subordination Provisions. ARTICLE XI MISCELLANEOUS PROVISIONS SECTION 11.1 INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS OF ISSUER EXEMPT FROM INDIVIDUAL LIABILITY. No recourse under or upon any obligation, covenant or agreement contained in this Indenture, or in any Security, 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 Issuer or of any successor, either directly or through the Issuer 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 Securities and the Coupons, if any, appertaining thereto by the Holders thereof and as part of the consideration for the issue of the Securities and the Coupons appertaining thereto. SECTION 11.2 PROVISIONS OF INDENTURE FOR THE SOLE BENEFIT OF PARTIES AND HOLDERS OF SECURITIES AND COUPONS. Nothing in this Indenture, in the Securities or in the Coupons appertaining thereto, expressed or implied, shall 59 give or be construed to give to any person, firm or corporation, other than the parties hereto and their successors and the Holders of the Securities or Coupons, if any and, in the case of the Subordinated Securities of any series, the holders of Senior Indebtedness with respect to such series, 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 Securities or Coupons, if any and, in the case of the Subordinated Securities of any series, the holders of Senior Indebtedness with respect to such series. SECTION 11.3 SUCCESSORS AND ASSIGNS OF ISSUER BOUND BY INDENTURE. All the covenants, stipulations, promises and agreements in this Indenture contained by or in behalf of the Issuer shall bind its successors and assigns, whether so expressed or not. SECTION 11.4 NOTICES AND DEMANDS ON ISSUER, TRUSTEE AND HOLDERS OF SECURITIES AND COUPONS. 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 Securities or Coupons, if any, to or on the Issuer 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 Issuer is filed by the Issuer with the Trustee) to McKesson Corporation, McKesson Plaza, One Post Street, San Francisco, California 94104, Attention: Secretary. Any notice, direction, request or demand by the Issuer or any Holder of Securities or Coupons, if any, to or upon the Trustee shall be deemed to have been sufficiently given or served by being deposited postage prepaid, first-class mail (except as otherwise specifically provided herein) addressed (until another address of the Trustee is filed by the Trustee with the Issuer) to The Bank of New York, 101 Barclay Street, 21W, New York, New York, 10286, Attention: Corporate Trust Division. Where this Indenture provides for notice to Holders of Registered Securities, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class mail, postage prepaid, to each Holder entitled thereto, at his last address as it appears in the Security register. In any case where notice to such Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. 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. Where this Indenture provides for notice to holders of Unregistered Securities, such notice shall be sufficiently given (unless otherwise expressly provided herein) by giving notice to such Holders (a) by publication of such notice at least once in an Authorized 60 Newspaper in the Borough of Manhattan, The City of New York, and at least once in an Authorized Newspaper in London (and, if required by Section 3.7, once in an Authorized Newspaper in Luxembourg), and (b) by mailing such notice to the Holders of Unregistered Securities who have filed their names and addresses with the Trustee pursuant to Section 313(c)(2) of the Trust Indenture Act at such addresses as were so furnished to the Trustee. In case, by reason of the suspension of or irregularities in regular mail service, it shall be impracticable to mail notice to the Issuer when such notice is required to the given pursuant to any provision of this Indenture, then any manner of giving such notice as shall be reasonably satisfactory to the Trustee shall be deemed to be a sufficient giving of such notice. SECTION 11.5 OFFICER'S CERTIFICATES AND OPINIONS OF COUNSEL; STATEMENTS TO BE CONTAINED THEREIN. Upon any application or demand by the Issuer to the Trustee to take any action under any of the provisions of this Indenture, the Issuer shall furnish to the Trustee an Officer's Certificate stating that all conditions precedent 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 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, (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. Any certificate, statement or opinion of an officer of the Issuer 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 Issuer, upon the certificate, statement or opinion of or representations by an officer or officers of the Issuer, 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. 61 Any certificate, statement or opinion of an officer of the Issuer 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 Issuer, unless such officer or counsel, as the case may be, knows that the certificate or opinion of 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 11.6 PAYMENTS DUE ON SATURDAYS, SUNDAYS AND HOLIDAYS. If the date of maturity of interest on or principal of the Securities of any series or any Coupons appertaining thereto or the date fixed for redemption or repayment of any such Security or Coupon 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 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 11.7 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 duties imposed by, or with another provision (an "incorporated provision") included in this Indenture by operation of Sections 310 to 318, inclusive, of the Trust Indenture Act, such imposed duties or incorporated provision shall control. SECTION 11.8 THIS INDENTURE AND EACH SECURITY AND COUPON SHALL BE DEEMED TO BE A CONTRACT UNDER THE LAWS OF THE STATE OF NEW YORK, AND FOR ALL PURPOSES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF SUCH STATE INCLUDING, WITHOUT LIMITATION, SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW. SECTION 11.9 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 11.10 EFFECT OF HEADINGS. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 11.11 SECURITIES IN A FOREIGN CURRENCY. Unless otherwise specified in an Officer's Certificate delivered pursuant to Section 2.3 of this Indenture with respect to a particular series of Securities, whenever for purposes of this Indenture any action may be taken by the Holders of a specified percentage in aggregate principal amount of 62 Securities of all series or all series affected by a particular action at the time Outstanding and, at such time, there are Outstanding Securities of any series which are denominated in a Foreign Currency, then the principal amount of Securities of such series which shall be deemed to be Outstanding for the purpose of taking such action shall be that amount of Dollars that could be obtained for such amount at the Market Exchange Rate. For purposes of this Section 11.11, Market Exchange Rate shall mean the noon Dollar buying rate in The City of New York for cable transfers of such currency or currencies as published by the Federal Reserve Bank of New York as of the most recent available date. If such Market Exchange Rate is not available for any reason with respect to such currency, the Trustee shall use, in its sole discretion and without liability on its part, such quotation of the Federal Reserve Bank of New York or quotations from one or more major banks in The City of New York or in the country of issue of the currency in question, which for purposes of the euro shall be any member state of the European Union that has adopted the euro, as the Trustee shall deem appropriate. The provisions of this paragraph shall apply in determining the equivalent principal amount in respect of Securities of a series denominated in a currency other than Dollars in connection with any action taken by Holders of Securities pursuant to the terms of this Indenture. All decisions and determinations of the Trustee regarding the Market Exchange Rate or any alternative determination provided for in the preceding paragraph shall be in its sole discretion and shall, in the absence of manifest error, be conclusive to the extent permitted by law for all purposes and irrevocably binding upon the Issuer and all Holders. SECTION 11.12 JUDGMENT CURRENCY. The Issuer agrees, to the fullest extent that it may effectively do so under applicable law, that (a) if for the purpose of obtaining judgment in any court it is necessary to convert the sum due in respect of the principal of or interest on the Securities of any series (the "Required Currency") into a currency in which a judgment will be rendered (the "Judgment Currency"), the rate of exchange used shall be the rate at which in accordance with normal banking procedures the Trustee could purchase in The City of New York the Required Currency with the Judgment Currency on the day on which final unappealable judgment is entered, unless such day is not a New York Banking Day, then, to the extent permitted by applicable law, the rate of exchange used shall be the rate at which in accordance with normal banking procedures the Trustee could purchase in The City of New York the Required Currency with the Judgment Currency on the New York Banking Day preceding the day on which final unappealable judgment is entered and (b) its obligations under this Indenture to make payments in the Required Currency (i) shall not be discharged or satisfied by any tender, or any recovery pursuant to any judgment (whether or not entered in accordance with subsection (a)), in any currency other than the Required Currency, except to the extent that such tender or recovery shall result in the actual receipt, by the payee, of the full amount of the Required Currency expressed to be payable in respect of such payments, (ii) shall be enforceable as an alternative or additional cause of action for the purpose of recovering in the Required Currency the amount, if any, by which such actual receipt shall fall short of the full amount of the Required Currency so expressed to be payable and (iii) shall not be affected by judgment being obtained for any other sum due under this Indenture. For purposes of the 63 foregoing, "New York Banking Day" means any day except a Saturday, Sunday or a legal holiday in The City of New York or a day on which banking institutions in The City of New York are authorized or required by law or executive order to close. SECTION 11.13 AGREEMENT TO SUBORDINATE. The Issuer, for itself, its successors and assigns, covenants and agrees, and each Holder of Subordinated Securities of any series by his acceptance thereof, likewise covenants and agrees, that the payment of the principal of (and premium, if any) and interest, if any, on, and mandatory sinking fund payments, if any, in respect of each and all of the Subordinated Securities of such series shall be expressly subordinated, to the extent and in the manner provided in the Subordination Provisions established with respect to the Subordinated Securities of such series pursuant to Section 2.3(9) hereof, in right of payment to the prior payment in full of all Senior Indebtedness with respect to such series. ARTICLE XII REDEMPTION OF SECURITIES AND SINKING FUNDS SECTION 12.1 APPLICABILITY OF ARTICLE. The provisions of this Article shall be applicable to the Securities of any series which are redeemable before their maturity or to any sinking fund for the retirement of Securities of a series except as otherwise specified as contemplated by Section 2.3 for Securities of such series. SECTION 12.2 NOTICE OF REDEMPTION; PARTIAL REDEMPTIONS. Notice of redemption to the Holders of Registered Securities of any series to be redeemed as a whole or in part at the option of the Issuer shall be given by mailing notice of such redemption by first class mail, postage prepaid, at least 30 days and not more than 60 days prior to the date fixed for redemption to such Holders of Securities of such series at their last addresses as they shall appear upon the registry books. Notice of redemption to the Holders of Unregistered Securities to be redeemed as a whole or in part, who have filed their names and addresses with the Trustee pursuant to Section 313(c)(2) of the Trust Indenture Act shall be given by mailing notice of such redemption, by first class mail, postage prepaid, at least 30 days and not more than 60 prior to the date fixed for redemption, to such Holders at such addresses as were so furnished to the Trustee (and, in the case of any such notice given by the Issuer, the Trustee shall make such information available to the Issuer for such purpose). Notice of redemption to all other Holders of Unregistered Securities shall be published in an Authorized Newspaper in the Borough of Manhattan, The City of New York and in an Authorized Newspaper in London (and, if required by Section 3.7, in an Authorized Newspaper in Luxembourg), in each case, once in each of three successive calendar weeks, the first publication to be not less than 30 nor more than 60 days prior to the date fixed for redemption. 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. Failure to give notice by mail, or any defect in the notice to the 64 Holder of any Security of a series designated for redemption as a whole or in part shall not affect the validity of the proceedings for the redemption of such Security of such series. The notice of redemption to each such Holder shall specify the principal amount of each Security of such series held by such Holder to be redeemed, the date fixed for redemption, the redemption price, the place or places of payment, that payment will be made upon presentation and surrender of such Securities and, in the case of Securities with Coupons attached thereto, of all Coupons appertaining thereto maturing after the date fixed for redemption, that such redemption is pursuant to the mandatory or optional sinking fund, or both, if such be the case, 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. In case any Security of a series is to be redeemed in part only, the notice of redemption to Holders of Securities of the series 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 Security, a new Security or Securities of such series in principal amount equal to the unredeemed portion thereof will be issued. The notice of redemption of Securities of any series to be redeemed at the option of the Issuer shall be given by the Issuer or, at the Issuer's request, by the Trustee in the name and at the expense of the Issuer. On or before the redemption date specified in the notice of redemption given as provided in this Section, the Issuer will deposit with the Trustee or with one or more paying agents (or, if the Issuer is acting as its own paying agent, set aside, segregate and hold in trust as provided in Section 3.4) an amount of money sufficient to redeem on the redemption date all the Securities of such series so called for redemption at the appropriate redemption price, together with accrued interest to the date fixed for redemption. The Issuer will deliver to the Trustee at least 70 days prior to the date fixed for redemption, or such shorter period as shall be acceptable to the Trustee, an Officer's Certificate stating the aggregate principal amount of Securities to be redeemed. In case of a redemption at the election of the Issuer prior to the expiration of any restriction on such redemption, the Issuer shall deliver to the Trustee, prior to the giving of any notice of redemption to Holders pursuant to this Section, an Officer's Certificate stating that such restriction has been complied with. If less than all the Securities of a series are to be redeemed, the Trustee shall select, in such manner as it shall deemed appropriate and fair, in its sole discretion, Securities of such series to be redeemed in whole or in part. Securities may be redeemed in part in multiples equal to the minimum authorized denomination for Securities of such series or any multiple thereof. The Trustee shall promptly notify the Issuer in writing of the Securities of such series selected for redemption and, in the case of any Securities of such series selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities of any series shall relate, in the case of any Security redeemed or to be redeemed only 65 in part, to the portion of the principal amount of such Security which has been or is to be redeemed. SECTION 12.3 PAYMENT OF SECURITIES CALLED FOR REDEMPTION. If notice of redemption has been given as above provided, the Securities or portions of Securities 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 Issuer shall default in the payment of such Securities at the redemption price, together with interest accrued to said date) interest on the Securities or portions of Securities so called for redemption shall cease to accrue, and the unmatured Coupons, if any, appertaining thereto shall be void, and, except as provided in Sections 6.5 and 10.4, such Securities 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 Securities except the right to receive the redemption price thereof and unpaid interest to the date fixed for redemption. On presentation and surrender of such Securities at a place of payment specified in said notice, together with all Coupons, if any, appertaining thereto maturing after the date fixed for redemption, said Securities or the specified portions thereof shall be paid and redeemed by the Issuer 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 in the case of Securities with Coupons attached thereto, to the Holders of the Coupons for such interest upon surrender thereof, and in the case of Registered Securities, to the Holder of such Registered Securities registered as such on the relevant record date, subject to the terms and provisions of Section 2.3 and 2.7 hereof. If any Security 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 rate of interest or Yield to Maturity (in the case of an Original Issue Discount Security) borne by such Security. If any Security with Coupons attached thereto is surrendered for redemption and is not accompanied by all appurtenant Coupons maturing after the date fixed for redemption, the surrender of such missing Coupon or Coupons may be waived by the Issuer and the Trustee, if there be furnished to each of them such security or indemnity as they may require to save each of them harmless. Upon presentation of any Security redeemed in part only, the Issuer shall execute and the Trustee shall authenticate and deliver to or on the order of the Holder thereof, at the expense of the Issuer, a new Security or Securities of such series, of authorized denominations, in principal amount equal to the unredeemed portion of the Security so presented. 66 SECTION 12.4 EXCLUSION OF CERTAIN SECURITIES FROM ELIGIBILITY FOR SELECTION FOR REDEMPTION. Securities shall be excluded from eligibility for selection for redemption if they are identified by registration and certificate number in an Officer's Certificate delivered to the Trustee at least 40 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 Issuer 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 Issuer. SECTION 12.5 MANDATORY AND OPTIONAL SINKING FUNDS. The minimum amount of any sinking fund payment provided for by the terms of the Securities of any series is herein referred to as a "mandatory sinking fund payment," and any payment in excess of such minimum amount provided for by the terms of the Securities of any series is herein referred to as an "optional sinking fund payment." The date on which a sinking fund payment is to be made is herein referred to as the "sinking fund payment date." In lieu of making all or any part of any mandatory sinking fund payment with respect to any series of Securities in cash, the Issuer may at its option (a) deliver to the Trustee Securities of such series theretofore purchased or otherwise acquired (except upon redemption pursuant to the mandatory sinking fund) by the Issuer or receive credit for Securities of such series (not previously so credited) theretofore purchased or otherwise acquired (except as aforesaid) by the Issuer and delivered to the Trustee for cancellation pursuant to Section 2.10, (b) receive credit for optional sinking fund payments (not previously so credited) made pursuant to this Section, or (c) receive credit for Securities of such series (not previously so credited) redeemed by the Issuer through any optional redemption provision contained in the terms of such series. Securities so delivered or credited shall be received or credited by the Trustee at the sinking fund redemption price specified in such Securities. On or before the 60th day next preceding each sinking fund payment date for any series, the Issuer will deliver to the Trustee an Officer's Certificate (which need not contain the statements required by Section 11.5) (a) specifying the portion of the mandatory sinking fund payment to be satisfied by payment of cash and the portion to be satisfied by credit of Securities of such series and the basis for such credit, (b) stating that none of the Securities of such series has theretofore been so credited, (c) stating that no defaults in the payment of interest or Events of Default with respect to such series have occurred (which have not been waived or cured) and are continuing and (d) stating whether or not the Issuer intends to exercise its right to make an optional sinking fund payment with respect to such series and, if so, specifying the amount of such optional sinking fund payment which the Issuer intends to pay on or before the next succeeding sinking fund payment date. Any Securities of such series to be credited and required to be delivered to the Trustee in order for the Issuer to be entitled to credit therefor as aforesaid which have not theretofore been delivered to the Trustee shall be delivered for cancellation pursuant to Section 2.10 to the Trustee with such Officer's Certificate (or reasonably promptly thereafter if acceptable to the Trustee). Such Officer's Certificate shall 67 be irrevocable and upon its receipt by the Trustee, the Issuer shall become unconditionally obligated to make all the cash payments or payments therein referred to, if any, on or before the next succeeding sinking fund payment date. Failure of the Issuer, on or before any such 60th day, to deliver such Officer's Certificate and Securities specified in this paragraph, if any, shall not constitute a default but shall constitute, on and as of such date, the irrevocable election of the Issuer (i) that the mandatory sinking fund payment for such series due on the next succeeding sinking fund payment date shall be paid entirely in cash without the option to deliver or credit Securities of such series in respect thereof and (ii) that the Issuer will make no optional sinking fund payment with respect to such series as provided in this Section. If the sinking fund payment or payments (mandatory or optional or both) to be made in cash on the next succeeding sinking fund payment date plus any unused balance of any preceding sinking fund payments made in cash shall exceed $50,000 (or the equivalent thereof in any Foreign Currency) or a lesser sum in Dollars (or the equivalent thereof in any Foreign Currency) if the Issuer shall so request with respect to the Securities of any particular series, such cash shall be applied on the next succeeding sinking fund payment date to the redemption of Securities of such series at the sinking fund redemption price together with accrued interest to the date fixed for redemption. If such amount shall be $50,000 (or the equivalent thereof in any Foreign Currency) or less and the Issuer makes no such request then it shall be carried over until a sum in excess of $50,000 (or the equivalent thereof in any Foreign Currency) is available. The Trustee shall select, in the manner provided in Section 12.2, for redemption on such sinking fund payment date a sufficient principal amount of Securities of such series to absorb said cash, as nearly as may be, and shall (if requested in writing by the Issuer) inform the Issuer of the serial numbers of the Securities of such series (or portions thereof) so selected. Securities shall be excluded from eligibility for redemption under this Section if they are identified by registration and certificate number in an Officer's Certificate delivered to the Trustee at least 60 days prior to the sinking fund payment date as being owned of record and beneficially by, and not pledged or hypothecated by, either (a) the Issuer or (b) an entity specifically identified in such Officer's Certificate as directly or indirectly controlling or controlled by or under direct or indirect common control with the Issuer. The Trustee, in the name and at the expense of the Issuer (or the Issuer, if it shall so request the Trustee in writing) shall cause notice of redemption of the Securities of such series to be given in substantially the manner provided in Section 12.2 (and with the effect provided in Section 12.3) for the redemption of Securities of such series in part at the option of the Issuer. The amount of any sinking fund payments not so applied or allocated to the redemption of Securities of such series shall be added to the next cash sinking fund payment for such series and, together with such payment, shall be applied in accordance with the provisions of this Section. Any and all sinking fund moneys held on the stated maturity date of the Securities of any particular series (or earlier, if such maturity is accelerated), which are not held for the payment or redemption of particular Securities of such series shall be applied, together with other moneys, if necessary, sufficient for the purpose, to the payment of the principal of, and interest on, the Securities of such series at maturity. 68 On or before each sinking fund payment date, the Issuer shall pay to the Trustee in cash or shall otherwise provide for the payment of all interest accrued to the date fixed for redemption on Securities to be redeemed on the next following sinking fund payment date. The Trustee shall not redeem or cause to be redeemed any Securities of a series with sinking fund moneys or give any notice of redemption of Securities for such series by operation of the sinking fund during the continuance of a default in payment of interest on such Securities or of any Event of Default except that, where the giving of notice of redemption of any Securities shall theretofore have been made, the Trustee shall redeem or cause to be redeemed such Securities, provided that it shall have received from the Issuer a sum sufficient for such redemption. Except as aforesaid, any moneys in the sinking fund for such series at the time when any such default or Event of Default shall occur, and any moneys thereafter paid into the sinking fund, shall, during the continuance of such default or Event of Default be deemed to have been collected under Article Five and held for the payment of all such Securities. In case such Event of Default shall have been waived as provided in Section 5.10 or the default cured on or before the sixtieth day preceding the sinking fund payment date in any year, such moneys shall thereafter be applied on the next succeeding sinking fund payment date in accordance with this Section to the redemption of such Securities. 69 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed and attested as of the date first written above. McKESSON CORPORATION By: /s/ Nicholas A. Loiacono ------------------------------- Name: Nicholas A. Loiacono Title: Vice President Attest: By: /s/ Glenette Babb ------------------------------- THE BANK OF NEW YORK, as Trustee By: /s/ Michael Pitfick ------------------------------- Name: Michael Pitfick Title: Assistant Treasurer Attest: By: ------------------------------- EX-4.7 5 f82011exv4w7.txt EXHIBIT 4.7 Exhibit 4.7 REGISTERED REGISTERED THIS NOTE IS A REGISTERED GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE OF A DEPOSITARY. UNLESS THIS NOTE 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 NOTE 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. 1 CUSIP NO. 58155QAA1 McKESSON CORPORATION 7 3/4% NOTE DUE FEBRUARY 1, 2012 McKesson Corporation, a Delaware corporation (the "Issuer," which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to, Cede & Co., or registered assigns, the principal sum of Four Hundred Million Dollars ($400,000,000) on February 1, 2012 and to pay interest on said principal sum from January 29, 2002, or from the most recent interest payment date to which interest has been paid or duly provided for, semi-annually in arrears on February 1 and August 1, (each such date, an "Interest Payment Date") of each year commencing on August 1, 2002, at the rate of 7 3/4% per annum until the principal hereof shall have become due and payable. The amount of interest payable on any Interest Payment Date shall be computed on the basis of a 360-day year comprised of twelve 30-day months. In the event that any date on which the principal or interest payable on this Note is not a Business Day, then payment of principal or 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 such delay). 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 Note is registered at the close of business on the record date for such interest installment, which shall be the close of business on the immediately preceding January 15 and July 15 prior to such Interest Payment Date, as applicable. Any such interest installment not punctually paid or duly provided for shall forthwith cease to be payable to the registered holders on such record date and may be paid to the person in whose name this Note is registered at the close of business on a subsequent record date (which shall be not less than five Business Days prior to the date of payment of such defaulted interest), notice whereof shall be given by mail by or on behalf of the Issuer to the registered holders of Notes not less than 15 days preceding such subsequent record date, all as more fully provided in the Indenture. The principal of and the interest on this Note shall be payable at the office or agency of the Issuer 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 Issuer by check mailed to the person entitled thereto at such address as shall appear in the registry books of the Issuer; provided, further that for so long as this Note is represented by a Registered Global Security, payment of principal, premium, if any, or interest on this Note may be made by wire transfer to the account of the Depositary or its nominee. Unless the certificate of authentication hereon has been executed by or on behalf of the Trustee (as defined below) under the Indenture (as defined below), by the manual signature of one of its authorized officers, this Note shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. Capitalized terms used in this Note which are defined in the Indenture shall have the respective meanings assigned to them in the Indenture. The provisions of this Note 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. 2 IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly executed, manually or in facsimile, and an imprint or facsimile of its corporate seal to be imprinted hereon. McKESSON CORPORATION By: /s/ Nigel A. Rees ------------------------------------ Name: Nigel A. Rees Title: Vice President and Controller Attest: By: /s/ Glenette E. Babb ------------------------------------ Name: Glennette E. Babb Title: Assistant Secretary CERTIFICATE OF AUTHENTICATION This is one of the Securities referred to in the within-mentioned Indenture. THE BANK OF NEW YORK as Trustee By: /s/ Michael Pitfick ------------------------------------ Authorized Signatory Dated: January 29, 2002 ---------------------------------- 3 [FORM OF REVERSE SIDE OF NOTE] This Note is one of a duly authorized series of securities (the "Securities") of the Issuer designated as its 7 3/4% Notes due February 1, 2012 (the "Notes"). The Securities are all issued or to be issued under and pursuant to an Indenture, dated as of January 29, 2002 (the "Indenture"), duly executed and delivered between the Issuer and The Bank of New York, a New York banking corporation (the "Trustee," which term includes any successor Trustee with respect to the Securities under the Indenture), to which the Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights thereunder of the Issuer, the Trustee and the holders of the Securities and the terms upon which the Notes are to be authenticated and delivered. The terms of individual series of Securities may vary with respect to interest rate or interest rate formulas, issue dates, maturity, redemption, repayment, currency of payment and otherwise. The Notes are issuable only as Registered Securities in minimum denominations of $1,000 and integral multiples of $1,000 in excess thereof. As provided in the Indenture and subject to certain limitations therein set forth, the Notes are exchangeable for a like aggregate principal amount of Notes as requested by the holder surrendering the same. Except as set forth below, this Note is not redeemable and is not entitled to the benefit of a sinking fund or any analogous provision. This Note is redeemable, in whole or in part, at the option of the Issuer, at any time at a redemption price equal to the greater of (i) 100% of its principal amount and (ii) as determined by the Quotation Agent, the sum of the present values of the remaining scheduled payments of principal and interest thereon (not including any portion of those payments of interest accrued as of the date of redemption) discounted to the date of redemption on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Adjusted Treasury Rate plus 30 basis points, plus, in each case, accrued interest thereon to the date of redemption. The Holder of this Note will receive notice thereof by first-class mail at least 30 and not more than 60 days prior to the date fixed for redemption. Unless the Issuer defaults in payment of the redemption price, on and after the redemption date, interest will cease to accrue on the Notes or portions thereof called for redemption. "Adjusted Treasury Rate" means, with respect to any date of redemption, the rate per annum equal to the semi-annual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for that date of redemption. 4 "Comparable Treasury Issue" means the United States Treasury security selected by the Quotation Agent as having a maturity comparable to the remaining term of the Note that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the Note. "Comparable Treasury Price" means, with respect to any date of redemption, (i) the average of the Reference Treasury Dealer Quotations for the date of redemption, after excluding the highest and lowest Reference Treasury Dealer Quotations, or (ii) if the Trustee obtains fewer than three Reference Treasury Dealer Quotations, the average of all such Reference Treasury Dealer Quotations. "Quotation Agent" means J.P. Morgan Securities Inc. or another Reference Treasury Dealer appointed by the Issuer. "Reference Treasury Dealer" means (i) each of J.P. Morgan Securities Inc. and Banc of America Securities LLC and their respective successors; provided, however, that if either of the foregoing shall cease to be a primary U.S. Government securities dealer in New York City (a "Primary Treasury Dealer"), the Issuer shall substitute another Primary Treasury Dealer; and (ii) any other Primary Treasury Dealer selected by the Issuer. "Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any date of redemption, the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee by that Reference Treasury Dealer at 5:00 p.m., New York City time, on the third business day preceding that date of redemption. If an Event of Default with respect to the Notes shall occur and be continuing, the principal of all the Notes may be declared due and payable in the manner and with the effect provided in the Indenture. The Indenture contains provisions permitting the Issuer and the Trustee, with the consent of the holders of not less than a majority in aggregate principal amount of the Senior Securities or Subordinated Securities, as the case may be, of all series issued under such Indenture then outstanding and affected (each voting as one class), to add any provisions to, or change in any manner, eliminate or waive any of the provisions of, such Indenture or modify in any manner the rights of the holders of the Securities of each series or Coupons so affected; provided that the Issuer and the Trustee may not, without the consent of the holder of each Outstanding Security affected there- by, (i) extend the final maturity of the principal of any Security or reduce the principal 5 amount thereof or premium thereon, if any, or reduce the rate or extend the time of payment of interest thereon, or reduce any amount payable on redemption thereof or change the currency in which the principal thereof (other than as otherwise may be provided with respect to such series), premium, if any, or interest thereon is payable or reduce the amount of the principal of any Original Issue Discount Security that is payable upon acceleration or provable in bankruptcy, or in the case of Subordinated Securities of any series, modify any of the subordination provisions or the definition of "Senior Indebtedness" relating to such series in a manner adverse to the holders of such Subordinated Securities, or alter certain provisions of the Indenture relating to Securities not denominated in Dollars or the Judgment Currency of such Securities or impair or affect the right of any Securityholder to institute suit for the enforcement of any payment thereof when due or, if the Securities provide therefor, any right of repayment at the option of the Securityholder or (ii) reduce the aforesaid percentage in principal amount of Securities of any series issued under the Indenture, the consent of the holders of which is required for any such modification. It is also provided in the Indenture that, with respect to certain defaults or Events of Default regarding the Securities of any series, the holders of a majority in aggregate principal amount Outstanding of the Securities of each such series, each such series voting as a separate class (or, of all Securities, as the case may be voting as a single class) may under certain circumstances waive all defaults with respect to each such series (or with respect to all the Securities, as the case may be) and rescind and annul a declaration of default and its consequences, but no such waiver or rescission and annulment shall extend to or affect any subsequent default or shall impair any right consequent thereto. The preceding sentence shall not, however, apply to a default in the payment of the principal of or interest on any of the Securities. No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Issuer, which is absolute and unconditional, to pay the principal of and interest on this Note at the time, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Note may be registered on the registry books of the Issuer, upon surrender of this Note for registration of transfer at the office or agency of the Issuer maintained by the Issuer for such purpose in the Borough of Manhattan, The City of New York, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Issuer and the Trustee duly executed by, the holder hereof or by its attorney duly authorized in writing, and thereupon one or more new Notes of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. 6 No service charge shall be made for any such registration of transfer or exchange, but the Issuer may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. Prior to due presentment of this Note for registration of transfer, the Issuer, the Trustee and any agent of the Issuer or the Trustee may treat the person in whose name this Note is registered as the owner hereof for all purposes, whether or not this Note be overdue, and neither the Issuer, the Trustee nor any such agent shall be affected by notice to the contrary. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, INCLUDING, WITHOUT LIMITATION, SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW. 7 [FORM OF SCHEDULE FOR ENDORSEMENTS ON REGISTERED GLOBAL SECURITIES TO REFLECT CHANGES IN PRINCIPAL AMOUNT] Schedule A Changes to Principal Amount of Registered Global Securities

Principal Amount of Notes by which this Registered Remaining Global Security is to be Principal Reduced or Increased, Amount of this and Reason for Registered Date Reduction or Increase Global Security Notation Made By - ---- ------------------------ --------------- ----------------

8 EX-10.1 6 f82011exv10w1.txt EXHIBIT 10.1 Exhibit 10.1 MCKESSON CORPORATION 1999 STOCK OPTION AND RESTRICTED STOCK PLAN (As Amended Through July 31, 2001) 1. Establishment, Purpose and Definitions. (a) There is hereby adopted the McKesson Corporation 1999 Stock Option and Restricted Stock Plan (the "Plan"). (b) The purpose of this Plan is to provide a means whereby eligible employees of McKesson Corporation (the "Company") and its affiliates may be given an opportunity to purchase shares of the common stock ($0.01 par value) of the Company (the "Stock") pursuant to options, which will not qualify as "incentive stock options" under Section 422 of the Internal Revenue Code, as amended (the "Code"), and by providing participants with grants of restricted shares of Stock ("Restricted Stock") in accordance with the terms and conditions set forth herein. 2. Stock Subject to the Plan. (a) The number of shares of Stock available for the grant of awards hereunder shall be 32,700,000 (all such shares shall be subject to equitable adjustment as provided herein). The maximum number of shares of Stock that may be granted to any individual in the form of options during any plan year shall not exceed 600,000; in each case, such maximum number shall be subject to equitable adjustment as provided herein. As the Committee (as hereinafter defined) may determine from time to time, the Stock may consist either in whole or in part of shares of authorized but unissued Stock, or shares of authorized and issued Stock reacquired by the Company and held in its treasury. If an option is surrendered for cash or for any other reason (except surrender for shares of Stock) ceases to be exercisable in whole or in part, the shares which were subject to such option but as to which the option had not been exercised shall continue to be available for grants of stock options under the Plan. If any shares of Stock underlying Restricted Stock grants shall be reacquired by the Company pursuant to the termination provisions described herein or in the instruments evidencing the making of such Restricted Stock grants, such shares shall again be available for grant of Restricted Stock awards under the Plan. Prior to the granting of awards, the Company shall be under no obligation to reserve or retain in its treasury any particular number of shares of Stock at any time, and no particular shares of Stock, whether issued or held as treasury Stock, shall be identified as being available for future awards under the Plan. (b) In the event that the Committee shall determine that any dividend or other distribution (whether in the form of cash, stock, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, spin-off, combination, repurchase, or share exchange, or other similar corporate transaction or event, affects the Stock such that an adjustment is appropriate in order to preserve (but not increase) the rights of participants under the Plan, then the Committee shall make such equitable changes or adjustments as it deems necessary or appropriate to any or all of (i) the number and kind of shares which may thereafter be issued in connection with respect to both Restricted Stock and option awards, (ii) the number and kind of shares issued in respect of outstanding awards, and (iii) the exercise price relating to any options. 3. Eligibility. Persons who shall be eligible to have granted to them awards provided for by the Plan shall be such key employees of the Company and its affiliates as the Committee, in its sole discretion, shall designate from time to time. 4. Administration of the Plan. (a) The Plan shall be administered by a committee (the "Committee") consisting of not less than two directors of the Company to be appointed by the Board each of whom a "non-employee director" within the meaning of Rule 16b-3 under the Exchange Act or such other committee as is established by the Board. (b) The Committee may from time to time determine which key employees of the Company and its affiliates shall be granted awards under the Plan, the terms thereof, and the number of shares covered by an option or the number of shares of Restricted Stock to be granted. (c) The Committee shall have the sole authority, in its absolute discretion, to adopt, amend, and rescind such rules and regulations as, in its opinion, may be advisable in the administration of the Plan, to construe and interpret the Plan, the rules and regulations, and the instruments evidencing awards granted under the Plan and to make all other determinations deemed necessary or advisable for the administration of the Plan. All decisions, determinations, and interpretations of the Committee shall be final and binding on all participants and other interested parties. 5. Stock Options and Stock Appreciation Rights. (a) The Option Price. The exercise price of each option shall not be less than the fair market value of the Stock covered by such option on the date the option is granted. Such fair market value shall, if the Stock is not listed or admitted to trading on a stock exchange, be the mean between the lowest reported bid price and highest reported asked price of the Stock on the date the option is granted in the over-the-counter market, as reported by any publication of general circulation selected by the Company which regularly reports the market price of the Stock in such market, or, if the Stock is then listed or admitted to trading on any stock exchange, the composite closing 2 price on such day as reported in the Wall Street Journal. Such price shall be subject to adjustment as provided in paragraph 2(b) hereof. (b) Terms and Conditions of Options. (i) Each option granted pursuant to the Plan shall be evidenced by a written grant agreement (the "Agreement") executed by the Company and the person to whom such option is granted which shall provide such terms and conditions as the Committee may determine, in its sole discretion. (ii) Unless otherwise provided in the Agreement, the term of each option shall be for no more than ten years and three months. (iii) The Agreement may contain such other terms, provisions, and conditions as may be determined by the Committee (not inconsistent with this Plan) including, without limitation, provisions relating to stock appreciation rights ("SARs") with respect to options granted hereunder. Unless otherwise provided in the Agreement, the Committee may, in its sole discretion, extend the post-termination exercise period with respect to an option (but not beyond the original term of such option). (iv) The Committee shall have the authority to accelerate the exercisability of any outstanding option at such time and under such circumstances as it, in its sole discretion, deems appropriate. (c) Stock Appreciation Rights. The Committee may, under such terms and conditions as it deems appropriate, authorize the surrender by an optionee of all or part of an unexercised option and authorize a payment in consideration thereof of an amount equal to the difference obtained by subtracting the option price of the shares then subject to exercise under such option from the fair market value of the Stock represented by such shares on the date of surrender, provided that the Committee determines that such settlement is consistent with the purpose of the Plan. Such payment may be made in shares of Stock valued at their fair market value on the date of surrender of such option or in cash, or partly in shares and partly in cash. Acceptance of such surrender and the manner of payment shall be in the discretion of the Committee. If an option is surrendered for cash, the shares covered by the surrendered option will thereafter be available for grant under the Plan to the extent permitted under Rule 16b-3 of the Exchange Act. (d) Use of Proceeds. Proceeds realized from the sale of Stock pursuant to options granted under the Plan shall constitute general funds of the Company. 6. Restricted Stock Awards. (a) Terms and Conditions. 3 Each Restricted Stock grant made pursuant to the Plan shall be evidenced by an Agreement executed by the Company and the person to whom such Restricted Stock is granted (the "Grantee"). Each Restricted Stock grant made under the Plan shall, unless otherwise provided in the Agreement, contain the following terms, conditions and restrictions and such additional terms, conditions and restrictions as may be determined by the Committee. (b) Restrictions. Until the restrictions imposed on any Restricted Stock grant shall lapse, shares of Stock granted to a participant pursuant to a Restricted Stock grant: (i) Shall not be sold, assigned, transferred, pledged, hypothecated, or otherwise disposed of, and (ii) Shall, if the Grantee's continuous employment with the Company shall terminate for any reason, unless otherwise provided in the Agreement, be returned to the Company forthwith, and all the rights of the Grantee to such shares shall immediately terminate; provided that if the Committee, in its sole discretion, shall within ninety (90) days of such termination of employment, notify the participant in writing of its decision not to terminate the Grantee's rights in such shares, then the Grantee shall continue to be the owner of such shares subject to such continuing restrictions as the Committee may prescribe in such notice. If the Grantee's interests in the shares granted pursuant to a Restricted Stock grant shall be terminated, such Grantee shall forthwith deliver or cause to be delivered to the Secretary of the Company the certificate(s), if any, previously delivered to the Grantee for such shares, accompanied by such endorsement(s) and/or instrument(s) of transfer as may be required by the Secretary of the Company. (c) Lapse of Restrictions. Except as otherwise provided in the Plan or the Agreement, the restrictions imposed on any Restricted Stock grant shall commence with the date of the grant and continue during a period set by the Committee. Notwithstanding the foregoing, the Committee may accelerate the lapsing of restrictions on a Restricted Stock grant under such terms and conditions as it may deem appropriate. (d) Restrictive Legend; Certificates May be Held in Custody. Each certificate evidencing shares granted pursuant to a Restricted Stock grant may bear an appropriate legend referring to the terms, conditions and restrictions described in the Plan and in the instrument evidencing the Restricted Stock grant. Any attempt to dispose of such shares in contravention of such terms, conditions and restrictions shall be invalid. The Committee may enact rules which provide that the certificates evidencing such shares may be held in custody by a bank or other institution, or that the Company may itself hold such shares in custody, until restriction thereon shall have lapsed. 4 (e) Restrictions upon Making of Restricted Stock Grants. The registration or qualification under any federal or state law of any shares to be granted pursuant to Restricted Stock grants or the resale or other disposition of any such shares by or on behalf of the Grantees receiving such shares may be necessary or desirable as a condition of or in connection with such Restricted Stock grants, and, in any such event, if the Committee in its sole discretion so determines, delivery of the certificates for such shares shall not be made until such registration or qualification shall have been completed. 7. Change in Control. Upon a Change in Control (as hereinafter defined), then notwithstanding anything herein to the contrary, all options granted under the Plan that are outstanding at the time of such Change in Control shall become immediately exercisable in full and all restrictions with respect to shares of Restricted Stock shall lapse and such shares shall become fully vested and exercisable. A "Change in Control" of the Company shall be deemed to have occurred if any of the events set forth in any one of the following paragraphs shall occur: (i) Any "person" (as such term is used in sections 13(d) and 14(d) of the Exchange Act), excluding the Company or any of its affiliates, a trustee or any fiduciary holding securities under an employee benefit plan of the Company or any of its affiliates, an underwriter temporarily holding securities pursuant to an offering of such securities or a company owned, directly or indirectly, by stockholders of the Company in substantially the same proportions as their ownership of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company's then outstanding securities; or (ii) During any period of not more than two consecutive years, individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a Person who has entered into an agreement with the Company to effect a transaction described in clause (i), (iii) or (iv) of this paragraph) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or (iii) The shareholders of the Company approve a merger or consolidation of the Company with any other company, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into 5 voting securities of the surviving entity), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company, at least 50% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person acquires more than 50% of the combined voting power of the Company's then outstanding securities; or (iv) The shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. Notwithstanding the foregoing, no Change in Control shall be deemed to have occurred if there is consummated any transaction or series of integrated transactions immediately following which the holders of the Stock immediately prior to such transaction or series of transactions continue to have the same proportionate ownership in an entity which owns all or substantially all of the assets of the Company immediately prior to such transaction or series of transactions. 8. Amendment and Termination of the Plan. The Board at any time and from time to time may suspend, terminate, modify or amend the Plan. No suspension, termination, modification or amendment of the Plan may adversely affect any award previously granted without the written consent of the Grantee. 9. Assignability. Each option award granted pursuant to this Plan shall, during the participant's lifetime, be exercisable only by him. No award nor any right thereunder shall be transferable by the participant by operation of law or otherwise other than by will, the laws of descent and distribution or pursuant to a qualified domestic relations order as defined in the Code or the Employee Retirement Income Security Act of 1974, as amended. 10. Payment Upon Exercise. Payment of the purchase price upon exercise of any option granted under this Plan shall be made in cash; provided that the Committee, in its sole discretion, may permit an option holder to pay the option price, in whole or in part, by tendering to the Company shares of Stock owned by the option holder, and having a fair market value equal to the option price. The fair market value of such Stock shall be determined by the Committee as it deems appropriate, or as may be required in order to comply with any applicable law or regulation. 11. Effective Date and Duration of the Plan. The Plan shall become effective upon its adoption by the Board of Directors. Unless sooner terminated, the Plan shall remain in effect until terminated by action of the Board, 6 provided, however, that the duration of the Plan shall in no event exceed ten years from the date of the adoption of the Plan by the Board. Termination of the Plan shall not affect any awards previously granted pursuant thereto, which shall remain in effect until their restrictions shall have lapsed (with respect to Restricted Stock grants) or until exercised (with respect to option grants) all in accordance with their terms. 12. Agreement by Participant Regarding Withholding Taxes. If the Committee shall so require, as a condition of exercise of an option or SAR or upon the lapsing of restrictions imposed on Restricted Stock (each a "Tax Event"), each participant shall agree that no later than the date of the Tax Event, the participant will pay to the Company or make arrangements satisfactory to the Committee regarding payment of any federal, state or local taxes of any kind required by law to be withheld upon the Tax Event. Alternatively, the Committee may provide, in its sole discretion, that a participant may elect, to the extent permitted or required by law, to have the Company deduct federal, state and local taxes of any kind required by law to be withheld upon the Tax Event from any payment of any kind due to the participant, including withholding of Shares. 13. Rights as a Shareholder. A participant granted an award hereunder or a transferee of an award shall have no rights as a shareholder with respect to any shares covered by the award until the date of the issuance of a stock certificate to him for such shares. No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distribution of other rights for which the record date is prior to the date such stock certificate is issued, except as otherwise provided in the Plan. 14. No Rights to Employment. Nothing in the Plan or in any award granted or Agreement entered into pursuant hereto shall confer upon any participant the right to continue in the employ of, or in an independent contractor relationship with, the Company or any subsidiary or to be entitled to any remuneration or benefits not set forth in the Plan or such Agreement or to interfere with or limit in any way the right of the Company or any such subsidiary to terminate such participant's employment. Awards granted under the Plan shall not be affected by any change in duties or position of a participant as long as such participant continues to be employed by, or, for awards granted prior to July 25, 2001, in a consultant relationship with, the Company or any subsidiary. 7 EX-10.4 7 f82011exv10w4.txt EXHIBIT 10.4 Exhibit 10.4 MCKESSON CORPORATION 1994 STOCK OPTION AND RESTRICTED STOCK PLAN (As Amended Through July 31, 2001) 1. Establishment, Purpose and Definitions. (a) There is hereby adopted the McKesson Corporation 1994 Stock Option and Restricted Stock Plan (the "Plan"). The Plan is the successor to the McKesson Corporation 1988 Restricted Stock Plan and the McKesson Corporation 1978 Stock Option Plan (collectively, the "Predecessor Plans") with respect to those awards under the Predecessor Plans have been be equitably adjusted to become awards under the Plan ("Adjusted Awards"), all in connection with the restructuring of McKesson Corporation, a Delaware corporation ("Old McKesson"), that resulted in the sale of Old McKesson's PCS business to Eli Lilly and Company (the "Transaction"). In connection with the Transaction, SP Ventures, Inc. was renamed McKesson Corporation, the name of which was subsequently changed to McKesson HBOC, Inc. on January 12, 1999, and again changed to McKesson Corporation effective July 30, 2001 (which entities are referred to herein as the "Company", as the context so requires) and the Plan was renamed the McKesson Corporation 1994 Stock Option and Restricted Stock Plan. (b) The purpose of this Plan is to provide a means whereby key executives of the Company and its affiliates may be given an opportunity to purchase shares of the common stock ($0.01 par value) of the Company (the "Stock") pursuant to options which may or may not qualify as "incentive stock options" under Section 422 of the Internal Revenue Code, as amended (the "Code"), and by providing participants with grants of restricted shares of Stock ("Restricted Stock") in accordance with the terms and conditions set forth herein. Until July 30, 1997, the Plan also provided for grants of options to members of the Board of Directors of the Corporation who were not employed as regular salaried officers or employees of the Corporation or its affiliates ("Non-Employee Directors"). On that date, the stockholders approved the Non-Employee Directors' Equity Compensation and Deferral Plan (the "1997 Plan"), and all grants of options to Non-Employee Directors from that date forward are made under the 1997 Plan. All options previously granted to Non-Employee Directors under this Plan will continue to be governed by the terms and conditions in effect at the time of the grant of such options. 2. Stock Subject to the Plan. (a) The aggregate number of shares of Stock available for the grant of awards hereunder is 41,219,828, which includes Adjusted Awards (all such shares shall be subject to equitable adjustment as provided herein). The maximum number of Future Award Shares that may be granted to any individual in the form of options during any plan year shall not exceed 600,000; such maximum number shall be subject to equitable adjustment as provided herein. All awards of Future Award Shares shall be contingent on the approval of the Plan by the stockholders of the Company at its first annual meeting of stockholders next following consummation of the Transaction. As the Committee (as hereinafter defined) may determine from time to time, the Stock may consist either in whole or in part of shares of authorized but unissued Stock, or shares of authorized and issued Stock reacquired by the Company and held in its treasury. If an option covered by Future Award Shares is surrendered for cash or for any other reason (except surrender for shares of Stock) ceases to be exercisable in whole or in part, the shares which were subject to such option but as to which the option had not been exercised shall continue to be available for grants of stock options under the Plan. If any shares of Stock underlying Restricted Stock grants which are covered by Future Award Shares shall be reacquired by the Company pursuant to the termination provisions described herein or in the instruments evidencing the making of such Restricted Stock grants, such shares shall again be available for grant of Restricted Stock awards under the Plan (to the extent permitted under Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Prior to the granting of awards, the Company shall be under no obligation to reserve or retain in its treasury any particular number of shares of Stock at any time, and no particular shares of Stock, whether issued or held as treasury Stock, shall be identified as being available for future awards under the Plan. (b) In the case of options which are intended to qualify as "incentive stock options" under Section 422 of the Code, the aggregate fair market value (determined as of the time the option is granted) of the Stock with respect to which incentive stock options are exercisable for the first time by any eligible key executive during any calendar year (under this Plan and any other plans of the Company) shall not exceed $100,000. (c) In the event that the Committee shall determine that any dividend or other distribution (whether in the form of cash, stock, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, spin-off, combination, repurchase, or share exchange, or other similar corporate transaction or event, affects the Stock such that an adjustment is appropriate in order to preserve (but not increase) the rights of participants under the Plan, then the Committee shall make such equitable changes or adjustments as it deems necessary or appropriate to any or all of (i) the number and kind of shares which may thereafter be issued in connection with Future Award Shares (with respect to both Restricted Stock and option awards), (ii) the number and kind of shares issued in respect of outstanding Adjusted Awards, (iii) the number and kind of shares issued in respect of outstanding awards of Future Award Shares, and (iv) the exercise price relating to any options. 3. Eligibility. Persons who shall be eligible to have granted to them awards provided for by the Plan shall be such key executives of the Company and its affiliates as the Committee, in its sole discretion, shall designate from time to time. 2 4. Administration of the Plan. (a) The Plan shall be administered by a committee (the "Committee") consisting of not less than two directors of the Company to be appointed by the Board, each of whom is an "outside director" within the meaning of Section 162(m) of the Code and a "non-employee director" within the meaning of Rule 16b-3 under the Exchange Act. (b) The Committee may from time to time determine which key executives of the Company and its affiliates shall be granted awards under the Plan, the terms thereof, and the number of shares covered by an option or the number of shares of Restricted Stock to be granted. (c) The Committee shall have the sole authority, in its absolute discretion, to adopt, amend, and rescind such rules and regulations as, in its opinion, may be advisable in the administration of the Plan, to construe and interpret the Plan, the rules and regulations, and the instruments evidencing awards granted under the Plan and to make all other determinations deemed necessary or advisable for the administration of the Plan. All decisions, determinations, and interpretations of the Committee shall be final and binding on all participants and other interested parties. 5. Stock Options and Stock Appreciation Rights. (a) The Option Price. The exercise price of each option shall not be less than the fair market value of the Stock covered by such option on the date the option is granted, except that the option price associated with Adjusted Awards shall be such price as results from the equitable adjustment of such awards. Such fair market value shall, if the Stock is not listed or admitted to trading on a stock exchange, be the mean between the lowest reported bid price and highest reported asked price of the Stock on the date the option is granted in the over-the-counter market, as reported by any publication of general circulation selected by the Company which regularly reports the market price of the Stock in such market, or, if the Stock is then listed or admitted to trading on any stock exchange, the composite closing price on such day as reported in the Wall Street Journal; provided, however, that if the Committee determines that as a result of the Transaction fair market value may be more accurately determined based on the average closing price of the Stock over a three-consecutive-day period immediately prior to the grant, then such average will constitute fair market value. Such price shall be subject to adjustment as provided in paragraph 2(c) hereof. (b) Terms and Conditions of Options. (i) Each option granted pursuant to the Plan shall be evidenced by a written grant agreement (the "Agreement") executed by the Company and the person to whom such option is granted which shall provide such terms and conditions as the Committee may determine, in its sole discretion. 3 (ii) Unless otherwise provided in the Agreement, the term of each option shall be for no more than ten years and three months; provided however that the term of each option intended to qualify as an "incentive stock option" shall be for no more than ten years. (iii) The Agreement may contain such other terms, provisions, and conditions as may be determined by the Committee (not inconsistent with this Plan) including, without limitation, provisions relating to stock appreciation rights ("SARs") with respect to options granted hereunder. Unless otherwise provided in the Agreement, the Committee may, in its sole discretion, extend the post-termination exercise period with respect to an option (but not beyond the original term of such option). If an option, or any part thereof, is intended to qualify as an "incentive stock option", the Agreement shall contain those terms and conditions necessary to so qualify said option or such part thereof. (iv) The Committee shall have the authority to accelerate the exercisability of any outstanding option at such time and under such circumstances as it, in its sole discretion, deems appropriate. (v) Adjusted Awards shall remain subject to the same terms and conditions to which they were subject prior to any equitable adjustment made in respect of the Transaction. (c) Stock Appreciation Rights. The Committee may, under such terms and conditions as it deems appropriate, authorize the surrender by an optionee of all or part of an unexercised option and authorize a payment in consideration thereof of an amount equal to the difference obtained by subtracting the option price of the shares then subject to exercise under such option from the fair market value of the Stock represented by such shares on the date of surrender, provided that the Committee determines that such settlement is consistent with the purpose of the Plan. Such payment may be made in shares of Stock valued at their fair market value on the date of surrender of such option or in cash, or partly in shares and partly in cash. Acceptance of such surrender and the manner of payment shall be in the discretion of the Committee. If an option is surrendered for cash, the shares covered by the surrendered option will thereafter be available for grant under the Plan to the extent permitted under Rule 16b-3 of the Exchange Act. (d) Use of Proceeds. Proceeds realized from the sale of Stock pursuant to options granted under the Plan shall constitute general funds of the Company. 4 6. Restricted Stock Awards. (a) Terms and Conditions. Each Restricted Stock grant made pursuant to the Plan shall be evidenced by an Agreement executed by the Company and the person to whom such Restricted Stock is granted (the "Grantee"). Each Restricted Stock grant made under the Plan shall, unless otherwise provided in the Agreement, contain the following terms, conditions and restrictions and such additional terms, conditions and restrictions as may be determined by the Committee. Adjusted Awards shall maintain the same terms and conditions to which they were subject prior to any equitable adjustment made in respect of the Transaction. (b) Restrictions. Until the restrictions imposed on any Restricted Stock grant shall lapse, shares of Stock granted to a participant pursuant to a Restricted Stock grant: (i) Shall not be sold, assigned, transferred, pledged, hypothecated, or otherwise disposed of, and (ii) Shall, if the Grantee's continuous employment with the Company shall terminate for any reason, unless otherwise provided in the Agreement, be returned to the Company forthwith, and all the rights of the Grantee to such shares shall immediately terminate; provided that if the Committee, in its sole discretion, shall within ninety (90) days of such termination of employment, notify the participant in writing of its decision not to terminate the Grantee's rights in such shares, then the Grantee shall continue to be the owner of such shares subject to such continuing restrictions as the Committee may prescribe in such notice. If the Grantee's interests in the shares granted pursuant to a Restricted Stock grant shall be terminated, such Grantee shall forthwith deliver or cause to be delivered to the Secretary of the Company the certificate(s), if any, previously delivered to the Grantee for such shares, accompanied by such endorsement(s) and/or instrument(s) of transfer as may be required by the Secretary of the Company. (c) Lapse of Restrictions. Except as otherwise provided in the Plan or the Agreement, the restrictions imposed on any Restricted Stock grant shall commence with the date of the grant and continue during a period set by the Committee. Notwithstanding the foregoing, the Committee may accelerate the lapsing of restrictions on a Restricted Stock grant under such terms and conditions as it may deem appropriate. (d) Restrictive Legend; Certificates May be Held in Custody. Each certificate evidencing shares granted pursuant to a Restricted Stock grant may bear an appropriate legend referring to the terms, conditions and restrictions described in the 5 Plan and in the instrument evidencing the Restricted Stock grant. Any attempt to dispose of such shares in contravention of such terms, conditions and restrictions shall be invalid. The Committee may enact rules which provide that the certificates evidencing such shares may be held in custody by a bank or other institution, or that the Company may itself hold such shares in custody, until restriction thereon shall have lapsed. (e) Restrictions upon Making of Restricted Stock Grants. The registration or qualification under any federal or state law of any shares to be granted pursuant to Restricted Stock grants or the resale or other disposition of any such shares by or on behalf of the Grantees receiving such shares may be necessary or desirable as a condition of or in connection with such Restricted Stock grants, and, in any such event, if the Committee in its sole discretion so determines, delivery of the certificates for such shares shall not be made until such registration or qualification shall have been completed. (f) Special Provisions Regarding Awards. Notwithstanding anything to the contrary contained herein, unless otherwise provided in the Agreement governing a Restricted Stock grant, Restricted Stock awards granted pursuant to this Section 6 to Executive Officers (as such term is defined in Rule 3b-7 promulgated under the Exchange Act) shall be based on the attainment by the Company (or a subsidiary or division of the Company if applicable) of performance goals pre-established by the Committee, during a performance period pre-established by the Committee, based on one or more of the following criteria: (i) the attainment of a specified percentage return on total capital employed by the Company (or a subsidiary or division of the Company); (ii) the attainment of a specified percentage return on total stockholder equity of the Company; (iii) the attainment of a specified percentage increase in earnings per share of Stock from continuing operations; (iv) the attainment of a specified percentage increase in net income of the Company; (v) the attainment of a specified percentage increase in profit before taxation of the Company (or a subsidiary or division of the Company); and (vi) the attainment of a specified percentage increase in revenues of the Company (or a subsidiary or division of the Company). In addition, such performance goals may be based upon the attainment of specified levels of Company performance under one or more of the measures described above relative to the performance of other corporations. Each such performance criteria shall be evaluated in accordance with generally accepted accounting principles. Such shares of Restricted Stock shall be released from restrictions only after the attainment of such performance measures have been certified by the Committee. 7. Change in Control. Upon a Change in Control (as hereinafter defined), then notwithstanding anything herein to the contrary, all options granted under the Plan that are outstanding at the time of such Change in Control shall become immediately exercisable in full and all restrictions with respect to shares of Restricted Stock shall lapse and such shares shall become fully vested and exercisable. 6 A "Change in Control" of the Company shall be deemed to have occurred if any of the events set forth in any one of the following paragraphs shall occur: (i) Any "person" (as such term is used in sections 13(d) and 14(d) of the Exchange Act), excluding the Company or any of its affiliates, a trustee or any fiduciary holding securities under an employee benefit plan of the Company or any of its affiliates, an underwriter temporarily holding securities pursuant to an offering of such securities or a company owned, directly or indirectly, by stockholders of the Company in substantially the same proportions as their ownership of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company's then outstanding securities; or (ii) During any period of not more than two consecutive years, individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a Person who has entered into an agreement with the Company to effect a transaction described in clause (i), (iii) or (iv) of this paragraph) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or (iii) The shareholders of the Company approve a merger or consolidation of the Company with any other company, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company, at least 50% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person acquires more than 50% of the combined voting power of the Company's then outstanding securities; or (iv) The shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. Notwithstanding the foregoing, no Change in Control shall be deemed to have occurred if there is consummated any transaction or series of integrated transactions immediately following which the holders of the Stock immediately prior to such transaction or series of transactions continue to have the same proportionate ownership in an entity which owns all or substantially all of the assets of the Company immediately prior to such transaction or series of transactions. 7 8. Amendment and Termination of the Plan. The Board at any time and from time to time may suspend, terminate, modify or amend the Plan; provided, however, that an amendment which requires stockholder approval in order for the Plan to continue to comply with Section 162(m) of the Code or any other law, regulation or stock exchange requirement shall not be effective unless approved by the requisite vote of stockholders. No suspension, termination, modification or amendment of the Plan may adversely affect any award previously granted without the written consent of the Grantee. 9. Assignability. Each option award granted pursuant to this Plan shall, during the participant's lifetime, be exercisable only by him. No award nor any right thereunder shall be transferable by the participant by operation of law or otherwise other than by will, the laws of descent and distribution or pursuant to a qualified domestic relations order as defined in the Code or the Employee Retirement Income Security Act of 1974, as amended. 10. Payment Upon Exercise. Payment of the purchase price upon exercise of any option granted under this Plan shall be made in cash; provided that the Committee, in its sole discretion, may permit an option holder to pay the option price, in whole or in part, by tendering to the Company shares of Stock owned by the option holder, and having a fair market value equal to the option price. The fair market value of such Stock shall be determined by the Committee as it deems appropriate, or as may be required in order to comply with any applicable law or regulation. 11. Effective Date and Duration of the Plan. The Plan became effective upon its adoption by the Board and the approval thereof by Old McKesson as the sole stockholder of the Company; provided, however, that the effectiveness of the Plan was contingent upon the occurrence of the Transaction and all awards of Future Award Shares were contingent on the approval of the Plan by the stockholders of the Company at its first annual meeting of stockholders, which approval was obtained. Unless sooner terminated, the Plan shall remain in effect until terminated by action of the Board, provided, however, that the duration of the Plan shall in no event exceed ten years from the date of the adoption of the Plan by the Board. Termination of the Plan shall not affect any awards previously granted pursuant thereto, which shall remain in effect until their restrictions shall have lapsed (with respect to Restricted Stock grants) or until exercised (with respect to option grants) all in accordance with their terms. 12. Agreement by Participant Regarding Withholding Taxes. If the Committee shall so require, as a condition of exercise of an option or SAR or upon the lapsing of restrictions imposed on Restricted Stock (each a "Tax Event"), each 8 participant shall agree that no later than the date of the Tax Event, the participant will pay to the Company or make arrangements satisfactory to the Committee regarding payment of any federal, state or local taxes of any kind required by law to be withheld upon the Tax Event. Alternatively, the Committee may provide, in its sole discretion, that a participant may elect, to the extent permitted or required by law, to have the Company deduct federal, state and local taxes of any kind required by law to be withheld upon the Tax Event from any payment of any kind due to the participant, including withholding of Shares. 13. Rights as a Shareholder. A participant granted an award hereunder or a transferee of an award shall have no rights as a stockholder with respect to any shares covered by the award until the date of the issuance of a stock certificate to him for such shares. No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distribution of other rights for which the record date is prior to the date such stock certificate is issued, except as otherwise provided in the Plan. 14. No Rights to Employment. Nothing in the Plan or in any award granted or Agreement entered into pursuant hereto shall confer upon any participant the right to continue in the employ of, or in an independent contractor relationship with, the Company or any subsidiary or to be entitled to any remuneration or benefits not set forth in the Plan or such Agreement or to interfere with or limit in any way the right of the Company or any such subsidiary to terminate such participant's employment. Awards granted under the Plan shall not be affected by any change in duties or position of a participant as long as such participant continues to be employed by, or, for awards granted prior to July 25, 2001, in a consultant relationship with, the Company or any subsidiary. 15. Interpretation. The Plan is designed and intended to comply with Rule 16b-3 promulgated under the Exchange Act and Section 162(m) of the Code and all provisions hereof shall be construed in a manner to so comply. 9 EX-10.5 8 f82011exv10w5.txt EXHIBIT 10.5 Exhibit 10.5 MCKESSON CORPORATION 1997 NON-EMPLOYEE DIRECTORS' EQUITY COMPENSATION AND DEFERRAL PLAN (As Amended Through July 31, 2001) 1. Purpose of the Plan. The purpose of the McKesson Corporation 1997 Non-Employee Directors' Equity Compensation and Deferral Plan (the "Plan") is to attract and retain qualified individuals not employed by McKesson Corporation (the "Company") or its subsidiaries to serve on the Board of Directors of the Company and to further align the interests of such non-employee directors with those of the stockholders of the Company. 2. Definitions. (a) "Annual Meeting" shall mean the annual meeting of the stockholders of the Company. (b) "Annual Retainer" shall mean any retainer fee paid to a non-employee director for service on the Board during a Director Year. (c) "Board" shall mean the Board of Directors of the Company. (d) "Change in Control" of the Company shall mean the occurrence of any of the following events: (i) Any "person" (as such term is used in sections 13(d) and 14(d) of the Exchange Act), excluding the Company or any of its affiliates, a trustee or any fiduciary holding securities under an employee benefit plan of the Company or any of its affiliates, an underwriter temporarily holding securities pursuant to an offering of such securities or a corporation owned, directly or indirectly, by stockholders of the Company in substantially the same proportions as their ownership of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company's then outstanding securities; or (ii) During any period of not more than two consecutive years, individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a Person who has entered into an agreement with the Company to effect a transaction described in clause (i), (iii) or (iv) of this paragraph) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or (iii) The stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company, at least 50% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person acquires more than 50% of the combined voting power of the Company's then outstanding securities; or (iv) The stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. Notwithstanding the foregoing, no Change in Control shall be deemed to have occurred if there is consummated any transaction or series of integrated transactions immediately following which the holders of the Common Stock immediately prior to such transaction or series of transactions continue to have the same proportionate ownership in an entity which owns all or substantially all of the assets of the Company immediately prior to such transaction or series of transactions. (e) Effective July 26, 2000 "Committee" shall mean the Committee on Directors and Corporate Governance of the Board of Directors. (f) "Committee Chairman Retainer" shall mean any fee paid to a non-employee director for service as the chairman of any committee of the Board. (g) "Common Stock" shall mean shares of Common Stock, par value $0.01 per share, of the Company. (h) "DCAP II" shall mean the McKesson Corporation Deferred Compensation Administration Plan II, as amended from time to time. (i) "Director Year" shall mean a calendar year. (j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. (k) "Fair Market Value" of a share of Common Stock as of a particular date shall mean, if the Common Stock is not listed or admitted to trading on a stock exchange, the average between the lowest reported bid price and highest reported asked price of the Common Stock on 2 such date in the over-the-counter market, or, if the Common Stock is then listed or admitted to trading on any stock exchange, the composite closing price on such date as reported in The Wall Street Journal. (l) "Fees" shall mean the sum, for any Director Year, of the Annual Retainer, Meeting Fees and Committee Chairman Retainer. (m) "Meeting Fees" shall mean any fees paid to a non-employee director for attending a meeting of the Board or a committee of the Board, including any fees paid to a non-employee director for extraordinary or special Board and/or committee meetings. (n) "Participant" shall mean a non-employee director of the Company participating in the Plan. (o) "Restricted Stock Unit" shall mean a right to receive, in accordance with the conditions set forth herein, a share of the Common Stock or, alternatively, a cash payment equal to the Fair Market Value of a share of Common Stock. (p) "Retainer Option" shall mean a stock option granted pursuant to the Plan in lieu of all or a portion of a Participant's Annual Retainer, as provided in Sections 6(c) and 6(d)(iv). 3. Effective Date, Duration of Plan. This Plan shall become effective as of January 1, 1997, subject to the approval of the Plan by the stockholders of the Company; provided, that if the Plan is so approved, any election made hereunder prior to such approval shall be deemed effective as of the date such election was made. The Plan will terminate on December 31, 2006 or such earlier date as determined by the Board; provided that no such termination shall affect rights earned or accrued under the Plan prior to the date of termination. 4. Participation. Subject to the prior approval of the Committee, each member of the Board who is not an employee of the Company or any of its subsidiaries shall be eligible to participate in the Plan. 5. Common Stock Subject to the Plan. (a) Subject to Section 5(b) below, the maximum aggregate number of shares authorized to be issued under the Plan shall be 1,286,000. All Restricted Stock Units issued hereunder, whether or not distributed in the form of Common Stock, shall count against such maximum. If any options granted hereunder cease to be exercisable in whole or in part, any shares subject thereto but with respect to which such option had not been exercised, shall not count against such maximum. As the Committee shall determine from time to time, the Common Stock may consist of either shares of authorized but unissued Common Stock, or shares of authorized and issued Common Stock reacquired by the Company and held in its treasury. (b) In the event that the Committee shall determine that any dividend or other distribution (whether in the form of cash, stock or other property), recapitalization, stock split, 3 reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or share exchange or other similar corporate transaction or event affects the Common Stock such that an adjustment is determined by the Committee to be appropriate to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee may, in its sole discretion and in such manner as it may deem equitable, adjust any or all of (i) the number of shares of Common Stock subject to the Plan, (ii) the number of shares of Common Stock subject to outstanding awards under the Plan, and (iii) the grant or exercise price with respect to any option. 6. Restricted Stock Units; Deferrals. (a) Transition Grant. As soon as practicable following January 1, 1997, each Participant shall receive an initial grant (the "Transition Grant") of a number of Restricted Stock Units in consideration for the termination of such Participant's accrued benefits and rights under the Company's Director's Retirement Program (the "Prior Plan"); provided that the Transition Grant shall be subject to the receipt by the Company of a written release from the Participant, in the form approved by the Committee, consenting to such termination. The number of Restricted Stock Units granted to a Participant in respect of the Transition Grant shall equal the Accrued Benefit (as defined below), divided by the Fair Market Value of a share of Common Stock as of December 31, 1996. A Participant's Accrued Benefit shall equal his or her accrued benefit under the Prior Plan, as of December 31, 1996. (b) Annual Grant. On the date of each Annual Meeting prior to the termination or expiration of the Plan, beginning with the 1997 Annual Meeting, each Participant shall receive a grant of 400 Restricted Stock Units. Effective January 27, 1999, the annual grants of 400 Restricted Stock Units shall be discontinued. (c) Mandatory Deferral. On each date that any portion of the Annual Retainer would otherwise be payable to a Participant prior to the termination or expiration of the Plan, each such Participant shall be required to defer the receipt of an amount equal to 50% of such portion of Annual Retainer, which amount shall be deferred in the form of Restricted Stock Units or Retainer Options, as elected by the Participant prior to the end of the calendar year preceding the year in which the Annual Retainer is payable. In the event that a participant fails to make such an election with respect to any calendar year in which he or she receives payment of an Annual Retainer, the Participant shall be deemed to have elected to receive the Annual Retainer in the form of Restricted Stock Units. The number of Restricted Stock Units granted to a Participant in respect of such deferral shall equal the Annual Retainer so deferred, divided by the Fair Market Value of a share of Common Stock as of the last trading day of the calendar quarter immediately preceding the date such Annual Retainer would otherwise be payable. To the extent applicable, Restricted Stock Units granted pursuant to this paragraph shall be subject to the same terms and conditions described in Section 6(d)(ii) below. The number of Retainer Option shares granted to a Participant in respect of such deferral shall be determined using the same conversion rate as employed in that year for the purpose of determining the number of stock option shares to be granted to employees in lieu of awards under the Company's Management Incentive Plan. 4 (d) Optional Deferral. All Fees (other than the portion of Annual Retainer subject to Mandatory Deferral described above) earned by a Participant in each Director Year prior to the termination or expiration of the Plan shall be subject to the following payment and deferral options. Each Participant may elect by written notice to the Company, in accordance with the procedures established by the Company, to participate in such payment and deferral options. (i) Cash Alternative. Unless a valid election is made in accordance with the procedures established by the Company, each Participant shall receive payment of all Fees (other than the portion of Annual Retainer subject to Mandatory Deferral described above) in the form of cash. (ii) Restricted Stock Unit Alternative. Subject to executing a valid election with the Company (the "RSU Election"), each Participant may elect to defer all or any portion of his or her Fees (other than the portion of Annual Retainer subject to Mandatory Deferral described above) in the form of Restricted Stock Units. The number of Restricted Stock Units granted shall equal the amount of Fees so deferred, divided by the Fair Market Value of the Common Stock as of the last trading day of the calendar quarter immediately preceding the date such Fees would otherwise be payable. The RSU Election (A) shall be in the form of a document executed by the Participant and filed with the Secretary of the Company, (B) shall be made before the first day of the calendar year in which the applicable Fees are earned and shall become irrevocable on the last day prior to the beginning of such calendar year, and (C) shall continue until the Participant ceases to serve as a director of the Company or until he or she terminates or modifies such election by written notice to the Company in accordance with the procedures established by the Company, any such termination or modification to be effective as of the end of the calendar year in which such notice is given with respect to Fees otherwise payable in subsequent calendar years. Any person who becomes a Participant during any Director Year may execute an RSU Election prior to commencing service on the Board with respect to Fees to be earned for the remainder of such year and for future Director Years in accordance with the procedures established by the Company. Each Restricted Stock Unit shall entitle the holder to, upon distribution thereof (A) receive a cash payment equal to the Fair Market Value of one share of Common Stock, or (B) have issued in his or her name one share of Common Stock. In either case, each such Restricted Stock Unit shall terminate upon distribution. The Company shall credit each Participant holding Restricted Stock Units with a number of additional Restricted Stock Units equal to any dividends and other distributions paid by the Company on an equivalent number of shares of Common Stock, as of the date such dividends or distributions are payable. Such additional Restricted Stock Units shall thereafter be treated as any other Restricted Stock Units issued under the Plan. Restricted Stock Units may not be sold, transferred, assigned, pledged or otherwise encumbered or disposed of until such time as share certificates for Common Stock are issued. 5 Each Participant issued Restricted Stock Units shall execute a valid distribution election in accordance with the procedures established by the Committee (the "Distribution Election"). The Distribution Election shall indicate (A) whether distribution shall be made in the form of Common Stock or cash, (B) whether the distribution shall be made in a single allotment or in substantially equal annual installments over a period not to exceed ten (10) years and (C) with respect to Distribution Elections filed on or after October 28, 1998, the date on which the distribution shall commence in accordance with the next paragraph. The Distribution Election (D) shall be in the form of a document executed by the participant and filed with the Secretary of the Company, (E) shall be made no later than twelve (12) months prior to the distribution date and (F) shall become irrevocable twelve (12) months prior to the distribution date. With respect to a Distribution Election completed on or after October 28, 1998, the Participant shall elect whether distributions shall commence as soon as practicable after (i) the first business day of January of the calendar year following the Participant's cessation from service as a director of the Company; or (ii) the first business day of January of any calendar year, provided that such calendar year is not later than the calendar year following the calendar year in which the Participant attains age 72. All other distributions shall commence as soon as practicable after the first business day of the January following the Participant's cessation from service as a director of the Company. If no valid Distribution Election is made, the Restricted Stock Units shall be distributed in a lump sum as soon as practicable after the first business day of January of the calendar year following the Participant's cessation from service as a director of the Company, in the form of cash. Participants who receive Restricted Stock Units shall have no rights as stockholders with respect to such Restricted Stock Units until share certificates for Common Stock are issued. Notwithstanding any provision to the contrary, any fractional shares of Common Stock issuable hereunder shall be paid in cash. Upon the occurrence of a Change in Control, Common Stock to be issued in respect of all Restricted Stock Units shall be immediately distributed. (iii) DCAP II Alternative. Subject to executing an election in accordance with the procedures established by the Company and the terms of DCAP II, each Participant may elect to defer all or any portion of his or her Fees (other than the portion of Annual Retainer subject to Mandatory Deferral described above) under DCAP II. (iv) Retainer Option Alternative. Subject to executing an election in accordance with the procedures established by the Company, each Participant may elect to receive the portion of Annual Retainer not subject to Mandatory Deferral, as described in Section 6(c) above, in the form of Retainer Options. The number of Retainer Option shares granted to a Participant with respect to such deferral shall be determined in the manner described in Section 6(c) above. 7. Stock Options. 6 (a) Discretionary Grants. The Committee may, in its sole discretion, grant options to purchase Common Stock to Participants, pursuant to such terms and conditions that it may deem advisable, so long as not inconsistent with Section 7(d) below or any other terms of this Plan. (b) Formula Grants. Each Participant then serving as a non-employee director of the Company shall automatically receive, on the date of each January meeting of the Board, an option to purchase 10,000 shares of Common Stock (subject to adjustment as provided in Section 5(b) above); provided, however, that a Participant who is elected to the Board after the January meeting of the Board shall be granted, as of the date of election, a prorated number of options with respect to the initial year of participation in the Plan, based on the number of full calendar quarters remaining in the calendar year in which the Participant is elected to the Board. The options granted pursuant to this Section 7(b) shall be immediately exercisable in full and have an option term of ten years. (c) Retainer Option Grants. At the same time that the Company makes stock option grants annually to eligible employees, each Participant who has made an election to receive a Retainer Option pursuant to Section 6(c) or 6(d)(iv) with respect to all or any portion of the Annual Retainer to be paid in such year shall be granted an option to purchase that number of shares of Common Stock determined pursuant to Section 6(c) and/or Section 6(d)(iv), as applicable. The terms of such Retainer Options shall be as prescribed by the Committee, so long as such terms are not inconsistent with Section 7(d) below or any other terms of this Plan. (d) Terms and Conditions of Options. Except as provided in Section 7(b) above, the following terms and conditions shall apply to all options granted to Participants under the Plan. (i) The exercise price of each option shall not be less than the Fair Market Value of the Common Stock covered by the option on the date the option is granted. (ii) Each option granted pursuant to the Plan shall be evidenced by a written grant agreement (the "Agreement") executed by the Company and the person to whom such option is granted which shall provide such terms and conditions as the Committee may determine, in its sole discretion, so long as not inconsistent with the terms of this Plan. (iii) The term of each option shall be for no more than ten years. (iv) The Agreement may contain such other terms, provisions, and conditions as may be determined by the Committee (not inconsistent with this Plan). Unless otherwise provided in the Agreement and excluding options granted under paragraph (b) above, the Committee may, in its sole discretion, extend the post-termination exercise period with respect to an option (but not beyond the original term of such option). (v) Payment of the purchase price upon exercise of any option shall be made in cash; provided that the Committee, in its sole discretion, may permit an option holder to pay the option price by such other method that it may deem appropriate, including, 7 without limitation, by tendering to the Company shares of Common Stock owned by the option holder, and having a Fair Market Value equal to the option price. Such stock surrender method may permit an election by the option holder to have the unrealized gain with respect to the option denominated in stock units (based on the fair market value of a share of Common Stock on the date of exercise) and paid in shares of Common Stock at the time specified by the Participant at the time of making the stock surrender option gain deferral election. During the deferral period each such stock unit shall be credited with additional stock units equal to any dividends or other distributions paid by the Company on an equivalent number of shares of Common Stock, as of the date such dividends or distributions are payable. Stock units may not be sold, transferred, assigned, pledged or otherwise encumbered or disposed of until such time as share certificates for Common Stock are issued. (vi) All such options shall be designated as stock options which do not qualify under Section 422 of the Internal Revenue Code of 1986, as amended. (vii) Unless otherwise provided in an Agreement, options granted under the Plan will become immediately and fully vested and exercisable upon the occurrence of a Change in Control. 8. Administration. The Plan shall be administered by the Committee. The Committee shall have full power to interpret the Plan and formulate additional details and regulations for carrying out the Plan. Any decision or interpretation adopted by the Committee shall be final and conclusive. 9. No Right to Serve. Nothing in the Plan shall confer upon any Participant the right to remain in service as a member of the Board. 10. Amendment and Termination. The Board at any time may amend or terminate the Plan; provided that any such amendment or termination does not adversely affect the rights of any Participant. 11. Governing Law. The validity, construction and effect of the Plan and any such actions taken under or relating to the Plan shall be determined in accordance with the laws of the State of California. 12. Notices. All notices under this Plan shall be sent in writing to the Secretary of the Company. All correspondence to the Participants shall be sent in writing to the Participant at the address which is their recorded address as listed on the most recent election form or as specified in the Company's records. 13. Unfunded Status of Awards. The Plan is intended to constitute an "unfunded" plan for incentive and deferred compensation. Nothing contained hereunder shall give any Participant any rights that are greater than those of an unsecured general creditor of the Company. 8 EX-10.17 9 f82011exv10w17.txt EXHIBIT 10.17 Exhibit 10.17 MCKESSON CORPORATION 1989 MANAGEMENT INCENTIVE PLAN Amended as of July 25, 2001 Page 1 MCKESSON CORPORATION 1989 MANAGEMENT INCENTIVE PLAN AMENDED AS OF JULY 25, 2001 The name of this plan shall be the McKesson Corporation 1989 Management Incentive Plan. This Plan replaces in their entirety both the Company's Management Incentive Plan and its Performance Award Plan for Key Employees. This Plan is effective for fiscal years of the Company commencing on and after April 1, 1989. This Plan was last approved by the stockholders of the Corporation on July 25, 2001. A. PURPOSE The purpose of the Plan is to attract, retain and motivate key employees by providing cash incentive awards to designated executive, managerial and professional employees of the Company, its subsidiaries and affiliates. The Plan is designed to link managers' interests more closely with the interests of the Company's shareholders. The Plan is established as a single incentive plan to reward designated executives, managers and professionals who contribute to shareholder value. Each Participant's award will take into account corporate performance as well as, where appropriate, his or her own business unit's performance. The Plan also provides that awards will reflect individual performance, subject to Article G. Incentive awards paid under this Plan are intended to qualify as performance-based compensation deductible by the Company under the Code. B. ADMINISTRATION The Compensation Committee of the Board of Directors ("Committee") shall have full power and authority, subject to the provisions of the Plan, to review and approve the designation of Participants and to promulgate such rules and regulations as it deems necessary for the proper administration of the Plan, to interpret the provisions and supervise the administration of the Plan, and to take all action in connection therewith or in relation to the Plan as it deems necessary or advisable. Decisions and selections of the Committee shall be made by a majority of its members and, if made pursuant to the provisions of the Plan, shall be final. Any decision reduced to writing and signed by all of the members of the Committee shall be fully effective as if it had been made at a meeting duly held. The Committee shall consist solely of Disinterested Persons, in conformance with Section 162(m) of the Code ("Section 162(m)"). Page 2 C. PARTICIPATION 1. ELIGIBILITY - EXECUTIVES, MANAGERS AND PROFESSIONALS Only active employees of the Company, its subsidiaries or affiliates who are employed in an executive, managerial or professional capacity may be designated as Participants under the Plan. 2. DESIGNATION AND REMOVAL OF PARTICIPANTS No person shall be entitled to any award under this Plan for any Year unless he or she is so designated as a Participant for that Year. The Chief Executive Officer (CEO) of the Company and such other persons as the CEO may designate, shall recommend to the Committee employees (who may include such recommending persons) for selection as Participants. The Committee shall review and approve Plan Participants recommended by management from among those employees who are eligible to participate. The Committee may add to or delete individuals from the list of designated Participants at any time and from time to time, at its sole discretion. 3. NOTICE OF PARTICIPATION As soon as reasonably practicable, each person who is a Participant in the Plan for a Year will be notified. D. INDIVIDUAL TARGET AWARDS FOR PARTICIPANTS 1. TARGETS, IN GENERAL At the beginning of each Year, an Individual Target Award shall be established for each Participant. An Individual Target Award shall only be a target and the amount of the target may or may not be paid to the Participant. Establishment of an Individual Target Award for an employee for any Year shall not imply or require that an Individual Target Award be set for any subsequent year. The amount of any actual award paid to any Participant may be greater or less than this target. As set forth in paragraph F4 below (but subject to the limitations applicable to Covered Employees contained in Article G), the actual award may be as much as three times target or as low as zero for any Year. The establishment of an Individual Target Award for an employee shall not affect the right of the Company, its subsidiaries or affiliates to terminate, with or without cause, such employee's employment at any time. 2. PERCENTAGE OF BASE SALARY Individual Target Awards shall be a percentage of the Participant's base salary reviewed and approved by the Committee in its sole discretion. Page 3 E. BASIS OF AWARDS Awards will be based on contribution to shareholder value and individual performance. The Committee shall establish measures, which may include financial and non-financial objectives ("Performance Goals"), to calculate the shareholder value contribution for each segment of the Company. These Performance Goals shall be determined by the Committee in advance of each Year or such period as may be permitted by the regulations issued under Section 162(m), and shall be based on one or more of the following criteria: (i) the attainment of a specified percentage return on total capital employed by the Company (or a subsidiary or division of the Company); (ii) the attainment of a specified percentage return on total stockholder equity of the Company; (iii) the attainment of a specified percentage increase in earnings per share from continuing operations; (iv) the attainment of a specified percentage increase in Net Income of the Company; (v) the attainment of a specified percentage increase in profit before taxation of the Company (or a subsidiary or division of the Company); (vi) the attainment of a specified percentage increase in revenues of the Company (or a subsidiary or division of the Company); and (vii) the attainment of profit after-tax at specified levels of equity investment. In addition, such Performance Goals may be based upon the attainment of specified levels of Company performance under one or more of the measures described above relative to the performance of other corporations. Awards may be based on performance against objectives for more than one segment of the Company. For example, awards for corporate management will be based on overall corporate performance against objectives, but awards for a unit's management may be based on a combination of corporate, unit and sub-unit performance against objectives. Subject to the limitations set forth in Article G below, individual performance of each Participant will also be measured and used in determining awards under this Plan. F. AWARD DETERMINATION 1. AWARD DETERMINED BY COMMITTEE After any Year for which an Individual Target Award is established for a Participant under this Plan, the Committee shall review and approve, modify or disapprove the amount, if any, to be paid to the Participant for the Year. The amount paid shall be the Individual Target Award adjusted to reflect both the Company's financial performance and the Participant's individual performance. All awards will be subject to the sole discretion of the Committee. 2. FINANCIAL PERFORMANCE Individual Target Award amounts will be modified by achievement of financial objectives by the Company and relevant units and sub-units. Performance results against financial objectives shall be reviewed and approved by the Committee. The Committee may as a result of this review modify or change objectives or performance results for the Year as it determines to be necessary or appropriate to take into account changes during the year including, Page 4 but not limited to, changes in accounting methods, acquisitions or divestitures, and unusual or non-recurring financial or other events, to the extent not precluded by Section 162(m). 3. INDIVIDUAL PERFORMANCE Any Individual Target Award, adjusted to reflect financial performance, will be further adjusted with the review and approval of the Committee to give full weight to the Participant's individual performance during the Year. 4. OVERALL EFFECT The combination of any financial performance adjustment and individual performance adjustment may increase the amount paid under this Plan to a Participant for any Year to as much as three times the Individual Target Award, and may reduce any amount payable to zero, subject to Article G. G. PROCEDURES APPLICABLE TO CERTAIN DESIGNATED PARTICIPANTS Awards under the Plan to Participants who are Covered Employees shall be subject to preestablished Performance Goals as set forth herein. Notwithstanding the provisions of Paragraph F.3 above, the Committee shall not have discretion to modify the terms of awards to such Participants except as specifically set forth in this Article G. 1. TARGET AWARD. At the beginning of a Year, the Committee shall establish Individual Target Awards to such of the Participants who may be Covered Employees, payment of which shall be conditioned upon satisfaction of specific Performance Goals for the Year established by the Committee in writing in advance of the Year, or within such period as may be permitted by regulations issued under Section 162(m) of the Code. The extent, if any, to which an Award will be payable will be based upon the degree of achievement of the Performance Goals; provided, however, that the Committee may, in its sole discretion, reduce some or all of the amount which would otherwise be payable with respect to an Award. 2. PERFORMANCE GOALS. The Performance Goals established by the Committee shall be the same as those objectives set for all Plan Participants and shall be based on one or more of the criteria set forth in Article E above. 3. PAYMENT OF AWARDS. At the time the Performance Goals are established, the Committee shall prescribe a formula to determine the percentage of the Individual Target Award which may be payable based upon the degree of attainment of the Performance Goals during the Year. If the minimum Performance Goals established by the Committee are not met, no payment will be made to a Participant who is a Covered Employee. To the extent that the minimum Performance Goals are satisfied or surpassed, and upon written certification by the Committee that the Performance Goals have been satisfied to a particular extent, payment of the award shall be made on the Payment Date in accordance with the prescribed formula based upon a percentage of the Individual Target Award unless the Committee determines, in its sole discretion, to reduce the payment to be made. Page 5 4. MAXIMUM AWARD. The maximum award payable to any Participant who is a Covered Employee for any Year shall not exceed two percent (2%) of the Company's Net Income for that Year. H. ELECTIONS 1. ELECTION TO DEFER PAYMENT. At the time established under the Company's Deferred Compensation Administration Plan II ("DCAP II"), any Participant who is eligible to participate in DCAP II may irrevocably elect, in writing and in accordance with DCAP II, to defer his or her award under this Plan so it is paid at the time and in the manner of, and subject to the terms and conditions provided by, DCAP II. If an election to defer an award is not made, then any award under this Plan shall be paid in a single sum to the Participant as soon as reasonably practicable after the amount of the award is determined. Notwithstanding the above provisions, no amount shall be deferred for the Year under DCAP II unless the actual award under this Plan for that Year is at least $5,000. No awards may be deferred by a Participant under DCAP II unless he or she is an active employee of the Company as of the end of the Year. 2. ELECTION TO RECEIVE STOCK OPTION GRANT IN LIEU OF AWARD UNDER THE PLAN. Prior to the end of a calendar year, any Participant may irrevocably elect, in writing on the form prescribed by the Committee, to receive a stock option grant under the 1994 Stock Option and Restricted Stock Plan in lieu of all or a portion of such Participant's award under this Plan for the Year in which that calendar year ends. Annually management of the Company shall determine the rate at which stock option grants will be made in lieu of an award under the Plan and that conversion rate shall be communicated to Participants prior to the deadline for making the election described in the preceding sentence. The minimum number of option shares that a Participant may elect to receive pursuant to such election is 500, subject to adjustment in the event of a stock split, stock dividend, consolidation or other similar recapitalization involving the capital stock of the Company. In addition, the Company annually shall prescribe a maximum portion of a Participant's Target Award that may be made subject to an election to receive a stock option grant in lieu of an award under the Plan. If for any reason the Company does not make the stock option grant contemplated by the Participant's election, the Participant shall be deemed to have elected to make a deferral election pursuant to Section H.1 of the award that was the subject of the election to receive a stock option. I. NO MANAGEMENT INCENTIVE FUND Awards paid under this Plan shall not be based on or payable from a "pool" or a "Management Incentive Fund". J. EMPLOYMENT AT YEAR END GENERALLY REQUIRED FOR AWARD Page 6 No award shall be made to any Participant who is not an active employee of the Company or one of its subsidiaries or affiliates at the end of the Year; provided, however, that the Committee, in its sole and absolute discretion, may make pro-rata awards to Participants during a year in circumstances that Committee deems appropriate including, but not limited to, a Participant's death, disability, retirement or other termination of employment during such Year. Any such pro-rated awards shall be determined by the Committee in accordance with Section F above after taking into account the portion of the Year then completed. K. NONASSIGNMENT AND PARTICIPANTS ARE GENERAL CREDITORS The interest of any Participant under the Plan shall not be assignable either by voluntary or involuntary assignment or by operation of law, except by designation of a beneficiary or beneficiaries to the extent allowed under the Company's DCAP. L. AMENDMENT OR TERMINATION While the Company hopes to continue the Plan indefinitely, it reserves the right in its Board of Directors to amend, suspend or terminate the Plan or adopt a new plan at any time; provided that no such amendment shall (i) without prior approval of the Company's stockholders, alter the business criteria on which the Performance Goals may be based, increase the maximum amount set forth in Paragraph F.4 above, or modify the requirements as to eligibility for participation in the Plan, or (ii) retroactively and adversely affect the payment of any award previously made. In case any one or more of the provisions contained in the Plan shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of the Plan, but the Plan shall be construed as if such invalid, illegal or unenforceable provisions had never been contained herein. M. INTERPRETATION This Plan is intended to comply with Section 162(m), and all provisions contained herein shall be construed and interpreted in a manner to so comply. N. DEFINITIONS "Code" shall mean the Internal Revenue Code of 1986, as amended. "Committee" means the Compensation Committee of the Board of Directors of McKesson HBOC, Inc.. "Company" means McKesson Corporation, a Delaware corporation. "Covered Employees" shall mean eligible Participants designated by the Committee who are, or are expected to be, "covered employees" within the meaning of Section 162(m) of the Code for the Year in which an award is payable hereunder. Page 7 "Disinterested Person" shall mean a member of the Board of Directors who qualifies as an "outside director" for purposes of Section 162(m) of the Code. "Individual Target Award" means the target award established for each Participant under Article D. "Net Income" shall mean after tax income from continuing operations before special items and the effect of any accounting changes. "Participants" mean those employees specifically designated as Participants for a Year under Article C. "Payment Date" shall mean the date following the conclusion of a Year on which the Committee certifies that applicable Performance Goals have been satisfied and authorizes payment of corresponding awards. "Performance Goals" shall have the meaning set forth in Section E. hereof. "Plan" means the McKesson Corporation 1989 Management Incentive Plan. "Year" means the fiscal year of the Company. Executed effective as of July 25 2001. McKESSON HBOC, INC. By ______________________________________ William A. Armtrong Senior Vice President, Human Resources and Administration Page 8 EX-10.25 10 f82011exv10w25.txt EXHIBIT 10.25 Exhibit 10.25 MCKESSON CORPORATION SECOND AMENDMENT TO CREDIT AGREEMENT (364 DAY FACILITY) This SECOND AMENDMENT TO CREDIT AGREEMENT (this "AMENDMENT") is dated as of October 5, 2001 and entered into by and among McKesson Corporation, a Delaware corporation formerly known as McKesson HBOC, Inc. (the "COMPANY"), the financial institutions listed on the signature pages hereof (the "BANKS"), The Chase Manhattan Bank, as a documentation agent for the Banks, First Union National Bank, as a documentation agent for the Banks, Bank One, N.A., as a documentation agent for the Banks, Credit Suisse First Boston, as a documentation agent for the Banks and Bank of America, N.A., as administrative agent for the Banks (the "ADMINISTRATIVE AGENT"), for which Banc of America Securities LLC has acted as sole lead Arranger, and is made with reference to that certain Credit Agreement dated as of October 22, 1999 (as amended or otherwise modified up to the date hereof, the "CREDIT AGREEMENT"), by and among the parties thereto. Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Credit Agreement. RECITALS WHEREAS, the Company and the Banks desire to amend the Credit Agreement (a) to extend the Revolving Facility Termination Date for an additional 364 day period and (b) to modify certain other provisions; and WHEREAS, the Company and the Banks have agreed to increase the total amount of the Commitments to $1,075,000,000; NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereto agree as follows: SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT 1.1 GENERAL All references in the Credit Agreement and the Exhibits thereto to the Company's name are hereby amended by deleting the name "McKesson HBOC, Inc." and substituting in lieu thereof the name "McKesson Corporation". 1.2 AMENDMENTS TO ARTICLE I: DEFINITIONS A. Section 1.1 of the Credit Agreement is hereby amended by deleting the definition of "Applicable Margin" and substituting the following in lieu thereof: "Applicable Margin" means, on any date and with respect to each Offshore Rate Loan (subject to clauses (b) through (d) of the definition of "Applicable Rating Level"), the applicable margin set forth below based on the Applicable Rating Level on such date:

Applicable Applicable Margin Rating Level (in basis points) ------------ ------------------ Level I 42.0 Level II 46.0 Level III 51.5 Level IV 62.5 Level V 82.5 Level VI 102.5

B. Section 1.1 of the Credit Agreement is hereby further amended by deleting, in the definition of "Revolving Facility Termination Date," the date "October 9, 2001" and substituting in lieu thereof the date "October 4, 2002". C. Section 1.1 of the Credit Agreement is hereby amended by deleting, in the definition of "Term Loan Maturity Date," the date "October 8, 2002" and substituting in lieu thereof the date "October 3, 2003". 1.3 AMENDMENT TO ARTICLE II: THE CREDITS A. Section 2.1 of the Credit Agreement is hereby amended by deleting the last sentence thereof and substituting in lieu thereof the following: "On October 5, 2001, the aggregate of all Commitments hereunder is $1,075,000,000." B. Section 2.9(a) of the Credit Agreement is hereby amended by deleting the date "September 8, 2000" and substituting in lieu thereof the date "August 28, 2001". C. Section 2.9 of the Credit Agreement is hereby amended by adding a new Section 2.9(c) at the end thereof to read as follows: (c) Utilization Fees. The Company shall pay to the Administrative Agent for the account of each Bank a utilization fee during any period when (i) prior to the Revolving Facility Termination Date, the sum of (x) the Total Utilization of Facility A Commitments (as such term is defined in the November 1998 Credit Agreement) and (y) the principal amount of all outstanding Loans (as defined herein) exceeds 30% of the sum of (A) the aggregate of Facility A Commitments (as such term is defined in the November 1998 Credit Agreement) and (B) the aggregate of the Commitments or (ii) any Term Loans are outstanding. Such utilization fee shall accrue from the Closing Date to the Revolving Facility Termination Date or, if the Term Loans are made, the Term Loan Maturity Date and shall be due and payable quarterly in arrears on the later of the fifth Business Day following the end of each calendar quarter or the fifth Business Day after the Company has received from the Administrative Agent a notice setting forth the amount of such fee. The utilization fee shall be calculated on a daily basis and shall be equal, on any given date, to (I) the principal amount of all outstanding Loans on such date multiplied by (II) .15% per annum. 1.4 SUBSTITUTION OF SCHEDULE A. Schedule 2.1 to the Credit Agreement is hereby amended by deleting said Schedule 2.1 in its entirety and substituting in place thereof a new Schedule 2.1 in the form of Annex I to this Amendment. SECTION 2. CONDITIONS TO EFFECTIVENESS This Amendment shall become effective upon receipt by the Administrative Agent of all of the following, in form and substance satisfactory to the Administrative Agent (the date of satisfaction of such condition being referred to herein as the "SECOND AMENDMENT EFFECTIVE DATE"): A. Amendment. This Amendment executed by each party hereto; B. Resolutions: Incumbency. (i) Copies of the resolutions of the board of directors of the Company authorizing the transactions contemplated hereby, certified as of the Second Amendment Effective Date by the Secretary or an Assistant Secretary of the Company; and (ii) A certificate of the Secretary or Assistant Secretary of the Company, certifying the names and true signatures of the officers of the Company authorized to execute, deliver and perform, as applicable, this Amendment, and all other Loan Documents to be delivered by it hereunder; C. Organization Documents; Good Standing. Each of the following documents: (i) The articles or certificate of incorporation and the bylaws of the Company as in effect on the Second Amendment Effective Date, certified by the Secretary or Assistant Secretary of the Company as of the Second Amendment Effective Date; and (ii) A good standing and tax good standing certificate for the Company from the applicable Secretary of State (or similar, applicable Governmental Authority) of the States of Delaware and California dated as of a recent date; D. Legal Opinion. An opinion of Ivan D. Meyerson, Senior Vice President, General Counsel and Secretary of the Company, addressed to the Administrative Agent and the Banks, substantially in the form of Exhibit A; E. Payment of Fees. Evidence of payment by the Company of all accrued and unpaid fees, costs and expenses to the extent then due and payable on the Second Amendment Effective Date, together with Attorney Costs of Bank of America to the extent invoiced prior to or on the Second Amendment Effective Date, including any such costs, fees and expenses arising under or referenced in Sections 2.9 and 10.4 of the Credit Agreement; provided that, notwithstanding the above, such payment by the Company shall include all accrued and unpaid facility fees through the Second Amendment Effective Date; F. Company Certificate. A certificate signed by a Responsible Officer of the Company, dated as of the Second Amendment Effective Date, stating that: (i) the representations and warranties contained in Section 3 hereof and in Article V of the Credit Agreement are true and correct on and as of such date, as though made on and as of such date; (ii) no Default or Event of Default exists; (iii) there has occurred since March 31, 2001, no event or circumstance that has resulted or could reasonably be expected to result in a Material Adverse Effect. SECTION 3. COMPANY'S REPRESENTATIONS AND WARRANTIES In order to induce the Banks to enter into this Amendment and to amend the Credit Agreement in the manner provided herein, the Company represents and warrants to each Bank that the following statements are true, correct and complete: A. DUE INCORPORATION, VALID EXISTENCE AND GOOD STANDING; CORPORATE POWER AND AUTHORITY. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware. The Company has all requisite corporate power and authority to enter into this Amendment and to carry out the transactions contemplated by, and perform its obligations under, the Credit Agreement as amended by this Amendment (the "AMENDED AGREEMENT"). B. AUTHORIZATION OF AGREEMENTS. The execution and delivery of this Amendment and the performance of the Amended Agreement have been duly authorized by all necessary corporate action on the part of the Company. C. NO CONFLICT. The execution and delivery by the Company of this Amendment and the performance by the Company of the Amended Agreement do not and will not (i) violate any provision of any law or any governmental rule or regulation applicable to the Company or any of its Subsidiaries, the Certificate or Articles of Incorporation or Bylaws of the Company or any of its Subsidiaries or any order, judgment or decree of any court or other agency of government binding on the Company or any of its Subsidiaries, (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any Contractual Obligation of the Company or any of its Subsidiaries, (iii) result in or require the creation or imposition of any Lien upon any of the properties or assets of the Company or any of its Subsidiaries (other than Liens created under any of the Loan Documents in favor of the Administrative Agent on behalf of the Banks), or (iv) require any approval of stockholders or any approval or consent of any Person under any Contractual Obligation of the Company or any of its Subsidiaries. D. GOVERNMENTAL CONSENTS. The execution and delivery by the Company of this Amendment and the performance by the Company of the Amended Agreement do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any Governmental Authority. E. BINDING OBLIGATION. This Amendment has been duly executed and delivered by the Company and this Amendment and the Amended Agreement are the legally valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. F. ABSENCE OF DEFAULT. No event has occurred and is continuing or will result from the consummation of the transactions contemplated by this Amendment that would constitute an Event of Default or a Default. SECTION 4. MISCELLANEOUS A. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS. (i) On and after the Second Amendment Effective Date, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to the "Credit Agreement", "thereunder", "thereof" or words of like import referring to the Credit Agreement shall mean and be a reference to the Amended Agreement. (ii) Except as specifically amended by this Amendment, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. (iii) The execution, delivery and performance of this Amendment shall not, except as expressly provided herein, constitute a waiver of any provision of, or operate as a waiver of any right, power or remedy of the Administrative Agent or any Bank under, the Credit Agreement or any of the other Loan Documents. (iv) The Credit Agreement, as amended hereby, together with the other Loan Documents (including the Fee Letter), embodies the entire agreement and understanding among the Company, the Banks and the Administrative Agent, and supersedes all prior or contemporaneous agreements and understandings of such Persons, verbal or written, relating to the subject matter hereof and thereof. B. FEES AND EXPENSES. The Company acknowledges that all costs, fees and expenses as described in Section 10.4 of the Credit Agreement incurred by the Administrative Agent and its counsel with respect to this Amendment and the documents and transactions contemplated hereby shall be for the account of the Company. C. HEADINGS. Section and subsection headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose or be given any substantive effect. D. APPLICABLE LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA (INCLUDING WITHOUT LIMITATION SECTION 1646.5 OF THE CIVIL CODE OF THE STATE OF CALIFORNIA), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. E. COUNTERPARTS. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. MCKESSON CORPORATION By: \s\ William R. Graber ------------------------------------------ Name: William R. Graber Title: Senior Vice President and Chief Financial Officer By: \s\ Nicholas A. Loiacono ------------------------------------------ Name: Nicholas A. Loiacono Title: Vice President and Treasurer BANK OF AMERICA, N.A., as Administrative Agent By: \s\ Richard L. Nichols, Jr. ------------------------------------------ Name: Richard L. Nichols, Jr. Title: Managing Director BANK OF AMERICA, N.A., as a Bank By: \s\ Richard L. Nichols, Jr. ------------------------------------------ Name: Richard L. Nichols, Jr. Title: Managing Director THE CHASE MANHATTAN BANK, as a documentation agent and as a Bank By: \s\ William P. Rindfuss ------------------------------------------ Name: William P. Rindfuss Title: Vice President BANK ONE, NA, as documentation agent and as a Bank By: \s\Kandis A. Jaffrey ------------------------------------------ Name: Kandis A. Jaffrey Title: Vice President FIRST UNION NATIONAL BANK, as documentation agent and as a Bank By: \s\Jeanette A. Griffin ------------------------------------------ Name: Jeanette A. Griffin Title: Vice President CREDIT SUISSE FIRST BOSTON, as a Bank By: \s\William S. Lutkins ------------------------------------------ Name: William S. Lutkins Title: Vice President By: \s\Robert N. Finney ------------------------------------------ Name: Robert N. Finney Title: Managing Director MELLON BANK, N.A., as a Bank By: \s\John N. Cate ------------------------------------------ Name: John N. Cate Title: Vice President TORONTO DOMINION (TEXAS), INC., as a Bank By: \s\Alva J. Jones ------------------------------------------ Name: Alva J. Jones Title: Vice President FLEET NATIONAL BANK, as a Bank By: \s\Carol Castle ------------------------------------------ Name: Carol Castle Title: Director WELLS FARGO BANK, N.A., as a Bank By: \s\Paul K. Stimpfl ------------------------------------------ Name: Paul K. Stimpfl Title: Senior Vice President THE BANK OF NEW YORK, as a Bank By: \s\Rebecca K. Levine ------------------------------------------ Name: Rebecca K. Levine Title: Vice President U.S. BANK NATIONAL ASSOCIATION, as a Bank By: \s\Aaron J. Gordon ------------------------------------------ Name: Aaron J. Gordon Title: Vice President THE BANK OF NOVA SCOTIA, as a Bank By: \s\R. P. Reynolds ------------------------------------------ Name: R.P. Reynolds Title: Director PNC BANK, NATIONAL ASSOCIATION, as a Bank By: \s\Philip K. Liebscher ------------------------------------------ Name: Philip K. Liebscher Title: Vice President ALLFIRST BANK, as a Bank By: \s\Jennifer G. Erickson ------------------------------------------ Name: Jennifer G. Erickson Title: Vice President FIFTH THIRD BANK, as a Bank By: \s\Jeff Assenmacher ------------------------------------------ Name: Jeff Assenmacher Title: Large Corporate Officer BNP PARIBAS, as a Bank By: \s\Katherine Wolfe ------------------------------------------ Name: Katherine Wolfe Title: Director By: \s\Sandra F. Bertram ------------------------------------------ Name: Sandra F. Bertram Title: Vice President LEHMAN COMMERCIAL PAPER INC., as a Bank By: \s\Michelle Swansen ------------------------------------------ Name: Michelle Swansen Title: Authorized Signatory ANNEX I SCHEDULE 2.1 COMMITMENTS/PRO RATA SHARES (Effective as of October 5, 2001)

TOTAL BANK COMMITMENTS PRO RATA SHARES ---- ----------- --------------- Bank of America, N.A. ............. $ 161,666,666.67 15.038759690% The Chase Manhattan Bank .......... $ 160,000,000.00 14.883720930% Bank One, N.A. .................... $ 83,333,333.33 7.751937984% First Union National Bank ......... $ 133,333,333.00 12.403100744% Credit Suisse First Boston ........ $ 125,000,000.00 11.627906977% Mellon Bank, N.A. ................. $ 16,666,667.00 1.550387628% Toronto Dominion (Texas), Inc. .... $ 41,666,667.00 3.875969023% Wells Fargo Bank, N.A. ............ $ 50,000,000.00 4.651162791% The Bank of New York .............. $ 33,333,333.33 3.100775193% U.S. Bank National Association .... $ 53,333,333.00 4.961240279% The Bank of Nova Scotia ........... $ 50,000,000.00 4.651162791% PNC Bank, National Association .... $ 10,000,000.00 0.930232558% Allfirst Bank ..................... $ 16,666,666.67 1.550387597% Fifth Third Bank .................. $ 15,000,000.00 1.395348837% Fleet National Bank ............... $ 50,000,000.00 4.651162791% BNP Paribas ....................... $ 25,000,000.00 2.325581395% Lehman Commercial Paper Inc ....... $ 50,000,000.00 4.651162791% Totals: ........................... $1,075,000,000.00 100%

A-1 EX-10.43 11 f82011exv10w43.txt EXHIBIT 10.43 Exhibit 10.43 MCKESSON CORPORATION 1998 CANADIAN STOCK INCENTIVE PLAN (As Amended Through October 26, 2001) ARTICLE I - PURPOSE 1.1 The purpose of the McKesson Corporation 1998 Canadian Stock Incentive Plan (the "Plan"), is to enable McKesson Corporation (the "Company") to offer designated employees of Canadian subsidiaries of the Company performance-based stock incentives thereby attracting, retaining and rewarding such employees and strengthening the mutuality of interests between the employees and the Company's shareholders. ARTICLE II - DEFINITIONS 2.1 In this Plan, the following terms shall have the following meanings: (a) "Article" and "Section" means an article or section of this Plan; (b) "Award" means any grant approved in accordance with the terms of the Plan; (c) "Beneficiary" means a person or persons designated by the Participant to succeed to, in the event of death, any outstanding Award held by the Participant. Any Participant may, subject to applicable laws and such limitations as may be prescribed by the Committee, designate one or more persons primarily or contingently as beneficiaries in writing by notice delivered to the Company, and may revoke such designations in writing. If a Participant fails effectively to designate a beneficiary, the Participant's estate shall be the Participant's beneficiary; (d) "Board of Directors" means the board of directors of the Company; (e) "Committee" means the Compensation Committee of the Board of Directors or such other committee, as the Board of Directors may appoint from time to time for the purpose of administering this Plan, or if at any time the Board does not have a Compensation Committee or does not so appoint another committee for such purpose, the Board of Directors; (f) "Company" means McKesson Corporation and its successors and assigns; (g) "Disability" means (i) a physical or mental condition which, in the judgment of the Committee based on competent medical evidence satisfactory to the -2- Committee, including, if required by the Committee, medical evidence obtained by an examination conducted by a physician selected by the Committee, renders an individual unable to engage in any substantial gainful activity and which impairment is likely to result in death or to be of long, continued and indefinite duration, or (ii) a judicial declaration of incompetence; (h) "Fair Market Value" means, as of any date, the composite closing price on such day of the Company's common shares as reported in The Wall Street Journal; (i) "Latest Exercise Date" means the latest date on which a particular Option may be exercised; (j) "Medis" means Medis Health and Pharmaceutical Services Inc.; (k) "Notice of Grant" means a notice executed by the Company and the Participant to whom an Award has been granted by which the Committee shall notify a Participant of an Award granted to him in accordance with the terms of the Plan, which notice shall be duly executed by the Company and such Participant; (l) "Option" means a right generated under the Plan to a Participant to purchase Shares in accordance with the terms of the Plan; (m) "Optionee" means a Participant to whom an Award of an Option has been made; (n) "Option Price" means in respect of an option, the price to be paid per Share by a Participant on the exercise of an Option set out in Section 5.2(b); (o) "Participant" means an employee of Medis or a Canadian subsidiary of the Company who has been designated by the Committee in its sole discretion as being eligible to participate in the Plan; (p) "Plan" means this McKesson Corporation 1998 Canadian Stock Incentive Plan and any schedules attached hereto, as amended and restated from time to time; (q) "Retirement" means any retirement in accordance with the applicable retirement policies of the relevant Canadian subsidiary; (r) "Shares" means common shares of the Company; (s) "Stock Appreciation Right" means an Award described in Article IV; (t) "Termination of Employment" means the termination of a Participant's employment with Medis, a Canadian subsidiary of the Company or the Company, other than as a result of death, Disability or Retirement; -3- 2.2 In this Plan, unless the context requires otherwise, references to the male gender include the female gender and words importing the singular number may be construed to extend to and include the plural number and vice versa. ARTICLE III - ADMINISTRATION 3.1 This Plan shall be administered and interpreted by the Committee. The Committee will construe and interpret the terms and provisions of the Plan and of any Award granted thereunder. The Committee may correct any defect, complete any omission or reconcile any inconsistency in the Plan, in any Notice of Grant or in any agreement relating to the Plan in is sole discretion and in the manner or to the extent is shall deem necessary. 3.2 The Committee shall have full authority to grant, pursuant to the terms of the Plan, to Participants Options and Stock Appreciation Rights. In particular, and without limitation, the Committee shall have the authority to: (i) select the Participants to whom Awards may be granted from time to time hereunder; (ii) determine the terms and conditions, not inconsistent with the terms of the Plan, of any Award granted hereunder, including, but not limited to, any restriction or limitation on transfer, any vesting schedule or acceleration thereof, or any forfeiture provisions or waiver thereof regarding any Award and the Shares relating thereto, based on such factors as the Committee shall determine, in its sole discretion; and (iii) modify or waive any restrictions or limitations contained in and grant extensions to or accelerate the vestings of, any outstanding Awards, so long as such notifications, waivers, extensions or accelerations are consistent with the terms of the Plan; but no such changes shall impair the rights of any Participant without his consent. The Chief Executive Officer of the Company shall have concurrent authority to grant Options to Participants, pursuant to the terms of the Plan and consistent with the administration of the Plan by the Committee, subject to the limitations of Section 5.1. 3.3 The Committee shall have full and complete authority to adopt, alter and repeal any administrative rules, guidelines or practices governing the Plan and perform all acts, including the delegation of its authority as it shall from time to time deem advisable. 3.4 Any decision, interpretation or other action made or taken in good faith by or at the direction of the Committee (or any of its members) or the Company arising out of or in connection with the Plan shall be within the absolute discretion of all and each of them, as the case may be, and shall be final, binding and conclusive on the Company and all employees and Participants and their respective Beneficiaries, heirs, executors, administrators, successors and assigns. -4- ARTICLE IV - SHARES AVAILABLE 4.1 The number of shares on which Options/Stock Appreciation Rights which may be granted will be determined at the sole discretion of the Board of Directors. 4.2 If the Company changes the number of issued Shares at any time for any reason, including by stock dividend, stock split, recapitalization, reorganization, exchange of shares, liquidation, combination or other change in corporate structure affecting the Shares or makes a distribution of cash or property which has a substantial impact on the value of the issued Shares or there is a change in the valuation formula, the Awards shall be appropriately adjusted by the Board of Directors in their sole discretion. The Board of Directors shall also make adjustments so that the net value of each such Award shall not be changed. 4.3 Except as otherwise specifically provided herein, the Committee or the Chief Executive Officer, as applicable, shall determine the time to make an Award. Each Award shall be effective on a date determined by the Committee; provided, however, with respect to an Option awarded by the Chief Executive Officer, the effective date of such Award shall be the later of (i) the date when [the Chief Executive Officer executes a document setting forth the Option Award and delivers such document to the Corporate Secretary for filing with the minutes of the Committee] or (ii) the date specified in the Award. ARTICLE V - OPTIONS 5.1 The Committee (or the Chief Executive Officer), in its (or his) discretion, may grant to a Participant an Option; provided, however, that the Chief Executive Officer may not: (i) grant options under the Plan and the McKesson Corporation 1999 Stock Option and Restricted Stock Plan covering more than 1,000,000 shares in the aggregate; (ii) grant an option covering more than 100,000 shares to an individual officer or employee; or (iii) designate himself or any executive officer of the Corporation, as defined in the Rules of the New York Stock Exchange, as a recipient of any option granted. Options granted by the Chief Executive Officer shall be subject to the same terms as options granted by the Committee. 5.2 Options granted under this Plan shall be subject to the following terms and conditions and shall be in such form and contain such additional terms, not inconsistent with the terms of this Plan, as the Committee may deem desirable: (a) At the time of the Award of an Option, the Committee (or the Chief Executive Officer) shall specify the maximum number of Shares which the Optionee may purchase. In exercising its (or his) discretion, the Committee (or the Chief Executive Officer) shall consider the Participant's performance and contribution to the success of the Company and any special circumstances including, but not limited to, the sustained superior performance of the Participant, the need to retain the Participant and the need to attract new employees. -5- (b) The Option Price per Share shall be determined by the Committee or the Chief Executive Officer, as applicable. (c) All Options are immediately exercisable upon Disability or death, and the Optionee or the Optionee's estate must exercise options within three years of the date of such death or Disability. After such period, all unexercised Options shall be automatically cancelled and any rights to such Options shall be forfeited. (d) Options may be exercised in accordance with the terms of the Award in whole or in part at any time before the Latest Exercise Date, and subject to subsections (c), (g) and (h), provided that: (i) the Optionee notifies the Company in writing of his intent to exercise the Option in whole or in part in such form as prescribed by the Company and forwards such notice to the Office of the Corporate Secretary of the Company; (ii) the Participant's written notice is accompanied by payment in full in the amount of the aggregate Option Price for such number of Shares in such form as the Company may accept. (e) No fractional Shares shall be issued upon the exercise of an Option. Accordingly, if for any reason, an Optionee would otherwise have become entitled to a fractional Share upon the exercise of an Option, he shall have the right to purchase only the next lower whole number of Shares and no payment or other adjustment will be made with respect to the fractional interests so disregarded. (f) The interest of any Optionee shall not be transferable or alienable by him either by pledge, assignment or in any other manner whatsoever and, during his lifetime shall be vested only in him, but shall thereafter enure to the benefit of and be binding upon the Beneficiary or legal personal representatives of the Optionee. (g) On the Optionee's Termination of Employment for any reason, other than by reason of the Retirement, Disability or death of the Optionee, the Optionee may exercise any Option for which rights to exercise have accrued to the Optionee at the time of Termination of Employment, within 3 months following the date of Termination of Employment. After such period, all unexercised Options shall be automatically cancelled and any rights to any Options shall be forfeited. (h) Where the employment of an Optionee is terminated by reason of Retirement, the Optionee may exercise any Option for which rights to exercise have accrued to the Optionee at the time of Retirement within three years following the date of Retirement. After such period, all unexercised Options shall be automatically cancelled and any rights to any Options shall be forfeited. -6- (i) The Committee may at any time offer to buy out an option previously granted, based on such terms and conditions as the Committee shall establish and communicate to the Participant at the time that such offer is made. (j) The Committee may at any time in its sole discretion accelerate the right to exercise any Options. (k) In the event of a Change of Control as defined in this section, the right to exercise Options will be accelerated such that all Options are immediately exercisable. A "Change of Control" of me Company shall be deemed to have occurred if any of the events set forth in any one of the following paragraphs shall occur: (i) any "person" (as such term is used in sections 13 (d) and 14(d) of the Securities Exchange Act of 1934, as amended (U.S.), excluding the Company or any of As affiliates, a trustee or any fiduciary holding securities under an employee benefit plan of the Company or any of its affiliates, an underwriter temporarily holding securities pursuant to an offering of such securities or a corporation owned, directly or indirectly, by stockholders of the Company in substantially the same proportions as their ownership of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (U.S.), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company's then outstanding securities; or (ii) during any period of not more than two consecutive years, individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a Person who has entered into an agreement with the Company to effect a transaction described in clause (i), (iii) or (iv) or this paragraph) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or (iii) the shareholders of the Company approve a merger or consolidation of the Company with any other corporation, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company, at least 50% of the combined voting power of the voting securities of the Company or such surviving entity outstanding -7- immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person acquires more than 50% of the combined voting power of the Company's then outstanding securities; or (iv) the shareholders of the Company approve a plan of complete liquidation of the Company or any agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. Notwithstanding the foregoing, no Change in Control shall be deemed to have occurred if there is consummated any transaction or series of integrated transactions immediately following which the holders of the Stock immediately prior to such transaction or series of transactions continue to have the same proportionate ownership in an entity which owns all or substantially all of the assets of the Company immediately prior to such transaction or series of transactions. A Change of Control shall also be deemed to occur in the event that 50.1% of more of the shares of Medis become owned by an entity other than the Company. 5.3 The Committee or the Chief Executive Officer, as applicable, shall notify each Optionee of the terms and conditions of the Award of an Option by a Notice of Grant. The Notice of Grant shall indicate the Option Price, the earliest and Latest Exercise Date and other terms relating to the Award of the Option. 5.4 As soon as practicable, after the Company's receipt of the Participant's written notice as specified in Section 5.2(d) and payment of the Option Price, the Optionee shall be entitled to receive a certificate representing the Shares purchased through the exercise of the Option. 5.5 An Optionee shall not have any rights as a shareholder in respect of Shares subject to an Option until such Shares have been paid for in full and issued. 5.6 The Committee may, in its discretion, provide at any time, and from time to time, that particular Options granted hereunder will be accompanied by a grant of Stock Appreciation Rights as set out in Article VI. 5.7 Any other provision of these terms and conditions to the contrary notwithstanding, if the Committee determines that an Optionee has engaged in any of the actions described in (c) below, the consequences set forth in (a) and (b) below shall result: (a) Any outstanding Option shall immediately and automatically terminate, be forfeited and shall cease to be exercisable, without limitation, by the Optionee or his or her representatives, in the case of the death of the Optionee. -8- (b) If the Optionee exercised an Option within six months prior to the date upon which the Company discovered that the Optionee engaged in any action described in (c) below, the Optionee, upon written notice from the Company, shall immediately pay to the Company the economic value realized or obtained by the exercise of such Option measured at the date of exercise. (c) The consequences described in (a) and (b) above shall apply if the Optionee, either before or after termination of employment with Medis, the Company or its affiliates: (i) Discloses to others, or takes or uses for his own purpose or the purpose of others, any trade secrets, confidential information, knowledge, data or know-how or any other proprietary information or intellectual property belonging to Medis, the Company or its affiliates and obtained by the Optionee during the term of his employment, whether or not they are the Optionee's work product. Examples of such confidential information or trade secrets include, without limitation, customer lists, supplier lists, pricing and cost data, computer programs, delivery routes, advertising plans, wage and salary date, financial information, research and development plans, processes, equipment, product information and all other types and categories of information as to which the Optionee knows or has reason to know that Medis, the Company or its affiliates intends or expects secrecy to be maintained; (ii) Fails to promptly return all documents and other tangible items belonging to Medis, the Company or its affiliates in the Optionee's possession or control, including all complete or partial copies, recordings, abstracts, notes or reproductions of any kind made from or about such documents or information contained therein, upon termination of employment, whether pursuant to retirement or otherwise; (iii) Fails to provide Medis, the Company or its affiliates with at least thirty (30) days' written notice prior to directly or indirectly engaging in, becoming employed by, or rendering services, advice or assistance to any business in competition with Medis, the Company or its affiliates. As used herein, "business in competition" means any person organization or enterprise which is engaged in or is about to become engaged in any line of business engaged in by Medis, the Company or its affiliates at the time of the termination of the Optionee's employment with Medis, the Company or its affiliates; (iv) Fails to inform any new employer, before accepting employment, of the terms of this paragraph and of the Optionee's continuing obligation to maintain the confidentiality of the trade secrets and other confidential information belonging to Medis, the Company or its affiliates and -9- obtained by the Optionee during the term of his employment with Medis, the Company or any Subsidiary; (v) Induces or attempts to induce, directly or indirectly, any of the customers of Medis, the Company or its affiliates, employees, representatives or consultants to terminate, discontinue or cease working with or for Medis, the Company or its affiliates, or to breach any contract with Medis, the Company or any of its affiliates, in order to work with or for, or enter into a contract with, the Optionee or any third party; or (vi) Engages in conduct which is not in good faith and which disrupts, damages, impairs or interferes with the business, reputation or employees of Medis, the Company or its affiliates. The Committee shall determine in its sole discretion whether the Optionee has engaged in any of the acts set forth in (i) through (vi) above, and its determination shall be conclusive and binding on all interested persons. Any provision of this paragraph which is determined by a court of competent jurisdiction to be invalid or unenforceable should be construed or limited in a manner that is valid and enforceable and that comes closest to the business objectives intended by such invalid or unenforceable provision, without invalidating or rendering unenforceable the remaining provisions of this paragraph. ARTICLE VI - APPRECIATION RIGHTS 6.1 Stock Appreciation Rights may only be granted in conjunction with an Option (referred to in this Article as a "Reference Option") granted under the Plan. 6.2 Stock Appreciation Rights shall be subject to such terms and conditions, not inconsistent with the provisions of this Plan, as shall be determined from time to time by the Committee, including the following: (a) A Stock Appreciation Right granted with respect to a Reference Option shall terminate and no longer be exercisable upon the termination or exercise of the Reference Option. (b) A Stock Appreciation Right shall be exercisable only at such time or times and to the extent that the Reference Option to which it relates shall be exercisable. (c) A Stock Appreciation Right may be exercised by an Optionee by surrendering the applicable portion of the Reference Option. The Participant will then have no further rights relating to the Reference Option. (d) Upon exercising a Stock Appreciation Right, a Participant shall be entitled to receive an amount in cash, as determined by the Committee, equal in value to the excess Fair Market Value of one Share over the Option Price in Respect of the -10- Reference Option multiplied by the number of Shares in respect of which the Stock Appreciation Right shall have been exercised. (e) Stock Appreciation Rights shall not be transferable except to the extent indicated in Subsection 5.2(i) and shall terminate in accordance with Subsections 5.2(c), (g) or (h). 6.3 The Committee shall notify a Participant of an Award of a Stock Appreciation Right by a Notice of Grant. The Notice of Grant shall indicate the term of the Award, the Reference Option and Option Price or the Fair Market Value on the date of the Award, as applicable. ARTICLE VII - TERMINATION OR AMENDMENT 7.1 Notwithstanding any other provision of the Plan, the Company, acting through its Board of Directors, may, at any time and from time to time, amend in whole or in part, any or all of the provisions of the Plan, or suspend or terminate it entirely; provided, however, that, unless otherwise required by law, the rights of a Participant with respect of any Awards granted prior to such amendment, suspension or termination, may not be impaired without the consent of such Participant. ARTICLE VIII - GENERAL 8.1 This Plan is intended to be unfunded. With respect to any payments to which a Participant has a fixed and vested interest, but which have not yet been made to the Participant by the Company, nothing in the Plan shall give any such Participant any rights that are greater than those of a general creditor of the Company. 8.2 Participation in the Plan is not a guarantee of employment or of continued participation in the Plan in any subsequent year. 8.3 In no event shall the value of, or income arising from, any Awards under this Plan be treated as compensation for the purposes of any pension, profit sharing, life insurance, disability or any other retirement or welfare benefit plan now maintained or hereafter adopted by Medis, the Company or any of its affiliates unless such plan specifically provides to the contrary. Nothing herein contained shall affect Optionee's right to participate in and receive benefits from and in accordance with the then current provisions of any pensions, insurance, or other employment welfare plan or program offered by Medis, the Company or any of its affiliates. 8.4 The Company shall have the right to deduct from any payment to be made pursuant to the Plan, or to otherwise require, prior to the issuance or delivery of any Shares or the payment of any cash hereunder, payment by the Participant of any taxes required bylaw to be withheld. The Committee may permit any such withholding obligation to be satisfied by reducing the number of Shares otherwise deliverable or by accepting the delivery of previously owned Shares on account thereof. -11- 8.5 Except as specifically permitted hereunder, the interest of any Participant or Optionee under the Plan in any Award shall not be transferable or alienable by him and, during his lifetime, shall be vested only in him, but shall thereafter enure to the benefit or and be binding upon the Beneficiary or legal personal representatives of the Participant. 8.6 No member of the Board of Directors, no member of the Committee, no employee (including the Chief Executive Officer) nor the Company shall be liable for any act or failure to act hereunder, by another member or employee or by an agent to whom duties in connection with the administration of the Plan have been delegated except in circumstances involving bad faith, gross negligence or fraud. 8.7 The Company's obligation to issue Shares in accordance with the terms of the Plan and any Award hereunder is subject to compliance with the laws, rules and regulations of all public agencies and authorities applicable to the issuance and distribution of such Shares and to the listing of such Shares on any stock exchange on which any of the Shares of the Company may be listed. As a condition of participation in the Plan, all Participants must first agree to comply with all such laws, rules and regulations and to furnish to the Company all information and undertakings as may be required to permit compliance with such laws, rules and regulations. 8.8 The Plan and any Awards hereunder shall be governed by and construed in accordance with the laws of the Province of Ontario and the laws of Canada applicable therein. 8.9 The effective date of this Plan is the 28th day of January, 1998. EX-10.44 12 f82011exv10w44.txt EXHIBIT 10.44 Exhibit 10.44 MCKESSON CORPORATION 2000 EMPLOYEE STOCK PURCHASE PLAN (AS AMENDED THROUGH JULY 31, 2001) 1. PURPOSE The McKesson Corporation 1998 Employee Stock Purchase Plan (the "Plan") is intended to encourage the employees of the Company and certain of its subsidiaries to acquire a proprietary interest, or to increase their existing proprietary interest, in the Company. The Board of Directors of the Company (the "Board") believes that employee ownership of the Company's stock will serve as an incentive, encouraging employees to continue their employment and to perform diligently their duties as employees. The Plan is intended to qualify as an "employee stock purchase plan" within the meaning of Section 423 of the Internal Revenue Code of 1986, as amended (the "Code"). 2. STOCK RESERVED FOR THE PLAN The Company will reserve 6,100,000 (which number has been adjusted to reflect the 2:1 stock split effected by the former HBO & Company on May 27, 1998, and the Exchange Ratio as defined in the Merger Agreement) shares of the Company's common stock, $.01 par value per share ("Stock"), for purchase by employees under the Plan. The number of shares of Stock reserved for the Plan may further be adjusted as provided in Section 16. The shares of Stock reserved for the Plan may be shares now or hereafter authorized but unissued, shares that have been reacquired by the Company, or shares of treasury stock. 3. ADMINISTRATION The Plan will be administered by the Compensation Committee of the Board (the "Committee"), consisting of members of the Board designated by the Board. The Board from time to time may remove members from, or add members to, the Committee. Vacancies on the Committee will be filled by the Board. Subject to the express provisions of the Plan, the Committee will have authority to interpret the Plan, to prescribe rules and regulations for administering the Plan, and to make all other determinations necessary or advisable in administering the Plan. The determinations of the Committee will be final and binding upon all persons, unless otherwise determined by the Board. A majority of the members of the Committee will constitute a quorum, and the Committee may act by vote of a majority of its members at a meeting at which a quorum is present, or without a meeting by a written consent signed by all members of the Committee. To the extent consistent with applicable law, the Committee may delegate its duties hereunder to a sub-committee, whose members need not be members of the Board. 4. ELIGIBILITY (a) Eligible Employees. Except as set forth in subsections (b) and (c) below, all employees of the Company, and all employees of any parent corporation, as defined in Code Section 424(e) (a "Parent") or any subsidiary corporation as defined in Code Section 424(f) (a "Subsidiary") of the Company that is designated by the Board as a participating Parent or Subsidiary, will be eligible to participate in the Plan. Such employees are referred to herein as "Employees." No person who is not an Employee will be eligible to participate in the Plan. (b) Excluded Employees. The following Employees will not be eligible to participate in the Plan: (i) any Employee whose customary employment is less than 20 hours per week or for not more than 5 months in any calendar year; and (ii) any Employee who, immediately after a right to purchase Stock is granted hereunder, would own shares of Stock, or of the stock of a Subsidiary, possessing 5 percent or more of the total combined voting power or value of all classes of such stock. In determining whether an Employee owns 5 percent of such shares, (A) the attribution of ownership rules of Code Section 424(d) will apply, and (B) an Employee will be deemed to own the shares of stock underlying any outstanding option which he has been granted (whether under the Plan or any other plan or arrangement); and (iii) effective for the first Purchase Period commencing after September 30, 1999 and for any subsequent Purchase Period, any Employee who as of the first day of any such Purchase Period has not completed a period of employment of at least 30 days. 5. OFFERING DATES The Plan will be implemented by a continuous series of 24-month offerings beginning on the first trading day on or after May 1 and November 1 of each calendar year and terminating on the last trading day of the month which is 24 months later (the "Offering Periods") and six-month periods commencing on each May 1 and November 1 and ending on the following October 31 and April 30, during which contributions may be made toward the purchase of Stock under the Plan (the "Accumulation Periods"). For purposes of calculating the purchase price under Section 9, the applicable Offering Period shall be determined as follows: (i) Once a Participant is enrolled in the Plan for an Offering Period, such Offering Period shall continue to apply to the Participant until the earliest of (A) the end of such Offering Period, (B) the date the Participant elects to discontinue contributions to the Plan and receive a distribution of his Cash Account, or (C) re-enrollment in a subsequent Offering Period under paragraph (ii) below. (ii) In the event that the Fair Market Value of the Stock on the last trading day before the commencement of the Offering Period in which the Participant is enrolled is higher than on the last trading day before the commencement of any subsequent Offering Period, the first Offering Period shall be canceled and the Participant shall automatically be re-enrolled for such subsequent Offering Period. 6. ELECTION TO PARTICIPATE (a) Initial Election. Each Employee who is eligible to participate in the Plan may become a participant (a "Participant") by making an election, prior to any Offering Date and in accordance with procedures established by the Committee, authorizing specified regular payroll deductions over the next succeeding Purchase Period (an "Election Form"). Each election will be expressed as a percentage of the Employee's Compensation (as defined below), which may not exceed 15 percent of the Employee's Compensation for any payroll period or be less than 1 percent of the Employee's Compensation for any payroll period (or such other maximum and minimum percentages as the Committee may determine). An Employee's "Compensation" is his "compensation" as that term is defined in the McKesson Corporation Profit-Sharing Investment Plan. Payroll deductions for a Participant will be made regularly and in equal amounts during the Purchase Period by the Company, and will be credited to a bookkeeping account established by the Company in the name of the Participant (the "Cash Account"). No interest will be paid on or credited to Cash Accounts. (b) Changes in Rate of Payroll Deductions. A Participant may change the amount of payroll deductions elected for a Purchase Period by providing notice in accordance with procedures established by the Committee. (c) Discontinuance of Contributions. At any time during a Purchase Period, (but not later than five business days prior to the Purchase Date), a Participant may discontinue participation in the Plan for the current Purchase Period by providing notice in accordance with procedures established by the Committee. Upon such discontinuance, at the Participant's election, the balance of his Cash Account will be (i) returned to the Participant as soon as practicable, or (ii) held in the Cash Account until the end of the Purchase Period and applied to purchase Stock in accordance with Section 10. A Participant who discontinues payroll deductions may recommence his participation in the Plan as of the Offering Date for any other succeeding Purchase Period, provided he otherwise is eligible to participate and timely files a new Election Form with the Committee. 7. PURCHASE PERIOD LIMITATION ON RIGHTS TO PURCHASE STOCK (a) In General. Subject to the annual limitations in Section 8 below, the maximum number of shares of Stock each Participant will have the right to purchase under the Plan during a Purchase Period is determined by dividing (i) $12,500 by (ii) the Fair Market Value of one share of Stock on the Offering Date for such Purchase Period. (b) Insufficient Shares of Stock. If at any time the number of shares of Stock available for purchase under the Plan is insufficient to grant to each Participant the right to purchase the full number of shares to which he otherwise would be entitled, then each Participant will have the right to purchase that number of available shares of Stock that is equal to the total number of available shares of Stock multiplied by a fraction, the numerator of which is the amount of Compensation credited to the Participant's Cash Account for the Purchase Period, and the denominator of which is the total amount of Compensation credited to the Cash Accounts of all Participants for the Purchase Period. 8. ANNUAL LIMITATION ON RIGHTS TO PURCHASE STOCK No right to purchase shares of Stock under the Plan will be granted to an Employee if such right, when combined with all other rights and options granted under all of the Code Section 423 employee stock purchase plans of the Company or any Parent or Subsidiary would permit the Employee to purchase shares of Stock with a Fair Market Value (determined at the time the right or option is granted) in excess of $25,000 for each calendar year in which the right or option is outstanding at any time, determined in accordance with Code Section 423(b)(8). 9. PURCHASE PRICE (a) In General. The purchase price of each share of Stock purchased at the close of an Accumulation Period will be the lower of (i) 85 percent of the Fair Market Value of the such share on the last trading day of such Accumulation Period, or (ii) 85 percent of the Fair Market Value of such share on the first day of the applicable Offering Period (as determined under Section 5). (b) Fair Market Value. The Fair Market Value of the Stock, as of any date, will be equal to the closing price of the Stock on the New York Stock Exchange ("NYSE"), for such date as reported in The Wall Street Journal. If no transaction is reported for a particular date, Fair Market Value will be the closing price on the closest preceding date for which any transaction is reported. If the Stock is not traded on the NYSE, Fair Market Value will be determined using the method established by the Committee. 10. PURCHASE OF STOCK Subject to the share limitations set forth in Sections 7 and 8 above, as of each Purchase Date, the Committee will purchase from the Company using the funds in each Cash Account on such date, on behalf of each Participant having funds in his Cash Account, the number of whole and fractional shares of Stock determined by dividing the amount in such Cash Account on such date by the purchase price determined under Section 9. 11. STOCK ACCOUNTS (a) Establishment of Accounts. As soon as reasonably practicable after each Purchase Date, the Company will deliver to a custodian selected by the Committee (the "Custodian"), in electronic form, the total number of shares purchased by all Participants in the Purchase Period. The Custodian will maintain a separate "Stock Account" for each Participant, which will be credited with the number of whole and fractional shares of Stock purchased by the Participant under the Plan. (b) Withdrawals from Stock Accounts. A Participant may at any time withdraw any whole shares of Stock credited to his Stock Account as to which the holding period requirements of Code Section 423(a)(1) have been satisfied. As soon as practicable after such request by a Participant, the Custodian will cause such whole shares to be transferred in electronic form to a broker designated by the Participant or will cause a certificate representing such Shares to be delivered to the Participant. (c) Rights as Shareholders. A Participant will have all of the rights of a stockholder of the Company with respect to all of the shares of Stock credited to his Stock Account, including the right to vote and receive dividends on such Shares. 12. TERMINATION OF EMPLOYMENT (a) Termination Other Than Due to Death, Disability or Retirement. If a Participant terminates employment with the Company or any Parent or Subsidiary during a Purchase Period for any reason other than death, disability, or Retirement, then the Participant's participation in the Plan will immediately terminate and the balance of the Participant's Cash Account will be returned to the Participant. For purposes of the Plan, a Participant who is on an approved leave of absence will not be considered to have terminated employment until the 91st day of such leave of absence or such longer period as the Participant's right to re-employment is guaranteed by law or contract. (b) Termination Due to Death. If a Participant terminates employment with the Company or any Parent or Subsidiary during a Purchase Period due to death, then, at the election of the Participant's beneficiary, the balance of the Participant's Cash Account will be (i) delivered to the beneficiary or (ii) held in the Cash Account until the end of the Purchase Period and applied to purchase Stock in accordance with Section 10. (c) Termination Due to Disability or Retirement. If a Participant terminates employment with the Company or any Parent or Subsidiary due to Retirement or disability no more than 3 months before the Purchase Date for a Purchase Period, then, at the Participant's election, the balance of the Participant's Cash Account will be (i) returned to the Participant, or (ii) held in the Cash Account until the end of the Purchase Period and applied to purchase Stock in accordance with Section 10. If a Participant terminates employment due to Retirement or disability more than 3 months before the Purchase Date for a Purchase Period, then the Participant's participation in the Plan will immediately terminate and the balance of the Participant's Cash Account will be returned to the Participant. (d) Definition of Retirement. For purposes of the Plan, Retirement will mean the attainment by a Participant of age plus whole years of service with the Company or any Parent or Subsidiary totaling 65 or more. 13. BENEFICIARY In the event of the Participant's death, his beneficiary shall be his surviving spouse, or if there is none, his surviving children in equal shares, or if there are none, his estate. 14. COMPLIANCE WITH SECURITIES LAW All shares of Stock issued under the Plan will be subject to such restrictions as the Committee may deem advisable under any applicable federal or state securities laws, and the Committee may cause a legend or legends making reference to such restrictions to be placed on the certificates representing such shares. 15. RIGHTS NOT TRANSFERABLE Neither payroll deductions credited to a Participant's account nor any rights under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way by the Participant (other than by will or the laws of descent and distribution or as provided in Section 13 hereof). Rights under the Plan are exercisable during the lifetime of the Participant only by the Participant. 16. ADJUSTMENT IN CASE OF CHANGES AFFECTING THE COMPANY'S STOCK (a) In General. In the event of a subdivision or consolidation of outstanding shares of Stock, the payment of a stock dividend thereon, stock split, reverse stock split, or in the event of any "corporate transaction" as defined in Treasury Regulations Section 1.425-1(a)(1)(ii) (now relating to Code Section 424), the number of shares reserved or authorized to be reserved under the Plan, the number and price of such shares subject to purchase pursuant to rights outstanding hereunder, the maximum number of shares each Participant may purchase during each Purchase Period (pursuant to Section 7) or during each calendar year (pursuant to Section 8), and the number of shares credited to Participants' Stock Accounts, will be adjusted in such manner as may be deemed necessary or equitable by the Board to give proper effect to such event, subject to the limitations of Code Section 424. (b) Effect of Merger. Following consummation of the Merger, outstanding purchase rights of HBO & Company employees under the Plan remained in effect and were assumed by the Company, with appropriate changes to reflect the issuance of shares of Stock. 17. FOREIGN EMPLOYEES To the extent permitted under Section 423 of the Code, the Committee may provide for such special terms for Participants who are foreign nationals, or who are employed by the Company or a Parent or Subsidiary outside of the United States of America, as the Committee may consider necessary or appropriate to accommodate differences in local law, tax policy or custom. Moreover, the Committee may approve such supplements to or amendments, restatements, or alternative versions of, this Plan as it may consider necessary or appropriate for such purposes without thereby affecting the terms of this Plan as in effect for any other purpose; provided, however, that no such supplements, amendments, restatements or alternative versions will include any provisions that are inconsistent with the terms of this Plan, as then in effect, unless this Plan could have been amended to eliminate such inconsistency without further approval by the shareholders of the Company, or which would cause the Plan to fail to meet the requirements of Section 423 of the Code. 18. AMENDMENT OF THE PLAN The Board may amend the Plan in any respect; provided, however, that, any amendment (i) increasing the number of shares of Stock reserved under the Plan (other than as provided in Section 16), or (ii) any change in the designation of corporations whose employees may be eligible to participate in the Plan, other than a corporation who is a Parent or a Subsidiary, must be approved, within 12 months of the adoption of such an amendment, by the holders of a majority of the voting power of the outstanding shares of Stock. 19. TERMINATION OF THE PLAN The Plan and all rights of Employees hereunder will terminate: (a) as of the Purchase Date on which Participants purchase a number of shares of Stock that substantially exhausts the number of shares available for issuance under the Plan, to such an extent that the Committee determines that no subsequent offerings are practicable; or (b) at any time upon action of the Board; provided, however, that if the Plan is terminated during any Purchase Period, any amounts in a Participant's Cash Account will be returned to the Participant. 20. EFFECTIVE DATE This Amendment and Restatement will become effective as of May 1, 2000. For Offering Periods prior to May 1, 2000 the terms of the Plan as in effect from time to time are applicable. 21. GOVERNMENT AND OTHER REGULATIONS (a) In General. The Plan, and the grant and exercise of the rights to purchase shares of Stock hereunder, and the Company's obligation to sell and deliver shares of Stock, will be subject to all applicable federal, state and foreign laws, rules and regulations, and to such approvals by any regulatory or government agency as may, in the opinion of counsel for the Company, be required. (b) Withholding Obligations. Each Participant will, no later than the date as of which the value of any purchase right granted under the Plan first becomes includible in the gross income of the Participant for federal income tax purposes, pay to the Company, or make arrangements satisfactory to the Company, regarding payment of any federal, state, or local taxes of any kind required by law to be withheld with respect to such purchase right. The obligations of the Company under the Plan will be conditional on the making of such payments or arrangements and the Company will, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the Participant. 22. INDEMNIFICATION OF COMMITTEE In addition to such other rights of indemnification as they have as directors or as members of the Committee, the members of the Committee will be indemnified by the Company against reasonable expenses (including, without limitation, attorneys' fees) actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan or any right granted hereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved to the extent required by and in the manner provided by the Bylaws of the Company relating to indemnification of directors) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it will be adjudged in such action, suit or proceeding that such Committee member did not act in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company. EX-21 13 f82011exv21.txt EXHIBIT 21 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT There is no parent of the Company. The following is a listing of the significant subsidiaries of the Company, or if indented, subsidiaries of the Company under which they are listed:

JURISDICTION OF ORGANIZATION ------------ McKesson Medical Surgical, Inc. Virginia

EX-23.1 14 f82011exv23w1.txt EXHIBIT 23.1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in McKesson Corporation, Inc. Registration Statement Nos. 33-86536, 333-00611, 333-02871, 333-21931, 333-30104, 333-30216, 333-30218, 333-30220, 333-30222, 333-20224, 333-30226, 333-32643, 333-32645, 333-43101, 333-43079, 333-48337, 333-43068, 333-48339, 333-48859, 333-50261, 333-70501, 333-71917, 333-85965, 333-39952, 333-39954, 333-62870, 333-67378, 333-67380, and 333-84806 on Form S-8, Registration Nos. 333-26443, and Amendment No. 1 thereto, 333-85973, 333-50985 and 333-66359 on Form S-3 and Registration Statement Nos. 333-49119, and Amendment No. 1 thereto, and 333-56623 on Form S-4 of our report dated May 17, 2002, except for paragraph nine of Note 19, as to which the date is June 7, 2002(which report refers to certain shareholder litigation as discussed in Financial Note 19 to the consolidated financial statements), appearing in this Annual Report on Form 10-K of McKesson Corporation, Inc., for the year ended March 31, 2002. DELOITTE & TOUCHE LLP San Francisco, California June 11, 2002 EX-24 15 f82011exv24.txt EXHIBIT 24 10-K EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS THAT the undersigned directors and officers of McKesson Corporation, a Delaware corporation (the "Company"), do hereby constitute and appoint Ivan D. Meyerson and Kristina Veaco his or her true and lawful attorney and agent, each with full power and authority (acting alone and without the other) to execute in the name and on behalf of the undersigned as such Director and/or Officer, under the Securities Act of 1934, as amended, an annual report on Form 10-K, and thereafter to execute and file any and all amendments to such Form, whether filed prior or subsequent to the time such Form becomes effective. The undersigned hereby grants unto such attorneys and agents, and each of them, full power of substitution and revocation in the premises and hereby ratifies and confirms all that such attorneys and agents may do or cause to be done by virtue of these presents. /s/ Alfred C. Eckert III /s/ Gerald E. Mayo - ---------------------------------------- ----------------------------- Alfred C. Eckert III, Director Gerald E. Mayo, Director /s/ Tully M. Friedman /s/ James V. Napier - ---------------------------------------- ----------------------------- Tully M. Friedman, Director James V. Napier, Director /s/ William R. Graber /s/ Carl E. Reichardt - ---------------------------------------- ----------------------------- William R. Graber, Senior Vice President Carl E. Reichardt, Director and Chief Financial Officer /s/ John H. Hammergren /s/ Alan Seelenfreund - ---------------------------------------- ----------------------------- John H. Hammergren, President and Alan Seelenfreund Chief Executive Officer and Director Chairman of the Board /s/ Alton F. Irby /s/ Jane E. Shaw - ---------------------------------------- ----------------------------- Alton F. Irby III, Director Jane E. Shaw, Director /s/ M. Christine Jacobs /s/ R.F. Syron - ---------------------------------------- ----------------------------- M. Christine Jacobs, Director Richard F. Syron, Director /s/ Marie L. Knowles /s/ Nigel A. Rees - ---------------------------------------- ----------------------------- Marie L. Knowles, Director Nigel A. Rees Vice President and Controller /s/ Martin M. Koffel Martin M. Koffel, Director Dated: May 29, 2002 -----END PRIVACY-ENHANCED MESSAGE-----

EX-3.2

                                                                     Exhibit 3.2






                                   AMENDED AND

                                    RESTATED

                                     BY-LAWS

                                       OF

                              MCKESSON CORPORATION

                             A DELAWARE CORPORATION





















                        AS AMENDED THROUGH MARCH 27, 2002



================================================================================




                                TABLE OF CONTENTS





                                                                                     Page
                                                                                     ----
                                                                                  
ARTICLE I                Offices........................................................1
        Section 1        Registered Office..............................................1
        Section 2        Other Offices..................................................1

ARTICLE II               Stockholders' Meetings.........................................1
        Section 1        Place of Meetings..............................................1
        Section 2        Annual Meetings................................................1
        Section 3        Special Meetings...............................................1
        Section 4        Notice of Meetings.............................................2
        Section 5        Quorum.........................................................2
        Section 6        Voting Rights..................................................3
        Section 7        Voting Procedures and Inspectors of Elections..................3
        Section 8        List of Stockholders...........................................4
        Section 9        Stockholder Proposals at Annual Meetings.......................4
        Section 10       Nominations of Persons for Election
                           to the Board of Directors....................................5

ARTICLE III              Directors......................................................6
        Section 1        General Powers.................................................6
        Section 2        Number and Term of Office; Removal.............................6
        Section 3        Election of Directors..........................................7
        Section 4        Vacancies......................................................7
        Section 5        Resignations...................................................7
        Section 6        Annual Meetings................................................7
        Section 7        Regular Meetings...............................................7
        Section 8        Special Meetings; Notice.......................................7
        Section 9        Quorum and Manner of Acting....................................8
        Section 10       Consent in Writing.............................................8
        Section 11       Committees.....................................................8
        Section 12       Telephone Meetings.............................................9
        Section 13       Compensation...................................................9
        Section 14       Interested Directors...........................................9
        Section 15       Directors Elected by Special Class or Series..................10

ARTICLE IV               Officers......................................................10
        Section 1        Designation of Officers.......................................10
        Section 2        Term of Office; Resignation; Removal..........................10
        Section 3        Vacancies.....................................................10
        Section 4        Authority of Officers.........................................10
        Section 5        Divisional Titles.............................................11
        Section 6        Salaries......................................................11

ARTICLE V            Execution of Corporate Instruments and Voting
                           of Securities Owned by the Corporation......................11
        Section 1        Execution of Instruments......................................11
        Section 2        Voting of Securities Owned by the Corporation.................11





                                        i




                                                                                    
ARTICLE VI               Shares of Stock and Other Securities..........................11
        Section 1        Form and Execution of Certificates............................11
        Section 2        Lost Certificates.............................................12
        Section 3        Transfers.....................................................12
        Section 4        Fixing Record Dates...........................................12
        Section 5        Registered Stockholders.......................................12
        Section 6        Regulations...................................................12
        Section 7        Other Securities of the Corporation...........................13

ARTICLE VII              Corporate Seal................................................13

ARTICLE VIII             Indemnification of Officers, Directors, Employees
                           and Agents..................................................13
        Section 1        Power to Indemnify in Actions, Suits or Proceedings other
                            Than Those by or in the Right of the Corporation...........13
        Section 2        Power to Indemnify in Actions, Suits or Proceedings by
                           or in the Right of the Corporation .........................14
        Section 3        Authorization of Indemnification .............................14
        Section 4        Good Faith Defined ...........................................14
        Section 5        Indemnification by a Court ...................................14
        Section 6        Expenses Payable in Advance ..................................15
        Section 7        Nonexclusivity of Indemnification and Advancement
                           of Expenses ................................................15
        Section 8        Insurance.....................................................15
        Section 9        Certain Definitions...........................................15
        Section 10       Survival of Indemnification and Advancement of Expenses ......16
        Section 11       Limitation on Indemnification ................................16
        Section 12       Indemnification of Employees and Agents.......................16
        Section 13       Effect of Amendment ..........................................16
        Section 14       Authority to Enter into Indemnification Agreements ...........16

ARTICLE IX               Notices.......................................................16

ARTICLE X                Amendments....................................................17






                                       ii




                                   AMENDED AND

                                    RESTATED

                                     BY-LAWS

                                       OF

                              MCKESSON CORPORATION

                             A DELAWARE CORPORATION




                                    ARTICLE I

                                     OFFICES

SECTION 1. REGISTERED OFFICE. The address of the registered office of
Corporation within the State of Delaware is 2711 Centerville Road, City of
Wilmington, 19808, County of New Castle. The name of the registered agent of the
Corporation at such address is The Prentice-Hall Corporation System, Inc.

SECTION 2. OTHER OFFICES. The Corporation shall also have and maintain an office
or principal place of business at One Post Street, San Francisco, California and
may also have offices at such other places, both within and without the State of
Delaware, as the Board of Directors may from time to time determine or the
business of the Corporation may require.


                                   ARTICLE II

                             STOCKHOLDERS' MEETINGS

SECTION 1. PLACE OF MEETINGS. Meetings of the stockholders of the Corporation
shall be held at such place, either within or without the State of Delaware, as
may be designated from time to time by the Board of Directors, or, if not so
designated, then at the office of the Corporation required to be maintained
pursuant to Section 2 of ARTICLE I hereof.

SECTION 2. ANNUAL MEETINGS. The annual meetings of stockholders of the
Corporation for the purpose of election of directors and for such other business
as may lawfully come before it, shall be held on such date and at such time as
may be designated from time to time by the Board of Directors, or, if not so
designated, then at 10:00 a.m. on the last Wednesday in July in each year if not
a legal holiday, and, if a legal holiday, at the same hour and place on the next
succeeding day not a holiday.

SECTION 3. SPECIAL MEETINGS. Special Meetings of the stockholders of the
Corporation may be called, for any purpose or purposes, by the Chairman of the
Board or the President or the Board of Directors at any time. Stockholders may
not call Special Meetings of the stockholders of the Corporation.




                                       1


SECTION 4. NOTICE OF MEETINGS.

(a) Except as otherwise provided by law or the Certificate of Incorporation,
written notice of each meeting of stockholders, specifying the place, date and
hour and purpose or purposes of the meeting, shall be given not less than 10 nor
more than 60 days before the date of the meeting to each stockholder entitled to
vote thereat, directed to his address as it appears upon the books of the
Corporation; except that where the matter to be acted on is a merger or
consolidation of the Corporation or a sale, lease or exchange of all or
substantially all of its assets, such notice shall be given not less than 20 nor
more than 60 days prior to such meeting.

(b) If at any meeting action is proposed to be taken which, if taken, would
entitle stockholders fulfilling the requirements of Section 262(d) of the
Delaware General Corporation Law to an appraisal of the fair value of their
shares, the notice of such meeting shall contain a statement of that purpose and
to that effect and shall be accompanied by a copy of that statutory section.

(c) When a meeting is adjourned to another time or place, notice need not be
given of the adjourned meeting if the time and place thereof are announced at
the meeting at which the adjournment is taken unless the adjournment is for more
than thirty days, or unless after the adjournment a new record date is fixed for
the adjourned meeting, in which event a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.

(d) Notice of the time, place and purpose of any meeting of stockholders may be
waived in writing, either before or after such meeting, and to the extent
permitted by law, will be waived by any stockholder by his attendance thereat,
in person or by proxy. Any stockholder so waiving notice of such meeting shall
be bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given.

(e) Unless and until voted, every proxy shall be revocable at the pleasure of
the person who executed it or of his legal representatives or assigns, except in
those cases where an irrevocable proxy permitted by statute has been given.

SECTION 5. QUORUM. At all meetings of stockholders, except where otherwise
provided by law, the Certificate of Incorporation, or these By-Laws, the
presence, in person or by proxy duly authorized, of the holders of a majority of
the outstanding shares of stock entitled to vote shall constitute a quorum for
the transaction of business. Shares, the voting of which at said meeting has
been enjoined, or which for any reason cannot be lawfully voted at such meeting,
shall not be counted to determine a quorum at said meeting.

In the absence of a quorum any meeting of stockholders may be adjourned, from
time to time, by vote of the holders of a majority of the shares represented
thereat, but no other business shall be transacted at such meeting. At such
adjourned meeting at which a quorum is present or represented any business may
be transacted which might have been transacted at the original meeting. The
stockholders present at a duly called or convened meeting, at which a quorum is
present, may continue to transact business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum. Except as
otherwise provided by law, the Certificate of Incorporation or these By-Laws,
all action taken by the holders of a majority of the voting power represented at
any meeting at which a quorum is present shall be valid and binding upon the
Corporation.

In the event that at any meeting at which the holders of more than one class or
series of the Corporation's capital stock are entitled to vote as a class, a
quorum of any such class or series is lacking, the holders of any class or
series represented by a quorum may proceed with the transaction of the business
to be




                                       2


transacted by that class or series, and if such business is the election of
directors, the director whose successors shall not have been elected shall
continue in office until their successors shall have been duly elected and shall
have qualified.

SECTION 6.  VOTING RIGHTS.

(a) Except as otherwise provided by law, only persons in whose names shares
entitled to vote stand on the stock records of the Corporation on the record
date for determining the stockholders entitled to vote at said meeting shall be
entitled to vote at such meeting. Shares standing in the names of two or more
persons shall be voted or represented in accordance with the determination of
the majority of such persons, or, if only one of such persons is present in
person or represented by proxy, such person shall have the right to vote such
shares and such shares shall be deemed to be represented for the purpose of
determining a quorum.

(b) Every person entitled to vote or execute consents shall have the right to do
so either in person or by an agent or agents authorized by a written proxy
executed by such person or his duly authorized agent, which proxy shall be filed
with the Secretary of the Corporation at or before the meeting at which it is to
be used. Said proxy so appointed need not be a stockholder. No proxy shall be
voted on after three years from its date unless the proxy provides for a longer
period.

(c) Without limiting the manner in which a stockholder may authorize another
person or persons to act for him as proxy pursuant to subsection (b) of this
Section, the following shall constitute a valid means by which a stockholder may
grant such authority:

     (1) A stockholder may execute a writing authorizing another person or
     persons to act for him as proxy. Execution may be accomplished by the
     stockholder or his authorized officer, director, employee or agent signing
     such writing or causing his or her signature to be affixed to such writing
     by any reasonable means including, but not limited to, by facsimile
     signature.

     (2) A stockholder may authorize another person or persons to act for him as
     proxy by transmitting or authorizing the transmission of a telegram,
     cablegram, or other means of electronic transmission to the person who will
     be the holder of the proxy or to a proxy solicitation firm, proxy support
     service organization or like agent duly authorized by the person who will
     be the holder of the proxy to receive such transmission, provided that any
     such telegram, cablegram or other means of electronic transmission must
     either set forth or be submitted with information from which it can be
     determined that the telegram, cablegram or other electronic transmission
     was authorized by the stockholder. If it is determined that such telegrams,
     cablegrams or other electronic transmissions are valid, the inspectors or,
     if there are no inspectors, such other persons making that determination
     shall specify the information upon which they relied.

(d) Any copy, facsimile telecommunication or other reliable reproduction of the
writing or transmission created pursuant to subsection (c) of this Section may
be substituted or used in lieu of the original writing or transmission for any
and all purposes for which the original writing or transmission could be used,
provided that such copy, facsimile telecommunication or other reproduction shall
be a complete reproduction of the entire original writing or transmission.

SECTION 7.  VOTING PROCEDURES AND INSPECTORS OF ELECTIONS.

(a) The Corporation shall, in advance of any meeting of stockholders, appoint
one or more inspectors to act at the meeting and make a written report thereof.
The Corporation may designate one or more persons as alternate inspectors to
replace any inspector who fails to act. If no inspector or alternate is




                                       3


able to act at a meeting of stockholders, the person presiding at the meeting
shall appoint one or more inspectors to act at the meeting. Each inspector,
before entering upon the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of inspector with strict impartiality and
according to the best of his ability.

(b) The inspectors shall (i) ascertain the number of shares outstanding and the
voting power of each, (ii) determine the shares represented at a meeting and the
validity of proxies and ballots, (iii) count all votes and ballots, (iv)
determine and retain for a reasonable period a record of the disposition of any
challenges made to any determination by the inspectors, and (v) certify their
determination of the number of shares represented at the meeting, and their
count of all votes and ballots. The inspectors may appoint or retain other
persons or entities to assist the inspectors in the performance of the duties of
the inspectors.

(c) The date and time of the opening and the closing of the polls for each
matter upon which the stockholders will vote at a meeting shall be announced at
the meeting. No ballot, proxies or votes, nor any revocations thereof or changes
thereto, shall be accepted by the inspectors after the closing of the polls
unless the Court of Chancery upon application by a stockholder shall determine
otherwise.

(d) In determining the validity and counting of proxies and ballots, the
inspectors shall be limited to an examination of the proxies, any envelopes
submitted with those proxies, any information provided in accordance with
Section 212(c)(2) of the Delaware General Corporation Law, ballots and the
regular books and records of the Corporation, except that the inspectors may
consider other reliable information for the limited purpose of reconciling
proxies and ballots submitted by or on behalf of banks, brokers, their nominees
or similar persons which represent more votes than the holder of a proxy is
authorized by the record owner to cast or more votes than the stockholder holds
of record. If the inspectors consider other reliable information for the limited
purpose permitted herein, the inspectors at the time they make their
certification pursuant to subsection (b)(v) of this Section shall specify the
precise information considered by them including the person or persons from whom
they obtained the information, when the information was obtained, the means by
which the information was obtained and the basis for the inspectors' belief that
such information is accurate and reliable.

(e) The provisions of this Section 7 shall not apply to any annual meeting of
stockholders held prior to the annual meeting of stockholders to be held in
1995.

SECTION 8. LIST OF STOCKHOLDERS. The officer who has charge of the stock ledger
of the Corporation shall prepare and make, at least 10 days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at said
meeting, arranged in alphabetical order, showing the address of and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least 10 days prior to the
meeting, either at a place within the city where the meeting is to be held and
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where said meeting is to be held, and the list shall be
produced and kept at the time and place of meeting during the whole time
thereof, and may be inspected by any stockholder who is present.

SECTION 9. STOCKHOLDER PROPOSALS AT ANNUAL MEETINGS. At an annual meeting of the
stockholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an annual meeting,
business must be specified in the notice of meeting (or any supplement thereto)
given by or at the direction of the Board of Directors, otherwise properly
brought before the meeting by or at the direction of the Board of Directors or
otherwise properly




                                       4


brought before the meeting by a stockholder of the Corporation (i) who is a
stockholder of record on the date of the giving of the notice provided for in
this Section 9 and on the record date for the determination of stockholders
entitled to vote at such annual meeting and (ii) who complies with the notice
procedures set forth in this Section 9. In addition to any other applicable
requirements, for business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the Secretary of the Corporation. To be timely, a stockholder's notice to the
Secretary must be delivered to or mailed and received at the principal executive
offices of the Corporation, not less than 90 days nor more than 120 days prior
to the anniversary date of the immediately preceding annual meeting of
stockholders; provided, however, that in the event that the annual meeting is
called for a date that is not within 30 days before or after such anniversary
date, notice by the stockholder in order to be timely must be so received not
later than the close of business on the 10th day following the day on which such
notice of the date of the annual meeting was mailed or such public disclosure of
the date of the annual meeting was made, whichever first occurs. A stockholder's
notice to the Secretary shall set forth as to each matter the stockholder
proposes to bring before the annual meeting, (i) a brief description of the
business desired to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting, (ii) the name and record address
of the stockholder proposing such business, (iii) the class or series and number
of shares of capital stock of the Corporation which are owned beneficially or of
record by the stockholder, (iv) a description of all arrangements or
understandings between the stockholder and any other person or persons
(including their names) in connection with the proposal of such business by the
stockholder and any material interest of the stockholder in such business, and
(v) a representation that the stockholder intends to appear in person or by
proxy at the annual meeting to bring such business before the meeting.

Notwithstanding anything in the By-Laws to the contrary, no business shall be
conducted at the annual meeting except in accordance with the procedures set
forth in this Section 9, provided, however, that nothing in this Section 9 shall
be deemed to preclude discussion by any stockholder of any business properly
brought before the annual meeting in accordance with said procedure.

The Chairman of an annual meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 9, and if he should so
determine, he shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted.

SECTION 10. NOMINATIONS OF PERSONS FOR ELECTION TO THE BOARD OF DIRECTORS. In
addition to any other applicable requirements, only persons who are nominated in
accordance with the following procedures shall be eligible for election as
directors. Nominations of persons for election to the Board of Directors of the
Corporation may be made at a meeting of stockholders by or at the direction of
the Board of Directors, by any nominating committee or person appointed by the
Board of Directors or by any stockholder of the Corporation (i) who is a
stockholder of record on the date of the giving of the notice provided for in
this Section 10 and on the record date for the determination of stockholders
entitled to vote at such annual meeting and (ii) who complies with the notice
procedures set forth in this Section 10. Such nominations, other than those made
by or at the direction of the Board of Directors, shall be made pursuant to
timely notice in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice to the Secretary must be delivered to or mailed and
received at the principal executive offices of the Corporation not less than 90
days nor more than 120 days prior to the anniversary date of the immediately
preceding annual meeting of stockholders; provided, however, that in the event
that the annual meeting is called for a date that is not within 30 days before
or after such anniversary date, notice by the stockholder in order to be timely
must be so received not later than the close of business on the 10th day
following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure of the date of the annual meeting was made,
whichever first occurs. Such stockholder's notice shall set forth (a)




                                       5


as to each person whom the stockholder proposes to nominate for election or
re-election as a director, (i) the name, age, business address and residence
address of the person, (ii) the principal occupation or employment of the
person, (iii) the class and number of shares of the Corporation which are
beneficially owned by the person and (iv) any other information relating to the
person that is required to be disclosed in solicitations for proxies for
election of directors pursuant to Section 14 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and the rules and regulations promulgated
thereunder; and (b) as to the stockholder giving the notice, (i) the name and
record address of the stockholder, (ii) the class or series and number of shares
of capital stock of the Corporation which are owned beneficially or of record by
the stockholder, (iii) a description of all arrangements or understandings
between the stockholder and each proposed nominee and any other person or
persons (including their names) pursuant to which the nomination(s) are to be
made by the stockholder, (iv) a representation that such stockholder intends to
appear in person or by proxy at the meeting to nominate the persons named in
such notice and (v) any other information relating to the stockholder that would
be required to be disclosed in a proxy statement or other filings required to be
made in connection with solicitations of proxies for the election of directors
pursuant to Section 14 of the Exchange Act and the rules and regulations
promulgated thereunder. Such notice must be accompanied by a written consent of
each proposed nominee being named as a nominee and to serve as a director if
elected. The Corporation may require any proposed nominee to furnish such other
information as may reasonably be required by the Corporation to determine the
eligibility of such proposed nominee to serve as a director of the Corporation.
No person shall be eligible for election as a director of the Corporation unless
nominated in accordance with the procedures set forth herein. These provisions
shall not apply to nomination of any persons entitled to be separately elected
by holders of preferred stock.

The Chairman of the meeting shall, if the facts warrant, determine and declare
to the meeting that a nomination was not made in accordance with the foregoing
procedure, and if he should so determine, he shall so declare to the meeting and
the defective nomination shall be disregarded.


                                   ARTICLE III

                                    DIRECTORS

SECTION 1. GENERAL POWERS. The property, affairs and business of the Corporation
shall be managed under the direction of its Board of Directors, which may
exercise all of the powers of the Corporation, except such as are by law or by
the Certificate of Incorporation or by these By-Laws expressly conferred upon or
reserved to the stockholders.

SECTION 2. NUMBER AND TERM OF OFFICE; REMOVAL. The number of directors of the
Corporation shall be fixed from time to time by these By-Laws but in no event
shall be less than three (3). Until these By-Laws are further amended, the
number of directors shall be thirteen (13). The directors shall be divided into
three classes. Each such class shall consist, as nearly as may be possible, of
one-third of the total number of directors, and any remaining directors shall be
included within such group or groups as the Board of Directors shall designate.
At the initial annual meeting of stockholders in 1994, a class of directors
shall be elected for a one-year term, a class of directors for a two-year term
and a class of directors for a three-year term. At each succeeding annual
meeting of stockholders, beginning in 1995, successors to the class of directors
whose term expires at that annual meeting shall be elected for a three-year
term. If the number of directors is changed, any increase or decrease shall be
apportioned among the classes so as to maintain the number of directors in each
class as nearly equal as possible, but in no case shall a decrease in the number
of directors shorten the term of any incumbent director. A director may be
removed from office for cause only and, subject to such removal, death,
resignation,




                                       6


retirement or disqualification, shall hold office until the annual meeting for
the year in which his term expires and until his successor shall be elected and
qualify. No alteration, amendment or repeal of these By-Laws shall be effective
to shorten the term of any director holding office at the time of such
alteration, amendment or repeal, to permit any such director to be removed
without cause, or to increase the number of directors in any class or in the
aggregate from that existing at the time of such alteration, amendment or repeal
until the expiration of the terms of office of all directors then holding
office, unless such alteration, amendment or repeal has been approved by either
the holders of all shares of stock entitled to vote thereon or by a vote of a
majority of the entire Board of Directors. The provisions of this Section 2
shall not apply to directors governed by Section 15 of this ARTICLE III.

SECTION 3. ELECTION OF DIRECTORS. At each meeting of the stockholders for the
election of directors, the directors to be elected at such meeting shall be
elected by a plurality of votes given at such election.

SECTION 4. VACANCIES. Any vacancy occurring in the Board of Directors for any
cause other than by reason of an increase in the number of directors may be
filled by a majority of the remaining members of the Board of Directors,
although such majority is less than a quorum, or by the stockholders. Any
vacancy occurring by reason of an increase in the number of directors may be
filled by action of a majority of the entire Board of Directors or by the
stockholders. A director elected by the Board of Directors to fill a vacancy
shall be elected to hold office until the expiration of the term for which he
was elected and until his successor shall have been elected and shall have
qualified. A director elected by the stockholders to fill a vacancy shall be
elected to hold office until the expiration of the term for which he was elected
and until his successor shall have been elected and shall have qualified. The
provisions of this Section 4 shall not apply to directors governed by Section 15
of this ARTICLE III.

SECTION 5. RESIGNATIONS. A director may resign at any time by giving written
notice to the Board of Directors or to the Secretary. Such resignation shall
take effect at the time specified therein and, unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective.

SECTION 6. ANNUAL MEETINGS. The Board of Directors, as constituted following the
vote of stockholders at any meeting of the stockholders for the election of
directors, may hold its first meeting for the purpose of organization and the
transaction of business, if a quorum be present, immediately after such meeting
and at the same place, and notice of such meeting need not be given. Such first
meeting may be held at any other time and place specified in a notice given as
hereinafter provided for special meetings of the Board of Directors or in a
consent and waiver of notice thereof signed by all the directors.

SECTION 7. REGULAR MEETINGS. Regular meetings of the Board of Directors may be
held without notice at such places and times as may be fixed from time to time
by resolution of the Board.

SECTION 8. SPECIAL MEETINGS; NOTICE. Special meetings of the Board of Directors
may be called at any time by the Chairman of the Board or the President and
shall be called by the Secretary upon the written request of any three directors
and each special meeting shall be held at such place and time as shall be
specified in the notice thereof. At least twenty-four (24) hours' notice of each
such special meeting shall be given to each director personally or sent to him
addressed to his residence or usual place




                                       7


of business by telephone, telegram or facsimile transmission, or at least 120
hours' notice of each such special meeting shall be given to each director by
letter sent to him addressed as aforesaid or on such shorter notice and by such
means as the person or persons calling such meeting may deem reasonably
necessary or appropriate in light of the circumstances. Any notice by letter or
telegram shall be deemed to be given when deposited in the United States mail so
addressed or when duly deposited at an appropriate office for transmission by
telegram, as the case may be. Such notice need not state the business to be
transacted at or the purpose or purposes of such special meeting. No notice of
any such special meeting of the Board of Directors need be given to any director
who attends in person or who, in writing executed and filed with the records of
the meeting, either before or after the holding thereof, waives such notice. No
notice need be given of an adjourned meeting of the Board of Directors.

SECTION 9. QUORUM AND MANNER OF ACTING. A majority of the total number of
directors, but in no event less than two directors, shall constitute a quorum
for the transaction of business at any annual, regular or special meeting of the
Board of Directors. Except as otherwise provided by law, by the Certificate of
Incorporation or by these By-Laws, the act of a majority of the directors
present at any meeting, at which a quorum is present, shall be the act of the
Board of Directors. In the absence of a quorum, a majority of the directors
present may adjourn the meeting from time to time until a quorum be had.

SECTION 10. CONSENT IN WRITING. Any action required or permitted to be taken at
any meeting of the Board of Directors or any committee thereof may be taken
without a meeting, if a written consent to such action is signed by all members
of the Board or of such committee, as the case may be, and such written consent
is filed with the minutes of proceedings of the Board or such committee.

SECTION 11. COMMITTEES.

(a) Executive Committee. The Board of Directors may, by resolution passed by a
majority of a quorum of the Board, appoint an Executive Committee of not less
than three members, each of whom shall be a director. The Executive Committee,
to the extent permitted by law, shall have and may exercise when the Board of
Directors is not in session all powers of the Board in the management of the
business and affairs of the Corporation, including, without limitation, the
power and authority to declare a dividend or to authorize the issuance of stock,
except such Committee shall not have the power or authority (i) to approve,
adopt, or recommend to stockholders any action or matter required by the
Delaware General Corporation Law to be submitted for stockholder approval; or
(ii) to adopt, amend, or repeal any By-Law of the Corporation.

(b) Other Committees. The Board of Directors may, by resolution passed by a
majority of a quorum of the Board, from time to time appoint such other
committees as may be permitted by law. Such other committees appointed by the
Board of Directors shall have such powers and perform such duties as may be
prescribed by the resolution or resolutions creating such committee, but in no
event shall any such committee have the powers denied to the Executive Committee
in these By-Laws.

(c) Term. The members of all committees of the Board of Directors shall serve a
term coexistent with that of the Board of Directors which shall have appointed
such committee. The Board, subject to the provisions of subsections (a) or (b)
of this Section 11, may at any time increase or decrease the number of members
of a committee or terminate the existence of a committee; provided, that no
committee shall consist of less than one member. The membership of a committee
member shall terminate on the date of his death or voluntary resignation, but
the Board may at any time for any reason remove any individual




                                       8


committee member and the Board may fill any committee vacancy created by death,
resignation, removal or increase in the number of members of the committee. The
Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of the committee, and, in addition, in the absence or disqualification of any
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.

(d) Meetings. Unless the Board of Directors shall otherwise provide, regular
meetings of the Executive Committee or any other committee appointed pursuant to
this Section 11 shall be held at such times and places as are determined by the
Board of Directors, or by any such committee, and when notice thereof has been
given to each member of such committee, no further notice of such regular
meetings need be given thereafter; special meetings of any such committee may be
held at the principal office of the Corporation required to be maintained
pursuant to Section 2 of ARTICLE I hereof; or at any place which has been
designated from time to time by resolution of such committee or by written
consent of all members thereof, and may be called by any director who is a
member of such committee, upon written notice to the members of such committee
of the time and place of such special meeting given in the manner provided for
the giving of written notice to members of the Board of Directors of the time
and place of special meetings of the Board of Directors. Notice of any special
meeting of any committee may be waived in writing at any time after the meeting
and will be waived by any director by attendance thereat. A majority of the
authorized number of members of any such committee shall constitute a quorum for
the transaction of business, and the act of a majority of those present at any
meeting at which a quorum is present shall be the act of such committee.

SECTION 12. TELEPHONE MEETINGS. The Board of Directors or any committee thereof
may participate in a meeting by means of a conference telephone or similar
communications equipment if all members of the Board or of such committee, as
the case may be, participating in the meeting can hear each other at the same
time. Participation in a meeting by these means shall constitute presence in
person at the meeting.

SECTION 13. COMPENSATION. The directors may be paid their expenses, if any, of
attendance at each meeting of the Board of Directors and may be paid a fixed sum
for attendance at each meeting of the Board of Directors and/or a stated salary
as director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.

SECTION 14. INTERESTED DIRECTORS. No contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose if (i) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or committee, and the Board of Directors or
committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (ii) the material facts as to
his or their relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (iii) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof or the stockholders. Common or interested
directors may be counted in determining the presence of a quorum at a meeting of
the Board of Directors or of a committee which authorizes the contract or
transaction.




                                       9


SECTION 15. DIRECTORS ELECTED BY SPECIAL CLASS OR SERIES. To the extent that any
holders of any class or series of stock other than Common Stock issued by the
Corporation shall have the separate right, voting as a class or series, to elect
directors, the directors elected by such class or series shall be deemed to
constitute an additional class of directors and shall have a term of office for
one year or such other period as may be designated by the provisions of such
class or series providing such separate voting right to the holders of such
class or series of stock, and any such class of directors shall be in addition
to the classes referred to in Section 2 of this ARTICLE III. Any directors so
elected shall be subject to removal in such manner as may be provided by law or
by the Certificate of Incorporation of this Corporation. The provisions of
Sections 2 and 4 of this ARTICLE III do not apply to directors governed by this
Section 15.


                                   ARTICLE IV

                                    OFFICERS

SECTION 1. DESIGNATION OF OFFICERS. The officers of the Corporation, who shall
be chosen by the Board of Directors at its first meeting after each annual
meeting of stockholders, shall be a Chairman of the Board, a President, one or
more Vice Presidents, a Treasurer, a Secretary and a Controller. The Board of
Directors from time to time may choose such other officers as it shall deem
appropriate. Any one person may hold any number of offices of the Corporation at
any one time unless specifically prohibited therefrom by law. The Chairman of
the Board and the President shall be chosen from among the directors; the other
officers need not be directors.

SECTION 2. TERM OF OFFICE; RESIGNATION; REMOVAL. The term of office of each
officer shall be until the first meeting of the Board of Directors following the
next annual meeting of stockholders and until his successor is elected and shall
have qualified, or until his death, resignation or removal, whichever is sooner.
Any officer may resign at any time by giving written notice to the Board of
Directors or to the Secretary. Such resignation shall take effect at the time
specified therein and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective. Any officer may be
removed at any time either with or without cause by the Board of Directors.

SECTION 3. VACANCIES. A vacancy in any office because of death, resignation,
removal, disqualification or any other cause, may be filled for the unexpired
portion of the term by the Board of Directors.

SECTION 4. AUTHORITY OF OFFICERS. Subject to the power of the Board of Directors
in its discretion to change and redefine the duties of the officers of the
Corporation by resolution in such manner as it may from time to time determine,
the duties of the officers of the Corporation shall be as follows:

(a) Chairman of the Board. The Chairman of the Board shall preside at meetings
of the stockholders and the Board of Directors. Subject to the direction of the
Board of Directors, he shall generally manage the affairs of the Board and
perform such other duties as are assigned by the Board.

(b) President. The President shall be the Chief Executive Officer of the
Corporation, and shall execute all the powers and perform all the duties usual
to such office. Subject to the direction of the Board of Directors, he shall
have the responsibility for the general management of the affairs of the
Corporation. The President shall perform such other duties as may be prescribed
or assigned to him from time to time by the Board of Directors.




                                       10


(c) Other Officers. The other officers of the Corporation shall have such powers
and shall perform such duties as generally pertain to their respective offices,
as well as such powers and duties as the Board of Directors, the Executive
Committee or the Chief Executive Officer may prescribe.

SECTION 5. DIVISIONAL TITLES. Any one of the Chief Executive Officer, President,
or Vice President Human Resources and Administration (each one an "Appointing
Person"), may from time to time confer upon any employee of a division of the
Corporation the title of President, Vice President, Treasurer or Secretary of
such division or any other divisional title or titles deemed appropriate. Any
such titles so conferred may be discontinued and withdrawn at any time by any
one Appointing Person. Any employee of a division designated by such a
divisional title shall have the powers and duties with respect to such division
as shall be prescribed by the Appointing Person. The conferring, withdrawal or
discontinuance of divisional titles shall be in writing and shall be filed with
the Secretary of the Corporation.

SECTION 6. SALARIES. The salaries and other compensation of the principal
officers of the Corporation shall be fixed from time to time by the Board of
Directors.


                                    ARTICLE V

                       EXECUTION OF CORPORATE INSTRUMENTS
                AND VOTING OF SECURITIES OWNED BY THE CORPORATION

SECTION 1. EXECUTION OF INSTRUMENTS. The Board of Directors may in its
discretion determine the method and designate the signatory officer or officers
or other person or persons, to execute any corporate instrument or document, or
to sign the corporate name without limitation, except where otherwise provided
by law, and such execution or signature shall be binding upon the Corporation.
All checks and drafts drawn on banks or other depositories on funds to the
credit of the Corporation or in special accounts of the Corporation, shall be
signed by such person or persons as the Treasurer or such other person
designated by the Board of Directors for that purpose shall authorize so to do.

SECTION 2. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock and other
securities of other corporations and business entities owned or held by the
Corporation for itself, or for other parties in any capacity, shall be voted,
and all proxies with respect thereto shall be executed, by the person authorized
to do so by resolution of the Board of Directors.


                                   ARTICLE VI

                      SHARES OF STOCK AND OTHER SECURITIES

SECTION 1. FORM AND EXECUTION OF CERTIFICATES. Certificates for the shares of
stock of the Corporation shall be in such form as is consistent with the
Certificate of Incorporation and applicable law. Every holder of stock in the
Corporation shall be entitled to have a certificate signed by, or in the name of
the Corporation by, the Chairman of the Board (if there be such an officer
appointed), or by the President or any Vice President and by the Treasurer or
Assistant Treasurer or the Secretary or Assistant Secretary, certifying the
number of shares owned by him in the Corporation. Any or all of the signatures
on the certificate may be a facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent, or registrar
before such certificate is issued, it may be issued with the same effect as if
he were such




                                       11


officer, transfer agent, or registrar at the date of issue. If the Corporation
shall be authorized to issue more than one class of stock or more than one
series of any class, the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights shall be set forth in full or summarized on the face or back of
the certificate which the Corporation shall issue to represent such class or
series of stock, provided that, except as otherwise provided in Section 202 of
the General Corporation Law of Delaware, in lieu of the foregoing requirements,
there may be set forth on the face or back of the certificate which the
Corporation shall issue to represent such class or series of stock, a statement
that the Corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.

SECTION 2. LOST CERTIFICATES. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost or destroyed. When authorizing such issue of
a new certificate or certificates, the Board of Directors may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost or destroyed certificate or certificates, or his legal representative, to
indemnify the Corporation in such manner as it shall require and/or to give the
Corporation a surety bond in such form and amount as it may direct as indemnity
against any claim that may be made against the Corporation with respect to the
certificate alleged to have been lost or destroyed.

SECTION 3. TRANSFERS. Transfers of record of shares of stock of the Corporation
shall be made only upon its books by the holders thereof, in person or by
attorney duly authorized, and upon the surrender of a certificate or
certificates for a like number of shares, properly endorsed.

SECTION 4. FIXING RECORD DATES. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than 60 nor less than 10 days before the date of such
meeting, nor more than 60 days prior to any other action. If no record date is
fixed: (1) the record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held; (2) the record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors is necessary, shall be the day on which the first
written consent is expressed; (3) the record date for determining stockholders
for any other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.

SECTION 5. REGISTERED STOCKHOLDERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of Delaware.

SECTION 6. REGULATIONS. The Board of Directors may make such rules and
regulations as it may deem expedient concerning the issue, transfer and
registration of certificates for shares of the stock and




                                       12


other securities of the Corporation, and may appoint transfer agents and
registrars of any class of stock or other securities of the Corporation.

SECTION 7. OTHER SECURITIES OF THE CORPORATION. All bonds, debentures and other
corporate securities of the Corporation, other than stock certificates, may be
signed by the Chairman of the Board (if there be such an officer appointed), or
the President or any Vice President or such other person as may be authorized by
the Board of Directors and the corporate seal impressed thereon or a facsimile
of such seal imprinted thereon and attested by the signature of the Secretary or
an Assistant Secretary, or the Treasurer or an Assistant Treasurer; provided,
however, that where any such bond, debenture or other corporate security shall
be authenticated by the manual signature of a trustee under an indenture
pursuant to which such bond, debenture or other corporate security shall be
issued, the signature of the persons signing and attesting the corporate seal on
such bond, debenture or other corporate security may be the imprinted facsimile
of the signatures of such persons. Interest coupons appertaining to any such
bond, debenture or other corporate security, authenticated by a trustee as
aforesaid, shall be signed by the Treasurer or an Assistant Treasurer of the
Corporation, or such other person as may be authorized by the Board of
Directors, or bear imprinted thereon the facsimile signature of such person. In
case any officer who shall have signed or attested any bond, debenture or other
corporate security or whose facsimile signature shall appear thereon shall have
ceased to be such officer before the bond, debenture or other corporate security
so signed or attested shall have been delivered, such bond, debenture or other
corporate security nevertheless may be adopted by the Corporation and issued and
delivered as though the person who signed the same or whose facsimile signature
shall have been used thereon had not ceased to be such officer of the
Corporation.


                                   ARTICLE VII

                                 CORPORATE SEAL

        The corporate seal shall consist of a die bearing the name of the
Corporation and the state and date of its incorporation. Said seal may be used
by causing it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.


                                  ARTICLE VIII

          INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS

SECTION 1. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS OTHER THAN THOSE
BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of this ARTICLE
VIII, the Corporation shall indemnify any 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 Corporation) by reason of the
fact that he is or was a director or officer of the Corporation, or is or was a
director or officer of the Corporation serving at the request of the Corporation
as a director or officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, 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
Corporation, 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 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
Corporation, and, with respect to




                                       13


any criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful. The right to indemnification conferred in this ARTICLE
VIII shall be a contract right.

SECTION 2. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS BY OR IN THE
RIGHT OF THE CORPORATION. Subject to Section 3 of this ARTICLE VIII, the
Corporation shall indemnify any 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 Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director or officer of the Corporation, or is or was a
director or officer of the Corporation serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise 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 Corporation; except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Court of Chancery 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 the Court of Chancery or such
other court shall deem proper.

SECTION 3. AUTHORIZATION OF INDEMNIFICATION. Any indemnification under this
ARTICLE VIII (unless ordered by a court) shall be made by the Corporation only
as authorized in the specific case upon a determination that indemnification of
the director or officer is proper in the circumstances because he has met the
applicable standard of conduct set forth in Section 1 or Section 2 of this
ARTICLE VIII, as the case may be. Such determination shall be made (i) by the
Board of Directors by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or (ii) if such a quorum is
not obtainable, or, even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (iii) by the
stockholders. To the extent, however, that a director or officer of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding described above, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith, without
the necessity of authorization in the specific case.

SECTION 4. GOOD FAITH DEFINED. For purposes of any determination under Section 3
of this ARTICLE VIII, a person shall be deemed to have acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the Corporation, or, with respect to any criminal action or proceeding, to
have had no reasonable cause to believe his conduct was unlawful, if his action
is based on the records or books of account of the Corporation or another
enterprise, or on information supplied to him by the officers of the Corporation
or another enterprise in the course of their duties, or on the advice of legal
counsel for the Corporation or another enterprise or on information or records
given or reports made to the Corporation or another enterprise by an independent
certified public accountant or by an appraiser or other expert selected with
reasonable care by the Corporation or another enterprise. The term "another
enterprise" as used in this Section 4 shall mean any other corporation or any
partnership, joint venture, trust, employee benefit plan or other enterprise of
which such person is or was serving at the request of the Corporation as a
director, officer, employee or agent. The provisions of this Section 4 shall not
be deemed to be exclusive or to limit in any way the circumstances in which a
person may be deemed to have met the applicable standard of conduct set forth in
Sections 1 or 2 of this ARTICLE VIII, as the case may be.

SECTION 5. INDEMNIFICATION BY A COURT. Notwithstanding any contrary
determination in the specific case under Section 3 of this ARTICLE VIII, and
notwithstanding the absence of any determination thereunder, any director or
officer may apply to any court of competent jurisdiction in the State of
Delaware for indemnification to the extent otherwise permissible under Sections
1 and 2 of this ARTICLE




                                       14


VIII. The basis of such indemnification by a court shall be a determination by
such court that indemnification of the director or officer is proper in the
circumstances because he has met the applicable standards of conduct set forth
in Sections 1 or 2 of this ARTICLE VIII, as the case may be. Neither a contrary
determination in the specific case under Section 3 of this ARTICLE VIII nor the
absence of any determination thereunder shall be a defense to such application
or create a presumption that the director or officer seeking indemnification has
not met any applicable standard of conduct. Notice of any application for
indemnification pursuant to this Section 5 shall be given to the Corporation
promptly upon the filing of such application. If successful, in whole or in
part, the director or officer seeking indemnification shall also be entitled to
be paid the expense of prosecuting such application.

SECTION 6. EXPENSES PAYABLE IN ADVANCE. Expenses incurred by a director or
officer in defending or investigating a threatened or pending action, suit or
proceeding shall be paid by the Corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such director or officer to repay such amount if it shall ultimately
be determined that he is not entitled to be indemnified by the Corporation as
authorized in this ARTICLE VIII.

SECTION 7. NONEXCLUSIVITY OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES. The
indemnification and advancement of expenses provided by or granted pursuant to
this ARTICLE VIII shall not be deemed exclusive of any other rights to which
those seeking indemnification or advancement of expenses may be entitled under
any By-Law, agreement, contract, vote of stockholders or disinterested directors
or pursuant to the direction (howsoever embodied) of any court of competent
jurisdiction or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, it being the policy of the
Corporation that indemnification of the persons specified in Sections 1 and 2 of
this ARTICLE VIII shall be made to the fullest extent permitted by law. The
provisions of this ARTICLE VIII shall not be deemed to preclude the
indemnification of any person who is not specified in Sections 1 or 2 of this
ARTICLE VIII but whom the Corporation has the power or obligation to indemnify
under the provisions of the General Corporation Law of the State of Delaware, or
otherwise.

SECTION 8. INSURANCE. The Corporation may purchase and maintain insurance on
behalf of any person who is or was a director or officer of the Corporation, or
is or was a director or officer of the Corporation serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the Corporation
would have the power or the obligation to indemnify him against such liability
under the provisions of this ARTICLE VIII.

SECTION 9. CERTAIN DEFINITIONS. For purposes of this ARTICLE VIII, references to
"the Corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors or officers, so that any
person who is or was a director or officer of such constituent corporation, or
is or was a director or officer of such constituent corporation serving at the
request of such constituent corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, shall stand in the same position under the
provisions of this ARTICLE VIII with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued. For purposes of this ARTICLE VIII, references
to "fines" shall include any excise taxes assessed on a person with respect to
an employee benefit plan; and references to "serving at the request of the
Corporation" shall include any service as a director, officer, employee or agent
of the Corporation which imposes duties on, or involves services by, such
director or officer with respect to an employee benefit plan, its participants
or beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee




                                       15


benefit plan shall be deemed to have acted in a manner "not opposed to the best
interests of the Corporation" as referred to in this ARTICLE VIII.

SECTION 10. SURVIVAL OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES. The
indemnification and advancement of expenses provided by, or granted pursuant to,
this ARTICLE VIII shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a director or officer and shall
inure to the benefit of the heirs, executors and administrators of such a
person.

SECTION 11. LIMITATION ON INDEMNIFICATION. Notwithstanding anything contained in
this ARTICLE VIII to the contrary, except for proceedings to enforce rights to
indemnification (which shall be governed by Section 5 hereof), the Corporation
shall not be obligated to indemnify any director or officer in connection with a
proceeding (or part thereof) initiated by such person unless such proceeding (or
part thereof) was authorized or consented to by the Board of Directors of the
Corporation.

SECTION 12. INDEMNIFICATION OF EMPLOYEES AND AGENTS. The Corporation may, to the
extent authorized from time to time by the Board of Directors, provide rights to
indemnification and to the advancement of expenses to employees and agents of
the Corporation similar to those conferred in this ARTICLE VIII to directors and
officers of the Corporation.

SECTION 13. EFFECT OF AMENDMENT. Any amendment, repeal or modification of this
ARTICLE VIII shall not (a) adversely affect any right or protection of any
director or officer existing at the time of such amendment, repeal or
modification, or (b) apply to the indemnification of any such person for
liability, expense, or loss stemming from actions or omissions occurring prior
to such amendment, repeal, or modification.

SECTION 14. AUTHORITY TO ENTER INTO INDEMNIFICATION AGREEMENTS. The Corporation
may enter into indemnification agreements with the directors and officers of the
Corporation, including, without limitation, any indemnification agreement in
substantially the form set forth in Exhibit 1 attached to these By-Laws.


                                   ARTICLE IX

                                     NOTICES

Whenever, under any provisions of these By-Laws, notice is required to be given
to any stockholder, the same shall be given in writing, timely and duly
deposited in the United States Mail, postage prepaid, and addressed to his last
known post office address as shown by the stock record of the Corporation or its
transfer agent. Any notice required to be given to any director may be given by
any of the methods stated in Section 8 of ARTICLE III hereof, except that such
notice other than one which is delivered personally, shall be sent to such
address or (in the case of facsimile telecommunication) facsimile telephone
number as such director shall have disclosed in writing to the Secretary of the
Corporation, or, in the absence of such filing, to the last known post office
address of such director. If no address of a stockholder or director be known,
such notice may be sent to the office of the Corporation required to be
maintained pursuant to Section 2 of ARTICLE I hereof. An affidavit of mailing,
executed by a duly authorized and competent employee of the Corporation or its
transfer agent appointed with respect to the class of stock affected, specifying
the name and address or the names and addresses of the stockholder or
stockholders, director or directors, to whom any such notice or notices was or
were given, and the time and method of giving the same, shall be conclusive
evidence of the statements therein contained. All notices given by mail, as
above provided, shall be deemed to have been given as at the time of mailing and
all notices given by telegram or other means of electronic transmission shall be
deemed to have been




                                       16


given as at the sending time recorded by the telegraph company or other
electronic transmission equipment operator transmitting the same. It shall not
be necessary that the same method of giving be employed in respect of all
directors, but one permissible method may be employed in respect of any one or
more, and any other permissible method or methods may be employed in respect of
any other or others. The period or limitation of time within which any
stockholder may exercise any option or right, or enjoy any privilege or benefit,
or be required to act, or within which any director may exercise any power or
right, or enjoy any privilege, pursuant to any notice sent him in the manner
above provided, shall not be affected or extended in any manner by the failure
of such a stockholder or such director to receive such notice. Whenever any
notice is required to be given under the provisions of this statutes or of the
Certificate of Incorporation, or of these By-Laws, a waiver thereof in writing
signed by the person or persons entitled to said notice, whether before or after
the time stated therein, shall be deemed equivalent thereto. Whenever notice is
required to be given, under any provision of law or of the Certificate of
Incorporation or By-Laws of the Corporation, to any person with whom
communication is unlawful, the giving of such notice to such person shall not be
required and there shall be no duty to apply to any governmental authority or
agency for a license or permit to give such notice to such person. Any action or
meeting which shall be taken or held without notice to any such person with whom
communication is unlawful shall have the same force and effect as if such notice
had been duly given. In the event that the action taken by the Corporation is
such as to require the filing of a certificate under any provision of the
Delaware General Corporation Law, the certificate shall state, if such is the
fact and if notice is required, that notice was given to all persons entitled to
receive notice except such persons with whom communication is unlawful.


                                    ARTICLE X

                                   AMENDMENTS

The Board of Directors is expressly authorized to adopt, alter and repeal the
By-Laws of the Corporation in whole or in part at any regular or special meeting
of the Board of Directors, by vote of a majority of the entire Board of
Directors. Except where ARTICLE V of the Certificate of Incorporation of the
Corporation requires a higher vote, the By-Laws may also be adopted, altered or
repealed in whole or in part at any annual or special meeting of the
stockholders by the affirmative vote of three fourths of the shares of the
Corporation outstanding and entitled to vote thereon.

CERTIFICATE OF SECRETARY

The undersigned, Senior Vice President, General Counsel and Secretary of
McKesson Corporation a Delaware corporation, hereby certifies that the foregoing
is a full, true and correct copy of the By-Laws of said Corporation, with all
amendments to date of this Certificate.

WITNESS the signature of the undersigned and the seal of the Corporation this
27th day of March, 2002.





                            /s/ Ivan D. Meyerson
                            ----------------------------------------------------
                            Ivan D. Meyerson
                            Senior Vice President, General Counsel and Secretary




                                       17


                                                                       EXHIBIT 1



                            INDEMNIFICATION AGREEMENT

AGREEMENT, effective as of ______, 2001__, between McKesson Corporation, a
Delaware corporation (the "Company"), and ______________ (the "Indemnitee").

WHEREAS, it is essential to the Company to retain and attract as directors and
officers the most capable persons available.

WHEREAS, Indemnitee is a director/officer of the Company;

WHEREAS, both the Company and Indemnitee recognize the increased risk of
litigation and other claims being asserted against directors of public companies
in today's environment;

WHEREAS, the Certificate of Incorporation and the By-laws of the Company require
the Company to indemnify and advance expenses to its directors to the fullest
extent permitted by law and the Indemnitee has been serving and continues to
serve as a director or officer of the Company in part in reliance on such
Certificate of Incorporation and By-laws;

WHEREAS, in recognition of Indemnitee's need for substantial protection against
personal liability in order to enhance Indemnitee's continued service to the
Company in an effective manner and Indemnitee's reliance on the aforesaid
Certificate of Incorporation and By-laws, and in part to provide Indemnitee with
specific contractual assurance that the protection promised by such Certificate
of Incorporation and By-laws will be available to Indemnitee (regardless of,
among other things, any amendment to or revocation of such Certificate of
Incorporation and By-laws or any change in the composition of the Company's
Board of Directors or acquisition transaction relating to the Company), and in
order to induce Indemnitee to continue to provide services to the Company as a
director or officer thereof, the Company wishes to provide in this Agreement for
the indemnification of and the advancing of expenses to Indemnitee to the
fullest extent (whether partial or complete) permitted by law and as set forth
in this Agreement, and, to the extent insurance is maintained, for the continued
coverage of Indemnitee under the Company's directors' and officers' liability
insurance policies.

NOW, THEREFORE, in consideration of the premises and of Indemnitee continuing to
serve the Company directly or, at its request, with another enterprise, and
intending to be legally bound hereby, the parties hereto agree as follows:

1.      CERTAIN DEFINITIONS.

        (a) Change in Control: shall be deemed to have occurred if (i) any
"person" (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended), other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or a
corporation owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company,
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Company representing 20% or more of
the total voting power represented by the Company's then outstanding Voting
Securities, or (ii) during any period of two consecutive years, individuals who
at the beginning of such period constitute the Board of Directors of the Company
and any new director whose election by the Board of Directors or nomination for
election by the Company's stockholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who either were directors
at the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority thereof,
or (iii) the stockholders of the Company approve a merger or consolidation of
the Company with




                                       1


any other corporation, other than a merger or consolidation which would result
in the Voting Securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into Voting Securities of the surviving entity) at least 80% of the total voting
power represented by the Voting Securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation, or the
stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company (in one
transaction or a series of transactions) of all or substantially all of the
Company's assets.

        (b) Expense: include attorneys' fees and all other costs, expenses and
obligations paid or incurred in connection with investigating, defending, being
a witness in or participating in (including on appeal), or preparing to defend,
be a witness in or participate in any Proceeding relating to any Indemnifiable
Event.

        (c) Indemnifiable Event: any event or occurrence that takes place either
prior to or after the execution of this Agreement, related to the fact that
Indemnitee is or was a director or an officer of the Company, or while a
director or officer is or was serving at the request of the Company as a
director, officer, employee, trustee, agent or fiduciary of another corporation,
partnership, joint venture, employee benefit plan, trust or other enterprise, or
by reason of anything done or not done by Indemnitee in any such capacity.

        (d) Potential Change in Control: shall be deemed to have occurred if (i)
the Company enters into an agreement or arrangement, the consummation of which
would result in the occurrence of Change in Control; (ii) any person (including
the Company) publicly announces an intention to take or to consider taking
actions which if consummated would constitute Change in Control; (iii) any
person, other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company acting in such capacity or a corporation
owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company,
who is or becomes the beneficial owner, directly or indirectly, of securities of
the Company representing 10% or more of the combined voting power of the
Company's then outstanding Voting Securities, increases his beneficial ownership
of such securities by 5% or more over the percentage so owned by such person on
the date hereof; or (iv) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has occurred.

        (e) Proceeding: any threatened, pending or completed action, suit or
proceeding, or any inquiry, hearing or investigation, whether conducted by the
Company or any other party, that Indemnitee in good faith believes might lead to
the institution of any such action, suit or proceeding, whether civil, criminal,
administrative, investigative or other.

        (f) Reviewing Party: any appropriate person or body consisting of a
member or members of the Company's Board of Directors or any other person or
body appointed by the Board (including the special, independent counsel referred
to in Section 3) who is not a party to the particular Proceeding with respect to
which Indemnitee is seeking indemnification.

        (g) Voting Securities: any securities of the Company which vote
generally in the election of directors.




                                       2


2.      AGREEMENT TO INDEMNIFY.

        (a) In the event Indemnitee was, is or becomes a party to or witness or
other participant in, or is threatened to be made a party to or witness or other
participant in, a Proceeding by reason of (or arising in part out of) an
Indemnifiable Event, the Company shall indemnify Indemnitee to the fullest
extent permitted by law, as soon as practicable but in any event no later than
thirty days after written demand is presented to the Company, against any and
all Expenses, judgments, fines, penalties and amounts paid in settlement
(including all interest, assessments and other charges paid or payable in
connection with or in respect of such Expenses, judgments, fines, penalties or
amounts paid in settlement) of such Proceeding and any federal, state, local or
foreign taxes imposed on the Indemnitee as a result of the actual or deemed
receipt of any payments under this Agreement (including the creation of the
Trust). Notwithstanding anything in this Agreement to the contrary and except as
provided in Section 5, prior to a Change in Control Indemnitee shall not be
entitled to indemnification pursuant to this Agreement in connection with any
Proceeding initiated by Indemnitee against the Company or any director or
officer of the Company unless the Company has joined in or consented to the
initiation of such Proceeding. If so requested by Indemnitee, the Company shall
advance (within ten business days of such request) any and all Expenses to
Indemnitee (an "Expense Advance").

        (b) Notwithstanding the foregoing, (i) the obligations of the Company
under Section 2(a) shall be subject to the condition that the Reviewing Party
shall not have determined (in a written opinion, in any case in which the
special, independent counsel referred to in Section 3 hereof is involved) that
Indemnitee would not be permitted to be indemnified under applicable law, and
(ii) the obligation of the Company to make an Expense Advance pursuant to
Section 2(a) shall be subject to the condition that, if, when and to the extent
that the Reviewing Party determines that Indemnitee would not be permitted to be
so indemnified under applicable law, the Company shall be entitled to be
reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all
such amounts theretofore paid; provided, however, that if Indemnitee has
commenced legal proceedings in a court of competent jurisdiction to secure a
determination that Indemnitee should be indemnified under applicable law, any
determination made by the Reviewing Party that Indemnitee would not be permitted
to be indemnified under applicable law shall not be binding and Indemnitee shall
not be required to reimburse the Company for any Expense Advance until a final
judicial determination is made with respect thereto (as to which all rights of
appeal therefrom have been exhausted or lapsed). Indemnitee's obligation to
reimburse the Company for Expense Advances shall be unsecured and no interest
shall be charged thereon. If there has not been a Change in Control the
Reviewing Party shall be selected by the Board of Directors, and if there has
been such a Change in Control (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control), the Reviewing Party shall be the
special, independent counsel referred to in Section 3 hereof. If there has been
no determination by the Reviewing Party or if the Reviewing Party determines
that Indemnitee substantively would not be permitted to be indemnified in whole
or in part under applicable law, Indemnitee shall have the right to commence
litigation in any court in the States of California or Delaware having subject
matter jurisdiction thereof and in which venue is proper seeking an initial
determination by the court or challenging any such determination by the
Reviewing Party or any aspect thereof, and the Company hereby consents to
service of process and to appear in any such proceeding. Any determination by
the Reviewing Party otherwise shall be conclusive and binding on the Company and
Indemnitee.

3.      CHANGE IN CONTROL. The Company agrees that if there is a Change in
Control of the Company (other than a Change in Control which has been approved
by a majority of the Company's Board of Directors who were directors immediately
prior to such Change in Control) then with respect to all matters thereafter
arising concerning the rights of Indemnitee to indemnity payments and Expense
Advances under this Agreement or any other agreement or under applicable law or
the Company's Certificate of Incorporation or By-Laws now or hereafter in effect
relating to indemnification for Indemnifiable Events, the Company shall seek
legal advice only from special, independent counsel selected by Indemnitee and
approved by the Company (which approval shall not be unreasonably withheld), and
who has not otherwise performed services for the Company or the Indemnitee
(other than in connection with such matters) within the last five years. Such
independent counsel shall not include any person who, under the




                                       3


applicable standards of professional conduct then prevailing, would have a
conflict of interest in representing either the Company or Indemnitee in an
action to determine Indemnitee's rights under this Agreement. Such counsel,
among other things, shall render its written opinion to the Company and
Indemnitee as to whether and to what extent the Indemnitee would be permitted to
be indemnified under applicable law. The Company agrees to pay the reasonable
fees of the special, independent counsel referred to above and to indemnify
fully such counsel against any and all expenses (including attorneys' fees),
claims, liabilities and damages arising out of or relating to this Agreement or
the engagement of special, independent counsel pursuant hereto.

4.      ESTABLISHMENT OF TRUST. In the event of a Potential Change in Control,
the Company shall, upon written request by Indemnitee, create a Trust for the
benefit of the Indemnitee and from time to time upon written request of
Indemnitee shall fund such Trust in an amount sufficient to satisfy any and all
Expenses reasonably anticipated at the time of each such request to be incurred
in connection with investigating, preparing for and defending any Proceeding
relating to an Indemnifiable event, and any and all judgments, fines, penalties
and settlement amounts of any and all Proceedings relating to an Indemnifiable
Event from time to time actually paid or claimed, reasonably anticipated or
proposed to be paid. The amount or amounts to be deposited in the Trust pursuant
to the foregoing funding obligation shall be determined by the Reviewing Party,
in any case in which the special, independent counsel referred to above is
involved. The terms of the Trust shall provide that upon a Change in Control (i)
the Trust shall not be revoked or the principal thereof invaded, without the
written consent of the Indemnitee, (ii) the Trustee shall advance, within ten
business days of a request by the Indemnitee, any and all Expenses to the
Indemnitee (and the Indemnitee hereby agrees to reimburse the Trust under the
circumstances under which the Indemnitee would be required to reimburse the
Company under Section 2(b) of this Agreement), (iii) the Trust shall continue to
be funded by the Company in accordance with the funding obligation set forth
above, (iv) the Trustee shall promptly pay to the Indemnitee all amounts for
which the Indemnitee shall be entitled to indemnification pursuant to this
Agreement or otherwise, and (v) all unexpended funds in such Trust shall revert
to the Company upon a final determination by the Reviewing Party or a court of
competent jurisdiction, as the case may be, that the Indemnitee has been fully
indemnified under the terms of this Agreement. The Trustee shall be chosen by
the Indemnitee. Nothing in this Section 4 shall relieve the Company of any of
its obligations under this Agreement. All income earned on the assets held in
the Trust shall be reported as income by the Company for federal, state, local
and foreign tax purposes.

5.      INDEMNIFICATION FOR EXPENSES INCURRED IN ENFORCING THIS AGREEMENT. The
Company shall indemnify Indemnitee against any and all expenses (including
attorneys' fees), and, if requested by Indemnitee, shall (within ten business
days of such request) advance such expenses to Indemnitee, which are incurred by
Indemnitee in connection with any claim asserted against or action brought by
Indemnitee for (i) indemnification or advance payment of Expenses by the Company
under this Agreement or any other agreement or under applicable law or the
Company's Certificate of Incorporation or By-laws now or hereafter in effect
relating to indemnification for Indemnifiable Events and/or (ii) recovery under
any directors' and officers' liability insurance policies maintained by the
Company, regardless of whether Indemnitee ultimately is determined to be
entitled to such indemnification, advance expense payment or insurance recovery,
as the case may be.




                                       4


6.      PARTIAL INDEMNITY. If Indemnitee is entitled under any provision of this
Agreement to indemnification by the Company for some or a portion of the
Expenses, judgments, fines, penalties and amounts paid in settlement of a
Proceeding but not, however, for all of the total amount thereof, the Company
shall nevertheless indemnify Indemnitee for the portion thereof to which
Indemnitee is entitled. Moreover, notwithstanding any other provision of this
Agreement, to the extent that Indemnitee has been successful on the merits or
otherwise in defense of any or all Proceedings relating in whole or in part to
an Indemnifiable Event or in defense of any issue or matter therein, including
dismissal without prejudice, Indemnitee shall be indemnified against all
Expenses incurred in connection therewith.

7.      DEFENSE TO INDEMNIFICATION, BURDEN OF PROOF AND PRESUMPTIONS. It shall
be a defense to any action brought by the Indemnitee against the Company to
enforce this Agreement (other than an action brought to enforce a claim for
expenses incurred in defending a Proceeding in advance of its final disposition
where the required undertaking has been tendered to the Company) that the
Indemnitee has not met the standards of conduct that make it permissible under
the Delaware General Corporation Law for the Company to indemnify the Indemnitee
for the amount claimed. In connection with any determination by the Reviewing
Party or otherwise as to whether the Indemnitee is entitled to be indemnified
hereunder, the burden of proving such a defense shall be on the Company. Neither
the failure of the Company (including its Board of Directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such action by the Indemnitee that indemnification of the
claimant is proper under the circumstances because he or she has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the Company (including its Board of
Directors, independent legal counsel, or its stockholders) that the Indemnitee
had not met such applicable standard of conduct, shall be a defense to the
action or create a presumption that the Indemnitee has not met the applicable
standard of conduct. For purposes of this Agreement, the termination of any
claim, action, suit or proceeding, by judgment, order, settlement (whether with
or without court approval) or conviction, or upon a plea of nolo contendere, or
its equivalent, shall not create a presumption that Indemnitee did not meet any
particular standard of conduct or have any particular belief or that a court has
determined that indemnification is not permitted by applicable law.

8.      NON-EXCLUSIVITY. The rights of the Indemnitee hereunder shall be in
addition to any other rights Indemnitee may have under the Company's Certificate
of Incorporation or By-laws or the Delaware General Corporation Law or
otherwise. To the extent that a change in the Delaware General Corporation Law
(whether by statute or judicial decision) permits greater indemnification by
agreement than would be afforded currently under the Company's Certificate of
Incorporation and By-laws and this Agreement, it is the intent of the parties
hereto that Indemnitee shall enjoy by this Agreement the greater benefits so
afforded by such change.

9.      LIABILITY INSURANCE. To the extent the Company maintains an insurance
policy or policies providing directors' and officers' liability insurance,
Indemnitee shall be covered by such policy or policies, in accordance with its
or their terms, to the maximum extent of the coverage available for any Company
director or officer.

10.     PERIOD OF LIMITATIONS. No legal action shall be brought and no cause of
action shall be asserted by or on behalf of the Company or any affiliate of the
Company against Indemnitee, Indemnitee's spouse, heirs, executors or personal or
legal representatives after the expiration of two years from the date of accrual
of such cause of action, or such longer period as may be required by state law
under the circumstances, and any claim or cause of action of the Company or its
affiliate shall be extinguished and deemed released unless asserted by the
timely filing of a legal action within such period; provided,




                                       5


however, that if any shorter period of limitations is otherwise applicable to
any such cause of action such shorter period shall govern.

11.     AMENDMENT OF THIS AGREEMENT. No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provisions hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.

12.     SUBROGATION. In the event of payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all papers required and shall do
everything that may be necessary to secure such rights, including the execution
of such documents necessary to enable the Company effectively to bring suit to
enforce such rights.

13.     NO DUPLICATION OF PAYMENTS. The Company shall not be liable under this
Agreement to make any payment in connection with any claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, By-law or otherwise) of the amounts otherwise
indemnifiable hereunder.

14.     SETTLEMENT OF CLAIMS. The Company shall not be liable to indemnify
Indemnitee under this Agreement for any amounts paid in settlement of any action
or claim effected without the Company's written consent. The Company shall not
settle any action or claim in any manner which would impose any penalty or
limitation on Indemnitee without Indemnitee's written consent. Neither the
Company nor the Indemnitee will unreasonably withhold their consent to any
proposed settlement. The Company shall not be liable to indemnify the Indemnitee
under this Agreement with regard to any judicial award if the Company was not
given a reasonable and timely opportunity, at its expense, to participate in the
defense of such action.

15.     BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and their respective
successors, assigns, including any direct or indirect successor by purchase,
merger, consolidation or otherwise to all or substantially all of the business
and/or assets of the Company, spouses, heirs, and personal and legal
representatives. The Company shall require and cause any successor (whether
direct or indirect by purchase, merger, consolidation or otherwise) to all,
substantially all, or a substantial part, of the business and/or assets of the
Company, by written agreement in form and substance satisfactory to the
Indemnitee, expressly to assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform if
no such succession had taken place. This Agreement shall continue in effect
regardless of whether Indemnitee continues to serve as a director or officer of
the Company or of any other enterprise at the Company's request.

16.     SEVERABILITY. The provisions of this Agreement shall be severable in the
event that any of the provisions hereof (including any provision within a single
section, paragraph or sentence) is held by a court of competent jurisdiction to
be invalid, void or otherwise unenforceable, and the remaining provisions shall
remain enforceable to the fullest extent permitted by law. Furthermore, to the
fullest extent possible, the provisions of this Agreement (including, without
limitation, each portion of this Agreement containing any provision held to be
invalid, void or otherwise unenforceable, that is not itself invalid, void or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.




                                       6


17.     GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in such State without giving effect to the
principles of conflicts of laws.



IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this
Agreement as of the _______________ day of __________________, 20___.



                                        McKESSON CORPORATION

                                        By: ____________________________________
                                            Name:
                                            Title:

                                            ____________________________________
                                            [Indemnitee]




                                       7

EX-4.6

                                                                     Exhibit 4.6



================================================================================



                              McKESSON CORPORATION

                                       and

                        THE BANK OF NEW YORK, as Trustee

                                    Indenture

                          Dated as of January 29, 2002

                                 Debt Securities



================================================================================



                             CROSS REFERENCE SHEET*

                                     Between

        Provisions of Trust Indenture Act (as defined herein) and Indenture,
dated as of January 29, 2002, between McKESSON CORPORATION and THE BANK OF NEW
YORK, Trustee:



SECTION OF THE ACT                                          SECTION OF INDENTURE
                                                 
310(a)(1) and (2) ...........................................................6.9
310(a)(3) and (4) ..................................................Inapplicable
310(b) .............................................6.8 and 6.10(a), (b) and (d)
310(c) .............................................................Inapplicable
311(a) .....................................................................6.14
311(b) .....................................................................6.14
311(c) .............................................................Inapplicable
312(a) ..............................................................4.1 and 4.2
312(b) ......................................................................4.2
312(c) ......................................................................4.2
313(a) ......................................................................4.3
313(b)(1) ..........................................................Inapplicable
313(b)(2) ...................................................................4.3
313(c) ...............................................4.3, 5.11, 6.10, 6.11, 8.2
                                                                        and 12.2
313(d) ......................................................................4.3
314(a) ..............................................................3.5 and 4.2
314(b) .............................................................Inapplicable
314(c)(1) and (2) ..........................................................11.5
314(c)(3) ..........................................................Inapplicable
314(d) .............................................................Inapplicable
314(e) .....................................................................11.5
314(f) .............................................................Inapplicable
315(a), (c) and (d) .........................................................6.1
315(b) .....................................................................5.11
315(e) .....................................................................5.12
316(a)(1) ..........................................................5.9 and 5.10
316(a)(2) ..........................................................Not required
316(a) (last sentence) ......................................................7.4
316(b) ......................................................................5.7
317(a) ......................................................................5.2
317(b) ...........................................................3.4(a) and (b)
318(a) .....................................................................11.7


* This Cross Reference Sheet is not part of the Indenture.



                                TABLE OF CONTENTS



                                                                            PAGE
                                                                            ----
                                                                   
ARTICLE I    DEFINITIONS

       SECTION 1.1        CERTAIN TERMS DEFINED ...............................1

ARTICLE II   SECURITIES

       SECTION 2.1        FORMS GENERALLY .....................................7
       SECTION 2.2        FORM OF TRUSTEE'S CERTIFICATE OF
                          AUTHENTICATION ......................................8
       SECTION 2.3        AMOUNT UNLIMITED; ISSUABLE IN SERIES ................8
       SECTION 2.4        AUTHENTICATION AND DELIVERY
                          OF SECURITIES ......................................11
       SECTION 2.5        EXECUTION OF SECURITIES ............................14
       SECTION 2.6        CERTIFICATE OF AUTHENTICATION ......................14
       SECTION 2.7        DENOMINATION AND DATE OF
                          SECURITIES; PAYMENT OF INTEREST ....................15
       SECTION 2.8        REGISTRATION, TRANSFER AND EXCHANGE ................15
       SECTION 2.9        MUTILATED, DEFACED, DESTROYED,
                          LOST AND STOLEN SECURITIES .........................19
       SECTION 2.10       CANCELLATION OF SECURITIES;
                          DESTRUCTION THEREOF ................................20
       SECTION 2.11       TEMPORARY SECURITIES ...............................20

ARTICLE III  COVENANTS OF THE ISSUER

       SECTION 3.1        PAYMENT OF PRINCIPAL AND INTEREST ..................21
       SECTION 3.2        OFFICES FOR PAYMENTS, ETC ..........................21
       SECTION 3.3        APPOINTMENT TO FILL A VACANCY
                          IN OFFICE OF TRUSTEE ...............................22
       SECTION 3.4        PAYING AGENTS ......................................22
       SECTION 3.5        COMPLIANCE CERTIFICATES ............................23
       SECTION 3.6        CORPORATE EXISTENCE ................................24
       SECTION 3.7        LUXEMBOURG PUBLICATIONS ............................24




                                       i




                                                                            PAGE
                                                                            ----
                                                                   
ARTICLE IV   SECURITYHOLDER LISTS AND REPORTS BY THE
             ISSUER AND THE TRUSTEE

       SECTION 4.1        ISSUER TO FURNISH TRUSTEE INFORMATION
                          AS TO NAMES AND ADDRESSES OF
                          SECURITYHOLDERS ....................................24
       SECTION 4.2        REPORTS BY THE ISSUER ..............................24
       SECTION 4.3        REPORTS BY THE TRUSTEE .............................25

ARTICLE V    REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS
             ON EVENT OF DEFAULT

       SECTION 5.1        EVENT OF DEFAULT DEFINED, ACCELERATION
                          OF MATURITY; WAIVER OF DEFAULT .....................26
       SECTION 5.2        COLLECTION OF INDEBTEDNESS BY TRUSTEE;
                          TRUSTEE MAY PROVE DEBT .............................30
       SECTION 5.3        APPLICATION OF PROCEEDS ............................32
       SECTION 5.4        SUITS FOR ENFORCEMENT ..............................33
       SECTION 5.5        RESTORATION OF RIGHTS ON ABANDONMENT
                          OF PROCEEDINGS .....................................34
       SECTION 5.6        LIMITATIONS ON SUITS BY SECURITY HOLDERS ...........34
       SECTION 5.7        UNCONDITIONAL RIGHT OF SECURITYHOLDERS
                          TO INSTITUTE CERTAIN SUITS .........................34
       SECTION 5.8        POWERS AND REMEDIES CUMULATIVE; DELAY
                          OR OMISSION NOT WAIVER OF DEFAULT ..................35
       SECTION 5.9        CONTROL BY HOLDERS OF SECURITIES ...................35
       SECTION 5.10       WAIVER OF PAST DEFAULTS ............................36
       SECTION 5.11       TRUSTEE TO GIVE NOTICE OF DEFAULT,
                          BUT MAY WITHHOLD IN CERTAIN
                          CIRCUMSTANCES ......................................36
       SECTION 5.12       RIGHT OF COURT TO REQUIRE FILING OF
                          UNDERTAKING TO PAY COSTS ...........................36

ARTICLE VI   CONCERNING THE TRUSTEE

       SECTION 6.1        DUTIES AND RESPONSIBILITIES OF THE TRUSTEE;
                          DURING DEFAULT; PRIOR TO DEFAULT ...................37
       SECTION 6.2        CERTAIN RIGHTS OF THE TRUSTEE ......................38




                                       ii




                                                                            PAGE
                                                                            ----
                                                                   
       SECTION 6.3        TRUSTEE NOT RESPONSIBLE FOR RECITALS,
                          DISPOSITION OF SECURITIES OR
                          APPLICATION OF PROCEEDS THEREOF ....................39
       SECTION 6.4        TRUSTEE AND AGENTS MAY HOLD
                          SECURITIES OR COUPONS; COLLECTIONS, ETC ............40
       SECTION 6.5        MONEYS HELD BY TRUSTEE .............................40
       SECTION 6.6        COMPENSATION AND INDEMNIFICATION OF
                          TRUSTEE AND ITS PRIOR CLAIM ........................40
       SECTION 6.7        RIGHT OF TRUSTEE TO RELY ON OFFICER'S
                          CERTIFICATE, ETC ...................................41
       SECTION 6.8        INDENTURES NOT CREATING POTENTIAL
                          CONFLICTING INTERESTS FOR THE TRUSTEE ..............41
       SECTION 6.9        QUALIFICATION OF TRUSTEE:
                          CONFLICTING INTERESTS ..............................41
       SECTION 6.10       PERSONS ELIGIBLE FOR APPOINTMENT
                          AS TRUSTEE .........................................42
       SECTION 6.11       RESIGNATION AND REMOVAL; APPOINTMENT
                          OF SUCCESSOR TRUSTEE ...............................41
       SECTION 6.12       ACCEPTANCE OF APPOINTMENT BY
                          SUCCESSOR TRUSTEE ..................................43
       SECTION 6.13       MERGER, CONVERSION, CONSOLIDATION OR
                          SUCCESSION TO BUSINESS OF TRUSTEE ..................44
       SECTION 6.14       PREFERENTIAL COLLECTION OF CLAIMS
                          AGAINST THE ISSUER .................................45
       SECTION 6.15       APPOINTMENT OF AUTHENTICATING AGENT ................45

ARTICLE VII  CONCERNING THE SECURITYHOLDERS

       SECTION 7.1        EVIDENCE OF ACTION TAKEN BY
                          SECURITYHOLDERS ....................................46
       SECTION 7.2        PROOF OF EXECUTION OF INSTRUMENTS
                          AND OF HOLDING OF SECURITIES .......................46
       SECTION 7.3        HOLDERS TO BE TREATED AS OWNERS ....................46
       SECTION 7.4        SECURITIES OWNED BY ISSUER DEEMED
                          NOT OUTSTANDING ....................................47
       SECTION 7.5        RIGHT OF REVOCATION OF ACTION TAKEN ................47




                                      iii




                                                                            PAGE
                                                                            ----
                                                                   
ARTICLE VIII SUPPLEMENTAL INDENTURES

       SECTION 8.1        SUPPLEMENTAL INDENTURES WITHOUT
                          CONSENT OF SECURITYHOLDERS                          48
       SECTION 8.2        SUPPLEMENTAL INDENTURES WITH
                          CONSENT OF SECURITYHOLDERS .........................49
       SECTION 8.3        EFFECT OF SUPPLEMENTAL INDENTURE ...................51
       SECTION 8.4        DOCUMENTS TO BE GIVEN TO TRUSTEE ...................51
       SECTION 8.5        NOTATION ON SECURITIES IN RESPECT
                          OF SUPPLEMENTAL INDENTURES .........................51

ARTICLE IX   CONSOLIDATION, MERGER, SALE OR CONVEYANCE

       SECTION 9.1        ISSUER MAY CONSOLIDATE, ETC.,
                          ONLY ON CERTAIN TERMS ..............................52
       SECTION 9.2        SUCCESSOR CORPORATION SUBSTITUTED ..................52
       SECTION 9.3        OPINION OF COUNSEL TO BE GIVEN TO TRUSTEE ..........52

ARTICLE X    SATISFACTION AND DISCHARGE OF INDENTURE;
             UNCLAIMED MONEYS

       SECTION 10.1       SATISFACTION AND DISCHARGE
                          OF INDENTURE .......................................53
       SECTION 10.2       APPLICATION BY TRUSTEE OF FUNDS
                          DEPOSITED FOR PAYMENT OF SECURITIES ................57
       SECTION 10.3       REPAYMENT OF MONEYS HELD
                          BY PAYING AGENT ....................................57
       SECTION 10.4       RETURN OF MONEYS HELD BY TRUSTEE
                          AND PAYING AGENT UNCLAIMED
                          FOR TWO YEARS ......................................57
       SECTION 10.5       INDEMNITY FOR U.S  GOVERNMENT
                          OF OBLIGATIONS .....................................57
       SECTION 10.6       EFFECT ON SUBORDINATION PROVISIONS .................58

ARTICLE XI   MISCELLANEOUS PROVISIONS

       SECTION 11.1       INCORPORATORS, STOCKHOLDERS, OFFICERS
                          AND DIRECTORS OF ISSUER EXEMPT FROM
                          INDIVIDUAL LIABILITY ...............................58




                                       iv




                                                                            PAGE
                                                                            ----
                                                                   
       SECTION 11.2       PROVISIONS OF INDENTURE FOR THE SOLE
                          BENEFIT OF PARTIES AND HOLDERS OF
                          SECURITIES AND COUPONS .............................58
       SECTION 11.3       SUCCESSORS AND ASSIGNS OF ISSUER
                          BOUND BY INDENTURE .................................59
       SECTION 11.4       NOTICES AND DEMANDS ON ISSUER,
                          TRUSTEE AND HOLDERS OF SECURITIES
                          AND COUPONS ........................................59
       SECTION 11.5       OFFICER'S CERTIFICATES AND OPINIONS
                          OF COUNSEL; STATEMENTS TO BE
                          CONTAINED THEREIN ..................................60
       SECTION 11.6       PAYMENTS DUE ON SATURDAYS, SUNDAYS
                          AND HOLIDAYS .......................................61
       SECTION 11.7       CONFLICT OF ANY PROVISION OF INDENTURE
                          WITH TRUST INDENTURE ACT ...........................61
       SECTION 11.8       NEW YORK LAW TO GOVERN .............................61
       SECTION 11.9       COUNTERPARTS .......................................61
       SECTION 11.10      EFFECT OF HEADINGS .................................61
       SECTION 11.11      SECURITIES IN A FOREIGN CURRENCY ...................61
       SECTION 11.12      JUDGMENT CURRENCY ..................................62
       SECTION 11.13      AGREEMENT TO SUBORDINATE ...........................63

ARTICLE XII  REDEMPTION OF SECURITIES AND SINKING FUNDS

       SECTION 12.1       APPLICABILITY OF ARTICLE ...........................63
       SECTION 12.2       NOTICE OF REDEMPTION; PARTIAL REDEMPTIONS ..........63
       SECTION 12.3       PAYMENT OF SECURITIES CALLED
                          FOR REDEMPTION .....................................64
       SECTION 12.4       EXCLUSION OF CERTAIN SECURITIES
                          FROM ELIGIBILITY FOR SELECTION
                          FOR REDEMPTION .....................................65
       SECTION 12.5       MANDATORY AND OPTIONAL
                          SINKING FUNDS ......................................66




                                       v


               THIS INDENTURE, dated as of January 29, by and between McKESSON
CORPORATION, a Delaware corporation (the "Issuer"), and THE BANK OF NEW YORK, a
New York Banking Corporation, as trustee (the "Trustee"),

                              W I T N E S S E T H:

               WHEREAS, the Issuer has duly authorized the issue from time to
time of its unsecured debentures, notes or other evidences of indebtedness to be
issued in one or more series (the "Securities") up to such principal amount or
amounts as may from time to time be authorized in accordance with the terms of
this Indenture;

               WHEREAS, the Issuer has duly authorized the execution and
delivery of this Indenture to provide, among other things, for the
authentication, delivery and administration of the Securities; and

               WHEREAS, all things necessary to make this Indenture a valid
indenture and agreement according to its terms have been done;

               NOW, THEREFORE:

               In consideration of the premises and the purchases of the
Securities by the holders thereof, the Issuer and the Trustee mutually covenant
and agree for the equal and proportionate benefit of the respective holders from
time to time of the Securities and of the coupons, if any, appertaining thereto
as follows:

                                    ARTICLE I

                                   DEFINITIONS

               SECTION 1.1 CERTAIN TERMS DEFINED. The following terms (except as
otherwise 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 requires), shall have the meaning assigned to such terms in
the Trust Indenture Act and in the Securities Act as in effect from time to
time. 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
unless a different time shall be specified with respect to such series of
Securities as provided for in Section 2.3. The words "herein," "hereof" and
"hereunder" and other words of similar import refer to this Indenture as a whole



                                       1


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.

               "Affiliate" has the same meaning as given to that term in Rule
405 of the Securities Act or any successor provision.

               "Authenticating Agent" shall have the meaning set forth in
Section 6.15.

               "Authorized Newspaper" means a newspaper (which, in the case of
The City of New York, will, if practicable, be The Wall Street Journal (Eastern
Edition), in the case of the United Kingdom of Great Britain and Northern
Ireland (the "United Kingdom"), will, if practicable, be The Financial Times
(London Edition) and, in the case of the Grand Duchy of Luxembourg
("Luxembourg"), will, if practicable, be the Luxemburger Wort) published in an
official or common language of the country of publication customarily published
at least once a day for at least five days in each calendar week and of general
circulation in The City of New York, the United Kingdom or Luxembourg, as
applicable. If it shall be impractical in the opinion of the Trustee to make any
publication of any notice required hereby in an Authorized Newspaper, any
publication or other notice in lieu thereof which is made or given with the
approval of the Trustee shall constitute a sufficient publication of such
notice.

               "Board of Directors" means either the Board of Directors of the
Issuer or any committee of such Board duly authorized to act on its behalf.

               "Board Resolution" means a copy of one or more resolutions,
certified by the secretary or an assistant secretary of the Issuer to have been
duly adopted or consented to by the Board of Directors and to be in full force
and effect, and delivered to the Trustee.

               "Business Day" means, with respect to any Security, a day other
than any day on which banking institutions in the city (or in any of the cities,
if more than one) in which amounts are payable, as specified in the form of such
Security, are authorized or required by any applicable law or regulation to be
closed.

               "Commission" means the Securities and Exchange Commission, as
from time to time constituted, created under the Exchange Act, 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.

               "Corporate Trust Office" means the office of the Trustee at which
the corporate trust business of the Trustee shall, at any particular time, be
principally administered, which office is, as of the date of this Indenture,
located at 101 Barclay Street, 21W, New York, New York, 10286, Attn: Corporate
Trust Division.

               "Coupon" means any interest coupon appertaining to an
Unregistered Security.



                                       2


               "Covenant Defeasance" shall have the meaning set forth in Section
10.1(C).

               "Depositary" means, with respect to the Securities of any series
issuable or issued in the form of one or more Registered Global Securities, the
Person designated as Depositary by the Issuer pursuant to Section 2.3 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 Securities of any
such series shall mean the Depositary with respect to the Registered Global
Securities of that series.

               "Dollar" or "$" means the coin or currency of the United States
of America as at the time of payment is legal tender for the payment of public
and private debts.

               "Event of Default" means any event or condition specified as such
in Section 5.1.

               "Exchange Act" means the Securities Exchange Act of 1934, as
amended.

               "Fair Value" when used with respect to any Voting Stock means the
fair value as determined in good faith by the Board of Directors of the Issuer.

               "Foreign Currency" means any coin, currency, currency unit or
composite currency, including, without limitation, the euro, issued by the
government of one or more countries, other than the United States of America or
by any internationally recognized union, confederation or association of such
governments.

               "Holder," "Holder of Securities," "Securityholder" or any other
similar terms mean (a) in the case of any Registered Security, the person in
whose name such Security is registered in the security register kept by the
Issuer for that purpose in accordance with the terms hereof, and (b) in the case
of any Unregistered Security, the bearer of such Security, or any Coupon
appertaining thereto, as the case may be.

               "Indenture" means this instrument as originally executed and
delivered or, if amended or supplemented as herein provided, as so amended or
supplemented or both, and shall include the forms and terms of particular series
of Securities established as contemplated hereunder, provided, that, if at any
time more than one Person is acting as Trustee under this instrument,
"Indenture" shall mean, with respect to one or more series of Securities for
which such person is trustee, this instrument as originally executed and
delivered or, if amended or supplemented as herein provided, as so amended or
supplemented or both, and shall include the forms and terms of those particular
series of Securities for which such Person is Trustee established as
contemplated hereunder, exclusive, however, of any provisions or terms which
relate solely to other series of Securities for which such person is not
Trustee, regardless of when such terms or provisions were adopted.



                                       3


               "IRS" means the Internal Revenue Service of the United States
Department of the Treasury, or any successor entity.

               "Issuer" means (except as otherwise provided in Article IX)
McKesson Corporation, a Delaware corporation, and, subject to Article IX, its
successors and assigns.

               "Issuer Order" means a written statement, request or order of the
Issuer signed in its name by the chairman of the Board of Directors, the
president, any vice president or the treasurer of the Issuer.

               "Judgment Currency" has the meaning set forth in Section 11.12.

               "Non-U.S. Person" means any person that is not a "U.S. person" as
such term is defined in Rule 902 of the Securities Act.

               "Officer's Certificate" means a certificate signed by the
chairman of the Board of Directors, the president or any vice president or the
treasurer of the Issuer and delivered to the Trustee. Each such certificate
shall comply with Section 314 of the Trust Indenture Act and include the
statements provided for in Section 11.5.

               "Opinion of Counsel" means an opinion in writing signed by legal
counsel who may be an employee of the Issuer or other counsel satisfactory to
the Trustee. Each such opinion shall comply with Section 314 of the Trust
Indenture Act and include the statements provided for in Section 11.5.

               "Original Issue Date" of any Security (or portion thereof) means
the earlier of (a) the date of such Security or (b) the date of any Security (or
portion thereof) for which such Security was issued (directly or indirectly) on
registration of transfer, exchange or substitution.

               "Original Issue Discount Security" means any Security that
provides for an amount less than the principal amount thereof to be due and
payable upon a declaration of acceleration of the maturity thereof pursuant to
Section 5.1.

               "Outstanding" (except as otherwise provided in Section 7.4), when
used with reference to Securities, means, subject to the provisions of Section
7.4, as of any particular time, all Securities authenticated and delivered by
the Trustee under this Indenture, except:

               (I) Securities theretofore cancelled by the Trustee or delivered
        to the Trustee for cancellation;

               (I) Securities, or portions thereof, for the payment or
        redemption of which moneys or U.S. Government Obligations (as provided
        for in Section 10.1) in the necessary amount shall have been deposited
        in trust with the Trustee or with any paying agent (other than the
        Issuer) or shall have been set aside, segregated and held in trust by



                                       4


        the Issuer for the Holders of such Securities (if the Issuer shall act
        as its own paying agent), provided, that if such Securities, or portions
        thereof, are to be redeemed prior to the maturity thereof, notice of
        such redemption shall have been given as herein provided, or provisions
        satisfactory to the Trustee shall have been made for giving such notice;
        and

               (I) Securities which shall have been paid or in substitution for
        which other Securities shall have been authenticated and delivered
        pursuant to the terms of Section 2.9 (except with respect to any such
        Security as to which proof satisfactory to the Trustee is presented that
        such Security is held by a person in whose hands such Security is a
        legal, valid and binding obligation of the Issuer).

               In determining whether the Holders of the requisite principal
amount of Outstanding Securities of any or all series have given any request,
demand, authorization, direction, notice, consent or waiver hereunder, the
principal amount of an Original Issue Discount Security that shall be deemed to
be Outstanding for such purposes shall be the amount of the principal thereof
that would be due and payable as of the date of such determination upon a
declaration of acceleration of the maturity thereof pursuant to Section 5.1.

               "Periodic Offering" means an offering of Securities of a series
from time to time, the specific terms of which Securities, including, without
limitation, the rate or rates of interest, if any, thereon, the stated maturity
or maturities thereof and the redemption provisions, if any, with respect
thereto, are to be determined by the Issuer or its agents upon the issuance of
such Securities.

               "Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.

               "principal" whenever used with reference to the Securities or any
Security or any portion thereof, shall be deemed to include "and premium, if
any," provided, however, that such inclusion of premium, if any, shall under no
circumstances result in the double counting of such premium for the purpose of
any calculation required hereunder.

               "record date" shall have the meaning set forth in Section 2.7.

               "Registered Global Security" means a Security evidencing all or a
part of a series of Registered Securities, issued to the Depositary for such
series in accordance with Section 2.4, and bearing the legend prescribed in
Section 2.4 and any other legend required by the Depositary for such series.

               "Registered Security" means any Security registered on the
Security register of the Issuer.

               "Required Currency" shall have the meaning set forth in Section
11.12.



                                       5


               "Responsible Officer" when used with respect to the Trustee means
the chairman of the board of directors, any vice chairman of the board of
directors, the chairman of the trust committee, the chairman of the executive
committee, any vice chairman of the executive committee, the president, any vice
president (whether or not designated by numbers or words added before or after
the title "Vice President"), the cashier, the secretary, the treasurer, any
trust officer, any assistant trust officer, any assistant vice president, any
assistant cashier, any assistant secretary, any assistant treasurer, or any
other officer or assistant officer of the Trustee customarily performing
functions 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
because of his or her knowledge of and familiarity with the particular subject.

               "Security" or "Securities" (except as otherwise provided in
Section 7.4) has the meaning stated in the first recital of this Indenture, or,
as the case may be, Securities that have been authenticated and delivered under
this Indenture.

               "Securities Act" means the Securities Act of 1933, as amended.

               "Senior Indebtedness", when used with respect to the Subordinated
Securities of any series, shall have the meaning established pursuant to
Subsection 2.3(9) with respect to the Subordinated Securities of such series.

               "Senior Securities" means Securities other than Subordinated
Securities.

               "Subordinated Securities" means Securities that by the terms
established pursuant to Subsection 2.3(9) are subordinated in right of payment
to Senior Indebtedness of the Issuer.

               "Subordination Provisions", when used with respect to the
Subordinated Securities of any series, shall have the meaning established
pursuant to Subsection 2.3(9) with respect to the Subordinated Securities of
such series.

               "Subsidiary" means any corporation of which at least a majority
of the outstanding stock having the voting power to elect a majority of the
Board of Directors of such corporation (irrespective of whether or not at the
time stock of any other class or classes of such corporation shall have or might
have voting power by reason of the happening of any contingency) is at the time
of determination directly or indirectly owned by the Issuer, or by one or more
of its Subsidiaries, or by the Issuer and one or more of its Subsidiaries.

               "Trustee" means the Person identified as "Trustee" in the first
paragraph hereof and, subject to the provisions of Article VI, shall also
include any successor trustee. "Trustee" shall also mean or include each Person
who is then a trustee hereunder, and if at any time there is more than one such
Person, "Trustee" as used with respect to the Securities of any series shall
mean the trustee with respect to the Securities of such series.

               "Unregistered Security" means any Security other than a
Registered Security.



                                       6


               "U.S. Government Obligations" shall have the meaning set forth in
Section 10.1(A).

               "Voting Stock" means stock of any class or classes having general
voting power under ordinary circumstances to elect a majority of the board of
directors, managers or trustees of the corporation in question, provided, that,
for the purposes hereof, stock which carries only the right to vote
conditionally on the happening of an event shall not be considered voting stock
whether or not such event shall have happened.

               "Yield to Maturity" means the yield to maturity on a series of
securities, calculated at the time of issuance of such series, or, if
applicable, at the most recent redetermination of interest on such series, and
calculated in accordance with accepted financial practice.

                                   ARTICLE II

                                   SECURITIES

               SECTION 2.1 FORMS GENERALLY. The Securities of each series and
the Coupons, if any, to be attached thereto shall be substantially in such form
(not inconsistent with this Indenture) as shall be established by or pursuant to
one or more Board Resolutions (as set forth in a Board Resolution or, to the
extent established pursuant to but not set forth in a Board Resolution, an
Officer's Certificate detailing such establishment) or in one or more indentures
supplemental hereto, in each case with such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by this
Indenture and may have imprinted or otherwise reproduced thereon such legend or
legends or endorsements, not inconsistent with the provisions of this Indenture,
as may be required to comply with any law or with any rules or regulations
pursuant thereto, or with any rules of any securities exchange or to conform to
general usage, all as may be determined by the officers executing such
Securities and Coupons, if any, as evidenced by their execution of such
Securities and Coupons.

               The definitive Securities and Coupons, if any, 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 Securities and
Coupons, if any, as evidenced by their execution of such Securities and Coupons,
if any.



                                       7


               SECTION 2.2 FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
The Trustee's certificate of authentication on all Securities shall be in
substantially the following form:

                 "This is one of the Securities referred to in the
within-mentioned Indenture.

                                        THE BANK OF NEW YORK,
                                        as Trustee

                                        By
                                             -----------------------------------
                                             Authorized Signatory"

                 If at any time there shall be an Authenticating Agent appointed
with respect to any series of Securities, then the Trustee's Certificate of
Authentication to be borne by the Securities of each such series shall be
substantially as follows:

                 "This is one of the Securities referred to in the
within-mentioned Indenture.

                                        [______________________________________]
                                        as Authenticating Agent

                                        By
                                             -----------------------------------
                                             Authorized Signatory"

               SECTION 2.3 AMOUNT UNLIMITED; ISSUABLE IN SERIES. The aggregate
principal amount of Securities which may be authenticated and delivered under
this Indenture is unlimited.

               The Securities may be issued in one or more series. There shall
be established in or pursuant to one or more Board Resolutions (and to the
extent established pursuant to but not set forth in a Board Resolution, in an
Officer's Certificate detailing such establishment) or established in one or
more indentures supplemental hereto, prior to the initial issuance of Securities
of any series,

               (1) the designation of the Securities of the series, which shall
        distinguish the Securities of the series from the Securities of all
        other series, and which may be part of a series of Securities previously
        issued;



                                       8


               (2) any limit upon the aggregate principal amount of the
        Securities of the series that may be authenticated and delivered under
        this Indenture (except for Securities authenticated and delivered upon
        registration of transfer of, or in exchange for, or in lieu of, other
        Securities of the series pursuant to Section 2.8, 2.9, 2.11, 8.5 or
        12.3);

               (3) if other than Dollars, the Foreign Currency or Foreign
        Currencies in which the Securities of the series are denominated;

               (4) the date or dates on which the principal of the Securities of
        the series is payable or the method of determination thereof;

               (5) the rate or rates at which the Securities of the series shall
        bear interest, if any, the date or dates from which such interest shall
        accrue, on which such interest shall be payable, the terms and
        conditions of any deferral of interest and the additional interest, if
        any, thereon, the right, if any, of the Issuer to extend the interest
        payment periods and the duration of the extensions on the Subordinated
        Securities, and (in the case of Registered Securities) the date or dates
        on which a record shall be taken for the determination of Holders to
        whom interest is payable and/or the method by which such rate or rates
        or date or dates shall be determined;

               (6) the place or places where and the manner in which, the
        principal of and any interest on Securities of the series shall be
        payable, if other than as provided in Section 3.2;

               (7) the right, if any, of the Issuer to redeem Securities, in
        whole or in part, at its option and the period or periods within which,
        or the date or dates on which, the price or prices at which and any
        terms and conditions upon which Securities of the series may be so
        redeemed, pursuant to any sinking fund or otherwise;

               (8) the obligation, if any, of the Issuer to redeem, purchase or
        repay Securities of the series pursuant to any mandatory redemption,
        sinking fund or analogous provisions or at the option of a Holder
        thereof and the price or prices at which and the period or periods
        within which or the date or dates on which, and any terms and conditions
        upon which Securities of the series shall be redeemed, purchased or
        repaid, in whole or in part, pursuant to such obligation;

               (9) if the Securities of such series are Subordinated Securities,
        the terms pursuant to which the Securities of such series will be made
        subordinate in right of payment to Senior Indebtedness and the
        definition of such Senior Indebtedness with respect to such series (in
        the absence of an express statement to the effect that the Securities of
        such series are subordinate in right of payment to all such Senior
        Indebtedness, the Securities of such series shall not be subordinate to
        Senior Indebtedness and shall not constitute Subordinated Securities);
        and, in the event that the



                                       9


        Securities of such series are Subordinated Securities, a Board
        Resolution, Officer's Certificate or supplemental indenture, as the case
        may be, establishing the terms of such series which shall expressly
        state which articles, sections or other provisions thereof constitute
        the "Subordination Provisions" with respect to the Securities of such
        series;

               (10) if other than denominations of $1,000 and any integral
        multiple thereof in the case of Registered Securities, or $1,000 and
        $5,000 in the case of Unregistered Securities, the denominations in
        which Securities of the series shall be issuable;

               (11) the percentage of the principal amount at which the
        Securities will be issued and if other than the principal amount
        thereof, the portion of the principal amount of Securities of the series
        which shall be payable upon declaration of acceleration of the maturity
        thereof;

               (12) if other than the coin, currency or currencies in which the
        Securities of the series are denominated, the coin, currency or
        currencies in which payment of the principal of or interest on the
        Securities of such series shall be payable, including composite
        currencies or currency units;

               (13) if the principal of or interest on the Securities of the
        series are to be payable, at the election of the Issuer or a Holder
        thereof, in a coin or currency other than that in which the Securities
        are denominated, the period or periods within which, and the terms and
        conditions upon which, such election may be made;

               (14) if the amount of payments of principal of and interest on
        the Securities of the series may be determined with reference to an
        index or formula based on a coin, currency, composite currency or
        currency unit other than that in which the Securities of the series are
        denominated, the manner in which such amounts shall be determined;

               (15) whether the Securities of the series will be issuable as
        Registered Securities (and if so, whether such Securities will be
        issuable as Registered Global Securities) or Unregistered Securities
        (with or without Coupons), or any combination of the foregoing, any
        restrictions applicable to the offer, sale or delivery of Unregistered
        Securities or the payment of interest thereon and, if other than as
        provided in Section 2.8, the terms upon which Unregistered Securities of
        any series may be exchanged for Registered Securities of such series and
        vice versa;

               (16) whether and under what circumstances the Issuer will pay
        additional amounts on the Securities of the series held by a person who
        is not a U.S. person in respect of any tax, assessment or governmental
        charge withheld or deducted and, if so, whether the Issuer will have the
        option to redeem the Securities of the series rather than pay such
        additional amounts;



                                       10


               (17) if the Securities of the series are to be issuable in
        definitive form (whether upon original issue or upon exchange of a
        temporary Security of such series) only upon receipt of certain
        certificates or other documents or satisfaction of other conditions, the
        form and terms of such certificates, documents or conditions;

               (18) any trustees, depositaries, authenticating or paying agents,
        transfer agents or registrars of any other agents with respect to the
        Securities of such series;

               (19) any deletion from modification of or addition to the Events
        of Default or covenants with respect to the Securities of such series;

               (20) if the Securities of the series are to be convertible into
        or exchangeable for any other security or property of the Issuer,
        including, without limitation, securities of another Person held by the
        Issuer or its Affiliate; and

               (21) any other terms of the series (which terms shall not be
        inconsistent with the provisions of this Indenture).

               All Securities of any one series and Coupons, if any,
appertaining thereto shall be substantially identical, except in the case of
Registered Securities as to denomination and except as may otherwise be provided
by or pursuant to the Board Resolution or Officer's Certificate referred to
above or as set forth in any indenture supplemental hereto. All Securities of
any one series need not be issued at the same time and may be issued from time
to time without consent of any Holder, consistent with the terms of this
Indenture, if so provided by or pursuant to such Board Resolution, such
Officer's Certificate or in any indenture supplemental hereto.

               SECTION 2.4 AUTHENTICATION AND DELIVERY OF SECURITIES. The Issuer
may deliver Securities of any series having attached thereto appropriate
Coupons, if any, executed by the Issuer to the Trustee for authentication
together with the applicable documents referred to below in this Section 2.4,
and the Trustee shall thereupon authenticate and deliver such Securities and
Coupons, if any, to or upon the order of the Issuer (contained in the Issuer
Order referred to below in this Section) or pursuant to such procedures
acceptable to the Trustee and to such recipients as may be specified from time
to time by an Issuer Order. The maturity date, original issue date, interest
rate and any other terms of the Securities of such series and Coupons, if any,
appertaining thereto shall be determined by or pursuant to such Issuer Order and
procedures. If provided for in such procedures, such Issuer Order may authorize
authentication and delivery pursuant to oral or electronic instructions from the
Issuer or its duly authorized agent or agents, which instructions, if oral,
shall be promptly confirmed in writing. In authenticating such Securities and
accepting the additional responsibilities under this Indenture in relation to
such Securities, the Trustee shall be entitled to receive (in the case of
subparagraphs (2), (3) and (4) below only at or before the time of the first
request of the Issuer to the Trustee to authenticate Securities of such series)
and (subject



                                       11


to Section 6.1) shall be fully protected in relying upon, the following
enumerated documents unless and until such documents have been superseded or
revoked:

               (1) an Issuer Order requesting such authentication and setting
        forth delivery instructions if the Securities and Coupons, if any, are
        not to be delivered to the Issuer, provided that, with respect to
        Securities of a series subject to a Periodic Offering, (a) such Issuer
        Order may be delivered by the Issuer to the Trustee prior to the
        delivery to the Trustee of such Securities for authentication and
        delivery, (b) the Trustee shall authenticate and deliver Securities of
        such series for original issue from time to time, in an aggregate
        principal amount not exceeding the aggregate principal amount
        established for such series, pursuant to an Issuer Order or pursuant to
        procedures acceptable to the Trustee as may be specified from time to
        time by an Issuer Order, (c) the maturity date or dates, original issue
        date or dates, interest rate or rates and any other terms of Securities
        of such series shall be determined by an Issuer Order or pursuant to
        such procedures and (d) if provided for in such procedures, such Issuer
        Order may authorize authentication and delivery pursuant to oral or
        electronic instructions from the Issuer or its duly authorized agent or
        agents, which instructions, if oral, shall be promptly confirmed in
        writing;

               (2) any Board Resolution, Officer's Certificate and/or executed
        supplemental indenture referred to in Section 2.1 and 2.3 by or pursuant
        to which the forms and terms of the Securities and Coupons, if any, were
        established;

               (3) an Officer's Certificate setting forth the form or forms and
        terms of the Securities and Coupons, if any, stating that the form or
        forms and terms of the Securities and Coupons, if any, have been
        established pursuant to Sections 2.1 and 2.3 and comply with this
        Indenture, and covering such other matters as the Trustee may reasonably
        request; and

               (4) At the option of the Issuer, either one or more Opinions of
        Counsel, or a letter addressed to the Trustee permitting it to rely on
        one or more Opinions of Counsel, substantially to the effect that:

                      (a) the form or forms of the Securities and Coupons, if
               any, have been duly authorized and established in conformity with
               the provisions of this Indenture;

                      (b) in the case of an underwritten offering, the terms of
               the Securities have been duly authorized and established in
               conformity with the provisions of this Indenture, and, in the
               case of an offering that is not underwritten, certain terms of
               the Securities have been established pursuant to a Board
               Resolution, an Officer's Certificate or a supplemental indenture
               in accordance with this Indenture, and when such other terms as
               are to be established pursuant to



                                       12


               procedures set forth in an Issuer Order shall have been
               established, all such terms will have been duly authorized by the
               Issuer and will have been established in conformity with the
               provisions of this Indenture; and

                      (c) such Securities and Coupons, if any, when executed by
               the Issuer and authenticated by the Trustee in accordance with
               the provisions of this Indenture and delivered to and duly paid
               for by the purchasers thereof, and subject to any conditions
               specified in such Opinion of Counsel, will have been duly issued
               under this Indenture, will be entitled to the benefits of this
               Indenture, and will be valid and binding obligations of the
               Issuer, enforceable in accordance with their respective terms
               except as the enforceability thereof may be limited by (i)
               bankruptcy, insolvency, reorganization, liquidation, moratorium,
               fraudulent transfer or similar laws affecting creditors' rights
               generally, (ii) rights of acceleration, if any, and (iii) the
               availability of equitable remedies may be limited by equitable
               principles of general applicability and such counsel need express
               no opinion with regard to the enforceability of Section 6.6 or of
               a judgment denominated in a currency other than Dollars.

               In rendering such opinions, any counsel may qualify any opinions
as to enforceability by stating that such enforceability may be limited by
bankruptcy, insolvency, reorganization, liquidation, moratorium, fraudulent
transfer and other similar laws affecting the rights and remedies of creditors
and is subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law). Such counsel
may rely upon opinions of other counsel (copies of which shall be delivered to
the Trustee) reasonably satisfactory to the Trustee, in which case the opinion
shall state that such counsel believes he and the Trustee are entitled so to
rely. Such counsel may also state that, insofar as such opinion involves factual
matters, he has relied, to the extent he deems proper, upon certificates of
officers of the Issuer and its subsidiaries and certificates of public
officials.

               The Trustee shall have the right to decline to authenticate and
deliver any Securities under this section if the Trustee, being advised by
counsel, determines that such action may not lawfully be taken by the Issuer or
if the Trustee in good faith by its board of directors or board of trustees,
executive committee or a trust committee of directors or trustees shall
determine that such action would expose the Trustee to personal liability to
existing Holders or would affect the Trustee's own rights, duties or immunities
under the Securities, this Indenture or otherwise.

               If the Issuer shall establish pursuant to Section 2.3 that the
Securities of a series are to be issued in the form of one or more Registered
Global Securities, then the Issuer shall execute and the Trustee shall, in
accordance with this Section and the Issuer Order with respect to such series,
authenticate and deliver one or more Registered Global Securities that (i) shall
represent and shall be denominated in an amount equal to the aggregate principal
amount of all of the Securities of such series issued and not yet cancelled,
(ii) shall be registered in the name



                                       13


of the Depositary for such Registered Global Security or Securities or the
nominee of such Depositary, (iii) shall be delivered by the Trustee to such
Depositary or delivered or held 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 Securities in definitive
registered form, this Security 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 designated pursuant to Section 2.3 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.

               SECTION 2.5 EXECUTION OF SECURITIES. The Securities and each
Coupon appertaining thereto, if any, shall be signed on behalf of the Issuer by
the chairman or vice chairman of its Board of Directors or its president, or any
executive (senior or other), a vice president or its treasurer, under its
corporate seal (except in the case of Coupons) which may, but need not, be
attested. Such signatures may be the manual or facsimile signatures of the
present or any future such officers. The seal of the Issuer may be in the form
of a facsimile thereof and may be impressed, affixed, imprinted or otherwise
reproduced on the Securities. 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 Security that has been duly authenticated and
delivered by the Trustee.

               In case any officer of the Issuer who shall have signed any of
the Securities or Coupons, if any, shall cease to be such officer before the
Security or Coupon so signed (or the Security to which the Coupon so signed
appertains) shall be authenticated and delivered by the Trustee or disposed of
by the Issuer, such Security or Coupon nevertheless may be authenticated and
delivered or disposed of as though the person who signed such Security or Coupon
had not ceased to be such officer of the Issuer; and any Security or Coupon may
be signed on behalf of the Issuer by such persons as, at the actual date of the
execution of such Security or Coupon, shall be the proper officers of the
Issuer, although at the date of the execution and delivery of this Indenture any
such person was not such an officer.

               SECTION 2.6 CERTIFICATE OF AUTHENTICATION. Only such Securities
as shall bear thereon a certificate of authentication substantially in the form
hereinbefore recited, executed by the Trustee by the manual signature of one of
its authorized officers, shall be entitled to the benefits of this Indenture or
be valid or obligatory for any purpose. No Coupon shall be entitled to the
benefits of this Indenture or shall be valid and obligatory for any purpose
until the certificate of authentication on the Security to which such Coupon
appertains shall have been duly executed by the Trustee. The execution of such
certificate by the Trustee upon any Security executed by the Issuer shall be
conclusive evidence



                                       14


that the Security so authenticated has been duly authenticated and delivered
hereunder and that the Holder is entitled to the benefits of this Indenture.

               SECTION 2.7 DENOMINATION AND DATE OF SECURITIES; PAYMENT OF
INTEREST. The Securities of each series shall be issuable as Registered
Securities or Unregistered Securities in denominations established as
contemplated by Section 2.3 or, with respect to the Registered Securities of any
series, if not so established, in denominations of $1,000 and any integral
multiple thereof. If denominations of Unregistered Securities of any series are
not so established, such Securities shall be issuable in denominations of $1,000
and $5,000. The Securities of each series shall be numbered, lettered or
otherwise distinguished in such manner or in accordance with such plan as the
officers of the Issuer executing the same may determine with the approval of the
Trustee, as evidenced by the execution and authentication thereof.

               Each Registered Security shall be dated the date of its
authentication. Each Unregistered Security shall be dated as provided in the
Board Resolution referred to in Section 2.3. The Securities of each series shall
bear interest, if any, from the date, and such interest shall be payable on the
dates, established as contemplated by Section 2.3.

               The person in whose name any Registered Security of any series is
registered at the close of business on any record date applicable to a
particular series with respect to any interest payment date for such series
shall be entitled to receive the interest, if any, payable on such interest
payment date notwithstanding any transfer or exchange of such Registered
Security subsequent to the record date and prior to such interest payment date,
except if and to the extent the Issuer shall default in the payment of the
interest due on such interest payment date for such series, in which case such
defaulted interest shall be paid to the persons in whose names Outstanding
Registered Securities for such series are registered at the close of business on
a subsequent record date (which shall be not less than five Business Days prior
to the date of payment of such defaulted interest) established by notice given
by mail by or on behalf of the Issuer to the Holders of Registered Securities
not less than 15 days preceding such subsequent record date. The term "record
date" as used with respect to any interest payment date (except a date for
payment of defaulted interest) for the Securities of any series shall mean the
date specified as such in the terms of the Registered Securities of such series
established as contemplated by Section 2.3, or, if no such date is so
established, if such interest payment date is the first day of a calendar month,
the fifteenth day of the preceding calendar month or, if such interest payment
date is the fifteenth day of a calendar month, the first day of such calendar
month, whether or not such record date is a Business Day.

               SECTION 2.8 REGISTRATION, TRANSFER AND EXCHANGE. (a) The Issuer
will keep at each office or agency to be maintained for the purpose as provided
in Section 3.2 for each series of Securities a register or registers in which,
subject to such reasonable regulations as the Issuer may prescribe, it will
provide for the registration of Registered Securities of such series and the
registration of transfer of Registered Securities of such series.



                                       15


Such register shall be in written form in the English language or in any other
form capable of being converted into such form within a reasonable time. At all
reasonable times such register or registers shall be open for inspection by the
Trustee.

               Upon due presentation for registration of transfer of any
Registered Security of any series at any such office or agency to be maintained
for the purpose as provided in Section 3.2, the Issuer shall execute and the
Trustee shall authenticate and deliver in the name of the transferee or
transferees a new Registered Security or Registered Securities of the same
series, maturity date, interest rate and original issue date in authorized
denominations for a like aggregate principal amount.

               Unregistered Securities (except for any temporary global
Unregistered Securities) and Coupons (except for Coupons attached to any
temporary global Unregistered Securities) shall be transferable by delivery.

               At the option of the Holder thereof, Registered Securities of any
series (other than a Registered Global Security, except as set forth below) may
be exchanged for a Registered Security or Registered Securities of such series
having authorized denominations and an equal aggregate principal amount, upon
surrender of such Registered Securities to be exchanged at the agency of the
Issuer that shall be maintained for such purpose in accordance with Section 3.2
and upon payment, if the Issuer shall so require, of the charges hereinafter
provided. If the Securities of any series are issued in both registered and
unregistered form, at the option of the Holder thereof, except as otherwise
specified pursuant to Section 2.3, Unregistered Securities of any series may be
exchanged for Registered Securities of such series having authorized
denominations and an equal aggregate principal amount, upon surrender of such
Unregistered Securities to be exchanged at the agency of the Issuer that shall
be maintained for such purpose in accordance with Section 3.2, with, in the case
of Unregistered Securities that have Coupons attached, all unmatured Coupons and
all matured Coupons in default thereto appertaining, and upon payment, if the
Issuer shall so require, of the charges hereinafter provided. At the option of
the Holder thereof, if Unregistered Securities of any series, maturity date,
interest rate and original issue date are issued in more than one authorized
denomination, except as otherwise specified pursuant to Section 2.3, such
Unregistered Securities may be exchanged for Unregistered Securities of such
series having authorized denominations and an equal aggregate principal amount,
upon surrender of such Unregistered Securities to be exchanged at the agency of
the Issuer that shall be maintained for such purpose in accordance with Section
3.2 or as specified pursuant to Section 2.3, with, in the case of Unregistered
Securities that have Coupons attached, all unmatured Coupons and all matured
Coupons in default thereto appertaining, and upon payment, if the Issuer shall
so require, of the charges hereinafter provided. Registered Securities of any
series may not be exchanged for Unregistered Securities of such series unless
(1) otherwise specified pursuant to Section 2.3 and (2) the Issuer has delivered
to the Trustee an Opinion of Counsel that (x) the Issuer has received from the
IRS a ruling or (y) since the date hereof, there has been a change in the
applicable United States Federal income tax law, in either case to the effect
that the inclusion of terms permitting Registered Securities to be exchanged



                                       16


for Unregistered Securities would result in no United States Federal income tax
effect adverse to the Issuer or to any Holder. Whenever any Securities are so
surrendered for exchange, the Issuer shall execute, and the Trustee shall
authenticate and deliver, the Securities which the Holder making the exchange is
entitled to receive. All Securities and Coupons, if any, surrendered upon any
exchange or transfer provided for in this Indenture shall be promptly cancelled
and disposed of by the Trustee in accordance with its regular procedures, and
the Trustee shall deliver a certificate of disposition thereof to the Issuer.

               All Registered Securities presented for registration of transfer,
exchange, redemption or payment shall (if so required by the Issuer or the
Trustee) be duly endorsed, or be accompanied by a written instrument or
instruments of transfer in form satisfactory to the Issuer and the Trustee duly
executed, by the Holder or his attorney duly authorized in writing.

               The Issuer or the registrar may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any exchange or registration of transfer of Securities. No
service charge shall be made for any such transaction.

               The Issuer shall not be required to exchange or register a
transfer of (a) any Securities of any series for a period of 15 days preceding
the first mailing of notice of redemption of Securities of such series to be
redeemed or (b) any Securities selected, called or being called for redemption,
in whole or in part, except, in the case of any Security to be redeemed in part,
the portion thereof not so to be redeemed.

               Notwithstanding any other provision of this Section 2.8, unless
and until it is exchanged in whole or in part for Securities in definitive
registered form, a Registered Global Security representing all or a portion of
the Securities of a series may not be transferred except as a whole by the
Depositary for such series 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 for such series or
a nominee of such successor Depositary.

               If at any time the Depositary for any Registered Securities of a
series represented by one or more Registered Global Securities notifies the
Issuer that it is unwilling or unable to continue as Depositary for such
Registered Securities or if at any time the Depositary for such Registered
Securities shall no longer be eligible under Section 2.4, the Issuer shall
appoint a successor Depositary eligible under Section 2.4 with respect to such
Registered Securities. If a successor Depositary eligible under Section 2.4 for
such Registered Securities is not appointed by the Issuer within 90 days after
the Issuer receives such notice or becomes aware of such ineligibility, the
Issuer's election pursuant to Section 2.3 that such Registered Securities be
represented by one or more Registered Global Securities shall no longer be
effective and the Issuer will execute, and the Trustee, upon receipt of an
Officer's Certificate for the authentication and delivery of definitive
Securities of such series, will authenticate and deliver, Securities of such
series in definitive registered form without coupons,



                                       17


in any authorized denominations, in an aggregate principal amount equal to the
principal amount of the Registered Global Security or Securities representing
such Registered Securities in exchange for such Registered Global Security or
Securities.

               The Issuer may at any time and in its sole discretion determine
that the Registered Securities of any series issued in the form of one or more
Registered Global Securities shall no longer be represented by a Registered
Global Security or Securities. In such event the Issuer will execute, and the
Trustee, upon receipt of any Officer's Certificate for the authentication and
delivery of definitive Securities of such series, will authenticate and deliver,
Securities of such series in definitive registered form without coupons, in any
authorized denominations, in an aggregate principal amount equal to the
principal amount of the Registered Global Security or Securities representing
such Registered Securities, in exchange for such Registered Global Security or
Securities.

               If specified by the Issuer pursuant to Section 2.3 with respect
to Securities represented by a Registered Global Security, the Depositary for
such Registered Global Security may surrender such Registered Global Security in
exchange in whole or in part for Securities of the same series in definitive
registered form on such terms as are acceptable to the Issuer and such
Depositary. Thereupon, the Issuer shall execute, and the Trustee shall
authenticate and deliver, without service charge,

               (i) to the Person specified by such Depositary a new Registered
        Security or Securities of the same series, 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 Registered Global Security; and

               (ii) to such Depositary a new Registered Global Security in a
        denomination equal to the difference, if any, between the principal
        amount of the surrendered Registered Global Security and the aggregate
        principal amount of Registered Securities authenticated and delivered
        pursuant to clause (i) above.

               Upon the exchange of a Registered Global Security for Securities
in definitive registered form without coupons, in authorized denominations, such
Registered Global Security shall be cancelled by the Trustee or an agent of the
Issuer or the Trustee. Securities in definitive registered form without coupons
issued in exchange for a Registered Global Security pursuant to this Section 2.8
shall be registered in such names and in such authorized denominations as the
Depositary for such Registered Global Security, pursuant to instructions from
its direct or indirect participants or otherwise, shall instruct the Trustee or
an agent of the Issuer or the Trustee. The Trustee or such agent shall deliver
such Securities to or as directed by the Persons in whose names such Securities
are so registered.



                                       18


               All Securities issued upon any transfer or exchange of Securities
shall be valid obligations of the Issuer, evidencing the same debt, and entitled
to the same benefits under this Indenture, as the Securities surrendered upon
such transfer or exchange.

               Notwithstanding anything herein or in the terms of any series of
Securities to the contrary, none of the Issuer, the Trustee or any agent of the
Issuer or the Trustee (any of which, other than the Issuer, shall rely on an
Officer's Certificate and an Opinion of Counsel) shall be required to exchange
any Unregistered Security for a Registered Security if such exchange would
result in United States Federal income tax consequences adverse to the Issuer
(such as, for example, the inability of the Issuer to deduct from its income, as
computed for United States Federal income tax purposes, the interest payable on
the Unregistered Securities) under then applicable United States Federal income
tax laws.

               SECTION 2.9 MUTILATED, DEFACED, DESTROYED, LOST AND STOLEN
SECURITIES. In case any temporary or definitive Security or any Coupon
appertaining to any Security shall be mutilated, defaced, destroyed, lost or
stolen, the Issuer in its discretion may execute and, upon the written request
of any officer of the Issuer, the Trustee shall authenticate and deliver, a new
Security of the same series, maturity date, interest rate and original issue
date, bearing a number or other distinguishing symbol not contemporaneously
outstanding, in exchange and substitution for the mutilated or defaced Security,
or in lieu of and in substitution for the Security so destroyed, lost or stolen
with Coupons corresponding to the Coupons appertaining to the Securities so
mutilated, defaced, destroyed, lost or stolen, or in exchange or substitution
for the Security to which such mutilated, defaced, destroyed, lost or stolen
Coupon appertained, with Coupons appertaining thereto corresponding to the
Coupons so mutilated, defaced, destroyed, lost or stolen. In every case, the
applicant for a substitute Security or Coupon shall furnish to the Issuer and to
the Trustee and any agent of the Issuer or the 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 Security or Coupon
and of the ownership thereof, and in the case of mutilation or defacement shall
surrender the Security and related Coupons to the Trustee or such agent.

               Upon the issuance of any substitute Security or Coupon, the
Issuer or the registrar 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 Security or Coupon 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 Issuer may, instead of issuing a
substitute Security, pay or authorize the payment of the same or the relevant
Coupon (without surrender thereof except in the case of a mutilated or defaced
Security or Coupon), if the applicant for such payment shall furnish to the
Issuer and to the Trustee and any agent of the Issuer 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



                                       19


to the Issuer and the Trustee and any agent of the Issuer or the Trustee
evidence to their satisfaction of the destruction, loss or theft of such
Security or Coupons and of the ownership thereof.

               Every substitute Security or Coupon of any series issued pursuant
to the provisions of this Section by virtue of the fact that any such Security
or Coupon is destroyed, lost or stolen shall constitute an additional
contractual obligation of the Issuer, whether or not the destroyed, lost or
stolen Security or Coupon 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 Securities or Coupons of such series duly authenticated and delivered
hereunder. All Securities and Coupons shall be held and owned 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 or
destroyed, lost or stolen Securities and Coupons 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 2.10 CANCELLATION OF SECURITIES; DESTRUCTION THEREOF. All
Securities and Coupons surrendered for payment, redemption, registration of
transfer or exchange, or for credit against any payment in respect of a sinking
or analogous fund, if any, if surrendered to the Issuer or any agent of the
Issuer or the Trustee or any agent of the Trustee, shall be delivered to the
Trustee or its agent for cancellation or, if surrendered to the Trustee, shall
be cancelled by it; and no Securities or Coupons shall be issued in lieu thereof
except as expressly permitted by any of the provisions of this Indenture. The
Trustee or its agent shall dispose of cancelled Securities and Coupons held by
it in accordance with its regular procedures and deliver a certificate of
disposition to the Issuer. If the Issuer or its agent shall acquire any of the
Securities or Coupons, such acquisition shall not operate as a redemption or
satisfaction of the indebtedness represented by such Securities or Coupons
unless and until the same are delivered to the Trustee or its agent for
cancellation.

               SECTION 2.11 TEMPORARY SECURITIES. Pending the preparation of
definitive Securities for any series, the Issuer may execute and the Trustee
shall authenticate and deliver temporary Securities for such series (printed,
lithographed, typewritten or otherwise reproduced, in each case in form
satisfactory to the Trustee). Temporary Securities of any series shall be
issuable as Registered Securities without coupons, or as Unregistered Securities
with or without coupons attached thereto, of any authorized denomination, and
substantially in the form of the definitive Securities of such series but with
such omissions, insertions and variations as may be appropriate for temporary
Securities, all as may be determined by the Issuer with the concurrence of the
Trustee as evidenced by the execution and authentication thereof. Temporary
Securities may contain such references to any provisions of this Indenture as
may be appropriate. Every temporary Security shall be executed by the Issuer and
be authenticated by the Trustee upon the same conditions and in substantially
the same manner,



                                       20


and with like effect, as the definitive Securities. Without unreasonable delay
the Issuer shall execute and shall furnish definitive Securities of such series
and thereupon temporary Registered Securities of such series may be surrendered
in exchange therefor without charge at each office or agency to be maintained by
the Issuer for that purpose pursuant to Section 3.2 and, in the case of
Unregistered Securities, at any agency maintained by the Issuer for such purpose
as specified pursuant to Section 2.3, and the Trustee shall authenticate and
deliver in exchange for such temporary Securities of such series an equal
aggregate principal amount of definitive Securities of the same series having
authorized denominations and, in the case of Unregistered Securities, having
attached thereto any appropriate Coupons. Until so exchanged, the temporary
Securities of any series shall be entitled to the same benefits under this
Indenture as definitive Securities of such series, unless otherwise established
pursuant to Section 2.3. The provisions of this Section are subject to any
restrictions or limitations on the issue and delivery of temporary Unregistered
Securities of any series that may be established pursuant to Section 2.3
(including any provision that Unregistered Securities of such series initially
be issued in the form of a single global Unregistered Security to be delivered
to a depositary or agency located outside the United States and the procedures
pursuant to which definitive or global Unregistered Securities of such series
would be issued in exchange for such temporary global Unregistered Security).

                                   ARTICLE III

                             COVENANTS OF THE ISSUER

               SECTION 3.1 PAYMENT OF PRINCIPAL AND INTEREST. The Issuer
covenants and agrees for the benefit of each series of Securities that it will
duly and punctually pay or cause to be paid the principal of, and interest on,
if any, each of the Securities of such series (together with any additional
amounts payable pursuant to the terms of such Securities) at the place or
places, at the respective time or times and in the manner provided in such
Securities and in the Coupons, if any, appertaining thereto and in this
Indenture. The interest on Securities with Coupons attached (together with any
additional amounts payable pursuant to the terms of such Securities) shall be
payable only upon presentation and surrender of the several Coupons for such
interest installments as are evidenced thereby as they severally mature. If any
temporary Unregistered Security provides that interest thereon may be paid while
such Security is in temporary form, the interest on any such temporary
Unregistered Security (together with any additional amounts payable pursuant to
the terms of such Security) shall be paid, as to the installments of interest
evidenced by Coupons attached thereto, if any, only upon presentation and
surrender thereof, and, as to the other installments of interest, if any, only
upon presentation of such Securities for notation thereon of the payment of such
interest, in each case subject to any restrictions that may be established
pursuant to Section 2.3. The interest, if any, on Registered Securities
(together with any additional amounts payable pursuant to the terms of such
Securities) shall be payable only to or upon the written order of the Holders
thereof and, at the option of the Issuer, may be paid by wire transfer or by
mailing checks for



                                       21


such interest payable to or upon the written order of such Holders at their last
addresses as they appear on the Securities register of the Issuer.

               SECTION 3.2 OFFICES FOR PAYMENTS, ETC. So long as any Registered
Securities are authorized for issuance pursuant to this Indenture or are
outstanding hereunder, the Issuer will maintain in the Borough of Manhattan, The
City of New York, an office or agency where the Registered Securities of each
series may be presented for payment, where the Securities of each series may be
presented for exchange as is provided in this Indenture and, if applicable,
pursuant to Section 2.3 and where the Registered Securities of each series may
be presented for registration of transfer as in this Indenture provided.

               The Issuer will maintain one or more offices or agencies in a
city or cities located outside the United States (including any city in which
such an agency is required to be maintained under the rules of any stock
exchange on which the Securities of such series are listed) where the
Unregistered Securities, if any, of each series and Coupons, if any,
appertaining thereto may be presented for payment. No payment on any
Unregistered Security or Coupon will be made upon presentation of such
Unregistered Security or Coupon at an agency of the Issuer within the United
States, nor will any payment be made by transfer to an account in, or by mail to
an address in, the United States unless pursuant to applicable United States
laws and regulations then in effect such payment can be made without tax
consequences adverse to the Issuer. Notwithstanding the foregoing, payments in
Dollars of Unregistered Securities of any series and Coupons appertaining
thereto which are payable in Dollars may be made at an agency of the Issuer
maintained in the Borough of Manhattan, The City of New York if such payment in
Dollars at each agency maintained by the Issuer outside the United States for
payment on such Unregistered Securities is illegal or effectively precluded by
exchange controls or other similar restrictions.

               The Issuer will maintain in the Borough of Manhattan, The City of
New York, an office or agency where notices and demands to or upon the Issuer in
respect of the Securities of any series, the Coupons appertaining thereto or
this Indenture may be served.

               The Issuer will give to the Trustee written notice of the
location of each such office or agency and of any change of location thereof. In
case the Issuer shall fail to maintain any agency required by this Section to be
located in the Borough of Manhattan, The City of New York, or shall fail to give
such notice of the location or for any change in the location of any of the
above agencies, presentations and demands may be made and notices may be served
at the Corporate Trust Office of the Trustee.

               The Issuer may from time to time designate one or more additional
offices or agencies where the Securities of a series and any Coupons
appertaining thereto may be presented for payment, where the Securities of that
series may be presented for exchange as provided in this Indenture and pursuant
to Section 2.3 and where the Registered Securities of that series may be
presented for registration of transfer as in this Indenture provided, and the



                                       22


Issuer may from time to time rescind any such designation, as the Issuer may
deem desirable or expedient; provided, that no such designation or rescission
shall in any manner relieve the Issuer of its obligations to maintain the
agencies provided for in this Section. The Issuer shall give to the Trustee
prompt written notice of any such designation or rescission thereof.

               SECTION 3.3 APPOINTMENT TO FILL A VACANCY IN OFFICE OF TRUSTEE.
The Issuer, whenever necessary to avoid or fill a vacancy in the office of
Trustee, will appoint, in the manner provided in Section 6.10, a Trustee, so
that there shall at all times be a Trustee with respect to each series of
Securities hereunder.

               SECTION 3.4 PAYING AGENTS. Whenever the Issuer shall appoint a
paying agent other than the Trustee with respect to the Securities of any
series, it will cause such paying agent to execute and deliver to the Trustee an
instrument in which such 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 agent for
        the payment of the principal of or interest on the Securities of such
        series (whether such sums have been paid to it by the Issuer or by any
        other obligor on the Securities of such series) in trust for the benefit
        of the Holders of the Securities of such series, or Coupons appertaining
        thereto, if any, or of the Trustee;

               (b) that it will give the Trustee notice of any failure by the
        Issuer (or by any other obligor on the Securities of such series) to
        make any payment of the principal of or interest on the Securities of
        such series when the same shall be due and payable; and

               (c) that it will pay any such sums so held in trust by it to the
        Trustee upon the Trustee's written request at any time during the
        continuance of the failure referred to in the foregoing clause (b).

               The Issuer will, on or prior to each due date of the principal of
or interest on the Securities of such series, deposit 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 Issuer will promptly notify the Trustee of
any failure to take such action.

               If the Issuer shall act as its own paying agent with respect to
the Securities of any series, it will, on or before each due date of the
principal of or interest on the Securities of such series, set aside, segregate
and hold in trust for the benefit of the Holders of the Securities of such
series or the Coupons appertaining thereto a sum sufficient to pay such
principal or interest so becoming due. The Issuer will promptly notify the
Trustee of any failure to take such action.

               Anything in this Section to the contrary notwithstanding, but
subject to Section 10.1, the Issuer may at any time, for the purpose of
obtaining a satisfaction and discharge with



                                       23


respect to one or more or all series of Securities hereunder, or for any other
reason, pay or cause to be paid to the Trustee all sums held in trust for any
such series by the Issuer or any paying agent hereunder, as required by this
Section, such sums to be held by the Trustee upon the trusts herein contained.

               Anything in this Section to the contrary notwithstanding, the
agreement to hold sums in trust as provided in this Section is subject to the
provisions of Sections 10.3 and 10.4.

               SECTION 3.5 COMPLIANCE CERTIFICATES. The Issuer will furnish to
the Trustee on or before January 31 in each year (beginning with [ ]) a brief
certificate (which need not comply with Section 11.5) from the principal
executive, financial or accounting officer of the Issuer stating that in the
course of the performance by the signer of his or her duties as an officer of
the Issuer he or she would normally have knowledge of any default or
non-compliance by the Issuer in the performance of any covenants or conditions
contained in this Indenture, stating whether or not he or she has knowledge of
any such default or non-compliance and, if so, describing each such default or
non-compliance of which the signer has knowledge and the nature thereof.

               SECTION 3.6 CORPORATE EXISTENCE. Subject to Article IX, the
Issuer will do or cause to be done all things necessary to preserve and keep in
full force and effect its corporate existence and the rights (charter and
statutory), licenses and franchises of the Issuer and its Subsidiaries;
provided, that the Issuer shall not be required to preserve any such right,
license or franchise, if, in the judgment of the Issuer, the preservation
thereof is no longer desirable in the conduct of the business of the Issuer and
its Subsidiaries taken as a whole and the loss thereof is not disadvantageous in
any material respect to the Securityholders.

               SECTION 3.7 LUXEMBOURG PUBLICATIONS. In the event of the
publication of any notice pursuant to Section 5.11, 6.11, 6.12, 8.2, 10.4, 11.4
or 12.2, the party making such publication in the Borough of Manhattan, The City
of New York and London shall also, to the extent that notice is required to be
given to Holders of Securities of any series by applicable Luxembourg law or
stock exchange regulation, as evidenced by an Officer's Certificate delivered to
such party, make a similar publication in Luxembourg.

                                   ARTICLE IV

                     SECURITYHOLDER LISTS AND REPORTS BY THE
                             ISSUER AND THE TRUSTEE

               SECTION 4.1 ISSUER TO FURNISH TRUSTEE INFORMATION AS TO NAMES AND
ADDRESSES OF SECURITYHOLDERS. If and so long as the Trustee shall not be the
Security registrar for the Securities of any series, the Issuer and any other
obligor on the Securities will furnish or cause to be furnished to the Trustee a
list in such form as the



                                       24


Trustee may reasonably require of the names and addresses of the Holders of the
Registered Securities of such series pursuant to Section 312 of the Trust
Indenture Act:

               (a) semi-annually not more than 5 days after each record date for
        the payment of interest on such Registered Securities, as hereinabove
        specified, as of such record date and on dates to be determined pursuant
        to Section 2.3 for non-interest bearing Registered Securities in each
        year; and

               (b) at such other times as the Trustee may reasonably request in
        writing, within thirty days after receipt by the Issuer of any such
        request as of a date not more than 15 days prior to the time such
        information is furnished.

               SECTION 4.2 REPORTS BY THE ISSUER. The Issuer covenants to file
with the Trustee, within 15 days after the Issuer is required to file the same
with the Commission, copies of the annual reports and of the information,
documents, and other reports that the Issuer may be required to file with the
Commission pursuant to Section 13 or Section 15(d) of the Exchange Act or
pursuant to Section 314 of the Trust Indenture Act.

               SECTION 4.3 REPORTS BY THE TRUSTEE.

               (a) On or before the first July 15 which occurs not less than 60
        days after the earliest date of issuance of any Securities and on or
        before July 15 in each year thereafter, so long as any Securities are
        Outstanding hereunder, the Trustee shall transmit by mail as provided
        below to the Securityholders of each series of outstanding Securities,
        as hereinafter in this Section provided, a brief report dated as of the
        preceding May 15 with respect to:

                      (i) its eligibility under Section 6.10 and its
               qualification under Section 6.9, or in lieu thereof, if to the
               best of its knowledge it has continued to be eligible and
               qualified under such Sections, a written statement to such
               effect;

                      (ii) the character and amount of any advances (and if the
               Trustee elects to so state, the circumstances surrounding the
               making thereof) made by the Trustee (as such) which remain unpaid
               on the date of such report and for the reimbursement of which it
               claims or may claim a lien or charge, prior to that of the
               Securities of such series, on any property or funds held or
               collected by it as Trustee, except that the Trustee shall not be
               required (but may elect) to report such advances if such advances
               so remaining unpaid aggregate not more than 0.5% of the principal
               of the Securities of such series outstanding on the date of such
               report;

                      (iii) the amount, interest rate and maturity date of all
               other indebtedness owing by the Issuer (or any other obligor on
               the Securities of such series) to the



                                       25


               Trustee in its individual capacity on the date of such report,
               with a brief description of any property held as collateral
               security therefor, except any indebtedness based upon a creditor
               relationship;

                      (iv) the property and funds, if any, physically in the
               possession of the Trustee (as such) in respect of the Securities
               of such series on the date of such report;

                      (v) any additional issue of Securities of such series
               which the Trustee has not previously reported; and

                      (vi) any action taken by the Trustee in the performance of
               its duties under this Indenture which the Trustee has not
               previously reported and which in the Trustee's opinion materially
               affects the Securities of such series, except action in respect
               of a default, notice of which has been or is to be withheld by it
               in accordance with the provisions of Section 5.11.

               (b) The Trustee shall transmit to the Securityholders of each
series, as provided in subsection (c) of this Section, a brief report with
respect to the character and amount of any advances (and if the Trustee elects
so to state, the circumstances surrounding the making thereof) made by the
Trustee (as such) in respect of the Securities of such series since the date of
the last report transmitted pursuant to the provisions of subsection (a) of this
Section (or if no such report has yet been so transmitted, since the date of
this Indenture) for the reimbursement of which it claims or may claim a lien or
charge prior to that of the Securities of such series on property or funds held
or collected by it as Trustee and which it has not previously reported pursuant
to this subsection (b), except that the Trustee shall not be required (but may
elect) to report such advances if such advances remaining unpaid at any time
aggregate 10% or less of the principal amount of Securities of such series
outstanding at such time, such report to be transmitted within 90 days after
such time.

               (c) Reports pursuant to this Section shall be transmitted by mail
to all Holders of Securities of such series, as the names and addresses of such
Holders appear upon the Securities register as of a date not more than 15 days
prior to the mailing thereof.

               (d) A copy of each such report shall, at the time of such
transmission to Securityholders, be furnished to the Issuer and be filed by the
Trustee with each stock exchange upon which the Securities of such series are
listed and also with the Commission. The Issuer agrees to notify the Trustee
when and as Securities of any series become listed on any national securities
exchange.



                                       26


                                    ARTICLE V

                   REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS
                               ON EVENT OF DEFAULT

               SECTION 5.1 EVENT OF DEFAULT DEFINED, ACCELERATION OF MATURITY;
WAIVER OF DEFAULT. "Event of Default" with respect to Securities of any series,
wherever used herein, means any one 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):

               (a) default in the payment of any installment of interest upon
        any of the Securities of such series as and when the same shall become
        due and payable, and continuance of such default for a period of 30
        days; provided, that, a valid extension of an interest payment period by
        the Issuer in accordance with the terms of such Securities shall not
        constitute a failure to pay interest; or

               (b) default in the payment of all or any part of the principal on
        any of the Securities of such series as and when the same shall become
        due and payable either at maturity, upon any redemption, by declaration
        or otherwise; or

               (c) default in the payment of any sinking fund installment as and
        when the same shall become due and payable by the terms of the
        Securities of such series; or

               (d) failure on the part of the Issuer duly to observe or perform
        any other of the covenants or agreements on the part of the Issuer in
        the Securities of such series or contained in this Indenture (other than
        a covenant or agreement included in this Indenture solely for the
        benefit of a series of Securities other than such series) for a period
        of 60 days after the date on which written notice specifying such
        failure, stating that such notice is a "Notice of Default" hereunder and
        demanding that the Issuer remedy the same, shall have been given by
        overnight or personal delivery, or by facsimile if confirmed by mail,
        overnight, or personal delivery, to the Issuer by the Trustee, or to the
        Issuer and the Trustee by the holders of at least 25% in aggregate
        principal amount of the Outstanding Securities of the series to which
        such covenant or agreement relates; or

               (e) a court having jurisdiction in the premises shall enter a
        decree or order for relief in respect of the Issuer in an involuntary
        case under any applicable bankruptcy, insolvency or other similar law
        now or hereafter in effect, or appointing a receiver, liquidator,
        assignee, custodian, trustee, sequestrator (or similar official) of the
        Issuer for any substantial part of its or their property or ordering the
        winding up or liquidation of



                                       27


        its or their affairs, and such decree or order shall remain unstayed and
        in effect for a period of 60 consecutive days; or

               (f) the Issuer shall commence a voluntary case under any
        applicable bankruptcy, insolvency or other similar law now or hereafter
        in effect, or consent to the entry of an order for relief in an
        involuntary case under any such law, or consent to the appointment or
        taking possession by a receiver, liquidator, assignee, custodian,
        trustee, sequestrator (or similar official) of the Issuer or for any
        substantial part of its or their property, or make any general
        assignment for the benefit of creditors; or

               (g) any other Event of Default provided in the supplemental
        indenture or Board Resolution under which such series of Securities is
        issued or in the form of Security for such series.

               If an Event of Default described in clause (a), (b) or (c) occurs
and is continuing, then, and in each and every such case, except for any series
of Securities the principal of which shall have already become due and payable,
either the Trustee or the Holders of not less than 25% in aggregate principal
amount of the Securities of each such affected series then Outstanding hereunder
(each such series voting as a separate class) by notice in writing to the Issuer
(and to the Trustee if given by Securityholders), may declare the entire
principal (or, if the Securities of such series are Original Issue Discount
Securities, such portion of the principal amount as may be specified in the
terms of such series) of all Securities of such series, and the interest accrued
thereon, if any, to be due and payable immediately, and upon any such
declaration, the same shall become immediately due and payable.

               Except as otherwise provided in the terms of any series of Senior
Securities pursuant to Section 2.3, if an Event of Default described in clause
(d) or (g) above with respect to all series of the Senior Securities then
Outstanding, occurs and is continuing, then, and in each and every such case,
unless the Principal of all of the Senior Securities shall have already become
due and payable, either the Trustee or the Holders of not less than 25% in
aggregate principal amount of all of the Senior Securities then Outstanding
hereunder (treated as one class) by notice in writing to the Issuer (and to the
Trustee if given by Securityholders), may declare the entire principal (or, if
the Senior Securities of any series are Original Issue Discount Securities, such
portion of the principal amount as may be specified in the terms of such series)
of all of the Senior Securities then Outstanding, and the interest accrued
thereon, if any, to be due and payable immediately, and upon such declaration,
the same shall become immediately due and payable. If an Event of Default
described in clause (e) or (f) above occurs and is continuing, then the
principal amount of all the Senior Securities then Outstanding, and the interest
accrued thereon, if any, shall become and be immediately due and payable without
any declaration or other act on the part of the Trustee or any Holder.

               Except as otherwise provided in the terms of any series of
Subordinated Securities pursuant to Section 2.3, if an Event of Default
described in clause (d) or (g) above



                                       28


with respect to all series of Subordinated Securities then Outstanding, occurs
and is continuing, then, and in each and every such case, unless the Principal
of all of the Subordinated Securities shall have already become due and payable,
either the Trustee or the Holders of not less than 25% in aggregate principal
amount of all of the Subordinated Securities then Outstanding hereunder (treated
as one class) by notice in writing to the Issuer (and to the Trustee if given by
Securityholders), may declare the entire principal (or, if the Subordinated
Securities of any series are Original Issue Discount Securities, such portion of
the principal amount as may be specified in the terms of such series) of all of
the Subordinated Securities then Outstanding, and the interest accrued thereon,
if any, to be due and payable immediately, and upon such declaration, the same
shall become immediately due and payable. If an Event of Default described in
clause (e) or (f) above occurs and is continuing, then the principal amount of
all the Subordinated Securities then Outstanding, and the interest accrued
thereto, if any, shall become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any Holder.

               If an Event of Default described in clause (d) or (g) occurs and
is continuing, which Event of Default is with respect to less than all series of
Senior Securities then Outstanding, then, and in each and every such case,
except for any series of Senior Securities the principal of which shall have
already become due and payable, either the Trustee or the Holders of not less
than 25% in aggregate principal amount of the Senior Securities of each such
affected series then Outstanding hereunder (each such series voting as a
separate class) by notice in writing to the Issuer (and to the Trustee if given
by Securityholders), may declare the entire principal (or, if the Securities of
such series are Original Issue Discount Securities, such portion of the
principal amount as may be specified in the terms of such series) of all
Securities of such series, and the interest accrued thereon, if any, to be due
and payable immediately, and upon any such declaration, the same shall become
immediately due and payable.

               If an Event of Default described in clause (d) or (g) occurs and
is continuing, which Event of Default is with respect to less than all series of
Subordinated Securities then Outstanding, then, and in each and every such case,
except for any series of Subordinated Securities the principal of which shall
have already become due and payable, either the Trustee or the Holders of not
less than 25% in aggregate principal amount of the Subordinated Securities of
each such affected series then Outstanding hereunder (each such series voting as
a separate class) by notice in writing to the Issuer (and to the Trustee if
given by Securityholders), may declare the entire principal (or, if the
Securities of such series are Original Issue Discount Securities, such portion
of the principal amount as may be specified in the terms of such series) of all
Securities of such series, and the interest accrued thereon, if any, to be due
and payable immediately, and upon any such declaration, the same shall become
immediately due and payable.

               The foregoing provisions are subject to the condition that if, at
any time after the principal (or, if the Securities are Original Issue Discount
Securities, such portion of the principal as may be specified in the terms
thereof) of the Securities of any series (or of all



                                       29


the Securities, as the case may be) 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,

               (A) the Issuer shall pay or shall deposit with the Trustee a sum
        sufficient to pay

                      (i) all matured installments of interest upon all the
               Securities of such series (or all the Securities, as the case may
               be); and

                      (ii) the principal of any and all Securities of such
               series (or of all the Securities, as the case may be) which shall
               have become due otherwise than by acceleration; and

                      (iii) interest upon such 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 or Yield to Maturity (in the case of Original Issue
               Discount Securities) specified in the Securities of such series
               (or at the respective rates of interest or Yields to Maturity of
               all the Securities, as the case may be) to the date of such
               payment or deposit; and

                      (iv) all amounts payable to the Trustee pursuant to
               Section 6.6; and

               (B) all Events of Default under the Indenture, other than the
        non-payment of the principal of Securities which shall have become due
        by acceleration, shall have been cured, waived or otherwise remedied as
        provided herein,

then and in every such case the Holders of a majority in aggregate principal
amount of all the Securities of such series voting as a separate class (or of
all the Securities, as the case may be, voting as a single class), then
Outstanding, by written notice to the Issuer and to the Trustee, may waive all
defaults with respect to such series (or with respect to all the Securities, as
the case may be) 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.

               For all purposes under this Indenture, if a portion of the
principal of any Original Issue Discount Securities shall have been accelerated
and declared due and payable pursuant to the provisions hereof, then, from and
after such declaration, unless such declaration has been rescinded and annulled,
the principal amount of such Original Issue Discount Securities shall be deemed,
for all purposes hereunder, to be such portion of the principal thereof as shall
be due and payable as a result of such acceleration, and payment of such portion
of the principal thereof as shall be due and payable as a result of such
acceleration, together with interest, if any, thereon and all other amounts
owing thereunder, shall constitute payment in full of such Original Issue
Discount Securities.



                                       30


               SECTION 5.2 COLLECTION OF INDEBTEDNESS BY TRUSTEE; TRUSTEE MAY
PROVE DEBT. The Issuer covenants that (a) in case default shall be made in the
payment of any installment of interest on any of the Securities of any series
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 Securities of any
series when the same shall have become due and payable, whether upon maturity of
the Securities of such series or upon any redemption or by declaration or
otherwise, then upon demand of the Trustee, the Issuer will pay to the Trustee
for the benefit of the Holders of the Securities of such series the whole amount
that then shall have become due and payable on all Securities of such series,
and such Coupons, for principal and 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 or Yield to
Maturity (in the case of Original Issue Discount Securities) specified in the
Securities of such series); and in addition thereto, such further amount as
shall be sufficient to cover the costs and expenses of collection, and such
other amount due the Trustee under Section 6.6 in respect of Securities of such
series.

               Until such demand is made by the Trustee, the Issuer may pay the
principal of and interest on the Securities of any series to the registered
Holders, whether or not the Securities of such series be overdue.

               In case the Issuer shall fail forthwith to pay such amounts upon
such demand, the Trustee, in its own name 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 Issuer or other obligor upon the Securities
and collect in the manner provided by law out of the property of the Issuer or
other obligor upon the Securities, wherever situated, all the moneys adjudged or
decreed to be payable.

               In case there shall be pending proceedings relative to the Issuer
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 Issuer or its property or such other
obligor, or in case of any other comparable judicial proceedings relative to the
Issuer or other obligor upon the Securities, or to the creditors or property of
the Issuer or such other obligor, the Trustee, irrespective of whether the
principal of the Securities 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 provisions of this Section, shall be
entitled and empowered, by intervention in such proceedings or otherwise:

               (a) to file and prove a claim or claims for the whole amount of
        principal and interest (or, if the Securities of any series are Original
        Issue Discount Securities, such



                                       31


        portion of the principal amount as may be specified in the terms of such
        series) owing and unpaid in respect of the Securities of any series, 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
        amounts payable to the Trustee under Section 6.6) and of the
        Securityholders allowed in any judicial proceedings relative to the
        Issuer or other obligor upon the Securities, or to the creditors or
        property of the Issuer or such other obligor; and

               (b) unless prohibited by applicable law and regulations, to vote
        on behalf of the holders of the Securities of any series in any election
        of a receiver, assignee, trustee or a standby trustee in arrangement,
        reorganization, liquidation or other bankruptcy or insolvency
        proceedings, custodian or other person performing similar functions in
        respect of any such proceedings; and

               (c) to collect and receive any moneys or other property payable
        or deliverable on any such claims, and to distribute all amounts
        received with respect to the claims of the Securityholders and of the
        Trustee on their behalf; and any trustee, receiver, or liquidator,
        custodian or other similar official performing similar functions in
        respect of any such proceedings is hereby authorized by each of the
        Securityholders to make payments to the Trustee, and, in the event that
        the Trustee shall consent to the making of payments directly to the
        Securityholders, to pay to the Trustee its costs and expenses of
        collection and all other amounts due to it pursuant to Section 6.6.

               Nothing herein contained shall be deemed to authorize the Trustee
to authorize or consent to or vote for or accept or adopt on behalf of any
Securityholder any plan of reorganization, arrangement, adjustment or
composition affecting the Securities of any series or the rights of any Holder
thereof, or to authorize the Trustee to vote in respect of the claim of any
Securityholder in any such proceeding, except as aforesaid in clause (b).

               All rights of action and of asserting claims under this
Indenture, or under any of the Securities of any series or Coupons appertaining
to such Securities, may be enforced by the Trustee without the possession of any
of the Securities of such series or Coupons appertaining to such Securities or
the production thereof in any trial or other proceedings relative thereto, and
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 shall be
awarded to the Trustee for ratable distribution to the Holders of the Securities
or Coupons appertaining to such Securities in respect of which such action was
taken, after payment of all sums due to the Trustee under Section 6.6 in respect
of such Securities.

               In any proceedings brought by the Trustee (and also any
proceedings involving the interpretation of any provision of this Indenture to
which the Trustee shall be a party) the Trustee shall be held to represent all
the Holders of the Securities or Coupons appertaining to such Securities in
respect to which such action was taken, and it shall not be necessary to make



                                       32


any Holders of such Securities or Coupons appertaining to such Securities
parties to any such proceedings.

               SECTION 5.3 APPLICATION OF PROCEEDS. Any moneys collected by the
Trustee pursuant to this Article in respect of any series shall be applied in
the following order at the date or dates fixed by the Trustee and, in case of
the distribution of such moneys on account of principal or interest, upon
presentation of the several Securities and Coupons appertaining to such
Securities in respect of which monies have been collected and stamping (or
otherwise noting) thereon the payment, or issuing Securities of such series in
reduced principal amounts in exchange for the presented Securities of like
series if only partially paid, or upon surrender thereof if fully paid:

               FIRST: To the payment of costs and expenses applicable to such
        series of Securities in respect of which monies have been collected,
        including all amounts due to the Trustee and each predecessor Trustee
        pursuant to Section 6.6 in respect to such series of Securities;

               SECOND: If the Securities of such series are Subordinated
        Securities, to the payment of amounts then due and unpaid to the holders
        of Senior Indebtedness with respect to such series, to the extent
        required pursuant to the Subordination Provisions established with
        respect to the Securities of such series pursuant to Section 2.3(9).

               THIRD: In case the principal of the Securities of such series in
        respect of which moneys have been collected shall not have become and be
        then due and payable, to the payment of interest on the Securities of
        such series in default in the order of the maturity of the installments
        on such interest, with interest (to the extent that such interest has
        been collected by the Trustee and is permitted by applicable law) upon
        the overdue installments of interest at the same rate as the rate of
        interest or Yield to Maturity (in the case of Original Issue Discount
        Securities) specified in such Securities, such payments to be made
        ratably to the persons entitled thereto, without discrimination or
        preference;

               FOURTH: In case the principal of the Securities of such series in
        respect of which moneys have been collected shall have become and shall
        be then due and payable, to the payment of the whole amount then owing
        and unpaid upon all the Securities of such series for principal and
        interest, with interest upon the overdue principal, and (to the extent
        that such interest has been collected by the Trustee and is permitted by
        applicable law) upon the overdue installations of interest at the same
        rate as the rate of interest or Yield to Maturity (in the case of
        Original Issue Discount Securities) specified in the Securities of such
        series; and in case such moneys shall be insufficient to pay in full the
        whole amount so due and unpaid upon the Securities of such series, then
        to the payment



                                       33


        of such principal and interest or Yield to Maturity, without preference
        or priority of principal over interest or Yield to Maturity, or of
        interest or Yield to Maturity over principal, or of any installment of
        interest over any other installment of interest or of any Security of
        such series over any other Security of such series, ratably to the
        aggregate of such principal and accrued and unpaid interest or Yield to
        Maturity; and

               FIFTH: To the payment of the remainder, if any, to the Issuer or
        to such party as a court of competent jurisdiction shall direct.

               SECTION 5.4 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.

               SECTION 5.5 RESTORATION OF RIGHTS ON ABANDONMENT OF PROCEEDINGS.
In case the Trustee 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, then and in
every such case the Issuer and the Trustee shall be restored respectively to
their former positions and rights hereunder, and all rights, remedies and powers
of the Issuer, the Trustee and the Securityholders shall continue as though no
such proceedings had been taken.

               SECTION 5.6 LIMITATIONS ON SUITS BY SECURITY HOLDERS. No Holder
of any Security of any series or of any Coupon appertaining thereto 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 or with respect to this Indenture or such Security, or
for the appointment of a trustee, receiver, liquidator, custodian or other
similar official or for any other remedy hereunder or thereunder, unless (a)
such Holder previously shall have given to a responsible officer of the Trustee
written notice of an Event of Default with respect to Securities of such series
and of the continuance thereof, as hereinbefore provided, and (b) the Holders of
not less than 25% in aggregate principal amount of the Securities of such
affected series then Outstanding (treated as a single class) 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 security and
indemnity satisfactory to it as it may require against the costs, expenses and
liabilities to be incurred therein or thereby, and (c) 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 (d) no direction
inconsistent with such written request shall have been given to the Trustee
pursuant to Section 5.9; it being



                                       34


understood and intended, and being expressly covenanted by the taker and Holder
of every Security or Coupon with every other taker and Holder and the Trustee,
that no one or more Holders of Securities of any series or Coupons appertaining
to such Securities shall have any right in any manner whatever by virtue or by
availing of any provision of this Indenture or any Security to affect, disturb
or prejudice the rights of any other such taker or Holder of Securities or
Coupons appertaining to such Securities, or to obtain or seek to obtain priority
over or preference to any other such taker or Holder or to enforce any right
under this Indenture or any Security, except in the manner herein provided and
for the equal, ratable and common benefit of all Holders of Securities of the
applicable series and Coupons appertaining to such Securities. For the
protection and enforcement of the provisions of this Section, each and every
Securityholder and the Trustee shall be entitled to such relief as can be given
either at law or in equity.

               SECTION 5.7 UNCONDITIONAL RIGHT OF SECURITYHOLDERS TO INSTITUTE
CERTAIN SUITS. Notwithstanding any other provision in this Indenture and any
provision of any Security, the right of any Holder of any Security or Coupon to
receive payment of the principal of and interest on such Security or Coupon on
or after the respective due dates expressed in such Security or Coupon or the
applicable redemption dates provided for in such Security, or 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 5.8 POWERS AND REMEDIES CUMULATIVE; DELAY OR OMISSION NOT
WAIVER OF DEFAULT. Except as provided in Section 5.6, no right or remedy herein
conferred upon or reserved to the Trustee or to the Holders of Securities or
Coupons 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
Securities or Coupons 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 such Event of Default or an
acquiescence therein. Every power and remedy given by this Indenture, any
Security or law to the Trustee or to the Holders of Securities or Coupons may be
exercised from time to time, and as often as shall be deemed expedient, by the
Trustee or, subject to Section 5.6, by the Holders of Securities or Coupons.

               SECTION 5.9 CONTROL BY HOLDERS OF SECURITIES. The Holders of a
majority in aggregate principal amount of the Securities of each series affected
(with each such series voting as a separate class) 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 Securities of such



                                       35


series by this Indenture; provided, that such direction shall not be otherwise
than in accordance with law and the provisions of this Indenture; and provided,
further, that (subject to the provisions of Section 6.1) the Trustee shall have
the right to decline to follow any such direction if (a) the Trustee, being
advised by counsel, shall determine that the action or proceeding so directed
may not lawfully be taken; or (b) if the Trustee by its trust committee of
directors or Responsible Officers of the Trustee shall determine in good faith
that the action or proceedings so directed would involve the Trustee in personal
liability; or (c) if the Trustee in good faith shall so determine that the
actions or forbearances specified in or pursuant to such direction would be
unduly prejudicial to the interests of Holders of the Securities of all affected
series not joining in the giving of said direction, it being understood that
(subject to Section 6.1) the Trustee shall have no duty to ascertain whether or
not such actions or forbearances are unduly prejudicial to such Holders.

               Nothing in this Indenture shall impair the right of the Trustee
in its discretion to take any action deemed proper by the Trustee and which is
not inconsistent with such direction or directions by Securityholders.

               SECTION 5.10 WAIVER OF PAST DEFAULTS. Prior to the declaration of
acceleration of the maturity of the Securities of any series as provided in
Section 5.1, the Holders of a majority in aggregate principal amount of the
Securities of such series (voting as a single class) may on behalf of the
Holders of all such Securities waive any past default or Event of Default
described in Section 5.1 and its consequences, except a default in respect of a
covenant or provision hereof which cannot be modified or amended without the
consent of the Holder of each Security affected. In the case of any such waiver,
the Issuer, the Trustee and the Holders of all such Securities shall be restored
to their former positions and rights hereunder, respectively, and such default
shall cease to exist, and any Event of Default arising therefrom shall be deemed
to have been cured for every purpose of this Indenture; but no such waiver shall
extend to any subsequent or other default or impair any right consequent
thereon.

               SECTION 5.11 TRUSTEE TO GIVE NOTICE OF DEFAULT, BUT MAY WITHHOLD
IN CERTAIN CIRCUMSTANCES. The Trustee shall, within ninety days after the
occurrence of a default with respect to the Securities of any series, give
notice of all defaults with respect to that series known to the Trustee (i) if
any Unregistered Securities of that series are then Outstanding, to the Holders
thereof, by publication at least once in an Authorized Newspaper in the Borough
of Manhattan, The City of New York and at least once in an Authorized Newspaper
in London (and, if required by Section 3.7, at least once in an Authorized
Newspaper in Luxembourg) and (ii) to all Holders of Securities of such series in
the manner and to the extent provided in Section 313(c) of the Trust Indenture
Act, unless in each case such defaults shall have been cured before the mailing
or publication of such notice (the term "default" for the purpose of this
Section being hereby defined to mean any event or condition which is, or with
notice or lapse of time or both would become, an Event of Default); provided,
that, except in the case of default in the payment of the principal of or
interest on any of the Securities of such series, or in the payment of any
sinking fund installment on such series,



                                       36


the Trustee shall be protected in withholding such notice if and so long as the
board of directors, the executive committee, or a trust committee of directors
or trustees and/or Responsible Officers of the Trustee in good faith determines
that the withholding of such notice is in the interests of the Securityholders
of such series.

               SECTION 5.12 RIGHT OF COURT TO REQUIRE FILING OF UNDERTAKING TO
PAY COSTS. All parties to this Indenture agree, and each Holder of any Security
or Coupon 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, 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 Securityholder or group of
Securityholders of any series holding in the aggregate more than 10% in
aggregate principal amount of the Securities of such series, or, in the case of
any suit relating to or arising under clause (d) or (g) of Section 5.1 (if the
suit relates to Securities of more than one but less than all series), 10% in
aggregate principal amount of Securities then Outstanding and affected thereby,
or in the case of any suit relating to or arising under clause (d) or (g) (if
the suit under clause (d) or (g) relates to all the Securities then
Outstanding), or (e) or (f) of Section 5.1, 10% in aggregate principal amount of
all Securities then Outstanding, or to any suit instituted by any Securityholder
for the enforcement of the payment of the principal of or interest on any
Security on or after the due date expressed in such Security or any date fixed
for redemption.

                                   ARTICLE VI

                             CONCERNING THE TRUSTEE

               SECTION 6.1 DUTIES AND RESPONSIBILITIES OF THE TRUSTEE; DURING
DEFAULT; PRIOR TO DEFAULT. Prior to the occurrence of an Event of Default with
respect to the Securities of a particular series and after the curing or waiving
of all Events of Default which may have occurred with respect to such series,
the Trustee undertakes to perform such duties and only such duties as are
specifically set forth in this Indenture with respect to such series of
Securities. In case an Event of Default with respect to the Securities of a
series has occurred and has not been cured or waived, the Trustee shall exercise
with respect to such series of Securities such of the rights and powers vested
in it by this Indenture with respect to such series of Securities, 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.



                                       37


               No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own willful misconduct, except that

               (a) prior to the occurrence of an Event of Default with respect
        to the Securities of any series and after the curing or waiving of all
        such Events of Default with respect to such series which may have
        occurred:

                      (i) the duties and obligations of the Trustee with respect
               to the Securities of any series shall be determined solely by
               the express provisions of this Indenture, and the Trustee shall
               not be liable except for the performance of such duties and
               obligations as are specifically set forth in this Indenture,
               and no implied covenants or obligations shall be read into this
               Indenture against the Trustee; and

                      (ii) in the absence of bad faith on the part of the
               Trustee, the Trustee may conclusively rely, as to the truth of
               the statements and the correctness of the opinions expressed
               therein, upon any statements, certificates or opinions
               furnished to the Trustee and conforming to the requirements of
               this Indenture; but in the case of any such statements,
               certificates or opinions which by any provision hereof are
               specifically required to be furnished to the Trustee, the
               Trustee shall be under a duty to examine the same to determine
               whether or not they conform to the requirements of this
               Indenture;

               (b) the Trustee shall not be liable for any error of judgment
        made in good faith by a Responsible Officer or Responsible Officers of
        the Trustee, unless it shall be proved that the Trustee was negligent in
        ascertaining the pertinent facts; and

               (c) the 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 pursuant to Section 5.9 relating to the time,
        method and place of conducting any proceeding for any remedy available
        to the Trustee, or exercising any trust or power conferred upon the
        Trustee, under this Indenture.

               None of the provisions contained in this Indenture shall require
the 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 there shall be reasonable ground for
believing that the repayment of such funds or adequate indemnity against such
liability is not reasonably assured to it.

               The provisions of this Section 6.1 are in furtherance of and
subject to Section 315 of the Trust Indenture Act.



                                       38


               SECTION 6.2 CERTAIN RIGHTS OF THE TRUSTEE. In furtherance of and
subject to the Trust Indenture Act, and subject to Section 6.1:

               (a) the Trustee may conclusively rely and shall be protected in
        acting or refraining from acting upon any resolution, Officer's
        Certificate or any other certificate, statement, instrument, opinion,
        report, notice, request, consent, order, bond, debenture, note, coupon,
        security or other paper or document believed by it to be genuine and to
        have been signed or presented by the proper party or parties;

               (b) any request, direction, order or demand of the Issuer
        mentioned herein shall be sufficiently evidenced by an Officer's
        Certificate (unless other evidence in respect thereof is specifically
        prescribed herein or in the terms established in respect of any series);
        and any resolution of the Board of Directors may be evidenced to the
        Trustee by a copy thereof certified by the secretary or an assistant
        secretary of the Issuer;

               (c) the Trustee may consult with counsel of its selection, and
        any written advice or any Opinion of Counsel shall be full and complete
        authorization and protection in respect of any action taken, suffered or
        omitted to be taken by it hereunder in good faith and in reliance
        thereon in accordance with such advice or Opinion of Counsel;

               (d) the Trustee shall be under no obligation to exercise any of
        the trusts or powers vested in it by this Indenture at the request,
        order or direction of any of the Securityholders pursuant to the
        provisions of this Indenture, unless such Securityholders shall have
        offered to the Trustee reasonable security or indemnity satisfactory to
        it against the costs, expenses and liabilities which might be incurred
        therein or thereby;

               (e) the Trustee shall not be liable for any action taken or
        omitted by it in good faith and believed by it to be authorized or
        within the discretion, rights or powers conferred upon it by this
        Indenture;

               (f) prior to the occurrence of an Event of Default hereunder and
        after the curing or waiving of all Events of Default, the 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, consent, order, approval, appraisal, bond, debenture,
        note, coupon, security, or other paper or document unless (i) requested
        in writing so to do by the Holders of not less than a majority in
        aggregate principal amount of the Securities of all series affected then
        Outstanding (treated as one class) or (ii) otherwise provided in the
        terms of any series of securities pursuant to Section 2.3; provided,
        that, if the payment within a reasonable time to the Trustee of the
        costs, expenses or liabilities likely to be incurred by it in the making
        of such investigation is, in the opinion of the Trustee, not reasonably
        assured to the Trustee by the security afforded to it by the terms of
        this Indenture, the Trustee may require reasonable indemnity
        satisfactory to it against such expenses or liabilities as a condition
        to



                                       39


        proceeding; the reasonable expenses of every such investigation shall be
        paid by the Issuer or, if paid by the Trustee or any predecessor
        trustee, shall be repaid by the Issuer upon demand; and

               (g) 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 not regularly in its employ and the Trustee shall not be
        responsible for any misconduct or negligence on the part of any such
        agent or attorney appointed with due care by it hereunder.

               (h) The Trustee shall not be deemed to have notice of any Event
        of Default unless a Responsible Officer has actual knowledge thereof or
        unless written notice of any event which is in fact an Event of Default
        is received by the Trustee at the Corporate Trust Office and such notice
        references the Securities, the Issuer or this Indenture.

               SECTION 6.3 TRUSTEE NOT RESPONSIBLE FOR RECITALS, DISPOSITION OF
SECURITIES OR APPLICATION OF PROCEEDS THEREOF. The recitals contained herein and
in the Securities, except the Trustee's certificates of authentication, shall be
taken as the statements of the Issuer, and the Trustee assumes no responsibility
for the correctness of the same. The Trustee makes no representation as to the
validity or sufficiency of this Indenture or of the Securities or Coupons. The
Trustee shall not be accountable for the use or application by the Issuer of any
of the Securities or of the proceeds thereof.

               The Trustee may request that the Issuer deliver an officer's
certificate setting forth the names of individuals and/or titles of officers
authorized at such time to take specified actions pursuant to this Indenture,
which officers' certificate may be signed by any person authorized to sign an
officer's certificate, including any person specified as so authorized in any
such certificate previously delivered and not superseded.

               SECTION 6.4 TRUSTEE AND AGENTS MAY HOLD SECURITIES OR COUPONS;
COLLECTIONS, ETC. The Trustee or any agent of the Issuer or of the Trustee, in
its individual or any other capacity, may become the owner or pledgee of
Securities or Coupons with the same rights it would have if it were not the
Trustee or such agent and may otherwise deal with the Issuer and receive,
collect, hold and retain collections from the Issuer with the same rights it
would have if it were not the Trustee or such agent.

               SECTION 6.5 MONEYS HELD BY TRUSTEE. Subject to the provisions of
Section 10.4 hereof, all moneys received by the Trustee shall, until used or
applied as herein provided, be held in trust for the purposes for which they
were received, but need not be segregated from other funds except to the extent
required by mandatory provisions of law. Neither the Trustee nor any agent of
the Issuer or the Trustee shall be under any liability for interest on any
moneys received by it hereunder.



                                       40


               SECTION 6.6 COMPENSATION AND INDEMNIFICATION OF TRUSTEE AND ITS
PRIOR CLAIM. The Issuer covenants and agrees to pay to the Trustee from time to
time, and the Trustee shall be entitled to, reasonable compensation (which shall
not be limited by any provision of law in regard to the compensation of a
trustee of an express trust), and the Issuer covenants and agrees to pay or
reimburse the Trustee and each predecessor trustee upon its request for all
reasonable expenses, disbursements and advances incurred or made by or on behalf
of it in accordance with any of the provisions of this Indenture (including the
reasonable compensation and the expenses and disbursements of its counsel and of
all agents and other persons not regularly in its employ) except any such
expense, disbursement or advance as may arise from its negligence or bad faith.
The Issuer also covenants to indemnify the Trustee and each predecessor trustee
for, and to defend and hold it 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 this Indenture or the trusts
hereunder and its duties hereunder, including the costs and expenses of
defending itself against or investigating any claim of liability in the
premises. The obligations of the Issuer under this Section to compensate and
indemnify the Trustee and each predecessor trustee and to pay or reimburse the
Trustee and each predecessor trustee for expenses, disbursements and advances
shall constitute additional indebtedness hereunder and shall survive the
satisfaction and discharge of this Indenture and the resignation or removal of
the Trustee. Such additional indebtedness shall be a senior claim to that of the
Securities upon all property and funds held or collected by the Trustee as such,
except funds held in trust for the benefit of the Holders of particular
Securities or Coupons, and the Securities are hereby subordinated to such senior
claim.

               SECTION 6.7 RIGHT OF TRUSTEE TO RELY ON OFFICER'S CERTIFICATE,
ETC. Subject to Sections 6.1 and 6.2, whenever in the administration of the
trusts of this Indenture the Trustee shall deem it necessary or desirable that a
matter be proved or established prior to taking or suffering or omitting any
action hereunder, such matter (unless other evidence in respect thereof be
herein specifically prescribed) may, in the absence of negligence or bad faith
on the part of the Trustee, be deemed to be conclusively proved and established
by an Officer's Certificate delivered to the Trustee, and such certificate, in
the absence of negligence or bad faith on the part of the Trustee, shall be full
warrant to the Trustee for any action taken, suffered or omitted by it under the
provisions of this Indenture upon the faith thereof.

               SECTION 6.8 INDENTURES NOT CREATING POTENTIAL CONFLICTING
INTERESTS FOR THE TRUSTEE. The following indentures are hereby specifically
described for the purposes of Section 310(b)(1) of the Trust Indenture Act: this
Indenture with respect to series of Securities that are of an equal priority and
the indenture between the Issuer and The First National Bank of Chicago, dated
as of March 11, 1997 with respect to series of securities thereunder that are of
an equal priority to any series of Securities.

               SECTION 6.9 QUALIFICATION OF TRUSTEE: CONFLICTING INTERESTS. The
Trustee shall comply with Section 310(b) of the Trust Indenture Act.



                                       41


               SECTION 6.10 PERSONS ELIGIBLE FOR APPOINTMENT AS TRUSTEE. The
Trustee for each series of Securities hereunder shall at all times be a
corporation or banking association organized and doing business under the laws
of the United States of America, any State thereof or the District of Columbia,
having a combined capital and surplus of at least $50,000,000, and which is
authorized under such laws to exercise corporate trust powers and is subject to
supervision or examination by Federal, state or District of Columbia authority.
If such corporation publishes reports of condition at least annually, pursuant
to law or to the requirements of the aforesaid supervising or examining
authority, then for the purposes of this Section, 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. In
case at any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, the Trustee shall resign immediately in the manner
and with the effect specified in Section 6.11.

               The provisions of this Section 6.10 are in furtherance of and
subject to Section 310(a) of the Trust Indenture Act.

               SECTION 6.11 RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR
TRUSTEE. (a) The Trustee, or any trustee or trustees hereafter appointed, may at
any time resign with respect to one or more or all series of Securities by
giving written notice of resignation to the Issuer and (i) if any Unregistered
Securities of a series affected are then Outstanding, by giving notice of such
resignation to the Holders thereof, by publication at least once in an
Authorized Newspaper in the Borough of Manhattan, The City of New York, and at
least once in an Authorized Newspaper in London (and, if required by Section
3.7, at least once in an Authorized Newspaper in Luxembourg), (ii) if any
Unregistered Securities of a series affected are then Outstanding, by mailing
notice of such resignation to the Holders thereof who have filed their names and
addresses with the Trustee pursuant to Section 313(c)(2) of the Trust Indenture
Act at such addresses as were so furnished to the Trustee and (iii) by mailing
notice of such resignation to the Holders of then Outstanding Registered
Securities of each series affected at their addresses as they shall appear on
the registry books. Upon receiving such notice of resignation, the Issuer shall
promptly appoint a successor trustee or trustees with respect to the applicable
series by written instrument in duplicate, executed by authority of the Board of
Directors, one copy of which instrument shall be delivered to the resigning
Trustee and one copy to the successor trustee or trustees. If no successor
trustee shall have been so appointed with respect to any series and have
accepted appointment within 30 days after the mailing of such notice of
resignation, the resigning trustee may petition any court of competent
jurisdiction at the expense of the Company for the appointment of a successor
trustee, or any Securityholder who has been a bona fide Holder of a Security or
Securities of the applicable series for at least six months may, subject to the
provisions of Section 5.12, on behalf of himself and all others similarly
situated, petition any such court for the appointment of a successor trustee.
Such court may thereupon, after such notice, if any, as it may deem proper and
prescribe, appoint a successor trustee.



                                       42


               (b) In case at any time any of the following shall occur:

                      (i) the Trustee shall fail to comply with the provisions
               of Section 310(b) of the Trust Indenture Act with respect to any
               series of Securities after written request therefor by the Issuer
               or by any Securityholder who has been a bona fide Holder of a
               Security or Securities of such series for at least six months; or

                      (ii) the Trustee shall cease to be eligible in accordance
               with the provisions of Section 6.10 and Section 310(a) of the
               Trust Indenture Act and shall fail to resign after written
               request therefor by the Issuer or by any Securityholder who has
               been a bona fide Holder of a Security or Securities of such
               series for at least six months; or

                      (iii) the Trustee shall become incapable of acting with
               respect to any series of Securities, or shall be adjudged
               bankrupt or insolvent, or a receiver or liquidator of the Trustee
               or of its property shall be appointed, or any public officer
               shall take charge or control of the Trustee or of its property or
               affairs for the purpose of rehabilitation, conservation or
               liquidation;

then, in any such case, the Issuer may remove the Trustee with respect to the
applicable series of Securities and appoint a successor trustee for such series
by written instrument, in duplicate, executed by order of the Board of Directors
of the Issuer, one copy of which instrument shall be delivered to the Trustee so
removed and one copy to the successor trustee, or, subject to the provisions of
Section 315(e) of the Trust Indenture Act, any Securityholder who has been a
bona fide Holder of a Security or Securities of such series for at least six
months may on behalf of himself and all others similarly situated, petition any
court of competent jurisdiction for the removal of the Trustee and the
appointment of a successor trustee with respect to such series. Such court may
thereupon, after such notice, if any, as it may deem proper and so prescribe,
remove the Trustee and appoint a successor trustee.

               (c) The Holders of a majority in aggregate principal amount of
        the Securities of each series at the time outstanding may at any time
        remove the Trustee with respect to Securities of such series and appoint
        a successor trustee with respect to the Securities of such series by
        delivering to the Trustee so removed, to the successor trustee so
        appointed and to the Issuer the evidence provided for in Section 7.1 of
        the action in that regard taken by the Securityholders.

               (d) Any resignation or removal of the Trustee with respect to any
        series and any appointment of a successor trustee with respect to such
        series pursuant to any of the provisions of this Section 6.11 shall
        become effective upon acceptance of appointment by the successor trustee
        as provided in Section 6.12.



                                       43


               SECTION 6.12 ACCEPTANCE OF APPOINTMENT BY SUCCESSOR TRUSTEE. Any
successor trustee appointed as provided in Section 6.11 shall execute and
deliver to the Issuer and to its predecessor trustee an instrument accepting
such appointment hereunder, and thereupon the resignation or removal of the
predecessor trustee with respect to all or any applicable series shall become
effective and such successor trustee, without any further act, deed or
conveyance, shall become vested with all rights, powers, duties and obligations
with respect to such series of its predecessor hereunder, with like effect as if
originally named as trustee for such series hereunder; but, nevertheless, on the
written request of the Issuer or of the successor trustee, upon payment of its
charges then unpaid, the trustee ceasing to act shall, subject to Section 10.4,
pay over to the successor trustee all moneys at the time held by it hereunder
and shall execute and deliver an instrument transferring to such successor
trustee all such rights, powers, duties and obligations. Upon request of any
such successor trustee, the Issuer shall execute any and all instruments in
writing for more fully and certainly vesting in and confirming to such successor
trustee all such rights and powers. Any trustee ceasing to act shall,
nevertheless, retain a prior claim upon all property or funds held or collected
by such trustee to secure any amounts then due it pursuant to the provisions of
Section 6.6.

               If a successor trustee is appointed with respect to the
Securities of one or more (but not all) series, the Issuer, the predecessor
trustee and each successor trustee with respect to the Securities of any
applicable series shall execute and deliver an indenture supplemental hereto
which shall contain such provisions as shall be deemed necessary or desirable to
confirm that all the rights, powers, trusts and duties of the predecessor
trustee with respect to the Securities of any series as to which the predecessor
trustee is not retiring shall continue to be vested in the predecessor trustee,
and shall add to or change any of the provisions of this Indenture as shall be
necessary to provide for or facilitate the administration of the trusts
hereunder by more than one trustee, it being understood that nothing herein or
in such supplemental indenture shall constitute such trustees co-trustees of the
same trust and that each such trustee shall be trustee of a trust or trusts
under separate indentures.

               No successor trustee with respect to any series of Securities
shall accept appointment as provided in this Section 6.12 unless at the time of
such acceptance such successor trustee shall be qualified under Section 310(b)
of the Trust Indenture Act and eligible under the provisions of Section 6.10.

               Upon acceptance of appointment by any successor trustee as
provided in this Section 6.12, the Issuer shall give notice thereof (a) if any
Unregistered Securities of a series affected are then Outstanding, to the
Holders thereof, by publication of such notice at least once in an Authorized
Newspaper in the Borough of Manhattan, The City of New York and at least once in
an Authorized Newspaper in London (and, if required by Section 3.7, at least
once in an Authorized Newspaper in Luxembourg), (b) if any Unregistered
Securities of a series affected are then Outstanding, to the Holders thereof who
have filed their names and addresses with the Trustee pursuant to Section
313(c)(2) of the Trust Indenture Act, by mailing such



                                       44


notice to such Holders at such addresses as were so furnished to the Trustee
(and the Trustee shall make such information available to the Issuer for such
purpose) and (c) to the Holders of Registered Securities of each series
affected, by mailing such notice to such Holders at their addresses as they
shall appear on the registry books. If the acceptance of appointment is
substantially contemporaneous with the resignation, then the notice called for
by the preceding sentence may be combined with the notice called for by Section
6.11. If the Issuer fails to give such notice within ten days after acceptance
of appointment by the successor trustee, the successor trustee shall cause such
notice to be given at the expense of the Issuer.

               SECTION 6.13 MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO
BUSINESS OF TRUSTEE. Any corporation or banking association into which the
Trustee may be merged or converted or with which it may be consolidated, or any
corporation or banking association resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any corporation or
banking association succeeding to the corporate trust business of the Trustee,
shall be the successor of the Trustee hereunder, provided, that such corporation
or banking association shall be qualified under Section 310(b) of the Trust
Indenture Act and eligible under the provisions of Section 6.10, without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, anything herein to the contrary notwithstanding.

               In case at the time such successor to the Trustee shall succeed
to the trusts created by this Indenture any of the Securities of any series
shall have been authenticated but not delivered, any such successor to the
Trustee may adopt the certificate of authentication of any predecessor trustee
and deliver such Securities so authenticated; and, in case at that time any of
the Securities of any series shall not have been authenticated, any such
successor to the Trustee may authenticate such Securities either in the name of
any predecessor hereunder or in the name of the successor Trustee; and in all
such cases such certificate of authentication shall have the full force which
under this Indenture or the Securities of such series it is provided that the
certificate of authentication of the Trustee shall have; provided, that the
right to adopt the certificate of authentication of any predecessor trustee or
to authenticate Securities of any series in the name of any predecessor trustee
shall apply only to its successor or successors by merger, conversion or
consolidation.

               SECTION 6.14 PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE
ISSUER. The Trustee shall comply with Section 311(a) of the Trust Indenture Act,
excluding any creditor relationship listed in Section 311(b) of the Trust
Indenture Act. A Trustee who has resigned or been removed shall be subject to
Section 311(a) of the Trust Indenture Act to the extent indicated.

               SECTION 6.15 APPOINTMENT OF AUTHENTICATING AGENT. As long as any
Securities of a series remain Outstanding, the Trustee may, by an instrument in
writing, appoint with the approval of the Issuer an authenticating agent (the
"Authenticating Agent") which shall be authorized to act on behalf of the
Trustee to authenticate Securities, including



                                       45


Securities issued upon exchange, registration of transfer, partial redemption or
pursuant to Section 2.9. Securities of each such series authenticated by such
Authenticating Agent shall be entitled to the benefits of this Indenture and
shall be valid and obligatory for all purposes as if authenticated by the
Trustee. Whenever reference is made in this Indenture to the authentication and
delivery of Securities of any series by the Trustee or to the Trustee's
Certificate of Authentication, such reference shall be deemed to include
authentication and delivery on behalf of the Trustee by an Authenticating Agent
for such series and a Certificate of Authentication executed on behalf of the
Trustee by such Authenticating Agent. Such Authenticating Agent shall at all
times be a corporation organized and doing business under the laws of the United
States of America or of any State, authorized under such laws to exercise
corporate trust powers, having a combined capital and surplus of at least
$45,000,000 (determined as provided in Section 6.10 with respect to the Trustee)
and subject to supervision or examination by Federal or state authority.

               Any corporation into which any Authenticating Agent may be merged
or converted, or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which any Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency business
of any Authenticating Agent, shall continue to be the Authenticating Agent with
respect to all series of Securities for which it served as Authenticating Agent
without the execution or filing of any paper or any further act on the part of
the Trustee or such Authenticating Agent. Any Authenticating Agent may at any
time, and if it shall cease to be eligible shall, resign by giving written
notice of resignation to the Trustee and to the Issuer.

               Upon receiving such a notice of resignation or upon such a
termination, or in case at any time any Authenticating Agent shall cease to be
eligible in accordance with the provisions of this Section 6.15 with respect to
one or more series of Securities, the Trustee shall upon receipt of an Issuer
Order appoint a successor Authenticating Agent, and the Issuer shall provide
notice of such appointment to all Holders of Securities of such series in the
manner and to the extent provided in Section 11.4. Any successor Authenticating
Agent upon acceptance of its appointment hereunder shall become vested with all
rights, powers, duties and responsibilities of its predecessor hereunder, with
like effect as if originally named as Authenticating Agent. The Issuer agrees to
pay to the Authenticating Agent for such series from time to time reasonable
compensation. The Authenticating Agent for the Securities of any series shall
have no responsibility or liability for any action taken by it as such at the
direction of the Trustee.

               Sections 6.2, 6.3, 6.4, 6.6 and 7.3 shall be applicable to any
Authenticating Agent.



                                       46


                                   ARTICLE VII

                         CONCERNING THE SECURITYHOLDERS

               SECTION 7.1 EVIDENCE OF ACTION TAKEN BY SECURITYHOLDERS. Any
request, demand, authorization, direction, notice, consent, waiver or other
action provided by this Indenture to be given or taken by a specified percentage
in principal amount of the Securityholders of any or all series may be embodied
in and evidenced by one or more instruments of substantially similar tenor
signed by such specified percentage of Securityholders 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
Issuer, if made in the manner provided in this Article.

               SECTION 7.2 PROOF OF EXECUTION OF INSTRUMENTS AND OF HOLDING OF
SECURITIES. Subject to Sections 6.1 and 6.2, the execution of any instrument by
a Securityholder 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. The holding of Registered
Securities shall be proved by the Security register or by a certificate of the
registrar thereof.

               SECTION 7.3 HOLDERS TO BE TREATED AS OWNERS. The Issuer, the
Trustee and any agent of the Issuer or the Trustee may deem and treat the person
in whose name any Security shall be registered upon the Security register for
such series as the absolute owner of such Security (whether or not such Security
shall be overdue and notwithstanding any notation of ownership or other writing
thereon) for the purpose of receiving payment of or on account of the principal
of and, subject to the provisions of this Indenture, interest on such Security
and for all other purposes; and neither the Issuer nor the Trustee nor any agent
of the Issuer or the Trustee shall be affected by any notice to the contrary.
The Issuer, the Trustee and any agent of the Issuer or the Trustee may treat the
Holder of any Unregistered Security and the Holder of any Coupon as the absolute
owner of such Unregistered Security or Coupon (whether or not such Unregistered
Security or Coupon shall be overdue) for the purpose of receiving payment
thereof or on account thereof and for all other purposes, and neither the
Issuer, the Trustee, nor any agent of the Issuer or the Trustee shall be
affected by any notice to the contrary. All such payments so made to any such
person, or upon his order, shall be valid, and, to the extent of the sum or sums
so paid, effectual to satisfy and discharge the liability for moneys payable
upon any such Unregistered Security or Coupon.

               SECTION 7.4 SECURITIES OWNED BY ISSUER DEEMED NOT OUTSTANDING. In
determining whether the Holders of the requisite aggregate principal amount of
Outstanding Securities of any or all series have concurred in any request,
demand,



                                       47


authorization, direction, notice, consent, waiver or other action by
Securityholders under this Indenture, Securities which are owned by the Issuer
or any other obligor on the Securities 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 Issuer or any other
obligor on the Securities 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 action only Securities which
the Trustee knows are so owned shall be so disregarded. Securities 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 Securities and that the pledgee is not the Issuer or
any other obligor upon the Securities or any person directly or indirectly
controlling or controlled by or under direct or indirect common control with the
Issuer or any other obligor on the Securities. In case of a dispute as to such
right, the advice of counsel shall be full protection in respect of any decision
made by the Trustee in accordance with such advice. Upon request of the Trustee,
the Issuer shall furnish to the Trustee promptly an Officer's Certificate
listing and identifying all Securities, if any, known by the Issuer to be owned
or held by or for the account of any of the above-described persons; and,
subject to Sections 6.1 and 6.2, the Trustee shall be entitled to accept such
Officer's Certificate as conclusive evidence of the facts therein set forth and
of the fact that all Securities not listed therein are Outstanding for the
purpose of any such determination.

               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 Securities of any or all series, as the case may be,
specified in this Indenture in connection with such action, any Holder of a
Security the serial number of which is shown by the evidence to be included
among the serial numbers of the Securities 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 Security. Except as aforesaid, any such action taken by the Holder
of any Security shall be conclusive and binding upon such Holder and upon all
future Holders and owners of such Security and of any Securities issued in
exchange or substitution therefor or on registration of transfer thereof,
irrespective of whether or not any notation in regard thereto is made upon any
such Security. Any action taken by the Holders of the percentage in aggregate
principal amount of the Securities of any or all series, as the case may be,
specified in this Indenture in connection with such action shall be conclusively
binding upon the Issuer, the Trustee and the Holders of all the Securities
affected by such action.



                                       48


                                  ARTICLE VIII

                             SUPPLEMENTAL INDENTURES

               SECTION 8.1 SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF
SECURITYHOLDERS. The Issuer, when authorized by a resolution of its Board of
Directors (which resolution may provide general terms or parameters for such
action and may provide that the specific terms of such action may be determined
in accordance with or pursuant to an Issuer Order), and the Trustee may from
time to time and at any time enter into an indenture or indentures supplemental
hereto for one or more of the following purposes:

               (a) to convey, transfer, assign, mortgage or pledge to the
        Trustee as security for the Securities of one or more series any
        property or assets;

               (b) to evidence the succession of another corporation to the
        Issuer, or successive successions, and the assumption by the successor
        corporation of the covenants, agreements and obligations of the Issuer
        pursuant to Article IX;

               (c) to add to the covenants of the Issuer such further covenants,
        restrictions, conditions or provisions as the Issuer and the Trustee
        shall consider to be for the protection of the Holders of Securities or
        Coupons, and to make the occurrence, or the occurrence and continuance,
        of a default in any such additional covenants, restrictions, conditions
        or provisions an Event of Default permitting the enforcement of all or
        any of the several remedies provided in this Indenture as herein set
        forth; provided, that in respect of any such additional covenant,
        restriction, condition or provision such supplemental indenture may
        provide for a particular period of grace after default (which period may
        be shorter or longer than that allowed in the case of other defaults) or
        may provide for an immediate enforcement upon such an Event of Default
        or may limit the remedies available to the Trustee upon such an Event of
        Default or may limit the right of the Holders of a majority in aggregate
        principal amount of the Securities of such series to waive such an Event
        of Default;

               (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 any other provisions as the
        Issuer may deem necessary or desirable, provided, that no such action
        shall adversely affect the interests of the Holders of the Securities or
        Coupons;

               (e) to establish the forms or terms of Securities of any series
        or of the Coupons appertaining to such Securities as permitted by
        Sections 2.1 and 2.3; and

               (f) to evidence and provide for the acceptance of appointment
        hereunder by a successor trustee with respect to the Securities of one
        or more series and to add to or



                                       49


        change any of the provisions of this Indenture as shall be necessary to
        provide for or facilitate the administration of the trusts hereunder by
        more than one trustee, pursuant to the requirements of Section 6.12.

               The Trustee is hereby authorized to join with the Issuer 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
Securities at the time outstanding, notwithstanding any of the provisions of
Section 8.2.

               SECTION 8.2 SUPPLEMENTAL INDENTURES WITH CONSENT OF
SECURITYHOLDERS.

               (A) Except as set forth in paragraph (C) below, with the consent
(evidenced as provided in Article VII) of the Holders of not less than a
majority in aggregate principal amount of the Securities at the time Outstanding
of all series of Senior Securities affected by such supplemental indenture
(voting as one class), the Issuer, when authorized by a resolution of its Board
of Directors (which resolution may provide general terms or parameters for such
action and may provide that the specific terms of such action may be determined
in accordance with or pursuant to an Issuer Order), 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 and effect 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 Securities of each such series or of the
Coupons appertaining to such Securities.

               (B) Except as set forth in paragraph (C) below, with the consent
(evidenced as provided in Article VII) of the Holders of not less than a
majority in aggregate principal amount of the Securities at the time Outstanding
of all series of Subordinated Securities affected by such supplemental indenture
(voting as one class), the Issuer, when authorized by a resolution of its Board
of Directors (which resolution may provide general terms or parameters for such
action and may provide that the specific terms of such action may be determined
in accordance with or pursuant to an Issuer Order), 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 and effect 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



                                       50


rights of the Holders of the Securities of each such series or of the Coupons
appertaining to such Securities.

               (C) No such supplemental indenture shall (i) extend the final
maturity of any Security, or reduce the principal amount thereof, or premium
thereon, if any, 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 (including any amount in respect of original issue discount),
or premium thereon, if any, or interest thereon payable in any coin or currency
other than that provided in the Securities and Coupons or in accordance with the
terms thereof, or reduce the amount of the principal of an Original Issue
Discount Security that would be due and payable upon an acceleration of the
maturity thereof pursuant to Section 5.1 or the amount thereof provable in
bankruptcy pursuant to Section 5.2, or in the case of Subordinated Securities of
any series, modify any of the Subordination Provisions or the definition of
"Senior Indebtedness" relating to such series in a manner adverse to the holders
of such Subordinated Securities, or alter the provisions of Section 11.11 or
11.12 or impair or affect the right of any Securityholder to institute suit for
the payment thereof when due or, if the Securities provide therefor, any right
of repayment at the option of the Securityholder, in each case without the
consent of the Holder of each Security so affected, or (ii) reduce the aforesaid
percentage of Securities of any series, the consent of the Holders of which is
required for any such supplemental indenture, without the consent of the Holders
of each Security so affected.

               (D) A supplemental indenture which changes or eliminates any
covenant or other provision of this Indenture which has expressly been included
solely for the benefit of one or more particular series of Securities, or which
modifies the rights of Holders of Securities of such series, or of Coupons
appertaining to such Securities, with respect to such covenant or provision,
shall be deemed not to affect the rights under this Indenture of the Holders of
Securities of any other series or of the Coupons appertaining to such
Securities.

               Upon the request of the Issuer, accompanied by a copy of a
resolution of the Board of Directors (which resolution may provide general terms
or parameters for such action and may provide that the specific terms of such
action may be determined in accordance with or pursuant to an Issuer Order)
certified by the secretary or an assistant secretary of the Issuer authorizing
the execution of any such supplemental indenture, and upon the filing with the
Trustee of evidence of the consent of the Holders of the Securities as aforesaid
and other documents, if any, required by Section 7.1, the Trustee shall join
with the Issuer in the execution of such supplemental indenture unless such
supplemental indenture affects the Trustee's own rights, duties or immunities
under this Indenture or otherwise, in which case the Trustee may in its
discretion, but shall not be obligated to, enter into such supplemental
indenture.

               It shall not be necessary for the consent of the Securityholders
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.



                                       51


               Promptly after the execution by the Issuer and the Trustee of any
supplemental indenture pursuant to the provisions of this Section, the Trustee
shall give notice thereof (i) to the Holders of then Outstanding Registered
Securities of each series affected thereby, by mailing a notice thereof by
first-class mail to such Holders at their addresses as they shall appear on the
Security register, (ii) if any Unregistered Securities of a series affected
thereby are then Outstanding, to the Holders thereof who have filed their names
and addresses with the Trustee pursuant to Section 313(c)(2) of the Trust
Indenture Act, by mailing a notice thereof by first-class mail to such Holders
at such addresses as were so furnished to the Trustee and (iii) if any
Unregistered Securities of a series affected thereby are then Outstanding, to
all Holders thereof, by publication of a notice thereof at least once in an
Authorized Newspaper in the Borough of Manhattan, The City of New York and at
least once in an Authorized Newspaper in London (and, if required by Section
3.7, at least once in an Authorized Newspaper in Luxembourg), and in each case
such notice shall set forth in general terms the substance of such supplemental
indenture. Any failure of the Issuer 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. 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 Issuer and the Holders of Securities of
each series affected thereby 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 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 Sections 6.1 and 6.2, may receive an Officer's
Certificate and an Opinion of Counsel as conclusive evidence that any
supplemental indenture executed pursuant to this Article 8 complies with the
applicable provisions of this Indenture.

               SECTION 8.5 NOTATION ON SECURITIES IN RESPECT OF SUPPLEMENTAL
INDENTURES. Securities of any series authenticated and delivered after the
execution of any supplemental indenture pursuant to the provisions of this
Article may bear a notation in form approved by the Trustee for such series as
to any matter provided for by such supplemental indenture or as to any action
taken by Securityholders. If the Issuer or the Trustee shall so determine, new
Securities of any series so modified as to conform, in the opinion of the
Trustee and the Board of Directors, to any modification of this Indenture
contained in any such supplemental indenture may be prepared by the Issuer,
authenticated by the Trustee and delivered in exchange for the Securities of
such series then Outstanding.

                                   ARTICLE IX

                    CONSOLIDATION, MERGER, SALE OR CONVEYANCE



                                       52


               SECTION 9.1 ISSUER MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS.
The Issuer shall not consolidate with or merge into any other Person or transfer
or lease its properties and assets substantially as an entirety to any Person,
and the Issuer shall not permit any other Person to consolidate with or merge
into the Issuer, unless:

               (a) either the Issuer shall be the continuing corporation, or the
        successor corporation (if other than the Issuer) formed by such
        consolidation or into which the Issuer is merged or to which the
        properties and assets of the Issuer substantially as an entirety are
        transferred or leased shall be a corporation organized and existing
        under the laws of the United States of America, any State thereof or the
        District of Columbia and shall expressly assume, by an indenture
        supplemental hereto, executed and delivered to the Trustee, in form
        satisfactory to the Trustee, all the obligations of the Issuer under the
        Securities and this Indenture; and

               (b) immediately after giving effect to such transaction and
        treating any indebtedness which becomes an obligation of the Issuer or a
        Subsidiary as a result of such transaction as having been incurred by
        the Issuer or such Subsidiary at the time of such transaction, no Event
        of Default, and no event which, after notice or lapse of time or both,
        would become an Event of Default, shall have happened and be continuing.

               SECTION 9.2 SUCCESSOR CORPORATION SUBSTITUTED. The successor
corporation formed by such consolidation or into which the Issuer is merged or
to which such transfer or lease is made shall succeed to and be substituted for,
and may exercise every right and power of, the Issuer under this Indenture with
the same effect as if such successor corporation had been named as the Issuer
herein, and thereafter (except in the case of a lease to another Person) the
predecessor corporation shall be relieved of all obligations and covenants under
the Indenture and the Securities and, in the event of such conveyance or
transfer, any such predecessor corporation may be dissolved and liquidated.

               SECTION 9.3 OPINION OF COUNSEL TO BE GIVEN TO TRUSTEE. The
Trustee, subject to the provisions of Sections 6.1 and 6.2, may receive an
Opinion of Counsel as conclusive evidence that any such consolidation, merger,
sale or conveyance, and any such assumption, complies with the provisions of
this Article IX.



                                       53


                                    ARTICLE X

                    SATISFACTION AND DISCHARGE OF INDENTURE;
                                UNCLAIMED MONEYS

               SECTION 10.1 SATISFACTION AND DISCHARGE OF INDENTURE.

               (A) If at any time (i) the Issuer shall have paid or caused to be
paid the principal of and interest on all the Securities of any series
Outstanding hereunder and all unmatured Coupons appertaining thereto (other than
Securities of such series and Coupons appertaining thereto which have been
destroyed, lost or stolen and which have been replaced or paid as provided in
Section 2.9) as and when the same shall have become due and payable, or (ii) the
Issuer shall have delivered to the Trustee for cancellation all Securities of
any series theretofore authenticated and all unmatured Coupons appertaining
thereto (other than any Securities of such series and Coupons appertaining
thereto which shall have been destroyed, lost or stolen and which shall have
been replaced or paid as provided in Section 2.9) or (iii) in the case of any
series of Securities where the exact amount (including the currency of payment)
of principal of and interest due on which can be determined at the time of
making the deposit referred to in clause (b) below, (a) all the Securities of
such series and all unmatured Coupons appertaining thereto not theretofore
delivered to the Trustee for cancellation shall have become due and payable, or
are by their terms to become due and payable within one year or are to be called
for redemption within one year under arrangements satisfactory to the Trustee
for the giving of notice of redemption, and (b) the Issuer shall have
irrevocably deposited or caused to be deposited with the Trustee as trust funds
in trust the entire amount in (i) cash (other than moneys repaid by the Trustee
or any paying agent to the Issuer in accordance with Section 10.4), (ii) in the
case of any series of Securities the payments on which may only be made in
Dollars, direct obligations of the United States of America, backed by its full
faith and credit ("U.S. Government Obligations"), maturing as to principal and
interest at such times and in such amounts as will insure the availability of
cash sufficient to pay at such maturity or upon such redemption, as the case may
be, or (iii) a combination thereof, sufficient, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee, to pay (a) the principal and
interest on all Securities of such series and Coupons appertaining thereto on
each date that such principal or interest is due and payable and (b) any
mandatory sinking fund payments on the dates on which such payments are due and
payable in accordance with the terms of the Indenture and the Securities of such
series; (x) the principal and interest on all Securities of such series and
Coupons appertaining thereto on each date that such principal or interest is due
and payable and (y) any mandatory sinking fund payments on the dates on which
such payments are due and payable in accordance with the terms of the Indenture
and the Securities of such series; and if, in any such case, the Issuer shall
also pay or cause to be paid all other sums payable hereunder by the Issuer,
then this Indenture shall cease to be of further effect (except as to (i) rights
of registration of transfer and exchange of Securities of such Series and of
Coupons appertaining thereto pursuant to Section 2.8 and the Issuer's right of
optional redemption, if any, (ii) substitution of mutilated, defaced,



                                       54


destroyed, lost or stolen Securities or Coupons, (iii) rights of holders of
Securities and Coupons appertaining thereto to receive payments of principal
thereof and interest thereon, upon the original stated due dates therefor (but
not upon acceleration), and remaining rights of the Holders to receive mandatory
sinking fund payments, if any, (iv) any optional redemption rights of such
series of Securities to the extent to be exercised to make such call for
redemption within one year, (v) the rights, obligations, duties and immunities
of the Trustee hereunder, including those under Section 6.6, (vi) the rights of
the Holders of Securities of such series and Coupons appertaining thereto as
beneficiaries hereof with respect to the property so deposited with the Trustee
payable to all or any of them, and (vii) the obligations of the Issuer under
Section 3.2) and the Trustee, on demand of the Issuer accompanied by an
Officer's Certificate and an Opinion of Counsel and at the cost and expense of
the Issuer, shall execute proper instruments acknowledging such satisfaction of
and discharging this Indenture; provided, that the rights of Holders of the
Securities and Coupons to receive amounts in respect of principal of and
interest on the Securities and Coupons held by them shall not be delayed longer
than required by then-applicable mandatory rules or policies of any securities
exchange upon which the Securities are listed. The Issuer agrees to reimburse
the Trustee for any costs or expenses thereafter reasonably and properly
incurred and to compensate the Trustee for any services thereafter reasonably
and properly rendered by the Trustee in connection with this Indenture or the
Securities of such series.

               (B) The following provisions shall apply to the Securities of
each series unless specifically otherwise provided in a Board Resolution,
Officer's Certificate or indenture supplemental hereto provided pursuant to
Section 2.3. In addition to discharge of the Indenture pursuant to the next
preceding paragraph, in the case of any series of Securities the exact amounts
(including the currency of payment) of principal of and interest due on which
can be determined at the time of making the deposit referred to in clause (a)
below, the Issuer shall be deemed to have paid and discharged the entire
indebtedness on all the Securities of such a series and the Coupons appertaining
thereto on the date of the deposit referred to in subparagraph (a) below, and
the provisions of this Indenture with respect to the Securities of such series
and Coupons appertaining thereto shall no longer be in effect (except as to (i)
rights of registration of transfer and exchange of Securities of such series and
of Coupons appertaining thereto pursuant to Section 2.8 and the Issuer's right
of optional redemption, if any, (ii) substitution of mutilated, defaced,
destroyed, lost or stolen Securities or Coupons, (iii) rights of Holders of
Securities and Coupons appertaining thereto to receive payments of principal
thereof and interest thereon, upon the original stated due dates therefor (but
not upon acceleration), and remaining rights of the Holders to receive mandatory
sinking fund payments, if any, (iv) any optional redemption rights of such
series of Securities to the extent to be exercised to make such call for
redemption within one year, (v) the rights, obligations, duties and immunities
of the Trustee hereunder, (vi) the rights of the Holders of Securities of such
series and Coupons appertaining thereto as beneficiaries hereof with respect to
the property so deposited with the Trustee payable to all or any of them and
(vii) the obligations of the Issuer under Section 3.2) and the Trustee, at the
expense of the Issuer, shall at the Issuer's request, execute proper instruments
acknowledging the same, if



                                       55


               (b) with reference to this provision the Issuer has irrevocably
        deposited or caused to be irrevocably deposited with the Trustee as
        trust funds in trust, specifically pledged as security for, and
        dedicated solely to, the benefit of the Holders of the Securities of
        such series and Coupons appertaining thereto (i) cash in an amount, or
        (ii) in the case of any series of Securities the payments on which may
        only be made in Dollars, U.S. Government Obligations, maturing as to
        principal and interest at such times and in such amounts as will insure
        the availability of cash or (iii) a combination thereof, sufficient, in
        the opinion of a nationally recognized firm of independent public
        accountants expressed in a written certification thereof delivered to
        the Trustee, to pay (A) the principal and interest on all Securities of
        such series and Coupons appertaining thereto on each date that such
        principal or interest is due and payable and (b) any mandatory sinking
        fund payments on the dates on which such payments are due and payable in
        accordance with the terms of the Indenture and the Securities of such
        series;

               (c) such deposit will not result in a breach or violation of, or
        constitute a default under, any agreement or instrument to which the
        Issuer is a party or by which it is bound;

               (d) the Issuer has delivered to the Trustee an Opinion of Counsel
        based on the fact that (x) the Issuer has received from, or there has
        been published by, the IRS a ruling or (y) since the date hereof, there
        has been a change in the applicable United States Federal income tax
        law, in either case to the effect that, and such opinion shall confirm
        that, the Holders of the Securities of such series and Coupons
        appertaining thereto will not recognize income, gain or loss for United
        States Federal income tax purposes as a result of such deposit,
        defeasance and discharge and will be subject to United States Federal
        income tax on the same amount and in the same manner and at the same
        times, as would have been the case if such deposit, defeasance and
        discharge had not occurred; and

               (e) the Issuer has delivered to the Trustee an Officer's
        Certificate and an Opinion of Counsel, each stating that all conditions
        precedent provided for relating to the defeasance contemplated by this
        provision have been complied with.

               (C) The Issuer shall be released from its obligations under
Sections 3.6 and 9.1 and unless otherwise provided for in the Board Resolution,
Officer's Certificate or Indenture supplemental hereto establishing such series
of Securities, from all covenants and other obligations referred to in Section
2.3(19) or 2.3(21) with respect to such series of Securities, and any Coupons
appertaining thereto, outstanding on and after the date the conditions set forth
below are satisfied (hereinafter, "covenant defeasance"). For this purpose, such
covenant defeasance means that, with respect to the Outstanding Securities of
any series, the Issuer may omit to comply with and shall have no liability in
respect of any term, condition or limitation set forth in such Section, whether
directly or indirectly by reason of any reference elsewhere herein to such
Section or by reason of any reference in such Section to any other provision



                                       56


herein or in any other document and such omission to comply shall not constitute
an Event of Default under Section 5.1, but the remainder of this Indenture and
such Securities and Coupons shall be unaffected thereby. The following shall be
the conditions to application of this subsection C of this Section 10.1:

               (a) The Issuer has irrevocably deposited or caused to be
        deposited with the Trustee as trust funds in trust for the purpose of
        making the following payments, specifically pledged as security for, and
        dedicated solely to, the benefit of the holders of the Securities of
        such series and coupons appertaining thereto, (i) cash in an amount, or
        (ii) in the case of any series of Securities the payments on which may
        only be made in Dollars, U.S. Government Obligations maturing as to
        principal and interest at such times and in such amounts as will insure
        the availability of cash or (iii) a combination thereof, sufficient, in
        the opinion of a nationally recognized firm of independent public
        accountants expressed in a written certification thereof delivered to
        the Trustee, to pay (A) the principal and interest on all Securities of
        such series and Coupons appertaining thereof and (B) any mandatory
        sinking fund payments on the day on which such payments are due and
        payable in accordance with the terms of the Indenture and the Securities
        of such series;

               (b) No Event of Default or event which with notice or lapse of
        time or both would become an Event of Default with respect to the
        Securities shall have occurred and be continuing on the date of such
        deposit;

               (c) Such covenant defeasance shall not cause the Trustee to have
        a conflicting interest as defined in Section 6.9 and for purposes of the
        Trust Indenture Act with respect to any securities of the Issuer;

               (d) Such covenant defeasance shall not result in a breach or
        violation of, or constitute a default under any agreement or instrument
        to which the Issuer is a party or by which it is bound;

               (e) Such covenant defeasance shall not cause any Securities then
        listed on any registered national securities exchange under the Exchange
        Act to be delisted;

               (f) The Issuer shall have delivered to the Trustee an Officer's
        Certificate and Opinion of Counsel to the effect that the Holders of the
        Securities of such series and Coupons appertaining thereto will not
        recognize income, gain or loss for United States Federal income tax
        purposes as a result of such covenant defeasance and will be subject to
        United States Federal income tax on the same amounts, in the same manner
        and at the same times as would have been the case if such covenant
        defeasance had not occurred; and



                                       57


               (g) The Issuer shall have delivered to the Trustee an Officer's
        Certificate and an Opinion of Counsel, each stating that all conditions
        precedent provided for relating to the covenant defeasance contemplated
        by this provision have been complied with.

               SECTION 10.2 APPLICATION BY TRUSTEE OF FUNDS DEPOSITED FOR
PAYMENT OF SECURITIES. Subject to Section 10.4, all moneys deposited with the
Trustee (or other trustee) pursuant to Section 10.1 shall be held in trust and
applied by it to the payment, either directly or through any paying agent
(including the Issuer acting as its own paying agent), to the Holders of the
particular Securities of such series and of Coupons appertaining thereto for the
payment or redemption of which such moneys have been deposited with the Trustee,
of all sums due and to become due thereon for principal and interest; but such
money need not be segregated from other funds except to the extent required by
law.

               SECTION 10.3 REPAYMENT OF MONEYS HELD BY PAYING AGENT. In
connection with the satisfaction and discharge of this Indenture with respect to
Securities of any series, all moneys then held by any paying agent under the
provisions of this Indenture with respect to such series of Securities shall,
upon demand of the Issuer, be repaid to it or paid to the Trustee and thereupon
such paying agent shall be released from all further liability with respect to
such moneys.

               SECTION 10.4 RETURN OF MONEYS HELD BY TRUSTEE AND PAYING AGENT
UNCLAIMED FOR TWO YEARS. Any moneys deposited with or paid to the Trustee or any
paying agent for the payment of the principal of or interest on any Security of
any series and of any Coupons attached thereto and not applied but remaining
unclaimed for two years after the date upon which such principal or interest
shall have become due and payable, shall, upon the written request of the Issuer
and unless otherwise required by mandatory provisions of applicable escheat or
abandoned or unclaimed property law, be repaid to the Issuer by the Trustee for
such series or such paying agent, and the Holder of the Securities of such
series and of any Coupons appertaining thereto shall, unless otherwise required
by mandatory provisions of applicable escheat or abandoned or unclaimed property
laws, thereafter look only to the Issuer for any payment which such Holder may
be entitled to collect, and all liability of the Trustee or any paying agent
with respect to such moneys shall thereupon cease; provided, that the Trustee or
such paying agent, before being required to make any such repayment with respect
to moneys deposited with it for any payment (a) in respect of Registered
Securities of any series, shall at the expense of the Issuer, mail by
first-class mail to Holders of such Securities at their addresses as they shall
appear on the Security register, and (b) in respect of Unregistered Securities
of any series, shall at the expense of the Issuer cause to the published once,
in an Authorized Newspaper in the Borough of Manhattan, The City of New York and
once in an Authorized Newspaper in London (and, if required by Section 3.7, once
in an Authorized Newspaper in Luxembourg), notice, that such moneys remain and
that, after a date specified therein, which shall not be less than thirty days
from the date of such mailing or publication, any unclaimed balance of such
money then remaining will be repaid to the Issuer.



                                       58


               SECTION 10.5 INDEMNITY FOR U.S. GOVERNMENT OF OBLIGATIONS. The
Issuer shall pay and indemnify the Trustee against any tax, fee or other charge
imposed on or assessed against the U.S. Government Obligations deposited
pursuant to Section 10.1 or the principal or interest received in respect of
such obligations.

               SECTION 10.6 EFFECT ON SUBORDINATION PROVISIONS. Unless otherwise
expressly established pursuant to Section 2.3 with respect to the Subordinated
Securities of any series, the provisions of Section 11.13 hereof, insofar as
they pertain to the Subordinated Securities of such series, and the
Subordination Provisions established pursuant to Section 2.3(9) with respect to
such series, are hereby expressly made subject to the provisions for
satisfaction and discharge and defeasance and covenant defeasance set forth in
Section 10.1 hereof and, anything herein to the contrary notwithstanding, upon
the effectiveness of such satisfaction and discharge and defeasance and covenant
defeasance pursuant to Section 10.1 with respect to the Securities of such
series, such Securities shall thereupon cease to be so subordinated and shall no
longer be subject to the provisions of Section 11.13 or the Subordination
Provisions established pursuant to Section 2.3(9) with respect to such series
and, without limitation to the foregoing, all moneys, U.S. Government
Obligations and other securities or property deposited with the Trustee (or
other qualifying trustee) in trust in connection with such satisfaction and
discharge, defeasance or covenant defeasance, as the case may be, and all
proceeds therefrom may be applied to pay the principal of, premium, if any, and
interest, if any, on, and mandatory sinking fund payments, if any, with respect
to the Securities of such series as and when the same shall become due and
payable notwithstanding the provisions of Section 11.13 or such Subordination
Provisions.

                                   ARTICLE XI

                            MISCELLANEOUS PROVISIONS

               SECTION 11.1 INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS
OF ISSUER EXEMPT FROM INDIVIDUAL LIABILITY. No recourse under or upon any
obligation, covenant or agreement contained in this Indenture, or in any
Security, 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 Issuer or of any successor, either directly
or through the Issuer 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 Securities and the Coupons, if any,
appertaining thereto by the Holders thereof and as part of the consideration for
the issue of the Securities and the Coupons appertaining thereto.

               SECTION 11.2 PROVISIONS OF INDENTURE FOR THE SOLE BENEFIT OF
PARTIES AND HOLDERS OF SECURITIES AND COUPONS. Nothing in this Indenture, in the
Securities or in the Coupons appertaining thereto, expressed or implied, shall



                                       59


give or be construed to give to any person, firm or corporation, other than the
parties hereto and their successors and the Holders of the Securities or
Coupons, if any and, in the case of the Subordinated Securities of any series,
the holders of Senior Indebtedness with respect to such series, 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
Securities or Coupons, if any and, in the case of the Subordinated Securities of
any series, the holders of Senior Indebtedness with respect to such series.

               SECTION 11.3 SUCCESSORS AND ASSIGNS OF ISSUER BOUND BY INDENTURE.
All the covenants, stipulations, promises and agreements in this Indenture
contained by or in behalf of the Issuer shall bind its successors and assigns,
whether so expressed or not.

               SECTION 11.4 NOTICES AND DEMANDS ON ISSUER, TRUSTEE AND HOLDERS
OF SECURITIES AND COUPONS. 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 Securities or Coupons, if any, to or on the Issuer 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
Issuer is filed by the Issuer with the Trustee) to McKesson Corporation,
McKesson Plaza, One Post Street, San Francisco, California 94104, Attention:
Secretary. Any notice, direction, request or demand by the Issuer or any Holder
of Securities or Coupons, if any, to or upon the Trustee shall be deemed to have
been sufficiently given or served by being deposited postage prepaid,
first-class mail (except as otherwise specifically provided herein) addressed
(until another address of the Trustee is filed by the Trustee with the Issuer)
to The Bank of New York, 101 Barclay Street, 21W, New York, New York, 10286,
Attention: Corporate Trust Division.

               Where this Indenture provides for notice to Holders of Registered
Securities, such notice shall be sufficiently given (unless otherwise herein
expressly provided) if in writing and mailed, first-class mail, postage prepaid,
to each Holder entitled thereto, at his last address as it appears in the
Security register. In any case where notice to such Holders is given by mail,
neither the failure to mail such notice, nor any defect in any notice so mailed,
to any particular Holder shall affect the sufficiency of such notice with
respect to other Holders. 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.

               Where this Indenture provides for notice to holders of
Unregistered Securities, such notice shall be sufficiently given (unless
otherwise expressly provided herein) by giving notice to such Holders (a) by
publication of such notice at least once in an Authorized



                                       60


Newspaper in the Borough of Manhattan, The City of New York, and at least once
in an Authorized Newspaper in London (and, if required by Section 3.7, once in
an Authorized Newspaper in Luxembourg), and (b) by mailing such notice to the
Holders of Unregistered Securities who have filed their names and addresses with
the Trustee pursuant to Section 313(c)(2) of the Trust Indenture Act at such
addresses as were so furnished to the Trustee.

               In case, by reason of the suspension of or irregularities in
regular mail service, it shall be impracticable to mail notice to the Issuer
when such notice is required to the given pursuant to any provision of this
Indenture, then any manner of giving such notice as shall be reasonably
satisfactory to the Trustee shall be deemed to be a sufficient giving of such
notice.

               SECTION 11.5 OFFICER'S CERTIFICATES AND OPINIONS OF COUNSEL;
STATEMENTS TO BE CONTAINED THEREIN. Upon any application or demand by the Issuer
to the Trustee to take any action under any of the provisions of this Indenture,
the Issuer shall furnish to the Trustee an Officer's Certificate stating that
all conditions precedent 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 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, (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.

               Any certificate, statement or opinion of an officer of the Issuer
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 Issuer, upon the certificate, statement or opinion of or
representations by an officer or officers of the Issuer, 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.



                                       61


               Any certificate, statement or opinion of an officer of the Issuer
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 Issuer, unless such officer or counsel, as the
case may be, knows that the certificate or opinion of 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 11.6 PAYMENTS DUE ON SATURDAYS, SUNDAYS AND HOLIDAYS. If
the date of maturity of interest on or principal of the Securities of any series
or any Coupons appertaining thereto or the date fixed for redemption or
repayment of any such Security or Coupon 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 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 11.7 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 duties imposed by, or with another provision (an
"incorporated provision") included in this Indenture by operation of Sections
310 to 318, inclusive, of the Trust Indenture Act, such imposed duties or
incorporated provision shall control.

               SECTION 11.8 THIS INDENTURE AND EACH SECURITY AND COUPON SHALL BE
DEEMED TO BE A CONTRACT UNDER THE LAWS OF THE STATE OF NEW YORK, AND FOR ALL
PURPOSES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF SUCH
STATE INCLUDING, WITHOUT LIMITATION, SECTION 5-1401 OF THE NEW YORK GENERAL
OBLIGATIONS LAW.

               SECTION 11.9 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 11.10 EFFECT OF HEADINGS. The Article and Section
headings herein and the Table of Contents are for convenience only and shall not
affect the construction hereof.

               SECTION 11.11 SECURITIES IN A FOREIGN CURRENCY. Unless otherwise
specified in an Officer's Certificate delivered pursuant to Section 2.3 of this
Indenture with respect to a particular series of Securities, whenever for
purposes of this Indenture any action may be taken by the Holders of a specified
percentage in aggregate principal amount of



                                       62


Securities of all series or all series affected by a particular action at the
time Outstanding and, at such time, there are Outstanding Securities of any
series which are denominated in a Foreign Currency, then the principal amount of
Securities of such series which shall be deemed to be Outstanding for the
purpose of taking such action shall be that amount of Dollars that could be
obtained for such amount at the Market Exchange Rate. For purposes of this
Section 11.11, Market Exchange Rate shall mean the noon Dollar buying rate in
The City of New York for cable transfers of such currency or currencies as
published by the Federal Reserve Bank of New York as of the most recent
available date. If such Market Exchange Rate is not available for any reason
with respect to such currency, the Trustee shall use, in its sole discretion and
without liability on its part, such quotation of the Federal Reserve Bank of New
York or quotations from one or more major banks in The City of New York or in
the country of issue of the currency in question, which for purposes of the euro
shall be any member state of the European Union that has adopted the euro, as
the Trustee shall deem appropriate. The provisions of this paragraph shall apply
in determining the equivalent principal amount in respect of Securities of a
series denominated in a currency other than Dollars in connection with any
action taken by Holders of Securities pursuant to the terms of this Indenture.

               All decisions and determinations of the Trustee regarding the
Market Exchange Rate or any alternative determination provided for in the
preceding paragraph shall be in its sole discretion and shall, in the absence of
manifest error, be conclusive to the extent permitted by law for all purposes
and irrevocably binding upon the Issuer and all Holders.

               SECTION 11.12 JUDGMENT CURRENCY. The Issuer agrees, to the
fullest extent that it may effectively do so under applicable law, that (a) if
for the purpose of obtaining judgment in any court it is necessary to convert
the sum due in respect of the principal of or interest on the Securities of any
series (the "Required Currency") into a currency in which a judgment will be
rendered (the "Judgment Currency"), the rate of exchange used shall be the rate
at which in accordance with normal banking procedures the Trustee could purchase
in The City of New York the Required Currency with the Judgment Currency on the
day on which final unappealable judgment is entered, unless such day is not a
New York Banking Day, then, to the extent permitted by applicable law, the rate
of exchange used shall be the rate at which in accordance with normal banking
procedures the Trustee could purchase in The City of New York the Required
Currency with the Judgment Currency on the New York Banking Day preceding the
day on which final unappealable judgment is entered and (b) its obligations
under this Indenture to make payments in the Required Currency (i) shall not be
discharged or satisfied by any tender, or any recovery pursuant to any judgment
(whether or not entered in accordance with subsection (a)), in any currency
other than the Required Currency, except to the extent that such tender or
recovery shall result in the actual receipt, by the payee, of the full amount of
the Required Currency expressed to be payable in respect of such payments, (ii)
shall be enforceable as an alternative or additional cause of action for the
purpose of recovering in the Required Currency the amount, if any, by which such
actual receipt shall fall short of the full amount of the Required Currency so
expressed to be payable and (iii) shall not be affected by judgment being
obtained for any other sum due under this Indenture. For purposes of the



                                       63


foregoing, "New York Banking Day" means any day except a Saturday, Sunday or a
legal holiday in The City of New York or a day on which banking institutions in
The City of New York are authorized or required by law or executive order to
close.

               SECTION 11.13 AGREEMENT TO SUBORDINATE. The Issuer, for itself,
its successors and assigns, covenants and agrees, and each Holder of
Subordinated Securities of any series by his acceptance thereof, likewise
covenants and agrees, that the payment of the principal of (and premium, if any)
and interest, if any, on, and mandatory sinking fund payments, if any, in
respect of each and all of the Subordinated Securities of such series shall be
expressly subordinated, to the extent and in the manner provided in the
Subordination Provisions established with respect to the Subordinated Securities
of such series pursuant to Section 2.3(9) hereof, in right of payment to the
prior payment in full of all Senior Indebtedness with respect to such series.

                                   ARTICLE XII

                   REDEMPTION OF SECURITIES AND SINKING FUNDS

               SECTION 12.1 APPLICABILITY OF ARTICLE. The provisions of this
Article shall be applicable to the Securities of any series which are redeemable
before their maturity or to any sinking fund for the retirement of Securities of
a series except as otherwise specified as contemplated by Section 2.3 for
Securities of such series.

               SECTION 12.2 NOTICE OF REDEMPTION; PARTIAL REDEMPTIONS. Notice of
redemption to the Holders of Registered Securities of any series to be redeemed
as a whole or in part at the option of the Issuer shall be given by mailing
notice of such redemption by first class mail, postage prepaid, at least 30 days
and not more than 60 days prior to the date fixed for redemption to such Holders
of Securities of such series at their last addresses as they shall appear upon
the registry books. Notice of redemption to the Holders of Unregistered
Securities to be redeemed as a whole or in part, who have filed their names and
addresses with the Trustee pursuant to Section 313(c)(2) of the Trust Indenture
Act shall be given by mailing notice of such redemption, by first class mail,
postage prepaid, at least 30 days and not more than 60 prior to the date fixed
for redemption, to such Holders at such addresses as were so furnished to the
Trustee (and, in the case of any such notice given by the Issuer, the Trustee
shall make such information available to the Issuer for such purpose). Notice of
redemption to all other Holders of Unregistered Securities shall be published in
an Authorized Newspaper in the Borough of Manhattan, The City of New York and in
an Authorized Newspaper in London (and, if required by Section 3.7, in an
Authorized Newspaper in Luxembourg), in each case, once in each of three
successive calendar weeks, the first publication to be not less than 30 nor more
than 60 days prior to the date fixed for redemption. 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. Failure to give notice by
mail, or any defect in the notice to the



                                       64


Holder of any Security of a series designated for redemption as a whole or in
part shall not affect the validity of the proceedings for the redemption of such
Security of such series.

               The notice of redemption to each such Holder shall specify the
principal amount of each Security of such series held by such Holder to be
redeemed, the date fixed for redemption, the redemption price, the place or
places of payment, that payment will be made upon presentation and surrender of
such Securities and, in the case of Securities with Coupons attached thereto, of
all Coupons appertaining thereto maturing after the date fixed for redemption,
that such redemption is pursuant to the mandatory or optional sinking fund, or
both, if such be the case, 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. In case any Security of a series is to be redeemed in part only, the
notice of redemption to Holders of Securities of the series 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 Security, a new
Security or Securities of such series in principal amount equal to the
unredeemed portion thereof will be issued.

               The notice of redemption of Securities of any series to be
redeemed at the option of the Issuer shall be given by the Issuer or, at the
Issuer's request, by the Trustee in the name and at the expense of the Issuer.

               On or before the redemption date specified in the notice of
redemption given as provided in this Section, the Issuer will deposit with the
Trustee or with one or more paying agents (or, if the Issuer is acting as its
own paying agent, set aside, segregate and hold in trust as provided in Section
3.4) an amount of money sufficient to redeem on the redemption date all the
Securities of such series so called for redemption at the appropriate redemption
price, together with accrued interest to the date fixed for redemption. The
Issuer will deliver to the Trustee at least 70 days prior to the date fixed for
redemption, or such shorter period as shall be acceptable to the Trustee, an
Officer's Certificate stating the aggregate principal amount of Securities to be
redeemed. In case of a redemption at the election of the Issuer prior to the
expiration of any restriction on such redemption, the Issuer shall deliver to
the Trustee, prior to the giving of any notice of redemption to Holders pursuant
to this Section, an Officer's Certificate stating that such restriction has been
complied with.

               If less than all the Securities of a series are to be redeemed,
the Trustee shall select, in such manner as it shall deemed appropriate and
fair, in its sole discretion, Securities of such series to be redeemed in whole
or in part. Securities may be redeemed in part in multiples equal to the minimum
authorized denomination for Securities of such series or any multiple thereof.
The Trustee shall promptly notify the Issuer in writing of the Securities of
such series selected for redemption and, in the case of any Securities of such
series selected for partial redemption, the principal amount thereof to be
redeemed. For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Securities of any series
shall relate, in the case of any Security redeemed or to be redeemed only



                                       65


in part, to the portion of the principal amount of such Security which has been
or is to be redeemed.

               SECTION 12.3 PAYMENT OF SECURITIES CALLED FOR REDEMPTION. If
notice of redemption has been given as above provided, the Securities or
portions of Securities 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 Issuer shall default in the payment of such
Securities at the redemption price, together with interest accrued to said date)
interest on the Securities or portions of Securities so called for redemption
shall cease to accrue, and the unmatured Coupons, if any, appertaining thereto
shall be void, and, except as provided in Sections 6.5 and 10.4, such Securities
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 Securities except the right to receive the redemption
price thereof and unpaid interest to the date fixed for redemption. On
presentation and surrender of such Securities at a place of payment specified in
said notice, together with all Coupons, if any, appertaining thereto maturing
after the date fixed for redemption, said Securities or the specified portions
thereof shall be paid and redeemed by the Issuer 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 in the case of Securities with Coupons attached
thereto, to the Holders of the Coupons for such interest upon surrender thereof,
and in the case of Registered Securities, to the Holder of such Registered
Securities registered as such on the relevant record date, subject to the terms
and provisions of Section 2.3 and 2.7 hereof.

                 If any Security 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 rate of
interest or Yield to Maturity (in the case of an Original Issue Discount
Security) borne by such Security.

                 If any Security with Coupons attached thereto is surrendered
for redemption and is not accompanied by all appurtenant Coupons maturing after
the date fixed for redemption, the surrender of such missing Coupon or Coupons
may be waived by the Issuer and the Trustee, if there be furnished to each of
them such security or indemnity as they may require to save each of them
harmless.

                 Upon presentation of any Security redeemed in part only, the
Issuer shall execute and the Trustee shall authenticate and deliver to or on the
order of the Holder thereof, at the expense of the Issuer, a new Security or
Securities of such series, of authorized denominations, in principal amount
equal to the unredeemed portion of the Security so presented.



                                       66


               SECTION 12.4 EXCLUSION OF CERTAIN SECURITIES FROM ELIGIBILITY FOR
SELECTION FOR REDEMPTION. Securities shall be excluded from eligibility for
selection for redemption if they are identified by registration and certificate
number in an Officer's Certificate delivered to the Trustee at least 40 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 Issuer 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 Issuer.

               SECTION 12.5 MANDATORY AND OPTIONAL SINKING FUNDS. The minimum
amount of any sinking fund payment provided for by the terms of the Securities
of any series is herein referred to as a "mandatory sinking fund payment," and
any payment in excess of such minimum amount provided for by the terms of the
Securities of any series is herein referred to as an "optional sinking fund
payment." The date on which a sinking fund payment is to be made is herein
referred to as the "sinking fund payment date."

               In lieu of making all or any part of any mandatory sinking fund
payment with respect to any series of Securities in cash, the Issuer may at its
option (a) deliver to the Trustee Securities of such series theretofore
purchased or otherwise acquired (except upon redemption pursuant to the
mandatory sinking fund) by the Issuer or receive credit for Securities of such
series (not previously so credited) theretofore purchased or otherwise acquired
(except as aforesaid) by the Issuer and delivered to the Trustee for
cancellation pursuant to Section 2.10, (b) receive credit for optional sinking
fund payments (not previously so credited) made pursuant to this Section, or (c)
receive credit for Securities of such series (not previously so credited)
redeemed by the Issuer through any optional redemption provision contained in
the terms of such series. Securities so delivered or credited shall be received
or credited by the Trustee at the sinking fund redemption price specified in
such Securities.

               On or before the 60th day next preceding each sinking fund
payment date for any series, the Issuer will deliver to the Trustee an Officer's
Certificate (which need not contain the statements required by Section 11.5) (a)
specifying the portion of the mandatory sinking fund payment to be satisfied by
payment of cash and the portion to be satisfied by credit of Securities of such
series and the basis for such credit, (b) stating that none of the Securities of
such series has theretofore been so credited, (c) stating that no defaults in
the payment of interest or Events of Default with respect to such series have
occurred (which have not been waived or cured) and are continuing and (d)
stating whether or not the Issuer intends to exercise its right to make an
optional sinking fund payment with respect to such series and, if so, specifying
the amount of such optional sinking fund payment which the Issuer intends to pay
on or before the next succeeding sinking fund payment date. Any Securities of
such series to be credited and required to be delivered to the Trustee in order
for the Issuer to be entitled to credit therefor as aforesaid which have not
theretofore been delivered to the Trustee shall be delivered for cancellation
pursuant to Section 2.10 to the Trustee with such Officer's Certificate (or
reasonably promptly thereafter if acceptable to the Trustee). Such Officer's
Certificate shall



                                       67


be irrevocable and upon its receipt by the Trustee, the Issuer shall become
unconditionally obligated to make all the cash payments or payments therein
referred to, if any, on or before the next succeeding sinking fund payment date.
Failure of the Issuer, on or before any such 60th day, to deliver such Officer's
Certificate and Securities specified in this paragraph, if any, shall not
constitute a default but shall constitute, on and as of such date, the
irrevocable election of the Issuer (i) that the mandatory sinking fund payment
for such series due on the next succeeding sinking fund payment date shall be
paid entirely in cash without the option to deliver or credit Securities of such
series in respect thereof and (ii) that the Issuer will make no optional sinking
fund payment with respect to such series as provided in this Section.

               If the sinking fund payment or payments (mandatory or optional or
both) to be made in cash on the next succeeding sinking fund payment date plus
any unused balance of any preceding sinking fund payments made in cash shall
exceed $50,000 (or the equivalent thereof in any Foreign Currency) or a lesser
sum in Dollars (or the equivalent thereof in any Foreign Currency) if the Issuer
shall so request with respect to the Securities of any particular series, such
cash shall be applied on the next succeeding sinking fund payment date to the
redemption of Securities of such series at the sinking fund redemption price
together with accrued interest to the date fixed for redemption. If such amount
shall be $50,000 (or the equivalent thereof in any Foreign Currency) or less and
the Issuer makes no such request then it shall be carried over until a sum in
excess of $50,000 (or the equivalent thereof in any Foreign Currency) is
available. The Trustee shall select, in the manner provided in Section 12.2, for
redemption on such sinking fund payment date a sufficient principal amount of
Securities of such series to absorb said cash, as nearly as may be, and shall
(if requested in writing by the Issuer) inform the Issuer of the serial numbers
of the Securities of such series (or portions thereof) so selected. Securities
shall be excluded from eligibility for redemption under this Section if they are
identified by registration and certificate number in an Officer's Certificate
delivered to the Trustee at least 60 days prior to the sinking fund payment date
as being owned of record and beneficially by, and not pledged or hypothecated
by, either (a) the Issuer or (b) an entity specifically identified in such
Officer's Certificate as directly or indirectly controlling or controlled by or
under direct or indirect common control with the Issuer. The Trustee, in the
name and at the expense of the Issuer (or the Issuer, if it shall so request the
Trustee in writing) shall cause notice of redemption of the Securities of such
series to be given in substantially the manner provided in Section 12.2 (and
with the effect provided in Section 12.3) for the redemption of Securities of
such series in part at the option of the Issuer. The amount of any sinking fund
payments not so applied or allocated to the redemption of Securities of such
series shall be added to the next cash sinking fund payment for such series and,
together with such payment, shall be applied in accordance with the provisions
of this Section. Any and all sinking fund moneys held on the stated maturity
date of the Securities of any particular series (or earlier, if such maturity is
accelerated), which are not held for the payment or redemption of particular
Securities of such series shall be applied, together with other moneys, if
necessary, sufficient for the purpose, to the payment of the principal of, and
interest on, the Securities of such series at maturity.



                                       68


               On or before each sinking fund payment date, the Issuer shall pay
to the Trustee in cash or shall otherwise provide for the payment of all
interest accrued to the date fixed for redemption on Securities to be redeemed
on the next following sinking fund payment date.

               The Trustee shall not redeem or cause to be redeemed any
Securities of a series with sinking fund moneys or give any notice of redemption
of Securities for such series by operation of the sinking fund during the
continuance of a default in payment of interest on such Securities or of any
Event of Default except that, where the giving of notice of redemption of any
Securities shall theretofore have been made, the Trustee shall redeem or cause
to be redeemed such Securities, provided that it shall have received from the
Issuer a sum sufficient for such redemption. Except as aforesaid, any moneys in
the sinking fund for such series at the time when any such default or Event of
Default shall occur, and any moneys thereafter paid into the sinking fund,
shall, during the continuance of such default or Event of Default be deemed to
have been collected under Article Five and held for the payment of all such
Securities. In case such Event of Default shall have been waived as provided in
Section 5.10 or the default cured on or before the sixtieth day preceding the
sinking fund payment date in any year, such moneys shall thereafter be applied
on the next succeeding sinking fund payment date in accordance with this Section
to the redemption of such Securities.



                                       69


               IN WITNESS WHEREOF, the parties hereto have caused this Indenture
to be duly executed and attested as of the date first written above.


                                             McKESSON CORPORATION


                                             By:  /s/    Nicholas A. Loiacono
                                                 -------------------------------
                                                 Name:   Nicholas A. Loiacono
                                                 Title:  Vice President


Attest:

By:  /s/  Glenette Babb
   -------------------------------


                                             THE BANK OF NEW YORK, as Trustee


                                             By:  /s/    Michael Pitfick
                                                 -------------------------------
                                                 Name:   Michael Pitfick
                                                 Title:  Assistant Treasurer


Attest:

By:
   -------------------------------

EX-4.7

                                                                     Exhibit 4.7



REGISTERED                                                            REGISTERED

THIS NOTE IS A REGISTERED GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE OF A DEPOSITARY. UNLESS THIS NOTE 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 NOTE 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. 1                                                        CUSIP NO. 58155QAA1

                              McKESSON CORPORATION

                        7 3/4% NOTE DUE FEBRUARY 1, 2012

               McKesson Corporation, a Delaware corporation (the "Issuer," which
term includes any successor corporation under the Indenture hereinafter referred
to), for value received, hereby promises to pay to, Cede & Co., or registered
assigns, the principal sum of Four Hundred Million Dollars ($400,000,000) on
February 1, 2012 and to pay interest on said principal sum from January 29,
2002, or from the most recent interest payment date to which interest has been
paid or duly provided for, semi-annually in arrears on February 1 and August 1,
(each such date, an "Interest Payment Date") of each year commencing on August
1, 2002, at the rate of 7 3/4% per annum until the principal hereof shall have
become due and payable.

               The amount of interest payable on any Interest Payment Date shall
be computed on the basis of a 360-day year comprised of twelve 30-day months. In
the event that any date on which the principal or interest payable on this Note
is not a Business Day, then payment of principal or 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 such delay). 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 Note is registered at
the close of business on the record date for such interest installment, which
shall be the close of business on the




immediately preceding January 15 and July 15 prior to such Interest Payment
Date, as applicable. Any such interest installment not punctually paid or duly
provided for shall forthwith cease to be payable to the registered holders on
such record date and may be paid to the person in whose name this Note is
registered at the close of business on a subsequent record date (which shall be
not less than five Business Days prior to the date of payment of such defaulted
interest), notice whereof shall be given by mail by or on behalf of the Issuer
to the registered holders of Notes not less than 15 days preceding such
subsequent record date, all as more fully provided in the Indenture. The
principal of and the interest on this Note shall be payable at the office or
agency of the Issuer 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 Issuer by check mailed to the person entitled thereto
at such address as shall appear in the registry books of the Issuer; provided,
further that for so long as this Note is represented by a Registered Global
Security, payment of principal, premium, if any, or interest on this Note may be
made by wire transfer to the account of the Depositary or its nominee.

               Unless the certificate of authentication hereon has been executed
by or on behalf of the Trustee (as defined below) under the Indenture (as
defined below), by the manual signature of one of its authorized officers, this
Note shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.

               Capitalized terms used in this Note which are defined in the
Indenture shall have the respective meanings assigned to them in the Indenture.

               The provisions of this Note 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.



                                       2


               IN WITNESS WHEREOF, the Issuer has caused this instrument to be
duly executed, manually or in facsimile, and an imprint or facsimile of its
corporate seal to be imprinted hereon.

                                        McKESSON CORPORATION

                                        By: /s/    Nigel A. Rees
                                            ------------------------------------
                                            Name:  Nigel A. Rees
                                            Title: Vice President and Controller

Attest:

By: /s/    Glenette E. Babb
    ------------------------------------
    Name:  Glennette E. Babb
    Title: Assistant Secretary

CERTIFICATE OF AUTHENTICATION
This is one of the Securities
referred to in the within-mentioned
Indenture.

THE BANK OF NEW YORK
  as Trustee

By: /s/    Michael Pitfick
    ------------------------------------
    Authorized Signatory

Dated:     January 29, 2002
      ----------------------------------


                                       3


                         [FORM OF REVERSE SIDE OF NOTE]

               This Note is one of a duly authorized series of securities (the
"Securities") of the Issuer designated as its 7 3/4% Notes due February 1, 2012
(the "Notes"). The Securities are all issued or to be issued under and pursuant
to an Indenture, dated as of January 29, 2002 (the "Indenture"), duly executed
and delivered between the Issuer and The Bank of New York, a New York banking
corporation (the "Trustee," which term includes any successor Trustee with
respect to the Securities under the Indenture), to which the Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights thereunder of the Issuer, the Trustee and the holders of the
Securities and the terms upon which the Notes are to be authenticated and
delivered. The terms of individual series of Securities may vary with respect to
interest rate or interest rate formulas, issue dates, maturity, redemption,
repayment, currency of payment and otherwise.

               The Notes are issuable only as Registered Securities in minimum
denominations of $1,000 and integral multiples of $1,000 in excess thereof. As
provided in the Indenture and subject to certain limitations therein set forth,
the Notes are exchangeable for a like aggregate principal amount of Notes as
requested by the holder surrendering the same.

               Except as set forth below, this Note is not redeemable and is not
entitled to the benefit of a sinking fund or any analogous provision.

               This Note is redeemable, in whole or in part, at the option of
the Issuer, at any time at a redemption price equal to the greater of (i) 100%
of its principal amount and (ii) as determined by the Quotation Agent, the sum
of the present values of the remaining scheduled payments of principal and
interest thereon (not including any portion of those payments of interest
accrued as of the date of redemption) discounted to the date of redemption on a
semi-annual basis (assuming a 360-day year consisting of twelve 30-day months)
at the Adjusted Treasury Rate plus 30 basis points, plus, in each case, accrued
interest thereon to the date of redemption. The Holder of this Note will receive
notice thereof by first-class mail at least 30 and not more than 60 days prior
to the date fixed for redemption. Unless the Issuer defaults in payment of the
redemption price, on and after the redemption date, interest will cease to
accrue on the Notes or portions thereof called for redemption.

               "Adjusted Treasury Rate" means, with respect to any date of
redemption, the rate per annum equal to the semi-annual equivalent yield to
maturity of the Comparable Treasury Issue, assuming a price for the Comparable
Treasury Issue (expressed as a percentage of its principal amount) equal to the
Comparable Treasury Price for that date of redemption.



                                       4


               "Comparable Treasury Issue" means the United States Treasury
security selected by the Quotation Agent as having a maturity comparable to the
remaining term of the Note that would be utilized, at the time of selection and
in accordance with customary financial practice, in pricing new issues of
corporate debt securities of comparable maturity to the remaining term of the
Note.

               "Comparable Treasury Price" means, with respect to any date of
redemption, (i) the average of the Reference Treasury Dealer Quotations for the
date of redemption, after excluding the highest and lowest Reference Treasury
Dealer Quotations, or (ii) if the Trustee obtains fewer than three Reference
Treasury Dealer Quotations, the average of all such Reference Treasury Dealer
Quotations.

               "Quotation Agent" means J.P. Morgan Securities Inc. or another
Reference Treasury Dealer appointed by the Issuer.

               "Reference Treasury Dealer" means (i) each of J.P. Morgan
Securities Inc. and Banc of America Securities LLC and their respective
successors; provided, however, that if either of the foregoing shall cease to be
a primary U.S. Government securities dealer in New York City (a "Primary
Treasury Dealer"), the Issuer shall substitute another Primary Treasury Dealer;
and (ii) any other Primary Treasury Dealer selected by the Issuer.

               "Reference Treasury Dealer Quotations" means, with respect to
each Reference Treasury Dealer and any date of redemption, the average, as
determined by the Trustee, of the bid and asked prices for the Comparable
Treasury Issue (expressed in each case as a percentage of its principal amount)
quoted in writing to the Trustee by that Reference Treasury Dealer at 5:00 p.m.,
New York City time, on the third business day preceding that date of redemption.

               If an Event of Default with respect to the Notes shall occur and
be continuing, the principal of all the Notes may be declared due and payable in
the manner and with the effect provided in the Indenture.

               The Indenture contains provisions permitting the Issuer and the
Trustee, with the consent of the holders of not less than a majority in
aggregate principal amount of the Senior Securities or Subordinated Securities,
as the case may be, of all series issued under such Indenture then outstanding
and affected (each voting as one class), to add any provisions to, or change in
any manner, eliminate or waive any of the provisions of, such Indenture or
modify in any manner the rights of the holders of the Securities of each series
or Coupons so affected; provided that the Issuer and the Trustee may not,
without the consent of the holder of each Outstanding Security affected there-
by, (i) extend the final maturity of the principal of any Security or reduce the
principal



                                       5


amount thereof or premium thereon, if any, or reduce the rate or extend the time
of payment of interest thereon, or reduce any amount payable on redemption
thereof or change the currency in which the principal thereof (other than as
otherwise may be provided with respect to such series), premium, if any, or
interest thereon is payable or reduce the amount of the principal of any
Original Issue Discount Security that is payable upon acceleration or provable
in bankruptcy, or in the case of Subordinated Securities of any series, modify
any of the subordination provisions or the definition of "Senior Indebtedness"
relating to such series in a manner adverse to the holders of such Subordinated
Securities, or alter certain provisions of the Indenture relating to Securities
not denominated in Dollars or the Judgment Currency of such Securities or impair
or affect the right of any Securityholder to institute suit for the enforcement
of any payment thereof when due or, if the Securities provide therefor, any
right of repayment at the option of the Securityholder or (ii) reduce the
aforesaid percentage in principal amount of Securities of any series issued
under the Indenture, the consent of the holders of which is required for any
such modification. It is also provided in the Indenture that, with respect to
certain defaults or Events of Default regarding the Securities of any series,
the holders of a majority in aggregate principal amount Outstanding of the
Securities of each such series, each such series voting as a separate class (or,
of all Securities, as the case may be voting as a single class) may under
certain circumstances waive all defaults with respect to each such series (or
with respect to all the Securities, as the case may be) and rescind and annul a
declaration of default and its consequences, but no such waiver or rescission
and annulment shall extend to or affect any subsequent default or shall impair
any right consequent thereto. The preceding sentence shall not, however, apply
to a default in the payment of the principal of or interest on any of the
Securities.

               No reference herein to the Indenture and no provision of this
Note or of the Indenture shall alter or impair the obligation of the Issuer,
which is absolute and unconditional, to pay the principal of and interest on
this Note at the time, place and rate, and in the coin or currency, herein
prescribed.

               As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Note may be registered on the registry
books of the Issuer, upon surrender of this Note for registration of transfer at
the office or agency of the Issuer maintained by the Issuer for such purpose in
the Borough of Manhattan, The City of New York, duly endorsed by, or accompanied
by a written instrument of transfer in form satisfactory to the Issuer and the
Trustee duly executed by, the holder hereof or by its attorney duly authorized
in writing, and thereupon one or more new Notes of authorized denominations and
for the same aggregate principal amount, will be issued to the designated
transferee or transferees.



                                       6


               No service charge shall be made for any such registration of
transfer or exchange, but the Issuer may require payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
therewith.

               Prior to due presentment of this Note for registration of
transfer, the Issuer, the Trustee and any agent of the Issuer or the Trustee may
treat the person in whose name this Note is registered as the owner hereof for
all purposes, whether or not this Note be overdue, and neither the Issuer, the
Trustee nor any such agent shall be affected by notice to the contrary.

               THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, INCLUDING, WITHOUT LIMITATION, SECTION 5-1401
OF THE NEW YORK GENERAL OBLIGATIONS LAW.



                                       7


                [FORM OF SCHEDULE FOR ENDORSEMENTS ON REGISTERED
            GLOBAL SECURITIES TO REFLECT CHANGES IN PRINCIPAL AMOUNT]

                                   Schedule A

           Changes to Principal Amount of Registered Global Securities



              Principal Amount
                  of Notes
          by which this Registered         Remaining
          Global Security is to be         Principal
           Reduced or Increased,         Amount of this
               and Reason for              Registered
Date       Reduction or Increase         Global Security     Notation Made By
- ----      ------------------------       ---------------     ----------------
                                                    







                                       8

EX-10.1

                                                                   Exhibit 10.1



                              MCKESSON CORPORATION

                   1999 STOCK OPTION AND RESTRICTED STOCK PLAN

                       (As Amended Through July 31, 2001)


        1. Establishment, Purpose and Definitions.

           (a) There is hereby adopted the McKesson Corporation 1999 Stock
Option and Restricted Stock Plan (the "Plan").

           (b) The purpose of this Plan is to provide a means whereby eligible
employees of McKesson Corporation (the "Company") and its affiliates may be
given an opportunity to purchase shares of the common stock ($0.01 par value) of
the Company (the "Stock") pursuant to options, which will not qualify as
"incentive stock options" under Section 422 of the Internal Revenue Code, as
amended (the "Code"), and by providing participants with grants of restricted
shares of Stock ("Restricted Stock") in accordance with the terms and conditions
set forth herein.

        2. Stock Subject to the Plan.

           (a) The number of shares of Stock available for the grant of awards
hereunder shall be 32,700,000 (all such shares shall be subject to equitable
adjustment as provided herein). The maximum number of shares of Stock that may
be granted to any individual in the form of options during any plan year shall
not exceed 600,000; in each case, such maximum number shall be subject to
equitable adjustment as provided herein.

           As the Committee (as hereinafter defined) may determine from time to
time, the Stock may consist either in whole or in part of shares of authorized
but unissued Stock, or shares of authorized and issued Stock reacquired by the
Company and held in its treasury. If an option is surrendered for cash or for
any other reason (except surrender for shares of Stock) ceases to be exercisable
in whole or in part, the shares which were subject to such option but as to
which the option had not been exercised shall continue to be available for
grants of stock options under the Plan. If any shares of Stock underlying
Restricted Stock grants shall be reacquired by the Company pursuant to the
termination provisions described herein or in the instruments evidencing the
making of such Restricted Stock grants, such shares shall again be available for
grant of Restricted Stock awards under the Plan. Prior to the granting of
awards, the Company shall be under no obligation to reserve or retain in its
treasury any particular number of shares of Stock at any time, and no particular
shares of Stock, whether issued or held as treasury Stock, shall be identified
as being available for future awards under the Plan.

           (b) In the event that the Committee shall determine that any dividend
or other distribution (whether in the form of cash, stock, or other property),
recapitalization, stock split,




reverse stock split, reorganization, merger, consolidation, spin-off,
combination, repurchase, or share exchange, or other similar corporate
transaction or event, affects the Stock such that an adjustment is appropriate
in order to preserve (but not increase) the rights of participants under the
Plan, then the Committee shall make such equitable changes or adjustments as it
deems necessary or appropriate to any or all of (i) the number and kind of
shares which may thereafter be issued in connection with respect to both
Restricted Stock and option awards, (ii) the number and kind of shares issued in
respect of outstanding awards, and (iii) the exercise price relating to any
options.

        3. Eligibility.

           Persons who shall be eligible to have granted to them awards provided
for by the Plan shall be such key employees of the Company and its affiliates as
the Committee, in its sole discretion, shall designate from time to time.

        4. Administration of the Plan.

           (a) The Plan shall be administered by a committee (the "Committee")
consisting of not less than two directors of the Company to be appointed by the
Board each of whom a "non-employee director" within the meaning of Rule 16b-3
under the Exchange Act or such other committee as is established by the Board.

           (b) The Committee may from time to time determine which key employees
of the Company and its affiliates shall be granted awards under the Plan, the
terms thereof, and the number of shares covered by an option or the number of
shares of Restricted Stock to be granted.

           (c) The Committee shall have the sole authority, in its absolute
discretion, to adopt, amend, and rescind such rules and regulations as, in its
opinion, may be advisable in the administration of the Plan, to construe and
interpret the Plan, the rules and regulations, and the instruments evidencing
awards granted under the Plan and to make all other determinations deemed
necessary or advisable for the administration of the Plan. All decisions,
determinations, and interpretations of the Committee shall be final and binding
on all participants and other interested parties.

        5. Stock Options and Stock Appreciation Rights.

           (a) The Option Price.

           The exercise price of each option shall not be less than the fair
market value of the Stock covered by such option on the date the option is
granted. Such fair market value shall, if the Stock is not listed or admitted to
trading on a stock exchange, be the mean between the lowest reported bid price
and highest reported asked price of the Stock on the date the option is granted
in the over-the-counter market, as reported by any publication of general
circulation selected by the Company which regularly reports the market price of
the Stock in such market, or, if the Stock is then listed or admitted to trading
on any stock exchange, the composite closing




                                       2


price on such day as reported in the Wall Street Journal. Such price shall be
subject to adjustment as provided in paragraph 2(b) hereof.

           (b) Terms and Conditions of Options.

               (i) Each option granted pursuant to the Plan shall be evidenced
by a written grant agreement (the "Agreement") executed by the Company and the
person to whom such option is granted which shall provide such terms and
conditions as the Committee may determine, in its sole discretion.

               (ii) Unless otherwise provided in the Agreement, the term of each
option shall be for no more than ten years and three months.

               (iii) The Agreement may contain such other terms, provisions, and
conditions as may be determined by the Committee (not inconsistent with this
Plan) including, without limitation, provisions relating to stock appreciation
rights ("SARs") with respect to options granted hereunder. Unless otherwise
provided in the Agreement, the Committee may, in its sole discretion, extend the
post-termination exercise period with respect to an option (but not beyond the
original term of such option).

               (iv) The Committee shall have the authority to accelerate the
exercisability of any outstanding option at such time and under such
circumstances as it, in its sole discretion, deems appropriate.

           (c) Stock Appreciation Rights.

           The Committee may, under such terms and conditions as it deems
appropriate, authorize the surrender by an optionee of all or part of an
unexercised option and authorize a payment in consideration thereof of an amount
equal to the difference obtained by subtracting the option price of the shares
then subject to exercise under such option from the fair market value of the
Stock represented by such shares on the date of surrender, provided that the
Committee determines that such settlement is consistent with the purpose of the
Plan. Such payment may be made in shares of Stock valued at their fair market
value on the date of surrender of such option or in cash, or partly in shares
and partly in cash. Acceptance of such surrender and the manner of payment shall
be in the discretion of the Committee. If an option is surrendered for cash, the
shares covered by the surrendered option will thereafter be available for grant
under the Plan to the extent permitted under Rule 16b-3 of the Exchange Act.

           (d) Use of Proceeds.

           Proceeds realized from the sale of Stock pursuant to options granted
under the Plan shall constitute general funds of the Company.

        6. Restricted Stock Awards.

           (a) Terms and Conditions.




                                       3


           Each Restricted Stock grant made pursuant to the Plan shall be
evidenced by an Agreement executed by the Company and the person to whom such
Restricted Stock is granted (the "Grantee"). Each Restricted Stock grant made
under the Plan shall, unless otherwise provided in the Agreement, contain the
following terms, conditions and restrictions and such additional terms,
conditions and restrictions as may be determined by the Committee.

           (b) Restrictions.

           Until the restrictions imposed on any Restricted Stock grant shall
lapse, shares of Stock granted to a participant pursuant to a Restricted Stock
grant:

               (i) Shall not be sold, assigned, transferred, pledged,
hypothecated, or otherwise disposed of, and

               (ii) Shall, if the Grantee's continuous employment with the
Company shall terminate for any reason, unless otherwise provided in the
Agreement, be returned to the Company forthwith, and all the rights of the
Grantee to such shares shall immediately terminate; provided that if the
Committee, in its sole discretion, shall within ninety (90) days of such
termination of employment, notify the participant in writing of its decision not
to terminate the Grantee's rights in such shares, then the Grantee shall
continue to be the owner of such shares subject to such continuing restrictions
as the Committee may prescribe in such notice. If the Grantee's interests in the
shares granted pursuant to a Restricted Stock grant shall be terminated, such
Grantee shall forthwith deliver or cause to be delivered to the Secretary of the
Company the certificate(s), if any, previously delivered to the Grantee for such
shares, accompanied by such endorsement(s) and/or instrument(s) of transfer as
may be required by the Secretary of the Company.

           (c) Lapse of Restrictions.

           Except as otherwise provided in the Plan or the Agreement, the
restrictions imposed on any Restricted Stock grant shall commence with the date
of the grant and continue during a period set by the Committee. Notwithstanding
the foregoing, the Committee may accelerate the lapsing of restrictions on a
Restricted Stock grant under such terms and conditions as it may deem
appropriate.

           (d) Restrictive Legend; Certificates May be Held in Custody.

           Each certificate evidencing shares granted pursuant to a Restricted
Stock grant may bear an appropriate legend referring to the terms, conditions
and restrictions described in the Plan and in the instrument evidencing the
Restricted Stock grant. Any attempt to dispose of such shares in contravention
of such terms, conditions and restrictions shall be invalid. The Committee may
enact rules which provide that the certificates evidencing such shares may be
held in custody by a bank or other institution, or that the Company may itself
hold such shares in custody, until restriction thereon shall have lapsed.




                                       4


           (e) Restrictions upon Making of Restricted Stock Grants.

           The registration or qualification under any federal or state law of
any shares to be granted pursuant to Restricted Stock grants or the resale or
other disposition of any such shares by or on behalf of the Grantees receiving
such shares may be necessary or desirable as a condition of or in connection
with such Restricted Stock grants, and, in any such event, if the Committee in
its sole discretion so determines, delivery of the certificates for such shares
shall not be made until such registration or qualification shall have been
completed.

        7. Change in Control.

           Upon a Change in Control (as hereinafter defined), then
notwithstanding anything herein to the contrary, all options granted under the
Plan that are outstanding at the time of such Change in Control shall become
immediately exercisable in full and all restrictions with respect to shares of
Restricted Stock shall lapse and such shares shall become fully vested and
exercisable.

           A "Change in Control" of the Company shall be deemed to have occurred
if any of the events set forth in any one of the following paragraphs shall
occur:

               (i) Any "person" (as such term is used in sections 13(d) and
14(d) of the Exchange Act), excluding the Company or any of its affiliates, a
trustee or any fiduciary holding securities under an employee benefit plan of
the Company or any of its affiliates, an underwriter temporarily holding
securities pursuant to an offering of such securities or a company owned,
directly or indirectly, by stockholders of the Company in substantially the same
proportions as their ownership of the Company, is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 30% or more of the
combined voting power of the Company's then outstanding securities; or

               (ii) During any period of not more than two consecutive years,
individuals who at the beginning of such period constitute the Board and any new
director (other than a director designated by a Person who has entered into an
agreement with the Company to effect a transaction described in clause (i),
(iii) or (iv) of this paragraph) whose election by the Board or nomination for
election by the Company's stockholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who either were directors
at the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority thereof;
or

               (iii) The shareholders of the Company approve a merger or
consolidation of the Company with any other company, other than (A) a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into




                                       5


voting securities of the surviving entity), in combination with the ownership of
any trustee or other fiduciary holding securities under an employee benefit plan
of the Company, at least 50% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation, or (B) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in which no
person acquires more than 50% of the combined voting power of the Company's then
outstanding securities; or

               (iv) The shareholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets.

           Notwithstanding the foregoing, no Change in Control shall be deemed
to have occurred if there is consummated any transaction or series of integrated
transactions immediately following which the holders of the Stock immediately
prior to such transaction or series of transactions continue to have the same
proportionate ownership in an entity which owns all or substantially all of the
assets of the Company immediately prior to such transaction or series of
transactions.

        8. Amendment and Termination of the Plan.

           The Board at any time and from time to time may suspend, terminate,
modify or amend the Plan. No suspension, termination, modification or amendment
of the Plan may adversely affect any award previously granted without the
written consent of the Grantee.

        9. Assignability.

           Each option award granted pursuant to this Plan shall, during the
participant's lifetime, be exercisable only by him. No award nor any right
thereunder shall be transferable by the participant by operation of law or
otherwise other than by will, the laws of descent and distribution or pursuant
to a qualified domestic relations order as defined in the Code or the Employee
Retirement Income Security Act of 1974, as amended.

       10. Payment Upon Exercise.

           Payment of the purchase price upon exercise of any option granted
under this Plan shall be made in cash; provided that the Committee, in its sole
discretion, may permit an option holder to pay the option price, in whole or in
part, by tendering to the Company shares of Stock owned by the option holder,
and having a fair market value equal to the option price. The fair market value
of such Stock shall be determined by the Committee as it deems appropriate, or
as may be required in order to comply with any applicable law or regulation.

       11. Effective Date and Duration of the Plan.

           The Plan shall become effective upon its adoption by the Board of
Directors. Unless sooner terminated, the Plan shall remain in effect until
terminated by action of the Board,




                                       6


provided, however, that the duration of the Plan shall in no event exceed ten
years from the date of the adoption of the Plan by the Board. Termination of the
Plan shall not affect any awards previously granted pursuant thereto, which
shall remain in effect until their restrictions shall have lapsed (with respect
to Restricted Stock grants) or until exercised (with respect to option grants)
all in accordance with their terms.

       12. Agreement by Participant Regarding Withholding Taxes.

           If the Committee shall so require, as a condition of exercise of an
option or SAR or upon the lapsing of restrictions imposed on Restricted Stock
(each a "Tax Event"), each participant shall agree that no later than the date
of the Tax Event, the participant will pay to the Company or make arrangements
satisfactory to the Committee regarding payment of any federal, state or local
taxes of any kind required by law to be withheld upon the Tax Event.
Alternatively, the Committee may provide, in its sole discretion, that a
participant may elect, to the extent permitted or required by law, to have the
Company deduct federal, state and local taxes of any kind required by law to be
withheld upon the Tax Event from any payment of any kind due to the participant,
including withholding of Shares.

        13. Rights as a Shareholder.

           A participant granted an award hereunder or a transferee of an award
shall have no rights as a shareholder with respect to any shares covered by the
award until the date of the issuance of a stock certificate to him for such
shares. No adjustment shall be made for dividends (ordinary or extraordinary,
whether in cash, securities or other property) or distribution of other rights
for which the record date is prior to the date such stock certificate is issued,
except as otherwise provided in the Plan.

        14. No Rights to Employment.

           Nothing in the Plan or in any award granted or Agreement entered into
pursuant hereto shall confer upon any participant the right to continue in the
employ of, or in an independent contractor relationship with, the Company or any
subsidiary or to be entitled to any remuneration or benefits not set forth in
the Plan or such Agreement or to interfere with or limit in any way the right of
the Company or any such subsidiary to terminate such participant's employment.
Awards granted under the Plan shall not be affected by any change in duties or
position of a participant as long as such participant continues to be employed
by, or, for awards granted prior to July 25, 2001, in a consultant relationship
with, the Company or any subsidiary.




                                       7

EX-10.4

                                                                    Exhibit 10.4



                              MCKESSON CORPORATION

                   1994 STOCK OPTION AND RESTRICTED STOCK PLAN

                       (As Amended Through July 31, 2001)

        1. Establishment, Purpose and Definitions.

           (a) There is hereby adopted the McKesson Corporation 1994 Stock
Option and Restricted Stock Plan (the "Plan"). The Plan is the successor to the
McKesson Corporation 1988 Restricted Stock Plan and the McKesson Corporation
1978 Stock Option Plan (collectively, the "Predecessor Plans") with respect to
those awards under the Predecessor Plans have been be equitably adjusted to
become awards under the Plan ("Adjusted Awards"), all in connection with the
restructuring of McKesson Corporation, a Delaware corporation ("Old McKesson"),
that resulted in the sale of Old McKesson's PCS business to Eli Lilly and
Company (the "Transaction"). In connection with the Transaction, SP Ventures,
Inc. was renamed McKesson Corporation, the name of which was subsequently
changed to McKesson HBOC, Inc. on January 12, 1999, and again changed to
McKesson Corporation effective July 30, 2001 (which entities are referred to
herein as the "Company", as the context so requires) and the Plan was renamed
the McKesson Corporation 1994 Stock Option and Restricted Stock Plan.

           (b) The purpose of this Plan is to provide a means whereby key
executives of the Company and its affiliates may be given an opportunity to
purchase shares of the common stock ($0.01 par value) of the Company (the
"Stock") pursuant to options which may or may not qualify as "incentive stock
options" under Section 422 of the Internal Revenue Code, as amended (the
"Code"), and by providing participants with grants of restricted shares of Stock
("Restricted Stock") in accordance with the terms and conditions set forth
herein. Until July 30, 1997, the Plan also provided for grants of options to
members of the Board of Directors of the Corporation who were not employed as
regular salaried officers or employees of the Corporation or its affiliates
("Non-Employee Directors"). On that date, the stockholders approved the
Non-Employee Directors' Equity Compensation and Deferral Plan (the "1997 Plan"),
and all grants of options to Non-Employee Directors from that date forward are
made under the 1997 Plan. All options previously granted to Non-Employee
Directors under this Plan will continue to be governed by the terms and
conditions in effect at the time of the grant of such options.

        2. Stock Subject to the Plan.

           (a) The aggregate number of shares of Stock available for the grant
of awards hereunder is 41,219,828, which includes Adjusted Awards (all such
shares shall be subject to equitable adjustment as provided herein). The maximum
number of Future Award Shares that may be granted to any individual in the form
of options during any plan year shall not exceed 600,000; such maximum




number shall be subject to equitable adjustment as provided herein. All awards
of Future Award Shares shall be contingent on the approval of the Plan by the
stockholders of the Company at its first annual meeting of stockholders next
following consummation of the Transaction.

           As the Committee (as hereinafter defined) may determine from time to
time, the Stock may consist either in whole or in part of shares of authorized
but unissued Stock, or shares of authorized and issued Stock reacquired by the
Company and held in its treasury. If an option covered by Future Award Shares is
surrendered for cash or for any other reason (except surrender for shares of
Stock) ceases to be exercisable in whole or in part, the shares which were
subject to such option but as to which the option had not been exercised shall
continue to be available for grants of stock options under the Plan. If any
shares of Stock underlying Restricted Stock grants which are covered by Future
Award Shares shall be reacquired by the Company pursuant to the termination
provisions described herein or in the instruments evidencing the making of such
Restricted Stock grants, such shares shall again be available for grant of
Restricted Stock awards under the Plan (to the extent permitted under Rule 16b-3
under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Prior to the granting of awards, the Company shall be under no obligation to
reserve or retain in its treasury any particular number of shares of Stock at
any time, and no particular shares of Stock, whether issued or held as treasury
Stock, shall be identified as being available for future awards under the Plan.

           (b) In the case of options which are intended to qualify as
"incentive stock options" under Section 422 of the Code, the aggregate fair
market value (determined as of the time the option is granted) of the Stock with
respect to which incentive stock options are exercisable for the first time by
any eligible key executive during any calendar year (under this Plan and any
other plans of the Company) shall not exceed $100,000.

           (c) In the event that the Committee shall determine that any dividend
or other distribution (whether in the form of cash, stock, or other property),
recapitalization, stock split, reverse stock split, reorganization, merger,
consolidation, spin-off, combination, repurchase, or share exchange, or other
similar corporate transaction or event, affects the Stock such that an
adjustment is appropriate in order to preserve (but not increase) the rights of
participants under the Plan, then the Committee shall make such equitable
changes or adjustments as it deems necessary or appropriate to any or all of (i)
the number and kind of shares which may thereafter be issued in connection with
Future Award Shares (with respect to both Restricted Stock and option awards),
(ii) the number and kind of shares issued in respect of outstanding Adjusted
Awards, (iii) the number and kind of shares issued in respect of outstanding
awards of Future Award Shares, and (iv) the exercise price relating to any
options.

        3. Eligibility.

           Persons who shall be eligible to have granted to them awards provided
for by the Plan shall be such key executives of the Company and its affiliates
as the Committee, in its sole discretion, shall designate from time to time.




                                       2


        4. Administration of the Plan.

           (a) The Plan shall be administered by a committee (the "Committee")
consisting of not less than two directors of the Company to be appointed by the
Board, each of whom is an "outside director" within the meaning of Section
162(m) of the Code and a "non-employee director" within the meaning of Rule
16b-3 under the Exchange Act.

           (b) The Committee may from time to time determine which key
executives of the Company and its affiliates shall be granted awards under the
Plan, the terms thereof, and the number of shares covered by an option or the
number of shares of Restricted Stock to be granted.

           (c) The Committee shall have the sole authority, in its absolute
discretion, to adopt, amend, and rescind such rules and regulations as, in its
opinion, may be advisable in the administration of the Plan, to construe and
interpret the Plan, the rules and regulations, and the instruments evidencing
awards granted under the Plan and to make all other determinations deemed
necessary or advisable for the administration of the Plan. All decisions,
determinations, and interpretations of the Committee shall be final and binding
on all participants and other interested parties.

        5. Stock Options and Stock Appreciation Rights.

           (a) The Option Price.

           The exercise price of each option shall not be less than the fair
market value of the Stock covered by such option on the date the option is
granted, except that the option price associated with Adjusted Awards shall be
such price as results from the equitable adjustment of such awards. Such fair
market value shall, if the Stock is not listed or admitted to trading on a stock
exchange, be the mean between the lowest reported bid price and highest reported
asked price of the Stock on the date the option is granted in the
over-the-counter market, as reported by any publication of general circulation
selected by the Company which regularly reports the market price of the Stock in
such market, or, if the Stock is then listed or admitted to trading on any stock
exchange, the composite closing price on such day as reported in the Wall Street
Journal; provided, however, that if the Committee determines that as a result of
the Transaction fair market value may be more accurately determined based on the
average closing price of the Stock over a three-consecutive-day period
immediately prior to the grant, then such average will constitute fair market
value. Such price shall be subject to adjustment as provided in paragraph 2(c)
hereof.

           (b) Terms and Conditions of Options.

               (i) Each option granted pursuant to the Plan shall be evidenced
by a written grant agreement (the "Agreement") executed by the Company and the
person to whom such option is granted which shall provide such terms and
conditions as the Committee may determine, in its sole discretion.




                                       3


               (ii) Unless otherwise provided in the Agreement, the term of each
option shall be for no more than ten years and three months; provided however
that the term of each option intended to qualify as an "incentive stock option"
shall be for no more than ten years.

               (iii) The Agreement may contain such other terms, provisions, and
conditions as may be determined by the Committee (not inconsistent with this
Plan) including, without limitation, provisions relating to stock appreciation
rights ("SARs") with respect to options granted hereunder. Unless otherwise
provided in the Agreement, the Committee may, in its sole discretion, extend the
post-termination exercise period with respect to an option (but not beyond the
original term of such option). If an option, or any part thereof, is intended to
qualify as an "incentive stock option", the Agreement shall contain those terms
and conditions necessary to so qualify said option or such part thereof.

               (iv) The Committee shall have the authority to accelerate the
exercisability of any outstanding option at such time and under such
circumstances as it, in its sole discretion, deems appropriate.

               (v) Adjusted Awards shall remain subject to the same terms and
conditions to which they were subject prior to any equitable adjustment made in
respect of the Transaction.

           (c) Stock Appreciation Rights.

           The Committee may, under such terms and conditions as it deems
appropriate, authorize the surrender by an optionee of all or part of an
unexercised option and authorize a payment in consideration thereof of an amount
equal to the difference obtained by subtracting the option price of the shares
then subject to exercise under such option from the fair market value of the
Stock represented by such shares on the date of surrender, provided that the
Committee determines that such settlement is consistent with the purpose of the
Plan. Such payment may be made in shares of Stock valued at their fair market
value on the date of surrender of such option or in cash, or partly in shares
and partly in cash. Acceptance of such surrender and the manner of payment shall
be in the discretion of the Committee. If an option is surrendered for cash, the
shares covered by the surrendered option will thereafter be available for grant
under the Plan to the extent permitted under Rule 16b-3 of the Exchange Act.

           (d) Use of Proceeds.

           Proceeds realized from the sale of Stock pursuant to options granted
under the Plan shall constitute general funds of the Company.




                                       4


        6. Restricted Stock Awards.

           (a) Terms and Conditions.

           Each Restricted Stock grant made pursuant to the Plan shall be
evidenced by an Agreement executed by the Company and the person to whom such
Restricted Stock is granted (the "Grantee"). Each Restricted Stock grant made
under the Plan shall, unless otherwise provided in the Agreement, contain the
following terms, conditions and restrictions and such additional terms,
conditions and restrictions as may be determined by the Committee. Adjusted
Awards shall maintain the same terms and conditions to which they were subject
prior to any equitable adjustment made in respect of the Transaction.

           (b) Restrictions.

           Until the restrictions imposed on any Restricted Stock grant shall
lapse, shares of Stock granted to a participant pursuant to a Restricted Stock
grant:

               (i) Shall not be sold, assigned, transferred, pledged,
hypothecated, or otherwise disposed of, and

               (ii) Shall, if the Grantee's continuous employment with the
Company shall terminate for any reason, unless otherwise provided in the
Agreement, be returned to the Company forthwith, and all the rights of the
Grantee to such shares shall immediately terminate; provided that if the
Committee, in its sole discretion, shall within ninety (90) days of such
termination of employment, notify the participant in writing of its decision not
to terminate the Grantee's rights in such shares, then the Grantee shall
continue to be the owner of such shares subject to such continuing restrictions
as the Committee may prescribe in such notice. If the Grantee's interests in the
shares granted pursuant to a Restricted Stock grant shall be terminated, such
Grantee shall forthwith deliver or cause to be delivered to the Secretary of the
Company the certificate(s), if any, previously delivered to the Grantee for such
shares, accompanied by such endorsement(s) and/or instrument(s) of transfer as
may be required by the Secretary of the Company.

           (c) Lapse of Restrictions.

           Except as otherwise provided in the Plan or the Agreement, the
restrictions imposed on any Restricted Stock grant shall commence with the date
of the grant and continue during a period set by the Committee. Notwithstanding
the foregoing, the Committee may accelerate the lapsing of restrictions on a
Restricted Stock grant under such terms and conditions as it may deem
appropriate.

           (d) Restrictive Legend; Certificates May be Held in Custody.

           Each certificate evidencing shares granted pursuant to a Restricted
Stock grant may bear an appropriate legend referring to the terms, conditions
and restrictions described in the




                                       5


Plan and in the instrument evidencing the Restricted Stock grant. Any attempt to
dispose of such shares in contravention of such terms, conditions and
restrictions shall be invalid. The Committee may enact rules which provide that
the certificates evidencing such shares may be held in custody by a bank or
other institution, or that the Company may itself hold such shares in custody,
until restriction thereon shall have lapsed.

           (e) Restrictions upon Making of Restricted Stock Grants.

           The registration or qualification under any federal or state law of
any shares to be granted pursuant to Restricted Stock grants or the resale or
other disposition of any such shares by or on behalf of the Grantees receiving
such shares may be necessary or desirable as a condition of or in connection
with such Restricted Stock grants, and, in any such event, if the Committee in
its sole discretion so determines, delivery of the certificates for such shares
shall not be made until such registration or qualification shall have been
completed.

           (f) Special Provisions Regarding Awards.

           Notwithstanding anything to the contrary contained herein, unless
otherwise provided in the Agreement governing a Restricted Stock grant,
Restricted Stock awards granted pursuant to this Section 6 to Executive Officers
(as such term is defined in Rule 3b-7 promulgated under the Exchange Act) shall
be based on the attainment by the Company (or a subsidiary or division of the
Company if applicable) of performance goals pre-established by the Committee,
during a performance period pre-established by the Committee, based on one or
more of the following criteria: (i) the attainment of a specified percentage
return on total capital employed by the Company (or a subsidiary or division of
the Company); (ii) the attainment of a specified percentage return on total
stockholder equity of the Company; (iii) the attainment of a specified
percentage increase in earnings per share of Stock from continuing operations;
(iv) the attainment of a specified percentage increase in net income of the
Company; (v) the attainment of a specified percentage increase in profit before
taxation of the Company (or a subsidiary or division of the Company); and (vi)
the attainment of a specified percentage increase in revenues of the Company (or
a subsidiary or division of the Company). In addition, such performance goals
may be based upon the attainment of specified levels of Company performance
under one or more of the measures described above relative to the performance of
other corporations.

           Each such performance criteria shall be evaluated in accordance with
generally accepted accounting principles. Such shares of Restricted Stock shall
be released from restrictions only after the attainment of such performance
measures have been certified by the Committee.

        7. Change in Control.

           Upon a Change in Control (as hereinafter defined), then
notwithstanding anything herein to the contrary, all options granted under the
Plan that are outstanding at the time of such Change in Control shall become
immediately exercisable in full and all restrictions with respect to shares of
Restricted Stock shall lapse and such shares shall become fully vested and
exercisable.




                                       6


           A "Change in Control" of the Company shall be deemed to have occurred
if any of the events set forth in any one of the following paragraphs shall
occur:

               (i) Any "person" (as such term is used in sections 13(d) and
14(d) of the Exchange Act), excluding the Company or any of its affiliates, a
trustee or any fiduciary holding securities under an employee benefit plan of
the Company or any of its affiliates, an underwriter temporarily holding
securities pursuant to an offering of such securities or a company owned,
directly or indirectly, by stockholders of the Company in substantially the same
proportions as their ownership of the Company, is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 30% or more of the
combined voting power of the Company's then outstanding securities; or

               (ii) During any period of not more than two consecutive years,
individuals who at the beginning of such period constitute the Board and any new
director (other than a director designated by a Person who has entered into an
agreement with the Company to effect a transaction described in clause (i),
(iii) or (iv) of this paragraph) whose election by the Board or nomination for
election by the Company's stockholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who either were directors
at the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority thereof;
or

               (iii) The shareholders of the Company approve a merger or
consolidation of the Company with any other company, other than (A) a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity), in combination with the ownership of any trustee or other
fiduciary holding securities under an employee benefit plan of the Company, at
least 50% of the combined voting power of the voting securities of the Company
or such surviving entity outstanding immediately after such merger or
consolidation, or (B) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no person
acquires more than 50% of the combined voting power of the Company's then
outstanding securities; or

               (iv) The shareholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets.

           Notwithstanding the foregoing, no Change in Control shall be deemed
to have occurred if there is consummated any transaction or series of integrated
transactions immediately following which the holders of the Stock immediately
prior to such transaction or series of transactions continue to have the same
proportionate ownership in an entity which owns all or substantially all of the
assets of the Company immediately prior to such transaction or series of
transactions.




                                       7


        8. Amendment and Termination of the Plan.

           The Board at any time and from time to time may suspend, terminate,
modify or amend the Plan; provided, however, that an amendment which requires
stockholder approval in order for the Plan to continue to comply with Section
162(m) of the Code or any other law, regulation or stock exchange requirement
shall not be effective unless approved by the requisite vote of stockholders. No
suspension, termination, modification or amendment of the Plan may adversely
affect any award previously granted without the written consent of the Grantee.

        9. Assignability.

           Each option award granted pursuant to this Plan shall, during the
participant's lifetime, be exercisable only by him. No award nor any right
thereunder shall be transferable by the participant by operation of law or
otherwise other than by will, the laws of descent and distribution or pursuant
to a qualified domestic relations order as defined in the Code or the Employee
Retirement Income Security Act of 1974, as amended.

       10. Payment Upon Exercise.

           Payment of the purchase price upon exercise of any option granted
under this Plan shall be made in cash; provided that the Committee, in its sole
discretion, may permit an option holder to pay the option price, in whole or in
part, by tendering to the Company shares of Stock owned by the option holder,
and having a fair market value equal to the option price. The fair market value
of such Stock shall be determined by the Committee as it deems appropriate, or
as may be required in order to comply with any applicable law or regulation.

       11. Effective Date and Duration of the Plan.

           The Plan became effective upon its adoption by the Board and the
approval thereof by Old McKesson as the sole stockholder of the Company;
provided, however, that the effectiveness of the Plan was contingent upon the
occurrence of the Transaction and all awards of Future Award Shares were
contingent on the approval of the Plan by the stockholders of the Company at its
first annual meeting of stockholders, which approval was obtained. Unless sooner
terminated, the Plan shall remain in effect until terminated by action of the
Board, provided, however, that the duration of the Plan shall in no event exceed
ten years from the date of the adoption of the Plan by the Board. Termination of
the Plan shall not affect any awards previously granted pursuant thereto, which
shall remain in effect until their restrictions shall have lapsed (with respect
to Restricted Stock grants) or until exercised (with respect to option grants)
all in accordance with their terms.

       12. Agreement by Participant Regarding Withholding Taxes.

           If the Committee shall so require, as a condition of exercise of an
option or SAR or upon the lapsing of restrictions imposed on Restricted Stock
(each a "Tax Event"), each




                                       8


participant shall agree that no later than the date of the Tax Event, the
participant will pay to the Company or make arrangements satisfactory to the
Committee regarding payment of any federal, state or local taxes of any kind
required by law to be withheld upon the Tax Event. Alternatively, the Committee
may provide, in its sole discretion, that a participant may elect, to the extent
permitted or required by law, to have the Company deduct federal, state and
local taxes of any kind required by law to be withheld upon the Tax Event from
any payment of any kind due to the participant, including withholding of Shares.

        13. Rights as a Shareholder.

            A participant granted an award hereunder or a transferee of an award
shall have no rights as a stockholder with respect to any shares covered by the
award until the date of the issuance of a stock certificate to him for such
shares. No adjustment shall be made for dividends (ordinary or extraordinary,
whether in cash, securities or other property) or distribution of other rights
for which the record date is prior to the date such stock certificate is issued,
except as otherwise provided in the Plan.

        14. No Rights to Employment.

            Nothing in the Plan or in any award granted or Agreement entered
into pursuant hereto shall confer upon any participant the right to continue in
the employ of, or in an independent contractor relationship with, the Company or
any subsidiary or to be entitled to any remuneration or benefits not set forth
in the Plan or such Agreement or to interfere with or limit in any way the right
of the Company or any such subsidiary to terminate such participant's
employment. Awards granted under the Plan shall not be affected by any change in
duties or position of a participant as long as such participant continues to be
employed by, or, for awards granted prior to July 25, 2001, in a consultant
relationship with, the Company or any subsidiary.

        15. Interpretation.

            The Plan is designed and intended to comply with Rule 16b-3
promulgated under the Exchange Act and Section 162(m) of the Code and all
provisions hereof shall be construed in a manner to so comply.





                                       9

EX-10.5

                                                                    Exhibit 10.5



                              MCKESSON CORPORATION

                1997 NON-EMPLOYEE DIRECTORS' EQUITY COMPENSATION
                                AND DEFERRAL PLAN

                       (As Amended Through July 31, 2001)

        1. Purpose of the Plan. The purpose of the McKesson Corporation 1997
Non-Employee Directors' Equity Compensation and Deferral Plan (the "Plan") is to
attract and retain qualified individuals not employed by McKesson Corporation
(the "Company") or its subsidiaries to serve on the Board of Directors of the
Company and to further align the interests of such non-employee directors with
those of the stockholders of the Company.

        2. Definitions.

        (a) "Annual Meeting" shall mean the annual meeting of the stockholders
of the Company.

        (b) "Annual Retainer" shall mean any retainer fee paid to a non-employee
director for service on the Board during a Director Year.

        (c) "Board" shall mean the Board of Directors of the Company.

        (d) "Change in Control" of the Company shall mean the occurrence of any
of the following events:

            (i) Any "person" (as such term is used in sections 13(d) and 14(d)
        of the Exchange Act), excluding the Company or any of its affiliates, a
        trustee or any fiduciary holding securities under an employee benefit
        plan of the Company or any of its affiliates, an underwriter temporarily
        holding securities pursuant to an offering of such securities or a
        corporation owned, directly or indirectly, by stockholders of the
        Company in substantially the same proportions as their ownership of the
        Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3
        under the Exchange Act), directly or indirectly, of securities of the
        Company representing 30% or more of the combined voting power of the
        Company's then outstanding securities; or

            (ii) During any period of not more than two consecutive years,
        individuals who at the beginning of such period constitute the Board and
        any new director (other than a director designated by a Person who has
        entered into an agreement with the Company to effect a transaction
        described in clause (i), (iii) or (iv) of this paragraph) whose election
        by the Board or nomination for election by the Company's stockholders
        was approved by a vote of at least two-thirds of the directors then
        still in office who either




        were directors at the beginning of the period or whose election or
        nomination for election was previously so approved, cease for any reason
        to constitute a majority thereof; or

            (iii) The stockholders of the Company approve a merger or
        consolidation of the Company with any other corporation, other than (A)
        a merger or consolidation which would result in the voting securities of
        the Company outstanding immediately prior thereto continuing to
        represent (either by remaining outstanding or by being converted into
        voting securities of the surviving entity), in combination with the
        ownership of any trustee or other fiduciary holding securities under an
        employee benefit plan of the Company, at least 50% of the combined
        voting power of the voting securities of the Company or such surviving
        entity outstanding immediately after such merger or consolidation, or
        (B) a merger or consolidation effected to implement a recapitalization
        of the Company (or similar transaction) in which no person acquires more
        than 50% of the combined voting power of the Company's then outstanding
        securities; or

            (iv) The stockholders of the Company approve a plan of complete
        liquidation of the Company or an agreement for the sale or disposition
        by the Company of all or substantially all of the Company's assets.

        Notwithstanding the foregoing, no Change in Control shall be deemed to
have occurred if there is consummated any transaction or series of integrated
transactions immediately following which the holders of the Common Stock
immediately prior to such transaction or series of transactions continue to have
the same proportionate ownership in an entity which owns all or substantially
all of the assets of the Company immediately prior to such transaction or series
of transactions.

        (e) Effective July 26, 2000 "Committee" shall mean the Committee on
Directors and Corporate Governance of the Board of Directors.

        (f) "Committee Chairman Retainer" shall mean any fee paid to a
non-employee director for service as the chairman of any committee of the Board.

        (g) "Common Stock" shall mean shares of Common Stock, par value $0.01
per share, of the Company.

        (h) "DCAP II" shall mean the McKesson Corporation Deferred Compensation
Administration Plan II, as amended from time to time.

        (i)    "Director Year" shall mean a calendar year.

        (j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.

        (k) "Fair Market Value" of a share of Common Stock as of a particular
date shall mean, if the Common Stock is not listed or admitted to trading on a
stock exchange, the average between the lowest reported bid price and highest
reported asked price of the Common Stock on




                                       2


such date in the over-the-counter market, or, if the Common Stock is then listed
or admitted to trading on any stock exchange, the composite closing price on
such date as reported in The Wall Street Journal.

        (l) "Fees" shall mean the sum, for any Director Year, of the Annual
Retainer, Meeting Fees and Committee Chairman Retainer.

        (m) "Meeting Fees" shall mean any fees paid to a non-employee director
for attending a meeting of the Board or a committee of the Board, including any
fees paid to a non-employee director for extraordinary or special Board and/or
committee meetings.

        (n) "Participant" shall mean a non-employee director of the Company
participating in the Plan.

        (o) "Restricted Stock Unit" shall mean a right to receive, in accordance
with the conditions set forth herein, a share of the Common Stock or,
alternatively, a cash payment equal to the Fair Market Value of a share of
Common Stock.

        (p) "Retainer Option" shall mean a stock option granted pursuant to the
Plan in lieu of all or a portion of a Participant's Annual Retainer, as provided
in Sections 6(c) and 6(d)(iv).

        3. Effective Date, Duration of Plan. This Plan shall become effective as
of January 1, 1997, subject to the approval of the Plan by the stockholders of
the Company; provided, that if the Plan is so approved, any election made
hereunder prior to such approval shall be deemed effective as of the date such
election was made. The Plan will terminate on December 31, 2006 or such earlier
date as determined by the Board; provided that no such termination shall affect
rights earned or accrued under the Plan prior to the date of termination.

        4. Participation. Subject to the prior approval of the Committee, each
member of the Board who is not an employee of the Company or any of its
subsidiaries shall be eligible to participate in the Plan.

        5. Common Stock Subject to the Plan.

        (a) Subject to Section 5(b) below, the maximum aggregate number of
shares authorized to be issued under the Plan shall be 1,286,000. All Restricted
Stock Units issued hereunder, whether or not distributed in the form of Common
Stock, shall count against such maximum. If any options granted hereunder cease
to be exercisable in whole or in part, any shares subject thereto but with
respect to which such option had not been exercised, shall not count against
such maximum. As the Committee shall determine from time to time, the Common
Stock may consist of either shares of authorized but unissued Common Stock, or
shares of authorized and issued Common Stock reacquired by the Company and held
in its treasury.

        (b) In the event that the Committee shall determine that any dividend or
other distribution (whether in the form of cash, stock or other property),
recapitalization, stock split,




                                       3


reverse stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase or share exchange or other similar corporate transaction
or event affects the Common Stock such that an adjustment is determined by the
Committee to be appropriate to prevent dilution or enlargement of the benefits
or potential benefits intended to be made available under the Plan, then the
Committee may, in its sole discretion and in such manner as it may deem
equitable, adjust any or all of (i) the number of shares of Common Stock subject
to the Plan, (ii) the number of shares of Common Stock subject to outstanding
awards under the Plan, and (iii) the grant or exercise price with respect to any
option.

        6. Restricted Stock Units; Deferrals.

        (a) Transition Grant. As soon as practicable following January 1, 1997,
each Participant shall receive an initial grant (the "Transition Grant") of a
number of Restricted Stock Units in consideration for the termination of such
Participant's accrued benefits and rights under the Company's Director's
Retirement Program (the "Prior Plan"); provided that the Transition Grant shall
be subject to the receipt by the Company of a written release from the
Participant, in the form approved by the Committee, consenting to such
termination. The number of Restricted Stock Units granted to a Participant in
respect of the Transition Grant shall equal the Accrued Benefit (as defined
below), divided by the Fair Market Value of a share of Common Stock as of
December 31, 1996. A Participant's Accrued Benefit shall equal his or her
accrued benefit under the Prior Plan, as of December 31, 1996.

        (b) Annual Grant. On the date of each Annual Meeting prior to the
termination or expiration of the Plan, beginning with the 1997 Annual Meeting,
each Participant shall receive a grant of 400 Restricted Stock Units. Effective
January 27, 1999, the annual grants of 400 Restricted Stock Units shall be
discontinued.

        (c) Mandatory Deferral. On each date that any portion of the Annual
Retainer would otherwise be payable to a Participant prior to the termination or
expiration of the Plan, each such Participant shall be required to defer the
receipt of an amount equal to 50% of such portion of Annual Retainer, which
amount shall be deferred in the form of Restricted Stock Units or Retainer
Options, as elected by the Participant prior to the end of the calendar year
preceding the year in which the Annual Retainer is payable. In the event that a
participant fails to make such an election with respect to any calendar year in
which he or she receives payment of an Annual Retainer, the Participant shall be
deemed to have elected to receive the Annual Retainer in the form of Restricted
Stock Units. The number of Restricted Stock Units granted to a Participant in
respect of such deferral shall equal the Annual Retainer so deferred, divided by
the Fair Market Value of a share of Common Stock as of the last trading day of
the calendar quarter immediately preceding the date such Annual Retainer would
otherwise be payable. To the extent applicable, Restricted Stock Units granted
pursuant to this paragraph shall be subject to the same terms and conditions
described in Section 6(d)(ii) below. The number of Retainer Option shares
granted to a Participant in respect of such deferral shall be determined using
the same conversion rate as employed in that year for the purpose of determining
the number of stock option shares to be granted to employees in lieu of awards
under the Company's Management Incentive Plan.




                                       4


        (d) Optional Deferral. All Fees (other than the portion of Annual
Retainer subject to Mandatory Deferral described above) earned by a Participant
in each Director Year prior to the termination or expiration of the Plan shall
be subject to the following payment and deferral options. Each Participant may
elect by written notice to the Company, in accordance with the procedures
established by the Company, to participate in such payment and deferral options.

            (i) Cash Alternative. Unless a valid election is made in accordance
        with the procedures established by the Company, each Participant shall
        receive payment of all Fees (other than the portion of Annual Retainer
        subject to Mandatory Deferral described above) in the form of cash.

            (ii) Restricted Stock Unit Alternative. Subject to executing a valid
        election with the Company (the "RSU Election"), each Participant may
        elect to defer all or any portion of his or her Fees (other than the
        portion of Annual Retainer subject to Mandatory Deferral described
        above) in the form of Restricted Stock Units. The number of Restricted
        Stock Units granted shall equal the amount of Fees so deferred, divided
        by the Fair Market Value of the Common Stock as of the last trading day
        of the calendar quarter immediately preceding the date such Fees would
        otherwise be payable. The RSU Election (A) shall be in the form of a
        document executed by the Participant and filed with the Secretary of the
        Company, (B) shall be made before the first day of the calendar year in
        which the applicable Fees are earned and shall become irrevocable on the
        last day prior to the beginning of such calendar year, and (C) shall
        continue until the Participant ceases to serve as a director of the
        Company or until he or she terminates or modifies such election by
        written notice to the Company in accordance with the procedures
        established by the Company, any such termination or modification to be
        effective as of the end of the calendar year in which such notice is
        given with respect to Fees otherwise payable in subsequent calendar
        years. Any person who becomes a Participant during any Director Year may
        execute an RSU Election prior to commencing service on the Board with
        respect to Fees to be earned for the remainder of such year and for
        future Director Years in accordance with the procedures established by
        the Company.

            Each Restricted Stock Unit shall entitle the holder to, upon
        distribution thereof (A) receive a cash payment equal to the Fair Market
        Value of one share of Common Stock, or (B) have issued in his or her
        name one share of Common Stock. In either case, each such Restricted
        Stock Unit shall terminate upon distribution.

            The Company shall credit each Participant holding Restricted Stock
        Units with a number of additional Restricted Stock Units equal to any
        dividends and other distributions paid by the Company on an equivalent
        number of shares of Common Stock, as of the date such dividends or
        distributions are payable. Such additional Restricted Stock Units shall
        thereafter be treated as any other Restricted Stock Units issued under
        the Plan. Restricted Stock Units may not be sold, transferred, assigned,
        pledged or otherwise encumbered or disposed of until such time as share
        certificates for Common Stock are issued.




                                       5


            Each Participant issued Restricted Stock Units shall execute a valid
        distribution election in accordance with the procedures established by
        the Committee (the "Distribution Election"). The Distribution Election
        shall indicate (A) whether distribution shall be made in the form of
        Common Stock or cash, (B) whether the distribution shall be made in a
        single allotment or in substantially equal annual installments over a
        period not to exceed ten (10) years and (C) with respect to Distribution
        Elections filed on or after October 28, 1998, the date on which the
        distribution shall commence in accordance with the next paragraph. The
        Distribution Election (D) shall be in the form of a document executed by
        the participant and filed with the Secretary of the Company, (E) shall
        be made no later than twelve (12) months prior to the distribution date
        and (F) shall become irrevocable twelve (12) months prior to the
        distribution date.

            With respect to a Distribution Election completed on or after
        October 28, 1998, the Participant shall elect whether distributions
        shall commence as soon as practicable after (i) the first business day
        of January of the calendar year following the Participant's cessation
        from service as a director of the Company; or (ii) the first business
        day of January of any calendar year, provided that such calendar year is
        not later than the calendar year following the calendar year in which
        the Participant attains age 72. All other distributions shall commence
        as soon as practicable after the first business day of the January
        following the Participant's cessation from service as a director of the
        Company. If no valid Distribution Election is made, the Restricted Stock
        Units shall be distributed in a lump sum as soon as practicable after
        the first business day of January of the calendar year following the
        Participant's cessation from service as a director of the Company, in
        the form of cash. Participants who receive Restricted Stock Units shall
        have no rights as stockholders with respect to such Restricted Stock
        Units until share certificates for Common Stock are issued.
        Notwithstanding any provision to the contrary, any fractional shares of
        Common Stock issuable hereunder shall be paid in cash.

            Upon the occurrence of a Change in Control, Common Stock to be
        issued in respect of all Restricted Stock Units shall be immediately
        distributed.

            (iii) DCAP II Alternative. Subject to executing an election in
        accordance with the procedures established by the Company and the terms
        of DCAP II, each Participant may elect to defer all or any portion of
        his or her Fees (other than the portion of Annual Retainer subject to
        Mandatory Deferral described above) under DCAP II.

            (iv) Retainer Option Alternative. Subject to executing an election
        in accordance with the procedures established by the Company, each
        Participant may elect to receive the portion of Annual Retainer not
        subject to Mandatory Deferral, as described in Section 6(c) above, in
        the form of Retainer Options. The number of Retainer Option shares
        granted to a Participant with respect to such deferral shall be
        determined in the manner described in Section 6(c) above.

        7. Stock Options.




                                       6


        (a) Discretionary Grants. The Committee may, in its sole discretion,
grant options to purchase Common Stock to Participants, pursuant to such terms
and conditions that it may deem advisable, so long as not inconsistent with
Section 7(d) below or any other terms of this Plan.

        (b) Formula Grants. Each Participant then serving as a non-employee
director of the Company shall automatically receive, on the date of each January
meeting of the Board, an option to purchase 10,000 shares of Common Stock
(subject to adjustment as provided in Section 5(b) above); provided, however,
that a Participant who is elected to the Board after the January meeting of the
Board shall be granted, as of the date of election, a prorated number of options
with respect to the initial year of participation in the Plan, based on the
number of full calendar quarters remaining in the calendar year in which the
Participant is elected to the Board. The options granted pursuant to this
Section 7(b) shall be immediately exercisable in full and have an option term of
ten years.

        (c) Retainer Option Grants. At the same time that the Company makes
stock option grants annually to eligible employees, each Participant who has
made an election to receive a Retainer Option pursuant to Section 6(c) or
6(d)(iv) with respect to all or any portion of the Annual Retainer to be paid in
such year shall be granted an option to purchase that number of shares of Common
Stock determined pursuant to Section 6(c) and/or Section 6(d)(iv), as
applicable. The terms of such Retainer Options shall be as prescribed by the
Committee, so long as such terms are not inconsistent with Section 7(d) below or
any other terms of this Plan.

        (d) Terms and Conditions of Options. Except as provided in Section 7(b)
above, the following terms and conditions shall apply to all options granted to
Participants under the Plan.

            (i) The exercise price of each option shall not be less than the
        Fair Market Value of the Common Stock covered by the option on the date
        the option is granted.

            (ii) Each option granted pursuant to the Plan shall be evidenced by
        a written grant agreement (the "Agreement") executed by the Company and
        the person to whom such option is granted which shall provide such terms
        and conditions as the Committee may determine, in its sole discretion,
        so long as not inconsistent with the terms of this Plan.

            (iii) The term of each option shall be for no more than ten years.

            (iv) The Agreement may contain such other terms, provisions, and
        conditions as may be determined by the Committee (not inconsistent with
        this Plan). Unless otherwise provided in the Agreement and excluding
        options granted under paragraph (b) above, the Committee may, in its
        sole discretion, extend the post-termination exercise period with
        respect to an option (but not beyond the original term of such option).

            (v) Payment of the purchase price upon exercise of any option shall
        be made in cash; provided that the Committee, in its sole discretion,
        may permit an option holder to pay the option price by such other method
        that it may deem appropriate, including,




                                       7


        without limitation, by tendering to the Company shares of Common Stock
        owned by the option holder, and having a Fair Market Value equal to the
        option price. Such stock surrender method may permit an election by the
        option holder to have the unrealized gain with respect to the option
        denominated in stock units (based on the fair market value of a share of
        Common Stock on the date of exercise) and paid in shares of Common Stock
        at the time specified by the Participant at the time of making the stock
        surrender option gain deferral election. During the deferral period each
        such stock unit shall be credited with additional stock units equal to
        any dividends or other distributions paid by the Company on an
        equivalent number of shares of Common Stock, as of the date such
        dividends or distributions are payable. Stock units may not be sold,
        transferred, assigned, pledged or otherwise encumbered or disposed of
        until such time as share certificates for Common Stock are issued.

            (vi) All such options shall be designated as stock options which do
        not qualify under Section 422 of the Internal Revenue Code of 1986, as
        amended.

            (vii) Unless otherwise provided in an Agreement, options granted
        under the Plan will become immediately and fully vested and exercisable
        upon the occurrence of a Change in Control.

        8. Administration. The Plan shall be administered by the Committee. The
Committee shall have full power to interpret the Plan and formulate additional
details and regulations for carrying out the Plan. Any decision or
interpretation adopted by the Committee shall be final and conclusive.

        9. No Right to Serve. Nothing in the Plan shall confer upon any
Participant the right to remain in service as a member of the Board.

        10. Amendment and Termination. The Board at any time may amend or
terminate the Plan; provided that any such amendment or termination does not
adversely affect the rights of any Participant.

        11. Governing Law. The validity, construction and effect of the Plan and
any such actions taken under or relating to the Plan shall be determined in
accordance with the laws of the State of California.

        12. Notices. All notices under this Plan shall be sent in writing to the
Secretary of the Company. All correspondence to the Participants shall be sent
in writing to the Participant at the address which is their recorded address as
listed on the most recent election form or as specified in the Company's
records.

        13. Unfunded Status of Awards. The Plan is intended to constitute an
"unfunded" plan for incentive and deferred compensation. Nothing contained
hereunder shall give any Participant any rights that are greater than those of
an unsecured general creditor of the Company.




                                       8

EX-10.17

                                                                   Exhibit 10.17





                              MCKESSON CORPORATION
                         1989 MANAGEMENT INCENTIVE PLAN
























                           Amended as of July 25, 2001











Page 1



                              MCKESSON CORPORATION
                         1989 MANAGEMENT INCENTIVE PLAN

                           AMENDED AS OF JULY 25, 2001


        The name of this plan shall be the McKesson Corporation 1989 Management
Incentive Plan. This Plan replaces in their entirety both the Company's
Management Incentive Plan and its Performance Award Plan for Key Employees. This
Plan is effective for fiscal years of the Company commencing on and after April
1, 1989. This Plan was last approved by the stockholders of the Corporation on
July 25, 2001.

A.      PURPOSE

        The purpose of the Plan is to attract, retain and motivate key employees
by providing cash incentive awards to designated executive, managerial and
professional employees of the Company, its subsidiaries and affiliates. The Plan
is designed to link managers' interests more closely with the interests of the
Company's shareholders.

        The Plan is established as a single incentive plan to reward designated
executives, managers and professionals who contribute to shareholder value. Each
Participant's award will take into account corporate performance as well as,
where appropriate, his or her own business unit's performance. The Plan also
provides that awards will reflect individual performance, subject to Article G.
Incentive awards paid under this Plan are intended to qualify as
performance-based compensation deductible by the Company under the Code.

B.      ADMINISTRATION

        The Compensation Committee of the Board of Directors ("Committee") shall
have full power and authority, subject to the provisions of the Plan, to review
and approve the designation of Participants and to promulgate such rules and
regulations as it deems necessary for the proper administration of the Plan, to
interpret the provisions and supervise the administration of the Plan, and to
take all action in connection therewith or in relation to the Plan as it deems
necessary or advisable. Decisions and selections of the Committee shall be made
by a majority of its members and, if made pursuant to the provisions of the
Plan, shall be final. Any decision reduced to writing and signed by all of the
members of the Committee shall be fully effective as if it had been made at a
meeting duly held. The Committee shall consist solely of Disinterested Persons,
in conformance with Section 162(m) of the Code ("Section 162(m)").




Page 2



C.      PARTICIPATION

        1. ELIGIBILITY - EXECUTIVES, MANAGERS AND PROFESSIONALS

           Only active employees of the Company, its subsidiaries or affiliates
who are employed in an executive, managerial or professional capacity may be
designated as Participants under the Plan.

        2. DESIGNATION AND REMOVAL OF PARTICIPANTS

           No person shall be entitled to any award under this Plan for any Year
unless he or she is so designated as a Participant for that Year. The Chief
Executive Officer (CEO) of the Company and such other persons as the CEO may
designate, shall recommend to the Committee employees (who may include such
recommending persons) for selection as Participants. The Committee shall review
and approve Plan Participants recommended by management from among those
employees who are eligible to participate. The Committee may add to or delete
individuals from the list of designated Participants at any time and from time
to time, at its sole discretion.

        3. NOTICE OF PARTICIPATION

           As soon as reasonably practicable, each person who is a Participant
in the Plan for a Year will be notified.

D.      INDIVIDUAL TARGET AWARDS FOR PARTICIPANTS

        1. TARGETS, IN GENERAL

           At the beginning of each Year, an Individual Target Award shall be
established for each Participant. An Individual Target Award shall only be a
target and the amount of the target may or may not be paid to the Participant.
Establishment of an Individual Target Award for an employee for any Year shall
not imply or require that an Individual Target Award be set for any subsequent
year. The amount of any actual award paid to any Participant may be greater or
less than this target. As set forth in paragraph F4 below (but subject to the
limitations applicable to Covered Employees contained in Article G), the actual
award may be as much as three times target or as low as zero for any Year. The
establishment of an Individual Target Award for an employee shall not affect the
right of the Company, its subsidiaries or affiliates to terminate, with or
without cause, such employee's employment at any time.

        2. PERCENTAGE OF BASE SALARY

           Individual Target Awards shall be a percentage of the Participant's
base salary reviewed and approved by the Committee in its sole discretion.




Page 3



E.      BASIS OF AWARDS

        Awards will be based on contribution to shareholder value and individual
performance. The Committee shall establish measures, which may include financial
and non-financial objectives ("Performance Goals"), to calculate the shareholder
value contribution for each segment of the Company. These Performance Goals
shall be determined by the Committee in advance of each Year or such period as
may be permitted by the regulations issued under Section 162(m), and shall be
based on one or more of the following criteria: (i) the attainment of a
specified percentage return on total capital employed by the Company (or a
subsidiary or division of the Company); (ii) the attainment of a specified
percentage return on total stockholder equity of the Company; (iii) the
attainment of a specified percentage increase in earnings per share from
continuing operations; (iv) the attainment of a specified percentage increase in
Net Income of the Company; (v) the attainment of a specified percentage increase
in profit before taxation of the Company (or a subsidiary or division of the
Company); (vi) the attainment of a specified percentage increase in revenues of
the Company (or a subsidiary or division of the Company); and (vii) the
attainment of profit after-tax at specified levels of equity investment. In
addition, such Performance Goals may be based upon the attainment of specified
levels of Company performance under one or more of the measures described above
relative to the performance of other corporations.

        Awards may be based on performance against objectives for more than one
segment of the Company. For example, awards for corporate management will be
based on overall corporate performance against objectives, but awards for a
unit's management may be based on a combination of corporate, unit and sub-unit
performance against objectives.

        Subject to the limitations set forth in Article G below, individual
performance of each Participant will also be measured and used in determining
awards under this Plan.

F.      AWARD DETERMINATION

        1. AWARD DETERMINED BY COMMITTEE

           After any Year for which an Individual Target Award is established
for a Participant under this Plan, the Committee shall review and approve,
modify or disapprove the amount, if any, to be paid to the Participant for the
Year. The amount paid shall be the Individual Target Award adjusted to reflect
both the Company's financial performance and the Participant's individual
performance. All awards will be subject to the sole discretion of the Committee.

        2. FINANCIAL PERFORMANCE

           Individual Target Award amounts will be modified by achievement of
financial objectives by the Company and relevant units and sub-units.
Performance results against financial objectives shall be reviewed and approved
by the Committee. The Committee may as a result of this review modify or change
objectives or performance results for the Year as it determines to be necessary
or appropriate to take into account changes during the year including,




Page 4



but not limited to, changes in accounting methods, acquisitions or divestitures,
and unusual or non-recurring financial or other events, to the extent not
precluded by Section 162(m).

        3. INDIVIDUAL PERFORMANCE

           Any Individual Target Award, adjusted to reflect financial
performance, will be further adjusted with the review and approval of the
Committee to give full weight to the Participant's individual performance during
the Year.

        4. OVERALL EFFECT

           The combination of any financial performance adjustment and
individual performance adjustment may increase the amount paid under this Plan
to a Participant for any Year to as much as three times the Individual Target
Award, and may reduce any amount payable to zero, subject to Article G.

G.      PROCEDURES APPLICABLE TO CERTAIN DESIGNATED PARTICIPANTS

        Awards under the Plan to Participants who are Covered Employees shall be
subject to preestablished Performance Goals as set forth herein. Notwithstanding
the provisions of Paragraph F.3 above, the Committee shall not have discretion
to modify the terms of awards to such Participants except as specifically set
forth in this Article G.

        1. TARGET AWARD. At the beginning of a Year, the Committee shall
establish Individual Target Awards to such of the Participants who may be
Covered Employees, payment of which shall be conditioned upon satisfaction of
specific Performance Goals for the Year established by the Committee in writing
in advance of the Year, or within such period as may be permitted by regulations
issued under Section 162(m) of the Code. The extent, if any, to which an Award
will be payable will be based upon the degree of achievement of the Performance
Goals; provided, however, that the Committee may, in its sole discretion, reduce
some or all of the amount which would otherwise be payable with respect to an
Award.

        2. PERFORMANCE GOALS. The Performance Goals established by the Committee
shall be the same as those objectives set for all Plan Participants and shall be
based on one or more of the criteria set forth in Article E above.

        3. PAYMENT OF AWARDS. At the time the Performance Goals are established,
the Committee shall prescribe a formula to determine the percentage of the
Individual Target Award which may be payable based upon the degree of attainment
of the Performance Goals during the Year. If the minimum Performance Goals
established by the Committee are not met, no payment will be made to a
Participant who is a Covered Employee. To the extent that the minimum
Performance Goals are satisfied or surpassed, and upon written certification by
the Committee that the Performance Goals have been satisfied to a particular
extent, payment of the award shall be made on the Payment Date in accordance
with the prescribed formula based upon a percentage of the Individual Target
Award unless the Committee determines, in its sole discretion, to reduce the
payment to be made.




Page 5


        4. MAXIMUM AWARD. The maximum award payable to any Participant who is a
Covered Employee for any Year shall not exceed two percent (2%) of the Company's
Net Income for that Year.

H.      ELECTIONS

        1. ELECTION TO DEFER PAYMENT. At the time established under the
Company's Deferred Compensation Administration Plan II ("DCAP II"), any
Participant who is eligible to participate in DCAP II may irrevocably elect, in
writing and in accordance with DCAP II, to defer his or her award under this
Plan so it is paid at the time and in the manner of, and subject to the terms
and conditions provided by, DCAP II. If an election to defer an award is not
made, then any award under this Plan shall be paid in a single sum to the
Participant as soon as reasonably practicable after the amount of the award is
determined. Notwithstanding the above provisions, no amount shall be deferred
for the Year under DCAP II unless the actual award under this Plan for that Year
is at least $5,000. No awards may be deferred by a Participant under DCAP II
unless he or she is an active employee of the Company as of the end of the Year.

        2. ELECTION TO RECEIVE STOCK OPTION GRANT IN LIEU OF AWARD UNDER THE
PLAN. Prior to the end of a calendar year, any Participant may irrevocably
elect, in writing on the form prescribed by the Committee, to receive a stock
option grant under the 1994 Stock Option and Restricted Stock Plan in lieu of
all or a portion of such Participant's award under this Plan for the Year in
which that calendar year ends. Annually management of the Company shall
determine the rate at which stock option grants will be made in lieu of an award
under the Plan and that conversion rate shall be communicated to Participants
prior to the deadline for making the election described in the preceding
sentence. The minimum number of option shares that a Participant may elect to
receive pursuant to such election is 500, subject to adjustment in the event of
a stock split, stock dividend, consolidation or other similar recapitalization
involving the capital stock of the Company. In addition, the Company annually
shall prescribe a maximum portion of a Participant's Target Award that may be
made subject to an election to receive a stock option grant in lieu of an award
under the Plan. If for any reason the Company does not make the stock option
grant contemplated by the Participant's election, the Participant shall be
deemed to have elected to make a deferral election pursuant to Section H.1 of
the award that was the subject of the election to receive a stock option.

I.      NO MANAGEMENT INCENTIVE FUND

        Awards paid under this Plan shall not be based on or payable from a
"pool" or a "Management Incentive Fund".

J.      EMPLOYMENT AT YEAR END GENERALLY REQUIRED FOR AWARD




Page 6



        No award shall be made to any Participant who is not an active employee
of the Company or one of its subsidiaries or affiliates at the end of the Year;
provided, however, that the Committee, in its sole and absolute discretion, may
make pro-rata awards to Participants during a year in circumstances that
Committee deems appropriate including, but not limited to, a Participant's
death, disability, retirement or other termination of employment during such
Year. Any such pro-rated awards shall be determined by the Committee in
accordance with Section F above after taking into account the portion of the
Year then completed.

K.      NONASSIGNMENT AND PARTICIPANTS ARE GENERAL CREDITORS

        The interest of any Participant under the Plan shall not be assignable
either by voluntary or involuntary assignment or by operation of law, except by
designation of a beneficiary or beneficiaries to the extent allowed under the
Company's DCAP.

L.      AMENDMENT OR TERMINATION

        While the Company hopes to continue the Plan indefinitely, it reserves
the right in its Board of Directors to amend, suspend or terminate the Plan or
adopt a new plan at any time; provided that no such amendment shall (i) without
prior approval of the Company's stockholders, alter the business criteria on
which the Performance Goals may be based, increase the maximum amount set forth
in Paragraph F.4 above, or modify the requirements as to eligibility for
participation in the Plan, or (ii) retroactively and adversely affect the
payment of any award previously made. In case any one or more of the provisions
contained in the Plan shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of the Plan, but the Plan shall be
construed as if such invalid, illegal or unenforceable provisions had never been
contained herein.

M.      INTERPRETATION

        This Plan is intended to comply with Section 162(m), and all provisions
contained herein shall be construed and interpreted in a manner to so comply.

N.      DEFINITIONS

        "Code" shall mean the Internal Revenue Code of 1986, as amended.

        "Committee" means the Compensation Committee of the Board of Directors
of McKesson HBOC, Inc..

        "Company" means McKesson Corporation, a Delaware corporation.

        "Covered Employees" shall mean eligible Participants designated by the
Committee who are, or are expected to be, "covered employees" within the meaning
of Section 162(m) of the Code for the Year in which an award is payable
hereunder.




Page 7



        "Disinterested Person" shall mean a member of the Board of Directors who
qualifies as an "outside director" for purposes of Section 162(m) of the Code.

        "Individual Target Award" means the target award established for each
Participant under Article D.

        "Net Income" shall mean after tax income from continuing operations
before special items and the effect of any accounting changes.

        "Participants" mean those employees specifically designated as
Participants for a Year under Article C.

        "Payment Date" shall mean the date following the conclusion of a Year on
which the Committee certifies that applicable Performance Goals have been
satisfied and authorizes payment of corresponding awards.

        "Performance Goals" shall have the meaning set forth in Section E.
hereof.

        "Plan" means the McKesson Corporation 1989 Management Incentive Plan.

        "Year" means the fiscal year of the Company.

Executed effective as of July 25 2001.

McKESSON HBOC, INC.


By    ______________________________________
      William A. Armtrong
      Senior Vice President, Human Resources and Administration




Page 8

EX-10.25

                                                                   Exhibit 10.25

                              MCKESSON CORPORATION
                                SECOND AMENDMENT
                               TO CREDIT AGREEMENT

                               (364 DAY FACILITY)

        This SECOND AMENDMENT TO CREDIT AGREEMENT (this "AMENDMENT") is dated as
of October 5, 2001 and entered into by and among McKesson Corporation, a
Delaware corporation formerly known as McKesson HBOC, Inc. (the "COMPANY"), the
financial institutions listed on the signature pages hereof (the "BANKS"), The
Chase Manhattan Bank, as a documentation agent for the Banks, First Union
National Bank, as a documentation agent for the Banks, Bank One, N.A., as a
documentation agent for the Banks, Credit Suisse First Boston, as a
documentation agent for the Banks and Bank of America, N.A., as administrative
agent for the Banks (the "ADMINISTRATIVE AGENT"), for which Banc of America
Securities LLC has acted as sole lead Arranger, and is made with reference to
that certain Credit Agreement dated as of October 22, 1999 (as amended or
otherwise modified up to the date hereof, the "CREDIT AGREEMENT"), by and among
the parties thereto. Capitalized terms used herein without definition shall have
the same meanings herein as set forth in the Credit Agreement.

                                    RECITALS

        WHEREAS, the Company and the Banks desire to amend the Credit Agreement
(a) to extend the Revolving Facility Termination Date for an additional 364 day
period and (b) to modify certain other provisions; and

        WHEREAS, the Company and the Banks have agreed to increase the total
amount of the Commitments to $1,075,000,000;

        NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the parties hereto agree as follows:

SECTION 1.     AMENDMENTS TO THE CREDIT AGREEMENT

1.1     GENERAL

        All references in the Credit Agreement and the Exhibits thereto to the
Company's name are hereby amended by deleting the name "McKesson HBOC, Inc." and
substituting in lieu thereof the name "McKesson Corporation".

1.2     AMENDMENTS TO ARTICLE I: DEFINITIONS

        A. Section 1.1 of the Credit Agreement is hereby amended by deleting the
definition of "Applicable Margin" and substituting the following in lieu
thereof:



               "Applicable Margin" means, on any date and with respect to each
Offshore Rate Loan (subject to clauses (b) through (d) of the definition of
"Applicable Rating Level"), the applicable margin set forth below based on the
Applicable Rating Level on such date:



    Applicable            Applicable Margin
    Rating Level          (in basis points)
    ------------          ------------------
                      
    Level I                     42.0
    Level II                    46.0
    Level III                   51.5
    Level IV                    62.5
    Level V                     82.5
    Level VI                   102.5



        B. Section 1.1 of the Credit Agreement is hereby further amended by
deleting, in the definition of "Revolving Facility Termination Date," the date
"October 9, 2001" and substituting in lieu thereof the date "October 4, 2002".

        C. Section 1.1 of the Credit Agreement is hereby amended by deleting, in
the definition of "Term Loan Maturity Date," the date "October 8, 2002" and
substituting in lieu thereof the date "October 3, 2003".

1.3     AMENDMENT TO ARTICLE II: THE CREDITS

        A. Section 2.1 of the Credit Agreement is hereby amended by deleting the
last sentence thereof and substituting in lieu thereof the following: "On
October 5, 2001, the aggregate of all Commitments hereunder is $1,075,000,000."

        B. Section 2.9(a) of the Credit Agreement is hereby amended by deleting
the date "September 8, 2000" and substituting in lieu thereof the date "August
28, 2001".

        C. Section 2.9 of the Credit Agreement is hereby amended by adding a new
Section 2.9(c) at the end thereof to read as follows:

           (c) Utilization Fees. The Company shall pay to the Administrative
Agent for the account of each Bank a utilization fee during any period when (i)
prior to the Revolving Facility Termination Date, the sum of (x) the Total
Utilization of Facility A Commitments (as such term is defined in the November
1998 Credit Agreement) and (y) the principal amount of all outstanding Loans (as
defined herein) exceeds 30% of the sum of (A) the aggregate of Facility A
Commitments (as such term is defined in the November 1998 Credit Agreement) and
(B) the aggregate of the Commitments or (ii) any Term Loans are outstanding.
Such utilization fee shall accrue from the Closing Date to the Revolving
Facility Termination Date or, if the Term Loans are made, the Term Loan Maturity
Date and shall be due and payable quarterly in arrears on the later of the fifth
Business Day following the end of each calendar quarter or the fifth Business
Day after the Company has received from the Administrative Agent a notice
setting forth the amount of such fee. The utilization fee shall be calculated on
a daily basis and shall be equal, on any given date, to (I) the principal amount
of all outstanding Loans on such date multiplied by (II) .15% per annum.



1.4     SUBSTITUTION OF SCHEDULE

        A. Schedule 2.1 to the Credit Agreement is hereby amended by deleting
said Schedule 2.1 in its entirety and substituting in place thereof a new
Schedule 2.1 in the form of Annex I to this Amendment.

SECTION 2.     CONDITIONS TO EFFECTIVENESS

        This Amendment shall become effective upon receipt by the Administrative
Agent of all of the following, in form and substance satisfactory to the
Administrative Agent (the date of satisfaction of such condition being referred
to herein as the "SECOND AMENDMENT EFFECTIVE DATE"):

              A. Amendment. This Amendment executed by each party hereto;

              B. Resolutions: Incumbency.

                 (i) Copies of the resolutions of the board of directors of the
        Company authorizing the transactions contemplated hereby, certified as
        of the Second Amendment Effective Date by the Secretary or an Assistant
        Secretary of the Company; and

                 (ii) A certificate of the Secretary or Assistant Secretary of
        the Company, certifying the names and true signatures of the officers of
        the Company authorized to execute, deliver and perform, as applicable,
        this Amendment, and all other Loan Documents to be delivered by it
        hereunder;

              C. Organization Documents; Good Standing. Each of the following
documents:

                 (i) The articles or certificate of incorporation and the bylaws
        of the Company as in effect on the Second Amendment Effective Date,
        certified by the Secretary or Assistant Secretary of the Company as of
        the Second Amendment Effective Date; and

                 (ii) A good standing and tax good standing certificate for the
        Company from the applicable Secretary of State (or similar, applicable
        Governmental Authority) of the States of Delaware and California dated
        as of a recent date;

              D. Legal Opinion. An opinion of Ivan D. Meyerson, Senior Vice
President, General Counsel and Secretary of the Company, addressed to the
Administrative Agent and the Banks, substantially in the form of Exhibit A;

              E. Payment of Fees. Evidence of payment by the Company of all
accrued and unpaid fees, costs and expenses to the extent then due and payable
on the Second Amendment Effective Date, together with Attorney Costs of Bank of
America to the extent invoiced prior to or on the Second Amendment Effective
Date, including any such costs, fees and expenses arising under or referenced in
Sections 2.9 and 10.4 of the Credit Agreement; provided that, notwithstanding
the above, such payment by the Company shall include all accrued and unpaid
facility fees through the Second Amendment Effective Date;



              F. Company Certificate. A certificate signed by a Responsible
Officer of the Company, dated as of the Second Amendment Effective Date, stating
that:

                 (i) the representations and warranties contained in Section 3
        hereof and in Article V of the Credit Agreement are true and correct on
        and as of such date, as though made on and as of such date;

                 (ii) no Default or Event of Default exists;

                 (iii) there has occurred since March 31, 2001, no event or
        circumstance that has resulted or could reasonably be expected to result
        in a Material Adverse Effect.

SECTION 3.     COMPANY'S REPRESENTATIONS AND WARRANTIES

        In order to induce the Banks to enter into this Amendment and to amend
the Credit Agreement in the manner provided herein, the Company represents and
warrants to each Bank that the following statements are true, correct and
complete:

               A. DUE INCORPORATION, VALID EXISTENCE AND GOOD STANDING;
CORPORATE POWER AND AUTHORITY. The Company is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware.
The Company has all requisite corporate power and authority to enter into this
Amendment and to carry out the transactions contemplated by, and perform its
obligations under, the Credit Agreement as amended by this Amendment (the
"AMENDED AGREEMENT").

               B. AUTHORIZATION OF AGREEMENTS. The execution and delivery of
this Amendment and the performance of the Amended Agreement have been duly
authorized by all necessary corporate action on the part of the Company.

               C. NO CONFLICT. The execution and delivery by the Company of this
Amendment and the performance by the Company of the Amended Agreement do not and
will not (i) violate any provision of any law or any governmental rule or
regulation applicable to the Company or any of its Subsidiaries, the Certificate
or Articles of Incorporation or Bylaws of the Company or any of its Subsidiaries
or any order, judgment or decree of any court or other agency of government
binding on the Company or any of its Subsidiaries, (ii) conflict with, result in
a breach of or constitute (with due notice or lapse of time or both) a default
under any Contractual Obligation of the Company or any of its Subsidiaries,
(iii) result in or require the creation or imposition of any Lien upon any of
the properties or assets of the Company or any of its Subsidiaries (other than
Liens created under any of the Loan Documents in favor of the Administrative
Agent on behalf of the Banks), or (iv) require any approval of stockholders or
any approval or consent of any Person under any Contractual Obligation of the
Company or any of its Subsidiaries.

               D. GOVERNMENTAL CONSENTS. The execution and delivery by the
Company of this Amendment and the performance by the Company of the Amended
Agreement do not and will not require any registration with, consent or approval
of, or notice to, or other action to, with or by, any Governmental Authority.



               E. BINDING OBLIGATION. This Amendment has been duly executed and
delivered by the Company and this Amendment and the Amended Agreement are the
legally valid and binding obligations of the Company, enforceable against the
Company in accordance with their respective terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws relating to
or limiting creditors' rights generally or by equitable principles relating to
enforceability.

               F. ABSENCE OF DEFAULT. No event has occurred and is continuing or
will result from the consummation of the transactions contemplated by this
Amendment that would constitute an Event of Default or a Default.

SECTION 4.     MISCELLANEOUS

               A. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER
LOAN DOCUMENTS.

                  (i) On and after the Second Amendment Effective Date, each
        reference in the Credit Agreement to "this Agreement", "hereunder",
        "hereof", "herein" or words of like import referring to the Credit
        Agreement, and each reference in the other Loan Documents to the "Credit
        Agreement", "thereunder", "thereof" or words of like import referring to
        the Credit Agreement shall mean and be a reference to the Amended
        Agreement.

                  (ii) Except as specifically amended by this Amendment, the
        Credit Agreement and the other Loan Documents shall remain in full force
        and effect and are hereby ratified and confirmed.

                  (iii) The execution, delivery and performance of this
        Amendment shall not, except as expressly provided herein, constitute a
        waiver of any provision of, or operate as a waiver of any right, power
        or remedy of the Administrative Agent or any Bank under, the Credit
        Agreement or any of the other Loan Documents.

                  (iv) The Credit Agreement, as amended hereby, together with
        the other Loan Documents (including the Fee Letter), embodies the entire
        agreement and understanding among the Company, the Banks and the
        Administrative Agent, and supersedes all prior or contemporaneous
        agreements and understandings of such Persons, verbal or written,
        relating to the subject matter hereof and thereof.

               B. FEES AND EXPENSES. The Company acknowledges that all costs,
fees and expenses as described in Section 10.4 of the Credit Agreement incurred
by the Administrative Agent and its counsel with respect to this Amendment and
the documents and transactions contemplated hereby shall be for the account of
the Company.

               C. HEADINGS. Section and subsection headings in this Amendment
are included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose or be given any substantive effect.



               D. APPLICABLE LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA
(INCLUDING WITHOUT LIMITATION SECTION 1646.5 OF THE CIVIL CODE OF THE STATE OF
CALIFORNIA), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.

               E. COUNTERPARTS. This Amendment may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.



               IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.

                            MCKESSON CORPORATION

                            By: \s\ William R. Graber
                               ------------------------------------------
                            Name:   William R. Graber
                            Title:  Senior Vice President and Chief Financial
                                    Officer

                            By: \s\ Nicholas A. Loiacono
                               ------------------------------------------
                            Name:   Nicholas A. Loiacono
                            Title: Vice President and Treasurer

                            BANK OF AMERICA, N.A., as Administrative Agent

                            By: \s\ Richard L. Nichols, Jr.
                               ------------------------------------------
                            Name:   Richard L. Nichols, Jr.
                            Title:  Managing Director

                            BANK OF AMERICA, N.A., as a Bank

                            By: \s\ Richard L. Nichols, Jr.
                               ------------------------------------------
                            Name:   Richard L. Nichols, Jr.
                            Title:  Managing Director

                            THE CHASE MANHATTAN BANK, as a documentation
                            agent and as a Bank

                            By: \s\ William P. Rindfuss
                               ------------------------------------------
                            Name:   William P. Rindfuss
                            Title:  Vice President

                            BANK ONE, NA, as documentation agent and as a Bank

                            By: \s\Kandis A. Jaffrey
                               ------------------------------------------
                            Name:   Kandis A. Jaffrey
                            Title:  Vice President



                            FIRST UNION NATIONAL BANK, as documentation
                            agent and as a Bank

                            By: \s\Jeanette A. Griffin
                               ------------------------------------------
                            Name:   Jeanette A. Griffin
                            Title:  Vice President

                            CREDIT SUISSE FIRST BOSTON, as a Bank

                            By: \s\William S. Lutkins
                               ------------------------------------------
                            Name:   William S. Lutkins
                            Title:  Vice President

                            By: \s\Robert N. Finney
                               ------------------------------------------
                            Name:   Robert N. Finney
                            Title:  Managing Director

                            MELLON BANK, N.A., as a Bank

                            By: \s\John N. Cate
                               ------------------------------------------
                            Name:   John N. Cate
                            Title:  Vice President

                            TORONTO DOMINION (TEXAS), INC., as a Bank

                            By: \s\Alva J. Jones
                               ------------------------------------------
                            Name:   Alva J. Jones
                            Title:  Vice President

                            FLEET NATIONAL BANK, as a Bank

                            By: \s\Carol Castle
                               ------------------------------------------
                            Name:   Carol Castle
                            Title:  Director

                            WELLS FARGO BANK, N.A., as a Bank

                            By: \s\Paul K. Stimpfl
                               ------------------------------------------
                            Name:   Paul K. Stimpfl
                            Title:  Senior Vice President



                            THE BANK OF NEW YORK, as a Bank

                            By:  \s\Rebecca K. Levine
                               ------------------------------------------
                            Name:   Rebecca K. Levine
                            Title:  Vice President

                            U.S. BANK NATIONAL ASSOCIATION, as a Bank

                            By:  \s\Aaron J. Gordon
                               ------------------------------------------
                            Name:   Aaron J. Gordon
                            Title:  Vice President

                            THE BANK OF NOVA SCOTIA, as a Bank

                            By:  \s\R. P. Reynolds
                               ------------------------------------------
                            Name:   R.P. Reynolds
                            Title:  Director

                            PNC BANK, NATIONAL ASSOCIATION, as a Bank

                            By:  \s\Philip K. Liebscher
                               ------------------------------------------
                            Name:   Philip K. Liebscher
                            Title:  Vice President

                            ALLFIRST BANK, as a Bank

                            By:  \s\Jennifer G. Erickson
                               ------------------------------------------
                            Name:   Jennifer G. Erickson
                            Title:  Vice President

                            FIFTH THIRD BANK, as a Bank

                            By:  \s\Jeff Assenmacher
                               ------------------------------------------
                            Name:   Jeff Assenmacher
                            Title:  Large Corporate Officer



                            BNP PARIBAS, as a Bank

                            By:  \s\Katherine Wolfe
                               ------------------------------------------
                            Name:   Katherine Wolfe
                            Title:  Director

                            By:  \s\Sandra F. Bertram
                               ------------------------------------------
                            Name:   Sandra F. Bertram
                            Title:  Vice President

                            LEHMAN COMMERCIAL PAPER INC., as a Bank

                            By:  \s\Michelle Swansen
                               ------------------------------------------
                            Name:   Michelle Swansen
                            Title:  Authorized Signatory



                                     ANNEX I

                                  SCHEDULE 2.1
                           COMMITMENTS/PRO RATA SHARES

                        (Effective as of October 5, 2001)




                                              TOTAL
               BANK                         COMMITMENTS            PRO RATA SHARES
               ----                         -----------            ---------------
                                                             
Bank of America, N.A. .............       $  161,666,666.67        15.038759690%
The Chase Manhattan Bank ..........       $  160,000,000.00        14.883720930%
Bank One, N.A. ....................       $   83,333,333.33         7.751937984%
First Union National Bank .........       $  133,333,333.00        12.403100744%
Credit Suisse First Boston ........       $  125,000,000.00        11.627906977%
Mellon Bank, N.A. .................       $   16,666,667.00         1.550387628%
Toronto Dominion (Texas), Inc. ....       $   41,666,667.00         3.875969023%
Wells Fargo Bank, N.A. ............       $   50,000,000.00         4.651162791%
The Bank of New York ..............       $   33,333,333.33         3.100775193%
U.S. Bank National Association ....       $   53,333,333.00         4.961240279%
The Bank of Nova Scotia ...........       $   50,000,000.00         4.651162791%
PNC Bank, National Association ....       $   10,000,000.00         0.930232558%
Allfirst Bank .....................       $   16,666,666.67         1.550387597%
Fifth Third Bank ..................       $   15,000,000.00         1.395348837%
Fleet National Bank ...............       $   50,000,000.00         4.651162791%
BNP Paribas .......................       $   25,000,000.00         2.325581395%
Lehman Commercial Paper Inc .......       $   50,000,000.00         4.651162791%

Totals: ...........................       $1,075,000,000.00                 100%





                                            A-1

EX-10.43

                                                                   Exhibit 10.43



                              MCKESSON CORPORATION

                       1998 CANADIAN STOCK INCENTIVE PLAN

                      (As Amended Through October 26, 2001)


ARTICLE I -    PURPOSE

1.1     The purpose of the McKesson Corporation 1998 Canadian Stock Incentive
        Plan (the "Plan"), is to enable McKesson Corporation (the "Company") to
        offer designated employees of Canadian subsidiaries of the Company
        performance-based stock incentives thereby attracting, retaining and
        rewarding such employees and strengthening the mutuality of interests
        between the employees and the Company's shareholders.

ARTICLE II -   DEFINITIONS

2.1     In this Plan, the following terms shall have the following meanings:

        (a)    "Article" and "Section" means an article or section of this Plan;

        (b)    "Award" means any grant approved in accordance with the terms of
               the Plan;

        (c)    "Beneficiary" means a person or persons designated by the
               Participant to succeed to, in the event of death, any outstanding
               Award held by the Participant. Any Participant may, subject to
               applicable laws and such limitations as may be prescribed by the
               Committee, designate one or more persons primarily or
               contingently as beneficiaries in writing by notice delivered to
               the Company, and may revoke such designations in writing. If a
               Participant fails effectively to designate a beneficiary, the
               Participant's estate shall be the Participant's beneficiary;

        (d)    "Board of Directors" means the board of directors of the Company;

        (e)    "Committee" means the Compensation Committee of the Board of
               Directors or such other committee, as the Board of Directors may
               appoint from time to time for the purpose of administering this
               Plan, or if at any time the Board does not have a Compensation
               Committee or does not so appoint another committee for such
               purpose, the Board of Directors;

        (f)    "Company" means McKesson Corporation and its successors and
               assigns;

        (g)    "Disability" means (i) a physical or mental condition which, in
               the judgment of the Committee based on competent medical evidence
               satisfactory to the



                                      -2-




               Committee, including, if required by the Committee, medical
               evidence obtained by an examination conducted by a physician
               selected by the Committee, renders an individual unable to engage
               in any substantial gainful activity and which impairment is
               likely to result in death or to be of long, continued and
               indefinite duration, or (ii) a judicial declaration of
               incompetence;

        (h)    "Fair Market Value" means, as of any date, the composite closing
               price on such day of the Company's common shares as reported in
               The Wall Street Journal;

        (i)    "Latest Exercise Date" means the latest date on which a
               particular Option may be exercised;

        (j)    "Medis" means Medis Health and Pharmaceutical Services Inc.;

        (k)    "Notice of Grant" means a notice executed by the Company and the
               Participant to whom an Award has been granted by which the
               Committee shall notify a Participant of an Award granted to him
               in accordance with the terms of the Plan, which notice shall be
               duly executed by the Company and such Participant;

        (l)    "Option" means a right generated under the Plan to a Participant
               to purchase Shares in accordance with the terms of the Plan;

        (m)    "Optionee" means a Participant to whom an Award of an Option has
               been made;

        (n)    "Option Price" means in respect of an option, the price to be
               paid per Share by a Participant on the exercise of an Option set
               out in Section 5.2(b);

        (o)    "Participant" means an employee of Medis or a Canadian subsidiary
               of the Company who has been designated by the Committee in its
               sole discretion as being eligible to participate in the Plan;

        (p)    "Plan" means this McKesson Corporation 1998 Canadian Stock
               Incentive Plan and any schedules attached hereto, as amended and
               restated from time to time;

        (q)    "Retirement" means any retirement in accordance with the
               applicable retirement policies of the relevant Canadian
               subsidiary;

        (r)    "Shares" means common shares of the Company;

        (s)    "Stock Appreciation Right" means an Award described in Article
               IV;

        (t)    "Termination of Employment" means the termination of a
               Participant's employment with Medis, a Canadian subsidiary of the
               Company or the Company, other than as a result of death,
               Disability or Retirement;




                                      -3-




2.2     In this Plan, unless the context requires otherwise, references to the
        male gender include the female gender and words importing the singular
        number may be construed to extend to and include the plural number and
        vice versa.

ARTICLE III -  ADMINISTRATION

3.1     This Plan shall be administered and interpreted by the Committee. The
        Committee will construe and interpret the terms and provisions of the
        Plan and of any Award granted thereunder. The Committee may correct any
        defect, complete any omission or reconcile any inconsistency in the
        Plan, in any Notice of Grant or in any agreement relating to the Plan in
        is sole discretion and in the manner or to the extent is shall deem
        necessary.

3.2     The Committee shall have full authority to grant, pursuant to the terms
        of the Plan, to Participants Options and Stock Appreciation Rights. In
        particular, and without limitation, the Committee shall have the
        authority to:

               (i)    select the Participants to whom Awards may be granted from
                      time to time hereunder;

               (ii)   determine the terms and conditions, not inconsistent with
                      the terms of the Plan, of any Award granted hereunder,
                      including, but not limited to, any restriction or
                      limitation on transfer, any vesting schedule or
                      acceleration thereof, or any forfeiture provisions or
                      waiver thereof regarding any Award and the Shares relating
                      thereto, based on such factors as the Committee shall
                      determine, in its sole discretion; and

               (iii)  modify or waive any restrictions or limitations contained
                      in and grant extensions to or accelerate the vestings of,
                      any outstanding Awards, so long as such notifications,
                      waivers, extensions or accelerations are consistent with
                      the terms of the Plan; but no such changes shall impair
                      the rights of any Participant without his consent.

        The Chief Executive Officer of the Company shall have concurrent
        authority to grant Options to Participants, pursuant to the terms of the
        Plan and consistent with the administration of the Plan by the
        Committee, subject to the limitations of Section 5.1.

3.3     The Committee shall have full and complete authority to adopt, alter and
        repeal any administrative rules, guidelines or practices governing the
        Plan and perform all acts, including the delegation of its authority as
        it shall from time to time deem advisable.

3.4     Any decision, interpretation or other action made or taken in good faith
        by or at the direction of the Committee (or any of its members) or the
        Company arising out of or in connection with the Plan shall be within
        the absolute discretion of all and each of them, as the case may be, and
        shall be final, binding and conclusive on the Company and all employees
        and Participants and their respective Beneficiaries, heirs, executors,
        administrators, successors and assigns.




                                      -4-




ARTICLE IV -   SHARES AVAILABLE

4.1     The number of shares on which Options/Stock Appreciation Rights which
        may be granted will be determined at the sole discretion of the Board of
        Directors.

4.2     If the Company changes the number of issued Shares at any time for any
        reason, including by stock dividend, stock split, recapitalization,
        reorganization, exchange of shares, liquidation, combination or other
        change in corporate structure affecting the Shares or makes a
        distribution of cash or property which has a substantial impact on the
        value of the issued Shares or there is a change in the valuation
        formula, the Awards shall be appropriately adjusted by the Board of
        Directors in their sole discretion. The Board of Directors shall also
        make adjustments so that the net value of each such Award shall not be
        changed.

4.3     Except as otherwise specifically provided herein, the Committee or the
        Chief Executive Officer, as applicable, shall determine the time to make
        an Award. Each Award shall be effective on a date determined by the
        Committee; provided, however, with respect to an Option awarded by the
        Chief Executive Officer, the effective date of such Award shall be the
        later of (i) the date when [the Chief Executive Officer executes a
        document setting forth the Option Award and delivers such document to
        the Corporate Secretary for filing with the minutes of the Committee] or
        (ii) the date specified in the Award.

ARTICLE V - OPTIONS

5.1     The Committee (or the Chief Executive Officer), in its (or his)
        discretion, may grant to a Participant an Option; provided, however,
        that the Chief Executive Officer may not: (i) grant options under the
        Plan and the McKesson Corporation 1999 Stock Option and Restricted Stock
        Plan covering more than 1,000,000 shares in the aggregate; (ii) grant an
        option covering more than 100,000 shares to an individual officer or
        employee; or (iii) designate himself or any executive officer of the
        Corporation, as defined in the Rules of the New York Stock Exchange, as
        a recipient of any option granted. Options granted by the Chief
        Executive Officer shall be subject to the same terms as options granted
        by the Committee.

5.2     Options granted under this Plan shall be subject to the following terms
        and conditions and shall be in such form and contain such additional
        terms, not inconsistent with the terms of this Plan, as the Committee
        may deem desirable:

        (a)    At the time of the Award of an Option, the Committee (or the
               Chief Executive Officer) shall specify the maximum number of
               Shares which the Optionee may purchase. In exercising its (or
               his) discretion, the Committee (or the Chief Executive Officer)
               shall consider the Participant's performance and contribution to
               the success of the Company and any special circumstances
               including, but not limited to, the sustained superior performance
               of the Participant, the need to retain the Participant and the
               need to attract new employees.





                                      -5-




        (b)    The Option Price per Share shall be determined by the Committee
               or the Chief Executive Officer, as applicable.

        (c)    All Options are immediately exercisable upon Disability or death,
               and the Optionee or the Optionee's estate must exercise options
               within three years of the date of such death or Disability. After
               such period, all unexercised Options shall be automatically
               cancelled and any rights to such Options shall be forfeited.

        (d)    Options may be exercised in accordance with the terms of the
               Award in whole or in part at any time before the Latest Exercise
               Date, and subject to subsections (c), (g) and (h), provided that:

               (i)    the Optionee notifies the Company in writing of his intent
                      to exercise the Option in whole or in part in such form as
                      prescribed by the Company and forwards such notice to the
                      Office of the Corporate Secretary of the Company;

               (ii)   the Participant's written notice is accompanied by payment
                      in full in the amount of the aggregate Option Price for
                      such number of Shares in such form as the Company may
                      accept.

        (e)    No fractional Shares shall be issued upon the exercise of an
               Option. Accordingly, if for any reason, an Optionee would
               otherwise have become entitled to a fractional Share upon the
               exercise of an Option, he shall have the right to purchase only
               the next lower whole number of Shares and no payment or other
               adjustment will be made with respect to the fractional interests
               so disregarded.

        (f)    The interest of any Optionee shall not be transferable or
               alienable by him either by pledge, assignment or in any other
               manner whatsoever and, during his lifetime shall be vested only
               in him, but shall thereafter enure to the benefit of and be
               binding upon the Beneficiary or legal personal representatives of
               the Optionee.

        (g)    On the Optionee's Termination of Employment for any reason, other
               than by reason of the Retirement, Disability or death of the
               Optionee, the Optionee may exercise any Option for which rights
               to exercise have accrued to the Optionee at the time of
               Termination of Employment, within 3 months following the date of
               Termination of Employment. After such period, all unexercised
               Options shall be automatically cancelled and any rights to any
               Options shall be forfeited.

        (h)    Where the employment of an Optionee is terminated by reason of
               Retirement, the Optionee may exercise any Option for which rights
               to exercise have accrued to the Optionee at the time of
               Retirement within three years following the date of Retirement.
               After such period, all unexercised Options shall be automatically
               cancelled and any rights to any Options shall be forfeited.




                                      -6-




        (i)    The Committee may at any time offer to buy out an option
               previously granted, based on such terms and conditions as the
               Committee shall establish and communicate to the Participant at
               the time that such offer is made.

        (j)    The Committee may at any time in its sole discretion accelerate
               the right to exercise any Options.

        (k)    In the event of a Change of Control as defined in this section,
               the right to exercise Options will be accelerated such that all
               Options are immediately exercisable.

               A "Change of Control" of me Company shall be deemed to have
               occurred if any of the events set forth in any one of the
               following paragraphs shall occur:

               (i)    any "person" (as such term is used in sections 13 (d) and
                      14(d) of the Securities Exchange Act of 1934, as amended
                      (U.S.), excluding the Company or any of As affiliates, a
                      trustee or any fiduciary holding securities under an
                      employee benefit plan of the Company or any of its
                      affiliates, an underwriter temporarily holding securities
                      pursuant to an offering of such securities or a
                      corporation owned, directly or indirectly, by stockholders
                      of the Company in substantially the same proportions as
                      their ownership of the Company, is or becomes the
                      "beneficial owner" (as defined in Rule 13d-3 under the
                      Securities Exchange Act of 1934, as amended (U.S.),
                      directly or indirectly, of securities of the Company
                      representing 30% or more of the combined voting power of
                      the Company's then outstanding securities; or

               (ii)   during any period of not more than two consecutive years,
                      individuals who at the beginning of such period constitute
                      the Board and any new director (other than a director
                      designated by a Person who has entered into an agreement
                      with the Company to effect a transaction described in
                      clause (i), (iii) or (iv) or this paragraph) whose
                      election by the Board or nomination for election by the
                      Company's stockholders was approved by a vote of at least
                      two-thirds (2/3) of the directors then still in office who
                      either were directors at the beginning of the period or
                      whose election or nomination for election was previously
                      so approved, cease for any reason to constitute a majority
                      thereof; or

               (iii)  the shareholders of the Company approve a merger or
                      consolidation of the Company with any other corporation,
                      other than (A) a merger or consolidation which would
                      result in the voting securities of the Company outstanding
                      immediately prior thereto continuing to represent (either
                      by remaining outstanding or by being converted into voting
                      securities of the surviving entity), in combination with
                      the ownership of any trustee or other fiduciary holding
                      securities under an employee benefit plan of the Company,
                      at least 50% of the combined voting power of the voting
                      securities of the Company or such surviving entity
                      outstanding




                                      -7-




                      immediately after such merger or consolidation, or (B) a
                      merger or consolidation effected to implement a
                      recapitalization of the Company (or similar transaction)
                      in which no person acquires more than 50% of the combined
                      voting power of the Company's then outstanding securities;
                      or

               (iv)   the shareholders of the Company approve a plan of complete
                      liquidation of the Company or any agreement for the sale
                      or disposition by the Company of all or substantially all
                      of the Company's assets.

               Notwithstanding the foregoing, no Change in Control shall be
               deemed to have occurred if there is consummated any transaction
               or series of integrated transactions immediately following which
               the holders of the Stock immediately prior to such transaction or
               series of transactions continue to have the same proportionate
               ownership in an entity which owns all or substantially all of the
               assets of the Company immediately prior to such transaction or
               series of transactions.

               A Change of Control shall also be deemed to occur in the event
               that 50.1% of more of the shares of Medis become owned by an
               entity other than the Company.

5.3     The Committee or the Chief Executive Officer, as applicable, shall
        notify each Optionee of the terms and conditions of the Award of an
        Option by a Notice of Grant. The Notice of Grant shall indicate the
        Option Price, the earliest and Latest Exercise Date and other terms
        relating to the Award of the Option.

5.4     As soon as practicable, after the Company's receipt of the Participant's
        written notice as specified in Section 5.2(d) and payment of the Option
        Price, the Optionee shall be entitled to receive a certificate
        representing the Shares purchased through the exercise of the Option.

5.5     An Optionee shall not have any rights as a shareholder in respect of
        Shares subject to an Option until such Shares have been paid for in full
        and issued.

5.6     The Committee may, in its discretion, provide at any time, and from time
        to time, that particular Options granted hereunder will be accompanied
        by a grant of Stock Appreciation Rights as set out in Article VI.

5.7     Any other provision of these terms and conditions to the contrary
        notwithstanding, if the Committee determines that an Optionee has
        engaged in any of the actions described in (c) below, the consequences
        set forth in (a) and (b) below shall result:

        (a)    Any outstanding Option shall immediately and automatically
               terminate, be forfeited and shall cease to be exercisable,
               without limitation, by the Optionee or his or her
               representatives, in the case of the death of the Optionee.




                                      -8-




        (b)    If the Optionee exercised an Option within six months prior to
               the date upon which the Company discovered that the Optionee
               engaged in any action described in (c) below, the Optionee, upon
               written notice from the Company, shall immediately pay to the
               Company the economic value realized or obtained by the exercise
               of such Option measured at the date of exercise.

        (c)    The consequences described in (a) and (b) above shall apply if
               the Optionee, either before or after termination of employment
               with Medis, the Company or its affiliates:

               (i)    Discloses to others, or takes or uses for his own purpose
                      or the purpose of others, any trade secrets, confidential
                      information, knowledge, data or know-how or any other
                      proprietary information or intellectual property belonging
                      to Medis, the Company or its affiliates and obtained by
                      the Optionee during the term of his employment, whether or
                      not they are the Optionee's work product. Examples of such
                      confidential information or trade secrets include, without
                      limitation, customer lists, supplier lists, pricing and
                      cost data, computer programs, delivery routes, advertising
                      plans, wage and salary date, financial information,
                      research and development plans, processes, equipment,
                      product information and all other types and categories of
                      information as to which the Optionee knows or has reason
                      to know that Medis, the Company or its affiliates intends
                      or expects secrecy to be maintained;

               (ii)   Fails to promptly return all documents and other tangible
                      items belonging to Medis, the Company or its affiliates in
                      the Optionee's possession or control, including all
                      complete or partial copies, recordings, abstracts, notes
                      or reproductions of any kind made from or about such
                      documents or information contained therein, upon
                      termination of employment, whether pursuant to retirement
                      or otherwise;

               (iii)  Fails to provide Medis, the Company or its affiliates with
                      at least thirty (30) days' written notice prior to
                      directly or indirectly engaging in, becoming employed by,
                      or rendering services, advice or assistance to any
                      business in competition with Medis, the Company or its
                      affiliates. As used herein, "business in competition"
                      means any person organization or enterprise which is
                      engaged in or is about to become engaged in any line of
                      business engaged in by Medis, the Company or its
                      affiliates at the time of the termination of the
                      Optionee's employment with Medis, the Company or its
                      affiliates;

               (iv)   Fails to inform any new employer, before accepting
                      employment, of the terms of this paragraph and of the
                      Optionee's continuing obligation to maintain the
                      confidentiality of the trade secrets and other
                      confidential information belonging to Medis, the Company
                      or its affiliates and




                                      -9-




                      obtained by the Optionee during the term of his employment
                      with Medis, the Company or any Subsidiary;

               (v)    Induces or attempts to induce, directly or indirectly, any
                      of the customers of Medis, the Company or its affiliates,
                      employees, representatives or consultants to terminate,
                      discontinue or cease working with or for Medis, the
                      Company or its affiliates, or to breach any contract with
                      Medis, the Company or any of its affiliates, in order to
                      work with or for, or enter into a contract with, the
                      Optionee or any third party; or

               (vi)   Engages in conduct which is not in good faith and which
                      disrupts, damages, impairs or interferes with the
                      business, reputation or employees of Medis, the Company or
                      its affiliates.

        The Committee shall determine in its sole discretion whether the
        Optionee has engaged in any of the acts set forth in (i) through (vi)
        above, and its determination shall be conclusive and binding on all
        interested persons.

        Any provision of this paragraph which is determined by a court of
        competent jurisdiction to be invalid or unenforceable should be
        construed or limited in a manner that is valid and enforceable and that
        comes closest to the business objectives intended by such invalid or
        unenforceable provision, without invalidating or rendering unenforceable
        the remaining provisions of this paragraph.

ARTICLE VI -   APPRECIATION RIGHTS

6.1     Stock Appreciation Rights may only be granted in conjunction with an
        Option (referred to in this Article as a "Reference Option") granted
        under the Plan.

6.2     Stock Appreciation Rights shall be subject to such terms and conditions,
        not inconsistent with the provisions of this Plan, as shall be
        determined from time to time by the Committee, including the following:

        (a)    A Stock Appreciation Right granted with respect to a Reference
               Option shall terminate and no longer be exercisable upon the
               termination or exercise of the Reference Option.

        (b)    A Stock Appreciation Right shall be exercisable only at such time
               or times and to the extent that the Reference Option to which it
               relates shall be exercisable.

        (c)    A Stock Appreciation Right may be exercised by an Optionee by
               surrendering the applicable portion of the Reference Option. The
               Participant will then have no further rights relating to the
               Reference Option.

        (d)    Upon exercising a Stock Appreciation Right, a Participant shall
               be entitled to receive an amount in cash, as determined by the
               Committee, equal in value to the excess Fair Market Value of one
               Share over the Option Price in Respect of the




                                      -10-




               Reference Option multiplied by the number of Shares in respect of
               which the Stock Appreciation Right shall have been exercised.

        (e)    Stock Appreciation Rights shall not be transferable except to the
               extent indicated in Subsection 5.2(i) and shall terminate in
               accordance with Subsections 5.2(c), (g) or (h).

6.3     The Committee shall notify a Participant of an Award of a Stock
        Appreciation Right by a Notice of Grant. The Notice of Grant shall
        indicate the term of the Award, the Reference Option and Option Price or
        the Fair Market Value on the date of the Award, as applicable.

ARTICLE VII -  TERMINATION OR AMENDMENT

7.1     Notwithstanding any other provision of the Plan, the Company, acting
        through its Board of Directors, may, at any time and from time to time,
        amend in whole or in part, any or all of the provisions of the Plan, or
        suspend or terminate it entirely; provided, however, that, unless
        otherwise required by law, the rights of a Participant with respect of
        any Awards granted prior to such amendment, suspension or termination,
        may not be impaired without the consent of such Participant.

ARTICLE VIII - GENERAL

8.1     This Plan is intended to be unfunded. With respect to any payments to
        which a Participant has a fixed and vested interest, but which have not
        yet been made to the Participant by the Company, nothing in the Plan
        shall give any such Participant any rights that are greater than those
        of a general creditor of the Company.

8.2     Participation in the Plan is not a guarantee of employment or of
        continued participation in the Plan in any subsequent year.

8.3     In no event shall the value of, or income arising from, any Awards under
        this Plan be treated as compensation for the purposes of any pension,
        profit sharing, life insurance, disability or any other retirement or
        welfare benefit plan now maintained or hereafter adopted by Medis, the
        Company or any of its affiliates unless such plan specifically provides
        to the contrary. Nothing herein contained shall affect Optionee's right
        to participate in and receive benefits from and in accordance with the
        then current provisions of any pensions, insurance, or other employment
        welfare plan or program offered by Medis, the Company or any of its
        affiliates.

8.4     The Company shall have the right to deduct from any payment to be made
        pursuant to the Plan, or to otherwise require, prior to the issuance or
        delivery of any Shares or the payment of any cash hereunder, payment by
        the Participant of any taxes required bylaw to be withheld. The
        Committee may permit any such withholding obligation to be satisfied by
        reducing the number of Shares otherwise deliverable or by accepting the
        delivery of previously owned Shares on account thereof.




                                      -11-




8.5     Except as specifically permitted hereunder, the interest of any
        Participant or Optionee under the Plan in any Award shall not be
        transferable or alienable by him and, during his lifetime, shall be
        vested only in him, but shall thereafter enure to the benefit or and be
        binding upon the Beneficiary or legal personal representatives of the
        Participant.

8.6     No member of the Board of Directors, no member of the Committee, no
        employee (including the Chief Executive Officer) nor the Company shall
        be liable for any act or failure to act hereunder, by another member or
        employee or by an agent to whom duties in connection with the
        administration of the Plan have been delegated except in circumstances
        involving bad faith, gross negligence or fraud.

8.7     The Company's obligation to issue Shares in accordance with the terms of
        the Plan and any Award hereunder is subject to compliance with the laws,
        rules and regulations of all public agencies and authorities applicable
        to the issuance and distribution of such Shares and to the listing of
        such Shares on any stock exchange on which any of the Shares of the
        Company may be listed. As a condition of participation in the Plan, all
        Participants must first agree to comply with all such laws, rules and
        regulations and to furnish to the Company all information and
        undertakings as may be required to permit compliance with such laws,
        rules and regulations.

8.8     The Plan and any Awards hereunder shall be governed by and construed in
        accordance with the laws of the Province of Ontario and the laws of
        Canada applicable therein.

8.9 The effective date of this Plan is the 28th day of January, 1998.

EX-10.44

                                                                   Exhibit 10.44

                              MCKESSON CORPORATION
                        2000 EMPLOYEE STOCK PURCHASE PLAN
                       (AS AMENDED THROUGH JULY 31, 2001)


1.      PURPOSE

        The McKesson Corporation 1998 Employee Stock Purchase Plan (the "Plan")
is intended to encourage the employees of the Company and certain of its
subsidiaries to acquire a proprietary interest, or to increase their existing
proprietary interest, in the Company. The Board of Directors of the Company (the
"Board") believes that employee ownership of the Company's stock will serve as
an incentive, encouraging employees to continue their employment and to perform
diligently their duties as employees. The Plan is intended to qualify as an
"employee stock purchase plan" within the meaning of Section 423 of the Internal
Revenue Code of 1986, as amended (the "Code").

2.      STOCK RESERVED FOR THE PLAN

        The Company will reserve 6,100,000 (which number has been adjusted to
reflect the 2:1 stock split effected by the former HBO & Company on May 27,
1998, and the Exchange Ratio as defined in the Merger Agreement) shares of the
Company's common stock, $.01 par value per share ("Stock"), for purchase by
employees under the Plan. The number of shares of Stock reserved for the Plan
may further be adjusted as provided in Section 16. The shares of Stock reserved
for the Plan may be shares now or hereafter authorized but unissued, shares that
have been reacquired by the Company, or shares of treasury stock.

3.      ADMINISTRATION

        The Plan will be administered by the Compensation Committee of the Board
(the "Committee"), consisting of members of the Board designated by the Board.
The Board from time to time may remove members from, or add members to, the
Committee. Vacancies on the Committee will be filled by the Board. Subject to
the express provisions of the Plan, the Committee will have authority to
interpret the Plan, to prescribe rules and regulations for administering the
Plan, and to make all other determinations necessary or advisable in
administering the Plan. The determinations of the Committee will be final and
binding upon all persons, unless otherwise determined by the Board. A majority
of the members of the Committee will constitute a quorum, and the Committee may
act by vote of a majority of its members at a meeting at which a quorum is
present, or without a meeting by a written consent signed by all members of the
Committee. To the extent consistent with applicable law, the Committee may
delegate its duties hereunder to a sub-committee, whose members need not be
members of the Board.




4.      ELIGIBILITY

        (a) Eligible Employees. Except as set forth in subsections (b) and (c)
below, all employees of the Company, and all employees of any parent
corporation, as defined in Code Section 424(e) (a "Parent") or any subsidiary
corporation as defined in Code Section 424(f) (a "Subsidiary") of the Company
that is designated by the Board as a participating Parent or Subsidiary, will be
eligible to participate in the Plan. Such employees are referred to herein as
"Employees." No person who is not an Employee will be eligible to participate in
the Plan.

        (b) Excluded Employees. The following Employees will not be eligible to
participate in the Plan:

            (i) any Employee whose customary employment is less than 20 hours
        per week or for not more than 5 months in any calendar year; and

            (ii) any Employee who, immediately after a right to purchase Stock
        is granted hereunder, would own shares of Stock, or of the stock of a
        Subsidiary, possessing 5 percent or more of the total combined voting
        power or value of all classes of such stock. In determining whether an
        Employee owns 5 percent of such shares, (A) the attribution of ownership
        rules of Code Section 424(d) will apply, and (B) an Employee will be
        deemed to own the shares of stock underlying any outstanding option
        which he has been granted (whether under the Plan or any other plan or
        arrangement); and

            (iii) effective for the first Purchase Period commencing after
        September 30, 1999 and for any subsequent Purchase Period, any Employee
        who as of the first day of any such Purchase Period has not completed a
        period of employment of at least 30 days.

5.      OFFERING DATES

        The Plan will be implemented by a continuous series of 24-month
offerings beginning on the first trading day on or after May 1 and November 1 of
each calendar year and terminating on the last trading day of the month which is
24 months later (the "Offering Periods") and six-month periods commencing on
each May 1 and November 1 and ending on the following October 31 and April 30,
during which contributions may be made toward the purchase of Stock under the
Plan (the "Accumulation Periods"). For purposes of calculating the purchase
price under Section 9, the applicable Offering Period shall be determined as
follows:

            (i) Once a Participant is enrolled in the Plan for an Offering
        Period, such Offering Period shall continue to apply to the Participant
        until the earliest of (A) the end of such Offering Period, (B) the date
        the Participant elects to discontinue contributions to the Plan and
        receive a distribution of his Cash Account, or (C) re-enrollment in a
        subsequent Offering Period under paragraph (ii) below.

            (ii) In the event that the Fair Market Value of the Stock on the
        last trading day before the commencement of the Offering Period in which
        the Participant is enrolled is higher than on the last trading day
        before the commencement of any subsequent Offering Period, the first
        Offering Period shall be canceled and the Participant shall
        automatically be re-enrolled for such subsequent Offering Period.




6.      ELECTION TO PARTICIPATE

        (a) Initial Election. Each Employee who is eligible to participate in
the Plan may become a participant (a "Participant") by making an election, prior
to any Offering Date and in accordance with procedures established by the
Committee, authorizing specified regular payroll deductions over the next
succeeding Purchase Period (an "Election Form"). Each election will be expressed
as a percentage of the Employee's Compensation (as defined below), which may not
exceed 15 percent of the Employee's Compensation for any payroll period or be
less than 1 percent of the Employee's Compensation for any payroll period (or
such other maximum and minimum percentages as the Committee may determine). An
Employee's "Compensation" is his "compensation" as that term is defined in the
McKesson Corporation Profit-Sharing Investment Plan. Payroll deductions for a
Participant will be made regularly and in equal amounts during the Purchase
Period by the Company, and will be credited to a bookkeeping account established
by the Company in the name of the Participant (the "Cash Account"). No interest
will be paid on or credited to Cash Accounts.

        (b) Changes in Rate of Payroll Deductions. A Participant may change the
amount of payroll deductions elected for a Purchase Period by providing notice
in accordance with procedures established by the Committee.

        (c) Discontinuance of Contributions. At any time during a Purchase
Period, (but not later than five business days prior to the Purchase Date), a
Participant may discontinue participation in the Plan for the current Purchase
Period by providing notice in accordance with procedures established by the
Committee. Upon such discontinuance, at the Participant's election, the balance
of his Cash Account will be (i) returned to the Participant as soon as
practicable, or (ii) held in the Cash Account until the end of the Purchase
Period and applied to purchase Stock in accordance with Section 10. A
Participant who discontinues payroll deductions may recommence his participation
in the Plan as of the Offering Date for any other succeeding Purchase Period,
provided he otherwise is eligible to participate and timely files a new Election
Form with the Committee.

7.      PURCHASE PERIOD LIMITATION ON RIGHTS TO PURCHASE STOCK

        (a) In General. Subject to the annual limitations in Section 8 below,
the maximum number of shares of Stock each Participant will have the right to
purchase under the Plan during a Purchase Period is determined by dividing (i)
$12,500 by (ii) the Fair Market Value of one share of Stock on the Offering Date
for such Purchase Period.

        (b) Insufficient Shares of Stock. If at any time the number of shares of
Stock available for purchase under the Plan is insufficient to grant to each
Participant the right to purchase the full number of shares to which he
otherwise would be entitled, then each Participant will have the right to
purchase that number of available shares of Stock that is equal to the total
number of available shares of Stock multiplied by a fraction, the numerator of
which is the amount of Compensation credited to the Participant's Cash Account
for the Purchase Period, and the denominator of which is the total amount of
Compensation credited to the Cash Accounts of all Participants for the Purchase
Period.




8.      ANNUAL LIMITATION ON RIGHTS TO PURCHASE STOCK

        No right to purchase shares of Stock under the Plan will be granted to
an Employee if such right, when combined with all other rights and options
granted under all of the Code Section 423 employee stock purchase plans of the
Company or any Parent or Subsidiary would permit the Employee to purchase shares
of Stock with a Fair Market Value (determined at the time the right or option is
granted) in excess of $25,000 for each calendar year in which the right or
option is outstanding at any time, determined in accordance with Code Section
423(b)(8).

9.      PURCHASE PRICE

        (a) In General. The purchase price of each share of Stock purchased at
the close of an Accumulation Period will be the lower of (i) 85 percent of the
Fair Market Value of the such share on the last trading day of such Accumulation
Period, or (ii) 85 percent of the Fair Market Value of such share on the first
day of the applicable Offering Period (as determined under Section 5).

        (b) Fair Market Value. The Fair Market Value of the Stock, as of any
date, will be equal to the closing price of the Stock on the New York Stock
Exchange ("NYSE"), for such date as reported in The Wall Street Journal. If no
transaction is reported for a particular date, Fair Market Value will be the
closing price on the closest preceding date for which any transaction is
reported. If the Stock is not traded on the NYSE, Fair Market Value will be
determined using the method established by the Committee.

10.     PURCHASE OF STOCK

        Subject to the share limitations set forth in Sections 7 and 8 above, as
of each Purchase Date, the Committee will purchase from the Company using the
funds in each Cash Account on such date, on behalf of each Participant having
funds in his Cash Account, the number of whole and fractional shares of Stock
determined by dividing the amount in such Cash Account on such date by the
purchase price determined under Section 9.

11.     STOCK ACCOUNTS

        (a) Establishment of Accounts. As soon as reasonably practicable after
each Purchase Date, the Company will deliver to a custodian selected by the
Committee (the "Custodian"), in electronic form, the total number of shares
purchased by all Participants in the Purchase Period. The Custodian will
maintain a separate "Stock Account" for each Participant, which will be credited
with the number of whole and fractional shares of Stock purchased by the
Participant under the Plan.

        (b) Withdrawals from Stock Accounts. A Participant may at any time
withdraw any whole shares of Stock credited to his Stock Account as to which the
holding period requirements of Code Section 423(a)(1) have been satisfied. As
soon as practicable after such request by a Participant, the Custodian will
cause such whole shares to be transferred in electronic form to a broker
designated by the Participant or will cause a certificate representing such
Shares to be delivered to the Participant.




        (c) Rights as Shareholders. A Participant will have all of the rights of
a stockholder of the Company with respect to all of the shares of Stock credited
to his Stock Account, including the right to vote and receive dividends on such
Shares.

12.     TERMINATION OF EMPLOYMENT

        (a) Termination Other Than Due to Death, Disability or Retirement. If a
Participant terminates employment with the Company or any Parent or Subsidiary
during a Purchase Period for any reason other than death, disability, or
Retirement, then the Participant's participation in the Plan will immediately
terminate and the balance of the Participant's Cash Account will be returned to
the Participant. For purposes of the Plan, a Participant who is on an approved
leave of absence will not be considered to have terminated employment until the
91st day of such leave of absence or such longer period as the Participant's
right to re-employment is guaranteed by law or contract.

        (b) Termination Due to Death. If a Participant terminates employment
with the Company or any Parent or Subsidiary during a Purchase Period due to
death, then, at the election of the Participant's beneficiary, the balance of
the Participant's Cash Account will be (i) delivered to the beneficiary or (ii)
held in the Cash Account until the end of the Purchase Period and applied to
purchase Stock in accordance with Section 10.

        (c) Termination Due to Disability or Retirement. If a Participant
terminates employment with the Company or any Parent or Subsidiary due to
Retirement or disability no more than 3 months before the Purchase Date for a
Purchase Period, then, at the Participant's election, the balance of the
Participant's Cash Account will be (i) returned to the Participant, or (ii) held
in the Cash Account until the end of the Purchase Period and applied to purchase
Stock in accordance with Section 10. If a Participant terminates employment due
to Retirement or disability more than 3 months before the Purchase Date for a
Purchase Period, then the Participant's participation in the Plan will
immediately terminate and the balance of the Participant's Cash Account will be
returned to the Participant.

        (d) Definition of Retirement. For purposes of the Plan, Retirement will
mean the attainment by a Participant of age plus whole years of service with the
Company or any Parent or Subsidiary totaling 65 or more.

13.     BENEFICIARY

        In the event of the Participant's death, his beneficiary shall be his
surviving spouse, or if there is none, his surviving children in equal shares,
or if there are none, his estate.

14.     COMPLIANCE WITH SECURITIES LAW

        All shares of Stock issued under the Plan will be subject to such
restrictions as the Committee may deem advisable under any applicable federal or
state securities laws, and the Committee may cause a legend or legends making
reference to such restrictions to be placed on the certificates representing
such shares.




15.     RIGHTS NOT TRANSFERABLE

        Neither payroll deductions credited to a Participant's account nor any
rights under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way by the Participant (other than by will or the laws of
descent and distribution or as provided in Section 13 hereof). Rights under the
Plan are exercisable during the lifetime of the Participant only by the
Participant.

16.     ADJUSTMENT IN CASE OF CHANGES AFFECTING THE COMPANY'S STOCK

        (a) In General. In the event of a subdivision or consolidation of
outstanding shares of Stock, the payment of a stock dividend thereon, stock
split, reverse stock split, or in the event of any "corporate transaction" as
defined in Treasury Regulations Section 1.425-1(a)(1)(ii) (now relating to Code
Section 424), the number of shares reserved or authorized to be reserved under
the Plan, the number and price of such shares subject to purchase pursuant to
rights outstanding hereunder, the maximum number of shares each Participant may
purchase during each Purchase Period (pursuant to Section 7) or during each
calendar year (pursuant to Section 8), and the number of shares credited to
Participants' Stock Accounts, will be adjusted in such manner as may be deemed
necessary or equitable by the Board to give proper effect to such event, subject
to the limitations of Code Section 424.

        (b) Effect of Merger. Following consummation of the Merger, outstanding
purchase rights of HBO & Company employees under the Plan remained in effect and
were assumed by the Company, with appropriate changes to reflect the issuance of
shares of Stock.

17.     FOREIGN EMPLOYEES

        To the extent permitted under Section 423 of the Code, the Committee may
provide for such special terms for Participants who are foreign nationals, or
who are employed by the Company or a Parent or Subsidiary outside of the United
States of America, as the Committee may consider necessary or appropriate to
accommodate differences in local law, tax policy or custom. Moreover, the
Committee may approve such supplements to or amendments, restatements, or
alternative versions of, this Plan as it may consider necessary or appropriate
for such purposes without thereby affecting the terms of this Plan as in effect
for any other purpose; provided, however, that no such supplements, amendments,
restatements or alternative versions will include any provisions that are
inconsistent with the terms of this Plan, as then in effect, unless this Plan
could have been amended to eliminate such inconsistency without further approval
by the shareholders of the Company, or which would cause the Plan to fail to
meet the requirements of Section 423 of the Code.

18.     AMENDMENT OF THE PLAN

        The Board may amend the Plan in any respect; provided, however, that,
any amendment (i) increasing the number of shares of Stock reserved under the
Plan (other than as provided in Section 16), or (ii) any change in the
designation of corporations whose employees may be eligible to participate in
the Plan, other than a corporation who is a Parent or a Subsidiary, must be
approved, within 12 months of the adoption of such an amendment, by the holders
of a majority of the voting power of the outstanding shares of Stock.




19.     TERMINATION OF THE PLAN

        The Plan and all rights of Employees hereunder will terminate:

        (a) as of the Purchase Date on which Participants purchase a number of
shares of Stock that substantially exhausts the number of shares available for
issuance under the Plan, to such an extent that the Committee determines that no
subsequent offerings are practicable; or

        (b) at any time upon action of the Board; provided, however, that if the
Plan is terminated during any Purchase Period, any amounts in a Participant's
Cash Account will be returned to the Participant.

20.     EFFECTIVE DATE

        This Amendment and Restatement will become effective as of May 1, 2000.
For Offering Periods prior to May 1, 2000 the terms of the Plan as in effect
from time to time are applicable.

21.     GOVERNMENT AND OTHER REGULATIONS

        (a) In General. The Plan, and the grant and exercise of the rights to
purchase shares of Stock hereunder, and the Company's obligation to sell and
deliver shares of Stock, will be subject to all applicable federal, state and
foreign laws, rules and regulations, and to such approvals by any regulatory or
government agency as may, in the opinion of counsel for the Company, be
required.

        (b) Withholding Obligations. Each Participant will, no later than the
date as of which the value of any purchase right granted under the Plan first
becomes includible in the gross income of the Participant for federal income tax
purposes, pay to the Company, or make arrangements satisfactory to the Company,
regarding payment of any federal, state, or local taxes of any kind required by
law to be withheld with respect to such purchase right. The obligations of the
Company under the Plan will be conditional on the making of such payments or
arrangements and the Company will, to the extent permitted by law, have the
right to deduct any such taxes from any payment of any kind otherwise due to the
Participant.

22.     INDEMNIFICATION OF COMMITTEE

        In addition to such other rights of indemnification as they have as
directors or as members of the Committee, the members of the Committee will be
indemnified by the Company against reasonable expenses (including, without
limitation, attorneys' fees) actually and necessarily incurred in connection
with the defense of any action, suit or proceeding, or in connection with any
appeal, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan or any right
granted hereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved to the extent required by and in the
manner provided by the Bylaws of the Company relating to indemnification of
directors) or paid by them in satisfaction of a judgment in any such action,
suit or proceeding, except in relation to matters as to which it will be
adjudged in such action, suit or proceeding that such Committee member did not
act in good faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the Company.

EX-21

                                                                      EXHIBIT 21



                         SUBSIDIARIES OF THE REGISTRANT

    There is no parent of the Company. The following is a listing of the
significant subsidiaries of the Company, or if indented, subsidiaries of the
Company under which they are listed:





                                                                  JURISDICTION
                                                                      OF
                                                                  ORGANIZATION
                                                                  ------------
                                                               

McKesson Medical Surgical, Inc.                                      Virginia

EX-23.1

                                                                    EXHIBIT 23.1

                         INDEPENDENT AUDITORS' CONSENT


We consent to the incorporation by reference in McKesson Corporation, Inc.
Registration Statement Nos. 33-86536, 333-00611, 333-02871, 333-21931,
333-30104, 333-30216, 333-30218, 333-30220, 333-30222, 333-20224, 333-30226,
333-32643, 333-32645, 333-43101, 333-43079, 333-48337, 333-43068, 333-48339,
333-48859, 333-50261, 333-70501, 333-71917, 333-85965, 333-39952, 333-39954,
333-62870, 333-67378, 333-67380, and 333-84806 on Form S-8, Registration Nos.
333-26443, and Amendment No. 1 thereto, 333-85973, 333-50985 and 333-66359 on
Form S-3 and Registration Statement Nos. 333-49119, and Amendment No. 1 thereto,
and 333-56623 on Form S-4 of our report dated May 17, 2002, except for
paragraph nine of Note 19, as to which the date is June 7, 2002(which report
refers to certain shareholder litigation as discussed in Financial Note 19 to
the consolidated financial statements), appearing in this Annual Report on Form
10-K of McKesson Corporation, Inc., for the year ended March 31, 2002.


DELOITTE & TOUCHE LLP
San Francisco, California
June 11, 2002

EX-24

10-K                                                                  EXHIBIT 24



                                POWER OF ATTORNEY

         KNOW ALL MEN BY THESE PRESENTS THAT the undersigned directors and
officers of McKesson Corporation, a Delaware corporation (the "Company"), do
hereby constitute and appoint Ivan D. Meyerson and Kristina Veaco his or her
true and lawful attorney and agent, each with full power and authority (acting
alone and without the other) to execute in the name and on behalf of the
undersigned as such Director and/or Officer, under the Securities Act of 1934,
as amended, an annual report on Form 10-K, and thereafter to execute and file
any and all amendments to such Form, whether filed prior or subsequent to the
time such Form becomes effective. The undersigned hereby grants unto such
attorneys and agents, and each of them, full power of substitution and
revocation in the premises and hereby ratifies and confirms all that such
attorneys and agents may do or cause to be done by virtue of these presents.


/s/ Alfred C. Eckert III                           /s/ Gerald E. Mayo
- ----------------------------------------           -----------------------------
Alfred C. Eckert III, Director                     Gerald E. Mayo, Director


/s/ Tully M. Friedman                              /s/ James V. Napier
- ----------------------------------------           -----------------------------
Tully M. Friedman, Director                        James V. Napier, Director


/s/ William R. Graber                              /s/ Carl E. Reichardt
- ----------------------------------------           -----------------------------
William R. Graber, Senior Vice President           Carl E. Reichardt, Director
and Chief Financial Officer


/s/ John H. Hammergren                             /s/ Alan Seelenfreund
- ----------------------------------------           -----------------------------
John H. Hammergren, President and                  Alan Seelenfreund
Chief Executive Officer and Director               Chairman of the Board


/s/ Alton F. Irby                                  /s/ Jane E. Shaw
- ----------------------------------------           -----------------------------
Alton F. Irby III, Director                        Jane E. Shaw, Director


/s/ M. Christine Jacobs                            /s/ R.F. Syron
- ----------------------------------------           -----------------------------
M. Christine Jacobs, Director                      Richard F. Syron, Director


/s/ Marie L. Knowles                               /s/ Nigel A. Rees
- ----------------------------------------           -----------------------------
Marie L. Knowles, Director                         Nigel A. Rees
                                                   Vice President and Controller

/s/ Martin M. Koffel
Martin M. Koffel, Director


Dated:  May 29, 2002