10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For quarter ended September 30, 2006

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

For the transition period from                      to                     

Commission file number 1-13252

McKESSON CORPORATION

(Exact name of Registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)	94-3207296 (IRS Employer Identification No.)
One Post Street, San Francisco, California (Address of principal executive offices)	94104 (Zip Code)

(415) 983-8300
(Registrant’s telephone number, including area code)

     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 þ      No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ      Accelerated filer o       Non-accelerated filer o

     Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes o      No þ

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding at September 30, 2006
Common stock, $0.01 par value	295,968,992 shares

TABLE OF CONTENTS

Item	Page
PART I—FINANCIAL INFORMATION
1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets September 30, 2006 and March 31, 2006		3
Condensed Consolidated Statements of Operations Quarters and Six Months ended September 30, 2006 and 2005		4
Condensed Consolidated Statements of Cash Flows Six Months ended September 30, 2006 and 2005		5
Financial Notes		6
2. Management’s Discussion and Analysis of Results of Operations and Financial Condition		22-35
3. Quantitative and Qualitative Disclosures about Market Risk		35
4. Controls and Procedures		35
PART II. OTHER INFORMATION
1. Legal Proceedings		35
1A. Risk Factors		35
2. Unregistered Sales of Equity Securities and Use of Proceeds		36
3. Defaults Upon Senior Securities		36
4. Submission of Matters to a Vote of Security Holders		36
5. Other Information		37
6. Exhibits		38
Signatures		39
EXHIBIT 10.10
EXHIBIT 10.13
EXHIBIT 10.14
EXHIBIT 10.15
EXHIBIT 10.21
EXHIBIT 10.30
EXHIBIT 10.31
EXHIBIT 10.32
EXHIBIT 10.33
EXHIBIT 10.34
EXHIBIT 10.35
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32

2

McKESSON CORPORATION

PART I. FINANCIAL INFORMATION

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

	September 30,			March 31,
	2006			2006
ASSETS
Current Assets
Cash and cash equivalents	$	2,254		$	2,139
Restricted cash		981			962
Receivables, net		5,983			6,247
Inventories		7,791			7,127
Prepaid expenses and other		293			522
Total		17,302			16,997
Property, Plant and Equipment, Net		634			663
Capitalized Software Held for Sale, Net		150			139
Goodwill		1,696			1,637
Intangible Assets, Net		132			116
Other Assets		1,565			1,409
Total Assets	$	21,479		$	20,961
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Drafts and accounts payable	$	10,426		$	9,944
Deferred revenue		813			827
Current portion of long-term debt		25			26
Securities Litigation		1,002			1,014
Other		1,664			1,679
Total		13,930			13,490
Postretirement Obligations and Other Noncurrent Liabilities		669			599
Long-Term Debt		959			965
Other Commitments and Contingent Liabilities (Note 14)
Stockholders’ Equity
Preferred stock, $0.01 par value, 100 shares authorized, no shares issued or outstanding		—			—
Common stock, $0.01 par value Shares authorized: September 30, 2006 and March 31, 2006 – 800 Shares issued: September 30, 2006 – 335 and March 31, 2006 – 330		3			3
Additional paid-in capital		3,444			3,238
Other capital		(33	)		(75	)
Retained earnings		4,248			3,871
Accumulated other comprehensive income		94			55
ESOP notes and guarantees		(17	)		(25	)
Treasury shares, at cost, September 30, 2006 – 39 and March 31, 2006 – 26		(1,818	)		(1,160	)
Total Stockholders’ Equity		5,921			5,907
Total Liabilities and Stockholders’ Equity	$	21,479		$	20,961

See Financial Notes

3

McKESSON CORPORATION

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

	Quarter Ended						Six Months Ended
	September 30,						September 30,
	2006			2005			2006			2005
Revenues	$	22,386		$	21,253		$	45,701		$	41,953
Cost of Sales		21,362			20,385			43,681			40,189
Gross Profit		1,024			868			2,020			1,764
Operating Expenses		724			642			1,448			1,232
Securities Litigation Charge (Credit), Net		(6	)		—			(6	)		52
Total Operating Expenses		718			642			1,442			1,284
Operating Income		306			226			578			480
Other Income, Net		32			35			67			62
Interest Expense		(22	)		(22	)		(45	)		(47	)
Income from Continuing Operations Before Income Taxes		316			239			600			495
Income Tax Provision		(29	)		(87	)		(129	)		(177	)
Income from Continuing Operations		287			152			471			318
Discontinued Operations, net		(6	)		2			(6	)		7
Discontinued Operations – gain (loss) on sale, net		(52	)		13			(52	)		13
Total Discontinued Operations		(58	)		15			(58	)		20
Net Income	$	229		$	167		$	413		$	338
Earnings Per Common Share
Diluted
Continuing operations	$	0.94		$	0.48		$	1.54		$	1.02
Discontinued operations		(0.02	)		0.01			(0.02	)		0.02
Discontinued operations – gain (loss) on sale, net		(0.17	)		0.04			(0.17	)		0.04
Total	$	0.75		$	0.53		$	1.35		$	1.08
Basic
Continuing operations	$	0.96		$	0.49		$	1.57		$	1.04
Discontinued operations		(0.02	)		0.01			(0.02	)		0.03
Discontinued operations – gain (loss) on sale, net		(0.17	)		0.04			(0.17	)		0.04
Total	$	0.77		$	0.54		$	1.38		$	1.11
Dividends Declared Per Common Share	$	0.06		$	0.06		$	0.12		$	0.12
Weighted Average Shares
Diluted		305			316			307			315
Basic		298			308			300			305

See Financial Notes

4

McKESSON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)

	Six Months Ended September 30,
	2006			2005
Operating Activities
Net income	$	413		$	338
Discontinued operations, net of income taxes		58			(20	)
Adjustments to reconcile to net cash provided by (used in) operating activities:
Depreciation and amortization		139			125
Securities Litigation charge (credit), net		(6	)		52
Deferred taxes		70			111
Other non-cash items		(15	)		(9	)
Total		659			597
Effects of changes in:
Receivables		256			58
Inventories		(635	)		262
Drafts and accounts payable		454			1,090
Deferred revenue		12			101
Taxes		33			12
Securities Litigation settlement payments		(6	)		(69	)
Proceeds from sale of notes receivable		—			28
Other		(88	)		(77	)
Total		26			1,405
Net cash provided by operating activities		685			2,002
Investing Activities
Property acquisitions		(51	)		(82	)
Capitalized software expenditures		(86	)		(65	)
Acquisitions of businesses, less cash and cash equivalents acquired		(95	)		(573	)
Proceeds from sale of businesses		175			63
Other		(38	)		5
Net cash used in investing activities		(95	)		(652	)
Financing Activities
Repayment of debt		(8	)		(20	)
Capital stock transactions:
Issuances		191			282
Share repurchases		(658	)		(289	)
ESOP notes and guarantees		7			9
Dividends paid		(36	)		(36	)
Other		29			(101	)
Net cash used in financing activities		(475	)		(155	)
Net increase in cash and cash equivalents		115			1,195
Cash and cash equivalents at beginning of period		2,139			1,800
Cash and cash equivalents at end of period	$	2,254		$	2,995

See Financial Notes

5

McKESSON CORPORATION

FINANCIAL NOTES
(Unaudited)

1. Significant Accounting Policies

     Basis of Presentation. The condensed consolidated financial statements of McKesson Corporation (“McKesson,” the “Company,” or “we” and other similar pronouns) include the financial statements of all majority-owned or controlled companies. Significant intercompany transactions and balances have been eliminated. In our opinion, these unaudited condensed consolidated financial statements include all adjustments necessary for a fair presentation of the Company’s financial position as of September 30, 2006, and the results of operations for the quarters and six months ended September 30, 2006 and 2005 and cash flows for the six months ended September 30, 2006 and 2005.

     The results of operations for the quarters and six months ended September 30, 2006 and 2005 are not necessarily indicative of the results that may be expected for the entire year. These interim financial statements should be read in conjunction with the annual audited financial statements, accounting policies and financial notes included in our 2006 consolidated financial statements previously filed with the Securities and Exchange Commission (“SEC”).

     The Company’s fiscal year begins on April 1 and ends on March 31. Unless otherwise noted, all references to a particular year shall mean the Company’s fiscal year. Certain prior year amounts have been reclassified to conform to the current year presentation.

     New Accounting Pronouncements. On April 1, 2006, we adopted Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based Payment,” which requires the recognition of expense resulting from transactions in which we acquire goods and services by issuing our shares, share options, or other equity instruments. This standard requires a fair-value based measurement method in accounting for share-based payment transactions. The share-based compensation expense is recognized for the portion of the awards that is ultimately expected to vest. This standard replaced SFAS No. 123, “Accounting for Stock-Based Compensation,” and superseded Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees.” Accordingly, the use of the intrinsic value method as provided under APB Opinion No. 25, which was utilized by the Company, was eliminated. We adopted SFAS No. 123(R) using the modified prospective method of transition. See Financial Note 4, “Share-Based Payment,” for further details.

     As a result of the provisions of SFAS No. 123(R), in 2007, we now expect share-based compensation charges to approximate $0.10 to $0.12 per diluted share, or an increase of $0.02 per diluted share from our previous expectations. These charges are now expected to be approximately $0.07 to $0.09 per diluted share more than the share-based compensation expense recognized in our net income in 2006. Our assessments of estimated compensation charges are affected by our stock price as well as assumptions regarding a number of complex and subjective variables and the related tax impact. These variables include, but are not limited to, the volatility of our stock price, employee stock option exercise behaviors, timing, level and types of our grants of annual share-based awards and the attainment of performance goals. As a result, the actual share-based compensation expense in 2007 may differ from the Company’s current estimate.

     In July 2006, the Financial Accounting Standards Board (“FASB”) issued Financial Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes,” which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” FIN No. 48 provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. This interpretation also provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN No. 48 will become effective for us in 2008. We are currently assessing the impact of FIN No. 48 on our consolidated financial statements.

     In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This standard applies under other accounting pronouncements that require or permit fair value measurements, but does not require any new fair value measurements. SFAS No. 157 will become effective for us in 2009. We are currently assessing the impact of SFAS No. 157; however, we do not believe the adoption of this standard will have a material effect on our consolidated financial statements.

6

McKESSON CORPORATION

FINANCIAL NOTES (Continued)
(Unaudited)

     In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans,” which requires us to recognize the funded status of our defined benefit plans in the consolidated balance sheets and changes in the funded status in comprehensive income. This standard also requires us to recognize the gains/losses, prior year service costs and transition assets/obligations as a component of other comprehensive income upon adoption, and provide additional annual disclosure. SFAS No.158 does not affect the computation of benefit expense recognized in our consolidated statements of operations. The recognition and disclosure provisions are effective in 2007. In addition, SFAS No. 158 requires us to measure plan assets and benefit obligations as of the year-end balance sheet date effective in 2009. We are required to apply the provisions of this standard prospectively. We are currently assessing the impact of SFAS No. 158 on our consolidated financial statements.

     In September 2006, the SEC staff issued Staff Accounting Bulletin (“SAB”) No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.” This guidance indicates that the materiality of a misstatement must be evaluated using both the rollover and iron curtain approaches. The iron curtain approach quantifies a misstatement based on the effects of correcting the misstatement existing in the balance sheet at the end of the current year, while the rollover approach quantifies a misstatement based on the amount of the error originating in the current year income statement. SAB No. 108 is effective for our 2007 annual consolidated financial statements. We are currently assessing the impact of SAB No. 108; however, we do not believe the adoption of this standard will have a material effect on our consolidated financial statements.

2. Acquisitions and Investments

     In the first half of 2007, we acquired the following three entities for a total cost of $91 million, which was paid in cash:

– Sterling Medical Services LLC (“Sterling”), based in Moorestown, New Jersey, a national provider and distributor of medical disposable supplies, health management services and quality management programs to the home care market. Financial results for Sterling are included in our Medical-Surgical Solutions segment;

– HealthCom Partners LLC (“HealthCom”), based in Mt. Prospect, Illinois, a leading provider of patient billing solutions designed to simplify and enhance healthcare providers’ financial interactions with their patients; and

– RelayHealth Corporation (“RelayHealth”), based in Emeryville, California, a provider of secure online healthcare communication services linking patients, healthcare professionals, payors and pharmacies. Financial results for HealthCom and RelayHealth are included in our Provider Technologies segment.

     Goodwill recognized in these transactions amounted to $60 million.

     In addition, in the first quarter of 2007, we contributed $36 million in cash and $45 million in net assets primarily from our Automated Prescription Systems business to Parata Systems, LLC (“Parata”), in exchange for a significant minority interest in Parata. In connection with the investment, we abandoned certain assets which resulted in a $15 million charge to cost of sales and we incurred $6 million of other expenses related to the transaction which were recorded within operating expenses. We did not recognize any additional gains or losses as a result of this transaction as we believe the fair value of our investment in Parata, as determined by a third-party valuation, approximates the carrying value of consideration contributed to Parata. Our investment in Parata is accounted for under the equity method of accounting within our Pharmaceutical Solutions segment.

     In 2006, we made the following acquisitions:

– In the second quarter of 2006, we acquired all of the issued and outstanding stock of D&K Healthcare Resources, Inc. (“D&K”) of St. Louis, Missouri, for an aggregate cash purchase price of $479 million, including the assumption of D&K’s debt. D&K is primarily a wholesale distributor of branded and generic pharmaceuticals and over-the-counter health and beauty products to independent and regional pharmacies, primarily in the Midwest. Approximately $158 million of the purchase price has been assigned to goodwill. Included in the purchase price were acquired identifiable intangibles of $43 million primarily representing

7

McKESSON CORPORATION

FINANCIAL NOTES (Continued)
(Unaudited)

customer lists and not-to-compete covenants which have an estimated weighted-average useful life of nine years. Financial results for D&K are included in our Pharmaceutical Solutions segment.

– Also in the second quarter of 2006, we acquired all of the issued and outstanding shares of Medcon, Ltd. (“Medcon”), an Israeli company, for an aggregate purchase price of $82 million. Medcon provides web-based cardiac image and information management services to healthcare providers. Approximately $60 million of the purchase price was assigned to goodwill and $20 million was assigned to intangibles which represent technology assets and customer lists which have an estimated weighted-average useful life of four years. Financial results for Medcon are included in our Provider Technologies segment.

     During the last two years, we also completed a number of other acquisitions and investments within all three of our operating segments. Financial results for our business acquisitions have been included in our consolidated financial statements since their respective acquisition dates. Purchase prices for our business acquisitions have been allocated based on estimated fair values at the date of acquisition and, for certain recent acquisitions, may be subject to change. Goodwill recognized for our business acquisitions is not expected to be deductible for tax purposes. Pro forma results of operations for our business acquisitions have not been presented because the effects were not material to the consolidated financial statements on either an individual or an aggregate basis.

3. Discontinued Operations

     Results from discontinued operations were as follows:

	Quarter Ended						Six Months Ended
	September 30,						September 30,
(In millions)	2006			2005			2006			2005
Income (loss) from discontinued operations
Acute Care	$	(10	)	$	3		$	(10	)	$	10
BioServices		—			—			—			2
Income taxes		4			(1	)		4			(5	)
Total	$	(6	)	$	2		$	(6	)	$	7
Gain (loss) on sale of discontinued operations
Acute Care	$	(49	)	$	—		$	(49	)	$	—
BioServices		—			22			—			22
Other		6			—			6			—
Income taxes		(9	)		(9	)		(9	)		(9	)
Total	$	(52	)	$	13		$	(52	)	$	13
Discontinued operations, net of taxes
Acute Care	$	(67	)	$	2		$	(67	)	$	6
PBI		5			—			5			—
BioServices		—			13			—			14
Other		4			—			4			—
Total	$	(58	)	$	15		$	(58	)	$	20

     In July 2006, we signed an agreement to sell our Medical-Surgical Solutions segment’s Acute Care supply business to Owens & Minor, Inc. (“OMI”) for net cash proceeds of approximately $160 million, subject to certain adjustments. This transaction closed on September 30, 2006. In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the financial results of this business are classified as a discontinued operation for all periods presented in the accompanying condensed consolidated financial statements. Such presentation includes the classification of all applicable assets of the disposed business under the caption “Prepaid expenses and other” and all applicable liabilities under the caption “Other” under “Current Liabilities”

8

McKESSON CORPORATION

FINANCIAL NOTES (Continued)
(Unaudited)

within our condensed consolidated balance sheets for all periods presented. Revenues associated with the Acute Care business were $274 million and $260 million for the second quarters of 2007 and 2006, and $573 million and $528 million for the first halves of 2007 and 2006.

     Financial results for this discontinued operation include an after-tax loss of $67 million, which primarily consists of an after-tax loss of $61 million for the business’ disposition and $6 million of after-tax losses associated with operations, other asset impairment charges and employee severance costs. The after-tax loss of $61 million for the business’ disposition includes a $79 million non-tax deductible write-off of goodwill, as further described below.

     In connection with this divestiture, we allocated a portion of our Medical-Surgical Solutions segment’s goodwill to the Acute Care business as required by SFAS No. 142, “Goodwill and Other Intangible Assets.” The allocation was based on the relative fair values of the Acute Care business and the continuing businesses that are being retained by the Company. The fair value of the Acute Care business was determined based on the net cash proceeds resulting from the divestiture and the fair value of the continuing businesses was determined by a third-party valuation. As a result, we allocated $79 million of the segment’s goodwill to the Acute Care business.

     Additionally, as part of the divestiture, we entered into a transition services agreement (“TSA”) with OMI under which we will continue to provide certain services to the Acute Care business during a transition period of approximately nine months. We also anticipate incurring approximately $6 million of pre-tax employee severance charges over the transition period. These charges, as well as the financial results from the TSA, will be recorded as part of discontinued operations. The continuing cash flows generated from the TSA are not anticipated to be material to our condensed consolidated financial statements.

     In the second quarter of 2007, we also sold a wholly-owned subsidiary, Pharmaceutical Buyers Inc. (“PBI”), for net cash proceeds of $10 million. The divestiture resulted in an after-tax gain of $5 million resulting from the tax basis of the subsidiary exceeding its carrying value. Financial results of this business, which were previously included in our Pharmaceutical Solutions segment, have been presented as a discontinued operation for all periods presented in the accompanying condensed consolidated financial statements. These results were not material to our condensed consolidated financial statements.

     Results for discontinued operations for 2007 also include an after-tax gain of $4 million associated with the collection of a note receivable from a business sold in 2003.

     In the second quarter of 2006, we sold our wholly-owned subsidiary, McKesson BioServices Corporation (“BioServices”), for net cash proceeds of $63 million. The divestiture resulted in an after-tax gain of $13 million. Financial results for this business, which were previously included in our Pharmaceutical Solutions segment, have been presented as a discontinued operation for all periods presented in the accompanying condensed consolidated financial statements. These results were not material to our condensed consolidated financial statements.

4. Share-Based Payment

     We provide various share-based compensation for our employees, officers and non-employee directors, including stock options, an employee stock purchase plan, restricted stock (“RS”), restricted stock units (“RSUs”) and performance-based restricted stock units (“PeRSUs”) (collectively, “share-based.”) On April 1, 2006, we adopted SFAS No. 123(R), as discussed in Financial Note 1, “Significant Accounting Policies.” Accordingly, we began to recognize compensation expense for the fair value of share-based awards granted, modified, repurchased or cancelled from April 1, 2006 forward. For the unvested portion of awards issued prior to and outstanding as of April 1, 2006, the expense is recognized at the grant-date fair value as the remaining requisite service is rendered. We recognize compensation expense on a straight-line basis over the requisite service period for those awards with graded vesting and service conditions. For the awards with performance conditions, we recognize the expense on a straight-line basis, treating each vesting tranche as a separate award. In 2006, 2005 and 2004, we reduced the vesting period of substantially all of the then outstanding stock options for employee retention purposes and in anticipation of the requirements of SFAS No. 123(R), either through acceleration or shortened vesting schedules at grant. We adopted SFAS No. 123(R) using the modified prospective method and therefore have not restated prior period financial statements. Prior to adopting SFAS No. 123(R), we accounted for our employee share-based

9

McKESSON CORPORATION

FINANCIAL NOTES (Continued)
(Unaudited)

compensation plans using the intrinsic value method under APB Opinion No. 25. This standard generally did not require recognition of compensation expense for the majority of our share-based awards except for RS and RSUs. In addition, as required under APB Opinion No. 25, we previously recognized forfeitures as they occurred.

     The compensation expense recognized under SFAS No. 123(R) has been classified in the income statement or capitalized on the balance sheet in the same manner as cash compensation paid to our employees. There was no material share-based compensation expense capitalized as part of the balance sheet at September 30, 2006. In addition, SFAS No. 123(R) requires that the benefits of realized tax deductions in excess of previously recognized tax benefits on compensation expense be reported as a financing cash flow rather than an operating cash flow, as was done under APB Opinion No. 25. For the quarter and six months ended September 30, 2006, $27 million and $36 million of excess tax benefits were recognized.

     In conjunction with the adoption of SFAS No. 123(R), we elected the “short-cut” method for calculating the beginning balance of the additional paid-in capital pool (“APIC pool”) related to the tax effects of share-based compensation. Under this method, a simplified calculation is applied in establishing the beginning APIC pool balance as well as determining the future impact on the APIC pool and our consolidated statements of cash flows relating to the tax effects of share-based compensation. The election of this accounting policy did not have a material impact on our consolidated financial statements.

     I. Impact on Net Income

     During the second quarter and first half of 2007, we recorded $16 million and $24 million of pre-tax share-based compensation expense, compared to $25 million and $32 million pre-tax pro forma expense for the comparable prior year periods. The share-based compensation expense for the second quarter and first half of 2007 was comprised of RS, RSUs and PeRSUs expense of $12 million and $20 million, stock option expense of $2 million and $3 million, and employee stock purchase plan expense of $2 million and $4 million. The amount for the first half of 2007 also included a credit of $3 million for a cumulative effect adjustment to reflect estimated forfeitures relating to unvested RS and RSUs outstanding upon the adoption of SFAS No. 123(R). We recognized tax benefits related to the share-based compensation of $6 million and $8 million in the second quarter and first half of 2007.

     The following table illustrates the impact of share-based compensation on reported amounts:

	Quarter Ended				Six Months Ended
	September 30, 2006				September 30, 2006
			Impact of				Impact of
			Share-Based				Share-Based
(In millions, except per share data)	As Reported		Compensation		As Reported		Compensation
Income from continuing operations before income taxes	$	316	$	16	$	600	$	24
Net income		229		10		413		16
Earnings per share:
Diluted	$	0.75	$	0.03	$	1.35	$	0.05
Basic		0.77		0.03		1.38		0.05

10

McKESSON CORPORATION

FINANCIAL NOTES (Continued)
(Unaudited)

     II. SFAS No. 123 Pro Forma Information for 2006

     As noted above, prior to April 1, 2006 we accounted for our employee share-based compensation plans using the intrinsic value method under APB Opinion No. 25. Had compensation expense for our employee share-based compensation been recognized based on the fair value method, consistent with the provisions of SFAS No. 123, net income and earnings per share would have been as follows:

				Six Months
	Quarter Ended			Ended
	September 30,			September 30,
(In millions, except per share data)	2005			2005
Net income, as reported	$	167		$	338
Share-based compensation expense included in reported net income, net of income taxes		2			4
Share-based compensation expense determined under the fair value method, net of income taxes		(16	)		(20	)
Pro forma net income	$	153		$	322
Earnings per common share:
Diluted — as reported	$	0.53		$	1.08
Diluted — pro forma		0.48			1.03
Basic — as reported		0.54			1.11
Basic — pro forma		0.50			1.06

     III. Stock Plans

     The 2005 Stock Plan (the “2005 Plan”) provides our employees, officers and non-employee directors share-based long-term incentives. The 2005 Plan permits the granting of stock options, RS, RSUs, PeRSUs and other share-based awards. Under the 2005 Plan, 13 million shares were authorized for issuance, and as of September 30, 2006, 5 million shares remain available for future grant. The 2005 Plan replaced the following three plans in advance of their expirations: 1999 Stock Option and Restricted Stock Plan, the 1997 Directors’ Equity Compensation and Deferral Plan and the 1998 Canadian Incentive Plan (collectively, the “Legacy Plans”). The aggregate remaining 11 million authorized shares under the Legacy Plans were cancelled, although awards under those plans remain outstanding. The 2005 Plan is now the Company’s only plan for providing share-based incentive compensation to employees and non-employee directors of the Company and its affiliates.

     In anticipation of the requirements of SFAS No. 123(R), the Compensation Committee of the Company’s Board of Directors (“Compensation Committee”) reviewed our long-term compensation program for key employees across the Company. As a result, beginning in 2006, reliance on options was reduced with more long-term incentive value delivered by grants of PeRSUs and performance-based cash compensation.

     IV. Stock Options

     Stock options are granted at not less than fair market value and those options granted under the 2005 Plan have a contractual term of seven years. Prior to 2004, stock options typically vested over a four-year period and had a contractual term of ten years. As noted above, in 2006, 2005 and 2004, we reduced the vesting period of substantially all of the then outstanding unvested stock options, either through acceleration or shortened vesting schedules at grant. It is expected that options granted in 2007 and future years will have a seven-year contractual life and generally follow the four-year vesting schedule. Stock options under the Legacy Plans, which are substantially vested, generally have a ten-year contractual life.

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     Compensation expense for stock options is recognized on a straight-line basis over the requisite service period and is based on the grant-date fair value for the portion of the awards that is ultimately expected to vest. We continue to use the Black-Scholes model to estimate the fair value of our stock options. Once the fair value of an employee stock option value is determined, current accounting practices do not permit it to be changed, even if the estimates used are different from actual. The option pricing model requires the use of various estimates and assumptions, as follows:

– Expected stock price volatility is based on a combination of historical volatility of our common stock and implied market volatility. We believe that this market-based input provides a better estimate of our future stock price movements and is consistent with emerging employee stock option valuation considerations. Our expected stock price volatility assumption continues to reflect a constant dividend yield during the expected term of the option.

– Expected dividend yield is based on historical experience and investors’ current expectations.

– The risk-free interest rate for periods within the expected life of the option is based on the constant maturity U.S. Treasury rate in effect at the time of grant.

– The expected life of the options is determined based on historical option exercise behavior data, and also reflects the impact of changes in contractual life of current option grants compared to our historical grants.

     Weighted-average assumptions used to estimate the fair value of employee stock options were as follows:

	2007			2006
Expected stock price volatility		27	%		36	%
Expected dividend yield		0.5	%		0.5	%
Risk-free interest rate		5	%		4	%
Expected life (in years)		5			6

     The estimated forfeiture rate, which reduces the expense, is based on historical experience. The estimated forfeiture rate at grant will be re-assessed at least annually and revised if actual forfeitures differ materially from those estimates. In addition, the forfeiture estimates will be adjusted to reflect actual forfeitures when an award vests. In the Company’s pro forma information required under SFAS No. 123 for the periods prior to 2007, we accounted for forfeitures as they occurred. We expect forfeitures to approximate 8% per annum. The actual forfeitures in the future reporting periods could be materially higher or lower than our current estimates. As a result, the share-based compensation expense in 2007 may differ from the Company’s current estimate.

     The following table summarizes stock option activity during the first half of 2007:

						Weighted-
						Average
				Weighted-		Remaining		Aggregate
				Average Exercise		Contractual		Intrinsic
(In millions, except per share data)	Shares			Price		Term (Years)		Value (2)
Outstanding, April 1, 2006		46		$	43.38
Granted		1			48.12
Exercised		(5	)		33.10
Outstanding, September 30, 2006		42			44.72		4	$	552
Vested and expected to vest (1), September 30, 2006		42			44.72		4		552
Exercisable, September 30, 2006		40			44.80		4		534

(1)	The number of options expected to vest takes into account an estimate of expected forfeitures.
(2)	The aggregate intrinsic value is calculated as the difference between the period-end market price of the Company’s stock and the option exercise price, times the number of “in-the-money” option shares.

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FINANCIAL NOTES (Continued)
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     The total intrinsic value of stock options exercised during the second quarters and first halves of 2007 and 2006 was $69 million and $58 million and $92 million and $109 million. The total fair value of stock options vested in the second quarter and first half of 2007 was nil and $1 million. The weighted average grant-date fair value of stock options granted during the second quarters and first halves of 2007 and 2006 was $16.13 and $18.30 and $15.43 and $18.24. Cash received from the exercise of stock options in the second quarters and first halves of 2007 and 2006 was $117 million and $113 million and $167 million and $268 million, and the related tax benefits realized were $27 million and $29 million and $35 million and $48 million. Total compensation expense, net of estimated forfeitures, related to unvested stock options not yet recognized at September 30, 2006 was approximately $21 million, and the weighted-average period over which the cost is expected to be recognized is 3 years.

     V. RS, RSUs and PeRSUs

     RS and RSUs, which entitle the holder to receive, at the end of a vesting term, a specified number of shares of the Company’s common stock, are accounted for at fair value at the date of grant. The fair value of RS and RSUs under our stock plans is determined by the product of the number of shares that are expected to vest and the grant date market price of the Company’s common stock. The Compensation Committee determines the vesting terms at the time of grant. These awards generally vest in full after three years. The fair value of RS and RSUs with graded vesting and service conditions is expensed on a straight-line basis over the requisite service period. RS contains certain restrictions on transferability and may not be transferred until such restrictions lapse.

     Each non-employee director currently receives 2,500 RSUs annually, which vest immediately, and which are expensed upon grant. However, issuance of any shares is delayed until the director is no longer performing services for the Company. At September 30, 2006, 40,000 RSUs for our directors are vested, but shares have not been issued.

     PeRSUs are RSUs for which the number of RSUs awarded may be conditional upon the attainment of one or more performance objectives over a specified period. Vesting of such awards ranges from one to three-year periods following the end of the performance period and may follow the graded or cliff method of vesting.

     PeRSUs are accounted for as variable awards until the performance goals are reached and the grant date is established. The fair value of PeRSUs is determined by the product of the number of shares eligible to be awarded and expected to vest, and the market price of the Company’s common stock, commencing at the inception of the requisite service period. During the performance period, the PeRSUs are re-valued using the market price and the performance modifier at the end of a reporting period. At the end of the performance period, if the goals are attained, the award is classified as a RSU and is accounted for on that basis. The fair value of PeRSUs is expensed on a straight-line basis, treating each vesting tranche as a separate award, over the requisite service period of four years. For RS and RSUs with service conditions, we have elected to amortize the expense on a straight-line basis.

     The following table summarizes RS and RSU activity during the first half of 2007:

			Weighted-
			Average
			Grant Date Fair
(In millions, except per share data)	Shares		Value Per Share
Nonvested, April 1, 2006		1	$	37.09
Granted		1		48.17
Nonvested, September 30, 2006		2		43.82

     The total fair value of shares vested during the second quarter and first half of 2007 was $1 million and $4 million. As of September 30, 2006, the total compensation cost, net of estimated forfeitures, related to nonvested RS and RSU awards not yet recognized was approximately $33 million, pre-tax, and the weighted-average period over which the cost is expected to be recognized is 3 years.

     In May 2006, the Compensation Committee approved 1 million PeRSU target share units representing the base number of awards that could be granted, if goals are attained, and would be granted in the first quarter of 2008 (the “2007 PeRSU”). These target share units are not included in the table above as they have not been granted in the

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FINANCIAL NOTES (Continued)
(Unaudited)

form of a RSU. As of September 30, 2006, the total compensation cost, net of estimated forfeitures, related to nonvested 2007 PeRSUs not yet recognized was approximately $53 million, pre-tax (based on the period-end market price of the Company’s common stock), and the weighted-average period over which the cost is expected to be recognized is 3 years.

     In accordance with the provisions of SFAS No. 128, “Earnings per Share,” the 2007 PeRSUs are not included in the calculation of diluted weighted average shares until the performance goals have been achieved.

     VI. Employee Stock Purchase Plan (“ESPP”)

     The ESPP allows eligible employees to purchase shares of our common stock through payroll deductions. The deductions occur over three-month purchase periods and the shares are then purchased at 85% of the market price at the end of each purchase period. Employees are allowed to terminate their participation in the ESPP at any time during the purchase period prior to the purchase of the shares, and any amounts accumulated during that period are refunded.

     The 15% discount provided to employees on these shares is included in compensation expense. The funds outstanding at the end of a quarter are included in the calculation of diluted weighted average shares outstanding. These amounts have not been significant.

5. Income Taxes

     During the second quarter of 2007, we recorded a credit to income tax expense of $83 million which primarily pertains to our receipt of a private letter ruling from the U.S. Internal Revenue Service (“IRS”) holding that our payment of approximately $960 million to settle our Securities Litigation Consolidated Action is fully tax-deductible. We previously established tax reserves to reflect the lack of certainty regarding the tax deductibility of settlement amounts paid in the Consolidated Action and related litigation.

6. Restructuring Activities

	Pharmaceutical						Provider
	Solutions						Technologies
(In millions)	Severance			Exit-Related			Severance			Total
Balance, March 31, 2006	$	6		$	30		$	—		$	36
Expenses		1			—			6			7
Cash expenditures		(4	)		(6	)		(4	)		(14	)
Adjustment to liabilities related to the acquisition of D&K		—			(14	)		—			(14	)
Balance, September 30, 2006	$	3		$	10		$	2		$	15

     During the first half of 2007, we recorded pre-tax restructuring expense of $7 million, which primarily reflected employee termination costs within our Provider Technologies segment. This segment’s restructuring plan was intended to realign product development and marketing resources. Approximately 125 employees were terminated as part of this plan.

     In connection with the D&K acquisition, in 2006 we recorded $10 million of liabilities relating to employee severance costs and $28 million for facility exit and contract termination costs. Approximately 260 employees, consisting primarily of distribution, general and administrative staff, were terminated as part of this restructuring plan. To date, $8 million of severance and $7 million of exit costs have been paid. In connection with the Company’s investment in Parata, $13 million of contract termination costs that were initially estimated as part of the D&K acquisition were extinguished and, as a result, the Company decreased goodwill and decreased its restructuring liability during the first half of 2007. At September 30, 2006, the remaining severance liability for this plan was $2 million, which is anticipated to be paid by the end of 2007, and the remaining facility exit liability was $7 million, which is anticipated to be paid at various dates through 2015.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)
(Unaudited)

7. Earnings Per Share

     Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the reporting period. Diluted earnings per share is computed similarly 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 per share are as follows:

	Quarter Ended					Six Months Ended
	September 30,					September 30,
(In millions, except per share data)	2006			2005		2006			2005
Income from continuing operations	$	287		$	152	$	471		$	318
Interest expense on convertible junior subordinated debentures, net of tax		—			—		—			1
Income from continuing operations – diluted		287			152		471			319
Discontinued operations		(6	)		2		(6	)		7
Discontinued operations – gain (loss) on sale, net		(52	)		13		(52	)		13
Net income – diluted	$	229		$	167	$	413		$	339
Weighted average common shares outstanding:
Basic		298			308		300			305
Effect of dilutive securities:
Options to purchase common stock		6			8		6			7
Convertible junior subordinated debentures		—			—		—			3
Restricted stock		1			—		1			—
Diluted		305			316		307			315
Earnings Per Common Share: (1)
Diluted
Continuing operations	$	0.94		$	0.48	$	1.54		$	1.02
Discontinued operations, net		(0.02	)		0.01		(0.02	)		0.02
Discontinued operations – gain (loss) on sale, net		(0.17	)		0.04		(0.17	)		0.04
Total	$	0.75		$	0.53	$	1.35		$	1.08
Basic
Continuing operations	$	0.96		$	0.49	$	1.57		$	1.04
Discontinued operations, net		(0.02	)		0.01		(0.02	)		0.03
Discontinued operations – gain (loss) on sale, net		(0.17	)		0.04		(0.17	)		0.04
Total	$	0.77		$	0.54	$	1.38		$	1.11

(1) Certain computations may reflect rounding adjustments.

     Approximately 11 million and 12 million stock options were excluded from the computations of diluted net earnings per share for the quarters ended September 30, 2006 and 2005 as their exercise price was higher than the Company’s average stock price. For the six months ended September 30, 2006 and 2005, the number of stock options excluded was approximately 12 million and 17 million.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)
(Unaudited)

8. Goodwill and Intangible Assets, Net

     Changes in the carrying amount of goodwill for the six months ended September 30, 2006 are as follows:

	Pharmaceutical			Medical-Surgical		Provider
(In millions)	Solutions			Solutions		Technologies		Total
Balance, March 31, 2006	$	495		$	672	$	470	$	1,637
Goodwill acquired, net of purchase price adjustments		(18	)		21		43		46
Translation adjustments		2			—		11		13
Balance, September 30, 2006	$	479		$	693	$	524	$	1,696

     Information regarding intangible assets is as follows:

	September 30,			March 31,
(In millions)	2006			2006
Customer lists	$	159		$	139
Technology		94			83
Trademarks and other		42			40
Gross intangibles		295			262
Accumulated amortization		(163	)		(146	)
Intangible assets, net	$	132		$	116

     Amortization expense of other intangibles was $11 million and $19 million for the quarter and six months ended September 30, 2006 and $6 million and $12 million for the quarter and six months ended September 30, 2005. The weighted average remaining amortization periods for customer lists, technology and trademarks and other intangible assets at September 30, 2006 were: 8 years, 4 years and 4 years. Estimated future annual amortization expense of these assets is as follows: $18 million, $28 million, $19 million, $11 million and $8 million for 2007 through 2011, and $28 million thereafter. At September 30, 2006, there was $20 million of other intangibles not subject to amortization.

9. Financing Activities

     In June 2006, we renewed our committed accounts receivable sales facility. The facility was renewed under substantially similar terms to those previously in place with the exception that the facility amount was reduced to $700 million from $1.4 billion. The renewed facility expires in June 2007. At September 30, 2006 and March 31, 2006, there were no amounts outstanding under any of our borrowing facilities.

10. Convertible Junior Subordinated Debentures

     In February 1997, we issued 5% Convertible Junior Subordinated Debentures (the “Debentures”) in an aggregate principal amount of $206 million. The Debentures were purchased by McKesson Financing Trust (the “Trust”) with proceeds from its issuance of four million shares of preferred securities to the public and 123,720 common securities to us. The Debentures represented the sole assets of the Trust and bore interest at an annual rate of 5%, payable quarterly. These preferred securities of the Trust were convertible into our common stock at the holder’s option.

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(Unaudited)

     Holders of the preferred securities were entitled to cumulative cash distributions at an annual rate of 5% of the liquidation amount of $50 per security. Each preferred security was convertible at the rate of 1.3418 shares of our common stock, subject to adjustment in certain circumstances. The preferred securities were to be redeemed upon repayment of the Debentures and were callable by us on or after March 4, 2000, in whole or in part, initially at 103.5% of the liquidation preference per share, and thereafter at prices declining at 0.5% per annum to 100% of the liquidation preference on and after March 4, 2007 plus, in each case, accumulated, accrued and unpaid distributions, if any, to the redemption date.

     During the first quarter of 2006, we called for the redemption of the Debentures, which resulted in the exchange of the preferred securities for 5 million shares of our newly issued common stock.

11. Pension and Other Postretirement Benefit Plans

     Net expense for the Company’s defined benefit pension and postretirement plans was $12 million and $23 million for the second quarter and first half of 2007 compared to $11 million and $22 million for the comparable prior year periods. In July 2006, we made a lump sum cash payment of $7 million from an unfunded U.S. pension plan. In accordance with SFAS No. 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits,” a $2 million settlement charge was recorded in the second quarter of 2007 associated with the payment.

12. Financial Guarantees and Warranties

     Financial Guarantees

     We have agreements with certain of our customers’ financial institutions under which we have guaranteed the repurchase of inventory (primarily for our Canadian businesses), at a discount, in the event these 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 loans and the payment of leases for some customers; and we are a secured lender for substantially all of these guarantees. Customer guarantees range from one to ten years and were primarily provided to facilitate financing for certain strategic customers. At September 30, 2006, the maximum amounts of inventory repurchase guarantees and other customer guarantees were approximately $214 million and $7 million of which a nominal amount has been accrued.

     At September 30, 2006, we had commitments of $2 million, primarily consisting of the purchase of services from our equity-held investments, for which no amounts had been accrued.

     In addition, our banks and insurance companies have issued $105 million of standby letters of credit and surety bonds on our behalf in order to meet the security requirements for statutory licenses and permits, court and fiduciary obligations, and our workers’ compensation and automotive liability programs.

     Our software license agreements generally include certain provisions for indemnifying customers against liabilities if our software products infringe a third party’s intellectual property rights. To date, we have not incurred any material costs as a result of such indemnification agreements and have not accrued any liabilities related to such obligations.

     In conjunction with certain transactions, primarily divestitures, we may provide routine indemnification agreements (such as retention of previously existing environmental, tax and employee liabilities) whose terms vary in duration and often are not explicitly defined. Where appropriate, obligations for such indemnifications are recorded as liabilities. Because the amounts of these indemnification obligations often are not explicitly stated, the overall maximum amount of these commitments cannot be reasonably estimated. Other than obligations recorded as liabilities at the time of divestiture, we have historically not made significant payments as a result of these indemnification provisions.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)
(Unaudited)

     Warranties

     In the normal course of business, we provide certain warranties and indemnification protection for our products and services. For example, we provide warranties that the pharmaceutical and medical-surgical products we distribute are in compliance with the Food, Drug and Cosmetic Act and other applicable laws and regulations. We have received the same warranties from our suppliers, who customarily are the manufacturers of the products. In addition, we have indemnity obligations to our customers for these products, which have also been provided to us from our suppliers, either through express agreement or by operation of law.

     We also provide warranties regarding the performance of software and automation products we sell. Our liability under these warranties is to bring the product into compliance with previously agreed upon specifications. For software products, this may result in additional project costs which are reflected in our estimates used for the percentage-of-completion method of accounting for software installation services within these contracts. In addition, most of our customers who purchase our software and automation products also purchase annual maintenance agreements. Revenue from these maintenance agreements is recognized on a straight-line basis over the contract period and the cost of servicing product warranties is charged to expense when claims become estimable. Accrued warranty costs were not material to the condensed consolidated balance sheets.

13. Contract Settlement

     During the second quarter of 2007, we entered into an agreement (the “Settlement Agreement”) that settled a patent infringement litigation brought by us against TriZetto Group, Inc. (“TriZetto”) and filed on September 13, 2004, McKesson Information Solutions LLC v. The TriZetto Group, Inc. (No. 04-1258-SLR). In the lawsuit, we alleged that sales of clinical editing functionality included in TriZetto’s Facets^®, QicLink^TM and ClaimFacts^® software products infringed one of our patents. As part of the Settlement Agreement, TriZetto will pay us a one-time royalty fee of $15 million (payable in two equal installments in October 2006 and September 2007) for a license for the relevant patent that covers past and future use of TriZetto products and services by all of their existing customers. TriZetto will continue to include its clinical editing functionality in versions of Facets^® sold to new health plan customers with 100,000 or fewer members and in versions of QicLink^TM sold to any new customers. TriZetto has also agreed to pay us a royalty fee of 5% of the net licensing revenue received from new sales of Facets^® and QicLink^TM containing its clinical editing functionality. Additionally, as part of the Settlement Agreement, TriZetto will no longer include its clinical editing functionality in versions of Facets^® sold to new customers with more than 100,000 members, beginning November 1, 2006. In these cases, new customers may choose their clinical editing solution from available third-party providers, including McKesson. The Company expects to amortize the $15 million settlement over the four-year term of the contract, commencing in the third quarter of 2007.

14. Other Commitments and Contingent Liabilities

     I. Securities Litigation

     In our annual report on Form 10-K for the year ended March 31, 2006 and in our Form 10-Q for the quarter ended June 30, 2006, we reported on numerous legal proceedings, including those arising out of our 1999 announcement of accounting improprieties at HBO & Company (“HBOC”), now known as McKesson Information Solutions LLC (the “Securities Litigation”). Although most of the Securities Litigation matters have been resolved, as reported previously, certain matters remain pending. Significant developments in the Securities Litigation and significant events involving other litigation and claims since the dates of those reports are as follows:

     As previously reported, in March 2006, we reached an agreement to settle all claims brought under the Employee Retirement Income Security Act of 1974 (“ERISA”) on behalf of a class of certain participants in the McKesson Profit-Sharing Investment Plan, In re McKesson HBOC, Inc. ERISA Litigation, (No. C-00-20030 RMW). Such settlement called for the payment of $19 million, plus certain accrued interest, minus certain costs and expenses such as plaintiffs’ attorneys’ fees. On September 1, 2006, the Honorable Ronald M. Whyte entered an order granting final approval to the proposed settlement. The net cash proceeds of the settlement were distributed in October 2006. The order of final approval, and the expiration of the time in which an appeal could have been taken from that order, concludes this matter.

     On September 22, 2006, in the previously disclosed actions brought by the Company against Arthur Andersen LLP (“Andersen”), McKesson Corporation et al. v Andersen et al., (No. 05-04020 RMW) and by Andersen against the Company, Andersen v. McKesson Corporation et al., (No. C-06-02035-RMW), a hearing was conducted on the motions of the Company to dismiss Andersen’s complaint, and Andersen’s motion to dismiss the Company’s complaint. The court has not yet ruled on either of those motions.

     In 2005, as previously reported, we recorded a $1,200 million pre-tax ($810 million after-tax) charge with respect to the Company’s Securities Litigation. The charge consisted of $960 million for the previously reported action in the Northern District of California captioned, In re McKesson HBOC, Inc. Securities Litigation, (No. C-99-20743 RMW) (the “Consolidated Action”) and $240 million for other Securities Litigation proceedings. During 2006, we settled many of the other Securities Litigation proceedings and paid $243 million pursuant to those settlements. Based on the payments made in the Consolidated Action and the other Securities Litigation proceedings, settlements reached in certain of the other Securities Litigation proceedings and our assessment of the remaining cases, the estimated accrual was increased by net pre-tax charges of $52 million in the first quarter of 2006 and $45 million for fiscal 2006. Additionally, on February 24, 2006, the Court gave final approval to the settlement of the Consolidated Action, and as a result, we paid approximately $960 million into an escrow account established by the lead plaintiff in connection with the settlement of the Consolidated Action. As of March 31, 2006,

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)
(Unaudited)

the Securities Litigation accrual was $1,014 million. The timing of any distribution of escrowed funds is uncertain in that it is conditioned on completion of the class claims administration process and also, the Company believes, on the final resolution of the pending Bear Stearns & Co. appeal.

     During the second quarter of 2007, our Securities Litigation accrual was decreased by a net pre-tax credit of $6 million representing the settlement of the ERISA claims as described above and a reassessment of another case. The Securities Litigation accrual also reflects a $6 million cash payment made in 2007 in connection with a settlement. As of September 30, 2006, the Securities Litigation accrual was $1,002 million. Additionally, as of September 30, 2006, amounts in escrow increased by $19 million to $981 million primarily reflecting cash transferred for the settlement of the ERISA claims. We believe our Securities Litigation reserves are adequate to address our remaining potential exposure with respect to all of the Securities Litigation matters. However, in view of the number of remaining cases, the uncertainties of the timing and outcome of this type of litigation, and the substantial amounts involved, it is possible that the ultimate costs of these matters could impact our earnings, either negatively or positively, in the quarter of their resolution. We do not believe that the resolution of these matters will have a material adverse effect on our results of operations, liquidity or financial position taken as a whole.

     II. Other Litigation and Claims

     As previously reported, a civil class action complaint was filed against the Company in the United States District Court, District of Massachusetts, New England Carpenters Health Benefits Fund et al., v. First DataBank, Inc. and McKesson Corporation, (Civil Action No. 05-11148), based on allegations that the Company, in concert with co-defendant First DataBank, Inc. (“FDB”), took certain actions to increase the “Average Wholesale Prices” (“AWPs”) of certain branded drugs in violation of the federal Racketeer Influenced and Corrupt Organizations Act and in violation of other statutory and common law requirements. On October 4, 2006, the plaintiffs and co-defendant FDB announced a proposed settlement, as to FDB only, which calls for downward adjustments to certain FDB published AWPs, a prohibition against all future changes to such AWPs and a prescribed timetable for the cessation of all publication of AWPs by FDB. On October 24, 2006, the Court heard plaintiffs’ petition seeking preliminary approval of the proposed settlement, establishment of a schedule for objections to the settlement, and requesting a hearing date for the Court to consider final approval of the settlement. The Court did not on that date grant preliminary approval of the settlement and did not set a date for a hearing on final approval of the settlement. The Court did order plaintiffs to seek certain amendments to the complaint as a prerequisite to any ruling on plaintiffs’ request for preliminary approval of the settlement. The schedule regarding the proposed settlement, including dates by which the settlement might be preliminarily or finally approved, is uncertain at this time. However, there has been no change to the previously scheduled April 12, 2007, hearing date for consideration of the plaintiffs’ motion for class certification, at which hearing the Company’s objections to class certification will be heard.

     As indicated in our previous periodic reports, the health care industry is highly regulated, and government agencies continue to increase their scrutiny over certain practices affecting government programs. From time to time, the Company receives subpoenas or requests for information from various government agencies. The Company generally responds to such subpoenas and requests in a cooperative, thorough and timely manner. These

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FINANCIAL NOTES (Continued)
(Unaudited)

responses sometimes require considerable time and effort, and can result in considerable costs being incurred by the Company.

15. Stockholders’ Equity

     Comprehensive income is as follows:

	Quarter Ended				Six Months Ended
	September 30,				September 30,
(In millions)	2006		2005		2006		2005
Net income	$	229	$	167	$	413	$	338
Foreign currency translation adjustments and other		—		28		39		19
Comprehensive income	$	229	$	195	$	452	$	357

     The Company’s Board of Directors (the “Board”) approved share repurchase plans in October 2003, August 2005, December 2005 and January 2006 which permitted the Company to repurchase up to a total of $1 billion ($250 million per plan) of the Company’s common stock. Under these plans, we repurchased 19 million shares for $958 million during 2006 and as of March 31, 2006, less than $1 million of these plans remained available for future repurchases.

     In April and July 2006, the Board approved share repurchase plans which permitted the Company to repurchase up to an additional $1 billion ($500 million per plan) of the Company’s common stock. In the second quarter and the first half of 2007, we repurchased a total of 7 million and 13 million shares for $372 million and $656 million, and $345 million remains available for future repurchases as of September 30, 2006. Repurchased shares will be used to support our stock-based employee compensation plans and for other general corporate purposes. Stock repurchases may be made from time to time in open market or private transactions.

     As previously discussed, during the first quarter of 2006, we called for the redemption of the Debentures, which resulted in the exchange of the preferred securities for 5 million shares of our newly issued common stock.

16. Segment Information

     Our operating segments consist of Pharmaceutical Solutions, Medical-Surgical Solutions and Provider Technologies. 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 the results of certain joint venture investments. Corporate expenses are allocated to the operating segments to the extent that these items can be directly attributable to the segment.

     The Pharmaceutical Solutions segment distributes ethical and proprietary drugs, and health and beauty care products throughout North America. This segment also provides medical management and specialty pharmaceutical solutions for biotech and pharmaceutical manufacturers, patient and other services for payors, software and consulting and outsourcing services to pharmacies, and, through its investment in Parata, sells automated pharmaceutical dispensing systems for retail pharmacies.

     The Medical-Surgical Solutions segment distributes medical-surgical supplies, first-aid products and equipment, and provides logistics and other services within the United States and Canada.

     The Provider Technologies segment delivers enterprise-wide patient care, clinical, financial, supply chain, managed care and strategic management software solutions, automated pharmaceutical dispensing systems for hospitals, as well as outsourcing and other services to healthcare organizations throughout North America, the United Kingdom and other European countries.

20

McKESSON CORPORATION

FINANCIAL NOTES (Concluded)
(Unaudited)

     Financial information relating to our segments is as follows:

	Quarter Ended						Six Months Ended
	September 30,						September 30,
(In millions)	2006			2005			2006			2005
Revenues
Pharmaceutical Solutions	$	21,366		$	20,385		$	43,688		$	40,258
Medical-Surgical Solutions		580			508			1,157			985
Provider Technologies
Services		311			259			608			513
Software and software systems		93			66			172			128
Hardware		36			35			76			69
Total Provider Technologies		440			360			856			710
Total	$	22,386		$	21,253		$	45,701		$	41,953
Operating profit
Pharmaceutical Solutions (1) (2)	$	324		$	252		$	617		$	554
Medical-Surgical Solutions		23			20			45			41
Provider Technologies		33			26			68			57
Total		380			298			730			652
Corporate		(48	)		(37	)		(91	)		(58	)
Securities Litigation (charge) credit, net		6			—			6			(52	)
Interest Expense		(22	)		(22	)		(45	)		(47	)
Income from continuing operations before income taxes	$	316		$	239		$	600		$	495

(1)	During the second quarter and first half of 2007 and the first half of 2006, we received $10 million and $51 million as our share of settlements of antitrust class action lawsuits brought against drug manufacturers. These settlements were recorded as a credit in cost of sales within our Pharmaceutical Solutions segment in our condensed consolidated statements of operations.
(2)	During the first half of 2007, we recorded $21 million of charges within our Pharmaceutical Solutions segment as a result of our transaction with Parata. Refer to Financial Note 2, “Acquisitions and Investments.”

	September 30,		March 31,
(In millions)	2006		2006
Segment assets
Pharmaceutical Solutions	$	14,149	$	13,737
Medical-Surgical Solutions		1,338		1,268
Provider Technologies		1,775		1,602
Total		17,262		16,607
Corporate
Cash and cash equivalents		2,254		2,139
Other		1,963		2,215
Total	$	21,479	$	20,961

21

McKESSON CORPORATION

FINANCIAL REVIEW
(Unaudited)

Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition

Financial Overview

	Quarter Ended								Six Months Ended
	September 30,								September 30,
(In millions, except per share data)	2006			2005		Change			2006			2005		Change
Revenues	$	22,386		$	21,253		5	%	$	45,701		$	41,953		9	%
Securities Litigation pre-tax charge (credit), net		(6	)		—	NM				(6	)		52	NM
Income from Continuing Operations Before Income Taxes		316			239		32			600			495		21
Discontinued Operations, net		(58	)		15	NM				(58	)		20	NM
Net Income		229			167		37			413			338		22
Diluted Earnings Per Share:
Continuing Operations	$	0.94		$	0.48		96	%	$	1.54		$	1.02		51	%
Discontinued Operations		(0.19	)		0.05	NM				(0.19	)		0.06	NM
Total	$	0.75		$	0.53		42		$	1.35		$	1.08		25

NM – not meaningful

     Revenues for the quarter ended September 30, 2006 grew 5% to $22.4 billion, net income increased 37% to $229 million and diluted earnings per share increased 42% to $0.75 compared to the same period a year ago. For the six months ended September 30, 2006, revenue increased 9% to $45.7 billion, net income increased 22% to $413 million and diluted earnings per share increased 25% to $1.35 compared to the same period a year ago.

     Increases in net income and diluted earnings per share primarily reflect higher operating profit in our Pharmaceutical Solutions segment and a decrease in pre-tax charges relating to our Securities Litigation. Net income and diluted earnings per share for 2007 were also impacted by an $83 million credit to our income tax provision relating to the reversal of income tax reserves for our Securities Litigation. This credit was partially offset by $58 million of after-tax losses associated with our discontinued operations. On September 30, 2006, we sold our Medical-Surgical Solutions segment’s Acute Care business for net cash proceeds of $160 million, subject to post closing adjustments. Second quarter 2007 financial results for this business were a loss of $67 million, which includes a $79 million non-tax deductible write-off of goodwill. Financial results for the Acute Care business have been reclassified as a discontinued operation for all periods presented.

22

McKESSON CORPORATION

FINANCIAL REVIEW (Continued)
(Unaudited)

Results of Operations

     Revenues:

	Quarter Ended							Six Months Ended
	September 30,							September 30,
(In millions)	2006		2005		Change			2006		2005		Change
Pharmaceutical Solutions
U.S. Healthcare direct distribution & services	$	13,232	$	12,719		4	%	$	26,710	$	25,027		7	%
U.S. Healthcare sales to customers’ warehouses		6,483		6,199		5			13,577		12,277		11
Subtotal		19,715		18,918		4			40,287		37,304		8
Canada distribution & services		1,651		1,467		13			3,401		2,954		15
Total Pharmaceutical Solutions		21,366		20,385		5			43,688		40,258		9
Medical-Surgical Solutions		580		508		14			1,157		985		17
Provider Technologies
Services		311		259		20			608		513		19
Software and software systems		93		66		41			172		128		34
Hardware		36		35		3			76		69		10
Total Provider Technologies		440		360		22			856		710		21
Total Revenues	$	22,386	$	21,253		5		$	45,701	$	41,953		9

     Revenues increased by 5% and 9% to $22.4 billion and $45.7 billion during the quarter and six months ended September 30, 2006 compared to the same periods a year ago. The increase primarily reflects growth in our Pharmaceutical Solutions segment, which accounted for over 95% of consolidated revenues.

     U.S. Healthcare pharmaceutical direct distribution and services revenues increased primarily reflecting market growth rates, expanded agreements with customers and the acquisition of D&K Healthcare Resources, Inc. (“D&K”) during the second quarter of 2006, partially offset by the loss of a large customer. U.S. Healthcare sales to customers’ warehouses increased primarily as a result of new and expanded agreements with customers, offset in part by a decrease in volume from a large customer. Additionally, revenues for our U.S. pharmaceutical distribution business were negatively impacted by one less sales day in 2007 compared to 2006.

     Canadian pharmaceutical distribution revenues increased reflecting favorable foreign exchange rates and market growth rates. Had the same U.S. and Canadian dollar exchange rates applied in 2007 as in 2006, revenues for the second quarter and first half of 2007 from our Canadian operations would have increased approximately 5% compared to the same periods a year ago.

     Medical-Surgical Solutions segment distribution revenues increased primarily reflecting above average market growth rates as well as the acquisition of Sterling Medical Services LLC (“Sterling”) during the first quarter of 2007. Sterling is based in Moorestown, New Jersey, and is a national provider and distributor of medical disposable supplies, health management services and quality management programs to the home care market. Additionally, revenues for the first half of 2007 include an extra week of sales compared to the same period a year ago.

     Provider Technologies segment revenues increased reflecting higher sales and implementations of clinical, imaging, and automation solutions. Growth in this segment’s revenues was not materially impacted by business acquisitions.

23

McKESSON CORPORATION

FINANCIAL REVIEW (Continued)
(Unaudited)

     Gross Profit:

	Quarter Ended									Six Months Ended
	September 30,									September 30,
(Dollars in millions)	2006			2005			Change			2006			2005			Change
Gross Profit
Pharmaceutical Solutions	$	650		$	565			15	%	$	1,293		$	1,159			12	%
Medical-Surgical Solutions		166			142			17			331			282			17
Provider Technologies		208			161			29			396			323			23
Total	$	1,024		$	868			18		$	2,020		$	1,764			15
Gross Profit Margin
Pharmaceutical Solutions		3.04	%		2.77	%		27	bp		2.96	%		2.88	%		8	bp
Medical-Surgical Solutions		28.62			27.95			67			28.61			28.63			(2	)
Provider Technologies		47.27			44.72			255			46.26			45.49			77
Total		4.57			4.08			49			4.42			4.20			22

     Gross profit for the second quarter and first half of 2007 increased 18% and 15% to $1,024 million and $2,020 million. As a percentage of revenues, gross profit margin increased 49 basis points to 4.57% for the second quarter of 2007 and 22 basis points to 4.42% for the first half of 2007. Gross profit margin increased primarily reflecting an increase in our gross profit margins in our Pharmaceutical Solutions and Provider Technologies segments.

     Gross profit margin for our Pharmaceutical Solutions segment increased during the second quarter of 2007 compared to the same period a year ago, primarily as a result of the benefit of increased sales of generic drugs with higher margins and the receipt of $10 million of cash proceeds representing our share of a settlement of an antitrust class action lawsuit. In addition, gross profit margin for this segment has experienced a stabilization of its U.S. pharmaceutical distribution business’ sell and buy side margins in 2007.

     Gross profit margin for our Pharmaceutical Solutions segment increased during the first half of 2007 compared to the same period a year ago, primarily as a result of:

•	the benefit of increased sales of generic drugs with higher margins, and
•	a last-in, first-out (“LIFO”) inventory credit of $20 million in the first half of 2007 compared with $10 million in the first half of 2006. These LIFO credits reflect our expectation of a LIFO benefit for the full fiscal year. Our Pharmaceutical Solutions segment uses the 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 gross profit. The practice in the Pharmaceutical Solutions distribution business 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 years.
	These increases were partially offset by:
•	a decrease in amounts of antitrust settlements. Results for the first half of 2007 and 2006 included $10 million and $51 million of cash proceeds representing our share of settlements of various antitrust class action lawsuits,
•	a decrease associated with a greater proportion of revenues within the segment attributed to sales to customers’ warehouses, which have lower gross profit margins relative to other revenues within the segment, and

24

McKESSON CORPORATION

FINANCIAL REVIEW (Continued)
(Unaudited)

• a $15 million charge pertaining to the writedown of certain abandoned assets within our retail automation group. During the first half of 2007, we contributed $36 million in cash and $45 million in net assets primarily from our Automated Prescription Systems business to Parata Systems, LLC (“Parata”), in exchange for a significant minority interest in Parata. In connection with the investment, we abandoned certain assets which resulted in a $15 million charge to cost of sales and we incurred $6 million of other expenses related to the transaction which were recorded within operating expenses. We did not recognize any additional gains or losses as a result of this transaction as we believe the fair value of our investment in Parata, as determined by a third-party valuation, approximates the carrying value of consideration contributed to Parata. Our investment in Parata is accounted for under the equity method of accounting within our Pharmaceutical Solutions segment.

     Gross profit margins increased in our Medical-Surgical Solutions segment during the second quarter of 2007 compared to the same period a year ago primarily reflecting favorable buy side margins. For the first half of 2007, gross profit margins for this segment approximated that of the prior comparable period. Provider Technologies segment’s gross profit margin increased primarily due to a change in product mix.

     Operating Expenses and Other Income:

	Quarter Ended									Six Months Ended
	September 30,									September 30,
(Dollars in millions)	2006			2005			Change			2006			2005			Change
Operating Expenses
Pharmaceutical Solutions	$	333		$	321			4	%	$	695		$	621			12	%
Medical-Surgical Solutions		144			123			17			287			242			19
Provider Technologies		177			140			26			333			273			22
Corporate		70			58			21			133			96			39
Subtotal		724			642			13			1,448			1,232			18
Securities Litigation charge (credit), net		(6	)		—		NM				(6	)		52		NM
Total	$	718		$	642			12		$	1,442		$	1,284			12
Operating Expenses as a Percentage of Revenues
Pharmaceutical Solutions		1.56	%		1.57	%		(1	) bp		1.59			1.54	%		5	bp
Medical-Surgical Solutions		24.83			24.21			62			24.81			24.57			24
Provider Technologies		40.23			38.89			134			38.90			38.45			45
Total		3.21			3.02			19			3.16			3.06			10
Other Income
Pharmaceutical Solutions	$	7		$	8			(13	)%	$	19		$	16			19	%
Medical-Surgical Solutions		1			1			—			1			1			—
Provider Technologies		2			5			(60	)		5			7			(29	)
Corporate		22			21			5			42			38			11
Total	$	32		$	35			(9	)	$	67		$	62			8

     Operating expenses increased 12% to $718 million in the second quarter of 2007 (or 13% excluding the Securities Litigation credit) to $724 million and for the first half of 2007 increased 12% to $1,442 million (or 18% excluding the Securities Litigation charges and credits to $1,448 million). As a percentage of revenues, operating expenses increased 19 and 10 basis points to 3.21% and 3.16% for the second quarter and first half of 2007. Excluding the Securities Litigation charges and credits, operating expenses as a percentage of revenues increased 21 and 23 basis points to 3.23% and 3.17% for the second quarter and first half of 2007. Operating expense dollars, excluding the Securities Litigation, increased primarily due to additional costs to support our sales volume growth, our business acquisitions, and employee compensation costs associated with the requirement to expense all share-based compensation. Other income decreased slightly in the second quarter of 2007 and increased slightly in the first half of 2007 compared to the same periods a year ago.

25

McKESSON CORPORATION

FINANCIAL REVIEW (Continued)
(Unaudited)

     During the first quarter of 2007, we adopted Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based Payment,” which requires the recognition of expense resulting from transactions in which we acquire goods and services by issuing our shares, share options, or other equity instruments. As a result of the implementation, included in our second quarter and first half 2007 operating expenses, we recorded $16 million and $24 million of pre-tax share-based compensation expense, or $13 million and $17 million more than the same periods a year ago.

     We now expect share-based compensation charges to approximate $0.10 to $0.12 per diluted share, or an increase of $0.02 per diluted shares more than our previous expectations. These charges are now expected to be approximately $0.07 to $0.09 per diluted share more than the share-based compensation expense recognized in our net income in 2006. 2006 net income includes $0.03 per diluted share of compensation expense associated with restricted stock whose intrinsic value as of the grant date is being amortized over the vesting period. Our assessments of estimated compensation charges are affected by our stock price as well as assumptions regarding a number of complex and subjective variables and the related tax impact. These variables include, but are not limited to, the volatility of our stock price, employee stock option exercise behaviors, timing, level and types of our grants of annual share-based awards, and the attainment of performance goals. As a result, the actual share-based compensation expense in 2007 may differ from the Company’s current estimate.

     Refer to Financial Notes 1 and 4, “Significant Accounting Policies” and “Share-Based Payment,” to the accompanying condensed consolidated financial statements for further discussions regarding our share-based compensation.

     Segment Operating Profit and Corporate Expenses:

	Quarter Ended									Six Months Ended
	September 30,									September 30,
(Dollars in millions)	2006			2005			Change			2006			2005			Change
Segment Operating Profit(1)
Pharmaceutical Solutions (2)	$	324		$	252			29	%	$	617		$	554			11	%
Medical-Surgical Solutions		23			20			15			45			41			10
Provider Technologies		33			26			27			68			57			19
Subtotal		380			298			28			730			652			12
Corporate Expenses, net		(48	)		(37	)		30			(91	)		(58	)		57
Securities Litigation (charge) credit, net		6			—		NM				6			(52	)	NM
Interest Expense		(22	)		(22	)		—			(45	)		(47	)		(4	)
Income from Continuing Operations, Before Income Taxes	$	316		$	239			32		$	600		$	495			21
Segment Operating Profit Margin
Pharmaceutical Solutions		1.52	%		1.24	%		28	bp		1.41	%		1.38	%		3	bp
Medical-Surgical Solutions		3.97			3.94			3			3.89			4.16			(27	)
Provider Technologies		7.50			7.22			28			7.94			8.03			(9	)

(1)	Segment operating profit includes gross profit, net of operating expenses plus other income for our three business segments.
(2)	During the second quarter and first half of 2007 and the first half of 2006, we received $10 million and $51 million as our share of settlements of antitrust class action lawsuits brought against drug manufacturers.

     Operating profit as a percentage of revenues increased in our Pharmaceutical Solutions segment largely as a result of an increase in the segment’s gross profit margin. Results for the second quarter of 2007 also benefited from a leveraging of the segment’s operating expenses as well as the timing of certain expenses. Operating expenses increased in the first half of 2007 primarily reflecting additional costs to support the segment’s sales volume growth, our D&K acquisitions, and employee share-based compensation costs.

26

McKESSON CORPORATION

FINANCIAL REVIEW (Continued)
(Unaudited)

     Medical-Surgical Solutions segment’s operating profit as a percentage of revenues for the second quarter of 2007 approximated that of the prior year comparable period and decreased during the first half of 2007. Operating profit as a percentage of revenues for the first half of 2007 decreased primarily as operating expenses as a percentage of revenues increased. Operating expenses for the segment increased primarily reflecting additional costs to support the segment’s sales volume growth and the acquisition of Sterling. As part of this segment’s divestiture of its Acute Care business, we expect to incur restructuring charges of approximately $5 million in the latter part of 2007 in order to align the segment’s remaining operations.

     Provider Technologies segment’s operating profit as a percentage of revenues increased primarily reflecting an increase in gross profit margin, offset in part by an increase in operating expenses as a percentage of revenues. Operating expenses for the segment increased primarily reflecting investments in research and development activities and sales functions to support the segment’s revenue growth, the segment’s business acquisitions, increases in employee share-based compensation costs and bad debt expense. Operating expenses for 2006 benefited from favorable adjustments to the segment’s bad debt expense. Partially offsetting these increases, during the second quarter of 2006, the segment wrote off $3 million of acquired in-process research and development costs resulting from the Medcon, Ltd. (“Medcon”) acquisition. Additionally, operating expenses for the first half of 2007 include $6 million of restructuring charges as a result of a plan intended to reallocate product development and marketing resources.

     Corporate expenses, net of other income, increased during the second quarter of 2007 primarily reflecting additional costs incurred to support various initiatives, an increase in employee share-based compensation costs and a pension settlement expense. These increases were partially offset by a decrease in charges for loans made to former employees. Corporate expenses, net of other income, increased during the first half of 2007 primarily reflecting additional costs incurred to support various initiatives, as well as increases associated with charges for loans made to former employees and employee share-based compensation costs. These unfavorable variances were partially offset by a decrease in legal costs associated with our Securities Litigation and an increase in interest income. Corporate expenses for the first half of 2006 also benefited from a change in estimate for certain compensation and benefits plans.

     Securities Litigation Charges, Net: In 2005, we recorded a $1,200 million pre-tax ($810 million after-tax) charge with respect to the Company’s Securities Litigation. The charge consisted of $960 million for the previously reported action in the Northern District of California captioned, In re McKesson HBOC, Inc. Securities Litigation, (No. C-99-20743 RMW) (the “Consolidated Action”) and $240 million for other Securities Litigation proceedings. During 2006, we settled many of the other Securities Litigation proceedings and paid $243 million pursuant to those settlements. Based on the payments made in the Consolidated Action and the other Securities Litigation proceedings, settlements reached in certain of the other Securities Litigation proceedings and our assessment of the remaining cases, the estimated accrual was increased by pre-tax charges of $52 million in the first quarter of 2006 and $45 million for fiscal 2006. Additionally, on February 24, 2006, the Court gave final approval to the settlement of the Consolidated Action, and as a result, we paid approximately $960 million into an escrow account established by the lead plaintiff in connection with the settlement of the Consolidated Action. As of March 31, 2006, the Securities Litigation accrual was $1,014 million. The timing of any distribution of escrowed funds is uncertain in that it is conditioned on completion of the class claims administration process and also, the Company believes, on the final resolution of the pending Bear Stearns & Co. appeal.

     As previously reported, in March 2006, we reached an agreement to settle all claims brought under the Employee Retirement Income Security Act of 1974 (“ERISA”) on behalf of a class of certain participants in the McKesson Profit-Sharing Investment Plan, In re McKesson HBOC, Inc. ERISA Litigation, (No. C-00-20030 RMW). Such settlement called for the payment of $19 million, plus certain accrued interest, minus certain costs and expenses such as plaintiffs’ attorneys’ fees. On September 1, 2006, the Honorable Ronald M. Whyte entered an order granting final approval to the proposed settlement. The net cash proceeds of the settlement were distributed in October 2006. That order of final approval, and the expiration of the time in which an appeal could have been taken from that order, concludes this matter.

27

McKESSON CORPORATION

FINANCIAL REVIEW (Continued)
(Unaudited)

     During the second quarter of 2007, our Securities Litigation accrual was decreased by a net pre-tax credit of $6 million representing the settlement of the ERISA claims as described above and a reassessment of another case. The Securities Litigation accrual also reflects a $6 million cash payment made in 2007 in connection with a settlement. As of September 30, 2006, the Securities Litigation accrual was $1,002 million. Additionally, as of September 30, 2006, amounts in escrow increased by $19 million to $981 million primarily reflecting cash transferred for the settlement of the ERISA claims. We believe our Securities Litigation reserves are adequate to address our remaining potential exposure with respect to all of the Securities Litigation matters. However, in view of the number of remaining cases, the uncertainties of the timing and outcome of this type of litigation, and the substantial amounts involved, it is possible that the ultimate costs of these matters could impact our earnings, either negatively or positively, in the quarter of their resolution. We do not believe that the resolution of these matters will have a material adverse effect on our results of operations, liquidity or financial position taken as a whole.

     Interest Expense: Interest expense for 2007 approximated that of the prior year comparable periods.

     Income Taxes: The Company’s reported income tax rates for the quarters ended September 30, 2006 and 2005 were 9.2% and 36.4%, and 21.5% and 35.8% for the first halves of 2007 and 2006. During the second quarter of 2007, we recorded a credit to income tax expense of $83 million which primarily pertains to our receipt of a private letter ruling from the U.S. Internal Revenue Service (“IRS”) holding that our payment of approximately $960 million to settle our Securities Litigation Consolidated Action is fully tax-deductible. We previously established tax reserves to reflect the lack of certainty regarding the tax deductibility of settlement amounts paid in the Consolidated Action and related litigation.

     Discontinued Operations:

     Results from discontinued operations were as follows:

	Quarter Ended					Six Months Ended
	September 30,					September 30,
(In millions)	2006			2005		2006			2005
Discontinued operations, net of taxes
Acute Care	$	(67	)	$	2	$	(67	)	$	6
PBI		5			—		5			—
BioServices		—			13		—			14
Other		4			—		4			—
Total	$	(58	)	$	15	$	(58	)	$	20

     In July 2006, we signed an agreement to sell our Medical-Surgical Solutions segment’s Acute Care supply business to Owens & Minor, Inc. (“OMI”) for net cash proceeds of approximately $160 million, subject to certain adjustments. This transaction closed on September 30, 2006. In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the financial results of this business are classified as a discontinued operation for all periods presented in the accompanying condensed consolidated financial statements. Revenues associated with the Acute Care business were $274 million and $260 million for the second quarters of 2007 and 2006, and $573 million and $528 million for the first halves of 2007 and 2006. Financial results for this discontinued operation include an after-tax loss of $67 million, which primarily consists of an after-tax loss of $61 million for the business’ disposition and $6 million of after-tax losses associated with operations, other asset impairment charges and employee severance costs. The after-tax loss of $61 million for the business’ disposition includes a $79 million non-tax deductible write-off of goodwill, as further described below.

28

McKESSON CORPORATION

FINANCIAL REVIEW (Continued)
(Unaudited)

     In connection with this divestiture, we allocated a portion of our Medical-Surgical Solutions segment’s goodwill to the Acute Care business as required by SFAS No. 142, “Goodwill and Other Intangible Assets.” The allocation was based on the relative fair values of the Acute Care business and the continuing businesses that are being retained by the Company. The fair value of the Acute Care business was determined based on the net cash proceeds resulting from the divestiture and the fair value of the continuing businesses was determined by a third-party valuation. As a result, we allocated $79 million of the segment’s goodwill to the Acute Care business.

     Additionally, as part of the divestiture, we entered into a transition services agreement (“TSA”) with OMI under which we will continue to provide certain services to the Acute Care business during a transition period of approximately nine months. We also anticipate incurring approximately $6 million of pre-tax employee severance charges over the transition period. These charges, as well as the financial results from the TSA, will be recorded as part of discontinued operations. The continuing cash flows generated from the TSA are not anticipated to be material to our condensed consolidated financial statements.

     In the second quarter of 2007, we also sold a wholly-owned subsidiary, Pharmaceutical Buyers Inc. (“PBI”), for net cash proceeds of $10 million. The divestiture resulted in an after-tax gain of $5 million resulting from the tax basis of the subsidiary exceeding its carrying value. Financial results of this business, which were previously included in our Pharmaceutical Solutions segment, have been presented as a discontinued operation for all periods presented in the accompanying condensed consolidated financial statements. These results were not material to our condensed consolidated financial statements.

     Results for discontinued operations for 2007 also include an after-tax gain of $4 million associated with the collection of a note receivable from a business sold in 2003.

     In the second quarter of 2006, we sold our wholly-owned subsidiary, McKesson BioServices Corporation (“BioServices”), for net cash proceeds of $63 million. The divestiture resulted in an after-tax gain of $13 million. Financial results for this business, which were previously included in our Pharmaceutical Solutions segment, have been presented as a discontinued operation for all periods presented in the accompanying condensed consolidated financial statements. These results were not material to our condensed consolidated financial statements.

     Refer to Financial Note 3, “Discontinued Operations,” to the accompanying condensed consolidated financial statements for further discussions regarding our divestitures.

     Net Income: Net income was $229 million and $167 million for the second quarters of 2007 and 2006, or $0.75 and $0.53 per diluted share. Net income was $413 million and $338 million for the first halves of 2007 and 2006, or $1.35 and $1.08 per diluted share. Net income for the second quarter and first half of 2007 includes an $87 million after-tax credit, or $0.28 and $0.29 per diluted share, relating to our Securities Litigation. Net income for the first half of 2006 includes a $35 million after-tax Securities Litigation charge, or ($0.11) per diluted share. Net income for 2007 also includes $58 million of after-tax losses for our discontinued operations primarily pertaining to the disposition of our Acute Care business.

29

McKESSON CORPORATION

FINANCIAL REVIEW (Continued)
(Unaudited)

     A reconciliation between our net income per share reported in conformity with generally accepted accounting principles in the United States of America (“U.S. GAAP”) purposes and our earnings per diluted share, excluding charges for the Securities Litigation for the second quarters and first halves of 2007 and 2006 is as follows:

	Quarter Ended					Six Months Ended
	September 30,					September 30,
(In millions except per share amounts)	2006			2005		2006			2005
Net income, as reported	$	229		$	167	$	413		$	338
Exclude:
Securities Litigation charge (credit), net		(6	)		—		(6	)		52
Income taxes		2			—		2			(17	)
Income tax reserve reversals		(83	)		—		(83	)		—
Securities Litigation charge (credit), net of tax		(87	)		—		(87	)		35
Net income, excluding Securities Litigation charges	$	142		$	167	$	326		$	373
Diluted earnings per common share, as reported (1)	$	0.75		$	0.53	$	1.35		$	1.08
Diluted earnings per common share, excluding Securities Litigation charge (credit) (1)	$	0.47		$	0.53	$	1.06		$	1.19
Shares on which diluted earnings per common share, excluding the Securities Litigation charge (credit), were based		305			316		307			315

(1) For the six months ended September 30, 2005, interest expense, net of related income taxes, of $1 million, has been added to net income, excluding the Securities Litigation net charges, for purpose of calculating diluted earnings per share. This calculation also includes the impact of dilutive securities (stock options, convertible junior subordinated debentures and restricted stock).

     These pro forma amounts are non-GAAP financial measures. We use these measures internally and consider these results to be useful to investors as they provide the most relevant benchmarks of core operating performance.

     Weighted Average Diluted Shares Outstanding: Diluted earnings per share were calculated based on an average number of diluted shares outstanding of 305 million and 316 million for the second quarters of 2007 and 2006 and 307 million and 315 million for the six months ended September 30, 2006 and 2005. The decrease in the number of weighted average diluted shares outstanding reflects a decrease in the number of common shares outstanding as a result of repurchased stock, partially offset by exercised stock options, as well as an increase in the common stock equivalents from stock options due to the increase in the Company’s common stock price.

Business Acquisitions

     In the first half of 2007, we acquired the following three entities for a total cost of $91 million, which was paid in cash:

• Sterling, based in Moorestown, New Jersey, a national provider and distributor of medical disposable supplies, health management services and quality management programs to the home care market. Financial results for Sterling are included in our Medical-Surgical Solutions segment;

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FINANCIAL REVIEW (Continued)
(Unaudited)

• HealthCom Partners LLC (“HealthCom”), based in Mt. Prospect, Illinois, a leading provider of patient billing solutions designed to simplify and enhance healthcare providers’ financial interactions with their patients; and

• RelayHealth Corporation (“RelayHealth”), based in Emeryville, California, a provider of secure online healthcare communication services linking patients, healthcare professionals, payors and pharmacies. Financial results for HealthCom and RelayHealth are included in our Provider Technologies segment.

     Goodwill recognized in these transactions amounted to $60 million.

     In addition, in the first quarter of 2007, we contributed $36 million in cash and $45 million in net assets primarily from our Automated Prescription Systems business to Parata, in exchange for a significant minority interest in Parata. In connection with the investment, we abandoned certain assets which resulted in a $15 million charge to cost of sales and we incurred $6 million of other expenses related to the transaction which were recorded within operating expenses. We did not recognize any additional gains or losses as a result of this transaction as we believe the fair value of our investment in Parata, as determined by a third-party valuation, approximates the carrying value of consideration contributed to Parata. Our investment in Parata is accounted for under the equity method of accounting within our Pharmaceutical Solutions segment.

     In 2006, we made the following acquisitions:

• In the second quarter of 2006, we acquired all of the issued and outstanding stock of D&K of St. Louis, Missouri, for an aggregate cash purchase price of $479 million, including the assumption of D&K’s debt. D&K is primarily a wholesale distributor of branded and generic pharmaceuticals and over-the-counter health and beauty products to independent and regional pharmacies, primarily in the Midwest. Approximately $158 million of the purchase price has been assigned to goodwill. Included in the purchase price were acquired identifiable intangibles of $43 million primarily representing customer lists and not-to-compete covenants which have an estimated weighted-average useful life of nine years. Financial results for D&K are included in our Pharmaceutical Solutions segment.

• Also in the second quarter of 2006, we acquired all of the issued and outstanding shares of Medcon, an Israeli company, for an aggregate purchase price of $82 million. Medcon provides web-based cardiac image and information management services to healthcare providers. Approximately $60 million of the purchase price was assigned to goodwill and $20 million was assigned to intangibles which represent technology assets and customer lists which have an estimated weighted-average useful life of four years. Financial results for Medcon are included in our Provider Technologies segment.

     During the last two years, we also completed a number of other acquisitions and investments within all three of our operating segments. Financial results for our business acquisitions have been included in our consolidated financial statements since their respective acquisition dates. Purchase prices for our business acquisitions have been allocated based on estimated fair values at the date of acquisition and, for certain recent acquisitions, may be subject to change. Goodwill recognized for our business acquisitions is not expected to be deductible for tax purposes. Pro forma results of operations for our business acquisitions have not been presented because the effects were not material to the consolidated financial statements on either an individual or an aggregate basis.

     Refer to Financial Note 2, “Acquisitions and Investments,” to the accompanying condensed consolidated financial statements for further discussions regarding our business acquisitions.

31

McKESSON CORPORATION

FINANCIAL REVIEW (Continued)
(Unaudited)

Segment Reclassifications

     During the second quarter of 2007, we sold our Medical-Surgical Solutions segment’s Acute Care business and a small business within our Pharmaceutical Solutions segment. Financial results for these businesses have been reclassified as discontinued operations. Historical financial results for 2006 and the first quarter of 2007 for our segments’ continuing operations are as follows:

	2006															2007
	Quarter			Quarter			Quarter			Quarter			Year			Quarter
	ended			ended			ended			ended			ended			ended
	June 30,			September			December			March 31,			March 31,			June 30,
(Dollars in millions)	2005			30, 2005			31, 2005			2006			2006			2006
Revenues:
Pharmaceutical Solutions
U.S. Healthcare direct distribution & services	$	12,308		$	12,719		$	13,242		$	13,763		$	52,032		$	13,477
U.S. Healthcare sales to customers’ warehouses		6,078			6,199			6,523			6,662			25,462			7,094
Subtotal		18,386			18,918			19,765			20,425			77,494			20,571
Canada direct distribution & services		1,487			1,467			1,530			1,426			5,910			1,750
Total Pharmaceutical Solutions		19,873			20,385			21,295			21,851			83,404			22,321
Medical-Surgical Solutions		477			508			544			508			2,037			577
Provider Technologies
Services		62			66			90			104			322			79
Software and software systems		254			259			269			287			1,069			297
Hardware		34			35			42			40			151			41
Total Provider Technologies		350			360			401			431			1,542			417
Total Revenues	$	20,700		$	21,253		$	22,240		$	22,790		$	86,983		$	23,315
Segment Operating Profit:
Pharmaceutical Solutions	$	302		$	252		$	305		$	352		$	1,211		$	292
Medical-Surgical Solutions		21			20			26			16			83			22
Provider Technologies		31			26			38			48			143			35
Operating Profit		354			298			369			416			1,437			349
Interest Expense		(21	)		(37	)		(25	)		(44	)		(127	)		(42	)
Securities Litigation (charge) credit, net		(52	)		—			(1	)		8			(45	)		—
Income from Continuing Operations, Before Income Taxes	$	281		$	261		$	343		$	380		$	1,265		$	307
Segment Operating Profit Margin:
Pharmaceutical Solutions		1.52	%		1.24	%		1.43	%		1.61	%		1.45	%		1.31	%
Medical-Surgical Solutions		4.40			3.94			4.78			3.15			4.07			3.81
Provider Technologies		8.86			7.22			9.48			11.14			9.27			8.39

32

McKESSON CORPORATION

FINANCIAL REVIEW (Continued)
(Unaudited)

Financial Condition, Liquidity, and Capital Resources

     Operating activities provided cash of $685 million and $2,002 million during the first halves of 2007 and 2006. Operating activities for 2007 benefited from improved accounts receivable management, reflecting changes in our customer mix, our termination of a customer contract, and an increase in accounts payable associated with improved payment terms. These benefits were partially offset by increases in inventory needed to support our growth. Cash flows from operations in 2006 benefited from improved working capital balances for our U.S. pharmaceutical distribution business as purchases from certain of our suppliers were better aligned with customer demand and as a result, net financial inventory (inventory net of accounts payable) decreased. Operating activities for 2006 also benefited from better inventory management and favorable timing in our working capital accounts, including the timing of a receipt from a large customer and payments to certain vendors. Cash flows from operations can be significantly impacted by factors such as the timing of receipts from customers and payments to vendors. Operating activities for 2006 also include a $143 million cash receipt in connection with an amended agreement entered into with a customer and cash settlement payments of $69 million for certain Securities Litigation cases.

     Investing activities utilized cash of $95 million and $652 million during the first halves of 2007 and 2006. Investing activities for 2007 reflect payments of $95 million for our business acquisitions, $36 million for our investment in Parata, and a $19 million transfer of cash to an escrow account for a settlement of a Securities Litigation case. Investing activities for 2007 also reflect $175 million of cash proceeds from the sale of our businesses, including $164 million for the sale of our Acute Care business. Investing activities for 2006 reflect payments of $573 million for our business acquisitions, including D&K and Medcon, and cash proceeds of $63 million pertaining to the sale of BioServices.

     Financing activities utilized cash of $475 million and $155 million in the first halves of 2007 and 2006. Financing activities for 2007 include an incremental use of cash of $369 million for stock repurchases and $91 million less cash receipts resulting from employees’ exercises of stock options. Financing activities for 2006 also included $102 million of cash paid for the repayment of life insurance policy loans.

     The Company’s Board of Directors (the “Board”) approved share repurchase plans in October 2003, August 2005, December 2005 and January 2006 which permitted the Company to repurchase up to a total of $1 billion ($250 million per plan) of the Company’s common stock. Under these plans, we repurchased 19 million shares for $958 million during 2006 and as of March 31, 2006, less than $1 million of these plans remained available for future repurchases.

     In April and July 2006, the Board approved share repurchases plans which permitted the Company to repurchase up to an additional $1 billion ($500 million per plan) of the Company’s common stock. In the second quarter and the first half of 2007, we repurchased a total of 7 million and 13 million shares for $372 million and $656 million, and $345 million remains available for future repurchases as of September 30, 2006. Repurchased shares will be used to support our stock-based employee compensation plans and for other general corporate purposes. Stock repurchases may be made from time to time in open market or private transactions.

     Selected Measures of Liquidity and Capital Resources

	September 30,			March 31,
(Dollars in millions)	2006			2006
Cash and cash equivalents	$	2,254		$	2,139
Working capital		3,372			3,507
Debt, net of cash and cash equivalents		(1,270	)		(1,148	)
Debt to capital ratio (1)		14.3	%		14.4	%
Return on stockholders’ equity (2)		14.0			13.1

(1)	Ratio is computed as total debt divided by total debt and stockholders’ equity.
(2)	Ratio is computed as net income (loss) over the past four quarters, divided by a five-quarter average of stockholders’ equity.

     Working capital primarily includes cash and cash equivalents, receivables, inventories, drafts and accounts payable, and deferred revenue. Our Pharmaceutical Solutions segment requires a substantial investment in working

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McKESSON CORPORATION

FINANCIAL REVIEW (Continued)
(Unaudited)

capital that is susceptible to large variations during the year that are a result of a number of factors, including inventory purchase activities, seasonal demands, customer and supplier mix and the timing of receipts from customers and payments to suppliers. Inventory purchase activities are a function of sales volume, product mix, new customer build-up requirements and a level of investment inventory. As of September 30, 2006, consolidated working capital decreased slightly from March 31, 2006, as working capital needed to support our growth and increases in our cash and cash equivalent balances were more than offset by favorable changes in our customer and supplier mix.

     During the first quarter of 2006, we called for the redemption of the Company’s convertible junior subordinated debentures, which resulted in the exchange of the preferred securities for 5 million shares of our newly issued common stock.

Credit Resources

     We fund our working capital requirements primarily with cash, short-term borrowings and our receivables sale facility. We have a $1.3 billion five-year, senior unsecured revolving credit facility that expires in September 2009. Borrowings under this credit facility bear interest at a fixed base rate, a floating rate based on the London Interbank Offering Rate (“LIBOR”) rate or a Eurodollar rate. In June 2006, we renewed our committed accounts receivable sales facility. The facility was renewed under substantially similar terms to those previously in place with the exception that the facility was reduced to $700 million from $1.4 billion. The renewed facility expires in June 2007. No amounts were outstanding under any of these facilities at September 30, 2006.

     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 $235 million of term debt could be accelerated. At September 30, 2006, this ratio was 14.3% 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 negatively impact our ability to finance operations through our credit facilities, or issue additional debt at the interest rates then currently available.

     Funds necessary for the resolution of the Securities Litigation, 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.

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 and section 21E of the Securities Exchange Act of 1934, as amended. Some of the forward-looking statements can be identified by use of forward-looking words such as “believes,” “expects,” “anticipates,” “may,” “will,” “should,” “seeks,” “approximates,” “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 following factors. The readers should not consider this list to be a complete statement of all potential risks and uncertainties.

• adverse resolution of pending shareholder litigation regarding the 1999 restatement of our historical financial statements;

• the changing U.S. healthcare environment, including changes in government regulations and the impact of potential future mandated benefits;

• competition;

• changes in private and governmental reimbursement or in the delivery systems for healthcare products and services;

• governmental and manufacturers’ efforts to regulate or control the pharmaceutical supply chain;

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McKESSON CORPORATION

FINANCIAL REVIEW (Continued)
(Unaudited)

• changes in pharmaceutical and medical-surgical manufacturers’ pricing, selling, inventory, distribution or supply policies or practices;

• changes in the availability or pricing of generic drugs;

• changes in customer mix;

• substantial defaults in payment or a material reduction in purchases by large customers;

• challenges in integrating and implementing the Company’s internally used or externally sold software and software systems, or the slowing or deferral of demand or extension of the sales cycle for external software products;

• continued access to third-party licenses for software and the patent positions of the Company’s proprietary software;

• the Company’s ability to meet performance requirements in its disease management programs;

• the adequacy of insurance to cover liability or loss claims;

• new or revised tax legislation;

• foreign currency fluctuations or disruptions to foreign operations;

• the Company’s ability to successfully identify, consummate and integrate strategic acquisitions;

• changes in generally accepted accounting principles (GAAP); and

• general economic conditions.

     These and other risks and uncertainties are described herein or in our Forms 10-K, 10-Q, 8-K and other public documents filed with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly release the result of any revisions to these forward-looking statements to reflect events or circumstances after this date or to reflect the occurrence of unanticipated events.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

     We believe there has been no material change in our exposure to risks associated with fluctuations in interest and foreign currency exchange rates discussed in our 2006 Annual Report on Form 10-K.

Item 4. Controls and Procedures

     Our Chief Executive Officer and our Chief Financial Officer, after evaluating the effectiveness of the Company’s “disclosure controls and procedures” (as defined in the Exchange Act Rules 13a-15(e)) as of the end of the period covered by this quarterly report, have concluded that our disclosure controls and procedures are effective based on their evaluation of these controls and procedures required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15.

     There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

     See Financial Note 14, “Other Commitments and Contingent Liabilities,” of our unaudited condensed consolidated financial statements contained in Part I of this Quarterly Report on Form 10-Q.

Item 1A. Risk Factors

     There have been no material changes from the risk factors disclosed in Part 1, Item 1A, of our 2006 Form 10-K.

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McKESSON CORPORATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     The following table provides information on the Company’s share repurchases during the second quarter of 2007.

	Share Repurchases
							Approximate
					Total Number of		Dollar Value of
					Shares Purchased		Shares that May
					As Part of Publicly		Yet Be Purchased
	Total Number of		Average Price Paid		Announced		Under the
(In millions, except price per share)	Shares Purchased		Per Share		Program		Programs(1)
July 1, 2006 – July 31, 2006		—	$	—		—	$	717
August 1, 2006 – August 31, 2006		5		51.36		5		475
September 1, 2006 – September 30, 2006		2		52.52		2		345
Total		7		51.76		7		345

(1) In April and July 2006, the Company’s Board of Directors approved plans to repurchase up to a total of $1 billion ($500 million per plan) of the Company’s common stock. These plans have no expiration date. This table does not include shares tendered to satisfy the exercise price in connection with cashless exercises of employee stock options or shares tendered to satisfy tax withholding obligations in connection with employee equity awards.

Item 3. Defaults Upon Senior Securities

     None

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

     The Company’s Annual Meeting of Stockholders was held on July 26, 2006. The following matters were voted upon at the meeting and the stockholder votes on each such matter are briefly described below.

     The Board of Directors’ nominees for directors as listed in the proxy statement were each elected to serve for a three-year term. The vote was as follows:

	Votes For		Votes Withheld
Wayne A. Budd		268,287,029		3,915,414
Alton F. Irby III		264,587,973		7,614,470
David M. Lawrence, M.D.		266,715,464		5,486,979
James V. Napier		266,829,089		5,373,354

     The term of the following directors continued after the meeting:

John H. Hammergren	M. Christine Jacobs
Marie L. Knowles	Robert W. Matschullat
Jane E. Shaw

     The proposal to ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the year ending March 31, 2007 received the following vote:

Votes For	Votes Against	Votes Abstained
269,175,565	1,113,064	1,913,814

     Stockholder proposal to adopt a policy that we elect each Director annually received the following vote:

Votes For	Votes Against	Votes Abstained	Broker Non Vote
208,494,813	30,700,121	3,026,182	29,981,327

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McKESSON CORPORATION

Item 5. Other Information

     Internal Revenue Code Section 409A (“Code Section 409A”) affects the way nonqualified deferred compensation plans are designed and administered and is effective with respect to amounts deferred, vested or accrued after December 31, 2004. On October 27, 2006, the Compensation Committee of the Board of Directors (the “Compensation Committee”) of McKesson Corporation (the “Company”) approved the amendment and restatement of the Company’s Severance Policy for Executive Employees, the 2005 Stock Plan and the Executive Benefit Retirement Plan, each effective January 1, 2005 primarily to conform the plans to the requirements of Code Section 409A. In addition to the changes required by code Section 409A, the Compensation Committee amended the Executive Benefit Retirement Plan to provide for a lump sum payment as the default form of payment upon retirement from the Company and the Severance Policy for Executive Employees to provide for reimbursement of COBRA premium payments during the severance period and to expand eligibility by allowing the Compensation Committee to designate certain non-executive employees as eligible employees under the policy.

     Also in response to Code Section 409A, on October 27, 2006, the Board of Directors of the Company approved the amended and restated Long Term Incentive Plan and adopted two new nonqualified deferred compensation plans, the Deferred Compensation Plan III (“DCAP III”) and the Supplemental PSIP II. Both plans are successor plans to existing Company nonqualified deferred compensation plans, and all three plans are intended to comply with Code Section 409A.

     In addition, on October 27, 2006, the Board approved a new plan, the Change in Control Policy for Selected Executive Employees (the “Change in Control Policy”), effective November 1, 2006. The Change in Control Policy provides severance payments to certain employees of the Company (including executive officers) upon separation from service, without cause (as defined in the policy) or for good reason (as defined in the policy), as the result of a change in control of the Company. The Change in Control Policy replaces any individual agreements between the Company and its officers with respect to change in control benefits (except with respect to Mr. Hammergren, Mr. Julian and Ms. Pure, each of whom has a written employment agreement with the Company as described below) and expands eligibility for benefits to a larger employee group. Participants in the Change in Control Policy are designated by the Compensation Committee to participate in one of three tiers. Tier one participants are entitled to a cash benefit equal to 2.99 times earnings (as defined in the policy), tier two participants are entitled to a cash benefit equal to two times earnings and tier three participants are entitled to a cash benefit equal to one times earnings. Change in Control Policy participants are eligible for a gross-up payment if the change in control benefits paid under the policy are subject to an excise tax under Internal Revenue Code Section 4999. In addition, if a tier one participant is covered by the Executive Benefit Retirement Plan, his or her straight life annuity benefits under that plan will be calculated by adding three additional years of age and three additional years of service to the participant’s actual age and service. Tier one participants are eligible for three years of continued coverage under the applicable health and life insurance plans, tier two participants are eligible for two years of continued coverage and tier three participants for one year of continued coverage. All participants are eligible for outplacement services as determined by the Executive Vice President, Human Resources.

     Also in response to Code Section 409A, on October 27, 2006, the Compensation Committee approved amended and restated employment agreements with its executive officers John Hammergren (Chairman, President and Chief Executive Officer), Paul Julian (Executive Vice President and Group President) and Pamela Pure (Executive Vice President and President, McKesson Provider Technologies). Each employment agreement has a new initial three-year term. The employment agreements were amended and restated primarily to conform to the requirements of Code Section 409A; however, additional amendments were made. Specifically each employment agreement has been updated to address state law considerations with respect to the non-competition, non-solicitation and nondisclosure covenants.

     Other amendments made to the employment agreements include the following:

• The Company, in consultation and agreement with the executive, has the authority to delay or restructure payments under the agreement to avoid triggering tax and interest penalties under Code Section 409A;

• To the extent that severance payments or benefits payable under the agreements are subject to the Code Section 409A required delay in payment to specified employees, the deferred compensation will earn interest at the crediting rate provided for in DCAP III during the delayed payment period;

• The Company agrees to indemnify the executive for any liability that he or she may incur under Code Section 409A as a direct result of the Company’s failure to administer the employment agreement in compliance with

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McKESSON CORPORATION

	Code Section 409A. The executive would not be indemnified for any liability that he or she incurs under Code Section 409A as a result of his or her own willful acts or omissions; and
•	The provisions of the Change in Control Policy (described above) are included in the amended employment agreements.

     Mr. Julian’s and Ms. Pure’s employment agreements were further amended to provide the following benefits upon the executive’s separation from service (without cause or for good reason) as a result of a change in control: tier one change in control benefits as described in the Change in Control Policy; continued medical coverage; acceleration of long-term incentives (as provided in the Company’s long-term incentive plans); and a gross-up payment if the change in control benefits are subject to excise tax under Internal Revenue Code Section 4999. Finally, pursuant to Mr. Julian’s employment agreement, his target incentive under the 2005 Management Incentive Plan of McKesson Corporation has been increased to 110% for Fiscal Year 2008.

     Also on October 27, 2006, following a comprehensive review of compensation practices and levels for non-employee directors, the Board of Directors approved an increase in the annual retainer for non-employee directors to $75,000, and an increase in the Committee Chair annual retainers of $5,000 which will result in a $20,000 annual retainer for the Chair of the Audit Committee and $10,000 for each of the Chairs of the Finance Committee and the Committee on Directors and Corporate Governance. The annual retainer for the Chair of the Compensation Committee was increased to $20,000 from $5,000. These changes became effective on October 1, 2006. No further changes were made to the non-employee directors’ compensation program.

     Additionally, an annual retainer of $10,000 was established for the Presiding Director effective July 25, 2007. The role of Presiding Director is rotated annually among the Committee Chairs.

Item 6. Exhibits

Exhibit
Number	Description
10.10	McKesson Corporation Executive Benefit Retirement Plan, amended and restated effective as of October 27, 2006.
10.13	McKesson Corporation Severance Policy for Executive Employees, amended and restated effective as of January 1, 2005.
10.14	McKesson Corporation 2005 Management Incentive Plan, amended and restated effective as of October 27, 2006.
10.15	McKesson Corporation Long-Term Incentive Plan, as amended and restated effective as of January 1, 2005.
10.21	McKesson Corporation 2005 Stock Plan, amended and restated effective as of May 25, 2005.
10.30	Amended and Restated Employment Agreement, effective as of November 1, 2006, by and between McKesson Corporation and its Chairman, President and Chief Executive Officer.
10.31	Amended and Restated Employment Agreement, effective as of November 1, 2006, by and between McKesson Corporation and its Executive Vice President and President, McKesson Provider Technologies.
10.32	Amended and Restated Employment Agreement, effective as of November 1, 2006, by and between McKesson Corporation and its Executive Vice President and Group President.
10.33	McKesson Corporation Change in Control Policy for Selected Executive Employees, effective as of November 1, 2006.
10.34	McKesson Corporation Deferred Compensation Administration Plan III (“DCAP III”), effective as of January 1, 2005.
10.35	McKesson Corporation Supplemental PSIP II, effective as of January 1, 2005.
31.1	Certification Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

38

McKESSON CORPORATION

Exhibit
Number	Description
32	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

     Pursuant to the requirements of Section 13 or 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: November 1, 2006	/s/ Jeffrey C. Campbell
	Jeffrey C. Campbell
	Executive Vice President and Chief Financial Officer
	/s/ Nigel A. Rees
	Nigel A. Rees
	Vice President and Controller

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EX-10.10

EXHIBIT 10.10

McKESSON CORPORATION
EXECUTIVE BENEFIT RETIREMENT PLAN

(Amended and Restated as of October 27, 2006)

McKESSON CORPORATION
EXECUTIVE BENEFIT RETIREMENT PLAN

TABLE OF CONTENTS

A. PURPOSE	1
B. ERISA PLAN	1
C. PARTICIPATION	1
D. BENEFITS ON APPROVED RETIREMENT	2
E. DEATH BENEFITS	4
F. SEPARATION FROM SERVICE BEFORE APPROVED RETIREMENT	5
G. SPECIAL FORFEITURE AND REPAYMENT RULES	8
H. METHOD OF PAYMENT	9
I. SOURCE OF PAYMENT	11
J. MISCELLANEOUS	11
K. ADMINISTRATION OF THE PLAN	13
L. AMENDMENT OR TERMINATION OF THE PLAN	13
M. CLAIMS AND APPEALS	14
N. DEFINITIONS	15
O. SUCCESSORS	19
P. EXECUTION	19
APPENDIX A SAMPLE CALCULATION EARLY RETIREMENT	A-1
APPENDIX B SAMPLE CALCULATION SURVIVOR BENEFIT	B-1
APPENDIX C SAMPLE CALCULATION TERMINATION BEFORE APPROVED RETIREMENT	C-1

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McKESSON CORPORATION
EXECUTIVE BENEFIT RETIREMENT PLAN

(Amended and Restated as of October 27, 2006)

A. PURPOSE

     This Plan was established to enable the Company to attract and retain key executive personnel by assisting them and their survivors in maintaining their standards of living on the Executive’s retirement or earlier death. The Plan has been amended and restated on various occasions. The Plan as set forth in here is amended and restated effective October 27, 2006.

B. ERISA PLAN

     This Plan is an unfunded deferred compensation program for a select group of management or highly compensated employees of the Company. The Plan, therefore, is covered by Title I of ERISA, except that it is exempt from Parts 2, 3, and 4 of Title I of ERISA.

C. PARTICIPATION

     1. Selection by the Compensation Committee. The Compensation Committee may select, at its discretion and from time to time as it decides, the Executives who participate in this Plan. Participation in the Plan shall be limited to those Executives of the Company who are selected by the Compensation Committee. Selection of an Executive to participate in the Plan may be evidenced by the terms of the Executive’s contract of employment with the Company.

     2. Addition and Removal of Participants. The Compensation Committee may, at its discretion and at any time, designate additional Executives to participate in the Plan and remove Executives from participation in the Plan. If an Executive is removed from participation prior to reaching age 65, he or she shall be entitled to receive benefits, if any, as specified in Section D or F.

     3. Relation to Other Plans. If an Executive participates in this Plan, he or she shall not participate in or receive benefits under any other Company-paid plan, program or agreement that provides Company Executives, or the individual Executive, with retirement benefits that supplement or are in addition to the benefits under the Retirement Plan, Profit-Sharing Investment Plan or Supplemental Profit-Sharing Investment Plan, unless otherwise specifically approved by the Compensation Committee. This paragraph shall not limit an Executive’s participation in or benefits under any plan or program under which the Executive voluntarily defers for later payment compensation otherwise currently payable to the Executive (such as, but not limited to, the Deferred Compensation Administration Plan II or any successor or replacement plan).

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D. BENEFITS ON APPROVED RETIREMENT

     1. Amount of Benefits.

          a. In General. Except as otherwise provided herein, each Executive who participates in the Plan and Separates from Service by reason of an Approved Retirement shall be entitled to receive a benefit determined with reference to the value of monthly payments equal to (1) reduced by (2), as follows:

               (1) the percentage of Average Final Compensation specified for the Executive, which shall be as provided herein and no higher than 60% (unless a higher percentage is specified in the Executive’s written employment contract with the Company)

                    reduced by

               (2) the Executive’s Basic Retirement Benefits.

The percentage stated in clause (1) may be specified by the Compensation Committee or may be specified in the Executive’s written employment contract with the Company. Unless otherwise determined by the Compensation Committee, the percentage of Average Final Compensation specified in clause (1) shall be 20% plus 0.148% for each completed month (1.77% per completed year) of the Executive’s full-time continuous employment with the Company, but in no event shall such percentage be higher than 60% (unless a higher percentage is specified in the Executive’s written employment contract with the Company).

          b. Special Rule. The benefit of an Executive under this Section D. who is a participant in the Plan as of August 28, 1996, shall not be less than such Executive’s benefit calculated pursuant to Section F.1.a of the Plan, without regard to any reduction required by Section D.3 of the Plan.

          c. Effect of Plan Termination. If the Plan is terminated in accordance with Section L, an Executive who later Separates from Service by reason of an Approved Retirement shall be entitled to receive upon such Approved Retirement monthly payments equal to (1) the applicable percentage of Average Final Compensation under Section D.1.a multiplied by the Executive’s Pro Rata Percentage, reduced by (2) the Executive’s Basic Retirement Benefits. For purposes of this section, the Executive’s Pro Rata Percentage and Average Final Compensation shall be calculated by treating the date of Plan termination as the date that the Executive Separates from Service with the Company.

          d. Removal from Participation. If an Executive is removed from Plan participation and later Separates from Service by reason of an Approved Retirement, the Executive shall be treated as if the Plan were terminated with respect to the Executive as of the date of removal, and the Executive’s benefits shall be determined under Section D.1.c above except that the Executive’s Basic Retirement Benefits reduction shall be determined as of the date of the Executive’s Approved Retirement.

          e. Change in Percentage. If the percentage of Average Final Compensation specified in Section D.l.a is reduced, the percentage applied to determine the Executive’s benefit

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shall be determined by averaging over the Executive’s period of participation in the Plan the percentages that have been so specified. For example, if an Executive’s percentage is reduced from 60% to 50%, and one-half of the Executive’s Plan participation is at 60% and one-half at 50%, the percentage used to determine the Executive’s benefits shall be 55%.

          In addition, the benefit payable under this Plan after a reduction in such percentage shall not be less than the benefit that would have been paid if the Plan had been terminated with respect to the Executive on the date of such reduction.

          If the percentage of Average Final Compensation specified in Section D.l.a is increased, such increased percentage shall apply for determining Plan benefits without averaging it with prior percentages, and all prior Plan participation shall be treated as having been participation under that increased percentage.

          f. Reduction for Basic Retirement Benefits. The reduction for the Executive’s Basic Retirement Benefits shall be applied, unless otherwise provided herein, by calculating all benefits as if they were payable in the form of a straight life annuity beginning at the date of Approved Retirement, without survivor benefits. There is no requirement, however, that the benefits payable under this Plan and any other plan be paid in the same form or at the same time.

     2. Time of Payment. The benefits provided on Approved Retirement shall be made on the first day of the month following the date the Executive Separates from Service. Effective January 1, 2005, the benefits provided on Approved Retirement accrued after December 31, 2004 shall be made on the first day of the eighth month following the date the Executive Separates from Service. Effective for Executives who Separate from Service on or after October ___, 2006, all benefits provided on Approved Retirement shall be made on the first day of the eighth month following the date the Executive Separates from Service. Such payment shall include an additional amount representing interest credited at the rate being credited to accounts under the Company’s Deferred Compensation Administration Plan III during the relevant eight-month period.

     3. Reduction for Early Commencement of Approved Retirement. If an Executive’s Approved Retirement occurs before the date the Executive attains age 62, the Executive shall receive a reduced benefit commencing on the first day of the month following such Approved Retirement. Effective January 1, 2005, an Executive’s reduced benefit accrued after December 31, 2004 shall be made on the first date of the eighth month following the date the Executive Separates from Service. Effective for Executives who Separate from Service on or after October ___, 2006, an Executive’s entire reduced benefit shall be made on the first day of the eighth month following the date the Executive Separates from Service. This reduced benefit shall be reduced by 0.3% for each month the Executive’s Approved Retirement precedes the date the Executive will attain age 62. The reduction for Basic Retirement Benefits shall be applied by calculating all benefits as if they were payable in the form of a straight life annuity at the date of such Approved Retirement before age 62, without survivor benefits, to determine the net benefit payable under this Plan. See Appendix A for an example of this calculation.

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     4. No Delayed or Accelerated Retirement Benefit. An Executive may not elect to delay the commencement date of his or her retirement benefits under the Plan after the time for commencement specified in Section D.2 or D.3. Notwithstanding any other provision of the Plan to the contrary, no distribution will be made from the Plan that would constitute an impermissible acceleration of payment as defined in Section 409A(a)(3) of the Code and the regulations promulgated thereunder.

E. DEATH BENEFITS

     1. Death After Approved Retirement. If an Executive dies after Approved Retirement, benefits shall be paid after the Executive’s death only in accordance with the method of payment determined under Section H. For example, if the Executive received a straight life annuity or a lump sum, no benefits shall be paid under this Plan after the Executive’s death.

     2. Death While Employed.

          a. Benefits Payable to Beneficiary. If an Executive dies while employed by the Company, the Executive’s beneficiary shall receive the monthly benefit that would have been paid to such beneficiary if the Executive had Separated from Service by reason of an Approved Retirement on the last day of the month before the Executive’s death, had elected to receive benefits in the actuarially reduced form of a joint and 100% survivor annuity with the Executive’s beneficiary as the contingent annuitant, had begun to receive such benefits on the day prior to the Executive’s death, and died immediately thereafter. Such payment shall be calculated by first determining the amount payable to the Executive under this Plan without reduction for Basic Retirement Benefits (applying the reduction, if applicable, for early commencement of such benefit as set forth in Section D.3 and applying the actuarial reduction for joint and 100% survivor annuity) and only thereafter making a reduction for Basic Retirement Benefits. The reduction for Basic Retirement Benefits in connection with the Retirement Plan in this case shall be in the amount payable, if any, under the Retirement Plan as a spouse allowance; if any spouse allowance is payable under the Retirement Plan on account of the Executive, this reduction shall be made even if the Executive’s beneficiary under this Plan is not the Executive’s surviving spouse. See Appendix B for an example of this calculation. The foregoing notwithstanding, if prior to death the Executive had made an election to receive a lump sum form of distribution and the Compensation Committee approves such form of distribution, distribution shall be made to the beneficiary in the form of a lump sum payment; provided, however, that any election made after December 31, 2004 shall not require Compensation Committee approval but must comply with the last sentence of Section H.5. The present value of benefits payable in a lump sum shall be determined under factors established and uniformly applied by the Administrator in accordance with Section H.1.

          b. Average Final Compensation. For purposes of the calculations under this Section E.2, the Executive’s Average Final Compensation shall be based on the compensation the Executive actually earned during the Executive’s employment with the Company.

          c. No Designated Beneficiary. If an Executive dies before Approved Retirement without having designated a beneficiary, and was married on the date of death, the

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Executive’s surviving spouse shall be the Executive’s beneficiary, unless otherwise provided by applicable community property or other laws or court order. If an Executive dies before Approved Retirement, has no surviving spouse and has not designated a beneficiary, the present value of the benefits that would be paid to a surviving spouse of the same age as the Executive under a joint and 100% survivor annuity form (and under the method of calculation provided in Section E.2.a and b) shall be paid to the Executive’s estate in two equal amounts in the 14 months following death. The present value of benefits shall be determined under factors established and uniformly applied by the Administrator in accordance with Section H.1.

     3. Designation of Beneficiary. An Executive may designate any natural person as his or her beneficiary, but may not designate more than one person, or any person not a natural person, without the approval of the Administrator. Designation shall be made in writing and shall become effective only when filed with the Administrator. Such filing must occur before the Executive’s death. An Executive may change his or her beneficiary, from time to time, by filing a new written designation with the Administrator. If the Executive is married, any beneficiary designation which does not designate the Executive’s spouse to receive at least one-half of the benefit payable on the Executive’s death shall only become effective when approved in writing by the Executive’s spouse.

F. SEPARATION FROM SERVICE BEFORE APPROVED RETIREMENT

     1. Basic Rule.

          a. Termination Benefits. Subject to other applicable provisions in this Plan, an Executive who Separates from Service with the Company other than on Approved Retirement or death shall be entitled to receive a benefit determined with reference to the value of monthly payments equal to his Termination Benefits. An Executive’s Termination Benefits are equal to (1) the applicable percentage of Average Final Compensation under Section D.1.a., multiplied by the Executive’s Pro Rata Percentage and reduced by (2) the Executive’s Basic Retirement Benefits at the date of Separation from Service. For purposes of the Plan, Termination Benefits are expressed as the present value of a benefit payable at age 65, calculated using the GATT interest rate. See Appendix C for an example of this calculation. Effective January 1, 2005, the Termination Benefits accrued after December 31, 2004 shall be made on the first day of the eighth month following the date the Executive Separates from Service. Effective for Executives who Separate from Service on or after October ___, 2006, all Termination Benefits shall be made on the first day of the eighth month following the date the Executive Separates from Service.

          b. Plan Termination or Removal from Participation. An Executive who Separates from Service with the Company other than on Approved Retirement or death and who has been removed from Plan participation (“removal”) or with respect to whom the Plan has terminated in accordance with Section L prior to his or her Separation from Service (“termination”) shall be entitled to receive, beginning at age 65, monthly payments determined under this Section F but treating the date of “removal” or “termination”, whichever is applicable, as the date of Separation from Service for purposes of calculating the Executive’s Pro Rata Percentage and Average Final Compensation. Effective January 1, 2005, benefits payable under this Section F.1.b accrued after December 31, 2004 shall be made on the on first day of the eighth month following the date the Executive Separates from Service. Effective for Executives

5

who Separate from Service on or after October ___, 2006, all Termination Benefits shall be made on the first day of the eighth month following the date the Executive Separates from Service.

          c. Reduction for Subsequent Employer Benefits. Prior to January 1, 2006, any amount payable under Section F.1.a or b shall be reduced by any retirement benefit payable to the Executive or the Executive’s beneficiary on account of service rendered to another employer after the Executive’s Separation from Service with the Company.

     2. Limitations. No benefits shall be paid under this Section F to:

          a. Separation from Service for Cause. An Executive who is involuntarily Separated from Service for Cause. If the Executive has a written employment agreement, Cause shall be determined in accordance with that agreement.

          b. Violation of Employment Agreement. An Executive who Separates from Service in violation of a written employment agreement (if any). Separation from Service is in violation of an employment agreement if the Separation from Service occurs before the end of the term of that agreement and is not allowed by the agreement (e.g., for “good reason”).

          c. No Vested Interest. An Executive who has not at the time of his or her Separation from Service with the Company (i) completed five Years of Service or (ii) attained age 65, or if later, the fifth anniversary of participation in the Plan (or, in the case of an Executive who was Separated from Service prior to April 26, 1999, an Executive who had no vested interest in benefits under the Retirement Plan at the time of his or her Separation from Service with the Company) shall have no vested interest in benefits under the Plan and upon Separation from Service with the Company shall forfeit any benefit the Executive had accrued under the Plan. For purposes of the foregoing, Years of Service before a Break in Service shall not be counted if the consecutive one-year Breaks in Service equal or exceed the greater of five or the aggregate number of Years of Service before the Break in Service. An Executive who would have such a vested interest (1) if the Executive was not involuntarily Separated from Service by the Company in violation of the Executive’s employment agreement or (2) if the Executive’s Separation from Service was not for “good reason” under such agreement, shall be treated as having such a vested interest. This Section F.2 shall not apply to any Executive who was a participant in this Plan on September 29, 1993. The foregoing notwithstanding, effective January 30, 2002, the Compensation Committee may in its sole discretion waive the five Years of Service requirement and confer vested rights on any Executive.

     3. Pro Rata Percentage. An Executive’s Pro Rata Percentage is the higher of the following two percentages (but not greater than 100%). The first percentage is determined by dividing the number of the Executive’s whole months of employment with the Company by the number of whole months from the date that the Executive was first hired by the Company to the date that the Executive will reach age 65 and multiplying by 100. The second percentage is determined by multiplying 4.44% by the number of the Executive’s whole and partial years of completed employment with the Company.

6

     4. Rules of Application.

          a. Periods of Employment. Effective April 26, 1999, for purposes of determining employment with the Company, Years of Service before a Break in Service (and, at the discretion of the Administrator, any other periods of Service that would be disregarded under the Retirement Plan) shall not be counted under this Section F if the consecutive one-year Breaks in Service equal or exceed the greater of five or the aggregate number of the Executive’s Years of Service before the Break in Service.

          b. Basic Retirement Benefits. For purposes of this Section F, an Executive’s Basic Retirement Benefits shall be determined on the date the Executive’s employment with the Company terminates. All benefits shall be calculated as if they were payable in the form of a straight life annuity beginning at the later of age 65 or the date of actual termination of employment, without survivor benefits.

          c. Method of Payment. Benefits under this Section shall be paid in the form provided in Section H.

          d. Date Benefits Begin. Benefits payable under this Section shall begin on the first day of the month following the date the Executive reaches age 65. Effective January 1, 2005, benefits payable under this Section accrued after December 31, 2004 shall be made on the on first day of the eighth month following the date the Executive Separates from Service. Effective for Executives who Separate from Service on or after October ___, 2006, benefits payable under this Section shall be made on the first day of the eighth month following the date the Executive Separates from Service.

          e. Death Benefits. For purposes of this Section:

              If an Executive dies after benefits have begun, benefits payable thereafter, if any, shall be paid in accordance with the method of payment determined under Section H.

              If an Executive who has Separated from Service and is entitled to receive benefits under this Section F dies before benefits begin, the Executive’s beneficiary shall receive the monthly benefit payable under an actuarially reduced form of joint and 100% survivor annuity with the Executive’s beneficiary as the contingent annuitant, payable beginning on the first day of the month after the Executive would have reached age 65. The principles of the second and third sentences of Section E.2.a and the principles of Section E.2.b and of this Section shall apply for calculating these survivor benefits. Effective with respect to benefits paid upon an Executive’s death on or after January 1, 2005, distributions will be made to the beneficiary on the first day of the month following the Executive’s death.

              The principles of Section E.2.c and of this Section shall apply if there is no surviving spouse and no designation of beneficiary. The rules of Section E.3 concerning designation of beneficiary shall apply.

          f. Change in Percentage. The principles of Section D.1.d shall apply to benefits calculated under this Section F.

7

     5. Other Agreement. If an Executive’s written employment agreement with the Company provides higher benefits on Separation from Service before Approved Retirement than provided under this Section F, such higher benefits shall be paid.

     6. Forfeiture of Benefits. Except as provided in this Section, and as provided elsewhere in this Plan with respect to Approved Retirement or death of an Executive, an Executive or the Executive’s beneficiaries shall not be entitled to any benefits under this Plan, all obligations of the Company to the Executive and his or her beneficiaries shall cease, and the Company shall have no further liability to the Executive or any other person under this Plan.

G. SPECIAL FORFEITURE AND REPAYMENT RULES

     Any other provisions of this Plan to the contrary notwithstanding, if the Compensation Committee determines that an Executive has engaged in any of the actions described in Section G.3 below, the consequences set forth in Sections G.1 and 2 below shall result.

     1. Forfeiture of Benefits. To the extent that the benefit that otherwise would be payable under this Plan exceeds the benefit, if any, that would have been payable if the Executive’s Separation from Service had occurred on November 1, 1993, such excess portion shall be forfeited and shall not be payable at any time under this Plan.

     2. Repayment. If the Executive received a payment under this Plan at any time within six months prior to the date the Company discovered that the Executive engaged in any action described in Section G.3 below, the Executive, upon written notice from the Company, shall repay to the Company in cash the excess portion of any such payment, such excess portion to be calculated in the manner described in Section G.1 above.

     3. The consequences described in Sections G.1 and 2 above shall apply if the Executive, either before or after Separation from Service with the Company, engages in any of the following:

          a. Accepts a position as a consultant to or an employee of a business enterprise that is in direct competition with any line of business engaged in by the Company at the time of the Executive’s Separation from Service.

          b. Discloses to others, or takes or uses for the Executive’s own purpose or the purpose of others, any trade secrets, confidential information, knowledge, data or know-how belonging to the Company and obtained by the Executive during the term of the Executive’s employment, whether or not they are the Executive’s work product. Examples of such confidential information or trade secrets include (but are not limited to) customer lists, supplier lists, pricing and cost data, computer programs, delivery routes, advertising plans, wage and salary data, financial information, research and development plans, processes, equipment, product information and all other types and categories of information as to which the Executive knows or has reason to know that the Company intends or expects secrecy to be maintained.

          c. Fails to promptly return all documents and other tangible items belonging to the Company in the Executive’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

8

information contained therein, upon Separation from Service, whether pursuant to an Approved Retirement or otherwise.

          d. Fails to provide the Company with at least 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 the Company. 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 the Company at the time of the Executive’s Separation from Service with the Company.

          e. Fails to inform any new employer, before accepting employment, of the terms of this Section and of the Executive’s continuing obligation to maintain the confidentiality of the trade secrets and other confidential information belonging to the Company and obtained by the Executive during the term of the Executive’s employment with the Company.

          f. Induces or attempts to induce, directly or indirectly, any of the Company’s customers, employees, representatives or consultants to terminate, discontinue or cease working with or for the Company, or to breach any contract with the Company, in order to work with or for, or enter into a contract with, the Executive or any third party.

          g. Engages in conduct which is not in good faith and which disrupts, damages, impairs or interferes with the business, reputation or employees of the Company.

          The Compensation Committee shall determine in its sole discretion whether the Executive has engaged in any of the acts set forth in a through g above, and its determination shall be conclusive and binding on all interested persons.

          Any provision of this Section which is determined by a court of competent jurisdiction to be invalid or unenforceable shall 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 Section.

H. METHOD OF PAYMENT

     1. Normal Form. The Normal Form of Benefit under this Plan shall be a straight life annuity of monthly payments over the lifetime of the Executive, with payments ceasing on the first day of the month in which the Executive dies. Effective October ___, 2006, the Normal Form of Benefit under this Plan shall be an actuarial equivalent value lump sum distribution, where the actuarial equivalent value is determined as follows: (i) the interest rate is the interest rate prescribed by the Pension Benefit Guaranty Corporation for purposes of determining the present value of a lump sum distribution on plan termination for the month in which the Executive’s Approved Retirement is approved by the Compensation Committee and (ii) a table based upon a fixed blend of 50 percent of male mortality rates and 50 percent of female mortality rates from the 1983 Group Annuity Mortality Table; provided, however, that effective October 28, 2004 the table shall be based on the 1994 Group Annuity Reserving Table (1994 GAR). Notwithstanding the foregoing, effective January 1, 2005, for purposes of calculating a lump sum benefit payable under Section F, the interest rate is the GATT interest rate for purposes of

9

determining the present value of a lump sum distribution under a tax-qualified defined benefit retirement plan.

     2. Joint and Survivor Annuity. If the Executive is married at the time the benefits become payable, then unless the Executive has elected otherwise (as described below), the Executive’s benefits shall be paid in the actuarially reduced form of a joint and 50% survivor annuity payable to the Executive and the Executive’s spouse. Prior to January 31, 2006 and with the approval of the Administrator if the election is made prior to January 1, 2005, the Executive may elect, in writing, not to receive this form of benefit, but any such election which provides a benefit for a beneficiary other than the Executive’s spouse must be approved in writing by the Executive’s spouse to be effective. Such election shall become effective when filed with the Administrator and must be filed before the Executive’s Separation from Service with the Company. If an Executive is first selected for participation in the Plan after December 31, 2006, then the Executive may make an election pursuant to this Section within thirty days of such selection for participation.

     3. Lump Sum Distribution Prior to January 1, 2005. An Executive who Separates from Service by reason of an Approved Retirement on or after June 1, 1997 and prior to January 1, 2005, may elect to have the actuarial equivalent value of his or her benefits paid in the form of a lump sum distribution in cash, where actuarial equivalence is determined as follows: (i) the interest rate prescribed by the Pension Benefit Guaranty Corporation for purposes of determining the present value of a lump sum distribution on plan termination for the month in which the Executive makes the lump sum distribution election and (ii) a table based upon a fixed blend of 50 percent of male mortality rates and 50 percent of female mortality rates from the 1983 Group Annuity Mortality Table; provided, however, that effective October 28, 2004 the table shall be based on the 1994 Group Annuity Reserving Table (1994 GAR).

An election of a lump sum form of distribution made between June 1, 1997 and December 31, 2004, must be made at least 12 months prior to the Executive’s Approved Retirement (except that an election made prior to January 1, 1997 shall be effective as to any Approved Retirement occurring during calendar year 1997) and shall be void and of no effect if either of the following occurs: (a) the Executive’s Separation from Service with the Company does not occur within 24 months after the date on which the Executive made the election of a lump sum form of distribution; or (b) the Executive makes a new election under this Section H.3 at least 12 months after the date of the Executive’s previous election under this Section H.3.

     An Executive who is married at the time benefits become payable under this Section H.3 may not receive a lump sum form of distribution unless the Executive’s spouse approves of the election in writing.

     An Executive, between June 1, 1997 and December 31, 2004, may elect a lump sum form of distribution less than 12 months prior to Approved Retirement, but in such event the amount of the lump sum distribution shall be reduced by ten percent.

     4. Lump Sum Distribution Between January 1, 2005 and December 31, 2006. An Executive who Separates from Service by reason of an Approved Retirement and who is to receive a lump sum distribution on or after January 1, 2005 and prior to December 31, 2006, may

10

elect to have the actuarial equivalent value of his or her benefits paid in the form of a lump sum distribution in cash, where actuarial equivalence is determined as follows: (i) the interest rate prescribed by the Pension Benefit Guaranty Corporation for purposes of determining the present value of a lump sum distribution on plan termination for the month in which the Executive makes the lump sum distribution election and (ii) a table based upon a fixed blend of 50 percent of male mortality rates and 50 percent of female mortality rates from the 1983 Group Annuity Mortality Table; provided, however, that effective October 28, 2004 the table shall be based on the 1994 Group Annuity Reserving Table (1994 GAR).

     An election made pursuant to this Section H.4. shall be treated as an initial distribution election and shall be subject to any special administrative rules imposed by the Administrator including rules intended to comply with Section 409A of the Code and Notice 2005-1, A-19. No election under this Section H.4 shall (i) change the payment date of any distribution otherwise scheduled to be paid in 2006 or cause a payment to be paid in 2006, or (iv) be permitted after December 31, 2006.

     5. Additional Forms of Benefits. With the approval of the Administrator, the Executive may elect to receive his or her benefits in the form of a single life annuity, a joint and survivor annuity with a 100% or 50% annuity to the surviving spouse, or a lump sum distribution or such other form as permitted by the Administrator. All such forms of payment shall be the actuarial equivalent of the single life annuity with actuarial equivalence determined pursuant to Section H.3. If the Executive is married, any such election must be approved in writing by the Executive’s spouse to be effective, if it would provide the spouse with a benefit less than that provided under Section H.2. Prior to April 26, 1999, the Executive, with the approval of the Administrator, could elect to receive benefits in one of the actuarially equivalent benefit forms permitted under the Retirement Plan or such other form as permitted by the Administrator. Effective October ___, 2006, the Executive may elect to receive his or her benefits in any form provided for in this Section H.5; provided, however, that the election must be made not later than the later of (i) December 31, 2006 or (ii) thirty days after the Executive is first selected for participation by the Compensation Committee in accordance with Section C.1.

I. SOURCE OF PAYMENT

     The benefits paid under this Plan shall be paid from the general funds of the Company, and the Executive and the Executive’s beneficiaries shall be no more than unsecured general creditors of the Company with no special or prior right to any assets of the Company for payment of any obligations hereunder. Nothing contained in this Plan shall be deemed to create a trust of any kind for the benefit of the Executive or any beneficiary, or create any fiduciary relationship between the Company and the Executive or any beneficiary with respect to any assets of the Company.

J. MISCELLANEOUS

     1. Withholding. The Executive and any beneficiary shall make appropriate arrangements with the Company for the satisfaction of any federal, state or local income tax withholding requirements and Social Security or other employee tax requirements applicable to

11

the payment of benefits under this Plan. If no other arrangements are made, the Company may provide, at its discretion, for such withholding and tax payments as may be required.

     2. No Assignment.

          a. Other than as provided in Section J.2.b below, benefits provided under this Plan may not be alienated, assigned, transferred, pledged or hypothecated by any person, at any time, or to any person whatsoever. These benefits shall be exempt from the claims of creditors or other claimants and from all orders, decrees, levies, garnishment or executions to the fullest extent allowed by law.

          b. If a court of competent jurisdiction determines pursuant to a judgment, order or approval of a marital settlement agreement that all or any portion of the benefits payable hereunder to an Executive constitute community property of the Executive and his or her spouse or former spouse (hereafter, the “Alternate Payee”) or property which is otherwise subject to division by the Executive and the Alternative Payee, a division of such property shall not constitute a violation of Section J.2.a, and any portion of such property may be paid or set aside for payment to the Alternate Payee. The preceding sentence of this Section J.2.b, however, shall not create any additional rights and privileges for the Alternate Payee (or the Executive) not already provided under the Plan; in this regard, the Administrator shall have the right to refuse to recognize any judgment, order or approval of a martial settlement agreement that provides for any additional rights and privileges already not already provided under the Plan, including without limitation with respect to form and time of payment.

     3. Fiduciary Insurance. The Company may purchase insurance for its directors, officers, employees and agents to cover potential liability arising from their acts and omissions concerning this Plan.

     4. Applicable Law; Severability. The Plan hereby created shall be construed, administered, and governed in all respects in accordance with ERISA and the laws of the State of California to the extent the latter are not preempted by ERISA. If any provision of this instrument shall be held by a court of competent jurisdiction to be invalid or unenforceable, the remaining provisions hereof shall continue to be fully effective. The Plan is intended to comply with the requirements of Code Section 409A.

     5. No Right to Continued Employment. Each Executive selected to participate in the Plan is deemed by the Company to be a bona fide executive or in a high policy making position for purposes of the Age Discrimination in Employment Act and state laws of similar effect. Accordingly, the terms of the Plan shall not confer any legal rights upon any Executive to continued employment or employment past age 65, nor shall the Plan interfere with the rights of the Company to discharge any Executive or to treat the Executive without regard to the effect which that treatment might have upon the Executive as a participant in the Plan.

     6. Offset for Indebtedness. To the extent permitted by law, if at the time an Executive becomes entitled to receive any payment under the Plan the Executive is indebted to the Company, the amount of the payment shall be reduced by the amount of any such

12

indebtedness then due and owing to the Company. The indebtedness shall then be reduced to the extent of such reduction.

K. ADMINISTRATION OF THE PLAN

     1. In General. The Plan shall be administered by the Executive Vice President, Human Resources of McKesson under the direction of the Compensation Committee. If the Executive Vice President, Human Resources, is an Executive participating in the Plan, then any discretionary action taken as Administrator which directly affects the Executive Vice President, Human Resources, as an Executive shall be specifically approved by the Compensation Committee. The Administrator shall have the ultimate responsibility to interpret the Plan and shall adopt such rules and regulations for carrying out the Plan as it may deem necessary or appropriate. Decisions of the Administrator shall be final and binding on all parties who have an interest in the Plan.

     2. Elections and Notices. All elections and notices made by an Executive under this Plan shall be in writing and filed with the Administrator.

     3. Action by Board of Directors and Compensation Committee. The Board and the Compensation Committee may act under this Plan in accordance with their normal procedures and practices, including but not limited to delegation of their authority to act under the Plan.

     4. Plan Year. The Plan Year is the calendar year.

L. AMENDMENT OR TERMINATION OF THE PLAN

     The Compensation Committee may at any time amend, alter or modify and the Board may at any time terminate the Plan.

     Effective October 27, 2006, the Board, in its discretion, may terminate the Plan at any time and in the Board’s discretion any benefits payable to Executives may be accelerated and paid within the period beginning twelve months after the date the Plan was terminated and ending twenty-four months after the date the Plan was terminated, or pursuant to Section D, E or F of the Plan, if earlier. If the Plan is terminated and benefits payments are accelerated, the Company shall terminate all non-account balance non-qualified deferred compensation plans with respect to all participants and shall not adopt a new non-account balance non-qualified deferred compensation plan for at least five years after the date the Plan was terminated.

     Effective October 27, 2006, the Board, in its discretion, may terminate the Plan upon a corporate dissolution of the Company that is taxed under Section 331 of the Code or with the approval of a bankruptcy court pursuant to 11 U.S.C. Section 503(b)(1(A), provided that the any benefits payable to Executives are distributed and included in the gross income of the Executives by the latest of (i) the calendar year in which the Plan terminates or (ii) the first calendar year in which payment of the benefits is administratively practicable.

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M. CLAIMS AND APPEALS

     1. Informal Resolution of Questions. Any Executive or beneficiary who has questions or concerns about his or her benefits under the Plan is encouraged to communicate with the Human Resources Department of McKesson. If this discussion does not give the Executive or beneficiary satisfactory results, a formal claim for benefits may be made in accordance with the procedures of this Section M.

     2. Formal Benefits Claim – Review by Executive Vice President, Human Resources. An Executive or beneficiary may make a written request for review of any matter concerning his or her benefits under this Plan. The claim must be addressed to the Executive Vice President, Human Resources, McKesson Corporation, One Post Street, San Francisco, California 94104. The Executive Vice President, Human Resources or his or her delegate (“Executive Vice President”) shall decide the action to be taken with respect to any such request and may require additional information if necessary to process the request. The Executive Vice President shall review the request and shall issue his or her decision, in writing, no later than 90 days after the date the request is received, unless the circumstances require an extension of time. If such an extension is required, written notice of the extension shall be furnished to the person making the request within the initial 90-day period, and the notice shall state the circumstances requiring the extension and the date by which the Executive Vice President expects to reach a decision on the request. In no event shall the extension exceed a period of 90 days from the end of the initial period.

     3. Notice of Denied Request. If the Executive Vice President denies a request in whole or in part, he or she shall provide the person making the request with written notice of the denial within the period specified in Section M.2. The notice shall set forth the specific reason for the denial, reference to the specific Plan provisions upon which the denial is based, a description of any additional material or information necessary to perfect the request, an explanation of why such information is required, and an explanation of the Plan’s appeal procedures and the time limits applicable to such procedures, including a statement of the claimant’s right to bring a civil action under Section 502(a) of ERISA following an adverse benefit determination on review.

     4. Appeal to Executive Vice President.

          a. A person whose request has been denied in whole or in part (or such person’s authorized representative) may file an appeal of the decision in writing with the Executive Vice President within 60 days of receipt of the notification of denial. The appeal must be addressed to: Executive Vice President, Human Resources, McKesson Corporation, One Post Street, San Francisco, California 94104. The Executive Vice President, for good cause shown, may extend the period during which the appeal may be filed for another 60 days. The appellant and/or his or her authorized representative shall be permitted to submit written comments, documents, records and other information relating to the claim for benefits. Upon request and free of charge, the applicant should be provided reasonable access to and copies of, all documents, records or other information relevant to the appellant’s claim.

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          b. The Executive Vice President’s review shall take into account all comments, documents, records and other information submitted by the appellant relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination. The Executive Vice President shall not be restricted in his or her review to those provisions of the Plan cited in the original denial of the claim.

          c. The Executive Vice President shall issue a written decision within a reasonable period of time but not later than 60 days after receipt of the appeal, unless special circumstances require an extension of time for processing, in which case the written decision shall be issued as soon as possible, but not later than 120 days after receipt of an appeal. If such an extension is required, written notice shall be furnished to the appellant within the initial 60-day period. This notice shall state the circumstances requiring the extension and the date by which the Executive Vice President expects to reach a decision on the appeal.

          d. If the decision on the appeal denies the claim in whole or in part written notice shall be furnished to the appellant. Such notice shall state the reason(s) for the denial, including references to specific Plan provisions upon which the denial was based. The notice shall state that the appellant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claim for benefits. The notice shall describe any voluntary appeal procedures offered by the Plan and the appellant’s right to obtain the information about such procedures. The notice shall also include a statement of the appellant’s right to bring an action under Section 502(a) of ERISA.

          e. The decision of the Executive Vice President on the appeal shall be final, conclusive and binding upon all persons and shall be given the maximum possible deference allowed by law.

     5. Exhaustion of Remedies. No legal or equitable action for benefits under the Plan shall be brought unless and until the claimant has submitted a written claim for benefits in accordance with Section M.2, has been notified that the claim is denied in accordance with Section M.3, has filed a written request for a review of the claim in accordance with Section M.4, and has been notified in writing that the Executive Vice President has affirmed the denial of the claim in accordance with Section M.4.

N. DEFINITIONS

     For purposes of the Plan, the following terms shall have the meanings indicated:

     1. “Administrator” shall mean the person specified in Section K.

     2. “Approved Retirement” shall mean (i) any Separation from Service with the Company after attainment of age 62; (ii) any involuntary Separation from Service after both attainment of age 55 and completion of 15 Years of Service; or (iii) any other Separation from Service prior to (i) or (ii) above (but not earlier than the Executive’s attainment of age 55 and completion of five Years of Service) if the Compensation Committee has determined that such Separation from Service will be an Approved Retirement. Such a determination by the Compensation Committee may occur at the time of the Executive’s Separation from Service with the Company or at any earlier time. Notwithstanding the foregoing, if an Executive’s written

15

employment agreement so requires or if the Board so decides, the Board may, in its sole discretion, grant an Approved Retirement at any earlier Separation from Service either with or without the reduction for early commencement of benefits in Section D.3.

          Notwithstanding the foregoing, “Approved Retirement” shall not include any Separation from Service for Cause.

     3. “Average Final Compensation” shall mean one-fifth of the sum of the base salary and annual bonuses under the Management Incentive Plan (“MIP”) or any successor or replacement plans (including base salary and annual MIP bonuses or portions thereof voluntarily deferred under a cash or deferred plan or any other tax qualified or non-qualified salary deferral plan such as the Deferred Compensation Administration Plan II (or any successor or replacement plans) or bonuses relinquished in favor of a stock option grant under the 1994 Stock Option and Restricted Stock Plan) earned by an Executive for the five consecutive years of full-time continuous employment with the Company which (a) fall within the 15-year period ending on the first day of the month following the Executive’s Separation from Service with the Company and (b) produce the highest such sum. If the Executive has had less than five years of full time continuous employment, Average Final Compensation shall be base salary and annual bonuses, including amounts voluntarily deferred or relinquished as described in the previous sentence, for the entire period of such employment with the Company, divided by the number of whole and partial years of service.

     4. “Basic Retirement Benefits” shall mean the monthly annuity benefit payable under the Retirement Plan and a hypothetical monthly annuity benefit payable to the Executive under the Profit-Sharing Investment Plan as follows:

          Benefits from the Executive’s interest in the Retirement Plan shall be calculated on a straight life annuity basis payable (i) to the Executive in the event of normal retirement, retirement after age 65, early retirement, or termination allowance as defined in the Retirement Plan, or (ii) as a spouse allowance in the event of the Executive’s death before Approved Retirement or before benefits begin (Section F.4.e).

          The hypothetical annuity benefit payable under the Profit-Sharing Investment Plan shall be calculated by first determining the value of each share credited to the Executive’s Retirement Share Plan account under the Profit-Sharing Investment Plan as of the date it was credited and applying an annual rate of 12% to such value from the date such share was credited to such account to the date the Executive’s benefit under this Plan is to commence. The aggregate value of all of the shares credited to the Executive’s Retirement Share Plan account so determined shall then be converted to a straight life annuity using the factors for determining actuarial equivalence set forth in Section H.3.

     5. “Board” shall mean the Board of Directors of McKesson.

     6. “Break in Service” shall occur when an Executive does not perform any Service during a 12 consecutive month period beginning on a date after the Executive separates from Service. A Break in Service occurs on the earlier of (i) the date on which the Executive quits,

16

retires, is discharged or dies, or (ii) he or she fails to return to work as determined at the discretion of the Administrator.

     7. “Cause” shall be determined in accordance with the terms of the Executive’s written employment agreement, if any, or if there is none, “Cause” shall mean (i) Executive’s misconduct, dishonesty, habitual neglect, or other knowing and material violation of Company’s policies and procedures in effect from time to time, (ii) actions (or failures to act) by Executive in bad faith and to the detriment of Company, or (iii) conviction of a felony or a crime of moral turpitude.

     8. “Company” shall mean McKesson and any member of its controlled group as defined by Section 414(b) and Section 414(c) of the Internal Revenue Code of 1986, as amended.

     9. “Compensation Committee” shall mean the Compensation Committee of the Board.

     10. “Deferred Compensation Administration Plan II” or “DCAP II” shall mean the McKesson Corporation Deferred Compensation Administration Plan II or any successor or replacement plan.

     11. “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended.

     12. “Executive” shall mean an employee of the Company selected to participate in this Plan.

     13. “McKesson” shall mean McKesson Corporation, a Delaware corporation.

     14. “Normal Form of Benefit” is that form described in Section H.l.

     15. “Plan” or “EBRP” shall mean this McKesson Corporation Executive Benefit Retirement Plan, as amended from time.

     16. “Pro Rata Percentage” is defined in Section F.3.

     17. “Profit-Sharing Investment Plan” or “PSIP” shall mean the McKesson Corporation Profit-Sharing Investment Plan.

     18. “Retirement Plan” shall mean the McKesson Corporation Retirement Plan.

     19. “Separation from Service” or “Separated from Service” shall mean termination of employment. Effective January 1, 2005, an Executive shall not be deemed to have Separated from Service if the Executive continues to provide services to the Company in a capacity other than as an employee and if the former employee is providing services at an annual rate that is fifty percent or more of the services rendered, on average, during the immediately preceding three full calendar years of employment with the Company (or if employed by the Company less than three years, such lesser period) and the annual remuneration for such services is fifty

17

percent or more of the average annual remuneration earned during the final three full calendar years of employment (of if less, such lesser period); provided, however, that a Separation from Service will be deemed to have occurred if an Executive’s service with the Company is reduced to an annual rate that is less than twenty percent of the services rendered, on average, during the immediately preceding three full calendar years of employment with the Company (or if employed by the Company less than three years, such lesser period) or the annual remuneration for such services is less than twenty percent of the average annual remuneration earned during the three full calendar years of employment with the Company (or if less, such lesser period).

     20. “Service” shall mean the period commencing with the first day of an Executive’s employment with the Company and ending with the day he or she separates from Service with the Company. An Executive separates from Service on the earlier of the date he or she resigns, retires, is discharged or dies, or on the first anniversary of his or her absence from work for any other reason. Notwithstanding the foregoing, an Executive’s period of Service shall also include certain periods after he or she has separated from Service:

          (1) If an Executive separates from Service by resignation, discharge or retirement and thereafter returns to the employ of the Company within one year, the period of separation shall be considered as part of the Executive’s Service.

          (2) An Executive’s Service shall also continue during his or her absence caused by sickness, accident, layoff where rehire is anticipated, required military service or any other absence authorized by the Company on a uniform and nondiscriminatory basis. If, after such absence, the individual fails to return to work as an employee of the Company within the time prescribed on a uniform and nondiscriminatory basis by the Administrator for such absences, or within the period during which his or her reemployment rights are protected by law, Service shall be deemed broken as of the date the Executive should have returned to work, as determined by the Administrator.

          (3) If an Executive Separates from Service because of the pregnancy of the Executive, the birth of a child of the Executive, the placement of a child with the Executive in connection with the adoption of the child by the Executive, or for the purpose of caring for such child by the Executive for a period immediately following birth or placement, the one-year period following such separation shall be deemed Service of the Executive (“maternity or paternity absence”). Also, no separation from Service on account of such absence shall occur until the earliest of resignation, retirement, death, discharge or the second anniversary of the date the maternity or paternity absence began. The period after the first anniversary of such absence and its second anniversary is neither a period of Service or separation. An Executive must furnish the Administrator with such timely information as the Administrator may reasonably require to establish that the absence is for a reason described herein.

          (4) Effective as of May 13, 1993, if an Executive who separates from Service receives severance pay immediately after such separation from Service, the period for which the Executive receives such severance pay shall be considered part of the Executive’s Service.

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     21. “Supplemental Profit-Sharing Investment Plan” or “Supplemental PSIP” shall mean the McKesson Corporation Supplemental Profit-Sharing Investment Plan or any successor or replacement plan.

     22. “Termination Benefits” shall mean those benefits specified in Section F.l.a.

     23. “Year of Service” shall mean a period of 365 aggregate days of Service (including holidays, weekends, and other non-working days). A Year of Service is measured beginning on the Executive’s first employment commencement date with the Company. To determine the number of whole years of an Executive’s Service, nonsuccessive periods of Service must be aggregated and less than whole year periods of Service must be aggregated. However, both aggregation rules are subject to the Break in Service and other rules, as set forth in the Retirement Plan, and as applied at the discretion of the Plan Administrator.

O. SUCCESSORS

     This Plan shall be binding on the Company and any successors or assigns thereto.

P. EXECUTION

     To record the amendment and restatement of the Plan by the Board of Directors of McKesson Corporation at a meeting held on October 27, 2006.

McKESSON CORPORATION

By:
	Paul E. Kirincic
	Executive Vice President, Human Resources

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McKESSON CORPORATION
EXECUTIVE BENEFIT RETIREMENT PLAN

APPENDIX A

SAMPLE CALCULATION
EARLY RETIREMENT

Executive retires at age 59, three years early, with 25 Years of Service

Final Average Compensation: $600,000

Percentage of Final Average Compensation
specified under the Plan: 60% (20% + 1.77% for each of 25 years, capped at 60%)

Income Objective
	(60% x $600,000)	$	360,000
LESS:	Early Retirement Reduction
	(0.003 per month x 36 months = 10.8%)		(38,800	)
Adjusted Objective			321,120
LESS:	Single Life Retirement Plan Benefit and
	annuitized value of PSIP Retirement Share Plan Account		(38,000	)
Annual Single Life EBRP Benefit		$	283,120

NOTE: Retirement Plan benefits are governed by the terms of that plan, and incorporate the appropriate reduction for early retirement. As intended, the Plan provides a retirement income that, when added to income from the Retirement Plan and the PSIP, if any, provides the executive with retirement income equal to the adjusted objective.

A-1

McKESSON CORPORATION
EXECUTIVE BENEFIT RETIREMENT PLAN

APPENDIX B

SAMPLE CALCULATION
SURVIVOR BENEFIT

Death age 57 with 20 Years of Service
Final Average Compensation:		$	500,000
Percentage of Final Average Compensation
specified under the Plan: 55.4% (20% + 1.77% for each of 20 years)
Income Objective
	(55.4% % x $500,000)	$	277,000
LESS:	Early Retirement Reduction
	(0.003 per month x 60 months = 18%)		(49,860	)
Subtotal		$	227,140
Application of 100% J&S Factor			80	%
Adjusted Objective		$	181,712
LESS:	Retirement Plan Spouse Allowance and		(25,000	)
	annuitized value of PSIP Retirement Share Plan Account
Annual EBRP Survivor Benefit		$	156,712

NOTE: As intended, the Plan Survivor Benefit provides a supplement to the Retirement Plan and the PSIP so that the total of these sources of Company-provided benefits equals the survivor’s adjusted income objective. This method would apply even if the Retirement Plan Spouse Allowance were paid to a minor child, and the Plan benefit were paid to the spouse.

B-1

McKESSON CORPORATION
EXECUTIVE BENEFIT RETIREMENT PLAN

APPENDIX C

SAMPLE CALCULATION
TERMINATION BEFORE APPROVED RETIREMENT

Executive is hired at age 40 and terminates at age 50.

Final Average Compensation:	$600,000
Percentage of Final Average
Compensation specified under the Plan:	37.7% (20% + 1.77% for each of 10 years)
Pro Rata Percentage Applied:	44.4% (Greater of 120 months/300 months and 4.44% x 10 years
Vested benefit at age 65:	44.4% of 37.7% (or 16.74%) of Final Average Compensation, less the Executive’s Basic
	Retirement Benefit.

The benefit payable at age 50 is equal to the present value of the benefit payable at age 65, calculated using the GATT interest rate.

C-1

EX-10.13

EXHIBIT 10.13

McKESSON CORPORATION
SEVERANCE POLICY FOR EXECUTIVE EMPLOYEES

(Amended and Restated as of January 1, 2005)

TABLE OF CONTENTS

1.	ADOPTION AND PURPOSE OF POLICY	3
2.	SEVERANCE BENEFITS	3
3.	FORM OF BENEFIT	4
4.	EFFECT OF DEATH OF EMPLOYEE	4
5.	STOCKHOLDER APPROVAL	4
6.	AMENDMENT AND TERMINATION	4
7.	ADMINISTRATION AND FIDUCIARIES	5
8.	CLAIMS AND APPEAL PROCEDURES	5
9.	ARBITRATION EXCLUSIVE REMEDY	7
10.	GENERAL PROVISIONS	7
11.	DEFINITIONS	8
12.	EXECUTION	11

McKESSON CORPORATION
SEVERANCE POLICY FOR EXECUTIVE EMPLOYEES

(Amended and Restated as of January 1, 2005)

1.     ADOPTION AND PURPOSE OF POLICY.

The McKesson Corporation Severance Policy for Executive Employees (the “Policy”) was adopted effective September 29, 1993 by McKesson Corporation, a Delaware corporation (the “Company”), to provide a program of severance payments to certain employees of the Company and its designated subsidiaries. The Policy is an employee welfare benefit plan within the meaning of Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and Section 2510.3-1 of the regulations issued there under. The plan administrator of the Policy for purposes of ERISA is the Company. The Policy was last amended and restated to read as set forth herein effective as of January 1, 2005.

2.     SEVERANCE BENEFITS.

     (a) Basic Severance Benefits. In the event that the Company terminates the employment of a Participant under circumstances that (i) constitute a Separation from Service for any reason other than Cause and (ii) do not make the Participant eligible for benefits under the Company’s Change in Control Termination Policy, that Participant shall be entitled to a severance payment equal to the lesser of (A) 12 months’ Earnings plus one additional month for each Year of Service or (B) 24 months’ Earnings. In no event shall the number of months’ Earnings a Participant is entitled to receive hereunder exceed the number of months remaining between the Participant’s termination date and the date he or she will attain age 62 (rounded to the next higher whole month).

     (b) Mitigation of Damages. The amount of a Participant’s benefits calculated under (a) above shall be reduced by the amount of compensation, if any, the Participant receives from any subsequent employer(s) for work performed during a period of time following his or her Separation from Service equal to the number of months of Earnings the Participant is entitled to receive.

     (c) Effect on Other Plans. Except as provided in Section 3(d) below, nothing in this Policy shall alter or impair any rights a Participant may have upon Separation from Service under any other plan or program of the Company.

     (d) No Duplication of Benefits. In no event shall a Participant be entitled to any benefits under this Policy if his or her employment with the Company terminates under circumstances that entitle the Participant to receive severance benefits following a change of control of the Company pursuant to the Company’s Change in Control Policy or the terms of any employment or individual severance agreement.

3.      FORM OF BENEFIT.

The benefit described in Section 2(a) shall be paid in biweekly installments over a period commencing on the date of the Participant’s Separation from Service not to exceed the number of months determined under said Section; provided, however, that if the Participant is a Key Employee on the date of his or her Separation from Service, the first payment shall be made as soon as practicable following the first day of the eighth month following the Participant’s Separation from Service, but not later than the last day of the month. Any payment that otherwise would have been made during such eight-month period if the Participant were not a Key Employee will be made in one lump sum payment not later than the last day of the second month following the month that is six months from the date of the Participant’s Separation from Service, and such payment shall include an additional amount representing interest credited at the rate being credited to accounts under the Company’s Deferred Compensation Administration Plan III during the relevant six-month period. The determination of which Participants are Key Employees will be made by the Company in its sole discretion in accordance with this Section 3 and Sections 416(i) and 409A of the Code and the regulations promulgated thereunder.

4.      EFFECT OF DEATH OF EMPLOYEE.

Should a Participant die after Separation from Service and after becoming eligible to receive the benefits provided in Section 2(a) but prior to the payment of the entire benefit due hereunder, the balance of the benefit payable under the Policy shall be paid in a lump sum to the Participant’s surviving spouse, or, if none, to his or her surviving children or, if none, to his or her estate, as soon as reasonably practicable after the date of death.

5.      STOCKHOLDER APPROVAL.

The Company shall seek approval or ratification of its stockholders at the Company’s next annual or special meeting of stockholders for any arrangement whereby the present value of any Severance Payments for any Participant exceeds 2.99 times such Participant’s Base Salary and Bonus. This provision will apply to any arrangement or agreement with a Participant entered into after July 30, 2003, including extensions, renewals or modifications (other than modifications based upon subsequent changes in tax law or other legal requirements) after such date of arrangements or agreements entered into prior to such date that increase the Severance Payments (other than increases due to an increase in Base Salary and Bonus) payable to a Participant under such arrangement or agreement.

6.       AMENDMENT AND TERMINATION.

The Company reserves the right to terminate the Policy at any time by action of its Board of Directors and to amend the Policy by action of the Compensation Committee of its Board of Directors; provided, however, that no such action shall have the effect of decreasing the benefit of a Participant whose Separation from Service occurred prior to the date of the Board of Directors’ or Compensation Committee’s action.

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7.      ADMINISTRATION AND FIDUCIARIES.

     (a) Plan Sponsor and Administrator. The Company is the “plan sponsor” and the “administrator” of the Policy, within the meaning of ERISA.

     (b) Administrative Responsibilities. The Company shall be the named fiduciary with the power and sole discretion to determine who is eligible for benefits under the Policy, to determine the value of benefits paid in any form other than cash or the present value of any cash or other benefits paid over time, to interpret the Policy and to prescribe such forms, make such rules, regulations and computations and prescribe such guidelines as it may determine are necessary or appropriate for the operation and administration of the Policy and to change the terms of or rescind such rules, regulations or guidelines. Such determinations of eligibility, rules, regulations, interpretations, computations and guidelines shall be conclusive and binding upon all persons. In administering the Policy, the Company shall at all times discharge its duties with respect to the Policy in accordance with the standards set forth in section 404(a)(1) of ERISA.

     (c) Allocation and Delegation of Responsibilities. The Compensation Committee may allocate any of the Company’s responsibilities for the operation and administration of the Policy among the Company’s officers, employees and agents. It may also delegate any of the Company’s responsibilities under the Policy by designating, in writing, another person to carry out such responsibilities.

     (d) No Individual Liability. It is declared to be the express purpose and intent of the Company that no individual liability shall attach to or be incurred by any member of the Board of Directors of the Company, or by any officer, employee representative or agent of the Company, under, or by reason of the operation of, the Policy.

8.       CLAIMS AND APPEAL PROCEDURES

     (a) Informal Resolution of Questions. Any Participant who has questions or concerns about his or her benefits under the Plan is encouraged to communicate with the Human Resources Department of the Company. If this discussion does not give the Participant satisfactory results, a formal claim for benefits may be made in accordance with the procedures of this Section 8.

     (b) Formal Benefits Claim – Review by Executive Vice President, Human Resources. A Participant may make a written request for review of any matter concerning his or her benefits under this Plan. The claim must be addressed to the Executive Vice President, Human Resources, McKesson Corporation, One Post Street, San Francisco, California 94104. The Executive Vice President, Human Resources or his or her delegate (“Executive Vice President”) shall decide the action to be taken with respect to any such request and may require additional information if necessary to process the request. The Executive Vice President shall review the request and shall issue his or her decision, in writing, no later than 90 days after the date the request is received, unless the circumstances require an extension of time. If such an extension is required, written notice of the extension shall be furnished to the person making the request within the initial 90-day period, and the notice shall state the circumstances requiring the

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extension and the date by which the Executive Vice President expects to reach a decision on the request. In no event shall the extension exceed a period of 90 days from the end of the initial period.

     (c) Notice of Denied Request. If the Executive Vice President denies a request in whole or in part, he or she shall provide the person making the request with written notice of the denial within the period specified in Section 8(b). The notice shall set forth the specific reason for the denial, reference to the specific Plan provisions upon which the denial is based, a description of any additional material or information necessary to perfect the request, an explanation of why such information is required, and an explanation of the Plan’s appeal procedures and the time limits applicable to such procedures, including a statement of the claimant’s right to bring a civil action under Section 502(a) of ERISA following an adverse benefit determination on review.

     (d) Appeal to Executive Vice President.

          (i) A person whose request has been denied in whole or in part (or such person’s authorized representative) may file an appeal of the decision in writing with the Executive Vice President within 60 days of receipt of the notification of denial. The appeal must be addressed to: Executive Vice President, Human Resources, McKesson Corporation, One Post Street, San Francisco, California 94104. The Executive Vice President, for good cause shown, may extend the period during which the appeal may be filed for another 60 days. The appellant and/or his or her authorized representative shall be permitted to submit written comments, documents, records and other information relating to the claim for benefits. Upon request and free of charge, the applicant should be provided reasonable access to and copies of, all documents, records or other information relevant to the appellant’s claim.

          (ii) The Executive Vice President’s review shall take into account all comments, documents, records and other information submitted by the appellant relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination. The Executive Vice President shall not be restricted in his or her review to those provisions of the Plan cited in the original denial of the claim.

          (iii) The Executive Vice President shall issue a written decision within a reasonable period of time but not later than 60 days after receipt of the appeal, unless special circumstances require an extension of time for processing, in which case the written decision shall be issued as soon as possible, but not later than 120 days after receipt of an appeal. If such an extension is required, written notice shall be furnished to the appellant within the initial 60-day period. This notice shall state the circumstances requiring the extension and the date by which the Executive Vice President expects to reach a decision on the appeal.

          (iv) If the decision on the appeal denies the claim in whole or in part written notice shall be furnished to the appellant. Such notice shall state the reason(s) for the denial, including references to specific Plan provisions upon which the denial was based. The notice shall state that the appellant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claim for benefits. The notice shall describe any voluntary appeal procedures offered by the Plan and the

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appellant’s right to obtain the information about such procedures. The notice shall also include a statement of the appellant’s right to bring an action under Section 502(a) of ERISA.

          (v) The decision of the Executive Vice President on the appeal shall be final, conclusive and binding upon all persons and shall be given the maximum possible deference allowed by law.

     (e) Exhaustion of Remedies. No legal or equitable action for benefits under the Plan shall be brought unless and until the claimant has submitted a written claim for benefits in accordance with Section 8(b), has been notified that the claim is denied in accordance with Section 8(c), has filed a written request for a review of the claim in accordance with Section 8(d), and has been notified in writing that the Executive Vice President has affirmed the denial of the claim in accordance with Section 8(d).

9.     ARBITRATION EXCLUSIVE REMEDY.

     Any dispute, controversy or claim arising under the Policy, shall be settled exclusively by final and binding arbitration in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association (the “AAA Rules”). A neutral and impartial arbitrator shall be chosen by mutual agreement of the parties or, if the parties are unable to agree upon an arbitrator within a reasonable period of time, then a neutral and impartial arbitrator shall be appointed in accordance with the arbitrator nomination and selection procedure set forth in the AAA Rules. The arbitrator shall apply the same substantive law, with the same statures of limitations and remedies, that would apply if the claims were brought in court. The arbitrator also shall prepare a written decision containing the essential findings and conclusions upon which the decision containing the essential findings and conclusions upon which the decision is based. Either party may bring an action in court to compel arbitration under this Agreement or to enforce an arbitration award. Otherwise, neither party shall initiate or prosecute any lawsuit in any way related to any claim subject to this agreement to arbitrate. Any arbitration held pursuant to this paragraph shall take place in San Francisco, California. Each party shall pay its own costs and attorneys’ fees, unless a party prevails on a statutory claim and the statute provides that the prevailing party is entitled to payment of its attorneys’ fees. In that case, the arbitrator may award reasonable attorneys’ fees and costs to the prevailing party as provided by law. The Company agrees to pay the costs and fees of the arbitrator. THE PARTICIPANTS UNDERSTAND AND AGREE THAT THIS AGREEMENT CONSTITUTES A WAIVER OF THEIR RIGHT TO A TRIAL BY JURY OF ANY CLAIMS OR CONTROVERSIES COVERED BY THIS AGREEMENT.

10.     GENERAL PROVISIONS.

     (a) Basis of Payments to and from Policy. All benefits under the Policy shall be paid by the Company. The Policy shall be unfunded and benefits hereunder shall be paid only from the general assets of the Company. Nothing contained in the Policy shall be deemed to create a trust of any kind for the benefit of any employee, or create any fiduciary relationship between the Company and any employee with respect to any assets of the Company. The Company is under no obligation to fund the benefits provided herein prior to payment, although it may do so if it

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chooses. Any assets which the Company chooses to use for advance funding shall not cause the Policy to be a funded plan within the meaning of ERISA.

     (b) No Employment Rights. Nothing in the Policy shall be deemed to give any individual the right to remain in the employ of the Company or a subsidiary or to limit in any way the right of the Company or a subsidiary to discharge, demote, reclassify, transfer, relocate an individual or terminate an individual’s employment at any time and for any reason, which right is hereby reserved.

     (c) Non-alienation of Benefits. No benefit payable under the Policy shall be subject to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt to do shall be void.

     (d) Legal Construction. The Policy shall be governed and interpreted in accordance with ERISA.

     (e) Section 409A. Notwithstanding any other provision of this Policy, the Company shall administer and construe this Policy in accordance with Section 409A of the Code, the regulations promulgated thereunder, and any other published interpretive authority, as issued or amended from time to time. The Company shall have the authority to delay the payment of any amounts under this Policy to the extent it deems necessary or appropriate to comply with Section 409A of the Code.

11.     DEFINITIONS.

Whenever used and capitalized in the text of the Policy, the following terms shall have the meaning set forth below:

     (a) “Base Salary and Bonus” means the Participant’s annual base salary as in effect immediately prior to the date of such Participant’s termination and the target bonus for such Participant for the fiscal year in which such Participant’s Separation from Service occurs, in each case inclusive of any amounts deferred by the intended recipient.

     (b) “Cause” means negligent or willful engagement in misconduct which, in the sole determination of the Chief Executive Officer, is injurious to the Company, its employees or its customers. No act, or failure to act, on the part of the Participant shall be considered “willful” unless done, or omitted to be done, by the Participant not in good faith and without reasonable belief that the Participant’s action or omission was in the best interest of the Company.

     (c) “Change in Control” shall mean the occurrence of any change in ownership of the Company, change in effective control of the Company, or change in the ownership of a substantial portion of the assets of the Company, as defined in Section 409A(a)(2)(A)(v) of the Code, the regulations thereunder, and any other published interpretive authority, as issued or amended from time to time.

     (d) “Code” means the Internal Revenue Code of 1986, as amended.

     (e) “Earnings” means a Participant’s monthly base salary.

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     (f) “Identification Date” means each December 31.

     (g) “Key Employee” means a Participant who, on an Identification Date, is:

          (i) An officer of the Company having annual compensation greater than the compensation limit in Section 416(i)(1)(A)(i) of the Code, provided that no more than fifty officers of the Company shall be determined to be Key Employees as of any Identification Date;

          (ii) A five percent owner of the Company; or

          (iii) A one percent owner of the Company having annual compensation from the Corporation of more than $150,000.

If a Participant is identified as a Key Employee on an Identification Date, then such Participant shall be considered a Key Employee for purposes of the Plan during the period beginning on the first April 1 following the Identification Date and ending on the next March 31.

     (h) “Participant” means (i) an individual who is designated to be eligible to participate in the Policy by the Compensation Committee of the Board of Directors of the Company and (ii) whose employment is terminated under circumstances that render him or her eligible for the benefits described in Section 2 of the Policy.

     (i) “Severance Payments” means (i) lump-sum cash payments (including payments in lieu of medical and other benefits), (ii) the estimated present value of periodic cash payments under previously established bonus, retirement, deferred compensation, or other Company benefit plans, (iii) fringe benefits other than those provided under Company programs or arrangements applicable to one or more groups of employees in addition to Participants, and (iv) consulting fees (including reimbursable expenses) other than reasonable fees and expenses for bona fide services provided to the Company after termination, paid or payable by the Company to a Participant pursuant to this Policy or otherwise upon a termination by the Company of employment of such Participant at any time other than within two years following a Change in Control, excluding Vested, Accrued or Appropriate Benefits.

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     (j) “Separate from Service” or “Separation from Service” means termination of employment with the Company, other than by reason of Disability or death. A Participant shall not be deemed to have Separated from Service if the Participant continues to provide services to the Company in a capacity other than as an employee and if the former employee is providing services at an annual rate that is fifty percent or more of the services rendered, on average, during the immediately preceding three full calendar years of employment with the Company (or if employed by the Company less than three years, such lesser period) and the annual remuneration for such services is fifty percent or more of the annual remuneration earned during the final three full calendar years of employment (of if less, such lesser period); provided, however, that a Separation from Service will be deemed to have occurred if a Participant’s service with the Company is reduced to an annual rate that is less than twenty percent of the services rendered, on average, during the immediately preceding three full calendar years of employment with the Company (or if employed by the Company less than three years, such lesser period) or the annual remuneration for such services is less than twenty percent of the annual remuneration earned during the three full calendar years of employment with the Company (or if less, such lesser period).

     (k) “Vested, Accrued or Appropriate Benefits” means any benefits paid or payable by the Company to a Participant upon a termination by the Company of employment of such Participant at any time other than within two years following a Change in Control that are (i) earned, accrued, deferred or otherwise received for employment services rendered through the date of Separation from Service pursuant to bonus, retirement, deferred compensation, or other Company benefit plans, (ii) approved under the terms of bonus, retirement, deferred compensation, or other Company benefit plans existing at the time of such termination at the reasonable discretion of the Compensation Committee taking into consideration the age, length of service and other circumstances of such termination, (iii) payments or benefits required to be provided by law, and (iv) benefits and perquisites provided by the Company under plans, programs or arrangements of the Company applicable to one or more groups of employees in addition to Participants. For the avoidance of doubt, Vested, Accrued or Appropriate Benefits shall not include benefits payable pursuant to this Policy.

     (l) “Year of Service” means a period of 365 aggregate days of employment (including holidays, weekends and other non-working days), computed beginning on the Participant’s employment commencement date. However, if the Participant has not completed a Year of Service on the first anniversary of his employment commencement date, he or she shall complete a Year of Service on the date of completion of 365 aggregate days of Service. If a Participant has at any time completed at least one Year of Service, he or she shall always be given credit for completed Years of Service. However, a Participant who has five or more consecutive Breaks in Service shall be given such credit only upon providing reasonable evidence to the Company of his or her previous completion of such service.

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12.      EXECUTION

This Amended and Restated Severance Policy for Executive Employees was adopted on October 27, 2006, to be effective as of January 1, 2005.

McKESSON CORPORATION

By:
	Paul E. Kirincic
	Executive Vice President, Human Resources

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EX-10.14

EXHIBIT 10.14

McKESSON CORPORATION
2005 MANAGEMENT INCENTIVE PLAN

Adopted by the Board of Directors May 25, 2005
Approved by the Stockholders July 27, 2005
Amended Effective May 25, 2005
Amended and Restated Effective October 27, 2006

TABLE OF CONTENTS

A.	NAME; EFFECTIVE TIME	1
B.	PURPOSE	1
C.	ADMINISTRATION	1
D.	PARTICIPATION	2
E.	INDIVIDUAL TARGET AWARDS FOR PARTICIPANTS	2
F.	BASIS OF AWARDS	2
G.	AWARD DETERMINATION	3
H.	PROCEDURES APPLICABLE TO COVERED EMPLOYEES	4
I.	PAYMENT OF AWARDS	5
J.	EMPLOYMENT ON PAYMENT DATE	5
K.	CHANGE IN CONTROL	5
L.	FORFEITURE	5
M.	WITHHOLDING TAXES	7
N.	EMPLOYMENT RIGHTS	7
O.	NONASSIGNMENT; PARTICIPANTS ARE GENERAL CREDITORS	7
P.	AMENDMENT OR TERMINATION	7
Q.	SUCCESSORS AND ASSIGNS	8
R.	INTERPRETATION AND SEVERABILITY	8
S.	DEFINITIONS	8
T.	EXECUTION	10

 i 

McKESSON CORPORATION
2005 MANAGEMENT INCENTIVE PLAN

Adopted by the Board of Directors May 25, 2005
Approved by the Stockholders July 27, 2005
Amended Effective May 25, 2005
Amended and Restated Effective October 27, 2006

A. NAME; EFFECTIVE TIME

     The name of this plan is the McKesson Corporation 2005 Management Incentive Plan. The Plan replaces in its entirety the Company’s 1989 Management Incentive Plan. The Plan is effective, subject to approval by the Company’s stockholders, for fiscal years of the Company commencing on and after April 1, 2005.

B. PURPOSE

     The purpose of the Plan is to advance and promote the interests of the Company and its stockholders by providing performance-based incentives to certain employees and to motivate those employees to set and achieve above-average financial and non-financial objectives.

C. ADMINISTRATION

     The Committee shall have full power and authority, subject to the provisions of the Plan, (i) to designate employees as Participants, (ii) to add and delete employees from the list of designated Participants, (iii) to establish Individual Target Awards for Participants, (iv) to establish performance goals upon achievement of which the Individual Target Awards will be based, and (v) to take all action in connection with the foregoing 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.

     Notwithstanding the foregoing, the Committee may delegate to the Chief Executive Officer (the “CEO”) the power and authority, subject to the provisions of the Plan, (i) to designate employees who are not members of the Officer Group as Participants, (ii) to recommend members of the Officer Group to the Committee for designation as Participants; provided that the Committee shall review and approve members of the Officer Group as Plan Participants recommended by the CEO, (iii) to add and delete employees who are not members of the Officer Group from the list of designated Participants, (iv) to establish Individual Target Awards for Participants who are not members of the Officer Group, (v) to establish performance goals upon achievement of which such Individual Target Awards will be based, and (vi) to review and approve, modify or disapprove, or otherwise adjust or determine the amount, if any, to be paid to Participants who are not members of the Officer Group for the applicable Plan Year based on such Participants’ performance goals and individual performance. In addition to the forgoing, the CEO may further delegate his authority to other executive offices of the Company, except that the CEO may not delegate his authority to recommend members of the Officer Group to the Committee for designation as Participants. References to the Committee herein shall include references to the CEO and his designees to the extent that the Committee has delegated

1

power and authority under the Plan to the CEO and to the extent that the CEO has further delegated power and authority under the Plan to other executive officers of the Company.

     The Committee may promulgate such rules and regulations as it deems necessary for the proper administration of the Plan and the CEO (but not his designees) may promulgate rules and regulations as he deems necessary for the proper administration of the Plan with respect to Participants who are not members of the Officer Group. The Committee may interpret the provisions and supervise the administration of the Plan, and take all action in connection therewith or in relation to the Plan as it deems necessary or advisable. The interpretation and construction by the Committee of any provision of the Plan or of any award shall be final.

D. PARTICIPATION

1. Eligibility — Executives, Managers and Professionals

     Only active employees of the Company who are employed in an executive, managerial or professional capacity may be designated as Participants under the Plan.

2. Designation of Participants

     No person shall be entitled to any award under the Plan for any Plan Year unless he or she is so designated as a Participant for that Plan Year.

E. INDIVIDUAL TARGET AWARDS FOR PARTICIPANTS

     At the beginning of each Plan Year, the Committee shall establish an Individual Target Award 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 Plan Year shall not imply or require that an Individual Target Award or an Individual Target Award at any specified level will 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 G.4 below (but subject to the limitations applicable to Covered Employees contained in Article H), the actual award may be as much as three times target or as low as zero for any Plan Year.

F. BASIS OF AWARDS

1. Performance Goals

     The Committee shall establish measures, which may include financial and non-financial objectives (“Performance Goals”) for each segment of the Company. These Performance Goals shall be determined by the Committee in advance of each Plan Year or within such period as may be permitted by the regulations issued under Section 162(m), and to the extent that awards are paid to Covered Employees, the performance criteria to be used shall be any of the following, either alone or in any combination, which may be expressed with respect to the Company or one or more operating units or groups, as the Committee may determine: cash flow; cash flow from operations; total earnings; earnings per share, diluted or basic; earnings per share from continuing operations, diluted or basic; earnings before interest and taxes; earnings before

2

interest, taxes, depreciation, and amortization; earnings from operations; net asset turnover; inventory turnover; capital expenditures; net earnings; operating earnings; gross or operating margin; debt; working capital; return on equity; return on net assets; return on total assets; return on investment; return on capital; return on committed capital; return on invested capital; return on sales; net or gross sales; market share; economic value added; cost of capital; change in assets; expense reduction levels; debt reduction; productivity; stock price; customer satisfaction; employee satisfaction; and total shareholder return.

2. Adjustment of Performance Goals

     Performance Goals may be determined on an absolute basis or relative to internal goals or relative to levels attained in prior years or related to other companies or indices or as ratios expressing relationships between two or more Performance Goals. In addition, 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. The Committee shall specify the manner of adjustment of any Performance Goal to the extent necessary to prevent dilution or enlargement of any award as a result of extraordinary events or circumstances, as determined by the Committee, or to exclude the effects of extraordinary, unusual, or non-recurring items; changes in applicable laws, regulations, or accounting principles; currency fluctuations; discontinued operations; non-cash items, such as amortization, depreciation, or reserves; asset impairment; or any recapitalization, restructuring, reorganization, merger, acquisition, divestiture, consolidation, spin-off, split-up, combination, liquidation, dissolution, sale of assets, or other similar corporate transaction.

3. Performance Goals related to More than One Segment of the Company

     Awards may be based on performance against objectives for more than one segment of the Company. For example, awards for corporate management may 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.

4. Individual Performance

     Subject to the limitations set forth in Article H below, individual performance of each Participant may be measured and used in determining awards under the Plan.

G. AWARD DETERMINATION

1. Award Determined by Committee

     After any Plan Year for which an Individual Target Award is established for a Participant under the Plan, the Committee shall review and approve, modify or disapprove the amount, if any, to be paid to the Participant for the Plan Year. The amount paid shall be the Individual Target Award adjusted to reflect both the results against the Participant’s Performance Goals and the Participant’s individual performance. All awards are subject to adjustment at the sole discretion of the Committee.

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2. Financial and Non-Financial Performance

     Individual Target Award amounts will be modified based on the achievement of financial and non-financial objectives by the Company and relevant units and/or sub-units. Performance results against objectives shall be reviewed and approved by the Committee in accordance with paragraph F.2 above, as applicable.

3. Individual Performance

     Any Individual Target Award, adjusted to reflect financial performance, may be further adjusted with the review and approval of the Committee to give full weight to the Participant’s individual performance during the Plan Year.

4. Overall Effect

     The combination of any financial performance adjustment and individual performance adjustment may increase the amount paid under the Plan to a Participant for any Plan Year to as much as three times the Individual Target Award, and may reduce any amount payable to zero, subject to Article H.

H. PROCEDURES APPLICABLE TO COVERED EMPLOYEES

     Awards under the Plan to Participants who are Covered Employees shall be subject to preestablished Performance Goals as set forth in this Article H. Notwithstanding the provisions of paragraph G.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 H.

     At the beginning of a Plan Year, the Committee shall establish Individual Target Awards for such of the Participants who may be Covered Employees, payment of which shall be conditioned upon satisfaction of specific Performance Goals for the Plan Year established by the Committee in writing in advance of the Plan Year, or within such period as may be permitted by regulations issued under Section 162(m). The Performance Goals established by the Committee shall be based on one or more of the criteria set forth in paragraph F.1 above. The extent, if any, to which an award will be payable will be based upon the degree of achievement of the Performance Goals in accordance with a pre-established objective formula or standard as determined by the Committee. The application of the objective formula or standard to the Individual Target Award will determine whether the Covered Employee’s award for the Plan Year is greater than, equal to or less than the Participant’s Individual Target Award. 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 as soon as reasonably practicable after the Payment Date in accordance with the objective formula or standard applied to the Individual Target Award unless the Committee determines, in its sole discretion, to reduce or eliminate the payment to be made.

     Notwithstanding any other provision of the Plan, the maximum award payable to any Participant who is a Covered Employee for any Plan Year shall not exceed $6,000,000.

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I. PAYMENT OF AWARDS

     An award under the Plan shall be paid in a single sum to the Participant as soon as reasonably practicable after Payment Date, unless the Participant elects to defer his or her award pursuant to the terms and conditions of the Company’s Deferred Compensation Administration Plan III (“DCAP III”) and in compliance with Section 409A of the Code. No awards may be deferred by a Participant under DCAP III unless he or she is an active employee of the Company on the date the award is paid or he or she retired after December 31 of such Plan Year. To the extent that an award is not deferred under DCAP III, such award shall be paid no later than the later of two and one-half months following the end of the Company’s fiscal year or the end of calendar year in which the Payment Date occurs.

J. EMPLOYMENT ON PAYMENT DATE

     No award shall be made to any Participant who is not an active employee of the Company on the Payment Date; provided, however, that the Committee, in its sole and absolute discretion, may make pro-rata awards to Participants in circumstances that the Committee deems appropriate including, but not limited to, a Participant’s death, disability, retirement or other termination of employment prior to the Payment Date. Any such pro-rated awards shall be determined by the Committee in accordance with Article G above after taking into account the portion of the Plan Year completed.

K. CHANGE IN CONTROL

     In the event of a Change in Control, the Company or any successor or surviving corporation shall pay to each Participant an award for the Plan Year in which the Change in Control occurs and for any previous Plan Year for which awards have been earned but not yet paid or deferred. Each such award shall be equal to the greatest of the following: (i) the Participant’s Individual Target Award for the applicable Plan Year; (ii) the Participant’s Individual Target Award for the applicable Plan Year adjusted based on the actual performance outcome for that Plan Year, provided, that the Committee may not invoke its discretionary authority to reduce the amount of such an award; or (iii) the average of awards earned and paid to (or deferred by) the Participant in the three (or such fewer number of years that the Participant has been eligible for such an award) completed Plan Years immediately preceding the applicable Plan Year. Such awards shall be paid by the Company or any successor or surviving corporation at such time as the awards otherwise would be payable under the Plan; provided, however, that if a Participant is terminated without Cause or terminates for Good Reason within twelve months after a Change in Control, then such Participant shall be paid his or her awards determined under this Article K, within thirty days of such termination. Notwithstanding the foregoing, any award determined pursuant to this Article K shall be reduced by any corresponding award payable under a Participant’s individually negotiated agreement, if any.

L. FORFEITURE

     Any other provision of the Plan to the contrary notwithstanding, if the Committee determines that a Participant has engaged in any of the actions described below, then upon written notice from the Company to the Participant (i) the Participant shall not be eligible for any

5

award for the year in which such notice is given or for the preceding year, if such award has not been paid as of the date of the notice, (ii) any payment of an award received by the Participant within twelve months prior to the date that the Company discovered that the Participant engaged in any action described below shall immediately be repaid to the Company by the Participant in cash (including amounts withheld pursuant to Article M) and (iii) any award deferred pursuant to Article I within twelve months prior to the date that the Company discovered that the Participant engaged in any action described below shall be forfeited immediately and shall not be distributed to the Participant under any circumstances.

     The consequences described above shall apply if the Participant, either before or after termination of employment with the Company:

     1. Discloses to others, or takes or uses for his or her 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 the Company and obtained by the Participant during the term of his or her employment, whether or not they are the Participant’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 data, financial information, research and development plans, processes, equipment, product information and all other types and categories of information as to which the Participant knows or has reason to know that the Company intends or expects secrecy to be maintained; or

     2. Fails to promptly return all documents and other tangible items belonging to the Company in the Participant’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; or

     3. Fails to provide the Company 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 the Company. 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 the Company at the time of the termination of the Participant’s employment with the Company; or

     4. Fails to inform any new employer, before accepting employment, of the terms of this section and of the Participant’s continuing obligation to maintain the confidentiality of the trade secrets and other confidential information belonging to the Company and obtained by the Participant during the term of his or her employment with the Company; or

     5. Induces or attempts to induce, directly or indirectly, any of the Company’s customers, employees, representatives or consultants to terminate, discontinue or cease working with or for the Company, or to breach any contract with the Company, in order to work with or for, or enter into a contract with, the Participant or any third party; or

6

     6. Engages in conduct which is not in good faith and which disrupts, damages, impairs or interferes with the business, reputation or employees of the Company; or

     7. Directly or indirectly engages in, becomes employed by, or renders services, advice or assistance to any business in competition with the Company, at any time during the twelve months following termination of employment with the Company.

     The Committee shall determine in its sole discretion whether the Participant has engaged in any of the acts set forth in subsections 1 through 7 above, and its determination shall be conclusive and binding on all interested persons.

     Any provision of this Article L 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 Article L.

M. WITHHOLDING TAXES

     Whenever the payment of an award is made, such payment shall be net of an amount sufficient to satisfy federal, state and local income and employment tax withholding requirements and authorized deductions.

N. EMPLOYMENT RIGHTS

     Neither the Plan nor designation as a Plan Participant shall be deemed to give any individual a right to remain employed by the Company. The Company reserves the right to terminate the employment of any employee at any time, with or without cause or for no cause, subject only to a written employment contract (if any).

O. NONASSIGNMENT; 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 DCAP II with respect to amounts deferred under Article I) and any attempted assignment shall be null, void and of no effect.

     Amounts paid under the Plan shall be paid from the general funds of the Company, and each Participant shall be no more than an unsecured general creditor of the Company with no special or prior right to any assets of the Company for payment of any obligations hereunder. Nothing contained in the Plan shall be deemed to create a trust of any kind for the benefit of any Participant, or create any fiduciary relationship between the Company and any Participant with respect to any assets of the Company.

P. AMENDMENT OR TERMINATION

     The Board of Directors may terminate or suspend the Plan at any time. The Committee may amend the Plan at any time; provided that (i) to extent required under Section 162(m), the

7

Plan will not be amended without prior approval of the Company’s stockholders, and (ii) no amendment shall retroactively and adversely affect the payment of any award previously made. Notwithstanding the foregoing, no amendment adopted following the occurrence of a Change in Control shall be effective if it (a) would reduce a Participant’s Individual Target Award for the Plan Year in which the Change in Control occurs, (b) would reduce an award payable to a Participant based on the achievement of Performance Goals in the Plan Year before the Plan Year in which the Change in Control occurs, or (c) modify the provisions of this paragraph.

Q. SUCCESSORS AND ASSIGNS

     This Plan shall be binding on the Company and its successors or assigns.

R. INTERPRETATION AND SEVERABILITY

     The 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. 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.

S. DEFINITIONS

     “Cause” shall mean termination of the Participant’s employment upon the Participant’s willful engagement in misconduct which is demonstrably and materially injurious to the Company. No act, or failure to act, on the part of the Participant shall be considered “willful” unless done, or omitted to be done, by the Participant not in good faith and without reasonable belief that the Participant’s action or omission was in the best interest of the Company.

     “Change in Control” A Change in Control shall mean the occurrence of any change in ownership of the Company, change in effective control of the Company, or change in the ownership of a substantial portion of the assets of the Company, as defined in Section 409A(a)(2)(A)(v) of the Internal Revenue Code of 1986, as amended, the regulations thereunder, and any other published interpretive authority, as issued or amended from time to time.

     “Code” shall mean the Internal Revenue Code of 1986, as amended.

     “Committee” shall mean the Compensation Committee of the Board of Directors of McKesson Corporation; provided, however, that the Committee shall consist solely of two or more “outside directors”, in conformance with Section 162(m) of the Code.

     “Company” shall mean McKesson Corporation, a Delaware corporation, including its subsidiaries and affiliates.

     “Covered Employee” shall mean an eligible Participant designated by the Committee who is, or is expected to be, a “covered employee” within the meaning of Section 162(m) for the Plan Year in which an award is payable hereunder.

8

     “Good Reason” shall mean any of the following actions, if taken without the express written consent of the Participant:

     a. any material change by the Company in the functions, duties, or responsibilities of the Participant, which change would cause such Participant’s position with the Company to become of less dignity, responsibility, importance, or scope from the position and attributes that applied to the Participant immediately prior to the Change in Control;

     b. any reduction in the Participant’s base salary;

     c. any material failure by the Company to comply with any of the provisions of any employment agreement between the Company and the Participant;

     d. the requirement by the Company that the Participant be based at any office or location more than 25 miles from the office at which the Participant is based on the date immediately preceding the Change in Control, except for travel reasonably required in the performance of the Participant’s responsibilities and commensurate with the amount of travel required of the Participant prior to the Change in Control; or

     e. any failure by the Company to obtain the express assumption of this Plan by any successor or assign of the Company.

     “Individual Target Award” shall mean the target award established for each Participant under Article E, which shall be a percentage of the Participant’s base salary or a fixed dollar amount, as determined by the Committee.

     “Officer Group” shall mean the Covered Employees and any other officer of the Company designated as part of the Officer Group by the Committee.

     “Participants” shall mean those employees specifically designated as Participants for a Plan Year under Article D.

     “Payment Date” shall mean the date following the conclusion of a Plan 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 Article F hereof.

     “Plan” shall mean the McKesson Corporation 2005 Management Incentive Plan.

     “Plan Year” shall mean the fiscal year of the Company.

     “Section 162(m)” shall mean Section 162(m) of the Code and regulations promulgated thereunder, as may be amended from time to time.

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T. EXECUTION

This amended and restated 2005 Management Incentive Plan was adopted on October 27, 2006.

McKESSON CORPORATION

By
	Paul E. Kirincic
	Executive Vice President, Human Resources

10

EX-10.15

EXHIBIT 10.15

McKESSON CORPORATION
LONG-TERM INCENTIVE PLAN

(As Amended and Restated Effective January 1, 2005)

TABLE OF CONTENTS

1.	NAME AND PURPOSE	1
2.	ADMINISTRATION OF THE PLAN	1
3.	ELIGIBILITY	1
4.	CALCULATION OF AWARDS	1
5.	PAYMENT OF AWARDS	2
6.	CHANGE IN CONTROL	4
7.	TRANSFERABILITY	4
8.	WITHHOLDING TAXES	4
9.	FUNDING	4
10.	AMENDMENT	5
11.	TERMINATION	5
12.	GOVERNING LAW	5
13.	NOTICES	5
14.	SEVERABILITY	5
15.	SUCCESSOR OF THE COMPANY	5
16.	EXECUTION	5

 i 

McKESSON CORPORATION
LONG-TERM INCENTIVE PLAN

(As Amended and Restated Effective January 1, 2005)

1. NAME AND PURPOSE.

The name of this plan is the McKesson Corporation Long-Term Incentive Plan (the “Plan”). Its purpose is to advance and promote the interests of the stockholders of McKesson Corporation, a Delaware corporation (the “Company”) by attracting and retaining employees who strive for excellence, and to motivate those employees to set and achieve above-average financial objectives by providing competitive compensation for those who contribute most to the operating progress and earning power of the Company, its subsidiaries and affiliates.

2. ADMINISTRATION OF THE PLAN.

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 Internal Revenue Code of 1986, as amended. No member of the Committee shall be eligible to receive benefits under the Plan. 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 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 employees who participate in the Plan (the “Participants”) and other interested parties.

3. ELIGIBILITY.

Participation in the Plan shall be limited to those full-time, salaried key officers and/or other employees of the Company, its subsidiaries and affiliates who are selected from time to time by the Committee. Participants in the Plan are also eligible to participate in any incentive plan of the Company.

4. CALCULATION OF AWARDS.

Awards under the Plan shall be made in the sole discretion of the Committee. After the close of the period for which an award may be made (a “Performance Period”), the Committee shall determine the dollar amount of the award to be made to each Participant whom the Committee has selected to be an award recipient for that Performance Period; provided, however, that the award amount for any individual who is a “covered employee” (as defined in regulations adopted pursuant to Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”)) of the Company on the last day of a Performance Period (the “Specified Officers”) shall be subject to the following limitations:

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     (a) 5% of the Company’s aggregate “Annual Income” for the Performance Period shall be set aside for awards to the Specified Officers. For this purpose, “Annual Income” shall mean reported net income before special items.

     (b) The maximum awards to the following Specified Officers shall equal the indicated percentage of the aggregate fund set forth in (a) above, determined pursuant to the following schedule:

Officer	Percentage
Chief executive officer		40	%
The four highest compensated officers (other than the CEO)		15	% each
Total		100	%

     (c) The Committee in its sole discretion may reduce the award otherwise payable to any Specified Officer as determined above, but in no event may any such reduction result in an increase of the award payable to any other Participant, including but not limited to any other Specified Officer.

5. PAYMENT OF AWARDS.

All awards to Participants pursuant to the Plan shall be paid in cash. Prior to January 1, 2005, awards shall be paid as soon as practicable after the end of the Performance Period, provided, however, that, at the Participant’s election, receipt of all or part of an award may be deferred under the terms of the Company’s Deferred Compensation Administration Plan II in the manner prescribed by regulations established by the Committee. After December 31, 2004, all awards shall be paid no later than the later of two and one-half months following the end of the Company’s fiscal year or the end of the calendar year in which the award is no longer subject to a substantial risk of forfeiture, provided, however, that, at the Participant’s election, receipt of all or part of an award may be deferred under the terms of the Company’s Deferred Compensation Administration Plan III (“DCAP III”) and in compliance with Section 409A of the Code. Effective July 27, 2006, no award may be deferred by a Participant under DCAP III unless he or she is an active employee of the Company on the date the award is paid or he or she retired after the last December 31 of the Performance Period.

A Participant shall have no right to receive payment of any award under the Plan unless he or she has satisfied regulations prescribed by the Committee at the time of making the award and the Committee has determined that the performance objectives applicable to such award, if any, have been achieved.

Any other provision of the Plan to the contrary notwithstanding, if the Committee determines that a Participant 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 award shall be forfeited immediately and automatically and shall not be payable to the Participant under any circumstances.

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     (b) If the Participant received payment of an award within six months prior to the date that the Company discovered that the Participant engaged in any action described in (c) below the Participant, upon written notice from the Company, shall immediately repay to the Company in cash the amount of such award (including any amounts withheld pursuant to Paragraph 8).

     (c) The consequences described in (a) and (b) shall apply if the Participant, either before or after termination of employment with the Company or one of its subsidiaries or affiliates:

          (i) discloses to others, or takes or uses for his or her own purpose or the purpose of others, any trade secrets, confidential information, knowledge, data or know-how belonging to the Company or any of its subsidiaries or affiliates and obtained by the Participant during the term of his or her employment, whether or not they are the Participant’s work product. Examples of such confidential information or trade secrets include (but are not limited to) customer lists, supplier lists, pricing and cost data, computer programs, delivery routes, advertising plans, wage and salary data, financial information, research and development plans, processes, equipment, product information and all other types and categories of information as to which the Participant knows or has reason to know that the Company or its subsidiaries or affiliates intends or expects secrecy to be maintained;

          (ii) fails to promptly return all documents and other tangible items belonging to the Company or any of its subsidiaries or affiliates in the Participant’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 the Company 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 the Company or any of its subsidiaries or 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 the Company or any of its subsidiaries or affiliates at the time of the termination of the Participant’s employment with the Company or any of its subsidiaries or affiliates;

          (iv) fails to inform any new employer, before accepting employment, of the terms of this paragraph 5 an of the Participant’s continuing obligation to maintain the confidentiality of the trade secrets and other confidential information belonging to the Company or any of its subsidiaries or affiliates and obtained by the Participant during the term of his or her employment with the Company or any of its subsidiaries or affiliates;

          (v) induces or attempts to induce, directly or indirectly, any of the customers of the Company or its subsidiaries or affiliates, employees, representatives or consultants to terminate, discontinue or cease working with or for the Company, or any of its subsidiaries or affiliates, or to breach any contract with the Company or any of its subsidiaries or affiliates, in order to work with or for, or enter into a contract with the Participant or any third party;

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          (vi) engages in conduct which is not in good faith and which disrupts, damages, impairs or interferes with the business, reputation or employees of the Company or any of its subsidiaries or affiliates; or

          (vii) directly or indirectly engages in, becomes employed by, or renders services, advice or assistance to any business in competition with the Company or its affiliates, at any time during the twelve months following termination of employment with the Company.

The Committee shall determine in its sole discretion whether the Participant has engaged in any of the acts set forth in (i) through (vii) above, and its determination shall be conclusive and binding on all interested persons.

Any provision of this paragraph 5 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 5.

6. CHANGE IN CONTROL.

The statement of terms and conditions adopted pursuant to the Plan shall prescribe rules for the acceleration of awards in the event of a “Change in Control” of the Company. For this purpose, a Change in Control shall mean the occurrence of any change in ownership of the Company, change in effective control of the Company, or change in the ownership of a substantial portion of the assets of the Company, as defined in Section 409A(a)(2)(A)(v) of the Internal Revenue Code of 1986, as amended, the regulations thereunder, and any other published interpretive authority, as issued or amended from time to time.

7. TRANSFERABILITY.

Awards made pursuant to the Plan are not transferable or assignable by the Participant other than by will or the laws of descent and distribution, and payment thereunder during the Participant’s lifetime shall be made only to the Participant or to the guardian or legal representative of the Participant. Payments which are due to a deceased Participant pursuant to the Plan shall be paid to the person or persons to whom such right to payment shall have been transferred by will or the laws of descent and distribution.

8. WITHHOLDING TAXES.

Whenever the payment of an award is made, such payment shall be net of an amount sufficient to satisfy federal, state and local withholding tax requirements and authorized deductions.

9. FUNDING.

No provision of the Plan, or regulations adopted hereunder, shall require the Company, for the purpose of satisfying any obligations under the Plan, to purchase assets or segregate or place any assets in a trust or other entity to which contributions are made.

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10. AMENDMENT.

The Plan may be amended or revised by the Board of Directors of the Company at any time and for any reason.

11. TERMINATION.

The Plan may be terminated at any time and for any reason by resolution of the Board of Directors of the Company by the affirmative vote of a majority of the directors in office; provided, however, that such termination shall not affect any incentive award which shall have been granted prior to such termination.

12. 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 Employee Retirement Income Security Act of 1974, as amended, (“ERISA”) and the laws of the State of California to the extent the latter is not preempted by ERISA.

13. NOTICES.

All notices under this Plan shall be sent in writing to the Secretary of the Company. All correspondence to a Participant shall be sent in writing to the Participant at the address which is his or her recorded address as listed on the most recent election form or as specified in the Company’s records.

14. SEVERABILITY.

If any provision of the Plan shall be held by a court of competent jurisdiction to be invalid or unenforceable, the remaining provisions hereunder shall continue to be effective.

15. SUCCESSOR OF THE COMPANY.

This Plan shall be binding upon and inure to the benefit of any successor or successors of the Company.

16. EXECUTION.

This amended and restated Long-Term Incentive Plan was adopted on October 27, 2006.

McKESSON CORPORATION

By:
	Paul E. Kirincic
	Executive Vice President, Human Resources

5

EX-10.21

EXHIBIT 10.21

MCKESSON CORPORATION

2005 STOCK PLAN

TABLE OF CONTENTS

1.	PURPOSE	1
2.	EFFECTIVE DATE	1
3.	ADMINISTRATION	1
4.	ELIGIBILITY	2
5.	STOCK	3
6.	OPTIONS	3
7.	STOCK APPRECIATION RIGHTS	5
8.	RESTRICTED STOCK	7
9.	RESTRICTED STOCK UNITS	8
10.	OUTSIDE DIRECTOR AWARDS	9
11.	PERFORMANCE SHARES	10
12.	OTHER SHARE-BASED AWARDS	11
13.	PERFORMANCE OBJECTIVES	12
14.	ACCELERATION OF VESTING AND EXERCISABILITY	12
15.	CHANGE IN CONTROL	13
16.	RECAPITALIZATION	14
17.	TERM OF PLAN	14
18.	SECURITIES LAW REQUIREMENTS AND LIMITATION OF RIGHTS	14
19.	AWARDS IN FOREIGN COUNTRIES	15
20.	BENEFICIARY DESIGNATION	15
21.	AMENDMENT OF THE PLAN	15
22.	NO AUTHORITY TO REPRICE	16
23.	USE OF PROCEEDS FROM STOCK	16
24.	NO OBLIGATION TO EXERCISE OPTION OR STOCK APPRECIATION RIGHT	16
25.	APPROVAL OF STOCKHOLDERS	16
26.	GOVERNING LAW	16
27.	INTERPRETATION	16
28.	WITHHOLDING TAXES	17
29.	DEFINITIONS	17
30.	EXECUTION	20

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1. PURPOSE.

     This McKesson Corporation 2005 Stock Plan is intended to provide Employees and Directors the opportunity to receive equity-based, long-term incentives so that the Corporation may effectively attract and retain the best available personnel, promote the success of the Corporation by motivating Employees and Directors to superior performance, and align Employee and Director interests with those of the Corporation’s stockholders.

2. EFFECTIVE DATE.

     This Plan was adopted by the Board on May 25, 2005, to be effective immediately, subject to approval by the Corporation’s stockholders. On October 27, 2006, the Plan was retroactively amended and restated effective May 25, 2005.

3. ADMINISTRATION.

     (a) Administration with respect to Outside Directors.

     With respect to Awards to Outside Directors, the Plan shall be administered by (A) the Board or (B) the Committee on Directors and Corporate Governance of the Board; provided that such committee consists solely of Directors who qualify as “non-employee directors” for purposes of Rule 16b-3 promulgated under the Exchange Act. Notwithstanding the foregoing, all Awards made to members of the Committee on Directors and Corporate Governance shall be approved by the Board.

     (b) Administration with respect to Employees.

     With respect to Awards to Employees, the Plan shall be administered by (A) the Board, (B) the Compensation Committee of the Board; provided that such committee consists solely of Directors who qualify as “outside directors” for purposes of Code section 162(m) and “non-employee directors” for purposes of Rule 16b-3 promulgated under the Exchange Act, or (C) in limited situations, by an officer or officers of Corporation pursuant to Section 3(c) below.

     (c) Delegation of Authority to an Officer of the Corporation.

          (i) The Board may delegate to a Director the authority to administer the Plan with respect to Awards made to Employees who are not subject to Section 16 of the Exchange Act.

          (ii) The Board may delegate to an officer or officers of the Corporation the authority to administer the Plan with respect to Options granted to Employees who are not subject to Section 16 of the Exchange Act.

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     (d) Powers of the Administrator.

     The Administrator shall from time to time at its discretion make determinations with respect to Employees and Directors who shall be granted Awards, the number of Shares or Share Equivalents to be subject to each Award, the vesting of Awards, the designation of Options as Incentive Stock Options or Nonstatutory Stock Options and other conditions of Awards to Employees and Directors.

     The Administrator shall have the full power and authority, in its sole discretion, to promulgate any rules and regulations which it deems necessary for the proper administration of the Plan, to supervise the administration of the Plan, to make factual determinations relevant to Plan entitlements, to adopt subplans applicable to specified Affiliates or locations and to take all actions in connection with the administration of the Plan as it deems necessary or advisable.

     The Administrator shall have, subject to the terms and conditions and within the limitations of Plan, including the limitations of Section 22, the authority to modify, extend or renew outstanding Awards granted to Employees and Directors under the Plan; provided, that the exercise period of an Option or Stock Appreciation Right shall not be modified, extended or renewed beyond the later of (i) the fifteenth day of the third month following the date on which the Option or Stock Appreciation Right otherwise would have expired if the Option or Stock Appreciation Right had not been extended, or (ii) December 31 of the calendar year in which the Option or Stock Appreciation Right otherwise would have expired if the Option or Stock Appreciation Right had not been extended, based on the terms of the Option or Stock Appreciation Right on the date of grant. Notwithstanding the foregoing, however, no modification of an Award shall, without the consent of the Participant, impair any Award previously granted under the Plan.

     The interpretation and construction by the Administrator of any provisions of the Plan or of any Award shall be final. No member of a Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Award.

4. ELIGIBILITY.

     Subject to the terms and conditions set forth below, Awards may be granted to Employees and Directors. Notwithstanding the foregoing, only employees of the Corporation and its Subsidiaries may be granted Incentive Stock Options.

     (a) Ten Percent Stockholders.

     An Employee who owns more than 10% of the total combined voting power of all classes of outstanding stock of the Corporation, its parent or any of its Subsidiaries is not eligible to receive an Incentive Stock Option pursuant to this Plan unless the Exercise Price of the Incentive Stock Option is at least 110% of the Fair Market Value of the underlying Shares on the date of the grant and the term of the option does not exceed five years. For purposes of this Section 4(a) the stock ownership of an Employee shall be determined pursuant to Code section 424(d).

2

     (b) Number of Awards.

     A Participant may receive more than one Award, including Awards of the same type, but only on the terms and subject to the restrictions set forth in the Plan. Subject to adjustment as provided in Section 16, the maximum aggregate number of Shares or Share Equivalents that may be subject to Full Value Awards granted to a Participant in any fiscal year of the Corporation is 500,000 Shares or Share Equivalents and the maximum number of Shares or Share Equivalents that may be subject to Options or Stock Appreciation Rights granted to a Participant in any fiscal year of the Corporation is 1,000,000 Shares or Share Equivalents.

5. STOCK.

     (a) Share Reserve.

     Subject to adjustment as provided in Section 16, the aggregate number of Shares subject to Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Shares or Other Share-Based Awards issued under this Plan shall not exceed 13,000,000 Shares, which Shares shall be Shares of the Corporation’s authorized but unissued or reacquired Common Stock bought on the market or otherwise. If any outstanding Option or Stock Appreciation Right under the Plan for any reason expires or is terminated or any Restricted Stock or Other Share-Based Award is forfeited, then the Shares allocable to the unexercised portion of such Option or Stock Appreciation Right or the forfeited Restricted Stock or Other Share-Based Award may again be available for issuance under the Plan. The following Shares may not again be made available for issuance under the Plan: Shares not issued or delivered as a result of the net exercise of a Stock Appreciation Right or Option; Shares used to pay the withholding taxes related to an Award; or Shares repurchased on the open market with the proceeds of an Exercise Price.

     (b) Limitation.

     Notwithstanding any other provision of Section 5, for any one Share issued in connection with a Full Value Award or a stock-settled Stock Appreciation Right, that Share and one additional Share shall no longer be available for issuance in connection with future Awards.

6. OPTIONS.

     Options granted to Employees and Directors pursuant to the Plan shall be evidenced by written Option Agreements in such form as the Administrator shall determine. Options shall be designated as Incentive Stock Options or Nonstatutory Stock Options and shall be subject to the following terms and conditions:

     (a) Number of Shares.

     Each Option shall state the number of Shares to which it pertains, which shall be subject to adjustment in accordance with Section 16.

3

     (b) Exercise Price.

     Each Option shall state the Exercise Price, determined by the Administrator, which shall not be less than 100% the Fair Market Value of a Share on the date of grant, except as provided in Section 16.

     (c) Method of Payment.

     An Option may be exercised, in whole or in part, by giving notice of exercise in the manner prescribed by the Corporation specifying the number of Shares to be purchased. Such notice shall be accompanied by payment in full of the Exercise Price in cash or, if acceptable to the Administrator in its sole discretion (i) in Shares already owned by the Participant (including, without limitation, by attestation to the ownership of such Shares), (ii) by the withholding and surrender of the Shares subject to the Option, or (iii) by delivery (on a form prescribed by the Administrator) of an irrevocable direction to a securities broker approved by the Administrator to sell Shares and to deliver all or part of the sales proceeds to the Corporation in payment of all or part of the purchase price and any withholding taxes. Payment may also be made in any other form approved by the Administrator, consistent with applicable law, regulations and rules.

     (d) Term and Exercise of Options.

     Each Option shall state the time or times when it may become exercisable. No Option shall be exercisable after the expiration of seven years from the date it is granted.

     (e) Limitations on Transferability.

     An Option shall, during a Participant’s lifetime, be exercisable only by the Participant. No Option or any right granted thereunder shall be transferable by the Participant by operation of law or otherwise, other than by will, the laws of descent and distribution. Notwithstanding the foregoing, (i) a Participant may designate a beneficiary to succeed, after the Participant’s death, to all of the Participant’s Options outstanding on the date of death; (ii) a Nonstatutory Stock Option or any right granted thereunder may be transferable pursuant to a qualified domestic relations order as defined in the Code or Title I of the Employee Retirement Income Security Act; and (iii) any Participant, who is a senior executive officer recommended by the Chief Executive Officer and approved by the Administrator may voluntarily transfer any Nonstatutory Stock Option to a Family Member as a gift or through a transfer to an entity in which more than 50% of the voting interests are owned by Family Members (or the Participant) in exchange for an interest in that entity. In the event of any attempt by a Participant to alienate, assign, pledge, hypothecate, or otherwise dispose of an Option or of any right thereunder, except as provided herein, or in the event of the levy of any attachment, execution, or similar process upon the rights or interest hereby conferred, the Corporation at its election may terminate the affected Option by notice to the Participant and the Option shall thereupon become null and void.

     (f) Termination of Employment.

     Each Option Agreement shall set forth the extent to which the Participant shall have the right to exercise the Option following termination of the Participant’s employment or service with the Corporation and its Affiliates. Such provisions shall be determined in the sole

4

discretion of the Administrator, need not be uniform among all Options issued pursuant to the Plan, and may reflect distinctions based on the reasons for termination of employment. Unless otherwise provided in the Option Agreement, the Administrator 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).

     (g) Rights as a Stockholder.

     A Participant or a transferee of a Participant shall have no rights as a stockholder with respect to any Shares covered by his or her Option until the date of issuance of such Shares. Except as provided in Section 16, no adjustment shall be made for dividends, distributions or other rights for which the record date is prior to the date such Shares are issued.

     (h) Limitation of Incentive Stock Option Awards.

     If and to the extent that the aggregate Fair Market Value (determined as of the date the Option is granted) of the Shares with respect to which any Incentive Stock Options are exercisable for the first time by a Participant during any calendar year under this Plan and all other plans maintained by the Corporation, its parent or its Subsidiaries exceeds $100,000, the Options covering Shares in excess of such amount (taking into account the order in which the Options were granted) shall be treated as Nonstatutory Stock Options.

     (i) Other Terms and Conditions.

     The Option Agreement may contain such other terms and conditions, including restrictions or conditions on the vesting of the Option or the conditions under which the Option may be forfeited, as may be determined by the Administrator that are consistent with the Plan.

7. STOCK APPRECIATION RIGHTS.

     Stock Appreciation Rights granted to Employees pursuant to the Plan may be granted alone, in addition to, or in conjunction with, Options. Stock Appreciation Rights shall be evidenced by written Stock Appreciation Right Agreements in such form as the Administrator shall determine and shall be subject to the following terms and conditions:

     (a) Number of Shares.

     Each Stock Appreciation Right shall state the number of Shares or Share Equivalents to which it pertains, which shall be subject to adjustment in accordance with Section 16.

     (b) Calculation of Appreciation; Exercise Price.

     The appreciation distribution payable on the exercise of a Stock Appreciation Right will be equal to the excess of (i) the aggregate Fair Market Value (on the date of exercise of the Stock Appreciation Right) of a number of Shares equal to the number of Shares or Share Equivalents in which the Participant is vested under such Stock Appreciation Right on such date, over (ii) an amount that will be determined by the Administrator on the date of grant of the Stock

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Appreciation Right but that shall not be less than 100% of the Fair Market Value of a Share on the date of grant (the “Exercise Price”).

     (c) Term and Exercise of Stock Appreciation Rights.

     Each Stock Appreciation Right shall state the time or times when may become exercisable. No Stock Appreciation Right shall be exercisable after the expiration of seven years from the date it is granted.

     (d) Payment.

     The appreciation distribution in respect of a Stock Appreciation Right may be paid in Common Stock or in cash, or any combination of the two, or in any other form of consideration as determined by the Administrator and contained in the Stock Appreciation Right Agreement.

     (e) Limitations on Transferability.

     A Stock Appreciation Right shall, during a Participant’s lifetime, be exercisable only by the Participant. No Stock Appreciation Right or any right granted thereunder shall be transferable by the Participant by operation of law or otherwise, other than by will, the laws of descent and distribution. Notwithstanding the foregoing, (i) a Participant may designate a beneficiary to succeed, after the Participant’s death, to all of the Participant’s Stock Appreciation Rights outstanding on the date of death; (ii) a stand-alone Stock Appreciation Right or a Stock Appreciation Right granted in conjunction with a Nonstatutory Stock Option or any right granted thereunder may be transferable pursuant to a qualified domestic relations order as defined in the Code or Title I of the Employee Retirement Income Security Act; and (iii) any Participant, who is a senior executive officer recommended by the Chief Executive Officer and approved by the Administrator may voluntarily transfer any stand-alone Stock Appreciation Right or a Stock Appreciation Right granted in conjunction with a Nonstatutory Stock Option to a Family Member as a gift or through a transfer to an entity in which more than 50% of the voting interests are owned by Family Members (or the Participant) in exchange for an interest in that entity. In the event of any attempt by a Participant to alienate, assign, pledge, hypothecate, or otherwise dispose of a Stock Appreciation Right or of any right thereunder, except as provided herein, or in the event of the levy of any attachment, execution, or similar process upon the rights or interest hereby conferred, the Corporation at its election may terminate the affected Stock Appreciation Right by notice to the Participant and the Stock Appreciation Right shall thereupon become null and void.

     (f) Termination of Employment.

     Each Stock Appreciation Right Agreement shall set forth the extent to which the Participant shall have the right to exercise the Stock Appreciation Right following termination of the Participant’s employment or service with the Corporation and its Affiliates. Such provisions shall be determined in the sole discretion of the Administrator, need not be uniform among all Stock Appreciation Right Agreements entered into pursuant to the Plan, and may reflect distinctions based on the reasons for termination of employment.

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     (g) Rights as a Stockholder.

     A Participant or a transferee of a Participant shall have no rights as a stockholder with respect to any Shares covered by his or her Stock Appreciation Right until the date of issuance of such Shares. Except as provided in Section 16, no adjustment shall be made for dividends, distributions or other rights for which the record date is prior to the date such Shares are issued.

     (h) Other Terms and Conditions.

     The Stock Appreciation Right Agreement may contain such other terms and conditions, including restrictions or conditions on the vesting of the Stock Appreciation Right or the conditions under which the Stock Appreciation Right may be forfeited, as may be determined by the Administrator that are consistent with the Plan.

8. RESTRICTED STOCK.

     (a) Grants.

     Subject to the provisions of the Plan, the Administrator shall have sole and complete authority to determine the Employees to whom, and the time or times at which, grants of Restricted Stock will be made, the number of shares of Restricted Stock to be awarded, the price (if any) to be paid by the recipient of Restricted Stock, the time or times within which such Awards may be subject to forfeiture, and all other terms and conditions of the Awards. The Administrator may condition the grant of Restricted Stock upon the attainment of specified performance objectives established by the Administrator pursuant to Section 13 or such other factors as the Administrator may determine, in its sole discretion.

     The terms of each Restricted Stock Award shall be set forth in a Restricted Stock Agreement between the Corporation and the Participant, which Agreement shall contain such provisions as the Administrator determines to be necessary or appropriate to carry out the intent of the Plan. A book entry shall be made in the records of the Corporation’ transfer agent for each Participant receiving a Restricted Stock Award, alternatively, such Participant shall be issued a stock certificate in respect of such shares of Restricted Stock. If a certificate is issued, it shall be registered in the name of such Participant, and shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Award. The Administrator shall require that stock certificates evidencing such shares be held by the Corporation until the restrictions lapse and that, as a condition of any Restricted Stock Award, the Participant shall deliver to the Corporation a “stock assignment separate from certificate” relating to the stock covered by such Award.

     (b) Restrictions and Conditions.

     The shares of Restricted Stock awarded pursuant to this Section 8 shall be subject to the following restrictions and conditions:

          (i) During a period set by the Administrator commencing with the date of such Award (the “Restriction Period”), the Participant shall not be permitted to sell, transfer, pledge, assign or encumber shares of Restricted Stock, other than pursuant to a qualified

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domestic relations order as defined in the Code or Title I of the Employee Retirement Income Security Act. Within these limits, the Administrator, in its sole discretion, may provide for the lapse of such restrictions in installments and may accelerate or waive such restrictions in whole or in part, based on service, performance, a Change in Control or such other factors or criteria as the Administrator may determine in its sole discretion.

          (ii) Except as provided in this paragraph (ii) and paragraph (i) above, the Participant shall have, with respect to the shares of Restricted Stock, all of the rights of a stockholder of the Corporation, including the right to vote the shares and the right to receive any cash dividends. The Administrator, in its sole discretion, as determined at the time of Award, may provide that the payment of cash dividends shall or may be deferred and, if the Administrator so determines, invested in additional shares of Restricted Stock to the extent available under Section 5, or otherwise invested. Stock dividends issued with respect to Restricted Stock shall be treated as additional shares of Restricted Stock that are subject to the same restrictions and other terms and conditions that apply to the shares with respect to which such dividends are issued.

          (iii) The Administrator shall specify the conditions under which shares of Restricted Stock may be forfeited and such conditions shall be set forth in the Restricted Stock Agreement.

          (iv) If and when the Restriction Period applicable to shares of Restricted Stock expires without a prior forfeiture of the Restricted Stock, an appropriate book entry recording the Participant’s interest in unrestricted Shares shall be entered on the records of the Corporation’s transfer agent or, if appropriate, certificates for an appropriate number of unrestricted Shares shall be delivered promptly to the Participant, and the certificates for the shares of Restricted Stock shall be canceled.

9. RESTRICTED STOCK UNITS.

     (a) Grants.

     Subject to the provisions of the Plan, the Administrator shall have sole and complete authority to determine the Employees and Directors to whom, and the time or times at which, grants of Restricted Stock Units will be made, the number of Restricted Stock Units to be awarded, the price (if any) to be paid by the recipient of the Restricted Stock Units, the time or times within which such Restricted Stock Units may be subject to forfeiture, and all other terms and conditions of the Restricted Stock Unit Awards. The Administrator may condition the grant of Restricted Stock Unit Awards upon the attainment of specified performance objectives established by the Administrator pursuant to Section 13 or such other factors as the Administrator may determine, in its sole discretion.

     The terms of each Restricted Stock Unit Award shall be set forth in a Restricted Stock Unit Award Agreement between the Corporation and the Participant, which Agreement shall contain such provisions as the Administrator determines to be necessary or appropriate to carry out the intent of the Plan. No book entry shall be made in the records of the Corporation’s transfer agent for a Participant receiving a Restricted Stock Unit Award, nor shall such

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Participant be issued a stock certificate in respect of such Restricted Stock Units, and the Participant shall have no right to or interest in shares of Common Stock of the Corporation as a result of the grant of Restricted Stock Units.

     (b) Restrictions and Conditions.

     The Restricted Stock Units awarded pursuant to this Section 9 shall be subject to the following restrictions and conditions:

          (i) At the time of grant of a Restricted Stock Unit Award, the Administrator may impose such restrictions or conditions on the vesting of the Restricted Stock Units, as the Administrator deems appropriate. During such vesting period, the Participant shall not be permitted to sell, transfer, pledge, assign or encumber the Restricted Stock Units, other than pursuant to a qualified domestic relations order as defined in the Code or Title I of the Employee Retirement Income Security Act. Within these limits, the Administrator, in its sole discretion, may provide for the lapse of such restrictions in installments and may accelerate or waive such restrictions in whole or in part, based on service, performance, a Change in Control or such other factors or criteria as the Administrator may determine in its sole discretion.

          (ii) Dividend equivalents may be credited in respect of Restricted Stock Units, as the Administrator deems appropriate. Such dividend equivalents may be credited on behalf of the Participant to a deferred cash account (in a manner prescribed by the Administrator and in compliance with Code section 409A) or converted into additional Restricted Stock Units by dividing (1) the aggregate amount or value of the dividends paid with respect to that number of Shares equal to the number of Restricted Stock Units then credited by (2) the Fair Market Value per Share on the payment date for such dividend. The additional Restricted Stock Units credited by reason of such dividend equivalents will be subject to all of the terms and conditions of the underlying Restricted Stock Unit Award to which they relate.

          (iii) The Administrator shall specify the conditions under which Restricted Stock Units may be forfeited and such conditions shall be set forth in the Restricted Stock Unit Agreement.

     (c) Deferral Election.

     Each recipient of a Restricted Stock Unit Award shall be entitled to elect to defer all or a percentage of any Shares he or she may be entitled to receive upon the lapse of any restrictions or vesting period to which the Award is subject. This election shall be made by giving notice in a manner and within the time prescribed by the Administrator and in compliance with Code section 409A.

10. OUTSIDE DIRECTOR AWARDS.

     Each Outside Director may be granted a Restricted Stock Unit Award on the date of each annual stockholders meeting for up to 5,000 Share Equivalents, as determined by the Board. Such limitation is subject to adjustment as provided in Section 16. Each Restricted Stock Unit Award shall be fully vested on the date of grant; provided, however, that receipt of any Shares as payment for the Restricted Stock Unit Award shall be delayed until such time as the Outside

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Director’s service with the Corporation terminates. Dividend equivalents may be credited in respect of Restricted Stock Units, as the Administrator deems appropriate. Such dividend equivalents may be credited on behalf of the Participant to a deferred cash account (in a manner prescribed by the Administrator and in compliance with Code section 409A) or converted into additional Restricted Stock Units by dividing (1) the aggregate amount or value of the dividends paid with respect to that number of Shares equal to the number of Restricted Stock Units then credited by (2) the Fair Market Value per Share on the payment date for such dividend. The additional Restricted Stock Units credited by reason of such dividend equivalents will be subject to all of the terms and conditions of the underlying Restricted Stock Unit Award to which they relate. Other terms and conditions of the Restricted Stock Unit Awards granted to Outside Directors shall be determined by the Board subject to the provisions of Section 9 and the Plan.

11. PERFORMANCE SHARES.

     (a) Grants.

     Subject to the provisions of the Plan, the Administrator shall have sole and complete authority to determine the Employees to whom, and the time or times at which, grants of Performance Shares will be made, the number of Performance Shares to be awarded, the price (if any) to be paid by the recipient of the Performance Shares, the time or times within which such Performance Shares may be subject to forfeiture, and all other terms and conditions of the Performance Shares.

     The terms of Performance Shares shall be set forth in a Performance Share Agreement between the Corporation and the Participant, which Agreement shall contain such provisions as the Administrator determines to be necessary or appropriate to carry out the intent of the Plan. With respect to a Performance Shares, no book entry shall be made in the records of the Corporation’s transfer agent nor shall certificate for shares of Common Stock be issued at the time the grant is made, and the Participant shall have no right to or interest in shares of Common Stock of the Corporation as a result of the grant of Performance Shares.

     (b) Restrictions and Conditions.

          (i) The Performance Shares awarded pursuant to this Section 11 shall be subject to the following restrictions and conditions: The Administrator may condition the grant of Performance Shares upon the attainment of specified performance objectives established by the Administrator pursuant to Section 13 or such other factors as the Administrator may determine, in its sole discretion or the Administrator may, at the time of grant of a Performance Share Award, set performance objectives in its discretion which, depending on the extent to which they are met, will determine the number of Performance Shares that will be paid out to the Participant. In either case, the time period during which the performance objectives must be met is called the “Performance Period.” After the applicable Performance Period has ended, the recipient of the Performance Shares will be entitled to receive the number of Performance Shares earned by the Participant over the Performance Period, to be determined as a function of the extent to which the corresponding performance objectives have been achieved, and which shares may be subject to additional vesting. After the grant of Performance Shares, the Administrator,

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in its sole discretion, may reduce or waive any performance objective for such Performance Shares.

12. OTHER SHARE-BASED AWARDS.

     (a) Grants.

     Other Awards of Shares and other Awards that are valued in whole or in part by reference to, or are otherwise based on, Shares (“Other Share-Based Awards”), may be granted either alone or in addition to or in conjunction with other Awards under this Plan. Awards under this Section 12 may include (without limitation) the grant of Shares conditioned upon some specified event, the payment of cash based upon the performance of the Common Stock or the grant of securities convertible into Common Stock.

     Subject to the provisions of the Plan, the Administrator shall have sole and complete authority to determine the Employees to whom and the time or times at which Other Share-Based Awards shall be made, the number of Shares, Share Equivalents or other securities, if any, to be granted pursuant to Other Share-Based Awards, and all other conditions of the Other Share-Based Awards. The Administrator may condition the grant of an Other Share-Based Award upon the attainment of specified performance goals or such other factors as the Administrator shall determine, in its sole discretion. In granting an Other Share-Based Award, the Administrator may determine that the recipient of an Other Share-Based Award shall be entitled to receive, currently or on a deferred basis, interest or dividends or dividend equivalents with respect to the Shares or other securities covered by the Award, and the Administrator may provide that such amounts (if any) shall be deemed to have been reinvested in additional Shares or otherwise reinvested. The terms of any Other Share-Based Award shall be set forth in an Other Share-Based Award Agreement between the Corporation and the Participant, which Agreement shall contain such provisions as the Administrator determines to be necessary or appropriate to carry out the intent of the Plan.

     (b) Terms and Conditions.

     In addition to the terms and conditions specified in the Other Share-Based Award Agreement, Other Share-Based Awards shall be subject to the following:

          (i) Any Other Share-Based Award may not be sold, assigned, transferred, pledged or otherwise encumbered, other than pursuant to a qualified domestic relations order as defined in the Code or Title I of the Employee Retirement Income Security Act, prior to the date on which the Shares are issued or the Award becomes payable, or, if later, the date on which any applicable restriction, performance or deferral period lapses.

          (ii) The Other Share-Based Award Agreement shall contain provisions dealing with the disposition of such Award in the event of termination of the Employee’s employment or the Director’s service prior to the exercise, realization or payment of such Award, and the Administrator in its sole discretion may provide for payment of the Award in the event of the Participant’s termination of employment or service with the Corporation or a Change in Control, with such provisions to take account of the specific nature and purpose of the Award.

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13. PERFORMANCE OBJECTIVES.

     The Administrator shall determine the terms and conditions of Awards at the date of grant or thereafter; provided that performance objectives, if any, for each year related to an Award granted to a Covered Employee shall be established by the Administrator not later than the latest date permissible under Section 162(m). To the extent that such Awards are paid to Covered Employees, the performance criteria to be used shall be any of the following, either alone or in any combination, which may be expressed with respect to the Corporation or one or more operating units or groups, as the Compensation Committee of the Board may determine: cash flow; cash flow from operations; total earnings; earnings per share, diluted or basic; earnings per share from continuing operations, diluted or basic; earnings before interest and taxes; earnings before interest, taxes, depreciation, and amortization; earnings from operations; net asset turnover; inventory turnover; capital expenditures; net earnings; operating earnings; gross or operating margin; debt; working capital; return on equity; return on net assets; return on total assets; return on investment; return on capital; return on committed capital; return on invested capital; return on sales; net or gross sales; market share; economic value added; cost of capital; change in assets; expense reduction levels; debt reduction; productivity; stock price; customer satisfaction; employee satisfaction; and total shareholder return. In addition, such performance goals may be based upon the attainment of specified levels of the Corporation’s performance under one or more of the measures described above relative to the performance of other corporations, may be (but need not be) different from year-to-year, and different performance objectives may be applicable to different Participants.

     Performance objectives may be determined on an absolute basis or relative to internal goals or relative to levels attained in prior years or related to other companies or indices or as ratios expressing relationships between two or more performance objectives. In addition, performance objectives may be based upon the attainment of specified levels of corporate performance under one or more of the measures described above relative to the performance of other corporations. The Administrator shall specify the manner of adjustment of any performance objective to the extent necessary to prevent dilution or enlargement of any Award as a result of extraordinary events or circumstances, as determined by the Administrator, or to exclude the effects of extraordinary, unusual, or non-recurring items; changes in applicable laws, regulations, or accounting principles; currency fluctuations; discontinued operations; non-cash items, such as amortization, depreciation, or reserves; asset impairment; or any recapitalization, restructuring, reorganization, merger, acquisition, divestiture, consolidation, spin-off, split-up, combination, liquidation, dissolution, sale of assets, or other similar corporate transaction.

14. ACCELERATION OF VESTING AND EXERCISABILITY.

     The Administrator shall have the power to accelerate the time at which an Award may first be exercised or the time during which an Award or any part thereof will vest, notwithstanding the provisions in the Award stating the time at which it may first be exercised or the time during which it will vest.

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15. CHANGE IN CONTROL.

     (a) An Award may be subject to additional acceleration of vesting and exercisability upon or after a Change in Control as may be provided in the applicable agreement and determined by the Committee on a grant by grant basis or as may be provided in any other written agreement between the Company or any Affiliate and the Participant; provided, however, that in the absence of such provision, no such acceleration shall occur.

     (b) A “Change in Control” of the Corporation 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 Corporation or any of its affiliates, a trustee or any fiduciary holding securities under an employee benefit plan of the Corporation 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 Corporation in substantially the same proportions as their ownership of the Corporation, is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing 30% or more of the combined voting power of the Corporation’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 Corporation 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 Corporation’s stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or

          (iii) The shareholders of the Corporation approve a merger or consolidation of the Corporation with any other Corporation, other than (A) a merger or consolidation which would result in the voting securities of the Corporation outstanding immediately prior thereto continuing to represent (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 Corporation, at least 50% of the combined voting power of the voting securities of the Corporation or such surviving entity outstanding immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of the Corporation (or similar transaction) in which no person acquires more than 50% of the combined voting power of the Corporation’s then outstanding securities; or

          (iv) The shareholders of the Corporation approve a plan of complete liquidation of the Corporation or an agreement for the sale or disposition by the Corporation of all or substantially all of the Corporation’s assets.

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     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 Corporation immediately prior to such transaction or series of transactions.

16. RECAPITALIZATION.

     In the event that the Administrator, in its sole discretion, 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 Common Stock such that an adjustment is appropriate in order to preserve (but not increase) the rights of participants under the Plan, then the Administrator 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 Awards pursuant to Sections 4(b) and 5, (ii) the number and kind of shares issued in respect of outstanding Awards, and (iii) the Exercise Price relating to any Options or Stock Appreciation Right.

17. TERM OF PLAN.

     Awards may be granted pursuant to the Plan until the termination of the Plan on May 24, 2015.

18. SECURITIES LAW REQUIREMENTS AND LIMITATION OF RIGHTS.

     (a) Securities Law.

     No Shares shall be issued pursuant to the Plan unless and until the Corporation has determined that: (i) it and the Participant have taken all actions required to register the Shares under the Securities Act of 1933 or perfected an exemption from registration; (ii) any applicable listing requirement of any stock exchange on which the Common Stock is listed has been satisfied; and (iii) any other applicable provision of state or federal law has been satisfied.

     (b) Employment Rights.

     Neither the Plan nor any Award granted under the Plan shall be deemed to give any individual a right to remain employed by the Corporation or an Affiliate or to remain in service as a Director. The Corporation and its Affiliates reserve the right to terminate the employment of any Employee at any time, with or without cause or for no cause, subject only to a written employment contract (if any), and the Board reserves the right to terminate a Director’s membership on the Board for cause in accordance with the Corporation’s Certificate of Incorporation.

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     (c) Stockholders’ Rights.

     Except as otherwise provided in the Plan, a Participant shall have no dividend rights, voting rights or other rights as a stockholder with respect to any Shares covered by his or her Award prior to an appropriate book entry recording the Participant’s interest in Shares being entered on the records of the Corporation’s transfer agent or, if appropriate, the issuance of a stock certificate for such Shares. No adjustment shall be made for cash dividends or other rights for which the record date is prior to the date when such book entry is made or such certificate is issued.

19. AWARDS IN FOREIGN COUNTRIES.

     The Administrator shall have the authority to adopt such modifications, rules, procedures and subplans as may be necessary or desirable to facilitate compliance with the provisions of the laws and procedures of foreign countries in which the Corporation or its Affiliates may operate to assure the viability of the benefits of Awards made to Participants employed in such countries and to meet the intent of the Plan.

20. BENEFICIARY DESIGNATION.

     Participants and their Beneficiaries may designate on the prescribed form one or more Beneficiaries to whom distribution shall be made of any Award outstanding at the time of the Participant’s or Beneficiary’s death. A Participant or Beneficiary may change such designation at any time by filing the prescribed form with the Administrator. If a Beneficiary has not been designated or if no designated Beneficiary survives the Participant, distribution will be made to the Participant’s spouse, or if none, the Participant’s children in equal shares, or if none, to the residuary beneficiary under the terms of the Participant’s or Beneficiary’s last will and testament or, in the absence of a last will and testament, to the Participant’s or Beneficiary’s estate as Beneficiary. Notwithstanding the foregoing, the Administrator may prescribe specific methods or restrictions on beneficiary designations made Participants or Beneficiaries located outside of the United States.

21. AMENDMENT OF THE PLAN.

     The Board may suspend or discontinue the Plan at any time. The Compensation Committee of the Board may amend the Plan with respect to any Shares at the time not subject to Awards; provided, however, that only the Board may amend the Plan and submit the Plan to the stockholders of the Corporation for approval with respect to amendments that:

     (a) Increase the number of Shares available for issuance under the Plan or increase the number of Shares available for issuance pursuant to Incentive Stock Options under the Plan;

     (b) Materially expand the class of persons eligible to receive Awards;

     (c) Expand the types of awards available under the Plan;

     (d) Materially extend the term of the Plan;

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     (e) Materially change the method of determining the Exercise Price or purchase price of an Award;

     (f) Delete or limit the requirements of Section 22;

     (g) Remove the administration of the Plan from the Administrator; or

     (h) Amend this Section 21 to defeat its purpose.

22. NO AUTHORITY TO REPRICE.

     Without the consent of the stockholders of the Corporation, except as provided in Section 16, the Administrator shall have no authority to effect either (i) the repricing of any outstanding Options or Stock Appreciation Rights under the Plan or (ii) the cancellation of any outstanding Options or Stock Appreciation Rights under the Plan and the grant in substitution therefor of new Options or Stock Appreciation Rights under the Plan covering the same or different numbers of Shares.

23. USE OF PROCEEDS FROM STOCK.

     Proceeds from the sale of Common Stock pursuant to Awards shall constitute general funds of the Corporation.

24. NO OBLIGATION TO EXERCISE OPTION OR STOCK APPRECIATION RIGHT.

     The granting of an Option or Stock Appreciation Right shall impose no obligation upon the Participant to exercise such Option or Stock Appreciation Right.

25. APPROVAL OF STOCKHOLDERS.

     This Plan and any amendments requiring stockholder approval pursuant to Section 21 shall be subject to approval by affirmative vote of the stockholders. Such vote shall be taken at the first annual meeting of stockholders of the Corporation following the adoption of the Plan or of any such amendments, or any adjournment of such meeting.

26. GOVERNING LAW.

     The law of the State of Delaware shall govern all question concerning the construction, validity and interpretation of the Plan, without regard to the state’s conflict of laws rules.

27. INTERPRETATION.

     The Plan is designed and intended to comply with Rule 16b-3 promulgated under the Exchange Act, Code section 162(m), and Code section 409A and Notice 2005-1 promulgated thereunder, and all provisions hereof shall be construed in a manner to so comply.

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28. WITHHOLDING TAXES.

     (a) General.

     To the extent required by applicable law, the recipient of any payment or distribution under the Plan shall make arrangements satisfactory to the Corporation for the satisfaction of any required income tax, social insurance, payroll tax or other tax related to withholding obligations that arise by reason of such payment or distribution. The Corporation shall not be required to make such payment or distribution until such obligations are satisfied.

     (b) Other Awards.

     The Administrator may permit a Participant who exercises an Option or Stock Appreciation Right or who vests in an other Award to satisfy all or part of his or her withholding tax obligations by having the Corporation withhold a portion of the Shares that otherwise would be issued to him or her under such Awards. Such Shares shall be valued at the Fair Market Value on the date when taxes otherwise would be withheld in cash. The payment of withholding taxes by surrendering Shares to the Corporation, if permitted by the Administrator, shall be subject to such restrictions as the Administrator may impose, including any restrictions required by rules of the Securities and Exchange Commission.

29. DEFINITIONS.

     (a) “Administrator” means the Board, either of the Committees appointed to administer the Plan or, if applicable, an officer of the Corporation appointed to administer the Plan in accordance with Section 3(c).

     (b) “Affiliate” means any entity, whether a corporation, partnership, joint venture or other organization that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with the Corporation.

     (c) “Award” means any award of an Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Units, Performance Shares or an Other Share-Based Award under the Plan.

     (d) “Beneficiary” means a person designated as such by a Participant or a Beneficiary for purposes of the Plan or determined with reference to Section 20.

     (e) “Board” means the Board of Directors of the Corporation.

     (f) “Code” means the Internal Revenue Code of 1986, as amended.

     (g) “Committee” means the Compensation Committee of the Board or the Committee on Directors and Corporate Governance of the Board, or both, as applicable.

     (h) “Common Stock” means the $0.01 par value common stock of the Corporation.

     (i) “Corporation” means McKesson Corporation, a Delaware corporation.

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     (j) “Covered Employee” means the Chief Executive Officer or any Employee whose total compensation for the taxable year is required to be reported to stockholders under the Exchange Act by reason of such Employee being among the four highest compensated officers for the taxable year (other than the chief executive officer).

     (k) “Director” means a member of the Board.

     (l) “Employee” means an individual employed by the Corporation or an Affiliate (within the meaning of Code section 3401 and the regulations thereunder).

     (m) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

     (n) “Exercise Price” means the price per Share at which an Option or Stock Appreciation Right may be exercised.

     (o) “Fair Market Value” of a Share as of a specified date means

          (i) if the Common Stock is listed or admitted to trading on any stock exchange, the closing price on the date the Award is granted as reported by such stock exchange (for example, on its official web site, such as www.nyse.com), or

          (ii) if the Common Stock is not listed or admitted to trading on a stock exchange, the mean between the lowest reported bid price and highest reported asked price of the Common Stock on the date the Award is granted in the over-the-counter market, as reported by such over-the-counter market (for example, on its official web site, such as www.otcbb.com), or if no official report exists, as reported by any publication of general circulation selected by the Corporation which regularly reports the market price of the Shares in such market.

     (p) “Family Member” means any person identified as an “immediate family” member in Rule 16(a)-1(e) of the Exchange Act, as such Rule may be amended from time to time. Notwithstanding the foregoing, the Committee may designate any other person(s) or entity(ies) as a “family member.”

     (q) “Full Value Award” means an Award that does not provide for full payment in cash or property by the Participant.

     (r) “Incentive Stock Option” means an Option described in Code section 422(b).

     (s) “Nonstatutory Stock Option” means an Option not described in Code section 422(b) or 423(b).

     (t) “Option” means an Incentive Stock Option or Nonstatutory Stock Option granted pursuant to Section 6. “Option Agreement” means the agreement between the Corporation and the Participant which contains the terms and conditions pertaining to the Option.

     (u) “Other Share-Based Award” means an Award granted pursuant to Section 12. “Other Share-Based Award Agreement” means the agreement between the Corporation and the

18

recipient of an Other Share-Based Award which contains the terms and conditions pertaining to the Other Share-Based Award.

     (v) “Outside Director” means a Director who is not an Employee.

     (w) “Participant” means an Employee or Director who has received an Award.

     (x) “Performance Shares” means an Award denominated in Share Equivalents granted pursuant to Section 11 that may be earned in whole or in part based upon attainment of performance objectives established by the Administrator pursuant to Section 13. “Performance Share Agreement” means the agreement between the Corporation and the recipient of the Performance Shares which contains the terms and conditions pertaining to the Performance Shares.

     (y) “Plan” means this McKesson Corporation 2005 Stock Plan.

     (z) “Restricted Stock” means Shares granted pursuant to Section 8. “Restricted Stock Agreement” means the agreement between the Corporation and the recipient of the Restricted Stock which contains the terms, conditions and restrictions pertaining to the Restricted Stock.

     (aa) “Restricted Stock Unit” means an Award denominated in Share Equivalents granted pursuant to Section 9 in which the Participant has the right to receive a specified number of Shares at or over a specified period of time. “Restricted Stock Unit Agreement” means the agreement between the Corporation and the recipient of the Restricted Stock Unit Award which contains the terms and conditions pertaining to the Restricted Stock Unit Award.

     (bb) “Share” means one share of Common Stock, adjusted in accordance with Section 16 (if applicable).

     (cc) “Share Equivalent” means a bookkeeping entry representing a right to the equivalent of one Share.

     (dd) “Stock Appreciation Right” means a right, granted pursuant to Section 7, to receive an amount equal to the value of a specified number of Shares which will be payable in Shares or cash as established by the Administrator. “Stock Appreciation Right Agreement” means the agreement between the Corporation and the recipient of the Stock Appreciation Right which contains the terms and conditions pertaining to the Stock Appreciation Right.

     (ee) “Subsidiary” means any corporation in an unbroken chain of corporations beginning with the Corporation if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

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30.	EXECUTION.
	This amended and restated 2005 Stock Plan was adopted on October 27, 2006.
	McKESSON CORPORATION

   By:

Paul E. Kirincic

Executive Vice President, Human Resources

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EX-10.30

Exhibit 10.30

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

     This AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the “Agreement”), effective as of November 1, 2006 (the “Effective Date”), by and between McKesson Corporation (the “Company”), a Delaware corporation with its principal office at One Post Street, San Francisco, California, and John H. Hammergren (“Executive”).

RECITALS

     A. WHEREAS, Executive and the Company have previously entered into that certain Extended Employment Agreement dated as of April 1, 2004 (the “Prior Employment Agreement”);

     B. WHEREAS, Executive and the Company wish to amend and restate the terms of Executive’s employment with the Company, as set forth herein;

     C. WHEREAS, the Company, in its business, develops and uses certain Confidential Information (as defined in Paragraph 6(c) below). Such Confidential Information will necessarily be communicated to or acquired by Executive by virtue of his employment with the Company, and the Company has spent time, effort and money to develop such Confidential Information and to promote and increase its goodwill; and

     D. WHEREAS, the Company desires to retain the services of, and employ, Executive on its own behalf and on behalf of its affiliated companies for the period provided in this Agreement and, in so doing, to protect its Confidential Information and goodwill, and Executive is willing to accept employment by the Company on a full-time basis for such period, upon the terms and conditions hereinafter set forth.

     NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants herein contained, the parties hereto agree as follows:

1.

Employment. Subject to the terms and conditions of this Agreement, the Company agrees to employ Executive, and Executive agrees to accept employment from, and remain in the employ of, the Company for the period stated in Paragraph 3 hereof.

2.

Position and Responsibilities. During the period of his employment hereunder, Executive agrees to serve the Company, and the Company shall employ Executive, as President and Chief Executive Officer of the Company and in such other senior corporate executive capacities consistent with such position as may be specified from time to time by the Board of Directors of the Company (the “Board”). During the period of his employment hereunder, Executive shall report directly to the Board. Executive also presently serves as Chairman of the Board of Directors of the Company (“Chairman”).

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3. Term and Duties.

(a)

Term of Employment. The period of Executive’s employment under this Agreement shall be deemed to have commenced on the date of this Agreement and shall continue until the third anniversary of the Effective Date, unless terminated earlier in accordance with Paragraph 7 below; provided, however, that this Agreement shall renew automatically, such that the remaining term of this Agreement is always three (3) years, unless terminated earlier in accordance with Paragraph 7 below (the “Term”).

(b)

Duties. During the period of his employment hereunder and except for illness, reasonable vacation periods, and reasonable leaves of absence, Executive shall devote substantially all of his business time, attention, skill and efforts to the business and affairs of the Company and its affiliated companies, as such business and affairs now exist and as they may be hereafter changed or added to, under and pursuant to the general direction of the Board; provided, however, that, (i) with the approval of the Board (which will not be unreasonably withheld or delayed), Executive may serve, or continue to serve, on the boards of directors of, hold any other offices or positions in, for profit companies or organizations, which, in the Board’s judgment, will not present any conflict of interest with the Company or any of its subsidiaries or affiliates or divisions, or materially affect the performance of Executive’s duties pursuant to this Agreement and (ii) Executive may devote a portion of his time to the management of his personal affairs or involvement in charitable activities, which activities shall not materially affect the performance of Executive’s duties pursuant to this Agreement. The services which are to be employed by Executive hereunder are to be rendered in the State of California, or in such other place or places in the United States or elsewhere as may be determined from time to time by the Board, but are to be rendered primarily at the Company’s principal place of business at One Post Street in San Francisco, California. Unless and until otherwise mutually agreed to between the Company and Executive, Executive shall be at liberty to maintain his residence in the San Francisco Bay Area, State of California.

4. Compensation and Reimbursement of Expenses; Other Benefits.

(a) Compensation. During the period of his employment hereunder, Executive shall be paid a salary, in monthly or semi-monthly installments (in accordance with the Company’s normal payroll practices for senior executive officers), at the rate of One Million Three Hundred Seventy-Eight Thousand Two Hundred and Fifty-Five Dollars ($1,378.255) per year, (or such higher salary as may be from time to time approved by the Board (or any duly authorized Committee thereof), any such higher salary so approved to be thereafter the minimum salary payable to Executive during the remainder of the Term hereof), plus such additional incentive compensation, if any, as may be awarded to him

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yearly by the Board (or any duly authorized Committee thereof). For purposes of the MIP (as defined in subparagraph (c) below), for each of the Company’s fiscal years ending during the Term of this Agreement, Executive’s Individual Target Award shall be no less than One Hundred and Thirty-Five Percent (135%) of his base salary for the applicable Year (as defined in the MIP).

(b)

Reimbursement of Expenses. The Company shall pay or reimburse Executive, in accordance with its normal policies and practices, for all reasonable travel and other expenses incurred by Executive in performing his obligations hereunder. The Company further agrees to furnish Executive with such assistance and accommodations as shall be suitable to the character of Executive’s position with the Company and adequate for the performance of his duties hereunder.

(c)

Other Benefits. During the period of his employment hereunder, Executive shall be entitled to receive all other benefits of employment generally available to other members of the Company’s management and those benefits for which key executives are or shall become eligible, when and as he becomes eligible therefor, including without limitation, group health and life insurance benefits, short and long-term disability plans, deferred compensation plans, and participation in the Company’s Profit-Sharing Investment Plan, Employee Stock Purchase Plan, Executive Medical Plan, Management Incentive Plan (“MIP”), Long Term Incentive Plan, Executive Benefit Retirement Plan (“EBRP”), Executive Survivor Benefits Plan (“ESBP”), Stock Purchase Plan and 1994 Stock Option and Restricted Stock Plan (or any other similar plan or arrangement), and the Company agrees that none of such benefits shall be altered in any manner or in such a way as to reduce any then existing entitlement of Executive thereunder or any entitlement provided for hereunder. For purposes of the EBRP, beginning with Fiscal Year 2006, Executive’s “Average Final Compensation” shall mean one-fifth of the sum of (x) the base salary and (y) one hundred and fifty percent (150%) of the annual bonuses under the MIP or any successor or replacement plans (including base salary and annual MIP bonuses or portions thereof voluntarily deferred under a cash or deferred plan or any other tax qualified or non-qualified salary deferral plan) in each case earned by Executive for the five consecutive years of full-time continuous employment with the Company which (a) fall within the 15-year period ending on the first day of the month following Executive’s Separation from Service with the Company and (b) produce the highest such sum. To the extent specific provisions of this Agreement that relate to other plans or arrangements of the Company are more favorable than the terms and conditions set forth in such other plan or arrangement of the Company, the provisions of this Agreement shall control. Additionally, to the extent any other plan or arrangement of the Company contains provisions regarding noncompetition, unauthorized use of confidential information, or nonsolicitation, such provisions shall not be

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deemed to have been violated by Executive except to the extent his activities would also constitute a violation of similar provisions contained herein.

5. Benefits Payable Upon Disability or Death.

(a)	Disability Benefits. If, during the term of Executive’s employment hereunder, Executive shall be prevented from properly performing services hereunder by reason of his illness or other physical or mental incapacity, the Company shall continue to pay Executive his then current salary hereunder during the period of such disability; or, if less, for a period of (12) calendar months, at which time the Company’s obligations hereunder (other than as provided herein) shall cease and terminate. Following the expiration of such 12-month period, Executive shall be eligible to receive his benefits pursuant to the EBRP calculated at the percentage in effect at the time of the disability as described in Paragraph 8(b)(i)(E) herein, subject to a maximum level of seventy-five percent (75%), of Average Final Compensation (as defined in Paragraph 4(c) above) without regard to any reduction for early retirement; provided that the lump-sum payment for this Approved Retirement shall never be less than the lump-sum payment that would have been provided under Executive’s Prior Employment Agreement for an Approved Retirement under EBRP on April 1, 2004 (the “Minimum Lump-Sum Payment”).
(b)	Death Benefits. In the event of the death of Executive during the term of his employment hereunder, (i) Executive’s salary payable hereunder shall continue to be paid to Executive’s surviving spouse, or if there is no spouse surviving, then to Executive’s designee or representative (as the case may be) through the six-month period following the end of the calendar month in which Executive’s death occurs and (ii) the benefits payable under the EBRP, subject to the Minimum Lump-Sum Payment described in Paragraph 5(a) above, calculated at the percentage in effect at the time of his death as described in Paragraph 8(b)(i)(E) herein, subject to a maximum level of seventy-five percent (75%), of Average Final Compensation (as defined in Paragraph 4(c) above) shall be payable without regard to any reduction for early retirement. Thereafter, all of the Company’s obligations hereunder (other than as provided herein) shall cease and terminate.
(c)	Other Plans. Except as specifically provided herein, the provisions of this Paragraph 5 shall not affect (i) any rights of Executive’s heirs, administrators, executors, legatees, beneficiaries or assigns under the Company’s Profit-Sharing Investment Plan, EBRP, Long Term Incentive Plan, ESBP, 1994 Stock Option and Restricted Stock Plan (or any similar plan or arrangement), any stock purchase plan or any other employee benefit plan of the Company, and any such rights shall be governed by the terms of the respective plans, or (ii) any rights that exist with respect to

4

indemnification or directors and officers insurance or any other rights hereunder which are intended to continue after a termination of employment.

6. Obligations of Executive During and After Employment.

(a)

Noncompetition. Executive agrees that during the Term of his employment hereunder, he will engage in no other business activities, directly or indirectly, which are or may be competitive with or which might place him in a competing position to that of the Company; or any affiliated company, without the prior written consent of the Board. Without any inference as to any other activity, the foregoing shall not limit ownership by Executive of (i) less than one percent (1%) of the common stock or public debt of any publicly traded entity; (ii) less than five percent (5%) in any investment pool, hedge fund, private equity fund or other similar vehicle in which Executive has no control over the investments that are made by such investment pool, hedge fund, private equity fund or other similar vehicle; or (iii) the amount of stock or other interests Executive holds as of the Effective Date of this Agreement in the entities listed on Schedule 6(a) hereof, provided that Executive is not actively engaged in the management of such entities.

(b)

Unauthorized Use of Confidential Information. Executive acknowledges and agrees that (i) during the course of his employment Executive will have produced and/or have access to Confidential Information, of the Company and its affiliated companies, and (ii) the unauthorized use or sale of any of such confidential or proprietary information at any time would harm the Company and would constitute unfair competition with the Company. Executive promises and agrees not to engage in any unfair competition with the Company by reason of Executive’s use of Confidential Information either during or after the Term of his employment hereunder. Therefore, during and subsequent to his employment by the Company and its affiliated companies, Executive agrees to hold in confidence and not, directly or indirectly, disclose, use, copy or make lists of any such information, except (x) pursuant to his duties hereunder during his employment by the Company, (y) to the extent expressly authorized by the Company in writing or as required by law or (z) to comply with a legal process, provided Executive promptly notifies the Company in order that the Company, at its expense, may seek a protective order and Executive cooperates with the Company in seeking such order. All records, files, drawings, documents, equipment, and the like, or copies thereof, relating to the Company’s business, or the business of any of its affiliated companies, which Executive shall prepare, use, or come into contact with, shall be and remain the sole property of the Company, and shall not be removed (except to allow Executive to perform his responsibilities hereunder while traveling for business purposes or otherwise working away from his office) from the Company’s or the

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affiliated company’s premises without its prior written consent, and shall be promptly returned to the Company upon termination of employment with the Company and its affiliated companies. This Paragraph 6(b) shall survive the termination or expiration of the term of Executive’s employment hereunder.

(c)

Confidential Information Defined. For purposes of this Agreement, “Confidential Information” means all information (whether reduced to written, electronic, magnetic or other tangible form) acquired in any way by Executive during the course of his employment with the Company or any of its affiliated companies concerning the products, projects, activities, business or affairs of the Company and its affiliated companies or the Company’s or any of its affiliated companies’ customers, including, without limitation, (i) all information concerning trade secrets of the Company and its affiliated companies, including computer programs, system documentation, special hardware, product hardware, related software development, manuals, formulae, processes, methods, machines, compositions, ideas, improvements or inventions of the Company and its affiliated companies, (ii) all sales and financial information concerning the Company and its affiliated companies, (iii) all customer and supplier lists of the Company and its affiliated companies, (iv) all information concerning products or projects under development of the Company and its affiliated companies or marketing plans for any of those products or projects, and (v) all information in any way concerning the products, projects, activities, business or affairs of customers of the Company and its affiliated companies which was furnished to him by the Company or any of its agents or customers; provided, however, that Confidential Information does not include information which (A) becomes available to the public or the industry in which the Company operates other than as a result of a disclosure by Executive (other than in the normal course of Executive’s duties hereunder), (B) was available to him on a nonconfidential basis outside of his employment with the Company, or (C) becomes available to him on a non-confidential basis from a source that Executive believes in good faith is not under an obligation of confidentiality to the Company.

(d)

Nonsolicitation. Executive recognizes and acknowledges that it is essential for the proper protection of the business of the Company and its affiliated companies that Executive be restrained for a reasonable period following the termination of Executive’s employment with the Company and its affiliated companies from: (i) soliciting or inducing any employee of the Company or any of its affiliated companies to leave the employ of the Company or any of its affiliated companies; or (ii) hiring or attempting to hire any employee of the Company or any of its affiliated companies. Accordingly, Executive agrees that during the Term of his employment hereunder, and for the Restricted Period thereafter following the termination of Executive’s employment with the Company and its

6

affiliated companies for any reason, Executive shall not, directly or indirectly, hire, solicit, aid in or encourage the hiring and/or solicitation of, contract with, aid in or encourage the contracting with, or induce or encourage to leave the employment of the Company or any of its affiliated companies, any employee of the Company or any of its affiliated companies. Notwithstanding the foregoing, nothing in this Paragraph 6(d) shall prohibit Executive from providing references on an unsolicited basis with respect to employees of the Company. For purposes of this Paragraph 6(d), the “Restricted Period” shall be deemed to be equal to the longer of (i) two (2) years following the termination of Executive’s employment for any reason, or (ii) the period during which Executive is receiving salary continuation payments hereunder. This Paragraph 6(d) shall survive the termination or expiration of this Agreement.

(e)

Nonsolicitation of Customers. Executive recognizes and acknowledges that it is essential for the proper protection of the business of the Company and its affiliated companies that Executive be restrained for a reasonable period following the termination of Executive’s employment with the Company and its affiliated companies from directly and personally soliciting the trade of or trading with the customers of the Company or any of its affiliated companies for any competitive business purpose. Accordingly, Executive agrees that during the Term of his employment hereunder, and for the Restricted Period thereafter following the termination of Executive’s employment with the Company and its affiliated companies for any reason, Executive shall not directly and personally solicit, or use Confidential Information to aid in the solicitation of, contract with, or service any person or entity which is, or was, within two (2) years prior to the termination of Executive’s employment with the Company and its affiliated companies, a customer or client of the Company or any of its affiliated companies for the purpose of offering or selling a product or service competitive with any of those offered by the Company or any of its affiliated companies. For purposes of this Paragraph 6(e), the “Restricted Period” shall be deemed to be equal to the longer of (i) two (2) years following the termination of Executive’s employment for any reason, or (ii) the period during which Executive is receiving salary continuation payments hereunder. This Paragraph 6(e) shall survive the termination or expiration of this Agreement

(f)

Remedy for Breach. Executive agrees that in the event of a breach or threatened breach of any of the covenants contained in this Paragraph 6, the Company shall have the right and remedy to have such covenants specifically enforced by any court having jurisdiction, it being acknowledged and agreed that any material breach of any of the covenants will cause irreparable injury to the Company and that money damages will not provide an adequate remedy to the Company.

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(g) Mutual Dependence. Executive understands and agrees that his full compliance with the provisions of this Section 6 is an express condition for and mutually dependent upon the obligations of the Company to pay Executive his compensation and benefits, including severance pay, during the remainder of the Term. Executive further understands and agrees that in the event that any of the provisions of this Section 6 are rendered void, invalid, illegal or otherwise unenforceable, in whole or in substantial part, as a result of actions not initiated by the Company or its agent, the Company’s obligations to pay Executive his Base Salary, bonus or any other compensation and benefits, including severance pay, may be terminated immediately.

7. Termination.

(i)

For Cause. Notwithstanding anything herein to the contrary, the Company may, without liability, terminate Executive’s employment hereunder for Cause (as defined below) at any time within ninety (90) days of the date the Board of Directors, or of any Committee thereof, first has knowledge of the event justifying such termination by delivery of a Notice of Termination (as defined in subparagraph (d) below) from the Board (or any duly authorized Committee thereof) specifying such Cause, and thereafter, the Company’s obligations hereunder shall cease and terminate.

(ii)

Definition of Cause. Except as provided in Paragraph 8(c)(iii) below, as used herein, the term “Cause” shall mean (i) Executive’s willful engaging in misconduct with regard to the Company or any of its affiliated companies which is demonstrably and materially injurious to the Company and its affiliated companies taken as a whole, (ii) Executive’s willful dishonesty of a material nature involving the Company’s or any of its affiliated companies’ assets, or (iii) a material failure by Executive to comply with any of the provisions of this Agreement. No act, or failure to act, on Executive’s part shall be considered “willful” unless done, or omitted to be done, by Executive not in good faith and without reasonable belief that Executive’s action or omission was in the best interest of the Company or its subsidiaries. Notwithstanding the foregoing, Executive shall not be deemed to have been terminated for Cause pursuant to this Paragraph 7(a) unless and until there shall have been delivered to Executive a copy of a resolution duly adopted by the affirmative vote of not less than three quarters of the entire membership of the Board at a meeting of the Board called and held for the purpose of making a determination of whether Cause for termination exists (after reasonable notice to Executive and an opportunity for Executive to be heard before the Board), finding that in the good faith opinion

8

of the Board, Executive was guilty of misconduct as set forth above in this subparagraph 7(a)(i) and specifying the particulars thereof in detail. In addition, if the conduct alleged to have constituted Cause is curable (as determined by the Board), the Notice of Termination shall not be delivered until after the Board (or any duly authorized Committee thereof) shall have given Executive written notice specifying the conduct alleged to have constituted such Cause and Executive has failed to cure such conduct, within fifteen (15) days following receipt of such notice.

(iii) Arbitration Required to Confirm Cause. In the event of a termination for Cause pursuant to this Paragraph 7(a) or pursuant to subparagraph 8(c)(iii), the Company shall continue to pay Executive’s then current compensation as specified in this Agreement until the issuance of an arbitration award affirming the Company’s action. Such arbitration shall be held in accordance with the provisions of Paragraph 10(c) below. In the event the award upholds the action of the Company, Executive shall promptly repay to the Company any sums received pursuant to Paragraph 8 below, following termination of employment.

(b)

Other than for Cause, Performance, Reorganization; Any Reason or Reasons. Notwithstanding anything herein to the contrary, the Company may also terminate Executive’s employment (without regard to any general or specific policies of the Company relating to the employment or termination of its employees) (i) should Executive fail to perform his duties hereunder in a manner satisfactory to the Board, provided that Executive shall first be given written notice of such unsatisfactory performance and a period of ninety (90) days to improve such performance to a level deemed acceptable to the Board, (ii) should Executive’s position be eliminated as a result of a reorganization or restructuring of the Company or any of its affiliated companies or (iii) for any other reason or reasons.

(c)

Termination by Executive. Executive may terminate his employment hereunder with or without Good Reason by delivery of a Notice of Termination to the Company, provided that any such Notice of Termination for Good Reason shall be given within ninety (90) days after the occurrence of the event giving rise to Good Reason, which notice shall specify the act, or failure to act, alleged to give rise to Good Reason hereunder and shall otherwise comply with the provisions of subparagraph (d) below. If Executive gives the Company such Notice of Termination, the Company shall have fifteen (15) days after receipt of such notice to remedy the facts and circumstances that allegedly gave rise to Good Reason. In the event Executive does not provide a Notice of Termination to the Company of termination for Good Reason, such termination shall be deemed a voluntary resignation by Executive.

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(i) Definition of Good Reason. As used herein, the term “Good Reason” shall mean any of the following acts or failures to act, if taken without the express written consent of Executive, (A) any material change by the Company in Executive’s functions, duties or responsibilities as President and Chief Executive Officer, which change would cause Executive’s position with the Company to become of less dignity, responsibility, importance, or scope as compared to the position and attributes that applied to Executive as of the Effective Date, or an adverse change in Executive’s title, position or his obligation and right to report directly to the Board, provided, however that “Good Reason shall not be deemed to exist if Executive ceases to serve as Chairman; (B) any reduction in Executive’s base annual salary, MIP target or Long Term Incentive compensation (LTI) targets, which LTI targets include cash awards with performance periods greater than one year and equity based grants, except for reductions that are equivalent to reductions applicable to executive officers of the Company; (C) any material failure by the Company to comply with any of the provisions of the Agreement; (D) the Company’s requiring Executive to be based at any office or location more than 25 miles from the office at which Executive is based as of the Effective Date, except for travel reasonably required in the performance of Executive’s responsibilities; (E) any failure by the Company to obtain the express assumption of the Agreement by any successor or assign of the Company; (F) cancellation of the automatic renewal mechanism set forth in Paragraph 3(a) above; (G) if the Board removes Executive as Chairman at or after a Change in Control (or prior to a Change in Control if at the request of any third party participating in or causing the Change in Control), unless such removal is required by then-applicable law; or (H) a change in the majority of the members of the Company’s Board of Directors as it was construed immediately prior to the change in control. Executive’s right to terminate employment for Good Reason pursuant to this Paragraph 7 shall not be affected by Executive’s incapacity due to physical or mental illness.

(d) Notice of Termination. Any termination of Executive’s employment by the Company or by Executive hereunder shall be communicated by a Notice of Termination to the other party hereto. For purposes of this Agreement, a “Notice of Termination” shall mean a written notice which shall indicate the specific termination provisions in this Agreement relied upon and which sets forth (i) in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive’s employment under the provision so indicated and (ii) the date of Executive’s termination of employment, which shall be no earlier than sixty (60) days after such Notice is received by the other party. Any purported termination of Executive’s employment by the Company which

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is not effected pursuant to a Notice of Termination satisfying the requirements of this Agreement shall not be effective. In the case of a termination for Cause, the Notice of Termination shall also satisfy the requirements set forth in Paragraph 7(a).

8. Obligations of the Company on Termination of Employment.

(a) For Cause; Voluntary Resignation.

(i)

For Cause. If (i) the Company terminates Executive’s employment for Cause hereunder or (ii) Executive terminates his employment with the Company other than for Good Reason, then, except as otherwise specifically set forth herein, all of the Company’s obligations hereunder shall immediately cease and terminate. Executive shall thereupon have no further right or entitlement to additional salary, incentive compensation payments or awards, or any perquisites from the Company whatsoever, and Executive’s rights, if any, under the Company’s employee and executive benefit plans shall be determined solely in accordance with the express terms of the respective plans. Notwithstanding the foregoing, Executive shall be entitled to receive any accrued base salary, accrued but unused vacation and unreimbursed expenses.

(ii)

Voluntary Resignation. If Executive resigns other than for Good Reason, Executive shall receive (1) the benefits under Paragraphs 8(b)(i)(C) and 8(b)(i)(H) below and (2) subject to the express special forfeiture and repayment provisions of the respective plans (or the terms and conditions applicable thereto), an Approved Retirement (as defined in the EBRP) commencing on the expiration of this Agreement, which shall be calculated at the initial level of 60% of Average Final Compensation (as modified by Paragraph 4(c) above) and increased by 1.5% per full year from April 1, 2004 until his resignation, with a maximum benefit level of 75% of Average Final Compensation and without any reduction for early retirement; provided that the foregoing EBRP benefit shall be subject to the Minimum Lump-Sum Payment described in Paragraph 5(a) above.

(b) Termination Other than for Cause; Termination for Good Reason.

(i) If the Company terminates Executive’s employment pursuant to Paragraph 7(b) above or Executive terminates his employment with the Company for Good Reason, in both cases prior to a Change in Control of the Company or at any time other than within the two (2) years immediately following a Change in Control, then in lieu of any benefits payable pursuant to the Company’s Executive Severance Policy (so long as the compensation and

11

benefits payable hereunder equal or exceed those payable under said Policy) and in complete satisfaction and discharge of all of its obligations to Executive hereunder (other than obligations that arise under Paragraphs 9 or 10 hereof), the Company shall, while Executive is not in breach of the provisions of Paragraph 6 hereof; provided any such suspended payments and/or benefits shall resume once any such breach has been cured,

(A) provide Executive with monthly cash payments equal to Executive’s final monthly base salary (“Severance”) for the remainder of the Term (the “Severance Period”) provided that, if such payment is deferred in accordance with Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”), it shall accrue interest at the Deferred Compensation Administration Plan III Rate (the “DCAP Rate”) for the period of such deferral, which interest shall be paid together with such payment,

(B) provide Executive with a cash payment equal to Executive’s incentive award compensation under the terms of the Company’s MIP for each fiscal year ending with or within the Severance Period, such MIP awards to be equal, in each case, to 100% of Executive’s Individual Target Award existing at the time of his termination of employment, and to be made at the time and in the manner applicable to MIP payments for current employees, provided that, if such payment is deferred in accordance with Section 409A, it shall accrue interest at the DCAP Rate for the period of such deferral, which interest shall be paid together with such payment,

(C) provide Executive with lifetime (x) coverage under the Company’s Executive Medical Plan and financial counseling program under the applicable policies as they existed on the date of his termination, and (y) office space and secretarial support services as may be suitable and adequate for Executive’s needs,

(D) continue Executive’s participation in the Deferred Compensation Administration Plan III for the Severance Period,

(E) subject to the express special forfeiture and repayment provisions of the respective plans (or the terms and conditions applicable thereto), continue the accrual and vesting of Executive’s rights, benefits and existing awards for the Severance Period for purposes of the EBRP and ESBP (with Executive’s benefits, for purposes of those two plans only, calculated on the basis of Executive receiving (x) an Approved Retirement (as defined in the EBRP) commencing on the expiration of this Agreement, regardless of Executive’s age at termination, and, (y) with respect

12

to the EBRP, a benefit calculated at the initial level of 60% of Average Final Compensation (as defined in Paragraph 4(c) above) and increased by 0.125% per completed month (i.e., 1.5% per full year) from April 1, 2004 until the expiration of the Severance Period, with a maximum benefit level of 75% of Average Final Compensation under the EBRP without any reduction for early retirement); provided that, in the event Executive’s employment is terminated in connection with a Change of Control pursuant to Paragraph 8(c) below, the foregoing EBRP benefit shall be subject to the Minimum Lump-Sum Payment described in Paragraph 5(a) above,

(F) subject to both (x) the express special forfeiture and repayment provisions of the applicable plans or arrangements (or the terms and conditions applicable thereto) and (y) the provisions of subparagraph (b)(ii) below, accelerate the vesting of all Executive’s awards granted prior to such termination of employment pursuant to the Company’s 1994 Stock Option and Restricted Stock Plan (or any similar plan or arrangement); provided, that Executive shall in no event be entitled to or receive additional grants or awards subsequent to the date of his termination of employment,

(G) continue Executive’s participation in the Company’s Long Term Incentive Plan for the Severance Period (but not thereafter) (pro-rating performance periods as of the date Executive ceased rendering services to the Company), provided, that Executive shall not participate in any way whatsoever in any performance period commencing subsequent to the date of termination,

(H) deem Executive’s termination to have occurred as if the sum of his age and years of service to the Company is at least 65 for purposes of both the Deferred Compensation Administration Plan III and the 1994 Stock Option and Restricted Stock Plan (or any similar plan or arrangement), and

(I) terminate Executive’s participation in the Company’s tax-qualified profit-sharing plans and stock purchase plans, pursuant to the terms of the respective plans, as of the date of Executive’s termination of employment.

During the Severance Period, Executive shall have no obligation to seek other employment and the Company shall not (x) have the right of offset as a result of any compensation Executive may receive from a subsequent employer or, (y) while Executive is not in breach of the provisions of Paragraph 6, reduce its payments pursuant to this Paragraph 8(b)(i).

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(c) Termination in Connection with a Change in Control. Notwithstanding the provisions of Paragraph 8(a) and (b) hereof, in the event of an occurrence of a Change in Control (which shall include the 1999 Change in Control), the following provisions shall apply in the event of Executive’s termination of employment (i) within two (2) years following such Change in Control or (ii) within the six (6) month period immediately preceding such Change in Control if such termination of employment occurs at the direction of the person or entity that is involved in, or otherwise in connection with, such Change in Control:

(i)

If the Company terminates Executive’s employment pursuant to Paragraph 7(b) above or otherwise without Cause (as defined in subparagraph 8(c)(iii) below) or Executive terminates his employment with the Company for Good Reason, then the Company shall, in lieu of the benefits payable under subparagraphs (A) and (B) of Paragraph 8(b)(i) above, immediately pay to Executive in a cash lump sum an amount equal to the greater of: (x) 2.99 multiplied by Executive’s “base amount” determined pursuant to section 280G of the Internal Revenue Code of 1986, as amended (the “Code”) and (y) the sum of the amounts described in clauses (A) and (B) in Paragraph 8(b)(i) above and shall take all actions described in clauses (C) through (I) in Paragraph 8(b)(i) hereof; provided that, if such payment is deferred in accordance with Section 409A, it shall accrue interest at the DCAP Rate for the period of such deferral, which interest shall be paid together with such payment.

(ii)

Change in Control. For purposes of this Agreement, 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 subparagraphs shall occur; (A) during any period of not more than twelve consecutive months, any “person” (as such term is used in sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (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 13(d)(3) under the Exchange Act), directly or indirectly, of securities of the Company representing 35% or more of the combined voting power of the Company’s then outstanding securities; (B) during any period of not more than twelve consecutive months, 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

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with the Company to effect a transaction described in clause (A), (C) or (D) of this subparagraph) 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; (C) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than (x) 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 (y) 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 (D) 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, in the judgment of the Compensation Committee of the Board, the holders of the Company’s 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.

(iii)

Notwithstanding anything to the contrary contained in subparagraph 7(a)(i), for purposes of this Paragraph 8(c), termination by the Company of Executive’s employment for “Cause” shall mean termination upon Executive’s willful engaging in misconduct which is demonstrably and materially injurious to the Company and its subsidiaries taken as a whole. No act, or failure to act, on Executive’s part shall be considered “willful” unless done, or omitted to be done, by Executive not in good faith and without reasonable belief that Executive’s action or omission was in the best interest of the Company or its subsidiaries. Notwithstanding the foregoing, Executive shall not be deemed to

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have been terminated for Cause pursuant to this subparagraph 8(c)(iii) unless and until there shall have been delivered to Executive a copy of a resolution duly adopted by the affirmative vote of not less than three quarters of the entire membership of the Board at a meeting of the Board called and held for the purpose of making a determination of whether Cause for termination exists (after reasonable notice to Executive and an opportunity for Executive to be heard before the Board), finding that in the good faith opinion of the Board, Executive was guilty of misconduct as set forth above in this subparagraph 8(c)(iii) and specifying the particulars thereof in detail. In addition, if the conduct alleged to have constituted Cause is curable (as determined by the Board), the Notice of Termination shall not be delivered until after the Board (or any duly authorized Committee thereof) shall have given Executive written notice specifying the conduct alleged to have constituted such Cause and Executive has failed to cure such conduct, within fifteen (15) days following receipt of such notice.

(iv) Remedy by Company. If, within two years following a Change in Control, Executive terminates employment for Good Reason in accordance with the provisions of Paragraph 8(c), Executive shall make a good faith reasonable determination immediately after the fifteen-day period whether the facts and circumstances that allegedly gave rise to Good Reason have been remedied and shall communicate such determination in writing to the Company (the “Executive Determination”). If Executive determines that adequate remedy has not occurred, then the initial Notice of Termination shall remain in effect. The Company shall not be bound by any Executive Determination that applies to any termination other than a termination for Good Reason that occurs within two years following a Change in Control. Notwithstanding any dispute concerning whether Good Reason exists for termination of employment or whether adequate remedy has occurred, the Company shall immediately pay to Executive, as specified in subparagraph 8(c)(i), any amounts otherwise due under this Agreement. Executive may be required to repay such amounts to the Company if any such dispute is finally determined adversely to Executive.

9.

Compliance with Section 409A

Notwithstanding anything in this Agreement to the contrary, the Company shall administer and construe this Agreement in accordance with Section 409A, the regulations promulgated thereunder, and any other published interpretive authority, as issued or amended from time to time, so as not to subject the Executive to the additional tax and interest imposed under Section 409A. To the extent that the Company and/or the Executive reasonably determine that any

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amount payable under this Agreement would trigger the additional tax imposed by Section 409A, the Company and Executive shall promptly agree in good faith on appropriate modifications to the Agreement (including delaying or restructuring payments) to avoid such additional tax yet preserve (to the nearest extent reasonably possible) the intended benefit payable to the Executive. If Executive incurs liability under Section 409A(a)(1)(B) as a direct result of the Company’s failure to fulfill the foregoing obligations, the Company will indemnify and hold Executive harmless from such liability; provided, however, that the Company shall have no obligation under this provision for any such failures that are attributable to Executive’s own willful acts or omissions or to Executive’s demand for a distribution of benefits notwithstanding a recommendation of the Company against the distribution.

10. Excise Tax Payment.

(a)

If, as a result of Executive’s employment with the Company or termination thereof, the benefits received by Executive (the “Total Payments”) are subject to the excise tax provision set forth in section 4999 of the Code (the “Excise Tax”), the Company shall pay to Executive an additional amount (the “Gross-Up Payment”) such that the net amount retained by Executive, after deduction of any Excise Tax on the benefits received hereunder and any Federal, state and local income and employment taxes and Excise Tax upon the Gross-Up Payment, shall be equal to the Total Payments.

(b)

For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all of the Total Payments shall be treated as “parachute payments” (within the meaning of section 280G(b)(2) of the Code) unless, in the opinion of tax counsel (“Tax Counsel”) reasonably acceptable to Executive and selected by the accounting firm which was, immediately prior to the Change in Control, the Company’s independent auditor (the “Auditor”), such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of section 280G(b)(4)(A) of the Code, (ii) all “excess parachute payments” within the meaning of section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments (in whole or in part) represent “reasonable compensation” for services actually rendered (within the meaning of section 280G(b)(4)(B) of the Code) in excess of the Base Amount (as defined in section, 280G(b)(3) of the Code) allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, and (iii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, Executive shall be deemed to pay federal income tax at the highest marginal rate of federal income taxation

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in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of Executive’s residence on the date of termination (or if there is no date of termination, then the date on which the Gross-Up Payment is calculated for purposes of this Paragraph 10(b)), net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes.

(c)

In the event that the Excise Tax is finally determined to be less than the amount taken into account hereunder in calculating the Gross-Up Payment, Executive shall repay to the Company, within five (5) business days following the time that the amount of such reduction in the Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment taxes imposed on the Gross-Up Payment being repaid by Executive, to the extent that such repayment results in a reduction in the Excise Tax and a dollar-for-dollar reduction in Executive’s taxable income and wages for purposes of federal, state and local income and employment taxes, plus interest on the amount of such repayment at 120% of the rate provided in section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder in calculating the Gross-Up Payment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess plus any interest, penalties or additions payable by Executive with respect to such excess) within five (5) business days following the time that the amount of such excess is finally determined. Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Total Payments.

(d)

Notwithstanding anything else herein, this Paragraph 10 shall survive any termination of employment, any payments hereunder or any termination of obligations hereunder; provided, however, that this Paragraph 10 shall not survive any termination of employment for Cause that occurs prior to a Change in Control, or any payments or termination of obligations in connection with such termination for Cause.

11. General Provisions.

(a) Executive’s rights and obligations hereunder shall not be transferable by assignment or otherwise; provided, however, that this Agreement shall inure to the benefit of and be enforceable by Executive’s personal and legal representatives, executors, administrator, successors, heirs, distributees, devisees and legatees. If Executive should die while any

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amounts are still payable to Executive hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Executive’s devisee, legatee or other designee or, if there be no such designee, to Executive’s estate. Nothing in this Agreement shall prevent the consolidation of the Company with, or its merger into, any other corporation, or the sale by the Company of all or substantially all of its properties or assets; and this Agreement shall inure to the benefit of, be binding upon and be enforceable by, any successor surviving or resulting corporation, or other entity to which such assets shall be transferred. Unless otherwise agreed to by Executive, the Company shall require any successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to Executive (such agreement not to be unreasonably withheld or delayed), 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 it if no such succession or assignment had taken place. This Agreement shall not otherwise be assigned by the Company. As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor or assign to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this paragraph or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. This Agreement shall not be terminated by the voluntary or involuntary dissolution of the Company.

(b)

This Agreement and the rights of Executive with respect to the benefits of employment referred to in Paragraph 4(c) constitute the entire agreement between the parties hereto in respect of the employment of Executive by the Company. This Agreement supersedes and replaces in its entirety all prior oral and written agreements, understandings, commitments, and practices between the parties, including, but not limited to, the Prior Employment Agreement and the Termination Agreement.

(c)

Executive and the Company agree that any dispute, controversy or claim between them, other than any dispute, controversy claim or breach arising under Paragraph 6 of this Agreement, shall be settled exclusively by final and binding arbitration in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association (the “AAA Rules”). A neutral and impartial arbitrator shall be chosen by mutual agreement of the parties or, if the parties are unable to agree upon an arbitrator within a reasonable period of time, then a neutral and impartial arbitrator shall be appointed in accordance with the arbitrator nomination and selection procedure set forth in the AAA Rules. The arbitrator shall apply the same substantive law, with the same statutes of limitations and remedies, that would apply if the claims were brought in court. The arbitrator also shall prepare a written decision containing the

19

essential findings and conclusions upon which the decision is based. Either party may bring an action in court to compel arbitration under this Agreement or to enforce an arbitration award. Otherwise, neither party shall initiate or prosecute any lawsuit in any way related to any claim subject to this agreement to arbitrate. Any arbitration held pursuant to this paragraph shall take place in San Francisco, California. If any proceeding is necessary to enforce or interpret the terms of this Agreement, or to recover damages for breach thereof, the prevailing party shall be entitled to reasonable attorneys’ fees and costs and disbursements, not to exceed in aggregate one percent (1%) of the net worth of the other party, in addition to any other relief to which he or it may be entitled. The Company agrees to pay the costs and fees of the arbitrator. THE PARTIES UNDERSTAND AND AGREE THAT THIS AGREEMENT CONSTITUTES A WAIVER OF THEIR RIGHT TO A TRIAL BY JURY OF ANY CLAIMS OR CONTROVERSIES COVERED BY THIS AGREEMENT.

(d)	The provisions of this Agreement shall be regarded as divisible, and if any of said provisions or any part hereof are declared invalid or unenforceable by a court of competent jurisdiction, the validity and enforceability of the remainder of such provisions or parts hereof and the applicability hereof shall not be affected thereby.
(e)	This Agreement may not be amended or modified except by a written instrument executed by the Company and Executive.
(f)	This Agreement and the rights and obligations hereunder shall be governed by and construed in accordance with the laws of the State of California without regard to its principles of conflict of laws.
(g)	For purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered by messenger or in person, or when mailed by United States registered mail, return receipt requested, postage prepaid, as follows:

If to the Company:	McKesson Corporation
	One Post Street
	San Francisco, CA 94104
	Attention: Office of the General Counsel
If to Executive:	John H. Hammergren
	c/o McKesson Corporation
	One Post Street
	San Francisco, CA 94104

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or such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.

     IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

McKesson Corporation
A Delaware Corporation
By:
	Paul E. Kirincic
	Executive Vice President, Human
Resources

ATTEST:

Executive Vice President and Secretary	John Hammergren
By the Authority of the
Compensation Committee of the
Board of Directors of
McKesson Corporation
on November ___, 2006

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EX-10.31

Exhibit 10.31

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

     THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the “Agreement”), dated as of November ___, 2006 (the “Effective Date”), is by and between McKesson Corporation (the “Company”), a Delaware corporation with its principal office at One Post Street, San Francisco, California, and Pamela J. Pure (“Executive”).

RECITALS

     A. WHEREAS, Executive and the Company have previously entered into that certain Employment Agreement dated as of April 1, 2004 (the “Prior Employment Agreement”);

     B. WHEREAS, Executive and the Company wish to amend and restate the terms of Executive’s employment with the Company, as set forth herein;

     C. The Company, in its business, develops and uses certain Confidential Information (as defined in Paragraph 7(c) below). Such Confidential Information will necessarily be communicated to or acquired by Executive by virtue of her employment with the Company, and the Company has spent time, effort and money to develop such Confidential Information and to promote and increase its goodwill; and

     D. The Company desires to retain the services of, and employ, Executive on its own behalf and on behalf of its affiliated companies for the period provided in this Agreement and, in so doing, to protect its Confidential Information and goodwill, and Executive is willing to accept employment by the Company on a full-time basis for such period, upon the terms and conditions hereinafter set forth.

     NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants herein contained, the parties hereto agree as follows:

          1. Employment. Subject to the terms and conditions of this Agreement, the Company agrees to employ Executive, and Executive agrees to accept employment from, and remain in the employ of, the Company for the period stated in Paragraph 3 hereof.

          2. Position and Responsibilities. During the period of her employment hereunder, Executive agrees to serve the Company, and the Company shall employ Executive, as Executive Vice President and President, McKesson Provider Technologies, or in such other senior corporate executive capacity or capacities as may be specified from time to time by the Chief Executive Officer of the Company (the “Chief Executive Officer”).

          3. Terms and Duties:

               (a) Term of Employment. The period of Executive’s employment under this Agreement shall be deemed to have commenced on the date of this Agreement and shall continue until the third anniversary of the Effective Date; provided, however, that the term of this Agreement shall automatically be extended for one (1) additional year on each

anniversary of the Effective Date, unless terminated earlier in accordance with Paragraph 8 below (the “Term”).

               (b) Duties. During the period of her employment hereunder and except for illness, reasonable vacation periods, and reasonable leaves of absence, Executive shall devote her best efforts and all her business time, attention and skill to the business and affairs of the Company and its affiliated companies, as such business and affairs now exist and as they may be hereafter changed or added to, under and pursuant to the general direction of the Board of Directors of the Company (the “Board”); provided, however, that, with the approval of the Chief Executive Officer, Executive may serve, or continue to serve, on the boards of directors of, hold any other offices or positions in, companies or organizations which, in such officer’s judgment, will not present any conflict of interest with the Company or any of its subsidiaries or affiliates or divisions, or materially affect the performance of Executive’s duties pursuant to this Agreement. The Company shall retain full direction and control of the means and methods by which Executive performs the services for which she is employed hereunder. The services which are to be employed by Executive hereunder are to be rendered in the State of Georgia, or in such other place or places in the United States or elsewhere as may be determined from time to time by the Board.

          4. Compensation and Reimbursement of Expenses.

               (a) Compensation. During the period of her employment hereunder, Executive shall be paid a salary, in monthly or semi-monthly installments (in accordance with the Company’s normal payroll practices for senior executive officers), at the rate of Six Hundred Thirty-Four Thousand, Seven Hundred and Seventy-Six Dollars ($634,776) per year, or such higher salary as may be from time to time approved by the Board (or any duly authorized Committee thereof) (any such higher salary so approved to be thereafter the minimum salary payable to Executive during the remainder of the term hereof), plus such additional incentive compensation, if any, as may be awarded to her yearly by the Board (or any duly authorized Committee thereof). For purposes of the MIP (as defined in paragraph 5 below), for each of the Company’s fiscal years ending during the term of this Agreement, Executive’s Individual Target Award shall be 85% of her base salary for the applicable Year (as defined in the MIP). Executive shall also receive a Mortgage Allowance of Two Thousand Six Hundred Forty-Six Dollars and Four Cents ($2,646.04) per month through February 2013, or termination of employment, if earlier, provided that her current residence remains her principal residence.

               (b) Reimbursement of Expenses. The Company shall pay or reimburse Executive, in accordance with its normal policies and practices, for all reasonable travel and other expenses incurred by Executive in performing her obligations hereunder.

          5. Other Benefits. During the period of her employment hereunder, Executive shall be entitled to receive all other benefits of employment generally available to other members of the Company’s senior management and those benefits for which key executives are or shall become eligible, when and as she becomes eligible therefore, including without limitation, group health and life insurance benefits, short and long-term disability plans, deferred compensation plans, and participation in the Company’s Profit-Sharing Investment Plan, Employee Stock Purchase Plan, Executive Medical Plan, Management Incentive Plan

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(“MIP”), Executive Benefit Retirement Plan (“EBRP”), Executive Survivor Benefits Plan (“ESBP”), Stock Purchase Plan and 1994 Stock Option and Restricted Stock Plan (or any other similar plan or arrangement).

          6. Benefits Payable Upon Disability or Death.

               (a) Disability Benefits. If, during the term of this Agreement, Executive shall be prevented from properly performing services hereunder by reason of her illness or other physical or mental incapacity, the Company shall continue to pay Executive her then current salary hereunder during the period of such disability; or, if less, for a period of (12) calendar months, at which time the Company’s obligations hereunder shall cease and terminate.

               (b) Death Benefits. In the event of the death of Executive during the term of this Agreement, Executive’s salary payable hereunder shall continue to be paid to Executive’s surviving spouse or, if there is no spouse surviving, then to Executive’s designee or representative (as the case may be) through the six-month period following the end of the calendar month in which Executive’s death occurs. Thereafter, all of the Company’s obligations hereunder shall cease and terminate.

               (c) Other Plans. The provisions of this Paragraph 6 shall not affect any rights of Executive’s heirs, administrators, executors, legatees, beneficiaries or assigns under the Company’s Profit-Sharing Investment Plan, EBRP, ESBP, 1994 Stock Option and Restricted Stock Plan (or any other similar plan or arrangement), any stock purchase plan or any other employee benefit plan of the Company, and any such rights shall be governed by the terms of the respective plans.

          7. Obligations of Executive During and After Employment.

               (a) Noncompetition. Executive agrees that during the term of her employment hereunder, that she will work exclusively for and devote her substantial working energies solely to the benefit of the Company. Executive further agrees that for a period of two (2) years following the termination of her employment for whatever reason, that Executive will not perform, in any state of the United States of America, any like or similar services that Executive performed during the course of her employment with Company, for any competitor of Company. Executive agrees that, at the time of execution of this Agreement, (1) the Company is currently conducting or planning to solicit and conduct business in each of the states of the United States of America, and (2) that she has direct or indirect supervisory responsibilities for such conduct or plans in each such state.

               (b)  Trade Secret and Confidential Information. Executive acknowledges and agrees that, during the course of her employment, Executive will have produced and/or have access to trade secrets and Confidential Information (as defined below), of the Company and that the unauthorized use or disclosure of any of such trade secrets and Confidential Information would harm the Company.

                    (i) Trade Secrets. Executive promises and agrees to take all reasonable steps to maintain and protect the trade secrets of the Company and its affiliates during and after Executive’s employment with the Company. Executive further agrees not to use or

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disclose any trade secret of the Company and its affiliates after the termination of her employment.

                    (ii) Confidential Information. Executive promises and agrees to take all reasonable steps to maintain and protect the Confidential Information (as defined below) of the Company during and for a period of three years after Executive’s employment with the Company. Executive further agrees not to use or disclose any Confidential Information of the Company for a three year period after the termination of her employment with the Company. Therefore subject to these restrictions, Executive agrees to hold in confidence and not, directly or indirectly, disclose, use, copy or make lists of any such information, except to the extent expressly authorized by the Company in writing or as required by law. All records, files, drawings, documents, equipment, and the like, or copies thereof, relating to the Company’s business which Executive shall prepare, use, or come into contact with, shall be and remain the sole property of the Company, and shall not be removed (except to allow Executive to perform her responsibilities hereunder while traveling for business purposes or otherwise working away from her office) from the Company’s premises without its prior written consent, and shall be promptly returned to the Company upon termination of employment with the Company. This Paragraph 7(b) shall survive the termination or expiration of this Agreement.

                    (iii) Confidential Information Defined. For purposes of this Agreement, “Confidential Information” excludes trade secrets of the Company, but includes all other information (whether reduced to written, electronic, magnetic or other tangible form) acquired in any way by Executive during the course of her employment with the Company concerning the products, projects, activities, business or affairs of the Company, or the Company’s customers, including without limitation, (i) all information concerning computer programs, system documentation, special hardware, product hardware, related software development, manuals, formulae, processes, methods, machines, compositions, ideas, improvements or inventions of the Company and its affiliated companies, (ii) all sales and financial information concerning the Company and its affiliated companies, (iii) all customer and supplier lists of the Company and its affiliated companies, (iv) all information concerning products or projects under development by the Company or any of its affiliated companies or marketing plans for any of those products or projects, and (v) all information in any way concerning the products, projects, activities, business or affairs of customers of the Company or any of its affiliated companies which was furnished to her by the Company or any of its agents or customers; provided, however, that Confidential Information does not include information which (A) becomes available to the public other than as a result of a disclosure by Executive, (B) was available to her on a non-confidential basis outside of her employment with the Company, or (C) becomes available to her on a non-confidential basis from a source other than the Company or any of its agents, creditors, suppliers, lessors, lessees or customers.

               (c) Non-solicitation of Employees. Executive agrees that for a period of two years following the termination of Executive’s employment for any reason, that Executive will not solicit, recruit or hire any employee of Company with whom Executive had business contact or about whom Executive had access to Confidential Information regarding the employee’s pay, performance, duties or customer contacts.

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               (d) Non-solicitation of Customers. Executive recognizes and acknowledges that it is essential for the proper protection of the business of the Company that Executive be restrained for a reasonable period following the termination of Executive’s employment with the Company from soliciting customers of the Company. Executive agrees for a period of two years following the termination of Executive’s employment for whatever reason, that Executive will not solicit for any competitive purpose the customers of Company, such customers shall be limited to those customers with whom Executive had material personal, business contact within the last three years of Executive’s employment with Company.

               (e) Remedy for Breach. Executive agrees that in the event of a breach or threatened breach of any of the covenants contained in this Paragraph 7, the Company shall have the right and remedy to have such covenants specifically enforced by any court having jurisdiction, it being acknowledged and agreed that any material breach of any of the covenants will cause irreparable injury to the Company and that money damages will not provide an adequate remedy to the Company.

               (f) Blue-Penciling. Executive acknowledges and agrees that the noncompetition and nonsolicitation provisions contained herein are reasonable and valid in geographic, temporal and subject matter scope and in all other respects, and do not impose limitations greater than are necessary to protect the goodwill, Confidential Information and other business interests of the Company. Nevertheless, if any court determines that any of said noncompetition and other restrictive covenants and agreements, or any part thereof, is unenforceable because of the duration or geographic scope of such provision, such court shall have the power to reduce the duration or scope of such provision, as the case may be, and, in its reduced form, such provision shall then be enforceable to the maximum extent permitted by applicable law.

               (g) Mutual Dependence. Executive understands and agrees that her full compliance with Section 7 of this Agreement is an express condition for and mutually dependent upon the obligations of the Company to pay Executive her compensation and benefits, including severance pay, during the remainder of the Term. Executive further understands and agrees that in the event that any provisions of Section 7 of this Agreement are rendered void, invalid, illegal or otherwise unenforceable, in whole or in substantial part, as a result of actions not initiated by the Company or its agent, the Company’s obligations to pay Executive her Base Salary, bonus or any other compensation and benefits, including severance pay, may be terminated immediately.

          8. Termination.

               (a) For Cause. Notwithstanding anything herein to the contrary, the Company may, without liability, terminate Executive’s employment hereunder for Cause (as defined below) at any time upon written notice from the Board (or any duly authorized Committee thereof) specifying such Cause, and thereafter, the Company’s obligations hereunder shall cease and terminate; provided, however, that such written notice shall not be delivered until after the Board (or any duly authorized Committee thereof) shall have given Executive written notice specifying the conduct alleged to have constituted such Cause and Executive has failed to cure such conduct, if curable, within fifteen (15) days following receipt of such notice. As used

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herein, the term “Cause” shall mean negligent or willful engagement in misconduct which, in the sole determination of the Chief Executive Officer (or his designee), is injurious to the Company, its employees, or its customers.

               (b) Arbitration Required to Confirm Cause. In the event of a termination for Cause pursuant to subparagraph (a) above, the Company shall continue to pay Executive’s then current compensation as specified in this Agreement until the issuance of an arbitration award affirming the Company’s action. Such arbitration shall be held in accordance with the provisions of Paragraph 12(d) below. In the event the award upholds the action of the Company, Executive shall promptly repay to the Company any sums received pursuant to this subparagraph 8(b), following termination of employment.

               (c) Other than For Cause, Performance, Reorganization. Notwithstanding anything herein to the contrary, the Company may also terminate Executive’s employment (without regard to any general or specific policies of the Company relating to the employment or termination of its employees) (i) should Executive fail to perform her duties hereunder in a manner satisfactory to the Chief Executive Officer, (ii) should Executive’s position be eliminated as a result of a reorganization or restructuring of the Company or any of its affiliated companies, or (iii) for any other reason or reasons, in the Company’s sole discretion.

               (d) Obligations of the Company on Termination of Employment.

                    (i) If the Company terminates Executive’s employment pursuant to subparagraph 8(a) above and the Company’s action is affirmed as specified in subparagraph 8(b) above or Executive terminates her employment with the Company other than for Good Reason (as defined in subparagraph (d)(iii) below), then all of the Company’s obligations hereunder shall immediately cease and terminate. Executive shall thereupon have no further right or entitlement to additional salary, incentive compensation payments or awards, or any perquisites from the Company whatsoever, and Executive’s rights, if any, under the Company’s employee and executive benefit plans shall be determined solely in accordance with the express terms of the respective plans.

                    (ii) If the Company terminates Executive’s employment pursuant to subparagraph 8(c) above or Executive terminates her employment with the Company for Good Reason prior to the expiration of the Term, then in lieu of any benefits payable pursuant to the Company’s Executive Severance Policy (so long as the compensation and benefits payable hereunder equal or exceed those payable under said Policy) and in complete satisfaction and discharge of all of its obligations to Executive hereunder, the Company shall, provided Executive is not in breach of the provisions of Paragraph 7 hereof and except as provided in Paragraph 9 below, and conditioned upon Executive’s execution of a full release of claims, (A) provide Executive with monthly cash payments equal to Executive’s final monthly base salary (“Severance”) for the remainder of the Term (the “Severance Period”); provided that, if such payment is deferred in accordance with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), it shall accrue interest at the Deferred Compensation Administration Plan III Rate (the “DCAP Rate”) for the period of such deferral, which interest shall be paid together with such payment, and further provided that the Company’s obligation to make such Severance payments shall be reduced by any compensation received by Executive

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from a subsequent employer during the Severance Period, (B) consider Executive for a bonus under the terms of the Company’s MIP for the fiscal year in which termination occurs (but not for any subsequent year) provided that any such bonus, if earned, shall be pro-rated to reflect the portion of the year for which Executive was actively employed, and shall be made at the time and in the manner applicable to MIP payments for current employees; provided, however, that, if such payment is deferred in accordance with Section 409A of the Code (“Section 409A”), it shall accrue interest at the DCAP Rate for the period of such deferral, which interest shall be paid together with such payment, (C) continue Executive’s Executive Medical Plan benefits until the end of the Severance Period, (D) subject to the express special forfeiture and repayment provisions of the respective plans (or the terms and conditions applicable thereto), continue the accrual and vesting of Executive’s rights, benefits and existing awards for the remainder of the Severance Period for purposes of the EBRP, ESBP, and the Stock Option and Restricted Stock Plan (or any other similar plan or arrangement); provided, however, that (unless otherwise provided by the terms of the applicable plan; or unless the Board, or any duly authorized Committee thereof, in its sole discretion determines otherwise) Executive shall in no event receive or be entitled either to additional grants or awards subsequent to the date of termination, nor “Approved Retirement” status, under the foregoing plans, and (E) terminate Executive’s participation in the Company’s tax-qualified profit-sharing plans, long-term incentive plan, and stock purchase plans, pursuant to the terms of the respective plans, as of the date of Executive’s termination of employment.

                    (iii) For purposes of this Agreement, “Good Reason” shall mean any of the following actions, if taken without the express written consent of Executive, (A) any material change by the Company in Executive’s functions, duties or responsibilities as Executive Vice President and President, McKesson Provider Technologies, which change would cause Executive’s position with the Company to become of less dignity, responsibility, importance, or scope as compared to the position and attributes that applied to Executive as of the Effective Date, (B) any reduction in Executive’s base salary, other than a proportional reduction effected as part of an across-the-board reduction affecting all executive employees of the Company, (C) any material failure by the Company to comply with any of the provisions of the Agreement, (D) the Company’s requiring Executive to be based at any office or location more than 25 miles from the office at which Executive is based as of the Effective Date, except for travel reasonably required in the performance of Executive’s responsibilities, or (E) in the event of a Change in Control, any change in the level of officer within the Company to whom Executive reports, as this reporting relationship existed immediately prior to a Change in Control.

          9. Termination in Connection with a Change in Control. Notwithstanding the provisions of Paragraph 8(d), in the event of an occurrence of a Change in Control, the following provisions shall apply in the event of Executive’s termination of employment (i) within two (2) years following such Change in Control, or (ii) within the six (6) month period immediately preceding such Change in Control if such termination of employment occurs at the direction of the person or entity that is involved in, or otherwise in connection with, such Change in Control:

               (a) If the Company terminates Executive’s employment pursuant to Paragraph 8(c) above or otherwise without Cause or Executive terminates her employment with

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the Company for Good Reason, then the Company shall, in lieu of the benefits payable under Paragraph 8(d)(ii) above, immediately pay to Executive in a cash lump sum an amount equal to 2.99 multiplied by Executive’s Earnings and shall take all actions described in clauses (C) through (E) in Paragraph 8(d)(ii) hereof; provided that, if such payment is deferred in accordance with Section 409A, it shall accrue interest at the DCAP Rate for the period of such deferral, which interest shall be paid together with such payment. For purposes of this Section 9(a), “Earnings” shall mean the sum of (i) Executive’s annual base salary and (ii) the greater of Executive’s target bonus under the MIP or the average MIP bonus paid Executive over the prior three fiscal years.

               (b) Change in Control. For purposes of this Agreement, a “Change in Control” of the Company shall mean the occurrence of any change in ownership of the Company, change in effective control of the Company, or change in the ownership of a substantial portion of the assets of the Company, as defined in Section 409A(a)(2)(A)(v), the regulations thereunder, and any other published interpretive authority, as issued or amended from time to time.

          10. Excise Tax Payment

               (a) If, as a result of Executive’s employment with the Company or termination thereof, the benefits received by Executive under Paragraph 9 above (the “Total Payments”) are subject to the excise tax provision set forth in Section 4999 of the Code (the “Excise Tax”), the Company shall pay to Executive an additional amount (the “Gross-Up Payment”) such that the net amount retained by Executive, after deduction of any Excise Tax on the benefits received hereunder and any Federal, state and local income and employment taxes and Excise Tax upon the Gross-Up Payment, shall be equal to the Total Payments.

               (b) For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all of the Total Payments shall be treated as “parachute payments” (within the meaning of Section 280G(b)(2) of the Code) unless, in the opinion of tax counsel (“Tax Counsel”) reasonably acceptable to Executive and selected by the accounting firm which was, immediately prior to the Change in Control, the Company’s independent auditor (the “Auditor”), such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of Section 280G(b)(4)(A) of the Code, (ii) all “excess parachute payments” within the meaning of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments (in whole or in part) represent “reasonable compensation” for services actually rendered (within the meaning of Section 280G(b)(4)(B) of the Code) in excess of the Base Amount (as defined in Section, 280G(b)(3) of the Code) allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, and (iii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, Executive shall be deemed to pay federal income tax at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of Executive’s residence on the date of termination (or if there is no date of termination,

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then the date on which the Gross-Up Payment is calculated for purposes of this Paragraph 10(b)), net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes.

               (c) In the event that the Excise Tax is finally determined to be less than the amount taken into account hereunder in calculating the Gross-Up Payment, Executive shall repay to the Company, within five (5) business days following the time that the amount of such reduction in the Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment taxes imposed on the Gross-Up Payment being repaid by Executive, to the extent that such repayment results in a reduction in the Excise Tax and a dollar-for-dollar reduction in Executive’s taxable income and wages for purposes of federal, state and local income and employment taxes, plus interest on the amount of such repayment at 120% of the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder in calculating the Gross-Up Payment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess plus any interest, penalties or additions payable by Executive with respect to such excess) within five (5) business days following the time that the amount of such excess is finally determined. Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Total Payments.

               (d) Notwithstanding anything else herein, this Paragraph 10 shall survive any termination of employment, any payments hereunder or any termination of obligations hereunder; provided, however, that this Paragraph 10 shall not survive any termination of employment for Cause that occurs prior to a Change in Control or any payments or termination of obligations in connection with such termination for Cause.

          11. Compliance with Section 409A

               Notwithstanding anything in this Agreement to the contrary, the Company shall administer and construe this Agreement in accordance with Section 409A, the regulations promulgated thereunder, and any other published interpretive authority, as issued or amended from time to time, so as not to subject Executive to the additional tax and interest imposed under Section 409A. To the extent that the Company and/or Executive reasonably determine that any amount payable under this Agreement would trigger the additional tax imposed by Section 409A, the Company and Executive shall promptly agree in good faith on appropriate modifications to the Agreement (including delaying or restructuring payments) to avoid such additional tax yet preserve (to the nearest extent reasonably possible) the intended benefit payable to Executive. If Executive incurs liability under Section 409A(a)(1)(B) as a direct result of the Company’s failure to fulfill the foregoing obligations, the Company will indemnify and hold Executive harmless from such liability; provided, however, that the Company shall have no obligation under this provision for any such failures that are attributable to Executive’s own willful acts or omissions or to Executive’s demand for a distribution of benefits notwithstanding a recommendation of the Company against the distribution.

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          12. General Provisions.

               (a) Executive’s rights and obligations hereunder shall not be transferable by assignment or otherwise. Nothing in this Agreement shall prevent the consolidation of the Company with, or its merger into, any other corporation, or the sale by the Company of all or substantially all of its properties or assets; and this Agreement shall inure to the benefit of, be binding upon and be enforceable by, any successor surviving or resulting corporation, or other entity to which such assets shall be transferred. This Agreement shall not be terminated by the voluntary or involuntary dissolution of the Company.

               (b) This Agreement constitutes the entire agreement between the parties hereto in respect of the employment of Executive by the Company. This Agreement supersedes and replaces all prior oral and written agreements, understandings, commitments, and practices between the parties including, but not limited to, the Prior Employment Agreement.

               (c) In the event Executive’s employment with the Company shall terminate under circumstances otherwise providing Executive with a right to benefits under both the Company’s Executive Severance Policy and Paragraph 8(d)(ii) of this Agreement, Executive shall be entitled to receive the greater of the benefits provided therein or herein, calculated individually, without duplication.

               (d) Executive and the Company agree that any dispute, controversy or claim between them, other than any dispute, controversy claim or breach arising under Paragraph 7 of this Agreement, shall be settled exclusively by final and binding arbitration in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association (the “AAA Rules”). A neutral and impartial arbitrator shall be chosen by mutual agreement of the parties or, if the parties are unable to agree upon an arbitrator within a reasonable period of time, then a neutral and impartial arbitrator shall be appointed in accordance with the arbitrator nomination and selection procedure set forth in the AAA Rules. The arbitrator shall apply the same substantive law, with the same statutes of limitations and remedies, that would apply if the claims were brought in court. The arbitrator also shall prepare a written decision containing the essential findings and conclusions upon which the decision is based. Either party may bring an action in court to compel arbitration under this Agreement or to enforce an arbitration award. Otherwise, neither party shall initiate or prosecute any lawsuit in any way related to any claim subject to this agreement to arbitrate. Any arbitration held pursuant to this Paragraph shall take place in San Francisco, California. Each party shall pay its own costs and attorneys’ fees, unless a party prevails on a statutory claim and the statute provides that the prevailing party is entitled to payment of its attorneys’ fees. In that case, the arbitrator may award reasonable attorneys’ fees and costs to the prevailing party as provided by law. The Company agrees to pay the costs and fees of the arbitrator. THE PARTIES UNDERSTAND AND AGREE THAT THIS AGREEMENT CONSTITUTES A WAIVER OF THEIR RIGHT TO A TRIAL BY JURY OF ANY CLAIMS OR CONTROVERSIES COVERED BY THIS AGREEMENT.

               (e) Executive expressly acknowledges and agrees that, in the event the benefits provided hereunder are subject to the excise tax provision set forth in Section 4999 of the Internal Revenue Code of 1986, as amended, (i) Executive shall be responsible for, and

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(ii) Executive shall not be entitled to any additional payment from the Company for any Federal, state, and local income and employment taxes, interest or penalties that may arise in connection with such benefits.

               (f) The provisions of this Agreement shall be regarded as divisible, and if any of said provisions or any part hereof are declared invalid or unenforceable by a court of competent jurisdiction, the validity and enforceability of the remainder of such provisions or parts hereof and the applicability hereof shall not be affected thereby.

               (g) This Agreement may not be amended or modified except by a written instrument executed by the Company and Executive.

               (h) This Agreement and the rights and obligations hereunder shall be governed by and construed in accordance with the laws of the State of Georgia, without regard to its principles of conflict of laws.

     IN WITNESS WHEREOF, The parties have executed this Agreement as of the date first above written.

McKesson Corporation
A Delaware Corporation
By:
	Paul E. Kirincic
	Executive Vice President, Human Resources

ATTEST:

Executive Vice President and Secretary	Executive
By the Authority of the
Compensation Committee of the
Board of Directors of
McKesson Corporation
on November ___, 2006.

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EX-10.32

Exhibit 10.32

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

     THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the “Agreement”), dated as of November 1, 2006 (the “Effective Date”), is by and between McKesson Corporation (the “Company”), a Delaware corporation with its principal office at One Post Street, San Francisco, California, and Paul C. Julian (“Executive”).

RECITALS

     A. WHEREAS, Executive and the Company have previously entered into that certain Employment Agreement dated as of April 1, 2004 (the “Prior Employment Agreement”);

     B. WHEREAS, Executive and the Company wish to amend and restate the terms of Executive’s employment with the Company, as set forth herein;

     C. The Company, in its business, develops and uses certain Confidential Information (as defined in Paragraph 7(c) below). Such Confidential Information will necessarily be communicated to or acquired by Executive by virtue of his employment with the Company, and the Company has spent time, effort and money to develop such Confidential Information and to promote and increase its goodwill; and

     D. The Company desires to retain the services of, and employ, Executive on its own behalf and on behalf of its affiliated companies for the period provided in this Agreement and, in so doing, to protect its Confidential Information and goodwill, and Executive is willing to accept employment by the Company on a full-time basis for such period, upon the terms and conditions hereinafter set forth.

     NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants herein contained, the parties hereto agree as follows:

          1. Employment. Subject to the terms and conditions of this Agreement, the Company agrees to employ Executive, and Executive agrees to accept employment from, and remain in the employ of, the Company for the period stated in Paragraph 3 hereof.

          2. Position and Responsibilities. During the period of his employment hereunder, Executive agrees to serve the Company, and the Company shall employ Executive, as Executive Vice President and Group President, or in such other senior corporate executive capacity or capacities as may be specified from time to time by the Chief Executive Officer of the Company (the “Chief Executive Officer”).

          3. Terms and Duties:

               (a) Term of Employment. The period of Executive’s employment under this Agreement shall be deemed to have commenced on the date of this Agreement and shall continue until the third anniversary of the Effective Date; provided, however, that the term of this Agreement shall automatically be extended for one (1) additional year on each

anniversary of the Effective Date, unless terminated earlier in accordance with Paragraph 8 below (the “Term”).

               (b) Duties. During the period of his employment hereunder and except for illness, reasonable vacation periods and reasonable leaves of absence, Executive shall devote his best efforts and all his business time, attention and skill to the business and affairs of the Company and its affiliated companies, as such business and affairs now exist and as they may be hereafter changed or added to, under and pursuant to the general direction of the Board of Directors of the Company (the “Board”); provided, however, that, with the approval of the Chief Executive Officer, Executive may serve, or continue to serve, on the boards of directors of, hold any other offices or positions in, companies or organizations which, in such officer’s judgment, will not present any conflict of interest with the Company or any of its subsidiaries or affiliates or divisions, or materially affect the performance of Executive’s duties pursuant to this Agreement. The Company shall retain full direction and control of the means and methods by which Executive performs the services for which he is employed hereunder. The services which are to be employed by Executive hereunder are to be rendered in the State of California, or in such other place or places in the United States or elsewhere as may be determined from time to time by the Board, but are to be rendered primarily at the headquarters of the Company in San Francisco, California.

          4. Compensation and Reimbursement of Expenses.

               (a) Compensation. During the period of his employment hereunder, Executive shall be paid a salary, in monthly or semi-monthly installments (in accordance with the Company’s normal payroll practices for senior executive officers), at the rate of Eight Hundred Forty Thousand, Eight Hundred and Twenty-Nine Dollars ($840,829) per year, or such higher salary as may be from time to time approved by the Board (or any duly authorized Committee thereof) (any such higher salary so approved to be thereafter the minimum salary payable to Executive during the remainder of the term hereof), plus such additional incentive compensation, if any, as may be awarded to him yearly by the Board (or any duly authorized Committee thereof). For purposes of the MIP (as defined in paragraph 5 below), for each of the Company’s fiscal years ending during the term of this Agreement, Executive’s Individual Target Award shall be 100% during fiscal year 2007 and 110% thereafter of his base salary for the applicable Year (as defined in the MIP).

               (b) Reimbursement of Expenses. The Company shall pay or reimburse Executive, in accordance with its normal policies and practices, for all reasonable travel and other expenses incurred by Executive in performing his obligations hereunder.

          5. Other Benefits. During the period of his employment hereunder, Executive shall be entitled to receive all other benefits of employment generally available to other members of the Company’s senior management and those benefits for which key executives are or shall become eligible, when and as he becomes eligible therefore, including without limitation, group health and life insurance benefits, short and long-term disability plans, deferred compensation plans, and participation in the Company’s Profit-Sharing Investment Plan, Employee Stock Purchase Plan, Executive Medical Plan, Management Incentive Plan (“MIP”), Executive Benefit Retirement Plan (“EBRP”), Executive Survivor Benefits Plan

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(“ESBP”), Stock Purchase Plan and 1994 Stock Option and Restricted Stock Plan (or any other similar plan or arrangement).

          6. Benefits Payable Upon Disability or Death.

               (a) Disability Benefits. If, during the term of this Agreement, Executive shall be prevented from properly performing services hereunder by reason of his illness or other physical or mental incapacity, the Company shall continue to pay Executive his then current salary hereunder during the period of such disability or, if less, for a period of (12) calendar months, at which time the Company’s obligations hereunder shall cease and terminate.

               (b) Death Benefits. In the event of the death of Executive during the term of this Agreement, Executive’s salary payable hereunder shall continue to be paid to Executive’s surviving spouse or, if there is no spouse surviving, then to Executive’s designee or representative (as the case may be) through the six-month period following the end of the calendar month in which Executive’s death occurs. Thereafter, all of the Company’s obligations hereunder shall cease and terminate.

               (c) Other Plans. The provisions of this Paragraph 6 shall not affect any rights of Executive’s heirs, administrators, executors, legatees, beneficiaries or assigns under the Company’s Profit-Sharing Investment Plan, EBRP, ESBP, 1994 Stock Option and Restricted Stock Plan (or any other similar plan or arrangement), any stock purchase plan or any other employee benefit plan of the Company, and any such rights shall be governed by the terms of the respective plans.

          7. Obligations of Executive During and After Employment.

               (a) Noncompetition. Executive agrees that during the term of his employment hereunder, and for the “Noncompetition Period” (as hereinafter defined) thereafter following the termination of Executive’s employment with the Company for any reason, he will not, within the United States, participate, engage or have any interest in, directly or indirectly, any person, firm, corporation, or business (where as an employee, officer, director, agent, creditor, or consultant or in any capacity which calls for the rendering of personal services, advice, acts of management, operation or control) which carries on any business or activity competitive with the Company or any affiliated company (including, without limitation, any products or services sold, investigated, developed or otherwise pursued by the Company or any affiliated company at any time or from time to time) without the prior written consent of the Chief Executive Officer. For purposes of this Paragraph 7(a), the “Noncompetition Period” shall be deemed to be the period during which Executive is receiving salary continuation payments hereunder. Should Executive violate his obligations under this Paragraph 7(a), any further salary continuation payments or other severance benefits shall immediately cease. This Paragraph 7(a) shall survive the termination or expiration of this Agreement.

               (b) Unauthorized Use of Confidential Information. Executive acknowledges and agrees that (i) during the course of his employment Executive will have produced and/or have access to Confidential Information (as defined in subparagraph (c) hereof), of the Company and its affiliated companies, and (ii) the unauthorized use or sale of any of such

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confidential or proprietary information at any time would harm the Company and would constitute unfair competition with the Company either during or after the term of this Agreement. Therefore, during and subsequent to his employment by the Company and its affiliated companies, Executive agrees to hold in confidence and not, directly or indirectly, disclose, use, copy or make lists of any such information, except to the extent expressly authorized by the Company in writing or as required by law. All records, files, drawings, documents, equipment, and the like, or copies thereof, relating to the Company’s business, or the business of any of its affiliated companies, which Executive shall prepare, use, or come into contact with, shall be and remain the sole property of the Company, and shall not be removed (except to allow Executive to perform his responsibilities hereunder while traveling for business purposes or otherwise working away from his office) from the Company’s or the affiliated company’s premises without its prior written consent, and shall be promptly returned to the Company upon termination of employment with the Company and its affiliated companies. This Paragraph 7 (b) shall survive the termination or expiration of this Agreement.

               (c) Confidential Information Defined. For purposes of this Agreement, “Confidential Information” means all information (whether reduced to written, electronic, magnetic or other tangible form) acquired in any way by Executive during the course of his employment with the Company or any of its affiliated companies concerning the products, projects, activities, business or affairs of the Company and its affiliated companies, or the Company’s or any of its affiliated company’s customers, including without limitation, (i) all information concerning trade secrets of the Company and its affiliated companies, including computer programs, system documentation, special hardware, product hardware, related software development, manuals, formulae, processes, methods, machines, compositions, ideas, improvements or inventions of the Company and its affiliated companies, (ii) all sales and financial information concerning the Company and its affiliated companies, (iii) all customer and supplier lists of the Company and its affiliated companies, (iv) all information concerning products or projects under development by the Company or any of its affiliated companies or marketing plans for any of those products or projects, and (v) all information in any way concerning the products, projects, activities, business or affairs of customers of the Company or any of its affiliated companies which was furnished to him by the Company or any of its agents or customers; provided, however, that Confidential Information does not include information which (A) becomes available to the public other than as a result of a disclosure by Executive, (B) was available to him on a non-confidential basis outside of his employment with the Company, or (C) becomes available to him on a non-confidential basis from a source other than the Company or any of its agents, creditors, suppliers, lessors, lessees or customers.

               (d) Nonsolicitation of Employees. Executive recognizes and acknowledges that it is essential for the proper protection of the business of the Company and its affiliated companies that Executive be restrained for a reasonable period following the termination of Executive’s employment with the Company and its affiliated companies from (i) soliciting or inducing any employee of the Company or any of its affiliated companies to leave the employ of the Company or any of its affiliated companies, and (ii) hiring or attempting to hire any employee of the Company or any of its affiliated companies. Accordingly, Executive agrees that during the term of his employment hereunder, and for the Nonsolicitation Period thereafter following the termination of Executive’s employment with the Company and its affiliated companies for any reason, Executive shall not, directly or indirectly, hire, solicit, aid in

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or encourage the hiring and/or solicitation of, contract with, aid in or encourage the contracting with, or induce or encourage to leave the employment of the Company or any its affiliated companies any employee of the Company or any of its affiliated Companies. For purposes of this Paragraph 7(d), the “Nonsolicitation Period” shall be deemed to be the longer of (i) two (2) years following termination of Executive’s employment for any reason, or (ii) the period during which Executive is receiving salary continuation payments hereunder. Should Executive violate his obligations under this Paragraph 7(d), any further salary continuation payments or other severance benefits shall immediately cease. This Paragraph 7(d) shall survive the termination or expiration of this Agreement.

               (e) Nonsolicitation of Customers. Executive recognizes and acknowledges that it is essential for the proper protection of the business of the Company and its affiliated companies that Executive be restrained for a reasonable period following the termination of Executive’s employment with the Company and its affiliated companies from soliciting the trade of or trading with the customers of the Company or any of its affiliated companies for any competitive business purpose. Accordingly, Executive agrees that during the term of his employment hereunder, and for the Nonsolicitation Period thereafter following the termination of Executive’s employment with the Company and its affiliated companies for any reason, Executive shall not, directly or indirectly, solicit, aid in or encourage the solicitation of, contract with, aid in or encourage the contracting with, service, or contact any person or entity which is, or was, within three years prior to the termination of Executive’s employment with the Company and its affiliated companies, a customer or client of the Company or any of its affiliated companies for the purpose of offering or selling a product or service competitive with any of those offered by the Company or any of its affiliated companies. For purposes of this Paragraph 7(e), the “Nonsolicitation Period” shall be deemed to be the longer of (i) two (2) years following termination of Executive’s employment for any reason, or (ii) the period during which Executive is receiving salary continuation payments hereunder. Should Executive violate his obligations under this Paragraph 7(e), any further salary continuation payments or other severance benefits shall immediately cease. This Paragraph 7(e) shall survive the termination or expiration of this Agreement

               (f) Remedy for Breach. Executive agrees that in the event of a breach or threatened breach of any of the covenants contained in this Paragraph 7, the Company shall have the right and remedy to have such covenants specifically enforced by any court having jurisdiction, it being acknowledged and agreed that any material breach of any of the covenants will cause irreparable injury to the Company and that money damages will not provide an adequate remedy to the Company.

               (g) Blue-Penciling. Executive acknowledges and agrees that the noncompetition and nonsolicitation provisions contained herein are reasonable and valid in geographic, temporal and subject matter scope and in all other respects, and do not impose limitations greater than are necessary to protect the goodwill, Confidential Information and other business interests of the Company. Nevertheless, if any court determines that any of said noncompetition and other restrictive covenants and agreements, or any part thereof, is unenforceable because of the duration or geographic scope of such provision, such court shall have the power to reduce the duration or scope of such provision, as the case may be, and, in its

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reduced form, such provision shall then be enforceable to the maximum extent permitted by applicable law.

               (h) Mutual Dependence. Executive understands and agrees that her full compliance with Section 7 of this Agreement is an express condition for and mutually dependent upon the obligations of the Company to pay Executive her compensation and benefits, including severance pay, during the remainder of the Term. Executive further understands and agrees that in the event that any provisions of Section 7 of this Agreement are rendered void, invalid, illegal or otherwise unenforceable, in whole or in substantial part, as a result of actions not initiated by the Company or its agent, the Company’s obligations to pay Executive her Base Salary, bonus or any other compensation and benefits, including severance pay, may be terminated immediately.

          8. Termination.

               (a) For Cause. Notwithstanding anything herein to the contrary, the Company may, without liability, terminate Executive’s employment hereunder for Cause (as defined below) at any time upon written notice from the Board (or any duly authorized Committee thereof) specifying such Cause, and thereafter, the Company’s obligations hereunder shall cease and terminate; provided, however, that such written notice shall not be delivered until after the Board (or any duly authorized Committee thereof) shall have given Executive written notice specifying the conduct alleged to have constituted such Cause and Executive has failed to cure such conduct, if curable, within fifteen (15) days following receipt of such notice. As used herein, the term “Cause” shall mean negligent or willful engagement in misconduct which, in the sole determination of the Chief Executive Officer (or his designee), is injurious to the Company, its employees, or its customers.

               (b) Arbitration Required to Confirm Cause. In the event of a termination for Cause pursuant to subparagraph (a) above, the Company shall continue to pay Executive’s then current compensation as specified in this Agreement until the issuance of an arbitration award affirming the Company’s action. Such arbitration shall be held in accordance with the provisions of Paragraph 12(d) below. In the event the award upholds the action of the Company, Executive shall promptly repay to the Company any sums received pursuant to this subparagraph 8(b), following termination of employment.

               (c) Other than For Cause, Performance, Reorganization. Notwithstanding anything herein to the contrary, the Company may also terminate Executive’s employment (without regard to any general or specific policies of the Company relating to the employment or termination of its employees) (i) should Executive fail to perform his duties hereunder in a manner satisfactory to the Chief Executive Officer, (ii) should Executive’s position be eliminated as a result of a reorganization or restructuring of the Company or any of its affiliated companies, or (iii) for any other reason or reasons, in the Company’s sole discretion.

               (d) Obligations of the Company on Termination of Employment.

                    (i) If the Company terminates Executive’s employment pursuant to subparagraph 8(a) above and the Company’s action is affirmed as specified in subparagraph 8(b) above or Executive terminates his employment with the Company other than

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for Good Reason (as defined in subparagraph (d)(iii) below), then all of the Company’s obligations hereunder shall immediately cease and terminate. Executive shall thereupon have no further right or entitlement to additional salary, incentive compensation payments or awards, or any perquisites from the Company whatsoever, and Executive’s rights, if any, under the Company’s employee and executive benefit plans shall be determined solely in accordance with the express terms of the respective plans.

                    (ii) If the Company terminates Executive’s employment pursuant to subparagraph 8(c) above or Executive terminates his employment with the Company for Good Reason prior to the expiration of the Term, then in lieu of any benefits payable pursuant to the Company’s Executive Severance Policy (so long as the compensation and benefits payable hereunder equal or exceed those payable under said Policy) and in complete satisfaction and discharge of all of its obligations to Executive hereunder, the Company shall, provided Executive is not in breach of the provisions of Paragraph 7 hereof and except as provided in Paragraph 9 below, and conditioned upon Executive’s execution of a full release of claims, (A) provide Executive with monthly cash payments equal to Executive’s final monthly base salary (“Severance”) for the remainder of the Term (the “Severance Period”); provided that, if such payment is deferred in accordance with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), it shall accrue interest at the Deferred Compensation Administration Plan III Rate (the “DCAP Rate”) for the period of such deferral, which interest shall be paid together with such payment, and further provided that the Company’s obligation to make such Severance payments shall be reduced by any compensation received by Executive from a subsequent employer during the Severance Period, (B) consider Executive for a bonus under the terms of the Company’s MIP for the fiscal year in which termination occurs (but not for any subsequent year) provided that any such bonus, if earned, shall be pro-rated to reflect the portion of the year for which Executive was actively employed, and shall be made at the time and in the manner applicable to MIP payments for current employees; provided, however, that, if such payment is deferred in accordance with Section 409A of the Code (“Section 409A”), it shall accrue interest at the DCAP Rate for the period of such deferral, which interest shall be paid together with such payment, (C) continue Executive’s Executive Medical Plan benefits until the end of the Severance Period, (D) subject to the express special forfeiture and repayment provisions of the respective plans (or the terms and conditions applicable thereto), continue the accrual and vesting of Executive’s rights, benefits and existing awards for the remainder of the Severance Period for purposes of the EBRP, ESBP, and the Stock Option and Restricted Stock Plan (or any other similar plan or arrangement); provided, however, that (unless otherwise provided by the terms of the applicable plan; or unless the Board, or any duly authorized Committee thereof, in its sole discretion determines otherwise) Executive shall in no event receive or be entitled either to additional grants or awards subsequent to the date of termination, nor “Approved Retirement” status, under the foregoing plans, and (E) terminate Executive’s participation in the Company’s tax-qualified profit-sharing plans, long-term incentive plan, and stock purchase plans, pursuant to the terms of the respective plans, as of the date of Executive’s termination of employment.

                    (iii) For purposes of this Agreement, “Good Reason” shall mean any of the following actions, if taken without the express written consent of Executive: (A) any material change by the Company in Executive’s functions, duties or responsibilities as Executive Vice President and Group President, which change would cause Executive’s position

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with the Company to become of less dignity, responsibility, importance, or scope as compared to the position and attributes that applied to Executive as of the Effective Date; (B) any reduction in Executive’s base salary, other than a proportional reduction effected as part of an across-the board reduction affecting all executive employees of the Company; (C) any material failure by the Company to comply with any of the provisions of the Agreement; (D) the Company’s requiring Executive to be based at any office or location more than 25 miles from the office at which Executive is based as of the Effective Date, except for travel reasonably required in the performance of Executive’s responsibilities; or (E) in the event of a Change in Control, any change in the level of officer within the Company to whom Executive reports, as this reporting relationship existed immediately prior to a Change in Control.

          9. Termination in Connection with a Change in Control. Notwithstanding the provisions of Paragraph 8(d), in the event of an occurrence of a Change in Control, the following provisions shall apply in the event of Executive’s termination of employment (i) within two (2) years following such Change in Control, or (ii) within the six (6) month period immediately preceding such Change in Control if such termination of employment occurs at the direction of the person or entity that is involved in, or otherwise in connection with, such Change in Control:

               (a) If the Company terminates Executive’s employment pursuant to Paragraph 8(c) above or otherwise without Cause or Executive terminates his employment with the Company for Good Reason, then the Company shall, in lieu of the benefits payable under Paragraph 8(d)(ii) above, immediately pay to Executive in a cash lump sum an amount equal to 2.99 multiplied by Executive’s Earnings and shall take all actions described in clauses (C) through (E) in Paragraph 8(d)(ii) hereof; provided that, if such payment is deferred in accordance with Section 409A, it shall accrue interest at the DCAP Rate for the period of such deferral, which interest shall be paid together with such payment. For purposes of this Section 9(a), “Earnings” shall mean the sum of (i) Executive’s annual base salary and (ii) the greater of Executive’s target bonus under the MIP or the average MIP bonus paid Executive over the prior three fiscal years.

               (b) Change in Control. For purposes of this Agreement, a “Change in Control” of the Company shall mean the occurrence of any change in ownership of the Company, change in effective control of the Company, or change in the ownership of a substantial portion of the assets of the Company, as defined in Section 409A(a)(2)(A)(v), the regulations thereunder, and any other published interpretive authority, as issued or amended from time to time.

          10. Excise Tax Payment

               (a) If, as a result of Executive’s employment with the Company or termination thereof, the benefits received by Executive under Section 9 above (the “Total Payments”) are subject to the excise tax provision set forth in Section 4999 of the Code (the “Excise Tax”), the Company shall pay to Executive an additional amount (the “Gross-Up Payment”) such that the net amount retained by Executive, after deduction of any Excise Tax on the benefits received hereunder and any Federal, state and local income and employment taxes and Excise Tax upon the Gross-Up Payment, shall be equal to the Total Payments.

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               (b) For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all of the Total Payments shall be treated as “parachute payments” (within the meaning of Section 280G(b)(2) of the Code) unless, in the opinion of tax counsel (“Tax Counsel”) reasonably acceptable to Executive and selected by the accounting firm which was, immediately prior to the Change in Control, the Company’s independent auditor (the “Auditor”), such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of Section 280G(b)(4)(A) of the Code, (ii) all “excess parachute payments” within the meaning of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments (in whole or in part) represent “reasonable compensation” for services actually rendered (within the meaning of Section 280G(b)(4)(B) of the Code) in excess of the Base Amount (as defined in Section, 280G(b)(3) of the Code) allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, and (iii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, Executive shall be deemed to pay federal income tax at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of Executive’s residence on the date of termination (or if there is no date of termination, then the date on which the Gross-Up Payment is calculated for purposes of this Paragraph 10(b)), net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes.

               (c) In the event that the Excise Tax is finally determined to be less than the amount taken into account hereunder in calculating the Gross-Up Payment, Executive shall repay to the Company, within five (5) business days following the time that the amount of such reduction in the Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment taxes imposed on the Gross-Up Payment being repaid by Executive, to the extent that such repayment results in a reduction in the Excise Tax and a dollar-for-dollar reduction in Executive’s taxable income and wages for purposes of federal, state and local income and employment taxes, plus interest on the amount of such repayment at 120% of the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder in calculating the Gross-Up Payment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess plus any interest, penalties or additions payable by Executive with respect to such excess) within five (5) business days following the time that the amount of such excess is finally determined. Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Total Payments.

               (d) Notwithstanding anything else herein, this Paragraph 10 shall survive any termination of employment, any payments hereunder or any termination of obligations hereunder; provided, however, that this Paragraph 10 shall not survive any

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termination of employment for Cause that occurs prior to a Change in Control or any payments or termination of obligations in connection with such termination for Cause.

          11. Compliance with Section 409A

     Notwithstanding anything in this Agreement to the contrary, the Company shall administer and construe this Agreement in accordance with Section 409A, the regulations promulgated thereunder, and any other published interpretive authority, as issued or amended from time to time, so as not to subject Executive to the additional tax and interest imposed under Section 409A. To the extent that the Company and/or Executive reasonably determine that any amount payable under this Agreement would trigger the additional tax imposed by Section 409A, the Company and Executive shall promptly agree in good faith on appropriate modifications to the Agreement (including delaying or restructuring payments) to avoid such additional tax yet preserve (to the nearest extent reasonably possible) the intended benefit payable to Executive. If Executive incurs liability under Section 409A(a)(1)(B) as a direct result of the Company’s failure to fulfill the foregoing obligations, the Company will indemnify and hold Executive harmless from such liability; provided, however, that the Company shall have no obligation under this provision for any such failures that are attributable to Executive’s own willful acts or omissions or to Executive’s demand for a distribution of benefits notwithstanding a recommendation of the Company against the distribution.

          12. General Provisions

               (a) Executive’s rights and obligations hereunder shall not be transferable by assignment or otherwise. Nothing in this Agreement shall prevent the consolidation of the Company with, or its merger into, any other corporation, or the sale by the Company of all or substantially all of its properties or assets; and this Agreement shall inure to the benefit of, be binding upon and be enforceable by, any successor surviving or resulting corporation, or other entity to which such assets shall be transferred. This Agreement shall not be terminated by the voluntary or involuntary dissolution of the Company.

               (b) This Agreement constitutes the entire agreement between the parties hereto in respect of the employment of Executive by the Company. This Agreement supersedes and replaces all prior oral and written agreements, understandings, commitments, and practices between the parties including, but not limited to, the Prior Employment Agreement.

               (c) In the event Executive’s employment with the Company shall terminate under circumstances otherwise providing Executive with a right to benefits under both the Company’s Executive Severance Policy and Paragraph 8(d)(ii) of this Agreement, Executive shall be entitled to receive the greater of the benefits provided therein or herein, calculated individually, without duplication.

               (d) Executive and the Company agree that any dispute, controversy or claim between them, other than any dispute, controversy claim or breach arising under Paragraph 7 of this Agreement, shall be settled exclusively by final and binding arbitration in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association (the “AAA Rules”). A neutral and impartial arbitrator shall be chosen

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by mutual agreement of the parties or, if the parties are unable to agree upon an arbitrator within a reasonable period of time, then a neutral and impartial arbitrator shall be appointed in accordance with the arbitrator nomination and selection procedure set forth in the AAA Rules. The arbitrator shall apply the same substantive law, with the same statutes of limitations and remedies, that would apply if the claims were brought in court. The arbitrator also shall prepare a written decision containing the essential findings and conclusions upon which the decision is based. Either party may bring an action in court to compel arbitration under this Agreement or to enforce an arbitration award. Otherwise, neither party shall initiate or prosecute any lawsuit in any way related to any claim subject to this agreement to arbitrate. Any arbitration held pursuant to this Paragraph shall take place in San Francisco, California. Each party shall pay its own costs and attorneys’ fees, unless a party prevails on a statutory claim and the statute provides that the prevailing party is entitled to payment of its attorneys’ fees. In that case, the arbitrator may award reasonable attorneys’ fees and costs to the prevailing party as provided by law. The Company agrees to pay any administrative costs and fees of the AAA, as well as the costs and fees of the arbitrator. THE PARTIES UNDERSTAND AND AGREE THAT THIS AGREEMENT CONSTITUTES A WAIVER OF THEIR RIGHT TO A TRIAL BY JURY OF ANY CLAIMS OR CONTROVERSIES COVERED BY THIS AGREEMENT.

               (e) Executive expressly acknowledges and agrees that, in the event the benefits provided hereunder are subject to the excise tax provision set forth in Section 4999 of the Internal Revenue Code of 1986, as amended, (i) Executive shall be responsible for, and (ii) Executive shall not be entitled to any additional payment from the Company for any Federal, state, and local income and employment taxes, interest or penalties that may arise in connection with such benefits.

               (f) The provisions of this Agreement shall be regarded as divisible, and if any of said provisions or any part hereof are declared invalid or unenforceable by a court of competent jurisdiction, the validity and enforceability of the remainder of such provisions or parts hereof and the applicability hereof shall not be affected thereby.

               (g) This Agreement may not be amended or modified except by a written instrument executed by the Company and Executive.

               (h) This Agreement and the rights and obligations hereunder shall be governed by and construed in accordance with the laws of the State of California without regard to its principles of conflict of laws.

     IN WITNESS WHEREOF, The parties have executed this Agreement as of the date first above written.

McKesson Corporation A Delaware Corporation
By:
	Paul E. Kirincic
	Executive Vice President, Human Resources

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ATTEST:

Executive Vice President	Executive
and Secretary

By the Authority of the
Compensation Committee
of the Board of Directors
of McKesson Corporation on
November ___, 2006

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EX-10.33

EXHIBIT 10.33

McKESSON CORPORATION
CHANGE IN CONTROL POLICY FOR SELECTED EXECUTIVE EMPLOYEES

(Effective as of November 1, 2006)

TABLE OF CONTENTS

1.	ADOPTION AND PURPOSE OF POLICY	1
2.	CHANGE IN CONTROL BENEFITS	1
3.	FORM OF BENEFIT	3
4.	EFFECT OF DEATH OF EMPLOYEE	3
5.	AMENDMENT AND TERMINATION	3
6.	ADMINISTRATION AND FIDUCIARIES	4
7.	CLAIMS AND APPEAL PROCEDURES	4
8.	ARBITRATION EXCLUSIVE REMEDY	6
9.	GENERAL PROVISIONS	7
10.	DEFINITIONS	7
11.	EXECUTION	9

 i 

McKESSON CORPORATION
CHANGE IN CONTROL POLICY FOR SELECTED EXECUTIVE EMPLOYEES

(Effective as of November 1, 2006)

1. ADOPTION AND PURPOSE OF POLICY.

The McKesson Corporation Change in Control Policy for Selected Executive Employees (the “Policy”) was adopted effective November 1, 2006 by McKesson Corporation, a Delaware corporation (the “Company”), to provide a program of severance payments to certain employees of the Company and its designated subsidiaries whose employment is terminated as the result of a Change in Control. The Policy is an employee welfare benefit plan within the meaning of Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and Section 2510.3-1 of the regulations issued there under. The plan administrator of the Policy for purposes of ERISA is the Company. The Policy was adopted to read as set forth herein effective as of November 1, 2006.

2. CHANGE IN CONTROL BENEFITS.

     (a) Basic Change in Control Benefits. In the event of the occurrence of a Change in Control where a Participant’s employment is terminated under circumstances that constitute a Separation from Service (i) initiated at the direction of the person or entity that is involved in, or otherwise in connection with, such Change in Control, for any reason other than Cause or (ii) initiated by the Participant for Good Reason, and if such termination of employment occurs within the period 6 months preceding or 24 months following a Change in Control, that Participant shall be entitled to a Change in Control benefit equal to the following:

Tier One Participant	2.99 times Earnings
Tier Two Participant	2 times Earnings
Tier Three Participant	1 times Earnings

     (b) Other Change in Control Benefits. A Participant who is entitled to the basic Change in Control benefit provided in (a) above also shall be entitled to the following:

          (i) If the Participant is a Tier One Participant and is covered by the Executive Benefit Retirement Plan, his or her straight life annuity benefits under that Plan shall be calculated by adding three additional years of age and three additional years of service to the Participant’s actual age and service; provided, however, that the actuarially equivalent lump sum value amount shall be based on the Participant’s actual age; and

          (ii) The Participant is and his or her eligible dependents are eligible to have continued coverage under the health plan in which the Participant was a participant at the time of termination for the number of years set forth below from the date of termination, at a cost no greater than the cost in effect at the time of the Change in Control:

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Tier One Participant	3 years
Tier Two Participant	2 years
Tier Three Participant	1 year

          and

          (iii) The Participant is eligible to have continued Company-paid life insurance at the level in effect on the date of the Change in Control for the number of years set forth below from the date of termination:

Tier One Participant	3 years
Tier Two Participant	2 years
Tier Three Participant	1 year

          (iv) The Participant is eligible for outplacement services, in an amount not to exceed the amount determined by the Executive Vice President, Human Resources.

          (v) If, as a result of the Participant’s employment with the Company or termination thereof, the benefits received by the Participant (the “Total Payments”) are subject to the excise tax provision set forth in Section 4999 of the Code (the “Excise Tax”), the Company shall pay to Participant an additional amount (the “Gross-Up Payment”) such that the net amount retained by Participant, after deduction of any Excise Tax on the benefits received hereunder and any federal, state and local income and employment taxes and Excise Tax upon the Gross-Up Payment, shall be equal to the Total Payments. For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (A) all of the Total Payments shall be treated as “parachute payments” (within the meaning of Section 280G(b)(2) of the Code) unless, in the opinion of tax counsel (“Tax Counsel”) reasonably acceptable to the Participant and selected by the accounting firm which was, immediately prior to the Change in Control, the Company’s independent auditor (the “Auditor”), such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of Section 280G(b)(4)(A) of the Code, (B) all “excess parachute payments” within the meaning of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments (in whole or in part) represent “reasonable compensation” for services actually rendered (within the meaning of Section 280G(b)(4)(B) of the Code) in excess of the Base Amount (as defined in Section 280G(b)(3) of the Code) allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, and (C) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Participant shall be deemed to pay federal income tax at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Participant’s residence on the date of termination (or if there is no date of termination, then the date on which the Gross-Up Payment is calculated for purposes of this paragraph, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes). In the event that the Excise Tax is finally determined to be less than the amount taken into account hereunder in calculating the Gross-Up Payment, the Participant shall repay to the

2

Company, within five business days following the time that the amount of such reduction in the Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment taxes imposed on the Gross-Up Payment being repaid by the Participant, to the extent that such repayment results in a reduction in the Excise Tax and a dollar-for-dollar reduction in the Participant’s taxable income and wages for purposes of federal, state and local income and employment taxes, plus interest on the amount of such repayment at 120% of the rate provided in Section 1274(b)(2)(B) of the Code). In the event that the Excise Tax is determined to exceed the amount taken into account hereunder in calculating the Gross-Up Payment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Participant with respect to such excess) within five business days following the time that the amount of such excess is finally determined. The Participant and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Total Payments.

     (c) Nothing in this Policy shall alter or impair any rights a Participant may have upon Separation from Service under any other plan or program of the Company.

3. FORM OF BENEFIT.

The benefit described in Section 2(a) shall be paid in a lump sum on the first day of the eighth month following the date of the Participant’s Separation from Service. Such payment shall include an additional amount representing interest credited at the rate being credited to accounts under the Company’s Deferred Compensation Administration Plan III during the relevant seven-month period.

4. EFFECT OF DEATH OF EMPLOYEE.

Should a Participant die after Separation from Service and becoming eligible to receive the benefits provided in Section 2(a) and prior to the payment of the entire benefit due hereunder, the balance of the benefit payable under Section 2(a) shall be paid in a lump sum to the Participant’s surviving spouse, or, if none, to his or her surviving children or, if none, to his or her estate, as soon as reasonably practicable after the date of death. The provisions of Section 2(b) (other than subsection (iv)) shall continue to apply following the Participant’s death.

5. AMENDMENT AND TERMINATION.

The Company reserves the right to terminate the Policy at any time by action of its Board of Directors and to amend the Policy or increase or decrease the amount of any benefit provided under the Policy by action of the Compensation Committee of its Board of Directors; provided, however, that no such action shall have the effect of decreasing the benefit of a Participant whose Separation from Service following a Change in Control occurred prior to the date of the Board of Directors’ or Compensation Committee’s action; provided, further, that no action taken within six months before or 24 months after a Change in Control shall be effective if the result of

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such action would be to decrease the benefit of any individual who has been designated a Participant pursuant to Section 10(g)(i).

6. ADMINISTRATION AND FIDUCIARIES.

     (a) Plan Sponsor and Administrator. The Company is the “plan sponsor” and the “administrator” of the Policy, within the meaning of ERISA.

     (b) Administrative Responsibilities. The Company shall be the named fiduciary with the power and sole discretion to determine who is eligible for benefits under the Policy, to determine the value of benefits paid in any form other than cash or the present value of any cash or other benefits paid over time, to interpret the Policy and to prescribe such forms, make such rules, regulations and computations and prescribe such guidelines as it may determine are necessary or appropriate for the operation and administration of the Policy and to change the terms of or rescind such rules, regulations or guidelines. Such determinations of eligibility, rules, regulations, interpretations, computations and guidelines shall be conclusive and binding upon all persons. In administering the Policy, the Company shall at all times discharge its duties with respect to the Policy in accordance with the standards set forth in Section 404(a)(1) of ERISA.

     (c) Allocation and Delegation of Responsibilities. The Compensation Committee may allocate any of the Company’s responsibilities for the operation and administration of the Policy among the Company’s officers, employees and agents. It may also delegate any of the Company’s responsibilities under the Policy by designating, in writing, another person to carry out such responsibilities.

     (d) No Individual Liability. It is declared to be the express purpose and intent of the Company that no individual liability shall attach to or be incurred by any member of the Board of Directors of the Company, or by any officer, employee representative or agent of the Company, under, or by reason of the operation of, the Policy.

7. CLAIMS AND APPEAL PROCEDURES

     (a) Informal Resolution of Questions. Any Participant who has questions or concerns about his or her benefits under the Plan is encouraged to communicate with the Human Resources Department of the Company. If this discussion does not give the Participant satisfactory results, a formal claim for benefits may be made in accordance with the procedures of this Section 7.

     (b) Formal Benefits Claim – Review by Executive Vice President, Human Resources.^* A Participant may make a written request for review of any matter concerning his or her benefits under this Plan. The claim must be addressed to the Executive Vice President, Human Resources, McKesson Corporation, One Post Street, San Francisco, California 94104. The Executive Vice President, Human Resources or his or her delegate (“Executive Vice President”) shall decide the action to be taken with respect to any such request and may require

^* For purposes of this Section 7, if the Executive Vice President, Human Resources is the claimant the General Counsel shall perform the claim and appeal functions of the Executive Vice President, Human Resources.

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additional information if necessary to process the request. The Executive Vice President shall review the request and shall issue his or her decision, in writing, no later than 90 days after the date the request is received, unless the circumstances require an extension of time. If such an extension is required, written notice of the extension shall be furnished to the person making the request within the initial 90-day period, and the notice shall state the circumstances requiring the extension and the date by which the Executive Vice President expects to reach a decision on the request. In no event shall the extension exceed a period of 90 days from the end of the initial period.

     (c) Notice of Denied Request. If the Executive Vice President denies a request in whole or in part, he or she shall provide the person making the request with written notice of the denial within the period specified in Section 7(b). The notice shall set forth the specific reason for the denial, reference to the specific Plan provisions upon which the denial is based, a description of any additional material or information necessary to perfect the request, an explanation of why such information is required, and an explanation of the Plan’s appeal procedures and the time limits applicable to such procedures, including a statement of the claimant’s right to bring a civil action under Section 502(a) of ERISA following an adverse benefit determination on review.

     (d) Appeal to Executive Vice President.

          (i) A person whose request has been denied in whole or in part (or such person’s authorized representative) may file an appeal of the decision in writing with the Executive Vice President within 60 days of receipt of the notification of denial. The appeal must be addressed to: Executive Vice President, Human Resources, McKesson Corporation, One Post Street, San Francisco, California 94104. The Executive Vice President, for good cause shown, may extend the period during which the appeal may be filed for another 60 days. The appellant and/or his or her authorized representative shall be permitted to submit written comments, documents, records and other information relating to the claim for benefits. Upon request and free of charge, the applicant should be provided reasonable access to and copies of, all documents, records or other information relevant to the appellant’s claim.

          (ii) The Executive Vice President’s review shall take into account all comments, documents, records and other information submitted by the appellant relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination. The Executive Vice President shall not be restricted in his or her review to those provisions of the Plan cited in the original denial of the claim.

          (iii) The Executive Vice President shall issue a written decision within a reasonable period of time but not later than 60 days after receipt of the appeal, unless special circumstances require an extension of time for processing, in which case the written decision shall be issued as soon as possible, but not later than 120 days after receipt of an appeal. If such an extension is required, written notice shall be furnished to the appellant within the initial 60-day period. This notice shall state the circumstances requiring the extension and the date by which the Executive Vice President expects to reach a decision on the appeal.

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          (iv) If the decision on the appeal denies the claim in whole or in part written notice shall be furnished to the appellant. Such notice shall state the reason(s) for the denial, including references to specific Plan provisions upon which the denial was based. The notice shall state that the appellant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claim for benefits. The notice shall describe any voluntary appeal procedures offered by the Plan and the appellant’s right to obtain the information about such procedures. The notice shall also include a statement of the appellant’s right to bring an action under Section 502(a) of ERISA.

          (v) The decision of the Executive Vice President on the appeal shall be final, conclusive and binding upon all persons and shall be given the maximum possible deference allowed by law.

     (e) Exhaustion of Remedies. No legal or equitable action for benefits under the Plan shall be brought unless and until the claimant has submitted a written claim for benefits in accordance with Section 7(b), has been notified that the claim is denied in accordance with Section 7(c), has filed a written request for a review of the claim in accordance with Section 7(d), and has been notified in writing that the Executive Vice President has affirmed the denial of the claim in accordance with Section 7(d).

8. ARBITRATION EXCLUSIVE REMEDY.

     Any dispute, controversy or claim arising under the Policy, shall be settled exclusively by final and binding arbitration in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association (the “AAA Rules”). A neutral and impartial arbitrator shall be chosen by mutual agreement of the parties or, if the parties are unable to agree upon an arbitrator within a reasonable period of time, then a neutral and impartial arbitrator shall be appointed in accordance with the arbitrator nomination and selection procedure set forth in the AAA Rules. The arbitrator shall apply the same substantive law, with the same statures of limitations and remedies, that would apply if the claims were brought in court. The arbitrator also shall prepare a written decision containing the essential findings and conclusions upon which the decision containing the essential findings and conclusions upon which the decision is based. Either party may bring an action in court to compel arbitration under this Agreement or to enforce an arbitration award. Otherwise, neither party shall initiate or prosecute any lawsuit in any way related to any claim subject to this agreement to arbitrate. Any arbitration held pursuant to this paragraph shall take place in San Francisco, California. Each party shall pay its own costs and attorneys’ fees, unless a party prevails on a statutory claim and the statute provides that the prevailing party is entitled to payment of its attorneys’ fees. In that case, the arbitrator may award reasonable attorneys’ fees and costs to the prevailing party as provided by law. The Company agrees to pay the costs and fees of the arbitrator. THE PARTICIPANTS UNDERSTAND AND AGREE THAT THIS AGREEMENT CONSTITUTES A WAIVER OF THEIR RIGHT TO A TRIAL BY JURY OF ANY CLAIMS OR CONTROVERSIES COVERED BY THIS AGREEMENT.

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9. GENERAL PROVISIONS.

     (a) Basis of Payments to and from Policy. All benefits under the Policy shall be paid by the Company. The Policy shall be unfunded and benefits hereunder shall be paid only from the general assets of the Company. Nothing contained in the Policy shall be deemed to create a trust of any kind for the benefit of any employee, or create any fiduciary relationship between the Company and any employee with respect to any assets of the Company. The Company is under no obligation to fund the benefits provided herein prior to payment, although it may do so if it chooses. Any assets which the Company chooses to use for advance funding shall not cause the Policy to be a funded plan within the meaning of ERISA.

     (b) No Employment Rights. Nothing in the Policy shall be deemed to give any individual the right to remain in the employ of the Company or a subsidiary or to limit in any way the right of the Company or a subsidiary to discharge, demote, reclassify, transfer, relocate an individual or terminate an individual’s employment at any time and for any reason, which right is hereby reserved.

     (c) Non-alienation of Benefits. No benefit payable under the Policy shall be subject to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt to do shall be void.

     (d) Legal Construction. The Policy shall be governed and interpreted in accordance with ERISA.

     (e) Successors to the Company. The Company shall require any successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume and agree to perform the obligations of the Company under the Policy in the same manner and to the same extent that the Company would be required to perform if no such succession or assignment had taken place.

     (f) Section 409A. Notwithstanding any other provision of this Policy, the Company shall administer and construe this Policy in accordance with Section 409A of the Code, the regulations promulgated thereunder, and any other published interpretive authority, as issued or amended from time to time. The Company shall have the authority to delay the payment of any amounts under this Policy to the extent it deems necessary or appropriate to comply with Section 409A of the Code.

10. DEFINITIONS.

Whenever used and capitalized in the text of the Policy, the following terms shall have the meaning set forth below:

     (a) “Base Salary and Bonus” means the Participant’s annual base salary as in effect immediately prior to the date of such Participant’s termination and the target bonus for such Participant for the fiscal year in which such Participant’s Separation from Service occurs, in each case inclusive of any amounts deferred by the intended recipient.

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     (b) “Cause” means termination of the Participant’s employment upon the Participant’s willful engagement in misconduct which is demonstrably and materially injurious to the Company. No act, or failure to act, on the part of the Participant shall be considered “willful” unless done, or omitted to be done, by the Participant not in good faith and without reasonable belief that the Participant’s action or omission was in the best interest of the Company.

     (c) A “Change in Control” shall mean the occurrence of any change in ownership of the Company, change in effective control of the Company, or change in the ownership of a substantial portion of the assets of the Company, as defined in Section 409A(a)(2)(A)(v) of the Code, the regulations thereunder, and any other published interpretive authority, as issued or amended from time to time.

     (d) “Code” means the Internal Revenue Code of 1986, as amended.

     (e) “Earnings” means a Participant’s (i) annual base salary and (ii) the greater of (A) the Participant’s target bonus under the Company’s Management Incentive Plan or (B) the average of the Participant’s bonus for the latest three years for which the Participant was eligible to receive a bonus (or such lesser period of time during which the Participant was eligible to receive a bonus).

     (f) “Good Reason” means any of the following actions, if taken without the express written consent of the Participant, which shall not be affected by the Participant’s incapacity due to physical or mental illness:

          (i) Any material change by the Corporation in the Participant ‘s functions, duties or responsibilities, which change would cause the Participant ‘s position with the Corporation to become of less dignity, responsibility, importance, or scope as compared to the position and attributes that applied to the Participant immediately prior to the Change in Control;

          (ii) Any significant reduction in the Participant ‘s base annual salary, [MIP target or Long Term Incentive compensation (LTI) targets, which LTI targets include cash awards with performance periods greater than one year and equity based grants,] except for a reduction effected as part of an across-the-board reduction affecting all executive officers of the Corporation;

          (iii) Any material failure by the Corporation to comply with any of the provisions of an award (or of any employment agreement between the parties) subsequent to a Change in Control;

          (iv) The Corporation’s requiring the Participant to be based at any office or location more than 25 miles from the office at which the Participant is based on the date immediately preceding the Change in Control, except for travel reasonably required in the performance of the Participant’s responsibilities;

          (v) For Tier 1 employees only, any change in the person to whom the Participant reports, as this relationship existed immediately prior to a Change in Control.

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     (g) “Participant” means (i) an individual who is designated to be eligible to participate in the Policy by the Compensation Committee of the Board of Directors of the Company (the “Committee”) and (ii) whose employment is terminated under circumstances that render him or her eligible for the benefits described in Section 2 of the Policy. “Participant” shall not include any individual covered by an agreement with the Company or an affiliate that provides for benefits in the event of a change in control or similar event. When designating an individual or a group as Participant(s), the Committee shall specify whether such individual shall be a Tier One Participant, a Tier Two Participant or a Tier Three Participant.

     (h) “Separate from Service” or “Separation from Service” means termination of employment with the Company, other than by reason of Disability or death. A Participant shall not be deemed to have Separated from Service if the Participant continues to provide services to the Company in a capacity other than as an employee and if the former employee is providing services at an annual rate that is fifty percent or more of the services rendered, on average, during the immediately preceding three full calendar years of employment with the Company (or if employed by the Company less than three years, such lesser period) and the annual remuneration for such services is fifty percent or more of the annual remuneration earned during the final three full calendar years of employment (of if less, such lesser period); provided, however, that a Separation from Service will be deemed to have occurred if a Participant’s service with the Company is reduced to an annual rate that is less than twenty percent of the services rendered, on average, during the immediately preceding three full calendar years of employment with the Company (or if employed by the Company less than three years, such lesser period) or the annual remuneration for such services is less than twenty percent of the annual remuneration earned during the three full calendar years of employment with the Company (or if less, such lesser period).

11. EXECUTION

This Change in Control Policy was adopted on October 27, 2006, to be effective as of November 1, 2006.

McKESSON CORPORATION

By:
	Paul E. Kirincic
	Executive Vice President, Human Resources

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EX-10.34

EXHIBIT 10.34

McKESSON CORPORATION
DEFERRED COMPENSATION ADMINISTRATION PLAN III (“DCAP III”)

(Effective January 1, 2005)

TABLE OF CONTENTS

A.	PURPOSE	1
B.	ERISA PLAN	1
C.	PARTICIPATION	1
D.	AMOUNTS OF DEFERRAL	3
E.	PAYMENT OF DEFERRED COMPENSATION	4
F.	SOURCE OF PAYMENT	6
G.	MISCELLANEOUS	7
H.	ADMINISTRATION OF THE PLAN	7
I.	AMENDMENT OR TERMINATION OF THE PLAN	8
J.	CLAIMS AND APPEALS	8
K.	DEFINITIONS	10
L.	SUCCESSORS	13
M.	EXECUTION	13

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McKESSON CORPORATION
DEFERRED COMPENSATION ADMINISTRATION PLAN III

(Effective January 1, 2005)

A. PURPOSE

     1. This Plan was established to enhance the Company’s ability to attract and retain executive personnel and members of the Board who are not otherwise employees of the Company.

     2. This Plan is the successor plan to the Deferred Compensation Administration Plan II, as amended through October 28, 2004 (the “Prior Plan”). Effective December 31, 2004, the Prior Plan was frozen and no new allocations or deferrals are to be made to it; provided, however, that any vested allocations and deferrals made under the Prior Plan before January 1, 2005 shall continue to be governed by the terms and conditions of the Prior Plan as in effect on December 31, 2004.

     3. Any allocations and deferrals made under the Prior Plan after December 31, 2004 and any allocations that were unvested on December 31, 2004 shall be deemed to have been made under this Plan and all such contributions, accruals and deferrals shall be governed by the terms and conditions of this Plan as it may be amended from time to time.

     4. This Plan is intended to comply with the requirements of Section 409A of the Code.

     5. Capitalized terms used in this Plan shall have the meaning set forth in Section K hereof.

B. ERISA PLAN

     This Plan is an unfunded deferred compensation program intended primarily for a select group of management or highly compensated employees of the Company and members of the Board who are not employees of the Company. The Plan, therefore, is covered by Title I of ERISA except that it is exempt from Parts 2, 3 and 4 of Title I of ERISA.

C. PARTICIPATION

     1. Eligibility to Participate.

          a. Eligible Executives. The Administrator may, at his or her discretion, and at any time, and from time to time, select Company executives who may elect to participate in this Plan (“Eligible Executives”). Selection of Eligible Executives may be evidenced by the terms of the executive’s employment contract with the Company, or by inclusion among the persons or classes of persons specified by the Administrator.

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          The Administrator may, at his or her discretion, and at any time, and from time to time, designate additional Eligible Executives and/or provide that executives previously designated are no longer Eligible Executives. If the Administrator determines that an executive is no longer an Eligible Executive, he or she shall remain a Participant in the Plan until all amounts credited to his or her Account prior to such determination are paid out under the terms of the Plan (or until death, if earlier).

          b. Eligible Directors. Each individual who is a member of the Board of McKesson and who is not a Company employee may participate in this Plan (“Eligible Directors”).

     2. Election to Participate. An Eligible Executive or an Eligible Director may become a Participant in the Plan by electing to defer compensation in accordance with the terms of this Plan. An election to defer shall be in writing, shall be irrevocable and shall be made at the time and in the form specified by the Administrator. On electing to defer compensation under this Plan, the Participant shall be deemed to accept all of the terms and conditions of this Plan. All elections to defer amounts under this Plan shall be made pursuant to an election executed and filed with the Administrator before the amounts so deferred are earned.

          a. Annual Election. Subject to the provisions of Sections 2(b) and 2(c) below, an election to defer compensation must be made and become irrevocable not later than last day of the Year preceding the Year in which the compensation being deferred is earned. A Participant’s election to defer compensation shall be suspended during the Year only if such Participant is faced with an Unforeseeable Emergency. Such suspension shall continue through the end of Year in which the Participant is faced with an Unforeseeable Emergency and the Participant must submit a new election to defer compensation, effective the Year after the Year in which the Unforeseeable Emergency occurred, to resume participation in the Plan.

          b. Initial Election. A newly Eligible Executive or a newly Eligible Director may elect to participate in the Plan by submitting a an election to defer compensation in such form as the Company may specify; provided that such election is made and becomes irrevocable not later than thirty days following the date such newly Eligible Employee or Eligible Director first becomes eligible to participate in the Plan and provided further that such election to defer compensation applies only to compensation earned after the date of the election. In compliance with this Section 2(b), only a prorated portion of an Eligible Executive’s bonus (other than a bonus that is performance-based compensation as defined in Section 2(c) below) may be deferred if the Eligible Executive’s initial deferral election is made after the performance period applicable to the bonus has begun.

          c. Election to Defer Performance-based Compensation. To the extent that compensation paid under the Management Incentive Plan or the Long-Term Incentive Plan is “performance-based compensation” as defined in Proposed Treasury Regulation Section 1.409A-1(e), an election to defer Management Incentive Plan compensation or Long-Term Incentive Plan compensation may be made not later than six months prior to the end of the applicable performance period; provided, however, that such election shall be made prior to the date that the Management Incentive Plan compensation or Long-Term Incentive Plan compensation is substantially certain to be paid or readily ascertainable.

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     3. Notification of Participants. The Administrator shall annually notify each Eligible Executive and each Eligible Director that he or she may participate in the Plan for the next Year. Such notice shall also set forth the Declared Rate for the next Year.

     4. Relation to Other Plans.

          a. Participation in Other Plans. An Eligible Executive or an Eligible Director may participate in this Plan and may also participate in any other benefit plan of the Company in effect from time to time for which he or she is eligible, unless the other plan may otherwise exclude participation on the basis of eligibility for, or participation in, this Plan. No amounts may be deferred under this Plan which have been deferred under any other plan of the Company. Deferrals under this Plan may result in a reduction of benefits payable under the Social Security Act, the Retirement Plan and the PSIP.

          b. Automatic Deferral. An Eligible Executive’s base salary deferrals and annual bonus award deferrals (but not DCAP housing deferrals, sign-on and retention bonus deferrals and Long-Term Incentive Plan award deferrals) shall be credited, in a separate Account under the Plan with an amount calculated to be the Matching Employer Contribution percentage that would have been credited to the Eligible Executive’s PSIP account if five percent (5%) of such deferrals under DCAP III had been made under the PSIP. For these purposes, Matching Employer Contribution shall have the meaning defined in the PSIP.

D. AMOUNTS OF DEFERRAL

     1. Minimum Deferral. The minimum amount that an Eligible Executive may defer under this Plan for any Year is $5,000 of base salary, or $5,000 of any annual bonus award(s) and $5,000 of any Long-Term Incentive Plan award. The minimum amount of compensation that an Eligible Director may defer for any Year is $5,000.

     2. Maximum Deferral for Eligible Executives. The maximum amount of compensation which an Eligible Executive may defer under this Plan for any Year is (i) 75% of the amount of such Eligible Executive’s base salary for such Year, and (ii) 90% of any annual bonus award and/or any Long-Term Incentive Plan award determined and payable to him or her in such Year. Additionally, the Executive Vice President of Human Resources may change the maximum amount (expressed as a percentage limit) of base salary that Eligible Executives as a group may defer under the Plan for any Year. Notwithstanding these limits, deferrals may be reduced by the Company to leave sufficient remaining compensation legally required for taxes and other authorized deductions, including, but not limited to, those for Company benefit programs.

     3. Maximum Deferral for Eligible Directors. The maximum amount of compensation which an Eligible Director may defer under this Plan for any Year is the amount of any annual retainer (other than the portion of the annual retainer subject to Mandatory Deferral under and as defined in the 1997 Non-Employee Directors’ Equity Compensation and Deferral Plan) and other fees from McKesson earned by him or her in any such Year.

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E. PAYMENT OF DEFERRED COMPENSATION

     1. Book Account and Interest Credit. Compensation deferred by a Participant under the Plan shall be credited to a separate bookkeeping account for such Participant (the “Account”). (Sub-Accounts may be established for each Year for which the Participant elects to defer compensation.) Interest shall be credited to each Account (including Sub-Accounts established thereunder) for each Year at a rate equal to a rate declared by the Compensation Committee acting in its sole discretion after taking into account, among other things, the following factors: McKesson’s cost of funds, corporate tax brackets, expected amount and duration of deferrals, number and age of eligible Participants, expected time and manner of payment of deferred amounts, and expected performance of available fixed-rate insurance contracts covering the lives of Participants (the “Declared Rate”). Notwithstanding the foregoing, if a Change in Control (as defined in Section E.12 below) occurs, the Declared Rate for the balance of the calendar year in which the Change in Control occurs and for the two calendar years immediately following the year in which the Change in Control occurs shall not be less than the Declared Rate as in effect on the day before the Change in Control occurs. Interest on each Account balance shall be compounded daily on each business day within the Year to yield the Declared Rate for the Year. In the case of installment payments as provided in Section E.3 below, interest shall be credited on all amounts remaining in a Participant’s Account until all amounts are paid out.

     2. Length of Deferral. An Eligible Executive or Eligible Director shall elect in writing, and file with the Administrator, at the same time as such Eligible Executive or Eligible Director makes any election to defer compensation, the period of deferral with respect to such election, subject to the minimum required period of deferral and the maximum permissible period of deferral. The minimum required period of deferral is five years after the end of the Year for which compensation is deferred. Notwithstanding the foregoing, the five-year minimum deferral period shall not apply to payments made as a result of death, Disability, Retirement, Separation from Service, a Change in Control or Unforeseeable Emergency. Payment must commence no later than the end of the maximum period of deferral, which is the January following the year in which the Eligible Executive reaches age 72 or, in the case of an Eligible Director, the January after McKesson’s annual meeting of stockholders next following the Eligible Director’s 72nd birthday. Once such an election has been made, the Eligible Executive or Eligible Director may alter the period of deferral, provided that:

          a. such alteration is made at least one year prior to the earliest date the Participant could have received distribution of the amounts credited to his or her Account under the earlier election, and

          b. such alteration does not provide for the receipt of such amounts earlier than five years from the originally scheduled distribution date.

     3. Election of Form and Time of Payment. A Participant shall elect in writing, and file with the Administrator, at the same time as any election to defer compensation, a form and time of payment of benefits under this Plan from the following:

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          a. Form.

               i. Payment of the amount credited to the Participant’s Account in a single sum.

               ii. Payment of amounts credited to the Participant’s Account in any specified number of approximately equal annual installments (not in excess of ten). For purposes of this Plan, installment payments shall be treated as a single distribution under Section 409A of the Code.

          b. Time.

               i. The lump sum or first installment to be paid in January of the year designated by the Participant.

               ii. The lump sum or first installment to be paid in the January or June that is at least six months following the earlier of the Participant’s Retirement or of the determination of Disability.

     4. Default Form of Distribution. If no election is made with respect to Section 3, payment of the amount credited to the Participant’s Account in a single sum to be paid in the January or June that is at least six months following the earlier of the Participant’s Retirement or of the determination of Disability.

     5. Payments on Separation from Service. If a Participant Separates from Service with the Company for any reason other than Retirement, Disability or death, then, notwithstanding the election made by the Participant pursuant to Sections E.2 and E.3 above, the entire undistributed amount credited to his or her Account shall be paid in the form of a lump sum in the January or June that is at least six months following the date the Participant Separates from Service.

     6. Delayed Distribution to Key Employees. Notwithstanding any other provision of this Section E to the contrary, a distribution scheduled to be made upon Separation from Service to a Participant who is identified as a Key Employee as of the date he Separates from Service shall be delayed for a minimum of six months following the Participant’s Separation from Service. Any payment that otherwise would have been made pursuant to this Section E during such six-month period, if any, shall be made on the first day of the eighth month following the Participant’s Separation from Service. The identification of a Participant as a Key Employee shall be made by the Administrator in his or her sole discretion in accordance with Section K.14 of the Plan and Sections 416(i) and 409A of the Code and the regulations promulgated thereunder.

     7. Payments on Death. Each Participant shall make an election at the time of any election to defer compensation under the Plan with respect to the time and form in which any amount remaining in the Participant’s Account at the time of the Participant’s death shall be paid to his or her Beneficiary. Such election shall be made in writing and filed with the Administrator. Benefits shall be paid in one of the forms specified in Section E.3. The Participant may modify such election, provided that no such modification shall be effective

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unless it is made at least twelve months in advance of the time of the Participant’s death. The foregoing notwithstanding, the Administrator may, at his or her discretion, distribute all benefits to a Beneficiary in a single payment as soon as reasonably practicable after the death of the Participant if the value of the Participant’s Account is less than $10,000 on the date of death of the Participant. If no election has been made by the Participant at the time of his or her death, the Participant’s Account shall be paid to his or her Beneficiary in a lump sum in the first January or June after the Participant’s death.

     8. Designation of Beneficiary. A Participant may designate any person(s) or any entity as his or her Beneficiary. Designation shall be in writing and shall become effective only when filed with the Administrator. Such filing must occur before the Participant’s death. A Participant may change the Beneficiary, from time to time, by filing a new written designation with the Administrator. If the Participant fails to effectively designate a Beneficiary in accordance with the Administrator’s procedures or the person designated by the Participant is not living at the time the distribution is to be made, then the Participant’s Beneficiary shall be the Participant’s surviving spouse, if any, or, if there is no surviving spouse, the Participant’s surviving children, if any, in equal shares, or if there are no surviving children, the Participant’s estate.

     9. Payments on Disability. If the Administrator determines that a Participant has become Disabled, the entire undistributed amount credited to his or her Account shall be paid in the form and at the time elected by the Participant, or, if no election has been made, in a lump sum in the first January or June after such determination is made.

     10. Payments on Hardship. The Administrator may, in his or her sole discretion, direct payment to a Participant of all or of any portion of the Participant’s Account balance, notwithstanding an election under Section E.3 above, at any time that he or she determines that such Participant has suffered an Unforeseeable Emergency which causes an emergency condition in the Participant’s financial affairs.

     11. Prohibition on Acceleration. Notwithstanding any other provision of the Plan to the contrary, no distribution will be made from the Plan that would constitute an impermissible acceleration of payment as defined in Section 409A(a)(3) of the Code and the regulations promulgated thereunder.

     12. Change in Control. For purposes of this Plan, a Change in Control shall mean the occurrence of any change in ownership of the Company, change in effective control of the Company, or change in the ownership of a substantial portion of the assets of the Company, as defined in Section 409A(a)(2)(A)(v) of the Code, the regulations thereunder, and any other published interpretive authority, as issued or amended from time to time.

F. SOURCE OF PAYMENT

     Amounts paid under this Plan shall be paid from the general funds of the Company, and each Participant and his or her Beneficiaries shall be no more than unsecured general creditors of the Company with no special or prior right to any assets of the Company for payment of any obligations hereunder. Nothing contained in this Plan shall be deemed to create a trust of any

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kind for the benefit of any Participant or Beneficiary, or create any fiduciary relationship between the Company and any Participant or Beneficiary with respect to any assets of the Company.

G. MISCELLANEOUS

     1. Withholding. Each Participant and Beneficiary shall make appropriate arrangements with the Company for the satisfaction of any federal, state or local income tax withholding requirements and Social Security or other employment tax requirements applicable to the payment of benefits under this Plan. If no other arrangements are made, the Company may provide, at its discretion, for such withholding and tax payments as may be required.

     2. No Assignment.

          a. Other than as provided in Section G.2.b below, the benefits provided under this Plan may not be alienated, assigned, transferred, pledged or hypothecated by any person, at any time or to any person whatsoever. These benefits shall be exempt from the claims of creditors or other claimants and from all orders, decrees, levies, garnishments or executions to the fullest extent allowed by law.

          b. If a court of competent jurisdiction determines pursuant to a judgment, order or approval of a marital settlement agreement that all or any portion of the benefits payable hereunder to a Participant constitute community property of the Participant and his or her spouse or former spouse (hereafter, the “Alternate Payee”) or property which is otherwise subject to division by the Participant and the Alternate Payee, a division of such property shall not constitute a violation of Section G.2.a, and any portion of such property may be paid or set aside for payment to the Alternate Payee. The preceding sentence of this Section G.2.b, however, shall not create any additional rights and privileges for the Alternate Payee (or the Participant) not already provided under the Plan; in this regard, the Administrator shall have the right to refuse to recognize any judgment, order or approval of a martial settlement agreement that provides for any additional rights and privileges not already provided under the Plan, including without limitation, with respect to form and time of payment.

     3. Applicable Law and Severability. The Plan hereby created shall be construed, administered and governed in all respects in accordance with ERISA and the laws of the State of California to the extent that the latter are not preempted by ERISA. If any provision of this instrument shall be held by a court of competent jurisdiction to be invalid or unenforceable, the remaining provisions hereunder shall continue to be effective.

H. ADMINISTRATION OF THE PLAN

     1. In General. The Administrator of the Plan shall be the Executive Vice President, Human Resources, of McKesson. If the Executive Vice President, Human Resources, is a Participant, any discretionary action taken as Administrator which directly affects him or her as a Participant shall be specifically approved by the Compensation Committee. The Administrator shall have the authority and responsibility to interpret this Plan and shall adopt such rules and regulations for carrying out this Plan as it may deem necessary or appropriate. Decisions of the Administrator shall be final and binding on all parties who have or claim any interest in this Plan.

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     2. Elections and Notices. All elections and notices made under this Plan shall be filed with the Administrator at the time and in the manner specified by him or her. All elections to defer compensation under this Plan shall be irrevocable.

I. AMENDMENT OR TERMINATION OF THE PLAN

     1. Amendment. The Compensation Committee may at any time amend this Plan. Such action shall be prospective only and shall not adversely affect the rights of any Participant or Beneficiary to any benefit previously earned under this Plan. The foregoing notwithstanding, no amendment adopted following the occurrence of a Change in Control shall be effective if it (a) would reduce the Declared Rate for the balance of the calendar year in which the Change in Control occurs or for the two calendar years immediately following the year in which the Change in Control occurs to a rate lower than the Declared Rate as in effect on the day before the Change in Control occurred or (b) modify the provisions of (a) above.

     2. Termination. The Board may terminate this Plan at any time and under the following conditions:

          a. The Board, in its discretion, may terminate the Plan at any time and in the Board’s discretion the Accounts of Participants may be distributed within the period beginning twelve months after the date the Plan was terminated and ending twenty-four months after the date the Plan was terminated, or pursuant to Section E of the Plan, if earlier. If the Plan is terminated and Accounts are distributed, the Company shall terminate all account balance non-qualified deferred compensation plans with respect to all participants and shall not adopt a new account balance non-qualified deferred compensation plan for at least five years after the date the Plan was terminated.

          b. The Board, in its discretion, may terminate the Plan thirty days prior to or twelve months following a Change in Control that is a change in the ownership or effective control of the Company or a change in the ownership of a substantial portion of the assets of the Company as defined in the regulations promulgated under Section 409A of the Code and distribute the Accounts of the Participants within the twelve-month period following the termination of the Plan. If the Plan is terminated and Accounts are distributed, the Company shall terminate all substantially similar non-qualified deferred compensation plans sponsored by the Company and all of the benefits of the terminated plans shall be distributed within twelve months following the termination of the plans.

          c. The Board, in its discretion, may terminate the Plan upon a corporate dissolution of the Company that is taxed under Section 331 of the Code or with the approval of a bankruptcy court pursuant to 11 U.S.C. Section 503(b)(1(A), provided that the Participants’ Accounts are distributed and included in the gross income of the Participants by the latest of (i) the calendar year in which the Plan terminates or (ii) the first calendar year in which payment of the Accounts is administratively practicable.

J. CLAIMS AND APPEALS

     1. Informal Resolution of Questions. Any Participant or Beneficiary who has questions or concerns about his or her benefits under the Plan is encouraged to communicate

8

with the Human Resources Department of McKesson. If this discussion does not give the Participant or Beneficiary satisfactory results, a formal claim for benefits may be made in accordance with the procedures of this Section J.

     2. Formal Benefits Claim – Review by Executive Vice President, Human Resources. A Participant or Beneficiary may make a written request for review of any matter concerning his or her benefits under this Plan. The claim must be addressed to the Executive Vice President, Human Resources, McKesson Corporation, One Post Street, San Francisco, California 94104. The Executive Vice President, Human Resources or his or her delegate (“Executive Vice President”) shall decide the action to be taken with respect to any such request and may require additional information if necessary to process the request. The Executive Vice President shall review the request and shall issue his or her decision, in writing, no later than 90 days after the date the request is received, unless the circumstances require an extension of time. If such an extension is required, written notice of the extension shall be furnished to the person making the request within the initial 90-day period, and the notice shall state the circumstances requiring the extension and the date by which the Executive Vice President expects to reach a decision on the request. In no event shall the extension exceed a period of 90 days from the end of the initial period.

     3. Notice of Denied Request. If the Executive Vice President denies a request in whole or in part, he or she shall provide the person making the request with written notice of the denial within the period specified in Section J.2. The notice shall set forth the specific reason for the denial, reference to the specific Plan provisions upon which the denial is based, a description of any additional material or information necessary to perfect the request, an explanation of why such information is required, and an explanation of the Plan’s appeal procedures and the time limits applicable to such procedures, including a statement of the claimant’s right to bring a civil action under Section 502(a) of ERISA following an adverse benefit determination on review.

     4. Appeal to Executive Vice President.

          a. A person whose request has been denied in whole or in part (or such person’s authorized representative) may file an appeal of the decision in writing with the Executive Vice President within 60 days of receipt of the notification of denial. The appeal must be addressed to: Executive Vice President, Human Resources, McKesson Corporation, One Post Street, San Francisco, California 94104. The Executive Vice President, for good cause shown, may extend the period during which the appeal may be filed for another 60 days. The appellant and/or his or her authorized representative shall be permitted to submit written comments, documents, records and other information relating to the claim for benefits. Upon request and free of charge, the applicant should be provided reasonable access to and copies of, all documents, records or other information relevant to the appellant’s claim.

          b. The Executive Vice President’s review shall take into account all comments, documents, records and other information submitted by the appellant relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination. The Executive Vice President shall not be restricted in his or her review to those provisions of the Plan cited in the original denial of the claim.

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          c. The Executive Vice President shall issue a written decision within a reasonable period of time but not later than 60 days after receipt of the appeal, unless special circumstances require an extension of time for processing, in which case the written decision shall be issued as soon as possible, but not later than 120 days after receipt of an appeal. If such an extension is required, written notice shall be furnished to the appellant within the initial 60-day period. This notice shall state the circumstances requiring the extension and the date by which the Executive Vice President expects to reach a decision on the appeal.

          d. If the decision on the appeal denies the claim in whole or in part written notice shall be furnished to the appellant. Such notice shall state the reason(s) for the denial, including references to specific Plan provisions upon which the denial was based. The notice shall state that the appellant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claim for benefits. The notice shall describe any voluntary appeal procedures offered by the Plan and the appellant’s right to obtain the information about such procedures. The notice shall also include a statement of the appellant’s right to bring an action under Section 502(a) of ERISA.

          e. The decision of the Executive Vice President on the appeal shall be final, conclusive and binding upon all persons and shall be given the maximum possible deference allowed by law.

     5. Exhaustion of Remedies. No legal or equitable action for benefits under the Plan shall be brought unless and until the claimant has submitted a written claim for benefits in accordance with Section J.2, has been notified that the claim is denied in accordance with Section J.3, has filed a written request for a review of the claim in accordance with Section J.4, and has been notified in writing that the Executive Vice President has affirmed the denial of the claim in accordance with Section J.4.

K. DEFINITIONS

     For purposes of this Plan, the following terms shall have the meanings indicated:

     1. “Account” means the Account specified in Section E.1.

     2. “Administrator” shall mean the person specified in Section H.

     3. “Beneficiary” shall mean the person or entity described by Section E.6.

     4. “Board” shall mean the Board of Directors of McKesson.

     5. “Code” shall mean the Internal Revenue Code of 1986, as amended.

     6. “Company” shall mean McKesson and any member of its controlled group as defined by Section 414(b) and Section 414(c) of the Code.

     7. “Compensation Committee” shall mean the Compensation Committee of the Board.

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     8. “Declared Rate” shall have the meaning described in Section E.1.

     9. “Disabled” or “Disability” shall mean that an individual is disabled within the meaning of Section 409A(a)(2)(c) of the Code and is eligible for disability benefits under the Federal Social Security Act as determined by the Social Security Administration.

     10. “Eligible Director” shall mean a member of the Board described by Section C.1.b.

     11. “Eligible Executive” shall mean an employee of the Company selected as being eligible to participate in this Plan under Section C.1.a.

     12. “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended.

     13. “Identification Date” shall mean each December 31.

     14. “Key Employee” shall mean a Participant who, on an Identification Date, is:

          a. An officer of the Company having annual compensation greater than the compensation limit in Section 416(i)(1)(A)(i) of the Code, provided that no more than fifty officers of the Company shall be determined to be Key Employees as of any Identification Date;

          b. A five percent owner of the Company; or

          c. A one percent owner of the Company having annual compensation from the Company of more than $150,000.

If a Participant is identified as a Key Employee on an Identification Date, then such Participant shall be considered a Key Employee for purposes of the Plan during the period beginning on the first April 1 following the Identification Date and ending on the next March 31.

     15. “McKesson” shall mean McKesson Corporation, a Delaware corporation.

     16. “Participant” shall be any Company executive or member of the Board for whom amounts are credited to an Account under this Plan. Upon the Participant’s death, the Participant’s Beneficiary shall be a Participant until all amounts are paid out of the Participant’s Account.

     17. “Plan” shall mean the McKesson Corporation Deferred Compensation Administration Plan III (“DCAP III”).

     18. “PSIP” shall mean the McKesson Corporation Profit-Sharing Investment Plan.

     19. “Prior Plan” shall mean the McKesson Corporation Deferred Compensation Administration Plan II (“DCAP II”)

     20. “Retirement” shall mean Separation from Service after (a) the date on which the Participant’s number of points under the Retirement Share Plan portion of the PSIP equals 65,

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(b) attaining eligibility for a Retirement Allowance under the terms of the Retirement Plan or (c) receiving an Approved Retirement under the terms of the McKesson Corporation Executive Benefit Retirement Plan. Notwithstanding the foregoing, for purposes of this Plan, Retirement for an Eligible Director shall mean cessation of service as a member of the Board on or after the completion of at least two successive terms as a member of the Board.

     21. “Retirement Plan” shall mean the McKesson Corporation Retirement Plan.

     22. “Separation from Service” shall mean termination of employment with the Company, other than by reason of Disability or death. A Participant shall not be deemed to have Separated from Service if the Participant continues to provide services to the Company in a capacity other than as an employee and if the former employee is providing services at an annual rate that is fifty percent or more of the services rendered, on average, during the immediately preceding three full calendar years of employment with the Company (or if employed by the Company less than three years, such lesser period) and the annual remuneration for such services is fifty percent or more of the annual remuneration earned during the final three full calendar years of employment (of if less, such lesser period); provided, however, that a Separation from Service will be deemed to have occurred if a Participant’s service with the Company is reduced to an annual rate that is less than twenty percent of the services rendered, on average, during the immediately preceding three full calendar years of employment with the Company (or if employed by the Company less than three years, such lesser period) or the annual remuneration for such services is less than twenty percent of the annual remuneration earned during the three full calendar years of employment with the Company (or if less, such lesser period).

     23. “Unforeseeable Emergency” means a severe financial hardship to the Participant resulting from:

          a. An illness or accident of the Participant, the Participant’s spouse, or the Participant’s dependent (as defined in Section 152(a) of the Code); or

          b. Loss of the Participant’s property due to casualty (including the need to rebuild a home following damage to a home not otherwise covered by insurance); or

          c. Other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant.

Hardship shall not constitute an Unforeseeable Emergency under the Plan to the extent that it is, or may be, relieved by:

          a. Reimbursement or compensation, by insurance or otherwise;

          b. Liquidation of the Participant’s assets to the extent that the liquidation of such assets would not itself cause severe financial hardship. Such assets shall include but not be limited to stock options, Company stock, and 401(k) plan balances;

          c. Cessation of deferrals under the Plan.

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An Unforeseeable Emergency under the Plan does not include (among other events) sending a child to college or purchasing a home.

     24. “Year” is the calendar year.

L. SUCCESSORS

     This Plan shall be binding on the Company and any successors or assigns thereto.

M. EXECUTION

     To record the adoption of the Plan by the Board of Directors of McKesson Corporation at a meeting held on October 27, 2006.

McKESSON CORPORATION

By:
	Paul E. Kirincic
	Executive Vice President, Human Resources

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EX-10.35

EXHIBIT 10.35

McKESSON CORPORATION
SUPPLEMENTAL PSIP II

(Effective January 1, 2005)

TABLE OF CONTENTS

A. PURPOSE		1
B. ERISA PLAN		1
C. PARTICIPATION		1
	1. Eligibility to Participate	1
	2. Election to Participate by Eligible Executives and Deferral Election	2
	3. Relation to Other Plans	2
D. AMOUNTS OF DEFERRAL		3
	1. PSIP Supplement	3
	2. Amount of Deferrals	3
E. COMPANY MATCH		3
	1. Eligibility	3
	2. Amount of Match	3
F. PAYMENT OF DEFERRED COMPENSATION		4
	1. Book Account and Interest Credit	4
	2. Vesting	4
	3. Election of Methods of Payment	5
	4. Date Payment Occurs	5
	5. Prohibition on Acceleration	6
G. BENEFITS ON DEATH		6
	1. Death of Participant	6
	2. Designation of Beneficiary	6
H. SOURCE OF PAYMENT		7
I. MISCELLANEOUS		7
	1. Withholding	7
	2. No Assignment	7
	3. Applicable Law; Severability	7
	4. No Right to Continued Employment, Etc.	8
J. ADMINISTRATION OF THE PLAN		8
	1. In General	8
	2. Elections and Notices	8
K. AMENDMENT OR TERMINATION OF THE PLAN		8
L. CLAIMS AND APPEALS		9
	1. Informal Resolution of Questions	9
	2. Formal Benefits Claim – Review by Executive Vice President, Human Resources	9
	3. Notice of Denied Request	9

	4. Appeal to Executive Vice President	9
	5. Exhaustion of Remedies	10
M. DEFINITIONS		11
	1. “Account”	11
	2. “Additional Company Match”	11
	3. “Administrator”	11
	4. “Beneficiary”	11
	5. “Board”	11
	6. “Code”	11
	7. “Company”	11
	8. “Compensation”	11
	9. “Compensation Committee”	11
	10. “DCAP III”	11
	11. “Disability”	11
	12. “Eligible Executive”	11
	13. “ERISA”	11
	14. “Identification Date”	11
	15. “Key Employee”	11
	16. “Monthly Company Match”	12
	17. “Participant”	12
	18. “Payment Event”	12
	19. “Plan”	12
	20. “Plan Year”	12
	21. “Prior Plan”	12
	22. “PSIP”	12
	23. “Separation from Service”	12
N. SUCCESSORS		13
O. EXECUTION		13
APPENDIX A EXAMPLE OF DEFERRALS UNDER PLAN		A-1

ii

McKESSON CORPORATION
SUPPLEMENTAL PSIP II

(Effective January 1, 2005)

A. PURPOSE

1.	This Plan is established to allow certain Company executives to elect to defer compensation which cannot be deferred under the McKesson Corporation Profit Sharing Investment Plan (“PSIP”) because of limitations of tax laws and to provide for a Monthly Company Match and an Additional Company Match on those deferrals at a rate equivalent to the PSIP’s “Matching Employer Contribution” and “Additional Matching Employer Contribution.”
2.	This Plan is the successor plan to the Supplemental PSIP, as in effect on December 31, 2004 (the “Prior Plan”). Effective December 31, 2004, the Prior Plan was frozen and no new deferrals shall be made to it nor shall any matching contributions be allocated or vested under it after such date; provided, however, that any deferrals that were made to the Prior Plan or matching contributions that were allocated and vested under the Prior Plan before January 1, 2005 shall continue to be governed by the terms and conditions of the Prior Plan as in effect on December 31, 2004.
3.	Any deferrals made to or matching contributions that were allocated or vested under the Prior Plan after December 31, 2004 are deemed to have been made or allocated under this Plan and all such deferrals and matching contributions shall be governed by the terms and conditions of this Plan as it may be amended from time to time.
4.	This Plan is intended to comply with the requirements of Code Section 409A.
5.	Capitalized terms used in this Plan shall have the meaning set forth in Section M hereof.

B. ERISA PLAN

This Plan is an unfunded deferred compensation program for a select group of management or highly compensated employees of the Company. The Plan, therefore, is covered by Title I of ERISA except that it is exempt from Parts 2, 3, and 4 of Title I of ERISA.

C. PARTICIPATION

1. Eligibility to Participate.¶ The Administrator may, at his or her discretion, and at any time, and from time to time, select Company executives who may elect to participate in this Plan (“Eligible Executives”). Selection of Eligible Executives may be evidenced by the terms of the executive’s employment contract with the Company, or by inclusion among the persons specified in writing by the

Administrator. The Administrator may, at his or her discretion, and at any time, and from time to time, provide that executives previously designated as Eligible Executives are no longer Eligible Executives. If the Administrator determines that an executive is no longer an Eligible Executive, he or she shall remain a Participant in the Plan until all amounts credited to his or her Account prior to such determination are paid out under the terms of the Plan (or until death, if earlier).

2.	Election to Participate by Eligible Executives and Deferral Election.¶ Each Eligible Executive may become a Participant in the Plan by electing to defer Compensation in accordance with the terms of this Plan. An election to defer shall be in writing and shall be made at the time and in the form specified by the Administrator. On electing to defer Compensation under this Plan, the Eligible Executive shall be deemed to accept all other terms and conditions of this Plan.
	All elections to defer amounts under this Plan shall be irrevocable and shall be made pursuant to an election executed and filed with the Administrator before the amounts so deferred are earned. An election to defer Compensation shall be made prior to the beginning of the Plan Year in which it is earned and shall become irrevocable on the December 31 preceding such Plan Year. However, if an executive becomes an Eligible Executive after the beginning of a Plan Year, he or she may make an election to defer Compensation for that Plan Year no later than 30 days after the date he or she becomes an Eligible Executive, and such election shall apply only to Compensation earned after the election is filed with the Administrator. An election filed in accordance with the provisions of the preceding paragraph shall be applicable to the Plan Year with respect to which it is made and shall continue for subsequent Plan Years until suspended or modified in a writing delivered by the Participant to the Administrator as set forth below. An election to suspend further deferrals or to increase or decrease the amount deferred under the Plan shall apply only to Compensation otherwise payable to the Participant after the end of the Plan Year in which the election is delivered to the Administrator.
3.	Relation to Other Plans.

(a)	DCAP III. An Eligible Executive may participate in this Plan and may also participate in DCAP III or any successor plan. However, no amounts may be deferred under this Plan which have been deferred under DCAP III or any other plan of the Company.
(b)	Other Plans. For all other benefit programs maintained by the Company, amounts deferred by an Eligible Executive under this Plan shall, to the extent relevant, be treated in the same manner as amounts deferred under DCAP III, including, but not limited to, the definition of “Average Final Compensation” under the Executive Benefit Retirement Plan.

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D. AMOUNTS OF DEFERRAL

1.

PSIP Supplement.¶ This Plan allows an Eligible Executive to defer Compensation, and receive credit for a Monthly Company Match and Additional Company Match, to the extent that such deferrals (and corresponding Monthly Company Match and Additional Company Match) cannot be made under the PSIP because of the limitations in Code Section 401(a)(17) (limiting the amount of annual compensation to be taken into account under the PSIP to $210,000 in 2005, as adjusted from time to time under the Code).

2.

Amount of Deferrals.¶ As illustrated in Appendix A, an Eligible Executive may elect to defer under this Plan up to an amount equal to (a) minus (b), where:

(a)	is the maximum rate of deferral for “Basic Contributions” under the PSIP multiplied by the Eligible Executive’s Compensation, and
(b)	is the maximum amount that the Eligible Executive is able to defer as a “Basic Contribution” under the PSIP, taking into account the limits of Code Section 401(a)(17).

E. COMPANY MATCH

1. Eligibility.

(a)	Monthly Company Match. A Monthly Company Match shall be credited, with respect to each calendar month, to the Accounts of Eligible Executives who actually defer Compensation under this Plan for such calendar month.
(b)	Additional Company Match. An Additional Company Match may be credited, with respect to each PSIP plan year, to the Accounts of Eligible Executives who actually defer Compensation under this Plan with respect to a fiscal year.

2. Amount of Match.

(a) Monthly Company Match. The amount of the Monthly Company Match to be credited to the Account of an Eligible Executive for any calendar month shall be a percentage of the Eligible Executive’s deferrals under this Plan for the calendar month. This percentage shall be the same percentage as the “Matching Employer Contribution” (as defined in the PSIP) percentage that would have been credited to the Eligible Executive’s PSIP account if the Eligible Executive’s deferrals under this Plan had been made under the PSIP. In determining this amount, the Administrator shall take into account the different “Matching Employer Contribution” rates that may apply.

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(b) Additional Company Match. The amount of the Additional Company Match to be credited to the Account of an Eligible Executive for any PSIP plan year shall be a percentage of the Eligible Executive’s deferrals under this Plan for the PSIP plan year. This percentage shall be the same percentage as the “Additional Matching Employer Contribution” (as defined in the PSIP) percentage that would have been credited to the Eligible Executive’s PSIP account if the Eligible Executive’s deferrals under this Plan had been made under the PSIP. In determining this amount, the Administrator shall take into account the different “Additional Matching Employer Contribution” rates that may apply.

F. PAYMENT OF DEFERRED COMPENSATION

1. Book Account and Interest Credit.¶ Both Compensation deferred by a Participant and any Monthly Company Match or Additional Company Match for the benefit of a Participant shall be credited to a separate bookkeeping account maintained for such Participant (the “Account”). Earnings shall be credited to each Account (both on the Participant’s deferrals and on any Monthly Company Match or Additional Company Match credited to the Participant’s Account hereunder) at a rate equal to the amount earned during that same period by amounts invested under the PSIP’s Standish Mellon Stable Value Fund investment option. Interest shall be credited to each Account as of the end of each business day.

2. Vesting.

(a)

A Participant shall be 100% vested at all times in the value of the Participant’s elective deferrals and earnings thereon credited to the Participant’s Account.

(b)

A Participant shall vest in the amounts of Monthly Company Match and the Additional Company Match and earnings thereon credited to the Participant’s Account at the same time and in the same manner as if these amounts were “Matching Employer Contributions” or “Additional Matching Employer Contributions” under the PSIP and as if the rules of the PSIP concerning vesting applied to such amounts. For this purpose, any Monthly Company Match shall be deemed to be credited to an Account as of the last day of the calendar month with respect to which such Monthly Company Match is determined and any Additional Company Match shall be deemed to be credited to an Account as of the March 31 with respect to which such Company Match is determined. Any amounts that would be forfeited under the rules of the PSIP applicable to “Matching Employer Contributions” or “Additional Matching Employer Contributions” under the PSIP shall be forfeited hereunder. Any forfeiture under this Plan of any portion of the Monthly Company Match or the Additional Company Match credited to a Participant’s Account shall eliminate any obligation of the Company to pay the forfeited amount hereunder.

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3. Election of Methods of Payment.¶ A Participant shall elect in writing, and file with the Administrator, a method of payment of benefits under this Plan from the following methods based upon the nature of the Payment Event. This election must be made no later than the later of (i) December 31, 2006 or (ii) 30 days after the date the Participant first becomes an Eligible Executive. Once such an election is made, a Participant may alter the method of payment or the timing of receipt of amounts deferred under the Plan by a writing filed with the Administrator, provided that such alteration is made at least one year prior to the earliest date the Participant could have received distribution of such amounts under the previous election and does not provide for the receipt of such amounts earlier than five years from the previously scheduled date of distribution.

(a) If the Payment Event is due to the Participant’s Separation from Service on account of Retirement (as defined under PSIP) or Disability, the Participant may choose one of the following payment methods:

(i)

Payment of the vested amounts credited to the Participant’s Account in any specified number of approximately equal annual installments, not in excess of the number of whole years remaining of the Participant’s life expectancy, determined as of his or her Payment Event and based upon the mortality tables then in use under the McKesson Corporation Retirement Plan, the first installment to be paid at a designated interval following the Payment Event. For purposes of the Plan, installment payments shall be treated as a single distribution under Code Section 409A.

(ii)

Payment of the vested amounts credited to the Participant’s Account in a single lump sum upon the occurrence of the Payment Event.

(b)	If the Payment Event occurs as a result of the Participant’s Separation from Service with the Company, and such separation is not due to the Participant’s death or one of the Payment Events described above, payment of the vested amounts credited to the Participant’s Account shall be made in a single lump sum upon the occurrence of the Payment Event.
	(If any Monthly Company Match or Additional Company Match is payable under Section E hereunder, that amount may be paid separately and at a later date as provided in such section but not later than the end of the calendar year in which the Monthly Company Match or Additional Company Match is credited to the Participant’s Account.)

4. Date Payment Occurs.¶ Payment shall be made or commence not later than first day of the fourth month following the date the earliest Payment Event occurs. Notwithstanding the foregoing, a distribution scheduled to be made upon Separation from Service to a Participant who is identified as a Key Employee as of the date he or she Separates from Service shall be delayed for a minimum of

5

six months following the Participant’s Separation from Service. Any payment that otherwise would have been made pursuant to this Section F during such six-month period, if any, shall be paid on the first day of the eighth month following the Participant’s Separation from Service. The identification of a Participant as a Key Employee shall be made by the Administrator in his or her sole discretion in accordance with Section M.15 of the Plan and Code Sections 416(i) and 409A and the regulations promulgated thereunder.

5. Prohibition on Acceleration.¶ Notwithstanding any other provision of the Plan to the contrary, no distribution will be made from the Plan that would constitute an impermissible acceleration of payment as defined in Code Section 409A(a)(3) and the regulations promulgated thereunder.

G. BENEFITS ON DEATH

1.	Death of Participant.¶ Each Participant shall make an election of the manner in which any amount remaining in the Participant’s Account at the time of the Participant’s death shall be paid to his or her Beneficiary. Such election shall be made in writing and filed with the Administrator not later than the later of (i) December 31, 2006 or (ii) 30 days after the date the Participant first becomes an Eligible Executive. At the election of the Participant, benefits shall be paid in a lump sum or in up to ten annual installments. The Participant may modify such election at any time up until twelve months prior to the date of the Participant’s death in a writing filed with the Administrator. Notwithstanding the Participant’s election, the Administrator shall distribute all benefits to a Beneficiary in a single payment if the value of the Account is less than $5,000 on the date of death of the Participant. Payment shall be made or commence on the first day of the month following the date of the Participant’s death. Beneficiaries may not elect to accelerate or further defer the payment of the Participant’s Account as described in this Section G.1.
2.	Designation of Beneficiary.¶ A Participant may designate any person or entity as his or her Beneficiary, but may not designate more than one person or any person that is not a natural person without the approval of the Administrator. Designation shall be in writing and shall become effective only when filed with the Company. Such filing must occur before the Participant’s death. A Participant may change the Beneficiary, from time to time, by filing a completed beneficiary designation with the Company.
	If the Participant fails to effectively designate a Beneficiary in accordance with the Administrator’s procedures or the person designated by the Participant is not living at the time the distribution is to be made, then his or her Beneficiary shall be his or her beneficiary under the PSIP.

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H. SOURCE OF PAYMENT

Amounts paid under this Plan shall be paid from the general funds of the Company, and each Participant and his or her Beneficiaries shall be no more than unsecured general creditors of the Company with no special or prior right to any assets of the Company for payment of any obligations hereunder. Nothing contained in this Plan shall be deemed to create a trust of any kind for the benefit of any Participant or Beneficiary or create any fiduciary relationship between the Company and any Participant or Beneficiary with respect to any assets of the Company.

I. MISCELLANEOUS

1.	Withholding.¶ Each Participant and Beneficiary shall make appropriate arrangements with the Company for the satisfaction of any federal, state, or local income tax withholding requirements and Social Security or other employment tax requirements applicable to the payment of benefits under this Plan. If no other arrangements are made, the Company may provide, at its discretion, for such withholding and tax payments as may be required.
2.	No Assignment.¶ Except as otherwise provided in this Section I.2. or by applicable law, the benefits provided under this Plan may not be alienated, assigned, transferred, pledged, or hypothecated by any person, at any time. These benefits shall be exempt from the claims of creditors or other claimants and from all orders, decrees, levies, garnishments or executions.
	If a court of competent jurisdiction determines pursuant to a judgment, order or approval of a marital settlement agreement that all or any portion of the benefits payable hereunder to a Participant constitute community property of the Participant and his or her spouse or former spouse (hereafter, the “Alternate Payee”) or property which is otherwise subject to division by the Participant and the Alternative Payee, a division of such property shall not constitute a violation of this Section I.2, and any portion of such property may be paid or set aside for payment to the Alternate Payee. The preceding sentence, however, shall not create any additional rights and privileges for the Alternate Payee (or the Participant) not already provided under the Plan; in this regard, the Administrator shall have the right to refuse to recognize any judgment, order or approval of a martial settlement agreement that provides for any additional rights and privileges already not already provided under the Plan, including without limitation with respect to form and time of payment.
3.	Applicable Law; Severability.¶ The Plan hereby created shall be construed, administered, and governed in all respects in accordance with ERISA and the laws of the State of California to the extent that the latter are not preempted by ERISA. If any provision of this instrument shall be held by a court of competent jurisdiction to be invalid or unenforceable, the remaining provisions hereunder shall continue to be effective.

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4. No Right to Continued Employment, Etc.¶ Neither the establishment or maintenance of the Plan nor the crediting of any amount to any Participant’s Account, nor the designation of an executive as an Eligible Executive, shall confer upon any individual any right to be continued as an employee of the Company or shall affect the right of the Company to terminate any executive’s employment or change any terms of any executive’s employment at any time.

J. ADMINISTRATION OF THE PLAN

1.

In General.¶ The Plan Administrator shall be the Executive Vice President, Human Resources of the Company. If the Executive Vice President, Human Resources is a Participant, any discretionary action taken as Administrator which directly affects him or her as a Participant shall be specifically approved by the Compensation Committee. The Compensation Committee shall have authority and responsibility to interpret the Plan and shall adopt such rules and regulations for carrying out the Plan as it may deem necessary or appropriate. Decisions of the Compensation Committee shall be final and binding on all parties who have or claim any interest in the Plan.

2.

Elections and Notices.¶ All elections and notices made under this Plan shall be in writing and filed with the Administrator at the time and in the manner specified by him or her. All elections to defer under this Plan shall be irrevocable.

K. AMENDMENT OR TERMINATION OF THE PLAN

The Compensation Committee may at any time, and from time to time, amend the Plan. Such action shall be prospective only and shall not adversely affect the rights of any Participant or Beneficiary to any benefit previously earned under the Plan.

The Board may at any time terminate the Plan; thereupon all amounts credited to the Participant’s Account for periods preceding the termination date, plus interest credited thereon, may be paid during the period beginning twelve months after the date the Plan was terminated and ending twenty-four months after the date the Plan was terminated, or pursuant to Section F or G if earlier, in single sums to the respective Participants or Beneficiaries entitled thereto. If the Plan is terminated and the Accounts are distributed, the Company shall terminate all account balance non-qualified deferred compensation plans with respect to all participants and shall not adopt a new account balance non-qualified deferred compensation plan for at least five years after the date the Plan was terminated.

In addition to the foregoing, the Board, in its discretion, may terminate the Plan upon a corporate dissolution of the Company that is taxed under Code Section 331 or with the approval of a bankruptcy court pursuant to 11 U.S.C. Section 503(b)(1(A), provided that the Participants’ Accounts are distributed and included in the gross income of the Participants by the latest of (i) the Plan Year in which the Plan terminates or (ii) the first Plan Year in which payment of accrued benefits is administratively practicable.

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L. CLAIMS AND APPEALS

1.	Informal Resolution of Questions.¶ Any Participant or Beneficiary who has questions or concerns about his or her benefits under the Plan is encouraged to communicate with the Human Resources Department of McKesson. If this discussion does not give the Participant or Beneficiary satisfactory results, a formal claim for benefits may be made in accordance with the procedures of this Section L.
2.	Formal Benefits Claim – Review by Executive Vice President, Human Resources.¶ A Participant or Beneficiary may make a written request for review of any matter concerning his or her benefits under this Plan. The claim must be addressed to the Executive Vice President, Human Resources, McKesson Corporation, One Post Street, San Francisco, California 94104. The Executive Vice President, Human Resources or his or her delegate (“Executive Vice President”) shall decide the action to be taken with respect to any such request and may require additional information if necessary to process the request. The Executive Vice President shall review the request and shall issue his or her decision, in writing, no later than 90 days after the date the request is received, unless the circumstances require an extension of time. If such an extension is required, written notice of the extension shall be furnished to the person making the request within the initial 90-day period, and the notice shall state the circumstances requiring the extension and the date by which the Executive Vice President expects to reach a decision on the request. In no event shall the extension exceed a period of 90 days from the end of the initial period.
3.	Notice of Denied Request.¶ If the Executive Vice President denies a request in whole or in part, he or she shall provide the person making the request with written notice of the denial within the period specified in Section L.2. The notice shall set forth the specific reason for the denial, reference to the specific Plan provisions upon which the denial is based, a description of any additional material or information necessary to perfect the request, an explanation of why such information is required, and an explanation of the Plan’s appeal procedures and the time limits applicable to such procedures, including a statement of the claimant’s right to bring a civil action under Section 502(a) of ERISA following an adverse benefit determination on review.
4.	Appeal to Executive Vice President.

(a) A person whose request has been denied in whole or in part (or such person’s authorized representative) may file an appeal of the decision in writing with the Executive Vice President within 60 days of receipt of the notification of denial. The appeal must be addressed to: Executive Vice President, Human Resources, McKesson Corporation, One Post Street, San Francisco, California 94104. The Executive Vice President, for good cause shown, may extend the period during which the appeal may be filed for another 60 days. The appellant and/or his or her authorized

9

representative shall be permitted to submit written comments, documents, records and other information relating to the claim for benefits. Upon request and free of charge, the applicant should be provided reasonable access to and copies of, all documents, records or other information relevant to the appellant’s claim.

(b)	The Executive Vice President’s review shall take into account all comments, documents, records and other information submitted by the appellant relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination. The Executive Vice President shall not be restricted in his or her review to those provisions of the Plan cited in the original denial of the claim.
(c)	The Executive Vice President shall issue a written decision within a reasonable period of time but not later than 60 days after receipt of the appeal, unless special circumstances require an extension of time for processing, in which case the written decision shall be issued as soon as possible, but not later than 120 days after receipt of an appeal. If such an extension is required, written notice shall be furnished to the appellant within the initial 60-day period. This notice shall state the circumstances requiring the extension and the date by which the Executive Vice President expects to reach a decision on the appeal.
(d)	If the decision on the appeal denies the claim in whole or in part, written notice shall be furnished to the appellant. Such notice shall state the reason(s) for the denial, including references to specific Plan provisions upon which the denial was based. The notice shall state that the appellant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claim for benefits. The notice shall describe any voluntary appeal procedures offered by the Plan and the appellant’s right to obtain the information about such procedures. The notice shall also include a statement of the appellant’s right to bring an action under Section 502(a) of ERISA.
(e)	The decision of the Executive Vice President on the appeal shall be final, conclusive and binding upon all persons and shall be given the maximum possible deference allowed by law.

5. Exhaustion of Remedies.¶ No legal or equitable action for benefits under the Plan shall be brought unless and until the claimant has submitted a written claim for benefits in accordance with Section L.2, has been notified that the claim is denied in accordance with Section L.3, has filed a written request for a review of the claim in accordance with Section L.4, and has been notified in writing that the Executive Vice President has affirmed the denial of the claim in accordance with Section L.4.

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M. DEFINITIONS

For purposes of the Plan, the following terms shall have the meanings indicated:

1.	“Account”¶ shall mean the Account specified in Section F.l.
2.	“Additional Company Match”¶ shall mean, with respect to any Plan Year, the amount credited to the Account of an Eligible Employee in accordance with Section E.l(b).
3.	“Administrator”¶ shall mean the person specified in Section J.1.
4.	“Beneficiary”¶ shall mean the person or entity described by Section G.2.
5.	“Board”¶ shall mean the Board of Directors of McKesson Corporation, a Delaware corporation.
6.	“Code”¶ shall mean the Internal Revenue Code of 1986, as amended.
7.	“Company”¶ shall mean McKesson Corporation, a Delaware corporation, and any of the corporations or other business entities subsidiary to or affiliated with it, whose employees are authorized to participate in the Plan.
8.	“Compensation”¶ shall mean “Compensation” as defined in Section 15.17 of the PSIP; provided, however, that Compensation for purposes of this Plan shall be determined without regard to the limit of Code Section 401(a)(17).
9.	“Compensation Committee”¶ shall mean the Compensation Committee of the Board.
10.	“DCAP III”¶ shall mean the McKesson Corporation Deferred Compensation Administration Plan III and predecessor or successor plans.
11.	“Disability”¶ shall mean that an individual is eligible for disability benefits under the Federal Social Security Act as determined by the Social Security Administration.
12.	“Eligible Executive”¶ shall mean an employee of the Company who is eligible to participate in this Plan under Section C.
13.	“ERISA”¶ shall mean the Employee Retirement Income security Act of 1974, as amended.
14.	“Identification Date”¶ shall mean each December 31.
15.	“Key Employee”¶ shall mean a Participant who, on an Identification Date, is:

(a) An officer of the Company having annual compensation greater than the compensation limit in Code Section 416(i)(1)(A)(i), provided that no more

11

than fifty officers of the Company shall be determined to be Key Employees as of any Identification Date;

(b)	A five percent owner of the Company; or
(c)	A one percent owner of the Company having annual compensation from the Company of more than $150,000.

If a Participant is identified as a Key Employee on an Identification Date, then such Participant shall be considered a Key Employee for purposes of the Plan during the period beginning on the first April 1 following the Identification Date and ending on the next March 31.

16.	“Monthly Company Match”¶ shall mean, with respect to a calendar month, the amount credited to the Account of an Eligible Executive in accordance with Section E.1(a).
17.	“Participant”¶ shall be any Company executive for whom amounts are credited to an Account under this Plan. Upon his or her death, his or her Beneficiary shall, be a Participant until all amounts are paid out of his or her Account.
18.	“Payment Event”¶ shall mean the earliest of the following: Retirement from the Company as determined under the PSIP, death, other Separation from Service with the Company, or Disability. If a subsidiary or affiliate of McKesson Corporation ceases to be a Company, and the Participant is employed by that subsidiary or affiliate, such Participant shall be treated as having Separated from Service with the Company upon such event.
19.	“Plan”¶ shall mean the McKesson Corporation Supplemental PSIP II.
20.	“Plan Year”¶ shall mean the calendar year.
21.	“Prior Plan”¶ shall mean the McKesson Corporation Supplemental PSIP.
22.	“PSIP”¶ shall mean the McKesson Corporation Profit-Sharing Investment Plan, as amended from time to time.
23.	“Separation from Service”¶ shall mean termination of employment with the Company, other than by reason of Disability or death. A Participant shall not be deemed to have Separated from Service if the Participant continues to provide services to the Company in a capacity other than as an employee and if the former employee is providing services at an annual rate that is fifty percent or more of the services rendered, on average, during the immediately preceding three full calendar years of employment with the Company (or if employed by the Company less than three years, such lesser period) and the annual remuneration for such services is fifty percent or more of the average annual remuneration earned during the final three full calendar years of employment (of if less, such lesser period); provided, however, that a Separation from Service will be deemed

12

to have occurred if a Participant’s service with the Company is reduced to an annual rate that is less than twenty percent of the services rendered, on average, during the immediately preceding three full calendar years of employment with the Company (or if employed by the Company less than three years, such lesser period) or the annual remuneration for such services is less than twenty percent of the average annual remuneration earned during the three full calendar years of employment with the Company (or if less, such lesser period).

N. SUCCESSORS

This Plan shall be binding on the Company and any successors or assigns thereto.

O. EXECUTION

To record the adoption of the Plan by the Board of McKesson Corporation at a meeting held on October 27, 2006.

McKESSON CORPORATION
By
	Paul E. Kirincic
	Executive Vice President, Human Resources

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APPENDIX A

EXAMPLE OF DEFERRALS UNDER PLAN

The following example illustrates the extent to which a Participant could make deferrals under this Plan. The example assumes that the applicable compensation limit under Code Section 401(a)(17) is $210,000.

E’s Compensation is $350,000. E elects to make Basic Contributions under PSIP at the rate of 5% of his Compensation. Because Code Section 401(a)(17) limits the amount of E’s compensation which may be considered by PSIP to $210,000, E’s Basic Contributions for the year are limited to $10,500 (5% of $210,000). Accordingly, E may defer $7,000 (5% of his Compensation in excess of $210,000) into this Plan. This deferral will then be eligible for a Monthly Company Match and an Additional Company Match based on the PSIP’s “Matching Employer Contribution” and “Additional Matching Employer Contribution” for the relevant PSIP calendar months and plan year.

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO
RULE 13a-14(a) AND RULE 15d-14(a) OF THE SECURITIES EXCHANGE ACT, AS ADOPTED PURSUANT TO SECTION
302 OF THE SARBANES-OXLEY ACT OF 2002

     I, John H. Hammergren, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of McKesson Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: November 1, 2006	/s/ John H. Hammergren
	John H. Hammergren
	Chairman, President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO
RULE 13a-14(a) AND RULE 15d-14(a) OF THE SECURITIES EXCHANGE ACT, AS ADOPTED PURSUANT TO SECTION
302 OF THE SARBANES-OXLEY ACT OF 2002

     I, Jeffrey C. Campbell, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of McKesson Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: November 1, 2006	/s/ Jeffrey C. Campbell
	Jeffrey C. Campbell
	Executive Vice President and Chief Financial Officer

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO
18 U.S.C SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of McKesson Corporation (the “Company”) on Form 10-Q for the quarter ended September 30, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, in the capacities and on the dates indicated below, each hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of their knowledge:

1.	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ John H. Hammergren John H. Hammergren

Chairman, President and Chief Executive Officer
November 1, 2006

/s/ Jeffrey C. Campbell Jeffrey C. Campbell

Executive Vice President and Chief Financial Officer
November 1, 2006

This certification accompanies the Report pursuant to § 906 of the Sarbanes-Oxley Act of 2002, and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

A signed original of this written statement required by Section 906 has been provided to McKesson Corporation and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.