EX-10.4






McKESSON CORPORATION

2005 MANAGEMENT INCENTIVE PLAN





	 	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 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 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.




	 	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.




	 	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 II or any
successor plan (“DCAP II”) and in compliance with Section 409A of the Code. No awards may be
deferred by a Participant under DCAP II 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.




	 	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 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. 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 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 be deemed to have occurred if any of
the events set forth in any of the following paragraphs shall occur:



a. any “person” (as defined in section 3(a)(9) of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”) and as such term is modified in sections 13(d) and 14(d) of the
Exchange Act), excluding the Company or any of its subsidiaries, a trustee or any fiduciary holding
securities under an employee benefit plan of the Company or any of its subsidiaries, an underwriter
temporarily holding securities pursuant to an offering of such securities or a corporation owned,
directly or indirectly, by the Company’s stockholders in substantially the same proportions as
their ownership of the Company, is or becomes the “beneficial owner” (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or
more of the combined voting power of the Company’s then outstanding securities; or



b. during any period of not more than two consecutive years, individuals who at the beginning
of such period constitute the Board of Directors and any new members of the Board of Directors
(other than a member designated by a “person” who has entered into an agreement with the Company to
effect a transaction described in Sections a, c and d of this definition) whose election by the
Board of Directors or nomination for election by the Company’s stockholders was approved by a vote
of at least two-thirds (2/3) of the members of the Board of Directors then still in office who
either were members of the Board of 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



c. consummation of a merger or consolidation of the Company with any other corporation, which
has been approved by the shareholders of the Company, other than (I) 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 (II) 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 shareholders of the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially all of the Company’s
assets.



Notwithstanding the foregoing, no Change in Control shall be deemed to have occurred if there
is consummated any transaction or series of integrated transactions immediately following which the
holders of the 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.



“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.



“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.




	 	T.	 	EXECUTION





Executed effective as of      , 2005.



McKESSON CORPORATION



By