Document:

exv10w2

 

Exhibit 10.2

McKESSON CORPORATION

1999 STOCK OPTION AND RESTRICTED STOCK PLAN

(As Amended Through May 26, 2004)

     1. Establishment, Purpose and Definitions.

          (a) There is hereby adopted the McKesson Corporation 1999 Stock Option and Restricted Stock
Plan (the “Plan”).

          (b) The purpose of this Plan is to provide a means whereby eligible employees of McKesson
Corporation (the “Company”) and its affiliates may be given an opportunity to purchase shares of
the common stock ($0.01 par value) of the Company (the “Stock”) pursuant to options, which will not
qualify as “incentive stock options” under Section 422 of the Internal Revenue Code, as amended
(the “Code”), and by providing participants with grants of restricted shares of Stock (“Restricted
Stock”), stock appreciation rights (“SAR“s) and restricted stock units (“RSU“s) in accordance with
the terms and conditions set forth herein.

     2. Stock Subject to the Plan.

          (a) The number of shares of Stock available for the grant of awards hereunder shall be
45,200,000 (all such shares shall be subject to equitable adjustment as provided herein). The
maximum number of shares of Stock that may be granted to any individual in the form of options
during any plan year shall not exceed 600,000; in each case, such maximum number shall be subject
to equitable adjustment as provided herein.

          As the Committee (as hereinafter defined) may determine from time to time, the Stock may
consist either in whole or in part of shares of authorized but unissued Stock, or shares of
authorized and issued Stock reacquired by the Company and held in its treasury. If an option is
surrendered for cash or for any other reason (except surrender for shares of Stock) ceases to be
exercisable in whole or in part, the shares which were subject to such option but as to which the
option had not been exercised shall continue to be available for grants of stock options under the
Plan. If any shares of Stock underlying Restricted Stock grants shall be reacquired by the Company
pursuant to the termination provisions described herein or in the instruments evidencing the making
of such Restricted Stock grants, such shares shall again be available for grant of Restricted Stock
awards under the Plan. Prior to the granting of awards, the Company shall be under no obligation
to reserve or retain in its treasury any particular number of shares of Stock at any time, and no
particular shares of Stock, whether issued or held as treasury Stock, shall be identified as being
available for future awards under the Plan.

          (b) In the event that the Committee shall determine that any dividend or other distribution
(whether in the form of cash, stock, or other property), recapitalization, stock split, reverse
stock split, reorganization, merger, consolidation, spin-off, combination, repurchase, or

 

share
exchange, or other similar corporate transaction or event, affects the Stock such that an
adjustment is appropriate in order to preserve (but not increase) the rights of participants under
the Plan, then the Committee shall make such equitable changes or adjustments as it deems necessary
or appropriate to any or all of (i) the number and kind of shares which may thereafter be issued in
connection with respect to both Restricted Stock and option awards, (ii) the number and kind of
shares issued in respect of outstanding awards, and (iii) the exercise price relating to any
options.

     3. Eligibility.

          Persons who shall be eligible to have granted to them awards provided for by the Plan shall be
such key employees of the Company and its affiliates as the Committee, in its sole discretion,
shall designate from time to time.

     4. Administration of the Plan.

          (a) The Plan shall be administered by a committee (the “Committee”) consisting of not less
than two directors of the Company to be appointed by the Board each of whom a “non-employee
director” within the meaning of Rule 16b-3 under the Exchange Act or such other committee as is
established by the Board.

          (b) The Committee may from time to time determine which key employees of the Company and its
affiliates shall be granted awards under the Plan, the terms thereof, and the number of shares
covered by an option, the number of shares of Restricted Stock to be granted or the number of SARs
or RSUs to be granted.

          (c) The Committee shall have the sole authority, in its absolute discretion, to adopt, amend,
and rescind such rules and regulations as, in its opinion, may be advisable in the administration
of the Plan, to construe and interpret the Plan, the rules and regulations, and the instruments
evidencing awards granted under the Plan and to make all other determinations deemed necessary or
advisable for the administration of the Plan. All decisions, determinations, and interpretations
of the Committee shall be final and binding on all participants and other interested parties.

     5. Stock Options and Stock Appreciation Rights.

          (a) The Option Price.

          The exercise price of each option shall not be less than the fair market value of the Stock
covered by such option on the date the option is granted. Such fair market value shall, if the
Stock is not listed or admitted to trading on a stock exchange, be the mean between the lowest
reported bid price and highest reported asked price of the Stock on the date the option is granted
in the over-the-counter market, as reported by 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 Company which regularly reports
the market price of the Stock in such market, or, if the Stock is then listed or admitted to

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trading on any stock exchange, the closing price on such day as reported by such stock exchange
(for example, on its official web site, such as www.nyse.com). Such price shall be subject to
adjustment as provided in paragraph 2(b) hereof.

     (b) Terms and Conditions of Options.

          (i) Each option granted pursuant to the Plan shall be evidenced by a written grant agreement
(the “Agreement”) executed by the Company and the person to whom such option is granted which shall
provide such terms and conditions as the Committee may determine, in its sole discretion.

          (ii) Unless otherwise provided in the Agreement, the term of each option shall be for no more
than ten years and three months.

          (iii) The Agreement may contain such other terms, provisions, and conditions as may be
determined by the Committee (not inconsistent with this Plan) including, without limitation,
provisions relating to SARs with respect to options granted hereunder. Unless otherwise provided
in the Agreement, the Committee may, in its sole discretion, extend the post-termination exercise
period with respect to an option (but not beyond the original term of such option).

          (iv) The Committee shall have the authority to accelerate the exercisability of any
outstanding option at such time and under such circumstances as it, in its sole discretion, deems
appropriate.

     (c) Stock Appreciation Rights.

          (i) Each SAR granted pursuant to the Plan shall be evidenced by an Agreement executed by the
Company and the participant which shall specify, among such other terms and conditions as the
Committee may determine, in its sole discretion, the exercise price of the SAR, which may vary in
accordance with a predetermined formula while the SAR is outstanding, and the number of rights to
which the SAR pertains. The provisions of Agreements for SARs entered into under the Plan need not
be identical.

          (ii) Upon exercise of a SAR, the participant (or any person having the right to exercise the
SAR after his or her death) shall receive from the Company: (A) shares, (B) cash or (C) a
combination of shares and cash, as the Committee shall determine. The amount of cash and/or the
fair market value of shares received upon exercise of SARs shall, in the aggregate, be equal to the
amount by which the fair market value (on the date of surrender) of the shares subject to the SARs
exceeds the exercise price.

     (d) The Committee may, under such terms and conditions as it deems appropriate, authorize the
surrender by an optionee of all or part of an unexercised option and
authorize a payment in consideration thereof of an amount equal to the difference obtained by
subtracting the option price of the shares then subject to exercise under such option from the fair
market value of the Stock represented by such shares on the date of surrender, provided that the

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Committee determines that such settlement is consistent with the purpose of the Plan. Such payment
may be made in shares of Stock valued at their fair market value on the date of surrender of such
option or in cash, or partly in shares and partly in cash. Acceptance of such surrender and the
manner of payment shall be in the discretion of the Committee. If an option is surrendered for
cash, the shares covered by the surrendered option will thereafter be available for grant under the
Plan to the extent permitted under Rule 16b-3 of the Exchange Act.

          (e) Use of Proceeds.

          Proceeds realized from the sale of Stock pursuant to options granted under the Plan shall
constitute general funds of the Company.

     6. Restricted Stock Grants.

          (a) Terms and Conditions.

          Each Restricted Stock Grant made pursuant to the Plan shall be evidenced by an Agreement
executed by the Company and the person to whom such Restricted Stock is granted (the “Grantee”).
Each Restricted Stock Grant made under the Plan shall, unless otherwise provided in the Agreement,
contain the following terms, conditions and restrictions and such additional terms, conditions and
restrictions as may be determined by the Committee.

          (b) Restrictions.

          Until the restrictions imposed on any Restricted Stock Grant shall lapse, shares of Stock
granted to a Grantee pursuant to a Restricted Stock grant:

               (i) Shall not be sold, assigned, transferred, pledged, hypothecated, or otherwise disposed of,
and

               (ii) Shall, if the Grantee’s continuous employment with the Company shall terminate for any
reason, unless otherwise provided in the Agreement, be returned to the Company forthwith, and all
the rights of the Grantee to such shares shall immediately terminate; provided that if the
Committee, in its sole discretion, shall within ninety (90) days of such termination of employment,
notify the Grantee in writing of its decision not to terminate the Grantee’s rights in such shares,
then the Grantee shall continue to be the owner of such shares subject to such continuing
restrictions as the Committee may prescribe in such notice. If the Grantee’s interests in the
shares granted pursuant to a Restricted Stock Grant shall be terminated, such Grantee shall
forthwith deliver or cause to be delivered to the Secretary of the Company the certificate(s), if
any, previously delivered to the Grantee for such shares, accompanied by such endorsement(s) and/or
instrument(s) of transfer as may be required by the Secretary of the Company.

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          (c) Lapse of Restrictions.

          Except as otherwise provided in the Plan or the Agreement, the restrictions imposed on any
Restricted Stock Grant shall commence with the date of the grant and continue during a period set
by the Committee. Notwithstanding the foregoing, the Committee may accelerate the lapsing of
restrictions on a Restricted Stock Grant under such terms and conditions as it may deem
appropriate.

          (d) Restrictive Legend; Certificates May be Held in Custody.

          Each certificate evidencing shares granted pursuant to a Restricted Stock Grant may bear an
appropriate legend referring to the terms, conditions and restrictions described in the Plan and in
the instrument evidencing the Restricted Stock Grant. Any attempt to dispose of such shares in
contravention of such terms, conditions and restrictions shall be invalid. The Committee may enact
rules which provide that the certificates evidencing such shares may be held in custody by a bank
or other institution, or that the Company may itself hold such shares in custody, until restriction
thereon shall have lapsed.

          (e) Restrictions upon Making of Restricted Stock Grants.

          The registration or qualification under any federal or state law of any shares to be granted
pursuant to Restricted Stock Grants or the resale or other disposition of any such shares by or on
behalf of the Grantees receiving such shares may be necessary or desirable as a condition of or in
connection with such Restricted Stock Grants, and, in any such event, if the Committee in its sole
discretion so determines, delivery of the certificates for such shares shall not be made until such
registration or qualification shall have been completed.

     7. Restricted Stock Units. RSUs cover a number shares that may be settled in cash, or
by issuance of shares of the Company’s common stock, as determined by the Committee. RSUs granted
under the Plan shall, unless otherwise provided in the Agreement, contain the following terms,
conditions and restrictions and such others as may be determined by the Committee at the time of
grant or Payment Date:

          (a) Documentation. RSUs granted under the Plan shall be evidenced by an Agreement
executed by the Company and the participant. The terms of RSUs need not be identical. The
Committee will determine all terms applicable to RSUs including, without limitation: the number of
shares subject to each RSU, the Payment Date (as defined below), the consideration to be
distributed on settlement, and the effect of participant’s termination of service with the Company
on the vesting or settlement of RSUs.

          (b) Payment. No payment of cash shall be required as consideration.

          (c) Vesting. As determined by the Committee and set forth in the Agreement, RSUs may
vest in consideration of a participant’s continued service with the Company and may be accelerated
upon such terms and conditions as the Committee, in its sole discretion, may determine.

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          (d) Payment Date; Form of Payment. RSUs, or any portion thereof, may be
settled as they vest or at such earlier or later time, as the Committee shall determine, (in any
case, the “Payment Date”) with such interest or dividend equivalent, if any, as the Committee may
determine. On the Payment Date, settlement may be made in the form of cash or whole shares or a
combination thereof, either in a lump sum payment or in installments, as the Committee will
determine.

          (e) Termination of Service. If the participant’s continuous service with the Company
shall terminate for any reason, unless otherwise provided in the Agreement, any unvested RSUs, and
participant’s rights therein, shall immediately terminate; provided that the Committee may, in its
sole discretion and within ninety (90) days of participant’s termination, determine that the RSUs
shall not terminate and shall provide for the terms of their alternative treatment.

          (f) Nontransferability. RSUs may not be sold, assigned, transferred, pledged,
hypothecated, or otherwise disposed of by the participant.

     8. Change in Control.

          Upon a Change in Control (as hereinafter defined), then notwithstanding anything herein to the
contrary, all options and SARs granted under the Plan that are outstanding at the time of such
Change in Control shall become immediately exercisable in full, all restrictions with respect to
shares of Restricted Stock shall lapse and such shares shall become fully vested and exercisable
and all RSUs shall become fully vested.

          A “Change in Control” of the Company shall be deemed to have occurred if any of the events set
forth in any one of the following paragraphs shall occur:

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

               (ii) During any period of not more than two consecutive years, individuals who at the
beginning of such period constitute the Board and any new director (other than a director
designated by a Person who has entered into an agreement with the Company to
effect a transaction described in clause (i), (iii) or (iv) of this paragraph) whose election by
the Board or nomination for election by the Company’s stockholders was approved by a vote of at
least two-thirds (2/3) of the directors then still in office who either were directors at the

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beginning of the period or whose election or nomination for election was previously so approved,
cease for any reason to constitute a majority thereof; or

               (iii) The shareholders of the Company approve a merger or consolidation of the Company with
any other company, other than (A) a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity), in combination with the ownership of any trustee or other
fiduciary holding securities under an employee benefit plan of the Company, at least 50% of the
combined voting power of the voting securities of the Company or such surviving entity

outstanding immediately after such merger or consolidation, or (B) a merger or consolidation
effected to implement a recapitalization of the Company (or similar transaction) in which no person
acquires more than 50% of the combined voting power of the Company’s then outstanding securities;
or

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

          Notwithstanding the foregoing, no Change in Control shall be deemed to have occurred if there
is consummated any transaction or series of integrated transactions immediately following which the
holders of the Stock immediately prior to such transaction or series of transactions continue to
have the same proportionate ownership in an entity which owns all or substantially all of the
assets of the Company immediately prior to such transaction or series of transactions.

     9. Amendment and Termination of the Plan.

          The Board at any time and from time to time may suspend, terminate, modify or amend the Plan.
No suspension, termination, modification or amendment of the Plan may adversely affect any award
previously granted without the written consent of the Grantee.

     10. Assignability.

          (a) General Rule.

          Each option award granted pursuant to this Plan shall, during the participant’s lifetime, be
exercisable only by him. No award nor any right thereunder shall be transferable by the
participant by operation of law or otherwise except to the extent permitted by Section 10(b).

          (b) Exceptions to General Rule.

          Notwithstanding Section 10(a), this Plan shall not preclude:

               (i) any participant from designating a beneficiary to succeed, after the participant’s death,
to all of the participant’s option awards outstanding on the date of the

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participant’s death (including, without limitation, the right to exercise any unexercised option
awards); or

               (ii) any participant from transferring an option award or any right thereunder pursuant to a
qualified domestic relations order as defined in the Code or the Employee Retirement Income
Security Act of 1974, as amended; or

               (iii) any participant who is a senior executive officer recommended by the Chief Executive
Officer and approved by the Committee from voluntarily transferring any option award granted
pursuant to this Plan to a family member as a gift or through a transfer to an entity in which more
than fifty percent of the voting interests are owned by family members (or the participant) in
exchange for an interest in that entity.

          (c) Definitions.

               (i) Beneficiary. The term “beneficiary” shall mean a person or persons designated by
the participant to succeed to, in the event of death, all outstanding option awards granted to the
participant or any right thereunder. Any participant, subject to applicable laws and such
limitations as may be prescribed by the Committee, to designate one or more persons primarily or
contingently as beneficiaries in writing by notice delivered to the Company, and to revoke such
designations in writing. If a participant fails effectively to designate a beneficiary, or if the
participant’s designated beneficiary(ies) does not survive the participant, the participant’s
estate shall be the participant’s beneficiary.

               (ii) Family Member. The term “family member” shall include 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.”

     11. Payment Upon Exercise.

          Payment of the purchase price upon exercise of any option granted under this Plan shall be
made in cash; provided that the Committee, in its sole discretion, may permit an option holder to
pay the option price, in whole or in part, by tendering to the Company shares of Stock owned by the
option holder, and having a fair market value equal to the option price. The fair market value of
such Stock shall be determined by the Committee as it deems appropriate, or as may be required in
order to comply with any applicable law or regulation.

     12. Effective Date and Duration of the Plan.

          The Plan shall become effective upon its adoption by the Board of Directors. Unless sooner
terminated, the Plan shall remain in effect until terminated by action of the Board, provided,
however, that the duration of the Plan shall in no event exceed ten years from the date of the
adoption of the Plan by the Board. Termination of the Plan shall not affect any awards previously
granted pursuant thereto, which shall remain in effect until their restrictions shall have

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lapsed (with respect to Restricted Stock grants) or until exercised (with respect to option grants)
all in accordance with their terms.

     13. Agreement by Participant Regarding Withholding Taxes.

          If the Committee shall so require, as a condition of exercise of an option or SAR, upon the
lapsing of restrictions imposed on Restricted Stock or upon the settlement of RSUs (each a “Tax
Event”), each participant shall agree that no later than the date of the Tax Event, the participant
will pay to the Company or make arrangements satisfactory to the Committee regarding payment of any
federal, state or local taxes of any kind required by law to be withheld upon the Tax Event.
Alternatively, the Committee may provide, in its sole discretion, that a participant may elect, to
the extent permitted or required by law, to have the Company deduct federal, state and local taxes
of any kind required by law to be withheld upon the Tax Event from any payment of any kind due to
the participant, including withholding of shares.

     14. Rights as a Shareholder.

          A participant granted an award hereunder or a transferee of an award shall have no rights as a
shareholder with respect to any shares covered by the award until the date of the issuance of a
stock certificate to him for such shares. No adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or distribution of other rights for
which the record date is prior to the date such stock certificate is issued, except as otherwise
provided in the Plan.

     15. No Rights to Employment.

          Nothing in the Plan or in any award granted or Agreement entered into pursuant hereto shall
confer upon any participant the right to continue in the employ of, or in an independent contractor
relationship with, the Company or any subsidiary or to be entitled to any
remuneration or benefits not set forth in the Plan or such Agreement or to interfere with or limit
in any way the right of the Company or any such subsidiary to terminate such participant’s
employment. Awards granted under the Plan shall not be affected by any change in duties or
position of a participant as long as such participant continues to be employed by, or, for awards
granted prior to July 25, 2001, in a consultant relationship with, the Company or any subsidiary.

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Exhibit 10.7

AMENDMENT NO. 1

TO THE

MCKESSON CORPORATION DEFERRED COMPENSATION ADMINISTRATION PLAN II

     The McKesson Corporation Deferred Compensation Administration Plan II, amended and restated
effective October 28, 2004 (the “Plan”), is hereby amended as described below, effective as July
25, 2007:

     Section K.16 is deleted in its entirety and replaced by the following:

16. “Retirement” shall mean termination of employment after (a) the date on which
the Participant’s number of points under the Retirement Share Plan portion of the
PSIP equals 65, (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
(i) prior to July 25, 2007, two successive terms, or (ii) on or after July 25, 2007,
six successive years, as a member of the Board.

     To record the adoption of this Amendment No. 1 to the Plan, McKesson Corporation has caused
the undersigned to execute this document to be effective as of the date indicated above.

	 	 	 	 	 
	 	McKESSON CORPORATION

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

 

 

	 	 	 	 	 

McKESSON CORPORATION

DEFERRED COMPENSATION ADMINISTRATION PLAN II (“DCAP II”)

(Amended and Restated as of October 28, 2004)

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 
	A.

	 	PURPOSE
	 	 	1	 
	 
	 	 	 	 	 	 
	B.

	 	ERISA PLAN
	 	 	1	 
	 
	 	 	 	 	 	 
	C.

	 	PARTICIPATION
	 	 	1	 
	 
	 	 	 	 	 	 
	D.

	 	AMOUNTS OF DEFERRAL
	 	 	2	 
	 
	 	 	 	 	 	 
	E.

	 	PAYMENT OF DEFERRED COMPENSATION
	 	 	3	 
	 
	 	 	 	 	 	 
	F.

	 	SOURCE OF PAYMENT
	 	 	7	 
	 
	 	 	 	 	 	 
	G.

	 	MISCELLANEOUS
	 	 	7	 
	 
	 	 	 	 	 	 
	H.

	 	ADMINISTRATION OF THE PLAN
	 	 	8	 
	 
	 	 	 	 	 	 
	I.

	 	AMENDMENT OR TERMINATION OF THE PLAN
	 	 	8	 
	 
	 	 	 	 	 	 
	J.

	 	CLAIMS AND APPEALS
	 	 	8	 
	 
	 	 	 	 	 	 
	K.

	 	DEFINITIONS
	 	 	10	 
	 
	 	 	 	 	 	 
	L.

	 	SUCCESSORS
	 	 	11	 
	 
	 	 	 	 	 	 
	M.

	 	EXECUTION
	 	 	11	 
	 
	 	 	 	 	 	 
	APPENDIX A DEFERRAL OF RESTRICTED STOCK PROCEEDS	 	 	A-1	 

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McKESSON CORPORATION

DEFERRED COMPENSATION ADMINISTRATION PLAN II

(Amended and Restated as of October 28, 2004)

A. PURPOSE

     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. The Plan
replaced and superseded the Directors’ Deferred Compensation Plan, the Management Deferred
Compensation Plan, the Deferred Compensation Administration Plan, and the PCS, Inc. Optional
Deferred Compensation Administration Plan. This Plan was originally approved by the Board and
became effective on January 27, 1993. Since its original effective date, the Plan has been amended
and restated on various occasions. This amendment and restatement has been approved by the Board
as of October 28, 2004 and shall be effective as of such date except as otherwise set forth below.

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.

          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

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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.

     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. Prior to January 1, 2000 and subject to the last sentence of
Section D.2 below, an Eligible Executive who makes an election to defer compensation under this
Plan shall have an additional amount automatically deferred from his or her remaining compensation.
The amount of such additional deferral shall be an amount equal to (x) the amount deferred by the
Eligible Executive into the Plan, multiplied by (y) the percentage rate of the Eligible Executive’s
deferrals into the PSIP, as in effect at the beginning of each Year.

          Effective as of January 1, 2000, 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 six percent (6%) of such deferrals under DCAP
II had been made under the PSIP. For these purposes, Matching Employer Contribution shall have the
meaning defined in the PSIP. (Prior to January 1, 2000, the additional deferrals were credited to
the Eligible Executive’s account in the McKesson Corporation Supplemental PSIP and governed by the
terms of that plan.)

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% (80% prior to January 1,
2000) of the amount of such Eligible Executive’s base salary for such Year, and (ii) 90% (100%
prior to January 1, 2002) of any annual bonus award and/or any Long-Term Incentive Plan award
determined and payable to him or her in such Year. Additionally,

2

 

effective January 1, 2000, 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.

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.10 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. (Prior to January 1, 2000,
each Account balance was compounded monthly at the twelfth root of the annual Declared Rate.) 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,
pre-retirement termination, a Change in Control or hardship. 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

3

 

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 one year from
the date of the alteration, subject to the five-year minimum deferral rule stated above.

     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:

          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).

          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 January after the designated interval
following the earlier of the Participant’s Retirement or of the determination of Disability.

     4. Payments on Termination. If a Participant terminates 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 of the calendar year
following the calendar year of termination of service.

     5. Payments on Death.

          a. On and after January 1, 2003, each Participant shall make an election at the time of any
election to defer compensation under the Plan of 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 at any time up until the date of the Participant’s death in a writing filed with the
Administrator. In addition, within one year following the death of the Participant the Beneficiary
may elect to receive payment in a lump sum; provided, however, that

4

 

such election shall not take effect until 12 months after the date it is made, and payment
otherwise scheduled to be made in that 12-month period shall be made on schedule. 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 $5,000 on the date of death of
the Participant.

          b. Prior to January 1, 2003, if a Participant died after payments from his or her Account had
begun, the remainder of the amounts credited to the Participant’s Account was paid to his or her
Beneficiary at the same time and in the same manner as they would have been paid to the Participant
had the Participant survived. If a Participant died before payments from his or her Account had
begun, the amount credited to his or her Account was paid to his or her Beneficiary at the time and
in the manner elected by the Participant.

     6. 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. Effective January 1, 2003, 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.

     7. 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 as soon as practicable after such determination is made.

     8. 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 event of undue hardship which causes an emergency condition in the
Participant’s financial affairs.

     9. Other Withdrawals. Effective June 1, 2000 and subject to approval by the
Administrator, a Participant may elect to receive a withdrawal of all or part of the Participant’s
Account under the Plan at any time not otherwise expressly authorized pursuant to the terms of the
Plan; provided, however, that ten percent (10%) of the amount of the withdrawal requested shall be
permanently forfeited to the Company and the Participant shall have no further right to that
amount. The terms of such withdrawal shall be governed by the provisions of the Participant’s
election form in effect at the time of such election to the extent not otherwise specified in the
Participant’s election made pursuant to this Section E.9.

5

 

     10. Change in Control. For purposes of this Plan, 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 McKesson or any of its subsidiaries, a trustee or any fiduciary holding
securities under an employee benefit plan of McKesson 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 stockholders of McKesson in substantially the same proportions as their
ownership of McKesson, is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of McKesson representing 30% or more of the
combined voting power of McKesson’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 and any new members of the Board (other than a member
designated by a “person” who has entered into an agreement with McKesson to effect a transaction
described in Sections E.10.a, c and d) whose election by the Board or nomination for election by
McKesson’s stockholders was approved by a vote of at least two-thirds (2/3) of the members of the
Board then still in office who either were members of the Board 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 McKesson with any other corporation, which has
been approved by the shareholders of McKesson, other than (I) a merger or consolidation which would
result in the voting securities of McKesson 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 McKesson, at least 50% of the combined voting power of
the voting securities of McKesson or such surviving entity outstanding immediately after such
merger or consolidation, or (II) a merger or consolidation effected to implement a recapitalization
of McKesson (or similar transaction) in which no person acquires more than 50% of the combined
voting power of McKesson’s then outstanding securities; or

          d. the shareholders of McKesson approve a plan of complete liquidation of McKesson or an
agreement for the sale or disposition by McKesson of all or substantially all of McKesson’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 McKesson’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 McKesson immediately prior to such transaction or series of transactions.

6

 

          With respect to deferrals made prior to January 1, 1994, deferred funds shall be distributed
upon a Change in Control, if the Participant has so elected.

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 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. If any provision this amendment and
restatement is deemed to be a “material modification” of this Plan which would cause

7

 

amounts deferred under this Plan prior to 2005 to be subject to the deferred compensation
provisions of section 885 of the American Jobs Creation Act of 2004, if such legislation is enacted
into law, such provision shall be null, void and without effect retroactive to October 28, 2004.

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.

     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 compensation under this Plan shall be irrevocable.

I. AMENDMENT OR TERMINATION OF THE PLAN

     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 Board may at any time terminate this Plan; thereupon,
compensation previously deferred plus interest credited thereon shall promptly be paid in single
lump sums to the respective Participants or Beneficiaries entitled thereto. 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.

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 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

8

 

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.

          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

9

 

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.

          f. 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. “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.

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

     7. “Declared Rate” shall have the meaning described in Section E.1.

     8. “Disabled” or “Disability” shall mean a physical or mental condition which the Social
Security Administration has determined renders the Participant eligible to receive Social Security
benefits on account of disability.

     9. “Eligible Director” shall mean a member of the Board described by Section C.1.b.

     10. “Eligible Executive” shall mean an employee of the Company selected as being eligible to
participate in this Plan under Section C.1.a.

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

10

 

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

     13. “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.

     14. “Plan” shall mean the McKesson Corporation Deferred Compensation Administration Plan II
(“DCAP II”).

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

     16. “Retirement” shall mean termination of employment after (a) the date on which the
Participant’s number of points under the Retirement Share Plan portion of the PSIP equals 65, (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.

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

     18. “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 amendment and restatement of the Plan by the Board of Directors of McKesson
Corporation at a meeting held on October 28, 2004.

	 	 	 	 	 
	 	McKESSON CORPORATION

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

11

 

	 	 	 	 	 

APPENDIX A

DEFERRAL OF RESTRICTED STOCK PROCEEDS

Any other provision of the Plan to the contrary notwithstanding, the following provisions shall
apply to the cash paid to the Company by Eli Lilly and Company (“Lilly”) upon the tender of certain
shares of restricted stock (the “Transaction Proceeds”), which had been granted to executives under
the Company’s 1988 Restricted Stock Plan, at the completion of the transaction involving the
acquisition of PCS Health Systems, Inc. (“PCS”) by Lilly (the “Transaction”).

     1. Former executives of the Company may be selected to participate in the Plan, and, if so
selected, shall be deemed Eligible Executives.

     2. The Transaction Proceeds shall be automatically deferred into the Plan on behalf of those
Eligible Executives who hold outstanding Restricted Stock Grants under the Company’s 1988
Restricted Stock Plan. Such Eligible Executives shall be deemed to have elected the deferral of
the Transaction Proceeds.

     3. The five-year minimum deferral period required by Section E.2 of the Plan shall not apply
to the deferral of the Transaction Proceeds.

     4. Transaction Proceeds shall not be deferred on behalf of Eligible Executives who are also
employees of PCS.

i

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