SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarter ended June 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------- ----------
Commission file number 1-13252
McKESSON CORPORATION
- -----------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 94-3207296
- -----------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Post Street, San Francisco, California 94104
- -----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(415) 983-8300
- -----------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at June 30, 1997
- ---------------------------- ----------------------------
Common stock, $.01 par value 45,925,182 shares
<PAGE>
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
==============================
Item Page
- ---- ----
1. Condensed Financial Statements
Consolidated Balance Sheets
June 30, 1997 and March 31, 1997 3 - 4
Statements of Consolidated Income
Three month periods ended
June 30, 1997 and 1996 5
Statements of Consolidated Cash Flows
Three month periods ended
June 30, 1997 and 1996 6 - 7
Financial Notes 8 - 10
2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Financial Review 11 - 13
PART II. OTHER INFORMATION
===========================
1. Legal Proceedings 14
4. Submission of Matters to a Vote of
Security Holders 14
6. Exhibits and Reports on Form 8-K 15
Exhibit Index 18
<PAGE>
PART I. FINANCIAL INFORMATION
==============================
McKESSON CORPORATION and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
June 30, March 31,
1997 1997
------ ------
(in millions)
ASSETS
- ------
Current Assets
Cash and cash equivalents $ 76.8 $ 124.8
Marketable securities
available for sale (Note 4) 95.9 105.0
Receivables 1,248.0 1,224.5
Inventories 2,116.9 2,259.5
Prepaid expenses 50.6 47.3
------- -------
Total 3,588.2 3,761.1
------- -------
Property, Plant and Equipment
Land 37.4 38.0
Buildings, machinery and equipment 758.7 741.3
------- -------
Total 796.1 779.3
Accumulated depreciation (418.4) (405.7)
------- -------
Net 377.7 373.6
Goodwill and other intangibles 740.0 736.2
Other assets 312.2 301.9
------- -------
Total Assets $5,018.1 $5,172.8
======= =======
(Continued)
- 3 -
<PAGE>
McKESSON CORPORATION and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
June 30, March 31,
1997 1997
------ ------
(in millions,
except par value)
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities
Drafts payable $ 244.8 $ 210.7
Accounts payable - trade 1,632.0 1,854.7
Short-term borrowings 135.2 100.0
Current portion of long-term debt 60.1 60.3
Salaries and wages 37.1 52.9
Taxes 88.1 80.0
Interest and dividends 32.7 21.3
Other 233.4 257.3
------- -------
Total 2,463.4 2,637.2
------- -------
Postretirement Obligations and
Other Noncurrent Liabilities 256.7 255.1
------- -------
Long-Term Debt (Note 4) 807.7 824.9
------- -------
McKesson-obligated mandatorily redeemable
preferred securities of subsidiary grantor
trust whose sole assets are junior sub-
ordinated debentures of McKesson (Note 5) 195.1 194.8
------- -------
Stockholders' Equity
Common stock (200.0 shares authorized,
46.4 issued as of June 30 and March 31,
1997; par value of $.01) 0.4 0.4
Additional paid-in capital 408.0 408.2
Other capital (19.6) (19.2)
Retained earnings 1,089.3 1,062.6
Accumulated translation adjustment (44.6) (44.6)
ESOP notes and guarantee (116.4) (118.3)
Treasury shares, at cost (21.9) (28.3)
------- -------
Net 1,295.2 1,260.8
------- -------
Total Liabilities and
Stockholders' Equity $5,018.1 $5,172.8
======= =======
See Financial Notes.
(Concluded)
- 4 -
<PAGE>
McKESSON CORPORATION and SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(unaudited)
Three Months Ended
June 30
----------------------
1997 1996
------ ------
(in millions - except
per share amounts)
REVENUES $4,342.7 $2,670.6
------- -------
COSTS AND EXPENSES
Cost of sales 3,977.9 2,438.7
Selling, distribution and administration 278.5 177.5
Purchased in-process technology (Note 2) - 48.2
Interest 23.1 10.9
------- -------
Total 4,279.5 2,675.3
------- -------
INCOME (LOSS) BEFORE TAXES ON INCOME
AND DIVIDENDS ON PREFERRED SECURITIES
OF SUBSIDIARY TRUST 63.2 (4.7)
INCOME TAX EXPENSE (24.0) (16.7)
DIVIDENDS ON PREFERRED SECURITIES
OF SUBSIDIARY TRUST (1.6) -
------- -------
INCOME (LOSS) AFTER TAXES
Continuing operations 37.6 (21.4)
Discontinued operations (Note 3) - 3.3
------- -------
NET INCOME (LOSS) $ 37.6 $ (18.1)
======= =======
EARNINGS (LOSS) PER COMMON SHARE
Fully diluted earnings (loss)
Continuing operations $ 0.78 $ (0.49)
Discontinued operations - 0.08
------- -------
Total $ 0.78 $ (0.41)
======= =======
Primary earnings (loss)
Continuing operations $ 0.79 $ (0.49)
Discontinued operations - 0.08
------- -------
Total $ 0.79 $ (0.41)
======= =======
Dividends $ 0.25 $ 0.25
======= =======
SHARES ON WHICH EARNINGS (LOSS)
PER COMMON SHARE WERE BASED
Fully diluted 50.4 43.8
Primary 47.6 43.8
See Financial Notes.
- 5 -
<PAGE>
McKESSON CORPORATION and SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(unaudited)
Three Months Ended
June 30
----------------------
1997 1996
------ ------
(in millions)
Operating Activities
Income (loss) from continuing operations $ 37.6 $ (21.4)
Adjustments to reconcile to net cash
used by operating activities
Depreciation 17.7 15.3
Amortization 3.6 2.3
Provision for receivables reserves 2.8 1.7
Deferred taxes on income 2.7 1.0
Other non-cash items (Note 2) (1.0) 49.4
------- -------
Total 63.4 48.3
------- -------
Effects of changes in
Receivables (25.5) (113.3)
Inventories 133.3 51.8
Accounts and drafts payable (165.7) (75.0)
Taxes 15.7 16.5
Other (46.9) (15.1)
------- -------
Total (89.1) (135.1)
------- -------
Net cash used by continuing operations (25.7) (86.8)
------- -------
Discontinued operations (1.9) 4.6
------- -------
Net cash used by operating activities (27.6) (82.2)
------- -------
Investing Activities
Purchases of marketable securities (1.2) (0.2)
Maturities of marketable securities 11.4 58.3
Property acquisitions (23.1) (19.8)
Properties sold 1.7 0.2
Acquisitions of businesses, less cash
and short-term investments acquired (3.2) (61.4)
Investing activities of
discontinued operations - (0.4)
Other (11.7) (15.3)
------- -------
Net cash used by investing activities (26.1) (38.6)
------- -------
(Continued)
- 6 -
<PAGE>
McKESSON CORPORATION and SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(unaudited)
Three Months Ended
June 30
----------------------
1997 1996
------ ------
(in millions)
Financing Activities
Proceeds from issuance of debt $ 35.1 $ 84.2
Repayment of debt (19.0) (3.3)
Dividends paid on preferred
securities of subsidiary trust (2.8) -
Capital stock transactions
Treasury stock acquired - (101.9)
Issuances 2.0 5.3
ESOP notes and guarantee 1.9 1.8
Dividends paid (11.5) (10.7)
Financing activities of
discontinued operations - 0.1
------- -------
Net cash provided (used)
by financing activities 5.7 (24.5)
------- -------
Net Decrease in Cash
and Cash Equivalents (48.0) (145.3)
Cash and Cash Equivalents
at beginning of period 124.8 260.8
------- -------
Cash and Cash Equivalents
at end of period $ 76.8 $ 115.5
======= =======
See Financial Notes.
(Concluded)
- 7 -
<PAGE>
McKESSON CORPORATION and SUBSIDIARIES
FINANCIAL NOTES
1. Interim Financial Statements
- ---------------------------------
In the opinion of the Company, these unaudited condensed
consolidated financial statements include all adjustments necessary
for a fair presentation of its financial position as of June 30,
1997 and the results of its operations and its cash flows for the
three months ended June 30, 1997 and 1996. Except for the $48.2
million charge in fiscal 1997 described in Note 2, such adjustments
were of a normal recurring nature.
The results of operations for the three months ended June 30,
1997 and 1996 are not necessarily indicative of the results for the
full years.
It is suggested that these interim financial statements be
read in conjunction with the annual audited financial statements,
accounting policies and financial notes thereto included in the
Company's 1997 Annual Report to Stockholders which has previously
been filed with the Securities and Exchange Commission.
2. Fiscal 1997 Acquisitions
- -----------------------------
In April 1996, the Company acquired Automated Healthcare,
Inc. ("AHI"), a provider of automated pharmaceutical dispensing
equipment for use by health care institutions. In the first
quarter of fiscal 1997, a $48.2 million charge was recorded to
write off the portion of the purchase price of AHI allocated to
technology for which technological feasibility had not been
established as of the acquisition date and for which there were no
alternate uses.
In November 1996, the Company acquired FoxMeyer Corporation's
healthcare distribution business ("FoxMeyer"), pursuant to an
expedited auction process in the FoxMeyer Corporation bankruptcy
proceeding in Wilmington, Delaware.
In February 1997, the Company acquired General Medical Inc.
("General Medical"), a multi-market distributor of medical-surgical
supplies to acute-care, physician-care, and extended-care markets.
The acquisitions were accounted for under the purchase method.
The revenues and operating results of AHI, FoxMeyer and General
Medical are included in the consolidated financial statements from
their respective dates of acquisition.
3. Discontinued Operations
- ----------------------------
Earnings from discontinued operations for the three months
ended June 30, 1996, consist of the Company's interest in the
operations of Armor All Products Corporation and Millbrook
Distribution Services, Inc., which were sold in December 1996 and
March 1997, respectively.
- 8 -
<PAGE>
McKESSON CORPORATION and SUBSIDIARIES
FINANCIAL NOTES
4. Marketable Securities
- --------------------------
The June 30, 1997 marketable securities balance includes $88.8
million held in trust as exchange property for the Company's $144.6
million principal amount of 4.5% exchangeable subordinated
debentures which remain outstanding.
5. Convertible Preferred Securities
- -------------------------------------
In February 1997, a wholly owned subsidiary trust of the
Company issued 4 million preferred securities shares to the public
and 123,720 common securities to the Company. The preferred
securities shares are convertible at the holder's option into the
Company's common stock. The proceeds of such issuances were
invested by the trust in $206,186,000 aggregate principal amount of
the Company's 5% Convertible Junior Subordinated Debentures due
2027 (the "Debentures"). The Debentures represent the sole assets
of the trust. The Debentures mature on June 1, 2027, bear interest
at the rate of 5%, payable quarterly, and are redeemable by the
Company beginning in March 2000 at 103.5% of the principal amount
thereof. The $6,186,000 of Debentures attributable to the
Company's common security interest in the trust have been
eliminated, and the preferred securities reflected as outstanding,
in the accompanying consolidated financial statements.
Holders of the preferred securities are entitled to cumulative
cash distributions at an annual rate of 5% of the liquidation
amount of $50 per preferred security. Each preferred security is
convertible at the rate of .6709 shares of McKesson common stock,
subject to adjustment in certain circumstances. The preferred
securities will be redeemed upon repayment of the Debentures, and
are callable by the Company at 103.5% of the liquidation amount
beginning in March 2000.
6. New Accounting Pronouncements
- ---------------------------------
The Company is required to adopt Statement of Financial
Accounting Standards ("SFAS") 128, "Earnings per Share" in the
third quarter of fiscal 1998. Earlier application is not
permitted.
SFAS 128 replaces current EPS reporting requirements and
requires a dual presentation of basic and diluted EPS. Basic EPS
excludes dilution and is computed by dividing net income available
to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into
common stock.
Pro forma amounts for basic and diluted EPS, assuming SFAS 128
had been in effect, are as follows:
Three Months Ended
June 30
------------------
1997 1996
------ ------
($ in millions)
Net Income (Loss) Per Share
Basic $ 0.82 $(0.41)
Diluted 0.78 (0.41)
- 9 -
<PAGE>
McKESSON CORPORATION and SUBSIDIARIES
FINANCIAL NOTES
The diluted calculation for the three months ended June 30,
1996 excludes the impact of stock options which were anti-dilutive
due to the net loss for the period.
In June 1997, the Financial Accounting Standards Board issued
SFAS No. 130 "Reporting Comprehensive Income," which requires that
an enterprise report, by major components and as a single total,
the change in its net assets during the period from nonowner
sources; and SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information," which establishes annual and
interim reporting standards for an enterprise's operating segments
and related disclosures about its products, services, geographic
areas, and major customers. Adoption of these statements will not
impact the Company's consolidated financial position, results of
operations or cash flows, and any effect will be limited to the
form and content of its disclosures. Both statements are effective
for the Company's fiscal year 1999, with earlier application
permitted.
- 10 -
<PAGE>
McKESSON CORPORATION and SUBSIDIARIES
FINANCIAL REVIEW
Segment Results
- ---------------
Three Months Ended
June 30
-------------------
1997 1996 %Chg
------ ------ ----
($ in millions)
REVENUES
Health Care Services
U.S. Health Care
Pharmaceutical Dist. & Services $3,441.1 $2,219.5 55.0
Medical/Surgical Dist. & Services 446.9 -
------- -------
Total U.S. Health Care 3,888.0 2,219.5 75.2
International 377.8 376.8 0.3
------- -------
Total Health Care Services 4,265.8 2,596.3 64.3
Water Products 72.3 70.4 2.7
Corporate 4.6 3.9
------- -------
Total $4,342.7 $2,670.6 62.6
======= =======
OPERATING PROFIT
Health Care Services $ 82.8 $ 3.3(1)
Water Products 11.1 9.6 15.6
------- -------
Total 93.9 12.9
Interest - net(2) (21.8) (7.7)
Corporate and other (8.9) (9.9)
------- -------
Income (loss) before taxes $ 63.2 $ (4.7)
======= =======
(1) Includes a $48.2 million write-off for in-process
technology related to the April 1996 acquisition of
Automated Healthcare, Inc.
(2) Interest expense is shown net of corporate interest
income.
- 11 -
<PAGE>
McKESSON CORPORATION and SUBSIDIARIES
FINANCIAL REVIEW
Overview of Results
- -------------------
Net income for the first quarter increased to $37.6 million,
$0.78 per fully diluted share, from a loss of $18.1 million,
$(0.41) per share, in the prior year. The prior year net loss
included income from discontinued operations of $3.3 million. The
fiscal 1997 loss from continuing operations included a $48.2
million charge to write off in-process technology related to the
April 1996 acquisition of Automated Healthcare, Inc.
The effective income tax rate applicable to continuing
operations for the quarter ended June 30, 1996 differed from the
effective income tax rate for the current year period primarily due
to the write-off of in-process technology which had no associated
tax benefit.
HEALTH CARE SERVICES
The Health Care Services segment includes the operations of
the Company's U.S. pharmaceutical and health care products
distribution and medical/surgical supplies distribution businesses
("U.S. Health Care") and its international health care distribution
businesses in Canada and Mexico. This segment accounted for
approximately 98% of revenues from continuing operations in the
first quarter.
Segment revenues increased by 64% for the quarter compared
with the prior year, reflecting revenue from the fiscal 1997
acquisitions (see Note 2), 17% internal growth in the U.S. Health
Care pharmaceutical distribution business, and flat international
revenues.
Operating profit for the quarter, excluding the effect of the
$48.2 million charge noted above, increased by 61% to $82.8 million
from the prior year, reflecting the increasing contribution from
the 1997 acquisitions, stable margins in the U.S. Health Care
pharmaceutical distribution business and lower costs associated
with the Company's OmniLink product offering. International
operating profits declined modestly in the quarter due to the
phased transition of a Canadian customer to self-warehousing and
lower margins on the replacement business.
WATER PRODUCTS
Revenues at Water Products increased by 3% for the quarter
compared with the prior year. Prior year revenues included $4.5
million in revenues from the Aqua Vend unit, which was sold in
March 1997. The 10% increase in revenues from comparable
operations resulted from continuing strong grocery sales growth
following a series of new product introductions, and continued
geographic expansion.
Operating profit increased 16% in the quarter to $11.1 million
from $9.6 million in the prior year. This increase reflects
improved profitability from the expanding grocery business, and
cost savings resulting from customer retention programs for the
direct delivery business.
- 12 -
<PAGE>
McKESSON CORPORATION and SUBSIDIARIES
FINANCIAL REVIEW
INTEREST, NET
Interest expense, net of interest income, increased to $21.8
million in the quarter from $7.7 million for the prior year period,
as a result of the debt issued to finance acquisitions in the
second half of fiscal 1997.
Liquidity and Capital Resources
- -------------------------------
Cash and marketable securities available for sale were $172.7
million at June 30, 1997 and $229.8 million at March 31, 1997. The
June 30, 1997 marketable securities balance included $88.8 million
from the sale of the Armor All shares which is currently restricted
and held in trust as exchange property in connection with the
Company's outstanding exchangeable debentures. Cash and marketable
securities available for sale decreased by $57.1 million and total
debt increased by $17.8 million during the three months ended June
30, 1997. These changes in the quarter primarily reflect a
decrease in accounts payable from March 31, 1997 levels. The
accounts payable decrease is due to the timing of inventory
purchases during the quarter. It is expected that accounts payable
balances at March 31, 1998 will be in excess of March 31, 1997
levels. Inventory balances decreased from March 31, 1997 levels
due to normal seasonality and Company initiatives designed to
increase inventory turnover.
Stockholders' equity was $1,295.2 million at June 30, 1997,
and the net debt-to-capital ratio was 36% compared with 34% on
March 31, 1997. The net debt-to-capital ratio for both periods was
computed by reducing the outstanding debt amount by the cash and
marketable securities at the end of the period.
Fully diluted shares increased to 50.4 million from 43.8
million in the prior year due primarily to the issuance of 2.8
million common shares in conjunction with the General Medical
acquisition in February 1997, the 2.7 million common shares
underlying the convertible preferred securities issued in February
1997 and the exclusion of potential employee stock option dilution
in the prior year due to the net loss reported.
Certain of the matters discussed herein may constitute
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 (the "Reform Act") and as
such may involve known and unknown risks and uncertainties and
other factors that may cause the actual results, performance or
achievements of the Company to be materially different from any
future results, performance or achievements expressed or implied by
such forward-looking statements.
- 13 -
<PAGE>
PART II. OTHER INFORMATION
===========================
Item 1. Legal Proceedings
- --------------------------
As previously reported in the Company's Form 10-K for its
fiscal year ended March 31, 1997, a purported class action was
filed in July 1995 in the Supreme Court of the State of New York by
Richard A. Bernstein against General Medical Corp., Inc. and
several other defendants alleging a conspiracy to orchestrate the
leveraged buyout of plaintiff's interest in General Medical at an
unfairly low price. The complaint alleges common law fraud, breach
of fiduciary duty, and inducing breach of fiduciary duty, and seeks
rescissionary damages of $50 million, compensatory damages of $25
million and punitive damages of $25 million. The complaint was
dismissed in September 1996 and the plaintiff appealed. On July 1,
1997, the Appellate Division of the Supreme Court of the State of
New York reversed the prior dismissal and reinstated the complaint.
The Company continues to believe that it has meritorious defenses
to the allegations made against it and intends to vigorously defend
the action.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
The Company's Annual Meeting of Stockholders was held on July
30, 1997. The following matters were voted upon at the meeting and
e stockholder votes on each such matter are briefly described
below:
The Board of Directors' nominees for directors as listed
in the proxy statement were each elected to serve for a
three year term expiring at the Annual Meeting in 2000.
The vote was as follows:
Votes
Votes For Withheld
---------- ---------
Tully M. Friedman 39,168,846 293,280
John M. Pietruski 39,161,793 300,233
Carl E. Reichardt 39,150,449 311,677
The terms of the following named directors continued
after the meeting:
Mary. G.F. Bitterman Alan Seelenfreund
David S. Pottruck Jane E. Shaw
Mark A. Pulido Robert H. Waterman, Jr.
The 1997 Non-Employee Directors' Equity Compensation and
Deferral Plan was approved by the following vote:
Votes For Votes Against Votes Withheld
---------- ------------- --------------
36,087,023 3,188,688 186,415
The proposal to amend and restate the Corporation's 1973
Stock Purchase Plan to make available for purchase an
additional 450,000 shares of Common Stock and to make
other changes appropriate to facilitate the
administration of grants under the Plan was approved by
the following vote:
Votes For Votes Against Votes Withheld
---------- ------------- --------------
36,703,781 2,550,522 207,823
- 14 -
<PAGE>
PART II. OTHER INFORMATION
===========================
The proposal to amend the Corporation's 1981 Long-Term
Incentive Plan to permit awards under the plan to qualify
for exemption under Section 162(m) of the Internal
Revenue Code of 1986, and to make other changes necessary
to facilitate the administration of awards under the Plan
was approved by the following vote:
Votes For Votes Against Votes Withheld
---------- ------------- --------------
38,528,563 741,489 192,074
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
(11) Computation of Earnings (Loss) per Common Share
(27) Financial Data Schedule
(99) McKesson Corporation 1994 Stock Option and Restricted
Stock Plan (Amended and Restated effective July 30, 1997)
(b) Reports on Form 8-K
The Registrant filed the following reports on Form 8-K, or
amendments to previously filed reports on Form 8-K, during the
three months ended June 30, 1997:
1. Form 8-K/A Amendment No. 2
Date of Report: November 22, 1996
Date Filed: April 28, 1997
Item 7. Financial Statements, Pro Forma Financial
Information and Exhibits
---------------------------------------------------
The Registrant filed the financial statements and pro
forma financial information related to its acquisition of
the healthcare distribution business of FoxMeyer
Corporation.
2. Form 8-K
Date of Report: March 31, 1997
Date Filed: April 7, 1997
Item 2. Acquisition or Disposition of Assets
---------------------------------------------
The Registrant reported that it had completed the sale of
Millbrook Distribution Services, Inc.
Item 7(c). Exhibits
--------------------
Press Release dated April 2, 1997.
3. Form 8-K
Date of Report: May 30, 1997
Date Filed: June 24, 1997
Item 5. Other Events
---------------------
On May 30, 1997, the Registrant amended and restated its
By-Laws.
Item 7(c). Exhibits
--------------------
Restated By-Laws of the Registrant, as amended through
May 30, 1997.
- 15 -
<PAGE>
PART II. OTHER INFORMATION
===========================
4. Form 8-K
Date of Report: June 11, 1997
Date Filed: June 13, 1997
Item 5. Other Events
---------------------
On June 11, 1997 the Registrant executed an Underwriting
Agreement in connection with the previously announced
secondary offering of 2,791,738 shares of its common
stock, par value $.01 per share, on behalf of certain
selling stockholders. This report was filed in
connection with the resale of those shares under the
Registrant's shelf registration statement on Form S-3,
declared effective on June 9, 1997.
Item 7(c). Exhibits
--------------------
Underwriting Agreement dated June 11, 1997 by and among
Registrant, Morgan Stanley & Co. Incorporated and the
Selling Stockholders named therein.
- 16 -
<PAGE>
SIGNATURE
S I G N A T U R E
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
McKESSON CORPORATION
(Registrant)
Dated: August 13, 1997 By /s/ Richard H. Hawkins
----------------------------
Richard H. Hawkins
Vice President and
Chief Financial Officer
By /s/ Heidi E. Yodowitz
----------------------------
Heidi E. Yodowitz
Controller
- 17 -
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------------------------------------------
(11) Computation of Earnings (Loss) per Common Share
(27) Financial Data Schedule
(99) McKesson Corporation 1994 Stock Option and
Restricted Stock Plan (Amended and Restated
effective July 30, 1997)
- 18 -
Exhibit (11)
McKESSON CORPORATION
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
(unaudited)
(in millions except per share amounts)
Three Months Ended
June 30
-------------------
1997 1996
------ ------
FULLY DILUTED EARNINGS (LOSS) PER SHARE
Income (loss) after taxes from
continuing operations $ 37.6 $(21.4)
Dividends on preferred securities
of subsidiary trust 1.6 -
Income from discontinued operations - 3.3
----- -----
Total $ 39.2 $(18.1)
===== =====
Fully diluted shares
Common shares outstanding(1) 47.7 43.8
Convertible preferred securities - dilutive 2.7 -
----- -----
Total 50.4 43.8
===== =====
Fully diluted earnings (loss) per share
Continuing operations $ 0.78 $(0.49)
Discontinued operations - 0.08
----- -----
Total $ 0.78 $(0.41)
===== =====
PRIMARY EARNINGS (LOSS) PER SHARE
Income (loss) after taxes
Continuing operations $ 37.6 $(21.4)
Discontinued operations - 3.3
----- -----
Total $ 37.6 $(18.1)
===== =====
Primary shares
Common shares outstanding(1) 47.6 43.8
===== =====
Primary earnings (loss) per share
Continuing operations $ 0.79 $(0.49)
Discontinued operations - 0.08
----- -----
Total $ 0.79 $(0.41)
===== =====
(1) Common shares outstanding have been computed by adding the
monthly averages (beginning of the month plus end of the month
divided by 2), dividing the aggregate by 3 and, in the
calculation for the three months ended June 30, 1997,
adjusting this total for dilutive stock options using the
treasury stock method. The calculations for the three months
ended June 30, 1996, exclude stock options which were
anti-dilutive due to the net loss incurred for the period.
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<CIK> 0000927653
<NAME> MCKESSON
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 76,800
<SECURITIES> 95,900
<RECEIVABLES> 1,294,300
<ALLOWANCES> 46,300
<INVENTORY> 2,116,900
<CURRENT-ASSETS> 3,588,200
<PP&E> 796,100
<DEPRECIATION> 418,400
<TOTAL-ASSETS> 5,018,100
<CURRENT-LIABILITIES> 2,463,400
<BONDS> 807,700
0
0
<COMMON> 400
<OTHER-SE> 1,294,800
<TOTAL-LIABILITY-AND-EQUITY> 5,018,100
<SALES> 4,342,700
<TOTAL-REVENUES> 4,342,700
<CGS> 3,977,900
<TOTAL-COSTS> 4,279,500
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,800
<INTEREST-EXPENSE> 23,100
<INCOME-PRETAX> 63,200
<INCOME-TAX> 24,000
<INCOME-CONTINUING> 37,600
<DISCONTINUED> 0
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<NET-INCOME> 37,600
<EPS-PRIMARY> 0.79
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</TABLE>
Exhibit (99)
MCKESSON CORPORATION
1994 STOCK OPTION AND RESTRICTED STOCK PLAN
(Amended and Restated effective July 30, 1997)
1. Establishment, Purpose and Definitions.
(a) There is hereby adopted the McKesson Corporation
1994 Stock Option and Restricted Stock Plan (the "Plan"). The Plan
shall be the successor to the McKesson Corporation 1988 Restricted
Stock Plan and the McKesson Corporation 1978 Stock Option Plan
(collectively, the "Predecessor Plans") with respect to those
awards under the Predecessor Plans which will be equitably adjusted
to become awards under the Plan ("Adjusted Awards"), all in
connection with the restructuring of McKesson Corporation, a
Delaware corporation ("Old McKesson"), that will result in the sale
of Old McKesson's PCS business to Eli Lilly and Company (the
"Transaction"). In connection with the Transaction, SP Ventures,
Inc. shall be renamed McKesson Corporation (both of such entities
being referred to herein as the "Company", in each case as the
context so requires) and the Plan shall be renamed the McKesson
Corporation 1994 Stock Option and Restricted Stock Plan.
(b) The purpose of this Plan is to provide a means
whereby key executives of the Company and its affiliates may be
given an opportunity to purchase shares of the common stock ($0.01
par value) of the Company (the "Stock") pursuant to options which
may or may not qualify as "incentive stock options" under Section
422 of the Internal Revenue Code, as amended (the "Code"), and by
providing participants with grants of restricted shares of Stock
("Restricted Stock") in accordance with the terms and conditions
set forth herein. Until July 30, 1997, the Plan also provided for
grants of options to members of the Board of Directors of the
Company who were not employed as regular salaried officers or
employees of the Company or its affiliates ("Non-Employee
Directors"). On that date, the stockholders approved the Non-
Employee Directors' Equity Compensation and Deferral Plan (the
"1997 Plan"), and all grants of options to Non-Employee Directors
from that date forward will be made under the 1997 Plan. All
options previously granted to Non-Employee Directors under this
Plan will continue to be governed by the terms and conditions in
effect at the time of the grant of such options.
2. Stock Subject to the Plan.
(a) The aggregate number of shares of Stock available
for the grant of awards hereunder shall equal the sum of (a) the
number of shares of Stock issuable in connection with Adjusted
Awards, plus (b) 4,900,000 (all such shares shall be subject to
equitable adjustment as provided herein). With respect to the
shares of Stock referred to in clause (b) above (the "Future Award
Shares") no more than 1,100,000 shares may be awarded as Restricted
Stock (subject to equitable adjustment as provided herein). The
maximum number of Future Award Shares that may be granted to any
individual during any plan year in the form of Restricted Stock
shall not exceed 20,000 and the maximum number of Future Award
Shares that may be granted to any individual in the form of options
during any plan year shall not exceed 300,000; in each case, such
maximum number shall be subject to equitable adjustment as provided
herein. All awards of Future Award Shares shall be contingent on
the approval of the Plan by the stockholders of the Company at its
first annual meeting of stockholders next following consummation of
the Transaction.
As the Committee (as hereinafter defined) may determine
from time to time, the Stock may consist either in whole or in part
of shares of authorized but unissued Stock, or shares of authorized
and issued Stock reacquired by the Company and held in its
treasury. If an option covered by Future Award Shares is
surrendered for cash or for any other reason (except surrender for
shares of Stock) ceases to be exercisable in whole or in part, the
shares which were subject to such option but as to which the option
had not been exercised shall continue to be available for grants of
stock options under the Plan. If any shares of Stock underlying
Restricted Stock grants which are covered by Future Award Shares
shall be reacquired by the Company pursuant to the termination
provisions described herein or in the instruments evidencing the
making of such Restricted Stock grants, such shares shall again be
available for grant of Restricted Stock awards under the Plan (to
the extent permitted under Rule 16b-3 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). Prior to the
granting of awards, the Company shall be under no obligation to
reserve or retain in its treasury any particular number of shares
of Stock at any time, and no particular shares of Stock, whether
issued or held as treasury Stock, shall be identified as being
available for future awards under the Plan.
(b) In the case of options which are intended to qualify
as "incentive stock options" under Section 422 of the Code, the
aggregate fair market value (determined as of the time the option
is granted) of the Stock with respect to which incentive stock
options are exercisable for the first time by any eligible key
executive during any calendar year (under this Plan and any other
plans of the Company) shall not exceed $100,000.
(c) In the event that the Committee shall determine that
any dividend or other distribution (whether in the form of cash,
stock, or other property), recapitalization, stock split, reverse
stock split, reorganization, merger, consolidation, spin-off,
combination, repurchase, or share exchange, or other similar
corporate transaction or event, affects the Stock such that an
adjustment is appropriate in order to preserve (but not increase)
the rights of participants under the Plan, then the Committee shall
make such equitable changes or adjustments as it deems necessary or
appropriate to any or all of (i) the number and kind of shares
which may thereafter be issued in connection with Future Award
Shares (with respect to both Restricted Stock and option awards),
(ii) the number and kind of shares issued in respect of outstanding
Adjusted Awards, (iii) the number and kind of shares issued in
respect of outstanding awards of Future Award Shares, and (iv) the
exercise price relating to any options.
3. Eligibility.
Persons who shall be eligible to have granted to them
awards provided for by the Plan shall be such key executives of the
Company and its affiliates as the Committee, in its sole
discretion, shall designate from time to time.
4. Administration of the Plan.
(a) The Plan shall be administered by a committee (the
"Committee") consisting of not less than two directors of the
Company to be appointed by the Board, each of whom is an "outside
director" within the meaning of Section 162(m) of the Code and a
"non-employee director" within the meaning of Rule 16b-3 under the
Exchange Act.
(b) The Committee may from time to time determine which
key executives of the Company and its affiliates shall be granted
awards under the Plan, the terms thereof, and the number of shares
covered by an option or the number of shares of Restricted Stock to
be granted.
(c) The Committee shall have the sole authority, in its
absolute discretion, to adopt, amend, and rescind such rules and
regulations as, in its opinion, may be advisable in the
administration of the Plan, to construe and interpret the Plan, the
rules and regulations, and the instruments evidencing awards
granted under the Plan and to make all other determinations deemed
necessary or advisable for the administration of the Plan. All
decisions, determinations, and interpretations of the Committee
shall be final and binding on all participants and other interested
parties.
5. Stock Options and Stock Appreciation Rights.
(a) The Option Price.
The exercise price of each option shall not be less than
the fair market value of the Stock covered by such option on the
date the option is granted, except that the option price associated
with Adjusted Awards shall be such price as results from the
equitable adjustment of such awards. Such fair market value shall,
if the Stock is not listed or admitted to trading on a stock
exchange, be the mean between the lowest reported bid price and
highest reported asked price of the Stock on the date the option is
granted in the over-the-counter market, as reported by any
publication of general circulation selected by the Company which
regularly reports the market price of the Stock in such market, or,
if the Stock is then listed or admitted to trading on any stock
exchange, the composite closing price on such day as reported in
the Wall Street Journal; provided, however, that if the Committee
determines that as a result of the Transaction fair market value
may be more accurately determined based on the average closing
price of the Stock over a three-consecutive-day period immediately
prior to the grant, then such average will constitute fair market
value. Such price shall be subject to adjustment as provided in
paragraph 2(c) hereof.
(b) Terms and Conditions of Options.
(i) Each option granted pursuant to the Plan shall
be evidenced by a written grant agreement (the "Agreement")
executed by the Company and the person to whom such option is
granted which shall provide such terms and conditions as the
Committee may determine, in its sole discretion.
(ii) Unless otherwise provided in the Agreement, the
term of each option shall be for no more than ten years and three
months; provided however that the term of each option intended to
qualify as an "incentive stock option" shall be for no more than
ten years.
(iii) The Agreement may contain such other
terms, provisions, and conditions as may be determined by the
Committee (not inconsistent with this Plan) including, without
limitation, provisions relating to stock appreciation rights
("SARs") with respect to options granted hereunder. Unless
otherwise provided in the Agreement, the Committee may, in its sole
discretion, extend the post-termination exercise period with
respect to an option (but not beyond the original term of such
option). If an option, or any part thereof, is intended to qualify
as an "incentive stock option", the Agreement shall contain those
terms and conditions necessary to so qualify said option or such
part thereof.
(iv) The Committee shall have the authority to
accelerate the exercisability of any outstanding option at such
time and under such circumstances as it, in its sole discretion,
deems appropriate.
(v) Adjusted Awards shall remain subject to the
same terms and conditions to which they were subject prior to any
equitable adjustment made in respect of the Transaction.
(c) Stock Appreciation Rights.
The Committee may, under such terms and conditions as it
deems appropriate, authorize the surrender by an optionee of all or
part of an unexercised option and authorize a payment in
consideration thereof of an amount equal to the difference obtained
by subtracting the option price of the shares then subject to
exercise under such option from the fair market value of the Stock
represented by such shares on the date of surrender, provided that
the Committee determines that such settlement is consistent with
the purpose of the Plan. Such payment may be made in shares of
Stock valued at their fair market value on the date of surrender of
such option or in cash, or partly in shares and partly in cash.
Acceptance of such surrender and the manner of payment shall be in
the discretion of the Committee. If an option is surrendered for
cash, the shares covered by the surrendered option will thereafter
be available for grant under the Plan to the extent permitted under
Rule 16b-3 of the Exchange Act.
(d) Use of Proceeds.
Proceeds realized from the sale of Stock pursuant to
options granted under the Plan shall constitute general funds of
the Company.
6. Restricted Stock Awards.
(a) Terms and Conditions.
Each Restricted Stock grant made pursuant to the Plan
shall be evidenced by an Agreement executed by the Company and the
person to whom such Restricted Stock is granted (the "Grantee").
Each Restricted Stock grant made under the Plan shall, unless
otherwise provided in the Agreement, contain the following terms,
conditions and restrictions and such additional terms, conditions
and restrictions as may be determined by the Committee. Adjusted
Awards shall maintain the same terms and conditions to which they
were subject prior to any equitable adjustment made in respect of
the Transaction.
(b) Restrictions.
Until the restrictions imposed on any Restricted Stock
grant shall lapse, shares of Stock granted to a participant
pursuant to a Restricted Stock grant:
(i) shall not be sold, assigned, transferred,
pledged, hypothecated, or otherwise disposed of, and
(ii) shall, if the Grantee's continuous employment
with the Company shall terminate for any reason, unless otherwise
provided in the Agreement, be returned to the Company forthwith,
and all the rights of the Grantee to such shares shall immediately
terminate; provided that if the Committee, in its sole discretion,
shall within ninety (90) days of such termination of employment,
notify the participant in writing of its decision not to terminate
the Grantee's rights in such shares, then the Grantee shall
continue to be the owner of such shares subject to such continuing
restrictions as the Committee may prescribe in such notice. If the
Grantee's interests in the shares granted pursuant to a Restricted
Stock grant shall be terminated, such Grantee shall forthwith
deliver or cause to be delivered to the Secretary of the Company
the certificate(s), if any, previously delivered to the Grantee for
such shares, accompanied by such endorsement(s) and/or
instrument(s) of transfer as may be required by the Secretary of
the Company.
(c) Lapse of Restrictions.
Except as otherwise provided in the Plan or the
Agreement, the restrictions imposed on any Restricted Stock grant
shall commence with the date of the grant and continue during a
period set by the Committee. Notwithstanding the foregoing, the
Committee may accelerate the lapsing of restrictions on a
Restricted Stock grant under such terms and conditions as it may
deem appropriate.
(d) Restrictive Legend; Certificates May be Held in
Custody.
Each certificate evidencing shares granted pursuant to a
Restricted Stock grant may bear an appropriate legend referring to
the terms, conditions and restrictions described in the Plan and in
the instrument evidencing the Restricted Stock grant. Any attempt
to dispose of such shares in contravention of such terms,
conditions and restrictions shall be invalid. The Committee may
enact rules which provide that the certificates evidencing such
shares may be held in custody by a bank or other institution, or
that the Company may itself hold such shares in custody, until
restriction thereon shall have lapsed.
(e) Restrictions upon Making of Restricted Stock Grants.
The registration or qualification under any federal or
state law of any shares to be granted pursuant to Restricted Stock
grants or the resale or other disposition of any such shares by or
on behalf of the Grantees receiving such shares may be necessary or
desirable as a condition of or in connection with such Restricted
Stock grants, and, in any such event, if the Committee in its sole
discretion so determines, delivery of the certificates for such
shares shall not be made until such registration or qualification
shall have been completed.
(f) Special Provisions Regarding Awards.
Notwithstanding anything to the contrary contained
herein, unless otherwise provided in the Agreement governing a
Restricted Stock grant, Restricted Stock awards granted pursuant to
this Section 6 to Executive Officers (as such term is defined in
Rule 3b-7 promulgated under the Exchange Act) shall be based on the
attainment by the Company (or a subsidiary or division of the
Company if applicable) of performance goals pre-established by the
Committee, during a performance period pre-established by the
Committee, based on one or more of the following criteria:
(i) the attainment of a specified percentage return on total
capital employed by the Company (or a subsidiary or division of the
Company); (ii) the attainment of a specified percentage return on
total stockholder equity of the Company; (iii) the attainment of a
specified percentage increase in earnings per share of Stock from
continuing operations; (iv) the attainment of a specified
percentage increase in net income of the Company; (v) the
attainment of a specified percentage increase in profit before
taxation of the Company (or a subsidiary or division of the
Company); and
(vi) the attainment of a specified percentage increase in revenues
of the Company (or a subsidiary or division of the Company). In
addition, such performance goals may be based upon the attainment
of specified levels of Company performance under one or more of the
measures described above relative to the performance of other
corporations.
Each such performance criteria shall be evaluated in
accordance with generally accepted accounting principles. Such
shares of Restricted Stock shall be released from restrictions only
after the attainment of such performance measures have been
certified by the Committee.
7. Change in Control.
Upon a Change in Control (as hereinafter defined), then
notwithstanding anything herein to the contrary, all options
granted under the Plan that are outstanding at the time of such
Change in Control shall become immediately exercisable in full and
all restrictions with respect to shares of Restricted Stock shall
lapse and such shares shall become fully vested and exercisable.
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 corporation owned, directly
or indirectly, by stockholders of the Company in substantially the
same proportions as their ownership of the Company, is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company
representing 30% or more of the combined voting power of the
Company's then outstanding securities; or
(ii) during any period of not more than two
consecutive years, individuals who at the beginning of such period
constitute the Board and any new director (other than a director
designated by a Person who has entered into an agreement with the
Company to effect a transaction described in clause (i), (iii) or
(iv) of this paragraph) whose election by the Board or nomination
for election by the Company's stockholders was approved by a vote
of at least two-thirds (2/3) of the directors then still in office
who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved,
cease for any reason to constitute a majority thereof; or
(iii) the shareholders of the Company approve a
merger or consolidation of the Company with any other corporation,
other than (A) a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or
by being converted into voting securities of the surviving entity),
in combination with the ownership of any trustee or other fiduciary
holding securities under an employee benefit plan of the Company,
at least 50% of the combined voting power of the voting securities
of the Company or such surviving entity outstanding immediately
after such merger or consolidation, or (B) a merger or
consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no person acquires more
than 50% of the combined voting power of the Company's then
outstanding securities; or
(iv) the shareholders of the Company approve a plan
of complete liquidation of the Company or an agreement for the sale
or disposition by the Company of all or substantially all of the
Company's assets.
Notwithstanding the foregoing, no Change in Control shall
be deemed to have occurred if there is consummated any transaction
or series of integrated transactions immediately following which
the holders of the Stock immediately prior to such transaction or
series of transactions continue to have the same proportionate
ownership in an entity which owns all or substantially all of the
assets of the Company immediately prior to such transaction or
series of transactions.
8. Amendment and Termination of the Plan.
The Board at any time and from time to time may suspend,
terminate, modify or amend the Plan; provided, however, that an
amendment which requires stockholder approval in order for the Plan
to continue to comply with Section 162(m) of the Code or any other
law, regulation or stock exchange requirement shall not be
effective unless approved by the requisite vote of stockholders.
No suspension, termination, modification or amendment of the Plan
may adversely affect any award previously granted without the
written consent of the Grantee.
9. Assignability.
Each option award granted pursuant to this Plan shall,
during the participant's lifetime, be exercisable only by him. No
award nor any right thereunder shall be transferable by the
participant by operation of law or otherwise other than by will,
the laws of descent and distribution or pursuant to a qualified
domestic relations order as defined in the Code or the Employee
Retirement Income Security Act of 1974, as amended.
10. Payment Upon Exercise.
Payment of the purchase price upon exercise of any option
granted under this Plan shall be made in cash; provided that the
Committee, in its sole discretion, may permit an option holder to
pay the option price, in whole or in part, by tendering to the
Company shares of Stock owned by the option holder, and having a
fair market value equal to the option price. The fair market value
of such Stock shall be determined by the Committee as it deems
appropriate, or as may be required in order to comply with any
applicable law or regulation.
11. Effective Date and Duration of the Plan.
The Plan shall become effective upon its adoption by the
Board and the approval thereof by Old McKesson as the sole
stockholder of the Company; provided, however, that the
effectiveness of the Plan shall be contingent upon the occurrence
of the Transaction and all awards of Future Award Shares shall be
contingent on the approval of the Plan by the stockholders of the
Company at its first annual meeting of stockholders. Unless sooner
terminated, the Plan shall remain in effect until terminated by
action of the Board, provided, however, that the duration of the
Plan shall in no event exceed ten years from the date of the
adoption of the Plan by the Board. Termination of the Plan shall
not affect any awards previously granted pursuant thereto, which
shall remain in effect until their restrictions shall have lapsed
(with respect to Restricted Stock grants) or until exercised (with
respect to option grants) all in accordance with their terms.
12. Agreement by Participant Regarding Withholding Taxes.
If the Committee shall so require, as a condition of
exercise of an option or SAR or upon the lapsing of restrictions
imposed on Restricted Stock (each a "Tax Event"), each participant
shall agree that no later than the date of the Tax Event, the
participant will pay to the Company or make arrangements
satisfactory to the Committee regarding payment of any federal,
state or local taxes of any kind required by law to be withheld
upon the Tax Event. Alternatively, the Committee may provide, in
its sole discretion, that a participant may elect, to the extent
permitted or required by law, to have the Company deduct federal,
state and local taxes of any kind required by law to be withheld
upon the Tax Event from any payment of any kind due to the
participant, including withholding of Shares.
13. Rights as a Shareholder.
A participant granted an award hereunder or a transferee
of an award shall have no rights as a stockholder with respect to
any shares covered by the award until the date of the issuance of
a stock certificate to him for such shares. No adjustment shall be
made for dividends (ordinary or extraordinary, whether in cash,
securities or other property) or distribution of other rights for
which the record date is prior to the date such stock certificate
is issued, except as otherwise provided in the Plan.
14. No Rights to Employment.
Nothing in the Plan or in any award granted or Agreement
entered into pursuant hereto shall confer upon any participant the
right to continue in the employ of, or in an independent contractor
relationship with, the Company or any subsidiary or to be entitled
to any remuneration or benefits not set forth in the Plan or such
Agreement or to interfere with or limit in any way the right of the
Company or any such subsidiary to terminate such participant's
employment. Awards granted under the Plan shall not be affected by
any change in duties or position of a participant as long as such
participant continues to be employed by, or in a consultant
relationship with, the Company or any subsidiary.
15. Interpretation.
The Plan is designed and intended to comply with Rule
16b-3 promulgated under the Exchange Act and Section 162(m) of the
Code and all provisions hereof shall be construed in a manner to so
comply.
